(5orn?ll ICam irliool Hibtaty cornel, oniversitv Library 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/cu31924019341506 CASES ON PRIVATE CORPORATIONS ARRANGED FOR USE AS A TEXT-BOOK G M.'CDMMI.NG PKOFESSOa OF LAW IN COLaUBIA COLLESB VOLUME I ST. PAUL, MINN. WEST PUBLISHING CO. 1894 ^^j/^m The compiler is under great obligations to Professor Jeremiah Smith and Professor James Barr Ames, of Harvard University, for their generous assistance in placing their lists of cases on corporations at his service. CoLtiMBiA College, May, 1892. CONTENTS. PART FIRST. THE BODY COEPOEATE. CHAPTER I. Nature op a Corporation. ^ Thomas v. Dakin, 22 Wend. 9 1 ^ Warner v. Beers > ; , , .„ ^ o , , oi f 23 Wend. 103 ... .5 ^ Bolander u. Stevens S . Conservators of River Tone v. Ash, 10 Barn. & Cress. 349 23 Liverpoollns. Co. w. Mass., 77 U. S. 566 . . 26 .Queen y. Arnaud, 16 L. J. N. s. C. L. 50 30 >=-Wi]liamson v. Smoot, 7 Martin (La.) 34 32 Tomlinson v. Bricklayers' Union, 37 Ind. 308 83 Wheelock v. Moulton, 15 Vt, 519 35 — Buttons-. Hoffman, 61 Wis. 20 . . 38 CHAPTER ir. Creation and Citizenship of a Corporation. Franklin Bridge Co. v. Wood, 14 Ga. 80 42 Railroad Co. v. Harris, 12 Wall 46 Muller V. Dows,^94 U. S. 444 53 Stout V. R. R. Co., 3 McCrary 1 61 State V. Dawson, 16 Ind. 40 65 Newcomb v. Reed, 12 Allen 362 ... . 67 Montgomery v. Forbes, 148 Mass. 249 69 VI CONTENTS. CHAPTER m. Powers and Liabilities of a Corporation in respect of the Acquisition and Conveyance of Real Property. tiOZ Nicoll V. R. R. Co., 12 N. Y. 121 73 Page V. Heineberg, 40 Vt. 81 76 White V. Howard, 38 Conn. 342 81 Leazure v. Hillegas, 7 Serg. & R. 813 85 Hough V. Land Co., 73 111. 23 90 National Bank v. Matthews, 98 U. S. 621 95 National Bank v. Whitney, 103 U. S. 99 102 Case V. Kelly, 133 U. S. 21 . 106 CHAPTER IV. Powers and Liabilities of a Corporation in respect of the form OP Contracts. Bank of Columbia v. Patterson's Admr., 76 Cranch 299 112 Topping V Bickford, 4 Allen 120 ... 118 Goodwin u. Union Screw Co., 34 N. H. 378 119 Pixley V. R. -R. Co., 33 Cal. 183 121 Royal Bank v. R. R. Co., 100 Mass. 444 131 ^Whiteu. R. R. Co.,21How. (U. S.) 575 133 CHAPTER V. Powers and Liabilities op a Corporation in respect of Contracts IN General. Colman v. Eastern Counties Ry. Co., 10 Beavan 1 136 East Anglian Rys. Co. v. Eastern Counties Ry. Co., 11 C. B. 775 . . 142 Pearce v. R. R. Cos., 21 How. (U. S.) 441 .' . 146 Downing v. Mt. Washington Road Co., 40 N H. 230 148 Ashbury Company v. Riche, L. R. 7 H. L. 653 , 152 Thomas v. R. R. Co., 101 U. S. 71 164 Davis u R. R. Co >,„, ,, o n r. r 131 Mass. 2o8 , ... 17,S • bame v. Oi'gan (Jo. k ^' -' Bissell t). R. R. Cos., 22 N.Y. 259 187 State Board of Agriculture v. Ry. Co., 47 Ind. 407 222 Insurance Company v. McClelland, 9 Colo. 11 227 White V. Franklin Bank, 22 Pick. 181 239 Northwestern Packet Co. o. Shaw, 37 Wis. 655 245 Bradley v. Ballard, 55 111. 413 . . ' . . 249 Whitney Arms Co. v. Barlow, 63 N. Y. 62 ...... _' ' ' ' 253 . Slater Woollen Co. v. Lamb, 14-S Mass. 420 ......'' ' ggQ Day V. Spiral Springs Buggy Co., 57 Mich. 146 •....' 261 CONTENTS. VU PAGE Tn re Cork & Youghal Ry. Co L. R. 4 Ch. App. 748 265 fn re National Building Society, L. R. 5 Ch. App. 309 274 Wenlock v. River Dee Co , L. R. 19 Q. B. Div. 155 ...... . 277 Am. Union Tel. Co. v. Union Pacific Ry. Co., 1 McCrary 188 . . . . 284 Bank ». Niles, Walker (Mich.) 99 ... 291 Nassau Bank v. Jones, 95 N. Y. 115 293 Stourbridge Canal Co. v. Wheeley, 2 Barn. & Adol. 792 298 CHAPTER VI. PowEKS AND Liabilities of a Corporation in respect of Borrowing Money and Issuing Negotiable Instruments. Union Bank w. Jacobs, 6 Humph. (Tenn.) 515 302 Bateman v. Ry. Co. \ Discount Co. v. Same [■ L. R. 1 Con. PI. 499 312 Overend, Gurney & Co. v. Same ) .Monument Nat. Bank v. Globe Works, 101 Mass. 57 315 Nat. Park Bank v. Ger. Am. Co., 116 N. Y. 281 318 CHAPTER VII. Powers and Liabilities of a Corporation in respect of Mortgaging its Property. /nrePatent File Co., L. R. 6 Ch. App. 83 322 Jones V. Guaranty Co., 101 U. S. 622 326 Comm. ... Smith, 10 Allen 448 331 Hendee v. Pinkerton, 14 Allen 381 336 CHAPTER VIII. Powers and Liabilities of a Corporation. In respect of Holding Stock in another Corporation. Franklin Co. v. Institution for Saving.^, 68 Me. 43 Franklin Bank v. Commercial Bank, 36 Ohio St. 350 Milbanku. R. R. Co., 62 How. Pr. (N. Y.) 20 . . In re Asiatic Banking Corp., L. R. 4 Ch. App. 2-52 . First Nat. Bank v. Nat. Exch. Bank, 92 U. S. 122 . 343 348 353 359 368 ^CHAPTER TX. Powers and Liabilities of a Corporation. In respect of Holding ITS OWN Stock. Railroad Co. v. Marseilles, 84 III. 145 374 Clapp V. Peterson, 104 111. 26 380 Trevor v. Whitworth, L. R. 12 App. Cas. 409 384 Coppiilu. Greenless Co., 38 Ohio St. 275 393 Nat. Bank ». Stewart, 107 U. S. 676 397 VIU CONTENTS. CHAPTER X. Powers and Liabilities of a Corporation. In rkspect of Partner- ship AND THE Effect of Irregular Incorporation. PAGE Whittenton Mills v. Upton, 10 Gray 582 .......... 899 Methodist Chui-ch v. Pickett, 19 N. Y. 482 407 Railroad Co. v. Cary, 26 N. Y. 75 411 J^Ieastonu. R.R. Co., leiiid. 275 417 Dooley J). Cheshire Glass Co., 15 Gray 494 ■ 418 Bank v. McDonald, 130 Mass. 264 420 Fay V. Noble, 7 Cush. 188 420 CHAPTER XI. Powers and Liabilities of a Corporation. FOR Torts. In respect of Liability ■ Yarborough v. Bank of England, 16 East 6 . . •Maund u. Canal Co., 4 Man. & Gr. 452 ... . -Chestnut Hill Turnpike Co. v. Rutter, 4 S. & R. 6 Railway Co. v. Broom, 6 Exch. 314 Green v. Omnibus Co., 7 Com. Bench N. S. 290 . Goodspeed v. Bank, 22 Conn. 530 Railroad Co. v. Quigley, 21 How. (U. S.) 202 426 429 431 434 440 443 453 CHAPTER XIL Dissolution of a Corporation. Mumraa v. Potomac Co., 8 Pet. 281 459 Thornton v. Ry. Co., 123 Mass. 32 462 Foster v. Essex Bank, 16 Mass. 245 464 Bacon J'. Robertson, 18 How. (U. S.) 480 468 Titcomb u. Insurance Co., 79 Me. 315 476 Boston Glass Mfy. v. Mary Langdon, 24 Pick. 49 478 Heard v. Talbot, 7 Gray 113 482 Hardon u. Newton, 14 Blatchf. 376 . 487 CHAPTER XIIL Thb: Corporation and the State. Lkgislative Control under the Constitution. Dartmouth College v. Woodward, 4 Wheat. 517 490 Charles River Bridge v. Warren Bridge, 11 Pet. 420 506 Thorpe V. R. R. Co., 27 Vt. 140 521 Beer Co. u. Mass., 97 U. S. 25 533 Railway Co. v. Lackey, 78 111. 55 537 CONTENTS. ix PAGE Greenwood v. Freight Co., 105 U. S. 13 538 Comm. V. Eastern R.R. Co. ) Keaue o. Same [ ^^^ ^^^^^- -^* ^*^ Comm. V. Essex Co., 13 Gray 239 550 Detroit «. Plank Road Co., 43 Mich. 140 560 CHAPTER XIV. The Corporation and the State. Rkmediks of the State for Unauthorized Acts. State «. Building Assn., 35 Ohio St. 258 566 People V. North River Sugar Ref. Co., 121 N. Y 582 570 Atty.-Geni. t,. Tudor Ice Co., 104 Mass. 239 585 Atty.-Genl. v. Aqueduct Corporation, 133 Mass. 361 58J State y. Turnpike, 15 N. H. 162 593 People V. Bank, 24 Wendell 431 597 Comm. V. Insurance Co., 5 Mass. 230 599 PART SECOND. STOCKHOLDERS AND CREDITORS OF A CORPORATION. CHAPTER XV. Shares of Stock and the Transfer of Stock. Humble w. Mitchell, 11 Ad. & EI. 205 602 Tisdale v. Harris, 20 Pick. 9 604 Johnson v. Laflin, 5 Dillon 65 608 McNeil y. Bank, 46 N. Y, 325 620 Colonial Bank v. Cady ? t t^ . - . ^ Bank of Australia y. Same I L.R. 15 App. Gas. 267 629 Telegraph Co. v. Davenport, 97 U. S. 369 643 East Birmingham L. Co. v. Dennis, 85 Ala. 565 647 Boston Music H. Assn. v. Cory, 129 Mass. 435 650 Pinkerton u. K. R. Co., 42 N. H 424 652 Sprague w. Cocheco Mfg. Co., 10 Blatchf. 172 661 Fisher v. Essex Bank, 5 Gray 373 . . . ' 664 Black V. Zacharie, 3 How. (U. S ) 482 671 Scripture v Soapstone Co , 50 N. H. 571 677 Broadway Bank v. McElrath, 13 N J. Eq 24 . . . . . 683 Scott u Bank, 21 Blatchf 203 . . . 687 CONTENTS. CHAPTER XVI. Rights of Stockholders coxckrning thr Management of THE Corporation. Eq, Foss V. Harbottle, 2 Hare, 461 .... Macdougall v. Gardiner, L. R. 1 Ch. D. 13 Forrest v. Ry. Co., 4 De G. F. & J. 125 . Atwool V. Merryweather, L. R. 5 Eq. 464, n Menier v. Hooper'.s Tel. Works, L. R. 9 Ch Russell V. Wakefield W. W. Co., L. R. 20 Mason v. Harris, L. R. 11 Ch. D. 97 . Dodge V. Woolsey, 18 How. U. S. 331 Railway Co:' v Allerton, 18 Wall. 233 Davenport M. Dows, 18 Wall. 626 . . Hawes v. bakland, 104 U. S. 450 . . Dimpfell v. Ry. Co., 110 U. S. 209 . Dudley v. Kentucky H. School, 9 Bush (Ky Dunphy v. Traveller Assn 146 Mass. 49 Durfee v. R. R Co., 5 Allen 230 . . Zabriskie v. R. R. Co., 18 N. J. Eq. 178 Smith V. Hurd, 12 Met. (Mass.) 371 . Peabody v. Flint, 6 Allen 52 ... . Spering's Appeal, 71 Pa. St. 11 . . . App. 474 )576 350 693 704 713 717 722 725 731 739 752 754 756 785 767 769 773 781 792 795 799 CHAPTER XVII. Liabilities of Stockholders : in General. Wood V. Dummer, 3 Mason 308 805 Ogilview. Knoxins. Co., 22 How. (U. S.) 380 814 Sawyer u. Hoag, 17 Wall. 610 818 Upton V. Tribilcock, 91 U. S. 45 824 Hatch V. Dana, 101 U. S 205 832 Hawley v. Upton, 102 U. S. 314 838 Flinn v Bagley, 7 Fed. Rep. 785 841 Coit V. Gold Amal. Co., 119 U. S. 343 847 First Nat. Bank v. Gustin Mpr Co., 42 Minn. 327 850 Handley v. Stutz, 139 U. S. 417 . 855 Elyton Land Co. u. Elevator Co., 9 So. Rep. 129 870 Hospes u. Car Co., 50 N. W Rep. 1117 885 ^Hartford R, R. Co. v. Croswell, 5 Hill (N. Y.) 383 .' 894 , Kenosha R. R. Co v. Marsh, 17 Wis. 13 897 v/Ashton V. Burbank, 2 Dillon 435 902 CHAPTER XVIII. Effect of Transfer of Stock upon the Stockholders' Liability. Huddersfield Canal Co u. Buckley, 7 Term 36 . ■ g06 Middletown Bank v. Magill, 5 Conn. 28 912 CONTENTS. XI FAGE Chesley v. Pierce, 32 N. H. 388 930 Tn re Joint Stock Discount Co., Mann's Case, L. R. 3 Ch. App. 459, n. . 942 In re Mexican & South Am. Co., Hyarn's Case, 1 De G. F. & J. 75 . . 944 National Bank v. Case, 99 U. S. 628 948 Nathan v. Whitlock, 3 Edw. Ch. 215 953 Steacy v. R. R. Co., 5 Dillon 348 957 CHAPTER XIX. Effect of Irregular Incorporation upon the Stockholders' Liability. Utley V.Union Tool Co., K J gg gg^ Godtrey v. same, ) •' Indianapolis Furnace Co. v. Herkimer, 46 Ind. 142 970 Eaton V. Aspinwall, 19 N. Y. 119 975 Kaiser v. Bank, 56 Iowa, 104 977 Martin v. Fewell, 79 Mo. 401 982 Stout V. Zulick, 48 N. J. Law 599 989 CHAPTER XX. Rights of Creditors concerning the Management of the . Corporation. Mills V. Railway Co., L. R. 5 Ch. App. 621 993 In re Wincham Shipbuilding Co., f l. R. 9 Ch. Div. 322 1000 Poole, Jackson, and Whyte s Casei ) Pond V. R. R. Co., 130 Mass. 194 1005 Graham v. R. R. Co., 102 U. S. 148 1006 Curran v. State of Arkansas, 15 How. (U. S.) 304 1014 TABLE OF CJ^SES, PAGa Am. Union Tel. Co. u. U. P. Ky. Co. 284 Aslibury Co. o. Biclie 152 Ashton «. Burbank 902 Asiatic Banking Corp., In re 359 Atty.-Gen. v. Aqueduct Corp. 589 V. Tudor Ice Co. 585 Atwool V. Merry weather 717 Patterson's B. liacon V. Robertson Bank of Columbia Arlmr. Bank u. McDonald V. Niles Bateman v. Railway Co. Discount Co. v. Same Overend, Gurney & Co. u. Same Beer Co. v. Mass. Bissell V. R. R. Cos. Black w. Zacliarie Boston Glass Mfy. v. Langdon B')Ston Music H. Assn. u. Cory Bradley c. Ballard Broadway Bank v. McElrath Biittcm V. Hoffman c. Case V. Kelly diaries River Bridge v. Warren Bridge Chesley v. Pierce Cliestnut Hill Turnpike Co. -„■. Rutter Clapp V. Peterson Coit V. Gold Amal. Co. < 'oleman v. Eastern Counties Ry. Co. Colonial Bank v. Cady Bank of Australia v. Same Commonwealth v. Eastern R. R. Co. Keane v. Same I'. Essex Co, y. Insurance Co. c. Smith Conservators of River Tone o. Ash Coppin ?'. Greenless Co. Cork & Youghal IJy. Co., In re Curran v. State of Arkansas 468 112 420 291 312 312 312 583 187 671 478 650 249 683 38 106 506 936 4.31 3^0 847 l.li'i 629 029 5)6 546 551 590 331 2.3 393 265 1014 D. FAGS Dartmouth College v. Woodward 490 Davenport v. Dows 754 Davis !). R. R. Co. 173 Same v. Organ Co. 173 Day V. Spiral Springs Buggy Co, 261 Detroit i\ Plank Road Co. 560 Dimpfell v. Ry. Co. 765 Dodse V. Woolsey 739 Dooley v. Cliesliire Glass Co. 418 Downingy. Mt. Washington Road Co. 148 Dudley v. Ky. High School 767 Dunphy v. Traveller Assn. 769 Durfee v R. R. Co. 773 E. East Anglian Rvs. Co. v. Eastern t-Dounties Ry. Co. 142 East Birmingham Land Co. o. Den- nis 647 Eaton ?' Aspinwall 975 Elyton Land Co. u. Elevator Co. 870 F. Fay V Noble 420 First Nat. Hank i' Gustin Mg. Co. 850 V Nat, Exch. Bank 368 Fisher v. Essex Bank 664 Flinn v. Bagley 841 Forrest v. Ry. Co, 713 Foss y Harbottle 693 Foster r. K.osox Bank 464 Frankl'n Bulk ;■ Commercial Bank 348 Franklin Bridge To v. Wood 42 Franklin Co. v. Institution for Sav- ings 343 G. Goodspeed v. Bank 443 Goodwin v. Union Screw Co. 119 Graham r R. R. Co 1006 Green r. Omnibus Co. 440 Greenwnnd r. Freight Co. 538 XIV TABLE OF CASES. H. Handley v. Stutz Hardon v. Newton Hartford K. K. Co. v. Croswell Hatch V. Dana Hawes v. Oakland Hawley v. Upton Heard v. Talbot Heaston w. R. R. Co. Hendee v. Pinkerton Hospes V. Car Co. Hough V. Land Co. Huddersfield Canal Co. v. Buckley Humble v. Mitchell Indianapolis Furnace Co. v. Herkimer 970 Insurance Co. v. McClelland Johnson v. Laflin Joint Stock Discount Co., In re, Mann's Case Jones V. Guaranty Co. K. Kaiser v. Bank Kenoslia B. R. Co. u. Marsh L. Leazure v. Hillegas Liverpool Ins. Co. v. Mass. M. Macdougall v. Gardiner 704 McNeil V. Bank 020 Martin v. Fewell 082 Mason v. Harris 731 Maund v. Canal Co. 429 Menier v. Hooper's Tel. Works 722 Metliodist Church v. Pickett 407 Mexican &So. Am. Co. In re, Hyam's Case 944 Miiidletowri Banlf v. Magill 912 Milbank v. R. R. Co. 353 Mills V. Ry. Co. 993 Mfintgomery i-. Forbes 69 Monument Nat. Banky. Globe Works 316 Muller V. Dows 53 Murama v. Potomac Co. 459 PAGB PAGE Nat. Bank v. Matthews 9S 855 « Stewart 397 487 V. Whitney 102 894 Nat. Building Society, In re 274 832 Nat. Park Bk. v. Ger. Am. Co. 318 756 Newcomb v. Reed 67 8.38 NicoU V. R. R. Co. 73 482 Nortliwesti-rii Packet Co. v. Shaw 245 417 336 885 0. 90 906 Ogilvje V. K;iox Ins. Co. 814 602 P. Page V. Heineberg 76 Patent File Co., In re 322 970 Peabody v. Flint 795 227 Pearce v. R. R. Cos. 146 People V. Bank 597 !'. North River Sugar Eef. Co. 570 Pinkerton v. R. R. Co. 652 608 Pixley V. R. R. Co. 121 Pond V. R. R. Co. 1005 942 326 Q. Queen v. ArnaUd 30 977 R. 897 Railroad Co. v. Gary 411 46 ] 374 V. Quigley 4.53 85 Railway Co. v AUerton 762 26 r V. Broom 434 V Lackey 637 1 Royal Bank v. R. R. Co. 1-31 Russell V. Wakefield Water Works Co, 725 N. Nassau Bank v. Jones Nathan v. Whitlock Nat. Bank v. Case 293 953 948 S. Sawyer v Hoag Scott V. Bank Scripture v. Soapstone Co. Slater Woollen Co. f. Lamb Smith V. Hurd Spering's Appeal Sprague r. Cocheco Mfg. Co. State v. Building Association V. Dawfon V. Turnpike State Board of Agricult. v. Ry. Co. Steacy v. R.R. Co. Stourbridge Canal Co. v. Wheeley Stout V. R.R. Co. V. Zulick Telegraph Co. v. Davenport Thomas v. Dakin -. V. R.R. Co. 818 687 677 260 792 799 661 566 65 593 222 957 298 61 989 1 164 TABLE OF CASES. XV Thornton v. Ry. Co. Thorpe v. R. R. Co. Tisdale v. Harris Titcomb v. Insurance Co. Toiiilinson u. Bricklayers' Union ' Topping V. Biclcford Trevor v. Whitworth Trustees of Dartmouth College v. Woodward U. Union Bank v. Jacobs Upton V. Tribilcock Utley e. Union Tool Co. Godfrey v. Sanie w. Warner v. Beers Bo)ander v. Stevens PAGE 4B2 621 604 476 33 118 384 490 302 824 967 967 PAGE Wenlock v. River Dee Co. 277 Wheelock v. Moulton 85 Wliite V. Franklin Bank 239 — ^ V. Howard 81 V. R. R. Co. 133 Whitney Arms Co. v. Barlow 253 Wliittenton Mills v. Upton 399 Williamson v. Smoot 32 Wincliam Shipbuilding Co. In re 1000 Poole, Jackson & Whyte's Case 1000 Wood V. Dummer 805 Y. Yarborougli v. Bank of England 426 Zabriskie v. R. R. Co. 781 CASES ON PRIVATE CORPORATIONS. PART FIRST. THE BODY CORPORATE. CHAPTER I. NATURE OF A CORPORATION. THOMAS V. DAKIN. (22 Wend. 9. Supreme Court of New York. 1839.1) Chief Justice Nelson : — This is an action brought by the plaintiff, as president of the Bank of Central New York, an association formed under what is familiarly known as the General Banking Law, passed April 18, 1838, to recover several demands due the institution. The defendant has demurred to the declaration, and urges the un- constitutionality of the law, by way of defence ; and it is insisted, in his behalf : 1, That the associations formed under this law are cor- porations ; and 2, That a general law authorizing the creation of these bodies is inconsistent with the ninth section of the seventh article of the Constitution. On the part of the plaintiffs, it is urged in reply : 1. That the associations are not corporations; 2. That if they be, the act authorizing them may be passed by a majority bill; and 3. If within the ninth section, still the law may be passed by two-thirds of the members elected. I. Are these associations corporations ? In order to determine this question, we must first ascertain the properties essential to constitute a corporate body, and compare them with those conferred upon the associations ; for if they exist in common, or substantially correspond, the answer will be in the affirmative. A corporate body is known to the law by the powers and faculties bestowed upon it, expressly or impliedly, by the charter ; the use of the term " corporation " in its creation is of itself unimportant, except as it will imply the possession of these. They may be expressly conferred, and then they denote this * The statement of facts is omitted. VOL. I. — 1 2 THOMAS V. DAKIN. [CHAP. I. legal being as unerringly as if created in general terms. It has been well said by learned expounders, that a corporation aggregate is an artificial body of men, composed 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. The "franchises and liberties," or, in more modern language, and as more strictly applicable to private corporations, the powers and faculties, which are usually specified as creating corporate existence, are : 1. The capacity of perpetual succession ; 2. The power to sue and be sued, and to grant and receive, in its corporate name ; 3. To purchase and hold real and personal estate ; 4. To have a common seal ; and 6. To make by-laws. These indicia were given by judges and elementary writers at a very early day ; since which time the institutions have greatly multiplied, their practical operation and use have been thoroughly tested, and their peculiar and essential proper- ties much better understood. Any one comprehending the scope and purpose of them, at this day, will not fail to perceive that some of the powers above specified are of trifling importance, while others are wholly unessential. For instance, the power to purchase and hold real estate is not otherwise essential than to afford a place of busi- ness ; and the right to use a common seal, or to make by-laws, may be dispensed with altogether. For as to the one, it is now well set- tled that corporations may contract by resolution, or through agents, without seal ; and as to the other, the power is unnecessary in all cases where the charter sufficiently provides for the government of the body. The distinguishing feature, far above all others, is the capacity conferred, by which a perpetual succession of different per- sons shall be regarded in the law as one and the same body, and may at all times act, in fulfilment of the objects of the association, as a sin- gle individual. In this way, a legal existence, a body corporate, an artificial being, is constituted, the creation of which enables any number of persons to be concerned in accomplishing a particular ob- ject, as one man. While the aggregate means and influence of all are wielded in eiiecting it, the operation is conducted with the simplicity and individuality of a natural person. In this consists the essence and great value of these institutions. Hence it is apparent that the only properties that can be regarded strictly as essential, are those which are indispensable to mould the different persons into this arti- ficial being, and thereby enable it to act in the way above stated. When once constituted, this legal being created, the powers and facul- ties that may be conferred are various, — limited or enlarged, at the discretion of the Legislature, and will depend upon the nature and ob- ject of the institution, which is as competent as a natural person to receive and enjoy them. We may, in short, conclude by saying, with the most approved authorities at this day, that the essence of a cor- poration consists in a capacity : 1. To have perpetual succession un- CHAP. I.] THOMAS V. DAKIN. 3 der 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 privileges and immunities. We will now endeavor to ascertain with, exactness, the powers and attributes conferred upon these associations by virtue of the statute. The first fourteen sections (1 to 14) prescribe the duties of the comp- troller in furnishing notes for circulation, taking the required securi- ties, etc. The 15th provides, that any number of persons may associate to establish offices of discount, deposit, and circulation. The 16th, that they shall make and file a certificate, specifying: 1. The name to be used in the business ; 2. The place where the business shall be carried on ; 3. The amount of capital stock, and number of shares into which divided ; 4. The names of the share- holders ; 5. The duration of the association. The 18th confers upon the persons thus associating, the most ample powers for carrying on banking operations, together with the right " to exercise such inci- dental powers as shall be necessary to carry on such business ; " also to choose a president, vice-president, cashier, and such other officers and agents as may be necessary. By the 21st and 22d sections, con- tracts, notes, bills, etc., shall be signed by the president and cashier ; and all suits, actions, etc., are to be brought in the name of, and also against the president for the time being ; and not to abate by his death, resignation, or removal, but to be continued in the name of the successor. 24th section : The association may purchase and hold real estate, etc., the conveyance to be made to the president, or such other officer as shall be designated, who may sell and convey the same free from any elaini against shareholders. 19th section : The shares of capital stock to be deemed personal property, transferable on the books of the association ; and every person becoming a shareholder by such, transfer, shall succeed to all the rights and liabilities of the prior holder. 23d section : No shareholder to be personally liable ; and the association is not to be dissolved by the death or insanity of any shareholder. 1. Upon a perusal of these provisions, it will appear that the asso- ciation acquires the power to raise and hold for common use any given amount of capital stock for banking purposes, which, when sub- scribed, is made personal property, and the several shares transfera- ble the same and with like effect as in case of corporate stock ; to assume a common name under which to manage all the affairs of the association ; to choose all officers and agents that may be necessary for th.e purpose, and remove and appoint them at pleasure. It will hence be seen, that although the association may be composed of a number of different persons, holding an interest in the capital stock, its operations are so arranged that they do not appear in conducting its affairs ; all are so bound together, so moulded into one, as to con- stitute but a single body, represented by a common name, or names 4 THOMAS V. DAKIN. [CHAP. 1. (the knot of the combination), and in which all the business of the institution is conducted by common agents. In this way it purchases and holds real and personal property, contracts obligations, discounts bills, notes, and other evidences of debt, receives deposits, buys gold and silver bullion, bills of exchange, etc., loans money, sues and is sued, etc. It is true, some portion of the business is conducted in the assumed name, and some in the name of the president for the time being ; but this in no manner changes the character of the body. A corporation may have more than one name ; it may have one in which to contract, grant, etc., and another in which to sue and be sued ; so it may be known by two different names, and may sue and be sued in either ; and the name of the president, his official name, or any other, 'will answer every purpose (2 Bacon's Abr. 5; 2 Salk. 451; 2 id. 257; Ld. Eaym. 163, 680). The only material circumstance is a name, or names, of some kind, in which all the affairs of the com- pany may be conducted. So much, and no more, is essential to give simplicity and effect to the operation. An artificial being is thus plainly created, capable of receiving all the ample powers and privi- leges conferred upon the associations, and of managing their diversi- fied concerns in an individual capacity. All business is to be con- ducted in a common or proper name. 2. This artificial being possesses the powers of perpetual succes- sion. Neither sale of shares, nor death of shareholders, affects it ; if one should sell his interest or die, the purchaser or representative, by operation of law, immediately takes his place. § 19. Nor can the insanity of a member work a dissolution. Id. Officers and agents for conducting the business of the association are secured. In case of vacancy, by death or otherwise, the place may at once be filled. § 18. For the entire duration, therefore, of the association, and which may be without limit, § 16, sub. 5, the whole body of share- holders, though perpetually shifting, constitute the same uniform, artificial being which is to be engaged through the instrumentality of officers and agents in conducting the business of the concern, and no member is personally liable. § 23. Then, as to the powers conferred, without again specially recurring to them, it will be seen at once that the associations possess all that are deemed essential, according to the most approved authorities, to constitute a corporate body. They have a capacity : 1. To have perpetual succession under a common name and in an artificial form ; 2. To take and grant property, contract obligations, to sue and be sued by its corporate name, in the same manner as an individual ; 3. To receive grants of privileges and immunities, and to enjoy them in common. All these are expressly granted, and many more, besides the general sweeping clause, " to exercise such inciden- tal powers as shall be necessary to carry on such business " (meaning the business of banking), under which even the seal and right to make by-laws are clearly embraced, if essential in conducting the affairs of the institution. CHAP. I.] WARNER V. BEERS. 5 II. Assuming that the associations are to be regarded as corporate bodies, was it competent for the Legislature to enact the law by a majority bill? The solution of the question depends upon a con- struction of the ninth section of the seventh article of the constitu- tion, which, leaving out what is not material, is as follows : " The assent of two-thirds of the members elected to each branch of the Legislature, shall be requisite to every bill ' creating, continuing, alter- ing, or renewing any body politic or corporate.' " '■ Upon the whole, I am of opinion, 1. That these associations are corporations ; 2. That the Legislature possesses no power to pass a general law like the one under consideration, by a majority bill ; and 3. That they may pass it by two-thirds of the members elected. The plaintiff is, therefore, entitled to judgment on the demurrer, with leave to amend on the usual terms.^ Judgment for plaintiff. WARNER V. BEERS. BOLANDER v. STEVENS. (23 Wend. 103. Court for the Correction of Errors of New York. 1840.) In the first above entitled cause the declaration commenced in the name of " Joseph D. Beers," described as " President of the North American Trust and Banking Company, an association doing business in the City of New York, under and by virtue of an act of the Legis- lature of the State of New York, entitled 'An act to authorize the business of banking,' passed April 18, 1838, who prosecutes for and on behalf of the said association ; " and then was set forth in the usual form a count on a promissory note by the third indorsee against Warner and Ray as indorsers. The declaration also contained the common money counts, and the insimul computassent, alleging the debts to have arisen, and the promises to have been made to " the said association," and concluded with the words "to the damage of the said association of five hundred dollars ; and therefore the said plain- tiff as president as aforesaid, brings suit, etc." The declaration in the second suit was like the preceding, except that it contained only the common money counts, and the count on the insimul computassent. To these declarations, demurrers were put in by the defendants respectively.' 1 The rest of the opinion relating to this question is omitted. 2 The opinions of Cowen and Bronson, JJ., are omitted. 3 A part of the statement of the case is omitted. 6 WARNER V. BEERS. [CHAP. I. The two demurrers were brought to argument before the Supreme Court at the January term, 1840, and judgment given in both cases for the plaintiffs. The court referred, for the reasons of the judg- ment, to the opinions delivered by Chief-Justice Nelson, Mr. Justice Bronson and Mr. Justice Cowen, in the case of Thomas v. Dakin (22 Wendell, 9 et seq.). Both cases were removed by writs of error to the Court for the Correction of Errors, and were brought on to argu- ment on the 18th February, 1840. After advisement the following opinions were delivered : ' By Senator Vbeplanck : — The decision of these causes seems to me to depend wholly upon that of the question, whether or no associations with constitutions, powers, and incidents, similar to those authorized under the General Banking Law, are bodies corporate and politic ; or, in other words, whether the General Banking Law of 1838 is void, because it was not passed with the expressed assent of two-thirds of all the mem- bers of the Legislature. The Supreme Court think that they "must, on these records, pre- sume the General Banking Law to have been passed by two-thirds of all the members of the Legislature." Judge Cowen adds : " We must clearly do so until the fact is denied by plea. The requisite constitu- tional solemnities must always be presumed to have taken place until the contrary shall be clearly shown. Should the defendant withdraw his demurrer, and plead specially that the law in question did not receive the assent of two-thirds as required by the constitution, it will then be in order to pass upon the validity of such an objection." Judge Bronson concurs more briefly to the same effect. Now it appears to me that this point was rightly presented on the demurrers in these cases, so as to authorize and demand the decision of the court.'^ The companies to be formed under it are called associations, a name synonymous with fellowships or partnerships. They are not treated in the law as bodies politic ; those usual words creating corporations, so customary with us as to seem essential, are not found in the act. I think that no man can read the statute, without perceiving that the Legislature did not intend to create bodies corporate in the legal sense ; and that if they have done so, it has been by the imperious operation of law controlling their clear intent. . . . What then is the strict definition of the phrase " bodies politic and corporate " ? Definitions differ in their character according to the nature of the thing to be defined. Words denoting real substances existing in nature, or any of the ordinary acts of the mind, are all to be ex- 1 The opinions of the President of the Senate, the Chancellor, and Sena- tor Root, are omitted. 2 The rest of the opinion relating to this point is omitted. CHAP. I.] WAKNER V. BEERS. 7 plained and defined by stating the facts and circumstances that usu- ally accompany or follow such things or acts. The word is made intelligible only by a description, by the enumeration of the attri- butes or circumstances in which it agrees or differs with other things of qualities somewhat similar. Thus, a name conveying an idea generalized from many individuals is defined and explained by de- scribing the qualities ordinarily found in such individuals. It is so in the definitions of natural objects, which are rather descriptions than definitions. It is often so in the definition of moral actions. But it is never so as to words or phrases denoting any artificial and purely technical conceptions : ideas framed by the mind itself, and not otherwise found in nature. Such words or ideas are susceptible of a strict definition. In the logical phrase, they are capable of an essen- tial definition, comprehending the whole meaning essential to the thing being what it is ; and this for the obvious reason, that the meaning of the word is man's own meaning, being the creation of his own mind, and he can state precisely all that is essential to it. It is otherwise with the works, of G-od, which man can describe only as far as known to him. Every such definition must be but a descrip- tion of qualities, and that necessarily imperfect, since every work of the Creator possesses innumerable qualities which no human de- scription or definition can grasp. Strict and essential definitions can generally be given of the terms of positive jurisprudence, and particularly so in the extreinely tech- nical and artificial system of the ancient English law. This is re- markably the case, for instance, in regard to our common-law terms of real estate, as fee, lease, warranty, grant, covenant, reversion, re- mainder, etc. ; all of which are defined precisely and essentially, not explained by mere attributes. Bodies corporate belong to that sys- tem, and thence do we immediately derive them. What, then, is a body corporate ? What is its necessary and essential meaning ? "It is called a body corporate," says Lord Coke, "because the per- sons composing it are made into one body." " It is only in abstracto, and rests only in contemplation of law " (10 R. 50). So again he says (1 Inst. 202, 250), " 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." If, leav- ing the quaint scholastic teaching of the father of English law, we come to the clearer and directer sense of our own Marshall, we find the same prevailing idea. " A body corporate is an artificial being, invisible, intangible, existing only in contemplation of law. Being the creature of law, it possesses only the properties conferred upon it by its charter. Among the most important of these are immortal- ity, and, if the expression may be allowed, individuality " (4 Wh. R. 636 ; 1 Peters, R. 46). Again : " It is precisely what the act of in- corporation makes it, derives all its powers from that act, and is capable of exerting its faculties only in the manner which that act 8 WAENER V. BEERS. [CHAP. I. authorizes." " Within the limits of the properties conferred by its charter, it can," says Blackstone, "do all acts as natural persons may." "In corporations," says Professor Woodeson, "individuals are invested by the law with a political character and personality, wholly distinct from their natural capacity." " A corporation," says Kyd on Corporations, 13, " is not a mere capacity, but a political per- son in which many capacities reside." Thus, then, the essential legal definition that covers the whole ground, and expresses the very es- sence of the being of a body corporate, is this : " It is an artificial legal person, a succession of individuals, or an aggregate bod}' con- sidered by the law as a single continuous person, limited to one peculiar mode of action, and having power only of the kind and degree prescribed by the law which confers them." Such is the established notion of our common law. Such, too, as far as I can trace it, is the doctrine of the modern civil law, as modified by the jurisprudence of the European continent. " Communities that are lawfully established (i. e., corporations)," says Domat, one of the great teachers of the anti-revolutionary French Civil Law, "are in the place of persons, and their union, which renders common all their interest, makes them to be considered as one single person." Domat, Civil Law, Lib. I., tit. 15. To the same effect a somewhat older Ital- ian civilian speaks, Oldradus De Ponte, as quoted by Sir Robert Saw- yer, in his very able and learned argument in the case of the city of London (8 St. Tr. 1175). "Licet non habent veram personam, habent personam fictione juris." So the older German jurisprudence, as founded on the Roman law, also held the idea of personality as essential to corporations. Heineccius, one of the most distinguished civilians of that school in the last century, in his instructive' essay on the legal history of the corporate guilds or societies of trade so, common in Germany, speaks of this personality as an attribute of all corpora- tions. " Universitates et contrahere possunt et delinquere, quippe quae moraliter unam representant personam." De Collegiis Opifi- cum, in Germania, cap. 77, § 19. This doctrine of the modern ci- vilians of France, Italy, and Germany, may be traced up even to the jurists of the Code and Pandects. " Personae vice fungitur municipium et decuria." Pan. 1, 22, de Fide Juss. I do not cite these civilians as direct authorities, but mainly to show how deeply and generally this pervading idea of legal personality and artificial individuality entered into and formed the characteristic of all corporate bodies, in those systems of law which might indirectly affect or govern our own, or tend to influence even the popular use of our legal terms. So far was this principle of corporate personality carried in our old common law, that reasons were expressly assigned why a corpo- ration could not be excommunicated or punished for a crime. " Be- cause it has no soul," said Lord Coke, which, however ludicrously it may now sound, was but saying quaintly, and in the style of that day, what in modern times would be expressed by saying that a corpora- CHAP. I.] WARNER V. BEERS. 9 tion, being an artificial and not a moral person, must be incapable of guilt. The very able argument in the celebrated historical case of the charter of London, in 1682, went a good deal into these refine- ments, and it was held on one side that a political person had a mind and reason, according to Lord Chief Justice Hobart, and that its rea- son was expressed by its by-laws ; whilst the Attorney-General (whom Bishop Burnet has egregiously wronged in calling him' " a hot, dull, man "), argued most acutely, as well as very learnedly, in support of the capacity of a corporation to incur political, if not moral, guilt and punishment. All these, it is true, are refinements of technical reasoning, in a taste and fashion of thought which have passed away ; but they prove conclusively how strong and undoubted was that legal princi- ple of personality upon which these mere inferences and nice dis- tinctions were founded. In order to continue the existence of such an artificial person, per- petual succession is ordinarily necessary, though it is not strictly essential, for it may be confined to any given number of lives in being, holding in a sort of corporate joint tenancy, of which I think examples may be found. As a legal person, it has only the powers and properties specifically conferred upon it; and can possess and exercise no others, except such as are absolutely necessary to the exercise of the powers expressly given. This is the enactment of our Revised Statutes, which, as our revisers rightly said in their re- port on that title of the law, is " declaratory of a principle of law frequently recognized by our courts, and which it was deemed useful to confirm by legislative authority." To these are added certain le- gal incidents by the common law, also declared in our statute, and common to all corporations, as to sue and be sued, hold and convey real and personal property, to appoint officers for its services, and to make by-laws for the management of its affairs. To these more im- portant rights, the law adds the external evidence of a name and a common seal. This last, though apparently a matter of form, is not without effect, any more than the legal consequences of seals to in- struments in England and this State, so widely different from those of other legal systems, where the distinction between sealed and un- sealed instruments is unknown. It is only through a common seal and name that any grant of lands, or covenant touching them, can be made by a corporation. There are several very useful and beneficial accessary powers or attributes, very often accompanying corporate privileges, especially in moneyed corporations, which, in the existing state of our law, as modified by statutes, are more prominent in the public eye, and per- haps sometimes in the view of our courts and legislatures, than those which are essential to the being of a corporation. Such added powers, however valuable, are merely accessary. They do not in themselves alone confer a corporate character, and may be enjoyed by unincor- 10 WARNER V. BEERS. [CHAP. I. porated individuals. Such a power is the transferability of shares, whereby investments may be made, without the owner losing the future control of his funds under changes of circumstances. Such, too, is the limited responsibility by which the stockholder, having once fairly paid up his share of the capital, is exempted from further personal liability. So, too, the convenience of holding real estate for the common purposes, exempt from the legal inconveniences of joint tenancy or tenancy in common. Again : there is the continu ance of the joint property for the benefit and preservation of the common fund, indissoluble by the death or legal disability of any partner. Every one of these attributes or powers, though commonly falling in with our notions of a moneyed corporation, is quite unes- sential to the legality of a corporation, may be found where there is no pretence of a body corporate, nor will they make one if all were combined, without the presence of the essential quality of legal in- dividuality. This distinction has been observed and marked by Mr. Kyd (Kyd on Corporations, 13), with logical acuteness and precision: " A corporation is a political person, capable, like a natural person, of enjoying a variety of franchises. It is to a franchise as the substance to its attribute. It is something to which many attributes belong, but it is itself something distinct from those attributes." Thus, the transferability of shares is not essential to a corporation. For instance, it does not enter into the constitution of our chartered colleges, 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 forin a feature in our corporate societies for mutual benefit or charity, in the funds of which the members have a beneficial inter- est. On the other hand, such right of transfer may be incorporated into partnership articles, and become a fundamental condition of them. The general rule, in absence of any express stipulation, is indeed the reverse of this, and in practice it is comparatively rare amongst us. Hence, it has become common to consider such transferability as a clear indication of a corporate character. "We have seen," says Collyer on Partnership, 647, " that in common cases, a partner is pre- cluded from assigning his interest to a stranger, so as to make that stranger a partner. To prevent this rule from affecting the stock- holder of a trading company, there must be provision in the deed of settlement enabling each stockholder to assign or transfer his share." He then adds the limitations rendered necessary in England by the Bubble Act, which has no corresponding statute here, and the con- clusion of the English decisions is, that by the common law shares may be made transferable absolutely. Ki?iff v. Webb (14 East, 406) ; Pratt V. Hutchinson (15 id. 515) ; Xkhols v. Crosby (2 Barn. & Ores. 814). See also other cases collected by Wordsworth on Joint Stock Com- panies. Again, the joint stock companies authorized by statutes in England are avowedly and confessedly not corporations ; and there CHAP. 1.] WARNER V. BEERS. 11 says Wordsworth on Joint Stock Companies, 183, "It is the object of all companies to render their shares as negotiable as possible, so that in fact the restrictions imposed by the deed of settlement upon the transfer of shares are generally very few, and seldom extend beyond requiring the transferor's name, etc., being registered in the books of the company." The language of two or three of the later acts of Parliament is specially worthy of attention on this subject. They declare, as strongly as words can declare legislative intention, that transferability of shares, and the consecxuent succession, can be author- ized in common-law copartnerships without giving to such companies any corporate existence, or rendering them the less copartnerships in the strict legal sense of the term. In the statute of 6 Geo. IV. ch. 42, it is enacted, " That it shall be lawful for any member of any such society or copartnership, their respective executors, administrators, or assigns, to sell and transfer any share or shares, or portion or portions of, or the entire stock or interest which any such member may pos- sess in such society or copartnership, and the property or funds thereof, subject to such regulations and restrictions as may be re- quired by the constitution of such society or copartnership." This statute is entitled " An act for the better regulation of copartnerships of certain bankers in Ireland." The preamble and recitals, and all the sections, speak of these banking firms as mere copartnerships. This strongly marked and repeated recognition of them as such in the very sections authorizing that transferability and its consequent succession, which have been insisted on as infallible marks of corpo- rate character, leave no doubt in my mind as to the intention and understanding of the British Parliament, that in authorizing associa- tions with these and other powers similar to those granted by our banking law, they were not creating bodies politic or corporate. But this is not all. Parliament has not left its meaning and inten- tion to be a matter of inference. In 1838, another act was passed amendatory of the one just cited, and of another in relation to bank- ers in England, which gave similar powers. That amendatory statute, after reciting and referring to the titles of these prior acts, adds in the preamble, " And whereas it is expedient that the said act should be amended, so far as relates to the powers enabling any such copart- nership, not being a body corporate, to sue any of its own members, and the powers enabling any member of any such copartnership, not being a body corporate, to sue the said copartnership. Be it there- fore enacted, etc., that any person now being, or who hereafter may be, a member of any copartnership carrying on the business of bank- ing under the provisions of the said recited acts, may commence and prosecute any action, etc." There can be no reasonable doubt, that in these most deliberately considered and very technically drawn acts of Parliament, recognizing copartnerships as having transferable stock, and giving them the authority of suing in the name of their officers and other persons, 12 WAKNEK V. BEEKS. [ciIAP. I. similar to those of the associations formed under our act, no bodies corporate were intended or supposed to be created. But, on this head of transferability, we need not rely upon English authority alone. We have as strong authority in our own usages and decisions. In the articles of the Merchants' Bank Association, before our restraining act, a similar transferability of shares was provided, and these articles have the authority of Alexander Hamilton for their validity. I shall have occasion to refer to them more fully hereafter. So again, in the case of the Albany Exchange, before it received its present charter, the validity of the partnership or joint stock com-- pauy for a public enterprise, with transferable shares, was expressly recognized. By the Court, Cowen, J. — " The objection taken on the argument that this association was illegal, as being in the nature of a corporation, issuing scrip and providing for a transfer of stock, is not well founded. The act of associating in this way is, we think, properly characterized by the exception taken at the trial. It constitutes a partnership valid, as being formed for the purposes of a lawful, honest enterprise." Townsend v. Goewey (19 Wendell, R. 427). The learned judge then refers to, and adopts the authority of Collyer on Partnerships, p. 624, and the cases he cites. Again, this transferability may be found in many sorts of trusts. A well-known instance of this maybe seen in the Tontine of New York, originally built for the purposes of a Merchants' Exchange. It is a trust of real estate, with transferable shares as personal property. It was originally settled by the most eminent counsel of this State, and its validity has been attested by nearly fifty years' experience, during which, above two hundred shares have passed through courts, — assignments, insolvencies, bankrupt commissions, distributions of estates, etc., — without their legal transferability having ever been impeached. See printed articles of the Tontine, N. Y. 1793. In both of these last examples, as in other instances of trusts and partnerships, lands were held exempt by operation of law from the legal incidents of joint tenancy, or tenancy in common, and the estate continued for the common purposes. This has been noted as a mark of corporate character ; yet most corporations are limited in the extent of its exercise, some are expressly excluded from the privi- lege, and very many exist legally without its actual exercise or enjoyment. The non-dissolution by death or by legal disability is also noted in the opinion of the Supreme Court in these cases, as a mark of a corporate body. But that also may be found in the trusts just men- tioned, and others of a similar nature, and it may be adopted as an article of ordinary partnership. It is the settled law of England that it may be stipulated that death shall not dissolve the partner- ship, and further, that the executors of the deceased shall become CHAP. I.] WARNER V. BEERS. 13 partners. CoUyer on Part., pp. 5, 648; Pease v. Chamberlain (2 Vesey R. 33) ; Haggeman v. Spears (7 Pick. K. 236) ; Wrexham v. Huddleton (1 Swanst. 514). Again, a common name has been regarded as a corporate criterion. To this Lord Ellenboroiigh gives a full answer in Rex v. Webb. " As to the fourth point, that the subscribers have presumed to act as if they were a body corporate, — how is this made out ? It was urged that they assumed a common name, that they have a committee, etc. But are these the unequivocal evidence and characteristics of a corporation ? How many unincorporated assurance companies and other descriptions of persons are there that use a common name, and have their committees, general meetings, and by-laws ? Are these all illegal ? or which of these particulars can be stated as being of itself the distinctive and peculiar criterion of a corporation ? " Thence he infers, that " these subscribers have not acted peculiarly as a body corporate." Rex v. Webb (14 East's R. 406). But, perhaps, in the general and popular understanding, the most familiar distinction between corporate bodies and common partner- ships, or other joint undertakings, is the exemption of the associates from personal liability beyond the actual amount of their respective proportions of the capital. The regarding this very frequent and im- portant incident of a corporation as an essential characteristic, seems not to be confined to popular opinion. Judge Cowen says, in the de- cision of the cases now before us : " Among other peculiar privileges conferred on these associations, and not enjoyed by natural persons, I allude to that of the exemption of members from personal liability for debt. This is mentioned by Angel and Ames in their treatise, as peculiar to a private corporation ; they notice it as a striking charac- teristic between a corporation and a partnership." Yet our own stat- ute of limited partnerships affords sufficient evidence that an alteration of the existing law may be made by statute, so as to exempt from personal liability beyond the stipulated share in the joint funds, for the debts of a firm, without the remotest thought of converting such firms into bodies corporate. Besides, the right of making a contract, whereby those who tender it stipulate not to be bound beyond the amount of some specific pledged fund, must be a natural right grow- ing out of the very nature of contracts. If a company or association, or an individual, offers to contract to make certain payments only to the amount of certain specific funds, and others choose to accept that contract on those conditions, there can be nothing to prevent the validity of such a contract except some positive rule of law founded on policy or on arbitrary enactment. In the absence of such a re- striction, it is and must be good. Such a limitation, then, must be binding on all who accept the conditions. The policy of our law and the usages of business have indeed rightly fixed the presumption the other way, so that the stipulation and the burden of proof of the lim- ited indebtedness are thrown upon those who expect to be benefited 14 WARNEK V. BEERS. [CHAP. I. by them. This right has been substautially admitted by the highest tribunal in Great Britain, in the case of Minnet v. Whinnery (3 Brown's Pari. Cas. 323), and it was held to be good by Lord Ellen- borough iu Alderson v. Clay (1 Camp. 404). The doctrine has been received as settled law by one of the best elementary writers of the day, often cited by our own Supreme Court. "When a creditor," says Collyer on Partnership, 214, "has notice that by an arrange- ment between partners, one of them, though appearing to the world as a partner, shall not participate in the loss, and shall not be liable tor it, the creditor will be bound by the arrangement." The original articles of the Merchants' Bank, in the city of New York, as an unincorporated association with limited liability, as well as transferable shares, which were read in argument by Mr. Kent, have the great professional authority of Alexander Hamilton, who prepared them, and of the many eminent men who joined in them, and whose professional distinction gives to their approbation the character of a sort of judicial sanction ; whilst the restraining act passed soon after proves, as was unanswerably argued, that the Legis- lature and its legal advisers considered such a voluntary association thus restraining its own liability, not as a violation of common law or natural right, but merely as contradictiug the financial policy of the State. A similar analysis of such of the customary accessary powers of specially chartered moneyed corporations as, from being most condu- cive to ends of profit or convenience, are ordinarily considered as the essential qualities constituting corporations, will show, that all such powers or incidents are merely convenient and desirable authorities or modes of action, added to and engrafted upon the creation of a body politic ; not the legal attributes absolutely essential to a cor- poration, and denoting its existence as such. Amongst us, as in England, bodies politic or corporate may exist where the ultimate personal liability is still 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. Many corporate banks in other States are so constituted, and with us some chartered companies for insurance, etc., some for an indefinite, others to a limited extent beyond the capital. Corporate bodies may exist also without transferability of the rights of the corporators ;' for a large majority of our literary and charitable, as well as all our municipal corporations are so. On the other hand, by our own common law as it would exist now, independently of statutory restrictions, associa- tions might be formed and trusts created, having every one of the above enumerated characteristics which have been insisted upon as essential to a corporation, except that personality which I before stated as forming its strict and neces-sary essential legal definition. The present joint stock companies of England afford pregnant ex- CHAP. I.] WAKNER V. BEERS. 15 amples, showing how many of these attributes may be embodied in voluntary associations which are confessedly not corporations. In fact the line may be very faint, and depending wholly upon the purely legal and technical character conferred, whether a joint stock association or a trust, freed by law from certain positive restraints imposed by our modern statutes, be a corporation or not. The Ton- tine trust, before mentioned, is managed by directors annually elected by stockholders ; its real estate is held by trustees, continuing their trust from hand to hand during the lives of the original nominees and the survivors of them, with transferable shares, and wholly with- out personal liability. For the reasons already stated, the eminence of the counsel (the late E. Harrison) who prepared the trust, and the frequency with which its legal character must have passed in review before lawyers and courts, and always without objection, it may well be regarded as sanctioned judicially. It is a valid trust. Add to it a legislative charter, making the associates a body corporate and no more, what is then the effect ? Simply to give a different technical character, an artificial individuality, in Chief Justice Marshall's phrase, a different mode of standing in courts. Such was the actual history of the Albany Exchange. It was a joint stock company, formally decided to be valid (19 Wendell's R. 427). A year or two after (1837), it appears by our statute book to have been incorporated. But there is probably but little difference, besides the greater convenience of the corporate body, between the former organization and the present. The trusts specially permitted by an act of last year (Statutes of 1839, chap. 174) for the benefit of that singular people called Shakers, were nothing more than exemptions from the recent restrictions of trusts. They were authorized to continue, enlarge, and manage their property, by trusts, as they had done before the change in that title of our law effected by the Revised Statutes. Had the law, in addition to this, made every Shaker's united society a body corporate, without otherwise varying the original trust, the only change would have been the conversion of a trust into an artificial legal person, with the same effect substantially as to the interests of those beneficially interested. Our act for general religious incorporations regulates the incorpo- ration of churches of all religious denominations (other than those provided for in the first and second sections) by trustees, who are to be a body corporate. Those who have had occasion to look into the mode in which dis- senting religious trusts are held in England, as I presume they were, in the same manner, in 'New York when a colony, will, I think, per- ceive that our statute adds little more than a convenient corporate character to powers elsewhere, and formerly here, exercised under trusts. All these considerations lead me to the conviction, that for the pur- pose of constitutional interpretation, we must look to the strict legal 16 WARNER V. BEEKS. [CHAP. I. meaning of the phrase " body politic or corporate," and not to those circumstances or adjuncts, which amount only to descriptions of the manner in which such bodies are very frequently constituted when used for purposes of profit. " If this be regarded as a very strict rule of interpretation, let it also be remembered, that it is applied where such strictness is most appropriate, in the interpretation of a provi- sion, restraining the general sovereign power of the state expressing the public will through a majority of the people's representatives. There is yet another rule of interpretation which it is proper to state before proceeding to examine whether the associations organ- ized under the banking law are or are not corporations. Corporate rights are well defined by Chancellor Kent and others to be "franchises or peculiar privileged grants," of the nature of incorporeal property. Such franchises, when they are granted for pecuniary or other purposes valuable to private interest, are of the nature of monopolies, and are always granted exclusively by the sov- ereign power, directly or indirectly. It is a well-known fact, admitted on all sides, that it was part of the policy and intent of our amended constitution to prevent by a constitutional and fixed limitation of the legislative authority, the influence of corruption or interest upon the Legislature, as well as the abuse of political favoritism, and the dangerous union of political with pecuniary power. The clause so designed, though so general in its terms as to include, even acade- mies and village corporations, it is not doubted, referred in its policy wholly to the monopoly privileges of chartered capital, and especially to banks. Here then, in my view, arises another branch of inquiry ; and the two distinct objects of examination are these. 1st. Do these banking associations fall within the right legal definition of the words " bodies politic or corporate," as before explained and established ? 2d. Do they come within the policy and intent of the framers of the Consti- tution or of the people who ratified it ? The most peculiar and the strictly essential characteristic of a cor- porate body, which makes it to be such, and not some other thing, in legal contemplation, is the merging of the individuals composing the aggregate body into one distinct, artificial individual existence. Now this is not found in the associations under the act. A corporation can sue and be sued only by its corporate name. It can act only according to the letter of the law creating it. "It derives all its powers from that act," says Chief Justice Marshall, " and is capable of exercising its faculties only in the manner which that act author- izes." It has no natural powers which, in its discretion, it may exer- cise or not. It can exercise none of those other powers, and possesses none of those other rights, which the individuals composing it could possess and exercise, were it a mere society or partnership. Not so as to these associations. By this act, suits on behalf of such associa- tions may be brought in the name of the president. Persons having CHAP. I.] WARNER V. BEERS. 17 claims against the company, may maintain their actions against the president. But there is no reason, except that of mere convenience, why the association may not also sue and be sued under their several real names, as other partners may. This reason of convenience, it is obvious, would not apply where the company was composed of a few persons, as if, for example, one of our great banking firms were to come under the law. It was indeed argued, that the technical construction which gives to " may " the meaning of " must " or " shall," applies here. But that construction holds only when there is a previous duty, to which the statute adds some new power or authority, as in the case of a public officer ; or where from other reasons it is manifest that (to use Judge Story's words) " the Legislature meant to impose an absolute duty, not to give a discretionary power : " otherwise, as he says, " the ordinary use of language must be presumed to be intended, unless it would defeat the provisions of the act " (1 Peters' R. 64). The ordinary popular discretionary sense of the word " may," is also the ordinary legal one. The other is the exception. In our Revised Statutes, the words "may" and "shall" are so used and distinguished. So they are in our annual legislation, as when it is said of a company, that it may hold real estate, may take a certain rate of tolls, may borrow money. Moreover, here the right to sue and be sued as other partners, is a common-law right, and cannot be taken away by mere implication. "A statute made in the affirmative, without negative words," say the highest authorities, "does not take away the common law" (2 Inst. 200). See also Dwarris on Statutes, 637, and the authorities there referred to. To return : If the associations issue notes for circulation, they must first comply with the express conditions of the act as to the requisite security. So far as they deal with the public as bankers, they must, for the common security, comply with the requisition of the statute. But if such an association were a body corporate, it could do nothing more than the act permits, and that only in the manner the act pre- scribes. In the words of our Revised Statutes (declaratory, as the revisers state, of the common law), " No corporation shall possess or exercise any corporate powers (in addition to those expressly given in the act under which it is incorporated), except such as shall be necessary to the exercise of the powers enumerated and given." In the per curiam opinion of the Supreme Court of the United States (4 Peters' R. 169), it is said, that " a corporation is strictly limited to the exercise of powers specifically conferred, cannot be denied." But here, the associates by their articles establish and form their own constitution, as any other voluntary joint stock company may do. Nor can I discover any objection, other than such as the articles might present, or prudence dictate, why the association, whilst as bankers complying with the requisitions of the act, could not also VOL. I. — 2 18 WARNEK V. BEERS. [CHAP. I. exercise their common legal rights as partners, in other commerce, waiving so far the advantages of exemption from personal liability. So, too, it seems that waiving the transferability of shares, the same associates might also trade as a limited partnership, with its presi- dent as the general partner, and the others, special partners, in any business coming within the statute on that subject. Some such union of banking with other collateral business might well take place, when- ever such an association shall consist of a small but wealthy firm. An association under this act might then do what no corporation can do. The same association under the same articles might have one fund for its special banking purposes with a limited liability of its owners, and another for trade as general, or even as limited partners. Again : these associations do not act by a corporate name and seal, but by another mode familiar to our law. They can contract through their president, as a limited partnership must through its general partner. They are authorized to sue and be sued through him ; as Judge Cowen observes, " the power of the Legislature to give a right of action to one man in his own name for a debt due to another, has always been exercised from our earliest legal history, and it is now too late to call it in question." I refer to the several legislative and judicial authorities which he has collected in his opinion on these cases. They cannot hold real estate as a corporation does, or contract concerning it by their own name and common seal ; but, like partner- ships, they can have an equitable and beneficial interest in land. CoUyer, 70, 75. Their president takes as a trustee, and the associates are but beneficiaries. Similar interests in land are held in trust, as in the New York Tontine and other old unincorporated associations; and by the Shakers, on trusts established before the statute restraining trusts, and since by means of a private act, merely restoring the common law as respects them, by taking them out of the operation of the stat- ute. Much such an interest in lands was also held by the Albany Exchange Company before its incorporation, in 1837, and the decision of our supreme court in 19 Wendell, 424, admits its validity. How then are these associations to be regarded in legal contem- plation ? I assent fully to the conclusive reasoning of the counsel, who chiefly pressed this part of the argument (Mr. Kent), that they are copartnerships relieved from the inhibitions of the restraining act, and thus allowed to carry on banking business under certain condi- tions. The policy of the State has prohibited its citizens from issu- ing paper for circulation as money, or from associating together for certain banking purposes (1 E. S. 711). It reserved those privileges for corporate banks. The act to aubhorize the business of banking repealed that prohibition pro tanto, as to all individuals or companies who would comply with its conditions. The associations in question are partnerships complying with those conditions, and thus exempted, CHAP. I.] WARNER V. BEERS. 19 as any other citizens may be on the same terms, from the operation of a statutory restraint of general right, which is still binding on all who will not comply with those conditions. This is so far in close analogy to the law of special partnership, where exemption from the general liability imposed by the law is tendered to all who comply strictly with the provisions of the statute. The articles and certifi- cate in this act correspond to the certificate setting forth the names of partners, amount of capital, time of termination, and nature of business required by the title of " Limited Partnerships " (1 R. S. 764), and with the articles which every such copartnership must have. The general partner there is authorized to transact business and contract for the rest ; so, though with less authority, is the presi- dent here. The mode of suing and being sued is precisely the same in both cases. These partnerships are permitted to do what it has been shown other partners may also do by voluntary act, in providing for the transferability of the shares of the stock, and also against dissolution by death or insolvency. If they choose to trade with a limited lia- bility, always desirable when the shares are numerous, they may do so in a somewhat more commodious manner than in an ordinary lim- ited partnership, though on the very same principles. This, too, has been shown might also be done on common-law principles by means of due notice (as in the instance of the old Merchants' Bank), without special legislation. If the associates think fit to waive this exemp- tion, they may do so, and they are then a banking company, carrying on business precisely as any firm might do upon a simple repeal of the restraining act. Certain conditions are imposed to entitle them to the benefit of this conditional repeal. They can issue no paper unless it be secured in a certain way and duly attested by the comptroller. The very same conditions are imposed on every individual who thinks fit to engage in this business. They are allowed to purchase real es- tate and hold it for certain partnership uses. So may ordinary part- ners. Coles V. Coles, (15 Johns. R. 159 ; 2 Edw. Ch. R. 28). But the conveyance is to be made to the president, who has power to sell or assign the same free from any claim against any of the share- holders or persons claiming under them. This is rather a limitation than a grant of power. The associates are limited to their president, or some other officer named in their articles, instead of choosing such a trustee as they might please at the time ; otherwise, it is with this slight restriction a mode of holding real estate familiar to the former law of trusts here, still used in England, and for many purposes yet allowed in this State. The president or other ofilcer may receive a conveyance, and may sell or assign the lands so conveyed. Thus he holds the land in a trust, coupled with a power of disposition, as it would be called in England, or formerly here. This authority over the lands is, in the language of our Revised Statutes, " a power in trust," and the beneficial enjoyment of such a power is no peculiar 20 WAKNER V. BEERS. [CHAP. I. privilege. The association may sue and be sued, just as other part- ners may ; but as this would frequently be of great public incon- venience, it is enacted, for the mutual benefit of the associates, and of those with whom they may litigate, that they may also sue and be sued in the name of their president. A mere innovation in the mode of pleading, as to certain classes of citizens, can hardly work any change in the permanent legal character of those to whom it applies. There are various English acts, within the last twenty years, expressly giving the same powers to officers or agents of partnerships in Eng- land and Ireland,- a course of legislation approved by Lord Eldon, and still, in his view, leaving such companies mere partnerships (1 5uss. R. 460). It is in effect doing in this act what had already been done in the law of limited partnership, where it is enacted, that " suits in relation to the business of the partnership may be brought by or against the general partner, in the same manner as if there were no special partner" (1 R. S. 766, § 14). Had there been a simple repeal of the restraining act, so that lim- ited partnerships could guttj on this business, there would have hardly been any necessity for the new provision. It is to be observed, that in both cases the statutes say may (not shall) sue and be sued, which is wholly diverse from the ease of corporate bodies, which can only sue and be sued in "their single corporate legal personalitj-. These, then, are partnerships, or joint stock companies, limited as to personal responsibility, if they so elect, as they might be by the com- mon law in one way, and by our limited partnership act in another. They may, if they deem it expedient, make their shares assignable and transferable to new partners, and their company indissoluble by death or legal disability of individuals, as other companies may also do. They may have a beneficial interest in lands, managed by a power, with the legal estate in a trustee. They may sue and be sued in the name of the head of the firni, as limited partners also may, and like them, are capable of suing and being sued in the same manner as ordinary partners. Finally they are released from the restriction of the restraining act on certain conditions being performed, and may then use their capital in banking, as all other firms might, were that law wholly repealed ; but it does not appear that they are absolutely restricted to that one business and no other, as incorporated banks are and must be, unless specially authorized to transact other business. If this view of their nature and character be correct, they differ en- tirely in contemplation of law from the legal corporate person, in which all individualities of its members are merged, so far as they act together in this body, which can perform only certain specific acts, sue or be sued but in one way, grant, convey, and covenant only in its own name and by its commom seal. There is again yet another wide difference, which to my mind strongly marks the broad distinction between these associations, in which partnership rights and liabilities are still retained, and corpo- CHAP. I.] WARNER V. BEERS. 21 rate bodies, where such prior joint rights of the corporators are ab- sorbed ill the individuality of the body which takes the place of the individuals who compose it. Corporations formed under an act ille- gally passed, or unconstitutional in itself, may be proceeded against by qiio warranto, and on judgment the body is ousted and altogether excluded from its corporate rights, privileges, and franchises (2 E. S. 583). The effect of this, where an act is pronounced void, would be, that the corporation becomes extinct, is abrogated, has no longer an existence in law. Now let us suppose that this act may grant some corporate powers, as the chancellor has intimated. I do not myself find them. But we may suppose the transferability of shares, as in- sisted upon by our judges, to be a corporate power. An information in the nature of a quo warranto may be exhibited against any associ- ation formed under the banking law, and on judgment it is ousted of this or any other privilege, and excluded from it as a franchise. Be it so. What is the result ? The association, debarred from this power, still remains a valid company. The exemptions from the re- straining law must still be valid, for such a conditional exemption has nothing in common with any question of corporate right. It would still remain a voluntary joint stock company, carrying on a legitimate business under articles of partnership, and with limited liability (if the associates elect), very similar to other limited partnerships in trade. It would still have its common-law and statute partnership rights and powers, though inhibited from some one or two powers enumerated in this act. It would still be what its name purports, — a valid association. This criterion affords to my mind conclusive evi- dence of the wide difference between incorporated banks and banking associations, and I cannot but add that it also seems to me conclusive as to the validity of the act. If the Legislature have in any provision inadvertently stepped beyond their constitutional bounds, that pro- vision may be void. The main provisions of the law are within the ordinary bounds and purposes of general legislation, and the associa- tions formed under them are legal and valid, even should there be some power mentioned in the act from which the judgment of a court may rightfully exclude them. It therefore appears to me clear that the Legislature of 1838 have succeeded in their obvious and indeed avowed intention to authorize voluntary associations, not within the two-thirds restriction of the constitution, or of the legal doubts that might arise, if they were permitted to incorporate themselves under some general law. Did they, however, succeed merely in evading the letter of the con- stitution, whilst they neglected its spirit ? Or, in other words, do these associations, although not within the common-law meaning of the phrase " bodies corporate," still fall within the policy and intent of the restriction ? If this were indeed the case, a court like this, organized expressly to qualify and regulate the decisions of inferior tribunals (which must 22 WARNER V. BEERS. [CHAP. I. of necessity be governed by precedent and authority), by infusing into the law a larger spirit of equity and general principle, such a court might well deeui it their duty to disregard the rigid legal interpreta- tion of the language of the constitution, and to look only to its intent and ultimate object. We might feel it to be our duty to look mainly at the evils intended to be excluded, without much regarding the form in which they were expected to appear, or the technical definition of the words employed to denote them. The answer to this inquiry is obvious, and may therefore be brief. Neither the words of the con- stitutional restriction, which are very general, and not restricted to banking occupations, nor anything in the history of the times, or in the proceedings of the convention, or in the reason of the matter, in- dicate that this was intended to limit the extent or amount of bank- ing business or capital; for, indeed, these matters could always be controlled by general laws. The restriction was not founded, so far as appears, on any considerations of political economy or any princi- ples of currency, true or false. Its avowed and laudable object was the preservation of political morality, of legislative purity. It was ordained chiefly, primarily, and avowedly, for the purpose of abridg- ing the power of pecuniary corruption, of self-interest, and of other evil influences upon the Legislature, exerted for procuring grants of privileges and franchises, valuable and objects of desire, because special. Auxiliary to this may have been the wish to lessen the claims and the strength of political favoritism, which it was a promi- nent object in the new constitution to diminish. By such a provision, a minority (it was hoped by some) might check a majority in confer- ring the privileged favors of the State upon political partisans or upon tliose who were already, or who were willing to become subservient to power. In this sense and intention of the constitution, the two-third clause might be thus paraphrased : " No bill creating, renewing, or enlarging any body having special privileges and valuable franchises shall become a law, unless with the assent of two-thirds of all the members of the Legislature." Now whatever may be the wisdom or the errors of the general design of the banking law in the estimate of enlightened political economy ; whatever may be the merits or the defects of its details, I cannot conceive any law less in hostility to the design of the constitution in this regard, or in effect more comformable to its spirit. This law confers no special privileges or franchises. It opens to all persons, without inquiring whether they are friends or foes of the ruling powers, the business of banking and the issuing of paper currency. Conditions are imposed not to make partial or invid- ious distinctions, but to promote the safety and welfare of the com- munity. Corruption and favoritism are not only excluded by it from our legislative halls, but they are not even permitted to approach its precincts. The act, instead of granting special privileges and valua- ble franchises to a chosen few, has but one simple purpose. It is thp.fc special privileges and franchises shall no longer exist. CHAP. I.] CONSERVATORS OF THE RIVER TONE V. ASH. 23 I hold, therefore, that these associations under the banking law do not rightly fall within the true legal interpretation of the restraining clause of the constitution, and still less within its spirit and design. As I think, moreover, that it is our right and duty to look into and decide on the constitutionality of the law itself, I arrive at the singular conclusion of differing from the Supreme Court on every leading point of their decision, and yet of voting to affirm their judgment. On the question being put, " Shall these judgments be reversed ? " all the members of the court, with but a single exception (twenty- three being present), voted in the negative. Whereupon the judg- ments of the Supreme Court were afhrmed. The court thereupon adopted the following resolutions : — 1. " Resolved, That the law entitled ' An act to authorize the busi- ness of banking,' passed April 18, 1838, is valid, and was constitution- ally enacted, although it may not have received the assent of two- thirds of the members elected to each branch of the Legislature." This resolution was adopted by a vote of 23 to 1. 2. " Resolved, That the associations organized in conformity with the provisions of the act entitled, ' An act to authorize the business of banking,' passed April 1, 1838, are not bodies politic or corporate, within the spirit and meaning of the constitution." This resolution was adopted by a vote of 22 to 3. THE CONSERVATORS OP THE RIVER TONE v. ASH. (10 JBa™. ^-C7-ess. 349. 1829.) Trespass for entering the plaintiffs' wharfs, pens, pounds, bridges, locks, weirs, and closes covered with water, in the parish of North Cuny, and fixing and fastening to and upon the gates and posts of the plaintiffs there divers locks, staples, hinges, and bolts, and thereby damaging the same, and thereby and therewith shutting, locking, and fastening the said gates, and keeping them so shut for long spaces of time, and at other times unlocking and opening them, and ejecting the plaintiffs from their said premises, and keeping them so ejected for a long space of time, and during that time receiving tolls and duties belonging to them amounting to £3,000, and during all that time preventing the plaintiffs from using them as they would other- wise have done. Plea, first, not giiilty. Secondly, that at the time of exhibiting the said bill there was not any such bod}' politic or body corporate as the conservators of the river Tone, as by the said dec- laration was supposed. Thirdly, that at the time of exhibiting the said bill the said persons so suing as the conservators of the river 24 CONSERVATORS OF THE EIVER TONE V. ASH. [CHAP. L Tone were not a body politic or corporate, as by the said declaration was above supposed.' Ltttledale, J. : — I think the plaintiffs are entitled to the judgment of the Court. The first question is, whether the conservators of the river Tone are a corporation ? Upon that it becomes material to consider in what way a corporation may be formed. Now, a corporation may exist, first, by common law, as a king, bishop, or parson ; secondly, by authority of Parliament ; thirdly, by charter ; and, fourthly, by prescription. In this case the conservators of the river Tone claim to be a corporation by authority of Parliament. The question, then, is, Has the statute of William made them a corporation ? To create a corporation by charter or act of Parliament it is not necessary that any particular form of words be used. It is suffi- cient if the intent to incorporate be evident. In the case of the Sutton Hospital (10 Coke, 28), which is the great case on corporations, it is laid down that the words, incorporo, fundo, erigo, are not, in law, requisite to create a corporation, but that other equivalent words are sufficient. JSTone of these words are contained in this act of Parlia- ment ; - and the question is, Whether the Legislature has used any equivalent words which show a manifest intention to incorporate ? According to the case of Marriott v. Mascall (Anderson, 206), a cor- poration is a "body politic, consisting of material bodies which, joined together, must have a name to do things which concern the corpora- tion, or else it is no corporation ; and in Eolle's Abridgment ( Cor- poration, 512), citing the Sutton Hospital case, it is laid down that the name of incorporation is as a proper name, or a name of baptism. A name, therefore, is essential to a corporation. The act of Parlia- ment in this case gives a name, viz. "The Conservators of the Biver Tone." Then, having a name, do these things which they are em- powered to do by this act show that they were intended to be a corporation ? The act begins by reciting that '.' J. Mallett, Esq., in pursuance of a commission under the great seal, in the reign of Charles the First, had, at a very great expense, made the river Tone navigable, in consideration whereof King Charles the Second granted to Mallett and his heirs the sole navigation of the river ; and that the interest of Mallett had become vested in the thirty persons therein named." It then enacts, " that the said thirty persons, and their successors, shall be conservators of the river Tone, and shall have power to make and maintain the same navigable." It therefore provides that the conservators shall have a succession ; and then, by a subsequent clause means are provided for filling up the number of conservators. The first of these 'clauses, therefore, shows a mani- fest intent that there should be a succession, and the second contains a provision whereby that succession may be rendered perpetual. 1 The other pleas and the detailed statement of facts are omitted. CHAP. 1.] CONSERVATORS OF THE RIVER TONE V. ASH, 25 Then the conservators are to do certain things towards making and keeping the river Tone navigable. They are to cut a channel through the lands of others, and make wharfs ; and as the doing of those things may be prejudicial to the inheritance of persons that have lands adjoining to the river, it is enacted that the conservators shall contract for the loss or damage which any of those persons shall re- ceive by making the river navigable ; and if any of the owners of the land and conservators cannot agree touching the value thereof, or if the title in possession, remainder, or reversion be in an infant, feme covert, or any other person unable in law to make a contract con- cerning any of the said lands, either for the present or so as to bind the inheritance and fee-simple of the same, a jury is to be summoned; and after the jury have assessed the value, and after payment of the money assessed, the conservators may enter on the land ; and if the parties interested in the land do not appear, the jury may proceed in their absence to determine the value, and their determination shall be valid, and vest an estate in fee-simple in the conservators and their successors. They are, therefore, to take lands in succession, as a corporation would do, and not by inheritance, as individuals. It then contains a provision for reimbursing the subscribers by tolls, and for lessening those tolls after they shall have been paid the principal advanced and interest ; and after they shall have been fullj"^ reimbursed, the surplus tolls are to be employed for the use of the poor of the two parishes therein mentioned. It then enacts, that for the better preserving and keeping the river Tone navigable when made so, there shall always be conservators of the said river, and that the persons therein named shall be conservators, to continue dur- ing their lives ; and that when the number shall be reduced to twenty, the survivors shall choose ten others to make up the number thirty, and they are enabled, by the name of " The Conservators of the River Tone, in the County of Somerset," to take and receive any gift, je^acy, or grant of goods, chattels, money, or lands in fee, or for any other estate or term for the uses aforesaid. What can be more directly forming them into a corporation, without using the word "incorporate"? It has been held that if the king grant land to the men of D., heeredlbus et successoribua suis, rendering rent, for anything touching this land they are a corporation, but for no other purpose. Rolle's Abr., tit. Corporation, 613, (F) pi. 15. There it is implied, from the word successoribus, that the king intended them to be a corporation. It is true, the rendering of rent is there stated to be essential. That may be to show that the king has not been de- ceived when he made the grant ; but that reason does not apply to the case of a corporation created by act of Parliament. Besides, the obligation of the conservators to advance money for the purpose of making the river navigable, and to perform the other duties cast upon them, is equivalent to, and more onerous than, the obligation imposed on the men of Dale to pay rent. The act of Parliament, therefore, 26 LIVERPOOL INSURANCE CO. V. MASSACHUSETTS. [CHAP. I. contains provisions which show a manifest intent in the Legisla- ture to make the Conservators of the River Tone a corporation ; and if that be so, then they are a corporation for all the purposes of keeping the river Tone navigable, and all the incidents of a corpora- tion will attach to them. The case of the Sutton Hospital (10 Coke, I'S) shows that it is not necessary that a thing incident to a corpora- tion should be conferred on it by express words in the charter which makes the corporation. One of the incidents to a corporation is, that it may sue and be sued in its coi'porate name. The several clauses of the act of Parliament which I have referred to are amply suflaeient to show that the conservators are a corporation; and if they are, then, as incident to a corporation, they have a right to sue and are liable to be sued by their corporate name. Any doubt on tliat point (if there were any) is removed by the clause which gives a special power to a committee of five of the conservators to make con- tracts in writing under their hands and seals, and to the conservators the right to sue, and imposes on them the liability to be sued on such contracts by the name of the Conservators of the River Tone. With- out such a provision they could only sue or be sued in respect of a contract entered into by the corporate body. The Legislature, there- fore, by making this special provision, must have assumed that for all matters done by the corporate body (and not by the committee) they may sue or be sued in their corporate name. I am therefore of opinion that the plaintiffs are a corporation, and are entitled to sue as such for any breaches of contract or for any trespasses committed on their property. Then, if that be so, the Conservators of the River Tone were in pos- session of property, and the defendants have committed a trespass on that property. They are, therefore, liable in this action, unless they can show that they were authorized to do the same by law.^ Judgment for the plaintiffs. LIVERPOOL INSURANCE COMPANY v. MASSACHUSETTS. (77 U. S. 566. 1870.) Eebor to the Supreme Judicial Court of Massachusetts ; the case being this : — A statute of the State just named imposes upon " each fire, marine, and fire and marine insurance company, incorporated or associated^ under the laws of any government or State other than one of the United States, a tax of 4 per cent, upon all premiums charged or re- ceived on contracts made in this Commonwealth for insurance of prop- erty." The same statute imposes a tax of but 2 per cent, upon such 1 The rest of this opinion and the concurring opinions of Bayley and Parke, JJ., are omitted. CHAP. I.] LIVERPOOL INSURANCE CO. V. MASSACHUSETTS. 27 premiums when the company is incorporated under the laws of any- one of the United States other than Massachusetts ; upon which pre- miums, where the company is incorporated by itself, it imposes but 1 per cent. ; while no tax is imposed by the laws of the State upon business of insurances transacted by any natural persons citizens of the same. With the enactment just mentioned on its statute-book, the State of Massachusetts, in 1868, filed a bill in its Supreme Judicial Court against the Liverpool and London Life and Fire Insurance Company (a company doing a large business in that State), to collect a tax of 4 per cent, on its premiums upon contracts made in Massachusetts for insurance of property, and to restrain the company from doing further business till the tax was paid. The company set up that it was not " incorporated " at all, but was an association, under the laws of Great Britain, of natural persons, some of whom were citizens and residents of the country just named, and some citizens and residents of the State of Kew York ; formed for the purpose of conducting the business of insurance under certain deeds of settlement, and having the legal character of a partnership ; that accordingly it could not be taxed as a " company incorporated under the laws of any government or State other than one of the United States ; " while in so far as the discriminating tax of 4 per cent, was sought to be laid against it as a company associated simply and not incorporated, it violated, in regard to the members of the company who were subjects of Great Britain, a provision in the treaty of 1815, between that country and the United States, by which it is agreed that the merchants and traders of each nation respectively shall enjoy the most complete protection and se- curity for their commerce ; and, in regard to the citizens of N'ew York, that provision in Section 2, Article 4 of the Federal Constitution, which secures to the citizens of each State all the privileges and immunities of citizens in the several States.^ The Supreme Judicial Court of Massachusetts gave a decree against the company, and enjoined it from the further prosecution of its busi- ness till the taxes found to be due were paid. The case was now brought to this court on the ground that in its application to the company, the statute of Massachusetts was in con- flict with the provisions of the Constitution, which confers on Con- gress the right to regulate commerce with foreign nations and among the States, and with that which secures to the citizens of each State all the privileges and immunities of citizens in the several States. Mr. Justice Miller delivered the opinion of the court : — The case of Paul v. Virginia (8 Wallace, 168), decided that the business of insurance, as ordinarily conducted, was not commerce, and that a corporation of one State, having an agency by which it con- ducted that business in another State, was not engaged in commerce between the States. * A part of the statement of facts is omitted. 28 LIVEEPOOL INSURANCE CO. V. MASSACHUSETTS. [CIIAP. I. It was also held in that case that a corporation was not a citizen within the meaning of that clause of the Constitution which declares that the citizens of each State shall be entitled to all the privileges and immunities of citizens in the several States, and that a corpora- tion created by a State could exercise none of the functions or priv- ileges conferred by its charter in any other State of the Union, except by the comity and consent of the latter. These propositions dispose of the case before us, if plaintiff is a for- eign corporation, and was, as such, conducting business in the State of Massachusetts, and we proceed to inquire into its character in this regard. The institution now known as the Liverpool & London Life and Fire Insurance Company, doing an immense business in England and in this country, was first organized at Liverpool by what is there called a deed of settlement, and would here be called articles of association. It will be seen by reference to the powers of the association, as or- ganized under the deed of settlement, legalized and enlarged by the acts of Parliament, that it possesses many if not all the attributes generally found in corporations for pecuniary profit which are deemed essential to their corporate character. 1. It has a distinctive and artificial name by which it can make contracts. 2. It has a statutory provision by which it can sue and be sued in the name of one of its officers as the representative of the whole body, which is bound by the judgment rendered in such suit. 3. It has provision for perpetual succession by the transfer and transmission of the shares of its capital stock, whereby new members are introduced in place of those who die or sell out. 4. Its existence as an entity apart from the shareholders is recog- nized by the act of Parliament, which enables it to sue its share- holders and be sued by them. The subject of the powers, duties, rights, and liabilities of corpora- tions, their essential nature and character, and their relation to the business transactions of the community, have undergone a change in this country within the last half century, the importance of which can hardly be overestimated. They have entered so extensively into the business of the country, the most important part of which is carried on by them as banking companies, railroad companies, express companies, telegraph com- panies, insurance companies, etc., and the demand for the use of cor- jiorate powers in combining the energy required to conduct these large operations is so imperative, that both by statute and by the ten- dency of the courts to meet the requirements of these public necessi- ties, the law of corporations has been so modified, liberalized, and enlarged, as to constitute a branch of jurisprudence with a code of its own, due mainly to very recent times. To attempt therefore, to de- CHAP. I.] LIVERPOOL INSURANCE CO. V. MASSACHUSETTS. 29 fine a corporation, or limit its powers by the rules wliicli prevailed when they were rarely created for any other than municipal purposes, and generally by royal charter, is impossible in this country and at this time. Most of the States of the Union have general laws by which per- sons associating themselves together, as the shareholders in this company have done, become a corporation. The banking business of the States of the Union is now conducted chiefly by corporations organized under a general law of Congress, and it is believed that in all the States the articles of association of this company would, if adopted with the usual formalities, constitute it a corporation under their general laws, or it would become so by such legislative ratification as is given by the acts of Parliament we have mentioned. To this view it is objected that the association is nothing but a partnership, because its members are liable individually for the debts of the company. But however the law on this subject may be held in England, it is quite certain that the principle of personal liability of the shareholders attaches to a very large proportion of the corpor- ations of this country, and it is a principle which has warm advocates for its universal application when the organization is for pecuniary gain. So also it is said that the fact that there is no provision either in the deed of settlement or the act of Parliament for the company suing or being sued in its artificial name forbids the corporate idea. But we see no real distinction in this respect between an act of Parliament which authorized suits in the name of the Liverpool & London Fire and Life Insurance Company, and that which authorized suit against that company in the name of its principal officer. If it can contract in the artificial name, and sue and be sued in the name of its officers on those contracts, it is in effect the same, for process would have to be served on some such officer even if the suit were in the artificial name. It is also urged that the several acts of Parliament we have men- tioned expressly declare that they shall not be held to constitute the body a corporation. But whatever may be the effect of such a declaration in the courts of that country, it cannot alter the essential nature of a corporation, or prevent the courts of another jurisdiction from inquiring into its true character whenever that may come in issue. It appears to have been the policy of the English law to attach certain consequences to incorporated bodies, which rendered it desirable that such associa- tions as these should not become technically corporations. Among these, it would seem from the provisions of these acts, is the exemption from individual liability of the shareholder for the contracts of the corporation. Such local policy can have no place here in determining whether an association whose powers are 30 THE QUEEN V. ARNAUD. [CHAP. I. ascertained and its privileges conferred by law, is an incorporated body. The question before us is whetlier an association, such as the one we are considering, in attempting to carry on its business in a man- ner wliich requires corporate powers under legislative sanction, can claim, in a jurisdiction foreign to the one which gave those powers, that it is only a partnership of individuals. We have no hesitation in holding that, as the law of corporations is understood in this country, the association is a corporation, and that the law of Massachusetts, which only permits it to exercise its corporate function in that State on the condition of payment of a specific tax, is no violation of the Federal Constitution or of any treaty protected by said Constitution. Mk. Justice Bradley. : — Wliilst I agree in the result which the court has reached, I differ from it on the question whether the company is a corporation. I think it one of those special partnerships which are called joint- stock companies, well known in England for nearly a century, and cannot maintain an action or be sued as a corporation in tliis coun- try without legislative aid. But as it is a company associated under the laws of a foreign country, it comes within the scope of the Mas- sachusetts statute, and cannot claim exemption from its operation for the causes alleged in that behalf. It could not have been the intent of the treaty of 1816 to prevent the States from imposing taxes or license laws upon either British corporations or joint-stock companies desiring to establish banking or insurance business therein. And certainly these companies cannot be exempted from such laws on the ground that citizens of other States have chosen to take some of their shares. Judgment affirmed. THE QUEEN v. AENAUD. (16i. /. N. 8. C. L. 50. 1846.) The judgment of the Court was delivered by ' Lord Denman, C. J. : — The object of the present mandamus is to compel the custom- house officers to register a vessel, the property of the Pacific Steam Navigation Company. The company is a corporation by charter of her present Majesty, for the purpose of providing vessels, and employing them in the Pacific Ocean. It is admitted by the de- fendants that the company, as a British corporation, might be owners of British-built vessels, and prima facie would be, as such corporation, entitled to register them, under the provisions of the ^ The statement of facts is omitted. OH A p. 1.] THE QUEEN V. ARNAUD. 31 8 & 9 Vict. c. 89, applicable to the registry of vessels by corporations. But it is said that some of the members of the corporation are not Britisli subjects, but foreigners ; and, consequently, that the vessel does not wholly belong to Her Majesty's subjects, as required by the 5th section of the act, and is within the prohibition contained in the 12th section of the act, against foreigners being entitled to be owners, in whole or in part, directly or indirectly, of any vessel requiring to be registered. Now, it appears to us that the British corporation is, as such, the sole owner of the ship, and a British subject within the meaning of the 5th section, as far as such a term can be applicable to a corporation, notwithstanding some foreigners may individually have shares in the company, and that such individual members of the cor- poration are not entitled, in whole or in part, directly or indirectly, to be owners of the vessel. The individual members of the corpora- tion, no doubt, are interested in one sense in the property of the cor- poration, as they may derive individual benefit from its increase, or loss from its destruction; but in no legal sense are the individual members the owners. If all the individuals of the corporation were duly qualified British subjects, they could not register the vessel in their individual names as owners ; but must register it as belonging wholly to the corporation as owner. The terms of the 23d section, with respect to the condition of the bond to be given upon obtaining the registry, as to foreigners purchasing or becoming entitled to any part or share of or interest in any ship or vessel, would appear to be applicable to a case of purchase or transfer of property in the vessel itself, as it provides that the certificate shall be delivered up " within seven days after such purchase or transfer of property in such ship," and does not, as it seems to us, bear materially on the present ques- tion. It was contended that the effect might be to defeat the object and policy of the navigation laws in this respect, inasmuch as the in- dividual members of the British corporation might, either originally or by transfer, be all foreigners. Such does not appear to be contem- plated or provided for by the act in question. If it be casus omissus, and evil consequences arise, they may be remedied by the interfer- ence of the Legislature, or possibly (though we do not wish to be understood as giving any opinion upon this point), by repealing the letters-patent, as improvidently giving powers operating to defeat the law and public policy, and, in future patents, by providing against the objection. But, as the case stands, it seems to us that the British corporation is, to all intents, the legal owner of the vessel, and enti- tled to the registry, and that we cannot notice any disqualification of an individual member, which might disable him, if owner, from regis- tering the vessel in his own name. There will, therefore, be judg- ment for the prosecutors, and a peremptory mandamus. Judgment for the Crown. 32 WILLIAMSON V. SMOOT. [CHAP. I. WILLIAMSON u. SMOOT, (7 Marlin {La.) 34. 1819.) Appeal from the court of the First District. Mathews, J., delivered the opinion of the court: — The plaintiffs having caused an attachment to be levied on the steamboat Alabama, the St. Stephens Steamboat Company intervened in -their corporate capacity, aud claimed her as their property. The intervening party are a body politic, created by an act of the Legis- lature of the territory of Alabama, the capital stock of which is divided iuto shares of a certain amount, and Smoot the defendant owns ten of them, subscribed for by him. The questions to be decided are, 1. Is it proper for our courts of justice to recognize, in their judicial proceedings, the company as a corporate body ? 2. Can the shares of stock of any individual stock- holder be legally attached ? I. The propriety or legality of one sovereign State acknowledging and favoring the rights and privileges of political bodies of another State, are opposed on the ground of their being in violation of the sovereignty of that which recognizes the acts of incorporation of the other, and to the prejudice of the rights of its citizens. It does not appear to this court that these things will of necessity result, in every case, from such acknowledgment and recognition. When at- tempts directly opposed to the sovereign power of a State and the rights of its citizens are made by the political bodies of another, they certainly ought to be repelled, and so ought such, if made by corpo- rations deriving their existence from the government under which they act. But as the present claim of the St. Stephens Steamboat Company is not of this nature, we are of opinion that they ought to be allowed to prosecute it in their corporate capacity. II. The existence of the claimants being recognized as a body cor- porate, and it being admitted that the boat attached belongs to them as a part of their common stock, it is clear that Smoot does not pos- sess such certain and distinct individual property in it as to make his interest attachable. The estate and rights of a corporation belong so completely to the body, that none of the individuals who compose it has any right of ownership in them, nor can -dispose of any part of them (Civ. Code, 88, art. 11). The court is of opinion that the district court erred in disallowing the claim of the company. It is therefore ordered, adjudged, and decreed that the judgment be annulled, avoided, and reversed, and that ,the attachment of the plaintiff and appellant be quashed so far as it relates to the said steamboat" the "Alabama," and that she be released therefrom. CHAP. I.] TOMLINSON V. BRICKLAYERS' UNION. 33 TOMLINSON V. BRICKLAYERS' UNION. ^(Jr? Tnd. 308. 1882.) Fkom the Superior Court of Marion County. HowK, J. : — The only question presented for decision by the record of this cause and the error assigned thereon is this : Does the complaint of the appellants, the plaintiffs below, state facts sufficient to constitute a cause of action ? In their complaint the appellants alleged, in substance, that on or about the 28th day of August, 1867, they and others formed a voluntary association, known as and named " The Bricklayers' Union of Indianapolis ; " that the objects of the association were to unite all practical bricklayers so as to secure concert of action in whatever tended to their interests, and to afford pecuniary aid to the members thereof, when disabled from sickness, accident, or misfortune ; that immediately upon the organization of the association a code of by-laws and constitution were adopted, fixing the amount of dues, fines, and assessments payable by each member of the association; that from 1867 to April, 1879, some five hundred or more members joined the association, among whom were the appellants, and each and all paid their money in dues, fines, and assessments, which money was placed in one general fund, until, in April, 1879, the same amounted to the sum of about eight thousand dollars, belonging to the said members as a joint and general fund for the benefit of each and all of them ; that after the association had been duly incorporated the appellants and many others, for whose benefit the appellants sued, to the number of five hundred, made and adopted the by-laws and constitution governing the asso- ciation ; that since such organization, and before, the appellants each and all, and about four hundred others whose names could not be given, because they were in books of which the appellee had control, contributed different amounts, and the same were under the control of the association, in trust for the appellants and the other members of the association, in which they all had a general interest ; that the association continued until about April, 1879, when a few of its members, twenty in number, without the knowledge, consent, or approval, or the legal right to do so, unlawfully, wrongfully, and secretly abandoned and pretended to dissolve the said corporation, and pretended to form a new association, to be known as "The Bricklayers' Union No. 1, of Indiana," the appellee, and as soon as the pretended new organization was formed they secretly, unlawfully, and wrongfully converted the said fund of the appellants and the other members of the old association to the use of the appellee, and the same was then in their or its possession ; and the appellee, al- VOL. I. — 3 34 TOMLINSON V. bricklayers' UNION. [CHAP. I. though often requested, refused to pay the same to the appellants and the other members of the old association, and refused to allow the appellants and other members of the first organization to partici- pate in the new organization, and refused them all rights of property the'rein, and claimed that the appellants , and those for whom they sued were not members thereof, and claimed the said fund as their own, and refused the appellants any and all benefits therefrom ; that at the time of said conversion and pretended dissolution, and the formation of the pretended new organization, the appellants and many others, for whom they sued, were members in good standing of the old association ; and that the defendants had also unlawfully converted all the lodge furniture and personal property, of the value of three hundred dollars, without right and wrongfully, to their own use, and then had possession thereof. The appellants further alleged that the appellee had forfeited its charter and corporate rights, by refusing to allow them to participate in the new organization ; and in this, that less than a quorum had pretended to transact business ; and in this, that its president had allowed money to be drawn contrary to its constitution ; and in this, that the recording secretary had failed to keep a correct record of the transactions of each meeting, and to make a quarterly report of such transactions, and to deliver to his successor the books, records, and property of the appellee ; and in this, that its financial secretary had failed to discharge his duties and been allowed to continue in office ; and in this, that its members were allowed to remain in good standing without paying dues, etc. ; and in this, that its treasurer had failed to discharge his duties ; and in this, that its trustees had converted the above described property of the old association to the exclusive use of appellee ; and in this, that it had used the money for other and different purposes than that specified in its constitu- tion; and in dissolving the Union, contrary to the terms of its constitution. Wherefore, etc. We are of the opinion that the appellee's demurrer, for the want of facts, was correctly sustained to the appellants' complaint. Con-' ceding all the facts stated in the complaint to be true as alleged, they constitute no cause of action in favor of the appellants and against the appellee. It will be seen that the wrongful conversion of the money and property of the first corporation is alleged to have been committed by its twenty seceding members, who were not made parties to this action. The complaint fails to show the appellee's liability for this wrongful conversion to the plaintiffs in this action. It is not alleged that the old corporation was dissolved in any legal manner, and it cannot be said, we think, that the secession of twenty members would or ought to work the dissolution of a corpor- ation having five hundred members. If the old corporation is still a legal entity, and it must be presumed to be such, at least until the contrary is shown, the right of action for the wrongful conversion' of CHAP. I.] WHEELOCK V. MOULTON. 35 its money and property would be in such old corporation, and not in any of its members, however numerous they were ; for the money and property of a corporation belong to it, and not to its individual members. It follows, therefore, that the complaint does not state a cause of action, in favor of the appellants, for the wrongful conver- sion of the money and property described therein. It seems to us, also, that the allegations of the complaint in rela- tion to the forfeiture of appellee's charter do not constitute a cause of action in favor of the appellants. If it were true that the ap- pellee and its officers and members had violated every section of its by-laws and constitution, it is certain, we think, that such violations would not give the appellants any right of action or legal cause of complaint against the appellee ; for it was not shown that the ap- pellants were members of the appellee-corporation. We have found no error in the record. The. judgment is affirmed, with costs. WHEELOCK V. MOULTON. (15 Vt. 519. 1843. In Chancery. This was an appeal from a decree of the Court of Chancery, in favor of the orator, upon a bill of foreclosure, in which the orator alleged, that the defendants, Moulton and Hutchinson, on the 3d day of September, 1835, by deed, under their hand and seal, in which they described themselves as " sole proprietors and owners of all the shares of the Woodstock Manufacturing Company," conveyed to the orator "a certain piece of land, lying and being in Woodstock, in the County of Windsor, and State of Vermont, described as follows, viz.: it being two hundred shares, numbers as follows, — No. 1. to two hundred, inclusive, one hundred dollars each share, and being ^11 the shares of said company in the capital stock of the manufactur- ing company established at Woodstock," etc. — to which deed there was a condition of defeasance upon the payment of a note of the same date, for the sum of f 14,000, executed by the said Moulton and Hutchinson to the orator ; that the consideration for said note was paid to said Moulton and Hutchinson for, and the same went to the use of, the said company ; that said company, though incorporated by statute, were not then organized, and had no officers appointed, but owned certain real estate (described), and claiming that the same was conveyed to the orator by said deed, and praying that said Moul- ton and Hutchinson, and said manufacturing company might be de- creed to pay the amount due on said note, or be foreclosed, etc. The defendants, Moulton and Hutchinson, did not make answer, and the bill, as to them, was taken as confessed. The manufacturing 36 WHEELOGK V. MOULTON. [CHAP. I. company answered, alleging an organization of the company and appointment of officers, on the 28th of February, 1836, the division of the stock into two hundred shares, and a deed from the defen- dant, Moulton, to the company, of all the land mentioned in the bill, in part payment for shares ; admitting the execution of the mortgage mentioned in the bill, but denying that it was intended as a convey- ance of anything more than the said two hundred shares, which, it was admitted, were all the shares in the company stock ; and deny- ing that the consideration of the note was received for, or went to the use of, said company. It was thereupon referred to a master to ascertain the amount due the orator, who reported the sum of $2,695.81, which the court de- creed should be paid by a certain time specified, or that, in default thereof, the defendants should be foreclosed, etc. Redfield, J. : — It is hardly necessary to say, that if the orators prevail here, it must be, as in all cases, secundum allegata et probata. This is a bill \ of foreclosure upon the land described, counting upon the deed, as a- mortgage of the land, executed by the company. It is neither a bill to compel the company to assume the payment of the debt, as one contracted by their agents for their benefit, nor to compel them to perfect an imperfect conveyance ; but merely a common bill of fore- closure, giving, as every pleader should do, the construction of the deed upon which the orator bases his claim. To enable the orator to succeed in the present bill, he must make out, 1st, that the deed is, in legal effect, the proper deed of the cor- poration; and, 2d, that it was the intention of the instrument to convey the land belonging to the company, instead of the shares. There is a prior question, which has been, to some extent, dis- cussed, but, as it is in no sense decisive of the case, it is not deemed expedient to devote much time to the examination of it. It is the question, how far the debt is the proper debt of the corporation. It would seem to be, in terms, the debt of agents, contracted, no doubt, for the benefit of the company. In this state of the case there is nothing improbable either in the agents mortgaging their shares in the corporation, or in the corporation mortgaging their land and building as security. I. Upon the question, how far the deed is, in terms, the deed of the corporation, it seems not a little diffic,ult to argue the affirmative from the contract. The deed is signed by the names of Moulton and Hutchinson, with no addition whatever, and, in the body of the deed, they describe themselves as " proprietors and owners of all the shares of the Woodstock Manufacturing Company." When it is considered that a corporation is a mere abstraction, a mere existence in law, and can act only by its votes, through its agents, and that a power to convey land must be strictly followed, it is in vain to argue that this deed is, in terms, or in legal effect, the deed of the corporation. CHAP. I.] WHEELOCK V. MOULTON. 37 It is well settled that, at common law, a corporation could only con- vey land by its corporate seal. 4 Kent's Com. 457. Eeal estate must always be conveyed according to the lex loci. And tiy the law of this State then in force, corporations could only convey their lands and real estate, by the deed of their president, reciting the vote of the corporation authorizing the conveyance. In order to bind the corporation, the deed must be theirs, expressly or by adoption. An- gell & Ames, 109, 115, 168. The fact that the signers of this deed ^ owned the whole of the shares will make no difference in regard to the necessity of a vote of the corporation in order to convey the land. The title to the land was in the corporation, not in the individual stockholders. The deed of one or of any number of the stockhold- ers will not affect the title of the land. The shareholders are not tenants in common of the land. They have no title whatever to any of the property of the corporation. It is true that one who owned all the shares might control the corporation, and so he could if he owned a majority of the shares ; but he could, in either case, do it only by a vote of the corporation, at a meeting held in strict accordance with the statutes of the corporation. This, in the present case, was not attempted. And the .deed is what its terms import, — that of Moulton and Hutchinson, in their .private capacity, as the own- ers of all the shares in the corporation, for the same reason that any man who professes to convey the title of land, or other property, does it as the owner of that property. So strict is the law in regard to the conveyance of land by a power, that had these persons been authorized by the vote of the corporation to convey the laud, this deed must have been wholly inoperative. Wilkes V. Berlc (2 East, 142) ; Roberts v. Button (14 Vt. 195), and cases there cited.' In this state of the case a majority of the court think there is no 1 good ground for sustaining the bill against the corporation. The decree of the Chancellor is reversed, and the cause remanded to the Court of Chancery, with this mandate, that the bill be dismissed with costs as to the corporation, and that the orator be suffered to take such a decree against Moulton and Hutchinson, the other de- fendants, as may be consistent with the scope and prayer of his bill and as he may be advised by counsel. I Part of the opinion relating to the construction of the deed is omitted. 38 BUTTON V. HOFFMAN. [CHAP. BUTTON V. HOFFMAN". (61 Wis. 20. 1884.) Appeal from the Circuit Court for Jackson County. The defendant appealed from a judgment in favor of the plaintiff. Okton, J. : — This is an action of replevin in which the title of the plaintiff to the property was put in issue by the answer. In his instructions to the jury the learned judge of the Circuit Court said : " I think the testimony is that the plaintiff had the title to the property." The evidence of the plaintiff's title was that the property belonged to a corporation known as " The Hayden & Smith Manufacturing Company," and that he purchased and became the sole owner of all the capital, stock of said corporation. As the plain- tiff in his testimony expressed it, '■' I bought all the stock. I own all the stock now. I became the absolute owner of the mill. It be- longed at that time to the company, and I am the company." There was no other evidence of the condition of the corporation at the time. Is this sufacient evidence of the plaintiff's title ? We think not. The learned counsel of the respondent in his brief says : " The prop- erty had formerly belonged to the Hayden & Smith Manufacturing Company, but the respondent had purchased and become the owner of all the stock of the company, and thus became its sole owner." From the very nature of a private business corporation, or, indeed, of any corporation, the stockholders are not the private and joint owners of its property. The corporation is the real, though artificial, person substituted for the natural persons who procured its creation and have pecuniary interests in it, in which all its property is vested, and by which it is controlled, managed, and disposed of. It must purchase, hold, grant, sell, and convey the corporate property, and do business, sue and be sued, plead and be impleaded, for corporate purposes by its corporate name. The corporation must do its busi- ness in a certain way, and by its regularly appointed ofB.cers and agents, whose acts are those of the corporation only as they are within the powers and purposes of the corporation. In an ordinary copartnership the members of it act as natural persons and as agents for each other, and with unlimited liability. But not so with a cor- poration ; its members, as natural persons, are merged in the corporate identity. Aug. & A. on Corp. §§ 40, 46, 100, 591, 595. A share of the capital stock of a corporation is defined to be a right to partake, according to the amount subscribed, of the surplus profits obtained from the use and disposal of the capital stock of the company to those purposes for which the company is constituted. Id. § 557. The corporation is the trustee for the management of the property. CHAP. I.] BUTTON V. HOFFMAN. 39 and the stockholders are the mere cestui que trusts. Gray v. Port- land Bank (3 Mass. 365) ; Eidman v. Bowman (4 Am. Corp. Gas. 350).. The right of alienation or assignment of the property is in the cor- poration alone, and this right is not affected by making the stock- holders individually liable for the corporate debts. Ang. & A. on Corp., § 191 ; Pope v. Brandon (2 Stewart (Ala.), 401) ; Whitwell v. Warner (20 Vt. 444). The property of the corporation is the mere in- strument whereby the stock is made to produce the profits, which are the dividends to be declared from time to time by corporate authority for the benefit of the stockholders, while the property itself, which produces them, continues to belong to the corporation. Bradley v. Holdsworth (3 Mees. & W. 422) ; Waltham Bank v. Walthani (10 Met. 334) ; Tippets v. Walker (4 Mass. 596). The corporation holds its property only for the purposes for which it was permitted to acquire it, and even the corporation caiinot divert it from such use, and a shareholder has no legal right to it, or the profits arising therefrom, until a lawful division is made by the directors or other proper offi- cers of the corporation, or by judicial determination. Ang. & A. on Corp. §§ 160, 190, 557; Hyatt v. Allen (4 Am. Corp. Cas. 624). A conveyance of all the capital stock to a purchaser gives to such pur- chaser only an equitable interest in the property to carry on business under the act of incorporation and in the corporate name, and the corporation is still the legal owner of the same. Wilde v. Jenkins (4 Paige, 481). A legal distribution of the property after a dissolution of the corporation and settlement of its affairs, is the inception of any title of a stockholder to it, although he be the sole stockholder. Ang. & A. on Corp. § 779 a. These general principles sufficiently establish the doctrine that the owner of all the capital stock of a corporation does not therefore own its property, or any of it, and does not himself become the corpora- tion, as a natural person, to own its property and do its business in his own name. While the corporation exists he is a mere stock- holder of it, and nothing else. The consequences of a violation of these principles would be that the stockholders would be the private and joint owners of the corporate property, and they could assume the powers of the corporation, and supersede its functions in its use and disposition for their own benefit without personal liability, and thus destroy the corporation, terminate its business, and defraud its creditors. The stockholders would be the owners of the property, and at the same time it would belong to the corporation. One stock- holder owning the whole capital stock could, of course, do what sev- eral stockholders could lawfully do. It is said in Utica v. Churchill (33 N. Y. 161), " the interest of a stockholder is of a collateral nature, and is not the interest of an owner;" and in Hyatt y. Allen (supra), that " a shareholder in a corporation has no legal title to its prop- erty or profits until a division is made." In Winona & St. P. R. R. Co. V. St. P. & S. C. R. R. Co. (23 Minn. 359), it is held that the cor- 40 BUTTON V. HOFFMAN. [CHAP. I. poration is still the absolute owner, and vested with the legal title of the property, and the real party in interest, although another party has become the owner of the sole beneficial interest in its rights, property, and immunities. In Baldwin v. Canfield (26 Minn. 43), it was held that the sole owner of the stock did not own the land of the corporation so as to convey the same. In Bartlett v. Brickett (14 Allen, 62), an action of replevin was brought by A., B., and C, as the " Trustees of the Ministerial Fund in the North Parish in Haverhill," which was the corporate name. In portions of the writ the plaintiffs were referred to as " the said trustees " and " the said plaintiffs." In the bond, " A., B., and C, trustees as aforesaid," became bound, and the officer, in his return, certified that he had taken a bond " from the within named A., B., and C," and the property was re- ceipted by " A., B., and C, plaintiffs." It was held that the action was not by the corporation, as it should have been, and judgment was rendered for the defendant. It is said in Van Allen v. Assessors (3 Wall. 584), " the corporation is the legal owner of all the property of the bank, both real and personal." In Wilde v. Jenkins {supra), where a copartnership bought all the properties and effects, together with the franchises, of a corporation, and elected themselves trustees of the corporation, it was held that the corporation was not dissolved, and that the legal title to the real and personal property was still in the corporation for their benefit. In Mickles v. R. C. Bank (11 Paige, 118), it was held that, although a corporation was deemed to have surrendered its charter for non-user, it was not dissolved, and would not be, until its dissolution was judicially declared, and that until then its property could be taken and sold by its judgment cred- itors. In Bennett v. Am. Art Union (5 Sandf. Super. Ct. 614), it was held that, " as a general rule, the whole title, legal and equitable (to its property), is vested in the corporation itself," and that the individual members have no other or greater interest in it than is expressly given to them by the charter, and the prayer of the com- plainant, as a shareholder in the Art Union, for an injunction against a certain disposition of its property, was denied because he had no interest in it. See, also, Goodwin v. Hardy (57 Me. 143). It is true that none of the above cases are precisely parallel with the present case in facts, but they are sufficiently analogous to be authority upon the principle that the plaintiff, as the sole stockholder of the corporation, is not the legal owner of its property. He may have an equitable interest in it, but in this action he must show a legal title to the property in himself in order to recover, and he has shown that such title is in another person. Timp v. Dockham (32 Wis. 146) ; Sensenhrenner v. Mathews (48 Wis. 250). In analogy to the above principle it was held in Murphy \. Hanrahan (50 Wis. 485), that the sole heirs of an estate did not have such a legal title to a promissory note given to their father as would entitle them to sue the maker upon it, because the title to it was in the administrator, CHAP. I.] BUTTON V. HOFFMAN. 41 and they could obtain the title only by administration and distribu- tion according to law. The heirs in that case certainly had as much equitable interest in that note as this plaintiif has in the property in controversy. The want of title to the property being fatal to the plaintiff's re- coTcry in the action between the present parties, other alleged errors will not be considered. By the Court. — The judgment of the Circuit Court is reversed, and the cause remanded for a new trial. , 42 FRANKLIN BRIDGE COMPANY V. WOOD. [CHAP. II. CHAPTER 11. CREATION AND CITIZENSHIP OF A CORPORATION. FRANKLIN BEIDGE COMPANY v. WOOD. (14 Ga. 80. 1853.) Assumpsit in Heard Superior Court. The Franklin Bridge Company was incorporated under the Act of the Legislature of 1843, to prescribe the mode of incorporating com- panies for certain purposes, by an order of the Inferior Court of Heard County. The company sued the defendant, Wood, for his subscription to their stock. The defendant pleaded that the company was not legally incor- porated ; contending that the act of the Legislature, referred to, was unconstitutional and void. Upon argument, the court held that the act aforesaid was uncon- stitutional, and nonsuited the plaintiffs. To this decision plaintiff excepted. By the Court, Lumpkin, J., deliyering the opinion : — Is the Act of 1843 and that of 1845, amendatory thereof, pointing out the manner of creating certain corporations and defining their rights, privileges, and liabilities, unconstitutional ? By the first section of the Act of 1843, it is provided " That when the persons interested shall desire to have any church, camp-ground, manufacturing company, trading company, ice company, fire company,, theatre company, or hotel company, bridge company, and ferry com- pany, incorporated, they shall petition in writing the Superior or Inferior Court of the county where such association may have been formed, or may desire to transact business for that purpose, setting forth the object of their association, and the privilege they desire to exercise, together with the name and style by which they desire to be incorporated ; and said court shall pass a rule or order, directing said petition to be entered of record on the minutes of said court." Section 2 enacts "That when such rule or order is passed, and said petition is entered of record, the said companies or associations shall have power respectively, under and by the name designated in their petition, to have and use a common seal; to contract and be contracted with ; to sue and be sued ; to answer and be answered unto in any court of law or equity ; to appoint such ofScers as they may ■CHAP. II.] FRANKLIN BRIDGE COMPANY V. WOOD. 43 deem necessary ; and to make such rules and regulations as they may think proper for their own government ; not contrary to the laws of this State ; but shall make no contracts or purchase or hold any prop- erty of any kind, except such as may be absolutely necessary to carry into effect the object of their incorporation. Nothing herein contained shall be so construed as to confer banking or insurance privileges on any company or association herein enumerated ; and the individual members of such manufacturing, trading, theatre, ice, and hotel com- panies, shall be bound for the punctual payment of all the contracts of said companies, as in case of partnership." The third section declares that " No company or association shall be incorporated under this act, for a longer period than fourteen years ; but the same may be renewed whenever necessary, according to the provisions of the first section of this act." The fourth section confers upon the Superior and Inferior Courts respectively, the power to change the names of individuals. Section fifth. "For entering any of said petitions and orders, and furnishing a certified copy thereof, the clerk shall be entitled to a fee of five dollars ; except in cases of applications by individuals for the change of names, — in which case, the clerk of said court shall be entitled to the fee of one dollar. And that such certified copy shall be evidence of the matters therein stated in any court of law and equity in this State." Cobb's Digest, 542, 543. By the A.ct of 1845 the provisions of the Act of 1843 are extended to all associations and companies whatever, except banks and insur- ance companies ; and the individual members of all such incorporations are made personally liable for all the contracts of said associations or companies. Ibid. The argument against the validity of the charter of the Franklin Bridge Company, created under these statutes, is this : — 1. That in England, corporations are created and exist by pre- scription, by Eoyal Charter, and by Act of Parliament. With us they are created by authority of the Legislature, and not otherwise. That to establish a corporation is to enact a law ; and that no power but the legislative body can do this. 2. That legislative power is vested under our Constitution, in the General Assembly, to consist of a Senate and House of Eepresenta- tives, to be elected at stated periods by the citizens of the respective counties. 3. And that the General Assembly is bound to exercise the power of making laws thus conferred upon them by the people in the pri- mordial compact, in the mode therein prescribed, and in none other; and that a law made in any other mode is unconstitutional and void. That the Legislature is but the agent of their constituents ; and that they cannot transfer authority delegated to them to any other body, corporate or otherwise, — not even to the Judiciary, a co-ordinate department of the government, unless expressly empowered by the 44 FRANKLIN BRIDGE COMPANY V. WOOD. [CHAP. II. Constitution to do so. That to do this would be to violate one of the fundamental axioms of jurisprudence as vfell as of political science, namely, delegata potestas non potest delegarl. That to do this would not only be to disregard the constitutional inhibition whicih is binding upon the representative, but by shifting responsibility introduce inno- vations upon our system, which would result in the overthrow and ultimate destruction of our political fabric. The constitutional inquiry thus presented is an exceedingly grave one. It reaches far beyond the case made in the bill of exceptions, and extends to the whole range of topics which fall under legislative cognizance. In the view we take however of the statutes before us, no such proposition as that which has been discussed is presented for our adjudication. And we rejoice that it is so, not only on ac- count of the delicacy of the task, in pronouncing an act of Legisla- ture unconstitutional and void, — one which is never justifiable unless the case is clear and free from doubt; and even then one might almost be forgiven for shrinking from the performance of a duty which would be productive of such incalculable mischief and confu- sion. Bridges have been built at a heavy expense; manufacturing and innumerable other associations have been formed in Georgia, and are in full operation, under charters incorporated under this law. And in view of the consequences any court might hesitate, unless the repugnance between the statute and the Constitution was so palpa- ble as to admit of no doubt, and produce a settled conviction of their incompatibility with each other. 4. It was formerly asserted that in England the act of incorpora- tion must be the immediate act of the king himself, and that he could not grant a license to another to create a corporation. 10 Reports, 27. But Messrs. Angell and Ames, in their Treatise on Corporations, state that the law has since been settled to the contrary ; and that the king may not only grant a license to a subject to erect a particular corporation, but give a general power by charter to erect corpora- tions indefinitely, on the principle that qui facit per aliumfacit per se ; that the persons to whom the power is delegated of establishing corporations, are only an instrument in the hands of the government. 1 Kyd, 50 ; 1 Black. Com. ; Aug. & Am. 63. Before the revolution, charters of incorporation were granted by the proprietaries of Pennsylvania under a derivative authority from the Crown ; and those charters have since been recognized as valid. 3 Wilson's Lectures, 409. A similar power has been delegated by the Legislature of Pennsylvania with regard to churches. 7 S. & E. 517. The acts of the instrument in these cases become the acts of the mover, under the familiar maxim above mentioned. See also 1 Missouri R. 5. 5. Our opinion is that no legislative power is delegated to the courts by the acts under consideration. There is simply a ministe- rial act to be performed, — no discretion is given to the courts. The CHAP. II.] FKANKLIN BKIDGE COMPANY V. WOOD. 45 duty of passing tlie rule or order directing tlie petition of the corpo- rators to be entered of record on the minutes of the court, setting forth to the public the object of the association and the privilege they desire to exercise, together with the name and style by which they are to be called and known, is made obligatory upon the courts ; and should they refuse to discharge it, a mandamus would lie to coerce them. It is true the Legislature has seen fit to use the courts for the purpose of giving legal form to these companies. But it might have been done in any other way. Under the Free Banking Law of 1838, instead of petitioning the court, and having the order passed and entered upon its minutes, the certificate specifying the name of the association, its place of doing business, the amount of its capital stock, the names and residence of the shareholders, and the time for which the company was organized, is required merely to be proven and acknowledged, and recorded in the ofB.ce of the clerk of the Superior Court, where any office of the association is established, and a copy filed with the Comptroller General. Cobb's Digest, 107, 108. And so under the Act of 1847, authorizing the citizens of this State, and such others as they may associate with them, to prosecute the business of manufacturing with corporate powers and privileges. The persons who propose to embark in that branch of business are required to draw up a declaration specifying the objects of their association and the particular branch of business they intend carrying on, together with the name by which they will be known as a corpo- ration, and the amount of capital to be emploj'ed by them ; which declaration is required to be first recorded in the clerk's office of the Superior Court of the county where such corporation is located, and published once a week for two months in the two nearest Gazettes ; which being done, it is declared that said association shall become a body corporate and politic, and known as such, without being specially pleaded, id all courts of law and equity in this State, to be governed by the provisions and be subject to the liabilities therein specified. Cobb's Digest, 439, 440. In these two instances, and others which might be cited, the Legis- lature have dispensed with the action of the courts, or of any other agency, to carry out their enactments with regard to the various asso- ciations which have become the usual and favorite mode of conduct- ing the industrial pursuits of the civilized world in modern times. All these Statutes were complete as laws when they came from the hands of the Legislature, and did not depend for their force and effi- cacy upon the action or will of any other power. It is true that they could only take effect upon the happening of some event, such as fil- ing the petition or declaration, and giving publicity to the purpose of the association in the mode prescribed by the act. But if this were a good reason for regarding these statutes as invalid, then how few corporations could abide the test ! For it requires the acceptance of 46 KAILEOAD COMPANY V. HAREIS. [CHAP. II. the charter to create a corporate body; for the government cannot compel persons to become an incorporated body without their consent. And this consent, either express or implied, is generally subsequent in point of time to the creation of the charter. And yet, no charter that we are aware of has been adjudged invalid, because the law cre- ating it and previously defining its powers, rights, capacities, and lia- bilities, did not take effect until the acceptance of the corporate body, or at least a majority of them, was signified. The result therefore of our deliberation upon this case is, that the Acts of 1843 and 1846, vesting in all associations, except for banking and insurance, the power of self-incorporation, do not impugn the Constitution, and that the charter of the Franklin Bridge Company and all others created under them, and in conformity to their provis- ions, are legal and valid. With the policy of these Statutes we have nothing to do. The province of this and all other courts is jus dicere, not jtts dare. Judgment reversed. RAILROAD COMPANY v. HARRIS. (12 Wall. 65. 1870.) Mk. Justice Swayne delivered the opinion of the court : * — This is a writ of error to the Supreme Court of the District of Columbia. Harris sued the Baltimore and Ohio Railroad Company for injuries which he received by a collision. The declaration sets out that the company is a corporation established by law by the name of the Bal- timore and Ohio Railroad Company, having a legal and recognized existence within the limits of the District of Columbia, and exercis- ing there their corporate rights and privileges in the making of con- tracts and receiving freight and passengers for transportation upon their roads from the city of Washington to the Ohio river ; that at the city of Washington, on the 23d of October, 1864, the plaintiff, wishing to be transported by the company over their roads to the Ohio river and towards the city of Columbus in the State of Ohio, for the sum of fifteen dollars, paid to the company, purchased of them a ticket for a seat and passage in their cars, to be transported along their roads from the city of Washington to the Ohio river a;nd towards the city of Columbus ; that in pursuance of this contract he took his seat in one of the cars of the company ; that the com- pany, in consideration of the money so paid, undertook and promised to transport him safely to the Ohio river ; that the company managed their trains so negligently and carelessly that two trains, running in opposite directions, came in collision near Mannington, in the ' The statement of facts is omitted. UHAP. il.J KAILKOAD COMPANY V. HARRIS. 47 State of Virginia, whereby the plaintiff received the injuries com- plained of. The company pleaded two pleas in abatement. (1 ) . That the company was not an inhabitant of the District of Columbia when the writ was served. (2) That the company was not found in the' .District of Columbia when the writ was served. To the first plea Harris replied, that the company was an inhabi- tant of the District of Columbia by virtue of certain acts of Congress, the dates and titles of which are set forth, and that they had ac- cepted the provisions of those acts and constructed their roads under them, availing themselves of the privileges thus conferred, and doing business under them in the District of Columbia. To the second plea he replied that the company was found within the District of Columbia when the writ was served, and was within the jurisdiction of the court by virtue of the acts of Congress mentioned in the first replication. The company demurred to these replications. The demurrers were overruled. The company thereupon filed the general issue of not guilty. The cause was tried by a jury and a verdict found for the plaintiff, upon which judgment was entered. Upon the trial the counsel for the company prayed the court to instruct the jury that upon the evidence before them the plaintiff was not entitled to recover. The court refused to give this instruc- tion, and the company excepted. Other exceptions appear by the record to have been taken, but they were not embodied in a bill of exceptions, and we cannot therefore consider them. The errors in- sisted upon here, at the first argument of the case, were: — The overruling of the demurrers to the replications to the pleas in abatement. The refusal of the court to give the instruction above set forth. And that the declaration is fatally defective, wherefore the judg- ment should have been arrested, and must now be reversed. When the case was first considered by this court in conference, it was found that while all the judges were of opinion that the judg- ment should be affirmed, there was a difference of opinion upon the question whether the acts of Congress and the statutes of Virginia relating to the company created a new and distinct corporation in the District of Columbia and in the State of Virginia respectively, or whether they were only enabling acts in respect to the corporation under the name of the " Baltimore and Ohio Railroad Company," as originally created by the State of Maryland. Subsequently the ques- tion was ordered to stand for reargument, and it has been reargued by the counsel on both sides. As the solution of this question must determine to a large extent the grounds upon which the judgment of the court is to be placed, it is necessary carefully to consider the subject. The Baltimore and Ohio Eailroad Company was incorporated by an act of the Legislature of Maryland, passed on the 28th of February, 48 RAILROAD COMPANY V. HARRIS. [CHAP. IT. 1827. On the 8th of March following, the Legislature of Virginia passed an act whereby, after reciting the Maryland act, it was de- clared " 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 obligations as are imposed by said act ; and the same rights, pri- vileges, and immunities which are reserved to the State of Maryland or to the citizens thereof are hereby reserved to the State of Virgi- nia and her citizens." Several other statutes relating to the company were subsequently passed in Virginia, but they do not materially affect the question under consideration, and need not be more particularly adverted to. By an act of the Legislature of Maryland, of the 22d of February, 1831, the company was authorized to build a lateral road to the line of the District of Columbia. On the 2d of March, 1831, Congress passed an act which, after reciting, by a preamble, the original act of incorporation, enacted, " that the Baltimore and Ohio Railroad Com- pany, incorporated by the said act of the General Assembly of the State of Maryland, shall be, and they are hereby, authorized to ex- tend into and within the District of Columbia a lateral railroad. . . . And the said Baltimore and Ohio Railroad Company are hereby authorized to exercise the same powers, rights, and privileges, and shall be subject to the same restrictions, in the construction and extension of the said lateral road into and within the said District, as they maj' exercise or be subject to under or by virtue of the said act of incorporation in the extension and construction of any railroad within the State of Maryland, and shall be entitled to the same rights, benefits, and immunities in the use of said road and in regard thereto as are provided in the said charter, except the right to con- struct any lateral road or roads in said District from said lateral road." A number of local regulations follow, which are not material tOfbe considered. A supplementary act of the Legislature of Mary- land, passed March 14, 1832, provided that the stock issued by the company to complete this lateral road " shall, united, form the capi- tal upon which the net profits derived from the use of said road shall be apportioned," etc. The act of Congress of February 26, 1834, and of March 3, 1835, are confined to matters of detail, and may be laid out of view. When the case was reargued as directed by this court, the counsel for the company admitted that the acts of Congress in question were only enabling acts, and that they did not create a new corporation, but they insisted that the acts of Virginia were of a different char- acter, and that they worked that result. As regards the point under consideration we find no substantial difference. In both, the original Maryland act of incorporation is re- ferred to, but neither expressly or by implication create a new corpor- ation. The company was chartered to construct a road in Virginia CHAP. II.] EAILKOAD COMPANY V. HARRIS. 49 as well as m Maryland. The latter could not be done without the consent of Virginia. That consent was given upon the terms which she thought proper to prescribe. With a few exceptions, not material to the question before us, they were the same as to powers, privileges, obligations, restrictions, and liabilities as those contained in the ori- ginal charter. The permission was broad and comprehensive in its scope, but it was a license and nothing more. It was given to the Maryland corporation as such, and that body was the same in all its elements and in its identity afterwards as before. In its name, lo- cality, capital stock, the election and power of its officers, in the mode of declaring dividends, and doing all its business, its unity was unchanged. Only the sphere of its operations was enlarged. In what it does in Virginia the same principle is involved as in the transactions of the Georgia corporation in Alabama which came un- der the consideration of this court in The Bank of Augusta v. Earle (13 Peters, 558). The distinction is that here the assent of the for- eign authority is express, while there it was implied. A corporation is in law, for civil purposes, deemed a person. It may sue and be sued, grant and receive, and do all other acts not ultra vires which a natural person could do. The chief point of difference between the natural and the artificial person is that the former may do whatever is not forbidden by law ; the latter can do only what is authorized by its charter. It cannot migrate, but may exercise its authority in a for- eign territory upon §uch conditions as may be prescribed by the law of the place. One of these conditions may be that it shall consent to be sued there. If it do business there it will be presumed to have assented and will be bound accordingly. Lafayette Ins. Co. v. French (18 Howard, 405). For the purposes of Federal jurisdiction it is re- garded as if it were a citizen of the State where it was created, and no averment or proof as to the citizenship of its members elsewhere will be permitted. There is a presumption of law which is conclu- sive. Louisville, Cincinnati & Charleston Railroad Co. v. Letson (2 Howard, 497) ; Marshall y. The Baltimore & Ohio Railroad Co., (16 lb. 329) ; Ohio & Mississippi Railroad Co. v. Wheeler (1 Black, 297). • We see no reason why several States cannot, by competent legisla- tion, unite in creating the same corporation or in combining several pre-existing corporations into a single one. The Philadelphia, Wil- mington, and Baltimore Railroad Company is one of the latter description. In the case of that company against Maryland (10 Howard, 392), Chief Justice Taney, in delivering the opinion of this court, said : " The plaintiff in error is a corporation composed of several railroad companies, which had been previously chartered by the States of Maryland, Delaware, and Pennsylvania, and which, by corresponding laws of the respective States, were united together and form one corporation, under the name and style of The Phila- delphia, Wilmington, and Baltimore Railroad Company. The road VOL. I. — 4 50 RAILROAD COMPANY V. HARRIS. [CHAP. 11. of this corporation extends from Philadelphia to Baltimore." He gives the history of the legislation by which this result was pro- duced. No question was raised on the subject, but the opinion assumes the valid existence of the corporation thus created. The case was brought into this court under the 25th section of the Judici- ary Act of 1789. The jurisdictional effect of the existence of such a corporation, as regards the Federal courts, is the same as that of a co-partnership of individual citizens residing in different States. Nor do we see any reason why one State may not make a corporation of another State, as there organized and conducted, a corporation of its own, quo ad hoc any property within its territorial jurisdiction. That this may be done was distinctly held in The Ohio and Missis- sippi Bailroad Co. v. Wheeler (1 Black, 297). It is well settled that corporations of one State may exercise their faculties in an- other, so far, and on such terms, and to such extent as may be per- mitted by the latter. Blackstone Manufacturing Co. v. Inhabitants, &c. (13 Gray, 489) ; Bank of Augusta v. Earle (13 Peters, 688). We hold that the case before us is within this labter category. The question is always one of legislative intent, and not of legislative power or legal possibility. So far as there is anything in the lan- guage of the court in the case of The Ohio and Mississippi Railroad Co. V. Wheeler, in conflict with what has been here said, it is in- tended to be restrained and qualified by this opinion. We will add, however, that as the case appears in the report, we think the judg- ment of the court was correctly given. It was the case of an In- diana railroad company licensed by Ohio, suing a citizen of Indiana in the Federal court of that State. In The Baltimore and Ohio Railroad Co. v. Gallahue^s Adminis- trator (12 Grattan, 658), it was held by the Court of Appeals of Virginia that the company was suable in that State. In this we concur. We think this condition is clearly implied in the license, and that the company, by constructing its road there, assented to it. The authority of that case was recognized by the Court of Appeals of West Virginia, in Goshorn v. The Supervisors (1 West Virginia, 308), and in The Baltimore and Ohio Railroad Co. v. The Supervisors et al. (3 Id. 319). Here the question is whether the company was suable in the District of Columbia. In the case reported in Grattan, it was said : " It would be a startling proposition if in all such cases citizens of Virginia and others should be denied all remedy in her courts, for causes of action arising under contracts and acts entered into or done within her. territory, and should be turned over to the courts and laws of a sister State to seek redress." The same considerations apply to the case before us. When this suit was commenced, if the theory maintained by the counsel for the plaintiff in error be correct, however large or small the cause of action, and whether it were a proper one for legal or equitable cognizance, there could be no legal redress short of the seat of the company in another CHAP. II.] RAILROAD COMPANY V. HARRIS. 51 State. In many instances the cost of the remedy would have largely exceeded the value of its fruits. In suits local in their character, both at law and in equity, there could be no relief. The result would be, to a large extent, immunity from all legal responsibility. It is not to be supposed that Congress intended that the important powers and privileges granted should be followed by such results. But turning our attention from this view of the subject and look- ing at the statute alone, and reading it by its own light, we entertain no doubt that it made the company liable to suit, where this suit was broiight in all respects as if it had been an independent corpora- tion of the same locality. We will now consider, specifically, the several objections to the judgment, relied upon by the plaintiffs in error. The pleas in abatement were bad. The demurrers reached back to the first error in the pleadings, and judgment was properly given against the party who committed it. If the replications were bad, bad replications were sufficient answers to bad pleas. But it is said the declaration was bad, and that the demurrers brought the defect in that pleading under review. The principle has no application where the defect is one of form and not of substance. Aurora City V. West (7 Wallace, 82). The alleged defect in the declaration will be considered in connec- tion with the error assigned relating to that subject. But if the court decided erroneously, the company waived the error by pleading over in bar. If it were desired to bring up the judgment upon the pleadings for examination by this court, the company should have stood by the demurrers. In the proper order of pleading, which is obligatory, a plea in bar waives all pleas, and the right to plead, in abatement. Young v. Martin (8 Wallace, 354) ; Aurora City v. West (7 Id. 92) ; Clearwater v. Meredith (1 Id. 42) ; 1 Chitty's Pleading, 440, 441. The bill of exceptions which brought upon the record the refusal of the court to instruct the jury that the plaintiff was not entitled to recover, exhibits, among others, the following facts : Harris con- tracted, paid his money, and received his tickets at the city of Washington. The tickets consisted of three coupons, — one for his passage from Baltimore to Columbus, Ohio, another for his passage from Washington Junction to Baltimore, and the third for his pas- sage from Washington City to Washington Junction. It is neces- sary to consider only the two last mentioned. They are both headed "Baltimore and Ohio Railroad," and signed "L. M. Cole, general ticket agent." Above the coupon first mentioned is this memoran- dum : " Eesponsibility for safety of person or loss of baggage on each portion of the route is confined to the proprietors of that por- tion alone." Each coupon has printed on its face the words " Condi- tioned as above." The coupon last mentioned gave Harris the right of passage over the lateral branch both in the District of Columbia 52 EAILROAD COMPANY V. HAUUIS. [CHAP. II. and iu Maryland. The second coupon gave him the same right in respect to the main stem both in Maryland and in Virginia. The instruction asked for assumed erroneously that there were two. corporations under the same name, one of them in Virginia, and that the latter was liable and alone liable to the plaintiff. The attempted limitation of responsibility by the memoranda at the head and on the face of the coupons proceeded upon the same erroneous assump- tion as to the duality of the corporate ownership of the roads. These views are sufficiently answered by what has been already said upon the subject. But if we concurred with the counsel for the plaintiff in error we should then hold that the agent who issued the coupons was the agent of both corporations ; that the contract was a joint one ; and that it involved a joint liability, unless the knowl- edge of the memoranda on the coupons and the assent of the plain- tiff were clearly brought, home to him. Bissell v. Michigan S. & Northern Indiana Railroad Co. (22 N. Y. 258) ; Champion v. Bost- vtick (18 Wendell, 175) ; Cary v. Cleveland & Toledo Railroad Go. (29 Barbour, 35) ; Quimhij v. Vanderhilt (17 N. Y. 306) ; Najac v. Boston & Lowell Railroad Co. (7 Allen, 329) ; The Great Western Railway Co. v. Blake (7 Hurlstone & Norman, 987). In all such cases the burden of proof rests upon the carrier; New Jersey Steam Nao. Co. V. The Merchants^ Bank (6 Howard, 388) ; Brown v. Eastern Railroad Co. (11 Gushing, 97) ; Bean v. Green et al. (8 Pairfield, 422) ; Dorr V. The New Jersey Steam Nav. Co. (4 Sandford, 136 ; s. c. 1 Kernan, 486). The bill of exceptions does not show that any testimony was given upon that subject. The court was asked to assume that the limitation on the face of coupons was itself conclu- sive, and to instruct the jury accordingly. But having held the unity of the corporation, of the proprietorship of the roads, and of the contract, it is needless further to consider the case in this aspect. The instruction asked for was properly refused The jurisdiction of the court was not governed by the 11th section of the Judiciary Act of 1789. It did not depend upon the citizenship of the parties. It was controlled by acts of Congress local to the district. A citizen of the district cannot sue in the Circuit Courts of a State. Hepburn v. JEllzey (2 Cranch, 445). If a corporation appear and defend in a foreign State it is bound by the judgment. An^el & Ames on Corporations, §§ 404, 405; Flanders v. Aetna Ins. Co. (3 Mason, 158) ; Cook v. The Champlain Transportation Co. (1 Denio, 98). If the declaration were insufficient, the additional averments in the replications admitted by the demurrer to be true,, cured the defect. Lafayette Insurance Co. v. French (18 Howard, 405). Judgment affirmed^ CHAP. II.] MULLER V. DOWS. 53 MULLEE, V. DOWS. (94 U. S. 444. 1876.) Appeal .from the Circuit Court of the United States for the District of Iowa. Me. Justice Strong delivered the opinion of the court : — The decree made below is assailed here for several reasons. The first is, that the court had no jurisdiction of the suit, in consequence of the want of proper and necessary citizenship of the parties. This objection was not taken in the Circuit Court, but it is of such a nature, that, if well founded, it must be regarded as fatal to the decree. The bill avers that Dows and Winston, two of the com- plainants, are citizens and residents of the State of New York, and that Burnes, the other complainant, is a citizen and resident of the State of Missouri. The two original defendants, the Chicago and Southwestern Railway Company, and the Chicago, Rock Island, and Pacific Railroad Company, are averred to be citizens of the State of Iowa. Were this all that the pleadings exhibit of the citizen- ship of the parties, it would not be enough to give the Circuit Court jurisdiction of the case. In The Lafayette Insurance Com- pany V. French et al. (18 How. 404), a similar averment was held to be insufficient, because it did not appear from it that the Lafayette 'Insurance Company was a corporation ; or, if it was, that it did not appear by the law of what State it was made a cor- poration. It was therefore ruled, that, if the defective averment had not been otherwise supplied, the suit must have been dis- missed. A corporation itself can be a citizen of no State in the sense in which the word "citizen" is used in the Constitution of the United States. A suit may be brought in the Federal courts by or against a corporation, but in such a case it is regarded as a suit brought by or against the stockholders of the corporation ; and, for the purposes of jurisdiction, it is conclusively presumed that all the stockholders are citizens of the State which, by its laws, created the corporation. It is, therefore, necessary that it be made to appear that the artificial being was brought into exist- ence by the law of some State other than that of which the ad- verse party is a citizen. Such an averment is usually made in the introduction, or in the stating part of the bill. It is always there made, if the bill is formally drafted. Rut if made anywhere in the pleadings, it is sufficient. In The Lafayette Insurance Com- pany V. French et al. {supra), the defective averment of citizen- ship was held to have been supplied by the plaintiff's replication to the plea, which alleged that the defendants were a corporation created under the laws of Indiana, having its principal place of 54 MULLER V. DOWS. [CHAP. II. business in that State. And, in the present case, we think the averment in the introduction of the bill, that the two defendant corporations were citizens of Iowa, which, if standing alone, would be insufficient to show jurisdiction in the Federal court, has been supplemented by other averments which satisfactorily show that the court had jurisdiction of the case. '.Che bill in its stating part alleges that the Chicago and Southwestern Railway Company, of the State of Iowa, was organized by the adoption of articles of • association in the manner provided by the laws of said State, and that, with all the powers, rights, and privileges granted and con- ferred on corporations by the then existing laws of the said State, it assumed to act. The articles of association are appended to the bill as an exhibit, and made part of it by proper reference. So are the articles of consolidation with a corporation of the same name of Mis- souri, in which the Chicago and Southwestern Railway Company in Iowa, is cited to be a body politic and corporate, organized and exist- ing under and by virtue of the laws of the State of Iowa. The aver- ments of the bill were generally admitted in the answers of both the. defendant companies. But this is not all. Throughout the plead- ings, the corporate existence under the laws of Iowa of both the companies is either admitted or asserted by all the original parties, and by the appellants, who were made parties after the suit had been some time in progress. The petition of the appellants to be made parties adopted another petition in which it was alleged that the Chicago, Rock Island, and Pacific Railroad Company was and is a corporation organized under and in pursuance of the laws of the States of Illinois and Iowa, and that the Chicago and Southwestern Railway Company was and is a corporation created under and by virtue of the laws of the States of Missouri and Iowa. Having been made parties, the appellants filed cross-bills against the present com- plainants and the two companies, in which they repeated the aver- ments they had previously adopted ; and the answer to the cross-bill made by all the defendants therein expressly admitted them. The record is thus seen to be full of showing that both the defendant corporations derived their existence as corporate bodies under the laws of Iowa, at least in part, and that they were corporations of that State. Still, it is argued on behalf of the appellants that the Chicago and Southwestern Railway Company cannot claim to be a corporation created by the laws of Iowa, because it was formed by a consolidation of the Iowa Company with another of the same name, chartered by the laws of Missouri, the consolidation having been allowed by the statutes of each State. Hence, it is argued, the corporation was cre- ated by the laws of Iowa and of Missouri; and as Burnes, one of the plaintiffs, is a citizen of Missouri, it is inferred that the Circuit Court had no jurisdiction. We cannot assent to this inference. It is true the provisions of the statutes of Iowa, respecting railroad consolida- CHAP, n.] MULLEE V. DOWS. 55 tion of roads within the State with others outside of the State, were that any railroad company, organized under the laws of the State, or that might thus be organized, should have power to intersect, join, and unite their railroads constructed or to be constructed in the State, or in any adjoining State, at such point on the State line, or at any other point, as might be mutually agreed upon by said companies ; and such railroads were authorized to " merge and consolidate the stock of tlie respective companies, making one joint-stock company of the railroads thus connected." The Missouri statutes contained similar proyisions ; and with these laws in force the consolidation of the Chicago and Southwestern railways was effected. The two com- panies became one. But in the State of Iowa that one was an Iowa cor[)oration, existing under the laws of that State alone. The laws of iMissouri had no operation in Iowa. It is, however, unnecessary to discuss this subject further. Doubt in regard to it is put at rest by the decision of this court in Railway Companij v. W/iitton's Admin- istrator (13 Wall. 270). There a similar question arose. A suit was brought by a citizen of Illinois in the State of Wisconsin, and it became a question whether the Federal Circuit Court of the latter State could entertain jurisdiction. The company, sued at first in the State court, resisted an application to remove the case into the United States Circuit Court, on affidavits that it was a corporation created by and existing under the laws of the States of Illinois and Wisconsin and Michigan ; that its line of railway was located, in part, in each of these States ; that its entire line of railway was managed and con- trolled by the defendant as a single corporation ; that all its powers and franchises were exercised, and its affairs managed and controlled, by one board of directors and officers ; that its principal office and place of business was at the city of Chicago, in the State of Illinois, and that there was no office for the control or management of the general business and affairs of the corporation in Wisconsin. Never- theless, the Circuit Court took jurisdiction of the case; and this court held correctly, remarking that "the defendant is a corporation, and as such a citizen of Wisconsin by the laws of that State. It is not there a corporation or citizen of any other State. Being there sued, it can only be brought into court as a citizen of that State, whatever its status or citizenship may be elsewhere." In view of this decision, it must be held that the objection to the jurisdiction of the Circuit Court of Iowa is unsustainable. The next objection urged against the decree of the court below is, that it is void so far as it directed the usual foreclosure and sale of property not within the teriitorial jurisdiction of the court. A part of the Chicago and Southwestern Railway is in the State of Mis- souri, and the mortgage which the bill sought to have foreclosed covered that part, as well as the part in the State of Iowa. The court decreed a sale of the entire property covered by the mortgage, and directed the master, who was ordered to make the sale, to exe- 56 MULLER V. DOWS. [CHAP. II. cute a good and sufficient deed or deeds to the purchaser. It also declared that after the sale both the defendant corporations and the complainants' trustees named in the mortgage, as well as all persons claiming under them or either of them, be barred and foreclosed from all interest, estate, right, claim, or equity of redemption of, in, and to the property ; reserving, however, the rights of the holders of the bonds and coupons secured by the first mortgage, then remaining outstanding and unpaid. It directed that the two defendant corpor- ations should surrender to the purchaser the property sold and con- veyed, upon the execution, approval, and delivery of the master's deed ; and that, as further assurance, the Chicago and Southwestern Railway Company should, on the approval and delivery of the mas- ter's deed, convey all the property therein described to the purchaser, by their good and sufficient deed. If such a foreclosure and sale cannot be made of a railroad which crosses a State line and is within two States, when the entire line is subject to one mortgage, it is certainly to be regretted, and to hold that it cannot be would be disastrous, not only to the companies that own the road, but to the holders of bonds seemed by the mortgage. Multitudes of bridges span navigable streams in the United States, streams that are boundaries of two States. These bridges are often mortgaged. Can it be that they cannot-be sold as entireties by the decree of a court which has jurisdiction of the mortgagors ? A vast number of railroads, partly iu oue State and partly in an adjoining State, forming continuous lines, have been constructed by consoli- dated companies, and mortgaged as entireties. It would be safe to say that more than one hundred millions of dollars have been in- vested on the faith of such mortgages. In many cases these invest- ments are sufficiently insecure at the best. But if the railroad, under legal process, can be sold only in fragments ; if, as in this case, where the mortgage is upon the whole line and includes the franchises of the corporation which made the mortgage, the decree of foreclosure and sale can reach only the part of the road which is within the State, — it is plain that the property must be compara- tively worthless at the sale. A part of a railroad may be of little value when its ownership is severed from the ownership of another part. And the franchise of the company is not capable of division. In view of this, before we can set aside the decree which was made, it ought to be made clearly to appear beyond the power of the court. Without reference to the English chancery decisions where this ob- jection to the decree would be quite untenable, we think the power of courts of chancery in this country is sufficient to authorize such, a decree as was here made. It is here undoubtedly a recognized doc- trine that a court of equity, sitting in a State and having jurisdiction of the person, may decree a conveyance by him of land in another State, and may enforce the decree by process against the defendant. True, it cannot send its process into that otlier State, nor can it CHAP. II.] MULLER V. DOWS. 57 deliver possession of land in another jurisdiction, but it can com- mand and enforce a transfer of the title. And there seems to be no reason why it cannot, in a proper case, effect the transfer by the agency of the trustees when they are complainants. In McElrath v. The Pittsburff & Steubenville Railroad Co. (55 Peun. St. 189), — a bill for foreclosure of a mortgage, — in which it appeared that a railroad company, whose road was partly in Pennsylvania and partly in West Virginia, had mortgaged all their rights in the whole road, the court decreed that the trustee who had brought the suit, being within its jurisdiction, should sell and convey all the mortgaged property, as well that in the State of West Virginia as that in Penn- sylvania. This case is directly in point, and tends to justify the decree made in the present case. The mortgagors here were within the jurisdiction of the court. So were the trustees of the mortgage. It was at the instance of the latter the master was ordered to make the sale. The court might have ordered the trustees to make it. The mortgagors who were foreclosed were enjoined against claiming the property after the master's sale, and directed to make a deed to the purchaser in further assurance. And the court can direct the trustees to make a deed to the purchaser in confirmation of the sale. We cannot, therefore, declare void the decree which was made. The next objection urged by the appellants is, that the bill for a foreclosure and all the proceedings therein were collusive. It is said the suit was instituted by collusion between the trustees and the Eock Island and Southwestern Railroad Companies, for the purpose of destroying the lien of the Atchinson branch bondholders on the main line of the Southwestern Railway, and to enable the Rock Island company to obtain the title to the main line, discharged from any lien or claim on the part of such bondholders. After careful examination of the evidence, we have failed to find anything that justifies this objection. And certainly, if there was collusion in bringing and conducting the suit, the appellants have not been in- jured by it. They were permitted to come jn as parties defendant, and they had full opportunity to assert their equities. The fourth objection is general. It is, that, at the time of filing the bill, no right of foreclosure existed in favor of the complainant trustees for the benefit of the Chicago and Rock Island Railway Company, or, if such a right did exist, that it had been waived. In respect to this objection we have to remark, that unless the right to a foreclosure had been waived by the Rock Island Company, we discover no foundation for the assertion that there was no right of foreclosure when the suit was brought. That company had indorsed $5,000,000 of the bonds of the Southwestern Company secured by the mortgage ; and, in consequence of the indorsement, had paid coupons for interest of the bonds to a large amount. The mortgage stipulated that it might be foreclosed, in case of fs,ilure by the mort- p-a'^or to pay the interest; and it stipulated further, that in case the 58 MULLEK V. DOWS. [CHAP. II. Eock Island Company should, in consequence of its guaranty, pay any of the bonds oi- coupons, the mortgage might be foreclosed at their instance. The right to foreclose at the instance of the Rock Island company was expressly given. Was there any waiver of this right ? We think not. It is said that the contract of July 27, 1871, coupled with the contract of Oct. 1, 1869, constituted a waiver. The contract first, made preceded and contemplated the execution of the mortgage. It gave to the Roeklsland Company the option of fur- nishing the equipment for the Southwestern road, or to lease and operate it on such terms as might be agreed upon. Manifestly, this was for an additional security to the guarantors of the bonds, and not for a substituted security. And the contract of July 27, 1871, made between the Rock Island Company and the Southwestern, merely provided that, with regard to the lease of the branch railroad proposed to be constructed by the latter to the Missouri River, op- posite Atchinson, it should be used and operated by the Rock Island road in the same manner and on the same terms as the main line of the Southwestern. The meaning of this is, not that a lease existed, or should be taken, though one may have been contemplated, but that the branch road should be operated in the same manner and on the same terms as the main line might be. How this contract alone, or connected with the contract of Oct. 1, 1869, can be construed as a waiver of a right to sue for foreclosure of the mortgage on the main line, we are unable to comprehend. Nor can we see that the con- tract of Dec. 4, 1871, called a " lease contract," even if it be regarded as an executed and subsisting contract, can have such an effect. We have heretofore said that the agreement to give and take a lease, de- pendent on the option of the Rock Island Company, was intended as an additional security to that company for its indorsement of the bonds. If we are correct, a lease executed in pursuance of the agree- ment could be only cumulative security. Hence, it could be no waiver of the right to foreclose. But, in fact, there was no lease, nor any agreement for a lease, that could be enforced specifically. The language of the agreement of Oct. 1, 1869, and that of the agreement of July 27, 1871, warrant no interpretation that makes them a lease in law, or in equity. The first, it is true, contemplated the possibility of a lease of the main line, if the terms could be agreed upon; and the latter pro- vided that when such lease should be agreed upon, if ever, it should also embrace the branch line. But the terms never were agreed upon. On the thirtieth day of October, 1871, at a meeting of the executive committee of the Rock Island Company, Messrs. Scott and Riddle were appointed a sub-committee "to agree upon the basis of a contract for a running arrangement between the company and the Southwestern, with directions to report to the general committee when an arrangement should be agreed upon." On the fourth of December, 1871, a proposition was submitted by that sub-committee CHAP. II.J iMULLER V. DOWS. 59 to the of&cers of the Southwestern, and accepted by them. It was a proposition for a lease. But the sab-committee had no authority to agree, for the Rock Island Cjnipany to take a lease, and when, after- wards, they reported their action to the general committee, that com mittee refused to confirm it. It is vain, therefore, to contend that there was a lease, or any agreement for a lease, that can be enforced. And, even if there was, there is no evidence that one of its terms was that the rent should be sufficient for the payment, and should be ap plied to the payment, of the Atchinson branch bonds. It is next insisted on behalf of the appellants, that the Rock Island Company could not ask for a foreclosure of the mortgages until it had accounted for and applied the stock of the Southwestern Com- pany to its indemnification for its guaranty, for which purpose it held such stock as security. The company did hold a large amount of that stock. Whether it held it as an indemnity for the liabilities it had assumed, we do not care to inquire. Assuming that it did, the fact is quite immaterial. It surely cannot be maintained that a surety who held several securities for his indemnity cannot use one of them because he has another to which he might resort. The fifth particular in which the decree is alleged to have been erroneous is, that it denied the relief for which the appellants prayed in their cross-bill. That relief was the enforcement of what is called the lease 'contract of Dec. 4, 1871, or the enforcement of the contract of July 27, 1871, by a lease of the branch line, on terms and condi- tions to be derived from the contract of Oct. 1, 1869 ; that is to say, the rental to be paid by the Rock Island Company to be an amount sufficient to guarantee the principal, or at least the interest, of the Atchinson branch bonds. The answer to this is what we have here- tofore said. There was no lease, nor any contract which bound the Rock Island Company to take a lease, much less to pay a rental sufficient to guarantee the principal or interest of the Atchinson branch bonds, or to apply the rent to the payment of that principal or interest. The appellants also, in their cross-bill, prayed in the alternative that the bonds of the branch road, held by them, might be deemed to have been obtained under false and fraudulent pretences, and that the proceeds thereof were paid out by the Rock Island Company know- ingly, fraudulently, and in violation of a trust assumed by them, and that the said company might be decreed to pay to them the par value of the same and interest. We have sought in vain for any evidence that would justify a de- cree that the Rock Island Company obtained the bonds of the branch road by fraudulent pretences, or that it knowingly, fraudulently, and in violation of any trust assumed by it, paid out the proceeds of sale of the bonds. By the provisions of the branch mortgage the Rock Island Company was made the custodian of the bonds, with power and direction to pay them and their proceeds to the president or other 60 MULLER V. DOWS. [CHAP. 11. duly authorized agent of the Southwestern Company, in three contingencies : First, upon the delivery of an invoice of ai tifles purchased, approved by the president ; second, upon the presentation of monthly estimates by the engineer of the Southwestern of work done and materials furnished in the construction of the branch rail- way, approved in the same manner ; and, third, on the certificate of the same engineer, approved in like manner, that the road had been completed and was in running order. If this constituted a trust, it was only that of a custodian. The Eock Island Company had no right to control the location of the branch road, or the cost of its con- struction. It was not its duty to supervise the contracts or direct the alignment. Such action would have been outside of its corporate power. If some persons who were its of&cers undertook to control the expenditure in such a manner as to secure a proper location and construction of the road (of which we discover no sufficient evidence), those persons may be responsible for their breach of duty, if there was any. But no such trust was assumed by the Eock Island Com- pany. Certainly, then, there was no undertaking that the branch road should be fifty miles long ; and, if it was imperfectly constructed, it appears that the Eock Island Company has expended upon its con- struction a very large sum of its own money, and has made it a first- class Western road. If, then, there was such a trust as is charged by the appellants, and a breach of it, full compensation has been made, and the appellants have all the security the trust was in- tended to give them ; that is, a first mortgage upon a finished first- class road. The last objection to the decree is, that the relief prayed for by the cross-bills of the two defendants railroad companies should not have been granted, for the following reasons : 1st, If the original suit fails for want of jurisdiction, so must the cross-bills. 2d, The cross-bills were nullities, because filed without leave of the court, and because not making the intervening bondholders parties. 3d, Because col- lusive. We have seen the court had jurisdiction of the original suit. The permission of the court to file the cross-bills must be presumed from its action upon them, and the intervening bondholders were not parties or necessary parties when the bills were filed. They became parties to the original bill, but they did not ask to be made parties to the cross-bills of the defendant corporations. That the cross-bills were collusive in their origin, purpose, and conduct, if such was the fact, which we do not perceive, is of no importance, since the appel- lants had an unobstructed opportunity to vindicate their rights. They might, if they had chosen, have become parties defendant to the cross-bills, and, if they had, they could not have resisted the relief given by the court. The appellants are, no doubt, unfortunate. It may be that they purchased their bonds, expecting that the Eock Island Company would protect them, either by taking a lease of the branch road, or CHAP. II.J STOUT V. RAILROAD COMPANY. 61 by holding the purchase-money of the bonds and expending it for their security. But the expectation of a guaranty cannot be treated as a guaranty itself. Decree affirmed. STOUT V. EAILROAD COMPAJSTY. (ZMcCrary,\. 1881.) McCkary, Cikcuit Judge : — This case is before the court on a plea to the jurisdiction, which presents for consideration a question of importance in its application to this case, and probably to otiher cases in this district. The facts are agreed upon, and are as follows : — Plaintiff, a citizen of Nebraska, sues the defendant, alleging that it is a citizen of Iowa, to recover damages for personal injuries sus- tained, as he alleges, at the town of Blair, Nebraska, on the twenty- seventh day bf March, 1869, through the negligence of defendant in the management of a railroad then possessed and operated by it in Nebraska. The said defendant, the Sioux City & Pacific Eailroad Company, was duly organized and incorporated under the laws of Iowa in 1864. Prior to the year 1870 it built a railroad in the State of Iowa, and also extended the same into and built a railroad in the State of Nebraska. On the twenty-first day of September, 1869, the defendant filed a true copy of its original articles of incorporation in the oiRce of the secretary of state of the State of Nebraska. De- fendant still owns and operates said line of railroad in the States of Iowa and Nebraska, and has had from the beginning its principal place of business at Cedar Rapids, Iowa. By an act of the General Assembly of Nebraska, approved February 12, 1869, it is provided : " That any railroad company heretofore organized under the laws of the States of Kansas, Missouri, or Iowa, is hereby authorized to ex- tend and build its road into the State of Nebraska ; and such railroad companies shall have and possess all the powers, franchises, and privileges, and be subject to the same liabilities, of railroad com- panies organized and incorporated under the laws of this State ; provided, such non-resident company shall first file a true copy of its articles of incorporation with the secretary of state, and shall comply with the laws of Nebraska, as to filing and recording articles of incorporation, and in all things required by law relating to rail- roads and otherwise in this State ; and such non-resident company shall keep an office in this State, in some county in this State, in which its road is, or is proposed to be ; and shall be liable to civil process, to be sued and to sue, as provided by law." Gen. Statutes Neb. 1873, p. 203. By another act of said General Assembly, ap- proved February 14, 1873, it is provided : " That any railroad com- pany which has been organized under the laws of the State of Iowa, 62 STOUT V. EAILEOAD COMPANY. [CHAP. II. Kansas, or Missouri, and which has heretofore extended its line of road in this State, or built any portion of its line of road in this State, and has filed a true copy of its original articles of incorpora- tion in the office of the secretary of state of this State, is, from the time of filing said copy of its original articles of incorporation as aforesaid, hereby declared to be a legal corporation of this State, and entitled to all the rights, privileges, and franchises of railroad com- panies organized under and pursuant to the laws of the State of Nebraska." Ibid. 206. The summons is returned served upon the defendant " by deliver- ing to, and leaving with Frank Harriman, its managing agent in this State and district, a certified copy of this summons, with all the indorsements thereon ; said service was made in Washington County, State and district of Nebraska." The declaration in this case was filed April 27, 1874, and the summons was served on the eleventh day of May in the same year. Upon these facts the following questions arise, upon the considera- tion of the plea to the jurisdiction : — First. Was the defendant a foreign corporation at the time the suit was commenced ? Second. And if so, was the defendant an inhabitant of, or found within, the district of Nebraska at the time of the service of process in this case ? The suit was commenced and process served in April and May, 1874, at which times both the acts above named were in force, — the latest one having been approved February 14, 1873. It is true that only the first of these acts was in force when the accident occurred which is the foundation of this suit, and inasmuch as I am of the opinion that the first act did not constitute the defendant a Nebraska corporation, it becomes necessary to consider whether it is the statute in force at the time of the accident, or that which is in force at the time of the service of process, that is to govern as to the forum. Upon this point I entertain no doubt. All questions of jurisdiction depending upon the citizenship of the parties must be determined by their citizenship at the time of the commencement of the suit. Connolly et al. v. Taylor et at. (2 Peters, 556). This brings us to the question whether, by the last act above quoted (that of February 14, 1873), or by the two acts construed together, the defendant was created a corporation of the State of Nebraska. The fact is conceded that the defendant corporation was organized under the laws of Iowa, and built a railroad in that State, which was extended into and through a portion of the territory of the State of Nebraska, and that it has filed a true copy of the origi- nal articles of incorporation in the office of the secretary of state of the State of Nebraska. The Act of February 14, 1873, declares in plain terms that these facts shall constitute the defendant " a legal corporation of this State, and entitled to all the rights, privileges. CHAP. II.] STOUT V. RAILROAD COMPANY. 63 aud franchises of railroad companies organized under, and pursuant to, the laws of the State of Nebraska." It is entirely competent for the State, by its legislation, to determine the mode of creating cor- porations within its limits ; and, if it sees fit to declare that a for- eign corporation may become a corporation of the State by building a railroad therein, and filing a copy of its articles of incorporation with the secretary of state, I have no doubt that compliance with these terms constitutes the foreign corporation a domestic corpo- ration, with respect to all its transactions within such State. It follows that the Sioux City & Pacific Eailroad Company was a Nebraska corporation from and after the passage of the Act of Feb- ruary 14, 1873, and, therefore, was such at the time of the commence- ment of this suit. Of course, if both plaintiff and defendant were citizens of Nebraska at the time of the commencement of this suit, then this court has no jurisdiction of the case, and the plea to the jurisdiction must be sustained. But counsel for plaintiff insists that there is a foreign corporation — a citizen of Iowa — whose corporate name is the Sioux City & Pacific Eailroad Company ; that it is this foreign corporation, and not the domestic corporation of the same name, that is sued; and that plaintiff should be permitted to make out, if he can, a case against the Iowa corporation by proof. His right to do this is clear enough, provided that corporation is in court, and subject to our jurisdiction. Whether it is in court or not de- pends upon the question whether, at the time of the commencement of this action, that corporation had an agent in Nebraska engaged in the management of its, business upon whom service has been made. If the agent upon whom the service was made was the agent of the Nebraska corporation, it is not sufficient, for although the two cor- porations may be composed of the same persons, yet they are, in law, for the purposes of suing and being sued, separate and distinct. It is not impossible that the Iowa corporation might have kept an office and agents in Nebraska at the time this suit was commenced, but, upon the proofs adduced upon this hearing, I conclude that the person served was an agent of the Nebraska corporation, and not of the Iowa corporation. At all events, it has not been shown that he was the agent of the Iowa company in such a sense that service upon him in Nebraska would be a sufficient service upon that company. The Act of 1875, defining the jurisdiction of the circuit courts (18 Stat. 470), provides that " No civil suit shall be brought before either of said courts against any person by any original process or proceed- ing in any other district than that whereof he is an inhabitant, or in which he shall be found at the time of serving such process or com- mencing such proceedings,-" etc. It has been held that a corporation created by one State may consent to be sued in another, in considerar tion of its being permitted by law to exercise therein its corporate powers and privileges. Railroad Co. v. Harris (12 Wall. 65) ; Ex parte Shollenberger (96 U. S. 369) ; Knott v. Insurance Co. (2 Woods, 479). 64 STOUT V. RAILROAD COMPANY. ■ [CHAP. II. But the Legislature of Nebraska, instead of providing that foreign railroad corporations may extend their roads into that State upon condition that they will consent to be sued there, has seen fit to provide that such corporations shall, by extending their lines of rail- road into the State, and by filing copies of their articles of incorpo- ration with the secretary of state, become domestic corporations, with all the powers and franchises of other State corporations. Such corporations therefore, being citizens of the State of Nebraska, — corporations of the State, — can be sued by citizens of Nebraska only in the State courts. It may be that plaintiff has a cause of action against the Iowa corporation, but it is not one that can be prosecuted in this court -upon process served upon an agent engaged in the opera- tion of the extended line of railroad within the State of Nebraska, and not shown to be an agent of the Iowa corporation. It is not pretended that there are two lines of railroad in Nebraska, one of which is operated by the Iowa corporation, and the other by the Nebraska corporation ; but, on the contrary, it is conceded that the railroad in Nebraska is simply an extension of the Iowa road ; and, upon the admitted facts, without more, we must conclude that the person upon whom service was made was employed in the operation of the line in Nebraska, and as the agent of the Nebraska cor- poration. The return of the marshal is not conclusive upon the defendant, and he may disprove it on the hearing of a plea to the jurisdiction. Van Jiensalaer v. Chadwick (7 How. Pr. 297) ; Litch- field V. Barnwell (5 id. 341) ; Wallis v. Lott (15 id. 567). If the plaintiff thinks that he can, by further proof, establish the fact that the person upon whom the service was made was the man- aging agent of the Iowa corporation, we will withhold final judgment until a further hearing can be had ; but if he rests the case upon the proof as it now stands, the plea to the jurisdiction will be sustained. There is a motion to dismiss the plea to the jurisdiction upon the ground that it has been waived by the filing of an answer. It ap- pears that some time since the case upon the plea to jurisdiction was argued before Judge Dillon, and taken under advisement by him. Pending its consideration, the defendant left an answer with the clerk, indorsed "to be filed subject to the plea to the jurisdiction." I think it is within the discretion of the court to hold that the answer has not been filed, within the meaning of the rule invoked by plain- tiff 's counsel, and that defendant has not waived the plea to the jurisdiction. The motion to dismiss the plea is overruled. DoNDY, District Judge, concurs. At the May term, 1881, the cause came on for further hearing upon the plea to the jurisdiction, and, upon further proof adduced in rela- tion thereto, a further opinion was delivered as follows : McCbaey, Circuit Judge : — The evidence adduced upon the trial of the issue upon the plea in CHAP. n.j STATE V. DAWSON. 65 abatement does not show that service in this case was made upon an agent of the Iowa corporation. It is true that the whole line is under one management ; that the principal offices are in Iowa, and that the station agent upon whom service was made makes his re- ports to the general office at Cedar Rapids, Iowa. The line through both States is operated by one management, one set of of&cers, one board of directors, one set of stockholders. This the Legislature of Nebraska is presumed to have known when it enacted the statute declaring that if an Iowa railroad company ex- tends its line into this State and files its articles of incorporation, it " shall be a legal corporation of this State." Act of February 14, 1873 ; G. S. p. 206. The plain effect of this statute is to constitute the Sioux City & Pacific Railroad Company, at least for jurisdiction purposes, a Ne- braska corporation, in respect to all its transactions within this State. and the agents of the company conducting its business in Nebraska are the agents of the Nebraska corporation ; otherwise the statute could have no effect whatever. If the officers and agents of this corporation engaged in the transaction of its business in Nebraska are to be regarded as the officers and agents of the Iowa corporation, it follows that the statute has made it a Nebraska corporation in name only, and not in fact or in law. The same natural persons may con- stitute two or more distinct corporations. A corporation in Nebraska must exist by virtue of the law of this State, and if that law consti- tutes the defendant a Nebraska corporation, it matters not that the law of Iowa also constitutes it a corporation of that State. It is the right of each State in which a corporation transacts busi- ness to require it to become a corporation under and by virtue of its own laws. This right having been exercised by the State of Ne- braska, in a -statute plainly applicable to the defendant, we must hold it a domestic corporation, and not a foreign corporation subject to the jurisdiction of this court. Judgment for the defendant upon the plea in abatement. STATE V. DAWSON. {leind.iO. 1861.) Appeal from the Clark Circuit Court. Perkins, J.: — Information against the defendants, charging that they are pre- tending to be a corporation, and to act as such, when they are not a corporation. It charges that in January, 1849, the Legislature of the State of Indiana enacted a special charter of incorporation, (which is set out at length) for a railroad from Fort Wayne, Indiana, VOL. I. — 5 G6 STATE V. DAWSON. [cHAP. II. to Jeffersonville, to be called the Fort Wayne and Southern Rail- road ; that the persons named in the charter as directors did not accept said charter till June 2, 1852, when they did meet and accept the same, and organize under it. It is alleged that the defendants are assuming to act under said charter, never having organized under any other. The Court below sustained a demurrer to the informa- tion ; thus holding the defendants to be a legal corporation. The present Constitution of Indiana took effect on November 1, 1851. It contains these provisions : — "All laws now in force and not inconsistent with this Constitu- tion, shall remain in force, until they shall expire or be repealed." Sched. (1 subsec.) of Const. " Corporations, other than banking, shall not be created by special act, but may be formed under general laws." Art. II., § 13. " All acts of incorporation for municipal purposes shall continue in force under this Constitution, until such time as the General As- sembly shall, in its discretion, modify or repeal the same." Sched. supra, subsec. 4. The charter for the Tort Wayne and Southern Eailroad was not a charter for municipal purposes, and hence was not specially continued in existence. Art. II. § 13, above quoted, prohibits the creation of a corporation by special act or charter, that is, as we construe the prohibition, through, or by virtue of, such special act or charter, after November 1, 1851. The policy that induced the prohibition, as well as its literal import, demands this construction. It is necessary for us to ascertain, then, when the defendants, if ever, were created a corporation. The simple enactment of the charter for the corpora- tion, by the Legislature, did not create the corporation. It required one act on the part of the persons named in the charter to do that, viz. : acceptance of the charter enacted. Says Grant, in his work on Corporations, vide p. 13 : " Nor can a charter be forced on any body of persons who do not choose to accept it." And again, at page 18, he says, "The fundamental rule is this: No charter of incorporation is of any effect until it is accepted by a majority of the grantees, or persons who are to be the corporators under it. Bar/ge's Case (2 Brownl. & G. 100) ; s. o. 1 Roll. Rep. 224 ; Dr. Askew' s Case (4 Burr. 2200) ; Rutter v. Chapman (8 M. & W. 25) ; per Wilmot, J., Rex v. Vice-Chancellor of Cambridge (3 Burr. 1661). This is analogous to the general rule that a man cannot be obliged to accept the grant or devise of an estate. Townson v. Tickell (3 B. & Aid. 31)." See, also, Ang. & Am. § 83, where it is said, if a charter is granted to those who did not apply for it, the grant is said to be in fieri till acceptance. We need not inquire whether this rule ex- tends to municipal corporations in this country. As to what may constitute an acceptance we are not here called on to decide, as the information expressly shows that there was none in this case till June, 1852, which fact is admitted by the demurrer. CHAP, II.] NEWCOMB V. REED. 67 The grant of the charter in question, then, to those who had not applied for it, was but an offer, on the part of the State ; a consent that the persons named in the charter might become a corporation, might be created such an artificial being, by accepting the charter offered. But an offer, till accepted, may be withdrawn. In this case, the offer made by the State, in 1849, was withdrawn by the State, November 1, 1851, by then declaring that no corporation, after that date, should be created except pursuant to regulations which she, in future, through her Legislature would prescribe. This pretended corporation, then, was not created before Novem- ber 1, 1851, and it could be created afterward only by the concur- rent consent of the State and the corporators. But at that date, the Constitution prohibited both the State and corporators from giving consent to such a corporation, to wit : one coming into existence through a special charter ; and hence necessarily prohibited the cre- ation thereof. This decision accords with that of the Supreme Court of the United States in Aspinivall v. Daviess County (22 How., p. 364) ; where it was held that the new Constitution prohibited a sub- scription of stock to the Ohio and Mississippi Eailroad Company, authorized by the charter of the corporation, granted under the former Constitution, and actually voted by the people of the county under that Constitution. , Whether, as a matter of fact, the charter in this case was accepted under the old Constitution, must be deterinined on a trial of the cause below. Had the provision in our Constitution, like that on this subject in the Constitution of Ohio, ordained that the Legislature should " pass no special act conferring corporate powers," the restraint would clearly have been imposed alone upon future legislative action ; but, in our Constitution, the restraint is plainly imposed upon the crea- tion, the organization, of the corporation itself. See The State v. Boosa (11 O. St. R. 16.) Pek Curiam. — The judgment is reversed, with costs. Cause re- manded for further proceedings in accordance with this opinion. NEWCOMB V. REED. (12 4«en, 362. 1866.) Contract in which the plaintiff sought to charge the officers of the Boston Mechanical Bakery Company with a debt contracted in the name of the corporation, in consequence of their neglect to file cer- tificates aod statements of the condition of -the corporation. At the trial in the Superior Court before Ames, J., without a jury, the judge found for the defendants upon facts which are stated in the opinion ; and the plaintiff alleged exceptions. 68 NEWCOMB V. KEED [CHAP. 11. Hoar, J. : — The defence to this action rests wholly upon the assumption that the corporation, whose officers the plaintiif seeks to charge with a statute liability for its debts', never had a legal existence. The only defect suggested in the organization of the corporation is, that the call for the first meeting was signed by only one of the per- sons named in the act of incorporation, and not by a majority of them, as required by St. 1855,- ch. 140. The case of Utley v. Union Tool Company (11 Gray, 139), is the authority on which the defendants chiefly rely. That case decided that in order to charge as stockholders of a manufacturing corpora- tion, persons who have been summoned in an action against it under St. 1851, c. 315, the plaintiff must prove the legal existence of the corporation. The alleged corporation had no charter or act of incor- poration from the Legislature, but was an association which had un- dertaken to assume corporate powers under a general act for the formation of joint-stock companies, St. 1851, c. 133» That statute authorized three or more persons who had entered into " articles of agreement in writing " for the transaction of certain kinds of busi- ness, to organize in a manner prescribed, and thereby to become a corporation ; and the court were of opinion that written articles of agreement were essential to constitute a corporation, and that these articles must fix the amount of the capital stock, and set forth dis- tinctly the purpose for which and the place in which the corporation was established. The court say: "There is an obvious reason for making sucH organization by written articles of agreement a condi- tion precedent to the exercise of corporate rights. It is the basis on which^ll subsequent proceedings are to rest, and is designed to take the place of a charter or act of incorporation, by which corporate rights and privileges are usually granted." And they add that " it is not a case of a defective organization under a charter or act of in- corporation, nor of erroneous proceedings after the necessary steps were taken to the assumption of corporate powers, but there is an absolute want of proof that any corporation was ever called into being, which had the power of contracting debts or of rendering per- sons liable therefor as stockholders." We think these reasons have no application to the case now before us. In this there was an act of incorporation from the Legislature. There is no question that the corporate powers which it conferred were assumed by the persons by whom it was intended that they should be enjoyed, so far as they chose to avail themselves of them. The organization was not strictly regular, but can hardly be consid- ered even as defective. And if the object of the statute is regarded, by which it is required that the first meeting shall be called by a majority of the persons named in the act of incorporation, it will be evident that it is direc- tory merely, and only designed to secure the rights conferred by the CHAP. II.] MONTGOMERY V. FORBES. 69 charter to those to whom it was granted, among themselves, by pro- viding an orderly method of organization. Thus, if all the persons interested should come together without any notice or call whatever, and proceed to accept the charter, and do the other acts necessary to constitute the corporation, we cannot doubt that their action would be valid, and that neither the public nor any persons not belonging to the association, would have any interest to question their proceedings. The purpose of the statute was probably to avoid such difficulties as were disclosed in the case of Lechmere Bank v. Boynton (11 Cush. 369), where two parties had attempted to organize separately under the same charter, each claiming to be the corporation. There is nothing in the facts found and reported to show that all per- sons interested were not actually notified of the meeting for organi- zation. On the contrary, it would seem that they were. No one has questioned the regularity of the proceedings, or claimed, as in Lech- mere Bank v. Boynton, a right to organize in a different manner. The evidence was ample to show that the persons named in the act of in- corporation with their associates, or at least all of them who desired to do so, have accepted the act, organized under it, issued stock, elected officers who have acted and served in that capacity, carried on busi- ness, contracted debts, and exercised all the functions of corporate existence. It is, therefore, too late to deny that the corporation ever had any legal existence, or for these officers to avoid the liabilities which the statutes of the Commonwealth impose. The defendant, Brackett, who was treasurer in February, 1861, ap- pears to have been liable with the directors under the provisions of Gen. Sts. c. 60, §§ 18, 20, 31. Exceptions sustained. MONTGOMERY v. FORBES. (148 Mass. 249. 1889.) Contract to recover the price of goods sold and delivered. At the trial in the Superior Court, before Dewey, J., the only ques- tion was whether the goods were sold to a corporation called the Forbes Woolen Mills, or to the defendant as doing business under that name. The plaintiffs introduced evidence tending to show that subsequently to May, 1885, they received an order for the goods by a letter, written upon paper with the printed heading, " Incorporated 1885. Forbes Woolen Mills. George E. Forbes, Treasurer," and signed, "Forbes Woolen Mills, by Geo. E. Forbes, Treasurer;" that they thereupon shipped the goods to the Forbes Woolen Mills and received in payment therefor three promissory notes, together equal to the price of the goods, signed " Forbes Woolen Mills, by Geo. E. Forbes, Treasurer ; " that when they sold the goods and took the notes, they understood from their correspondence with the defendant, 70 MONTGOMERY V. FORBES. [CHAP. II. as well as from information gained from a commercial agency, that the Forbes W^oolen Mills were a corporation, and made all charges on their books against them as a corporation, and took the notes from the defendant as the notes of a corporation ; and that after they sold the goods and received the notes they became satisfied there was no such corporation as the Forbes Woolen Mills ; and contended that they were entitled to recover the price of the goods from the de- fendant personally. The defendant contended that the Forbes Woolen Mills was a cor- poration, and testified that he purchased the goods as treasurer of the Forbes Woolen Mills, but admitted that they had not been paid for except by the notes, which themselves had not been paid ; that in May, 1885, for the purpose of limiting his personal responsibility, and because the tax laws of New Hampshire were more favorable to corporations than the Massachusetts laws, he went to Nashua, New Hampshire, to form a corporation for the manufacture of woollen goods ; that he employed an attorney-at-law of Nashua to incorporate the com- pany in a legal and proper manner, under the laws of that State, and subsequently paid him for his services and disbursements in the prem- ises ; that he went to Nashua again, and with the attorney and three other persons, selected and secured by the attorney, signed and exe- cuted an agreement of association, which was dated May 6, 1885, and was duly recorded in the office of the Secretary of the State of New Hampshire on May 12, 1886, and in the office of the clerk of the City of Nashua, on May 13, 1885, and recited that the subscribers associ- ated themselves for the purpose of forming a corporation, to be called the Forbes Woolen Mills, the amount of the capital stock to be twenty thousand dollars, divided into four hundred shares of fifty dollars each ; and that the object of the corporation was to manufacture and sell woollen and other goods, and the places of business were Nashua in New Hampshire, and East Brooktield in Massachusetts. The defendant further testified that, subsequently to the execution of the agreement of association, one or more meetings were held by the signers, at which he was elected president and treasurer of the corporation, and such other officers and directors were elected as were necessary under the laws of New Hampshire ; that the attorney had been recommended to him as a reputable and reliable man and attor- ney, and he left everything in his hands, and supposed he did every- thing necessary and proper to establish the corporation in a legal manner ; that records of the meetings were kept by the attornej', and that there was a stock-book and certificates of stock were issued ; that all the stock was issued to the defendant, and that no other per- son was interested in it ; that fifty per cent of the capital stock of the corporation was actually paid in by him in cash and supplies ; that after the organization of the corporation he hired, as treasurer of the corporation, a mill in East Erookfield belonging to his mother, Eox- anna Forbes, and himself, and began the manufacture of woollen CHAP. 11.] MONTGOMERY V. FOKBES. 71 goods ; that he purchased the necessary supplies, including those named in the plaintiff's account, and placed them under the direction of a superintendent, employed to supervise the manufacture of the goods ; that there was no manufacturing done in Nashua, nor any other business except the holding of corporate meetings, and possi- bly the sale now and then of a bill of goods in the ordinary course of business ; and that the principal place of business of the corpora- tion was in East Brookiield ; that he, as president and treasurer of the corporation, continued to manufacture woollen goods for about four months, and sent the goods to commission houses in New York to be sold ; and that at the end of said four months he was unable to continue the business and gave it up, and no further business was done by him or by the corporation. The following sections of chapter 152 of the General Laws of New Hampshire of 1878, were introduced in evidence : — " Sect. 1. Any five or more persons of lawful age may, by written articles of agreement, associate together, for agricultural, educational, or charitable pur- poses, or for carrying on any lawful business, except banking and the construc- tion and maintenance of a railroad ; and when such articles have been executed and recorded in the office of the clerk of the town in which the principal busi- ness is to be carried on, and in that of the Secretary of State, they shall be a corporation, and such corporation, its officers and stockholders, shall have all the rights and powers, and be subject to all the duties and liabilities of similar corporations, their officers and stockholders, except so far as the same are limited or enlarged by this chapter. " Sect. 2. The object for which the corporation is established, the place in which its business is to be carried on, and the amount of capital stock to be paid in, shall be distinctly set forth in its articles of agreement." Upon this evidence the defendant asked the judge to rule that the plaintiifs were not entitled to recover, that the account in question had been paid by the notes of the Forbes Woolen Mills as a corpora- tion, and that there was no evidence to authorize the jury to find for the plaintiffs. The judge declined so to rule, and submitted the following ques- tions to the jury : "1st. Did the Forbes Woolen Mills and the mem- bers of said alleged corporation, including said Forbes, at the time of its attempted organization, intend to carry on its business as a manu- facturing corporation (other than holding meetings of its members and officers) in whole or in part in the city of Nashua, New Hamp- shire ? 2d. Was there an attempt in good faith on the part of the defendant, Forbes, to organize the corporation of the Forbes Woolen Mills ? 3d. Did said Forbes, at and prior to the time the goods in controversy were ordered, namely, at all times after May 12, 1885, during his dealings with the plaintiff, believe that the organization of said Forbes Woolen Mills was a valid corporation ? " The jury answered the first two questions in the negative, and the third in the affirmative. 72 MONTGOMERY V. FORBES. [CHAP. IL The judge, being of the opinion that, upon the findings of the jury and the uncontradicted evidence in the case, the plaintiffs were enti- tled to recover, directed the jury to return a verdict for the plaintiffs, and reported the case for the determination of this court. C. Allen, J. : — The apparent corporation was not a corporation. The statute of New Hampshire requires five associates, and the articles of agree- ment must be recorded in the town in which the principal business is to be carried on, and the place in which the business is to be car- ried on must be distinctly stated in the articles ; otherwise there is no corporation. The defendant's pretended associates were associates only in name ; he alone was interested in the enterprise. The arti- cles of agreement were recorded in Nashua, and stated that the busi- ness was to be carried on there ; but it was not in fact carried on there, and was not intended to be. The defendant took all the shares of the capital stock, and paid in to himself as treasurer only fifty per cent of the amount thereof. This is not a case where there has been a defective organization of a corporation which has a legal existence under a valid charter. Here there was no corporation. It was just the same as if the defendant had done nothing at all in the way of establishing a corporation, but had conducted his business under the name of the Forbes Woolen Mills, calling it a corporation. The business was his personal business, which he transacted under that name. Fuller v. Hooper (3 Gray, 334, 341) ; Bryant v. Eastman (7 Cush. 111). The jury found that he did not in good faith attempt to organize the corporation, but that he believed it to be a valid corporation. His belief, in view of the facts of the case, is immaterial. Under this state of things the defendant bought goods of the plaintiffs for his own sole benefit, adopting the name of the apparent corporation, which had no real existence, and which represented nobody but him- self. He cannot escape responsibility for his purchases by the de- vice of putting such a mere name between himself and the plaintiffs. The purchase was in substance by and for himself alone. The plain- tiffs might have repudiated the transaction and maintained replevin if they had learned the facts in time. They may also treat the transac- tion as a sale to the defendant personally. Fay v. Nolle (7 Cush. 188, 194) ; Kelner v. Baxter (L. E. 2 C. P. 174, 183, 185) ; 2 Kent. Com. (13th ed.) 630. Since the notes represented nothing, the plaintiffs were at liberty to treat them as void, and recover on the original contract for goods sold. Melledge v. Boston Iron Works Co. (5 Cush. 158, 171). Verdict to stand. CHAP. III.] NICOLL V. RAILROAD COMPANY. 73 CHAPTER III. POWERS AND LIABILITIES OF A CORPORATION. IN RESPECT OF THE ACQUISITION AND CONVEYANCE OF REAL PROPERTY. NICOLL V. RAILEOAD COMPANY. (12 iV. y. 121. 1854.) Ejectment commenced in the Supreme Court in February, 1847, and tried at the Orange County circuit, held by Mr. Justice Edwards in October, 1848. The jury found a special verdict, from which it appeared that on the first day of July, 1836, Nicholas A. Dederer, being the owner in fee simple of a farm situate in Blooming Grove, Orange county, executed to the Hudson and Delaware Railroad Com- pany a deed, dated that day, whereby, in consideration of the benefits and advantages lo him of the railroad proposed to be made by the company, and of one dollar to him paid by the company, he granted to such company the privilege of surveying and laying out by its agents and engineers, through his farm or tract of land, the route and site of its road ; and also granted, bargained, sold, and conveyed unto the company and its successors, so much of the farm as might be selected and laid out by the company for the site of its railroad, six rods in width across the farm, provided always, and such grant was made upon the express condition that the company should construct its railroad within the time prescribed by the act incorporating the same. That subsequently and before the 27th of October, 1836, the company selected and laid out, for the site of its railroad through the farm, a strip of land six rods wide extending through the farm. That on the 1st of April, 1844, the farm formerly owned by Dederer, by virtue of sundry mesne conveyances became the property of the plaintiff in fee simple subject only to such right as the Hudson and Delaware Railroad Company then had to any portion thereof suffi- cient for the track of its road. That this company, on the 27th of October, 1836, commenced the construction of its railroad, but never completed or put in operation a double or single track or any part thereof. That in pursuance of an act of the Legislature, entitled an act authorizing the New York and Erie Railroad Company to con- struct a branch road, terminating at the village of Newburgh, passed 74 NICOLL V. RAILROAD COMPANY. [CHAP. III. April 8, 1845, the Hudson and Delaware Railroad Company were authorized to, and on the 14th ol September, 1846, did execute to the defendant, the ^ew York and Erie Railroad Company, a deed, and thereby for a valuable consideration gi'anted, bargained, sold, and con- veyed to the defendant and its successors, the maps, charts, drafts, surveys, and other personal property of the Hudson and Delaware Company, and all its rights, privileges, immunities, and improvements, acquired under and by virtue of the original act of incorporation or of any act amending it, or in any other manner ; and also all the grants, lands, and real estate acquired by or ceded or conveyed to the Hudson and Delaware Company, and all its right, title, and interest to the same, and particularly the right of way, granted by Dederer to the company and its successors, by the deed from him above men- tioned. That when this suit was commenced on the 25th of Feb- ruary, 1847, the defendant had not completed or put in operation its branch road terminating at Newburgh, or any part of it, nor had it done so when the cause was tried. That on the 2d of December, 1846, the defendant entered upon the strip of land six rods wide, mentioned in the deed from Dederer aud laid out by the Hudson and Delaware Company through his farm, as the site of its road, and ejected the plaintiff therefrom, and that the defendant was still in the possession thereof. The suit was brought to recover possession of this strip of land from the defendant. The justice before whom this cause was tried ordered judgment upon the special verdict in favor of the plaintiff. • The defendant appealed, and the Supreme Court, sitting in general term in the 3d district, reversed the judgment, and gave judgment in favor of the defendant. (See 12 Barb. 460.) The plaintiff appealed to this court. Pabkek, J. : — The grant from Dederer to the Hudson and Delaware Railroad Company, bearing date the first day of July, 1836, was made to that company "and their successors." Under that grant, there can be no doubt the Hudson and Delaware Railroad Company took a fee. The words of perpetuity used would have been sufficient to describe a fee, even under the most strict requirements of the common law. The company had ample power to purchase lands. It was a power incident at common law to all corporations, unless they were spe- cially restrained by their charters or by statute. 2 Kent, 281 ; Co. Litt. 44 c. 300 b. ; 1 Kyd on Corp., 76, 78, 108, 115 ; 3 Pick. 239. And in this case the power was expressly conferred by the 9th sec- tion of the charter (Sess. Laws of 1835, p. 113) ; and by the 16th section there were given to it the general powers conferred upon cor- porations (1 R. S. 731)j one of which is that of holding, purchasing, and conveying such real estate as the purposes of the corporation may require. But if no words of perpetuity had been used, the grantor owning a fee, the company would have taken a fee, for the CHAP. III.] NICOLL U RAILROAD COMPANY. 75 statute is now imperative that every grant shall pass all the estate or interest of the grantor, unless the intent to pass a less estate or inter- est shall appear by express terms or be necessarily implied in the terras of the grant (1 R. S. 748, § 1), But it is objected that because by the act of incorporation there was given to it only a term of existence of fifty years (Laws of 1835, p. 110, § 1), therefore the grant shall be deemed to have conveyed an estate for years, and not in fee. The unsoundness of that position is easily shown. It was never yet held that a grant of a fee in express terms oov\ld be restricted by the fact that the grantee had but a lim- ited term of existence. If it were so, a grant could iiever be made to an individual in fee, because in his earthly existence he is not immor^ tal. Under such a rule a man could never buy a greater interest in a farm than a life estate. It would follow that all estates would be life estates except those held by perpetual corporations. The intent of parties, fully expressed in a deed, would avail nothing, but all grants would be measured by the mortality of the grantee. It is needless to follow out the proposition further to show its absurdity. It is not to the parties to a grant, but to its terms, that we look to ascertain the character and extent of the estate conveyed. Such was the rule at common law, and is still by statute (1 R. S. 748, § 1). The change made by the statute favors the grantee where there are no express terms in the grant, by presuming the grantor intended to convey all his estate. At common law it was only where there were no express terms defining the estate in the conveyance, that the term of legal existence of the grantee was deemed to be tiie measure of the interest intended to be conveyed. Thus, words of perpetuity, such as "heirs or succes- sors," were necessary to convey a fee. A grant to an individual with- out such words conveyed only a life estate. For the same reason a grant without such words to a corporation aggregate (Viner's Ab., Estate, L. 3), or^ to a mayor or commonalty (ib. 3), conveyed a fee, because the grantees were perpetual. The grantee named in such case having a perpetual existence, the estate could not have been en- larged by words of succession. But this is now changed by our Revised Statutes. Words of inherit- ance or succession are no longer necessary, and in their absence we look not to the terms of existence of the grantee to ascertain the estate, but to the amount of interest owned by the grantor at the time he conveyed. All his estate is deemed to have passed by the grant (1. E, S. 748, § 1). All this is api»licable only to cases where the grant is silent as to the extent of interest conveyed. Where that interest is expressly described, as in tliis case, the law never, either before or since our revision, did violence to the intent of the parties, by cutting down the estate agreed to be conveyed to the measure of the grantee's term of existence. It has long been one of the maxims of the law 76 PAGE V. HEINEBEKG. [CHAP. III. that " no implication shall be allowed against an express estate lim- ited by express words." Viner's Ab. Implication, A. 5 ; 1 Salk. 236. It is erroneous to say that an estate in fee cannot be fully enjoyed by a natural person, or by a corporation of limited duration. It is an enjoyment of the fee to possess it and to have the full control of it, including the power of alieuation, by which its full value may at once be realized. It is well settled that corporations, though limited in their duration, may purchase and hold a fee, and they may sell such real estate whenever they shall find it no longer necessary or convenient (5 Denio, 389). 2 Preston on Estates, 50. Kent says: "Corporations have a fee simple for the purpose of alienation, but they have only a ieterminable fee for the purpose of enjoyment. On the dissolution Df the corporation the reverter is to the original grantor or his heirs ; but the grantor will be excluded by the alienation in fee, and in that way the corporation may defeat the possibility of a reverter.'' 2 Kent, 282 ; 6 Denio, 389 ; I Comst. R. 509. Large sums of money are accordingly expended by railroad companies in erecting extensive station houses and depots, and by banking corporations in erecting banking houses, because, holding the land in fee, they may be able to reimburse themselves for the outlay by selling the fee before the termination of their corporate existence.' Upon the whole my conclusion in this case is that the Hudson and Delaware Railroad Company took from Dederer a fee upon condition subsequent; that at the time of the conveyance by Dederer to the plaintiff, there had been no forfeiture ; and that Dederer had, at the time of such conveyance, no assignable interest in the premises. The judgment of the Supreme Court should be affirmed. Judgment accordingly. PAGE V. HEINEBERG. ' (40 Vt. 81. 1868.) This was an action of ejectment. The case was referred and was heard on the report at the September Term, 1867, Pierpoint, C. J., presiding, and judgment was rendered pro forma for the plaintiff, to which the defendaut excepted. The substance of the report, so far as it is material to the question decided, is stated in the opinion of the court. J. French and E. J. Phelps, for the defendant. Upon the discontiiuianoe of the railroad, the land occupied by the track and depot grounds reverted to the original proprietors, Shaw, Catlin, and Wires. 1 Part of this opinion and the concurring opinion of Gardiner, C. J., are omitted. CHAP, in.] PAGE V. HEINEBERG. 77 I. The railroad company were not authorized by their charter to acquire any greater estate in the land taken for the road-way, than the easement necessary for that purpose. 1. A corporation has no powers whatever except those conferred directly or impliedly by its act of incorporation. Vt. & C. B. R. Go. V. Vt. 0. R. R. Co. (34 Vt. 47). 2. No powers will be implied except those necessary to carry out the object for which the corporation is created. Ang. & Ames on Corp. 256. And the charter will be strictly construed against them. Rice V. R. Co. (1 Black, U. S. Sup. Ct. 358). 3. No language will be found in the charter either conferring, or manifesting any intent to confer, the power of acquiring a vast real estate, extending for a hundred and fifty miles through the whole length of the State, and to be held by the corporation in fee, after the railroad should be discontinued. Acts of 1843, No. 53. Such a power is not only wholly unnecessary to the construction and maintenance of the railroad, but is the last the Legislature could be reasonably expected to grant. The most obvious considerations of propriety and public policy forbid it. And especially where the pur- chase of the fee is to be obtained from the citizen, under the pressure produced by the taking of a perpetual easement in the land, by the right of eminent domain. Hill v. Western Vt. R. R. Co. (32 Vt. 68). 4. The deed of the landowner, therefore, though in terms convey- ing the fee, will be limited in its effect to the extent of the grantee's power to take. 5. Nor will the grantor be held estopped by his deed from as- serting his claim to the reversion. There can be no estoppel against the law. Nor can a corporation acquire a power by estoppel, which their charter does not confer, and which public policy pre- cludes. Ang. & Ames on Corp. 151, 152 ; 1 Eedf. on Railways, p. 248. II. Irrespective of the want of power in the corporation to take the fee of the land, the deed of the roadway will have a legal effect commensurate, and no more than commensurate with the public necessity. On the one hand, no restriction or reservation it may contain in- consistent with the public requirement, will be allowed to stand. Troy & Boston R. R. Co. v. Potter (Sup. Ct., Nov. Gen. Term, 1867). And on the other, any estate it may purport to convey, more than the public use and the purpose for which the land is taken require, will fail to pass. The whole transaction will be taken together. The deed will be construed in view of the right conferred by the charter, the great ob- ject to be effected, the circumstances under which the grantor is compelled to part with his land, at least to the extent of the per- manent easement, the plain considerations of public policy, and the right and justice of the case. 78 PAGE V. HEINEBERG. [CHAP. III. The power of eminent domain will not be allowed to be abused in its practical exercise. It will not be overlooked, that the distinction between the fee and a perpetual and exclusive easement in the land, is one not likely to be understood or appreciated by the citizen. That the contingency of the abandonment of the railroad, in which alone this distinction becomes of any importance, was not to be anticipated by any ordinary sagacity. And that the provisions of the charter which authorized the corporation to take the land without consent of the owner, but to litigate with him before commissioners and on appeal as to the price, amount to a practical compulsion upon him to execute a deed. The reasoning and intimation of the court in the case of Hill v. Western Vt. R. R. Co. {supra), are virtually decisive of this question. See also 1 Eedf. on Railways, 248, and notes ; U. S. v. Harris (1 Sumner, 21, 2 Blatchford, 95). The whole tenor and course of judicial decision in this State, on the subject of the conveyance of title for railway purposes, lead plainly to the construction for which we contend. All such conveyances have been uniformly construed with reference to their intent and purpose solely, and the requirement of the public interest. And the distinction has been observed throughout, that exists between the private contracts of individuals, and the exercise by the State through its chartered agents of the power of eminenfdomain. Thus a railway mortgage, creating by its terms only a dry trust, has been construed as creating an active trust. Sturges & Douglas V. Knapp etal. (31 Vt. 1). A deed of the fee of land for railway purposes, has been held to convey no attachable interest. Hill v. Western Vt. R. R. Co. {supra), The title to land occupied for construction of a railroad by consent of the owner, but without deed or payment, has been held to pass irrevocably. McAuley v. Western Vt. R. R. Co. (33 \t. 311) ; Knapp & Briggs v. McAuley (39 Vt. 275). And express reservations in a conveyance of land for the same purposes, where inconsistent with the public use, have been held void. Troy & Boston R. R. Co. v. Potter {supra). The decision of this question does not involve any consideration of the incidental power of the corporation to purchase such real estate, apart from their roadway, as may be necessary for the purposes of their business. That power need not be questioned. W. C. French, for the plaintiff. It is well settled that corporations may have a fee simple in lands for the purpose of alienation, unless restricted by their charters or by statute, when they have only a determinable fee for the purpose of enjoyment. Chancellor Kent says : " On the dissolution of the corporation the reverter is to the original grantor and his heirs, but the grantor will be excluded by the alienation in fee, and in that way the corporation CHAP, m.] PAGE V. HEINEBERG. 79 may defeat the possibility of a reverter." 2 Kent's Com. 282 ; 2 Pres- ton on Estates, 50 ; Angell & Ames on Corp. 164 ; McoU v. N. Y. & Erie Go. (12 Barb. 460) ; Same case (2 Kernan, 121, 127) ; People v. Mauran (5 Denio, 389). Wlien the corporation has taken the fee of the land, the abandon- ment of the use of the property for the purposes of the corporation does not revest the property in the original grantor or his heirs ; not even when the title was taken by compulsory proceedings. Seywood et al. V. Mayor of New York (3 Seld. 314) ; Bexford et al. v. Knight (1 Kernan, 308 ) ; Gen. Stat. p. 222, § 31. Judge Eedfield's dictum, in his work on Railways, p. 126, § 3, that in some cases the reasoning of the courts would seem to imply that a railway, by a deed in fee-simple, acquires only a right of way, is not sustained by the authorities cited by him. Dean v. Sullivan E. H. (2 Foster, 316); U. S. v. Harris (1 Sumner, 21). That Judge Eedfield himself did not entertain any such view is shown by his subsequent opinion in Hill v. Western Vt. B. B. Co. (32 Vt. 74). Peout, J. : — The only question which this case presents for consideration, is whether the Vermont Central Railroad Company acquired a title in fee to the premises described in the plaintiff's declaration, all other questions having been waived by the defendant's counsel on the argument. This company's title to the premises in question origin- ated in a warranty deed from Salmon Wires, and in a warranty deed from Geo. B. Shaw and Henry W. Catlin, they, at the time of the delivery of those conveyances, having the title in fee thereto ; and which are respectively dated February 9, a.d. 1860, and March 7, a.d. 1850. The defendant insists, that upon the discontinuance or aban- donment of the railroad by the company, as it was originally located and used, the premises in controversy, which were occupied as a rail- road track and depot for the uses and accommodation of said railroad company, reverted ; but the plaintiff claims that the company under the deeds referred to, acquired an absolute and unconditional fee therein, and claims title by virtue of the levy of an execution against the company upon the premises in controversy. The case finds that previous to the levy of the execution, the company and those claiming under them had permanently abandoned for use, in connection with said railroad, the premises, and that the track and depot of said railroad had been located elsewhere. The deeds to the company are in com- mon form; of Wires, habendum, "to said company and assigns for- ever ; " of. Shaw and Catlin, habendum, " to said company, their successors and assigns forever." At c(Jmmon law corporations generally have the legal capacity to take a title in fee to real property, some of the cases holding that it is incident to every corporation. This has been long and well settled, unless in a ease where a corporation purchases and undertakes to 80 PAGE V. HEINEBEKG. [CHAP. III. hold real property for purposes wholly outside and foreign to the object of its creation, or unless restricted by its charter or by statute. In such a contingency, it may be that a stockholder, upon proper pro- ceedings instituted for that purpose, might control the acts of the company in that respect, and as the facts and his legal rights as a stockholder might warrant. But, however that may be, the capacity to take a grant in fee exists, and, in England, is only restricted by the statutes of mortmain. These statutes have never been adopted in this State, so that the common-law right, incident to a corporation, is unlimited, with the qualification stated. In this State we have no general law or statute applicable to the question, except what is con- tained in chapter 28 of the General Statutes. The question sub- mitted depends, then, mainly upon the provisions of the charter of the company, under whom the plaintiff claims title to the premises in controversy. That (Acts of 1843, 46, § 7) provides that the corpora- tion may take the use and possession of land and real estate for the purposes therein expressed, either by proceedings in invitum, or by grant and donation, making a plain distinction between the modes provided for that purpose. As to the latter mode of acquiring land for corporate purposes, that is, to aid in the construction, mainten- ance, and accommodation of the road, its language is, " may take and hold all such grants and donations of land and real estate as may be made to the company." These are terms of the most comprehensive signification, both as to the object of the grant or donation, and the interest or estate the corporation may take, and when found in a con- veyance they are descriptive of, and convey an estate in fee. 3 Kent, 10th Ed. 531. In this charter we think they have this comprehensive signification, and clothe the company with the power or capacity to take the entire estate ; and that upon any reasonable construction they cannot be held to mean, under the conveyances in question, a determinable or shifting fee, dependent upon a discontinuance or abandonment of the road, or change of its location. 1 Wash. E. P. 13, 47 ; Merritt v. Hulett (2 Cowen, 497) ; Vt. G. B. B. Co. v. Burling- ton (28 Vt. 193) ; Nicoll v. N. T. & Erie B. B. Co. (2 Ker. 121) ; Ibid. (12 Barb. 460). We are confirmed in this view, as the terms found in the charter of the Vermont Central Eailroad Company, upon which the question principally depends, have a defined legal signification. The statute (Rev. Stat. ch. 4, § 8), relating to the construction of statutes in force at the time of the charter of this company was granted, provided that "The word 'land' or 'lands,' and the words ' real estate,' shall be con- strued to include lands, tenements, and hereditaments, and all rights thereto, and all interests therein." This provision has ever since remained in force. It is then an interest or estate, such as the terms " land " or " real estate," which are found in the charter, mean, as de- fined by the statute, that the company is empowered to take by grant or donation, and that is an estate in fee. It is not to be presumed that CHAP. III.] WHITE V. HOWARD. 81 the Legislature used those words in the charter in any other sense than the one defined by that body, especially as nothing is found in its provisions evincing a different intention. But were this a question of doubtful construction as to the capacity of the company to take*by grant an estate in fee by force of the lan- guage of the charter, an inference of the legislative intent is derived from subsequent legislation. In 1849 the Legislature (Acts of 1849, no. 41, § 23) passed an act providing, that in the event the location of a railroad should be changed after the payment of land damages, ■when no portion of the land of the owner had been taken for the new location, then the land first taken should revert, and the com- pany might recover back the amount paid as damages, deducting such damages therefor as had actually accrued in consequence of locating the road across the owner's land, but subject to the proviso, that the landowner might, if he chose, convey to the company the land first located upon, and in that event might retain the damages awarded him (Gen. Stat. ch. 28, § 31). The conveyance contem- plated by this provision, and which the landowner may make if he chooses, and upon which his right to retain the damages awarded him is dependent, is a conveyance of the land in fee, as distinguished from a mere easement or determinable fee. This is manifest, as in the case contemplated by the act neither the lands nor any interest therein is required for the use or accommodation of the road by the company. Judgment of the county court is affirmed. WHITE V. HOWARD. (38 Conn. 342. 1871.) Bill in Equity by the executors of the will of William Bostwick, praying for advice in the construction of the will, brought to the Superior Court in New Haven County, and reserved for advice on facts found by a committee. The material provisions of the will were as follows : — After the payment of certain legacies amounting in the aggregate to f 8,500, including a legacy of $1,000 to the Southern Aid Society, all the residue of the testator's estate, both real and personal, was devised and bequeathed to certain trustees named as joint tenants in fee-simple, as a trust fund to be applied for the benefit of the testa- tor's daughter, Frances Howard Bostwick, during her life, but if the daughter should die leaving no husband or child or issue of any child surviving her, the trust fund was to be disposed of as follows : $22,000 to certain legatees named, and then whatever remained of the trust property was to be divided between six societies, namely, the American Tract Society, the Southern Aid Society, the American VOL. I. — 6 82 WHITE V. HOWAKD. [CHAP. Illi and Foreign Christian Union, the American Colonization Society, the Trustees of the Board of Domestic Missions of the General Assembly of the Presbyterian Church in the United States of America, and the Board of Foreign Missions of the Presbyterian Church in the United States of America. The will further provided that if any of the above-named six soci- eties should not be incorporated, the estate given by the will to such society should be conveyed, transferred, and paid in fee-simple to the person who when the estate was to be transferred according to the provisions of the will should act as treasurer of such society, to be appropriated to the charitable purposes of said society, and under its direction. The parties respondents were the six societies named, who claimed each one-sixth of the residue of the estate ; the heirs-at-law of the testator who insisted upon the incapacity of those societies to take, and asserted their title to the residue; and the administrator and heirs-at-law of the daughter, Frances Howard Bostwick, who claimed that, the bequest to the societies failing, they, aiad not the heirs of William Bostwick, were entitled to the residue. Frances Howard Bostwick died on the 30th of August, 1865, leav- ing neither husband nor children, having never been married. Foster, J. : ^ — The American Tract Society and the Southern Aid Society are the only societies now remaining of the six to which the residuary estate was given, whose rights under this will remain to be considered. It is asserted that the American Tract Society can take neither real nor personal property under this will. That it cannot take real, because its charter of incorporation, granted by the State of New York, does not confer the power of taking by devise ; that it cannot take per- sonal, because the charter provides that the net income of said soci- ety arising from real and personal estate shall not exceed the sum of $10,000 annually. This limit it is claimed has been reached and ex- ceeded, and so the capacity of the society to take property is ex- hausted. This society was incorporated by a special act of the Legis- lature of the State of New York, passed May 26, 1841. The third section of its charter provides that the corporation shall possess the general powers, and be subject to the provisions contained in title 3d of chapter 18 of the first part of the Eevised Statutes, so far as the same are applicable and have not been repealed. The title and chap- ter referred to enumerate the powers of corporations, and the clause which bears directly upon this subject reads thus: "to hold, pur- chase, and convey such real and personal estate as the purposes of the corporation shall require, not exceeding the amount limited in its charter." This charter was amended by the Legislature of New York on the 31st of March, 1866, but as this was after the death, both I Part ot the opinion is omitted. CHAP. III.] WHITE V. HOWARD. 83 of the testator and of his daughter, that amendment need not be par- ticularly considered, as it cannot materially affect the question in- volved. Now it is manifest that this corporation has express power by its charter to hold, purchase, and convey real and personal estate for specified purposes and to a limited amount. There is no express power to take by devise, nor is the power so to take expressly pro- hibited. We suppose there could be no doubt that this corporation could take by devise in New York if the Statute of Wills of that State empowered corporations generally to take in that manner. The English Statute of Wills, passed in the time of Henry VIII, author- ized every person having a sole estate in fee^simple of any manors, etc., " to give, dispose, will, or devise to any person or persons except to bodies politic and corporate, by his last will and testament in writing, or otherwise by any acts lawfully executed in his lifetime, all his manors, etc., at his own will and pleasure, any law, statute, custom, or other thing theretofore had, made, or used to the contrary notwithstanding." Thus corporations, by express exception in these statutes, were not enabled to take lands directly by devise in England, and the Statute of Wills of the State of New York makes the same exception. By that statute it is enacted that all persons, except idiots, persons of unsound mind, married women, and infants, may devise their real estate by a last will and testament duly executed. " Such devise may be made to every person capable by law of hold- ing real estate ; but no devise to a corporation shall be valid, unless such corporation be expressly authorized by its charter or by statute to take by devise " (3 N. Y. Eev. Sts. 138, 5th ed.). This corpora- tion therefore, prior to the recent amendment of its charter, could not take by devise in New York, and such is the decision of their Su- preme Court and Court of Appeals in this very case. And so it is earnestly contended that it cannot take by devise in Connecticut. We yield readily to the doctrine laid down in this connection in regard to corporations ; indeed it is too thoroughly established to be doubted or questioned. That doctrine perhaps is nowhere better stated than in the case of Head v. Providence Ins. Co. (2 Crauch, 127), by the then illustrious head of the Supreme Court of the United States, the late Chief Justice Marshall. "It (a corporation) may correctly be said to be precisely what the incorporating act has made it, to derive all its powers from that act, and to be capable of exert- ing its faculties only in the manner which that act authorizes." Now this corporation stands at the bar of this court claiming the right to take lands within our territory by devise. It is clothed with such powers as have been conferred by its charter. Those, a portion of them, as we have seen, are to hold, purchase, and convey real estate. It is not expressly authorized to take by devise, nor is it prohibited from so taking. Can it then take by devise ? Not in New York, as we have seen. Therefore not in Connecticut, say the counsel for the heirs-at-law, for being a New York corporation, and by the law of 84 WHITE V. HOWARD. [CHAP. III. that state devoid of power to take by devise, no argument is needed to show its inability to take by devise in Connecticut. This conclu- sion is too hastily drawn. If the inability to take by devise arose out of a prohibitory clause in the charter, the conclusion would be legal and logical. But the inability does not so arise. There is no prohi- bition in the charter ; the inability is created by the New York Stat- ute of Wills, expressly excepting corporations from taking by devise. Now this corporation brings with it from New York its charter, but it does not bring with it tlie New York Statute of Wills, and cannot bring it to be recognized as law within this jurisdiction. There is an obvious distinction between an incapacity to take created by the stat- ute of a State, which is local, and a prohibitory clause in the charter which everywhere cleaves to the corporation. The reasoning is falla- cious, not recognizing this distinction. There being no prohibition in the charter, and the power to hold and convey real estate being ex- pressly given, we must look to our own statutes and laws, and not to those of New York, to determine whether or not this corporation can take by devise in Connecticut. The State of New York has partially adopted the policy of England in regard to devises to corporations, though the English statutes, usually called the Statutes of Mortmain, have not been re-enacted in that State. Those statutes began with Magna Charta, in 9 Henry III., and embrace a succession of acts down to and including 9 George II. They were intended to check the ecclesiastics of the Eoman Church from absorbing in perpetuity, in dead clutch, all the lands of the kingdom, and so withdrawing them from public and feudal charges. Shelford on Mortmain, 2. By the statute of 43 Eliz. ch. 4, known as the Statute of Charitable Uses, lands may be devised to a corporation for a charitable use, and the Court of Chancery will sup- port and enforce such devises. Whether a court of equity has power to execute and enforce such trusts, as charities, independent of any Statute, is a question which has been much discussed, and very high authorities can be quoted both in favor and against the exercise of such a power. vWe think the later and better opinion to be in favor of an original and necessary jurisdiction in courts of equity as to devises in trust for charitable purposes, when the general object is sufficiently certain, and not contrary to any positive rule of law. It is unnecessary however to decide this question, for in this State we have no statutes of mortmain ; no exception in our Statute of Wills prohibiting corporations from taking by devise; aliens resident in this State or in any of the United States, may purchase, hold, inherit, or transmit real estate, in as full and ample a manner as native-born citizens ; their wives are entitled to dower ; their children and other lineal descendants may inherit; and we have besides a statute, passed in our colonial days in 1702, in effect re-enacting the Statute of 43 Elizabeth, and containing indeed more liberal and comprehensive provisions to sustain devises of this description than are contained in CHAP. III.] LEAZURE V. HILLEGAS. 85 the 43 Elizabeth. That act provides that " all lands, tenements, or other estates, that have been or shall be given or granted by the Gen- eral Assembly, or any town or particular person, for the maintenance of the ministry of the Gospel, or of schools of learning, or for the relief of the poor, or for any other public and charitable use, shall forever remain to the uses to which they have been or shall be given or granted, according to the true intent and meaning of the grantor, and to no other use whatever." We therefore entertain no doubt that the American Tract Society can take by devise in this State. As to the other objection, that hav- ing an income greater in amount than is allowed by its charter it has exhausted its power to take, it suffices to say that no such fact is found by the very competent committee whose report is in the record.^ The Superior Court is advised to pass a decree in this case in con- formity with the rules here laid down. In this opinion the other judges concurred. LEAZURE V. HILLEGAS. (7 Sergeant ^ Rawle, 313, 1821.) •■* The opinion of the Court was delivered by TiLGHMAN, C. J. : — Frederick Hillegas, the plaintiff below (who is defendant in error), claimed the land in dispute under a warrant and survey to Thomas Holt, who conveyed to George Armstrong, who conveyed to William Henry, who conveyed to the Bank of North America, who conveyed to James Ross, who conveyed to the plaintiff. On the trial of the cause, several exceptions were taken to the opinion of the Court on points of evidence, on which exceptions this Court is now to decide. 1. The first exception was to a paper purportiag to be the original survey, not returned to the office of the surveyor-general, but found among the papers of George Woods, deceased, formerly deputy sur- veyor of Bedford County, in the hands of Henry Woods, one of his executors. It was proved that the body of the writing, and the in- dorsement on this paper, were of the handwriting of several persons deceased, who had been deputy surveyors or assistants to the deputy surveyor of Bedford County ; and upon this evidence, the Court per- mitted it to go to the jury. The Court have been very liberal in ad- mitting evidence of this kind ; so much so indeed, that I do not see how, without inconsistency, this paper could have been excluded. It 1 The rest of the opinion is omitted. ^ The statement of facts is omitted. 8G LE AZURE V. HILLEGAS. [CHAP. III. ought, to be sure, after the death of George Woods, to have been de- livered by his executors to his successor in of&ce. But it is very common for deputy surveyors to intermix their private with their official papers, and it would be unjust that a third person, who was obliged to have his survey made by the officer, should suffer by this kind of negligence. The material point to be ascertained was whether the survey was an official act ; of that, the jury were to judge. The paper in question was not conclusive evidence of a survey, but I think the preliminary evidence justified the Court in-permitting it to be laid before the jury. 2. The second objection was to the admission of an exemplification of a deed from William Henry and wife, to the President, Directors, and Company of the Bank of North America, certified by the recorder of deeds for the county of Huntingdon. This deed contained a con- veyance of lands, lying in the county of Huntingdon, and also of the laiids now in dispute, which lie in the county of Bedford. Evidence of this kind has been admitted by the Judges of this Court, at Nisi Prius, and was determined to be admissible, by the Circuit Court of the United States for the district of Pennsylvania, in the case of McKeen v. Delancy's Lessee, which was carried up to the Supreme Court of the United States, and affirmed on a writ of error (5 Cranch, 22). Indeed, I consider this exception as having been aban- doned, and very properly, by the plaintiff in error, on the second argument of this cause. The deed was legally recorded in Hunting- don County, because it contained a conveyance of land in that county ; and being legally recorded, its whole contents became legal evidence in every part of the State. But, although legal evidence, it does not follow that it would be preferred t(^ a subsequent deed made to a purchaser without notice, for those lands which lie in Bedford County, which should be recorded in Bedford County. That is quite a differ- ent question, and I mention it, lest an improper inference should be drawn from the point now decided. 3. The third exception was, to the admission of the deed from the Bank of North America to James Eoss, to which there were two ob- jections, first, that there was no evidence of the seal of the corporar tion ; and second, that the corporation was incapable of receiving a conveyance of land, otherwise than by mortgage, and therefore had no estate which could be conveyed. The first exception was good. A corporation is an imaginary being ; a creature of law, which can- not act otherwise than as prescribed by law. Its deeds are authenti- cated by its common seal, but that seal must be proved. It is not one of those public matters of which individuals are bound to take notice. I do not mean that the affixing of the seal must be proved by a witness who was present and saw it done. But the seal itself, that is the impression, must be proved by some person who knows the device, motto, etc. No evidence of that kind was offered, and therefore the deed ought not to have been read to the jury. In sup- CHAP. III.] LEAZUKE V. HILLEGAS. 87 port of this opinion, I refer to the case of Jackson v. Pratt, decided by the Supreme Court of New York (10 Johns. 381), aud Feake's Law of Evidence, 48, note, and 72. But the great points in this cause are the capacity of the bank to take the land conveyed by William Henry's deed, and afterwards to convey the same to James Ross. There is no doubt that a corporation must be governed by th6 charter from which it derives its existence. It can do no act nor take any estate contrary to its charter. If there- fore it can be shown that the Bank of North America is forbidden by its charter either to take or to convey the land contained in William Henry's deed, the plaintiff's action cannot be supported. By the 3d section of the Act of Incorporation (17th of March, 1787, 2 Sm. L. 399), the bank is made capable " to have, hold, purchase, receive, possess, enjoy, and retain lands, rents, tenements, goods, chattels, and eifects of whatsoever kind, nature, or quality, to the amount of two millions of dollars and no more, and also to sell, grant, etc., the same lands, etc. Provided nevertheless, that such lands and tene- ments, -which the said corporation are hereby enabled to purchase and hold, shall only extend to such lot and lots of ground, and convenient buildings, and improvements thereon erected or to be erected, which they may find necessary and proper for carrying on the business of the said bank, and shall actuallj^ occupy for that purpose, and to such lands and tenements which are or may be bona fide mortgaged to them as securities for their debts." It is remarkable, that with regard to the holding of lands, the charter of this bank is more re- stricted than that of any other bank in the State, for all the others are enabled to hold, not only the lands which have been bona fide mortgaged to them by way of security for debts, but also those " which may be conveyed to them in satisfaction of debts previously contracted in the course of their business, or purchased at sales upon judgments which shall have been obtained for such debts." This dif- ference of restriction must have arisen from the extreme jealousy of moneyed corporations which pervaded the mind of the Legislature when the Bank of North America was incorporated. It never could have been intended to place that bank on a worse footing than others, for it was the only one which risked its capital on a field altogether untried in America, and which had the merit of rendering essential service to the United States during the War of the Revolution. It would be improper therefore to carry the restriction by construction farther than the words of the law plainly import. The restriction is that the bank shall not purchase and hold. Purchasing and holding are veyy different things, and the consequences of each are very dif- ferent. If the words had been that the bank should neither purchase nor hold then it could have done neither one nor the other. But although purchasing and holding might have been thought dangerous, because of the power which it would have given the bank to bring too much land into mortmain, yet to purchase, subject to the sta^tutes of 88 LEAZURE V. HILIEGAS. [CHAP. III. mortmain, which authorized the Commonwealth to appropriate the land to its own use, could be atteiftfed with no danger. This con- struction would satisfy the jealous policy of the Legislature, preserve the community from the danger of too great a mass of real property held in mortmain, and at the same time put it in the power of the Commonwealth to act towards the bank as justice might seem to re- quire. This is a consideration of no small import*ice ; for when the directors of the bank accepted from William Henry a conveyance of his land at a fair price, in payment of a debt bona fide due, it would be hard to presume that they knew they were acting in violation of their charter. But granting that the restriction in the charter did not extend to the simple act of purchasing, it may be asked, whence did the corporation derive the right to purchase, and what would be the situation of land purchased without a capacity of holding ? The answer is that a corporation has from its nature a right to purchase lands, though the charter contains no license to that purpose. And in this respect the statutes of mortmain have not altered the law, ex- cept in case of superstitious uses. But since those statutes, it is neces- sary, in order to enable a corporation to retain lands which it has purchased, to have a license for that purpose ; otherwise, in England, the next lord of the fee may enter within a year after the alienation, and if he do not, then the next immediate lord, from time to time, has half a year to enter, and for default of all the mesne lords the king takes the land so aliened forever. That this is the law appears from the following authorities : 2 Black. Com. 268, 269 ; Co. Lit. 2 ; 6 Vin. Ab. 265 (G. pi. 2), id. 266, pi. 8 ; Jenk. Cent. 270; 3 Com. Dig. 399 (f. 10), id. 401 (f. 15) ; 1 Rol. Ab. 513, T. 35 ; 10 Co. 30. But in Pennsylvania, where there are no mesne lords, the right would accrue immediately to the Commonwealth. Tt has been objected, however, that according to the report of the Judges of this Court, made on the 14th December, 1808, in pursuance of an Act of Assembly requiring them to make a re- port of the English statutes which are in force in the Commonwealth, etc., it appears that all conveyances of land to a corporation without license are absolutely void. I will consider this objection. The Judges reported the following statutes of mortmain : '■' 7 Ed. I. (Stat. 2) ; 13 Ed. I. ch. 32 ; 15 Rich. II. ch. 5, and 23 Hen. VIII. ch. 10, which are in part inapplicable to this country, and in part applicable and in force. They are so far in force that all conveyances by deed or will of lands, tenements, or hereditaments, made to a body corporate, are void, un- less sanctioned by charter or Act of Assembly. So also are all such conveyances void made either to an individual or to any number of j)ersons associated, but not incorporated, if the said conveyances are tor uses or purposes of a superstitious nature, and not calculated to promote objects of charity or utility." I have quoted the words of the report, and it is evident that the Judges could have no intent, nor had they power to make anj' addition to the statutes, or in any manner to alter them. Now, by reference to the statutes, it will appear that CIlAr. 111.] LEAZUliE V. IIILLEGAS. 89 in all of them, except the 23 Hen, VIIL ch. 10, the conveyance is not absolutely void, but the estate passes to the corporation, subject as before mentioned to the right of the several mesne lords, and, in their default, of the king, to enter and hold in fee. But by the statute of 23 Hen. VI[[. ch. 10 (which has been determined to extend to supersti- tious uses only, see 2 Black. Com. 273, I Co. Hep. 24), uses and trusts made and contrived in favor of religious persons or any bodies corpo- rate for more than tweuty years, shall be utterly void. Now the meaning of the report of the Judges is that according to the statute cited by them, conveyances to superstitious uses are absolutely void, and conveyances to corporations, to uses not superstitious, are so far void that those corporations shall have no capacity to hold the estates for their own benefit, but subject to the right of the Commonwealth, who may appropriate them to its own use at pleasure ; in other words, that such conveyances have no validity for the pur[)ose of enabling the corporation to hold in mortmain. But to support the plaintiff's title, it must be shown that the corporation had power, not only to take by purchase, but to alien. In this respect, I consider a corporation in the situation of an alien, who has power to take, but not to hold. That an alien may take by purchase (though not Vjy descent), has been set- tled from the earliest times. It is so laid down in Co. Lit. 2, and I believe has never been questioned. Neither has it been questioned that the land is subject to forfeiture, and may be seized for the king after office found. Eut it has been questioned what is the right of the alien before office found for tlie king. Without reference to Eng- lish cases which leave the matter in doubt, we have the highest au- thority ia our own country for saying that until some act done by the Commonwealth according to its own laws to vest the estate in itself, it remains in the alien, who may convey it to a purchaser, but he can convey no estate which is not defeasible by the Commonwealth. This jjrinciple was asserted by Judge Story, who delivered the opinion of the Supreme Court of the United States in the case of Fairfax's Devisee v. Hunter's Lessee (7 Cranch, 603), and this was the opinion of the Supreme Court of Massachusetts in the case of Sheafe v. G' Neil (1 Mass. Hep. 2.56), cited by Judge Story. It is reasonable in theory, and can have no ill effect in j)ractice, that he who has a defeasible es- tate may convey a defeasible estate. Provided the right of the Common- wealth to defeat the estate granted by the alien remains entire, it is immaterial who holds the land until that right be prosecuted. Suppos- ing, then, that the cases of tlie alien and the corporation be similar (and I see not how they can be distinguished), it follows that the deed from the Bank of North America to James Ross, conveyed a fee simple, de- feasible by the Commonwealth. The counsel for the plaintiff did in- deed contend that this deed might be considered as a mortgage, though on its face it appears to be an absolute conveyance. But this construc- tion cannot be supported. Tn order to carry the intent of the grantor into effect, a deed intended to operate as one species of conveyance 90 HOUGH V. LAND COMPANY. [CliAl'. lU. may be construed to operate as .-uiotlier, provided it coataiu word sufficient. Hut it cannot be construed so as to destroy the intent of tlie parties, as would be the case by holding this deed to be a mort- gage ; for it was the clear intent of both j)arties to make an absolute sale and not a niortgagp. When William Henry conveyed the lauds mentioned in his deed, it was his intent that in consideration thereof the debt due from him to the bank should be extinguished, and the bank agreed to accept the conveyance in satisfaction of the debt. But supposing it to be a mortgage, the debt would be extinguished, and Henry would still remain responsible. I am clearly of opinion therefore that it was not a mortgage but an absolute conveyance. 4. The fourth and last exception in this cause was to the deed from .lames Koss by John Anderson his attorney, to the plaintiff. The objection was that the power of attorney was not produced, nor good reason shown for not producing it. The Court heard evidence on that point, and being of opinion that there was sufficient proof of the existence of the power and of its loss, suffered its contents to be proved by parol evidence. In matters of this kind, where the Court below goes into a preliminary inquiry before it decides U])on the admissi- bility of written evidence, it must be a very strong case which would induce this Court to decide that there was error. Such a case is not presented on this record, and therefore without criticising the parol evidence 1 will only say that the fourth exception does not appear to me to be supported. Upon the whole, I am of opinion that there was error in admitting the deed from the Bank of North America to .Fames Ross without proof of the corporate seal, and that there is no other error in the record. The judgment is therefore to tae reversed, and a venire facias de novo awarded. Judyment reversed, and a venire facias de novo awarded. HOUGH V. LAND COMPANY. (73 III. 23. 1874.) Appeal from the Superior Court of Cook County. Mr. Justice Scuor^FiELD delivered the opinion of the court: — This was a bill in equity, filed by the appellant against the ap- pellee, in the court below, to set aside a conveyance of certain lauds, to cancel the stock of appellee, issued to him in payment for the same, and to restrain appellee in the mean time from selling such stock, which had been pledged to it as collateral security for a loan made to appellant, A demurrer was interposed to the bill, which the court below sus- tained, and dismissed the bill. CHAP. III.] HOUGH V. LAND COMPANY. 91 So far as the allegations of the bill are material to the questions requiring our consideration, they are as follows : Appellee claimed to be a corporation under the laws of this State, with power to borrow and lend money ; to take lands and mortgages as security ; to pur- chase lands and make improvements thereon by erecting buildings for the purpose of renting the same ; to hold buildings and lots for the purpose of improving and renting the same, and to do a general loan business, and take lands, mortgages, and notes to secure the loans. Appellant, believing that appellee was possessed of the powers it claimed, and that it was authorized by its charter to buy land and issue its stock in payment therefor, and to loan money, etc., on the 24th day of May, 1873, contracted with it to sell and convey to it certain lands in Cook County, which are particularly described in the bill, in consideration that appellee would issue to him 365 shares of its stock, and would also loan him 80 per cent in money of the stock, and hold the stock as collateral security on the loan, — the loan to be for one year from that date, with interest at 10 per cent per annum till due, and 12 per cent per month after maturity, with power, on failure to pay, to sell, etc. The land was conveyed, the money loaned, and the stock issued, and pledged as collateral security, in conformity with the terms of the agreement. Since the transaction occurred, appellant has been advised by counsel that appellee had no authority to take the land and issue the stock ; that it professes to act under authority of " An act to in- corporate the Land Improvement and Irrigation Company," approved March 1, 1867, and the change of name to the Cook County Land Company, by vote of its stockholders, on the 20th of July, 1872, at which time its capital stock was increased, in accordance with an act of the Legislature in regard to changing names and increasing stock of corporations, approved March 26, 1872 ; that the change of name and increase of stock was unauthorized and void, and all the au- thority appellee had by its charter was to purchase lands for the purpose of irrigation and improvement, for the raising of crops thereon, and the sale and disposal thereof, when so improved. It is alleged that the power vested in appellee by its charter, which is made part of the bill, as an, exhibit, was to examine, survey, and purchase lands and interest therein, watercourses or interests therein, for the purpose of irrigating the lands that might be so purchased, and facilitating crops in dry seasons, and to improve and cultivate such crops chiefly as require irrigation to produce the largest returns, and that appellee had no power to purchase and hold lands for any other purpose ; that appellee had not purchased any lands for the purpose of irrigation or for any object contemplated by its charter, but that appellee had purchased a large .quantity of land, worth above $600,000, holds improved and unimproved city real estate, announces its intention to erect buildings on part of its vacant city property, and that it has been, since its organization, and now is, engaged in 92 HOUGH V. LAND COMPANY. [CHAP. III. purchasing lands, city lots, the improvement of said lots for the pur- pose of sale and rental, and in the purchase of tax .certificates, and in loaning money on bonds and mortgages, etc. Appellant insists that the purchase of the land and the loaning of the money and taking notes therefor, were contrary to positive stat- utes, and therefore void. The act of March 1, 1867, under which appellee iirst became in- corporated, by its first section, empowers "The Land Improvement and Irrigation Company to have, hold, possess, and enjoy, by them- selves, successors, and assigns forever, lands, tenements, heredita- ments, goods, chattels, choses in action, and effects of every kind, and the same to grant, sell, alien, invest, loan, and dispose of ; " and the fourth section of that act is as follows : — "The chief objects of this association shall be to examine, survey, and purchase lands or interests in lands, water-courses or interests therein, which are as near as may be adapted by nature to the use of water to irrigate the same, to facilitate the growth of crops in dry seasons, and to improve and cultivate the same for such crops chiefly as require irrigation to produce the largest returns." Private Laws of 1867, Vol. 2, p. 241. Section 21 of the general incorporation law, approved March 26, 1872, under which appellee changed its name and increased its capi- tal, contains this proviso : " And provided further, that any corpora- tion other than corporations for manufacturing purposes, availing itself of or accepting the benefits of, or formed under this act (except the mere change of name), shall be subject to the general laws of this State now in force, or which may hereafter be passed, regulating cor- porations of like character." 2 Gross, 59. One of the general laws then and still in force regulating corpora- tions, provides that " no foreign or domestic corporation established or maintained in any way for the pecu"niary profit of its stockholders, shall purchase or hold real estate in this State," except as provided for in that act. 2 Gross, 106, sect. 36. Section 10 of that act authorizes corporations to " own, possess, and enjoy so much real and personal estate as shall be necessary for the transaction of their business," and "to sell and dispose of the same when not required for the uses of the corporation ; " and it contains ' a proviso that " all real estate so acquired in satisfaction of any lia- bility or indebtedness, unless the same may be necessary and suitable for the business of such corporation, shall be offered at public auction, at least once every year," etc. In case any corporation shall fail to sell such lands, it is made the duty of the State's Attoi-ney of the proper county to proceed against the corporation, by information to the end that such lands shall be decreed to be sold. 2 Gross, 103. And the first section authorizes corporations to be formed in the manner by the act provided, for any lawful purpose except banking, CHAl'. m.J HOUGH V. LAND COMPANY. 93 insurance, real estate, brokerage, the operation of railroads, and the business of loaning money. Conceding that, in determining appellee's powers, these several provisions must be construed together, and that appellant's construction, that appellee has authority only to examine, survey, and purchase lands or interest in lands, water-courses or in- tL^rests therein, which are as near as may be adapted by nature to the use of water to irrigate the same, etc., is correct, does it follow that the title to lands conveyed to and held by it for other and different purposes is absolutely void, and may be so declared at the instance of the grantor seeking, for that cause alone, to repossess himself of the property ? The authorities cited in the brief for appellant — Bank U. S. v. Owens (2 P.eters, 538-539), Munsell v. Temple (3 Gilm. 93), Cin. Mut., etc. V. Rosenthal (55 111. 91), Green v. Seijmour (3 Sandf. Ch. 292), Smith V. Bromley (Douglas, 696), and Browning v. Morris (Cowp. 790) — recognize the general doctrine that a contract prohibited by statute or against the manifest policy of the law, is void ; and in Carroll v. East St. Louis (67 111. 568), also cited by appellant, the question before us was, whether a corporation, created in another State for the sole purpose of buying and selling lands, has power to purchase and hold title to lands in this State, and we held that it has not, because it would tend to create perpetuities, and is against the general policy of our legislation. In a more recent case. Starkweather v. The American Bible Society (72 111. 50), the same doctrine was reasserted. There seems to us, however, to be this important distinction be- tween the principle recognized in these authorities and that applica- ble here. There, by reason of the express or implied prohibition of the law, the party is absolutely denied the power to acquire any rights through the particular contract. Here, there is power to pur- chase, receive conveyances, and hold title to lands, but it is prohibited that they shall be purchased and held for other than a prescribed purpose. In the one case, the principle affects the power of acquisi- tion ; in the other, it affects simply the use to which the acquisition shall be applied. There can be no question of the right of a stockholder to the aid of a court of equity against a corporation, to prevent it from mis- applying its capital, or from doing acts which would amount to a violation of its charter ; but the frame and prayer of the bill in the present case do not contemplate such relief, and we do not conceive it could be granted without material amendment, to make which, leave should have been asked in the court below.' But appellee being authorized to purchase and hold lands, and appel- lant having sufficient capacity to convey, the title was obviously vested in appellee by the delivery of the deed, and the question whether ap- pellee has, by its purchase and use of lands, exceeded the powers conferred by its charter, is one between the State and appellee, with 94 HOUGH V. LAND COMPANY. [CHAP. UI. which appellant as a grantor simply has no concern. Banks x. Poi- teaux (3 Eandolph, 141) ; Barrow N. and C. T. Co. (9 Humphreys, 304) ; Chambers v. St. Louis (29 Mo. 576) ; Attorney- General v. Tudor Ice Co. (104 Mass. 239) ; Whitman Mining Co. v. Baker (3 Nevada, 391) ; Hayward v. Davidson (41 Ind. 212) ; Angell and Ames on Corp. sects. 152-153; Dillon on Munic. Corps, sects. 444; Natoma W. and M. Co. v. Clarkin (14 Cal. 544). It is' well observed by Field, J., in the case last above referred to, at p. 552 : " It would lead to infinite embarrassments if in suits by corporations to recover the possession of their property, inquiries were permitted as to the necessity of such property for the purposes of their incorporation, and the title made to rest upon the existence of that necessity." And this cannot be better illustrated than by reference to the fourth section of appellee's charter, before quoted. Precisely where would the line be drawn between those lands which are, in the language there employed, " as near as may be adapted by nature to the use of water to irrigate the same," and those which are not ? If it were competent to inquire whether the land conveyed is such as is contemplated by the charter, this would have to be de- termined, and in every conveyance it would be material in determin- ing whether title vested, or the deed was a nullity. Our conclusion is, assuming appellant's construction of the several statutes affecting appellee's corporate powers to be correct (upon which we express no opinion), appellant may, as a stockholder, on a bill filed for that purpose, have relief in equity to restrain appellee from acting in excess or in violation of its corporate powers ; and he may also, as a citizen of the State, cause steps to be taken in its name, for the same cause, to have judgment of forfeiture of its franchise ; but he cannot, as a grantor of lands, urge such acts as a cause for decreeing his deed void, and a rescission of his contract. Treated as a bill to rescind the contract on the ground of fraud, in- dependently of the questions we have considered, the allegations are insufficient. The decree is affirmed. Decree affirmed. Mr. Chieit Justice Walker: — I am in favor of affirming, unless complainant should be required to refund the money he received from the company. I hold that the company exceeded their power in purchasing these lands, and that the company should be held to have taken no title by the purchase. CHAP. III.] NATIONAL BANK V. MATTHEWS. 95 NATIONAL BANK v. MATTHEWS. (98 U. S. 621. 1878.) Eeeoe to the Supreme Court of the State of Missouri. On the 1st of March, 1871, Hugh B. Logan and Elizabeth A. Matthews executed and delivered to Sterling Price & Co. their joint and several promissory note for the sum of $16,000, payable to the order of that firm two years from date, with interest at the rate of ten per cent per annum. The payment of the note was secured by a deed of trust, executed by her, of certain real estate therein described, situate in the State of Missouri. On the 13th of the same month, the note and deed of trust were assigned to the Union National Bank of St. Louis. Price & Co. failed to pay the loan at maturity. The bank directed the trustee named in the deed of trust to sell. Said Elizabeth thereupon filed this bill in the proper State court to enjoin the sale. The bank in its answer avers that it " accepted the said note and deed of trust as security for the sum of $15,000, then and there advanced and loaned to said Sterling Price & Co. ... on the security of said note and deed of trust." A perpetual injunction was decreed, upon the ground that the loan bj the bank to Price & Co. was made upon real estate security ; that it was forbidden by law ; and that the deed of trust was, therefore, void. The decree was made upon the pleadings. No testimony was introduced upon either side. The bank removed the case to the Supreme Court of the State, where the decree was affirmed. The bank then sued out this writ of error. Mr. Philip Phillips, for the plaintiff in error. This case does not fall within the limitations imposed by Rev. Stat., sect. 5137. No mortgage or conveyance of real estate was made to the bank. Price & Co. had only a lien which could be enforced in default of payment. This was all that they passed to the bank: Potter v. McDowell (43 Mo. 93) ; Watson v. Hawkins (60 id. 550) ; and it was a mere incident to the note, securing its payment to the holder thereof in good faith, although he was ignorant, at the time of taking it, of the existence of the lien. Had the mortgage not been delivered nor anything said about it, the bank, on failure of the maker to pay the note, would have been entitled to the lien : Green v. Hart (1 Johns. (N. Y.) 590) ; Chappell v. Allen (38 Mo. 213) ; and its right to assert it could not have been successfully resisted on the ground that to permit it to do so would authorize a violation of its charter. The act, by authorizing loans to be made " on personal security," cannot be held as limiting the transaction to the personal under- taking of -the parties to the note; and it would not be violated if the bank should require as collateral a deposit of bonds or of stocks, 96 NATIONAL BANK V. MATTHEWS. [CHAP. III. either of States, municipalities, or incorporated companies. Shoe- maker V. National Bank (2 Abb. (U. S.)416); Schouler, Personal Property, pp. 87, 94 ; Pittsburg Car Works v. Bank (Thompson's Nat. Bank Cases, 315). In many of these instances the bonds or stocks are secured by real estate. This, however, does not change the character of the collateral, or make it other than personal secur- ity. See also First National Bank of Fort Dodge v. Haire (36 Iowa, 443), Merchants'' National Bank v. Hears (Thompson's Nat. Bank Cases, 353). The decision of the learned court below questions neither the right of the bank to recover the contents of the note by suing the parties thereto, nor the validity of the lien created by the mortgage. Here there are a bona fide subsisting debt, evidenced by the note, whereof the bank is the laAvful holder, and a lien which Price & Co., before their attempted transfer of it, could have made available. It does now inure to their benefit, because they have assigned the note, and it cannot be enforced by the bank, as it was made void in its hands. Is the lien then vacated ? It certainly is, for all practical purposes, if the extraordinary position taken below should be sustained here. Can the defendant in error, by a strained construction, be permitted to make the objection and cancel a contract which the statute does not declare to be void ? There is some contrariety of opinion upon this question, and the court is referred to some of the numerous cases which answer it in the negative. Smith v. Sheely (12 Wall. 360) ; Gold Mining Company v. National Bank (96 U. S. 640) ; Silver Lake Bank v. North (4 Johns. (N. Y.) Ch. 370). The decision in the last case is, that if the bank had passed " the exact line of its power, it would rather belong to the government to exact a forfeiture of the charter, than to the court in this collateral way to decide a question of misuser by setting aside a just and bona fide contract." The same doctrine is repeated in Steam Navigation Company v. Wood (17 Barb. (N. Y.) 380), and supported by the judgments of the courts of Massachusetts, Pennsylvania, and other States. Ang. & A. Corp., sect. 153. Mr. J. A. Hunter, Mr. John W. Noble, and Mr. John C. Orrick, for the defendant in error. The deed of trust is in effect a mortgage with a power of sale thereto annexed. Although a third person is named as trustee, and vested with that power, the grantor has an equity of redemption, which may be judicially foreclosed and sold. The cestui que trust has a beneficial interest in the lands. Kennett v. Plummer (28 Mo. 142); Chappell v. Allen (38 id. 213) ; Potter y. Stevens (40 id. 229). In the absence of any statutory prohibition, the assignments would have vested that interest in the bank, but as the latter is permitted (Rev. Stat., sect. 5137) to "purchase " or "hold" real estate in certain specified oases, — of which this is not one, — and in " no other," the assignments passed no interest in the lands, and conferred no right to subject them to sale to pay the note. CHAP. 111.] NATIONAL BANK V. MATTHEWS. 97 The words " purchase " and " hold/' where they occur in that sec- tion, are not confined to cases where the absolute title to the fee has been conveyed. The provision allowing the bank to take a mortgage, by way of security for debts previously contracted, would be super- fluous, if the general prohibitory words did not forbid it to purchase such an interest in real property as a mortgage transfers. Looking at the mischief which the statute had iii view, it is immaterial whether the mortgage is made directly to the bank, or is assigned to it. The interest acquired is iu each case the same. The preceding section allows the bank to loan money on personal security. This virtually prohibits loaning it on any other. Ex- pressio unius est exclusio alterius. The decided cases, without a dissent, affirm that all grants of cor- porate power are to be co^trued favorably to the public at large and most strongly against the corporation ; that it has only the powers expressly given or necessarily implied ; that the specification of cer- tain powers prohibits by implication the exercise of other substantive powers, and that the intention of the lawmaker is to be gathered from the whole statute. Governed by these fundamental rules, it must be held that the transaction on the part of the bank was ultra vires, not allowed by, but in palpable violation of, the statute to which it owes its existence, and consequently void. The injunction was therefore properly awarded. Fowler v. Scully (72 Pa. St. 456) ; Kansas Valley National Bank v. Rowell (2 Dill. 371) ; Ripley v. Harris (3 Biss. 190) ; Commonwealth Bank v. Clark (4 Mo. 69) ; Griffith v. Commonwealth Bank (id. 255) ; Bank of Lawrence v. Young (37 id. 398) ; Downing v. Ringer (7 id. 585) ; White v. Franklin Bank (22 Pick. (Mass.) 181) ; Broivn v. Farkington (3 Wall. 381) ; Beasley v. Bignold (5 Barn. & Aid. 335) ; Forster v. Taylor (id. 887) ; Cope V. Rowlands (2 Mee. & W. 149). Mk. Justice Swayne, after stating the facts, delivered the opinion of the court : — This case involves a question arising under the national banking law, which has not heretofore been passed upon by this court. We have considered it with the care due to its importance. Our attention has been called to but a single point which requires consideration, and that is, whether the deed of trust can be enforced for the benefit of the bank. The statutory provisions which bear upon the subject are as follows : — " Sect. 5136." Every national banking association is authorized "to exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of bankino' by discounting and negotiating promissory notes, drafts, bills of ex- change, and other evidences of debt ; by receiving deposits ; by buying and selling exchange, coin, and bullion; by loaning money on personal security: VOL. I. — 7 98 NATIONAL BANK V. MATTHEWS. [CHAP. HI. and by obtaining, issuing, and circulating notes according to the provisions of this title." "Sect. 5137. A national banking association may purchase, hold, and con- vey real estate for the following purposes and for no others : First, such as may be necessary for its immediate accommodation in the transaction of its busi- ness. Second, such as shall be mortgaged to it in good faith by way of security for debts previously contracted. Third, such as shall be conveyed to it in satis- faction of debts previously contracted in the course of its dealings. Fourth, such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall purchase to secure debts to it. But no such asso- ciation shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it for a longer period than five years." Rev. Stat. 1999 ; 13 Stat. 99. Here the bank never had any title, leg^l or equitable, to the real estate in question. It may acquire a title by purchasing at a sale under the deed of trust ; but that has not yet occurred, and never may. Sect. 6137 has, therefore, no direct application to the case. It is only material as throwing light upon the point to be considered in the preceding section. Except for that purpose it may be laid out of view. Sect. 5136 does not, in terms, prohibit a loan on real estate, but the implication to that effect is clear. What is so implied is as effectual as if it were expressed. As the transaction is disclosed in the record, the loan was made upon the note as well as the deed of trust. Non constat, that the maker who executed the deed would not have been deemed abundantly sufficient without the further security. The deed, as a mortgage would have been, was an inci- dent to the note, and a right to the benefit of the deed, whether mentioned or delivered or not, when the note was assigned, would have passed with the note to the transferee of the latter. The object of the restrictions was obviously three-fold. It was to keep the capital of the banks flowing in the daily channels of commerce ; to deter them from embarking in hazardous real-estate speculations ; and to prevent the accumulation of large masses of such property in their hands, to be held, as it were, in mortmain. The intent, not the letter, of the statute constitutes the law. A court of equity is always reluctant in the last degree to make a decree which will effect a forfeiture. The bank parted with its money in good faith. Its garments are unspotted. Under these circumstances, the defence of ultra vires, if it can be made, does not address itself favorably to the mind of the Chancellor. We find nothing in the record touching the deed of trust which, in our judgment, brings it within the letter or meaning of the prohibitions relied upon by the counsel for the defendant in error. In the First National Bank of Fort Dodge v. Haire and Others (36 Iowa, 443), the bank refused to discount a note for a firm, but CHAP. III.] NATIONAL BANK V. MATTHEWS. 99 agreed that one of the partners might execute a note to the other, that the payee should indorse it, that the bank should discount it, and that the maker should indemnify the indorser by a bond and mortgage upon sufficient real estate executed for that purpose, with a stipulation that, in default of due payment of the note, the bond and mortgage should inure to the benefit of the bank. The arrange- ment was carried out. The note was not paid. The maker and indorser failed and became bankrupts. The bank filed a bill to foreclose. The same defence was set up as here. In disposing of this point, the Supreme Court of the State said : " Every loan or discount by a bank is made in good faith, in reliance, by way of security, upon the real or personal property of the obligors ; and unless the title by mortgage or conveyance is taken to the bank directly, for its use, the case is not within the prohibition of the statute. The fact that the title or security may inure indirectly to the security and benefit of the bank will not vitiate the trans- action. Some of the cases upon quite analogous statutes go much further than this. Silver Lake Bank v. North (4 J. C. R. 370). " But it is alleged by the learned counsel for the defendant in error that in the jurisprudence of Missouri a deed of trust is the same thing in effect as a direct mortgage, — with respect to a party entitled to the benefit of the security, — and authorities are cited in support of the proposition. The opinion of the Supreme Court of Missouri assumes that the loan was made upon real-estate security within the meaning of the statute, and their judgment is founded upon that view. These things render it proper to consider the ease in that aspect. But, conceding them to be as claimed, the consequence insisted upon by no means necessarily follows. The statute does not declare such a security void. It is silent upon the subject. If Congress so meant, it would have been easy to say so ; and it is hardly to be believed that this would not have been done, instead of leaving the question to be settled by the uncertain re- sult of litigation and judicial decision. Where usurious interest is contracted for, a forfeiture is prescribed and explicitly defined. In Harris v. Runnels (12 How. 79), this court said that "the statute must be examined as a whole, to find out whether or not the makers meant that a contract in contravention of it was to be void, so as not to be enforced in a court of justice." In that case, a note given for the purchase-money of slaves, taken into Mississippi contrary to a statute of the State, was held to be valid. Where a statute imposes a penalty on an officer for solemnizing a marriage under certain circumstances, but does not declare the mar- riage void, the marriage is valid ; but the penalty attaches to the officer who did the prohibited act. Milford v. Worcester (7 Mass. 48) ; Parton v. Hervey (1 Gray (Mass.), 119) ; King v. Birmingham (8 Barn. & Cress. 29). Where a bank is limited by its charter to a specified rate of inter- 100 NATIONAL BANK V. MATTHEWS. [CHAP. in. est, but no penal consequence is denounced for taking more, it has been held that a contract for more is not wholly void. The Plant- ers^ Bank v. Sharp et al. (12 Miss. 75) ; The Grand Gulf Bank v. Archer et al. (16 id. 151) ; Bock Blver Bank v. Sherwood (10 Wis. 230). The charter of a savings institution required that its funds should be " invested in, or loaned on, public stocks or private mortgages," etc. k. loan was made and a note taken, secured by a pledge of worthless bank-stock. The borrower sought to enjoin the collection of the note upon the ground that the transaction was forbidden by the charter, and therefore void. The court held the borrower bound, and upon a counter-claim adjudged that he should pay the amount of the loan with interest. Mott v. The United States Trust Co. (19 Barb. (N. Y.) 568). Where a corporation is incompetent by its charter to take a title to real estate, a conveyance to it is not void, but only voidable, and the sovereign alone can object. It is valid until assailed in a -direct proceeding institulied for that purpose. Leazure v. Hillegas (7 Serg. & R. (Pa.) 313) ; Goundie v. Northampton Water Co. (7 Pa. St. 233) ; Runyon v. Coster (14 Pet. 122) ; The Banks v. Poitiaux (3 Rand. (Va.) 136) ; Mclndoe v. The City of St. Louis (10 Mo. 577). See also Gold Mining Company v. National Bank (96 TJ. S. 640). The authority first cited is elaborate and exhaustive upon the subject. So an alien, forbidden by the local law to acquire real estate, may take and hold title until office found. Fairfax's Devi- see V. Hunter's Lessee (7 Cranch, 604). In Silver Lake Bank v. North (4 Johns. (N. Y.) Ch. 370), the bank was a Pennsylvania corporation, and had taken a mortgage upon real estate in New York. A bill of foreclosure was filed in the latter State. The answer set up as a defence, " that by the act of incorporation the plaintiffs were not authorized to take a mortgage except to secure a debt previously contracted in the course of its dealings ; and. here the money was lent after the bond and mort- gage were executed." The analogy of this defence to the one we are considering is too obvious to need remark. Both present ex- actly the same question. Chancellor Kent said : " Perhaps it would be sufficient for this case that the plaintiffs are a duly incorporated body, with authority to contract and take mortgages and judgments ; and if they should pass the exact line of their power, it would rather belong to the government of Pennsylvania to exact a forfeiture of their charter, than for this court in this collateral way to decide a question of misuser, by setting aside a just and bona fide contract. ... If the loan and mortgage were concurrent acts, and intended so to be, it was not a case within the reason and spirit of the restrain- ing clause of the statute, which only meant to prohibit the banking company from vesting their capital in real property, and engaging in land speculations. A mortgage taken to secure a loan advanced bona CHAP. III.] NATIONAL BANK V. MATTHEWS. 101 Jide as a loan, in the course and according to the usage of banking operations, is not surely within the prohibition." It is not denied that the loan here in question was within this category. This authority, if recognized as sound, is conclusive. See also Baird v. The Bank of Washirujton (11 Serg. & R. (Pa.) 411). Sedgwick (Stat, and Const. Constr. 73), says : " Where it is a simple question of authority to contract, arising either on a ques- tion of regularity of organization or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted in an action founded upon it to question its validity. It would be in the highest degree inequitable and unjust to per- mit a defendant to repudiate a coutract, the benefit of which he retains." What is said in the text is fully sustained by the authorities cited. We cannot believe it was meant that stockholders, and perhaps depositors and other creditors, should be punished and the borrower rewarded, by giving success to this defence whenever the offensive fact shall occur. The impending danger of a judgment of ouster and dissolution was, we think, the check, and none other contemplated by Congress. That has been always the punishment prescribed for the wanton violation of a charter, and it may be made to follow whenever the proper public authority shall see fit to invoke its application. A private person cannot, directly or indirectly, usurp this function of the government. The decree of the Supreme Court of Missouri will be reversed, and the cause remanded with directions to dismiss the bill ; and it is So ordered. Mr. Justice Miller, dissenting : — I am of opinion that the National Banking Act makes void every mortgage or other conveyance of land as a security for money loaned by the bank at the time of the transaction, to whomsoever the convey- ance may be made ; that the bank is forbidden to accept such security, and it is void in its hands. The contract to pay the money, and the collateral conveyance for security, are separable contracts, and so far independent that one may stand and the other fall. In the present case, the money was loaned on the faith of the deed of trust, and that instrument is void in the hands of the bank, but the note, as evidence of the loan of money, is valid against Mrs. Mat- thews personally. With this latter contract the State court did not interfere. It enjoined proceedings under the deed of -trust against the land, and did no more. Its judgment in that matter ought, in my opinion, to be affirmed. 102 NATIONAL BANK V. WHITNEY. [CHAP, III. NATIONAL BANK v. WHITNEY. (103 U. S. 99. 1880.) Ekkoe to the Supreme Court of the State of New York. Mk. Justice Field delivered the opinion of the court : — It appears from the record that the defendant Whitney, some time previously to 1871, executed to Maria Crocker a mortgage upon cer- tain real property situated in the county of Genesee in the State of New York, to secure an indebtedness to her ; that in a suit brought for that purpose the mortgage was foreclosed and a decree entered for the sale of the premises ; that such sale was had, and the amount received satisfied the debt and left a surplus of over $3,800, which was paid into court. The present controversy is between subsequent mortgagees and judgment creditors for this surplus. On the 12th of January, 1871, Whitney executed a mortgage upon the same premises to the National Bank of Genesee, providing in terms for the payment of $5,000, one year from its date, with inter- est, but declaring that it was made as collateral security for the pay- ment of all notes which the bank held at the time against him, and for his other indebtedness then due or thereafter to become due. This mortgage was recorded on the 19th of September, 1872. It subsequently appeared from an examination of the accounts between the parties that his indebtedness at the date of the mortgage was f 3,200, and that this was paid before Sept. 16, 1872. On this last day Whitney executed two other mortgages upon the same property, one to Homer Bostwick and the other to Edward McCormick. The one to Bostwick was executed as security for the payment of liabilities and indebtedness which already had been or might thereafter be incurred by him on account of Whitney, either bj' indorsement or otherwise, to an amount not exceeding $2,600. This mortgage was recorded at noon on the day of its execution. The amount of the liability subsequently incurred by Whitney to Bostwick exceeded the sum named. The mortgage to McCormick was executed as security for similar liabilities and indebtedness which might be incurred by him for Whitney, to an amount not exceeding $1,500, and was recorded at forty-five minutes past one of the day of its execution. The amount of liabilities incurred by McCormick for Whitney exceeded the sum named. It is unnecessary to give the particulars of other subsequent incum- brances, as under no circumstances could any of the surplus be applied to their discharge. In any view that can be taken of the mortgages mentioned, the surplus in controversy will be exhausted by them. CHAP, III.] NATIONAL BANK V. WHITNEY. 103 The principal question for our determination relates to the validity of the mortgage of Whitney to the national bank, so far as it applies to future advances to him. His indebtedness existing at the execution of the mortgage has been satisfied. His indebtedness subsequently incurred amounted at the sale of the premises to $5,160. If the mort- gage for the future indebtedness can be sustained as a valid instrument for that purpose, the entire surplus will be absorbed for its payment, excepting such portion as may be first payable to McCormick, by reason of the fact that he took his mortgage without notice of the one to the bank. It is contended that the mortgage to the bank so far as it applies to future advances is invalid, because a mortgage of that character is prohibited by the national banking law. That law, after in terms authorizing every national banking association to loan money on personal security, declares that it "may purchase, hold, and convey real estate for the following purposes, and for no others : First, such as may be necessary for its immediate accommo- dation in the transaction of its business ; second, such as shall be mortgaged to it in good faith by way of security for debts previously contracted ; third, such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings ; fourth, such as it shall purchase at sales under judgments,' decrees, or mortgages held by the association, or shall purchase to secure debts to it." The question presented is not an open one in this court. It was determined in the case of National Bank v. Matthews, at the October Term of 1878. It there appeared that Matthews and another person had given their joint note to a mercantile company for $15,000, secured by a deed of trust on certain real property in Missouri, executed by Matthews alone. Soon afterwards the company assigned the note and deed of trust to the Union National Bank of St. Louis, to secure a loan made to it at the time. The loan was not paid at its maturity, and the bank directed the trustee to sell the premises. Matthews thereupon filed a bill to enjoin the sale, and obtained a decree for a perpetual injunction, upon the ground that the loan was made upon real security, which was forbidden by the statute. The Supreme Court of the State affirmed the decree, and the case was brought here, where the decree was reversed, and the cause remanded, with directions to the court below to dismiss the bill. In coming to this conclusion this court considered the transaction in two aspects : first, as not being within the letter of the statute, because the deed of trust was not executed to the bank ; and second, as a loan upon real-estate security. Viewed in the first aspect the court held that as a: mortgage the deed of trust was merely an incident to the note, and a right to its benefit, whether it was delivered or not with the note, passed with the transfer of the latter. If the loan had been made upon the note alone, the benefit of the deed as a mortgage would have inured to the bank by operation of law. Of course that which the law would give 104 NATIONAL BANK V. WHITNEY. [cHAP. III. independently of a direct transfer by the mortgagee, the statute did not intend to defeat because such transfer was made. Viewed in the second aspect, as a loan upon real-estate security, the court observed that, so treating it, the consequence insisted upon did not follow ; that the statute did not declare such security void, but was silent on the subject ; that had Congress so intended it would have been easy to say so, and it can hardly be presumed that this would not have been done, instead of leaving the question to be settled by the uncertain result of litigation and judicial decision. And after citing numerous cases where a disregard of statutory pro- hibitions has not been held to vitiate the contracts of parties, but only to authorize actions by the government against them, the court held that the prohibitory clause of the banking law did not vitiate real-estate securities taken for loans, and that a disregard of them only laid the association open to proceedings by the government. "The impending danger," said the court, "of a judgment of ouster and dissolution was, we think, the check, and none other contem- plated by Congress. That has been always the punishment pre- scribed for the wanton violation of a charter, and it may be made to follow whenever the proper public authority shall see lit to enforce its applicatiou." The construction of the act of Congress thus given has been acted upon by the national banks throughout the country ever since it was published. It is not unreasonable to suppose that they have con- ducted their business and made loans to a large anfount in reliance upon it, and that in many cases great injury would follow a depart- ure from it. Judicial decisions affecting the business interests of the country should not be disturbed except for the most cogent reasons, certainly not because of subsequent doubts as to their soundness. The prosperity of a commercial community depends, in a great de- gree upon the stability of the rules by which its transactions are governed. If there should be a change, the Legislature can make it with infinitely less derangement of those interests than would follow a new ruling of the court, for statutory regulations would operate only in the future. The decision in the case cited controls the present case, and in con- formity with it we must hold that the mortgage to the bank, so far as the subsequent incumbrances are concerned, is to be regarded as a valid security for the future advances to the mortgagor. Whatever objection there may be to it as security for such advances from the pro- hibitory provisions of statute, the objection can only be urged by the government. Fleckner v. United States Bank (8 Wheat. 338-355). But it appears from the record that the mortgage to McCormick was taken by him without notice of the prior mortgage to the bank, which had not then been registered. He has, therefore, a right as against the bank to prior payment of the $1,500 and interest, for which amount his mortgage was a lien upon the premises. CHAP. III.] NATIONAL BANK V. WHITNEY. 105 Bostwick took his mortgage with notice of the one to the bank. He cannot, therefore, claim any of tlae surplus until the debt of the .bank is paid. The surplus should, therefore, be first applied to McCormick's claim, and the balance to the claim of the bank. It follows that the decree of the Supreme Court of New York must be reversed, and the case remanded with directions to enter a decree in conformity with this opinion. So ordered. Mr. Justice Millee and Me. Justice Haelan dissented. A petition for a rehearing having been filed. Me. Jttstice Field, at a subsequent day of the term, delivered the opinion of the court : — By the decision in this case we held that, in the distribution of the surplus moneys in court, the claim of McCormick should be paid before that of the bank. He took his mortgage without notice of the one to the bank, which had not been registered. The bank now asks a rehearing of the case on this point, contending that, under the decisions of the New York courts, the priority of its mortgage can- not be displaced. It cites the statute of the State to show that the recording act gives priority only to the mortgage first recorded, when that is executed for a valuable consideration, which, according to those decisions, means some new consideration advanced at the time ; and that a mortgage for a pre-existing indebtedness is not protected by a prior record, against a non-recorded mortgage for value. Here the mortgage to McCormick was given to secure, to the extent of $1,500, a previous liability and indebtedness, and such as might be subsequently incurred. The previous indebtedness at the time equalled the whole amount of the intended security. There would be force in the position of- the bank if its own mort- gage stood in any better condition. When the McCormick mortgage was executed, Sept. 16, 1872, the indebtedness of Whitney to the bank was paid, and his mortgage remained in force only for any future indebtedness which he might incur. For such future indebt- edness it could not cut out the mortgage to McCormick, executed for an existing indebtedness, and of which mortgage the bank had no- tice. For advances afterwards made, the mortgage to the bank was a subsequent incumbrance. As between two mortgages, — one for a past indebtedness, and one for an indebtedness to be subsequently incurred, — the one for the past indebtedness must have precedence if first recorded. The petition for a rehearing by the bank must therefore be denied. The petition of McCormick to be allowed costs out of the fund in the court must, according to the usual practice of the court in such cases, be also denied. His costs are chargeable against the bank which contested his right to be paid out of the proceeds in court. If paid out of the fund, they would reduce by their amount the moneys properly applicable to the indebtedness of Whitney. Petition denied. 106 CASE V. KELLY. [CHAP. IIL CASE V. KELLY. (133 Cr. S. 21. 1890.) The case as stated by the court, was as follows : — The Green Bay and Minnesota Eailroad Company being in the hands of a receiver, namely, Timothy Case, in the Circuit Court of the United States for the Eastern District of Wisconsin, in a suit by the Farmers' Loan and Trust Company, to foreclose a mortgage on said railroad, said receiver was directed by the court to take posses- sion of all the property, real and personal, of said company, namely, its road-bed, lands, right of way, and all its other property and rights whatsoever, with authority to bring suits in the name of the railroad company as he should be advised by counsel to be necessary. Under this order, Mr. Case, as receiver, brought the present suit, stating that he sues in behalf of said railroad company, and as receiver, the defendants, David M. Kelly, Henry Ketchum, and George Hiles, and the Arcadia Mineral Spring Company, a corporation created by the laws of the State of Wisconsin. The allegations of the bill are, that the defendants, Kelly, Ketchum, and Hiles, who were officers of the railroad company during its period of construction, had procured numerous donations of land from citizens who were interested in the construction of the road, along its line, intended to be for the use and benefit of the railroad company, and to assist it in such construction. The fundamental allegation of the bill is, that these defendants, representing to the persons who made the donations that they were officers of the road, and soliciting these grants for the benefit of the road, took the con- veyances to themselves individually ; that they did this in a fraudu- lent manner, by making the grantors in the conveyances believe that they, as the officers of the company, could receive the conveyances for the benefit of the road ; and that either the grantors did not really know to whom the conveyances were made, or were induced to believe that when made the grantees held the land as a trust for the benefit of the road. These defendants not recognizing this trust, and the conveyances on their faces being merely conveyances to the individuals, either separately or collectively, to wit : to Ketchum, Kelly, and Hiles, who now refuse to convey to the company or to admit its right to the lands, this suit is brought to have a declaration of the trust made by the court, and a decree ordering conveyances by the defendants of the land to the corporation. It is further alleged that the mortgage in process of foreclosure in the court under which Case is acting as receiver covered all the lands CHAP. III.] CASE V. KELLY. 107 of the corporation, and would cover these lauds if the title of the corporation in them was established. The defendants, Kelly, Ketchum, and Hiles, filed answers, in which they denied all fraud or deception, denied that they held the lands in trust for the railroad company, and denied the right of the plain- tiff to any relief. A decree for want of an answer was taken pro confesso against the Arcadia Mineral Spring Company ; replications were filed to the answers ; the case was put at issue as regards the three principal defendants, and an immense mass of testimony, docu- mentary and otherwise, was taken. The Circuit Court on the hearing was of opinion that the convey- ances made by various persons to Kelly and Ketchum and Hiles of the lands described in the bill were made by the grantors and re- ceived by the defendants as contributions to the railroad company to aid in the construction of its road ; and that if the railroad company had authority by law to receive such grants and to hold such real estate, it would be entitled to the relief sought in the bill in this case. But being also of opinion that, by the laws of Wisconsin, and under its charter, it could only receive and hold lands for the defined purposes of the road, it held that only such lands as were necessary and proper for the immediate use of the road could be re- covered in this suit. Case v. Kelly (13 Am. and Eng. Railroad Cas., 70). It therefore entered the following interlocutory decree : — ■ " This day came the parties, by their counsel, and, on consideration of the pleadings and proofs in this cause and the arguments of counsel thereon, it is ordered, adjudged, and decreed by the court that the complainant is entitled to recover from the defendants the title and possession of all such lands mentioned in tlie bill of com- plaint as are required by the railroad company for right of way, depot buildings, and other necessary railroad purposes, as described and limited in the charter of the company, and that the bill of com- plaint as to all other portions of the lands described therein be dismissed. " For the purpose of ascertaining what lands are required for right of way, depot grounds, and other railroad purposes, as above stated, and also the extent and value of any improvements made by defend- ants, this cause is referred to Hon. James H. Howe, as special mas- ter of this court, who will take such additional proof as either party may offer upon reasonable notice, the evidence to close by the first day of October next, and the report of the master to be filed herein by the twentieth day of October next. The master will accompany his report with such reasons as he may deem proper, in support of the conclusions reached by him. For that purpose he may visit the premises and report the result of his personal examination." The master made his report, accompanied by the testimony, to which exceptions were taken both by Case, the receiver, and by the defendants, Hiles and Kelly, which exceptions were overruled by the 108 CASE V. KELLY. [CHAP. lU. court, and a final decree entered. From this the present appeal is taken. That decree, after specifying certain pieces of land which the court considered as necessary and proper to the road for its use in the way of track, right of way, depots, and other similar, proper, and necessary uses, ordered the conveyance of these pieces of land by Kelly and by Ketchum and by Hiles and by the Arcadia Mineral Spring Company to the railroad company. It also directed a master to ascertain and report the value of certain improvements made by Hiles upon a por- tion of this property, and report the same to the court, for which Hiles was to be paid in case complainant should elect to take such improvements. On Jan. 26, 1888, the day on which the caus6 was argued, the death of Henry Ketchum, one of the appellees, was suggested, and on July 19, 1888, the appearance of his heirs and legal representatives was filed in the cause. On Oct. 9, 1888, a motion was submitted, asking for an order making the heirs and legal representatives of said Ketchum parties to the cause. On October 16 an order was made requiring the filing of affidavits to the effect that the persons named in the papers were the sole heirs and legal representatives of said Ketchum, and providing that in default thereof publication be made pursuant to the first section of rule 15. No affidavits having been filed pursuant to that order, on Dec. 19, 1888, an order of pub- lication was issued, and on July 6, 1889, the order was duly published, and proof of publication thereof was filed in the clerk's office of this court, Sept. 12, 1889. The parties having failed to come in within the first ten days of this term, pursuant to the requirement of said rule, the appellant, on Oct. 28, 1889, moved that such order or direc- tion might be passed by the court as to it should seem proper, or the exigency of the case might require. On Nov. 4, 1889, the court ordered that unless application should be made on behalf of the parties or either of them, on or before the third Monday of that month, to submit further argument in the case, it would be taken and considered upon the arguments then filed. No such application was made. Me. Justice Miller, after stating the case, delivered the opinion of the court ; — The principal question suggested by this appeal is, whether the complainant, as representing the railroad company, can maintain a suit for these lands ; that is to say, whether the company was endowed by the Legislature of Wisconsin with a capacity to receive an indefinite quantity of lands, with no limitation upon their use, or upon their sale, or whether they were limited to the lands necessary to such uses as were appropriate to the operations of a railroad. It is not pretended that there is any general statute of the State of Wisconsin which authorizes either this company or any other corporation to purchase and hold lands indefinitely, as an individual CHAP. III.] CASE V. KELLT.^ 109 could ao, without regard to the uses to be made of such real estate. The charter of. the company, approved April 12, 1866, Private Laws Wise. 1866, c. 540, p. 1331, authorizes it to acquire real estate, namely, the fee-simple in lands, tenements, and easements, for their legiti- mate use for railroad purposes. It is thus authorized to. take lands 100 feet in width for right of way, a,wl also such as is needed for depot buildings, stopping-stages, station-houses, freight-houses, ware- houses, engine-houses, machine-shops, factories, and for purposes connected with the use and management of the railroad. This enumeration of the purposes for which the corporation could acquire title to real estate must necessarily be held exclusive of all other purposes, and, as the court said at the time of making its interlocu- tory decree, " it was not authorized by its charter to take lands for speculative or farming purposes." It must be held, therefore, that there was no authority under the laws of Wisconsin for this corporation to receive an indefinite quantity of lands, whether Ijy purchase or gift, to be converted into money or held for any other purposes than those mentioned in its act of incorporation. To this view of the subject counsel urges several objections. The first of these which we will notice is that the charter of the corpora- tion is a private act of which the court cannot take judicial notice, and that if it was not pleaded nor offered in evidence, nor otherwise brought to the attention of the court, it could not be the foundation of its judgment. To this there are two sufficient answers. The first of which is, that if the statute creating this corporation gave it no power to receive and hold lands in the manner we have mentioned, then it had no such power by virtue of any law of the State of Wis- consin ; for a corporation, in order to be entitled to buy and sell, to receive and hold, the title to real estate, must have some statutory authority of the State in which such lands lie, to enable it to do so, and the absence of such provision in the law of its incorporation does not create any general statute which authorizes any such right. Another answer is, that in the charter of the railroad company itself, Laws of Wisconsin of 1866, chapter 540, section 14, it is ex- pressly enacted that " this act is hereby declared to be a public act, and shall take effect and be in force from and after its passage and pub- lication." To this it is replied by counsel for appellant that the stat- ute of Wisconsin cannot make that a public law which in its essential nature is a private law. However this may be, we do not doubt the authority of the Legislature of a State to enact that after the passage and publication of one of its statutes the courts of the State shall be bound to take judicial notice of it without its being pleaded or proven before them. This rule, thus prescribed for the government of the courts of the States, must be binding in proceedings in FeSderal courts in the same State. Indeed, the distinction between public and private acts has become very artificial and shadowy since legislative bodies 110 CASE V. KELLY. [CHAP. UI. have adopted the principle of publishing in printed form all statutes which they pass. Some of the States keep up the. distinction by making a difference in the manner in which public and private acts shall be published, and in such cases this difference is to be observed and may become of some consequence, but the power of the Legisla- ture to declare in any case that after the passage and publication of any of its laws they shall be judicially noticed as public acts, cannot, we think, be doubted. It is next objected to the principle adopted by the court that the limitation upon the power of the corporation to receive land is one which concerns the State alone, and the title to such lands in a cor- poration can only be defeated by a proceeding in the nature of a quo warranto on behalf of the State. The case of National Bank v. Mat- thews (98 U. S. 621), is strenuously relied on to support this view. We need not stop here to inquire whether this company can hold title to lands, which it is impliedly forbidden to do by its charter, because the case before us is not one in which the title to the lands in ques- tion has ever been vested in the railroad company, or attempted to be so vested. The railroad company is plaintiff in this action, and is seeking to obtain the title to such lands. It has no authority by the statute to receive such title and to own such lands, and the ques- tion here is, not whether the courts would deprive it of such lands if they had been conveyed to it, but whether they will aid it to violate the law and obtain a title which it has no power to hold. We think the questions are very different ones, and that while a court might hesitate .to declare the title to lands received already, and in the pos- session and ownership of the company, void on the principle that they had no authority to take such lands, it is very clear that it will not make itself the active agent in behalf of the company in vio- lating the law and enabling the company to do that which the law forbids. Another alleged error in the decree of the court relates to that part of it which authorizes Hiles to recover the value of his im- provements if the corporation chooses to take the improvements. We do not think this objection sufficient to reverse the decree. In the first place, the right of the plaintiff to have this land is not based so much upon the ground of the defendants having purchased it for the benefit of the road, as upon the offer of counsel of Hiles to convey it in case he were paid for the improvements. But if we suppose that Hiles held this land in trust for the benefit of the plaintiffs, and is willing to acknowledge that trust, there is no reason why, in a court of equity, when the complainant asserts his right to the land and claims to recover both the title and possession from his trustee, he should not pay the value of the improvements which that trustee has placed" upon it. It is further to be observed that the option is given to complainant to take these improvements with the land or to reject the improvements and take the land without them, in which CHAP. III.] CASE V. KELLY. Ill latter case he is merely required to give the owners of the improve- ments access to the land for the purpose of removing them. If he desires the improvements he can keep them by paying for them. Hiles paid for the land when he got the title, and we see nothing un- just or inequitable in his receiving compensation for improvements made in good faith upon the land which he is now willing to convey to the company, if the company chooses to take them at their ap- praised value. We are urged to consider that if this decree is affirmed dismissing the bill of the railroad company, the defendants will be left in the possession of property fraudulently acquired, of considerable value, for which they gave no consideration. The answer to this is, that such question cannot be raised by the plaintiff in this case, because, having no right to take the property, it is not injured by a decree of the court which fails to grant such right. The other questions must be between the defendants in this case and those from whom they took deeds of conveyance, or such other parties, public or private, as may show that they have an interest in the controversy. The decree of the Circuit Court is Affirmed. 112 BANK OF COLUMBIA V. PATTEKSON'S ADMINISTRATOR. [CHAP. IV. CHAPTER IV. POWERS AND LIABILITIES OF A CORPORATION. FORM OF CONTRACTS. BANK OF COLUMBIA v. PATTERSON'S ADMINISTRATOR. (7 Cranch, 299. 1813.) Bbeor to the Circuit Court for the District of Columbia, in an action of indebitatus assumpsit, brought by the defendant in error against the president, directors, and company of the Bank of Colum- bia, in their corporate capacity. There were four counts only in the declaration. 1st. Indebitatus assumpsit, for matters properly chargeable in account : 2d. Indebit- atus assumpsit, for work and labor done : 3d. Quantum meruit : and 4th. Insimul computassent. The defendant pleaded non assumpsit, and a tender. On the trial below, the defendant took three bills of exception. The first stated, that the plaintiff read in evidence a sealed agree- ment, dated 10th December, 1807, between Patterson and a duly au- thorized committee of the directors of the bank, under their private seals. It recited, that a difference of opinion had arisen between Patterson and the committee for building the new banking-house, as to certain work extra of an agreement made between Patterson and the said committee, in 1804, and thereto annexed ; whereupon, it was agreed, that all the work done by Patterson should be measured and valued by two persons therein mentioned, according to certain rates, called, in Georgetown, "old prices," and the sum certified by them should be taken by both parties, in their settlement, as the amount thereof. It was also thereby agreed, that the out-houses, respecting which there had been no specific agreement, should be measured and valued by the same persons, in the same manner. The agreement of 1804 referred to in, and annexed to, the agreement of 1807, was also offered in evidence by the plaintiff, and stated, that Patterson had agreed with the committee to do all the car- penter's work required, agreeable to the plan of the new bank, and stated particularly the manner in which it was to be done ; and that " in consideration of the work being done " as stated, the committee agreed to pay Patterson f3625 as full consideration; and that if, when the work should be finished, the committee should be of opin- CHAP. IV.J BANK OF COLUMBIA V. PATTEKSON'S ADMINISTRATOK. Il3 ion, that that sum was too much, Tattersou agreed to have the work measured at the expense of the bank, by two persons mutually ap- pointed, who should take the old prices as the standard, and ni case the bill of measurement did not amount to the sum of |3625, Pat- terson agreed to take the amount of measurement, for full satisfac- tion. The plaintiff then read in evidence a paper of particulars of the work, certified by the persons named in the agreement of 1807. The defendants offered in evidence the plan of the building, and that it was built principally according to that plan, and the agreement ; and that any work other than that stated in the plan and agreement was to be charged separately as extra work, and that it was so charged by Patterson, before the 10th of December, 1807 (the date of the second agreement), who pi-esented the account (so charged) to the defendants, claiming the amount of the same, and claiming also for the work done under the agreement of 1804, the sum of $3625,' and proved, that while the work was going on, the defendants paid Patterson sundry large sums of money on account thereof. The Court was thereupon prayed by the defendants to instruct the jury, that if they believed that the agreement of 1804 was assented to by Patterson and the committee, as binding between them, and that the work therein contracted for was done by Patterson, and that the sum of $3625 therein mentioned was claimed by him on account of the same, then the plaintiff could recover for no such work, but could only recover for the work done, extra of the said agreement ; which instruction the court refused to give. It was contended by the defendant's counsel, Morsell and Key, that in that refusal, the court below erred, because, — 1. Although there were alterations in the building, after the agree- ment of 1804, yet Patterson was bound by that contract, so far as it could be traced ; and could only recover for the extra work done, un- der the counts of this declaration, which were all general. 1 Comyn on Contracts 360 ; Peake's Cases, 103. 2. Because the plaintiff was allowed to recover the value of cer- tain work, by measure and value, under the general counts, when he had contracted to do the said work for a certain stipulated price. Esp. N. P. 138. The second bill of exception stated, that the defendants, upon the same evidence, prayed the court to instruct the jury that the plain- tiff was not entitled to recover under any of the counts ; which in- struction the court refused to give, but declared that the evidence was competent. In this refusal, it was contended, that the court erred, because the implied promise to pay for the extra work was merged in the agree- ment of 1807, and there was no count on that, or the other agreement of 1804. Foster v. Allanson (2 T. K 479). The third bill of exception stated, that the defendants prayed the court to instruct the jury, upon the same evidence, that the plaintiff VOL. I. — 8 114 BANK OF COLUMBIA V. PATTERSON'S ADMINISTRATOR. [CHAP. IV. could not recover, unless he should prove that the defendants, after the measurement and valuation, expressly promised to pay the amount thereof to the plaintiff; and that the jury could not, from the evidence offered, presume any such promise. This instruction the court also refused. It was contended, that the court erred in this refusal, because there was an express agreement under seal, relative to the work ; and there was no count on that agreement. It was also contended, that a corporation aggregate could not promise otherwise than under its seal ; and therefore, the law could not imply a promise. In sup- port of this proposition, the following cases were cited. Bac. Abr. ] 3, tit. Corporation ; 4 Com. Dig. 258, tit. Franchises ; Bro. Corpora- tion, pi. 34; 1 Vent. 47; 1 Salk. 191; 1 Bl. Com. pt. 2 ; 1 Roll. Rep. 82 ; Bex v. Bigg (2 P. Wms. 419). Jones and C Lee, contra, cited Deveaux v. United States Bank (5 Cr. 61 ; Doug. 526) ; and Kyd on Corporations generally. As to the form of action, viz., assumpsit and not covenant, they said, the instruments were under the private seals of the committee, not the corporate seal. The declaration need not show whether the assump- sit be express or implied. 1 Chitty on Pleading, 33, note 2. Where the contract is executed, general indebitatus assumpsit lies. Fitz- gibbon, 302 ; Weaver v. Borroughs (1 Str. 648) ; Alcorn v. Westbrook (1 Wills. 117, Dennison's opinion) ; 4 Bos. & Pul. 330 ; 3 Ibid. 682 ; 6 East, 564, 569; 1 Saunders, 272, 276, note 2; Cowp. 284. 289; 9 East, 349 ; 1 T. R. 134 ; Watson v. Downes (1 Doug. 24 ; 4 Dall. 428). Stoet, J., delivered the opinion of the court, as follows : — Several exceptions have been taken to the opinion of the court below, which will be considered in the order in which the objections arising out of them have been presented to us. We are sorry to say that the practice of filing numerous bills of exception is very incon- venient ; for all the points of law might be brought before the court in a single bill, with a simplicity which would relieve the bar and the bench from every unnecessary embarrassment. As the argument on the first exception has proceeded upon the ground that the agreement of 1804 was completely executed and performed, and the objection relates only to a supposed mistake in the form of the declaration, it will at present be considered in this view. And we take it to be incontrovertibly settled that indebitatus assumpsit will lie to recover the stipulated price due on a special contract, not under seal, where the contract has been completely executed, and that it is not in such case necessary to declare upon the special agreement. Gordon v. Martin (Fitzgibbon, 303) ; Musson v. Price (4 East, 147) ; Cook V. Munstone (4.'Bos. & Pul. 351) ; Clarke v. Graxj (6 East, 564, 569; 2 Saund. 350, note 2). In the case before the court we have no doubt that indebitatus assumpsit was a proper form of action to re- cover as well for the work done under the contract of 1804 as for the CHAP. IV.] BANK OF COLUMBIA V. PATTERSON'S ADMINISTRATOR. 115 extra work. It may, therefore, safely be admitted (as is contended by the plaintiff in error) that where there is a special agreement for building a house, and some alterations or additions are made, the special agreement shall, notwithstanding, be considered as subsisting, so far as it can be traced. Pepper v. Burland (Peake's Cas. 103). The first exception therefore wholly fails. Under the second exception the plaintiff in error has made various objections. 1. The first is, that though a promise would be implied by law for the extra work against the corporation, yet that such promise was extinguished by operation of law by the provisions of the sealed con- tract of 1807. It is undoubtedly true that a security under seal ex- tinguishes a simple contract debt, because it is of a higher nature. Cro. Car. 415 ; 1 Ld. Eaym. 449 ; 2 Jones, 158 ; 1 Burr. 9 ; 5 Com. Dig. tit. Pleader, 2 G. 12. But this effect never has been attributed to a sealed instrument which merely recognizes an existing debt and provides a mode to ascertain its amount and liquidation. At most the sealed agreement of 1807 could not be construed to extend beyond this import. In no sense could it be considered as a higher security for the money originally due. This objection therefore cannot pre- vail, even supposing that the agreement were the deed of the corporation. 2. A second objection is, that the special agreements connected with the certificates of admeasurement were inadmissible evidence under the general counts, and could be admissible only under counts framed on the special agreements. To this objection an answer has already in part been given. And we would further observe that if the agree- ments connected with the admeasurements were the means of ascer- taining the value of the work, the evidence was pertinent under every count (2 Saund. 122, note 2). And if the certificates of admeasure- ment were of the nature of an award, they were clearly admissible under the insimul computassent count. Keen v. Batshore(l Esp. 194) . 3. Another objection is that as the agreement of 1807 is sealed, and is connected by reference with the prior agreement, they are to be con- strued as one sealed instrument, and assumpsit will not lie upon an instrument under seal. The foundation of this objection utterly fails, for the agreement is not under seal of the corporation, but the seals of the committee ; and if it were otherwise, it is too plain for argu- ment that the original agreement was not extinguished, but referred to as a subsisting agreement. It is quite impossible to contend that the mere recital of a prior in a later agreement after it has been exe- cuted, extinguishes the former. Two other objections are made under this exception, but as they are answered in the preceding observa- tions it is unnecessary to notice them farther. Under the third exception the only objections relied on are in prin- ciple the same as the objections urged under the former exceptions, and they admit the same answers. 116 BANK OF COLUMBIA V. PATTERSON'S ADMINISTRATOR. [CHAP. IV. The case has thus been considered all along as though the contracts were made between the plaintiff's administrator and the corporation, and indeed some points in the argument have proceeded upon this ground. It is very clear, however, that neither the first nor second agreements were made by the corporation, but by the committee in their own names. In consideration of the work being done, the com- mittee, and not the corporation, personally and expressly agree to pay the stipulated price. A question has therefore occurred how far the corporation were capable of contracting, except under their corporate seal ; and if it were capable, as no special agreement is found in the case, how far the facts proved show an express or implied contract on the part of the corporation. Anciently it seems to have been held that corporations could not do anything without deed (13 Hen. VIII. 12 ; 4 Hen. VII. 6 ; 7 Ibid. 9). Afterwards the rule seems to have been relaxed, and they were, for conveniency's sake, permitted to act in ordinary matters without deed ; as to retain a servant, cook, or butler (Plowd. 91 b ; 2 Saund. 305); and gradually this relaxation widened to embrace other objects. (Bro. Corp. 51 ; 3 Salk. 191 ; 3 Lev. 107 ; Moore, 512.) At length it seems to have been established that though they could not contract directly except under their corporate seal, yet they might by mere vote or other corporate act, not under their corporate seal, appoint an agent whose acts and contracts within the scope of his authority would be binding on the corporation. Bex v. Bigrj (3 P. Wms. 419). And courts of equity, in this respect seeming to follow the law, have decreed a specific performance of an agreement made by a major part of a corporation, and entered in the corporation books, although not under the corporate seal. 1 Fonbl. 305 (Phila. ed.), note o. The sole ground upon which such an agreement can be enforced, must be the capacity of the corporation to make an unsealed contract. As it is conceded in the present case that the committee were fully authorized to make agreements, there could then be no doubt that a contract made by them in the name of the corporation and not in their own names, would have been binding on the corporation. As, however, the committee did not so contract, if the principles of law on this subject stopped here, there would be no remedy for the plain- tiff, except against the committee. The technical doctrine, that a corporation could mot contract, ex- cept under its seal, or in other words, could not make a promise, if it ever had been fully settled, must have been productive of great mischiefs. Indeed, as soon as the doctrine was established, that its regularly appointed agent could contract, in their name, without seal, it was impossible to support it ; for otherwise the party who trusted such contract would be without remedy against the corporation. Accordingly, it would seem to be a sound rule of law, that wherever a corporation is acting within the scope of the legitimate purposes of its institution, all parol contracts made by its authorized agents, CHAP. IV.] BANK OF COLUMBIA V. PATTERSON'S ADMINISTRATOR. 117 are express promises of the corporation ; and all duties imposed on them by law, and all benefits conferred at their request, raise implied promises, for the enforcement of which an action may well lie. And it seems to the court that adjudged cases fully support the position. Bank of England v. Moffat (3 .Bro. C. 0. 262) ; Bex v. Bank of Eng- land (2 Doug. 524, and note) ; Gray v. Portland Bank (3 Mass. 364) ; Worcester Turnpike Corporation v. Willard (5 Ibid. 80) ; Gilmort v. Pope (Ibid. 491) ; Andover & Medford Turnpike Corporation v. Gould (6 Ibid. 40). In the case before the court, these principles assume a peculiar im- portance. The act incorporating the Bank of Columbia (act of Mary- land, 1793, c. 30) contains no express provision authorizing the corporation to make contracts. And it follows, that upon principles of the common law, it might contract under its corporate seal. No power is directly given to issue notes not under seal. The corpora- tion is made capable to have, purchase, receive, enjoy, and retain lands, tenements, hereditaments, goods, chattels, and effects, of what kind, nature, or quality soever, and the same to sell, grant, demise, alien, or dispose of; and the board of directors are authorized to determine the manner of doing business, and the rules and forms to be pursued ; to appoint and pay the various of&cers, and dispose of the money or credit of the bank, in the common course of banking, for the interest and benefit of the proprietors. Unless, therefore, a corporation, not expressly aiithorized, may make a proipise, it might be a serious question, how far the bank-notes of this bank were le- gally binding upon the corporation, and how far a depositor in the bank could possess a legal remedy for his property confided to the good faith of the corporation. In respect to insurance companies also, it would be a difficult question to decide, whether the law would enable a party to recover back a premium, the consideration of which had totally failed. Public policy, therefore, as well as law, in the judgment of the court, fully justifies the doctrine which we have endeavored to establish. Indeed, the opposite doctrine, if it were yielded to, is so purely technical, that it could answer no salutary purpose, and would almost universally contravene the public con- venience. "Where authorities do not irresistibly require an acquies- cence in such technical niceties, the court feel no disposition to extend their influence. Let us now consider, what is the evidence in this case, from which the jury might legally infer an express or an implied promise of the eor|)oration ? The contracts were for the exclusive use and benefit of the corporation, and made by their agents, for purposes authorized by their 'charter. The corporation proceed, on the faith of those contracts, to pay money, from time to time, to the plaintiff's intes- tate. Although, then, an action might have laid against the com- mittee, personally, upon their express contract ; yet, as the whole benefit resulted to the corporation, it seems to the court, that from 118 TOPPING V. BICKFORD. [CHAP. IV. this evidencre, the jury might legally infer, that the corporation had adopted the contracts of the committee, and had voted to pay the whole sum which should become due under the contracts, and that the plaintiff's intestate had accepted their engagement. As to the extra work, respecting which there was no specific agreement, the evidence was yet more strong to bind the corporation. In every way of considering the case, it appears to the court, that there was no error in the court below, and that the judgment ought to be affirmed. Judgment affirmed. TOPPING V. BICKFOED. (4 AUen, 120. 1862.) Contract upon three promissory notes, signed by a firm of which the defendant is the surviving member, payable to the order of the Continental Insurance Company, and indorsed, " Continental Insur- ance Co., Geo. W. Colladay, Pres." At the trial in the Superior Court, before Morton, J., the plaintiff offered in evidence the depositions of William Larzelare and George W. Colladay, of Philadelphia, for the purpose of proving the existence of the Continental Insurance Company as a corporation, and that Larzelare was secretary, and Colladay president thereof, and had acted as such, and that Colladay had authority to indorse the notes. Both witnesses testified that the company was incorporated by a special act of the State of Pennsylvania, and a copy of the charter was annexed ; that the president was in the habit of indorsing its notes, and had authority to do so ; that the company had failed, and its records were in the hands of its assignee in insolvency. The de- fendant objected to this evidence, but it was admitted. Section 6 of the charter was in part as follows : " The company shall have full power and authority to make, execute, and perfect such contracts, bargains, agreements, policies, and other in- struments as shall or may be necessary, and as the nature of the case may require ; and every such contract, bargain, agreement, policy, or other instrument to be made by said company, shall be in writing or in print, and signed by the president and secretary, or by such other officer or officers as the directors may appoint for that purpose." The defendant asked the judge to instruct the jury that, under these provisions, the indorsements, to be legal, must be signed by the pres- ident and secretary ; or that, in any event, the only mode in which the directors could authorize the president to make them, wa§ by vote. The judge declined so to rule, and instructed the jury that if the di- rectors, by vote or otherwise, authorized him to indorse the notes in suit, his indorsement would be the act of the company. CHAP. IV.] GOODWIN V. UNION SCREW COMPANY. 119 The jury returned a verdict for the plaintiff, and the defendant alleged exceptions. Chapman, J. — 1. The defendant, by contracting with the Continental Insurance Company in their corporate name, admitted, prima facie, their legal existence, and their capacity to make and enforce the contracts. Williams V. Cheney (3 Gray, 215). 2. The charter, a sworn copy of which is annexed to the deposi- tions, does not absolutely require that all contracts of the corporation shall be signed by the president and secretary, but by them " or by such other officer or officers as the directors may appoint for that pur- pose." Therefore they might appoint the president alone. 3. The deposition of CoUaday proves that he came into office as president with the other officers, and acted in that capacity in con- junction with them for a long time, and that he was, therefore, presi- dent de facto. Angell & Ames on Corp., § 139. It also proves that he was authorized by the directors to transfer the notes of the com- pany by indorsement of his own name as president. Proof of a vote of the directors is not necessary. Melledge v. Boston Iron Company, (5 Cush. 158). 4. The records of the corporation being out of the jurisdiction of the court, and out of the custody of the witnesses, the depositions were admissible without annexing to them the records or copies of them. All that the plaintiff was bound to prove, to establish d,. prima facie case, was an indorsement of the notes which would be valid as against the insurance company. This he could establish without going to their records, and the evidence sufficiently establishes the fact. Fay V. Noble, (12 Cush. 1); Lester v. Webb (1 Allen, 34). Exceptions overruled. GOODWIN V. UNION SCREW COMPANY. (34 N. H. 378. 1857.) Assumpsit. The declaration contained two counts. First, on an account annexed to the writ, for seventy-two and three-fourths days' work, at nine shillings per day, commencing August 14^ 1855, and ending November 18, 1855 ; and, second, a general cou»t for work and labor. Plea, the general issue. Daniel M. Robinson, a witness for the plaintiff, testified that the defendant corporation was organized on the thirteenth day of August, 1855, and all the officers and directors chosen on that day: That Samuel Shepard and himself were chosen as directors, and that Shepard was president; that the witness was engaged for the de- fendants from that time up to the middle of November, in manufac- turing screws, and had the immediate oversight in the shop as master 120 GOODWIN V, UNION SCKEW COMPANY. [CHAP. IV. mechanic: That Shepard was ordered by the directors, at a regular meeting, to take the general charge and management of the business for the defendants, and to act as their agent, although no vote was passed to that effect till some time in September : That Shepard followed the directions of the board from the beginning, and pur- chased stock and managed the affairs of the company as president and agent : That Shepard, after he had been ordered by the directors to take charge of the business, inquired of the witness what laborers were wanted, and he told him a machinist, and ^poke of the plain- tiff : That he afterwards saw the plaintiff and told him to come to the shop ; that he came and said he would work for one dollar and fifty cents a day ; that Shepard came in and said he was glad the plaintiff had come, that it was all right, and he directed the witness to keep a memorandum of the time the plaintiff worked, which he did : That the plaintiff worked in the shop manufactur- ing screws for the defendants and on their machinery, seventy-two and three-fourths days : That the plaintiff so worked with the knowledge of the directors of the company and by the directions of Shepard, who was in at the shop as often as three or four times a week. That the witness himself worked by the day. Upon this testimony the plaintiff rested his case. The defendants thereupon moved for a nonsuit, which the court declined to grant. A verdict was then taken, by consent, for the plaintiff, which the defend- ants moved to set aside for the following reasons : — 1. Because the testimony of Robinson showed that he was an in- competent witness ; that he himself was liable to the plaintiff for the labor which he had performed, and was therefore interested to charge it upon the defendants. 2. There was no evidence that the directors had any authority to appoint an agent of the corporation, and the court cannot judicially take notice of the charter or by-laws of any private incorporated company. 3. There was no legal evidence that the company ever appointed any agent, or that any person had any authority to bind the com- pany by his acts. And evidence that any individual acted as agent of the corporation was not competent to show that the corporation was liable for his contracts. It should appear that he was legally constituted an agent. 4. If there was- any agent, it was Shepard, and he could not delegate his authority to Robinson, and Robinson's contracts could not bind the company. Prrley, C. J. : — An agent is a competent witness to prove his authority, and the due execution of it, and the objection to the witness Robinson was properly overruled. Moses v. The B. & M. Railroad (4 Foster, 71). The defendants were sued in this action by the corporate name of " The Union Screw Company," and answered to that name. The CHAP. IV.] PIXLEY V. RAILROAD COMPANY. 121 evidence showed that their business was the manufacture of screws, and it is not objected that they were not authorized 'by their charter to carry on that business. The business was conducted under the general management of Shepard, one of the directors, by order of the board of directors, and the witness Eobinson, another director, had the immediate oversight of the shop as master-mechanic. Eobin- son negotiated the bargain with the plaintiff; but before he com- menced work, the evidence, as we understand its import, shows that the terms of the bargain were communicated to Shepard, who approved of them, and so concluded the contract under which the work was done by the plaintiff. Whether Eobinson or Shepard, or both, are to be regarded as the actipg agents of the corpora- tion, the contract was made by both and each of them ; and where one has the actual charge and management of the general business of a corporation, with the knowledge of the members and directors, this is evidence of his authoritj'^, without showing any vote or other corporate act constituting him the agent of the corporation. Angell and Ames on Corp. 269 ; Story on Agency, § 52 ; Bank v. Dandridge (12 Wheat. 83) ; Despatch Line v. Bellamij Man. Co. (12 N. H. 205, 223). Besides, the defendants would be liable, in a quantum meruit, in the absence of any special bargain for services of the plaintiff, per- formed for them with the knowledge of the directors and general managers of the corporation, and he might recover a quantum meruit on the general counts of his declaration. Even if the special bargain made with the plaintiff was unauthorized and not binding on the de- fendants, they are still liable to pay him what his work was worth, and on that ground also the nonsuit was properly refused. Judgment on the verdict. PIXLEY V. EAILEOAD COMPANY. (33 Cd. 183. 1867.) On the 23d day of May, 1863, Wheeler N. French brought an ac- tion against the corporations called the "Central Pacific Eailroad of California " and " The Western Pacific Eailroad Company." The ac- tion mentioned is that entitled Wheeler N. French v. Henry F. Tesche- macher et ah. (24 Cal. 518). On the 11th day of June, 1863, Timothy Dame, President of the Western Pacific Eailroad Company, on behalf of the defendant, made a verbal contract with plaintiffs to defend said action for defendant, and paid plaintiffs five hundred dollars retainer in said action. Under said employment plaintiffs conducted the defence to said action to its conclusion, and as the fruit of said litigation, defendant ultimately received into its treasury two hun- 122 PIXLEY V. UAILUOAD COMPANY. [CHAP. IV. (Ired and fifty thousand dollars in San Francisco bonds. Defendant appealed. Bi/ the Court, Currey, C. J. : — Action for work, labor and services rendered by the plaintiffs as attorneys and counsellors at law for the defendant, a corporation duly organized and constituted under the act of the Legislature, entitled " An Act to provide for the incorporation of railroad com- panies and the management of the affairs thereof, and other mat- ters relating thereto," passed on the 20th of May, 1861, and of the several acts supplementary thereto and amendatory thereof. The corporation was organized in December, 1862, and the plain- tiffs were employed in June, 1863, by the president of the railroad company, and thereafter they rendered and performed labor and services in and about the business of the company, in fulfilment of their obligation under their employment. While the plaintiffs were engaged in the defendant's service the president of the com- pany had frequent interviews with them in respect to the busi- ness which they were managing, and during the same time the directors and officers of the company, who knew, of the employment of the plaintiffs and of their attending to the business of the com- pany, advised with them respecting such business. It was proved on the trial that the services rendered by the plaintiffs were worth five thousand five hundred dollars, for which sum, less five hundred dol- lars, before then paid, the jury rendered a verdict in their favor, on which judgment was entered. The books and records of the corporation were produced on the trial, but it did not appear therefrom that any corporate action had been taken by the board of directors, assembled or otherwise, con- cerning any employment of the plaintiffs as attorneys for th€ corpo- ration ; nor that there was such an action as French v. Teschemacher, in and about which the work, labor, and services mentioned were rendered and performed; nor did it appear, on the trial that at any meeting of the board of directors, any mention was made of the action of French v. Teschemacher, or of the employment of the plain- tiffs therein. The evidence offered in behalf of plaintiffs was objected to as in- competent, and the reason assigned in support of the objection, when made, was, that the evidence of the employment was not in writing ;. that such employment was not authorized by the by-laws of the cor- poration, nor by resolution of the board of directors. The objection in all the forms made was overruled, and exceptions to the action of the court thereon duly taken by the defendant. The third section of the Act of 1861 (Laws 1861, p. 609), under which the corporation was organized, declares that such corporation " shall be capable in law to make all contracts, acquire real and per- ' sonal property, purchase, hold, and convey any and all real and per- sonal property whatever, necessary for the construction, completion. CH.Vr. IV.] PIXLEY V. RAILUOAD COMPANY. 123 and mainteuance of such railroad, and for the erection of all neces- sary buildings and yards or places and appurtenances for the use of thf same, and be capable of suing and being sued, and have a com- mon seal, and make and alter the same at pleasure, and generally to possess all ])owers and privileges for the purpose of carrying on the business of the corporation that private individuals and natural per- sons now enjoy." The ninth section of the act provides that the directors of any railroad company incorporated under any law of the State in force, " shall, for and on behalf of such company, manage the affairs thereof, make and execute contracts of whatever nature or kind, fully and completely to carry out the objects and purposes of such corporation, in any such way and manner as they may think proper, and exercise generally the corporate powers of such com- pany; and such directors shall also have full power to make such by-laws as they may think proper, and alter the same from time to time, for the transfer of the stock and the management of the prop- erty and business of the company of every description whatever, within the, objects and purposes of such company, and for prescribing the duties of officers, artificers, and employees of said company, and for the appointment of all officers, ffiid all else that by them may be deemed needful and proper within the scope and power of said com- pany ; provided that such by-laws shall be approved by the stock- holders, and shall not be inconsistent or in conflict with the laws of this State or with the articles of association." "I'he tenth section of the act reads as follows: "Sec. 10. The directors shall also cause to be kept a book, to be called ' Record of Corporation Debts,' in which the secretary shall record all written contracts of the directors, and a succinct statement of the debts of the company, the amount thereof, and with whom made, which book shall at all times be open to the inspection of any stockholder or party in interest. When any contract or debt shall be paid or dis- charged, the se'cretary shall make a memorandum thereof in the margin, or in some convenient place in the record, where the same is recorded. No contract shall be binding upon the company unless made in writing." The defendant offered to prove that at the time the plaintiffs were employed by the president of the company, as. before stated, there was, and since then to the time of the trial had remained in force, certain by-laws of said corporation, duly adopted and upon its re- cords, one of which is in the following words : "No contract shall be binding on the- company unless previously sanctioned and ordered by the board of directors ;" and all contracts made by the board of direc- tors, or any officer, agent, or employee of the company, shall be sub- ject to and shall contain the express stipulation that no stockholder shall be individually or personally liable or bound for the debts of the company, beyond or exceeding the actual amount of stock by him subscribed or held, and all contracts, not containing or subject to 124 PIXLEY V. KAILKOAD COMPANY. [CHAP. IV. such stipulation shall be void ; and neither the board of directors, nor any officer, agent, or employee of the company, nor any other person, shall have the power or authority to bind the company or the stockholders by any contract or agreement unless the same shall contain such stipulation." The plaintiffs objected to the evidence so offered on various grounds, and the objection was sustained and the defendant duly excepted. After verdict and judgment, the defendant made an application for a new trial, which proved ineffectual, and thereupon appealed. The real, and in fact the only question which exists in the case, is whether the corporation — the Western Pacific Railroad Company — could be made liable on any contract entered into by the proper officers of the company, unless the same was reduced in some form to writing. By the third section of the Act of 1861, as we have already seen, , the corporation possessed, at the time the president of the company employed the plaintiffs, all the powers and privileges for the purpose of carrying on the business of the corporation, that private individuals and natural persons had. The power to make and execute contracts the act has committed to the directors of the corporation, and de- clared, among other things, that " no contract shall be binding upon the company unless made in writing." But notwithstanding the power to make and execute contracts has been vested in the board of direc- tors, we do not understand the objection of the defendant to be that the contract in the first instance entered into by the president of the company with the plaintiffs was ultra vires, and therefore void. We presume the defendant has forborne any such objection, because the evidence sufficiently established a ratification by the directors in pals of what the president had done, or that the open and notorious exer- cise of the power to enter into this contract must be regarded as pre- supposing an authority delegated by the board of directors, in some form accredited by law, to the president of the company for the pur- pose. United States v. Dandridge (12 Wheat. 70) ; Olcott v. Tioga Rail- road Co. (27 N. Y. 558, 659) ; Hoijt v. Thompson (19 N. Y. 215, 216) ; Argenti v. City of San Francisco (16 Cal. 265, 266) ; Bank of Ken- tucky V. Schuylkill Bank (1 Parsons' Select Cases in Equity, 250, 251). In Bank of Kentucky v. Schuylkill Bank, the court said : " The artificial technicalities which in the earlier periods of the common law clogged corporations in entering into contracts, and embarrassed individuals in asserting them against these bodies, have given way before the advance of modern necessities and intelligence, so that few differences now exist in the media of proof in establishing a contract against a corporation made in accordance with its charter, and a nat- ural person. It is now firmly established that a corporation may be bound by a promise, express or implied, resulting from the acts of its authorized agents, although such authority be only by virtue of a cor- porate vote, unaccompanied v/ith the corporate seal. By the general rules of evidence, presumptions are continually made in cases of pri- CHAP. IV.J PIXLEY V. RAILROAD COMPANY. 325 vate persons, of acts even of the most solemn nature, when these acts are the natural results or necessary accompaniment of other circum- stances. The same presumptions are applicable to corporations. Acts of corporations which presuppose the existence of other acts to make them legally operative, are presumptive proof of the latter. In short, the acts of artificial persons afford the same presumptions as the acts of natural persons. Each affords presumptions from acts done of what must have preceded them. A vote of a corporation may be presumed from other acts, though there is no proof of such vote on the corporate record ; for the omission of the corporation to record its own doings cannot prejudice the rights of a party relying upon the good faith of an actual vote of the corporation." The principles here laid down are also ably and elaborately discussed by Mr. Justice Story in his opinion in United States v. Dandridge. The statement on motion for a new trial shows that " on produc- tion of the books of the entire records, and the examination thereof, it did not appear thereby that any corporate action had been taken by the board of directors, assembled or otherwise, concerning any em- ployment of the plaintiffs as attorneys for the corporation in said ac- tion of French v. Teschemaeher, and it did not appear by the said records in any wise, and it did not appear on the trial in any wise, that at any meeting or assembly of said board of directors any mention was made in any wise of said action of French v. Teschemaeher, or of the employment of plaintiffs therein." Though the records of the corporation may have been an entire blank as to any corporate action of the board of directors respecting the employment of the plaintiffs, and though no evidence was produced at the trial of any particular mention of the case named, or of the employment of the plaintiffs, it does not therefore follow that the board did not pass a vote authoriz- ing the president to make the contract ; for, as said by the court in Bank of Kentuckij v. Schuylkill Bank, " a vote of a corporation may be presumed from other acts, though there is no proof of such vote on the corporate record." Eeturning to the objection made by the defendant to the contract entered into by the company by its president with the plaintiffs, we find that it relates entirely to the mode and manner of contracting, which it is claimed for the defendant is in effect prescribed by the statute, negatively if not affirmatively, by the immunity contained in the clause, " no contract shall be binding on the company unless made in writing." These words, in their largest import, are broad enough to embrace every species of contract, and to require, in the most ex- haustive sense, every agreement or undertaking on the part of the company, to be in writing in order to be of any binding obligation. But is it necessary to give to the language of the statute a scope so comprehensive, when to do so would involve results of extreme incon- venience not only to individuals dealing with the company, but to the company itself ? The words of the statute relied on by the defend- 126 PIXLEY V. KAILROAD COMPANY. [CHAP. IT. ant in bar of the plaintiffs' right to recover, properly interpreted, re- late to executory contracts. In our judgment they are not, when considered in conjunction with the other provisions of the statute and in view of the objects of the corporation, to be read as exempting the company from liability in all cases founded in contract, not in writ- ing. It may be that while such contract remains executory on both sides, an action could not be maintained by either party to enforce it, but where one of the contracting parties has completely performed it on his part, and thereby rendered to the other the consideration stip- ulated, the party having received the consideration promised cannot be permitted to escape liability on the naked letter of the statute, be- cause the meaning of the law is not such as to afford immunity from liability in such a ease. To give the statute the construction which the defendant insists upon would be to hold that the company could not be compelled to answer for any breach of a verbal contract to transport over its road and deliver at an appointed destination goods intrusted to it for the purpose, for a consideration paid ; or for a breach of a like contract to safely carry a passenger to a place designated, for a consideration completely performed on his part. On the other hand, such construc- tion would be to hold that the company could not recover for the car- riage of property or persons over the road after the service had been rendered, unless the contract to pay therefor was in writing ; because contracts between a railroad corporation and an individual, as well as between natural persons, must be mutual, or else neither party is bound. The clause of the act under consideration does not render verbal contracts, of the kind of that on which this action was brought, void. They are voidable so long as unexecuted on both sides ; but when executed by one of the parties by complete performance, the other becomes liable, and must render the consideration stipulated in ad- vance, or a reasonable compensation, to be ascertained as a matter of fact, if not fixed and agreed upon by the parties themselves. The doctrine here laid down must be admitted to be just, and we have no doubt of its perfect accord with the true intent and meaning of the act, which places the corporation acting within the scope of its powers upon the same footing as natural persons. The third section of the act declares such corporations capable of suing and being sued, and generally as possessing all the powers and privileges for the purpose of carrying on the business of the corporation that pri- vate individuals and natural persons enjoy. In illustration of the principle upon which we have endeavored to resolve the question considered, we may refer to cases arising upon constructions of various provisions of the Statute of Frauds. The fourth section of Ch. 3, Stat. 29, Car. II., provides that no action shall be brought to charge any person upon any agreement that is not to be performed within the space of one year from the CHAP. IV.] PIXLEY V. RAILROAD COMPANY. 127 making thereof, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith, or by some person thereunto by him lawfully authorized. In Donellan v. Read (3 Barn. & Adol. 899), it was decided that where a contract within the letter of the statute had been fully performed on one side, the con- sideration of that performance, though by the contract not payable until after the expiration of th(; year, could be recovered by action when the stipulated time arrived. Browne on Statute of Frauds, Sec. 117; Lockwood r. Barnes (3 Hill, 130)'. And so a party who has paid money in fulfilment of a verbal contract for an interest in land, which cannot be enforced because within the Statute of Frauds, may recover back the money so paid in an action for money had and received, upon the refusal or inability of the other party to the con- tract to carry into execution the contract on his part. Kidder v. Hunt (1 Pick. 328) ; Seymour v. Bennet (14 Mass. 266) ; Barickman v. Kuykendall (6 Blackf . 22) . In like manner, one who has rendered services in execution of a verbal contract, which on account of the statute cannot be enforced against the other party, can recover the value of the services upon a quantum meruit. Souch v. Strawbridge (2 Com. Bench, 813, 814) ; Bwrlingame v. Burlingame (7 Cow. 94) ; King V. Brown (2 Hill, 485) ; Browne on Stat, of Frauds, Sec. 118. It would indeed be extremely unjust if the law was so construed as to permit a party, after having obtained the benefit of a contract, originally within the Statute of Frauds or other statute of like or analogous nature, not only to avoid his agreement, binding him in foro conscientice, but to retain the consideration or benefit received without rendering for it any recompense. In the case of Fister v. La Rue and Others, Trustees, etc. (15 Barb. 323), it was objected to the recovery by the plaintiff, that she was not employed by the corporation to render the services for which she sued, in the mode and manner prescribed by the statute. But the court held that in an action brought upon an executed con- tract, to recover for services rendered under it, no proof that the contract was made on the part of the corporation in the mode and manner prescribed by the statute was necessary. The court, in further consideration of the question, said : " It is well settled, at least in this country, that where a person is employed for a corpora- tion, by one assuming to act in its behalf, and goes on and renders the services according to the agreement, with the knowledge of its officers, and without notice that the contract is not recognized as valid and binding, such corporation will be held to have sanctioned and ratified the contract, and be compelled to pay for the services according to the agreement. Having availed itself of the services and received the benefits, it is bound in conscience to pay, and will not be heard to say that the original agreement was not made by a person legally authorized to contract. Aug. & Ames on Corp., 216, 128 PIXLEY V. RAILROAD COMPANY. [CHAP. IV. 218, Ch. 8, Sec. 8. Where the contract is still executory, and noth- ing has been done under it, and the action is to recover damages merely for non-performance, it is for the plaintifE to show a legal contract binding upon the corporation." The case here cited clearly distinguishes between contracts execu- tory and executed, recognizing the doctrine that so long as a contract remains entirely executory the party who seeks to recover merely for non-performance of it by the other, must show a legal contract binding upon the corporation. In the consideration of this case we have proceeded on the theory that the contract entered into with the plaintiffs was one which the corporation by its duly constituted agents had the capacity to make. That the corporation had such capacity is not attempted to be con- troverted, nor could it be with seeming plausibility. The act con- fers on the directors the power to make and execute on behalf of the company contracts of every nature and kind, " to carry out the objects and purposes of such corporation, in any such way and man- ner as they may think proper." The act does not in terms provide what shall be the mode or manner of contracting, unless it be by the clause declaring that " No contract shall be binding upon the com- pany unless made in writing." This clause is no interdiction to making a contract otherwise than in writing. On the contrary, it is fairly to be implied from the words employed that the company is competent to make contracts not in writing, which it may perform if it elects to do so. Then, if the corporation may so contract, and upon performance may lawfully demand the consideration therefor, it follows, upon the principle of reciprocity already alluded to, that when the company has by the terms of its contract promised to pay for services when performed, it cannot escape the consequences of its contract after having received the consideration for its promise, but must pay the consideration due, as a natural person would be bound to do under the like circumstances. In conclusion, we may remark that we have not overlooked the cases of Zottman v. The City and County of San Francisco (20 Gal. 96), and the cases therein cited, nor that of Wallace v. The Mayor and Common Council of San Josi (29 Cal. 180). In the first of these cases it was held that where the charter of a municipal cor- poration prescribes the mode in which its contracts shall be made, the mode must be followed in order to render them valid and bind- ing. The doctrine thus declared had not its origin in that case, as will be observed by reference to the authorities referred to therein. When to a corporation is prescribed, by the law of its being, the mode of exercising its power, it results necessarily that such mode must be observed in order to render its acts binding. But when, by its organic law it is declared in general terms that its proper officers shall for and in behalf of it manage its affairs, and make and execute all contracts to carry out the objects and purposes of such corpora- CHAP. IV.] PIXLEY V. RAILROAD COMPANY. 129 tion, in any way and manner which they may deem proper, it cannot be held that the corporate powers existing must be exercised in any particular mode. Therefore, mode, in such case, is not the measure of the corporate power. By reference to the portions of the act above cited, it is to be seen that the Western Pacific Eailroad Com- pany is not restricted by the law of its being to any special mode and manner of exercising its corporate powers ; but on the contrary, the third section of the act provides that the corporation shall possess all the powers and privileges for the purpose of carrying on its business that private individuals and natural persons enjoy ; and the ninth section provides that the directors of the company shall man- age the affairs thereof, and make and execute all contracts necessary to carry into effect the objects and purposes of the corporation, in such way and manner as they may think proper. In the case of Wallace v. The Mayor and Oommon Council of San Jose, the question decided was one relating to the power of the Common Council. In that case the Common Council entered into a contract with the plaintiff, which was plainly beyond the power delegated by the act of' incorporation, and the point determined was that the corporation could not be rendered liable upon it, for the obvious reason that it was not the contract of the corporation, it being ultra vires under the organic law of the corporation. Judgment affirmed. Shaftek, J., concurring specially : — I concur in the judgment, and on the ground that if a person not duly authorized make a contract on behalf of a trading corpora- tion, and the corporation take and hold the benefit derived from such contract, it will be held to have made the contract its own by ratification or adoption, and will be estopped from disputing its liability thereon. It is quite impossible to reconcile the authorities upon this subject, but in so far as trading corporations are concerned, the decisions, in this State at least, are consistent with each other and sustain the proposition. Some of them hold municipal corporations to be within the principle. Gas Company v. San Francisco (9 Cal. 463) ; Argenti V. San Francisco (16 Cal. 265) ; Fraylor v. Sonora Mining Co. (17 Cal. 594) ; Roshorough v. The Shasta Riuer Canal Co. (22 Cal. 656) ; Alle7i V. Citizens' Steam Navigation Co. (22 Cal. 28). Sawyer, J., concurring specially : — This is an action to recover attorney's fees in the suit of French v. Central Pacific Railroad Co. and Western Pacific Railroad Co., in which plaintiffs, upon the request of the president and officers of the company, acted as attorneys and conducted the defence to a suc- cessful termination. The defendant, as the result of the litigation, received into its treasury two hundred and fifty thousand dollars of the bonds of the City and County of San Francisco. The main point in the case, to which all others are subordinate, is, that there VOL. J. — 9 130 PIXLEY V. RAILROAD COMPANY. [CHAP. IV. was no contract of retainer in writing between plaintiffs and defen- dant, and, for that reason, no liability could be incurred by tbe* de-- fendant to jjay for the services. The question arises, under section ten of the Act of 1861, concerning railroad corporations, which pro- vides that " the directors shall cause to be kept a book, to be called 'Kecordof Corporation Debts,' iu which the secretary shall record all written contracts of the directors, and a succinct statement of the debts of the company, the amount thereof, and with whom made ; which book shall at all times be open to the inspection of any stockholder or party in interest. When any contract or debt shall be paid or discharged, the secretary shall make a memorandum thereof in the margin, or in some convenient place in the record, where the same is recorded. No contract shall be binding upon the company unless made in writing." The last clause is the one supposed to be an insuperable obsta- cle in the way of a recovery in this case. When taken in connec- tion with the context, it is not so clear what was intended by this provision. But, manifestly, it cannot possibly have been intended to have so broad a scope as is claimed for it ; for, to give it such a con- struction would be to so utterly bind the company down to a mode of proceeding that, under it, it would be utterly impossible for it to perform its functions, or transact its ordinary business. It could not do the least thing in the way of contract, whereby a right is acquired, or a responsibility incurred about the smallest matters, which are occurring every minute in the day, without making a contract in writing, and having it recorded by the secretary in the " Record of Corporation Debts." It would be impossible to make a contract, although fully executed on one side, which would bind the other party to carry a passenger, or a pound of freight from station to station, or purchase a cord of wood, or a pint of oil, without these formalities. To give the provision any such construction would be absurd in the extreme. No man in his senses could knowingly vote for such a law, and no sane man would attempt to build or operate a railroad under its provisions. The provision must be limited to express contracts wholly executory, — such contracts as are generally made in the ordinary course of business, when important matters are involved, and there is time for deliberation, and in which the terms are usually arranged in advance, and specified with more or less particularity. It cannot refer to those liabilities; which the law itself iniplies from benefits received and actually enjoyed, without making any express contract in advance, where the services have been performed on one side, and the consideration received and en- joyed by the other. The provision itself says, all " written contracts " shall be recorded, as if there would necessarily be other contracts. If there were to be no others of any kind, why not say all contracts ? All the provisions must be construed together, and so construed, if possible, that while some significance is allowed to every word, there CHAP. IV.] ROYAL BANK V. RAILROAD COMPANY. 131 may still be no conflict. The corporation has a capacity to be sued, and when sued it is bound to appear and defend its interests, or they will be sacrificed, and it can only appear by attorney. The employ- ment of au attorney is not ultra vires. It is one of the necessities resulting from the capacity to be sued, likely to occur at any mo- ment, and the emergency may be sudden. The law itself casts upon the corporation the necessity of defending its rights when sued, and it may be impossible to make a written contract with an attorney. It takes two to make a contract. The corporation defended in this instance, and the question was, whether it should gain or lose the sum of two hundred and fifty thousand dollars. It could only main- tain its right by appearing by attorney. The plaintiffs appeared with the knowledge and concurrence of the officers of the defendant, and made a successful defence. The corporation actually received, and it still retains, the avails of the litigation. This reception of the proceeds is a corporate act, for there is nothing to inhibit it. It had the benefit of the service without making any express con- tract. The service was performed, and the benefits enjoyed, and there is nothing to inhibit it from availing itself of the service, or enjoying its fruits. Can it now retain and enjoy the avails of the litigation, and escape liability for the service by which they were acquired ? In my judgment, the provision in question has no appli- cation, and the law of the land casts upon the defendant the lia- bility to pay what the services are reasonably worth. The question might have been different had the contract of the retainer been wholly executory only, and an action been brought by either party to recover damages for a breach in not performing. This provision has been since repealed, and its construction with reference to later transactions is no longer important. The case is different from Wallace v. San Jose. In that case the contract itself was ultra vires under the circumstances. There was then no power to make the contract at all. The inhibitory provision was not of a general character, but it was very specific, and applied particularly to the case then in hand. There could be no doubt about it. Upon the whole, without noticing particularly the sub- ordinate questions, I am not satisfied that there is any error that would justify a reversal of the judgment. The judgment and order denying new trial should be affirmed. EOYAL BANK vr EAILROAD COMPA.XY. (100 Mass. 444. 1868 ) CONTEACT on forty-eight overdue and unpaid bonds of the defend- ants, a corporation under the law of Massachusetts, one half of which 132 KOYAL BANK V. KAILUO.VD COMPANY. [CHAP. IV. bonds bore numbers less than 200 and the other half numbers above 300, each bond being dated Jan. 1, 1850, acknowledging the debt of the corporation in the sum of $480, money of the United States, or one hundred pounds sterling, money of Great Britain, and promising to pay the same in dollars or pounds sterling, to the holder of the bond on July 1, 1855. Each bond bore an impression of the seal of the corporation upon the paper so as to indent its surface, without any intervening substance; was expressed' that "the company has hereunto affixed its corporate seal ; " and was signed by the president and treasurer. The answer set up that the bonds were not under seal, and were barred by the statute of limitations. At the trial before Hoar, J., " the defendants asked permission to amend the answer by adding thereto the assertion that the bonds numbered above 300 had been delivered to the plaintiffs as additional security for the payment of the bonds numbered below 200. The judge refused to permit the amendment to be filed on the ground that it was immaterial, and reserved that question. Upon the evidence offered at the trial, the judge ruled that if the impression appearing on each of the bonds was made from the corporate seal of the defend- ant company upon the paper after the bonds were printed, and made by the printer to whom the seal had been sent by the officers of the company for the purpose of making the impression in order to pre- pare the bonds to be signed and issued as the bonds of the company, and having been so impressed, the bonds were afterwards signed by the proper officers and delivered as the bonds of the company, they were obligations under the seal of the company, not barred by the statute of limitations. Under this ruling a verdict was taken for the plaintiff for f 480, and interest from July 1, 1865, on each bond, and the case was reserved for the consideration of the whole court." Foster, J. : — That the bonds declared upon were sealed instruments was settled by Hendee v. Pinkerton (14 Allen, 381). The corporate seal having been affixed by the printer by the direc- tion of the officers of the corporation, and they having adopted his act, and subsequently signed and issued the bonds, the sealing was duly made, and the instruments became obligatory upon the corpora- tion. This is no more nor less than constantly takes place when a scrivener prepares and affixes a seal to a deed which the grantor thereupon signs and delivers. The practice is of unquestionable validity, and the authorities for it are abundant. "If a stranger seal an instrument by the allowance, or the commandment precedent, or agreement subsequent, of the person who is to seal it, that is suffi- cient'' (Cruise Dig. tit. 32, c. 2, § 55). The allowance of the proposed amendment to the defendants' an- swer would have been unavailing. A sealed instrument conclusively imports a consideration. And these bonds having been duly executed and delivered, the holders could have maintained an action upon CHAP. IV.] WHITE V. RAILROAD COMPANY. 133 them, if their delivery had been merely gratuitous, and no value had ever been given for them. A delivery of a portion as collateral secur- ity for the payment of the residue, is sufficient. If the defendants wish to avail themselves of the fact that a part were held only as collateral security for the rest, they cannot do so until they have paid in full the amount of their real indebtedness. Until such payment is tendered, there is apparently no equity in their favor, and certainly no defence to a common-law action upon all the securities which they have issued. Judgment on the verdict. WHITE V. EAILEOAD COMPANY. (21 Howard [U. S.), 675. 1858.) This case was brought up by writ of error from the Circuit Court of the United States for the District of Massachusetts. Mr. Justice Nelson delivered the opinion of the court : — This is a writ of error to the Circuit Court of the United States for the District of Massachusetts. The suit was brought in the court below by the plaintiff (White) against the company, upon several bonds issued by the same. The case was presented to the court upon an agreed state of facts, and among others that the bonds in question were issued by the com- pany in regular course and for a sufficient consideration, and that payment had been demanded and refused. Coupons for the accruing interest previous to the maturity of the bonds had been duly paid. It was further agreed that bonds of this description issued by the company, were sold in the market and passed from hand to hand by delivery, at prices varying according to the state of the market ; and that those in question were issued at or about their date, to a per- son a citizen of Massachusetts, and were payable in blank, no payee being inserted; and that they came into the hands of the plaintiff through several intervening holders in regular course; and that he then and since lived in the State of New Hampshire, and before this suit was brought filled up the blank by inserting " Selden F. White, or order," the name of plaintiff, without knowledge or consent of the defendants. The court ruled that the suit could not be sustained for want of jurisdiction. _The ground upon which this ruling below is sought to be main- tained is, that these bonds were issued to citizens of Massachusetts ; and as they could not be regarded as negotiable instruments, or if negotiable, not payable to bearer, the plaintiff was disabled from suing in the Federal court within the prohibition of the eleventh section of the Judiciary Act (15 Pet. R. 125 ; 2 ib. 318; 3 How. 574; 8 ib. 441). 134 WHITE V. KAILKOAD COMPANY. [CHAP. IV. In answer to this ground we think it quite clear on looking into the agreed state of facts, in connection with the bonds and the mortgage given to secure their payment, that it was the intention of the com- pany by issuing the bonds in blank to make them negotiable and pay- able to the holder as bearer, and that the holder might fill up the blank with his own name or make them payable to himself or bearer or to order. In other words the company intended by the blank to leave the holder his option as to the form or character of negotia- bility without restriction. If the utmost latitude in this respect was not intended, why leave the payee in blank when issuing the bonds, or why not fix the limit of negotiability or negative it altogether ? To adopt any other conclusion would seem to us to be unjust to the company, for then the blank would be wholly unmeaning, or if any, a meaning calculated if not intended to embarrass the title of the holder. Assuming then that these bonds were intended to be made nego- tiable, we do not see the difficulty suggested in maintaining the suit in the Federal court ; for until the plaintiff chose to fill up the blank, he is to be regarded as holding the bonds as bearer, and held them in this character till made payable to himself or order. At that time he was a citizen of New Hampshire, and therefore competent to bring suit in the court below. As to the negotiability of this class of securities when shown to be intended that they should possess this character by the form in which issued and mode of giving them circulation, we think the usage and practice of the companies themselves, and of the capitalists and busi- ness men of the country dealing in them, as well as the repeated decisions or recognition of the principle by courts and judges of the highest respectability, have settled the question. Morris Canal Co. V. Fisher (1 Stockton, 667, 699) ; Belafield v. State of Illinois (2 Hill, N. Y. 177; 8 Paige Ch. R. 527, S. C), Michigan Bank v. N. Y. and N. H. B. R. Co. (3 Kern. R. 625) ; Carr v. Le Fevre (27 Penn. E. 418) ; Craig v. The City of Vicksburg (31 Miss. E. 216) ; Chester W. Cho- pin V. The Vt. and Mass. R. R. Co., decided Sept. 7, 1857, in Sup. Court of Mass. Indeed, without conceding to them the quality of negotiability, much of the value of these securities in the market, and as a means of furnishing the funds for the accomplishment of many of the great- est and most useful enterprises of the day, would be impaired. Within the last few years large masses of them have gone into general circu- lation, and in which capitalists have invested their money ; and it is not too much to say that a great share of the confidence they have acquired as a desirable security for investment, is attributable to this negotiable quality, as well on account of the facility of passing from hand to hand, as the p"rotection afforded to the bona fide holder. It is true that in England the law is, that a bond delivered in blank as it respects the payee, is void, and the blank incapable of CHAP. IV.] WHITE V. KAILROAD COMPANY. 135 being filled up by the holder, either upon an implied or express parol authority from the maker. This is maintained upon the principle that the authority of an agent to make a deed for another must be by deed ; and also that to admit the parol authority to fill up the blank would in effect inake a bond transferable and negotiable, like a bill of exchange or exchequer bill. Hibhle White v. McMorine (6 Mees. and Welsb. 200), and Enthouen v. Hoyle et al., in the Exch. (9 Eng. L. and Eq. E. 434). The law had been otherwise held by Lord Mansfield in the case of Texira v. Evans, cited in Hasten v. Miller (1 Anstruther, 228) ; but was distinctly overruled by Parke B., in delivering the opinion of the court in the case first above cited, and the opinion reafiirmed by him still more strongly in the second case. Courts of the highest authority in this country have followed Lord Mansfield, and have not hesitated to meet the fears expressed by Parke, B. (that the effect would be to make bonds negotiable), by admitting the consequence. Chief Justice Marshall, in the case of the United States v. Nelson & Myers (2 Brock. E. 64), hesitated to reach this conclusion, but expressed a strong belief that at some future day it would be by this court. We think, for the reasons above given, the ruling of the court below cannot be upheld, and that the judgment should be reversed, with a venire de novo, etc. 136 COLMAN V. THE EASTERN COUNTIES RAILWAY CO. [CHAP. V. CHAPTER V. POWERS AND LIABILITIES OF A CORPORATION. IN RESPECT OF CONTRACTS IN GENERAL. COLMAN V. THE EASTEKIST COUNTIES EAILWAY COMPANY. (10 Beavan 1, 1846.) This was a motion to dissolve a special injunction under the follow- ing circumstances : — Under the jwwers contained in their acts of Parliament, the East- ern Couuties Railway Company and the Eastern Union Railway Company had formed a railroad from London to Manningtree, a place within ten miles o:^ the port of Harwich. The directors of these com- panies conceived that it would add to the trafiB.c and profits of the railway if a steam-packet company could be formed, communicating between Harwich and the northern ports of Europe, and they accord- ingly took proceedings for the establishment of such a compgpy. A prospectus was issued, and a deed of settlement prepared where- by it was proposed that the shares in the projected company called "The Harwich Steam-Packet Company," should be offered to the shareholders in the above-mentioned railway companies. The railway companies intended to guarantee to the shareholders in the steam-packet company a dividend of five per cent per annum, upon their paid-up capital, until the dissolution of the steam-packet company; and that, upon the dissolution, the whole paid-up capital should be paid by the railway companies to the shareholders of the Steam-Packet Company, in exchange for a transfer of their assets and property. The plaintiff, a shareholder in the Eastern Counties Railway Com- pany, objected to this, and to prevent it he instituted this suit on be- half of himself and all other proprietors of shares in that company (except the defendants) who should come in and contribute to the expenses of the suit against the company and all the directors. The bill, after alleging a case to the above effect, stated that in October, 1846, the plaintiff called upon the secretary to inquire into the nature of the arrangement between the companies, and was in- formed that the proposed arrangement was of this nature ; that pas- CHAP, v.] COLMAN V. THE EASTERN COUNTIES RAILWAY CO. 137 sengers should be conveyed from London to Rotterdam, etc., for certain fixed fares, and that if it should be found necessary that the whole of those fares should be paid over to the Steam-Packet Com- pany, in order to declare a dividend of five per cent, the railway company would pay the whole amount received for the fares to the Steam-Packet Company. The bill also stated that many of the proprietors of shares in the Eastern Counties Railway Company had declined to take any share in the S beam-Packet Company, and had altogether disapproved of the proposed arrangement between the railway company and the Steam- Packet Company ; but that several proprietors of shares in the East- ern Counties Railway Company, upon the faith of the proposed guarantee, had accepted the shares allotted to them, and had paid the deposits thereon. The bill stated that no contract or agreement had at present been entered into with the Harwich Steam-Packet Company, under the common seal of the Eastern Counties Railway Company, or in any other manner, sufB.cieut to render an agreement or contract legally binding upon the said railway companies. The bill prayed a declaration that it would be a breach of trust on the part of the directors of the Eastern Counties Railway Company to enter into any contract, etc., on behalf of the Eastern Counties Railway Company to guarantee to the Harwich Steam-Packet Com- pany any dividend on their capital, or the repayment of the said capital in case of the dissolution of the Steam-Packet Company, or to apply any funds of the railway company in making any payment to the .jSteam-Packet Company for any of the purposes aforesaid ; and that it might also be declared that the directors of the railway company were not authorized to make any reduction from their usual tolls, etc., in favor of any persons or goods conveyed to or from Har- wich by any steam packet belonging to the said Steam-Packet Com- pany; and that the directors of the Eastern Counties Railway Company might be restrained by injunction from entering into such proposed arrangement, or any such contract, agreement, or under- taking as aforesaid, etc. On the 19th of November, 1846, a special injunction was granted ex parte by the Master of the Rolls, to restrain the defendants, the directors, until the 26th of November, from entering into the pro- posed arrangement with the Steam-Packet Company, or any such contract, agreement, or undertaking as was mentioned in the bill. This injunction was afterwards continued till the 14th of Decem- ber, when the case was argued before the Master of the Rolls upon a motion and a cross-motion ; the defendants moving to dissolve the injunction, and the plaintiff moving to continue it. In support of the motion to dissolve the injunction, an. affidavit was sworn by Mr. Roney, the secretary of the Eastern Counties Rail- way Company, stating that it was the general practice for railway 138 COLMAN V. THE EASTERN COUNTIES RAILWAY CO. [CHAP. V. companies to agree with the proprietors of coaches, omnibuses, and other vehicles for the conveyance of passengers and goods, between the various stations on the railways and adjoining places, with a view to increase the traffic on the railways, and that the railway com- panies usually guaranteed to the proprietors of the coaches or omni- buses a percentage of at least £5 per cent, and indemnified them against loss in the use of their vehicles ; that he believed the pro- posed arrangement with the Harwich Steam-Packet Company would be very beneficial to the railway company ; that the arrangement had not been agreed to by the shareholders in the railway company, nor had it been discussed at any meeting of their shareholders called for that purpose ; and that there were more than eight thousand share- holders in the Eastern Counties Railway Company. He further stated that the plaintiff was a wharfinger, and in that capacity was an agent of the General Steam Navigation Company, and that his solicitors in this suit were the solicitors of that com- pany ; and that the deponent believed that the bill had been filed and the injunction obtained at the instigation and request of the General Steam Navigation Company, who feared that their interests would be injuriously affected by the establishment of the Harwich Steam- Packet Company, and not for the purpose of protecting the interests of the shareholders in the railway company ; that a special general meeting of the shareholders in the Eastern Counties Railway Com- pany had been held on the 12th of November, 1846, and that the chairman of the company had then stated that nothing would be done to bind the shareholders of the railway company to any arrangement with the Steam-Packet Company until such arrangement should have been approved at a special general meeting convened for that pur- pose ; and that the directors had not nor ever had, any intention of entering into any such contract without the sanction of their share- holders. This affidavit was not contradicted. The Master of the Rolls [Lord Langdale] : — This is a motion to dissolve an ex parte injunction restraining the defendants from entering into a particular agreement with a company called the Harwich Steam Packet Company. Three reasons have been offered for dissolving the injunction. One is personal to the plaintiff, and as to this I am of opinion, looking at the affidavit of Mr. Roney, that there is not sufficient ground to say that the plaintiff has not a right to sue and ask for an injunction if the merits of his case entitle him to one. The next objection is as to the form of the pleadings, and I do not think I should be right in coming to a conclusion upon it, without carefully examining the frame of the record. The third ground is upon the merits, and I think after the full dis- cussion the matter has undergone, and considering the great and extensive importance of the principle involved in it, that I ought not to abstain from at once giving my opinion upon the point. CHAP, v.] COLMAN V. THE EASTERN COUNTIES KAILWAY CO. 139 There are four parties to be considered : the plaintiff ; the defend- ants, — the Eastern Counties Railway Company, — the Eastern Union Railway Company, and a company, or proposed company, called the Harwich Steam-Packet Company. The plaintiff is a shareholder in the Eastern Counties Railway Company, and has no interest what- ever except in that company, and he is exposed to no liability except such as may be incurred in properly carrying on the business of that company. I think it right to observe that companies of this kind, possessing most extensive powers, have so recently been introduced into this country, that neither the Legislature nor courts of justice have been yet able to understand all the different lights in which their trans- actions ought properly to be viewed. We must, however, adhere to ancient general and settled principles so far as they can be applied to great combinations and companies of this kind. Joint-stock companies have funds so extremely large, and exercise powers so extensive and so materially affecting the rights and inter- ests of other persons and the rights which the public or the subjects of Her Majesty have been accustomed to enjoy under the protection of the laws established in this kingdom, that to look upon a railway company in the light of a common partnership, and as subject to no greater vigilance than common partnerships are, would, I think, be greatly to mistake the functions which they perform, and the powers which they exercise, of interference, not only with the public, but with the private rights of all individuals in this realm. We are to look upon t,hose powers as given to them in consideration of a benefit which, notwithstanding all other sacrifices, it is to be presumed and hoped, on the whole, will be obtained by the public. But it being the interest of the public to protect the private rights of all individuals, and to defend them from all liabilities beyond those necessarily occa- sioned by the powers given by the several acts, those powers must always be carefully looked to ; and I am clearly of opinion that the powers which are given by an act of Parliament, like that now in question, extend no farther than is expressly stated in the act, or is necessarily and properly required for carrying into effect the under- taking and works which the act has expressly sanctioned. How far those powers which are necessarily or properly to be exercised for the purposes intended by the act, extend, may very often be a subject of great difficulty. We cannot always ascertain what they are. Ample powers are given for the purpose of con- structing and maintaining the railway, and for doing all those thnigs required for its proper use when made ; but I apprehend, that it has nowhere been stated, that a railway company, as such, has power to enter into all sorts of other transactions. Indeed, it has been very properly admitted, that railway companies have no right to enter into new trades or businesses not pointed out by their acts ; but it has been contended, that they have a right to pledge, without limit, 140 COLMAN V. THE EASTERN COUNTIES KAILWAY CO. [CHAP. V. the funds of the company for the encouragement of other trans- actions, however various and extensive, provided the object of that liability is to increase the traffic upon the railway, and thereby to increase the profit to the shareholders. There is, however, no author- ity for anything of that kind. It has been stated, that these things, to a small extent, have frequently been done since the establishment of railways; but un- less the acts so done can be proved to be in conformity with the powers given by the special acts of Parliament, under which those acts are done, they furnish no authority whatever. To suppose that the acquiescence of railway shareholders, for the last fifteen years, in any transaction conducted by a railway company, is any evidence whatever of their having a lawful right to enter into it, is, I think, wholly to forget the sort of frenzy which, during that period, the country has been in. There has been no project, however wild, which has not been encouraged by some one or more of these companies ; there has been no project, however wild, in which the shareholders have not acquiesced, either from cupidity, hoping to gain extraordinary profits, beyond their first anticipations, or from the terror of entering into a contest with a combination of per- sons so powerful as a railway company. I must, in the absence of any legal decision, say, that I consider that the acquiescence of the shareholders in such transactions affords no ground whatever for the presumption of their legality. I am far from saying, that that which is here proposed to be done might not be profitable to this company, or that it might not be a public advantage. I am far from expressing an opinion, that the establishment of a steam-packet company at Harwich, com- municating with this railway, might be not only of public, but of national importance, or that it might not be proper to give this company authority to do that which they are now attempting to do, as it seems to me, without authority ; I mean to express no opinion as to this. What they are doing is this : under the powers of this act of Parliament enabling them to do what is required for the construc- tion, maintenance, and proper and convenient use of this railway, they are proposing to pledge the funds of this company, to sup- port the proposed Harwich Steam-Packet Company, to the extent of £150,000, or even £300,000. The agreement is of this nature : a proposition is made to certain individuals, to establish a steam- packet company from Harwich to the northern ports, and the direc- tors say, we will do all that we can to encourage the sliareholders in the railway company to become shareholders in the steam- packet company. This might be a very legitimate and proper mode of encouragement, because it would be done at the expense and risk of each individual, who makes his own choice, whether he will incur any liability. But besides this, the directors of the CHAP, v.] COLMAN V. THE EASTERN COUNTIES RAILWAY CO. 141 railway company propose, whatever may be the success of the steam- packet company, and even if it should fail,, to secure to the sub- scribers to the steam-packet company interest to the extent of £5 per cent upon the capital out of the funds of the railway com- pany; and, moreover, if the steam-packet company should fail altogether, so that it would be proper to put an end to it, the directors of the railway company propose that the funds of the railway company shall be pledged to pay back to every subscriber to the steamboat company the full amount of his subscription. It is not proposed that the railway company should directly, and by their own directors, engage in the steam-packet company, and carry on that trade; but only that they should impose, on the rail- way company, the whole risk and liability not only of paying inter- est at the rate of £5 per cent, but if the transaction should turn out an unprofitable one, of making good to every shareholder the full amount which he has paid. Is there anything in this act of Par- liament sanctioning such a course of proceeding ? Do the powers to construct, maintain, regulate the traffic, and to do all that is necessary for the purpose of carrying on and working the railroad, imply that the directors are to be at liberty to pledge the funds of the company for a completely different transaction, in the hope that it may turn out a profitable one, and by being itself profitable, add to the profits of the railway company ? Surely there is nothing in the powers given by this act of Parliament which can authorize that. It has been argued, that I must either allow this to be done, or that I must hold that nothing can be done that is at all out of the express words of the act of Parliament. Now I shall remain of opinion, un- til it has been decided otherwise by higher authority, that this is not within the powers given by the act of Parliament ; and when another and a different case is brought before the Court, it, will be judged of by the circumstances which attend it. But I must say that, in my opinion, to pledge the funds of this company for the purpose of sup- porting another company engaged in a hazardous speculation, is a thing which, according to the terms of this act of Parliament, they have not a right to do. At the same time, I am far from saying, that there may not be many small things, perhaps small excesses of authority, which are obviously so beneficial, that the shareholders would all acquiesce in them, and never think of complaining of them. It does not, therefore follow, that they cannot do the least thing not expressly mentioned in the act. I believe they have the power to do all such things as are necessary and proper for the purpose of carry- ing out the intention of the act of Parliament, and they have no power of doing anything beyond it. I do not now intend to enter into a discussion of how far such proceeding is affected by the principles of public policy ; but this may be observed, that if there is any one thing more desirable than 142 EAST ANGLIAN V. EASTERN COUNTIES R. E. CO. [CHAP. V. another, after providing for the safety of all persons travelling upon railways, it is this, that the property of railway companies should be itself safe ; that a railway investment should not be considered a wUd speculation, exposing those engaged in it to all sorts of risks, whether they intended it or not. Considering the vast property which is now invested in railways, and how easily it is transferable, perhaps one of the best things that could happen to them would be, that the in- vestment should be of such a safe nature, that prudent persons might, without improper hazard, invest their moneys in it. Quite sure am I, that nothing of that kind can be approached, if railway companies should be at liberty to pledge their funds in support of any plausible speculations, not authorized by their legal powers, and which might, very possibly, to say the least, lead to extraordinary losses on the part of the railway company. I repeat, as I said at first, that I consider this to be a question of great importance, not merely to the railway companies who claim these powers, but to the public, in a greater variety of ways than it is necessary for me to point out upon this occasion. I say, there- fore, that, subject to the examination which I shall feel it my duty to give to the pleadings, I shall not dissolve this injunction. If I find that the pleadings are improperly framed, then I think the objection ought to be brought forward in another form, namely, by demurrer. The Master of the Rolls stated [December 23], that he had examined the bill, and was of opinion that it had been properly framed, and that the injunction must be continued. THE EAST ANGLIAK RAILWAYS COMPANY v. THE EASTERN COUNTIES RAILWAY COMPANY. (11 C. B. 775. 1851.) 1 Jbkvis, C. J., now delivered the judgment of the court:* — This is an action of covenant. The declaration states that before the contract was made, there were four railway companies, each in- corporated by a separate act of Parliament, — The Lynn and Ely Railway Company, the Ely and Huntington Railway Company, The Lynn and Dereham Railway Company, and the defendants, The East- ern Counties Railway Company; that the Lynn and Ely Railway Company had introduced into Parliament, upon their own petition, ^ The statement of facts is omitted. 2 The demurrer was argued before Jekvis, C. J., Maulk, J., 'Williams, J., and Talfourd, J CHAP, v.] EAST ANGLIAN V. EASTERN COUNTIES K. E. CO. 143 four bills for purposes connected with their railway ; that the three first-named companies had agreed to amalgamate and form one com- pany under the name and style of the East Anglian Railways Com- pany ; and that a bill was then pending in Parliament to give effect to such agreement. The declaration then states that the defendants by an indenture under their common seal, between themselves and the plaintiffs (comprehending the three first-named companies, since amalgamated by act of Parliament), covenanted with the plaintiffs (amongst other things) to take a lease of their railways upon certain terms mentioned in the indenture, and to find the capital necessary for the construction of the extensions, branches, and works author- ized to be constructed by the bills then pending in Parliament, and to pay the costs of preparing and promoting such bills, whether the same should pass into law or not. The declaration further states that the bills were proceeded with ; that two were passed ; and that the costs of the bills, amounting to a large sum, had not been paid by the defendants to the plaintiffs. The defendants set out the indenture upon oyer, and pleaded that the plaintiffs had no authority to grant leases of their railways to the defendants ; that they had been unable to obtain acts of Parliament for that purpose ; that they had abandoned all intention of so doing ; and that several shareholders of the defendants' company (naming them) had not assented to the making or executing the indenture or the agreement therein contained. The plaintiffs demurred generally to this plea, and the question for the opinion of the court is, whether, upon this record, the plaintiffs can maintain their action. We are of opinion that they cannot, and that the defendants are entitled to judgment. The defendants are incorporated by the statute 6 & 7 W. 4, c. cvi., the first section of which enacts that certain persons shall be united into a company for making and maintaining the railway mentioned in that section, and other works by that act authorized, and for other purposes in that act declared, and for that purpose shall be one body corporate by the name and style of " The Eastern Counties Eailway Company," and have perpetual succession and a common seal. The third section empowers the company to raise a sum of money for making and maintaining the said railway and other works author- ized by the act ; and the 5th section directs the money so raised to be expended in and towards making and maintaining the said railway and other works, and in otherwise carrying the act into execution. The money raised on mortgage is to be applied in the same way, — § 246 ; and the profits of the company, after defraying the expenses of mak- ing, maintaining, and working the said railway, are to be accounted for and divided amongst the proprietors of the undertaking, — §§ 170, 171. This act is a public act accessible to all, and supposed to be known to all ; and the plaintiffs must, therefore, be presumed to have dealt 144 EAST ANGLIAN V. EASTERN COUNTIES R. R. CO. [CHAP. V. with the defendants with a full knowledge of their respective rights, whatever those rights may be. It is clear that the defendants have a limited authority only, and are a corporation only for the purpose of making and maintaining the railway sanctioned by the act; and that their funds can only be applied for the purposes directed and provided for by the statute. Indeed, it is' not contended that a company so constituted can engage in new trades not contemplated by their act ; but it is said that they may embark in other undertakings, however various, provided the object of the directors be to increase the profits of their own railway. This, in truth, is the same proposition in another form ; for if the company cannot carry on a new trade, merely because it was not contemplated by the act, they cannot embark in other undertakings not sanctioned by their act, merely because they hope the speculation may ultimately increase the profit of the shareholders. They cannot engage in a new trade, because they are a corporation only for the purpose of making and maintaining the Eastern Counties Railway. What additional power do they acquire from the fact that the under- taking may in some way benefit their line ? Whatever be their ob- ject or the prospect of success, they are still but a corporation for the purpose only of making and maintaining the Eastern Counties Rail- way; and if they cannot embark in new trades because they have only a limited authority, for the same reason they can do nothing not authorized by their act, and not within the scope of their authority. Every proprietor when he takes shares has a right to expect that the conditions upon which the act was obtained will be performed ; and it is no sufficient answer to a shareholder expecting his dividend, that the money has been expended upon an undertaking which at some remote period may be highly beneficial to the line. The pub- lic also has an interest in the proper administration of the powers conferred by the act. The comfort and safety of the line may be seriously impaired, if the money supposed to be necessary, and des- tined by Parliament for the maintenance of the railway, be expended in other undertakings not contemplated when the act was obtained, and not expressly sanctioned by the Legislature. The cases in equity which have been cited, proceeded upon this view of the subject, and were decided not because the particular act restrained by injunction was a breach of trust, but because it was not within the scope of the directors' authority, was not justified by the statute, and was therefore illegal. In Colman v. The Eastern Counties Railway Company (10 Beavan, 15), the Master of the Rolls (Lord Langdale) says: "It has been very properly admitted that railway companies have no right to enter into new trades or busi- nesses not pointed out by the acts ; but it has been contended that they have a right to pledge, without limit, the funds of the company in the encouragement of other transactions, however various and extensive, provided the object of that liability is to increase the CHAP, v.] KAST ANGLIAN V. EASTERN COUNTIES R. R. CO. 145 traffic upon the railway and thereby to increase the profit to the shareholders. There is, however, no authority for anything of that kind." So in Salomons v. Laing (12 Beavan, 352), he says : "A rail- way company incorporated by act of Parliament is bound to apply all the moneys and property of the company for the purposes directed and provided for by the act, and for no other purpose whatsoever." The same principle was adopted by the Lord Chancellor in the case of Bagshaw v. The Eastern Union Railway Company (2 M'Naght. & G. 389) by Lord Cranworth, in Beman v. Bufford (as reported in the Jurist for this year, 15 Jurist, 914) and, as we are told, by Vice- Cliancellor Turner, in the case of The Great Northern Railway Com- pany V. Tfie Eastern Counties Railway Company. In the last two cases the learned judges treated questions similar to the present as purely legal questions, and therefore directed cases to be stated for the opinion of a court of law ; but at the same time expressed their opinion that the contracts were illegal and therefore void. [f the contract is illegal, as being contrary to the act of Parlia- ment, it is unnecessary to consider the effect of dissentient share- holders; for, if the company is a corporation only for a limited purpose, and a contract like that under discussion is not within their authority, the assent of all the shareholders to such a contract, though it may make them all personally liable to perform such contract, would not bind them in their corporate capacity or render liable their corporate funds. But it is said that it does not sufficiently appear upon this record that the bills in Parliament, and for which the defendants covenanted to pay the costs, were not connected with the defendants' railway. If railway companies could embark in undertakings collateral to their main line, merely because the main line might in the result be bene- fited, there would be much in this objection ; but upon the view which we have above expressed, the objection cannot prevail. We know that each of the four litigant companies has a separate act of Parliament; we know that the statute incorporating the de- fendants' company gives no authority respecting the bills promoted by the plaintiffs ; and we are therefore bound to say that any con- tract relating to such bills is not justified by the act of Parliament, is not within the scope of the authority of the company as a corpora- tion, and is therefore void. For these reasons we are of opinion that there ought- to be judg- ment for the defendants. Judgment for the defendants. VOL. 1. — 10 146 PEAKCE V. RAILROAD COMPANIES. [CHAP. V. PEAKCB V. EAILROAD COMPANIES. (21 //oM). (£/.5.)441. 1868.) This case was brought up by writ of error from the Circuit Court of the United States for the district of Indiana. Mr. Justice Campbell delivered the opinion of the court : — The defendants are separate corporations, existing under the laws of Indiana, and were created to construct distinct lines of railroad that connect at Indianapolis, in that State. The plaintifE is the as- signee of live promissory notes, that were executed under conditions set forth in the declaration, and of which he had notice. The two corporations (defendants), some time before the date of the notes, were consolidated by agreement, and assumed the name of the Madi- son, Indianapolis, and Peru Eailroad Company ; and under that name, and under a common board of management, conducted the business of both lines of road. While the business of the two corporations was thus directed and managed, the president of the consolidated company gave these notes in its name in payment for a steamboat, which was to be employed on the Ohio River, to run in connection with the railroads. After the execution of the notes, and the acquisition of the boat, this relation between the corporations was dissolved, by due course of law, and at the commencement of the suit each corporation was managing its own affairs. The plaintiff claims that the two corporations are jointly bound for the payment of the notes ; but the Circuit Court sustained a demurrer to the declaration. The rights, duties, and obligations of the defendants are defined in the acts of the Legislature of Indiana under which they were organ- ized, and reference must be had to these to ascertain the validity of their contracts. They empower the defendants respectively to do all that was necessary to construct and put in operation a railroad be- tween the cities which are named in the acts of incorporation. There was no authority of law to consolidate these corporations, and to place both under the same management, or to subject the capital of the one to answer for the liabilities of the other ; and so the courts of Indiana have determined. But in addition to that act of illegality, the mana- gers of these corporations established a steamboat line to run in con- nection with the railroads, and thereby diverted their capital from the objects contemplated by their charters, and exposed it to perils for which they afforded no sanction. Now, persons dealing with the managers of a corporation must take notice of the limitation? imposed upon their authority by the act of incorporation. Their po^rs are conceded in consideration of the advantage the public is to receive CHAP, v.] I'EAKCE V. EAILROAD COMPANIES. 147 from their discreet and intelligent employment, and the public have an interest that neither the managers nor stockholders of the corpo- ration shall transcend their authority. In McGregor y. The Official Manager of the Deal & Dover Railway Go. (16 L. and Eq. 180), it was considered that a railway company incorporated by act of Parliament was bound to apply all the funds of the company for the purposes directed and provided for by the act, and for no other purpose what- ever, and that a contract to do something beyond these was a con- tract to do an illegal act, the illegality of which, appearing by the provisions of a public act of Parliament, must be taken to be known to the whole world. In Golman v. The Eastern Counties Railway Go. (10 Beav. 1), Lord Langdale, at the suit of a shareholder, re- strained the corporation from using its funds to establish a steam communication between the terminus of the road (Harwich) and the northern ports of Europe. The directors of the company vindicated the appropriation as beneficial to the company, and that similar ar- rangements were not unusual among railway companies. Lord Lang- dale said : " Ample powers are given for the purpose of constructing and maintaining the railway, and for doing all those things required for its proper use when made. But I apprehend that it has nowhere been stated that a railway company, as such, has power to enter into all sorts of other transactions. Indeed, it has been very properly ad- mitted that railway companies have no right to enter into new trades or businesses not pointed out by the acts. But it has been contended that they have a right to pledge, without limit, the funds of the com- pany for the encouragement of other transactions, however various and extensive, provided that the object of that liability is to increase the traffic upon the railway, and thereby to increase the profit to the shareholders. " There is, however, no authority for anything of that kind. It has been stated that these things, to a small extent, have been frequently done since the establishment of railways ; but unless the acts so done can be proved to be in conformity with the powers given by the spe- cial acts of Parliament under which those acts are done, they furnish no authority whatever. In the East Anglian Railway Go. v. The Eastern Counties Railway Co. (11 C. B. 803), the court say the statute incorporating the defendants' company gives no authority respecting the bills in Parliament promoted by the plaintiffs, and we are there- ' fore bound to say that any contract relating to such bills is not justi- fied by the act of Parliament, is not within the scope of the authority of the company as a corporation, and is therefore void." We have selected these cases to illustrate the principle upon which the decision of this case has been made. It is not a new principle in the jurisprudence -of this court. It was declared in the early case of Head v. Providence Insurance Go. (2 Cr. 127), and has been reaffirmed in a number of others that followed it. Bank of Augusta v. Earle (13 Pet. 519); Perrine v. Ghes. and Ohio Railroad Co. (9 How, 172). 148 DOWNING V. MOUNT WASHINGTON ROAD COMPANY. [CHAP. T. It is contended, that because the steamboat was delivered to the defendants, and has been converted to their use, they are responsible. It is enough to say, in reply to this, that the plaintiff was not the owner of the boat, nor does he claim under an assignment of the owner's interest. His suit is instituted on the notes^' as an indorsee ; and the only question is, had the corporation the capacity to make the contract, in the fulfilment of which they were executed ? The opinion of the court is, that it was a departure from the business of the corporation, and that their officers exceeded their authority. Judgment affirmed. DOWNING V. MOUNT WASHINGTON EOAD COMPANY. (40 N. H. 230. 1860.) Assumpsit, brought by Lewis Downing & Sons, to recover the price of eight omnibuses, and a model for the same, one light wagon, and one baggage wagon, made for the defendants, under a contract entered into by D. 0. Macomber, president of the defendant corporation in their behalf. The light wagon was made and sent to one Cavis, the agent for building the road, and was used by him in making it. The omni- buses and baggage wagon were intended to be used in conveying passengers up and down the mountain, after the road was completed. The omnibuses were constructed in a peculiar way, and are not fit for use on ordinary roads. By their act of incorporation, passed July 1, 1853, the corporation was empowered to lay out, make, and keep in repair, a road from such point in the vicinity of Mt. Washington as they may deem most favorable, to the top of said mountain, etc., and thence to some point on the northwesterly side of said mountain, etc., to take tolls of pas- sengers and for carriages, to build and own toll-houses, and to take land for their road. The corporation was duly organized, and at a meeting of the direc- tors on the 31st of August, 1853, before said contract was made, it was " voted that the president be the legal agent and commissioner of the company ; " and his compensation as such was fixed. "The president " was " directed to proceed with the letting of the work for the construction of the road, . . . the obtaining the right of way,'-' and " what other action he shall deem proper for the inter- ests of the company," etc. A committee was appointed " to settle in relation to the right of way, etc., and in relation to land on which to build stables and other buildings, for the use of the road, and also for building all such stables and houses as may be necessary for the operations of the company." OHAP. v.] DOWNING V. MOUNT WASHINGTON KOAD COMPANY. 149 It appeared that by an additional act, passed July 12, 1856, tlie corporation were authorized " to erect and maintain, lease and dis- pose of any building or buildings, which may be found convenient for the accommodation of their business, and of the horses and car- riages and travellers passing over said road." The defendants denied the authority of Macomber to make such a contract in behalf of the corporation, and the power of the cor- poration under its charter either to authorize or to enter into such a contract. Bell, C. J. : — Corporations are creatures of the Legislature, having no other powers than such as are given to them by their charters, or such as are incidental, or necessary to carry into effect the purposes for which they were established. 2'rustees v. Peaslee (15 N. H. 330) ; Perrine v. Chesapeake Canal Co. (9 How. 172). In giving a construc- tion to the powers of a corporation, the language of the charter should in general neither be construed strictly nor liberally, but according to the fair and natural import of it, with reference to the purposes and objects of the corporation. Enfield Bridge v. Hartford B. B. (17 Conn. 454) ; Strauss v. Eagle Co. (5 Ohio (n. s.) 39). If the powers conferred are against common right, and trench in any way upon the privileges of other citizens, they are, in cases of doubt, to be construed strictly, but not so as to impair or defeat the objects of the incorporation. In the present case the power to take the lands of others, and to take tolls of travellers, must be strictly construed, if doubts should arise on those points ; but it is not seen that the other grants to the defendant corporation should not receive a fair natural construction. The charter of the Mount Washington Road empowers them to lay out, make and keep in repair, a road from Peabody River Valley to the top of Mount Washington, and thence to some point on the north- west side of the mountain. It grants tolls on passengers and car- riages, and authorizes them to take lands of others for their road, and to build and own toll-houses, and erect gates, and appoint toll- gatherers to collect their tolls. The remaining provisions contain th.e ordinary powers of corporations relating to directors, stock, dividends, meetings, etc. Laws of 1853, chapter 1486. This chapter confers the usual powers heretofore granted to turn- pike corporations, and no others. The most natural and satisfactory mode of ascertaining what are the powers incidentally granted to such companies, is to inquire what powers have been usually exercised under them, without question by the public or by the corporators. It may be safely assumed that the powers which have not heretofore been found necessary, and have not been claimed or exercised under such charters, are not to be considered generally as incidentally granted. Such charters have in former years been very common in this and other States, and they have not, so far as we are aware, been 150 DOWNING V. MOUNT WASHINGTON ROAD COMPANY. [CHAP. V. understood as authorizing the corporations to erect hotels, or to es- tablish stage or transportation lines, to purchase horses or carriages, or to employ drivers in transporting passengers or freight over their roads; and no such powers have anywhere been claimed or exer- cised under them. We are, therefore, of opinion that the power to establish stage and transportation lines to and from the mountain, to purchase carriages and horses for the purpose of carrying on such a business, was not incidentally granted to the defendant corporation by their charter. State v. Commissioners (3 Zab. 510). But it is contended that the power to make this contract is con- ferred by the act in amendment of the charter, passed July 12, 1856. By this act the corporation may " erect and maintain, lease and dis- pose of any building or buildings which may be found convenient for the accommodation of their business, and of the horses and carriages and travellers passing over their said road." By their business, which the buildings to be erected were designed to accommodate, it is said the Legislature must have intended some permanent and continuing business beyond that of merely building and maintaining a road ; and that it .could be no other than that of erecting a hotel on the moun- tain, and establishing lines of carriages, for the purpose of carrying visitors up. and down the mountain. But the foundation of this implication is very slight. The express grant is of an authority to erect, etc., buildings, not of all kinds, but such as may be found convenient for the accommodation of their business, and of travellers, etc. The business here referred to must be understood to be such as they are by their charter authorized to engage in. If nothing had been said of horses and travellers, there could hardly be any foundation for the idea that a hotel could have beeu contemplated by the Legislature. Buildings suitable for the ac- commodation of their toll-gatherers and workmen employed on their road, would probably be thought everything the Legislature intended to authorize by this additional act. Connected as this authority now is with travellers, horses, and carriages, there is scarce a pretence for argument that this additional act goes any further than the original act, to authorize a stage and transportation company. It is not un- likely that some of the projectors of this enterprise intended to secure much more extensive rights than those of a turnpike and hotel com- pany, but it seems certain they have not exhibited this feature of their case to the Legislature so distinctly as to secure their sanction, and the charter and its amendment as yet justifies them in no such claim. The power of buying and selling real and personal property for the legitimate purposes of the corporation, and the power of contracting generally for the same purposes, within the limits prescribed by the charter, being granted, we understand the principle to be, that their purchases, sales, and contracts generally, will be presumed to be made within the legitimate scope and purpose of the corporation, CHAP. V.J DOWNING V. MOUNT WASHINGTON ROAD COMPANY. 151 until the contrary appears, and that the burden of showing that any contract of a corporation is beyond its legitimate powers, rests on the party who objects to it. Indiana v. Woram (6 Hill, 37) ; Exparte Peru Iron Company (7 Cow. 540) ; Farmer's Loan v. Clowes (3 Conist. 470) ; Same v. Curtis (3 Seld. 466) ; Biers v. Phenix Company (14 Barb. 358). If a corporation attempt to enforce a contract made with them in a case beyond the legitimate limits of their corporate power, that fact, being shown, will ordinarily constitute a perfect defence. Green v. Seymour (3 Sandf. Ch. 286) ; Bangor Boom v. Whiting (29 Me. 123) ; Life, &G. Company v. Manufacturers, &c. Company (7 Wend. 31) ; New York, &c. Insurance Company v. Ely (5 Conn. 560). And if a suit is brought upon a contract alleged to be made by the corporation, but which is shown to be beyond its corporate power to enter into, the contract will be regarded as void, and the corporation may avail themselves of that defence. Beach v. Fulton Bank (3 Wend. 573) ; Alliert v. Savings Bank (1 Md. Ch. Dec. 4()7) ; Abbot v. Baltimore, Sec. Company (1 Md. Ch. Dec. 542); Strauss v. Eagle In- surance Company (5 Ohio, s. s. 59) ; Baron v. Mississippi Insurance Company (31 Miss. 116) ; Bank of Genesee v. Patchin Bank (3 Kern. 315) ; Gage v. Newmarket (18 Q. B. 457). The contract set up in this case was made not by the corporation itself, by a vote, nor by an agent expressly authorized to sign a con- tract already drawn, but it was made by the president of the corpora- tion, acting under an appointment as their general agent ; and it is argued that he was fully authorized by votes of the corporation to bind them by such a contract as the present ; but it is not necessary to consider this question, as we think it settled that the powers of the agents of corporations to enter into contracts in their behalf are limited, by the nature of things, to such contracts as the corporations are by their charters authorized to make. This principle is distinctly recognized in McCullough v. Moss (5 Den. 567) ; overruling the case of Moss V. Rossie Lead Co. (5 Hill, 137), and in Central Bank y. Em- pire Co. (26 Barb. 23) ; Bank of Genesee v. Patchin Bank (3 Kern. 315). The same want of power to give authority to an agent to con- tract, and thereby bind the corporation in matters beyond the scope of their corporate objects, must be equally conclusive against any attempt to ratify such contract. What they cannot do directly they cannot do indirectly. They cannot bind themselves by the ratifica- tion of a contract which they had no authority to make. (5 Den. 667, above cited.) The power of the agent must be restricted to the business which the company was authorized to do. Within the scope of the business which they had power to transact, he, as its agent, may be authorized to act for it, but beyond that he could not be authorized, for its powers extend no further. This view seems to us entirely conclusive against the claim 152 ASHBURY COMPANY V. KICHE. [CHAP. V. made for the omnibuses and model, and probably for the baggage wagon. As to the light wagon, that may stand on a different ground. Such a wagon might be useful and necessary for the use of the agent of the company, in conducting the undoubted business of the corporation, — the building and maintaining the road. We are unable to assent to the position taken in the argument, that a ratification of part is a ratification of the whole contract. While the corporation may be restricted from ratifying a contract beyond the scope of the objects of the corporation, there could be no such ob- jection as to any matter clearly within their power. The other con- tracting party might have a right to reject such ratification, claiming that the contract is entire, and if not ratified as such, it should not be made good for a part only. But if they claim the benefit of the partial ratification, the corporation can hardly object. ASHBUEY COMPANY v. RICHE. (L. R. 7 H. L. 65.3. 1875.) Me. John Ashbukt had carried on at two places in Lancashire a very extensive business in making railway carriages and wagons, turn- tables, points, crossings, and roofs, and other things of a like sort needed, by a railway company, but had not been concerned in the construction of railways themselves. A company called " The Ashbury Railway Cftrriage and Iron Com- pany," incorporated under the Companies Act, 1862, was started for the purpose of buying Mr. John Ashbury's business, and among the other articles in the agreement for its purchase was this, that the said John Ashbury shall not be interested (except as shareholder in a com- pany) in " the business of a railway-carriage maker, iron manufac- turer or contractor, or any other business or branch of business there- tofore carried on by him at the said works." A Memorandum of Association of the company, dated on the 12th of September, 1862, was drawn up. By the 3rd clause of this njemo- randum of association the objects of the company were thus defined : "The objects for which the company is established are to make and sell, or lend on hire, railway-carriages and wagons, and- all kinds of railway plant, fittings, machinery, and rolling-stock; to carry on the business of mechanical engineers and general contractors ; to purchase and sell, as merchants, timber, coal, metals, or other materials; and to buy and sell any such materials on commission, or as agents." The Articles of Association recited an agreement to purchase the business of John Ashbury. The first portion of these articles need CHAP, v.] ASHBURY COMPANY V. RICHE. 153 not be referred to. In a second portion (which was marked by a dif- ferent enumeration of clauses), under the heading " Business," the 4th clause was in these terms : " An extension of the company's business beyond or for other than the objects or purposes expressed or implied in the memorandum of association shall take place only in pursuance of a special resolution." By clause 36 of the articles it -was provided that "the directors may, with the sanction of a special resolution of the company, previously given in general meeting, increase its capi- tal," etc. By clause 68 the directors were to have the general conduct of the business of the company, and to " exercise all such powers of the company as are not, by the Act of Parliament or the regulations of the company," to be exercised in general meeting. By clause 70 the directors might " at any board meeting direct the affixing of the seal of the company to any deed or document." By clause 85 the di- rectors might delegate " any of their powers to committees consisting of such member or members of their body as they shall think fit." In 1864 Mr. Eiche, the defendant in error, was carrying on business in Belgium, in partnership with his brother (since deceased), as a rail- way contractor. On the 14th of March, 1864, the Belgian Government granted to certain persons named Gillon an(i Bertsoen a provisional concession for making a line of railway from Antwerp to Tournay, the payment of two sums of £4,000 and £16,000 being settled as what is called " caution money," The two concessionaries desired a company to be formed to carry this concession into effect. It was agreed that Messrs. Riche were to have the construction of the line ; and in the early part of 1865 the two concessionaries and Messrs. Riche and the directors of the Ashbury Company met together, and agreed to form a company (Societe Anonyme) to work the concession. The arrange- ment was for the Ashbury Company to purchase the concession from Messrs. Gillon for £70,000, and to give the contract for its construc- tion to Messrs. Riche, the company thus becoming, in fact, the con- tractor for the construction of the line. In this negotiation Mr. James Ashbury, one of the directors of the English company, represented that company, and entered into the contracts. Sir Cusack Roney afterwards acted in the same character. The formation of a societe anonyme in Belgium, and the agreement with Messrs. Riche that they should construct the line, —the Ash- bury company undertaking to supply the societe anonyme with the requisite funds, — was said to have been adopted because the rails, etc., supplied by a Belgian house would be free from the duty that the Belgian Government imposed on rails imported from England, arid consequently the proSt from the construction of the line would be increased. Messrs. Riche began and for some time continued the works for the construction of the line ; and for some time too the Ashbury directors paid, in the name of their company, money to the societe anonyme to which Messrs. Riche had become entitled. Difficulties about payment arose as the work went on, the English 154 ASHBUKY COMPANY V. ItlCIlE. [CHAP. V. shareholders not adopting the views of their directors as to the speculation. In May, 1867, there was an " extraordinary meeting of the share- holders of the company," at which a report was read from a commit- tee previously appointed at the general meeting of December, 1866. This report disapproved of what had boen done by the directors in the matter of the Belgian railway (and likewise of what had been done by them in a similar manner with respect to a Spanish railway), and contained the following declarations : " As regards the two rail- way concessions, the committee consider the items appertaining to these concessions should not have appeared in the company's books, nor in the balance sheets. But looking at the important interests involved, and the extent to which they would be jeopardized by pro- ceedings in chancery extending over a considerable period, they would recommend the shareholders to endeavor to effect an amicable settle- ment with the directors, without having recourse to legal proceedings." The annual meeting was held on the 14th of May, 1867, to consider (among other things) this report. This recommendation in the re- port of an " amicable settlement with the directors " was considered, and an arrangement was proposed by which the directors were to "purchase from the Ashbury Company any estate or interest which the company may have in the Antwerp and Tournay railway contract or concession." The Ashbury Company was, by the same arrange- ment, to allow legal proceedings to be taken to enforce the claims or defend any actions, or otherwise, in relation to said businesses, which might be required, in the name of the Ashbury Company, but " at the expense of the said purchasers " (the directors), who were to indem- nify the company against all liabilities. At a general meeting on the 24th of December, 1867, this arrange- ment was sanctioned, and though a resolution was proposed " that the accounts be approved and adopted, with the exception that the term ' advances or contracts ' be expunged," that was withdrawn and the accounts passed, including that item. The company, however, dealing with the brothers Riche, repudiated the contract for constructing the line as one ultra vires. Messrs. Eiche brought an action for damages for breach of contract. The case was referred to a barrister to state a special case, and the ques- tion of ultra vires was that on which the decision was to depend. The court was to be at liberty to draw inferences of fact. The ques- tion of ultra vires was to depend on the following considerations : — First. The declaration of the objects of the company made in the Memorandum of Association. Secondly. The words of several of the Articles of Association. Thirdly. The acts of the directors, and of meetings of the company. The case, setting forth the various matters already stated, was heard, on the 25th of November, 1872, before the Court of Exchequer, consisting of Barons Martin, Bramwell, and Channell, when the CHAP. \.] ASHBUK-y COMPANY V. KICHE. 155 judges differed in opinion, Baron Bramwell thinking that the verdict ought to be entered for the defendants, who represented the share- holders of the company, and the other two learned Barons being in favor of entering the verdict for the plaintiffs, the Messrs. Eiche. It was so entered, and the judgment was taken on error to the Ex- chequer Chamber, wher^ there was again a difference of opinion; Mr. Justice Blackburn delivering a judgment, in which Mr. Justice Brett and Mr. Justice Grove concurred, in favor of affirming the judgment of the court below, and Mr. Justice Archibald delivering an opinion on behalf of Mr. Justice Keating, Mr. Justice Quain, and himself, for reversing it (the case, in both courts, is fullj' reported Law Eep. 9 Ex. 224, 249). The judges being thus equally divided, it stood affirmed, and error was then brought to this House. The Lord Chancellor (Lord Cairns):' — My Lords, the history and progress of the action out of which the present appeal . arises- is not, I must say, creditable to our legal proceedings. There was not in the case any fact in dispute, and the only questions which arose were questions of law, or questions, per- haps, as to the proper inference to be drawn from facts as to which there was no dispute. The action, however, was commenced so long ago as the month of May, 1868. The litigation appears to have been active and continuing, and yet seven years have been consumed, and the result of all, up to the present time, is this, that in the Court of Exchequer two out of the three judges were of opinion that the plain- tiff should have judgment ; and when the case came before the Ex- chequer Chamber it was heard before six judges, three of whom were of opinion that the plaintiff was entitled to judgment, the other three thinking that the defendant was entitled to judgment. The result, therefore, was the judgment of the Court of Exchequer was aflB.rmed. My Lords, but for this difference of opinion among the learned judges, I should have said that the only questions of law which arise in the case, the questions which appear to me to be sufBcient alto- gether to dispose of the case, were of an extremely simple character. The action was brought by the plaintiffs, who appear to be contractors in Belgium, and it was brought for damages for the breach of an agreement entered into between the plaintiffs and the shareholders, constituting the Ashbury Kailway Carriage and Iron Company, Limited. These persons constituted a company established under the Joint Stock Companies Act of 1 862. I think your Lordships will find it necessary to consider with some minuteness some of the leading pro- visions of that Act of Parliament. But, in the first place, you will find it convenient to ascertain the purposes for which this company was formed, and then the nature of the agreement, or contract, for the breach of which the present action was brought. 1 The opinions of Lord Chelmsford, Lord Hatherley, Lord O'Hagan, and Lord Selbokne are otiiitted. 156 ASHDURY COMPANY V. RICHE. [CHAP. V. The purposes for which a compauy, established under the Act of 1862, is formed, are always to be looked for in the Memorandum of Association of the company. According to that memorandum, the Ashbury Railway Carriage and Iron Company, Limited, is formed for these objects — " to make and sell, or lend on hire, railway carriages anrl wagons, and all kinds of railway plant, fittings, machinery, and rolling-stock; to carry on the business of mechanicar engineers and general contractors ; to purchase, lease, work, and sell mines, minerals, land, and buildings ; to purchase and sell, as merchants, timber, coal, metals, or other materials, and to buy and sell any such materials on commission or as agents." Part of the argument at your Lordships' Bar was as to the meaning of two of the words used in this part of the memorandum, — the words "general contractors." My Lords, as it appears to me, upon all ordinary principles of construction those words must be referred to the part of the sentence which immediately precedes them. The sentence which I have read is divided into four classes of works. First, '' to make and sell or lend on hire railway car- riages and wagons and all kinds of railway plant, fittings, machinery, and rolling-stock.'' That is an object sui generis and complete in the specification which I have read. The second is "to carry on the business of mechanical engineers and general contractors." That, again, is the specification of an object complete in itself; and, accord-- ing to the principles of construction, the term "general contractors " would be referred to that which goes immediately before, and would indicate the making generally of contracts connected with the business of mechanical engineers, — such contracts as mechanical engineers are in the habit of making, and are in their business required, or find it convenient, to make for the purpose of carrying on their business. The third is, "to purchase, lease, work, and sell mines, minerals, land, and buildings." That is an object pointing to the working and the acquiring of mineral property, and the generality of the last two words, " land and buildings," is limited by the purpose for which land and buildings are to be acquired, namely, the leasing, working, and selling mines and minerals. The fourth head is, " to purchase and sell, as merchants, timber, coal, metals, or other materials, and to buy and sell any such materials on commission or as agents." That re- quires no commentary. My Lords, if the term " general contractors " were not to be inter- preted as I have suggested, the consequence would be that it would stand absolutely without any limit of any kind. It would authorize the making, therefore, of contracts of any and every description, and the memorandum in place of specifying a particular kind of business would virtually point to the carrying on of business of any kind whatever, and would therefore be altogether unmeaning. My Lords, that being the object for which the company professes by the memorandum of association to be incorporated, I now turn to examine the contract upon which the present action is brought. I CHAP, v.] ASHBUEY COMPANY V. KICHE. 157 may relieve your Lordships from any lengthened exposition of the nature of that contract by referring you to the account given of it by Mr. Baron Bramwell in the Court of Exchequer, which appears to me accurately to describe the general nature of the contract. Mr. Baron Bramwell states this (Law Eep. 9 Ex. 234) : " The substance of those contracts " — that is, the contract upon which the action was brought, and two other contracts which are inseparably connected with it — " The substance of those contracts was this : Gillon and Bertsoen had obtained the right to make a railway in Belgium. This right the defendants' directors supposed to be valuable to its owners ; that is to say, the line could be constructed for a certain sum, and a societe anonyme could be constituted with shareholders to take its shares to an amount which would give a large sum over the cost of construc- tion. The benefit of this the directors desired to obtain for the defendant company, and to do so purchased the concession. This was their main object. But the plaintiffs held a contract with the concessionaries to construct the line, and to accomplish the directors' object it was necessary or desirable, or they thought it was, that they should agree with the plaintiffs that the defendants should constitute a societe anonyme, and as the plaintiffs went on with the work, the defendants should pay into the hands of the societe proportionate funds. The farther contract entered into in the defendants' name, called D., is of no importance in this case. The directors accord- ingly entered into two contracts in the defendants' name, — one with the concessionaries to purchase the concession; the other with the plaintiffs to furnish the societe anonyme with funds, the latter con- tract being auxiliary to the former. They paid the concessionaries £26,000, part of the price. Now, whatever may be the meaning of ' carry on the business of mechanical engineers and general conti-act- ■ ors,' to my mind it clearly does not include the making of either of these contracts. It could only be held to do so by holding that the words ' general contractors ' authorized generally the making of any contracts ; and this they certainly do not." My Lords, I agree entirely, both with the description given here by Mr. Baron Bramwell of the nature of the contract and with the conclusion at which he arrived, that a contract of this kind was not within the words of the memorandum of association. In point of fact it was not a contract in which, as the memorandum of associa- tion implies, the limited company were to be employed ; they were, the employers. They purchased the concession of a railway, — an object not at all within the memorandum of association ; and having purchaised that, they employed or they contracted to pay, as persons employing, the plaintiffs in the present action, as the persons who were to construct it. That was reversing entirely the whole hypoth- esis of the memorandum of association, and was the making of a contract not included within, but fbreign to, the words of the memo- randum of association. 158 ASHBUEY COMPANY V. RICHE. [CHAP. V. Those being the results of the documents to which I have referred, I will ask your Lordships now to consider the effect of the act of Parliament — the Joint Stock Companies Act of 1862 — on this state of things. And here, my Lords, I cannot but regret that by the two judges in the Court of Exchequer the accurate and precise bearing of that act of Parliament upon the present case appears to me to have been entirely overlooked or misapprehended ; and that in the Court of Exchequer Chamber, speaking of the opinion of those learned judges who thought that the decision of the Court of Exchequer should be maintained, the weight which was given to the provisions of this act of Parliament appears to me to have entirely fallen short of that which ought to have been given to it. Your Lordships are well aware that this is the act which put upon its present permanent footing the regulation of joint stock companies, and more especially of those joint stock companies which were to be authorized to trade with a limit to their liability. The provisions under which that system of limiting liability was inaugurated, were provisions not merely, perhaps I might say not mainly, for the benefit of the shareholders for the time being in the company, but were enactments intended also to provide for the inter- ests of two other very important bodies ; in the first place, those who might become shareholders in succession to the persons who were shareholders for the time being ; and secondly, the outside public, and more particularly those who might he creditors of companies of this kind. And I will ask your Lordships to observe, as I refer to some of the clauses, the marked and entire difference there is between the two documents which form the title-deeds of. companies of this description, — I mean the Memorandum of Association on the one hand, and the Articles of Association on the other hand. With re- gard to the memorandum of association, your Lordships will find, as has often already been pointed out, although it appears somewhat to have been overlooked in the present case, that that is, as it were, the charter, and defines the limitation of the powers of a company to be established under the act. , With regard to the articles of association, those articles play a part subsidiary to the memorandum of associa- tion. They accept the memorandum of association as the charter of incorporation of the company, and so accepting it, the articles pro- ceed to define the duties, the rights, and the powers of the governing •body as between themselves and the company at large, and the mode and form in which the business of the company is to be carried on, and the mode and form in which changes in the internal regulation of the company may from time to time be made. With regard, there- fore, to the memorandum of association, if you find anything which goes beyond that memorandum, or is not warranted by it, the ques- tion will arise whether that which is done is ultra vires, not only of the directors of the company, but of the company itself. With re- gard to the articles of association, if you find anything which, still CHAP, v.] ASHBURY COMPANY V. RICHE. 159 keeping within the memorandum of association, is a violation of the articles of association, or in excess of them, the question will arise whether that is anything more than an act extra vires the directors, but intra vires the company. The clauses of the statute to which it is necessary to refer are four ; in the first place, the sixth clause. That provides that " Any seven or more persons associated for any lawful purpose may, by sub- scribing their names to a memorandum of association, and otherwise complying with the requisitions of this act in respect of registration, form an incorporated company, with or without limited liability." My Lords, this is the first section which speaks of the incorporation of the company , but your Lordships will observe that it does not speak of that incorporation as the creation of a corporation with inherent common-law rights, such rights as are by common law pos- sessed by every corporation, and without any other limit than would by common law be assigned to them, but it speaks of the company being incorporated with reference to a memorandum of association ; and you are referred thereby to the provisions which subsequently are to be found upon the subject of that memorandum of association. The next clause which is material is the eighth : " Where a com- pany is formed on the principle of having the liability of its mem- bers limited to the amount unpaid on their shares, hereinafter referred to as a company limited by shares, the memorandum of association shall contain the following things " (I pass over the first and second, and I come to the third item which is to be specified) : " The objects for which the proposed company is to be established." That is, therefore, the memorandum which the persons are to sign as a pre- liminary to the incorporation of the company. They are to state "the objects for which the proposed company is to be established: " and the existence, the coming into existence, of the company is to be an existence and to be a coming into existence for those objects and for those objects alone. Then, my Lords, the 11th section provides : " The memorandum of association shall bear the -same stamp as if it were a deed, and shall be signed by each subscriber in the presence of, and be attested by one witness at the least, and that attestation shall be a sufiicient attestation in Scotland, as well as in England and Ireland. It shall, when regis- tered, bind the company and the members thereof to the same extent as if each member had subscribed his name and affixed his seal thereto, and there were in the memorandum contained, on the part of himself, his heirs, executors, and administrators, a covenant to observe all the con- ditions of such memorandum, subject to the provisions of this act." Your Lordships will observe, therefore, that it is to be a covenant in which every member of the company is to covenant that he will observe the conditions of the memorandum, one of which is that the objects for which the company is established are the objects mentioned in the memorandum, and that he not only will observe that, but will observe 160 ASHBURY COMPANY V. EICHE. [CHAP. V. it subject to the provisions of this act. Well, but the very next pro- vision of the act containfed in the 12th section is this : " Any com- pany limited by shares may so far modify the conditions contained in its meiuorandura of association, if authorized to do so by its regula- tions as originally framed, or as altered by special resolution in manner hereinafter mentioned, as to increase its capital by the issue of new shares of such amount as it thinks expedient, or to consolidate and divide its capital into shares of larger amount than its existing shares, or to convert its paid-up shares into stock; but, save as afore- said, and save as is hereinafter provided in the case of a change of name, no alteration shall be made by any company in the conditions contained in its memorandum of association." The covenant, there- fore, is not merely that every member will observe the conditions upon which the company is established, but that no change shall be made in those conditions ; and if there is a covenant that no change shall be made in the objects for which the company is established, I apprehend that that includes within it the engagement that no object shall be pursued by the company, or attempted to be attained by the company in practice, except an object which is mentioned in the memorandum of association. Now, my Lords, if that is so — if that is the condition upon which the corporation is established — if that is the purpose for which the corporation is established — it is a mode of incorporatioti which con- tains in it both that which is affirmative and that which is negative. It states affirmatively the ambit and extent of vitality and power which by law are given to the corporation, and it states, if it is neces- sary so to state, negatively, that nothing shall be done beyond that ambit, and that no attempt shall be made to use the corporate life for any other purpose than that which is so specified. Now, my Lords, with regard^ to the articles of association, observe how completely different the character of the legislation is. The 14th section deals with those articles : " The memorandum of association may, in the case of a company limited by shares, and shall, in the case of a company limited by guarantee, or unlimited, be accompa- nied, when registered, by articles of association, signed by the sub- scribers to the memorandum of association, and prescribing such regulations for the company as the subscribers to the memorandum of association deem expedient." They are to be the masters of the regu- lations which (always keeping within the limit allowed by law) they may deem expedient for the internal regulation of the company. " The articles shall be expressed in separate paragraphs, numbered arithmetically. They may adopt also any of the provisions contained in the table marked A. in the first schedule hereto." I need not read the remainder of that section. But your Lordships must take, in connection -with that, the 50th section of the act. That provides that " subject to the provisions of this act, and to the conditions contained in the memorandiimi of asso- CHAP, v.] ASHBURY COMPANY V. RICHE. 161 ciatiou, any company formed under this act 'may, in general meeting, from time to time, by passing a special resolution in manner herein- after mentioned, alter all or any of the regulations of the company contained in the articles of association, or in the table marked A. in the lirst schedule, where such table is applicable to the company, or make new regulations to the exclusion of, or in addition to, all or any of the regulations of the company." Of the internal regulations of the company, the members of it are absolute masters, and, provided they pursue the course marked out in the act, that is to say, holding a general meeting and obtaining the Consent of the shareholders, they may alter those regulations from time to time ; but all must be done in the way of alteration subject to the conditions contained in the memorandum of association. That is to override and overrule any provisions of the articles which may be at variance with it. The memorandum of association is, as it were, the area beyond which the action of the company cannot go ; inside that area the shareholders may make such regulations for their own government as they think fit. My Lords, that reference to the act will enable me to dispose of a provision in the articles of association in the present case, which was hardly dwelt upon in argument, but which I refer to in order that it may not be supposed to have been overlooked. It appears that there has come into the articles of association of this company one which is in these words : " An extension of the company's business beyond or for other than the objects or purposes expressed or implied in the memorandum of association shall take place only in pursuance of a special resolution." In point of fact, no resolution for the extension of the business of the company was in this case come to ; but even if it had been come to, it would have been entirely inept and inefRca- cious. There was, in this fourth article, an attempt to do the very thing which, by the act of Parliament, was prohibited to be done, — to claim and arrogate to the company a power under the guise of in- ternal regulation to go beyond the objects or purposes expressed or implied in the memorandum. Now, ray Lords, bearing in mind the difference which I have just taken the liberty of pointing out to your Lordships between the mem- orandum and the articles, we arrive at once at all which appears to me to be necessary for the purpose ojE deciding this case. I have used the expressions extra vires and intra vires. I prefer either expression very much to one Avhich occasionally has been used in the judgments in the present case, and has also been used in other cases, the expres- sion "illegality." In a case such as that which your Lordships have now to deal with, it is not a question whether the contract sued upon involves that which is malum prohibitum or malum in se, or is a contract contrary to public policy and illegal in itself. I assume the contract in itself to be perfectly legal, to have nothing in it obnoxious to the doctrine involved in the expressions which I have used. The question is not Tor-. I. — 11 162 ASHBUEY COMPANY V. RICHE. [CHAP. V. as to the legality of the contract ; the question is as to the competency and power of the company to make the contract. Now, I am clearly of opinion that this contract was entirely, as I have said, beyond the objects in the memorandum of association. If so, it was thereby placed beyond the powers of the company to make the contract. If so, my Lords, it is not a question whether the contract ever was rati- fied or was not ratified. If it was a contract void at its beginning, it was void because the company could not make the contract. If every shareholder of the company had been in the room, and every share- holder of the company had said, " That is a contract which we desire to make, which we authorize the directors to make, to which we sanc- tion the placing the seal of the company," the case would not have stood in any different position from that in which it stands now. The shareholders would thereby, by unanimous consent, have been attempt- ing to do the very thing which, by the act of Parliament, they were prohibited from doing. But, my Lords, if the shareholders of this company could not ah ante have authorized a contract of this kind to be made, how could they subsequently sanction the contract after it had, in point of fact, been made ? I endeavored to follow as accurately as I could the very able argument of Mr. Benjamin at your Lordships' Bar on this point ; but it appeared to me that this was a diificulty with which he was entirely unable to grapple. He endeavored to contend that when the shareholders had found that something had been done by the directors which ought not to have been done, they might be authorized to make the best they could of a diffi- culty into which they had thus been thrown, and therefrom might be deemed to possess power to sanction the contract being pro- ceeded with. My Lords, I am unable to adopt that suggestion. It appears to me that it would be perfectly fatal to the whole scheme of legislation to which I have referred, if you were to hold that, in the first place, directors might do that which even the wliole company could not do, and that then, the shareholders, finding out what had been done, could sanction, subsequently, what they could not antecedently have authorized. My Lords, if this be the proper view of the act of Parliament, it reconciles, as it appears to me, the opinion of all the judges of the Court of Exchequer Chamber ; because I find Mr. Justice Black- burn, whose judgment was concurred in by two other judges who took the same view, expressing himself thus (Law Rep. 9 Ex. 262) : " I do not entertain any doubt that if, on the true construction of a statute creating a corporation, it appears to be the intention of the Legislature, expressed or implied, that the corporation shall not enter into a particular contract, every court, whether of law or equity, is bound to treat a contract entered into contrary to the enactment as illegal, and therefore wholly void, and to hold that a contract wholly void cannot be ratified." My Lords, that sums CHAP, v.] ASHBURY COMPANY V. RICHE. 163 up and exhausts the whole case. In my opinion, beyond all doubt, on the true construction of the statute of 1862, creating this cor- poration, it appears that it was the intention of the Legislature, not implied, but actually expressed, that the corporation should not enter, having regard to its memorandum of association, into a con- tract of this description. If, so, according to the words of Mr. "Justice Blackburn, every court, whether of law or of equity, is bound to treat that contract, entered into contrary to the enactment, I will not say as illegal, but as extra vires, and wholly null and void, and to hold also that a contract wholly void cannot be ratified. My Lords, thkt relieves me, and if your Lordships agree with me, relieves your Lordships from any question with regard to ratification. I am bound to say that if ratification had to be con- sidered I have found in this case no evidence which to my mind is at all sufficient to prove ratification ; but I desire to say that I do not wish to found my opinion on any question of ratification. This contract, in my judgment, could not have been ratified by the unanimous assent of the whole corporation. I have only to add to what I have already said, that I observe that some cases have been referred to here, — those arising out of the Agriculturist Cattle Insurance Company in your Lordships' House, /SpacJcman v. Evans (Law Eep. 3 H. L. 171) ; Houldsworth V. Evans (Ibid. 263) ; Evans v. Smallcombe (Ibid. 249) ; and the case of the Phosphate of Lime Company v. Green, in the Court of Com- mon Pleas (Law Eep. 7 C. P. 43) ; as if they had some bearing on the present question. Those cases have a bearing upon some of the observations with which I have troubled your Lordships. They are cases which illustrate extremely well what I have said just now, that the articles of association of a company of this kind are the documents which define the power of directors as between themselves and the company. In those cases which I have men- tioned the whole question was, whether the directors had gone beyond the powers which were entrusted to them, and by which their authority was limited under the articles of association, or whether that which had been agreed to had been duly performed. In no one of those cases was there any question as to whether the power of the whole company had been exceeded. In the cases of the Agriculturist Cattle Insurance Company {ubi supra) no per- son ever doubted that if the shareholders had assembled together they might have released from the obligation of a partnership con- tract inter se (for there was no question of outside creditors) any member of the company upon any terms that they thought fit. The only question was whether the directors had released those who were released upon terms which they were authorized to make, or whether, if they had not released them upon such terms, the release subsequently became known to the company and was sanc- tioned by the company. The shareholders might have passed a 164 THOMAS * . KAILKOAD COMPANY. [CHAP. V. resolution sanctioning the release, or altering the terms in the articles of association upon which releases might be granted. If they had sanctioned what had been done without the formality of a resolution, it was quite clear that that would have been per- fectly suificient. So also in the case of the Phosphate of Lime Company {ubi supra) the question was, whether that had been done by the sanction of the company which clearly might have been done by a resolution paSsed by the company. Those cases have no appli- cation whatever to the present case. The present case stands upon the power, not of the directors alone, but of the whole company as settled by the act of Parliament. My Lords, for the reasons which I have thus endeavored to ex- press, I submit to your Lordships and move your Lordships that the judgment in the present case should be reversed, and judgment entered for the defendants. Judgment of the Court of Exchequer Chamber reversed and judgment entered for defendants. THOMAS V. EAILEOAD COMPAlSrY. (101 U. S. 71. 1879.) Ekror to the Circuit Court of the United States for the Eastern District of Pennsylvania. This was an action of covenant, by George W. Thomas, Alfred S. Porter, and Nathaniel P. Chew, against the West Jersey Railroad Company, and they, to maintain the issue on their part, offered to prove the following facts : — On the eighth day of October, 1863, the Millville and Glassboro Railroad Company, a corporation incorporated by the Legislature of New Jersey, March 9, 1859, entered into an agreement with them, whereby it was stipulated that the company should, and did thereby, lease its road, buildings, and rolling-stock to them for twenty years from the first of August, 1863, for the consideration of one-half of the gross sum collected from the operation of the road by the plain- tiffs during that period ; that the company might at any time ter- minate the contract and retake possession of the railroad, and that in such case, if the plaintiffs so desired, the company would appoint an arbitrator, who, with one appointed by them, should decide upon the value of the contract to them, and the loss and damage incurred by, and justly and equitably due to them, by reason of such termina- tion thereof; that in event of a difference of opinion between the arbitrators, they were to choose a third, and the decision of a majority was to be final, conclusive, and binding upon the parties. On the 10th of April, 1867, the Legislature of New Jersey passed an act entitled " A supplement to the act entitled ' An Act to incor- CHAP, v.] THOMAS V. EAILEOAD COMPANY. 165 porate the Millville and Glassboro Eailroad Company.' " It was therein enacted that it should be unlawful for the directors, lessees, or agents of said railroad to charge more than the sums therein named for passengers and freight respectively. The plaintiffs claim that at the date of the passage of this act, it was well known that they were acting under the said agreement of 8th October, 1863. On the 12th of October, 1867, articles of agreement were entered into between the Millville and Glassboro Eailroad Company and the West Jersey Eailroad Company, the defendant, whereby it was agreed that the former should be merged into and consolidated with the latter. In November, 1867, a written notice was served by the Millville and Glassboro Eailroad Company upon the plaintiffs, putting an end to the contract and to all the rights thereby granted, and notifying them that the company would retake possession of the railroad on the first day of April, 1868. On the 18th of March, 1868, the Legislature of New Jersey passed an act whereby it was enacted that, upon the fulfilment of certain preliminaries, the Millville and Glassboro Eailroad Company should be consolidated with the West Jersey Eailroad Company, " subject to all the debts, liabilities, and obligations of both of said companies." The conditions required by that act were fulfilled, and the railroad was duly delivered by the plaintiifs to the West Jersey Eailroad Company on the first of April, 1868. On April 13, 1868, and again on May 22 of the same year, notices to arbitrate according to the terms of the agreement were served by the plaintiffs upon the Millville and Glassboro Eailroad Company, and immediately thereafter upon the West Jersey Eailroad Company. The latter company refused to comply with the terms of either notice ; but subsequently, on the 21st of December, 1868, an agree- ment of submission was entered into between, the plaintiffs and the latter company, whereby H. F. Kenney and Matthew Baird were ap- pointed arbitrators, with power to choose a third, to settle the con- troversy between the parties. These arbitrators, disagreeing, called in a third, who joined with said Baird in an award, by which the value of the unexpired term of the lease, and the loss sustained by reason of the termination thereof, to and by the plaintiffs, was ad- judged to be the sum of $159,437.07 ; and the West Jersey Eailroad company was ordered to pay that sum to the plaintiifs. This award was subsequently set aside in a suit in equity brought in New Jersey. The plaintiffs further offered to prove their compliance in all re- spects with the terms of the lease, its value, and the loss and damage they had sustained by reason of its termination as aforesaid. The court excluded the offered testimony on the ground that the lease by the Millville and Glassboro Eailroad Company to the plaintiffs was ultra vires, and directed the jury to return a verdict for the de- fendant. The plaintiffs duly excepted, and sued out this writ. They assign for error that the court below erred, — 1-66 THOMAS V. KAILROAD COMPANY. [CHAP. V. 1. In excluding from the consideration of the jury the offered evi- dence of the said agreement between the Millville and Glassboro Railroad Company and the plaintiffs ; of the acts of assembly of New- Jersey, one an act to incorporate the Millville and Glassboro Railroad Company, approved the 9th of March, 1859, and another an act enti- tled " A supplement to the act entitled ' An Act to incorporate the jMillville and Glassboro Railroad Company,' passed the tenth day of April, 1867," and the acts referred to therein ; of the fact that it was well known at the date of the last-named act that the plaintiffs were lessees acting under the said contract and agreement ; and of all the other acts of the Legislature of the State of New Jersey relating to the West Jersey Railroad Company, and to the Millville and Glass- boro Railroad Company. 2. In directing the jury that their verdict must be for the defendant. 3. In entering judgment upon the verdict for the defendant. Mb. Justice Millek, after stating the case, delivered the opinion of the court : — The ground on which the court held the contract to be void, and on which the ruling is supported in argument here, is that the contract amounted to a lease, by which the railroad, rolling-stock, and fran- chises of the corporation were transferred to plaintiffs, and that such a contract was ultra vires of the company. It is denied by the plaintiffs that the contract can be fairly called a lease. But we know of no element of a lease which is wanting in this in- strument. " A lease for years is a contract between lessor and lessee, for possession of lands, etc., on the one side, and a recompense by rent or other consideration on the other " (4 Bac. Abr. 632). " Any thing corporeal or incorporeal lying in livery or in grant may be the subject-matter of a lease, and, therefore, not only lands and houses, but commons, ways, fisheries, franchises, estovers, annuities, rent-charges, and all other incorporeal hereditaments are included in the common-law rule " (Bouv. L. D., " Lease ; " 1 Wash. Real Prop. 310). The railroad and all its appurtenances and franchises, including the right to do the business of a railroad and collect the proper tolls, are for a period of twenty years leased by the company to the plaintiffs, from whom in return it receives as rent one half of all the gross earn- ings of the road. The usual provision for a right of re-entry on the failure to perform covenants in addition to the special right to termi- nate the lease on notice, and the usual covenant for repairs and proper running of the road, equivalent to good husbandry on a farm, are in- serted in the instrument. The provision for the complete possession, control, and use of the property of the company and its franchises by the lessees is perfect. Nothing is left in the lessor but the right to receive rent. No power of control in the management of the road and in the exercise of the CHAP, v.] THOMAS V. RAILROAD COMPANY. 167 franchises of the company is reserved. A solitary exception to this statement, of no value in the actual control of affairs, is found in the sixth clause of the lease, which covenants that the lessees will dis- charge any one in their service on the request of the corporation, evidenced by a resolution of the board of directors. But while we are satisfied that the contract is both technically and in its essential character a lease, we do not see that the decision of that point either way affects the question on which we are to pass. That question is, whether the railroad company exceeded its powers in making the contract, by whatever name it may be called, so that it is void. It is, perhaps, as well to consider this question in the order of its presentation by the learned counsel for plaintiffs, upon whom the burden of showing the error of the Circuit Court devolved the duty of proving one of the following propositions : — 1. The contract was within the powers granted to the railroad company by the act of the New Jersey Legislature under which it was organized. 2. That if this be not established, the lease was afterwards ratified and approved by another act of that Legislature. 3. That if both these propositions are found to be untenable, the contract became an executed agreement under which the rights ac- quired by plaintiffs should be legally respected. The authority to make this lease is placed by counsel primarily in the following language of the thirteenth section of the company's charter : — " That it shall be lawful for the said company, at any time during the continuance of its charter, to make contracts and engagements with any other corporation, or with individuals, for the transporting or conveying any kinds of goods, produce, merchandise, freight, or passengers, and to enforce the fulfilment of such contracts." This is no more than saying : " You may do the business of carry- ing goods and passengers, and may make contracts for doing that business. Such contracts you may make with any other corporation or with individuals." No doubt a contract by which the goods re- ceived from railroad or other carrying companies should be carried over the road of this company, or by which goods or passengers from this road should be carried by other railroads, whether connecting im- mediately with them or not, are within this power, and are probably the main object of the clause. But it is impossible, under any sound rule of construction, to find in the language used a permission to sell, lease or transfer to others the entire road and the rights and fran- chises of the corporation. To do so is to deprive the company of the power of making those contracts which this clause confers, and of performing the duties which it implies. In The Ashbury Railway Carriage & Iron Co. v. Riche, decided in the House of Lords in 1875 (Law Rep. 7 H. L. 653), the memorandum 1G8 THOMAS V. RAILROAD COMPANY. [CUAP. V. of association, which, as Lord Cairns said, stands upder the act of 1862 in place of a legislative charter, thus described the business which the company was authorized to conduct : " The objects for which this company is established are to make, sell, or lend on hire railway-carriages and engines, and all kinds of railway plant, fittings, machinery, and rolling-stock; and to carry on the business of me- chanical engineers and general contractors ; to purchase and sell as merchants timber, coal, metals, or other materials ; and to buy and sell any such materials on commission or as agents." This company purchased a concession for a railroad in Belgium, and entered into a contract for its construction, on which it paid large sums of money. The company was sued afterwards on its agreement with Eiche, the contractor, and the contract was held valid in the Exchequer Chamber by a majority of the judges, on the ground that while it was in ex- cess of the power conferred on the directors by the memorandum, it had been made valid by ratification of the shareholders, to whom it had been submitted. The House of Lords reversed this judgment, holding unanimously that the contract was beyond the powers conferred by the memoran- dum above recited, and being beyond the powers of the association, no vote of the shareholders whatever could make it valid. The case is otherwise important in its relation to the one before us, but it is cited here for its parallelism in the construction of the clause defin- ing the powers of the company. If a memorandum which describes the parties as engaging in fur- nishing nearly all the materials, machinery, and rolling-stock which enter into the construction' of a railroad and its equipments, and then empowers them to carry on the business of mechanical engineers and general contractors, cannot authorize a contract to build a railroad, surely the authority to build a railroad and to contract for carrying passengers and goods over it and other roads is no authority to lease it, and with the lease to part with all its powers to another company or to individuals. We do not think there is anything in the language of the charter which authorized the making of this agreement. It is next insisted, in the language of counsel, that though this may be so, " a corporate body may (as at common law) do any act which is not either expressly or impliedly prohibited by its charter ; al- though where the act is unauthorized by the charter a shareholder may enjoin its execution, and the State may, by proper process, forfeit the charter." We do not concur in this proposition. We take the general doc- trine to be in this country, though there may be exceptional cases and some authorities to the contrary, that the powers of corporations organized under legislative statutes are such and such only as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it re- mains that the charter of a corporation is the measure of its powers, CHAP. V.J THOMAS V. EAILEOAD GOMPANr. 169 and that the enumeration of these powers implies the exclusion of all others. This class of subjects has received much consideration of late years in the English courts, and counsel have relied largely on the deci- sions of those courts. Among the cases cited by both sides is The East Anglian Railways Co. v. The Eastern Counties Railway Co. (11 C. B. 775). In that case the Eastern Counties Railway Company had made a contract in which, among other things, it covenanted to take a lease of several other railroads whose companies had introduced into Par- liament a bill for consolidation under the name of East Anglian Rail- ways Company, and to assume the payment of the Parliamentary expenses of this act of consolidation. This covenant was held void as beyond the power conferred by the charter. " They cannot," said the court, " engage in a new trade, because they are incorporated only for the purpose of making and maintaining the Eastern Counties Railway. What additional power do they acquire from the fact that the undertaking may in some way benefit their line ? Whatever be their object or prospect of success, they are still but a corporation for the purpose only of making and maintaining the Eastern Counties Railway ; and if they cannot embark in new trades because they have only a limited authority, for the same reason they can do nothing not authorized by their act and not within the scope of their authority." This case, decided in 1851, was after- wards cited with approval by the Lord Chancellor in 1857 in deliver- ing the opinion of the House of Lords in Eastern Counties Railway Co. V. Hawkes (5 H. L. Cas. 331) ; and it is there stated that it was also acted on and recognized in the Exchequer Chamber in McGregor V. The Deal & Dover Railway Co. (22 Law J. n. s. Q. B. 69 ; 18 Q. B. 618). Both these cases are cited approvingly in the opinion of Lord Cairns in the Ashbury Company, on appeal in the House of Lords. This latter case, as decided in the Exchequer Chamber (Law Rep. 9 Exch. 224), is much relied on by counsel for plaintiffs here as showing that, though the contract may be ultra vires when made by the directors, it may be enforced if afterwards ratified by the share- holders or if partly executed. But in the House of Lords, where the case came on appeal, this principle was overruled unanimously in opinions delivered by Lord Chancellor Cairns, Lords Selborne, Chelmsford, Hatherly, and O'Ha- gan, and the broad doctrine established that a contract not within the scope of the powers conferred on the corporation cannot be made valid by the assent of every one of the shareholders, nor can it by any partial performance become the foundation of a right of action. It would be a waste of time to attempt to examine the American cases on the subject, which are more or less conflicting, but we think we are warranted in saying that this latest decision of the House of 170 THOMAS V. RAILROAD COMPANY. [CHAP. V. Lords represents the decided preponderance of authority, both in this country and in England, and is based upon sound principle. There is another principle of equal importance and equally conclu- sive against the validity of this contract, which, if not coming exactly within the doctrine of ultra vires as we have just discussed it, shows very clearly that the railroad company was without the power to make such a contract. That principle is that where a corporation, like a railroad company, has granted to it by charter a franchise intended in large measure to be exercised for the public good, the due performance of those func- tions being the consideration of the public grant, any contract which disables the corporation from performing those functions, which un- dertakes, without the consent of the State, to transfer to others the rights and powers conferred by the charter, and to relieve the gran- tees of the burden which it imposes, is a violation of the contract with the State, and is void as against public policy. This doctrine is asserted with remarkable clearness in the opinion of this court, delivered by Mr. Justice Campbell, in The York & Maryland Line Railroad Co. v. Winans (17 How. 30). The corporation in that case was chartered to build and maintain a railroad in Pennsylvania by the Legislature of that State. The stock in it was taken by a Mary- land corporation, called the Baltimore and Susquehannah Railroad Company, and the entire management of the road was committed to the Maryland company, which appointed all the officers and agents upon it, and furnished the rolling-stock. In reference to this state of things, and its effect upon the liability of the Pennsylvania cor- poration for infringing a patent of the defendant in error, Winans, this court said : " This conclusion [argument] implies that the duties imposed upon the pLiintiff by the charter are fulfilled by the con- struction of the road, and that by alienating its right to use, and its powers of control and supervision, it may avoid further responsibility. But those acts involve an overturn of the relations which the charter has arranged between the corporation and the community. Impor- tant franchises were conferred upon the corporation to enable it to provide facilities for communication and intercourse, required for the public convenience. Corporate management and control over these were prescribed, and corporate responsibility for their insufficiency provided as a remuneration to the community for their grant. The corporation cannot absolve itself from the performance of its obliga- tions without the consent of the Legislature. Beman v. Rufford (1 Sim. N. s. 550) ; Wiiich v.B. & L. Railway Co. (13 L. & Eq. 506)." And in the case of Black v. Delaware & Raritan Canal Co. (22 N. J. Eq. 130), Chancellor Zabriskie says : " It may be considered as settled that a corporation cannot lease or alien any franchise, or any property necessary to perform its obligations and duties to the State, without legislative authority" (p. 399). For this he cites some ten or twelve decided cases in England and in this country. CHAP. V.J THOMAS V. RAILROAD COMPANY. 171 This brings us to the proposition that the Legislature of Kew Jer- sey has given her consent by an act which amounts to a ratification of this lease. That act is entitled " A supplement to the act entitled ' An Act to incorporate the Millville and Glassboro Railroad Company,'" ap- proved Apffil 10, 1867 ; and its only purpose was to regulate the rates at which freight and passengers should be carried. It reads as follows : — " That it shall be unlawful for the directors, lessees, or agents of said railroad to charge more than three and a half cents per mile for the carrying of passen- gers, and six cents per ton per mile for the carrying of freight or merchandise of any description, unless a single package, weighing less than one hundred pounds ; nor shall more than one-half of the above rate be charged for carrying any fertilizing materials, either in their own cars or cars of other companies running over said railroad : Provided, that nothing contained in this act shall deprive the said railroad company, or its lessees, of the benefits of the provisions of an act entitled 'An Act relative to freights and fares on railways in the State,' approved March 4, 1858, and applicable to all other railroads in this State." It may be fairly inferred that the Legislature knew at the time the statute was passed that plaintiffs were running the road, and claiming to do so as lessees of the corporation. It was not important for the purpose of the act to decide whether this was done under a lawful contract or not. No inquiry was probably made as to the terms of that lease, as no information on that subject was needed. The Legislature was determined that whoever did run the road and exercise the franchises conferred on the company, and under what- ever claim of right this was done, should be bound by the rates of fare established by the act. Hence, without undertaking to decide in whom was the right to the control of the road, language was used which included the directors, lessees, and agents of the railroad. The mention of the lessees no more implies a ratification of the contract of lease than the word " directors " would imply a disap- proval of the contract. It is not by such an incidental use of the word " lessees " in an effort to make sure that all who collected fares should be bound by the law, that a contract unauthorized by the char- ter, and forbidden by public policy, is to be made valid and ratified by the State. It remains to consider the suggestion that the contract, having been executed, the doctrine of ultra vires is inapplicable to the case. There can be no question that, in many instances, where an invalid contract, which the party to it might have avoided or refused to per- form, has been fully performed on both sides, whereby money has been paid or property changed hands, the courts have refused to sus- tain an action for the recovery of the property or the money so transferred. In regard to corporations the rule has been well laid down by Com- 172 THOMAS V. RAILROAD COMPANY. [CHAP. V. stock, C. J., in Parish v. Wheeler (22 N. Y. 494) that the executed dealings of corporations must be allowed to stand for and against both parties when the plainest rules of good faith require it. But what is sought in the case before us is the enforcement of the unexecuted part of this agreement. So far as it has been executed, namely, the four or five years of action under it, the accounts have been adjusted, and each party has received what he was entitled to by its terms. There remains unperformed the covenant to arbitrate with regard to the value of the contract. It is the damages provided for in that clause of the contract that are sued for in this action. Damages for a material part of the contract never performed ; dam- ages for the value of a contract which was void. It is not a ease of a contract fully executed. The very nature of the suit is to recover damages for its non-performance. As to this it is not an executed contract. Not only so, but it is a contract forbidden by public policy and beyond the power of the defendants to make. Having entered into the agreement, it was the duty of the company to rescind or abandon it at the earliest moment. This duty was independent of the clause in the contract which gave them the right to do it. Though they delayed its performance for several years, it was nevertheless a right- ful act when it was done. Can this performance of a legal duty, a duty both to stockholders of the company and to the public, give to the plaintiffs a right of action ? Can they found such a right on an agreement void for want of corporate authority and forbidden by the policy of the law ? To hold that they can is, in our opinion, to hold that any act performed in executing a void contract makes all its parts valid, and that the more that is done under a contract for- bidden by law, the stronger is the claim to its enforcement by the courts. We cannot see that the present case comes within the principle that requires that contracts, which, though invalid for want of cor- porate power, have been fully executed, shall remain as the founda- tion of rights acquired by the transaction. We have given this case our best consideration on account of the importance of the principles involved in its decision, and after a full examination of the authorities we can see no error in the action of the Circuit Court. Judgment affirmed. CHAP, v.] DAVIS V. KAILROAD COMPANY. 173 DAVIS V. EAILEOAD COMPANY. SAME V. ORGAN COMPANY. (131 Mass. 258. 1881.) Gray, C. J.: — These actions are brought upon an agreement, signed by the Old Colony Railroad Company in the sum of $6,000, and by the Smith American Organ Company in the sum of $5,000, and by other cor- porations, partnerships, and individuals in various sums, amounting in all to more than $200,000. The agreement is in these words : " Boston, January 23, 1872. We the undersigned subscribers hereby agree, each with the other, that ■we will contribute towards any deficiency (should there be one) that may arise towards defraying the expenses of the World's Peace Jubi- lee and International Musical Festival, to be held in Boston, com- mencing on the 17th of June and closing on the 4th of July next, in such proportions as the amounts affixed to our several names bear to the whole amount subscribed ; provided that no subscription shall be binding until the whole amount subscribed shall reach the sum of two hundred thousand dollars, and that no expenditure be incurred except under the authority of the executive committee, which committee shall represent the subscribers, and consist of ten or more persons, who may be chosen by the first six subscribers hereto." At the trial of the first action, the plaintiffs offered to prove that the signature of each corporation was made by authority of its directors, with the reasonable belief that the holding of the festival proposed would be of great pecuniary benefit to the corporation by increasing its proper business, and that the signature would promote such holding ; that the festival was held as mentioned in the agree- ment of guaranty ; and that the reasonable expenditures therefor, made under authority of the plaintiffs, who relied upon that agree- ment in making them, exceeded the receipts by more than $200,000. The only point argued and decided when one of these cases was before us upon demurrer to the declaration was, that the promise of the subscribers was to the executive committee therein mentioned, and that these plaintiffs as such committee were the proper parties to sue thereon. Davis v. Smith American Organ Co. (117 Mass. 456). The principal question now presented by the answer, and wliich lies at the threshold of each case, is whether it was within the power of the defendant corporation to bind itself by such an agreement. Upon full consideration of the elaborate arguments of counsel upon that question, the court is of opinion that the agreement is ultra 174 DAVIS V. RAILROAD COMPANY. [CHAP. V. vires, and therefore no action can be maintained upon it against either defendant. The reported cases on the subject are so numerous, that we shall refer to comparatively few of them, except the principal cases in England and the decisions of the Supreme Court of the United States and of this court. A corporation has power to do such business only as it is authorized by its acts of incorporation to do, and no other. It is not held out by the government, nor by the stockholders, as authorized to make contracts which are beyond the purposes and scope of its charter. It is not vested with all the capacities of a natural person, or of an ordinary partnership, but with such only as its charter confers. If it exceeds its chartered powers, not only may the government take away its charter, but those who have subscribed to its stock may avoid any contract made by the corporation in clear excess of its powers. If it makes a contract manifestly beyond the powers con- ferred by its charter, and therefore unlawful, a Court of Chancery, on the application of a stockholder, will restrain the corporation from carrying out the contract ; and a Court of Common Law will sustain no action on the contract against the corporation. Every person who enters into a contract with a corporation is bound at his peril to take notice of the legal limits of its capacity, especially where, as in this Commonwealth, all acts of incorporation are deemed public acts, and every corporation organized, under general laws is re- quired to file in the office of the Secretary of the Commonwealth a certificate showing the purpose for which the corporation is con- stituted. Gen. Sts. c. 3, § 6; St. 1870, c. 224, §§ 7, 11 ; Whittenton Mills V. Upton (10 Gray, 582, 598) ; Richardson v. Sibley (11 Allen, 65, 72) ; Pearce v. Madison & Indianapolis Railroad (21 How. 441, 443) ; East Anglian Railways v. Eastern Counties Railway (11 C. B. 775, 811) ; Ashbury Railway Carriage & Iron Co. v. Riche (L. R. 7 H. L. 653). There is a clear distinction, as was pointed out by Mr. Justice Camp- bell in Zabriskie v. Cleveland, Columbus, & Cincinnati Railroad (23 How. 381, 398) ; by Mr. Justice Hoar in Monument Bank v. Globe Works (101 Mass. 57, 58), and by Lord Chancellor Cairns and Lord Hatherley in Ashbury Railway Carriage & Iron Go. v. Riche (L. R. 7 H. L. &%S, 684), between the exercise by a corporation of a power not conferred upon it, varying from the objects of its creation as de- clared in the law of its organization, of which all persons dealing with it are bound to take notice ; and the abuse of a general power, or the failure to comply with prescribed formalities or regulations, in a particular instance, when such abuse or failure is not known to the other contracting party. In the leading case of Coleman v. Eastern Counties Railway (10 Beav. 1), the directors of a railway company were restrained by in- junction from carrying out an agreement by which, for the purpose of CHAP, v.] DAVIS V. RAILKOAD COMPANY. 175 increasing its traffic, they proposed to guarantee certain profits to, and to secure the capital of, a steam-packet company, to ply between a port near one end of the railway in England and certain foreign ports ; and Lord Langdale, M. R., said : " To look upon a railway company in the light of a common partnership, and as subject to no greater vigilance than common partnerships are, would, T think, be greatly to mistake the functions whirfh they perform, and the powers which they exercise of interference, not only with the public but with the private rights of all individuals in this realm. We are to look upon those powers as given to them in consideration of a benefit which, notwith- standing all other sacrifices, it is to be presumed and hoped, on the whole, will be obtained by the public. But it being the interest of the public to protect the private rights of all individuals, and to de- fend them from all liabilities beyond those necessarily occasioned by the powers given by the several acts, those powers must always be carefully looked to ; and I am clearly of opinion, that the powers which are given by an act of Parliament, like that now in question, extend no farther than is expressly stated in the act, or is necessarily and properly required for carrying into effect the undertaking and works which the act has expressly sanctioned." " Ample powers are given for the purpose of constructing and maintaining the railway, and for doing all those things required for its proper use when made ; but I apprehend that it has nowhere been stated that a railway company, as such, has power to enter into all sorts of other transactions. Indeed, it has been very properly admitted that rail-, way companies have no right to enter into new trades or busi- nesses not pointed out by their acts ; but it has been contended that they have a right to pledge, without limit, the funds of the company for the encouragement of other transactions, however various and extensive, provided the object of that liability is to increase the traffic upon the railway, and thereby to increase the profit to the shareholders. There is, however, no authority for anything of that kind. It has been stated that these things, to a small extent, have frequently been done since the establish- ment of railways ; but unless the acts so done can be proved to be in conformity with the powers given by the special acts of Parliament, under which those acts are done, they furnish no author- ity whatever " (10 Beav. 14, 15). And after full consideration of the case he summed up his opinion thus: "To pledge the funds of this company for the purpose of supporting another company engaged in a hazardous speculation, is a thing which, according to the terms of this act of Parliament, they have not a right to do." "They have the power to do all such things as are necessary and proper for the purpose of carrying out the intention of the act of Parliament, and they have no power of doing anything beyond it " (10 Beav. 17, 18). See also Salomons v. Lain;; (12 Beav. 339, 352, 353). In Bagshaw v. Eastern Union Railway (7 Hare, 114 ; 2 Macn. & 176 DAVIS V. RAILROAD COMPANY. [CHAP. V. Gord. 389 ; and 2 Hall & Twells, 201), where a railway company, au- thorized by act of Parliament to purchase a branch line, arid to raise a sum of money for the purpose of constructing that line, applied part of the sum so raised to the construction of its main line, Vice- Chancellor Wigram, and Lord Chancellor Cottenham on appeal, sus- tained the bill of a shareholder, not only to restrain such application of the rest of the sum, but also for an account of the part already illegally expended. The same principles have been frequently applied in actions at law. In ^ast Anglian Railways v. Eastern Counties Railway (11 C. B. 775), it was held that no action could be maintained by one railway company against another upon an agreement made by the latter to take a lease of the railway of the first company, and to pay the expenses incurred by that company in the soliciting and promot- ing of bills in Parliament for the extension and improvement of that railway, even if the object and effect of the agreement were to in- crease the profits of the defendants' railway ; and Chief Justice Jervis, in delivering the judgment of himself and Justices Maule, Williams, and Talfourd, said : " This act is a public act, accessible to all, and supposed to be known to all ; and the plaintiffs must therefore be presumed to have dealt with the defendants with a full knowledge of their respective rights, whatever those rights may be. It is clear that the defendants have a limited authority only, and are a corporation only for the purpose of making and maintaining the _ railway sanctioned by the act ; and that their funds can only be ap- plied for the purposes directed and provided for by the statute. In- deed, it is not contended that a company so constituted can engage in new trades not contemplated by their act ; but it is said that they may embark in other undertakings, however various, provided the object of the directors be to increase the profits of their own railway. This, in truth, is the same proposition in another form ; for if the company cannot carry on a new trade, merely because it was not con- templated by the act, they cannot embark in other undertakings not sanctioned by their act, merely because they hope the speculation may ultimately increase the profit of the shareholders. They cannot engage in a new trade, because they are a corporation only for the purpose of making and maintaining the Eastern Counties Railway. What additional power do they acquire from the fact that the under- taking may in some way benefit their line ? Whatever be their ob- ject or the prospect of success, they are still but a corporation for the purpose only of making and maintaining the Eastern Counties Rail- way ; and if they cannot embark in new trades, because they have only a limited authority, for the same reason they can do nothing not authorized by their act, and not within the scope of their author- ity. Every proprietor, when he takes shares, has a right to expect that the conditions upon which the act was obtained will be per- formed ; and it is no sufficient answer to a shareholder, expecting his CHAP, v.] DAVIS -V, RAILROAD COMPANY. • 177 dividend, that the money has been expended upon an undertaking which at some remote period may be highly beneficial to the line. The public also has an interest in the proper administration of the powers conferred by the act. The comfort and safety of the line may be seriously impaired it the money supposed to be necessary, and destined by Parliament for the maintenance of the railway, be expended in other undertakings not contemplated when the act was obtained, and not expressly sanctioned by the Legislature." "If the contract is illegal, as being contrary to the act of Parliament, it is un- necessary to consider the effect of dissentient shareholders ; for if the company is a corporation only for a limited purpose, and a contract like that under discussion is not within their authority, the assent of all the shareholders to such a contract, though it make them all per- sonally liable to perform such contract, would not bind them in their corporate capacity, or render liable their corporate funds" (11 C. B. 811-813). So in Macgregor v. Dover & Deal Railway (18 Q. E. 618), the Court of Exchequer Chamber, in an opinion delivered by Baron Alderson, in which Justices Maule, Cresswell, Williams, and Tal- fourd, and Baron Piatt concurred, arrested judgment in an action brought by the Dover and Deal Railway Company upon the agree- ment of a person interested in the Southeastern Railway Company, to pay the expenses of an application of the latter to Parliament to authorize it to establish a connecting railway, because " both plain- tiffs and defendant here must be taken, with full knowledge of the powers conferred on the Southeastern Railway Company, to have made a contract by which the defendant is to bind the company to do an illegal act ; not merely an act which they have no power to do, but an act contrary to public policy, and the provisions of a public act of Parliament" (18 Q. B. 632). In each of those cases the plaintiff had actually incurred and paid the expenses sued for. Baron Parke stated the rule to be that, where a corporation is cre- ated by act of Parliament for particular purposes with special powers, "their deed, though under their corporate , seal, and that regularly affixed, does not bind them, if it appear by the express provisions of the statute creating the corporation, or by necessary or reasonable inference from its enactments, that the deed was ultra vires ; that is, that the Legislature meant that such a deed should not be made." South Yorkshire Railway v. Gr^at Northern Railway (9 Exch. 65, 84). See also Scottish Northeastern Railway v. Stewart (3 Macq. 382, 415), by Lord Wensleydale. Lord St. Leonards — while asserting that " the safety of men in their daily contracts requires that this doctrine of ultra vires should be con- fined within narrow bounds ;" and that railway companies "have all the powers incident to a corporation, except so far as they are re- strained bytheir act of incorporation," and are "bound by contracts duly entered into by their directors for purposes which they have treated.as within .the objects of their acts, and which cannot clearly VOL. I. — 12 178 * DAVIS V. RAILROAD COMPANY. [CHAP. V. be shown not to fall within them;" and inclining "to restrain the doctrine of ultra vires to clear cases of excess of power, with the knowledge of the other party, expr-ess, or implied from the nature of the corporation and of the contract entered into " — distinctly recog- nized that " directors cannot act in opposition to the purpose for which their company was incorporated," nor "bind their companies by contracts foreign to the purposes for which they were estab- lished." Eastern Counties Railway v. Hawkes (5 H. L. Cas. 331, 371, 373, 381). Lord Chancellor Cranworth, in the same case, said that the English authorities above cited had " established the proposition that a rail- way company cannot devote any part of its funds to an object not within the scope of its original constitution, how beneficial soever that object might seem likely to prove ; " and after a review of the cases, repeated : " It must therefore be now considered as a well- settled doctrine that a company incorporated by act of Parliament for a special purpose cannot devote any part of its funds to objects unauthorized by the terms of its incorporation, however desirable such an application may appear to be " (5 H. L. Cas. 345, 348). His opinion, in which Lord Brougham concurred, upon which the House of Lords held that no action would lie against a railway company on an agreement of its projectors to advance money to construct a pier and harbor at the end of a proposed branch of the railway, is to the like effect. Caledonian & Dumbartonshire Railway v. Ilagistrates of Helensburgh (Macq. 391, 416, 417, 422). And he afterwards observed that he thought the statement of Baron Parke, above quoted, " the more correct way of enunciating the doctrine, though practically it makes very little difference whether we say that the railway company has no authority given to it by its incorporation to enter into con- tracts as to matters not connected with its corporate duties, or that it is impliedly prohibited from so doing, because by necessary infer- ence the Legislature must be considered to have intended that no such contracts should be entered into." Shrewshury & Birmingham Railway v. Northwestern Raihvay (6 H. L. Cas. 113, 135-137). lu Ashbury Railway Carriage & Iron Co. v. Riche (L. R. 7 H. L. 653, and L. R. 9 Ex. 224), the objects for which a company regis- tered under the English Joint Stock Companies Act of 1862, was created, were stated in its memorandum of association to be "to make and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery, and rolling-stock ; to carry on the business of mechanical engineers and general contrac- tors ; to purchase, lease, work, and sell mines, minerals, land, and buildings ; to purchase and sell, as merchants, timber, coal, metals, or other materials, and to buy and sell any such materials on com- mission or as agents." The directors agreed to purchase a conces- sion for making a railway in a foreign country, and afterwards (on account of difficulties existing by the law of that country) agreed to CHAP, v.] DAVIS V. RAILROAD COMPANY. 179 assign! the concession to an association formed there, which was to supply the materials for the construction of the railway, and to re- ceive periodical payments from the English company. In an action at law brought by the foreign associates against the English com- pany upon this agreement, it was held in the lower courts, as well as in th» House of Lords, to be ultra vires. The judges below were divided in opinion upon the question whether it had been ratified by the stockholders so as to bind the company. But in the House of Lords it was unanimously held, by Lord Chancellor Cairns and Lords Chelmsford, Hatherley, O'Hagan, and Selborne, that the con- tract was not within the scope of the memorandum of association, and was therefore void and incapable of being ratified, and the ac- tion could not be maintained. Lord Selborne said : " The action in this case is brought upon a contract, not directly or indirectly to execute any works, but to find capital for a foreign railway company, in exchange for shares and bonds of that company. Such a contract, in my opinion, was not authorized by the memorandum of association of the Ashbury Com- pany. All your Lordships, and all the judges in the courts below, appear to be, so far, agreed. But this, in my judgment, is really decisive of the whole case. I only repeat what Lord Cranworth, in Hawkes v. Eastern Counties Railway Company (when moving the judgment of this House), stated to be settled law, when I say that a statutory corporation, created by act of Parliament for a particular purpose, is limited, as to all its powers, by the purposes of its incor- poration as defined in that act. The present and all other companies incorporated by virtue of the Companies Act of 1862 appear to me to be statutory corporations within this principle. The memorandum of association is under that act their fundamental, and (except in certain specified particulars) their unalterable law ; and they are incorporated only for the objects and purposes expressed in that memorandum. The object and policy of those provisions of the statute which prescribe the conditions to be expressed in the memo- randum, and make these conditions (except in certain points) un- alterable, would be liable to be defeated if a contract under the common seal, which on the face of it transgresses the fundamental law, were not held to be void, and ultra vires of the company, as well as beyond the power delegated to its directors or administrators. It was so held in the case of the East Anglian Railway Company, and in other cases upon railway acts, which cases were approved by this House in Hawkes's case ; and I am unable to see any distinction for this purpose between statutory corporations under the Joint Stock Companies Act of 1862." " I think that contracts for objects and purposes foreign to, or inconsistent with, the memorandum of association, are ultra vires of the corporation itself. And it seems to me far more accurate to say that the liability of such companies to make such contracts rests on an original limitation and circum- 180 DAVIS V. RAILROAD COMPANY. [CHAl'. V. scription of their powers by the law, and for the purposes of their incorporation, than that it depends upon some express or implied prohibition, making acts unlawful which otherwise they would have had a legal capacity to do. This being so, it necessarily follows (as indeed seems to me to have been conceded in Mr. Justice Black- burn's judgment) that, where there could be no mandate, there can- not be any ratification ; and that the assent of all the shareholders can make no difference when a stranger to a corporation is suing the company itself in its corporate name, upon a contract under the couimon seal. No agreement of shareholders can make that a con- tract of the corporation, which the law says cannot and shall not be so " (L. R. 7 H. L. 693-695). In the very recent case of Attorney-Oeneral v. Great Eastern Rail- way (5 App. Gas. 473, 478), in which the contract in question was held to be expressly authorized by 'the terms of the act of Parlia- ment, and therefore not ultra vires, Lord Chancellor Selborne, while expressing the opinion that "this doctrine ought to be reasonably, and not unreasonably, understood and applied, and that whatevermay fairly be regarded as incidental to, or consequential upon, those things which the Legislature has authorized, ought not (unless ex- pressly prohibited) to be held, by judicial construction, to be ultra vires" declared- his sense of the importance of maintaining the doc- trme of ultra vires, as explained in the case of Ashbury Railway Carriage & Iron Oo. v. Riohe. And Lord Blackburn said, "That case appears to me to decide at all events this, that where there is an act of Parliament creating a corporation for a particular purpose, and giving it powers for that particular purpose, what it does not expressly or impliedly authorize is to be taken to be prohibited; and consequently that the Great Eastern Company, created by act of Parliament for the purpose of working a line of railway, is prohib- ited from doing anything that would not be within that purpose ; " although he also agreed "that those things which are incident to,, and may reasonably and properly be done under, the main purpose, though they may not be literally within it, would not be prohibited '^ (5 App. Cas. 481). These statements are the more significant, because Baron Bram- well in the same case below (11 Ch. D. 449, 501, 503) had cast doubts upon the correctness of the decision in the case of East Anfjlian Railways v. Eastern Counties Railway; and Lord Black- burn himself, when a justice of the. Court of Queen's Bench, had more than once approved Baron Parke's form of stating the doctrine. Chunihers v. Manchester & Milford Railway (5 B. & S. 688, 610) ; Taylor v. Chichester & Midhurst Railway (L. R. 2 Ex. 356, 384) ; Riche V. Ashbury Railway Carriage & Iron Co. (L. R. 9 Ex. 264). The same principles have been clearly and positively enunciated in two unanimous judgments of the Supreme Court of the United States. CHAP, v.] DAVIS V: RAILROAD COMPANY. 181 In Pearce v. Madison & Indianapolis Railroad (21 How. 441) two corporations, created by the laws of Indiana to construct distinct though connecting lines of railroad in that State, were consolidated by agreement, and conducted the business of both lines under a common board of management, which gave notes in the name of the consolidated company in payment for a steamboat to be employed on the Ohio River and to run in connection with the railroads. After the execution of the notes and the acquisition of the steam- boat, this relation between the corporations was legally dissolved. It was held, that an action brought by an indorsee against the two corporations upon the notes could not be maintained. Mr. Justice Campbell, in delivering judgment, said: "The rights, duties, and obligations of the defendants are defined in the acts of the Legislature of Indiana under which they were organized, and reference must be had to these to ascertain the validity of their con- tracts. They empower the defendants respectively to do all that was necessary to construct and put in operation a railroad between the cities which are named in the acts of incorporation. There was no authority of law to consolidate these corporations, and to place both under the same management, or to subject the capital of the one to answer for the liabilities of the other; and so the courts of Indiana have determined. But in addition to that act of illegality, the man- agers of these corporations established a steamboat line to run in con- nection with the railroads, and thereby diverted their capital from the objects contemplated by their charters, and exposed it to perils for which they afforded no sanction. Now persons dealing with the managers of a corporation must take notice of the limitations imposed upon their authority by the act of incorporation. Their powers are conceded in consideration of the advantage the public is to receive from their discreet and intelligent employment, and the public have an interest that neither the managers nor stockholders of the corpora- tion shall transcend their authority." He then referred with approval to the cases of Colman v. East- ern Counties Railway, East Anglian Railways v. Eastern Counties Railway, and Macgregor v. Dover & Deal Railway, above cited, and added: "It is contended that because the steamboat was de- livered to the defendants, and has been converted to their use, they are responsible. It is enough to say, in reply to this, that the plaintiff was not the owner of the boat, nor does he claim under an assignment of the owner's interest. His suit is instituted on the notes, as an indorsee; and the only question is, Had the cor- poration the capacity to make the contract, in the fulfilment of which they were executed ? The opinion of the court is, that it was a departure from the business of the corporation, and that their offi- cers exceeded their authority." Judgment was therefore rendered for the defendants. It is to be observed that in that case there was no sut'gestion that the plaintiff took the notes sued on without notice 182 DAVIS V. RAILROAD COMPANY. [CHAP. V. of the illegality in the original consideration, whicli would have pre- sented- a different question. Lexington v Butler (14 Wall. 282) ; Macon v. Shores (97 U. S. 272) ; Monument Bank v. Globe Works (101 Mass. 57). In Thomas v. Railroad Co. (101 U. S. 71), a railroad corporation, ■without authority of the Legislature, leased its railroad to three per- sons for twenty years, for the consideration of one half of the gross sums collected from the operation of the road by the lessees during the term, reserving the right at any time to terminate the contract and retake possession of the road, paying such damages for the value of the unexpired term as should be determined by arbitration. At the end of five years the corporation resumed possession, and the ac- counts for that period were adjusted and paid. It was held that no action could be maintained against the corporation to recover the value of the unexpired term. The opinion was delivered by Mr. Justice Miller. It was argued by the counsel for the plaintiffs in that case than though there was nothing in the language of the charter which au- thorized the making of this agreement, yet " a corporate body may (as at common law) do any act which is not either expressly or impliedly prohibited by its charter ; although where the act is unauthorized by the charter a shareholder may enjoin its execution, and the State may, by proper process, forfeit the charter." But the court said: " We do not concur in this proposition. We take the general doc- trine to be in this country, though there may be exceptional cases and some authorities to the contrary, that the powers of corporations organized under legislative statutes are such and such only as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it remains that the charter of a corporation is the measure of its pow- ers, and that the enumeration of these powers implies the exclusion of all others." The court then, after referring to some of the English cases above cited, and particularly to the decision of the House of Lords in Ashbury Railway Carriage & Iron Co. v. Riohe, as estab- lishing " the broad doctrine that a contract not within the scope of the powers conferred on the corporation cannot be made valid by the assent of every one of the shareholders, nor can it by any partial per- formance become the foundation of a right action," expressed tlie opinion that that decision " represents the decided preponderance of authority, both in this country and in England, and is based upon sound principle." The court indeed further said: "There is another principle of equal importance, and equally conclusive against the validity of this contract, which, if not coming exactly within the doctrine of ultra vires as we have just discussed it, shows very clearly that the rail- road company was without the power to make such a contract. That principle is, that where a corporation like a railroad company has CHAP, v.] DAVIS V. RAILROAD COIUPANY. 183 granted to it by charter a franchise intended in large measure to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any contract which dis- ables the corporation from performing those functions, which under- takes, without the consent of the State, to transfer to others the rights and powers conferred by charter, anfl to relieve the grantees of the burden which it imposes, is a violation of the contract with the State, and is void as against public policy." This proposition is supported by the cases there cited, and by many others. See Sich- ardson v. Sibley (11 Allen, 65, 67) ; Whittenton Mills v. Upton (10 Gray, 682) ; Proprietors of Locks & Canals v. Nashua & Lowell Rail- road (104 Mass. 1) ; Middlesex Railroad v. Boston & Chelsea Railroad (115 Mass. 347). But that the decision was not intended to be put exclusively upon this ground is manifest from the terms in which it was introduced, as well as from those in which the general doctrine had been already laid down, and from the concluding sentence of the opinion. The judgments of the English courts, and of the Supreme Court of the United States, to which we have referred, do but afiirm and apply principles long ago declared by this court. More than fifty years since, Chief Justice Parker said : " The power of corporations is derived only from the act, grant, charter, or patent by which they are created. In this Commonwealth, the source and origin of such power is the Legislature, and corporations are to exer- cise no authority except what is given by express terms or by neces- sary implication by that body. No vote or act of a corporation can enlarge its chartered authority, either as to the subjects on which it is intended to operate, or the persons or property of the corporators." Salem Milldam v. Ropes (6 Pick. 23, 32). And the importance for the security of the rights of each stockholder, of a steady adherence to the principle that " corporations can only exercise their powers over their respective members for the accomplishment of limited and well- defined objects," was strongly stated by Chief Justice Shaw in 1839. Spaulding v. Lowell (23 Pick. 71, 76). As was observed in Morville v. American Tract Society (123 Mass. 129, 136), " the power to make all such contracts as are necessary and usual in the course of business, or are reasonably incident to the objects for which a private corporation is created, is always implied where there is no positive restriction in the charter." Thus a cor- poration may let or mortgage property lawfully held by it under its charter, and not immediately needed for its own business. Sinqjson V. Westminster Hotel Co. (8 H. L. Cas. 712) ; Brown v. Winnisimmet Co. (11 Allen, 326) ; Mendee v. Pinkerton (14 Allen, 381). A corporation established " for the purpose of manufacturing and selling glass," may contract to purchase glassware from a like coi-poration to keep up its own stock and supply its customers while its works are being put in repair. Lyndeborough Glass Co. v. Massachusetts Glass Co. (Ill Mass. 184 DAVIS V. EAIL'ROAD COMPANY. [CHAP. V. 315). A corporation authorized to purchase and hold water power created by the erection of dams, and to hold real estate, may, when the water power has been lawfully extinguished, sell its lands, and as part of the contract of sale agree to raise their grade. Dupee v. Bos- ton Water Power Go. (114 Mass. 37). A railroad corporation may agree to transport as a codimon carrier over connecting railroads goods intrusted to it for carriage over its own line. Hill Manuf. Co. v. Bos- ton & Lowell Railroad (104 Mass. 122); Railway Co. v. McCarthy (96 U. S. 258). And it cannot dispute its liability for goods delivered to it to be carried over a railroad of which it is in actual possession and use under a lease, on the ground that the lease is void. McCluer V. Manchester & Lawrence Railroad (13 Gray, 124) Several of the cases most relied on by the plaintilfs were not suits against a corporation to compel it to pay money for a purpose not within the scope of its charter, but suits by a corporation to recover money or property, which, when recovered, would be held for the law- ful uses of the corporation. Chester Glass Co. v. Dewey (16 Mass. 94) ; Old Colony Railroad v. Evans (6 Gray, 25) ; National Peviberton Bank V. Porter (125 Mass. 333) ; National Bank v. Matthews (98 U. S. 621). In Chester Glass Co. v. Dewey, the plaintiff, a corporation estab- lished for the purpose of manufacturing glass, kept a shop near its factory, for the accommodation of its workmen, containing a general assortment of such goods as are usually kept in country stores ; and the defendant was a carpenter, living near, who made boxes and did other carpenter's work for the corporation. In an action for the price of goods sold and delivered to him from the shop, the defendant ob- jected that the plaintiff was not authorized by law to keep such a shop and to sell goods in this manner ; and it was held that this objection could not avail him. The leading reason assigned was, " The Legis- lature did not intend to prohibit the supply of goods to those em- ployed in the manufactory ; " in other words, the contract, sued on was not ultra vires. That reason being decisive of the case, the further suggestion in the opinion, " Besides, the defendant cannot re- fuse payment on this ground ; but the Legislature may enforce the prohibition, by causing the charter to be revoked, when they shall determine that it has been abused," was, as has been since pointed out, wholly obiter dictum. Whittenton Mills v. Upton (10 Gray, 599). In Old Colony Railroad v. Evans, the defendant, being under con- tract to haul a large quantity of gravel on to lands belonging to the city of Boston, made an agreement in writing with the plaintiff cor- poration, by which it agreed to purchase a tract of land in Quincy, and he agreed to take gravel therefrom and to carry it in his own cars over the plaintiff's road to Boston, paying a speciiied toll; the defen- dant afterwards further agreed in writing that, if the plaintiff would purchase another tract for the same purpose, he would pay the cost of the first tract; and both tracts were purchased by the plaintiff. The objection that the corporation had no right to trade in gravel, or CHAP. V.]' DAVIS V. RAILROAD COMPANY. 185 land was raised by the defendant by way of defence to a bill in equity by the corporation for specific performance of his second agreement by accepting a deed of and paying for the first tract. There can be no doubt of the correctness of the decision overruling the objection. The corporation by its purchase had acquired a title to the land, which Was good against all the world, except possibly the Commonwealth ; and the defendant, having knowledge of all the facts, did not and could not object that the title might be defeasible by the Common- wealth. Banks v. Poitiaux (3 Rand. 136); Leasure v. Hillegas (7 S. & R. 313) ; Goundie v. Northampton Water Co. (7 Penn. St. 233) ; Silver Lake Bank v. North (4 Johns. Ch. 370,373) ; Smith v. Sheeley (12 Wall. 358) ; Commonwealth v. Wilder (127 Mass. 1, 6). Although it was said in the opinion that the purchase of the land seemed to have been made as a mode of promoting the purposes of the plaintiif's incorporation, the increasing of its business in transportation upon its railroad, and not as an object of trade or speculation in lands, the point adjudged was that the want of corporate capacity to purchase and sell lands was not a legal objection to the maintenance of the bill. The only authority referred to by the court was the treatise of An- gell and Ames on Corporations (§§ 10, 11, 151, 153), of which the sec- tion most directly applicable is § 153, in which it is clearly laid down that a court of equity will enforce against a natural person his agree- ment to purchase of a corporation lands which it holds in violation of its charter, but will not enforce against a corporation its agreement to purchase lands for a purpose not authorized by its charter. The dis- tinction is obvious. In the latter case, to enforce the agreement against the corporation is to compel the application of its funds to a purpose not authorized by law. In the former oase^to compel the individual to take and pay fftr the property according to his agreement, is the surest and most effectual means of replacing, in the treasury, of the corporation, for its lawful uses and the benefit of its stockholders, the funds which it had misapplied. Butland & Burlington Railroad V. Proctor (29 Vt. 93, 97); In National Pemberton Bank v. Porter, the point decided was, that the objection that a national bank had exceeded its powers by pur- chasing a promissory note from an indorsee thereof, did not prevent it from maintaining action upon the note against the maker ; for the reasons, that' the action was not brought upon the contract of pur- chase, or' against any party- to that contract, and that it was not neces- sary in this Commonwealth that the plaintiff in an action on the promissory note should have any title or interest in it. See also Attleborough National Bank v. Rogers (125 Mass. 339). In NationalBank v. Matthews, the act of Congress providing that a national bank might purchase and hold real estate for certain enum- erated purposes only, of which to secure money lent at the time of taking a mortgage was not one, was held by a majority of the court, in accordance with the opinion of Chancellor Kent in Silver Lake Bank 186 DAVIS V. EAILUOAD COMPANY. [CHAP. V. V. North, above cited, not to make void a mortgage given to secure the payment of a promissory note for money so lent, nor to prevent the bank from enforcing such a mortgage. A like decision was made in National Bank v. Whitney (103 U. S. 99). A corporation may indeed be bound to refund to a person from whom it has received money or property, for a purpose unauthorized by its charter, the value of that which it has actually received ; for, in such a case, to maintain the action against the corporation is not to affirm, but to disaifirm, the illegal contract. White v. Franklin Bank (22 Pick. 181) ; Moruille v. American Trant Society (123 Mass. 129, 137); In re Cork & Youghal Railway (L. E. 4 Ch. 748). But when the corporation has actually received nothing in money or prop- erty, it cannot be held liable upon an agreement to share in, or to guarantee the profits of, an enterprise which is wholly without the scope of its corporate powers, upon the mere ground that conjectural or speculative benefits were believed by its officers to be likely to re- sult from the making of the agreement, and that the other party has incurred expenses upon the faith of it. East Anglian Railways v. Eastern Counties Railway, MacGregor v. Dover & Deal Railway, Ash- bury Railway Carriage & Iron Co. v. Riche, and Thomas v. Railway Co., above cited. Doiuning v. Mt. Washington Road Co. (40 N. H. 230) ; Franldin Co. v. Lewiston Institution for Savings (68 Maine, 43). The Old Colony Railroad Company is a railroad corporation, estab- lished by public statutes of the Commonwealth for the purpose of con- structing and maintaining a railroad, and carrying passengers and freight thereon. Sts. 1844, c. 150 ; 1854, c. 133 ; 1862, c. 149 ; 1872, c. 143. The holding of a " world's peace jubilee and international musical festival," is an enterprise wholly outside the objects for which a railroad corporation is established ; and a contract to pay, or to guarantee the payment of, the expenses of such an enterprise, is neither a necessary nor an appropriate means of carrying on the busi- ness of the railroad corporation ; it is an application of its funds to an object unauthorized and impliedly prohibited by its charter, and is beyond its corporate powers. Such a contract cannot be held to bind the corporation, by reason of the supposed benefit which it may derive from an increase of passengers over its road, upon any grounds that would not hold it equally bound by a contract to partake in or to guar- antee the success of any enterprise that might attract population or travel to any city or town upon or near its line. It follows that in the first of the actions before us there must be Judgment for the defendant. The same reasons are no less applicable to manufacturing and trad- ing corporations, established under general laws, and the purposes of which are required by those laws to be stated in their articles of asso- ciation. The Smith American Organ Company was organized under the general act of 1870, c. 224, and the purposes of its incorporation are limited by its articles of association, as appearing in the certificate CHAP, v.] BISSELL V. KAILROAD COMPANIES. 187 thereof filed in the office of the Secretary of the Commonwealth pur- suant to that act, to " the manufacture and sale of reed organs, and other musical instruments." The power to manufacture and sell goods of a particular description does not include the power to par- take in, or to guarantee the profits of, an enterprise that may be ex- pected to increase the use of or the demand for such goods. The case of Ashhury Railway Carriage & Iron Co. v. Biche, before cited, is directly in point. This ground being decisive of the second action, it becomes unneces- sary to consider the other objections to its maintenance, and the plain- tiff's exception must be Overruled. BISSELL V. EAILEOAD COMPANIES. (22 N. y. 259. 1860.) Appeal from the general term of the Supreme Court, in the sixth district, where a judgment entered in favor of the plaintiff, upon the report of referees, had been affirmed. This was an action against the Michigan Southern Eailroad Com- pany and the Northern Indiana Railroad Company, two distinct cor- porations, for an injury sustained by the plaintiff, whilst a passenger upon a train which they had jointly united in running, resulting from a collision with another train, in consequence of the negligence of their servants and agents. The Michigan Southern Railroad Company was chartered by the State of Michigan, to construct and operate a railroad through the southern part of that State; and the Northern Indiana Railroad Company, by the State of Indiana, to construct a railroad through the northern part of the latter State ; each of these corporations, ac- cordinglyj built a railroad within the State by which it had been chartered. They also, in conjunction with another corporation, con- structed a railroad from the northern line of the State of Indiana, through a part of the State of Illinois, to the city of Chicago. The two companies formed a business connection under the name of the Michigan Southern and Northern Indiana Railroad Companies, and ran their trains, carrying passengers and freight, from Lake Erie to Chicago and back, stopping at the intermediate places, through the States of Ohio, Michigan, Indiana, and Illinois. The cars and other property connected with these roads were used by the companies in common, and each shared in the profits and losses ; the business was transacted under their associate name, and they were thus practically consolidated into one company. On the 25th April, 1853, the plaintiff took passage, with his bag- gage, in the defendants' train of cars, near Chicago, to be conveyed 188 BISSELL V. RAILROAD COMPANIES. [CHAP. V. to Toledo, and paid his fare. A collision occurred with another train, through the negligence of the defendants' agents, at the cross- ing of the Illinois Central Railroad, in the State of Illinois, whereby the plaintiff's leg was broken, and he was otherwise injured ; and for this injury the present suit was brought. At the time of the occurrence, and at the commencement of the suit, the defendants had a general business ofiSce, in the city of New York, occupied by their president and treasurer, where a large por- tion of their funds and other property was kept. The referees made a report in favor of the plaintiff for $2,500, and the judgment entered thereon having been affirmed at general term, the defendants took this appeal. COMSTOCK, C. J. : — A general statement of the plaintiff's case is, that the two cor porations defendant were jointly engaged in the business of carrying passengers and freight between Chicago and Lake Erie, through a part of the State of Illinois, and through the States of Indiana and Michigan, by three connected railroads which they owned or controlled, and the business of which was managed under a con- solidated arrangement, which had been in force between the defend- ants, for some time previously to the injury complained of; that, being so engaged, they undertook and assumed to carry him; the plaintiff, as a passenger, from Chicago, or a point near that place, eastward over the consolidated line of road ; that he took his seat in their cars accordingly, and that, during the transit, he was injured by an accident which happened through their carelessness and neg- lect. Assuming the truth of this statement, there is no 'doubt of the plaintiff's right to recover. But the defendants deny the legal truth of these facts, becaTise one of the companies was chartered by the Legislature of Michigan, with power to build a road in that State, and the other by the Legislature of Indiana, with power to build one in that State. They both insist, that they had no right or power, under their- respective charters, to consolidate their business in the manner stated, and especially, that they could not legally, either separately or jointly, acquire the pos- session and use of a connecting road in the State of Illinois, and un- dertake to carry passengers or freight over the same. They do not deny that their boards of directors and agents, duly authorized to wield all the powers which the corporations themselves possessed, entered into the arrangements which have been mentioned, nor that, in the execution of those arrangements, they made the contract with the plaintiff to carry him as a passenger ; nor do they deny that they received the benefit of that contract, in the customary fare which he ]iaid. Their defence is, simply and purely, that they transcended tiieir own powers, and violated their own organic laws. On this ground, they insist that their business was not, in judgment of law, consolidated ; that they did not use and operate a road in Illinois ; CHAP, v.] BISSELL V. RAILROAD COMPANIES. 189 that they did not undertake to carry the plaintiff over it; and did not, by their negligence, cause the injury of which he complains; but that all these acts and proceedings were, in legal contemplation, the acts and proceedings of the natural persons who were actually engaged in promoting the same. Can, then, two railroad corporations, having connecting lines, thus unite their business, for the purpose of promoting their common in- terest ; charter another connecting road, in furtherance of the same policy ; hold themselves out to the public as carriers over the whole route ; enter into contracts accordingly ; receive the benefit of those contracts; and then, when liabilities arise, interpose the violation of their own charters to shield them from responsibility ? Such a de- fence is shocking. to the moral sense, and although it appears to have some support in judicial opinions, I think, it has no foundation in the law. The doctrine has certainly been asserted on some occasions, that, in all cases where the contracts and dealings of a corporation are claimed to be invalid for want of power to enter into the same, a comparison must be instituted between those contracts and dealings and the charter, and, if the charter does not appear to embrace them, then that they must be adjudged void to all intents and purposes, and in all conceivable circumstances. The reasoning on which this doctrine has been usually claimed to rest,. denies, in effect, that cor porations can, or ever do, exceed their powers. They are said to be artificial beings, having certain faculties given to them by law, which faculties are limited to the precise purposes and objects of their creation, and can no more be exerted outside of those purposes and objects, than the faculties of a natural person can be exerted in the performance of acts which are not within human power. In this view, these artificial existences are cast in so perfect a mould, that transgression and wrong become impossible. The acts and dealings of a corporation, done and transacted in its name and behalf, by its board of directors, vested with all its powers, are, unless justified by its charter, according to this reasoning, the acts and dealings of the individuals engaged in them, and for which they alone are responsi- ble. But such, I apprehend, is not the nature of these bodies ; like natural persons, they can overleap the legal and moral restraints im- posed upon them : in other words, they are capable of doing wrong. To say that a corporation has no right to do unauthorized acts, is only to put forth a very plain truism; but to say that such bodies have no power or capacity to err, is to impute to them an excellence which does not belong to any created existences with which we are acquainted. The distinction between power and right is no more to be lost sight of in respect to artificial, than in respect to natural persons. I think, this dt)ctrine .of theoretical perfection in corporations would convert them -.praetieally into most miscbievous monsters. A 190 BISSELL V. RAILROAD COMPANIES. [CHAP. V. banking institution, through its board of directors, may invest its funds ill the purchase of stocks or cotton, and ' every holder of its Stock may acquiesce, expecting to profit by the speculation. If the enterprise is successful, the corporation and its stockholders gain by the result ; if a depression occurs in the market, and disaster is threatened, the doctrine that a corporation can never act outside of its charter enables it to say, " this is not our dealing," and the money used in the adventure may be unconditionally reclaimed from what ever parties have received it in exchange for value ; while the injured dealer must seek his remedy against agents perhaps irresponsible or unknown. Corporations may thus take all the chances of gain, with out incurring the hazards of loss. Familiar maxims of the law must be reversed. In the relation of private principal and agent, the adoption of an agent's unauthorized dealing is equivalent to an origi- nal authority ; and the adoption is perfect, when the principal re- ceives the proceeds of that dealing. Corporations may practically act in the same manner. The proceeds of unauthorized adventures may be received and become blended with their legitimate business and funds, so as to be wholly undistinguishable ; but, as the adven- tures themselves were, in judgment of law, impossible, considered as corporate transactions, so they cannot become possible upon any principle of ratification or estoppel. If we say there is an utter absence of power or faculty to engage in the dealing, it is a self-evi- dent proposition that no rule of estoppel can change the result. It is not uncommon, in charters of corporations, to lay express prohibitions upon them, as a limitation of their powers, having in view the maintenance of some public policy ; as, for example, pro- hibitions relating to the currency of the State. If they violate these prohibitions, they have been supposed to be public offenders, and on that ground, the law has always denied to them its remedial processes, either in affirmance or disaffirmance of their unlawful contracts; thus regarding them as private offenders are regarded. But this rule of law must be overthrown, if we admit this theory of constitutional inability in corporations to overstep the limits of rightful power. In the case of The Life and Fire Insurance Company v. Mechanics' Fire Insurance Company (7 Wend. 31), it was contended, that a cer- tain corporate transaction, if unlawful, was to be regarded as the act of the agents or officers of the compajiy, and not of the company, and therefore, that the company should be allowed to recover back the money or property improperly disposed of. That doctrine was re- futed by Mr. Justice Sutherland, in this language : " This would be a most convenient distinction for corporations to establish, — that every violation of their charter, or assumption of unauthorized power on the part of their officers, although with the full approbation of their directors, is to be considered the act of the officers, and is not to prejudice the corporation itself. There would be no possibility of CHAP, v.] BISSELL V. RAILROAD COMPAKIES, 191 ever convicting a corporation of exceeding its powers, and thereby forfeiting its charter, or incurring any other penalty, if this principle could be established." These remarks suggest an unanswerable argument against the doctrine. Why, it may be asked, does the law provide the remedy by quo warranto against corporations, for usur- pation and abuse of power ? Is it not the very foundation of that proceeding, that corporations can and do perform acts and usurp franchises beyond the rightful authority conferred by their charters ? Most assuredly this is so. The sovereign power of the state inter- poses, alleges the excess or abuse, and on that ground demands from the courts a sentence of forfeiture. One of the sources of error, in reasoning upon legal as well as other questions, is inexactness in the use of language, or perhaps in the imperfectness of language to express the varieties of thought. It is a self-evident truth, that a natural person cannot exceed the powers which belong to his nature. In this proposition, we use words in their literal and exact sense. In the same sense, it is a truth, equally evident, that a corporation cannot exceed its powers ; but this is only asserting that it cannot exercise attributes which it does not possess. As an impersonal being, it cannot expe/ience re- ligious ejnotion, nor feel the moral sentiments. Corporations are said to be clothed with certain powers enumerated in their charters, or incidental to those which are enumerated, and it is also said, they cannot exceed those powers ; therefore, it has been urged, that all attempts to do so are simply nugatory. The premises are correct, when properly understood ; but the conclusion is false, because the premises are misinterpreted. When we speak of the powers of a corporation, the term only expresses the privileges and franchises which are bestowed in the charter ; and when we say it cannot exer- cise other powers, the just meaning of the language is, that as the attempt to do so is without authority of law, the performance of unauthorized acts is a usurpation, which may be a wrong to the state, or, perhaps, to the shareholders. But the usurpation is possible. In the same sense, natural persons are under the restraints of law, but they may transgress the law, and when they do so, they are responsi- ble for their acts. From this consequence, corporations are not, in my judgment, wholly exempt. The privileges and franchises granted are not the whole of a corporation. Every trading corporation ag- gregate includes an association of persons having a collective will, and a board of directors or other agency in which that will is em- bodied, and through which it may be exerted in modes of action not expressed in the organic law. Thus, like moral and sentient beings, they may and do act in opposition to the intention of their creator, and they ought to be accountable for such acts. A great variety of cases might be supposed, in which this doctrine of corporate exemption from liability could not be defended, upon any rule of reason or principle of justice. But perhaps none of them 192 BISSELL V. RAILROAD COMPANIES. [CHAP. V, would afford a more persuasive illustration than the one now under consideration. Let us look at the facts and consider the results. These corporations had boards of directors, in whom were vested every power, faculty, or function which belonged to the bodies they represented. We have then no question in the law of agency ; for the agents, if that be the proper term, had all the powers of the principals ; indeed, in an important sense, they were the principals ; because their authority was not received by delegation from any other principal. These boards proceeded to consolidate the two lines of road, and they included in the scheme another connecting road. This being done, they entered into all the relations of carriers, with the public, and the entire business of both companies was thus con- ducted, for a period of several years, with no complaint on the part of the State sovereignties which granted the charters, and none on the part of the shareholders. All the gains and profits of the busi- . ness were received to the use of the corporations, and it is to be as- sumed that the shareholders were benefited thereby. The question arises, Where were these companies, and what were they doing, dur- ing all this period ? The question would be the same, if that mode of conduftt were to continue, without limit of time. If the acts men- tioned were in excess of the powers granted, and if we concede the doctrine that such acts are, in all circumstances, to be imputed to the agents who perform them, the conclusion follows, that the cor- porations became virtually extinct by non-user of their franchises. If the business thus conducted was not the business of the com- panies, they were engaged in none whatever, and thus, practically, if not legally, ceased to exist. If it was the business of the directors, as natural persons, then, those persons must be deemed not only to have taken a wrongful possession of all the estate and funds of the corporations they professed to represent, but also to have usurped their franchises, and to have stolen their corporate names and seals. If this be the legal interpretation of the course of dealing and con- duct actually carried on under the acts of incorporation passed by the Legislatures of Michigan and Indiana, then the companies might have been proceeded against by those States, not on the ground of a usur- pation of powers and privileges which did not belong to them, but for a total non-user of the franchises which did belong to them ; while, on the other hand, writs of quo warranto might have been issued against the individual directors and agents, for usurping corporate rights without any charter at all. 16 Wend. 665 ; 23 Id. 193 ; 3 'Bl. Com. 263. These conclusions are not founded in any known principle or practice, and they are totally opposed to the facts of the case. In rejecting them, we must also reject the theory of corporate perfection and immunities on which they were based ; and we are compelled to hold, that those companies, as legal and accountable persons, engaged themselves in the business of carrying passengers and freight, under CHAP, v.] BISSELL V. RAILROAD COMPANIES. l'J3 and according to the arrangements which have been mentioned, and thereby placed themselves in that relation to the public, and to the plaintiff in particular, which is the subject of the present controversy. But the doctrine, that corporations can never be bound by engage- ments not justified by the grant of power from the State, is next defended on a different ground. Although it be conceded, that they are present, and acting as legal persons, or entities, when such en- gagements are entered into, it is said, that all contracts in excess of the rightful power possessed by corporations are illegal, and there- • fore void. This is an argument totally different from the one which has been so far examined, because it necessarily imputes the making of the contract to the corporate person or being; whereas, the doc- trine which I have endeavored to refute denies that proposition. The very point of the supposed illegality consists, or, at least, it may consist, in the performance of acts perfectly lawful in themselves, but which, being done by a corporation and not by individuals, are pronounced illegal, because they are so done without authority con- tained in the charter. But, is it true, that all contracts of corporations for purposes not embraced in their charters are illegal, in the appropriate sense of that term ? This proposition I must deny. Undoubtedly, such en- gagements may have the vices which sometimes infect the contracts- • of individuals. They may involve a malum in se or a malum pro- hibitum,, and may be void for any cause which would avoid the con- tract of a natural person. But where no such vices exist, and the only defect is one of power, the contract cannot be void, because it is illegal or immoral. Such a doctrine may have some slight founda- tion in the earlier English railway cases, East Anglian Railioays Co. V. Eastern Counties Railway Co. (11 C. B. 775) ; McGregor v. Deal and Dover Railway Co. (18 Q. B. 618) ; but it was never established, and is not now received in the English courts. Mayor of Norwich v. Norfolk Railway Co. (4 El. & Bl. 397); Eastern Counties Railway Co. V. Hawkes (5 H. L. C. 347). The books are full of cases upon the powers of corporations, and the effect of dealing in a manner and for objects not intended in their charters ; but with the slight exception named, there is an en- tire absence, not only of adjudged cases, but of even judicial opinion or dicta, for the proposition that mere want of authority renders a contract illegal. Such a proposition seems to me absurd ; the words ultra vires and illegality represent totally different and distinct ideas. It is true, that a contract may have both those defects, but it may also have one without the other. For example, a bank has no authority to engage, and usually does not engage, in benevolent en- terprises. A subscription, made by authority of the board of direc- tors and under the corporate seal, for the building of a church or college, or an almshouse, would be clearly ultra vires, but it would VOL. I. — 13 194 BISSELL V. RAILROAD COMPANIES. [CHAP. V. not be illegal ; if every corporator should expressly assent to such an application of the funds, it would still be ultra vires, but no wrong would be committed, and no public interest violated. So, a manu- facturing corporation may purchase ground for a school-house or a place of worship for the intellectual, religious, and moral improve- ment of its operatives ; it may buy tracts and books of instruction for distribution amongst them. Such dealings are outside of the charter ; but, so far from being illegal or wrong, they are in them- selves benevolent and praiseworthy. So a church corporation may deal in exchange ; this, although ultra vires, is not illegal, because dealing in exchange is, in itself, a lawful business, and there is no state policy in restraint of that business. To illustrate the subject in another manner : An agent may make a contract in the name and behalf of his principal, but not within the scope of his agency. If the consideration and purpose of such a contract be lawful, it may be void as against the principal, but not on the ground of illegality. A corporation is not an agent of the state, nor, in any strict sense, of the shareholders ; but it derives its powers from the state, and it may transcend those powers for pur- poses which, in themselves considered, involve no public wrong. Contracts so made may be defective in point of authority, and may contemplate a private wrong to the shareholders ; but they are not illegal, because they violate no public interest or policy. My mean- ing, in short, is, that the illegality of an act is determined in its qual- ity, and does not depend on the person or being which performs it. There has been, I think, some want of reflection, even in judicial minds, upon the reasons and policy which mainly govern in the granting of charters to corporations, with certain specified powers and no others. A private or trading corporation is essentially a chartered partnership, with or without immunity from personal lia- bility beyond the capital invested, and with certain other convenient attributes which ordinary partnerships do' not enjoy. It is also something more than a partnership, because the legal or artificial person becomes vested with the title to all the estate and capital contributed, to be held and used, however, in trust for the share- holders. Now, in a well-regulated unincorporate partnership, the articles entered into by the associates specify the objects of their association. But, suppose the same associates desire a charter of incorporation for the more convenient prosecution of the same busi- ness, and obtain one. We shall find it to contain the like specifica- tion, which becomes the grant of power from the sovereign authority of the state. I am speaking of powers and privileges granted which are not, in their essential nature, corporate or public franchises, as distinguished from the private enterprises which any class of citizens may embark in ; and, with the exception of municipal or govern- mental charters, the class of powers here referred to will be found to cover nearly the whole field of corporate rights. It is not difficult, CHAP, v.] BISSELL V. RAILROAD COMPANIES. 195 then, to see, the reason and policy which underlie such grants. The associates ask for a charter, in order to carry on their business with greater advantages ; and the same reason exists for a specification of the purposes of their organization, as in the case of an association without a charter. The charter takes the place of the articles of agreement, and becomes the appropriate rule of action. No public interest or policy is involved, because the objects of the grant are not of a public nature ; the powers and rights specified are identical with those which any private person or association of persons may exercise. If those who manage the concerns of a simple partnership deal with the funds in a manner or for purposes not specified, their acts are ultra vires ; and if the directors of such a corporation as I am here speaking of, do the same thing, their acts are also ultra vires in the same sense and no other. To apply the word " illegal- ity " to such transactions, is to confound things of a totally different nature. It is only private interests which are affected by them ; and there is no statute or rule of the common law by which they become public offences. In every treatise upon the law of contracts — and there are many of them — we shall find an enumeration of such as are immoral or illegal ; but amongst them cannot be found a specification of the promise or agreement of a corporation, founded on a lawful consider- ation, and to do that which in itself is lawful to be done, although not within the powei;s granted. It has always been supposed, and to that effect are all the authorities, that contracts are illegal either in respect to the consideration or the promise. Where both of these are lawful and right, the maxim, "ex turpi contractu non oritur actio," can have no- application. The incapacity of the contracting party, whether it be a corporation, an infant, a feme covert, or a lunatic, has nothing to do with the legality of the contract, in that sense of the word which is now under discussion. So, in the treat- ises upon corporations, we shall find their rights and privileges to be very extensively considered, but nowhere an' intimation that their dealings outside of their charters are deemed illegal for that cause. Even the proceeding against them by quo warranto, for the exer- cise of ungranted powers, will illustrate the subject. This is a civil, and not a criminal proceeding, and its object is purely and solely to try a civil right. 2 Kyd on Corporations, 439 ; Angell & Ames, 686 ; 1 Serg. & Eawle, 385 ; 3 Dallas, 490 ; 1 Blackf. 267. Our statute on this subject makes it the duty of the attorney-general to institute the proceeding, under leave of the court, when the case is one of public interest; but, in other cases, only at the instance of private parties claiming to be aggrieved by the abuse of power, and on se- curity being given to indemnify the state (2 R. S. 583, §§ 39, 40). In any case, whether the suit be founded on the alleged usurpation of a public or corporate office, or on the non-user or misuser of the franchises granted to a corporation, it is purely a civil right which 196 BISSELL V. RAItROAD COMPANIES. [CHAP. V. is tried, and the judgment is not penal, but simply one of ouster from the right claimed. The legislature may, and sometimes does, expressly prohibit the doing of certain acts by corporations, having in view the promotion of some particular policy of the state, and may declare such acts to be public offences, to be punished by fine or imprisonment of the parties engaged in them. There are such laws in regard to incor- porated as well as private banks, the object of which is to protect the currency of the state. But where there are no such penalties or prohibitions, and the dealings of a corporation have no relation to state policy, but are such as all mankind may freely engage in, the law has provided no punishment for such dealings, because it does not regard them as a violation of its principles and enactments, in any sense which is material to the present inquiry. I do not deny, that there is, in a different sense, a legal wrong, in the misapplica- tion of the corporate capital and funds ; and so there is in every breach of trust or violation of contract. But the true inquiry here is whether it belongs to the class of public, as distinguished from private wrongs, so that the guilty party may set it up in avoidance of just obligations ; and whether the courts must, in all circum- stances, accept the defence, without regard to the situation and rights of the other party. I cannot believe such to be the rule of reason or of law. Let us now concede that the unauthorized contracts of a corpora- tion are illegal in the sense contended for ; it by no means follows, that they are never to be enforced. An agreement declared by statute to be void cannot be enforced, because such is the legislative will ; but when, without any such declaration, it is simply illegal, it is capable of enforcement, where justice plainly requires it. Cir- cumstances may, and often do, exist, which estop the offender from taking advantage of his own wrong. The contract may be entered into on the other side^ without any participation in the guilt, and without any knowledge even of the vice which contaminates it. An innocent person may part with value, or otherwise change his situa- tion, upon the faith of the contract. A railroad corporation, for example, may purchase iron rails, and give its obligation to pay for them, with a design to sell them again on speculation, instead of using them for continuing its track ; such a transaction is clearly unauthorized, and is, therefore, said to be illegal. But if the corpor- ation is deemed to make the contract, — in other words, if, as I have above shown, it is a legal possibility for corporations to make con- tracts outside of their just powers, how can its illegality be set up- against the other party, who knows nothing of the unlawful pur- pose ? So, an incorporated bank may purchase land, having power to do so for a banking-house, but actually intending to speculate in the transaction. This is also ultra vires ; but can the want of author- ity be interposed, in repudiation of a just obligation to pay for the- CHAP, v.] BISSELL V. RAILROAD COMPANIES. 197 same laud, the vendor not being in pari delicto ? Such a doctrine is not only shocking to the reason and conscience of mankind, but it goes far beyond .the law in regard to the illegal contracts of private individuals. As I am not contending that the unauthorized dealings of a cor- poration are never to be questioned, the object of this discussion has been to ascertain the true ground on which they can be impeached, where they are not attended by the vices which are fatal to private contracts also. I have shown, I trust — 1. That such dealings are possible in law, as they often take place in fact ; in other words, that it is in the nature of these bodies to overleap the restraints imposed upon them. 2. That a transgression of this nature is a simple ex- cess of power (using that word to express the rules of action pre- scribed in their charters, and by which they ought to regulate their conduct), but is not tainted with illegality, so as to avoid the contract or dealing, on that ground. This proposition, it seems hardly neces- sary to repeat, is applied only to transactions which involve or con- template no violation of the code of public or criminal law, but, on the contrary, are innocent and lawful in themselves. 3. Even illegal contracts, in the proper sense, are not, universally and indiscrimin- ately, to be adjudged void : and especially this is not so, where the offender alleges his own wrong to avoid just responsibility, the other party being innocent of the offence. If these negative conclusions cannot be denied, it follows, that contracts and dealings, such as I have been speaking of, are to be condemned by the courts only on the ground that they are a breach of the duty which private corporations owe to the stockholders to whom the capital beneficially belongs. It is the undoubted right of stockholders to complain of any diversion of the corporate funds to purposes unauthorized in the charter. This, as a general principle, cannot be too strongly asserted ; and by this principle, justly applied to particular instances, the question in such cases is to be resolved. The original subscribers contribute the capital invested, and they and those who succeed to their shares are always, in equity, the owners of that capital. But, legally, the ownership is vested in the corpor- ate body, impressed with the trusts and duties prescribed in the charter ; in these relations we have the only true foundation of the plea of ultra vires. That term is of very modern invention, and I do not think it well chosen, to express the only principle which it can lie allowed to represent in cases of this nature. It is not to' be understood as an absolute and peremptory defence, in all cases of excess of power, without regard to other circumstances and consider- ations. It is not to be looked upon as a plea which denies the actual exertion of corporate power, when a corporation enters into an en- gagement which, according to its charter, it ought not to make ; but, because such was the nature of the contract, it presents the breach of trust or duty to the shareholders as an excuse for the non-perform- 198 BISSELL V. KA.ILUOAD COMPANIES. [CHAP. V. ance. And I do not deny the validity of this excuse, in many cases, !■ may say, in all cases, where it can be received without doing greater injustice to others. If the person dealing with a corporation knows of the wrong done or contemplated, and he cannot show the acquiescence of the shareholders, he ought not to complain, if he cannot enforce the contract. Aside from the law of corporations, agreements which involve or propose a violation of trust will not be enforced by the courts, where no greater equities demand it. Cor- porate bodies are more than mere agents ; they are more than a partner who manages as the agent of his associates ; their powers are undelegated. They are the legal owners of the capital, or estate, and they have capacity to deal with it in contravention of duty or trust. Bu.t the equitable rights of shareholders will enable them, in many circumstances, to claim the affirmative interposition of the courts, to arrest an unauthorized course of dealing, or to prevent a threatened diversion of the capital to improper uses. Of this character are many of the cases usually cited, to prove that corporations cannot exceed their powers. Dodge v. Woolsey (18 How. 331) ; Rolf v. Rogers (3 Paige, 154) ; Angell & Ames on Corp. 424, 4th ed., and cases cited. So, too, it is plain, without citing authority, that a stock- holder, who can show that he has sustained a pecuniary loss by such a use of the capital, may have his redress in damages against the individuals who commit the wrong, unless he has himself acquiesced. These are extensive, and, it would seem, ample remedies to prevent or redress the abuse of power ; and it appears to me a much higher and better policy, that the private shareholders should be confined to these remedies, than to sacrifice the interests of the rest of the com- munity, by conceding to these bodies absolute immunity, whenever power is thus abused. But the principles which belong to this question need not present that naked alternative. In many eases, no injustice will be done, by receiving the plea of ultra vires, when defensively interposed by the corporation itself. But these are cases where a want of good faith can be imputed to the dealer, and where the defence, if allowed, will leave the parties substantially in the enjoyment of their previous rights. An artificial, not less than a natural person, having the title and possession of an estate which, in equity, belongs to others, and entering into engagements inconsistent with duty or trust, should have a locus paenitentice, where it can be allowed without manifest wrong to others. It may be difficult to lay down a rule so general and so exact as to include every case ; but the principles and anal- ogies of the law will be sufficient for the solution of such questions as they arise. Justice, not only in this, but in very many other cases of constant occurrence, can be administered according to law, if I have succeeded in showing, negatively, that a comparison of the charter of a corporation with what it actually does, is not alwajfs the test of liability. CHAP, v.] BISSELL V. RAILROAD COMPANIES. 199 It is said, that there will be no restraint upon the acts and dealings of corporate bodies, if we uphold them when in excess of rightful authority. To this I answer, that the most ample restraints will be found in the principles here advocated ; while, on the other hand, if we concede to corporations immunity in all cases when they do wrong, we invite and reward the very abuse. It is also said, in order to render this doctrine less offensive to the reason and con- science, that the innocent dealer may, upon the voidness of the contract and a disaffirmance of it, recover back the value or consider- atioia with, which he has parted. This position necessarily concedes that the corporation, as a legal person, made the unauthorized con- tract, and received the money, or value, under and according to it ; thus overthrowing the main objection to its liability to respond di- rectly upon the contract. It also concedes the innocence of the other contracting party ; thus, according to all the analogies of the law, refuting the only other objection (illegality) on which the abso- lute invalidity of such dealings is claimed to rest ; for, surely, after conceding that the corporation actually made the contract, it will not be contended that it can set up, that it ought not to have made it, against an innocent person who has given up his money or property on the faith of the same contract. But I answer, further, that while in many cases the remedy of a suit in disaffirmance of the agreement, and to recover back the consideration, will be sufficient to prevent wrong, in many others it will be entirely worthless. All collateral securities must fall to the ground with the principal contract, and all its consequences and results. The present case will afford the best illustration. The defendants, in consideration of a trifling sum re- ceived from the plaintiff for fare, agreed to perform the service of carrying him in their cars, perhaps some two hundred miles. By the negligent performance of that agreement, they inflicted ou him injuries for which a jury has said the proper compensation was f 2,500. This being the measure of damages for the breach of the contract, the absurdity, not less than the injustice, of confining him to the remedy of disaffirmance, because the agreement was ultra vires, must be quite apparent. I have examined these questions with the more attention, because, aside from their bearing on the present controversy, they are of great practical importance. A vast amount of the business of the community has come to be carried on under corporate forms of or- ganization ; besides innumerable special charters, we have general laws which impart corporate attributes to associations formed ac- cording to articles of agreement, for a great variety of purposes. When we consider these to be any less than partnerships, with the superadded privileges of succession, of a corporate seal, etc., we for- get that corporations are no longer confined to the exercise of public or political franchises. These commercial, manufacturing, and trad- ing bodies are brought into relation with almost every member of the 200 BISSELL V. RAILROAD COMPANIES. [CHAP. V. community ; and I think it greatly to be desired, that, in laying down the rules of law which are to govern in such relations, we should avoid a system of destructive technicalities. Those rules should be founded in the principles of justice which are recognized in other and analogous dealings among men. If we could find the law to be settled in the manner which must be, and is contended for, in order to exonerate the defendants in this case from responsibility, it would be our duty to follow it ; but such is not the case. There are, certainly, judicial opinions, and some adjudged cases, which countenance the extreme doctrines on which the defence must rest. Among these cases, a leading one is Hood v. Nevi York and New Haven Railroad Company (22 Conn. 502). That case appears to go the length of holding that corporations cannot, and never do, perform acts in excess of their powers. No authority was cited for such a proposition, and it cannot, as I think I have shown, be maintained. Another extreme authority is Pearce v. Madison and Indianapolis Railroad Company (21 How. 442), where it appeared that a corporation, in furtherance of its general objects, although, strictly speaking, in excess of its powers, had entered into an engagement, upon a consideration which it had received and ap- propriated ; it was allowed to repudiate that engagement ; but the principles of the question were not much discussed. A considerable number of other cases and dicta, of a character less marked, but tending in the same direction, might be referred to. But, on the other hand, there are well-considered authorities which sustain the, principles advocated in this opinion. Steam Navigation Co. V. Weed (17 Barb. 378) ; Silver Lake Bank v. NoHh (4 Johns. Ch. 370) ; Chester Glass Co. v. Dewey (16 Mass. 94, 102) ; Bank of Genesee V. Patchin Bank (13 N. Y. 309, 314) ; Bulkley v. Derby Flxhing Co. (2 Conn: 252, 255) ; Parker v. Boston and Maine R. R. (3 Cu^) ; The Chester Glass Co. v. Dewey (16 Mass. 94) ; Steam Boat Co. V. McCntcheon (13 Penn. St. 13); Palmer v. Laivrence (3 Sandf. 161) ; Potter v. The Bank of Ithaca (5 Hill, N. Y. 490) ; Suydam v. The Morris Canal and Banking Co. (5 Hill, K. Y. 491, note a) ; The Sacket's Harbor Bank v. The Lewis Gou7ity Bank (11 Barb. 213). We refer, in support of the rule, to the following additional au- thorities, which we have examined : Mott v. The IT. S. Tru.it Co. (10 Barb. 568) ; Bank v. Hammond (1 Rich. 281) ; Southern, etc. Go. v. Lanier (5 Pla. 110) ; The San Francisco Gas Co. v. The City of San Francisco (9 Cal. 453) ; Argenti v. City of San Francisco (16 Cal. 255) ; Little v. O'Brien (9 Mass. 403). It is not claimed in the case under consideration that there^ was CHAl'. v.] INSURANCE COMPANY V. McCLELLAND. 227 any statute by which the street railway company was prohibited from entering into the contract in question, or in other words, that in making the contract that company violated any statute by which the act was prohibited. All that is claimed is, that there was a want of power on the part of the corporation to bind itself by the contract. It is fully shown on the part of the plaintifP, that the State Board of Agriculture performed the contract on its part. The street railway company has thus received the benefits and advantages of the con- tract, but seeks to avoid paying the consideration promised, because it had not the legal power to contract for the benefits which it has actually received. In our opinion, the street railway company is not at liberty to assume this position. It has received the profits result- ing from the compliance of the plaintiff with the contract. These profits, we are at liberty to presume, have gone to swell the divi- dends of the stockholders in that corporation. It would be unjust for their company now to escape performance of the contract by which these profits have been realized. We have not examined to see what the present state of the law is on this subject in the Eng- lish courts. We have considered the case without reference to the allegation in the complaint that the contract was made with the as- sent of the stockholders of the street railway company. If the street railway company has incurred a forfeiture of its chartered rights by the act done, that is a question for it to settle with the State. No question is discussed or decided relating to the validity of the contract, except so far as relates to the power of the street railway company to bind itself thereby, under the circumstances. The judgment is reversed, with costs, and the cause . remanded for further proceedings. BusKiKK, C. J., dissents. INSURANCE COMPANY v. McCLELLAND. (9 Colo 11. 1885.) Appeal from the District Court of Larimer County. Stone, J. : — The sole question in this case is whether the appellant can avail itself of the ultra vires of the contract upon which its liability, if any, arises, as a defence to the action. The complaint of appellee, the plaintiif below, is as follows : — Plaintiff states that the defendant is a corporation duly organized and incorporated under the laws of the State of Colorado, and doing business in Larimer County in the State of Colorado as a general fire and hail insurance company. 228 INSURANCE COMPANY V. McCLELLAND. [CHAP. \'. " Plaintiff, for cause of action, states : 1. That on or about the 12th day of June, 1882, plaintiff was the owner of certain growing crops, situate on the east half of the northeast quarter and the north half of the southeast half of section 2, township 6, range 69 west, and southwest quarter section 35, township 7, range 69 west, in Larimer County, State of Colorado. "2. That on the said 12th day of June, 1882, the defendant in its said capacity of an insurance company contracted and agreed with the plaintiff, for and in consideration of the sum of $61.03, $3 of which said sum was then and there paid by plaintiff to defend- ant, and the balance of which said sum, amounting to $58.03, was then and there evidenced by a promissory note made due a,nd pay- able on the 1st day of November, 1882, executed and delivered by plaintiff to defendant, and by defendant accepted, to insure the plaintiff in the sum of $1,935 against loss or damage to the afore- said growing crop by reason of injury to or destruction thereof by hail, and did then and there by its certain policy of insurance dated on the said 12th day of June, 1882, duly signed by Archie C. Fisk, its president, and R. P. Goddard, its secretary, and countersigned by Jesse Harris, its duly authorized agent, and by defendant delivered to plaintiff, insure plaintiff for the term of one year from the date of said policy against loss or damage to his said growing crops by reason of the destruction thereof or any injury thereto that might be caused by hail, and did by the terms and stipulations contained in said policy, and for and in consideration of the said sum of $61.03, prom- ise and agree to make good unto the plaintiff all such immediate loss or damage as might occur by reason of hail to the aforesaid growing crops from the said 12th day of June, 1882, to the 12th day of June, 1883, in the sum of $1,935, to be paid sixty days after due notice and proof of such loss or damage. "3. That said insurance covered and applied to plaintiff's said growing crops as follows, to .wit: .On sixty-five acres of wheat not to exceed, in case of loss, $15 per acre, or $975. On six acres of oats not to exceed, in case of loss, $15 per acre, or $90. On one hundred and twenty acres of wheat, not to exceed, in case of loss, $6 per acre, or $720. On one acre of strawberries, not to exceed, in case of loss, $150 per acre. " 4. That by the terms and conditions of said policy of insurance, the defendant contracted and agreed that in the event of injury, loss, or damage to plaintiff's said growing crops or any part thereof, not amounting to a total destruction thereof, such damage or injury should be appraised by disinterested and competent persons to be mutually agreed upon by plaintiff and defendant, unless the amount of such damages should be agreed upon between the plaintiff and defendant. " 5. That on the 19th day of June, 1882, plaintiff's said growing crops were injured and damaged by hail to the amount of $1,500, OHAP. v.] INSDliANCE COMPANY V. MCCLELLAND. 229 and the plaintiff sustained damage and loss thereby in respect of his said growing crops in the said sum of $1,600. " 6. That on the 19th day of June, 1882, plaintiff gave defendant due notice of plaintiff's said loss and damage. "7. That on the 22d day of June, 1882, plaintiff rendered to defendant a particular account of said loss and damage verified by the affidavit of plaintiff. " 8. That said crops not being totally destroyed by said hail, and the plaintiff and defendant not being able to agree upon the amount of said damages so sustained by plaintiff, the plaintiff and defend- ant mutually agreed upon W. F. Watrous and Charles Warren, two disinterested and competent persons, as appraisers to assess and appraise the amount of damages and loss so sustained by plaintiff. " 9. That the said W. F. Watrous and Charles Warren did then and there, on the 22d day of June, 1882, appraise the damage and injury to plaintiff's said crops caused by the injury thereto by hail as aforesaid, at the sum of $1,500 as follows, to wit: — "' To plaintiff's said sixty-five acres of wheat hereinbefore men- tioned as insured for $975, said appraisers assessed and appraised the damages at the sum of $780. To plaintiff's said six acres of oats hereinbefore mentioned as insured at and for $90, said appraisers assessed and appraised the damages at $90. To plaintiff's said one hundred and twenty acres of wheat hereinbefore mentioned as in- sured for $720, said appraisers assessed and appraised the damages at 1480 ; and to plaintiff's said one acre of strawberries hereinbefore mentioned as insured for $150, said appraisers assessed and ap- praised the damages at $150; which said appraisement represented the true damage and injury done to plaintiff's said growing crops by said hail. "10. That said appraisers, on the 22d day of June, 1882, made out and delivered to defendant a statement or report in writing, verified by their affidavits, setting out in detail their said appraise- ment of the damages aforesaid as herein averred and set forth. " 11. That more than sixty days have elapsed since the aforesaid notice and proof of plaintiff's loss and damage were received by de- fendant at its office, and that defendant has wholly failed, neglected, and refused to pay plaintiff the said sum of $1,500, or any part thereof, and has failed and refused to make good or pay plaintiff for his said loss and damage, or any part thereof. " Wherefore plaintiff prays judgment for $1,500, together with interest and costs of suit, and for general relief." The amended answer of the appellant company, the defendant below, " denies that on the 19th day of June, 1882, or at any other time, plaintiff's growing crops were injured or damaged by hail to the amount of $1,500, or any other amount, or that plaintiff sus- tained damage or loss thereby in respect of his growing crops in the said sum of $1,500, or any other sum. 23J INSURANCE COMPANY V. McCLELLAND. [CHAP. V. "Denies that the plaintiff and defendant mutually agreed upon W. F. Watrous and Charles Warren, or either of them, or any other person or persons, as appraisers to assess or appraise the amount of damage or loss so pretended to be sustained by plaintiff, or that said pretended appraisers acted by any authority whatever, but avers that all and each part of said pretended appraisement, and each and every act of said pretended appraisers in the behalf mentioned in said complaint, were without authority, irregular, illegal, and void. "Defendant for a second and separate defence to the complaint herein states that it is a corporation duly incorporated under and by virtue of the laws of the State of Colorado, and doing business in said county of Larimer ; . . . that said articles of incorporation were duly filed and recorded in the office of the secretary of State of Colorado on the 26tli day of August, a. d. 1881, and were duly filed and recorded in the office of the county clerk and recorder in and for said Larimer County long before the 12th day of June, a. d. 1882, and long before the alleged contract between plaintiff and defendant was made. " Defendant further states that, by virtue of said articles of incor- poration, neither the said The Denver Fire Insurance Company, its directors, stockholders, or officers, had or have any right, power, or authority to enter into or make any contracts with plaintiff or any one by which said company could insure growing crops of any kind against loss or damage by hail, but that all and each of the several acts of the said The Denver Fire Insurance Company, its directors, stockholders, and officers, which are alleged and set forth in the complaint herein in reference to the making of said alleged contract with plaintiff, and to the insurance and making of the alleged policy of insurance to plaintiff, and all other acts with reference to the terms of the said policy, and the alleged agreement to arbitrate any loss of plaintiff, and the alleged appointment and finding and ap- praisement of said alleged arbitrators, are absolutely null and void, each and every act being beyond the scope and power vested by the said articles of incorporation in defendant, its directors, stockholders, and officers. "Defendant further states that it is willing to return all that it has received from plaintiff by reason of said alleged policy of in- surance, to wit, $3; and plaintiff's said promissory note for $58.03. Wherefore defendant, asks to be discharged with costs." The articles of incorporation are set out in full in the foregoing answer, that portion which is material to the question before us being as follows : — " Know all men by these presents, that we, Archie C. Fisk, Samuel S. Griswold, and Frederick Michel, residents of the State of Colorado, have associated ourselves together under the name and style of The Denver Fire Insurance Company,- for the purpose of becoming a body corporate and politic, under and by virtue of the laws of the State of CHAP, v.] INSURANCE COMrA>'Y t?. MCCLELLAND. 231 Colorado, and in accordance with the laws of the said State. We hereby make, and execute, and acknowledge three hundred original certificates, in writing, of our intention to become a body corporate under and by virtue of said laws. "1. Tlie corporate name and style shall be The Denver Fire Insurance Company. " 2. The objects for which this company is formed are to become a body corporate and politic, with power to sue and be sued, to insure buildings of all kinds erected or in process of erection, goods, wares, and mercliandise, machinery, mills, factories, smelters, foundries, machine shops, breweries, and personal property of every description, whether in store, transit, or use, from loss or damage by fire, and generally do and transact all business necessary to effectually secure indemnity from loss or casualty by fire or lightning, and all other business transacted by fire insurance companies, — to borrow and loan money, take mortgages, trust deeds or other securities, and to pledge the property and franchise of the company, both real and personal ; to acquire l)y purchase, leases, entry, grant, devise, or gift, or other- wise, real estate or other property, and to dispose of said property at pleasure, and to perform any and all lawful acts which tlie directors or stockholders may deem necessary for the successful prosecution of the business of the company." Appellee demurred to this pecond defence. The demurrer was sustained, and the appellant electing to stand by the answer, the damages were assessed by a jury, who returned a verdict for #1,266.50, and judgment therefor was thereupon rendered by the court. The errors assigned go to the sustaining of the said de- murrer and the judgment rendered. The authorities cited on both sides of the case are very numerous. Questions touching the ultra vires of corporations have been before the courts of probably every State in some shape, and various phases of the question have been considered by the Federal courts, while standard text-books are full of research and discussion upon the entire subject. We have examined these authorities with care, but a review of them would be unnecessary labor, since both English and American authorities have been collated and discussed fully in many of the leading cases cited by counsel in their briefs filed in the case. In respect to the precise question before us, there is apparently much conflict of opinion in the decisions of the courts, such conflict being in many oases apparent only, and in others squarely antagonistic. It is quite well settled as a general rule that a corporation possesses only such lawful powers as are expressly conferred by its charter, and such as are clearly incidental or impliedly requisite for carrying out the declared objects and purposes of its creation. On the one hand, it is held by some authorities that acts of a cor- poration in excess of the powers limited by the foregoing rule are illegal, that any contract made in such excess of lawful authority is 232 INSURANCE COMPANY V. MCCLELLAND. [CHAP. V. void and not enforceable, and that neither party to an action founded thereon is estopped to plead the ultra vires of the contract in bar of such action. On the other hand, it has come to be the settled doctrine of several States that a corporation may be estopped to deny its authority to enter into a contract which has been executed, and from which it has derived the benefit which it thereby sought. There seems to be a growing tendency to this doctrine in modern decisions in this country, and it is also supported by the authority of English cases. As is said in Parish v. Wheeler (22 N. Y. 494), a leading case upon this subject in the United States : " The executed dealings of corporations must be allowed to stand for and against both parties where the plainest rules of good faith require." Mr. Waterman, in his late excellent treatise upon the specific per- formance of contracts, says that it is now settled that a corporation cannot avail itself of the defence of ultra vires, when the contract has been in good faith fully performed by the other party, and the corpo- ration, has had the full benefit of the performance and of the contract (Sec. 226). So if the other party has had the benefit of a contract fully performed by the corporation, he will not be heard to object that the contract and performance were not within the legitimate powers of the corporation. In the case before us the contract, as made by the parties, appears to have been fully executed on the part of the appellee, so far as his right of action when brought was affected by it. He had paid a small portion of money on the amount of the premium agreed to be paid, and had given a promissory note for the balance. This was all he had agreed to do ; a,ll that had been exacted of him by the insurance company, and this he had performed. It matters not that the note had not been paid, for it was not due when his right of action accrued and when he brought his suit. It is not contended that the payment of the note was a condition precedent to his right of action against the company, since, at the time of bringing the action, the note lacked two months of maturity, and there was nothing to be done or performed by him under the con- tract. The performance already made by the appellee had been accepted by the appellant company, and so far as it was concerned, the execution of the note was the same as a cash payment in full of the amount ; the company had the benefit thereof. It is argued on behalf of the appellant that the courts ought in all such cases to sustain the defence of idtra vires, here interposed, on the ground of public policy, that the public which confers the corporate powers upon such companies has an interest in the protection of innocent stock- holders and creditors of such companies by confining the exercise of corporate powers strictly within their authorized limits, and this is given in the books as the chief reason for the rule of decision in the cases which sustain the defence of ultra vires. CHAP, v.] INSURANCE COMPANY V. MoCLELLAND. 233 That the public has such an interest is quite true, but whether to afford such protection the defence of ultra vires is always necessary in such cases is another thing. Stockholders are but one portion of the public ; another portion, with equal rights of protection, is that with whom these multiform corporations deal in the daily exercise of their assumed powers. And it seems illogical to assume that the interests of the public would be best subserved by a public policy which will allow a corporation, any more than an individual, to vio- late the principles of common honesty and claim exemption from the obligation of its contracts by pleading its own wrong-doing. Such policy would rather seem to offer a premium for dishonest dealing. Besides, both the State which grants these corporate powers, and the stockholders for whose benefit such powers are exercised, have their remedies, the former by interfering to revoke the charter, and the latter by an action to restrain the unauthorized undertakings. While courts are inclined to maintain with vigor the limitations of corporate actions, whenever it is a question of restraining the corporation in advance from passing beyond the boundaries of their charters, they are equally inclined, on the other hand, to enforce against them contracts, though ultra vires, of which they have re- ceived the benefit. If the other party proceeds to the performance of the contract, expending his money and labor in the production of values, which the corporation appropriates, such corporation v/ill not be excused on the plea that the contract was beyond its powers. Bradley v. Ballard (55 111. 413). Corporations have the capacity to do wrong, and may overstep the limits placed by the law to their powers, and when they vio- late their charters in this respect their acts are illegal, but not necessarily void. Bissell v. Mich., &c. R. B. Co. (22 N. Y. 258). The plea of ultra vires is not to be understood as an absolute and peremptory defence in all cases of excess of power without regard to other circumstances and considerations. The plea is not to be entertained where its allowance will do great wrong to in- nocent third persons. Bissell v. Mich.,&c.B. R. Go. (22 K Y. 258). Where a certain act is prohibited by statute, its performance is to be held void because such is the legislative will. So where the consideration of a contract is by law illegal, as where the cause of action arises ex turpe. Rut where the act is not wrong per se, where the contract is for a purpose lawful in itself, has been entered into with good faith, and fairly executed by the party who seeks to enforce it, we must assent to the doctrine of those author- ities which hold that the excess of the corporate powers of the contracting party which has received the benefit of the contract is an unconscionable defence, which may not be set up to exempt from liability the party so pleading it. And such, we think, is the case before us. The answer of the insurance company does not deny the aver- 234 INSURANCE COMPANY V. McCLELLAND. [CHAl'. V. nieut in the complaint that the eoinpauy " was doing business in Larimer County, in the State of Colorado, as a general fire and hail insurance company." It does not deny that it entered into the contract of insurance with the appellee in the manner and form as alleged in said complaint, nor that the contract was exe- cuted as averred. The sole defence upon which the appellant com- pany relies here is its want of authority to insure against hail. By offering to insure the property of ajipellee against damage by hail, and by entering into the contract of insurance therefor, it claimed to pos- sess the power so to do. It took the appellee's money and assumed the risk and obligation of paying the damage, much or little, that might occur, or of having nothing at all to pay, if the contingency of damage should not happen within the time covered by the policy. A loss having occurred, the company seeks exemption from the obligation it entered into by denying that it had any authority to do what it asserted the right to do when it voluntarily assumed the undertaking. We are aware that the. courts have been very slow to concede that a defendant setting up as a defence the ultra vires of a contract, where said contract was clearly not authorized, should be held liable on the contract, since this would appear to sustain the enforcement of an unauthorized contract, and therefore the cases show that when- ever the courts could avoid this seeming inconsistency by resting the recovery upon some other ground, they have done so. This has often led to equal inconsistency in other directions. The true ground would seem to be that of equitable estoppel, wkereby the defendant is not permitted to rely upon or show the invalidity of the contract. In such case, the contract is assumed by the court to be valid, the party seeking to avoid it not being permitted to attack its character in this respect. The point was strongly insisted upon by counsel for appellant in argument, that one dealing with a corporation is bound to know the extent of its powers to contract, that the corporate name itself in- dicates the scope of its business, and the record of its charter or articles of incorporation furnishes notice of the extent and limita- tion of its corporate powers and authority to contract. While as a general proposition this is true, yet it must be con- ceded that this constructive notice is of a very vague and shadowy character. Every one may have access to the statutes of the States affecting companies incorporated thereunder, and to their articles of incorporation, but to impute a knowledge of the probable construc- tion the courts would put upon these statutes and articles of incor- poration to determine questions raised upon a given contract proposed, is carrying the doctrine of notice to an extent which can only be denominated preposterous. It was in answer to the same point that Chief Justice Corastoek observed, in his opinion in a leading UHAP. V.J IXSUKANCE COMPANY V. McCLELLAND. ' 235 case upon this question, that " a traveller from New Yorlc to Missis- sippi can hardly be required to furnish himself with the charters of all the railroads on his route, or to study a treatise on the law of corporations." Bisse/l v. M. S. & JSf. J. R. B. Co. (22 N. Y. 258). It was urged in argument on behalf of appellant that the State, which created these corporations for public good, has such an in- terest in their existence and perpetuity, that public policy shoiild be interposed to keep them within the legitimate exercise of their powers. This may be true to a certain extent, and the State may interpose to revoke their charters for an abuse thereof ; but we take it that it is no more the public policy of the State to protect the business of private corporations than that of its individual citizens ; and to invoke public policy in a case like the one at bar, in order to prevent a corporation from doing wrong, by punishing the other party, would differ little from asking a court, on the ground of public policy, to prevent the obtaining money or goods through false pre- tences by holding that the party defrauded should be punished by the loss of his money or goods. While such wrong may be prevented by interference on the part of the State, or stockholders of the company, it cannot well be said that to cure the evil it is necessary in every case to exempt the com- pany from the liability of its unauthorized engagements. The principle of estoppel by conduct is the same principle which is applied by courts in holding that the statute of frauds, by which, under the general rule, a contract would be void, is never to be used for the protection of a fraud. The essential elements of an estoppel by conduct a»e laid down by this court, in Griffith v. Wright (6 Colo. 248) to be that : 1. There must have been a representation or concealment of material facts. 2. The representations must have been made with knowledge of the facts, unless the party representing was bound to know them, or that ignorance thereof was the result of gross negligence. 3. The party to whom it was made must have been ignorant of the truth of the matter. 4. It must have been made with the intention that the other party should act upon it; but gross and culpable negligence on the part of the party sought to be estopped, the effect of which is to make a fraud on the party setting up the es- toppel, supplies the place of intent. 5. The other party must have been induced to act upon it. The case before us seems to be fairly brought within the foregoing rules and definitions. The insurance company, through its agents, not only concealed the want of author- ity to insure against hail, which it now sets up, but its open noto- rious acts in soliciting policies of this character throughout the country impliedly held out and represented its authority for such business. Such agent was certainly bound to know the extent of the au- thority of the company he represented, and if his acts in the prem- 236 INSURANCE COMPANY V. MCCLELLAND. [OHAP. V. ises were not clone with full knowledge of the facts, his ignorance in this respect was gross and culpable negligence. That the appellee was ignorant of the truth of the matter of want of authority in the company is not denied by the appellant company, except by an inference which, it is argued, is to be drawn, that the articles of incorporation and the record thereof furnished construc- tive notice of the extent of authority of said company. But it seems to us that such an inference is rebutted by the presumption fairly arising from the nature of the transaction ; that the appellee would not have paid his money for the performance of a promise which he knew was void, that its performance could not be en- forced, and that his money would be utterly thrown away. That the oifer of the appellant to insure, and the representations made to induce the appellee to enter into the contract of insurance, were made with the intent that the appellee should act thereon, is self-evident from the nature of the transaction, and the acceptance by the appellee of the offer so made by the appellant ; and that the appellee was induced to act upon the offer and representations so made is equally apparent, for the act was an obvious sequence of the inducement. It was strenuously contended by counsel for appellant in the oral argument of this case that whether the contract in a case of this kind is executed or not is immaterial ; that the true grounds of lia- bility depend upon, and should be placed upon, the fact of whether the elements of estoppel exist, — whether the conduct of one party has been such as that the other party would be defrauded or injured thereby unless the contract should be enforced. However this may be in respect to the other cases, or as a general rule, we are quite willing to assent to this view in the particular case before us, and to rest our decision upon the ground of estoppel by the conduct of the appellant company. We do not say that the directors or acting officers of such company may act in excess of their legitimate powers against the intereets and contrary to the will of the stockholders of such company, but while admitting the excess of proper authority, we think, on prin- ciple and the weight of modern decisions, that if the stockholders, whose business it is to see that their own managing officers act within the proper scope of their powers, either expressly, or by silence im- pliedly, assent to acts done on their behalf in excess of authority, they should be held estopped to deny that such acts were authorized. The appellant company here offered to pay back the money and return or cancel the note given for the policy, and counsel urgently contended that this is all that legally can or rightfully ought to be exacted. This would not place bhe appellee in statu quo. Every insurance company would be ready and willing to do that much after the loss had occurred, on condition of exemption from pay- ment of the loss. The damage to appellee is the loss of his crops CHAP, v.] INSURANCE COMPANY V. MCCLELLAND. 237 against which the appellant undertook to secure liim. After the loss it was too late for appellee to insure in another company having unquestioned authority to insure against such loss. We therefore conclude that since the contract of insurance, tiiough it may have been beyond the scope of the proper object and purposes of the company as expressed and conferred by their articles of in- corporation, was neither by statute nor by their charter expressly forbidden, nor in its nature illegal or improper, and since the con- duct of the company in soliciting the insurance and entering into the contract therefor under the circumstances disclosed by this 'case, was such that to exempt it from its engagements thereunder would result in injuring and defrauding the appellee, who in good faith dealt with the company under the belief of its rightful authority in the premises, the defence of the appellant company interposed against its liability on the contract is inequitable, un- conscionable, and should not be allowed. It is admitted that a contract is not enforceable when prohibited by statute ; when not so prohibited, however, and when not illegal or immoral in its nature, nor contrary to sound public policy, a con- tract even ultra vires may be enforced, when, under the circum- stances of its execution, every consideration of justice requires it. This is the ground of decision in most of the cases relied upon by the appellee in the case. As is said by the Supreme Court of the United States in the case of Zabriskie v. CI., Col. & Gin. B. R. Co. et al. (23 How. 400), — " A corporation, quite as much as an individual, is held to a careful adherence to truth in their dealings with mankind, and cannot, by their representations or silence, involve others in onerous engage- ments, and then defeat the calculations and claim their own conduct has superinduced." Among the many authorities examined in support of our views in this ca.se, we cite the following : Parish v. Wheeler (22 N. Y. 503) ; Bissell V. M. S., etc. R. R. Co. (id. 258) ; Bradley v. Ballard (55 111. 413) ; Whitnetj Arms Co. v. Barlow (63 N. Y. 69) ; Darst v. Gale (83 111. 141) ; State B'd of Ayr. v. Citizens' Street R'y Co. (47 Ind. 407) ; Oil Cr., etc. R. R. Go. v. Pa. Trans. Co. (83 Pa. St. 166) ; Ar- genti v. City of San Francisco (16 Cal. 255) ; State of Ind. v. Woram (6 Hill, 37) ; Converse v. Norwich & N. Y. Trans. Co. (33 Conn. 180) ; modifying the doctrine in the case of Hood v. N. Y. & N. If. R. R. Co. (22 Conn. 502) ; Chicago Build. Soc. v. Crowell (65 111. 453) ; Ward V. Johnson et al. (95 111. 215-240) ; Zabriskie v. CI, Col. & Gin. R. R. Co. et al. (23 How. 398-401) ; Hitchcock v. Galveston (96 IJ. S. 341- 351) ; Nat. Bank v. Matthews (98 id. 621) ; Manville v. Belden M. Co. (MoCrary, J. U. S. Cir. Ct.) (3 Col. Law, 558) ; Green's Brice's Ultra Vires 371, and cases cited; Sedgwick's Stat, and Const. L. 90; Waterman's Specific Perf. Cont. (cited supra). The judgment of the court below is affirmed. Affirmed. 238 INSURANCE COMPANY V. McCLELLAND. [OHAP. V. Beck, C. J., and Helm, J., concurring : — Private corporations are creatures of statute, and derive their powers solely therefrom. Upon weighty considerations of public policy, and of private equity as well, the principle has been uni- versally recognized that the charters or general laws through which these corporations derive their existence absolutely control their action; that a contract made or an act done by them which is not in any manner authorized by some express provision of the charter or law of incorporation, or which may not be clearly implied therefrom, is ultra vires ; and that such usurpation of power may be relied upon as a complete defence to a suit growing out of the unauthorized act or contract. But, for the purpose of avoiding the infliction of manifest injustice in given cases, many courts of the highest respectability have seen fit to recognize an exception to the foregoing doctrine. This exception, ■when admitted, is always based upon principles largely analogous to those supporting equitable estoppels. The decisions recognizing it hold that where a corporation receives and retains the full benefit of a contract, and a failure to perform on its side would result in pal- pable injustice to the other contracting party, it is estopped from escaping liability thereunder through a plea of ultra vires. We are inclined to the opinion that cases sometimes arise wherein this exception, properly understood and limited, should be held appli- cable. If a private corporation has accepted and retained the full benefits of a contract which it had no power to make, the same having been performed by the other party thereto ; and if the transaction is of such a nature that the party thus performing will suffer manifest injustice and hardship unless permitted to maintain his action directly upon the contract, no other adequate relief being at his command, we think the defence of ultra vires may be disallowed. This, however, does not do away with the objectionable character of the unauthorized contract. It admits the legal wrong committed by the usurpation of power, but denies the equitable right of the corporation to profit through such wrong at the expense of parties contracting with it ; the corporation, having received and retained the benefit of the. con- tract, is denied the privilege of invoking the illegality of its act, and ■ thus avoiding consequences naturally flowing therefrom. The circumstances attending and surrounding the transaction now before us, in our judgment, render this an appropriate case for the application of the foregoing equitable doctrine. For this reason we concur in the conclusion arrived at by Mr. Justice Stone, who writes the principal opinion. Affirmed. CUAP. v.] WHITE V. FRANKLIN BANK. 239 WHITE V. FEANKLIN BANK. (22 Pick. 181. 1839.) By an agreed statement of facts, it appeared, that on the 10th of February, 1837, the plaintiff deposited with the defendants the sum of $2,000, and received from them a book containing the following words and figures, to wit : — "Dr. Franklin Bank, in account with B. F. White, Cr., 1837, Feb. 10th. To cash deposited, $2,000. The above deposit to remain until the 10th day of August. E. F. Bunnell, Cashier." It further appeared, that on the 7th of July, 1837, the plaintiff brought this action against the bank to recover the money so de- posited by him, declaring on the money counts, and on an account stated. If the Court should be of opinion, that the action could be main- tained, the defendants were to be defaulted and judgment rendered for the sum of $2,000 with interest ; otherwise the plaintiff was to become nonsuit. Wilde, J., delivered the opinion of the Court : — The first ground of the defence is, that the action was jjrematurely commenced. The entry in the book given to the plaintiff by the cashier of the bank, is undoubtedly good evidence of a promise to pay the amount of the deposit on the 10th day of August ; and if this was a valid and legal promise this action cannot be maintained. But it is very clear, that this promise or agreement that the deposit should remain in the bank for the time limited, is void by virtue of the Revised Stat. c. 36, § 57, which provides that no bank shall make or issue any note, bill, check, draft, acceptance, certificate, or contract, in any form whatever, for the payment of money, at any future day certain, or with interest, excepting for money that may be borrowed of the Commonwealth, with other exceptioiis not material in the present case. The agreement that the deposit should remain until the 10th day of August amounts in law, by the obvious construction and -meaning of it, to a promise to pay on that day. This, therefore, was an illegal contract and a direct contravention of the statute. Such a promise is void; and no court will lend its aid to enforce it. This is a well- settled principle of law. It was fully discussed and considered in the case of Wheeler v. Russell (17 Mass. R. 281), and the late Chief Justice, in delivering the opinion of the Court, remarked, " that no principle of law is better settled, than that no action will lie upon a contract made in violation of a statute or of a principle of the com- 240 WHITE V. FRANKLIN BANK. [CHAP. V. mori law." The same principle is laid down in Springfield Bank v. Merrick (14 Mass. R. 322), and in Russell v. Be Grand (15 Mass. R. 39). In Belding v. Pitkin (2 Gaines's R. 149), Thompson, J., said, " It is a first principle, and not to be touched, that a contract, in order to be binding, must be lawful." The same principle is fully established by the English authorities. In Shiffner v. Gordon (12 East, 304), Lord Ellenborough laid it down as a settled rule, " that where a con- tract which is illegal remains to be executed, the Court will not assist either party, in an action to recover for the non-execution of it." It is therefore very clear, we think, that no action can be main- tained on the defendants' express promise, and that, if the plaintiff be entitled to recover in any form of action, it must be founded on an implied promise. The second objection, and that on which the defendants' counsel principally rely, proceeds on the admission that the contract is illegal ; and they insist that where money has been paid by one of two parties to the other, on an illegal contract, both being participes criminis, no action can be maintained to recover it back. The rule of law is so laid down by Lord Kenyon, in Howson v. Hancock (8 T. R. 577), and in other cases. This rule may be correctly stated in respect to contracts involving any moral turpitude, but when the contract is merely malum prohibitum, the rule must be taken with some qualifi- cations and exceptions, without which it cannot be reconciled with many decided cases. The rule as stated by Comyns, in his treatise on Contracts, will reconcile most of the cases which are apparently conflicting. " When money has been paid upon an illegal contract, it is a general rule that if the contract be executed, and both parties are in pari delicto, neither of them can recover from the other the money so paid ; but if the contract continues executory, and the party pay- ing the money be desirous of rescinding it, he may do so, and recover back his deposit by action of indebitatus assumpsit for money had and received. And this distinction is taken in the books, namely, where the action is in affirmance of an illegal contract, the object of which is to enforce the performance of an engagement prohibited by law, clearly such an action can in no case be maintained ; but where the action proceeds in disaffirmance of such a contract, and, instead of endeavoring to enforce it, presumes it to be void and seeks to pre- vent the defendant from retaining the benefit which he derived from an unlawful act, there it is consonant to the spirit and policy of the law that the plaintiff should recover." 2 Com. on Contr. 109. The rule, with these qualifications and distinctions, is well sup- ported by the cases collected in Comyns and by later decisions. The question then is, whether, in conformity with these principles, upon the facts agreed, this action can be maintained. The first ground on which the plaintiff's counsel rely, in answer to the defendants' objection is, that there was no illegality in making the deposit, and that the illegality of the transaction is confined to CHAP, v.] WHITE v.. FRANKLIN BANK. 241 the promise of the bank, and the security given for the repayment, that alone being prohibited by the statute. The leading case on this point is that of Robinson v. Bland (2 Burr. 1077). That was an action on a bill of exchange given for money lent and for money won at play. By the St. 9 Anne, c. 14, it was enacted that all notes, bills, bonds, judgments, mortgages, or other securities for money won or lent at play, should be utterly void. The Court held, that the plaintiff was not entitled to recover on the bill of exchange, but that he might recover on the money counts for the money lent, although it was lent at the same time and place that the other money for which the bill was given was won. The same principle was laid down in the cases of Utica Ins. Co. v. Scott (19 Johns. R. 1) ; Utiea Ins. Co. v. Caldwell (3 Wendell, 296), and Utica, Ins. Co. v. Bloodgood (4 Wendell, 652). In these cases the decisions were, that although the notes were illegal and void as se- curities, yet that the money lent, for which the notes were given, might be recovered back. The principle of law established by these decisions is applicable to the present case. The only doubt arises from the meaning of the word " contract," in the prohibitory statute. But taking that word in connection with the other words of prohibi- tion, we think it equivalent to the promise of the bank, and that the intention of the Legislature was to prohibit the making or issuing of any security in any form whatever, for the payment of money at any future day. The next answer to the objection of the defendants is, that al- though the plaintiff may be considered as being particeps criminis with the defendants, they are not in pari delicto. It is not univer- sally true, that a party, who pays money as the consideration of an illegal contract, cannot recover it back. Where the parties are not in pari delicto, the rule potior est conditio defendentis is not applica- ble. In Lacaussade v. White (7 T. R. 535), the Court say, " that it was more consonant to the principles of sound policy and justice, that wherever money has been paid upon an illegal consideration it may be recovered back again by the party who has thus improperly paid it, than, by denying the remedy, to give effect to the illegal contract." This principle however, is not by law allowed to operate in favor of either party, where the illegality of the contract arises from any moral turpitude. In such cases the court will not undertake to as- certain the relative guilt of the parties or afford relief to either. But where money is paid on a contract which is merely prohibited by statute, and the receiver is the principal offender, he may be com- pelled to refund. This is not only consonant to the principles of sound policy and justice, but is now so settled by authority, whatever doubts may have been entertained respecting it in former times. In the case of Smith v. Bromley (2 Dougl. 696, note), it was de- cided, that the plaintiff was entitled to recover in an action for money TOL. I. — 16 242 WHITE V. FRANKLIN BANK. [CHAP. V: had and received, for money paid by the plaintiff to the defendant for the purpose of inducing him to sign the certificate of a bankrupt, the plaintiff's sister. Lord Mansfield laid down the doctrine on this point, which has been repeatedly confirmed. "If the act is in itself immoral, or a violation of the general laws of public policy, there the party paying shall not have this action ; for where both parties are equally criminal against such general laws, the rule is potior est con- ditio defendentis. But there are other laws which are calculated for the protection of the subjects against oppression, extortion, deceit, etc. If such laws are violated, and the defendant takes advantage of the plaintiff's condition or situation, there the plaintiff shall re- cover." And this doctrine was afterwards adhered to and confirmed by the whole Court, in the case of Jones v. Barkley (2 Dougl. 684). On this distinction it has ever since been held, that where usurious interest has been paid, the excess above the legal interest may be recovered back by the borrower in an action for money had and re- ceived. So money paid to a lottery-office keeper as a premium for an illegal insurance, is recoverable back, in an action for money had and' received. Jaques v. Golightly (2 W. Bl. 1073.) But in Browning v. Morris (Cowper, 790), it was decided, that where a lottery-office keeper pays money in consequence of having insured the defendant's tickets, such contract being prohibited by the St. 17 Geo. 3, c. 46, he cannot recover it back, though the premium of insurance paid by the in- sured to the lottery-office keeper might be. The distinction, on which this case was decided, is very material in the present case. Lord Mansfield referred to the determination in Jaques v. Golightly, where it was said, " that the statute is made to protect the ignorant and deluded multitude, who, in hopes of gain and prizes, and not conversant in calculations, are drawn in by the office keepers." And he adds, « It is very material, that the statute itself, by the distinc- tion it makes, has marked the criminal ; for the penalties are all on one side ; upon the office keeper. The man who makes the contract is liable to no penalty. So in usury there is no penalty upon the party who is imposed upon." The same distinction is noticed and enforced by Lord Ellenborough, in Williams v. Hedley (8 East, 378). In that case it was decided, that where money was paid to a plaintiff to compromise a qui tarn action for usury, it might be recovered back in an action for money had and received ; because the prohibition and penalties of the St. 18 Eliz. c. 5, attached only on " the informer or plaintiff, or other person suing out process in the penal action, making composition, etc." It was argued for the defendant in that case, "that as the act of the defendant co-operated with that of the plaintiff in producing the mischief meant to be prevented and re- strained by the statute, it was so far illegal, on the part of the de- fendant himself, as to preclude him from any remedy by suit to recover back money paid by him in furtherance of that object ; and that if he was not therefore to be considered as strictly in pari delicto CHAP, v.] WHITE V. FRANKLIN BANK. 243' "With the plaintiff in the qui tam action, he was at any -rate particeps criminis, and in that respect not entitled to recover from his co-de- linquent, money which he had paid him in the course and prosecution of their mutual crime." This argument was overruled, and Lord EUenborough fully approved the doctrine laid down by Lord Mans- field in Smith v. Bromley, and the decisions in the several cases in which that doctrine had been confirmed. The same distinction has been recognized in other cases, and was adopted by this Court in Worcester v. Eaton (11 Mass. E. 376), in which Parker, C. J., after referring to the above cases, said: "This distinction seems to have been ever afterwards observed in the English courts ; and being founded in sound principle, is worthy of adoption, as a principle of the common law in this country." The principle is, in every respect, applicable to the present case, and is decisive. The prohibition is particularly levelled against the bank, and not against any person dealing with the bank. In the words of Lord Mansfield, « the statute itself, by the distinction it makes, has marked the criminal." The plaintiff is subject to no penalty, but the defendants are liable for the violation of the statute to a forfeiture of their charter. To decide that this action cannot be maintained would be to secure to the defendants the fruits of an ille- gal transaction, and would operate as a temptation to all banks to violate the statute, by taking advantage of the unwary and of those who may have no actual knowledge of the existence of the prohibition of the statute, and who may deal with a bank without any suspicion of the illegality of the transaction on the part of the bank. There is still another ground on which the plaintiff's counsel rely. This action proceeds in disaffirmance of an executory illegal contract, and was commenced before the money which the defendants con- tracted to pay was by the terms of the contract payable ; the plaintiff therefore had a right to rescind the contract, or rather, to treat it as a void contract, and to recover back the consideration money. It was so decided in Walker v. Chapman (Lofft, 342), where money had been paid in order to procure a place in the customs, but the place had not been procured ; and in an action brought by the party who paid the money, it was held that he should recover, because the con- tract continued executory. This case was cited with approbation by BuUer, J., in Lowry v. Bourdieu (2 Dougl. 470) ; and the distinction between contracts executed and executory, he said, was a sound one. The same distinction has been recognized in actions brought to re- cover back money paid on illegal wagers, where both parties were in pari delicto. The case of Tappenden v. Randall (2 Bos. & Pul. 467) was decided on that distinction. Heath, J., said : " It seems to me that the distinction adopted by Mr. Justice Buller between contracts executory and executed, if taken with those modifications which he would necessarily have applied to it, is a sound distinction. Un- doubtedly there may be cases where the contract may be of a nature 244 WHITE V. FRANKLIN BANK. [iDHAP. V. too grossly immoral for the court to enter into any discussion of it ; as where one man has paid money by way of hire to another to mur- der a third person. But where nothing of the kind occurs, I think there ought to be locus panitentioe, and that a party should not be compelled against his will to adhere to the contract." The same dis- tinction is recognized in several other cases. 6 T. B. 405 ; 1 H. Bl. 67 ; 7 T. R. 535 ; 3 Taunt. 277 ; 4 Taunt. 290. In the case of Aubert v. Walsh (3 Taunt. 277) the authorities were considered, and the law was definitely settled as above stated ; and it does not appear that it has ever since been doubted. In Utica Ins. Go. V. Kip (8 Cowen, 20) the same principle is recognized, although the case was not expressly decided on that point. The distinction seems to be founded in wise policy, as it has a tendency in some measure to prevent the execution of unlawful contracts, and can in no case work injustice to either party. It is, however, denied by the defendant's counsel that the contract in question was executory, within the true intent and meaning of these decisions and the doctrine now laid down. This question has not been much discussed, and it is not necessary to decide it in the pres- ent case, the Court being clearly of opinion that the plaintiff is enti- tled to recover on the other grounds mentioned. We have considered the question as to the distinction between executory and executed contracts, because it may be of some importance that the law in that respect should not be supposed to be doubtful in our opinion, which might be inferred, perhaps, if we should leave this question unnoticed. The only remaining question is, whether the plaintiff was bound to make a demand on the bank before he commenced his action. The general rule is, that where money is due and payable, an action will lie without any previous demand. But where money is deposited in a bank in the usual course of business, we should certainly hold that a previous demand would be requisite. But if money should be ob- tained by a bank by fraud, or, as in the present case, by means of an illegal contract, the bank claiming to hold it under such contract, there can be no good reason given why the bank should be exempted from the operation of the general rule. In Clark v. Moody (17 Mass. K. 145) it was held, that if a factor should render an untrue account, claiming a greater credit than he was entitled to, the principal would have a right of action without a demand. If the defendants had sold to the plaintiff a post-note payable at a future day, it could hardly be doubted that an action would lie to re- cover back the consideration money, without any previous demand ; and there seems to be no substantial distinction between such a case and the one in question. Judgment on default. CHAP, v.] NORTHWESTERN PACKET COMPANY V. SHAW, 245 NORTHWESTERN PACKET COMPANY v. SHAW. (37 Wis. 655. 1875.) Appeal from the Circuit Court of La Crosse County. The complaint alleges that the plaintiff is, and since May 1, 1870, and before, has been, a corporation created and organized pursuant to the laws of the State of Iowa, and is, and ever since its organiza- tion has been, engaged in the business of a common carrier on the Mississippi River and its tributaries, and also in the business of pur- chasing, selling, and dealing in wheat and other kinds of grain and produce ; that at Lansing, in the State of Iowa, in June, 1870, the plaintiff, by its duly authorized agent entered into a contract with the defendant to purchase of the latter 4,000 bushels of wheat, to be delivered from the mill of the defendant at that place into the barge of the plaintiff, immediately, and paid the defendant $1,000 on ac- count of such purchase ; and that the plaintiff furnished a suitable barge for said wheat on the day the contract was made ; but that the defendant, although requested to do so, failed to deliver the wheat to the plaintiif, or to repay the $1,000 so advanced to him. The complaint also contains averments that the plaintiff detained the barge thus furnished for several days, and that. the market price of wheat advanced immediately after the contract was made. Judg- ment is demanded for : 1. The $1,000 paid on account of the con- tract ; 2. A specific sum as damages for the breach of contract by the defendant; and 3. A specific sum for the value of the use of the barge while so detained. The defendant admits in his answer the making of a contract with the plaintiff to sell and deliver to it 4,000 bushels of wheat, the pay- ment by the plaintiff of $1,000 on the contract, and the non-delivery of the wheat. The answer also contains allegations to the effect that it was the fault of the plaintiff that the wheat was not delivered, and a counterclaim for damages suffered by the defendant by reason of the failure of the plaintiff to perform the contract on its part. On the trial of the action, the circuit judge held that the plaintiff had no power to make the contract stated in the pleadings ; and the jury, under the direction of the judge, found for the defendant. A motion for a new trial was denied, and judgment for the defendant entered pursuant to the verdict; from which judgment the plaintiff has appealed. Cameron and Losey, for the appellant, argued, that admitting that the contract was void, the company could recover back the money paid upon it. Chitty on Con., 367 ; Brown v. Timmany (20 Ohio, 81) • Boll V. Baguet (4 id. 400) . Oreenman v. Curtis (6 Mass. 381) ; Sampson v. Shaw (101 id. 145) ; MoKee v. Manice (11 Cush. 357) ; 246 NORTHWESTERN PACKET COMPANY V. SHAW. [CHAP. V, Roscoe on Ev., 232. The defendant, being a party to the contract, and having received its benefits, is estopped from denyipg the power of the company to make it. Glass Co. v. Dewey (16 Mass. 94) ; Welland Canal Co. v. Hathaway (8 Wend. 480) ; Burns v. B. B. Co. (9 Wis. 450). The defendant is precluded from setting up such defence. Farmers' & Millers' Bank v. The Ballroad Co. (17 id. 372) ; Bissell V. B. B. Co. (22 N". Y. 258) ; Parish v. Wheeler (id. 494) ■ Bank v. North (4 Johns. Ch. 370) ; Navigation Go. v. Weed (17 Barb. 378) ; State of Indiana v. Woram (6 Hill, 37) ; Steamboat Co. v. Mc- Cutcheon (13 Pa. 14) ; Palmer v. Lawre^ice (3 Sandf. 170) ; Potter V. Bank (5 Hill, 490) ; Suijdam v. Banking Co. (id. 491) ; Bank v. Bank (11 Barb. 213). This case is distinguished -from Madison Plankroad Co. v. WateHown Plankroad Co. (7 Wis. 59). That suit was brought to enforce the executory contract which was held void. Here the suit is to recover money paid on a contract alleged to be ultra vires. Wing and Prentiss, for respondent, to the point that the contract was ultra vires, cited Perrine v. Canal Co. (9 How. (U. S.) 172) ; M. Plankroad Co. v. W. Plankroad Co. (7 Wis. 59) ; Bock Biver Bank v. Sherwood (10 id. 230) ; Janesville Bridge Co. v. Stoughton (1 Pin. 667); Angell & Ames on Corp. §§ 111, 256. They further argued upon the evidence tending to support the counterclaim, and readiness of defendant to perform on his part, that, conceding the contract to be valid, the plaintiff could not recover. Lyon, J. : — The articles of incorporation of the plaintiff were read in evidence on the trial of the cause, and it appears therefrom that the plaintiff was organized under and by virtue of chapter 52 of the revision of 1860 of the laws of Iowa, entitled " Corporations for pecuniary bene- fit.'' The statute was not put in evidence, and we cannot take judi- cial notice of its provisions. The articles set forth the purposes for which the plaintiff was organized as follows : — "It is agreed, first, that the name of the corporation shall be the ' Northwestern Union Packet Company,' and that the general nature of the business shall be, to purchase, charter, buy, build, own, and control vessels to be propelled in whole or in part by steam or other- wise, for the purpose of using them in transportatipn of persons and property on the Mississippi Eiver and its tributaries ; to erect, pur- chase, lease, maintain, and own docks, wharves, warehouses, and any and all kinds of buildings, structures, or fixtures necessary and useful for carrying on the business of navigaton, freighting, forwarding, storing, or transporting property or persons, or for the purpose of building, rebuilding, or repairing vessels of any and every kind. And it is agreed, further, that the corporation shall have power to lease, transfer, assign, convey, and sell any and all of its vessels, steamboats, barges, wharves, warehouses, docks, and all of its prop- erty of every description, and to do any and all acts and things CHAP, v.] NORTHWESTEKN PACKET COMPANY V. SHAW. 247 which may be necessary to an economical and successful prosecution of their said business; and, amongst other powers not hereinbefore enumerated, it is agreed that it shall have power to borrow money in its corporate capacity and name, and in such capacity to make, exe- cute, and deliver to any person or persons, or body corporate or politic, any and all writings, notes, bonds, mortgages on real estate or personal property, or other security of whatsoever name or kind ; to enter into any arrangement, agreement, or contract with any per- son or persons, association, co-partnership, or corporation, in refer- ence to the storing, forwarding, or freighting of any kind of property, by this corporation, or to any and all business incidental to or arising from the transportation of persons and property." No other or further purpose of the organization is stated in the articles, and no other or different business than is mentioned in the foregoing extract is authorized therein. In determining the legal functions of the plaintiff, the terms of the articles of incorporation must necessarily control; and unless these specify or by necessary implication include the buying of grain, the contract stated in the pleadings is ultra vires on the part of the plaintiff. It seems very clear that the articles contemplate that the business of the plaintiff should be confined to that of a common carrier of persons and property. Of course, as a common carrier, the plaintiff has power to make all contracts necessary, perhaps convenient, to the carrying on of that business. Possibly it might lawfully pur- chase ^rain and other produce for storage and shipment, for the pur- pose of keeping its warehouses and boats employed, which but for such purchase would have been unemployed ; although such power, even under such circumstances, may well be doubted. But there is nothing in the pleadings or testimony tending to show that the con- tract under consideration was made for any such purpose, or that any such contingency had arisen. Hence the question to be determined is, whether the plaintiff can lawfully buy and sell the produce of the country in the same manner and to the same extent that a natural person may. We think this question must be answered in the negative. There is no necessary connection between the business of a common carrier and that of buying and selling the commodities which the carrier transports. Neither is the latter business necessarily or usually de- pendent upon the former. The two are as essentially distinct as the business of the carrier and that of the producer. It will scarcely be claimed that the plaintiff is authorized, under its articles of incor- poration, to purchase large tracts of land on which to raise grain and other produce to be stored in its warehouses and shipped over its lines. If it may not do this, it is not perceived on what principle it may purchase the commodities instead of raising them. We think the principle is the same in both cases. Moreover, in view of the 248 NORTHWESTERN PACKET COMPANY V. SHAW. [CHAP. V. fact that the transportation of the products of the country is mainly controlled by powerful corporations, representing immense aggrega- tions of capital, there are reasons, if not of public policy, certainly reasons which should have much weight with the Legislature, for confining common carriers to their legitimate business as carriers. Atr least no forced construction of their charters should be sanctioned to enable them to become producers or purchasers of such products. By confining them to the proper business of common carriers, the temptation to make unjust discriminations in the transportation of their own property, to the manifest injury and oppression of persons having like property for transportation, can only be avoided. Hence, while it is conceded that the Legislature may confer upon a corpora- tion common carrier the right of a natural person to buy and sell the commodities which it transports, it must be held that until so conferred the right does not exist. We conclude that the contract set forth in the pleadings, as to the plaintiff, is ultra vires, and that no claim for damages resulting from a breach thereof can be successfully asserted by either party. This disposes of the counterclaim of the defendant, and of all claims of the plaintiff except the claim to recover the $1,000 paid on account of the attempted purchase of the wheat. But the question remains whether the plaintiff is entitled to re- cover the $1,000. If it can recover it, no good reason is perceived why it may not do so in this action. The complaint states all the facts essential to be averred in an action to recover the same, except that the plaintiff had no power to make the contract, and that omis- sion may be supplied by amendment. Such an amendment cannot prejudice the defendant, for, in the progress of the case thus far, he has constantly asserted such want of power as a defence. An extended discussion of the question will not be profitable. There are many adjudications in this country and in England, bear- ing upon it, some of which are cited in the brief of counsel for the plaintiff. The cases have been carefully examined, and we think the rule may fairly be deduced from them, that when money has been paid upon an executory agreement, which is free from moral turpi- tude, and is not prohibited by positive law, but which is invalid by reason of the legal incapacity of a party thereto, otherwise capable of contracting, to enter into that particular agreement, or for want of compliance with some formal requirement of the law (as that the contract shall be in writing, and the like), the money so paid may, while the agreement remains executory, be recovered back by the party paying it, in an action for money had and received. Many of the cases go farther, and sustain the action when some of the foregoing conditions are wanting. But the exigencies of this case do not require us to determine how far the rule may be extended, or what conditions may be omitted therefrom without defeating the action. The rule is here stated most favorably for the defendant ; CHAP, v.] BRADLEY V. BALLARD. 249' and yet it is clear that under it the plaintiff may maintain an action to recover the money paid on the invalid agreement. A contract to buy wheat is an innocent one ; no statute has prohibited it ; and this particular agreement is invalid only because of the accident, that the purchaser is a corporation instead of a natural person, and happens to lack authority to make this particular contract. In addition to the cases on this subject cited by counsel, the fol- lowing will be found to sustain the views above expressed : Bagott v. Orr (2 Bos. & Pul. 472) ; Loivry v. Bourdieu (Doug. 468) ; Aubert v. Walsh (3 Taunt. 277); Busk v. Walsh (4 id. 290). In Thomas v. Sowards (25 Wis. 631), the rule above stated was applied. See also Brandeis v. Neustadtl (13 id. 142). But it is argued by the learned counsel for the defendant, that the case of The M. W. & M. P. JR. Co. Y. The W. & P. P. B. Co. (7 Wis. 59) is an authority fatal to the plaintiff's right to recover. That was a mortgage given to secure the performance of an agreement which the court held to Ipe ultra vires. It was, as Chief Justice Whiton said in the opinion, an action founded on the agreement and on it alone. The contract failing, the action failed as a matter of course. In strict obedience to the authority of that decision, we hold in this case, that so far as the action is founded on the void agreement, it cannot be maintained. Had that been simply an action to recover the amount paid by the plaintiff for the use of the defendant, it might have been decided differently. But it was not such an action, and the court did not determine whether such an action could be maintained. The case is not, therefore, an authority against the plaintiff's right to recover his advances on accpunt of the void executory agreement. By the Court : — The judgment of the Circuit Court is reversed, and the cause remanded for a new trial. A motion for rehearing was denied. BRADLEY v. BALLARD. (55 /// 413. 1870.) Appeal from the Circuit Court of Cook County. Me. Chief Justice Lawrence delivered the opinion of the Court : — This was a bill in chancery brought by Bradley against Ballard and others, for the purpose of enjoining the prosecution of a suit pending in the Circuit Court of Cook County, against a corporation called " The North Star Gold and Silver Mining Company," in which complainant was a stockholder, upon certain promissory notes given by said com- pany, and also to cancel certain other notes not yet in suit. The 250 BKADLEY V. BALLARD. [CHAP. V. Court sustained a demurrer to the bill, ard the complainant not ask- ing to amend, a decree of dismissal was entered. It appears by the averments in the bill that various persons asso- ciated themselves together in the city of Chicago in the year 1866, and filed their articles of organization in the Circuit Court of Cook County, under the general incorporation law, whereby they became incorporated under the title above stated. The statute requires the certificate to state the town and county in which the operations of a company thus incorporated are to be carried on, and the certificate of this company stated that their operations were to be carried on in the city of Chicago, in the county of Cook and State of Illinois. It further appears from the bill that the company thus organized en- gaged in mining in the Territory of Colorado, and in the prosecution of that work borrowed large sums of money, for which the notes described in the bill were given, except some that are alleged to have been given for official salaries. It is not claimed that they were not given for a full and fair consideration, but their cancellation is sought upon the ground that they were given for money borrowed to enable the company to prosecute a business which it had no power to prose- cute, and that this purpose was known to the lenders of the money. It is insisted that, although the business of the corporation was min- ing, yet, by the terms of its certificate, it had no power to prosecute that business beyond the limits of the city of Chicago, or certainly not beyond the limits of this State. Whether this is the proper construction of the statute is a question we do not find it necessary to decide. Conceding that it is, and that this corporation had no power to engage in mining in Colorado, we are still of opinion the complainant has not, by his bill, entitled himself to relief. He became a stockholder to the extent of $25,000, and from the name and character of the company he must have known it was organized for the purpose of mining beyond the limits of this State. He subsequently became one of the directors of said company, and it is a legitimate inference from the bill that at least a part of these debts were created while he was thus participating in the control of the company. There is no pretence in the bill that he ever, in any mode, objected to the mining operations of the- company, in Colorado, or to the borrowing of money therefor, and the fair, and, indeed un- avoidable inference, from the nature of the company, the connection of complainant with it, and the silence of the bill in this regard, is that he did not object. On what ground, then, can he ask a court of equity to enjoin the collection of these notes ? It is said by counsel for complainant, that a corporation is not es- topped to say, in its defence, that it had not the power to make a con- tract sought to be enforced against it, for the reason, that if thus estopped, its powers might be indefinitely enlarged. While the cork- tract remains unexecuted on both sides, this is undoubtedly true ; when, under cover of this principle, a corporation seeks to evade the ^"^P- '^O BRADLEY V. BALLAKD. 251 payment of borrowed money, on the ground that, although it had power to borrow money, it expended the money borrowed in prose- cuting a business which it was not authorized to prosecute, it is press- ing the doctrine of ultra vires to an extent that can never be tolerated, even though the lender of the money knew that the corporation was transacting a business beyond its chartered powers, and that his money would be used in such business, provided the business itself was free from any intrinsic immorality or illegality. Neither is it correct to say that the application to corporations of the doctrine of equitable estoppel, where justice requires it to be applied, as when, under a claim of corporate power, they have received benefits for which they refuse to pay, from a sudden discovery that they had not the powers they had claimed, can be made the means of enabling them indefinitely to extend their powers. If that were true, it would be an insuperable objection to the application of the doc- trine, even for the purpose of preventing injustice in individual cases. But it is not true. This doctrine is applied only for the purpose of compelling corporations to be honest, in the simplest and commonest sense of honesty, and after whatever mischief may belong to the per- formance of an act ultra vires has been accomplished. But while a contract remains executory, it is perfectly true that the powers of corporations cannot be extended beyond their proper limits, for the purpose of enforcing a contract. Not only so, but on the application of a stockholder, or of any other person authorized to make the appli- cation, a court of chancery would interfere and forbid the execution of a contract ultra vires. So too, if a contract ultra vires is made between a corporation and another person, and, while it is yet wholly unexecuted, the corporation recedes, the other contracting party would probably have no claim for damages. But if such other party pro- ceeds in the performance of the contract, expending his money and his labor in the production of values which the corporation appropri- ates, we can never hold the corporation excused from payment, on the plea that the contract was beyond its power. Take, for example, the case of a corporation chartered to build a railway from Chicago to Rock Island. Under such a charter, the company would have no power to build steamboats for the purpose of running a line of such vessels between Rock Island and St. Louis. But suppose the company, notwithstanding the want of power, should make a contract for the building of a vessel, and it is built by the contractor, and accepted and used by the railway. Could any court permit the corporation, when sued for the value of the vessel, to excuse itself from payment, on the ground that, although it has and uses the steamer, it had no authority to do so by its charter ? Or, suppose that instead of having a vessel built by a contractor it em- ploys a superintendent to build it, and hires mechanics by the day. Could it escape the payment of their wages, on the ground that it had .employed them in a work ultra vires ? 252 BRADLEY V. BALLARD. [CHAP. V, In cases of such character, courts simply say to corporations : You cannot in this case raise the question of your power to make the eon- tract. It is suificient that you have made it, and by so doing have placed in your corporate treasury the fruits of others' labor, and every principle of justice forbids that you be permitted to evade pay- ment by an appeal to the limitations of your charter. We are aware that cases may be cited in apparent conflict with the principles here announced, but the tendency of recent decisions is in harmony with them. While courts are inclined to maintain with vigor the limitations of corporate action, whenever it is a question of restraining the corporation in advance from passing beyond the boundaries of their charters, they are equally inclined, on the other hand, to enforce against them contracts, though ultra vires, of which they have received the benefit. This is demanded by the plainest principles of justice (2 Kent, 11 Ed. p. 381, note), ZabrisJcie v. C. C. & C. R. B. Co. (23 How. U. S. 381) ; £issell v. M. S. & N. I. R. B. Co. (22 jST. Y. 258) ; Cary v. Cleveland & Toledo R. R. Go. (29 Barb. 35) ; Parish V. Wheeler (22 N. Y. 494) ; Groff v. Am. Lin. Th. Co. (21 JST. Y. 124) ; Argenti v. San Francisco (16 Cal. 255); McCluer v. Manchester &.L. R. (13 Gray, 124); Chapman v. M. R. & L. R. R. Co. (6 Ohio, 137) ; Hall v. Mut. Fire Ins. Co. (32 N. H. 297) ; Mailroad Co. V. Howard (7 Wallace, 413). If the complainant in this case had, as a stockholder, asked a court of chancery to enjoin this corporation from mining in Colorado, it would have examined the charter, and if it had arrived at the con- clusion that such mining was beyond the powers derived from filing the certificate in question, under our statute, would have' issued the injunction. But this he did not do. On the contrary, he has par- ticipated in the work, and so long as there was hope of gain, he was willing the money should be borrowed by which the work was to be carried forward. The borrowing of the money was not, in itself, an act ultra vires, nor was the giving of the notes. The money was npt borrowed to be used for an illegal or immoral purpose. The lenders have been guilty of no violation of law, nor wrong of any kind. The corporation has received their money and used it for a purpose, which, whether ultra vires or not, was unquestionably the sole pur- pose for which the corporators associated themselves together, and for which this complainant became a stockholder. Justice requires the corporation to repay the money it has thus borrowed and expended. What WO' have said applies only to private corporations, organized for pecuniary gain. If, to increase their profits they embark in enter- prises not authorized by their charter, still, as to third persons, and when necessary for the advancement of justice, the stockholders will be presumed to have assented, since it is in their power to restrain their officers when they transgress the limits of their chartered au- thority. But municipal corporations stand upon a diiferent ground. CHAP, v.] WHITNEY ARMS COMPANY V. BARLOW. 253 They are not organized for gain, but for the purpose of government, and debts illegally contracted by their officers cannot be made binding upon the taxpayers, from the presumed assent of the latter. There are some vague charges in the bill of conspiracy between the holders of the notes upon which suit has been brought and some of the directors, but no facts are alleged showing, or tending to- show, any wrongful or fraudulent intent. The alleged conspiracy seems merely to be an understanding between the holders of the notes and the majority of the directors, by which the latter will allow the for- mer to obtain judgment on their notes, and we do not perceive why they should not. If the complainant has had the misfortune to asso- ciate himself with persons of less pecuniary responsibility than him- self for the purpose of carrying on a hazardous business, in which heavy debts have been incurred, it is a inisfortune of which the courts cannot relieve him, merely on a vague and general charge of conspiracy against his fellow stockholders or dii'ectors. No facts are alleged in this bill which can be made the foundation of relief. As before remarked, the counsel of appellant has presented his case sim- ply on the question of corporate power. We are of opinion the de- murrer was properly sustained to the bill. Decree affirmed. Me. Justice Scott dissents. WHITNEY ARMS COMPANY v. BARLOW. (63 N. Y. 62. 1875.) Appeal from judgment of the General Term of the Superior Court of the city of New York, affirming a judgment in favor of plaintiff entered upon a verdict. (Reported below, 6 J. & S. 564.) This action was brought against defendants as trustees of the American Seal Lock Company, a corporation organized under the general manufacturing act (chap. 40, Laws of 1848), to enforce the statutory liability to pay the debts of said corporation because of an alleged failure to make, publish, and file annual reports. Said corporation v?-as organized in May, 1871. Its capital stock was $300,000, all of which was issued to pay for certain patent rights purchased by the company. No report was made au^ filed until January 19, 1872, when a report was made, verified, and filed, contain- ing the following statement : — "The amount of the capital stock of this company, and which has been issued for the purchase of patent rights and which has not been paid in cash, is $300,000 ; amount of existing debts, 145,393.88." A report, similar as to the statement of capital stock, was filed January 18, 1873. On the 6th October, 1871, said corporation entered into a contract with plaintiff by which the latter agreed to 25-i WHITNEY ARMS COMPANY V. BAKLOW. [CHAP. V. manufacture and deliver 20,000 railroad locks to be paid for sixty days after delivery. Plaintiff made and delivered 10,000 locks under the contract when, by mutual agreement, the contract was suspended as to the residue. The evidence as to the time of delivery was con- flicting and uncertain, but the balance of testimony was to the effect that afew were delivered in December, 1871; the greater portion in January, and a few in February, 1872. Two notes were given by defendant's company for the purchase-price at two months, one dated January 24, 1872, the other January 31, 1872. Plaintiff is a corporation organized in the State of Connecticut, as declared by its charter " for the purpose of manufacturing every variety of fire-arms and other implements of war, caps, cartridges, balls, and like munitions of war applicable to the use of fire-arms, and all kinds of machinery adapted for the construction thereof and otherwise." The court directed a verdict for the plaintiff for the amount of the indebtedness, which was rendered accordingly. Allen, J. : — But a small, if any, portion of the debt for which a recovery was had accrued prior to the making and publishing of the report by the corporation in January, 1872, and if that document was in conformity to the statute requiring annual reports by manufacturing corpora- tions, and a substantial compliance with the requisition of the act, the appellants are entitled to a reversal of the judgment. The trustees of a manufacturing corporation are chargeable with the debts of the company, upon failure of the corporation within twenty days from the first day of January in each year to make, publish, and file, as prescribed by the act, a verified report, " which shall state the amount of capital and of the proportion actually paid in, and the amount of its existing debts." Laws of 1848, chap. 40, § 12. At the time of the enactment of this law payment of the capital stock of this class of corporations was required to be in money. By a subsequent statute (Laws of 1853, chap. 333) trustees of such corporations were authorized to purchase mines and other property, and to issue stock to the value thereof in payment therefor. The same statute enacted that in all statements and reports of the company to be published, the stock so issued should not be stated or reported as being issued for cash paid into the company, but should be reported. in this respect according to the fact. The form of the report, as prescribed by the twelfth section of the original act (supra), was that thus modified in all cases where the whole or part of the capital stock was issued in payment for property purchased instead of for cash. The reports should in all essential particulars comply with these statutes. The facts need not necessarily be stated with technical or grammatical precision and accuracy, but they must sub- stantially appear and be verified by the oath of the president and a majority of the trustees, and so distinctly stated that, if untrue, per- CHAP, v.] WHITNEY ARMS COMPANY V. BARLOW. 255: jury could be assigned or an action maintained by any one sustaining legal injury from the misstatement. The reports of corporations should receive a reasonable interpreta- tion and excessive nicety or exactness should not be exercised in bringing them to the test of the, statutes. It cannot be denied that the report made by the American Seal Lock Company in 1872 is ambiguous, and it is very plausibly urged that it is entirely consistent with a capital stock greatly in excess of the amount stated as having been issued on the purchase of patent rights, as well as with the other fact that there was capital stock of the company for which cash had been paid in. The argument is that, leaving out the first copulative, the statement is, in terms, that the amount of the capital stock which had been issued for the purchase of patent rights, and which had not been paid in cash, was $300,000, and that such statement would have been literally true if the capital stock had been $1,000,000 and all but the $300,000, had been paid in cash, or had not been paid for at all. It is then said that the inser- tion of the copulative " and," so as to make it read that the capital stock of the company and which had been issued for the patent rights, etc., does not alter the sense upon any grammatical interpretation, or as it would be understood by the casual or ordinary reader, or those for whose benefit and protection the report and publication are required. But the statute is in one sense and for some purposes, as adjudged by this court, of a penal character, in so far as it subjects the trustees to liability for the debts of the corporation for their neglect to make the report ; and while it is also remedial, as it confers upon the credi- tor a remedy for his debt and takes from the governing body of the corporation the shield and protection of the corporate organization, and holds them to a personal liability for debts contracted, the reports and statements of the corporation, made and published pro- fessedly in compliance with the statute, should receive a liberal in- terpretation, and the benefit of any doubt as to the true sense and meaning of the document be given to the trustees sought to be charged. This is a reasonable rule, in the absence of any evidence, in or out of the report, of an intent to evade the statute and put forth a report false or deceptive ; and when the report, read and in- terpreted as claimed by the trustees, is true in fact. The court is of the opinion that the report now under review, notwithstanding the criticism to wh'ich it is fairly subject, should, in the application of these principles and in view of the fact that the entire capital of the corporation was, at the time it was made,' but $300,000, and the whole amount had been issued in payment for patent rights, be deemed a fair and full compliance with the statute, thus saving the forfeiture which the trustees, upon any other interpretation, would have in- curred. In any view of the report, it did not exaggerate the resources and condition of the company. 25u WHITNEY ARMS COMPANY V. BARLOW. [CHAP. V. As it is left in doubt whether some portion of the debt did not ac- crue during the default of 1871, and as other questions may arise, it is necessary to consider the other objections taken by the appellant to the judgment. It must be conceded that the manufacturing and vending of "rail- road locks " is not within the purposes for which the plaintiff was incorporated, or within the powers conferred by its charter. Neither is such business incidental to the purposes of the incorporation, or in any way necessary to, or, as far as appears, even an aid in the exer- cise of the powers conferred upon the plaintiff by its constitution, so that it could be regarded as among the implied powers granted by the liCgislature and assumed by the corporators. Did the question now made arise upon an application by the stock- holders and corporators to restrain the corporate agents from apply- ing the corporate funds to purposes foreign to the corporation, or engaging in business outside of that for which the company was formed, or on proceedings by the sovereign power to annul the char- ter for an abuse of the powers granted, or in a proceeding to enforce and for the performance of an executory contract, where, upon a. rescission or annulling the agreement, both parties would have the same position as if no contract had been made, the rules of decision would be different from those which must prevail in the present action. In either of the cases suggested it is very likely the courts would be compelled to give full effect to the objection, and hold the business unauthorized and a violation of the charter and a forfeiture Of the chartered rights, and the contract null, and refuse to perform it or give effect to it. The manufacture of the locks, or contract to sell them to the Seal Lock Company, were not acts immoral in them- selves or forbidden by any statute, neither mala in sese nor mala pro- hibita, so as to make the contract illegal and incapable of being the foundation of an action, — such a contract as the law will not recog- nize or enforce, but applying the maxim ex facto Ulieito non oritur actio, leave the parties as it finds them. When acts of corporations are spoken of as ultra vires, it is not in- tended that they are unlawful or even such as the corporation cannot perform, but merely those which are not within the powers conferred upon the corporation by the act of its creation, and are in violation of the trust reposed in the managing board by the shareholders, that the affairs shall be managed and the funds applied solely for carry- ing out the objects for which the corporation was created. Earl of Shrewsbury v. North Staffordshire R. Co. (L. R. 12, 1 Eq. 593); Tai/lor V. Chichester and Mldhurst R. Go. (L. E. 2 Exch. 356); Bissell v: Mich. O. R. Co. (22 N. Y. 258). Whether the contract as originally made was ultra vires is not a very important inquiry at this time. If it was, the. State under, whose sovereignty it dwells and by whose act and favor it exists, has no interest in arresting its action for the recovery of moneys equita- CHA1>. V.j WHITNEY ARMS COMPANY V. BAKLOW. , 257 bly due upon a contract fully executed aud a work fully accomplished, whatever may be its right to annul its charter. The shareholders, whose confidence has been abused and whose funds have been diverted from their proper use, have a direct interest in reclaiming and restor- ing to proper custody and applying to legitimate uses the funds which have been diverted and improperly used for purposes dehors the legitimate business of the corporation. The idea of ultra vires should not as a general rule prevail, whether interposed for or against a corporation, when it would not advance justice, but on the con- trary would accomplish a legal wrong. Here, as between two corporations, the debtor and creditor corpo- ration, the con-tract has been fully performed by the creditor, the plaintiff in this action, and the Seal Lock Company has received the full consideration of its promise to pay. The plaintiff has parted with its property to the latter corporation, and unless a legal liabil- ity exists on the part of the latter to pay, the plaintiff can neither reclaim the property or recover compensation, and under this techni- cal plea a great wrong will be perpetrated. A purchaser who ac- quired by contract, and, under an agreement to pay for it, the property of a corporation, cannot defeat the claim for the purchase-price by impeaching the right of the corporation to become the owner of the property. One who has received from a corporation the full consid- eration of his engagement to pay laioney, either in services or prop- erty, cannot avail himself of the objection that the contract thus fully performed by the corporation was ultra vires, or not within its chartered privileges and powers. It would be contrary to the first principles of equity to allow such a defence to prevail in an action by the corporation. It IS now very well settled that a corporation cannot avail itself of the defence of ultra vires when the contract has been, in good faith, fully performed by the other party, and the corporation has had the full benefit of the performance and of the contract. If an action cannot be brought directly upon the agreement, either equity will grant relief or an action in some other form will prevail. The same rule holds e converso. If the other party has had the benefit of a con- tract fully performed by the corporation, he will not be heard to object that the contract and performance were not within the legiti- mate powers of the corporation. Ex parte Chippendale (4 De G. M. & G. 19) ; In re National P. B. Build. Sac. (L. K 5 Chy. Appeals, 309) , In re Cork, etc. R. G. (4 id. 748) ; Fishmongers' Co. v. Robertson (5 McG. 131). The only justification for such a plea by an individual sued upon a contract with a corporation is, that the obligation is not mutual, as the other party, the corporation, would not be bound by it. The objection to such a defence in an action upon an executed contract is given by Tindal, C. J., in the case last cited, in these words: "Upon the general ground of reason and justice, no such answer can VOL. I. — 17 258 WHITNEY ARMS COMPANY V. BARLOW. [CHAP. V. be set up. The defendants having had the benefit of the perform- ance by the corporation of the several stipulations into which they entered, have received the consideration for their own promises; such promise by them is, therefore, not nudum pactum ; they never can want to sue the corporation upon the contract in order to enforce, the performance of their stipulations which have been already volun- tarily performed, and therefore no sound reason can be suggested -why they should justify their refusal to perform the stipulations made by them on the ground of inability of the corporation, which suit they can never want to sustain." The same principle was adjudged in R. and B. H. Co. v. Proctor (29 Vt. 93), Ch. J. Kedfield saying : " The only wrong in the directors is in having exceeded their powers ; the transaction with the defend- ants, so far as it goes, will tend to restore a portion of the money to its rightful proprietor, and of this the defendants ought not to com- plain as they are confessedly solicitous to bring the directors of the plaintiff's company back to their legitimate functions." See also. Farmers' and Millers' Bank v. J>. a7id M. B. Co. (17 Wis. 372). The same equitable principle was intimated by Ch. J. Kent, in Silver Lake Bank v. North (4 J. Ch. 370). Parish v. Wheeler (22 N. Y. 494) proceeds and was adjudged upon this general rule, Ch. J. Comstock enunciating the doctrine that "the executed dealings of corporations must be allowed to stand for and against both parties, where the plainest rules of good faith require." Palmer v. Lawrence (3 Sandf. Sup. Ct. R. 161) lays down the proposition in more comprehensive terms. Judge Duer, speaking for the court, says : " The general rule which is fairly deducible from all the cases on this subject is, that a defendant who has contracted with a corporation de facto is never permitted to allege any defect in its organization as affecting its capacity to contract or sue." The proposition may not be true in respect to contracts executory and wholly unexecuted ; we do not pass upon that. It was decided in the Steam Navigation Co. v. Weed (17 Barb. 378), that when it was a simple question of capacity to contract arising either on a question of regularity of organization or of powers conferred by the charter, a party who has had the benefit of the contract cannot be permitted, in an action founded upon it, to question its validity. Judge Parker's opinion, to which nothing need be added, is well fortified by the many cases to which he refers, and which, aside from the argument of the learned judge, abundantly sustain the judgment. Among the cases referred to and commented upon by Judge Parker, are Silver Lake Bank v. North (supra) ; State of Indiana v. Woram (6 Hill, 37) ; Chester Glass Co. v. Dewey (16 Mass. 94) ; Steamboat Co. V. McCutcheon (13 Penn. St. E. 13). It is very evident, as well upon principle as upon authority, that had this action been against the debtor corporation the objection that the contract was not authorized by the charter of the plaintiff would CHAP, v.] WHITNEY ARMS COMPANY V. BAKLOW. 259 have been untenable and the plaintiff would have been entitled to recover. Does the defendant and appellant stand in a different position, or can he avail himself of a defence to the original cause of action of which the corporation could not ? There may be defences personal to the defendant, but objections which go to the foundation of the claim and demand against and the obligation of the corporation are not personal to one sued as trustee upon the statutory liability. The debt must be proved by evidence competent against the defendants. The facts upon which the debt is founded must be proved. The naked admissions of the corporation or judgment against the corpora- tion are not evidence against the trustees. They are res inter alios acta ; but when facts are proved which would establish the existence of a debt against the corporation, the liability of the trustees for the debt follows upon the proof of the other facts upon which the liabil- ity is made by statute to depend. A debt necessarily results from the acts of the corporation ; and whether such acts are such as, in themselves, create or constitute an obligation, or such as will at law estop the corporation from denying its liability, is not important. The trustees are, by the statute, made privies to the acts and doings of the corporation in the transaction of its business resulting in a pecuniary debt or liability. When it is proved that the corporation has received property from others under a promise to pay, under cir- cumstances which the law would adjudge sufficient to charge the corporation for the purchase-price, a debt is established which the trustees cannot dispute, although perchance the corporation might, for any reason, have refused to accept the property ; and had it done so no legal liability would have resulted. In Jones v. Barlow (decided in June last, not yet reported), we held that the liability of a trustee, upon the failure of the corpora- tion to make the annual report called for by the statute, was co- extensive and concurrent with that of the corporation, quoad the debt which was sought to be fixed upon him; that there must be not only an existing debt against the corporation, but a debt presently due, and for the recovery of which an action would lie against the corporation ; and that if the corporation was not suable by reason of a novation or renewal of the debt, an action would not lie against the trustee. We gave the defendant the benefit of that rule. Applying the same principles here, and for the reasons assigned in the prevail- ing opinion there given, we are constrained to hold, that if a valid debt exists against the corporation, to Vhich there is no good defence at law or equity in behalf of the corporation, it must be adjudged and held a valid debt where the trustee is sought to be charged with its payment. This necessarily follows as the converse of the decision in Jones v. Barlow. The first step is taken in establishing the liabil- ity of the trustees where the facts proved would entitle the plaintiff to a judgment against the corporation for the debt in suit. That 260 SLATER WOOLLEN COMPANY V. LAMB. [CHAP. V. establishes the existence of a debt against the corporation ; and upon proof of the other facts, viz., the trusteeship and default in mak- ing the report, the liability of the trustee is proven and judgment must go against him. Other questions may arise in respect to the report of 1873, and we do not pass upon that. The judgment must be reversed and a new trial granted, costs to abide event. All concur. Judgment reversed. SLATER WOOLLEN COMPANY v. LAMB. (143 Mass. 420. 1887.) CoNTEACT, Upon an account annexed, for goods sold and delivered. At the trial in the Superior Court, before Bacon, J., the jury returned a verdict for the plaintiif; and the defendant alleged exceptions, which were disallowed by the presiding judge. The defendant filed a petition in this court to prove his exceptions. The case was re- ferred to a commissioneT, who made his report ; and the case was argued on the question whether the exceptions alleged were true, and also on the question whether, if they were true, they should be sus- tained. The facts material to the point decided appear in the opinion. Field, J. : — If we assume that the truth of the exceptions has been established,, we think that they must be overruled. The substance of the defend- ant's contentions is, that the Slater Woollen Company, having been incorporated " for the purpose of manufacturing fabrics of wool and worsted or of a mixture thereof with other textile materials," could not, by and in the name of persons who were in fact keeping a store as its agents, but whose agency was undisclosed, sell groceries, dry goods, and other similar articles to the defendant, who was not em- ployed by the company, aud then maintain an action against him to recover either the price or the value of the goods sold. If the goods' were the property of the plaintiff, and were sold by its agents, the plaintiff can sue as an undisclosed principal. It was said of Chester Glass Co. v. Dewey (16 Mass. 94) in Davis V. Old Colony Bailroad (131 Mass. 258, 273), that "The leading reason assigned was, ' the Legislature did not intend to prohibit the supply of goods to those employed in the manufactory ; ' in other words, the contract sued on was not ultra vires. That reason being decisive of the case, the further suggestion in the opinion, 'besides, the defendant cannot refuse payment on this ground ; but the Legis- lature may enforce the prohibition, by causing the charter to be re- voked, when they shall determine that it has been abused,' was, as has been since pointed out, wholly obiter dictum." But the weight of authority, we think, supports tha last reason given, in its application CHAP, v.] DAY V. SPIRAL SPRINGS BUGGY COMPANY. 261 to the facts of the present case. There is a distinction between a corporation making a contract in excess of its powers, and making a contract which it is prohibited by statute from making, or which is against public policy or sound morals ; and there is also a distinction between suing for the breach of an executory contract and suing to recover the value of property which has been received and retained by the defendant under a contract executed on the part of the plaintiff. If it be assumed, in favor of the defendant, that the contracts of sale in the case at bar were ultra vires of the corporation, they were not contracts which were prohibited, or contracts which were void as against public policy or good morals ; the defect in them is, that the corporation exceeded its powers in making them. The defendant, under these contracts, has received the goods, and retained and used them. Either the corporation must lose the value of its property, or the defendant must pay for it ; in such an alternative, courts have held, on one ground or another, that an action can be maintained when the sole defect is a want of authority on the part of the cor- poration to make the contract. We think that the corporation can maintain an action of contract against the defendant to recover the value of the goods. The defendant is not permitted to set up this want of authority as a defence ; and, as the form of the transaction was that of contract, such should be the form of the action. We are not required to determine whether an action can be main- tained to recover the price, as distinguished from the value of the goods, as no exception has been taken to the measure of damages. Chester Glass Oo. v. Dewey (ubi supra) ; Whitney. Arms Co. v. Barlow (63 N. Y. 62) ; Woodruff v. Eastern Railroad (93 N. Y. 609) ; Nas- sau Bank v. Jones (95 N. Y. 115) ; Pine Grove Township v. Talcott (19 Wall. 666, 679); National Bank v. Matthews (98 U. S, 621) ; National Bank v. Whitney (103 U. S. 99.) See Whitney, y. Leomin- ster Savings Bank (14X Mass. 85) ; Bowditch v. New England Ins. Go. (141 Mass. 292) ; Wright v. Pipe Line Co. (101 Penn. St. 204). Exceptions overruledi DAY V. SPIRAL SPRINGS BUGGY COMPANY. (57 Mich. 146. 1885.) Assumpsit. Plaintiff had judgment. COOLEY, C. J. : — This action is brought to recover the value of thirty-two tons of the article called "Excelsior," which had been received by the de- fendant of the plaintiff. The defendant is a corporation, organized, as its articles of asso- ciation state, "to purchase material for, and manufacture and sell, 262 DAY V. SPIRAL SPRINGS BUGGY COMPANY. [CHAP. V. carriages and carriage and harness hardware ; also for the disposing of the right to manufacture on royalty the spiral buggy-spring, Smith's patent." In the manufacture of carriages excelsior is used for upholstering seats and backs, but for no other purpose. The place of business of defendant is Grand Rapids, Michigan. It was shown on the trial that in April, 1883, defendant contracted with one Hulz, of Chicago, to sell and deliver to him in Chicago one hundred and seventy-four tons of excelsior, the delivery to be made at the rate of two car-loads a month, and the price to be fourteen dollars a ton. For the purposes of this contract defendant then bar- gained with the plaintiff that she should manufacture the requisite quantity of excelsior and deliver it on board cars or boat at Grand Rapids, billed to Hulz at Chicago. The price to be paid by defend- ant was eleven dollars and fifty cents a ton, which, after paying costs of transportation, would leave to defendant a profit on the sale to Hulz. It was known to plaintiff, when she contracted for the manufacture, that the defendant was not procuring the article for use in its business, but for the purpose of a sale at a profit in Chicago, where the defendant had no place of business, and the de- livery to be made by her was to be made from time to time as re- quired by the Hulz contract. The plaintiff was therefore fully aware that the contract of the defendant with her was purely one of specu- lation, and had no connection with its legitimate corporate business. The excelsior was delivered by the plaintiff under the contract from time to time until about June 15, 1883, and was shipped to Chicago under defendant's contract with Hulz. At the time last mentioned the market value of the article had considerably advanced, and plaintiff declined to deliver any more at the price agreed upon. Part payment had been made for the quantity received, and defend- ant refused to pay further unless plaintiff should go on in completion of her contract. This suit was accordingly instituted. The claim of the plaintiff is that the contract she entered into with the defendant was void in law ; that therefore she was at no time under obligation to perform it ; that, in so far as the defendant had received excelsior from her, she is entitled to recover the value, not exceeding the price agreed upon ; and having shown that the value was equal to that price, she now claims to recover it in this suit. The defendant, on the other hand, insists that the plaintiff was estopped by the contract from disputing the capacity of the defendant to enter into it ; an^ that when she refuses to perform, she becomes liable in damages. These damages the defendant seeks to recover from the claim of the plaintiff. The circuit judge was of opinion that the contract made by the defendant with Hulz, not being for a corporate purpose, was ultra vires and void, and the contract made with the plaintiff for the pur- pose of meeting its requirements was void also. For the excelsior actually received by the defendant the plaintiff was held entitled to CHAP, v.] DAY V. SPIRAL SPKINGS BUGGY COMPANY. 263 recover, as if the void contract had not been entered into ; but a claim to recoupment must necessarilv assume the validity of the contract, and was therefore inadmissible. The judge, therefore, gave judgment for the plaintiff for the value of what had been re- ceived, deducting such payments as had been made. The defendant brings error. It is scarcely denied in this court that the contract of the defend- ant on which it now relies was ultra vires. Its corporate purposes were specified in its articles, and it was without legal power to go beyond them. The contract was one of speculative dealing, and was as much foreign to the purposes of corporate organization as would have been a contract for dealing in grain on the produce exchange, or in shares in the stock market. The State had not by law con- sented that its manufacturing corporations should be at liberty to make such contracts, but for reasons of sound public policy had with- held from them the power to do so. Neither had the corporators of the defendant consented that their interests miglit bo put in jeopardy by such dealings. But defendant relies here, as it did in the court below, upon the plaintiff's being estopped by her contract from raising the question of ultra vires. She has certainly admitted the power of the defend- ant to make the contract, and if the elements of an estoppel are to be found in this mere admission, or in this admission coupled with such action as has taken place under it, then the defendant should be entitled to recoupment. There are some decisions which give plausibility to the position of the defendant, but we know of none that is adequate to the exigen- cies of this case. Parties entering into contracts with an association of persons, who are de facto exercising corporate powers, are not suf- fered to dispute the corporate authority which their contracts admit Swartii'oiit V. Mich. Air-line R. Co. (24 Mich. 389) ; Wilcox v. Toledo, &r. R. Co. (43 Mich. 584) ; but this is on the principle that a usur- pation of corporate authority concerns only the State, and it is sup- posed the State will move on its own behalf to have the usurpation punished or restrained when it is found to exist, if the occasion seems to call for it. The case before us is not one of that descrip- tion. The defendant's possession of corporate powers is conceded, and though the particular act was done without authority, the State was not the only party interested in questioning it. Every stock- holder was entitled in his own interest to insist on its being repu- diated, for he had not consented to put his share of the capital at the risk of any such venture. There are some cases, also, in which parties by false representations have induced others to act upon in- valid contracts as if they were valid, and to make payments, deliver property, or otherwise change their positions in reliance upon the contracts, under such circumstances that nothing but the enforcement of the contracts will do complete justice ; and in such cases the doc- 264 DAT V. SPIRAL SPRINGS BUGGY COMPANY. [CHAP. V. trine of estoppel may well be applied. But this is not such a case. No false representations are alleged, and it is not disputed that all parties were fully aware of all the facts. They must therefore be supposed to have understood that the contract in its inception was ultra vires. And the power on the part of such a corporation to enter into contracts of speculation, being withheld on reasons of public policy, for the protection of shareholders and the general good of the community, the act neither of one party nor of both in enter- ing into it can work an estoppel against setting up the invalidity. A rule of law established for the public good cannot be thus defeated. A corporation cannot, by the mere act of individuals, be given a power which the state for general reasons has withheld from it. Pennsylvania, &c. Nav. Co. v. Dandridge (8 Gill & J. 248, 319). Parties may also be estopped, in some cases, from disputing the validity of a corporate contract when it has been fully performed on one side, and when nothing short of enforcement will do justice. To quote the language of Comstock, C. J., in Parish v. Wheeler {22 K Y. 494, 508) : " The executed dealings of corporations must be allowed to stand for and against both the parties, when the plainest rules of good faith so require." But this is not such a case. The contract has only been performed in part. The defendant has received a portion of the property bargained for, and we may justly assume that what has been received has passed into the hands of Hulz and been, paid for, so that the defendant will lose nothing but the anticipated profits on the remainder if the contract is not enforced in its favor. Those profits it had no right at any time to count upon ; and, in con- templation of law, there can be no injustice in depriving it of profits which the law would not permit it to bargain for. No valid ground for estoppel is therefore found to exist in the case. The defendant, then, if the plaintiff has established a valid de- mand, is not entitled to recoup damages for refusal to make complete performance, because to allow recoupment would be indirectly to enforce the contract. Whether the plaintiff is entitled to recover for the goods delivered and not paid for is the remaining question. The defendant has had the goods, and there is no want of equity in requiring it to make payment. They were delivered under a contract which bound neither party, and though the plaintiff is the party who now refuses to go on with it, the defendant was at liberty to do the same, and we cannot know that it would not have done so if the change in market value had been such as to make it for its interest. But how- ever that may be, if the defendant pays for the property received, the parties will have justice meted out to them as nearly as is now possible. It is to he observed that the contract, though Void in law, involved no element of criminality, and nothing of an immoral nature. The case is not, therefore, one in which the law will leave the parties CHAP. V.J IN EE COKK AND YOUGHAL EAILWAY CO. 265- without redress for the consequences of criminal or immoral action. The plaintiff had a right to sell her manufacture, and to be paid for it ; the defendant has received something of value from her, and there is manifest equity in its being required to make payment, notwith- standing it exceeded its powers in the purchase. The cases of Pratt v. Short (79 N. Y. 437), Northwestern Union Packet Co. v. Shaw (37 Wis. 655), Harriman v. JSajHist Church (63 Ga. 186), are in point, and fully sustain the judgment. The princi- ple involved is considered at length in Whitney Arms Co. v. Barlow (63 N. Y. 62), and is supported by Thomas v. Railroad Co. (101 U. S. 71), In re Cork & Y. Rij. Co. (L. E. 4 Ch. App. 748), In re National, &c. Society (L. R. 6 Ch. App. 309), and many other cases. No doubt it results in a degree of hardship in some cases, when a party fails to obtain all that has been bargained for ; but the loss of anticipated advantages, as an incident to unauthorized dealings, is one for which the parties themselves are responsible, not the law. The jxidgment must be affirmed. The other justices concurred. In re CORK AND YOUGHAL EAILWAY COMPANY. (Z. R. 4 Cli. App. 748. 1869.) This was an appeal from an order of the Vice-Chancellor Malins, the question raised being as to the validity of bonds in the form called Lloyd's bonds, given by the Cork and Youghal EaUway Company. The Cork and Youghal Eailway Company was incorporated by act of Parliament, and empowered by several acts to raise altogether £365,000 by shares, and to borrow altogether £131,000 upon mortgage or bond. In April, 1861, the company had borrowed from David Leopold Lewis, who was called the financial agent of the company, sums of money amounting to £25,534, which had been received by the com- pany, and applied by them partly in payment to contractors, partly in payment for rolling-stock and other goods, partly in payment of interest, partly in payment of the salaries of the officers of the com- pany, and partly in payment for land. For the advances so made Lewis drew bills upon the conipany at short dates, which he from time to time procured to be discounted and again renewed by the company, charging a commission upon each renewal. The company afterwards borrowed further sums from Lewis, for which he drew bills in the same manner as before. In June, 1862, the whole of the share capital of the company (except £7,435, which was soon after- 266 IN RE CORK AND YOUGHAL RAILWAY CO. [CHAP. V. wards raised) had been raised and spent ; the company had issued mortgages or the whole of the £131,000 which they were empowered to raise ; the advances made by Lewis to the company amounted to £101,149, and the railway was not completed. In August, 1862, Lewis represented to the directors that he had great difficulties in renewing the company's Ipills, and that if the company would issue to him bonds in the form called Lloyd's bonds he would be able to raise money upon them with greater facility, and would be able to supply the company with funds. At the half-yearly meeting of the company, held in August, 1862, a statement of ac- counts was read and adopted, showing that the company had then spent £109,620 beyond the amount authorized to be raised by the acts ; and resolutions were passed to the effect that, as the company had obtained from Lewis large sums of money to pay for land, rolling- stock, and the construction of the line, the directors were authorized to issue bonds to be given to Lewis as security for the debt due to him. The directors accordingly issued and gave to Lewis bonds for various sums, amounting in the whole to £120,000, the bonds being in the following form : — COKK AND YOUGHAL RAILWAY. JSfo. 456 B. Bond. . £1000. Know all men by these presents, that we, the Cork and Youghal Railway Company, are held and firmly bound unto David Leopold Lewis, of No. II, George Yard, Lombard Street, London, Esq., in the sum of £1000, to be paid to the said David Leopold Lewis, his certain attorney, executors, administra- tors, or assigns, on the 20th day of August, 1865, with lawful interest thereon at 5 per cent per annum from the date hereof until payment, for which payment we hereby bind ourselves and our successors this 20th day of August, 1864. Whereas the above-bounden company is justly and truly indebted to the above-named D. L. Lewis in the sum of £1000 for work done and goods and material supplied to the said company for the purposes of their undertaking, by the means and procurement and at the cost of the said D. L. Lewis, and at the request of the company, as they hereby acknowledge. And whereas the said D. L. Lewis hath applied to the said company for payment of the said sum of money, but hath, at the request of the said company, agreed to forbear payment of the same until the 20th day of August, 1865, on the said company becoming bound by this application for securing the payment of the said principal sum on the day last aforesaid. Now, therefore, the condition of this obligation is, that if the said Cork and Youghal Railway Company, their successors or assigns, do and shall pay to the said D. L. Lewis, his executors, administrators, and assigns, the said sum of £1000 on or before the said 20th day of August, 1865, and do and shall pay interest thereon at the rate of £5 per cent per annum until pay- ment, such interest to be paid half-yearly, the first payment to be made at the expiration of six calendar months from the date hereof, and for any fraction of a half-year to be paid on the day of payment of the said principal sum, then the above obligation to be void, otherwise to remain in full force and effect. Given under the common seal of the said Company the 20th day of Aucust. 1864. ^ y <= > CHAP, v.] IN KE COKK AND YOUGHAL RAILWAY CO. 267 Meetings of the directors were held from time to time, and at most of the meetings the further liabilities of the company were represented ^o the directors by the secretary, and resolutions were passed re- questing Mr. Lewis to provide for the same. The money appeared to have been required for different purposes connected with the railway, and in two instances at least Lewis was requested to find the money required for the payment of specific debts due from the com- pany to contractors. Further bonds were delivered to Lewis, on ac- count of the loans made by him, to the amount of £45,000, making a total of £165,000, and this was stated at a meeting of the share- holders held in February, 1863. From time to time when the bonds became due they were returned, and new bonds were issued in their place. Further sums were advanced by Lewis, and the same course of proceeding was followed until March, 1866, when Lewis became bankrupt. In the mean time Lewis had deposited bonds with differ- ent persons in order to raise money on them, and ultimately it ap- peared that he had so deposited bonds to the amount of £224,000, and himself held bonds to the amount of £145,000. It appeared that the company always employed their own con- tractors, and that Lewis never entered into any contracts on behalf of the company, but that in two instances the specific sums advanced by him had been at once paid to creditors, and that in other instances he had advanced sums to meet specified debts. By an Act, 29 & 30 Vict. c. cxxiv., after reciting that the company might have incurred debts to a considerable amount bej'ond their mortgage debt, which they had not the means of paying, and that it ■would be of advantage to the public that the company's railway should be sold to the Great Southern and Western Railway Com- pany, and that the company were desirous that their affairs should i)e wound up and they be dissolved, and that the purchasing company were willing to purchase the railway for a sum of £310,000 of the ordinary stock of the purchasing company, and that claims had been made on the selling company by persons who alleged that they were creditors of the company, the validity of whose claims was denied by the company, and it was expedient that provision be made for ascer- taining whether and how far the claims against the company were valid or not, — it was enacted that, in consideration of £310,000 ordi- nary stock of the purchasing company, the undertaking, works, etc., of the selling company should be vested in the purchasing company, freed from all debts of the selling. company. Provisions were then made for winding up the selling company, and for the appointment of an official liquidator, who should administer the £310,000 stock. And it was enacted by section 12, that " the net proceeds of the sale of the stock shall be applied, with the sanction of the court, by the official liquidator as follows ; that is to say : — " First. In payment of the costs of this act, by this act provided to be paid by the company. 268 IN RE CORK AND YOUGHAL RAILWAY CO. [CHAP. V. "Secondly. In payment of the compensation and expenses for completing, whether in the name of the company or in the name of the purchasing company, the purchases of lands taken by the com- pany, and of all sums which may be found due from the company with relation to lands for the taking of which notice has been given by the company. "Thirdly. In payment of the principal and interest lawfully due on the mortgages of the company lawfully created under the powers of the company's Acts, and according to their respective rights and priorities as existing on the 1st day of January, 1866. "Fourthly. In payment of the costs, charges, and expenses in- curred by the company after the loth day of March, 1865, in and about actions and suits and legal proceedings against them, and the negotiations between them and the purchasing company with respect to the arrangement effected by this Act, and also in payment of the necessary office expenses, salaries, and wages due at the time of such payment. " Fifthly. The surplus shall be subject to all the rights, equities, pi'iorities, claims, and demands, whether of preference or ordinary shareholders, bondholders, or others, to which the property would, in case this Act had not been passed, have been subject, and shall be applied accordingly." The sale to the Great Southern and Western Eailway Company ■was completed, and the £310,000 stock was transferred to the official liquidator, of which, after the payments directed by the first four clauses of the 12th section of the Act, £150,000 remained. The official liquidator of Overend, Gurney & Co.,, Limited, claimed the benefit of this surplus in respect of bonds for £191,000 held by that company, and the official liquidator of the London, Hamburg, and Continental Exchange Bank, Limited, claimed in respect of bonds for £40,000. Viee-Ghancellor Malins, before whom the appli- cations came, made a declaration that, so much of the moneys ad- vanced by D. L. Lewis as v>'as secured by Lloyd's bonds, and applied for the benefit of. the Cork and Youghal Eailway Company, consti- tuted a debt in equity and was payable out of the assets of the com- pany before any of the shareholders took any part of the surplus ; and his . Honor directed an inquiry how much (if any) of the money purported to have been advanced by Lewis, and to he secured, by the bonds, was applied for the benefit of, the company; and directed the costs of all parties to be taxed and paid by the official liquidator of the railway company. Mr. H. R. Pick, a firstrolass preference shareholder in the company (who had liberty to attend on behalf of himself and other prefer- ence shareholders) appealed. Lord Hathekley, L. C. : — It appears to the Lord Justice and, myself that the order, as it now stands, is not exactly the order which the exig^aeies of the case re- CHAP, v.] IN RE CORK AND YOUGHAL RAILWAY CO. 269 quire, but that, on the other hand, it would be most improper to hold that under and by virtue of the 12th section of the act, by which this company has been put an end to, and has been, in effect, bought by another company, the money should be distributed to the share- holders without making any provision wha,tever in respect of the payments that have been made by moneys procured from Mr. Lewis. The transaction was, no doubt, of an irregular character. The com- pany, having expended the whole of its capital, and reached the ex- tent of its borrowing powers, found itself heavily embarrassed with debts, many of which appear to have been legally payable, being due to contractors and others for rolling-stock and so forth, and these debts the company had not the means of paying. A contention has been raised by Mr. Jessel, against which it may not be necessary to decide on the present occasion, but it is one which, I conceive, would not be sustainable. He contends that when a railway company is formed with a certain amount of capital, and is authorized to execute certain works, then, unless the works can be executed with exactly the prescribed amount of capital, no further work can be done at all ; in other words, that no contractor who has entered into an engage- ment to make the two or three miles of line required for the purpose of completing the work, would be able to recover in respect of the money, labor, and work expended by him on the company's behalf. That, I apprehend, would not be law, and the very point did arise in the case of White v. Carmarthen Railway Company (1 H. & M- 786), which, as far as I recollect, was not appealed from. There a con- tractor was willing to give his services, and to take his chance of being paid, with such remedies as he could insist upon by bringing an action against the company and recovering judgment. In that case I held that the company were authorized in giving him a bond acknowledging the amount of the debt. On the other hand, it is equally clear, or it has been made clear if it was not clear before, by the case of Chambers v. Manchester and Milford Railway Company (5 B. & S. 688), and the very able and lucid judgments there given, that where a company is authorized only to raise a given amount of capital by shares, and a certain other sum by debentures or mort- gages, then the company cannot issue any debenture or loan-note, or any security of that description, for the mere purpose of raising money, and I apprehend that any such instrument so issued would be just as void in equity as at law, being contrary altogether to and absolutely forbidden by statute. And I entirely adopt the view which was taken by the learned judges in that case, that everything in respect of which a penalty is imposed by statute must be taken to be a thing forbidden, and absolutely void to all intents and purposes whatsoever. Accordingly they held that the bonds in that case, called Lloyd's bonds, were not, in effect, issued in respect of debts actually due, but were simply issued for the purpose of raising money, and were instruments to which no legal validity could be attributed ; nor, 270 IN KE CORK AND YOUGHAL RAILWAY CO. [CHAP. V. as I apprehend, could any validity be given to them in this court any more than in a court of law. The learned judges there proceeded upon this ground, that the Act 7 & 8 Vict. c. 85, whilst it preserved the rights of those who at that time had advanced money to railway companies on the security of loan-notes or other instruments, pro- ceeded to enact that from and after the passing of that act, any rail- way company issuing any loan-note, or other negotiable or assignable instrument purporting to bind the company, as a legal security for money advanced to the railway company otherwise than under the provisions of some act or acts of Parliament authorizing the railway company to raise such money and to issue such security, should for that offence forfeit a certain sum of money. The judges held that the penalty imposed by that act indicated plainly that the course of procedure in respect of which the penalty was imposed was forbidden by law, and that therefore no recovery could be had upon any such instrument in a court of law. Of course I need hardly say that if a thing be forbidden expressly by act of Parliament, that act can no more be contravened by this court than by any other court of judi- cature in the kingdom. In that case a distinction is drawn by Mr. Justice Blackburn, which appears to me to be very plain and clear. He says, 5 B. & S. 611, that these insttuments " are on their face the acknowledgment of a debt to some particular person, with a covenant to pay it. Such in- strument may be useful in this way, — when a company are indebted it may be convenient to make a bond pointing to a particular portion of the debt actually due ; it would facilitate the assignment in equity of the debt thus acknowledged to be due, and possibly throw upon the company the onus of showing the non-existence of the debt ; but if there be no debt existing, such an instrument cannot create one, nor put the assignee in a better position than the original obligee or covenantee, and the person holding it could not recover upon it if it were shown that it were given gratuitously, or was not authorized by statute." That being the state of the law, we have to consider the circum- stances of this particular case. It is shown, I think, that as regards some of the moneys which have been raised through the medium of Mr. Lewis, some small portions were paid directly to persons who were actual creditors of the company, and so far, I apprehend, there could be little or no dispute as to the right of Mr. Lewis, or of a per- son claiming through him, to stand in the place of the original debtor, whose debt, being a valid debt, had been so paid. But with regard to the other debts, they seem to stand in this posi- tion : As far as we can see, there were debts for which the company was liable ; these debts having to be paid, and the shareholders, in truth, having full and distinct notice that there were these debts, and that there was a large sum to be provided for, the directors proceeded to issue the bonds in question, sanctioned, so far as it could be done, CHAP. V.J IN EE CORK AND YOUGHAL RAILWAY CO. 271 by the shareholders. I do not think that the direct and special sanction of the company, such as there would be at meetings, would have much to do with the matter, because it would rather depend upon the acquiescence of the company in the steps taken, and the benefit which they derived from the money raised, than upon any direct sanction which they could give to that which was otherwise beyond the powers of the directors. It appears that Lewis found the money from time to time for the company, first of all by means of bills, and then by these bonds. He stated that he should find greater facilities in raising money by way of bonds, and he was accordingly furnished with these instruments, acknowledging that money was due to him for work and labor done, and with them he raised money. The money it is said was applied first of all in paying off bills, and not directly in paying off the par- ticular debts due to Lewis, but the bills which had been given in respect of debts, or some of them. Then other bonds appear to have been given to pay off those bonds which had been so applied in pay- ing off the bills, until, ultimately, we reach the set of bonds which are in the hands of the present holders. Then comes the question, whether the present holders can be said to be entitled, under any circumstances, to claim payment upon these bonds. Now, first, it was said by Mr. Jessel that, taking these bonds at the best as a chose in action, even taking them to be that which they really are, a mere acknowledgment of a debt due apparently on a legitimate ground, those who took them must be exactly in the same condition as Mr. Lewis, the original holder, was in ; and, there- fore, if Mr. Lewis, the original holder, could not recover, on account of the position in which he was placed, with a full knowledge of all the circumstances, and of the manner in which the company had pro- ceeded for the purpose of raising money, then no more could the holders of these choses in action be able to recover, nor could they be entitled to place themselves in a better position than he was in. That would be so if, as between Mr. Lewis and the company, there were really no debt at all, or that this was all a mere sham, and that the directors had not in any way borrowed the money, or authorized the borrowing of the money, and had not been in any way parties to the transaction, or that the company had been in no way parties to the transaction. But if the money was really applied for the legiti- mate benefit of the company, can it be possible that the company can hold this money as a surplus which is directed to be paid to them under the act, and treat these bonds as constituting no debt whatever by which they are in any way to be affected ? They knew that there was a large sum of money which must be raised by some means, and for which the borrowing powers and subscription powers were not adequate, and although the bonds themselves may not be the proper instruments or mode by which that money ought to be raised, still they are instruments issued for the express purpose of inducing 272 IN RE CORK AND YOUGHAL RAILWAY CO. [CHAP. V. others to give faith and credit to Mr. Lewis, as being a person to whom money was owing for the legitimate purposes of the com- pany. And the money having been de facto so applied to the legiti- mate purposes of the company, is it possible that the company should be allowed to derive the benefit of all the expenditure which has been thus incurred, and claim the surplus for the benefit of the share- holders ? Can the shareholders be allowed to say to the bondholders, " It is true that the debts have been cleared off by means of your money ; but you are not the persons who have cleared them off, and you are not to receive the benefit of it, for we are the persons to re- ceive the benefit?" The proper course to be taken seems to me to be this : that so far as the company have adopted the proceedings of their directors by allowing these moneys to be raised on the issue of these debentures, and so far as the money raised by the issue of the debentures has been applied in paying off debts which would not otherwise have been paid off, those who have advanced the moneys ought to stand in the place of those whose debts have been so paid off. It is not simply that the bondholders Stand as assignees of the debts, which no doubt have not actually been assigned, but it has been represented by the directors that the persons who lent their money on these acknowledgments were lending their money for the purpose of clearing off the debts ; in fact, that they were to be put in the position of assignees of the debts. Therefore, what we propose to do is to make this order : Let the order of the Vice-Ghancellor be varied, and declare that the receipt and expenditure by the directors of the company, in payment of any sums recoverable from the company of moneys advanced on or pro- cured by' means of the deposit of the alleged bonds, was^ro tanto an adoption by the company of the transactions ; and having regard to the representations contained in the alleged bonds, the moneys so expended constituted debts owing from the company. Inquire whether the company had the benefit of any, and what, expendi- ture in payment of any sums recoverable from the company, of any and what sums advanced on or procured by means of any and which of the deposits of the alleged bonds, and whether any and which of the sums so expended still remain unpaid by the company. The costs to be as in the original order. No costs of this application, except that the official liquidator will take his costs out of the estate. Sir G. M. Giffard, L. J. : — I think it of importance to state clearly in this ease that it is not intended by the court to throw the slightest doubt on the decision come to in the case of Chambers v. Manchester & Milford Railway Company (5 B. & S. 688) ; and from the course which the matter took in the court below, I think it is also important to say that there is no ground whatever for the argument that a contract or instrument which fails in a court of law by reason of its illegality, can neverthe- less be enforced in equity, because money has been paid and received CHAP, v.] IN RE CORK AND YOUGHAL RAILWAY CO. 273 in respect of that contract. Equitabl& terms can be imposed on a plaintiff seeking to set aside an illegal contract, as the price of the relief he asks ; but as to any claim sought to be actively enforced on the footing of an illegal contract, the defence of illegality is as avail- able in a court of equity as it is in a court of law ; and it is for that reason, among others, that the declaration made by the court below has been varied. Now, as regards the present case, I am of opinion that the evidence was quite sufficient to throw on the company the onus of proof that there was fraud; but there has been no attempt to give evidence of fraud. That being so, what the case amounts to is this : Documents were given under the seal of the company. Those documents represented that the company was indebted to Mr. David Leopold Lewis in the amount there stated ; they were given for the purpose of being de- posited by him as security for advances to be made ; and if the repre- sentations in them had been true, those who advanced their money on the deposit would have been assignees of the debts actually owing from the company to Lewis, and the transaction would have been perfectly legal. Now, in this case the representations in the alleged bonds are either true or false, or partly true and partly false. In so far as they are true, the transactions are legitimate ; for Mr. Lewis could assign his debt or debts. On the other hand, in so far as they are false, there was fraud on the part of the directors of the company. The representations on the face of the alleged bonds purported to be representations by the company, and induced the loans, and were made in order that the loans might be obtained. In so far, therefore, as the company has had the benefit of those loans for its legitimate purposes, it must be taken to have adopted the transaction. It can- not be heard to say the contrary, and to that extent must be held liable. For these reasons I concur in the order which the Lord Chancellor has read. Mr. Jessel applied for his costs of the appeal, as his client repre- sented a class, and had been selected in order to obtain a decision, which was absolutely necessary for the administration of the estate. Their Lordships refused to give the costs, as the appeal had only, succeeded in part. VOL. I. — 18 274 IN KE NATIONAL BUILDING SOCIETY. [CHAP. V. In re NATIONAL BUILDING SOCIETY. (L. R. 5 Ch. App. 309. 1869.) This was a motiou made by special leave of the Court of Appeal to discharge an order of the Master of the Eolls, whereby the National Permanent Benefit Building Society was ordered to be wound up. The company was formed under the Benefit Societies Act, 6 & 7 Will. 4, c. 32, and commenced business in February, 1865. The principal object of the company, as stated in the affidavit of Mr. "W. Richardson, the secretary, was to provide a safe mode of investment for the funds of another society, called the National Savings Bank Association. The rules contained the usual provisions for advancing money to members who held shares, and also contained powers of investing money in the hands of the directors; but there was no power to borrow money. The prospectus, which was issued after the rules had been cer- tified, contained the following announcement : " The directors have made arrangements to borrow sums to be advanced to such members as desire to receive an advance before the time for it regularly ar- rives, such members of course paying interest on the sums lent, until their turn arrives." In September, 1865, the Building Society borrowed £400 from the Savings Bank Association, which was forthwith advanced by the directors of the Building Society to a member, on mortgage security ; and the mortgage deed was deposited with the Savings Bank, and the contributions of the member paid into the Savings Bank. In January, 1866, the Building Society borrowed a further sum of £900, which was applied in advances to members, and secured in like manner. Shortly afterwards the Savings Bank stopped payment, at which time they had advanced £1300 to the Building Society. The Savings Bank Association was subsequently ordered to be wound up. On the 13th of July, 1867, the Master of the Eolls made an order to wind up the Building Society as ^an unregistered company, under Part 8 of the Companies Act, 1862. The order was made on the petition of the official liquidator of the Savings Bank Association, who claimed to be a creditor for £1300 due to that association. A proof for that sum was afterwards admitted against the estate of the Building Society, and an order for a call was made upon the contributories for payment of it. Prom this order J. W. William- son and others, who had been settled on the list of contributories, appealed. When the appeal was opened before the Lord Justice Gfiifard, it CHAP, v.] IN RE NATIONAL BUILDING SOCIETY. 275 appeared that there was no debt due from the Building Society ex- cept the £1300 on which the winding-up petition was founded ; and as the ground of the appeal was that this debt was invalid, the Lord Justice directed notice of motion to be given to discharge the wind- ing-up order. This having been done, the two applications came on together. The principal promoters of the Building Society were also pro- moters of the Savings Bank Association, and J. W. Williamson and some others of the appellants were directors or otherwise office- bearers in both companies. SlE G. M. GiFFARD, L. J. : — In point of form, this is an appeal from an order of the Master of the Rolls ; but in reality, the point on which I am about to deter- mine this case was never brought fairly or argued before him, and therefore the matter is very similar to an original hearing before me. The case, when it is examined, is a perfectly simple one : but be- fore I go into it I will dispose of what Sir Richard Baggallay said as to the parties who are making this application, and as to the delay. I quite agree that in many cases delay may be of very great impor- tance, — especially if it has been shown that there have been sales of property or other dealings- I do not find in this case that any- thing of that description has t.aken place. Then, as regards parties, the nature of the case is such that I do not consider these parties personally disabled from bringing forward the case ; more especially as they are not the only contributories on the list, — they being about nine out of a number of thirty-six. But although I think the winding-up order ought not to have been made, I certainly shall give them no costs. The matter itself is a very simple one. This company is what is called a benefit building society. Until the recent decision of the court in Laing v. Reed (L. R. 5 Ch. 4), it was doubted whether, even if you put a limited borrowing power among the rules of a society of this sort, that particular rule would be legal. But what we have here is a limited benefit building society without any power to bor- row, and the rules and very nature of that society show that it would be contrary to its constitution to borrow money so as to bind the company, or to make the individual members of the company, as members, liable for borrowing money ; because the whole constitution of the society is that the members are to make certain monthly pay- ments, and in consideration of these monthly payments and the fines provided by the rules, they are to receive certain loans. After the rules had been certified and published, and the nature of the company had been fixed, a prospectus was issued ; and by that prospectus the directors chose to say " that they have made arrange- ments to borrow sums to be advanced to such members as desire to receive an advance before the time for it regularly arrives, such members of course paying interest on the sum lent until their turn 276 IN RE NATIONAL BUILDING SOCIETY. [CHAP. V. arrives." If we look at the nature of the company, that can only amount to this : that the directors have chosen to pledge their per- sonal liability. It is not a statement that the company were liable, or that any person who was a member of the company was at all bound or was personally made liable in respect of any debt of the company. This being so, let us see on what ground this winding-up order was made. It was made upon the petition of a creditor, and in order to support that petition the petitioner must have made out that ho was a creditor, either legal or equitable ; either character would be sufficient. I have already said that this benefit building society could not incur a debt by borrowing money upon loan. Indeed, the contrary has hardly been argued. It could not do so any more than a mining company or any other of the companies which have not authority or power to bind their members by borrowing money. There was no legal debt ; and if no legal debt, the next thing to in- quire is, whether there was an equitable debt. A class of cases has been referred to on that subject, the principal of which are In r& German Mining Company (4 D. M. & G. 19), and In re Cork and Youffhal Railway Company (L. S.. 4 Ch. 748) ; the latter of which was before the Lord Chancellor and myself a short time ago. I have no hesitation in saying that those cases have gone quite far enough, and that I am not disposed to extend them. They were decided upon a principle recognized in old cases, beginning with Marlow v. Pitfield (1 P. Wms. 568), where there was a loan to an infant, and the money was spent in paying for necessaries ; and in another case of a more modern date, where there was money actually lent to a lunatic, and it went in paying expenses which were necessary for the lunatic. In such cases it has been held that although the party lending the money could maintain no action, yet, inasmuch as his money had gone to pay debts which would be recoverable at law, he could come into a court of equity and stand in the place of those creditors whose debts had been so paid ; that is the principle of those cases. It is a- very clear and definite principle, and a principle which ought not to be departed from. Then it is said that the present case is brought within that prin- ciple. I do not think it necessary to go through the evidence. Suf- fice it to say that there is no proof whatever that one sixpence of this money went in payment of any debt which was recoverable against the company. In truth, all this money went for the purpose of loans to members of this company. It is not for me to say whether the Savings Bank Association that lent the money have or have not any right, either as against the property of this company, which was pledged to them, or as against the persons to whom this money was lent. If they had any such rights, they can only be asserted by filing a bill and taking a very different proceeding from that which has been taken here. CHAP, v.] WENLOCK V. THE RIVEK DEE COMPANY. 277 I am therefore of opinion that there is no legal or equitable debt The winding-up petition is in the nature of an execution against the company. Whether the parties may or may not themselves be per- sonally liable, or however much I may disapprove of their conduct, they are not to be precluded from showing that the title of the cred- itor to^ sustain a winding-up petition totally fails, as it does in this case. The consequence is, that the winding-up order, the proof of the debt, and the order for the call must all be discharged. But, as I said before, the conduct of these parties has been such as to dis- entitle them to any costs. WENLOCK V. THE EIVEE DEE COMPANY. (L.R.\9 Q.B. Div.165. 1887.) Application to vary the report of a special referee. The facts were as follows: An action has been brought by the plaintiffs as executors of the late Lord Wenlock, deceased, to recover from the defendants the amount of moneys advanced by the testator to them. The defence set up was in substance that the moneys had been borrowed by the company ultra vires. It appeared that the testator had advanced large sums of money to the defendant com- pany. He had also paid off a previous advance of £56,000 from the Eock Insurance Company to the defendants, taking an assignment of that debt and a fresh covenant for repayment to himself by the de- fendants. The judge at the trial gave judgment for the plaintiffs for the full amount of the advances by the testator to the defendants. Upon appeal the Couat of Appeal varied his judgment, and, by order dated May 9, 1883, ordered that judgment should be entered for the plaintiffs for the amount of £25,000 (that sum being the full amount which the company had power to borrow) and interest ; and also that in addition thereto the plaintiffs should recover judgment for so much and so much only of the sums advanced as was em- ployed in payment of any debts or liabilities of the company prop- erly payable by them, and interest from the respective dates of such employment ; and that it should be referred to a special referee to in- quire as to and report the amount of the interest payable on the said sum of £25,000 as aforesaid, and the amount of the parts of the said sums so employed as aforesaid and the interest thereon. On appeal to the House of Lords they affirmed the decision of the Court of Appeal (10 App. Gas. 354). The special referee held an inquiry under the above order, upon which inquiry counsel were heard and witnesses examined, and he thereupon made a report. The plaintiffs now applied to the Court of Appeal to decide certain questions of law raised by such report, and to vary the report in certain repects ; 278 WENLOCK V. THE RIVER DEE COMPANY. [CHAP. V. and there was a cross application to vary such report by the defend- ants. Various questions arose on the report with regard to items allowed or disallowed by the referee, which the plaintiffs claimed to have allowed, under the order of May 9, 1883, but which the defend- ants contended should be disallowed. The questions raised were briefly as follows : In addition to the portions of the moneys advanced which had been applied to the pay- ment of debts or liabilities of the company existing at the time of the respective advances, the referee allowed, subject to the opinion of the court, items in respect of portions of the moneys advanced which had been applied in payment of debts and liabilities of the company which arose subsequently to the respective advances, whereas the de- fendants contended that he should have disallowed such items, and allowed only items in respect of moneys advanced which had been applied in payment of debts and liabilities existing at the date of the advances. Further questions also arose as after mentioned : Certain debts and liabilities of the defendant company had been paid by their bankers. The sums so paid by the company's bankers were paid to them out of the sums advanced by the Eock Life Insurance Company or Lord Wenlock. The plaintiffs claimed to be allowed by the referee the amounts so paid, whether the debts or liabilities accrued before or after the advances by the bankers or those by the Rock Company or Lord Wenlock. A portion of the sums advanced to the defendants by the Rock Company or by Lord Wenlock had been paid over by them to a Mr. Green, who was a managing director and agent of the company, out of which he had made disbursements for the company in the course of their business, e. g., for wages, work done, etc. ; some of such dis- bursements being in respect of debts incurred before, and some in respect of debts incurred after the receipt of the money by Green. The plaintiffs also claimed, under the order of May 9, 1883, to be allowed the amount of the sums so disbursed. The plaintiffs further claimed to be entitled to be allowed under the order, in addition to the £25,000 for which they had judgment as being validly borrowed, the amount of all debts and liabilities of the company paid out of that sum of £25,000.^ Rigby, Q. C. and R. 0. B. Lane, for the plaintiffs. The terms of the order of May 9, 1883, include all debts or liabilities of the com- pany paid out of the advances of the plaintiffs' testator whether exist- ing at the date of the advances or not. The doctrine of equity by which the lender or quasiAender of money borrowed by a company ultra vires is subrogated to the rights of a creditor of the company whose debt has been paid off out of the money so borrowed, is not confined to cases where the debt was in existence at the time of the 1 A part of the report is omitted. CHAP, v.] WENLOCK V. THE RIVER DEE COMPANY. 279 advance, but applies to all debts and liabilities of the company paid off out of the money so borrowed whether accruing before or after the advance. The principle upon which this equity depends is dis- cussed in the case of Blackburn Building Society v. Cunliffe, Brooks & Co. (22 Ch. D. 61; also 9 App. Cas. 857, not on this point), and in the judgments in that case there is no trace of the limitation of the doctrine suggested by the defendants. If the company have had the benefit of the money so advanced, by its application to debts or liabil- ities validly incurred by the company and which they were bound to meet, the person who has advanced the money is then subrogated to the rights of the creditors so paid off. The principle is that equity will follow the money, which remains in equity the property of the g'Masi-lender, and wherever it can find any security or piece of prop- erty representing the money the jwasi-lender is entitled thereto ; and therefore, so far as the money has been applied for the benefit of the company, it is to be treated in equity as existing in the coffers of the company, and must be repaid, not as money borrowed, but as money which still belongs in equity to the lender. The test is, whether the transaction has added to the liabilities of the company, and, so far as the advance has been applied to debts or liabilities which the com- pany has validly incurred, whether before or after the advance, the company's liability is not increased. The same principle applies to the cases where debts and liabilities of the company were paid by the company's bankers, and the bankers were paid or repaid the amounts so paid by them out of the moneys advanced by the plaintiffs' testator, whether such debts and liabilities accrued before or after the advances by the plaintiifs' testator or the advances by the bankers. The bankers would have an equitable right to be subrogated to the rights of the creditors so paid off, and such equitable right is a liability of the company which would come within the terms of the order of May 9, 1883, and the doctrine above alluded to. The same reasoning covers the sums paid to Green out of the advances by the plaintiffs' testator. These sums were applied to meet liabilities of the company, and the company's liabilities were not thereby increased; equity will follow the money into debts or liabilities of the company whether its application to such debts or liabilities is direct or through many hands and steps. It is further contended that by the express terms of the order of the 9th May the plaintiffs are entitled to any portion of the £25,000 validly ad- vanced which has been applied to the payment of debts and liabilities of the company, in addition to their judgment for the £25,000 as money legally borrowed. [They cited In re Blackburn Benefit Building Society (24 Ch. D. 421) • Walton v. Edge (10 App. Cas. 33) ; Blackburn Benefit Building Society v. Cunliffe, Brooks & Co. (29 Ch. D. 902) ; Knatchbull v. HaU lett{lSQ\i.'D. 696). J Sir Horace Davey, Q. C, and A. R. Kirby, for the defendants. The 280 WENLOCK V. THE RFVEE DEE COMPANY. [CHAP. V. order of May 9, 1883, must be construed with reference to what the court may consider to be the correct doctrine of equity as to subro- gation in such cases. It is contended that the view of the doctrine on the subject contended for on behalf of the plaintiffs is far too wide and sweeping. The argument for the plaintiffs amounts to this : viz., that the rule which forbids borrowing money ultra vires is practically abrogated wherever it can be shown that money so borrowed was applied to the purposes of the corporation, that is to say, that as be- tween the directors and the shareholders it was not misapplied. The doctrine of Blackburn Benefit Society v. Cunliffe, Brooks & Go. (22 Ch. D. 61), only applies to debts and liabilities existing at the time of the advance which have been satisfied out of it. So far as such debts and liabilities are concerned, it is clear that there has been no increase of the liability of the company. It is merely a substitution of one creditor for another. Attogethcr different considerations arise when the money borrowed is applied to payment of a liability subse- quently incurred,' and which might never have been incurred if the money had not been borrowed. The extension of the equitable doc- trine now sought to be made would have the most -dangerous effects, as enabling companies practically to borrow without limit. [LoBD EsHEE, M. R. : — But even if the doctrine be limited to debts previously incurred, the company have only to postpone the borrow- ing until after they have incurred the liability.] The true principle is, that there is supposed to have been an as- signment of the debt paid out of the advance to the person making the advance ; that the g-wast-lender really pays his money to the creditor and takes an assignment from him of the debt; but that supposed assignment is only applicable to the case of debts in exist- ence at the time of the advance. In the previous cases on the sub- ject the question arose with regard to existing debts. [They cited on this point In re Cork and Youghal By. Co. (L. E. 4 Ch. 748) ; In re German Mining Co. (4 D. M. & G. 19).] With regard to the other matters, viz., the moneys paid by the defendants' bankers in respect of debts of the company, and repaid out of Lord Wenlock's advances and the moneys paid to Green, similar questions arise. It is contended with regard to these items that the equity relied upon by the plaintiffs is coniined to sums di- rectly applied by the company, or their agent, out of the moneys borrowed, in satisfaction of existing debts or liabilities of the com- pany. An equity that the bankers might have in respect of sums advanced by them for the payment of debts or liabilities is not a debt or liability within the order of May 9, 1883. It is submitted, also, that the equity to be subrogated to the rights of a creditor can- not be carried beyond persons to whom the money is directly paid in the first instance by the'company or their agent ; and that, unless such person is a creditor, the equity does not arise. Consequently the amounts disbursed by Green in respect of debts accruing after the CHAP, v.] WENLOCK V. THE EIVEK DEE COMPANY. 281 receipt of the money by him must be disallowed, on the ground that, when the money was received by him, Green was not a creditor of the company in respect of these amounts. It would lead to endless inquiries and difficulties if the money had to be traced through several persons to see whether it ultimately was applied to the company's purposes. It is clear that the plaintiff's contention as to the debts paid out of the £25,000 validly borrowed cannot be right, for the plaintiffs would be getting the same thing twice over if it were ; and the terms of the order rightly construed exclude such contention. The money, being validly borrowed, was, when it got into the defendants' hands, the defendants' own money, and the equity to subrogation to the rights of the creditor cannot apply, for it depends on the doctrine that equity will treat the money borrowed as still remaining the ywasi-lender's property, which only applies when the money is bor- rowed ultra vires. Cur. adv. vult. The judgment of the Court, (Loed Esher, M. R., Fry and Lopes, L. JJ.) was delivered by Fey, L. J. : — The questions which now require determination in this case arise from the application of the order of this court of May 9, 1883, to the facts as found by Mr. Eobertson, the special referee named in the order. By that order it was directed that judgment should be entered for £25,000 and interest, and in addition thereto for so much and so much only of the sums advanced to the defendant company by the ■Rock Life Assurance Company and Baron Wenlock as was employed in the payment of any debts or liabilities of the defendant company properly payable by them, with interest from the respective dates of such employment. It appears that some of the moneys were applied in payment of debts and liabilities properly payable by the company at the date of the advances, and some in payment of debts and liabilities which arose or became properly payable at dates sub- sequent to the advances. The defendants contend that only the advances employed in payment of debts and liabilities actually pay- able at the date of the advance can be brought within the operation of the direction in the order. The plaintiffs contend that all these advances are within the direction, and that the date of the accruer of the liability is immaterial. We are of opinion that the plaintiffs' contention ought to prevail. We are not at liberty to travel beyond or review the declaration contained in the order of May 9, 1883, which is binding on us not only as a decision of this court but by reason of its aifirmation by the House of Lords ; and in our opinion the order rightly bears the wider construction. It is silent as to any limit of time within which the liabilities are to accrue, or within which they are to be paid ; and by fixing the respective dates of the 282 WENLOCK V. THE RIVEH DEE COMPANY. [CHAP. V. employment of the sums as the periods of time from which interest is to run, it seems to indicate that the date of the employment, and not of the advance, is the material one. If the court had intended any Sdch limitation of the inquiry as that now contended for by the defendants, we think that it would have found expression, if not in the formal order, at any rate in the oral judgments, but we can find no trace of it. But we go further and say that in our judgment the equity in question knows of no such limitation as that suggested. This equity is based on a fiction, which like all legal fictions, has been invented Avith a view to the furtherance of justice. The court closes its eyes to the true facts of the ease, viz., an advance as a loan by the quasi- lender to the company, and a payment by the company to its credi- tors as out of its own moneys ; and assumes on the contrary that the c/uasi-lendei and the creditor of the company met together, and that the former advanced to the latter the amount of his claim against the company and took an assignment of that claim for his own bene- fit. There is no reason that we can find for supposing that this imaginary transaction between the quasi-lender and the creditor was confined to the day and hour of the advance of the money to the company ; in the coffers of the company the money really advanced as a loan is still thought of by the court as the money of the quasi- lender; and the court, as the author of the benevolent fiction on which it acts, can fix its own time and place for the enactment of the supposed bargain between the two parties, who have met and contracted together only in the imagination of the court. The true limit of the doctrine we conceive to be stated by Lord Selborne, L. C, in delivering the judgment of this court in the case of the Blackburn Buildlnr/ Society v. Gunllffe, Brooks & Co. (22 Ch. D. 61, at p. 71). " The test," said he, " is, has the transaction really added to the liabilities' of the company? If the amount of the company's liabilities remains in substance unchanged, but there is merely for the convenience of payment a change of the creditor, there is no substantial borrowing in the result, so far as relates to the position of the company. Regarded in that light, it is consistent with the general principle of equity that those who pay legitimate demands which they are bound in some way or other to meet, and have had the benefit of other people's money advanced to them for that pur- pose, shall not retain that benefit so as, in substance, to make those other people pay their debts. I take that to be a principle suifi- ciently sound in equity : and, if the result is that by the transaction which assumes the shape of an advance or loan nothing is really added to the liabilities of the company, there has been no real trans- gression of the principle on which they are prohibited from borrow- ing." Now the payment of bona fide liabilities arising or accruing subsequently to the actual date of the advance has in no way really added to the liabilities of the company, and therefore in no way CHAP, v.] WENLOCK V. THE KIVEK DEE COMPANY. 283 transgresses the boundaries of the doctrine as laid, down by this court in the case to which we have referred. Sir Horace Davey for- cibly warned us of the danger of the proposition which we have laid down, and said that it would afford to companies a facile means of evading the limit of their borrowing powers. But the danger ap- pears to us imaginary. We do not think that capitalists will be found knowingly and willingly to advance money in the hope of recovering it on the ground of some future subrogation to the future rights of some future creditor. The doctrine has rarely, if ever, done more for any one than snatch a few brands from the burning. In the present case the utmost extension of the doctrine will leave the plaintiffs heavy losers. The next question arises in this way. Certain creditors of the company were paid by the bankers of the company ; these bankers were paid by the advances of the Rock Company or Lord Wenlock : are the plaintiffs entitled to be subrogated to the rights of these creditors ? It appears to us that they are entitled to be so subro- gated ; that the right of the bankers, which they obtained by subro- gation from the creditors whom they paid, was an equitable liability of the company ; and that for the purposes of this inquiry it is im- material whether the rights of the creditors accrued before or after the advances by the bankers, or the Rock Company, or Lord Wenlock. A similar question was discussed as to a Mr. Green, who was a managing director and agent of the company, and to whom payments were made by the company out of which he made disbursements for the company. It was argued that the inquiry must stop at the first payment by the company. But we can find no ground for this con- tention. To follow the money into a debt or liability of the company does not add to the liabilities of the company, whether that pursuit be through one or more hands and by one or many steps. It is conceded that under the order of May 9, 1883, the plaintiffs are entitled to the £25,000, and to so much of the sums advanced beyond the £25,000 as was expended in satisfaction of the debts and liabilities of the company. The plaintiffs contend that they are entitled, in addition to all this, to so much of the £25,000 itself as was so expended. They contend that this is given to them by the express terms of the order, and that the point, therefore, is not open to further consideration. We do not so read the order ; for it ap- pears to us that the £25,000 is dealt with separately, in the first place, and that the rest of the order deals with sums in every respect outside of and beyond the £25,000. The words in the order "in addition " exclude, in our opinion, all further consideration both of the borrowing of the £25,000 and of its application. And in our opinion this is right in point of reason and principle : for the £25,000, having been validly borrowed, became part of the moneys of the company as much as the original subscriptions of the members or -the produce of sales of its lands ; and no application by the company 284 AM. UNION TEL. CO. V. UNION PACIFIC RAILWAY CO. [CHAP. V. of its own moijeys to the payment of its own debts can be conceived of as a transaction between a g'wasi-lender to the company and the creditors of the company, or lead to a subrogation of the creditors' rights to the stranger. If the plaintiffs were to be subrogated to the rights of those creditors who were paid with the £25,000, we do liot see why they should not be subrogated to the rights of every creditor paid by the company with its own moneys from any source whatever. The matter must be referred back to the referee with the following declarations, and the costs of the hearing, which has led to partial success and failure on each side, must be costs in the cause. [Then followed formal declarations as to the mode of taking the account under the order of May 9, 1883, in accordance with the principles laid down by the judgment of the court. The substance of such declarations, so far as material to this report, was that the plaintiffs were entitled to credit in respect of all debts and liabilities of the company which had been paid out of the sums advanced by the Rock Insurance Company or by Lord Wenlock, whether such debts and liabilities existed at the time of or accrued subsequently to the dates of the respective advances ; that the plaintiffs were entitled to credit in respect of all debts and liabilities of the company which, having been paid by Messrs. Herries & Co., (the defendants' bankers) or others, had been paid or ultimately repaid to them out of any sums advanced by the Rock Insurance Company or by Lord Wenlock, whether such debts or liabilities existed at the time of or accrued subsequently to the dates of the respective advances by the Rock Insurance Company or Lord Wenlock, or the dates of the payments by Messrs. Herries & Co. or others ; that the plaintiffs were entitled to credit in respect of all debts and liabilities of the company paid by Green out of moneys paid to him by the company, whether such debts or liabilities existed at the time of or accrued subsequently to the receipt by him of the moneys out of which he paid them ; and that the plaintiffs were not entitled to be allowed anything in respect of debts or liabilities of the defendants paid out of the £25,000 validly borrowed.] Judgment accordingly. AMERICAN UNION TELEGRAPH COMPANY v. THE UNION PACIFIC RAILWAY COMPANY. (1 McCrartj, 188. 1880.) Motion for injunction. McCeaky, Circuit Judge : — By act of Congress, approved July 1, 1862, and acts amendatory thereof, the Union Pacific Railroad Company was created a corpora- GHAP. v.] AM. UNION TEL. CO. V. UNION PACIFIC RAILWAY CO. 285 tion with power to " lay out, locate, construct, furnish, maintain, and enjoy a continuous railroad and telegraph, with appurtenances," from the Missouri River, through Nebraska and Wyoming, to a junction with the Central Pacific Railroad in Utah. Under this authority the said railroad company built, and early in 1869 completed, its rail- road and telegraph over said route. The plaintiff is a corporation organized under the laws of the State of New York. On the first day of September, 1866, the plaintiff and said Union Pacific Railroad Company entered into a contract, whereby, among other things, the railroad company agreed to demise and lease to plaintiff "all its telegraph lines, wires, poles, instruments, offices, and all other property by it possessed, appertaining to the business of telegraphing, for the purpose of sending messages and doing a general telegraphic business ; to have and to hold for and during the whole term of the charter of the party of the first part (the railroad company) and any renewals thereof, subject to the rights of the United States as set forth in the charter of the railroad company, and on the condition that the plaintiff would faithfully and fully perform all the duties imposed or to be imposed upon the railroad company by its charter or by the laws of the United States." On the twentieth day of December, 1871, a supplemental agree- ment was entered into between said parties, by which certain changes were made in the original contract. Among other things, it was pro- vided in said contracts that the railroad company should receive from plaintiff, in consideration for the same, 17,800 shares of the capital stock of the plaintiff corporation (the Atlantic and Pacific, Telegraph Company), which stock the railroad company received and applied to its own use. Said contracts were duly performed on both sides until the twenty-seventh day of February last, when the rail- road company assumed, of its own motion, to rescind the same, and to resume possession and control of the property ; for which purpose its agents cut the wires running from the general offices of plaintiff, for commercial business, at Omaha, and severed said offices from the main line. It is charged in the bill that this was done for the pur- pose of giving the business of said line at Omaha, and all the advan- tages thereof, to the defendant, the American Union Telegraph Company, a competitor and rival of plaintiff in the business of telegraphing. The Union Pacific Railroad Company, by consolidation with an- other company, has become the Union Pacific Railway Company, by which name it is sued. The prayer of the bill is, among other things, for an injunction to restrain the defendants from disregarding the two contracts above mentioned, and from interfering with the property covered thereby, except as in said contracts provided, and from preventing the plain- tiff from reconnecting the wires so as to restore them to their origi- nal condition before the same were cut. On the first of March it 28G AM. UNION TEL. CO. V. UNION PACIFIC RAILWAY CO. [CHAP. V. was ordered that the application for injunctiou be heard before me, at chambers at St. Louis, on the sixth of April, 1880, and in the mean time a preliminary injunction was allowed. The defendants have answered fully, and numerous affidavits have been filed. Upon the record thus presented counsel have been fully heard, both orally and by printed briefs. The Union Pacific Railway Company, defendants, admit the cut- ting of the wires as charged, as well as their purpose to disregard the contracts, and retake the telegraph lines and property, and in justification allege that said contracts were beyond the power of the company to make, contrary to public policy, and in violation of the acts of Congress chartering the Union Pacific Eailroad Company, and that they are therefore void. The question of the validity of these contracts is the first to be considered. 1. The rules by which this question is to be determined are now well settled, at least in the Federal courts. They have been clearly stated by the Supreme Court in the recent case of Thomas et al. v. The West Jersey R. Co. (101 U. S. 11). From the opinion in that case, delivered by Mr. Justice Miller, I make the following extracts, as laying down the law by which I must be guided : — " We take the general doctrine to be in this country, though there may be exceptional cases and some authorities to the contrary, that the powers of a corporation organized under legislative statutes are such, and such only, as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it remains that the charter of a cor- poration is the measure of its powers, and that the enumeration of those powers implies the exclusion of all others. . . . " There is another principle of equal importance, and equally con- clusive against the validity of this contract, which, if not coming exactly within the doctrine of ultra vires, as we have just discussed it, shows very clearly that the railroad company was without the power to make such a contract. " That principle is that where a corporation, like a railroad com- pany, has granted to it by charter a franchise intended in a large measure to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any con- tract which disables the corporation from performing those functions — which undertakes, without the consent of the state, to transfer to others the rights and powers conferred by the charter, and to relieve the grantees of the burden which it imposes — is a violation of the contract with the state, and is void as against public policy. This doctrine is asserted with remarkable clearness in the opinion of this court, delivered by Mr. Justice Campbell, in the case of The York & Maryland Line Railroad Co. v. Winans (17 Howard, 30). The cor- poration in that case was chartered to build and maintain a railroad in Pennsylvania by the Legislature of that State. The stock in it CHAP, v.] AM. UNION TEL. CO. V. UNION PACIFIC RAILWAY GO. 2S7 was taken by a Maryland corporation, called the Baltimore & Sus- quehanna Railroad Company, and the entire management of the road was committed to the Maryland company, which appointed all the officers and agents upon it, and furnished the rolling-stock. "In reference to this state of things, and its effect upon the liabil- ity of the Pennsylvania corporation for infringing a patent of the defendant in error, Winans, this court said : ' This conclusion [argu- ment] implies that the duties imposed upon the plaintiff [in error] by the charter are fulfilled by the construction of the road, and that, by alienating its right to use and its power of control and super- vision, it may avoid further responsibility. But these acts involve an overturn of the relations which the charter has arranged between the Legislature and the community. Important franchises were con- ferred upon the corporation to enable it to provide facilities for communication and intercourse required for public convenience. Corporate management and control over these were prescribed, and corporate responsibility for their insufficiency provided as a remu- neration for their grant. The corporation cannot absolve itself from the performance of its obligations without the consent of the Legis- lature. Beman v. Rufford (1 Simon N. S. 550) ; Winch v. B. & L. B. Go. (13 Law and Equity, 506).' " And in the case of Black v. Delaware & Baritan Canal Co. (7 C. E. Green, N. J. Eq. 390), Chancellor Zabriskie says : ' It may be considered as settled that a corporation cannot lease or alienate any franchise, or any property necessary to perform its obligations and duties to the state, without legislative authority.' For this he cities some ten or twelve decided cases in England and this country." . . . The case in which these propositions of law were announced was this : A New Jersey railroad corporation, without express authority, undertook to lease to another company for twenty years its railroad, with all its appurtenances and franchises, including the right to do the business of a railroad and collect the proper tolls. The contract or lease was confirmed by a vote of the stockholders. The lessor was authorized to cancel the lease upon giving three months' notice, but in that event was to be liable to pay the damages incurred by the other party by reason of such action. Under this provision the rail- road company ended the contract, and resumed possession of the leased road. The suit was by the lessee for the damages provided for, and it was held that no recovery could be had because the con- tract was ultra vires. It remains to apply these principles to the case in hand. 2. It is certain that the contracts in question amounted to a lease, or alienation, by the Union Pacific Railroad Company, of property which was necessary to the performance of its obligations and duties to the government, and to the public. In my judgment the Act of July 1, 1862, and its amendments, must be construed as chartering the Union Pacific Railroad Company, and 288 AM. UNION TEL. CO. V. UNION PACIFIC RAILWAY CO. [CHAP. V. devolving upon it, individually and personally, the power and duty of constructing, operating, and maintaining a line of telegraph, as well as a railroad. This is made manifest by the consideration that the government endowed the corporation with large grants of land and bonds, to aid in the construction of these lines, and imposed upon the company the duty of reimbursing the government from the earnings of the road and telegraph line. Section 6, act of 1862. It is also clear from the language of the first section of said act, which empowers the corporation " to lay out, locate, construct, furnish, maintain, and enjoy a continuous railroad and telegraph, with the appurtenances," that the power conferred was personal, and carried with it a duty and an obligation which could not be transferred. The very same language which authorizes the construction and operation of the telegraph line also authorizes the construction and operation of the railroad, and the property in the one is as necessary to the performance of the public duties of the corporation as that in the other. . The charter of the company, with the amendments, con- sidered as a whole, was manifestly intended to create a corporation which should be personally amenable to the government, in the exer- cise of the powers conferred, and which should in a quasi public capacity perform the duties imposed, and render an account of its earnings. The purpose was not to authorize the construction of a line either of railroad or telegraph to be thereafter sold, leased, or transferred to other parties, leaving the governinent to the chances of securing from or through the lessee or vendee its proportion of the earnings. This is made still more clear by the provisions of the Act of June 20, 1874, amending the charter, which imposes upon the company and its officers and agents penalties for a failure to operate or use said railroad or telegraph, so far as the public and the government are concerned, as one continuous line, and which gives a right of action to any party aggrieved, "in case of failure or refusal of the Union Pacific Kailroad Company, or either of said branches, to comply with this act or the acts to which this is amendatory." I conclude that the charter of the Union Pacific Eailroad Company devolved upon it the duty of constructing, operating, and maintaining a line of telegraph for commercial and other purposes, and that this is in its nature a public duty. I am further of the opinion that, by the provisions of the contract of September 1, 1866, and of December 20, 1871, the railroad company undertook to lease or alienate property which was necessary to the performance of this duty. The considera- tion for these contracts is declared to be " the demise of their tele- graph lines, property, and good-will, and of the rights and privileges, in the manner hereinafter specified," etc. ; and the property demised by the railroad company is " all its telegraphic lines, wires, poles, instruments, offices, and all other property by it possessed, appertain- ing to the business of telegraphing, for the purpose of sending mes- CHAP, v.] AM. UNION TEL. CO. V. UNION PACIFIC KAILWAY CO. 289 sages and doing a general telegraph business." The lessee was to hold during the whole term of the charter of the railroad company and any renewal thereof. There is inserted a stipulation that the lessee shall perform all the duties imposed or that may be imposed upon the railroad company by their charter or by the laws of the United States. But, as already intimated, I do not think this latter clause makes the contract good. The railroad company was not at liberty to transfer to others those important duties and trusts which it, for a large consideration, and for a great public purpose, had un- dertaken to perform. It certainly could not divest itself of these powers and duties, and devolve them upon the plaintiff, without ex- press authority from Congress. 3. But if the contracts in question are not ultra vires, by reason of the transfer of property necessary to the performance by the railroad company of its public duties, they are so because they attempt to transfer certain franchises of the said company. The right to oper- ate a telegraph line, and to fix and to collect tolls for the use of the same, is, to. say the least, the most valuable part of the franchise conferred by Congress upon the railroad company, as a telegraph company. This right is alienated by a clear and unequivocal assign- ment or transfer from the railroad company to the plaintiff. With- out discussing other features of the contracts, I am compelled to hold that this feature is alone sufB.cient to render them in excess of the corporate power of the company. 4. This brings me to the question whether the railroad company can be permitted to rescind the contract, and on its own motion to take possession of the lines, offices, and property, without first returning the consideration received therefor from the plaintiff. As already stated, the railroad company received from the plaintiff, in payment for the property and rights agreed to be transferred by said contracts, 17,800 shares of the capital stock of the corporation plaintiff. There is a dispute as to the value of the stock, but I believe it is not placed by any one of the deponents at less than f 150,000, while some of them place it at a much higher sum. No case has been cited in argument, nor have I been able to find one, which holds that a court of equity, having jurisdiction of the parties to "and the subject-matter of" an illegal contract, should re- quire one of such parties to give up what he has received under it, without requiring the other to do the same. Many cases hold that a corporation which has made a contract ultra vires, which has not been fully performed, is not estopped from pleading its own want of power when sued upon such contract; but that doctrine does not apply to a case where a party comes into a court of equity, and, while retaining all that he has received upon such a contract, asks to be permitted to retake what he has parted with under it. I-take it there is nothing in the law, as there is certainly nothing in the principles of equity, to estop the court from saying that the obligation to return VOL. I. — 19 290 AM. UNION TEL. CO. V. UNION PACIFIC RAILWAY CO. [CHAP. V. the property transferred under these contracts is mutual, and shall not be enforced against one of the parties without being at the same time enforced against the other. As the parties and the subject- matter are now before the court, it is the duty of the court, as far as possible, to place them in statu quo. It has been held that even in cases at common law, a contract ultra vires, made between a corpora- tion and another person, and under which the corporation has received value, which it retains, will be so far enforced as to estop the cor- poration from refusing payment on the ground of its own want of power. Bradley v. Bullard (55 111. 417). And in the case of Thomas v. R. Co., (Supreme Court U. S.) already quoted from at length, Mr. Justice Miller, upon this point, says : " There can be no question that, in many instances, where an invalid contract, which the party to it might have avoided or refused to per- form, has been fully performed on both sides, whereby money has been paid or property changed hands, the courts have refused to sus- tain an action for the recovery of the property or the money so trans- ferred. And in regard to corporations, the rule has been well laid down by Chief Justice Comstock, in Parish v. Wheeler (22 K. Y. 404), that the executed dealings of corporations must be allowed tp stand for and against both parties when the plainest rules of good faith require it. But what is sought in the case before us is the en- forcement of the unexecuted part of this agreement. So far as it has been executed, namely, the four or five years of action under it, the accounts have been adjusted, and each party has received what he was entitled to by its terms." The present case, like the New Jersey case in which these remarks were made, is one on which the contract has been executed in part, but it differs from that case in one important particular. In the New Jersey case the court say that, " so far as it [the contract in question] has been executed, namely, the four or five years of action under it, the accounts have been adjusted, and each party has received what he was entitled to by its terms." If that case had been in equity, and it had appeared that the rail- road company had received in advance the full consideration for the whole term of the lease, which it retained, while asking to be relieved from the contract, I have no doubt the court would have said : " You must come into this tribunal with clean hands ; you must do equity before you can seek the aid of a court of conscience." The contention of the railroad company is that it should be per- mitted to take possession of the property in controversy without process or legal proceedings. While I am clear that the contracts under which the property is held by plaintiff are ultra vires, there is a dispute upon that subject, and such a dispute as in my judgment cannot be determined by the railroad company of its own motion. The right of rescission does not justify the railroad company in taking possession except by lawful means. The plaintiff has a right CHAP, v.] BANK V. NILE3. 291 to be heard upon issue joined in a proper proceeding before being ejected. The present question is not whether the contracts should be rescinded and the property restored to the railroad company, but whether this should be done by the railroad company upon its own motion, and in a way to deprive the plaintiff not only of a hearing in the regular course of this court, but also deprive it of the right of appeal. It is one thing for me to hold that the contracts are in my judg- ment ultra vires, and quite another to say to the railroad company, " You may turn ' the plaintiff out and take possession without giving it a day in court." An injunction will often be granted to restrain a party from de- ciding for himself a question involving controverted rights, and to compel him to resort to the courts, and this without regard to the absolute merits of the controversy. It is enough that there is a con- troversy to justify a court of equity in directing that it be settled by legal proceedings. Eckelkamp v. Schroeder (45 Mo. 605) ; Varick v. New York (4 Johns. Ch. 53) ; Dudley v. Trustees (12 B. Mon. 610) ; Farmers v. Reno (53 Pa. St. 224) ; Sunsing v. Steamhoat Co. (7 Johns. Ch. 162). The principle settled by these and many other cases is that a party who is in actual possession of property, claiming under color of title, is not to be ousted, except by the means provided by law, and such a possession the court will protect by injunction from disturbance by any other means. For this reason, therefore, as well as upon the grounds above stated, I am clearly of the opinion that the railway company cannot be permitted to oust the plaintiff from possession without process. The injunction, heretofore granted, will be so far modified as to make it clear that the railroad company is at liberty to institute legal proceedings, either by cross-bill in this case or otherwise, to cancel and set aside the said contracts upon a return of the consideration, and to settle and adjust, upon principles of equity, the accounts between the parties. BAISTK V. NILES. ( Walker, (Mich.) 99. 1842.) The bill in this case was filed to obtain the specific performance of a contract entered into by the parties on July 1, 1839. The com- plainants bound themselves to convey to defendant, within sixty days thereafter, certain real estate described in the contract, and to obtain from one Jeremiah H. Pierson a good and suiRcient deed of the Eocbester Mill property, and convey to him three undivided fourth parts of it ; and, in case a mortgage should be given by them 292 . BANK V. NILES. [CHAP. V. on the mill property, for the purchase money, they covenanted to pay the incumbrance, and cause it to be discharged within five years. The defendant, in return, agreed to execute a mortgage to complain- ants for the purchase-money to be paid by him, amounting to $28,000, on the property to be conveyed, and on certain other property named in the contract. Within the sixty days, complainants purchased and obtained a deed of the mill property from Pierson, for $5,000, which they paid and secured to be paid to him. They then made out and executed a deed to defendant for three-fourths of it, with the other property they were bound by the contract to convey to him, and were ready and willing to perform their part of the contract. The defendant demurred. The Chancellor : — The first objection made by defendant is, that the bank had no authority under its charter to make such a contract as that disclosed by the bill ; and that this court will not, for that reason, decree a performance of it. The third section of the act of incorporation concludes with these words : " The President, Directors, and Company of the Bank of Michigan shall be in law capable of purchasing, holding, and convey- ing any estate, real or personal, for the use of the said corporation." By the ninth section it is provided, " That the latids, tenements, and hereditaments, which it shall be lawful for the said corporation to hold, shall be only such as shall be required for its accommodation in relation to the convenient transacting of its business, or such as shall have been bona fide mortgaged to it by way of security, or con- veyed to it in satisfaction of debts previously contracted in the course of its dealings, or purchased at sales upon the judgments which shall have been obtained for such debts." The power given by the third section to purchase, hold, and con- vey real estate, is limited by the ninth section to specific objects. Taking the two sections together, the intention of the Legislature is clear, and but one construction can be given to thSm. It was in- tended that the corporation should have power to purchase real estate for the convenient transaction of its business, or to secure a debt ; but not for the purpose of investing its capital, or of specu- lating in lands, or of buying them merely to sell again. I have no doubt this is the true construction of the charter. A different con- struction would enable the corporation to buy and sell real estate at pleasure, and render entirely nugatory the restriction imposed by the ninth section. The corporation, then, exceeded its pbw'ers, and con- tracted to do what it had no right to do under its charter, when it covenanted to purchase the mill property of Pierson, and convey three-fourths of it to defendant. It was an agreement to buy real estate of one individual to sell to another ; a contract to violate its charter, by embarking in a business with which it had no right to meddle; — a contract which, for that reason, this court cannot, c6n- CHAP, v.] NASSAU BANK V. JONES. 293 sistently with equitable principles, assist the complainants to carry into execution. Equity will aid no one in doing that which is unlawful. The purchase of the mill property of Pierson for $5,000, after the contract was made, makes no difference ; for it was done under the contract, and in part performance of it. The case of The Banks v. Poitiaux (3 Band. E. 136) goes no further than this, that the cor- poration, having purchased the land, might make a deed of it ; not that it might make a contract with A. to purchase lands of B., and sell them to A., which is the case before me. It is unnecessary to decide the other questions made on the argu- i^snt. Demurrer allowed. (This case was affirmed on appeal.) NASSAU BANK v. JONES. (95 N. Y. 115. 1884.) Appeal from a judgment of the General Term of the Superior Court of the city of New York, entered upon an order made June 30, 1882, affirming a judgment in favor of defendants, entered upon a decision of the court at Special Term. This action was brought against the defendants as executors of one Daniel Jones, to compel them to transfer to the plaintiff certain shares of stock and bonds of the Denver & Eio Grande Railway Co., or the proceeds of such thereof as may have been disposed of, which are alleged to have been subscribed for by the decedent as agent of the plaintiff, and to account to the plaintiff for all profits derived! from the same, and received either by said Jones or his executors. RuGER, C. J. ; — The question involved in this case, as we regard it, is the right of a banking corporation chartered under the laws of this. State to sub; scribe for the stock of a railroad corporation. In the spring of 1879, the Denver and Rio Grande Railroad Com- pany, being a corporation organized to construct railroads in Colorado and adjoining territories, with the view of raising money to extend its lines, published a circular, whereby it proposed in substance to issue $5,000,000, of its bonds, in sums of $1,000 each, payable thirty years after date, with annual interest at seven per cent in gold, se- cured by mortgage upon its property; and to deliver one of such bonds, together with five shares of its capital stock of the par value of $100 per share, to each and every person who should advance thereon the sum of $900, reserving, however, the privilege to the rail- road company of withdrawing the proposition, when it should have received subscriptions to said loan to the amount of $3,000,000. 294 . NASSAU BANK V. JONES. [CHAP. V. This proposal was favorably received, and the loan was subscribed for by citizens and corporations in various States of the Union, to an amount greatly exceeding the sum required by the railroad company. Among others the defendant's testator, one David Jones, subscribed for, and was awarded $90,000, of such contemplated loan. It is claimed by the appellant, and was found as a fact by the trial court, that Jones undertook, by the authority and for the benefit of the plaintiff, to contract with this railroad company, for a loan, under its proposal, in the name of the plaintiff, to the extent of one-half of the amount which should be allotted to him ; and by this action the appellant seeks to recover, from Jones' executors, among other things, the profits claimed to have been made by him upon its share of the transaction. The right to maintain the action seems to de- pend upon the power of the bank to enter into the proposed contract, for if it had no lawful authority to make such a contract, it could not become liable to Jones upon its obligation to take and pay for the property contracted for ; and consequently there would be no consid- eration for Jones' undertaking to subscribe for the benefit of the bank. Not only this, but the bank could not, by suit, enforce against any one an executory contract which it was unauthorized by its charter to make. It becomes necessary, therefore, to inquire into the nature of the proposed contract, and the legal capacity of the plaintiff to transact business. The proposition of the railroad company contemplated either a loan of money, or a sale of its stock and bonds ; and the view we take of the case does not render it lAaterial to determine which con- struction should be given. By whatever name it be called, the trans- action contemplated that its subscribers should become the legal own- ers of the certain stock and bonds thereby offered to be disposed of. If it be regarded as a loan, the subscriber would receive the bonds with their mortgage security, as an evidence of the company's in- debtedness to him ; and the stock as a bonus to induce the making of the loan. On the other hand, if it be considered as a purchase of the stock and securities of the railroad corporation, the subscriber be- comes the owner of such stock and bonds upon complying with the conditions of the proposition. In either event he becomes the absolute owner of the property pro- posed to be delivered in exchange for the money advanced, and acquires all the rights and privileges, and subjects himself to all the liabilities, of such proprietorship. The acquisition by the railroad of a new class of stockholders was as much a part of the scheme as the creation of a debt ; and its propo- sition to loan money could not be availed of, under the terms of the offer, without necessarily involving an acceptance of the privileges, and incurring the liabilities of a stockholder. The offer of this stock was a material part of the proposition, and was undoubtedly largely CHAP, v.] NASSAU BANK V. JONES. -1J5 relied upon as an inducement to investors. The increase of creditors and stockholders would proceed jpari passu, under this scheme ; and the subscribers to the loan might, in case of the company's insolvency, eventually, as the owners of its stock, be compelled to contribute to the payment of its debts. It is clear that a banking corporation cannot enter into a contract of this character, unless it has authority under its charter to become a subscriber for the stock of railroad corporations, and thereby as- sume the obligations to which stockholders are subject by statute, Adderly v. Storm (6 Hill, 624). It is scarcely conceivable that it can be seriously urged that a moneyed corporation, having under its charter the right to transact a banking business only, may legally engage, as a corporation, in the construction of railroads, or in furnishing money for such an object, in exchange for the stock of a railroad corporation, and yet, when this case is analyzed and stripped of its irrelevant details and circum- stances, we cannot see why this is not precisely what was attempted by the plaintiff. This action is brought upon the theory that Jones was, in making the subscription in question, the agent of the plaintiff, and it thereby seeks to charge the defendants, as Jones' executors, with a trusteeship for its benefit, of a large quantity of the stock of the railroad corpo- ration, for which it asks the defendants to account to it, as the owners thereof. The complaint assumes, that the plaintiff, in 1879, became the equitable owner of a large amount of such stock, acquired by virtue of an original subscription therefor, made with the company issuing the stock ; and that it has ever since been the equitable owner, and is now entitled to demand the immediate delivery and possession of such stock. Assuming the validity of the contract relied upon by the plaintiff, it has been for several years a stockholder in the railroad company, and has thereby become answerable as such stockholder, for a moiety at least, of any sum which Jones might be required to pay, through any statutory liability for the debts of the corporation. Stover v. Flack (30 N. Y. 64). Even a cursory view of the provisions of the statute under which the plaintiff was organized, and the cases giving construction to the powers thereby conferred, renders it quite clear that the contract under which the plaintiff claims was not only ultra vires, but contrary to public policy. The plaintiff is a moneyed corporation, organized under chapter 260 of the Laws of 1838, and authorized by that statute to "carry on the business of banking, by discounting bills, notes, and other evidences of debt ; by receiving deposits ; by buying and selling gold and silver bullion, foreign coins,' and bills of exchange, and by loaning money on real and personal property." 296 NASSAU BANK V. JONES. [CHAp. V. The Legislature intended by the act in question to inaugurate in this State an entirely new system of banking, and thereby undertook to provide for the establishment of moneyed corporations which should furnish to the public a safe and reliable circulating medium for the transaction of its business, and secure and solvent depositaries for the custody of such moneys as were needed for current use by the business public. Sohermerhorn v. Talman (14 IST. Y. 117) ; Leavitt v. Blatchford (17 id. 526). The solvency of these institutions was guarded by special provisions and limitations in the act authorizing their incorporation, and has ever since been the object of sedulous care, both on the part of the Legislature and of the courts (Chap. 360, Laws of 1837 ; chap. 329, Laws of 1864 ; chap. 62, Laws of 1862). The language employed in the act defines their power and duties, and excludes by necessary implication a capacity to carry on any other business than that of banking, and the adoption of any other methods for the prosecution of such business than those specially pointed out by the statute. Pratt v. ShoH (79 N. Y. 440), Morse on Banking (5) ; Talmage v. Pell (7 N. Y. 347) ; People v. Vtica Ins. Co. (15 Johns. 383). In the latter case, banking powers were defined, generally, as the right to issue bills, negotiate notes, and receive deposits ; and in Pratt V. Short {supra) Judge Andrews describes the principal func- tions of a banking corporation to be to " issue notes to circulate as money, and discounting commercial paper." The business of bank- ing, as defined by Webster, is the establishing of a common fund for lending money, discounting notes, issuing bills, receiving deposits, collecting the money on notes deposited, negotiating bills of ex- change, etc. The implied restrictions upon the corporations formed under the act of 1838 against transacting any other business than that of banking, and the careful definition given to that word, not only by lexicographers, but in the reported cases, would seem clearly to establish a want of authority in. such corporation to engage in any business transactions excepting such as relate to the collection of business paper, the buying and selling of coin and exchanges, and the loaning of moneys upon the securities pointed out by the statute. Certainly, the utmost liberality in the construction of the powers given to these corporations would not include the rights claimed for them in this case. The character and quality of the securities in which they are authorized to employ their moneys, and the nature of the business in which they are privileged to engage, have frequently been the subject of discussion in our courts, with the same uniform tendency to so interpret the law as to limit their business operations, and confine their loans and investments, to such transactions as should best promote their security and solvency. Crocker v. Whitney (71 N. Y. 161) ; Schernierhorn v. Talman (supra.) The spirit of the law, as well as a sound public policy, forbid these institutions from risk- ing the moneys intrusted to their care in doubtful speculations or enterprises. CHAP, v.] NASSAO BANK V. JONES. 297 The great change made in the financial business of the country by the establishment of the National banking system has not altered the policy of the law regarding the institutions organized under the State system of banking, although it has much restricted the number ot corporations subject to its application. The protection of the public from the disastrous consequences which are to be apprehended from an unsound banking system is just as necessary now as formerly, and requires the application of the same principles that distinguished our jurisprudence when the State banks were the exclusive agents in our financial system. Tor these reasons we are of the opinion that the plaintiff was not only precluded by public policy, but was not authorized. by the statute under which it was organized, to enter into any engagement as a stockholder in a railroad corporation. The contract between the plaintiff and Jones was wholly executory, and nothing has occurred thereunder, preventing the bank from set- ting up its own want of authority to make such a contract, as a defence to any action brought thereon by Jones. While executed contracts made by corporations in excess of their legal powers, have in some cases been upheld by the courts, and par- ties have been precluded from setting up, as a defence to actions brought by corporations, their want of power to enter into such con- tracts, Bissell V. M.S. & N. I. B. B. Co. (22 N. Y. 258) ; Whitney Arms Co. v. Barlow (63 id. 62) ; Woodruff v. E. B. B. Co. (93 id. 618), this doctrine has never been applied to a mere executory con- tract which is sought to be made the foundation of an action, either by or against such corporations. It was said by Judge Selden, in Tracy v. Talmage (14 N. Y. 179), " That a contract by a corporation, which it has no legal capacity to make, is void and cannot be en- forced, it would seem difficult to dejiy." In White v. Buss (3 Gush- ing, 448), Chief Justice Shaw lays down the rule as follows: "It is well settled by the authorities that any promise, contract, or under- taking, the performance of which would tend to promote, advance, or carry into effect an object or purpose which is unlawful, is in itself void and will not maintain an action." Lord Mansfield, in Smith v. Bromley (Douglas, 696), says : "If the act is in itself immoral, or a violation of the general laws of public policy, then the parly paying shall not have this action." In Tracy V. Talmage (supra), Judge Comstock says : " It is admitted that the contract of a corporation, which it has no legal capacity to make, cannot in its terms be enforced." There is nothing in this case to exempt the plaintiff from the opera- tion of the general principle determined in the cases referred to. Jones owed no duty to the plaintiff, except that which sprang out of his engagement to purchase the stock and bonds in question ; and that, having failed on account of its illegality, left no enforceable obligation resting upon him. Levy v. Brush (45 N. Y. 589). There 298 STOURBRIDGE CANAL COMPANY V. WHEELEY. [CHAP. V. is no pretext for the claim that the contract was in any respect an executed one, for Jones never even entered upon its performance. Ills subscription fq^^the loan in his own name was in direct violation of the obligation which it is claimed that he had assumed ; and it is that obligation alone which is sought to be enforced in this action. The bank, by the transaction in question, secured Jones' promise to do certain things, and has relied solely upon that promise. It has done nothing in performance of the contract, and, so far as it is con- cerned, the contract remains wholly executory. Neither can Jones be treated as a trustee for the benefit of the plaintiff ; a trust whereby it is attempted to accomplish an illegal pur- pose, is quite as objectionable as a direct contract to effect the same object. The law does not raise an implied obligation to effectuate a pur- pose which is forbidden, and which cannot be effected by the par- ties through the agency of an express contract. Perry on Trusts, 214. The claim here is that a trust should be implied to enable the plain- tiff to reap the profits from a transaction in which it was not author- ized by law to engage. We have found no authority which supports such a claim, and are unable to discover any ground upon which this action can be maintained. It follows that the judgment should be affirmed. All concur, except Eapallo and Eakl, JJ., dissenting. Judgment affirmed. STOUEBEIDGE CANAL COMPANY v. WHEELEY. (2 Bam. §• Adol. 792. 18.31.) Lord Tenteeden, C. J., in the course of this term, delivered the judgment of the court. This case was argued before us in the last term. It was an action of assumpsit brought by the plaintiffs to recover the sum of £492 9s. as a compensation for the use of a way or passage for boats loaded with coals and other merchandise, along a part of the plaintiffs' canal, made under the powers of the 16 Gr. 3, c. 28 an act of Parlia^ ment for making and maintaining the Stourbridge Canal with two collateral cuts. This canal was formed upon two levels ; the upper or summit level, which communicates with the Dudley Canal, then intended to be made and since completed ; upon the whole of which level there is no lock ; and the lower or Stourbridge level, extending from Stourbridge to Stourton ; and the two levels are connected by a chain of sixteen locks. The defendants have carried large quanti- ties of coals and other goods, part from the Dudley Canal, part not, along the upper level, without passing through any lock. Until CHAP, v.] STOURBRIDGE CANAL COMPANY V. WHEELEY. 299 recently they have paid to the plaintiffs a compensation in the nature of tonnage for the coals and goods so carried, as other persons have also done ; but the defendants having latterly 'refused to do so, this action has been brought; and the question is, whether the plaintiffs are entitled to demand anything for the use of the part of the canal on which the defendants have so navigated; if they are, the sum claimed is admitted to be reasonable, and the plaintiffs are entitled to recover it ; if they are not, the previous payments by the defend- ants cannot render them liable, and the plaintiffs cannot recover anything. The canal having been made under the provisions of an act of Parliament, the rights of the plaintiffs are derived entirely from that act. This, like many other cases, is a bargain between a company of adventurers and the public, the terms of which are expressed in the statute ; and the rule of construction in all such cases is now fully es- tablished to be this, — that any ambiguity in the terms of the contract must operate against the adventurers, and in favor of the public ; and the plaintiffs can claim nothing which is not clearly given to them by the act. This rule is laid down in distinct terms by the court in the case of The Hull Dock Company v. La Marohe (8 B. & C. 61), where some previous authorities are cited; and it was also acted upon in the case of The Leeds and Liverpool Canal Company v. Hustler (1 B. & C. 424). Adopting this rule, we are to decide whether a right to demand some compensation for the use of this part of the canal, is clearly and unambiguously given to the plaintiffs by this act of Parliament ; and we think it is not. The act of Parliament recites that the proposed canal will be of public utility (p. 732) ; the company are empowered to purchase land for the use of the navigation (p. 748) ; the lands acquired by volun- tary or compulsory sale are vested in the proprietors for the use of the navigation, and for no other use or purpose whatsoever (p. 769) ; and all persons whatsoever are to have free liberty "to navigate upon the canal and collateral cuts with any boats or other vessels " of certain dimensions, " and to use the wharfs and quays for loading and unloading any goods, wares, merchandise, and commodities ; and also to use the towing paths with horses for hauling and drawing such boats and vessels, upon payment of such rates and dues as shall be demanded by the said company of proprietors not exceeding the rates before mentioned in the statute " (p. 788). This refers to a pre- vious clause (p. 777), which provides, that, in consideration of the great charge and expense of the proprietors in making, maintaining, and supplying with water the canal and collateral cuts, &e., it shall be lawful for the company from time to time to ask, demand, take, and recover for their own use and benefit for the tonnage and wharf- age of iron, &c., and other commodities navigated, carried, and con- veyed thereon, such rates and duties as they shall think fit, not 300 STOUKBRIDGE CANAL COMPANY V. WHEELEY. [CHAP. V. exceeding the sum of sixpence for every ton of iron, &c., navigated on any part of the canal, and which shall pass through any one or more of the locks which shall be erected on the said canal. A sim- ilar provision is made for the tonnage and wharfage of goods in vessels navigated on the collateral cuts ; and a power of bringing an action for arrears or distraining is given to the company. Now, it is quite certain that the company have no right expressly given to receive any compensation except the tonnage paid for goods carried through some of the locks on the canal or the collateral cuts ; and it is therefore incumbent upon them to show that they have a right clearly given by inference from some of the other clauses. One ai the clauses relied upon by the plaintiffs is that which gives the public the use of the canal (p. 788), and it is contended that no persons have a right to use any part of the canal under that clause, except those who actually do pay some of the rates or dues, and consequently pass some of the locks ; and that if individuals have no right to navigate a particular part, the company may make their own bargain as to the terms upon which they may be permitted to do so. But the clause in question is capable of two constructions ; one, that those persons who pass the locks, and therefore pay the rates, and those only, are entitled to navigate any part of the canal or cuts ; the other, that all persons are entitled to use it, paying rates when rates are due. The former of these constructions is against the public in favor of the company, the latter is in favor of the public and against the company, and is therefore, according to the rule above laid down, the one which ought to be adopted. And indeed the more obvious meaning of this clause is, to declare that the canal is dedicated to the public, but, at the same time, to preserve the right of the company to the rates already given ; and it is reasonable to suppose that, by the section (p. 777), which gives the rates as a compensation for .the expenses of the proprietors, the Legislature meant to include all the benefit they were to derive from the canal, and not to leave the company to make what agreement they pleased with the public in cases not provided for, and to gain an unlimited profit from a particular part of it. They probably did not contemplate the case of persons using the canal who did not pass any lock ; but whether the omission was intentional, or arose from inadvertence, it is still an omission in that clause which provides for the emolument of the company. Another section upon which some reliance was placed, was that in page 789, which gives the owners of adjoining lands the power to use any pleasure-boats on the canal, &c. (so as- the same do not pass through any lock) without paying any rates or dues for the same, and so as such boat be not used for carrying any goods ; and it is argued that the inference arising from the latter part of this clause is, that pleasure-boats carrying goods would be liable to pay rates, though they should pass no locks ; and if pleasure-boats, then all CHAP, v.] STOURBKIDGE CAKAL COMPANY V. WHEELEY. 301 Other boats should be equally liable. And there is no doubt but ttiat this provision does afford some color for this argument. The object of the clause appears to have been, partly to secure the right of the proprietors to use the canal with pleasure-boats (and in that re- spect it is introduced pro majore cautela) ; and partly to prevent the company being injured by their passing through locks ; and the framer of the clause seems to have added the last provision in the section merely to put pleasure-boats with goods on board on the footing of loaded vessels, without considering whether loaded vessels were liable to duties or not. At any rate this clause is not sufficient, in our judgment, to enable us to say that it is clear the Legislature intended to give the plaintiffs the right to the compensation claimed for the use of a part of the canal where there is no lock. Upon the principle of construction, therefore, above laid down, viz., that the company are entitled to impose no burthen on the public for their own benefit except that which is clearly given by the act, we are of opinion that, as their right to claim this compen- sation is not clearly given by the act, the plaintiffs are not entitled to recover. Judgment for defendants. 302 UNION BAilK V. JACOBS. [CHAP. VI. CHAPTER VI. POWERS AND LIABILITIES OF A CORPORATION. IN RESPECT OF BORROWING MONEY AND ISSUING NEGOTIABLE INSTRUMENTS. UNION BANK v. JACOBS. (6 Humphrey ( Term.), 515. 1845 ) On the 28tli day of September, 1841, Jacobs, as President of the Hiwassee Eailroad Company, executed a note, binding that com- pany to pay to said Jacobs the sum of $5,641, negotiable and pay- able at the Branch of the Union Bank at Knoxville, four months after date. The note was indorsed by Jacobs to Trautwine, and by Trautwine to the Union Bank, and delivered to the president and directors of the Bank, and discounted by the Bank for the benefit of the Hiwassee Company. At maturity, the note was protested, and suit brought by the Bank against Jacobs, as indorser, in the circuit court of Knox County. It was tried by Judge Lucky and a jury at the February term, 1845. He charged the jury that the Hiwassee Company had no power to borrow money, and that the note given in execution of a void contract was null and void also. The jury returned a verdict for the defendant, and plaintiff appealed. ■ TuKLET, J. delivered the opinion of the court : — At the session of the Legislature of the State of Tennessee, in the year 1835-1836, the Hiwassee Eailroad Company was created a body corporate, with perpetual succession, with power to sue and be sued, plead and be impleaded, and to possess and enjoy all the rights, privileges, and immunities, with power to make such by-laws, ordi- nances, rules, and regulations, not inconsistent with the laws of this State and the United States, as shall be necessary to the well order- ing and conducting the affairs of said company; and be capable in law of purchasing, accepting, selling, and conveying estates, real, personal, and mixed, to the end, and for the purpose of facilitating the intercourse and transportation from Knoxville, East Tennessee, CHAP. VI.] UNION BANK V. JACOBS. 303 through the Hiwassee district, to a point on the southern boundary of Tennessee, to be designated by commissioners as the most prac- ticable route to intersect the contemplated railroad from Augusta to Memphis. By the 2d section of the act of incorporation, the capital stock of the company is limited to six hundred thousand dollars, in shares of one hundred dollars each; and it is provided, that, so soon as four thousand shares are subscribed, the corporate power of said company shall commence, and have as full operation as if the whole of the shares comprising the capital stock were subscribed. By the 4th section it is provided, that there shall be paid on each share subscribed, but bot till after four thousand shares shall have been subscribed, such sum as the president and directors, or a majority of them, may direct, and in such instalments, not exceed- ing one fourth of the subscription in any one year: Provided, no payment shall be demanded until at least thirty days' notice shall have been given by the said president and directors in the news- papers printed in the towns of Knoxville and Athens, of the time and place of payment ; and if any subscriber shall fail or neglect to pay any instalment or part of said subscription thus demanded, for thirty days next after the time it fell due, the stock on which it was demanded, together with the amount paid in, may, by the president and directors, or a majority of them, be declared for- feited, and, after due notice, shall be sold at auction for the benefit of the company, or they may waive the forfeiture after thirty days default, and sue the stockholders, at their discretion, for the instal- ments due. By the 13th section, the president and directors of said company are invested with all the powers and rights necessary for the build- ing, constructing, and keeping in repair of a railroad from Knoxville, East Tennessee, through the Hiwassee district, to a point on the southern boundary of Tennessee, on the nearest, best, and most practicable route, —the road to have as many tracks as may be deemed necessary by the board of directors, but not to be more than one hundred feet wide, which the company may purchase, or cause the same to be condemned for the use of the road, or any less breadth, at the discretion of the directors ; and they may cause to be made, or contract with others for making of said road or any part thereof; and they, or their agents, or those with whom they may contract for making any part of said road, may enter upon, use, and excavate any land which may be laid out for the site of said road, for the erection of warehouses, engine arbors, reservoirs, booths, stables, offices, and mechanics' shops, or other works neces- sary or useful in the construction and repair thereof; and may fix scales and weights, build bridges, lay rails, make embankments and excavations; may use any earth, ground, rock, timber, or other material which maybe wanted for the construction and repair of any 304 UNION BANK V. JACOBS. [CHAP. VI. part of said road ; and may construct and acquire all necessary steam- engines, cars, wagons, and carriages for transportation on said road by horses or steam power, and all necessary apparatus for the same. Sections 15 and 16 make provision for compensation and payment by the company to individuals for land or other property appro- priated under the provisions of the charter to the making of said road, and incidental injuries done by reason of its construction. These are all the provisions of the charter that need be adverted to, for the purpose of investigating the questions of law arising in the case. Under the provisions of this charter, the company was legally organized and proceeded to construct the road; much work was done in excavations, embankments, building bridges, etc.,' and much money expended therefor, and in the payment of the salaries of the different officers necessary for the superintendence thereof. In the construction, the conlpany became indebted to one Kennedy Louergin, a contractor for grading the road, in the sum of five thousand dollars; for the payment of which, it executed, by its president, its promissory note to S. D. Jacobs, negotiable and payable at the office of discount and deposit of the Union Bank of the State of Tennessee at Knoxville; this note was negotiated by S. D. Jacobs to John C. Trautwine, and by him to the TTnion Bank, and the proceeds passed by the Bank to the credit of Kennedy Louergin. When the note fell due, it was protested for non- payment, and due notice thereof given to the indorsers, Jacobs and Trautwine. They failing to pay, suit was instituted thereon against S. D. Jacobs, the first indorser, in the circuit court of Knox County, and the same was brought to trial before a jury, at the February term thereof, 1845, when the circuit judge charged the jury, "that the note was drawn by the Hiwassee Railroad Company, in violation of its corporate powers ; that it was, therefore, null and void; and that the plaintiffs were not entitled to recover." Under this charge, a verdict was returned in favor of the defendant, and judgment rendered thereon against the plaintiffs, to reverse which, a writ of error is prosecuted to this court. It is contended against the plaintiffs' right to recover that there is no power given, either expressly or by necessary implication, by the charter to the Hiwassee Railroad Company, to borrow money or to execute promissory notes; and that, therefore, the note exe- cuted and indorsed to the Bank is void, both as against the maker and indorsers, and that no action can be maintained against them thereon. The construction of the powers of corporations has been a fruitful source of litigation, both in the courts of Great Britain "and the United States. In the earlier cases they were construed with great strictness, and a stringent rule, as to the mode of exercising them, enforced. Mr. Story, in the case of the Bank of Columbia v. Pat- terson, Adm'r (7 Cranch, 305), Bays: "Anciently it seems to- have CHAP. VI.] UNION BANK v. JACOBS. 305 been held that corporations could not do anything without deed (13 H. 8, 12; 4 H. 7, 6; 7 H. 7, 7, 9). Afterwards, the rule seems to have been relaxed, and they were for convenience' sake per- mitted to act in ordinary matters without deed, as to retain a ser- vant, cook, or butler (Plow. 91; 2 Saunders, 395); and gradually this relaxation widened to embrace other objects (Bro. Corp. 51; 3 Salk. 191; 3 Lev. 107). At length, it seems to have been estab- lished, that, though they could not contract directly except under their corporate seal, yet they might, by mere vote or other corpo- rate act, not under their corporate seal, appoint an agent whose acts and contracts within the scope of his authority would be binding on the corporation (3 P. Wms. 419); and courts of equity, in this respect, seeming to follow the law, have decreed a specific perform- ance of an agreement made by a major part of a corporation, and entered in the corporation books, although not under the corporate seal. 1st Fonblanque's Equity 306. This technical doctrine has in more modern times been entirely broken down." The same judge, in continuation in the same case, observes; "The doctrine that a corporation could not contract except under its seal, or, in other words, could not make a promise, if it had ever been fully settled, must have been productive of great mischief. Indeed, as soon as the doctrine was established, that its regularly appointed agents could contract in their name without seal, it was impossible to support it; for, otherwise, the party who trusted such contract would be without remedy against the corporation. Accordingly, it would seem to be a sound rule of law, that whenever a corporation is acting within the scope of the legitimate purposes of its institu- tion, all parol contracts, made by its authorized agents, are express promises of the corporation; and all duties imposed upon them by law, and all benefits conferred at their request, raise implied promises, for the enforcement of which an action may well lie (3 Bro. Ch. Eep. 262; Douglass, 524; 3 Mass. Eep. 364; 5 Mass. 89, 491; 6 Mass. 50)." Whatever of strictness may have existed in the earlier cases, in restricting their power of contra,cting to the express grant of authority, has been also greatly relaxed, and the doctrine upon the subject been made more conformable 'to reason and necessity, the powers granted to corporations being now construed like all other grants of power, not according to the letter, but the spirit and meaning. In Angell & Ames on Corporations, page 192, sec. 12, it is said, "A corporation having been created for a specific purpose, can not only make no contracts forbidden by its charter, which is, as it were, the law of its nature, but in general can make no contract which is not necessary, either directly or incidentally, to enable it to answer that purpose. In deciding, therefore, whether a corporation can make a particular contract, we are to consider, in the first place, whether its charter, or some statute binding upon it, forbids or permits it to make such a contract ; and if the charter and VOL. I.— 20 306 UNION BANK V. JACOBS. [CHAP, VI. valid statutory law are silent upon the subject, in the second place, whether the power to make such a contract may not be implied on the part of the corporation, as directly or incidentally necessary to enable it to fulfil the purpose of its existence, or whether the contract is entirely foreign to that purpose. In general, an express authority is not indispensable to confer upon a corporation the right to become drawer, indorser, or acceptor of a bill of exchange, or to become a party to any other negotiable paper. It is sufficient, if it be implied as the usual and proper means to accomplish the purposes of the charter. Chitty on Bills, (5 Ed.) 17 to 21; Baily on Bills, ch. 2, § 7, p. 69, (5 Ed.); Story on Bills of Exchange, § 79, p. 94. In the case of Mum v. Commission Co. (15 Johnson, 52), Spencer, J., who delivered the opinion of the coyrt, says: 'It has been strongly urged, that, under the act of incorporating this company, they could neither draw nor accept bills of exchange. Their power is undoubtedly limited; they are required to employ their stock solely in advancing money, when required, on goods and articles manufactured in the United States, and the sale of such goods and articles on commission. The acceptance of a bill is an engagement to pay money; and the company may agree to pay or advance money at a future day, and they may engage to do this by the acceptance of a bill. When a charter or act of incor- poration and valid statutory law are silent as to what contracts a corporation may make, as a general rule it has power to make all such contracts as are necessary and usual in the course of business, as means to enable it to attain the object for which it was created, and none other. The creation of a corporation for a specific pur- pose implies a power to use the necessary and usual means to effectuate that purpose. ' " Angell & Ames on Corp. 200, § 3. Mr. Story, in his treatise on Bills of Exchange, p. 95, speaking of the power of corporations to draw, indorse, and accept bills of exchange, says: "It is sufficient if it be implied as a usual and appropriate means to accomplish the objects and purposes of the charter. But when the drawing, indorsing, or accepting such bills is obviously foreign to the purposes of the charter, or repugnant thereto, then the act becomes a nullity, and not binding on the corporation." In the case of the People v. The TJtica Ins. Co. (15 Johns.), Thompson, C. J., who delivered the opinion of the court, says, at ]3age 383, " An incorporated company has no rights but such as are specially granted, and those that are necessary to carry into effect the powers so granted." In the case of Mott v. Hichs, a quantity of wood was purchased for the president and directors of the Woodstock Glass Company by Whitehead Hicks, the president thereof, for which he executed the promissory note of the company at six months. It appears, from a reference in argument to the charter of the company, that CHAP. VI.] UNION BANK v. JACOBS. 307 there was no clause authorizing it to issue bills or notes, or making such, if issued, binding and obligatory upon the company; yet it was held by the court, that an action would lie against the corpora- tion upon the note, it having been executed by its legally authorized agent, acting within the scope of the legitimate purposes of such corporation (1 Co wen, 613). In the case of Hayward v. The Pilgrim Society (21 Pick. 270), it was held that the trustees of a society incorporated for the purpose of building a monument, in virtue of their authority to manage the finances and property of the society, were held competent to bind the society by a promissory note through the agency of their treasurer. These authorities fully establish the proposition, that, in the construction of charters of corporations, the power to contract, and the mode of contracting, is not limited to the express grant, but may be extended by implication to all necessary and proper means for the accomplishment of the purposes of the charter. Now, what are necessary and proper means? Mr. Story, as we have seen, says, if the means are usual and appropriate, the implication of power arises. Story on Bills, 95. Chief Justice Marshall, in the case of McCullock v. The State of Maryland (4 Wheaton, 413), says: "But the argument on which most reliance is placed, is drawn from the peculiar language of this clause of the Constitution. Congress is not empowered by it to make all laws which may have relation to the powers conferred on the government, but such only as may be necessary and proper for carrying them into execution. The word 'necessary' is considered as controlling the whole sentence, and as limiting the right to pass laws for the execution of the granted powers, to such as are indis- pensable, and without which the power would be nugatory. That it excludes the choice of means, and leaves Congress, in each case, that only which is most direct and simple. Is it true, that this is the sense in which the word 'necessarj' ' is always used? Does it always import an absolute physical necessity, so strong that one thing to which another may be termed necessary cannot exist with- out that other? We think it does not. If reference be had to its use in the common affairs of the world, or in approved authors, we find that it frequently imports no more than that one thing is con- venient or useful or essential to another. To employ the means necessary to an end, is generally understood as employing any means calculated to produce the end, and not as being confined to those single means, without which the end would be entirely unat- tainable. Such is the character of the human mind, that no word conveys to it, in all situations, one single definite idea, and nothing is more common than to use words in a figurative sense. Almost all compositions contain words which, taken in their rigorous sense, would convey a meaning different from that which is obviously intended. It is essential to just construction, that many words, 308 UNION BANK V. JACOBS. [CHAP. VI. whicli import something excessive, should be understood in a more mitigated sense, — in that sense -which common usage justifies. The word 'necessary ' is of this description. It has no fixed character peculiar to itself. It admits of all degrees of comparison, and is often connected with other words, which increase or diminish the impression the mind receives of the urgency it imports. A thing may be necessary, very necessary, absolutely or indispensably neces- sary. To no mind would the same idea be conveyed by these several phrases." In conclusion upon this subject, he. says, page 421, same case: "We admit, as all must admit, that the powers of the govern- ment are limited, and tha,t its limits are not to be transcended. But we think the sound construction of the Constitution must allow to the National Legislature that discretion with respect to the means by which the powers it confers are to be carried into execution, which will enable that body to perform the high duties assigned to it in the manner most beneficial to the people. Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are constitutional." Now, if this be true doctrine in relation to the Constitution of the United States, surely it will not be contended that a more stringent rule will be applied in the construction of the powers of a corpora- tion, than is applied in the construction of the powers of Congress under the Constitution of the United States. To apply these principles, as established by the authorities cited, to. the case under consideration. The Hiwassee Railroad Company is chartered to construct a railroad, a thing of itself necessarily involving a heavy expenditure of money; but in addition thereto, it is empowered to sue and be sued, to acquire and hold, sell, lease, and convey estates, real, personal, and mixed, which necessarily involves the power of making contracts for the same. How shall these contracts be made, both for the construction of the road and the purchase of the property? It is argued, that the capital stock of the company is the only means provided for the payment, and that no other can be resorted to for that purpose; or, in other words, that it must pay cash for every contract, for that no power is given, by which it may contract upon time; for if it may create a debt, of necessary consequence it may create written evidences of that debt, and these may be either promissory notes or bills of exchange. It is true, that the capital stock of the company is the source from whence an ultimate payment of the debts of the com- pany must be made, but to hold that a sufficient amount of this stock must always be on hand, to pay immediately for every con- tract made, would be destructive of the operations of the company. By the provisions of the charter, not more than one-fourth of th& stock shall be called for in any one year, and this upon thirty days' CHAP. VI.] UNION BANK V. JACOBS. 309 notice; and if, within thirty days after such notice, the amount called for be not paid, the company is authorized to take steps against the delinquent stockholders, to enforce payment. Now, it is obvious that it never was intended tha.t all the stock should be paid in before the company commenced operations. The early com- pletion of the road was a desirable object for commercial purposes, and can it be pretended that the expenditures of the company were to be limited and restricted to the amount of capital actually paid in by the stockholders, and that under no circumstances were the company to exceed them? If, upon failure of the means on hand, the stockholders should neglect to pay upon a proper call, are the works to be suspended until such time as payments could be enforced? Are the persons who may have done work for it, and for which they have not been paid, to wait the slow process of the law before they can receive satisfaction? And shall the company not be permitted to use its credit in such emergency?. It is so argued for the defendant. This construction of the charter would be ruinous in its consequences. The company might be compelled to suspend all operations at a time when great loss would result from deterioration to unfinished work, and be greatly injured also in its credit. , The restriction contended for is too refined and technical. It might have suited the days of the Year Books, when it was held that a corporation could contract for nothing except under its cor- porate seal; but it is stra,nge that it should be urged at this day of enlightened jurisprudence, when the substance of things is looked to rather than forms. A corporation is, in the estimation of law, a body created for special purposes, and there is no good reason why it should not, in the execution of these purposes, resort to any means that would be necessary and proper for an individual in executing the same, unless it be prohibited by the terms of its charter, or some public law, from so doing. There is no principle which prevents a corporation from contract- ing debts within the scope of its action; and, as has been observed, if it may contract a debt, it necessarily may make' provision for its payment, by drawing, or indorsing, or accepting notes or bills. It is not pretended that this power extends to the drawing, indorsing, or accepting of bills or notes generally, and disconnected from the purposes for which the corporation was created. The corporation, in the present case, was indebted to one of its contractors for work done upon the road, for the payment of which the note in question was drawn. This, upon principle and author- ity, was a usual and appropriate means for accomplishing the object and purposes of the charter, viz., the construction of the road. Not only do all the elementary writers sustain this view of the subject, but, as we have seen, there are three adjudicated cases in courts of high authority directly in its favor. The case of Mum v. 310 UNION BANK V. JACOBS. [CHAP. VI. Comviission Company (16 Johns. 52), the case of Mott v. Hicks (1 Cowen, 513), and the case of Hay ward v. The Pilgrlvi Society (21 Pickering, 270). There has not been produced a single case to the contrary. The eases cited relied upon are decided upon different grounds entirely. The case of Broughton and others v. The Company and Proprietors of the Manchester and. Salford Water Works (3 Barnewall & Alder- son, 1; reported in the English Common Law Reports, 215), decides nothing more than that a corporation, not established for trading purposes, cannot be acceptors of' a bill of exchange, payable at a less period than six months from the date, because such a case falls within the provisions of the several acts passed for the protection of the Bank of England, by which it is enacted, that it shall not be lawful for any body corporate to borrow, owe, or take up any money upon their bills or notes payable at demand, or at any less time than six months from the borrowing thereof. It is true, that Baily., J., in his opinion, says: "There being no power expressly "given to the corporation to make promissory notes or become parties to bills of exchange, I should doubt very much (even if the Bank acts were entirely out of the question) whether such corporation would have any jjower to bind itself for purposes foreign to those for which it was originally established; " and Best, J., in his opinion, says, "I am also of opinion, that this action is not maintainable, because this case comes within that rule of law by whicli corpora- tions are prevented from binding themselves by contract not under seal. When a company, like the Bank of England, or East India Company, are incorporated for the purposes of trade, it seems to result from the very object of their being so incorporated, that they should have power to accept bills or issue promissory notes; it would be impossible for either of these companies to go on without accepting bills. In the case of Stark v. The Highgate Arch- Way Company (5 Taunt. 792), the Court of Common Pleas seemed to think that, unless express authority was given by the act estab- lishing the company to make promissory notes eo nomine, a corpora- tion could not bind itself except by deed. Now, there is nothing in the act of Parliament establishing this company, which authorizes them to bind themselves except by deed." So, the authority of this case for the defendant rests solely upon the dubitatur of Baily and the opinion of Best, that the company could only bind itself by deed. How much, under these circumstances, it is worth, need not be said. The ease of the PeopU of the State of JSIetv York v. The Utica Insurance Company (15 Johns. 358), decides, that, since the act to restrain unincorporated banking associations (April 11, 1804, re-enacted April 6, 1813), the right or privilege of carrying on banking operations by an association or company, is a franchise which can only be exercised under a legislative grant; that a cor- CHAP. VI.J UNION BANK V. JACOBS. 311 poration has no other powers than such as are specifically granted by the act of incorporation, or are necessary for the purposes of carrying into effect the powers expressly granted; and that the act to incorporate the Utica Insurance Company does not authorize the company to institute a bank, issue bills, discount notes, and receive deposits, such powers not being expressly granted by the Legis- lature, and not being within their intention, as collected from the act of incorporation ; and that the company having assumed and exer- cised these powers, they were held to have usurped a franchise. It IS scarcely necessary to enter into an investigation, to show the ground upon which this decision rests. Banking privileges, by an association or company, in New York, rest upon express grant. There was no such grant to the Utica Insurance Company, and an exercise of the power was not necessary and proper to the perform- ance of the purposes for which it is created, but wholly foreign thereto. In the case of the JVew York Firemen Insurance Company v. My (2 Co wen, 678), it is held, that a company incorporated for the pur- pose of insurance, and forbidden to carry on any other trade or busi- ness, also forbidden to exercise banking powers, with a clause in the act incorporating them enumerating the kind of securities upon which they may loan money, but not including promissory notes in such enumeration, have no power to loan moneys upon promissory notes or any securities other than those especially enumerated. This company being incorporated for the purpose of insurance only, the discounting of promissory notes would have been foreign to the purpose of its creation; but, in addition thereto, it is expressly prohibited from carrying on any other trade or busi- ness, or exercising banking powers,_and the kind of securities upon which it may loan money are especially enumerated, promissory notes being excluded, it is a well-settled maxim of the law, the expressio unius exclusio est alterius ; — then, for many reasons, this company had no power under its charter to discount notes. It is not only not given expressly or by implication, but upon every principle of legal construction is withheld. In the case of t\ie. Life Insurance and Fire Insurance Company v. The Mechanics' Fire Insurance Company of JVew York (7 Wendell, 31), it is held, that "a corporation authorized to lend money only on bond and mortgage cannot recover money lent by the corpora- tion, except a bond and mortgage be tak'".i for its re-payment; every other security, as well as the contract its'^lf, is void, and not the basis of action. The reason for this decision is obvious; bond and moDtgage being specified as the securities upon which the company might lend money, all others were considered as exisluded, upon the principle mentioned above, expressio unius exclusio est alterius. These are all the cases relied upon by the defendant for the support of the position assumed by ]iim; we are satisfied that they 312 BATEMAN V. RAILWAY COMPANY. [CHAP. VI. have no applicability to the question, and are not authority in this case. We are then of opinion (to use the words of Chief Justice Marshall, in the case of McCullock v. The State of Maryland) that the end proposed by the Hiwassee Eailroad- Company, in executing the note in question, was legitimate, and within the scope of its charter; that as a means it was appropriate, and plainly adapted to that end, which is not prohibited, but consistent with the letter and spirit of the charter, and therefore, not void, but binding and effectual upon the company and the indorsers. Let the judgment of the Circuit Court be reversed, and the case be remanded for a new trial. BATEMAN" v. RAILWAY COMPANY. DISCOUNT COMPANY v. SAME. OVEKEND, GURNEY & CO. v. SAME. {L. R. 1 Com. PI. 499. 1866.) The plaintiffs in these actions, as indorsees, sued the defendants, as acceptors of certain bills of exchange, and the defendants pleaded that they did not accept. The defendants were a railway company, constituted under the 22 & 23 Vict. c. Ixiii. This special act was in the usual form, both as to the powers given to and the restrictions placed on the company, and as to the incorporation of general acts ; and there was no difference between the cases, except that in the last case evidence was given of the defendants having actually commenced business. (It appears, however, that this was admitted at the trial in the first two actions, and no point was made of it in the argument.) The bills were directed to the Mid- Wales Railway Company, and were accepted in the following form : " Accepted by order of the board of directors, and payable at the Agra & Masterman's Bank, John Wade, Secretary," with the seal of the company afi&xed under these words. And there was no question but that there was a reso- lution of the board of directors to the above effect. At the trial, a verdict was entered for the plaintiffs, with leave to the defendants to move to enter a verdict for themselves, on the grounds, first, that the defendants had no power by law to accept the bills, and, secondly, that the acceptances were not binding on them, and that even if bills could be accepted by them, the bills were not accepted in such a form as to be binding on them. Rules nisi were obtained, pursuant to such leave, in all three actions. CUAP. VI.] BATEMAN V. RAILWAY COMPANY. 313 Ekle, C. J. : — These were actions by the indorsees against the acceptors of cer- tain bills of exchange, and the defendants (who were defendants in all the actions) pleaded that they did not accept. It appears that the defendants are a corporation constituted for making a railway by vir- tue of a special act of Parliament and certain general statutes incor- porated therewith, a corporation constituted for the distinct purposes stated in these statutes. It has been perfectly established that a corporation constituted for a specific purpose cannot be bound by a contract which is not connected therewith : such contract does not bind, because it is ultra vires. This company, then, being a corpora- tion constituted for making a railway, can it be bound by a bill of exchange ? I am of opinion that it cannot. A bill of exchange is a cause of action in itself, a contract of itself, which binds not only as between the original parties, but also in the hands of third persons, the indorsees. And I consider that it is altogether contrary to the principles of the law of bills of exchange, that a bill can be valid or not according as the consideration between the original parties was good or bad, or, in the case of a corporation, whether or not it was accepted for the purposes for which the corporation was constituted. The consideration of bills of exchange given at the very same time by a railway company, might be partly for work done on the railway, a valid consideration, and partly for money borrowed in fraud of their borrowing powers, an invalid one, and it would be most per- nicious to hold that the bills given for work were valid, and that those given to obtain nioney, invalid. So much for the principle of the matter. Now, what is the state of the authorities ? I can find no case as to the acceptance of a bill of exchange where the bill has been enforced subject to the question of whether the. original consid- eration was valid. The only cases in which it has been held that a corporation could validly accept a bill of exchange are the cases of the Highgate Archway Company, the Bank of England, and the East India Company, and in all these cases the corporations were specially authorized 'to do so. And in Broughton v. The Manchester Water- works Com.pamj (3 B. & Aid. 1), Mr. Justice Bayley entertained a doubt whether a holder of such a bill of exchange could sue without the proof lying on him that there was power to accept. What he laid down generally, applies a fortiori where the corporation is formed for specific purposes. This being so, I think, both on prin- ciple and authority, the acceptances were not binding on this com- pany, constituted for purposes of which we have judicial notice. Byles, J. : — I am of the same opinion. The cases are important, and raise the question whether it is competent for a railway company to accept a bill of exchange. We have asked for a precedent, and none can be produced. This is a corporation created by statute. But even if it were a common-law corporation, there is no authority for saying that it 314 BATEMAN V. RAILWAY COMPANY. [CHAP. VL could accept a bill of exchange. There are only three cases in which it has been held that a corporation can do so. First, the Bank of England, created specially for banking purposes ; secondly, the East India Company, whose authority is ratified by two statutes ; thirdly, the Highgate Archway Company, where express power was given. With these exceptions, there is no authority for saying that a com- mon-law corporation can accept a bill of exchange, and there is more difficulty in saying that a statutable one can. In Broughton v. The Manchester Waterworks Gompamj {ubi supra), it is clear that Mr. Justice Bayley thought a corporation could not issue bills of ex- change. Even, therefore, if we know nothing more than that the defendants were a railway company, it is plain they could not accept. But we have judicial cognizance of the constitution of the company by means of the acts of Parliament, and we find that it is constituted to make a railway, just as in Broughton v. The Manchester Waterworks Company (ubi supra) the company was constituted to make water- works. Even if this were not before us, the matter would be plain ; but with this constitution of the company before us, it is plainer. It is said that the present is not the proper method of raising the ques- tion, but the persons signing purport to be agents -of the defendants, and the plea in effect says that they are not agents ; and this, there- fore, is a proper mode of raising the question. Keating, J. : — I am of the same opinion. It is unnecessary to go into the wider question discussed by my Brother Byles ; in this case the question is whether this particular company can accept a bill of exchange. I rest my decision on the act of Parliament. It is clear that the Legis- lature has guarded against their powers of raising money by statu- tory provisions,, as to the sum that may be raised, and although cer- tain acts are incorporated with the special act, neither in the special act nor the general ones is any power conferred on the company to accept a bill of exchange. One of the general acts refers to the mode of contracting. And if the Legislature had intended that the com- pany should have this power, it would be found in some of the acts. It is said that it seems absurd that a railway company, which, as carriers, must buy, etc., must not pay by a bill of exchange. But it is an entirely different thing to say that a company shall be liable to parties who supply goods, and to say that they may be liable on negotiable instruments, which may pass into the hands of third par- ties, and be void or not, according as the purposes for which they were issued were- ultra vires or not. It seems to me the case may b.e decided on the simple ground that the Legislature did not intend to intrust the company with this power. I think that they cannot accept a bill of exchange, and I also think that the objection may be taken in the present form. Montague Smith, J. : — I am of the same opinion. The plaintiffs as indorsees sue the CHAP. VI.J MONUMENT NATIONAL BANK V. GLOBE WORKS. 315 ■defendants as acceptors, so that the action is not between the imme- diate parties to the bills. I think a railway company is not compe- tent to accept bills of exchange. A railway company is incorporated to make and maintain a railway ; its powers and resonrces are lim- ited by the incorporating statutes ; bnt if they may accept bills of exchange, they either may do so to any extent, or there would have to be an inquiry whether the purposes for which the bills were accepted were within their powers in each particular case. I think the Legislature did not intend to give them the power. It is ad- mitted that there is no authority in favor of it; and there is a great abundance of authority to show that in the analogous cases of min- ing, waterworks, gas, and other companies, the companies cannot draw bills of exchange, though they are more trading companies than a railway company. The first object in the constitution of a railway company is to make a railway, though, it is true, they may and practically always do become carriers. Corporations for the pur- poses of trade have the power of issuing bills of exchange as inci- dental to such trading; but this doctrine only applies where the primary object is trade, buying and selling. In addition to the au- thorities referred to there is the distinct authority of various eminent text-writers that such a company as this cannot accept a bill of exchange. Amongst others, Mr. J. W. Smith, in his treatise on Mer- cantile Law, says, " However, it has been considered that a trading corporation may differ from others as to its powers of contracting, and its remedies on contracts relating to the purposes for which it was formed. Thus, such a corporation may in some cases bind itself by promissory notes and bills of exchange ; and it was even held that the Bank of England might without deed appoint an agent for such purposes. But a corporation will not have these extraordinary pow- ers unless the nature of the business in which it is engaged raises a necessary implication of their existence." (Page 114, 5th Edit, by Dowdeswell.) Now, clearly, here there is no express power, nor is there any necessary implication. For these reasons, I am of opinion that the defendants were not competent to accept a bill of exchange ; and on the other point 1 also agree with the rest of the court. MONUMENT NATIONAL BANK v. GLOBE WORKS. (101 Mass. 57. 1869.) Hoar, J. : — The single question presented for our decision in this cause, all others which arise upon the report having been waived, is, whether the note of a manufacturing corporation, in the hands of a holder in good faith for value, who took it before maturity, and without any 316 MONUMENT NATIONAL BANK V. GLOBE WORKS. [CHAP. VI. knowledge that the makers had not received the full consideration, cannot be enforced against them, because it was in fact made as an accommodation note. The argument for the defendants takes the ground that to issue an acconunodation note is not within the powers conferred upon the cor- poration ; and that, as any persons taking it had notice that it was the note of the corporation, they had notice that it was of no validity unless issued for a purpose within the scope of the corporate powers, and were therefore bound to ascertain not only that it was executed by the of&cer of the corporation who had the general authority to sign the notes which they might lawfully make, but that the purpose for which it was issued was such as the charter authorized them to en- tertain and execute. The court are all of opinion that this position is not tenable, and that the defence cannot be maintained. It has long been settled in this Commonwealth that a manufactur- ing corporation has the power to make a negotiable promissory note. Narragansett Bank v. Atlantic Silk Co. (3 Met. 282). And it was held in Bird v. Daggett (97 Mass. 494), as a just corollary to that proposition, that such a note in the hands of a holder in good faith for value is binding upon the maker, although made as an accommo- dation note. The question was not discussed, nor the reasons for the decision fully stated, in Bird v. Daggett ; but it was assumed that the doctrine announced was clear and undoubted law. The doctrine of ultra vires has been carried much farther in Eng- land than the courts in this country have been disposed to extend it ; but, with just limitations, the principle cannot be questioned, that the limitations to the authority, powers, and liability of a corporation are to be found in the act creating it. And it no doubt follows, as claimed by the leartied counsel for the defendants, that when powers are conferred and defined by statute, every one dealing with the cor- poration is presumed to know the extent of those powers. But when the transaction is not the exercise of a power not conferred on a corporation, but the abuse of a general power in a particular instance, the abuse not being known to the other contract- ing party, the doctrine of ultra vires does not apply. As was said by Selden, J., in Bissell v. Michigan Southern & Northern Indiana Railroad Co. (22 K Y. 289,290): "There are no doubt cases in which a corporation would be estopped from setting up this defence, although its contract might have been really unauthorized. It would not be available in a suit brought by a bona fide indorsee of a negoti- able promissory note, provided the corporation was authorized to give notes for any purpose ; and the reason is, that the corporation, by giving the note, has virtually represented, that it was given for some legitimate purpose, and the indorsee could not be presumed to know the contrary. The note, however, if given by a corporation absolutely prohibited by its charter from giving notes at all, would CHAP. VI.J MONUMENT NATIONAL BANK V. GLOBE WORKS. 317 be voidable not only in the hands of the original payee, but in those of any subsequent holder ; because all persons dealing with a cor- poration are bound to take notice of the extent of its chartered powers. The same principle is applicable to contracts not negotiable. When the want of power is apparent upon comparing the act done with the terms of the charter, the party dealing with the corporation is presumed to have knowledge of the defect, and the defence of ultra vires is available against him. But such a defence would not be permitted to prevail against a party who cannot be presumed to have had any knowledge of the want of authority to make the con- tract. Hence, if the question of power depends not merely upon the law under which the corporation acts, but upon the existence of cer- tain extrinsic facts, resting peculiarly within the knowledge of the corporate officers, then the corporation would be estopped from deny- ing that which, by assuming to make the contract, it had virtually affirmed." This doctrine seems to us sound and reasonable ; and in conformity with it, it was held in Farmers' & Mechanics' Bank v-. Umpire Stone Dressing Co. (5 Bosw. 275), that an accommodation acceptance by an officer of a manufacturing corporation, on behalf of the company, was not binding, unless the consideration had been advanced upon the faith of the acceptance ; but that if the consideration was paid in good faith after the acceptance, and upon the credit of it, it could be enforced. So it was said by Lord St. Leonards that he felt a disposition " to restrain the doctrine of ultra vires to clear cases of excess of power, with the knowledge of the other party, express or implied from the nature of the corporation, and of the contract entered into." Eastern Counties Railway Co. v. Hawkes (5 H. L. Cas. 331, 373) . The cases on which the defendants rely are cases against muni- cipal corporations, in respect to which the rule is much more rigid, or for the most part those in which the other contracting party had notice upon the face of the transaction of the want of corporate power. There can be no doubt that it is very often true that a corporation may be responsible for the unauthorized, and even for the unlawful acts of its agents, apparently clothed with its authority. No corpor- ation is empowered by its charter to commit an assault and battery ; yet it has frequently been held accountable, in this Commonwealth, for one committed by its servants. Bills of a bank issued without consideration, and even stolen, are good in the hands of an innocent holder for value. Many other il- lustrations might be given, but enough has been said to show the principle on which our decision rests. Judgment for the plaintiffs. 318 NATIONAL PARK BANK V. GEKMAN-AMERICAN CO. [CHAE. VI. NATIONAL PAEK BANK v. GERMAN-AMERICAN COMPANY. (116 N. Y. 281. 1889.) Appeal from judgment of the General Term of the Superior Court of the city of New York, entered upon an order made June 8, 1886, which af&rmed a judgment in favor of plaintiff entered upon the report of a referee. This action was brought upon certain promissory notes made by the firm of Squires, Taylor, & Co., made payable to the order of the makers, and alleged to have been indorsed by defendant, the German- American Warehousing and Security Company. The plaintiff was incorporated in 1865 under the national banking act, and the defendant was incorporated iu 1872 under chapter 701 of the Laws of New York, passed May 14,, 1872. Both corporations were engaged in business in the city of New York, the defendant at No. 45 Broad Street, and both still exist, though the defendant dis- continued all business in May, 1879. ScLuires, Taylor, & Co. (indivi- dual partners, Robert C. Squires, Charles E. Taylor, and Burnet Forbes), commission merchants, dealing in tobacco at No. 45 Broad Street, New York, began business October 1, 1876, and failed Decem- ber 30, 1878. Robert Squires was a director and the president of the defendant from a date prior to November 1, 1876, until his death in February, 1879, and he was a director of the plaintiff from January 15, 1875, until his death. He was the father of Robert C. Squires, of the firm of Squires, Taylor, & Co., a brother-in-law of Burnet Forbes, of that firm, and when Squires, Taylor, & Co. failed, they owed Robert Squires $25,000. August 27, 1878, Squires, Taylor, & Co. made their promissory note, of which the following is a copy : — New York, August 27, 1878. Four months after date, for value received, we promise to pay to the order of ourselves, at the National Park Bank, in New York, ten thousand dollars, hav- ing deposited with said bank, as collateral security for payment of tliis, or any other liability or liabilities of ours to said bank, due or to become due, or that may be hereafter contracted, the following property, viz., in the store of the German-American Mutual Warehousing and Security Company, one hundred hogsheads tobacco, the market-value of which is now $12,500, with the right to call for additional security should the same decline, and, on failure to respond, this obligation shall be deemed to be due and payable on demand, with full power and authority to sell and assign and deliver the whole of said property, or any part thereof, or any substitutes therefor, or any additions thereto, at any brokers' board, or at public or private sale, at the option of the said bank, or CHAP. VI.] NATIONAL PARK BANK V. GEKMAN-AMERICAN CO. 319 its president or cashier, or its assigns, and with the right to be purchasers them- selves at such brokers' board, or public sale, on the non-performance of this promise, or the non-payment of any of the liabilities above mentioned, or at any time or times thereafter, without advertisement or notice. And after deducting all legal or other costs and expenses for collection, sale, and delivery, to apply the residue of the proceeds of such sale or sales so to be made, to pay any, either, or all of said habihties as said bank, or its president or cashier, shall deem proper, returning the overplus to the undersigned. Squikbs, Tayloe, & Co. Squires, Taylor, & Co., the makers and payees of said note, indorsed it in blank, and thereupon the president of the defendant indorsed it as a second indorser in form following : " German-American Mutual "Warehousing and Security Company, Robert Squires, president." This note was then (August 27, 1878), discounted by the plaintiff, and the avails credited to said firm. September 2, 1878, Squires, Taylor, & Co. made a second note, dated that day, for the same amount, time, and in precisely the same form as the first note, and which was indorsed by said firm and by the defendant in the same manner, and it was discounted by the plaintiff, September 11, 1878, for and avails credited to said firm. September 11, 1878, Squires, Taylor, & Co., made a third note, dated that day, for $12,000, for the same time and in precisely the same form of the first note, except one hundred and twenty hogsheads of tobacco, stated to be of the value of $15,000, were pledged as security. Said firm and this defendant indorsed said note in the same manner in which the first note was indorsed, and it was then (September 11, 1878) discounted by the plaintiff for and the avails credited to said firm. November 27, 1878, Squires, Taylor, & Co., made a fourth note, dated that day, for $4,000, for the same time and in precisely the same form of the first note, except forty hogsheads of tobacco, stated to be of the value of $5,000, were pledged as security. Said firm and this defendant indorsed said note in the same manner in which the first note was indorsed, and it was, on that day (November 27, 1878), discounted by the plaintiff for and avails credited to said firm. Squires, Taylor, & Co., paid the president of the defendant f 360 for indorsing said four notes, being at the rate of one-fourth of one per cent per month for every month of the time said notes run. In December, 1878, said firm pledged to send to said bank forty hogsheads of tobacco as security for the four notes, in addition to those pledged as security for each note. The four notes were dishonored and duly protested. Upon a sale of the tobacco pledged, the first and second notes were paid, and such sums applied on the third and fourth notes that there was due on them May 7, 1879, $12,621.63, for the recovery of which this action was brought against the members of the firm of Squires, Taylor, & Co., who did not defend, and against the appellant, which defends on the grounds, — (1) That the board of directors of the defendant was without 320 NATIONAL PARK BANK V. GERMAN-AMERICAN GO. [CHAP. VL power to authorize its president to bind it by contracts of indorse- ment, made for the accommodation of others, for a consideration paid by them. (2) That its board of directors never authorized its president to make these or like indorsements. (3) That its president being a director of the plaintiff, an officer of both corporations, the contracts of indorsement are void, and that the plaintiif had knowledge of the facts constituting the alleged defences when it discounted the notes. Upon the trial, before a referee, the defences were overruled, and a judgment ordered for the amount claimed. FOLLETT, C. J. — The statute by which the defendant was incorporated provides that, in addition to the powers therein enumerated, it shall possess all the powers and privileges of corporations organized under the manufac- turing act (Chap. 40, Laws 1848), and the acts extending and amend- ing the same, except wherein such acts are inconsistent with the provisions of the incorporating statute. The litigants agree that the defendant's board of directors had power to authorize its president to make and indorse promissory notes for the purpose of transacting the business it was authorized to engage in, and that such power was con- ferred by the board on its president. The powers of corporations are those enumerated in the statutes under which they are incorporated, in general statutes, in the articles of association, and like instruments executed in pursuance of the statutes, denominated by Mr. Brice "constating instruments" (Ultra Vires (2d Am. ed.) 27); and also, such powers as flow from or are incidental and necessary to the exer- cise of the enumerated powers (1 E. S., 699, §§ 1-3). Counsel have not directed our attention to, nor have we found in any of the statutes referred to, a provision empowering the defendant to bind itself by making or indorsing promissory notes for the accommodation of the makers for a consideration paid. It is well settled that such a power is not incidental to the powers expressly conferred on a corporation organized under statutes author- izing the formation of corporations for banking, insuring, manufac- turing, and like business corporations. Central Bank v. Empire Stone Dressing Go. (26 Barb. 23) ; BridgpoH City Bank v. Same (30 id. 421) ; Farmers' and Mechanics' Bank v. Same (5 Bosw. 275) ; Morford v. Farmers' Bank of Saratoga (26 Barb. 568) ; Bank of Genesee v. Patchin Bank (13 IN". Y. 309) ; JEtna National Bank v. Charter Oak Life Ins. Co. (50 Conn. 167) ; Moriument National Bank V. Globe Works (101 Mass. 57) ; Davis v. Old Colony R. R. Co. (131 id. 258) ; Culver v. Reno Real Estate Co. (91 Penn. 367) ; Hall v. Auburn Turnpike Co. (27 Cal. 255). The defendant having the gen- eral power to bind itself by promissory notes and contracts of indorse- ment, the plaintiff is entitled to recover if it is a holder of the notes for value, and without notice that they were indorsed for the accom- CHAR' VI.] NATIONAL PARK BANK V. GERMAN-AMEKICAN CO. 321 modation of the makers, and not in the usual course of business. The referee finds that in consideration of one-fourth of one per cent per month for every month of the time on which the notes were given, the defendant indorsed for Squires, Taylor, & Co., between November 10, 1876, and August 27, 1878, the date of the first note in suit, nine- teen notes precisely like the four in suit, except dates and amounts, aggregating $170,0U0, wliich were discounted by the plaintiff for, and the avails placed to the credit of Squires, Taylor, & Go. • The referee also finds that defendant's president was never author- ized by its board of directors to indorse commercial paper for the accommodation of makers, or to indorse such paper for a considera- tion paid by the makers, and that none of them knew that such in- dorsements had been made until this action was brought. The fact that the maker of a promissory note procures it to be dis- counted for his own benefit is, if unexplained, notice to the discounter that the indorsement is not in the usual course of business, but it is for the accommodation of the maker. Stall v. Catskill Bank (18 Wend. 466) ; Fielden v. Lahens (9 Bosw. 436), (3 Trans. App. 218), (2 Abb. Ct. App. Dec. Ill), (6 Abb. [N. S.J 341) ; 1 Ames' Cas. on Bills and Notes, 738 ; Bank of Vergennes v. Cameron {1 Barb. 143) ; Uendrie v. Berkowitz (37 Cal. 113) ; Lemoine v. Bank of North Amer- ica (3 Dillon, 44) : Bloom v. Helm (53 Miss. 21) ; Daniel on JSTeg. Inst. [2d ed.] 297, § 365 ; Edw. on Bills [3d ed.] 98, § 105. Ex parte Estahrook (2 Lowell's Dec. 547) is opposed to these authorities, but this case is in conflict with the decisions in this State, and we believe it to be without the support of any well- considered case. The indorsements having been made for the accommodation of the makers, and the plaintiff, having discounted the notes with notice of that fact, cannot recover. The judgment should be reversed and a new trial granted, with costs to abide the event. All concur. Judgment reversed. .—■21 322 IN KE PATENT FILE COMPANY. [CHAP. VU. CHAPTER VII. POWERS AND LIABILITIES OF A CORPORATION. IN RESPECT OF MORTGAGING ITS PROPERTY. In re PATENT FILE COMPANY. {L. K. 6 Ch. App. 83. 1870.) This was a motion by way of appeal from a decision of Vice-Chan- celloi- Stuart, holding an equitable mortgage, by deposit, of the real estate of the Patent File Company, Limited, to be valid. The Patent File Company was registered in 1863, with a nominal capital of £100,000. The memorandum of association stated the object of the company to be purchasing letters-patent granced to E. Bernot for an invention of a new machine for cutting files, and of certain other letters-patent relating to files ; the manufacturing, pur- chasing, or otherwise acquiring machines and apparatus applicable to the manufacture of files ; the manufacturing, purchasing, or other- wise acquiring and selling or disposing of files, blanks for files, and steel, " and the doing of all such other things (including the pur- chasing, leasing, or otherwise acquiring, holding, and disposing of lands and buildings) as are incidental or conducive to the attainment of the above objects or any of them." The clauses of the articles of association referred to in the argu- ment were the following : — "41. The company may, with the sanction of an extraordinary general meeting, from time to time borrow and take up, on mortgage of any of the property of the company, or on such other security as they may think fit, any sum or suras not exceeding in the whole one-half of the nominal capital of the company. " 42. Any mortgage bond or other security, bearing the common seal of the company and issued for valuable consideration, shall be binding on the company, notwithstanding any irregularity touching the authority of the directors to issue the same; and no person tak- ing any such security shall be bound to ascertain that the amount then due by the company on mortgage or other security does not exceed one-half of the nominal capital of the company.'" CHAP. VII.] IX RE PATENT FILE COMPANY. 323 " 75. The business of the company shall be managed by the di- rectors, who may pay all expenses incurred in the formation and registration of the company, and may exercise all such powers of the company as are not by the Companies Act, 1862, or by these articles, required to be exercised by the company in general meeting, subject, nevertheless, to any regulations of these articles, to the provisions of the Companies Act, 1862, and to such regulations, being not incon- sistent with the said regulations and provisions, a^ may be prescribed by the company in general meeting. But no regulation made by the company in general meeting shall invalidate any prior act of the directors which would have been valid if such regulation had not been made." "78. The directors are hereby empowered to do and execute all necessary acts, deeds, or assurances that may be necessary for the purchase or acquisition of the patent rights mentioned or referred to in the memorandum of association, or for the purchase or taking on lease of lauds or buildings, or the erection of buildings and machi- nery, or for the prosecution in any other manner of all or any of the objects of the company." The Patent File Company had a banking account with the Bir- mingham Banking Company, which, in 1865, became heavily over- drawn. On the 9th of August, 1865, the balance being then above £11,000, the then manager of the bank wrote a letter requesting that it might be reduced. On the 30th of August, 1865, an extraordinary general meeting was held and the following resolution passed : " That the directors be and are hereby authorized to borrow and take up from time to time, oh mortgage of the lands, buildings, and fixed machinery of the company, or on such part thereof as they deem fit, or upon deben- tures under the seal of the company, such sum or sums of money not exceeding in the whole one-third of the nominal capital of the company, and that the directors are hereby authorized to affix the seal of the company to all instruments which they deem requisite for giving full effect to this resolution." No loan could be obtained; and in April, 1866, the overdrawing having been increased, Mr. Shaw, the new manager of the bank, applied to the Patent File Company to reduce the balance, and on the 1st of May wrote to the company, that the balance must not be increased before the special board meeting, which was to be held on the 10th of May. Soon after this the managers had an interview, and Mr. Shaw said that security would be required. On the 10th the directors resolved that their solicitors should be authorized to give a mortgage by deposit of the title-deeds of the property on which the business of the Patent Pile Company was carried on. This was completed on the 30th of May, and the deeds were de- posited, with a memorandum of deposit, under the seal of the com- pany, making them a security for what should be due to the bank 324 IN RE PATENT FILE COMPANY. [CHAP. VII. to the extent not exceeding £25,000. At this time more than £23,000 was due, and the property in the security was estimated as worth about £35,000. In October, 1866, a petition for winding up the Patent File Com- pany was presented by a creditor, but stood over ; and on the 13th of December, 1866, a resolution was passed for the voluntary wind- ing up of the company. The petition afterwards came on for hear- ing, and on the 12th of January, 1867, an order was made for continuing the voluntary winding-up uuder supervision. The property, the title-deeds of which had been deposited, having been sold under the direction of the Court, without prejudice to the rights of the parties, the Birmingham Banking Company applied to have the proceeds paid to them, and the liquidator took out a cross summons to have the equitable mortgage declared void. Vice- Chancellor Stuart held that the security was valid. From this decision the liquidator appealed. Sir W. M. James, L. J. : — This case appears to me one of the simplest description. The company is a body corporate, and by the law of England a body corporate can hold property and dispose of it as freely as an indi- vidual, unless it is specially prohibited from so doing. In the memo- randum and articles of this company I can find nothing to prevent tlie company qua company from pledging part of its property for payment of a debt incurred in the course of its business. It is equally plain that, under these articles, the directors can do any- thing which the company could do, unless it is an act which they are specially prohibited from doing. I can find nothing in the memo- randum or articles to prevent the directors from making the best terms they can with a creditor of the company by selling or pledg- ing part of the property of the company. No doubt, a disposition of the property by the directors might be void in equity if it were contrary to the objects of the company ; the directors would then be restrained from doing the act, as being an abuse of their fiduciary position. But in the present case there is nothing to prevent the company from making such an arrangement as this with a creditor, nor is there anything to prevent the directors from doing so. There is no pretence for saying that this is a case of fraudulent preference. The bank required security. The directors cannot be supposed to have had any particular affection for the bank, but they wanted accommodation from the bank, and so they gave the security required. They mortgaged property worth £35,000 for £25,000, so it was not a security exhausting the property, and it was not ten- dered by the debtor, but asked for by the creditor. Sib G. Mellish, L. J. : — T am of the same opinion. As to the question of fraudulent pref- erence, the case is perfectly clear. The security was given in conse- quence of a demand by the creditor, and not only so, but there is CHAP. V'll.] IN RE PATENT FILE COMPANY. 325 nothing to show that a winding-up of the company was then con- templated. Oil the contrary, the directors intended to go on, and thought that by raising money they could retrieve the affairs of the company. It was next urged that this security was void, because it was a pledging the entire property of the company in such a way that, if done by an individual, it would have been an act of bank- ruptcy. The answer to this is two-fold. First, that there is no provision in the Comj^anies Act that every transaction which in the case of an individual would be an act of bankruptcy shall be void as against creditors; and the Legislature appears designedly to have omitted any enactment of that kind. Secondly, this is not a mort- gage of the whole property of the company, for the shares were not fully paid up. The third objection is the only one that could raise any serious doubt, namely, whether a joint stock company of this kind can raise money or give security for a past debt by deposit of title-deeds. It was urged that no company can mortgage unless expressly author- ized to do so. Now, the company has property which it is author- ized to deal with, and I should say that the true rule is just the contrary, namely, that the company can mortgage unless expressly prohibited from doing so. The 43d section of the act appears to recognize the creation of mortgages as an ordinary incident to a company. The memorandum in the present case mentions as a pur- pose of the company the '•' disposing of " its landed property. The articles give to the directors the whole powers of the company, sub- ject to the provisions of the articles and of the Companies Act, 1862, and I cannot find anything either in the act or the articles to pro- hibit their making a mortgage by deposit. It would, in my opinion, be most undesirable to lay down a rule that no joint stock company can raise money in this way. A mortgage by deposit is the kind of security most usuallj' given by mercantile men to bankers, and such a rule would seriously cripple joint stock companies in their busi- ness transactions. There being nothing in the articles to prohibit the giving such a security, I am of opinion that the company can give it as well for a past debt as for a future one. In fact, the case is stronger in favor of a security for a past debt, as it would be absurd to say that a company has not power to pay past debts ; and if so, why should it be debarred from giving security, which is one way of applying its property in payment of its debts ? 326 JONES V. GUARANTY COMPANY. [CHA.P. VII. JONES V. GUAKANTY COMPANY. (101 U. S. 6:22. 1879.) Appeal from the Circuit Court of the United States for the Eastern District of New York. The New York Kerosene Oil Company and the New York Guar- anty and Indemnity Company were corporations organized pursuant to the laws of New York. On the 15th of February, 1867, Abraham M. Cozzens, as the president of the Oil Company, applied to the Guaranty Company for a loan of $100,000. The sum of $50,000 was advanced to him, and he thereupon delivered to the Guaranty Company the note of the Oil Company for that amount, of the date above mentioned, payable to and indorsed by A. M. Cozzens & Co., and having sixty days to run. At the same time he gave to the Guaranty Company a memorandum signed by him as such president, whereby he stipu- ■ lated that he would cause to be prepared a mortgage by the Oil Company to the Guaranty Company on the real estate of the former therein mentioned, for the sum of $100,000 to be held by the latter as security for the $50,000 so lent, and for any further loan there- after made by the Guaranty Company to the Oil Company. Cozzens thereupon procured a formal order to be made by the trustees of the Oil Company that such a mortgage should be executed, and the written consent of the holder of more than two-thirds of the stock of the Oil Company was given to the same effect. Both were neces- sary to the validity of the mortgage. The capital stock of the Oil Company was $500,000, and Cozzens owned of it $493,000. Passing by some intermediate details not necessary to be partic- ularly stated, Cozzens caused to be prepared the bond and mortgage here in question, and both were duly executed. The counsel who prepared them made the mortgage describe the individual obligation of Cozzens as the liability to be secured instead of the debt of the company; but the mortgage recited that the Oil Company had authorized the giving of the mortgage to secure a loan of $100,000, and that Cozzens had given to the Guaranty Company his personal bond in that sum to secure advances, not to exceed that sum, to be made to Cozzens upon the conditions in the bond mentioned,, and that the requisite consent of stockholders had been given. The mortgage was conditioned for the payment by the Oil Company, and not by Cozzens, of the amount that might be due upon the instrument secured by it. The bond is set out at length in the record. It states that it was given to cover any advances then made or thereafter to be made by the Guaranty Company to CHAP. VII.J JONES V. GCAKANTY COMPANY. 327 Cozzens to the amount of $100,000 or less, on the condition that whenever any sum was so advanced the amount and date of the advance should be indorsed on the bond and signed by Cozzens, and that when any payment was made by Cozzens such payment should be indorsed in like manner, and that the amount which, according to the indorsements, should appear to be due on the bond should be considered as the amount due, " and for which the premises which have this day been conveyed to the said New York Guaranty and Indemnity Company, by the New York Kerosene Oil Company, by indenture of mortgage bearing even date herewith, shall be liable, and for no greater sum." The mortgage and bond bear date on the 29tb of April, 1867, but were delivered and took effect on the 11th of May following. The indorsements on the bond show that Cozzens received from the obligee three several advances, — one of $50,000, and two of $25,000 each. No credits are indorsed. The note of the Oil Com- pany, indorsed and delivered to the Guaranty Company on the 15th of February previous, when the first loan of $50,000 was made, was renewed when the bond and. mortgage were delivered, and the amoutit ■was indorsed on the bond as an advance of that date. It was re- newed several times subsequently, and the Guaranty Company holds the last renewal. When one of the advances of $25,000 was made, a note of the Oil Company for that amount to Cozzens & Co. was indorsed and delivered as collateral. That note was also renewed from time to time, and the last renewal is held by the Guaranty Company. When the other advance of $25,000 was made, a warehouse receipt for oil, given by the Oil Company to Cozzens, was indorsed and delivered as a collateral. The receipt proved worthless. Nothing was ever received upon it. It is not controverted that the Oil Company owed Cozzens more than $100,000 for his advances to it, nor that every dollar of the loans in question were used for its benefit. Not the slightest taint of dishonesty is shown in these transactions, nor is anything disclosed which warrants the suspicion of such a purpose. The Oil Company was expressly authorized by the act under which it was organized to secure the payment of its debts there- tofore or thereafter "contracted by it in the business for which it was incorporated, by mortgaging any or all real estate of such corporation," and it was declared that "every mortgage so made shall be as valid to all intents and purposes as if executed by an individual owning such real estate." In March, 1868, Cozzens and the Oil Company became insolvent. Their paper went to protest. The business of the latter for the time was ruinous, and both were engulfed in the vortex of common disasters. Cozzens died about a week afterwards. "His death was caused by his failure. His physician said so." The unsecured credi- 328 JONES V. GUARANTY COMPANY. [CHAP. VII. tors attacked tlie validity of the mortgage. The Circuit Court sustained it, and the controversy has been brought here for review. Ms. Justice SviTavne, after making the foregoing statement, delivered the opinion of the court: — The analysis of this case in the in'eceding statement divests it of all extraneous considerations, and presents it in the nakedness and simplicity of its material facts. The central and controlling questions to be determined are: — Whether the Oil Company had the power to give ii, mortgage for future advances; and, Whether the mortgage here in question is, in the view of a court of equity, for the debt of the Oil Company or for the debt of Abraham M. Cozzens. The oral arguments of the eminent counsel who appeared before us were addressed principally to these subjects. Numerous other points are made by the counsel for the appellant in his brief, and have been fully discussed in the printed arguments upon both sides. They are minor in their character, and we think involve no proposi- tion that admits of doubt as to its proper solution. We are satisfied with the disposition made of them by the Circuit Court, and shall pass them by without further remark. - At the common law, every corporation had, as incident to its existence, the power to acquire, hold, and convey real estate, except so far as it was restrained by its charter or by act of Parliament. This comprehensive capacity included also personal effects of every kind. The jus disponendi was without limit or qualification. It ex- tended to mortgages given to secure the payment of debts. 1 Kyd, Corp. 69, 76, 78, 108; Angell & Ames, § 145; 2 Kent, Com. 282; Reynolds v. Commissioners of Stark County (5 Ohio, 204), White Water Valley Canal Co. v. Vallette (21 How. 414). A mortgage for future advances was recognized as valid by the common law. Gardner v. Graham (7 Vin. Abr. 22, pi. 3). See also Brinkerhoff v. Marvin (5 Johns. (N. Y.) Ch. 320), Lawrence V. Tucker (23 How. 14). It is believed that they are held valid throughout the United States, except where forbidden by the local law. The statute under which the Oil Company came into existence made it " capable in law of purchasing, holding, and conveying any real and personal estate, whenever necessary to enable " it to carry on its business; but it was forbidden to "mortgage the same, or give any lien thereon." This disability was removed by the later act of 1864, which expressly conferred the power before withheld. This change was remedial, and the clause which gave it is, there- fore, to be construed liberally with reference to the ends in view. The learned counsel for the appellant insisted that a mortgage could be competently given by the Oil Company only to secure a' CHAP. VII.] JONES V. CxUARANTY COMPANY. 329 debt incurred in its business and already subsisting. This, we think, is too narrow a construction of the language of the law. A thing may be within a statute but not within its letter, or within the letter and yet not within the statute. The intent of the law- maker is the law. The People v. Utica Insurance Co. (16 Johns. (N. Y.) 357); United States v. Babbit (1 Black, 55). The view of the court in Thompson, v. New York & Hudson River Railroad Co. (3 Sandf. (N. Y.) Ch. 825) was sounder and better law. There the charter authorized the corporation to build a bridge. It found one already built that answered every purpose, and bought it. The purchase was held to be intra vires and valid. Here the object of the authorization is to enable the company to pro- cure the means to carry on its business.' Why should it be required to go into debt, and then borrow, if it could, instead of borrowing in advance, and shaping its affairs accordingly? No sensible reason to the contrary can be given. If it may borrow and give a mortgage for a debt antecedently or contemporaneously created, why may it not thus provide for future advances as it may need them? This may be more economical and more beneficial than any other arrange- ment involving the security authorized to be given. In both these latter cases the ultimate result with respect to the security would be just the same as if the mortgage were given for a pre-existing debt in literal compliance with the statute. No one could be wronged or injured, while the corporation, whom it was the pur- pose of the law to aid, might be materially benefited. Is not such a departure within the meaning, if not the letter, of the statute? There would be no more danger of the abuse of the power conferred than if it were exercised in the manner insisted upon. The safe- guard provided in the required assent of stockholders would apply with the same efficacy in all the cases. The object of the loan, the application of the money, and the restraints imposed by the charter in those particulars, would be the same, whether the transaction took one form or the other. According to our construction the company could give no mortgage but one growing out of their business, and intended to aid them in carrying it on. In legal effect the difference between ths two constructions is one merely of mode and manner, and not of substance. Such securities are not contrary to the law or public policy of the State. Many cases are found in her reported adjudications where both judgments and mortgages for future advances have been sustained. Our view is not without support from the language of the statute, that "every mortgage so made shall be as valid to all intents and purposes as if executed by an individual owning such real estate." If this mortgage had been given by individuals, the question we are examining doubtless would not have been brought before us for consideration. 330 JONES V. GUARANTY COMPANY. [CHAP. VII. When a deed is fatally defective for tiie want of a sufficient consideration to support it, such a consideration subsequently arising may cure the defect and give the instrument validity. Sumner v.. Hicks (2 Black, 532). It is not necessary to go through the form of executing a second deed to take the place of the first one. This principle applies to the mortgage after all the advances had been made, conceding that it had before been invalid for the reason insisted upon. The statute of 1864 neither expressly forbids nor declares void mortgages for future advances. If the one here in question be ultra vires, no one can take advantage of the defect of power involved but the State. As to all other parties, it must be held valid, and may be enforced accordingly. Silver Lake Bank v. North (4 Johns. (N. Y.) Ch. 370); National Bank v. Matthews (98 U. S. 621). In the latter case this subject was fully examined. A corporation can act only by its agents. If there were any such technical defect as is claimed touching the execution of this mortgage, it has been cured by acquiescence and ratification by the mortgagor. No one else can raise the question. All other parties are con- cluded. Gordon v. Preston (1 Watts (Pa.), 385). Where money had been obtained by a corporation upon its securities, which were irregular and ultra vires, but the money was applied for the benefit of the company, with the knowledge and acquiescence of the shareholders, the company and the share- holders were estopped from denying the liability of the company to repay it. And the same result follows where such securities are issued with the knowledge of the shareholders, so far as the money thus raised is applied for the benefit of the company. In re Cork & Youghal Railway Go. (Law Eep. 4 Ch. 748). A court of equity abhors forfeitures, and will not lend its aid to enforce them. Marshall v. Vicksburg (15 Wall. 146). Nor will it give its aid in the assertion of a mere legal right contrary to the clear equity and justice of the case. Lewis v. Lyons (13 111. 117). ^ The second point to be considered is whether the mortgage was for the debt of Cozzens or for the debt of the Oil Company.* We are satisfied beyond a doubt that it was the debt of the Oil Company and not his debt that was intended to be secured and was secured by the mortgage. Decree affirmed. 1 Part of the opinion relating to this question is omitted. CHAP. VII.] COMMONWEALTH V. SMITH. 331 COMMONWEALTH v. SMITH. (10 Allen, 448. 1865.) Bill in Equity seeking to impeach the validity of a mortgage, executed on the 30th of July, 1855, by the Troy and Greenfield Rail- road Company to the defendants as trustees, covering by its terms the franchise, railroad, and all other property of the corporation, then owned or thereafter to be acquired, to secure bonds to the amouiit of 1900,000, to be issued to the contractor as part compensation for con- structing the railroad, payable in thirty years from date. This mort- gage recited the provisions of a contract for the construction of the railroad, dated December 30, 1854, to the effect that such bond should be given ; and it was made subject to a prior mortgage to the Com- monwealth, to secure State bonds. to the amount of 12,000,000, which the Commonwealth were to issue under the provisions of St. 1854, c. 226. The following facts were agreed : Since the execution of the mort- gage to the defendants, the Commonwealth have received two other mortgages upon the railroad and franchise of the Troy and Green- field Railroad Company, one of which was dated on the 6th of July, 1860, and the other on the 5th of March, 1862 ; and also a surrender from the corporation of all their property, subject to redemption under St. 1862, c. 156. On the 4th of September, 1862, the Common- wealth took possession of the mortgaged premises in various towns, for breach of condition, in the manner shown by various certificates thereof, which are now immaterial. The Commonwealth under their various mortgages have at various times, from October, 1858, to July, 1861, advanced to the Troy and Greenfield Railroad Company large sums of money, amounting in all to several hundred thousand dol- lars. The corporation, under their mortgage to the defendants, have at various times, from August, 1855, to July, 1861, issued bonds to the amount in all of $600,000, payable in thirty years from date. All these bonds were issued in good faith, and are held by bona fide holders, and the corporation have issued no other bonds than the above. Before advancing any money to the corporation, the Com- monwealth had actual notice of the execution of the mortgage to the defendants, and of the fact that a number of bonds had been issued under the same. The amount of capital stock of the corporation which, in December, 1856, had been paid in, was $143,905.77. Upon these facts, and others which are now immaterial, the case was reserved by the Chief Justice for the determination of the whole court. D. Foster, for the Commonwealth : The mortgage to the defend- ants has never been sanctioned or ratified by the Legislature, and 332 c6mmon\\'ealth v. smith. [chap. vii. its validity must depend on the question whether the common-law powers of railroad corporations in Massachusetts permit them to exe- cute mortgages, and if so to what extent. At common law, a railroad corporation has no power to execute any mortgage. This is clearly the English rule. Winch v. Birkenhead, &c. Railway (7 Eailw. & Canal Cas. 384) ; Beman v. Riifford (lb. 48) ; South Yorkshire Bail- ivay, &c. V. Great Northern Railway (9 Exch. 84) ; Shrewsbury, &c. Railway v. Northwestern Railway (6 H. L. Cas. 113). It is also the prevailing opinion in this country. Pierce v. Emery (32 N. H. 504) ; Hall V. Sullivan Railroad (21 Law Reporter, 138) ; Tippets v. Walker (4 Mass. 595) ; Gne v. Tide Water Canal Co. (24 How. 257) ; Wor- cester V. Western Railroad (4 Met. 564) ; Treadwell v. Salisbury Mitniif. Go- (7 Gray, 404) ; Opinion of Justices (9 Ciish. 611); Salem Mill Dam V. Ropes (6 Pick. 32). The statutes of Massachusetts con- •fer no such authority (St. 1854, c. 286; Gen. Sts. c. 63, §§ 120- 123). The St. of 1854, c. 286, authorizing the issue of bonds of a certain description and for certain purposes is a virtual prohibition of the issue of any others. Gelpcke v. Dubuque (1 Wallace, 221). The bonds issued under the mortgage to the defendants depart from the statute requirements in many respects. They were issued for an unauthorized purpose. They are payable in thirty years, in- stead of twenty. They were for an amount greatly exceeding the capital of the company. The bonds being void, the fact that they are held hj bona fide purchasers is immaterial. Parties who take them are presumed to know the statute law. Balfour v. Ernest (6 Jur. (n. s.) 439) ; Bissel v. Michigan Southern, &c. Railroad (22 jS". Y. 258) ; Pearce v. Madison, &c. Railroad (21 How. 441). The mort- gage must perish with the bonds. It cannot stand as a security for any amount due under the contract for the construction of the rail- road. The agreement with the contractor was not to give him valid bonds, but to give him just such bonds as these were. The parties selected a form of security which turns out to be invalid. Under these circumstances, the defendants would not be entitled to have the contract reformed in equity, nor can they eet up a superior equity to the Commonwealth in this case. Hufit v. Rousm,aniere (1 Pet. 1) ; Leavitt V. Palmer (3 Comst. 19). S. Bartlett and C. Allen for the defendants : Even if. it be con- ceded that the franchise to be a corporation and the delegated right of eminent domain are inalienable, there is nothing in the nature of a franchise to operate a railroad which is of that character. A corpo- ration enters into no contract with the state that it will go on and act under its charter. The security of the state is founded upon the rules which it prescribes, and the restrictions' which it imposes, and the power which it reserves to repeal or alter at will ; and upon the power which resides in courts to enforce the due execution of the powers which are granted, or exact forfeitures in case of abuse. It is quite immaterial what persons may compose the corporation ; the CHAP. VII.] COMMONWEALTH V. SMITH. 333 individuals may all change, but the same duties will rest upon the corporation. The great weight of American authority is in favor of the existence of this power. Morrill v. Noijes (3 Amer. Law Eeg. (n. s.) 18) ; Miller v. Butlaiul, &c. Railroad (36 Vt. 452) ; and cases cited ; Plutt v. New York, &c. Railroad (26 Conn. 644) ; Hall V. Sullivan Railroad (21 Law Reporter, 138) ; .Bowman v. Watlcin (2 McLean, 393, 394) ; Union Banh v. Jacobs (6 Humph. (Tenn.) 515) ; Dinsmore v. Racine, &c. Railroad (12 Wisconsin, 649) ; Macon, &c. Railroad v. Parker (9 Georgia, 377) ; Pollard v. Maddox (28 Ala. 321) ; Allen v. Montgomery Railroad (11 Ala. 454). The course of legislation in Massachusetts has recognized this as a common-law power. Sts. 1857, c. 178, §§ 1, 5 ; 1854, c. 423; c. 286, §3; 1841, c. 44 ; Eev. Sts. c. 39, § 83 ; c. 44, § 11, et seq. The validity of a con- veyance, executed by full authority of a corporation, cannot be ques- tioned by third parties, on the ground that the corporation itself had no authority to execute it. Although a corporation has exceeded its authority, yet the question cannot be tried collaterally, but it is a matter between the corporation and the state. In this case, the Commonwealth stands in the attitude of an individual. The corpo- ration itself, while retaining the .consideration, could not maintain a bill in equity to escape from its contracts and conveyance. Chester Glass Go. V. Dewey (16 Mass. 102), and cases cited; Parish v. Wheeler (22 N. Y. 502). The Commonwealth, taking only a quit- claim title, take subject to all equities of which they have notice. They succeed to the rights of the corporation, and to no more. To hold that the Commonwealth can question this conveyance would be to hold that they have greater rights than their grantor had. This cannot be. Parker v. Nightingale (6 Allen, 344, 345) ; Joslyn v. Wyman (5 Allen, 62) ; Tmjhr v. Dean (7 Allen, 251) ; Vermont, &c. Railroad v. Vermont Gentral Railroad (34 Vt. 1) ; Morrill v. Noyes (ubi supra) ; Silver Lake Bank v. North (4 Johns. Ch. 370). The validity of the bonds which the mortgage to the defendants was given to secure cannot be questioned in this process. By com- mon law, clearly the corporation might issue such bonds. A cardi- nal rule of construction is, that a statute will not be construed to abridge a common-law power, unless its terms are clear. And the cases are very numerous where the literal construction of statutes has been departed from, in order to avoid unjust consequences, and to carry out the presumed intent of the Legislature. Dwarris on Sts. 544, 564, 593-595, 606-611, 652, 663; Smith on Const. & Stat. Law, 694, 792. See also Ex paHe Meijmot (1 Atk. 196, 199); Cole V. Green (6 Man. & Gr. 872, 890) ; s. c. (7 Scott, N. E. 682) ; Bulk- ley V. Derby Fishing Co. (2 Conn. 252) ; United States v. Fisher (2 Cranch, 400) ; Staniels v. Raymond (4 Cush. 316) ; Stebbins v. Mer- ritt (10 Cush. 27, 31, 32). The cases arising under the statutes con- cerning settlements, usury, limitations, taxes, insolvent debtors, in- toxicating liquors, and the proceedings of public officers, furnish 334 COMMONWEALTH V. SMITH. [(JHAP. VII. numerous other illustrations. Various bonds not executed in con- formity to the statutes which required them have been held valid. B'lnk of Brighton v. Smith (5 Allen, 413), and cases cited. Locke v. Johnson (3 Allen, 153) ; Pratt v. Gibbs (9 Cush. 82) ; Simonds v. Parker (1 Met. 513). As a general rule, the forms prescribed for bonds are held to be merely directory. Angell & Ames on Corp. § 254; Bank of Northern Liberties v. Cresson (12 S. & R. 306). So county bonds and municipal bonds irregularly issued have been held valid, in the hands of bona fide holders. Mercer County v. Hacket (1 Wallace, 83) ; Gelpcke v. Dubuque (lb. 176) : Mei/er v. Muscatine (lb. 384) ; Moraii v. Miami Commissioners (2 Black, 722); Woods v. Lawrence County (1 Black, 386). The St. of 1854, c. 286, was not designed to deprive corporations of existing rights. Section 1 declared the right to issue bonds for cer- tain purposes. But there were various other purposes for which, by common law, they clearly might issue bonds : as, for instance, to aid in constructing their road ; to dissolve an attachment ; to submit to arbitration; to prosecute a. writ of replevin; and to convey property. It might be considered doubtful by some whether they had a right to issue bonds for the purposes named in the statute ; but the giving of authority for these purposes did not abridge their general power to issue bonds for other lawful purposes. Mobile, &c. Railroad v. Talman (15 Ala. 472) ; Allen v. Montgomery Railroad (11 Ala. 437, 454) ; Union Bank v. Jacobs (6 Humph. 515). The statute therefore, does not apply, in any of its sections, to these bonds, which were issued for purposes not therein contemplated. The provisions as to the form of the bonds are merely directory. Four suggestions are grouped together. Xeither one is essential. Suppose, for instance, the bonds had been issued at a usurious rate of interest ; would they alone, of all usurious contracts, be absolutely void ? All of these provisions were simply designed to secure uni; formity. The statute does not enact that, for a failure to comply with them, the bonds shall be void; and a strict compliance with them is not essential to the validity of the bonds. See Bank of Brighton v. Smith (5 Allen, 417) ; Merritt v. Stebbins (10 Cush. 27) ; Haiokes v. Eastern Counties' Railway (3 De G. & Sm. 743) ; Bargate V. Shortridge (5 H. L. Cas. 297). To give a different construction would involve consequences most unjust. It would enable the Com- monwealth, for its own profit, to compel, in a collateral proceeding, an unwilling corporation to repudiate fair contracts entered into in good faith ; although the Commonwealth had knowledge of the con- tracts before advancing a dollar to the corporation. Parker v. Boston & Maine Railroad (3 Cush. 117). Even if the bonds are invalid, the debt of the corporation remains. They have agreed to give a good mortgage and good bonds. They are equitably bound by their promise to pay for the value which they received, although through accident or inadvertence or mutual mis- CHAP. VII.] COMMONWEALTH V. SMITH. 335 take the promise is expressed in an invalid form. Must not the Commonwealth respect this equity ? Union Bank v. Jacobs (6 Humph. 615), and Chancellor Kent's opinion, in note. The Com- monwealth is in the position of a subsequent purchaser with notice. 3 Powell on Mortg, 1049-1058 a ; Dale v. Smithwick (2 Vern. 151) ; Card V. Jaffray (2 Sch. & Lef. 374). HoAK, J. : — The question whether the niortgage made to the defendants by the Troy and Greenfield Railroad Company is of any validity against the Commonwealth requires the court to give a construction to the pro- visions of St. 1854, c. 286. To ascertain what the Legislature in- tended to authorize or prohibit by that statute, it will he expedient, first, to consider what were the powers of railroad companies in rela- tion to the issue of bonds and the making of mortgages at common law, or before the statute was enacted. There seems to be no reason why a railroad corporation should not be considered as having power to make a bond for any purpose for which it may lawfully contract a debt, without any special authority to that effect, unless restrained by some restriction, express or im- plied, in its charter, or in some other legislative act. A bond is merely an obligation under seal. A corporation having the capacity to sue and be sued, the right to make contracts, under which they may incur debts, and the right to make and use a common seal, — a contract under seal is not only within the scope of its powers, but was originally the usual and peculiarly appropriate form of corporate agreement. The general power to dispose of and alienate its prop- erty is also incidental to every corporation not restricted in this respect by express legislation, or by " the purposes for which it is created, and the nature of the duties and liabilities imposed by its charter.'' Treadwell v. Salishurij Manuf. Co. (7 Gray, 404). But in the case of a railroad company, created for the express and sole purpose of constructing, owning, and managing a railroad, au-^ thorized to take land for this public purpose under the right of eminent domain ; whose powers are to be exercised by officers ex- pressly designated by statute ; having public duties, the discharge of which is the leading object of its creation ; re(iuired to make returns to the Legislature; there are certainly great, and, in our opinion, insuperable objections to the doctrine that its franchise can be alien- ated, and its powers and privileges conferred by its own act upon another person or body, without authority other than that derived from the fact of its own incorporation. The franchise to be a cor- poration clearly cannot be transferred by any corporate body, of its own will. Such a franchise is not, in its own nature, transmissible. The power to mortgage can only be coextensive with the power to alienate absolutely, because every mortgage may become an absolute conveyance by foreclosure. And although the franchise to exist as a corporation is distinguishable from the franchises to be enjoyed and 336 HENDEE V. PINKEKTON. [CHAP. VII. used by the corporation after its creation, yet the transfer of the latter differs essentially from the mere alienation of ordinary cor- porate property. The right of a railroad company to continue in being depends upon the performance of its public duties. Having once established its road, if that and its franchise of managing, using, and taking tolls or fares upon the same are alienated, its whole power to perform its most impoi'tant functions is at an end. A man- ufacturing company may sell its mill, and buy another ; but a rail- road company cannot make a new railroad at its pleasure. The whole reasoning of the court in the case of Wluttenton Mills v. Upton (10 Gray, 582), in which it was held that a manufacturing corporation has no power to make a contract of copartnership, applies with much greater force to the transfer of its franchise by a railroad company. No case has been cited in which the exercise of such a power has ever been judicially sanctioned in this Commonwealth where there was not express legislative authority for it ; and the cases in. which the Legislature has expressly conferred the power, or confirmed its exercise, furnish at once a strong implication that it would not otherwise exist, and afford a solution of the allusion to railroad moi'tgages which occurs in the statutes. Coming then, to the consideration of the statute of 1854, we find it entitled "An act to authorize railroad companies to issue bonds." ■" We find no evidence that the Commonwealth has ever known and sanctioned the irregular and illegal issue of the bonds in question, either directly or by implication. Nor do we think that they fall within the class of cases in which it has been held that a violation of corporate powers cannot be taken advantage of collaterally. The second mortgage to the Commonwealth gives it a direct interest in the property, and, not being made expressly subject to any prior incumbrance, gives the right to maintain and prove that the supposed conveyance to the defendants was illegal and void. The result to which the point decided leads is this : that, the de- fendants having no title which they can maintain against either of the mortgages to the Commonwealth, the plaintiffs have a plain, complete, and adequate remedy at law for any interference with the mortgaged property, and the bill must be dismissed. HENDEE V. PINKEETON. (14 4//en, .381. 1867.) Bill in Equity brought by trustees under a mortgage issued by the Grand Junction Railroad & Depot Company, as security for 1 Part of the opinion relating to this statute is oinitted. CHAP. VII.] HENDEE 17. PINKEKTON. 337 certain bonds of said company, to compel the defendant specifically to perform his written agreement to accept and pay for certain land in East Boston, bid off by him at auction. The following facts were agreed : — By the act incorporating the Grand Junction Railroad & Depot Company, and acts in addition thereto, prior to the adoption of the by-laws hereinafter referred to, that corporation was authorized to hold lands in East Boston for depots and storehouses, as well as for railroad purposes, and to allow any other railroad corporation to establish depots upon its premises, and to sell or lease the land necessary therefor; and at the date of the mortgage hereinafter referred to, the corporation owned large tracts of land in East Boston, upon which it was engaged in constructing wharves and warehouses for storage of merchandise; and the lands conveyed by said mortgage, and the subject of this suit, were purchased for the like use, and were not required for the railroad track of the corpora- tion, or for other railroad purposes. Among the by-laws duly adopted by the corporation, it v.as provided as follows : " The directors shall have, in the management of the affairs of the corporation, and are hereby invested with, all the powers which the corporation itself possesses, not incompatible with the provisions of these by-laws and the laws of the Comlnon- wealth;" and there was nothing in the by-laws incompatible with the exercise by the directors of the power to borrow money, or to issue bonds, or to convey in mortgage the lands of the corporation as security therefor. At the annual meeting of the corporation, held May 30, 1855, the said by-law was amended by striking out all that part thereof following the words "itself possesses," and inserting in lieu thereof the words "which are not in violation of the rights of the stockholders; provided, also, that the directors shall not enter into any contract or make any expenditure which relates to the permanent leasing or disposal of the property of the corporation, or the purchase of new property to an amount exceed- ing .150,000, without the consent of the stockholders having been first obtained thereto, at a meeting legally notified for that purpose; " and, at a special meeting of the corporation, held December 14, 1855, the said amendment to the by-laws was reconsidered. On the first of January, 1853, a mortgage was executed to the plaintiffs, as trustees, in the name of the corporation, of several parcels of land owned by the corporation, and about a mile of its railroad track, in East Boston, to secure bonds of that date to the amount of $100,000, payable in five years. This mortgage was signed on the part of the corporation by its president, in pursuance of" a vote of the directors authorizing him to do so, and to cause the seal of the company to be affixed thereto. There was not upon this mortgage any seal of wax or wafer or other adhesive substance, distinct from the paper on which said VOL. I. — 22 338 HENDEE V. PINKERTON. [CHAP. VII. indenture is written; but, at the time of executing the same, there was impressed upon the paper opposite to the signature thereof, by the president of the corporation, the steel die adopted as the seal of the corporation, said die being constructed in two parts; upon one part thereof was raised, and upon the other part was sunk, a corresponding device, with letters and figures denoting the name of the corporation and the date of its incorporation; and, by meaijs of said die, siid device was indelibly and ineradieably impressed upon and into the substance of said paper; and such impression was so made by the president as and for the seal of said corporation, and in pursuance of the vote hereinbefore referred to. And a similar impression was in like manner made upon each of the bonds at the time of signing and issuing the same. At several annual meetings of the stockholders of the corporation, prior to the date of the attachments hereinafter referred to, the directors presented their reports, containing a statement of the affairs of the corporation, wherein the indebtedness of the cor- poration upon said bonds, and the security given therefor by said mortgage, were fully stated and set forth, which reports were accepted by vote of the stockholders. The equity of redemption of the corporation in the lands conveyed by the mortgage was sold on execution to one Welch, who conveyed the same to George W. Gordon; and by said sale and conveyance a good title to the equity of redemption Was vested in Gordon, pro- vided the mortgage was valid; and the corporation never redeemed the premises therefrom. The plaintiffs likewise, upon default of payment of the bonds, and after demand made upon the corporation for payment of one of them, and by the request of the holders of more than one-half in amount of the bonds, entered upon the premises, and, in pursuance of the terms of a power of sale contained in the mortgage, sold the parcel of land which is the subject of this suit by auction to the defendant, he being the highest bidder therefor; and a memorandum of the sale was accordingly signed by the defendant, in which he agreed to comply with the terms thereof, and he paid into the hands of the auctioneer one hundred dollars to bind the bargain. The terms of sale pro- vided that if any defect of title should appear, which could not be remedied by the sellers within thirty days, the snle should be void- at the option of either partj'. The plaintiffs, on the 20th of March, 1866, tendered to the defendant their own deed, a deed from Gordon, and a deed from the corporation, and the defendant refused to accept them on these grounds, and others, namely: 1. That said indenture of mortgage was not authorized by the stockholders of said corporation, but only by a vote of the directors thereof; 2. That in and by said indenture there was undertaken to be conveyed, in addition to the parcels of land aforesaid, about one mile of the road-bed and track of said CHAP. VII.J HENDEE V. PINKEKTON. 339 railroad, being but a. fractional part thereof; 3. That there is no seal on said deed of indenture, of wax, wafer, or other adhesive sub- stance, but only an impression of the corporation seal, as herein- before set forth; 4. That prior to the deed of release purporting to be that of said corporation to the defendant, dated March 20, 1866, two large attachments, amounting in the aggregate to over one hun- dred thousand dollars, were placed upon all the real estate of said corporation in the county of Suffolk, in suits against said corpora- tion, which suits are still pending. But it was agreed that said suits were commenced and said attachments made long after the levy of the execution against the corporation hereinbefore referred to, and the conveyance under the levy and sale thereon to said Gordon. Upon the foregoing facts, the case was reserved by Foster, J., for the determination of the full court. W. G. Russell, for the plaintiffs. The general rule is, that corporations may issue bonds and mortgage their real estate in ]>ayment or as security for their debts. Angell & Ames on Corp. §§ 187, 191. The only established limitation of this rule, as applied to railroad corporations, is that they cannot, without dis- tinct legislative authority, alienate their franchises, or their prop- erty, which is so inseparably connected with their franchises, as to be essential to the exercise and enjoyment thereof. Common- weulth V. Smith (10 Allen, 448); Bichardson v. Sihhij (11 Allen, 65). The present case does not come within this limitation. The lands in question were not intended or used for railroad purposes, but were held under special authority for other purposes (St. 1847, 0. 30, §§3, 4). The fact that the mortgage included a small por- tion of the railroad of the corporation does not avoid the convey- ance of the land. Amesbury v. Bowditrh Ins. Co. (6 Gray, 596, 607); CommomveahhY. Hitchings (5 Gray, 482); Shaw v. Norfolk Co. Railroad (lb. 180); Pierce, v. Emery (32 N. H. 484). The vote of the directors was a sufficient authority for the execution of the mortgage. The directors of a corporation, in the absence of restric- tion in the charter or by-laws, have all the authority of the cor- poration itself in the conduct of its ordinary business. Bank of Middleburij v. Rtitland & Washington Railroad (30 Vt. 159, 169); Redfield on Railw. 408. This authority extends to contracting debts, and pledging or conveying real or personal estate in pay- ment or as security. Sargent v. " Webster (13 Met. 497, 503) ; Bitr- rill V. Nnhant Bank (2 Met. 163); Despatch Line of Packets v. Bellamy Manvf Co. (12 X. H. 225); Bank of Middlebury v. Edger- ton (.30 Vt. 182. 190) ; Miller v. Rutland & Washington Railroad (.36 Vt. 452, 474); Augusta Bank v. Hmnblet (35 Maine, 491); Jackson V. Brown (5 Wend. 590) ; Hoyt v. Thompson (19 N. Y. 207) ; Gordon v. Preston (1 Watts, 385). In this case, the by-laws con- ferred authority; and the subsequent action of the stockholders confirmed it. 340 HENDEE V. PINKERTON. [CHAP. VII. The impression of the common seal of a corporation upon paper, made in the manner above set forth, is a good seal at common law. Sprunge v. Barnard (2 Bro. C. C. 685) ; The Queen v. St. Paul (7 Q. B. 232) ; Carter v. Burleij (9 N. H. 558) ; Allen v. Sullivan Ra'd- road (32 N. H. 446); Woodman v. York & Cumberland Railroad (50 Maine, 549); Bank of M cents ■ ) his lawful attorney, on the surrender of this certificate, Revenue Stamp, f and is subject, together with all dividends thereon, for any debts or demand due from the holder to said bank. Cincinnati, March 19th, 1869. (Signed) H. Colville. (Signed) Charles B. Foote, Cashier. President. Indorsed in blank, on the back, as follows : Witness, H. Colville. Chas. B. Foote. The by-laws of the defendant prohibited a transfer of the shares of a holder while indebted to the bank. On May 16, 1870, Foote, who was then, and continued to be, until about the 15th day of October, then next, the president and a director and stockholder of the Commercial Bank, borrowed of the plaintiff, the Franklin Bank, on his own account, the sum of $10,000, payable on demand, and delivered to the Franklin Bank said certificate, as security for said loan. At this time Foote was indebted to the Com- mercial Bank in a sum largely in excess of the value of said two hundred shares of stock, but at the same time he was the owner of a large number of the shares of the capital stock of said bank, in addition to said two hundred shares. But at no time was his in- debtedness to the Commercial Bank reduced below the actual value of two hundred shares of the capital stock. On December 31, 1872, the plaintiff presented said certificate to the Commercial Bank, and demanded a transfer on its books of said. CHAP. VIII.] FRANKLIN BANK V. COMMEKCIAL BANK. 349 two hundred shares of stock to the name of the plaintiff, which trans- fer was refused. Whereupon the plaintiff brought the original action, setting up said loan, the pledge of said stock as securitj' therefor, with notice thereof to defendant, the presentation of said certificate, and the demand for said transfer, with the refusal of the defendant, and alleged a consequent conversion of said stock by defendant. The petition prayed a judgment against the defendant for refusing said transfer, for the sum of $10,561.43, the amount then due from Foote on said loan, alleging the value of said two hundred shares of stock to be in excess of said sum. The petition also prayed for such other relief, legal or equitable, as might become proper. The case went to trial, and a bill of exceptions was sealed, contain- ing all the testimony, which, in view of the opinion of the court and the facts above stated, it becomes .unnecessary to notice further, ex- cept to state that proof was offered, showing a custom among bankers to fill the blank indorsement on the back of a certificate of bank stock, authorizing the holder to transfer the shares on the books of the company. Sections 11 and 12 of the act under which the plaintiff and defendant were incorporated are as follows : — " 11. The capital stock of every company shall be divided into shares of fifty dollars each, which shall be deemed personal property, and shall only be assign- able on the books of the company, in such manner as its by-laws shall prescribe ; each bank shall have a lien upon all stock owned by its debtors, and no stoik shall be transfen-ed without the consent of a majority of the directors, while the holder thereof is indebted to the company. '" 12. No company shall take as security, for any loan or discount, a lien upon any part of its capital stock ; but the same security, both in kind and amounfi shall be required of shareholders as of persons not shareholders ; and no bank- ing company shall be the holder or purchaser of any portion of its capital stock, 01- of the capital stock of any other incorporated company, unless such purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, on security, which at the time was deemed adequate to insure the payment of such debt, independent of any lien upon such stock ; and stock so purchased shall in no case be held by the company so purchasing, for a longer period of time than six months, if the same can be sold at what the stock cost at par." The first sentence of section 13 is as follows : — " In all elections of directors, and in deciding all questions at meetings of the stockholders, each share shall entitle the owner thereof to one vote." The superior court gave judgment for the defendant, which judg- ment it is now sought to reverse. Healy & Brannan, and Lincoln, Smith & Stevens, for plaintiff in error. Matthews, Ramsay, & Matthews, for defendant in error. The plaintiff and defendant were incorporated under the Act of March 21, 1851 (1 S. & C. 170), as banking companies. Banks incor- porated under that act are expressly forbidden to purchase or hold 350 FKANKLIX BANK V. COMMERCIAL BANK. [CHAP. VIIL- shares in other corporations, and by clear implication forbidden to loan upon such shares. Straus v. Eagle Co. (5 Ohio St. 59) ; Fowler V. Sculhj (72Penn. St. 456). Healy & Brannaii, and Lincoln, Smith & Stevens, in i;eply, claimed that even if the taking of the shares as security is within the pro- hibition of section 12 of said act, still no one but the State can com- ])lain of such an act. Leazitre v. H'dlegas (7 S. & E. 311) ; 12 Wall. 361; 3 Eand. (Va.) 136; 29 Mo. 676; 12 Am. L. Rev. 143; 24 Ohio St. 28. It was the duty of the defendant to make the trans- fer and let the State impose the penalty, if the plaintiff has disre- garded the law. Union National Bank v. Matthews (98 U. S. 621). The prohibition of said section 12 extends only to cases of purchase of stock, and not to a loan upon collateral security of bank shares. 4 Johns. Ch. 370; Baird v. Bank of Washington (11 S. & R. 411) ; Angell & Ames on Corp. § 157 ; Ayers v. Bank, L. K. 3 P. C. 548, 558, 559. BOYNTON, J. : — ■ We are met at the threshold of the case with the inquiry, whether an action will lie in favor of the plaintiff against the defendant for refusing to transfer, on the books of the defendant, to the name of the plaintiff, the two hundred shares of the capital stock of the de- fendant, represented by the certificate issued to Foote, and by him pledged to the plaintiff as security for the loan obtained. Such re- fusal to so transfer said stock, and an alleged consequent conversion of the same by the defendant, constitute the gravamen of the plain- tiff's action. The 12th section of the a;ct under which the two cor- porations were organized and from which they derived their powers, expressly provided, that no banking company organized under its pro- visions should be the holder or purchaser of any portion of its capital stock or of the capital stock of any other incorporated company, unless such purchase should be necessary to prevent loss upon a debt previously contracted in good faith, on security which, at the time, was deemed adequate to insure the payment of such debt, independent of any lien upon such stock (1 S. & C. 170, § 12). And by section 29 it was provided, that all the rights, privileges, and franchises which the company derived from the act should be forfeited, if the directors of the company should knowingly violate, or permit any of the officers or agents of the company to violate, any of the provisions of the act. That the stock in the present case was pledged or re- ceived to secure a precedent loan is not claimed. There would seem to be little doubt, either upon principle or au- thority, and independently of express statutory prohibition of the same, that one corporation cannot become the owner of any portion of the capital stock of another corporation, unless authority to be- come such is clearly conferred by statute. Mutual Savings Bank, &c. V. Meriden Agency (24 Conn. 159) ; Franklin Company v. Lewis- ton Savings Bank (68 Me. 43) ; Central Railroad Company v. Collins CHAP. VIII.] FR.VNKLIN BANK V. COMMERCIAL BANK. 351 (40 Ga. 682) ; Sumner v. Marcy (3 W. & M. 105). Were this not so, one corporation, by buying up the majority of the shares of the stock of another, could take the entire management of its business, how- ever foreign such business might be to that whicli the corporation so purchasing said shares was created to carry on. A banking corpora- tion could become the operator of a railroad, or carry on the business of manufacturing, and any other corporation could engage in banking by obtaining the control of the bank's stock. Nor would this result follow any the less certainly, if the shares of stock were received in liledge only, to secure the payment of a debt, provided the shares were transferred on the books of the company to the name of the pledgee. A person in whose name the stock of the corporation stands on the books of the corporation is, as to the corporation, a stockholder, and has the right to vote upon the stock. State ex rel. White v. Ferris (42 Conn. 560) ; Ex parte Willcocks (7 Cow. 402) ; In re Barker (6 AVend. 509) ; HoiJpin v. Buffum (9 E. I. 513) ; Field on Corp. § 69. Hence, if the plaintiff appeared on the books of the defendant as the transferee or owner of the two hundred shares of stock repre- sented by the certificate to Foote, it would have the right to vote upon the stock at all meetings of the stockholders of the defendant ; and it would only be necessary for it to procure in pledge, as security for money loaned; a majority of the shares of the capital stock of the Commercial Bank, in order to obtain full control of its al'fairs, and take charge of its banking operations. This would not only be exer- cising powers granted to the plaintiff neither expressly nor by impli- cation, but those which are clearly opposed to the manifest spirit and intent, if not to the language, of the statute. This court has uni- formly adhered to the doctrine announced in Straus v. Eagle Ins. Co. (5 Ohio St. 59) ; that corporations have such powers, and such only, as the act creating them confers ; and are confined to the exercise of those expressly granted, and such incidental powers as are necessary to carry into effect those specifically conferred. Bank of Buffalo v. Toledo F. & M. Ins. Co. (12 Ohio St. 601). This principle has re- cently been most emphatically asserted, both by the Supreme Court of the United States, in Thomas v. Railroad Co. (101 TJ. S. 71), and by the House of Lords, in Ashhury Railroad Carriage and Iron Co. v. Riche (L. K.'7 H. L. 653). It was claimed in argument in both cases, that a corporate body may do any act which is not either expressly or impliedly prohibited by its charter; although it was conceded that a stockholder might enjoin the act, where it was not authorized, either expressly or by implication, and that the State by proper process and proceedings might forfeit the charter. But it was held, in the first case, that the powers of a corporation organized under a legislative enactment are such only as the statute confers, and that the enumeration of them implies the exclusion of all others ; and by the second case, that the contract sued on, being of a nature. not in- cluded in the Memorandum of Association, was ultra vires, not only 352 FRANKLIN BANK V. COMMEUCIAL BANK. [CHAP. VIII. of the directors, but of the whole company, and which the whole body of shareholders was incapable. of ratifying. Notwithstanding the rule thus prevailing, the act under which both the plaintiff and the defendant were organized, did not leave the right or power of the plaintiff to acquire the title to shares of stock in another corporation, to be determined alone upon the principle of construction which the rule above stated adopted. The right to deal in shares of stock in other corporations is not only not found among the enumerated powers which the act confers upon banks organized under its provisions, but the power, in language of the most un- doubted import, is denied, and its exercise expressly prohibited. It therefore follows that the refusal of the defendant to permit the transfer upon its books to the plaintiff of the two hundred shares of its stock, violated no right of the plaintiff, and consequently created no liability on the part of the defendant. Such refusal did not amount to a conversion of the stock. Its action in refusing the transfer was but the denial of any right by the plaintiff to be placed in a position to interfere and participate in the control and management of its internal affairs. To the claim of the plaintiff, that it was the duty of the defendant to make the transfer, when the same was demanded, and leave the State to im- pose the penalty of forfeiture on the plaintiff for a violation of its charter, we do not consent. The cases of Union National Bank v. Matthews (98 U. S. 621), and Jones v. Guaranty and Indemnity Co. (101 U. S. 622), and the cases therein cited, do not support such proposition. The principle of those cases is, that where a corpora- tion is incompetent by its charter to take a title to real estate, a con- veyance to it is "not void, but voidable only, and that the sovereign alone can object; that the conveyance is valid until assailed in a direct proceeding instituted for tliat purpose. But they neither, by the principle maintained, nor by the reasoning advanced in support of it, sanction the doctrine that one corporation may buy up the stock of another, and thereby enable itself to interfere with the internal management of its affairs, especially where the power to do so is expressly prohibited by its charter. In our opinion the petition stated no cause of action against the defendant, and hence laid no foundation for a judgment in favor of the plaintiff. That the plaintiff may have acquired rights by the pledge received from IToote, to such interest in the bank as said cer- tificate of stock represented, is quite true. But what that interest is, if any,, we cannot in the present case determine. Judgment affirmed. CHAP. VIII.] MILBANK V. RAILROAD COMPANY. 353 MILBANK. V. RAILROAD COMPANY. (64 How. Pr. {N. Y.) 20. 1882.) Haight, J. : — This action was brought by the plaintiffs, who are the owners of forty-nine shares of the capital stock of the Buffalo, New York, and Erie Railroad Company, on behalf of themselves and the other stock- holders, to restrain and enjoin the New York, Lake Erie, and Western Railroad Company, its agents, officers, and directors, from voting at any meeting of the stockholders of the Buffalo, New York, and Erie Rail- road Company for the election of directors or otherwise. The Buffalo, New York, and Erie Railroad Company is a corporation organized in the year 1857, and now existing under the laws of the State, for the purpose of constructing and operating a railroad from the city of Buffalo to the village of Corning. On or about the 27th of February, 1863, the Erie Railway Company entered into an agreement in writ- ing with the Buffalo, New York, and Erie Railroad Company, by which the latter leased and rented to the Erie Railway Company its real estate, road-bed, rolling-stock, branch tracks, property, etc., for the period of 490 years, at an annual rental of $233,100. At various times during the years 1873 and 1874 the Erie Railway Company purchased 5,759 shares of the capital stock of the Buffalo, New York, and Erie Railroad Company, being more than one half of all of the capital stock of such company, and paid for the same out of its cor- porate funds. Subsequently, alid in the year 1878, all the property and franchises of the Erie Railway Company were sold under a decree of this court, on foreclosure of a mortgage on such property, to the defendant the New York, Lake Erie, and Western Railroad Company. By such sale the New York, Lake Erie, and Western Railroad Com- pany claims to have become the owner of the 5,759 shares of the stock of the Buffalo, New York, and Erie Railroad Company, and threatened to vote thereon at the next meeting of such corporation for the election of directors. There is no conflict as to the facts. In the first place, it becomes important to determine whether or not the purchase of the stock of the Buffalo, New York, and Erie Railroad Company by the Erie Company was ultra vires and against public policy. Section 8 of chapter 140 of the Laws of 1850, being the general railroad act, pro- vided that, " it shall not be lawful for such company to use any of its funds in the purchase of any stock in its own or any other cor- poration." It is contended, however, that this provision did not apply to the Erie Railway Company. The New York and Erie Rail- way Company was organized under chapter 224 of the Laws of 1832, VOL. I. — 23 354 MILBA.NK V. KAILUOAD COMPANY. [CHAP. VIII. and was authorized to construct a railroad from "New York City, through the southern tier of counties, to the shore of Lake Erie, at some eligible point between Cattaraugus Creek and the Pennsylvania line. Various amendments were enacted prior to 1848, but in none have I found any provisions prohibiting corporations from purchas- ing stock in other corporations. In 1848 the general railroad act was passed (see Chap. 140). Sec- tion 11 contained the same prohibition contained in section 8 above quoted. Section 46 provides that " all existing railroad corporations within this State shall, respectively, have and possess all the powers aud privileges, and be subject to all the duties, liabilities, and pro- visions contained in this act," &c. So that, under this section, the New York and Erie Kailroad became bound by the provisions of section 11, and was expressly prohibited from purchasing the stock of another corporation. This chapter, together with the acts amend- ing the same, were, however, repealed by section 60 of the general railroad act of 1850. After the repealing clause it contained the following: "But all railroad companies formed under said act are hereby continued in existence, in the same manner as if said act were not repealed, and such companies shall be subject to all the pro- visions and shall have the same powers, rights, and privileges, and be subject to the same duties, as if they had been incorporated under this act." It will be observed that this saving clause only extends to railroad corporations "formed under this act." While the New York and Erie Railroad existed and did business under the act and was bound by its provisions, still it was not formed under it, and is therefore not covered by the saving clause. Section 49 of the gen- eral act of 1850 provides that certain sections shall apply to existing railroad corporations, but fails to mention section 8. It is quite possible that it was an oversight on the part of the Legislature in failing to provide that section 8 of the general Act of 1850 should apply to existing railroads, or in failing to embrace them in the saving clause in repealing the Act of 1848. Certainly there appears to be no reason for continuing the prohibition clause as to all railroads formed after 1848, and repealing it as to those previously formed. It consequently becomes necessary to consider the question at common law and under the general statute. In England there appears to be some conflict in the authorities ; but in the United States, Green, in his American notes of Brice's Ultra Vires, page 95, says : " Corporations cannot purchase or hold or deal in stock of other corporations, unless expressly authorized to do so by law." It has been held that a railroad corporation cannot lease its road- bed, rolling-stock, and franchises unless authority is expressly given, and such leases, if made, would be ultra vires and void. See Thomas v. Railroad Company (101 U. S. R. 71) ; Troy and Boston Railroad Co. V. Boston, &c. Railroad Co. (86 N. Y. 107) ; see also 80 N. Y. 27 ; 77 N. Y. 232. In the case of Talmage v. Pell (7 K Y. 328) it was CHAP. Vlir.] MILBA.NK V. KAILROAD COMPANY. 355 held that a bank corporation has no power to purchase the stocks of other corporations for the purpose of selling them for profit, or as a means of raising money, except when such stocks have been received in good faith as security for a loan made or a debt due such corpora- tion, or when taken in payment of such loan or debt. In the case of The Mechanics' Mutual Savings Bank v. Tlie Meriden Agency Com- pany (24 Conn. 159) it was held that a company organized to do a general insurance agency, commission and brokerage business, has no power to subscribe to the stock of a savings bank and building asso- ciation. In the case of The Central Railroad Company v. The Penn- sylvania Railroad Company (21 N. J. Eq. 475) it was held that a corporation cannot, in its own name, nor in the name of individuals, subscribe for stock or be a corporator under the general railroad law. In the case of Berry v. Yates (34 Barb. 200), it was held that an in- surance company has no power to subscribe to the capital stock of another insurance company. In the case of Hazelhurst v. Savannah Railroad Company (43 Georgia, 57), it was held that if one railroad buy the stock of another, it practically undertakes a new enterprise not" contemplated by its charter. This cannot be done by any impli- cation ; the power to do so must be clearly expressed. In the case of The Central Railroad Company v. Collins (40 Georgia, 583) it was held that the power to buy and hold real and personal property and make contracts is confined to such property and such contracts as are incident to building, managing, and maintaining the railroad ; that the purchase of stock in another railroad is outside of the objects of the charter. In this State there is a statute which appears to me to control the question. Section 1, title 3, chapter 18, part 1, of the Revised Statutes in substance provides : " Every corporation, as such, has power, — first, to have succession by its corporate name for the period limited in its charter, and, when no period is limited, perpetually ; second, to sue and be sued ; third, to make and use a common seal ; fourth, to hold, purchase, and convey real estate ; fifth, to appoint subordinate officers and agents ; sixth, to make by-laws " Section 2 provides : " The powers enumerated in the preceding section shall vest in every corporation that shall hereafter be created, although they may not be specified in its charter, or in the act under which it shall be incorporated." Section 3 provides : " In addition to the powers enumerated in the first section of this title, and to those expressly given in its charter or in the act under which it is or shall be incorporated, no corporation shall possess or exercise any corpo- rate powers, except such as shall be necessary to the exercise of the ])owers so enumerated and given." See also, Colby's N. Y. Railroad Laws, sec. 115, and authorities therein cited. In the case under con- sideration the right to purchase stock is not expressly given, and it is not claimed that the purchase of the stock in question, " was neces- sary to the exercise of the powers enumerated and given." 356 MILBA.NK V. RAILROAD COMPANY. [CHAP. VIII. The Erie Eailway Company was organized under chapter 160 of the Laws of 1860 and chapter 119 of the Laws of 1861. As such corporation it purchased all the rights, property, and franchises of the New York and Erie Eailroad under a decree in foreclosure. Under these statutes, it appears that the Erie Eailway Company possessed the same powers, and was subject to the same duties and liabilities, as the New York and Erie Jiailroad Company, and no others. One had no more right to purchase stock in another corpora- tion than did the other. It was under this state of the law that the Erie Eailway Company purchased the stock in question. The con- clusion that I have reached is, that such purchase was not necessary in the exercise of any of its corporate powers ; that it was unauthor- ized and in violation of the statute, and was consequently ultra vires. I do not understand this conclusion to be in conflict with the authori- ties which hold that a corporation may take title to all kinds of personal property to secure debts due it, created in lawful and legitimate business. The collection of such debts is among the powers given by the statute, and is necessary in the exercise of its corporate franchises. But collecting debts and investing its corporate funds are quite different acts. In the second place, it becomes necessary to determine what, if any, title the New York, Lake Erie and Western Eailroad Company have acquired to the stock, and what power it possesses over the same. In February, 1874, and subsequent to the purchase of the stock in question, the Erie Eailway Company executed to the Farmers' Loan and Trust Company, as trustees, a mortgage to secure debts then owing, such mortgage covering all its property and franchises, in- cluding these shares of stock. The New York, Lake Erie and West- ern Eailroad Company was organized under the general railroad law of 1850, and chapter 430 of the Laws of 1874, as amended by chapter 446 of the Laws of 1876. As such corporation it purchased all of the property, rights, and franchises of the Erie Eailway Company under a decree made upon the foreclosure of the mortgage. Section 1, of chapter 446, among other things, provides that " the purchasers of such railroad property and franchises, and such persons as they may associate with themselves, their grantees or assignees, or a majority of them, may become a body politic and corporate, and as such may take, hold, and possess the title and property included in said sale, and shall have all the franchises, rights, powers, privileges, and immunities which were possessed before said sale by the corpo- ration whose property shall have been sold as aforesaid." It is contended that under this statute the New York, Lake Erie and Western Railroad Company's title to such stock becomes abso- lute and perfect, notwithstanding the fact that the purchase by the railway company was unauthorized and against public policy. It is true that this statute authorizes the new corporation to take, hold, and possess the property included in the sale ; but do these words of CHAP. VIII.] MILBANK V. RAILROAD COMPANY. 357 the statute change the character of the ownership from what it was under the old corporation ? It held and possessed the title to the stock ; it collected semi-annually the dividends accruing thereon. If a stockholder of that corporation had applied seasonably to the court it would have been restrained from paying out the corporate funds in the purchase of such stock. No action, however, was taken on the part of the stockholders ; the corporation was permitted to pur- chase the stock and pay for it witli its corporate funds. Tlie money cannot be recalled. The stockholders, having rested upon their rights until the purchase was cousuuimated, cannot be heard to complain, notwithstanding the fact that such purchase was unauthorized and in violation of its charter. By this statute the Legislature intended to transfer this stock into the hands of the new corporation, and it does not appear to me that it was the legislative intent to invest the new corporation with any greater, different, or other title than that possessed by the old corpo- ration. This, it appears to me, must have been the iiitention of the Legislature from the clause of the statute which follows : " And shall have all the franchises, rights, powers, privileges, and immunities which were possessed before such sale, by the corporation whose property has been sold as aforesaid." That is, the new corporation has the rights and power over this stock which were possessed by the old corporation before the sale. Again, it appears to me that it could not have been the intent of the Legislature to deprive other persons not interested in the old or new corporation so formed, of any rights or remedies which they may have had in reference to such stock ; as, for instance, if the Buffalo, New York and Erie Eailroad Corporation or its stockholders were injured or prejudiced by the voting upon such stock by the Erie Railroad Company, and were entitled to com- mence an action to protect themselves from injury, which might result from such voting, it does not appear to me that it was the in- tention of the Legislature to deprive them of such remedy by author- izing a transfer of this property to the new corporation. This brings us to consider, in the third place, whether or not the Buffalo, New York and Erie corporation or its stockholders, the plaintiffs in this action, have such a standing in court that they can demand the relief prayed for. As I have before stated, the time has passed in which the stockholders of the Erie Railway Company could be heard to complain. The Buffalo, New York and Erie or its stockholders were not interested in the corporate funds of the Erie Railway Company, and the paying out of such funds in the pur- chasing of stock, although illegal and unauthorized, did not prejudice or injure such corporation or stockholders. The mere taking title to, the holding of the stock and the collection of the dividends thereon, as they may accrue from time to time, work no injury to the Buffalo, New York and Erie Railway Company or its stockholders, and con- sequently they have no cause for complaint. It is only when the 358 MILBANK V. UAILROAD COMPANY. [CHAP. VIII. New York, ..ake Erie and Western Railroad Company seeks to vote upon the stjck, and thereby obtain control of th6 corporation, that such corporation or its stockholders can be prejudiced. No offer was made to vote on this stock while it was held by the Erie Railway corporation ; it was not until after it had been purcliased by the new corporation that the attempt to vote on it was made. The question thus presented is somewhat serious and important. I have been un- able to find any reported case in which this question appears to have been squarely decided. The new corporation, the New York, Lake Erie and Western Railroad Company, has been organized under the general railroad law, and is now bound by section 8 of that statute. It appears to me that the reason for the prohibiting of the pur- chasing of stocks in other corporations both under section 8 of the general railroad act and section 3 of the Revised Statutes, referred to, are twofold. First. It is against public policy to permit the officers of a corporation to take the corporate funds belonging to the stockholders and expend it in purchasing or speculating in the stocks of other companies. In the second place, it is against public policy to have or permit one corporation to embarrass and control another and perhaps competing corporation in the management of its affairs, as may be done if it is permitted to purchase and vote upon the stock. Green in Brice's Ultra Vires, at page 604, under the head of "Proceedings by Third Parties," says: "The whole of the law, in so far as the present subject is concerned, may be summed up in the two statements : Eirst, that as no person can institute legal proceed- ings on account of illegal acts, however great their detriment to the public or to others than himself, whether to obtain damages for them or to restrain their repetition, unless he has been personally damni- fied, so neither can he do so if the acts are ultra vires of a corpora- tion instead of a private individual. Secondly, if on the other hand a private person be wronged by such acts, he may in every case sue for damages or to restrain them, and that, although the matter com- plained of would not have been a tort if done by an ordinary citizen. In a word, torts committed by a corporation stand, as regards legal proceedings by aggrieved parties in respect thereof, in exactly the same position as torts by private persons, with the single qualifica- tion, arising from the doctrine of ultra vires, that every act directed or concurred in by a corporation in excess of its powers will, if it causes harm to any third party, be a tort, and give to such party a right of action." In the case of The State, ex rel. The Attorney- General v. McDaniel et al. (32 Ohio, 354-368), a question was raised as to the right of the Cincinnati, Hamilton and Dayton Railroad Company to vote upon the bonds which it held of the Dayton and Union Railroad. It was" alleged that it held the bonds illegally ; that it got the con- trol of the same, and placed them in the hands of its directors to enable them to vote at the election for the purpose of getting control CHAP. VIII.] IN KE ASUTIC BANKING CORPOKATION. 359 of the Daytou and Union Railroad, and of running the same in the interest of the Cincinnati, Hamilton and Dayton Eailroad Company. It was held that it was not necessary to decide the question so raised, although the question was elaborately discussed upon the argument ; but the learned justice who wrote the opinion in the case says, in reference thereto, that, " we are all inclined to the opinion that it, the Cincinnati, Hamilton and Dayton Railroad Company, had no such power." This case seems to be the nearest in point of any that I have been able to find, and, while it was not necessary to decide the question in disposing of the case, yet all of the judges of the highest court of the State of Ohio were of the opinion that the railroad com- pany who had acquired the bonds of another railroad company had no power to vote thereon, and thus acquire control of such corporation. In the case under consideration, the New York, Lake Erie and Western Company have acquired by purchase the majority of all the stock issued by the Buffalo, New York and Erie Railroad. If its officers are permitted to vote thereon, they can elect a board of di- rectors of their own choosing. It would then be for the interests of the New York, Lake Erie and Western Railroad Company to have the Buifalo, New York and Erie Company managed and controlled in the interests of the former company. This would be liable to result in injury to these plaintiffs and their fellow stockholders, and if so they have a right to complain. My conclusions, therefore, are that while the New York, Lake Erie and Western Railroad Company is the owner of the stock in question, and has the right, while it remains the owner, to collect and receive the dividends thereon, and has the right to sell and dis- pose of the same, it has not the right to vote thereon, and that the stockholders of the Buffalo, New York and Erie Railroad Company have the right to have it enjoined from so voting in case it threat- ened to do so. Judgment should be ordered for the plaintiffs, iu accordance with the views herein expressed, with costs. In re ASIATIC BANKING CORPORATION. (£. R. 4 Chan. App. 252. 1869.) This was an appeal from a decision of Vice-Chancellor Stuart, refusing to remove the name of the Royal Bank of India from the list of contributories (Law Rep. 7 Eq. 91). The Royal Bank of India was formed in 1863, by memorandum and articles of association, under an Indian Act of 1857, which was almost identical with the Companies Act, 1856. The objects of the company, as defined by its memorandum of association, were as follows : — 360 IN KE ASIATIC BANKING CORPORATION. [CIIAP. VIII. " The objects for which the company is established are for carry- ing on the trade of bankers in all its branches, and to do and trans- act all matters and things incidental thereto as now existing; or which it may at any time hereafter be lawful for establishments carrying on banking, or for dealing in money, or in notes, bills, or other securities for money, to do or transact. " Clause 3 of the articles repeated the above clause of the memo- randum, and proceeded to provide that such business should be fixed and determined, and in all respects regulated by such rules, regulations, and by-laws, as the directors of the company might from time to time make, which should be entered in a book kept for that purpose, and signed by three of the directors. By clause 63, until the directors otherwise determined, three directors were to form a quorum. Clause 68: "The board of directors shall have generally the entire management, superintendence, control, ordering, and directing of the affairs, business, concerns, and property of the company, including power to buy, sell, or take on lease, land or buildings, or both, for use of the company as occasion shall require; and shall, in every case not provided for, or inadequately provided for, by these presents, or by any rules or regulations hereafter made or established by any general meeting, have full power to regulate their own proceedings and the mode of conducting their business, and to act in such manner as they may think best calculated to effect and accomplish the objects and purposes for which the company is established, and to promote the welfare of the company; and also have and assume all powers which are requisite or necessary to enable them to carry into effect the objects and purposes for which the company is established, subject, nevertheless, to the provisions and restrictions contained in these presents and Act XIX of 1857." 70. "The board of directors shall have the full and entire control and disposal, on account and for the purposes of the company, of all moneys belonging thereto, whether already or hereafter to be sub- scribed or contributed, or in any manner acquired for the purposes thereof." 71. " The board of directors shall have full power, and it shall be their exclusive province, to prescribe the mode of receiving, col- lecting, and expending the moneys and funds of or owing to the company, and of drawing checks, and otherwise disposing of the funds and moneys which from time to time shall be in the hands of the bankers or treasurer, or otherwise at tbe disposal of the com- pany; and the board of directors shall have full power in all respects, as they shall think advisable, to direct, control, and provide for the receipt, custody, and issue, management, remittance, and expenditure of the moneys and funds of the company." By-laws were made by the directors, among which was the follow- ing rule: — CHAP. VIII.] IN KE ASIATIC BANKING CORPOR.'.TION. 361 " The bank may accept lands, houses, ships, shares in public com- panies, or any other property, as a security for a debt absolutely and bona fide previously due and owing, or as security for the payment of any sum for which any person or persons may have rendered him- self or themselves liable to the bank; but such security is never to be taken for an original loan, nor are shares in public companies so accepted as security to be transferred to the bank so as to involve it in the liabilities of such companies." Notwithstanding this by-law, it appeared to have been the course of the Royal Bank to make loans ou deposit of shares. The practice was for the borrower to give his promissory note, and deposit the share certificates with deeds of transfer executed by him, the name of the transferee being left in blank, and with a power of attorney enabling a nominee of the Eoyal Bank to receive the dividends. Among the shares so taken were 1000 shares in the Asiatic Banking Corporation. In the early part of 1865 it was decided by one of the Indian Courts, that securities of this nature were invalid as against execu- tion creditors of the depositors. The directors of the Royal Bank, being alarmed at this, passed the following resolution on the 30th of March, 1866, at a meeting at which six directors were present: — "The meeting, having had under consideration the system of advancing loans upon shares, resolved, that, with the exception of the shares of the Royal Bank, only the shares of companies registered with limited liability, or shares of companies incorpo- rated by royal letters-patent, should be advanced upon; that no advances should be made on any shares on which less than one- half the amount of the capital was paid, and that any shares upon which loans were granted should be registered in the name of the manager or in tlie name of the bank." This minute was duly entered in the minute book of the directors, but was not signed by three directors nor entered in the book of by-laws. The 1000 shares were accordingly transferred into the name of the Royal Bank; the name of the Royal Bank being filled in, and the transfer deeds executed by the manager on behalf of the bank, the common seal of the bank not being used. The transfers were completed, and the shares registered in the name of the bank at different times between the 11th of April, 1865, and the 12th of December, 1865. At various times between the 11th of April, 1865, and the 5th of July, 1866, the Royal Bank sold, and received the purchase-money for, a number of these shares, and transferred to the purchasers the shares so sold. The number held by the bank was thus reduced to 605, of which number the bank remained the registered holder down to the date of the order for winding up the Asiatic Bank. In July, 1865, and February, 1866, the Royal Bank received dividends on the shares for the time being standing in its name. 362 IN EE ASIATIC BANKING COKPORATIOX. [CHAP. VIII. Vice-Chancellor Stuart having refused to remove the name of the Royal Bank of India from the list of contributories, the present appeal was brought. Sir C. J. Selwyn, L. J. : — The memorandum of association constituting the Royal Bank of India declares its object to be to carry on the trade of bankers ; and its power to do everything incidental to the business of banking is expressed in the most wide and unlimited terms. Then the 71st of the articles of association gives to the directors powers of very extensive and general character, — in fact, to do everything which in their judgment should be necessary for the purpose of carrying on this business of banking. It is argued, however, that the by-laws were in a certain sense incorporated with the articles, and that they control the powers of the directors. But it is to be observed, that the articles and the memorandum constitute the whole of what may be termed the public document in such a case as this. The memorandum is, except under very special circum- stances, not capable of being altered at all, and the articles are, excepting also under special circumstances, the governing and bind- ing laws of the company. But these by-laws, to which no one but the officers of the company has access, not only are not unalterable laws, but they are laws which may be from time to time altered in any way by the directors of the company as they may think fit, subject, it is true, to the regulation that those alterations are to be entered in a book, and signed by three of the directors. It ap- pears that the directors did pass certain by-laws, which are entered in the book, with respect to the nature of the securities which they sliould take, and amongst them was one upon which great reliance is placed. [His Lordship read the by-law set out above.] Now, with respect to the first question which has been argued, viz., as to the capacity of a trading corporation to accept shares in another trading corporation, it is sufficient for me to say that I entirely agree with the judgment of Lord Cairns in the case of Barned's Banking Company (Law Rep. 3 Ch. 105), viz., that there is not, either by the common or statute law, anything to prohibit one trading corporation from taking or accepting shares in another trading corporation. There may, of course, be circumstances which prohibit or render it improper for a company to do so, having regard to its own constitution as defined by its memorandum and articles ; but excluding all these considerations, although in the statute of 1862 the words " person or persons " continually occur, still I think it must be taken to include corporations, and looking at the ques- tion as a mere abstract question, in my judgment there is nothing to prevent a corporation from being a shareholder in another trading corporation. Then the question comes to this : Are the terms, general purport, and effect of the memorandum and articles of association of the CHAP. VIII.] IN RE ASIATIC BANKING CORPORATION. 363 Royal Bank of India such as to render it ultra vires for its directors to do what they have done in this instance? In the first place, I apprehend that making advances upon shares in public companies is within the ordinary course of the dealing of bankers. This must be obvious to every one who is familiar with the cases which have occurred in this Court. It appears, accordingly, that this bank, in the ordinary course of its business, was in the habit of advancing money and taking as security shares in different conjpanies, and of accepting those shares as security either for money advanced at the time, or for money which had been previously advanced; and the course of business was that the certificates of shares were deposited with the bank, accompanied by a blank transfer and power of attor- ney, enabling some nominee of the bank to receive the dividends which accrued due in respect of those shares. Accordingly, they so received the dividends upon a great number of shares in the Asiatic Banking Corporation. It appears that a judicial opinion was afterwards expressed, that in that state of circumstances, unless a formal transfer was executed, the bank were only in the position of equitable mortgagees, and that the shares themselves remained in the order and disposition of the borrower or depositor. The directors of the Royal Bank of India, being alarmed by that decision, accordingly met, and it appears that on the 30th of March, 1865, six directors having been present, they passed a resolution, part of which was, that any shares upon which loans were granted should be registered in the name of the manager, or in the name of the bank. That resolution was duly passed, and entered in the proper book of the company containing resolutions of the directors. It is true that it was not entered in the shape of being a repeal or altera- tion of the by-law which I before mentioned, nor was it entered in the book of by-laws, nor signed by three of the directors. But the substance of the transaction is this, — that the directors, having obtained certain securities in the ordinary course of their business, became alarmed by a judicial decision that those securities in their then shape were invalid, or liable to great danger, and therefore they, exercising, in my judgment, ordinary prudence, came to a resolution that that danger should be guarded against in the only way in which it could be guarded against, viz., by completing these mere equitable deposits by legal transfers. It appears to me that this was entirely within the province of the directors, and was an exercise of a reasonable judgment by them under the peculiar cir- cumstances in which they were placed. Then that resolution, having been passed, was afterwards acted upon, and a great number of shares, of which the bank had before been merely equitable mortgagees, were transferred to them. It appears that the transfers were made on printed forms, at different intervals between the 11th of April and the 12th of December, 1865. It is true that those transfers are not executed under the seal of the company, 364 IN RE ASIATIC BANKING CORPORATION. [CHAP. VIII. but there is what has beeu termed only a wafer "For the Koyal Bank of India, J. Gordon, Manager." The transfers having been so executed, it appears that the bank caused itself to be duly registered as a share- holder in respect of these shares. Some of the shares have been sold and transferred by them to purchasers, and they have received the purchase-money in respect of those shares, and have ever since remaiued registered shareholders as to the rest, which are the 605 shares now in question, and they have received the dividends on those shares. It has been said by Mr. Karslake, that the receipt of the dividends is a matter of no importance, because in their character of equitable mortgagees, having in their possession powers of attorney in respect of those same shares, they might have received the dividends under the powers of attornej'' as much as they did under the transfers. But I think that the sale of so many of these shares was, on the part of the bank, an unequivocal act of appropriation and acceptance by them, and although it be true that they might have received the dividends under the powers of attorney, if those powers had remained in force, it is obvious that having sold some of the shares in the character and capacity of registered share- holders, they must be taken to have received the dividends on the remaining shares in the same character and capacity; and it is equally obvious that the powers of attorney from the former share- holders, whose shares had been transferred to the bank, were put an end to and became inoperative as from the date of those transfers. I think, therefore, under these circumstances, that any question as to the mode in which the transfers were executed by the bank or its agent, becomes quite immaterial, because, as was held by the full Court of Appeal in Coles v. Bristowe (Law Rep. 4 Ch. 3), where shares have been so accepted, it becomes quite immaterial whether the deed of transfer has been executed or not. And then, in addi- tion to that, by the 45th section of the Indian Act of 1857, it is declared that, "any contract which if made between private per- sons would be by law required to be in writing, and signed by the parties to be charged therewith, may be made on behalf of the com- pany in writing, signed by any person acting under the express or implied authority of the company, and such contract may be in the same manner varied or discharged." It has been said that here there is no evidence of any authority; but I think that under the circumstances which I have already stated, the authority of the bank is most clearly and explicitly proved. There is the resolu- tion of the directors, entered into, as I have already said, under circumstances which rendered it prudent and proper that such a resolution should be come to. Then we have the resolution acted upon by the bank, we have them procuring themselves to be entered as shareholders, and dealing with the shares; and after that I think it impossible that it can be argued with success that there was no authority to their-agents to do what in fact was done. CHAP. Vlll.] IN RE ASIATIC BANKING COKPORATION. 365 Then it is said that the consequence is one of very great hardship, as involving the shareholders in the Eoyal Bank of India in a great number of liabilities in respect of other companies with which they have had nothing to do; and many cases have been suggested in argument, such as that of bankers becoming partners in a brewing company, or a shipping company, or many other things with which, in their own articles of association, they had no connection what- ever. But I think the answer to that is, that such dangers are necessarily involved in lending money upon securities of this kind. Take, for instance, the common case of a banker advancing money upon the security of a ship and the freight. Nothing, probably, would be further from the notion of the banker than entering into any transaction respecting the sailing of the ship, or receiving freight in respect of that ship. But if he is obliged to foreclose his security, if he is obliged to take possession of the ship, then, as a prudent man, he would necessarily become involved in the management of the sailing of the ship and receiving the freight, as constituting the only means by which he could recover the money he had advanced. I may mention one very familiar instance, known to us all, that of a well-known insurance company. Having lent money upon the security of a mortgage on land in Galway, and having been obliged to foreclose that mortgage, they became dealers in land in Galway on a very large scale. So in this case, if it is once established that it was within the authority of the directors to lend money upon the security of shares, it necessarily follows that anything which was a prudent and proper act for them to do with a view to obtaining the benefit of such security, was equally within the scope of their authority. If it could have been shown that it was an act absolutely prohibited by their memorandum or articles of association, then, no doubt, a different question would have arisen; the act would have been ultra vires and incapable of con- firmation or ratification; but in my judgment there is no such prohibition, but, on the contrary, the directors had, under the memorandum and articles of association, powers so ample as fully to justify that which was done; and I think that the mere circum- stance of their having passed that by-law, of which no public notice was given, and which they had power from time to time to alter as they thought tit, cannot be construed as constituting any such pro- hibition, more especially when the very same persons who had power to alter that by-law did, for a reasonable cause, pass the reso- lution under which the acts now in question were done. The result, therefore, is that in this case — the company having received the shares in the ordinary course of their business as bankers, as a deposit or security for moneys owing to them; the directors having afterwards, for a reasonable cause, and influenced by the effect of a judicial opinion, and acting for the benefit of the company, and at a meeting duly constituted, resolved that those 366 IN RE ASIATIC BANKING CORPOKATION. [CHAP. VIII. securities should be changed from equitable securities into complete legal transfers ; that resolution having been acted on, and the shares having been, in fact, transferred to the Royal Bank of India, and accepted by them, and they having been duly registered as share- holders, and having taken the benefit of the shares, having sold and received the purchase-money for some of the shares, and having in their character of registered shareholders received the dividends on the remaining shares down to the time of the winding up — I think that the name of the Royal Bank of India was rightly included in the list of contributories in respect of the remaining 605 shares, and consequently that the appeal motion must be dismissed with costs. Sir Gr. M. Giffard, L. J. : — This is an appeal by the Royal Bank of India seeking to have its name taken off the list of contributories of the Asiatic Bank. The Royal Bank of India is upon the register of shareholders ; it was put there some time ago in respect of these particular shares, along with others ; it has, as shareholder, sold some of the shares, and received the purchase-money, and has received considerable sums of money for dividends on the rest. I quite agree, however, that all this would not make the company a shareholder if the transaction was ultra vires. The Royal Bank of India was constituted under the Indian Act of Parliament, which gets rid of the difficulties which sometimes arise as to dealings with corporations, — I mean difficulties with reference to the seal, and other matters of that description. It is constituted by a memorandum of association and by articles as a bank for the purpose of lending money, and that upon every species of security. From the very nature of such a company it must, with- out more, be inferred that the directors have all the ordinary powers which the managers of an ordinary bank would have, and you may safely deal with the managers of such a bank upon that assumption, unless there is something in the articles to restrict their powers; and here the articles tend strongly the other way. If it is sought to import the by-laws into transactions with third parties, it must, according to the ordinary law of principal and agent, be shown that those third parties knew that there was a restriction upon the gen- eral powers of the agents. Now, in the first place, it is not proved that these by-laws were known to the Asiatic Bank, and therefore we must assume that they were not so known. Even if they had been known, I think that the subsequent resolution which, although not signed, is recorded, — passed, as it was, by six directors,— would be abundantly sufficient to get rid of the effect of these by-laws. It is not, however, necessary to decide that point, for I am clearly of opinion that in the dealings between the Asiatic Bank and the Royal Bank of India all that has to be looked to is the act of Parliament and the memorandum and articles which constituted the company. CHAP. VIII.] IN EE ASIATIC BANKING CORPORATIOK. 367 "What, then, was the transaction? I quite agree that the Eoyfl,! Bank of India had no authority to speculate in shares, and that if it had gone upon the Stock Exchange and bought shares as a specula- tion, such a proceeding would have been ultra vires, and all that has taken place would not have been enough to constitute the Eoyal Bank of India shareholders in this bank, or prevent them from rejiudiating these shares. But the transaction was of quite a different nature. There was a bona fide loan upon the deposit of shares. That unquestionably is a transaction within the scope and objects of the company, being one within the scope of every ordinary banking business. AVhile that goes on, and while these shares are in the hands of the Royal Bank of India, there comes a decision in a court of law, from which the Royal I5ank of India infer, rightly or wrongly, that their shares will be in jeopardy unless they take a transfer of them either into the name of their manager or into their own name. In consequence of that, they take the reasonable course of having the shares transferred into their own name, for the purpose of making those securities which the}' had taken valid and effective, and for no other purpose what- ever. Of course, although no banker is authorized to become a partner with merchants, or shipowners, or builders, or to engage in transactions of that sort, yet he is authorized to lend upon secu- rities of that description, and he is authorized to take every rational course for the purpose of making his securities good and available. In that way he may become liable upon a building contract; in that way he may become liable as a shipowner; in that way he may become liable in respect of matters of freight, or, in fact, in respect of anjf matters connected with a bill of lading which he holds as a security. I entirely found my judgment on this, that it is within the scope of an ordinary banking business to make the loans which have been made, and to take the deposit of shares as a security; and when the directors, having done so, afterwards took a reasona- ble and bona fide course to realize those securities, thej' cannot now turn round and say that what they did for that purpose was ultra vires, and not justified by their articles of association. Upon these grounds I am of opinion that the decision in the Court below was perfectly right, and that the appeal must be dis- missed with costs. I must say the justice of the case is entirely in this instance with what the law most clearly is. 368 FIRST NAT. BANK V. NAT. EXCHANGE BANK. [CHAP. VIU. FIRST NATIONAL BANK v. NATIONAL EXCHANGE BANK. (92 U. S. 122. 1875.) Error to the Court of Appeals of the State of Maryland. The plaintiff, a national bank organized under the laws of the United States, and doing business at Charlotte, N. C, desiring to in- crease its capital stock, and for that purpose to deposit with the treasurer of the United States at Washington $50,000 in bonds of the United States, employed Bayne & Co., of Baltimore, as its agent, to procure and deliver them at the treasury. Not having money to pay for them at the time, the plaintiff sent its president, Wilkes, to Baltimore, with a certificate previously prepared in Charlotte, as follows : — First National Bank of Charlotte, N. C. Charlotte, Dec. 15, 1865. Received, on deposit, from Bayne & Co., fifty-five thousand United States 5-20 bonds, tliird issue, payable to the order of themselves on return of this certificate. JoiiN Wilkes, Pres. First Nat. Bk., Charlotte, N. C. This certificate was delivered by Wilkes to Bayne & Co., in Balti- more, and on the 18th of December, 1865, they, having indorsed the same, deposited it, together with other securities, with the National Exchange Bank of Baltimore, as collateral security for a call loan of $80,000 then made by that bank to said firm of Bayne & Co. A few days after the delivery of said certificate, the plaintiff de- posited in New York, to the credit of Bayne & Co., a sum sufficient to pay the same, and received, in January, 1866, oral notice from them that the certificate was discharged, and subject to its order. In March, 1866, the plaintiff received a written notice to the same effect, but did not apply for the surrender of said certificate. In April following, Bayne & Co. failed ; and the plaintiff was then notified by the defendant that it held the certificate of deposit for value, and de- manded the delivery of the bonds therein mentioned. Wilkes, the president, was sent by the plaintiff to Baltimore to negotiate for the return of said certificate. He informed the defend- ant that it had been satisfied by the payment to Bayne & Co., and disavowed any legal liability on account of same to the defendant. To avoid suit, however, Wilkes offered to pay $5,000 upon the de- livery of the certificate ; which defendant refused, but offered to take $20,000, and threatened suit unless so settled. Wilkes declined to pay this sum, but asked for delay until he could return to Charlotte CHAP. VIII.J FIRST NAT. BANK V. NAT. EXCHANGE BANK. 369 and consult the directors of his bank. He again returned to Balti- more, and new negotiations for compromise of the controversy between the two banks in regard to their respective rights to the certificate were opened. Wilkes ascertained that the defendant held, among its collaterals from Bayne & Co., a large. number of shares of Washing- ton, Alexandria and Georgetown Kailroad stocks, the market-value of which had been seriously depressed by the failure of Bayne & Co. Having informed himself in regard to the condition of the stock and its supposed value, and after one or two interviews with the president and directors of the defendant, it was finally agreed that the plaintiff should take four hundred shares of the Washington, Alexandria and Georgetown Railroad stock, and one thousand shares of the Maryland Anthracite stock, the same being valued at $40,000 ; and one hundred and twenty-five shares of the stock of the plaintiff, valued at $15,000, — the latter, inasmuch as he was advised that a national bank could not buy its own stock, to be taken by Wilkes himself; thus making $55,000. Upon the basis of this settlement, the defendant was to deliver to Wilkes the certificate held by it for the $55,000 United States bonds. The plaintiff paid to the defendant the sum of $40,000 according to the terms of the above settlement, and received the certi- ficates for one thousand shares coal stock. The four hundred shares of railroad stock were not then delivered, there being a suit about it at the time of the agreement which prevented all transfers; but it was regarded and treated by both parties as belonging to the plaintiff'. In September, 1869, nearly three years after the date of the settle- ment, suit was brouglit by the plaintiff in the Superior Court of Baltimore City to recover the $40,000 paid by it to the defendant in pursuance of the arrangement above stated. At the request of the plaintiff, the court granted the following propositions of law: — First, That if the plaintiff agreed to purchase for $40,000 the rail- road and coal stock, and paid that sum, then the court must find for the plaintiff for that amount, provided the court shall find that the defendant knew the plaintiff to be a national bank, and shall further find that the certificate of deposit was delivered up in consequence of said contract, if by said contract no part of the $40,000 was to be paid for the certificate. Second, That if the plaintiff agreed to purchase the said stock for $40,000, and Wilkes also agreed to purchase for $15,000 one hundred and twenty-five shares of plaintiff's stock, and the inducement to both agreements was Wilkes's desire to obtain the certificate of deposit, and he did so obtain it, that does not inure to make the first contract valid, provided the court shall find, tliat, by the first-mentioned con- tract, the consideration for which the sum of $40,000 was to be paid was the railroad and coal stock, and that no part of said sum was to be paid for the certificate of deposit. Third, That if the plaintiff, in order to compromise the certificate of deposit, agreed to purchase it and the railroad and coal stock for VOL. I. — 24 o70 FIRST NAT. BANK V. . NAT. EXCHANGE BANK. [CHAP. VIII. $40,000, and paid the money, then the- plaintiff is entitled to recover so much of said sum as the court shall find was paid for said stock. The court found for the defendant, and rendered a judgment in its favor, which the Court of Appeals affirmed : whereupon the case was brought here by writ of error. Mr. J. Upshur Dennis and Mr. John Scott, Jr., for the plaintiff in error : The determination of the validity of the transaction involved in this case must necessarily depend upon the construction of the National Ranking Law. The eighth section of that law enumerates the powers which a national bank can exercise. Every other power is as much withheld as if it was in express terms prohibited. Pearce v. Mad. & Ind. E. R. (21 How. 442) ; Bank of Augusta v. Earle (13 Pet. 587) ; Perrine v. Ches. & Del. Canal Co. (9 How. 1-84) ; Penn., Del. & Md. Steam Nav. Co. (8 G. & J. 319). No clause gives it power to purchase stocks : on the contrary, the authority specifically conferred on it to buy exchange, coin, and bul- lion, raises the conclusive presumption that the omission of that power was intentional. Express'w unius exclusio alterius. Conceding that the two agreements — the one for the abandonment of the claim, and the other for the purchase of stock — may be insep- arably united, it is insisted that the court below erred in holding that a power to acquire stocks is incidental to that of providing for the discharge of a disputed claim by way of compromise. Taking any- thing from the defendant but a release or a discharge, transcends the limits of necessary powers, and enables a corporation to accomplish indirectly that which was intended to be prohibited. Upon the prin- ciple which underlies the opinion of the Court of Appeals, it may be said that a corporation has, as an incident to the power to discharge its indebtedness, that of acqn.iring the requisite funds ; and, as a legi- timate means of so doing, the privilege of engaging in business of any kind, provided its real and bona fide object is to meet outstanding de- mands against it. This line of argument would give these creatures of the statute every power the exercise of which is not in positive terms forbidden. The true doctrine is, that an implied or incidental power must be deducible from the grant, and fairly within its scope, — partake of the same character as the specifically granted powers, but not enlarge them, and tend naturally to secure the same result. A power to dis- charge may embrace that of making a payment of any kind whatever, but not that of purchasing or acquiring. That is a distinct and sub- stantive power of an entirely different nature. Pearce v. Mad. & Ind. B. R. (ftupra) ; East Aiiylian Rys. v. Eustern Counties Ry. (7 Eng. Law & Eq. 503) ; Hood v. N. Y. & N. H. R. R. (22 Conn. 1 ; id. 502) ; Russell v. Topping (5 McLean, 197) ; Clark v. Farrington (11 Wis. 323) ; Beatty v. Knowles (4 Pet. 167). The precise proposition involved in this controversy .has been de- CHAP. VIIL] FIRST NAT. BANK V. NAT. EXCHANGE BANK. 371 cided in Talmac/e v. Pell (3 Seld. 328). See also Fowler v. ^Scm^^!/ (72 Penii. 4G1) ; Shoemaker v. National Mechanics' Bank (2 Abb. C. C. 422) ; Shinkle v. First National Bank of Ripley (22 Ohio, 516) ; Wiley V. First National Bank of Brattlehord' (47 Vt. 652) ; First National Bank of Lyons v. Ocean National Bank (N. Y. Ct. of k.^., Albany Law Jour., April 17, 1875). The Court of Appeals of Maryland, in Weckler v. First National Bank of Hagerston, decided at the April Term, 1875, but not yet re- ported, has changed its former views, and recognizes and enforces the doctrine announced in Talmage v. Pell (sujira). Mr. Chief Justice AVaite delivered the opinion of the court: — The question presented for our consideration in this case is, whether a national bank, organized under the National Banking Act, may, in a fair and bona fide compromise of a contested claim against it growing out of a legitimate banking transaction, pay a larger sum than would have been exacted in satisfaction of the demand, so as to obtain by the arrangement a transfer of certain stocks in railroad and other corporations ; it being honestly believed at the time, that, by turning the stocks into money under more favorable circumstances than then existed, a loss, which would otherwise accrue from the transaction, might be averted or diminished. Such, according to the finding below, was the state of facts out of which this suit has arisen. That finding is conclusive upon us. A national bank can " exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of ex- change, and other evidences of debt ; by receiving deposits ; by buy- ing and selling exchange, coin, and bullion ; by loaning money on persona? security ; and by obtaining, issuing, and circulating notes " (Rev. Stat., sect. 5136, par. 7; 15 Stat. 101, sect. 8). Authority is thus given to transact such a banking business as is specified, and all incidental powers necessary to carry it on are granted. These powers are such as are required to meet all the legi- timate demands of the authorized business, and to enable a bank to conduct its affairs, within the general scope of its charter, safely and prudently. This necessarily implies the right of a bank to incur liabilities in the regular course of its business, as well as to become the creditor of others. Its own obligations must be met, and debts due to it collected or secured. The power to adopt reasonable and appropriate measures for these purposes is an incident to the power to incur the liability or become the creditor. Obligations may be assumed that result unfortunately. Loans or discounts may be made that cannot be met at maturity. Compromises to avoid or reduce losses are oftentimes the necessary results of this condition of things. These compromises come within the general scope of the powers committed to the board of directors and the officers and agents of 372 FIRST NAT. BANK V. NAT. EXCHANGE BANK. [CHAP. VIU. the bank, and are submitted to their judgment and discretion, except to the extent that they are restrained by the charter or by-laws. Banks may do, in this behalf, whatever natural persons could do under like circumstances. To some extent, it has been thought expedient in the National Banking Act to limit this power. Thus, as to real estate, it is pro- vided (Rev. Stat. sect. 5137 ; 13 Stat. 107, sect. 28) that it may be accepted in good faith as security for, or in payment of, debts pre- viously contracted; but, if accepted in payment, it must not be re- tained more than five years. So while a bank is expressly prohibited (sect. 5201 ; 13 Stat. 110, sect. 35) from loaning money upon or pur- chasing its own stock, special authority is given for the acceptance of its shares as security for, and in payment of, debts previously contracted in good faith ; but all shares purchased under this power must be again sold or disposed of at private or public sale within six months from the time they are acquired. Dealing in stocks is not expressly prohibited ; but such a prohibi- tion is implied from the failure to grant the power. In the honest exercise of the power to compromise a doubtful debt owing to a bank, it can. hardly be doubted that stocks may be accepted in payment and satisfaction, with a view to their subsequent sale or conversion into money so as to make good or reduce an anticipated loss. Such a transaction would not amount to a dealing in stocks. It was, in effect, so decided in Fleckner v. Bank U. S. (8 Wheat. 351), where it was held that a prohibition against trading and dealing was nothing more than a prohibition against engaging in the ordinary business of buying and selling for profit, and did not include purchases resulting from ordinary baaking transactions. For this reason, among others, the acceptance of an indorsed note in payment of a debt due was de- cided not to be a " dealing " in notes. Of course, all such transac- tions must be compromises in good faith, and not mere cloaks or devices to cover unauthorized practices. It is difficult to see how a debt due from, or a contested obligation resting upon a bank, occupies any different position in respect to this power of adjustment and compromise from that of a debt owing to it. The object in both cases is to get rid of or reduce an apprehended loss growing out of legitimate business ; and it would seem that whatever might be done in the one case ought not to be excluded from the other under the same circumstances. Often a discharge by a bank of its own obligation creates a debt due to it from another. Such was the case here. Bayne, without authority, transferred to the defendant, as collateral security for his indebtedness, a certificate of deposit issued to him by the plaintiff, and afterwards collected the money due upon the certificate from the plaintiff without disclosing the transfer. Any payment by the plaintiff to the defendant, there- fore, in discharge of its liability upon the certificate, became a lawful charge against Bayne. He was insolvent. It was, on this account, CHAP. VIII.J FIRST NAT. BANK V. NAT. EXCHANGE BANK. 373 not only the right, but the duty, of the officers and agents of the plaiutitt' to protect by their arrangements, as far as possible, the stockholders whose interests they represented. This was necessarily left to their judgment and discretion. No question of good faith is involved. The transaction for all the purposes of this suit must be taken to have been, in fact, what it purports to be, — a fair and hon- est compromise of an outstanding claim, with a view to ultimate protection against an impending loss. As such, we think it was within the corporate powers of the bank, and that the Court of Appeals did not err in so holding. Judgment affirmed. 374 RAILROAD COMPANY V. MARSEILLES. [CHAP. IX. CHAPTER IX. POWERS AND LIABILITIES OF A CORPORATION. m RESPECT OF HOLDING ITS OWN STOCK. EAILEOAD COMPANY v. MAESEILLES. (84 ni. 145. 1876.) Appeal from the Circuit Court of La Salle County. Mr. Justice Walker delivered the opinion of the Court : — On the first day of August, 1871, appellant, by its president, executed an agreement, in writing, with appellee. Appellant, in the agreement, recites and acknowledges the fact that appellt?e had issued bonds of the town to the amount of $10,000, bearing ten per cent interest, and payable in ten years, and had delivered the same to the company; and that the sole consideration for the issuing and delivery of the bonds was, that the company should construct and put into operation a railroad from Pekin to Chicago, through the town of Marseilles, in the State of Illinois; and that the company had sold the bonds and used the proceeds thereof in grading, or partly grading a railroad from Pekin to Marseilles; and that the company had entered into a contract with Ralph Plumb, by which he had agreed to construct the same from Streator to Chicago, the following year. The company there agrees and binds itself, that if, from any cause, it should fail to construct the road from Pekin to the town of -Marseilles, it should pay to the president and trustees of the town of Marseilles, for the use of the town, the sum of money the company had received on the sale of the bonds, and the interest accrued thereon, upon the tender, by the town, of the stock issued to the town by the company. Appellee, on the 19th of September, 1873, brought suit on this agreement, to recover the money. It was averred that the time for constructing the road had expired, but it had not been built. It was also averred that appellee had tendered a return of the stock and had demanded the money, but the company refused to receive the stock or pay the money. CHAP. IX.j RAILROAD COMPANY V. MARSEILLES. 375 After filing a demurrer to the declaration, which was overruled, defendant filed several pleas. The first denied the tender. The second averred that the contract was executed without any good or valuable consideration. The third plea set up that the time for constructing the road, as agreed between the company and Plumb, had not elapsed. The fourth plea averred that the time for build- ing the road had been extended. Issues to the country were joined on the first, third, and fourth pleas, and a demurrer was filed to the second, which the court sustained, and appellant abided by its plea. A trial was had, resulting in a verdict and judgment in favor of plaintilf, and defendant appeals. It is urged that there was no time named in the agreement for the completion of the road. The instrument states that Plumb had contracted to construct the road the following year; and as the agreement was executed in 1871, no other reasonable conclusion can be reached, than it was to be completed during the year of 1872. This is manifest from the language employed. It will bear no other construction. It then provides, that if uhe road should not be constructed, the company would refund the money, with interest. Wlien constructed? Obviously within the time specified. Why name the time within which Plumb had agreed to complete it, if not to fix the time when the company would pay the money if not completed? The recital was evidently made for some purpose, and what other oould have induced it? The presumption is, that the parties intended to fix a period when the tender might be made and the money demanded. We cannot conclude that it was intended that the time should remain undetermined for all coming time. Kational persons and the most ordinary business men would not do so absurd a thing as that. It seems to us, therefore, to be obvious, that a fair and reasonable interpretation of the agreement is, that if the road was not constructed according to Plumb's agree- ment, during the year 1872, the money should then be payable on an offer to return the stock and its being tendered to the company. It is urged that the court below erred in sustaining the demurrer to appellant's second plea. It averred that the instrument sued on was executed without any good or valuable consideration whatever; that plaintiff was a legally organized municipal corporation, which had voted to subscribe $10,000 to the capital stock of defendant's road and to issue the bonds of the town to the amount of $10,000, to pay for such subscription, and that the vote was had, the sub- scription made, and the bonds issued in pursuance to the statute in such case jnade and provided; and the bonds so issued were, there- after and before the execution of the agreement sued on, and in pursuance of the power and authority aforesaid, delivered by the plaintiff to defendant, as a payment upon its subscription to the capital stock of the defendant, and for no other purpose, cause, or 376 RAILROAD COMPANY V. MARSEILLES. [CHAP/ IX. consideration whatever, and that it was not a condition upon which the vote was taken, the subscription was made, the bonds were issued or delivered, that the defendant should construct or put in operation a railroad from Pekin to Chicago by way of Marseilles, or the construction or putting into operation a railroad from and to such points, by way of Marseilles, constituted no part of the consid- eration for the issuing of the bonds and . the delivery thereof, as recited in the plaintiff's declaration ; that by so subscribing to the capital stock plaintiff became a stockholder in defendant's road, and the bonds were delivered and received as a payment upon such sub- scription; and the plea avers that the subsequent execution and delivery, by the defendant, of the instrument in writing, to the plaintiff, was without any good or valuable consideration whatever, and which defendant had no authority to make. The declaration, after setting out the instrument sued on, avers that the consideration for the execution of the same was that expressed in the deed. It then becomes necessary to inquire what was the consideration thus mentioned. The agreement contains several recitals which may have and probably did operate as inducements to the making of the contract, but it is manifest that the consideration, as therein expressed, was the surrender of the shares of stock, held by the town, in case, the road was not com- pleted in the time specified. What had preceded, in the way of recital, formed no part of the consideration, and it did not matter whether such recitals were true or untrue. Nor could defendant} by denying them or any of them, form a material issue. A defendant must always tender a material issue, before the plaintiff can be compelled to accept it. It was immaterial what was the considera- tion which induced appellee to subscribe and pay for the stock, as this was a sale of the stock by appellee, and was a purchase thereof upon the terms specified. The averments of the plea clearly fail to show a want of consideration. Appellee had the stock, which is not denied, and from the averments of the plea appellee had paid the company in full for it. It is not averred there were any false or fraudulent representations made by appellee; and it is not denied that appellee offered to return the stock after the time for build- ing the road had elapsed, and appellant had failed to perform. This plea presented no defence, and, the demurrer, was pxoperly sustained. Nor does the averment at the close of the plea, that: the company had no power to make the contract, in anywise render it a good;plea. We entertain no doubt that a railroad company may, for legitimate purposes, purchase shares of stock which have been issued to indi- viduals. Such is believed to have been the general custom of such bodies, nor have we known the power to have been questioned. There is nothing in this plea to show that this purchase was not for legitimate purposes. If the shares issued to appellee were a CHAP. IX.] RAILROAD COMPANY V. MARSEILLES 377 consideration to support the contract for the delivery of the bonds to the company, and that they were cannot be questioned, then why was not the sale of the same shares, by the village to the company, a sufficient consideration to sustain this agreement? We are unable to perceive "any reason. It is next urged, that the town authorities had disabled themselves from delivering the stock, by contracting to sell it to Plumb. It is claimed that the indorsements by him, on the back of the agreement, amounted to a sale to him. We think the effect of these indorse- ments is misconceived. The authorities of the town seem to have supposed that Plumb had some interest in the transaction, as he was a contractor for the construction of the road, and hence they were desirous to have his assent, which he gave, on the conditions speci- fied. He by no means agreed to purchase and pay for the stock, or any portion of it. Nor do we see that he bound himself to do any act, but simply consented that the company should refund the money, and he would receive the stock. We are at a loss to see in what manner it became necessary to the force of the instrument that he should, in anywise, consent to it. He does not seem to have had any controlling power over the com- pany, or its acts or agreements. The company was bound by the contract made by its president, and we cannot perceive how Plumb could control his acts. These indorsements made by Plumb, so far as we can see, were wholly nugatory, and had no effect whatever. The indorsements were no more than that of any other stranger to the agreements What has been said in reference to the necessity of Plumb's consent to the contract applies to his inserting tlie condition that it was to be on the terms that the road should be constructed within the time specified in the contract, or within such further time as should be agreed upon for its construction. It did not matter, in the slightest degree, what terms or conditions he inserted in his consent, as it in nowise affected the agreement between other parties. He was only stating what he desired and consented to, and not what the company would consent to ; but he acted for himself, and not for the company. The tender of the stock . and the demand of the money were sufficiently proved. We fail to perceive any error in this record, and the judgment must be affirmed. Judgment affirmed. (84 III. 648.) Per Curiam: — On considering the petition heretofore filed, we granted a rehear- ing to further consider the question, whether the railroad company had the power to contract for and purchase shares of stock of its own company. We have again fully examined the question, and, 378 KAILUOAD COMPANY V. MARSEILLES. [CIIAP. IX. after considering the arguments and authorities bearing on the ques- tion, we will proceed to announce our conclusions thus reached. The rule is familiar, and is not contested, that such bodies can only exercise such powers as may be conferred by the legislative body creating them, either in express terms or by necessary impli- cation: and the implied powers are presumed to exist to enable such bodies to carry out the express powers granted, and to accomplish the purposes of their creation. Such being the rule, the question arises, whether this corporate body might make such a purchase, or is it outside of, and beyond the limit of its power? Appellant has referred us to a number of cases in our own court, in which it has been held that such organizations have no power to release subscribers for their stock from paying therefor and from their subscriptions; that, when such subscriptions are intended to be fictitious, or the subscribers are released from payment, it oper- ates as a wrong, if not a fraud, on the other subscribers for stock in the same company. But here, the stock had been subscribed, paid for, and certificates thereof issued to, and they were owned and held by, the village at the time this contract was entered into and executed. So, the question is not, whether appellant may release the village from paying for and receiving shares subscribed for, but whether appellant has power to purchase shares of its own stock, paid for, issued to, and held by the village. In the case of Taijlor v. Miami Exportation Co. (6 Ohio, (Ham- mond's R.) 83), it was held that a banking corporation might law- fully receive shares of its own stock from a solvent debtor in discharge of his indebtedness. The court went further, and held that, where a large number of shares had been issued to enable the holder to vote for certain persons for directors at an approaching election, and, after the holder had thus voted, the money paid for the shares was returned to him, and he restored the shares to the bank, as there was no loss sustained by the transaction, and the result of the election was not changed, and whilst the court con- demned the transaction, it held that equity could afford no relief, as no one had been injured. It was also held in that case that, where the shares of the company were transferred to it in payment of such indebtedness, the corporation might hold and sell it as it did its other property. In the case of the Citij Bank of Columbus v. Bruce (17 N. Y. 507), it appeared that the board of directors passed a resolution that all stockholders indebted to the bank on stock notes, by a specified day, might pay such debts to the bank in its shares of stock, at a named per cent, and that not far from half of the stock of the bank was thus surrendered; and the court held, there was no ground for ques- tioning the validity of the transaction; that no rule of common law or any provision of the charter forbade it; and the Ohio case is referred to and approved by the court. CHAP. IX.J RAILROAD COMPANY V. MARSEILLES. 379 In the case of Williams v. The Savage Manufacturliuj Co. (3 Md. Ch. R. 452), it was held that banking corporations had the right to take shares of their own stock in pledge or payment of indebtedness to the corporation, and to reissue the same. On the latter proposi- tion Ex parte Holmes (5 Cow. 426) is referred to by the court in its support. In the case of The State v. Smith (48 Vt. R. 266), it was held, that where a railroad company had purchased 2350 shares of the stock of the company, the stock did not merge, and the legality of the purchase seems to be recognized by the court. And in further support of the rule, see Angell & Ames on Corp. § 280, where it is said it is one of the corporate powers that may be legally exercised. If, then, as in the cases above referred to, a bank may purchase and hold its own shares, no reason is perceived why a railroad cor- poration may not do the same thing, and the case of The State v. Smith (supra) was the purchase of stock by a railroad company, and of shares of its own stock. These authorities, we think, fully recognize the power of the directors of a company, when not pro- hibited by their charter, to purchase shares of stock of their com- pany. It falls within the scope of the power of the directors to manage and control the affairs and property of the company for the best interests of the stockholders, and when they liave thus acted, we will presume, until the contrary is shown, that the purchase was for legitimate and authorized purposes. If it were shown that the purchase was made to promote the interests of the officers of the company alone, and not the stock- holders generally, or if for the benefit of a portion of the stock- holders and not all, or for the injury of all or only a portion of them, or if it operated to the injury of creditors, or would defeat the end for which the body was created, or if it was done for any other fraudulent purpose, then chancery could interfere. In such case, Melvin v. The La.mar Ins. Co. (80 111. 446), and other cases in chancery referred to in appellant's brief, would apply, but the defence cannot be made at law. The case of Belford Railroad Co. V. Bower (48 Pa. St. R. 29) was in a court where there is no dis"- tinction between actions at law and suits in equity, and we presume the defence was allowed by the application of equitable principles, and the cases in the British courts which seem to bear on the ques- tion were in equity. Whatever may be the rights of stockholders or creditors, if there are any, relief can only be had in equity, and by a stockholder or other cestui que trust. The judgment of the court below will, therefore, be affirmed. Judgment affirmed. 380 CLAPP V. PETERSON. [CHAP. IX. CLAPP V. PETERSON. (104 //;. 26. 1882.) Mr. Justice Sheldon delivered the opinion of the court : — By the will of her step-son, P. W. Bonner, who died in July, 1870, appellee, Georgie H. Peterson, a resident of the State of New York, became owner of all personal property left by said Bonner, and in September, 1870, on application made to her in New York, she sold all said property to the Illinois Land and Loan Company, On November 20, 1874, she filed her bill against said company to set aside such sale, and for other relief in respect thereto, on the ground that she had been induced. to make the sale through the fraudulent misrepresentations of the company, for an inadequate consideration, and on May 1, 1877, she obtained in the suit a money decree against the company, for $5653.33. An execution issued upon the decree having been returned nulla bona, Mrs. Peterson, on September 18, 1879, liled her bill in chancery in the present case, to subject prop- erty in the hands of Caleb Clapp to the payment of this decree. A decree was entered in her favor granting the relief sought, which on appeal to the Appellate Court for the First District, was affirmed, and the present appeal taken to this court. It appears that the Illinois Land and Loan Company was chartered by an act of the Legislature in 1867, with a capital stock of $100,000, with 1,000 shares of $100 each, all of which was paid in. Caleb Clapp, a non-resident of the State, was a stockholder in the company, and in January, 1874, he surrendered to the company 555 shares of stock, in consideration of which the company executed to him a deed of warranty of two lots in Chicago, one of the value of $50,000, and the other of the value of $5,500, that amount being the consideration stated in the deed. The stock was cancelled, and was considered, at the time, of par value. Mr. Clapp continued to be till his death, and His estate still is, the owner of the lots. It is these lots which are sought to be subjected to the payment of said money decree against the company. The legal principle which appellants' counsel lays down and insists upon as applying to the case, is, that corporations may purchase their own stock in exchange for money or other property, and hold, re-issue, or retire the same, provided such act is had in entire good faith, is an exchange of equal value, and is free from all fraud, actual or con- structive, this implying that the corporation is neither insolvent nor in process of dissolution. We think there must be added to the proposition the further condition that the rights of creditors are not affected. CHAP. IX.] CLAPP V. PETERSON. 381 The doctrine so elaborately urged by appellants' counsel, that a corporation has the power to purchase its own stock, seems well enough settled, and was asserted by this court in Chicago, Pekbi and Southwestern B. R. Co. v. Marseiiles (84 111. 643). Yet, in so liold- ing there, the qualification was added, that, in equity, the transaction might be impeached if it operated to the injury of creditors. We see nothing to show that the transaction in the present case was not in good faith, that there was any element of fraud about it, or that there was anything in the apparent condition of the company to in- terfere with the making of the exchange that was had. It is only as injuriously affecting the interests of creditors, we think, that the transaction can be questioned, and it is in that view that it must be considered and passed upon. In Sanger v. Upton (91 U. S. 60), it is laid down : " The capital stock of an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which sub- sists in private co-partnerships. When debts are incurred a contract arises with the creditors that it shall not be withdrawn or applied, otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. If diverted, they may follow it as far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable consideration and without notice. It is publicly pledged to those who deal with the corporation for their security." This doctrine is abundantly established by the authorities. 2 Story's Equity Jur. sec. 1252 ; Wood v. Dummer (3 Mason, 308) ; Spear v. Grant (15 Mass. 505) ; Ourran v. Arkansas (15 How. 304) ; Bartlett V. Drew (57 N. Y. 587). The shareholders of a corporation are conclusively charged with notice of the trust character which attaches to its capital stock. As to it they cannot occupy the status of innocent purchasers, but they are to all intents and purposes privies to the trust. When, therefore, they have in their hands any of this trust fund, they hold it cum onere, subject to all the equities which attach to it. Thompson's Liability of Stockholders, sec. 13; Wood v. Dummer (3 Mason, 312). It is objected, against the principles above stated, that the cases in which they were declared were where there was actual or constructive fraud or unfairness, where the corporations were insolvent, or in pro- cess of being wound up. The question naturally would arise mostly in such circumstances, but the principles enunciated are general in scope, following from the nature of the capital stock of corpora- tions, and the relation of a stockholder to the corporation, and we know of no limitation of their application as above suggested, or rea- son for denial of their full applicability to the present case. Indeed, we do not understand appellants' counsel as asserting the validity of the purchase, or reduction by a corporation, of its stock, where it should directly appear that it was an injury to its creditors. But it 382 CLAPP V. PETERSON. [CHAP. IX. is denied that there was any such injury in this case. It is said, first, the company actually owed no one at the time, and even if it did, as the bill admits that the shares at the time of the exchange were valued at par, and worth full purported value, it follows from the stock being worth its par value, as a matter of course, that the company was then entirely solvent, and had assets sufficient to dis- charge all its debts, if it had any debts, and also to pay the stock in full, — that under no other circumstances could the admission of the bill be true. There was no proof as to the condition of the company, or the value of the stock, save the testimony of the secretary of the company that at the time of the deed to Clapp the stock in the com- pany was at par value technically, — that he did not know what the market value was, and did not know that it had any market value. The admission of the bill was the simple fact that the stock was at par. The complainant, of course, knew nothing as to what made the stock at par. But if the stock was at par, in so rating it this indebted- ness to appellee could not have been taken into account. It was sup- posed, of course, the purchase of personal property, which had been made of appellee, would stand, and that there was no liability on account of it. If, then, the stock was just at par, not considering appellee's claiiii, with^ that claiui recognized, the assets would have failed to pay tlie indebtedness of the company by the amount of* her claim, to wit, $5,653.33, and to that amount the company was insolvent. It is insisted that this exchange of corporate property for stock was unassailable by any one, because it was an exchange of equal values ; the lots being worth $55,500, and the shares of stock being worth $55,500, there was equal value received, and there could be harm to no one. This cannot be so, as respects creditors. Suppose all the remaining property of the company had been one other lot worth 144,500, and the company had made a like exchange with an- other stockholder of that lot for the remaining 445 shares of stock, and cancelled the stock, what would there have been left to pay creditors? The partial exchange which was made affected the rights of creditors in a like way, only to a less extent. It is not as if there had been an exchange made witli Clapp of these lots for other real property of equal value, or as if there had been a sale to him for $55,000 in money. In such case a substitute would have been fur- nished to the company to which creditors might have had recourse for payment of their debts. But the exchange of corporate property for shares of stock, and cancelling the stock, furnishes no equivalent for creditors. Although the money decree in favor of appellee was not obtained until in 1877, some time after Clapp's purchase, yet the cause of action of appellee against the company (the fraudulent purchase of the personal property from her) arose in September, 1870, which was before the purchase by Clapp, that being in January, 1874, so that at CHAP. IX.j CLAPP V. PETERSON. ' 383 the time of Clapp's purchase appellee must be regarded as being a creditor of the company. We can but regard the transaction in question, of the exchange of stock for the lots and the cancellation of the stock, as a withdrawal by the stockholder of his share of the capital stock, leaving appellee's debt against tlie company unpaid ; that the transaction was to the injury of appellee as a creditor; that the property taken by Clapp stood charged with a trust for the payment of appellee's claim ; that Clapp cannot be held to be an innocent purchaser, and that the prop- erty in his hands is affected with the trust, and appellee may pursue the property and subject it to the satisfaction of her debt. It is insisted there was such laches here on the part of appellee in lying by for so long a time before the purchase by Clapp, taking no steps to disaffirm the fraudulent purchase from her, as should estop her from resort to this property in the hands of Clapp. Had appellee known of the fraud upon her, or should have known of it in the exer- cise of reasonable diligence, there would have been force in this posi- tion ; but the bill alleges that on the discovery of the fraud appellee filed her former bill to set aside the fraudulent sale, and if such was the fact no laches would be imputable to her. Appellee's residence in a distant State would be a circumstance which would go to account for not sooner discovering the alleged fraud. We are not prepared to say that there was such laches here as should disentitle to the relief sought. It is said that appellee's decree against the company was rendered, as well as the suit commenced, after Clapp had ceased to be a mem- ber of the company, and not being a party to the suit he should not be bound by the decree against the company, and that as against him the decree should not be taken as evidence of the alleged fraudulent purchase by the company from appellee. We think Clapp took the property affected with all equities as against the company, and sub- ject to the equity of being charged with whatever prior claim might be established as against the company, aud the decree is the highest evidence of an indebtedness by the company. It is finally urged that at least the decree is erroneous in holding the property received by Clapp to be chargeable with the whole debt, instead of a share of it, in the proportion his stock bore to the whole capital stock. As among the stockholders such a pro rata decree would have been equitable. But in such a case as this, of a judg- ment creditor, after return of an execution against the company unsatisfied, seeking in a court of equity to reach certain specific property once belonging to the company, as charged with a trust for the payment of his debt, he-may pursue the property into whosesoever hands he may find it, where it stands affected with the trust, and subject it to the satisfaction of his debt, and he is not obliged to at- tend to adjusting the equities between the stockholders. We regard the following authorities as fully warranting this, aud the form of 384 ' TREVOR V. WHITWORTH. [CHAP. IX. the decree in this respect ; BartUtt v. Drew (57 N. Y. 587) ; Marsh V. Burroughs (1 Woods, 463) ; Hatch v. Dana (101 U. S. 205). The judgment of the Appellate Court will be affirmed. Judgment affirmed. TREVOR V. WHITWORTH. {L. R. 12 App. Cos. 409. 1887.) Appeal from a decisiou of the Court of Appeal. James Schofield & Sons Limited were incorporated in 1865 under the Companies Act, 1862, with a capital of £150,000 in 15,000 shares of £10 each. The objects, as stated in the memorandu:n of associa- tion, were to acquire and carry on the business of certain flannel manufacturers, and any other businesses and transactions which the company might consider to be in any way conducive or auxiliary thereto, or proper to be carried on in connection therewith. The memorandum did not authorize the company to purchase its own shares. Several of the articles of association dealt with the purchase of shares by the company. In the view which the House took it is necessary to refer only to two. Article 179. " Any share may be purchased by the company from any person willing to sell it, and at such price, not exceeding the then marketable value thereof, as the board think reasonable." Article 181. " Shares so purchased may at the discretion of the board be sold or disposed of by them or be absolutely extinguished, as they deem most advantageous for the company." The company having in 1884 gone into liquidation in the Court of Chancery of the County Palatine of Lancaster, a claim was made against the company by the respondents, as executors of Whitworth, a deceased shareholder, for the balance of the price of Whitworth's shares sold by the executors to the company in 1880, and not wholly paid for. The circumstances under which the purchase in question and other purchases by the company of its own shares were effected are stated in the judgments. A summons having been taken out by the appellants, the official liquidators, to determine whether the claim ovight to be allowed, the Vice-Chancellor of the County Palatine made an order declaring that, without prejudice to any claim by the claimants against any persons other than the liquidators and the company, the claim against the company ought not to be allowed. The Court of Appeal (Cotton, Bowen, and Fry, L. JJ.) reversed this decision and allowed the claim. Against this decision the liqui- dators now appealed. The only question material to this report CHAP. IX.] TREVOR V. WHITWORTH. 385 being the general question, whether such a 'company can purchase its own shares, the arguments on the other points are omitted. Eigby, Q. C. and 0. Leigh Clare, for the appellants : — The purchase of its own shares by a limited company incorporated under the Companies Act is ultra vires and invalid, and this whether there is or is not power given in the memorandum of association. It is not indeed necessary to go that length in the present case, for the memorandum gave no power to the company to purchase its own shares, and the memorandum cannot be extended to objects foreign to its scope by the articles of association. That portion of the arti- cles therefore which authorizes such a purchase is invalid, and the contract of purchase was ultra vires, and no subsequent ratiiication could avail anything. Ashhury Railway Carriage and Iron Company v. Riche (Law E,ep. 7 H. L. 663) ; Cree v. Somervail, per Lord Black- burn (4 App. Cas. 648, 666) ; and In re Dronjield Silkstone Goal Com- pany, per Jessel, M. R. (17 Ch. D. 76, 83). But independently of that point, such a purchase is inconsistent with the Companies Acts; it is in reality a reduction of capital in a manner different from that required by those acts. That this is so is clearly shown by the judg- ment of Jessel, M. E,., in the last-named case. See also the observa- tions of James, L. J., in Hope v. International Financial Society (4 Ch. D. 327, 336). In the earlier cases the distinction between authority given in the memorandum and authority given in the ar- ticles was not fully recognized: the question was generally argued on the articles. But no authority in the memorandum, could confer such a power on a limited company. The surrender of shares is another matter, and may be lawfully made without reducing the real capital, but no reduction of capital otherwise than as allowed by statute is legitimate, whether the purchase of its own shares by a company be carried out by way of trafficking or otherwise. Eomer, Q. C, and A. C. Maberley, for the respondents, contended that the articles of association must be construed so as to authorize only such purchases as would be consistent with the memorandum : that there the purchase was or might be incidental to the carrying on of the business of the company, and was therefore authorized by the memorandum. That it might well be necessary to buy out hos- tile shareholders or to prevent nominees of a rival company from becoming shareholders : as In re Dronjield Silkstone Coal Company (17 Ch. D. 76) ; a strong authority for the respondents. That the question being one of domestic management and the object being to keep the company a family concern, such a transaction would be legitimate and would not amount to a reduction of capital as pro- hibited by the Companies Acts ; and that if the directors had used their powers improperly they would be personally liable. They also referred to Marshall v. Glamorgan Iron and Coal Company (Law Eep. 7 Eq. 129), Taylor v. Pilsen Joel and General Electric Light Com,pany (27 Ch. D. 268) ; and relied on Phosphate of Lime Com- voL. I. — 25 386 TREVOR V. WHITWORTH. [CHAP. IX. pany v. Green (Law Eep. 7 C. P. 43), a case expressly treated as a sale by Willes, J. The House took time for consideration. Lord Herschell : — My Lords, three questions are raised by this appeal ; first, whether certain shares in James Schofield & Sons Limited were purchased by G. W. Schofield on his own account, or as agent for the company; secondly, -whether, assuhiing that they were purchased for the com- pany, and that the company had power to buy its own shares, the purchase had taken place in accordance with the articles of associa- tion ; and thirdly, whether the company had power to purchase the shares. James Schofield & Sons Limited was incorporated under the Com- panies Acts on the 31st of May, 1865, with a capital of £160,000 in 16,000 shares of £10 each. At an extraordinary general meeting of shareholders of the company on the 6th of May, 1884, it was resolved that the company should be wound up voluntarily, and on the 15th of May following it was ordered by the Vice-Chancellor of the County Palatine that the voluntary winding-up should be continued under the supervision of the Court. By an affidavit filed on the 1st of October, 1884, the respondents claimed from the company in the winding-up £2,873 12s. A sum- mons was taken out by the appellants for the purpose of determining whether this claim ought to be allowed. Upon the hearing of this summons the claim was rejected by the Vice-Chancellor, but, upon appeal, this decision was reversed. On the 1st of May, 1880, G. W. Schofield bought from the respond- ents, who were the executors of Robert Whitworth, a deceased share- holder, 533 shares in the company (twenty-eight fully paid up, 600 with £6 paid, and five with £6 paid), for the price of £3,305, the purchase-money to be paid within three years then next, at sucjh time as the buyers should appoint, and interest at 5 per cent to be paid by the buyers until completion. Interest was accordingly paid in the ^nean time, and on the 3d day of May, 1883, a transfer of the shares was executed by the vendors and G. W. Schofield. On the 5th of May a receipt was given to G. W. Schofield for the sum of £3,305 for shares bought. But £506 only having been in fact paid, a promissory note was on the same day given to the ap- pellants for £2,800 " deposited on loan at 5 per cent per annum, interest from date." This was signed "for J. Schofield & Sons, Limited. G. W. Schofield, director." The first question is, whether this transaction was entered into by G. W. Schofield on his own account, or as agent for the company. If the former, it is clear that Schofield wa.s guilty of a gross fraud. Upon a review of the evidence I see no ground for coming to such a conclusion. I think the purchase of the shares was in fact made by him on behalf of the company. CHAP. IX.J TREVOE V. WHITWORTH. 387 The question whether, assuming the company had power to pur- chase its own shares, the purchase was effected in accordance with the articles of the company, is one of much greater difficulty. The article empowering the company to purchase its shares is as follows : " Article 179. Any share may be purchased by the company from any person willing to sell it, at such price, not exceeding the then marketable value thereof, as the board think reasonable." Now there is not the slightest evidence that the directors ever considered, either at a formal meeting of the board or otherwise, the question whether these shares should be purchased. The utmost that can be said to be established is that the directors other than G. W. Scho- field, who negotiated the purchase, knew that the respondents had come to see him upon the subject. But further, the only authority to buy was at such price not exceeding the then market value as the board should think reasonable. The par value of the shares was apparently given in this case, as in the case of the other purchases, as a matter of course, and I see no reason to believe that any judg- ment was exercised upon the point by the board. But although I think it far from clear that even if it was compe- tent for the company to purchase the shares, this transaction can be supported, I do not intend to pronounce an opinion upon this point, because, in consequence of the view which I believe all your Lord- ships entertain upon another part of the case, it is unnecessary to do so. I pass now to the main question in this case, which is one of great and general importance, whether the company had power to pur- chase the shares. The result of the judgment in the Court below is certainly somewhat startling. The creditors of the company which is being wound up, who have a right to look to the paid-up capital as the fund out of which their debts are to be discharged, find com- ing into competition with them persons who, in respect only of their having been, and having ceased to be, shareholders in the company, claim that the company shall pay to them a part of that capital. The memorandum of association, it is admitted, does not authorize the purchase by the company of its own shares. It states, as the objects for which the company is established, the acquiring certain inanufacturing businesses, and the undertaking and carrying on the businesses so acquired, and any other business and transaction which the company consider to be in any way auxiliary thereto, or proper to be carried on in connection therewith. It cannot be questioned, since the case of Ashburij Raihvay Car- riage and Iron Company v. Biche (Law Kep. 7 H. L. 653), that a company cannot employ its funds for the purpose of any transac- tions which do not come within the objects specified in the memo- randum, and that a company cannot by its articles of association extend its power in this respect. These propositions are not and could not be impeached in the judgments of the Court of Appeal, 388 TREVOR V. WHITWORTH. [CHAP. IX. but it is said to be settled by authority, that although a company could not, under such a memorandum as the present, by articles au- thorize a trafficking in its own shares, it might authorize the board to buy its shares " whenever they thought it desirable for the pur- poses of the company," or " in cases where it was incidental to the legitimate objects of the company that it should do so." The former is Lord Justice Cotton's expression ; the latter that of Lord Justice Bowen. I will first consider the question apart from authority, and then examine the decisions relied on. The Companies Act, 3862, requires (sect. 8) that in the case of a company where the liability of the shareholders is limited, the mem- orandum shall contain the amount of the capital with which the company proposes to be registered, divided into shares of a certain fixed amoufat; and provides (sect. 12) that such a company may increase its capital and divide it into shares of larger amount than the existing shares, or convert its paid-up shares into stock, but that " save as aforesaid, no alteration shall be made by any company in the conditions contained in its memorandum of association." What is the meaning of the distinction thus drawn between a com- pany without limit on the liability of its members and a company where the liability is limited, but, in the latter case, to assure to those dealing with the company that the whole of the subscribed capital, unless diminished by expenditure upon the objects defined by the memorandum, shall remain available for the discharge of its liabilities ? The capital may, no doubt, be diminished by expendi- ture upon and reasonably incidental to all the objects specified. A. part of it may be lost in carrying on the business operations author- ized. Of this all persons trusting the company are aware, and take the risk. But I think they have a right to rely, and were intended by the Legislature to have a right to rely, on the capital remaining undiminished by any expenditure outside these limits, or by the return of any part of it to the shareholders. Experience appears to have shown that circumstances might occur in which a reduction of the capital would be expedient. Accordingly, by the Act of 1867 provision was made enabling a company under strictly defined conditions to reduce its capital. Nothing can be stronger than these carefully-worded provisions to show how incon- sistent with the very constitution of a joint stock company, with lim- ited liability, the right to reduce its capital was considered to be. Let me now invite your Lordships' attention to the facts of the present case. The company had purchased, prior to the date of the liquidation, no less than 4142 of its own shares ; that is to say, con- siderably more than a fourth of the paid-up capital of the company had been either paid, or contracted to be paid, to shareholders, in consideration only of their ceasing to be so. I am quite unable to see how this expenditure was incurred in resu^^.t, of or as incidental CHAP. IX.] TREVOR V. WHITWOKTH. 389 to any of the objects specified in the memorandum. And, if not, I have a difficulty in seeing how it can be justified. If the claim under consideration can be supported, the result would seem to be this, that ' the whole of the shareholders, with the exception of those holding seven individual shares, might now be claiming payment of the sums paid upon their shares as against the creditors, who had a right to look to the moneys subscribed as the source out of which the com- pany's liabilities to them were to be met. And the stringent precau- tions to prevent the reduction of the capital of a limited company, without due notice and judicial sanction, would be idle if the com- pany might purchase its own shares wholesale, and so effect the desired result. I do not think it was disputed that a company could not enter upion such a transaction for the purpose of reducing its capital, but it was suggested that it might do so if that were not the object, but it was considered for some other reason desirable in the interest of the company to do so. To the creditor, whose interests, I think, sects. 8 and 12 of t;he Companies Act were intended to pro- tect, it makes no difference what the object of the purchase is. The result to him is the same. The shareholders receive back the mon- eys subscribed, and there passes into their pockets what before existed in the form of cash in the coffers of the company, or of buildings, machinery, or stock, available to meet the demands of the creditors. What was the reason which induced the company in the present case to purchase its shares ? If it was that they might sell them again, this would be a trafficking in the shares, and clearly unauthorized. If it was to retain them, this would be to my mind an indirect method of reducing the capital of the company. The only suggestion of another motive (and it seems to me to be a suggestion unsupported by proof) is that this was intended to be a family company, and that the directors wanted to keep the shares as much as possible in the hands of those who were partners, or who were interested in the old firm, or of those persons whom the directors thought they would like to be amongst this small number of shareholders. I cannot think that the employment of the company's money in the purchase of shares for any such purpose was legitimate. The business of the company was that of manufacturers of flannel. In what sense waa the expenditure of the company's money in this way incidental to the carrying on of such a business, or how could it secure the end of enabling the business to be more profitably or satisfactorily carried on ? I can quite understand that the directors of a company may sometimes desire that the shareholders should not be numerous, and that they should be persons likely to leave them with a free hand to carry on their operations. But I think it would be most dangerous to countenance the view that, for reasons such as these, they could legitimately expend the moneys of the company to any extent they please in the purchase of its shares. No doubt if certain sharehold- ers are disposed to hamper the proceedings of the company, and are 390 TREVOR V. WHITWORTH. [CHAP. IX. willing to sell their shares, they may "be bought out ; but this must .be clone by persons, existing shareholders, or others, who can be induced to purchase the shares, and not out of the funds of the company. It is urged that the views I have expressed are inconsistent with the forfeiture and surrender of shares in a company. I do not think so. The forfeiture of shares is distinctly recognized by the Compan- ies Act, and by the articles contained in the schedule, which in the absence of other provisions regulate the management of a limited liability company. It does not involve any payment by the com- pany, and it presumably exonerates from future liability those who have shown themselves unable to contribute what is due from them to the capital of the company. Surrender no doubt stands on a diifer- ent footing. But it also does not involve any payment out of the *ni?ds of the company. If the surrender were made in consideration 01 any such payment it would be neither more nor less than a sale, and open to the same objections. If it were accepted in a case when the company were in a position to forfeit the shares, the transaction would seem to me perfectly valid. There may be other cases in which a surrender would be legitimate. As to these I would repeat what was said by the late Master of the Rolls in In re Dronfield, &c. Go. (17 Ch. D. 76) : "It is not for me to say what the limits of sur render are which are allowable under the act, because each case as it arises must be decidrv"*! upon its own merits." I turn now to the i athorities. In Teasdale's Case (Law Hep. 9 Ch. 54), Lord Justice James said: "There is no doubt that a company may give itself power to purchase its own shares, to take surrenders of shares, and to cancel the certificates of shares." But in the subse- quent case of HopCi v. International Financial Society (4 Ch. D. 327, 336), that learner'i Judge said: "I am reported to have said in Teas- dale's Case (Law Eep. 9 Ch. 54), that the power to purchase shares would be good. I am not quite sure whether that was not too wide a deduction from the cases to which I was then referring, and certainly it was not necessary for the decision of the case. But however that may be, when the company deals with an individual shareholder, an(5 does what appears to be right under the circumstances, viz. to accept the surrender from the shareholder who cannot pay, and to release him from further liability, that might be good, although incidentally and to a small extent it may be said to diminish the capital." In the case which gave rise to these observations, a company having one hun- dred and fifty thousand shares issued, passed a special resolution that the directors should have power to apply the company's assets to pur- chase from shareholders willing to sell any number of shares not ex- ceeding one hundred thousand, and that such shares should not be reissued bj the directors without the authority of a general meeting. The Court of Appeal, affirming Vice-Chancellor Bacon, held that this scheme way invalid. Lord Justice James said : " Either this is a pur- CHAP. IX.] TEEVOK V. WHITWORTH. 391 chase of shares in the sense of trafficking in shares, which is a pur- chase not authorized by the memorandum of association, or it is an extinguishment of the shares, and therefore a reduction of the cap- ital of the company." And the present Master of the Rolls made the following observations : " I agree with the Lord Justice that the dilemma is made perfect; for if you assume that there was to be a re-issue of these shares, the shares are not cancelled, they are exist- ing shares, and the only way of getting rid of them again is to sell them. It is said that a selling of shares is not in itself a trafficking in shares. Well, that may be quite true. If I make a present of a horse, I cannot be said to be dealing in horses, but I apprehend if I buy a horse for the purpose of selling it again, I do deal in a horse. So here, if you take that to be the reasonable meaning of the resolu- tion, then the resolution is this, that the company are to buy the shares for the purpose of re-issuing them, that is, for the purpose of selling them again. They do not say so in terms, but that is the necessary effect of what they intend to do hy the resolution. That seems to be a trafficking in shares and a carrying on of the business which is not within the terms of the memorandum of association. It is true that that may not be a continuing business, but no more was that which was done in the case of the Ashbury Railway Carriage and Iron Company v. Biche (Law Eep. 7 H. L. 653). That was only to be one transaction, but because the transaction was a business transaction not contemplated or mentioned in the memorandum of association, it was not allowed. If that therefore was the intention of this resolution, then it broke the rules, by enabling or forcing the company to enter upon a business which is not mentioned in the memorandum of association. But if it was not intended to re-issue these shares, then it seems to me to follow that the amount of capital represented by them was necessarily extinguished." It appears to me that every -vfrord which I have just quoted from the judgment of the Master of the Eolls is strictly applicable to the circumstances of the present case. Again, in the case of Guiness v. Land Corporation of Ireland (22 Ch. D. 349, 375), Lord Justice Cotton, after referring to section 38 of the Companies Act, said: "From that it follows that whatever has been paid by a member cannot be returned to him. In my opinion, it also follows that what is described in the memorandum as the capital cannot be diverted from the objects of the society. It is, of course, liable to be spent or lost in carrying on the business of the company, but no part of it can be returned to a member so, as to take away from the fund to which the creditors have a right to look as that out of which they are to be paid." The learned judges of the Court of Appeal in the present case did not purport to. depart from the views thus expressed, but their judg- ments were based upon the decision of that Court in the case of In re Bronfield Silkntone Coal Company (17 Ch. D. 76). In that case dis- 392 TREVOR V. WHITWOETH. [CHAP. IX. putes having arisen as to the conduct of the business, the directors agreed with Ward, one of the largest shareholders, to purchase his shares, and also his interest as landlord in the mines worked by the company. This arrangement was confirmed by an extraordinary gen- eral meeting of the company, and was carried into effect in March, 1872. The business of the company was very prosperous for several years, but in 1879 it was ordered to be wound up, aud the question then arose whether Ward was liable to be placed on the list of con- tributories. The late Master of the Kolls held that he was, on the ground that the company had no power to purchase the shares ; but this decision was reversed by the Court of Appeal. Upon the ques- tion whether the company had the power contended for, I agree with the reasoning of the Master of the Rolls rather than with that of the Court of Appeal. But I am not prepared to say that the judgment of the Court of Appeal refusing to make Ward a contributory was erroneous, looking at the circumstances which intervened subsequent to the purchase, and prior to the winding-up. It is not necessary, however, to detain your Lordships by a consideration of this question, as it can have no application to the present case. The transaction here is inchoate, and the Court is asked to compel its completion. This, I think, for the reasons I have given, they would not be justi- fied in doing. I ought to notice one other case, as it was much relied on by the learned counsel for the respondents. I refer to Phosphate of Lime Company v. Green (Law Rep. 7 C. P. 43). In that case the learned judges appear to have considered that the transaction amounted to a purchase of shares iu the company, which was prohibited by its arti- cles of association, but they held that it had been ratified by the shareholders. No question was raised in argument or determined as to the powers conferred by the memorandum of association, and it is to be observed that at that time it was not so clearly settled as it has been since the judgment in Ashhury Railway Carriage and Iron Company v. Riche (Law Rep. 7 H. L. 653), that a transaction not with- in the scope of i\^e memorandum is incapable of ratification. I move your I^ordships that the judgment appealed from be re- versed, and the judgment of the Vice-Chancellor restored, and that the respondents do pay to the appellants the costs in the Court of Appeal and in this House, and do repay to the appellants any moneys and costs received from them.^ Order appealed from reversed. 1 The concurring opinions of Lord Watson, Lord Fitzgerald, and Lord Macnaghten are omitted. CHAP. IX.] COPPIN V. GEEENLESS COMPANY. i593 COPPIN V. GEEENLESS COMPANY. (38 Ohio St. 275. 1882.) Error to the District Court of Hamilton County. The original action was brought by William Coppin, plaintiff in error, against the Greenless and Ransom Company, defendant in error, in the court of common pleas of Hamilton County, and the cause of action was thus stated in the petition : — " The plaintiff states that the defendant is and for several years past has been a corporation, duly incorporated under the laws of the State of Ohio, for manufacturing purposes. " That it has been the custom for said corporation that its officers and others, actively engaged in its service, should be holders of shares of its stock, and upon ceasing to be connected with said com- pany, such persons have been accustomed to sell, and said company to buy their said stock. " That the plaintiff was formerly in the employ of said company as a workman, and that while so engaged he became, the holder of shares of the capital stock of said company, to the amount, at its par value, of 13,300. " That having ceased to work for said company, he sought a pur- chaser for said stock, and offered to sell the same to the defendant for two lots of land, hereinafter described, valued respectively at $1,100 and f 700, and the balance of $1,500 in manufactured work to be made by the defendant, at ten per cent off their bill of prices, to which the defendant assented and agreed, and to carry the same into effect the plaintiff on May 28, 1875, caused to be prepared a written contract, which the defendant then duly executed and delivered to the plaintiff, of which the following is a copy : — Cincinnati, May 28, 1875. For and in consideration of thirty-three shares of the capital stock in the Greenless & Ransom Company, the receipt whereof is hereby acknowledged, said Greenless & Ransom Company promise to pay, or cause to be paid, to William Coppin the sum of three thousand three hundred dollars, payable, viz : said Coppin to take a lot of ground. No. 46 on the plat of the Wyoming Land and Building Co.'s subdivision of the Burn's farm, Wyoming, Ohio, in part pay- ment, amounting to $1,100.00; also a lot of ground on the north side of Wyoming Avenue owned by Caruthers, and next to Mr. Beeson's house, fifty feet front by two hundred and forty-five feet deep, more or less, for the sum of $700.00 ; leaving a balance of $1,500.00 to be paid in manufactured work, joist, scantling, etc., the manufactured work at ten per cent off their bill of prices ; the other material at the usual rates ; the work and material to be de- livered from time to time to him as said Coppin may order it. Greenless & Ransom Company, By E. P. Ransom, President, 394 COPPIN V. GREENLESS COMPANY. [CHAP. IX. "And the plaintiff says that afterwards, in the month of June, 1875, he tendered said shares of stock to the defendant, and offered to transfer the same to it, and demanded performance of said con- tract ; but the defendant refused to accept the same, and refused to convey said hits, or either of them, or to deliver said manufactured goods, although the plaintiff then demanded the same. " Wherefore he now brings said stock into court, and offers to transfer the same to the defendant, and prays that the defendant may be compelled to convey said lots by a perfect title, and to de- liver said goods, and for such other and further relief as in equity and good conscience he may prove to be entitled to." To this petition an amendment was afterwards allowed and filed as follows : — "And now comes the plaintiff, William Coppin, and by leave of conrt files this amendment to his petition herein, and for such amend- ment says that the value of said land, and of said building material, was thirty-three hundred dollars. "That said lots were worth respectively $1,100 and $700, and re- affirming all the allegations of his petition except such as may be inconsistent herewith, prays a judgment for said value of said land and building material, to wit : the sum of f 3,300, with interest from the 28th day of May, a. d. 1875, against the said defendant, and withdraws his prayer for specific performance." After an issue of fact joined by answer the cause was tried, and verdict and judgment rendered in favor of the plaintiff for $3,817.00. On petition in error, the district court reversed the judgment of the common pleas, and caused it to be certified on the record, " that the judgment of the court of common pleas was reversed by this court on the ground that the petition and amendment to the petition failed to show a sufficient cause of action, and on the ground that the verdict was contrary to law," and not on the ground that the verdict was contrary to the evidence. This proceeding is now prosecuted to reverse the judgment of the district court. McIlvaine, J. : — Whether the defendant corporation was bound by its executory agreement with the plaintiff to purchase shares of its own stock, under the circumstances detailed in the petition, was, undoubtedly, the question upon which the case turned in the district court. The power of a trading corporation to traffic in its own stock, where no authority to do so is conferred upon it by the terms of its charter, has been a subject of much discussion in the courts ; and the conclusions reached by different courts have been conflicting. Of course, cases wherein the power is found to exist by express or im- plied grant in the charter, furnish no aid in the solution of the ques- tion before us ; unless the claim of the plaintiff can bo sustained, that CHAP. IX.J COPPIN V. GREENLESS COMPANY. 395 such power was conferred on the defendant by section 63 of the- corporation act of 1852 (S. & C. 301), as amended, which confers on manufacturing corporations the powers enumerated in section 3 of the act, and among others, the power "to acquire and convey at pleasure, all such real and personal estate as may be necessary or convenient to carry into effect the objects of the corporation." We think, however, that this claim caiinot be maintained. The sole ob- ject of the defendant organization was "for manufacturing pur- poses ; " and it cannot be said, in any just sense, that the power to acquire or convey its own stock was either necessary or convenient " for manufacturing purposes." The doctrine that corporations, when not prohibited by their charters, may buy and sell their own stocks, is supported by a line of authorities ; and prominent among them may be mentioned the cases oi Bupee v. Boston Water Power Co. (114 Mass. 37), and C. P. and S. B. R. Co. v. Marseilles (84 111. 145). But nevertheless, we think the decided weight of authority both in England and in the United States, is against the existence of the power unless conferred by express grant or clear implication. The foundation principle upon which these latter cases rest is that a corporation possesses no powers except such as are conferred upon it by its charter, either by express grant or necessary implication ; and this principle has been frequently declared by the Supreme Court of this State ; and by no court more emphatically than by this court. It is true, however, that in most jurisdictions, where the right of a corporation to traffic in its own stock has been denied, an exception to the ru].e has been admitted to exist, whereby a corporation has been allowed to take its own stock in satisfaction of a debt due to it. This exception is sup- posed to rest on a necessity which arises in order to avoid loss ; and was recognized in this State as early as Taylor v. Miami Exporting Co. (6 Ohio, 176), and has been incidentally referred to as an exist- ing right since the adoption of our present constitution. State v. Building Association (35 Ohio St. 258). But, however that may be, the right of a corporation to traffic in its own stock, at pleasure, appears to us to be inconsistent with the prin- ciple of the provisions of the present constitution, article 13, section 3, which reads as follows : " Dues from corporations shall be secured by such individual liability of stockholders, and other means, as may be prescribed by law; but, in all cases, each stockholder shall be liable, over and above the stock by him or her owned, and any amount unpaid thereon, to a further sum, at least equal in amount to such stock." Now, it is just as plain, that a business or trading corpora- tion cannot exist without stock and stockholders, as it is that the cteditors of such corporations are entitled to the security named in the constitution. State, ex. rel. Atfy-Oen. v. Sherman (22 Ohio St. 411). The corporation itself cannot be a stockholder of its own stock within the meaning of this provision of the constitution. Nobody 396 COPPIN V. GREENLESS COMPANY. [CHAP. IX. •will deny this proposition. And if a corporation can buy one share of its stock at pleasure, why may it not buy every share ? If the right of a corporation to purchase its own stock at pleasure exists and is unlimited, where is the provision intended for the benefit of creditors ? This is not the security to which the constitution in- vites the creditors of corporations. I am aware, that the amount of stock required to be issued is not fixed by the constitution or by statute, and also that provision is made by statute for the reduction of the capital stock of corporations ; but of these matters, creditors are bound to take notice. They have a right, however, to assume that stock once issued, and not called back in the manner provided by law, remains outstanding in the hands of stockholders liable to re- spond to creditors to the extent of the individual liability prescribed. In this view it matters not whether the stock purchased by the corporation that issued it, becomes extinct, or is held subject to be reissued. It is enough to know that the corporation, as purchaser of its own stock, does not afford to creditors the security intended. And surely, if the law forbids the organization of a corporation without stock, because the required security is not furnished, it cannot be, that having brought the corporation into existence, it invests it with power to assume, at pleasure, the identical character or relation to the public, that was an insurmountable objection to the giving of corporate existence in the first place. Plaintiff in error lays much stress on the averments in the petition, that it had been the custom of the corporation that its officers and others, actively engaged in its service, should be holders of shares of its stock, and upon ceasing to be connected with the company such persons had been accustomed to sell, and the company to buy such stock ; and that the plaintiff had purchased the stock for the price of which suit was brought while in the employment of defendant. We cannot see why these averments should take the case out of the general rule. If it were averred that the plaintiff hbJ. purchased this stock from the defendant, or from others, under an agreement with the company that it would buy the same from him when he quit its employment or if the contract of purchase by the defendant had been executed, very different questions would arise. It is not even averred, that the plaintiff relied upon such custom either in making the purchase or the sale of the stock ; so that, in fact, he is unaffected by the alleged custom. But if such custom had been relied on by the plaintiff when he purchased the stock, it would not have made the executory contract of the defendant to buy the stock binding, which, without such custom, would be void. The usage of a corporation does not become the law of its existence, or the measure of its powers. The general law of the State, of which all persons are presumed to have knowledge, is the source and limit of all its powers and duties ; and these cannot be varied either by usage or 'contract. CHAP, IX.] NATIONAL BANK V. STEWART. 397 The doctrine of estoppel has no application in the case. Nor is there any such equity in the case as would have arisen between the parties in case the contract had been executed. Judgment affirmed. NATIONAL BANK v. STEWART. (107 U. S. 676. 1882.) Eeroe to the Circuit Court of the United States for the Southern District of Ohio. The administrators of the estate of Daniel McMillan, deceased, brought an action against the First National Bank of Xenia, Ohio, a corporation formed under the National Bank Act of the United States, to recover the sum of $4,200, with interest. The complaint alleges that in October, 1876, the bank was in possession of thirty shares of its capital stock belonging to the deceased ; that it then un- lawfully converted them to its own use and sold them, receiving therefor the sum mentioned, which it refuses to account for or deliver to the plaintiffs, although a demand for it has been made. The bank, in its answer, avers that in April, 1876, McMillan was owing to it a debt previously contracted, greater in amount than the value of the shares of capital stock ; that it being necessary to secure the bank from loss, he delivered to it certificates of the shares with other property, as collateral security for the debt ; that in October, 1876, the debt being unsatisfied and overdue, the bank sold the shares at their full market value, and applied the proceeds as a credit upon it > and that after such application, a large amount remained due to the bank, which is still unpaid. The evidence produced at the trial tended to show that the shares were delivered by McMillan to the bank as collateral security for money loaned to him at the time, and were thus held until they were sold. The court charged the jury that if they found from the evidence that the stock was delivered by him to the bank as a pledge or collateral security for a present loan of money made to him by the bank at the time of such delivery, the plaintiffs were entitled to recover the amount of the proceeds, with interest, from the time of sale ; as the defendant was prohibited by the currency act from thus receiving its own stock. To this charge the defendant excepted. The plaintiffs recovered a verdict, and, to review the judgment entered thereon, this writ of error was brought. Me. Justice Field delivered the opinion of the court : — Section 5201 of the Revised Statutes declares that " no association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss apon a debt previously contracted in good faith ; and stock so pur- 398 NATIONAL BANK V. STEWART. [OHAP. IX. chased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale ; or, in de- fault thereof, a receiver may be appointed to close up the business of the association." While this section in terms prohibits a banking association from making a loan upon the security of shares of its own stock, it imposes no penalty, either upon the bank or borrower, if a loan upon such security be made. If, therefore, the prohibition can be urged against the validity of the transaction by any one except the government, it can only be done before the contract is executed, while the security is still subsisting in the hands of the bank. It can then, if at all, be invoked to restrain or defeat the enforcement of the security. When the contract has been executed, the security sold, and the proceeds applied to the payment of the debt, the courts will not interfere with the matter. Both bank and borrower are in such case equally the subjects of legal censure, and they will be left by the courts where they have placed themselves. There is another view of this case. The deceased authorized the bank, in a certain contingency, to sell his shares. Supposing it was unlawful for the bank to take those shares as security for a loan, it was not unlawful to authorize the bank to sell them when the contin- gency occurred. The shares being sold pursuant to the authority, the proceeds would be in the bank as his property. The administra- tors, indeed, affirm the validity of that sale by suing for the proceeds. As against the deceased, however, the money loaned was an offset to the proceeds. In either view the administrators «annot recover. The judgment of the court, therefore, must be reversed, and the cause remanded for a new trial : and it is So ordered- CHAP. X.] WHITTENTON MILLS V. UPTON. 399 CHAPTER X. POWERS AND LIABILITIES OF A CORPORATION. IN RESPECT OF PARTNERSHIP AND THE EFFECT OF IRREGULAR INCORPORATION. WHITTENTOJSr MILLS v. UPTON". (10 Gray, 582. 1858.) Petition by a manufacturing corporation to set aside proceedings in insolvency, instituted against the corporation and William Mason, of Taunton in the county of Bristol, as partners, upon Mason's peti- tion; to restrain the assignees appointed under those proceedings from further interfering with their estate; and to compel the judge of insolvency to entertain a petition of the corporation for the ben- efit of the insolvent laws respecting insolvent corporations. The facts of the case, as appearing by the report of a special master in chancery, were as follows : — The Whittenton Mills were incorporated by St. 1836, c. 19, for the purpose of manufacturing cotton goods at Taunton; and, at the time of organizing under their charter, adopted by-laws, extracts from which are copied in the margin.^ 1 The oiBcers of the corporation shall be a treasurer, agent, clerk, and three direc- tors The agents, under the authority of the directors, shall superintend and manage all the active business of the company — the erection of buildings, construction of machinery, purchasing stock, manufacturing and selling goods, and receiving and paying debts ; and they shall have power to m;ike all such contracts as may be necessary for the purposes aforesaid, and to settle and adjust the same. The directors may call meetings of their board in such manner as they shall prescribe, and, at any such meeting, two shall constitute a quorum for the transaction of business. They shall have power to purchase mills and mill sites, and any real estate necessary or con- venient for carrying on the business of the corporation. They shall have power to appoint agents, and remove them from office ; to appoint a clerk or treasurer pro tem/)ore in case of vacancy or absence ; to appoint, or authorize the agent to appoint, all other needful officerti under him ; to fix salaries and compensations for all the officers and agents employed by the company ; to direct the number and extent of buildings to be erected, the extent and kind of machinery to be constructed or pur- chased, and the extent and kind of manufactures to be carried on ; to declare divi- 400 WHITTENTON MILLS V. UPTON. [CHAP. X. The Taunton Manufacturing Company, a corporation authorized by their charter (St. 1822, c. 44) to manufacture iron, copper, cot- ton, and wool, failed in 1836, and their property was divided among their creditors. The Whittenton Mill, one of their establishments, was taken by certain persons who had been stockholders in the Taunton Manufacturing Company and became stockholders in the Whittenton Mills corporation. Leach & Keith and Crocker & Eichmond, occupying a machine shop, foundry, tools, and machinery which had previously belonged to the Taunton Manufacturing Company, furnished the greater part of the machinery required for the Whittenton Mill from 1836 until 1842, when they failed, and their foundry, machine shop, tools, machinery, and stock passed into the hands of officers of the law for sale and distribution among their creditors, and the tools, machinery, and stock were purchased, and the foundry and machine shop hired by Mason. On the 28th of May, 1842, the Whittenton Mills and Mason made an agreement in writing, that the corporation should advance to him the money necessary to pay for said tools, machinery, and stock, and for the rent of the shop and foundry, and for the stock and labor which might be required in carrying them on, and be paid interest on the advances; and that, after paying a certain annual salary to Mason, the profits on patents then held or afterwards obtained by him, and all other profits derived from the manufac- ture of machinery or other work of the machine shop, should be equally divided between the parties, for five years. On the 1st of June, 1845, the parties further agreed in writing that their joint business should be done and their joint property held in the name of William Mason & Company; and the shops hired by them and their stock of tools and machinery being insufficient, that land should be purchased, buildings erected, and machinery and tools purchased or constructed forthwith to supply the deficiency; that Mason, besides an annual salary, should receive a certain sum on each spindle made by the parties under his patents, or sold to others ; that the firm and their successors should have the right to use, with- out charge, all inventions and improvements in machinery made by ilason during the continuance of the agreement; that interest should be allowed to each party on all sums furnished for the use of the partnership; that the accounts should be stated annually, and be at all times open to the examination of the parties; that the profits, after deducting the allowance to Mason, should be equally divided between him and the Whittenton Mills; and that the agreement denda ; to call meetings of the corporation ; to instruct the agents and other officers, and regulate and control their doings, and exercise a general superintendence and control over all the officers of the corporation. Meetings of the directors may be holden at any time and place for the transaction of any business when all the board are present without any previous notice. CHAP. X.] WHITTENTON MILLS V. UPTON. 401 should continue in force for seven years from its date, unless sooner cancelled by mutual consent. And it was afterwards by agreement in writing extended for three years more. It was a great convenience for the Whittenton Mills to have the control of a foundry and machine shop, situated as this foundry and shop were, within two miles of their factory, and to have the right to use the patterns in the shop, and the patents of Mason. The officers of the corporation made these agreements with the sole object of realizing profits from the manufacture and sale of machin- ery, and at the time of executing the agreement of 1842, the Whittenton Mill was in full operation, and was supplied with all the machinery required. Under and in pursuance of these agreements the firm of William Mason & Company, composed of Mason and the Whittenton Mills, carried on a very extensive business (averaging $175,000 a year, and amounting in one year to $350,000), confined to the manufac- turing of machinery for cotton mills till 1852, when they built one locomotive engine. From this time, the manufacture of locomotive engines received an increasing share of their attention till their insolvency in 1857, when it constituted about one half of their business. During the period of the partnership, the greater part of the machinery required by the Whittenton Mills was manufactured and sold to them by William Mason & Company. In the purchase and sale of this machinery the parties dealt with one another as stran- gers. Mason & Company also made repairs upon the machinery of the Whittenton Mills to the amount of $4,000 during that time. And Mason & Company manufactured and sold to other persons and corporations large quantities of tools and machinery ; and stated and rendered to the Whittenton Mills, as partners, annual accounts of the copartnership business, which resulted every year until 1852 in large profits, half of which, according to the terms of said agree- ments, was paid over or credited annually to the Whittenton Mills, and was by that corporation distributed, with their other profits, among their stockholders. Since 1852, the firm have been doing a losing business. The capital stock of the corporation was divided into two hundred shares, the par value of which was five hundred dollars. The nature of the business in which Mason & Company were engaged, and the manner of conducting it, were throughout known to all the officers of the corporation; and to all the stockholders, except one, who was the owner of four shares from the time of the organization until 1854, when he transferred them to one of the other stockholders, and who never attended a meeting of the corporation, but was a relative of a majority of the officers and of the stockholders, and with two of them was in the habit of consulting on his business affairs, and greatly relied on their judgment. VOL. I. — 26 402 WHITTENTON MILLS V. UPTON. [CHAP, X At and for some time before the insolvency aforesaid, William Mason & Company were employed in making machinery, which they had contracted to furnish to the Whittenton Mills, to the value of $35,000. The materials had all been procured, and the work was about three quarters done. It was generally known, in the shop of Mason & Company, and in the town of Taunton, and to many of the persons who furnished the materials and performed the labor on this machinery, that it was building for the Whittenton Mills. And debts for such materials and labor, to the amount of $4,000, have been proved against the estate of Mason & Company. Mason contributed to the copartnership nothing but his skill and patent rights. The Whittenton Mills contributed all the capital required, and advanced to Mason & Company all the money to pay for the machinery, stock, and tools originally purchased; and after- wards, from time to time, made further advances to pay the accru- ing rents, and for the stock and labor, as well as for the land purchased, and the tools and machinery required in carrying on the copartnership business, and were credited with these sums, and with interest thereon in the annual accounts stated and ren- dered by Mason & Company. The advances were made with the expectation that they would be reimbursed out of the profits. The lands were all conveyed to William Mason and his heirs, but were purchased for copartnership purposes, and the purchase-money was charged in the copartnership account. The general agent of the corporation (who was also their treasurer for a portion of the time) and Mason represented to third persons, with whom the partnership was dealing, that the corporation was a member of the partnership. Two of the directors testified that they never heard a doubt suggested that this partnership was a valid one till said insolvency proceedings were commenced ; and there was no evidence that its validity was ever questioned until that time, by any person. One person, acting under a power of attorney, exe- cuted by Mason, and by the Whittenton Mills through their general agent and with the knowledge of their clerk, on the 12th of January, 1857, purporting to authorize him to use their partner- ship name "in signing and making checks and drafts and receipts, and indorsing drafts, checks, bills receivable, and bills of exchange," represented to those with whom he was negotiating for money and supplies for the shop that the Whittenton Mills was a member of the partnership, and upon the faith of such representations obtained money and materials to a large amount. The Boston Manufacturing Company, incorporated in 1813 (St. 1812, c. 92), "for the purpose of manufacturing cotton, woollen, and linen goods," erected at Waltham the first power loom mill in this country; and have a machine shop, in which they made the machin- ery for their own mill and for the two cotton mills of the Merrimack Company, the first erected in Lowell ; and have also made machin- CHAP. X.] WHITTENTON MILLS V. UPTON. 403 ery, iu large quantities, for cotton mills in Baltimore, Lowell, and other places. The Elliot Manufacturing Company, incorporated in 1823 (St. 1823, c. 11), "for the purpose of manufacturing cotton goods," furnished from their shop the machinery for one of the mills in Nashua, N. H. Cotton Manufacturing companies gen- erally have connected with their mills, machine shops, or "repair shops," as they are called; and it is customary for such companies, when they have a good mechanic, and the patterns for a valuable machine, to furnish such machines to other factories. Thomas, J. : — This is a petition to this court, sitting in equity, and as such hav- ing by the St. of 1838, c. 163, the jurisdiction and the supervision of all proceedings in insolvency. The averments of the petition are admitted by the answers of the respondents. Nor is there a ques- tion upon the facts agreed that a copartnership was entered into by the Whittenton Mills and the said Mason, and for the purposes stated, if the corporation was capable in law of entering into and forming such partnership and for such ends. But the petitioners say, first, that the Whittenton Mills could not enter into any legal partnership; secondly, that if it were so capa- ble, it could not form a copartnership for the prosecution of a busi- ness foreign to the purpose for which alone it was created; thirdly, that if such legal partnership existed, the petitioners were not liable to be declared insolvent upon the petition of Mason and under the St. of 1838, c. 163, and the acts in addition thereto; such acts respecting only natural persons and making no provision for bodies corporate. At the threshold of the cause and of its elaborate discussion is the question. Was this corporation capable of forming a partnership, of entering into the contract? This question presents itself in two forms. The more general one is : Has a corporation, as one of its usual inherent powers, the capacity to form a contract of copartner- ship? The narrower question, but for this case the practical and pertinent one, is, Can a manufacturing corporation in this Common- wealth, incorporated since February, 1831, and subject to the pro- visions of the thirty-eighth and forty-fourth chapters of the Revised Statutes, enter into a contract or society of copartnership? This corporation was created in March, 1836, as a manufacturing corporation, for the purpose of manufacturing cotton goods in the town of Taunton, and for that purpose was invested with all the powers and privileges, and made subject to all the duties, restric- tions, and liabilities set forth in the thirty-eighth and forty-fourth chapters of the Revised Statutes, passed on the fourth of Novembei? preceding, but not to take effect till the first of May, eighteen hun- dred and thirty-six (St. 1836, c. 19). This charter, with the provisions of the chapters referred to and made part of it, is the origin and source of the powers and functions of the corporation. 404 WHITTENTON MILLS V. UPTON. [CHAP. X. What powers are granted expressly, or by unpliRation, because necessary or usual for the purposes which this charter was given to effect, the corporation has, and no more. There is one obvious and important distinction between such a society as this charter creates, and that of a partnership. An act of the corporation, done either by direct vote or by agents author- ized for the purpose, is the manifestation of the collected will of the society. No member of the corporation, as such, can bind the society. In a partnership each member binds the society as a prin- cipal. If then this corporation may enter into partnership with an individual, there would be two principals, the legal person and the natural person, each having, within the scope of the society's busi- ness, full authority to manage its concerns, including even the dis- position of its property. The second section of c. 38 of the Rev. Sts. provides that the business of every such manufacturing corporation shall be managed and conducted by the president and directors thereof, and such other officers, agents, and factors as the company shall think proper to authorize for that purpose. It is plain that the provisions of this section cannot be carried into eifeot where a partnership exists. The partner may manage and conduct the business of the corpora- tion, and bind it by his acts. In so doing he does not act as an officer or agent of the corporation by authority received from it, but as a principal in a society in which all are equals, and each capable of binding the society by the act of its individual will. Indeed, in examining this chapter, it will be found that there is scarcely a provision for the conduct of the business of a manufactur- ing corporation that is not inconsistent with the existence of a con- tract by which the power to manage the business of the company and to bind the corporation by his acts is vested in one not a mem- ber of the corporation nor its officer or agent. Such are the third, fourth, and fifth sections, providing how the president and directors, and other officers, agents, and factors of the corporation shall be chosen. Such too is the sixth section, which authorizes every such company to make by-laws for its own regulation and government. Such are the several provisions authorizing the stockholders to fix the amount of the capital stock, to increase the same within the limit fixed by law, or to reduce it. §§9, 11, 19. And such is the pro- vision requiring the president and directors to give annual notice of the amount of the debts of the corporation; the means of stating which would not be in their power if another principal had the power of creating the debt. § 22. Of the same character is the twenty- ■fifth section, by which it is declared that the whole amount of the debts which the corporation shall at any time owe shall not exceed the amount of the capital stock actually paid in, and which renders the directors, under whose administration an excess shall occur, lia- ble personally to the extent of such excess; a provision evidently C.TAP. X.] WHITTENTON MILLS V. UPTON. 405 based upon the ground that the exclusive power to <5ontract debts is vested in such directors, and that they cannot be divested of it, and which is wholly inconsistent with the existence of a power in the corporation to enter into a contract of partnership, by which an- other principal would be created, having equal power to contract debts and to bind the partnership and the corporation in solido. Indeed the effect of all our statutes, the settled policy of our Legislature, for the regulation of manufactaring corporations is that the corporation is to manage its affairs separately and exclu- sively; certain powers to be exercised by the stockholders, and' others by officers who are the servants of the corporation and act in its name and behalf. And the formation of a contract, or the entering into a relation, by which the corporation or the officers of its appointment should be divested of that power, or by which its franchises should be vested in a partner with equal power to direct and control its business, is entirely inconsistent with that policy. The power to form a partnership is not only not among the powers granted expressly or by reasonable implication, but is wholly incon- .sistent with the scope and tenor of the powers expressly conferred, and' the duties expressly imposed, upon a manufacturing corporation under the legislation of the Commonwealth. The difficulties would be obviously greater in holding such a part- nership to be valid, when formed and carried on for the prosecution of a business other than that, if not foreign from that, for which the corporation was created. It is difficult to see how the corpora- tion should engage in such business, even when under its own con- trol, still less to enter into copartnership with third persons for that purpose. By the St. of 1852, c. 195, not adverted to m the argument, corporations created for the manufacture of woollen and cotton goods are authorized to carry on certain other manufactures, but this only when four fifths of the stockholders shall, by vote at a special meeting called for the purpose, consent to the same. This statute furnishes a pretty strong implication that the power to carry on a different business from that for which the corporation was char- tered, did not exist before the statute was passed. We are therefore all of opinion that in the formation of the alleged partnership the corporation exceeded the powers given by its charter expressly or by implication, and that the contract of copartnership was illegal and void. It is said, however, by the respondents, that if this be so, such violation of the charter can only be alleged by the Commonwealth, upon proceedings for a forfeiture of the charter, and that the valid- ity of the partnership cannot be called in question by the corpora- tion or by its creditors or debtors. As the basis of proceeding against the Whittenton Mills in insol- 406 WHITTEXTON MILLS V. UPTON. [CHAP. X. vency, upon the petition of Mason under the St. of 1838, c. 163, § 21, even supposing that the provisions of that statute are not limited to natural persons, it was necessary to show the existence of an actual copartnership between Mason and the corporation. It was not suflfi- citnt to show that they had so conducted as to be liable to third ]ieisons as partners; they must be partners inter sese. Hanson v. Faif/e (3 Gray, 239). There must be a contract of copartnership between them. Into such a contract the petitioners were incapable of entering. But the case rests upon broader grounds. The charter of the corporation is part of the public law. Eev. Sts. c. 2, § 3. Those who deal with the corporation must take notice of the extent of its powers, and that the corporation is legally incapable of entering into the contract of partnership; that that contract was beyond the scope of its authority; and that this incapacity resulted from consid- erations not personal or peculiar to this corporation or its members, but from general grounds of public policy, which the corporation and those dealing with it cannot be permitted to contravene and defeat. That policy is to confine these corporations within the limits prescribed by law, to protect the stockholders from liabili- ties which the charter and laws do not create, and, while it imposes upon the stockholders of the corporation heavy responsibilities, to retain to them the legal control of its business and conduct of its affairs. The precise point at issue before us is the validity of these proceedings in insolvency. That depends, as before remarked, upon the existence of the partnership between the Whittenton Mills and Mason. Upon that only could the petition of Mason be sustained. It is necessary for this purpose to decide how far these considera- tions will affect those claiming to be the creditors or debtors of the alleged partnership. It is in this point of view only, that the cases of Chester Glass Co. v. Dewey (16 Mass. 94), Quincy Canal v. New- comh (7 Met. 276), and White v. South Shore Railroad (6 Gush. 412), can be deemed material. They have the tendency to show the existence of a contract between the "Whittenton Mills and Mason, which the former is estopped to question. In the case of Chester Glass Co. v. Dewey, one ground of defence to the recovery for goods sold and delivered by the plaintiff corpora- tion was, that the corporation was prohibited from trading. The court held, that the Legislature did not intend to prohibit the supply of goods to those employed in the manufactory. That certainly was the end of the matter. The court however added, that the defend- ant could not refuse payment on this grr und, but that the Legislature may enforce the prohibition by causing the charter to be revoked. This suggestion will be entitled to consideration if a question should arise as to the right of the alleged company to recover for goods sold, CHAP. X.J METHODIST CHUECH V. PICKETT. 407 but it certainly is not conclusive upon the relation of the partners inte}' sese. In Quincy Canal v. Newcomh, it was held, that, where a canal was opened and toll claimed, and the defendant used the canal, he was liable to the payment of such toll, and could not avoid such payment by showing that the canal had not been made so deep as the statute required. In White V. South Shore Railroad, it was held, that the defend- ants were liable for damages in constructing their road through and across a mill-pond authorized by the general court to be raised in a navigable river, though in erecting the dam for raising the pond the condition of the act permitting it had not been complied with. The court said, that the railroad company could not take the petitioners' pond from them because the dam was not constructed in compliance with the act; that whether it had been so constructed was a matter between the government and the petitioner. If the assent of all the stockholders were shown to the formation of the partnership, — which is not the fact, — it could not enlarge the powers of the corporation, or make that legal which was inconsis- tent with the law limiting their powers and prescribing their duties. Whether, if such assent were available, it could be manifested in any other mode but by a vote of the stockholders, it is not neces- sary to inquire. The decision of the question as to the existence of the partnership between the Whittenton Mills and William Mason in the negative renders unnecessary the inquiry whether, if a partnership had existed, the petitioners could be subjected to the provision of the insolvent law of 1838, c. 163, and the acts in addition thereto. The proceedings in insolvency founded upon the petition of Mason as the partner of said Whittenton Mills, under the firm of William Mason & Company, were illegal, and must be vacated and set aside, so far as they affect the estate of the Whittenton Mills. A manda- mus must issue to the judge in insolvency for the county of Bristol to proceed, upon the petition of the Whittenton Mills, to hear the parties, and, good cause being shown, to issue his warrant thereon. Decree accordingly. METHODIST CHUECH v. PICKETT. (19 N. Y. 482. 1859.) Appeal from the Supreme Court. Action to recover a subscrip- tion towards rebuilding the plaintiff's church. On the trial at the Wayne Circuit before Mr. Justice Wells, the only question of any interest was, whether the plaintiff established its corporate charac- 4:18 METHODIST CHURCH V. PICKETT. [CHAP. X. t.ei'. For this purpose it gave in evidence a certificate, duly acknowl- edged and recorded April 6, 1827, in these words : — Agreeably to a law of the State of New York, passed on the 5th day of April, 1813, authorizing the incorporation of churches, the male members of the Methodist Episcopal Union Church, agreeably to public notice given, met on the 15th day of May, 1826, in the village of Lyons, Wayne County, New York, at their meeting-house, and by plurality of votes chose Richard Jones and Orra Bennett to preside; then proceeded to the choice of five trustees. On canvas- sing the votes it was found the following persons were duly elected, viz. : Richard Jones, &c. [naming four others]. We the returning officers do certify that Richard Jones, &c. [repeating the names] were legally elected trustees for the Methodist Episcopal Union Church, in the village of Lyons, agreeably to a statute passed April 5, 1813. Given under our hands, &c. [signed] Richard Jones. (Seal.) Orka Bennett. (Seal.) To this certificate it was objected that it did not show the time, place, manner, nor by whom notice of the meeting therein men- tioned was given; nor that the persons appointed to preside were elders, at church wardens, or that there were no such officers, or that the persons presiding were members of the church or society; that they were not stated to have been elected by a majority of votes, but by a plurality of votes ; that the certificate does not par- ticularly mention and describe the name or title by which the trustees and their successors should thereafter be called and known ; that it does not show that there were any persons present at the meeting, except those who signed the certificate, nor that those who were present had the requisite jurisdiction, or had taken the steps necessary to incorporate a religious corporation under the act of 1813 (3 R. S. 294). The plaintiff proved that certain persons were trustees of its society in 1850; that it then had had a house of worship; that at a meeting therein of the trustees it was resolved to demolish that building for the purpose of erecting a new church on the same site ; that a subscription was made by the defendant and numerous others, by which the subscribers promise to pay the plaintiff, by its cor- porate name, the sums set opposite to their respective names, to be used and applied by the plaintiff in removing the old and erecting the new house of worship. There was evidence of another meeting of trustees in 1851. This was all the evidence of the plaintiff's incorporation. A nonsuit was asked and denied, under exception by the defendant. The plaintiff had a verdict. The exceptions were heard in the first instance at a general term in the seventh district, where judgment was rendered for the plaintiff, and the defendant appealed to this court. CHAP. X.] METHODIST CHURCH V. PICKETT. 409 Selden, J. : — The answer in this case having denied that the plaintiffs were ever incorporated as alleged in their complaint, it was incumbent upon them to prove their incorporation upon the trial. The defend- ant's counsel insists that the certificate introduced for that purpose was insufHcient to support the issue on the part of the plaintiffs; because the act for the incorporation of religious societies reqiiires certain preliminary acts in order to incorporate under it, which acts, being virtually conditions precedent to the creation of such a cor- poration, must be proved before its existence can be established. The preliminary acts referred to are : The giving of the notice in the manner required by the third section of the act; the assembling of the male members of the church or congregation, pursuant to such notice; the selection in the proper manner of the proper persons to preside at such meeting; the election of trustees; and the making, acknowledging, and recording of the certificate of the presiding oiiicers. It is obvious, that if religious corporations are bound, whenever they bring suit, to prove a strict compliance with the statute in re- spect to all these preliminary circumstances, it would be impossible for them in most cases to enforce their rights in a court of law. If these facts must be proved in one case, they must in all, and cor- porations may thus be called upon fifty years after the events took place to furnish proof of their occurrence. The statute has pro- vided for no record evidence on the subject, except in respect to those facts required to be inserted in the certificate of organization. But a rule so inconvenient as that -contended for by the defend- ant's counsel, has never yet been established in regard to any class of corporations. On the contrary, it has been repeatedly held, that, as against all persons who have entered into contracts with bodies assuming to act in a corporate capacity, it is sufBcient for such bodies to show themselves to be corporations de facto. This cannot be done by simply showing that they have acted as corporations for any period of time, however long. Two things are necessary to be shown in order to establish the existence of a corporation de facto, viz. : 1. The existence of a charter, or some law under which a cor- poration with the powers assumed might lawfully be created; and, 2. A user, by the party to the suit, of the rights claimed to be con- ferred by such charter or law. United States Bank v. Stearns (15 Wend. 314). The rule established by law as well as by reason is, that parties recognizing the existence of corporations by dealing with them have no right to object to any irregularity in their organization or any subsequent abuse of their powers not connected with such dealing. As long as these are overlooked or tolerated by the State it is not for individuals to call them in question. In the ease of Trustees of Vernon Society v. Sills (6 Cow. 23), which, was an action brought 410 METHODIST CHURCH V. PICKETT. [CHAP. X- by the trustees of a religious corporation, Savage, C. J., used the following language: "The plaintiffs have acted as trustees upon the matter in question, and in bringing their suit, colore officii; and before an objection to their right can be sustained by the defendant, on the ground that they were not regularly elected, he must show that proceedings have been instituted against them by the govern- ment, and carried on to a judgment of ouster." And in the case of Brouwer v. Appleby (1 Sandf. 158), in the Superior Court of the city of New York, an action brought by the receiver of a corpora- tion upon a promissory note, and where the defence was that the corporation was never duly organized, Oakley, G. J., said: "The defendant, as a contracting party with this corporation, cannot object to the want of the requisite organization; and any defect in that respect, if valid, is only available in behalf of the sovereign power of the State." Eaton v. Aspinwall (19 N. Y. 119). 1 have said that a party to a suit, in order to show itself to be a corpora- tion de facto, must prove the existence of a law authorizing its incor- poration, — that is, it must appear that such authority exists, — if by special charter it must be proved;, but when there is a general law of our State, authorizing a particular class of incorporations, the courts, I think, will take judicial notice of it. If, however, it were otherwise, it is to be inferred that the statute authorizing the incor- poration of religious societies was introduced upon the trial, as it was referred to, and relied upon by the counsel upon both sides. But it is insisted by the defendant's counsel that there was no proof of user. The degree of proof required on this subject depends to some extent upon, the nature of the incorporation, 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 would be necessary than where, as in this case, the essential steps by which the organization is accomplished are required to be made a matter of record. In such cases, if the record is perfect, then perhaps nothing else need be shown ; but if imperfect, it may still stand in place of, and be equivalent to, a very considerable degree of evidence of user. The imperfection of the record cannot be taken advantage of by a private individual, who has entered into engagements with the corporation. The rightfulness of its existence not being in issue, of course evidence of any irregularities or defects in its organiza- tion, short of such as would show a want of good faith on the part of those concerned in the proceedings, would be wholly irrelevant. If the law exists, and the record exhibits a bona fide attempt to organize under it, very slight evidence of user beyond thi^ is all that can be required. We have in this case, in addition to the certificate of incorporation in 1826, first, the subscription paper signed by the defendant and others, and dated in April, 1850; then a meeting of trustees and CHAP. X] RAILROAD COMPANY V. CAKY. 411 building committee in May, 1850; and another, of the trustees alone, in August, 1851; with the resolutions passed at both these meetings. But it is said by the counsel, that there is no evidence that these acts of 1860 and 1851 were acts of the same body organized or attempted to be organized by the proceedings in 1826. Let us see. In the first place the name is the same; in the next place, the location is the same, as is shown by the subscription papers and the certificate, viz., the village of Lyons; then again we find the trustees resolving in 1850 "to demolish and remove" their church for the purpose of erecting "a new church" upon the same site: thus affording some ground at least for the presumption that the society had been some time in existence. Under these circum- stances, it is, I think, safe to infer, in the absence of any evidence to the contrary, that the society thus acting in 1850 is the same as that organized by the same name, in the same place, in 1826. If this is so, more proof of user can hardly be requisite to establish the existence of a corporation de facto. It is unnecessary, therefore, to inquire whether the certificate recorded in 1826 is or is not in strict accordance with the provisions of the statute. Were it otherwise, however, I should be of opinion, as held by the Supreme Court, that the certificate does substantially conform to the requisitions of the act. The other objections made to the judgment of the Supreme Court are, I think, clearly untenable. The judgment, therefore, should be affirmed. Johnson, C. J., Comstock, Allen, Gray, and Strong, JJ., concurred on both grounds taken by Selden, J. ; DenIo and Grover, JJ.. concurred on the ground of the sufficiency of the certificate. Judgment affirmed. RAILEOAD COMPANY v. CAEY. (26 N. Y. 76. 1862.) Appeal from the Superior Court of Buffalo. Action upon the subscription of the intestate to the capital stock of the plaintiff. The plaintiff undertook to become ipeorporated under the general railroad act of 1850. In May, 1853, its articles of association were filed, and the intestate, June 8th, thereafter, became a subscriber for one thousand dollars of the capital stock, and paid ten per cent at the time of subscription, and died in September, 1853. The directors, after his death, made seven calls upon the stock of one hundred dollars each, and for this seven hundred dollars, claimed to be due, this action was brought. The affidavit indorsed upon and filed with the articles of association was conceded to be defec- 412 KAILROAD COMrANY r. CAUY. [CHAP. X. tive; it containing no statement of an intention iu gocd faith to construct or operate the road mentioned in the articles. In 1858 a hiw was passed by the Legislature of this State authorizing the plaintiff to sell its property and effects to another railroad com- pany; and, by the second section of the act, the plaintiff' was declared to be a valid corporation, duly organized under the act to authorize the formation of railroad corporations and to regulate the same, passed April 2, 1850, and the several acts amending the same, notwithstanding any error, informality, insuificiency, act. or omis- sion, on the part of such company or any of its stockholders in the proceedings to become incorporated, and the said corporation and all the proceedings of its stockholders and officers were thereby legal- ized and confirmed. By another section, it was provided that nothing contained in this act should affect any suit before then commenced in any court. Upon the trial, the plaintiff offered in evidence certified copies of the articles of association filed with the county clerk and comptroller, and they were objected to, on the ground of the defect in the affidavit. The plaintiff then read in evidence the Act of 1868, and thereupon the court overruled the objection, and the articles of association were read in evidence, and the defendant excepted. The plaintiff then gave evidence of the election of directors and officers, .June 1, 1853, and the purchase of the route of the proposed road after such election, and that con- tracts were made for its construction, and that the contractors entered upon the work, and that money was paid on various sub- scriptions to the capital stock, and expended on the road, and liabilities incurred in the construction. Evidence was given of the various calls for payment upon the stock, counted upon in the complaint. At the close of the evidence the defendant moved for a nonsuit, on the ground that the plaintiff had failed to prove its corporate existence at any time prior to the passage of the Act of 1858, if at all ; and that the defendant was not liable on the sub- scription of the intestate. The motion was denied, and the defend- ant excepted. Judgment was given for the plaintiff for the full amount claimed, which was affirmed at general term, and the defendant appealed to this court. Denio, C. J., Davies, Weight, Gould, and Smith, JJ., were for affirming the judgment. Their reasons were not put in writing. Those of the court were delivered as follows by Hasten, J. : — The defendant contends that the plaintiff's organization is defec- tive, because the affidavit annexed to the articles of association: does not contain the allegation required by the statute, " that it is intended in good faith to construct or to maintain and operate the road mentioned in the articles of association," and that it is not therefore a corporation. The articles of association are in due form, and the affidavit annexed to them, while it does not come CHAP. X.J RAILROAD COMPANY V. CARY. 413 up to the requirement of the statute in the particular specitJed, is colorable. The articles and affidavit were filed and recorded in the o'lice of the Secretary of State ; the capital stock was subscribed and partly paid in ; the route of the road was surveyed and located ; the right of way obtained ; a contract for the construction of the whole I'oad entered into, and liabilities incurred which have not been sat- isfied. This was sufficient to constitute the plaintiff a corporation de facto, so that neither it nor its stockholders can object that it is not strictly a corporation de jure. I am of the opinion that, under this and similar general acts for the formation of corporations, if the papers filed, by which the corporation is sought to be created, are colorable, but so defective that, in a proceeding on the part of the State against it, it would for that reason be dissolved, yet by acts of user under such an organization it becomes a corporation de facto, and no advantage can be taken of such defect in its constitution, collaterally, by any person. Any other rule, it seems to me, must be fraught with serious consequences and great public mischief. Most of the persons who subscribe in good faith for the stock do not examine to see whether all the requirements of the statute in the organization of the cor- poration have been complied with; and if they did examine would not probably discover a defect like the one now pointed out. The stock is sold in market from hand to hand without any such exam- ination. The corporation may carry on its business for years, and its stock have entirely changed hands, when its property may be destroyed by a trespasser, and in an action against him in the name of the corporation, his only defence, '' you are not legally a corpora- tion by reason of a defect in your constitution," would (upon the doctrine contended for by the defendant) be successful. The doc- trine of estoppel could not be applied in that case, as it. has been in some cases, to counteract an erroneous decision upon the question now before me. I am aware that there are decisions in the Supreme Court, begin- ning with The First Baptist Society v. Bapalee (16 Wend. 605), upon the point now presented to us, in conflict with the opinion I have here expressed. Their error is, in not recognizing the distinc- tion between what is sufficient to constitute a corporation de facta and what is necessary to constitute one de jure, and how and by whom a corporation de facto may be shown not to be a corporation de jure. The State alone can take advantage of a defect in the constitution of a corporation like the one in this case. In its action it will be governed by public policy and considerations. And it has declared that it will not take advantage of the defect in the plaintiff's constitution. T think the Court of Appeals has settled the principle as I have stated it. Eaton v. Aspinwall (19 N. Y. 119). 414 RAILROAD COMPANY V. GARY. [CHAP, X. Allen, J. (dissenting) : — The plaintiff's right to recover must, I think, depend upon the validity and sufficiency of the proceedings for their incorporation under the general Act of 1850. The question is upon the validity of the contract alleged to have been made by the intestate by his subscription on the 8th of June, 1853; and the tests of its validity must be applied as of that date. There is no evidence that he did anything, after that time, recognizing the existence of the corpora- tion, and up to that time there had been no user of the franchise ■which would estop any one from disputing the corporate existence of the plaintiff. All that had been done under the articles of asso- ciation was, that the persons named as directors had come together and chosen from their number a president, secretary, treasurer, and other officers. This was in no sense a user of any corporate fran- chise extended to the body as a corporation by the laws of the State. By thus getting together, calling themselves a corporation and elect- ing officers, they did not become a corporation quoad third persons and the people, so that their corporate existence could only be ques- tioned by the Attorney-General upon a quo warranto. Had they, on the 2d day of June, 1853, brought an action as a corporation, no one would claim that this formal election of officers was such a user of a corporate franchise as to constitute them a corporation de facto. And yet that was all there was when the plaintiff subscribed; and if they were not then a corporation, either de jure or de facto, the contract was invalid, and the subsequent acquisition by the plaintiff of certain corporate rights, as against third persons and the public, by usurpation, could not inure by relation to establish a contract against an individual having no subsequent concern or dealing with the company. A single act in the exercise of the franchise claimed would not be a user, within the rule that makes a user evidence of corporate existence; still less is the preparation to enter upon the user sufficient to establish the existence of a corporation. The user of a corporate franchise has never, so far as cases have come to my notice, been relied upon or regarded as evidence of corporate exist- ence in actions upon subscriptions to the capital stock. Indeed it could not be, for the reason that contracts of that character are inci- dent to the creation of the corporation. In some cases a person dealing with a corporation is estopped from denying its existence. Angell & Ames on Corp., § 94. But in this court, as well as in other courts, in actions upon subscriptions to the capital stock, the question of the creation and existence of the corporation has been regarded as an open question, and the subscriber has not been con- cluded by his subscription. The questions made in the cases that have been before this court would have been very easily disposed of, had the doctrine of estoppel been deemed applicable ; and the fact that the proceedings for the incorporation have been examined and cases disposed of upon the merits, is very high evidence that the CHAP. X.] RAILROAD COMPANY V. CAKY. 415 subscriber is at liberty to controvert the existence of the corpora- tion. Eastern Flankroad Co. v. Vaughan (14 N. Y. 646) ; Buff, and Pittsburgh, R. R. Co. v. Hatch (20 id. 157). There is good reason why the party should not be held to have admitted the existence of the corporation by his subscription. The considera- tion of his undertaking is the shares of stock which he receives, or expects to receive, from the corporation. If the company has not been legally incorporated, the stock, as such, is of no value ; it has uo existence. He agrees to pay for what he cannot get, and hence his promise is nudum pactum. It was decided, in The First Baptist Society v. Rapalee (supra), that a promise in writing to pay a cer- tain sum to the trustees of a certain church did not estop the promisor from requiring proof, or, in other words, from denying the incorporation of the church: Welland Canal Co. v. Hathaway (8 Wend. 480) ; Central Turnpike Corporatio7i v. Valentine (10 Pick. 142) ; Proprietors of Norwich and Lowestaff Navigatio7i v. Theobold (1 Mood. & I\Ialk 151) ; Schenectady and Saratoga Plank- road Company v. Thatcher (1 Kern. 102) ; Rensselaer and Washing- ton Plankroad Co. v. Wetsel (21 Barb. 56); Hamilton and Deansville Plankroad Co. v. Rice (7 id. 157); all of which, with the exception of the first, were actions upon stock subscriptions, and in all of \\hich the question of the proper organization and incorporation of the plaintiff was made by the defendants and considered by the court. Valk v. Crandall (1 Sandf. Ch. 179) was the case of a subscription intermediate an irregular organization of a banking association, by a certificate not in conformity with the statute, and a formal perfect organization by filing a certificate as required by law ; and it was held that the subscription and the mortgage given as security were void. It does not need the citation of authoritj' to the proposition tlfat a party, seeking to avail himself of a special privilege or franchise under a statute, must bring himself strictly within the terms of the act the benefit of which he seeks. The prin- ciple is elementary. The statute authorizing the creation of corpora- tions, by the voluntary association of individuals for that purpose, must be strictly pursued. A compliance with the statute is a condi- tion precedent to the existence of the corporation. Xo act required by the statute as a preliminary to the formation of the corporation can be omitted as non-essential. In The Eastern Plankroad Company v. Vaughan (supra), stress was laid upon the fact that the documents mentioned and called for by the statute contained all that was, in terms, required to be inserted in them; thus conceding that any departure from the statute, in omitting to comply with a positive requirement, would have been fatal. In Buffalo and Pittsburgh Railroad Company v. Hatch (supra) judgment was given for the plaintiff, for the reason that there was a substantial compliance with the statute in all respects; and th:- same remark applies to the case of The Schenectady and Saratoga Plankroad Company v. Thatcher. 41 G RAILROAD COMPANY V. GARY. [CHAP. X. It is only on compliance with the provisions of this act that the articles of association may be filed, in the office of the Secretary of State, and the associates become a corporation (Laws of 1850, p. 211, § 1). Section 2 of this act forbids the filing and recording of the articles of association and the incorporation of the associates, until there is indorsed upon or annexed to such articles an affidavit, made by at least three of the directors named in the articles, stating, among other things, that "it is intended in good faith to construct or to maintain and operate the road mentioned in such articles of association." This is omitted in the affidavit filed with the plain- tiff's articles of association. The statute required some evidence of the good faith of the associates, and prescribed this as the evidence to be presented. When the Legislature parted with their discre- tion and supervisory control in the matter of creating railroad cor- porations, it was fit and proper that the public should, so far as was practicable, be protected against fraudulent or speculative organizations under the general act; and hence the requirement of not only the subscription and payment of a given sum per mile of the proposed road, but an afiidavit of the bona fide intent to carry into effect the object of the proposed corporation. The omission of this part of the required affidavit was fatal to the proceedings for the incorporation of the plaintiff. It was so regarded by the plaintiff and by the Legislature, and hence the Act of 1858 was passed. That act legalized the acts of the cor- poration from the first, and to some extent and for some purposes gave them the same rights as against third persons and the public which they would have had if the proceedings for their incorpora- tion in the first instance had been perfect and regular. But the act could not have a retroactive effect so as to give vitality to an execu- tory contract with a stranger void in its inception, for the reason that there was no corporation capable of contracting. If the intes- tate was not bound by his promise when made, no subsequent act of the Legislature could create a liability. The Legislature can neither make nor unmake contracts for parties. The Constitution, as well as the well-defined limits of legislative power, aside from the express prohibition of the Constitution, forbid this. The judgment should be reversed and a new trial granted, costs to abide event. Sutherland, J., also dissented; Selden, J., expressed no opinion. Judgment affirmed. CHAP. X.] HEASTON V. KAILKOAD COMPAlfy. 417 HEASTON V. EAILEOAD COMPAJ^. (16 Ind. 275. 1861.) Appeal from the Eandolph Circuit Court. Pebkins, J. : — The Cincinnati and Fort Wayne Railroad Co. sued David Heaston, on an alleged subscription to the capital stock of said company, of f 1,500. His subscription appears to the original articles of organi- zation, and a copy of them is filed as the foundation of the action. The defendant answered in sixteen paragraphs. To a part of those paragraphs the plaintiff demurred ; the Court sustained the de- murrer, the defendant excepted, and the cause was continued. At a subsequent term, the Court permitted those demurrers to be with- drawn, and others to be filed, argued and decided upon.^ A corporation may sue in this State, in its corporate name, and need not aver in the complaint how it became a corporation, nor that it is such. And a default, or answer in denial of the cause of action, admits the capacity of the plaintiff to sue. Harris v. The Musk- ingum, &c. Co. (4 Blackf. 267) and cases cited ; Huhbard v. Chappel (14 Ind. 601.) But there may be an answer of nul tiel corporation, at the com- mencement of the suit. The cases supra ; and Morgan v. Lawrence- burg, &c. (3 Ind. 285) ; (Ind. Dig. p. 318). Such answer, it is now settled in this State, is an answer in abatement, and must therefore precede answers to the merits. Jones v. The Cincinnati, &c. Co. (14 Ind. 89) ; Mclntyre v. Preston (5 Gil. (111.) 48), Phoenix Bank, &c. v. Curtis (14 Conn. 437). And upon the trial of an issue of fact on such answer, or on a reply thereto, the proof is limited to the ques- tion of the existence, de facto, of a corporation, under an authority sanctioning such a corporation, dejure. In other words, mere irreg- ularities in organization cannot be shown collaterally, where there is no defect of power. The Bank of Toledo v. The International Bank (21 N. Y. (Court of Appeals), 642) ; and the authorities supra. See the cases cited in Abb. PI. (N. Y.) p. 179; also Swing v. Robeson et al. (15 Ind. 26). And where such answer denies the existence at the commencement of the suit, of a corporation which is shown to have once existed, the answer should particularly set forth the manner in which the corporate powers ceased (Ind. Dig. § 63, p. 319). A faulty answer in this respect was erroneously held good in Morgan V. Lawrenceburg, &c. (3 Ind. supra). 1 Part of the opinion relating to a question of practice is omitted. VOL. I. — 27 418 DOOLEY V. CHESHIRE GLASS COMPANY. [CHAP. X. We have asserted above, that the issue of mil tiel corporation is upon the existence of a de facto corporation, where one de jure is authorized ; and upon this fact rests the doctrine of estoppel to deny the existence of a corporation, in certain cases. The estoppel goes to tlie mere de facto organization, not to the question of legal authoi-ity to make an organization. A de facto corporation that by regularity of organization might be one de jure, can sue and be sued. And a person who contracts with such corporation, while it is acting under its de facto organization, who contracts witli it as an organized cor- poration, is estopped, in a suit on such contract, to deny its de facto organization at the date of the contract; but this does not extend to the question of legal power to organize. Hence, if an organization is completed where there is no law, or an unconstitutional law, au- thorizing an organization as a corporation, the doctrine of estoppel does not apply. Harriman v. Southam (16 Ind. 190) ; Brown et al. V. Killian (11 Ind. 449). See 15 id. 395. So, if the plaintiff suing in a name importing prima facie a corporation, in fact is not assum- ing to act as a corporation, but only as a partnership, this fact may be raised by an answer alleging want of parties in interest to the suit. Farnsworth v. Drake (11 Ind. 101). See Brown et al. v. Killian {supra). The sixteenth paragraph of the answer averred the non- performance of a condition precedent by the corporation, it having failed to tender to the defendant a certificate of stock. The para- graph was bad. The New Albany Co. v. McOonnick (10 Ind. 499). ' Considering the amount recovered in this case, the circumstances attending the trial, the evidence given, and that which was absent, and all the surroundings, we think the Court should have sustained the motion that was made for a new trial. Pek Curiam :— The judgment is reversed, with costs. Cause remanded, with leave to amend, &c. DOOLEY V. CHESHIRE GLASS COMPANY. (15 Grai/, 494. 1860) Action. of contract. Answer, no corporation duly organized in this Commonwealth under the name of the Cheshire Glass Company. Trial and verdict for the plaintiff in the superior court before Putnam, J., to whose rulings the defendant alleged exceptions, which are stated in the opinion. Dewey, J. : — 1. To meet the denial that the defendants are a corporation duly organized, and liable to be sued upon their promissory notes pur- ' Part of the opinion is omitted. CHAP. X.] DOOLEY V. CHESHIRE GLASS COMPANY. 419 porting to be signed by them, the plaintiff gave the defendants' at- torney notice to produce the books of the corporation containing the records of the organization, which not being produced, he then offered to establish the same by the testimony of witnesses, and to prove the fact that they had acted as such corporation, and a copy of the certificate filed with the secretary of the Commonwealth, and also of a like certificate filed with the town-clerk of Cheshire, both such certificates being in the form required by St. 1851, c. 133, au- thorizing the formation of corporations in certain cases by voluntary association and upon complying with the provisions of that act. This evidence was, in the opinion of the court, competent, after notice to the defendants to produce their book of records, and an omission on their part so to do. The case of Narragansett Bank v. Atlantic Silk Co. (3 Met. 287) is strong to this point. Says Chief Justice Shaw in that case : " The maxim of law is tha.t a.1] l^hiji crs sbal] be prpsnmprl to ba.vf^ bpp.n r-ip-lifly an<^ fm-ror^flj ^If^np. im.1:i1 tlifi contrary is proved. As the corporation could not proceed lawfully until duly organized, and as they did proceed to act as a corporation, this presumption has its effect." 2. It was proposed to show that such certificate, so filed in the office of the secretary of the Commonwealth, although purporting to bo under an oath duly administered before "James N. Richmond, a justice of the peace," resident in Cheshire, was in fact administered by him, in the city of New York, to the three directors whose names appear on the same, and who are residents of that city. The court properly rejected the evidence. After placing this certificate, with the oath annexed in the form in which it is, upon the public records, as a compliance with the statute, these directors or other officers of the corporation are to be estopped from setting up its falsity to aid in defeating an action against the corporation. 3. The next objection relied upon in the defence was, that there had not been a publication of said certificate three several times in a newspaper published in the county of Berkshire, as required by St. 1851, c. 133, § 4. However this omission might have affected the corporation had they been plaintiffs seeking the aid of the law to enforce a contract against another party, we think the corporation cannot set it up as a defect in their organization to defeat a recovery against, them, but that they might be charged in the present action, although they had omitted the act of publication of the certificate in a newspaper. 4. We take a similar view of the remaining objection urged, viz. that there was evidence offered by the defendants tending to show that, prior and up to January 1st, 1853, an association had been carrying on business under the name of the " Cheshire Glass Com- pany," and that the same person acted as their agent who acted as agent for the defendant corporation. The adoption of a similar name with that of any other corporation or company is forbidden by 420 FAY V. NOBLE. [CHAP. X. § 6 of this statute. But as regards the creditors of the company, an omission to comply therewith would furnish no defence. Objections like these are certainly not to be favored when made by a' company holding themselves out as a corporation, and contracting liabilities as such. Exceptions overruled. BAJSTK V. McDonald, (130 Mass. 264. 1881.) Contract upon a promissory note for $450, dated April 22, 1875, payable on demand to the order of the plaintiff, and signed by Ber- nard O'Reilly, the defendant's testator. The writ described the plaintiff as a corporation duly established and organized under the laws of the State of Missouri. At the trial in the Superior Court, before Bacon, J., without a jury, it appeared that, at the time the note in suit was given, the plaintiif was doing business as a de facto corporation ; and the only issue in controversy was whether the requirements of the Gen. Sts. of Mis- souri of 1866, cc. 62, 68, were fully complied with before the plaintiff commenced its business. On this issue the judge ruled that the plaintiff had shown sufficient evidence of its corporate existence to enable it to maintain this action ; and found for the plaintiff accord- ingly. The defendant alleged exceptions which stated all the evi- dence bearing upon this issue, which, being immaterial to the point decided, is omitted. By the Coukt: — The plaintiff being a corporation de facto, and the defendant hav- ing contracted with it as such, the legality of its organization cannot be impeached by him when sued upon his contract. Appleton Ins. Co V. Jesser (5 Allen, 446) ; Commissioners of Douglas v. Bolles (94 U. S. 104). Exceptions overruled, with double costs. FAY V. NOBLE. (7 Cushing, 188. 1851.) This was replevin for seventy-two tons of pig iron. The defend- ants pleaded the general issue, and specified in defence a title in themselves under a mortgage from the West Boston Iron Company. At the trial in the Court of Common Pleas, before Wells, C. J., the following facts were in evidence : Prior to May, 1848, Leonard Puller and one Kendall owned and carried on at Boston a machine CHAP. X.J ' FAY V. NOBLE. 421 shop and an establishment for making iron castings. On the 22d of March, 1848, they, with others, were incorporated as a manufacturing corporation, under the name of the West Boston Iron Company, for the purpose of carrying on the same business (St. 1848, c. 70, 8 Special Laws, 879 ) ; and in May, 1848, attempted to and supposed they did organize as such corporation ; and Fuller and Kendall then transferred the real and personal estate employed by them in said business to the corporation, receiving payment therefor in shares of stock in the corporation. The shares so received by Fuller amounted to more than three-fourths of the whole number of shares, into which the capital stock purported to have been divided. From the time of this supposed organization until November, 1848, Fuller acted as the general agent of the company, and, on the 26th of September, 1848, purporting to act in that capacity, borrowed money of the plaintifEs, gave the note of the company therefor, and conveyed the pig iron in question to the plaintiffs, as collateral security for its payment. The plaintiffs put into the case the records of said supposed organi- zation, and of the proceedings under the same ; and contended that, from an inspection of these records, it appeared the company had not been legally organized as a corporation ; and so the court ruled, against the objection of the defendants. Two witnesses, called by the plaintiffs, testified, in answer to questions by the defendants, that the proceedings therein recorded were truly set forth. To this evidence the plaintiffs objected ; but the judge admitted it as evi- dence of the actual agreement of the associates among themselves, whether they were to be regarded as corporators, as partners, or otherw ise, as to the manner in which the business should be trans- acted, and of the extent of the authority given to Fuller as their agent. In November, 1848, a reorganization of the company, as a corpora- tion, took place ; and, on the 14th of that month, the corporation, so reorganized, conveyed all their property to the defendants, by the mortgage relied on by the defendants, who took possession, under this mortgage, of the iron in controversy. The plaintiffs requested the judge to instruct the jury, among other things, that, as there had been no legal organization of the corpora- tion at the time of the conveyance to the plaintiffs, the parties then holding shares therein, and conducting the business for their common benefit, were in law to be deemed partners, and could not, by any agreement among themselves, limit the power of the members as such, so as to affect the plaintiffs, unless knowledge of such limita- tion was brought home to the plaintiffs, the burden of proving which was on the defendants ; that Fuller, as one of the partners, and the managing partner and principal owner, had full powers to give the notes of the company to raise money, and pledge their property for the payment thereof; and that, although Fuller dealt with the plaintiffs as agents, they were not estopped to show and avail 422 FAY V. NOBLE. [CHAP. X. themselves of the fact, that he was actually a partner and principal owner. ' The presiding judge submitted the case to the jury, with in- structions upon this point, of which the following is the material part : — " The proceedings, prior to November, 1848, did not prove a legal organization of the corporation, and consequently no corporate acts were done prior to November, 1848, when the new organization was effected. But, although not acting as a corporation, the individual associates were acting as an association connected together for the purpose of carrying on business ; this association was not necessarily a partnership, with the usual powers and liabilities of a partnership, but it was a question of fact what were the terms of this agreement of association ; and it being testified and proved, that the writings offered as records of the corporation contained a true statement of the acts of the associates, these writings were admissible evidence to prove the actual agreement of the associates as between themselves : and it was for the jury, from this and other evidence, to determine what this agreement of association was. If it was a partnership, without any limitation as to the powers of the individual members, each partner had a right to bind the partnership by a contract made for partnership purposes ; and, among other powers, had a right to borrow money in the name of the partnership, and pledge the part- nership property as security for repayment. It was, however, com- petent for partners to limit the powers of individual members of the company, by an agreement that the conduct of the business should be confided wholly to the management of agents chosen for that pur- pose ; and where this was done, a partner not selected as agent could not bind the company by an agreement with an individual who knew the fact that the -power of transacting the business of the concern had been delegated to these agents." The jury returned a verdict for the defendants, and the plaintiffs excepted. BiGELOW, J. : — Upon the evidence introduced at the trial of this case in the court below, the presiding judge ruled thait, prior to November, 1848, there was no legal organization of the corporation called the West Boston Iron Company, and therefore no corporate acts were done prior to that time. The whole case was tried and submitted to the jury on this assumption. As this point was so ruled at the request of the plaintiffs, and as the verdict was in favor of the defendants, no excep- tion was taken thereto, and we are not called upon to determine its correctness. The plaintiffs contended and asked for the court to rule, that, inso- much as there had been no legal organization of said corporation prior to November, 1848, the parties holding shares in said unorgan- ized corporation were in law to be deemed copartners, and subject to CHAP. X.j FAY V. NOBLE. 423 all liabilities as such. The court did not give this precise instruction to the jury; but directed them in substance, that said parties, by- virtue of their being subscribers for and holders of stock in said com- pany, were either general copartners, with the usual powers and liabilities as such, or copartners acting under certain restrictions and limitations as to the rights and duties of individual members, and through an agent with limited authority ; and it was left to the jury to determine upon the nature and character of this copartner- ship, and also the authority of Fuller, as agent or copartner, to act in its behalf. It seems to us, upon a careful consideration of the case, that these instructions were not warranted by tlie facts proved ; and although they do not form the precise ground of the exceptions taken by the plaintiffs, yet we think them so erroneous, as to render it necessary to order the case to a new trial. We are not aware of an}' authority, certainly none was cited at the argument, to warrant the instruction, that, in consequence of an omission to comply with the requisitions of law in the organization of a corporation by which its proceedings were rendered void, per- sons who had subscribed for and taken stock in the company thereby became copartners. The doctrine seems to us to be quite novel and somewhat startling. Surely it cannot be, in the absence of all fraudulent intent (and none was proved or alleged in this case), that such a legal result follows as to fasten on parties involuntarily, for such a cause, the enlarged liability of copartners ; a liability neither contemplated nor assented to by them. The very statement of the proposition carries with it a sufficient refutation. No such result can follow, unless a principle of law be established, founded on no authority, and required by no public exigency. Corporations are known and recognized legal entities, with rights and powers clearly defined and well understood, and wholly distinct and different from those of individuals and copartnerships. Persons who subscribe for and take stock in them are subject to certain fixed and limited lia- bilities, which they voluntarily assume, and these liabilities are not to be extended and enlarged, so as to affect innocent parties, beyond the letter of the law. A copartnership cannob take upon itself the functions of a corporation, nor can a corporation or its members be made subject to the liabilities of a copartnership, in the absence of all statutory provisions imposing such liabilities. The personal liability of the members of a joint stock company or copartnership is incon- sistent with the character and nature of a corporation, of which the law properly recognizes only the creature of the charter, and knows not the individuals (Aug. & Ames on Corp. 535, 536). On looking into Rev. Sts. cc. 38 and 44, to the provisions of which the corpora- tion in question was made subject, we find various enactments by which officers and members are made individually liable for debts contracted by corporations, in case of non-compliance with certain 424 FAY V. NOBLE. [CHAP. X. requisitions ; but no provision is made by which such individual liability attaches, by reason of any omission to organize in the man- ner prescribed by law. The statute, it is true, prescribes the mode of organization, but it annexes no penalty or liability to the neglect or omission to comply with it. We are unable to see, therefore, any principle of law, upon which the instructions given to the jury on this point can rest. It follows, as a necessary consequence of what we ha,ve already said, that the records of the corporation were improperly admitted and submitted to the jury, as evidence of an agreement or under- standing among the shareholders in the corporation, as to their own rights and liabilities as members of a copartnership, and of the extent of authority given to Fuller, as agent of such copartnership. They were not made or kept for any such purpose. They were only the records and by-laws of a corporation, not the agreements of indi- viduals, in the nature of articles of copartnership ; and they could have no legitimate tendency to prove the facts for which they were offered and used at the trial. Without examining at greater length the rulings of the court set out in the bill of exceptions, we think it manifest, that the whole trial proceeded under a misapprehension. If the court were correct in deciding that there was no organization of the corporation, and that all its proceedings were void, the case resolved itself into a few simple elements. Being unorganized, and incompetent to act as a corporation, it could not create agents, or confer any authority on any one to act in its behalf, and therefore all those who acted or purported to act as its agents, were acting without authority. There was no principal to appoint an agent. It is a familiar principle of law, that a person who acts as agent without authority or without a principal, is himself regarded as a principal, and has all the rights and is subject to all the liabilities of a principal. Story on Agency, § 264. If a person, purporting to act as an agent of a corporation, which had no valid legal existence, makes contracts and does other acts as its agents, he becomes the principal, and is personally liable therefor. If he purchases property, as agent, without authority, the title vests in him, so far at least as regards third persons, and he has the sole right to dispose of it to others. Story on Agency, § 264, a, note ; Hampton v. Speokenagle (9 S. & E. 212). Applying this principle to the case at bar, it is very clear, that Puller was not the agent of a copartnership, for none existed; he was not the agent of individuals, as such, because he was not author- ized so to act ; he was not the agent of the West Boston Iron Com- pany, because if the court were right in deciding that it had never organized, and that its proceedings were void, it never had the power to appoint him agent. Clearly, then, he acted without authority from any one. If he purchased, he purchased for himself. In him only did the property vest, and as against all but the vendors, he had CHAP. X.] FAT V. NOBLE. 425 the sole rigiit to dispose of it to others. In this view, the question of copartnership, which was submitted to the jury, was wholly im- material, and diverted their attention from the real point in issue. We are therefore of opinion that there was a mistrial, and that the verdict must be set aside, and a new trial had at the bar of this court. 426 YAIiBOKOUGU V. BANK OF ENGLAND. [CHAP, XI. CHAPTER XI. POWERS AND LIABILITIES OF A CORPORATION. IN RESPECT OF LIABILITY FOR TORTS. YARBOEOUGH v. BANK OF ENGLAND. [\QEast,6. 1812.) The plaintiffs declared in trover against the corporation of the Governoi- and Company of the Bank of England, for three promis- sory notes of the Bank of England, payable on demand, ' each for £100, describing them by their dates and numbers; to which the defendants pleaded the general issue; and after a verdict for the plaintiffs before Lord EUenborough, C. J., at Guildhall, it was moved in the last term to arrest the judgment, on the ground that the action of trover, which was founded in tort, did not lie against a corporation: but it was at the same time explained by Bosanquet, who made the motion, that the objection did not originate with the Bank, who merely lent their names upon this occasion to protect the true owner of the notes, Mr. Sidney of Furnival's Inn, who had been robbed of them on the 22d of June last, and had immediately given notice to the Bank to stop payment of them, under his indemnity. That the plaintiffs, who were bankers at Doneaster, had several months afterwards received them in the course of their business in exchange for their own notes, from a person who gave in the name of Captain Johnson, but whom they did not know; and consequently all means of tracing the property were lost. And the real contest in this action was between Mr. Sidney and the plaintiffs; Mr. Sidney imputing negligence to them in the transaction. The case was argued on Saturday last by Taddy, against the rule, and by Garrow and Bosanquet, in support of it; when the court said that they would look into the authorities before they delivered judg- ment; which was now pronounced by Lord Ellenborough, C. J. : — In this case, which was argued on Saturday, the only question was whether an action of trover is maintainable against a body cor- CHAP. XI.] YAllBOROUGH V. BANK OF ENGLAND. 427 porate; in other words, whether a corporation can be guilty of a trespass or a tort. As a corporation they can do no act, not even affix their corporate seal to a deed, but through the instrumentality and agency of others ; they cannot, as a corporation, be subject to a capias or exigent (the process in trespass), because 'the remedies which attach upon living persons cannot be applied to bodies merely politic and of an impersonal nature. But wherever they can com- petently do or order any act to be done on their behalf, which as by their common seal they may do, they are liable to the consequences of such act, if it be of a tortious nature, and to the prejudice of others. A corporation having the return of writs, or to which any writ, or a mandamus, for instance, is directed, is liable eventually to an action for a false return. The case of Argent v. The Dean and Chapter of St. Paul's, in this court about the year 1781, was an action for a false return to a mandamus respecting an election to a verger's place in that cathedral; and no objection was made that the action would not lie. Vidian's Entries, p. 1, is an action for a false return against the mayor and commonalty of the city of Canterbury, for a false return to a writ of mandamus to restore an alderman to his precedency of place, etc. It states the mayor and corporation as attached to answer, and the return as falsely and maliciouslj'' made. The instances of actions against corporations for false returns to writs of mandamus, which are so often directed to them, must be numberless, though I have not found many of them in the books of entries. Bro. Corporations, pi. 48. A corporation cannot be aiding to a trespass, nor give a warrant to do a trespass without writing; and cites 4 Hen. 7, 9: and certainly it appears by that case, and by the sequel of it in 4 Hen. 7, 16, that a corporation can- not give a command to enter into land, without deed, nor do a thing which vests or devests a freehold, nor accept a disseisin made to their use, without deed. But many little things, it is said, require no command; by which must be meant no special commanding, as a command to servants to chase cattle out of their lands, or to make hay; being things which it is incident to a servant to do, and which he is bound to do without command; and if he do it, it is good, and the command is not material, for he may do it without command. A corporation cannot do a tort but by their writing under their com- mon seal; per Fitzjames's Justice; Bro. Corporations, pi. 34, cites 14 Hen. 8, 2, 29; which imports that by their writing they may. A corporation may be defendants in an action of qnure imped It, and the hindrance is an act of tort. Butler v. The Bishop of Hereford and the University of Cambridge (Barnes C. V. 350). To which a multitude of other instances may be added. Rast. 497 ; Ast. 378; 2 Mod. En. 291; Winch. 625, 700, 721, 733; 2 Lut. 1100; 3 Lev. 332. The stat. 9 H. 4, c. 5, recites the practice, in assizes of novel "disseisin and other pleas of land, of naming the mayor and bailiffs and commonalty of a franchise as disseisors, in order to oust them 428 YARBOROUGH V. BANK OF ENGLAND. [CHAP. XI. of holding plea thereof; and directs the inquiry before the judges of assize, whether they be disseisors or tenants, or be named by fraud; " which plainly proves that they may be considered as disseisors; and there are instances of trespass against corporations. In 44 Ed. 3, 2, ])1. 5, which was after 22 Ass. pi. 67, cited in the argument, tres- pass was brought against the Mayor and Commonalty of Hull and another person ; and the objection made was not that trespass would not lie against the corporation, but that as a natural person was joined with' them, there must be different processes; a distress against the former, and a capias against the latter. But the objec- tion does not appear to have prevailed. In 8 H. 6, 1, 14, trespass WES brought against the mayor, bailiff, and commonalty, and one of the commonalty ; and the objection was not that trespass would not lie against the corporation, but that it could not be supported against them and an individual of their body ; and Bro. Corporations, pi. 24, says, the better opinion was that the writ was good; and 14 Hen. 8, 2, says it was so awarded, and that in that case all the justices agreed to it. Brook also puts the case, "if mayor and commonalty disseise me, and I release to 20 or 200 of the commonalty ; this will not serve the mayor and commonalty;" and the reason is because the disseisin is in their corporate character, and the release is to the individuals. And the case is put "that if mayor and commonalty disseise one of their own body, he shall have assize against them;" which clearly imports that the corporation, as such, might be dis- seisors. Also, in 4 Hen. 7, 13, trespass was brought against the Mayor and Commonalty of York; they justified under a right in the inhabitants to have common : but this was adjudged no plea, because the right in natural persons gave no right to the corporation, that the trespass was alleged in the corporation. They then pleaded as bai- liffs in aydant: but it was adjudged they could not be bailiffs aiding to a trespass, "nor could they give warrant without writing to com- mit a trespass;" which implies that by proper writing, namely, by deed under their common seal, they might. In the present case, which is after verdict, it must be presumed that a competent con- version was proved; and if it be essential to such conversion that there should have been an authority from the company under seal to detain the notes on their behalf, that such authority was proved. The fact, by reference to my notes, is that it was admitted that the bank detained the notes in question, under an indemnity; and as no objection was taken to the terms of the admission, a competent detention, i. e., through the means of servants properly authorized to detain on their behalf, was thereby admitted; and therefore the presumption of due proof, after verdict, is in effect warranted by the facts of the case, if it had been material, which it by no means is, to resort to them. In the case of The King v. John Biggs (3 p! Will. 419), it was made a question upon a special verdict in a'case of capital felony, for erasing an indorsement upon a bank note, CHAP. XI.] MAUND V. CANAL COMPANY. 429 whether a person intrusted and employed by the Governor and Com- pany of the Bank of England to sign notes on their behalf, was com- petently authorized for that purpose, not having been, as the special verdict expressly found, so entrusted and employed under their com- mon seal. There is a long and learned argument of the reporter, Mr. Peere Williams, in which the authorities, as to what acts a corporation may do by their servant without , an authority under their common seal, are drawn together. The majority of the judges who sustained the conviction must have been of opinion that an authority under their common seal was not essentially necessary for such a purpose ; indeed, according to the report in 1 Stra. 18, of the same case, the doubt of the judges must have turned upon another point, namely, upon the import of the word "indorsement" (i. e., the writing alleged to be erased) ; and whether it could be satisfied by an erasure of what was written on the face of the note. As to which Sir John Strange in his report says, "That it was held by all the judges that the defendant was guilty ; for the writing on the face of the note was of the same effect as an indorsement, and being intro- duced by the company instead of writing on the back, and always accepted and taken to be an indorsement, was within the words of the indictment." The objection of the want of authority under the common seal is not even noticed in the report of this case by Sir John Strange. However, if there would have been anything in the objection in this case, if made at the trial, there is nothing in it after verdict, when it must be presumed, as I have already stated, that all the competent proof which could be made in support of the action was made, and of course that an authority under seal for the detention of the notes was proved, if such proof were at all necessary. Rule discharged. MAUND V. CANAL COMPANY. (4 Man. Sr Gr. 452. 1842.) Trespass, for breaking and entering locks on a canal, and seizing and carrying away barges and coal. Pleas : not guilty (by statute) 36 G. 3, c. cii., and payment of money into court. At the trial, before Cresswell, J., at the last assizes for Monmouth- shire, it was proved that the trespasses in question had been com- mitted by one Cooke, who was the agent of the company, which was incorporated by act of Parliament, 36 G. 3, c. cii. ; and that the barges and coal had been seized for tolls claimed to be due to them. The only question raised was whether trespass would lie against a corpo- ration aggregate for an act done by their agent within the scope of his authority. A verdict was taken for the plaintiff, damages £50, leave being reserved to move to enter a verdict for the defendants. 430 -MAUND V. CANAL COMPANY. [CHAP. XI. Talfourd, Serjt., in last term obtained a rule nisi accordingly, or to arrest the judgment. He cited the case of Sutton's Hospital (10 Co. Eep. 32, Anon. 12 Mod. 559) ; Morgan v. The Corporators of Carmar- then (3 Keb. 350), Thusfeild and Jones' Case (Skin. 27) ; Com. Dig. tit. Franchises (F. 19), 6 Vin. Abr. tit. Corporations (B. a). Ludlow, Serjt., now showed cause. The act of Parliament by which the company is incorporated provides that they may sue and be sued : it also empowers them to enter on lands. If they enter improperly, it would seem that they may be "sued for the trespass. The whole doctrine that a corporation cannot be sued in trespass rests on one passage in Bro. Abr. Corporations, 43 ; where the reason given is, that neither capias nor exigent can go against them. A distringas, however, may be issued against a corporation. It has been decided that trover will lie against a corporation ; Yarborouyh v. The Bank of England (16 East, 6), where Lord Ellenborough, C. J., in giving the judgment of the court, reviews all the authorities upon the subject. [Tindal, C. J. That case was after verdict. It was a motion in arrest of judgment ; no leave appears to have been reserved.] But the broad doctrine is laid down that trover would lie ; and there is no difference in principle between that action and trespass. The pay- ment into court in this case admits that the action is rightly brought. An indictment will lie against a corporation, although all the ordinary consequeitces cannot follow. Various instances are collected in Kyd on Corporations, (vol i., pp. 223-225), where trespass has been brought against a corporation. Other authorities are mentioned in 1 Wms. Saund., 340, n. The principle that a corporation is liable in tort for the tortious act of its. agent, done in its ordinary service, is further carried out in Smith v. The Birmingham Gas Company (1 A. & E. 526). [Tindal, C. J. The process is the same, both in case and in trespass, — namely, by attachment, distress, capias, and out- lawry. If case will lie, it is diflftcult to see why trespass should not lie also.] Talfourd, Serjt., was then called upon to support the rule, and ad- mitted that he had nothing to rely upon but the old authorities : and that in Kegina v. The Birmingham and Gloucester Railway Company, the court of Queen's Bench had, in this term, refused to quash an in- dictment against a corporation. The doctrine in Bro. Abr., however, is imported into Com. Dig. tit. Franchises (F. 19). Tindal, C. J. : — The process in case and trespass being the same, it is impossible to see any distinction between the two actions. Pbk oukiam. Rule discharged. CHAP. XI.] CHESTNUT HILL TUUNPIKE CO. V. BUTTER. 431 CHESTNUT HILL TURNPIKE COMPANY v. BUTTER. (4 Serg. ^ Raivle, 6. 1818.) This was an action of trespass on the case, in the Common Pleas of Montgomery Counby, for stopping a water-course. The declaration stated, that the defendants below, the plaintiffs in error, were incorporated by an act of Assembly, passed on the 5th day of March, 1804, entitled, " An Act to enable the Governor of this Com- monwealth, to incorporate a company to make an artificial road, from the top of Chestnut Hill, through Flourtown, to the Spring House Tavern, in Montgomery County ; " that the plaintiff was seised of a messuage, tanyard, and tract of land, through which a rivulet from time immemorial, had flowed, etc. ; and that the defendants contriv- ing, and wrongfully, and injuriously intending to injure the said plain- tiff, and to deprive him of the benefit of working and tanning leather, in the said tanyard, and of the profit that might accrue therefrom, did wrongfully and unjustly erect and set up certain jetties or piers, on each side of the said rivulet, by reason whereof the said rivulet was thrown back, and overflowed the said tanyard, and d^troyed a great quantity of hides, etc. By the 9th section of the act of incorporation, Pamph. L. 215, the company had power "to erect permanent bridges over all the waters crossing the said road." The jury found a verdict in favor of the plaintiff, for 305 dollars. The errors now assigned were, 1. That the Court below permitted an action to be maintained against a body corporate for a tort. 2. That the declaration, if such an action could be maintained, set forth no cause of action. The opinion of the Court was delivered by TiLGHMAN, 0. J. : — This is an action on the case, brought by James Rutter against the Chestnut Hill & Spring House Turnpike Company, for an injury done to the plaintiff's land and tanyard, in consequence of certain piers erected by the defendants, on each side of a stream of water, by which the stream was obstructed and thrown back, and overflowed the plain- tiff's land. The defendants below, who are plaintiffs in error, rely on two ob- jections. 1. That a corporation is not suable in this kind of action. 2. That the declaration does not state a good cause of action, even if the defendants were liable to an action in this form. 1. Corporations have lately been so multiplied in the United States, that they stand a very prominent part in the business of the country. It has, therefore, been necessary to consider, with great attention, 432 CHESTNUT HILL TURNPIKE CO. V. BUTTER. [CHAP. XI. their nature, and their rights, both as to suing anJ being sued. And as it would be extremely inconvenient that they should do wrong without being amenable to justice, the inclination of the Court has been to hold them responsible. There was a time, when it seems to have been supposed, that they could make no contract but by writing under their common seal. The reason assigned was, that being incor- poreal, and consequently incapable of speaking, it was impossible that they should enter into a parol contract. But upon reflection, this reason has been thought insufficient ; for, if pursued to its full extent, it would prove that a corporation could not act at all. It has no hand to affix a seal, and must therefore employ an agent for the purpose. But this agent must receive his authority previous to his affixing the seal. It is necessary, therefore, that the corporation should have the power to act without seal, so far as respects the appointment of a person to affix the seal. Now, if it can appoint an agent without seal, for one purpose, there is no reason why it may not for another. Ac- cordingly, in the case of The King v. Biggs (3 P. Wms. 419), on a spjcial verdict in a case of capital felony, it was held, that the Bank of England might, without seal, authorize a person to sign notes in its behalf. And it was decided by the Supreme Court of the United States, in the case of The Bank of Columbia v. J'atterson's AdTtiinis- trators (7 Cranch, 299), that a corporation may, without seal, enter into a contract, express, or even implied. In the words of Judge Story, by whom the opinion of the Court was delivered, " When a cor- poration is acting within the scope of the legitimate purpose of its institution, all parol contracts made by its authorized agents are express promises of the corporation, and all duties imposed on them by law, and all benefits conferred at their request, raise implied promises, for which an action lies." By this decision, I consider the law as settled. It does, indeed, seem to have been the opinion of this Court, in the case of BreckhiU v. The Lancaster Turnpike Company (3 Dall. 496), that an action of assumpsit would not lie against a cor- poration. But the law had not been at that time fully considered, and I may say that our late brother Yeates, who was on the bench when BreckhiU v. The Lancaster Turnpike Company was decided, was satisfied as to the propriety of acquiescing in the authority of The Bank of Columhia v. Patterson's Administrators. But it is objected that the present action is not on contract but on tort, and a very refined argument is brought forward, to prove that a corporation cannot be guilty of a tort. A corporation, say the de- fendant's counsel, is a mere creature of law, and can act only as authorized by its charter. But the charter does not authorize it to do wrong, and therefore it can do no wrong. The argument is falla- cious in its principles, and mischievous in its consequences, as it tends to introduce actual wrongs and ideal remedies ; for a turnpike company may do great injury, by means of laborers who have no property to answer the damages recovered against them. It is much CHAP. XI.] CHESTNUT HILL TURNPIKE CO. V. KUTTER. 433 more reasonable to say, that when a corporation is authorized by law to make a road, if any injury is done in the course of making that road by the persons employed under its authority, it shall be respon- sible, in the same manner that an individual is responsrble for the actions of his servants, touching his business. The act of the agent is the act of the principal. There is no solid ground for a distinction between contracts and torts. Indeed, with respect to torts, the opin- ion of the courts seem to have been more uniform than with respect to contracts. For it may be shown, that from the earliest times to the present, corporations have been held liable for torts. Many cases have been cited from the Year Books. Upon examination, they do not all answer the citations, but enough appears to show that the law was so understood. In 4 Hen. 7, p. 13, pi. 11, we find an action of trespass against the Mayor and Commonalty of York. Plea, that all the inhabitants had a right of common in the land where the trespass is supposed to have been committed: held, not good, because the action is against the corporation, and the plea is a justification as to individuals. In a subsequent part of this case, it is said that a cor- poration cannot give a warrant to commit a trespass without writing. This, if it be law, proves that a warrant may be given by writing, which is sufficient for the plaintiff's purpose, the point being, whether a corporation can commit a trespass. In 8 Hen. 6, p. 1, pi. 11, and ]i. 14. pi. 34, trespass was brought against the Mayor and Bailiffs, and Commonalty of Ipswich, and one J. Jabez. It was objected, that a corporation and an individual cannot be joined in one action: but it was not objected that trespass does not lie against a corporation ; and the objection is said to have been overruled in 14 Hen. 8, 2. In the book of Assizes (31 Ass. pi. 19), it appears that an assize of novel disseisin was maintained against the Mayor and Commonalty of Win- ton. Brook la3"s it down, that if the mayor and commonalty dis- seise one who releases to several individuals of the corporation, this will not serve the mayor and commonalty, because the disseisin is in their corporate capacity. In the old books of entries are numerous precedents of writs of quare impedit against corporations, and in Vidian's Ent. 1, is a declaration in an action on the case (16 Car. 2) against the Mayor and Commonalty of the city of Canterbury, for a false return to a mandamus. To come to more modern times, it was held in the Mayor of Lynn, &c. (in error) v. Turner (Cowp. 86), that an action on the case lies against a corporation for not cleansing and keeping in repair a stream of navigable water, which it was bound to do by prescription, in consequence of which the plaintiff was injured. This was in the year 1774, a little before our Revolution. The laws of the Commonwealth forbid my tracing this point through the Eng- lish courts, since the Revolution, but we shall find abundant author- ity in the courts of our own country. In G-ay v. The Portland Bank (6 ]\rass. Rep. 364), it is laid down, that the bank was responsible for wrongs done by itself or its ajents. In Riddle v. The Proprietors of vor,. I.— 28 434 RAILWAY COMPANY V. BROOM. [jHAP. XI. the Locks, &c. on Merrimack River (7 Mass. Rep. 169), an action was maintained against the company for damage suffered by the plaintiff in consequence of the locks not being kept in repair. And in Tovm- send V. The Susquehanna. Turnpike Company (6 Johns, 91), an action was supported for the loss of a horse killed by the falling of a bridge, which the company had built of bad materials. These authorities put it beyond doubt that the form of action, in the present case, is good. The objection to the declaration remains to be considered. It is said that the act of Assembly, by which this company is chartered, gives them power to erect bridges over all the streams which cross the road, and, therefore, they are not responsible for any damages which may be suffered in consequence of these bridges. But this is too broad a proposition ; for, granting that they would not be respon- sible for damages unavoidably resulting from a bridge built in the best manner, and obstructing the passage of the water, no more . than was necessary for its proper construction, it would not follow that they should not be answerable for damages arising from a bridge so carelessly or inartificially built, as to occasion an unnecessary and wanton obstruction. Now, the declaration alleges, that the defend- ants, contriving, and wrongfully and injuriously intending to injure the plaintiff, etc., did wrongfully and unjustly set up certain, piers, etc. So that we are bound, after verdict, to suppose that it was proved the defendants were in fault, in the manner of erecting the piers. To say, now, that they were guilty of no wrong, would be to declare that it is impossible for them to be made answerable for any injury which may arise from any kind of bridge or piers. This is going farther than I can permit myself to do, being satisfied that the law never intended to authorize damage without necessity. Whether the company would be answerable for damages occasioned by a bridge or piers, of proper construction, is a point of great importance, on which I give no opinion, as it does not arise in this case. I am of opinion, on the whole, that the judgment should be aifirmed. Judgment affirmed. RAILWAY COMPANY v. BROOM. (6 Exch. 314. 1851.) Eeroe . on a bill of exceptions. This was an action of trespass brought by William Broom against the Eastern Counties Railway Company and Benjamin Richardson. The declaration stated that the defendant, to wit, on the 29th of February, 1848, with force and arms, etc., assaulted the plaintiff, and compelled him to go in- custody from a certain railway station to a CHAP. XI.] llAH/vVAY COMPANY V. BROOM. 435 certain police office, and there imprisoned him, etc., and compelled the plaintiif to go from thence to two other police offices, and there again imprisoned him, each of such several imprisonments being con- trary to law and against the will of the plaintiff, etc. The defendants below pleaded, first, not guiltj'^ ; issue thereon ; secondly, as to so much of the declaration as alleged the assault up to the time of taking the plaintiff to the second police office, that the plaintiff assaulted the defendant, Richardson, then being a servant of the company, and that he was consequently taken into custody by a constable who had view of the assault, at the instance of the defend- ants, and necessarily was detained to answer the charge before a magistrate. — Verification. The third plea, to the same portion of the declaration, alleged, that the plaintiff, on, etc., was a passenger in a railway train which ran from Colchester to London ; that, on arriving at the Stratford station, the defendant Richardson, then being a servant of the company duly authorized to collect the tickets of passengers, requested the plaintiff to produce and deliver up his ticket. That a by-law of the company provided, "that each passenger booking his place would be furnished with a ticket, which he was to show when required bj" the guard in charge of the train, and to deliver up before leaving the Company's premises, upon demand of the guard or other servant of the Company duly authorized to collect tickets ; and that each passenger not pro- ducing or delivering up his ticket would be required to pay the fare from the place whence the train originally started." The plea then alleged that the plaintiff did not deliver up his ticket; that there- upon Richardson requested the plaintiff to pay the fare from the place from which the train had started, according to the by-law ; that the plaintiff refused to do so; that Richardson then requested the plaintiff to quit the carriage ; that the plaintiff refused, and there- upon, in order to remove the plaintiff from the carriage, Richardson used the necessary force only to do so ; that, after the plaintiff had been removed from the carriage, but while on the premises of the company, he in revenge assaulted Richardson; and that thereupon he was given into custody. — Verification. The fourth plea set out a by-law, which provided, that any person in a state of intoxication in the carriages or stations of the company, wilfully interfering with the comfort of the passengers, and every person obstructing the company's officers in the discharge of their duty, should be subjected to a penalty not exceeding 40s., and at the first opportunity be removed from the company's premises, and for- feit his fare. It then averred, that the plaintiff was intoxicated, and wilfully interfered with the comfort of the other passengers ; that, on the plaintiff's refusing to quit the carriage, the defendant Richardson, as servant of the company, removed him. It is then alleged an assault by the defendant, and an arrest, as in the previous plea. — Verification. 436 RAILWAY COMPANY V. BROOM. [CHAP. XI. The fifth plea, to the same causes of action as in the second plea, alleged as a justification, that the plaintiff wilfully impeded Richard- son, an officer of the company, in the execution of his duty ; and that Richardson detained him to answer for the offence. — Verification. The sixth plea, to the same cause of action, justified the removal, on the ground that the plaintiif was making a disturbance and doing damage in one of the company's carriages. — Verification. The plaintiff replied de injuria to the special pleas. — Issue thereon. At the trial, before Pollock, C. B., at the Middlesex Sittings after Trinity Term, 1849, a bill of exceptions was tendered to the ruling of the Lord Chief Baron, which stated what occurred at the trial as follows : " And therefore, in order to maintain the said issues, the counsel for the said plaintiff gave the evidence following, — that is to say, the said counsel called and examined divers witnesses, who proved that the plaintiff was a passenger in a carriage of the defend- ants, the company as alleged in the pleas ; and that the plaintiff was assaulted in the said carriage, and forcibly taken out of the same carriage, and imprisoned by the defendant Richardson, tlien an in- spector in the service of the company, professing to act in so doing as the servant of the company, and under the assertion by the said defendant Richardson, of the cause of justification set forth in the defendants' several pleas of justification; but which several pleas, except the several by-laws therein mentioned, were disproved by the evidence, and were not sought to be maintained by the counsel learned in the law of the defendants. That the said imprisonment of the plaintiff, after taking him into custody at the railway station, for refusing to give up his ticket, consisted, amongst other things, of causing the plaintiff to be imprisoned at the police station at Stratford, upon a charge, made by the said defendant Richardson, professing to act in so doing as servant of the said defendants, the Company, of refusing to give up his ticket or pay his fare, and also of assaulting the said defendant Richardson in the execution of his duty as such inspector, at the said railway station. That subse- quently, upon the hearing of the said charge, the said company, by Mr. Duncan, their attorney, appeared before the magistrate in sup- port of the said charge; and the plaintiff also called witnesses to prove that the plaintiff was sober on the occasion mentioned in the evidence (of the said Peter Rogerson) ; and also to prove the dam- ages sustained by the plaintiff by reason of the trespasses complained of, and gave no further evidence. And the counsel for the plaintiff, after the aforesaid evidence was given, closed the case of the plain- tiff, and gave no further or other evidence. And the counsel for the said defendants then submitted to the Lord Chief Baron, that, upon the matters and facts so given in evidence as aforesaid, there was no evidence to go to the jury that the said defendants, the Eastern Counties Railway Company, were guilty of the trespasses in the CHAP. XI.] RAILWAY COMPANY V. BROOM. 437 declaration alleged, or any of tliem ; and that, notwithstanding the matters and facts so given in evidence as aforesaid, they were en- titled to a verdict upon the first plea, so far as related to them, the Eastern Counties Railway Company. And the counsel for the plain- tiff then insisted on the contrary thereof. And the Lord Chief Baron then ruled, and so directed the jury, that the matters and facts so given in evidence as aforesaid were sufficient evidence to go to them for their consideration, and whereon they might find that the defend- ants, the Eastern Counties Railway Company, were guilty of the trespasses in the declaration alleged ; and then left it to the jury to say, upon the said evidence, whether the said Eastern Counties Rail- way Company were guilty of the said trespasses. And he directed the said jury, that there was some evidence foi- their consideration, upon the question whether the said defendants, the Eastern Counties Railway Company, had authorized the trespasses complained of; and in so directing the jury, told them, that if the said company had given gen'eral directions to their servants applicable to persons who were passengers on the railway, as the plaintiff was on the occasion in question, the acting by the defendant Richardson, as their ser- vant, on such general directions, would be evidence for the consider- ation of the jury of such authority to commit the trespasses com- plained of; and that they were at liberty to take into consideration the fact, that the company, by their attorney, had appeared, as afore- said, before the said magistrate to support the said charge, as some evidence that the company were guilty of the trespasses complained of. And the said Lord Chief Baron then and there further stated to the jury that the said eompanj^ would be liable in one of two ways : if beforehand they gave instructions to their servants to remove from the carriages of the company anybody who disobeyed the by- laws, and commit him to the custody of the policeman. If they gave their directions generally, there was no doubt they would be liable. That they would also be liable, if, discovering that their servant, acting on their behalf, had given the plaintiff into custody, they adopted the act, and directed their attorney to follow that up and prosecute the charge ; that the attorney, merely as attorney of the company, would have no such authority ; that he thought there was some evidence that that which was done was either done by their authority, or was adopted by them after it was done ; that he, there- fore, left it to the jury for them to consider, whether the act that was done by those persons was done by the authority of the com- pany. And the said counsel for the defendants, the Eastern Coun- ties Railway Company, then requested the Lord Chief Baron to direct the jury, that the defendants, the Eastern Counties Railway Company, could ,not be made liable as trespassers by a subsequent ratification of an act of trespass of the said other defendant ; but the said Lord Chief Baron then declined so to do. and stated that, in his judgment, there was some evidence for the jurj- to determine whether 438 RAILWAY COMPANY V. BROOM. [CHAP. XI. the company were guilty or not. And the said Lord Chief Baron then left the case to the jury upon the evidence aforesaid, with the direction aforesaid ; and the jury, upon that direction, found their verdict that the defendants, the Eastern Counties Eailway Company, were guilty of the trespasses in the declaration alleged, and found the issues upon the first plea against the defendants, the Eastern Counties Eailway Company, with £50 damages, as by the record thereof appears. And the counsel for the defendants, the said Eastern Counties Eailway Company, at the trial, before the said verdict was given, made their exception to the said direction of the said Lord Chief Baron, and also their other exceptions to his declin- ing to direct the jury as aforesaid." Patterson, J. : — I have conferred with iliy learned brothers upon this case, and we are all of opinion that there is no reason why we should defer our judgment. The first question arises on the declaration itself, and is quite independent of the particular circumstances of this case. It is alleged, on the part of the plaintiffs in error, as a general broad proposition of law, that in no case can an action of trespass for as- sault and battery lie against a.corporation aggregate. Whatever may be the effect of the authorities in the Year Books, it has been ex- pressly held, in modern times, that trespass will lie against a cor- poration aggregate for breaking and entering a close, and for seizing goods. This has been decided by several recent cases. Then the question is, whether trespass for assault and battery may lie against a corporation; and it has been contended that it cannot; for it is said, that it can neither beat nor be beaten. No doubt that proposi- tion is true of it as respects its corporate capacity. But it does not therefore follow, that if a corporation, by authority under seal, direct a servant to apprehend and imprison a particular person, an action for assault and battery cannot be maintained against the corporation. The learned counsel who appears for the plaintiffs in error must contend, in order to show that this declaration cannot be supported, that no such action would lie. But we are all clearly of opinion that it is not so, and that an action of trespass for assault and battery will lie against a corporation, whenever the corporation can author- ize the act done, and it is done by their authority. We are therefore of opinion that the declaration is good ; and we do not think it necessary to go through the several authorities upon this question. The next question is, whether, in order to render the corporation liable for the act of their servant, it was necessary that that servant should have an authority by deed. It has been decided, many years ago, that a corporation may be liable in tort for the acts of their servants, although their authority be not under seal. It is not ne- cessary, therefore, further to advert to this point. It has been urged that there is no exception taken on the ground of want of evidence of previous authority or of ratification. It is true that the bill of CHAP. XI.] RAILWAY COMPANY V. BKOOM. 439 exceptions is very inartificially drawn, and that the intended excep- tions might have been pointed out in a much more specific form ; but, taking it altogether, the meaning of the bill of exceptions seems to be, that there was no evidence for the jury ; and we think that the objection is sufficiently pointed to enable us to go into that ques- tion. Is there any evidence to go to the jury ? The evidence is, that there were certain by-laws ; but it was not shown whether there had been any directions given to Kichardson or to the servants of the company in general to enforce the by-laws. Looking to all the facts stated, we think that there was no evidence of any previous authority given by the company. Then comes the question, was there any ratification ? All the facts that are set forth show, that after Richardson had taken the plaintiff out of the carriage, he took him into custody on the several charges of not producing his ticket, of not paying his fare, and of annoying the company by being in- toxicated. Before the magistrate, the charges were, that the plain- tiff did not produce his ticket, did not pay his fare, and that he had assaulted Eichardson. The charge of intoxication was not investi- gated, but that is not material. The only act of ratification con- tended for was this, that the attorney of the company attended before the magistrate in support of. the charge against the plaintiff; but it must be remembered, that this was a charge against the plaintiff, not by the plaintii¥ against the company, and that the charge was for having refused to produce his ticket or pay his fare, and for having assaulted Eichardson. Not a word is said to show that the fact that Richardson had apprehended the plaintiff, and that the plaintiff had been taken into custody on those charges, was known either to the company or to their attorney. We think, there- fore, that there was no evidence of ratification by the company of the act of Richardson. With respect to the point, whether the company could ratify the act, if the act can be said to have been done for the use or benefit of the company, there can be no doubt that they could ratify it. The assault and imprisonment of a party liable to the company for not having paid his fare, was an act of a servant of the company, which manifestly might have been for the benefit of the company. Therefore, we are clearly of opinion that there might have been a ratification of that act. The law is well laid down in distinct terms in the passage from the 4 Inst. 317, " He that receiveth a trespasser, and agreeth to a trespass after it be done, is no trespasser, unless the trespass was done to his use or for his benefit, and then his agreement subsequent amounteth to a com- mandment." The question of liability by ratification depends upon this, whether the act was originally intended to be done to the use or for the benefit of the party who is afterwards said to have ratified it. We are with the plaintiff in this case, that the action might lie, and the act, though not done with the knowledge of the company in the first instance, might have been ratified by them ; but we are 440 GREEN V. OMNIBUS COMPANY. [OHAP. XI. of opinion that there was no evidence of any such ratification, aud that the direction of the Lord Chief Baron was wrong in this re- spect. The result therefore is, that there must be a venire de novo. Venire de novo. GEEEN V. OMNIBUS COMPANY. (7 Com. Bench, N. S. 290. 1859.) This was an action against the defendants for wrongfully and maliciously obstructing the plaintiff in his business of an omnibus proprietor. The declaration stated, that, before and at the time of the commit- ting the grievances thereinafter mentioned, the plaintiff carried on the trade and business of a carrier of passengers for hire in certain public, streets, roads, and highways, to wit, etc., by means of certain omni- buses of the plaintiff drawn by horses and driven and conducted by the servants of the plaintiff, for the profit and benefit of the plaintiff, and which said omnibuses of the plaintiff had full liberty and right to run respectively from etc., to etc., and to stop for a reasonable time at all points and places on and along the said public streets, roads, and highways, for the purpose of taking up and putting down passen- gers, and at certain points and places in the said streets, roads, and highways, where numerous passengers were accustomed to enter the omnibuses passing such points and places, the said omnibuses of the plaintiff ^and all other omnibuses passing that way were, by the police regulations then lawfully enforceable and enforced, permitted to wait for a certain space of time, to wit, for the space of four minutes, to look for passengers, unless by their so doing any actual obstruction to the thoroughfares or nuisance to the inhabitants near the places was caused thereby. Yet the defendants, well knowing the premises, but contriving and intending to injure, impoverish, and ruin the plaintiff, and to prevent him from carrying on his said business, 'at divers times before this suit, wrongfully, vexatiously, and maliciously placed and drove in the public streets, roads, and highways aforesaid, certain other omnibuses and carriages just before and just behind the said omnibuses of the plaintiff, whilst the same, with the plain- tiff's horses drawing the same, were plying for passengers for hire in the public streets, roads, and highways, as aforesaid, and with which the plaintiff was then carrying on his said business, in such a manner as to hinder and prevent, frighten, and deter great numbers of per- sons from entering the plaintiff's said omnibuses and becoming pas- sengers therein for hire, as thoy otherwise might and would have done, and so as to hinder and prevent the plaintiff from having the free use of the said streets, roads, and highways with his said omni- buses and horses in so large and ample a manner as he otherwise CHAP. XI.] GREEN V. OMNIBUS COMPANY. 441 might and would have done, and so as to retard, delay, and stop the said omnibuses of the plaintiff, and so as greatly to obstruct and encumber the said highways, to the nuisance of the Queen's subjects then lawfully using the same. And further the plaintiff said that the defendants wrongfully, vexatiously, and maliciously drove and placed in the public streets, roads, and highways aforesaid, certain other carriages and omnibuses upon and against the said omnibuses and horses of the plaintiff, and upon and against the servants of the plaintiff then conducting the same, while the said omnibuses, with the plaintiff's horses harnessed to the same, and the plaintiff's said servants conducting the same, were plying and waiting for passengers for hire in the public streets, roads, and highways aforesaid, and with which the plaintiff was then carrying on his said business as aforesaid, in such a manner as thereby to bruise, damage, and injure the said omnibuses and horses of the plaintiff, and to prevent the doors of the said omnibuses from being opened, and to obstruct and block up the access of passengers into the said omnibuses of the plaintiff, and to hinder and disable the said servants of the plaintiff from freely and fully performing their duties to the plaintiff in the conduct and management of the said omnibuses of the plaintiff, and whereby they were so hindered and disabled as aforesaid accordingly. And the plaintiff further said that the defendants also, contriving and intending as aforesaid, at the several times aforesaid, also wrong- fully, vexatiously, and maliciously, in the said public streets, roads, and highways, thrust and pushed themselves, and caused their ser- vants to and they did tlirust, push, and place themselves between the said omnibuses of the plaintiff while plying and waiting for passen- gers as aforesaid, in the way' of the plaintiff's said business, and divers persons who were desirous to enter and get into and on to the same as passengers for hire, so as thereby to obstruct the entrance and access of such passengers into and upon the said omnibuses of the plaintiff, and to hinder, deter, and prevent them from entering the same or becoming passengers therein. And further, in continua- tion of this count, the plaintiff said that the defendants also, con- triving and intending as aforesaid, at the several times aforesaid, wrongfully, vexatiously, and maliciously insulted, hissed, and as- saulted, beat and ill-used the plaintiff's servants in the said public streets, roads, and highways, while they were employed in driving, conducting, and managing the said omnibuses in the way of the plaintiff's said business, and were plying and waiting for passengers therewith in the said public streets, roads, and highways. And in continuation of that count the plaintiff further said that the defend- ants, well knowing the points and places in the said respective roads at which the plaintiff's omnibuses, by the said police regulation in the introductory part of that count mentioned, were permitted to remain for a certain space of time, to wit, for the space of four minutes as aforesaid, wrongfully, maliciously, and vexatiously, and for the ex- 442 GKEEN V. OMNIBUS COMPANY. [CHAP. XI. press purpose of annoying the plaintiff, and causing such an obstruc- tion 01 the thoroughfares at the said points and places in the said public streets and roads as aforesaid as would induce and oblige the police there stationed to order off the oiiniibuses of the plaintiff from the said points and places before the said omnibuses had remained at the said points and places for the said space of time which by the police- regulations aforesaid they were permitted to remain, and thereby prevent passengers who, if the plaintiff's omnibuses had so remained, would have come and entered into and mounted upon the plaintiff's said omnibuses, from so doing, caused one or more of their, t)ie defendant's omnibuses, drawn by their horses, and driven and conducted by their drivers and conductors, to precede and follow each omnibus of the plaintiff as such omnibus approached near to and arrived at each or any of the said points and. places in the said public streets, roads, and highways, in such a manner as to cause such an obstruction to the thoroughfares at such points and places, and such a nuisance -to the inhabitants near the said points and places, as would induce and oblige, and which did induce and oblige, the police there stationed to order and command that the plaintiff's omnibuses should move off from the said points and places in the said public streets, roads, and highways before they had remained there for that space of time which but for the defendants' wrongful contrivance and conduct they otherwise might and would have done, and thereby they the defendants prevented numerous passengers from entering and riding upon the plaintiff's said omnibuses for hire, as they otlierwise might and would have done ; by reason of which said several grievances in that count respectively mentioned, great numbers of persons were on the several days and times aforesaid hindered, deterred, and prevented from becoming passengers for hire by the plaintiff's said omnibuses, as they otherwise would have done, and the plaintiff's omnibuses and horses were greatly injured, etc., and the plaintiff was greatly damaged, hindered, and obstructed in carrying on his said business, etc. To this declaration the defendants demurred; and the plaintiff joined in demurrer. Erle, C. J., now delivered the judgment of the court : — We are of opinion that our judgment in this case ought to be for the plaintiff. This is an action against the defendants for wrong- fully, vexatiously, and maliciously interfering with the plaintiff's rights, by causing their vehicles to be driven in such a manner as to obstruct and molest the plaintiff in the use of the highway. The declaration alleges various grievances of that general character. To this declaration there is a demurrer raising for our decision the ques- tion whether the action will lie. The ground of the demurrer is that the declaration charges a wilful and intentional wrong, and that the defendants, being a corporation, cannot be guilty of such a wrong, and therefore the action will not lie. But the whole of the acts that CHAP. XI.] GOODSPEED V. BANK. 443 are charged against the defendants are acts connected with driving vehicles ; and, the defendants are a company incorporated for the purpose of driving omnibuses, and therefore, the acts alleged to have been done by them are all acts which are within the scope and object of their formation. Unless the acts charged were wrongfully done, the. plaintiff of course would have no ground of complaint. We are clearly of opinion that the action lies; and there are abundant authorities to warrant that opinion. The whole course of the authorities, from the cass of Yarborough v. The Bank of England (16 East, 6), down to Whitfield v. The South Eastern Bailivay Com- pany (1 Ellis, Bl. & E. 115) E. C. L. R. vol. 96, —which was in reality an action against the Electric Telegraph Company, shows that an action for wrong will lie against a corporation, where the thing that is complained of is a thing done within the scope of their incorporation, and is one which would constitute an actionable wrong if committed by an individual. The doctrine relied on by Mr. Giffard, — that a corporation, having no soul, cannot be actuated by a malicious intention, — is more quaint than substautial. In coming to the conclusion we arrive at, we have no intention in the smallest degree to interfere with any of the decided cases ; but, on the con- /trary, we found our judgment upon the numerous class of cases of which Yarborough v. The Bank of England — where there is a most learned and elaborate argument of Lord Ellenborough, going fully into all the previous authorities — is by no means the first, and which afford abundant examples of the application of the principle we now rely on. We may add that we dwell the less upon the grounds which have been urged by Mr. Giffard against the mainte- nance of the action, by reason of the extreme mischief and incon- venience which would follow from our holding that these companies, • incorporated for the purpose of carrying on trade, were exempt from liability for intentional acts of wrong. We think it extremely im- portant that these companies should be held responsible where they admit they have intentionally done a wrongful act, and that those whom they have injured should not be driven to seek a doubtful remedy against their officers or servants, who may be wholly unable to answer the compensation which the jury may award to the injured . party. For these reasons, we are of opinion that the plaintiff is entitled to judgment. Judgment for the jAaintiff. GOODSPEED V. BANK. (22 Conn. 530. 1853.) This was an action on the case, for a vexatious suit, brought against the East Haddam bank, described in the plaintiff's declara- tion, as a "corporation, established by the laws of the State of 444 GOODSPEED V. BWK. [CHAP. XI. Connecticut, with power to sue and be sued." The declaration alleged that the defendants, on the 24th day of January, 1849, without probable cause, and with a malicious intent unjustly to vex, harass, embarrass, and to trouble the plaintiff, caused to be issued against him a writ of attachment, in due form of law, directed to the sheriff of Middlesex County, his deputy, or either constable of the town of East Haddam, in said county, commanding them to attach, to the value of five thousand dollars, the goods or estate of the present plaintiff, and for want thereof," to attach his body; alleging in their declaration, in said suit, that the plaintiff had made certain false, deceitful, and fraudulent representations, with the intention of defrauding, and whereby the plaintiffs in said suit had been defrauded, to their damage, to the amount of five thou- sand dollars. It then recited the writ and declaration, which were founded on certain alleged fraudulent representations, made for the purpose of procuring the discount of certain notes by said bank, the makers and indorsers of which were insolvent at the time of such discount, and so known to be by the plaintiff; and proceeded to allege, that, before the superior court for the county of Middlesex, on the fourth Tuesday of February, 1850, said bank still prosecut- ing said suit, with the same intent as before averred, the defendant therein, upon a full trial of said cause, upon the general issue, by a verdict of the jury and the judgment of said court, was found not guilty, and wholly acquitted of the charges and pretended causes of action in said suit, and recovered a judgment therein for his costs. The declaration contained an allegation of the want of probable cause, and concluded with the usual averment of damage to the plaintiff. The cause came on for trial before the jury, at Haddam, at the August term, 1852. The plaintiff, to prove the allegations in his declaration, intro- duced in evidence the record of the court in the cause referred to in his declaration, showing the institution and prosecution of said suit, by the defendants, and the final determination thereof in favor of the present plaintiff; and to show that said suit was instituted and prosecuted by said bank, without probable cause, and maliciously, to the injury of the plaintiif, several witnesses were introduced, and also the record of the court in the cause referred to in the plaintiff's declaration. After the plaintiff had produced all his Evidence, and rested his case, the defendants moved for judgment, as in case of nonsuit, and the court being of opinion that the plaintiff had failed to make out a prima facie case, granted the motion of the defend-. ants, and ordered a judgment, as in case of nonsuit, to be entered in said cause. The plaintiff moved to set aside such nonsuit, which the court refused to grant. Whereupon, the plaintiff, by motion in error, brought the case before this court. C:iAP. XI.] GOODSPEED V. BANK. 445 Chukch, C. J.: — This action is based upon fhe provisions of our statute, entitled, "An act to prevent vexatious suits," and is subject to the same general principles as are actions on the case for malicious prosecu- tions, at common law. The plaintiff alleges, that the defendants, the East Haddam Bank, a body politic and corporate, without probable cause, and with a malicious intent unjustly to vex, harass, embarrass, and trouble the plaintiff, commenced by a writ of attachment, and prosecuted against him, a certain vexatious suit or action for fraudulent repre- sentations, to the injury of said bank, and which action resulted in a verdict and judgment against the bank, and in favor of the present plaintiff. On the trial of this cause, by the Superior Court, the defendants moved for a nonsuit, on the ground that the plaintiff by his evi- dence had failed to make out a prima facie case; which motion the court granted, and judgment of nonsuit was entered against the plaintiff, which he now moves to set aside. The judgment of the Superior Court, in granting the nonsuit, as we understand, was founded solely upon the ground that a corpora- tion aggregate was not, by law, liable for such a cause of action as was set up by the plaintiff, in his declaration, — at least, no other ground of nonsuit or objection to the plaintiff's action had been argued before us. And, therefore, irrespective of the evidence de- tailed in the motion, we confine ourselves to what we suppose to be the sole question in the case. We assume that the plaintiff has sustained the damage he claims, by reason of the prosecution of the vexatious suit, and the question is, has he a legal remedy against the bank? The claim of the defendants is, that the remedy for this injury is to be sought against the directors of the bank, or the individuals, whoever they might have been, by whose agency the vexatious suit was prosecuted, and not against the corporation. We think, that, to turn the plaintiff round to pursue the proposed remedy, would be trifling with him and with his just rights, and would be equivalent to declaring him remediless; and, in this case, at least, that there was a wrong where there is no remedy. It is notorious that, ordi- narily, the action of bank directors is private, —that their records do not disclose the names of the individuals supporting or opposing any resolution or vote, and if they do, that the offending persons may be irresponsible and insolvent. The language of Tilghman, C. -T., in a case very similar to the present, in which it was urged that a corporation was not liable for a suit, but only the individuals committing it, is applicable here "This doctrine," he said, "was fallacious in principle, and mischievous in its consequences, as it tends to introduce actual wrongs and ideal remedies; for a turnpike company might do great injury, by means of laborers having no 446 GOODSPESD V. BANK. [CIIAP. XI. property to answer damages," &c. (4 Serg. & Eawle, 16). To the same effect is the language of Shaw, C. J., in the case of Thayer v. Boston (19 Pick. 611). He says, "The court are of opinion, that this argument, if pressed to all its consequences, and made the foundation of an inflexible practical rule, would often lead to very unjust results." Still more explicit is the opinion of the court, in the case of The Life and Fire Insurance Company v. Mechanics^ Fire Insurance Com- pany (7 Wend. 31). There, as here, it was contended, that the act was unauthorized, and must therefore be considered as the act of the officers of the company, and not of the company itself. And the court says, "This would be a most convenient distinction for cor- porations to establish: that every violation of their charter or assumption of unauthorized power, on the part of their officers, although with the full knowledge and approbation of the directors, is to be considered the individual act of the officers, and is not to prejudice the corporation itself. There would be no possibility of ever convicting a corporation of exceeding its powers, and thereby forfeiting its charter, or incurring any other penalty, if this prin- ciple could be established." The real nature-, as well as the law, of corporations, within the last half century, has been in a progress of development, so that it has grown up, from a few rules and maxims, into a code. Tn the days of Blackstone, the whole subject of corporations, and the laws affecting them, were discussed within the compass of a few pages; now, volumes are required for this purpose. These institutions have so multiplied and extended within a few years, that they are connected with, and in a great degree influence, all the business transactions of this country, and give tone and character, to some extent, to society itself. We do not complain of this ; but we say, that, as new relations from this cause are formed, and new interests created, legal principles of a practical rather than of a technical or theoretical character, must be applied. And so, m the course of this progress, it has been. It was said by Lord Coke, "that corporations had neither souls nor bodies; " and by somebody else, "that they had no moral sense; " and from thence, or for some other equally insufficient reason, it was inferred, and so repeatedly adjudged, that they could not be subjected in actions of trover, trespass, or disseisin, and indeed, that they could not com- mit wrongs, nor be liable for torts, with a few exceptions, as we shaU see. Had Lord Coke lived m this age and country, he would have seen, that corporations, instead of being the soulless and uncon- scious beings he supposed, are the great motive powers of society, governing and regulating its chief business affairs; that they act, not only upon pecuniary concerns, but, as having conscience and motives, to an almost unlimited extent, they are entrusted with CHAP. XI.] GOODSPEED V. BANK. 447 the benevolent and religious agencies of the day, and are con- stituted trustees and managers of large funds promotive of such objects. The views of the old lawyers regarding the real nature, power, and responsibilities of corporations, to a great extent are exploded in modern times, and it is believed, that now these bodies are brought to the same civil liabilities as natural persons, so far as this can bo done practicallj-, and consistently with their respective charters. And no good reason is discovered why this should not be so; nor why it cannot be done, in a case like this, without violating any sensible or useful principle. And although it was truly said, and for obvious reasons, that corporations could not be punished corporally, as traitors or felons, yet they may be, and have often been, subjected to fines and forfeit- ures, for malfeasance, and even to the loss of corporate life, by the revocation of their charters. And now it seems to be generally admitted, that they are civilly responsible, in their corporate capaci- ties, for all torts which work injury to others, whether acts of omis- sion or commission; for negligence merely, and for direct violence. Yarborough v. Bank of Eng. (16 East, 6) ; Beach v. Fulton Bank (7 Cowen, 486) ; Foster v. Essex Bank (17 Mass. 503) ; Riddle v. Proprietors of Locks and Canals (7 id. 187); Chestnut Hill Turnpike V. Rutter (4 Serg. & Rawle, 16); 4 Hammond, 500, 514; 10 Ohio Rep. 159; Dater v. Troy Turnpike Co. (2 Hill, 630); (23 Pick. 139), 2 Bl. Com. 476; Ang. & Ames, 392; 2 Kent Com. 290; 1 Sw. Dig. 75; 15 Ohio Rep. 476; 18 i'L 229. And indeed, no actions are now more frequent, in our courts, than such as are brought against corporations, for torts, either in case or trespass. Hooker v. New Haven & Northampton Canal Co. (14 Conn. 146), and the cases there cited, and many others since reported. In a late case in England, it has been adjudged, adversely to former opinions, that an action of assault and battery may be sustained against a cor- poration. Eastern Counties Railway Co. v. Broom (2 Eng. Law & Equity, 406). And it was decided long ago, that a corporation was liable to an action for a false return to a writ of mandamus, alleged to have been made falsely and maliciously. 16 East, 8; 14 Eng. Com. Law, 159; 3 Mees. & Wels. 244; Ang. & Ames, ch. 10, sec. 9. In all the cases, wherein it has been holden that corporations may be subjected to civil liabilities for torts, the acts charged as such have been the acts of their constituted authorities, — either the di- rectors, or agents, or servants, employed by them. We do not intend here to discuss or decide the frequently suggested question, how far, or when a principal, whethe]' an individual person or a corporation, becomes responsible for the wilful or malicious act of his servant or agent, as distinguished from his mere negligence, although it has been brought into the argument of this ease, because we do not 44S GOODSPEED V. BANK. [CHAP. XI. admit that the present case falls within the operation of the rule of law on this subject, even as the defendants claim it. The truth is, the action complained of as vexatious was instituted by the bank, in the name of the bank, and, as should be presumed, in just the same way and by the same agencies and means, as all other suits by these institutions are commenced and prosecuted, and nothing appears here, showing any different procedure than is usual, in actions by corporations. The action was brought for the sole benefit of the bank, for the recovery of money to which the bank was entitled, if anybody, and for an injury sustained by the bank in its corporate capacity. The bank, by its charter and the general laws, had power to sue for such a cause of action ; and what seems to us yet more conclusive, is, that if this suit was originated by the misconduct of directors, or any officer of the company, it has never been repudiated, and may, by the acquiescence of the bank, be con- sidered as sanctioned by it. Ang. & Ames, ch. 10, sec. 9. No act of agency appears here, which does not appear in all suits brought by corporations, and nothing to show that any individuals are, or ought to be, made responsible for the institution and prosecution of the groundless suit, as distinct from the corporation itself. The doctrine, that principals are not responsible for the wilful mis- conduct of their agents, as seems to have been sanctioned in the cases of McManus v. Cricket (1 East, 106), Wright v. Wilcox (19 Wend. 343), Vanderbilt v. Richmond Turnpike Co. (2 Comstock, 470); but denied by Chief Justice Reeve in his Domestic Relations, 357, we think, has never been applied to such a case as this, but only to the acts of agents or servants, properly so called ; or such as act under instructions and a delegated authority, — • persons whose duty it is to obey, not to control; as attorneys, cashiers, or others employed by the corporation. The president and directors of a bank, instead of being mere servants, are really the controlling power of the corpora- tion, — the representatives, standing and acting in the place of the interested parties. Indeed, they are the mind and soul of the body politic and corporate, and constitute its thinking and acting capacity. In the case of Burrell v. The Nahant Bank (2 Met. 163), Shaw C. J., expresses and defines the true rule of appreciating the character and powers of bank directors. He says, "We think the exception takes much too limited and strict a view of the powers of bank directors. A board of directors is a body recognized by law. By the laws' of these corporations, and by the usage, so general and uniform as to be regarded as a part of the law of the land, they have the general super.intendence and active management of all the concerns of the bank, and constitute, to all purposes of dealing with others, the cor- poration. We think they do not exercise a delegated authority in the sense to which the rule applies to agents and attorneys," &c. The same principle is very distinctly recognized, in the cases of Bank Commissioners v. Bank of Buffalo (6 Paige's Ch. 502), and CH.-VP. XI.] GOODSPEED V. BANK. 449 Life and Fire Ins. Co. v. Mechanics' Fire Ins. Co. (7 Wend. 31). It has been said, that the stockholders constitute the corporation. It may be so, to the extent to which they have the power to act, — and this is only in the choice of directors, and no more. Beyond this, they can only be considered as the persons for whose ultimate individual interests the corporation acts. The directors derive all their power and authority from the charter and laws, and none from the stockholders. But the fear is expressed, that, by thus considering and treating the character and acts of the directors of a bank or other corpora- tion, the stockholders are subject to loss, without fault of their own. This may to some extent be true; but the protectiou of the law in this matter is not to be confined to stockholders; the public and strangers have rights also. The stockholders are volunteers^ and they have consented to assume the risk of the faithful or unfaithful^ management of the corporation. If, in this case, one of two inno- cent persons or classes is to suffer, which should it be, — that one which is brought in to suffer loss, without its consent or power to prevent it, or the one which has created the power and selected the persons to enforce it ? But, after all, the objection to the remedy of this plaintiff against the bank, in its corporate capacity, is not so much, that, as a cor- poration, it cannot be made responsible for torts committed by its directors, as that it cannot be subjected for that species of tort which essentially consists in motive and intention. The claim is, that, as a corporation is ideal only, it cannot act from malice, and therefore, cannot commence and prosecute a malicious or vexatious suit. This syllogism, or reasoning, might have been very satisfac- tory to the schoolmen of former days; more so, we think, than to the jurist who seeks to discover a reasonable and appropriate remedy for every wrong. To say that a corporation cannot have motives, and act from motives, is to deny the evidence of our senses, when we see them thus acting, and effecting thereby results of the greatest importance, every day. And if they can have any motive, they can have a bad one, — they can intend to do evil, as well as to do good. If the act done is a corporate one, so must the motive and intention be. In the present case, to say that the vexatious suit, as it is called, was instituted, prosecuted, and subsequently sanctioned by the bank, in the usual modes of its action; and still to claim, that, although the acts were those of the bank, the intention was only that of the individual directors, is a distinction too refined, we think, for practical application. It is asked, how can the malice of a corporation be proved? It must be proved, it is said, as well as alleged, in an action for a mali- cious prosecution, as a distinct and essential fact; and the. declarations and admissions of individual members, whether directors or others, are not admissible to prove it. True, malice must be proved, and, as vor.. I. — 29 450 GOODSPEEn ?;. BANK. [chap. XI. we suppose, very much in the same manner as it is proved in other cases of a similar nature, against individual persons. The want of probable cause of action is proof of malice, and for aught we know, also, the records of the bank may show it. It is enough to say, in this, as in all other cases, that if the plaintiff cannot, in some legitimate way, prove the malice he has alleged, he cannot recover; but we have no right to assume it as a legal principle, that it cannot be proved. We do not know that it has ever been adjudged that a corporation is civilly responsible for a libel. But, among the great variety and objects of these institutions, it is probable that the newspaper press has come in for its share of the privileges supposed to be enjoyed under corporate powers. Proof of the falsehood of slanderous charges is evidence of malice, and which must, as in this case, be proved; but, would it be endured that an association, incorporated for the purpose suggested, could, with impunity, assail the charac- ter and break down the peace and happiness of the good and virtu- ous, and the law afford no remedy, except by a resort to insolvent and irresponsible type-setters, and for no better reason than that a corporatioA is only an ideal something, of which malice or intention cannot be predicated? And, if, as we have suggested, the directors are, for all practical purposes, the corporation itself, acting at least as its representatives, we can see no greater difficulty in proving their motives good or bad, than in thus proving the motives of other associated or conspiring bodies. We are sure, that this objection of the defendants was not discovered, or was not regarded as sufficient, nor the difficulty of proving malice upon a corporation felt, when the case of Merllls v. The Tariff Manufacturing Co. (10. Conn. R. 384), was tried at the circuit, and discussed and decided by this court. That was an action against a corporation for a malicious, injury, and the sole question in this court was, whether, by reason of the malicious intent, the company was liable for aggra- vated or vindictive damages; and it was holden to be thus liable, in a very elaborate opinion, drawn up, and strongly expressed, by Huntington, J. The interests of the community, and the policy of the law demand that corporations should be divested of every feature of a fictitious character which shall exempt them from the ordi- nary liabilities of natural persons, for acts and injuries committed by them and for them. Their immunities for wrongs are no greater than can be claimed by others, and they are entitled to an equal protection, for all their rights and privileges, and no more. For the reasons suggested, a majority of the court is of opinion, that the nonsuit granted by the Superior Court should be set aside, and a new trial granted. In this opinion, Waite, J., concurred. Ellsworth, J. : — I do not feel quite satisfied that the plaintiff can recover against CHAP. XI.] GOODSPEED V. BANK. 451 tue defendants, for a malicious suit brought, in fact, by the directors of the bank. Certainly, no such action has been found in the books, though 1 admit there are analogous cases which show that courts have gone very far in subjecting corporations for wrongs, by their agents, but I think there are none going to the extent now claimed. An indispensable requisite in an action for a malicious suit, is malice, — malice in fact, — a wicked criminal purpose. An unsuc- cessful suit is not sufficient. It must have originated in malice; and this idea of actual, as contradistinguished from legal malice is in my judgment deserving of the highest consideration. It gives character to the action. The language of Greenleaf (2 Greenl. Ev. .S67) is, "To sustain this averment (malice), the charge must be shown to have been wilfully false." Now I ask, in view of this essential requisite, if any such malicious intent can be said to belong to a body of stockholders (the corporation), whose affairs are conducted by their agents, under the provisions of the charter of the company, and who, themselves, are in no way or manner really implicated in the supposed malicious intent? Again I ask, whose malice is the ground of the action? not the malice of the president and cashier, — not that of the directors ; this is not even admissible in proof against the company. Whose malice then? Certainly not that of the ideal corporation ; for this is a mere ficti- tious entity, and cannot entertain malice. It must never be forgot- ten, that malice, as already said, is the very ground and gist of the action, and no case has been read to us, of a recovery against a cor- poration, v/here there was not a perfect cause of action, independent of any malicious intention. Doubtless the directors may be guilty of malice, and of a malicious injury; but to proceed further, and subject stockholders, for their malice, is quite another question. It is likewise to be kept in mind, that this action does not belong to that class of actions against corporations or other principals for injuries sustained, through a false confidence reposed by strangers in the supposed authority of agents. This action is for an original unauthorized wrong of the directors, and is in no way the result of any false confidence. It is a mere malicious contest between the directors themselves. The stockholders may well say: We cannot be involved in this malicious contest. We entertain no malice against Mr, Goodspeed, and no one can entertain it for us. I think it has been incorrectly assumed, by counsel, that the mali- cious suit was brought by the East Haddam Bank. It was, in fact, brought by the major vote of the directors. They made use of the company name for their own malicious purpose, while they were only intrusted with the powers delegated, for a lawful and laudable purpose. The company do not at all admit that they are repre- sented in this instance, — no more than they would, had the direc- tors voted that the cashier should inflict personal chastisement upon Mr. Goodspeed, wherever he could find, him. 452 GOODSPEEI) V. BANK. [CHAP. XI. But if this objection is unsound and capable of being surmounted, there is still another, by no means to be overlooked. The act of the defendants is conceded to be wilful and designed; indeed, this is the very ground of the action — a malicious wrong. But no principle of law is better settled, than that the principal is not liable for the intentional torts of the agent. For his negligence he is liable, but nothing more. To go beyond this, and make hini liable for criminal conduct, though in a civil form, would jeopardize the safety of all employers, whether corporations or others, or would prevent the employment of all agents, because of the great responsibility. It may be politic to hold principals to greater carefulness on the part of their agents, or servants, but this is all that has hitherto been found expedient or necessary. If now this admitted rule of law, as a general rule, is to be applied to this case, it puts an end to the controversy at once ; for a more palpable or wilful wrong, or tortious act, cannot be imagined, than the officers of a bank maliciously and without cause using the corporate name to oppress and destroy a fellow -director. Of course, I do not say this is so in this instance; but the plaintiff makes this assumption, in order to recover on this declaration. That the above principle of law is applicable to cor- porations, as well as to other principals who employ agents, is most learnedly argued, and fully decided in the court of appeals of the State of New York: Vanderbilt v. The Richmond Turnpike Co. (2 Com. 481), which was the case of an intentional collision of steamboats in the harbor of New York. Suppose, in the late catastrophe at Norwalk, the engineer had designedly run the train into the creek, to sink a steamboat passing underneath; would the company have been liable to the owners of the steamboat? True, they would have been liable to the passengers in the cars, because they undertook to carry them safely to the end of the route ; but there is no such undertaking as to strangers. Sup- pose the engineer had intentionally run over a man on the road, to break his bones ; would the company be liable? Suppose the presi- dent and directors had themselves conducted the engine with the same intention, and had done the same injury, would the company be liable? Is a town liable for a malicious suit by its selectmen? Or a savings bank, for the malicious conduct of its trustees? I answer, in all these cases, no. It is asked, will you not hold cor- porations to the same rule of justice and law, as you do all others? I answer, yes, where the cases are parallel. Now, this interroga- tory assumes two things, which are not entirely clear or conceded, viz., that you can pass by the only actual malice in the case, and assume malice in the stockholders, or corporation, who are avowedly Ignorant and innocent; and further, that the principal is liable for the wilful wrongs perpetrated by his agent. Now, I go for the same rule to all, and therefore, I hold, that those who in fact do the wrong must answer for it. If a different view of the case is taken, CHAl'. XI.] RAILROAD COMPANY V. QUIGLEY. 453 and corporations are held liable for the malicious acts of the direc- tors, and other inferior agents, I insist, that a different rule is made to apply to them from others, and that the property of stockholders, vested under the exact limits and provisions of the charter, will be subjected to very great and alarming hazards. These are, briefly, my views, expressed with no little distrust, since some of my brethren feel well satisfied the plaintiff is entitled to recover. In this opinion, Hinmax, J., concurred. Storks, J., having tried the cause in the court below, was disqualified. Nonstdt set aside, and new trial to he granted. RAILROAD COMPANY v. QUIGLEY. (21 //■ow. (t/ 5.) 202. 1858.) Mr. Justice Campbell delivered the opinion of the court : — The plaintiff (Quigley), a citizen of Delaware, complained of the defendants, " a body corporate in the State of Maryland, by a law of the General Assembly of Maryland," for the publication of a libel by them, in which his capacity and skill as a mechanic and builder of depots, bridges, station-houses, and other structures for railroad com- panies, had been falsely and maliciously disparaged and undervalued. The defendants pleaded the general issue. On the trial of the cause, it appeared that in 1854, the president and directors, then, in charge of the affairs of the defendants, instituted an inquiry into the admin- istration and management of a person who had been the superintend- ent of their railroad for ten years. Among other subjects, the nature of his connection and dealings with the plaintiff, who had likewise been in the service of the corporation as "general foreman of all their carpenters," engaged the attention of the committee of investigation. The president of the company, who conducted the inquiry before this committee on behalf of the corporation, seems to have been convinced that the superintendent had exhibited partiality for the plaintiff, and had allowed him extravagant compensation for service, and the privi- lege of free transit over the road for himself, his workmen, and freight, to the detriment of the company, and in breach of his duty as superintendent. The superintendent defended himself against these and other imputations, and produced testimony to the skill and fidelity of the plaintiff while in the service of the company ; also, to the value of his services, and to the effect that no unusual or im- proper favor had been .extended to him. The president of the company, in the course of the investigation, addressed a letter to an architect, who had some acquaintance with the plaintiff, to request his opinion of his skill as a mechanic, and 454 RAILEO AD. COMPANY V. QUIGLEY. [cHAP. XI. whether the services of the plaintiff could have had any peculiar value to a railroad company. The reply of this architect was very pointed and depreciative of the plaintiff, afifirming that "he was not entitled to rank as a third-rate workman," and " was unable to make the simplest geometrical calculations." All the testimony collected by the committee, as produced by the superintendent, was carefully reduced to writing, and printed ; first, for the use of the president and directors, and afterwards was submitted to the company at their meeting on the 8th of January, 1855, with a report, which exonerated in a great measure the superintendent from any malpractice in con- sequence of his relations with the plaintiff. The investigation was searching, and testimony, which, with the report of the committee, fills two printed volumes, was submitted to the company. The letter of the architect, in answer to the letter of the president, is printed in one of these volumes, and this publication is the libel complained of. Several of the directors testify they were not aware of the publica- tion, and evidence was adduced that the plaintiff had declared that the investigation had resulted in increasing his business. A verdict was returned in favor of the plaintiff. The defendants are a com- pany incorporated by the Legislatures of Delaware and Pennsylvania, as well as of Maryland, to construct a railroad to connect the three cities which contribute to form its name, and a portion of their directors and stockholders are citizens of Delaware. The defendants contend that they are not liable to be sued in this action; theirs is a railroad corporation, with defined and limited faculties and powers, and having only such incidental authority as is necessary to the full exercise of the faculties and powers granted by their charter ; that, being a mere legal entity, they are incapable of malice, and that malice is a necessary ingredient in a libel ; that this action should have been instituted against the natural persons who were concerned in the publication of the libel. To support this argument, we should be required to concede that a corporate body could only act within the limits and according to the faculties deter- mined by the act of incorporation, and therefore that no crime or offence can be imputed to it. That although illegal acts might be committed for the benefit or within the service of the corporation, and to accomplish objects for which it was created by the direction of their dominant body, — that such acts, not being contemplated by the charter, must be referred to the rational and sensible agents who per- formed them, and the whole responsibility must be limited to those agents ; and we should be forced, as a legitimate consequence, to con- clude that no action ex delicto or indictment will lie against a cor poration, for any misfeasance. But this conclusion would be entirely inconsistent with the legislation and jurisprudence of the States of the Union relative to these artificial persons. Legislation has encouraged their organization, as they concentrate and employ the intelligence, energy, and capital of society, for the development of enterprises of CHAP. XI.] KAILEOAD COMPANY V. QUIGLEY. 455 public utility. There is scarcely an object of general interest for which some association has not been formed, and there are institu- tions whose members are found in every part of the Union, who con- ti'ibute their efforts to the common object. To enable impersonal beings — mere legal entities, which exist only in contemplation of law — to perform corporal acts, or deal with personal agents, the principle of representation has been adopted as a part of their consti- tution. The powers of the corporation are placed in the hands of a governing body selected by the members, who manage its affairs, and who appoint the agents that exercise its faculties for the accomplish- ment of the object of its being. But these agents may infringe the rights of persons who are unconnected with the corporation, or who are brought into relations of business or intercourse with it. As a neces- sary correlative to the principle of the exercise of corporate powers and faculties by legal representatives, is the recognition of a corporate responsibility for the acts of those representatives. With much wariness, and after close and exact scrutiny into the nature of their constitution, have the judicial tribunals determined the legal relations which are established for the corporation by their governing body, and their agents, with the natural persons with whom they are brought into contract or collision. The result of the cases is, that for acts done by the agents of a corporation, either in con- tractu or in delicto, in the course of its business, and of their employ- ment, the corporation is responsible, as an individual is responsible under similar circumstances. At a very early period, it was decided in Great Britain, as well as in the United States, that actions might be maintained against corporations for torts ; and instances may be found, in the judicial annals of both countries, of suits for torts aris- ing from the acts of their agents, of nearly every variety. Trespass quare clausum fregit was supported in 9 Serg. and R. 94 ; 4 Mann. &. G. 452 ; Assault and Battery, 4 Gray, Mass. R. 465 ; 6 Ex. Ch. 314. For damages by a collision of railcars and steamboats, 14 How. 465 ; 19 How. 543. For a false representation, 34 L. and Eq. R. 14 ; 11 Wheat. 59. The case of the National Exchange Co. of Glasgow v. Drew (2 Mac- queen H. of L. Cas. 103), was that of a company in failing circum- stances, whose managers sought to appreciate its stock by a fraudulent representation to the company, and a publication of the report as adopted by it, that its affairs were prosperous. Two of its stock- holders were induced to borrow money from the company to invest in its stock. The question in the cause was, whether the company was responsible for the fraud. In the House of Lords, upon appeal, Lord St. Leonards said: "I have come to the conclusion, that if representations are made by a company fraudulently, for the purpose of enhancing the value of stock, and they induce a third person to purchase stock, those representations so made by them bind the company. I consider representations by the directors of a company 456 RAILROAD COMPANY V. QUIGLEY. [OHAP. XI. as representations by the company, although they may be represen- tations made to the company." . . . The report " becomes the act of the company by its adoption and sending it forth as a true repre- sentation of their affairs, and if that representation is made use of in dealing with third persons, for the benefit of the company, it subjects them to the loss which may accrue to the party who deals, trusting to those representations." It would be dififtcult to furnish a reason for the liability of a cor- poration for a fraud, under such circumstances, that would not apply to sustain an action for the publication of a libel. The defendants are a. corporation, having a large capital distrib- uted among several hundred of persons. Their railroad connects large cities, and passes through a "fertile district. Their business brings them in competition with companies and individuals concerned in the business of transportation. They have a numerous body of officers, agents, and servants, for whose fidelity and skill they are responsible, and on whose care the success of their business depends. The stock of the company is a vendible security, and the community expects statements of its condition and management. There is no doubt that it was the duty of the president and directors to investi- gate the conduct of their officers and agents, and to report the result of that investigation to the stockholders, and that a publication of the evidence and report is within the scope of the powers of the corporation. But the publication must be made under all the conditions and re- sponsibilities that attach to individuals under such circumstances. The Court of Queen's Bench, in Wliitefield v. South East. R. B. Co. (May, 1858), say : " If we yield to the authorities which say that, in an action for defamation, malice must be alleged, notwithstanding authorities to the contrary, this allegation may be proved by showing that the publication of the libel took place by order of the defend- ants, and was therefore wrongful, although the defendants had no ill- will to the. plaintiffs, and did not mean to injure them." And the court concluded : " That for what is done by the authority of a cor- poration aggregate, a corporation ought as such to be liable, as well as the individuals who compose it." The question arises, whether the publication is excused by the rela- tions of the president and directors, as a committee from their board, to the corporation itself. It cannot be denied that the inquiries directed by those officers were within the scope of their power, and in the performance of a moral and legal duty, and that the communi- cation to their constituents of the evidence collected by them, and their conclusions upon the evidence, was a privileged communication in the absence of any malice or bad faith. But the privilege of the officers of the corporation as individuals, or of the corporate body, does not extend to the preservation of the report and evidence in the permanent form of a book for distribution among the persons belong- CHAP. Xl.J RAILROAD COMPANY V. QUIGLEY. 457 iQg to the corporation or the members of the community. It has never been decided that the proceedings of a public meeting, though it may have been convened by the authority of law, or of an associa-. tion engaged in an enterprise of public utility, could be reported in a newspaper as a privileged publication. But a libel contained in such proceedings, if preserved in the form of a bound volume, might be attended with more mischief to private character than any publica- tion in a newspaper of the same document. The opinion of the court is, that in so far as the corporate body authorized the publication in the form employed, they are responsible in damages. The Circuit Court instructed the jury, — 1. If the jury iind, from the evidence in this case, that the defend- ants, by the president and directors of said company, published the letter from John T. Mahoney to S. M. Felton, president, etc., dated March 3, 1854, in the declaration mentioned, and that any or all of the statements in the said letter respecting the plaintiff in his trade and occupation are false ; and shall further find, that the said presi- dent and directors, at the annual meeting of the stockholders of said company, held 8th January, 1855, reported to the said stockholders their action in the premises, and that the proceedings of the com- mittee of investigation (which contained the said letter) were then being printed, and, as soon as printed, would be distributed to the stockholders, and that said report was accepted by the stockholders ; and if the jury shall further find, that, after the meeting of the stock- holders had adjourned, the president and directors of said company distributed the book containing the said letter among the stockhold- ers of this company, or any of them, then the jury may find for the plaintiff. 2. And if the jury find for the plaintiff under the first instruction, they are not restricted in giving damages to the actual positive injury sustained by the plaintiff, but may give such exemplary damages, if any, as in their opinion are called for and justified, in view of all the circumstances in this case, to render reparation to plaintiff, and act as an adequate punishment to the defendant. The first instruction is erroneous, because th^ publication to which the court referred as blameworthy, and to authorize the jury to find a verdict against the defendant, took place after the commencement of this suit. The second instruction contains the same error, and is objection- able for the additional reason that the rule of damages is not accu- rately stated to the jury. In Day v. Woodivorth (13 How. S. C. R. 371), this court recognized the power of a jury in certain actions of tort to assess against the tortfeasor punitive or exemplary damages. Whenever the injury complained of has been inflicted maliciously or wantonly, and with circumstances of contumely or indignity, the jury are not limited to the ascertainment of a simple compensation for the wrong committed 458 RAILROAD COMPANY V. QUIGLEY. [CHAP. XI. against the aggrieved person. But the malice spoken of in this rule is not merely the doing of an unlawful or injurious act. The word implies that the act complained of was conceived in the spirit of mis- chief, or of criminal indifference to civil obligations. Nothing of this kind can be imputed to these defendants. The letter of Mahoney was reported to the company with other evidence that rendered it innocuous, and its statements were never adopted by them. The plaintiff has repeatedly affirmed that he had derived an advantage from the investigation by the company ; and, upon reading all the evidence, as reported and published, we do not perceive how an impression unfavorable to him could have been made by it upon any candid mind. The circumstances under which the evidence was collected, and the publication made, repel the presump- tion of the existence of malice on the part of the corporation, and so the jury should have been instructed. The averments in the declaration of the facts proper to give the Circuit Court jurisdiction over the parties, are identical with those which were fully considered by this court, and received the sanction of two-thirds of the judges in Marshall v. The Baltimore and Ohio B. R. Co. (16 How. 314). A repetition of the discussion that took place and was reported with that case is deemed to be unnecessary. The only plea filed in this cause is the general issue. That plea raises an issue upon the merit of the complaint, and leaves the juris- dictional allegations without a traverse. No question involving the capacity of the parties in the cause to litigate in the Circuit Court can be raised before the jury under such pleadings. Conrad v. Atlantic Insxcrance KJo. (1 Pet. 386) ; Evans v. Gee (11 Pet. 80) ; Owings v. Wickliffe (17 How. 47). The testimony that the States of Delaware and Pennsylvania had respectively granted a corporate charter to the same corporators that form the corporation in Maryland, for the extension of the railroad through those States, to connect the cities that appear in the name of the corporation, and the testimony that some of the directors of the sev- eral corporations reside in Delaware, in the condition of the plead- ings, was immaterial and irrelevant. For the errors we have noticed, the judgment of the Circuit Court is reversed, and the cause remanded. CHAP. XII.J MUMMA V. POTOMAC COMPANY. 459 CHAPTER XII. DISSOLUTION OF A CORPOKATION. MUMMA V. POTOMAC COMPANY. (8 Peters, 281. 1834.) .Stoey, Justice, delivered the opinion of the court: — This is a writ of error to the circuit court of the District of Columbia, for the county of Washington. The case presented on the record is shortly this. The plaintiff in error, Muinma, in June 1818, recovered a judgment against the Potomac Company, for the sum of $5,000. No steps were taken to enforce the payment of the judgment, nor any further proceedings had in relation thereto, until the 18th day of April, 1828, on which day a writ of scire facias was issued from the clerk's office of said court, against the said Potomac Company to revive said judgment, which case was continued, by consent of parties, from term to term, until December term of said court in the year 18.30, at which term the following plea and state- ment were filed by consent of parties: "The attorneys upon the record of the said defendants, now here suggest and show to the court, that since the rendition and record of said judgment, the said Potomac Company, in due pursuance and exe- cution of the provisions of the charter of the Chesapeake and Ohio Canal Company, enacted by the States of Maryland and Virginia, and by the Congress of the United States, have duly signified their assent to said charter, etc., and have duly surrendered their charter, and con- veyed, in due form of law, to the said Chesapeake and Ohio Canal Company, all the property, rights, and privileges by them owned, possessed, and enjoyed under the same; which surrender and transfer from said Potomac Company have been duly accepted by the Chesa- peake and Ohio Canal Company, as appears by the corporate acts and proceedings of said company, and the final deed of surrender from the said Potomac Company dated on the 1.5th day of August, 1828, duly executed and recorded in the several counties of the States of Virginia and Maryland, and the District of Columbia, wherein said Potomac Company held any lands, and wherein the canals and works of said company were situated; which said corporate acts and proceedings, the said attorneys here bring into court, etc., whereby the said attor- 460 MTJMMA V. POTOMAC COMPANY. [CHAP. XII. neys say, the charter of the said Potomac Company became, and is vacated and annulled, and the company and the corporate franchises of the same are extinct, etc." Whereupon the following statement and agreement were entered into and signed by the counsel for both parties, and made a part of the record. " The truth of the above suggestion is admitted ; and it is agreed to be submitted to the court, whether, under such circum- stances, any judgment can be rendered against the Potomac Company upon this scire facias, reviving the judgment in said writ mentioned, and that reference for the said corporate acts and proceedings, and the deed in the above suggestion mentioned, be had to the printed collection of acts, etc., printed and published by authority of the president and directors of the Chesapeake and Ohio Canal Company in 1828." Upon this statement and agreement, the circuit court gave judgment, that the plaintiff take nothing by his writ; and the question now is, whether this judgment is warranted by law. • Two points have been made at the bar. 1. That the corporate existence of the Potomac Company was not so totally destroyed by the operation of the deed of surrender, as to defeat the rights and remedies of the creditors of the company. 2. That the deed of sur- render violates the obligation of the contracts of the company, and that the legislative acts of Virginia and Maryland, though confirmed by the Congress of the United States, are on this account void; and can have no legal effect. We think, that the agreement of the parties completely covers the first point, and precludes any examination of it. That agreement admits the truth of the suggestions in the plea of the attorneys for the Potomac Company; and by that it is averred, that the charter of the Potomac Company was duly surrendered to the Chesapeake and Ohio Canal Company, and was duly accepted by the latter; and that thereby the charter of the Potomac Company became, and is, vacated and annulled. And, if we were at liberty to consider the last aver- ment, not as an averment of a fact, but of a conclusion of law, the same result would follow; for the 13th section of the Act of Virginia, of January, 1824, incorporating the Chesapeake and Ohio Canal Company, declares, that upon such surrender and acceptance, "the charter of the Potomac Company shall be, and the same is hereby vacated and annulled ; and all the powers and rights thereby granted to the Potomac Company shall be vested in the company hereby incorporated. " Unless, then, the second point can be maintained, there is an end of the cause; for there is no pretence to say, that a scire facias can be maintained, and a judgment had thereon, against a dead corpora- tion, any more than against a dead man. We are of opinion, that the dissolution of the corporation, under the acts of Virginia and Maryland (even supposing the act of confirmation of Congress out of the way), cannot, in any just sense, be considered, within the clause CHAP. XU.]- MUMMA V. POTOMAC COMPANY. 461 of the Constitution of the United States on this subject, an impairing of the obligation of the contracts of the company by those States, any more than the death of a private person can be said to impair the obligation of his contracts. The obligation of those contracts sur- vives ; and the creditors may enforce their claims against any prop- erty belonging to the corporation, which has not passed into the hands of bona fide purchasers; but is still held in trust for the com- pany, or for the stockholders thereof, at the time of its dissolution, in any mode permitted by the local laws. Besides, the 12th section of the act incorporating the Chesapeake and Ohio Canal Company, makes it the duty of the president and directors of that company, so long as there shall be and remain any creditor of the Potomac Com- pany who shall not have vested his demand against the same in the gtock of the Chesapeake and Ohio Canal Company (which the act enables him to do), to pay to such creditor or creditors, annually, such dividend or proportion of the net amount of the revenues of the Potomac Company, on an average of the last five years preceding the organization of the said Chesapeake and Ohio Canal Company, as the demand of the said creditor or creditors, at that time, may bear to the whole debt of f 175,800 (the supposed aggregate amount of the debts of the Potomac Company). So that here is provided an equitable mode of distributing the assets of the company among its creditors, by an apportionment of its revenues, in the only mode in which it could be practically done upon its dissolution; a mode analogous to the distribution of the assets of a deceased insolvent debtor. Independently of this view of the matter, it would be extremely difficult to maintain the doctrine contended for by the plaintiff in error, upon general principles. A corporation, by the very terms and nature of its political existence, is subject to dissolution, by a surrender of its corporate franchises, and by a forfeiture of them for wilful misuser and non-user. Every creditor must be presumed to understand the nature and incidents of such a body politic, and to contract with reference to them. And it would be a doctrine new in the law, that the existence of a private contract of the corpora- tion should force upon it a perpetuity of existence contrary to public policy, and the nature and objects of its charter. Without going more at large into the subject, we are of opinion that the judgment of the circuit court ought to be affirmed. But as there is no such corporation in esse as the Potomac Company, there can be no costs awarded to it. This cause came on to be heard, on the transcript of the record from the circuit court of the United States for the District of Columbia, holden in and for the county of Washington, and was argued by counsel; on consideration whereof, it is ordered- and adjudged by this court, that the judgment of the said circuit court in this cause be and the same is hereby affirmed without costs. 462 THORNTON V. RAILWAY COMPANY. '[CHAP. XII. THOENTON v. EAILWAY COMPANY. (123 Mass. 32. 1877.) Bill in Equity, filed February 2, 1877, against the Marginal Freight Kailway Company and the Union Freight Railroad Com- pany, alleging that the plaintiff, at July term, 1875, of the Superior Court for the county of Suffolk, recovered judgment against the ^larginal Freight Railway Company, for money due from it to him before May 6, 1872, upon which judgment execution was duly issued, and remaiued unsatisfied; that the charter of the Marginal Freight Railway Company was repealed or attempted to be repealed, by the St. of 1872, c. 342, passed May 6, 1872, at which time it owned cer- tain railroad tracks in the streets of Boston ; that the Union Freight Railroad Company was incorporated by the same statute, and by vir- tue thereof took these tracks; that the Marginal Freight Railway Company, being dissatisfied with the estimate duly made of its dam- ages by reason of such taking, filed a petition to the Superior Court for a jury to estimate such damages, which application was still pending; that the interest of the Marginal Freight Railway Com- pany in its claim for damages could not be come at to be attached or taken on execution in an action at law against it; and that the Mar- ginal Freight Railway Company neglected to press its application for a jury. The prayer of the bill was that the Marginal Freiglit Railway Company might be ordered to prosecute, or to permit the plaintiff to prosecute, that petition to final judgment; that the Union Freight Railroad Company might be ordered to pay to the plaintiff so much of such judgment as might be recovered against it as might be neces- sary to satisfy the plaintiff's debt; that the defendants might be restrained from discontinuing or settling the action without first paying to the plaintiff the amount of his debt ; and for further relief. The Union Freight Railroad Company demurred, on the ground that the plaintiff's judgment against the Marginal Freight Railway Company was void, and that the bill could not be maintained against either defendant, because the charter of that corporation was repealed more than three years before the recovery of the judgment or the bringing of the bill; and for want of equity. The Marginal Freight Railway Company file an answer, contain- ing a demurrer for want of equity. Hearing before Endicott, J., who reserved the case, on the bill and demurrers, for the consideration of the full court. ■ Gray, C. J. : — The bill is framed upon the theory that the plaintiff has recovered CHAP. XII.] THORNTON V. EAILWAY COMPAiSrY. 463 a valid judgment against the Marginal Freight Railway Company; that that company has a claim for damages for the taking of its tracks by the Union Freight Railroad Company; and that the inter- est of the former company in this claim cannot be come at to be attached or taken on execution in a suit at law against it, and should therefore be applied in equity to the payment of the plaintiff's judg- ment debt. The difficulties in the way of maintaining this bill appear to us to be insuperable. 'fhe St. of 1867, c. 170, by which the Marginal Freight Railway Company was incorporated, was subject to repeal at the pleasure of the Legislature, by virtue of the power expressly reserved by the Gen. Sts. c. 68, § 41, which was a part of the contract made between the Commonwealth and the corporation by its charter. That charter was expressly and legally repealed by the St. of 1872, c. 342, which incorporated the Union Freight Railroad Company, and authorized the latter corporation to take the tracks of the former, making com- pensation therefor in the manner provided by the laws relating to the taking of lands by railroad companies. Crease v. Bahcock (23 Pick. 334) ; Pennsylvania College Cases (13 Wall. 190) ; State v. Miller (1 Vroom, 368, and 2 Vroom, 521) ; Metropolitan Railroad v. Highland Railway (118 Mass. 290). Upon the absolute repeal of a charter by the Legislature acting within the limits of its constitutional authority, the corporation ceases to exist, and no judgment can afterwards be rendered against it in an action at law. But such repeal does not impair the obliga- tion of contracts made by the corporation with other parties during its existence, or prevent its creditors or stockholders from asserting their rights against its property in a court of chancery, in accord- ance with the reasonable regulations of the Legislature, or with the general principles and practice in equity. Foster v. Essex BanJc (16 Mass. 245); Read v. Frankfurt Bank (23 Maine, 318); Merrill v. Suffolk Bank (31 Maine, 57) ; Mumma v. Potomac Co. (8 Pet. 281) ; Curran v. Arkansas (15 How. 304); Bacon v. Robertson (18 How. 480); Lum v. Robertson (6 Wall.' 277). Upon the repeal of the charter of the Marginal Freight Railway Company by the St. of 1872, c. 342, which was passed and took effect on May 6, 1872, the corporation was nevertheless, by virtue of the Gen. Sts. c. 68, § 36, continued a body corporate for the term of three years afterwards, for the purpose of prosecuting and defending suits by or against it, and of enabling it gradually to settle and close its concerns, to dispose of and convey its property, and to divide its capital stock. And, under § 37 of the same chapter, this court, sitting in equity, on the application of a creditor or stockholder, at any time within the three years might have appointed receivers, whose powers should continue as long as the court should deem necessary, to take charge of the estate and effects of the corpora- tion, to collect the debts and property due and belonging to it, to 464 rosTKR V. essex bank. [cra.?. xn, prosecute and defend suits, in its name or otherwise, and to do all otlier acts which might be done by the corporation, if in being, necessary for the final settlement of its unfinished business. No application having been made for the appointment of a receiver, the Marginal Freight Railway Company, at the expira- tion of the three years, ceased to have any such existence that a valid judgment could be rendered against it in an action at law. We cannot regard the provision of the St. of 1876, c. 229, § 3, that "nothing in this act contained shall be construed as affecting the legal rights of " that corporation (which is not otherwise mentioned in the act), as a legislative recognition that it had, at the time of the passage of this statute, any rights or any existence. The judg- ment recovered by the plaintiff against the Marginal Freight Rail- way Company in July, 1875, was therefore wholly void, as if it had been rendered against a dead person. This bill cannot be maintained under that clause of the Gen. Sts. c. 113, § 2, which confers upon this court juirisdiction of "bills by creditors to reach and apply, in payment of a debt, any property, right, title, or interest, legal or equitable, of a debtor, within this State, which cannot be come at to be attached or taken on execu- tion m a suit at law against such debtor : " because that clause extends only to living debtors and existing corporations. And a court of equity has no general jurisdiction of a bill by a single creditor, who has not recovered a valid judgment against his debtor, and whose debtor has ceased to exist, to apply to the payment of his debt property of the debtor in the hands of a third party. Although one passage near the end of the opinion in Folger v. Columbian Ins. Co. (99 Mass. 267), taken by itself, might seem to be inconsistent with this view, it is to be observed that that case, as well • as the earlier one of Taylor v. Columbian Ins. Co. (14 Allen, 363), was submitted to the court upon an agreed statement of facts, waiving all questions of form, and was decided upon the ground that the corporation did not appear to have been dissolved. The reasons above stated being conclusive against the right to maintain this bill, the demurrer of the Union Freight Railroad Company must be sustained, and the Bill dismissed. FOSTER V. ESSEX BANK. (16 Mass. 245. 1819.) Assumpsit for 60,000 dollars had and received by the defendants, to the use of Israel Foster, the plaintiff's testator. The action was entered at the last April term, and at this term the following suggestion was filed, viz. — " And now William Prescott CHAP. XII.] FOSTER V. ESSEX BANK. 465 and Leverett Saltonstall, who were originally retained in this action by the Directors of the Essex Bank, suggest that, since the last term of the court, the corporation of ' the President, Directors, and Com- pany of the Essex Bank ' is dissolved by the expiration of the time limited for its duration in the act of incorporation ; which said act is dated the eighteenth day of June in the year of our Lord one thousand seven hundred and ninety-nine. William Pebscott. Leverett Saltonstall." [By the act incorporating the defendants (Stat. 1799, c. 8), it was provided that the persons therein named, and their associates, succes- sors, and assigns, should be created and made a corporation, by the name of, etc. and should " so continue from the first day of July, 1799, until the expiration of twenty years next following." By an act passed on the 19th of June, 1819 (Stat. 1819, c. 43), it is enacted, "that all bodies corporate and politic, which now are, or hereafter may be established, and whose powers would expire, either by express limitation in their charters of incorporation, or otherwise, shall be, and they hereby are continued bodies corporate and politic, for the term of three years, from and after the day on which their powers would expire, as aforesaid, for the purposes of prosecuting and defending all suits, which now are, or may hereafter be instituted, and of enabling such bodies corporate and politic gradu- ally to settle and close their concerns, and divide their capital stock ; but not for the purpose of continuing the business for which such bodies corporate and politic have been, or may be established."] The question arising out of the above suggestion was argued at Boston, March terra, 1820 (the action having been continued nisi for argument and judgment), by Prescott and Saltonstall for the defend- ants, and Pickering and Webster for the plaintiffs. Parker, C. J. : — The question arising from the suggestion filed in this action, at the last term in Essex, is, whether the statute of 1819, c. 43, has the force of law with regard to this corporation; so that it is still in existence, for the purpose of suing and being sued, and for other purposes mentioned in the act. Acts of Legislature, constitutionally organized, are to be presumed constitutional ; and it is only when they manifestly infringe some of the provisions of the Constitution, or violate the rights of the subject, that their operation and effect can be impeded by the judicial power. Whenever this shall happen, as it may from inadvertence, or in times of political conflict, when the passions domineer over reason, it is the duty of every court to protect those rights, and to vindicate the Constitution. Thus, if the Legislature were to enact, that A. B. was guilty of treason, and that he should suffer the penalty of death ; it would be voi,. I. — 80 466 FOSTElt V. ESSEX BANK. [CHAP. XII. the sworn duty of the court, or of any member of it, to grant a habeas corpus, and discharge him. Or if they should enact that his estate should be confiscated, or transferred, or taken for the use of the pub- lic without an equivalent, such acts would not be laws; and they never could be executed, but by a court as corrupt, or as passionate, as the Legislature which should have passed them. So, if the Legislature should attempt to destroy or impair the legal force of contracts, by declaring that those who were indebted should be discharged without paying their debts, or on paying a less sum than they owed, or in something different from what was agreed ; such acts would be unconstitutional, although not expressly prohibited ; because by the fundamental principles of legislation, the law or rule must operate prospectively only ; unless in cases where the public safety and convenience require that errors and mistakes should be overruled, the power to do which has been immemorially exercised, and we believe, within the constitutional power of the Legislature. T'or it is doing no one wrong, to prevent his taking advantage of a mere error or mistake. Now if the act in question impairs the force and. obligation of con- tracts, or injures private property, or disturbs any vested rights, we ought to declare it void, and we should be ready to do so. But we are to be satisfied that it has this character. In the first place, we see no pretence for saying that it impairs the force of contracts. Certainly it has not that effect on contracts made by or with the bank ; but the very object of the statute is to enforce such contracts. It is said, however, that the contract with the government was, that at the end of twenty years the corporation should be dissolved, and each member take his share out of the common fund. But it should be considered that, by the original charter, each member's share was liable for all the debts of the bank ; and that he would have no moral right to withdraw it, until all the debts of the bank were paid : so that there was an equitable lien upon his share ; and the Legislature, we think, had a right, if it was not their duty, to provide the means of enforcing this moral obligation. The law complained of is a general law, operating upon all bodies corporate ; and it is convenient for them and the public, that their power of suing and being sued should be continued beyond the period within which they are empowered to make contracts ; in order that their concerns may be properly adjusted. Nor do we think it an objection, that this additional term should be granted by an act made subsequent to the time when their Charter was granted. A debtor to the bank could not object to a suit, on the ground that the original term of the charter had expired ; for the very bringing of the suit would be an acceptance of the prolongation of the charter ; and it would be absurd for him to say, that his debt was discharged, or that there was no means of recovering it, because CHAP. XII.] FOSTER V. KSSEX BANK. 467 he contracted with the corporation on a supposition that it would continue in being only a certain number of years. We -think it equally incompetent for such corporation to deny its existence, against a statute of the government, the object of which is to give a right of action on contracts, upon which they were legally and morally bound under their charter. It is said that the members of such a corporation associated upon the faith that, after the time limited in their charter, they might separate, and take their shares of the stock. But it is to be answered that their stock is, in an equitable view, pledged for the payment of all debts due from the corporation ; and that it would be fraudulent to withdraw the funds, knowing that there were debts to be paid ; leaving no means of coercing the payment of those debts. What should be said of a banking company, which, just before its expira- tion, should divide all the stock, making no provision for the pay- ment of its debts ? Yet this might be done, if the Legislature have no authority to establish, by law, a mode by which it should be com- pelled to fulfil its obligations. For it is certainly doubtful whether any means exist, under our laws, of pursuing the funds into the hands of individual corporators, and subjecting them to the claims of cred- itors. We see no violation of the rights of the corporators, no im- pairing of the obligation of contracts ; for it can never be the right of any person to withhold a just debt from his creditor. Upon the whole, we cannot discern any principle by which it can be decided that this statute is void. It is not retrospective, in the proper sense of that term ; for it provides for a future existence of the corporation, for limited and specific purposes. It does not in- fringe, or interfere with any of the privileges secured by the charter ; unless it be considered a privilege- to be secured from the payment of debts, or the performance of contracts ; and this is a kind of privi- lege which we imagine the Constitution was not intended to protect. It does not impair the force or obligation of contracts ; but on the contrary, provides a way of enforcing them, both in favor of, and against the corporation. Many statutes have been referred to in the argument, which are much more questionable, as to their constitutionality, than the one under consideration : — The statutes of limitation, operating upon contracts already in force ; the suspension of those statutes, after the debtor may have considered that he had a right to be discharged within a certain period ; the statutes made for curing defects in the proceedings of courts, towns, officers, etc. when the party to be affected might be said to have a vested right to take advantage of the error. The truth is, there is no such thing as a vested right to do wrong ; and a Legislature, which, in its acts not expressly author- ized by the Constitution, limits itself to correcting mistakes, and to providing remedies for the furtherance of justice, cannot be charged with violating its duty, or exceeding its authority. 468 BACON V. ROBERTSON. [CHAP. XII. It was an incumbent duty of the Legislature to provide that cor- porations should not avoid their obligations, by ceasing to exist ; and the mode adopted in the act in question was certainly the most favorable. Had they provided that all corporations should cease to transact business, three years before the time for which they were created expired, in order that they might bring their affairs to a close, it might justly be said, that their privileges were taken away, and the grant of the government was impaired. But to provide for their continuance for such purpose, three years beyond their term, is no breach of their privileges; and is, in fact, nothing more than establishing a mode by which their business may be closed, and their contracts carried into execution. It is in the nature of an adminis- tration upon their estate, and is only doing, in a more convenient form, what a court of equity, with competent powers, might do j viz., making the common fund answerable for the debts which were created on the credit of that fund. The suggestion filed in the case cannot have the effect to impede the progress of the suit. BACON V. EOBERTSON. (18 Howard (U. S.) 480. 1855.) This was an appeal from the circuit court of the United States for the southern district of Mississippi. The transaction to which the suit relates was partly and inciden- tally brought before the notice of this court in 16 How. 106. Me. Justice Campbell delivered the opinion of the court : — This bill was filed in the circuit court against William Robertson, a trustee, appointed to liquidate the affairs of the late Commercial Bank of Natchez, Mississippi, and such of the stockholders of the bank as are citizens of that State, and is prosecuted by a number of stockholders, owning one-fifth part of the capital stock, for them- selves, and such of the stockholders as are not citizens of Missis- sippi, or defendants in the bill. The Commercial Bank was incorporated and organized under enactments of the Legislature in 1836, with a capital of $3,050,000, divided into shares of $100 each, which are now distributed among two hundred and eighty persons. The corporation carried on the business of banking through the agency of presidents, directors, cashiers, and other officers, at Natchez, and four other towns of Mississippi, for a number of years. During this time there was a temporary suspension of specie payments, which the bill avers to have been accidental, and to have formed the only ground for the proceedings taken against CHAP. XII.] BACON V. ROBERTSON. 469 the corporation. In June, 1845, the circuit court of Adams County rendered a judgment against the bank, upon an information in the nature of a quo warranto preferred pursuant to the act of the Legis- lature of July, 1843. By this judgment the bank was "prejudged and excluded from further holding or exercising the liberties, privi- leges, and franchises granted by the said charter;" "the liberties, privileges, and franchises granted to the bank were seized " by the State; the "property, books and assets of the bank" were adjudged to be seized and delivered to a trustee, who might have execution therefor. William Kobertson was appointed that trustee, "to take charge of the books and assets of the bank." His duties are de- clared, conformably to the act of 1843, which will be considered in another part of this opinion. The bank appealed from this judgment, and in the spring session of the high court of errors and appeals, in 1846, it was affirmed. William Robertson entered upon the office of trustee in July, 1846. He took possession of money, stocks, evidences of debt, and real estate having a nominal value of near four millions of dollars, and continues to hold them, except in so far as he has applied them to the payment of the charges of the trust and the debts of the corpora- tion. The bill alleges that all the debts have been paid, and that only a small sum is due for costs, and that property of great value, consisting of money, stocks, evidences of debt, bonds, and person- alty, remains with the trustee, who refuses to account for them to the stockholders. The object of the bill is to establish the title of the stockholders to this surplus, and to obtain the ratable shares of such of them as are able and willing to join as plaintiffs in this suit. The bill names a number of the stockholders as parties, and is fitted to embrace all by the representation of these. The defendants joined in a general demurrer to the bill; a decree of dismissal was rendered at the hearing at the circuit, and, by appeal, was taken up to this court to revise that decision. When the defendant, Robertson, assumed the office of trustee, his duties were defined by two acts of the Legislature of Mississippi. The act of July, 1843, directed the institution of suits against such of the banking corporations of the State as had violated their char- ters in such a manner as to incur their forfeiture, and prescribed the form of the suits for the enforcement of that forfeiture. It enacted, " that upon a judgment of forfeiture against any bank, the debtors of the bank shall not be released from their debts and liabilities to the same;" but it was made the duty of the circuit court, rendering the said judgment, to appoint one or more trustees to take charge of the books and assets of the banks ; who should sue for and collect all debts due such bank, and sell and dispose of all property owned by it, or held by others for its use ; and the proceeds of the debts, when collected, and of the property when sold, to apply, as may hereafter be directed by law, to the payment of the 470 BACON V. ROBERTSON. [CHAP. XII. debts of such bank. The trustee was made subject to a criminal prosecution for embezzlement, conversion of the trust property, as a failure to account for it according to law; and both acts prescribed a bond to be given to secure the faithful performance of his duty. The act of February, 1846, amended and enlarged the scope of the act of 1843, and was applicable to all trustees appointed under either. This act provided a summary remedy in favo^ of the trustee to obtain the control of the corporate property ; for an inventory to be made to the first court, after his appointment; for an order of sale of all the corporate property at auction, for cash, after a notice of ninety days, at specified places; for commissioners to audit the claims against the banks, and for their presentation to these com- missioners; for early decisions upon the exceptions to their report; for a final decree of distribution, first, in the payment of expenses, then public dues, costs, and fees, the debts reported, and, lastly, "the surplus, if any shall be ratably distributed among the stock- holders." There was a provision that the bills of the bank should be receivable for debts, and that" the debtor might redeem from any purchaser of his debt or obligation (so sold), during two years, by paying the purchase-money, all costs, and twelve and a half per cent interest. The object of the two statutes can hardly be misconceived. They are parts of a system, the latter act being auxiliary to, and adopted in aid of, the provisions of the earlier act of 1843, — the two acts containing the full expression of the will of the Legisla- ture. The circumstances of the Legislature enabled it to defer the promulgation of its entire policy until the year 1846. The exi- gencies of the State were entirely answered by the directions given in 1843 to the executive officers to take initiatory measures for placing these corporations under restraint, and for the security of their property. To effectuate these iavolved delay and litigation, and the Legislature might well await their issue, before unfolding their whole plan of liquidation and settlement. The two statutes which embody it have formed the subject of much discussion in the courts of Mississippi, and diiRculty has been experienced there in carrying them into execution. No suit has been instituted there by the stockholders, though their rights have been incidentally debated, both at the bar and by the supreme appellate court. To comprehend the import of this legislation, we must consider the mischiefs it was designed to prevent or remove, and the mode adopted to accomplish the end; for the legislation is of a character wholly remedial. The common law of Great Britain was deficient in supplying the instrumentalities for a speedy and just settlement of the affairs of an insolvent corporation whose charter had been for- feited by a jutJicial sentence. The opinion usually expressed as to the effect of such a sentence was unsatisfactory and questioned. There had been instances in Great Britain of the dissolution of CHAP. XII.] BACON V. ROBEKTSON. 471 public or ecclesiastical corporations by the exertion of the public authority, or as a consequence of the death of their members, and Parliament and the courts had affirmed in these instances that the endowments they had received from the prince or pious founders would revert in such a case. Stat, de terris Teniplariorum, 17 Edw. II. ; Dean and Canons of Windsor, Godb. 211 ; Johnson v. Norwaij (Winch. 37); Owen, 73; 6 Vin. Abr. 280. What was to become of their personal estate and of their debts and credits had not been settled in any adjudged case, and as was said by PoUexfen in the argument of the quo juarmnto against the city of London, was per- haps "non dejinitur in jure." Solicitor Pinch, who argued for the crown in that cause, admitted "I do not find any judgment in a quo warranto of a corporation being forfeited." Treby, on behalf of the city, said, "The dissolving a corporation by a judgment in law,- as is here sought, I believe is a thing that never came within the compass of any man's imagination till now; no, not so much as in the putting of a case. For in all my search (and upon this occasion I have bestowed a great deal of time in searching), I cannot find that it ever so much as entered into the conception of any man before; and I am the more confirmed in it because so learned a gentleman as Mr. Solicitor has not cited any one such case wherein it has been (I do not say adjudged, but) even so much as questioned or attempted; and, therefore, I may very boldly call this a case primae impres- sionis." The argument of PoUexfen was equally positive. The power of courts to adjudge a forfeiture so as to dissolve a corpora- tion was affirmed in that case, but the effect of that judgment was not illustrated by any execution, and the courts were relieved from their embarrassment by an act of Parliament annulling it. Smith's case, 4 Mod. 53; Skin. 310; 8 St. Tri. 1042, 1057, 1283. Nor have the discussions since the Revolution extended our knowledge upon this intricate subject. The case of Rex v. The Amery (2 D. & E. 515), has exerted much influence upon text-writers. The questions were, whether a judgment of seizure quousque upon a default was final, and if so, whether the king's grant of pardon and restitution would overreach and defeat a charter granting to a new body of men the same liberties intermediate the seizure and the pardon. The king's bench, relying upon the Year-Book of 15 Edw. IV., declared the judgment to be final and the new charter irrepealable. But the House of Lords reversed the judgment. The judges, upon an exam- ination of the original roll of the case in the Year-Book, discovered • that it did not support the conclusion drawn from it, and Chief Baron Eyre says, "that Lord Coke had adopted the doctrine too hastily." The discussions upon this case show how much the knowledge of the writ of quo warranto as it had been used and applied under the Plan- tagenets and Tudors, had gone from the memories of courts and law- yers. 4 D. & E. 122; Tan. on Quo Warranto, 24. In Colchester V. Seaber (3 Bur. 1866), where the suit was upon a bond, and the 472 BACON V. KOBERTSON. [CHAP. XII. defence was, that certain facts had occurred to dissolve the corpora- tion, and that the creditor's claim was extinguished on the bond. Lord Mansfield said, "Without an express authority, so strong as not to be gotten over, we ought not to determine a case so much against reason as that Parliament should be obliged to interfere." The question occurs here, Could Parliament interfere? And the answer would be by their authorizing a suit to be brought notwith- standing the dissolution. These are all cases of municipal corpora- tions where the corporations had no rights in the property of the corporation in severalty. The courts of Westminster have found much difficulty iu applying the principles settled in regard to such, to the commercial and trading corporations that have come into existence during this century. The courts there within the last twelve months have been troubled to discuss whether a commercial corporation could recover damages for the breach of a parol con- tract, or whether the contract should have had a seal to make it valid. Austra. R. M. N. Co. v. Marzetti (32 L. & E. 572; 3 lb. 420). It may be admitted that the courts of law could not give any relief to the shareholders of a corporation disfranchised by a judicial sentence in respect to a corporate right. Their modes of proceeding do not provide for the case, as they have not for many others. 1 Plow. 276, 277; Richards v. Riohards (2 B. & Adol. 447); Will. Ex. 1129. But this concession does not involve an acknowledg- ment that the rights of the corporations are extinguished. Courts of chancery have been forced into a closer contact with these asso- ciations, and have formed a more rational conception of their con- stitution and a more accurate estimate of their importance to the industrial relations of society. Those courts have evinced a spirit of accommodation of their modes of proceeding so as to adapt them to the changing exigencies of society. Lord Cottenham, in Walworth V. Holt (4 M. & C. 635), in reference to the conduct of suits in which similar associations were concerned, said : " I think it is the duty of this court to adapt its practice and course of proceeding to the exist- ing state of society, and not, by too strict an adherence to rules and forms established under different circumstances, to decline to admin- ister justice and to enforce rights for which there is no other rem- edy." In the same spirit. Sir James Wigram, V. C, observes: "Corporations of this kind are in truth little more than private partnerships ; and in cases which may be easily suggested, it would be too much to hold that a society of private persons associated together in undertakings which, though certainly beneficial to the public, are nevertheless matters of private property, are to be deprived of their civil rights inter se, because, in order to make their common objects more attainable, the Crown or Legislature have conferred upon them the benefit of a corporate character." Foss V. Harhottle (2 Hare, 491). These just views, which have afforded to wise chancellors a sufficient motive to enlarge the scope CHAP. XII.] BACON V. ROBERTSON. 473 and relax the rigor of the rules ol chancery proceedingj so as to bring the civil rights of individuals in whatever form they may exist, or however complicated or ramified, under the protection of legitimate judicial administration, have been adopted in the United States, not simply for the improvement of methods of proceeding, but also for the adjustment of rights and the assertion of responsi- bilities among the members of such associations. In the Bank of the United States v. Deveaux (5 Cr. 61), this court held "that the technical definition of a corporation does not uniformly circumscribe its capacities, but that courts for legitimate purposes will contem- plate it more substantially; " and the court in that case allowed the corporation to use its corporate name for the purposes of suit in the courts of the United States to represent the civil capacities of the persons who composed it. So the court has held that corporate acts need not to be evinced by writing, nor corporate contracts by a common seal; that corporations are liable on contracts made, or defaults or torts committed by their ofScers or agents in the course of their employment (12 Wheat. 40; lb. 64; 6 How. 344; 14 lb. 468). In Lennox v. Roberts (2 Wheat. 373), the court gave effect to a general assignment of a corporation of its choses in action made in anticipation of the expiration of its charter, and which was designed to preserve to the corporators their rights of property. In the Miimnia v. Potomac Company (8 Pet. 281), it held that the assignment of all > the property of a corporation and the surrender and cancellation of its charter with the consent of the Legislature, did not defeat the right of the judgment creditor to satisfaction out of the property which had belonged to it. The power of courts of equity in cases like these was recognized as adequate to maintain the rights of the parties beneficially interested, and this doctrine was repeated and developed in Curran v. Arkansas (15 How. 304). . The tendency of the discussions and judgments of the court of chancery in Great Britain, and of the courts of this country, is to concede the existence of a distinct and positive right of property in the individuals composing the corporation, in its capital and busi- ness, which is subject in the main to the management and control of the corporation itself; but that cases may arise where the cor- porators may assert not only their own rights, but the rights of the corporate body. And no reason can be given why the dissolution of a corporation, whether by judicial sentence or otherwise, whose capital was contributed by shareholders for a lawful and perhaps laudable enterprise, with the consent of the Legislature, should sus- pend the operation of these principles, or hinder the effective inter- ference of the court of chancery for the preservation of individual rights of property in such a case. The withdrawal of the charter — that is, the right to use the corporate name for the purposes of suits before the ordinary tribunals — is such a substantial impediment to the prosecution of the rights of the parties interested, whether cred- 474 BACON V. ROBERTSON. [CHAP. XII. itors or debtors, as would authorize equitable interposition in their behalf, within the doctrine of chancery precedents. Stainton v. The Carron Company (23 L. and E. 315); Travis v. Milne (9 Hare, 141; 2 lb. 491). For the sentence of forfeiture does not attaint the rights of property of the corporators or corporation, for then the State would appropriate it. If those rights are put an end to, it would seem to be rather from a careless disregard, or hardened and reckless indif- ference to consequences, on the part of the public authority, than from any preconceived plan or purpose. For, according to the doc- trine of the text-writers on this subject, the consequences are visited without any discrimination; the losses are imposed upon those who are not blameworthy, and the benefits are accumulated upon those who are without desert. The effects of a dissolution of a corpora- tion are usually described to be, the reversion of the lands to those who had granted them; the extinguishment of the debts, either to or from the corporate body, so that they are not a charge nor a benefit to the members. The instances which support the dictum in reference to the lands consist of the statutes and judgments which followed the suppression of the military and religious orders of knights, and whose lands returned to those who had granted them, and did not fall to the king as an escheat; or of cases of dissolution of monasteries and other ecclesiastical foundations, upon the death of all their members; or of donations to public bodies, such as a mayor and commonalty. But such cases afford no analogy to that before us. The acquisitions of real property by a trading corpora- tion are commonly made upon a bargain and sale, for a full consid- eration, and without conditions in the deed; and no conditions are implied in law in reference to such conveyances. The vendor has no interest in the appropriation of the property to any specific object, nor any reversion, where the succession fails. If the statement of the consequences of a dissolution upon the debts and credits of the corporation is literally taken, there can be no objection to it. The members cannot recover nor be charged with them, in their natural capacities, in a court of law. But this does not solve the difficulty. The question is, has the bona fide and just creditor of a corporation, dissolved under a judicial sentence for a breach in its charter, any claim upon the corporate property for the satisfaction of his debt, apart from the reservation in the act of the Legislature which directed the prosecution? Can the lands be resumed in disregard of their rights by vendors, who have received a full payment of their price, and executed an absolute conveyance? Can the careless, improvident, or faithless debtor plead the extinction of his debt, or of the creditor's claim, and thus receive protection in his delin- quency? The creditor is blameless, — he has not participated in the corporate mismanagement nor procured the judicial sentence; he has trusted upon visible property acquired by the corporation, in virtue of its legislative sanction. How can the vendors of the CHAP. XII.] BACON V. ROBERTSON. 475 lands or the delinquent debtors resist the might of his equity? But, if the claims of the creditor are irresistible, those of the stockholder are not inferior, at least against the parties who claim to hold the corporate property. The money, evidences of debt, lands, and per- sonalty acquired by the corporation were purchased with the capital they lawfully contributed to a legitimate enterprise, conducted under the legislative authority. The enterprise has failed under circum- stances, it may well be, which entitle the State to withdraw its special support and encouragement; but the State does not affirm that any cause for the confiscation of the property, or for the inflic- tion of a heavier penalty, has arisen. It is a case, therefore, in which courts of chancery, upon their well-settled principles, would aid the parties to realize the property belonging to the corporation, and compel its application to the satisfaction of the demands which legitimately rest upon it. In our view of the equity of this bill we have the support and sanction of the Legislature of Mississippi. Their legislation ex- cludes all the consequences which have been imputed as necessary to a sentence of dissolution on a civil corporation. From the pleni- tude of their powers for the amelioration of the condition of the body politic, and the supply of defects in their system of remedial laws, they have afforded a plan for the liquidation and settlement of the business of these corporations in which the equities of the cred- itors and shareholders respectively are recognized, as attaching to all the corporate property of whatever description. And the inquiry arises, who is authorized to obstruct the enforcement of these equities in so far as the stockholders of the Commercial Bank of Natchez are concerned? The creditors have been satisfied. The defendant in the present suit is the trustee appointed under these legislative enactments. His demurrer confesses that he has received money, stocks, evidences of debt, lands, and personal property, which he refuses to distribute. He claims that the stockholders have no rights since the dissolution of the corporation, and if any, they must be looked for in the circuit court of Adams County, Mississippi. But the trustee cannot deny the title of the stock- holders to a distribution. To collect and distribute the property of the corporation among the creditors and stockholders, is his com- mission,— for this end he was placed in the possession of the prop- erty, and was armed with all the powers he has exercised. His title is in subordination to theirs, and his duties are to main- tain their rights and to consult their advantage. Pearson v. Lindley (2 Ju. 758); 3 Pet. 43; 4 Bligh, 1; Willis Trus. 125, 172, 173. He is estopped from making the defence of a want of title in the stockholders. Nor is the objection to the jurisdiction of this court tenable. Ten years have nearly elapsed since this trust was created. The acts of the Legislature contemplated a prompt and speedy settle- ment. They direct the reduction of all the property into ready 476 TITCOMB V. INSURANCE COMPANY. [CHAP. XII. money, and an early distribution among the parties concerned. The trustee confesses that he has not sold the lands nor personal estate, and that he has refused to distribute the money. He has committed a palpable breach ot trust according to the case made by the bill and as confessed by the demurrer. All the other trusts having been ful- filled, the stockholders are entitled to such an administration as will be most beneficial to them, or to a sale of the trust property in the manner prescribed by the statute of Mississippi. Nor is the objec- tion to the form of the suit tenable. If the trust estate had been liquidated, and the interests of the stockholders ascertained, any stockholder might have maintained a suit for his aliquot share with- out including any other stockholder. Smith v. Snow (3 Mad. C. R. 310). But the trust estate has not been sold, nor are the names of all the stockholders ascertained; the trustee is called on to account, and the bill asks for the collection and disposal of the remaining property under the authority of the court of chancery. The stockholders are interested in these questions, and are then proper parties to the bill. The number of the parties renders it impracticable to bring all before the court, and therefore the suit may be prosecuted in the form which has been employed in this suit. This court sustained such a bill in the case of Smith v. Swormstedt (16 How. 288). We do not intend to decide any of the questions of the cause which may arise as to the mode of administering the relief prayed for in this bill. Our opinion is that the plaintiffs have shown a proper case for equitable interposition by the circuit court, and that the decree of that court dismissing the bill is erroneous. Decree reversed, and cause remanded. TITCOMB V. INSURANCE COMPANY. (79 Maine, 315. 1887.) Bill in Equity to dissolve the defendant corporation and obtain an order for distribution of the fund remaining on hand.. Walton, J. : — The Kennebunk Mutual Fire Insurance Company was incorporated in 1856. It has issued no policies since 1877. In 1884, its last policy having expired, the company voted to close up its affairs and to do no more business. A decree has been ob- tained at nisiprius dissolving the corporation, from which no appeal has been taken or claimed; and the only question before the law court is to determine what shall be done with the assets of the com- pany. Our statutes contain ample provisions for the disposition of the assets of stock companies (R. S., c. 46, §§ 25, 26, 27 and 54). CHAP. XII.] TITCOMB V. INSURANCE COMPANY. 477 But this is a mutual company and has no stockholders, and the pro- visions cited do not apply. According to the old settled law of the land, says Chancellor Kent, upon the civil death of a corporation, when there is no special statute to the contrary, all its real estate reverts to the grantors and their heirs, and all its personal estate vests in the people. 2 Kent (10th ed.), 385-386. To the same effect is Angell and Ames on Cor. c. 22, § 6 (2d ed.). But it is said that in this class of cases the corporators named in the act of incorporation should be regarded as stockholders. They are not stockholders ; and to hold that they are would be a fiction, and fictions are not favored, and are never resorted to except to work out some strong and inherent equity; and there is no such equity in favor of the corporators of a mutual insurance company. They contribute nothing towards its assets, and we think it would be against public policy to allow them to have a pecuniary interest in them. Such an interest would inevitably tend to create a temp- tation to fix the rates of insurance higher than would be necessary to meet losses ; and then, when a surplus had been thus obtained, to divide it among themselves, and thus reap a profit from a business in which they had invested no capital and had taken no risks ; and this at the expense of the policy-holders. We think there is a much stronger equity in favor of the former policy-holders, whose money has contributed to produce the assets. But we do not think they can be regarded as stockholders after their policies have expired and their premium notes have been cancelled or given up to them. They have then received in full the benefits for which they con- tracted, and are no longer members of the company ; and to distrib- ute among them a small amount of assets, and to determine what each former policy-holder's share ought in equity to be, would be attended with difficulties and an amount of labor which the end would not justify. When a man dies leaving no wife or kindred, his property descends to the state. And when a corporation, which, like a mutual insurance company, has no stockholders, ceases to ex- ist, we are not prepared to say that the rule of the common law, which gives its surplus assets to the state, is not a wise one. But it is said that unless the corporators can be regarded as stock- holders, the court has no authority to decree a dissolution of the corporation. It is a sufficient answer to this argument to say that the question of dissolution is not before the law court. The court at nisi prius decreed a dissolution in May, 1885. From that decree no appeal was taken or claimed. It was made at the request of the corporators ; and so far as appears, no objection was made by any one. Thereupon a receiver was appointed and the case was sent to a master ; and it was upon the coming in of the master's report that the question, and the only question now before the law court, was first raised. It is now too late to object to the dissolution of the corporation. The only question is, what shall be done with the 478 BOSTON GLASS MANUFACTORY V. MARY LANGDON. [CHAP. XII. small amount of assets now in the possession of the receiver. They amount to only one thousand four hundred and three dollars and twenty-three cents, and a safe. It is the opinion of the court, and it is accordingly ordered and decreed that the receiver pay the costs of this suit, including reason- able counsel fees, and that he pay the balance, if any shall remain^ to the State treasurer for the use of the State. Petbks, C. J., Virgin, Libbey, Emeky, and Haskell, JJ., con- curred. BOSTON GLASS MANUFACTOEY v. MAEY LANGDON. (24 Pick. 49. 1834.) Assumpsit on a promissory note given by the defendant to the plaintiffs. The defendant pleads in abatement, that at the time of the purchase of the writ there was not, and now is not, any such corporation established by law, called the Boston Glass Manufactory, as in and by the writ is supposed. The plaintiffs reply that there was and is such a corporation ; and tender an issue ; which is joined. At the trial, before Morton, J., the plaintiffs offered in evidence their act of incorporation, and showed their organization under it in 1811. The records of the corporation were introduced by the plaintiffs, and were used and relied upon by both parties. The defendant then introduced an indenture, dated the 27th of May, 1827, assigning all the property of the corporation to certain persons, in trust to pay, ^ro rata, such creditors as should become parties to the indenture. This instrument contained covenants, that the assignees might use the name of the corporation in the collection of the debts, and in the disposition of the property assigned; that the corporation would not hinder or obstruct them in the perform- ance of these functions ; and that it would make any further convey- ances and assurances which might become necessary, and perform any other and further acts which might be required to enable the assignees fully to execute their trust. No provision was made for a release to the corporation by the creditors, nor for paying over to the corporation the surplus, if any, of the property assigned. The defendant also referred to all the records subsequent to 1817, and contended that the assignment of the property of the corporation, and the omission to hold annual meetings, to choose directors, and to transact business, as appears by the records and books of the corpo- ration, supported the issue on her part and entitled her to a verdict. But the jury were instructed, that the evidence was competent to CHAP. XII.J BOSTON GLASS MANUFACTORY V. MARY LANGDON. 479 prove the establishment and continuance of the corporation down to the present time. The plaintiffs then claimed to have the damages assessed by the jury, if they found a verdict in their favor, and offered in evidence the note declared on. This was objected to by the defendant, be- cause the note had been assigned. But the objection was overruled. The defendant then offered to prove that the note was without consideration. This evidence was objected to and was excluded. The jury found a verdict for the plaintiffs for the whole amount of the note and interest. The defendant excepted to the decisions and instructions of the judge; and for the reasons above appearing, moved for a new trial. Austin, for the defendant. The corporation was shown to have been discontinued before the commencement of this action. It was insolvent, and all its property, including the note now in suit, was conveyed absolutely to trustees for the benefit of such creditors as became parties to the indenture, without any provision that a surplus should revert to the corporation, or that the creditors should give the corporation a release. Neither were any officers chosen, nor any meetings held by the corporation, after the date of the assignment ; and the officers previously elected had ceased to be competent to act as such, for all of them had become insolvent and had parted with their shares in the corporate property. The bankruptcy of a corpo- ration, alienation of all its property, and cessation to do business, amount to a dissolution. Brlnckerhoff v. Brown (7 Johns. Ch. K. 217), Slee v. Bloom (19 Johns. R. 456) ; 2 Kent's Com. (1st ed.) 250 ; Penniman v. Briggs (1 Hopkins, 300 ; s. c. 8 Cowen, 387). The jury, having found against the defendant on the plea in abate- ment, should have proceeded to assess the damages on proper testi- mony upon that question, and no greater damages should have been assessed than if the defendant had pleaded the general issue. If the defendant has two defences, one in abatement and one in bar, he ought to be allowed to avail himself of the latter in case the former fails him ; otherwise injustice must be done. MoETON, J., delivered the opinion of the court : — The non-existence or death of the plaintiff may properly be pleaded in abatement. 1 Chitty's PI. 482; Story's PL 24. But whether, as it entirely and perpetually destroys the plaintiff's right to recover, it may not also be pleaded in bar, it is not necessary to determine. Proprietors of Monumoi v. Rogers (1 Mass. E. 169) ; First Parish in Sutton v. Cole (3 Pick. 245). Whether the plea conclude in abatement or bar, the issue being found against the defendant, the judgment must be peremptory. The established rule is, that in dilatory pleas, when the issue is found against the defendant on matters of fact, the judgment must be in chief. Gould's PL 300 ; Howe's Pract. 215. 480 BOSTON GLASS MANUFACTORY V. MARY LANGDON. [CHAP. XII. The principal question for our consideration is, whether judgment shall be rendered on the verdict. The defendants' counsel contends that the evidence introduced will not support the verdict, but that the verdict is against the evidence and the law and should be set aside. The point which has been determined by the jury, though neces- sary to be submitted to them with proper instructions, is quite as much a matter of law as of fact ; and we the more readily enter into the examination of it. The legal establishment and due organization of the corporation were admitted ; but it was contended that the facts disclosed showed a dissolution of it. The elementary treatises on corporations describe four methods in which they may be dissolved. It is said that private corporations may lose their legal existence by the act of the Legislature ; by the death- of all the members ; by a forfeiture of their franchises ; and by a surrender of their charters. 2 Kyd on Corp. 447 ; 1 Bl. Comm. 485; 2 Kent's Comm. (1st ed.) 245; Angell & Ames on Corp. 501; Oakes v. Hill (14 Pick. 442). No other mode of dissolution is any- where mentioned or alluded to. 1. In England, where the Parliament is said to be omnipotent, and where in fact there is no constitutional restraint upon their action, but their own discretion and sense of right, corporations are supposed to hold their franchises at the will of the Legislature. But if they possess the power to annul charters, it certainly has been rarely exercised by them. In this country, where the legis- lative power is carefully defined by explicit fundamental laws, by which it must be governed and beyond which it cannot go, it has become a question of some difficulty to determine the precise extent of their authority in relation to the revocation of charters granted by them. But as it is not pretended that there has been any legis- lative repeal of the plaintiffs' charter, it will not be useful further to discuss this branch of the subject. 2. As all the original stockholders are not deceased, the corpo- ration cannot be dissolved for the want of members to sustain and exercise the corporate powers. Besides, this mode of dissolution cannot apply to pecuniary or business corporations. The shares, being property, pass by assignment, bequest, or descent, and must ever remain the property of some persons, who of necessity must be members of the corporation, as long as it may exist. 3. Although a corporation may forfeit its charter by an abuse or misuser of its powers and franchises, yet this can only take effect upon a judgment of a competent tribunal. 2 Kent's Comm. (1st ed.) 249 ; Corporation of Colchester v. Seaber (3 Burr. 1866) ; Smith's Case (4 Mod. 53). Whatever neglect of duty or abuse of power the corporation may have been guilty of, it is perfectly clear that they have not lost their charter by forfeiture. Until a judicial decree to CHAP. XII.] BOSTON GLASS MANUFACTORY V. MAKY LANGDON. 481 this effect be passed, they will continue their corporate existence. The King v. Amery (2 T. R. 615). 4. Charters are in many respects compacts between the govern- ment and the corporators. And as the former cannot deprive the latter of their franchises in violation of the compact, so the latter cannot put an end to the compact without the consent of the former. It is equally obligatory on both parties. The surrender of a charter can only be made by some formal solemn act of the corporation ; and it will be of no avail until accepted by the government. There must be the same agreement of the parties to dissolve, that there was to form the compact. It is the acceptance which gives efficacy to the surrender. The dissolution of a corporation, it is said, extinguishes all its debts. The power of dissolving itself by its own act, would be a dangerous power and one which cannot be supposed to exist. But there is nothing in this case which shows an intention of the corporators to surrender or forfeit, their charter, nor anything which can be construed into a surrender or forfeiture. The possession of property is not essential to the existence of a corporation. 2 Kent's Comm. (1st ed.) 249. Its insolvency, cannot, therefore, extinguish its legal existence. Nor can the assignment of all its property to pay its debts, or for any other purpose, have that effect. The instrument of assignment was not so intended, and cannot be so construed. All its provisions look to the continuance of the corporation. It contains covenants that the assignees terms, which ours has copied, has not been definitively settled in England. In the case of Pickering v. Appleby CHAP. XV.] TISDALE V. HAKRIS. 607 (Com. Eep. 354), the case was directly and fully argued, before the twelve judges, who were equally divided upon it. But in several other cases afterwards determined in Chancery, the better opinion seemed to be, that shares in incorporated companies were within the statute, as goods or merchandise. Mussell v. Cooke (Prec. in Ch. 533); Crull v. Dodson (Sel. Cas, in Ch. 41). We are inclined to the opinion, that the weight of authorities, in modern times, is, that contracts for the sale of stocks and shares in incorporated companies, for more than ten pounds, are not valid, unless there has been a note or memorandum in writing, or earnest or part payment. 4 Wheaton, 89, note; 3 Starkie on Evid. 4th Amer. Edit. 608. Supposing this a new question now for the first time calling for a construction of the statute, the Court are of opinion, that as well by its terms as its general policy, stocks are fairly within its operation. The words "goods" and "merchandise," are both of very large sig- nification. Bona, as used in the civil law, is almost as extensive as personal property itself, and in many respects it has nearly as large a signification in the common law. The word "merchandise" also, including in general objects of trafiic and commerce, is broad enough to include stocks or shares in incorporated companies. There are many cases indeed in which it has been held in England that buying and selling stocks did not subject a person to the opera- tion of the bankrupt laws, and thence it has been argued that they cannot be considered as merchandise, because bankruptcy extends to persons using the trade of merchandise. But it must be recollected that the bankrupt acts were deemed to be highly penal and coercive, and tended to deprive a man in trade of all his property. But most joint stock companies were founded on the hypothesis at least, that most of the shareholders took shares as an investment and not as an object of trafiic; and the construction in question only decided, that by taking and holding such shares merely as an investment, a man should not be deemed a merchant so as to subject himself to the highly coercive process of the bankrupt laws. These cases, there- fore, do not bear much on the general question. The main argument relied upon, by those who contend that shares are not within the statute, is this. That statute provides that such contract shall not be good, etc., among other things, except the pur- chaser shall accept part of the goods. From this it is argued, that by necessary implication the statute applies only to goods of which part may be delivered. This seems, however, to be rather a narrow and forced construction. The provision is general, that no contract for the sale of goods, etc. shall be allowed to be good. The excep- tion is, when part are delivered; but if part cannot be delivered, then the exception cannot exist to take the case out of the general prohibition. The provision extended to a great variety of objects, and the exception may well be construed to apply only to such of 608 JOHNSON V. LAFLIN. [CHAP. XV. those objects to which it is applicable, without affecting others, to which from their nature it cannot apply. There is nothing in the nature of stocks, or shares in companies-, which in reason or sound policy should exempt contracts in respect to them from those reasonable restrictions, designed by the statute to prevent frauds in the sale of other commodities. On the contrary, these companies have become so numerous, so large an amount of the property of the community is now invested in them, and as the ordi- nary indicia of property, arising from delivery and possession, can- not take place, there seems to be peculiar reason for extending the provisions of this statute to them. As they may properly be in- cluded under the term ''goods," as they are within the reason and policy of the act, the Court are of opinion, that a contract for the sale of shares, in the absence of the other requisites, must be proved by some note or memorandum in writing; and as there was no such memorandum in writing, in the present case, the plaintiff is not enti- tled to maintain this action. As to the argument, that here was a part performance, by a payment of the money on one side, and the delivery of the certificate on the other, these acts took place after this action was brought, and cannot therefore be relied upon to show a cause of action when the action was commenced. Verdict set aside, and plaintiff nonsuit. JOHNSON V. LAFLIN. {6 Dillon, 65. 1878.) Dillon, Circuit Judge : — The plaintiff is the receiver of the National Bank of ^he State of Missouri, appointed by the comptroller of the currency, June 23, 1877, the bank having suspended payment three days before (Rev. Stats, sec. 5234). The defendant Laflin had for some years prior to May 16, 1877, been the holder of eighty-five' full-paid shares in that bank. At the date of the suspension of the bank, the defendant, James H. Britton, was its president, and had been such for years prior to that event. On the 16th day of May, 1877, Laflin sold, through one Keleher, a broker, the eighty-five shares of stock to Britton, and delivered to him the share certificates, duly signed in blank, with powers of attorney in blank, thereon indorsed to trans- fer the shares on the books of the bank. Laflin's broker, who effected the sale, understood that he sold to Britton individually, or to some unknown person for whom Britton acted, and he received in payment for the shares the personal check of Mr. Britton on the bank for $5,037.50, which was immediately presented and paid. Laflin did not know until some time after the transaction who had CHAP. XV.] JOHNSON V. LAFLIN. 609 become the purchaser of his shares. After the shares had been thus delivered and paid for by Britton's check, and the money received, but on the same day, they were transferred, in pursuance of Mr. Britton's directions, by Mr. Girault, the book-keeper of the bank (by virtue of the powers of attorney from Laflin), to "James H. Britton, trustee," and at the same time the book-keeper credited Britton's individual account at the bank with the amount of hia check given in payment for the shares, and charged the same amount to the " sundry stocks account " on the books of the bank. On the offi- cial stock register the shares were thus made to stand in the name of "James H. Britton, trustee," without stating for whom he was trus- tee. On the stock ledger of the bank the transaction was entered in an account entitled "James H. Britton, trustee for the bank." Neither Laflin's agent who negotiated the sale of the shares nor Laflin himself had any actual notice of the manner in which the transfer of the stock had been registered, nor that the funds of the bank had been thus used to pay for it, nor of the entries in respect thereto on the books of the bank. But of all these facts Mr. Girault the book-keeper of the bank, who made the entries, and who had in- serted his name in Laflin's blank powers of attorney to transfer the stock, had actual knowledge at the time. This is a bill in equity by the plaintiff, as the receiver of the bank, against Laflin and Britton, to compel Laflin to repay the $5,037.50 (the amount of Britton's cheek for the shares paid by the bank), and to set aside the registered transfer of the eighty-five shares on the stock transfer book of the bank. The case presents questions of grave moment concerning the rights of stockholders and creditors in national banking associations. And if the insolvency of the bank here in question is such as shall make it necessary to enforce the individual liability of the shareholders (Rev. Stats, sec. 5151), it is important to those shareholders who made no sale of their stock to know who are shareholders with them, liable to contribute to meet " the contracts, debts, and engagements of the association." These questions principally depend upon the true construction of certain provisions in the national banking act, to which we shall refer as we proceed. Inasmuch as this act in express terms prohibits a national bank from thus becoming a "purchaser of the shares of its own capital stock " (Rev. Stats, sec. 5201), if Laflin had made a contract to sell his shares to the bank, or to its president for the bank, it is plain that such a contract would have been ultra vires and illegal, both as respects creditors and other shareholders, and the transaction could have been impeached by the bank in its corporate capacity, or by its other shareholders, even if the bank were still solvent and going on, or by the receiver as the ofiicer appointed to wind up its affairs. He London, etc. Exchange Bank (Law Rep. 5 Ch. 444, 452) ; Great Eas- tern Railway Co. v. Turner (lb. 8 Ch. 149); Currier v. Lebanon VOL. I. — 39 GIO JOHNSON V. LAFLIN. [CIIAP. XV. Slate Co. (56 N. H. 262). And although Laflin did not contract to sell his shares directly to the bank, or to the president for the bank, still, if, before the transaction was completed as to him, he had no- tice, actual or constructive, that the purchase was, in fact, a purchase for the bank, and paid for by the money of the bank, the transac- tion cannot stand, and the receiver may compel him to pay back the money thus received, and have him declared still to be a shareholder. It would be easy to support these propositions by argument and by the authority of adjudged cases, but they are so plain that it is not necessary to do so. But Laflin or his agent, Keleher, did not deal with the bank, or with the president, with knowledge that the latter in fact intended to pay for the shares out of the moneys of the bank. Laflin was acting in good faith. Neither he nor his agent, Keleher, had any actual knowledge of Britton's purpose to turn these shares over to the bank, and to pay for them out of the funds of the bank. If Laflin can be charged with notice, it must be constructive notice, arising either, first, from the mere fact that he was a share- holder in the bank, or, second, from the law imputing to him all the knowledge in this behalf which was possessed at the time by Mr. Girault, the book-keeper, who made the transfer of the shares on the transfer book of the bank under Laflin's blank powers of attorney, and who contemporaneously made the entries on the private books of the bank, which showed that Britton had been paid for the shares out of the general funds of the bank, and had acknowledged that he held the shares as the trustee of the bank. The controlling question in the case is whether Mr. Laflin is affected with constructive notice in one or the other of these modes. The solution of this question, in its turn, depends upon the nature and extent of the right of a shareholder in a national banking associ- ation to transfer his shares, and also upon the elements or requisites of a completed transfer, by which is meant such a tranefer as shall release the transferrer from liability to the bank, its stockholders, and creditors. In considering these questions, our first proposition is that, under the national banking act, a shareholder has the unrestricted right to make an out-and-out bona fide and valid sale and transfer of his shares to any person or corporation capable in law of taking and holding the same, and of assuming the transferrer's liability in re- spect thereto. The right to transfer shares in a corporation is usually recognized or given in express terms in the charter or constituent act, which also, not unfrequently, prescribes the manner in which the transfer shall be made. The capital stock of a corporation is invariably di- vided into shares of a fixed amount, for the purpose, among others, of allowing it to be readily transferred. In an ordinary partnership the consent of all the partners to the admission or retirement of a member is necessary, and every such change involves the dissolution CHAP. XV.J JOHNSON V. LAFLIN. 611 of the old and the formation of a new partnership. But in incorpo- rated companies this is different. Indeed, it is one of the leading objects of an incorporated body to avoid the operation and effect of this doctrine of the law of partnership. Accordingly, in this coun- try shares in corporations are universally bought and sold without reference to the consent of the other shareholders. The restrictions on the right bona fide to sell and transfer shares must be found in express legislative enactments or in authorized by- laws. The national banking act (Rev. Stats, sec. 6139), by provid- ing that shares shall "be transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of the association," recognizes the right of the shareholder to transfer his shares. There is nothing peculiar in this provision. A similar pro- vision is found in nearly all the incorporating acts and charters in this country. The right to transfer is given or implied in the sec- tion just referred to (Rev. Stats, sec. 5139), and that right the asso- ciation cannot take away or defeat. It contemplates a transfer on the books of the association, and all that the association is authorized to do is to prescribe the manner in which the transfers shall be made on its books. There is here no limitation whatever upon the right of trans- fer, and none exists except such as is implied from the nature of the transaction or from other provisions of the act. Another section (Rev, Stats, sec. 5201) prohibits the bank from dealing in its own shares. This implies a restriction on the shareholder in selling his shares to the bank itself, or to a known trustee for the bank. And a shareholder cannot transfer his shares colorably, and thereby cease to be a shareholder as respects creditors and other shareholders who would be injured by the transfer. There may also be an implied prohibition against the right to transfer shares to an infant or person not capable in law of assuming the liabilities, as well as enjoying the rights, of the transferrer of the shares in respect thereto, but we have no occasion to determine this point. Rev. Stats, sec. 5139; compare lb. sec. '5152 ; Weston's Case (Law Rep. 5 Ch. 614, 620). And, on general principles, there may also be an implied prohibition against the transfer of shares to a pauper or man of straw or insol- vent person, for the fraudulent purpose of escaping liability, — but this is a matter that need not now be considered. Subject, however, to such prohibitions and limitations, the right of the shareowner to make an actual and bona fide sale and transfer of his shares to any person capable in law of taking and holding the same and of assuming the liabilities of the transferrer in respect thereto, is plainly deducible from the national banking act itself. But if any doubt could exist on this subject, it would be removed by the judicial decisions construing the provisions of the banking act in this regard and similar provisions in other legislative enactments. In The Bank v. Lanier (11 Wall. 369), arising under the national banking act, it was expressly held by the Supreme Court of th'^ United Cl:^ JOHNSON V. LAFLIN'. [CHAP. XV. States that the owner of shares in a national bank may transfer the same by an assignment and delivery of the certificates, and the trans- feree may compel the bank to register the transfer on its books. The learned justice who delivered the opinion of the court in that case, after speaking of the additional value given to this species of property by reason of its transferable quality, says ; " Whoever in good faith buys the stock and produces to the corporation the certificates, regularly assigned, with power to transfer, is entitled to have the stock transferred," even if the transferrer is the debtor of the bank. The duty of the bank to make the transfer in such a case is held to be a corporate duty, in respect of which the bank is liable for the wrongful acts and omissions of its officers. It was urged in the argument at the bar in the present case that the provision that the shares should "be transferable on the books of the bank " gave the directors of the bank the power to approve or disapprove of any given transfer of shares, and to register or refuse to register the same, as in their judgment the interests of the bank or of the other stockholders might require. Such, however, is not the object of this very common provision in charters and acts of in- corporation. The purpose of requiring a transfer on the books of the bank is that the bank may know who are the shareholders, and as such entitled to vote, receive dividends, etc., and for the protec- tion of bona fide purchasers of the shares, and of creditors and per- sons dealing with the bank. That such is the meaning of the provision in question, and that it does not restrict the right of the owner to transfer his stock or clothe the corporation with the power to refuse to register hona fide transfers, is settled beyond all question by nu- merous decisions in the English and the Federal and State Courts. Black y. Zacharie (3 How. 483) ; Union Bank v. Laird (2 Wheat. 390) ; Webster v. Upton (1 Otto, 65, 71) ; Bank v. Lanier (11 Wall. 369) ; St. Louis, etc. Insurance Co. v. Goodfellow (9 Mo. 149) ; Chou- teau Spring Co. v. Harris (20 Mo. 382); Moore y. Bank (52 Mo. 377); Hill V. Pine River Bank (45 N. H. 300); Re London, etc. Telegraph Go. (Law Rep. 9 Eq. 653). The general subject of the right to transfer shares has been much discussed in the cases in England arising under the various com- panies acts. Some of these acts give the directors express power to refuse to assent to or register transfers of shares, and some do not. The result of the English cases is that the directors cannot refuse to register a bona fide transfer of stock unless the power to do so is ex- pressly given in the act of Parliament or the articles of association. The leading authority on this point is Weston's Case (Law Eep. 4 Ch. 20). See, also, Gilbert's Case (Tb. 5 Ch. 559). In Weston's Case, Lord Justice Page Wood, in considering this subject, said : — " I have always understood that many persons enter these companies for the very reason that they are not like ordinary partnerships from which members can retire at once, and free themselves from respon- CHAP. XV.J JOHNSON V. LAFLIX. 613 sibility at any time tliey please, by going into the market and dis- posing of and transferring their shares, without the consent of directors or shareholders, or anybody, provided only it is a bona fide transaction; by which I mean an out-and-out disposal of the prop- erty, without retaining any interest in them. But if it is desired by a company that such unlimited power of assignment shall not exist, then a clause is inserted in the articles, by which the directors have powers of rejection of members. Shortridge v. Bosanquet (16 Beav. 84), which went to the House of Lords, was a case of tliat kind, In the absence of any such restriction I tlaink it is perfectly plain that the Companies Act of 1862, in the 22d section, gives apower of trans- ferring shares. I think tliere is no such power given to the share- holders, and that the shares are at once transferable under the statute, unless something is found to the contrary in the articles of associa- tion. ... It would be a very serious thing for the shareholders in one of these comj)anies to be told that their shares, tlie whole value of which consists in their being marketable and passing freely from hand to hand, are to be subject to a clause of restriction which they do not find in the articles. And, I may add, that if we were to hold that such powers were vested in the directors, it would be a very serious thing for them, and would impose upon them much more onerous duties than any which are really imposed upon them by this clause." In Gilbert's Case (Law Eep. 5 Ch. 559), Lord Justice Giffard said ; " I agree that, according to Weston's Case, and according to what I have already considered to be the law, there is no inherent power in the directors, apart from the provisions of the articles of association, to refuse to register a proper and valid transfer, if that proper and valid transfer is submitted to them." And although there is express power to the directors to refuse to assent to or register a transfer, this power must be exercised in a reasonable manner and bona fide, and they must have some valid and lawful reason for refusing to register. Ex parte Penny (Law Rep. 8 Ch. 446); Nation's Case (lb. 3 Eq. 77); Fyfe's Case (lb. 9 Eq. 589); Allen's Case (lb. 16 Eq. 449; lb. 559); Weston's Case (lb. 5 Ch. 614, 620); Ex parte Elliott (lb. 2 Ch. 104). In a case where the directors had power to approve or reject the transfei; of shares, one of the vice-chancellors, speaking of the right of a shareowner to dispose of his shares, said : " One of the incidents [of this class of property] is the right to transfer it, — a right to make a pres- ent and complete transfer of it. It is the duty of the directors to receive and register the transfer, or to furnish some [valid and sufficient] reason for refusing to transfer." Re Stranton, etc. (Law Rep. 16 Eq. 659, per Bacon, Vice-Chancellor). Similar observations are made by the Supreme Court of the United States in The Bank v. Lanier {supra). Mr. Justice Davis there said : " The power to trans- fer their stock is one of the most valuable franchises conferred by Cl-i JOHNSON V. LAFLIN. [CHAP. XV. Congress. ... It enhances the value of the stock. Although neither in form nor character negotiable paper, they [the share certificates] approximate to it as nearly as possible." It would be a new, and, I apprehend, a startling, doctrine to pro- claim that the holder of shares in a corporation, where the only pro- vision on the subject of transfers was one requiring them to be made on its books, had no right to make a complete and eifectual disposi- tion of them without the consent of the directors or other share- holders. No such power over the right of transfer has been given in the national banking act. Such a power is so capable of abuse, and so foreign to all received notions and the universal practice and mode of dealing in these stocks, that it cannot, in the absence of the legislative expression, be held to exist. For these reasons, and upon these authorities, the proposition must be considered as established that a shareowner in a national bank, while it is a going concern, has the absolute right, in the absence of fraud, to make a bona fide and actual sale and transfer of his shares at any time to any person capable in law of purchasing and holding the same, and of assuming the transferrer's liabilities in respect thereto, and that this right is not, in such cases, subject to the con- trol of the directors or other stockholders. Our second proposition is that Laflin did make a complete' and effectual sale and transfer of his shares to James H. Britton indi- vidu illy, and that, as to Laflin, it was not a sale and transfer of the stock to the bank. Laflin sold through the broker or agent, Keleher, and the latter dealt with Britton as an individual, without knowledge that Britton intended to turn over the shares to the bank, and he re- ceived in payment for the shares the personal check of Mr. Britton, and delivered to him at the same time the certificates of stock as- signed in blank, with powers of attorney in blank thereon indorsed, authorizing the transfer of the shares on the books of the blank. As between Laflin and Britton, the transfer was complete by the sale, assignment, delivery, and payment, without registration, and this, whether it gave Britton before the registration the legal title to the shares as against Laflin, or only a complete equitable title. Union Bank v. Laird (2 Wheat. 390) ; Webster v. Upton ( 1 Otto, 65, 71); Black v. Zacharie (3 How. 483); Bank v. Lanier (11 Wall. 369, 377) ; Chouteau Spring Co. v. Harris (20 Mo. 382) ; Moore v. Bank (52 Mo. 377); New York, etc. Railroad Go. v. Schuyler (34 N. Y. 80) ; McNeill v. Bank (46 lb. 326) ; Grimes v. Howe (49 lb. 17, 22); Bank of Utica v. Smalleij (2 Cow. 778); Bank of Com- merce's Appeal (73 Pa. St. 59) ; Ross v. Southwestern Railroad Co. (53 Ga. 514); Hoppin v. Buffum (9 R. I. 513), Bank of America v. McNeil (10 Bush (Ky.), 54); Bavis v. Lee (26 Miss. 505); German Union Assn. v. Sendemeyer (50 Pa. St. 67); Leavitt v. Fisher (4 Duer, 1). That the transaction is complete as between seller and purchaser CHAP. XV.] JOHNSON V. LAFLIN. 615 of stock by the assignment and delivery of the certificate assigned, with the power to transfer and the receipt of payment, is fully shown by these cases, and is also evident from the fact that thereupon the each of them has the legal right to have a transfer of the shares made on the books of the bank. The seller of the shares, for his protection against creditors of the bank in case of insolvency, may transfer the same on the books to the vendee, the purchase being the authority to the seller to do this. Webster v. Upton (1 Otto, 65, 71). And, for the like reason, the seller of shares who has done all that is necessary to enable the purchaser to transfer the shares on the books, may file a bill to compel the vendee to record the transfer. Shaw V. Fisher (2 De G. & S.'ll); Cheale v. Kenward (,3DeG. & J. 27) ; Wynne v. Price (3 De G. & S. 310) ; Webster v. Upton (1 Otto, 66, 71). So, also, the vendee of the shares, where the vendor has done all that is necessary to enable the transfer to be registered, may for his own protection compel the bank to register the transfer, or hold it liable in damages for a wrongful refusal. Bank v. Lanier (11 Wall. 369); Hill V. Pine River Bank (45 N. H. 300); Bank of Utica v. Smalley (2 Cow. 778) ; Commercial Bank v. Kortright (22 Wend. 348). The delivery of the share certificates assigned in blank and blank transfers will entitle the bona fide vendee to have the transfer regis- tered. " Whoever in good faith buys the stock and produces to the corporation the certificates regularly assigned, with power to trans- fer, is entitled to have the stock transferred," Bank v. Lanier (11 Wall. 369, per Davis, J.), unless there exists some valid and legal reason in favor of the bank for refusing to register the transfer, as in the case of the Union Bank v. Laird (2 Wheat. 390). In that case the charter gave the bank a lien for the shareholder's debt to it, and provided that " stock shall be transferable only on the books of the bank." Under these circumstances the bank was held to have a lien on the shares to secure the shareowner's indebtedness to it, which was superior to the right of the unregistered transferee of the stock. Black v. Zacharie (3 How. 483). If the foregoing proposi- tions are sound, Britton, as against Laflin, had the right immedi- ately on delivery and payment to register the transfer of the shares, and had the power to fill up the blank transfers and have the trans- fer registered. Re Tahite Cotton Co. (Law Rep. 17 Eq. 273) ; Ger- man Union Assn. v. Sendemeyer (50 Pa. St. 67) ; Leavitt v. Fisher (4 Duer, 1); Commercial Bank v. Kortright (22 Wend. 348). Nothing more was required to be done by Laflin or needed to enable Britton to make his title complete. And Laflin could have compelled Britton to register the transfer. If Laflin had proceeded against Britton, he could have forced him to have accepted a transfer of the stock in his own name or in the name of some person capable of tak- ing and holding the same. Maxted v. Payne (Law Eep. 6 Ex. 132). It would have been no answer to Laflin for Britton to have said, " I bought this stock, not for myself, but for the bank." Laflin could 616 JOHNSON V. LAFLIN. [CHAP. XV. have rejoined, "You purported to aut for yourself; I supposed you were so acting, and you had no authority, and could have had none, to act for the bank." It is held in England, under the Companies Act, that the transferrer of shk.res is liable to be treated as a stockholder until he transfers to one who is in law capable of holding and liable in respect of the shares, and whose purchase is registered, unless, perhaps, where the ueglect to register is entirely the fault of the corporation or its offi- cers. F2/fe's Case (Law Kep. 4 Ch. 768) ; Lowe's Case (lb. 9 Eq. 589) ; Shropshire, etc. Railway and Canal Co. v. The Queen (lb. 7 H. L. 496, 61.3); McEwen v. West London Wharves, etc. Co. (lb. 6 Ch. 655) ; Weston's Case (lb. 5 Ch. 614, 620) ; GoocKs Case (lb. 8 Ch. 266); Gilbert's Case (lb. 5 Ch. 659); Master's Case (lb. 7 Ch. 292) ; Nickalls v. Merry (lb. 7 H. L. 630) ; Syvionds Case (lb. 5 Ch. 298) ; Heritage's Case (lb. 9 Eq. 5). Assuming, without deciding, that this principle applies in all its force under the national banking act, if Laflin had sold to an infant,, his liability would remain, notwithstanding the transfer was regis- tered. Nickalls V. Merry (Law Eep. 7 H. L. 530); Sijmonds' Case (lb. 6 Ch. 298). If he had sold to the bank, he would remain ^nma facie, if not actually, liable, if the bank should so elect. And if the seller of shares remains liable under the national banking act until there is a registered valid transfer, — that is, until some person suc- ceeds to the stock who is capable of holding it and liable in respect to it, — this principle will not make Laflin liable under the facts of the present case. Here the transfer was registered, but Britton, in- stead of registering it in his own name, as it was his duty towards Laflin to do, registered it in his name as "trustee," without Laflin's knowledge. But the act (Rev. Stats, sec. 5152) authorizes the hold- ing of stock by a trustee. If Laflin, in order to relieve himself of liability, is bound to see the transfer of the stock registered, the registry actually made would not charge him with constructive no- tice that the bank was in reality the cestui que trust. Britton is responsible personally, inasmuch as he had no authority to act for the bank, and as there is no cestui que trust who is liable. He is liable for the unauthorized investment and use of the trust moneys of the bank, and can be compelled to refund it. Great Eas- tern Railway Co. v. Turner (Law Rep. 8 Ch. 149). If it becomes necessary to assess the stockholders, he will be estopped to say that he is not individually responsible, since he was not acting by author- ity of any cestui que trust capable of taking and holding the shares. If the sale of this stock had been registered to Britton individually, it is clear that Laflin would not have been liable to the bank or its creditors ; and, as the matter now stands, the bank and its creditors have every right and remedy against Britton which they would have had if the shares had been transferred to him individually instead of to him as "trustee." CHAP. XV.] JOHNSON V. LAFLIN. 617 Our third proposition is that Laflin is not liable because the money received for the stock was unlawfully taken by Eritton from the bank. The reason for this conclusion is that Laflin parted with value, —with his shares, with his power of control over them, and the right to sell them to others, —and had no notice. at or prior to the consummation of the transaction that Britton was acting ultra vires, and intended to misappropriate the funds of the bank. If he had dealt directly with the bank, or if he or his agent had known what took place inside the counter before the transaction with Britton had been completed, he would have been liable. It is urged by the receiver's counsel that Laflin had coiistructive notice. Mr. Shields, in his argument, bases Laflin's liability on the proposition that, being a shareholder in the bank, he is charged with constructive notice of the condition of the bank, and of what was done by the president in violation of law and of his official duty in respect of these shares. I admit that if, in a transaction directly with the bank, he had received moneys to which he was not entitled, he could be made to pay back the same, irrespective of the question of knowledge on his part. Curran v. Arkansas (15 How. 304); Railroad Co. v. Howard (7 Wall. 392). But it is to be remembered in this case that Laflin is sought to be made liable in respect of the sale and transfer of his shares, which sale and transfer he had the perfect right to make, if he acted bona fide; and he has the same right to sell his shares to another shareholder that he would have to sell them to a person not a shareholder. Even directors have the right to make a bona fide sale of their shares, and thus get rid of lia- bility, if they pursue the articles or charter, and take no advantage of their position and commit no fraud. Gilbert's Case (Law Kep. 6 Ch. 559) ; Ex parte Littledale (lb. 9 Ch. 257). And shareholders, in the exercise of their right to transfer shares, are not bound, it seems, to take notice of irregularities on the part of the directors in respect to the transfer of shares. Bargate v. Shortrldge (Law Rep. 5 H. L. 297, 323) ; Taylor v. Hughes (2 Jo. & Lat. 24) ; Ex parte Bagge v. North Coal Co. (13 Beav. 162). Nor are the directors, it seems, much less shareholders, in the transfer of their stock, bound to take notice of the books of account of the company. Cartmell's Case (Law Rep. 9 Ch. 691); Hill v. Manchester, etc. Co. (2 Nev. & M. 573; 5 Barn. & Ad. 874) ; Haynes v. Brown (36 N. H. 568). We are of opinion, therefore, that the sale and transfer of the stock, as between Laflin and Britton, was complete as soon as the stock was delivered, assigned in blank, with the power to transfer, and payment received; and that what Britton, without Laflin's knowledge, afterwards did, although on the same day, in transfer- ring the shares to himself as trustee for the bank, and in reimbursing himsQlf out of the funds of the bank, could not retroact upon Laflin, whose status had already been fixed, and whose rights had already been acquired. Bank of America v. McNeil (10 Bush, 54, 58). G18 JOHNSON V. LAFLIN. [CHAP. XV. Mr. Henderson's argument for the receiver went mainly upon the ground that Laflin was chargeable, through Mr. Girault, with con- structive notice of Britton's wrongful acts in the purchase of these shares, and in the use of the bank's money to reimburse himself therefor. This argument rests upon these propositions: That the sale was not complete until the transfer was registered ; that, in making the transfer, Girault, although acting under Britton's directions, was solely Laflin's agent (by virtue of his inserting his name in the blank power of attorney) ; and that, inasmuch as Girault knew of Britton's acts in directing the transfer for the benefit of the bank, and in pay- ing himself for the purchase-money out of the general means of the bank, the law imputes this knowledge to Mr. Laflin. The first branch of this proposition is inconsistent with the one which we have above attempted to maintain, viz., that the transaction between Laflin and Britton was complete without registration of the transfer, and that it is equally complete as to the bank, unless the bank had some valid reason for refusing to register the transfer. Britton had the right to register the purchase in his own name. He was in good credit with the bank, and in the community. He was not then known to be insolvent, — indeed, it is not shown by the proofs that he is now insolvent. Laflin could have coinpelled him to register the transfer in his own name. In the eye of the law, the transfer to Britton as " trustee " is a transfer to Britton individually ; for, as above shown, Britton could not set up his ultra vires acts to defeat ' his personal responsibility. Ashhurst v. Mason (Law Eep. 20 Eq. 225) ; Ex parte Littledale (lb. 9 Ch. 25). If Laflin had a completed right, immediately on receiving payment for the shares, to have Britton register the transfer of the shares, and if, immediately on such payment, Britton had the right to register the transfer to him- self, and if the bank could not have resisted Laflin's application to compel a registration of the transfer to Britton, it is obvious that notice subsequently received by Laflin personally, or through an agent, would be immaterial. If this view is sound, it is unnecessary to decide the further ques- tion, whether Girault, in consequence of his relations to Britton, and the fact that he acted as his servant, and implicitly obeyed his direc- tions, is to be regarded, in making the formal act of transfer on the books, as the agent of Laflin, in such sense that knowledge acquired by him from Britton is to be imputed to Laflin. It deserves consid- eration, whether, under the circumstances, Girault was Laflin's agent, so as constructively to affect Laflin with notice of what was being done, not in the necessary or lawful execution of his authority, but in violation of that authority, and in hostility to his rights, as well as those of the bank. These are the positions taken by Mr. Slayback in Mr. Laflin's behalf, and they certainly have great force. For in this view, if the name of some one outside the bank, having no knowl- CHAP. XV.] JOHNSON V. LAFLIN. 619 edge of what was going on inside the bank, had been filled in by Britton as the attorney to make the transfer, or if Britton had filled in his own name, Laflin would not be liable. It is certainly ex- tremely narrow ground to make Laflin's liability depend upon the accident whose name shall be used to make tl^e formal transfer, and upon what knowledge of the interior working of the bank such per- son may happen to possess, especially in view of the custom to trans- fer stock in blank through many hands before any registry is made. It was strongly urged at the bar by Mr. Henderson, for the re- ceiver, that the foregoing views of the right of the shareholder to transfer his shares will have the effect to permit transfer to persons not able to respond to the double liability imposed on shareholders, and thus work an injury to the solvent shareholders and to creditors. But we must hold to the absolute right of the shareowner to trans- fer his stock in good faith, or the alternative that the directors may have the right to refuse their assent to such transfer, thus putting a shareholder in their power. Not a syllable can be found in the banking act giving the directors such a power; while, on the other hand, the right to transfer shares is expressly recognized. If it is desirable for the security of the shareholders or creditors that the existing members should through the directors have a veto on the right of a shareholder to transfer his shares, such a power must be plainly conferred. It has not been given, and cannot, therefore, be held to exist. It is proper to remark, in order to preclude erroneous inferences from the views here maintained", that it is probable that the unre- stricted right of transfer has reference to transfers in solvent and going concerns, and is not intended to enable shareholders to escape from liabilitj'- where the association has committed an act of insolv- ency, or has ceased to be a going concern. Allin's Case (Law Rep. 16 Eq. 449, per Lord Chancellor Selborne) ; ChappelVs Case (lb. 6 Ch. 902). While we maintain the right of a shareholder to dispose of his shares absolutely, by an out-and-out sale and registered trans- fer, and thus escape liability, provided the sale is made bona fide, and the purchaser is in law capable of assuming the liabilities of the transferrer, yet this does not involve the right to transfer shares for a fraudulent purpose, or under circumstances which the transferrer knows will make the transfer, if it is sustained, work a fraud upon the other shareholders, or upon the creditors of the bank. The result is, that there must be a decree dismissing the bill as to Laflin, and as the bill is not framed for separate relief against Brit- ton, dismissing the same as to him also, but without prejudice. Bill dismissed. 620 MCNEIL V. BANK. [CHAP. XV. McNEIL V. BANK. (46 N. Y. 325. 1871.) Appeal from: a judgment of the General Term in the fourth dis- trict, affirming a judgment entered in Montgomery County, in favor of the plaintiff on the report of a referee. The action was brought to compel the surrender to the plaintiff of 134 shares of the capital stock of the First National Bank of St. Johnsville, which had been acquired by the appellant in the follow- ing manner : — In jSTovember, 1866, the plaintiff, then being the owner of the shares in qaestion, had an account with Goodyear Brothers & Durant, of the city of New York, stock brokers, relating to other stocks, which they had purchased and were carrying for him. For the pur- pose of securing any balance which might have become due them on that account, the plaintiff delivered to and left with them, the certi- ficates of the 134 shares in dispute, with a blank assignment, and power of attorney to transfer indorsed thereon, signed by the plain- tiff, in the following words : — For value received, the undersigned hereby assigns and transfers unto shares of the capital stock of the First National Bank of St. .Johnsville, and do hereby constitute and appoint true and lawful attorney, irre- vocable for and name and behalf, to make and execute all necessary acts of assignment and transfer required by the regulations and by- laws of said bank. In witness whereof, I have hereunto set my hand and seal, this dav of (Signed) B. McNeil. Sealed and sworn in presence of On the 18th of June, 1868, at the city of New York, the appellant, at the request of Goodyear Brothers & Durant, paid the sum of $45,135 to Fred. Butterfield, Jacobs & Co., receiving from them certain securities, including the certificate and power for the 134 shares in question, which had been previously pledged by Goodyear Brothers & Durant to Fred. Butterfield, Jacobs & Co. Goodyear Brothers & Co. were at that time insolvent, and indebted to the appellant. In pledging the plaintiff's shares, they had acted without actual authority from him, and without his knowledge. He was indebted to them, on the acount for which the shares were pledged to them, in the sum of $3,000, with interest from December 1, 1866; but the account had not been rendered, or any demand made. CHAP. XV.] McNEIL V. BANK. 621 The appellant, at the time of receiving the shares, had no knowl- edge of the plaintiff's interest therein. The cashier of the appellant, within a few days after receiving the certificate, assignment, and power, filled in the blank in the assign- ment and power with "I. H. Stout, cashier, Tenth National Bank, New York, one hundred and thirty-four," and dated the same the 19th day of June, 1868, and sent the scrip to the First National Bank of St. Johnsville, for the purpose of having the shares trans- ferred on the books accordingly; but such transfer was prevented by an order of injunction in this action. The plaintiff demanded of the appellant a surrender of the scrip, on payment of the balance due by him to Goodyear Brothers & Durant; which demand was refused. The value of the shares was f 17,420. The balance of the advance made by the appellant thereon ($45,135, less the proceeds of the other securities received therewith, $29,915.19) was $15,219.81, besides interest. When the certificate and power came to the possession of the appellant, they bore the proper revenue stamp, duly cancelled with the stamp of Goodyear Brothers & Durant, and the name of Ch. Goodyear as subscribing witness to the power,' The referee found, that when the plaintiif delivered them, they were not stamped or witnessed, and that the plaintiff had never authorized those acts. The referee found in favor of the plaintiff, and, in conformity with his report, a judgment was entered, requiring a surrender of the scrip to the plaintiff, on payment by him of the $3,000 and interest due by him to Goodyear Brothers & Durant. This judgment was affirmed at General Term, and an appeal taken to the late Court of Appeals, where after argument that court 'was divided and a re-argument ordered. The case now comes up on the re-argument. Rapallo, J. : — The pledge of the plaintiff's shares by his brokers, for a larger sum than the amount of their lien thereon, was a clear violation of their duty, and excess of their actual power. And if the effect of the transaction was merely to transfer to the appellant, through Fred. Butterfield, Jacobs & Co., the title or interest of Goodyear Brothers & Durant in the shares, the judgment appealed from was right. It must be conceded, that as a general rule, applicable to property other than negotiable securities, the vendor or pledgor can convey no greater right or title than he has. But this is a truism, predica- ble of a simple transfer from one party to another where no other element intervenes. It does not interfere with the well-established principle, that where the true owner holds out another, or allows him to appear, as the owner of, or as having full power of disposi- 622 McNEIL V. BANK. [CHAP. XV. tion over the property, and innocent third parties are thus led into dealing with such apparent owner, they will be protected. Their ^ rights in such cases do not depend upon the actual title or authority of the party with whom they deal directly, but are derived from the act of the real owner, which precludes him from disputing, as against them, the existence of the title or power which, through negligence or mistaken confidence, he caused or allowed to appear to be vested in the party making the conveyance. Pickering v. Busk (15 East, 38) ; Gregg y. Wells (10 Adol. & El. 90); Saltus v. Everett (20 Wend. 268, 284); Mowrey v. Walsh (8 Cow. 238); Boot v. French (13 Wend. 570). The true point of inquiry in this case is, whether the plaintiff did confer upon his brokers such an apparent title to, or power of dis- position over the shares in question, as will thus estop him from as- serting his own title, as against parties who took bona fide through the brokers. Simply intrusting the possession of a chattel to another as deposi- tary, pledgee, or other bailee, or even under a conditional executory contract of sale, is clearly insufftcient to preclude the real owner from reclaiming his property, in case of an unauthorized disposition of it by the person so intrusted. Ballard v. Burgett (40 N. Y. E. 314). " The mere possession of chattels, by whatever means acquired, if there be no other evidence of property or authority to sell from the true owner, will not enable the possessor to give a good title." Per Denio, J., in Covill v. Hill (4 Den. 323). But if the owner intrusts to another, not merely the possession of the property, but also written evidence, over his own signature, of title thereto, and of an unconditional power of disposition over it, the case is vastly different. There can be no occasion for the de- livery of such documents, unless it is intended that they shall be used, either at the pleasure of the depositary, or under contingencies . to arise. ' If the conditions upon which this apparent right of con- trol is to be exercised, are not expressed on the face of the instru- ment, but remain in confidence between the owner and the depositary, the case cannot be distinguished in principle from that of an agent, who receives secret instructions qualifying or restricting an appar- ently absolute power. In the present case, the plaintiff delivered to and left with his brokers, the certificate of the shares, having indorsed thereon the form of an assignment, expressed to be made "for value received," and an irrevocable power to make all necessary transfers. The name of the transferee and attorney, and the date, were left blank. This document was signed by the plaintiff, and its effect must be now considered. It is said in some English cases, that blank assignments of shares in corporations are irregular and invalid, but that opinion is ex- pressed in cases where the shares could only be transferred by deed CHAP. XV.] McNeil v. bank. 623 under seal, duly attested, and is placed upon the ground that a deed cannot be executed in blank. Without referring to the American doctrine on that subject, it is sufficient to say that no such formality was requisite in this case. It was only necessary to a valid transfer as between the parties, that the assignment and power should be in writing. The common practice of passing the title to stock by delivery of the certificate with blank assignment and power, has been repeatedly shown and sanctioned in cases which have come before our courts. Such was established to be the common practice in the city of New York, in the case of The New York and New Haven Railroad Company v. Schuyler (34 N. Y. 41), and the rights of parties claiming under such instru- ments were fully recognized in that case. And in the case of Kort- rlght V. The Comviercial Bank of Buffalo (20 Wend. 91 and 22 Wend. 348), the same usage was established as existing in New York and other States, and it was expressly held that even in the absence of such usage, a blank transfer on the back of the certificate, to which the holder has affixed his name, is a good assignment; and that a party to whom it is delivered is authorized to fill it up, by writing a transfer and power of attorney over the signature. It has also been settled, by repeated adjudications, that as between parties, the delivery of the certificate, with assignment and power indorsed, passes the entire title legal and equitable, in the shares, notwithstanding that, by the terms of the charter or by-laws of the corporation, the stock is declared to be transferable only on its books ; that such provisions are intended solely for the protection of the corporation, and can be waived or asserted at its pleasure, and that no effect is given to them except for the protection of the corpo- ration; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal title to the stock, subject only to such liens or claims as the corporation may have upon it, and excepting the right of vot- ing at elections, etc. Angell and Ames on Corporations, 8th ed. § 354 ; Bank of Utica v. Smalley (2 Cow. 770) ; Gilbert v. Manchester Co. (11 Wend. 627) ; Kortrighf v. Com. Bank of Buffalo (22 Wend. 362); N. Y. and N H. R. R. Co. v. Schuyler (34 N. Y. 80). In the case of Kortright v. Com. Bank, Chancellor Walworth in a dissenting opinion strenuously maintained, in conformity with his previous decision in Stebhins v. Phoenix Ins. Go. (3 Paige, 366), that by a transfer not on the books, the transferee acquired only an equit- able right to or lien on the shares ; and that, having but an equitable right or lien, he took subject to all prior equities which existed in favor of any other person from whom such assignment was obtained (22 Wend. 352, 353, 355). But his view was overruled by the majority of the court. The action was at law in assumpsit, brought by the holder of the certificate and power, for a refusal to permit him to make a transfer on the books, and the question of his G24 McNEIL V. BANK. [CHAP. XV. legal title was necessarily involved in the case. The judgment therein must therefore be regarded as a direct adjudication that, as between the parties, the legal title to the shares will pass by deliv- ery of the certificate and power. See 20 Wend. 362. This was reasserted in this court in the New Haven Railroad Case (34 N. Y. 80), notwithstanding what was said in the Mechanics' Bank Case (13 id. 625). By omitting to register his transfer, the holder of the certificate and power fails to obtain the right to vote, and may lose his stock by a fraudulent transfer on the books of the company, by the regis- tered holder, to a bona fide purchaser (34 N. Y. 80) ; but in this re- spect he is in a condition analogous to that of the holder of an unrecorded deed of land, and possesses a no less perfect title as against the assignor and others. And he would have an action against the corporation, for allowing such a transfer in violation of his rights (ibid.). He also takes the risk of the collection of dividends by his assignor, or of any lien the corporation may have on the shares. But in other respects his title is complete. The holder of such a certificate and power possesses all the external indicia of title to the stock, and an apparently unlimited power of disposition over it. He does not appear to have, as is said in some of the authorities cited, concerning the assignee of a chose in action, a mere equitable interest, which is said to be notice to all persons dealing with him that they take subject to all equities, latent or otherwise, of third parties ; but, apparently, the legal title, and the means of transferring such title in the most effectual manner. Such, then, being the nature and effect of the documents with which the plaintiff intrusted his brokers, what position does he oc- cupy towards persons who, in reliance upon those documents, have in good faith advanced money to the brokers or their assigns on a pledge of the shares? When he asserts his title, and claims, as against them, that he could not be deprived of his property without his consent, cannot he be truly answered that by leaving the certifi- cate in the hands of his brokers, accompanied by an instrument bear- ing his own signature, which purported to be executed for a consid- eration, and to convey the title away from him, and to empower the bearer of it irrevocably to dispose of the stock, he in fact ' ' substituted his trust in the honesty of his brokers for the control which the law gave him over his own property, " and that the consequences of a be- trayal of that trust should fall upon him who reposed it, rather than upon innocent strangers from whom the brokers were thereby enabled to obtain their money? These principles, in substance, were applied in the case of Kort- right v. The Commercial Barik. But it is sought to distinguish that case from tnis; and it is argued, that there the certificate was in- trusted to an agent, with authority from his principal to borrow money upon it for the benefit of his principal, and that he simply CHAP. XV.] MCNEIL V. BANK. . 625 exceeded his authority by borrowing more than he was authorized to borrow, and absconding with the excess. The facts were, that the certificate indorsed by Barker, the owner of the shares, was sent by him, together with his note for $10,000, to Bartow, the cashier of a banls in Albany, to obtain a loan of f 10,000. Bartow, through an agent in New York, negotiated a loan there, upon the certificate, for $25,000, and absconded. Barker ad- mitted having received the $10,000. Whether the f 10,000 were to be, or were, borrowed by Bartow for Barker, or advanced by Bartow or his bank, does not clearly appear; and the opinions delivered in the case differ upon the point whether Bartow received the (certificate as agent or pledgee. But, assuming that he received it as agent, the ground which lies at the foundation of the decision is, that the possession of the certificate and blank power gave him an apparent right of control over the stock ; that, if the holder of the certificate and power was exhibited to the money- dealing public as having the competent right of pledge, disposal, and transfer vested in him, by means of all the usual and well-known evidences of such right, the private understanding of Barker and Bartow could not affect the rights of those, who, if misled, were mis- led by Barker's own acts. It is true that Senator Verplanck, in his prevailing opinion, cites authorities on the subject of a deviation by an agent from secret in- structions, and treats the case as belonging to that class; but he also rests upon the more general principles above stated, and cites the well-known case of Pickering v. Busk (15 East, 38), where the owner had allowed a broker to be invested with the indicia of a legal title to goods, by a transfer of them into his own name on the wharf- inger books. The principles of agency are, however, applicable to this case. In disposing of a pledge, the pledgee acts under a power from the pledgor. The distinction between a lien and a pledge is said to be, that a mere lien cannot be enforced by sale by the act of the party, but that a pledge is a lien with a power of sale superadded. Story on Bail- ments, 7th ed., § 311, note 2; Wasson v. Smith (2 B. & Aid. 439). The pledgee in selling is bound to protect the interests of the pledgor, and, as to the surplus, represents the pledgor exclusively. Now, for what purpose was the apparent ownership and power of disposition of this stock vested in the brokers? Surely for the purpose of ena- bling them, effectually and summarily, to execute this power under certain conditions. If the power was absolute on its face, or if the whole legal title was by the instrument apparently vested in the pledgee, and the condition was secret, wherein does the case differ in principle from one of ordinary agency? I am at a loss to conceive cin what principle it can be claimed, that an apparent naked authority is more effectual to bind the party giv- ing it, than an apparent ownership as well as authority. VOL. 1. — 40 62& McXEIL V. BANK. [CHAP. XV. In the case of Jarvis v. Bogers (13 Mass. 105), the shares were transferable by indorsement of the certificates. The shareholder in- dorsed his certificates and pledged them for a debt. The debtor's friend, by his authority, and with his funds, paid the debt, and took up the certificates, and the debtor allowed them to remain thus in- dorsed, in his hands, but not for any specific purpose. This friend afterward pledged them for his own debt, to a party who advanced thereon in good faith. It was decided that the latter could hold them against the true owner. The court, after distinguishing the case from one of mere bail- ment, says that after the plaintiff had put his name on the back of the certificates, and allowed them to go into the market with that transferable quality about them, it did not lie in the mouth of him who offered them to the world in that shape, to deny the effect of his own words and actions. This decision was adhered to, and repeated in Jarvis v. Bogers (15 Mass. 389), and recognizes substantially the same doctrine as Kort- right v. The Com'l Bank, ojnitting the element of excess by an agent of authority actually given, which is supposed to have governed that case. Fatman v. Loback (1 Duer, 354) is a case precisely in point, and I see no ground upon which the conclusions of the learned court in that case can be successfully assailed. The case of McCready v. Bumsey (6 Duer, 674), which is cited as overruling Fatman v. Loback, has no such effect. The question in 6 Duer was between the assignee of the shares and the corporation, and it was held that the lien of the corporation on the stock for unpaid subscription, was pro- tected where the transfer was not made on the books, — a position fully recognized in this opinion, and in the cases I have cited. Moreover, in the case in 6 Duer, the general act under which the corporation was formed provided that transferees of shares should take subject to the liabilities of prior shareholders. In the cases of Ex parte Swan (7 C. B. n. s. 400) ; Swan v. The North British Australasian Co. (7 Hurl. & Nor. 603), and Same v. Same (2 Hurl. & Coltman, 175), some of these questions received a most elaborate discussion, and there was a strong array of judicial opinions sustaining the validity of transfers of stock, unauthorized in point of fact, on the ground that by mere negligence, and unin- tentionally, the true owner had enabled another to deliver an appar- ently valid title to the stock, and thus deceive third parties. In that case, the plaintiff had intrusted to a broker ten deeds of transfer, executed in blank, for the purpose of transferring certain shares. The broker used only eight of them for the purpose intended, and feloniously filled up and used the others as transfers of other shares, belonging to the same party, forged the name of a subscribing ,' witness, and stole the certificates of the shares from the plaintiff's box, of which the plaintiff kept the key. He then sold the shares to bona, fide purchasers. He was convicted of the larceny. CHAP. XV.] McNeil v. bank. • 627 In a contest by the owner to get back tbe shares, the Common Bench was, after two arguments, equally divided upon the question, whether the owner was not estopped from reclaiming the shares, by reason of his negligence in intrusting the blank transfers to the broker, though they were intended for other shares. The case was taken to the Court of Exchequer, and that court was equally divided upon the same question. It was then taken to the Exchequer Cham- ber, where it was finally disposed of, principally on the ground, that to estop the owner, his negligence must be the proximate cause of the deceit ; that here it was too remote, as the blank deeds of trans- fer were intended for other shares, and the broker had to commit forgery to make them available, and a separate felony to obtain pos- session of the certificates. In the case at bar none of these difficulties exist. The assignment and power were intended for these identical shares; they, as well as the certificate, were voluntarily intrusted by the plaintiff to the brokers, and the latter were thus invested with the apparent owner- ship and right of disposal, not merely by the negligence of the true owner, but by his voluntary act, and for the very purpose of attest- ing to the world their title and power, in case the contingency should arise in which, according to the understanding between them and the plaintiff, they would be justified in resorting to the stock for their own indemnity. Two cases have been cited on the part of the respondent which require notice, viz. : Covell v. The Tradesmen's Bank (1 Paige, 131), and Bush, Administrator v. Lathrop (22 N. Y. 535). In Covell V. The Tradesmen's Bank, the complainant, being the owner of a sealed note for $2,425 payable to himself, indorsed it and pledged it to M. for a loan of $1,000. M. indorsed it and pledged it to the bank, defendant, as security for an antecedent debt of f 1,000 and a fresh advance of $1,425. The complainant's debt to M. having been paid, he filed his bill against the bank and M. to obtain a surrender of the note. The Chancellor disposed of the case on the ground that the sealed note, being a mere chose in action, was not assignable in law, — that the assignee of a chose in action, which must be sued in the name of the assignor, obtains only an equitable interest, the legal title remaining in the assignor; and that the interest of such assignee, being only equitable, was not protected against the prior equity and legal right of the original owner. Thus applying to the assignee of a chose in action the doctrine which he afterward, in the case of Kortright v. The Commercial Bank, unsuccessfully sought to apply to the transferee, by assignment and power, of shares of stock in a corporation. He refers to the decision of Chancellor Kent, in Murray v. Lyl- hurn (2 Johns. Ch. 443), to the effect that the assignee of a chose in action takes subject only to the equities of the debtor, and not 628 McNEIL V. BANK. [CHAP. XV. subject to latent equities of a third person against the assignor, and points out that the case of Medfearn v. Ferrier (1 Dow's Par. E.. 50), cited by Chancellor Kent, was decided, not on the ground that the assignee of a chose in action was protected against a latent equity in a third person, but that a share in a joint-stock company was not a chose in action ; that the assignee had, according to the law of Scotland, the legal title to the shares, and that the equities of the parties being equal, the court would not divest him of his legal right. In Bush, Administrator v. Lathrop (22 N. Y. 535), the plaintiff's intestate, being the assignee of a bond and mortgage for $1,400, pledged them to Preston to secure $268.20, and delivered them to the pledgee with a note for the amount and an assignment of the bond and mortgage, absolute on its face, but expressing a considera- tion of only $268.20, the mortgage being good for its full amount. Preston gave back a receipt, agreeing to redeem the bond and mort- gage on payment of the note. Preston afterward assigned the bond and mortgage to Smith & ' Norton, who in turn assigned to the defendant for $1,488, advanced by him in good faith. The plaintiff brought his action to obtain a retransfer of the bond and mortgage on payment of the $268.20, with interest. Denio, J., in delivering the opinion of the court, reviews the de- cision of Chancellor Kent, in Murray v. Lylburn, and other cases, on the subject of latent equities, disapproving of the doctrine of Chancellor Kent, and coming to the conclusion, that an assignment of a chose in action takes but an equitable interest, notwithstanding the provisions of the Code whicih authorize him to sue in his own name ; that all the assignees of the bond and mortgage in ques- tion, subsequent to the original obligee, must be regarded as holding merely equitable interests, and that, as between parties so circum- stanced, priority of time confers a preferable right (22 N. Y. E.. 547, 548); following, substantially, the opinion of Chancellor Wal- worth, in Covell v. The Tradesmen's Bank, which he cites. He concedes that this doctrine forms a serious impediment to his negotiation of choses in action, and alludes to the difference of opin- ion which may exist as to the policy of encouraging their negotiation, and to the period when it was thought so impolitic, that courts of law would not recognize the rights of assignees. But in no part of his learned and exhaustive opinion does he seek to apply its doc- trine to shares in corporations, or other personal property, the legal title to which is capable of being transferred by assignment, and the free transmission of which, from hand to hand, is essential to the prosperity of a commercial people. The question of estoppel does not seem to have been considered in that case; and perhaps it would have been inappropriate, inasmuch, as the assignment upon which the estoppel could have been predi- cated, if at all, expressed a consideration of only $26'K V. GUSTIN MINING CO. [CHAP. XVII. FIRST NATIONAL BANK v. GUSTIN MINING COMPANY. (42 Minn. 327 1890.) This action was brought in the district court for Rice County against the defendant corporation and certain of its stockholders res- ident in this State, and was tried by Buckham, J., Who ordered judgment against the corporation for the amount of plaintiff's claim (122,091.84), but in favor of the other defendants. The plaintiff appeals from the judgment. Mitchell, J. : — This action was brought upon a debt of the defendant company, a corporation organized under the laws of Dakota Territory, and against the other defendants, citizens of this State, as stockholders, to obtain judgment against the company for the amount of the debt, and against the other defendants for the respective amounts alleged to be due and unpaid on the stock held by them, so far as necessary to satisfy the judgment against the corporation. To dispose of cer- tain preliminary questions raised by the defendants, it may be stated at the outset that it is elementary law that, where a person be- comes a stockholder in a corporation organized under the laws of a foreign State, he must be held to contract with reference to all of the laws of the State under which the corporation is organized and which enter into its constitution, and the extent of his individual liability as a shareholder to the creditors of the company must be determined by the laws of that State, not because such laws are in force in this State, but because he has voluntarily agreed to the terms of the company's constitution. It is equally clear, upon both princi- ple and authority, that this liability may be enforced by creditors wherever they can obtain jurisdiction of the necessary parties. This does not depend upon any principle of comity, but upon the right to enforce in another jurisdiction a contract validly entered into. The remedy, however, does not enter into the contract itself ; and for this reason the individual liability of shareholders can only be enforced by the remedies provided by the laws of the forum. Hence the question of the liability of the defendants' shareholders must be de- termined by the laws of Dakota, and that of remedy by the laws of Minnesota. That the remedy resorted to by plaintiff in this ease is a proper one is well settled. Merchants' Nat. Bank v. Bailey M'f'g Co. (34 Minn. 323 ; 25 N. W. Eep. 639). Upon the trial the judge consid- ered it to be one triable by the court, but, on his own motion, sub- mitted a speciiic question of fact to a ]ury ; out subsequently, con- sidering the verdict as immaterial, he proceeded without regard to it, CHAP. XVII.] FIRST NAT. BANK V. GUSTIN MINING CO. 851 and found the facts upon all the issues in the case. As neither party, claims anything from this special finding of the jury, and as there is no exception which raises the question whether the action was triable by the court or by a jury, the whole case is reduced to the single question whether the conclusions of law are justified by the findings , of fact. Section 413 of the Civil Code of Dakota provides that " each stock- holder of a corporation is individually and personally liable for the debts of the corporation to the extent of the amount that is unpaid upon the stock held by him." This is but declaratory of the com- mon law. The findings of fact, so far as here material, are, in substance, as follows : Prior to November 13, 1886, there had been organized, and were at that date in existence, under the laws of Dakota, two mining corporations, viz., the Gustin Belt Gold Mining Company, and the Minerva Mining Company, of the latter of which the plaintiff, a na- tional banking association of Deadwood, Dak., was a creditor. On the date named the defendant corporation was organized for the pur- pose and with intention of consolidating the other two companies, acquiring their property, and with the property so acquired carry- ing on a general mining business. "At the time of the organiza- tion of the defendant company, and as the scheme on which the same was based, it was agreed by the parties so incorporating, and by those representing and having authority to act for the two ex- isting companies, that all the mines and mining property of such two ' corporations should, upon its organization, be transferred and con- veyed to the new, or defendant company, and constitute its entire capital stock and resources for the prosecution of its enterprise, and be represented in such organization by a nominal capital stock of $2,600,000, divided into 260,000 shares of $10 each, which should all be deemed and held as represented by the properties so conveyed to it; that 60,000 of said shares should be issued to the former shareholders of each of the two old companies, and the remaining 160,000 shares belong to and constitute the working capital of the new corporation, and be sold under its authority, and on such terms as it should direct ; and the proceeds of such sales constitute a fund to pay off the debts on the properties, and develop the mines thereon, and be used generally in the prosecution of the business of the new corporation, for the benefit of all its stockholders. That it was never 'expected or intended by such corporation, or by those to whom its stock was issued, that any subscription to the capital stock of the new company "should ever be made, or that any capital stock should ever be taken, or any capital subscribed for or paid in, except by conveyance to it of the mining properties referred to, and the sale of the stock reserved for its working capital, in o on ' market, for such sum as could be obtained therefor." This scheme was carried into effect by the conveyance to the new or defendant 852 FIRST NAT, BANK V. GUSTIN MINING CO. [CHAP. XVII. corporation of the properties of the two old corporations, and the issue to their stockholders, according to their respective holdings, of 100,000 shares of the stock of the new company (called in the find- ings " Old Company Stock ") as paid-up stock, and by placing the re- maining 150,000 in charge of the board of directors, to be by them sold in the open market for such price per share (not less than 50 cents) as could be obtained therefor. The mining properties of the two old companies conveyed to the new company were not worth to exceed f 50,000 cost, and were at the time of this scheme of consolida- tion considered and estimated as of the aggregate value of $100,000. The new and defendant company assumed payment of the in- debtedness of the Minerva Mining Company to the plaintiff, which consented to a novation of its debt, accepting the notes of the defendant company in place of those of the old Minerva Com- pany. This is the claim upon which this action is brought. The court also finds " that the payees in said notes named, and the gen- eral managing officer of the plaintiff, well knew, at the time of the execution of said notes and of their indorsement and delivery to the plaintiff, all the facts hereinbefore stated, relating to the organi- zation of the defendant corporation and the understanding and plan of its organization, and so dealt with the defendant knowing such matters, and were parties to and interested in the original scheme of the incorporation of the defendant company as in the find- ings set forth." This must be construed as meaning that the " gen- eral managing officer " referred to is the person who transacted the business with the defendant company in taking these notes, and of the benefit of whose action in that regard the plaintiff has availed itself. Notice to him must be deemed notice to the plaintiff. Returning, now, to the subsequent management of the affairs of the defendant company, the board of directors, pursuant to the scheme of organization, offered for sale in the open market the 160,000 shares remaining in the treasury, as fully-paid-up stock, and some of it was bought as such by the other defendants in good faith, for a price exceeding its fair market value (but not exceeding one dollar per share), believing it to be fully-paid-up stoc)' This is called in the findings "Treasury Stock." The holders of the old company stock also placed their stock in the market, some of which the defendants also bought, under like circumstances and in the same belief. In March, 1887, the board of directors, pursuant to a reso- lution adopted by them, distributed pro rata among the individual shareholders all the stock remaining unsold in the treasury. Of this the individual defendants received their respective shares, for which they paid nothing. This is called in the findings "Pro rate Stock." The court also finds that none of such de- fendants ever contracted, promised, or in any manner agreed, or intended to contract, promise, or agree, to pay, on account of such* stock, any other or different or greater sum or consideration, unless CHAP. XVII.] FIRST NAT. BANK V. GUSTIN MINING CO. 853 the law would impose or imply such promise, contract, or agreement from the foregoing facts. The holdings of the defendants consist^ in part, of old company stock, in part of treasury stock, and in part of pro rate stock. The contention of the plaintiff is that the defendant shareholders are individually liable, as for unpaid stock subscriptions, for amounts equal to the amount of their stock, less the value of what they have actually paid therefor, viz., nine dollars per share on the old company and treasury stock, for which they paid in value only one dollar per share, and ten dollars per share on the pro rate stock, for which they paid nothing. If these stockholders were indebted to the corpora- tion for unpaid instalments on stock, this debt would be an asset of the corporation which, in case it became insolvent, any creditor might always enforce for the purpose of satisfying his claim. But it is very clear from the facts that the defendant company has no claim against the defendant stockholders. They owe it nothing. As between them and it, the arrangement by which this stock was issued and sold, or given away, as fully-paid stock, is entirely valid. But the plaintiff bases its claim upon the familiar doctrine that the capi- tal stock of a corporation is a trust fund for the benefit of its cred- itors, and that, if shares are not in fact paid up, an arrangement be- tween the corporation and the shareholders that they shall be deemed paid up, although valid between the company and the stockholder, will be ineffectual as to creditors, and that equity will hold the shareholder liable for the amount not in fact paid on his stock, to the extent necessary to satisfy the demands of creditors. We waive consideration of the question (which may, at least, admit of doubt) whether plaintiff's complaint is sufficient to entitle it to such relief. See Phelan v. Hazard (5 Dill. 45); Cook, Stocks, § 47 ; Scovill V. Thayer (105 U. S. 143). The general proposition advanced by plaintiff cannot be contro- verted, but the principle upon which this trust in favor of creditors rests and is administered must not be overlooked. The whole doc- trine that the capital stock of corporations is a trust fund for the pay- ment of creditors rests upon the equitable consideration that the dis- tribution of the capital among stockholders without making adequate provision for the payment of debts, or the issue of fictitiously paid- up stock, is a fraud upon creditors who contract with the corporatioii in reliance upon its capital remaining intact, or in reliance upon the professed capital having been in fact paid up in full. But when, the reason for the rule does not exist the rule itself ceases to apply. This trust does not arise absolutely in every case, in favor of every and any creditor. It is not true, and no case can be found which holds, that it is in the power of a creditor in every and all cases, as a matter of right, to institute an inquiry as to the value or amount of the consideration given for stock issued as fully paid up, any more than that it would be his right, in any and every case, to inquire into 854 FIRST NAT. BANK V. GUSTIN MINING CO. [CHAP. XVII. 'tbe distribution of the capital among the shareholders. It is only those creditors who can fairly allege that they have relied, or whom the law presumes to have relied, upon the amount of capital stock of the company, who have a right to make such inquiry, or in whose favor equity will impress a trust upon the subscription to the stock, and set aside a hctitious arrangement for its payment. For example, to distribute the capital among the shareholders without provision for paying corporate debts would be a fraud on existing creditors, as well as on such subsequent creditors as deal with the corporation in reliance upon the assumption that its professed capital remains in- tact. An illustration of this kind is to be found in the very first case in which what is now called the " American doctrine " was an- nounced by Justice Story. We refer to the case of Wood v. Dummer (3 Mason. 308), where a banking association distributed three-fourths of its capital among its shareholders without providing for the payment of billholders,. and the court impressed a trust in their favor upon the capital in the hands of the shareholders. So, again, where corporar tions have organized and engaged in business, with a certain amount of ostensible and professed paid-up capital, but which was not in fa'ct paid in, there are numerous cases in which the courts have set aside the arrangement by which the stock was called " paid-up," and impressed a trust upon the subscription of the shareholder in favor of subsequent creditors who relied upon, or whom the law would presume to have relied upon, the apparent and professed amount of capital. To this class belong many of the cases cited by plaintiff, as, for example, Sawyer v. Hoag (17 Wall. 610); Wetherbee v. Baker (35 N. J. Eq. 501). While the courts have not always had occasion to state the lim- itations upon the doctrine that " the capital is a trust fund for the benefit of creditors," yet we think that it will be found that in every case where they have impressed a trust upon the subscription of the shareholders, it has been in favor of creditors becoming such after- wards, and hence fairly to be presumed as relying upon the amount of capital which the company was represented as having. We are referred to none, and have found none, where any such trust has been enforced in favor of creditors who have dealt with the corpo- ration with full knowledge of the facts. The reason is apparent, for in such cases no fraud, actual or constructive, has been com- mitted on such creditors. If a corporation issue new shares after the claim of a creditor arose, it is clear that the latter could not have dealt with the company on the faith of any capital represented by them. Whatever was contributed as capital in respect of the new shares was a clear gain to the creditor's security. So, too, if a party deals with a corporation with full knowledge of the fact that its nom- inal paid-up capital has not in fact been paid for in money or prop- erty to the full amount of its par value, he deals solely on the faith of what has been actually paid in, and has no equitable right to insist CHAP. XVII.] HANDLEY V. STUTZ. 855 ou the contribution of a greater amount of capital by tlie share- holders than the corporation itself could claim as part of its assets. Coit V. Gold Amalgamating Co. (14 Fed. Eep. 12, same case 119 U. S. 343, 7 Sup. Ct. Kep. 231). This doctrine with respect to trusts has no application to a case where a party, like the plaintiff, was cog- nizant of the whole arrangement under which the stock of the de- fendant company was issued and of what was paid or intended to be paid for it, and who accepted a novation of its debt with full knowl- edge of these facts, and received as great or greater security for it than it had before. To hold otherwise would be to perpetrate a fraud on the stockholders, and not on the creditors. These views effectually dispose of the question of the liability of the defendants, at least on account- of their old company and treasury stock. We think it also logically follows from what we have said that the defendants are n6t liable to the plaintiff upon their " pro rate " stock as for unpaid stock subscriptions. This stock had not been issued when plaintiff's debt was contracted. It could not have dealt with the company on the faith of any capital represented by these shares. In fact, it knew that no such capital had been paid in, unless the mining properties of the two old companies can be con- sidered as represented in part by them ; and the value of these prop- erties remained the same, and they were equally available to cred- itors, whether represented by 100,000 shares or 250,000 shares of stock. Under such circumstances, the plaintiff has no equitable right to insist on the contribution of a greater amount of capital by the holders of these shares than the corporation itself could insist on. 2 Mor. Priv. Corp. §§ 832, 833. Judgment affirmed. HANDLEY v. STUTZ. (139 U. S. 417. 1891.) This was a bill in equity, filed by Sebastian Stutz, of Pittsburg, Pa., by certain other persons composing the firm of Eagon Brothers, of Evansville, Indiana, and by others composing the firm of Louis Stix & Co., of Cincinnati, Ohio, on behalf of themselves and such other creditors of the Clifton Coal Company as should come in and contribute to the expenses of the suit against the Clifton Coal Com- pany and certain of its stockholders, to compel an assessment upon certain shares of stock held by the individual defendants, and pay- ment of the same as a trust fund for the satisfaction of the debts of the company. The bill averred in substance that the Clifton Coal Company was incorporated under the laws of the State of Kentucky, in July. 1883, with power to purchase, lease, and operate coal mines in the State of Kentucky, a copy of the articles of incorporation 856 IIANDLEY V. SXUTZ. [CHAP. XVII. being annexed to the bill; that by said articles the capital stock of such corporation was fixed at $120,000, divided into shares of $100 each, with power to increase the same to $200,000, by a majority vote of the stockholders; that all the stock was then taken and paid for by the subscribers in some manner agreed upon between them; that, pursuant to the authority contained in the articles of incor- poration, the stockholders, all of them being present and voting, "at a meeting duly held for the purpose in May, 1886, unanimously resolved and ordered that the capital stock of said company be, and in fact it was, then increased to $200,000, in shares of $100 each, being an increase of 800 shares of stock of said company; " that of the 800 shares then created, the defendant Handley subscribed for 86J shares, two of the other defendants for 15 shares each, and two others for 75 shares each, certificates of which were issued by the company, and delivered to, and received by, said subscribers, as they were respectively entitled; but that neither one of them ever paid to the company any part of the said shares, and they each, respectively, owe the said company the full par value of the shares of the said capital stock subscribed for and issued to them. The bill also averred that on December 30, 1886, it having been previously resolved to issue bonds to the amount of $50,000, and to secure the payment thereof by a mortgage upon its property, and said mortgage having been executed to trustees and recorded, a con- tract was executed and delivered to the company by certain others of the defendants, whose names were subscribed thereto, in the fol- lowing terms : " We, the undersigned, subscribe for the amount set opposite our names, respectively, to bonds of the Clifton Coal Com- pany, aggregating $50,000. It is agreed that $50_,000 capital stock be distributed p7'o rata among the subscribers to the above bonds ; " that several of the defendants subscribed to this contract, and agreed to take bonds in different amounts; that said subscribers paid the coal company for the bonds, and that with the money thus received, to the extent of $30,000, the company paid its debts to certain of its officers and managers, who had become liable by indorsement for the company, and that nothing was or ever had been paid for or upon any of the shares of capital stock thus subscribed for, and to be distributed among them; that is to say, $50,000 of said capital stock, equivalent to 500 shares thereof, was in fact subscribed for and dis- tributed among certain of the defendants, to whom, in May, 1887, there were issued and received by them respectively certificates for shares. The bill fxirther averred that the plaintiffs were judgment creditors of 'the company, by judgments obtained in the courts of Kentucky ; that their debts were created before all of the capital stock of said company was paid in; and that all of said $80,000 increase of the capital stock, and each and all of the amounts due to the company for any part of its capital stock, constituted a trust fund for their CHAP. XVII.] HANDLEY V. STUTZ. 857 benefit, whiuli tliey were entitled to have administered in a court of equity to the satisfaction of their said debts, the company being insolvent. It further appeared from the testimony that the company was organized soon after its articles of incorporation were filed; that its chief office was at Mannington, Kentucky ; and that it began busi- ness at once and made large outlays and expenditures for machinery, buildings, materials, and labor. In the early part of the year 1886, the company was led to believe that its coal would coke, and, there- fore, its products could be profitably extended from grate and steam purposes to iron-making coke. To embark in the manufacture of coke, however, money was needed, and a meeting of the stockholders was held March 31, 1886, at which a resolution was passed, reciting that $50,000 was needed with which to erect coke ovens, buildings, improvements, etc., to further develop the property, and it was unan- imously resolved to issue $50,000 of bonds of the company, in sums of $1,000 each, due thirty years from April 1, with 6 per cent inter- est, and secured by a trust mortgage upon the property of the com- pany, and the president was authorized to dispose of such bonds as in his discretion seemed best. The mortgage was executed to the designated trustee and recorded. It was found, however, that the bonds could not be sold, and to meet the demands upon the company for money, it borrowed a large amount upon its notes, indorsed by its directors and stockholders, and to secure the lenders and in- dorsers, the $50,000 of bonds were deposited in two banks in Nash- ville, Tennessee, as additional collateral security for the loans. Finding, that no one would purchase the bonds, and being advised that in order to effect their sale it would be better to add an equal amount of stock to the bonds, and propose to the purchasers of such bonds to give as a gratuity $1,000 of stock with each $1,000 bond, a meeting of the stockholders of the company was held at Nashville, May 31, 1886, at which all the stockholders were present in person or by proxy, although without any call or previous notice, and " it was unanimously resolved that the capital stock of the company be increased to $200,000, as authorized by the charter." This resolu- tion was not then entered upon the records of the corporation, but was formulated in the shape of a pencil memorandum, and adopted unanimously, although no vote appeared to have been taken, and no formal record was made of the meeting until the summer of 1888. No notice of such change in the amount of its capital stock was recorded or published, as required by the laws of Kentucky. The subscribers to the bonds subsequently executed the agreement set forth in the bill, and bonds to the amount of $45,000 were delivered to the subscribers with equal amounts of certificates of " paid up " stock, the receipts reciting that it "was issued with bonds for the same amount, as per agreement." The certificates on their face re- cited that the shares of stock were fully paid up "and were non- 858 HANDLEY V. STUTZ. [CHAP. XVII. assessable," or language to that effect. Five thousand dollars of the bonds were left in one of the national banks at Nashville as collateral security for a loan to the company, no one having subscribed for them. The remaining f 30, 000 shares of increased stock, wtiich were not needed to secure the subscribers to the bonds, appeared to have been distributed pro rata among the old stockholders. In the latter part of 1887, and in the early part of the following year, plaintiiis ob- tained judgments against the company, which were unsatisfied, and in September, 1887, by an order of the Circuit Court of Hopkins County, Kentucky, the entire property of the company was placed in the hands of a receiver, and its operations stopped. On February 8, 1889, this bill was iiled against the coal com- pany, and the holders of this increased stock, to compel payment therefor, and to recover the amounts of the judgments against the company. The court dismissed the bill as to three of the defend- ants not served with process, and as to the rest held them liable to all the creditors of the company whose debts originated after the alleged increase of stock, and fixed May, 1886, as the date of such increase. As to debts contracted prior to that date, they were excluded because, as between the company and the stock- holders, the latter held such stock properly, and without liability to the company, and all creditors who dealt with the company prior to such increase, and not tipon the faith of such stock, had no equity to demand more than the company itself could. Five of the defendants against whom decrees were rendered in excess of $5,000 appealed to this court, and the Circuit Court suspended the execu- tion of the decree as to those who could not appeal, until this court should determine the rights of the appellants. The opinion of the Circuit Court is reported in 41 Fed. Rep. 531. Mr. Justice Beown delivered the opinion of the court: — 1. Although the resolution of May 31, 1886, increasing the stock of the company from |120,000, to $200,000 was not formally entered at that time upon the books of the company, and nothing but a pencil memorandum was then made of the proceedings of the meet- ing, no objection can be taken to its validity by reason of such omis- sion. The testimony shows clearly what took place at this meeting. It appears from the memorandum made by Mr. Allen, the acting secretary, to have been "unanimously resolved that the capital stock of the company be increased to $200,000 as authorized by the char- ter, the purposes for which said stock is issued being the better- ment of the present plant, and the construction of a new plant for coking purposes." This resolution was subsequently, and in 1888, when the omission to record the same appears to have been first dis- covered, formally entered upon the minute book of the corporation. The failure to enter this resolution at the time it was adopted did not affect its validity, as most corporate acts can be proved as well by parol as by written entries. Moss v. Averell (10 N. Y. 449). CHAP. XVII.] HANDLEY V. STUTZ. 859 2. Nor were the proceedings of such meeting any less binding upon those participating in it by reason of the fact that it was held without call or notice, and outside of the boundaries of the State under the laws of which the company was incorporated. By an act of the Legislature of Kentucky of March 3, 1876, General Statutes, page 769, "all elections for directors and other officers, by private corporations, etc. shall be held within the territorial limits of the State of Kentucky. . . . Any such elections held outside of Kentucky shall be void." Beyond the election of officers, however, there is no statutory restriction of corporate action to the limits of the State, and in the absence of such inhibition the proceedings of such meeting would, within the rule laid down by this court m Galveston Rail- road V. Cowdrey (11 Wall. 469), with regard to directors' meetings^ be binding upon all those participating in it, as well as upon those acting upon the faith of its validity, or receiving stock authorized to be issued at such meeting. It is true there are cases holding that stockholders' meetings cannot be legally held outside of the home State of the corporation, but the qi^estion has generally arisen where a majority present at such meeting had attempted by their action to bind a dissenting minority, or had taken action prejudicial to the rights of third persons. Ormshy v. Vermont Copper Mining Co. (56 N. Y. 623); Hilles v. Parrish (14 N. J. Eq. (1 McCarter) 380). Indeed, so far as we know, the authorities 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. Heath v. SilvertJiorn Lead Mining Co. (39 Wisconsin, 146). In this case the meeting was at- tended by all the stockholders but two, who were represented by proxy, the vote increasing the stock was unanimous, and it does not lie in the mouth of those who participated in this act, or received the stock voted at this meeting, to question its validity. 3. It is further claimed that this issue of stock was invalid by reason of the fact that there was no amendment of the charter authorizing such increase ever recorded or published, as required by the law of Kentucky. The proceeding for the organization of incorporated companies is found in chapter b& of the General Stat- utes of Kentucky, the fifth section of which requires a notice to be published for at least four weeks in some newspaper as convenient as practicable to the principal place of business, specifying several particulars, among which is the amount of capital stock authorized, and the times when, and the conditions upon which, it is to be paid in. Section six is as follows: "The corporation may commence business as soon as the articles are filed for record in the office of the county court clerk, and their acts shall be valid if the publication m a newspaper is made, and the copy filed in the office of the Secretary of State, when sucK filing is necessary, within three months from such filing in the clerk's office. No change in any of the foregoing particulars shall be valid, unless recorded and published as the 860 HANDLEY V. STUTZ. [CHAP. XVIL original articles are required to be ; nor shall any change be made at any time or in any manner which would be inconsistent with the provisions of this act." Reliance is placed upon the final clause of this section, for the position assumed by the defendants, that the increase in the capital stock, never having been recorded or pub- lished as required by this clause, was void, and the case of Scovill V. Thayer (105 U. S. 143) is cited in support of this contention. That was also an action to recover unpaid assessments upon stock. The statutes of Kansas provided that any corporation might increase its capital stock to any amount, not exceeding double the amount of its authorized capital. The corporation in question had increased its capital stock, as it was authorized to do, by doubling it, and it sub- sequently increased it by doubling it again, thus quadrupling the original amount, the defendant ia the case having attended by proxy the meeting at which such illegal increase was voted, and received a quantity of the stock thus issued. It was held that such increase was ultra vires and void, and that the defendant was not estopped from denying the validity of the over-issue, or his obliga- tion to pay for it. In the case under consideration, however, the articles of incor- poration did provide that the capital stock should be $120,000, with power to increase to $200,000 by a majority vote of the stockholders, and there was no statutory inhibition, as in Kansas, against any such increase as it might be thought advisable to make. Here, then, was the power to increase the capital stock to the precise amount fixed by the stockholders, at their meeting at Nashville, and the defect was merely in the failure to record and publish such change, as required by section six of the statute in question. It is insisted by the appellees, that the learned judge of the Circuit Court so held that the failure to record and publish this increase of the capital stock, which was in fact, if not in name, an amendment to the original articles, which had fixed the capital stock at $120,000, was a mere irregularity and informality in the proceedings to effect the increase ; such a one, as was said by this court, in Chubb v. Upton (95 U. S. 685, 667), to constitute no defence to a subscriber to such increased stock. In that case it appeared only that objection was made to the proceedings by which the company increased its stock, on the ground of irregularity and informality in the papers filed in the public offices ; and it was held that one who contracted with an acting corporation, by purchasing stock in the same, could not de- fend himself against a claim upon such contract, in a suit by the corporation, by urging the illegality of its organization. In Veedev V. Mudgett (95 N. Y. 295, 310), which was also an action by direc- tors against the stockholders of a corporation to enforce the liability imposed upon them because of an alleged failure to pay in the full amount of the capital stock, it appeared that the meeting at which the increased stock was voted was not formally called, nor was a CHAP. XVII.] HANDLEY V. STUTZ. 861 certificate of the increase of capital made and filed as prescribed by the State statute. The stock was, however, all issued to stock- holders who voted for the increase. These holders subsequently re- ceived dividends thereon, voted at stockholders' meetings and in all respects were treated and acted as stockholders. The court held the attempted increase illegal, but that the defendant stockholders, as against the creditors of the company, by accepting their propor- tions of the increased stock, by voting for its increase, by taking dividends upon it, and by holding it out to those dealing with the company as an actual component of its capital, were estopped from denying the validity of the increase. It was argued in that case, as it is in this, that an act absolutely and wholly void, because incapable of being performed, could not be made valid by estoppel. But this was held to be true only where there was an entire lack of power to do the act so brought in question, and the case of Scovill V. Thayer was cited. "But where," says the court, "as in the present case, the abstract power did exist, and there was a way in which the increase could lawfully be made, and the creditors could, without fault, believe that the increase had been lawfully effected, and the necessary steps had been taken, there the doctrine of estoppel may apply, and the increased stock be deemed valid as against the creditors who have acted upon the faith of such increase." It is true that in neither of those cases was the court embar- rassed by a statute declaring that certain conditions must be observed or the increase would not be valid. But we think that the clause of section 6, upon which reliance is placed, must be read in connection with section 18 of the same act, which provides that "no persons acting as a corporation under the provisions of this act shall be permitted to set up or rely upon the want of legal organization as a defence to an action brought against them as a corporation; nor shall any person who may be sued on a contract made with such corporation, or sued for an injury done to its prop- erty, or for a wrong done to its interests, be permitted to rely upon such want of legal organization in his defence." It is true that this section seems to apply rather to a want of an original legal organization of the company; but we think it should be regarded as applying as well to amendments to such organization, and that no de- fence connected with the original organization, which a party contract- ing with the corporation would be disqualified to set up, can be made available in connection with an amendment to the original articles. So far as the question of liability to the proposed assessments is concerned, these defendants, with respect to their relations to this corporation, are divisible into two distinct classes: First, those of the original stockholders who received the $30,000 increased stock as a gift; second, those who subscribed to the $50,000 bonds, and received an equal amount of stock, as a bonus or inducement to make the subscription. 862 HANDLEY V. STUTZ. [CHAP. XVII. 4. With regard to the first class, namely, the original stock- holders, who voted for this increase of 800 shares, and then dis- tributed among themselves 300 of those shares, without the shadow of right or consideration, it is diiBcult to see why they should not be called upon to respond for their value. The only claim made upon their behalf is that they never agreed to contribute or pay for the same ; that the stock was expressly declared to be " fully paid " and "free from all claims or demands upon the part of the com- pany; " that there was no evidence that the creditors of the company knew of, or relied upon, this increase, in their dealings with the company; and that they had a right to return and surrender the same, which they offered to do. There is no reason to suppose that these stockholders did not act in good faith, and in the belief that they were entitled to this stock. The fact that they did not subscribe for it or agree to take it until the receipt of the certifi- cates, is immaterial, as the acceptance of the certificates is sufficient evidence of an agreement to pay their par value. Sanger v. Upton (91 U. S. 56, 64) ; Chuhh v. Upton (95 U. S. 665) ; Brigham v. Mead (10 Allen, 245). Ever since the case of Sawyer v. Hoag (17 Wall. 610), it has been the settled doctrine of this court that the capital stock of an insol- vent corporation is a trust fund for the payment of its debts; that the law implies a promise by the original subscribers of stock who did not pay for it in money or other property to pay for the same when called upon by creditors; and that a contract between them- selves and the corporation, that the stock shall be treated as fully paid and non-assessable, or otherwise limiting their liability there- for, is void as against creditors. The decisions of this court upon this subject have been frequent and uniform, and no relaxation of the general principle has been admitted. Upton v. Tribilcock (91 U. S. 45) ; Sanger v. Upton (91 U". S. 56) ; Webster v. Upton (91 U. S. 65); Chubh v. Upton (95 U. S. 665); Pullman v. Upton (96 U. S. 328) ; County of Morgan v. Allen (103 IJ. S. 498) ; Hawkins v. Glenn (131 U. S. 319); Graham v. Railroad Co. (102 U. S. 148, 161); Richardson v. Green (134 U. S. 30). It is simply in afBrmance of this general principle that section 14, chapter 56, of the General Statutes of Kentucky declares that nothing in the act conferring corporate franchises, or permitting the organization of corporations, "shall exempt the stockholders of any corporation from individual liability to the amount of the unpaid instalments on stock owned by them." If the corporation has no right, as against creditors, to sell or dispose of this stock with an agreement that no further assessment shall be made upon it, much less has it the right to give it away, or distribute it among' share- holders, without receiving a fair equivalent therefor, and thereby induce the public to deal with it upon the credit of such shares, as representing the assets of the corporation. Union Mut. Life Ins. Co. CHAP. XVII.J HANDLEY V. STUTZ. 863 V. Frear Stone Mfg. Co. (97 Illinois, 537). The stock of a corpora- tion is supposed to stand in the place of actual property of substan- tial value, and as being a convenient method of representing the interest of each stockholder in such property, and to the extent to which it fails to represent such value it is either a deception and fraud upon the public, or an evidence that the original value of the corporate property has become depreciated. The market value of such shares rises with an increase in the value of the corporate assets, and falls in case of loss or misfortune, whereby the value of such assets is impaired. And the increase of value of such stock is taken to represent either an appreciation in value of the company's prop- erty beyond the par value of the original shares, or so much money paid to the corporation as is represented by such shares. If it be once admitted that a corporation may issue stock without receiving a consideration therefor, and where it does not represent actual or substituted value in corporate assets, there is apparently no limit to the extent to which the original stock may be " watered, " except the caprice of the stockholders. While an agreement that the sub- scribers or holders of stock shall never be called upon to pay for the same may be good as against the corporation itself, it has been uniformly held by this court not to be binding upon its creditors. 5. Somewhat different considerations apply to those who sub- scribed for the bonds of the company, with the understanding that they were to receive an amount of stock equal to the bonds as an additional inducement to their subscription. The facts connected with this transaction are substantially as follows : Some three years after the company was organized it became apparent that the enter- prise, as originally contemplated, namely, the mining and selling of coal for steam and domestic purposes, was not likely to be a success, owing to the inferior character of the product; and the only hope of the company lay in the manufacture of the coal into an iron- making coke, that is, a coke containing a percentage of sulphur low enough to admit of the manufacture of merchantable pig-iron. To embark in this, however, money was needed, and as the stock of the company was not worth more than 50 cents on the dollar, it was evi- dent this could not be eifected simply by the issue of new stock. It was proposed at the meeting in March that money should be raised by the issue of $50,000- of bonds, with which to add the requisite struc- tures to the plant. But it was soon evident that the bonds could not be negotiated without the stock, and, acting upon the suggestion of a Nashville banker, it was resolved at the meeting in May that the stock should be increased 800 shares, 500 of which should be turned over to the subscribers to the bonds, as a bonus or an additional consideration. The evidence is uncontradicted that the bonds could not have been negotiated without the stock; that they were both sold as a whole; that the transaction was in good faith, and, con- sidering the risk that was taken by the subscribers, the price paid 864 HANDLKY V. STUTZ. [CHAP. XVII. for the stock and bonds was fair and reasonable. The directors ap- pear to have done all in their power to obtain the best possible terms, and there is no imputation of unfair dealing on the part of any one connected with the transaction. At that time the mines and property of the company were in good condition, and the prospects of success were fair. The case then resolves itself into the question whether an active corporation, or, as it is called in some cases, a "going concern," find- ing its original capital impaired by loss or misfortune, may not, for the purpose of recuperating itself and providing new conditions for the successful prosecution of its business, issue new stock, put it upon the market, and sell it for the best price that can be obtained. The question has never been directly raised before in this court, and we are not, consequently, embarrassed by any previous decisions on the point. In the UiJton Cases, arising out of the failure of the Great Western Insurance Company; in Ifatch v. Dana (101 U. S, 205), and in Hawkins v. Gl nn (131 U. S. 319), the defendants were either original subscribers to the increased stock, at a price far below its par value, or transferees of such subscribers; and the stock was issued, not as in this case to purchase property or raise money to add to the plant, and facilitate the operations of the com- pany, but simply to increase its original stock in order to carry on a larger business, and the stock thus issued was treated as if it formed a part of the original capital. In County of Morgan v. Allen ( 103 ■ XJ. S. 498), the same principle was applied to a subscription by a county to the capital stock of a railroad company, for which it had issued its bonds, although such bonds had been surrendered to the county with the consent of certain of its creditors. To say that a corporation may not, under the circumstances above indicated, piit its stock upon the market and sell it to the highest bidder, is practically to declare that a corporation can never increase its capital by a sale of shares, if the original stock has fallen below par. The wholesome doctrine, so many times enforced by this court, that the capital stock of an insolvent corporation is a trust fund for the payment of its debts, rests upon the idea that the creditors have a right to rely upon the fact that the subscribers to such stock have put into the treasury of the corporation, in some form, the amount represented by it ; but it does not follow that every creditor has a right to trace each share of stock issued by such cor- poration, and inquire whether its holder, or the person of whom he purchased, has paid its par value for it. It frequently happens that corporations, as well as individuals, find it necessary to increase their capital in order to raise money to prosecute their business suc- cessfully, and one of the most frequent methods resorted to is that of issuing new shares of stock and putting them upon the market for the best price that can be obtained; and so long as the transac- tion is bona fide, and not a mere cover for "watering" the stock, and CHAP. XVII.] HANDLEY V. STUTZ. 865 the consideration obtained represents the actual value of such stock, the courts have shown no disposition to disturb it. Of course no one would take stock so issued at a greater price than the original stock could be purchased for, and hence the ability to negotiate the stock and to raise the money must depend upon the fact whether the pur- chaser shall or shall not be called upon to respond for its par value. While, as before observed, the precise question has never been raised in this court, there are numerous decisions to the effect that the general rule that holders of stock, in favor of creditors, must respond for its par value, is subject to exceptions where the transaction is not a mere covtr for an illegal increase. Thus in Hew Albany v. Burke (11 Wall. 96), a city subscribed to the stock of a railroad, and issued bonds for a part of the subscrip- tion, agreeing to issue them for the rest of it, when the road should be built to a certain point. The road relied mainly upon these bonds to raise the necessary money. The validity of the bonds being denied by taxpayers, who had filed bills to enjoin the raising of a tax to pay the interest, their value in the market was largely impaired, and it was found they could not be sold without a sacri- fice. Under these circumstances the company applied to the city to pay a certain sum which had been borrowed by the road upon the pledge of the bonds already issued, with sundry other moneys, and in consideration thereof the city obtained from the company a large number of bonds which had not been negotiated, and a cancellation of the subscription. In a suit brought by a judgment creditor to enforce the original subscription, it was held that the compromise was legal, and the payment of such subscription would not be enforced, although it subsequently turned out that the bonds were worth more than they could have been sold for. Said Mr. Justice Strong, speaking for the court : " Had the company sold to a stranger, and then the city become a purchaser from the stranger, it will not be contended that any creditor of the company could complain. And it can make no difference whether the purchase was made directly or indirectly from the first holder of the bonds, assuming that there was no fraud. The transaction . . . was, in substance, plainly nothing more than a purchase by the city of its own bonds, some of which had been issued and others of which it was under obliga- tion to issue, at the call of the vendor. . . . Looking at it in the light of subsequent events, it was no doubt an advantageous pur- chase for the city; and, if the uncontradicted evidence is to be believed, it was deemed at the time an advantageous sale or arrange- ment for the company. ... We may add, the evidence is convin- cing that the contract between the city and the company was made ill the utmost good faith, with no intention to wrong creditors of the latter; that it was at the time considered advantageous to the com- pany, and it is not proved that all was not paid for the bonds issued and to be issued that they could have been sold for in the market." VOL. I. — 55 866 HANDLEY V. STUTZ. [CHAP. XVII. So in Coit V. Gold Amalgamating Company (119 U. S. 343), it was held that where the charter of a corporation authorizes the capital stock to oe paid for in property, and the shareholders honestly and in good faith pay for their subscriptions in property instead of money, third parties have no ground of complaint, although. a gross and obvious over-valuation of such property would be strong evi- dence of fraud in an action by a creditor to enforce personal lia- bility. The court held that where full-paid stock was issued for property received, there must be actual fraud in the transaction to enable creditors of the corporation to call the sbockholders to account. In delivering the judgment of the court in that case at the circuit (14 Fed. Eep. 12), Mr. Justice Bradley observed: "That trust [in favor of creditors] does not arise absolutely in every case where capital stock has been issued, and where it has been settled for by arrangement with the company. It is not as if the stockholders had given their promissory notes for the amount, these notes being in the treasury of the company; but there are often equities to which the stockholders are entitled, — on which they are to stand." As one of them, he mentioned the case of stock dividends fairly made in consideration of profits earned and of accumulations of the prop- erty of the company, and observed : " It is not true that it is in the power of a creditor in every case, and in all cases, as a mere matter of right, to institute an inquiry as to the valuation of the amount of the consideration given for the stock, and disturb fair arrangements for its payment in other ways than by cash. If the stock has been fairly created and paid for, there is an end of trusts in favor of any- body; and this does not affect the general proposition that unpaid subscriptions of stock are a trust fund to be administered for the benefit of creditors after a corporation becomes insolvent." A case nearer in point is that of Clarh v. Bever (139 U. S. 96), decided at the present term of this court. In this case a railroad company, of which defendant's intestate was president and stock- holder, had a settlement with a construction company, of which defendant's intestate was also a member, for work done in building the road. The railroad company, being unable to pay the claim of the construction company, delivered to it thirty-five hundred shares of its stock at 20 cents on the dollar, and the same were accepted in full satisfaction of the debt. The stock was not worth anything in the market, and was issued directly to the defendant's intestate. No other payment than the 20 per cent was ever made on account of this stock. A judgment creditor of the railroad company filed a bill to compel the payment by the defendant 'of his claim, upon the theory that he was liable for the actual par value of such stock, whatever may have been its market value at the time it was received. It was held he could not recover. "Of course, under this view," says Mr. Justice Harlan, in delivering the opinion of the court, "everyone having claims against the railway company; — even laborers and CHAP. XVII.] HANDLEY V. STUTZ. 867 employees, — who could get nothing except stock in payment of their demands, became bound, by accepting stock at its market value in payment, to account to unsatisiied judgment creditors for its full face value, although, at the time it was sought to make them liable, the corporation had ceased to exist, or its stock had remained, as it was when taken, absolutely worthless. ... To say that a pub- lic corporation, charged with public duties, may not- relieve itself from embarrassment by paying its debt in stock at its real value — there being no statute forbidding such a transaction, — without sub- jecting the creditor, surrendering his debt, to the liability attaching to stockholders, who have agreed, expressly or impliedly, to pay the face value of stock subscribed by them, is, in effect, to compel them either to suspend operations the moment they become unable to pay their current debts, or to borrow money secured by mortgage upon the corporate property." So in Foffg v. Blair (139 U. S. 118), also decided at the present term, it was held to be competent for a railroad, exercising good faith, to use its bonds or stock in payment for the construction of its road, although it could not, as against creditors or stockholders, issue its stock as fully paid without getting some fair or reasonable equivalent for it. It was there said : " What was such an equivalent depends primarily upon the actual value of the stock at the time it was contracted to be issued, and upon the compensation which, under all the circumstances, the contractors were equitably entitled to receive for the particular work undertaken or done by them." It appeared in that case that full and adequate compensation for the work done had been paid by the company in its mortgage bonds, and, as the bill contained no allegation whatever as to the real or market value of such stock, it was held that the contractors receiv- ing this stock were not liable to creditors for its par value. It was added: "If, when disposed of by the railroad company, it was with- out value, no wrong was done to creditors by the contract made with Blair and Taylor. If the plaintiff expected to recover in this suit on the ground that the stock was of substantial value, it was incumbent upon him to distinctly allege facts that would enable the court — assuming such facts to be true — to say that the contract between the railroad company and the contractors was one which, in the interest of creditors, ought to be closely scrutinized." It would seem to follow from this that if the stock had been of some value, that value, however much less than par, would have been the limit of the holder's liability. In Morrow v. Nash^ville Iron and Steel Co. (87 Tennessee, 262, 275, 276), the Supreme Court of Tennessee held, that a contract with a subscriber to stock of a corporation, that for every share subscribed he should receive bonds to an equal amount, secured by mortgage on the company's plant, is void as against creditors, and also between the subscriber and the corporation. But the court drew a distinc- 868 HANDLEY V. STUTZ. [CHAP. XVII. tion between such a case and sales of or subscription to the stock of an organized and going corporation. It said : " The necessities of the business of an organized company might demand an increase of cap- ital stock, and if such stock is lawfully issued, it may very well be offered upon special terms. In such case, if the market price was less than par, it is clear that a purchaser or subscriber for such stock at its market value would, in the absence of fraud, be liable only for his contract price. So a case might arise where the stock of a going concern was much depreciated, and where its bonds were likewise below par, and there was lawful authority to issue additional stock and bonds. Now, in such case, the real market value of an equal amount of stock and bonds might not exceed, or even equal, the par value of either. In such cases, the question of fraud aside, a pur- chaser would only be held for his contract price." This case from Tennessee puts as an illustration the exact case with which we are now dealing. The liability of a subscriber for the par value of increased stock taken by him may depend somewhat upon the circumstances under which, and the purposes for which, such increase was made. If it be merely for the purpose of adding to the original capital stock of the corporation, and enabling it to do a larger and more profitable busi- ness, such subscriber would stand practically upon the same basis as a sabscriber to the original capital. But we think that an active corporation may, for the purpose of paying its debts, and obtaining money for the successful prosecution of its business, issue its stock and dispose of it for the best price that can be obtained. Stein v. Howard (65 California, 616). As the company in this case found it impossible to negotiate its bonds at par without the stock, and as the stock was issued for the purpose of enhancing the value of the bonds, and was taken by the subscribsrs to the bonds at a price fairly representing the value of both stock and bonds, we think the transaction should be sustained, and that the defendants cannot be called upon to respond for the par value of such stock, as if they had subscribed to the original stock of the company. Our conclu- sion upon this branch of the case disposes of it as to those who were- held liable by virtue of their subscription to the bonds. 6. We have no doubt the learned circuit judge held correctly that it was only subsequent creditors who were entitled to enforce their claims against these stockholders, since it is only they who could, by any legal presumption, have trusted the company upon the faith of the increased stock. First National Bank of Deadwood v. Gustin Minerva Consolidated Mining Company (44 N. W. Eep. 198)- 2 Morawetz on Corporations, §§ 832-833; Coit v. N. C. Gold Amalga- mating Co. (14 Fed. Eep. 12). We also agree with him, that credit- ors who became such after the increase was voted in May, 1886, are entitled to look to those who subsequently received the stock, not- withstanding they did not receive it until after the debts had been CHAP. XVII.] HANDIEY V. STUTZ. 869 coiitraet.ed. The circuit judge found in this connection that the " complainants had no knowledge or notice of the subscription paper of December 30, 1886, under which $45,000 of the new stock was distributed to those who subscribed for bonds, nor of the distribu- tion among the old stockholders of $30,000 of said increased stock, nor does it affirmatively appear that they or either of them dealt with and trusted the company upon the faith of that increased stock ; but the fact that the capital stock had been increased to $200,000 was made public and was generally known." The real question in this connection is — When may it be presumed creditors trusted the cor- poration upon the faith of the increased stock? Obviously, when such increase was ordered. That is a fact to which publicity would naturally be given; the creditors could not be expected to know ■when and by whom such stock would be taken. It is true they assume the risk of the stock not being taken at all, but the moment shares are taken, they are supposed to represent so much money put into the treasury as they are -worth, which becomes available for the payment not only of future, but of existing creditors. It is mani- fest that any attempt to gauge the liability of stockholders by the exact time they took their stock with reference to the dates when the several claims of the creditors accrued, and by the further fact whether the creditors actually knew of and relied upon such stock, would, in a case like this, where the creditors and stockholders are both numerous, lead to inextricable confusion. Even the ilexibility of a court of equity would be inadequate to adjust the rights of the parties. 7. With regard to the special defence set up by Neeley, that he never consented to nor received certificates for increased stock, we agree with the circuit judge that it is not sustained. He did not live in Nashville, but had given a proxy to one Sandford to represent him at stockholders' meetings; he knew of the arrangement to issue an amount of the stock equal to the bonds, and to distribute $30,000 of the increased stock, ordered by the resolution of May, 1886; and on April 5, 1887, he gave a power of attorney to Sandford, authorizing the latter, for him, and in his name and stead, "to receipt to the Clifton Coal Company, for stock in my name, and transfer, bargain, and sell the same as if I were there present." Under this power of attorney, Sandford surrendered Neeley's certificate for 300 shares, and receipted for 375 shares, the certificates for which were deliv- ered to him as agent of Neeley, and which Sandford subsequently voted at stockholders' meetings, under the general proxy from Neeley to represent his stock. Knowing of the contemplated action in issu- ing the new stock, and having authorized Sandford to represent him in all matters connected therewith, we think it too late for him to repudiate Sandford's act in receiving the additional 75 shares, which were distributed to him as the owner of 300 original shares. Indeed the circuit judge finds it to be established by the proof that all of 870 ELYTON LAND CO. V. ELEVATOK COMPANY. [CHAP. XVII. the old stockholders knew of and acquiesced in the disposition of the new stock as made; and that such increased stock was represented and voted at subsequent meetings of stockholders, and was recog- nized and held out to the public as part of the capital stock of the company. Under the case of Sawyer v. Hoag (17 Wall. 610), Neeley was clearly not entitled to set off against the claim of the creditors his own claim against the corporation. Cook on Stock and Stock- holders, sees. 193 and 194. There are several minor points made in the briefs of counsel with regard to the claims of certain creditors, which we do not iind it necessary to discuss at length. We think there was no error in the rulings of the court in these particulars. It results that the decree of the court below must be reversed, and the cause remanded for further proceedings in conformity with this opinion. ' Mb. Chief Justice Fullek, with whom concurred Mk. Justice Lamab, dissenting : I dissent from the conclusion of the court in respect of the stock received by the subscribers to the bonds. That stock was not paid for in money or money's worth, or issued in payment of debts due from the company, or purchased at sale upon the market. It was a mere bonus, thrown in with the bonds as furnishing the inducement to the bond subscription, of larger control over the corporation, and of possible gain without expenditure. Becoming secured creditors through the bonds, the subscribers increased their power through the stock. In my view, there was no actual payiijent for the stock, and to treat it as paid up, is to sanction an arrangement to relieve those who would reap the benefit derived from the possession of the stock, in the event of the success, from liability for the consequences, in the event of the failure of the enterprise. When the capital stock of a corporation has become impaired, or the business in which it has engaged has proven so unremunerative as to call for a change, creditors at large may well demand that ex- periments at rehabilitation should not be conducted at their risk. My brother Lamar concurs with me in this dissent. ELYTON LAND COMPANY v. ELEVATOR COMPANY. (9 5o7/Ap)-n iJcp. 129. Supreme Court of Alabama. 1891.) Appeal from Chancery Court, Jefferson Coimty. Walkee, J. : — The bill was filed by the Elyton Land Company as a judgment creditor of the Birmingham Warehouse & Elevator Company, a corporation, and its purpose is to secure the payment of the judg- CHAP. XVII.] ELYTON LAND CO. V. ELEVATOK COMPANY. 871 ment by the enforcement of the alleged unsatisfied liability of the individual defendants as original subscribers to the stock of the defendant corporation. It is averred that said individual defendants pretend that they have discharged and satisfied their liability as such subscribers; but it is alleged that the transaction whereby it was attempted to discharge that liability is merely colorable, and is void as against the creditors of said corporation ; and that said sub- scribers are liable to pay in money the amount of their said subscrip- tions, or so much thereof as is necessary to satisfy said judgment. The following is the substance of the case stated by the bill : — On the 9th day of March, 1887, the Elyton Land Company exe- cuted and delivered to defendant, J. A. Van Hoose, as trustee for the Birmingham Warehouse & Elevator Company, a corporation then in process of organization, its bond of title for two blocks of land near the city of Birmingham, to be paid for at the price of f 53,000. Said Van Hoose paid to the Elyton Land Company |6,000 on the execution and delivery of the bond for title, by the terms of which it was provided that he was to execute a transfer and conveyance of his rights and interests thereunder to the Birmingham Warehouse & Elevator Company, upon its organization, and that that company should make its nine notes for the balance of the purchase-money to the Elyton Land Company, said notes to be each for |6,333.33, bearing interest from August 20, 1886, payable, respectively, at 1, 2, 3, 4, 5, 6, 7, 8, and 9 years from that date. On the 19th day of Feb- ruary, 1887, said Van Hoose, and the other individual defendants, Johnston, Sage, and McLester, filed their petition in the office of the probate judge of Jefferson County for the organization as a corpora- tion of the Birmingham Warehouse & Elevator Company, the capital stock of which was to be fixed at $260,000, to be divided into 2,600 shares of $100 each. On the same day a commission was issued to said Van Hoose, Johnston, Sage, and McLester, constituting them a board of corporators, and authorizing them to open books of sub- scription to the capital stock of the proposed corporation. On the 11th day of March, 1887, said board of corporators, over their signa- tures, reported and certified to said probate judge that on the 9th day of March, 1887, they had opened books of subscription to the stock of said proposed corporation, and that they had each subscribed for 600 shares, "subscribed through James A. Van Hoose, trustee for the subscribers, and payable in real property near the city of Bir- mingham, ... of the money value stated in said subscription of two hundred and fifty thousand one hundred and thirty-three dollars and thirty-three cents, subject to the unpaid purchase-money due to the Elyton Land Company, amounting to fifty thousand one hundred and thirty-three dollars and thirty-three cents, the payment of which is to be assumed by said company, said lands being fully described in the bond for titles of the Elyton Land Company to said James A. Van Hoose, trustee, dated March 9, 1887, which said trustee is to 872 ELYTON LAND CO. V. ELEVATOR COMPANY. [CHAP. XVH. convey to said company in payment of said two thousand shares of stock," and Van Hoose, Johnston, and McLester each subscribed for one share, payable in money.- Said corporators further reported that on the organization of said company said Van Hoose, Johnston, Sage, and McLester were present, and each represented in person 501 shares in stock ; that each of said persons was elected a director of said corporation, and that the board of directors elected Van Hoose as president and McLester as treasurer and secretary of the corpora- tion. It was further reported and certified by the corporators that on the 10th day of March, 1887, after the organization of said com- pany, all the capital stock thereof payable in money was paid to the treasurer, and all the property subscribed was delivered to him. The subscriptions were made as reported, and certified by the corpo- rators. It was not true at the time of the filing of the bill, or when the subscriptions were made and reported, that said land was of the money value of $200,000. The price named in said bond for title — 153,000 — was at the time of said subscriptions the full money value of said land when sold on long credit. Said Van Hoose, Johnston, Sage, and McLester well knew that said land was not worth, nor was it of the money value of $200,000, or anything near that sum. After said subscriptions were made, and after said Birmingham Ware- house & Elevator Company was organized, said Van Hoose indorsed to it said bond for title, and said company executed its nine prom- issory notes, as by the terms of the bond for title it was provided it should do; and said Van Hoose, Johnston, Sage, and McLester now claim' that the assignment of said bond was a discharge and sat- isfaction of said subscription of $200,000, which has not been other- wise paid. It is this transaction which the bill alleges is merely colorable, and is void as against the creditors of said corporation. Only $5,000 has been paid on account of said purchase-money. The Elyton Land Company has recovered judgment against said Bir- mingham Warehouse & Elevator Company on two of Said notes. That judgment remains unsatisfied, and said corporation has no property out of which it could be satisfied by execution. Each of the individual defendants demurred to the bill upon .the following among other grounds : (1) That the biU, on its face, shows that the complainant has no right to the relief therein prayed, because it shows that this defendant owes nothing to the Birming- ham Warehouse & Elevator Company, either in unpaid subscriptions . for stock or otherwise ; (2) because said bill alleges no facts which render this defendant liable personally in any way for the alleged debt mentioned therein as due from said Birmingham Warehouse & Elevator Company to the complainant ; and (3) because said bill shows that this defendant subscribed for stock in said Birmingham Warehouse & Elevator Company, payable in property, at a valuation mentioned in said subscription, which property has been delivered and received in full payment for said stock ; and said bill fails to CHAP. XVIL] ELYTON LAND CO. V. ELEVATOR COMPANY. 873 show that said property was overvalued unreasonably, intentionally, and fraudulently, or that the defendant has made a profit from the stock so subscribed and taken by him. A decree was rendered sus- taining the demurrers as to the grounds here mentioned. The ap- peal is from that decree. On the averments of the bill it is to be taken as true that the property which was received by the corporation as full payment of the stock subscription was worth only $6,000, the amount which had been paid on the bond for title. It follows that the decree of the chancery court involves the assertion of the validity, as against the creditors of the corporation, of the payment of a stock subscription of $200,000 by the transfer to the corporation of property worth only $5,000. In reviewing this determination, regard is to be had to certain constitutional and statutory provisions, which are to be con- strued and applied in the light of settled principles governing the relations of stockholders to the corporation of which they are mem- bers, and to the creditors thereof. By the constitution of 1875 it was provided that " no corporation shall issue stock or bonds, except for money, labor done, or money or property actually received ; and all fictitious increase of stock or indebtedness shall be void ; " and that " dues from private corporations shall be secured by such means as may be prescribed by law, btit in no case shall any stockholder be individually liable otherwise than for the unpaid stock owned by him or her." Sections 6, 8, art. 14,. of the constitution. Prior to the adoption of the present constitution, each stockholder in any corpo- ration was liable to the amoimt of stock held or owned by him, the law imposing a liability not only to the extent that the stock was unpaid, but for an additional sum equal to the amount of such stock. Section 3, art. 13, of the constitution of 1868 ; section 1760, Rev. Code 1867; McDormell v. Insurance Co. (85 Ala. 401, 5 South. Rep. 120). Before the creation of this additional liability, the stock and other property of a private corporation was regarded and treated in a court of equity as a trust fund for the payment of the debts of the corporation, and in the event of the insolvency of the corporation, unpaid stock subscriptions could be condemned for the satisfaction of the creditors ; and said additional liability was a mere increase of the security for the payment of the corporate debt. Smith v. Huck- abee (53 Ala. 191). While corporate creditors were secured by this special liability existing in their favor, there was no direct constitu- tional or general statutory prohibition against the abuse of corporate powers by the issue of stock not in good faith representing the value of money, service, or property actually contributed to the corporate enterprise ; and the general incorporation law then in force contained no requirements as to the mode of subscribing for stock, or as to how the subscription liability should be satisfied. Chapters 3, 4, tit. 2, pt. 2, Code 1867. The dangers to which corporate creditors were exposed by the absence of such regulations were obviated by the 874 ELYTON LAND CO. V. ELEVATOR COMPANY. [CHAP. XVII provisions for said additional liability. When those provisions were repealed by the constitution of 1875, there was an obvious necessity of providing that the^rust fund, the remaining security for corporate creditors, should exist as a thing of substance, and that the liability for unpaid stock should not be merely illusory. This necessity was not overlooked. The former legislative policy of securing corporate creditors by making the stockholders liable to them in amounts over and above what they could be called upon to pay on their stock sub- scriptions gave place to a new policy, the aim of which was to afford proper security to persons dealing with corporations, by prohibiting the issue of stock except for value received by the corporation, and by providing definite regulations for the payment of stock subscrip- tions in money, or in labor, or property at its money value. This new policy is evidenced generally by section 6, art. 14, of the consti- tution, quoted above, and particularly, as to manufacturing, mining, immigration, and industrial business corporations, by section 1805 of the Code of 1876, which provides that " all subscriptions to the capital stock of any company organized or proposed to be organized under the provisions of this article shall be made payable in money, or in labor, or in property at its money value, to be named in the list of subscription; and in case of a failure to perform the labor, or deliver the property, according to the terms of the subscription, the money value thereof as named, in the list of subscription shall be paid by the subscribers." These enactments are not for the benefit of corporate creditors alone. The policy evidenced thereby bears upon the relations of corporations to the public, and upon the rela- tions of stockholders to each other, to the corporation, and to its creditors. This. court has not heretofore had occasion to pass upon the ques- tion as to the effect of these provisions upon the rights of corporate creditors. The effective operation of the constitutional provision in other connections has been recognized in several cases. In Fitzpat- riek v. Publishing Co. (83 Ala. 604 ; 2 South. Eep. 727), it was held, at the instance of an objecting stockholder, that under the constitu- tional and statutory provisions a corporation with a paid-up capital of f 10,000 has no authority to double its capital stock and distribute the new stock among its stockholders as a stock dividend, on the mere statement that its capital stock "has been invested in property which has more than doubled in value, and is now worth twenty thousand dollars over and above all liabilities ; " and an injunction was issued to restrain and enjoin the corporation from carrying into effect a resolution which had been adopted by the stockholders for the issue and distribution of such new stock. In the course of the opinion it was said : "Let us not by timid interpretation impair the strength of this bulwark, erected by our constitution makers against the frauds which have become the reproach of the age we live in." In Williams v. Evans (87 Ala. 725 j 6 South. Rep. 702), it was held CHAP. XVII.] ELYTON LAND CO. V. ELEVATOR COMPANY. ' 875 that relief could not be granted, on an executory contract to pay for the transfer of a subscriber's right under a stock subscription where- by it was provided that the corporation to be formed should issue " five dollars of stock for one dollar of subscription." The stock had not been issued when the contract in suit was made. The court said : " A contract which contemplates the violation of a statute or a constitution as a mode of executing such contract is illegal and void. . . . One of the purposes of this clause of the constitution was to protect the public, as well as stockholders, against spurious and worthless stock by the process of watering ; in- other words, from fraudulently issuing and putting on the market fictitious corporate stock, which is based on nothing valuable as a consideration for its issue. It is greatly to the interest of the public that the policy of this provision should be enforced." In Parson v. Joseph, decided during the present term, and reported in 8 South. Rep. 788, the bill, to which a demurrer was overruled, was filed by a stockholder to secure the cancellation of certain certificates of stock issued to another stockholder, on the ground that the stock so issued was fictitious, and* that its issue was in violation of the constitution and the statute law of the State. It was alleged that certain stock was paid for in full by conveying to the company 39 acres of land at an agreed price and valuation of $137 per acre, when the laud was not worth more than $25 per acre ; that afterwards the capital stock of the company was doubled, and without further consideration than the 39 acres of land the amount of stock issued therefor was doubled. The contention was in regard to this latter issue of stock. It was alleged that the excessive valuation of the land was made knowingly, wilfully, and with the fraudulent intent of having the fictitious stock in question issued in violation of law. On these averments it was held that the stock in question was issued in violation of section 1662 of the Code of 1886, and of section 6, art. 14, of the constitution. It is to be ob- served that the respective requirements of section 1805 of the Code of 1876 and section 1662 of the Code of 1886, as to how stock sub- scriptions shall be payable, differ in this : that the former requires the subscriptions to be made payable in money, or in labor or prop- erty at its money value, to be named in the list of subscription ; while the latter provides that all subscriptions must be payable in money; but the commissioners may receive subscriptions payable in money, the subscriber.having the privilege of discharging the same by the rendition of stipulated necessary services, or the performance of stipulated necessary labor for the corporation, at the reasonable value of such services or labor, or in property at the reasonable value thereof. It does not seem, however, that the variations in the terms of these two statutes are such that the fact that the stock subscrip- tion was made under the one or the other of them would make any substantial difference in the right of a stockholder to object to the issue of other stock representing property received by the corpora- 876 ELYTOX LAND CO. V. ELEVATOR COMPANY. [CHAP. XVU. tiou at an excessive and fraudulent over-valuation. In the case last cited it was suggested that stockholders who knowingly and inten- tionally have subscribed and paid for stock with property upon a fictitious valuation are liable to creditors as stockholders who have not 'paid up in full for their stock ; but the question of such liability was not presented in that case. In Tutwiler v. Land Co. (89 Ala. 391 ; 7 South. Eep. 398), several questions that might arise from the issue of stock for property taken at a palpably excessive valuation were stated, but not decided. It is plain from this review of the decis- ions that the constitutional and statutory provisions in question are treated as effectual to prevent the courts from lending their aid for the enforcement of any contract or obligation the execution of which involves a disregard of those regulations, and that, so far as they are appropriate for the protection of stockholders from improper dis- criminations in accepting payments for stock, those regulations are accorded such effect and operation as to fully accomplish this pur- pose of their enactment. It cannot be doubted that the protection of the interests of corporate creditors is as much within the aim and policy of those regulations as were the objects in behalf of which they have been successfully invoked in this court. In considering the claim of corporate creditors to hold the stock- holders of the corporation individually liable on the ground that an attempt by them to satisfy their stock subscriptions by the transfer to the corporation of property at a gross over-valuation was not such payment as the law requires, the fact is not to be lost si^ht of that the solution of the question is dependent in some measure at least upon constitutional and statutory provisions which the court has already construed as amply effectual to secure the accomplishment of other objects, also within the purview of the enactments ; and it may be added that a like beneficial operation should be accorded to these provisions when invoked in furtherance of either of their manifest purposes. It is impossible to reconcile the decisions of the various courts upon the question of the liability to the creditors of the cor- poration of stockholders on stock issued for property taken at an over-valuation. We will briefly consider the cases principally relied on in support of the proposition that such liability cannot be main- tained. In Coit V. Amalgamating Co. (119 U. S. 343 ; 7 Sup. Ct. Eep. 231), the liability was claimed on the ground that the stock was paid for in property at a valuation illegally and fraudulently made at an amount far above its actual value. The court found that this claim was not sustained by the evidence. It was said in the opinion : "The corporators may have placed too high an estimate upon the property, but the court below finds that its valuation was honestly and fairly made; and there is only one item— the value of the charter privi- leges — which is at all liable to any legal objection. But, if that were deducted, the remaining amount would be so near the aggregate capital that no implication could be raised against the entire good CHAP. XVII.] ELYTON LAND CO. V. ELEVATOR COMPANY. 877 faith of the parties in the transaction." It is plain that this case is not an authority against the existence of the liability contended for by appellant. In Brant v. Ehlen (59 Md. 1), there was no assertion of the absence of such liability. It was expressly stated in the opinion that the questions presented were dealt with upon the as- sumption that the sale and purchase of the land which was paid for in stock were made in good faith. Another case, , decided subse- quently, and reported in the same volume, — Crawford v. Rohrer (Id. 599), — shows clearly the rule prevailing in that State on the subject under consideration. In that case it was decided that " any arrange- ment among stockholders, or those in charge of the affairs of the corporation, by which the stock is but nominally paid for, whether in money or property, the corporation not in fact getting the benefit of the price in good faith, will be regarded as a sham, and not as a valid payment, as against the creditors of the corporation, however it may be regarded as between the corporation and the subscriber." In Carr v. Le Fevre (27 Pa. St. 413), a stockholder was sought to be charged on stock which had been paid for in land. It was said in the opinion- "There is nothing in the special verdict tending to show that there was any fraud iu this transaction ; " and that " the parties took the precaution to have the lands valued and appraised. We are bound to presume that this was fairly done." The element of gross over-valuation was lacking in that case. In this particular it was like the Alabama case of Davis v. Chemical Co., decided during the present term, -and reported in 8 South. Rep. 496. In Van Cott v. Van Brunt (82 N. Y. 535), it appeared that stock and bonds of a railroad company were issued to a contractor for the building of the road, and that the work done under the contract was of less value than th6 par of the stock and bonds agreed to be paid therefor. By this arrangement the stock was disposed of in good faith, and without ■fraud, though for less than its face value. It was held, that the lia- bility of the stockholder had been discharged. On page 542 of the opinion it is made to appear that the transaction was without j;he influence of statutes in that State somewhat similar to provisions prevailing here, as will be shown by references to be made to other New York decisions. This case has several times been the subject of unfavorable comment. Tayl. Priv. Corp. (2d ed.) § 545, note 5 ; 2 Mor. Priv. Corp. § 826 ; Cook, Stocks, § 47, note 6 ; Jackson v. Traer (64 Iowa, 483; 20 N. W. Rep. 764). Phelan v. Hazard (5 Dill. 45) was a suit by a creditor to charge a transferee of stock, who had purchased the same for value and in good faith, as full-paid stock. It was said that a liability could not be established against the de- fendant by showing that the property conveyed to the corporation in payment for the stock was not worth the amount of the stock, or that it was not worth anything over and above the mortgages upon it at the time of the transfer. The court held that the agreement "vhereby property was received in payment for the stock was conclu- 878 ELYTON LAND CO. i;. ELEVATOR COMPANY. [CHAP. XVIL si\'e upon the compauy and its creditors, until by direct attack it has b^en impeached and rescinded for fraud; and it was said that "the courts, even where the rights of creditors are involved, will treat that as payment which the parties have agreed should be payment." This case was followed as authority in Coffin v. Bansdell (110 Ind. 417 ; 11 iSr. E. Rep. 20). The three cases last cited represent the weight of American authority opposed to the recognition of the lia- bility asserted in the case at bar. It is to be marked that in neither of those cases were any statutory provisions mentioned as having any bearing upon the conclusions reached. It is also to be noted m the latter two of the three cases English decisions were principally relied on as authority. The opinions in both those cases quote with approval from In re Baglan Hall Colliery Co. (L. R. 5 Ch. App. 346), where it was said, in reference to the right of a creditor to question the payment for stock by a transfer of property at an over-valuation, that " the test to be applied is this : Could the company by any pro- ceeding have set aside the transaction ? " The English rule seems to be that the creditor can have no other or greater rights in this regard than the corporation itself could assert. In this country, on the con- trary, the best authorities maintain that arrangements to issue stock as full paid, though only partly paid for in fact, may be valid and binding between the company and its stockholders, and yet may be set aside at the instance of creditors, and full payment on the stock enforced for the satisfaction of the debts of the corporation. Scovill v. Thaijer (105 U. S. 143) ; Curry v. Woodward (63 Ala. 371). This latter rule results from the doctrine, well established in America, that the stock subscribed is considered in equity as a trust fund for the payment of creditors. Wood v. Dummer (3 Mason, 308) ; Railroad V. Branch (59 Ala. 139) ; Smith v. Huckahee (53 Ala. 191) ; Puschall V. Wliitsett (11 Ala. 472) , Allen v. Railroad Co. (Id. 437). This doc- trine, first distinctly enunciated in Wood v. Dummer {supra), does • not prevail in England as in this country. Tayl. Priv. Corp. § 658, note.l; Cook, Stocks, § 42. The absence of the recognition in Eng- lish cases of this trust feature of a subscription to stock renders them unsafe guides in American courts when dealing with questions relating to the liability of stockholders in reference to the debts of the corporation. Several cases are cited m support of the contention that the pro- vision of section 6, art. 14, of the constitution does not have such effect On the transaction in this case as to leave the stockholders who participated therein still liable for the debts of the corporation. In Railroad Co. v. Dow (120 U. S. 287 ; 7 Sup. Ct. Rep. 482), it was held that a similar provision of the constitution of Arkansas did not au- thorize a corporation itself to repudiate its liability on $2,600,000 in bonds and $1,300,000 in stock, both of which had been issued in pay- ment for property worth only $1,300,000. This case involves no question of the right of creditors to charge stockholders. As has CHAP. XVII] EtYTON LAND CO. V. ELKVATOR COMPANY. 879 already been shown, an arrangement wliich would preclude the cor- poration from demanding further payment upon stock issued by it ■would not prevent creditors from proceeding against the stockholders if the stock has not really been paid for. Nothing is said in that case to indicate that the transaction would have been sustained to the same extent as against the creditors of the corporation. The case is not an authority against the existence of the liability here asserted. The same thing may be said of the case of Railroad Co. v. Thompson ■ (103 111. 187), which is cited in the opinion in the case just men- tioned. In Stein v. Howard (65 Cal. 616 ; 4 Pac. Eep. 662), it was held that an increase of capital stock, under a resolution authorizing the additional shares to be sold at 87| cents on the dollar, was not such " a fictitious increase of the stock " as was prohibited by a con- stitutional provision similar to ours. Neither in this case nor in the two cases cited just before it is there anything in the report to indi- cate what, if any, statutory regulations prevailed in those States in reference to the mode in which subscriptions to stock in corporations should be made payable. We will now turn to the principal cases which assert the invalidity as against creditors of attempts to satisfy the liability on stock sub- scriptions by the transfer of property at a gross over-valuation. In Jackson v. Traer (64 Iowa, 469, 20 N. W. Eep. 764), the facts were that a railway company had been indebted to a construction company in the sum of $70,000, which it was unable to pay ; and in satisfac- tion of the debt it issued to the construction company certificates of stock of the face value of $350,000, which shares were distributed among the members of the construction company. It was held that such members were to be treated as stockholders who had paid 20 per. cent on their stock, the stock held by them being five times greater in amount than the debt for which it was issued, and that they were liable to a creditor of the corporation to the extent of the unpaid 80 per cent of the par value of the stock. To the same effect is Osgood V. King (42 Iowa, 478). In neither of these cases does it appear that the statutes of Iowa require subscriptions to stock to be made payable in any particular mode. The existence of the lia- bility was not made to depend upon a statutory requirement in this regard. By the New York statute governing the organization of corporations for manufacturing purposes it is provided " that the trustees of such companies may in good faith purchase property necessary to their business, and issue stock to the amount of the value thereof in payment therefor, and the holders of such stock are exempt from liability for the debts of the corporation." In Douglass v. Ireland (73 N. Y. 100), it appeared that the capital stock of a corporation organized under that act, to the amount of $300,000, was issued in consideration of the assignment to the company of executory contracts for the purchase of property found by the jury to be of the value of $68,000. The defendant acquired his stock 880 ELYTON LAND CO. V. ELEVATOR COMPANY. [CHAP. XVII, with a full knowledge of the facts, having, as a trustee of the cor- poration, participated in the transaction. He was held liable as a stockholder who had not fully paid up. The court said . " A delib- erate and advised over-valuation of property thus purchased and paid for is a fraud upon the law, and a violation of the condition upon which the exemption of stockholders from, liability under the provisions of the statute is made to depend. It is in direct viola- tion of the policy as well as the terms of the law, which demands payment, either in money or property at its value, of all the cap- ital stock of the company, as a condition of immunity to the stock- holders from liability for debts of the corporation. The payment of an amount for property in excess of its value deprives creditors, and the public of the security contemplated by the statute, and thus a fraud is perpetrated as well upon the law as upon creditors. The fraud is consummated by the issue of stock as full paid under the Act of 1853, which has not been fully paid for in value by the property by which it is issued, and it does not depend upon any fraudulent intent other than that which is evidenced by the act of knowingly issuing stock for property to an amount in excess of its value. All that is necessary to establish the legal fraud, and take the stock issued out of the immunity assured to stock honestly issued in pursu- ance of the Act of 1853, is to prove two facts : (1) That the stock issued exceeded in amount the value of the property in exchange for which it was issued ; and (2) that the trustees deliberately, aud with knowledge of the real value of the property, over-valued it, and paid in stock for it an amount which they knew was in excess of its actual value." The rule laid down in this case is firmly established in New York. Boynton v. Andrews (63 N. Y. 93) ; Schenck v. Andrews (57 N. Y. 133) ; Boynton v. Hatch (47 N. Y. 225) ; Iron Co. v. Drexel (90 N. Y. 87). A jSicw Jersey statute authorized payment for capital stock to be made "either in money or in land ; the land to be appraised by the board of directors, and taken at such value on such terms as may be agreed on." The capital stock of a corporation was fixed at $100,000, all of which was subscribed for by five persons, who became the directors of the company. Certain lands were pur- chased for $50,000, and the deed thereto was made directly to the corporation, which gave its obligations for the whole of the purchase- money. The directors then appraised the lands at $100,000, and credited $50,000 of that valuation as a payment of 50 per cent on their stock subscriptions. The lands were not worth more than the original j)urchase price. On this state of facts it was held, in Wtth&rbee v. Baker (35 N. J. Eq. 601), that, as against creditors of the corporation, such allowance of credit on the subscriptions was invalid, and that the stockholders were liable for the whole amount, of their subscriptions. In reference to the valuation of the land by the directors, as authorized by the statute above quoted, the court say : "The directors, in making the appraisement and valuation and CHAP. XVII.J ELYTON LAND CO. V. ELEVAl'OK COMPANY. 881 dealing with their stock subscriptions, act in a fiduciary capacity, and are bound to discharge the duties of the trust with"fidelity This appraisement, it is manifest, was illusory, and made only in the interests of the directors, who were to profit by it;" and that "in all such cases transactions under such powers have been upheld only where the contract for the rendition of services or the purchase of property payable in stock has been made in good faith, and the property taken m payment of stock subscriptions has been put in at a fair bona fide valuation ; and the courts have inflexibly enforced the rule that payment of stock subscriptions is good as against cred- itors only where payment has been made in money, or in what may fairly be considered as money's worth." In Bailey v. Coke Co (69 Pa. St. 334) the facts were that Bailey, with two other persons, on September 29 purchased certain land for $125,000, and on October ^.*^in n!fn^ ^^^- ^^^'^o^'^^io^ agreed to take the land at an advance of f 50,000, subject to the whole purchase-money, so that the stock subscription of $50,000 made by Bailey and the two others should be paid for m full by the agreed advance on the land. The stat- ute provided that "no share shall be issued for less than its par value." It was held that by such a transaction Bailey did not pay for his stock, and that he was still liable thereon. Eights of cred- itors were not involved in this case. The transaction was regarded as a fraud on the rights of other stockholders, and as involving a non-compliance with statutory safeguards intended for the protection of the public. The case is not unlike the Alabama case of Parson v. Joseph (supra). The review of the authorities will not be further extended. Dis- cussions of them may be found in Cook, Stocks §§ 33-47 ; 1 Mor. Priv. Corp. §§ 425-429 ; 2 Mor. Priv. Corp. § 825 et seq.; 2 Wat. Corp. § 188 ; Tayl. Priv. Corp. §§ 545, 701 et seq. Our examination satisfies us that the weight of American authority does not support the statement made by Mr. Cook in section 47 of his work on Stocks and Stock- holders, to the effect that the attempts which have been made, in cases where stock was issued for property taken at an over-valuation, to hold the party receiving such stock liable for its full par value, less the actual value of the property received from him, have been unsuccessful ; and that if there has been an over-valuation, which is shown to have been fraudulent, then the contract is to be treated like other fraudulent contracts, and is to be adopted in toto or rescinded in toto, and set aside. We have found no authority at all .asserting the exemption of the stockholder from such liability where it appeared that the stock subscription was governed by a statutory regulation at all similar to section 1805 of the Code of 1876, or sec- tion 1662 of the Code of 1886. On the other hand, the New York, New Jersey, Maryland, and Pennsylvania decisions which have been cited show that the courts in those States, in giving effect to statutory requirements, certainly no more stringent than ours as to the mode VOL. I — 56 882 KLYTON LAND CO. V. ELEVATOK COMPANY. [uUAP. XVII. in which stock subscriptions shall be made payable, do not allow attempted payments in property worth greatly less than the amount of the stocli issued therefor to foreclose the just demand of corporate creditors to require that the stock subscriptions be made good in money, or in money's worth, as contemplated by the statutes. Those courts recognize in such provisions safeguards intended for the pro- tection of persons dealing with corporations, as well as for the cor- porations themselves and the persons associated together therein. Our general laws afford the amplest and freest facilities for persons desiring to engage in almost any kind of lawful venture to secure by corporate association the advantages of defined and limited respon sibility, and at the same time the efficient execution of their purposes, by means of an artificial being, changes in the membership of which cause no break in the continuity of its action, nor affect its capacity to act, within the scope of its powers, as a natural person. It is plain that such associations, endowed with such powers and priv- ileges, would be a source of danger to persons dealing with them, unless the law required that in their formation suitable provisions be made for a substantial responsibility for such . engagements as they may enter into. When legal provisions are found which are appropriately framed to secure the existence of such responsibility, it is not permissible so to construe them as to allow a mere formal and illusory compliance therewith to defeat the objects intended to be accomplished. No argument is needed to show that a requirement that the stock of a corporation shall be paid in money, or in labor, or property at its money value, inures to the benefit of persons who may become creditors of the corporation, in that it requires the capi- tal stock to be the representative of substantial values, and insures the existence of a fund which must be within reach for the satisfac- tion of debts if the affairs of the corporation are managed as contem- plated by the law. It is equally clear that if a stock subscription which is required to be made payable in money, or in labor, or property at its money value, and is in fact made payable in property at a designated money valuation, may be satisfied by the transfer of property the value of which is insignificant, or merely nominal as compared with the valuation stated, then, so far as this provision of the law looks to the protection of creditors, it might as well have allowed the subscription to be made payable in "chips and whetstones." Except section 6, art. 14 of the constitution, and section 1806 of the Code of 1876, there were not, at the time of the formation of the appellee, in reference to the mode of satisfying stock subscriptions, adequate provisions for the protection of creditors of such corporations. Those enactments are appropriate for this pur- pose. The requirement of section 1805 of the Code of 1876, that "in case of failure to perform the labor, or deliver the property according to the terms of the subscription, the money value thereof, as named in the lists of subscription, shall be paid by the subscribers," cannot CHAP. XVII.J ELYTON LAND CO. V. ELEVATOR COJUPANY. 883 ba regarded as providing for a penalty to compel the performance of the labor, or the delivery of the property. The evident meaning is that, in the event of such failure, the corporation shall receive the equivalent, and no more nor less than the equivalent, in money, of the labor, or of the property, as the case may be. This clause of the statute is convincing that the statement of the money value of the property in which the subscription is made payable is a material feature of the contract, and that the property delivered must be of a value to correspond with that named in the subscription. As affecting the rights of creditors, the statute is simply a definite requirement as to what shall constitute that trust fund to which persons dealing with the cor2>oration have a right to look. The defendants in this case, in making and accepting payments on the stock subscriptions, were acting in a fiduciary capacity in refer- ence to that fund. The performance of the contract of subscription, to be binding on creditors, should have been such as is required in the case of a contract between a trustee and one having knowledge of his trust obligation. In form the stock subscription was such as the statute called for. Under section 2023 of the Code of 1876, and section 8, art. 14, of the constitution, the stockholders are liable only for the unpaid stock owned by them. But the creditors are entitled to demand that the payment on the stock shall be an actual and hona fide discharge of the liability imposed by the contract of sub- scription. The defendants in making and accepting payment in prop- erty were bound to exercise their judgment and discretion fairly and honestly directed to secure a substantial compliance with the terms of the contract. In the exercise of that judgment and discretion they are entitled to the benefit of whatever margin there may be for honest differences of opinion in the valuation of the property ; but a deliberate and intentional over-valuation of the property is not per- missible. The transfer of the property known to be worth only $5,000 to pay a stock subscription of $200,000 does not bear the sem- blance of a compliance with the contract of subscription as to one of the essential terms thereof. The taking of property at a valua- tion forty times greater than its actual worth, which was known to the parties, shows upon its face the absence of a hona fide exercise of judgment and discretion in making the valuation, and an inten- tional non-compliance with the requirement that the property shall be taken at its money value. The absence of fraudulent motive on the part of a trustee does not give validity to a mere simulated execution of the trust; and an averment of fraud in reference thereto is unnecessary. The parties beneficially interested in the trust are entitled to a substantial compliance with its terms. They are not bound by an act of mere formal compliance, which really involves their practical exclusion from the benefits intended to be secured to them. The capital stock of a corporation constitutes the basis of its credit, and persons dealing with the corporation have a 884 ELYTON LAND CO. V. ELEVATOR COMPANY. [CHAP. XVIL right to assume that the stock has been actually paid in, or that it may he reached. The transaction whereby payment was attempted to be made, as shown by the averments of the bill in this case, is not binding on creditors, because it did not constitute such a pay- ment as was contemplated by the terms of the contract of subscrip- tion, atid was in effect a palpable evasion of the requirements of the statute. It is, however, contended in the argument for appellee that the appellant, through its officers, knew of the history of the organization of the appellee corporation, and of the mode in which the subscriptions to the stock were to be paid ; that in fact it was an active promoter of the whole transaction in advance. It may be that such an unauthorized extinguishment of the subscription liabil- ity may not be impeached by one who was actively instrumental in securing the organization of a corporation with a view of making a sale of property to it, and did in fact accept benefit in dealing with the corporation with full knowledge of the arrangement by which the stock was proposed to be paid for. Disability to question a wrongful transaction usually attaches to a party who consented thereto or par- ticipated therein. First Nat. Bank v. Gustin, etc. Mining Co. (Minn. 44 K W. Kep. 198); Bank v. Alden (129 U. S. 372); 9 Sup. Ct. Rep. 332 ; Parson v. Joseph {supra); 2 Mor. Priv. Corp. § 829. But the averments of the bill in this case do not show that the appellant par- ticipated in, or knew of the mode in which the stock subscription was. undertaken to be paid. In the absence of averments upon this sub- ject, it is not to be taken for granted that the appellant, in making the agreement to convey the land to the corporation when formed, contemplated that the stock in the corporation should not be paid for as the law directed, or that, in accepting the notes of the corporation^ it had such knowledge, and took such part in the furtherance of the acts connected with the transfer of the bond for title for the stock, that it is to be presumed to have dealt with the corporation on the basis of treating its capital stock as fully paid up. We find nothing in the averments of the bill to preclude appellant from asserting the right of a creditor of a corporation to hold stockholders liable for sub- scriptions to stock not really paid for. The statements of fact in the bill support the conclusion therein averred that the transaction by which payment for the stock was attempted to be made was merely colorable, — in other words, that it was not really a payment, — but had only the outward appearance without the substance of payment. Such being the case, the individual defendants are still liable on their stock subscriptions to the extent that the attempted payment falls, short of a hona fide compliance with the terms of the contract, and the allegations as to excessive over-valuation of the property in ques- tion were sufficient under the rules above stated. The chancery court erred in sustaining the demurrers. Reversed and remanded- CHAP. XVU.j HOSPES V. CAK COMPANY. 885 HOSPES V. CAK COMPANY. {UiN.W.Rep.WYl. Supreme Court of Minnesola. 1892.) Appeal from district court, Washington County, Sequestration proceedings by E. L. Hospes & Co. against the North- western Manufacturing and Car Company. The Minnesota Thresher Manufacturing Company intervened and filed a complaint against George R. Finch and others, stockholders in the Northwestern Manu- facturing and Car Company. From an order overruling demurrer to the intervener's supplemental complaint, George E. Finch, the St. Paul Trust Company, executor, and others, appeal. Eeversed. Mitchell, J. : — This appeal is from an order overruling a demurrer to the so-called « supplemental complaint " of the Minnesota Thresher Manufacturing Company. The Northwestern Manufacturing and Car Company was a manufacturing corporation organized in May, 1882. Upon the complaint of a judgment creditor (Hospes & Co.), after return of execution unsatisfied, judgment was rendered in May, 1884, seques- trating all its property, things in action, and effects, and appointing a receiver of the same. This receivership still continues, the affairs of the corporation being not yet fully administered ; but it appears that it is hopelessly insolvent, and that all the assets that have come into the hands of the receiver will not be sufficient to pay any consid- erable part of the debts. The Minnesota Thresher Manufacturing Company, a corporation organized in November, 1884, as creditor became a partj' to the sequestration proceeding, and proved its claims against the insolvent corporation. In October, 1889, in behalf of itself and all other creditors who have exhibited their claims, it filed this complaint against certain stockholders (these appellants) of the car company in pursuance of an order of court allowing it to do so, and requiring those thus impleaded to appear and answer the com- plaint. The object is to recover from these stockholders the amount of certain stock held by them, but alleged never to have been paid for. What was said in Meagher Case (50 N. W. Eep. 1114), just decided, is equally applicable here as to the right to enforce such a liability in the sequestration proceeding upon the petition or com- plaint of creditors who have become parties to it. There is nothing in this practice inconsistent with what was decided in Thresher Co. v. Langdon (44 Minn. 37; 46 N. W. Eep. 310). The complaint is not the commencement of an independent action by creditors in their own behalf, antagonistic to the rights of the receiver, but is filed in the sequestration proceeding itself, and in aid of it. The principal question in the case is whether the complaint states facts showing that the thresher company, as creditor, is entitled to 886 HOSPES V. CAR COMPANY. [CHAP. XVII. the relief prayed for; or, in other words, states a cause of action. Briefly stated, the allegations of the complaint are that on May 10, 1882, Seymour, Sabin, & Co. owned property ,of the value of several million dollars, and a business then supposed to be profitable. That, in order to continue and enlarge this business, the parties interested in Seymour, Sabin, & Co., with others, organized the car company, to which was sold the greater part of the assets of Seymour, Sabin, & Co., at a valuation of $2,267,000, in payment of which there were issued to Seymour, Sabin, & Co. shares of the preferred stock of the car company of the par value of $2,267,000, it being then and there agreed by both parties that this stock was in full payment of the property thus purchased. It is further alleged that the stockholders of Seymour, Sabin, & Co., and the other persons who had agreed to become stockholders in the car company, were then desirous of issu- ing to themselves, and obtaining for their own benefit, a large amount of common stock of the car company, •'■ without paying therefor, and' without incurring any liability thereon or to pay therefor ; " and for that purpose, and " in order to evade and set at naught the laws of this State," they caused Seymour, Sabin, & Co. to subscribe for and agree to take common stock of the car company of the par value of $1,500,000. That Seymour, Sabin, & Co. thereupon subscribed for that amount of the common stock, but never paid therefor any con- sideration whatever, either in money or property. That thereafter these persons caused this stock to be issued to D. M. Sabin, as trustee, to be by him distributed among them. That it was so distributed without receipt by him or the car company from any one of any con- sideration whatever, but was given by the car company and received by these parties entirely " gratuitously." The car company was, at this time, free from debt, but afterwards became indebted to various persons for about $3,000,000. The thresher company, incorporated after the insolvency and receivership of the car company, for the purpose of securing possession of its assets, property, and business, and therewith engaiging in and continuing the same kind of manu- facturing, prior to October 27, 1887, purchased and became the owner of unsecured claims against the car company, "bona fide, and for a valuable consideration " to the aggregate amount of $1,703,000. As creditor, standing on the purchase of these debts, which were con- tracted after the issue of this " bonus " stock, the thresher company files this complaint to recover the par value of the stock as never having been paid for. The complaint does not allege what the con- sideration of these debts was, nor to whom originally owing, nor what the intervener paid for them ; nor whethersany of the origi- nal creditors trusted the car company on the faith of the bonus stock having been paid for. Neither does it allege that either the thresher company or its assignors were ignorant of the bonus issue of stock, nOr that they or any of them were deceived or damaged in fact by ■such issue, nor that the bonus stock was of any value. Neither is CHAP. XVII.J HOSPES V. CAli COMPANY. 887 there any traversable allegation of any actual fraud or intent to deceive or injure creditors. A desire to get something without pay- ing for it, and actually getting it, is not fraudulent or unlawful if the donor consents, and no one else is injured by it ; and the gen- eral allegation that it was done " in order to evade and set at naught the laws of the State " of itself amounts to nothing, but a mere con- clusion of law. As a creditors' bill, in the ordinary sense, the com- plaint is manifestly insufficient. The thresher company, however, plants itself upon the so-called " trust-fund " doctrine, that the capital stock of a corporation is a trust fund for the payment of its debts ; its contention being that such a bonus issue of stock creates, in case of the subsequent insolvency of the corporation, a liability on part of the stockholder in favor of creditors to pay for it, notwithstanding his contract with the corporation to the contrary. This "trust-fund" doctrine-, commonly called the "American doc- trine," has given rise to much confusion of ideas as to its real mean- ing, and much conflict of decision in its application. To such an extent has this been the case that many have questioned the accuracy of the phrase, as well as doubted the necessity or expediency of in- venting any such doctrine. While a convenient phrase to express a certain general idea, it is not sufficiently precise or accurate to con- stitute a safe foundation upon which to build a system of legal rules. The doctrine was invented by Justice Story in Wood v. Bummer (3 Mason, 308), which called for no such invention, the fact in that case being that a bank divided up two-thirds of its capital among its stockholders without providing funds sufficient to pay its outstanding billholders. Upon old and familiar principles this was a fraud on creditors. Evidently all that the eminent jurist meant by the doc- trine was that corporate property must be first appropriated to the payment of the debts of the company before there can be any dis- tribution of it among stockholders, — a proposition that is sound upon the plainest principles of common honesty. In Fogg v. Blair (133 U. S. 541 ; 10 Sup. Ct. Eep. 338), it is said that this is all the doctrine means. The expression used in Wood v. Dummer has, how- ever, been taken up as a new discovery, which furnished a solution of every question on the subject. The phrase that "the capital of a corporation constitutes a trust fund for the benefit of creditors." is misleading. Corporate property is not held in trust, in any proper sense of the term. A trust implies two estates or interests, — one equitable and one legal; one person, as trustee, holding the legal title, while another, as the cestui que trust, has the beneficial interest. Ab.solnte control and power of disposition are inconsistent with the idea of a trust. The capital of a corporation is its property. It has the whole beneficial interest in it, as well as the legal title. It may use the income and profits of it, and sell and dispose of it, the same as a natural person. It is a trustee for its creditors in the same sense and to the same extent as a natural person, but no further. This is 888 HOSPES V. CAK COMPANY. [CHAP. XVII. well illustrated and clearly auuounced ia the case of Graham v. Rail- ■waij Co. (102 U. S. 148). That was a creditors' suit to reach a piece of real estate on the ground that it had been conveyed by the cor- poration fraudulently for a wholly inadequate consideration. The trust-fund doctrine was invoked by a subsequent creditor, and it was claimed that, as the trust had been violated, the deed should be set aside. If the premise was correct that the corporation held it in trust for creditors, the conclusion was inevitable ; but the court de- nied the premise, saying that a corporation is in law as distinct a being'as'an individual is, and is entitled to hold property (if not con- trary to its charter) as absolutely as an individual can hold it. Its estate is the same, its interest is the same, its possession is the same ; and that there is no reason why the disposal by a corporation of any of its property should be questioned by subsequent' creditors any more than a like disposal by an individual ; that the same principles of law apply to each. That the phrase that " the capital of a cor- poration is a trust fund for the payment of its creditors " is mislead- ing, if not inaccurate, is illustrated by the character of the actions that are frequently mistakenly instituted on the strength of it. For example, in the case of Railroad Co. v. Ham (114 U. S. 587 ; 5 Sup. Ct. Rep. 1081), two roads had been consolidated, the new company acquiring the property of the old ones. A creditor of one of the old companies, on the strength of the " trust-fund " doctrine, claimed a lien on its property in the hands of the new corporation. If this property was impressed with a trust in favor of creditors in the hands of the old company, it would logically follow that it would continue so in the hands of the new one. But the court denied the relief, and in giving its construction of the " trust-fund " doctrine, said : " The property of a corporation is doubtless a trust fund for the payment of its debts in the sense that when the corporation is lawfully dissolved, and all its business wound up, or when it is in- solvent, all its creditors are entitled in equity to have their debts paid out of the corporate property before any distribution thereof among stockholders. It is also true, in the case of a corporation, as in the case of a natural person, that any conveyance of the property of the debtor without authority of law and in fraud of existing creditors is void." This is probably what is meant when it is said in some cases, as m Clark v. Sever (139 U. S. 110 ; 11 Sup. Ct. Rep. 468), that the capital of a corporation is a trust fund sub modo. If so, no one will dispute it. But it means very little, for the same thing could be truthfully said of the property of an individual or a partnership. And obviously it would make no difference whether the disposition of the corporate property is to a stranger or to a stockholder, except that, of course, the latter could not be an innocent purchaser. There is also much confusion in regard to what the "trust-fund" doctrine applies. Some cases seem to hold that unpaid subscribed capital is a trust fund, while other assets are not, — that is, so long CHAP. XVII.J HOSPES V. CAR COMPANY. 889 as the subscription is unpaid, it is held in trust by tha corporation, but, when once paid in, it ceases to be a trust fund ; while other cases hold that, paid or unpaid, it is all a trust fuad. The iirst seems to be the rule laid down in Sawyer v. Hoag (17 Wall. 610), in which the " trust-fund " doctrine was first squarely announced by that court with all the vigor and force characteristic of the great jurist who wrote the opinion. In that case a stockholder in an insurance com- pany had given his note, as the court found the fact to be, for 85 per cent of his subscription to the stock of the company. After the company had become bankrupt, and the stockholder knew the fact, he bought up a claim against the companj' for one-third its face, and in a suit by the assignee in bankruptcy on his note set up tliis claim as an offset. That this would have been a fraud on the bankrupt act, and at least a moral fraud on policy-holders, is quite apparent without invoking the " trust-fund " doctrine ; and, if the note for unpaid stock was a trust fund, there could have been no offset, whether the company was solvent or insolvent. In the opinion it is said that, " if the subscription had been paid by the note or other- wise, the note ceased thereby to be a trust fund to which credit- ors can look, and became ordinary assets, with which directors may deal as they choose." But in Upton v. Trihilcock (91 U. S. 45), it is stated : " The capital paid in and promised to be paid in is a fund which the trustees cannot squander or give away." While in Sanger V. Upton (Id. 56), it is said: "When debts are incurred a contract arises with the creditors that it (the capital) shall not be withdrawn or applied otherwise than upon their demands until such demands are satisfied." And in the same connection it is distinctly stated that there is no difference betw^een assets paid in and subscriptions ; that " unpaid stock is as much a part of this pledge and as much a part of the assets of the company as the cash which has been paid in upon it ; that cred- itors have the same right to look to it as to anything else, and the same right to insist upon its payment as upon the payment of any other debt due the company ; that, as regards creditors, there is no distinc- tion between such a demand and any other asset which may form a part of the property and effects of the corporation." This language is quoted and approved in County of Morgan v. Allen (103 U. S. 508). It would seem clear that this is the correct statement of the law. The capital (not the mere share certificates) means all the assets, however invested. If a subscriber gives his note for his stock, that note is no more and no less a trust fund than the money would have been if he had paid cash down. Capital cannot change from a trust to not a trust by a mere change of form. It is either all a trust or all not a trust, and the " trust-fund " rule, whatever that be, must apply to all alike, and in the same way. If the assets of a corpora- tion are given back to stockholders, the result is the same as if the shares had been issued wholly or partly as a bonus. The latter is merely a short cut to the same result. So with dividends paid out of 890 HOSPES V. CAK COMPANY. [CHAP. XVII. the capital, voluntary conveyances, stock paid in overvalued property ; all are forms of one and the same thing, all reaching the same result (a disposition of corporate assets), which may or may not be a fraud on creditors, depending on circumstances. This much being once settled, the solution of the question when a subsequent creditor can insist on payment of stock issued as paid up, but not in fact paid for, or not paid for at par, becomes, as we shall presently see, com- paratively simple. Another proposition which we think must be sound is that credit- ors cannot recover on the ground of contract when the corporation could not. Their right to recover in such cases must rest on the ground that the acts of the stockholders with reference to the cor- porate capital constitute a fraud on their rights. We have here a case where the contract between the corporation and the takers of the shares was specific that the shares should not be paid for. There- fore, unlike many of the cases cited, there is no ground for implying a promise to pay for them. The parties have explicitly agreed that there shall be no such implication, by agreeing that the stock shall not be paid for. In such a casfe the creditors undoubtedly may have rights superior to the corporation, but these rights cannot rest on the implication that the shareholder agreed to do something directly con- trary to his real agreement, but must be based on tort or fraud, actual or presumed. In England, since the Act of 1867, there is an implied contract created by statute that " every share in any company shall be deemed and be taken to have been issued and to be held subject to the payment of the whole amount thereof in cash." This statutory contract makes every contrary contract void. Such a statute would be entirely just to all, for every one would be advised of its provisions, and could conduct himself accordingly. And in view of the fact that " watered " and " bonus " stock is one of the greatest abuses connected with the management of modern corpora- tions, such a law might, on grounds of public policy, be very desira ble. But this is a matter for the Legislature, and not for the courts. We have no such statute ; and, even if the law of 1873, under which the car company was organized, impliedly forbids the issue of stock not paid for, the result might be that such issue would be void as ultra vires, and might be cancelled ; but such a prohibition would not of itself be sufficient to create an implied contract, contrary to the actual one, that the holder should pay for his stock. It is well settled that an equity in favor of a creditor does not arise absolutely and in every case to have the holder of " bonus " stock pay for it contrary to his actual contract with the corporation. Thus no such equity exists in favor of one whose debt was contracted prior to the issue, since he could not have trusted the company upon the faith of such stock. First Nat. Bank v. Gustin M. C. Min. Co. (42 Minn. 327; 44 K W. Eep. 198) ; Coit v. Amalgamating Co. (119 U. S. 347; 7 Sup. Ct. Rep. 231) ; Handle.y v. ^ifwte (139 U. S. 435 j 11 CHAP. XVII.J HOSPES V. CAR COMPANY. 891 Sup. Ct. Eep. 630). It does not exist in favor of a subsequent cred- itor who has dealt with the corporation with full knowledge of the arrangement by which the " bonus " stock was issued, for a man can- not be defrauded by that which he knows when he acts. First Nat. , Bank v. Gustin M. C. Min. Co. (supra). It has also been held not to exist where stock has been issued and turned out at its full market value to pay corporate debts. Clark v. Bever {supra). The same has been held to be the case where an active corporation, whose origi- nal capital has been impaired, for the purpose of recuperating itself issues a new stock, and sells it on the market for the best price obtainable, but for less than par, llwndley v. Stutz (supra) ; although it is difficult to perceive, in the absence of a statute authorizing such a thing (of which every one dealing with the corporations is bound to take, notice), any difference between the original stock of a new corporation and additional stock issued by a " going concern." It is difficult, if not impossible, to explain or reconcile these eases upon the " trust-fund " doctrine, or, in the light of them, to predicate the liability of the stockholder upon that doctrine. But by putting it upon the ground of fraud, and applying the old and familiar rules of law on that subject to the peculiar nature of a corporation and the relation which its stockholders bear to it and to the public, we have at once rational and logical ground on which to stand. The capital of a corporation is the basis of its credit. It is a substitute for the individual liability of those who own its stock. People deal with it and give it credit on the faith of it. They have a right to assume that it has paid in capital to the amount which it represents itself as having ; and if they give it credit on the faith of that representation, and if the representation is false, it is a fraud upon them ; and, in case the corporation becomes insolvent, the law, upon the plainest principles of common justice, says to the delinquent stockholder, "Make that representation good by paying for your stock." It cer- tainly cannot require the invention of any new doctrine in order to enforce so familiar a rule of equity. It is the misrepresentation of fact in stating the amount of capital to be greater than it really is that is the true basis of the liability of the stockholder in such cases ; and it follows that it is only those creditors who have relied, or who can fairly be presumed to have relied, upon the professed amount of capital, in whose favor the law will recognize and enforce an equity against the holders of "bonus " stock. This furnishes a rational and uniform rule, to which familiar principles are easily applied, and which frees the subject from many of the difficulties and apparent inconsistencies into which the "trust-fund" doctrine has involved it; and we think that, even when the trust-fund doctrine has been invoked the decision in almost every well-considered case is readily referable to such a rule. It is urged, however, that, if fraud be the basis of the stockholders liability in such cases, the creditor should affirmatively allege that he 892 IIOSPES V. CAR COMPANY. [OHAP. XVII. believed that the " bonus " stock had been paid for, and represented so much actual capital, and that he gave credit to the incorporation on the faith of it ; and it is also argued that, while there may be a pre- sumption to that effect in the case of a subsequent creditor, this is a mere presumption of fact, and that in pleadings no presumptions of fact are indulged in. This position is very plausible, and at first sight would seem to have much force ; but we think it is unsound. Certainly any such rule of pleading or proof would work very inequitably in practice. Inasmuch as the capital of a corporation is the basis of its credit, its financial standing and reputation in the community has its source in, and is founded upon, the amount of its professed and supposed capital, and every one who deals with it does so upon the faith of that standing and reputation, although, as a matter of fact, he may have no personal knowledge of the amount of its professed capital, and in a majority of cases knows nothing about the shares of stock held by any particular stockholder, or, if so, what was paid for them. Hence, in a suit by such creditor against the holders of "bonus" stock, he could not truthfully allege, and could not affirmatively prove, that he believed that the defendants' stock had been paid for, and that he gave the corporation credit on the faith of it, although, as a matter of fact, he actually gave, the credit on the faith of the financial standing of the corporation, which was based upon its apparent and professed amount of capital. The misrepresentation as to the amount of capital would operate as a fraud on such a creditor as fully and effectually as if he had personal knowledge of the existence of the defendants' stock, and believed it to have been paid for when he gave the credit. For this reason, among others, we think that all that it is necessary to allege or prove in that regard is that the plaintiff is a subsequent creditor; and that, if the fact was that he dealt with the corporation with knowledge of the arrangement by which the "bonus " stock was issued, this is a matter of defence. Gogehio Inv. Oo. v. Iron Chief Min Co (78 Wis. 427, 47 N. W. Eep. 726). Counsel cites Fogg v. Blair (supra) to the proposition that the complaint should have stated that this stock had some value ; but that case is not in point, for the plaintiff there was a prior creditor ; and, as his debt could not have been con- tracted on the faith of stock not then issued, he could only maintain his action, if at all, by alleging that the corporation parted with something of value. In one respect, however, we think the complaint is clearly insuf- ficient. The thresher company is here asking the interposition of the court to aid in enforcing an equity in favor of creditors against the stockholders by declaring them liable to pay for this stock con- trary to their actual contract with the corporation. While the pro- ceeding is not, strictly speaking, an equitable action, yet the relief asked is equitable in its nature. Under such circumstances, it was incumbent upon the thresher company to show its own equities, and CHAP. XVII.J HOSPES V. CAK COMPA^'y. 893 that it was in a position to demand such relief. It was not the ori- ginal creditor of the car company, but the assignees of the original creditors. By that purchase it, of course, succeeded to whatever strictly legal rights its assignors had; but it is not rights of that kind which it is here seeking to enforce. Under such circumstances, we think it was incumbent upon it to state what it paid for the claims, or at least to show that it paid a substantial, and not a mere nominal, consideration. The only allegation is that it paid " a valu- able consideration." This might have been only one dollar. It appears that it bought the claims after the car company had become insolvent, and its aifairs were in the hands of a receiver ; also that the indebtedness of that company amounted to about $3,000,000, and that there were not corporate assets enough to pay any considerable part of it. The mere chance of collecting something out of the stock- holders does not ordinarily much enhance the selling price of claims against an insolvent corporation. If any person or company had gone to work and bought up for a mere song this large indebtedness of the car company for the purpose of speculating on the liability of the stockholders, no court would grant them the relief here prayed for. It would say to them, " We will not create and enforce an equity for the beneiit of any such speculation." Counsel for respondent suggests that, the thresher company is but an organization of the original creditors, who formed it, and pooled their claims, so as to save something out of the wreck of the car company; but nothing of the kind is alleged. On this ground the demurrer should have been sustained. In view of further proceedings it may be proper to say that in our opinion there is nothing in the position that the right of recovery against the stockholders was barred by the Statute of Limitation. The argument in support of the proposition all rests upon the false premise that the cause of action accrued in May, 1882, when the " bonus " stock was issued. The corporation never had any cause of action against the defendants. As between them and the company, the agreement for the issue of the stock was valid. The creditors are not here seeking to enforce a right of action acquired through or from the corporation, but one that accrued directly to themselves, or for their benefit, and that did not accrue at least until the corporation became insolvent, in May, 1884. Counsel for the St. Paul Trust Company stated that, if the court should reverse the order appealed from on any of the grounds urged by the other appellants, it would not be necessary for us to consider any of the assignments of error peculiar to his appeal ; but, as we reverse upon a ground that may be remedied by amendment, we deem it proper to say that, in our opinion, the claim against the Kittson estate is a "contingent" claim, within the meaning of Gen. St. 1878, Q g3_ Order reversed. 894 HARTFOKD KAILKOAD CO. V. CROSWELL. [CHAP. XVII. HARTFORD RAILROAD COMPANY v. CROSWELL. (5 Hm (N. Y.), 383. 1843.) Assumpsit, tried at the New York circuit ia March, 1841, before Gridley, C. Judge. The action was brought to recover certain instal- ments upon the defendant's subscription to the capital stock of the plaintiffs' company. On the trial the case was this. In May, 1833, the Legislature of Connecticut passed an act authorizing the plaintiffs to construct a railroad from the town of Hartford to the city of New Haven. The capital stock was divided into shares of f 100 each, and the defendant subscribed for and was allowed ten shares. The sub scription was in these words : " "Whereas the general assembly of the state of Connecticut, at their session in May, 1833, passed a resolution incorporating the Hartford and New Haven Railroad Company, with power to construct a railroad or way from the town of Hartford to the city of New Haven : We do hereby subscribe to the stock of said company the number of shares annexed to our names respectively, on the terms, conditions, and limitations men- tioned in said resolution. New York, July 31, 1835." In May, 1839, the Legislature of Connecticut amended the act of incorpora- tion by authorizing the company to " procure, charter, or purchase and hold " such number of steamboats, to be used in connection with their road, as they might deem expedient, to an amount not exceeding $200,000, and, for that purpose, to increase their capital stock to the same amount. On the 2d of July following the board of directors resolved to accept the amendment, and to adopt it as a part of the charter. They also resolved that the stockholders who were paying up their instalments should be allowed a preference in the distribu- tion of the new stock to be created in pursuance of the amendment. In September, 1839, at a general meeting of the stockholders, the resolution to accept the amendment was ratified. Due notice of this meeting was given ; but the defendant was not present, nor did it appear that he had at any time signified his assent to an acceptance of the amendment. Intermediate the date of the defendant's sub- scription and the amendment of the charter, the instalments sought to be recovered were regularly called for by public notice to that effect, and a personal demand thereof was shown to have been made of the defendant, who refused to pay. The road was completed arid put in operation before the commencement of the suit. Upon these facts a verdict was fendered for the plaintiffs by consent, subject to the opinion of the court upon a case. By the Court, Nelson, C. J. : — The main objection taken to a recovery in this case is that the plaintiffs are seeking to enforce the performance of a different con- CHAP. XVII.] HAKTFOED EAILKOAD CO. V. CROSWELL. 895 tract from that into which the defendant entered when he subscribed for the stock ; in other words, that the defendant never assented to the contract upon which the action is founded. The original charter conferred upon the company all the usual and necessary powers for locating and constructing a railroad from the town of Hartford to the city of New Haven. The ten shares subscribed for by the defendant were expressly taken upon "the terms, conditions, and limitations " mentioned in the charter. And such would doubtless have been the legal effect of the subscription had no reference to the charter been made in it. The contract thus entered into was as specific and definite as the charter of the company could make it ; and the meaning and intent of the parties cannot therefore be mistaken. It was a contract to take stock in an association incorporated for a particular object, having such limited and well-defined powers as were necessary to the accomplish- ment of that object. The defendant assented to the object by his subscription, and thereby agreed that his interest should be subject to the direction and control of the powers thus expressly conferred, but nothing more. Since entering into this contract, the plaintiffs have procured an amendment of their charter, by which they have superadded to their original undertaking a new and very different enterprise — and, for aught that can be known, a very hazardous one — with the necessary additional powers to carry it into effect. Instead of confining their operations to the construction and management of their railroad between Hartford and New Haven, they have undertaken to establish and maintain a line of water communication by means of steamboats, at an expense not to exceed $200,000 ; to all which, it is insisted, the contract of the defendant has become subject, without his approba- tion or assent. It is most obvious, if incorporated companies can succeed in estab- lishing this sort of absolute control over the original contract entered into with them by the several corporators, there is no limit to which it may not be carried short of that which defines the boundary of legislative authority. The proposition is too monstrous to be enter- tained for a moment. Corporations possess no such power. Indeed, they can exercise no powers over the corporators, beyond those con- ferred by the charter to which they have subscribed, except on the condition of their agreement or consent. This is so in the case of private associations, where the articles entered into and subscribed by the members are regarded as the fundamental law or constitution of the society, which can only be changed by the unanimous voice of the stockholders. Livingston v. Lynch (4 John. Ch. Rep. 573) ; Coll. On Part. 641. So here, the original charter is the fundamental law of the association,— the constitution which prescribes limits to the directors, officers, and agents of the company not only, but to the action of the corporate body itself, — and no radical change or altera- 81)6 HAKTFOED RAILROAD CO. V. CROSWELL. [CHAP. XVII. tion can be made or allowed, by which new and additional objects are to be accomplished or responsibilities incurred by the company, so as to bind the individuals composing it, without their assent. The question has been the subject of consideration in Massachu- setts and Pennsylvania, and in each the courts have not hesitated to maintain the inviolability of the contract as originally entered into, denying to the company the power of altering it essentially, and of binding the subscribers who have not given their assent. In the case of The Middlesex Turnpike CorjJoration v. Locke, (8 Mass. Rep. 268), the suit was brought upon a subscription contract for stock, by which the defendant agreed to take one share and to pay all assess- ments made upon it. The ground of defence which prevailed was, that the location of the turnpike road had been changed by an act of the Legislature, after the defendant's subscription, the act having been passed at the instance of the corporation ; and that the defendant had never assented to the alteration. The court said : " The plaintiffs rely on an express contract, and were bound to prove it as they allege it. Here the proof is of an engagement to pay assessments for making a turnpike in a certain specified direction. The defendant may truly say, non hcBo in faedera venL He was not bound by the application of the directors to the Legislature for the alteration of the course of the road, nor by the consent of the corporation thereto." The same prin- ciple was recognized and admitted in the case of The Indiana & Eb- ensburgh Turnpike Co. v. Phillips (2 Fenn. Eep. 184). I do not deny that alterations may be made in the charter by the procurement of the company, without changing the contract so essentially as to absolve the subscriber. Such would be the case, perhaps, in respect to mere formal amendments, or those which are clearly enough beneficial, or at least not prejudicial to his interests. A modification of the grant may frequently be advisable, if not necessary, in order to facilitate the execution of the very object for which the company was originally established; and I admit there are intrinsic difiiculties in the way of laying down any general rules by which to distinguish between the two kinds of cases. Each must depend upon its own circumstances, and be disposed of with due regard to the inviolability belonging to all private contracts. Some of the cases which have occurred exemplify the difficulties attending the question. In Irvin v. The Turnpike Co. (2 Penn. Eep. 466), it was held that a benefit which results to individual property by the location of the road, did not, in contemplation of law, enter into the consideration of the contract of subscription. Hence, it was there decided that the subscriber was bound, notwith- standing a change in the location of the road made by an act of the Legislature against his remonstrance; and this though the change was obviously to his prejudice in point of fact. The decision, it will be perceived, is contrary to the case before referred to in Mas- sachusetts. The court, moreover, were not unanimous, Eogers and CHAP. XVII.] KENOSHA EAILKOAU COMPANY V. MARSH. 897 Kennedy, JJ., having dissented. In Grai/ v. The Monoiiyahela Nav- igation Co. (2 Watts & Serg. 156), the same learned court held, that an alteration in the charter, by which additional privileges were granted to the corporation, was not such a violation of the contract of subscription as would relieve the subscriber, although the addi- tional privileges might extend the liabilities of the company, and thus incidentally affect him. I refer to the last two cases as affording a very full and able examina- tion of the subject, without intending, at this time, to assent to their conclusions, or to all the reasonings of the learned chief justice who delivered the opinions. In each of them, however, the general prin- ciple before asserted in The Indiana & Ebensburgh Tuvnjnke Co. v. Phillips is recognized, viz., that the alteration by the Legislature may be so extensive and radical as to work a dissolution of the contract ; but an efEort is made so to modify and regulate the application of the principle as to admit of improvements in the charter, useful to the public and beneficial to the company, without tliis consequence. In the case before us, the change in the powers and purposes of the plaintiffs' company has been so extensive as to preclude us from sanctioning a recovery upon the defendant's subscription, unless we are prepared entirely to abandon the principle above stated, and to declare that the interests of subscribers shall be subject to the will and pleasure of a majority of the stockholders. Judgment for the defendant. KENOSHA EATLROAD COMPANY v. MAESH. (17 Wis. 1.3. 186.3.) Appeal from the Circuit Court for Kenosha County. The Circuit Court, on motion of the defendant, nonsuited the plain ti if. By the Court, Paine, J. : — This action was brought upon a subscription to the capital stock of a railroad company chartered to build a road from the city of Keno- sha to Beloit. Ch. 60, Pr. Laws of 1853. Afterwards, by Ch. 22, Pr. Laws of 1857, the Legislature changed the enterprise from that of building a road to Beloit, to one of building a road to the state line between this State and Illinois, at or near Genoa, in Walworth County. This change was obtained by the company, which acted under it, and, under still another law, consolidated with an Illinois company which was authorized to build a road from Eockford in that State to the same point on the state line. This action was brought by the consolidated company. After the evidence of both parties had been introduced, the de- voL. I. — 57 d98 KENOSHA KAILROAD COMPANY V. MARSH. [CHAP. XVII. fendant moved for a nonsuit, for the reason, among others, that this was such a radical change in the enterprise as released him from his subscription. The motion was granted upon another ground, but we think it was properly granted upon this. Considered independently of the effect of the power reserved in our constitution to the Legislature, to amend or repeal the charters of all incorporations, all authorities concur in stating the general rule to be, that a radical, fundamental change in the character of the enterprise releases the stock subscriber who does not assent. In ap- plying this rule many cases are found where the particular change made was held not to be of this character. But we think the plain implication from the reasoning in all of them is, that a change like the one here in question would be so held. Thus in Banet v. H. R. Co. (13 111. 504), the change made only straightened the original route, leaving it between the same termini. The court held that this was not a radical change, but that it left the enterprise substantially unchanged. But they say expressly that if the change had been to authorize a road from Alton to Vandalia, or Shelbyville, it would have been a different enterprise. But it will be seen by a reference to the map' that a change to a road from Alton to Shelbyville would have been very similar to the one made here. The road as changed here runs in a line entirely southwest of the original route, and to a point only about half as far as Beloit. Within the reasoning of all the cases we think this is a change from one enterprise to another, and not one which leaves the original enterprise substantially remaining. The supreme court of Indiana has recently held that the mere con- solidation with another company under an act of the Legislature re- leases non-assenting subscribers. McCray v. R. R. Co. (9 Ind. 358); Booe V. R. R. Co. (Id. 93). I should not wish to adopt that con- clusion without further examination. For although it may be within the principle of R. It. Company v. Croswell (5 Hill, 383), and other cases of a similar character, still there seems to me to be a fair dis- tinction between such changes as only add something to the original enterprise, — which becomes tributary to it, and makes its operation more perfect and successful, and changes which abandon the original undertaking for a new one. There is certainly some ground for say- ing that changes of the former character may be deemed to be fairly within the scope of the original object, as it may reasonably be assumed that every association which undertakes the accomplish- ment of a particular enterprise, intends to make such changes as ex- perience may show to be necessary for its most successful prosecu- tion. And if this may bs assumed, then, although such changes were of course not originally provided for, j-et they may fairly be regarded as so far incidental to the original purpose as to be within the scope of the authority which each member has conferred upon the corpora- tion, to bind him by its action whenever the necessary legislative assent is obtained. And if this can be regarded as a correct rule, I CHAP. XVir.] KEN'OSHA ftAILROAD COMPANY V. MAKSH. 899 should not be prepared to say that a consolidation with another com- pany whose road ran from either terminus in the same general direc- tion, or the connection of a line of steamboats with the road, when one of the termini was on navigable water, if authorized by the Legis- lature and assented to by the corporation as a body, ought to release a stockholder who did not assent. These things are totally different in their nature from a change which abandons the original enterprise entirely. These cases go, therefore, much further than it is necessary to go here. The following cases also sustain the conclusion that such a change as was made here releases subscribers not assenting. Plank Road Company v. Arndt (31 Penn. St. 317) ; Hester v. Memphis & Charleston JR. B. Co. (32 Miss. 378). The following cases, as stated in the Digest, sustain the same rule.though the volumes have not yet arrived in our library : Champion v. Memphis R. B. Co. (35 Miss. 692) ; (vol. 20, U. S. An. Dig. p. 219, sec. 222) ; Witter v. Miss., etc. B. R. Co. (20 Ark. 463) ; (vol. 20, U. S. An. Dig. p. 219, sec. 235). See, also, Fnfs Ex'rs v. R. R. Co. (2 Met. (Ky.) 314). The question then remains, whether the power reserved in the con- stitution to amend, alter, or repeal-charters should prevent that effect. Some of the cases seem to jjlace great stress upon the existence of this power, and to intimate that under it the non-assenting stock sub- scriber may be bound by a change, the effect of which would other- wise be to release him. I am wholly unable to see that it should have any such effect. The occasion of reserving such a power either in the constitution or in charters themselves is well understood. It grew out of the decisions of the supreme court of the United States that charters fiere contracts within the meaning of the constitutional provision that the States should pass no laws impairing the obligation of contracts. This was supposed to deprive the States of that power of control over corporations which was deemed essential to the safety and protection of the public. Hence the practice, which has extensively prevailed since those decisions, of reserving the power of amending or repealing charters. But this power was never reserved upon any idea that the Legislature could alter a contract between a corporation and its stock subscribers, nor for the purpose of enabling it to make such alteration. It was solely to avoid the effect of the decision that the charter itself was a contract between the State and the corpora- tion, so as to enable the State to impose such salutary restraint upon these bodies as experience might prove to be necessary. But I sup- pose, it would hardly be claimed that the State, even where this power of amendment is reserved, could, by amending the charter of a railroad company so as to provide for a new and entirely different road, impose any obligation on the corporation to build it. It might possibly repeal the old charter, but whether the company would un- dertake the enterprise provided for in the amendment, would still depend entirely upon its own consent ; as it is well settled that a grant of corporate franchises cannot be imposed upon any persons 900 KENOSHA KAILKOAD COMPANY V. MARSH. [CHAP. XVII. against their consent, any more than any other grant. Undoubtedly, the Legislature might, under this power, impose new duties and new restraints upon corporations in the prosecution of the enterprises al- ready undertaken. And provisions of this nature would be binding whether assented to or not. But when it comes to a question of em- barking in a new enterprise, the Legislature cannot impose this as a duty upon any corporation. All it can do is to grant it the power, aud then it is for the corporation to accept it or not, as it pleases. So that, in all cases where charters are changed, the right to bind stock subscribers who do not assent seems to me to derive no ad- ditional support from the fact that the power of amending the charter had been reserved, but to depend essentially upon the ques- tion whether the change is of such a character that it may be deemed so far in furtherance of the original undertaking, and incidental to it, as to be fairly within the power of the corporation to bind its individual members by its corporate assent, or whether it is such a departure from the original purpose that no member should be deemed to have authorized the corporation to assent to it for him. If I am correct in supposing that Un amendment authorizing an en- tirely different road would not be binding on the corporation with- out its own assent, it must follow that the question whether any particular subscriber is bound must depend upon the question whether he has himself assented, or whether the rest could bind him by their assent, and not on the question whether the Legisla- ture had power to pass the amendment. The result of my views upon this point is, that an amendment of this kind, merely authorizing the substitution of a new enterprise for the old, has precisely the same effect that it would have had if there had been no power reserved to amend the charter. The Le- gislature does not profess to make it obligatory. They grant it as a power to be accepted if the companj"- chooses to accept it ; other- wise not. This is just what they might have done if the power of amendment had not been reserved. And it seems to me that the question whether an individual subscriber was bound or not by the corporate assent, should be determined by the same principles in either case. The power of amendment was never reserved with reference to any question between the corporation and its stock sub- scribers, but solely with reference to questions between the corpora- tion and the State, when the latter desired to make compulsory amendments against the wish of the former. The effect of this reserved power is discussed in the matter of Oliver Lee & Co.'s Bank (21 X. Y. 20, 21), by Judge Denio. The amendment tlipre made did not attempt to change the corporate en- terprise, but belonged to the class I have referred to, of amendments designed for the better protection of the jmblic. It was a case where new liabilities were imposed on the stockholders, arising from the continued exercise of the corporate powers originally conferred. CHAP. XVII.] KENOSHA RAILROAD COMPANY V. MARSH. 901 There being, therefore, no question in the case of a radical change of the oi-iginal enterprise, I cannot think the judge intended that his re- marks should be applicable to such a case. I cannot think that he intended to say that any person who subscribes for the stock of a corporation chartered for a special enterprise, where the power to alter or amend the charter is reserved by the Legislature, has thereby agreed that the Legislatui'e, and the majority of his associates may, without his consent, transfer his investment to a totally different pro- ject. Indeed, that this could not be done is fairly implied from a subsequent opinion of Judge Denio, in The Plank Road Company v. Griffin (24 N. Y. 166). There the company was originally char- tered to build a plank road. Afterwards a law was passed extend- ing the time in which they were .allowed to finish it by laying down plank, and allowing them, in the mean time, to erect toll-gates and exercise the rights of turiipike companies. The judge says : " It is certainly possible that this act was obtained simply as a cover for abandoning the plan of a plank road, and to enable the directors to establish a turnpike. This, however, is not the presumption of the law. On the face of the enactment it simply conferred on the corpo- ration an indulgence which it would not otherwise possess, of postpon- ing the completion of the road for a considerable time, and of so man- aging it that it should be a source of profit in the mean time. I think this was within the sCope of the reservation contained in the general act which declares that thfe Legislature may at any time alter, amend, or repeal it, and may amend and repeal any corporation which may be formed under it." This plainly implies that if the act had abandoned the original pro- ject, the subscriber would not have been bound. Por the judge had no occasion to make the argument he did to show tbat the change waS witliin the scope Of the power of amendment, if that pOw'er was un- limited. Pierce, in his work on railroads, p. 98, gives it as the result of the authorities, that even when the power' of amending is reserved, it is not unlimited, but "that such a radical change in the company as di- verts it from its original purpose " is not binding on a dissenting shareholder. But if the power is riot unlimited, where is the limit? By what principles is it to be established? I know of none except those I have already contended for, which base the right upon the implied authority conferred by each one tvho becomes a member of a corporation, on the majority, to bind him by such changes as may fairly be regarded as incidental to the original project. The judgiilent must be affirmed. 902 ASHTON V. BURBANK. [CHAP. XVII. ASHTON V. BUEBANK. (2 Dillon, 435. 1873.) This is an action on a promissory note, dated August 19, 1867, for $3,000, made by the defendants to the Provident Life Insurance and Investment Company. The defendants were subscribers of that company, and the note in suit was given for an assessment upon their stock. The original charter of said company authorized it to transact a " life and accident insurance " business. After the defend- ants' subscription to the stock, the charter was amended, and the name of the company changed to the Eagle Insurance Company; and it was also authorized, by the amended charter, to transact the business of "fire, marine, and inland insurance." The amended charter was accepted, but in point of fact the company took no risks during the short period it afterwards did business, except such as were authorized by its original cliarter. Subsequently the com- pany, being then in possession of the note in suit, forfeited, under authority given in its charter, the stock of the defendants therein. The note in suit, when long past due, was transferred by the com- pany to the plaintiff. Based upon these facts, two special defences are made to the note, the facts relating to which appear in the special verdict, and the question on the special verdict is whether either of these defences is sufficient in law to defeat a recovery on the note. The special verdict is in these words : — " The note was executed by the defendants, and is now the prop- erty of the plaintiff by assignment and purchase from the payee after due, and the plaintiff is entitled to recover thereon the full amount thereof, less the credit indorsed on the same, of $157.50, October 10, 1868, unless the following facts, which we state in the form of a special verdict, constitute a defence : — "First Special Defence. — We find the following facts : The Prov- ident Life Insurance and Investment Company, the payee of the note ■in suit, was chartered by tlie Legislature of the State of Illinois, Feb- ruary 13, 1865 (Laws of 1865, p. 761, made. a part of this verdict), 'to carry on the business of life and accident insurance ' at Chicago, with power to establish a branch at Peoria, Illinois. The defendants, liv- ing in Minnesota, subscribed to the stock of said company, each in the sum of $5,000, and paid in cash, at the time of the subscription, ten per cent thereon. Some months afterward the company made an assessment of fifteen per cent on said stock, and it was for, or in pay- ment of this assessment, that the note in suit was given. That is, the consideration of said note in suit is the aforesaid assessment of fifteen per cent upon the defendants' said subscription to the said stock of said company. Two days after tlae note in suit was given CHAP. XVn.] ASHTON V. BUKBANK. 90;j the defendants received from the' said company certificatss of stock, which recite that twenty-live dollars on each share had been paid. Each certilicate is as follows : — " ' Capital, »1,000,000. Shares, $100 each. '"Provident Life Insurance and Investment Company, Chicago, Illinois. "'^o.-kn. 50 Shares. "'Be it known, that J. C. Burbauk, Esq., is entitled to fifty shares of the capital stock of the Provident Life Insurance and Investment Company, on which has been paid twenty-five dollars on each share, and holds the same sub- ject to the conditions and stipulations contained in the act of incorporation of said company ; which shares are transferable on the books of the company, at its office in Chicago, by the said Burbank or his attorney, on the surrender of this certificate and payment of all instalments then due, and when such transfer shall be sanctioned and approved by the transfer agent. " ' Witness the signature of the President and Secretary, and the [Seal.] seal of the company, attached. "'Chicago, August 2i, 18C7. " ' I. Y. Mu>;x, President. "'C. Holland, Secretary. "'This certificate to be surrendered on payment of the next instalment, when a new one will be given.' " This amount was made up as follows, viz. : the ten per cent paid at the time of the subscription, and the said fifteen per cent for which tlie note in suit was executed as aforesaid. On the 10th of October, 1868, the defendants paid the payee $167.50 as interest, being the amount indorsed thereon. " Subsequently, to wit, on the 3d day of March, 1869, the Legisla- tive Assembly of Illinois passed an act as follows : — "'An act to amend an act to incorporate the Provident Life Insurance and Investment Company,' approved February 13, 1865. "'Sec. 1. Be it enacted by the people of the State of Illinois, represented in the General Assembly, That so much of section 1 of said act, to which this is amendatory, as relates to the name and style of the corporation, and sections 5 and 15 of the said act, to which this is amendatory, be, and the same are hereby, repealed. " ' Sec. 2. The name and style of the company shall be and is Eagle Insur- ance Company, and the said company may transact fire, marine, and inland insurance ; and may hold an annual meeting of the shareholders on the first Tuesday of July for the election of thirteen directors, to serve until their suc- cessors be chosen. "'Approved M,irch 3, 3 809.' " The defendants neither procured nor assented to said last men- tioned act, nor did they know of it until after its passage, and there- upon they protested against it, and refused to pay the note in suit on this ground. Subsequently the said Eagle Insurance Company ceased to do business, and this note, among other assets, was sold to the plaintiff in the year 1871 in payment of a debt due from the Eagle Insurance Company to him. After the said amendment of the char;- 904 ASHTON V. BUKBAKK. [CHAP. XVII. ter of March 3, 1869, the Eagle Insurance Company did not, in fact, transact any iire, marine, or inland insurance business, or- do any other business than such as was authorized by the original charter. "Second Special Defence. — We find all the foregoing facts, and ■ also the following, to wit : Under the second section of the charter of the Provident Life Insurance and Investment Company calls were made upon the defendants in September, 1869, for the payment of an additional assessment of twenty per cent upon their stock, payable October 25, 1869, which they neglected and refused to pay, and that the board of directors of the Eagle Insurance Company, on the 2d day of December, 1869, declared all the stock on which said assessment had not been paid, including defendants' said stock, for- feited; and soon after new stock subscriptions were received from new subscribers, and the old directors went out, and new directors, elected by the new stockholders, came in ; and the Eagle Insurance Company ceased to do active business or issue new policies after January, 1870." The provision in the charter of the company in relation to the forfeiture of stock is, that if any shareholder or subscriber shall neglect to pay a call for a specified number of days, "it shall be lawful for the directors to declare the shares forfeited to the com- pany, and all previous payments made thereon." Dillon, Cikcuit Judge : — We hold the following propositions : — 1. The plaintiff, taking the note in suit directly from the company long after it was due, and after the change in the charter, and after the action of the company forfeiting the defendants' stock, therein, stands precisely in the place of the company, and cannot recover oil the note' unless the company could have recovered, had the: action been brought by it; 2: The note being given for an unpaid stock assessment repre- sents, for all the purposes of this action, that assessment, and the note not having been paid, it follows that the defendants have not paid the stock assessment for which the note was given. Under its charter the company had the power, if any assessment upon stock subscribed was not paid,- to forfeit the stock and all previous pay- ments thereon; or, at its election, the company would. have the right to sue for such assessment. But the two courses are inconsistent, and it must elect whether to sue for q,nd recover the stock subscrip- tion, or to forfeit the stock. It cannot do both. Having elected, in this case; to forfeit the defendants' stock, it cannot afterwards recover for a prior unpaid assessment; and this doctrine, which was conceded in argument, is not, in our judgment, varied, as the plaintiff's counsel contends, by the circumstance that the company at the time of the forfeiture of the stock held the defendants' note for such prior unpaid assessment. Sirtall y. Herkimer Mannf. Comp. (2 Comst. 330). CHAP. xrn.J ASHTON V. BCRBANK. ' 905 3. The change in the charter by which a life and' accident com- pany was authorized to transact lire, marine, and inland insurance, is* an organic change of such a radical character as to discharge previous subscribers to the stock of the company from any obliga- tion to pay their subscription, unless the change is expressly or impliedly assented to by them. Here there was no such assent, and no acquiescence in the structural change made in the charter of the company. The company could not, against such a subscriber, main- tain a suit to collect his subscription, and take the money and use it as capital for the transaction of business under the charter as altered. We think, in such, a case, the subscriber is not bound to enjoin action under the amended charter, but may, if he elects, defend against an action to recover on his subscription to the stock. If the company accepted the amended charter, as it did by adopting the new name, it is not essential to such a defence to show that at the time of the trial the corporation had actually exercised the enlarged powers conferred upon it. The defendants are not bound, on their subscription, to pay to the company money which, if paid, may be used as capital to carry on the business authorized by the amended charter. Judgment for the defendants. Nelson, J., concurs. 906 HUDDEKSFIELD CANAL CO. V. BUCKLEY. CHAP. XVIIL CHAPTER XVIIL EFFECT OF TRANSFER OF STOCK UPON THE STOCK- HOLDERS' LIABHJTY. HUDDERSFIELD CANAL COMPANY v. BUCKLEY. (7 Term, 36. 1796.) This was an action on the case in tort. The declaration stated that the defendant had subscribed to advance the several sums of £500, £100, and £200 towards making and maintaining the Hudders- field canal, mentioned in the statute 34 Geo. 3, c. 53, and in respect of such subscription had become one of the proprietors of the Hud- dersfield Canal Company, and an owner of and entitled to eight shares in the undertaking; that afterwards, to wit, on the 11th of July, 1794, the committee of the company, duly chosen, etc., by virtue of the powers of the act made a call of £10 per cent on the proprietors in respect of the shares which they respectively held to carry the act into execution, and directed that such call should be paid to J. Brook, one of the treasurers to the company, at the times, and in the propor- tions therein mentioned, and (amongst others) £3 per cefit on such call on the 25th of November then next; and £6 per cent on such call on the 28th of Eebruary next; and that the committee gave regular notice of such call, etc., as directed by the act. The second count stated that on the 5th of March, 1795, the committee made a further call of £10 per cent, and directed that £6 per cent thereof should be paid on the 9th June, and £5 per cent on the 28th of July then next. The third count was for £8 per cent, directed by a third order of the committee made on the 29th of July, 1795, to be paid on the 28th of October then next. And the fourth count was £10 per cent, directed by another order of the committee on the 23d of No- vember, 1795, £5 per cent of which was to be paid on the 4th of February then next, and the remaining £5 per cent on the 18th of March then next. The declaration then stated that though the pro- portions of the said calls in respect to £300 (being three of said eight shares) had been duly paid to the plaintiffs, the defendant had not paid the several proportions of £500, residue of the said several sums of £500, £100, and £200 so subscribed by the defendant, as he was directed, etc., amounting to £180, but neglected so to do, etc. CHAP. XVIII.] HUDDERSFIELD CANAL CO. V. BUCKLEY. 907 The defendant paid £40 into court on the first count, and pleaded the general issue, not guilty. At the trial at the last Assizes at York, before Rooke, J., a verdict was given for the plaintiffs, damages £146 i4s. lid. ; £14o'being the amount of the calls stated in the three last counts; £2 14s. 4W. being interest of the £40 paid into court by the defendant on the first count; £3 12s. S^d. being interest of the several calls stated in the three last counts from the several times when those calls became due to the day of the plaintiffs suing out their writ ; subject to the opinion of this Court on the following case. On the 30th of May, 1793, the defendant and many other persons subscribed an instrument duly stamped, not under seal, by which they agreed to subscribe the respective sums set opposite "to their names toward the expenses of soliciting the act in question and of making and maintaining the canal, etc., and agreed to pay such sums to the treasurer when called upon for that purpose, etc. The defend- ant subscribed for five shares and two shares, and afterwards sub- scribed for another share. By the statute 34 Geo. 3, c. 53, the subscribers were incorporated by the name of the Huddersfield Canal Company, and were empowered to make the calls stated in the decla- ration, which were regularly made as stated in the declaration. The first proportion of the first call, being £2 per cent, was paid by the defendant on all the eight shares so subscribed for by him ; and the remainder of that call, being £8 per cent on his remaining five shares, amounting to £40, was paid into court by the defendant ; and the calls on the three other shares were paid by R. Gray, the purchaser of them. On the 6th of August, 1794, the defendant sold five of his eight shares to J. Kelsall at a profit of £17 per cent on each share, •and transferred his interest therein to Kelsall by a proper transfer, registered by the company's clerk. On the 4th of December, 1794, the following entries were made in the plaintiffs' books by their agents: "J. Buckley, first subscription, £500; second ditto, £100; subscription as a landowner, £100; subscription as a mill -owner, £100. — 1794, July 9th. By transfer to R. Gray, £300 ; August, 6th, ditto to J. Kelsall, £500." By a corresponding entry also in the books, under the name of J. Kelsall, the transfer of £500 to him from Buckley was stated. The questions for the opinion of the Court were, 1st, Whether the plaintiffs can recover in this action the amount of the subscriptions demanded by the declaration ; 2dly, Whether the defendant be liable to pay interest on the call paid into court from the time it was or- dered by the committee to be paid to the treasurer, and on the calls mentioned in the three last counts from the respective days when those calls were required to be paid until payment thereof. The parts of the act of Parliament relative to this case are Sects. 1, 62, 63, 64, 65, 70,_71, 72, 73, 74, 79, and 119. By Sect. 1, after reciting the public utility of the measure, and that the persons 908 HUDDERSFIELD CANAL CO. V. BUCKLEY. [CHAP. XVIIL therein named were desiroias at their own costs and charges to make and maintain the intended canal, certain persons by name, ai:;ong whom are the defendant and T. Kelsall, and their respective suc- cessors, executors, administrators, and assigns, are incorporated. By- Sect. 62, power is given to raise £184,000, to be divided into shares, which by Sect. 63 are to be shares of £100 each, and shall be vested in the persons subscribing and their executors, administrators, and assigns, in proportion to the sums they severally subscribe ; and per- sons having such shares are directed to pay a proportionable sum towards cirrymg on the undertaking as thereafter directed. By Sect. 64, the names and descriptions of persons entitled to shares, with the number of their shares and amount of their subscrii^tions, and the numbers by which each share is distinguished, are to be entered in a book belonging to the Company, and tickets to be delivered to each subscriber, specifying the share, etc. ; and such tickets are to be evi- dence of the title of the subscribers. The form of the ticket is this : "A. B. is a siibscriber, etc., of the share, etc.. No. 1, and the said A. B., his executors, adininistrators, or assigns, is and are entitled, etc." By Sect. 65, persons who have subscribed, and their executors, administrators, and assigns, shall be deemed proprietors, etc., and shall have votes at the meetings, etc., for such sliares. Sects. 71 and 72 mention shares or subscriptions. By Sect. 73 a book is to be kept containing the names of the persons who shall from time to time be- come proprietors or entitled to shares, etc. By Sect. 74, power is given to a committee (who are to be elected according to the direc- tions in Sect. 70) to make calls fdr moiiey on the proprietors; it directs the owners of shares to pay, etc. ; and adds, " If any person shall neglect to pay his proportionable share of the money ta be dalled for by the firSt call, etc., it shall be lawful for the COnipany to sue for and recover the same in- any of his Majesty's courts of record by action of debt or on the case ; " and if any person shall neglect to pay his propoitionable share of the money to be- called for aftfer the first call, he shall forfeit £5 for evei-y Share ; and if he shall neglect to pay, etc., fOr the space of three months aftef the time appoinfe^d, etc., he shall forfeit his shate for the benefit of the other projjrie- tors, etc. By Sect. 79, the proprietors may sell shares ; and dupli- cates of the assignments of shares are to be delivered to the commit- tee and an entry thereof made in the Company's bodks ; and after such assignment, the purchasers are to havt, shares in the profits, and to be entitled to vote as proprietors. By Sect. 80, no share is to be sold after the call of any money until such money is paid. By Sect. 119, subscribers are required to pay the sums by them respect- ively subscribed, or siiCh prcvportions therfeof as Shair frOm tiWe to time be called for by the- committee, etc.; "and in case any person shall neglect to pay the same at the time required, it shall be lawful for the Company to sue for and recover the same in any court of law or equity." CHAP. XVIII.] HUDDEKSFIELU CANAL CO. V. BUCKLEY. 909 Topping, for the plaintiffs, anticipated the three objections which would be made on behalf of the defendant; 1st. That the action could not be maintained in its present form ; 2dly. That no interest is payable on the calls made by the committee after non-payment of those calls ; 3dly. That the assignment to a purchaser discharges the original subscriber from all future responsibility ; and then con- tended that they were without foundation. Answer to the first ; whenever an act of Parliament requires a person to do a thing, or to pay a certain sum of money for the benefit of another, and the other neglects to do it, the former may sue him in an action on the case. But it is not necessary to resort to that general argument in this case ; for the 74th Section enables the Company to sue any proprietor for sums of money ordered by the committee to be paid by action of debt or on the case. This form of action, therefore, is warranted by the express words of the act of Parliament, which are not " by action on the case in assumpsit," but generally " action on the case." And even if the meaning of these words were doubtful, the defendant bj' paying money into court on the first count has admitted a right of action in the plaintiffs. Coxe v. Parry (1 Term Eep. 464). Secondly, the plaintiffs are also entitled to interest on the calls. The money Ordered on a call is a certain liquidated demand ; the instant that money was payable the plaintiils had a right to it, and were entitled to recover damages for the non-payment of it. Besides, it is now too late for the defendant to ma£e this objection, the jury having given interest by way of damages. Thirdly, the assignment by an original subscriber to a purchaser does not discharge the former frOm his re- sponsibility under the act. The original subscribers are the persons on whose credit the scheme was begun, and on which the Legislature gave their sanction to the measure. They are the persons named by the Legislature, not merely to begin the undertaking, but also to carry it into execution ; the act reciting that those persons were de- sirous at their own cost and charges to make and maintain the canal, etc. And if it were competent to them to throw the burden on others, the assignments might be made to beggars, and thus the Legislature would be deceived, the owners of land through which the canal passes would be injured, and the public deprived of the benefit which the Legislature intended they should derive from the imdertaking. This is like the case of a lease, in which though the lessor consents to the lessee's assigning to a third per.son, he does not give up his remedy against the original lessee. The power given by the act to the subscribers to assign was merely introduced for the benefit of the subscribers, but there is no part of the act that discharges them from their original responsibility on their assigning ; on the contrary, by Sect. 119, which was inserted in the act after the power of assigning was given, they are required to pay their subscriptions ; and that clause is nugatory, unless it has the effect of continuing the respon- sibility in the original subscribers. 91 U HUDDEKSFIKLD CANAL CO. V. BUCKLEY. [CUAP XVIU. Yates, contra. First, the action is uot maintainable in this form. It is brought for a mere breach of contract, in not paying a sum of money ; and whether it be a private agreement between the parties, or ratified by act of Parliament, the non-payment of a sum according to the agreement not under seal can only be the subject of an action of assumpsit. The non-payment of the sum in question cannot be con- sidered as a breach of duty so as to convert it into a tort. The courts have at all times been anxious to preserve the boundaries of action ; and when a plaintiff's cause of action arises on a contract to pay a sum of money, he ought to sue in assumpsit, otherwise the de- fendant is deprived of the privilege, to which he is entitled, of a set- off. With regard to the words " action on the case," they must be understood according to the subject-matter to which they are applied ; and being applied here to the case of a breach of contract they must be understood to mean " action on the case in assumpsit." Secondly, at all events the defendant is not liable to pay interest on these calls. Thirdly, considering the whole scope and meaning of this act of Par- liament, an original subscriber by the transfer of his shares and the acceptance of the assignee by the Company ceases to have any con- nection whatever with the Company, and is thereby discharged from every future demand that the Company may make on him in respect of those shares. By the act certain persons and their executors, ad- ministrators, and assigns are incorporated ; express power is given to the original subscribers to assign their shares ; the shares are declared ^to be vested in the subscribers and their assigns ; and throughout the whole act the assignees of subscribers are mentioned as standing in the situation of the original subscribers. By Sect. 65, persons who have subscribed and their assigns are deemed proprie- tors, and are entitled to vote at all meetings ; that is, the original subscribers have a right- of voting until they assign, and then that power is transferred to their assignees. Then it would be highly unjust that the original subscribers should continue liable to^'the demands of the Company after they had parted with their right of voting and that property in respect of which only they ever became liable, and after the entire management of the Company has passed into other hands. With regard to the supposed analogy between this case and that of lessor and lessee, though the lessee is not dis- charged from his covenants by assignment and by the lessor's ac- cepting the assignee, yet after such an assignment the lessee is not liable for rent in an action of debt. Vid. 1 Brownl. 20 ; Walker's Case (3 Co. 24) ; Marsh v. Brace (Cro. Jac. 334) ; Thursby v. Plant (1 Saund. 40) ; and Wadham v. Marlowe (E. 25 G. 3 B. E., cited 1 Term Rep. 91), that being founded on the enjoyment of the land ; and there being no covenant in this case, that analogy is in favor of this defendant. Lord Kenyox, C. J. : Though I am of opinion with the plaintiffs upon the two first CHAP. XVni.] HUDDEKSFIELU CANAL CO. V. BUCKLEY. 911 points, I am clearly of opinion with the defendant on the last. 1 think that the action is maintainable in this form, the act having said in express terms that the Company may sue by an action on the case, and the plaintiffs having stated in their declaration everything that the act of Parliament requires. Nor is there any doubt but that the jury may give interest, not eo nomine as interest, but as damages for the detention of the debt, for non-performance of the contract. But the last point is equally clear against the plaintiffs. And not entertaining any doubt upon it, as it is a matter of infinite moment to the great mass of property embarked in this kind of speculation, I think we ought not to order a second argument lest an idea should go abroad that we have any doubts. On looking through the act of Parliament, it is clear that the Legislature meant that the parties should only be liable to the payment of their shares so long as they individually continue members of this Company, that is, so long as they have property which constitutes them such. The per- sons who have the right of voting are to vote in respect of their shares. The act also says that persons who have subscribed and their assigns shall be deemed proprietors ; but it would be ridiculous to determine that a person, after he has sold his shares in respect of possessing which only he became a proprietor, should still continue to be a proprietor. After assignment the assignees hold the shares on the same conditions, and are subject to the same rules and orders, as the original subscribers, and are to all intents and purposes sub- stituted in the places of the original subscribers. One reason, how- ever, now urged why the original subscribers should always continue responsible is, because perhaps the shares may be assigned to insol- vent persons : but the Legislature, when they gave their sanction to this undertaking, did not suppose that it was a mere South Sea scheme , they thought it a beneficial undertaking for the public, and conceived they had introduced a sufBcient check by enacting that, if the subscribers did not pay their money from time to time as they should be required by the committee, they should forfeit their re- spective shares ; and that no subscriber should part with his share while he was in arrear to the Company. No mischief, therefore, is likely to ensue either to the Company or the public from this con- struction of the act. I think that every clause in the act of Parlia- ment leads to this conclusion, that the persons liable to the calls are those only who continue to be, at the time when the calls are made, members of this corporation. Here the defendant had assigned his shares, and that assignment had been entered in the Company's books, before the calls stated in the three last counts of the declara- tion were made, and therefore he is not liable to pay them ; but he is liable for the calls stated in the first count, and not having paid them at the time, and the jury having given interest on them by way of damages, the plaintiffs are entitled to that last sum on the first count, the money paid into court on that count only covering the principal sum. 912 MIDDLETOWN BANK V. MAGILL. [CHAP. XVIII. ASUHUKST, J. : — There is uo doubt respecting the principal question. The original Subscribers have power to assign their shares to whomsoever they please ; then it would be strange to say that after disposing of their shares they should still continue liable to all the burdens which are thrown on the owners of this property. The point, however, does not rest on general reasoning; for the only restriction imposed by the act on the power of alienation is that the owners shall not assign until all the money due at the time of assigning is paid ; but in all other cases the subscribers may assign their shares and discharge themselves from their liability to future calls by the assignment. Grose, J. : — As to the form of the action : the words in the act are general, "action on the case.'' Lawrence, J. : — The only difficulty respecting the form of the action is that sug- gested by the defendant's counsel, that the defendant is by this mode of declaring deprived of a set-off; but that difficulty is not sufficient to restrain the generality of the words used in the act of Parliament. Per Curiam. Postea to the plaintiffs, in order that they may enter up their judgment on the first count for £2 14s. 4^d. for the in- terest on the £40 paid into court. MIDDLETOWlSr BANK v. MAGILL. (5 Conn. 28. 1823.) This was an action of assumpsit, to recover certain sums of money loaned, by the plaintiffs, to the defendants. There was one special count; to which were added the usual money counts. The suit was commenced on the 12th of August, 1820. Arthur W. Magill, John Russ, Lemuel Whitman, Tthamar Atkins, and Samuel Williams, named in the writ as defendants, pleaded, severally, non-assumpsit; and on this issue, closed to the court, the cause was tried in Middlesex County, December term, 1820. The court found the facts, and reserved the case for the consideration and advice of all the judges. The case was as follows. On the 24th of May, 1816, Arthur W. Magill was duly appointed agent of the Middtetown Manufacturing Company, for the then ensuing year, and acted in that capacity during the period of his appointment. The company having a run- ning account at the Middletown Bank, he, as agent, on the 16th of July, 1816, for the purpose of maintaining the credit of the com- pany at such bank, and obtaining discounts, as its exigencies might, CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 913 from time ta time, require, addressed a letter to the cashier, contain- ing a list of the stockholders of the company, which included all the present defendants, promising to- give notice of all transfers made during the indebtedness of the company to the bank, and giving an extract from the by-laws of the company regulating the mode of transfer; which letter was received by the cashier on the day of its date. The following notes, on the days of their respective dates, were executed by Magill, as agent of the company, and indorsed by Alexander Wolcott, and were soon after discounted at the bank, for the benefit of the company, viz. one note dated July 9, 1816, for 2,500 dollars; one dated September 6, 1816, for 6,000 dollars; and one dated September 20, 1816, for- 700 dollars. On the 29th of October, 1816, the cashier sent to Russ, one of the defendants, a letter, which was delivered to him on the day of its date, notifying him of the existence of these notes, and that the bank looked to him, as one of the company, for payment. The notes have never been paid, and have been owned and held by the plaintiffs ever since they were discounted. HosMER, C. J. : — Arthur W. Magill and others, having entered into an association for the manufacture of cloths, procured from the Legislature a char- ter of incorporation. Apprehensive that a grant in the usual man- ner, whereby the corporate funds are alone liable to creditors, would be injurious to the community, the Legislature annexed to the char- ter this proviso, "that the persons and property of the members of said corporation shall, at all times, be liable for all debts due by said corporation." The notes in suit were made when all the defendants were members of the Middletown Manufacturing Company ; but by the transfer of their stock, two of them ceased to be such before the insolvency of the corporation, or the commencement of the plaintiff's action. Whether the two defendants alluded to are liable on the notes, without which liability the present suit cannot be sustained, is the general question to be determined. That certain members of the corporation are responsible for the company debts, is not susceptible of dispute; but the difficulty con- sists in ascertaining who those members are. The plaintiffs con- tend, that the members of the company are originally and absolutely liable for all debts contracted by the corporation when they were members, in the same manner as they would have been, had the per- sons associated proceeded on their purposed employment, without an act of incorporation. On the other hand, the claims of the defendants are numerous. They insist that their liability is not joint, but several; in chancery only, and not at law; arising on the insolvency of the corporation, or at the commencement of suit, and not at the origin of the debt; and finally, that the corporation alone is debtor, and the remedy against the members only accessary and commensurate with the corporate funds. VOL. I. — 58 914 MIDULETOWN BANK V. MAGILL. [CHAP. XVIII. The original and absolute liability of the members for the debts of the corporation, contracted when they were members, was ex- pressly dacided, by this court, in the case of Southmayd and Hub- hard V. Iliiss & al. (3 Conn. Rep. 52). The court, according to the imperative requisition of the statute law, did not merely announce a result, but publicly assigned their reasons on the very point of con- troversy. Their opinion was in no sense obiter. As creditors of the ]»Iiddletown Manufacturing Company, the plaintiffs had obtained a judgment for a debt against the corporation, and were endeavoring to e°nforce it against the members by an action of scire facias. It necessarily follows, that the only subject of inquiry was, what is the remedy against the members of the Middletown Manufacturing Com- pany, for^a debt contracted by the corporation? To this inquiry the court made answer, that the judicial writ of scire facias could not be sustained, because the members were under the obligation of the original contract, on which alone an action against them could be supported. The case is entirely analogous to that of an action of assumpsit upon a bond, determined against the plaintiff on the specific ground that the action should have been debt: in which event, it is presumed, that no lawyer would consider the decision as obiter, and for this invincible reason, because it is upon the direct pertinent point of inquiry. On the same principle, the determination in Southmayd and Hubbard v. Russ & al., that the action against the members of the Middletown Manufacturing Company should have been brought on the original contract, directly and pertinently evinced that the remedy by scire facias was not sustainable. "The Legislature," say the court, " intended to invest the company with cor- porate powers, and so to limit them that the responsibility of the mem- bers for the company debts should not be impaired. In other words, the incorporation was not to have any effect on the subject of indi- vidual indebtedness. For the company debts the members were "'at all times " to be liable. The original and absolute indebtedness of the members demonstrates the manner of their responsibility. They are answerable precisely as if there had been no incorporation. The debt is no sooner incurred than the liability commences." Here I should pause: but a difference of opinion in the court impels me to discuss the case on principle. Before I enter upon a construction of the proviso to the act of incorporation on which the whole controversy depends, I will ad- vance certain established rules, by which the exposition must be guided. " Words are generally to be understood in their usual and most known signification; not so much regarding the propriety of grammar as their general and popular use. As to the subject mat- ter, words are always to be understood as having a regard thereto; for that is always supposed to be in the eye of the legislator, and all his expressions directed to that end." 1 Black. Com. 69, 60. " The b'^st construction of a statute is, to construe it as near to the CHAP. XVIII.] MIDDLETOWN BANK'tJ. MAGILL. 915 rule and reason of the common laws as may be, and when the pro- vision is general, to subject it to the order and control of the com- mon law." Stowell v. Loi'd Zouch (1 Plowd. 366); 2 Inst. 148, 301; Thursby v. Plant (1 Saund. 240) ; Miles v. Williams (10 Mod. 245) ; Hex V. Bishop of London (1 Show. 455). In the argument of this case, it was asserted, very mistakenly, that the proviso in question was in derogation of rights already granted, and ought to be construed strictly. On this point, both the fact and the law were misconceived. Before the proviso was introduced, no right had been conferred; but the body of the act and the proviso both came into existence uno flatu. The Legislature declined granting the company those rights and privileges which the body of the act contemplated; and to qualify it in such manner as to meet their views of justice and general convenience, the proviso was superadded, speaking this intel- ligible language; take your charter subject to this condition, or you shall not have it at all. Thus much as to the fact. The law on the subject in question has long been established, and unquestionably is at rest. "If a proviso in a statute be directly contrary to the purview of a statute, the proviso is good and not the purview, because it speaks the later intention of the legislators." The Attorney- General v. Governor of Chelsea Water Works (Fitzg. 195) ; 6 Bac. Abr. 382, Gwill. ed. The equity and common-sense of this principle are manifestly incontrovertible. For the benefit of creditors, the proviso was annexed to the charter, and was a paramount and fundamental object with the Legislature. To construe it strictly, by an inver- sion of principle, would contravene the legislative object, frustrate their anxious solicitude in behalf of creditors, and virtually nullify the proviso to the act of incorporation. For between a charter with- out a proviso, and one with a proviso restrained to the narrowest possible limits by construction, and controlled by the body of the act which it was made to govern, what is the essential difference? From the premises it results, as a correct principle of exposition, and necessary to further the intention of the Legislature, that for the security and benefit of the creditors the proviso must be liberally construed in their favor. On the application of the preceding principles, in this case, I am of opinion that the members are subject to the same liabilities they would have been, had they associated for the purpose of manufac- ture, without a charter. In that event, the common law would have made all the members of the copartnership who were such at the time of a debt contracted, responsible for the payment of it; and the same responsibility rests upon them, under the act of incorpora- tion. By the acceptance of the, charter, the agent of the corporation became their agent, and the debts of the corporation, contracted by him, their debts. 916 MIDDLETOWN BANK V. MA.GILL. [CHAP. XVIIL It has not been claimed, on either side, that all the members of the corporation, from the commencement of it to its dissolution, would be liable for the debts coatracted. They are divisible into three classes, comprising those wlao ceased to be members before the indebtedness; or who were such at the origination of a debt; or who became members at a subsequent period. In respect of the first class, it has not been, and, I think, cannot, , be urged, that they are subjected to any responsibility for the debts originating subsequent to their membership. That the second class are debtors, and the only debtors, I shall endeavor to show. It has been insisted, for the defendants, that the liability of the members is not joint, but several. I have heard no argument, nor am I capable of conceiving any, by which such a proposition can be supported. It is opposed to the words of the proviso, which clearly substitute certain members jointly to the legal obligation for the payment of debts, in place of the corporation. It equally contra- venes the common law, which considers the liability for a single debt, contracted by several persons, as joint, and capable of enforce- ment agaiust all the individuals. It is contrary to the liberal construction of the proviso in favor of creditors that established prinoiple demands, and casts on them the hazard of loss, by the insolvency of one or more of the debtors, which the contract has devolved on the company. And finally, it is opposed to all analogy, and to the nature of the credit, which is given to the debtors gen- erally, and not to them singularly, or in proportion to their respec- tive shares of the joint stock. That the remedy agaiust the members is in chancery, and not at law, is a mere gratis dictum, and dependent solely for its force on the preceding proposition. If the members were severally obliged, it then might be made a question whether, in avoidance of multi- plicity of suits, chancery would not afford the requisite redress. But as the responsibility is joint, the extraordinary powers of this court can no more be resorted to, than to enforce the collection of a joint bond or promissory note. It has been said, that the liability of the members is suspended on the insolvency of the corporation. For this construction I am not able to discern any principle. The proviso subjects certain members of the corporation for its debts "at all times." It con- templates an absolute and unintermitted responsibility, from the origin to the extinguishment of the corporation debts. The liability of the members, in the event only of the company's insolvency, is not absolute, but contingent; not unintermitted, but arising on a fact subsequent to the creation of the debt. So far from existing "at all times," it has no existence at any time, unless an uncertain event should happen. To sanction the construction insisted on by the defendants, the court must first repeal a part of the proviso, and then substitute a conditional for an absolute engagement. The cod- CHAP. XVIII.] MIDDLETOWN BANK V, MAGILL. 917 struction alluded to is at war with the words, as well as with the reason and spirit of the charter. The intention of the Legislature was not merely to secure the creditors from the hazard of the cor- poration's insolvency, but to continue the members a copartnership, or at least joint contractors at common law, as if no incorporation had taken place. At present, I shall take this proposition for granted, as it will be, more particularly, the subject of a future part of my argument. That my observations on the material question in the case may be more condensed and uninterrupted, I will, before I enter on them, reply to some arguments advanced by the defendants. It was said, that a mercantile company cannot possess such attributes as the charter of incorporation has given; but the assertion was not supported. It is admitted, that the corporation has certain rights not self -created, which, for the internal management of their concerns, the Legisla- ture has conferred upon them. But, as we correctly insisted on for the plaintiffs, the charter has not deprived the members of any power essential to a copartnership. It is not my intention to enter minutely on a subject most satisfatjtorily discussed in the argument to which' I have alluded. I will merely advance certain incontrovertible prin- ciples, the right application of which must put the controversy on this point at rest. A partnership exists when two or more persons associate together in some lawful business, with a view to joint profit. It is a voluntary contract between more persons than one, for joining together their money, goods, or labor, upon an agree- ment that the gain or loss shall be divided proportionably. Hoave & al. V. Dawes & al. (Doug. 271) ; Grace v. Sjnith (2 Bla. Kep. 998) ; Watson on Part. 1. This is its radical and elementary principle; and beyond this .simple, fundamental truth, the partners may pre- scribe to themselves any terms not prohibited by law. These terms are matter of expediency; and may exist or not, without affecting the essence of the partnership, comprised, as it is, in a joint agree- ment to perform business for the acquisition of a joint profit. Save in this indispensable stipulation, the creditors have no interest; for this it is which alone subjects the partners to a joint responsibility. In the case of Ma^rcey v. Clark (17 Mass. Eep. 330), it was said by the Court- "The Legislature have thought fit, and we think wisely, to subject the property of all members of these corporations to a liability for the debts of the company. By this, m fact, they only continue the principle of partnership in operation; and considering the multitude of corporations which the increasing spirit of manu- facture gives rise to, regard to the interest of the community seems to require, that the individuals, whose property, thus put m common mass, enables them to obtain credit universally, should not shelter themselves from a responsibilty, to which they would be liable as members of a private association. Since this statute was enacted, (and equally applicable is the remark to the Middletown Manufac- 918 MIDULEXOWN BANK V. MAGILL. [CHAP. XVIII. tuiing Company) "all who deal with such companies look for their security to the individual members, rather than to the joint stock." The opinion thus expressed considers the members virtually as partners, notwithstanding the incorporation; and declares, what results almost with the force of a necessary inference, that they are so considered by the community, and credited in this character. It is unnecessary further to pursue this subject. Let it be supposed that the members of the corporation, strictly speaking, are not part- ners. By the acceptance of the charter they jointly assume the pay- ment of the corporation debts; and having held themselves out to the world under this responsibility, they are liable to creditors as joint contractors. This is the only material consideration; for as to their internal movements and obligations, they are personal to themselves, and in them the community has no concern. An analogy between the liability of towns, and otiier strict cor- porations, and that resting on the members of the Middletown Manu- facturing Company, has been supposed to exist; and was claimed, in the argument of this ease. It is an unquestionable legal truth, that in relation to corporations in general, the members, as individuals, are never responsible for debt; and in respect of towns, and some other local corporations, in this State, the same observations are equally just. The liability is exclusively attached to the corporate funds, and not to the members of the corporation. As such incorporations are never insolvent, but, by taxation, may always replenish their exhausted treasuries, there exists an established usage authorizing the collection of debts, by distraining the property of individuals, who upon the corporation have a claim for their reimbursement, But generally speaking, against corporations, there is no remedy, except by a recurrence, in some legal mode, to their funds; and with respect to the Middletown Manufacturing Company, it is incontro- vertibly clear, that were it not for the proviso in question, the mem- bers could never be subjected to any responsibility. It is the proviso, that striking peculiarity, which imparts rights to creditors, and ren- ders the members liable to obligations not existing in the case of an ordinary corporation. By necessary inference, it results, that the obligations resting on the members of a corporation, under the usual grants, are essentially dissimilar from those existing on the members of the Middletown Manufacturing Company; and that between them there is no analogy. An inference from one of these corporations to the other, is entirely unwarrantable ; and can have no other ten- dency than to mislead. This observation is the more necessary to be attended to, lest from the frequency, and almost universality of the usual incorporations and the familiarity of the rules applied to them, the mind, either intentionally or unconsciously, should make application of these rules to the subject under discussion. By the proviso in question, "the persons and property of the members of the corporation are, at all times, liable for all debts CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 919 due by said corporation." What class of members is embraced by these expressions? Is it that class which exists at the contracting of a debt; or those who are members of the company at the com- mencement of suit? The intention of the Legislature, to which the company acceded, on the voluntary acceptance of the charter, when once ascertained, must definitely settle these questions. To deter- mine this inquiry, I will recur to the words of the proviso, and attempt a construction of them with reference to their subject-mat- ter; and then will attend to the consequences of the two expositions that appear most correct, so far as they have a legitimate bearing on the matter in controversy. The words are to be construed in reference to the subject-matter. A. W. Magill and others had entered into an association, or mer- cantile company, for the purpose of acquiring profit by the manufac- ture of cloths; and to the Legislature they applied in order to obtain a charter of incorporation. It was extremely apparent that this company, commemjing business new and untried, would require a large capital; and that it could not fail to want and procure exten- sive credit. With this subject-matter in view, it was thought haz- ardous to the community to grant a charter in the usual manner ; as this would render the corporation alone liable for debts. The com- munity required better security to protect them from the hazard attending the great credits that undoubtedly would be given. With these facts in contemplation, a charter was granted, with the extra- ordinary proviso, the first, which in this State, had ever been sub- joined to an act of incorporation, that the members of the corporation should be liable at all times for the debts contracted. In view of these considerations, the words of the act in question must receive their construction. The expressions "the persons and property of the members of said corporation," detached from the subject-matter of the grant, and construed per se, would impress the mind with the idea that the actual members were intended. But when, to this is superadded, "the debts due by said corporation," — debts which would successively exist, contracted by a fluctuating body, whose members are frequently changed, — it cannot readily be believed, that the liability was intended to be cast on the existing members at the commencement of suit. It would contradict all analogy of interpre- tation. Those who contract a debt become the debtors: and the debts contracted by the corporation, for which the members were made liable, must be considered, in the exercise of common -sense, guided by plain practicable' principles, as debts contracted by the members. The contract of the corporation, and of the members, made by their mutual agent, necepsarily are coetaneous,— springing into existence in respect of both, by the same act, and at the same time; and inferring the same obligation. There is no incongruity in the construction which supposes, that by the term- "members" the Legislature intended, not those who were such, at the bringing 920 MIDDLETOWN BANK V. MAGILL. [OHAP. XVIII. of suit, but those who were members at the contracting of debt. It is not required that the expression "the members of the corpora- tion" should be construed literally, and restrictedly, but that it be expounded largely, if the subject-matter referred to render it fit and reasonable; for the same words, when applied to different subjects, have different meanings. It is far from unusual, that a word, on the suggested principle, should be deflected entirely from its com- mon intendment ; and the term " provisions " in the law of Edward 3, enacted to repress the usurpations of the papal see, which word, by construction, was made to restrain the nomination to benefices by the pope (a very peculiar meaning of the term), is both a proof and illustration of the remark. 1 Black. Comm. 60. When we proceed a step further, and consider that the proviso in question was made for the benefit of creditors, in a manner new and contrary to all precedent, necessarily demonstrabing this to be a favorite and indis- pensable object of the grant, and the cause without which it would not have been made, the correct construction of it becomes more decisively apparent. To attain this object, the security and benefit of creditors, the proviso, as already has been shown, must be liberally construed in their favor. This liberality of construction cannot be deemed excessive, when we limit it by another established rule of exposition; and that is, that "the best construction of a statute is, to construe it as near to the rule and reasons of the common law as may be; and when the provision is general (as in this case it is), to subject it to the order and control of the common law." Vide cases cited ante. The construction most beneficial for the creditors harmonizes with the common law, and casts the obligation and lia- bility for debts contracted on the members of the corporation, at the time the contract was made. While this exposition is just, in relation to the debtors, it is most favorable for the creditors. They always may know the persons in whom they confide, and judge whether they are worthy of credit; and, as was said, by Parker, C. J. (17 Mass. Rep. 334), in relation to a law which rendered the members of manufacturing corporations liable for the corporate debts, "all who deal with such companies look for their security to the individual members, rather than to the joint stock." The real condition of the incorporated company they may be unable to ascertain, as appear- ances sometimes are most flattering, when the circumstances of a corporation are perilous and rapidly declining. The construction which I have given the proviso appears to be natural and obvious; and I am persuaded that every person, on reading the charter in question, for the purpose of ascertaining the expediency of crediting the corporation, has entertained the same opinion. That this was its practical exposition, by the parties to the promissory notes in suit, is decisively apparent from the letter of A. W. Magill, the agent of the corporation, to the ' President and Directors of the Middletown Bank, immediately preceding the loans. This is CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 921 the obvious inference resulting from his furnishing the names of the members, and engaging to give information, if any material transfers of stock should be made. The words of the proviso, so far as I have pursued them, construed with reference to the subject- matter, and expounded as near to the rule and reason of the common law as Its expressions will admit, support the general proposition assumed, that the members of the corporation, existing at the time of a debt contracted, are bound to pay it. If they are thus put under obligation of the contract.- they cannot exonerate themselves, by selling their stock, or in any other manner, except by perform- ance of the agreement. That it ^vas the intention of the Legisla- ture to secure the interest of the creditors by the proviso, has not been controverted. I am equally clear, it was their precise object that the rights of the creditors against the members of the corpora- tion should not be impaired by the charter, but that they should be subject to the debts contracted, as at common law. In this con- struction there is nothing inconsistent with the words of the proviso, supported, as it unquestionably is, by the considerations already advanced; but it contains an expression that greatly supports the exposition. The proviso affirms, that the members shall "at all times" be liable for the corporation debts. As all the members, throughout the existence of the corporation, were not intended to be responsible for every debt, it was proper for the Legislature to designate what class of members should be liable. This they did, by a specific attribute, denoting that they are the members, capable "at all times " of being debtors, from the origin to the extin- guishment of the debt. To what persons does this description apply? Certainly not to those who ceased to be members before a debt was contracted. It is equally manifest, that those are not embraced, who become members after a debt had originated; for in no in- telligible sense can it be affirmed, that for such debt they "at all times " were liable. There was a time, when they were not respon- sible, — the period which elapsed after the debt accrued, and before they became members. The words "at all times" are synonymous with the phrase without permission; and when the correlative is debt, the plain meaning is that the debt and debtors coexist so long as both endure. The construction I have adopted is recommended by its perfect equity. With entire justice, the members of the com- pany are subject to the same liabilities which attend unincorporated associations. Their charter privileges, so far as respects their inter- na] concerns, render them no less the debtors of their creditors, nor relax any of the just obligations 'they are under to those who have entrusted them with their property. In this way. by leaving the individuals obliged to the payment of their debts, the Legislature, with a laudable spirit of wisdom and foresight, intended to protect the community against a corporation, which, by putting much prop- erty into one common mass, with a view to extensive business, could 922 MIDDLETOWN B.VNK V. MAGILL. [cHAl\ XVIII. not fail to acquire great credit. It would then become the interest of all who should contemplate contracting with the corporation, to look to the individual members, rather than to the joint stock; and thus the members would bear, as they ought, the hazards of an un- tried business, and become the victims of their own disasters, in preference to their being fatal to their unfortunate creditors. The construction given is necessary to meet the mischiefs contem- plated by the Legislature, and to impart that security to creditors which reason and justice demand.' No other exhibition of the char- ter will do this effectually. If the members are alone liable -who are such at the commencement of suit, the creditors have not the advantage of knowing who are their debtors, at the time of giving credit, nor until, by the refusal of payment, an action against them is actually instituted. The construction I have given has the merit of being obvious, and not far-fetched ; and founded, as it is, on the rules and reasons of the common law, it furnishes to every man a familiar and certain rule of action. The inquiries whether the members are jointly or severally held responsible, in chancery or at law; and the other numerous questions in the c^se, if there is any foundation for them, demonstrate, what I am very unwilling to admit, that there is no cer- tain or well-known rule of action, sufficient to guide those for whose benefit the proviso was intended, to any safe mode of conduct. That the liability to debt is cast on those who should happen to be members at the commencement of suit, is a construction for which I cannot perceive any sufficient ground. It is not warranted by the words of the proviso construed with reference to the subject-matter. It reverses the rule of the common law, and gives a strict interpreta- tion against creditors in that very particular in which the construc- tion should be liberal in their favor. It imparts to the creditors, against the members of the corporation, a conditional liability only to their demands, provided suit is brought, instead of that absolute and unintermitted responsibility which the proviso contemplates. The construction is most favorable to the members, instead of being most favorable to the creditors. It is opposed to the equitable right of creditors to look for payment to those who v/ere alone visible to them, and whom they alone could credit; and refers them to future members, whom they could by no possibility know or trust; and in this manner, it involves them in the .hazard of a recurrence to those who, not unfrequently, are found to be the stockholders of an insol- vent corporation. That even this is some security must be granted; but that it is that plenary benefit which the Legislature most justly intended, I cannot admit. In support of the defendants' construction, certain determinations of the Supreme Court of Massachusetts have been cited ; but, in my judgment, with an entire misconception of the ground of those deci- sions. To render them of any avail, they must have decided ,that CHAP. XVIIl.] MIDDLETOWX BANK V. MAGILL. 923 when a law renders " the members of an incorporation ' liable for the corporate debts, the words alluded to, without regard to the other pro- visions of the act, necessarily include those only who vvere members at the enforcement of the demand. No such principle was contended for by counsel, nor recognized by the court. They merely give a construc- tion to certain legislative acts, from a view of the entire law, which neither contains the words, nor comprises the object, of the proviso in question. Hence, it appears, that they furnish neither principle nor analogy applicable to the case under discussion. The sole basis of these decisions is, that the words "members of a corporation," coupled with certain other expressions, and construed with refer- ence to their peculiar subject-matter, obliges those members of a corporation to respond, who are such at the enforcement of the claim, or within a certain antecedent period. The case first cited, was Bond v. Apphton (8 Mass. Rep. 472). By an act of the State of New Hampshire, establishing Hillsborough Bank, it was enacted, that if the corporation should neglect or refuse to pay any of their bills, when presented for payment, "the original stockholders, their successors or assigns, and the members of the said corporation," should be jointly and severally holden for the pay- ment of them; and that the members compelled to pay should be authorized to recover of the remaining members of said corporation, their proportion of the sum paid. In expounding the statute, it was said by the court, that the words of the law were very extensive, but that it was the reasonable construction of them, that such of the original stockholders, their successors and assigns, as should be members when the payment of the bills should be refused, were bound to make satisfaction, particularly because the remedy fur- nished them for reimbursement was against the remaining members of the corporation. By the subject-matter of the entire law, and the very intelligible provision just referred to, the words, " the original stockholders," were considered as limited to such of the original stockholders as should be members of the corporation at the time when the payment of the bills should be refused. The soundness of the decision I am not disposed to question. It is an established principle of exposition, that "in the construction of one part of a statute, every other part ought to be taken into consideration ; " and it is equally well settled, "that the general words in one clause of a statute may be restrained by the particular words in a subsequent clause of the statute." 6 Bac. Abr. 380, 381, Gwill. ed. ; Rex v. Arcli- bishop of Armagh & al. (8 Mod. 8). It is difficult to conceive why the case of Bond v. Appleton, founded on expressions manifestly and essentially different from the one before the court, should be consid- ered as analogous, or comprising a principle of decision favorable to the defendants. On the other hand, it clearly appears, although the members of the corporation were made liable, that this, expression was not confined to actual members at the time of enforcing a 9i>4 MIUDLETOWN BANK V. MAGILL. [CHAP. XVIII. demand, but was inclusive of those who were members at an ante- cedsnt period, and had ceased to be such, —they were members when the debt originated. The obligation to pay having attached, they could not escape from it by the disposal of their stock. The case next cited was Child v. Coffin & al. (17 Mass. Kep. 64). By a statute, passed in 1808, it was enacted, that whenever any exe- cution should issue against any manufacturing corporation thereafter created, and such corporation should not, within fourteen days after demand made upon the president, etc., of such corporation, by the officer holding the execution, showhim sufficient estate to satisfy and pay the sums due on such execution, the officer should serve and levy the same upon the bodies or estate of any member or members of such corporation. In construing the statute, it was said by the court, that by its necessary intendment it must be understood to include those who were members at the commencement of the action (against the corporation), and those only. This determination was uot con- formable to the precise words of the law; but was founded on the reason and spirit of its entire provisions. "The statute" (said Parker, C. J.), "makes every member of a manufacturing corpora- tion against which judgment has been rendered virtually a judg- ment debtor; and by force of the statute the execution is against every such member, although not named in the precept." lu this case, the words, "any member or, members of such corporation," were enlarged, in conformity with the 'intendment of the entire law. In whab consists the analogy between the case of Child v. Coffin & al. and the case before us? The statutes are differently expressed, and the subject-matter of them is essentially diverse. This, to every person who compares them, is so palpably apparent, that the ques- tion of original liability of the members, in the case before the Supreme Court of Massachusetts, could not have been made with- out the most manifest absurdity. The case comprises these un- doubted principles: that "a thing which is within the letter of a statute is not within the statute, unless it be within the intention of the makers ; " Renigev v. Fogossa (1 Plowd. 18) ; and that " the letter of a' statute is sometimes restrained by equitable construction ; in others it is enlarged; and in others the construction is contrary to the letter." Fyston v. Studd (2 Plowd. 465); 6 Bac. Abr. 386, 387, Gwill. ed. The determination, in applying these principles to a law altogether different from the proviso in question, and on a survey of all its provisions, enlarged the literal effect of a particular expression. In what manner does the decision bear on the case under discussion? I readily admit that I am unable to discover. In the case of Marcy v. Clark (17 Mass. Rep. 330), the construc- tion of the before mentioned statute was again the subject of discus- sion. The question said by the court to arise in that case was, whether Joseph Marcy was a member of the company at the time the goods were levied on by an execution against them. The inquiry CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 925 was made, at what time the individual should be a member, to make him incur the liability of the statute; and it was determined, "that the execution might be levied upon him who was a member at the time of the levy. Indeed (said Parker, C. J._), no other construc- tion could be given to the statute; for none but a member was liable: and one who had sold his share in the corporate property certainly did not continue a member. Under the statute we have been con- sidering, those who are liable must be members when the execution is levied." Before I make the observations which occur to me on this case, I must be permitted to remark, with the greatest deference to the learned court who made the decision, that I cannot reconcile it with the principle stated and recognized by the court; nor with the deter- mination m Child V. Coffin. In the case just mentioned, it was said, that the law embraced "such as were members at the time of the commencement of the action (against the company), and those only; and for this reason, that the court must give to the statute such a construction as shall not go beyond its necessary intendment." And in Marcy v. Clark, the court observed, that "the statute makes every member of a manufacturing corporation against which judg- ment has been rendered, virtually a judgment debtor; and by force of the statute, the execution is against every such member, although not named in the precept. Now, if the members at the commence- ment of the action, and those only, were embraced by it (p. 65); and virtually become judgment debtors, (p. 333); and if, as was said (p. 335), "all who are members of the corporation are virtually defendants in the action, and have an opportunity to be heard, in the form they have chosen, by joining the company; " I cannot sub- scribe to the construction that permits a judgment debtor to exon- erate himself, by selling out his stock, and a person not a judgment debtor, by purchasing it, to become liable on the execution. But be this as it may, the determination in Marcy v. Clark has no relevancy to the case under discussion. The statute authorizes the officer holding an execution against the manufacturing company, if there had been a refusal of payment, to levy it on the bodies and estates "of any member or members of such corporation." Admit, then, that in the opinion of the court it could only be levied on the actual members; what was the reason? It was because the words of the statute were considered imperative ; and that there was nothing in the provisions or subject-matter of thS law that authorized a con- trol of the literal construction. It is undeniable that the express meaning of a law is its true meaning, if there is nothing upon which a construction can be founded showing a different intention. But the question arises, is there such a similarity between the stat- ute before mentioned and the proviso in question, as to constitute an analogy, whereby the determination of one is, virtually, a deci- sion of the other? Can it be believed that the supreme court in 926 MIDDLETOWN BANK V. MAGILL. [CHAP. XVIII. Massachusetts would recognize this principle; and if there had been a prior determination of the proviso in question, that they would admit it decided the construction of their statute law? Are the words of the jjroviso and the statute the same? Certainly not. Is the subject-matter precisely similar? No one will pretend it. Were the object and intention of the two Legislatures identical? It is far from being true. Nay, are the principles of construction appli- cable to those two subjects, the same? It cannot be affirmed. I con- clude, then, that the constituents of correct exposition, in the two cases, are manifestly and essentially diverse; and that, from the construction of one, there results no aid towards the construction of the other. It has been supposed to have been the intention of the Legisla- ture, by the act of incorporation, to render the corporation only the real debtor; that the corporate funds should be considered as the essential resource; and that the members, at the commencement of suit, should alone be liable to the extent of the corporate property. On this construction the members are in the nature of collateral sureties to the corporation. It results, as an inevitable conse- quence, that if the corporation property is exhausted, the respon- sibility of the members has terminated. Neither the words of the charter, nor the reason and spirit of that instrument, furnish the slightest foundation for this construction ; but to both of them it is directly opposed. The proviso affirms, "that the persons and prop- erty of the members of said corporation shall, at all times, be liable for all debts due by said corporation." By the most clear and undeniable intendment of this clause of the charter, certain members of the corporation are subjected to an absolute and unin- termitted liability for the corporate debts,, till they shall be paid; and not, that the corporation shall pay its debts, if it be able. But by the construction advanced, no members are absolutely responsible for the debts of the corporation; their responsibility being suspended on two contingencies. They are liable after the commencement of the suit, if there has not been an exhaustion of the property of the corporation. But until suit there is no liability: and even after suit, they are equally irresponsible, if no corporate funds exist. They are under the obligation only of paying the corporate debts, so far as the corporation is able to make the payment; but if their ability is at an end, the liability of the members has likewise ter- minated. This novel species of suretyship is reducible to this prin- ciple; that if the corporation shall not act fraudulently, but shall discharge the demand against it, until the ability to discharge is gone the members are exonerated. How nugatory and destitute of any beneficial operation in favor of creditors, is the construction! Unless the corporation should refuse faithfully to perform its engagements, so far as it has the power of doing, the responsi- ^bility of the members would be useless, because it is gone; and to CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 927 give it an importance, we must presume a fraud in tile corporation. Thus, by one compendious stroke the proviso in the charter is con- strued, not merely with strictness, but the creditors are deprived of all security, except in the corporate funds; and the members, if there are no funds, or however trivial they may be, if they are honestly applied in payment of debt, are rescued from all obliga- tion. And thus the words of the proviso, and the rules of the com- mon law in the construction of the charter; the favorable exposi- tion of the proviso in behalf of creditors; the equitable rights of creditors and obligations of debtors; and finally, the intention of the Legislature in making a just provision for their benefit, are made of no avail. To a construction which, in my judgment, rests on no foundation; which reduces a provision resulting from the anxious solicitude of the Legislature for the protection of the community, to a nugatory act, unworthy of their care, and instead of a shield to creditors, converting it into a sword to pierce them, by alluring and then disappointing their confidence, I cannot subscribe. It has been strongly urged from the effects and consequences of the plaintiffs' exposition, that it is too unreasonable to be adopted. Un- doubtedlj', this is a legitimate source of construction ; but it must not be pushed to the length of demanding, that all possible inconvenience must be avoided, and the Middletown Manufacturing Companj' have imparted to them all the privileges of their condition, without being subjected to any disadvantage. Qui sentit commodum, sentire debet et onus. The security of the community must be regarded, as much as that of the company. It is peculiarly hard, that one partner should be subject to ruin by the im^irudent and fraudulent conduct of another; but this is sometimes the result. Fortunately for us, we are not left to that unlimited discretion on this subject which not unfrequently has led the most powerful minds into great error. There are rules founded in common-sense, and established by law, which, when rightfully applied, will lead to a correct result. The direct and obvious consequences of a law are voluntarily assumed, and constitute no reason for varying its construction; and of as little avail are consequences infrequent, remote, or productive of little inconvenience. It is only in doubtful eases, when the other rules of legal construction fail, and the consequences are unreason- able or absurd, that this kind of argument is resorted to. 1 Black. Com. 61; The Queen v. Simpson (10 Mod. 344). Under the guidance of the preceding rules only, let the conse- quences of either construction be contrasted. Those on which reli- ance had been placed by the defendants may be classed under the following heads. 1. If, under the plaintiffs' construction a stock- holder sell his stock, and is compelled to pay a corporation debt, he can obtain no reimbursement. 2. If a suit is brought, and judgment is had, against the members, the vendor must contribute to the pay- ment; and if the suit is against the corporation, the property of the 928 MIDDLETOWX BANK V. M.V.GJLL. [UHAP. XVIII. vendor will be taken and he will be remediless. 3. The introduc- tion of a new member into the company, and the secession of an old^ one, will constitute a new class of members, which will render necessary as many suits as there are changes in the members of the corporation. The first consequence objected is without foundation. The vendor, in the case supposed, will have remedy against the cor- poration, as well as against those members whose debt has been paid. With regard to the second, as both vendor and vendee must be presumed to know the obligations arising under the charter, the objected consequence will always be voluntary and anticipated ; and, therefore, is of no weight. Volenti non fit injuria. And in respect to the last objection, I repeat, the consequence is voluntary and foreseen, and will seldom arise, if common prudence is e'xercised in the making, and common punctuality in the payment, of the corporation contracts. If there are some inconveniences aris- ing, they are the price paid for the charter, and the last objection, seems more proper from the mouth of the creditors than from the debtors. They will be the principal sufferers, if inconvenience there is, from the subdivision of their demand. The importance which it has been attempted to give to the sup- posed effects and consequences enumerated, to me appear to be facti- tious. They are the consequences which result from the common law when applied to every unincorporated manufacturing company; and will equally result in the case of a copartnership for any com- mercial purpose, if in their articles they adopt the same provi- sions which the Middletown Manufacturing Company here thought proper to do. This consideration decisively : shows, that the argument of the defendants from the effects and consequences has no real weight. In the State of Massachusetts, it has been found necessary to make an act relative to manufacturing corporations, attended, so far as I have been able to learn, with the same results which the defendants have so strongly deprecated, and yet the supreme court of that State have considered the law as founded in wisdom. In the case of Marcy v. Clark (17 Mass. Rep. 335), after a discussion of a preceding statute, it was said, by Parker, C. J., when delivering the opinion of the court, "It was reasonably thought, that it was the credit of those who were the members when the debt was incurred that the creditor trusted. It was, therefore, provided, by the statute of 1817, c. 163, that the bodies and estates of those who were members at the time any debt accrued, as well as of those who were members when the execution issued, should be liable. So, that even a bona fide transfer of shares will not relieve the member from any debt which accrued while he was a member of the corporation.'' Thus, by the respectable Legislature and learned. CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 929 judiciary of a sister State, justice and public convenience liad been supposed to demand a treble security for creditors, in the case of manufacturing corporations; that is, against the corporation; the members of it, at the origin of a debt; and the members existing at the enforcement of a claim. Indeed, the defendants' claim seems to comprehend a principle until now unheard of. It demands a construction free from all possible disadvantage; insomuch that the principles of the common law, founded, as they are, in private justice and public convenience, ar'e too oppressive to be borne. With the supposed inconveniences of the plaintiff's construction, let the consequences resulting from that of the defendants be con- trasted. A proviso, which, when construed with reference to its subject-matter, is not of doubtful construction, is to be controlled by effects and consequences ; and many of them, if not imaginary, at least infrequent, remote or of little inconvenience. The force of law and of voluntary contract, for such was the acceptance of the charter, must be eluded; the equitable demand of the creditors, frustrated; their security, if not wholly annulled, at least greatly impaired, by the denial of a remedy adequate to their just claims, and the substitution of another, which, it is fairly to be presumed, will be of little avail ; and the proviso, if not annulled, rather allur- ing the community to an unreasonable confidence in a manufacturing corporation, than furnishing any important benefit. In conclusion, I have no hesitation in expressing it as my clear opinion, that on the facts disclosed in this case the plaintiffs are entitled to judgment. Brainard, J., was of the same opinion. Chapman, J. : — This case depends on the construction which may be given to the words of the proviso contained in the act of incorporation, which are as follows : — " Provided also, and be it further enacted, that the persons and property of the members of said corporation shall, at all times, be liable for all debts due by said corporation." The objects which the Legislature had in view in forming the incorporation in question, were evidently two-fold: — 1. To give such powers to the corporation as would enable the members to manage their concerns, and carry on their business, with more facility, and more effectually, than could be done by an associa- tion of individuals unaided by incorporated powers ; and 2. to give a security to such as should become creditors, which they would not have against a mere corporation, liable in its incorporate capacity only. Keeping these two objects steadily in view, we shall be better able to ascertain what members are intended to be rendered liable at all times, for all debts due by said corporation, than by a resort to what is esteemed a liberal or strict construction of the words made voT I. — 59 930 MIDDLETOVVN BANK V. MAGILL. [CHAP. XVIII. use of. If one construction would go to defeat, or render worse than useless, all the powers evidently intended to be conferred upon them for their benefit; and also, to put their creditors in a worse situation than they would be by a different one; that one which would be the most beneficial to both ought to be adopted, pro- vided such construction stands equally well with the words of the proviso. On the part of the plaintiifs, it is contended, that those members who were such at the time of the accruing of any debt against the company, whether payable on demand, or at a future time, are jointly liable, without reference to the solvency or insolvency of the cor- poration; and that this liability is not discharged, or at all affected, by ceasing to be members. On the part of the defendants, it is contended, that those only are liable, who were members, when a legal demand was made, or in other words, when a suit was brought against the company. The proviso, it is admitted, is in general terms, specifying no particular members, nor any particular debts, making no distinction between debts contracted before, at the time, or after they might become members. The counsel for the plaintiffs have, however, admitted, that those members only were liable who were such at the time of the accru- ing of the debt; thus narrowing down the inquiry to their liability only; making an admission which could by no possibility injure them, since their suit was against them only. There are no words in the proviso rendering necessary such an admission; nor any words, even by implication, which designate such members as liable, rather than any other. The words are general : — " The persons and property of the mem- bers shall, at all times, be liable, &c." To have claimed that the members liable were those who were neither such at the time of contracting the debt, nor at the time the suit was brought, seems to have been, in the opinion of the counsel, to ha.ve taken a stand that neither law nor equity would support. On examination, however, I believe it will be found that those members who may happen to be such at the time any debt is con- tracted, are under no superior equitable obligations to the debts of the company. Indeed, if such a criterion should be resorted to, in order to ascertain what members the Legislature intended to throw the burden of paying the debts on to, I should be clearly of opinion, that they were the members who were actually such at the time payment of them was demanded. In the first place, it is admitted, that the corporate property is liable to be taken and applied to the payment of the debts; and, in my opinion, until this fund fails, or is put beyond the reach of process, the members are liable neither in their persons nor private property. But even if, as is claimed, the creditors have their elec- CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 931 tion, either to proceed, in the first instance, against the corporation or the members of it, the argument is not materially weakened; since it is not claimed, that should the property of the corporation be taken, and applied to the payment of a debt which accrued before either of the persons were members, who were such at the time the action was brought, a right of action would thereby be given to such corporation to recover against those who were members, at the time i the debt accrued. It would seem extraordinary that the Legisla- ture should, by this proviso, have rendered those members, and those only, liable, who were such at the time the debt was con- tracted, and yet have provided no remedy to enable the corporation to reimburse themselves, when their corporate property is taken for the payment of such debts. But further : suppose we should examine a little more particu- larly this supposed equity; since it is claimed that the proviso is to receive its construction from it. At the proper season, materials are purchase,!, on credit, sufficient to enable the corporation to carry on their concerns for a longer or shorter period; suppose a year. A., a member, immediately after transfers his interest to B., who is a member at the time a suit is brought to recover the price of such materials. If these are worked up, B. is entitled to his share of the proiit of them; and if not, he, as a corporator, has an interest in them. A. has no more interest in it, than any other stranger. Should a profit be made B. shares in it. Should the manufactures de- rived from these materials be sold on credit, B. has an interest in it; or should they be sold for cash, as a corporator, he is entitled to his proportion. And yet A., it is claimed, is bound to pay the debt, though B. is much the most responsible man; for it will be perceived, that the argument does not proceed upon the ground that either the company or its members are insolvent, or at all unable to pay such debt. Such a construction would, in a case not unlikely to happen, defeat the creditor of his debt. The members, who are such at the bringing (3f the action, may all be responsible, and even the corpora- tion abundantly solvent; yet the corporation property may not be within the reach of the process of law, and those who were members, at the time the debt was contracted, be entire bankrupts. To give a rational construction to the proviso, the act of incor- poration must be taken into consideration in connection with it. It is evident, that the Legislature intended to create a permanent body, whose property should, at all times, be liable for the debts contracted by it. For this purpose, such corporation was made liable to be sued, and lest at any time this body should fail to pay its debts, the Legislature rendered liable that tangible body, which, at all times, must be appended to it, viz. the members. Now, I repeat; the question is, what members? It is evident that the act contemplates the members of a fluctuating body; one that may be daily and even hourly changing, though the corpora- 932 MIDDLETOWN BANK V. MAGILL. [CHAP. XVIII. tion, as such, is to remain permanent; but, still, this tangible body, though perpetually shifting, must be equally permanent with the corporation, since there must be stockholders so long as there is stock; and, of course, there must always be individuals to be called upon, in the case of a failure of the company to pay their debts. A facility is also, by the act, given, to effectuate this change of members, by dispensing with the usual solemnities required in other cases. A mere transfer on the books will convey an interest in choses in action, personal property, and even real estate. This simple mode of conveyance divests a member of his whole interest; causes him to cease to be a member; and deprives him of all right thereafter to act or be heard in the management of the affairs of the company. And yet, if the plaintiffs' counsel are right, he Is to all intents and purposes, in relation to those creditors, who became such while he was a member, a member still, though not as to any right to participate in the profits, but merely to share in the loss. He becomes boiind hand and foot, and is left wholly at the mercy of the corporation and its creditors. In vain he calls upon the creditors to secure their debts while corporate property remains in abundance ; and equally vain is it for him to appeal to the justice of the members of the corporation. It is possible that the Legisla- ture may have intended to produce such a state of things; but it never ought to be believed until they have expressed such an inten- tion m the most unequivocal terms. In giving a construction to a charter, containing a proviso ex- pressed in such general terms, and where the intention of the Legis- lature is to be sought for, rather from the general object they had in view, than from the language they have used, an argument ab inconvenienti is not without its weight, though not admissible where the intention is clear. It certainly could not have been the intention of the Legislature, by this proviso, so to shackle and embarrass the corporation as to render their charter worse than useless ; and equally certain is it that they intended some advantages to the creditors, which they would not have had without the proviso. I think a very slight examination will evince, that if the construc- tion contended for by the plaintiffs' counsel should be adopted, the charter, which was intended to give the members some advantages over a private association, would be "their bane" without "an anti- dote." An establishment of this sort does its business, in part at least, on credit; and as by the charter the members, as well as the company, were made liable to be sued for the debts of the company, this was in the contemplation of the Legislature when the act was passed. Was it the intention of the Legislature that a man should be " in jeopardy all his lifetime " if he should purchase a single share in the stock of this company? It is not unreasonable that he should CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 933 be liable while a member of the company ; for then he has a control, in proportion to his interest, over their funds. He can point out to creditors corporate property, if any exists; or if he is compelled to pay the debts of the company, the law furnishes him a remedy either against the corporation, or his co-members. Not so with the member who has sold out. His power, as well as his relation with the corporation, has ceased; and nothing remains for him- but to pay the debts contracted wholly for the benefit of others. When a person becomes a member of a private association, he has a right to abandon it when he chooses; and what is of the highest importance, he has a right to apply the funds to the payment of its debts ; and if he is compelled to pay them out of his own, he can call upon his copartners to contribute. As the plaintiffs' counsel have throughout relied on the analogy supposed to exist between the corporation in question and a volun- tary association, and as it is the basis of almost all their reason- ing, they have a right to require, that their arguments derived from this source should be well considered, and if found incor- rect, fairly refuted. It shall, therefore, be my business to show that no such analogy exists as will at all warrant the conclusions they have drawn. 1. The one is created by act of law; the other by act of the parties. 2. The rules, by which the one is governed; the amount of their capital; the mode of doing business; the kind and extent of it; the mode of transfer; in short, all their proceedings, are regulated by the charter, and by that every thing is put beyond the control of the members. The duration of its existence is without limitation. The members may, indeed, change ; but the identical body remains, with the same powers, subject to the same rules, and incapable of the slightest alteration, without the aid of that power which gave it existence. The members may vote in the appointment of their agents; and here, as such, their agency ends. I have already observed that a voluntary association depends on the act of the parties. So do all their proceedings in relation to the kind of business and mode of doing it. They may daily change and alter these, acccording to their free will and pleasure; and when they choose, may put an end to their existence as a company. Each of the copartners may dispose of the whole of the partnership prop- erty; may bind all, by a contract, in every thing relating to their business; and may put an end to the copartnership even against the will of the copartners. The death of one, or the going out of one, and the coming in of another, will have the same effect. Who ever can discern, in this view of the case, such an analogy as will warrant a decision founded on it, must see with other than legal eyes. But it is said, if one partner sells out to a stranger who is admitted as a member of the firm, that notwithstanding such sale he is liable 934 MIUDLETOWN BANK V. MAGILL. [CHAP. XVIII. to all the debts then due and owing from the copartnership. This is true; and this being admitted, it is confidently asked, why should not a corporator who has transferred his interest be in a like situa- tion? I think that several decisive reasons may be given. The copartnership, by the very act, is dissolved. But in the very case, the corporation remains entire; and the corporate property, thus' transferred, is liable to be taken on any execution, in favor of the creditors of the corporation. Is it so, with respect to the share of the copartner who sells out, to one who becomes afterwards a- copartner? Certainly not. The copartner thus selling out remains liable, in his person and prop- erty; but the copartner who comes in is liable neither in his person nor property. The funds of the copartnership, so far as they be- longed to the partner selling out (if done bona fide), become, at once, exonerated from all liability to be taken to satisfy the debts of the firm. The new partner retains, beyond all question, all the prop- erty he acquired by the purchase, and the vendor remains liable to all the debts of the copartnership. Really, could any thing be more unlike than the corporation in question and a voluntary association? In scarce a single point is there the least resemblance. It may be amusing, and perhaps useful, to inquire into the conse- quences which would necessarily result from adopting the construc- tion contended for by the plaintiffs' counsel; I mean, in respect to the creditors themselves. An establishment of this kind must, by their agents, be contin- ually engaged in purchasing the raw materials employing workmen to manufacture them into fabrics, which must be sold, to meet the expenditures of the corporation. In the mean time the stock is in market. It is daily, and even hourly, bought and sold. What pur- chaser of a single share could imagine that he should be liable to pay all the debts contracted by the corporation while he might remain a member? But in respect to the creditors themselves ; some persons may be employed by the month, some by the day; materials are to be deliv- ered by parts; payment to be made at different periods. Now, in case of the insolvency of the corporation, to whom are these various creditors to look for payment? To those who were members at the time their debt accrued, say the plaintiffs. Who these a.re, may be partially ascertained from inspecting the books of the company ; but to arrive at certainty on the subject, the time of day must be deter- mined. Should the day-laborer include one in his suit who had transferred his interest before his day's work was completed, it would be fatal to him, or should he omit one, his suit must abate. Add to this, that instead of recovering his demand by a single suit, the suits must be as numerous as the transfers which have been made during the time of his employment. In short, there is no end to the difficulties and embarrassments which must attend any CHAP. XVIII.] MIDDLETOWN BANK V. MAGILL. 935 attempt to chain so fluctuating a body, as the members must be, to one so fixed and permanent as a corporation. One objection still remains to be encountered, viz. That if a mem- ber, by transferring his interest, exonerates himself from all per- sonal liability, then the members may, at any time (in case the corporation becomes insolvent), defeat the claims of creditors, by transferring their interests to bankrupts. ^ Were this true, the argument derived from it would be indeed formidable. But no principle is better settled, than that a convey- ance made with an intention to defeat a creditor is void. If then, the members dispose of their interest with such intentions, the creditors may treat them as members; and of course, they will remain liable, to the same extent that they would have been, had thej' made no such conveyance. Vide Marcy v. Clark (17 Mass. Eep. 330). It was not to be expected that any cases would have been cited from the English books. None at all bearing upon the question can be found. No such being as the one under consideration ever existed there. This is a creature of our own manufacture, and must be governed by rules prescribed for it. We have, however, in this State, certain corporations, which in my judgment bear some analogy to this; I mean towns, societies, etc. The creditors of a town may, on execution, take the property of any inhabitant (while such), whether the debt accrued during the time he might have been an inhabitant, or not. But the moment he ceases (by removal), to be an inhabitant, his liability ceases. In my view of the subject, the Legislature intended to form a cor- poration, in the present case, at least analogous to these. And what is the objection to this construction? The members may sell out to bankrupts; but if this is done fraudulently, as I have already observed, the stockholders are still liable. The grea.t object which the Legislature had in view was, to have at all times a real body attached to the ideal one, which should be answerable for its debts. That this body should be a changeable one was contemplated by the act, as express provision is made for it; nor is it to be be- lieved, that it was intended that no member could safely sell out, unless he should take a bond from the vendee to indemnify him from all the debts due and owing from the company. The creditor does not give credit to the stockholders, as such. They may be hourly ciianging. They in no sense of the word are debtors. Like the inhabitants of towns, they may be compelled to pay, while they remain members, not as debtors, but as guarantees. The corpora- tion is the real debtor; and the members, while such, its surety. A single case only, bearing directly on the point in question, has been cited, which, if considered as an authority, is decisive of this case. Bond v. Appleton (8 Mass. Eep. 472). In that case, "the original stockholders, their successors and 936 ' CHKSLEY V. PIERCE. [CHAP. XVllI. assignees, were made jointly and severally liable, etc.;" but the court added, by construction, being such when a suit is brought; so entirely convinced were they, that the Legislature, though their words seem hardly open to construction, never could intend to create such a legal absurdity as such a corporation would be. I am therefore of opinion that judgment be entered upl for the defendants. Peters and Bristol, JJ., were of the same opinion. Judgment to he rendered for the defendants. CHESLEY V. PIEECE. (32 N. H. 388. 1855.) Eastman, J. : — The act of incorporating the Contoocook Valley Railroad was passed June 24, 1848, and the grantees were made a corporation "with all the rights and privileges, liabilities and duties, by the laws of this State incident to railroad corporations." By the Revised Statutes, chap. 146, § 1, it is provided that the stockholders of incorporated companies, thereafter incorporated, having for their object a dividend of profits, and the stockholders of corporations then existing whose charters were subject to amend- ment or repeal, "shall be personally holden to pay the debts and civil liabilities of such company hereafter contracted or incurred, in the same manner and to the same extent as though the stock were owned and the business transacted by the stockholders as unincor- porated copartners ; " subject, however, to exceptions and modifica- tions thereinafter provided for. The exceptions and modifleations spoken of require a previous demand to be made upon the company before suit against a stock- holder, and the mode of proceeding is particularly set forth. There is no limitation, however, to the general liability of the stockhold- ers to pay all the debts of the corporation, as set forth in the first section, if the proper steps are taken to charge them. This first section of chap. 146, Revised Statutes, was in terms repealed by the Act of July 8, 1846, and also such other parts of the statutes then in force as might be inconsistent with that act. Chap. 321, Pamphlet Laws. And instead of this section the general pro- vision was made, as follows: "All corporations, having for their object a dividend of profits among their stockholders, hereafter in- corporated, or whose charters are subject by law to alteration, amendment, or repeal, shall be governed by the provisions and sub- ject to the liabilities in this act contained; and the stockholders and officers thereof shall be personally liable for the debts and CHAP. XVIII.] CHESLEY V. PIEKCE. 937 civil liabilities of such corporations, in the following cases and not otherwise : " 1. They shall jointly and severally be liable for all debts and contracts of such corporations until the whole amount of the capital, fixed and limited by such corporation, shall have been paid in, and a certificate thereof shall have been made and recorded by the clerk of the town where such corporation has its place of business, or is situated." Several other instances are also enumerated in which it is declared that they shall be liable; such as a reduction of the capital stock before the debts are paid; but they need not be stated, as they do not aifect this case. By the Revised Statutes, chap. 146, § 6, it is provided that every such company shall, within five days from the time of its being organized for the transaction of business, cause to be delivered to the town clerk of the town in which the company has its principal place of business, a list of the stockholders, and the shares owned by each ; and the 7th section of the same chapter provides that from and after the time in which such list is required to be so left, no transfer of stock by any stockholder shall exonerate him from his personal responsibility "for the debts and liabilities of the company afterwards contracted or incurred, unless the same be in writing, and recorded in the ofiice of the town clerk of the town in which such principal place of business is located." These two sections of the Revised Statutes were repealed by the Act of July 10, 1846, (Pamphlet Laws, chap. 322); and instead thereof the provision, among others, was made, that the list of the stockholders should be filed with the town clerk in sixty days after the organization of the company and its preparation to transact busi- ness. It was also further provided, in the second section of the act, that any person whose name was on the list should be deemed to be a stockholder, until his name was stricken from the list; "provided, that any stockholder in any such corporation who shall sell and as- sign all his stock in the same, may immediately notify such town clerk in writing of the time when he sold and assigned such stock, and the names and places of residence of the persons to whom he sold; and in all such cases the stockholder so selling his stock shall be ex- onerated from all debts and liabilities of said corporation contracted after such sale and notice; and the persons purchasing such stock shall be liable for such debts and liabilities, contracted after such purchase and notice, in the same way and manner as the person selling such stock would have been if he had not sold." ISTow, waiving the question whether assumpsit is the proper form of action to be brought on an instrument like the one in suit, and ■whether the company had the right to issue bonds or obligations in the manner in which this was issued (in regard to both of which questions we express no opinion) ; and admitting that the evidence 938 CHESLEY V. PIEECE. [CHAP. XVIII. was competent to show the defendants to be stockholders at the time this action was commenced, still, a very important question arises, whether under the provisions of the statutes cited, the defendants can be charged? This obligation was issued on the 3d day of May, 1849, and the plaintiff bscame the holder of it prior to 1860. The defendants, however, were neither of them stockholders before the 30th of April, 1850. Admitting that the defendant Fierce made a payment towards his shares as early as January, 1849, still the payments were not all made till April, 1850, and his certificate for stock was not issued till then. Sawyer made no payment till March 9, 1850, and his certifi- cate was issued January 3, 1851. We do not intend to say that a person may not be a stockholder in a corporation without having in his possession a certificate of his shares. If by his acts or words he makes what may amount to a proposition to become a stockholder, and pays for his stock, and the corporation accepts the money, such acts, independent of any provi- sion in the charter upon the subject, might be sufiicient for a jury to find a contract for membership between the individual and the cor- poration, by which he would become a stockholder without any formal vote of the corporation to that effect, and without any issuing of a certificate for shares. Or if he should subscribe for stock, and the corporation should by vote accept him as a member, this might be sufficient, without payment for the shares. Chester Glass Co. v. Dewey (16 Mass. 94). But here certificates were issued; to Pierce on the 30th of April, 1850, — on the day on which the last payment was made; and to Sawyer on the 3d day of January, 1861. It can- not be said that they were stockholders before those dates, for the evidence is that the payments for the stock were not all made till the day on which the certificates were issued; and there is nothing having a tendency to show them stockholders till that time. There was no action of the corporation accepting them as stockholders. They may have been subspriber3 for shares, but their shares were not paid for, and the corporation had not accepted the defendants as stockholders until the certificates were issued. And we do not undei-stand that the plaintiff makes any particular question upon this point. This distinct question, then, is presented: Can the defendants be charged for a debt incurred before they became stockholders, not- withstanding they may have been stockholders at the time the suit was brought? This question has been considered upon statutory provisions somewhat similar to ours in several of the States. The general statute of Massachusetts upon manufacturing corpora- tions contains a section substantially the same as the first section of our Act of July 8, 1846. And the Supreme Court of that State, in the case of Curtis v. Harlow (12 Met. .3), have decided that the pro- visions of the section extend to those who are members when the CHAP. XVIII.] CHESLEY V. PIEKCE. 939 liability of the company is sought to be enforced, and is not confined to those who were members when the debts were contracted. This decision is placed upon the ground that such is the meaning of the language of the statute. Dewey, J., who delivered the opin- ion, says, that the language of the statute necessarily embraces all persons who are members at the time when the liability is to be en- forced; that those who became stockholders after the date of the contract are as fully members of the company as the earlier associ- ates ; that the term " members " must be held to include all the actual stockholders, and that with their membership they take all the benefits and the responsibilities which attach to that relation. Whether those who are stockholders at the time the debt is con- tracted, but cease to be members before the commencement of the suit, are liable, is not decided by that case. In regard to that the court express no opinion, but saj' it may be that both are liable. The language of the Massachusetts statute is somewhat stronger than ours; the phraseology is, "all the members" of every manufac- turing company shall be liable, etc. ; and from an examination of their statute we do not find any provision like that contained in the second section of our Act of July 10, 1846 (above cited), providing that a stockholder who shall sell his shares and notify the town clerk having the list shall be exonerated from all debts contracted after such sale and notice, and that the purchaser shall be liable for the debts contracted after such purchase. In Connecticut the court hive been divided upon the question; a majority, however, deciding the point in the same way as in Curtis V. Harlow, in Massachusetts. See Southmayd v. Russ (3 Conn. 54); Middletown JBank v. Marjill (5 Conn. 28) ; Deming v. Bull (10 Id. 409). In New York, where the provision of the act was, that " the stock- holders of said corporation shall be jointly and severally personally liable for the payment of all debts or demands contracted by the said corporation," etc., the Supreme Court, in the case of Moss v. Oakley (2 Hill, 265), held that the suit could be brought only against such as were stockholders when the debt was contracted, and not those who become so afterwards. In delivering the opinion of the court, Bronson, J., says that the statute is capable of either construction without doing any violence to the language, but he thinks that the construction given by the court will best answer the end which the Legislature had in view. The phraseology of this statute is almost identical with ours; the words, "jointly and severally," however, being introduced into the New York statute, which are not embraced in ours. This same statute was afterwards considered in the Court of Errors of New York, in the case of McCullough v. Moss (5 Hill, 567). Sev- eral opinions were delivered by honorable senators, but they were 940 CHESLEY V. PIERCE. [CHAP. XVIII. not agreed in the construction to be put upon the statute. Some held that it applied to those only who were members when the suit was commenced, while others advanced the same views as those en- tertained by the Supreme Court in the case of Moss v. Oakley. There were other points in the case, and the decision did not turn upon this point alone. In Allen v. Sewall (2 Wendell, 327), the words of the statute were that "the members of the company shall be liable individually," and Savage, C. J., said, "It was the intention of the Legislature to put the defendants [the stockholders] upon the same footing as to the liability as if they had not been incorporated. Individual lia- bility in the act must be understood in contradistinction to corporate liability; and the defendants must, therefore, be held responsible to the same extent, and in the same manner, as if there was no act of incorporation." These are the only cases that we have met with that bear upon the point, and it will be seen that, so far as they go, the question is not settled. We are, therefore, brought to give such construction to the statute, independent of authority, as we think the Legislature in- tended and the language of the act requires. It will be observed that the first section of the Revised Statutes, which we have quoted, made the stockholders personally liable " in the same manner, and to the same extent, as though the stock were owned and the business transacted by the stockholders as unincor- porated copartners." Such is the language of the statute; that is, their liabilities were to be precisely the same as though the business were carried on by a partnership instead of a corporation ; subject, of course, to the other provisions of the act, that the creditors should demand payment of the corporation before suit against the individual stockholders. Standing, then, under that statute in the position of partners, stockholders would be liable for the payment of such debts and such only as should be contracted while members of the corporation. Such is the general rule in regard to partner- ships. A person is not individually liable for the debts of a firm contracted before he becomes a member of it, nor for those con- tracted after he leaves it, unless there be some agreement to that effect when he unites with or leaves the partnership. We state this as the general principle, and do not of course allude to the particu- lar powers of partners in settling the affairs of a partnership after dissolution. We entertain no doubt that under the Revised Statutes stockhold- ers could be made liable in their individual capacity only as copart- ners; that consequently they would be liable for those debts- only which were contracted while members of the corporation; and that were we to decide this suit under that statute, judgment would have to be entered for the defendants. The question then arises, did the Act of July 8, 1846, change the CHAP. XVIII.J CHESLEY V. PIEKCE. 941 law in this respect? Was it the intention of the Legislature at that time to make the personal liability of stockholders greater than that of copartners, and greater than it had been theretofore? We think not; and the whole scope of the act appears to ns to show clearly thab the intention was to limit instead of extending that liability. Hence the repeal of the action fixing the general liability, and the enactment of the provisions particularizing the defaults which should make the stockholders personally liable; one of which appears in this case, viz. : that the debt was contracted before all the stock was paid in. It is true, that the Act of 1846 does not in terms specify the man- ner and extent of the liability, as is done by the Eevised Statutes ; but it is also true that there is nothing in the la.nguage of the act requiring a construction that shall impose a greater liability than that which attaches to, partners. The language of the section is, that "the stockholders and ofiBcers shall be personally liable for the debts and civil liabilities of the corporation." Stockholders are spoken of in connection with the contracting of the debts ; and sucli as were then stockholders, when the debts were contracted, would seem to be those intended, and not those who might become mem- bers afterwards. At all events there is nothing in the phraseology requiring a different construction. And this construction is, we think, the one best calculated to do justice between the parties. He who purchases stock and comes into a corporation after it has been engaged in business, may often be deceived in relation to the number and magnitude of its debts, but while he is a stockholder he can know something about the ex- tent of the obligations contracted by the company, and is not wholly without the means of exerting an influence over those who manage its concerns. And as to those who deal with the corporation, they bestow their labor or part with their money or property on the credit of the corporation, and those who are known to be stockholders and so far as the responsibility of the stockholders is to be considered, it might oftentimes be ruinous to a creditor to turn him over to per- sons with whom he did not deal, and who may have come into the corporation at a subsequent period; they may be much less able to respond to creditors than were those who owned the stock at the time the debt was contracted. Moss v. Oakley (2 Hill, 270). The stockholders are made guarantors for the payment of the debts of the corporation; not guarantors in the technical sense of the term, but they are liable in the cases stated in the act, when the corporation shall fail to make the payments. And what principle can be more just or equitable than that which makes a stockholder liable for those debts, and those only, which are contracted while he is a member of the association, participating in its business and transactions, and sharing in its advantages and profits? And why should he be liable for debts contracted before h« has become a 942 IN EE JOINT-STOCK DISCOUNT COMPANY. [CHAP. XVIII. member, when he had no connection with the company, or for those incurred after he has parted with his stock and honestly left the association? We think that the justice of the matter requires that his liability should be co-extensive with his membership; that so long as he is a stockholder he should be liable for the debts then contracted, and not for those incurred either before he joined the company or after he left it; and that such was the intention of the Legislature that passed the act, and the proper construction to be put upon it. And we are confirmed in the opinion that such was the intention of the Legislature, by recurring to the Act of July, 10, 1846, a por- tion of which we have quoted, which provides that upon a sale of stock and notice to the town clerk where the list is filed, the stock- holder so selling his stock shall be exonerated from all debts and liabilities of the corporation contracted after such sale and notice; and that the purchaser shall be liable for stich debts as may be con- tracted after such purchase. This act would seem to indicate quite clearly the intention of the Legislature to place the stockholders in this respect on the ground of partners. This list, which is filed with the town clerk, is for the benefit of those who deal with the company. They may resort to it to see who are the stockholders, that they may the better know whether to trust the corporation or not ; and it is the names that they find there to which they give credit, and not those that may have been there a year before, or may be there a year after. And by the express terms of the act, also, it is those whose names are then there who are liable for debts then contracted, and not for debts contracted thereafter; and those who subsequently become members are not liable for the debts previously contracted. As the decision of this point in the case goes to the foundation of the plaintiff's right of recovery, we have found it unnecessary to examine the other questions. According to the agreement of the parties, as expressed, in the order of transfer, there must be Judgment for the defendants. In re JOINT STOCK DISCOUNT COMPANY. MANN'S CASE. (L. R. 3 Ch. App. 459 n. 1867.) In May, 1865, 200 shares in the above-named company were, by the directions of Parkinson, a stockbroker of Halifax, to whom they belonged, transferred to and registered in the name of Mann, to secure an advance to Parkinson. CHAP. XVIII.] IN RE JOINT-STOCK DISCOUNT COMPANY. 943 Parkinson repaid the advance in August, 1865; and by his direc- tion the shares were transferred by Mann to one Simms, a nominee of Parkinson, and a clerk of his London agent. The 8th clause of the company's articles of association provided that the instrument of transfer of any share in the company should be executed both by the transferor and the transferee, and the transferor should be deemed to remain the proprietor of such share until the name of the transferee was entered in the register book in respect thereof. The 9th clause contained a form of transfer, and the 10th clause provided that the company might decliiie to register any transfer of shares made by any member who was indebted to the company, or in cases where the directors considered the transferee to be an irre- sponsible person, or that the transfer was made for purposes not conducive to the interests of the company. The deed of transfer was duly executed by Simms, the transferee, as well as by Mann, the transferor, and the transfer was accepted by the company, and duly registered in their books. Simms, how- ever, was then an infant of the age of eighteen, but this fact was not known either by Mann or the company. Simms afterwards transferred 180 of these shares to other persons, and when the com- pany was ordered to be wound up, in March, 1866, the remaining twenty shares were still standing in his name. The oflBcial liquida- tor placed Simms on the list of contributories in respect of these shares, but Simms having proved his infancy at the time of the transfer to him, the Master of the Rolls, on a summons taken out by the liquidator, and adjourned into Court, ordered that the register of shareholders should be amended by striking out the name of Simms, and placing that of Mann thereon, and that Mann's name should be placed on the list of contributories in respect of the twenty shares. From this order Mann now appealed. It appeared that Mann had no notice of any claim upon him until the 16th of February, 1867, and that Parkinson had become bank- rupt and absconded. Mr. Cotton, Q. C, and Mr. W. F. Eobinson, for the appellant: It was the duty of the directors of this company to ascertain that the proposed transferee was a proper and competent person. They accepted Simms as transferee, and registered the transfer to him; they are, therefore, now estopped from raising an objection which they ought to have made before they passed the transfer. Mann knew nothing of the infancy of Simms ; had he done so the transfer might have been held fraudulent, and Mann still a contributory. Reid^s Case (24 Beav. 318). A minor may be a shareholder, and even vote, under the 79th section of the Act, 8 regard to user by the corporation; and the counsel for plaintiff, upon this evi- dence, moved to strike out the certificate of incorporation, and all the testimony relating thereto, on the ground "that the directors of the concern were residents of New York, and that under the statute of West Virginia it was necessary. In order that the corporation be duly incorporat- ed, that thedirectors of the concern should be residents of West Virginia, unless a spe- cial resolution were passed by the corpo- ration permitting persons of any other state to be Buch directors." The motion was denied; and thereupon, on motion of counsel for def; idants, the complaint was dismissed because no cause of action was proved against the defendants personally. There was sufficient evidence of user to- make ft clear that the company had ac- cepted its charter, with all its privileges and liabilities, whatever they might be. This question of user, although not spe- cifically taken in the above oiijections, has been urged upon us here by the coun- sel for the appellant, and we think it well enough to say what we have upon the subject. As to the other points which have been actually raised by the motion to strike out the certificate, we think a proper disposition was made of them by the court below. By the statute of West Virginia the in- corporation precedes the election of direct- ors. After the incorporation, and subse- quent to the issuing of the certificate thereof by the secretary of state, the cor- porators named therein, or a majority of them, are directed by statute to appoint a time and place for holding a general meeting of the stockholders to elect direct- ors, make by-laws, and transact other business. A failure to adopt a by-law at the first meeting, permitting the election of non-resident directors, and the election of non-resident directors at such meeting or at a subsequent one, in the absence of a by-law permitting it, would not ipso- facto dissolve the corporation, or take away its corporate rights or franchises. The company would still remain a legal entity, notwithstanding its failure to adopt the proper by-law, or, in its ab- sence, to elect resident directors. Tlie counsel for plaintiff was therefore in error in his statement as to the law of West Virginia We come, then, to the question wheth- er, upon the facts already set out, this corporation was so far valid as to be en- titled to recognition as such in the courts of our state. The plaintiff says It clearly appears that the corporators thereof were citizens of New York, and tlie cor- poration was formed by them in the state of West Virginia for the sole purpose of doing business out of that state and in the state of New York, in which latter Ch 2) DEMAREST v. FLACK. 11 Rtatp the principal office was also to be located. These facts, he says, conclusive- ly prove the invalidity of the West Vir- ginia corporation, so tar at least as this state and its citissens are concerned. It mistaken in that view, he still urges that such facts render it a question for the de- termination of the jury whether the incor- poration was attempted to be made in jjood faith, or as a mere evasion and in fraud of the laws of West Virginia or of New York. He claims, if the jury should find the purpose was one of evasion, that in such case the incorporation would fur- nish no dfcfense, and the plaintiffs would be liable as individuals. We are quite clear the case should not be submitted to a jury to pass upon the question of eva- sion as matter of fact. If it were, we might find different juries coming to differ- ent conclusions upon the same facts, and we should have a corporation or no corporation according to tlie view a jury might take of such facts. One plaintiff might prove the evasion to the satisfac- tion of one jury, and another plaintiff fail on precisely the same facts; and thus we should have a corporation as to A., and no corporation as to B., and the same question constantly arising as often as the corporation orits members were sued. This would be intoleralde. It must be a corporation as to all persons with whom it has business dealings, nr to none. In other words, it must be a question of law, instead of fact. The courts of any country recognize foreign corporations through what is termed "national or state comity," (Merrick v. Van Sant- voord. 34 N. T. 20S ; Bank v. Earle, 13 Pet. 519; Christian Union v. Yount, 101 U. S. S.52;) but whether such recognition sliall be given must be decided by the courts of the country where the corpora- tion seeks to do business. In our state, as in others, it is a question of domestic policy, and what tliat policy is must be determined by an examination of our own legislation. If we find any direct en- actment upon the subject, it is our duty to obey it; and in its absence we must determine the question with reference to our general legislation, and t(» the circum- stances which surround us as a great and growing commercial community, luiving need of and employing large amounts of combined capital, and for whose r>ros- perity and growth it is of the utmost importance that such capital should liave the greatestfacilities extended it for useful employment, with reasonable and proper personal exemptions from liability. We can find no reason for a domestic policy that should exclude from recognition by our courtsforeign corporations generally. It may be safely said there can he no such domestic policy at the present day in a civilized state. The question then arises, shall we go behind the certificate of incor- poration or charter of a foreign corpora- tion for the purpose of inquiring under whatcircumstances,aud for what purpose outside the charter, it was incorporated? This can only be claimed on the ground that the charter was obtained in fraud or evasion of the laws of the state wliich granted it. or for the purpose of evading the provisions of our own laws. It is plain there was in regard to the procure- ment of this charterno fraud upon or eva- sion of the laws of West Virginia, even if we should admit that such fact would constitute good ground for our refusal to recognize such corporation, although no proceedings had been taken to annul its charter in the state which granted it. Tliis point is by no means clear. Howev- er that may be, it is impossible not to see that the state of West Virginia has adopt- ed a policy which favors the formation of corporations within her borders, and pur- suant to her laws, while the members and officers may be non-residents, and where the principal business of the corpo- ration IS to t)e performed outside "the confines of the state. The agreement which was signed by the corporators in this case, and duly ac- knowledged and presented to the secre- tary of state of West Virginia, showed that the corporators were residents of New York, and that the principal office of the corporation was to be in New York; and the inference was a fair one that the principal business of the corporation was also to be conducted in New York. The secretary of state, to whom the papersfor the organization of the corporation were presented, was compelled to pass upon and decide the question whether they con- formed to the laws of West Virginia, be- fore he received or filed them, or gave the certificate of incorporation. He did pass upon the question and (Jid thereupon issue the certificate of incorporation under the great seal of the state, and attested by his official signature. So far as the laws of West Virginia are concerned, it is plain that tlie corporators thereupon bfcamo a corporation, and in that state the certifi- cate was, by the laws thereof, evidence of the existence of such corporation. There was no fraud or evasion of the law of West Virginia in thus becoming incorpo- rated. The references to her laws above made show conclusively that the forma- tion of corporations thus composed, and for the purpose of doing their principal business outside the limits of that state, was contemplated in those laws. This corporation was beyond all question le- gally incorporated, and entitled to recog- nition, in the .«tate of West Virginia. Un- less, therefore, it can be said that the acts of our citizens in procuring an incorpora- tion under the laws of West Virginia for the purpose of doing business here were, as matter of law, a fraud and an evasion of our own laws, and hence in conflict or inconsistent with our domestic policy, such foreign corporation is entitled to rec- ognition and protection in our own tribu- nals. Merrick v. Van Santvoord, supra. It is urged that such acts are thus incon- sistent and in conflict with our policy, be- cause citizens of our own state are in that way enabled to evade our own laws rela- tive to home corporations, and to avoid personal liability by incorporating under the la ws of foreign states, which may be more favorable to members than are our own laws. I think, when this claim is ex- amined in the light of our own legislation, it will be seen that tliere is no substantial basis for it to rest upon. An examination of our laws shows that it is, and for many a DEMAREST v. FLACK. (Ch 2 years baa been, the policy of this state to enlarge the facilities for the formation of corporations. General laws are on our statute-book for theformation of corpora- tions of almost every conceivable kind, and under some one of them a corpora tion of the kind mentioned in this case could readily be formed. The freedom from personal liability would be as great, xind could be as easily attained, under our o'vn asunder the laws of West Virginia. The security of the crerlitor would not be substantially greaterin the case of the do- mestic than in that of the foreign corpora- tion. In the latter the creditor has the remedy by attachment, and he can obtain about as easy access to its property as if it were domestic instead of foreign. There is really nothing to evade by incorporat- ing under a foreign law. No harmful re- sults flow to a creditoror to the communi- ty hero by such incorporation. Where the ■corporation formed under another juris- diction comes here to do business of a kind which we permit to be done by corpora- tions, and where our laws provide for in- corporating individual.^ for the purpose of doing that business, it is difficult to see how the terms "evasion "and "fraud" can be properly applied to acts of our citizens whereby they obtain incorporation in an- other state. When they come in our state to do business, they must conform to our laws relating to foreign corporations, and comply with the terms laid down by us as conditions of allowing them to transact business here. In' the case of many kinds of corporations such conditions have al- ready been Imposed by our laws; and, if (here be any kind where none is imposed, i'ls conclusive evidence that up to this lime the legislature has not thought it conducive to the true interests of the state and its citizens to impose them. I do not intimate that it is necessary for a state to expressly, by statute, exclude foreign cor- porations from acting within its jurisdic- tion. The policy of the state may exclude them, and that policy may be clearly es- tablished by a reference to the general legis- lation yf a .state. I find none such in the laws of this state. It has been urged that the easy way which our laws providefor forraingcorpo- rations is itself a reason why we should not i-ecognize as a corporation those of our own citizens who have gone to anoth- er state for the purpose of incorporating themselves under the laws thereof, to do business in our own state as such corpo- ration. We think there is very little force in the argument. The. public policy which we see in our own state, as evidenced by her lawsnpon the subject of the formation of corporations, is onewhich looks to their ready and easy formation as a means of transacting business with an accuinnla- tiuii of caijltal, and an exemption from per- gonal liability to the largest extent consist- ent with reasonable supervision by the state. The facilities for incorporation of- fered by this state are not the result of any desire to promote the formation of corporations here as against their forma- tion in other states. They are offered be- cause of a policy on our part which urges upon the state the propriety of furnishing them as one means of controlling the busi- ness done by them, and keeping It within our borders. If, in any particular case, it is thought by those interested in the mat- ter that the business can be done in Hob. 13C. "From Magna Charta, 9 Hen. III. c. 36, to 9 Geo. II. c. 36. PEIV.COKP.— 3 tion, either ecclesiastical or lay, must have a license from the king to purchase, before they can exert that capacity which Is vested in them by the common law: nor is even this in aU cases sufficient. These statutes are generally called the statutes of mort- main; all purchases made by corporate bod- ies being said to be purchases in mortmain, in mortua manu: for the reason of which appellation Sir Edward Coke''^ offers many conjectures; but there is one which seems more probable than any that he has given us, viz., that these purchases being usually made by ecclesiastical' bodies, the members of which (being professed) were reckoned dead persons in law, land therefore holden by them might with great propriety be said to be held in mortua manu. "I shall defer the more particular exposi- tion of these statutes of mortmain till the next book of these Commentaries, when we shall consider the nature and tenures of es- tates; and also the exposition of those dis- abling statutes of Queen 'Elizabeth, which re- strain spiritual and eleemosynary corpora- tions from aliening such lands as they are at present in legal possession of: only mention- ing them in this place, for the sake of regu- larity, as statutable incapacities incident and relative to corporations. "The general duties of all bodies politic, considered in their corporate capacity, may, like those of natural persons, be reduced to this single one, that of acting up to the end or design, whatever it be, for which they were created by their founder. * * *" —1 Bl. Comm. book 1, c. 18, pp. 475, 480. {Extracts from, Kyd on Corporations.) "When a corporation is duly created, many powers, capacities, and incapacities, are tacitly annexed to it without any ex- press provision,' and of these, five are said to be necessarily and inseparably incident to every corporation. 1. To have perpetual succession, and therefore all aggregate cor- porations have a power necessarily implied of electing members in the room of such as are removed by death or otherwise.' 2. To sue and be sued, implead and be impleaded, gi-ant and receive by its corporate name, and do all other acts as natural- persons may. 3. To purchase lands, and hold them for the benefit of themselves and their suc- cessors. 4. To have a common seal, and 5. To make by-laws, or private statutes for the better government of the corporation. The two last, however, it is admitted, are very unnecessary to a corporation sole, though they may be practised; ° and the last is not so inseparably incident to a corporation ag- gregate, that it cannot subsist without it; =' 1 Co. Inst. 2. ' 10 Coke, 30b. = 1 Rolle, Abr. 514. ' Vid. 1 Bl. Comm. 475, 0. 18 EXTRACTS FROM KYD ON CORPORATIONS. (Ch. 3 for tlaero are some agKregate corporations to which rules and ordinances may be pre- scribed, and which they are bound to obey,' as will be more fully shewn in another place. Neither are these all the incidents, which without any express provision are necessarily annexed by legal implication to an aggi'egate corporation; and, it is mate- rial to observe, that though many things be incident to a corporation, yet to form the complete idea of a corporation aggregate, it is sufficient to suppose it vested with the three following capacities. 1. To have per- petual succession under a special denomina- tion and under an artificial form. 2. To take and grant property, to contract obliga- tions, and to sue and be sued by its corpo- rate name, in the same manner as an indi- vidual. 3. To receive grants of privileges and immunities, and to enjoy them in com- mon. These alone are sufficient to the es- sence of a corporation; neither the actual possession of property nor the actual enjoy- nent of franchises, is necessary." "There are two general points of view in which corporations may be considered. 1. In their relation to the public; and 2. In re- spect to their internal constitution. Consid- ering them in their relation to the public, these will be the objects of our enctuiry: 1. Their several capacities and incapacities. 2. The mode prescribed by the law, In which they must act, and which must be observed by others in acting against them. 3. By what acts they are bound; and 4. To what burthens they are subject. A corporation being merely a political institution, it can have no other capacities than such as are necessary to carry into effect the ijurposes for which it was established; it cannot therefore be considered as a moral agent subject to moral obligation, nor as a single person subject to personal suffering, or ca- pable of personal action; and on this prin- ciple we may account, in a satisfactory man- ner, for many of the incapacities attributed to a corporation aggregate, without having recourse to the quaint observations frequent iu the old books, 'that It exists merely in idea, and that it has neither soul nor body.' ' On this priciple a corporation aggregate can- not be guilty of a crime, as of ti-eason or felony; ' and consequently cannot be sub- ject to the punishment of a criminal: nor can it take an oath, which is one reason why it could not do fealty,' and why it can- *Vid. eund. 477. = Per Holt, Skin. 311; 10 Coke, 31a; Case of The Dean and Chapter of Norwich, 3 Coke, 75b. " Vid. 10 Coke, 32b. Manwood, C. B., is said by Lord Coke to have said of corporations, that they had no soul, which he proved by this curious syllogism, "None can create souls but (jod; but a corporation is created by the king: tterefore a corporation can have no soul." 2 Bulst. 233. ' 10 Coke, 32b. 'Plow. 213, 245; 10 Coke, 32b. not be executor or administrator; ' and for the same reason it cannot wage its law;" neither can it be subject to ecclesiastical censure, and consequently cannot be excom- municated, nor summoned into the ecclesi- astical courts; " neither can it do or receive a personal injury, and therefore can neither sue nor be sued in an action of trespass for battery or false imprisonment." It is inca- pable of a personal appearance, and there- fore could not have done homage, because that could not be done by attorney;" which is another reason why it could not do fealty; but it might have purchased lands held by homage and fealty, and then it would have been considering as holding them by that tenure." For the same reason it cannot levy a fine; " neither can it be apprehended or arrested, and therefore cannot be outlaw- ed," for outlawry always supposes a preced- ent right of arrest. * * * The capacity of aggregate corporations to take property for the benefit of themselves and successors, ex- tends equally to personal and to real prop- erty; but it is a general rule that no chat- tel shall go In succession in the case of a corporation sole," and therefore if a lease for years be granted to a bishop, dean, par- son, vicar, &c. and to his successors, it shall go to the executor and not to the successor; so, if a man be bound In a recognizance or obligation, to any such sole corporation, the executor and not the successor shall have It; for though they have a natural and a corporate capacity, yet the latter is confined to real property. * * * It has been ob- served, that, by the rule of the common law, a corporation has an equal capacity of tak- ing property with a private person," but their capacity to take landed property is subject to some restraints imposed by stat- ute, of which it is necessary now to give an account. These restraints were at first in- troduced to prevent the effects of too great an accumulation of land by religious houses, and other ecclesiastics; and the statutes by which they were imposed, have been called statutes of mortmain. * * * Though bod- ies politic and corporate are expressly ex- cepted from the statute of wills, and are therefore incapable of taking directly by will, yet it has been held that they were not, by means of that exception, rendered total- ly incapable of taking the benefit of a de- vise made in their favour, for that if a man devised that his executors should, by the advice of learned counsel, convey his lands "Com. Dig. "Administration," B, 2. "9 Coke, 32a. " 10 Coke, 32a. " Br. Corp. 63. " Co. Litt. 66b. " 33 Hen. VIII. Br. Fealty, 15. " Com. Dig. tit. "Fine," B. "10 Coke, 32a, cites 39 Edw. III. 13a; Br. Utlagary, 72. Corpor. 11; " Co. Litt. 46b; 4 Coke, 65; 1 RoUe, Abr. 515; Dyer, 48, pi. 15; Cro. Eliz. 464. " Dyer, 48, in Mag. Char. 16. Ch. 3) EXTRACTS PUOM KYD ON CORPOKATIOKS. 19 to any corporation,- spiritual or temporal, tliis was not against the statutes, because it might be lawfully done by license to alienate in mortmain and writ of ad quod damnum." » * * It is likewise to be observed that the statutes of mortmain malje no mention of personal property, and therefore the pow- er of corporations aggregate, in general, to lalie such property, remains unlimited: but many particular corporations, established by act of parliament for some particular pur- pose, are limited in this respect as well as in their power to purchase lands. * * *" Having considered the capacity of corpo- rations with respect to their property and " Porter's Case, 1 Coke, 25a. privileges, it follows naturally that we should say something with respect to their capacity of suing and being sued. This part of the subject resolves itself into two questions. 1. What actions can they bring? and, 2. What actions may be brought against them? To both which one general answer may be given, that they may main- tain all such actions as are necessary to as- sert their rights when invaded, or to give them a recompense for any injury that can be done to them; and that all such actions may be maintained against them, as are necessary to enforce the claims of others in opposition to them. —Stewart Kyd, Treatise on Corporations, 1793. 20 AYERS V. SOUTH AUSTEALTAN BANKING CO. (Ch. 3 AYERS et al. v. SOUTH AUSTRALIAN BANKING CO. (L. R. 3 P. C. 548. 1871.) On appeal from the supreme com-t of South Australia. This was an appeal from an order mating a rule absolute of the supreme court of South Austi-alla, discharging, with costs, a rule nisi calling upon the respondents to show cause why the verdict obtained by them should not be set aside, and instead thereof a nonsuit entered, or that amount of damages and interest be reduced, pursuant to leave reserved at the trial In an action of trover to recover the value of a quantity of wool, in which the respondents were plain- tiffs, and the appellants, defendants. The action was brought by the respondents against the appellants for the wrongful con- version of wool on which the respondents claimed a preferable lien under an agree- ment dated the 23d of August, 1866, and which wool the appellants, who were trus- tees or assignees of the creditors of the firm of Philip Levi & Co., had appropriated as part of the assets of that firm. The appel- lants pleaded, first, not guilty; and, secondly, that the wool was not the respondents', as alleged. Issue was joined on those pleas. The action was tried before the chief jus- tice of the supreme court. * * * The first two documents put in by the appellants con- sisted of two indentures of assignment, one dated the 17th of September, 1866, executed by Philip Levi, Edmund Levi, and Alfred Watts, three of the partners in Adelaide of the firm of Philip Levi & Co.; and the oth- er, dated the 23d of February, 1867, executed in the name of Frederick Levi, the London partner of that firm, under a power of attor- ney. These deeds purported to be made un- der the provisions in the sixth division of the insolvent act (No. 16, 1860), entitled "An act to amend and consolidate the laws relat- ing to insolvent debtors." The latter in- denture also confirmed an indenture, dated the 31st of January, 1868, which was also put in by the appellants. Under the in- dentm-es of the 17th of September, 1866, and the 23d of February, 1867, or one of them, the appellants, as trustees for the creditors of the insolvent firm of Philip Levi & Co., obtained possession of the wool in question, and Insisted upon their right to convert the same to their own use, notwithstanding the respondents' preferable lien. It also appeared that the appellants, after the commencement of the action, obtained an order of the provincial court of insol- vency, dated the 24th of September, 1868, for the sale of the wool in question, upon the al- leged footing of the same being in the order and disposition Of Philip Levi at the time when he executed the indenture of the 17th of September, 1866. The appellants also put in evidence another preferable lien, dated the 19th of July, 1866, given by Mr. Philip Levi to the respondents and to John Coleman Dixon, as the inspector of the bank, upon the wool in question, with a view to raise an objection as to the right of the respond- ents to recover In the action, as the right of action was vested in Dixon, and not in the respondents. The appellants also put in the respondents' bank charters of the 3d of Sep- tember, 1847, and the 5th of July, 1866. The object of the appellants in putting in the bank charters was to question the prefer- able lien, on the ground that by the charter of 1847 it was not lawfiil for the bank to lend or advance money on the security of lands, houses, or other real property, or of ships or merchandise. The last document put in on the part of the appellants was an agreement, dated the 26th of May, 1866; the appellants to set up this document as a first charge on the wool in question in favour of the firm of Willans, Overbury & Co. On the trial the appellants submitted, that the judge ought to nonsuit the respondents, or direct a verdict for less than the net value of the wool, but the judge directed a ver- dict for the respondents for £16,280. 14s. 9d., and interest at 10 per cent, from the 1st of July, 1867, reserving leave to the appellants to move to enter a nonsuit or to reduce the amount of damages and interest * * * In pursuance of the leave thus given the ap- pellants moved to set aside the verdict, and to enter a nonsuit, on the following grounds: * * * Eleventh,' that the transaction was prohibited by the bank charter. * * » a rule to show cause was granted. The case was argued before the supreme court. * * * The rule nisi was discharged, and the present appeal was brought from an or- der of the supreme court, dated the 7th of January, 1869, discharging the rule nisi. LORD JUSTICE MELLISH. This Is an action of trover, brought for the conversion of a large quantity of wool. The defendants are the trustees of the firm of Philip Levi & Co., in South Australia, who became in- solvent according to the laws of that coun- try; and the action was brought by the South Australian Banking Company to en- force what is called a preferential lien, which they had obtained, as they alleged, on the wool of a large number of sheep, by an instrument made in accordance with the South Australian Act No. 4 of 1855-6, on the 23d of August, 1866. Several objections were argued; but it is probably better first to allude to an objection which was taken in the court below, though it was not seriously argued here, namely, that an action of tro- ver would not lie for this wool, even if there was a good preferential lien given in accord- ance with the South Australian act. One of the'learned judges in the court below was of opinion that an action of trover could not be ' The statement of the other grounds is omit- ted. Ch. 3) AYEKS c. SOUTH AUSTRALIAN BANKING CO. 21 maintained. Now, as regards that, their lordships ai-e clearly of opinion that an ac- tion of trover may be maintained by a per- son to whom a valid preferential lien has been given under this act. The real effect of the act appears to be this, that it enables a proprietor of sheep to maiie a valid pledge of the vrool of his next clip, although no possession is given. Ordinarily by the common law, although of com'se a mortgage may be given of chattels as well as of land without delivering pos- session, yet a mere pledge cannot be given without the delivery of the possession of the goods. The effect of this act simply ap- pears to be this, that it enables a pledge of wool to be given without a delivery of pos- session; and it enacts that "the possession of such wool by the said proprietor shall be, to all intents and purposes in the law, the pos- session of the person or persons maliing such purchase or advance." Therefore, the per- son who has made the advance is to be deemed to be in possession. That being so, there appears no reason whatever why he should not be able to maintain an action of trover, because there is no doubt at all, that if goods are delivered by way of pawn or pledge to a person who malses advances on them, and then somebody else takes the goods out of his possession and converts them, he can maintain an action of trover. And the true effect of this act appears to be, that the lender is for the purposes of the act to be deemed to be in possession, and to have the same rights in point of law as if he was in possession, and amongst those rights, is the right of maintaining an action of trover if anybody wrongfully converts the wool. Now, the next question, and the more ma- terial question, which was argued on behalf of the appellants, is that Philip Levi, the person who signed his name to the instm- ment of the 23d. of August, 1866, was not the proprietor of the whole of these sheep, and that, therefore, all that could pass un- der this instrument was the interest, what- ever it might be, that Philip Levi happened to have in the sheep.^ * * * Another objection was taken by Mr. Man- isty on the terms of the charter— the clause in the charter which says. It shall not be law- ful for the bank to make advances on mer- chandise. Now, unquestionably, a great many questions might be raised on the ef- fect of that clause in the charter which may be of very great importance, but which also ' Part of the opinion relating to this question is omitted. being of great difficulty, their lordships do not think it necessary to give any opinion upon. There may be a question as to what are the transactions which come really with- in the clause, and whether this particular case does come within it. There may be also question whether, under any circumstances, the effect of violating such a provision is more than this, that the crown may take advantage of it as a forfeiture of the char- ter; but the only point which it appears to their lordships is necessary to be determined in the present case is this, that whatever ef- fect such a clause may have, it does not prevent property passing, either in goods or in lands, imder a conveyance or instrument which, under the ordinary circumstances of law, would pass it. The only defence which can be set up here (there is no plea of illegality) is under the plea of not possessed, that the right of property and the right of possession never passed to the plaintiffs. Their lordships are of opinion, that what- ever other effect it has, it cannot have the effect of preventing the property passing. If that were otherwise, the consequences might be most lamentable, because if the property never passed to them, they could not themselves convey any property to third persons. Transactions of the most honest description might be set aside. They might do what is a very common thing, make ad- vances and take bills of exchange with the biUs of lading attached. If it is to be said that the property in the goods men- tioned in the bill of lading does not pass to them, then any purchaser to whom they might sell the goods under the bill of lading would get no title, and the original owner who had received the full proceeds of the goods, or a large advance upon them, might say, "Oh, the property never passed to the South Australian Bank, and, therefore, it never passed to you." Mr. Manisty admitted that he could find no authority for the prop- osition, that any violation of such a con- dition of a charter would prevent the prop- erty in goods passing to the person to whom an instrument othervrise valid professed to pass it, and their lordships are of opinion, that whatever other . effect the violation of such a condition may have, it has not the effect of preventing the property in the goods passing, or of preventing an action of trover being maintained if there is a wrongful con- version. On the whole, therefore, their lordships are of opinion, that the judgment of the court below was right, and they will humbly ad- vise her majesty that this appeal should be dismissed, with costs. 22 IN RE McGRAWS ESTATE. (Ch. 3 In re McGRAWS ESTATE. In re FISKE'S ESTATE. (19 N. E. 233, 111 N. Y. 66. ISSS.) Appeal from judgment of tlie general term of the supreme court in the fourth judicial department, entered upon an order made Au- gust 20, 1887, which reversed a decree of the surrogate of Tompkins county on settlement of the accounts of Douglass Boardman as sm-viving executor of the wiU of John Mc- Graw, deceased, and as executor of the will of Jennie McGraw Fiske, deceased. Re- ported below, 45 Hun, 354. John McGraw, a resident of Ithaca, died Alay 4, 1877, leaving his only child and heir, Jennie McGraw, who, on the 14th day of July, 1880, intermarried with Willard Fiske, and died September 30, 1881, without Issue, leaving her husband surviving her. John McGraw left a last will and testa- ment, which has been duly admitted to pro- bate by the surrogate of Tompkins county, and of which his daughter and Douglass Boardman, and the survivor of them, were made sole executors. His daughter, Jennie McGraw Fiske, also left her last will and testament, by which she made Douglass Boardman her sole executor, and which has been duly proven and admitted to probate by the surrogate of Tompkins county. Ex- cepting property from about $130,000 to $150,- 000 in value, which came to her by devise and bequest of her grandfather, John South- worth, the title to the estate and property, which formed the subject of disposition by her will, came through the will of her father, John McGraw. The will of John McGraw gave $500,000 in trust for his said daughter, and made her residuary legatee, with full power to dispose by will of all the property left by him. The will of Mrs. Fiske directed that her estate "be converted into money, or available securities, as soon as can be done, having in view its best interests and resiilts." After numerous bequests, among them a bequest to Cornell University of $50,000 in trust, to be expended, so far as necessary, in completing and perfecting the McGraw building of said university; also, to said university $200,000 in trust, to be known as the "McGraw Li- brary Fund,"— the will contained the follow- ing residuary clau.se: "I give, devise, and bequeath all the rest, residue, and remainder of my property (if any there shall be) to Cornell University, aforesaid, to be added to the 'McGraw Library Fund' aforesaid, and subject to the trusts, purposes, uses, and conditions hereinbefore prescribed for said fund." The amount of Jennie McGraw Fiske's estate at the time of her death, as found by the surrogate. Including the ti-ust fund created under the will of John McGraw, which the surrogate held was part of the estate of John McGraw, but which Mrs. Fiske had a right to dispose of by will, was $2,27.5,933.46; legacies to other than Cornell University, $1,121,570; bequests to said uni- versity, $1,154,363.46. The fm-ther material facts are stated in the opinion. PECKHAM, J. The question to be de- cided in this case is whether Cornell Uni- versity, or some other parties, being the resid- uary legatees, or else the heirs at law or next of kin of John McGraw, deceased, or of Jennie McGraw Fiske, deceased, or her hus- band, shall have the property, or any portion of it, bequeathed to the university by the will of Mrs. Fiske. In case the university should be held not to be a competent legatee, the question as to where the property shall go is, as we understand, a matter in which the various parties to the litigation have agreed, and hence the only question we need consider is: First, in regard to the capacity of the corporation to take the legacy. If that should be decided In the affirmative, it would be necessary to discuss no other ques- tion. If, however, it should be held that the corporation had no power to take and hold more than $3,000,000, the second question would be as to whether it was the owner and holder of such an amount at the time of the decease of Mrs. Fiske. Both of these ques- tions are important, and worthy of the most careful and deliberate consideration. The case involves a very large amount of prop- erty, and involves, also, the decision of a question as to the effect of the general stat- utes relating to the acquisition and holding of property by corporations of the class of this university, as the same have been af- fected by the terms of the special charter granted to it. The case has been most elaborately and ably argued by counsel on both sides, and the written briefs submitted to the court by them bear conclusive evidence of the thor- oughness and extent of their researches into the English law on the subject of inortmain and its results, as well as that of oiur own and of the other states of the Union. To examine and comment upon each argu- ment advanced, and to go through the long list of cases cited in this and other states, and in England, would render this opinion of immoderate length, and would not probably be of any gi-eat service. We must be content to give the conclusion at which we have ar- rived, together with the reasons which seem to us controlling, in as short a space as it reasonably may be done. First. Coming to a discussion of the first question, it may be assumed that a corpora- tion, by the common law, had power to take property by devise. Sherwood v. Society, 4 Abb. Dec. 227, 231; 1 Kyd. Corp. 74^78- Grant, Corp. 98. ' Our Revised Statutes provided that every corporation, as such, has power, among other things (section 1, subd. 4), to hold, purchase, and convey such real and personal estate as the purposes of the corporation shall require. CI). 3) IN RE McGRAW'S ESTATE. 2S not exceeding the amount limited In Its char- ter. By section 2 of the same title of the statutes the powers enumerated in section 1 "shall vest in every corporation that shall hereafter be created, although they may not be specified in its charter, or in the act xmder which it shall be incorporated." Section 3 provides that, in addition to the powers enumerated in the first section, and to those expressly given in its charter or in the act imder which it is or shall be incor- porated, no corporation shall possess or ex- ercise any corporate powers, except such as shall be necessary to the exercise of the powers so enumerated and given. 1 Rev. St. pp. 599, 600, §§ 1-3. Under this power to hold, pm-chase, and convey such real and personal estate as the purposes of the corporation may require, not exceeding the amount limited in its charter, the corporation could take property by de- vise, for the word "purchase" includes all means of acquiring property not coming to one by descent or the mere act or operation of the law. The same Revised Statutes, however, in providing for the transmission of real property by will, stated that "every estate and interest in real property descendi- ble to heirs" might be devised. "Such de- vise may be made to every person capable by law of holding real estate; but no devise to a corporation shall be valid unless such corporation be expressly authorized by its charter or by statute to take by devise." 2 Rev. St. p. 57, §§ 1-3. There are other provisions in the Revised Statutes relating to corporations incorporat- ed for purposes of education. It is enacted therein that "the trustees of every college to which a charter shall be granted by the state shall be a corporation." Section 31. "Sec. 36. The trustees of every such college, besides the general powers and privileges of a corporation, shall have power * * * 4. To take and hold, by gift, grant or devise, any real or personal property, the yearly in- come or revenue of which shall not exceed the value of twenty-five thousand dollars." 1 Rev. St. p. 460, §§ 31-37. At the adoption of the Revised Statutes, therefore, the law in this state was that a corporation could hold, purchase, and convey such real and personal estate as the purposes of the corporation should require, not ex- ceeding the amount limited in its charter, but it could not take any real property by •devise. unless it was expressly authorized by its charter or by statute to take by devise. And there was power in the trustees of a col- lege to which a charter was granted by the state, to take and hold real or personal property by gift or devise, provided the in- come did not exceed $25,000 annually. Some time subsequent to the adoption of these statutes, and in the years 1840 and 1841 (chapter 318 of 1840, and chapter 261 of 1841), the legislature passed acts (the latter teing an amendment of the earlier one) by which trusts were authorized to be created by grants, devises, and bequests of property to incorporated colleges or other literary in- corporated institutions in the state, to be held in ti'ust for specific purposes compre- hended in the general objects authorized by their charters. The acts contained no lim- itation as to the amount or value of property which could be thus taken in trust by the corporation. It was held, however, by this covu-t in Chamberlain v. Chamberlain, 43 N. Y. 424, that these acts did not repeal or afCect the general law of the state limiting and restrict- ing the amount and value of property which could be taken and held by literary and edu- cational corporations, and it was therein said that the general laws of the state are in harmony with its policy, which has been uniform and consistent, so far as such policy is indicated by legislation in relation to gifts in mortmain, and the powers of corporations to take and hold property. It was further said that these statutes (those of 1840, 1841) authorized the creation of special trusts in fm-therance of the objects of the corporations named, but that such ti'usts could be created, and full effect given to the acts within the limits imposed by the general laws upon the power of the corporations to acquire and hold property. There being no express repeal of the general provisions of law or repudiation of the uniform policy of the state, the intent of the legislature to do either, it was said, could not be implied. Thus the several provisions of law relating to the property of corporations stood at the time of the granting of its charter to Cornell University by the state in 1865. By chapter 585 of the Laws of that year the legislatm-e incorporated and established the Cornell University. In the first section of the act the following language is to be found: "The corporation hereby created shall have the rights and privileges necessary to the ob- ject of its creation as declared in this act, and in the performance of its duties shall be .subject to the provisions and may exer- cise the powers enumerated and set forth in the second article of the fifteenth chapter, title 1, of the Revised Statutes of the state of New York." The second article above alluded to is enti- tled "Of the Powers and Duties of the Trus- tees of Colleges," and is to be found already referred to (supra) as 1 Rev. St. p. 460, §§ 31-37. It is subdivision 4 of section 36 which authorizes the ti'ustees to take and hold real or personal property by gift or de- vise not exceeding the value therein stated. Section 5 of the charter reads as follows: "Sec. 5. The corporation hereby created may hold real and personal property not exceed- ing three millions of dollars in the aggi-e- gate." These provisions in the charter, together with the statutes above alluded to, must be examined for the purpose of discovering, if 2i 11^ BE McGRAWS ESTATE. (Ch. 3 possible, -wliat was the legislative intent to- wards this corporation regarding property. The learned counsel for the appellant claims at the threshold that the provisions of the Revised Statutes as to the incorpora- tion of colleges (supra), with a single excep- tion, were merely intended to apply to insti- tutions of learning incorporated by the re- gents of the university of the state under the general laws of the state. He argues that the regents had po^yer to incorporate a college by virtue of the provisions of the act (chapter 82) of 1787, the provisions of which were re-enacted in 1813, and incorporated subsequently into the Revised Statutes; and at that time, and for many years thereafter, there was no other way of incorporating a college unless by a special act of the legis- lature. Hence, he says, these provisions of law, general in their nature, applied to cor- porations which were incorporated by the regents, and were never supposed to apply to corporations incorporated by special act, unless expressly made applicable in the spe- cial act. The counsel is right in his statement as to the fact when the act was passed. At that time there was no general law for the incor- poration of colleges or other institutions of learning other than by the regents, and when they granted a charter there can be no doubt that its provisioiis were affected by the act as contained in the Revised Statutes. But the lan- guage therein used (section 31), that the trus- tees of every college to which a charter shall be granted by the state shall be a corpora- tion, is general in its nature, and it would seem to include all cases embraced within its language. That it is superfluous to apply it to the case of a corporation which becomes such by virtue of the very act which incor- porates it is not a conclusive answer. It is an argument from the point of view that it was unnecessary, but because it was unnec- essary is not always, perhaps even generally, an argument against the applicability of a statute to a certain condition of things. It is alike unnecessary with regard to colleges or academies which were incorporated by the regents under the power granted them in the Acts of 1787 and 1813, both of which acts expressly granted them power to in- corporate colleges and academies by giving them a charter. When they did so the col- lege or academy became a corporation by virtue of those acts which empowered the regents to incorporate it. The section (31) was therefore unnecessary in both cases, and yet it was adopted, and in its language it embraces all colleges to which a charter is granted by the state. The thirty-sixth section provides that the trustees of every such college shall have power, among other things (subdivision 4), "to take and hold * * * any real and personal * * * property, the yearly income," etc. I think it plain, therefore, that the pro- visions contained in that tit\e would be ap- plicable to the Cornell University, altliough specially chartered by the state, unless in- consistent ijrovisions were to be found there- in. The charter, however, in so many worda makes this title applicable to the university. See section 1 of the charter, part of the lan- guage of which is quoted supra. It is true that it states the corporation, in the performance of its duties, shall be sub- ject to the provisions, and may exercise the powers, enumerated in the title mentioned, among which is the right to take and hold real and personal property. But the title itself is headed, "Of the Powers and Duties of the Trustees of Colleges," and among those powers and duties is the right above men- tioned. I do not think that the use of the words, "in the performance of its duties," would in any wise exclude the application of this fourth subdivision of section 36, and we must look elsewhere for such exclusion if it is to be excluded. That it is to be excluded all admit, but the exclusion is founded upon a special provision in the char- ter itself which is whoUy inconsistent with its continued applicability. The subdivision confines the taking and holding by gift, etc., of real or personal property, to a yearly in- come not exceeding in value ?25,0(X), while the charter .permits it to hold real and per- sonal property to an amount not exceeding $3,000,000 in the aggregate. Both sides admit that this subdivision in question is not applicable; the respondents, because an inconsistent provision in the char- ter expunges it, while the appellant claims that, even if there were no inconsistent pro- vision in the charter, it would still be inap- plicable, because the statute only applies to corporations incorporated by the regents. The provisions of the charter ai'e inconsis- tent, and still we must look at all the other statutes above cited for the purpose of dis- covering what the legislative intent is. Look- ing at the General Statutes, we find cor- porations have power to purchase and hold property necessary for the purposes of their incorporation, not exceeding the amount lim- ited in their charter; but they cannot take by devise unless expressly authorized by their charter or by statute so to take. Then the Revised Statutes prohibit corporations from possessing or exercising any corporate powers, except such as are enumerated or are expressly given to them by their charters, or such as shall be necessary to the exercise of the powers so enumerated and given. The statutes also allow the trustees of a college to take property by gift or devise, not ex- ceeding a certain annual income; and then come the Acts of 1840, 1841, and then the charter of this university. The argument of the learned counsel for the appellant is, as 1 have said, based upon the theory of the utter inapplicability of the act of the Revised Stat- utes as to colleges, and then he claims that the Acts of 1840 and 1841 bestow a capacity Ch. 3) LN" liE McGRAW'S ESTATE. 2S to take property by will, not exceeding the amount limited in the charter of the corpora- tion; and he claims also that in this case there is no limitation of the power in the cliarter of the university to take real or per- sonal property to any amount, and the only limitation there is consists o:Pa limitation up- on the power of holding more than $3,000,000, in the aggregate. He thus obtains the power to take an unlimited amount of property by virtue of one act, and a limitation is only placed upon its power to hold by another act, and that is the organic act of incorporation itself. I do not think such an interpretation of the statutes can be sustained. I think the fifth section of the charter gives the measure of the power of the university to take as well as to hold property. The language is an authority as well as a limitation. It is an authority to hold more than the Revised Stat- utes permitted, but it shall not be permitted to hold more than a certain specified amount. And, if there were nothing said on the sub- ject of property in the charter, I think the Revised Statutes, as to the limitation for col- leges, would apply. Reading the language in the charter, it is ,difficult to imagine a holding without a previous taking of property, and the counsel for the appellant admits that, if there were no other statute providing for a taking of property, the language of the fifth section of the charter would necessarily im- ply a right to take in order to hold. I do not think that his claim to derive an unlim- ited capacity to take by virtue of the Laws of 1840 and 1841, when construed with the other statutes and with the provisions in the charter, can be upheld as a fair exposition of the legislative intent upon the subject. The statutes of 1840 and 1841 were passed for the purpose of authoriziag the creation of certain special trusts in connection with these edu- cational institutions, which could not have been legally created prior to their passage, and their object did not in the least infringe upon the general laws of the state or its poli- cy. As has been said, their passage did not repeal those general laws limiting the amoimt or value of property which corporations might take and hold. Because a special stat- ute contained provisions upon the subject of the property of the corporation thereby incor- porated which were inconsistent with the general provisions contained in the Revised Statutes relating to the same subject, I do not think the effect was not only to render the general law inapplicable, but also to twist the provisions of the law of 1841 in relation to the special trusts spoken of into a permission outside of and beyond the language of the charter to take property without any limita- tion as to amount or value. That might have been the effect if the charter had re- pealed those general provisions as to this corporation, and had made no other provision regarding it. Under such circumstances, the act of 1841 could have been referred to as permitting the coi-poration to take property^ by devise and in trust to an extent unlimit- ed, but when the same language which ren- ders the general law inapplicable also gives a; power to hold property to a certain limited extent, it seems to me that such a power in- cludes the power to take up to that sum, and. limits it accordingly. It is said that if the power to take an unlim- ited amount of property, and to hold but ». certain sum, were contained in the same law,, there could be no doubt upon the question of the power to take. That may be so, for in. that case the legislative will would have been, announced in terms which could not be mis- understood. But there is a great difference between the two cases. The question is al- ways one of legislative intent, and the in- quiry is whether the statute of 1841, provid- ing for the creation of trusts, really applies in this instance to this university, so far as an unlimited capacity to take property is con- cerned. For the reasons already stated, 1 think it does not. Looking for a moment outside of and be- yond the statute laws of the state, and in or- der to strengthen his position regarding the- true construction to be given that law as to the material distinction, in the case at least of a corporation, between the power to take and the power to hold property, the counsel for the appellant has made a most able and' learned argument. Its outlines are, in sub- stance, as follows: A corporation, at com- mon law, could take and hold property by de- vise. At an early stage in the history of the law of England, relating to the power of corporations to hold real property, and while the feudal system stiU prevailed, it was enact- ed that no man should alien his feud to a cor- poration under penalty of a forfeiture there- of to his next superior, of whom he held the land, and, in default of such superior insist- ing upon the forfeiture, then his superior might do so, and thus on until the king, as the general superior and lord of all, was reached. But,' in case the forfeiture was not insisted upon, the corporation, which had. taken a defeasible title to the land, could hold it as against all the world. 4.- He therefore insists that this distinction be- tween taking and holding strengthens his claim that the use of the word "hold" in the charter was intentional and for the specific purpose of permitting the corporation to "take" an unlimited amount of property and to hold only the amount specified. No sound reason for giving such unlimited power to take, while limiting the power to hold, can, as it seems to me, be stated; and, if such were the intent, I think it would have been plainly stated in the charter, instead of trusting to such a conjectm'al application to be given to another statute. The counsel cites about all the writers up- on the subject of corporations, and they have all adverted to this distinction as existing in. relation to the English corporations subject; 26 m KE McGRAW'S ESTATE. (Ch. 3 to the mortmain statutes, and they state that licenses to hold in mortmain were granted to such bodies, but -nithout such licenses they took the title to the real property aliened, subject only to the right of the superior lord to enter and take the land under the power of forfeiture. The only penalty, therefore, which a corporation risked when it took lands without a license in mortmain was that of a forfeiture of the land to the next superior of the grantor, and so on up to the king; and the counsel claims that in this state, in the case of a corporation with un- limited power to take, but not to hold more than a certain amount, the penalty for hold- ing more is that the state, representing the whole people, and standing in tliis respect in lieu of the king (there being no mesne lords), can forfeit the charter of the corporation, and thus prevent the further holding. And, assuming this to be the fact, he uses it as strengthening his argument as to the exist- ence of this clear and material distinction between taking and holding property. The further claim is then made that, as title to the property has vested in the cor- poration, which, in holding it, has become subject to the forfeiture of its charter, the heirs or next of kin of the testator have no more right to raise the question than any oth- er third parties who have no interest therein. It is said that it is a matter for the state alone to take cognizance of, and until it does the corporation holds the property, however much it may transcend the limitation pre- scribed in its charter. The counsel states accurately the law of mortmain in England, and its consequences of possible forfeitm'e of the estate granted, and, until forfeiture, the vesting of the title in the corporation indefeasible, except by the re-entry of the person entitled to take it by reason of the forfeiture. But the circum- stances under which lands are held by citi- zens of New York, where their tenure is so wholly different from that which prevailed in England when the early tiortmain acts were enacted, render any argument in re- gard to those acts and their effect totally in- applicable to the case of a corporation of this state. Taking the law as it exists in our statutes, including the special provision upon the subject in the charter of the uni- versity, it seems to me that the provision therein limiting the holding of property is, as I have said, a restriction also upon the power to take in excess of the specified amount. As, at common law, a corporation could take real property in the same way as an individual, the consequence was that, in England, large landed possessions were held by religious corporations, and, by reason of alienations of real estate to them, the serv- ices due by the vassal to the lord were pai- tially, if not totally, pai-alyzed, and the chief lords lost their escheats. This was a con- stantly growing and alarming evil. To rem- edy the difficulty, the first mortmain act was placed in JIagna Charta, which declared all such alienations to corporations entirely void, and that the lands should revert to the lord of the fee. It was held, however, that the reversion must be accomplished by an entry, and then and from that time there was a forfeiture, the corporation having taken the title and held the property until such forfeitui'e by re-entry. Shelf. Mortm. 8, 34; 1 Kyd. Corp. 81; Grant, Corp. 106. Other statutes upon the subject were sub- sequently enacted, all for the pm-pose of pre- venting the great accumulation of real prop- erty in the hands of corporations, and they aU provided substantially for a re-entry on the part of the next superior lord whenever lands had been aliened in mortmain; and, until such entry enforcing the forfeiture, the corporation held the lands. There was one law, directed against superstitious uses {23 Henry VIII. c. 10), which provided that the grant to such uses for more than 20 years was absolutely void, and the estates thus aliened would have gone to the grantor of his heirs, excepting for a provision, subse- quently made, giving such estates to the king. Wilm. Notes, 9, 10, in Attorney Gen- eral V. DovsTiing, variously reported: Amb. 550, 571; 1 Dick. 414; 3 Ves. 714; 5 V.es. 300; 8 Ves. 250. The mortmain statute (9 Geo. II. c. 3G) renders all devises to char- itable uses void (Shelf. Mortm. 118-120). The nature of the tenure of real property at the time of the passage of the early mort- main acts in England bears no resemblance to the tenure by which a citizen of this state holds lands. Here there Is no vassal and su- perior, but the title is absolute in the owner, and subject only to the liability to escheat. Const. N. Y. art. 1, § 13. The escheat takes place when the title to lands fails through defect of heirs. Id. § 11. A devise to a corporation which is forbid- den to take (or forbidden to hold, if the word, under the circumstances of the case, is construed to include a taking also) does not, therefore, give a title subject to the right of some superior to claim a forfeiture of the land; but, if it be in violation of a statute, I think tlie devise Is void, and the land de- scends to the heir or residuary devisee. We have not, in this state, re-enacted the statutes of mortmain, or generally assumed them to be in force, and the only legal check to the acquisition of lands by corporations consists In those special restrictions con- tained in the acts by which they are incor- porated, and which usually confine the ca- pacity to purchase real estate to specified and necessary objects. 2 Kent, Comm. 282. Of course, the restrictions contained in any general law, if applicable, must also be re- ferred to. There is, by reference to our laws, no such necessary and universal distinction between taking and holding property by corporations as is seen in the laws of England relating to alienations in mortmain. Whether the legis- Ch. 3) IN KE McGUAWrf ESTATE. 27 latui-e, when using language pi-oviding for a limitation upon holding property, meant to permit an unlimited taiiing, is a question of legislative intent; and I think the general in- ference would be, in the absence of some plain and conti-oUing circumstance to the contrai-y, that the legislative body meant 1o limit a taking as well as a holding beyond the specified amount. As is said in the Chamberlain Case, this is in accordance with the policy of the state, a policy which has been recognized as existing for many years, and which the courts have concm-red in approving and carrying out. I do not think the statute (Laws 1779, c. 25, § 13) touches this case. It provided that the ab- solute property of all lands, etc., and all rents, franchises, debts, dues, duties, and services, escheats, and forfeitm-es, which, be- fore the 9th of July, 1776, vested in or be- longed or were due to the crown of Great Britain, were, and forever after the 9th day of July, 177C, shall be. vested in the people of the state, in whom the sovereignty and seigniory thereof are and were united and vested. The counsel for the appellant does not claim that this property was itself forfeited to the state, if the state should choose to en- force the forfeitm-e. His claim is, as I un- derstand it, that if the university exceeded its limitation by holding more property than it was allowed by law to hold, a cause of forfeitm-e of the charter was thereby created, and, that in enforcing such forfeiture after the payment of the debts of the corporation the rest of the property would (as he in- sists) probably go to. the state, because there would be no living claimant to it who would have any right to acquire it. A forfeiture the state may claim and may enforce at pleasure, when the occasion arises, but it is a forfeiture of the charter, and not a forfei- ture of the property held by the corporation. It is further claimed that this distinction be- tween the right to take and the power to hold property is one which has been ad- mitted and enforced in the courts of Eng- land, of this state, and of the other states of the Union for a long number of years, and that there is no reason why effect to such a distinction should not be given in this case; the result being, as is stated, that tho corpo- ration has an unlimited right to take proper- ty, and also an unlimited right to hold it as against any one but the state in its capacity of sovereign. There is undoubtedly a dis- tinction between the right to take and the power to hold property under some circum- stances, the only question being whether the legislature had such distinction in mind, and meant to provide for it in the ease in hand. It is said that an alien has the right to- take property by purchase, but he cannot hold it as against the state. That is so. He takes, however, a defeasible title, good as to all but the sovereign power, which must take it up- on office found or by escheat. Wright v. Saddler, 20 N. Y. 320. In such case it is not exactly an accurate description of the alien's title to simply say that he can take but cannot hold. That is a contradiction in terms. If he take, he must hold, if for but a fractional part of a second of time. The expression is but a short one for the statement that he cannot hold, as against the claim of the state, where properly made and enforced. The same exijression is used in the case of a corporation under the mort- main laws, that it can take but not hold; the meaning being that it cannot hold as against the claim for forfeiture wlien made by the next superior lord of the grantor of the lands. That the words lose all their meaning when wrenched from the circumstances un- der which they were used, and applied to corporations existing by virtue of the laws of this state, seems to me a plain proposition. The counsel has, however, with great in- dustry and research, cited a number of cases from our own courts and those in other states, where this distinction, he claims, has been admitted, and in cases, too, where the principles involved were similar to the case at bar (one or two being, he says, precisely like it), and where it has been held that in such cases, although the corporation was violating the law of its being, yet no one but the state could take advantage thereof. I think that, with the exception of one case, they were aU entirely different from this one, and the decisions were based upon totally different, and probably a perfectly unassailable, ground. The principal case, or a least one of the early ones, is that of Leazm-e v. Hillegas, 7 Serg. & E. 313, which arose in Pennsylvania, and was decided in 1821. The restriction in the charter of the Bank of North America was that the bank should not purchase and hold property excepting under circumstances therein stated. The directors of the bank accepted from their grantor, WiUiam Henry, a conveyance of his land (not within their specified powers) at a fair price, in payment of a debt bona fide due. The question was whether the corporation could hold and con- vey a title. Tilghman, C. J., said: "The re- striction is that the bank shall not pm-chase and hold. Purchasing and holding are very different things, and the consequences of each are very different. To purchase and hold might have been thought dangerous, but to purchase subject to the statutes of mort- main, which authorized the state to appro- priate the land to its own use, could be at- tended with no danger." The com't there held that some portions of the mortmain laws of England were in force in Pennsylvania, to the extent of permitting the state, as the sovereign lord, there being no mesne lords, to enter and claim the for- feiture; and that, until the state did so, the title of the corporation was good, and it 28 IN RE McGllAWS ESTATE. (Ch. 3 could convey such a title to its grantee. No such laws have been in force in this state. Under the modern acceptation of the lave regarding corporations, this case could prob- ably be supported on an entirely different ground, viz. that it was an executed con- tract or conveyance, upon a good consider- ation, and that the gi'antor could not be heard to dispute his own grant under the circumstances; and that no one could take advantage of this violation of its charter by the corporation, excepting the state, which could proceed to forfeit the charter because thereof. The case is no authority in this state for the proposition that none but the state can interfere, nor is it of any im- portance upon the question as to how ma- terial it is to note the absence of an express limitation in words upon the power to take property under the charter of the university. Baird v. Bank, 11 Serg. & R. 411, is a some- what similar case, and decided also upon the authority of Leazure v. Hillegas, supra. Goundie v. Water Co., 7 Pa. St. 233, decided in lS-17, refers to the Leazure Case. It was also a case where the contract was on a good consideration, and the company had the right to contract for the land and pay for it, and a deed for value would vest in it a good title, subject to the right of the state to interfere, etc. The case of Runyan V. Coster, 14 Pet. 122, decided in 1840, upon appeal from the circuit court in Pennsyl- vania, was decided with express reference to the statute of that state, passed April 6, 1833, relative to escheats, which permitted the corporation to retain the title, subject to be divested at any time by the common- wealth. The decision was put upon the ground of the act of 1833, and the doctrine of the supreme com-t of Pennsylvania in the Leazure Case. These are the cases cited from the Pennsylvania courts, and it is plain they furnish no support for the contention in this case, in the absence of those laws of mortmain upon which they were founded. There is one case, however, which has been decided by the supreme court of the United States upon the question of who may take advantage of a violation of the charter in a relation to the power to hold property, which comes very near the case at bar. The decision of that court goes quite a distance towards sustaining the contention of the appellant's counsel, although there was an- other ground upon which the decision could rest. The very great respect which we all feel for any decision of the federal court of last resort, and for any opinion given by its learned and able judges, even, in cases where it is not binding upon us, renders it necessary to examine the case with some care. The case is Jones v. Habersham, 107 U. S. 174, 2 Sup. Ct. 336. The headnote is: "Restrictions imposed by the charter of a corporation upon the amount of property it may hold cannot be taken advantage of collaterally by private persons, but only in a direct proceeding by the state " The testatrix, a resident of the state of Georgia at the time of her death, devised and bequeathed to the Georgia Historical Society certain land for the purposes of maintaining a historical society, etc. The cor- poration was incorporated in 1839, and had power to purchase, take, hold, etc., lands and tenements, provided the clear annual income of such real and personal estate should not exceed the sum of $5,000. It was admitted that the net income of the corporation from property held by it at the time of the death of the testatrix was between $3,000 and $4,- 000, and that the income of the property be- queathed to it by her will would add $7,000 to that income. The appellants, who were the heirs at law and next of kin of the tes- tatrix, claimed that the gift was void in toto, as it gave more than the corporation was allowed to take or hold. The court, per Gray, J., stated the answer to such proposi- tion in the language of the headnote above quoted, and, without argument, referred in support of such doctrine to five cases, viz.: Runyan v. Coster, 14 Pet. 122, 131; Smith V. SheUey, 12 Wall. 358, 361; Bogardus v. Trinity Chm-ch, 4 Sandf. Ch. 633, 758; De Camp V. Dobbins, 29 N. J. Eq. 36; Davis v. Raih-oad Co., 131 MasH 258, 273. Upon looking at those cases I have been unable to find that they decide the principle they are cited to sustain. It seems to me that the question was not really and fully presented, discussed, or decided in any of them. The first case, Runyan v. Coster, 14 Pet., supra, has already been cited and sufli- ciently discussed. It was decided upon the express statute of Pennsylvania, and can be no authority for the general doctrine stat- ed by Mr. Justice Gray in his opinion. The next case is Smith v. Shelley, 12 Wall. 358- 361. The bank in that case had been in- corporated by an act of a territorial legisla- ture, where a law of congress was in force providing that no act of such a legislature incorporating a bank should have any force until approved by congress. The bank had power under the territorial act "to buy and possess property of every kind." Land was sold to it for a money consideration paid by it. Mr. Justice Davis, in his opinion, said: "It is insisted, however, as an additional ground of objection to this deed, that the bank was not a competent grantee to receive title. * * * It could not legally exercise its pow- ers until the approval of congress was ob- tained, but this defect in its constitution can- not be taken advantage eft collaterally. * * » Conceding the bank to be guilty of usurpation, it was still a body corporate de facto exercising at least one of the functions which the legislature attempted to confer up- on it, and in such a cast the party who makes a sale of real estate to It is not in a ■Cli 3) IN EE McGRAWS ESTATE. 29 position to question its capacity to take the title after it has paid the consideration for the purchase." This, as it seems to me, is also very far from authority for the proposi- tion for which it is cited. The gi-antor dealt with it as a corporation, received its money, and should not be heard to deny or question Its existence. The next case cited by the learned judge is Bogardus v. Trinity Church, 4 Sandf. Ch. ■633 (vice chancellor's opinion, 720-758, as to point in question). It was provided that the church could not hold more than an income of £500. The fact was that when the gi-ant in question was made it did not hold, with the grant, nearly as much as it was allowed. Then the vice chancellor said, if it did, it was a question between the corporation and the sovereign power, in which individuals have no concern, and of which ihey cannot avail themselves in any mode against the corpora- tion. This was mere obiter. The question was not involved nor decided. It was not a case of a devise to a corporation holding at the time of the devise more property than the law permitted, and where the question was whether such devise was good, and, if bad, whether the property (not devised by a Talid devise) passed to the heirs. The defense of the defendant was, among ■others, adverse possession, and that defense prevailed. The case referred to by the vice- chancellor (Humbert v. Trinity Church, 24 Wend. 587, 604, 629) did not decide the ques- tion either. The ground of the decision was that the plaintiff's claim was barred by the statute of limitati&ns. Oowen, J., says (page 605): "Admit that the law will cast no title -on the corporation, the answer, in the words •of the statute, is equally fatal. You have been out of possession for more than twenty years, and are thus disqualified to main- tain an action to recover your land against us or any other." It was a decision upon a question of adverse possession. Senator Furman (page 029), in his opinion, assumes from the evidence that the real es- tate, when received, counting all defendant ever had, did not amount to the limitation of £500. He adds, in giving another view of the case, that the "restriction is a mere ques- tion of governmental policy, and individuals, as such, have nothing to do with it, and no control over it. That it is only voidable at the instance of the supreme power." He cit- ed no authorities, and the question was not before him. The case is only authority for the proposi- tion that a corporation can insist upon a title to property by adverse possession, which when proved is as potent to close the mouth -of a claimant to the property in the case of a corporation as in that of an individual. To same effect, Harpending v. Dutch Chtu-ch, 16 Pet. 455; Bogardus v. Trinity Church, 4 Paige, 178. Then comes the case of De Camp v. Dob- bins, 29 N. J. Eq. 36, which was a devise to a charitable corporation claimed to have been restricted to a holding of property to the amount of $2,000 annual value. The chan- cellor found that by a later statute the re- striction did not exist. He then gave a dic- tum that if a corporation takes land by grant or devise, in trust or otherwise, which by its charter it cannot hold, its title Is good as against third persons and strangers; the state alone can interfere. This dictum is opposed by another distin- guished judge of New Jersey (Chief Justice Beasley), who, on appeal to the court of er- rors and appeals in the same case, took occa- sion, in delivering the unanimous opinion of the court, while affirming the judgment be- low, to dissent from any such view of the law. I shall have occasion to refer to the case again. De Camp v. Dobbins, on appeal, 31 N. J. Eq. 671, 690. The New Jersey case cannot, therefore, be regarded as the least authority for the main proposition under dis- cussion. The last case cited by the learned justice is that of Davis v. Railroad Co., 131 Mass. 258- 273. The case decides that a railroad com- pany had no power to guaranty the payment of the expenses of a musical festival, al- though it was expected that profits would re- sult to the railroad company therefrom. Incidentally, and as part of the general argument, the court, in the opinion at page 273, mentions the doctrine contained in the Leaaure Case, supra, and in Railroad Corp. V. Evans, 6 Gray, 25. Neither case decides the question, and it was not Involved in either. This completes the examination of the cases cited in the opinion in Jones v. Habersham, and I think that it cannot be said that they really furnish any very se- cure foundation for the doctrine contained in that case, and I think the doctrine is op- posed to the principle of the Chamberlain Case, supra, decided by this court. The other cases cited in the printed argument of the counsel for the appellant are mostly cases where a corporation has contracted with parties on a valid consideration, and where a conveyance has been made and then it is sought to raise the question as to the power of the corporation to take or convey a title, and it has been held that in such cases of an executed contract, if the corporation has violated the statute, the parties seeking to set up such violation would not be heard, and in such case none but the state would be. That one who contracts with a coVpora- tion shall not, under such circumstances, be heard to raise the question, is, in substance, the principle decided. Such are the cases, in substance and prin- ciple, of Cowell V. Springs Co., 100 U. S. 55; Hough V. Land Co., 73 111. 23; Alexander v. ToUeston Club, 110 lU. 65; Barnes v. Sud- dard, 117 111. 237, 7 N. E. 477; California State Tel. Co. v. Alta Tel. Co., 22 Cal. 398; Water Co. v. Olarkin, 14 Cal. 544; Hayward V. Davidson, 41 Ind. 212; Baker v. Ne£E, 73 30 IN HE McGRAWS ESTATE. (Ch. 3 Incl. 08; Railroad Co. v. Lewis, !3H Iowa, 101, i N. W. 842; Land v. Coffmaa, 50 Mo. 243; Chambers v. City of St. Louis, 29 Mo. 5T6; Barrow v. Nashville & C. Turnpike Co., 9 Humph. 304; P.alior v. Loan Co., 36 Minn. 1S5, 30 N. W. 404; Land Co. v. Bushnell, 11 Neb. 192, 8 N. W. 389. I have examined all of these cases, and while the facts are, of course, not precisely similar, yet in not one of them does the fact exist of a devise of property to a corporation which it cannot hold, because the limitation has been reach- ed provided for by statute, and, of course, no doctrine that in such a case the heirs cannot claim the property is advanced. In most of them the court loolis upon the question as one of a forfeiture of the charter on account of a violation of some limitation therein contained, and in such case it is said, none but the sovereign can raise such ques- tion. The case of Hayward v. Davidson, 41 Ind. 212, was that of a devise of real estate to county commissioners for the use of the county. The court held that the county was authorized to acquire and hold title to real property for some pxu-poses, and it could not be made a question by any one, except the state, whether or not real estate acquired by such county has been thus acquired for au- thorized purposes or not; that the title passed under the power of the county to take real estate for some purposes. But the court also said if the charter or the law has forbid- den a corporation to take, then a deed or de- vise passes no title. In the case at bar, where the statute au- thorizes the corporation to hold not exceed- ing a limited amount, is it not the same thing, in substance, as a prohibition against holding and, therefore, a prohibition against taking any more'.' And when the limit is reached, is it not the same as an original pro- hibition against taking any? In Chambers v. City of St. Louis, supra, the court held,, al- so, that there was a right in the city to take and hold lands, and if there were a capacity ill the vendor to convey, so soon as there was a conveyance there was a complete sale, and if the corporation, in purchasing, vio- lates or abuses the power to do so, that is no concern of the vendor or his heirs. It is a matter between the state and the city. This case rests upon the same principle above alluded to. In the case of Vidal v. Gtrard's Ex'rs, 2 How.' 127, the trusts created by the will of Stephen Girard were held valid, and the court said that in such a case, if the corpora- tion were incompetent to execute them, the heirs could not take advantage of such fact, as that could only be done by the state by quo warranto or other judicial proceeding. This is npon the ground that the tnist was a valid trust, and if so, and the corporation, as such, had no power to execute it, the trust did not, for that reason, fail, but upon the failure of the corporation, for lack of power, to execute it, a court of equity would ap- point a new ti-ustee. Of course, the heirs had no interest in the question when once the trust was declared valid, whether the corporation was exceeding its power in tak- ing upon itself the execution of the trust or not. They had no title to or any further in- terest in the property. They stood, there- fore, in respect to the corporation, as any other stfangera. The case does not aid the appellant upon the matter under review. I have not yet referred to all the cases cit- ed by the indefatigable counsel for the ap- pellant, but I have read them all and in not one is the question fairly up and decided in the way he asks the court to decide this case. The cases decided by the supreme court of the United States, known as the "National Bank Mortgaging Cases," are cited to sustain the view of counsel. Bank t. Whitney, 103 V. S. 99; .Fortier v. Bank, 112 U. S. 439, 5 Sup. Ct. 234. They were cases where the bank took a mortgage from a party to secure futm'e ad- vances (against the act of congress), which advances it subsequently made, and for the non-payment of which it attempted to fore- close the mortgage, when the mortgagor set up the violation of the act. The court held that the act did not make the security void, and that the government meant that the on- ly penalty should be the right of the govern- ment to proceed against the bank for a judg- ment of ouster and dissolution. Certainly the party who had contracted with the bank, and had obtained its money on the faith of the security, had no equity in his claim. It is not, however, in the least analogous to the subject under discussion. Yet, even in that case, this court held that the mortgage was void because taken in violation of the nation- al banking act (Crocker v. Whitney, 71 N. Y. 161), and it was stated, as the undoubted law of this state, that a contract made in vi- olation of a statute is void, and it is immate- rial that it is not so declared in the statute itself, and that a sectirity taken in violation of a statute is void. As the case involved the construction of an act of congi-ess an appeal was taken to the federal supreme court, where the judgment was reversed and the penalty for a violation of the act was held to consist in the right of the government to proceed against the bank for a forfeiture of its charter, and the securi- ty was held valid. The counsel refers to the general doctrine of ultra vires in respect to corporations, and shows that, as matter of fact, corporations have power to violate the law of their exist- ence, or, in other words, to do wrong; and he cites Bissell v. Railroad Co., 22 N. Y. 259; Arms Co. v. Barlow, 63 N. Y. 63; Bank v. Savery, 82 N. Y. 292; Rider Life-Raft Co. v. Roach, 97 N. Y. 378. The theory upon which the plea of ultra vires Is examined is that it will not, as a gen- eral rule, prevail whether interposed for or against a corporation, -s-hen it will not ad- Cb. 3) IN HE McGRAW'S ESTATE. 31 vance justice, but will accomplish a legal wrong. See above cases. I do not perceive that any assistance ac- crues to the appellant from a presentation of this doctrine. There is no question between these parties of a contract nature, nor any fact which ought to preclude the respondents from setting up any legal bar to the right of the corporation to take title to property which they claim either as heirs-at-law or as lega- tees or devisees. The cases of the Elevated Railroad Co., 70 N. Y. 327, 338, and More v. Railroad Co., 108 N. Y. 98, lOi, 15 N. B. 191, are cited to show that none but the sovereign can talve advan- tage of a forfeiture of the charter, and that must be in a direct proceeding against the cor- poration. The principle is undenied. But in a case like this it is no forfeiture that is be- ing insisted upon. It is simply a question of title to the property, and, provided it has not been legally devised or bequeathed, it nec- essarily vests in the heir or next of kin. But it is said that where property is given to a corporation which has power to take or hold under some circumstances, the title vests in the corporation, for otherwise the state would never obtain the right to forfeit even the charter for a violation thereof. The argument is, the corporation would answer a claim to forfeit the charter by the fact that the charter precluded it from taking such property, and, therefore, as it could not, It had not done so. I do not see the force of the argument. The charter may preclude the rightful taking of the property by the cor- poration, and may prevent the legal title from vesting in it, but that has nothing to do with the fact that, nevertheless, the corporation has, as a physical act, taken the property and may be insisting- upon its right to keep it as matter of law. In such case can there be any doubt that the corporation has taken and is holding the property as its ovra and in de- fiance of the charter, and that it may be pun- ished by having its charter forfeited, al- though the rightful owner of the property may thereafter obtain his own? The fact that he does obtain it is no answer to the other fact that the corporation had taken it, nor is it any legal answer to the claim of for- feiture of the charter, on the part of the state, that it was unsuccessful in continu- ing to hold the property against the charter provisions. Although we never adopted or enacted the English statutes of mortmain, yet in this, as in other states, we have a decided mortmain policy. It is found in our statute in relation to wills, prohibiting a devise to a corporation unless specially permitted by its charter or by some statute to take property by devise. "It is a statute of mortmain, resting on a mortmain policy as distinctly as any act of the British parliament. * * * The necessi- ty is recognized of forbidding the acquisition by will, unless the legislature, in granting the charter, and in fuU view of the reasons for so doing, think proper to confer the power in express terms. * * '■ Nor is this neces- sity by any means a fanciful cue. It is emi- nently praiseworthy to give in the interest of charity and religion. But in the last hom-s of life exaggerated impressions of charitable or religious duty often obscure the judgment of men and subject them to undue influence and persuasion. Against these the statute is intended to guard, because it is in behalf of associations incorporated for pious and be- nevolent purposes that the sentiments of men in such situations are most generally ap- pealed to. The enactment is, therefore, pro- hibitory, and it ought to be expounded and ap- plied in that sense." Per Comstock, C. J., in Downing v. MarshaU, 23 N. Y. 366, 387. "Judges have given the widest possible scope to statutes in restraint of the disposal of property in mortmain, and have been astute in their arguments for the application of such statutes to cases as they arose." Per Gibson, 0. J., Hillyard v. MUler, 10 Pa. St. 326. The courts ought not to impute an "in- tent to the legislature not clearly expressed in direct hostility to the traditions and policy of the past. * * * Claiming property and seeking the aid of the court to reach it, the corporation can rely only on the warrant and authority conferred by law, and cannot claim in transgression or excess of that authority. * * * Doubtless, the restriction upon cor- porations is a governmental regulation, and one of policy, and to be enforced by the government, but an individual whose inter- ests will be affected by a transgression of the rule, may assert and insist upon the limita- tion as a restriction upon the power of the corporation to take." Per AUen, J., in Cham- berlain v. Chamberlain, 43 N. Y. 424-439. Under our general statutes upon the sub- ject of the right to take or hold property by corporations, and reading them in connec- tion with the provisions of the charter of the university, we should be astute in our argu- ments against the application of the mort- main statutes instead of in favor of them, if we should decide that the language of the charter did not apply as well to a taking aa of a holding of the property beyond the ex- press limit. There can be no doubt that it is the law, in this state at least, that if there be a pro- hibition against the taking of property be- yond a certain amount or value, a devise or bequest to a corporation of property which will exceed the amount or value which the corporation is permitted to take, will be void, for the excess. This is expressly decided in the Chamberlain Case, and we thinli it was rightly decided. Nor is there any doubt that in such a case the heirs or next of kin can raise the question. This was also decided in the same case. See, also, Wliite v. Howard, 46 N. Y. 144. When we come to the con- clusion, therefore, that this university is by law precluded (or was precluded at the time of the death of Mrs. Fiske) from taking more IX EE MoGRAWS ESTATE. (Cli. a than the amount of property limited in its charter, we bring the case precisely within the rules laid down in tlie cases just cited. The language of Chief Justice Beasley, in tlie case of De Camp v. Dobbins, 31 N. J. Eq. COO, is very appropriate here. He says: "Nor can I assent to the other proposition that if, as the contention assumes, this be- quest is violative of the law if carried into effect, that none but the state can intervene. I find no warrant for such a doctrine, either in the legal principles belonging to the sub- ject or in the adjudications. There can be no doubt that there are cases in which, where a corporation has acquired rights of property to an extent or in a manner unwarranted by Its charter, no one but the public can have the right to complain. A grantor maldng title to a corporation might be estopped from ■questioning the effect of his own conveyance. So a mere stranger could not question such a corporate title. But I have not observed any decision that asserts, where a title is created by devise which vests in a corpora- tion for its own use a larger quantity of property than the laws authorize, that the heir-at-law has no right to malie objection. The authorities referred to do not lend coun- tenance to such a doctrine." The learned judge refers to the cases of Bogardus v. Trinity Church and Leazure v. Hillegas (both cited supra), and continues: "These cases rest on the obvious principle that the capacl- "ty of the coiporate body to become the gran- tee in the given case cannot be challenged by a party who does not stand in a position to raise the question. In such a position it •would be true that the state alone could ob- ject to such corporate act. But such in- stances are to be discriminated from that other class, where the corpoi-ation claims to take and hold by devise, in contravention of law, and the heir of the devisor is the party complaining. In this latter situation the doc- txine enforced in the cases does not apply. * * * I have no doubt that the heir-at- law has a standing in court to raise such a contention, and that in a court of equity he would be entitled to prevail if he could suc- ceed in establishing the proposition on which such defense rests." The court affirmed the judgment below on the ground that the cor- poration was not prohibited from taking the property. The counsel claims, however, that a devise to a corporation vests the title in it, so far as the question of capacity is concerned, whenever it would in fhe case of a sale for a valuable consideration. Hence he says that the cases of sales above cited are de- cisive of this, if they be admitted as well decided. In the case of an executed sale, however, the question of ultra vires, as set forth in the modem cases, comes in play, and the question of a want of title in the cor- poration in such case would not be permitted to be raised by the grantor or his heirs, be- cause it would be against justice and would accomplish a legal wrong. Arms Co. v. Bar- low, 63 N. Y. 02. The question of an executed gift vi^thout consideration by a donor, by an absolute de- livery to a corporation without power to take, is also instanced, and the question is asked whether the title vests in such a case in the corporation so that the donor or his heirs could not recover it back, and if it do, the counsel asks where is the difference in the two cases. It is time enough to decide such a case when it arises. But it seems to me there is a decided difference. In the one case the gift is made inter vivos by the ab- solute owner, and it is made effectual as to him by a delivei-y. In such case it would seem that he stands in no position to ask the aid of the court to get him out of a situation into which he voluntarily entered with his eyes open, and the court might well say to him that he stood in no position to attack the right of his donee to property which he freely and absolutely gave it. As to his heirs it could be said that their ancestor had made a disposition of property which was absolute- ly his own in his lifetime, and in such a way that he could not question its validity, and that as he could not, they succeeding only to his rights, were alike disabled. In the case of a devise, however, the case is essentially different. The will does not take ' effect until the testator's death, and then, if his property is not legally devised or bequeathed, no title vests for a single mo- ment in the devisee or legatee, but it vests instantly in the heir or next of kin; and the corporation claiming under the will asks the aid of the law to give the property to it, and in so doing it must show the authority it has to take. And if there were only a pro- hibition in words against holding the prop- erty, would the law not be doing a vain thing in handing it over to a corporation which by the very fact of holding would ren- der itself liable to have its charter forfeited on that account? Would not the prohibition against holding be properly and necessarily construed as a prohibition against tailing also? Is not this an argument against the right of the corporation to take, if by holding it is thus rendered liable to such a penalty? And is it not an argument in favor of the construction of the language in the charter that the limitation upon the power to hold property is, under all the circumstances, a limitation upon the power to take any more than it can legally and properly hold? One more statement must be noticed. It is said that as the legislature, subsequently to the death of Mrs. Fiske, passed an act which took away any limitation on the pow- er of the university to hold property, this action of the legislative department of the government throws a strong light upon what is the policy of the state regarding institu- tions of learning, and in view of appellant's counsel, waives the right which might have Ch. 3) IN RE MoGRAW'S ESTATE. 3.5 existed on the part of the state to claim a forfeiture of the charter of the corporation. But the policy of the state in relation to what may be called Its mortmain laws is to be gathered from its statutes of general ap- plication on that subject, and cannot be said to be altered by the passage of special acts regarding particular corporations. Nor do 1 think the counsel for appellant shows any change in the general policy of the state by referring to the acts of 1840 and 1841, already cited, as Indicating a purpose to open the door to an unlimited accumula- tion of property by educational institutions in general. Those acts, as has been said, did not enlarge the capacity of corporations to take property more than they could take under the general laws. The act of 1864, as to union and high schools, by which the boatd of education has power to take and hold property for educational purposes, and where permission was given to bequeath property to the state or to the superintend- ent of public instruction foi; the supi^ort or benefit of common schools, or to any county or district school commissioner, for such sup- port, does not betray any change in the poli- cy of the state upon this subject. The be- quests spoken of are to the political subdi- visions of the state or to the state itself as a coiTporation, but in its political capacity, and the property remains to be administered by the state officials or the officers of such political subdivisions, for the purposes of education in the common or high schools which the people are taxed to support. This is an entirely different thing from gifts to what may be termed a private educational establishment. Om* courts have been quite unanimous in their opinions as to what the policy of the state was and is on this matter; and the exti'acts I have made regarding it, from the opinions of two very eminent form- er judges of this court, could be added to very largely by citing opinions of other judges in our own state, but it is not neces- sary. However perfect may be the waiver in the act alluded to, of the right of the state to forfeit the charter of this university on ac- count of any alleged violation thereof, such act can, of course, have no possible effect upon rights of property which vested at the death of Mrs. Fiske and before the passage of the act in question. White v. Howard, 46 N. y. 144. The counsel asks what is to be done in re- gard to the real property in other states, if we hold this corporation has no power to take any more property? It is said the surro- gate has found, as a fact, that the university PRIV.CORP.— 8 had legal capacity to take and did take by devise all the real property the title to which was in Mrs. Fiske at the time of her death, in those states. He says the title to real estate is governed by the laws of the states where the real property is situated. And that in the states in question it is held that a corporation can take under such circum- stances as this case. This will devises no real estate to Cornell University. It gives to the university $40,000 in ti'ust for the erection and furnishing and support and maintenance of a hospital; $50,000, in trust, for completing and perfecting the Mc- Graw building; $200,000, in trust, for the Mc- Graw library fund, and it gives and devises the residue of the property of the testratrix, if any, to be added to the last mentioned fund. It then directs that the estate of the testratrix shall be converted into money or available securities by her executor as soon as it can be done, having in view the best interests of the estate. This direction to convert operated as an equitable conversion of the state of tlie testratrix into money or available securities, and hence no real estate in other states has been devised by her to the university. It is needless to inquire what would have been the rule in case real estate in other states had been specifically devised to the university, while this court should at the same time decide that it held property up to its charter limit, and that it had no capacity to take or hold any more real or personal property than the amount specified in its charter. Upon a review of the whole question as to the proper construction of the legislation, general and special, affecting this university, I am of the opinion that it had no power to take or hold any more real and personal property than $3,000,000, in the aggregate. Second. Coming to the conclusion I have, on the first branch of the case, it becomes necessary to examine the second and only remaining question, viz.: Does this pro^Derty, if taken and held by the university, exceed the amount which by law it can hold?' * * * This brings the property of the uni- versity, above set forth, up to more than its permitted aggregate at the time of the de- cease of Mrs. Fiske, and no debts to be de- ducted therefrom. Under such circumstan- ces, the university could not take the various i legacies bequeathed to it by her will. The judgment of the general term should, therefore, be affirmed, with costs. All con- cur, except FINCH, J., taking no part. Judgment affirmed. ' Part of the opinion relating to this question is omitted. 34 RICHE V. ASHBUHY HAIL WAY CARRIAGE & IRON CO. (Ch. RICHE V. ASHBURY RAILWAY CAR- RIAGE & IRON CO., Limited. (L,. R. 9 Exch. 224. 1874.) In the Exctiequer Chamber.' June 20, 1874. The following Judgments were delivered: BIjACKBURN, J. The Ashbury Company are a company incorporated under the Com- panies Act, 1862 (25 & 26 Vict. c. 89). The memorandum of association states (as was required by the 8th section of the act), the object for which the company Is established. The articles of association which it is mate- rial to notice are those numbered 3, 4, and 5. Up to a certain extent I believe there is no doubt as to the effect of the incorporation of a company under the companies act of 1862. The company Is a corporation, and it is a partnership for trading purposes, for the objects for which the company is es- tablished. And by the articles in this case, as in almost all others, the management of the company's business is confided exclu- sively to a board of directors. And I ap- prehend that it is clear that this board have the same authority to bind the company in the managing the company's business that a partner or manager in an ordinary partnership, established at common law for the same objects, would have to bind the firm; an authority which to be valid must be exercised in cases within the scope of the ordinary business and transactions of the firm: see Story, Partn. §§ 110-113. If the board in a Joint stock company, or a partner in a common law partnership, make a contract beyond their authority, it does not bind the company in the one case, or the fii-m in the other. This is only apply- ing the general law as to principal and agent to the particular case of a board act- ing as agents for an incorporated company. So far I believe there is no difference of opinion. But if a partner, in a firm established un- der the common law, professes to bind his firm to an extent beyond his authority, the other members of the firm, though not bound by his unauthorized contract, may adopt and ratify it, and if they do the firm is bound. It is obvious that in many cases it may be Judicious to adopt an unauthorized con- tract and make the best ,of it. In many others it may be injudicious so to do. On that each Individual partner must form his own opinion. And as the partners do not confer on each other authority to ratify con- tracts which they did not give each other authority to make, the ratification, to bind the firm, must be shewn to be made by the authority of each individual partner. No majority of partners, however great, can " For a statement of the facts, see the report of this case on appeal to the house of lords, in volume 1 of these "Cases," p. 152. bind the minority. If even one partner does not ratify, then, though all the rest agi-ee, the firm is not bound. This again, is only applying the general law of agency to the particular case of a partner acting as agent for the firm. The question on which there is doubt and difficulty is, whether in the case of a com- pany incorporated under the Companies Act, 1862, the unanimous shareholders can ratify a contract made in the name of the com- pany, but beyond the authority of those who made it. That question must ultimately de- pend on the true construction of the act of parliament. Had the legislature thought fit to enact in clear language either that all contracts, made by or on behalf of a com- pany incorporated under the act beyond the scope of the objects for which it was estab- lished, should be absolutely void, or express- ly to enact that contracts though beyond the scope of those objects should be valid if either previously authorized, or subsequent- ly ratified by aU the shareholders, our task would simply be to carry out that expressed intention of the legislature. But there is ijo express enactment either one way or the other in the act of parliament, and we must therefore interpret the act for ourselves. I will endeavour to do so later, but I now proceed to shew how, in fact, the question arises in the present case. The board en- tered into contracts called in the case con- tracts A, B, C, and D, and In October, 1865, entered into further contracts, called in the case X, Y, and Z, modifying those. If those seven contracts had been such that the board of directors had authority to make them on behalf of the company, the plain- tiff would clearly be entitled to recover. But I think that, looking at those contracts as a whole, they are not within the scope of the objects for which the company was established, as disclosed in the memoran- dum of association. I do not enter on this part of the subject, as it is fully, and, to my mind, satisfactorily disposed of by Bramwell and Channell, BB., in their Judg- ments below, and by my Brother Archibald in his judgment in this case, which I have perused, and I believe there is not any dif- ference of opinion on that part of the case amongst the Judges in the court of error. I think, and start with the assumption, that the company was not in October, 1865, bound by those contracts, though entered in- to by the board in its name, on the ground that the board had exceeded its authority. But it is contended that the whole of the shareholders in the company have ratified the contracts. And whether or no that rati- fication is made out is a question of fact, which we have to decide on the statements in the case, with power to draw inferences. I think we have much reason to complain of the way in which the case is stated on this point; and I have had some doubt whether we ought not to send down the Ch. 5) EICHE V. ASHBUKY RAILWAY CARRIAGE & IROX CO. 35 case to be restated. But on the whole I thinli enough appears to lead me to find this fact in favour of the plaintiff. It appears that the board of directors had advanced on the contracts, and on some Spanish contracts of a similar kind, a large sum of money. In their balance sheet, dated the 30th of September, 1865, they taJie credit amongst other items for Advances on Contracts. £ s d Madrid, Placentia, and Malpar- tida Railway 41,3.38 11 6 Anvers, Douai, and Tournai.... 27,191 14 8 —And this balance sheet vyas circulated amongst the shareholders. At the annual meeting, held on the 5th of December, 1865, a dividend of 14 per cent, was declared, and was, no doubt, accepted by every sharehold- er. Now, if I could see that the entry in the balance sheet, above quoted, should have conveyed to the mind of an ordinary share- holder that the board had entered into con- tracts ultra vires with the Belgian Railway, and that the large dividend declared was earned in part out of these unauthorized con- tracts, I should have no hesitation in draw- ing the conclusion that the acceptance of that dividend did amount to a ratification of those unauthorized contracts, whatever they might be. But though the large item thus vaguely de- scribed might lead a good man of business to ask for explanation, I do not think it would convey to the mind of an ordinary shareholder any such information as to jus- tify me in drawing the inference that each such shareholder adopted the transactions with the Belgian Railway, knowing them to be beyond the authority of the board. Before the next annual meeting of the company times had changed. Instead of a flourishing report, and a dividend of 14 per cent., a circular was sent, informing the shai-eholders that the meeting would beheld pro forma, and adjourned to a day of which notice would be given. It was, in fact, ul- timately held on the 14th of May, 1867. This circular was sent in consequence of a resolution passed at a special general meet- ing, held on the 20th of December, 1866, at which p, committee was appointed to inquire, and report at an early meeting of the share- holders. I draw the inference of fact that the circu- lar was duly sent; and I fm-ther think that every shareholder who received such a circu- lar must now have been aware that some- thing was wrong, and has himself only to blame if after this he failed to learn what was the report of the committee of inquiry? That report was presented at an extra- ordinary meeting of the company, held on the 1st of May, 1867. This report incidentally refers to negotia- tions between the board and some individ- uals, directors and shareholders, and to the circulation among the shareholders of a prospectus and circular letter. These are matters which might or might not be mate- rial if we knew what they were, which the case as drawn does not tell us. But this much is obvious to any one who reads the report, that the board had entered into con- tracts in Belgium which the committee were advised were beyond the authority of the board. That under those contracts a largo sum belonging to the company had been ad- vanced in Belgium wliich, as the committee were advised, could not be recovered back froni the Belgians. That the committee thought the directors might be made person- ally liable in chancery, and that proposals had been made for a compromise between the directors and the company on the basis of a transfer of the liability and advantage of these contracts. And the committee wind up their report by saying that "looking at the important interests involved, and the ex- tent to which they would be jeopardised by proceedings in chancery extending over a considerable period, they would recommend the shareholders to endeavour to efCect an amicable settlement with the directors with- out having recom'se to legal proceedings." At the meeting on the 1st of May, 1867, a committee was accordingly appointed "to confer with the directors with the view to an agreement being arrived at on the mat- ters in dispute." On the 14th of May, 1867, the general meeting adjourned pro forma in December, 1866, was convened by a circular letter men- tioning among the agenda: "To receive, con- sider, and, if so determined, to adopt any re- port or recommendation which may be made by the committee appointed at the extra- ordinary meeting held on the 1st of May in- stant to confer with the directors with a view to an agreement being arrived at on matters in dispute." The balance sheet which accompanied this circular shewed a loss, and the directors' re- port also accompanying it declared that there was no dividend. These are matters intel- ligible to, and likely to rouse attention in, the dullest and most careless of shareholders. I certainly, therefore, feel justified in saying that there is a prima facie case that every shareholder knew what it was proposed to do. I do not say that it is conclusive. A shareholder might have been dangerously ill dm-ing the whole of these six months, so as to be incapable of attending to business, ^nd other exceptional cases might exist. But the defendants have a strong interest in proving that there was even one shareholder who did not know what was going to be con- sidered, or who afterwards disapproved of what was actually done, and they have made no attempt to prove it. At the meeting held on the 14th of May, 1867, a resolution was come to. (See L. R. 9 Exch. pp. 280-282.)= " This resolution is omitted. 36 EI CHE V. ASHBURY RAILWAY CARRIAGE & IRON CO. (Ch. The sale to the purchasers of the com- pany's interest in the contracts does of necessity Involve in it a ratification of those contracts, and, if the purchasers were sol- vent persons, which, at all events, they were believed to be, it was very much for the in- terest of the company that such a sale should be made. I am, therefore, not sur- prised at finding that those who defend the action have been unable to find a single shareholder to give evidence that he did not assent to or, even now, disapproves of that sale, and I draw the inference of fact that each individual did assent to it. In the circular letter convening the next general annual meeting, held on the 24th. of December, 18(j7, among the agenda was "to consider and, if so determined, to sanction a contract which has been entered into by the company with the directors thereof in pursu- ance of a resolution passed at the last an- nual meeting, held on the 14th May, 1867." At this meeting a formal indenture was produced. (See this indenture, L. R. 9 Exch. p. 282, note 1.)' By the first clause, the Ashbm-y Company assigns to the purchasers all bene- fit which tlie company has, or is supposed to have, in the Belgian railways, and all con- tracts, and the benefits of all sub-contracts that have been made, or expressed to be made, in connection therewith. And by the sixth clause the company are to allow their name to be used by the purchasers either as plaintiff or defendant By the last clause it is agreed that noth- ing shall preclude the company from main- taining that such contracts are ultra vires. This last clause may be effectual as between the company and the purchasers, and may, therefore, avail the company in any future proceedings against the directors for breach of trust; but it cannot, in my opinion, pre. vent the operation of the deed as a ratifica- tion of the contracts. I think that it is not competent for a per- son, in whose name a contract has been made without authority, to sell the benefit and advantage of that contract, and to au- thorize the purchasers to sue in his name in order to obtain that benefit, if the contracts should prove advantageous, and at the same time to reserve power to repudiate the con- tract if it prove a losing contract. I thinli that the act of selling the contract is an unequivocal act of election to ratify and adopt it, and that election being once made it is determined for ever. At the meeting a formal resolution was passed that the seal of the company should be affixed to this indenture, which was ac- cordingly done. It was argued before us that all this came too late, because, as is stated in tbe case, early in May, 18G6, the directors of the com- pany repudiated aU further performance of the above contracts, on the grounds that ^ The indenture is omitted. they were ultra vires, and my Brother Bram- well, in his judgment below, seems to adopt this view, as he says (L. R. 9 Exch. p. 235), "If it was ratified it was between the 5th of December, 1865, and May, 1866." I however, do not agi-ee in this. I think that when the plaintiff thus had notice from the directors that they had exceeded their authority and that the company were not bound, the plaintiff might, if he pleased, have declared himself no longer bound, and I think that if he had done so, a ratification would have come too late to bind him. But he did not do so; and as long as he continued insisting on the contract as a binding one, the company might adopt the contract if for their benefit. This, I think, is clear on principle, and the case of Soames V. Spencer, 1 Dowl. & R. 32, cited in the argument, is an authority in support of it. It seems to me, therefore, that in this case there has, in fact, been a complete and de- liberate ratification of this contract, under the seal of the company, affixed to the rati- fication in pursuance of the resolutions ot two successive meetings of the company convened for the express purpose; and that as a fact there is no shareholder in a posi- tion to object to that ratification, every ono either having previously assented to that ratification or subsequently approved of it. I do not think it is sufficiently made out that there was any ratification before 1867, but then there was a complete one. I have only further to observe that there is a tech- nical difficulty as to binding a body corpo- rate at law otlierwise than by its seal. I should require further consideration before I decided that a ratification by each indi- vidual of the whole shareholders, even at law, must be inoperative unless declared by it under its seal; and I should also require further consideration before I decided whether, at law, it was competent for the corporation to set up as a defense that the seal was affixed without the assent of every one of the shareholders; but on the view 1 take of the facts neither question arises in this ease. I therefore come to the conclu- sion that if, in any case, a company formed under the Companies Act, 1862, can ratify a contract made beyond the scope of the objects for which it is formed, this company has done so. If this view of the facts is correct it be- comes necessary to decide the question of law, viz. whether a corporation constituted under the Companies Act, 1802, can, even under seal, bind itself in its corporate ca- pacity, by a contract for objects beyond the scope of those specified in its memorandum of association as the objects for which it is established. My late Brother Channell, in his judgment in the case below, says: "In some of the earlier cases quoted in the ar- gument in which questions were discussed relating to contracts ultra vires of the com- panies making them, the question vi^as ti-eat- Ch 5) RICHE V. ASHBURT RAILWAY CxVRUlAGE & IRON CO. 37 cd as one of illegality. Whatever may be the case with regard to companies which hare been specially incorporated by parlia- ment for a special purpose, and which use the powers so obtained for other purposes, It seems clearly settled by the more recent authorities that in the case of companies such as that in the present case, the per- sons constituting the . company, that is to say, the shareholders, may bind themselves in their corporate capacity, by their indi- vidual assent to contracts not authorized by the memorandum of association or other like instrument by which the constitution of the company is defined. The objection to such a contract is not that it is illegal and there- fore unenforceable, but simply that it is un. authorized by the body whom it purports to bind." The more recent authorities referred to are, I presume, the three cases of Spack- man v. Evans, L. R. 3 H. L. 171; Evans v. Smallcombe, Id. 249, and Houldsworth v. Evans, Id. 263, decided in the house of lords in 1868, and Lime Co. v. Green, L. R. 7 C. P. 43, decided in the court of common pleas in 1871. In the cases in the houses of lords the company had been incorporated under the Act of 7 & 8 Vict. c. 110. In the case in the court of common pleas the company was in- corporated under the present Act of 1862. It is, I think, too much to say that these cases clearly settle the point. Instead of saying that these cases clearly settle that the law is as my Brother Channell says, I only say that I think them authorities to that effect, and that I think such is the law. With this slight alteration I agree entire- ly with what is above quoted. I do not entertain any doubt that if, on the true construction of a statute creating a corporation, it appears to be the intention of the legislature, expressed or implied, that the corporation shall not enter into a partic- ular contract, every court, whether of law or equity, is bound to treat a contract en- tered into contrary to the enactment as il- legal, and therefore whoUy void; and to hold that a contract wholly void cannot be ratified. But it is of great importance, when we come to construe a statute creating a corpo- ration, to consider what would be the inci- dents at common law conferred on a corpora- tion created by charter. The leading authority on this subject is the case of Sutton's Hospital, 10 Coke, 1. There were many points raised in that case. Those which I think material to the present point arose on a part of the charter set out in the special verdict (10 Coke, 10b), by which the king incorporated the first governors of the Charterhouse, and expressly provided, 1. "That they should have power to purchase &c., as well goods, chattels, &c., as lands. 2. To sue apd be sued. 3. To have a com- mon seal, "whereby the same corporation shall or may seal any manner of instrument touching the said corporation and the manor, lands, &c., thereto belonging, or in any wise touching or concerning the same. Neverthe- less it is our true intent and meaning that the said governors for the time being and their successors, nor any of them, shall do, or suffer to be done, at any time hereafter, any act or thing whereby or by means where- of any of the manors, &c., of the said incorpo- ration or any estate, &c., shall be conveyed, &c., to any other whatsoever contrary to the true meaning hereof, other than by such leases as are hereafter mentioned, and that In such manner and form as is hereafter ex- pressed, and not otherwise." The king, therefore, by this charter not only did not in express terms give a power of alienation, but by express negative words forbade any alien- ation except by lease. But the resolution of the court, as reported by Coke (page 30b), was that "when a corporation is duly creat- ed all other incidents are tacite annexed; ♦ * • and, therefore, divers clauses sub- sequent in the charter are not of necessity, but only declaratory, and might well have been left out. As, 1. By the same to have authority, ability, and capacity to pm-chase; but no clause is added that they may alien, &c., and it need not, for it is incident. 2. To sue and be sued, implead and be implead- ed. 3. To have a seal, &c.; that is also de- claratory, for when they are incorporated they may make or use what seal they will. 4. To restrain them from aliening or demis- ing, but in a certain form; that is an ordi- nance testifying the king's desire, but it is but a precept and doth not bind in law." This seems to me an express authority that at common law it is an incident to a corpora- tion to use its common seal for the purpose of binding itself to anything to which a natu- ral person could bind himself, and to deal with its property as a natural person might deal with his own. And further, that an at- tempt to forbid this on the part of the king, even by express negative words, does not bind at law. Nor am I aware of any author- ity in conflict with this case. If there are conditions contained in the charter that the corporation shall not do par- ticular things, and these things are neverthe- less done, it gives ground for a proceeding by sci. fa. in the name of the crown to re- peal the letters patent creating the corpora- tion: see Archipelago Co. v. Reg., 2 El. & Bl. 857, 22 Law J. Q. B. 196. But if the crown take no such steps, it does not as I conceive, lie in the mouth either of the corporation, or of the person who has contracted with it, to say that the contract into which they have entered was void as beyond the capacity of the corporation. I am aware of no decision by which a cor- poration at common law has been permitted to do so. I take it that the true rule of law is, that a corporation at common law has, as 38 KICHE V. ASIIBUIJY KAILWAY CAKKIAGE & IKOX CO, (Ch. an incident given by law, the same power to contract, and subject to tlie same restric- tions, tliat a natural person has. And this is important wheu we come to construe the statutes creating a corporation. For if it were true that a corporation at common law has a capacity to contract to the extent given it by the instrument creating it, and no fur- ther, the question would be, Does the stat- ute creating the corporation by express pro- vision, or by necessary implication, shew an intention in the legislatui-e to confer upon this corporation capacity to malie the con- tract? But if a body corporate has, as inci- dent to it, a general capacity to contract, the question is. Does the statute creating the corporation by express provision, or neces- sary implication, shew an intention in the legislature to prohibit, and so avoid the mak- ing of a contract of this particular iiind? I thinli this is the real question, and for that 1 refer to the judgment of Parlie, B., in South Yorkshire Ry. Co. v. Great North- ern Ry. Co., 9 Exch. 55, 84; 22 Law J. 305, 313, and the various other cases cited by my late Brother Willes and by myself in Taylor V. Railway Co., L. R. 2 Exch., at pages 375, 389. And when we are construing a statute and regulating a corporation, it is right to bear in mind that, as Lord Coke says: "It is a maxim in the common law that a statute made in the affirmative, without any nega- tive expressed or implied, doth not take away the common law." 2 Co. Inst. 200. Affirmative words may no doubt be used so as to imply a negative (see Plow. Comm. 113) ; but I take it the general principle is that thus laid down by Cress well, J., in Archi- pelago Co. V. Reg., 2 El. & Bl. 888, 23 Law J. Q. B. 82: "That to make the words giv- ing an express liberty or right have the effect of conti-olling or limiting that which would otherwise exist, they must be very plain." I now come to consider the construction of the act of 1862, under which the present company is formed. The sections of the act of 1862 bearing on the present case seem to me to be only sections 6, 8, 9, 10, and 12. By the 6th section of the act of 1862, any seven persons may, by subscribing their names to a memorandum of association, and otherwise complying with the requisitions of this Act, in respect of registration, form an incorporated company with or without lim- ited liability. The 8th, 9th, and 10th sections provide that the memorandum of association shall contain the objects for which the proposed company is to be established. The 12th section provides that the com- pany may make certain specified alterations in the memorandum of association, not includ- ing a change in the objects for which the company is to be established, and then, in express negative words, provides that, "save as aforesaid, no alteration shall be made in the conditions contained in the memorandum of association." The objects of the proposed company must, therefore, always remain the same; and that has, I think, two important effects. First. I think that If the company, as a body, pro- pose to do anything beyond these objects, any one dissentient shareholder (who has not precluded himself from doing so) may pre- vent it from doing so. Secondly. No person can be entitled to fix the company with a contract made by the board for any purpose beyond those objects, on the ground that the board had an ostensible or apparent author- ity to make contracts of that kind, but must, in order to fix the company, at least prove an actual authority given to the board to make the particular contract he seeks • to enforce. Now, if I thought that it was at common law an incident to a corporation that its ca- pacity should be limited to the extent con- ferred on it by the instrument creating it, I should agree that the capacity of a com- pany Incorporated under the act of 1862 was limited to the objects in the memoran- dum of association.. But if I am right in the opinion which I have already expressed, that the general power of contracting is an in- cident to a corporation which It requires an indication of Intention in the legislature to take away, I see no such indication here. There are not even affirmative words, those used In section 25 of 7 & 8 Vict. c. 110, to which I shall now refer, having been (1 presume advisedly) not repeated. The 7 & 8 Vict. c. 110, § 25, enacts that from the date of the certificate the share- holders shaU be incorporated "by the name »of the company as set forth in the deed of settlement, and for the purpose of carrying on the trade or business for which the com- pany was formed, but only according to the provisions of this act and of such deed as aforesaid." And then express powers are given to the company to enter Into contracts for any "necessary purpose of the company." I think if the question was whether the legislature had conferred on a corporation created under this act capacity to enter into contracts beyond the provisions of the deed, there could be only one answer. The legis- lature did not confer such capacity. But if the question be, as I apprehend it is, whether the legislature have indicated an intention to take away the power of contracting -which at common law would be incident to a body corporate and not merely to limit the authority of the managing body and the majority of the shareholders to bind the minority, but also to prohibit and make illegal contracts made by the body cor- porate in such a manner that they would be binding on the body if incorporated at. common law, I think the answer should be the other way. There certainly Is ground for suspecting that the person who framed the Act 7 & 8 Vict. c. 110, thought that the Ch. 5) KICIIE V. ASIIBUHY RAILWAY CARRIAGE & IROX CO. 39 coi-poratiou would have no other powers than those thus expressly given to it, and perhaps meant to restrict its powers accordingly, but when we remember the canon of construction that affirmative words do not take away the common law right, I think he has not used words sufficient to effect such a pvu'pose. It would be different if negative words had been used, and it had been said that the company should not do any other acts than those necessary for the purpose for which it is formed. The two acts, 7 & 8 Vict. c. 110, and the act of 1S62, are so much in pari materia, that if it had been settled by judicial construc- tion that a company under 7 & 8 Vict. c. 110, was forbidden to make any contract for ob- jects beyond those specified in the deed, I should endeavour to put the same construc- tion on the act of 1862, unless the change in the language shewed an intention in the leg- islature to alter the law. There are many dicta in courts of equity, worthy of great respect, which indicate an opinion not only that such acts are beyond the authority of the board, or even of a ma- jority of the shareholders, but also that they are beyond the capacity of the company though unanimous. These are worthy of great attention, but I can find no case in which it has been de- cided that a contract so made or ratified by the whole company that it would have bound the company in its corporate capacity (but for the provisions of the statute), has either at law or in equity, been held void on account of the provisions of that act. And I think that the three cases, already refeiTed to, of Spackman v. Evans, L. R. 3 H. L. 171; Evans v. Smallcombe, Id. 249; and Houldsworth v. Evans, Id. 263,— all de- cided in the house of lords, are at least au- thorities for the contrary doctrine. The question in all three cases was, wheth- er a person, who had many years ago de facto retired from the company imder an arrangement made with the directors, was still a shareholder in point of law, and there- fore ought to be put on the list of contribu- tories. In all three cases it was agreed that it was beyond the competence of the board of di- rectors, or even of a majority of the share- holders, to allow such a retirement. In Spackman's Case, L. R. 3 H. L. 171, the majority of the lords— Lords Cranworth, Chelmsford, and Colonsay— thought it not proved that the whole body of shareholders had ratified the arrangement under which Spackman went out, and consequently he was retained on the list of contributories. Lord St. Leonards and Lord Romilly, dis- senting. In Smallcombe's Case, L. R. 3 H. L. 249, the majority of the lords— Lord Cau-ns and Lord Cranworth— thought it was sufficiently proved that all the shareholders had ratified the arrangement under which Mr. Small- combe went out, and consequently he was removed from the list of contributories, Lord Chelmsford dissenting. In Houldsworth v. Evans, L. R. 3 H. L. 263, the majority of the lords— Lord Cairns and Lord Chelmsford— thought it not sufficiently proved that the arrangement under which lie retired was brought to the notice of aU the shareholders, and consequently he was re- tained on the list of contributories. Lord Cranworth dissenting. The differences of opinion, though chiefly on the questions of fact, were sufficient to se- cure that the cases should be very carefully considered, and consequently all that is said in them is of high authority. In the first of the cases— Spackman v. Ev- ans, L. R. 3 H. L. 171— all the lords who formed the majority based their decisions on the absence of satisfactory proof that the arrangement was ratified by all the share- holders. Lord Cranworth says, page 190: "The act of the directors in cancelling the shares of the appellant, though not warrant- ed by the deed of settlement, would be valid if it was either previously authorized or sub- sequently ratified by all the shareholders." And at page 194 he says: "Looking at all which was thus done, I should certainly hold that the conduct of the continuing sharehold- ers amounted to a ratification of the illegal or irregular acts of the directors, provided it be clear that the shareholders knew that they were illegal or irregular, that is, knew that they were acts not authorized by the deed, and not done in pui'suance of the notice given to every shareholder by the circular of the 4th of November, 1848." It certainly seems to me, that, when using this language. Lord Cranworth had in bis mind the words of the 25th section of 7 & 8 Vict. c. 110, previously quoted, and meant to express an opinion that the acts of the directors not authorized by the provisions of the deed were illegal in them, but were capa- ble of ratification by the corporation. Lord Chelmsford also says, page 234: "It is quite clear that to render valid an act of the di- rectors of the company which is ultra vires, the acquiescence of the shareholders must be of the same extent as the consent which would have given validity from the first, viz. the acquiescence of each and every member of the company." Lord Colonsay also dwells on the absence of proof of knowledge on the part of the shareholders, though I do not think his lan- guage indicates so strongly that he thought that this, if proved, would have been decisive in Spackman's favom-. In the subsequent case of Evans v. Small combe, L. R. 3 H. L. 249, at page 253, Lord Cairns says, speaking of Spackman v. Evans, L. R. 3 H. L. 171: "I apprehend I am correct in stating that it was the opinion of the majority of your lordships in that case, in- deed, I think it was the opinion of all your lordships who were present, that, looking to 40 KICIIE V. ASIIBUUY KAILWAY CxUliUAGE & IRON CO. (Ch. 5 that an-angement, wbicli has been called throughout in this case the Chippenham ar- rangement, it would have been competent for any shareholder in the company to object \yithin a reasonable time to that arrange- ment, that the arrangement was one which was ultra vires of the directors, and which, if supported at all, could only be supported by reason of the consent or acquiescence of all the shareholders in the company, or by the proof of such a state of facts as wou'C lead to the reasonable inference that there had been that consent or that acquiescence." These cases decided in the House of Lords are binding on us as far as they go. I agree that they do not precisely decide the very question before us. In the first place they were decisions as to a company incorporated under 7 & 8 Vict. c. 110, which differs in its language from the act of 1862. It seem to me that tlie difference in the wording of the two acts is such that it is more plausible to say that 7 & 8 Vict. c. 110, is prohibitive, than to say that the act of 1862 is so. In the next place, the question raised was whether a particular person was to be inserted on the list of contributories, which, -as pointed out by Lord St. Leonards, is an equitable ques- tion, and in a court of equity the distinction between the body corporate and the whole of the individuals who, in the aggregate, form that body corporate, is not so important as in a cotu-t of law. The present question is a purely legal one, viz., whether the body corporate is bound by this contract. But I take it that the question whether the statute 7 & 8 Vict. c. 110, rendered a proceeding be- yond the provisions of the deed illegal, that is, malum prohibitum, is the same in equity as at law. The act, illegal in that sense, could no more be adopted and set up in eq- uity than at law; and I therefore apprehend these cases do decide- conclusively that an arrangement such as that come to in Evans V. Smallcombe, L. R. 3 H. L. 249, was not forbidden by the statute 7 & 8, Vict. c. 110. It was argued by the counsel for the de- fendants before us that the object there was to enable one of the partners to retire, which might have been done consistently with the provisions of the deed in some other way; and perhaps that it fell within the general power given to companies in the twelfth subsection of s. 25, viz. "to perform all other acts necessary for carrying into eifect the purposes of such company, and in all re- spects as other partnerships are entitled to do." Lord Romilly, who was one of the, dis- sentient minority in Spackman v. Evans, L. R. 3 H. L. 171, at page 244, says: "Of course, if this company had bought mines, or entered into a contract to set up a steam-packet busi- ness, this would have been simply void, and would not have bound the company or any one, because they could do nothing that was beyond the objects of the company;" which may be construed as indicating that he had some such distinction in his mind. I think. however, when looked at with the context, he must be understood as merely saying that the arrangement was voidable, not void, standing good till some one entitled to do so took steps to avoid it, whilst such an act as he supposed would be void till afBrmatively ratified. With this exception I have looked through the opinions delivered in the house of lords without finding anything to indicate that such a distinction was in the mind of any of the noble and learned lords; and I think that we should hardly be following out the ratio decidendi of the majority of the house of lords if we acted on such a distinc- tion. I do not think we can properly enter on the consideration of what it would have been politic in the legislature to enact. If we could do so, I think much might be said on both sides. I am impressed with the hardship on in- coming shareholders, who it is said have a right to believe that the company is carry- ing on the business for which it is formed and no other. And though of com-se, if the property of the company has been already squandered on unauthorized transactions or embezzled, the incoming shareholder must bear that loss; yet it is hard on him to be made liable to a contract beyond the objects of the company, even though that contract must by ^supposition have been ratified by the outgoing shareholders through whom he derives title. On the other hand, it may often happen that when the shareholders first learn that the unauthorized contract has been made, their capital may be ah-eady so inextricably engaged in it that to stop the contract would be certain ruin, and to go on would give a very fair prospect of extricating themselves without much loss, perhaps with profit. And the recent cases in the house of lords shew that very great hardships may fall on third persons if a transaction is always to be held void, though ratified by the whole share- holders. And I do not see any risk of a company practically carrying on business for other objects than those named in the memoran- dum. The difficulty of obtaining the as- sent of all shareholders, and of proving that it had been obtained, is so great that no sensible man would trust to that and deal with the company on those terms. But I do not think that we can ask what ought to have been enacted by the legisla- ture. Our duty is to declare what has been actually enacted. And I think, for the reasons I have above given, that in this case the unanimous share- holders have in fact assented to the ratifica- tion under the seal of the company of this contract; and that such a ratification, at all events, makes the conti-act binding on the company in its corporate capacity. I think, therefore, that the judgment of the court below should be aflarmed. Ch. 5) RICIIE V. ASHBURY RAILWAY CARRIAGE & IRON CO. 41 ily Brothei-s BRETT and GROVE agi-ee in this judgment* As this coiu-t is equally divided, the judg- luent appealed against must be affirmed. ARCHIBALD, J. * • * Is there author- ity, then, that in such a case as the present the assent of aU the shareholders can render the contracts valid as contracts of the cor- poration? The case of Spackman v. Evans, li. K. 3 H. L. 171, and the other cases fol- lowing it in the house of lords are relied on as authorities to that effect; but there are differences betvreen the provisions of the Companies Act, 1862, and those of 7 & 8 Met. c. 110, which may well justify the dis- tinction contended for by the defendants be- tween the case of companies constituted un- der that act and of companies under the act of 1862, which account for the view taken by the house of lords as to the power of all the shareholders to ratify a contract ultra vires of the directors, and apparently be- j'ond the scope of the incorporation; but, at all events, I think the fact that there are ho such prohibitory words in 7 & 8 Vict. c. 110, as are to be found in section 12 of the Com- panies Act, 1862, and that the effect of such pi'ohibitory words therefore was never con- sidered by the house of lords, is of itself sufficient to show that the view taken in those cases is not necessarily binding in the present one. The 7th section of 7 & 8 Vict. c. 110, re- quires that companies constituted under it should be formed by a deed setting forth among other things the business or pm-pose of the company, and by section 25, on obtain- ing a certificate of complete registration, the shareholders are to be incorporated for the pm-poses of the trade or business for which the company was formed, according to the provisions of the Act and of the deed; but section 7 also gives the power of registering a fm-ther or supplemental deed if not repug- nant to the act, for the purpose of supplying any omission or defect as regards the mat- ters required to be set forth in the deed of settlement, and under such a supplementary deed such alterations in the mode of dealing with the forfeitm-e of shares might have been adopted as were the subject of the con- tracts made in the case of the Agi'icultm-ists' Cattle Insm-ance Company, out of which Spackman v. Evans, L. R. 3 H. L. 171, and the other cases which followed it arose. Upon this view, therefore, 7 & 8 Vict. c. 110, provided means for formally giving effect to the contracts which were asserted to have been ratified in those cases. It is true that this distinction was not ad- verted to in those cases, but there was no oc- casion to institute any comparison between the two acts, or to put any construction on the act of 1SC2. But in Dent's Case (In re Anglo-Mo- * KEATING and QUAIN, JJ., concurred in the opinion of ARCHIBALD, J. ravian Hungarian Junction Ry. Co.), L. R. 8- Ch. App. 771, decided by Lord Chancellor Sel- borne since the argument in this case, it was held that, under the Companies Act, 1862, articles of association professing to confer au- thority to modify the memorandum beyond the limited extent allowed by the act ar& void, and the necessity of a rigid adherence to the directions of the act is insisted on. The lord chancellor says in giving judgment: "We must not forget the important change made by the act which introduced limited li- ability. Before that act, partners in a trad- ing partnership could not prescribe a limit t» their liability. In favour of the sharehold- ers tlie legislature permitted a limit to be placed on the liability, but it prescribed the- means by which alone this could be done, and those means must be exactly adhered to; and the act expressly says that it must be done by the memorandum of association. Then the 23d section of the act provides that any subscriber of the memorandum shall be deemed to have agreed to become a member of the company, and shall be entered as a member of the register; and the 38th sec- tion provides, that the members of the com- pany shall be liable for no more than the unpaid portion of their shares. All these provisions have reference to the memoi-an- dum by which the shares are to be limited. In the present case, the memorandum men- tions the limit of the sliares; and the effect of a person subscribing the ' memorandum was to make him liable for 201. on each share, and in some way or other he must pay it. That was laid down expressly in the case decided by Ijord Justice GifCard,— In re Bag- Ian Hall Colliery Co., L. R. 5 Ch. App. 346, —who said that if there were in that respect a contradiction between the articles and the memorandum, the articles must give way. * * * Then the 12th section of the act pror vides, that the conditions contained in the memorandum of association may be modified to a limited extent if the articles authorize it. But that could only be done (I am speaking of the law as it stood at the time when the question in this case arose) by the increase of capital or the consolidation or division of stoclv; and then the clause goes on, 'but save as aforesaid, and save as hereinafter provid- ed in the case of a change of name, no al- teration shall be made by any company in the conditions contained in its memorandum of association.' It is quite certain that un- der that clause, if there be found anything in the articles limiting the liability of the shareholders in a way inconsistent with the memorandum— anything tending to reduce the liability of the shareholders thereby pre- scribed—it is simply void." The privilege of contracting as a corpora- tion and with a limited liability is conferred, only subject to the express directions and limitations of the act, of which it seems to- me to be the policy as well as the true con- struction, to ignore (so to speak) the exist- 42 KICHE V. ASHBURY RAILWAY CARRIAGE & IRON CO. (Ch eace of the corporation and the power of the shareholders, even when unanimous, to con- tract or act In its name for any pui^ose sub- stantially beyond or in excess of its objects as defined by the memorandum of associa- tion; but if the business of a company as thus defined could be extended or altered by the consent of all the shareholders, notwith- standing the express prohibition of section 12, there would be an easy means of acquir- ing exceptional privileges whilst completely evading the act. A company registered for one purpose would practically obtain powers to cany out in its corporate name and character, and with a limited liability on the part of the shareholders, objects entirely different, and might undertalie business or contracts alto- gether at variance with its object as set forth in the registered memorandum, with- out any notice whatever to the public. The shareholders in such a company might of com'se change from day to day, and per- sons buying shares, or even entering into con- tracts on the faith of the registered memo- randum, might find all the funds of the com- pany already pledged for totally different ob- jects. Of course the individual shareholders assenting would have no just gi-ound of com- plaint, but the fact that their acts might thus operate to the prejudice of strangers subsequently acquiring shares, or contract- ing with them on the faith of the registered documents of the company, goes far to prove to me though all join in a contract beyond the competency of the company, the contract cannot be regarded as a contract by the cor- poration, but must be dealt with as one bind- ing the shareholders, if at all, merely as in- dividuals and not in their corporate capacity. I admit that at common law (as was re- solved in the case of Sutton's Hospital, 10 Coke, 30b,) when a corporation is duly cre- ated all other incidents are tacite annexed, such as liability to purchase and alien, to sue and be sued, and to use what seal they will; and that even a clause in their charter resti-aining them from aliening or demising but in a certain form, though an ordinance testifying the desire of the crown, is to be deemed but a precept and not binding in law, so that a corporation thus constituted ac- quires rights of contracting as extensive as those of a natural person; but the question under consideration has reference to the cre- ation of corporations by statute with a lim- ited scope and objects, and to the true con- struction of the statute law in regard to such bodies, a question which depends necessarily to a gi-eat extent, where the legislative pro- visions are not unmistakeably clear and ex- press the other way, on the general policy of such legislation. No doubt, as observed by Lord Cranwortli (Shrewsbury & B. Ry. Co. v. Northwestern Ry. Co., 6 H. L. Cas., at page 135, 26 L. J. Oh., at page 493), when the legislature con- stitutes a corporation it gives to that body prima facie an absolute right of contracting. But he goes on to say, "that this prima facie right does not exist in any case where the contract is one which, from the nature and objects of the incorporation, the corporate body is expressly or impliedly prohibited from making." Adopting this view, what can rebut more sti'ongly the presumption of a prima facie general authority to contract than an express provision that the scope and objects of the company, as originally declared by its mem- orandum of association, shall be unchange- able, and in effect, therefore, that its cor- porate capacity shall exist only within the limits and for the purposes thus defined? This argument is rendered more cogent by the consideration that the I'egistered mem- orandum is notice to the public of the pur- poses for which alone the corporation exists, and of the scope of its powers; and that, in the case of a registered company, those who contract with it must be taken to have read its" registered documents, and to be aware of any restrictions imposed by them on its capacity to contract. Bank v. Turquand, 6 EI. & Bl. 327. As to contracts substantially beyond Its scope and objects, I prefer to I'egard the case as one of incapacity to contract, rather than of illegality, and the corporation as if it were non-existent for the purpose of sucji con- tracts. If, then, I am correct in this view, how can the individual assents of all the shareholders be sufficient to affirm or give va- lidity to a contract which is beyond the scope and objects of the memorandum, so as to render it a contract of the ideal legal body, which exists only as a corporation, and with powers and capacity which are thus admit- tedly exceeded? I am unable to agree with my late Brother Channell, that it is settled by the more recent authorities that shareholders in a company registered under the act of 1862 may bind themselves in their corporate capacity by their individual assents to contracts not au- thorized by the memorandum of association. I cannot regard the cases of Spackman v. Evans, L. R, 3 H. L. 171; Evans v. Small- combe, Id. 249 ; and Houldsworth v. Evans, Id. 263, as authorities to that effect; and I know of none others which can be so regarded. They may well do so with respect to any matter as to which they would have power under the act (if it were done formally) to make an alteration in the memorandum or in the arti- cles of association, but not otherwise; and I think that the distinction suggested on this ground by the counsel for the defendants be- tween this case and that of Lime Co. v. Green, L. R. 7 C. P. 43, is a sound one. In that case an alteration, which it was compe- tent to them to have made, in the articles of association would have enabled the com- pany to have done in a formal manner what was done informally by the assent of all the Cli. 5) EICIIE V. ASIIBCUr RAILWAY CARRIAGE & IRON CO. 43 shareholders. But as the contracts in ques- tion here are to my mind cleai ly and en- tirely beyond the scope of the memorandum or of any alteration that could be made in it, and therefore beyond the scope of the in- corporation, I have arrived at the conclusion that they are Incapable of ratification so as to bind the body corporate. But even if capable of ratification, have they been in fact ratified by the assent, ex- press or implied, of all the shareholders? « * « If, therefore, it had been competent to the shai-eholders to have ratified, and all had as- sented to the arraugement made on the 14th of May, 1867, the plaintiff would, in my opinion, have been entitled to recover. But as I thinli there is no proof of such assent by all th6 shareholders, and still more on the ground that the contracts under the circum- stances wete wholly incapable of ratification, I am of opinion that the question submitted in the case must be answered in the negative, and that the judgment of the court of ex- chequer should be reversed. Judgment af- firmed. 44 CENTRAL TUANSP. CO. v. PUIJ.MAX'S PALACE CAR CO. (Ch. b CENTRAL TRANSP. CO. v. PULLMAN'S PAL- ACE CAR CO. (11 Sup. Ct. 478, 139 U. S. 24. March 2, 1891.) In error tothecircuitcourt of the United Stales for the eastern district ol Pennsyl- vania. This wa.s an action of covenant, brought September 21, 1S86, by the Central Trans- portation Company, a corporation of Pennsylvania, against Pullman's Palace Car Company, a corporation of Illinois, to recover tlie sum of $19S.()0(>. due for tne last three-(iuarters of the year endingjuly 1, 1S86, according to the terms of an in- denture of lease from the plaintiff of all its pergonal property to the defendant, dated February 17, 1870, and set forth in full in the declaration. The defendant tiled sev- eral pleas, one of which was" that said in- denture of lease was void in law as be- tween the parties thereto, for the want of authority and corporate power on the part of the parties thereto to make and enter into said indenture of lease; and for that the same was in excess and in viola- tion of the charters conferring the corpo- rate powers on said plaintiff, and of the purpose of their incorporation." The plaintiff filed a replication, traversing the averments of this plea. The plaintiff was originally incorporated December 26, 1862, by a certificate or charter, made, acknowl- edged, recorded, and filed In the office of the secretary of the commonwealth, as re- quired by Ihe general laws of Pennsyl- vania, which authorized companies to in- corporate themselves, by voluntary act of the associates, "for the purpose of carry- ing on the manufacture of woolen, cotton, flax, or silk good?, or of iron, paper, lum- ber, or salt," or "for the manufacture of articles from iron and other metals, or out of wood, iron, and other metals," within the state, for a term not exceeding 20 years; and provided that every corpora- tion so formed might by Its corporate name purchase, hold, and conves' real or personal property, "necessary or conveo- ient to enable the said company to carry on the business or operations named in such certificate;" and that its stock, prop- erty, and affairs should be managed by a board of directors, a majority of whom in all cases should be stockholders therein and citizens of the state; and authorized the directors, subject to the revision and approval of the stockholders, to make such by-laws for the management and disf)osition of its stock and affairs, "and for carryir.g on all kinds of business with- in the objects and purposes of such com- pany;" and forbade the company to use any part of its capital stock or other funds in thepurchase of stock in any other corporation. St. Pa. April 7,1849, No. 368, §§1,3,4,8; Id. April 1,1853, No. 186, §2. In accordance with the requirements of those statutes, the plaintiff's certificate of incor- poration or charter stated the object for which it was formed, "the transportation of passengers In railroad cars constructed and to bo owned by the said company in accordance with the several letters pat- ent, " four in all, described by numbers and dates ; the place where its cliief operations were to be carried on, Philadelphia; the amount of its capital stock, $200,000; and its term of continuance. 20 years, the ex- treme limit allowed by the statutes. By a special act of the legislature of Pennsyl- vania of February 9, 1870, No. 94, entitled "An act to extend the charter of the Cen- tral Transportation Company, to fimpow- er them to lease their property and in- crease their capital stock," the plaintiff's charter was extended foj 99 years from its expiration; and "said company are here- by empowered to enter into contracts with corporations of this or any other state for theleasing or hiring and transfer to them, or any of them, of their railway cars and other personal property," as well as " to increase their present capital stock two hundred thousand dollars. " On Feb- ruary 17, 1870. eight days after the passage of that act, the indenture sued on was made by and between the plaintiff and the defendant, which had been incorporated three years before, with a capital stock of $100,000, by a special act of the legislature of Illinois of February 22. 1867, (declared to be a public act,) "to manufacture, con- struct, and purchase railway cars, with all convenient appendages and supplies for persons traveling therein, and the same" to "sell or use, or permit to be used, in such manner and upon such terms as the said company may think fit and proper. " The indenture, after the statement of the names of the parties, began with the fol- lowing recitals: "Whereas, the parties hereto are engaged in the business of man- ufacturing railway cars, generally known as sleeping-cars, under certain patents be- longing to them, respectively, and of hir- ing the same to railroad companies under written contracts, to be used and em- ployed on and over the lines of the roads of said railroad companies, and receiving therefor income and revenue by the sale to passengers of the berths and accommoda- tions therein; and whereas, the demands of the public for increased means of per- sonal comfort and convenience in travel- ing, of avoiding repeated changes of cars over long routes of railroad, the necessity for affording, at fair and reasonable rates, these advantages, which cannot be ex- tended by railroad companies themselves, require that every possible means should be adopted to meet such demands by avoiding the inconvenience and curtailing the expenses incidental to the maintenance of the business management and organ- ization of two separate corporations." It further recited that the parties (profess- ing to act under the powers conferred up- on them, respijctively, by the special acts of the legislatures of Pennsylvania and of Illinois, above mentioned) had agreed that the plaintiff should demise, transfer, and set over to the defendant, and the de- fendant should take, all the plaintiff's rail- way cars, contracts, patent-rights, and personal property. By that indenture, ac- cordingly, the plaintiff "granted, demised, transferred, and set over" 119 railway sleeping-ears, with their equipment, its contracts with 16 railroad companies, (copies of which were annexed to and made parts of the indentui'c,) all its pat- Ch. 5) CEJfTRAL THANSP. CO. v. PULLMAN'S PALACE CAR CO. 45 ent-rights, (an assignment of -whicli, in- cluding thefour specified in its charter and 13 others, was also annexed to the indent- ure and made part thereof,) and all its "personal property, rights, credits, mon- eys, and effects, rights of action, money due and to become due from licenses here- tofore granted," to the defendant, its suc- cessors and assigns, "to have and to hold the above demised pi'oi)erty, and all in- come, revenue, and profit to be derived therefrom," for the term of 99 years from January 1, 1S70, except so far as the con- tracts, patents, and licensss should expire sooner; and the plaintiff expressly cove- nanted that it would use its influence to obtain renewals or new contracts in the defendant's name from the railroad com- j)j)nies; and that it "shall and will not en- (•nsre in the business of manufacturing, us- ing, or hiring slseping-cars" while this con- tract remains in full force and effect. The defendant, on its part, covenanted to i>ay to the plaintiff annually the sum of $264,- 000, in equal quarterly installments, "dur- ing the entire terra of ninety-nine years, " unless, upon a diminution of the revenue received from the railroad companies, the indenture should be declared void by the defendant, or the annual sums payable by the defendant be reduced, as therein pro- vided; also to pay all the plaintiff's debts up to .January 1, 1870, according to a schedule annexed, by which they were not to exceed the sum of $63,99S.69, that being the amount of cash transferred by the plaintiff to thedefendant; tocontinue and curry on the business as authorized by its charter, during the existence of the as- signed contracts or other like contracts with the same railroad companies; to keep in repair the cars and their equip- ment, and to renew and reconstruct theui when needful; not to assign the in- denture without the plaintiff's assent, nor to ci-eate any lien or mortgage upon the property that should impair the plaintiff's rights under the indenture; that, upon the defendant's failure to make any quar- teiiv payment for 30 days after due, the plaintiff might avoid the indenture, and thereupon the defendant should surrender the cars and equipment, assign to the plaintiff the contracts with the railroad companies and any unexpired patent- rights, and cease to run or employ cars on the same lines of railroad; and, at the end of the 99 years, to deliver to the plain- tiff the cars and equipment in good order, and assign to the plaintiff any unexpired contracts with those railroad companies. At the trial, in May, 1888, the plaintiff offered in evidence its original charter, the statute of Pennsylvania of February 9, 1870, and the indenture of February 17, 1870. as well as evidence tending to show that the defendant, under that indenture, entered into possession of the plaintiff's property, and continued in possession dur- ing the period coveied by the declaration. To the admission of all this evidence the defendant objected, "on the ground that it was beyond the powei- of either corpo- ration to make the contract; and also be- cause it was null and void by reason of its being in restraint of trade, and against public policy as preventing competition. The court sustained the objection, and ex- cluded the evidence, and the plaintiff ex- cepted. The plaintiff then offered toprove, in addition to the above evidence, that in pursuance of the indenture of February 17, 1870. the plaintiff's cars, contracts, and patent-rights were delivered to the defend- ant, and continued in its possession under the indenture, and the defendant insisted on retaining them until July 1, 1886, and the defendant then for the first time ten- dered them to the plaintiff, and declared the indenture void, in accordance with its provisions. The defendant objected to this evidence; the court sustained the ob- jection, and excluded the evidence; and the plaintiff excepted. The defendant thereupon moved for a nonsuit, and the court granted the motion, and ordered a nonsuit, and refused a motion of the plain- tiff to take it off : and the plaintiff again excepted. A judgment of nonsuit was en- tered accordingly, and the plaintiff ten- dered a bill of exceptions, which was al- lowed by the court, and sued out this writ of error. Mr. Justice GRAY, after stating the case as above, delivered the opinion of the court. The principal defense in this case, duly made by the defendant, by formal plea, as well as by objection to the plaintiff's evidence, and sustained by the circuit court, was that the indenture of lease sued on was void in law, because beyond the powers of each of the corporations by and between whom it was made. There is a preliminary question of practice, aris- ing out of the manner in which the case was disposed of below, which is deserving of notice, although not mentioned by coun- sel in argument. The circuit court, in or- dering a n(jusuit because in its opinion the evidence offered by the plaintiff was in- sufficient in law to maintain the action, acted in accordance with the statute of Pennsylvania, which provides that "it shall be lawful for the judge presiding at the trial to order a judgment of nonsuit to be entered, if in his opinion the plaintiff shall have given no such evidence as in law is sufficient to maintain the action, with leave, nevertheless, to move the court in banc to set aside such judgment of non- suit; and, in case the said court fn feane shall refuse to set aside the nonsuit, the plaintiff may remove the record by writ of error into the supremecourt for revision and review, in like manner and with like effect as he might removf a judgment ren- dered against him upon a demurrer to evi- dence." St. Pa. March 11, 1836, § 7; Id. March 11, 1875, § 1 ; 2 Purd. Dig. (11th Ed.) pp. 1362, 1363. Under that statute, as ex- pounded by Chief Justice Gibson, the judge can order a nonsuit, only when all the evidence introduced, with every inference of fact that a jury might draw from it in favor of the ijlaintiff, appears to be insuffi- cient in matter of law to sustain a verdict; and the defendant's motion for a nonsuit is eouivalent to a demurrer to evidence, differing only in the judgment thereon not being a final determination of the rights of the parties, for it it is in favor of the plaintiff the case must be submitted to the 46 CENTRAL TRANSF. CO. o. PULLMAN'S PALACE CAR CO. (Ch. jury, and if in favor of the (iefendant it is 111) bar to a new action. Smyth v. Crfiig, 3 WiittK & S. 14; Fleming v. Insurance Co., Brifihtly, N. P. 102; Bournonville v. Good- all. 10 Pa. St. 133. It is true that a plain- tiff, who appears by the record to have voluntarily become nonsuit, cannot sue out a writ of error. U. S. v. Evans, 5 C'ranch, 280; Evans v. Phillips, 4 Wheat. 73; Cossar v. Reed, 17 Q. B. 540. But in the case of a compulsorj' non.suit it is otherwise; and a plaintiff, against whom a judgment of nonsuit has been ren- dered without his consent and against his objection, is entitled to relief by writ of error. Eliuore v. Grynies, 1 Pet. 4(i9; Strother v. Hutchinson, 4 Bing. N. C. s::!, ,5 Scott, 346, fi Dow. 238; Voorhees v. Coombs,. 33 N. J. I>aw, 482. There are many cases in the books in which this court has held that a court of the United States had no power to order a nonsuit without the plaintiff's acquiescence. El- more v. Grymes. above cited; Crane v. Morris, 6 Pet. 59S, 609; Silsby v. Foote, 14 How. 21S; Castle v. Bullard, 23 How. 172, l!S3. Yet, instead of overruling, upon that ground alone, exceptions to a refusal to or- der a nonsuit, this court, more than once, has considered and determined questions of law upon the decision of which the non- suit was refused in the court below. Crane V. Morris and Castle v. Bullard, above cited. The difference between a motion to order a nonsuit of the plaintiff and a mo- tion to direct a verdict for the defendant is, as observed by Mr. Justice FiKt.D, deliv- ering a I'ecent opinion of this court, "rather a matter of form than of substance, except [that] in the case of a nonsuit a new ac- tion may be brought, whereas in the case of a verdict the action is ended, unless a new trial be granted, either upon motion or upon appeal." Oscanyan v. Arms Co., 103 U. S. 261, 264. Whether a defendant in an action at law may present in the one form or in the other, or by demurrer to the evidence, the defense that the plaintiff, upon his own case, shows no cause of ac- tion, is a question of "practice, pleadings, and forms and modes of proceeding," as to which the courts of the United .States are now required by the act of congress of June 1, 1872, c. 255, § 5, (17 St. 197,) re-en- acted in section 914 of the Revised Stat- utes, to conform, as near as may be, to those existing in the courts of the state within which the trial is had. Sawin v. Kenny, 93 U. S. 289; Ex parte Boyd, 105 U. S. 647; Chateaugay Ore, etc., Co., Peti- tioner, 128 U. S. 544, 9 Sup. Ct. Rep. 150; Glenn v. Sumner, 132 U. S. 152, 156, 10 Sup. Ct. Rep. 41. It is doubtless within the authority of the presiding judge, and is often more con- venient, in order to prevent the case from being brought up in such a form that the judgment of the court of last resort will not finally determine the rights of the par- ties, to adoptthe course of directing a ver- dict for the defendant and entering judg- ment thereon. But the judgment of non- suit, being a final judgment disposing of the particular case, and rendered upon a ruling in matter of law duly excepted to by the plaintiff, is subject to be reviewed in this court by writ of error. It was therefore rightly assumed by the counsel of both parties at the argument that the only question to be determined is of the correctness of theruling sustaining the de- fense of ultra vins, independently of the form in which that question was present- ed and disposed of. Upon the authority and the duty of a corporation to exercise the powers granted to it by the legisla- ture, and those only, and upon the in- validity of any contract, made beyond those powers, or providing for their dis- use or alienation, there is no occasion to refer to decisions of other courts, because the judgments of this court, especially those delivered within the last 1" years by the late Mr. Justice Miller, afford satis- factory guides and ample illustrations. The earliest case in this court which touches the subject is Railroad Co. v. Wi- nans, decided at December term, 1854, in which a railroad corporation unsuccess- fully tried to escape liability for an un- licensed use of the plaintiff's patent in cars run over its road, upon the ground that the cars were constructed, owned, and used by another corporation under a con- tract with the defendant. Mr. Justice Campbell, delivering judgment, said: "Importantfranchises were conferred upon the corporation to enable it to provide the facilities to communication and inter- course required for the public convenience. Corporate management and control over these were prescribed, and corporate re- sponsibility for their insufficiency provid- ed, as a remuneration to the community for their grant. The corporation cannot absolve itself from the performance of its obligations, without the consent of the legislature." 17 How. 30, 39. In Pearce v. Railroad Co., at December term, 18.58, it was adjudged that two cor- porations, chartered by the state of Indi- ana to construct and manage distinct, though connecting, railroads, had no pow- er to consolidate themselves into one cor- poration, or to establish a connecting steam-boat line on the Ohio river, and therefore were not liable to be sued upon a promissory note which they had given in payment for a steam-boat. The same justice, in delivering the opinion of the court, stated the reasons for the decision as follows- "The rights, duties, and ob- ligations of the defendants are defined in the acts of the legislature of Indiana un- der which they were organized, and refer- ence must be had to these, to ascertain the validity of their contracts. They em- power the defendants, respectively, to do all that was necessary to construct and put in operation a railroad between the cities which are named in the acts of in- corporation. There was no authority of law to consolidate these corporations, and to place both under the same manage- ment, or to subject the capital of the one to answer for the liabilities of tht other; and so the courts of Indiana have deter- mined. But, in addition to that act of illegality, the managers of these corpora- tions established a steam-boat line to run in connection with the railroads, and there- by diverted their capital from the objects contemplated by their charters, and ex- posed it to perils for which Ihey afforded Ch. 5) CENTRAL TKAXSP. CO. v. PULLMAN'S PALACE CAR CO. 47 no sanctiou. Now, persons dealing with the managers of a corporation must take notice of the limitations impospil upon their authority by the act of incorpora- tion. Their powers are conceded in con- sideration of the advantage tlie public is to receive from their discreet and intelli- gent employment, and the public have an interest that neither the manajiers nor stockholders of the corporations shall transcend their authority." 21 How. 441- 443. In Zabriskie v. Railroad Co., at Decem- ber term, 1859, this court, again speaking by the same justice, while affirming and acting on the principle that a corporation may be bound by the conduct and repre- sentations of its directors in "those cases in which a corporation acts within the range of its general authority, but fails to comply with some formality or rei^ulation which it should not have neglected, but which it has chosen to disregard," took the precaution to observe: "This princi- ple does not impugn the doctrine that a corporation cannot vary from the object of its creation, and that persons dealing with a company must take notice of Vi'hat- ever is contained in the law of their or- ganization. This doctrine has been con- stantly affirmed in this court." 23 How. 3S1, 398. In Thomas v. Railroad Co., 101 U. S. 71, decided at October term, 1879. it was ad- judged that a lease for 20 years by a rail- road corporation of its railroad, rolling stock and franchises, in consideration of being paid one-half of the gross sums col- lected from the operation of the road by the lessees during the term, and reserving to the lessor a right to terminate the lease and retake possession of the road at any time, paying to the lessees the value of the unexpired term, was void; and that the corporation, upon terminating the lease and resuming possession when the lessees had been in possession five years, and the accounts of the parties for those years having been adjusted and paid, was not liable to an action by the lessees to recov- er the value of the unexpii-ed term ; and Mr. Justice Miller, in the course of deliv- ering judgment, said: "The authority to make this lease is placed by counsel pri- marily in the following language of the thirteenth section of the company's char- ter: 'That it shall be lawful for the said company, at any time during the contin- uance of its charter, to make contracts and engagements with any other corpora- tion, or with individuals, for the trans- porting or conveying any kinds of goods, produce, merchandise, freight, or passen- gers, and to enforce the fulfillment of such contracts.' This is no more than saying: 'You may do the business of carryinggoods and passengers, and may make contracts for doing that business. Such contracts you may make with any other corpora- tion orwith individuals.' No doubt aeon- tract bv which the goods, received from railroad or other carrying companies, should be carried over the road of this company, or by which goods or passen- gers from this road should be carried by other railroads, whether connecting im- mediately with them or not, are within this power, and are probably the main object of the clause. But it is impossible, under any sound rule of construction, to find in the language used a permission to sell, lease, or transfer to others the entire road, and the rights and franchises of the corporation. To do so is to deprive the company of the power of making those contracts which this clause confers, and of performing the duties which it implies. " Id. 80. "The authority to build a railroad, and to contract for carrying passengers and goods over it and other roads, is no authority to lease it, and with the lease to part with all its powers to another com- pany or to individuals." Id. 81. "Tne powers of corporations organized under legislative statutes are such, and such only, as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it remains that the charter of a corporation is the measure of its powers, and that the enumeration of these powers implies the exclusion of all others. " Id. 82. " There is another princi- ple of equal importance, and equally con- clusive against the validity of this con- tract, which, if not coming exactly within the doctrine of ultra, vires as we have just discussed it, shows very clearly that the railroad coniijany was without the power to make such a contract. That piinciple is that where a corporation, like a rail- road company, has granted to it by char- ter a franchise intended in large measure to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any contract which disables the corporation from performing those functions, which undertakes, witliout the consent of the state, to transfer to others the rights and powers conferred by the charter, and to relieve the grantees of the burden which it imposes, is a violation of the contract with the state, and is void, as against public policy. " Id. 83. It was also held in that case that the lease was not made valid by a subsequent act of the legisla- ture, regulating the rates of fares and freights to be charged by "the directors, lessees, or agents of said railroad;" the court saying: "It is not by such an inci- dental use of the word 'lessees,' in an effort to make sure that all who collpcted fares should be bound by the law, that a con- tract unauthorized by the charter, and •forbidden by public policy, is to he made valid, and ratified by the state." Id. 85. In Branch v. Jesup, Mr. Justice Bkad- LEY, delivering judgment, said : " General- ly, the power to sell and dispose has refer- ence only to transactions in the ordinary course of business incident to a railroad company ; and does not extend to thesale of the railroad itself, or of the franchises connected therewith. Outlying lands, not needed for railroad uses, may be sold. Machinery and other personal property may be sold. But the road and franchises are' generally inalienable; and they are so, not only because they are acquired by legislative grant, or in the exercise of spe- cial authority given, for the specific pur- poses of theincorporatingact. but tiecause they are essential to the fulfillment of those 48 CENTRAL TKANSP. CO. v. TULLMAN'S PALACE CAR CO. (Ch. purpo.'ses; and it would be a dereliction of the duty owed by the corporation to the state and to the public to part with them." And a lease from one railroad corporation to another was upheld in that case, only because the lessor had by its charter express authority, not only to purchase, hold, and convey pi'operty, real and personal, and to connect its road with any other road, but also to incorporate its stock with that of any other company, which, it was observed, "contemplates not only the possible transfer of the rail- road and its franchises to another com- pany, but even the extinguishment of the corporation itself, and Its absorption into a different organization. The greater power of alienating or extinguishing all its franchises, including its own being and existence, contains the lesser power of alienating its road, and the franchises in- cident thereto, and necessary to its opera- tion. Its power of alienation and sale ex- tends to a class of subjects to which it does not ordinarily apply." 106 D. S. 468, 478, 479, 1 Sup. Ct. Kep. 495. In Pennsylvania R. Co. v. St. Louis, etc., It. Co., thesameprinciples were reaffirmed; and the court, again speaking by Mr. Justice Mii-LBU, after referring to some of Iheprevious decisionson thesubject iuthia and other courts, stated, "as the just re- sult of these cases and on sound principle, that unless specially authorized by its charter, or aided by some other legislative action, a railroad company cannot, by lease or any other contract, turn over to another company, for a long period of lime, its road and all its appurtenances, the use of its franchises, and the exercise of its powers; nor can any other railroad company, without similar authority, make a contract to receive ancj operate «uch road, franchises, and property of the (irst corporation; and that such a con- tract is not among the ordinary powers of a railroad company, and is not to be presumed from the usual grant of powers in a railroad charter." In that case it was held that a lease for 99 years of a rail- road in Illinois and Indiana from a rail- road corporation of Illinois to a railroad corporation of Indiana, whose road con- nected with the road leased, was within the authority conferred on the lessor by the statute of Illinois, which emiiowered all railroad corporations of that state to make "contracts and arrangements with each other, and with railroad corpora- tions of other states, for leasing or run- ning their roads, or any part thereof ;" yet was unlawful and void, because beyond the authority conferred upon the lessee by the statute of Indiana, empowering any railroad corporation of that state, whose road connected with . a railroad in an adjoining state, "to make such eon- tracts and agreements with any such road constructed in an adjoinini? state, for the transportation of freight and passengers, or for the use of its said road, as to the board of directors may seem proper;" the court saying that it could not "see in this provision any authority to make con- tracts beyond those which relate to for- warding by one company the passengers and freight of another, on terms to be agreed on, and possibly for the use uf the road of onecompanyin running thecarsof the other over it toits destination without breaking bulk. " 118 U. S. 290, 309, 312, 630, 6 Sup. Ct. Rep. 1094, 7 Sup. Ct. Rep. 24. la anothercase, decided about the same time, the same justice, in delivering an opinion by which a corporation was held to be liable for a tort done by its agents in the course of its business and of their employ- ment, although in excess of its powers, observed: "The question of the liability of corpoiations on contracts which the law does not authorize tliem t(» make, and which are wholly beyond the scope of their powers, is governed by a different principle. Here the party dealing with the corijoration is under n would relief be afforded to any party to aot illegal contract, unless he applied for such re- lief, or, at least, had elected to disafflrna. the contract while it remained executory. This position cannot, I think, be sustained. It overlooks distinctions which are clearly settled. The cases in which the com-ts willi give relief to one of the parties on the ground that he is not in pari delicto, form an in- dependent class, entirely distinct from those- cases which rest upon a disaffirmance of the contract before it is executed. It is esseur tial, to both classes, that the contract be merely malum prohibitum. If malum in se, the com-ts will in no case interfere to relieve either party from any of its consequences. But where the contract neither involves mor- al turpitude nor violates any general prin- ciple of public policy, and money or property has been advanced upon it, relief will be granted to the party making the advance (1) • where he is not in pari delicto; or (2) in some cases where he elects to disaffirm the- contract while it remains executory. In cases belonging to the first of these classes, it is of no importance whether the contract has been executed or not; and in those be- longing to the second, it is equally unim^- portant that the parties are in pari delicto. This will clearly appear upon a brief review of some of the leading cases. The first case which I deem it material to- notice is that of Smith v. Bromley, Doug. 695, note. The plaintiff's brother having be- come bankrupt, and a commission having been taken out against him, the plaintiff ad- vanced £40 to the defendant, who was the principal creditor, to induce him to sign the certificate. The action, which was brought to recover this money, was sustained. In re- ply to the argument that the plaintiff was seeking to recover back money paid upon an illegal contract. Lord Mansfield said: "If the act is in itself immoral, or a violation of the general laws of public policy, then the party paying shall not have this action; for when both parties are equally criminal against such general laws, the rule is 'potior est conditio defendentis.' But there are oth- er laws which are calculated for the protec- tion of the subject against oppression, ex- tortion, deceit, &c. If such laws are vio- lated, and the defendant takes advantage of the plaintiff's condition or situation, then the plaintiff shall recover; and it is astonishing that the reports do not distinguish between violations of the one sort and the other." Two things are to be noted in this extract: That a distinction is taken between contracts malum prohibitum merely, and such as are immoral or contrary to general principles of policy; and also that stress is laid upon the fact that the law contravened in this case was intended to protect one party from op- 7-1 THACY c. TALMAGK. (Cb. presslon by the other. The first is a valid distinction, which runs through all the sub- sequent cases — the last was merely incidental to the particular case, and not essential to the principle. The first cases in which the principle was applied, were naturally those where the statute violated was intended for the special protection of the party seeking relief from some undue advantage taken by the other, because those were the cases in which the injustice of applying the same rule to both parties would be the most glar- ing. But it soon came to be seen that the principle was equally applicable to cases where the law infringed was intended for the protection of the public in general. The case of .Taques v. Golightly, 2 W. BI. 1073, was an action brought to recover back money paid for insuring lottery tickets. The defendant kept an office for insurance con- trary to the statute 14 Geo. III. c. 76. It was urged that the plaintiff being partlceps criminis, and having knowingly transgressed a public law, was not entitled to relief; but tlie action was sustained by the unanimous opinion of the court. Blackstone, J., said: "These lottery acts differ from the stock- jobbing act of 7 Geo. II. c. 8, because there both parties are made criminal and subject to penalties." The rule here suggested for determining whether the parties are in pari delicto, seems reasonable and just. There are, undoubtedly, other cases in which the parties are not equally guilty; but it is safe to assume, that whenever the statute imposes a penalty upon one party and none upon the other, they are not to be regarded as par delictum. In Browning v. Morris, 2 Cowp. 790, Lord Mansfield, after referring with ap- probation to the case of Jaques v. Golightly, reiterates the argument of Blackstone, J., in that case. He says: "And it is very ma- terial that the statute Itself, by the distinc- tion it makes, has marked the criminal, for tlie penalties are all on one side, — upon the ofiicekeeper." The question next arose in the case of .Taques v. Withy (1 H. Bl. 05), which is iden- tical with the case of Jaques v. Golightly, de- cided by the same court fifteen years before. The action was brought to recover back money paid for insurance to the keeper of a lottery insin-ance office, and it was held to lie. It will be seen that these two cases are not like that of Smith v. Bromley, where an undue advantage was taken of the peculiar situation of the plaintiff; and that although some effort is made in Jaques v. Golightly, and by Lord Mansfield in Browning v. Mor- ris, supra, to bring them within the reason- ing of that case, they are really placed upon the broad ground that the parties are not in pari delicto, and, as evidence of this, the court rely upon the fact that the penalty was imposed upon the defendant alone. A simi- lar question came before the court of king's bench in the case of Williams v. Hedley, 8 East, 378, where the previous cases were ably and elaborately reviewed by Lord Ellen- borough. The action was brought to recover back money which had been paid by th^ plaintiff to compromise a qui tarn action pending against him for usury. The princi- ple of the decision cannot be better stated than by transcribing the head note of the reporter, which is this: "Money paid by A. to B., in order to compromise a qui tarn ac- tion of usury brought by B. against A. on the ground of a usurious transaction between the latter and one E., may be recovered back in an action by A. for money had and re- ceived; for the prohibition and penalties of the statute of IS Eliz. c. 5, attach only on the informer or plaintiff or other person suing out process in the penal action' making com- position, &c., contrary to the statute, and not upon the party paying the composition; and, therefore, the latter does not stand, in this respect, in pari delicto, nor is he particeps criminis with such compounding informer or plaintiff." These are the leading English cases on this subject; and it is plain that they do not rest solely upon the ground that the statute in- fringed was intended to protect one party from acts of oppression or extortion by the other; and equally plain that relief is grant- ed in this class of cases entirely irrespective of the question whether the contract be executed or executory. It was, in fact, exe- cuted in all these cases. The series of cases here referred to have never been overruled. On the contrary, they have been expressly sanctioned and ap- proved in several American cases. In In- habitants V. Eaton, 11 Mass. 308, Chief Jus- tice Parker, after referring to the cases of Smith V. Bromley and Browning v. Morris, supra, and to the distinction there taken, says: "This distinction seems to have been ever afterwards observed in the English courts; and being founded in sound prin- ciple, is worthy of adoption as a principle of common law in this coimtry." The case of White V. Bank, 22 Pick. 181, proceeds up- on the same distinction. It is impossible, as it seems to me, to distinguish this case in principle from that now before the court. The Revised Statutes of Massachusetts (chapter 36, § 57) prohibited banks from mak- ing any contract "for the payment of money at a future day certain," under a penalty of a forfeitm-e of their charter. The plaintiff had deposited money with the defendant in February, to remain until the 10th day of August; and the action was brought to re- cover this money. It was objected that the contract was illegal and the parties particeps criminis, but the defence was overruled. This is by no means an anomalous case, as the counsel for the receiver upon the argu- ment of this case seemed to suppose. On the contrary, it belongs clearly to the same class with the EngUsh cases just reviewed. Wilde, J., who delivered the opinion of the courti after referring to those cases, and quoting Ch. 5) TUACY 0. TALMAGE. 75 the remarks of Chief Justice Parlcer in In- habitants of Worcester v. Eaton, given above, says: "The principle Is in evei-y respect ap- plicable to the present case, and is decisive. The prohibition is particularly leveled against the banlv, and not against any person deal- ing vyith the banlc. In the words of Lord Mansfield, 'the statute, itself, by the distinc- tion it makes, has marked the a-iminal.' The plaintiff is subject to no penalty, but the defendants are liable for the violation of the statute to a forfeiture of their charter." Again, in the case of Lowell v. Railroad Co., 23 Pick. 24, where the objection was raised that the parties were partlceps crim- inis, the same justice says: "In respect to of- fences in which is involved any moral de- linquency or turpitude, all parties are deemed equally guilty, and courts will not inquire into their relative guilt. But where the of- fense Is merely malum prohibitum, and is in no respect immoral, it is not against the policy of the law to inquire into the relative delinquency of the parties, and to administer justice between them, although both parties are wrong-doers." The same doctrine was reiterated in Atlas Bank v. Nahant Bank, 3 Mete. 581. The principle of these ca§es was also adopted by oiu- own supreme court in the case Mount v. Waite, 7 Johns. 434. The ac- tion was to recover back money which the plaintiffs had paid to the defendants for In- sm-ing lottery tickets contrary to the poiicy of a statute passed in 1807. Kent, O. J., says: "The plaintiffs here committed no crime in making the conti-act. They violat- ed no statute, nor was the contract malum in- se. I think, therefore, the maxim as to parties in pari delicto does not apply, for the plaintiffs were not in delicto." This case is the last of the class to which I shall refer; and I think it would be difficult to find a series of cases, running through almost I century, more uniform and consistent in tone and principle and in the distinctions upon which they are based. They have never, so far as I am aware, been overniled; and I know of no principle which would justify this court in disregarding them. The doc- trine seems to me eminently reasonable and just, and I discover no principle of public policy to which it stands opposed. On the contrary, I concur In the sentiment which Judge Wilde, in White v. Bank, expresses, thus: "To decide that this action cannot be maintained, would be to secure to the de- fendants the fruits of an illegal transaction, and would operate as a temptation to aU banks to violate the statute by taking ad- vantage of the unwary and of those who may have no actual knowledge of the existence of the prohibition, and who may deal with a bank without any suspicion of the illegality of the transaction on the part of the bank." This language is as applicable to the case before us as to that in which it was used. It is said that all persons dealing with banks and other coriwrations are presumed to know the extent of their powers. This is no doubt technically true, and yet we cannot shut om- eyes to the fact, that in veiy many cases it is a mere legal fiction. If ive take the present case as an example, it Is plain that it would not have been easy for the Morris Canal and Banking Company, with the char- ter of the Trust and Banking Company and the restraining act both before them, to de- termine whether the issue of these certifi- cates in payment for state stocks would vio- late either; and yet, upon the doctrine here contended for, an honest mistake in this respect would visit upon the former com- pany a forfeiture of the entire amount of stocks transferred, which the latter com- pany, if disposed, might pocket. Such a principle would afford the strongest possible Inducement for banks to transgress the law. All that they could get into their hands, by persuading others to take their unauthorized paper, would be theirs. Under such a rule, arguments to make it appear that they have power to do what they really have not, might be made to constitute the most available por- tion of their capital; and unauthorized deal- ing In large amounts, with foreign states or corporations not familiar with our laws, tlie most profitable branch of their business. These considerations go, in my judgment, to strengthen and confirm the doctrine of the cases referred to, which hold that relief may be granted to the more innocent, when the parties are not in pari delicto. The rule laid down in those cases for de- termining which is the more guilty party is directly applicable to the present case so far as the transaction is held to fall within the provisions of the restraining act. It has been conceded, as was contended by the counsel for the receiver upon the argument, that the issuing of the certificates in this case was a violation of sections 3, 6 and 7 of the act concerning unauthorized banking. 1 Rev. St. 712. It will be seen, by re- ferring to those sections, that the penalties are 'mposed exclusively upon the corporation violating the provisions of the act, and upon its officei-s and members. So far, therefore, as the defence is based upon a violation of the restraining act, there is that statutory designation of the guilty party upon which most of the cases to which I have referred are made to rest. But it is obvious that the general principle for which I contend applies equally to that branch of the defence which rests upon the ground that the act of the banking company in issuing the notes, was ultra vires and against public policy. The imposition of the penalties for a violation of the restraining law upon the coi-p'oration alone, does not make it the guilty pai-ty, but it Is simply evidence that the legislature so regarded It; and the reasons are equally strong for fixing the principal guilt upon the same party where its acts merely violate the principle of public policy. Although persons dealing with corporations are, for certain 76 TRACY V. TALMAGE. (Ch. 5- purposes, presumed to know tlie extent of their corporate powers, yet tliis is by no means a safe rule by which to measure the moral delinquency of the respective parties. To me, therefore, it seems plain, that wheth- er we regard the act of the Trust and Bank- ing Company in issuing the certificates in question as a violation of the restraining law, or as simply ultra vii'es, or as against public policy, the corporation is to be regard- ed as comparatively the guilty party. I wish here briefly to refer to another class of cases decided in this state, and known as the "Utica Insurance Cases," not as author- ity for my conclusion, but by way of illus- trating the distinctions to which I have ad- verted. The first of these is Insurance Co. V. Scott, 19 Johns. 1. The action was upon a promissory note discounted by the insur- ance company in the ordinary way of dis- counting by a bank. It was held that the insurance company had no power to discount notes; and that in so doing it had violated the restraining act. But the court say: "In analogy to the statute against gaming, the notes and securities are absolutely void, in- to whatever hands they may pass, but there is a material distinction between the security and the contract of lending. The lending of money is not declared to be void, and, there- fore, whenever money has been lent, it may be recovered although the security itself is void." Judgment was, however, given for the defendant in that case, because the ac- tion was brought upon the note alone. The next case was that of Insuiunce Co. v. Kip, 8 Cow. 20. This, also, was an action upon a note discounted by the insurance company; but the declaration also contained a count for money lent. The plaintiff recovered; and the court say: "The illegal contract, if any, was not the loan, for the plaintiffs had a right to loan the money to the defendants; but it was the agreement to secure the loan by a note discounted. Avoiding what was illegal, does not avoid what was lawful. The action for money lent, is rather a disaf- firmance of the illegal contract." Similar de- cisions were made in three subsequent cases, viz.: Insurance Co. v. Cadwell, 3 Wend. 296; Insurance Co. v. Kip, Id. 369; and Insurance Co. V. Bloodgood, 4 Wend. 652. These cases have never been overruled; and yet, I think I may say, they have generally been regarded with some suspicion as to their soundness. In New Hope Delaware Bridge Co. v. Poughkeepsie Silk Co., 25 Wend. 648, Nelson, J., in speaking of them, says: "Whether the doctrine of these cases is well founded and may be upheld upon es- tablished principles or not, or whether the result was not ultimately influenced by the peculiar phraseology and powers of the char- ter of the Utica Insurance Company, in re- spect to which they arose, it is not necessary at present to examine. I am free to say, in either aspect, I should have great difficulty in assenting to them." There is, undoubted- ly, "great difficulty" in reconciling these cases with the settled rules in regard to il- legal contracts; and the difficulty consists precisely in this, that the court, in the Utica insurance cases, have given to the guilty party the benefit of a principle which is only applicable to the more innocent. In the first case in which the insurance company recovered, viz.. Insurance Co. v. Kip, the court cite and rely upon the following pass- age from Comyn: "Where the action is in affirmance of an iUegal contract, the object of which is to enforce the performance of an engagement prohibited by law, such an ac- tion can in no case be maintained; but where the action proceeds in disaffirmance of such a contract, and instead of endeavoring to en- force it, presumes it to be void and seeks to prevent the defendant from retaining the benefit which he derived from an unlawful act, there it is consonant to the spirit and policy of the law that he should recover." 2 Comyn, Cont. p. 2, c. 4, art. 20. Comyn cites, as authority for this passage, the case of Jaques v. Withy, 1 H. Bl. 65, which is one of the eases to which I have referred, In which the plaintiff recovered on the ground that he .was not in pari delicto with the de- fendant; and on turning to that case it will be seen that the passage is copied verbatim from the argument of Sergeant Adair, coun- sel for the plaintiff. It is thus made appar- ent that the doctrine of the Utica insurance cases is built, in part, at least, upon the principles and arguments which lie at the foundation of the class of cases just passed in review. More can scarcely be needed to justify the doubt which has been cast upon these insurance cases. How principles, ap- propriately used to sustain a recovery against a party, upon the express ground that he is the party upon whom the prohibition and penalties of the law attach, can be made, available to justify a recovery by a party so. situated, is certainly difficult to comprehend. But, notwithstanding the misapplication to these cases of the principles for which I con- tend, the cases themselves afford strong evi- dence of the appreciation, by the court, of the soundness of those principles. Indeed, few, as it seems to me, will be found to deny either the justice or policy of the rule which refuses to permit the guilty party to retain the fruits of an illegal transaction at the ex- pense of the more innocent. But were it otherwise, the rule, as I have shown, is in- disputably established; and that the present case faUs within that rule is entirely clear. We have next, then, to ascertain the relief to which the Morris Canal and Banking Com- pany would, if the claimant upon the record, be entitled The illegal conti-act itself is of course void, and no part of it can be enforced. It is impos- sible, I thinlc, to sustain the reasoning adopt- ed in the Utica insurance cases, by which that part of the contract which embraces the loan- (in this case, the sale) is separated Ch. 5) TKACY V. TALMAGE. 77 from tlie portion relating to the security, -iind upheld as a distinct and valid contract. The contract there, as here, was entire; and it is conti'ary to all the rules which have been applied to illegal contracts to discrimin- ate between their different parts, and hold one portion valid and the other void. Re- coveries are not had in such cases upon the basis of the express conti'act, which is taint- ed with illegality; but upon an implied con- tract founded upon the moral obligation Testing upon the defendant to account for "the money or property received. The claim presented by the state of Indiana to the referees was in general terms, and broad enough to embrace a demand arising upon an implied contract to pay for the bonds transferred; and it has been repeatedly held that a corporation may become liable upon such a contract founded upon a moral obliga- tion, lilie that existing in this case. Bank V. Patterson, 7 Cranch, 299; Danforth v. Turnpike Road, 12 Johns. 227; Bank v. Dan- •dridge, 12 Wheat. 64. It follows from these principles, that if the Morris Canal and Banking Company was the claimant upon the record, it would be en- titled to recover, not the specific balance due upon the certificates, nor the price agreed to be paid for the stocks, but so much as the stocks transferred were reasonably worth at the time of such transfer, with interest, de- ducting therefrom whatever has been actual- ly paid in any form by the North American Trust and Banking Company for the same, and leaving, however, the contract of sale, so far as it has been executed by payment, -or its equivalent undisturbed. The only remaining question is, whether the state of Indiana has succeeded to the rights of the Morris Canal and Banking Com- pany in this respect. If, as it seems to have been held by the supreme com-t both at special and general terms, the Canal and Banking Company acted in the sale of the stocks as the agent of the state of Indiana, then, of course, the latter, as the principal, is the proper party here. But, aside from this, I cannot doubt that a court of equity would hold, upon the face of the transac- tion, that it was the intention of the Morris •Canal and Banking Company to transfer to the state its entu-e claim against the Trust and Banking Company, growing out of the sale of the stocks, and would, if necessary, compel any formal defects in such transfer to be supplied; and as the proceeding here is of an equitable nature, the com't, upon well settled principles, will regard what ought to be done as having been done. The judgment of the supreme court should be modified in accordance with these principles, and the proceedings remitted. MITCHELL, J., delivered an opinion in favor of affirming the judgment of the su- preme court at general term. He was of the opinion that the evidence did not estab- lisli that the Morris Canal and Banking Com- pany, or the state of Indiana, had knowledge when the bonds were sold that the Trust and Banlving Company purchased them for an il- legal purpose, or with intent to make an il- legal use. of them, and that the last named company, at the time of the purchase, in 1839, had authority to make and issue notes or certificates payable at a future day. He held, that associations organized under the general banking law were not subject to the provision contained in the safety fund act (Laws 1829, p. 173, § 35), prohibiting mon- eyed corporations subject to the provisions of that act from issuing bills or notes, payable on time; and that such associations might lawfully issue such notes for a legitimate purpose, until prohibited by the act of 1840 (Laws 1£40, p. 306, § 4). DENIO, C. J., was also in favor of affirm- ing the judgment, on substantially the same grounds as those stated by Judge MITCH- ELL. COMSTOCK, HUBBARD, T. A. JOHN- SON, and WRIGHT, JJ., concurred in the foregoing opinion delivered by Judge SEL- DEN, and were in favor of modifying the judgment in accordance with the principles stated in that opinion. A. S. JOHNSON, J., dissented. He was in favor of reversing the judgment rendered at general term and affirming that rendered at special term. Judgment modified. 78 ST. LOUIS, V. & T. H. K. CO. v. TERKE HAUTE & I. R. CO. (Uh 5 ST. LOUIS, V. & T. H. R. CO. v. TERRE HAUTE & I. R. CO. (12 Sup. Ct. 953, 145 U. S. 803. May 16, 1S92.) Appeal from the circuit court of the United States lor the southern district of Illinois. Affirmed. STATEMENT BY MR. JUSTICE GRAY. This was a bill in equitj', filed July 6, 18S7. by the St. Louis, Vandalia & Terre Haute Railroad Company, a corporation of Illinois, aaainst the Terre Haute & Indianapolis Railroad Company, a corpo- ration of Indiana, to set aside and can- cel a conveyance of the plaintiff's railroad and franchises to the defendant for a term of 999 years. The bill contained the foUdwins allegations: That the plaintiff was incorporated by a statute of Illinois of February 10, 1S65, amended by a statute of February 8, 1867, to construct and maintain a railroad from the left bank of the Mississippi river, opposite St. Louis, eastward, through the state of Illinois, to a point on the Wa- bash river, convenient for extending its road to Terre Haute, in the state of Indi- ana; and was not authorized by its char- ter, or by any law of Illinois, to lease its railroad, or by any other contract or con- veyance to part with theen tire possession, control, and use of its property and fran- chises, or to deprive itself of and vest in others the power of control in the manage- ment of its said road and other property, and in the exercise of its franchises, includ- ing the right (o impose and collect tolls for the transportation of passengers and treight, indefinitely, ortor any fixed period of time. That the defendant was incorporated by a statute of Indiana of January 26, 1.S47, amended by a statute of March 6, 1865, to construct and maintain a railroad from some point on the western line ofthestate of Indiann, eastward, through Terre Haute, to Indianapolis; and was not au- thorized by its charter, or by any law of Indiana, to make or accept any lease, con- tract, or other conveyance by which it should acquire or obtain, either indefinite- ly or for a fixed time, the ownership, man- agement, or control of any railroad locat- ed beyond the limits of Indiana. That the plaintiff proceeded to con- struct, and on or about July 1, 1870, com- pleted the construction and equipment of, its road ; that in order to obtain money for this purpose, on April 6, 1867, it execut- ed a mortgage or deed of trust of all Its railroad, property, and franchises, to se- cure the payment of bonds amounting to $1,900,000, and agreeing to set apart an- nually from its earnings the sum of .f 20,- flOO, as a sinking fund for payment of the bonds; that on March 13, 1868, it executed a second mortgage to secure the payment of additional bonds to the amount of $2,600,000; that all the bonds aforesaid were sold, and outstanding and unpaid; and that no sinking fund had been creat- ed, as provided for in the first mortgage. That on February 10, 1868, the plaintiff and the defendant executed a pretended lease (set forth in the bill, and copied iu the margin!) of the plaintiff's railroad, property, and franchises to the defendant for 999 years, the defendant retaining 65 per cent, of the gross receipts, and the rest to be applied to the payment of inter- ' Whereas, a contract for the construction and equipment of the St. Louis, Vandalia & Terre Haute Railroad, belonging to a corporation of the state of Illinois, has been entered into this day, by which arrangements have been made to complete and equip said road between East St. Louis and the state line of Indiana, in the manner set forth in said contract: And whereas, the Terre Haute & Indianapolis Railroad Company, a corporation of the state of Indiana, has proposed to construct, without de- lay, a first-class railroad, being an extension of their present road from Terre Haute to the state line of Indiana, upon such location as will con- nect properly and directly with the St. Louis, Vandalia & Terre Haute Railroad at the state lire of Illinois; And whereas, it is desirable that the said lines when connected should be operated by the Terre Haute & Indianapolis Railroad Company as one road between Indianapolis and St. Louis, and the said Terre Haute & Indianapolis Railroad Company having proposed to lease and operate the said St. Louis, Vandalia & Terre Haute Rail- road tor a period of 999 years ; It is, therefore, agreed, first— That upon the completion of the road between East St. Louis and the state line of Indiana, the Terre Haute & Indianapolis Railroad Company shall take charge of and operate the same, with its equipment, for a period of 999 years, for which they shall be allowed 65 per cent, of the gross re- ceipts from all traiBc moved over the line, or bus- iness done thereon, and from the property of the company, as a consideration for working and maintenance expenses, the remaining 85 percent, to be appropriated as follows: (1) To the pay- ment of interest on the first and second mortgage bonds of the St. Louis, Vandalia & Terre Haute Railroad Company according to their legal pri- ority. (3) All the surplus of said 35 per cent, to be paid over to the St. Louis, Vandalia & Terre Haute Railroad Company, semiannually, to be disposed of by it for the benefit of its stock- holders. If the 35 per cent, should from any cause not be sutHcient in amount to protect the interest on mortgage bonds, and sinking funds therefor, as they mature, from time to time, together with the payment of taxes and proper cost of main- tainine organization, so that the rights of stock- holders may be preserved, then and in that event the lessee shall advance for the company what- ever amoun.s may be needed, to be accounted for under the yearly averages of this lease during this contract. It is further agreed that the Terre Haute & In- dianapolis Railroad Company, as lessee, shall enjoy all the rights, powers, and privileges of the St. Louis, Vandalia & Terre Haute Railroad Company, so far as the same may be needful to maintain and operate said railroad; also, to im- pose and collect tolls and rates for transporta- tion, and do all other acts and things, as fully and as effectually as the said St. Louis, Vanda- lia & Terre Haute Railroad Company could do if operating said line, it always being understood and agreed that the gross proceeds from through or joint traffic or business shall be divided on the pro rata basis per mile for distance moved on the road of each party. In witness whereof the parties have respectively hereunto affixed, this, the tenth day of February, 1868, their ofBcial signatures and seals under au- thority of their boards of directors. The St. Louis, Vandalia and Tekre Haute Railkoad Company, [Seal.J By J. P. Alexander, President. The Terre Haute and Indianapolis Railroaiv Company, [Seal.] By W. R. MoKeen, President. Cli. 5) ST. LOUIS, T. & T. H, 11. CO. v TERHE HAUTE & I. R. CO. 79 est on the mortgage bonds, anrl any sur- plus paid to the plaintiff. That on January 12, 1S69, the plaintiff's board of directors passed a resolution, undertaking to authorize its president to change the terms of said lease, so that the defendants should be allowed 70, instead of 65, per cent, of the gross receipts, "but if the working and maintenance expenses of said road shall be less than seventy per cent, of the gross receipts aforesaid, then all of sich excess shall be paid over to" the plaintiff. That by a statute of Illinois of Februa- ry 16, 1865, in force at the time of the exe- cution and delivery of the pretended lease, it was not lawful for any railroad com- pany of Illinois, or its directors, to consol- idate its railroad with any railroad out of the state, or to lease its railroad to any railroad company out of the state, or to lease any railroad out of the slate, with- out the written consent of all its stock- holders residing within the state; and that 59 of the plaintiff's stockholders, re- siding in Illinois, never consented to or ratified the lease. That, on the completion of the plaintiff's road, the defendant took i)osses8ion of and had ever since operated it, and had received, in tolls and otherwise, more than $21,600,000; that the pretended lease was void, for want of lawful power in either party to enter into it: that the defendant, by taking possession of the plaintiff's railroad and property without right, becflme in equity a trustee of the plaintiff, and liable to account to it for the property and for all tolls and emolu- ments which the defendant had, or ought to have, collected and received therefrom, and to restore the property to the plain- tiff; that the defendant had refused, though requested, to turn over to the plaintiff the road and property, or the in- come thereof, and had thus rendered the plaintiff unable to establish a sinking fund, as required by the first mortgage; and that great and irreparable injury would be done to the plaintiff and its stockholders unless it was restored to the possession and control of the railroad, property, and franchises. That, at the time when the lease was executed by the plaintiff, its officers sup- posed that it had lawful power to do so; but that It had recently been advised by counsel that it had no such power, that it was its duty at once to repudiate this pretended lease, and to resume the posses- sion, control, and' use of its property and franchises, and that it had rendered itself liable to have its charter forfeited by the state; that the present income was more than sufficient to pay the interest on the bondsand toestablish a sinking fund ; and that, by reason of the failure to establish a sinking fund, proceedings might at any time be instituted to foreclose the first mortgage. That the taking of long and complicat- ed accounts, covering a period of nearly 17 .years, and involving a great many iteiiis, was necessary for the protection and enforcement of the plaintiff's rights; that the pretended lease was a cloud on the plaintiff's title; that a court oflawhadno jurisdiction adequate to take the account, or 1o cancel the lease; and that the de- fendant was daily withdrawing large suras of money from the jurisdiction of the court, to the irreparable injury of the plaintiff. The bill, as originally framed, prayed for a cancellation and surrender of the lease, for a return of the railroad and other property held under it, for an injunction against disturbing the plaintiff in the possession and control thereof, and for an account of the sums which the de- fendant had received, or with due dilignnoe might have received, from the use and operation of the railroad and property; or if the lease should be held valid, for an account of the suras due linder the lease; and for furtlier relief. The defendant demurred to the bill, for want of equity, for laches, for multifari- ousness, and because the plaintiff had an adequate remedy at law. The circuit court sustained tlie demurrer, on all these grounds, as stated in its opinion, reported in ;33 Fed. Rep. 440. The plaintiff there- upon, by leave of court, amended the bill, by striking out the prayer for alternative relief in case the leaseshould bo held valid. The defendant demurred to the amended bill, on the same grounds as before, except multifariousness. The court, delivering no further opinion, sustained the de- murrer, and disniissed the bill; and the plaintiff appealed to this court. Mr. Justice GRAY, after stating the case as above, delivered the opinion of the court. The object of this suit between two rail- road corporations, as stated in the amend- ed bill, is to have a contract, by which the plaintirf transferred its railroad and equip- ment, as well as its franchise to maintain and operate the road, to the defendant for a term of 999 years, set aside and can- celed, as beyond the corporate powers of one or both of the parties. The contract, dated February 10, 1868, recites that the plaintiff is a corporation of Illinois, and the defendant a corporation of Indiana; that their railroads connect at the line between the two states; that it is desirable that the two roads should be operated b.y the defendant as one road ; and that the defendant has "proposed to lease and operate" the plaintiff's I'oad for a period of 999 years. "It is therefore agreed" that, upon the completion of the plaintiff's road to the state line, the de- fendant "shall take charge of and oper- ate the same with its equipment" for that period, and "shall be allowed 65 per cent, of the gross receipts from all traffic moved over the line, or business done thereon, and from the, property of the company as a consideration for working and main- tenance expenses," and shall appropriate the rest of such receipts to the payment of interest on the plaintiff's mortgage bonds, and pay any surplus to the plaintiff, for the benefit o* Its stockholders. Within a year afterwards, the contract was modi- fled by providing that the defendant should be allowed 70, instead of 65, per cent, of the gross receipts, "but it the working and maintenance expenses of said road shall be less than 70 per cent, of 80 ST. LOUIS, V. & T.H. K. CO. v. TERllE HAUTE & I. E. CO. (Cli. the gross receipts aforesaid, tlien all of such excess Hhall bepaid overtci the"plain- t'.ff. It is further agreed in the contract that the defendant "shall enjoy all the rights, powers, and pri vileges of the " plain- tiff, "so far as the same may be needful to maintain and operate said railroad," and may "impose and collect tolls and rates for transportation, and do all other acts and things, as fully and as effectually as the" plaintiff "could do if operating said line." In short, by this contract one rail- road corporation undertook to tran.sfer its whole railroad and equipment, and its privilege and franchise to maintain and operate the road, to another railroad corporation for a term of 999 years, in con- sideration of the payment from time to time by the latter to the former of a cer- tain portion of the gross receipts. This ■was, in substance and effect, a lease of the railroad and franchise for a term of almost a tliousand years, and was a con- tract which neither corporation had the lawful power to enter into, unless express- ly authorized by the state which created it, and which, if beyond the scope of thd lawful powers of either corporation, wai unlawful»and wholly void, could not be ratified or validated by either. or both, and would support no action or suit by eithor against the other. Thomas v. Railroad Co., 101 U.S. 71; Pennsylvania R. Co. V. St. Louis, A. & T. H. R. Co., 118 •C. S. 290, 630, 6 Sup. Ct. Rep. 1094, and 7 Sup. Ct. Hep. 24; Oregon Ry. & Nav.Co. v. Oregonian Ry. Co., 130 IJ. S. 1, 9 Sup. Ct. Rep. 409; Central Transp. Co. v. Pullman's Talace Car Co., 139 U. S. 24, 11 Sup. Ct. Hep. 478. Upon the question whether this con- tract was ultra vires of either corpora- tion, this case cannot he distinguished in principle from Pennsylvania R. Co. v. St. Louis, A. & T. H. E. Co., above cited. By the statute of Illinois of February 12. 1855, all railroad companies incorpo- rated under the laws of the state were em- powered tom&ke "contracts and arrange- ments with each other, and with railroad corporations of otherstates, for leasing or running their roads, or any part thereof." Priv. Laws 111. 1855, p. 304; Rev. St. 1874, -c. 114, § 34. By the grammatical and the natural construction, the words "their roads" include roads of Illinois corpora- tions, as well as roads of corporations of other states, and the power cgnferred en corporations of Illinois to make contracts ■"for leasing" such roads includes making, as well as taking, leases thereof. Such was the opinion expressed in the case just cited, at page 309, 118 U. S., and page 1102, 6 Sup. Ct. Eep., and we see, no reason for departing from it. The plaintiff relies on the statute of Illi- •nois of February lfi,_lS65, (in force at the date of this contract, but since repealed by the Revised Statutes of 1874,) by which it was enacted that"it shall not be lawful for any railroad company of Illinois, or for the directors of any railroad company of Illinois, to consolidate their road with any railroad out of the state of Illinois, or to lease their road to any railroad ^company out of the state of Illinois, or to lease any railroad out of the state of Illi- nois, without having Urst obtained the written consent of all of theetockholdersot said roads residing in the state of Illinois, and any contract for such consolidation or lease which may be made without hav- ing first obtained said written consent, signed by the resident stockholders in Illi- ttois, shfill be null and void;" and it was provided "that nothing in this act shall be so construed as to authorize the con- solidation of any of said railroads with railroads out of the state of Illinois." Pub. Laws III. 1865, p. 102. Although this statute, in terms, declares that any such lease, made without the written consent of the Illinois stockhold- i era, "shall be null and void, "it would seem to have been enacted for the protection of i such stockholders alone, and intended to \ be availed of by them only. It did not j limit tne scope of the powers conferred up- i on the corporation by law, an excess of I which could not be ratified or be made good by estoppel; but only prescribed regulations as to the manner of exercising corporate powers, compliance with which the stockholders might waive, or the cor- poration might be estopped, by lapse of time, or otherwise, to deny. Zabriskie v. Railroad Co., 23 How. 381, 398; Central Transp. Co. v. Pullman's Palace Car Co., 139 U. S. 24, 42, 60, 11 Sup. Ct. Rep. 478; Davis V. Railroad, 1-31 Mass. 258, 260; Beecher v. Eoiling Mill Co., 45 Mich. 103, 7 N. W. Rep. 695; Thomas v. Railway Co., 104 111. 462. The decision of the supreme court of Illi- nois in Archer v. Railroad Co., 102 111. 493, cited by each party at the argument, does not appear to have any important bear- ing upon this case. The point there decid- ed was that the contract now in question, not being satisfactorily proved in that case to have been either assented to or ratifipd by the stockholders residing in Illi- nois, had no effect, as a lease, to convey title to the defendant, and could be sus- tained, if at all, only as a contract for the connection of the two railroads, and, in either aspect, did not confer on the defend- ant any right to maintain a bill in equity against collectors of taxes to restrain the c(jllection of taxes assessed to the present plaintiff. Upon questions discussed in the opinion and not necessary to the judg- ment, or notconsidered at all", thecase can- not be regarded as a, decision, because, as observed by Mr. Justice Cttrtis, speaking for this court, "to make it so, there must have been an applicatipn of the judicial mind to the precise question necessary to be detarmined to fix the rights of the par- ties. " Carroll v. Carroll, 16 How. 275, 287. It is unnecessary, however, to express a definitiveopinion uponthequestion wheth- er the contract between these parties was beyond the corporate powers of the plain- tiff, because, as is established by the deci- sions of this court, already cited, a con- tract beyond the corporate powers of either party is as invalid as if beyond the corporate powers of both, and the con- tract now in quretion was clearly beyond the corporate powers of the defendant. The case in this respect is governed by the direct adjuaication of this court in the case of Pennsylvania R. Cv. v. St. Cli. 5) ST. LOUIS, V. & T. H. R. CO. v. TERRE HAUTE & I. R. CO. 81 Louis, A. & T. H. E. Co., above cited, ■which was ranch considered, both upon argument at the bar, and upon petition for a rehearing. The only differences be- tween that case and this are that the ron- tract in that case was for 99 years, where- as in this it is for 900 years more; that the reiit is computed in a different way, which does not alter the nature and effect of the transaction; and that in that case the two roads did not connect at the state line, but a few miles east of it, which was held to be immaterial. 118 U. S. 295-297, 6 Sup. Ct. Rep. 1095, 1096. The plaintiff in that case.lilie thedefend- ant in this, sought to support the validity of the contract under the statute of Indi- ana of February 2^!, 1«53, c. 8n, of which section 1 authorized any railroad com- pany of Indiana "to intersect, join, and unite Its railroad with any other rail- road " constructed in an adjoining state, Mt any point on the state line, or else- where, to which the charters of the two companies autliorized their roads to go, and to consolidate the stock of the two companies; section 2 authorized anj' rail- road company of Indiana, whose road went to the state line, "to extend its said railroad into or through any otherstate," under such regulations as might be pre- scribed Uy the laws thereof; and section 3 authorized any railroad company of Indi- ana, whose road met and connected at thestate line with a railroad in an adjoin- ing state, "to make such contracts and agret-ments with any such road, construct- ed in an adjoining state, for the transpor- tation of freight and pas,jengers, or for the use of its said road, as to the board of di- rectors may seem proper." Rev. St. lud. 1881, §§3971-3973. At the argument of that case, indeed, the third section, being the one affording the most plausible ground, was principal- ly relied on, and was the only section of this statute discussed in the original opin- ion. 118 U. S. 312, 6 Sup. Ct. Rep. 1104. But in that opinion reference was made to Tippecanoe Oom'rs v. Lafayette, etc., R. Co., in which the supreme court of In- diana held that this statute did not au- thorize one railroad corporation to lease its railroad to another with a right of perpetual renewal, and said. "To connect one road with another does not fairly mean to lease or sell it to another. " 50 Ind. 85, 110; 118 U. S. 312,6 Sup. Ct. Rep. 1104. And upon the petition for rehearing, all three sections of the statute in question, as well as other statutes of Indiana, were cited by counsel and examined by the court, al- though its conclusions were briefly stated, according to its usage in an opinion deliv- ered on a petition for rehearing. 118 U. S. G33, 634, 7 Sup. Ct. Rep. 25. It is argued for the defendant that this suit is distinguished 'from the former one, in being brought, not, as that was, in In- diana, bat in Illinois, and must there- fore be controlled by the law and policy of Illinois; and it is contended that the statute of Illinois of 1855, above cited, em- powered the defendant, though an Indi- ana corporation, to take a lease of a rail- road in Illinois. But such a suit as this is governed, so far as regards the validity PKIT.COKP. — 6 of the contract, not by the law of the fo- rum, but by the law of the contract; and the statute of Illinois was manifestly in- tended to confer power on domestic corpo- rations only, leaving the powers of corpo- rations incorporated elsewhere to be de- termined by the laws by and under which they were incorporated, even if a state could confer on a foreign corporation powers which it did not have by the laws of its own state. Railway Co. v. Gebhard, 109 U. S. 527, 537.3 Sup. Ct.Rep. 363; Chris- tinn Union v. Yount. 101 U; S. 352; Stark- weather V Bible Soc, 72 111. 50; Santa Clara Academy v. Sullivan, 116 111. 375, 385, 6 N. E. Rep. 183. Jt may therefore be assumed, as con- tended by the plaintiff, that the contract in question was ultra vires of the defend- ant, and therefore did not bind either par- ty, and neither party could have main- tained a suit upon it, at law or in equity, against the other. It does not, however, follow that this suit to set aside and cancel the contract can be maintained. Hit can, it is some, what remarkable that, in the repeated and full discussions which tlie doctrine ol ultra vires has undergone in the English courts within the last 50 years, no at- tempt has been made to bring a suit like this. The only cases cited in the elabo- rate briefs for the plaintiff, or which have come to our notice, approaching this in their circumstances, are in American courts not of last resort, and present no sufficient reasons for maintaining this suit. Auburn Academy v. Strong, Hopk. Ch. 278; Atlantic & P. Tel. Co. v. Union Pac. Ry. Co., 1 McCrary, 541,1 Fed. Rep. 745; Western Union Tel. Co. v. St. Joseph 6 W. Ry. Co., 1 McCrary, mo, 3 Fed. Rep. 430; Union Bridge Co. v. Troy & L. R. Co.. 7 Ijans. 240; Railway Co. v. Simpson, 21 Fed. Rep. .533. The English cases relied on by the plain- tiff were either suits to set aside niarriage brokage bonds, as in Drury v. Hooke, 1 Vern. 412, and Smith v. Bruning, 2 Vern. 392, uom. Goldsmith v. Bruning, 1 Eq. Cas. Abr. 89; or to recover back money paid for the purchase, without leave of "the crown, of a commission in the military or naval service, as in Morris v. McCul- lock, Amb. 433, 2 Eden, 190. Those cases have sometimes been justified upon the ground that, the agreement being against the policy of the law, the relief was given to the public through the party. Deben- hara V. Ox. 1 Ves. Sr. 276; St. John v. St. John, n Ves. 526, 586; Cone v. Russell, 48 N. J. Eq. 208. 21 Atl.- Rep. 847. But Sir William Grant explained them as pro- ceeding upon the ground that the plaintiff was less guilty than the defendant. Os- borne V. Williams, 18 Ves. 379, 382. And Morris v. McCullock can hardly be recon- ciled with his decision in Thomson v. Thomson, 7 Ves. 470, or with the current of later authorities.. The general rule, in equity, as at law, is in pari delicto potior est conditio de- fendentis; and, therefore, neither party to an illegal contract will be aided by the court, whether to enforce it, or to set it aside. If the contract is illegal, affirma- tive relief against it will not be granted. 82 ST. LOUIS, V. & T. II. R. CO. v. TERRE HAUTE & I. R. CO. (Ch. at law or iu equity, unless the contract re- mains executory, or unless the parties are considered not in equal fault, as where the law violated is intended for the coercion of the one party and the protection of the other, or where there has been fraud or oppression on the part of the defendant. Thomas v. Richmond, 12 Wall. 349, 355; Springs Co. v. Knowlton, 103 U. S. 4ii; Story, Kq. Jur. § 'J9-S. While an unlawful contract, the parties to which are iu pari delicto, remains exec- utory, its invalidity is a defense in a court of law; and a court of equity will order its cancellation only as an equitable mode of making that defense effectual, and when necessary for that purpose. Adams, Eq. 175. Consequently, it is well settled, at the present day, that a court of equity will not entertain jurisdiction to order an instrument to be delivered up and canceled, upon the ground of ille- gality appearing on its face, and when, therefore, there is no danger that the lapse of time may deprive the party to be eharged upon it of his means of defense. Story, Eq. Jur. § 700a, and cases cited: Simpson v. Howden, 3 Mylne & C. 97; Ayerst v. Jenkins, L. R. 16 Eq. 275, 282. When the parties are in pari delicto, and the contract has been fully executed on the part of the plaintiff, by the convey- ance of property, or by the payment of money, and has not been repudiated by the defendant, it Is now equally well set- tled that neither a court of law nor a court of equity will assist the plaintiff t(3 recover back the propej'tj' conveyed or money paid under the contract. Thomas v. Richmond, above cited; Ayerst v. Jen- kins, L. R. 16 Eq. 275, 284. For instance, property conveyed pursuant to a contract made in consideration of thecompoundlug of a crime, and the stifling of a criminal prosecution, and therefore clearly illegal, cannot be recovered back at law, nor the conveyance set aside in equity, unless ob- tained by such fraud or oppression on the part of the grantee that the conveyance cannot ho considered the voluntarj' act of the grantor. Worcester v. Eaton, 11 Mass. 368, and 13 Mass. 371; Atwood v. Fisk, 101 Mass. 363; Bryant v. Peck &■ Whipple Co., 154 Mass. 460, 28 N. E. Rep. 678; Williams v. Bayley, L. R. 1 H. L. 200; Jones V. Society, [1892,1 1 Ch. 173, 182, 185, 187. In the caseat bar, the contract by which the plaintiff conveyed its railroad and franchise to the defendant for a term of 999 years was beyond the defendant's cor- porate powers, and therefore unlawful and void, of which the plaintiff was bound to take»notice. The plaintiff stood in the position of alienating the powers which it had received from the state, and the duties which it owed to the public, to an- other corporation, which it knew had no lawful capacity to exercise those ppwers or to perform those duties. If, as the plaintiff contends, the contract was also beyond its own corporate powers, It is certainly in no better pot^ition. In either aspect of the case, the plaintiff was in pari delicto with the dt-fendant. The in- validity of the contract, in view of the laws of which both parties were bound to take notice, was apparent on its face. The contract has been fully executed on the part of the plaintiff by the actual transfer of Its railroad and franchise to the defendant; and tlie defendant has held the property, and paid the stipulated consideration, from time to time, for 17 years, and has taken no steps to rescind or repudiate the contract. Upon this state of facts, for the reasons above stated, the plaintiff, considered as a party to tlie unlawful contract, has no right to invoke the assistance of acourt of equity to set it aside. And so far as the plaintiff corporation can be considered as representiner the stockholders, and seeking to protect their interests, it and they are barred by laches. Barwood v. Railroad Co., 17 Wall. 78; Graham v. Railway Co., 2 Hall & T. 450, 2 Macn. & G. 146; Ffooks V. Railway Co., 1 Smale & G. 142, 164; Gregory v. Patchett,ll Law T. (N. S.)357. This case is not lllte those in which the defendant, having abandoned or refused to Dcform the unlawful contract, has been held liable to the plaintiff, as upon an implied contract, for the value of what it had received from him, and had no right to retain. Springs Co. v. Knowlton, 103 U. S. 49; Bank v. Townsend, 139 V. S. 67, 11 Sup. Ct. Rep. 496, and cases there cited. But the case is one in which, in the words of Mr. Justice Miller, in a case of- ten cited in this opinion, the court will not disturb the possession of the property that has passed under the contract, but will refuse to interfere as the matter stands. Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U. S. 290, 316, 317, 6 Sup. Ct. Rep. 1094. See, also. Union Trust Co. V. Illinois M. Ry Co., 117 D. S. 434, 468, 469,6 Sup. Ct. Rep. 809; Central Transp. Co. V. Pullman's Palace Car Co., 139 U. B. 24. 56, 57, 61, 11 Sup. Ct. Rep. 478. Decree affirmed. Ch. 5) LONDON & N. W. RY. CO. v. PKICE. 83 LONDON & N. W. RY. CO. et al. v. PRICE et al. (11 Q. B. Div. 485. 1883.) Special case stated in an action In tlie county court of Sliropsliire lioldeu at Shrews- biu-y. The case stated the following material facts: The action was brought to recover a sum of £1. lis. 2d., in respect of charges made by the plaintiffs for weighing coal for the de- fendants. The defendants were coal merchants carry- ing on business at Minsterley Station, which is on a branch line of the Shrewsbury and Welchpool Railway. The railway and branch line were constructed under powers given by a local act (19 & 20 Vict. c. 132), and were subsequently transferred to and became the property of the plaintiffs under the provisions of the local acts 27 & 28 Vict. c. 196, and 28 & 29 Vict. c. 299. The defendants, for the purposes of their business, occupied, as tenants to the plain- tiffs, a wharf in the yard of the station ad- .ioining a siding of the railway, and they paid to the plaintiffs a rent of Is. per square yard per annum for the land so occupied. All the coal supplied to the defendants for their business at Minsterley Station was con- veyed thither by the plaintiffs upon their rail- way, and delivered to the defendants at the wharf, and therefi-om sold and delivered by the defendants to their customers. The plaintiffs had a weighing-machine suit- able for weighing coals fixed in the yard of the station, and used by them from time to time for their own purposes. The defend- ants, on receiving consignments of coal at the station, generally had occasion to weigh the coal before delivering the same to pur- chasers. There was no other machine than that belonging to the plaintiffs suitable for weighing coal at or near the station. For some years previously to April, 1882, the de- fendants, and other wharfholders at Minster- ley Station, had used the plaintiffs' -rt^eigh- ing-machine without charge; but in Febru- ary, 1882, the plaintiffs put up a printed no- tice in the station addressed "to the public," and stating that on and after the 1st of April, 1882, the sum of Id. per ton, or part of a ton, would be charged by them for the weighing of all coal over their machines, whether the persons for whom the weighing was done were wharfholders or not. The defendants had knowledge of this notice. The defendants continued to weigh coal on the plaintiffs' machine during the months of April and May, 1882, and paid the plaintiffs' charges, in respect of coal so weighed, ac- cording to the notice. The defendants subse- quently to May, 1S82, weighed coal on the machine, but refused to pay any charge there- for, and it was agreed that, if the action was maintainable, the sum of £1 2s. was due from the defendants to the plaintiffs in respect thereof. At the hearing in the county court the de- fendants contended that the charges made and claimed by the plaintiffs did not come within their tariff of charges, and were made without any statutory authority. The judge nonsuited the plaintiffs, holding that the services and charges in respect of which the claim was made were ultra vires of the plaintiffs' statutory authority. The question for the opinion of the court was whether or not the charges were ultra vires of the plaintiffs' statutory authority. WATKIN WILLIAMS, J. I am clearly of opinion that the nonsuit in this case was wrong, and that the judgment of the county court judge must be reversed. It is only nec- essary to state the facts to shew that the case is absolutely clear in favour of the plaintiffs. [His lordship stated them.] It is to my mind an astonishing proposition that the defendants, having used the plaintiffs' weighing machine, and having agreed to pay for the use of it— for that is the effect of the facts stated in the case — should now be en- titled to say that the contract was ultra vires and void, and so could not be the foundation of any action at law. No doubt if the con- tract was ultra vires, no effect whatever can be given to it; the court cannot travel beyond the legal result of the parties' acts. But I am of opinion that the contract was not ultra vires. The observations of Lord Justice James in Attorney General v. Great Eastern Ry. Co., 11 Oh. Div. 480, are applicable to this case. He asks, "Where is this notion of ultra vires to stop?" and states various in- stances in which it would be absurd to say that the doctrine applied. I think that his observations cover this case, and I am of opinion that the plaintiffs, who possessed the weighing-machine for the purposes of their railway, and as incidental to their business as carriers, had a perfect right to allow, not only the persons for whom they carried coals, but also the public at large, to have the occa- sional use and convenience of the machine, and were entitled to make a fair charge for the use of it. I cannot distinguish this case from the cases of refreshment rooms and other conveniences in stations, not strictly connected with the business of a railway company, but established for the advantage of those with whom they come into contact in the com'se of their business. SMITH, 0. I am also of opinion that the plaintiffs were entitled to succeed, and I rest my decision solely on the facts of this case. The plaintiffs carried coals for the defend- ants, and at the termination of the carriage the plaintiffs warehoused the coals, which were in bulk and supplied in large quantities. The defendants request the plaintiffs to weigh the coal for them on the plaintiffs' machine, knowing perfectly weU that a charge of Id. per ton will be made for the use of the ma- chme. The coal is weighed, and in answer 84 LOXDOX & N. W. RT. CO. v. PRICE. (Ch. 5 to an action for the weighing charges, the de- fendants set up that the whole transaction was ultra vires on the part of the company, who are therefore not entitled to recover. The argument of tlie defendants' counsel convinced me that the charge was not ex- pressly authorized by any of the acts of par- liament relied on by the plaintiffs' counsel. The question arises, assuming that the charge is not within the direct terms of those acts, whether or not this action can be maintained on the ground that the service is incidental and convenient to the exercise of the plain- tiffs' powers as carriers of goods for the de- fendants. It seems to me most convenient that the company should do what they have done. It was argued that the notice inform- ing persons of the charge to be made was in- valid. I give no opinion upon that. I think the notice formed no part of the contract. If it had been necessary to put the notice in at the trial, could it have been suggested that it must be stamped as being the contract be- tween the parties? The plaintiffs are entitled to say to the defendants: "At your request we weighed the coal, and you knew the charge, which was a reasonable one, because you knew of the notice." 1 am of opinion that this case comes clearly within the prin- ciple of the decision in Attorney General v. Great Eastern Ry. Co., 5 App. Cas. 473. In that case the lord chancellor, agreeing with the judgment of Lord Justice James, in Iron Co. V. Riche, L. R. 7 H. L. 653, said that this doctrine of ultra vires ought to be reasonably, and not unreasonably, understood and ap- plied, and that whatever might fairly be re- garded as Incidental to, or consequent upon, those things which the legislature had author- ized, ought not (unless expressly prohibited), to be held by judicial construction to be ultra vires. It is manifest that in the present case the charge made is not expressly prohibited. I am of opinion that it was made for work done and services rendered, which were in- cidental to, and consequent upon, those things which the legislature had authorized; and therefore in my judgment the action is main- tainable. Judgment for the plaintiffs. Ch. 8) HOLMES & G. MANUF'G CO. v. HOLMES & W. METAL CO. 85 HOLMES & GRIGGS MANUF'G CO. v. HOLMES & WESSELL METAL CO. et al. (87 N. E. 831, 127 N. Y. 253.) Court of Appeals of New York, Second Division. June 2, 1891. Appeal from sunreme court, general term, first department. HATGHT, .T. This action was hronght to recover the amount of a promissory note bearing date December 1, 1884, exe- cuted by the defendant the Holmes & Wessell Metal Company, and indorsed by the defendants Morse and Shonnard. The defenses were ultra vires, no considera- tion, and a non-tender of certain stock for the purchase price of which the note was given. The plaintiff is a manufact- uring corporatinnil orifanized under the general act of 1848 for the purpose of man- ufacturing sheet and rolled brass wire tub- ing and other articles composed wholly or in part of metal, in the city of New York. Its president was Charles E. L. Holmes, and its secretary and treasurer was George C. Edwards. On the 12th day of July, 1S81, Holmes and Edwards en- tered into an agreement with the defend- ants Shonnard, Morse, and one Charles Wessell to organize a new company for the manufacture of brass, nickeline alloys, and other composite metals, under the corporate name of the " Holmes & Wessell Metal Company;" the capital stock of such company to be f 100,000, the whole amount to be issued and paid up in cash; three-fourtJis thereof to be subscribed and paid by Holmes and Edwards, and the re- maining one-fourth by the other parties to the agreement. The agreement, in its preamble, recites that Holmes and Ed- wards propose to transfer the rolling-mill belonging to the plaintiff, including all of the machinery, tools, and appliances con- nected therewith, together with the lease of the premises occupied bj' the plaintiff, for the sum of $50,000. Subsequently, and at an annual meeting of the plaintiffs' stockholders held on the 20th day of July, 1881, the president and secretary were in- structed to sell to the Holmes & Wessell Metal Company the entire machinery and plant owned by the plaintiff, for the sum of $50,000; and also authorized them to sell to the same company all the material, manufactured, unmanufactured, and in process of manufacture, owned by the plaintiff, and to also subscribe for 3.000 shares of the capital stock of the compa- ny, and to payfor the sameout of the pro- ceeds of the sale of the mill and materials. It further appears that the Holmes & Wessell Metal Company was incorporated on the 15th day of July, 1881, and that Charles E. L. Holmes subscribed for 2,000 shares, and George C. Edwards 1,000 shares, of the capital stock. Thereafter, and on the 23d day of July, 1881, the new company, at a meeting of its stockhold- ers, authorized the purchase from the plaintiff of itsplautand machinery, and to pay therefor the sum of $50,000, and for the entire stock of materials, manufactured and unmanufactured, owned by the plain- tiff the sum of .pi,333.96; and, on thelst day of September thereafter, such sale was completed by the transfer of the plaintiff company to the defendant company of its entire plant, machinery, etc.; and, in pay- ment therefor, the defendant company is- sued to George C. Edwards, trustee, the stock subscribed for 'by Holmes and Ed- wards, amounting to $75,000, and the bal- ance, $6,333.96, was paid in cash. After such transfer, the plaintiff discontinued its business. On the 1st day of December, 1884, the plaintiff entered into a contract with the defendants Morse, Shonnard, and said Charles Wessel, in which the plaintiff agreed to sell to the other parties thereto 1,440 shares of the stock of the defendant company, standing in the name of Ed- wards, as trustee, for the sum of $30,000, payable, $5,000 in cash, and the balance by certain promissory notes, of which the note in suit is one. The agreement fur- ther provided that the stock should re- main in the name of Edwards or some other officer of the plaintiff, as trustee, that it might be voted upon by him until delivered, as specifically provided In the contract. It is doubtless true that a corporation cannot purchase or deal in stocks of other corporations, unless expressly authorized bv law so to do. Talmage v. Pell, 7 N. Y. 328 ; Berry v. Yates, 24 Barb. 200 ; Milbank v. Railroad Co., 64 How. Pr. 20; Mechanics, etc., Mut.Sav. Bank andBld.Ass'n v. Meri- deu Agency Co., 24Conn.l59; Central h.Co. V. Pennsylvania R. Co., 31 N. J. Eq. 475; Hazlehurst v. Railroad Co., 43 Ga.57; Val- ley R.Co. V. Lake Erie Iron Co., (Ohio,) 18 N.E. Rep. 486; People v. Trust Co., 130 111. 268-284, 22 N. E. Rep. 798; Franklin Co. v. Lewistou Institution, Ob .Me. 43; Hillv.Nis- bet, 100 Ind. 341-349. It is equally true, how- over, thatitmay do whatevermay beneces- sary in the exercise of its corporate fran- chises. The selling of property and collec- tion of debts is among the powers given; and hence it may take title to all kinds of property, even the stock of another company, in the payment of a debt. Tal- mage V. Pell, supra, and cases above cit- ed. The statute under which the plaintiff was incorporated provides that "it shall not be lawful for such company to use any of their funds in the purchase of any stock in any other corporation." Laws 1848, c. 40, § 8. The funds here spoken of evidently mean the money of thecompany, and the statute was not intended to limit the powers of thecorporation beyond that already indicated. The plaintiff was a private manufacturing corporation. It exercises no powers of a public nature, and has attempted no combination by wliich the public may in any manner be prejudiced. There are. consequently, no Questions affecting public policy to be con- sidered. The purpose of the company is expressed in a preamble to the resolutions adopted authorizing the sale of its plant and stock of materials on hand to the de- fendant company. It was, in short, to in- crease the business of the stockholders by adding to the manufacture of brass that of German silver and nickle alloys. The scheme adopted was the organization of a new corporation, bringing in some other persons with additional capital. The stock in the new company was subscribed for by Holmes and Edwards individually. 86 HOLMES & G. MANUF'G CO. v. HOLMES & W. METAL CO. (Ch. 8 and the Btock when Hually Issued was is- sued to Edwards. It ih true, he takes it as trustee, and holds it as such for the plaintiff; but this we do not regard as necessarily vltra, vires. The plaintiff had the right, with the consent of its stock- holders, to sell its plant and retire from business; and it appears from theevidence in this case that tlie consent of all the stockholders was given to the sale that was made. In Kent v. Mining Co.. 78 N. Y. 159-186, FOLGER. J., in delivering the opinion of the court, says that "a cor- poration raay not do acts which affect the public to its harm, inasmuch as they are !>er se illegal or are nmltini prohibitum. Then no assent of stockholders can validate them. It may do acts not thus illegal, though there is want of power to do them, which affect only theinterests of the stockholders. They may be made good by the assent of the stockholders, so that strangers to the stockholders, dealing in good faith with the corpora- tion, will be protected in reliance upon those acts. " In the case of Tread well v Manufacturing Co., 7 Gray, 393-405, it was held that the directors of a manufactur- ing corporation may sell the whole prop- erty of the corporation to a new corpora- tion, taking payment in shares of stock of the new company, to be distributed jimong the stockholders of the old com- pany. In Howe v. Carpet Co., 16 Gray, 4!)3, it was held that one manufacturing corporation may take the shares of an- other in payment of a debt. Chapman, J., in delivering the opinion of the court, in commenting upon the case of Treadwell V. Manufacturing Co., supra, says that " while corporations quasi public raay be restrained and directed in the management of their affairs, yet corporations estab- lished for trading and manufacturing pur- poses may wind up their affairs whenever they think proper to do so, and in the manner adopted in that case. The legali- ty of the transaction could not have de- pended on the intention of the corporation to wind up its affairs immediately. If it had taken the stock in the payment for goods, or for the sale of a building or land, or water-power, which it did not want or desire to sell, while it still car- ried on its business, the act must have been equally legal." In Hodges v. Screw Co., 1 R. I. 312-347, facts were in many respects similar to those under consid- eration. Greene, C. . J., says: "Nor have we any doubt that the screw company might have rightfully taken this stock in the iron company in paj'ment for their roUiog-mill, if it had been taken with a view to sell it again, and not permanently hold it. Again, it is to be observed, the directors were not investing the funds of the screw company in thestock of the iron company. They had on hand an unsala- ble rolling-mill, and they owed a heavy debt for it, and one great object in taking the stock in the Iron company was to realize for the rolling-mill, and in part pay thereby the debt." State v. Canal Co., 40 Kan. 96, 16 Pac. Kep. 349; Leathers v. Janney, 41 La. Ann. 1120, 6 South. Kep. 8S4; Hibei-nia Ins. Co. v. St. Louis & N. O. Transp. Co., 13 Fed. Rep. 516; Taylor v. Mining Co., 79 Cal. 285,21 Pac. Rep. 753; Ditch Co. v. Zellerbach, 37 Cal. 543; State V. Butler, 86 Tenn. 614, 8 S. W. Rep. 586; Mor. Priv. Corp. § 212. The plaintiff has sold its rolling-mill, machinery, etc., to the defendant. It has taken stock in the lat- ter company in payment therefor. Inas- much as this was done with the consent of all the stockholders, it being the act of a private corporation, not in any manner harming the public, we see no reason for condemning its title to thestock so ob- tained. Palmer v. Cemetery, 122N. Y.429- 435, 25 N. E. Rep.9S3. But, assuming the transaction to have been ultra vires, the defenses interposed would still be unavailable. The plaintiff has the stock, and has paid for it. It can- not be recovered back by the defendant, for tlie transaction is completed and closed. While the contract remainad executory, if it was unauthorized, a stockholder or per- son interested might have interfered by injunction, and prevented the transfpr of the property of the plaintiff to the del. nd- ant. But, the contract having beco^)^' executed, the title of the stock now vesto in the plaintiff, and it has the power to sell and dispose of the same. Sistare v. Best, 88 N. Y. 527-533; Milbank v. Railroad Co., supra. The contract under which the note in suit was given was made in De- cember, 1884, nearly four years after the plaintiff became the owner of the stock. No claim is made that that contract is for any reason illegal or void. Numerous cases are found in which the courts have refused to execute contracts that were ultra vires, but this action is not based upon such a contract. The courts will not permit the plea of ultra vires to pre- vail, whether interposed for or against a corporation, where it would not advance justice, but would accomplish a legal wrong. Raft Co. v. Roach, 97 N. Y. 378- 381 ; Arms Co. v. Barlow, 63 N. Y. 62. To hold that the plaintiff could not dispose of the stock would deprive it of the consid- eration received for the transfer of its roll- ing-mill and material, thus accomplishing a wrong, and not advancing justice. Our conclusions are that it had title to the stock, and that, consequently, there was a valuable consideration for the note in suit. The question raised in reference to the non-tender of the stock was properly disposed of by the general term. The judgment should be afHrraed, with costs. All concur. Ch. 10) NEW YORK & S. CANAL CO. v. FULTON BANK. 87 NEW YORK & S. CANAL CO. et al. v. FUL- TON BANK. (7 Wend. 412. 1S31.) This was an action of assumpsit, tried at the New Yoi-k circuit, in November, 1829, before the Hon. Ogden Edwards, one of the circuit judges. The declaration contained the common money counts, and the pleas were the gen- eral issue and payment. On the ti-ial of the cause, the incorporation of the New York and Sharon Canal Company by the legis- lature of the state of New York, and of the Sharon Canal Company, by the legislatm-e of Connecticut, was duly proved. A witness for the plaintiffs testified, that as a commis- sioner for taking up subscriptions to the capital stock of the two companies, the plaintiffs in this cause, he received certain monies. The plaintiffs then offered to prove that such monies were received by the wit- ness for the account of the two companies jointly, and that the same were deposited on the joint account of the plaintiffs, in the Fulton Bank; that by the by-laws of the two companies, the capital stocks of the two companies had been consolidated into one stock; that the subscriptions to the stock of the two companies were originally made by the subscribers to the stock so consolidated; that the same persons were appointed oifi- cers of both companies; that both companies were under the same control and manage- ment; and that the monies sought to be re- covered were received for the companies jointly, and for the purpose of making one entire canal; and that to procure water for the supply of the canal contemplated to be made by the canal company incorporated by the legislature of New York, it was neces- sary to proceed into the town of Sharon, in the state of Connecticut; which evidence thus offered was objected to, and rejected by the judge, and the plaintiffs were nonsuited. The plaintiffs now moved to set aside the nonsuit, and that a new trial be granted. SAVAGE, C. J. It cannot be necessary to de- cide whether it is in the power of the two cor- porations, who are plaintiffs, to consolidate their stock, or to form a partnership. Gen- eral principles are against the power of cor- porations to do such acts. They have no powers but such as are granted, and siich as are necessarily incident to the grant made to them. Corporations at common law have certain powers, but not such as would au- thorize the forming of a partnership, or the consolidation of two corporations into one. These two companies had certain monies in the hands of their officer; they were both interested in those monies, and probably in equal degi-ee. Not being partners, they were tenants in common; in that character they made the deposit of the money, and in that character I can see no objection to their sustaining an action for it. Cannot two banks or insurance companies take secm-ity from a person in failing circumstances, in- debted to both? May they not be mortgagees in the same mortgage, or obligees in the same bond; or may they not take together an assignment of a chattel? If they may, they can enforce their rights by action. Without looking into the transaction by which the plaintiffs became jointly interested in the fund in question, it seems to me sufficient to know that they were so interested. Their mon- ey is withheld from them; how are they to ob- tain it? Can each maintain an action for his share? The bank cannot know what is the share of each, and are not bound to take the responsibility of deciding that question. If each cannot bring a separate action, and both cannot imite in a joint action, then the defendants are safe in the possession of a fund acknowledged to belong to the plain- tiffs; or the plaintiffs are driven into a court of chancery. In my opinion, the law affords a remedy, and in this form of action. The nonsuit must be set aside, and a new trial granted; costs to abide the event. S8 CATSKILL BANK v. GRAY. (Ch. 10 CATSIiILL BANK v. GRAY et al. (14 Barb. 471. lS.j2.) This cause was tried at the Greene circuit in April, 1849, before Mr. Justice Parlier, a trial by jury having been waived by the con- sent of parties. In September, 1843, the Ulster Iron Com- pany leased to one Horace Gray, for the term of five years, their Iron Works at Sau- gerties, in the county of Ulster. The com- pany covenanted that Gray might expend, in putting the works in order, and In addition- al machinery, a sum not to exceed ?5,000, and for the amount so expended, the compa- ny was to allow him interest, at six per cent. from the date of the expenditures imtil the rent should be equal to the sum, and then the rent should be applied in liquidation thereof. Gray was to pay to the company as rent for the demised premises "one-fourth part of the net profits arising from the said demised premises, and the manufacture of iron there- on, . after deducting all charges, (excepting commissions on sales at New York, the per- sonal services of Gray, and the general su- perintendence at Saugerties, which were not to be charged in making up profits.) One half of the profits were to be paid annually, and the balance at the end of the demised term. On such balance. Gray was to allow and pay Interest to the company at the rate of six per cent, per annum; which interest was to be added yearly to the principal. The first $5,000 of profits which would fall to the share of the company, was to be applied to liquidate the expenditures for repairs. The company was not to be liable to repay any moneys already previously received by them as rent, or be liable for any loss or deficien- cy at the end of the term demised. It was fm-ther agreed that the Stockbridge and Port Henry pig iron might be used in the manufacture of iron on the demised prem- ises, and if so used, should be charged at the fair market price. Gray was to pro- vide all the finances necessary for the manu- facture of bar iron on the demised premises; and to furnish all the necessary capital, in cash or otherwise, as should be required for the said manufaetm-e, to the greatest advan- tage, he charging on his advances interest from the date thereof, at the rate of six per cent, per annum, and allowing the same in- terest on all moneys in his- hands arising from such manufacture. Gray, at the end of the term, was to surrender the premises peaceably and quietly, unless In the mean- time he should elect to purchase the same at the sum of $100,000. It was also provid- ed that the company might re-enter if the portion of the net profits to be received as rent, should be behind and unpaid for the space of thirty days next after any of the days of payment, or if the manufacture should be stopped by Gray, for the term of six months, without the written consent of tlie company, unless some severe breakage or casualty should take place. From and after such re-entry, the covenants on the part of the company were to cease, deter- mine, and be absolutely void. In the fall of 1817, one William Burt, as superintendent of the Ulster Iron Works, ob- tained from the Oatskill Bank, loans upon three drafts or bills of exchange, drawn by himself as superintendent, on Horace Gray & Co., of Boston, and accepted by them. These drafts were discounted by the bank, and amounted in the whole to $19,500. Burt was at that time acting as the agent or su- perintendent of the Ulster Iron Works. He stated, in his testimony, that the accounts were kept at the works with Horace Gray as lessee, and he acted as the agent of such lessee. He never received any directions from the Ulster Iron Company, nor any of Its officers, nor ever borrowed any money for them. The money received by Burt from the bank was used at the works, in paying off men, and other contingent expen- ses, such as freight, &c. It was admitted on the trial that the drafts had never been paid, and were duly protested. The counsel for the company Insisted be- fore the judge, that such company was not liable jointly with Horace Gray, as no part- nership had been shown to exist between them, and that the officers of the company could not enter Into a partnership with Gray which would be binding upon the company; that the transactions between Burt and the plaintiffs were not loans to the Ulster Iron Company, as copartners with Horace Gray & Co., but were purchases or discounts of negotiable paper; that the only remedy of the plaintiffs was directly upon the drafts or bills of exchange, against the parties thereto; and that the fact of the money ob- tained by Bm't on the discount of the drafts having been applied to carrying on the busi- ness, conducted with the Iron works leased by Horace Gray & Co., did not create any liability of the Ulster Iron Company as co- partners with Horace Gray & Co., or other- wise, to pay the drafts so discounted, or the amount so applied to carrying on the said business. The counsel for the plaintiffs contended that the defendants were liable to the plain- tiffs under the pleadings and proofs, for the amount loaned of the plaintiffs for the pur- pose of carrying on the manufacture of iron at their manufactory in the village of Sau- gerties. The judge decided that the plaintiffs were entitled to recover against the defendants for the sum loaned by them to the witness Burt, as superintendent, which were used In and about the business of manufacturing iron In the manufactory at Saugerties, as testified to by him; to which decision the counsel for the company excepted. The judge further decided that the plain- tiffs should recover from the defendants the Ch. 10) CATSKILL BANK v. GRAY. 89 sum of $21,104.67, to which decision the coun- sel for the company excepted. WRIGHT, J. The judge who tried the cause decided that the defendants, under tlie pleadings and evidence, were jointly lia- ble to the plaintiffs for the moneys loaned by the latter, and which were used in and about the business of manufacturing iron at the Ulster Iron '^A'orlis, in 1847. This is cor- rect, if by the terms of the agreement of September, 1843, Horace Gray and the Ul- ster Iron Company sustained the relation of partners, as respected third persons, and the money was loaned to the supposed partner- ship or to the agent of the partnership as such. If they are to be made to respond jointly for the debt due to the banii, it must be on a construction of that agreement; the money having been used at the worlis dur- ing its continuance in the business of manu- facturing iron.' * * * It is unnecessary to decide whether under this agreement, as between the parties tliemselves, they would be partners; but as respects third persons, it appears to me that that relation legally exists. What was to be received by the company was only payable out of profits actually made in the manu- facture of iron. They had then a direct in- terest in such profits. As was said in Dob V. Halsey, 16 Johns. 40, "he who taiies a part of the profits indefinitely, shall by op- eration of law be made liable for losses; upon the principle, that by taking a part of tlie profits, he takes from the creditors a part of that fund which is the security for the payment of their debts. See, also, Ev- erett V. Ooe, 5 Denio, 180; Hesketh v. Blanchard, 4 East, 144. The case is not like that Heinstreet v. Howland, 5 Denio, GS, where one leased a ferry to another, the latter to take charge of the business, pay all the expenses, and pay over to the lessor one- half of the gross receipts for ferriage; and it is clearly distinguishable from Bowyer v. Anderson, 2 Leigh, 550, and Perrine v. Hankinson, 11 N. J. Law, 181. It is urged that the Ulster Iron Company, being a corporation, could not legally form a partnership with an individual. This company was incorporated in 1831, for the purpose of manufacturing iron. It might, therefore, lawfully exercise the powers ex- pressly gi'anted to It, and those necessarily to be implied, to enable it to answer the specific purpose of its creation. I entertain no doubt that under its charter, the com- pany was capable of making the contract with Gray set forth in the pleadings. That contract related to the business for which the company was incorporated, and was but a mode of furthering, the specific purpose of its creation. Strictly, perhaps, corpoi-a- tions should be, and are restilcted from con- ' Part of the opinion, relating to the construc- tion of the agreement, is omitted. tracting partnerships with individuals or corporations, and as between the parties to tlie contract, acting upon equal knowledge,. a question of validity might be raised; but a corporation may contract with an individ- ual in furtherance of the object of its cre- ation, the effect of which contract may be^ to impose upon the company as respects the community, the liabilities of a partner. I cannot think that a corporation may sa shape its contracts relating to the business for which it was incorporated, as to share jointly with an individual in the profits of such business; subtract its interest in the profits, from the fund on which the creditors of the concern had a right to rely for the payment of the debts due to them; and when called upon by such creditors, be permitted to escape liability altogether, on the ground, that the profits were realized as the partner of an individual, which relation the corpora- tion could not legally occupy. I know of no sound reason why a corporation, more than a natural person, A^-ho participates in the profits, as such, of a particular business in which it may lawfully engage, should not be holden liable to the public for losses. It is further insisted by the counsel for the company, that the money was not loan- ed to the supposed partnership, or to the agent of the partnership as such; that the loans were made to Burt as agent of Hor- ace Gray, on his drafts on H. Gray & Co.: that the transaction was a discount and, purchase of negotiable paper, and the plain- tiffs' remedy is confined to the paper; that the fact that the money received by Burt was apiDlied to the business of the partner- ship, does not entitle the plaintiffs to recov- er it of the copartners. The money sought to be recovered was loaned to Burt, as su- perintendent of the Ulster Iron Works, and applied by him to the business being con- ducted under the agi-eement of September, 1843. The plaintiffs do not seek to directly charge the defendants as parties to the bills of exchange, but on a joint liability for money had and received. The fact that Burt was superintendent of the iron works when the loan was effected and applied, is found by the judge. He was the superin- tendent or agent at the works, in carrying out the agreement between Gray and the company. The money was obtained by him as such superintendent and applied for their joint and mutual benefit. The bank cer- tainly knew that Burt was acting as the agent of third persons in procuring the loan. He professed to act for others; and it is not unreasonable to conclude that the plaintiffs, in loaning these funds, had regard to th6 eventual liability of the principals, whoever they might be, if it should become necessary to resort to them. In Emly v. Lye, 15 East, 6, the action being upon a bill of exchange drawn by one of the partners of a concern, in his own name, which was discounted by the plaintiffs, and the money went to the- 90 CATSKILL BANK v. GRAY. (Ch 10 use of the firm. It was held that the plain- tiCfs could not recoyor, either upon the bill or the money counts. Ix)rd Ellenborough observed that the counts on the bill had been properly abandoned, for unquestionably on a bill of exchange drawn by one only, it cannot be allowed to supply by intendment the names of others, in order to charge them; and considering it a mere discount or sale of the bill, he also held that there was no joint liability of the defendants for money had and received, and that It was the individual transaction of the partner who drew the bill; and all the other judges expressed similar opinions. I do not, how. ever, deem this case in all its aspects sim- ilar to the one under consideration. The agreement of September, 1843, contemplated that there should be a general superintend- ent of the business of manufacturing iron. though as between the parties thereto, pay- ment for his services was not to be charged in making up the account of profits. This superintendent draws the bills that were discounted by the plaintiffs, signing them iu £he character of superintendent. He must have acted exclusively as the agent of Gray, in drawing and negotiating the bills, to ren- der the facts of this case similar to those of Emly V. Lye. The facts must have shown the transaction to have been a mere discount or sale of bills. But it seems to me necessarily to be implied from the deci- sion of the judge that he found the fact that Burt acted as the agent of the defend- ants, and not exclusively as the agent of Gray. Whether that finding is sustained by the evidence, is not a question to be enter- tained on a bill of exceptions. New trial denied. Ch. 10) ALLEN V. WOONSOCKET CO. 91 ALLEN et al. v. WOONSOCKET CO. (11 R. I. 288. 1876.) Bill in equity brought by tbe siu-viving co- p.ii-tners of the firm of Philip AUen & Sons against the respondent corporation, charging that there had existed between the respond- ent and the complainants a copartnership to carry on the business of calico printing. The prayer of the bill was for an account and settlement. The facts as found by the court are sufficiently stated in its opinions. POTTER, J. The old firm of P. Allen & Sons having failed, and all the parties hav- ing made assignments in 1857, a new firm, under the same name, was formed by the same parties, by an agreement in writing, November 26, 1858. In June, 1858, the print works formerly owned by P. Allen & Sons were sold by their assignees, and purchased by the Woonsocket Company (a corporation chartered by the leg- islature in 1832), who had occupied them on lease from the assignees of P. Allen & Sons after their failure. The bill alleges that said defendant corpo- ration, by Crawford Allen, its agent, on No- vember 26, 1858, formed a partnership with P. AUen & Sons to carry on said printing business, the corporation to furnish the works and capital, the said P. Allen & Sons to man- age the business and devote their skiU, at- tention and influence to it, and to receive for such services a salary of $200 per month, and twenty per cent, of the profits of the business, and that said business was so car- ried on imtil Philip Allen's death, on De- cember 16, 1805, when the agent notified said P. Allen & Sons that their interest in the business ceased; that large profits were made, and that complainants received the salary, and a portion but not all of the share of profits fhey were entitled to, and praj'ing for an account and payment of the balance that may be found due. The answer denies the partnership, con- tends that such a partnership could not le- gally exist, as being ultra vires on the part of said Woonsocket Company; that, if it ex- isted, it was terminated when the mill stop- ped in December, 1864, or when the accounts were closed and a new arrangement begun in May, 1865, Instead of December 16, 1865, the date of Philip Allen's death; and that, therefore, the suit is barred by the statute of limitations, the bill not being filed until December 15, 1871; denies that any moneys were paid to P. Allen & Sons as a part of profits, but that what was paid over and above the salary was a gratuity, and for the use of a trade-mark, and not of right under contract; that stated and true accounts were rendered and allowed and settled by the parties, the last in December, 1870. The re- spondent claims the benefit of these allega- tions as if pleaded. The answer also sets out other matters which, though bearing on these questions by way of inference and evidence, need not be noticed now. The answer fm-ther alleges, that on De- cember 12, 1871, P. Allen, Jr., one of the complainants, released all claims against the respondent for services as partner or indi- vidually. The first point of defence is that the re- spondent, being a corporation chartered by the legislature of Rhode Island, had no power to enter into a partnership; that the whole proceeding would be ultra vires. The grounds on which the proceedings of corporations have been held to be void, as being beyond the powers given them by their charter, have been chiefly these: First. Because public policy requires that corporations should be confined to the busi- ness, and to the mode of managing that busi- ness prescribed by the charter, which is their law, and which they are bound to obey. The act incorporating this company was passed at the January session, A. D. 1832. It incorporates the Woonsocket Company. It seems strange, but is true, that no portion of the act specifies what business is to be done by the company, nor can its business be inferred from anything in its name. Second. Because the individual stockhold- ers of the company have a right to require that the corporation shall be confined to its legitimate business. They have invested their money on the faith that it will be so confined. A majority have no power to change it. The stockholders have invested their money also on the faith that its busi- ness will be managed by the officers provided for in the charter, and in whose election they have a voice; and while a majority, thi-ough their officers and agents, may make many binding contracts, they cannot transfer the whole conti'ol of their affairs to a body for- eign to themselves. Now, in this case, the charter does not specify by what oflicers the business of the corporation shall be managed; and during the whole period involved in this suit, the Woonsocket Company had but one single stockholder. Crawford Allen owned the whole stock. There was no other stockhold- er with any right to complain that the busi- ness had been changed, or that the corpora- tion had put the management of any portion of its business beyond its own control. And this, we think, makes a material difference between the present case and the cases to which we have been referred on the part of the respondent. The reason of the rule ceas- ing, the rule does not apply. And besides, the partnership here set out was merely a partnership at will; and the corporation could terminate it, and resume the full control of their business at pleasm-e. And if the agreement was merely an agree- ment to pay a part of profits for services without giving the complainants the control 92 ALLEX V. WOONSOCKET CO. (Ch. 10 as partners, then it would not on any prin- ciple be ulti-a vires. In this case tliis point is raised in the answer, and the respondent claims the bene- fit of it as if lie had demurred or pleaded. As presented in the answer, it does not seem to be the proper subject of a plea. The point that a corporation .cannot enter into a partnership is a pure matter of law. The rules of the United States supreme court of 1822 (7 Wheat, x., rule 23), and the similar Rhode Island rules of 1837 (1 R. I. xxii., rule 20), allowed all defences to be made by answer. But after a temporary trial of it the United States supreme com-t altered its rule in 1842 (17 Pet. Ixvii. ; 1 How. liii., rule 39), and our supreme court fol- lowed in July, 1857 (4 R. I. 570, rule 40), so that a defence which is a proper subject of demm'rer ought now to be made by demur- rer as anciently. The English rules have al- ways required it, although the chancery com- missioners recommended a greater latitude. While even if it appeared upon the hearing that tlie complainant was not by law enti- tled to relief, he would not prevail, still, where it is a mere matter of law, it should be so presented. In the present case, if the contract was void for that reason, no an- swer would be required, the pleadings would be simplified, the Utigation ended, and the time of the court and of the parties would be saved. Payment of costs is but a small pen- alty. There may be many cases where it may be difficult to determine whether to plead or demur, and there should always be a rea- sonable indulgence with liberty of amend- ment. In the present case, the fact that the respondent is a corporation, which the re- spondent relies on, does appear in the bill; but the important fact, that Crawford Allen was sole stockholder of the respondent com- pany, does not appear until the answer is put in. All we mean to say is that questions of law should be raised by demurrer, where it can be done; and if not by demurrer, then as soon as possible in limine. The bill alleges a partnership. The re- spondent was to fm-nish the works and cap- ital, the complainants to have the chargd and management, and devote their skill, at- tention, and influence to it, and for their services were to receive a salary and a cer- tain portion of the profits.' * * * We are therefore of opinion that the com- plainant is entitled to relief. After the foregoing opinion had been given, the case was re-argued at the request of the respondent. July 22, 1876 POTTER, J. The brief of the respondent, on the reargument of this ' Part of the opinion, relating to questions of partnership, is omitted. case, complains of several misconceptions of fact and , misstatements of law in the for- mer opinion of the com't.^ * ♦ ♦ Out attention has again been called to th& doctrine of "ultra vires," and it has been strenuously contended that the Woonsocket Company had no power to piurchase and operate print works or to enter into a part- nership. The grounds, as before stated by us, oa which proceedings of corporations have been held void as being beyond their charter pow- ers, have been (see Kindersley, V. C, in Shrewsbury v. Railroad Co., 35 L. J. Ch. 156, 172; quoted in Brice on Ultra Vires, by Green, p. 35. See, also, Selden, J., in Bissell v. Rail- road Co., 22 N. y. 281): Fu-st. Because the charter when accepted, constitutes a contract between the stock- holders that the corporation shall be con- fined to its proper business, and that a ma- jority cannot change it. A minority have been held bound in some cases by the fact of the acquiescence in or ratification of the acts of the majority. In the present case there was no one who- had a right to complain on this ■ ground, Crawford Allen being sole stockholder. Second. Because public policy requires that they should be confined to the business and the mode of managing business prescribed by the charter, which is their law. In the present case the charter was passed in 1832. No portion of the act specifies even by Implication the business to be done, and nothing can be implied even from its name. Where a corporation is created for special purposes, there is no doubt that it must be confined in its operations to those purposes, and it can only exercise the powers expressly granted or impliedly necessary to carry out these pm-poses. But in the construction of its powers it may be sometimes very im- portant to consider whether the corporation i» bound to show that the act done is 'within its granted powers, or whether the contestant is bound to show that it is beyond them. In the present case the question is very im- portant. The powers to buy and sell land, &c., &c., are merely the powers usually granted to all corporations for whatever pur- pose incorporated. But the purpose or ob- ject is nowhere declared. And the general rule may be stated to be that it lies on those who impeach the con- tract to show that it is avoided. Brice, Ultra Vires (by Green) c. 1, § 3, and cases cited. The contrary rule, which is contended for so earnestly by the counsel for the respond- ent, would probably produce a great deal of litigation in this state. It is believed there are many charters of corporations do- ing a very large business where in the char- ter itself no pm^pose whatever is specified (although in one, the Lonsdale, it is de- ' Part of the opinion, relating to the dissolu- tion of the old form, is omitted. 'Ch. 10) ALLEN V. WOONSOCKET CO. 93 scribed in the title of the act, and there only as a manufacturing corporation), and a stiU greater number where the intended busi- ness can only be inferred from the name. In such cases the fact that the persons incorporated were doing a particular sort of business wlien incorporated, and the fact that the legislature and the corporators have acquiesced in the doing of a particular busi- ness, or in a continued course of dealing, might be entitled to weight. In this case the contention is that the re- spondent had no right to form a partnership, that a corporation must transact its busi- ness through its proper officers, and cannot delegate its powers in such a manner as to put its business beyond its conti-ol. If the partnership had been for a definite period, it might well be argued that the re- spondent had no right to make, such a con- tract. But it was a mere partnership at will, terminable at any moment by either -party. The respondent, therefore, did no more part with the control of the business than if it had employed Philip Allen & Sons simply as agents, and its right to do that cannot very well be denied. We have examined carefully the authori- ties to which we have been referred. Brice, Ultra Vu-es, pt. 3, c. 2, subd. 6, does indeed say, that "agreements between companies which create a partnership between the par- ties thereto are void." The leading case he refers to is Charlton v. Railroad Co., report- ed in 7 Wkly. Eep. 731, but more fully in 5 .Jui\ (N. S.) 1097, before Page-Wood, V. C, where two corporations conti'acted for a per- manent amalgamation. This would have been equivalent to the creation of a new cor- poration without the consent of parliament. And it is recognized by this author, that • certain arrangements may be made for di- vision of profits or as to trafBc, where there is no transfer of the powers of the corpora- -tion or merger of either separate corporation in a constituted whole. The counsel have referred us to four Amer- ican cases: 1. Whittenton MiUs v. Upton, 10 Gray, 582. The* Whittenton Mills were incorpo- rated for the purpose of manufacturing cot- ton goods. In 1842, the persons who had previously furnished machinery, &c., for them failed, and William Mason bought the tools, machinery, and stock, and hired the foundry, &c. Mason and the Whittenton Mills then made an agreement by which the Mills were to advance the money to pay for said tools, machinery stock, and rent, and for the labor required. Mason was to have a salary, and the profits of their business, pat- ents, &c., were to be divided for five years. Subsequently the agi-eement was extended to seven years, the business to be done under the name of W. Mason & Co., buildings and additional machinery obtained, and it was -afterwards extended for three years more. In the purchase of machinery for the Whit- tenton Mills, the parties dealt with each oth- er as strangers. Mason contributed to the partnership nothing but his skill and patent rights. And it appeared that other corpora- tions for manufactm'ing cotton and woolen goods had machine-shops for making their own machinery, and some such corporations had sold machinery to other mills. The court hold that the corporation (page 59G) could not make a contract by which the con- trol of its business should be put beyond the control of its officers or agents; that (page 597) the corporation could not engage in any business foreign to that for which it was created, or enter into any partnership for that purpose; and (page 598) that the char- ter was a public law, and aU persons dealing with them must take notice of the extent of their powers. The court say it was not nec- essary to decide the question of the liability to third persons, nor the question of ratifica- tion by stockholders. The suit was to set aside proceedings in insolvency, and they were set aside. 2. New York & S. Canal Co. v. Fulton Bank, 7 Wend. 412. A canal was made partly in Connecticut and partly in New York. The projectors obtained a separate charter from each state, but the corporations had the same stockholders and the same of- ficers, and by by-law they had consolidated the stock. The suit was to recover fimds deposited in bank in the joint name. The court said it was not necessary to decide whether corporations might consolidate or form a partnership, although general princi- ples were against such powers, but they were tenants in common of the funds and could sue for them. 3. Bank v. Gray, 14 Barb. 479. The Ul- ster Iron Company leased to Gray its works for five years, reserving a part of the profits for rent, &c., with privilege to purchase at the end of the term. The suit was on drafts, drawn by the superintendent and ac- cepted by Gray, and the claim was to hold the Ulster Iron Company as partners. Coun- sel for the Ulster Iron Company contended there was no partnership, and the company could not form one. Held, that the Ulster Ifon Company had an interest in the profits as profits, and were liable to third persons as partners, and that they could make such a contract as was made. 4. Bank v. Ogden, 29 HI. 248. The Marine Bank was incorporated imder the general law and could only receive ten per cent., and its stockholders were individually liable. The Chicago Insm-ance Company, under an old charter, could take twelve per cent, on loans. Both were under public acts. They had the same stockholders and officers and used the same room and vault, but their ac- counts were kept separate, and separate dividends were made. The profits of the bank in selUng exchange, and of the insur- ance company on loans, were divided be- tween the two. All the moneys in the vault 9i ALLEN V. WOONSOCKET CO. (Ch. 10 were the property of the insurance company. Checks upon the bank were paid by the offi- cers of the insurance company, and charged in account against the bank. The plalntifCs had deposited money with the insm-ance company, and sued the bank on the ground of liability as partner. There had been a depreciation in bank bills. Held, that it was a general deposit, and the holder of the check was not obliged to take payment in depreciated funds. Held, also, that the two corporations could not form a partnership but could make joint contracts. Here they were not jointly sued. The court below had Instnicted the jury, that if they were satis- fied the bank was the real party in interest, and the insurance company only its agent to carry on the business, they might hold the bank liable, although the business had been done in the name of the agent. The verdict was for the plaintiff, and it was affirmed. We can see nothing in these cases to af- fect the principle we have laid down. To the argument, that the fact that there was only one stockholder cannot enlarge the powers of the corporation, we can only say that no such inference can. properly be drawn from the language of the former opinion. That fact is only of importance upon the point that there were no stockhold- ers with any right to complain of the acts of the corporation. To the argument, that if the payments be- fore 1865 prove a partnership they would also prove it afterwards, it is only necessary to say that we considered them as entitled to weight as evidences of an indebtedness before Philip Allen's death, which had not been settled. We Intend to decide, and do decide, that we consider a contract of partnership, not of hire, proved. That the contract continued to the death of Philip Allen, we consider as most positively proved. If so, the defence of the statute of limitations Is of no avail. There is no satisfactory evidence that the agreement of 1865 had any effect upon the former relations of Philip Allen & Sons and the Woonsocket Company. They were not ousted from their former conti-ol of the busi- ness, nor had they any notice that their con- trol or interest was in any way affected by it. And as to the proportion of profits, the complainants were to be entitled to that is to our minds satisfactorily proved. Mr. Nightingale, who went into the busi- ness in 1861, says (page 2 of printed evi- dence): "The fact that a so much larger amount than the nominal salary was paid led me to suppose that Messrs. Philip Allen & Sons had an interest in the business, and at an interview with Mr. Crawford Allen relative to my share in the business I pro- posed that it should be twenty per cent., and Mr. Allen said, that is what my brother has." Mr. Nightingale afterwards (pages 10, 64) said he was unable to fix the date of this conversation. He also states another conversation with Crawford Allen in 1865. We have also the statements of Crawford Allen made to Wilkinson and Dorr, the fig- ures in his own handwriting and the evi- dence of Philip Allen, Jr. And upon the general subject of the contract, see also the evidence of Hennessy, who, for aught that appears, is entirely disinterested. It is also strongly urged that the contract between Philip Allen & Sons and Crawford Allen was merely a personal contract, or, as counsel say, a personal confidence. We can only repeat that the mode in which the ac- counts were kept and the receipts given sat- isfies us that the contract was considered by both parties to be made with the respondent corporation. We have considered all the points made on the reargument. We have noticed some of them in this opinion. We cannot see any reason for changing our former decision. Former decision affirmed. Decree establishing the fact of the partner- ship as charged, declaring that the complain- ants were during such partnership entitled to a salary of ?200 per month and to twenty per cent, of the profits, and referring the cause to a master In chancery to take an ac- count. Decree entered October 2, 1876. Ch. 10) STANDARD OIL CO. v. SCOFIELD. 95 STANDARD OIL CO. v. SCOFIELD. (IQ Abb. N. C. 372. New York Supreme Court, Special Term. 1885.) Trial of issues raised by demurrer to com- plaint. The Standard Oil Company, an Ohio cor- poration, brought this action against Wil- liam C. Scofield and others, composing the firm of Scofield, Shurmer & Teagle, for an accounting, payment, &c., under a conti-act made between the parties as to the business of refining and dealing in crude petroleum. The complaint alleged the incorporation of the plaintiff under certain specified statutes of Ohio, the partnership of defendants, the making of the contract annexed as part of the complaint, its suspension by notice from the plaintiff as provided therein; the defend- ants' application to their own use of large sums in excess of their just proportion; and their refusal to furnish plaintiff with a state- ment of the joint business. The contract appears in a note. ' The defendants demurred to the complaint as not stating facts sufficient to constitute a cause of action. BARTLETT, J. Three objections are urged upon this demurrer to the complaint as not stating facts sufficient to constitute a cause of action: First, that the contract sued upon is ultra vires as to the plaintiff; secondly, that the contract is void, as being in restraint of trade, and therefore against public policy; and, finally, that the complaint does not allege due performance by the plain- tiff of all the conditions of the contract on his part. I will consider these objections in the or- der in which I have stated them. 1. Is the contract in suit ultra vires? The complaint refers to the particular acts of the Ohio legislature under which the plain- tiff corporation was organized and exists. The demurrer admits that it was incorpo- rated under these statutes. Assuming that this admission brings the charter of the plaintiff before the com-t, it is argued that no authority can be found therein which warrants a corporation in entering into a partnership with individuals, as the plaintiff did in making the contract now xmder con- sideration; and I am referred to a decision to this effect made in a suit between these same parties, by the court of common pleas in Cuyahoga coimty, Ohio, on an application to enjoin the defendants from refining more oil than the quantity specified in the agreement. I concur with the Ohio court in the view that the relation established between the plaintiff and the defendants was practically one of partnership, and adopt the consti-uc- tion which that tribunal puts upon the stat- utes of its own state in holding that the act * The contract is omitted. of incorporation does not authorize the plaintiff to become a copartner with indi- viduals. But while this conclusion justified the com-t there in refusing to interfere by injunction to aid the plaintiff in enforcing its claims under such portion of the contract as remained executory, can the fact that the joint undertaking was ultra vires on the part of the plaintiff avail the defendants in an- swer to a claim that, so far as the contract has ah-eady been executed, they have applied to their own use large sums of money to which they are not entitled? I think not. "Contracts with corporations made in excess of their powers, which are purely executory on both sides, and where no wrong will be done if the parties are left in their previous situation, should not be enforced, because such contracts contemplate an unauthorized diversion of corporate ftmds, and therefore a breach of private trust. But the executed dealings of corpora- tions must be allowed to stand for and against both the parties, when the plainest rules of good faith so require." Parish v. Wheeler, 22 N. Y. 494, 508. So far as this specification of their demui'rer is concerned, the defendants say to the plaintiff in sub- stance: "Yes; we made an agreement with you. We carried on business with you under it. We have taken more than oiu- share of the profits, and now you cannot have any redress, because the contract be- tween us was really one of copartnership, which you could not make without exceeding your corporate powers." In my opinion, it needs no argument to show that to permit such a position to be successfully maintain- ed would be to disregard the plainest prin- ciples of good faith. 2. Is the contract void as being in restraint of trade, and, therefore, contrary to public policy? I assume that the demurrer is not to be upheld on this ground, if the agreement is susceptible of any view consistent with the facts set out in the complaint, which would make it valid. Although upon a trial, where aU the facts could be disclosed, it might ap- pear that the true pui-pose of the arrange- ment between the parties was to effect a combination inimical to the interests of the public, this is not to be inferred upon a de- murrer, where the instrument is capable of a construction consistent with a lawful in- tent. Regarding the relation between the plain- tiff and the defendants as substantially that of partners, the contract is not necessarily such as the law forbids. A man who pro- poses to put money into a joint undertak- ing with strangers may lawfully bind them not to do more business than he thinks will be warranted by the capital to be employed, even if the result be to limit the production of a particular commodity. In such cases as the present, the controlling question must be the pm-pose of the parties. If it be their .■»t) STANDARD OIL CO. v. SCOFIELD. (Ch. 10 design artificially to enhance the price of a necessary commodity by lieeping the prod- uct of others out of the market, their con- ti'acts to that end are illegal. Arnot v. Coal Co., 6S N. Y. 558. A vast number of author- ities might be cited in support of this propo- sition, but it is commonly applied only where the unlawful purpose has been found by the trial court as a matter of fact (08 N. Y. 558, 5Go) or is necessarily to be inferred from the circumstances of the case. I think the most that can be said upon the pleadings here (outside of which I can con- sider nothing), is that the facts pleaded point to a probability that the contract was intend- ed to be in restraint of trade. Those facts, however, are also consistent with a lawful intent. "The presumption is in favor of the legality of contracts. The law does not as- sume an intention to violate the law, nor will an agreement be adjudged to be illegal where it is capable of a construction which will uphold it and make it valid." Lorillard V. Clyde, 86 N. Y. 384, 387. This is expressly held to be the rule applicable in cases of demm-rer. All reasonable intendments are to be indulged in support of the pleading. Construing the complaint herein accordingly, it must be held good' so far as the second objection is considered. 3. Is the absence of an averment that the plaintiff duly performed all the conditions of the conti-act on its part fatal to the com- plaint? The complaint does allege that the plain- tiff and defendants "entered upon and con- tinued to carry on" the joint business pro- vided for in the contract between them; that the defendants have applied to their own use from the receipts and profits of said business large sums of money gi-eatly ex- ceeding the proportion thereof to which they were entitled (amounting in the aggregate to $80,000); and that they refuse to account. I think these averments are sufficient to entitle the plaintiffs to maintain their action for an accounting. There must be judgment for the plaintiff on the demittrer, with the usual leave to an- swer over on payment of costs. Ch. 10) BLOCK V. FITCHBURG E. CO. 97 BLOCK V. FITCHBTJEG R. CO. et al. (1 N. E. 348, 139 Mass. 308. 1885.) Contract, against the Fitchbui-g Railroad Company and seven other railroad corpora- tions, described in the writ as "doing busi- ness together as a line for the purpose of caiTying freight, under the name of 'Erie and North Shore Despatch,' " and having a usual place of business in Boston. The dec- laration alleged a delivery of a package of goods to the defendants at Boston, to be delivered to the plaintiff at Denver, Colo- rado, under a bill of lading, and the non- delivery thereof. The bill of lading, which was headed "Erie and North Shore Despatch Fast Freight Line," and acknowledged the re- ceipt of the package, contained the following clauses: i » * • Trial in the superior court, before Staples, J., who ordered a verdict for the defendants. The plaintiff! alleged exceptions, which ap- pear in the opinion. MORTON, C. J. The evidence at the trial tended to show that the several defendant corporations formed an association or com- pany under the name of the "Erie and North Shore Despatch Fast Freight Line," for the transportation of merchandise between Bos- ton and Chicago; that the association had an agent in Boston, who was authorized to receive goods at Boston for transportation over the line to Chicago, and to give bills of lading or contracts for transportation like the one upon which the plaintiff sues; that the plaintiff delivered goods to such agent, and received the bill of lading in suit; and that a part of the goods were lost between Boston and Chicago. By the bill of lading, the "Erie and North Shore Despatch" contracts to carry the goods from Boston by the Fitchburg Railroad, and thence by the Erie and North Shore De- spatch, to Chicago, and there to deliver them to connecting railroad lines, to be forwai'ded to Denver, their destination. The several railroad companies which form the associa- tion are not named in the contract. It is a single and indivisible contract, by which the Erie and North Shore Despatch Line agrees to carry the goods to Chicago, the freight to be earned upon the deliveiT there to the connecting line. So far as the ques- tion in this case is concerned, it Is unlike those cases where a railroad forming one link in a line of connecting roads between two points receives goods to be transported ' The clauses are omitted, the substance be- ing stated in the opinion. PBIV.COEP.— 7 over its line and delivered to the connecting road, in which it has been held in this com- monwealth that each railroad in the continu- ous line is liable only for loss or damage happening on Its own road. Darling v. Rail- road Corp., 11 Allen, 295; Gass v. Railroad Co., 99 Mass. 220; Burroughs v. Railroad, 100 Mass. 26; Aigen v. Raih-oad, 132 Mass. 423. The defendants formed a company, and in its name made a special conti-act to carry the plaintiff's goods from Boston to Chicago. They are, so far as the plaintiff Is concerned, partners, and liable jointly and severally for any loss or damage to his goods between Boston and Chicago, unless they are exempt- ed from liability by the terms of the con- tract. Hill Manuf'g Co. v. Boston & L. R. Corp., 104 Mass. 122. The principal diffi- culty in this case Is as to the true construc- tion of the contract of carriage. It contains the provision, that, in case of loss or damage to the property received, "whereby any legal liability or responsibility shall or may be in- curred, that company shall alone be held answerable therefor in whose actual custody the same may be at the time of the happen- ing thereof." It also contains a provision, that, In case of loss or damage of any of the goods "for which either of said companies may be liable, it is agreed that said company, shall have the benefit of any insurance ef- fected" thereon by the owner. The defendant contends that the expres- sion "that company," in the clause above cited, means that railroad company in any part of the continuous line between Boston and Denver, so that, although the plaintiff's loss occurred between Boston and Chicago, that railroad company in whose custody the goods were when lost Is alone liable. This is not the necessary, and we do not think it is the fair, construction of the defendants' contract. » » * * The effect of this interpretation is, what seems to have been in the minds of the par- ties, to release the Despatch Company from liability after it had carried the goods to the end of its route, according to its contract, and had delivered them to the connecting carrier, and to hold it liable to the point to which it had assumed and contracted to transport the goods as a common carrier. We are of opinion that this is the fair con- struction of the contract, and therefore that the learned justice who presided at the trial in the superior court erred in directing a ver- dict for the defendants. Exceptions sustained. * Part of the opinion is omitted. 98 SWIFT V. PACIFIC MAIL STEAMSHIP CO. (Ch. 10 SWIFT et al. t. PACIFIC MAIL STEAM- SHIP CO. et al. (12 N. E. 583, 106 N. Y. 206. 1887.) Appeal from judgment of the general term of the supreme court in the first judicial department, entered upon an order made May 8, 1885, which affli-med a judgment in favor of plaintiffs entered upon a verdict, and affirmed an order denying a motion for a new trial. This action was brought by the plaintiffs, as shippers, against the defendants, as com- mon carriers, to recover damages for breach of a joint contract for the carriage of whale oil from Panama to New York. The complaint alleged that the plaintifCs were copartners, and that the defendants were corporations organized under the laws of this state; that the business of the Pana- ma Raih-oad Company, among other things, was the transportation of freight from Panama by rail to Aspinwall, and there to deliver the same to the Pacific Mail Steam- ship Company, whose business it was, among other things, to transport the freight so received by vessel to New Yorli; that the defendants, for a single price named, enter- ed into a joint contract to carry the oil from Panama to New York; that they entered upon the performance of their contract in the months of January and February, 1873, and delivered a portion of the oil received by them from the plaintifEs, in the city of New York, about the 23d of April, 1873; that, owing to the negligence, delay and im- proper handling of the oil, and the casks containing the same, by the defendants, the oil was greatly damaged and injured, and a large part of it was lost by leakage while at Panama, on its way across the isthmus, at Aspinwall, and also on the passage from Aspinwall to New York; and that by reason of negligence, improper conduct and mis- management of the defendants, the plain- tiffs suffered damages in the sum of $20,000 besides interest. Each of the defendants, by a separate answer, among other things, denied the joint contract and the joint lia bility alleged in the complaint; alleged that the oil was delivered and caiTied under a special contract printed and in vsriting, copies of which were delivered to plaintiffs, wherein the several rights and liabilities of plaintifCs and defendants, and each of them, witli respect to plaintiffs and to each other, relative to the subject-matter of the com- plaint, were limited, defined and deter- mined, and that its undertaking in regard to the oil was only under such contract, which it had fully performed; that it was not liable for losses accruing upon the route of the other defendant; and each de- fendant also alleged, as a separate defense, that there was a defect of parties plaintiff, and that several other persons named were thejn, and also, at the time of the making of the contract and the transportation of the oil, Jointly interested with the plaintiffs in the oil. The further material facts aro stated in the opinion. EARL, J. A point is made on behalf ol the defendants that the plaintiffs cannot maintain this action on the ground that some of the seamen on the whaling vessels were to some extent joint owners with them of the oil. It is undoubtedly the general rule in this state that an action against a common carrier for the breach of his con- tract, or of his duty to carry must be brought in the name of the owner of the goods, although the contract may have been made or the goods shipped by another. Green v. Clarke, 12 N. Y. 343; Krulder v. Ellison, 47 N. Y. 36. The rule has, however, been much questioned and has some excep- tions. Blanchard v. Page, 8 Gray, 281; Finn V. Railroad Corp., 112 Mass. 524; Arbuckle V. Thompson, 37 Pa. St. 170. Where the consignor, although not the general owner, has a lien upon or a special interest in the goods, and makes the contract and pays the consideration for their carriage, he may bring an action for the breach of the con- tract in his own name in order that he may protect his rights. Here these plaintiffs made this contract in their own names, and with their own money paid the agreed freight, and they were both consignors and consignees. It does not appear what owner- ship if any in the oil the seamen had, nor does it appear what the relations between the plaintiffs and them were. For aught that appears, the plaintiffs were under a special duty to deliver this oil in the city of New York, and had a special interest in the whole of the oil to protect. As they were in control of the oil and made the contract for its transportation, being both consignors and consignees, in the absence of proof to the contrary, it must be assumed that they had sufficient title and right to maintain this action and enforce their contract with the defendants; and in so holding it is believed that we are in conflict with no authority. But the evidence does not show that the seamen were joint owners with the plaintiffs of the oil. It was simply testified that "they were interested in the oil," and that evidence was not sufficient to establish that they were either partners or joint own- ers with the plaintiffs. It is more reason- able to suppose, from such evidence, that they were simply interested in the proceeds of the oil, and such is believed to be the common arrangement" between the owners of whaling vessels and their seamen, when the latter have an interest in the product of the whaling voyage. Baxter v. Rodman, 3 Pick. 435; Grozier v. Atwood, 4 Pick. 234; Bishop V. Shepherd, 23 Pick. 492. We- are, therefore, of opinion that the seamen were not necessary parties to the action. The I'anama Railroad Company was or- ganized to construct, maintain and operate a Ch. 10) SWIFT «. PACIFIC MAIL STEAMSHIP CO. 99 railroad across the isthmus, from Panama to Aspinwall; and the Pacific Mail Steamship Company was organized to navigate steam- ships on the Pacific and Atlantic oceans. Laws 1848, c. 266; Laws 1850, c. 207. It is not dlspiited that the Panama Railroad Com- pany could receive freight at Panama and contract to cari-y it beyond its terminus through to the city of New York, and that the Pacific Mail Steamship Company could receive freight at the city of New York, and contract to carry it to Aspinwall and thence by the railroad to Panama. It is the well settled law in this state that a carrying corporation over a portion of a continuous line of transportation may con- tract to carry beyond the terminus of its route, and that such a contract is not ultra vires. Weed v. RalLroad Co., 19 Wend. 534; Wylde V. Raikoad Co., 53 N. Y. 156; Root v. Raih:oad Co., 45 N. Y. 524; Condict v. Railroad Co., 54 N. Y. 500. Such contracts have been upheld sometimes upon the ground of estop- pel, and sometimes upon the ground that they were incident to the business for which the contracting corporation was organized. While the defendants admit that such contracts could be made, they contend that the Pacific Mail Steamship Company could not contract to receive goods away from its terminus and to transport them to such terminus over the route of another carrier, and thence trans- port them over its own route to their destina- tion. That is, while they admit that the steamship company could receive goods at the city of New York and contract to carry them to Panama on the Pacific coast, they deny that it could receive goods at Panama and agree to transport them to the city of New York. We see no reason for distin- guishing between the two kinds of contracts, and for holding that the company could make the one kind and not the other. If when it receives goods at New York for transporta- tion to Panama it is engaged in business au- thorized by its charter, or incident to such business, then when it procures freight at Panama for transportation to Aspinwall and thence to New York it is also engaged in promoting the legitimate business for which it was organized. It thus procures freight for transportation upon its steamships, and the business it thus does at Panama and across the isthmus is just as legitimate as it would be to establish agencies on the Pa- cific coast to solicit freight for transportation -from Aspinwall to New York, or to contract with newspapers there to advertise the car- rying of such freight. Cannot a railroad company take freight for transportation at a point a few rods from its depot? And if it may a few rods, why not a few miles? If it may have a depot for the receipt of freight one mile from its terminus, why may it not have a depot fifteen or twenty miles therefrom, and transport the freight thence to its road by any means that it chooses to adopt? The Panama- Railroad Company terminated on the Pacific coast at Panama, and there it owned lighters to go out into the ocean to take freight from vessels. If it could send its lighters out one mile, why could it not send them out several miles for the same purpose to some convenient port or roadstead? The main business of the steamship company between Aspinwall and New York was to transport passengers and freight which came from the Pacific coast, and instead of taking the passengers and freight at Aspinwall, why could it not take them at Panama? We see no reason for holding that it might not do so in the prose- cution of its corporate business, and as inci- dent thereto. Then again, if when the steam- ship company receives goods at New York under contract to carry them to Panama it is estopped from denying its authority and power to make the contract, why when it receives goods at Panama under contract to be carried to New York should it not be equally bovmd by estoppel? We think, therefore, that it is clear upon principle and authority that both defendants were competent to enter into contract to carry this oil from Panama to New York. And as each was competent to contract alone it cannot be doubted that they were com- petent to make a joint contract to do it. They could even become partners in the transportation business between Panama and New York, and so far as we have discovered, the power of corporations thus to become joint carriers has never been denied but has frequently been recognized. Aigen v. Rail- road Co., 132 Mass. 423; Block v. Railroad Co., 139 Mass. 308, 1 N. E. 348; Gass v. Raih-oad Co., 99 Mass. 220; Railroad Co. v. Trippe, 42 Ark. 465; St. Louis Ins. Co. v. St. Louis & T. R. & I. R. Co., 104 U. S. 146; Barter v. Wheeler, 49 N. H. 9; Wylde v. Railroad Co., supra; Hutch. Carr. § 160. The right of a corporate carrier to go beyond its terminus to procure freight and passengers, and to transport them to its terminus for caiTiage over its route, is not absolute and unqualified, but has some limitations. What those limitations are, it is not possible, in a general way, to define. The New York Cen- tral and Hudson River Railroad Company, could not establish a line of steamers be- tween Liverpool and New York to carry passengers and freight from Liverpool to New York, in order that it might secure the business of transporting such passengers I 1 and freight over its route to Buffalo; but it might run ferry boats from Staten Island, or from the New Jersey shore for the pur- pose of securing passengers and freight for transportation over its route. The right to go beyond its terminus to procure passengers and freight for transportation over its route, by a corporate carrier, must be exercised within reasotable limits and under such cir- cumstances that it may fairly be said to be incident to its legitimate corporate business; and our holding is that the Pacific Mail 100 SWIFT V. PACIFIC MAIL STEAMSHir CO. (Ch. 10 Steamship Company, engaged In transporta- tion upon botli tlie Pacific and Atlantic oceans, did not go beyond reasonable limits in contracting to take freight at Panama and transport it over the Panama Kailroad for delivery to its steamship at Aspinwall, its main business being to take freight coming to it over that railroad. The plaintiffs claim that the contract for the carriage of this oil was made in the city of New York between them and one Bellows, who was the vice-president and general agent of both defendants at that place, and that it was made by correspond- ence with Bellows and a personal interview had with him. On the other hand the de- fendants claim that the contract was con- tained in and evidenced by the bills of lad- ing signed at Panama by one Corwin, who was the agent of both defendants at that point, which bills of lading expressly stipu- lated that the defendants should not be jointly liable. for any loss or damage to the oil; that neither of them should be Uable in any event for any loss or damage accru- ing upon the route of the other, nor account- able for leakage arising from improper or defective casks, nor for damages of any kind to articles perishable in their nature, nor for unavoidable detention and delay. The trial judge submitted all the evidence bearing upon the contract to the jury, and instructed them to find whether it was made with Bellows as claimed by the plaintiffs, or whether it existed in the bills of lading as claimed by the defendants; and he also instructed them to find whether the contract was the joint contract of the defendants or the individual contract of the Pacific Mail Steamship Company; and he charged them that if they found the contract existed In the bills of lading they should render a verdict in favor of the defendants; but that if they found It was made with Bel- lows as claimed by the plaintiffs, and tJiat it was the joint contract of both defendants they should then render a verdict in favor of the plaintiffs against both defendants. The JU17 must, therefore, have found that the contract was made' with Bellows as claimed by the plaintiffs, and that it was joint, and the only further Inciuiry is whether there was any evidence to authorize their findings. * * * The correspondence, together with what was said at the interview between Swift and Bellows, the joint agent of the defend- ants, made a special contract between the parties under which the plaintiffs were to deliver the oil at Panama, and the princi- pals of Bellows were to receive the oil from plaintiffs' vessels, take it upon lighters to the docks and promptly carry it across the Isthmus to Aspinwall without delay, cai'e for the oil upon the isthmus and see to the coopering of the casks so that there would be no leakage there, and from Aspinwall transport it to the city of New York. And all this was to be done for the single price stipulated. The contract, so far as it went, was com- plete. It was doubtless expected that bills of lading would be executed, but it could not have been expected that by them the contract so made should in any way be modified. Under this contract, all the oil was de- livered in January, 1S73, from plaintiffs' ves- sels, and the only ground the defendants have for claiming that this wa» not the con- tract under which the oil was transported, is the fact that two months afterwards, on the 27th of March, 1873, the common agent of the defendants executed bills of lading, which were sent to the plaintiffs and re- ceived by them April seventh. By some delay on the isthmus, the oil did not reach Aspinwall and was not delivered on the steamships until the second or third of April. After the receipt of the bills of lad- ing, the plaintiffs did not discover the pe- culiar stipulations contained in them, at variance with the contract which they had previously made. Upon the landing of the oil In New York, the loss of the oil from leakage was discovered, and the plaintiffs paid the stipulated freight, giving notice of their claim. Under the evidence, the main features of which we have alluded to, it was certainly competent for the jury to find that the oil was parted with to the defendants for transportation, and that the defendants entered upon the transportatioa thereof under the contract claimed by the plaintiffs. The defendants could not, there- fore, abrogate or alter that contract by merely signing and mailing bills of lading, which did not reach the plaintiffs until after the oil had left Aspinwall, and much, if not all, the loss had occurred. There certainly was no conclusive evidence that the plaintiffs consented to accept the bills of lading in place of the prior contract, and that contract must, therefore, control. Bost- wick V. Railroad Co., 45 N. Y. 712; GuU- laume v. Transportation Co., 100 N. Y. 491, 3 N. E. 489; Wheeler v. Railroad Co., 115 U. S. 29, 5 Sup. Ct. 1061, 1160. It is clear that the plaintiffs did not un- derstand that they were making several con- tracts for the transportation of their oil from Panama to New York, but they evi- dently supposed they were making a single contract with an agent who had authority to contract for the entire route. While the evidence is not conclusive, not even very satisfactory, that the defendants contracted jointly to carry this oil, yet we think there was enough to justify the jury In finding such a contract. Here was the steamship company engaged in transportation both upon the Pacific and Atlantic oceans, making con- tracts to carry from ports upon one ocean to ports upon the other, and such contracts could be performed only by carriage across the isthmus over the Panama Railroad, and Cb. 10) SWin V. PACIFIC MAIL STEAMSHIP CO. 101 that railroad was engased in transportation across the isthmus of freight almost wholly to or from vessels of the steamship com- pany. The two companies had common agents upon the isthmus and in New York. Goods were transported in all cases for a single through freight from ports on the Pa- cific to ports on the Atlantic, and the freight money, after deducting compensation for lighterage, was equally divided between the companies, and the same person was vice- president of both companies. Tailing into consideration all these mat- ters, the situation of the two companies and all the circumstances surrounding them, and the methods of their business as disclosed in the evidence, it is not an improbable nor an unjustifiable inference that they were jointly engaged in business and jointly con- tracted with the plaintiffs. If the contract was made by the corre- spondence and personal interview with Bel- lows, as claimed by the plaintiffs and found by the jury, then, if the defendants are not jointly liable for plaintiffs' loss, they are sev- erally liable. The whole loss was apparently primarily due to unexplained, unjustifiable delay and carelessness upon the isthmus while the oil was in the possession of tha railroad company. For that delay and loss it is liable as a common carrier upon gener. al principles. The steamship company made a special contract to transport the oil with- out delay from Panama to New York, and to care for it and cooper the casks upon the isthmus, and it is liable for the loss by virtue of that special contract. Therefore the defendants are either severally or joint- ly liable for the loss; and whether they shaU be held for the loss jointly or severally can- not be very important to them, because it is quite certain from their relations to each other that they will be able to adjust be- tween themselves in a satisfactory manner the joint recovery. The objection to the joint recovery, therefore, appears to be merely technical and should not prevail un- less the judgment . is plainly and clearly vvTong and such we think it is not. A careful consideration of the whole case has, therefore, led us to the conclusion that the judgment should be afiirmed, with costs. All concur. Judgment affirmed. 102 HUTCIIlXbOX V. WESTEUX & A. R. CO. (CIi. 11 HUTCHINSON v. WESTERN & A. R. CO. (6 Heisk. 634. 1871.) From Hamilton. Appeal from the judgment of the circuit comt, July term, 1871; J. B. Hoyl, Judge. The Western & Atlantic Railroad Company, of which the state of Georgia was tlie sole owner and stockholder, was by its charter authorized to construct and operate a line of raih-oad fi-om Atlanta, Georgia, to Chattanoo- ga, Tennessee. Without any authority in its charter, it undertook to run in connection with its road a line of steamers on the Ten- nessee river. Two of these steamers colUded in port at Chattanooga, and the husband of the plaintiff, who was mate upon one of them, was wounded and afterwards died from the injuries received. This action was brought under the statute to recover the damages resulting to the widow and chil- dren. Upon the trial there was proof tending to show that the boat was impferfectly equipped and perhaps negligently managed. The de- fendant, in addition to other defenses, in- sisted that it had no authority to run a line of steamers upon the Tennessee river, that the doctrine of ultra vires applied, and that it could not be held liable for injuries result- ing from negligence in the prosecution of this unauthorized business. But it appeared that the profits were received by the com- pany. The circuit judge charged the jury in effect that the charter did not confer upon the cor- poration the right to run steamers on the Tennessee river, that if the agents of the corporation undertook to do so, the act would be ultra vires, the corporation would not be bound by It, and would not be liable for in- juries resulting from negligence in its execu- tion. Verdict and judgment were for the de- fendant, and the plaintiff appealed in error to this court TUENEY, J., delivered the opinion of the court. The doctrine "ultra vires" is not applicable in this case. In arriving at a ti-ue solution of the ques- tion involved, the only use to be made of the charter granted by Georgia and Tennessee to Western & Atlantic Railroad, is to show the fact that it had a corporate existence. If a corporation, chartered for one purpose, engage in a business different from that au- thorized by charter, or if its employees en- gage in such different business in the name of the principal, and the principal, with a knowledge of such departure, receive the profits arising therefrom, employ agents to superintend it, or in any other distinct mode recognize it as their business, and in its pros- ecution by its agents an injury results there- from to another's person or property, the party so injured is entitled to maintain his action for the damages resulting from the wrongful act. The fact that the act from which the in- jury resulted was unautborized by the char- ter of incorporation, is no defense for the wrong-doer. With corporations as with individuals, if it be engaged in a lawful business, and to promote that lawful business resort to un- authorized acts, it must be held responsible for the consequences of such unauthorized acts, else the maxim, that "no man shall take advantage of his own wrong" is vio- lated. This holding is not in conflict with the opinion in the case of Pearce v. Railroad Co., 21 How. 444. In that case the learned judge concludes his opinion: "It is contended that because the steamboat was delivered to the defendants, and has been converted to their use, they are responsible. It is enough to say in reply to this, that the plaintiff was not the owner of the boat, nor does he claim un- der an assignment of the owner's interest. His suit is Instituted on the notes as an en- dorser, and the only question is, had the cor- poration the capacity to make the iontract in the fulfillment of which they were exe- cuted. The opinion of the court is, that it was a departure from the business of the corporation, and their officers exceeded their authority." Here we have a clear intimation from the court, that If the owner of the boat had sued for the conversion, or If the holder or en- dorser of the notes had claimed under an as- signment of the carrier's interest, and sued for the value of the vessel, passing by the note, the action would have been maintain- able. That there was a responsibility, not upon the notes executed by the president in the name of the defendants, but for the appropriation of the property by its agents for the use and with the knowledge of defendants. The cases are not parallel. That was an action ex contractu, this ex delicto; there the authority was exceeded by the officers, here they are acting In conformity to orders In promotion of the object of their employ- ment. The fact that the defendant is the property of the state of Georgia, which is the sole stockholder, makes it none the less a corpora- tion, able to sue and liable to be sued as other corporations. Here the defendant as a corporation, and not as the state, is sued. If the ownership by the state entitles the road to more Immunities than corporations with different status, and gives It privileges in the courts of defenses not extended to others, then, the principle must be allowed its full and legitimate application, and but few railroads in this state can be sued, the Ch. 11) HUICIIINSON V. WESTERN & A. E. CO. 103 state being largely interested in most of them. By becoming owner or stockholder the state descends from its sovereign dignity to indi- viduality so far as to place it upon an even footing of legal liability with other corpoi-a- tions of lilie character and purposes. Keverse the judgment 104 WECKLEU V. FIRST NAT. BANK. (Ch. 11 WECKLER T. FIRST NAT. BANK OF HAGERSTOWN. (42 Md. 581. 1875.) Appeal from the circuit court for Washing- ton county. The case is stated in the opinion of the court. The verdict and judgment being for the defendant, the plaintiff appealed. JIILLER, J., delivered the opinion of the court. A question of importance and of first im- pression in this state arises on this appeal. The suit was instituted by the appellant against the appellee, a national banli organ- ized under the act of congress approved June 3d, 1864, Isnown as the "National Currency Act." The first and second counts of the declaration aver in substance, that the de- fendant as part of its business as such bank- ing association, was engaged in the sale of the bonds of the Northern Pacific Railroad Company, and in soliciting orders for the pur- chase of the same and receiving commissions for such sales and orders, and by means of certain specified false, fraudulent and deceit- ful representations made by its teUer, the plaintiff was induced to and did purchase from the bank two of said bonds of $500 each, and paid the bank therefor the sum of $1,000, and was thereby damnified. The case was tried upon issue joined on the plea of not guilty. There was conflicting proof as to the making of the alleged false representations by the teller. The court rejected all the pray- ers offered on both sides, and instructed the jm-y m effect that the national banking act, under which the defendant was organized, limits the action of the bank to the pursuit of the objects specified in the act of congress, and that the purchase and sale'of such bonds is not within the chartered powers of the de- fendant, and that the plaintiff cannot recover against the defendant in this action, although the jury may find from the evidence that the teller of the bank fraudulently induced the plaintiff to purchase the bonds in question by making the alleged false representations, and that she suffered loss thereby. This presents broadly and clearly the question whether the bank has authority under the act of congress to engage in the business of selling bonds of railroad companies on com- mission. A bank, like other private corporations, is confined to the sphere of action limited by the terms and intention of its charter. The supreme court, in the case of Bank v. Dan- dridge, 12 Wheat. 68, states the rule by which the powers of the bank are to be determined thus: "Whatever may be the implied powers of aggregate corporations by the common law, and the modes by which those powers are to be carried into operation, corpora- tions created by statute must depend both for their powers and the mode of exercising them, upon the true consti-uction of th« stat- ute itself." And in that case the court adopt, as entirely Correct and applicable to the bank, the doctrine laid down by Chief Justice MarshaU, in Head v. Insui-ance Co., 2 Cranch, 167, in reference to an insurance company, viz.: "Without ascribing to this body, which in its corporate capacity is the mere creature of the act to which it owes its existence, all the qualities and disabilities an- nexed by the common law to ancient institu- tions of this sort, it may be correctly said to be precisely what the incorporating act has made it, to derive all its powers from that act, and to be capable of exerting its facul- ties only in the manner in which that act au- thorizes." And in this state the law is well-settied that a corporation created for a specific purpose not only can make no con- tract forbidden by its charter, but in general can make no contract which is not neces- sary either directly or incidentally, to enable it to answer that purpose. In deciding, therefore, whether a corporation can make a particular contract, it must be considered in the fii-st place, whether its charter or some statute binding upon it forbids or permits it to make such a contract; and if the charter and valid statutory law are silent upon the subject, in the second place, whether the pow- er to make such a contract may not be im- plied on the part of the corporation as di- rectly or incidentally necessary to enable it to fulfil the purpose of its existence; or whether the contract is entirely foreign to that purpose; a corporation has no other powers than such as are specifically granted, or such as are necessary for the purpose of carrying into effect the powers expressly granted. Steam Navigation Co. v. Dandridge, 8 Gill & J. 318, 319. We must, therefore, de- termine the true construction of the act of congress authorizing the formation of these banking associations, and whether the power to make contracts like the one in question is expressly conferred upon them, or is directiy or incidentally necessary to enable them to fulfil the purpose of their creation, or is en- tirely foreign to that purpose. So far as the purpose of the law is indi- cated by its titie, it is, "to provide a national cun-ency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof." After prescribing in previous sections the mode by, and the con- ditions under, which banking associations may be formed, the 8th section declares that every association so formed shall become a body corporate, from the date of its certifi- cate of organization, but shall transact no business "except such as may be incidental to its organization, until authorized by the comptroller of the currency to commence the business of banking." Power is then given It to adopt a corporate seal, to have succession by the name designated in its organization certificate, and in that name to make con- tracts and sue and be sued, to elect directors Ch. il) WECKLEK V. PlllST NAT. BANK. 105- and other officers, "and exercise under tliis act all such incidental powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt, by receiving deposits, by buying and selling exchange, coin and bul- lion, by loaning money on personal security, and by obtaining, issuing and circulating notes according to the provisions of this act." This is the only portion of the statute to wliich, for the purposes of this case, it is nec- essary to refer. By it the associations are not simply incorporated as brailvK, and the scope of their corporate business left wholly to implication, but the kind of banl^ing which they may conduct is limited and defined. As we read the language of this 8th section, it authorizes the associations to carry on banking "by discounting and negotiating promissory notes," &c., and to exercise "all such incidental powers" as shall be neces- sary to conduct that business. The mode in which the incidental powers may be exer- cised is not defined, but all incidental powers which they can exercise must be necessaiy or incidental to the business of banking, thus limited and defined. To the usual attfibutes of banking, consisting of the right to issue notes for circulation, to discount commercial paper and receive deposits, this law adds the special power to buy and sell exchange, coin and bullion, but we look in vain for any grant of power to engage in the business charged in this declaration. It is not em- braced in the power to "discount and nego- tiate" promissory notes, drafts, bills of ex- change and other evidences of debt. The ordinarjr meaning of the terms "to discount," is to take interest in advance, and in bank- ing is a mode of loaning money. It is the advance of money not due till some future period, less the interest which would be due thereon when payable. The power "to nego- tiate" a bill or note is the power to endorse and deliver it to another so that the right of action thereon shall pass to the endorsee or holder. No construction can be given to these terms as used in this statute, so broad as to comprehend the authority to sell bonds for third parties on commission, or engage in business of that character. The appro- priate place for the grant of such a power would be in the clause conferring authority to "buy and sell," but we find that limited to specific things, among which bonds are not mentioned, and upon the maxim, "ex- pressio unius est exclusio alterius," and in view of the rule of interpretation of corpo- rate powers before stated, the carrying on of such a business is prohibited to these as- sociations. Nor can we perceive it is in any- wise necessary to the purpose of their exist- ence, or in any sense incidental to the busi- ness they are empowered to conduct, that they should become bond-brokers or be al- lowed to traffic in evei-y species of obliga- tions issued by the innumerable corporations, private and municipal, of the country. The more carefully they confine themselves to the legitimate business of banking, as defined in this law, the more effectually will they subserve the purposes of their creation. By a sti-ict adherence to that, they will best ac- commodate the commercial community, as well as protect their shareholders. Such is our construction of this statute, and it is supported by the best considered au- thorities and the decided preponderance of judicial opinion in other states. This eighth section is almost identical in terms (and as respects the present question completely so) with the banking act of New York of 1838, c. 260; and the court of appeals of that state, in Talmage v. Pell, 7 N. Y. 328, held that banking associations formed under that law have authority only to caiTy on the business of banking in the manner and with the pow- ers specified in the act, and have no power to purchase state stocks, to sell at a profit or as a means of raising money, except when received as security for a loan, or taken in payment of a loan or debt In speaking of the transaction under review in that case, the court say the banliing company "purchas- ed these bonds as they might have purchased a cargo of cotton to send to market to be sold at the risk of the vendor for the highest price that could be obtained. No authority to traffic in either commodity is expressly given by the law of 1838. It is, therefore, claimed as a power incident to the business of banking. But the 18th section of the act declares that this business shall be carried on by discounting bills, notes and other evi- dences of debt, by loaning money on real and personal security, by buying and selling gold and silver bullion, foreign coin and bills of exchange, &c. The subjects pertain- ing to the business of banking are designat- ed, and the express powers of the association are limited to them, and to such incidental powers as may be necessary to transact the business thus defined by the legislature." They then proceed to show that the claim to base the validity of the contract upon any incidental power was unfounded, and pronounce the transaction illegal, and the assignment by the company of mortgages which they held as collateral security for the purchase, void. So also in recent de- cisions of the courts of last resort in several of the states where this act of congress, and especially its 8th section, has been con- sidered, we find it construed in entire accord with the view we have taken of it. We refer to Fowler v. Scully, 72 Pa. St. 456; Shinlde v. Bank, 22 Ohio St. 516; Wiley v. Bank, 47 Vt. 546; and First Nat. Bank of Lyons v. Ocean Nat. Bank, 60 N. Y. 278. In the last mentioned case there is a very able opinion of the court by Allen, J., in which he says he fully concurs in the views expressed by Judge Wheeler in the Ver- mont case, and, in reference to the jcase of Van Leuven v. Fii-st Nat Bank of Kingston, 106 WECKLER V. FIRST NAT. BANK. (Ch. 11 shortly reported (the opinions of the judges not being given) in 54 N. Y. 671, which has been pressed upon our attention by the ap- pellant's counsel, he says it decided no gener- al principle but by a divided court it was determined "that the contract in that case, under the cii'cumstances, was the contract of the corporation, and not the individual contract of the president." We are therefore clearly of opinion that this business of selling bonds on com- mission, is not within the scope of the pow- ers of the corporation, and the banlt could not, under any circumstances carry it on; and being thus beyond its corporate powers, the defence of ultra vires is open to the appellee. Pennsylvania, D. & M. S. Nav. Co. V. Dandridge, 8 Gill & J. 248. And it follows from this that the bank is not re- sponsible for any false representations made by its teller to the appellant, by which she was induced to purchase the bonds in ques- tion. Hence there was no error in the court's instruction to the jm-y nor in the rejection of the appellant's first and sec- ond prayere. But by the tliird and fom'th counts of the declaration, and the appellant's third and fourth prayers, it Is sought to give another character to the transaction, and to place the right to recover upon a different ground. Thoy present the case in this view, viz.: that tliere was no sale and purchase of the bonds, but by the false representations of the teller the appellant was induced to re- ceive them instead of money, in payment of the draft on New York, which she pre- sented at the bank to be cashed or collected. It is argued that in this aspect, the trans- action amounts to the same thing as if the teller had cashed the draft, by paying her over the counter in depreciated or worth- less bank notes, representing them to be good. But the answer to this position is, that there is no evidence in the record to support it' * * * Having disposed of the case in this way, it becomes unnecessary to express any opin- ion upon the question argued at bar, wheth- er an action like this will lie against a cor- poration in its corporate character, for de- ceit practiced by its officers or agents. Judgment affirmed. ' Part of the opinion, relating to this question, is omitted. Oh. 11) SALT LAKE CITY v. KOLLISiTEli. 107 SALT LAKE CITY v. HOLLISTER, Col- lector. (6 Sup. Ct. 1055, 118 U. S. 256. 1885.) Appeal from the supreme court of the terri- tory of Utah. MR. JUSTICE MILLER delivered the opin- ion of the court. This suit was instituted by the city of Salt Lake to recover of HoUister the sum of $12,- 057.75 illegally exacted by him as collector of internal revenue for the district of Utah from the city for a special tax upon spirits alleged to have been distilled by said city, and not deposited in the bonded vyarehouse of the United States by plaintiff as required by lavf. PlaintifiE alleges that, under threat of sell- ing sufficient property of the city to pay said tax, it paid the sum demanded under pro- test, appealed to the commissioner of inter- nal revenue, who failed and neglected to make any decision or to refund the money, and after six months' waiting this suit was brought. To the petition the defendant made the fol- lowing answer: "Now comes the defendant in the above- entitled cause, O. J. HoUister, and for an- swer to the plaintiff's complaint admits that the plaintiff is a public mimiclpal corpora- tion created and organized under and by vir- tue of the laws of the territory of Utah, and that it has continued to be such a corporation since its organization in February, 1850, and that the defendant was at the time men- tioned, and as alleged in plaintiff's com- plaint, and still is, the acting United States collector of internal revenue for the district of Utah. "Defendant admits that in June, A. D. 1876, the United States commissioner of in- ternal revenue set down to and assessed against the .plaintiff a gallon tax of ten thou- sand seven hundred and sixty dollars upon spirits distilled by said plaintiff at various times between the 2d day of March, A. D. 1867, and the 26th day of August, A. D. 1868, and not deposited in the bonded ware- house of the United States by the plaintiff, as required by law, but denies that said gal- lon tax was illegally or erroneously set down to or assessed against the plaintiff by said commissioner of internal revenue, and avers that the plaintiff, during all the time for which said assessment was made, was actu- ally engaged in distilling, producing, and dealing in, as distiller, said spirits so as- sessed, and said assessment of said gallon tax was made upon distilled spirits actually produced by the plaintiff, and upon which plaintiff had not paid the gallon tax required by law, said spirits not having been depos- ited in the bonded warehouse of the United States by the plaintiff, as required by law, but taken from said distillery by the plain- tiff, after having been produced and distilled as aforesaid, and sold by said plaintiff, and the proceeds of said sale , turned into the treasmy of the plaintiff. "Said plaintiff, during all the time it oper- ated said distillery, and especially from said 2d day of March, 1867, to said 26th day of August, 1868, was distilling and producing spirits as aforesaid, and receiving and appro- priating the benefit arising therefrom. "Defendant further alleges that the plain- tiff, dm'ing the time mentioned in plaintiff's complaint, regularly reported and paid to the collector of internal revenue of the United States the gallon tax due upon a quantity of spirits distilled and produced by plaintiff, but that plaintiff neglecti^ to report all of the spirits it actually produced and distilled, and for and upon which the said gallon tax was due and owing to the United States, and that the tax so assessed as aforesaid is the tax due upon the spirits produced and dis- tilled in excess of the amount so reported by said plaintiff, and upon which no tax was ever assessed and collected up to the time of the payment mentioned in plaintiff's com- plaint, and hereinafter stated. "Defendant, answering, admits that the list containing the said gallon tax assessed by the commissioner of internal revenue of the United States was placed in the hands of this defendant as collector of internal rev- enue. "And defendant alleges that said plain- tiff having engaged in the business of distill- ing and producing spirits as aforesaid, and said tax having been assessed by the com- missioner of internal revenue as aforesaid and placed in the hands of the defendant, as collector of internal revenue, for collection, it became and was his duty as such collector to collect said tax. "Defendant denies that he knew that said gallon tax, so assessed as aforesaid, was er- roneous and illegal, and avers that said tax was legal and correct, and was assessed and collected because plaintiff was liable to said tax. "Defendant admits that he did threaten to seize and sell the property of plaintiff to pay said tax, as alleged by plaintiff, and that the plaintiff on the 14th day of August, 1877, paid the defendant the amount of the gallon tax, with interest which had accrued there- on from the date of said assessment, but for what reason plaintiff paid defendant said gallon tax defendant is not advised, and upon that subject has no knowledge, information, or belief, and therefore cannot answer." A demurrer to the answer was overruled, and the plaintiff refusing to plead further, a judgment was rendered for the defendant, which was affirmed on appeal to the su- preme court of the territory. It wiU be perceived that this demurrer ad- mitted that the plaintiff, the city of Salt Lake, had been for a period of about eight- een months engaged in the business of dis- 108 SALT LAKE CITY o. HOLLISTER. (Ch. 11 tilling and producing spirits and selling tbe Slime, and placing the proceeds of the sale In its treasm-y. That during this time the plaintiff made regular reports as to the quan- tity produced and paid the tax on the amounts so reported. But that while it thus operated said distilleiy, it failed and neg- lected to report all the spirits which it pro- duced, and the tax assessed and collected, and which the present suit is brought to re- cover back, was for the spirits of which no report was made. The commissioner of int3rnal revenue hav- ing assessed plaintiff for these distilled spir- its and placed the assessment in the hands of defendant, he, as a means of collecting the tax, did threaten to seize and sell prop- erty of plaintiff, whereupon plaintiff paid the smn mentioned. It would seem that this unqualified admis- sion that the city was actually engaged in the business of distilling spirits liable to tax- ation, and replenishing her treasury with the profits arising from the operation, ought to be a justification of the oflicer who collected the tax due for the spirits so distilled. And this argument is all the stronger, since the city acknowledged its liability as a distiller by paying voluntarily the tax due on the lar- ger part of the spirits produced. But while the city does not deny the ac- tual fact of distillation, and of fraudulent returns by it, It denies the whole affair by ar- gument It says that, though it is very true the city did distil spirits, did sell them, and did receive the monay into its treasury, It cannot be held liable for this because it had no legal power to do so. Its want of corpo- rate authority to engage in distilling is to be received as conclusive evidence that it did not do so, while by the pleading it is admit- ted that it did. Because there was no stat- ute which authorized it as a city of Utah to distil spirits, it could engage in this profitable business to any extent, without paying the taxes which the laws of the United States require of eveiy one else who did the same thing. If the territory of Utah had added to its other corporate powers that of making and selling distilled spirits, then the city would be liable to the tax, but, because it had no such power by law, it could do it without any liability for the tax to the United States or to any one else. It would be a fine thing, if this argument is good, for all distillers to organize into milling corporations to make flour, and pro- ceed to the more profitable business of dis- tilling spirits, which would be unauthorized by their charters or articles of incorporation; for they would thus escape taxation and ruin all competitors. It is said that the acts done are not the acts of the city, but of its oflicers or agents, who unda-took to do them In its name. This would be a pleasant farce to be enacted by iiTesponsible parties, who give no bond, who have no property to respond to civil or crim- inal suits, Vho make no profit out of it, while the city grows rich in the performance. It is to be taken as a fair inference on this de- mvuTer that all that the city might have done was done in establishing this business. The officers who, it is said, did this thing, must be supposed to have been properly ap- pointed or elected. Resolutions or ordi- nances of the governing body of the city di- recting the establishment of the distillery, and furnishing money to buy the plant, must be supposed to have been passed in the usual mode. Everything must have been done un- der the same rules and by the same men as if it were a hospital or a town hall. If the demurrer had not admitted this, it could no doubt have been proved on an issue deny- ing It. But the argument is unsound that what- ever is done by a corporation in excess of the corporate powers, as defined by its charter, is as though it was not done at all. A rail- road company authorized to acquire a right of way by such exercise of the right of emi- nent domain as the law prescribes, which undertakes to and does seize upon and in- vade, by its officers and servants, the land of a citizen, makes no compensation, and takes no steps for the appropriation of it, is a naked trespasser, and can be made responsi- ble for the tort. It had no authority to take the man's land or to invade his premises. But if the governing board had directed the act, the corporation could be sued for the tort, in an action of ejectment, or in tres- pass, or on an implied assumpsit for the value of the land. A plea of ultra vires, in this case, would be no defence. The truth is that, with the great increase In corporations in very recent times, and in their extension to nearly all the business transactions of life, it has been found neces- sary to hold them responsible for acts not strictly within their corporate powers, but done in their corporate name, and by corpo- ration officers who were competent to ex- ercise all the corporate powers. When such acts are not founded on contract, but are ar- bitrary exercises of power in the nature of torts, or are quasi-criminal, the corporation may be held to a pecuniary responsibility for them to the party injured. This doctrine was announced by this com-t nearly thirty years ago in a carefully pre- pared opinion byJMr. Justice Campbell in the case of Railroad Co. v. Quigley, 21 How. 202. That was an action for libel by Quig- ley against the company for the publication of a letter addressed to the company in the coitpse of an investigation by its directors In regard to the conduct of some of its subordi- nates. This letter contained statements in re- gard to plalntlfC's skill and capacity as a mechanic very disparaging in that respect. This, with much other testimony, was print- ed and published by the board of directors, and the court decided that the corporation Ch. II) SALT LAKE CITY v. HOLLISTER. 109 oonW be held liable for the publication. The ai-gnment that only the individuals who or- dered the publication could be made respon- sible was urged then as here, but the court held that if it was a libel the corporation was responsible for it in damages. It was also insisted that the existence of malice was a necessary element in the ac- tion for libel, and that the abstract entity which constituted a corporation was inca- pable of malice, which could only be predi- cated of the officers who ordered the publica- tion. This was likewise overruled, and it was held that if the act implied malice, the corporation was liable for It. The whole question was very fully con- sidered. We can here do no more than make a single extract from the able opinion. After examining the authorities, it was said: "With much wariness, and after close and exact scrutiny into the nature of their con- stitution, have the judicial tribunals deter- mined the legal relations which are estab- lished for the corporation by their governing body and their agents with the natural per- sons with whom they are brought into con- tact or collision. The result of the cases is that for acts done by the agents of a cor- poration, either in contractu or in delicto, in the course of its business and of their employment, the corporation is responsible as an individual is responsible under similar circumstances. At a very early period it was decided in Great Britain, as well as in the United States, that actions might be maintained against corporations for torts; and instances may be found in the judicial annals of both counti-ies of suits for torts arising from the acts of their agents, of near- ly every variety." In the case of Reed v. Bank, 130 Mass. 443, 443, the bank was held liable to an ac- tion for malicious prosecution. The court said: "It is too late to discuss the question, once much debated, whether a corporation can commit a trespass, or is liable in an ac- tion on the case, or subject generally to ac- tions for torts as individuals are. The books of reports for a quarter of a century show that a very large proportion of actions of this nature, both for nonfeasance and for misfeasance, are against corporations. * * * And, by the great weight of modern author- ity, a corporation may be liable, even where a fraudulent or malicious intent in fact is necessary 'to be proved, the fraud or maUce of its authorized agents being imputable to the corporation, as in actions for fraudulent representations, for libel or for malicious prosecution." Many authorities are cited in siipport of this proposition, which may be found on page 445 of the report of the case. Another well confiidered case in which a corporation is held liable for malicious pros- ecution is that of Copley v. Machj^ne Co., 2 Woods, 494, Fed. Cas. No. 3,213. It is said that Salt Lake City, being a municipal corporation, is not liable for tor- tioiTS actions of its officers. While it may be true that the rule we have been discussing may require a more careful scrutiny in its appUcation to this class of corporations than to corporations for pecun- iary profit, we do not agree that they are wholly exempt from liability for wrongful acts done, with all the evidences of their be- ing acts of the corporation, to the injury of others, or in evasion of legal obligations to the state or the public. A municipal cor- poration cannot, any more than any other corporation or private person, escape taxes due on its property, whether acquired legally or illegally, and it cannot make its want of legal authority to engage in a particular transaction or business a shelter from the taxation imposed by the government on such business or transaction, by whomsoevei' con- ducted. See McCready v. Guardians, 9 Serg. & R. 94. It remains to be observed that the ques- tion of the liability of corporations on con- tracts which the law does not authorize them to make, and which are wholly beyond the scope of their powers, is governed by a dif- ferent principle. Here the party dealing with the corporation is under no obligation to enter into the contract. No force, or re- straint, or fraud is practiced on him. The powers of these corporations are matters of public law open to his examination, and he may and must judge for himself as to the power of the corporation to bind itself by the proposed agreement. It is to this class of cases that most of the authorities cited by appellants belong— cases where corporations have been sued on contracts which they have successfully resisted because they were ulti-a vires. But, even in this class of cases, the courts have gone a long way to enable parties who had parted with property or money on the I faith of such contracts to obtain justice by recovery of the property or the money specif- ically, or as money had and received to plaintifC's use. Thomas v. Railroad Co., 101 U. S. 71; Louisiana v. Wood, 102 U. S. 294; Chapman v. Douglass Co., 107 U. S. 348, 355, 2 Sup. Ct. 62. The judgment of the supreme court of Utah territory is affirmed. 110 NEW YORK, L. E. & W. KY. CO. v. HAIJING. (Ch. 11 NEW XORK, L. E. & W. RY. CO. v. HAR- IXG. (47 N. J. Law, 137. 18S5.) This case was tried at the September term, 1884, of tfie Hudson circuit com-t, before Mr. Justice Knapp and a jm-y, and a verdict rendered for the plaintiff below, Haring, for the sum of $1,000, and judgment being en- tered thereon, a writ of error was brought to this court. The opinion of the court was delivered by BBASLEY, C. J. The injm-y for which this suit was brought was an alleged unauthorized ejection from a horse railroad car that was running at the time on the road of a corporation known as the Pavonia Horse Raih-oad. There was evidence tending to show that, at the time in question, the plaintiff in error was using this road and running the cars over it in charge of its own agents, and was receiving the profits arising from the business; and it was properly left to the jury to find whether such usufruct of such road existed. Never- theless, the counsel of the defendant below insisted and aslied the judge to charge the jury to find against the action even though they should be of opinion that his client was thus engaged In the specified business. The ground assigned was that the plaintiff in error could not legally undertake the em- ployment in question, not having been vest- ed with the requisite franchise, and that consequently It was not, in its corporate ca- pacity, liable for any of the consequences of such employment. But the doctrine of ultra vires does not apply to torts of this nature. It would in- deed be an anomalous result in legal science if a corporation should be permitted to set up that inasmuch as a branch of the busi- ness prosecuted by it was wrongful, there- fore all the special wrongs done to indi- viduals in the course of it were remediless. But in such situations corporate bodies, like individuals, cannot take advantage of their own wrong by way of defence. If corpora- tions are not to be held responsible for in- jui'ies to persons done in the transaction of a series of wrongful acts, such an immunity would have a wide scope. All wrongs done by such bodies are, in a sense, ultra vires, and if the want of a franchise to do the tortious act be a defence, then corporations have a dispensation from liability for these acts peculiar to themselves. There does not appear to have been much discussion of this subject, but a case de- cided by the supreme com-t of Tennessee Is directly on the point. The precedent re- ferred to is reported in 53 Tenn. 634, and is" entitled Hutchinson v. Railroad Co. It was an action against a corporation for damages occasioned by the negligence of its em- ployees. It appeared that the raih-oad com- pany was, without authority, running a line of steamers, and the plaintiff had been hm-t by the mismanagement of one of them. The defence of ultra vires was interposed in that case, as in the present, but it was rejected on the ground that such doctrine had no ap- plication .to torts of that character. This exception cannot prevail. The second ground urged for a reversal of this judgment was the exclusion of the de- fendant's offer to make proof of what an ab- sent witness had testified to at a previous trial of this cause. The right to put in this secondary evidence was claimed for the rea- son that the witness in question was out of the state, and, although requested, had re- fused to attend the trial. This offer was, in my opinion, properly re- jected. Mere absence from the jurisdiction, coupled with a refusal to attend as a wit- ness, has never, in tUe practice of our courts, been held to authorize the introduction of the testimony of the witness previously taken. If it had been shown that this witness had left this state, and, upon diligent inquiry, his whereabouts could not be discovered, then a gi-ound would have been laid for the coiu-se proffered. The substitution of the former testimony for the re-examination ob- tains only from the practical necessity of the occasion. But no such necessity exists when the residence of the witness is known and he is in the United States, and his tes- timony can be taken by a commission. From the examination of this subject In the case of Berney v. Mitchell, 34 N. J. Law, 337, it is manifest that the practice in the different states in this particular is not uni- form, but, as has been already stated, the rule must be considered settled in this state by inveterate usage. So, I think, no fault can be found with the charge of the judge in that part of it which defined the extent to which the rail- road company was liable for the act of its agent in the expulsion of the plaintiff. It was, in substance, that if the driver of the horse car, being the agent of the railroad company, and having the right to expel the plaintiff on account of his intention to ride without paying his fare, transacted the ex- pulsion so rudely, and violently as to cause the injm-y complained of, "then," the judge said, "I think you may say that it is a part of the act of removal, and the driver, or the company whose agent he was, would be lia- ble." This Instruction plainly limited the re- sponsibility of the railroad company to the results of the acts of its agent in its busi- ness. The judgment is affirmed. For affirmance: THE CHANCELLOR, CHIEF JUSTICE, DIXON, MAGIE, PAR- KER, REED, SCUDDER, VAN SYCKEL. BROWN, COLE, PATERSON,— 11. For re- versal: None. Ch. 11) gu:nn v. centkal r. r. Ill GTJNN V. CENTRAL R. R. et al. a4 Ga. 509. 1885.) Gunn brought his action of trespass on the case in Clay superior court, for a personal injury caused by the careless running of a boat on which he was a passenger, whereby the boat was wrecked and he was injured. The action was brought against the Central Railroad and Banking Company of Georgia, a coi-poration of said state, and Samuel J. Whitesides, of Muscogee county. The decla- ration alleged that they were partners under the name and style of the Central Line of Boats; that the railroad company was oper- ating railroads in Muscogee and Clay coun- ties; that the boats were run on the Chatta- hoochee river for the benefit of the railroads so operated, terminating at Columbus and Fort Gaines, in the counties named; that this was with the knowledge and consent of the president of the railroad company; and that it and Whitesides, as partners, were common carriers of passengers by such boats. Defendants demurred to the declaration, and moved to dismiss It, on substantially the following grounds: (1) Because the Central Railroad had no power or authority, under its charter, to form any such partnership as alleged, and the acts {illeged were ultra vires. (2) Because the acts alleged were not per- formed by the Central Railroad, as a rail- road company, but as a steamboat owner, which was not within the powers conferred by its charter, and being a public corpora- tion, the court will take judicial notice of its charter powers. (3) Because neither of the defendants was a citizen of Clay county, and the court had no jurisdiction there. (4) Because Whitesides, being joined in ac- tion in Clay county only by virtue of the suit against the Central Railroad there, if bad as to it, the case could not stand as to him. The court sustained the motion, and dis- missed the case, whereupon plaintifif excepted. HALL, J. 1, 2. The precise question made by this record is whether the Central Rail- road and Banking Company of Georgia, a public corporation, created by and existing under the laws of this state, can enter into a partnership with a natural person to pur- chase and run a steamboat on one of the rivers of the state, and whether it is liable to an action for a tort arising from a breach of duty, created by a contract made with the firm of which it is alleged to be member. We have been asked to decide how far such a corporation may engage in the business of purchasing and running boats on the rivers of the state, and how far they would be lia- ble to passengers on their boats for injuries done in. consequence of the negligence of their agents or employes engaged in conduct- ing that particular business; but from the state of the pleadings in this case, the ques- tion thus broadly propounded is not raised, and we should be transcending our powers as a, reviewing court were we to undertake to determine it, and must therefore decline to consider the request. When that question arises upon an actual case — not upon one that may come up at some future time— we will endeavor to meet and settle it, but until that time it is obvious that we would be ex- ceeding om- powers were we to consider it. Any expression of opinion, under such cir- cumstances, upon the abstract points, would be clearly obiter, and would amount to noth- ing more than the views of the judge deliver- ing the opinion; it would not have the force or effect of a judgment binding upon the court. A corporation is an artificial person created by law for specific purposes, and its powers are limited and fixed by the act of incorpora- tion. Code, § 1670. Besides the powers thus specially granted, there are some others com- mon to all corporations, among which is the power to purchase and hold such property, real or personal, as is necessary to the pxu-- poses of their organization, and the doing of all such acts as are essential to the legiti- mate execution of this purpose. Id. § 1G79. This is the law of their being, and if they transcend its bonds they are guilty of a mis- user of their franchises, and thereby incur a forfeiture of the same. Id. § 1G85. In Mills v. Upton, 10 Gray, 582, in which the question of the ability of corporations to form a partnership with individuals and the validity of contracts made by such an association was fully considered, the su- preme court of Massachusetts says: "What powers are granted expressly, or by im- plication, because necessary or usual for the purposes which this charter was given to effect, the corporation has, and no more. There is one obvious and important distinc- tion between such a society as this charter creates and that of a partnership. An act of the corporation, done either by direct vote or by agents authorized for the pm'pose, is the manifestation of the collected will of the society. No member of the corpora- tion, as such, can bind the society. In a partnership each member binds the society as a principal. If, then, this corporation may enter into partnership with an indi- vidual, there would be two principals, the legal person and the natural person, each having, within the scope of the society's business, full authority to manage its con- cerns, including even the disposition of its property." Id. 595. Again it is declared (Id. 597) that "the effect of all our statutes, the settled policy of our legislation for the regulation of manufacturing corporations, is that the corporation is to manage its affairs separately and exclusively, certain powers to be exercised by the stockholders, and others by ofiicers who are the servants of the corporation and act in its name and behalf. And the formation of a conti-act, or the entering into a relation by which the 112 GUXN 0. CENTBAL K. R. (Ch. 11 corporation or the officers of Hs appoint- ment should be divested of that power, or by which its franchises should be vested in a partner with equal power to direct and <;ontrol its business, is entirely inconsistent with that policy. The power to form a partnership is not only not among the pow- ers granted expressly or by reasonable im- plication, but is wholly inconsistent with the scope and tenor of the powers expressly conferred, and the duties expressly imposed, upon a coi'poration by the legislation of the •commonwealth." Farther it is said (Id. 598) that "the case rests upon broader gi-ounds. The charter of the corporation is part of the public law. Those who deal with it must talie' notice of the extent of its powers, and that the corporation is legally incapable of entering into the contract of partnership, that that contract was beyond the scope of its authori- ty, and that this incapacity resulted from considerations not personal or peculiar to the corporation or its members, but from general grounds of public policy, which the corporation and those dealing with it can- not be permitted to contravene and defeat. That policy is to confine these corporations within the limits prescribed by law, to pro- tect the stocliholders from liabilities which the charter and laws do not create; and while it imposes upon the stockholders of ■corporations heavy responsibilities, to retain to them the legal control of its business and conduct of its affairs." East Anglian Ry. Co. V. Eastern Counties' Ry. Co., 11 C. B. 775; Macgregor v. Junction Co., 18 Adol. & E. (N. S.) 618; Shrewsbui-y & B. Ry. Co. V. Northwestern By. Co., 6 H. L. Cas. 113, 137; Root v. Godard, li McLean, 102, Fed. Cas. No. 12,037; Berry v. Yates, 24 Barb. 199; Mechanics' & W. M. il. S. B. & B. Ass'n v. Meriden Agency Co., 2-4 Conn. 159; Navigation Co. v. Dandridge, 8 Gill & J. 248; Sumner v. Maicy, 3 Woodb. & Min. 112, Fed. Cas. No. 13,609; Ang. & A. Corp. §§ 229, 239. The Centi'al Railroad & Banking Company has no express power, by the terms of its charter, to enter into a contract of partner- ship, nor is this among the powers (as we have seen) common to all corporations. Railroad companies derive their grant of corporate powers and privileges from an act of the general assembly, under the consti- tution of this state (Code, 5077), and all such legislative acts, published by authority, are to be held and taken as public laws. (Id. § 3815.) After this case was argued, it was sug- gested that the suit was maintainable under the act of 1880 and 1881, p. 165 (Code, § 1689o), as railroad companies are thereby avithorized "to bvxild, construct and run, as part, of their corporate property, such num- ber of steamboats or vessels as they may deem necessary to facilitate the business of such companies." But it is manifest, from the very terms of this law, that they were to be the separate and exclusive own- ers of such boats or vessels as were em- ployed by them for the purpose of facilita- ting their business. There is, therefore, no necessity, and indeed it would be improper, to consider or decide the constitutional ques- tions made upon the portion of the act from which this section is taken, and upon that subject we intimate no opinion. We de- cide the single point that this corporation had no power or authority to enter into the partnership set out in plaintiff's declaration, and that its acts and contracts pertaining to the business of such an association are invalid as against the firm and the corpora- tion as a member thereof. Judgment athrmed. Ch. 12) SLEE V. BLOOM. 113 SLEE V. BLOOM et al. (19 Johns. 456; 5 Johns. Ch. 366. In the Court iDoo*!"^ Correction of Errors of New York. On appeal from the court of cbaneery. The bill, filed the 24th of April, 1819, stated that the appellant, being possessed of a piece of land on Wappinger's Creek, in Pough- keepsie, on which he had erected a cotton manufactory, with 912 spindles, and finding that the factory demanded greater funds than he could conveniently command, pro- posed to the respondent, George Bloom, and others, to unite with him in a corporation, to be called the "Dutchess Cotton Manu- factory," the stocks of which were to be di- vided into 600 shares of 100 dollars each. That this proposal being acceded to, the ap- pellant, and G. Bloom, J. TaUmadge, jun. Cyrenus Crosby, George Booth, and Robert L. Keade, signed and acknowledged a cer- tificate of their desire to become a corpora- tion, under that name, and filed the same in the secretary's ofiice, and became duly incor- porated, on the 12th of December, 1814, pur- suant to the act of the legislature, passed the 22d of March, 1811, relative to incorporations for manufacturing purposes. Sess. 34, e. 67, 1 Rev. Laws, 245. That the trustees named in the certificate of incorporation met on the 24th of January, 1815, and chose their offl- <;ers, to wit, the appellant, as president, Cros- by, as treasurer, and Reade, as secretary, and it was agreed that the treasurer and sec- retary should confer with the appellant, and report the terms on which he would sell the factory, stock, and machinery, to the com- pany. That afterwards, in February, 1815, at a meeting of the trustees, a report was made by the treasurer, (the secretary being ab- sent,) of the terms on which the appellant would sell the factory, with its stock and ma- chinery; the amount of the items, as report- ed, being 30,912 dollars; that this report was unanimously accepted, and a subscription book opened, by which the subscribers prom- ised to pay to the Dutchess Cotton Manu- factory, 100 dollars, for every share set op- posite their names. The bill set forth the names of the subscribers, and the number of :shares subscribed by each. That at a meet- ing of the trustees, on the 7th of March, 1815, it was resolved, that a call of five dollars on each share should be made, payable on the 1st of June following. That the appellant, soon after, executed a deed to the company of his factory, stock, and machinery, for the consideration of 30,000 dollars, which deed was now held by the company. That on the 1st of May, 1815, the appellant received scrip for 122 shares of stock, which he paid in full, by deducting the same from the amount due to him from the company. That -on the 30th of September, 1815, the appellaut received scrip for fifty more shares, and paid up the same, in like manner. That at a PBIV.COEP.— 8 meeting of the trustees, on the 20th of Sep- tember, 1815, at which Bloom, Crosby, and others were present, a further call was made for 10 dollars on each share, payable on the 1st Monday of November then next, and the further sum of five dollars, on the first Mon- day of December following. That at a meet- ing on the 25th of January, 181G, three per- sons were appointed a committee to inquire into the afEairs of the corporation; that at a meeting of the stockholders on the 20th of April, 1816, pursuant to public notice, seven trustees were elected. At a meeting held the 27th of April, 1816, it was resolved to make a pubUc caU of 25 dollars on each share, pay- able on the 1st of June then next; that the stockholders generally neglected to make pay- ment, and in June, 1816, it was resolved that suits should be commenced to enforce pay- ment. At a meeting October 19, 1816, it was resolved that it was inexpedient to continue the factory in operation; and the appellant, who then superintended it, was directed to shut it up, discharge the workmen, and take care of the property; and a committee was ap- pointed to examine the accounts, and settle with the appellant. That at a meeting in November, 1816, the committee appointed to liquidate the account of the appellant re- ported a balance in his favor of 24,443 dol- lars and 35 cents; and it was resolved that a proper voucher for the balance should be given to him. A bond to the appellant was afterwards executed, signed by the president, treasurer, and secretary, and sealed with the seal of the corporation, for 23,493 dollars and 35 cents, being the sum remaining due to him, after the stock subscribed by him, amounting to 17,200 doUars, paid up in full, was de- ducted from the sum due to him from the company. That the appellant, having ob- tained a loan of the Manhattan Company of 10,000 dollars, which he expended in ad- vances for the company, gave his note for that sum, dated the 1st of December, 1815, endorsed by Bloom, Crosby, Booth, and Cocks, payable in 12 months, and which sum went into his account, and made part of the balance found due to him. To secure his en- dorsers, the appellant gave them a bond and warrant of attorney to confess judgment for 20,000 doUars, on which they entered up a judgment, on the l&t of June, 1816. That when the note became due the appellant was unable to pay it, and the endorserb assumed the debt, and gave their own note to the bank for the amount, endorsed by Nathan Myers, and which note had been in part paid by moneys collected of the stockholders, and in part by the appellant himself. That in January, 1817, the appellant, finding him- self pressed by a judgment obtained by some of the individuals of the company who had been endorsers of his note, commenced a suit against the company, on the bond given to him, on which a judgment was confessed and perfected, in May term, 1817, with a stay of execution until October term following, for 114 SLEE V. BLOOM. (Ch. 12 the penal sum of 46,986 dollars. The bill then stated various meetings of the subscrib- ers in the year 1817, and their proceedings. That on the 12th of August, 1817, at a meet- ing of the trustees, it was resolved, that any person might transfer his stock, and be dis- charged from any future calls, on paying up the calls of fifty per cent, which had then been made, and the costs, and that no pro- ceedings should be had to enforce the pay- ment of further calls, other than by way of forfeiture. That on the 3d of November, 1817, at a meeting of the trustees, it was re- solved to lease the factory for three years, and that the stockholders might have the privilege of forfeiting their stock to the com- pany, by paying up thirty per cent, on their shares, by the 1st of December following, which resolution was opposed by the appel- lant. That most of the stockholders had availed themselves of tnis resolution, and wholly abandoned the factory, and every- thing relating to It, though they had not given up their scrip. That no election of trustees had been made since April, 1817, and the stockholders had come to a resolu- tion never to make another election, but to abandon the factory and corporation alto- gether. That in October, 1817, Crosby, Bloom, Booth, and Cocks, issued a fieri facias against the appellant on the Judgment against him, by virtue of which the real estate of the appellant, worth 9,000 doUars, besides the land and property at the factory, became liable to sale. That in November, 1817, the appellant, hearing that an execution had been issued by Bloom, and the others, on the judgment obtained by them against the plain- tiff, caused a fieri facias to be issued on the judgment in his favor. That in January, 1818, the attorney of the company, pursuant to a previous resolution of the trustees, ap- plied aU the funds in his hands, amounting to 4,105 dollars and 59 cents, towards the payment of the note for 10,000 doUars, leav- ing a balance of 6,538 dollars and 5s cents. That to prevent a sacrifice of his property, to pay that balance, the appellant procmed George B. Evertson to become security to the Dank for that amount, and, thereupon, the appeUant's note for 10,000 dollars was given up, and his endorsers wholly discharged. That to secure Evertson, the appellant, on the 21st of January, 1818, assigned to him all his real estate, and the avails of all the property of the company, that might be sold under his execution against the company. Under the execution on his judgment, the real estate of the company wfis sold, by the sheriff, in February, 1818, for 102 dollars, and the personal estate for 385 dollars and 50 cents, to George B. Evertson, as the high- est bidder, and after deducting the sheriff's fees, there remained the sum of 460 dollars and 18 cents, to be applied on the appellant's execution. That no payment had been made on the judgment imless the sum of 4,105 dol- lars, applied in part payment of the note for 10,000 doUars, to be considered as part pay- ment of the judgment; and that If It is so considered, there will then be a balance due to the appellant of 18,958 dollars and 37 cents, which he has no means of obtain- ing, unless the stockholders are compelled to pay up their subscriptions. That there has been no meeting of the stockholders since May, 1817, nor have the trustees had any meeting, or transacted any business, since December, 1817; but have detenuined to abandon, and give up the factory and cor- poration, and not to make any further calls on the stockholders, nor to provide any means whatever to pay the appellant; but the trustees, with all the other respondents, have determined to suffer and cause the corporation to be dissolved, and had already suffered and caused the same to be dissolved, by their said transactions and omissions, in relation thereto. That the books and rec- ords of the corporation are in the power or possession of the respondents. That there is no debt due by the corporation, except that owing to the appellant. That he I'ad no means of ascertaining what amount of his debt could be obtained of the corpora- tion, except by a legal sale of their property on execution; and although it was sold at a sacrifice, yet the appellant was unable, ow- ing to his embarrassment, &c. to bid upon it, or to cause it to be sold for a greater sum, and the trustees and stockholders, though they had notice of the sale, neglected all at- tention to it; nor did they show any disposi- tion to preserve the property, or keep the cor- poration in existence, &c. The bill prayed that those of the respondents who had made any payments on their stock might set forth the same, and that the solvent stockholders, to wit, all the respondents, (except Crosby,) might be severally decreed to pay to the ap- pellant, for his benefit, such sum, or balance, on each and every share of stock subscribed by them, as should be sufficient, with due pro- portion to be allowed by the appellant on the fifty shares pm-chased by him of James Tallmadge, jun., Aaron Stafford, and Robert Stafford, to pay to the appellant the debt due to him from the said Dutchess Cotton Manu- factory, with interest, and to indemnify him for the losses he has sustained by the unjust and oppressive conduct of the trustees, and the stockholders, and that it might be left with the solvent respondents, and E. Crosby, to arrange and adjust among themselves any claims they may have on him, by reason of any balance that may remain due and unpaid on the stock subscribed by him; and that the ap- pellant might have such other and further re- lief, by a decree against the respondents in their individual capacities, or as members of the said corporation, if they pretend that the same has not been already dissolved, as the nature of the case might require. * * *i /Tile statement relating to the defendant's pleading is omitted. Ch. 12) SLEE V. BLOOM. HE The cause was brought to a hearing upon the pleadings and proofs, in April, 1821; and on the 19th of July, the chancellor made the tollowing decree: "It is declai-ed that the plaintiff has not shown any right or title to sue the defendants, as members or stockhold- ers of the Dutchess Cotton Manufactory, for a debt due to him from the said corporation, in- asmuch as the said corporation does not ap- pear, in judgment of law, dissolved, nor can it be dissolved within the period limited by the statute under which it was erected, for any nonuser or misuser of its franchises, without due process of law; and it is fur- ther declared that, assuming the said corpo- ration to be dissolved, the plaintiff would not be entitled to the assistance of this court, as against the individual persons and prop- erty of those defendants, who have paid into the corporation, at the rate of thirty per cent upon their respective shares; inasmuch as by the resolution of the board of ti'ustees of the 16th of August, 1817, to which the plaintiff was a party, as a trustee, and by the resolution of the said board of the third day of November, 1817, to which the plain- tiff, as a ti'ustee, by repeated acts, gave his subsequent assent and ratification, the plain- tiff has, in justice and equity, barred him- self from the operation of any further claim, unless it be to exact the forfeiture of their shares, nor would he be entitled to the as- sistance of this court as against the individ- ual persons and property of those defendants who have not paid in, at the rate of thirty per cent., except it might be to require them to pay in, upon their shares, at the rate of fifty per cent, on the amount of arrearages of former calls, prior to the 18th of August, 1817, and to exact a forfeiture of their shares for the residue. It is, therefore, ordered, adjudged, and decreed, &c., that the plain- tiff's bill be dismissed without costs, as to those defendants who have not appeared, but with costs as to those defendants who have appeared and answered, to be taxed, and to be recovered by them against the plaintiff, according to the course and practice of this court." THE OHANOELLOB assigned his reasons for this decree, which were the same as those expressed in the opinion dehvered by him in the court of chancery. Vide Slee v. Bloom, 5 Johns. Ch. 366. [The following is the chancellor's opinion in the court of chancei-y:] THE CHANCELLOR. This is a suit against the individual stockholders of the "Dutchess Cotton Manufactory," a company incorporated in December, 1814, by filing a certificate in pursuance of the act of March 22, 1811, entitled, "An act relative to incor- porations for manufacturing purposes." Every association incorporated under this act was declared to be, for the "term of twenty years next after filing their certificate, a body politic and corporate." The bill seeks to charge the defendants personally for a judgment debt of the incorporated com- pany on the ground that the corporation is dissolved, and that the members are indi- vidually responsible for the, corporate debts, to the extent of their shares of stock. Sec- tion 7 of the statute declares, that "for all debts which sliall be due and owing by the company at the time of its dissolution, the persons then composing such company shall be individually responsible, to the extent of their respective shares of stock in the said company, and no further." 1. The first and leading question in the case is whether the corporation is dissolved, so as to enable the plaintiff to call upon the individual members. It will not be disputed that without such a provision in the statute, the individuals would not be responsible in their private property, either before or after the dissolution of the company, for corporate debts. The facts from which an actual dis- solution is inferred are, that the stockholders have not elected trustees since April, 1817, and that the trustees have not met as a body since December 31, 1817, and that all the corporate property, real and personal, was sold on an execution issued in the name, and at the instance of the plaintiff, February 1, 1818, and that the members have since aban- doned all attention to the institution. The bill was filed April 2'1, 1819, and it appears to me that I am not authorized, from any of the facts in the case, to consider the corporation as dissolved, at the commence- ment of this suit. The omission to elect new trustees. In 1818 and 1819, did not, of itself, work a dissolu- tion, according to the opinion of the supreme court in the case of People v. Runkel, 9 Johns. 147; and by the authority of the cases there referred to, a corporate election after the year would be good, upon general prin- ciples of law, if an integral part of the cor- poration remained; and the oflicers already in would continue to be good officers after the year, and until others were elected. In this case, we have the express authority of the statute under which the corporation was created, "that in case it should at any time happen that an election of trustees be not made on the day when, by the by-laws of said company, it ought to be done, the said company, for that cause, shall not be dis- solved, but it shall and may be lawful on any other day to hold an election for trustees, in such manner as shall be directed by the by-laws of such company." The members of the corporation, who are the integral part of it, are in esse, and I see no difficulty in a future meeting of the last elected trustees, and in a new election of trustees to be ordered and prescribed. In Reg. v. BaUivos, 1 P. Wms. 207, vacancies of the capital burgesses were to be filled up in fifteen days, and they had neglected to fill up vacancies for 22 years, until all were ex- 116 SLEE v. BLOOM. (Ch. 12 tinct to one man. In so extravagant a case, Lord Chief Justice Parker did not think it reasonable he should have the power of electing all the rest, but Powel, J. observed that a corporation might, upon their charter ..lay, choose a bailiff, though there was none then in being, nor had been for 20 years be- fore. Would these judges have hesitated, in a case like this, when there was no precise charter day mentioned in the law, to allow a new election of trustees by the stockhold- ers, though two years had intervened, and when the old trustees could lawfully hold over? It seems to be too plain a proposition to be disputed. A corporation aggregate may be dissolved within the period prescribed by its charter, in certain modes, and upon pertain events, none of which have occurred in this case. It may be dissolved, if it becomes incapable of continuing its corporate succession, or executing its corporate functions, as by the death of all its members, or the destruction of an integral part of it, or it may be dis- solved by surrender of its franchises into the hands of the government, or by forfeiture of its charter through abuse or neglect of franchises. The last is the alleged ground of forfeiture in this case; but I apprehend, that the forfeiture in such case must be judicially ascertained and declared, and that the power, which may have been abused or abandoned, cannot be taken away but by regular process. The judgment in such cases is, that the parties be ousted, or that the lib- erty be seized into the hands of the govern- ment. Rex V. Staverton, Yel. 190. This sub- ject underwent great and learned discus- sion in the case of King v. Amery (in the king's bench) 2 Term K. 515, and it was de- cided by that court, as the result of the in- vestigation, that a corporation may be dis- solved, and its franchise lost, by non-user or neglect; but It was assumed, as an unde- niable proposition, that the default was to be judicially determined in a suit instituted for the purpose. If the parties, observed Ashhurst, J., in delivering the opinion of the coui't, being called upon in a court of justice, to state their right to the franchise, neglect or refuse to do it, or if the corporation sur- cease their time, they shall lose their fran- chise, and the judgment shall be, that the franchise be seized. One great point in that case was, whether a corporation could be dissolved at all; and the opinion of the ten judges in the house of lords, in 16S9, was relied on to show that it could not be dis- solved. But Lord Holt was of opinion that a corporation could be dissolved for a breach of trust; and that seemed to be the opinion of the king's bench in Sir James Smith's Case, (cited, also, as the case of King V. Mayor of London, 4 Mod. 33, 1 Show. 274), and it is no doubt the settled doctrine at this day. But that a corporation Is to be adjudged dissolved for non-user or mis-user of its franchises, untU it has been called up- on to answer for the breach of trust. Is nowhere assumed. The contrary doctrine is universally taught, and it is founded on very obvious principles of justice. In the case of Rex v. Pasmore, 3 Term R. 199, it was held that when the integral part of a corporation is gone, and the corporation had no power of restoring it, or of doing any cor- porate act, it was so far dissolved that the crown might act and grant a new charter. It was only for the crown to interfere, with- out a forfeiture judicially declared, and that, too, in a case where the corporation was re- duced to such a state as to be incapable of acting or of continuing itself, the crown might then grant a new charter, said Mr. Justice Buller, without "weighing very nice- ly whether the corporation could be said to be actually dissolved or only in danger of being so." Lord Kenyon spoke in that case, with great caution, and with the admission of due limitations. He agreed to the validi- ty of the new charter, but said, that as to particular purposes, which do not relate to the powers of government, but to personal privileges, the corporation is not dissolved until the crown interposes. A scire facias was proper when there was a legal existing body capable of acting, but who have been guilty of abuse of power, because when a delinquency was imputed, they ought not to be condemned unheard. Assuming the charges In the bill in this case to be true. Lord Kenyon points out the proper remedy: It is by the judicial process of scire facias; and I believe there Is no in- stance of calling in question the rights of a corporation, as a body, for the purpose of declaring its franchises forfeited and lost, but at the instance and on behalf of the gov- ernment. In the case of Com. v. Union Ins. Co., 5 Mass. 230, there was an application for leave to file an information, in the na- ture of a quo warranto, against the corpora- tion, at the relation of an individual, on the charge that the corporation had been guilty of malfeasance, in not requiring from the members payment of fifty per cent, on their subscription stock, within the time limited by the statute of incorporation, and which charge implied a gross mis-user of the pow- ers of the corporation, and one that would incur a forfeiture of the charter. Chief Justice Parsons, in delivering the opinion of the court, observed, that the cor- poration might forfeit its franchises by non- feasance or malfeasance; but the informa- tion for the pm-pose, must be presented un- der the authority of the state, which must be a party to the suit, and a party to the judg- ment, for the seizure of the franchises. This Is the more indispensable, as the state may waive the breach of any implied or express condition contained in the charter. The rem- edy for the non-user or mis-user of the priv- ileges of the charter, so as to work a for- feiture, is at law, and not in this coiu't; and so it was understood in the examination of Ch. 12) SLEE V. BLOOM. 117 the case of Attorney General v. Utlca Ins. Co., 2 Johns. Ch. 389. I conclude, therefore, that the corporation is still subsisting, in judgment of law, and that this coui't is not authorized, from any- thing that appears in the case, to consider the corporation dissolved. It follows, then, that the biU against individual members for a corporate debt, cannot be sustained. 2. Nor do I think that the plaintifC's claim could be supported, to the extent of the shares of stock owned by the individual mem- bers, even if the corporation were now dis- solved by lapse of time.^ * * * SPENCER, C. J. (after stating the facts in the case). With the most profound and un- dissembled respect for THE CHANCELLOR, I am constrained to differ from the opinion held by him that this corporation is not dis- solved. The object and intention .of the legislature ■ in authorizing the association of individuals for manufacturing pm-poses, was, in effect, to facilitate the formation of partnerships, without the risks ordinarily attending them, and to encourage internal manufactures. There is nothing of an exclusive natm-e in the statute; but the benefits from associating and becoming incorporated, for the pm'poses held out in the act, are offered to all who wUl conform to its requisitions. There are no franchises or privileges which are not common to the whole community. In this respect, incorporations under the statute dif- fer from corporations, to whom some exclu- sive or peculiar privileges are granted. The only advantages of an incorporation under the statute over partnerships, and the only substantial difference between them, consists in a capacity to manage the affairs of the in- stitution, by a few and select agents, and by an exoneration from any responsibility be- yond the amount of the individual subscrip- tions. In coming to the conclusion, that the cor- poration, in this case, is dissolved, I lay out of the case everything of mis-user, or non- user, excepting the influence which the fact of non-user may have as evidence, connected with other facts, to show the renunciation of the corporate rights. Upon the authorities, and for the reasons given by THE CHAN- CELLOR, mis-user or non-user cannot be re- lied on as a substantial and specific groimd of a dissolution. The ground on which I place my opinion, that the corporation is dissolved, is, that they have done, and suffered to be done, acts equivalent to a direct sm-render. THE CHANCELLOR concedes, and it does not, in my judgment, admit of a doubt, that a cor- poration may be dissolved by a surrender of all their corporate rights. In 2 Kyd. Corp. 467, the rational and true ' The rest of the chancellor's opinion is omit- ted. rule is laid down. He says: "The rule adopted in all the cases which have occurred on this question, seems to have been "this, that where the effect of the surrender is to destroy the end for which the corporation, or the corporate capacity was instituted, the cor'poration, or the corporate capacity Is itself destroyed;" and we have the high authority of Lord Coke to the same effect. He says, if there be a warden of a chapel, and the chapel and all the possessions be aliened, he ceases to be a corporation, because he "can- not be warden of nothing; but if the body of a prebend be a manor and no more, and the manor be recovered from the preben- dary, by title paramount, yet his corporate capacity remains, because he has staUum in choro, et vocem in capitulo, and he is preb- endary, although he has no possessions. Thus, according to Lord Coke, a recovery by title paramount would have produced an ex- tinction of the corporation, had it reached aU the rights and powers of the corporation, but inasmuch as there were rights unaffected by the recovery, it did not work a dissolution. Suffering an act to be done which destroys the end and object for which the corporation was instituted, must be regarded as equiva- lent to the doing an act which produces the very same consequences. A sun-ender is an act in pais; it can, therefore, be no objection, in this case, that the acts which have dis- solved the corporation are acts in pais. This bill was not filed until the 24th of April, 1819. In February, 1818, all the es- tate, real and personal, of the corporation, was sold under an execution; and, as has already been stated, the corporation has to- tally ceased from acting since December, 1817. The bin charges, substantially, that the corporation is dissolved; and not one of the respondents asserts, that it does exist, or that there is the remotest idea of resuscitat- ing it. Here is, then, a corporation pos- sessed of nothing, abandoning the end and object of their institution, without pretend- ing that they ever hope or expect to resume their functions; and, it may be added, all the corporators either admit the dissolution of the corporation, (I speak of those who have suffered the bill to be taken pro con- fesso,) or deny, that they are corporators. Thus, presenting the phenomenon of a cor- poration without corporators, a nominal, in- ert body, pretending to have life and exist- ence. Such an anomaly cannot be recog- nized. The argument is, that being incorpo- rated for twenty years, there exists a cor- porate capacity, during that period, and that although all the functions of the corporation have ceased, yet they may be resumed. The second section of the act provides, that as soon as the certificate shall be filed, the per- sons who shall have signed and acknowl- edged the same, and their successors, shall, for the term of twenty years next after, be a body politic and corporate, in fact, and in name, &c. The legislatm-e never meant, nor 118 SLEE V. BLOOM. (Ch. 12 does the act authorize the conclusion, that the corporation should remain and continue during all that period, nolens volens. It was implied, that during that time they should do nothing to forfeit their rights, nor surrender them back, or do any act tanta- mount thereto. The act prolongs the corpo- ration for twenty years, subject to all the in- cidents attending corporations; and I have endeavored to show, that one of the inci- dents is an extinction of the corporation, If it does what is equivalent to a surrender. I doubt extremely, whether the capacity to resume the functions of the corporation does, in fact, exist, but it is not necessary to de- cide that point. I consider it merely as a matter of speculation, thrown out, without any practical reference to the cause, as a stumbling block to the attainment of justice between the parties. For all the substantial pm'poses of justice, and in effect, the corpora- tion is dissolved. In the case of Rex v. Pasmore, 3 Term R. 244, Justice Ashhiirst says, as to the contrariety of opinions in the books on this subject: "I shall not attempt to reconcile them, but we ought to lean to that side which is supported by reason. Pos- sibly, the seeming contrariety may have been, in some degree, occasioned by the equivocal use of the term 'dissolved.' As far as concerns the power of the crown to grant a new charter, I think the corporation was dissolved. As to some particular pur- poses which do not relate to the powers of government, but to personal privileges which are annexed to the persons of the remaining individuals, such as rights of common, &c., it may be said not to be dissolved, at least till the crown interposes." Justice Grose, in the same case, said: "Now, in point of good sense, when the purposes for which a corpo- ration was created can no longer be an- swered, there is no reason why it should not be considered to be so far dissolved, as that the crown may raise there a new corpora- tion," &c. The doctrine urged by the respondents' counsel is, that this corporation must endure for twenty years, unless it is judicially de- clared to be dissolved, for mis-user or non- user ; and we perceive, by some of the cases cited by THE CHANCELLOR, that even where there had been an omission to elect bur- gesses, for 22 years, doubts were entertained whether there had been such a non-user as vacated the charter. It is observable, that the appellant has no control over the process or remedy to dissolve this corporation for non-user. The people of the state, through their law officer, can only Institute such pro- ceedings. Then, as regards the appellant, if we are to consider this corporation in exist- ence, he must patiently await the lapse of twenty years, before he can have any rem- edy. I say, in the words of Lord Mansfield (3 Bxurrows, 870): "Without an express au- thority, so strong as not to be gotten over, we ought not to determine a case so much against reason." In point of good sense, this corporation was dissolved, within the meaning and intent of the act, as regards creditors, when it ceased to own any property, real or personal, and when it ceased, for such a space of time, from doing any one act manifesting an in- tention to resume their corporate functions. The end, being, and design of the corpora- tion, were completely determined; and if even it had the capacity to re-organize and re-invigorate itself, the case has happened when, as relates to its creditors, it is dis- solved. If I am right thus far, then, by the 7th sec- tion of the statute, the persons composing the company, at the time of its dissolution, are individually responsible, to the extent of their respective shares, for the debts then due and owing by the company. With respect to the period of the dissolu- tion, it appears to me, that we may safely say, it happened on the 1st of Febniary, 1818, when all the property of the company was sold; for since that time, no corporate act has been done. The next question Is, how far the resolu- tion of the 3d of November, 1817, discharged those of the respondents who have complied with its terms, from any further liability to the appellant.' * « « The result of my opinion is, that the decree complained of be reversed; that the cause be remitted to the court of chancery, with di- rections to enter a decree, declaring all the respondents, except Martin Hoffman, James Reynolds, and John E. Pells, liable, individ- ually, to the extent of their respective shares of stock in the said company, and no further, to pay the appellant's debt; but that the payments made by the respondents on their stock, shall be deemed so far to have dimin- ished their liability; and as respects Martin Hoffman, James Reynolds, and John B. Pells, that the bill be dismissed, and that they be paid their costs incurrred in the court below. YATES and VAN NESS, JJ., concurred. PLATT, J., being related to one of the par- ties, declined giving any opinion. WOOD- WORTH, J., not having heard the argument, gave no opinion. The rest of the court (AUSTIN, Senator, dissenting) concurring in the opinion of THE CHIEF JUSTICE, it was thereupon, ordered, adjudged, and de- creed accordingly.* * * * ' The rest of the opinion relating to this and other points is omitted. * The details of the decree are omitted. Ch. 15) NEW YORK & N. H. U. CO. v. SCHUYLER. 119 NEW YORK & N. H. R. CO. y. SCHUYLER et al. (34 N. Y. 30. 18Go.) Appeal from tlie general term of the su- preme court, in tlie first district, where a judgment rendered at special term, in a case tried before the court, without a jury, had been affirmed. (Reported, at special term, 3S Barb. 53i.) This was an equitable action by the New York and New Haven Railroad Company against Robert Schuyler, and 320 other de- fendants, to have certain alleged false and fraudulent certificates and transfers of pre- tended stock of the company, made by the defendant Schuyler, and held by the other de- fendants, adjudged to be spurious and void; to have the same brought into court and can- celled; and to enjoin the several defendants from further prosecuting certain actions then pending, and from bringing other suits against the company, to enforce such cer- tificates and transfers, or to recover dam- ages for any reason connected with the same. This court has decided, in Mechanics' Bank v. New York & N. H. R. Co., 13 N. Y. 599, that the spurious certificates of stock issued by Schuyler were void. The complainant, after setting forth the facts upon which relief was claimed, and the various suits pending, averred, that the plain- tiffs were informed and believed, that it was the intention of other holders of the said false and fraudulent transfers of stock, and certificates of stock, to commence other ac- tions against the plaintiffs, for refusing to transfer the said stock so purporting to be represented by the said false and fraudulent certificates, as genuine stock; that such ac- tions would be very numerous, and, as the plaintiffs believed, exceeding one hundred, and would subject the plaintiffs, and the par- ties to those actions, respectively, to great and unnecessary expense, trouble and liti- gation; and that such actions, if commenced, and, especially, if followed up by attach- ments, would greatly injure and damage the interests of the plaintiffs, and the interests of the genuine stockholders of the company and its creditors, and other persons inter- ested in its stock, effects and earnings; that the plaintiffs were advised and believed, that the rights of all the said holders of the said false and fraudulent certificates, and of the said fraudulent ti-ansfers, might be determined and adjusted in one action, with- out prejudice to the rights of any of them, and so as greatly to promote the convenience, and advance the interests of all persons in- terested in said company, whether as holders of the genuine stock or of the illegal and fraudulent certificates and transfers; that the plaintiffs were not authorized or em- powered, as they were advised and believed, to acknowledge or recognize any of the said false and fraudulent certificates of stock, or any of the said transfers of stock, or as constituting any claim against the company, without ah adjudication by some sort of competent jurisdiction requiring them so to do; and that, under the circumstances, they could not make any dividends to genuine stockholders, nor could they, with safety or accuracy, determine who were entitled to vote at the elections for directors of said company; nor could they open the transfer- books of said company, as they were de- sirous of doing; and that this action was commenced for the purpose of impleading all the said holders and claimants under the said illegal and fraudulent certificates and ti-ansfers, in order that the duties and obli- gations of the plaintiffs and the rights and claims of the holders of said certificates might be settled in one suit, and to the end that a multiplicity of actions, and the delay, expense and litigation attendant there- on, might be avoided. And it concluded with a prayer for judgment, that the alleged false and fraudulent certificates and transfers might be adjudged illegal and void, and be cancelled, as not representing any stock in the company, and as not constituting any claim or obligation upon the company; and that the holders thereof should be enjoined and restrained from bringing any suit, ac- tion or bill in equity against the plaintiffs, for or on account of the said certificates, or any of them, or of the stock pm-ported to be represented thereby, or of the act of the said Robert Schuyler, in creating or issuing the same; and that the defendants who had commenced suits, be enjoined from prosecuting the same, and that those sev- eral actions be consolidated arid tried with this action, &c. One of the defendants, William Cross, de- murred to the complaint; but the demurrer was overruled at the special term (Railroad Co. V. Schuyler, 1 Abb. Pr. 417), and the de- cision thereon (which had been reversed at general term) was sustained in this court (17 N. Y. 592); and another demurrer, sub- sequently interposed by two others of the defendants, Chappel and Carpenter, was like- wise overruled, on the ground that the ques- tion of the sufiiciency of the comijlaint was res adjudicata (8 Abb. Pr. 239). Injunctions were granted to restrain the pending actions (17 How. Pr. 464); but these were subse- quently dissolved, the general term having sustained the demmTer to the complaint (28 How. Pr. 187). The eomplairlt having been sustained, many of the defendants put in answers, setting forth various facts and .grounds upon which they claimed that the plaintiffs were not entitled to the relief sought, and that the cer- tificates or transfers respectively held by them were, or ought to be, treated as valid and binding on the company; or damages awarded to them for injuries sustained by the alleged frauds of Schuyler; and many 120 NEW YORK & N. H- E. CO. o. SCHCTYLER. (Ch. 15- nsking for relief by waj* of judgments for iliuiuijii's agninst the company. On the trial of tiie cause, before Ingraham, J., without a jury, It appeared, that the plain- tiffs were duJy incorporated by the legisla- tm-e of the state of Connecticut, in 1844; and by an act of the legislature of this state, passed in IS-tG, were authorized to extend their road into this state, and clothed with necessary powers for concluding its business tlierein. The act of incorporation provided, that the capital stock of the company should be $2,000,000, with the privilege of increas- iiig the same to ?3,000,000, to be divided into shares of one hundred dollars each, which shares should be deemed personal property and be transferred in such manner and in such places, as the by-laws of said company should direct; and that the directors should have full power to make and prescribe such by- laws, mles and regulations, as they should deem needful and proper, touching the dis- position and management of the stock, prop- erty, estate and effects of the said company, the transfer of the shares, the duties and conduct of its officers and servants, the elec- tion and meetings of the directors, and aU matters whatsoever which might appertain to the concerns of said company. That the original corporators failed to ob- tain subscriptions for stock sufficient to or- ganize the company, until 1846. That on the 19th of May, 1846, a board of directors were elected, who organized, on the same day, by electing Robert Schuyler president, which office he continued to hold until his resignation thereof, on the 4th July, 1854. That on the 9th July, 1846, the board of directors established, by certain by-laws adopted by them, a system concerning the ti-ansfer of stock of the company, and the is- suing of certificates therefor, according to which stocks were transferable only on the books of the company, by the shareholder or his attorney, duly appointed, and on the siu"- render of the certificate held by him, when any certificate had been issued. The same by-laws, prescribed the form of the trans- fer, as follows: •o "New York and New Haven Railroad S Company. No. 10,002. Capital, $3,- 000,000. Shares, $100 each. New York Office. "For value received, hereby assign and transfer unto all right, title and interest in shares in the capital stock of the New York and New Haven Railroad Company. "New York, , 18—." That transfer books were provided for the use of the agents, in which transfers of this form were printed in blank. And that the by-laws also directed that a form of stock certificate should be adopted; and one was adopted and invariably used, as averred by the complaint, for the pui-pose of- facilitating ti-ansfers of stock by the holders thereof, with a blank assignment and power ol at- torney printed on the back of it as follows: oj d >i t* H 5 era B. =s o Qi "New York and New Haven Railroad Company. No. 5.--!94. Capital, $3,000,- 1 000. Shares, $100 each. New York ■a £ Office. §g „; "Be it known, that entitled to J.! « § shares of the capital stock of the o g p. New York and New Haven Railroad Com- *" g I pany, transferable on the books of the Ifqcj company, at its office, in the city of New is s York, by the said or attorney, S on the surrender of this certificate. "New York, 18—. -, Transfer Agent. "Know all men by these presents, that for value received, ha — bargained, sold, as- signed and transferred, and by these presents, do — bargain, sell, assign and transfer, unto of shares in the capital stock of the New York and New Haven Railroad Company, standing in name on the books of the said company, and transferable only at its office in the city of New York. And do — hereby constitute and appoint true and lawful at- torney irrevocable, for and in name and stead, but to use, to sell, assign, trans- fer and set over all or any part of the said stock; and for that purpose to make and exe- cute all necessary acts of assignment and trans- fer, and one or more persons to substitute, with like full power; hereby ratifying and confirming all that , said attorney, or , substi- tute or substitutes, shall lawfully do by virtue hereof. In witness hereof, hereunto set hand and seal, the day of , one thousand eight hundred and fifty . Sealed and delivered in the presence of ." That these certificates, with the blank as- signment and power of attorney upon them, were printed and bound in books, with mar- gins for entering the time of issuing the cer- tificate, the number of shares, the number of the certificate, and to whom issued; which margins remained bound in the books, after the certificates were cut out and issued, and constituted a memorandum of all the certifi- cates issued; thes° books were furnished by the company to the transfer-agents. A stock- ledger was also kept, in which each stock- holder was credited with the shares trans- ferred to him, and debited with those transferred by him, and in a separate col- umn, in each stockholder's account, was en- tered the number of shares represented by each certificate issued to him and the num- ber of the certificate, and when a certificate was surrendered, a line was drawn through this entry, so that the uncancelled charges- in the certificate column indicated the amount of each stockholder's stock, repre- sented by outstanding certificates, and by a comparison of the aggregate of such charges with the aggregate biilances of every stock- holder's account, any over Issues of certifi- cates would be made to appear. These books were not accessible to the public, and dealers in stock had no means of information as to the title of parties proposing to dispose of stock, except such as was furnished by the certificates above mentioned, or by the agents- of the company. That on the 3d day of February, 1847, Rob- ert Schuyler was appointed ti-ansfer-agent of the company at the city of New York, and a transfer-office was established in that city; other offices and agencies were also estab- CL. 15) NEW YOEK & N. H. R. CO. v. SCHUYLER. 121 lished in the cities of Boston and New Ha- ven. From that time forward, to and in- cluding July 3, 1854, the entire couti-ol and management of the transfer-office and agen- cy at New York was left in the hands of said Schuyler, without any examination or inter- ference on the part of said company, or its directors, he being also, during the whole pe- riod, the president of the company and one of its directors (and the meetings of the board of directors appeared from the minutes to have been held at his ofQce in New York.) That, in August, 1851, the board of direc- tors resolved to flU up the capital stock to $3,000,000, being 30,000 shares, and directed that the same be apportioned amongst' the existing shareholders, as then standing on the stock-ledger; such distribution was made, and the stock (except sixty-eight shares not taken, which remained, in part, undisposed of until the 15th of October, 1849) was taken by such distributees. That the stock originally subscribed, and that after- wards distributed, was, in most cases, trans- ferred on behalf of the company, by one of the ti-ansfer-agents to the person entitled, and certificates were issued by such agent, in the form above set forth. That during the time Schuyler was such agent, transfers of stock were made on the books to the transfer-agents on account of the company, and such stock afterwards disposed of by such agents. That Robert Schuyler was a member of the firm of R. & G. L. Schuyler. That said firm held large amounts of the stock of the company, and from its organ- ization to the 3d July, 1864, were large and constant dealers therein, and Robert Schuy- ler, as transfer-agent, during this whole pe- riod, attended to transfers and issued cer- tificates to them, in the same manner that he did of stock standing in the names of oth- er pei-sons, and no restriction appeared, at any time, to have been put by the company upon his official action towards, or with his said firm. On the 1st February, 1848, Robert Schuy- ler, as such transfer-agent, commenced the over-issue of certificates to his said firm, and on that day, such over-issue was sixty shares; and such over-issue continued thenceforth, and at all times thereaftei-, there was an over-issue of certificates in the stock account of R. &• G. L. Schuyler. On the 20th of March, 184S, the over-issue by ti-ansfer com- menced, and on that day, the number of shares transferred by R. & G. L. Schuyler, exceeded the number ti-ansferred to them by sixty shares. Such excessive ti-ansfers con- tinued until January, 1849, the amount there- of fluctuating from time to time, as trans- fers were made to and by R. & G. L. Schuyler, but the balance on the books of the company was against them, at aU times dur- ing that period. The excessive issues of such stock, so transferred on the books of the company by R. & G. L. Schuyler, were cred- ited to the transferees, in their respective accounts, and, when ti'ansferred, were charg- ed in such accounts and credited to the new transferree. These transfers were made, in great part, under the power of attorney ex- ecuted in blank by R. & G. L. Schuyler, in- dorsed on the over-issued certificates, by the holders thereof, and such certificates were, on making such transfers, brought in, sur- rendered and cancelled. Dm'ing this period,, the amount of the over-issued certificates and over-issued transfers was not in excess of the 30,000 shares of the authorized capital of the company. On the 10th of January, 1849, the excessive- transfers amounted to 1,191 shares, but be- tween that day and the 31st of January, shares were transferred to R. & G. L. Schuy- ler, by various persons, sufficient to turn the balance of transfers in their favor. In Au- gust, 1851, when the 5,000 additional stock was distributed, the firm of R. & G. L. Schuyler had standing to their credit 854r shares; and in making the distribution and dividend in that month, the stocks previously transferred to the various persons holding: the over-issued certificates, were treated by the company as genuine stock; there were, at this time, outstanding certificates issued to that firm, beyond the amount of their credits, for 1,277 shares. The over-issued certificates continued to increase until the 17th October, 1853, at which time it had reached 7,042 shares, but the number of in- coming certificates up to that time had not exceeded the credits of R. & G. L. Schuyler, by transfers made to them, so that, on the 17th of October, 1853, their account showed a balance by transfer to them of 4 shares. On that day, a transfer of 100 shares was charged to them, and thenceforward to, and including, the 3d July, 1854, the balance of transfers against them continued to increase, until it reached 17,497 shares; at the same date, the outstanding certificates against them amounted to 1,648 shares. All the cer- tificates issued, including the false and over- issued certificates, were regularly entered in numerical order in the certificate books and stock-ledger, and an examination of sucli books would, at all times, have shown what certificates were outstanding, and a compari- son between the footings of the several books would have shown whether R. & G. L. Schuy- ler were or were not entitled to receive cer- tificates. The over-issued certificates and transfers were, in all cases in which powers had been given to defendants, purchased or received by them in good faith, on the payment or advance of money. It was an established usage in the city of New York to make pur- chases of stock, and make loans thereon, orf the faith of such certificates, with the assign- ment and power of attorney thereon executed in blank, by the party to whom originally Issued, and they were transferred in the course of business, from hand to hand, by delivery. It was a usage, also, to take trans^ 122 i^EW YOKE & N. II. K. CO. v. SCHUYLEK. (Cli. 15 fers of stock, In the course of dealing, on the books of the corporation, without receiv- ing a certificate; and, according to tlie ordi- nary mode of business, transfers were not allowed by corporations, without the surren- der and cancellation of the outstanding cer- tificate, when one had been issued; and, ac- cording to the usage among corporations in New York, dealers in their stock wee not allowed access to their books, and it was not the custom for dealers to make examina- tions thereof. The stock of the New York & New Haven Railroad Company was large- ly dealt in, in the city of New York, by the delivery of certificates and assignments in blank, and large amounts of such certificates were constantly in circulation, and many of them purported to be issued to R. & G. L. Schuyler, and were signed by Robert Schuy- ler, as transfer-agent. In many cases where valid certificates or stock had been issued to R. & G. V. Schuyler, for stock actually belonging to them, and outstanding to their a'edit on the books at the time, and while such certificates, with the usual assignments and powers of attor- ney executed in blank, were outstanding in the hands of bona fide holders, the stocli was permitted to be transfen-ed by R. Schuyler, in the firm name, to other persons, who took the same for value, in good faith, without the surrender of the outstanding certificates. The rule on this subject, as established by the by-laws, was generally observed, but in the case of R. & G. L. Schuyler, and a few other persons, it was disregarded by R. Schuyler and the clerks of his office. The railroad company kept no bank-account for the deposit of moneys; money received on behalf of the company, on construction account, from time to time, by Robert Schuy- ler, as president or transfer-agent, was, from time to time, deposited by him in the bank accounts of the firm of R. & G. L. Schuyler, and when payments were made by Schuyler, on behalf of the company, the money was obtained by R. Schuyler. Large amounts were so Obtained, from time to time, and fre- quently from the firm of R. & G. L. Schuyler; said moneys were drawn out from time to time as needed, on their checks; the money so obtained by R. Schuyler was raised by the said 'Robert Schuyler in the name of his said firm of R. & G. L. Schuyler, indiscrimi- nately, on genuine and spurious certificates of the stock of said company; but it was not found to what tilne such moneys contin- ued to be raised. The firm of R. & G. L. Schuyler failed on the 3d July, 1854, and R. Schuyler, on the morning of the 4th of July, by letter, resigned the offices of president, director and transfer- agent, and called the attention of the board of directors to the over-issues appearing in the books. It was also found by the court, that up to that time, "there was no evidence of any actual knowledge of any of the other directors, of any fraudulent acts on the part of Schuyler, in the performance of his duties as transfer-agent," and the evldeJice tended to establish, that he stood high in the confi- dence of the community, as a man of Integ- rity and business capacity. But the court further found, "that a proper examination of the books by tlie dh-ectors, would have enabled them to discover the frauds which were perpetrated by Schuyler, and that the board of directors was guilty of negligence, in not making such examination, and in leaving the entire charge and control of the ti-ansfer of shares and giving of certificates with Schuyler, without making such examin- ations;" and that the plaintiffs, by their transfer-agent or clerks, carelessly, negligent- ly and improperly conducted themselves. In relation to the transfer of the stock on the books of the company, and the issuing of certificates therefor, in the allowance of transfers of shares of stock on the books of the company, and in issuing certificates there- for, when no such shares existed, or when such certificates were not true, and in per- mitting transfers of spurious stock to be made on the books of the company, and cer- tificates of spurious stock to be issued to persons who, in good faith, advanced money or other property thereon, and in permitting shares of stock to be transferred to other persons than those holding the certificates thereof, without requiring a surrender of such certificates. That the defendants received their trans- fers of stock, through the acts and neglect of the transfer-agent, or of the officers of said company, or certificates, issued by the acts and neglect of the transfer-agent and officers of the company, or certificates of stock, valid when issued, but rendered value- less by the fraudulent or negligent pursu- ance of transfers of such stock to subse- quent bona fide purchasers, without the sur- render of the outstanding certificates, and had been misled by the acts and neglect of the transfer-agent or officers of said com- pany, in relation to such ti-ansfere and cer- tificates, and had. In good faith, and without any violation on their part, or in then: knowl- edge, of the by-laws and rules of the com- pany, advanced money and other considera- tions on the faith of such transfers and certificates. The particular facts on which the several defendants individually relied are stated In the opinion of the court The learned judge decided as matter of law, that the plaintiffs were entitled to the relief sought, as to the most of the defend- ants; and as to others of the defendants, that the plaintiffs were liable to them, re- spectively, for the damages sustained in consequence of their certificates or trans- fers turning out to be false and fraudulent, and that they were entitled, separately, to maintain actions against the plaintiffs, for such damages, but that such damages could not be, appropriately, under the pleadings in the case, adjudged to them in this action. Ch. 15) KEW YOKK & N. H. K. CO. o. SCHUYLER. 123 And he directed judgment to be entered accordingly, as of the 18th September, ISSO. The plaintiffs appealed to the general term from all that portion of the judgment re- lating to the rights of the defendants to recover damages for the injm-ies to them, and to maintain actions £!|gainst the plain- tiffs therefor; and some of the defendants appealed from so much of the decision as adjudged their certificates and transfers in- valid, and annulled the same, and some from such decision, and from the decision that relief by cross-judgments for damages could not be awarded in this suit. The gener- al term affirmed the judgment (with some unimportant modifications); but decided, that, as to those defendants who were en- titled to damages against the plaintiffs, the court ought to have proceeded and assessed the amount of their damages, respectively, and awarded judgments in this action against the plaintiffs therefor; and they ordered the case to be sent back to the special term for that pm-pose, and directed that com't to proceed and assess such dam- ages in favor of the said several defend- ants, who should establish the amounts of their respective claims, and give judgment therefor, so that final judgments might be entered in the action, both for and against the plaintiffs and the several defendants entitled thereto. The case having been sent back to the special term, the same learned judge pro- ceeded to make the assessments; and upon the further proofs and allegations of the parties, as well as upon the proofs and findings before given and found in the case, he found further facts touching the amount of damages, &c., upon which judgments were ordered in favor of said defendants, respec- tively, to be entered as part of the original judgment, and as an amendment thereof. And judgment was entered, accordingly, on the 30th June, 1864. The plaintiffs took exceptions to the proceedings to assess, in respect to every defendant in whose favor an assessment was made, and numerous exceptions to the judgments as ordered and entered. And the same having been aflirmed at general term, the plaintiffs took a further appeal to this court. Separate appeals were also taken by Jacob Surget, Morris Ketchum and Edward Be- ment, sm'viving members of the firm of Ketchum, Rogers & Bement, Henry Chaun- cey and Emily, his wife, Clara P. Alsop, and Cornelius Vanderbilt, defendants. Jacob Surget and Ketchum & Bement ap- pealed from orders of the general term, dismissing their respective appeals, on the ground, that they were taken too late; but it was stipulated that this court, in case it should be of opinion, that the general term ought to have entertained the appeals, should be at Uberty to consider their cases upon the merits. Sm-get took no appeal from the decision of the special term in 1860; damages were assessed in his favor, when the case was sent back for that purpose, and from the final judgment entered in June, 18G4, he appealed to the general term, claim- ing the right to review the questions affect- ing him, both in the original and the final judgments. Ketchum & Bement, as surviving partners, were found to be the holders of certificates for 740 shares of the spurious stock. But it was also found, that Morris Ketchum, one of the firm, was, during aU the periods in which Schuyler was perpetrating his frauds, one of the directors of the company; and it was held, that the firm were not en- titled to damages. They did not appeal from the judgment of the special term, in 1860, but they took an appeal from the final judgment in 1864, claiming to review the decision touching the validity of their stock, and their right to recover for the injuries sustained by the frauds. The other appellants had taken appeals from the original judgment; their damages had been assessed, and judgment had boon entered therefor; and they now appealed from the final judgment, claiming to have reviewed the questions as to the validity of their stock and their title to be recog- nized by the company as stockholders, in case their right to recover the damages assessed to them should be adjudicated against them. DAVIS, J. The practice in this case has been anomalous, and, to some degree, with- out precedent. There is little danger, how- ever, that any rule will be extracted from its complications likely hereafter to embarrass the coui-ts. Unless, therefore, substantial rights have been violated by the course of procedure, I am opposed to remitting the case, or any of the parties to it, to another decade of litigation, on any ground of mere irregularity. The plaintiffs, after the discovery of the frauds of Robert Schuyler, found some three hundred persons in possession of supposed tities to portions of their capital stock, each of whom was clamorous that his title should be recognized as genuine, or that he should be compensated for injui-ies sustained from its falsity. Many of these persons had com- menced suits at law, to recover damages be- cause of the refusal of the plaintiffs to rec- ognize their alleged rights; and the rest, it was presumed, were about to commence such suits. In this exigency, the plaintiffs invoked the equity powers of the com-t to shelter them from the impending storm, by gathering all these persons and their claims into a single suit, in order, as they averred, that the duties and obligations of the plaintiffs, and the rights and claims of such persons, might be settled in one suit, and thereby a multipli- city of actions and the delay, expense and litigation attendent thereoi'-ve avoided. They 124 NEW YORK & N. H. R. CO. v. SCHUYLER. (Ch. 15 called upon the court to investigate the ques- tion of the validity of the ccrtiflcatos and transfers of stock held by the defend- ants; to separate the good from the had, and cancel the latter; to stop all actions then pending, and consolidate and ti'y the issues joined in them, in this action,' and to re- sti-ain all other parties from commencing ac- tions upon claims growing out of such cer- tificates and transfers; and to accomplish these ends, they asked and obtained process by injunction, under which the defendants have been restrained from prosecuting else- where any claims while this action was pend- ing. It comes, therefore, with an ill grace from plaintiffs, if the defendants have right- ly shown themselves entitled to recover dam- ages in any forum, to insist that they can have no remedy In this suit. Having recov- ered judgment, declaring these certificates and transfers spurious, upon a state of facts on which the court held, that the defendants were also entitled to be compensated for their injuries, it would seem a hard measure of justice to tm'u these parties out, to seek redress in the very multiplicity of actions which this suit was brought, in part, to avert. It is a mistake to suppose that this action addressed itself to any single head of equity jurisdiction. It sought, it is true, the cancel- lation of illegal certificates and transfers, which were prima facie evidences of title to stock, on the ground, that they were clouds on the title of the holders of genuine shares; and chiefly in this aspect, it was sustained, on demuiTer, by this court (17 N. Y. 592); but it was also a "bill of peace," to quiet titles, settle rights, and prevent a multiplicity of actions; and, as was said by Oomstock, J., in the decision referred to, "the number of parties and the multiplicity of actual or threatened suits, will sometimes justify a re- sort to a court of equity, when the subject is not at all of an equitable character and there Is no other element of equity jurisdic- tion;" to which he might have added, that wherever those facts did justify such resort, a court of equity would fully dispose of aU the rights and questions springing out of the subject-matter of the suit, as to every party, however multitudinous or complicated they might be. The action sought also to have the pending suits, in which portions of the defendants were plaintiffs, consolidated in this suit, and their issues tried with it, and to prevent all of the defendants from prosecuting any claim growing out of the subject-matter of this suit, in any court of this state or elsewhere, for the reasons al- ready quoted, and because the plaintiffs, as they said, "could not acknowledge or recog- nize any of the said false and fi-audulent cer- tificates of stock, or .any of the said trans- fers of stock; or, as constituting any claim agamst the company, without an adjudica- tion by some court of competent jurisdiction, requiring them to do so." While, therefore, it was, in one aspect, a suit to remove a cloud upon a title, and can- cel the insti'uments creating such cloud, it had a fai--reaching and broader scope under which the plaintiffs hoped and intended to seem-e a judgment that would put at rest for ever all possible claims against them, growing out of the Schuyler frauds. If it could be maintained to extinguish such claims, surely it can be to uphold them. The court did not err in so adjudging if, while investigating the facts upon which the plaintiffs sought relief, it found, that the same facts that entitled them to a part of what they sought also entitled the de- fendants to relief against them; and it was no undue stretch of equity jurisdiction to award the relief to both, in the same action. The objection that, by such a course, the plaintiffs have been deprived of trial by jury, is without any sound foundation. The very nature of the action forbade such a trial. It is a primary consequence of a resort to a court of equity, that trial by jury is -no mat- ter of right, and wherever the equity of the complainant's bill gives such a court juris- diction, it draws to the same forum andi mode of trial every question, whether its: nature be legal or equitable, that can be- legitimately considered within its scope. Un- der the Code, legal and equitable jm-isdic- tions are combined in the same tribunal, but the principles of each remain distinctive and undisturbed. Whenever a plaintiff calls upoa the court to exercise its jurisdiction, upon principles of equity, he elects thereby his mode of trial, and waives any constitutional right of trial by jury that he might at law have demanded, both as to the remedy he seeks and the defence that may be interposed. ' Under the peculiar circumstances of this- case, the court should not scrutinize, with, critical care, the pleadings of the respond- ents, to see whether there be not some de- fectiveness in setting forth the nature and grounds of their claims to relief, or in de- manding the same. The objections were not raised at the stage of the trial when it was- most important to have the defects, if any existed, distinctly pointed out, and when amendments could have been readily allow- ed; hence, on this appeal, the plaintiffs should be regarded as having waived such objections, or the pleadings be considered as- properly amended. In my opinion, the action of the general term on the appeal from the judgment enter- ed on the decision of the special term, in 1860, is not here to be reviewed, nor is it material to the case, if it were. Since that time, the case has gone back to the special term, and the trial of the case has been com- pleted, by a disposition of all its issues, and another or amended judgment has been en- tered, from which an appeal was taken to- the general term, and the judginent aflirm- ' See Cogswell v. Railroad Co., 105 N. Y. 321> 11 N. E. 518. . .o x^ Ch. 15) NEW YORK & X. H. R. CO. v. SCHUYLER. 125 ed; from this last Judgment, the appeal properly lies to this court. lu its practical effect, the decision of tlie general term, on the first appeal, when considered in the light ■of subsequent proceedings, amounts to noth- ing more than a ruling that the case had not been fully tried, and a final judgment ren- ■ -dered therein as to all the parties, and un- ■der that ruling, it ordered the case back, with directions to the judge at special term to do what was, in its opinion, requisite to render the judgment complete. The action of the special term, in so far as it had gone, was, in substance, held correct, and pro forma affirmed ; but it was instructed, that its ruling, that defendants could not recover cross-judgments in this suit was erroneous, and, therefore, the case was remitted to the original court, with directions to proceed in the necessary assessment, to entitle the de- fendants to judgments for damages, under the facts already found. If that judgment of the general term was a final one, it should have been appealed from, within the pre- scribed time, to this court, by any party seeking to review it. If it was not final, and not appealable, for that reason, then it has ceased to be of any moment, since the spe- cial term has continued the action, complet- «d the trial, amended the judgment, or en- tered a new one, from which an appeal has been taken to the general term, and thence to this court. It is the judgment awarding the damages that is under review on plain- tiffs' appeal, and not the judgment refusing them. The judgment of the special term giving such damages is none the less the judgment of that court because an appellate tribunal had instructed it, that such ought or must be its judgment. It is not uncom- mon, when cases are sent back for new ti'ial, for the appellate court to indicate the dispo- sition that should be made of them, and for the original court to follow such disposition. And the practice in such case requires a new formal appeal to the general term, and a new judgment by that court, before an appeal lies to this court. We can only look at the action of the gen- eral term on the first appeal, as an irregular proceeding, by which the cause was got hack to the original tribunal for complete judgment. Its effect has been an amended or complete judgment as to all the parties and all the issues, and that has become tha final judgment in the case, and is now here for review. The practice of the com-t, on the first appeal, was sui generis, and is not to be recommended for general imitation; but if this court should hold it not only to tie irregular but wholly erroneous, we should stiU have the final judgment of the special term and the affirmance of that by the general term, before us for review; be- cause the merits of neither of those judg- ments can be said to have been affected by the intermediate irregularity, but only the mode of getting at them. In short, I think, the last judgment of the special term Is riow to be considered the judgment in the action; and any party whose rights were affected by it, was at liberty, within the pre- scribed time, to appeal from it; and the ap- peal would bring up any question properly arising in the progress of the trial; for, in legal contemplation, there has been but one trial and one judgment. It follows, there- fore, that the general term erred in dismiss- ing the appeals of Surget, and of Ketchum and Bement; and that this case is here for review on all its meritorious questions, un- prejudiced by mere matters of form or prac- tice. This somewhat summary disposition of the preliminary points of the case leaves an open path to its meritorious questions, some of which, however, may be disposed of even more summarily. One of these is the ques- tion, whether the stock purporting to be cre- ated by the false certificates and fraudu- lent transfers of Schuyler, can be valid stock of the corporation, and become part of its capital. In the nature of things, this is impossible. A corporation, with a fixed capital, divided into a fixed number of shares, can have no power, of its own voli- tion, or by any act of its officers and agents, to enlarge its capital or increase the number of shares into which it is divided. The su- preme legislative power of the state can alone confer that authority, and remove or consent to the removal of restrictions which are part of the fundamental law of the cor- porate being; and hence, every attempt of the corporation to exert such a power, before it is conferred, by any direct and express action of its officers, is void; and hence, every indirect and fraudulent attempt to do so, is void; for, if such a result cannot be accomplished directly, by the whole ma- chinery of the corporate powers, it is absurd to suppose, that it can be produced by the covert or fraudulent efforts of one or more of the agents of the corporation. The spe- cial term was, therefore, right in holding that the spurious stock, attempted to be cre- ated by Schuyler, in excess of the capital, formed no part of the capital stock of the company, but was utterly invalid; and it necessarily followed from the decision of tliis court, when the case was before it on demurrer, that the plaintiffs were entitled to have all certificates and transfers which represented such spurious stock declared void and ordered to be cancelled. Another important legal proposition in the case is so clear upon principle, and so dis- tinctly settled by authority, that nothing but confusion can flow from its discussion. It wiU bear no more than plain enunciation. A corporation is liable to the same extent, and under the same circumstances, as a natural person, for the consequences of its wrongful acts, and wiU be held to respond in a civil action, at. the suit of an injured party, for every grade and description of forcible, mali- 126 NEW YORK & N. H. R. CO. v. SCHUYLER. (Ch. 15 clous or negligent tort or wrong which it com- mits, however foreign to its nature, or be- yond its granted powers, the wrongful trans- action or act may be." Life & Fire Ins. Co. V. Mechanics' Fire Ins. Co., 7 Wend. 31; Ang. & A. Corp. §§ 382, 388, 301; Albert v. Bank, 2 Md. 1G9; Goodspeed v. Bank, 22 Conn. 5-il; Bissell V. Railroad Co., 22 N. Y. 305-309 (per .^olden, J.); 1 Wend. Bl. note 476; Green v. Omnibus Co., 7 C. B. (N. S.) 290; Bank v. .Tohnson, 24 Me. 490; Raih-oad Co. v. Quig- ley, 21 How. 209, and cases cited by Camp- bell, J. It follows, from this proposition, that tf it were established in this case, that the corporation itself issued the false cer- tificates of stock, and permitted the fraudu- lent transfers of spurious stock, it would be liable to the party directly deceived and in- jured by that transaction. The incapacity to create the spurious stock would be no de- fence to an action for damages for the in- jury. On the contrary, that very incapacity, since it would i-ender the certificate or trans- fer a fraud and deceit, would itself be the cause of the injury and the basis of recovery. No court would hear the corporation assert, that its wrongful act was beyond its char- tered powers, and, therefore, ineffective to charge it with the injurious consequences of the fraud. But in this case the false certificates were issued and the spurious stock transferred by an officer of the corporation. A corporation aggregate, being an artificial body,— an im- aginary person of the law, so to speak,— is, from its nature, incapable of doing any act, except through agents, to whom is given, by its fundamental law, or in pursuance of it, eveiy power of action it is capable of pos- sessing or exercising. Hence, the rule has been established, and may now also be stated as an indisputable principle, that a corpora- tion is responsible for the acts of negligence of its agents, while engaged in the business of the agency, to tlie same extent and under the same circumstances, that a natural per- son is chargeable with the acts or negligence of his agent; and "there can be no doubt," says Lord Chancellor Cranworth, in Ranger V. Railroad Co., "that if the agents employed conduct themselves fraudulently, so that if they had been acting for private employers, the persons for whom they were acting would have been affected by their fraud, the .same principles must prevail where the prin- cipal under whom the agent acts is a cor- poration." 5 H. L. Gas. 86, 87; Thayer v. City of Boston, 19 Pick. 511; Turnpike Co. V. Rutter, 4 Serg. & R. 16; Life & Fire Ins. Co. V. Mechanics' Fire Ins. Co., 7 Wend. 31; Bank V. Johnson, 24 Me. 490; Story, Ag. § 308; Ang. & A. Corp. §§ 382, 388. This brings us to consider the propositions on which the liability of the company to re- spond in damages to the defendants inust de- ili^t?.^^'"^*"^"" ''• ^°^^' ^ N. J. Eq. 246, 7 pend. They are either general, as applicable to all of the defendants, or special, as gi'ow- ing out of the particular facts of some one or more of the defendants; and it is imprac- ticable, without danger of injustice, to group the cases of all the defendants together, and consider them in mass, however desirable that course might be, in order to avoid pro- lixity. In one general proposition, an in- quiry is primarily involved into the duties concerning its stock, which the corporation owed to the public, and especially, to all who might become dealers therein. The charter of the company was voluntarily sought and accepted; it created a private trading body, having in view pecuniary gains and advant- ages. The legislature limited the capital, and fixed the number of shares into which It might be divided, and declared them to be personal property, to be transferred in such manner, and at such times and places, as the by-laws of the company should direct, and then handed over to the directors a discretion restrained only by the laws of the state and the United States, to enact by-laws touching the disposition and man- agement of the stock, the transfer of shares, the duties and conduct of officers, "and all other matters that might appertain to the concerns of the company." These powers were sought and granted, with a view to well-known and established commercial usages. It was, doubtless, a matter of choice, to what extent the company would exercise them, but the directors chose to use them in their broadest significance. They proceeded to enact by-laws to regulate the transfer of stock and the Issuing of certificates on such transfers; they adopted a form of transfer, of certificate and of assignment, and power of attorney indorsed thereon, and gave them every characteristic of negotiability In their power to confer. They sought the commer- cial centre of this continent, and there estab- lished a transfer-office and agency, and thus gave and secured the most unbounded facil- ities for dealing in the stock. Their pur- poses, obviously, were, to lay hold of the ad- vantages which such facilities were sure to bring to the stock, by enhancing Its monetary and convertible value. This course was legit- imate; but it brought with it corresponding duties and obligations. I cannot doubt but that upon general and long established prin- ciples of law, the corporation became bound to the exercise, in this branch of its business, of such ordinary care and skill as should af- ford to dealers a safe and reliable mode of acquiring title to Its shares. In the form of transfers and certificates as provided by Its by-laws. "The law always imposes upon every one who attempts to do anything, even gratuitously, for another, some degree of care and skill in the performance of what he has undertaken. * * * Mere negligence, where there is no obligation to use care, as where a man digs a pit upon his own land and leaves it open, affords no groimd of action. Ch. 15) NEW YORK & N. H. K. CO. v. SCHUYLEU. 127 but where there is anything in the circum- stances, to create a duty to an individual or to the public, any neglect to perform that duty from which injury arises, is actionable." Per Selden, J., in Nolton v. Railroad Co., 15 N. Y. 444; Coggs v. Bernard, 2 Ld. Raym. 909. It is upon this duty that the com-ts hare established the rights which dealers acquire through the certificates of corporations, who thus enter their stock upon the market, and the liabilities that flow from a refusal to permit the enjoyment of those rights. Denny V. Manhattan Co., 2 Denio, 118; Kortright v. Bank, 20 Wend. 94, 22 Wend. 368; Pollock \-. Bank, 7 N. Y. 276; Davis v. Bank, 2 Bing. 393; Iron Co. v. Hooper, 7 Cush. 183; Sar- gent V. Insurance Co., 8 Pick. 90. I cannot, therefore, subscribe to the idea, that the du- ties of the plaintiffs in respect to their stock were limited to themselves and existing shareholders. They extended also to the commercial community, whose confidence and trade the plaintiffs invited, and who, in turn, were entitled to good faith and fair dealing at the hands of the company; and they sprang into full vigor in behalf of ev- ery party who entered upon such dealing. The next important general inquiry is into the manner in which the plaintiffs dischar- ged those duties at their New York agency, with a view to determine, whether their con- duct has been of such a character, that the law, in behalf of innocent parties, and to prevent injustice, will imply authority in the agent to do the acts that have occasioned the injury, on the principle of estoppel in pais. This Inquiry was not involved in the case of the Mechanics' Bank against these plaintiffs (13 N. Y. 599), for the facts upon which it arises were not then before the court, and the questions discussed did not embrace them. The only question of estop- pel considered in that case, was the one aris- ing on the face of the certificate itself, and the learned judge who pronounced the opin- ion was very careful to define the limits of the authority, as they appeared in that case, and to declare, that the appointment, bj' its terms, did not include the acts, and that there was "no pretence that the authority conferred was ever enlarged by any holding out or recognition of such acts." 13 N. Y. 636. The doctrine of implied agency, when it arises out of negligence, I think, has its true basis in the principle of estoppel in pais. That principle, as said by Wilde, B., in Swan V. Australasian Co., 7 Hurl. & N. 603, is based on the injustice of allowing a party to be the author of his own misfortime, and then charging the consequences upon oth- ers, and "it all along implies an act in itself invalid, and a person who is forbidden, for eqiiitable reasons, to set up that invalidity." The facts on which this question arises are, in part, the same as those upon which the extent of Schuyler's actual agency is to be determined, and a condensation of them will now be made, with a view to answer both piu-poses. Schuyler was president of the company and a director. In February, 1847, and after the by-laws were adopted, he was appointed transfer-agent at New York. His appointment was entirely general in its terms, but, by necessary implication, was subject, as to the mode of executing his duties, to the provisions of the by-laws, in cases coming within their scope and mean- ing. The substance of the by-laws was, that all ti-ansfers of stock should be made by the shareholder, on the transfer-book, in the form prescribed, at the ofllce where the stock stood to his credit; that certificates for stock, with blank assignment and power of attorney thereon, in the form prescribed, might be issued; and when issued, no dupli- cate should be given, and no stock be trans- ferred, without the sm-render of the out- standing certificate, (except in case of lost certificates, where special action of the board should be had); and that the stock might be transferred by the holder of a certifi- cate under the power of attorney duly ex- ecuted. Subject only to these by-laws, the board handed over to Schuyler all the pow- er the directors themselves possessed, in respect to the transfer of stock at the New York agency. They furnished him with blank transfers, certificates, assignments and powers, bound in books, the stock- ledger and other account-books, and gave into his absolute control the keeping and management of such books, and the employ- ment and control of the clerical force neces- sary to that purpose. For more than seven years, they left to him the unchecked and unquestioned management of the enormous business of this transfer-oifice; and it was by no means limited to the mere duty of per- mitting transfers and issuing certificates up- on transfers. It is found by the com-t, that the stock originally subscribed for was, in most, if not all, cases, transferred by one of the agents, in behalf of the company; and the complaint avers, that certificates signed by a transfer-agent, in the form above men- tioned, were issued in such cases; that the stock subscribed for "was not all taken by or issued to parties subscribing therefor, but much of it was sold by Robert Schuyler, as transfer agent, on behalf of the company, and it was not all sold or issued, imtil the 15th of October, 1849, when the last twenty-eight shares were issued to Bishop i&MiUer;" "that there were, dm'ing the time while the said Robert Schuyler was transfer-agent, transfers of stock made to the transfer-agent, on the books of the company, by holders of stock, for the account of the company, and the stock so transferred was afterwards disposed of by such agents;" that the increase of 5,000 shares, made in 1851, was transferred by the agent to the parties entitled; that Schuyler was authorized by the board to sell, and did sell and transfer, certain small amounts of forfeited stock and fractional amounts not 128 NEW YORK & N. H. K. CO. v. SCHUYLEK. (Ch. 15 taken by subscribers, on behalf of the com- pany; "that the company kept no bank-ac- count for the deposit of moneys; that the money received on behalf of said company on construction account, from time to time, by Robert Schuyler, as president or transfer- ascnt, was deposited by him in the bank- accounts of R. & G. L. Schuyler; that when any payments were made by Schuyler, on behalf of the company, the money was ob- tained by Robert Schuyler; that large amounts were so obtained, from time to time, and frequently from his firm of R. & G. L. Schuyler; that said moneys were drawn out from time to time, by their checks, as the same might be needed; that the money so obtained by R. Schuyler was raised by the said Robert Schuyler, in the name of his said -firm, Indiscriminately, on genuine and spuri- ous certificates of the stock of the company;" that many of the transfers of stock were made by R. & G. L. Schuyler, by way of hy- pothecation, as security for loans to them. From the outset, the firm of R. & G. L. Schuyler were large dealers in the stock of the company; so large, that apparently, on the face of the books, more than the entire capital stock of the company passed through their account by transfer. That the by-law requiring the surrender of certificates, on transfer of stock, was generally observed, but in case of the Schuylers, and some other parties, they were not adhered to. It appears also, that the frauds of Schuyler commenced at an early day. On the 1st day of February, 18J:8, the first false certificate was issued to this firm, and at all times thereafter, there was an over-Issue of certifi- cates, greater or less in amount, in the stock- account of R. & G. L. Schuyler, as set forth in the stock-ledger. In Blarch, 1848, trans- fers in excess of stock transferred to them, were first made on the books; these exces- sive transfers continued until January, 1849, fluctuating from time to time in amount, as transfers were made to and by them, but the books, at all times dm-ing that period, showed a balance against them. On the 10th ■of January, 18-10, these excessive transfers amounted to 1,191 shares. This excess was ■occasioned, in part, by the bringing in and surrender of the excessive certificates, by holders thereof, who thereupon transferred, under the power of attorney, to themselves ■or others, the stock represented by such cer- tificates. Between that date and the 31st of January, Schuyler obtained of the company and others, shares of stock sufficient to turn the balance of transfers on the books in his favor, although there were then outstanding fraudulent certificates issued in favor of the firm, in excess of their balance. In August, 1851, when the increased capital was issued, the books showed a balance of transfers in favor of the Schuylers of 854 shares; but there were then outstanding certificates in excess of this aedit, to the amount of 1,277 shares. The balance of transfers was, therefore, kept in their favor, during this whole inter- val, by the fact, that the holders of certifi- cates had omitted to bring them in and have them cancelled and the stock transferred, as rapidly as that firm had received transfers on the books to themselves. But so fast as these certificates did come in, and transfers were made under them, the stock was cred- ited on the books to the transferees, and has ever since been recognized as valid stock. The whole amount thereof did not exceed the subsequently extended capital of $3,000,- 000 or 30,000 shares, but I am not able to see why it did not, at most, If not at all times, exceed the then authorized capital of $2,500,000, or 25,000 shares. In some man- ner, not disclosed, all these excessive issues were remedied, and made good stock; and so was all the stock pm-porting to be repre- sented by the false certificates, that came in and were canceled on transfers, prior to the 17th day of October, 1853. On that day R. & G. L. Schuyler had a balance of transfers in their favor of four shares, but there were outstanding certificates to the amount of 7,042 shares, upon which no transfer had been made. From that date, the excessive transfers again appear, and continue till July 3, 1854, at which time they had reached 17,- 497 shares, while the certificates had run down to 1,684 shares; making together an aggregate of 19,145 shares of spurious stock, in excess of the enlarged capital. But from 1848 down to 1854, all these frauds were written down in the books of the company. A proper comparison between the certificate-books and the stock-ledger and transfer-books, would, at any time, have shown whether the Schuylers were entitled to receive certificates and when they were not entitled to transfer stock, without sur- rendering certificates; and an examination of the account of R. & G. L. Schuyler in the stock-ledger, was sufficient, according to the testimony of experts, by computation, to have shown, at any time, the over-issue of certificates. The certificates were numbered consecutively, and so entered on the books, and there seems to have been no effort at falsification of the accounts. From 1849 to 1854, the clerks in the ofl^ice knew of the over-issue of certificates. By the usage of corporations in New York, the books were not open to the examination of dealers, and by the orders of the agent, they were kept shut against inspection. The court has found, that it does not appear that any other director than Schuyler had personal knowl- edge of his fraudulent acts; but it has also found, that the directors were gmlty of neg- ligence in not making any examination of the books, or of the conduct of the transfer- office. It is apparent, that the use of ordinary care and diligence, at any time after March, 1848, would have disclosed that Schuyler's man- agement was fraudulent, both as to the com- Ch. 15) KEW YOUK & N. H. B. CO. ■». SCHUYLEU. 129 pany and the public, and likely to lead to the disasters that have followed upon it. It is a mistake to suppose that his frauds com- munced in October, 1853. They were equal- ly gross in turpitude, though not in amount, for a period of five years before that date; and nothing but the ability of the company to increase the capital from two and a lialf to three millions, has prevented all excesses beyond the first named sum from falling un- der the same ban of utter spuriousness. The arrangement by virtue of which the transfers made on false certificates, before the increase of the capital, became genuine stock, may have been made in ignorance; but it was an ignorance based on a negli- gence so gross, that the fact becomes as po- tent as though the truth had been known. It may have been in ignorance, that the company received the benefit of "large sums" raised by Schuyler, indiscriminately, on gen- uine and spurious certificates. Charity may grant that, but equity cannot disregard the fact, for it was a duty to be wise. It is transparent, throughout the case, that the board of directors, by passive submission or active surrender, handed over to Schuyler the substance of all their authority relating to their business in New York, and then, for nearly seven years, laid down to sleep, in supine indifference, at his feet. Aroused by the shock of the calamity which their folly has induced, are they now to look calmly over the wreck, with no answer to its inno- cent victims but that of Jlacbeth to the ghost of Banquo? "If the managers faithfully perform their duty," said Strong, J., in Beers v. Glass Co., 14 Barb. 360, "they exercise a constant and vigilant supervision over the acts of their officers, and where such acts are un- authorized or in opposition to their will, they should, and probably do, direct their discon- tinuance, and in case of wilful and palpable violation of duty, dismiss the agent. If the directora of a company, no matter whether through inattention or otherwise, suffer its subordinate officers to pursue a particular line of conduct, for a considerable period, without objection, they are as much bound to those who are not aware of any want of authority as if the requisite power had been directly conferred." I cannot file my mind to the belief, that equity attaches no conse- quences to such negligence, upon the idea that it is not sufficiently proximate as a cause of the injury. The company placed in Schuyler's hands the very instrumentali- ties by which the injury was wrought They imposed restrictions upon their use, but they omitted the safeguards that ordinary pru- dence would dictate, to discover or prevent their abuse. A wrong which ordinary care will prevent, is, in a legal sense, caused by the omission of that care, where it is a. duty to use it At any stage, a discovery of Schuyler's past frauds would have arrested his career of crime. A discovery would PBIT.COHP. — 9 have followed the examination of the books of the office, which were the only records of the vast stock transactions of the com- pany at New York. An examination was a duty, because it was the obvious dictate of good sense, as the easiest and safest check upon the agent's conduct. The long-contin- ued and reckless omission was, therefore, a culpable negligence, without the concurrence of which Schuyler could not have committed the frauds by which the defendants have suffered; for it was this omission of duty, that left him with power to wield the weap- ons with which the company had armed him, and, therefore, it may be said to have led directly to the injurious acts. In cases where the authority of an agent has been wholly withdrawn, the neglect of the duty to notify parties who have dealt with him, estops the principal from denying the continuance of the agency, although no power in fact exists. And so, a. retiring partner is bound by the acts of his former firm, if he omit the duty of notice. In these cases, for omitting an act which would have prevented the injury, the truth, to wit, the actual want of authority, is shut out by the negligence; but the neglect does not cause the assumed agent to do the act which oc- casions the injury; it only suffers an oppor- tunity to do it to exist, which, in law, is equivalent. If ordinary care was due from the corporation toward its dealers, so to manage its affairs that its agents should have no opportunity to commit fraud, which such care would prevent, then, the same principle is applicable here, to establish the proxima causa which the law demands. It is not, in such cases, one of two_ innocent parties who is to suffer; the question is be- tween an innocent and a culpable party; and, as was said by Denio, J., in the Bank of Genesee v. Patchin Bank: "I see no objec- tion in applying the principle, that where a party has, by. his declaration or conduct, in- duced another to act in a particular manner, he will not afterwards be permitted to deny the truth of his admission, if the conse- quence would be to work an injury to such other person." 13 N. Y. 316. The question of estoppel is one of ethics (per Bronson, J., in Dezell v. Odell, 3 Hill, 225), and is to be enforced where, in good conscience and hon- est dealing, it ought to be (Canal Co. v. Hathaway, 8 Wend. 483). "The principle," says Chancellor Kent (2 Comm. p. 620, note c), "that pervades the distinction on this sub- ject, rests on sound and elevated morality. There must be no deception anywhere. The principal is bound by the acts of his agent, if he clothe him with powers calculated to induce innocent third persons to believe the agent had due authority to act in the given case." "He who created the ti'ust, and not the purchaser, ought to suffer." Note d. On the question of privity, in any view of this case, I have no difficulty. If the act of the agent can be charged home, upon any 130 NEW YOUK & N. H. U. CO. v. SCHUYLEH. (Cli. 15 principle, upon the corporation, tnen, as was said in the Bank of Kentucky v. Schuylkill Hank, 1 Pars. Eq. Cas. ISO, "Uie bona fide lioldur of any certiflcate issued by the trans- fer-avjents has a primary and direct claim, either to be admitted as a corporator, or if that is impiiicticable, from the excessive is- sue of stocli, to be compensated for the fraud practised upon him." To entitle the ag- grieved party to sue, in such case, no privity is necessary, except such as is created by the unlawful act and the consequential in- jury, because the injured party is not seek- ing redress upon contract, but purely for the tortious act, in the commission of which the contract is an accidental incident. Allen v. Addington, 11 Wend. 374; Thomas v. Win- chester, 6 N. Y. 397; Scott v. Shepherd, 3 Wils. 403; Gerhard v. Bates, 2 El. & B1.,4S9, 20 Eng. Law & Eq. 129; Kedf. R. K. (il; Bank v. Kortright, 22 Wend., ubi supra. That the Mechanics' Bank against these plaintiffs was not decided on any question of want of privity, we have the authority of the judge who pronounced the opinio;^: "We certainly," he says, "did not put our judgment upon the gi-ound, that the plain- tiffs were not in privity of dealing with the defendants, by reason of the non-negotiable character of the certificates, and, therefore, could not sue for fraud." Farmers' & Me- chanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 151. I am, therefore, of opinion, that the plaintiffs are estopped by the facts and circumstances of this case to deny the authority of Schuyler to do the acts from which the injury to the defendants has arisen. But, conceding that the whole question of this case is governed by the law of princi- pal and agent, it becomes of grave signifi- cance, to ascertain the scope and extent of the powers conferred on the agent. Herein, I think, the case essentially differs from that of the Mechanics' Bank (13 N..Y. 599). The question of that case is stated by Com- stock, J., in 16 N. Y. 154, 155, with succinct- ness and accuracy. He says: "In that case, the transfer-agent of the defendants' corporation was authorized to sign and issue certificates of stock, on a transfer from one shareholder to another, upon the books, and on the surrender of the previous cer- tificates. The agent, for his own purposes, signed and issued certificates to a large amount, where there had been no such trans- fer or surrender. These imauthorized and spurious instruments were, in form, pre- cisely like those that were genuine and authorized. Trusting to their false appear- ance, the plaintiffs took one of them by transfer, and advanced money upon it, which they recovered in the New York superior court. We held, they could not recover, and reversed the judgment, placing our de- cision prominently upon the ground, that the acts of the agent were not within the real or apparent scope of the. power delegated to him." It now appears, that the agent, in addi- tion to the power thus stated, had authority also to issue certificates, in precisely the same form, to the original subscribers for the stock, and to some extent did do so; that he had authority to dispose of the stock of the company, not taken by the original subscribers (of which there was a large amount), and issue certificates, in the same form, to the purchasers; that he had authority to dispose of certain forfeited shares, and in such case, issue like certifi- cates; that he had authority to receive trans- fers to himself of stocks, on behalf of the company, and transfer the same to pur- chasers, and issue like certificates to them; that before the increase of the capital to 30,000 shares, he did issue to his own firm, a large number of false certificates, which became the basis of transfer on the books to third parties, and, by some arrangement, were absorbed into the enlarged capital as genuine stock; that he acted to some ex- tent as financial agent of the company, and through his firm raised large amounts, "in- discriminately, on genuine and spurious cer- tificates of stock," which were paid out on the check of the firm, on behalf of the com- pany, and on its construction account; that to him was intrusted the keeping of all the stock-accounts of the company and its deal- ers at the New York ofiice, and in those accounts he entered all his transactions, both false and genuine; that the books were kept closed to dealers; that his management of the affairs of the oflace. and of all these vai'ious matters, was never investigated or questioned. It is in all these facts that we are now to seek for "the real or apparent scope of the power delegated to him." As we de- scend from the sharp promontory of the Mechanics' Bank Case, to this broad plane of powers, and their mode of use, we stand amongst new and far different lights and shadows. We find ourselves quite unable to say, with the able jurist in that case: "He [Schuyler] had no power to sell stock at all, and none to issue certificates, ex- cept as incidental to a sale between exist- ing stockholders, and then it depended on the condition precedent of a transfer on the books, and a surrender of a previous cer- tificate for the same stock." Nor to say: "His appointment, in its very terms, which all dealers are supposed to have been ac- quainted with, did not include his acts, and there is no pretence that it was ever en- larged by any holding out, or recognition of his acts." When his certificate, regular in form, in all respects, is offered to the market, the buyer is not able to refer it to the narrow restrictions of the by-law, for how does it appear that it is not one issued to an original Ch. 15) NEW YOKK & N. H. R. CO. v. SCHUYLER. 131 subscriber, where there was no transfer to be made, and no prior certificate to be sur- rendered; or that it is not one issued to a purchaser of the original stoclj, which Schuy- ler was empowered to sell and certify in this manner; or that it is not of stocli that has been transferred to the agent, on ac- count of the company, and which he was liliewise authorized to sell; or that it was not some of the forfeited shares, which he was directed to sell and certify; or that it was not of the kind which, by "some arrangement," is absorbable into the capital as genuine, even if it be in fact spurious; or that it is not issued to raise money for the benefit of the consti'uction fund of the company; or that it is not of the spurious kind which the company have heretofore allowed to be cured by a subsequent acquisi- tion of stock by the Schuylers, and a trans- fer thereafter under the power? Whether it does not belong to some one of these classes, there are no earthly means of ascertaining, save by the representation of the agent. The books are sealed; but, if open and most thoroughly investigated, they would not necessarily negative the power to issue for some of the pm-poses for which authority had been given, directly or by recognition; for even if run down to absolute spui'iousness, it is still open to say, this is of the kind of spurious certificates upon which the company raise money for their construction accounts or the kind which they legitimatize by subsequent aiT.an;:e- ments of the capital, or the kind which, by the custom of dealing, becomes good, if a. transfer be made tinder it, at a moment when the Schuyler firm happens to have so much stock to its credit on the books. And the accounts for seven years ^hnw that all these kinds are treated on the sajne footing as genuine shares. It is a well-recognized branch of the law of principal and agent, that without any ex- press or special appointment, an implied agency may arise from the conduct of a party. Story, Ag. § 54. "Where a person has recognized a course of deaUng for him, by another, or a series of acts of a particular kind, an implied agency is thereby constitut- ed, to carry on the same dealing, or to do acts of the same character. * * * There may be seeming conti-adictions of the funda- mental doctrine, that a principal is bound only by such acts of his agent as he has duly authorized. This presumption of implied agency is one of these, because a man may have accepted supposed acts which he never authorized, and so bound as to third persons by similar acts." Per Comstock, J., 16 N. Y. 14.5, 14G. There is nothing gained to the plaintiffs by the fact, that the certificates are made rto the firm of R. «& G. h. Schuyler; for so were all those which prior to October, 1853, became good by a transfer, when that fli-m happened to be in credit on the books of the company; so were those used to raise mon- ey for construction; and so of those which went in under the increased capital. It is a general rule, that an ofiicer or agent is not to be permitted, under a general power, to certify in his own favor. Claflin v. Bank, 25 N. Y. 293. But in this case, that rula is not applicable, for it clearly appears that, from the outset, this firm were very heavy dealers in the stocks of the company, that its business was all conducted at this agency, and that Robert Schuyler at all times, cer- tified to it, as to other dealers. The long acquiescence of the company in this practice, and its actual ratification in some of the cases above mentioned, disarm this objec- tion of all force. Ang. & A. Corp. 216; and see Bradley v. Richardson, 2 Blatchf. 343, Fed. Oas. No. 1,786; Id., 23 Vt. 720; Story, Ag. § 54. In this view of the extent of the authority with which Schuyler was clothed by the com- pany, either by direct appointment, or by recognition and ratification, or by actual en- joyments of the fruits of his acts, or by long acquiescence therein, from which a presump- tion or implied agency arises, I have come to the conclusion, that the issuing of the certifi- cates by him must be held to be within the scope of the real and apparent authority which he possessed; and the remedy of the defendants is not prejudiced by the fact, that he used and intended to use the avails for his own purpose. In short, they stand pre- cisely in respect to the remedy, where they would, if the board of directors had Issued the same certificates, in fraud of their powers under the law, and obtained the defendants' moneys thereon. But these views do not dispose of a ques- tion that has been argued in this case, with an elaboration and power seldom equalled in a court of justice. From the manner in which the decision of the judges is stated in the Mechanics' Bank Case, it is difficult to tell what precise points were designed to be passed upon by the court. It is open to conjecture, that the case may have passed off, on the ground of want of privity between the plaintiffs and defendants, as was intimat- ed by Selden, J., in Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 142, or on the ground, as suggested by H. R. Selden, J., in Griswold v. Haven, 25 N. Y. 598, "that Kyle, to whom the certificate issued, being privy to the fraud, had, of course, no claim against the company, and that his assignees could have no greater rights than himself;" or upon the mistaken idea, that the court of errors in reversing North River Bank v. Aymar, has settled the law adversely to the opinion of the supreme com-t in that case. But whatever may have been the views of other members of the court, there is no mis- taking the ground on which the judge who pronounced the opinion intended to put the ;J2 MEW YOUK & N. 11. R. CO. v. SCHUYLER. (Cb. 15 ability of a principal for the acts of an gent. It is, in brief, that a principal Is iound only by the authorized acts of his gent. The proposition Involved was fairly ut by the learned judge in this form: "Sup- ose, an agent is authorized, by the terms of lis appointment, to enter into an engage- aent, or series of engagements, on behalf f his principal, and vchile the appointment is Q force, ho fraudulently makes one in his iwn or a stranger's business, but in the form onteniplated by tbe power, and which he .sserts to be in the business of his employer, )y using his name in the contract, can the lealer rely upon that assertion, or is he )0und to inquire and to ascertain, at his per- 1, whether the transaction is not only in ippearance but in fact within the authority? !LCCording to the decision of the supreme ;ourt of this state, in the case of North "liver Bank v. Ay mar, 3 Hill, 262, he can." The judge then proceeds to show, that the lase cited had been reversed by the coui't )f errors; and then to discuss the question, vith his own clearness and vigor, reaching a lonclusion whicb he expresses in these words: 'The appearance of the power is one thing, md for that the principal is responsible. The ippearance of the act is another, and for hat, if false, I think, tbe remedy is against he agent only. The fundamental proposi- lon, I repeat, is, that one man can be bound mly by the authorized act of another; he ;annot be charged, because another holds a :ommission from him, and falsely asserts hat his acts are within it." The counter-proposition was again stated )y Selden, J., in the Farmers' & Mechanics' Sank V. Butchers' & Drovers' Bank, in this brm: "It is, I think, a sound rule, that when I party dealing with an agent has ascertained hat the act of the agent corresponds, in ivery particular, in regard to which such larty has, or is presumed to have any knowl- edge with the terms of the power, he may ake the representation of the agent as to my extrinsic fact, which rests peculiarly vithin the knowledge of the agent, and which ;annot be ascertained by a comparison of he power with the acts done under It." Manifestly, here is an "irrepressible con- lict" between these propositions, and we are ailed upon to detennine which expresses the ettled law of this state. I think, the prob- em is solved whenever the question whether he decision of the supreme court in the ■forth River Bank v. Aymar, 3 HiU, 262, is uthoritative as law, is answered; and for his I have the emphatic assent of Comstock, '., as above quoted. That case stands alto- ;ether upon the doctrine of agency; the bank leld the power of attorney imder which the gent acted; the paper, on its face, notified he bank that it was made by the agent; he power, by express words, limited the au- hority to notes made in the business of the )rlncipal. The character of the paper was, herefore, of no moment on this point, for its negotiability could not shut out a question which arose on the face of the instrument See per Selden, J., in Griswold v. Haven. 25 N. Y. 601, and per Comstock, J., 16 N. Y. 153- 155. The paper, in fact, was not made in the business of the principal. The question was, where the peril of that fact rested; and its solution altogether depended upon the question, was the bank "bound to inquire and to ascertain, at its peril, whether the trans- action was, not only In appearance, but in fact, within the authority?" The court ap- preciated the point, and therefore discussed and decided the question, distinctively, on the law of principal and agent. The further history of that case is shown by Judge Comstock, in his opinion in the Mechanics' Bank Case, 13 N. Y. 633, and more fully in the dissenting opinion in the Butchers' & Drovers' Bank Case, 16 N. Y. 153, 154. As the Mechanics' Bank Case left the North River Bank Case, the latter would be deemed not law; but the same question arose in the Farmers' & Machanlcs' Bank v. Butchers' & Drovers' Bank, and it became es- sential to determine, whether the reversal by the court of errors of the North River Bank Case had settled the law adversely to the de- cision of the supreme com't. Judge Com- stock earnestly insisted that it had (16 N. Y. 154), but in this he stood alone; Selden, J., at page 188, assigned reasons for holding tlie question still open for examination, and after a very full examination, declared that the case was properly decided by the supreme court; Denio, C. J., and Brown, J., delivered opinions, both agreeing with Selden, J., in approving the decision of the supreme court. "I am clearly of opinion," said Denio, C. J., "that the case of the North River Bank v. Aymar, was correctly adjudged in the su- preme court; if the court of errors laid down a dilferent rule, in reversing that judgment, they ran counter, as, I think, I have shown, to a strong course of adjudication in that court and in the supreme court, and over- turned a legal position which was then well established in this state, and has since been repeatedly acted upon." In Griswold v. Haven, 25 N. Y. 595, the same question arose; and upon the precise point now under consideration— whether the decision of the supreme court in the North River Bank v. Aymar is sound law. I under- stand there was no dissent from the opinion of H. R. Selden, J., which held it to be so. In the Bank v. Monteath, 26 N. Y. 505, the question of its authority again very sharply arose. When that case was first at the bar of the general term, that court followed the North River Bank v. Aymar, as reported in 3 Hill, regarding it as a decisive authority. After a new trial, the case came again to the general term, but in the meantime the opin- ion of Comstock, J., in the Mechanics' Bank Case had been published. The court regard- ed that as establishing a different doctrine, and as showing also that the North River Ch. IS) NEW YORK & N. H. R. CO. v. SCHUYLER. 133 Bank Case had been overruled by the court of errors. It, therefore, reluctantly followed what it regarded as the later authority. But this court reversed the general term, and de- clared that the doctrine of the case of the Korth River Bank v. Ayruar must now be re- garded as established on an impregnable basis. "It is," said Davies, J., "well sus- tained by authority, sound reasoning and weU-established principles, and it should be firmly adhered to by the courts." If ever a case, discrowned by reversal, was lifted to its feet and restored to authority by adjudica- tion, North River Bank v. Aymar has been; and its vindication is aU the more signal, be- cause of the ability with which its chief antagonist has conducted the remarkable warfare against it. We have already seen, what principle was involved in that case, and it is impossible to escape the conclusion, that the law of this state, as settled by adjudication at this day, is, as put by H. R. Selden, J., in Griswold v. Haven, "that where the authority of an agent depends upon some fact, outside the terms of his power, and which, from its natm-e, rests particularly within his knowl- edge, the principal is bound by the representa- tion of the agent, although false, as to the ex- istence of such fact." The contrary i-ule, though asserted with confidence and vindicat- ed with great force in the Case of the Me- chanics' Bank, was not necessarily adopted by the court, and that case does not so deter- mine. It may, with confidence, be asserted that aU the cases in this state, both before and since, lay down a difEerent rule from that supposed in the Mechanics' Bank Case, to have been established by the court of er- rors; and so do the elementary writers upon whom we are accustomed to rely. Story, Ag. § 452; Paley, Ag. (By Lloyd,) pp. 294, 301, 307; Bac. Abr., tit. "Master and Serv- ant," K; 2 Kent, Comm. 620, notes; 1 Bl. Comm. 432. It were long, by quotation, to show that the cases just noticed necessarily rest on this doctrine; a short allusion to their facts must suffice. The condition of the authority in North River Bank v. Aymar, was, that the paper should be ma'de in the business of the principal; in the Butchers' & Drovers' Bank Case, that the drawee should have funds in deposit, enough to pay the check; in Gris- wold V. Haven, that the grain for which the receipt was given, should actually have been received; in Bank v. Monteath (so far as it rested on a question of agency), that the drafts should be for the use and benefit of the defendant's line of boats. In each of these cases, the extrinsic fact which constituted the condition of the authority, was pecul- iarly within the agent's knowledge, and was necessarily represented to exist, by the exe- cution of the agent's powers. It might, or it might not, be discovered by inquiry. So, in this case, in the narrow view in which we are now considering it, the condition upon which the agent could issue the certificate was a transfer in the books and the surrender of a previous certificate, if any had before been issued. These facts are wholly extrin- sic, and peculiarly within the knowledge of the agent, as part of the special duties to be attended to by him, and were represented by him to exist, by the certificate itself. I can see no shade of difference between the ques- tion in this case and in those cited, and which seem to me to settle the law. The rule which governs this class of cases, in my judgment, rests upon a sound princi- ple. As was said by Selden, J., in Griswold V. Haven: "The mode in which the liability is enforced, in all these cases, is by estoppel in pais. The agent or partner has, in each case, made a representation as to a fact es- sential to his power, upon the faith of which the other party has acted, and the princi- pal or firm is precluded from controverting the fact so represented." It goes back to the celebrated aphorism of Lord Holt in Hern v. Nichols, 1 Salk. 2S9: "For, seeing somebody must be a loser by this deceit, it is more reason that he that employs and puts a trust and confidence in the deceiver should be a loser than a stranger;" or as more tersely expressed by Ashurst, J., in Lickbarrow v. Mason, 2 Term R. 70: "When- ever one of two innocent parties must suf- fer by the acts of a third, he who has en- abled such third person to occasion the loss, must sustain it." Story, Partn. § 108, and authorities there cited.' In truth, the power conferred in these cases is of such a nature, that the agent cannot do an act, appearing to be within its scope and authority, with- out, as a part of the act itself, representing expressly, or by necessary implication, that the condition exists upon which he has the right to act. Of necessity, the principal knows this fact when he confers the power. He knows, that the person he authorizes to act for him, on condition of an extrinsic fact, which in its nature must be peculiarly within the Icnowledge of that person, cannot execute the power, without, as res gestae, making the representation that the fact ex- ists. With this knowledge, he trusts him to do the act, and, consequently, to make the representation, which, if true, is, of com'se, binding on the principal. But the doctrine claimed is, that he re- serves the right to repudiate the act, if the representation be false. So he does, as be- tween himself and the agent, but not as to an innocent third party who is deceived by it. The latter may answer, "You Intrusted your agent with means effectually to deceive me, by doing an act which in all respects compared with the authority you gave, and which act represented that an extrinsic fact, known to your agent or yourself, but un- known to me, existed, and you have thus en- abled your agent, by falsehood, to deceive ^ See Preston v. Witherspoon, 109 Ind. 465, 9 N. E. 585. 'A :SEW YORK & X. H. 11. CO. v. SCHUYLER. (Ch. 15 le, and must bear the consequences. The ery power you save, since it could not be xecuted, without a representation, has led le into this position, and, therefore, you are stopped, in justice to deny his authority in liis case." By this, I do not mean to argue, liat the principal authorizes the false repre- entation. He only, in fact authorizes the tt which involves a representation, which, rom his confidence in the agent, he assumes rill be ti-ue, but it may be false, and the isli that It may, he takes, because he gives he contidence and credit which enables its alsitj' to prove injurious to an innocent par- y. I have already shown, how this princl- ilc, in many cases, sustains liability, after .11 actual authority has been withdrawn, as tetween the principal and parties who havfe I right to infer that the authority continues. The contrary doctrine would be singularly uconvenient, if not absurd, in practice. For nstance, under a general power to draw )ills, -which means, of course, only in the jusiness of the principal, no party could ;afely take a bill drawn by the agent, with- )ut pursuing the inquiry, whether it was Irawn in such business, to extremes. If the leril is on the party to whom the biU is ;iven, nothing short of personal application the principal himself can relieve it, for lowhere short of that, is absolute certainty. 3very intermediate appearance or represen- ation may be false or deceptive, and the •igid rule of actual authority will be satis- led, with nothing less than absolute verity. 5o, then, the general power carries no safety ivhatever, since each bill made under it nust be verified as to extrinsic facts, by re- ;ort, for perfect security, to the principal limself. Or, to bring the illustration nearer .0 this case: It is claimed, that every re- ceiver of a stock certificate, executed by an igent, must verify, at his peril, the extrinsic "acts that a transfer of the stock has been nade and the former certificate surrender- ed. But how? If he go to the board of Jirectors, they can only refer him to the :ransfer-agent, or the books kept by him, for ;hese are alone their sources of information, [f he resort to the books, they are, at best, 3ut other representations of the agent, (\-hich, if they, in form, show a transfer, may still be deceptive, and nothing but a transfer of actual stock will answer the con- lition. He must, therefore, trace the llne- ige of the stock represented by the certifi- cate, to some point behind which no "strain ipon the pedigree" will enable the corpora- tion to bastardize the issue. Such a rule would be vastly detrimental to the business interests, both of corporations and of the public. It would be far better to estab- lish a rule, that no man shall take an in. strument made by an agent, without first having the principal's certificate, that it is trenuine and authorized; and even this would be impracticable in corporations, for every new certificate, being another act of an agent, would only open a new circuit of inquiry. But such is neither the policy nor good sense of the law. It is a mistake, to suppose that the conven- tional rule of commercial negotiability has anything to do with this question, except in cases where the paper carries no notice on its face, that it is made by somebody assum- ing to be an agent. That rule stands upon an arbitrary doctrine of the law-merchant, and not at all upon any principle of estop- pel. It extends only to instruments which usage or legislation has brought within it; and its substance is, that by force of the arbitrary rule, the possessor of such nego- tiable instrument has power to give, by de- livery to a bona fide purchaser for value, a good title, notwithstanding any defective- ness in his own. Hence, under it, a finder, or a thief may confer such title, with none in himself, not because the loser is estopped by his misfortune, from asserting his rights, but because, from real or supposed commer- cial necessities, "ita lex est scripta." But it is a fixed requisite of the rule, that the buyer shall be for value without notice, and, therefore, nothing that gives notice on its face, is, in that particular, within the rule. So, an instrument that shows, on its face, that it is made by one man for another, at once warns the taker to inquire, if. the as- sumed agent be authorized, and that ques- tion becomes one independent of the arbi- trary rule of the law-merchant and depen- dent on the doctrines that govern the law of principal and agent. Atwood v. Munnings, 7 Barn. & 0. 27S; Fearn v. Filica; 8 Scott, N. R. 241. I concur, therefore, with Judge Selden, when he asserts that, in no respect, except as it touched the question of privity of contract^ was the negotiability of the paper of any im- portance in the case of the North River Bank V. Aymar, 3 Hill, 262. In that case, it ap- peared on the face of the paper, that it pur- ported to be made by an agent. A different rtile as to the effect of negotiability may well obtain, where the paper is negotiable within the law-merchant, and bears on its face no notice whatever, that it is made by some party other than the one it purports to charge, as, where it is made in a firm name, or in the form and by the officers, through and by which a corporation can by law issue its authorized evidences of debt. We have already seen how far privity is es- sential, in actions of tort. Redf. E. R. 61, and note; Gerhard v. Bates, 20 Eug. Law & Eq. 129, etc. I shall not inquire how far the English cases, and especially the leading case of Grant v. Norway, 10 C. B. G65, so much relied upon, may be in conflict with the law of this state. Both the Judges Selden have sought to show that Grant v. Norway is distinguishable from the cases under their consideration, and I wiU only add, that if they did not succeed in pointing out the dis- tinction, and the case really stands in con- flict, so much the worse for that case. Ch. 15) NEW YOKK & N. H. R. CO. v. SCHUYLER. 135- We may come back, therefore, to the solid ground of North River Banli v. Aymar, re- gai-ding it only as shaken down to gi-eater firmness by the severe ordeal of the Farm- ers' & Mechanics' Bank Case, and with con- fidence declare the true doctrine of this branch of the law of agency to be, that where the principal has clothed his agent with power to do an act, upon the existence of some extrinsic fact, necessarily and pe- culiarily within the knowledge of the agent, and of the existence of which the act of ex- ecuting the power is Itself a representation, a third person dealing with such agent, in entire good faith, pursuant to the apparent power, may rely upon the representation, and the principal is estopped from denying its truth, to his prejudice. In Griswold v. Haven, this rule was distinctly settled. The dissenting opinion touched only the right to maintain the form of action brought in that case, but a majority of the covirt held, that the representation of the agent not only charged the principals, but estopped them from denying the actual possession of the wheat asserted to be in store, so as to defeat an action of trover or replevin to recover the property. In this view, I see no ground upon which the plaintiffs can, in this case, be permitted to deny, that Schuyler was acting within the scope of his authority in issuing the false certificates; and they are, therefore, to be treated as though issued by the board of di- rectors. Considering them of that char- acter, the question of estoppel, as it arises upon their face, that is, whether the corpora- tion is estopped from saying that they were not genuine representatives or muniments of title to stock, was rightly disposed of by the opinion of Comstock, J., in the Mechanics' Bank Case. And it was in that view, that is, regarding them as instruments, capable, upon some notion of estoppel, of being specif- ically enforced, that he alluded to the sup- posed want of privity in the estoppel itself, between the holder in that case and the cor- poration; but he quite distinctly declined to pass upon the question of the liability of the corporation, if the certificate was to be treat- ed as the act of the board. But the liability of the corporation for a wrongful injury, growing out of an act of the directors, in excess of the chartered pow- ers, was afterwards vindicated and settled in Bissell V. Raih-oad Co., 22 X. Y. 258, and it stands well upon the grounds of either of the learned opinions in that case. It was es- tablished by the court of chancery in Eng- land, a centm-y ago, in Ashby v. Blackwell, 2 Eden, 299. In that case, one question was, whether a party to whom the secretary of a bank company had permitted a transfer of shares, on a forged power of attorney, was entitled to recover of the company the sum he paid on such transfer. The secretary, in that ease, in violation of the rules of the com- pany, had permitted the transfer, under a letter of attorney which did not comply with, the rules. It was contended, that the pur- chaser ought to have inquired into the reality of the authority. Lord Chancellor Northing- ton declared the conduct of the secretary to have been gross negUgence, chargeable upon the company, and he held, that the company "must and ought to answer for their and their servants' negligence." "It will be of no public detriment," said he, "if my decree tends to make the directors of public com- panies to attend to the business of those companies ana teaches them not to leave the important transactions of millions to undi- rected clerks and bookkeepers." He accord- ingly adjudged the company to pay the ven- dee the amount he had paid for the stock; which is the judgment rendered in this case. I am, therefore, for a general affirmance of the judgments in this case, on the plaintiffs'" appeal. I shall proceed, as briefly as possible, to- consider the cases of defendants, who are parties to this appeal, in the light of the dif- ferent facts found in them; and for that piu'pose, shall classify the defendants so far as practicable. 1. There is a class of defendants who were pm-chasers of stocks in good faith and for value, of persons to whose credit such stock stood on the books of the' company, at the transfer-office, at the time of such pm-chase, and who held certificates in due form there- for. On such purchases, the outstanding certificates were surrendered, transfers made on the books, in due form, and new certifi- cates issued to the purchaser, who thereupon paid the pm'chase-price to his vendor. These certificates are adjudged spurious, because their origin is found to have been, more or less remotely, in over-issues by Robert Schuy- ler to his firm. 2. Another class are defendants who made purchases of parties who had credit on the books of the company for the stock sold, but no certificates, and who, on the sale, trans- ferred the stock on the books, in due form, to the purchasers, who, in some instances, took certificates, and in others not. In some cases in this class, it is proved, that tlie money for the stock was not paid, tiU after inquiry at the ofiice showed that tlie trans- fer had, in fact, been made. 3. Another class is of parties who loaned money upon certificates held by the borrow- ers, to whose credit the stock stood on the books of the company, and who, at the time of making such loan, or subsequently, sm-- rendered the certificate, and transferred the stock on the books and took out new certifi- cates in due form. The stock held by these two classes has been also adjudged spurious, because it originated in some like over-issue of the transfer-agent. It will be seen, that in these cases where new certificates have been issued by the transfer-agent, the letter of his authority, in its most limited sense, has been pursued^ )U NKW YORK & N. H. R. CO. v. SCHUYLER. (Ch. 15 he extrinsic facts upon which the power of 16 agent depended, apparently existed, tocks stood on the boolis to the credit of le party nialiing the transfer; the transfer ■as made in due form; the outstanding cer- licate was surrendered and cancelled, and, lereupon, the new one issued. To all ap- earance, the act was within the real and pparent scope of the authority, and every juditiou of the power fully complied with, ut a judicial investigation has shown, that iis apparent stocli credited on the books, ras not real; that at some remote period, it ad its origin in a fraudulent over-issue, 'lie question is, does the peril of that fact est on the buyer? I think, it does not; but am constrained to admit, that if the posi- ion of the appellants' counsel be sound, I not see, why it must not. The question 5 only carried back a step farther; that is, the right of a dealer to buy stock, relying n the books of the company as evidence of he ownership of his vendor. But the books re themselves only representations made by gents, and by no means conclusive in every ense; the credit is a deceptive one, because he stock has no real existence, and if the ondition of the power be, that there must le an actual transfer of stock, an unreal ransfer, however complete its resemblance o reality, does not answer the condition. Jo matter to what disastrous consequences he nile may lead, it cannot be satisfied, vithout holding that the peril that all ap- learances of genuineness shall be founded in bsolute fact, constantly rests upon the lealer. The same thing is true of the transfers ipon the surrender of certificates, where no lertificate had issued. Unless we are to lold the company to the duty of keeping orrect books, so that those who refer to and ely upon them shall be protected, there is 10 remedy. The corporation may mislead he community, until thousands are ruined, ind be itself entirely protected, by being ible to say, "Our agents had no authority to ;ive credits for stock, where none existed." Che evidence to a corporation of its stock- lolders is its stock-ledger, or the books kept or the express purpose of determining its itockholders. Gray v. Bank, 3 Mass. 385 per Sewall, J.). Dealers are entitled to rely ipon that evidence. As was said by Best, :;. J., In Davis v. Bank, 2 Bing. 393: "If his be not law, who will purchase stock, or vho can be certain that the stock he holds )elongs to him? It has ever been an object if the legislature to give facility to the trans- er of shares in the public funds. This facU- ty of transfer is one of the advantages be- onging to this species of property, and this idvantage would be entirely destroyed, if a )urchaser should be required to look to the egularity of the transfer, to aU the various )ersons through whom such stock had pass- id. Indeed, from the maner in which stock )asses from man to man, from the union of stocks bought of different persons under the same name, and the impossibility of distin- guishing what was regularly transferred, from what was not, it is impossible to trace the title of stock as you can that of an estate. You cannot look further, nor is it the prac- tice even to attempt to look further, than the bank-books, for the title of the person who proposes to transfer to you." I take it to be sound law, that if A., who is about to sell property to B., and take his check on a bank, applies at the counter of the bank, to the proper officer, who informs him that B. has the funds in deposit, and his check wiU be good, the bank will not be per- mitted to deny the ti-uth of the assertion, after A. has acted upon it, on the ground, that its officer had no authority to keep any but con-ect books. But these parties stand upon a still better footing, for they have re- lied, not merely upon a certificate issued by the agent, but upon the records of title to stock kept by the company, which were the only other existing sources of information. They have there found the stock they pro- posed to purchase credited to the party of- fering it for sale, in the stock-ledger of the corporation, which is the best evidence of the existence of aU genuine stock transfera- ble at this office. Is it to be tolerated, that the responsibility for the correctness of these books rests altogether upon dealers who have no control over them? The defendants who have been led into loaning their money upon certificates and transfers, held and made by parties who had like credits on the books, and who appar- ently complied with every condition, stand on the same footing with those just noticed. Public policy and the true interests of all parties concerned, as well as plain principles of equity and justice, require that the cor- poration make good the losses they have sus- tained. There is still another class whose claims arise upon other tacts, and rest on different principles. It is composed of those defend- ants who have received certificates, repre- senting actual and genuine stock of the com- pany, but whose certificates were rendered valueless,, by a subsequent transfer to bona fide purchasers of the same stock, by the party to whose credit it stood on the boolis. To this class belong a part of the certificates held by the defendant Vanderbilt; the cer- tificates of Jacob Surget, those of Ketchum & Bement, a part of Schuchard & Gebhard's, and perhaps some others. These certificates, have been held to be spurious, by which I understand the court to mean nothing more than that they became invalid as representa- tives of stock, after the same stock had got into the hands of other bona fide holders. The case of Jacob Surget presents the ques- tion arising in this class, with distinctness. On the 11th of December, 18.o2, he loaned to R. & G. L. Schuyler the sum of $11,000, to secure which they delivered to him a certifl- Ch. 15) NEW YORK & N. H. R. CO. o. SCHUYLER. 137 cale for 110 shares of the capital stock of the New York and New Haven Raih-cad Company; issued to them with tlie ordinary assignment and blank power of attorney in- dorsed thereon, and duly executed by them. On the 2d of September, 1853, Surget loaned to that firm the further sum of $0,500, on the security of 110 other shares of such stock, the certificate for wliich was delivered to liim, with the proper assignment and pow- er of attorney executed in blank by said firm. These certificates were genuine, and represented actual stock of the company, then owned by the Schuylers, and standing to their credit on its books. On the 3d of November, 1853, Surget was, and had been from September, 1850, the own- er of 200 shares of the stock of the company, for which he held its certificate. On that day, he agi-eed with the Schuylers to sell to them tMs stock, and to loan them some $7,000, in security for which he was to hold 75 shares of the stock thus sold to them. He made the loan, and, to carry out the arrangement, transfen-ed to them the 200 shares, and delivered up his certificate, and at the same time, received back a cer- tificate for 75 shares issued to them at that time, with the proper and duly executed power of attorney. The stock represented by these several certificates was genuine, and no question is or can be made affecting the propriety or authority of the act of the ofiicer in issuing the certificates. Surget did not transfer the stock on the books, but retained the certificates in his pos- session, and his loans to the Schuylers re- main for the most part unpaid. Afterwards, Schuyler & Co. transferred, on the books, aU their stock, to other parties, who were pur- chasers in good faith, and the outstanding certificates held by Surget were not surren- dered nor accounted for. In November, 1854, Surget presented his certificates at the trans- fer-ofllce of the company, and offered to fiun-ender them, and requested permission to transfer the stock represented by them; but the company refused to receive the sur- render or permit the transfer, on the alle- gation that the certificates did not represent genuine stock. The plaintiffs have demand- ed and obtained a judgment declaring the certificates held by Surget to be void, and di- recting their cancellation. By his answer, Surget insisted that his stock was, and should be declared to be, genuine, or that he should be awarded damages for the refusal of the company to recognize it as such. The principal questions that present themselves in this case are: (1) Whether the subse- quent purchasers in good faith of the stock acquired, by the transfers on the books of the company, a title superior to Surget's un- der the certificates held by him? and, (2) If they did, whether the company are liable to him for permitting the transfers to be made, without the production and surrender of the outstanding certificates? The law, as settled by authority, touching the first of these questions, is this: Where the stock of a corporation is, by the terms of its charter or by-laws, transferable only on its books, the purchaser who receives a certificate, with power of attorney, gets the entire title, legal and equitable, as between himself and his seller, with all the rights the latter possessed; but as between himself and corporation, he acquires only an equitable title, which they are bound to recognize and permit to be ripened into a legal title, when he presents himself, before any effective transfer on the books has been made, to do the acts required by the charter Or by-laws in order to make a transfer. Until those acts be done, he is not a stockholder, and has no claim to act as such;' but possesses, as between himself and the corporation, by virtue of the certificate and power, the right to make himself, or whomsoever he chooses, a stockholder, by the prescribed transfer. The stock not having passed by the delivery of the certificate and power of attorney, the le- gal title remains in the seller, so far as affects the company and subsequent bona fide pur- chasers who take by transfer duly made on the books. And, hence, a buyer in good faith, of the person in whose name the stock stands on the books, who takes a transfer in con- formity to the charter or by-laws, permitted to be made by the authorized oflBcer of the corporation, becomes vested with a complete title to the stock, and cuts off aU the rights and equities of the holder of the certificate to the stock itself. What other rights and equities he may possess, is another question; but if the transferree has taken, in good faith and for value, the stock is gone beyond his reach, and beyond recall by the corpora- tion. Stebbins v. Insurance Co., 3 Paige, 350; Bank v. Laird, 2 Wheat 390; Ang. & A. Corp. (3d Ed.) 352, 353; Mechanics' Bank v. New York & N. H. R. Co., 13 N. Y. 621 et seq. (per Comstock, J.); Bank v. Smalley, 2 Cow. 770; Gilbert v. Manufacturing Co., 11 Wend. 627; Bargate v. Shortridge, 31 Bng. Law & Eq. 58; Wilson v. Little, 2 N. Y. 447 (per Ruggles, J.). The non-production and surrender of the certificate at the time of the transfer, is not fatal to the title of the transferee. It is only essential to the safety of the corporation, and may be waived by it. at its own peril. The company has the means of knowing whether a certificate of particular stock is outstanding, or not, and the power to compel its return and cancellation, before any transfer is made; and a buyer, where the transfer is permitted by the corporation to be made on its books, by one to whose credit the stock is standing, has a right to presume that no certificate has issued, or if one has, that his vendor has duly surrendered it for cancellation. It follows, therefore, that the stock repre- * See People v. Robinson, Gi Cal. oTG, 1 Pac. 156. loS NEW YOHK & N. H, B. CO. v. SCHUYLER. (Ch. 15 sen ted by the certificates in Surget's hands, passed to the subsequent bona fide trans- feroes; and the company had neither the power nor right to permit it to be transferred to Surget, on his subsequent demand. In my judgment, no action would lie against them for that refusal. It was, in effect, ask- ing them to do what the law prohibited them from doing— to duplicate the shares repre- sented by the certificates, with a knowledge tliat they had long before passed into other hands, where they were still in actual and potential existence. The rights of Surget, if he have any, must stand on other grounds than the refusal, in November, 1854, to per- mit him to transfer stock, which then legally belonged to others. The second question is, whether the com- pany are liable for permitting the transfers to be made, without the production and can- cellation of the outstanding certificates, whereby Surget's equitable rights to the stock were cut off and lost? The question is first to be considered, on the assumption that the company permitted the transfer. It has been seen, that Surget's rights, as be- tween himself and the corporation, were those of an equitable, and not legal, owner of the stock. It may be stated, as a clear proposition, that where notice of the rights of an equitable owner are brought home to a party to be affected by such rights, the rem- edies for a subsequent injury to those rights are complete and perfect, and so it cannot be doubted, that if Surget had given the com- pany actual and plain notice that he was the holder and owTier of the certificates in his hands, the permitting of a subsequent ti-ans- fer to another, under circumstances that caused the title of the stock to be lost to him, would have subjected the corporation to respond to him for the injury. But the company had not actual notice; and hence, it is essential, in this view of the question, to show that its relations to the holder of the certificates were equivalent to those of a party with notice. By Its char- ter, the corporation was authorized to make by-laws to regulate the transfer of its stock. It had done this, by the adoption of by-laws, which, as we have seen, ex proprio vigore, prevented the legal title of stock from pass- ing, otherwise than by the prescribed mode of transfer; and as a part of these by-laws, it had provided for the Issuing of certificates to stockholders, in a form to be "appointed and directed" by the directors; had author- ized transfers by power of attorney, and had expressly declared, that when a certificate of stock had been issued to a stockholder, no transfer of the stock should thereafter be permitted, without the surrender of said cer- tificate. The board of direetoi-s had also pre- scribed a form of certificate, which was thereafter invariably used, which declared, that the stockholder was entitled to the number of shares named, and that they were transferable on the books of the company^ at the office named, "on the surrender of this certificate." They prepared and caused to be printed on the back of this form of cer- tificate, an assignment thereof, with a power of attorney, to be executed in blank by the stockholder, for the pvu-pose of facility of transfer. That this was a customary and long-established mode of making stock read- ily and profitably marketable, was well known to the company, for its by-laws speak of it as "the usual form." Now, while the corporation could not give to a certificate of this kind, "negotiability," in its legal commercial sense, it could and did approximate to that characteristic, as nearly as legally possible, for the purpose of making its stock more valuable, by the ease with which its certificates could pass from hand to hand by simple delivery. It was never intended to lock up those instruments in the hands of the stockholders named in them— but to give to them every practicable facility as the basis of commercial trans- actions. And this was legitimate and prop- er, since it tended to enhance the value of the corporate franchise, by making its stock a subject of easy investment and ready con- vertibility. But it was essential to make these certificates in a form to secure public confidence, and this could only be done by making them solemn assurances of rights. Hence, by its by-laws, the corporation de- clared, that the stock represented by them should never be transferred, except upon the delivery and cancellation of the certificate; and this provision, in effect, it embodies in the certificate itself. Armed with such in- struments, it sent its stockholders into the commercial world, with knowledge of the established usage of dealing on the faith of such certificates; and it addressed them, not to the stockholder himself, who had no need of the notice, but to all men who shoiUd desire to participate in the advantages or profits '-of its franchise. It was to all such persons that it assured safety, in purchasing the certifi- cate, by declaring that the stock should only be transferred upon its surrender and can- cellation. In this manner, it corn-ted and established privity between itself and every holder of the certificate, by asserting, that his equitable title was safe, because nobody but he could transfer the legal title. It should be constantly borne in mind, that the certificate now spoken of is a valid one, representing actual stock; and upon the transfer of such an one, a privity at once springs up, upon the title he acquires from- his vendor, and his equities as against the- corporation, through which every assurance of the instrument is addressed to him; and It is upon this principle, that Bank v. Kort- right, 22 Wend. 348, properly stands. When, therefore, the original stockholder to whom such a certificate has been issued, comes to the corporation to transfer the stock, its books are notice to it that the certifi- cate has been issued. The by-laws and the Ch. 15) NEW YOHK & N. H. E. CO. v gCIIUYLER. 139 certificate are notice tliat it must be sui-- rendered, before the stock can be trans- ferred, and its non-production is notice, ttiat it is not in possession of the party claiming to transfer. These facts operate as notice that some other party is its owner; and they put the corporation upon the inquiry that would lead ordinary sagacity to the truth, and this is equivalent in equity to actual notice of all the rights that inquiry miirht develop. Again, the transfer-agent had actual notice of the previous transfer of the certificates to the defendant, for he made the assign- ment to him. The effect of this fact was very fully discussed by the supreme court of Connecticut in the Bridgeport Bank v. Xew York & N. H. R. Co.. .H;» Conn. 270. "Now, their transfer-agent knew," said the court in that case, "when he allowed these transfers to other parties, that the stock had already been sold to a prior purchaser, v/ho held a legal certificate for it, and that it was a fraud on that party, to allow the stock to be transferred to other parties, so long as the certificate was not surrender- ed. The transfer-agent, on allowing these transfers, was acting precisely within the scope of his official power, and his knowl- edge and fraud are, therefore, the knowl- edge and fraud of the defendants them- selves. * * * The plaintiflfs, it is said, should have given notice of their equitable title. "But how should they have given such notice? Why, only to that officer of the company whose duties related to the trans- fer of their stock; that is, to their transfer- agent, Robert Schuyler, himself. But Rob- ert Schuyler already had full knowledge of the fact, for he was the very party who sold the stock to the plaintiffs; and though a distinction may be made between the knowledge which he had as an individual, in which capacity he was acting, in selling the stock, and the official knowledge which he would have acquired by a formal notice given to him as transfer-agent of the com- pany, yet, practically, this distinction is very unimportant. * * * Notice of such an equitable title is never required to be formally given. Actual knowledg:, however acquired, is enough to affect an individual, and we entertain no doubt, that this knowl- edge of Robert Schuyler is to be regarded as the knowledge of the defendants. It is to be observed too, that Robert Schiiyler was not merely the transfer-agent of the defendants, but was, at the same time, the president of the company, and one of its du-ectors." If this reasoning be sound, the coi-poration in this case must be held chai-ge- able'with actual notice of Surget's equitable rights. Hence, in either view of this ques- tion of notice, on the assumption that the corporation consented to the transfer of the stock for which Sm-get held the certificates and power of attorney, it is chargeable with notice of his rights, and liable to respond for the injury its disregard of them has produced. In Pollock V. Bank, 7 N. X. 274, it was held, that where a bank had permitted the transfer of stock, imder a forged power of attorney, and cancelled the original and issued a new certificate, the bank was liable to the real owner to replace his stock or pay him the value thereof. In that case, there was undoubted good faith in the banli, the officers of which had been deceived by a forgery into doing the act which had produced the iniury. In this case, the as- sent could not have been in good faith, for it was in violation of an inherent law of the company's stock regulations, and nO' milder rule of liability could flow from it. Davis v. Bank, 2 Bing. 393; Ashby v. Blackwell, 2 Eden, 299. But there is another and well-settled prin- ciple upon which a corporation that per- mits a transfer of stock, under such circum- stances, should be held liable. It is thisr that "all duties imposed upon a corpora- tion by law raise an implied promise of performance." ' Per Nelson, J., Kortright v. Bank, 20 Wend. 91-9i. It was upon this principle, that assumpsit was maintained in the case just referred to, and that Lord Mansfield denied a mandamus in The King v. Bank of England, 2 Doug. 523, to compel the bank to enter a transfer of stock on its books, on the groimd, that an action would lie for a complete satisfaction, equivalent to spe- cific relief. "The law supposes that the corporation promises or undertakes to do its duty, and subjects it to answer in a proper action for its defaults, whether of nonfeasance, or misfeasance." 3 Dane, Abr, 109; 5 Dane, Abr. 160. In Bank v. Patter- son, 7 Cranch, 299, 305, 30G, Mr. .Justice Story, in an able, learned and concise statement of the powers, duties and liabilities of cor- porations, observed, that "all duties imposed on them by law, and all benefits conferred at their request, raise implied promises, for the enforcement of which an action may well lie." Per Putnam, J., in Sargent v. Insurance Co., 8 Pick. 9S. The action ot, assumpsit was brought in Korti-ight V. Bank, for a refusal to permit a pai-ty, holding a certificate and power of attorney, to transfer the stock on the books of the bank. It was held, for the purpose of sustaining that form of action, that the law imposed the duty to permit the transfer, and raised an implied promise in favor of the party holding the certificate, that that duty should be performed. In this case, it was a duty enjoined upon the corporation by its by-laws, not to permit a transfer of the stock, without the sm-render and cancel- lation of the certificate which it had issued. That duty raises a promise in favor of the ° See Thomas v. Railroad Company, 97 N. Y, 248. 140 NEW YORK & N. H. K. CO. v. SCHUYLER. (Ch. 15 holder of the certificate tliat it shall not be done. On the face of the certificate, is a notice to all parties that the instrument must be surrendered, upon making a transfer, and I think, it would be straining no principle of law, to say, that the conteuts of the certifi- cate are an assurance, amounting to a prom- ise, that tills rule shall be adhered to, for the benefit of the equitable owner of the stock. The court went much farther in the Bridgeport Bank Case, above referred to, and held that "the bona fide holders of such certificates had a right to rely on the cer- tificates, under the circumstances, as secur- ing to them the stock which they represent- ed, against all transfers to other parties." 30 Conn. 270. If the corporation, therefore, permitted the transfer of the stock, of which .Surget was the equitable owner, in violation of its undertaking to protect his rights, the law gives him a remedy, to the extent of the injury, upon the implied promise to do no such act to his prejudice. But it Is claimed, as an answer to this al- leged liability, that the transfer was made or permitted by an agent of the company, who acted In excess of his powers. Clearly, it was the duty of the transfer-agent to have required the surrender and cancellation of the outstanding certificates; that was one of the very duties he was put there to perform. He failed to do it, to the injury of Surget; and it is the very ground of the company's liability, that its agent failed to do the duty .enjoined upon him. The parties were deal- ing all the while in the actual and legitimate stock of the company, and the agent was called upon to do an act within the exact iscope of his authority. An engineer is :strictly prohibited to cross a draw-bridge without seeing that signals of safety are giv- en; he drives heedlessly on, when no sig- nals are given; this is a plain breach of duty and excess of power, but on that exact ground, the corporation are liable to every party Injured. So, here, the agent disobeyed the rule and made the transfer; but he made it effectual, to the injury of Surget. Who .shall suifer, the innocent holder of the cer- tificates, or the employer of the faithless serv- ant, whose breach of duty has caused the loss? In Pollock v. Bank, ubi supra, the of- ficer who permitted the transfer clearly had no authority to do so, on a forged power of attorney. But the bank was held charge- able with the consequences of his act, when it refused to recognize the plaintiffs as the ■owners of the stock. Certainly, this must have been, on the principle, that the bank was chargeable with its officers' negligence in permitting the transfer on the forged pow- «r. "For, where a trust," says Lord Holt (12 Mod. 472, 490), "is put in one person, and another, whose interest is intrusted to him, is damnified by the neglect of such as that person employs in the discharge of that trust, he shall answer for it to the party dam- nified." Nor does it matter, that the agent fraudulently neglected his duty for his own private gain; for then arises the exact case for the application of Lord Holt's rule, that when one of two innocent persons must suf- fer from the fraud or misconduct of a third, he who has reposed a trust or confidence in the fraudulent agent ought to bear the loss. But there is another answer to this posi- tion. The plaintiffs insist, and have pro- cured the court to adjudge, that the transfer permitted or made by their officers, has cut off Surget's equitable title to the stock, and on that ground, to declare his certificates to be nullities. For this purpose, and to this extent, they ratify the act of the agent, and the record of transfer; but the corporation must take the act with all its consequences, or reject it utterly. They cannot aflirm in part and disaffirm as to the residue. Bennett V. Judson, 21 N. Y. 238; Story, Ag. § 250; Hov. Frauds, 144, 145; Sandford v. Halsey, 2 Denio, 2t)l. And so, when the plaintiff seeks to annul valid certificates of stock, on the ground, that an effective transfer of the title to a bona fide purchase had been made on their books, they afiirm the validity of that transfer, as to all of its consequences, and are not to be heard to say, that the agent who permitted It, gave it validity so far as it injured the holder of a genuine certificate, but no effect in so far as it would have given a remedy for the injvu-y. On these grounds, it seems to me, the plaintiffs were clearly liable to Surget; and the court very properly may apply the rule, that he who seeks equity must do equity. It is through a particular and gross wrong of their agent, that the plaintiff's equity is sought, and the same wrong entitles the defendant to relief. It is objected, that an improper measure of damages was adopted upon the assessment in Surget's case. Evidence was given, of the amount of the loans remaining unpaid; no objection was made to this evidence; the amount was nearly equal to the par value c ° the stock. It is clear, that his measure of damages was the amount of his loans, if they did not exceed the value of the stock, at the time of the transfer, for that is the date of his injury. The referee did not find this exact date, but the proofs show that it must have occui'red when the stock was at or above par. The only exception is a gen- eral one to the judgment in his favor, that is, to any judgment, and does not reach the question as to the rule of damages. It fol- lows from these views, that the judgment in favor of Jacob Surget should be affii-med, with costs, and the order dismissing his ap- peal be reversed, and the appeal heard under the stipulations, and the judgment, on his appeal, affirmed, with costs against him. The case of the defendants Morris Ketch- um and Edward Bement, survivors, &c., up- on the merits, presents substantially the same question as that of Jacob Surget. The certificates upon which they claim are ad- judged to be spm-ious and void. They were Ch. 15) NEW YOKK & N. H. R. CO. v. SCHUYLER. 141 issued on the 1st of July, 1854; but it ap- pears, that they were made upon the surren- der and cancellation of several other cer- tificates, long previously issued to R. & G. L. Schuyler, and by them signed, with the pow- er of attorney duly executed in blank. The court has found that these last-named cer- tificates, when issued, were genuine, and represented actual stock of the corporation, standing to the credit of the Schuylers on ita books; and that afterward, and before the transfer and issuing of the new certificates of July 1st, the stock represented by those certificates was ti-ansfcrred on the books by the Schuylers, to bona fide purchasers. If the views suggested in Surget's case be sound, the certificates of July 1st, 1854, were properly set aside and ordered to be can- celled by the court, for the stock represented or called for by them had become the prop- erty of other and innocent parties. But this fact did not affect the right of these defend- ants to insist upon compensation for the in- jury sustained by permitting the transfer, without the surrender of the certificates in their possession. They were entitled to re- cover, on the same grounds indicated in Sur- get's case, and should have been awarded their damages. But, it seems, that the court below denied aU remedy to this firm (consisting of Ketch- um, Rogers & Bsment), on the gi-ound, that Ketchum, one of the firm, was a director of the corporation, during the entire period of the frauds committed by the transfer-asent, and was, therefore, in some sense, chargea- ble with the consequences, because of the neglect of the board of directors. No actual fraud— no participation in the acts of Schuy- ler— and no personal knowledge on the part of Ketchum, is found; but, on the contrary, it is expressly foimd, that there was no evi- dence of any actual knowledge by any of the directors, except Schuyler, of any of his fraudulent acts in the performance of his duties as transfer-agent; and there is no proof whatever in the case connecting Ketch- um with any of these ti-ansactions, beyond the simple fact that he was one of the di- rectors. Indeed, no issue seems to have been made, either in the pleadings or on the trial, on this question, so far as it particularly af- fects the defendant Ketchum, and, therefore, no opportunity was given for explanation or proof in exculpation of his real or imaginary connection with these frauds. But upon what principle his firm are deprived of their legal rights by his omission of duty as a director of the company is not apparent. Perhaps, as an individual, there would be no lack of equity in holding him to this rigid measm-e of justice; but why his neglect of duty shoiQd bring so heavy a penalty upon the firm of which he happens to be a member, has not been satisfactorily shown. Besides, the frauds of Schuyler, for which the direct- ors are found to be censurable for neglect, are in the transferring of spurious stock and the issuing of false certificates therefor. The wrong for which these defeiidants have a claim upon the company is for the trans- fer of genuine stock to a bona fide purchaser, without requirins the surrender of their out- standing certificates. No necessary connec- tion exists between these acts, and upon- none of the facts found, is any to be per- ceived. The company owed the same duty to his firm, in respect to the protection of its equitable title to stock, as to any other holder of a valid certificate; and the wrong consists in the neglect of the officer it appointed to discharge that particular duty. A raih-oad corporation would be liable for injm-ies sus- tained through the neglect of its employees, by a director, not riding on a free pass, not- withstanding the neglect is, legally speaking, that of the company, whose powers are ex- ercised through the board of which he is a member. They would certainly be so, for the property of his firm, which they were transporting, and it seems to me, it shoiild be no defence, to show that the board of di- rectors had appointed a careless superintend- ent who had sent out an unfit engine and thereby occasioned the injury. In my opin- ion, it was error to refuse relief to this fitrm, on the grounds above indicated. A question of jurisdiction was presented on the appeal of these parties, and plausibly argued; but I conceive there can be no doubt of the jurisdiction of the court of this state to entertain a suit brought by a foreign cor- poration against parties residing in this state, to cancel fraudulent certificates of its stock, or set aside fictitious transfers that may be used to its prejudice, and the injm-y of the community; and especially, to prevent in- numerable litigations in the courts of this state, in actions sounding in damages, for alleged injuries to the rights of such parties as stockholders. If the appeal of Ketchum and Bement was properly taken, and ought not to have been dismissed by the com't below, then the judg- ment as to them should be reversed, and a new trial ordered, with costs to abide the event. So far as the claim of Vanderbilt grows out Of the certificates which were genuine when issued, but have become invalid by rea- son of the subsequent transfers, it stands on the same grounds as Surget's, and for the same reasons, the judgment in the plaintiffs' favor, on his appeal, should be aflSrmed, with costs. The judgments against the plaintiffs, I tJaink, ought to be afiii'med, on the general grounds above discussed; and the judgment in favor of the plaintiffs affirmed, except as to Ketchum and Bement, in whose favor there should be a reversal, and a new trial ordered, with costs to abide event DENIO, C. J., and WRIGHT, POTTER, and BROWN, JJ., concm-red with DAVIS, J. Judgment affirmed. 14-2 MERCHANTS' BANK v. LIVINGSTON. (Ch. 15 MERCHANTS' BANK OF CANADA v. LIV- INGSTON et al. (74 N. Y. 223. 1878.) Appeal from judgment of the general term of the supreme court, in tlie first judicial department, affirming a judgment in favor of plaintiff, entered upon a decision of the court on trial at special term. The nature of the action and the facts appear sufficiently in the opinion. EARL, J. This is an action to foreclose a pledge of certain shares of stock in the Adams Express Company. Some time prior to January, 1875, the de- fendant, Livingston, being the owner of 100 shares of such stock, delivered the certificate thereof to the defendant, Barrett, to secure a loan from him of about $3,000. In .Tanuary, 1875, Barrett took the certificate of stock to one Watson, the resident manager of the plaintiff. In the city of Nev? York, and told him that he wanted to get a loan of $8,000, from the plaintiff, upon the stock represent- ed by the certificate, for one of his clients, who did not wish to sell the stock, but would rather hold it. The certificate was then in the name of Livingston, but there was no indorsement upon it, nor power of attorney attached to it. Watson informed Barrett (hat if he would bring a proper power of attorney attached to the certificate, he would liiake the loan. Thereafter Barrett, by repre- senting that he ought to have the instru- ment to secure his loan of the $3,000, pro- cured Livingston to sign a printed blank transfer and in'evocable power of attorney to make a transfer of such certificate. Bar- rett then again took the certificate of stock and the power of attorney signed by Living- ston, filled up, except the name of the trans- feree and attorney, to Watson, and delivered them to him, and received a check for $8,000, payable to his order, upon which he drew the money. He subsequently, in the same way, borrowed, upon the security of the stock, as he represented for his client, $1,000 more. He afterwards absconded, and never paid any of the money to Livingston; and he was not authorized by Livingston to borrow it or pledge the stock. It has thus far been decided in this case that the plaintiff is enti- tled to the stock for the security of the loan made by it, and the decisions have been based upon the authority of McNeil v. Bank, 46 N. Y. 325, and other similar cases. It was held in those cases that a blank transfer of a certificate of stock, with ir- revocable power of attorney to transfer, signed by the person who appears by the certificate to be the owner, like that used in this case, confers upon the holder of the cer- tificate and power of attorney the apparent legal and equitable title to the stock, and that a bona fide purchaser of such stock from such holder can hold the stock against the real owner, who is estopped from asserting his title. The principles upon which those cases rest are fully set forth in the case of McNeil V. Bank, and need no further elucida- tion here. In such cases the apparent own- er, in his dealings with persons, relying in good faith upon the appearances, is the real owner, and may sell or pledge the stock and deal with it in all respects just as the real owner could. But in that case and the other similar cases the holder claimed to be just what the appearance indicated— the real owner— and to deal with the stock as such. But this case is distinguishable from those. Barrett did not claim to be the owner of the stock. He represented that it belonged to his client, and by that must have been under- stood to mean Livingston, whose name ap- peared in the certificate as the owner of the stock; and he represented that he want- ed a loan for his client. He had no au- thority, in fact, to make the loan for him, and he had nothing to show that he had such authority. He was clothed with no apparent authority to make such loan. The power of attorney gave no such appar- ent authority. There was nothing in that showing any connection with a loan, and that added nothing to his apparent author- ity. All the plaintiff had then, when it made the loan, was the naked assertion of Barrett that he was acting for Livingston; and upon that assertion it relied at its own risk. It could not hold Livingston for the loan; and this being so, what right had it to take and. hold Livingston's stock? Knowing that the stock did not belong to Barrett, it could not take it as security for a loan to him. It, at most, had information that Barrett could only pledge the stock for a loan to Living- ston; and if he was not authorized to make the loan, he was not authorized to make the pledge. At the very most, the appearances indicated that Barrett was authorized to pledge the stock for an authorized loan, but not for a loan which he was not authorized to make. In such a case, the doctrine of estoppel does not apply. Livingston did not hold Barrett out as authorized to borrow money for him; and hence he is not estopped from denying such authority. He did not hold him out as authorized to Jpledge his stock for such a loan; and hence he is not estopped from disputing the pledge. If Barrett had gone to the plaintiff with the certificate and power of attorney, claim- ing to own the stock, he could have pledged it for a loan to himself or any other person. If he had been authorized by Livingston to borrow the money, he could probably have pledged the stock in his possession to secure it. And he could have taken the certificate and power of attorney and gone into the market, claiming to act as the agent of the plaintiff, and have sold the stock and given Ch. 15) MEilCII ANTS' BANK v. LIVINGSTON. 143 a good title. The possession of the certifi- cate and full power of attorney would have given him the apparent authority to sell. But a power to sell is not a power to pledge to secure money borrowed. An agent to sell is not agent to pledge. Story, Ag. § 78; Henry v. Marvin, 3 B. D. Smith, 71; Bonito V. Mosquera, 2 Bosw. 401. It may be that Barrett transferred to the plaintiff all the interest he had in the stock as pledgee of Livingston; and whatever that was may be protected upon another trial. The judgment must be reversed, and there must be a new trial, costs to abide event All concur, except ANDREWS, J., not vot- ing; MILLEE, J., concurring in result. 144 MOORES V. CITIZENS' NAT. BANK. (Cli, 15 MOORES T. CITIZENS' NAT. BANK OF riQUA. (4 Sup. Ct, 345, 111 U. S. 156. 1883.) This is an action against a national bank to rucover the value of a certificate of stocli thei-L'in, which the bauli had refused to recog- nize as valid. The amended petition and other plead- ings are stated in the report of the case at a former stage, at which this court, for an er- roneous ruling of the circuit court on a ques- tion of the statute of limitations, revereed a judgment for the defendant, and ordered a new trial. 104 U. S. 625. A recital of the pleadings is unnecessary to the understand- ing of the case as now presented. The undisputed facts, as appearing by the admissions in the petition, by the evidence introduced by the plaintiff before the jury at the new trial, and by the defendant's ad- missions at that trial, were as follows: The di'fendant was organized iu 1864, un- der the act of congi'ess of June 3, 1864, c. 106, the twelfth section of which provides that the capital stock shall be "transferable on the books of the association in such man- ner as may be prescribed by the by-laws or articles of association." 13 Stat. 99, 102. The defendant's by-laws relating to ti'ans- fers of the stock were as follows: "Sect. 15. The stock of this bank shall be assignable only on the books of the bank, subject to the restrictions and provisions of the act, and a transfer book shall be kept In which all assignments and transfers of stock shall be made. No ti-ansfer of the stock of this association shall be made, without the consent of the board of directors, by any stockholder who shall be liable to the asso- ciation, either as principal debtor or other- wise; and certificates of stock shall contain upon them notice of this provision. Trans- fers of stock shall not be suspended prepara- tory to a declaration of dividends; and, ex- cept in cases of agreement to the contrary expressed in the assignment, dividends shall be paid to the stockholder in whose name the stock shall stand on the day on which the dividends are declared. "Sect. 16. Certificates of stock signed by the president and cashier may be issued to stock- holders, and the certificate shall state upon the face thereof that the stock is transferable only upon the books of the bank; and when stock is transferred, the certificates thereof shall be returned to the bank and cancelled, and new certificates issued." The defendant's capital stock was one thou- sand shares of one hundred dollars each, the whole of which was in fact, and was al- leged in the petition to have been, taken and paid for, and certificates therefor issued to the stockholders, at the time of its organiza- tion in 1864. The president and cashier of the bank were charged with the keeping of its transfer books and the Issuing of certifi- cates of stock, and the books of the bank were always open to the inspection of the directors. On July 15, 1867, G. Volney Dor- sey was president and Robert B. Moores was cashier of the bank, and said Moores, who had previously owned two hundred and sev- enty-five shares of the stock, appeared on the books of the bank to be still the owner thereof. He and John B. C. Moores, the plaintiff's husband, were sons of William B. Moores. On that day, the plaintiff agreed to lend $9,100 of her own money to Robert and Wil- liam for use in their private business; they agreed to give her, as security for its repay- ment, a certificate of ninety-one shares, which Robert represented to her that he owned, and also the contract of guaranty herein- after set forth ; and Robert sent to the plain- tiff's husband, as her agent, the following letter and certificate: "Citizens' National Bank of Piqua. Piqua, O., July 15th, 1867. John: Herewith I hand you the stock transferred to Carrie. I don't know what day I will be down, and you can keep the contract there, and I will sign it the first time I am down. I will have to take a receipt for the stock from father, to file with my papers, to show where the stock is gone to. All well; may be down any day. Y'rs, K. B. Moores." "The Citizens' National Bank of Piqua. No. 56. State of Ohio. 91 Shares. This is to certify that Mrs. Carrie A. Moores is entitled to ninety-one shares of one hundred dollars each of the capital stock of the Citizens' Na- tional Bank of Piqua, transferable only on the books of the bank, in person or by attor- ney, on the surrender of this certificate. Piqua, O., July 15th, 1867. (Seal.) G. Vol- ney Dorsey, President Rob't B. Moores, Cashier." This certificate was in the usual form of printed certificates used by the bank, and bore the genuine seal of the corporation, and the genuine signatures of the president and cashier; and the whole certificate, except the printed part and the president's signature, was in the cashier's handwriting, filled up by him in one of two or three blanks signed by the president and left with him to be used if needed in the president's absence. Upon receiving the letter and certificate, the plain- tiff paid the money to Robert B. Moores; and on July 8th, he and William signed and sent to her the following contract: "For value received, namely, the sum of ninety-one hundred dollars, Robert B. Moores has assigned and transferred to Caroline A. Moores ninety-one shares of stock of the Citizens' National Bank of Piqua, Ohio. Now it is agreed that the said Caroline A. Moores shall, upon demand by Robert B. Moores, or his assigns, reassign to said K. B. Moores the said stock for the same amount. And it is also agreed that, whenever the said Caroline A. Moores shall Ch. 15) MOORES V. CITIZENS' NAT. BANK. 145 require It, the said Robert B. Moores shall purchase said stock at the amount aforesaid, and pay the same to her in cash. And in the meantime it is agreed, and the said Robert B. Moores and William B. Moores do hereby guarantee and assure to said Caroline A. Moores an annual dividend upon said stock of not less than ten per cent, upon the par value of said stock, namely, ninety- one hundred dollars, which guaranty shall be performed and fulfilled at the end of each year herefrom, or at the time of each divi- dend declared, if such dividend shall be de- clared oftener than once a year, and all deficiencies in said dividends shall be made good at the time of such repurchase or transfer to E. B. Moores. In witness where- of the said Caroline A. Moores and J. B. C. Moores, her husband, and Robert B. Moorea and William B. Moores, hereunto set their hands, on this 15th day of July, 1867. Caro- line A. Moores. J. B. C. Moores. Robert B. Moores. W. B. Moores." Robert B. Moores surrendered no certifi- cate to the bank, and made no transfer to the plaintiff on its books. The plaintiff- had no other linowledge of the rule requiring the surrender of an old certificate of stock be- fore the issue of a new one, or of any fraud on the part of Robert, than was obtained by her reading and possession of the certificate. The value of the stock of the bank at that time was ninety per cent, of its par value. Itobert B. Moores was insolvent, and the money lent to him by the plaintiff was never repaid. The plaintiff put in evidence two letters to her husband from Dorsey, the president of the bank; one dated June 25th, 1872, stating that the writer had just learned that he ield a certificate of stock purporting to be issued by the bank, and asking for its num- ber, date and amount; and the other dated July 5th, 1872, the body of which was as follows: "There is no such certificate as mentioned In yours of June 27th on our books. No. 56 is marked on the stub in our certificate book 'Destroyed' in R. B. Moores' handwriting. Your wife's name was never entered among our stockholders and the certificate is a fraud. We never heard of this certificate until you mentioned it to Dr. Parker, who first informed me of it." Robert B. Moores and Dorsey, being called as witnesses for the defendant, testified that It had no interest in the transaction of July 15th, 1867. Moores testified that at that date he had pledged to Jason Evans and other persons all the stock he had previous- ly owned, and did not own any stock; and that he issued the certificate to the plaintiff without any authority from the bank, or any knowledge of the other officers. Dorsey testified that he had no knowledge of the issue of the certificate until June 25th, 1872, and that the bank never paid any dividends PKIV.COBP. — 10 upon it; and he produced the certificate book of the bank, which showed the stub of a certificate, in its regular order, correspond- ing in number with that produced by the plaintiff, and having the word "Destroyed" upon it, in the handwriting of Robert B. Moores. The plaintiff offered in evidence, and the court declined to admit, the record of a meeting of the board of directors of the bank, on August 9th, 1869, containing the following entry: "On motion, the following resolution was adopted and ordered to be placed upon the minutes: Whereas Robt. B. Moores, who was the owner of 275 shares of the capital stock of this bank (evidenced by certificate No. forty-seven (47) for fifty shares, dated May 2d, 1867; certificate No. forty-eight (48) for fifty shares, dated May 2d, 1867; certifi- cate No. forty-nine (49) for sixty-five shares, dated May 2d, 1867; certificate No. fifty- three (53) for seventy shares, dated June 11th, 1867; and certificate No. fifty-four (54) for forty shares, dated June 11th, 1867), be- came indebted to this bank in the sum of thirty-seven thousand two hundred and for- ty-seven 29-100 dollars, ($37,247.29), and did on the 16th day of January, 1868, transfer one hundred and eighty-five shares of said stock, and on the 15th day of May, 1869, did transfer ten shares of said stock, on the books of this bank, to G. Volney Dorsey, in consideration that said G. Volney Dorsey pay to this bank the sum of nineteen thou- sand five hundred dollars of said indebted- ness; and whereas Jason Evans, who be- came the holder of seventy shares of said stock, issued as aforesaid and transferred to him by the said R. B. Moores on the books of this bank September 4th, 1867, as per cer- tificate No. 59, did, on the 20th day of Feb- ruary, 1869, transfer to G. Volney Dorsey, on the books of this bank, by his power of at- torney, all his right, title and interest in the same: Therefore said transfers, as hereinbe- fore stated, are approved and affirmed by the directors of this bank." The plaintiff also offered evidence thai there were one or two other instances in which stock was issued by the' cashier with- out any certificate being surrendered. But, as she offered no evidence, other than the directors' record of August 9th, 1869, thai the other officers of the bank bad any knowledge at the time of such transactions, or subsequently recognized them, the court excluded the evidence. The plaintiff offered to prove that there was an arrangement between Robert and her husband, by which interest, equal to ten per cent, on $9,100, on a debt due from the latter to his father, was to be treated as dividends upon this stock. But the court ex- cluded the evidence as immaterial. The coiu"t instructed the jury that the plaintiff having knowledge of the fact that 146 MOOUES V. CITIZENS' NAT. BANK. (Ch. 15 Robert B. Moores, iipr>n whom she relied to have the stock transforred to her, was acting for himself as well as in his capacity of cash- ier, in reference to the matter of issuing this certificate, she was not an innocent holder of the stocli, and as the certificate was is- sued without authority, in fraud of the rights of the bank, they should return a verdict for the defendant. A verdict was re- turned accordingly, and judgment rendered thereon, and the plaintiff excepted to the exclusion of evidence and to this instruction, and sued out this writ of error. Jlr. Justice GRAY delivered the opinion of the court. He stated the facts in the fore- going language, and continued: The petition alleges that the false and fraudulent representations made by Robert B. Moores, and relied on by the plaintiff, that he had assigned and transferred the stock in question to her on the books of the bank, were made by him both as cashier and as stockholder; that the bank afterwards fraud- ulently permitted and procured him to trans- fer all the stock owned by him, or standing in his name, to its president, for its benefit; that the bank, through its cashier, fraudu- lently concealed from her the facts that no transfer had been made to her on its books at the time of the issue and delivery of the certifi- cate to her, that the certificate was not au- thorized or recognized as valid by the bank, and that the stock standing in his name had been transferred on its books to its president; and concludes by alleging that by reason of such fraudulent conduct and acts of the bank, the certificate was invalid and worth- less in her hands. But the evidence offered at the trial does not support the allegations of fraudulent conduct on the part of the bank. The petition alleges "that the plaintiff re- lied upon the representations of Said Robert B. Moores, as cashier and officer of the de- fendant, that the said certificate was duly issued, and that the stock had been duly transferred by said Robert B. Moores to the plaintiff on the books of said bank; and said plaintiff relied upon said certificate of stock which she r'eceived as genuine and valid for what it purported to be." And at the trial the plaintiff relied upon the representations made to her by Robert B. Moores orally and in the letter enclosing the certificate and in his contract of guaranty, as well as upon those arising out of the certificate itself. The two may be conveniently considered separately. His representations outside of the certifi- cate may be first disposed of. The plain- tiff dealt with Robert B. Moores, and not with the bank. Her agreement was with him personally, and she lent her money to him for his private use. His representations to her that he owned stock in the bank, and that such stock had been transferred to her, were representations made by him personally. and not as cashier; and there is no evidence that the plaintiff understood, or had any rea- son to understand, that those representations were made by him in behalf of the bank. The duty of transferring his stock to the plaintiff before taking out a new certificate in her name was a duty that he, and not the bank, owed to the plaintiff. The making of such a transfer was an act to be done by him in his own behalf as between him and the plaintiff, and in the plaintiff's behalf as be- tween her and the bank. There is nothing, therefore, in his extrinsic representations, for which the bank is responsible. The certificate which he delivered to the plaintiff was not in his name, but in hers, stating that she was entitled to so much stock, and showed, upon its face, that no certificate could be lawfully issued without the surrender of a former certificate and a transfer thereof upon the books of the bank. The by-laws, passed under the authority ex- pressly conferred by the act of congress under which the bank was organized, con- tained a corresponding provision, designed for the security of the bank as well as of per- sons taking legal transfers of stock without notice of any prior equitable title therein. Bank v. Laird, 2 Wheat. 390; Black v. Zach- arie, 3 How. 483, 513. The very form of the certificate was such as to put her upon her guard. She was not applying to the bank to take stock, as an original subscriber or otherwise; but she was bargaining with Robert B. Moores for stock which she sup- posed him to hold as his own. She knew that she had not held or surrendered any cei-- tificate, and she never asked to see his cer- tificate or a transfer thereof to her; and he in fact made no surrender to the bank or transfer on its books. She relied on his per- sonal representation, as the party with whom she was dealing, that he had such stock; and she trusted him as her agent to see the prop- er transfer thereof made on the books of the bank. Having distinct notice that the surrender and transfer of a former certifi- cate were prerequisites to the lawful issue of a new one, and having accepted a certifi- cate that she owned stock, without taking any steps to assure herself that the legal prerequisites to the validity of her cer- tificate, which were to be fulfilled by the for- mer owner and not by the bank, had been complied with, she does not, as against the bank, stand in the position of one who- receives a certificate of stock from the prop- er officers without notice of any facts im- pairing its validity. Of the great number of cases referred to- in the thorough and elaborate arguments at the bar, we shall notice only some of the most important None of those cited by the learned counsel for the plaintiff affirm a broader proposition than this: A certificate- of stock in a corporation, under the corporate seal, and signed by the officers authorized tO' Ch. 15) MOORES V. CITIZENS' NAT. BANK. 147 issue certificates, estops the corporation to deny its validity, as against one who talies it for value and with no knowledge or notice of any fact tending to show that it has been irregularly issued. When a corporation, upon the deliveiy to it of a certificate of stock with a forged power of attorney purporting to be executed by the rightful owner, issues a new certifi- cate to the present holder, who sells it in the market to one who pays value for it, with no knowledge or notice of the forgery, the corporation is doubtless not reUeved from its obligation to the original owner, but must still recognize him as a stockholder, because he cannot be deprived of his property with- out any consent or negligence of his. Rail- way Co. V. Taylor, 8 H. L. Cas. 751; Bank V. Lanier, 11 WaU. 369; Telegraph Co. v. Davenport, 97 U. S. 369; Pratt v. Copper Co., 123 Mass. 110; Pratt v. Railroad Co., 126 Mass. 443. And the corporation is ob- liged, if not to recognize the last purchaser as a stockholder also, at least to respond to him in damages for the value of the stock, because he has taken it for value without notice of any defect, and on the faith of the new certificate issued by the corporation. In re Bahia & S. F. Ry., L. R. 3 Q. B. 584. Whether, before the last sale has taken place, the corporation is liable to the holder of the new certificate, is a question upon which there appears to have been a difference of opinion in England. According to the de- cision of Lord Northington in Ashby v. Black- well, 2 Eden, 299, Amb. 503, it would seem that the corporation would be liable. Ac- cording to the decisions of Sir Joseph Jekyll in Hildyard v. South-Sea Co., 2 P. Wms. 76, and of the court of appeal in Simm v. Tel- egraph Co., 5 Q. B. Div. 188, it would seem that it would not, because the holder of the new certificate takes it, not on the faith of that or any other certificate of the corpora- tion, but on the faith of the forged power of attorney. However that may be, it is clear that the corporation is not liable to any one taking with notice of the forgery in the transfer, or of any other fact tending to show that the new certificate has been irregularly issued, unless the corporation has ratified, or received some benefit from, the transaction. In Hart v. Mining Co., L. R. 5 Exch. Ill, the plaintiff, a bona fide purchaser of the shares, had paid assessments thereon to the company upon the faith of the certificate issued by it to him after his purchase. In Barwick v. Bank, L. R. 2 Exch. 259, and in Mackay v. Bank, L. R. 5 P. C. 394, the bank had derived a benefit from the fraud of its agent, and was held liable upon that ground. The decision in Swift v. Winterbotham, L. R. 8 Q. B. 244, that a bank was liable upon its ofla.cial manager's representation to one of its customers that the credit of a certain person was good, was reversed in the excheq- uer chamber. Swift v. Jewsbury, L. R. 9 Q. B. 301. The decision in the exchequer chamber in Queen v. Shropshire Union Rail- ways & Canal Co., L. R. 8 Q. B. 420, that a railway company, owning shares of its own stock, the legal title of which was reg- istered in the name of one of its directors as trustee for the corporation, should trans- fer them to a person who, believing the direc- tor to be the absolute owner of the shares, had lent him money on the deposit of the certificate as security, was conti-ary to the judgment of the court of queen's bench, and was reversed in the house of lords. L. R. 7 H. L. 496. The American cases on which the plaintiff principally relies are decisions in the courts of Connecticut, New York, Pennsylvania and Maryland, the soundness of some of which we are not prepared to affirm, but all of which are distinguishable from the case at bar. The leading cases in Connecticut and New York arose out of what have been known as the Schuyler frauds. Robert Schuyler, the president and general transfer agent of the New York and New Haven Railroad Com- pany, issued, beyond the capital limited by its charter, but in the form prescribed by its by-laws, purporting to be transferable on its books on surrender of the certificates, a large amount of certificates of stock, an- nexed to which were printed forms of as- signment and power of attorney. In Bridge- port Bank V. New York & N. H. R. R., 30 Conn. 231, a bank which had received, as collateral security for money lent to a firm of which Schuyler was a member, certificates of stock so issued by him, was held entitled to maintain an action against the corporation for the value of these certificates, upon the single ground that it was admitted that when the plaintiff took these certificates, the firm held more than an equal amount of genuine certificates. In Railroad Co. v. Schuyler, 34 N.- Y. 30, it appeared that Schuyler had is- sued, in one and the same form, large num- bers of genuine as well as of false certifi- cates, and had raised on both indiscriminately large amounts of money which had been ap- plied for the benefit of the corporation, that aU his transactions appeared on its books, and that the directors had for years been guilty of negligence in not making any ex- amination of the books or of the conduct of the transfer office; and none of the purchas- ers of the false certificates, for the value of which the corporation was held to be liable, had any notice, or means of knowing, that they were not such as Schuyler was author- ized to issue. In Titus V. Turnpike Road, 61 N. Y. 237, the certificates upon which the corporation was held liable stated the stock to be owned by the person who as officer of the corpora- tion issued them, not by the person to whom they were issued, and the latter had no notice of any fraud or Irregularity in the 148 MOOKES V. CITJZEXS' NAT. BANK. (Ch. 15 issue. In the other New York cases cited for the plaintiff, the certificates had been purchased in good faith, in the marliet. BrufC V. Mali, 36 N. Y. 200; McNeil v. Bank, 46 N. Y. 325; Moore v. Bank, 55 N. Y. 41; Holbrook v. Zinc Co., 57 N. Y. 616. See Bank v. Livingston, 74 N. Y. 223. In Bank of Kentucky v. Schuylkill Bank, 1 Pars. 180, the certificates upon which the corporation was held to be liable were in the hands of innocent purchasers without notice. The opinion in Bank v. Kiu'tz, 90 Pa. St. 344, 349, goes no farther. On the other hand, in Wright's Appeal, Id. 42.'5, where the president of a bank, having no authority to borrow money in its behalf, induced his aunt, a stockholder therein, to surrender to him her certificates of shares with blank powers of attorney, by means of false and fraudulent representations that they were needed to aid the bank; gave her his own note therefor, sold the stock, and applied the proceeds to his own use; and afterwards, by a fraudulent combina- tion with the other olficers of the bank, issued stock in excess of the lawful limit, and gave her new certificates for those that he had obtained from her; it was held that he was her agent in the original transac- tion, and that, as she gave no value to the bank for the new certificates, the loss must fall upon her, and not upon the bank. In Tome v. Railroad Co., 39 Md. 36, there was no by-law requiring a surrender and transfer of old certificates before the issue of new ones, and no limit of the amount of stock to be issued; and it was not con- tended that there had been any over-issue, or that the plaintiff had any notice of fraud or want of authority in the officers of the corporation. In Western Maryland E. Co. V. Franklin Bank, 60 Md. 36, the certificates were not issued to the plaintiff, but bought in the market, without any notice of their having been fraudulently or illegally issued. In Water Co. v. De Kay, to which the plaintiff has referred us, the court of errors of New Jersey said; "Indeed, as is appar- ent from all the cases cited, the doctrine which validates securities within the ap- parent powers of the corporation, but im- properly and therefore illegally issued, ap- plies only in favor of bona fide holders for value. A person, who takes such a security with knowledge that the conditions on which alone the security was authorized were not fulfilled, is not protected, and in his hands the security is invalid, though the imperfec- tion is in some matter relating to the in- ternal affairs of the corporation, which would be unavailable against a bona fide holder of the same secui-ity." 36 N. J. Bq. 548, 565. The general doctrine was stated with like limitations by this court in the case of Jlerchants' Bank v. State Bank: "Where a party deals with a corporation in good faith— the transaction is • not ultra vires— and he is unaware of any defect of authority or other irregularity on the part of those acting for the corporation, and there is noth- ing to excite suspicion of such defect or irregularity, the corporation is bound by the contract, although such defect or ir- regularity in fact exists." 10 WaU. 604, 644. This review of the cases shows that there is no precedent for holding that the plain- tiff, having dealt with the cashier indi- vidually, and lent money to him for his private use, and received from him a cer- tificate in her own name, which stated that shares were transferable only on the books of the b^nk and on surrender of former certificates, and no certificate having been surrendered by him or by her, and there being no evidence of the bank having ratified or received any benefit from the transaction, can recover from the bank the value of the certificate delivered to her by its cashier. The exceptions to the exclusion of evi- dence cannot be sustained. The evidence that in one or two other instances stock was issued by the cashier without the surrender of old certificates, and that the directors of the bank approved certain transfers to its president of shares once belonging to the cashier, was quite insulHclent to prove that the bank ratified or received any benefit from the issue of the certificate to the plain- tiff, or was guilty of any fraud towards her. The action of the directors was adapt- ed to the single purpose of securing pay- ment of a debt due from the cashier to the bank. The evidence introduced and offered being insufficient to support a verdict for the plain- tiff, the circuit court rightly directed the jury to return a verdict for the defendant. Randall v. Railroad Co., 109 TJ. S. 478, 3 Sup. Ct. 322. Judgment affirmed. Mr. Justice BRADLEY dissented. Mr. Jus- tice MATTHEWS, having been of counsel, did not sit in this case, or take any part in its decision. Ch. 15) FIFTH AVE. BANK v. FORTY-SECOXD ST. & G. ST. FERRY R. CO. 149 FIFTH AVE. BANK OF NEW TOKK v. FORTT- SECOND ST. & GRAND ST. FERRY R. CO. (33 N. E. 8T8, 187 N. Y. 231.) Court of Appeals of New York. Feb. 28, 1893. Appeal from supreme court, general terra, first department. Action by the Fifth Avenue Bank of New York against the Forty-Second Street & Grand Street Ferry Bailroad Company for damages caused by defendant's refusal to transfer on. its books certain stock to plaintiff, or to recognize plaintiff as a stockholder. From a judgnient of the genernl term (17 N. Y. Supp. 8L'6) overrul- ing detendant's exceptions, denying its motion for a new trial, and directing judg- ment for plaintiff, defendant appeals. Affirmed. MAYNAED, J. In September, ISS."), the plaintiff, a domestic banking corporation, loaned one Hofele !$15,000 upon his individ- ual note, payable in three months, and se- cured by the pledge of an instrument which upon its face purported to be a certificate for 160 shares of stock of the defendant, a domestic railroad corpora- tion having its ottice and principal place of business in thesaniecity with the plain- tiff. It was subsequently discovered that this certificate was spuiious, and that the signature thereto of the defendant's pre.-)ident had been forged by one Eben S. Allen, its secretary, who was also its treas- urer and transfer agent, and who had in these capacities signed and countersigned the certificate, and delivered it to Hofele, who was his partner in business, for the purpose of raising money upon it, to be used in the firm undertaking. VVe are required upon this appeal to determine how far the defendant company is liable for the loss sustained by the plaintiff in consequence of this fraudulent and crimi- nal act of one of its principal officers. The good faith of the plaintiff in the transaction by means of which he l>eeame possessed of tiieforgedcertificate seems to be satisfactorily established. Hofele was a stranger to the oHicers of the bank, and they had no knowledge of his busi- ness relations with Alien, or that the lat- ter was in any way interested in the pro- posed loan. Before acting upon Hofele's application for a discount, the plaintiff's president sent its confidential clerk to the office of the defendant with the certificate, who, pursuant to instructions, showed it to the person in charge of the ofiice. who was then unknown to the clerk, but who proved to be Allen, its secretary and treasurer, and who was asked if it was genuine, and all right, and if Hofele was a stockholder of the company, to which an affirmative reply was given, and a de- scription of Hofele, from which the bank might identify liim as the person who had presented the certificate, and sought the loan upon the strength of it. The clerk reported the result of the interview to the plaintiff's officers, who thereupon dis- counted Hofele's note for the sura named, pavablein three months, and accepted the certificate as collateral security, in the usual form, for its payment, and for all other preseut or future demands of the bank against him. The note was renewed from time to time, and increased in amount, and some smaller notes given, until his indebtedness amounted to $3.5,- 000 and upwards. Meanwhile theplaintiff hi.d taken as additional security a like certificate for 50 shares, to which the Kig- natureof thedefenilant'spresidenthad also been forged, and which was first received as security for a loan of $3,000. This loan was afterwards consolidated with the other loans, and became a part of the to- tal indebtedness, for which both certifi- cates were held as security. Upon the pledge of the 50-share certificate the plain- tiff made no inquiries of the defendant, or of any of its ofticers, with reference to i.ts genuineness. In July, 1889, Hofele ordered the plaintiff to sell the two certificates, and signed the usual blank transfer or power of attorney for that purpose upon the liack of them. When they were first hypothecated, he had executed a separate power of attorney, authorizingplaiutiff to sell and transfer them in case of default in the payment of the loans. The certifi- cates were sold by plaintiff's brokers, and the net sura of $4::J,890 i-eueived, and placed to Hofele's credit, and his indebtedness charged to his account, leaving an appar- ent balance due him of f8,470. When the certificates were presented by the pur- chasers at the ofiice of defendant for trans- fer, it was refused upon the ground that they were forged and spurious, and the treasurer and transfer agent wrote across their face, in red ink, the words "No good," and added their official signatures to the statement. The plaintiff then re- funded to the purchasers the amount paid upon the sale of the certificates, and took an assignment from them of all rights of action which they had against the defend- ant; and, upon the refusal of the defend- ant to recognize the certificates as valid evidences of title to its shares of stock, this action was brought, in which the plaintiff has recovered for its loss on ac- count of the invafidity of the 160-share certificate, and the defendant alone has appealed. With respect to this certificate, we tail to discover any omission on the part of the plaintiff which would impeach its character us a bona fide holder. It made inquiry at the office of the defendant, where its books and records were kept, and of the officer in charge, whose duty it was to furnish correct information up- on the subject; and it had no reason to suspect that the assurances it received were misleading, or false, or that the officers of the defendant liad entered into a conspiracy with Hofe.le to defraud the public. It resorted to the only source of verification of the truth of Hofele's state- ments which was readily accessible, and it exercised all the care and vigilance which a prudent man would be expected to ex- hibit in the ordinary course of the busi- ness in which it was engaged. There was no circumstance proven which required a display of greater diligence. Nor were the rights of the plaintiff affected by the sale of the certificates, and their redeliv- ery to the plaintiff upon a refund of the proceeds of the sale to the purchasers. Though nominally sold on the account of 150 FIFTH AVE. BANK o. FOKTY-SECOND ST, & G. ST. FEliRY E. CO. (Ch. 15 Hofple, the plaintiff was the real party in intereit in the transaction. There was an Implied guaranty of thegeouineness of the certlHcates, which the vendor might be required to malce gno(] ; and as the plain- tiff had received the fruits of the transac- tion, the consideration of which had failed. It could not lawfully withhold them from the purchasers when restora- tion was demanded. The purchasers were also bona fide holders of the certificates, and the plaintiff, by thoir assignment, ac- quired the right to the enforcement of whatever renierties they might have in that capacity against the defendant, al- though it was then aware of their fraud- ulent issue. While certificates of stock in railroad and other business corporations do not possess the qualities of commercial paper, in the full sense of the terra, yet, as evidences of title, when the transfer in- dorsed thereon is signed in blank by the shareholder, they become, in effect, so far as the public is concerned, as if they had been issued to bearer. They are then readily transferable by delivery, and have an element of negotiability which renders them an important factor in the financial and commercial transactions of the coun- try. They maybe, and are frequently, listed upon the stock exchanges, and their sales represent a large proportion of the daily business of these bodies. The plaintiff must therefore be accorded whatever ad- vantage belongs to a holder in good faith of a chose in action of this charac- ter, and we have only to consider how far the defendant is responsible for the acts and representations of its officers, by means of which Hofele was enabled to ob- tain the plaintiff's money upon the faith of paper apparently valid, but in fact worthless. The defendant was incorporated under the general railroad law, originally with a capital of $600,000, afterwards increased to S750,000, all of which had been issued, excepting 208hare8, before 1S70. Its books relating to the issue and transfer of stock consisted of a certificate book, a transfer book, and a stock ledger, which were all kept by the secretary, and wore in his im- mediate custody, but, in his official capacity and work, he was subject to the supervision of the president, and all the officers were under the general control and management of a board of directors. It is apparent from the evidence that the secretary was, ex officio, the transfer agent of the company. At least, from 1868 to the present time, the secretary had act- ed as such agent; and there is no provi- sion in the by-laws for the separate ap- pointment of a transfer agent, and the only reference to such an officer is in a sin- gle paragraph in section 15, where it is provided that "all certificates shall be is- sued andsigaed by the presidentand treas- urer, and countersigned by the transfer agent, under such other regulations as the board of directors or finance committee mayfrom timetotimeprescribe." Wheth- er the secretary was, by virtue of his office, transfer agent, is not material; but the fact remains that, so far as the evidence discloses anything upon the subject, he always discharged thedutiesof that office, and in the performance of the work was fltlv characterized as the transfer agent of the company. When stock was issued, either in payment of an original subscrip- tion, or upon its transfer from one person to another, the engraved certificate was taken from the certificate book, and filled up by the secretary, presented to the presi- dent and treasurer, who signed it, and it was then countersigned by the secretary, ns transfer agent, and sealed by him with the seal of the corporation, and delivered to the stockholder or transferee named in it. The secretary at the same time insert- ed the proper data in the stub remaining in the certificate book, and made the nec- essary entries in the transfrir book and the stock ledger. The certificate received by plaintiff from Hofele had been taken from the certificate book. It 'appeared upon its face to be perfect and regular in every re- spect. It had the name of the president and treasurer signed to it, was counter- signed by the transfer agent, and bore the impress of the corporate seal. It recited that Hofele was the owner of 160 shares, of flOO each, of the capital stock of the company, contained the usual prtjvisions in regard to the mode of transfer, and declared that no certificate should bind the company unless signed by the presi- dent, and countersigned by its treasurer and transfer agent. The in testimonium clauso asserted that the defendant had caused that particular certificate to be signed by its president, and countersigned by its treasurer and transfer agent, and sealed with its corporate seal, FebvuarvG, 1885. It is very clear that under the regu- lations adopted by the defendant, and pursuing the mode of procedure which it had prescribe!], the final act in the issue of a certificate of stock was performed by its secretary and transfer agent, and that when he countersigned it, and affixed the corporate seal, and delivered It, with the intent thatit might be negotiated, it must be regarded, so long as it remained out- standing, as a continuing affirmation by the defendant that it had been lawfully is- sued, and that all theconditioiis precedent upon which the right to issue it depend- ed had been duly observed. Such is the effect necessarily implied in the act of countersigning. This word has a well-de- fined meaning both in the law and in the lexicon. To countersign an instrument is to sign what has already been signed by a superior, to authenticate by an addi- tional signature, and usually has reference to the signature of a subordinate, in addi- tion to that of his superior, by way of au- thentication of the execution of the writ- ing to which it is affixed; and it denotes the complete execution of the paper. Worcest. Diet. When, therefore, the de- fendant's secretary and transfer agent countersigned and sealed this certificate, and put it in circulation, he declared, in the most formal manner, that it had been properly executed by the defendant, and that every essential requirement of law and of the by-laws had been performed to make it the binding act of the company. The defendant's by-laws elsewhere illus- trate the application of the term, when used with reference to the signatures of its officers. In section 10 it is provided that all moneys received by thetreasurershould €h. 15) riFTH AVE. BANK v. FORTY-SECOJiTD ST. & G. ST. FERRY R. CO. 151 be deposited in bank to the joint credit of t lie president and treasurer, to be drawn out only by tlie cliecl< of tlie treasurer, countersigned by tlie president. Ff the president should furge the name of the treasurer to a check, and countersign it, and put it in circulation, and use the pro- ceeds for his individual benefit, we appre- hend it would not be doubted that this would be regarded as a certificate of the due execution of the check, so far as to render the company responsible to any person who innocently, and in good faith, became the holder of it. This result fol- lows from the application of the funda- mental rules which determine the obliga- tii^ns of a principal for the acts of his agent. They are embraced in the com- prehensive statement of Story in hia work on Agency, (9th Eri.,§ 452,) that the princi- pal is to be "held liable to third persons in a civil suit for the frauds, deceits, con- cealments, misreprestntatione, torts, neg- ligences, and other malfeasances or mis- feasances and omissions of duty of his agent in the course of his employment, al- though the principal did not authorize or justify or participate in, or, indeed, know of, such misconduct, or even if he forbade the acts, or disapproved of them. In all such cases the rule applies, respondeat su- perior, and is founded upon public policy and convenience; for in no other way could there be any safety to third persons in their dealings, either directly with the principal, or indirectly with him, through the instrumentality of agents. In every such case the principal holds out his agent as competent and fit to be trusted, and thereby, in effect, he warrants his fidelity and good conduct in all matters within the scope of the agency. " It is true that the secretary and trans- fer agent had no authority to issue a cer- tificate of stock except upon the surrender and cancellation of a previously existing valid certificate, and the signature of the president and treasurer first obtained to the certificate to be Issued ; but these were facts necessarily and peculiarly within the knowledge of the secretary, and the Issue of the certificate in due form was a repre- sentation by the secretary and transfer agent that these conditions had been com- plied with, and that the facts existed up- on which his right to act depended. It was a certificate apparently made in the course of his employment, as the agent of the compHuy, and within the scope of the ffeneral authority conferred upon him ; and the defendant la under an Implied obliga- tion to make indemnity to the plaintiff for the loss sustained by the negligent or wrongful exercise by its ofBeers of the gen- eral powers conferred upon them. Grls- wold V. Haven, 25 N. Y. 599; Railroad Co. V.Schuyler, 34 N.Y. 30; Titus v. President, etc.. of Turnpike Road, 61 N. Y. 237; Bank of Batavia v. New York, L. E. & W. R. Co., 10(i N. Y. 199, 12 N. E. Rep. 433. The learned counsel for the defendant seeks to distinguish this case from the au- thorities cited because the signature of the president to the certificate was not gen- uine. But we cannot see how the forgery of the name of the president can relieve the defendant from liability for the fra nd- ulent acts of Its secretary, treasurer, and transfer agent. They were officers to whom it had intrusted the authority to make the final declaration as to the valid- ity of the shares of stock it might issue; and where their acts. In the apparent ex- ercise of this power, are accompanied with all the Indicia of genuineness, it Is es- sential to the public welfare that the prin- cipal should be responsible to all persons who receive the certificates In good faith, and for a valuable consideration, and In the ordinary course of business, whether the indicia are true or not. 2 Beach, Prlv. Corp. p. 790; Bank v. Aymar, 3 Hill, 262; Jarvls V. Beach Co., 53 Hun, 362, 6 N. Y. Supp. 703; Tome v. Railroad Co., 39 Md. 86; Railroad Co. v. Wilkens, 44 Md. 28; Western M. R. Co. v. Franklin Bank, 60 Md. 36; Com. v. Bank, 137 Mass. 431 ; Holden v. Phelps, 141 Mass. 456, 5 N. E. Rep. S15; Beach Co. v. Hamad, 27 Fed. Rep. 4S6; Shaw v. Port Phillip, etc., Co., 13 Q. B. Div. 103. The rule is, we think, cor- rectly statedln Beach on Private Corpcjra- tlons, (volume 2, § 488, p. 791:) "When certificates of stock contain apparentlv all theessentialsofgenuineness.a bonafide holder thereof has a claim to recognition as a stockholder, if such stock can le- gally be issued, or to indemnity, if this cannot be done. The fact of forgery does not extinguish his right, when It has been perpetrated by or at the instance of an officer placed in authority by the corpora- tion, and intrusted with the custody of its stock books, and held out by the compa- ny as the source of Information upon the subject." Having reached the conclusion that the defendant is liable for the representations of its officers, appearing upon the face ol its certificate, over their official signature, and under the seal of the corporation, we -do not deem it necessary to consider the effect of the oral representations made at the office of the company to the plain- tiff's clerk, except so far as they bear upon the question of the good faith of the plain- tiff In the acquisition of thecertlficate. The judgment and ordermustbeafflrmed, with costs. All concur. Judgment affirmed. IIOLBROOK V. NEW JERSEY ZINC CO. (Ch. 15 HOLBROOK v. NEW JERSEY ZINC CO. (57 N. Y. 616. 1874.) Appeal from judgment of the general term of the supreme court in the first judicial de- partment, in favor of the plaintiff, entered upon an order denying motion for a new trial and directing judgment upon verdict. This action was brought to recover dam- ages for a refusal of the defendant to trans- fer, on its hooks, fifty shares of its stock, of which the plaintiff held the certificates. The facts disclosed were, that one William T. Riggs, on the 16th day of June, 1859, held Iwo certificates of the stock of the defendant, a foreisu corporation, of twenty-five shares each. These were a part of a large amount of stock standing in his name on tlie same day, viz. 546 shares. Some of these shares had been transferred to him from the name of Riggs, Hitchcock & Co., of which firm he, as well as his father, Samuel Riggs, was a member. Samuel Riggs died in the year 1852. By his will, he appointed William T. Riggs and others his executors; William alone acted. In the will of Samuel Riggs there was the following clause: Item 9. "The rest and residue of my estate, etc., I give to my children, his or her representa- tives, etc., the portions of my daughters or their representatives to be invested in such securities as are specified in item number 2, and to be held by my executors, the survivor of them and his heirs, in trust for the sole and separate use of my said daughters, re- spectively, their executors and administra- tors." The daughters also had power to dis- pose of their respective shares by last will and testament. The mode of investment was provided for in "item number 2" of the will. The testator left two daughters: Mar- garetta (who subsequently maiTied Jacob H. Pleasants) and Anna. William T. Riggs con- tinued to manage the trust estate until 1863. In that year, Pleasants and his wife and Miss Anna Riggs filed a bill against him and the defendant in the circuit court of Baltimore, Maryland, alleging that he had misapplied trust funds, including 440 shares of the stock, and praying for an accounting, appointment of a new trustee, and an injunction. A tem- porary injunction was granted accordingly. While that suit, was pending, Riggs removed from Baltimore to New York. A decree was made 10th May, 1865, whereby he was re- quired to transfer to Pleasants, as a substi- tuted trustee, all the stock of the Zinc Com- pany then standing in his name, viz., 125 shares. In May, 1865, the same plaintiffs brought an action in this state iij the su- preme court of the first judicial district against W. T. Riggs, the present defendant, and others. Its object was to compel Riggs to transfer to Pleasants, as trustee, the shares above referred to, and to enjoin him from transferring them, or from prosecuting any suit in respect to them. The defendant did not appear in that action, though Riggs did. The judgment at special term was for damages only, and was rendered July 9th, 1866. Oh an appeal by the plaintiffs, a judg- ment was entered, by consent, at general term, November 25th, 1806, reversing that of the special term. This judgment declared, that the shares of the defendant's stock standing in the name of W. T. Riggs be- longed to the trust estate, and directed the defendant to issue new certificates to Pleas- ants,- as trustee, and that the certificates out- standing in the name of Riggs should be sur- rendered for cancellation. The defendant signed this consent, acting under the advice and suggestion of the attorney of the plain- tiff. The defendant Issued new certificates of stock to Pleasants, and canceled the en- tries of stock standing in the name of Riggs, without any siu'render of the outstanding certificates. The plaintiff in the present action claims under the outstanding certificates. He main- tained, at the trial, that while the Baltimore action was pending, Riggs executed blank powers of attorney annexed to the certifi- cates, which came into the possession of one Goodall, and that he took them for value as collateral security on the 29th October, 1867, from Goodall, for a loan of $2,000, and that he was a purchaser without notice. After the maturity of this loan, the shares so hy- pothecated were advertised for sale. The de- fendant's president attended the sale, and announced that there was no stock on the company's books such as that represented by the certificates. The shares could not be sold, and were bid in by the plaintiff at a nominal sum. A demand made for a trans- fer on the company's books was refused; whereupon the present action was brought The answer set up the proceedings before tlie court already detailed, and averred tha,t the plaintiff was not a purchaser in good faith. At the close of the evidence, a motion to dismiss the complaint was made and denied, and the defendant duly excepted. The court directed a verdict for the plaintiff, the excep- tions to be heard in the first instance at gen- eral term. DWIGHT, C. The principal inquiry in the present case is, whether the plaintiff is a holder of the stock of the New Jersey Zinc Company in good faith and for value. It cannot now be denied, that if a corpora- tion having power to issue stock certificates does in fact issue such a certificate, in which it affirms that a designated person is entitled to a certain number of shares of stock, it thereby holds out to persons who may deal in good faith with the person named in the certificate, that he is an owner and has ca- pacity to transfer the shares. This proposi- tion, does not rest on any view of the nego- tiability of stock but on general principles appertaining to the law of estoppel. The rules of estoppel are of comparatively recent origin, and their applicability to this Ch. 15) HOLBUOOK V. NEW JERSEY ZINC CO. 155 subject has only been lately perceived. They ai-e now fully recognized in England and in this country as govei-ning the present sub- ject. In order to constitute a case of estop- pel under principles now established, it is necessary to show that a representation has been made, with a view or expectation that it wiU be acted upon by another, that it has been so acted upon, and that a person relying upon the representation would sustain an injury or damage if it were withdrawn. AU of these elements combine in the case at bar. When the defendant issued its certificates to William T. Riggs, it aflttrmed to all persons who might deal with him, that he owned a certain portion of its capital stocli and had full power to transfer it. Any purchaser has a right to rely upon this statement, and to claim the benefit of an estoppel in its fa- vor. The correctness of this view can be readily perceived, by supposing that an in- quiry had been made at the office of the company as to the ownership of Eiggs, and an answer had been given containing the same expressions as are found in the cer- tificate — could not a pm-chaser have acted with safety upon such a statement? The certificate itself must be regarded as a con- tinuing affirmation of the ownership of Riggs and his power over the stocli until it is with- drawn in some manner recognized by law. These views are fully sustained by Railroad Co. V. Schuyler, 34 N. Y. 30, 49, 53; Leitch V. Wells, 48 N. Y. 585; McNeil v. Bank, 46 N. Y. 325. It will be observed that the present action is against the corporation itself issuing the certificate and making the representations on which the plaintiff claims to have relied. The whole controversy in the present case becomes narrowed down to this: Did the plaintiff take the stock in such a way as to bring himself within the rules applicable to estoppel, or has the representation made by the certificate been, as to him, legally with- drawn? It is urged by the defendant that there was no evidence in the present case that Riggs ever delivered the shares to GoodaU, from whom the plaintiff derived title, and that delivery must be proved by the plaintiff affirmatively. He cites, in support of this proposition, Ledwick v. McKim, 53 N. Y. 307, and other cases. Ledwick v. McKim does not raise the question. In that case it appeared affirmatively that certain bonds, the title to which was in litigation, were stolen, and the instruments were in such an imperfect condition that they were not ne- gotiable in the sense that a holder could transfer a legal title to them. It is well settled, on the other hand, that one who takes an assignment of a stock certificate, as be- tween him and the transferrer, takes the whole title, both legal and equitable. Mc- Neil v. Bank, supra; Leitch v. Wells, supra. The case of Ledwick v. McKim is plainly not an authority upon the question whether a purchaser for value of stock is bound to show afiirmatively that the certificates were deliv- ered by a former owner to his own grantor. Such a rule would extend to any number of intermediate ti'ansfers, and he would be obliged to fortify his chain of title by show- ing the comijleteness of every link. The pre- sumption is, that the stock was transferred in the course of business, unless there is some evidence to the contrary. There is no force in the suggestion that the power of attorney in the present case was incompletes because there were blanks for the number of shares and for the name of the attorney. Any holder might fill up the blanks and con- stitute himself the attorney. These point* are too weU settled to need discussion. Rail- road Co. V. Schuyler, supra; McNeil v. Bank, 46 N. Y. 330, 331; Kortright v. Bank, 20 Wend. 91, 22 Wend. 348. If it be assumed that Riggs was a trustee, there was no notice of that fact on the face of the certificate, and the purchaser acting in good faith would, according to elementary rules, take the complete title to the stock. Same cases, and Weaver v. Barden, 49 N. Y. 300. The counsel for the defendant, however, strongly insists that the rule in the Schuyler Case does not cover the present controversy, because in that case there was some evidence of delivery of the certificates, while in the present instance there is none. Delivery is, however, to be presumed from the fact that the certificates of stock, with the proper in- dorsements, were in the possession of the holder. In what other rational way can that, possession be accounted for? It would be contrary to all reason to presume that the holder came by the certificates unfairly. It must be supposed that the ordinary course of business was followed. 1 Greenl. Bv. § 38. So, if a deed is found in the hands of a grantee, having on its face the evidence of its regular execution, it wiU be presumed to have been delivered by the grantor. Ward V. Lewis, 4 Pick. 518. The defendant also claimed that it was ir- regular to prove the transfer of the stock by Riggs by means of an acknowledgment made by the subscribing witness before a notary, such acknowledgment being made- long after the power of attorney is assumed to have been executed by Riggs, and shortly before it was offered in evidence. There is nothing in this objection. The Laws of 1833 (chapter 271, § 9) provide that, "every written instrument, except promissory notes, bills of exchange and the last wills of deceased per- sons, may be proved or acknowledged in the manner now provided by law for taking the proof or acknowledgment of conveyances of real estate. The certificate thus taken is to be used in evidence in the same manner and with the same effect as if the Instrument were a conveyance of real estate." There can be no doubt that the power of attorney is a "written instrument," and falls withini 164 IIOLBUOOK V. NEW JERSEY ZINC CO. (Ch. 15 the statute, and the acknowledgment may be made at any time before the paper is offered in evidence. The only serious question in the case is, whether the pendency of the ac- tions in Baltimore, Maryland, and In New York, can be regarded as constructive notice to the plaintiff of the fact that Eiggs held the stock in trust. This question divides Itself into two branches: (1) Was the pend- ency of the action in Baltimore constructive notice to a person residing here? (2) If not, was the pendency of the action in the su- preme court of this state, notice? 1. The first branch of this inquiry should be answered unhesitatingly in the negative. Shelton v. Johnson, 4 Sneed, 672; Le Neve V. Le Neve, 2 Lead. Gas. Eq. (3d Am. Ed.) 175, note; McLaurine v. Monroe, 30 Mo. 462. The facts in Shelton v. Johnson were sub- stantially these: WhUe an action Involving the title to certain slave's was pending In an- other state, they were brought into Tennes- see and bought by an innocent purchaser for a valuable consideration, who held them ad- versely for a time sufficient to protect his title under the statute of limitations. It was held on this state of facts, that his title so acquired was not affected by the pendency of a suit in another state, and that the doc- trine that lis pendens is notice to all the world has no extra territorial application, and must be restricted to parties living within the jurisdiction where the action is pending. This view is plainly correct from the very nature of equitable jurisdiction, which binds only the person within the power of the court. It was further decided in this case, that the clause in tlie United States constitution providing that "full faith and credit shall be given in each state to the public acts, records and judicial proceedings of every other state" (article 4, § 1), does not interfere with this construction of the doctrine of lis pendens. 2. There is a preliminary question to be dis- posed of, whether the sale of the stock did not precede the commencement of the action in this state. If this could be established, it would be a complete answer to the theory of the defendant. If the stock was issued to a holder for value before the commencement of the action, and in the course of business, no subsequent action brought against Riggs would affect the title. This proposition is so manifest that it does not need the support of authorities. It is not contested by the defendant. To sustain such a transfer, the plaintiff urges that the cancellation of the revenue stamp on the power of attorney of the date of February 11, 1864, leads to the presump- tion that the power itself was executed as of that date, and in the course of business, for the pm-poses of transfer. This view seems to be in accordance with the usual presumptions prevailing in the law of evidence. As the ordinary coin-se of business is to cancel a revenue stamp on the day that an instru- ment is executed, and, moreover, as the rev- enue law then requires it to be done, the date of cancellation is presumptively at the time of execution. 1 Greenl. Ev. § 38. It would be unreasonable to assume that the stamp has been afBxed without the authority of Riggs, or for any other purpose than to make complete a transaction with which it is apparently connected. The reasonable view is, that the power of attorney was exe- cuted on the day represented by the marks of cancellation. The case, however, may be considered on a still broader gi'ound and in connection with the doctrines of lis pendens. A defence such as this is in its own nature harsh, and pecul- iarly so in a case like the present. It is in direct opposition to the assertions made by the defendant in its certificate of stock. Sup- pose that, on an inquiry made of one of its officers, the defendant had stated to the plaintiff or his predecessor in ownership that Riggs was owner, would it have been per- mitted to contend that the plaintiff had con- structive notice to the contrary by the pend- ency of an action? This would be to destroy the effect of express words by impli- cation. The certificate, however, is substan- tially equivalent to an express affirmation. So long as that is outstanding, the defendant continues to affirm the power of Riggs to make a transfer. It is a severe rule, that would permit, under such circumstances, the defendant to belie its own representations by showing that there was pending in a com- petent court an action concerning the title of the holder of the certificate, and that a con- structive theoretical notice should overcome the positive statements in the defendant's certificate. If the defendant, on the other hand, is precluded from denying their pur- port, it sustains no hardship, since the very decree of the court behind which it takes shelter, provides that Riggs should surrender the outstanding certificates, in connection with the direction to issue new certificates to Pleasants. If the defendant did not see that this surrender was made before the new cer- tificates were issued, it has only itself to blame. The doctrine of lis pendens, so harsh in its effect, is not applicable to the present case. It may be considered under two as- pects: one that the stock was transferred by Riggs after the decree of November 25, 1866, and the other before. On the first hypothesis it is clear that the decree was not, by the general rules of equity jurisprudence, notice. The theoiy of the rule under dis- cussion is, that while a suit is pending there is to be no change in the existing state of things "pendente lite, nihil Innovetur." It is a rule of public policy and applicable only while the action is pending. As soon as a decree is rendered it ceases to have opera- tion. The true theory of the rule is expound- ed in Bellamy v. Sabine, 1 De Gex & J. 566. This case, which was considered as involving a question of the highest Importance, was dis- Oh. 15; HOLBROOK V. NEW JERSEY ZINC CO. 155 cussed before the lord chancellor and the lord justices of appeal. It was held that the true view of the doctrine of lis pendens is not that it is notice, but that it is nec- essary to the administration of justice that a decision of the court in a suit should be binding not only on the litigating parties but also on those who derive title from them, pendente lite, whether with notice of the suit or not. The object of the rule Is to bring litigation to an end, to prevent new suits, the introduction of new parties and to lead the existing controversy to a close. Page 578. So in Newman v. Chapman, 2 Rand. (Va.) 93, it was held that the doctrine does not rest upon the presumption of notice, but upon grounds of public policy. Accordingly, after judgment rendered, the peculiar doc- trines of this branch of the law cannot be involiod. The leading case directly deciding this point (which is involved in Bellamy v. Sabine, supra) is Worsley v. Earl of Scar- borough, 3 Atk. 392. Lord Chancellor Hard- wicke there said: "There is no such rule in this court that a decree made here shall be an implied notice to a purchaser after the cause is ended, but it is the pendency of the suit that creates the notice, for, as it is a transac- tion in a sovereign court of justice, it is sup- posed aU people are attentive to what passes there, and it is to prevent a greater mis- chief that would arise by people's purchas- ing a right under litigation and then in con- test." This course of reasoning must be un- derstood as applying to a final decree. When it Is not such a one as puts a conclu- sion to the matter in question, that is still such a suit as does affect people with notice of what is doing. In Rivers v. Steele (cit- ed by Mr. Cox in manuscript notes to 1 Vern. 286) it is stated that Lord Hardwicke held, most distinctly, that decrees are not notice. So in Kinsman v. Kinsman, 1 Russ. & M. 617, Lord Lyndhurst said: It is not pretended that after decree and before exe- cution a lis pendens could any longer exist. See, also, Gore v. Stacpoole, 1 Dow. 30. These decisions are followed in Price v. White, 1 Bailey, Eq. 244; Blake v. Hey- ward, Id. 208; Turner v. Crebill, 1 Ohio, 372. There is a dictum in Monell v. Lawrence, 12 Johns. 534, that all persons may be bound to take notice of decrees in chancery. This remark rests on a dictum in Sorrell v. Car- penter, 2 P. Wms. 483, which has been dis- carded by recent decisions and text writers. The whole matter is discussed in 2 Sugd. Vend. (7th Am. Ed.) 546. The dictum in Monell V. Lawrence is directly opposed to the theory of the subject so satisfactorily expounded in Bellamy v; Sabine, supra. The other hypothesis may now be consid- ered. Assume that Riggs parted with the stock while the New York action against him was pending, and that the result of it would have been binding on him if real es- tate had been in controversy. It may then be affirmed that the whole subject is inap- plicable to such property as is now in litiga- tion. The origin of this branch of the law it is now difficult to determine. It was in full recognition in the time of Lord Bacon, as shown by the twelfth of his ordinances for the administration of justice in the court of chancery. The rule is there expressed in this form: "No decree bindeth any that cometh in bona fide by conveyance from the defendant before the bill exhibited, and is made no party neither by bill nor order, but where he comes in pendente lite and while the suit is in full prosecution, and without any color of allowance or privity of the court, there regularly the decree bindeth." Tlie language here used would seem to indi- cate that this was an established doctrine to which Lord Bacon simply' gave expres- sion. The word "conveyance" would seem to show that it was a rule applied only to real estate. It has been supposed by some to have been derived from the practice in real actions at common law, closely resem- bling Lord Bacon's proposition. An examination of the English Reports will show that the law of lis pendens has only been used in England in cases involv- ing the title to real estate or interests there- in. It is said by an accurate writer, Mr. Powell, in his work on Mortgages, that "there is no case in which equity has held the property of goods to be affected by rea- son of a lis pendens, where possession is the principal evidence of ownership, as of per- sonal chattels." 2 Pow. Mortg. (Rand. Notes, Ed. 1828) 618. Lord Eldon doubted the application of the doctrine to personal property, in Jervis v. White, 7 Ves. 413, and twenty years later, in Hood v. Aston, 1 Russ. 412. There are, however, cases in the courts of this country, where the doctrines of lis pendens have been applied to personal property,, and some even to personal chat- tels. Some of these cases are cited. Mur- ray V. Lylburn, 2 Johns. Ch. 441; Scudder v. Van Amburgh, 4 Edw. Ch. 29; Boiling v. Carter, 9 Ala. 921; Thoms v. Southard, 2 Dana, 480; Watlington v. Howley, 1 De- saus. Eq. 167; Diamond v. Lawrence Co., 37 Pa. St. 353. In Murray v. Lylburn, Chancellor Kent ap- plied the doctrine to the case of a contested title to a mortgage; he carefully distin- guishes, in his opinion, between mortgages and other securities in trust and other per- sonalty. He says: "If he [the defaulting ti'ustee] possessed cash, as the proceeds of the trust estate, or negotiable paper not due, or perhaps movable property, such as horses, cattle and grain, I am not prepared to say the rule is to be carried so far as to affect such sales. The safety of commercial deal- ing would require a limitation of the rule. But bonds and mortgages are not the subject of ordinary commerce; the party was deal- ing with a subject out of the ordinary course of traffic, and always understood to be sub- ject to equities, and there can be very little 156 HOLliUOOK V. NEW JERSEY Z;XC CO. (Ch. 15 ground for complaint of hardship, in the ap- plication of the general doctrine to it." In Scudder v. Van Amburgh tlie vice-chan- cellor expresses himself as "inclined to the I'lew" that the doctrine extends to the prop- erty then in litigatiop— furniture; there is however no discussion of the subject. The case of Boiling v. Carter concerned the title to slaves. It was disposed of without dis- cussion. The result is disapproved in the later case in the same com-t (Winston v. Westfeldt), to be hereafter considered. In Thoms V. Southard there was a foreclosm'e of a mortgage on a steamboat. It was held that the pendency of the action created an equitable lien in favor of the mortgagee, which could not be divested by a subsequent levy of an execution in favor of a creditor. Watlington v. Howley was rested on the un- tenable ground already considered, that a de- cree is notice to all persons. It involved the title to certificates of public debt. In Dia- mond V. Lawrence Co. it was held that this doctrine extended to a litigation concerning the title to county bonds. This was ex- pressly placed on the ground that, by the law of Pennsylvania, county bonds are choses in action and not commercial paper. Being choses in action, the rule of Chancellor Kent, in Mm-ray v. Lylburn, was followed, and the pendency of the suit was declared to be no- tice to aU mankind. There are other authorities, on the other hand, casting doubt upon the whole subject, and particularly denying or doubting that the doctrine of lis pendens can be extended to commercial paper not due. Winston v. Westfeldt, 22 Ala. 770; Stone v. Elliott, 11 Ohio St 252; Howe v. Hartness, Id. 449; Lindsley v. Diefendorf, 43 How. Pr. 3',~; McLaurine v. Monroe, 30 Mo. (9 Jones) 462. Winston v. Westfeldt is an early and leading case in reference to this distinction, and ex- pressly decides that the rules of lis pendens cannot be extended to negotiable paper not due. The views of Goldthwaite, J., who pro- nounced the opinion of the court, are very satisfactory. He said: "Negotiable paper, representing as it does in almost aU civil- ized nations a very large proportion of their commercial operations, and serving to a great extent as the representative of money, is justly a faverite of the law, and enjoys im- munities and privileges which are extended to no other contract. The tendency of com-ts has been to uphold this description of paper in the hands of bona fide holders, against every species of defence which might exist as between the original parties. The credit and confidence due to it must be impaired if the buyer were required to examine the courts of every county in the state before he could be sure of his piu-chase, and such would necessarily be the case if the docti-ine of lis pendens applied to It. There are no adjudications to force us to this extremity. The sti'ongest considerations of public pol- icy seem to forbid the extension of the rule to money or bank bills, and we think that commercial paper, as the representative of money, stands on the same footing." The case of Jeffres v. Cochrane, 48 N. Y. G71, is not opposed to these views. The note that was ti'ansferred in the case pendente lite was sold to an attorney, with actual notice of the pendency of an action concerning its ownership. He was properly held bound by the judgment. The question is now presented, whether, io the case of stocks, we shall follow the rule in Murray v. Lylburn, or, whether we shall adopt Chancellor Kent's own distinction, and declare the rule as inapplicable to this case. All the considerations so forcibly stated in Winston y. Westfeldt apply with nearly equal strength in the case of stocks. The purchaser of these, as has already been shown, does not merely obtain an equitable title, as in the case of a bond and mortgage, but the complete legal ownership. They are dealt with in the same way as commercial paper. It would be in the highest degree inconvenient to force the purchaser to ex- amine a clerk's office in every county of the state before he could safely purchase. Com- merce requires a free and unrestricted sale of such property, unbm-dened with the shackles imposed by a lis pendens. That, as has been seen, has its whole foundation in public policy. It may be met and modi- fied by a coimtervailing public policy. The expressions of Earl, C, in Leitch v. Wells, 48 N. Y. 5S.5, are approved and sanctioned; and we hold that the doctrine of lis pendens, so far as it maintains that the mere pending of an action concerning the title to stocks, is constructive notice to all mankind, and that a purchaser acting in good faith Is bound by the results of the action, is no part of the law of this state. The doctrine of hs pendens has long been deemed hard and dry law. Sorrell v. Carpenter, 2 P. Wms. 482. It is there said: "A purchaser pendente lite, though without actual notice and for a val- uable consideration, shall be set aside, and though in this case the rale in equity be hard, yet it is in Imitation of the common law, where in a real action if the defendant aliens pending the writ, the judgment will overreach the alienations." The rule is, un- doubtedly, a wise one in its imitation of the common law as to real estate. In commer- cial transactions, no benefit can be derived from it, and only its hardship is apparent. The judgment of the com-t below must be afiirmed. All concm'. Judgment afiSrmed. Ch. 15) ROBINSO>r V. NATIONAL BANK. 157 ROBINSON V. NATIONAL BANK. (95 N. Y. 637. 18S4.) Appeal from a judgment of the supreme court, general term, fourth department, en- tered upon an order made April 14, 1883, affirming a judgment in favor of the plain- tiff entered upon the report of a referee. This action was brought by the plaintiff, a resident of this state, against the defend- ant, a corporation organized under the acts of congress authorizing the formation of na- tional banks, located a'nd doing business at New Berne, North Carolina, to recover cer- tain dividends declared and unpaid upon sixty-one shares of capital stock of the de- fendant, of which plaintiff claimed to be the owner. The shares were originally owned by one John Satterlee. It is provided by the national banking act (Rev. St. U. S. § 5139), and by the act of congress passed June 3, 1864, that the capi- tal stock of corporations organized under it shall be transferable on the books of the company in the manner provided by its by- laws. The defendant's by-law in relation to the transfer of stock provides (section 15) that "stock of this bank shall be assignable only on the books of this bank subject to the resti'ictions and provisions of the act, and a transfer book shall be kept in which all as'- signments and transfers of stock shall be made." The further facts material to the questions discussed are stated in the opinion. FINCH, J. The question here respects the plamtifC's right to recover dividends declared upon sixty-one shares of the capital stock of the Bank of New .Berne. These shares be- came the property of one Satterlee, who owned fifty of them in January, 1867, and the remaining eleven in May, 1869, all of which stood in his name upon the stock ledg- er of the bank, whose certificates he held as owner. Previous to July, 1869, Satterlee, for a good and valuable consideration, by an in- strument in writing, sold and assigned these shares to Anthony S. Hope, and transferred to him the certificates. At the date last named, Hope sent to the defendant corpora- tion, such stock certificates and their assign- ment to him, and demanded a transfer upon the books of the bank. The defeidant re- fused and sent back to Hope the assignments and certificates. We stop at this point to determine the legal rights of the parties as established by what had occurred. Hope had become the owner of the stock as against Satterlee and as against the bank. By the assignment and transfer of the certificates he had obtained the entire legal and equita- ble title. McNeil v. Bank, 46 N. Y. 331. Of this fact the bank had notice, and it became its duty to make the transfer requested on the books. Its refusal was a wrong from which no right could spring. Thereafter the bank was bound to recognize Hope's title ex- actly as if it had done its' duty and made the transfer on its books. The requirement of a registry, existing only for its own pro- tection and convenience, must be deemed waived and non-essential when it wrongfully refuses to obey its own rule. Isham v. Buckingham, 49 N. Y. 220; Billings v. Rob- inson, 04 N. Y. 415. In Johnson v. Laflin, 17 Alb. Law J. 146, Fed. Cas. No. 7,393, the United States circuit court said of a sale by transfer of the certificates, "that the transac- tion between Laflin and Britton was com- plete without registration of the transfer, and that it is equally complete as to the bank unless the bafi^ had some valid reason for refusing to register the transfer." And such must necessarily be the^rule unless the arbi- trary consent or refusal of the bank is to de- termine the validity of a sale which it merely requires to be registered. As easily might it be said that the consent of a county clerk or register was essential to the operative force of an executed deed. While Hope was thus absolute owner as against the bank, the latter sued Satterlee, and upon an attachment seized and sold Hope's stock, the Banlt of Raleigh becoming the purchaser. It is not easy to see how that bank can be deemed a bona fide purchaser, or acquired any. right in the property of Hope by an attachment against Satterlee; but as- suming the possibility of such a result as flowing from tlie condition of the registry (Fisher v. Bank, 5 Gray, 380), yet it seems to us wholly immaterial what rights the Bank of Raleigh acquired, either as against the Bank of New Berne or as against Hope. No such question is here. What occurred, vest- ed in Hope, as between him and the defend- ant, the entire legal and equitable title in the shares as perfectly as if the transfer de- manded had been made. The defendant cor- poration cannot set up its own wrongful act to defeat the title which passed. After, as well as before the sale to the Bank of Raleigh, Hope remained the owner, as between him and the Bank of New Berne, and entitled to have and receive the dividends declared up- on sixty-one shares, and what the bank did, or what obligations it incurred to the Bank of Raleigh, in no respect altered its duty and liability to Hope. The latter, thus remaining the owner of the stock as against the defendant, trans- ferred it by delivery and assignment of the certificates to the present plaintiff. While Hope remained owner, dividends amounting to $3,599 on sixty-one shares were declared, and while plaintiff was owner, further divi- dends amounting to $915 have accrued, and for this last amount the plaintiff has recov- ered judgment. A further question is raised over the sufficiency of plaintiff's demand which appears to have been for dividends amounting to $6,0P0, and so very much too large. The referetj found upon the facts that no demand was necessary, and the Gen- eral Term affirmed the conclusion. The 158 ROBINSOX V. NATIONAL BANK. (Ch. 15 point insisted upon is that the plaintiff was bound to demand a transfer to himself on the books of the bank, and which should be ac- companied by notice of the transfer of the certificates to him. Why, when the bank had refused to transfer the stock to Hope upon its books when he demanded it, his as- signee should be compelled to repeat the same process in the face of that refusal, we are unable to see. Hope would not have been bound to try again but could have sued with- out a new request and all his rights passed to his ti-ansferee. So that the question comes back to the necessity of a demand. The case principally relied on by the appellant is Southwick V. Bank, 84 N. Y. 432. The case is not at all pertinent. There the defendant had "lawfully and innocently received the draft and the money paid thereon." He was not and could not be put in the wrong until he had refused restoration. The distinction was drawn in Sharkey v. Mansfield, 90 N. Y. 229; and the necessity of a demand de- nied where the receipt of the monej^ was a conscious wrong. The party already in the wrong would only become more so by a re- fusal. Here the defendant had explicitly disavowed any obligation to Hope, and de- nied his ownership, and caused the stock to be sold as the property of Satterlee. What had occurred was a distinct denial of Hope's right to the stock or any of the dividends. After such a denial it was not needed that Hope should make a demand to put the de- fendant in the wrong, for it already stood, de- liberately and defiantly, in that attitude. Its action was equivalent to a refusal to pay any one except its own chosen transferee, whose right alone it recognized. Hope himself and his assignee were not bound to make a de- mand. The refusal was already complete by the defendant's own action. It was of no concern to whom Hope assigned, for the de- nial of his right was a denial as to those suc- ceeding to that right. The defendant's com- plaint comes to no more than this; that hav- ing once refused it ought to have a new op- portunity to repent, solely because the right of action had passed to a new owner. Our conclusion does not stand upon any fancied inability of the bank to pay these dividends, or even to deliver sixty-one shares of stock, but upon the action of the defendant in total- ly repudiating the whole of Hope's rights. It is further argued that plaintiff's remedy was an action in equity to compel a transfer on the books, or an action against the bank for its wrong and to recover the damages suffered. That such remedies exist does not alter plaintiff's right to pursue that which he has chosen. Each of those remedies would inevitably stand upon Hope's ownership. To compel the bank to register, is to concede the validity of the transfer and found a right upon it, and damages could only be awarded to the extent of the stock and dividends on the same theory. And if, as we have said, Hope became the absolute owner as between himself and the bank, he must be awarded the right of an owner, whatever other reme- dies exist The condition the defendant may find itself in, we need not consider. There are always consequences of a wrong to a wrong-doer. The judgment should be affirmed, with costs. AH concur. Judgment affirmed- Ch. 15) MANDLEBAUM v. NORTH AMERICAN MIN, CO. 159 MANDLEBAUM t. NORTH AMERICAN MIN. CO. (4 Mich. 465. 1S57.) Case reserved from Wayne circuit. On the 4th day of December, 1851, the de- fendant was an incorporated mining com- pany, duly organized under and by virtue of the laws of this state. On that day, the de- fendant, by its officers. Issued and delivered to one H. J. Buckley, a resident of the city of Deti-olt, a certificate of stock of said com- pany. In December, 1852, Buckley sold said stock to one William A. Pratt, and at the same time delivered said certificate, with a blank power of attorney attached, signed and sealed and subscribed by two witnesses. The name of no attorney or assignee was in- serted in the power of attorney, and it was in the form following: "Be it known to all whom it may concern, that do hereby constitute and appoint true and law- ful attorney for and in name, to transfer forty-two shares in the capital stock of the North American Mining Company of Detroit. Witness hand and seal at this day of — , A. D. 185—. H. J. Buckley. (Seal.) Witnesses present: E. W. Fltzhugh, William T. Wheeler." In December, 1852, said certificate, with the power of attorney attached, was stolen or taken from the possession of said William A. Pratt, without his knowledge or consent, by some person unknown, and in a few days afterwards the company was notified of the loss. Also, that Pratt was the owner of said certificate, and the company was requested for that reason not to transfer said stock up- on the company's books, at the request of any person. Pratt was guilty of no negli- gence on the loss of the certificate, but it was proved that he exercised ordinary care and prudence in the preservation of it. On the 2d of May, 1853, Walter Ingersoll, in good faith, and without any knowledge of the loss of the ceriiiicate, purchased it of one William Martin, and paid for it fourteen hundred dollars. On purchasing, he ascer- tained the name and residence of Martin, and made the inquiries usual In a transac- tion of that kind. On the 9th of May, 1853, the company, at the request of Ingersoll, and with a full knowledge of Pratt's claim to the certificate, transferred the same on its books by can- celing it, and issuing a new one directly to Ingersoll. Ingersoll was notified of Pratt's claim to the certificate before this transfer. In March, 1854, Ingersoll sold the certificate to the plaintiff In this suit, informing the plaintiff at the time, of Pratt's claim to the stock, and of his (Ingersoll's) knowledge of all the facts above stated. Afterwards, and on the 21st of April, 1854, the plaintiff pre- sented said certificate to the company, and requested the same to be ti-ansferred to him on the company's books, but the company re- fused to make the transfer, alleging that they would not make the transfer until the title to the stock was settled between him and Pratt. When Pratt notified the company of the loss of the certificate in December, 1852, the company wrote him, advising him that the certificate had not been presented at its oflice for transfer, and directing him to advertise the loss at the place of the loss, and also at Pittsburgh, at least six weeks; and inform- ing him, that the by-laws of the company required a good and sufficient bond of indem- nity against all losses, costs, etc., which the comi>any "might sustain in rejecting, or in any way connected with the transaction, be- fore a new certificate could be issued;" and also offering, in case the certificate could not be found, to do anything to obtain a reissue that the proper officer of the company was authorized to do. Pratt never complied with the directions contained in the letter, by giving the notice and executing the bond therein mentioned, nor took any other steps to supply the loss. The certificate of stock in question was made on its face, "transferable only on the books of said company (upon the return of this certificate), in person or by attorney duly authorized, at their office in the city of Pittsburgh, in the state of Pennsylvania, or at such other office as may be hereafter es- tablished." It was usual and customary for persons dealing in the stock of the company, as well as that of other companies, to transfer the same by delivery merely, without any writ- ten assignment, and with a general under- standing among the dealers in stock certifi- cates, that there was an implied power or right in any subsequent assignee to fill up the blank in the power of attorney attached to such certificate with the names of the attor- ney and assignee, as might suit the conven- ience of the holder, and this was not usually done in the market, but only when the as- signee wished to have a transfer of the stock on the books of the company. Such custom, at the time Ingersoll became the purchaser of the stock, was proved to be almost uni- versal in Michigan, where the stock was pur- chased. Upon the refusal of the company to make the transfer, the plaintiff brought an action on the case for such refusal. The defend- ants, under the plea of not guilty, gave no- tice of the loss of the certificate by the for- mer owner, etc., and the court below (Hon. David Johnson presiding) reserved the case for the opinion of this court. MARTIN, J. The certificate which was issued to Ingersoll by the defendants, be- came the property of the plaintiff by pur- chase, and was transfen-ed to him in the manner in which it is found by the court below. Such instruments are usually negoti- ated in market. The endorsement was blank; the power of attorney remaining to 160 MAXULEI3AUM o. XOUTH AMERICAN MIN. CO. (Ch. 15 be filled up by wliatever holder iniglit de- sire an entry upon the books of the com- pany of the transfer of the stock, and the issue of a new certificate to himself. By this endorsement and delivery, the transfer ■was, under our statute, valid, as between the parties thereto. The entry thereof on the books of the company being only necessary for the benefit and secm-ity of the company, and not to the validity of the holder's title. See Rev. St. c. 55, p. 211, § 7. Whatever title, then, Ingersoll had in the stock for ■which the certificate was issued to him, or acquired by such transfer upon the compa- ny's books and the new issue, this plaintiff now holds; and the ti-ansfer of this certifi- cate he asks to have intimated upon the books of the defendants, and for a new certificate to be issued to him thereupon. This request the defendants refuse to comply with, until the title to the stock represented by the orig- inal certificate acquired by Ingersoll shall have been settled between this plaintiff and Pratt; and for such refusal this action is brought. It becomes unnecessary, in the view we take •of this case, to inquire into Pratt's title, un- der the original certificate of stock issued to Buckley; or into that of Ingersoll under . his purchase from Martin. Neither is it nec- essary to inquire into the rights of Pratt as . against Ingersoll's title, while the latter held • the certificate now o-svned by this plaintiff, and which was substituted for the one he claims to have owned, nor what may be his i-ights as against the defendants, or as against this plaintiff, should he assert them by proper proceedings in law or equity. In- deed, there would be an impropriety in doing so, for he does not appear as a party in this suit, nor can we see that it is defended at bis instance, or in his behalf. That it is the ■duty of the company to allow intimations of transfer of stock to be made upon their books, upon the application of the owners thereof, is not denied, nor is the liability of the company in case of an improper refusal ■questioned, and it appears that, upon the entry of the transfer, the company cancels the original certificate, and issues a new one to the ti-ansferee. Before Ingersoll present- ed his certificate to the defendants in order that the transfer might be thus intimated, and a new certificate issued to himself, and, indeed, before he purchased it from Martin, the defendants had been informed by Pratt •of his loss of the certificate he purchased from Buckley, and cautioned against trans- ferring the stock to the holder thereof, If it should be presented for that purpose. Not- withstanding this caution, the defendants did transfer it upon their books upon In- gersoll's request, canceled the certificate which Pratt claimed, and issued the one which is the foundation of this controversy. "What may have induced the defendants to recognize the title of Ingersoll to the first ■certificate does not appear; perhaps it was the neglect of Pratt to take the steps for se- curing them against loss or liability, as pre- scribed in then- letter, which is made an ex- hibit in this case, or perhaps from the long silence of Pratt, and the lapse of time since the communication to him. It was concluded that he had no valid claim upon It, or that it had been adjusted between him and Inger- soll. Plowever this may be, the transfer seems to have been made by the company deliberately, and without any fraud or con- cealment on Ingersoll's part. Had they re- fused the request of Ingersoll, and compelled him and Pratt to interplead respecting, or otherwise to settle their conflicting claims to the certificate, they could have fully pro- tected themselves against the consequences of any transfer and new issue which might thereafter be made, pursuant to such settle- ment; but not having done this, and having recognized Ingersoll's title, canceled the orig- inal certificate, and issued a new one to him, they cannot now be permitted to question the genuineness of that recognition, or the va- lidity of that new certificate upon this claim of Ingersoll's transferee. When the company permitted this transfer to Ingersoll to be intimated upon their books, and issued this certificate to him, they weU knew that it might, and probably would, pass from hand to hand, upon his endorse- ment, through numberless bona fide holders, before it would be returned for a like intima- tion of transfer, and new certificate there- upon. It is true that this is not commercial paper, in the stilct sense of the term; but by our statute, as has been stated, it Is transferable by endorsement and delivery, so as to confer a valid title as between the parties thereto, and is, we think, by this provision of the statute, so far assimilated to such paper, that the holder is entitled to every right respecting it, as against third parties, which the law confers upon the holder of commercial paper. In this respect, the provisions of our statute are unlike those of every charter, and of the by-laws of every incorporated company to which we have been referred, and upon which adjudica- tions have been made. It enlarges the ef- fect of the endorsement and delivery, and thereby facilitates the transfer of these in- struments, tlius adding anotlier element of value to them. Once endorsed, the certifi- cate passes from hand to hand, like commer- cial paper, and an ordinaiy purchaser would, and under om: statute well might regard the usual endorsement if genuine, as sufficient; and suspicion would natm-ally be lulled, and inquiry would be silenced beyond such as would, by mercantile law and usage, be re- quired upon tbe pm-chase of commercial pa- per. And if inquiry were further pressed, and the party desirous of purchasing should seek fm-ther evidence of the genuineness of the title of his vendor, the entry upon the company's books corresponding with the is- suing of such certificate, would, almost of Ch. 15) MANDLEBAUM v. KORTH AMERICAN MIN. CO. 161 necessity, impel him to the conclusion that, up to that point, the title was unquestiona- ble, and that behind It he need not pursue his investigations. It would be regarded, and properly too, as the recognition by the company of a title upon which every sub- sequent purchaser could safely rely. Such being the force and effect of the transfer and the certificate to IngersoU, the defendants are estopped from denying their validity, or from going behind them, and as- sei-ting, in defence of this action, a title which was thereby repudiated. Now, when this certificate was issued, the defendants virtually guaranteed its genuineness to whomsoever might become the pm-chaser of it; and it would operate as a fraud upon the public to permit them, under such circum- stances, to question the validity of the in- strument, or to deny their obligation under it. No higher recognition of Ingersoll's title could be given than has been given, and the purchaser from him, or from one deriving title from him, can, by no principle of law or of fair dealing, be required by the defend- ants to look beyond their "books to inquire under what circumstances it was issued. The principle of estoppel is peculiarly ap- plicable to this case, both for the protection of private rights, and upon grounds of pub- lic policy. "If," says Parke, B., in Freeman V. Cooke, 2 Exch. 654, "whatever a man's in- tentions may be, he so conducts himself, that a reasonable man would take the repre- sentation to be true, and believe that it was meant that he should act upon it, and he did act upon it as true, the party making the representation would be precluded from con- testing its truth." This principle applies as weU to corporations as to individuals, and to acts as to assertions, and with conclusive force when these acts result from deliberate purpose, with a full knowledge of surround- ing facts, and are induced by no fraudulent representations or concealments. Nor is there anything in the circumstances attending the plaintiff's purchase of this cer- tificate which relieves the defendants from the operation of this rule. It is true that he purchased with a fuU knowledge of aU the facts known to IngersoU, but he also knew that these facts were known to the company, and that Ingersoll's title had been recognized by them, notwithstanding Pratt's daim, and with full knowledge of it. The VH-y fact that he purchased with such knowledge, is evidence of his reliance upon the acts of the defendants for the protection of his title, and of bona fides in making the purchase. He had a right to believe that the defendants had deliberately recognized Ingersoll's title, and had assumed a liability to him and his transferees, after a full in- vestigation of that title, and he had a right to rely upon this new certificate, as an as- sertion by them of their repudiation of Pratt's claim, and that all persons were safe in purchasing it, and of their undertaking PMV.CORP.— 11 with whomsoever might become the owner that his title would be recognized. And he may now insist that a responsibility thus de- liberately assumed ought not to be resisted by the assertion of that claim which was thus disregarded when the certificate which he holds was issued. Good faith and public policy require that the defendants should be held to this rule, and it is upon these broad gi-ounds that this doctrine of estoppel stands interposed, to pre- vent injustice, and to guard against fraud, by denying to a party the right to repudiate his deliberate acts or admissions, when these have been acted upon by those persons to whom they were dii-ected, and whose con- duct they were intended to influence. Alex- ander V. Walter, 8 Gill, 239. We have not been referred to, nor have we been able to find upon examination, any case which is precisely parallel with the present, but we think the reasoning of all the cases, and especially of Davis v. Bank, 2 Bing. 393, and of Horton v. Improvement Com'rs, 14 Eng. Law & lOq. 379, 7 Exch. 780, sustains the conclusion to which we have ar- rived. In the former of these cases, when certain stock belonging to Davis had been transferred upon the books of the bank un- der a forged power of attorney, but, unlike this case, without notice to the bank, suit was brought for the refusal to pay over the dividends which had fallen due upon the transfen-ed stock, and for permitting the transfer. The court held, that the bank was liable to the plaintiff for not paying over the dividends notwithstanding the transfer; but in speaking «f the rights of subsequent pm-- chasers of the stock transferred under the forged power, they use this language: "We are not called upon to decide, whether those who purchased the stock transferred to them under the forged power might require the bank to' confirm that purchase to them, and to pay them the dividend on such stocks, or whether their neglect to inquire into the au- thenticity of the power of attorney might not throw the loss on them that has been oc- casioned by the forgeries. But to prevent as far as we can, the alarm which an argu- ment urged on behalf of the bank is likely to excite, we will say, that the bank cannot re- fuse to pay the dividends to subsequent pur- chasers of these stocks. If the bank should say to such subsequent purchasers, the per- sons of whom you bought are not legally possessed of the stocks they sold you, the answer would be, the bank in the books which the law requires them to keep, and for the keeping which they receive a remunera- tion from the public, have registered these persons as the ovpners of these stocks, and the bank cannot be permitted to say that such persons were not the owners. If this be not the law, who will pm-chase stock, or who can be certain that the stock which he holds belongs to him? It has ever been an object of the legislature to give facility to 162 MANDLEBAUM v. ^'ORTH AMEKICAN MIX. CO. (Ch. 15 tbe transfer of shares in the public funds. This facility of transfer is one of the advan- tages belonging to this species of property, and this advantage would be entirely de- stroyed if a purchaser should be required to looli to the regularity of the ti-ansfers to all the vai'ious persons througli whom such stock has passed. Indeed, from the manner in which stock passes from man to man, from the union of stocks bought of different persons, under the same name, and the im- possibility of distinguishing what was regu- larly transferred from what was not, it is impossible to trace the title of stock as 3'ou can that of an estate. You cannot look fur- ther, nor is it the practice ever to attempt to look further than the bank books for the title of the person who proposes to transfer ±0 you." Although this is obiter dictum, yet it is so consonant to reason and sound policy, that we do not doubt the correctness of the prin- ciple, nor hesitate to apply it to the case at bar. If, in such a case, the bank would be prohibited from denying the right of the sub- sequent purchaser of the stock, by a much stronger reason, do we think these defend- ants are estopped from denying this plain- tiff's right, since the transfer to IngersoU was entered upon their books with full knowledge of Pratt's claim of title, and of loss; and a certificate was issued thereupon to him genuine in form, and containing noth- ing to excite suspicion, or to suggest inquiry on the part of the purchaser. Let it be certified to the circuit court for the county of Wayne, as the opinion of this court, that the plaintiff is entitled to recover. Gh. 15) WINTER V. MONTGOMERY GAS-LIGHT CO. 1C3 WINTER V. MONTGOMERY GAB-LIGHT CO. (7 South. 773, 89 Ala. 544.) Supreme Court of Alabama. Hay 7, 1890. Appeal from city court of Montgomery; Thomas M. Arrington, Judge. The bill in this case was filed bv the ap- pellee, the Montgomery Gas-Lisht Com- pany, and prayed to havethedefendants, appellants here, interplead as to the rig-ht- ful ownership of five shares of stock in said company. The facts upon which the claim to the said stock was based are suf- ficiently set forth in the opinion. TJpon the final hearing by the chancellor, on the pleadings and proof, he decreed that the complainant, Montgomery Gas-Light Company, should register the said stock to the respondent, A. T. London, as ad- ministrator of the estate of B. S. Schanck, deceased. It is from this decree that the present appeal is prosecuted, and the same is here assigned as error. CLOPTON, J. Theuncontroverted facts are: Tliat on Marcli 30, IS71, tliere stood on the books of the Montgomery Gas-Light Company, a corporation, 30 shares of its capital stock in the name of "J. S. Winter, trustee for Mary E. Winter." On that (lay J. B. Winter, trustee, assigned the BO shares to J. Gindrat Winter, which transfer was registered on the books of the company. On August 21, 1871, cei-tifi- cates for the five shares in controversy, be- ing part of the 30 shares, were issued by the company to J. Gindrat Winter, who, on the 25th day of the same month, deliv- ered them to J. S. Winter, Indorsing on each a power of attorney, authorizing him to transfer, set over, and assign on the books of the company the shares to such person or persons, and for such considera- tion, as he may elect, with full power to appoint one or more persons with like powers and authority to make and effect the transfer of the shares. On August 26, 1871, J. S. Winter, by instrument in writ- ing, assigned and transferred the certifi- cates of shares, with all dividends, to D.S. Schanck to secure the payment of three notes, amounting in the aggregate to $500, his individual debt, with irrevocablepower of attorney to Schanck to surrender the stock and hare the same Issued to him in his own name. It appears from tlie plead- ings and evidence tliat the stock was tlie statutory separate estate of Mrs. Winter. Jt is insistedthatthetransfertoJ. Gindrat Winter Is void, for the reason that under the statutes then in force no valid sale or conveyance of the separate estate of a married woman could be made other than by an instrument in writing, executed by her husband and herself jointly, attested by two witnesses, or acknowledged, as provided by law. It will be admitted that J. S. Winter, holding the stock as trustee for his wife, and as her statutory separate estate, had no right or authority to sell and transferor to pledge it for his individ- ual debt; also that,.!. GindratWinterhav- ing notice of the trust, both of them are responsible to the cestui que trust for the unauthorized use and disposition of the stock. The insistence of counsel would be sustained if the question involved only the validity of the transfer to .T. Gindrat Win- ter or his transferee with notice. But the question presented by the record reaches beyond this, and is, when a certificate of stock is accompanied by a power of attor- ney Indorsed thereon, by the person in whose name it is issued, authorizing the attorney to transfer it to any person, and tor such consideration as he may elect, will the title of a purchaser for value, without notice of any intervening equity, be pro- tected ? The general rule is that when the legal title and apparent unlimited power of disposition is vested in a person, the rights of a iiurchaser from him, for a valu- able consideration, without notice of a secret trust upon whicli the property is held, are unaffected. The purchaser, in such case, acquires an equity equal in dig- nity to the outstanding equity of which he has no notice. This principle is appli- cable to the sale and transfer of certificates of stock. It has accordingly been held that a power of attorney on a certificate of stock, authorizing its transfer to any person, renders the stock transferable by delivery, and if the holder of such certifi- cate is shown to be a purchaser for value, without notice of an outstanding equity from the person to whom it was issued, or his transferee, his title as such owner can- not be impeached. This principle, so far as we have discovered, is uniformly sus- tained by the authorities. We cite a few : Turnpike Co. v. Ferree, 17 N. J. Eq. 117; Nutting V. Thomason, 46 Ga. 34; Brew- ster V. Sime,42 Cal.139; Weaver v. Barden, 49 N. Y. 286; Bank v. Way man, 5 Gill, 336. The rule is that as between two equities merely the prior equity will prevail ; hence, in order to give the purchaser precedence, unless under exceptional circumstances, the legal eatatemustbe annexed to his equity. It is contended that the purchaser of a certificate of stock obtains the legal title only by a registry of the transfer on the corporate books, and that the transfer to Schanck not having been registered, the equity of Mrs. Winter is superior. By an examination of the cases in which it has been expressed that a transfer on the books of the corporation is essential to pass the legal title, it will be seen that the expres- sion was used in reference to the construc- tion and purpose of the statute, making the stock of corporations transferable on t.'ie books, and to protection against cred- itors audsubsequentpurchaseni. In Bank v. Hartwell, 84 Ala. 379, 4 Souti). Rep. 156, we said that to this end, and for this pur- pose, the transfer must be made in the mode prescribed by the.statute; and while a transfer on the books is esseutiai to pass the legal title, and operate as notice, a purchaser of the stock, though no registry is made on the books, may acquire such right thereto as a court of equity will en- force and compel its transfer on the books. And in Campbell v. Iron Co., 83 Ala. 351, 3 South. Eep. 369, speaking of the transfer of a certificate of stock without registra- tion on the books, it is said: "If in proper form, and otherwise unobjectionable, such a conveyance is good and valid between the parties, although it may be void as against bona tide creditors, or subsequent purchasers without notice, and although 164 WINTER V. MONTGOMERY GAS-LIGHT CO. (Ch. U as against the corporation itself it may convey an equitable title, conterrinK no right to vote, draw dividends, or other like incidents of ownersliip." Bank v. Pinckard, S7 Ala. 577, 6 South. Rep. 364. What title passes, as between the parties, is a different question. The registry on the books of the company of J. Gindrat Winter, as the owner, and the issue of new certificates in his name, vested the legal title in him, and clothed him with all the indicia of ownership and the apparent right of disposition. As between him and Schanck, his transfer passed to the latter the title lie ijossessed, and armed the lat- ter with powerto compel a transfer on the corporate books, and his rejjreeentative demanded, October 5, 1886, the transfer to be registered. Whether, in such case, the title of Schanck will be upheld against in- tervening equities arose and was expressly decidod in Dodds v. Hills, 2 Hem. & M. 424, in which case Smith, at the time he took the transfer, had no notice that Hills held the stock in trust, but received notice be- fore he sert it for registration. It is said "Although it is true that, as between him and the company, Smith did not become the owner until after registration, nothing but his own act was necessary to make him complete master of the shares. His position was like that of a person to whom an estate is conveyed, to become le- gally vested on the performance of some condition, such as the making of a de- mand, or the like; and in such a case no- tice of a trust would not prevent the sub- sequent performance or effect of this con- dition." And in Cook, Stocks, § 325, the fiuthor, after alluding to the rule in En- gland, remarks: "In this country a differ- ent rule prevails, and it is accepted and as- sumed as elementary that a bona fide pur- chaser for value of stock belonging to a trust-estate, and sold in breach of trust, is nevertheless protected in the pur base, although he has not registered the trans- fer on the corporate books. " The case of Land Co. v. Dennis, 85 Ala. 565, 5 South. Rep. 317, does not militate against this view. In that case, on the principle that a certificate of stock, indorsed in blank by the person to whom it was issued, is not a negotiable instrument, which may be regarded as well settled, it was held that, such certificate having been lost or stolen from the owner without fault on his part, his right to it is superior to that of any other person who may acquire it by pur- chase for value from any other holder. It will be observed that the finder or thief had no apparent right or claim ; no color of title. The blank in the power of attor- ney was not filled in. The transferrer was not possessed of the legal title, or any indicia of ownership, or the apparent power of disposition. Schanck derived title to himself directly from the last-reg- istered stockholder. The cases are not parallel. By J. S. Winter's transfer to J, Gindrat Winter, causing ittobe registered, and by the issue of new certificates in his name by the company, the transferrer to Schanck was vested with the legal title regular on its face, without any indica- tions to awaken suspicion. He acquired the title which his transferrer had, but no better, except that it was discharged from the trust,— a legal title sufficient to his protection against prior latent equities. In Mills V. Townsend, 10!) Mass. 115, it is said that while a transfer of shares by an assignment of the certificates can be ef- fective only between the parties to the as- signment, it has been held, in accordance with the usages of trade, that the Indorse- ment of the certificates in vests theassignee with the legal title to the interest so as- signed as against all persons except the corporation. It was ruled that a bona, tide purchaser, through mesne convey- ances, starting from a trustee who sells the stock in breach of a trust, is protected. While certificates of stock are not negoti- able instruments, when indorsed in blank, they are nevertheless intended to pass from hand to hand by delivery. The pur- chaser looks to the genuineness of the cer- tificates, and, the indicia of ownership ap- pearing on their face, he is without means to ascertain the rights of his vendor. If the purchaser were required to look be- yond the last registry on the books of the corporation to ascertain whether there are any equities, or whether the stock wan held in trust, facility in disposing of them would be greatly obstructed, if not de- stroyed. Hence a purchaser for value from the party who is the last-registered stockholder, and to whom new certificates have been issued without notice, is not af- fected by the rights of holders back of the registry. Cook, Stocks, §§ 369,443. Tliere isno pretense thatSchanck had anynotice of Mrs. Winter's equity, and in the instru- ment assigning the certificates to him J. S. Winter covenants and agrees that he is the lawful owner and holder of the stock, and has just right and authority to sell and dispose of the same. The company is- estopped to deny Schanck's right and title, and to his equity a legal title was annexed sufficient to give him precedence over the equity of Mrs. Winter, of which he had no notice, and which was back of the registry to J. Gindrat Winter. Mandlebaum v. Mining Co., 4 Mich. 465. This conclusion renders unnecessary the consideration of the question arising on the statute of lim- itations. Affirmed. Ch 15) SIMM V. ANGLO-AMERICAN TEL CO. 165 iJIMM et al. v. ANGLO-AMERICAN TEL. CO. ANGLO-AMERICAN TEL. CO. v. SPUR- LING et al. (5 Q. B. Div. 188. 1879.) The first of these actions was brought for wrongfully representing that certain persons were registered holders of stock In the de- fendants' company, and as such had title to transfer and sell the same, and also for the recovery of the purchase-money of the stock and the dividends thereon. The sec- ond action was for an indemnity. The facts are commented upon in the judgments of LINDLEY, J., and the lords justices hereinafter set out; they may be here shortly stated as follows: In November, 1876, Coates was the owner of £5,000 stock in the Anglo-American Tele- graph Company, which was registered un- der the companies act, 1862; and upon the 26th of that month Phillips, who was a clerk to Coates, instructed Thompson, a bro- ker, to seU £5,000 stock in that company. Burge, Brown, and Dennis became the ulti- mate buyers of that amount of stock, and they passed the names of P. Spurling and J. Skinner as transferees. The transfer to P. Spurling and J. Skinner purported to be exe- cuted by Coates, but it was In truth a for- gery. Upon the 2d of December, Spurling and Skinner, acting for Burge, Brown, and Dennis, presented the transfer to the com- pany for registration; the company there- upon forwarded to Coates a written notice of the transfer, to which, however, they re- ceived no reply, the notice to Coates having been intercepted by Phillips. In the mat- ter of the transfer, Spurling and Skinner were mere nominees and trustees for Burge, Brown, and Dennis. Upon the 6th of De- cember the forged transfer was registered, but before a certificate was issued to Spur- ling and Skinner, they by a transfer dated upon that day transferred to Simm and In- gelow £10,000 stock in the company. This sum of £10,000 included the sum of £5,000 supposed to have been bought from Coates. The transfer to Simm and Ingelow was lodged with the company for registration, and the company gave notice thereof to Spurling and Skinner. Subsequently Simm and Ingelow were registered as transferees of £10,000, and by a certificate dated the 9th of December, the company certified that Simm and Ingelow were the registered hold- ers of £10,000 stock. Ingelow was the man- ager, and Simm was the secretary. of the National Bank, London, and they accepted the stock as trustees for Burge, Brown, and Dennis, subject to any lien or claim which the National Bank might have thereon. The bank made advances to Burge, JBrown, and Dennis, upon the security of the £10,- 000 stock. Up to the 1st of August, 1877, dividends on the stock were paid to Simm and Ingelow, but the forgery of the trans- fer purporting to be executed by Coates was then discovered, and verbal notice thereof was given to them, and on the 19th of Sep- tember they received wi-itten notice from the solicitors to the telegraph company, that th6 transfer to Spurling and Skinner was forged, and that Coates claimed to be the proprie- tor of the stock. On the 19th of Septem- ber, £5,000 was due from Burge, Brown, and Dennis, to the National Bank, but on the 2Sth of -September this sum was paid off, and no further advances were made to them by the bank against the stock, which had belonged to Coates. Upon the 7th of No- vember the dividend was paid by mistake to Simm and Ingelow, but in February, 1878, the telegraph company refused to pay any further dividends to them. The writ of summons in the first action was issued on the 14th of March, and in the second on the 29th of March, 1878. The actions came on for trial before LIND- LEY, J., when it was agreed that Burge, Brown, and Dennis, should be added as plaintiffs in the first action, and as defend- ants in the second. The following judgment was delivered: "1878. Dec. 20. LINDLEY, J. It appears to me that the first action is comparatively simple; the second action is much more difli- cult. Before I give my reasons for my judg- ment, I will state at once the inferences of fact which I draw, as distinguished from those about which there is no dispute; and the main inference of fact which I draw is this: that no negligence in the sense of want of reasonable care is to be imputed to Spm'- ling and Skinner, who left this forged trans- fer with the telegraph company, none to Simm and Ingelow, none to Burge & Co., and none to the telegraph company. I say that because there are clumsy forgeries and there are clever forgeries, and on looking at the forged transfer, I am bound to state that the forgery appears to me to have been so skilfully done, that in my opinion the clerks and officers of the telegraph company were not guilty of any want of reasonable care in failing to observe that it was a forgery. What the legal consequences of that may be, I will consider presentljs but I think that is nearly the only inference of fact which it is necessary for me to draw. Fraud is not imputed to anybody with whom I have to deal, and I absolve all parties from negU- gence in the sense of want of reasonable care. Now, let me take the case step by step, and see how it works out. The facts are these. In November, 1876, Mr. Coates was the reg- istered owner of £5,000 stock in the Anglo- American Telegraph Company. On the 29th of November, Phillips, his clerk, procm-ed and forged a transfer, which was handed to Spurling and Skinner, and they, knowing nothing about the forgery, and not being guilty of any want of reasonable care, took it as a genuine document. That transfer hav- ing been executed, it was sent by Spmiing J 66 SIMM V. ANGLO-AMEHICAN TEL. CO. (Ch. 15 and Skinner to the office of the telegraph company, and, on the 2d of December, 1876, a clerk of the company sent the usual notice to Mr. Coates, addressed to him at his usual place of business, which notice was in tliese terms: "I beg to inform you that a transfer, purporting to have been signed by you, has been left at the offices of the company, and imless I hear to the contrary, it will be as- sumed to be correct." Unless that was an- swered, the company would not- have tlieir su.spicions aroused; and, in point of fact, it was not answered; therefore the company assumed the transfer to be genuine. On the Gth of December, Spurling and Skinner were registered as the owners of this stock, pursu- ant to that ti-ansfer. At that time Spurling and Skinner held this stock as trustees for Burge & Co. By an arrangement between Burge & Co. and the National Bank, Burge & Co. undertook to procure a transfer of that stock to the National Bunk, and the National Bank undertook to allow Burge & Co. to draw upon them. Accordingly, upon the 6th of December, the transfer was executed from Spurling and Skinner to Simm and Ingelow. About the 9th of December a notice from the company was sent to Spurling and Skinner, to which, in like manner, they received no an- swer. The telegraph company, therefore, naturally inferred again that all was con-ect, and Simm and Ingelow were registered as holders of this stock, and they obtained the usual stock certificate. Spurling and Skinner had not, in fact, obtained a certificate; it had been prepared, and would probably have been issued to them, had they remained on the register. Pausing there for a moment, let me see what the position of Simm and Ingelow then was. They were, in fact, hold- ers for value of that stock; I say tor value, because, although they did not pay Spurling and Skinner anything, the value which they gave to Messrs. Burge & Co. was this, that in consideration of having this stock transferred into the names of Simm and Ingelow, the Na- tional Bank, who were the cestui que trusts of Simm and Ingelow, allowed Burge & Co. to draw upon them. Therefore, it appears to me that Simm and Ingelow were not in the proper sense of the words mere trustees for Burge & Co., or merely identified with Burge & Co., but they were also in law and equity, as they were in fact, ti'ustees for the Nation- al Bank, who had acquired this stock bona fide and for value from the persons who were in point of fact registered by the company as holders. What had the company done to in- duce the National Bank to become holders of these shares in the names of their trustees, Simm and Ingelow?' They had in point of fact registered Spurling and Skinner, that is to say, they had done that which apparently conferred upon them power to transfer- the stock and to give a good title, and upon the strength of that the National Bank took this stock for value, and they allowed Burge & Co. to di'aw upon them. It appears to me, there- fore, that the title of Simm and Ingelow, as between themselves on the one side and the telegraph company on the other was a good title by estoppel. I do not doubt that in the least. I think In re Bahia & S. F. Rj^. Co., L. R. 3 Q. B. 584, and Hart v. Mining Co., L. R. 5 Exch. Ill, go to that length fully; and, subject to a remark which I shaU make pres- ently as to the eifect of the bank having been paid off, it appears to me that if the case stood there the title of Simm and Ingelo-W against the company would be a good title by estoppel, founded, I will not say upon mis- representation, because perhaps it is rather a harsh word, but upon the acts of the com- pany themselves in accepting Spm-ling and Skinner, under a mistake no doubt, but still in accepting them and putting them in a posi- tion to hold themselves out as owners of the stock and entitled to transfer it; and upon the faith of that Simm and Ingelow acted, and are entitled to say that they did act as the truth was. It has been argued, however, that as Simm and Ingelow have been paid off, their title as between them and the com- pany has ceased; and it is contended that on and after the 28th of September, 1877, Simm and Ingelow held this stock solely in trust for Burge & Co., and that inasmuch as it was by Burge & Co.'s favdt that the com- pany were induced to put this stock into the names of Simm and Ingelow, the latter, who now merely represent Burge & Co., cannot take advantage of the transaction. The ar- gument appears to me to be met by two ob- servations. In the first place I quite agree with what the counsel for the telegraph com- pany has urged, namely, that the title of Simm and Ingelow was not a legal title as distinguished from a title by estoppel. If the two are to be contrasted, it was a title by es- toppel; but, on the other hand, what does that mean? When it is said that a company is estopped from denying a title, what is that but that they are estopped from denying the legal title? I do not understand that they are estopped from denying any other title.- It appcEMs to me, therefore, on that view of the case, that it will stand in this way; Simm and Ingelow had acquired, as between themselves and the telegraph company, a good title by estoppel. When did they lose that title? Not, in my judgment, by any fluctuations of the account between them- selves and Burge & Co., nor by anything which has affected the relation in which they stood towards Burge & Co. That is one an- swer I give. The other answer is this, that even if Simm and Ingelow were in point of fact trustees for Burge & Co. after the 28th of September, and even if we are to look be- hind the title created by estoppel, neverthe- less, for reasons which I shall give presently, I still think that their title must prevail against the company's. I shall give my rea- sons for that hereafter, when I come to deal with the second action. I merely notice the point now for the purpose of shewing that Ch. 15) SIMM V. ANGLO-AMERICAN TEL. CO. 167 I do not overlook it or intend to pass it by. But it appears to me, as regards the first ac- tion, that the title which Simm and Ingelow acquired as bona fide holders for value, with- out notice of anything wrong as to this stock, as between themselves and the company nev- er ceased. I cannot say that they are en- titled to stock, because the company cannot be sued for stock which they do not possess, nor am I prepared to say that I ought to compel the company to go into the market and invest their capital in the purchase of their own stock. There may be a legal diffi- culty about that. But the consequence of my view of the case will be that Simm and Inge- low were entitled to the value of the stock at the time when the company denied their title. That appears to be the rule adopted in the case of In re Bahia & S. F. Ry. Co., L. R. 3 Q. B. 5S4. They are entitled in the first action to the value of the stock at that time and to the payment of that value; the cer- tificate ought to be delivered up to the com- pany to be cancelled, and the company are to be at liberty to remove the names of Simm and Ingelow from the register in respect of that £5,000 stock. That will put matters right as far as I can see in the first action, the telegraph company to pay the costs of it. With regard to the second action, whicla is much more difficult to deal with, it appears to me, after the best consideration which I can give to the case, that the company must bear the loss, for this reason: — The question really turns on the effect of the purchaser of stock taking to the company for the purpose of registration a transfer supposed to be genuine, but not genuine; and in order to ascertain the effect of that I must look at the obligations, if any, under which he is to the company, and the obligations, if any, under which the company are to him, and for the purpose of unravelling this part of the case, which is by far the more difficult, let me first see what the obligations are of a person tak- ing a transfer to the company. Now does he represent anything more than this, that, so far as he knows, it is a good and valid docu- ment? Is there any authority for saying that he does more than that? Of course, if he takes a transfer to the company, knowing that something is amiss with it, he must take the consequences of his own knowledge; he cannot fasten any obligations upon the com- pany. But supposing that he knows nothing wrong about it, are the company entitled to say to him, "We assume, from the fact, that you bring this transfer to us, that it is a genuine document." I apprehend that they are not entitled to say so to him. They are only entitled to say to him, "We assume that you come honestly to us, and that you do not know that anything is amiss with regard to the transaction." Now, let me see what their obligation is. Their oblig'ation by stat- ute is to keep a proper register; it is a f^nty imposed upon them by section 29 of the com- panies act, 18C2; and further than that, when a transfer is brought to them to be acted upon, they do in point of fact take upon themselves the duty or the task of making inqmries about it; and it appears to me that when a person innocently and honestly takes a transfer to the company, it is no more than a statement by him to the following effect: "So far as I know, the transfer is a genuine document: I shall leave it with you for a certain time to make inquiries, and if you make inquiries and find that it is a genuine document, of course you will re- ceive me as a stockholder; if, on the other hand, the result of the inquiries is to shew that it is not a genuine document, then of course you wiU not register me as a stock- holder." It appears to me that the case is stronger against the company than the case of a customer is against a banker paying a forged cheque; a banker is under an ob- ligation to pay the cheques of his customers and of no one else, and if he pays the cheque of some one else, he cannot charge a customer with the amount paid upon it. In this case a statutory duty is imposed on the company to keep their own register cor- rectly; and that is a duty, not only towards persons who are actually stockholders, but also towards persons dealing in shares or stock, and I make that observation because I think it warranted by the judgments in both In re Bahia & S. F. Ry. Co., L. R. 3 Q. B. 584, and Hart v. Mining Co., L. R. 5 Exch. Ill, as well as by the section of the act. Why is the register to be kept? It is open to inspection by anybody on the payment of a fee, and the object is that it may be seen who is and who is not on the list of stock- holders. And it appears to me that a duty is thrown on the company to look to their own register, whicli involves, of course, the looking after the transfer of stock or shares standing In the names of persons on the reg- ister; and that duty the company owe to those who come with transfers, and I do not see any corresponding or conflicting duty on the part of the person who brings the ti-ansfer, except, of com-se, that of bringing what he believes to be an honest document. I think the true view is this: that there be- ing no negligence in the sense of want of care on either side, but there being a duty on the part of the company to keep the register correct and themselves to look after the transfers between innocent parties the loss must fall upon the company, and their claim for indemnity against Spurling and Skinner or against Burge & Co. fails. The utmost which the company are entitled to say is this: "It was yom- duty not to produce to us to be acted upon any transfer which you knew or suspected to have been forged." I think that the duty of the persons bringing the transfer does not go beyond this. Can the claim against Skinner and Spurling be sus- tained by looking at it from what I call a broader point of view? The fii'st of these ac- tions is brought ag;iinst the company, and 163 SIMM 0. ANGLO-AMERICAN TEL. CO. (Ch 15 the second is in reality brought against Burge & Co.: can it be said even if the question be loolied at as between Burge & Co. on the one side and the company on the other, that the loss ought to fall on Burge & Co., rather than on the company? I do not think it can. It appears to me that the case is analogous to the case of a forged cheque, and as a banlier paying a forged cheque to an inno- cent holder for value cannot recover back its amount and is compelled to pay it twice over, so here the company must pay the amount of the stock twice over. The duty being cast upon the company to look after the register and the transfers, it appears to me that be- tween two innocent parties the company are not entitled to claim compensation from Burge & Co. nor to resist at Burge «& Co.'s expense the recognition of that title, which they themselves have created by their own act. It appears to me that Burge & Co. are entitled to say: "We did not deceive you; you made inquiries, and you accepted us as stockholders and put us on the register, and you cannot now tm-n round and say that as between you and us, we do not hold tliat posi- tion which you have led us to believe that we are entitled to." My conclusion is, that the telegraph company are in the wrong, though, of course, perfectly innocent parties, and what I propose to do is this, to order the telegraph company to pay Simm and Ingelow the value of £5,000 stock in that company on the 1st of February, 187S, and interest at the rate of 4 per cent, since that date. In the second action judgment will be entered for the defendants. Judgment accordingly. The Anglo-American Telegraph Company appealed from the judgment of LINDLEY, J., in each action. Dec. 5 the following judgments were de- livered: — BRAMWELD, L. J. I have come to the conclusion that the decision of LINDLEY, J., in the first action cannot be supported, and that our judgment must be for the com- pany. Burge & Co. are now joined as plain- tiffs; Simm and Ingelow continue to be plain- tiffs, but they have no beneficial interest In the suit, and have merely a bare trust for the benefit of Burge & Co. Under these circumstances, it seems manifest to me that the action must be dealt with as if Burge & Co. had been the sole plaintiffs, and as if Simm and Ingelow had been joined as de- fendants with the telegraph company, ac- cording to the practice in equity whereby all necessary parties were made either plaintiffs or defendants, or as if Simm and Ingelow had not been joined, and there had been no objection for want of parties, Burge & Co. being treated as the sole plaintiffs. I think it established as a matter of demonstration that Burge & Co. cannot have any greater right or better title against the company, be- cause they procured the transfer to be made to Spurling and Skinner, and procured the names of Spurling and Skinner to be regis- tered, and then caused Spurling and Skinner to transfer to Simm and Ingelow the stock standing in the names of the latter. We must consider the action as if Burge & Co. themselves had taken to the company the document purporting to be transferred signed by Coates, and as if the defendants had reg- istered Burge & Co. as proprietors, and had issued to them certificates that they were stockholders. In that event would Burge & Co. have had the right against the telegraph company which they now claim? They would have had no true title, because the transfer purporting to be executed by Coates was a forgery; that is beyond doubt. Then, would they have had a title, or, if that word is inaccurate, a right by estoppel? That is to say, would the company have been estop- ped from saying that Burge & Co. were not the holders of that stock, and could not call upon the company to indemnify them? I do not wish to speak against the principle of estoppels, for I do not know how the busi- ness of life could go on, unless the law recog- nized their existence; but an estoppel may be said to exist, where a person is compelled to admit that to be true which is not true, and to act upon a theoiy which is contrary to the truth. I do not undertake to give an exhaustive definition, but that formula nearly approaches a correct definition of estoppel. If the company are estopped from denying that Burge & Co. are stockholders, it must be because they are estopped from denying those circumstances which, if they had ex- isted, would have constituted Burge & Co. stockholders. What are those cii'cumstances ? For a man tO' have a true title as the trans- feree of stock his transferor must have had the stock; his transferor must have executed an instrument of transfer, and the transferee must have accepted that insti'ument. The last-named condition is no doubt fulfilled, for Burge & Co. did intend to accept the sup- posed instrument of transfer. Upon general principles, and upon the authority of the cases cited to us, I think that the company would have been estopped from denying that Coates was the holder of the stock; but why are they estopped from denying that he transferred it? I desire to avoid using an expression involving a controversy as to points of law, and it is needless to say that Burge & Co. by their agents represented that Coates was a stociiholder; but Burge & Co. sent to the company a document purporting to be transferred from Coates, and in effect demanded to be registered as transferees of the stock; to this demand the company as- sented. How can these facts constitute an estoppel against the company? What have they done that they should be debarred from saying that Coates did not transfer the stock? What more have they done than to accept the invitation of Burge & Co.? Let us look Oh. 15) SIMM V. ANGLO-AMERICAN TEL. CO. 169 at the question from another point of view, and consider whettier, if the company should desire to hold Bm-ge & Co. responsible, the latter would be estopped from denying them- selves to be stockholders. I know it may be said that estoppels are mutual and re- ciprocal, and that if the company are es- topped, Burge & Co. likewise ai-e estopped. But suppose that the company were desirous of saying to Burge & Co., "You have so con- ducted yourselves that as against you we have the right to aflBrm tliat to be the truth which is not the truth." Why should that be more unreasonable in the mouth of the company than it is in the mouth of Burge & Co.? It seems to me impossible to hold, under these circumstances, that Burge & Co. are estopped. It has been argued upon their behalf that the company were estopped be- cause it was their duty to make inquiries, and because it must be taken against them that they were satisfied by the inquiries which they had instituted, and that they af- firmed to Burge & Co., not merely that Coates had been a stockholder, but also that he had executed the instrument of trans- fer. I dissent entirely from that argument. I believe that the system of inquiry by com- panies before the registration of a transfer is modern; no doubt that is a very reason- able and proper step for companies to take; nevertheless, as it seems to me, it is clearly a practice to which they have recourse for their own benefit, and not for the benefit of any one else; because, although there may be no estoppel between them and a person who brings transfers to them, there would be between them and his ti-ansferees, and therefore, in order to keep themselves out of trouble, they ought to endeavour to as- certain whether the transfer brought to them is a valid instrument. The existence of this practice does not help the case for Burge & Co. I cannot see any principle by which the company are precluded from say- ing to Burge & Co., "You brought us a forged transfer: we believed it to be gen- uine, and we have registered you as stock- holders; but we are not precluded from say- ing that the transfer was forged, and that you had not a real title." That argument seems, as a matter of principle, to express the ground of the decision at which we ought to arrive. Is there anything in the eases cited which ought to lead to a conclu- sion in favour of Burge & Co.? I think not. In Knights v. WifEen, L. R. 5 Q. B. 660, the court of queen's bench held that the defend- ant had aflirmed to the plaintiff that he held sixty quarters of barley separated from the rest at the plaintiff's disposition. The plain- tiff had not told any untruth, nor had he, by any conduct on his part, offered any in- ducement to the defendant to make that statement. That case, therefore, is not liko the present, where Burge & Liv., however Innocently, caused to be presented to tne company a false and fraudulent Instrument as genuine. The next case to which I will refer is In re Bahia & S. F. Ry. Co., L. R. 3 Q. B. 584. P'rom the facts in that case it appears that the transferees had acted up- on the certificates issued by the company to former shai-eholders, or at least to supposed former shareholders, and the court of queen's bench held that, inasmuch as the company had issued those certificates for the purpose of being acted upon, so that the shares might be sold or be used as a se- curity for a loan, they were upon the prin- ciple of Pickard v. Sears, 6 Adol. & El. 469, and cases of a similar kind bound to indem- nify those who had acted upon the faith of those certificates. That, state of facts does not exist here: the company have made no untrue representation: they issued cer- tificates to Burge & Co., but this they were induced to do by the conduct of that firm. The next case is Hart v. Mining Co., L. R. 5 Exch. 111. In that case also the plaintiff had made no incorrect representation, he had not committed any mistaKe, upon the faith of which the defendants acted; but they admitted him as a partner, and he was induced to pay a call, and it was held right- ly or vTTongly, that they were estopped from denying they were liable to indemnify him. That case, therefore, is no authority against our decision. I wish to say a few words a% to my own judgment in Hart v. Mining Co., L. R. 5 Exch. Ill, at page 115. I am afraid that I did not perceive the effect of the certificates which had been issued, and did not appreciate the judgment In re Bahia &, S. F. Ry. Co., L. R. 3 Q. B. 584. I can see now that the form of the certificates was im- portant, and perhaps the case in the court of queen's bench did not govern the case in the court of exchequer. If the decision In Hart V. Mining Co., L. R. 5 Exch. Ill, was wrong, it will be competent to this court, ai a proper moment, to overrule it: I think, however, that it was not wrong, but that it does not apply to the present case. In the view which I take it is unnecessary to consider whether, in order to support the suggested estoppel, it is imperative that any damage should have accrued to Burge & Co., and whether in point of fact they have suffered any damage. I frankly own that even if Burge & Co. could be shown to have missed a benefit, or incurred a loss by the conduct of the company, the legal result would be the same: the misfortune of Burge 6 Co. arose from their having accepted a forged transfer. I wish it to be distinctly understood that I do not express any opinion whether the second action would have been maintainable, if any damage had accrued to the compaiiy: cogent arguments no doubt may be adduced in favour of either view; but the company are willing to pay the costs of the action brought by them rather than have a doubt-, ful question discussed, and they are content 170 SIMM V. AKGLO-AMERICAN TEL. CO. (Cli. 15 tbat judgment be recorded against them, al- though technically they do not consent to it so as to preclude themselves from appealing, if it is wished to talie the opinion of a higher tribunal. The result is that in each action judgment will be entered for the defendants. BRETT, L. J. In the first of these actions it seems to me tliat two questions arise, first, whether the judgment of my Brother Lindley can be supported on the grounds which he has assigned; and secondly, wheth- er it can be upheld for other reasons. With great deference to him, and after much hesi- tation, I have clearly come to the conclusion that the judgment of my Brother Lindley cannot be supported for the reasons upon which it is founded. Those reasons are that Burge & Co., supposing themselves to have become transferees of the stock, wliich really belonged to Coates, mortgaged it to Simm and Ingelow representing the National Bank, and that a certificate was issued by the com- pany which asserted that Simm and Ingelow were the holders of the stock, and conse- quently that an estoppel existed against the company in favom- of Simm and Ingelow or the National Bank. Pausing here, I may say that I think it clear upon the authority of In re Bahia & S. F. Ry. Co., L. R. 3 Q. B. 584, that the certificate issued by the com- riany, being acted upon by Simm and Inge- low, did raise an estoppel between them. My Brother Lindley, liowever, proceeded to hold that, inasmuch as this estoppel existed In fa- vour of Simm and Ingelow as against the com- pany, there was a title by estoppel to the stock, and that, when Simm and Ingelow ceased to be mortgagees upon the advance being paid off, they became ti-ustees of the stock for Burge & Co., who may rest upon the title passing to them as cestui que trusts of Simm and Ingelow. With great deference, it seems to me that my Brother Lindley has given a wrong interpretation to the phrase, that Simm and Ingelow had a title by es- toppel. The doctrine of estoppel was recog- nized in the courts of common law just as much as it was in the courts of equity, and It seems to me that an estoppel gives no title to that wliich is the subject-matter of es- toppel. The estoppel assumes that the reality is contrary to that which the person is es- topped from denying, and the estoppel has no effect at all upon the reality of the circum- stances. I speak not of that estoppel, which is said to arise upon a deed of conveyance or other deed of a similar nature. I Incline to think that when the word "estoppel" is used with reference to deeds of that kind, it is merely a phrase indicating that they must be truly interpreted. I am speaking now of the estoppels which arise upon transactions in business or In daily life, and, as it seems to me, these estoppels have no effect on the reality of the transaction. It may be that under some circumstances an estoppel will prevent a person from dealing in a particular manner with goods; for instance, if a per- son is estopped from denying that he has made a contract to deliver goods, and if the goods are still in his possession, in a suit to enforce performance of the alleged contract he may be obliged to hand over the goods, although, in fact, there was no contract, and he may be liable to act as If there had been a contract, and to fulfil his supposed obliga- tion. But suppose that although a person is estopped from denying that he has made a contract to deliver goods, he has parted with the goods and has sold them to somebody else: it seems to me that although he may be estopped as against the person claiming de- liveiy under the supposed contract, he can- not be compelled to deliver the goods, which, there being no contract, have legally passed to somebody else: owing to the estoppel he cannot deny that a contract was entered In- to, but he cannot fulfil it by delivering an- other person's goods; and therefore the only remedy against him is that he shall pay dam- ages for not delivering the goods. In a simi- lar manner a person may be estopped from denying that certain goods belong to another; he may be compelled by a suit in the nature of an action of trover to deliver them up, if he has them in his possession and under his control; but if the goods. In respect of which he has estopped himself, really belong to somebody else, it seems impossible to suppose that by any process of law he can be com- pelled to deliver over another's goods to the person in whose favour the estoppel exists against him; that person Is entitled to main- tain a suit in the nature of an action of trover against him; but that person cannot recover the goods, because no property has really passed to him; he can recover only damages. In my view estoppel has no effect upon the real nature of the transaction: It only cre- ates a cause of action between the person in whose favour the estoppel exists and the person who Is estopped. Apply these principles to the present case. For a time an estoppel existed in favour of Simm and Ingelow, representing the Nation- al Bank, because the telegraph company had Issued a certificate stating that the stock was then the property of Simm and Ingelow, and the National Bank had acted upon that certificate. In my opinion. If Simm and In- gelow could have shewn that damage had accrued to the bank from the Issuing of the certificate, they might have maintained an action against the telegraph company; but so soon as Burge & Co. had paid off the ad- vance made to them by the National Bank, the bank was no longer in a position to suf- fer damage from the issuing of the certifi- cate, and no action upon the ground of estop- pel could be maintained for Its benefilt. The only persons who could have availed them- selves of the estoppel were Simm and Inge- low, and that estoppel did not give them any legal title to the stock, as my Brother Lind- ley has supposed; it only gave them for a Ch 15) SIMM V. ANGLO-AMERICAN TEL. CO. 171 time a right of action against the telegraph company, and therefore when they themselves could not maintain an action, it is wrong to say that they could transmit a right of action to Bm-ge & Co. The latter cannot maintain this suit upon the ground that the company were at one time estopped as against Simm and Ingelow, when at the time of bringing the action no estoppel existed be- tween them and Simm and Ingelow. With great deference, therefore, I cannot agree with the grounds upon which the judgment was founded. It may be argued, however, that the judg- ment can be supported on other grounds. If Bm-ge & Co. are to be considered as the only plaintiffs, I come to the conclusion, upon two groimds, that no estoppel exists in their favour against the telegi-aph company; first, because in point of fact no representation sufficient to raise an estoppel was made by the company to Burge & Co.; and, secondly, because even if a representation upon which an estoppel might be founded was made, that representation caused no substantial al- teration in the position of Burge & Co. As to the first ground, Burge & Co. sup- posed that they had bought stock through a broker upon the stock exchange: tliey re- ceived a transfer supposed to be signed by Coates, and a certificate from the company that Coates was the holder of stock. They sent the transfer to the company in order that the names of their nominees might be put upon the register, and then the company did that which is said to be the ordinary com-se, namely, they sent a letter to Coates requesting to know whether he had author- ized the transfer of tiie stock. That letter was intercepted by a fraudulent clerk, so that the company received no answer to it, and they therefore supposed that Coates had agreed to transfer his stock, and upon that they registered Skinner and Spurling as the holders, and afterwards they issued a cer- tificate to Simm and Ingelow, stating that they were the holders of the stock. The only fact relied upon as raising an estoppel is the issue of that certificate. It has been argued that this certificate amounts to a representation, although no representa- tion was made in words on behalf of the company. At the time Biu-ge & Co. bought the stock on the stock exchange they did not rely tipon anything said or done by the company; they trusted wholly to the broker through whom they pui-chased, and that bro- ker is personally liable to fnem by reason of the com-se of business, and perhaps by the niles of the stock exchange; they relied en- tirely upon him; they paid the price to him upon the faith of a transfer which he alleged that he had obtained from Coates, and not upon the faith of anytlilng done by the com- pany. If Burge & Co. paid the price upon the faith of the former certificate Issued to Coates, that certificate is perfectly true, and in it no false representation was made by the company. Nothing in that transaction can possibly raise an estoppel in favour of Burge & Co. against the defendants. After they had paid the money, they sent the transfer to the company In order that they might induce the company to put the names of their nominees upon the register, and thus complete their title. It is ti-ue that it is the course of business for the company to make inquiry of the person whose name is' upon the register, but it seems to me that they are under no obligation to the person who sends the transfer to make that in- quiry; It is obvious that they make it entirely for their own protection. I can see nothing which casts a duty upon them to make that inquiry on behalf of the alleged transferees; in truth the intending transferees, if they disti'ust the broker, can require to be In. formed of the name of the person whose stock is to be eventually transferred to them, and they can themselves make Inquiry and ascertain from him whether the broker has his authority to ti-ansfer hjs stock. It seems to me that all the circumstances which are supposed to have entitled Burge & Co. to have the names of their nominees put upon the register of the company, and to obtain a certificate, lay as much within the knowl- edge of Burge & Co. as within that of the com- pany; at all events they have the same pow- er and duty to make Inquiries as the com- pany, and indeed some of the facts are more within the Itnowledge of Burge & Co. than of the company; as, for instance, it is Burge & Co. who knew what the contract was, and whether it was a contract to transfer. Un- der this state of facts the company did that which, if the transfer had been valid, would have made Bm-ge & Co. stockholders — in oth- er words, the company accepted their nomi- nees as fit to put upon the register; this, however, was done mainly upon the state- ment, that the nominees had received a transfer from Coates. The certificate which the company issued to Simm and Ingelow did not contain a statement of anything which Burge & Co. did not laiow; it did not contain a statement of a transaction or of facts which must be known to the company, but were not known to Bm-ge & Co., and with regard to which any statement of the company was to have an effect upon their conduct; the contract had been concluded before the certificate was Issued, upon which alone the estoppel is alleged to arise. As I have ah-eady intimated, the certificate de- claring Simm and Ingelow to be stockhold- ers was issued not for any purposes of the company; it is obvious that the only use of the certificate in the hands of Simm and In- gelow was to empower them to transfer the stock, or to enable them by producing it to show to an Intending buyer that they had been admitted as members of the company- in other words, that certificate declaring Simm and Ingelow to be upon the register was issued in order that they might hand over 172 SIMM V. ANGLO-AMERICAN TEL. CO. (til. i; ithe stock to a subsequent purchaser. That certificate would raise an estoppel against the company in favor of a subsequent pur- chaser from Simm and Ingelow acting for Burge & Co., because by that certificate the .company have made a statement of facts which must be taken to be known to them, jind cannot be known to a subsequent pur- , chaser, and because the certificate was is .sued in order that a subsequent purchaser might act upon it. These facts fall within the well-known principles of estoppel. To my mind, however, a person buying from Burge & Co. would have no title to any stock; he would not be a stockholder in the com- pany; he would not be entitled to have stock xielivered to him by the company; his only remedy would be in damages. And, what- ,ever may be the rights of a pm-chaser from Burge & Co. no representation was made by ithe company to Burge & Co. upon which the latter acted. It is not necessary to consider it, but I doubt much whether any represen- tation was made by the company which could raise an estoppel, even if Bm'ge & Co. had acted upon it; for it seems to me that neither of them made any representation in order that it might be acted upon by the ■other party. As to the second ground, I think it right to say that, even if there was a representation by the company to Burge & Co., their sub- jstantial and legal position has not been al- tered by that representation, and that there being no alteration of circumstances by rea- rson of that representation, there can be no estoppel against the company. But It seems to me that if a representation was made by the broker who sold to Burge & Co., they had a right of action against him, and that remedy exists just as much at this moment as at the time when the representation was made. It is possible that Burge & Co. might have had some remedy under the rules of the stock exchange. If the remedy created by the law remains intact (and by supposition J3f law that is a perfect remedy), I doubt very much whether the loss of the remedy under the rules of the stock exchange would be sufficient to raise an estoppel; but it .seems to me that Burge & Co. now have the same remedy under the rules of the stock -exchange as they had at the moment of the company registering Spurling and Skin- ner, and therefore that the position and the legal rights of Burge & Co. are not in any way altered. They have their claim for l)reach of contract against the broker who sold to them; they have the same remedy against that broker under the rules of the stock exjchange which they had before, and if nothing could have hindered them from availing themselves of that remedy upon dis- covering at the time the nature of the trans- action, nothing prevents them from avail- ing themselves of it now. It has been fur- ther argued that Burge & Co. have been put to rest as to their remedy. Possibly they have been put to rest, but it seems to me that that is not sufficient: it must be shewn not only that they have been put to rest, but also that they have been damaged by being put to rest. I can understand that it may be held that if a person is put to rest by a rep- resentation, and if by the delay in enforcing his remedy he suffers damage, he has the same rights as if his position had been al- tered at the time of the representation; for instance, if a representation had been made by the company,. and if Burge & Co. had been put to rest as against the broker who sold to them, and if between the time when they were put to rest and the time when they resolved to act the broker had become insolvent, they would have suffered damage, and the case would have fallen within Knights V. Wiffen, L. R. 5 Q. B. 660, and they might be entitled to recover. I do not, however, think it necessary to say whether an action by them would be successful un- der these circumstances. At present I do not venture to differ from Knights v. Wif- fen, L. R. 5 Q. B. 660. I understand that the learned judges construed a certain state- ment as having not merely its ordinary meaning, but also a mercantile meaning, and they were* of opinion that the mercantile meaning of the statement was that the defend- ant had sold the goods separated from other goods and held them for the benefit of the plaintiff. I confess it seems tO' me that in that case two well-known doctrines were mixed up, the doctrine of estoppel, and the doc- trine Of attornment by a warehouseman who has goods in his hands. But in any point of view Knights v. Wiffen, L. R. 5 Q. B. 660, does not govern this case, even if the com- pany did make a representation, and even if the doctrine as to putting another person to rest be true; for in the present case there is no evidence that Burge & Co. sustained damage by being put to rest. I have stated my views at length, but the case is important, and I have thought it right to point out what are the reasons, which have convinced me that the judgment of LINDIjBY, J., cannot be supported either on the grounds assigned by him or on any other gi-ounds. In my opinion there was no estoppel between Burge & Co. and the tele- graph company, and oiur judgment ought to be for the company. It is unnecessary to say anything as to the action brought by the telegraph com- pany. COTTON, L. J. In this case we have the misfortune to differ from LINDLBY, J., and I think it right to say at starting that he ap- pears to have delivered not a considered judgment, but a judgment immediately after the case had been heard in order to prevent delay: therefore he had not had leisure to review the case in all its aspects. The first action is founded upon the supposition that as against the company the plaintiffs are en- Ch. 15) SIMM V. ANGLO-AMERICAX TEL. CO. 173- titled to be treated as stockholders, and it is brought on the ground that the company have denied to them the rights of stock- holders. When the real facts are ascer- tained, it is clear that independently of the question of estoppel, the action cannot be maintained; for the title of Simm and Inge- low has its origin in a forged transfer from one Coates. The stock which they claim is still at law and in equity vested in Coates, and he alone is entitled to be registered as the holder of it But it has been lu-ged that by the doctrine of estoppel the plaintifEs are to be deemed the owners of it, and the ques- tion has been argued as if Burge & Co. were the only plaintifCs; I will, therefore, deal with the case upon that footing. I will first consider what is the meaning of the words "title by estoppel" or if that phrase be ob- jected to "right by estoppel." As I under- stand, it means that where one person makes to another a staternent which is after- wards acted upon, in any action afterwards brought upon the faith of that statement by the person to whom it was made, the person making it is not allowed to deny that the facts were what he represented them to be, although in truth they were different It has been contended that upon this doctrine Burge & Co. had a right of action against the company, and reliance has been placed upon In re Bahia & S. F. Ky. Co., L. R. 3 Q. B. 584, and Hart r. Mining Co., L. R. 5 Exch. Ill, but they were in truth very dif- ferent In the present case certain persons on behalf of Burge & Co. took to the com- pany a transfer purporting to be executed by Coates: he was in fact a stockholder, but the transfer was a forgery, and the question is whether the company by issuing a certifi- cate of registration to Simm & Ingelow, the nominees of Burge & Co., in any way made a representation, which prevents them from saying that Simm & Ingelow are not the owners of the stock. I need only refer to the first of the two cases which I have men- tioned, in order to shew how different they are from this: there the persons making the application were not in the position of Burge & Co., but were in the position of a person who might have bought the stock in open market from the nominees of Burge & Co., and might have paid the price upon the faith of the certificate of registration issued by the company. To a buyer who did not liuow the real facts, the certificate would amount to a representation that the sellers were entitled to the stock, and under the doctrine of estoppel the buyer might main- tain an action against the company, not as the real owner of the stock, but as a person whom the company were bound to treat as the real owner, because they had stated to him that the seUers to him were the real owners and that the transfer to the seUers was valid. But the facts here are very dif- ferent Biu-ge & Co. are driven to admit that Coates was the registered owner, and that he did not execute a transfer of the stock to them; but they contend that the company is estopped from denying that Coates did transfer the stock to them. Why ought the company to be estopped? All that occurred was that a transfer pur- porting to be executed by Coates was- brought to the company's oflice: Burge & Co. and the company had at least equal means of knowing whether the transfer was genuine. It was argued that as the com- pany are bound to keep a register, they are- bound to ascertain whether a transfer brought to them is a forgery, and that by is- suing the certificate they must be taken to have made a representation as to a matter within their own knowledge, and must be considered to have represented to Burge & Co. that the transfer was genuine. Even if this duty exists, the real question is whether it exists towards Burge & Co., because if it does not exist towards them, I cannot think that the fact of there being a duty towards someone else to inquire, makes the accept- ance of the transfer brought by Burge & Co., a representation to them by the com- pany that it was a genuine document In fact the use of the word "duty," is an indi- rect mode of saying that if the company ac- cepts a forged transfer they will be liable to- a person innocently bringing it and it is clear that they would be equally liable ac- cording to that view whether or not they did make inquiries. The duty of the company is not to accept a forged transfer, and no duty to make inquiries exists towards the person bringing the transfer. It is merely an obligation upon the company to take care that they do not get into difficulties in con- sequence of their accepting a forged trans- fer, and It may be said to be an obligation towards the stockholder not to take the stock out of his name unless he has executed a transfer; but it is only a duty in this sense, that unless the company act upon a genuine transfer, they may be liable to the real stockholder. There being in my opin- ion no duty between Bm-ge & Co. and the company to make inquiries, I think that there was no representation by the company to Burge *& Co. that the ti-ansfer was genu- ine: as it seems to me, the action cannot be maintained upon that ground. It is imnec- essary to determine whether, if any repre- sentation had been made, Burge & Co. could be considered to have acted upon it. I must proceed to deal with the view upon which LIXDLEY, J., seems to have chiefly based his judgment, namely, that Burge & Co. are to be treated as the parties beneficial- ly entitled to the stock in the names of Simm and Ingelow. It has been argued that as Simm and Ingelow once had a good title by estoppel, it still remains, because it is impos- sible to say at what time that title by estop- pel came to an end. Simm and Ingelow were purchasers for value; and no doubt, while their interest remained they had a right of 174 SIMM V. ANGLO-AMERICAN TEL. (.0. (Ch. 15 action against the company, wlio were es- topped as against them from saying that their transferors, Spurling and Skinner, were not stoclvholders. The action would have been founded upon a representation made to Simm and Ingelow by the company of circumstan- ces, \yhich, if true, would have entitled them to maintain an action as stockholders. But the learned judge appears to have considered that a real title by estoppel existed in Simm and Ingelow, and that that title could be transmitted to Burge & Co., or at least be ]jeld for the benefit of Burge & Co., the per- sons actually interested. Simm and Ingelow having been paid off, have suffered no preju- dice from the representation made to them by the company, and I do not think that they have transmitted then- title to Burge & Co. As I undei'stand tlie question,' a good title by estoppel may exist in some cases; for instance, by indentm'e a lease for years may be grant- ed of land in which at the time the lessor has no interest, but if he afterwards acquires a sufficient interest to support the lease, by estoppel it becomes valid for the term cre- ated and the lessee has a good title to the fiubject-matter of demise. Tliere may be also a good title by estoppel to things which do not require any instrument to transfer them, as for instance, goods: if an action is brought upon the ground that the property in goods has passed to the vendor of the plaintiff, and if that question depends upon whether a par- ticular parcel of goods has been set apart and appropriated to the contract between the ven- dor of the plaintifC and the defendant, an admission by the defendant, the owner of the goods, that there had been a setting apart of the goods, would be effectual as against him to pass the property in the goods to the plain- tiff's vendor: as against the plaintiff who has paid for the goods, the defendant is es- topped from denying that the goods have been set apart, and the plaintiff is entitled to rely upon the admission of the defendant, which if true would have given the plaintiff a good title to the goods. A case of that de- scription is Knights v. Wiffen, L. R. 5 Q. B. 660. In the present case, however, we are dealing with stock, which cannot be trans- ferred except in a particular manner, and to which the company cannot give an actual ti- tle by any admission of their own. If stock is sold, the buyer can only gain title to it by an instrument executed in the manner re- quired by the articles of association. No right can be acquired by estoppel to any specified portion of stock, except where the owner has represented that which in a court of equity he may be bound to make good. The only right by estoppel which can be gained against the company is a right of ac- tion founded upon statements by the company, wliich if true would have entitled the plain- tiff' to be registered as stockholder. If Simm and Ingelow had sold in the market the £5,- 000 stock belonging to Coates, an innocent purchaser would have acquired a title by es- toppel against the company; not because Simm and Ingelow had transmitted to him any title of their own, but because he had acted upon the faith of the representation made by the company in issuing the certifi- cate: he would have had a right in conse- quence of that statement to maintain an ac- tion against the company, as if the statement upon which he acted had been in fact true. In the present case, however, Simm and Inge- low have not sold to any one, and, in my opinion, no representation was made by the company so as to give Burge & Co. any right against them under the doctrine of estoppel and the latter cannot gain that right, on the ground that Simm and Ingelow were the holders of the stock, and before they parted with their interest had the right to maintain an action against the company if their title should be denied. As regards the second action, it is to be un- derstood that no opinion is expressed in fa- vour of either party. In Simm and others v. Anglo-American Tel- egraph Co. judgment reversed and entered for defendants. In Anglo-American Telegraph Co. v. Spur- ling and others judgment affirmed. Ch. 15) MACHINISTS' NAT. BANK v. FIELD. 175 MACHINISTS' NAT. BANK v. FIELD et al. (126 Mass. 345. 1879.) Bill in equity against William N. Field, a broker, Joseph P. Hawes and Francis Heu- shaw, auctioneers under tlie firm of Hawes & Henshaw, and Theodore Dean. Hearing before Ames, J., who reported the case up- on the pleadings and the following facts, for the entry of such decree as, in the opinion of the full court, the case might require: Elizabeth W. Pratt was the owner of twelve shares of the capital stock of the plaintiff bank, for which she held a certifi- cate, dated October 15, 18T5, and this cer- tificate was taken from her house without her knowledge by Charles C. Pratt, and, with a forged power of attorney, delivered to the defendant Field, who employed Hawes & Henshaw to seU the twelve shares by auction; and they sold the same, on March 8, 1876, to Dean, for $1,020. On March 10, 1876, Field called on Hawes & Henshaw, for the proceeds of the sale, and they informed him that, in accordance with their practice, they would pay over the same on receiving from the bank a certificate of the shares; and thereupon Field, believing the power of attorney to be genuine, sent the certificate, with the forged power of at- torney, to the bank, with a letter, request- ing a transfer of the shares to Hawes & Henshaw. The president of .the bank, be- lieving the power of attorney to be execut- ed by Elizabeth W. Pratt, inserted his own name therein as attorney, and transferred the twelve shares to Hawes & Henshaw, and issued a certificate therefor to them, and sent this certificate to Field, who deliv- ered it to Hawes & Henshaw, and they paid him the proceeds of the sale less $1.50, their commissions for selling. Hawes & Hen- shaw delivered this certificate to Dean with a power of attorney to transfer the same, and Dean paid them therefor $1,920. Dean, who was then the hoWer of a certificate for forty-three shares of said stock, executed an assignment of the twelve shares to himseir, and, upon the surrender of the respective certificates for forty-three shares and twelve shares, the bank issued to him a certificate for fifty-five shares, which he now holds. The bank paid to Dean the dividend declared in April, 1876. Field, on Blarch 13, 1870, paid to Charles C. Pratt the amount re- ceived by him from Hawes & Henshaw, less $1.50, his commission as broker on the sale. Neither Hawes & Henshaw nor Dean ever saw the certificate of the shares in the name of said Elizabeth W. Pratt, nor the power of attorney under which the same were transferred, or ever knew or heard that she was the owner of the same, or who was the owner of the same tiU after the issue by the bank of the certificate to Hawes & Hen- shaw, and until after the transfer and issue of the certificate to Dean. Field acted in good faith in the sale of the shares, and there was no evidence that he had any knowledge or suspicion of the for- gery of the power of attorney, and he never made any representation to the bank or its president, or had any communication with either, except the letter above referred to. Elizabeth W. Pratt, in June, 1876, filed a bill in this com't against the bank, praying that said twelve shares might be reissued to her, and obtained a decree ordering the bank to "procure and transfer to the plaintiff her twelve shares of the capital stock of the defendant corporation, as described in the bill, and make and deliver to the plaintiff a proper and legal certificate for the same, and make a proper and legal record upon the books of said corporation of said transfer and certificate;" and also to pay to the plain- tiff the dividends declared upon the twelve shares. See Pratt v. Manufacturing Co., 123 Mass. 110. The bank reissued to Elizabeth W. Pratt a certificate for her twelve shares, and there are now outstanding, issued by the bank, certificates for twelve shares more than the authorized capital. The present bill concluded thus: "Where- fore, inasmuch as there are now two differ- ent parties, claiming distinct rights or inter- ests in the same stock, which cannot be just- ly and definitely decided in an action at law, and whereas there is no plain, adequate and complete remedy at the common law, but the same is properly cognizable only in a court of equity, the said bank brings this bill in equity, and prays for a decree that said Field and said Hawes & Henshaw may be ordered to repay to said bank the amount so received from said Dean for said twelve shares of stock, that said bank may return the same to said Dean, or to repay the same to said Dean directly; and that he may be ordered to surrender to said bank his said certificate of fifty-five shares, and retake his former certificate of said forty-three shares before owned by him, and all parties re- stored to their former position; or that such other orders and decrees may be made as law and justice may require, or as to your honors may seem meet;" with a prayer for process. GRAY, C. J. This bill cannot be maintain- ed. The sole ground on which it invokes ju- risdiction in equity is that "there are now two different parties claiming distinct rights or interests in the same stock, which cannot be justly and definitely decided in an action at law;" and the relief specifically prayed for is that Dean may surrender to the plain- tifE bank the certificate of the new shai-es is- sued by it to him, and that Field and Hawes & Henshaw may be ordered either to repay to the plaintiff the money received by Hawes & Henshaw from Dean for these shares, so that the plaintiff may return that money to Dean, or else to repay the money to Dean directly. Dean cannot be ordered to return his cer- tificate, because he purchased the shares in 176 MACHINISTS' NAT. BANK v. FIELD. (Ch. 15 good faith and for valuable consideration, and the certificate issued to him is as against the bank conclusive evidence of his title. The bank has no right to compel him rather than any other stockholder to give up his certificate, and thereby assume the responsi- bility of its ovyn illegal act in issuing a great- er number of shares than the law authorized. Salisbury Mills v. Townsend, 109 Mass. 115, 122; Pratt v. Bank, 123 Mass. 110, 112; Low- ry V. Bank, Taney, 310, 328, Fed. Cas. No. 8,581; In re Bahia & S. F. Ry. Co., L. R. 3 Q. B. 584; Holbrook v. Zinc Co., 57 N. Y. C16. The relief specifically prayed for against Field and against Hawes & Hen- shavs^ is for Dean's benefit, and contingent upon his being ordered to surrender his cer- tificate, and as he is not bound to do so, he has no claim to be repaid any money by ei- ther of the other defendants. The general relief prayed for must be con- fined to the ground of jurisdiction stated in the bill; and it quite clear that there are not two parties before the court, claiming dis- tinct rights or interests in the same stock. Mrs. Pratt is not a party, but has obtained her rights in her former suit against the bank. The only party claiming the shares in question is Dean, whose title, as we have seen, this plaintiff cannot controvert. Hawes & Henshaw claim no title in the stock, and are protected, equally with Dean, by the cer- tificates issued to them by the plaintiff. Field also has and claims no title in the stock, and if, by reason of his having pre- sented to the bank the forged power of at- torney upon whiich the new certificates were issued, he is liable to the bank in any form, (of which we give no opinion,) the bank has an adequate remedy against him alone by action at law. Bill dismissed, with costs. Ch. 15) JOSLYJs^ V. ST. PAUL DISTILLING CO. 177 JOSLYN V. ST. PACL DISTILLING CO. (46 N. W. 337, 44 Minn. 183.) Supreme Court of Minnesota. July 22, 1890. Appeal from district court, Ramsey county; Otis, Judge. OOTjLITvS, J. At the coramenceinent of this action, (me of the defendants, Lizzie M. Hicks, appeared on tlie boolis of the defendant corporation to be the owner of shares of its corporate stock of the par value of $30,000. There had previously been issued to her, and in her name, a cer- tificate representing and evidencing these shares, in vrhich was tlie usual clause and recital that tlie stock was " transferable only on the books of the company, on tlie indorsement and surrender of this certifi- cate. " The object of this action was to compel the defendant corporation to can- cel the certificate to the extent of $15,000, and to issue its certificate to plaintiff for that amount of its corporate stock, upon the ground that to that extent the certificate had been fraudulently obtained by Lizzie M. Hicks, and that plaintiff was the real owner of the stock. The trial court had jurisdiction of the parties de- fendant, but did not obtain possession of the stock certificate issued to Mrs. Hicks. By its decree tlie full relief demanded in the complaint was awarded by tlie court. The character and qualities of stock cer- tificates are the only questions involved here. If they are to be treated as if they were the shares themselves, and, when properly transferred, as passing to the as- signee all the equitable rights of the hold- er, and the legal right to be admitted as a shareholder on the books of the associa- tion, it must follow that, upon a regular assignment and delivery of ths certificates, there has been transferred to the purchas- er the full legal and equitable ownership of the shareholder's contract, with all the indicia of such ownership. While there has been some difference of opinion upon this, the weiglit of authority is, undoubt- edly, that where a corporation having au- thority to issue a stock certificate does is- sue such acertificate,whereinit is attirmed, as in the case at bar, that a designated person is entitled to a certain number of shares of stock, transferable only on the books of the association, on the indorse- ment and surrender of theeertificate itself, it thereby holds out to persons who may deal in good faith with the person named in the certificate that he is the owner, and has capacity to transfer the shares. There is in the certificate, which evidences and represents the shares, the assurance of the corporation to the commercial world that no prior right to the stock can be ob- tained, unaccompanied by possession of the certificate, and that the shares shall not be transferred upon the books of the corporation unless the certificate is first surrendered. As was said in Bank v. La- nier, 11 Wall. 377, when speaking of stock <;ertiflcates in which the same assurance was found, "no better form could be adopted to assure the purchaser that he can buy with safety. He is told, under the seal of the corporation, that the share- holder is entitled to so much stock, which PKIV.COEP. — 13 can be transferred on thebooks of the cor- poration * * * when the certificates are suriendered, but not otherwise. This is a notification, to all persons interested to know, that whoever in good faith buj's the stock, and produces to the corporation the certificates regularly assigned, with power to transfer, is entitled to have the stock transferred to him; and the notifi- cation goes further, for it assures the holder that the corporation will not transfer the stock to any one not in pos- session of the certificates." These conclu- sions have not been adopted by the courts on any view of the negotiability of stock certificates, but on general princi|.>les ap- pertaining to the doctrine of estoppel. A representation, which has tended to en- hance the value of the stock, has been made with a view^ or expectation that it would be acted upon by another; it has or may have been so acted upon; and a person who has relied upon the represen- tation will be injured or damaged, if it be withdravvn. Theeertificate itself must be regarded as a continuing affirmation of the owner- ship by the person to wliom it has been is- sued, and of his power over, and right to sell, the stock, until this power and right has lawfvill.v terminated. It is clear that at any time, at least prior to the com- mencement of this action, a purchaser of the certificate in good faith, from JNlrs. Hicks or her assigns, would have had the right to rely on the certificate securing to him the shares of stock it represented and evidenced. Bank v. Lanier, sui)ra; Hol- brook V. Zinc Co., 57 N. Y. 610; Factors', etc., Ins. Co. V. Marine, etc., Ship-Yard Co., 31 La. Ann. 149; Bridgeport Bank v. New York, etc., Ey. Co., 30 (.'onn. 231. See, also, as bearing upon the question, National Bank v. Lake Shore, etc., Ry. Co., 21 Ohio St. 221 ; Railroad Co. v. Bobbins. 35 Ohio St. 483; Eby v. Guest, 94 Pa. St. 100; Bank V. McElrath, 13 N. J. Eq. 24; Strange v. Railroad Co., 53 Tex. 162; Galveston City v. Sibley, 56 Tex. 269; Cherry v. Frost, 7 Lea, 1 ; Van Norman v. Circuit Judge, 45 ^lich. 204, 7 N. W. Rep. 796; Lowry v. Bank, Camp. Dec. 310; Continental Nat. Bank v. Eliot Nat. Bank, 7 Fed. Rep. 369. As a good-faith purchaser, he would be fully protected ; and a decree in these proceed- ings against the corporation, of the nat- ure of that now under consideration, would be of no avail should such a pur- chaser hereafter demand recognition as a stockholder. While the doctrine adopted in the cases cited commends itself to us as sound in every way, it may also be said to be obvious that the interests of the de- fendant company, a domestic corpora- tion, should not be hazarded by the adoption in this state of a rule of law con- trary to that of the federal courts upon the same subject by compelling it to issue a new certificate to plaintiff while the oth- er may have passed into the hands of, a non-resident, good-faith purchaser who may in time asserthis rights. The result of such a holding would be to place our own citizens at a disadvantage. Attention has been called by the re- spondent to section 114, (formerly section 49,)c.34, Gen. St. 1878, whereby it is enacted that corporate stock shall be deemed 178 JOSLYN 0. ST. PAUL DISTILLING CO. (Ch. 15 personal property, and be transferable only on tbe books of the association, In a form to be prescribed by tlie directors. Based on tliis statute, the claim is made that the decree herein will protect defend- ant corporation against any holder of the stock of whose rights it had no notice at the time of the rendition of the decree. lu Baldwin v. Canfield, 26 Minn. 43, 62, 1 N. W. Rep. 261, 276, 585, it was held that this section was intended solely for the protec- tion and benefit of the corporation ; that, except as against the corporation, the owner and holder of shares of stock might transfer the same as any other personalty of which he was the owner; and that a shareholder was not thereby incapacitat- ed from transferring his stock without an entry on the books. In this case the stock certificates had been pledged as collateral security, and the rights of the pledgees were adjudged paramount to those of an- other, who had become an equitable own- er of the stock, while the certificates were in the possession of the pledgees. In Nic- ollet Nat. Bank v. City Bank, 38 Minn. 85, 35 N. W. Rep. ,577, it was declared that an assignment and delivery of stock certifi- cates without a transfer upon the books of the corporation invested the assignee with an equitable title which would be protected as against all parties not show- ing a superior right. Both of these cases are in line with the conclusion, herein an- nounced. Finally, respondent contends that Ib any event the judgment below will pro- tect the defendant corporation, should it obey the mandate, and issue a certificate to plaintiff as commanded. Such a posi- tion cannot be maintained, for it is obvi- ous that in the trial of this case the rights of only those who were before the court could be passed upon. In an action against these defendants the court could not determine the rights and Interests of another person, who may have become the bona, fide owner and holder of the cer- tificate issued to Mrs. Hicks. The decree below was erroneous. Judgment reversed. Ch. 15) BEAN V. AMERICAN LOAN & TRUST CO. 179 BEAN V. AMERICAN LOAN & TRUST CO., Impleaded, etc. (26 N. E. 11, 122 N. Y. 623.) Court of Appeals of New York, Second Division. Dec. 16, 1890. Appeal from supreme court, general term, first department. Action by Edwin Bean against the American Loan & Trust Company, im- pleaded with others. Plaintiff appeals from a judgment of the general term re- versing a judgment in his favor on appeal by the American Loan & Trust Company. HAIGHT, J. This action was brought to obtain from the defendant the American Loan & Trust Company 266 bonds and cer- tificates for 6,650 shares of stock of the defendant the Sovereign Mining Compa- ny. Issues were disposed of by the judg- ment, which are not brought up for re- view by this appeal, and we shall only call attention herein to such facts as bear upon the questions pre.sented. On or about the 1st day of March, 18s3, the plaintiff became the owner of 1,777 shares of the stock of the defendant the Sovereign Gold Mining Company. There- after, and during the summer or fall of 18S4. a new corporation was organized un- der the laws of this state, known as the "Sovereign Minins' Company," and an agreement was entered into by the stock holders of the former company other than t.hft plaintiff herein to sell their stock to the new company, and to accept in pay- ment therefor the bonds and stocks of that company. In such agreement thede- fendant, R. M. Whipple, represented him- self to be the owner of 3,677 shares of the stock of the old company, and signed for that number, when in fact 1,777 shares thereof belonged to the plaintiff. The agreement further provided that the b(mds and stock of the new company, which by the terms thereof were to be giv- en to the stockholders of the old compa- ny, should be deposited in escrow with the defendant the American Loan & Trust Company for the period of one year from the 1st day of December, 1884, that com- pany agreeing to take such bonds and stock, and to hold the same in escrow for the period aforesaid, and to issue to the stockholders of the Sovereign Gold Mining Company a certificate in each case to the effect that the person named in the cer- tificate was the owner of the number of bonds and shares of stock therein men- tioned, as the case might be, of the Sover- eign Mining Company, and that the same was held in trust by it for the period aforesaid, and that at the expiration of that period the bonds or stock, as the case might be, should be delivered to the stockholder, or his order, at the option of the holder thereof, on the surrender of his certificate. The provisions of the agree- ment having been carried out, the defend- ant Whipple represented to the oflBcers of the Sovereign Gold Mining Company that he was the owner of the 1,777 shares of the stock, which was in fact owned by the plaintiff, and that the same was with the plaintiff in Chicago, on loan ; that if they would direct the defendant the American Loan & Trust Company to deliver to him the certificates for such stock, he would, immediately upon his return to Chicago, take up the stock held by the plaintiff, and return the certificates therefor to the secretary of the Sovereign Gold Mining Company. Thereupon the directors of the Sovereign Gold Mining Company author- ized its secretary to represent to the de- fendant the American Loan & Trust Com- pany that the defendant Whipple was the owner of the bonds and stock of the new company that under the agreement was to be issued for the 1,777 shares of the stock of the old company, and that he was entitled to receive the certificates therefor, and thereupon, upon receiving such representation, the defendant the Aniei-icHii Loan & Trust Company dirt is- sue such certificates in his name, and de- livered the same to the secretary of the defendant the Sovereign Mining "Compa- ny, who delivered the same to Whipple. Subsequently, the plaintiff, upon hearing of these facts, demanded of the defendant the American Loan & Trust Companv the surrender to him of the bonds and stock in question, which was refused, and there- upon this action was brought. The trial courtacljudgedand determined that the plaintiff was entitled to recover of the defendant the American Loan & Trust Company the bonds and stock in question, and the defendant Whipple was adjudged and directed to deliver up to the American Loan & Trust Company its cer- tificates which had been issued to him. It will be observed that the defendant the American Loan & Trust Company was a mere depositary of the stocks and bonds, having no pecuniary interest therein ; that it had but executed the provisions of the contract of the stockholders, and had issued its certificates to the owners of the stock as represented and directed by the officers of the corporations. It is conced- ed to be an innocent party acting in good faith, and is therefore, under the circum- stances, entitled to the fullest protection that the court can give; and this right appears to have been recognized by the trial court, for in its opinion it states: "The practical question is whether the tru.-stee will be protected b.v tlie decrees di- recting the delivery of the bonds and shares to the plaintiff. If it will be, then there is no necessity for imposing upon the plain- tiff a conditional judgment which Whipple might frustrate by remaining out of the ju- risdiction, and refusing to turn over the certificates. " The learned trial judge then proceeds to call attention to the fact that Whipple was a party to this action ; that there had been no transfer of the certifi- cates by him up to the end of the year in which the bonds were to be left in escrow; that by the judgment herein the plaintiff was adjudged to be the rightful owner; and reached the conclusion that the de- fendantthetrustcompany would be amply protected. In this conclusion we are in- clined to the opinion that the trial court was mistaken, and that the protection to the trust company is not as ample as it should be. The defendant Whipple resides in the city of Chicago, out of the jurisdic- tion of the court, and it is powerless, there- fore, to compel a surrender of the certifi- 180 BEAN V. AMERICAN' LOAN & TRUST CO. (Ch. IS cates. The certificates issued by the trust company to Whipple pledged the trust company to deliver the bonds and stocks to him, or his order, on the surrender of tlie certificates. He had but to Indorse the certificates, and pass them to another person, to enable such person to present the certificates and demand the delivery of the bonds and stocks called for. True, he was in possession of the certificates after this action was brought, but wheth- er he still remains in possession, or has sold and transferred the same to an inno- cent pui'chaser for value, does not appear. We shall not stop to determine whether or not the certificates are neg )tiable, or whether the.v were transferred before or after the expiration of the year that they were to remain in escrow. All we now wish to assert is that circumstances may exist In which the plaintiff would be es- topped from questioning the title of an in- nocent ijurchaser for value. The contract, by its terms, was only to be binding when signed by all the owners of the stock. Consequently, the plaintiff was not prejudiced thereby. His stock in the old company was not affected or his rights impaired. He had no interest in the new company, or right to any of its bonds or stock, unless he came in and made himself a party to the contract. He has not subscribed the contract or turned in his stock in the old company. The only way he has made himself a party thereto is by ratifying that which has been done in reference to his stock. Whipple had signed for the plaintiff's stock, and re- ceived a certificate therefor, and in order to entitle the plaintiff to recover in this action he must be treated as electing to ratify the acts of Whipple as his agent ex uialeficio, thus making the contract his own, and becoming bound by its provis- ions. B.y its terms the stock and bonds in question were to be delivered to the trust company, to be held by it for the period of one year, and it was required to issue its cei-titicates therefor. This had been done, and Whipple was thus given the evidences of title, and has it in his power to induce innocent persons to purchase and pay value therefor under circumstances in which the plaintiff may be estopped from claiming the certificates, and the bonds and stocks that they represent. The cer- tificates issued to Whipple were for a larger number of bonds than the plaintiff is enti- tled to A portion of the bonds embraced in the certificates were owned by Whipple, and he had the right to dispose thereof. If, therefore, other persons should present to the trust company its certificates with Whipple's indorsement thereon, it would be powerless to determine whether the certificates were the certificates of Whipple or those which should belong to the plain- tiff. It may be true that stocks and bonds have no ear-mark so that one may be dis- tinguished from another, but we think It must be admitted that Whipple could sell and transfer bis certificates for bonds and stock until that which was left in his pos- session was reduced to the number belong- ing to the plaintiff; but the trust com- pany is left powerless to determine when such amount has been transferred by him. It can determine only when a certificate is presented to it indorsed by him, and certificates may have been previously transferred to other parties for the entire amount owned by him. It may be claimed that the trust company improperly issued the certificates to Whipple, but we must bear in mind that the company was deal- ing with the persons who had signed the contract, and that it had only issued the stock to the persons directed by the ofla- cers of the Sovereign Gold Mining Com- pany, and not even then was the delivery made by the trust company to the stock- holders, for the certificates were in fact de- livered by the trust company to tliesccreta- ry of the Sovereign Oold Mining Company, who distributed and delivered them to the parties entitled thereto. We see nothing in this transaction which charges the trust company with neglig'ence in reference thereto, or why it should not receive fulj protection from an.y liability by reason of the issuing of any such certificates. We are, however, inclined to the view that a reversal by the general term was not necessary, but that the judgment should instead have been modified. It was adjudged that "the defendant Rodney M.Whipple be and he hereby is directed to forthwith deliver to the defendant the American Loan & Trust Company its cer- tificates for (he bonds and stock of said Sovereign Mining Company, to an amount equal to the said 266 bonds and said 6,650 shares of stock." Although a non-resident, we cannot assume that he will disobey the commands of the decree. The judgment should be modified by add- ing to the above provision that, upon the surrender of the certificates of such bonds and stock to the defendant the American Loan & Trust Company, it forthwith de- liver to the plaintiff, Edwin Bean, or his attorney, 266 bonds and certificates for 6,650 shares of the stock of the defendant the Sovereign Mining Company, etc., as is al- ready provided for in the judgment. The judgment of the general term should be reversed, and that of the trial court modi- fied as herein indicated, without costs of this appeal to either party. All concur. Judgment accordingly. Ch. 15) RICE V. IIOOKEFELLEE. 181 RICE V. ROCKEFELLER et al. (31 N. E. 907, 134 N. Y. 174.) Court of Appeals of New York, Second Division. Oct. 1, 1893. Appeal from supreme court, general terni, first department. Action by George Rice against John D. Rocltefeller and others, trustees of the .Standard Oil Trust. P'rom an order of the general terra, (9 N. Y. Supp. 86(i,) re- versing judgment entered on derision of the special term in favor of plaintiff, and granting a new trial, plaintiff appeals. Reversed. The other facts fully appear in the fol- lowing statement by BRADLEY, J.: The main purpose of the action was to require the defendants to transfer to the plaintiff upon their books six shares of stock in the Standard Oil Trust on the surrender of the certificates of such shares held t)y him. The .Standard Oil Trust was created in January, 1882, by agreement in wridng made or adopted by the stock- holders and members of certain corpora- tions and limited partnerships, and certain individuals therein named, or that might thereafter join in it at the request of the trustees. The stockholders and most of the other individuals making or adopting the agreement were interested as stock- holders or otherwise in the mining, manu- facturing, refining, and dealing in petro- leum and its products, the materials used in the business, and the business in some manner relating thereto. The trustees, pursuant to the trust as provided for by such agreement, received from the parties making or adopting it certain bonds and stocks in trust, and issued to them there- for Standard Oil Trust certificates trans- ferable on the books of the trustees. And by virtue of the agreement the parties so surrendering their bonds and stock foi- such certificates became the beneficiaries under the trust, as did also the transferees of such certificates. The par value of the cerli^cates which have been so issued from time to time by the trustees exceeded $90,000,000. And they have a regular mar- ket value, and are dealt in in the open market in the city of New York, and were at the time of the commencement of this action held in considerable amounts by many persons who were transferees there- of, and not parties to such agreement. One of the objects of the agreement cre- ating the trust was to secure to the trus- tees the general supervision, so far as practicable, of the affairs of the various corporations, limited partnerships, and manufactories coming within the adop- tion of the agreement. The above is a statement substantially of facts alleged in the complaint and admitted by the an- swer. It further appears by the evidence, and was also found by the court, that on or about October 14,1886, the plaintiff pur- chased in the open market in th* city of New York Standard Oil Trust certificate No. 1,987 for five shares of stock duly is- sued to one L. B. Mallaby by the trustees, and paid for it SPJ90 per share in cash, and. the certificate was thereupon transferred to him by Mallaby. The following is a copy of the certificate and of the ti-anefer indorsed upon it, to wit: "Shares, $100 each. Standard Oil Trust. Numberl,986. Shares, .5. This is to certifythat L.B. Mal- laby is entitled to five shares in the equity to the property held by the trustees of the Standard Oil Trust, transferable only on the books of said trustees on surrender of this certificate. This certificate is issued upon condition that the holder or any transferee thereof shall be subject to all the provisions of the agreement creating said trust and the by-laws adopted in pur- suance of said agreement, as fully as if he had signed the said trust agreement. Witness the hands of the president, secre- tary, and treasurer of the board of trus- tees, this 25th day of August, A. D. 1885, at the city of New York. Wm. Rockefel- i.EH, V. President. J. F. Fkeeman, A. Treasurer. H. M. Flagler, Secretary." Upon the back of it is the following, to wit: "'For value received I hereby sell and transfer to George Rice, of Marietta, Ohio, five shares of the Standard Oil Trust, standing in my name on the books of said trust. And I hereby irrevocably appoint said George Rice my attorney to make the necessary transfer upon the books of said trust, in accordance with the regulations thereof, and upon theeonditions«xpressed on the face of this certificate. Dated Au- gust 20th, 1885. L. B. Mallaby. In pres- ence of C. F. Stkbightoff." After this purchase, and prior to June 20, 1887, a stock dividend was declared by the trustees amounting to one share of stock for every five shares oustanding, and certificate No. 3,057 for one share of the Standard Oil Trust stock was there- upon issued to Mallaby, who about June 20, 1887, transferred it to the plaintiff. This certificate and transfer indorsed upon it are in form the same as those above set forth. And on January 20, 188S, the plaintiff, at the oflBce of the trustees in the city of New York, made a formal writ- ten demand for the transfer to him of such six shares upon surrender of the cer- tificates, which, with the transfers there- on indorsed, he then exhibited. The fol- lowing is a copy of the written demand: "To the Standard Oil Trust, No. 26 Broad- way, New York, and its trustees, ofiicers, and agents: You will take notice that I am the legal owner of certificate number 1,987 forfive shares, and certificate number 3,057 for one share, in the equity to the property held by the said trustees of the said Standard Oil Trust, and that each of said certificates was issued to L. B. Mal- laby and has been duly transferred by him to me, said original certificates and transfers being herewith exhibited to you. I hereby offer to surrender to you said certificates on receiving the new certificate hereinafter referred to, and do demand that you forthwith transfer said six shares to nie on the books of said trustees of the Standard Oil Trust, and issue to me a new certificate therefor in my name. George Rice. Dated New York, Januarv 20th, 1888." The transfer to the plaintiff on the books was refused, and this action followed. Further facts appear in opin- ion. BRADLEY, J., (after stating the facts.) The defense is founded upon the propo- 182 RICE V. ROCKEFELLER. (Ch. 15 sitiona (1) that the i)laintitf failed to prove that he was n bciiefloiary umler the Standard Oil Trust asreeir.ent, or entitled to become such by nieHiis of transfer upon the books of the shares represented by the certitirates held by him ; and (2) that he is not seekins such relation in good faith, but for purposes hostile to the trust, and for that reason is not entitled to the aid of the equitable powers of the court in that behalf. The Standard Oil Trust rep- resents a voluntary association. It was created l)y agreement of the stockholders of various corporations and others eu- gnged or interested in a certain enter- prise and the several branches of business connected with and incidental to it. The effect of its creation is the concentration of supervisory power in nine trustees, whose certificates of the trust are taken in place of the stock and bonds of the sev- eral corporations. The characteristic fea- ture of it is in tlie voluntary surrender of the control and manaRement of the busi- ness of those corporations, and in the fact tliat for its continuance it has the ca- pacity of succession. The affreement con- stituted not a partnership, but a trust in behalf of the lieneticiaries. And while it is not a corporation, it by the agreement took some of the attributes of a corpora- tion, in so far that through its trustees certificates of shares in the equity to the property held hi' them were issued and were transferable in like manner, ap- parently, as are those of corporations. They are transferable on the books of the trustees, and until that is done It is said that the holder is not a beneficiary of the trust. And it is further urged that it does not appear that the plaintiff is entitled to that relation because the right to transfer upon the books depends upon tiie pro- visions of the agreement and by-laws and compliance with them in that respect, and, as they were not put in evidence, thq con- ditions requisite tor the purpose do not appear. It is true that the burden was with the plaintiff to show that he was entitled, within the meaning of the agree- ment and by-laws, to the relation of a transferee or beneficiary, and to have it perfected by transfer on the books. The fact that the shares were transferable and were for sale in the open market enabled the plaintiff to become the holder of those he did purchase. It may be observed that liy the terms of the certificates the shares appear to have been "issued upon condi- tion that the holder or any transferee thereof shall be subject to all the provi- sions of the agreement creating said trust and of the by-laws adopted in pursuance of said agreement, as fully as if he had signed the said agreement." This rela- tion of holder was given the plaintiff when he became such by taking the trans- fer from JVlallahy. It is said that tliis does not constitute him a transferee, and that transfer on the books was essen- tial to thatrelation and to makehima ben- eficiary. By the terms of the certificate, the holder and transferee are alike subject to the provisions of the agreement upon which the trust is founded. But to give him the character of transferee for the purposes of recognition by the trust, the transfer on the books is requisite, inas- much as the shares are transferable only upon them. This is for the benefit and protection of the trust. tSank v.Smalley, 2 Cow. 770. The liolder, as between him and his assignor, having the title, would seem in some sense to be a beneficiary of the trust, since he is subject to all the pro- visions of the agreement on which it is founded and its by-laws. The allegations in the complaint of what purport to be the nature, purpose, and effect of the agreennent are l)y the de- fendants' answer admitted. The fact thus appears that the shares are trans- ferable on the books of the trustees. From that arises the inference that the condi- tions were applicable alike to all purchas- ers and holders. And this quality of the shares is recognized by the terms of the certificate and of the blank indorsement for transfer upon the back of and accom- panying it, in which, when filled out, ap- pears the name of the i)erson designatr:! by the transferrer as his attorney to make the necessary transfer upon the books of the trust in accordance with the regula- tions thereof, and upon the conditions ex- pressed in the certificate. Those condi- tions are that the transferee shall be sub- ject to all the provisions of the agreement creating the trust and of the by-laws adopted pursuant to it. The quality of transferability given to the shares wt)uld seem to import theright to make it effectu- al by transfer on the books, as that is treated as essential to accomplish it. And when the plaintiff applied to have it done, it may, in view of what appears in the indorsement upon the certificate as well as in it, be assumed that he sought to have the transfer made to him upon the hooks of the trust "in accordance with the regulations thereof, "and upon the conditions in the certificate. They seem to relate to the manner and effect of doing it, and not to the right to have it done. And therefore, when the essentiel tact of the transferability of the shares, and the general nature and purpose of the trust as created by the agreement, were made to appear, as they did by the ad- mitted allegations of the ccjmplaint, there was nothing wanting in the evidence to establish the right of a holder of shares to effectually become a transferee. And it cannot be presumed that there were in the agreement any negative provisions quali- fying such apparent right. If there were any such, it was for the defendants to make it appear. In Burrall v. Railroad Co., 75 N. Y. 211, the question arose upon demurrer to the complaint, which did not allege any facts tending to show that transfer of shares of stock on the books of the company was requisite to pertect it; and it was held that, it it was not, no transfer upon them was necessary for such purpose. The defendants liere claim that the holder of shares in the trust is not en- titled to recognition as such or as trans- fereeuntil transfer is made on their books, and accordingly it appears that they de- clined to treat him as a beneficiary for the purpose of receiving dividends upon the shares he had purchased, but paid them to Mallaby, who was named in the certifl- Ch. 15) KICE V. ROCKEFELEEE. 183 cate as sucli, and as the consequence the plaintitf was not permitted to take any dividends upon, or rights as holder of, the shares otherwise than through him The denial of the right to transfer upon the books IS not consistent with the transfera- ble quality of the shares, which imports that the purchaser taking an assisnuient of them in a duly formal manner has the right to become a transferee within the meaning of the agreement upon which the trust was formed. And it is difficult to fee any substantial distinction in tliat re- spect between a holder of such shares and of those of a corporation, which are trans- ferable only upon its boobs. In such case it is within the equitable power of the court to compel such transfer to be made. Cushman v. Manufacturing Co., 76 N. Y. 365. And unless some further reason ap- pears for the denial of such right, the plaintiff was entitled to such relief in this action. It is evident from what appears that the -ground of the refusal of the defendants to grant the plaintiff's request to make the transfer on the books was personal to him. .\nd they, among other matters, by their answer charge, in effect, that the l)laintiff, as competitor of the companies whose stock is held by the defendants in trust, in the business of manufacturing and dealing in oil products, is hostile to them, and that his demand for transfer of his shares on the books of the defendants is not in good faith, but that he seeks to vex and harass them. Dpon that sub- ject the trial court found that since in 1876 the plaintiff has been a competitor and rival of the constituent corporations of the Standard Oil Trust, and since its crea- tion he has been such of the trust in the business of oil refining, and has maintained a hostile attitude and been engaged in hostile transactions and proceedings to- wards those companies, the trust, and the defendants as trustees; that he believes an oil trust ought not to exist, and is op- posed generally to trusts of that character; and that since that time, to the commence- ment of tills action, he has been prosecut- ing or aidingin prosecutinglitigationsaTid proceedings in coprts as well as before the interstate commerce commission, and before an investigating committee in con- gress, directed mainly and in effect against such corporations or the trust, for the purposes of securing from the railroads what he considered equal rates with those corporations and such trust for carr.ving his products. The court also found that the plaintiff, "having for ten or more years been engaged in the oil refining business at Marietta, Ohio, had suffered from dis- crimination in freight rates for the trans- portation of oil by various railroad com- panies against him and in favor of his competitors in the trade; that the litiga- tions instituted by him before the inter- state commerce commission against a number of railroad companies were con- ducted by the plaintiff in good faith and for his protection from unjust discrimina- tion against him on freight charges by them in such transportation; and that, in quo warranto suite of the state of Ohio against certain named railroad companies. it was found as a fact and determined by the referee in each of them that a discrimi- nation in freight rates for transportation of oil existed, greatly to the injury of the business of the plaintiff in thisaction ; and that his connection with those suits "was in good faith, wholly justifiable, and in the protection of his legal rights." The facts P'> found by the court in thepresent action had the support of evidence. And it also appears that the plaintiff propoped and offered to sell his oil property and works to the defendants for a sum greatly in ex- cess of their value, and that in December, prior to the creation of the trust, he pub- lished a severe pamphlet against the Standard Oil Company, which became one of the constituent companies of the trust. In this publication he manifested his hos- tility to the company for reasons, as ex- pressed in it, having relation to its rival business methods, which he charged were conducted in a manner and with a pur- pose to injure and oppress him in his busi- ness of like character. In view of all these facts it is urged by thedefendants that the motives of the plaintiff in seeking to be- come a recognized member of the associ- ation and beneficiary of the trust were such as to justify the refusal to permit him, by transfer of his shares on its books, to take such relation to it. The question of motive of the plaintiff, so far as it had any essential bearing in the case, was one of fact. And upon that subject the plain- tiff testified that he had no hostile purpose in purch.«!sing the shares, and in seeking a transfer of them on the books, but that it was his "idea, if possible, to become a rec- ord stockholder in order to enjoy the or- dinary legal rights of a stockholder." And the trial court determined that there was nothing in the relations of the plaintitf to the defendants and the trust that should prevent such transfer on the books of the defendants. The plaintiff purchased the shares in the trust with his own money, and he represents no interests or purposes other than his own iu this action. His claim is founded upon a right of property lawfully acquired. He, as holder, became subject to the agreement by which the trust was created and its by-laws, and if the transfer to him is perfected he will nec- essarily continue in such relation of sub- jection to them. When no discretionar.y power is reserved to that effect, thereisnot, nor should there be, any rule of law which will enable a corporation or company whose stock is on sale in the open market to so discriminate between bona fide pur- chasers who invest money in it for their own benefit as to deny to some of tiiein the right to make their title effectual for recognition by the company in the manner provided by it for that purpose. The per- fection in such case of the transfer is one of apparent right incident to the pur- chase, and which the holder who thus ac- quires the stock in the market is permitted to assume will be effectuated. Weston's Case, 4 Ch. App. 20. A discretion in that re- spect when given or reserved by the arti- cles under or pursuant to which the com- pany is organized, or in any manner requi- site to vest the power in those charged with its executive duties, may be eftec- 184 RICE V. KOCKEFELLER. (Ch. 15 tujilly exercised. In re Stranton, etc., Co., L. K 16 Eq. .«9, 7 MoaU. .Wl ; Moffatt v. Farqiihar, 7 Ch. Dlv. 591, 23 Moak. 731. In the present case no such discretion- ary powers seem to have been vested in the trustees. And tho purchase of the stock was open to the plaintiff, and fairly made by him. Attaclied to it was the quality of transferability, and with it waa presumptively the right of the beneficial holder to have recognition as such by means of transfer to him on the books of the trust. And this was essential to the protection of his rights derivable from the title. The remeily sought by the plaintiff is within the eijuitable powers of the court, and is founded upon an indubitable title, as between him and his vendor, and a right in property. In such case it is difficult to see that motive legitimately becomes a subject of consideration unless the relief in view may for that reason re- sult unjustly to others in whose behalf it is resisted, or to the prejudice of their legal rights. Bloxain v. KaiLway Co., 3 Ch. App. 337; Ramsey v. Gould, 57 Barb. 39S, and cases there cited. And how that could be the consequence is not evident. The transfer on the books to the plaintiff does not change the identity of theshares, but merely substitutes for one another beneficiary; and the latter is subject to the trust agreement and by-laws. It is true that equitableconsiderations not rec- ognized in courts of law may control re- sults in courts of equity. And while the granting of relief there is in some sense matter of discretion, it is not an arbitrary or capricious, but a sound judicial, discre- tion, controlled by established principles in equity, and exercised in view of the cir- cumstances in each case. 3 Pom. Eq. Jur. § 1404. The party seekingrelief must come into court with clean hands, as such maxim is understood in its application to that relation. If, for instance, he appears there under false colors, his complaint may for that reason be dismissed. Sucli was the case of Forrest v. Railway Co., 4 De H, a copy of which was annexed, and continued unal- tered from thence forward; and that on January 7,1879, at a meeting of the direct- ors, a resolution was adopted requiring the directors to meet regularly at the banlc once in each month to look after the affairs of the bank, and transact such business as might come b^ore them. It was further alleged that defendant Lee was a director from January 12, 1877, to April 14, 1S82; that defendants Spaulding and Johnson were directors from January 10 until April 14, 1882. "except as the de- fendant Spaulding was disqualified by the sale of his stock on April 11, 1S82;" that defendant Francis E. Coit was a director from May 20, 1881, and so remained, ex- ceptas disqualified by the sale of his stock, April 11, 1882; that defendant Cushing was a director from June 7, 1879, to Janu- ary 10, 1882, on which day his successor was elected ; that John H. Vought was a director from January, 1865, and remained siich, except as he was disqualified by the sale of his stock, January 18, 1882; and that Charles T.Coit was elected a director January 11, 1870, and continued to act as such until about December 11, 1881, when he died intestate, and letters of adminis- tration were Issued to Frank S. Coit and Joseph C, Barnes as administrators. . It was further averred that from June 7, 1879, to December 11, 1881, Charles T. Coit was president of the bank, and defendant Lee its cashier; that down to aboutOcto- ber 3, 1881, Charles T. Coit continued in the active discharge of his duties as presi- dent, and on that day was given a leave of absence for one year from those duties, and the defendant Lee was made vice- president, and placed in charge of the bank; that Lee also continued to be cashier, and one McKnight was assistant cashier there- of; and that on January 10, 1882, a new board of directors was elected consisting of the defendants Spaulding, Johnson, Francis E. Coit, Lee, and Vought, who elected officers for the ensuing year,— Lee as president, Francis E. Coit as vice-presi- dent, McKnight as cashier, and one Bo- gert as assistant cashier. The bill then charged that down to about October 3, 1881, being the date when the defendant Lee was made vice-president and f)laced in charge of the bank, "the said bank wan solvent, and engaged in a prosperous busi- ness; that the capital stock of said bank was one hundred thousand dollars, v^-hich was entirely paid up, and was divided into shares of the par value of one hun- dred dollars each, and that said shares were then salable at not less than one hundred and fifty dollars each, and were actually worth about that sum; that from the time of its organization down to said last-mentioned date the said bank had declared and paid dividends on its said capital stock, amounting in the ag- gregate to upwards of 285 per cent, there- on; that said bank then had a surplus or reserve fund representing undivided profits of said bank amounting nominally to seventy-tour thousand two hundred and seventy-seven dollars and three cents, (.174,277.03,) and had actually a large sur- plus;" that on April 14, 1882, the bank was Jargely insolvent; that its surplus and capital stock had been exhausted; that its total liabilities to its creditors, not including the amount of its capital stock, or other liability to its stockhold- ers as such, amounted to .f 1,160, 763. 77; that its assets were nominally not less than $1,351,199.69, not including the liabil- ity of the stockholders on their stock ; that a large portion of such assets were utterly worthless, and that tlie deficiency then existing in the good assets as com- pared with its liabilities was not less than $53.1,163.42, or about 46 per cent, of the liabilities; that statements of the nomi- nal financial condition of the bank, as shown by its own books, as of the dates October 3, 1881, January 9, 1882, and April 14, 1882, are annexed; but those of Janu- ary 9th and -April 14th fail to show that "any of the bills discounted or cash items, as therein stated, were worthless or un- collectible, or that the said bank had suf- fered any considerable loss by reason of bad debts or wasteful management, con- trary to the facts as hereinbefore and here- inafter stated." The bill further averred that the greater part of the losses of the bank during the period between October 3, 1881, and April 14, 1882, and the conse- quent failure of the bank, were due to the misconduct of the officers and directors of the bank, and to the failure of the di- rectors to perform faithfully and diligently the duties of their office; and it was par- ticularly alleged that It was the duty of Ch. 16) BRIGGS V. SPAULDING. 187 tha directors, "by reason of the nature of tlieir office and of the principles of the common law applicable thereto, and under and by virtue of the provisions of the Re- vised Statutes of the United States, and of the acts of congress relating to national banks, and of the articles of association and by laws of the said bank, hereinbe- fore referred to, diligently, carefully, and honestly to administer tlie affairs of the said bank; to employ none but honest and competent jjersouK to serve as officers of the said bank ; to take from all persons so emploj'ed sufficient security for the faithful performance of their duties; to keep correct books of account of all the affairs, business, and transactions of the said bank; to see that the business of the said bank was prudently conducted, and that the property and effects of the said bank were not wasted, stolen, or squan- dered," etc. It was then charged that the directors utterly failed to perform each and every of their official duties, and during all the period from October 3, 1881, to April 14, 1882, paid no attention to the affairs of the bank, failed to hold or call meetings, or to appoint any committee of examination, or to require bonds, or to make personal examinations into the con- duct and management of its affairs and into the condition of its accounts, but al- lowed the executive officers to manage it without supervision. The bill further charged that the defend- ants permitted the reserve of the bank to remain below tiie amount required by sec- tion 5191 , Re V. St., and that a large part of thelossesofthe bank arosefrom the unlaw- ful extension of its line of discounts, and would have been prevented if thedlrectors had performed their duty and prevented, the increase; that on or about November 7, 1881, the surplus and undivided proflts had been exhausted, and the capital stock impaired, and this should have been re- ported to the comptroller, whereby the capital would have been made good, or thesaid bank would have necessarily been put into lifiuidation, and further losses thereafter incurred by continuance of its business would have been stopped. It was also asserted that, independently of the provisions of the acts of congress, the directors were trustees for the bank and its stockholders and creditors, and it was their duty to have ascertained v^ hetherthe bank had sustained lossvis, and made known the facts and the general condition of the bank and the methods of its man- agement, which duties they neglected and failed to perform, and by reason thereof the bank sustained great losses, amount- ing in the aggregate to at least $685,163.- 42. It was further alleged that it was unlawful for the bank to allow any one person, company, corporation, or firm to become indebted to an amount exceeding one-tenth of the capital stock, excepting by a discount of bills of exchange drawn in good faith, and of business or commer- cial paper actually owned by the person negotiating it; but that the directors from October 8, 1881, to April 14, 18S2, permitted this to be done, and thereby a loss of at least ^556,21.5.62 was occasioned; that It was the duty of the directors and offi- cers of the bank to make accurate reports to the comptroller, and they did October 1, 1881, submit a report, and on December 31, 1881, and March 11, 1882, further re- ports, but the reports dated December 31, 1881, and March 11, 1882, were false and misleading, and particularly in represent- ing that the bank had a surplus fund and undivided profits, amounting to large sums, and an unimpaired capital, and fail- ing inany way to show that the bank had sustained heavy losses; whereas the bank had not at either of the dates any surplus or undivided profits, and its capital stock was exhausted, or largely impaired, on December 31, 1881, and on March 11, 1882, entirely exhausted, by reason of improvi- dent and careless management, etc.; that by reason of the false and misleading character of the reports the comptroller and stockholders and creditors of the bank were not informed of its actual condition, and failed to take steps to repair the losses or put the bank in liquidation, by reason of which the bank incurred further losses. And further, that it was the duty of the directors who were such from October 3, 1881, to April 14, 1S82, to appoint only honest, faithful, trustworthy, experienced, and competent i^ersons as officers of the bank, and to require budant rendered at spe- cial term, and granting a new trial. Report- ed below. 48 N. Y. Super. Ct. 349. The essential facts and the nature of the action appear in the opinion. EARL, J. The appellant, the Western Un- ion Telegraph Company, was, on and prior to the 19th day of January, 1881, a corpora- tion organized under the laws of this state, and Its capital stock was $41,073,410, divided into shares of $100 each; at the same date the Atlantic and Pacific Telegraph Company was a corporation organized under the laws of this state, and its authorized capital con- sisted of one hundred and fifty thousand shares of $100 each, of which only one hun- dred and forty thousand shares had been is- sued and were outstanding, and the Ameri- can Union Telegraph Company was also a corporation organized under the laws of this state, and its capital was $10,000,000, and it owed a bonded debt of $5,000,000. The tele- graph lines of these companies were, to a large extent, parallel and between the same places, but the lines of each company extend- ed to some places which were not reached by the lines of either of the other companies. On the 11th day of January, 1881, a confer- ence between certain of the directors of these corporations was held for the purpose of agreeing upon a basis for the consolida- tion of the property, interests, and business of the three corporations, which basis, re- duced to writing in the form of an agreement, provided that the Western Union Telegraph Company should purchase from the other companies all their telegraph lines, property, rights, privileges and franchises of every na- ture whatsoever, excepting the franchise of each to be a corporation, and that they should severally sell and convey all such property, rights, privileges, and franchises to the Western Union Telegraph Company. The consideration for the sale and convey- ance of the American Union Telegraph Com- pany was to be one hundred and fifty thou- sand shares of the capital stock of the West- ern Union Telegraph Company, of the par value of $100 each, to be thereafter issued and delivered to the Union Trust Company of the city of New York, which was to dis- tribute the same in exchange for the shares of the American Union Telegraph Company, to the amount of one hundred thousand shares, and the bonds of that company, not exceeding in amount the full sum of $.5,000,- 000, the holder of each share of American Union Telegraph Company's stock to be enti- tled to receive, upon sm-render of the same, one share of Western Union Telegraph Com- PEIV.CORP.— -14 pany's stock, and the holder of every bond to be entitled, upon the surrender of the same, to shares of the Western Union Tele- graph Company equal at par to the amount of the principal of his bond. The consideration for the sale of the At- lantic and Pacific Telegraph Company was- to be eighty-four thousand shares of the cap- ital stock of the Western Union Telegraph: Company of the par value of $100 each, to- be issued and delivered to holders of the Atlantic and Pacific stock at the rate of eighty-four thousand shares of Western Un- ion stock for one hundred and forty thou- sand shares of Atlantic and Pacific stock, at the par value of $100 each. It was fur- ther provided, that all "shares of the Amer- ican Union and Atlantic and Pacific Tele- graph Companies, after exchange, should by the Union Trust Company be duly transfer- red and delivered to the Western Union Tele- graph Company and belong to it; that that company should take such proceedings as it might be advised to cause its capital stock to be increased, by an addition to its then outstanding stock of $38,926,590, represented by shares of $100 each, and should issue the same to the Union Trust Company for dis- tribution as follows: $15,520,590 to those then holding its shares, the same being in- tended to represent its investment of earn- ings in the purchase, construction and equip- ment of additional lines, wires and general plant since the 1st day of July, 1866, and the remaining sum, $23,400,000, for the acquisi- tion of the property, privilege and franchises of the other companies; that the possession of the property ptu-chased should be deliv- ered to the Western Union Telegraph Com- . pany by the other companies on the 24th day of February, 1881, and the shares of its capital stock should be by it delivered to the Union Trust Company of New York 'for the purpose mentioned, on or before the same date. The president of the Western Union Tele- graph Company, for the pm-pose of complet- ing that agreement, thereupon called and pro- cured a meeting of the directors of that com- pany to be held on the 12th day of January, 1881, and he laid the agreement before them, and the same was thereupon approved and adopted by them, and the president was for- mally instructed to call a special meeting of the stockholders of that company for the purpose of carrying out and effectuating the agreement He thereupon fixed February the 5th, 1881, as the day on which the spe- cial meeting of the stockholders should be held, and mailed notices to all the stockhold- ers, and caused notices to be published in three newspapers printed in the city of New York and in the state paper printed at Albany, to the effect and in substance, that in accord- ance with the by-laws and the request of a majority of the directors a special meeting of the stockholders of the corporation would 210 WILLIAMS V. WE^TELiN UNIOX TEL. CO. (C:i. 16 be held on the 5th day of February, 18S1, for the purpose of acting upon the terms of consolidation, purchase and agreement be- tween that company and the American Un- ion Telegraph Company and the Atlantic and raeitic Telegraph Company for the purchase of the property, rights, privileges, and fran- chsos of the last-named companies, and the increase of the capital stock of the Western Union Telegraph Company to the full amount of $80,000,000. Immediately after these no- tices were issued, the directors of the appel- lant caused the agreement to be reduced to writing, and to be executed under seal by the officers of the corporations on the 19th rday of January, 1881. On the 3d day of Feb- ruary, 1881, an agreement supplementai-y to the last-named agi-eement was made, exe- cuted and delivered by the persons in author- ity in the three companies, which provided, among other things, that all the properties, rights and privileges specified and described in the prior agreement of the companies ^should be and were transferred to the West- ern Union Telegi-aph Company; that until that company could prepare and issue the shares of capital stock agreed to be paid for such properties and rights In exchange for the stock and bonds of the American Union Telegraph Company, and for the stock of the Atlantic and Pacific Telegraph Company, and the stock agreed to be distributed to the stockholders of the Western Union Telegraph Company, it should issue certain certificates of indebtedness which need not be more par- ticularly mentioned. The meeting of the stockholders pursviant to the caU was held on the 5th of February, 1881, three hundred and eight thousand sev- en hundred and eighty-nine shares being rep- resented In person or by proxy; and three hundred and eight thousand one hundred and eighty-nine of such shares, representing more than three-fourths in amount of the whole capital stock of the Western Union Telegi-aph Company, then voted for the rat- ification of and consented to the contracts of -January 19 and Febniary 3, which were submitted to them, six hundred shares only voting against such ratification. At the same meeting three hundred and eight thou- sand one hundred and eighty-nine shares voted in favor of an increase of the capital stock of the Western Union Telegraph Com- pany to $80,000,000, and one hundred shares voted against it The consent and ratifica- tion by the stockholders were reduced to writing, and entered upon the minutes of the meeting. On the same day more than two-thirds of the directors, by a writing to that effect signed by them, consented to and ratified and approved the increase of the capital stock of the Western Union Tele- graph Company to $80,000,000. The plaintiff in this action attended the stockholders' meeting in person or by proxy, and voted upon his one hundred shares both against ratifying and approving of the agreements. of January 19 and February 3, and against increasing the capital stock to $80,000,000. On the 19th day of January, 1881, \h.e prop- erty, franchises and privileges belonging to the Western Union Telegraph Company were worth more than the amount of its capital over and above its Indebtedness, and the property, rights and franchises of the Atlan- tic and Pacific Telegraph Company were ful- ly and fairly worth the sum of $8,400,000, and the property, rights and franchises of the American Union Telegraph Company were worth $15,000,000; and such, on that day, were the estimates of the values made by the directors of the respective companies. The actual value of the investments of the sm-plus earnings of the defendant, the West- ern Union Telegraph Company, as they ex- isted January 19, 1881, was estimated by the directors of the company, and it was theij judgment that the amount of the stock to be distributed among the stockholders of the Western Union Telegraph Company repre- sented no more than the investments of the surplus earnings of the company since July 1, 1866; and such surplus earnings were worth the sum of over $15,526,590. All the telegraph lines and appurtenances thereto, mentioned in the agreement of Jan uary 19, 1881, belonging to the Atnerican Union Telegraph Company and to the At- lantic and Pacific Telegraph Company, were, on the 3d day of February, 1881, pursuant to the agreement, delivered to and received by the Western Union Telegraph Company. The plaintiff became the owner in his own right of one hundred shares of the capital stock of the Western Union Telegraph Com- pany on the 22d day of January, 1881. This suit was commenced about the 14th of Feb- ruary, 1881, against the Western Union Tel- egraph Company and all the directors of that company, and the Union Trust Company; but before its commencement the contracts of January 19 and February 3 had, to a large extent, been can-ied into effect by a delivery and distribution of the stock as therein pro- vided for. The plaintiff alleged In his complaint the ownership by him of one hundred shares of the capital stock of the Western Union Tel- egraph Company, the organization of that company, and of the other two telegraph companies; tlaat there was a fraudulent com bination and conspiracy among the directors of all these telegraph companies, for various purposes stated in the complaint, and that the agreement of January 19, 1881, was en- tered into in pursuance of such unlawful combination and conspiracy; that the meet- ing of stockholders to ratify the agreement was called in furtherance of the unlawful conspiracy, and that at such meeting the de- fendants, who are directors in the Western Union Telegraph Company, controlling a ma- jority of its stock, voted in favor of ratifying the contract and increasing the capital stock to $80,000,000; that the property, rights and Ch. 16) WILLIAMS V. WESTERN UNION TEL. CO. 211 franchises of the Atlantic and Pacific Tele- ^aph Company and the American Union Telegraph Company did not exceed in value abotit the sum of $8,000,000, which was well known to the directors of the Western Union Telegraph Company; that the prices named in the agreement for the purchase of those two companies were a fraud upon the rights of the plaintiff and other stockholders simi- larly situated; that the Western Union Tel- egraph Company did not have sm'plus prop- erty over and above its capital stock suffi- cient to represent the stock dividend of up- ward of $15,000,000; that the dividend was a violation of law and a breach of ti-ust on the part of the directors, which rendered them personally liable for the payment into the treasury of the company of the full face value of all such capital stock so divided and distributed; and the plaintiff prayed for Judgment that the defendants, and each of them, be enjoined and restrained from issu- ing and delivering to any stockholder of the Western Union Telegraph Company, of the Atlantic and Pacific Telegraph Company, or of the Amei-ican Union Telegraph Company, or to any person on their behalf any certifi- cate of capital stock of the Western Union Telegraph Company until the full face value of such capital stock should be paid into its treasury, and that the directors be enjoined and restrained from voting upon any stock of the Western Union Telegi-aph Company, lield or owned by them, or either of them, in favor of the increase of such capital stock or the ratification of the conti'act of January 19; that should the increased capital stock be issued, then that an account be taken and stated of all and singular the property and assets received by the defendant, the West- >ern Union Telegraph Company, therefor; that the defendants, other than said compa- ny and other than the said trast company, be adjudged and decreed to pay to the de- fendant, the Western Union Telegraph Com- pany, the amount which the stock thus is- sued should exceed the value of the property received therefor; that, , if the amount of .$15,526,590 of the capital stock of the West- ern Union Telegraph Company, or any part thereof, should be issued and distributed among the stockholders, without payment in cash therefor, then that the directors of that company should be adjudged and decreed to pay the full amount thereof with inter- est, to that company; and that said company be restrained from permitting the transfer on its books of any of such increased capi- tal stock beyond the authorized capital of ^41,073,410; and that the plaintiff should have such other and further relief as he might be entitled to in the premises. The cause was put at issue by answer, and came on for trial at a special term of the court, where the trial judge foimd, among other facts, all the facts hereinbefore stated, and also found that the object of the pm-- chase by the Western Union Telegraph Com- pany of the property, privileges and fran- chises of the other companies was to perfect and extend the connections between that company and the other two companies in this state, and to permit their union with the tele- graph systems which those companies had established in other states; and he refused to find the fraud and conspiracy alleged in the complaint; and he found as matters of law that the purchase by the Western Union Tel- egraph Company of the property, privileges and franchises of the other companies was valid and lawful according to the laws of this state; that the stock dividend of the Western Union Telegraph Company was not a division, withdrawal or payment to its stockholders, or any of them, of any part of the capital stock of the company, and that it was a proper and lawful exercise of the power of the corporation to issue to its stock- holders certificates which afford evidence of the investment, with the consent of its stock- holders, of its sm-plus earnings .in property necessary and useful in and about the trans- action of its business; that the agreements had been so far executed that no stockholder of the Western Union Telegraph Company had any right to bring an action to restrain their complete execution; that the plaintiff had not sustained and was not likely to sus- tain any injury from the execution of the agreements, and had no right to restrain their execution, and that the defendants were entitled to judgment, dismissing the com- plaint on the merits. The judgment entered at special term was, upon appeal, reversed at the general term upon questions of law only, and then the Western Union Telegraph Com- pany, giving the stipulation required in such cases, alone appealed from the order granting the new trial to this court. Having thus brought to view the material facts of this case and the substance of the complaint and of the findings of the special term, we will now call attention to the stat- utes under which the telegraph companies were organized, and by the authority of which it is claimed the action was taken which is now complained of. The first act is chapter 265 of the Laws of 1848, which provided that any number of persons might associate for the purpose of constructing a line of wires of telegraph through this state, or from or to any point within this state, upon complying with certain requirements of the act, one of which is that the persons shall make and file a certificate which shall speci- fy, among other things, the capital stock of such association and the number of shares into which the stock shall be divided; and section 8 fm-ther provided that it should be lawful for any association of persons organ- ized under the act to provide, by their arti- cles of association, for an increase of their capital and the number of shares into which ' it shall be divided. Chapter 98 of the Laws of 1851 authorized the directors of any company organized un- 212 WILLIAMS V. WESTEUN UNION TEL. CO. (Ch. 16 der the act of 1848, at any time, with the written consent of the persons owning two- thirds of the capital stock of such company, to extend its line of telegraph, or to construct branch lines to connect with its main line, or to unite with any other incorporated tele- graph company. Chapter 471 of the Laws of 1853 further amended the act of 1848 by authorizing any number of persons, upon complying with the requirements of the act of 1848, to associate for the purpose of own- ing, constructing, using and maintaining a line or lines of elecftrlc telegraph, whether wholly within or partly within the limits of this state, or for the purpose of owning any interest in any such line or lines of electric telegr^h or any grants therefor. It also en- abled every telegraph company existing in tlie state at the time of its passage to ob- tain the benefit Of the statute, on filing a cer- tificate of a resolution adopted by a majority of its board of directors to organize under the amendatory act, and authorized every as- sociation entitled to the benefit of the statute, to erect and construct from time to time the necessary fixtures upon, over or under any of the public roads, streets and highways and through, across or under any of the waters within the limits of this state, subject to the restrictions of the act of 1848, and also to erect and construct such fixtures upon, through or over any other land subject to the right of the owner or owners thereof, to full compensation for the same. Chapter 425 of the Laws of 1862, fm-ther amendmg the act of 1848, provided that any company duly in- corporated under the last-named act might construct, own, use and maintain any line or lines of electric telegraph not described in their original certificate of organization, whether wholly within or wholly or partly beyond the limits of this state, and might join with any other corporation or associa- tion in constructing, leasing, owning, using or maintaining such line or lines, and might own and hold any interest in any such line or lines, and might become lessees of any such line or lines. Chapter 508 of the Laws of 1870, containing but one section, provides as follows: "In order to perfect and extend the connections of telegraph companies in this state, and promote their union with the tele- graph systems of other states, any telegraph company organized under the laws of this state, may lease, sell or convey its property, rights, privileges and franchises, or any in- terest therein or any part thereof, to any tel- egi-aph company organized under or created by the laws of this or any other state, and may acquire by lease, pm-chase or convey- ance the property, rights, privileges and fran- chises, or any interest therein or any part thereof, of any telegraph company organized under or created by the laws of this or any other state, and may malie payments there- for in its own stock, money or property, or receive payment therefor in the stock, money or property of the corporation to which the same may be sold, leased or conveyed; pro- vided, however, that no such purchase, sale; lease or conveyance by any corporation of the state shall be valid until it shall have been ratified and approved by a three-fifths vote of its board of directors or tnistees, and also by the consent thereto in writing or by vote at a general meeting, duly called for the pur- pose, of three-fifths in interest of the stock- holders in such company present or represent- ed by proxy at such meeting." By chapter 319 of the Laws of 1875, section 8 of the act of 1848 was amended so as to read as fol- lows: "It shall be lawful for any association of persons organized under this act, by their articles of association, to provide for an in- crease of their capital and the number of shares of the capital stock of the association. But if any such association shall have omit- ted so to provide for an increase of their cap- ital, it shall be lawful after notice of an In- tention so to do, published once a week for six weeks sucessively in the state paper, and in any newspaper of general circulation pub- lished in the coimty where the principal office of such company is located, and with the written consent of shareholders holding and owning three-fourths in amount of the then capital stock, to provide for an increase there- of, and the number of shares into which the same shall be divided by an additional cer- tificate specifying such increase and such number, which certificate shall be executed, proved or acknowledged by the board of di- rectors of such association, or a majority of them, and filed as provided in section, two of this act; and such certificate may, upon a like notice and consent, also contain a state- ment of and provision for any desired change in the genei-al route of the lines of the asso- ciation, designating the route or routes and the points to be connected, and such certifi- cate shall be deemed and taken as a part of the articles of association already filed." The act last named furnishes ample au- thority for the increase of the capital stock of the Western Union Telegi-aph Company. The articles of association of that company were not put in evidence, and hence it does not appear whether they provided for an increase of its capital stock or not. If they did, in the absence of any proof to the con- trary, it would be assumed that the increase was justified by the articles. A stockholder coming into com-t and alleging that the in- crease of stock was imauthorized by the arti- cles of association, in order to maintain his allegations, would have the burden to prove and establish that fact. He could not rest upon presumption, and could not ask the court to infer that a power conferred by the articles of association had been improperly or illegally exercised. If the articles of as- sociation, however, did not provide for an increase of its capital stock, then the direc- tors of the company, for the purpose of ac- complishing such increase, could proceed un- der the act of 1875. It is not disputed that Ch 16) WILLIAMS V. WESTERN UNION TEL. CO. 213 the steps which are required by that act to accomplish an Increase of stock were tak- en by the directors. The requisite notices were published. There was the requisite •consent of the shareholders holding and own- ing three-fom-ths in amount of the capital stock and the requisite action of the board of directors. So that upon the argument before us it was not disputed by the learned counsel for the respondent that the neces- sary action had been taken to make a legal and lawful increase of the capital stock of the Western Union Telegi-aph Company to the sum of $80,000,000. The shares of stock having thus been le- .cally brought into existence, the act of 1870 furnished ample authority for the purchase by the Western Union Telegi-aph Company ■of the property, franchises and privileges of the other two companies, and paying there- for by its stock. It was found by the trial judge that the objects and purposes of the piu-chase were such as are sanctioned by that act. These three telegraph companies were not companies owning precisely paral- lel lines, or lines running exactly between the same places, but each company reach- ed some points which were not reached by eithei" of the others; and it Is difficult to pei'ceive how the broad and explicit language used can be so tortured as to forbid the com- bination of these three companies in the manner in which it was accomplished. Upon this point the opinion of Barrett, J., in Hatch V. Telegraph Co., 9 Abb. N. C. 228, leaves nothing to be said. Indeed, upon the argument before us, the right to purchase the property, privileges and franchises of the two other companies by the Western Union Telegraph Company, under the act of 1870, was not much challenged. The main contention was, that the stock dividend dis- tributing upwards of $15,000,000 of stock among the stockholders of the Western Un- ion Telegraph Company, was unauthorized and in violation of law, and whether it was or not is the principal matter for oiu- deter- mination upon this appeal. The stock dividend was claimed to be in violation of section 2, c. 18, pt. 1, tit. 4, of the Revised Statutes, which provides as fol- lows: "It shall not be lawful for the di- rectors or managers of any incorporated company in this state to make dividends ■excepting from the sm-plus profits arising from the business of such corporation; and It shall not be lawful for the directors of any such company to divide, withdraw, or in any way pay to the stockholders, or any of them, any part of the capital stock of such ■company, or to reduce the said capital stock without the consent of the legislature, and it shall not be lawful for the directors of such company to discount or receive any note or other evidence of debt in payment of any installment actually called in and re- ■quirea to be paid, or any part thereof due or to become due on any stock in the said company; nor shall it be lawful for such di- rectors to receive or discount any note or other evidence of debt with the intent of enabling any stockholder in such company to withdraw any part of the money paid in by him on his stock; and in case of any vio- lation of the provisions of this section the di-. rectors, tmder whose administration the same may happen, except those who may have caused their dissent therefrom to be entered at large on the minutes of the said directors at the time, or were not present when the same did happen, shall, in their individual and private capacities, jointly and severally, be liable to the said corporation and to the creditors thereof, in the event of its dissolution, to the full amount of the cap- ital stock of the said company, so divided, withdrawn, paid out, or reduced, and to the full amount of the notes or other evidences of debt so taken or discounted in payment of any stock, and to the full amount of any notes or evidences of debts so discounted with the intent aforesaid, with legal inter- est on the said respective sums from the time such liability accrued; and no statute of limitation shall be a bar to any suit at law or in equity against such directors for any sums for which they are made liable by this section; provided this section shall not be construed to prevent a division and dis- tribution of the capital stock of such com- pany which shall remain after the payment of all its debts upon the dissolution of such company, or the expiration of its charter." This dividend was condemned by the gen- eral term of the superior court as a violation of that section. Our attention has been called to no other law forbidding or con- demning a stock dividend, and in their al- legations against it the counsel for the plain- tiff rely mainly upon that section. After reading the numerous opinions that have been submitted to us, and giving careful at- tention to all that has been said upon the subject, we are unable to perceive that that section has any bearing whatever upon the question we are to determine. The section was taken from the act, chapter 325 of the Laws of 1825, which was entitled, "An act to prevent fraudulent banki-uptcies of in- corporated companies, to facilitate proceed- ings against them, and for other purposes." It was not part of the original revision, but was incorporated into the Revised Statutes by chapter 20 of the Laws of 1828. A care- ful reading of the section shows that it has reference only to the property capital of a corporation, and not to its share capital. The first clause prohibits dividends of prop- erty except from surplus profits. It is fur- ther provided that the directors of any cor- poration shall not divide, withdraw or in any way pay to the stockholders, or any of them, any part of the capital stoct of such company, or to reduce the capital stock 214 WILLIAMS V. WESTERN UNION TEL. CO. (Ch. 16 without the consent of the legislature. These provisions were intended to prevent the division, disti-ibution, withdrawal and reduction of the property of a corporation below the sum limited in its charter or arti- cles of association for its capital, but not to prevent its increase above that sum. The purpose was to prevent the depletion of the property of the corporation, thereby endan- gering its solvency. All the other provisions of the section show very clearly that such was the intention. Careful provision was made that the whole amount of capital stock should be paid in, and hence there was a prohibition against receiving a note or other evidence of debt in payment of any installment actually called in and re- quired to be paid; and in case the directors violated any of the provisions of the sec- tion they were made individually liable tt> tlie corporation and to its creditors, in the event of its dissolution, to the full amount of the capital stock of the company so divid- ed, withdrawn or reduced. All these provi- sions show that it was the pm-pose of thfe legislature, by means of them, to create a property capital for the corporation, and then to keep that intact so as to secure tha solvency of the corporation and its respon- sibility to its creditors. The "capital stock" in this section does not mean share stock, but it means the property of the corporation contiibuted by its stockholders or otherwise obtained by It, to the extent required by its charter. While the term "capital stock" is frequently used in a loose and indefinito sense, in this section and in legal phrase generally it means that and no more. In State V. Association, 23 N. J. Law, 10,5, Green, 0. J., said: "The' phrase 'capital stock' is very generally, if not universally, used to designate the amount of capital to be contributed for the pm-poses of the cor- poration. The amount thus contributed con- stitutes the 'capital stock' of the company." In Burrall v. Railroad Co., 75 N. Y. 211, Folger, J., defined "capital stock" as "that money or property which is put in a single corporate fund by those who by subscrip- tion therefor become members of a corporate body." In Barry v. Exchange Co., 1 Sandf. Ch. 280, Vice Chancellor Sandf ord said: "The capital stock of a corporation is like that of a copartnership or joint-stock com- pany, the amount which the partners or as- sociates put in as their stake in the con- cern." By loss or misfortune, or miscon- duct of the managing officers of a corpora- tion, its capital stock may be reduced below the amount limited by its charter, but what- ever property it has up to that limit must l)e regarded as its capital stock. When its property exceeds that limit, then the excess is surplus. Such surplus belongs to the cor- poration, and is a portion of its property, and, in a general sense, may be regarded as a portion of its capital, but in a strictly legal sense it Is not a portion of its capital, and is always regarded as surplus profits. The very section we are considering contem- plates that there may be a surplus, and that such surplus may be divided. The surplus may be in cash, and then it may be divided In cash; it may be in property, and if the property is so situated that a division there- of among the stockholders is practicable, a dividend in property may be declared, and that may be distributed among stockhold- ers. AU such dividends diminish and de plete the property of the corporation, and that section was designed to prevent divi- dends of property which tended to deplete the assets of the. company below the sum limited in its charter as the amount of ita capital stock. But stock dividends never diminish or interfere with the property of a corporation, and hence are not within the purview of that section. After a stock divi- dend a corporation has just as, much prop- erty as it had before. It is just as solvent and just as capable of meeting all demands upon it. After such a dividend the aggi-e- gate of the stockholders own no more in' terest in the corporation than before. The whole number of shares before the stock dividend represented the whole property ot the corporation, and after the dividend they represent that and no more. A stock divi- dend does not distribute property, but sim- ply dilutes the shares as they existed be- fore; and hence that section in no way pre- vented or related to a stock dividend. Such a dividend could be declared by a corpora- tion without violating its letter, its spirit or its purpose. It is, therefore, clear that the directors of the Western Union Telegraph Company did not violate that section by the stock dividend which they declared; and if that dividend was illegal it must be because it was condemned by some other statute, ot by some general principle of law or by pub- lic policy. Our attention has been called to no stat- ute, and we know of none in this state, which prohibits a corijoration from making a stock dividend. The legislatures in some of the states have, we believe, passed laws prohibiting such dividends; but in this state no such law has been enacted. There is no public policy which, in all eases, condemns such dividends. Shares having been legally brought into existence may be distributed among the stockholders of a company. By such distribution no harm is done to any person, provided the dividend is not a mere inflation of the stock of the company, with no coiTesponding val- ues to answer to the stock distributed. It may be that a distribution of stock gratui- tously to the stockholders of- a company, based upon no values, a mere inflation, or, to use a phrase much in vogue, a watering of stock, would be condemned by the law. But when stock has been lawfully created and is Ch. 16)f WILLIAMS c. "WESTERN UNION TEL. CO. 215' held by a corporation, -which it has a right to issue for value, then a stock dividend may be made, provided that the stock always rep- resents property. It is conceded that the di- rectors of the Western Union Telegraph Company could have issued this stock for money to be paid into its treasury. It could have issued it for property to be received by it for the purposes of its legitimate business. But here it is found that over and above its capital it possessed property actually worth upwards of ?15,000,000, and we know of no law that is violated, and no public policy that is invaded 'by issuing to the stockhold- ers stock to represent that amount of prop- erty rather than in any mode to divide it up and distribute it among them. If it can is- sue stock in payment of property to be ob- tained by it as part of its capital for its legitimate uses, why may it not issue stock to its stockholders in payment for property in effect pm-chased of them and added to its permanent capital, and which they relin- quish the right to have divided? So long as every doUar of stock issued by a corporation is represented by a dollar of property, no harm can result to individuals or the public from distributing the stock to the stockhold- ers. Here there was no fraud, no con- spiracy, no unlawful combination, and we are bound, under the findings of the com't at special term, to assume that all this was done in good faith; and we know of no prin- ciple of law, no public policy, and no statute that condemns a stock dividend under such circumstances. Howell v. Railroad Co., 51 Barb. 378; Jones v. Railroad Co., 57 N. Y. 196; Manufacturing Co. v. McAlpin, 5 Fed. 743; Attorney General v. State Bank, 1 Dev. & B. Eq. 545; Minot v. Paine, 99 Mass. 101; Rand V. Hubbell, 115 Mass. 471; Brown v. Navigation Co., 49 Pa. St. 270; Com. v. Pitts- burgh, Ft W- & C. Ry. Co., 74 Pa. St. 83; Terry v. Eagle Lock Co., 47 Conn. 141; Bar- ton's Trust, L. R. 5 Eq. 239; Mills v. North- ern Ry. of Buenos Ayres Co., 5 Ch. App. 621; Pierce, R. R. (2d Ed.) 123. It is true that this dividend largely in- creases the capital stock of the company, but that is not against the policy of our laws. That cannot be against the policy of the law which the law expressly permits. There is no limit to the capital which busi- ness corporations in this state may have, and there is no limit in the law beyond which they may not increase their capital. All that can be required in any case is that there shall be an actual capital in property repre- senting the atQOunt of share capital issued. Indeed, so far as the solvency and responsi- bility of a corporation is concerned, they are increased by a stock dividend where it has a surplus of property to correspond to the amount of shares issued. In such case the surplus property is secured and impounded for the benefit of the creditors of the corpo- ration and for the public, so that thereafter it can never be legally divided, withdrawn or dissipated in any way. But if it can be conceived that this was a dividend of property within the meaning of the section of the Revised Statutes above- set out, then what property did it divide? Not any portion of the capital of the com- pany; that remained intact After subtract- ing the dividend, there remained to the com- pany the fuU amount of its prior capital, stock, to wit, property to the value of $41,- 073,410. Such is the finding of the triar court, and that cannot here be disputed. The company had made surplus earnings which it could have divided, but, instead of dividing them, it had invested them in prop- erty to facilitate and enlarge its business, and such property was found to be wortb $15,526,590. That sum constituted its sur- plus. It was commingled with the other property of the company and used for corpo- rate purposes. Lat it was not beyond the reach of the dividend making power of the directors. They could reclaim it for division among the stockholders, and, if practicable, convert it into cash for that pm:pose. They could borrow money on the faith of it, and di-ride that They could issue to the stock- holders certificates of indebtedness, redeem- able in the future, representing their re- spective interests in such surplus, thus, in effect, borrowing the same of the stockhold- ers. Desiring to use the siu-plus and add it to the permanent capital of the pompany, and having la-wfully created shares of stock, they could issue to the stockholders such shares to represent their respective interests in such sui'plus. In doing these things no law would be violated, the capital would be kept intact, and no stockholders or creditors would have any legal right to complain. All this, however, depends upon the finding of the trial court that the surplus is equal tO' the dividend. That finding is not open tO' criticism here. It was not disturbed at the- general term, and therefore concludes us. When a corporation has a surplus, whether- a dividend shall be made, and if made, how much it shall be, and when and where it shall: be payable, rest in the fair and honest dis- cretion of the directors, uncontrollable by" the courts. Brown v. Canal Co., 4 Eng. Law & Eq. 118; Rex v. Bank of England, 2 Barn. & Aid. 620; Jackson's Adm'rs v. Plankroad Co., 31 N. J. Law, 277; Ely v. Sprague, Clarke, Ch. 351. There is no statute which requires dividends in telegraph companies or in companies generally to be made in cash. Whether they shall be made in cash or prop- erty must also rest in the discretion of the directors. There is no rule of law or reason founded upon public policy which condemns a property dividend. The directors could convert the property into cash before a divi- dend and divide that So the stockholders can take the property divided to them and sell it and thus realize the cash. Within the- 216 WILLIAMS V. WESTERN UNION TEL. CO. (Ch. 16 domain of law, it can make no material dif- ffience whicU course Is pursued. If, how- ever, a dividend be made payable in cash or payable generally, the corporation becomes a debtor, and must discharge such debt, as it is hound to discharge all its other debts, iu lawful currency. It is true that a stockholder cannot be compelled to receive property di- vided to him. So he cannot be compelled to take a cash dividend. Incase of his refus.il to take a cash dividend, the corporation may retain it for him until he shall demand it. In case he shall refuse to take a property dividend, the corporation may retain it, and hold it in trust for him, or possibly sell it for his bene- fit. If such a case shall ever arise, the com-ts will find some way to dispose of it. So this plaintiff cannot be compelled to ac- cept the stock divided to him, and thus incur the possible liability which it may impose up- on him as a stockholder. In case of his re- fusal, the corporation will find some way to deal with the stock which the law will sanc- tion, but which need not now be pointed out. We have no occasion to scrutinize the mo- tives of the defendants. The ti-ial judge re- fused to find the alleged fraud and con- spiracy, and his finding concludes us. In his oi^iuion he said: "I have also found that the other allegations of fraud and conspiracy made in the complaint against the defendants and others were not proved on the trial. One of the very able counsel for the plaintiff, in his argument, at the close of the trial in this case, said that he was not going to lament the fact that he had failed to show such com- bination, that he had not been able to prove certain things by the defendants;" and the opinion of the court at the general term is to the same effect: "The complaint, among other things, charges that the corporate ac- tion complained of was the result of a fraud- ulent conspiracy on the part of the individual defendants, but the allegations in that re- spect were not sustained by the proof at the trial, nor has there been an argument made in their support upon the present appeal." We are, tlierefore, of opinion, upon the facts, found at special term, that the stock dividend was authorized by law, and, there- fore, valid. The only other question which we deem it important to consider is, whether the West- ern Union Telegraph Company alone had the right to appeal to this court, giving the stipu- lation for judgment absolute against it in case the order should be afllrmed. By sec- tion 190 of the Code, every party has a right to appeal from an order granting a new trial, and the only requirement is by section 191, that the notice of appeal shall contain an assent on the part of the appellant that, if the order be affirmed, judgment absolute shall be rendered against him. A party can- not be deprived of that right, because he happens to be joined with others as a de- fendant in a suit. It might be otherwise if the defendants were jointly interested in the defense, as if they were sued as partners. But here the liability of the defendants Is a several liability. Substantial relief is claimed against the Western Union Telegraph Com- pany, which is not claimed and could not be claimed against the other defendants. The purpose of the action, among other things, was to annul its corporate proceedings, and to resU-ain and impair corporate action. It is in effect the principal defendant, because, if its corporate action was authorized and legal, then no llabiUty attaches to any one. If its corporate action was illegal, and should be held to be null and void, or be set aside, then responsibility might attach to the other defendants. In such a case, a defendant situated like the Western Union Telegraph Company has the absolute right, without joining with the other defendants, to appeal from an order granting a new trial, and stipulate for judg- ment against it in case of affirmance. If tlie other defendants do not desire to appeal or give a stipulation, they can go back to a new trial. In such a case the whole mat- ter is within the control of the courts. If deemed wise, this court could postpone the argument of the appeal until the new trial as to the other defendants should be had; or the trial as to the other defendants might be suspended by the court below until the ap- peal should be heard. The course to be pur- sued is always In the discretion of the courts, which is to be exercised in view of the cir- cumstances of the particular case. The case of People V. Thacher, 55 N. Y. 525, is not in confilct with these views. That was an ac- tion in the nature of a quo warranto by the people on the relation of Judson against Thacher, to detei-mine the title to the ofiice of mayor; and Thacher, the incumbent or the office, succeeded at the trial term, and the judgment in his favor was reversed at the general term, and a new trial granted. He then appealed to this court, giving the stipulation for judgment absolute in case the order should be affirmed, and it was held that that was not a case in which the stipu- lation could be ^ven and the appeal taken, for the reason that there were two questions involved in the action; first, whether the de- fendant was entitled to the office; and if he was not, second, whether the relator was; and If the defendant could give the stipula- tion and judgment should go against him, It was held that that would not determine the right of the relator to the office; and hence that was a case In which the stipulation could not be given, as it might result in turn- ing the relator out of court without having his right to the office determined in that ac- tion. But here there is no such difficulty, and judgment in favor of the appellant will determine the whole controversy as to all the parties. A decision against the appellant in this court would leave the other defend- Ch. 16) WILLIAMS V. WESTERN UNION TEL. CO. 217 ants still with the right to defend the action as best they could. Our attention upon the argument was called to certain exceptions taken diu-ing the trial, of minor importance, to which we have given careful attention, and we do not think that any of them point out any error prejudicial to the plaintiff. We have not considered and do not deter- mine the point made by the defendants, that the plaintiff, as an individual stockholder, who purchased his stock while the transac- tions of which he complains were in fieri, and after he had some notice of them, can- not, in any aspect of the case, maintain this action, upon the facts existing, for the re- lief which he seeks. We prefer to rest our decision upon the broader ground upon which we have placed it. We are, therefore, of opinion that the order of the general term should be reversed, and the judgment of the special term affirmed, with costs. A similar order should be entered in Hatch v. The Western Union Telegraph Company and others, and as these decisions vacate the injunction orders, the appeals from those or- ders should be dismissed, without costs. All concur, except RUGER, C. J., and DANFORTH, J., taking no part Order reversed, and judgment accordingly. 218 KIXG c. GOVERNOR, ETC.. OF THE BANK OF ENGLAND. (CI). 16 KING V. GOVERNOR, ETC., OF THE BANK OF ENGLAND. (2 Barn. & Aid. 620. 1819.) Denman moved for a mandamus to the governor and company of the Bank of Eng- land, to produce an account of the income and profits for the last half year, preceding the holding of the last general court which was held on the ISth ilarch, 1819, with an account of the charges of management for the said half year, for the purpose of en- abling the next general court to consider the state and condition of the company, and to declare a dividend of all the profits, the charges of management only exceiDted. The afladavit, in support of the motion, stated that the applicant was a member of the cor- poration, and a proprietor of £500 bank stock. It then set out part of the charter, by which it appeared that it was competent to the proprietors, in their general courts, to make by-laws relating to the government of the corporation. It then stated, that in ihe year 1697, the following by-law was made, viz.: "That twice in every year a general court shall be held for considering the general state and condition of this cor- poration, and for the making of dividends out of all and singular the produce and profit of the capital stock and fund of this corporation, and the trade thereof, amongst the several proprietors therein, according to their several shares and proportions. The one of which said courts shall be held be- tween the 10th and 25th days of Septem- ber, the other between the 10th and 25th days of March, yearly." The aflidavit then stated that the applicant, on the 3d of De- cember, 1818, had given notice to the gov- ernor and directors of the bank to produce, on the day on which the next half-yearly court should be held, an account of the in- come and profits for the half year preceding that day, with an account of the charges of management for the said half year, to be laid before the coiu-t, for the pm'pose of en- abling the court to consider the state of the company, and to declare a dividend. on all the profits, the charges of management only excepted. The affidavit then stated that a general court was held on the 18th March, 1819, and that the governor and directors of the Bank of England refused to comply with his demand. The motion was then made that the accounts should be produced, which motion was negatived by a majority of the court. It was now contended that it was imperative on the coiporation to diviae their profits half-yearly; and the act of 7 Anne, c. 7, was referred to, by which it was expressly enacted, that all the profit aris- ing out of the management of the corpora- tion, &c., the charges of managing the busi- ness of the governor and company only ex- cepted, should be applied from time to time to the use of all the members of the said corporation for the time being, ratably and in proportion to each member's part, share, or interest in the common capital and prin- cipal stock of the governor and company of the Bank of England. This act is impera- five on the company to divide their profits, half-yearly, among all the members for the time being. Now, If the company be per- mitted to accumulate profits, they will not be divided among the members for the time being, but will be divided among subsequent purchasers of stock. ABBOTT, C. J. This is an application for a mandamus to a trading corporation, at the Instance of an individual member, to compel the directors of that corporation t(V produce their accounts and divide their prof- Its. It is, in efCect, an application on the behalf of one of several partners to compel his co-partners to produce their accounts of profit and loss, and to divide their profits, if any there be. The examination of the ac- counts of a trading company may be effect- ually entered into in the court of chancery; but this court Is a very unfit tribunal for such a subject. A mere trading corporation differs materially from those which are en- trusted with the government of cities and towns, and therefore have important pub- lic duties to perform. No instance has been cited in which the comrt has granted a man- damus to a corporation like the present, and I think we ought not now to establish the precedent. BAYLBX, J. The court never grant this writ except for public purposes, and to com- pel the performance of public duties. This- is an application, at the instance of one of several partners in a trading company, to compel his co-partners to divide their profits: but that is a mere private purpose, and pre- sents a fit subject for enquiry on the other side of the hall. There is no instance in v^'hich the court have granted a mandamus to a trading corporation; and, that being so, I think that we should not now grant it for the first time. HOLBOYD, J. I am of the same opinion. The effect of this application would be to compel a public exposure of private con- cerns, and I think it ought not to be granted, BEST, J. If we were to grant this rule, we should make ourselves auditors to all the trading corporations in England. Rule refund. Ch. 16) PHATT V. PRATT, READ & CO. 21:) PRATT et al. v. PRATT, READ & CO. (33 Conn. 446. 1866.) Bill for an injunction, brought to the supe- rior court for Middlesex county. The bill alleged that the petitioners in the year 1863 associated themselves with Julius Pratt, Henry C. Butler and otliers as a joint stock corporation by the name of Pratt, Read and Company, under the statute with regard to such corporations, for the purpose of manu- factui-ing and selling iyory, bone, shell and wood combs, and piano and melodeoh ivory, and other articles made in part or in whole of ivory; that the capital of the corporation was $175,000; that the petitioners were own- ers of a minority of the stocli; that the cor- poration had been and was still engaged in a profitable business, but that the directors had combined with the owners of a majori- ty of the stock to misapply the funds of the corporation; that there was a surplus of earnings in the hands of the ti-easurer amounting to $125,000, which the petitioners had insisted upon having divided, but the di- rectors had refused; .that the company was proceeding through the directors, and with- out any vote of the stockholders, to erect a large and expensive building for the purpose of extending their business beyond what was contemplated when the company was formed; that the petitioners were in need of their share of the surplus for their individual pur- poses; and that the directors and the ma- jority of the stockholders were acting fraud- ulently and in disregard of the interests of the petitioners, and were conspiring together to secure their own private interests by means of the corporate organization and funds and to injm-e the interests of the peti- tioners. The bill therefore prayed for an In- junction against the corporation, forbidding it to proceed with the erection of the build- ing, and for a decree that the corporation divide among the stockholders the siu-plus funds on hand. Upon the biU and the answer of the re- spondents the court found the following facts: The respondents, a joint stock corporation tmder the name of Pratt, Read & Co., was on the 6th day of October, 1863, duly organ- ized and located in the town of Meriden and county of New Haven, with a capital of $175,000, divided into seven thousand shares of $25 each, for the "purpose of manufactur- ing, selling, and dealing in all kinds of ivory shell, horn, bone, rubber, wood and other combs, all kinds of piano and melodeon ivory, and other articles made in whole or in part of ivory, shell, bone, india rubber, gutta percha, composition, wood or metal, and to purchase, hold, sell, and deal in all real and personal estate necessary and con- venient for the prosecution of said business, and generally to do all acts connected with or incidental to said business or the prose- cution of tbe same." The stockholders 'of the corporation are exclusively composed of the former members of the firms of George Read & Co. and Pratt Brothers & Co., late of Saybrook,' in Middlesex county, and the stockholders in the former corporation of Julius Pratt & Co., late of Meriden. The petitioners are the former members of said copartnership of Pratt Brothers & Co., and now own 1,441 shares of the stock. The re- maining 5,559 shares are owned and held by those individuals who formerly composed said copartnership of George Read & Co. and said corporation of Julius Pratt & Co. One of the principal objects in the formation of the new corporation by the consolidation of said coptenerships and corporation, was to secure as far as practicable uniformity in prices, and certainty in profits, and to that end it was understood by all concerned that the respondents were not to receive and be prejudiced by any competition from any of its own stockholders, and that they should not carry on the same business independent- ly of the business of the respondents. In June, 1864, Ulysses Pratt, one of the pe- titioners, purchased from the Deep River Ivory Comb Company, a corporation located in Saybrook, their factory, machinery, fix- tm-es and privileges, and in February or March, 1865, formed a copartnership with other pei-sons, and commenced and still car- ries on thereat the business of manufacturing ivory comb^, and sells their manufactured goods in competition with the respondents. At the time the respondents were organ- ized, the real and personal assets of the cor- poration of Julius Pratt & Co. and of the copartnerships of George Read & Co. and Pratt Brothers & Co., was appraised by per- sons mutually selected at $446,000, which was held in the following proportions, to wit: by Julius Pratt & Co. $258,511, by George Read & Co. $89,593, and by Pratt Brothers & Co. $97,917; and in the subscriptions to the capital stock of the respondents the mem- bers of said corporation of Julius Pratt & Co. and of said copartnerships of George Read & Co. and Pratt Brothers & Co., sub- scribed and owned in the same proportions. The remainder of the real and personal es- tate of said corporation and copartnerships, amounting to $271,000, after deducting and applying the capital of the respondents, $175,000, was taken by the respondents, and the notes of the new corporation given, in the same proportions that the stock was sub- scribed, to said corporation of Julius Pratt & Co. and said copartnerships of George Read & Co. and Pratt Brothers & Co. All the notes so given to George Read & Co. and Pratt Brothers & Co. were paid at maturity, and all thoSe given to said corporation of Julius Pratt & Co. had been paid at the time of the bringing of the suit, except about $36,000, which for the accommodation and convenience of the respondents had been ex- tended and allowed to remain over-due. rilATT V. PRATT, HEAD & CO. (Ch 16 At the time of the orsanization of the new <;orporation there was a general understand- ing by the parties that the notes should be paid at its convenience, and that they should be extended to suit its convenience in the reasonable prosecution of its business, and that the payment of these notes to the hold- ers should be received by them in lieu of dividends, until they were all cancelled and discharged; but the petitioners Alexis Pratt and Felix A. Dennison were not cognizant of and did not participate in that understand- ing, and it did not clearly appear that the other petitioner, Ulysses Pratt, did. At the time of the bringing the petitioners' bill, to wit, on the 8th of Mai-ch, 1866, the ■outstanding indebtedness of the respondents Avas about $72,000, of which $30,000 was ma- tured and had been extended as aforesaid, and the respondents had then on hand in cash $21,000, and a surplus of property and earnings including said cash of about $130,- 000. This sm-plus, aside from said $21,000 in cash, consisted of stock, manufactured goods, and some $50,000 in paper, taken on short time, upon the sales of manufactured goods at their agency in New York. The amount and value of the respondents' sur- plus was arrived at by an inventory and es- timate of its assets made, so far as that por- tion which consisted of manufactured goods was concerned, at 28 per cent below the selling prices in maiket. The building now in process of erection by the respondents in Saybrook is designed for the manufactm-e of piano key boards, a busi- ness incidental to the manufactiu:e of piano keys, and, if carried on to a considerable ex- tent by the respondents, requires the addi- tional room and power and expenditure con- templated in the building and improvements which the respondents have commenced to erect and make, and which, with the machin- ery and fixtures, and the necessary addition- al outlay in lumber and materials, will call for some $30,000 or $35,000. The directors of the corporation at the time of its organization contemplated the prose- cution in some manner of this branqb of busi- ness, and the said Ulysses Pratt was then and for some time thereafter one of its most earnest advocates; but the petitioners have never been in favor of conducting it at so great expense, or so as to interfere with the payment of fair and reasonable dividends; and the successful prosecution of the busi- ness has not yet been fully established, and at the time of the commencement by the re- spondents of said building, and at other times since, the petitioners have objected to and remonstrated with the directors, and in- sisted upon having their share of the earn- ings of the corporation paid to them, and the .said Alexis Pratt has little other means or source of income for the support of himself and family, and needs whatever Justly be- longs to him as the avails of his stock, and interest in the corporation. The corporation has made no dividends since its organization, except one of five per cent, in July, 1865, which was declared for some purpose connected with the United States income tax; and at the same meet- ing at which the dividend was declared, the said Ulysses Pratt, acting for himself and as agent of the other petitioners, desired and moved a dividend of forty per cent., which motion was rejected.. The business of the corporation has from Its organization been and still is very prosper- ous, but it has not cash funds to pay its debts, erect and make the contemplated buildings, improvements and expenditures, and pay a dividend; and if it assumes or un- dertakes to do all these at present it must either borrow money to a considerable amount or force the sale of its manufactm-ed goods at a loss; but if the erection of the new building and the prosecution of the piano key board business is abandoned, it can safely make a liberal dividend from its accumulated profits. Its property cannot be forced upon the market and disposed of fast- er than by its regular sales at its agency in New York without material sacrifice, and the present tendency in the prices of its goods is somewhat downward, partly in conse- quence of sales at under prices made by Pratt, Smith & Co., a corporation of which the said Ulysses Pratt is a member and agent, and partly from other causes connected with the business of the country; and to conduct the business successfully a large capital in said material and manufactured goods is neces- sary, and a much larger sum than $175,000 is required, unless a considerable amount in surplus can be retained and employed for that purpose. The corporation, through its directors, has acted in the premises without malice, improper motive or fraud towards the petitioners or either of them, and in the management of its business and concerns has exercised what they believed to have been a sound and reasonable Judgment and dis- cretion. Upon these facts the case was reserved for the advice of this court HINMAN, 0. J. The petitioners seek in this case the aid of a court of equity to com- pel the respondents, a Joint stock corpora- tion, to declare and pay over to its stock- holders a reasonable dividend out of its sur- plus earnings; and also to enjoin it from mak- ing farther expenditures in the erection of a large factory building for the purpose of enlar- ging its business and thereby exhausting its sm-plus funds, to the injiu-y of the petitioners, who are a minority of its stockholders op- posed to such enlargement. The petitioners make in their petition a very strong case for the equitable interference of the court in Ch. 16) PKATT V. PRATT, HEAD & CO. 221 their behalf. And if it had been sustained by the facts found by the court, we could have no hesitation in granting them the re- lief asked for. Where a corporation is about to exceed its powers by applying its prop- erty to objects beyond the authority of its charter, it is well settled that a court of equity will grant relief to a minority of its stockholders who dissent from such use of its funds. Railroad Co. v. Croswell, 5 Hill, 383; Stevens v. Railroad Co., 29 Vt. 545; Sears v. Hotchkiss, 25 Conn. 171; Scofleld v. School Dist., 27 Conn. 499. Indeed this doctrine necessarily results from the principle which underlies the cases, that the corporation and the directors are trus- tees, and as such may be called into a court of chancery, either for an account, or to re- strain them from mismanagement of the cor- porate property, especially for a fraudulent mismanagement of it, or for the pui-pose of compelling the corporation and its directors to declare dividends from its surplus earn- ings, where such dividends are needlessly and improperly withheld. Robinson v. Smith, 3 Paige, 222; Scott v. Insurance Co., 7 Paige, 198. Indeed, joint stock companies in mod- ern times are nothing but commercial part- nerships, which have taken the form of cor- porations for the greater facility of transact- ing business, and to prevent a dissolution of the concern by those numerous events which are so liable to work a dissolution in a part- nership composed of a great number of in- dividuals; and they must have applied to them principles making them accountable like all trustees, or the grievance would be intolerable, since otherwise a majority of the stockholders, acting through the direct- ors, who would thus cease to be in fact what the law considers them, — the agents of the whole body of stockholders,— and would become the private agents of the majority, might set the minority at defianc^, and man- age the affairs for their own supposed bene- fit and the benefit of the majority who ap- pointed them. The true doctrine upon this subject appears to us to be very fairly and correctly stated by Chancellor Walworth in the case of Scott v. Insurance Co., 7 Paige, 203, where he says, that "as the directors are bound to exercise a proper discretion in mak- ing dividends of surplus profits, if they abuse that power by dividing the unearned premi- ums without leaving sufiicient to satisfy the probable losses, they may, in case of an ex- traordinary loss which is sufficient to ex- haust the whole capital and more, make themselves personally liable to the creditors of the company. On the other hand, should they without reasonable cause refuse to di- vide what is actually surplus profits, the stockholders are not without remedy, if they apply to the proper tribunal before the cor- poration has become insolvent." The sur- plus of this corporation over its nominal cap^ Ital which the petitioners seek to have di- vided is so large, and bears so great a pro- portion to the capital, that we have felt the necessity of stating our views of the princi- ple which should govern in determining questions of this sort the more distinctly, in order to prevent the case from being' used as a precedent against ordering a divi- dend to be made, where there is confessedly a large surplus over the capital on hand, and no reason can be given for withholding it from the stockholders except the mere will of" the directors, acting by the advice of a ma- jority of the stockholders. In cases of this- description the question must always be, where a surplus is asked to bo divided, and the directors refuse to declare a dividend, whether there is a reasonable cause for with- holding it. Now, in the first place, before- a dividend is ordered to be made, it should appear clearly that there is a surplus to be divided. In this case the surplus appears to be very large in reference to the nominal' capital of the company; but when examined in reference to its actual capital, it is other- wise; and we think we find a sufficient rea- son in this fact for not ordering a dividend. In the first organization of the corporation the sum of $175,000 was named as the nom- inal capital in the articles of association. But it is evident from all the facts in the case that the actual capital was much larger' and consisted of all the property purchased of the individual stockholders, who had all been engaged in the business contemplated to be carried on by the company, which was- of the agreed value of more than $400,000; the difference being made up to the stock- holders by the corporation notes, which were- expected to be paid, as they principally have been, out of the subsequent profits of the business, and not by an immediate sale of any large portion of the assets thus pur- chased of its stockholders. It could not have been the intention to force the sale of this- large amount of property. This could not have been done without great sacrifice, and' if such had been the intention, the corpora- tion never would have pm-chased it. They therefore must have intended to use it as a part of their capital, or to keep it on hand as surplus until that part of it which con- sisted of manufactured goods could be sold, in the regular coiu-se of business, with which all the stockholders were familiar. There is- no evidence that they have not converted their manufactured goods into cash as fast as it can be done in the successful prosecu- tion of their business, and to order them to do it faster than this is simply to order them to make needless sacrifices. The reason for" stating the amount of their capital at so much less than it actually was does not ap- pear, and it is not very important that it should. It is enough to say of it, that while it is not a course to be recommended for general adoption, the finding in this case is very fuU to the effect that nothing im- 222 PRATT V. PRATT, READ & CO. (Ch 16 proper or fraudulent was Intended by it; and tbe success of their business fully sus- tains the finding, that the directors have in all their transactions exercised a sound judg- ment and discretion. Again, the court finds that it was the gen- eral understanding of the stockholders that their notes against the corporation, given for the largest part of the property purchased at the time of the organization, as they should be paid, should be regarded and received by them in lieu of dividends, which implies cer- tainly that no dividends should be declared until that large indebtedness was paid; and this has not yet been done, by some thirty thousand dollars. But there was as much reason for declaring a dividend when the corporation was first organized 'as there is now, except so far as the comparatively small sum in cash on hand is concerned. As then the business appears to have been hon- estly and discreetly managed, and as it is found moreover that to conduct it success- fully requires a much larger capital than $175,000, unless a considerable surplus is re- tained; and as we believe it to have been the intention of the stockholders in the or- ganization of the company to retain a surplus to at least the amount of its capital for that purpose, and as the ordering of a dividend would necessarily involve the sacrifice of a large amount of manufactured goods at a forced sale, it appears to us that it would be very inequitable and unjust to the man- aging majority to advise the superior court to order such a dividend to be made. The remaining question is, whether the corporation ought to be restrained from erect- ing their new factory, for the manufacture of piano key boards. The directors at the time the corporation was organized contemplated the prosecution of this business. The articles of association state the purpose of the organi- zation to be to manufacture, sell and deal in all kinds of ivory, shell, horn, bone, rubber, wood and other combs, and all kinds of piano and melodeon ivory, and other articles made in whole or in part of ivory, shell, horn, bone, India rubber, gutta percha, composition, wood or metal, and to purchase, &c., and to do all acts connected with or incidental to the said business or the prosecution of the same. It is not very strenuously claimed but that the manufacture of piano key boards, as connect- ed with the manufacture of all kinds of piano ivory, and especially of all other articles made in whole or in part of ivory, composi- tion, wood or metal, comes within the con- templated purpose of the corporation, as ex- pressed in the articles. The question, there- fore, in this part of the case, is confined merely to whether the contemplated expendi- ture for this new factory is so great as un- necessarily and unreasonably to hazard the petitioners' stock. On a question of this sort much must necessarily be left to the discre- tion of the managing directors, and so long as they keep within the objects contemplated by the articles of association, and the ex- penditure is not unreasonable in reference to the amount of their capital, a court of equity ought very seldom to interfere with them. In the organization of these companies, par- ties, if they see fit to do so, can provide spe- cifically as to the business that shall be trans- acted; and if they omit to do this, but, on the contrary, express the purposes of the organi- zation in such general terms as to admit of a very large discretion in the management of their business, the presumption is that it was intended that the discretion of the managers in this respect should be unlimited. There is nothing in the articles here that shows any intention to limit the discretion of the man- agers in respect to the particular business contemplated, except it be the naming of a sum as the amount of the capital. This in most cases would and ought to be some guide in i'espect to the amount that it would be rea- sonable to expend in permanent fixed proper- ty and machinery; but this, in this case, ap- pears to have been fixed without much refer- ence to the amount of business to be done. We feel therefore that it is impossible for us to say that the expenditure of some $35,00i> for this new factory is so clearly extravagant and disproportioned to the amount of capital stock as to justify the court in enjoining against it. We therefore advise the superior court to dismiss the petitioners' bill. In this opinion the other judges concurred, except CARPENTER, J., who, having heard the case upon a motion to dissolve the injunc- tion in the court below, did not sit. Ch. 16) DAVISON V. GILLIE3. 223 DAVISON V. GILLIES. (16 Ch. Div. 3i7, note. 1879.) This was a motion by the plaintiff, Wil- liam Davison, suing on behalf of himself and all other shareholders of the London Tram- ways Company, Limited, and the company, for an injunction to restrain the defendants, the directors of the company, from applying any part of the assets of the company which represented capital, or ought to be retained to represent capital, in the payment of divi- dends on the shares in the company, and from submitting to the shareholders any resolution to confirm or permit the payment of dividends out of capital, or summoning any meeting for the pm-pose of authorizing payment of dividends, without first fully and properly disclosing to all the members of the company the true state of the capital and other accounts of the company, and without disclosing the fact that no dividends could be paid except out of assets which ought to be retained to represent capital. The ground of the motion was that the company's tramways had become worn out, thus necessitating a large expenditm-e for repairs, no due provision for which had been made by the company in their accounts; and that consequently the company had no right to pay the dividend declared on the 20th of February, 1879, as mentioned in an action of Dent v, London Tramways Co., 16 Ch. Div. 344, until these repairs had been pro- vided for; or, in other words, until the cap- ital so lost had been reinstated. .The other facts of the case sufficiently appear from his lordship's judgment. By amendment the company were struck out as plaintiffs and added as defendants. JESSEL, M. R. The articles of associa- tion, which are binding on the directors and on the company, are very plain. The 107th article is this: "No dividend shall be declared except out of the profits or the company." A general meeting cannot get over that. The dividend can never be declared but out of profits; and the allega- tion on the part of the plaintiffs is that this dividend is not declared out of profits at all; that there are no profits available. The right to declare a dividend depends on the facts. The word "profits," by itself, is a word which is certainly susceptible of more than one meaning, and one must ascertain what it means in these articles. The 103rd article says: "The directors shall, with the sanction of the company in general meeting, declare annual dividends, to be payable to the members out of the profits of the com- pany, not exceeding the rate of 6 per centum per annum for each year, on the paid-up cap- ital for the time being of the company, and of one-half the profits of the company above that amount, and they shall declare the other half of such surplus profits to be payable to the scripholders." Scripholders are another class who are not shareholders, who have subscribed moneys, and are to be entitled to half the siu-plus profits. It is quite clear that, whatever these profits are, they are profits of the same kind: half the surplus is to go to the shareholders and the other half to the scripholders. Then the next article is this: "The di- rectors shall, before recommending any divi- dend, set aside out of the profits of the com- pany, but subject to the sanction of the com- pany in general meeting, such sum as they think proper as a reserve fund for main- tenance, repairs, depreciation, and renew- als." It is plain that these "profits" mean something after payment of the expenses, because you do not get a reserve fund at all until you have paid your ciu'rent expenses. It is obvious that the word "profits" means net profits. Then the next article is this: "The di- rectors shall also, before recommending any dividend, set aside out of the profits of the company, a sum equivalent to one per cen- tum per annum on the amount of the paid- up capital for the time being as a contingen- cies fund." There again "profits" obviously mean net profits. The result, therefore, of the articles, as I read them, is that a divi- dend shall only be declared out of net profits. Then I have to consider the question, what are net profits'? A tramway company lay down a new tramway. Of course the ordi- nary wear and tear of the rails and sleepers, and so on, causes a sum of money to be re- quired from year to year in repairs. It may or may not be desirable to do the re- pairs all at once; but if at the end of the first year the line of tramway is still in so good a state of repair that it requires noth- ing to be laid out on it for repairs in that year, still, before you can ascertain the net profits, a sum of money ought to be set aside as representing the amount in which the wear and tear of the line has, I may say, so far depreciated it in value as that that sum will be required for the next year or next two years. Take the case of a warehouse. Supposing a warehouse-keeper, having a new ware- house, should find at the end of the year that he had no occasion to expend money in re- pairs, but thought that, by reason of the usual wear and tear of the warehouse, it was a thousand pounds worse than it was at the beginning of the year, he would set aside £1,000 for a repair or renewal or deprecia- tion fund before he estimated any profits; because, although that sum is not required to be paid in that year, still it is the sum of money which is lost, so to say, out of capital, and which must be replaced. I should think no commercial man would doubt that this is the right course — that he must not calcu- late net profits until he has provided for all the ordinary repairs and wear and tear oc- casioned by his business. In many busi- 224 DAVIS02!! 0. GILLIES. (Ch. 16 nesses there is a regular sum or proportion of some kind set aside for tliis purpose. Shipowners, I believe, generally reckon so much a year for depreciation of a ship as it gets older. Experience tells them how much they ought to set aside; and whether the ship is repaired in one year or another makes Qo difCerence in estimating the profits, be- cause they know a certain sum must be set aside each year to meet the exti-a repairs of the ship as it becomes older. There are very many other businesses in which the same thing is done. That being so, it appeai-s to me that you can have no net profits unless this sum has been set aside. When you come to the next year, or the third, or fourth year, what hap- pens is this: as the line gets older the amount required for repairs increases. If you had done what you ought to have done, that is, set aside every year the sum necessary to make good the wear and tear in that year, then in the following years you would have a fund sufficient to meet the extra cost. Now, when I come to look at these articles, I think that is what is intended, and that that is the meaning of the reserve fund. What the company intended to do was this: inasmuch as they knew that maintenance, re- pairs, depreciation and renewals would be wanted, and inasmuch as they knew that ac- cording to the ordinary commercial rules they ought not to calculate the net profits until they had provided for this which was sure to happen, they said, "We will set aside a sum of money which we will call a reserve fund for this purpose." Although not expended during the year, it is a reserve fund set aside for expenditure in the following years, taken out of profits before a dividend is made. It appears to me, therefore, that these articles do recognize what seem to me sound commer- cial principles. That being so, from year to year, as the line got older it would get worse, and would, no doubt, require a larger ex- penditure every year for repairs and renew- als, as a general rule. I say as a general rule, because sometimes the repairs may be so extensive as to make the renewal of a large portion of the line required in one year, and then the next year there might be a fall- ing off in the amount required; but, as a general rule, as the line got older it would require more money. Now, the line having been established sev- en years, I find an eminent engineer telling me in his affidavit in support of the motion that to put the line in a good state of re- pair will require £80,000: in other words, if you take the deterioration of the line from want of repair from its commencement, it is worth £80,000 less than it was at starting: that is the summary of that gentlemen's evi- dence. He then thinks that those repairs, or the greater part of them, should be done at once. That is a matter of opinion on which engineers may fairly differ, and do differ. The defendants' engineer, who, I am told, is also an eminent engineer, says he thinks they should not be done at once, but should be done gradually. But still, as I said before, they are to be done. That sum of money is required, or something like It. I cannot ascertain from the affidavit of the defendants' engineer what sum he considers sufficient: I have no doubt he would fix a much smaller sum. However, for the pur- pose of my judgment, I am willing to take a very large discount off the £80,000, because it is a very much larger sum indeed than is required to wipe away the whole of the dividend the company have declared. There- fore one need not consider whether it is £80,- 000 or £40,000: either sum would do that; but a very large sum it is, and the defend- ants' engineer does not tell me how much. I do not wish to prejudice any future ap- plication the company make under the leave 1 am going to reserve to them, but I will say that unless they give me something a great deal more definite as to the amount ac- tually required for putting the line into re- pair than I have at present, I should cer- tainly not be of opinion that the amount they propose to divide among the shareholders is fairly divisible. (His lordship then commented on the ac- counts for the half-year ending the 31st of December, 1878, observing, that the existing "reserve fund" was altogether inadequate for the purposes of ordinary maintenance, &c., and that the "contingency fund" was not applicable , to such purposes. His lordship then continued:) That being so, on the present evidence I am satisfied that there are no prof- its at present available for division. It may happen that there would have been profits if the company had properly applied the surplus of former years. I must say, look- ing at the accounts of the company, it ap- pears to be a flourishing company, and I hope nothing I say will damage Its future success: but still I am bound by the articles to say that no dividend is to be paid except out of profits; that there are no profits avail- able, and therefore I grant the injunction asked. At the same time I wish to give the defendants every possible opportunity of shewing that there are profits available, and I also feel that my intervention is likely to be injurious to the company. If the defend- ants can shew me at any time that there are profits available for the purpose of this divi- dend, I will give them an opportunity of do- ing so, and therefore I give them leave to move to dissolve the injunction I now grant. The injunction granted restrained the de- fendants from authorizing or making any payment out of the assets of the company in respect of the dividend declared in February, 1879, on the ordinary shares. By consent the motion was afterwards treated ap the trial of the action, and there- upon the injunction was mad« perpetual. Ch. 16) DENT c. LONDON TRAMWAYS CO. 225 DENT V. LONDON TRAMWAYS CO. (16 Ch. Div. 344. 1880.) The defendants, the London Tramways Company, Limited, were incorporated in 1870, under the companies acts, 1862 and 1867, with a capital of £250,000, in 25,000 shares of £10 each. The whole of the capi- tal had been issued and was fully paid up. In 1874, in pursuance of a power contained in their articles of association, the company passed a special resolution increasing their capital "by the issue of 8,000 shares of £10 each, bearing a preferential dividend of 6 per cent, per annum over the present shares of the company dependent upon the profits of the particular year only." In accordance with that resolution 8,000 preference shares of £10 each were duly is- sued and became fully paid up. The plain- tiff was the registered holder of 100 of such shares. The plaintiff, who sued on behalf of him- self and all other the preference sharehold- ers of the company, alleged in his statement of claim that in the half year ending the 30th of June, 1878, the company earned profits sufficient for the payment of a divi- dend at the rate of 3 per cent, per annum both on the preference and ordinary shares, which dividend was accordingly duly paid; that in the half year ending the 31st of December, 1878, the company earned fur- ther profits sufficient for payment of a divi- dend at the rate of 3 per cent, upon t>e preference shares, and at the rate of 6 per cent, per annum on the ordinary shares, and that by a resolution passed • at a general meeting of the company, held on the 20tl\ of February, 1879, such dividend was duly declared and became payable to the plain- tiff and other holders of preference shares; that the company, however, refused to pay such dividend to the plaintiff or any of the other holders of preference shares, and that the sum of £30 was now due to the plaintiff in respect of such dividend on the 100 pref- erence shares; that during the year ending the 31st of December, 1879, the company earned profits much more than sufficient for payment of a dividend at the rate of 6 per cent, per annum upon the preference shares, but that the company had not paid and re- fused to pay, either to the plaintiff or to any other holders of preference shares, any divi- dend whatever for that year; that the com- pany's tramways and works were in a state of efficiency and good working order, and that no expenditure beyond the expense oc- casioned by ordinary wear and tear was re- quired. The plaintiff claimed (amongst other things) a declaration that he and all the other preference shareholders were entitled to a dividend on their shares at the rate of 3 per cent, per annum for the year ending the 31st of December, 1878, and a dividend on their shares at the rate of 6 per cent. PRIV.COBP. — 15 per annum for the year ending the 31st of December, 1879; payment to the plaintiff ot the sums of £30 and £G0, being the amounts due to him in respect of such dividend for the years ending the 31st of December, 1878, and the 31st of December, 1879, respectively; an account of the profits made by the com- pany during the same years, respectively; and payment to the plaintiff of such divi- dend on his preference shares as upon tak- ing such account the court should consider him entitled to. In their statement of defence the company alleged that they had only recently ascer- tained that from the year 1871 down to the end of the year 1878 their accounts, which were rendered half-yearly, had been kept in an improper and misleading manner, no proper or sufficient sums ever having been expended and proper allowance made foi the maintenance, repairs, depreciation, and renewals of the tramways, rolling-stock, and other property of the company, and that the ' amounts from time to time actually char- ged against revenue in respect of such maintenance, repairs, depreciation, and re newals were grossly inadequate, and far be- low what ought properly to have been so charged. The defence then proceeded to state that from the year 1871 to the year 1877 Inclu- sive, the company had, in ignorance of their true financial position, paid large sums to the shareholders by way of dividend, with- out charging, as they should have done, iii each year a proper proportional amount against revenue for maintenance, repairs, depreciation, and renewals; and it appear- ed that if this proportional yearly charge had been made the balance of revenue or "net profit" in each year available for a dividend would have been comparatively small. The defence then stated that the com- pany's accounts for the year 1878 purported to shew a net balance of profits for that year of £21,178. 10s. lOd.; but that (para- graph 20) "if a proportionate amount had been charged against the revenue for the year 1878 for such maintenance, repairs, de- preciation, and renewals as aforesaid, the accounts would have shewn, as the fact was, that there was a balance of revenue, - and in that sense a net profit in that year, of only £14,932;" that on the faith of the said accounts, and being ignorant of their true financial position, the company paid the dividend for the half year ending the 30th of June, 1878, both on the preference and ordinary shares, and on the 20th of Feb- ruary, 1879, passed a jesolution declaring the further dividend for the half year end- ing the 31st of December, 1878, on both the preference and ordinary shares. Shortly after the passing of the last men- tioned resolution, and before any dividend was paid under it, one William Davison, on behalf of himself and all othei- the share- 226 UEXT V. LONDON TRAMWAYS CO. (Ch. It) holders of the cntnpaiiy, brought an action (Davisdu V. Gillies),' which, as amended, was a),'ainst the directors of the company and the company itself, for (amongst other things) an injunilion to restrain the defend- ants in that action from applying any part of the assets of the company which repre- sented capital, or ought to be retained to rep- resent capital, in the payment of dividends, and from submitting to the shareholders of the company any resolution to confirm or permit the payment of dividends out of capi- tal: and upon motion his lordship granted nil injunction restraining the defendants from authorizing or making any payment to the ordinary shareholders in respect of divi- dend for the half-year ending the 31st of De- cember, 1878, on the gi'ound tliat, inasmuch as no proper allowance had been made in the company's accounts for maintenance, &c., no part of the moneys of the company was in fact available or applicable for divi- dends on the ordinary shares for the year 1X78. The company then stated in their defence in the present action, that the total sum A\hich ought to have been charged against revenue for maintenance, &c., during the eight years from 1871 to 1878, instead of be- ing paid away in dividends, amounted to £114,400. 18s. 8d., and that that sum, having lieen in fact paid out of capital, represented the amount by which the capital of the com- pany had become diminished in value. Under these circumstances the company insisted that the preference shareholders were not entitled to be paid any dividend imtil the company had, by means of the sums earned by them since the 30th of June, 1S78, and to be earned, increased the small existing reserve fund applicable for main- renance, &e., to the sum of £114,460. 18s. 8d., or, in any case, until the preference share- holders had accounted for and repaid to the company the suihs paid to them in excess of what they ought to have received for divi- dends had the accounts been properly kept. The company, moreover, denied that in the two half-years in 1878 they earned profits properly applicable for the payment of divi- dends on the preference and ordinary shares, or that the sums which they had, upon a cor- rect view of the accounts, actually earned as profits for the year ending the 31st of De- cember, 1879, were properly applicable for payment of dividends on the preference shares. They also denied that their tramways and works were in a state of efficiency, or that no expenditure beygnd that necessitated by ordinary wear and tear was required. They alleged, on the contrary, that a considerable expenditure was necessary in order to put their tramways and other property into a thorough state of efficiency. '■ See ante, p. 223. The action now came on for ti'ial. A report had been prepared by Messrs. Waddell & Co., accountants, at the request of the directors of the company, shewing the amount of profits available for the prefer- ence dividend in the year 1878. This report was produced at the trial, and shewed that the balance of net revenue available for the preference dividend, after providing for cur- rent expenses, maintenance, repairs, &c., amounted to the sum of £14,932. In reply to a question put by his Lordship in the course of the argument, Mr. Waddell stated that this £14,032 represented, in fact, the actual surplus receipts for the year 1878, after paying all expenses and reinstat- ing the capital as on the 1st of January in that year. JBSSEL, M. R. X have no doubt what ought to be the decision on this question. What would have become of the other ac- tion if it had gone to trial, and had been fully argued out, I do not know; but the or- der made on the motion for injunction seems to have been the right order on the then state of facts, although I think it has been as- sumed that I then decided a great deal more than I did really decide. However, the present question is, to my mind, a very simple one. There is a bargain made with the company that certain persons will advance their money as preference shareholders; that Is, that they shall be en- titled to a preferential dividend of 6 per cent, over the ordinary shares of the company, "dependent upon the profits of the particular year only." That means this, that the pref- erence shareholders only take a dividend if there are profits for that year sufficient to pay their dividend. If there are no profits for that year sufficient to pay their dividend they do not get it: they lose it for ever; and if there are no profits in one year, and 12 per cent, profit the next year, they only get 6 per cent., and the other per cent, goes to the ordinary shareholders. So that they are, so to say, co-adventurers for each particular year, and can only look to the profits of that year. What happened was this: The company im- properly allowed their tramways to get out of repair, and paid away their receipts to the ordinary shareholders in the shape of divi- dends. The resvUt was that on the 1st of Jan- uary, 1878, the tramways were very much out of repair, and wanted a large sum to put them in a proper state of efficiency. Not- withstanding that, the company did work, and they earned a good deal of money, the profits for the year 1878 being upwards of £14,000; and the dividend required being only 6 per cent, on £80,000, it is quite clear they earned more than sufficient to pay the prefer- ence shareholders, supposing these were fair- ly-earned profits. To see that they were fairly-earned profits, I must look at the re- port, which I have before me, of an eminent Ch. 16) DKNT V. LO>fDON TBAMWAYS CO. 227 accountant, Mr. Waddell, wlio says they were. He says, in effect, that, considering the state of the line on the 1st of January and the state of the line on the 31st of De- cember in that year, after setting aside suffi- cient to make good the wear and tear for that particular year, and paying all expenses, there was a net balance of £14,932. That is admitted by the 20th paragraph of the state- ment of defence, which says: "If a proper proportionate amount had been charged against the revenue of the year 1878 for such maintenance, &c., as aforesaid, the accounts would have shewn, as the fact is, that there was a balance of revenue, and in that sense a net profit in that year of only £14,932. 5s. 4d." Therefore, if "profits for the year" have any meaning at all, these were the profits for the year. "Profits for the year" of coiu"se mean the surplus in receipts, after paying expenses and restoring the capital to the position it was in on the 1st of January in that year. I have had the advantage of having Mr. Waddell present in court, and as- certaining from him that his report in the sense I have stated is expressed according to his meaning, and that there is no mistake in the admission in the defence; that Is to say, there was an actual net profit for that year of upwards of £14,000. Then what is there to argue? The argument for the com- pany amounts to this, that inasmuch as they have improperly paid to their ordinary share- holders very large sums of money which did not belong to them, they, the company, are entitled to make good that deficiency by tak- ing away the fund available for the prefer- ence shareholders to an amount required to put the tramway in proper order. When the argument is stated in that way, it is clear that it cannot be sustained. The company either have a right to recover back from the ordinary shareholders any sums over-paid or not. • If they have a right, they must recover them ; if they have no right to recover them, a fortiori they have no right to recover them from the preference shareholders, and. of course, still less right to take away the divi- dends from the preference shareholders. It appears to me that the defence is found- ed on a misconception, and, I am afi'aid, a misconception of what I am supposed to have decided on a former occasion; but I have no hesitation in making the declaration which I am asked to make, and deciding in favom- of the plaintiff in this action. Is-EW VOHK, L. E. & W. U. U. CO. v. NICKALS. (Ch. 16 NEW YOUK, L. E. & W. R. R. CO. v. NICK- ALS et al.' (7 Sup. Ct. 20;>, 119 U. S. 200. Nov. 29, 18S6.) Appeal from the circuit coui't of tlie United States for the southern district of New York. Suit to recover dividends upon preferred stock. Decree for plaintifCs. Defendants ap- pealed. Mr. Justice HARLAN delivered the opinion of the court. By the decree below it was adjudged, in accordance with the prayer of the bill, that the New York, Lake Erie & Western Railroad Company was required, by its articles of as- sociation, to declare a dividend of 6 per cent, upon its preferred stock, for the year ending September 30, 1880, payable out of the net profits accruing that year from the use of its property, after meeting operating expenses, interest on funded debt, rentals of leased lines, and other fixed charges. A judgment was rendered against it for $20,280,— the amount which the plaintiffs would have re- ceived if a dividend had been made,— with interest thereon from January 15, 1881, to the date of the decree, and also for their costs and disbursements. The cause was referred to a special commissioner to ascertain the names of all other parties entitled to receive similar dividends. The case made by the pleadings, exhibits, and proofs is substantial- ly as win now be stated. The Farmers' Loan & Trust Company hav- ing commenced an action in the supreme court of New York for the foreclosure of two mortgages executed by the Erie Railway Company upon its line of railway, property, rights, privileges, and franchises, — one of Sep- tember 1, 1870, to secure its obligations known as first consolidated mortgage bonds and sterling loan bonds, and the other of Feb- ruary 4, 1874, to secure its obligations known as second consolidated mortgage bonds and gold convertible bonds, — and having also brought ancillary suits for the foreclosure of the same mortgages in the states of New Jersey and Pennsylvania, certain parties, on the fourteenth of December, 1877, entered in- to a plan and agreement for the readjust- ment of their rights In the mortgaged prem- ises upon an equitable basis. Those consti- tuting in that agreement the parties of the first part were holders of common and pre- ferred stock of the Erie Railway Company, of coupons of the first consolidated mortgage and sterling loan bonds, and of bonds and coupons both of the second consolidated mort- gage and gold convertible series. The par- ties of the second part, Edwin D. Morgan, John Lowber Welsh, and David A. Wells, were purchasing trustees. The agreement provided for co-operation in all proceedings for final foreclosures and sales in the re- spective states under the mortgage of Feb- ^ Reversing 15 Fed. 575. ruaiT 4, 1874; for the purchase of the mort- gaged premises and franchises by the ti-ustees with bonds and coupons, and other means to be placed at their disposal for that purpose by the parties of the first part; and for the organization by such trustees, in conformity with the laws of New York, of a new corpora- tion, with an amount of stock not exceeding the then amount of the stock of the Erie Railway Company, and which should hold the property, rights, and franchises so pm-- chased subject to six prior mortgages then resting upon the premises, or upon part of them, including the first consolidated mort- gage of September 1, 1870. The new cor- poration was required, as the consideration for the property, rights, and franchises pur- chased, to deliver to the parties of the first part its funded coupon bonds, bearing inter- est at 7 per cent, in gold, to an amount equal in the aggregate to the coupons of the first consolidated mortgage to be funded by those parties; mortgage bonds, bearing 6 per cent, interest in gold, to an amount equal to the principal of the second consolidated and gold convertible bonds held by the parties, and se- cured by the mortgage of February 4, 1874,— the back interest to be represented by funded coupon bonds. In reference to the sterling loan bonds the agreement provided that they should be regarded as having been exchanged for the first consolidated mortgage bonds on the first of September, 1875; the coupons due on that day being funded at the rate of 6 per cent, per annum as it stood previous to such assumed exchange. The provisions of the plan and agreement which bear more or less upon the question before the coiu-t are as follows: "(13) Preferred stock, to an amount equal to the preferred stock of the Erie Railway Company now outstanding, to- wit, eighty-five thousand three hundred and sixty-nine (85,- 369) shares, of the nominal amount of one hundred dollars each, entitling the holders to non-cumulative dividends, at the rate of six per cent, per annum, in preference to the payment of any dividend on the common stock, but dependent on the profits of each particular year, as declared by the board of directors. "(14) Common stock, to an amount equal to the amount of the common stock of the said company now outstanding, to-wit, seven hun- dred and eighty thousand shares, of the, nom- inal amount of one hundred dollars each." "(18) Preferred stock of the old company, in respect of which three dollars gold for each share has been or may be paid, and common stock of the old company, in respect of which six dollars gold per share has been paid or may be paid, may be exchanged for the new stock, in paragraphs 13 and 14 men- tioned, share per share, preferred for pre- ferred, and common for common, without any liability to make any further payment in respect of such new stock: provided, how- Ch 16) NEW YORK, L. E. & W. E. E. CO. v. NICKALS. 229 ever, that such new stock, whether common or piefeiTed, shaU be issued and held in con- formity with and subject to the trust for vot- ing hereinafter mentioned. "(19) In addition to the new common and preferred stock, the parties of the first part shall also receive for the amount of such payments, as mentioned in the last preced- ing paragi-aph, non-cumulative income bonds, without mortgage secm-lty, payable in gold, in London and New York, on the first day of June, 1977, and bearing interest from De- cember 1, 1879, also payable in gold, in Lon- don and New York, at the rate of six per cent, per annum, or at such lesser rate for any fiscal year as the net earnings of the company for that year, as declared by the board of directors and applicable for the pur- pose, shall be sufficient to satisfy; these bonds to have yearly coupons attached. "(20) Preferred stock, in respect of which two doUai's gold per share has been paid or may be paid, and common stock, in respect of which four dollars gold per share has been or may be paid, may be exchanged share for share, but in conformity with and subject to the said trast for voting, for new stock of like class, without any liability to make any further payment in respect of such new stock; but no income bonds or other obliga- tion or security shall be issued or delivered in respect of such reduced payments. "(21) * * * And all payments made or to be made in respect of old preferred or common stock shall be deemed to be in con- sideration of the concessions and agi-eements made by the holders of the said first and sec- ond consolidated mortgage and gold convert- ible bonds; the available funds resulting from such concessions being used for the im- provement or increase of the property of the new company. "(22) The stock of the new company, both common and preferred, not required for ex- change as above provided, may, with the consent of the parties of the first part, but not otherwise, be issued and disposed of by the company for its own benefit at such rates and upon such terms as to the said company may seem proper. All moneys which have been or may hereafter be paid in respect of stock as above set forth, and which shall not be required for the pm-pose of carrying into execution, this plan and agreement, shall be expended for the benefit of said new com- pany, or in the improvement or increase of its property, under the direction of the par- ties of the first part, and any balance not so expended shall be paid over to the said new company." The property and franchises in question were sold, under decrees of foreclosure, on the twenty-foittth of April, 1878, and were purchased by the trustees, subject to the before-mentioned six mortgages. Immedi- ately thereafter, on April 26, 1878, the pm'- chasing committee and their associates or- ganized the New York, Lake Erie & Western Railroad Company, in conformity with stat- utes providing for the organization of rail- roads sold under mortgage, and for the for- mation in such cases of new companies. Laws N. Y. 1874, c. 430; Id. 1876, c. 446. The provisions of the before-mentioned plan and agreement were set out in the articles of association. On the ninth of December, 1880, the board of directors submitted to shareholders and bondholders a report of the operations of the new company for the fiscal year ending September 30, 1880, from which it appears that the gross earnings for that year were $18,693,108.86, while the operating expenses were $11,643,925.35, leaving $7,049,- 1S3.51 as "net earnings from traffic." To this sum the report adds $783,956.65 "as earnings from other sources," making $7,- 833,140.16 as the total earnings for the year in question. From the last sum, $6,042,- 519.45 were deducted for "interest on funded debt, rentals of leased lines, and other char- ges," leaving, in the language of the report, "a net profit from the operations of the year of $1,790,620.71." Referring to the latter sum, the report continues: "This amount, together with $737,119.34 received during the year from the assessments paid on the stock of the Erie Railway Company, has been ap- plied to the building of double track, erection of buildings, providing additional equipment, acquiring and constructing docks at Buffalo and Jersey City, and to the addition of other improvements to the road and property." The theory of the present suit is that the sum of $1,790,620.71, ascertained to be the "net profit" derived from the operations of the company for the fiscal year ending Sep- tember 30, 1880, after paying operating ex- penses and fixed charges, constituted a fund applicable primarily to the payment of a 6 per cent, dividend upon preferred stock. The use of that fund for any other purpose was, it is claimed, a breach of trust on the part of the company, and a violation of rights secured to preferred stockholders both by the plan and agreement of December 14, 1877, and by the company's articles of asso- ciation. On the day the directors made their report to shareholders, they declared, by resolution, that, in the then condition of the company's property, they did not "deem it wise or expedient to declare a dividend upon its preferred stock." It also clearly appears in evidence that the earnings for the year in question, after paying operating expenses and fixed charges, together with the amount realized from assessments paid on stock, were, in good faith, used in improv- ing the company's road and other property; that these improvements were in pursuance of a general plan marked out pending nego- tiations for reorganization; that the esti- mate of their extent and cost was made with reference to a general understanding that they would be commenced and carried to completion as rapidly as possible with money derived from assessments on stock- 230 NEW YOUK, L. E. & W. K. U. CO. ■». NICKALS. (Ch 16 holders, from concessions of interest by bond- holders, from earnings of the company, and from other soui'ces; that the capacity of the company to make earnings with less expense than formerly in proportion to service ren- dered, and therefore its ability to earn the net profit which it did in 1880, was due to the bettered condition of the road, and its equipment arising from these improvements, —"thus, in the increase of traffic, and in the reduction of expenses, producing this result of $1,790,620.71." The testimony of Mr. Jew- ett, the president of the company, which is uncontradicted by any evidence in the rec- ord, is that the use of that fund in the way in which it was applied was imperatively demanded by the interests as well of cred- itors, shareholders, and bondholders as of the public. In answer to the question whether these expenditui'es increased the earning capacity of the road, and diminished relatively the expense of doing business, he said: "In my judgment, if these improve- ments had not been made, and most judi- ciously made, the company could not have paid its fixed charges. It would have again gone into bankruptcy, and the entire interest of the stockholders been destroyed." The court below adjudged, in effect, that the right to a dividend, for the year ending September 30, 1880, payable put of the "net profit" arising from the operations for that period, was absolutely secured to preferred stocliholders both by the plan and agreement and by the articles of association. Such, it held, was the contract between the com- pany and the preferred stockholders, which the coiut was not at liberty to disregard. This, in our judgment, Is an erroneous in- terpretation of both the agreement and the company's charter. There is nothing in the language of either necessarily depriving the directors of the discretion with which man- aging agents of corporations are usually in- vested when distributing the earnings of property committed to their hands. As was said by the court, in Clearwater v. Mere- dith, 1 Wall. 25, 40: "When any person talies stock in a railroad corporation, he has entered into a contract with the company that his interests shall be subject to the di- rection and control of the proper authorities of the corporation to accomplish the object for which the company was organized." The directors of such corporations, having op- portunities not ordinarily possessed by others of knowing the resources and condition of the property under their control, are in a better position tlian stockholders to deter- mine whether, in view of the duties which the corporation owes to the public, and of all its liabilities, it wiU be prudent, in any par- ticular year, to declare a dividend upon stock. While their authority in respect of these matters may, of course, be controlled or modified by the company's charter, and while the power of the comls may be in- voked for the protection of stockholders against bad faith upon the part of the di- rectors, we should hesitate to assume that either the legislature or the parties intended to deprive the corporation, by its managers, of the power to protect the interests of all, including the public, by using earnings when necessary, or when, in good faith, believed to be necessary, for the preservation or im- provement of the property inti-usted to its control. The claim of the appellees is based mainly on the thu-teenth article of the agreement of 1877. It is contended that, as the non-cumu- lative dividend to which preferred stockhold- ers were entitled was "dependent on the profits of each particular year, as declared by the board of directors," the Intention was to require the declaration and payment of a dividend In every year when It should be officially declared that there were net profits from the operations of that year. It Is not without significance that the words just quoted from the preliminary agreement for organization are omitted from that para- graph of the articles of association which, in obedience to the requirement of the statute, (Laws 1876, c. 446, § 1, subd. 2,) specifies the rights of each class of stockholders. That paragraph provides that the holders of pre- ferred stock shall be entitled to "non-cumu- lative dividends at the rate of six per cent, per annum in preference to the payment of any dividend on common stock." The omis- sion, in that connection, of the words "but dependent on the profits of each particular year, as declared by the board of directors," gives some force to the suggestion of coun- sel that the contemporaneous construction of those words by the parties was that they con- ferred no such right upon preferred stock- holders as they now claim. Independently of this view, we are of opinion that the con- tention of appellees is not sustained by a reasonable construction of the agreement. That instrument did, indeed, provide for preferred shareholders being paid a dividend of 6 per cent, before any dividend was i>aid to common shareholders. But It was not in- tended to confer upon the former an absolute right to a dividend in any particular year, dependent alone on the fact, or the official ascertainment of the fact, that there were profits in that year, after paying operating expenses and fixed charges. The words of the thirteenth article, "as declared by the board of directors," do not qualify the words "dependent on the profits for each particular year." They should rather be read in connec- tion with the preceding words, "non-cumula- tive dividends, at the rate of six per cent, per annum, in preference to the payment of any dividend on the common stock." Preferred stockholders of the old company, receiving in exchange preferred stock in the new com- pany, did not thereby become creditors of the latter. Their payments on account of old stock were In consideration of the con- Ch. 16) NEW YORK, L. E. & W. E. K. CO. v. NICKALS. 231 cessions and agreements made by bondhold- ers. In certain circumstances they also re- ceived income bonds. They were stockhold- ers in the old corporation, and they held that relation to the reorganized company. What was stipulated to be paid to them as holders of preferred stock in the new company was not a debt payable in every event out of the general funds of the corporation, but a divi- dend, "as declared by the board of directors," and payable out of such portion of the prof- its as should be set apart for distribution among shareholders; non-cumulative, be- cause "dependent on the profits of each par- ticular year," and not to be fastened on the profits of succeeding years. That the parties contemplated a declaration of a divi- dend, and not a mere statement of net prof- its during a designated period, is made evi- dent by the requirement that "dividends" to prefen-ed stockholders should be paid "in preference to the payment of any dividend on the common stock.- This language is not consistent with the theory that the holders of preferred stock were entitled to 6 per cent, thereon simply because there were prof- its, and irrespective of any declaration of a dividend. A declaration of profits, as in it- self, and without further action by the di- rectors, entitling shareholders to dividends, is unknown in the law or in the practice of corporations. Dividends are "declared" by «ome formal act of the corporation; the ques- tion whether there are or are not profits be- ing settled entirely by the accounts of the company as kept by subordinate officers, not by the mere statement of directors as to what appears upon its books. A different view would lead to results which sound policy would seem to forbid, and which, therefore, it is not to be sup- posed were contemplated by the parties; for, if preferred stockholders become entitled to dividends upon a mere ascertainment of prof- its for a particular year, the duty of the company to maintain its track and cars in such condition as to accommodate the pub- lic, and provide for the safe transportation ■of passengers and freight, would be subor- dinate to their right to payment out of the fimds remaining on hand after meeting cur- rent expenses and fixed charges. Indeed, there is some groimd to contend that, accord- ing to appellees' interpretation of the charter, the directors were not at liberty, in any year when the current receipts were in excess of operating expenses, to pay even interest on funded debt, or rentals of leased lines, be- fore paying a dividend on preferred stock. We are of opinion that while the agreement of 1877, and the articles of association, sus- tain the claim of preferred stockholders to a 6 per cent, dividend in advance of common stockholders, the former are not entitled, of right, to dividends, payable out of the net profits accruing in any particular year, un- less the directors of the company formally declare, or ought to declare, a dividend pay- able out of such profits; and whether a divi- dend should be declared in any year is a matter belonging, in the first instance, to the directors to determine, with reference to the condition of the company's property and afCairs as a whole. As the evidence shows that the profits for the year ending Septem- ber 30, 1880, were applied to objects that were legitimate and proper, and as the condition of the company was not such as to make the declaration of a dividend a duty upon the part of the directors, we perceive no ground upon which the claim of the appellees can be sustained. Attention is called by counsel to the lan- guage of the nineteenth article of the plan and agreement of reorganization, as thi'owing some light on the true interpretation of the thirteenth article. "We do not think that that article aids the contention of appellees. The non-cumulative income bonds provided for in the nineteenth article were to bear 6 per cent, interest, or such lesser rate, "for any fiscal year, as the net earnings of the company for that year, as declared by the board of di- rectors and applicable for the purpose, shall be sufficient to satisfy." So far from these words aiding the contention of appellees, they tend to show that the directors had the right to determine whether the condition of the comiDany did not require a reduction of the interest. Such, we think, is the meaning of the words "and applicable for tlie purpose." The applicability of net earnings for interest on such income bonds could only be deter- mined by them. A case very much resembling this is St. John V. Erie Ry. Co., 22 AVall. 136, 147. Cer- tain creditors of that company received pre- ferred stock, in lieu of payment of their debts, under a clause of its charter providing that such stock should be entitled "to pre- ferred dividends, out of the net earnings of said road, (if earned in the current year, but not otherwise,) not to exceed seven per cent, in any one year, payable semi-annually, after payment of mortgage interest and delayed coupons in full." A preferred stockholder sought by suit to enforce full payment of his dividends from the net earnings, prior to any payment on account of new leases of roads, or of debts subsequently contracted for borrowed money used in the repair and equipment of the road, in paying rent on leased lines, and interest on the money so borrowed. The circuit court (10 Blatchf. 271, Fed. Cas. No. 12,226) said: "What it [the stock] is entitled to is 'dividends,' and only 'dividends,' and they are of a defined and special character. It is entitled to nothing else. It has no privilege or priority by rea- son of being preferred stock, except in ref- erence to stock that is not so preferred; that is, common stock. In reference to such common stock the preferred stock is entitled to its specified preferential dividends, and is not entitled to anything else in reference to anything." Upon appeal 232 NEW YOPiK, L. E. & W. K. H. CO. u. XICKALS. (Ch. 15 to this court it -was held that the suit could not be maintained; that the takers of the preferred stocli had abandoned their position as creditors, and assumed that of stoclihold- ers, in which capacity they could claim divi- dends only when they were declared or should be declared; that tliey were only en- titled to dividends out of tlie net earnings of the principal road, and its adjuncts ac- cruing in the current year; that, as tie com- pany had not agreed to be limited in the ex- ercise of its faculties and franchises, it had the right to conduct its operations in good faith as it might see fit; and that the ma- terials for the computation of its net earn- ings in any particular year were to be de- rived from all of its operations, viewing its business as a unit, and not from a part of its operations, or without reference to the neces- sary and legitimate purposes to which Its current receipts might be applied for the benefit of all interested in the property. These principles were again applied in the analogous case of Warren v. King, 108 U. S. 389, 2 Sup. Ot. 789. See, also. Union Pac. R. Co. V. V. S., 99 U. S. 402; Barnard v. Vermont & M. R. Co., 7 Allen, 521; Willis- ton V. Michigan Southern & N. I. R. Co., 13 Allen, 400; Chaffee v. Rutland R. Co., 55 Vt. 110; Taft V. Hartford P. & F. R. Co., 8 R. r. 310; Elkins v. Camden R. Co., 36 N. J. Eq. 233; Lockhart v. Van Alstyne, 31 Mich. 76; Culver v. Reno Co., 91 Pa. St. 367. The views we have expressed are not in- consistent with the adjudged cases upon which appellees' counsel chiefly rely. A brief reference to some of them will be sufficient. In Dent v. London Tramway Co., 16 Ch. Div. 344, decided by Sir George Jessel, mas- ter of the rolls, at special term the company increased its capital stock by an issue of shares of the same denomination as the prior shares, "bearing a preferential dividend of six per cent, per annum over the present shares of the company, dependent upon the profits of the particular year only." There the question was whether the com- pany was bound to pay preferred stock- holders the amount of a dividend declared for the half year ending December 31, 1878, but which it had refused to pay, and also a dividend for the year 1879, which, it is to be inferred from the report of the case, ought to have been declared. The precise point determined is shown in these remarks of the court: "The argument of the company amounts to this : that, inasmuch as they have improperly paid to their ordinary sharehold- ers very large sums of money which did not belong to tliem, they (the company) are en- titled to make good that deficiency by taking away the fund available for the preference shareholders, to an amount required to put the tramway in proper order. When the ar- gument is stated in that way, it is clear that it cannot be sustained. The company either have a right to recover back from the or- dinary shareholders any sum overpaid or not If they have a right, they must recover them ; if they have no right to recover them, a fortiori they have no right to recover them from the preference shareholders, and, of course, still less right to take away the divi- dends from the preference shareholders." It is scarcely necessary to say tlmt the present case is entirely different from the one de- cided by the English court. No question was raised in the latter as to the authority and discretion of directors to use earnings for the improvement of the corporate property from year to year. It was, in effect, a con- test simply between preferred and common stockholders. The only point decided was that the payment of large sums of money to common stockholders which should have been used in the repair of the tramway was not a valid ground for refusing to pay pre- ferred stockholders dividends to which they were entitled- To withhold dividends from preferred stockholders, in order to make good a deficiency caused by payments to common shareholders which ought not to have been made, was practically to destroy the right of preference. A different decision would have made the preferred shareholders pay what the company should have recovered from the common stockholders by suit. The case of Richardson v. Vermont & M. R. Co., 44 Vt. 613, is also relied upon to sup- port the decree below. There the question was as to the right to recover interest divi- dends on stock, to be paid in full at a speci- fied date, if there was then sufHcient money in the company's treasury. If there was not enough for that purpose, then as much should be paid as the amount in the treasury justi- fied; the balance, w^hen the treasm-er was able to make payment. The defense was that there was an adequate remedy at law, and that the stock certificates were void. The certificates were held to be valid, the right to resort to equity was sustained, and the company was required to pay. The vital fact in that case, distinguishing it from this one, is that the company substantially ad- mitted that it had funds applicable to the payment of the claims if they should be held to be valid. Some of the general observa- tions of the court seem to be in accord with the views we have expressed. "The mere fact," the court said, "of the corporation hav- ing funds in its treasury sufficient in amount to pay the orators, would not be sufficient to show the ability of the corporation contem- plated in the vote and certificates. That ability must consist of a fund adequate, not only for the payment of the claims of the plaintiffs in the cause, but for the payment of all other stockholders having like claims; and must be a surplus fund over and above what is requisite for the payment of the current expenses of the business, for dischar- ging its duties to creditors, and over and above what reasonable prudence would re- quire to be kept in the treasury to meet the accidents, risks, and contingencies incident Ch. 16) NEW YORK, h. E. & W. 11. Li. CO. v. NICKALS. 23:> to the business of operating the railroad. In other words, there must be such pecuniary ability as would, but for the obligation to pay this interest, justify the payment of a dividend to stockholders." Our attention is also called to the case of Boardman v. Lake Shore & M. S. Ry. Co., 84 N. Y. 157. But it has no direct bearing on the question before us. It only decides that the dividends provided for in the "con- tract there in question were not only to be preferred, but, being guarantied, were cumu- lative, and a specific charge upon the accru- ing profits, to be paid, as arrears, before any other dividends were paid on the common stock. "The doctrine," said the com-t, "that preference shareholders are entitled to be first paid the amount of dividends guaran- tied, and of aU arrears of dividends or in- terest, before the other shareholders are en- titled to receive anything, and, although they can receive no profits where none are earned, yet as soon as there are any profits to divide they are entitled to the same, is fully supported by authority." It thus ap- pears that that was a contest between pre- ferred and common stockholders. No ques- tions arose as to whether the company, im- der the circumstances, could or could not, in their discretion, have withheld a declara- tion of dividend. Without further discussing the questions involved, or suggesting other grounds upon which our conclusion might rest, we are sat- isfied that the complainants are not entitled to recover. The decree Is reversed, and the cause is' remanded, with directions to dismiss the biU. 234 MI^'ER V. 13ELLE ISLE ICE CO. (Ch IG MINER V. BELLE ISLE ICE CO. et aU (53 N. W. 218, 93 Mich. 97.) Supreme Court of Michigan. Oct. 4, 1892. Appeal frotn circuit court, Wayne coun- ty. In chancery; Henry N. Bhuvoort, Judge. Action by Joseph L. Miner against the Belle Isle Ice Company, (,'liarles A. Lor- raun, and others, to compel defendant Lorman to account for property of the corporation, and for the appointsuent of a receiver to wind up the affairs of the cor- poration. From a judgment for defend- ants, complainant appeals. Reversed. McGRATH, J. Complainant and defend- ant Cliarlos A. Lorman had been in the " ice business in the city of Detroit, as part- ners, since 1813'J, eacij having an equal in- terest iji the business. In January, 1874, the joint projjerty was inventoried at .^23„500. Miner put in Ihe further sum of $1,500, and the Belle Isle Company was organized, with a capital stock of $'.'."), 000, divided into 1,000 shares of $25 each. Lor- man and Miner each held 435 shares. I. J. Carpenter held 30 shares, and Lorifsa Carpenter 100 shares. In 1878 the capital Btoeli was increased to $.i0.000, or 2,000 shares at $25 each. At that time the Bdle Isle Ice Company absorbed the Wolverine Ice Company, and Robert Wench, Isaac Wench, Frank Hoadly, and H. C. Kibbee became stockholders. In 1881 Lorissa Carpenter, R. W. Wench, Isaac Wench, and Frank Hoadly filed a bill against Miner and Lorman to have certain lands held by defendants decreed to belong to the corporation, to obtain an account of the rents and profits, to compel the pay- ment over to the corporation of certain moneys which had been expended upon said lands, to compel the surrender of cer- tain stock illegally issued to defendants, and the payment over of all moneys taken by derendants for their private use. The stock held by the Wenches and Hoadly was purchased by Lorman, and the suit was dis- continued. In the spring of 1882, Miner, who was then president of the company, complained of the loose manner in which Lorman, who was manager, was mana- ging the affairs of the company, particu- larly respecting the handling "of the ice tickets. It seems that tickets were sold by thecomiiany to customers for cash or dnebills. These tickets were exchanged with the drivers for ice. The drivers up- on eaci) trip would turn in what cash and tickets were received, and an account with each driver was kept upon slips. He was charged with the weight of hisload of ice, and credited with the cash and tick- ets. The tickets were then placed in a drawer, which was kept for that purpo.se The complaint was that Lorman would in the morning fill his pockets with these t.i kets, and dispose of them through the idends have been declared since 1882. The salary account for the year ending March 1, 1883, was $0,287, and for each of the five years following it was $."),200. When the company was formed, Lorman and Miner owned three parcels of real es- tate, upon which the ice houses were lo- cated. The ice houses were turned in to Ch. 16) MINER V. BELLE ISLE ICE CO. the company, hut the title to the real es- tate was retained hy Lorman and Miner, who were joint owners, and leased to the company. These three parcels may be des- ignated as the "Dock Property," the "Steam Power Property," and tne "Creek Property." Tlie company had leases of these iiarcels,— of the steam power prop- erty for five years, from Jannarv 1,1881, at $1,000 per year, and the creek property for the same term at !|P800 per year. The leases were renewable at the option of the company, and, in case the parties failed to agree as to rental value for the new term, two arbitrators were to be ap- pointed to fix the rental. In May, 1883, the directors passed a resolution directing the purchase of Lorman's interest in these parcels of property, and Lorman conveyed his half interest to the company. The price oaid for the dock property was $5,000, subject to half nf a mortaage of $8,000; for the creek property •«:), 000, sub- ject to half of a mortgage of $3,000; and for the steam power property .1^5,000,— "in all, $13,000; cash down, $1,000. and the balance of $12,000 in payments of.fl,000 each, payable, one September 24, 18S3, and one every four months thereafter, with in- terest at 7 per cent." In July, 1883. Miner filed bills for the par- tition of the dock property and tlie steam power property, and partition was had. The dock property was found to be inca- pable of subdivision. The directors or- dered its purchase for the company, but Lorman, in December, 1884, bounht it in at igl."),725, of which sum $8,326.fi(> was paid upon the mortga^^p. !if:!.fj53.42 was paid to the company, and was held by Lorman, and credited upon the company's $1:^,000 purchase, and $3,653.12 was paid to Miner. The steam power property was divided, the east halt being assigned to Miner, and the west half to the company, and the company paid Miner $100 for dif- ference in value. The final decree was 3n- tered February 12, 1884. In March, 1SS4, the company reconveyed the steam power property to Lorman for $5,000, the same price lor which it had been sold by Lor- man to the compiiny 10 months before. Whatever thepur[)ose or occasion of these transfers from Lorman to the company, iind from thecompanj' to Lorman, it ap- pears tliat the company paid Lorman $10,000 for hi.s lialf interest in the two par- cels. It paid the expenses of the litiga- tion. It paid $400 to Miner upon the partition of one parcel, — and naturally the property would not ilepreciate. Yet Lorman has the property, and the compa- ny has $8,6.53.42, or .$1,746.58 less than it paid, and has paid its share of the ex- penses of the partition, and its solicitors. In 1887, the company reconveyed the inter- est in the creek property, which it had purchased from Lorman, back to him at $2,137.50, while it had paid .$3,000 for the same property fouryears before, although it is insisted that the property had in- creased in value. When the first five years under the leases of the creek and steam power properties had expired, the coinija- ny elected to renew, but neither Miner and the company, nor the arbitrators who were called in, could agree as to the lent- al value; Miner claiming a rental of $300 tor his share of the creek propertj', and $1,000 for his share of the steam power property. The courts were appealed to, and the rental value of Miner's interest in the steam power property was fixed by the court for five years at $500, and that of the creek property at .$200. No steps were taken by arbitration or in court against Lorman, although he at that time owned one-half interest in the steam power property. He was paid $850 per year tor 1886 and 1887, and toy 1888,1889, and 1890 he received $1,(100 per year for his share of this property, and the only differ- ence in value of the two shares, also fixed by the court, was $400, and this aTnount the company paid. In September, 1885, Lorman bought what is known as the "Beniteau Property "for $3,.500, and leased it to the company. For the year 1886 the company paid him $850 as rental for that property, for the year 1887 the sum of $800, and tor 1888, 1889, and 1890 the sum of $1,000 per year; making a total in five years of $4,650 for property which he paid $3. .500 tor at the beginning of the term. The lease fixing the rental for the creek property at $.500, and tor the steam power property at $1,000, was not made until May 21, 1888, although the rates above named had been paid in the interim. After the discontinuance of the suit com- menced by Lorissa Carpenter and others in 1882, Lorman agreed with Lorissa Car- penter to pay a certain percentage upon her stock annually, and from 1882 he has paid her, out of the company's funds, at least the sum of $1,.590.93. Mr. Kibbue, her father, says that the arrangen)ent was made in 1882, when they assumed theman- ageuient. It was to pay interest on her stock, guaranty it, and whatever amount was advanced should be deducted, when- ever dividends were to be paid, from the amount received by her in advance. "Mr. Lorman said he would guaranty Mrs. Car- penter an advance to help her along until the matter was settled, and I agreed to it. 1 said I would not commence another suit if he would secureher. Th<*last payment was made, of $50, on Saturday last. At the time, the checks were made payable to her order, and the time name when Mr. Lor- man wanted a receipt made for a certain purpose, but he said it was not satisfac- tory, and she gave him one instead. I took that matter home. I have not got it here. The understanding between me and Lorman was that, so long as these payments were kept up, we would not make any trouble in the company." On cross-examination: "Question. Mr. Lor- man, in the payment of this money, and tlie agreement to pay this money, put it upon the ground that Mrs. Carpenter was a woman, and needy, and that amount of money could be advanced to her. and taken out when there was a dividend; was that not it? Answer. Yes, sir; it was a compro- mise toget hersomething. Q. Uesaid Kiie was needy, and acknowledged the fact, and you told him she was needy? A. Very likely. Q. And he acknowledged the tact? A. I do not remember that. I remember asking him to put this stipulation in writ- ing, and ho said it might affect him. Q. He would not put it in writing? A. .Vo, sir. Q. Refused to put it in writing. But 236 MIXEU V. BELLE ISLE ICE CO. (Ch. 16 li? did put it upon that grouiul,— that it could be paid in that way ; and alter, if there whs a dividend. It could be deducted from the dividend; and that was the dis- tinct understanding, too, — it should be taken out of any dividend? A. Yes, sir. I have embraced it ill that little paper I gave you." On re-direct: "Q. .\t tlie time that this arran.i;ement was made with Mr. Lorman, the old suit in which Lorissa Carpenter was interested had gone down, as you express it. Now, can you locate more definitely the time when the ar- raniiemeni was made? A. Soon after, in the sprinji of 1SS2, when he first started the nianajjement of it in his own name. (J. At the time this agreement was made, were Mr. Lorman and Mr Miner good friends, or broken with each other? A. They had broken witfh each other. Q. They had broken? A. Yes, sir. Mr. Lor- man had got the business, all of the stock, substantially, except Mrs. Carpenter's and niine. Q. On your cross-examination, Mr. Kibbee, I think you stated that yon re- ([ueated Mr. Lorman to put this agreement in writing. Did you make such a request of him? A. Frequently. Q. And what was Ills answer? A. That it might affect him in this suit with Miner; and I recollect a remark he made, that it would stultify him. I think that is about the substance. 1 said as long as he would help Mrs. Car- penter right along, I would not put any blocks in the way,— is the conversation as nearly as I can recollect it. " In 1885 complainant filed a bill against the com- pany, Lorman, Mulr, Sanderson, and Linn making like charges, but the court below found that it was defective for want of partie.'!, and it was dismissed. The pres- ent bill was afterward.s filed. Lothrop and Kanter aijpear to have tran.sferred their stock to Miner, so that the stock was held, at the time of the com- mencement of this proceeding, 960 shares by Lorman. 4 by Muir, 4 by Linn, 50 bj' .lohn S. Gray, and 4 by Prentis, making a total of 1,023 shares. John S. Gray, Muir, and Linn are but iiomirial holders, and all three are directors. Of the bal- ance. Miner held 708; W. J. Gray, 1 ; John H. Seitz, 10; and Lorissa Carpenter and Kibbee, 259, — shares. Lorman makes no attempt to explain the payment of the$l,- 590.93 to Mrs. Carpenter. He does not de ny that he is president, manager, and treasurer, and that bis associates on the board of directors have no personal inter- est in the company. He says that the members of the board do what he tells them to do. He insists that his salary is not large or unreasonable; that he is do- iny: the work of both Miner and himself. Tliere is no pretense that the business had increased in volume immediately after 1881, yet the salary account is more than double that year what it was before that, and Lorinan is paying himself $1,600 more than was paid to both in 1881. Miner tes- tifies that since 1882 not over two or three annual meetings have been held, to his knowledge. That "about two years ago, T went down there myself, and two or three more, and it was postponed; that is, Mr. Lorman postponed it himself with- out calling the meeting to order at all; and then, at the time it was postponed to,' I went over, but there wa.s no meeting, but I heard it said ho had a meeting in some other place. I have had no notice of any meeting since." Another witness says that at one time he held some stock, and tried to attend an annual meeting, but that the meeting was held in some se- cret place, and he was unable to attend. No explanation is attempted to be made of this by the defendant Lorman. He practically admits the allegations as to the method of dealing with tickets, but insists that he has turned over to the company all the proceeds, and that he was a check upon himself. The practical difficulty with his method is that there is no way of determining whether he did or did not turn overall the proceeds. The matter of accounting for these tickets was one of some impoitance to the company, and to the stockholders. The cash re- ceipts from the sale of tickets averaged $14,500 annually for the years 1882 to 1887, inclusive. There was nothing unreason- able in a demand made by the president upon the manager that some system should be adopted in a matter of that im- portance. Loose methods of doing busi- ness are likely to provoke suspicion, are in themselves suggestive of dishonesty, and usually result in difficulty. Complainant gives this as the origin of the difhculty, and Lorman does not denyit. Respecting the transfers of property, Lorman claims that 1882 had been a good year; that t^^e directors thought, in view of the pros- pects, it would be well to own the prop- erty ; that bad years followed, and the company was unable to keep up the stip. ulated payments; that the directors did order the purchpse of the dock property at the partition sale, but it had no money with which to make the purchase; but that was as evident when it was ordered as it was when the property was bid in by Lorman, The net gain for the year 1882, which is said by Lorman to have been the good year, was $9,000, but the net gain for the year 1886, ascertained March 1, 1887, was 18,672; yet the creek property was deeded back to Lorman, after this re- sult had been ascertained, at $2,137.50, just $862.50 less than the company had paid for it four years before. He admits that he niade$l,200 out of the company by transferring the steam power property to the company, and its reconveyance, and $1,500 out of the conveyance and pur- chase of the dock property, in addition to the partition costs and expenses. Hecon- cedes that he sold the three parcels of prop- erty tothecompanyfor $1.8,000; that he re- ceived of this amount $2,000 in cash, and the further sum of $3,862.50 as proceeds of the sale of the dock property; that he al- lowed the company $5,000 for the steam power property, when it was reconveyed to him, and $2,137.50 for the creek proper- ty. The company paid to Lorman in this transaction $2,000 in cash. It paid in the partition proceeding $400, besides the costs and expenses of that proceeding, and it held the title to one parcel from May, 1883, to March, 1884, and to the other from May, 1883, to early in 1887. He admits the rent charges, but claims that his share of these parcels of property was of greater value thau Miner's. The steam power €li. 16) MIKER V. BELLE ISLE ICE CO. property had been rented to the company tor f I OOU per annum. It was partitioned, «nd the court assigned to the company i m '^I'^^D"*''- ®"'^j'''=* to the payment or -*40o to Miner. In the adjustment of the rent, in 1SS6, the arbitraior selected by Miner dxed the rental value of Miner's share at $800; but Lorman insisted that It was not worth that amount, and went into court, and the court decided that the rental value was $.500. So that in pro- <'eedin«s to which Lorman was Dractically a party the court found not only the rent- al value, but the relative value, of both parcels, and finds Lorman's share to be worth exactly $400 more than Miner's- yet Lorman paid himself .$4,700 lor five .years' rental of his share, and Miner re- ceived $2,500, a difference of $2,200 in favor of Lorman. Eespectins the creek proper- ty, in ISSf) Miner offered to take $.S0O per year for his half, and the arbitrator select- «d by Miner, and the court, fixed the value of Miner's undivided half at $200 per an- num. Lorman then insisted that it was not worth but $125. The company had hut just reconveyed this half interest to Lorman, and he received |250 per annum ior 1887 and 1888, and $000 per year for the next two years. Can thei'e be any possi- ble ground forclaiming that his undivided half was worth more than Miner's? He admits the purchase of the Beniteau prop- erty for $?,500, and that for five years thereafter he paid himself in rentals there- for, $4,650. JSfo one of Lorman's associates on the board of directors for the six years pre- ceding the filing of this bill is sworn, or offers anj' testimony to sustain any act of said board during tliat period. Lorman only, appears. Gray, Muir, Linn, and Prentis severally answer, buteach "neither admits nor denies" the charge made in the tiill, and neither alleges even good faith. Under all the rules governing the relation of directors of a corporation to that cor- poration and Its stockholders, and their conduct pending that relation, the simpio statement of the facts of this case ought to decide it. As is said by Mr. Justice Mil- ler, in Oil Co. V. Marbury, 91 D. 8. 5S7: "That a director of a joint-stock corpora- tion occupies one of those fiduciary rela- tions where his dealings with the subject- matter of the trust or agency, and with the beneficiary or party whose interest is confided to his care, is viewed with jeal- ousy by the courts, and may be set aside on slight grounds, la a doctrine founded on the soundest morality, and which hfis received the clearest recoguition in this <;ourt and in others." The authorities npon the question of the validity of con- tracts made by directors with the cn, who is thereby disqualified from dealing with himself, and who, of course, cannot con- trtict with himself. ] Kyd. Corp. 180, 181 ; Aug. & A. Corp. 233. In other cases, and where the contract may be made on be- half of the corporation without the assist- ance of a particular member or officer, a contract with him is as valid as if he were a stranger." The present case is clearly within the exception referred to by CAMPbEi.i., .1. Defendant Lorman must be held to have made these contracts with himself. He directed, influenced, and controlled the board. They had no personal interest in the affairs of the company, and exercised, not their own judgment and difcretion, but Lorman's will. All the authorities agree that it is essential that the majori- ty of the quorum of a board of directors 235 MINER V. BELLE ISLE ICE- CO. (Cli. 16 Kluill be aisinterested in rpspect to the matters voted uDon. 1 Beaeh, Ceen per- formed by the defendants Cord and Korb. This answer was supported by affidavits, which were read on the hearing of the or- der to show cause, and, after argument, 1 expressed the opinion that the transfers of property complained of were fraudulent and void as against the complainant, and advised an order that the defendants should produce, before a special master of this court, for inspection by the complain- ant, all the papers, books, voucher», and contracts of sale belonging to the business of either of the land companies, and that, whenever the funds in the bands of the treasurer of either of the companies should exceed the sum of |3,000, they should pay th" same to the master, to be by him paid into court, and the individual defendants should appear, if required, to be examined by the master under oath. The defend- ants were further ordered to give bond conditioned that each of them should come to an account with the complainant, and should pay over the money received by them from the sale of the lots, and they were restrained and enjoined from assign- ing, transferring, or disposing of any of the personal assets of either of tlie defend- ant companies, or any contracts for the sale of any of the lands in question. The order was made in this shape, instead of for the appointment of a receiver, at the request of the defendants, and to avoid a complete interruption and destruction of tlie enterprise. Subsequently, on the 25th of March, 1891, the defendants applied for ' and obtained leave to file an amended an- swer, which they did on the 6th of April, 1891, in which they set up that on the pre- vious 24th of February the Laurel Springs Land & Improvement Company conveyed the premises in controversy to the Laurel S[)rings Land Company ; and they further set forth that while the title was in the younger company it had entered into con- tracts for the sale of 23 lots, giving their numbers, and had assigned those con- tracts to the Laurel Springs Land ('oni- pany; that the youngercompany had car- ried out contracts for the elder company for the conveyance of 2 lots, giving their numbers, and that it had also sold and conveyed 121ot8, giving theirnumbers. The answer then sets out an account of receipts and disbursements between the Laurel Springs Land & Improvement Company and the Laurel Sprin.-rs Land Co.-upany ; also "a full and, complete account of the Laurel Springs Land Company up to and including February 24,1891." This last would seem to be, upon its face, a cash ac- count of the older company. To the ac- count contained iu tliis answer the com- plainant, at the suggestion of the court, filed exceptions, and the cause was brought to a hearing upon the pleadings, including the exceptions to the account. At the final hearing three matters were litigated— F/r.st. The right of the com- plainant to hold his certificate of stoclj en- titling him to a one-third interest in the adventure. Second. The exceptions taken by the complainant to the account con- tained in the second answer of the defend- ants. Third. Whether the complainant was entitled at this time to a final ascer- tainment and setting off to him of one third of the assets of the company. First. The evidence showed clearly enough that the complainant had an oral option for the purchase of the Stal'ford farm ; that he vs'as considerably advanced in years, and had been for several years secretary of the Magnolia Land Company, a corporation of a similar character own- ingland situateabout two miles from Lau- rel Springs; that he had no tact or ability in finding purchasers for lots of this char- acter, or promoting their sale, and his lack of efficiency in this respect was mani- fest. The defendant S. S. Cord was a sales agent on commission for the Magnolia Company, and was well acquainted with the complainant. Korb was Cord's friend, and was induced by him to Join in the en- terprise. Korb saw the complainant sev- eral times before he paid his money and signed the articles of association. Cord and Korb insisted upon being elected to the offices which they afterwards held. The complainant was not asked orexpect- ed to resign his position in the Magnolia Companj' in order to assist in carrying out the Laurel Springs enterprise. All that he agreed to do was to assist it as far as he could. At the time that the ar. tides of association were signed, and aft- er Korb had paid his money towards the purchase of the land, he objected to com- plainant's having one-third interest, and proposed to cut him down to a one-fifth in- terest, but complainant resisted this, and insisted upon having his full one-third in- terest in accordance with the previous verbal agreement, and threatened to bring suit if it were not accorded to him, where- upon Korb yielded, and signed the articles upon that basis. As before stated, the certificateof stock was dated and issued to complainant on the 2lHt of May, 18'^9, but was not called for or taken away by him until the 2oth of March, 189i), when it was delivered to him by the defendants with- out objection. This was long after the failure of the complainant to perform his agreement to assist in making sales had occurred, it it ever did occur; the evidence, however, shows that the complainant did all he coiild ever have been expected to do in that direction. Very soon after the organization of the company and the lad- ing out of the land into streets and lots, the defendants Cord and Korb began t(j scheme to get rid of the coniphnnant. They tried first to buy him out; failing in that they called a special meeting of the directors for .June 14, 1889, served notice of it upon him by mail, which reached him after the hour appointed for the meeting, and at that meeting they voted themselves each a salary of $3,000 per year, and, in addition thereto, a commission of 20 per cent, on all sales of lots, and Mr. Cord advertised himself as the sole agent for such sales. The fair inference from this conduct on their part is that they then 244 FOUOEllAY u. COUD. (Ch. It) thought that such salarieR and commis- (iioiiB would absorb the hulk of the profits nnd leave little or nothing? to be divided with the complainant, and that they did not anticipate that the enterprise would be so successful as it afterwards proved to be. Then, 1 think that the fair infer- ence is, further, that such success was due, not only to the tact, industry, and energy of Cord and Korb, but also to the favora- ble situation and other characteristics of the land itself, and for the finding of this land and procuring the purchase of it the associates were indebted to the com- plaiuant. The defendants, after the reso- lution fixing their compensation, seem to have carried on the business of the corpo- ration without any consultation with, or asking any aid from, the complainant. A charge was made that the complainant had used his situation and influence to in- jure rather than to aid the enterprise. I think the charge fails. It depends upon the accuracy of the memory of a single witness, and her testimony In that re- gard is denied by Mr. Fongeray, and the discrepancy may well be explained by a consideration of the situation in which he was placed as secretary of the Magnolia Company. I think that thecoraplainant's title to one-third interest In the profits of the enterprise, manifested by his certifi- cate of stock, has not been shaken. If he has failed to perform his contract to aid in the enterprise, such failure might sub- ject him to iiayment of damages in an ac- tion at law for its breach. He has not forfeited his proprietary right. Second. The action of the two defend- ants — S.S. Cord and Korb— in their capac- ity as directors, in fixing tlieir compensa- tion in the way they did, is of no value whatever. Gardner v. Butler, 80 N. .T. Eq. 702, where the question is exhaustively examined both in the opinion of Chancel- lor KuNYoN, in this court, and by Justice Van Syckiol in the court of errors and ap- peals; Cone V. Russell, 48 N. J. Eq. 208, 21 Atl. Rep. 847, and cases there cited. The defendants are entitled to what theirserv- ices are reasonably worth, and no more. Evidence on this subject was adduced at c'onsiaerable length. Before the lau()''hing of this enterprise, Korb was a butcher in the city of Philadeliihia, with no experi- eni-e whatever in affairs cif this kind. His business had produced him about $2,000 a year. He conducted it by the aid of an agent after the undertakiUfj; of this enter- prise. The defendant S. S. Cord has been a sales aijent for the Magnolia Land Com- Ijany, svithout salary, at a commission of 10 percent., and half of his carriage hire, and all his carfares, and had brought his income up to |2,000 the year previous to the launching of this enterprise. Wit- nesses were produced as to the usual com- missions paid in such cases. One had sold a great many lots at 10 per cent., the proprietor paying all expenses; others proved that with within a few months before the hearing the defendants Cord and Korb had been paid a commission of 30 per cent, for selling lotsimmediately arl- joining the lots of the Laurel Springs Com- pany; and one instance was proven of the same commissions being paid to another salesman. But the proof was clear that the prevailing rate for such work in that vicinity was 20 per cent, of the actual cash payments as made, the salesman paying ills own expenses, and this, I think, under the circumstances, a full and fair compen- sation in this case. The defendants Cord and Korb here manifestly are not entitled to both commissions and such salaries as they have credited themselves with. The work of managing the corporation out- side of the sales of lots was very small; and here, after the launching of the corpo- ration and the laying out of the farm in- to lots, its management, besides involving very little work, was so conducted as to work a gro.as fraud on the complainant, and might well be hold to disentitle the defendants to any compensation what- ever. But I am disposed to allow them a small amount on that score, if they shall choose their compensation byway of com- missions, — say $2.50each. The charges for carriage hire, car fares, and cigars, and for advertising, will not be allowed it the defendants shall choose to take their com- pensation by way of commissions. If they waive commissions, they may have salaries at $8,000 a year each, with the expenses just mentioned. These rates are fixed, upon condition that no action shall be brought against complainant for fail- ure to perform bia agreement. The charges for expenses of litigation, counsel fees, etc., will not be allowed. This dis- allows all charges of that character, ex- cept the fee of $50 to Mr. Harned for ex- amination of title, and preparing and at- tending to the organization of the corpo- ration, and expenses incident thereto. Third. The complainant demands a par- tition of the present assets of the compa- ny, and an allotment to him of one third in sppcie. He bases his demand on two grounds — First. That the present assets all represent profits, and there is no rea- son why they should not be divided. He offers to take his share in specie by an allotment to him of one third in number of the unconveyed lots, and the contracts annexed to such as have been bargained away, but not conveyed, to be ascer- tained by alternate choice or by lot; and upon the second and additional ground that the defendants have made use of their majority power to attempt to de- prive him, by fraud, of his lavvful interest in the property of the corporation, and have so behaved as to forfeit all right to act us officers of the company, and to en- title him to the aid of the strong arm of the court in separating his interests in the Corporate property, and withdrawing it from the further control of the defend- ants. The power of this court to compel a corporation to make a dividend of its profits among its stockholders is well set- tled. This was assumed in Park v. Loco- motive Works, 40 N. J. Eq. 114, 3 Atl. Rep. 162; and see Cook, Stock & S. ij 541 ; Mcr. Corp. § 404; Robinson v. Smith, 3 Paige. 223; Scott v. Insurance Co., 7 Paige, 198; Pratt V. Pratt, 33 Conn. 44fi, at page 455; Beers V. Spring Co., 42 Conn. 17, at page 20. Ordinarily, of course, such dividends can be made only out of the net profits ac- tually realized over and above all debts and liabilities, and in a shape to be con- veniently divided. Park v. Locomotive Ch. 16) FOUGERA.Y v. CORD. 245 WoiKs supra. In tlie case in hand, the Th . ,?''V,*^ contained in the second answer fi . r , '^"••P'X'ation to be free from IL^^oS"*^, H'** evidence at the hearing showed that sales of lots were beinu' made since the Hling of the answer, and cash being paid in on account otauch sales and upon contracts for sales already made. No capital was ever paid in as such. The capital stock represented only pro.tpeciive profits. No capital isrequired to carry on and clo.se up the business of tliH corporation, unless additional land be purchased. The land owned bv it has been divided into streets and lots. The streets are dedicated to the public, and the bare lesal title is of no pecuniary value to the company. The lots are in a convenient shape tohedistributed. They, with the unexecuted contracts and cash on hand, form the assets of the corpora- tion, and all of its assets are net profits. It is not a case wheie the machineiy of a corporation is necessary in order to suc- cessfully make sales of the lots. All that ths corporation has to do with such sales is to execute the contracts and deeds. I see no reason why one third in number of these lots may not bechosen, which would represent one third in value of the whole, and be conveyed to the complainant. Such of them to be so conveyed as are subject to contracts may be so declared in the conveyance, in order to secure the rights of the purchasers, or they may be conveyed to a receiver, or master of the court, to hold for the parties subject to the rights of the purchasers. This mode of making a dividend will not dissolve the corporation or prevent the other stock- holders,— the defendants herein, —from pro- ceeding under its organization to conduct its business to suit themselves. If, how- ever, the majority of the stockholders had not misbehaved themselves in its manage- ment, or practiced any fraud upon the complainant, I am not sure thecase would warrant the intarterence of the court, and it is not probable that it would have been asked to interfere. But the fraudulent conduct of the defendants Cord and Korb seein to me to render the duty of the court clear. They first voted to thein- selves salaries as officers many times greater than the value of any services they could possibly have rendered as such, outside of the work of booming and sell- ing the lots; they then voteil to them- selves compensation for the work of booming and selling at a rate sufficient to secure efficient work in that respect, in- cluding all expenses; they then pay those expenses out of the funds of the corpora- tion. Finding that the profits of the en- terprise were so great as still to leave the complainant a handsome prosiiective divi- dend, they deliberately conveyed and transferred nearlj' all tlie assets to them- selves in payment of debts claimed to be due to themselves for the extravagant compensation before voted to themselves, although the balance sheet made up by themselves, two aijd a half months previ- ously, showed an estimated surplus of as- sets over all liabilities of nearly $37,000. In short, the whole transaction was a piece of gross and bungling thievery; and yet, when called upon to account for it in this court, the defendants had the as- surance to attempt to support it by an answer; and then, after a strong expres- sion of opinion, by the court at a prelimi- nary hearing, of its fraudulent character, they coolly reconvey and retransfer the property, which they had just stolen, to its former custody, which, in point offact, is their own custody, and then say to the court that it is powerless tointerfere with it in its presenD .s<:«t(;.s. It seems to me that it would be a reproach to the ad- ministration of justics to doubt the pow- er and duty of the court in such a case. It is similar to that of a trustee who holds certificates of stock in his name as trustee, lodged in a strong box belonging to the trust estate, and then deliberately has thein transferred to his individual name, and the certificates lodged in his in- dividual private strong box, and, when called to account for his breach of trust, retranslers the certificates to his name as trustee, and lodges the new certificates in the strong box belonging to the estate, and then coolly says to the court that "the breach of trust is made good ; noth- ing is lost; and I am entitled to retain the key of the strong box, and to have the certificates of stock continue to stand in my name as trustee." It is well settled that the officers of a corporation occupy towards its stockholdjrs the relation of trustee and cestui que trust, and on that broad ground are liable to be called upon to account for their conduct in this court. Mor. Corp. § 3W ; Cook, Stock & S. § Ol^i; But if this ground isnot, strictly speaking, true, I agree with Mr, Cook that reliance may well be placed upon the broad princi- ple laid down by Lord Hakdwicke, one hundred and fifty years ago, in Sir Robert Sutton's Case,— a case similar to the one now before the court, reported in 2Atk. 400. At page 406, he says: "Thetribunals in this kingdom are wisely formed both of courts of law and equity, and so are the tribunals of most other nations, and for this reason there can benoinjury butthere must be a remedy in all or some of thera, and therefore I will never determine that frauds of this kind are out of the reach of courts of law or equity, tor an intolerable grievance would follow from such a deter- mination." Where the offending officers constitute, as here, a controlling majority of the stockholders, the action must necessarily be brought by the individual stockholder or stockholders who finds himself or theiiiselves in the minority. Cook, Slock & S. § 645; Hawes v. Oakland, 104 U. S. 450. It is the peculiar province of this court, not only to right wrongs already com- mitteil, but to protect property from fu- ture injury and waste by withdrawing it from the reach of danger, lii the case of a willful breach of trust, it not only compels the guilty trustee to restore the trust property, but removes it from the possession and control of the custodian who has proved untrustworthy. There is nothing in the character of a trading corporation to prevent the application of this remedy. It is, after all, as between the stockholders, nothing more than a trading copartnership. Mor. Corp. § 3. In Robinson v. Smith, 3 Paige, 222, Chan- 246 FOUGERAY v. CORD. (Oh. 16 cellor Wai-worth, at page 232, says that "joint-stock corijorations are mere part- Dersliips, excfipt in lorm; the directors are the trustees or managing: partners, and the stoclsholders are the cestuis que trustent, ami have a joint interest in all the property and effects of the corpora- tion. " And in Pratt v. Pratt, 33 Conn. 446, HiNMAN, Ch. .]., at page 436, says; ".Joint-stock companies, in modern times, are nothing but commercial partnerships, which have taken the form of corporations for tlie greater facility of transacting bus- iness, and to prevent a dissolution of the concern by those numerous events which are so liable to work a dissolution in a partnership composed of a great numoer of individuals." In the cas-^ in hand it is impossible to leave the complainant's property interests in the control of the corporation, without leaving it in the control of the two defendants Cord and Korb, and they have proved themselves wholly untrustworthy, so that, if this were a case of partnership, the court would dissolve it at once and divide the property. The exigency of the case dn- mands the same remedy here, as far as it is necessary to ascertain and givecoin- plainant his share. This, as I have al- ready shown, can bo done without dissolv- ing the corporation or seriously interfer- ing with the conduct of its business. H it be said that the scope of the articles of association warrants the reinvestment of the profits of this adventure in other lands, the answer is that the power on the parr of the defendants to make such invest- ments furnishes an additional reason why they should not have the opportunity to do so. I will advise a decree that the lots remaining unsold, and not contracted to be sold, shall be divided by their present boundaries into three equal parts, and one part allotted and conveyed to the complainant, the other two parts to re- main in the corporation; and that such division be had in the presence of a mas- ter, either by lot or by alternate choice, as the defendants may choose, reserving leave to either party, after a division so made, to show by proof that it is unequal in value and to claim owelty; that the lots contracted to be sold, and not con- veyed, shall be conveyed by the corpora- tion to a receiver, to be appointed by this court, to be held by him in trust for con- veyance to the parties holding the con- tracts as soon as they shall have paid to him the amount due on their several eon- tracts. The contracts must also be as- signed and transferred to said receiver. There will be an order of reference to a master to take an account of the receipts and disbursements of the treasurer of the corporation upon the basis hereinbefore stated, and also the debts due and owing, If any, by the corporation. c ^7) OOUEGUM GOLD MIN. CO. v. KOPER. 247 OOREGUJI GOLD MIN. CO. OF INDIA, Limited, v. ROPER et al. ([1892] H. L. App. Cas. 125.) These were consolidated appeals from an order of the court of appeal, and raised the same question. The following statement of the facts (cer- tain formal parts excepted) is taken from the judgment of LORD HERSCHELL: The Ooregum Gold Mining Company, Lim- ited, was incorporated in October, ISSO, un- der the joint stocli companies acts 1SG2 to 18S0. The statement contained in the mem- orandum of association with reference to the capital of the company was as follows: "The capital of the company is £125,000, divided into 125,000 shares of fl each, and the shares of which the original or increased capital may consist may be divided into dif- ferent classes, and issued with such prefer- ence, privilege, guarantee, or condition as the company may direct." Forty thousand of the shares were allotted to the vendors to the company, the residue were issued to the public, and the full amount paid thereon. The operations of the company were not, in the first instance, successful, and a winding- up order was obtained. An application was subsequently made to the com-t for an or- der to stay the winding-up, with a view to the introduction of fresh capital and' a re- sumption of mining operations, and an order was made accordingly. "In pursuance of this policy, an extraordinary general meet- ing of the company was summoned In 1885, at which it was resolved that the capital should be increased by the issue of 120,000 preference shares of fl each, to be credited in the capital and books of the company as having the sum of 15s. per share paid there- on, such preference shares caiTying the right to a non-cumulative preference dividend up to 10 per cent, on the nominal amount of such preference capital out of the profits of the undertaking each year, and to equal par- ticipation (share per share) with the ordinary shares in such further profits as should re- main for distribution each year after the payment of the above 10 per cent, prefer- ence dividend. The special resolution so passed was duly confirmed. At this time the market value of the ordinary shares was only 2s. 6d. per share. Upwards of 100,000 of these preference shares were allotted, with 15s. credited as paid thereon. Prior to the actual allotment an. agreement was entered into between the company, of the one part, and an agent or trustee for the several persons whose names were entered in the schedule thereto, of the other part, whereby, after reciting the agree- ment to issue the shares at a discount of 15s. per share, and that Is. had been paid on al- lotment, it was agreed that the shares to be allotted should be held as shares on which Itis. per share had been paid, and should be subject and liable to further payment of 4s. per share, and no more, and the company thereby undertook to cause the agreement to be registered at the joint stock registration ofilce, pursuant to the companies act 18G7, before the issue of the shares. The agree- ment was duly filed accordingly. The capi- tal raised by means of the issue of the pref- erence shares sufficed to discharge the ob- ligations of the company, to extricate it from its difiiculties, and to give it a new start. Gold to a considerable amount was shortly afterwards raised from the mines, and the company has since been prosperous, the market value of the ordinary shares hav- ing risen to about 40s. In February, 1889, the respondent, George Roper, pm-chased on the stock exchange and paid for ten fully paid-up ordinary shares in the company. On the 15th of July follow- ing, on behalf of himself and the other ordi- nary shareholders. Roper brought this ac- tion against the .company and "Wallroth (as an original allottee of the preference shares, and as representing the other original al- lottees) to have it declared that the issue by the company of the 120,000 preferred shares, at a discount of 15s. per share, was ultra vh-es, and to have the register rectified ac- cordingly and other consequent relief grant- ed. The statement of claim contained the allegation that the company had in 1889 is- sued debentures to the amount of £20,000, which were charged on all the property of the company, and which were then out- standing. It fm-ther alleged as follows: "The defendant company had no power to issue the said preferred shares at a discount, and the entry of the preferred shares in the register book as fully paid up should be rec- tified. The said preferred shares are now quoted on the stock exchange at a premium, and, if the said entry is rectified, the ordi- nary shares will benefit thereby, and the 15s. unpaid on the preferred shares will be avail- able for paying ofC the said debentm'es as and when they fall due.'' NORTH, J., upon the authority of In re Almada & Tirito Co., 38 Ch. Div. 415, with- out ai-gument, made an order declaring that the issue of the preferred shares of fl each at a discount of 15s. per share was beyond the powers of the company, and that the said shares so far as tlie same were held by Wallroth or by original allottees represented by him were held subject to the liability of the holders to pay to the company in cash so much of the £1 per share as had not been paid on the same; and ordering that the company do rectify the register in accord- ance with the above declaration. This or- der was afiirmed by the court of appeal without argument. Against these orders appeals were brought by the company and by Wallroth. The house took time for consideration. ■2'lh. OOUKGUM GOLD MIN. CO. v. KOPER. (Cli. 17 1S92, March 14. LORD HALSBURY, L. f\ My lords, the question in tMs case has been more or less in debate since lSy3, when Chitty, J., decided that a company limited by shares was not prohibited by law from issuing its shares at a discount. That de- cision «'as overruled, though in a different case, by the court of appeal in 1SS8, and it has now come to your lordships for final de- termination. Sly lords, the whole structure of a limited company owes its existence to the act of par. liament, and it is to the act of parliament one must refer to see what are its powers, and within what limits it is free to act. Now, confining myself for the moment to the act of 1802, it makes one of the condi- tions of the limitation of liability that the memorandum of association shall contain the amount of capital with which the com- pany proposes to be registered, divided into shares of a certain fixed amount. It seems to me that the systeru thus created by which the shareholder's liability "is to be limited bj' the amount unpaid upon his shares, ren- ders it impossible for tlie company to depart from that requirement, and by any expedi- ent to arrange with their shareholders that they shall not be liable for the amount un- paid on the shares, although the amount of those shares has been, in accordance with the act of parliament, fixed at a certain sum of money. It is manifest that, if the com- pany could do so, the provision in question would operate nothing. I observe in the argument it has been sought to draw a distinction between the nominal capital and the capital which is assumed to be the real capital. I can find no authority for such a distinction. The capital is fixed and certain, and every cred- itor of the company is entitled to look ta that capital as his security. It may be that such limitations on the po^^-er of a company to manage its own af- fairs may occasionally be inconvenient, and prevent its obtaining money for the purposes of its trading on terms so favorable as it could do if it were more free to act. But, speaking for myself, I recognize the wisdom of enforcing on a company the disclosure of what its real capital is, and not permitting a statement of its affairs to be such as may mislead and deceive those who are either about to become its shareholders or about tt give it credit. I think, with Fry, L. J., in the Almada & Tirito Company's Case, 38 Ch. Div. 415, thav the question which your lordships have to solve is one which may be answered by ref- erence to an inquiry: What is the nature of an agreement to take a share in a limited company? and that that question may be an- swered by saying, that it is an agreement to become liable to pay to the company the amount for which the share has been cre- ated. That agreement is one which the com- pany itself has no authority to alter or qual- ify, and I am therefore of opinion that, treating the question as unaffected by tha act of 1SC7, the company were prohibited by law, upon the principle laid down in Iron Co. V. Riche, L. R. 7 H. L. 053, from doing that which is comiiendiously describes as issuing shares at a discount. The question remains whether section 25- of the act of 18G7 has made any difference- in the matter now under discussion. That section prescribes that every share In any company shall be deemed and taken to have been issued and to be held subject to the- payment of the whole amount thereof in, cash, unless the same shall have been other- wise determined by contract duly made In writing, and filed with the registrar of joint stock companies at or before the issue of such shares. Two things are manifest in this provision. The share is to be held sub- ject to payment, and the payment is to be in cash. The amount is to be paid, and the whole amount to be paid in cash, and to me it appears, looking at the latter part, of the section, whereby a contract made' and filed may qualify and cut down the form of payment, and that it may be in goods or in value received in some form, in- stead of in cash, it must nevertheless he- payment. I regret that the words "in cash" have received a judicial exposition which allows payment otherwise than in cash, and I hold myself free, if the question should ever come before your lordships, to con- sider the propriety of that decision. But for my present purpose, it is enough to say that there is nothing in the section which justifies the notion that that which the stat- ute required to be paid in cash, subject to qualification of a mode of payment, should not be paid at all. The« provisions of section 25 were proba- bly to put a stop to such transactions as had become the subject of judicial animadver- sion in Pellatt's Case, 2 Ch. App. 527; Elk- ington's Case, Id. 511; also, FotherglU's Case, 8 Ch. App. 270, and Dent's Case, Id. 7<58. My lords, I should have been prepared to take this view if the matter were not cov- ered by authority. But it seems to me that, although not directly in point, the principle laid down by your lordships' house in Tre- vor V. Whitworth, 12 App. Cas. 409, would render it extremely difficult to so read the sections to which I have referred as to jus- tify the appellants' contention. Under these circumstances, it seems to me impossible to arrive at any other conclusion than that this appeal must be dismissed with costs. Accordingly, I move your lord- ships that the order appealed from be af- firmed and the appeal dismissed with costs. LORD WATSON. My lords, can a com- pany limited by shares, formed and regis- tered under the act of 18G2, issue its shares as fully paid up, for a money consideration Cli. 17) OOKEGUM GOLD MIX. CO. v. KOPEB. 249- less than tlieir nominal value? That was tlie only qviestion argued in these appeals. It has been answered in the negative by both com-ts below, without hearing argu- ment, upon the authority of the Almada & Tii-ito Company's Case, 38 Ch. Div. 415, de- cided by the court of appeal in 1888. The limitation of such a company's liability is the creatm-e of statute, and the question lies within a narrow compass, depending on the consti-uction of one or two clauses in the companies acts of 1862 and 1867. The act of 1862 (section S, 12 App. Cas. 409) requires that, in the case of a company limited by shares, the memorandum of as- sociation shall contain the ampunt of the capital with which it proposes to be regis- tered, divided into shares of a certain fixed amount. The statutory limitation which it imposes upon the liabihty of individual shareholders is contained in the enactment (section 38, 8 Ch. App. 768) that "no con- tribution shall be required from any mem- ber exceeding the amount, if any, unpaid on the shares in respect of which he is lia- ble as a present or past member." In my opinion, these enactments, read together, in- dicate the intention of the legislature that every member who takes shares from the company in return for cash shall either pay or become liable to contribute their full nominal value. The "amount, if any, un- paid," obviously refers to the "fixed amount" of the shares into which the capital is di- vided, as set forth in the memorandum, and not to any lesser amount which may be agreed tipon between the company and its shareholders; and the statutory liability of each shareholder is for the difference be- tween the amount fixed by the memoran- d'lm and the sum which has actually been paid upon his shares. Consequently, if shares are issued against money, it ap- pears to me that any payment to the com- pany less than the nominal amount of the share must, by force of the statute, and not- withstanding any agreement to the contrary, be treated as a payment to account, the member remaining liable to contribute the balance, when duly called for. A company is free to conti'act with an ap- plicant for its shares; and when he pays in cash the nominal amount of the shares allot- ted to him, the company may at once retm'n the money in satisfaction of its legal indebt- edness for goods supplied or services render- ed by him. That circuitous process is not essential. It has been decided that, under the act of 1862, shares may be lawfully is- sued as fully paid up, for considerations which the company has agreed to accept as representing in money's worth the nominal value of the shares. I do not thinli any other decision could have been given in the case of a genuine transaction of that nature where the consideration was the substan- tial equivalent of full payment of the shares iu cash. The possible objection to such an arrangement Is that the company may over- estimate the value of the consideration, and,. therefore, receive less than nominal value for its shares. The court would doubtless refuse effect to a colorable transaction, en- tered into for the purpose or with the ol> vious result of enabling the company to is- sue its shares at a discount; but it has been ruled that, so long as the company honestly regards the consideration given as fairly representing the nominal value of the shares in cash, its estimate ought not to be critically- examined. Tliat state of the law is certain- ly calculated to induce companies who are in want of money, and whose shares are un- saleable except at a discount, to pay ex- travagant prices for goods or work to per- sons who are willing to take payment in shares. The rule is capable of being abused, and I have little doubt that it has been lib- erally construed in practice. The companies act of 1867 contains one clause only which can affect the present question. Section twenty-five enacts that "every share in any company shall be deem- ed and taken to have been issued and to be held subject to the payment of the whole amount thereof in cash, unless the same shall have been otherwise determined by a contract duly made in writing, and filed with the registrar of joint stock companies at or before the issue of such shares." It was argued that section 25 recognizes power in the company to accept a partial payment as a cash payment in full, provid- ed there be a contract to that effect duly executed and filed with the registrar. I am unable so to construe the clause. I do not think its object was to give companies new powers in relation to the issue of their shares, but to regulate the statutory powers already possessed by them in regard to the acceptance of other than cash payments as part of their capital. The expression "un- less the same shall have been otherwise de- termined" does not, in my opinion, imply that part payment may be accepted as pay- ment in full. It refers to contracts so far as then lawful, by which a company might agree to accept considerations other than cash. In all such cases, the clause provides that the contract, if not duly filed with the registrar, shall be of no effect, and that the shareholder shall remain liable for the value of his shares in money. The obvious pur- pose of the enactment is to enable persons dealing with the company to judge for them- selves what may be the value of the con- sideration given as representing capital. It is admitted that the appellants acted in good faith, and that the arrangement made with them woiHd, even if carried out to the letter, have been of solid advantage to the company. But they accepted shares of the- nominal value of 20s. as fully paid up, in the knowledge that only 5s. per share had been paid; and they cannot, therefore, benefit by the principle recognized by this house in. 250 OOKEGUM GOLD MIX. CO. v. KOPEIJ. (Oil. 17 ■Waterhouse v. Jamieson, L. R. 2 H. L. Sc. 29, and Burkinshaw v. Nicolls, 3 App. Cas. 1004. It was urged at the bar that the appellants could have secured by other means all the ad- vantages which were stipulated in their con- tract with the company; that, instead of 20s. shares, the company could have issued 5s. shares fully paid, bearing a preferential divi- dend of 40 per cent., and participating in the remaining profits equally with its ordinary 20s. shares; or that the appellants might themselves have bought the goods purchased with their contributions, and received in ex- change 20s. shares fully paid up. I see no reason to doubt that the first of these courses might have been successfully adopted; but I am not certain that the second would have been a legitimate proceeding, seeing that it might have involved acceptance by the com- pany of goods in lieu of cash, at an estimated price of no less than four times their actual cost. It is needless, however, to consider what the parties might have done, if that which they did is not of legal effect. In my opinion, therefore, the register of the company is erroneous, m so far as it appears that these additional shares have been fuUy paid up; and the order appealed from, which merely provides for its correction in that re- spect, ought to be affirmed. I have had an opportunity of considering the suggestions to be made by my noble and learned friend LORD HERSCHELL. I agree with him that the original shareholders had undoubted power to resolve that no call should be made upon the new shares except in liquidation, and then only for the purpose of paying, debts and expenses of liquidation, because that power is expressly conferred up- on limited companies by section 5 of the companies act 1879 (42 & 43 Vict. c. 76). That .the original shareholders could be held, in the present case, to have resolved to that effect, is by no means so clear a proposition; because it appears to me to raise the question whether a single resolution, that no money shaU be paid in any event, is severable into two distinct resolutions, one to the effect that there shaU be no pnyment, and the other to the effect that there shall be payment on the occurrence of a certain event. Seeing that the question has not been argued either in the courts below or in this house, I abstain from expressing any opinion upon it. I therefore concur in the judgment which has been moved by THE LORD CHANCEL- LOR. LORD HERSCHELL. My lords, this case raises the important question whether a com- pany incorporated with limited liability can issue its shares at a discount. (His lordship then stated the facts given above.) The question whether there was power to issue the shares depends mainly upon the construction of the Sth and 3Sth sections of the companies act 18G2, though the 25th sec- tion of the companies act 1867 has also a material bearing upon it. By the Sth sec- tion of the act of 1862, it is enacted that in the case of a company limited by shares the memorandum of association shall contain "the amount of capital with which the company proposes to be registered divided into shares of a certain fixed amount." The 38th section of the same statute provides that in the event of a company formed under the act being wound up, every present and past member should be liable to contribute to the assets of the company to an amount sufficient for payment of the debts and liabilities of the company, and the costs of the winding-up, and for the payment of such sums as may be required for the adjustment of the rights of the contributories amongst themselves, with (amongst others) this qualification, that in the ease of a company limited by shares, no contribution should be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member. It is contended that these two enactments taiien together preclude a company from is- suing shares as fully paid up in respect of the payment of a sum less than the nominal amount of the share— that is to say, that a person taking a share on thosfe terms, if he remains a shareholder, is liable to pay the difference between the amount he has al- ready paid and the nominal value of the shai-e. If it had been determined that un- der the companies act a shareholder was in all cases liable to pay the whole of the nom- inal value of a share in cash, I sliould have had less difficulty in adhering to the judg- ment of the court below. But the contrary has been determined. And not only may a share be allotted as fully paid up in respect of property, goods, or services received by the company, but the courts will not inquire into the adequacy of the consideration, and certainly have not required it to be proved •that the consideration given was equivalent in cash value to the nominal amount of the share. The ti-ansactions which have taken place on this view of the law have been so numerous, and have extended over so long a period of years, that I doubt if it would have been possible for your lordships to adopt a different view now, even if the legislatiu-e had not intervened. But I think that the legislature has distinctly recognized and given its sanction to these decisions. The 25th section of the companies act 1867 provides that every share in any company shall be deemed and taken to have been is- sued and to be held subject to the payment of the whole amount thereof in cash, unless the same shaU have been otherwise deterihined by contract duly made In writmg, and filed with the registrar of joint stock companies at or before the issue of such shares. I quite agree that this enactment does not purport to render valid an issue of shares in respect Ch. 17) OOKEGUM GOLD MIX. CO. v. EOPER. 251 of something other than full cash payment, in case it would have been Invalid imder the act of 1S62. But it seems to me distinctly to recognize the validity of such transaction, imposing only the condition that the contract determining that payment is not to be made m cash shall be in writing and duly filed. The object of this is obvious. It is to enable any creditor, by reference to the documents at the office of the registrar of joint stock compa- nies, to ascertain h6w much of the liability on the shares which does not remain undis- charged has been discharged by cash pay- ment, and how much in some other wav. A creditor has not the right to assume tllat so much of the amount of the share as is no longer liable to be called up has found its way in the shape of cash into the hands of the company. But he has placed at his dis- posal the means of full information on the subject. Having regard to the considerations to which I have called attention, and notably to the provisions of the act of 1867, I do not feel so much impressed as some of youi- lord- ships by the mischiefs which it is contended would result from the decision that shares might be issued as fully paid up in considera- tion of a payment less in amount than their nominal cash value, and I can conceive many cases in which such a course would be advan- tageous both to shareholders and creditors. But the matter must, after all, be determined by an examination of the language of the act of 1862, bearing la mind, of course, the de- cisions upon it, and the subsequent legisla- tion, which, as I think, sanctioned and acted on those decisions. 1 cannot myself place any great weight on the requirement of section S, that the amount of capital with which the company proposes to be registered is to be divided into shares "of a certain fixed amount." The provision was, of course, necessary in introduciag a scheme of limited liability. But it does not, of itself, determine anything as to the extent of liability. Had it stood alone, the sharehold- ers would have been liable, on general princi- ples, to the extent necessary to discharge all the obligations of the industrial partnership. The limitation of liability arises from the provision of section 38, that in case the com- pany is wound up an individual shall only be liable "to the amount, if any, vmpaid on the shares in respect of which he is liable as a present or past member." This must be regarded as by implication enacting that he shall be liable to that extent. What, then, is the meaning of the "amount unpaid" on the shares? If it had been the law that tak- ing shares in a limited liability company nec- essarily involved the payment in cash of the nominal amount of the share, the answer would have been free from difficulty. The words "the amount unpaid" would have been taken in their ordinary sense as meaning so much as has not been pa:d in cash. But it ] is impossible now to adopt that interi)reta- tion as applicable to every case. The acts of 1862 and 1867 must be read to- gether. And the latter statute prescribes that a share shall be deemed to be held sub- ject to the payment of the whole amount thereof in cash, unless "the same shall have been otherwise determined" by a filed con- tract. What is "the same"? Clearly, as it appears to me, that the share is held subject to the payment of the whole amount in cash. When, then, it has been la-\vfully "otherwise determined," it appears to me impossible that the words "the amount unpaid" can have their ordinary meaning. They must, at least, be iuteipreted as meaning "unpaid, or not otherwise satisfied, in accordance with the provisions of a filed conti-act." And once this correlusion is arrived at, I do not think there would be any insuperable difficulty in includ- ing within them the case where, in consider- ation of a certain payment, the liability has been by a filed contract entirely discharged. At the same time, I am quite sensible of the force of the argument tliat in the 25th section of the act of 1867 the emphatic worda are payment "in cash," implying that there must be payment in some form, even though it is not to be made in cash. And whilst goods or services given or tal^en in lieu of payment in cash may be regarded as in a sense payment, it is difficult to say that pay- ment of a portion of a sum is payment of the whole. Although, therefore, my mind has not been free from doubt, I am not prepared to differ from the court below, and from those of your lordships who entertain that view, in thinking that a company cannot issue its shares at a discount so as to exonerate those taking the shares from the liability, in case the company be wound up, to pay the amount not ah'eady paid on the shares. But the question before yom- lordships does not arise in the case of a winding-up. The interest of the creditoi-s is not in issue. The action is brought by a shareholder avowedly for the pm'pose of benefiting the holders of the ordinary shares at the expense of these who are possessed of the preference shares, which were taken on the express condition that their holders should not be required to pay more than 5s. per share. To accede sim- plieiter to the prayer of the plaintiff would, as it seems to me, be to sanction a violation by the company of a solemn agreement enter- ed into between them and those who took the shares. I should have thought it was wrong to do this, except in so far as the contract provides for that which has been otherwise provided for by the legislature. In so far as the obligations arising under the contract do not involve a contravention of any enactment of the legislature, I see no reason why they should not be given effect to. The point was not argued at the bar in the present case, but I will give my reasons for the opinion I have expressed. Except when the legislatm-e has 252 OOUEGUxM .GOLD MIN. CO. v. KOPER. (Ch. 17 expressly or by Implication forbidden any act to be done by a company, their rights must be governed by the ordinary princi- ples of law, and they are free to make, as between them and their shareholders, such contracts as they please. They may enter into any undertaking with those who are in- vited to become shareholders as to the terms on which the shares shall be taken, and as to the rights of the respective shareholders inter se. What they cannot do is to exclude the liability, in case the company is wound up, to contribute to the extent unpaid on the shares for the benefit of the creditors. But what is to prevent the company agreeing that, except in so far as the legislature has imposed the liability, they will not enforce any? Supposing the agreement had been in terms that the company would not enforce the payment of more than 5s. per share, ex- cept in the case of a winding-up, and then only to satisfy the claims of creditors and the costs of the winding-up, would there have been anything illegal in such an agreement? I fail to see anything in the companies acts which would render such an agreement in- valid. And taking the conti-act between the company and the shareholders, and the en- actment together, is not this, in effect, what has been doneV I am, of course, assuming that to issue shares on such terms would be within the memorandum of association. There can be no doubt of that in the present case. It is provided that the original or in- creased capital may be issued with "such preference, privilege, guarantee, or condition" as the company may direct. \\'hllst, then, I think it ought to be de- clared that the agreement between the com- pany and those to whom the preference shares were allotted was ineffectual to ab- solve them from the liability prescribed by the 3Sth section of the act of 1862, I should have thought, had the point been insisted upon, that it ought also to be declared that the company are not entitled to call upon such shareholders for any further payment beyond that agreed upon, except in the case of a winding-up, and then only so far as necessary for the discharge of the obliga- tions of the company and the costs of the winding-up. LORD MACNAGHTEN. My lords, your lordships are called upon to determine whether it is or is not competent for a com- pany limited by shares to issue shares at a discount so as to relieve persons taking shares so issued from liabiUty to pay up their amount in full. It was suggested that different considerations might apply to sliares in the capital with which a company is originally registered and shares in addi- tional capital created afterwards. But it sooms to me to be perfectly clear that, for the present purpose, no distinction can be dra\vn between one portion of the capital of a company limited by shares and an- other. The question turns upon the construction- of the companies act 1S6J. The provisions of the act ai-e, I think, plain enough if one bears in mind the condition of thinea which existed before the principle of limned liability was introduced in 1855. Before that time there was no way known to the law by which persons trading in partnershi» could restrict their liability. They were lia- ble to the uttermost farthing. At last the legislature intervened and authorized per- sons who proposed to trade in partnershijy to form themselves into a registered com- pany with a declared capital and shares ol a fixed amount, and then limited the liabil- ity ofi the partners as members of the com- pany to the amount unpaid upon their shares. But all this legislation proceeds on the footing of recognizing and maintaining the liability of the individual members to the company until the prescribed limit is reach- ed. The memorandum of association of a company limited by shares must contain "the amount of capital with which the com- pany proposes to be registered divided into shares of a certain fixed amount." It must also contain "a declaration that the liability of the members is limited." Neither the lia- bility nor the limitation is defined in the- memorandum itself. . And so the declaration carries you back to the earlier part of the section, where you are told what is meant by "a company limited by shares." It is a company "formed on the principle of hav- ing the liability of its members limited lo the amount unpaid upon their shares." That must mean that the liability of a member continues so long as anything remains un- paid upon his shares. Nothing but pay- ment, and payment in full, can put an endi to the liability. Plainer still and more explicit is the sec. tion headed "Liability of Jlembers." It be- gins by declaring that, in the event of a company formed under the act being wound up, the measure of the liability of every present and past member is the amount re- quired to satisfy all claims of creditors, to- pay all the expenses of liquidation, and to adjust the claims of members inter se. Then come certain qualifications to which that liability is subject. One is, that in the case of a company limited by shares no con- tribution shall be required from any mem- ber exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member. To sum the matter up, I cannot, I think, do better than adopt the language Mr. Buck- ley has used in speaking of the limited lia- bility acts. "The dominant and cardinal principle of these acts," he says, "is that the investor shall purchase immunity from liability beyond a certain limit, on the terms that there shall be and remain a liability up to that limit." A^'hether this liability is one- €h 17) OOREGUM GOLD MI2^. CO. v. ROPER. J3 «f "the conditions of the memorandum," ■n-ithin the meaning of that expression in the act of isr.2, as Lord Selborue seems to have tliought (Dent's Case, S Ch. App. 708), or a condition attached by the act to a company limited by shares and of the essence of such a company, thongli it may not be found con- tained within the four coriiors of the memo- raudum, is a matter of little or no impor- tance. In either view of the case it is plain that the condition is one wliich cannot be dispensed with by anything in the articles of association, or by any resolution of the company, or by any contract between the company and outsiders who have been in- vited to become members of the company, and who do come in on the faith of such a contract. If this conclusion be correct, there is, I think, an end of the question, and the argu- ments urged on behalf of the appellants may be disposed of very briefly. I may notice, in the first place, that refer- ence was made in the course of the argu- ment to section twenty-five of the act of 1S62, which specifies, among the particulars to be entered on the company's register of members, the amount "paid, or agreed to be considered as paid," on the shares of each member. It was suggested that this ex- pression shows that the statute does not re- quire actual payment. Nor does it, except in the case of a company limited by shares. The section, it will be observed, is speaking not only of such companies, but of all com- panies under the act which have a capital divided into shares. The next argument that was put forward strikes me as rather far-fetched. It was said that companies under the companies clauses acts are authorized to issue new shares at a discount. It was pointed out that the language of Table A, in reference to the issue of shares in additional capital, is precisely the same as the language of the companies clauses act 1863, now that it has been amended by the railway companies act 1867, and the companies clauses act 1889, so as to make the issue of shares at a discount per- missible. Why, it was asked, should there be any difference in this respect between the two classes of companies? Why should that be taken to be prohibited in the one which is allowed in the other? Well, there is this difference to start with. A company limited by shares selects its objects and fixes the amount of its capital to suit itself; complying with the provisions of the companies acts it is under no outside control in these matters. The companies clauses acts are applicable to companies formed for the purpose of carry- ing out undertakings of a public nature. Aft- er parliament is satisfied that the proposed undertaking will be of public benefit, and that the proposed capital is adequate and not excessive, a special act is obtained. Then If the company comes for powers to raise further capital, it is open to the legislatui'e, if it thinks fit, when sanctioning an act for the purpose, to incorporate with the special act the companies clauses act 18G3, and at the same time to modify its provisions as occasion may require. Because a special per- mission granted on consideration of the par- ticular cirfumstances of the case is free from objection, it does not follow that a general license might not be open to grave abuse. There is thus difference too: A company limited by shares may bori'ow as much money as it can get. A company under the companies clauses acts has only limited pow- ers of borrowing. So there is the more rea- son that a company of the latter class hav- ing still some credit, though its borrowing powers be exhausted, should be allowed in a proper case to make use of its unissued capital. But, after all, the real answer to any argument or appeal founded on the com- panies clauses acts is this: Whatever those acts may prohibit or permit. Table A must be taken in connection with the companies act 1862, and cannot be read so as to con- travene its provisions. Much reliance was placed on the 25th sec- tion of the act of 1867. It was said that what that section has in view is one of two things, — either liability to pay in cash the whole amount of the shares, or else a contract in writing duly registered at or before the is- sue of the shares. It was argiied that if there be a contract duly registered, the sec- tion does not impose any liability to pay in full. That is quite true, and for this rea- son: The section applies not only to com- panies limited by shares, but to all com- panies under the act of 1862 having a cap- ital divided into shares. In the case of a contract duly registered the section does not require payment where payment is not re- quired by the act of 18112. On the other hand, it does not dispense with payment in full where the liability to pay in full is a condition imposed by the act of 1862, as it is in the case of a company limited by shares. Burkinshaw v. Nicolls, 3 App. Gas. 100-1, was pressed into the argument. But all that case decides is, that the company's cer- tificate to the effect that shares are fully paid is, as against tlie company, conclusive evidence of payment in the hands of a pur- cJiaser for value without notice. Lastly, it was said that if it be the case that, in companies limited by shares, mem- bers are liable to pay up in full the amount, if anj'. unpaid upon their shares, still the liability is one that may be easily evaded. And it was pointed out that, in the present case, if only a different method had been adopted, a result practically the same might have been attained, and then the transaction would have been unimpeachable. Whether that is a good reason for permitting the re- quirements of an act of parliament to be contravened may, perhaps, be doubted. But I desire to protest against some of the propositions which were advanced in con- 2.-.4 OOKl^GUM GOLD MIN. CO. v. UOPEIl. (Ch. IV ncction with this pnrt of the argument. It was said that if a comi'any limited by shares qwes its bankers £1,000, and its shares are at 50 per cent, discount, fully paid shares of £2,000 nominal value may be given in discharge of the debt. It was said that a company limited by shares may issue fully paid shares at their market price at the time, however much they may have become depreciated, in exchange for goods having a recognized market value. Speaking for myself, I am not prepared to assent to either of those propositions without further argu- ment. I am inclined to agree with the view expressed by Cotton, L. J., though it is not necessary to decide the point. It seems to me that all that has been determined so far is that the court will decline to rip up a ti'ausaction not impeached as dishonest, and not proved to be such, merely because the company may have paid an extravagant price for their property. In the present case, I regi-et that I am compelled to say that in my opinion the transaction cannot stand. The course which the directors took probably saved the com- pany. All parties concerned acted in a per- fectly open and honest manner. But it seems to me that the requirements of the companies act 1862 have been contravened, and, therefore, I think that the appeal must be dismissed. LORD MORRIS. My lords, the act of 1862 enabled a company to be formed on the principle of having the liability of its mem- bers limited to the amount unpaid on their .■-■hnrt's. It did not impose a liability— on the contrary, it limited liability to the ex- tent of the amount of the share; but there is no power given that I can see to further limit liability by not paying that amoimt. Has that position been varied by section 25 of the act of 1807, which provides, "Every share in any company shaU be deemed and taken to have been issued and to be held subject to the payment of the whole amount thereof in cash, unless the same shall have been otherwise determined by a contract duly made in writing, and filed with the reg- istrar of joint stock companies at or before the issue of such shares?" That section ap- pears to me plainly to refer to and deal only with the mode of payment— prima facie, the payment of the whole amount is to be in cash, but with a power given of eontractius for something other than cash to be taken in payment, but payment in meal or malt is clearly contemplated — the amount of the shares must be- paid. A company can only do what it is authorized to do, and not that which it Is only not prohibited from doing. I can find no authority to issue a pound share but that only 5s. is to be paid of the pound. For these reasons, I concur in the judg- ment which has been moved by THE LORD CHANCELLOR. LORD HALSBURY, L. C. My lords, be- fore putting the question, I only desire to add that I have designedly avoided alluding to the point which has been mentioned bj my noble and learned friend, LORD HEK- SGHELL, inasmuch as it was neither in- sisted upon nor argued at the bar. Order appealed from affirmed, and appeal dismissed with costs. Ch. 20) HOLLINS V. BRIEHFIELD COAL & IRON CO. 255 HOLLINS V. BRIERFIELD COAL & IRON CO. (U Sup. Ct. 127, 150 U. 8. 371. Nov. 30, 1893.) Appeal from the circuit court of tlie United States for the middle district of Alabama. Affirmed. Statement by ]Mr. Justice BREWER: The facts in this case were as follows: The Krierfield Coal & Iron Company was incor- porated under the laws of Alabama, May 4, 1SS2. On September 1, 1SS2, a conveyance was made by the company to Preston B. Plumb, as ti-tisteo, to secure an issue of $500,- 000 in bonds. On July 25, 1887, the trustee. Plumb, requested a furtlier conveyance and iis.surance, pm-suaut to a covenant m the deed of September, 1882, which fm'ther con- veyance was executed by the company on July 29, 1887. On August 1st, he demanded the surrender of all the company's property to him, as trustee. This was done, and he placed John G. Murray in charge, to conti-ol and manage it. On August 3d, he filed a bill in the circuit com-t of the United States for the middle district of Alabama, against the company, joining as defendants certain stock- Iiolders, bondholders, and creJitors, though not the plaintiffs In the present suit. That bill set out the organization of the corpora- tion, the stockholders, with the amounts of stock subscribed, and the amounts paid itpon such stock, and alleged that the subscribers were liable for the unpaid subscriptions, but that the assistance of the court' was neces- sary for the assessment of such sums. It also set out the issue of the bonds; and their present owners, so far as known, a default in the payment of the interest due thereon, the property and indebtedness of the com- pany, — the unsecured indebtedness being al- leged to amount to about $200,000. The bill fm-ther averred that up to that time the chief industry of the company had been the manufactiu-ing of cut uails from iron; that, owing to overproduction in the country, this business had become unprofitable to the com- pany, and that it was desired to change the industiy from the manufacture of nails to the production of pig iron, and that it had purchased property with a view to carrying on that industry; that it did not have money enough to successfully carry it on. The bill also alleged that the trustee had taken pos- session, as authorized by the dcel of trust; tliat he could not carry on the business of the company without obtaining money on the credit of the property; and prayed the direc- tion of the court as to whether he should be permitted to borrow such money, and issue certificates of indebtedness therefor. It asked that aU creditors of the corporation, and claimants against tiie estate, be permit- ted to make themselves parties, and have their claims adjudicated; that a full admin- istration be had of the estate, and, if need be, a foreclosure and sale. Subsequently, Plumb resigned as trustee, and W. L. Cham- bers was substituted in Ms place. Proceed- ings were had in that case, which resulted, on July 8, ISSO, in a decree for the fore- closure of the trust deed, and a sale of the property. Nearly three months after the commencement of the Plumb suit, and on October 28, 1887, these appellants, as plain- tiffs, filed a bill in the same court, making the coal company and sundry stock and bond holders, together witli the trustee I'lumb, parties defendant. The plaintiffs were unseau-ed creditors of the company, having claims contracted in 1S8G and 1887, four or, five years after the issue of the bonds and execution of the trust deed, who sued on behalf of themselves and all other creditors of the coal and iron company, who wore willing to come in and contribute to the expenses of the suit. After setting forth their claims, tliey alleged that the convey- ajico to Plumb, as tmstee, was absolutely void; that a large amount was still due on the stock. Tliej' asked to have a receiver appointed and the property sold in satisfac- tion of their claims, and that such receiver ■have authority to collect tbe unpaid stock subscriptions, to be also applied in satisfac- tion of their claims. They alleged the pen- dency of the suit tJrought by Plumb as trus- tee, but did not ask to intervene therein. After the decree of foreclosm-e and sale in the Plumb case, and on July 24, 1889, a final decree was entered, dismissing this bill. From such decree of dismissal, plaintiffs appealed to this court Mr. Justice BREWER, after stating the facts in the foregoing language, delivered the opinion of the court. The plaintiffs were simple contract credit- ors of the company. Their claims had not been reduced to judgment, and they had no express lien by mortgage, trust deed, or oth- erwise. It is the settled law of this court that such creditors cannot come into a court of equity to obtain the seizure of the proper- ty of their debtor, and its application to the satisfaction of their claims, and this not- withstanding a statute of the state may au- thorize such a proceeding in the courts of the state. The line of demarcation between equitable and legal remedies in the federal courts cannot be obliterated by state legisla- tion. Scott V. Neely, 140 U. S. 103, 11 Sup. Ct. 712; Cates v. Allen, 149 U. S. 451, 13 Sup. Ct. 883, 977. Nor is it otherwise in case the debtor is a corporation, and an un- paid stock subscription is sought to be reach- ed. Tube-"V^'orks Co. v. Ballon, 14G U. S. 517, 13 Sup. Ct. 165; Cattle Co. v. Frank, 148 U. S. G03, 612, 13 Sup. Ct. 691. Nor is this rule changed by the fact that the suit is brought in a com-t in which at the time is pending another suit for the foreclosure of a mortgage or trust deed upon the property of the debtor. Doubtless, in such foreclosure suit, the simple contract creditor can inter- vene, and if he has any equities in respect to the property, whether prior or subsequent to those of the plaintiff, can secure their de- termination and protection; and here, by the 256 HOLLINS V. BRIEHFIELD COAL & IRON CO. (Ch. 2jI expresfs language of the bill filed by the trus- tee, all claimants and creditors were invited to present their claims, and have them ad- judicated. These plaintiffs did not inter- vene, though, as shown by the allegatitjns of their bill, they knew of the existence of the foreclosure suit Neither did they apply for a consolidation of the two suits. On the contrary, the whole drift and scope of their suit was adverse to that brought by the ti'us- tee, and In antagonism to the rights claimed by him. They obviously intended to keep away from that suit, and maintain, if pos- sible, an independent proceeding to have the property of the debtor applied to the satis- faction of their claims. But this, as has been decided in the cases cited, cannot be done. The excuse suggested, that the rule which forbids in a suit to foreclose a mort- gage the litigation of a title adverse to that of the mortgagor prevented them from inter- vening, is not sound. Their rights, like those of the trustee and the bondholders, were de- rived from the corporation defendant. Each claimed under it, and the validity and amount of such claims were matters proper- ly and ordinarily considered and determined in a foreclosure suit. It is true the corpora- tion might admit the validity of any or all of the claims, and then the validity could ■only be a subject of inquiry as between the claimants for the pm-pose of detenniuing the matter of priority; but to that extent, at least, both validity and amount are always open to contest and determination. It is urged, however, that this com't has sustained the validity of proceedings and de- crees in suits of this nature, in which it ap- peared that the plaintiffs had not exhausted their remedies at law, and the cases of Sage V. Railroad Co., 125 U. S. 3G1, 8 Sup. Ct. 887, and Mellen v. Iron Works, 131 V. S. 352, 9 Sup. Ct. 781, are cited as illustrations. But, passing by otlier matters disclosed by the facts of those cases, it will be noticed that in neither of them was the objection made at the outset, and when action on the part of the com-t was invoked. Defenses existing in ■equity suits may be waived, just as they may in law actions, and, when waived, the cases stand as though the objection never ex- isted. Given a suit in which there is juris- diction of the parties, in a matter within the general scope of the jurisdiction of coui'ts of equity, and a decree rendered will be bind- ing, although it may be apparent that de- fenses existed, which, if presented, would have resulted in a decree of dismissal. Take the present case as an illustration. Suppose the corporation and other defendants had made no defense, and, without expressly con- senting, had made no objection to the ap- pointment of a receiver, and the subsequent distribution of the assets of the corporation among its creditors. It cannot be doubted that a final decree, providing for a settle- ment of the affairs of the corporation and a distribution among creditors, could not have been challenged on the ground of a want of jurisdiction in the court, and that notwith- standing It appeared upon the face of the bill that the plaintilfs were simple contract creditors, because the administration of the assets of an insolvent corpoi-ation is within the functions of a coiu-t of equity, and, the parties being before the coiu't, it has power to proceed with such administration. If there was a defense existing to the bills as framed,— an objection to the right of these plaintiffs to proceed on the gi'ound that their legal remedies had not been exhausted,— it was a defense and objection which must be made in limine, and does not of itself oust the court of jurisdiction. This doctrine has been recognized, not merely in the cases cited, but also in those of Ke.rnes v. Duiiiont, 130 U. S. 354, 9 Sup. Ct. 480; Kilbotfrn v. Sunderland, 130 U. S. 505, 9 Sup. Ct. 594; Brown v. Iron Co., 134 XJ. S. 530, 10 Sup. Ct 604. None of these cases question the prop- osition that, if the objection is seasonably presented, it will be effective. But it is earnestly insisted that it has been held by this court in Case v. Beauregard, 101 U. S. 688, that whenever a creditor has a trust in his favor, or a lien upon properly for a debt due him, he may go into equity without exhausting his legal remedies; that it has also frequently been affirmed that the capital stock and assets of a corporation con- stitute a trust fund for the benefit of its creditors, which neither the officers nor stockholders can divert or waste; and sever- al cases are cited,— among them, that of Sanger v. Upton, 91 U. S. 56,— in which, per- haps, the proposition is asserted in the most direct and emphatic language, and Terry v. Anderson, 95 U. S. 628, 636, in which Chief Justice Waite made these observations: "Or- dinarily, a creditor must put his demand into judgment against his debtor, and exhaust his remedies at law, before he can proceed in equity to subject clioses in action to Its pay- ment. To this rule, however, there are some exceptions; and we are not prepared to say that a creditor of a dissolved corpora- tion may not, under certain circumstances, claim to be exempted from its operation. If he can, however, it Is upon the ground that the assets of the corporation constitute a trust fund, which will be administered by a com-t of equity, in the absence of a trus- tee; the principle being that equity will not permit a trust to fail for want of a trustee." While it is true language has been frequent- ly used to the effect that the assets of a cor- poration are a trust fund held by a coi-pora- tion for the benefit of creditors, this has not been to convey the idea that there is a di- rect and express trust attached to the prop- erty. As said in 2 Pom. Eq. Jur. § 1016, they "are not, in any true and complete sense, trusts, and can only be called so by way of analogy or metaphor." To the same effect are decisions of this court. The case of Graham v. Railroad Co., 102 U. S. 148, was an action by a subsr< quent creditor to subject certain property, ai- Ch. 20) HOLLINS V. BRIERriELD COAL & IROX CO. 257 leged to have been wrongfully conveyed by the corporation debtor, to the satisfaction of his judgment; and the very proposition here presented was then considered, and, in re- spect to it, the court, by Mr. Justice Bra.1- ley, said, (page 160:) "It is contended, however, by the appel- lant, that a corporation debtor does not stand on the same footing as an individual debtor; that, whilst the latter has supreme domin- ion over his own property, a corporation is a mere trustee, holding its property for the benefit of its stockholders and creditors; and that if it fall to pursue its rights against third persons, whetlier arising out of fraud or otherwise, it is a breach of trust, and creditors may come into equity to compel an enforcement Of the corporate duty. This, as we understand, is the substance of the position taken. "We do not concur in this view. It is at war with the notions which we derive from the English law with regard to the nature of corporate bodies. A corporation is a dis- tinct entity. Its afEairs are necessarily man- aged by oflacers and agents, it is true; but, in law, it is as distinct a being as an indi- vidual is, and is entitled to hold property, if not contrary to its charter, as absolutely as an individual can hold it. Its estate is the same, its interest is the same, its pos- session is the same. Its stockholders may call the officers to account, and may pre- vent any malversation of funds or fraudu- lent disposal of property on their part. But that is done in the exercise of their cor- porate rights, not adverse to the corporate Interests, but coincident with them. "When a corporation becomes insolvent. It is so far civilly dead that its property may be administered as a trust fund for the ben- efit of its stockholders and creditors. A court of equity, at the instance of the prop- er parties, wiU then make those funds trust funds, which, in other circumstances, are as much the absolute property of the corpora- tion as any man's property is his." With reference to the suggestion In this last paragraph, it may be observed that the court does not attempt to determine who are proper parties to maintain a suit for the ad- ministration of the assets of an insolvent corporation. All that it decides is that, when a court of equity does take into its posses- sion the assets of an Insolvent corporation, it will administer them, on the theoiy that they, in equity, belong to the creditors and stockholders, rather than to the corporation itself. In other words, — and that is tne Idea which underlies all these expressions in ref- erence to "trust" in connection with the prop- erty of a corporation, — the corporation Is an entity, distinct from Its stockholders as from its creditors. Solvent, it holds its property as any individual holds his, free from the touch of a creditor who has acquired no lien; free, also, from the touch of a stockholder who, though equitably Interested in, has no legal right to, the property. Becoming in- PRIV.CORP. — 17 solvent, the equitable Interest of the stock- holders in the property, together with their conditional liability to the creditors, places the property in a condition of trust, first for the creditors, and then for the -stockholdera Whatever of trust there is arises from the peculiar and diverse equitable rights of the stockholders as against the corporation in its property, and their conditional liability tO' its creditors. It is rather a trust in the ad- ministration of the assets after possession by a court of equity, than a trust attaching t» the property, as such, for the direct benefit of either creditor or stockholder. Again, in the case of Railway Co. v. Ham, 114 U. S. 587, 5 Sup. Ot. 1081, it appeared that four railway corporations, owing debts, were consolidated under authority of law, and by the terms of the consoUdatipn agree- ment the new corporation was to protect the- debts of the old. Subsequently, the new cor- poration executed a mortgage on all its prop- erty, and, in a contest between the moi-t- gagees and the unsecured creditors of one of the constituent companies, the court held that the lien of the mortgagees was prior. In respect to this, Mr. Justice Gray (page 594, 114 U. S., aUd page 1084, 5 Sup. Ct.) thu» stated the law: "It was contended that the- propei-ty of the Toledo & Wabas'h Railway Company was a trust fund for all its cred- itors, and that upon the consolidation the- Toledo, Wabash & Western Railway Com- pany took the property of the Toledo & Wa- bash Railway Company charged with the payment of all its debts. The property of a corporation is doubtless a trust fund for the payment of its debts, in the sense that when the coiporation is lawfully dissolved, and all its business wound up, or when It is insol- vent, all its creditors are entitled, in equity, to have their debts paid out of the corporate property before any distribution thereof among the stockholders. It Is also true, in the case of a corporation, as in that of a natural person, that any conveyance of prop- erty of the debtor, without authority of law, and in fraud of existing creditors, is void as ' against them." The case of Fogg v. Blair, 133 U. S. 534, 541, 10 Sup. Ct. 338, presented a similar question; and this court, by Mr. Justice Field, ob- served: "We do not question the general doctrine invoked by the appellant, that the property of a railroad company is a trust fund for the payment of its debts, but do not perceive any place for its application here. That doctrine only means that the property must first be appropriated to the payment of the debts of the company, be- fore any portion of it can be disti-lbuted to the stockholders. It does not mean that the property is so affected by the Indebtedness of the company that It cannot be sold, trans- ferred, or mortgaged to bona fide purchas- ers for a valuable consideration, except sub- ject to the liability of being appropriated to pay that indebtedness. Such a doctrine has no existence." 258 HOLLINS V. BRIERFIELD COAL & IRON CO. (Cli. 20 In the case of Hawkins v. Glenn, 131 U. S. 319, 332, 9 Sup. Ct. 739, which was an ac- tion brought by the trustee of a corporation against certain of its stocliholders to recover unpaid subscriptions, and in which the de- fense of the statute of limitations was plead- ed. Chief Justice Fuller referred vo this mat- ter in these words: "Unpaid subscriptions are assets, but have frequently been treated by courts of equity as if impressed with a trust sub modo, upon the view that, the cor- poration being insolvent, the existence of creditors subjects these liabilities to the rules applicable to funds to be accounted for as held in trust, and that, therefore, statutes of limitation do not commence to run, in re- spect to them, until the retention of the mon- ey has become adverse, by a refusal to pay upon dUQ requisition." These cases negative the idea of any direct trust or lien attaching to the property of a corporation in favor of its creditors, and at the same time are entirely consistent with those cases in which the assets of a corporation are spoken of as a "trust fund," using the term in the sense that we have said it was used. The same idea of equitable lien and trust exists, to some extent, in the case of partner- ship property. Whenever, a partnership be- coming insolvent, a coiu-t of equity takes possession of its property, it recognizes the fact that In equity the partnership creditors have a right to payment out of those funds in preference to individual creditors, as well as superior to any claims of the partners themselves; and the partnership property is therefore sometimes said, not inaptly, to be held in trust for the partnership creditors, or that they have an equitable lien on such property, yet, all that is meant by such ex- pressions is the existence of an equitable right, which will be enforced whenever a court of equity, at the instance of a proper party, and in a proper proceeding, has taken possession of the assets. It is never understood that there is a specific lien or a direct trust. A party may deal with a corporation, in re- spect to its property, in the same manner as with an individual owner, and with no greater danger of being held to have received into his possession property burdened with a trust or lien. The oflicers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to an account for fraud, or sometimes even mere mismanagement, in respect thereto; but, as between itself and its creditors, the corporation is simply a debtor, and does not hold its property in trust, or subject to a lien In their favor, in any other sense than does an individual debtor. That is certainly the general rule, and, if there be any exceptions thereto, they are not presented by any of the facts in this case. Neither the insolvency of the corporation, nor the execution of an iUegal trust deed, nor the failure to collect in full all stock subscriptions, nor all togeth- er, gave to these simple contract creditors any lien upon the property of the corpora- tion, nor charged any direct trust thereon. With respect to the propriety of the decree of dismissal in this suit after the entry of the decree of foreclosm-e in the trustee suit, the case of Stout v. Lye, 103 U. S. 66, is con- clusive. Indeed, that case Is conclusive of every question in this, except such as arise from the fact that the debtor is a corpora- tion, rather than an individual. It appeared that, pending a foreclosure suit, J. W. and .J. O. Stout obtained a judgment against the mortgagor on an unsecured claim. Thpy thereupon instituted a suit, making both mortgagee and mortgagor parties defendant, to set aside the mortgage as illegal, or, if not illegal, to have its amount reduced by cer- tain payments of usm'ious interest. While this suit was pending the foreclosm-e suit passed into decree, the Stouts having never been made parties or entered an appearance in that suit. Thereupon, their suit was dis- missed, and such dismissal was held by this court proper, on the ground that the Stouts, being simple contract creditors at the time the foreclosure suit 'was commenced, were not only unnecessary, but improper, parties. "If they had been made parties when the suit was begun, they could have done noth- ing by way of defense to the action until they had acquired some specific interest ia the mortgaged property. As creditors at large, they were powerless in respect to the foreclosure proceedings; but, when they ob- tained their judgment,— not before,— they were in a position to contest in all legitimate ways the validity and extent of the superior lien which the bank asserted on the proper- ty, in which, by the judgment, they had ac- quired a specific interest." And on the fur- ther ground that the mortgagor represented In the foreclosure suit not merely himself, but all parties who, like the Stouts, acquired any interest in the property since the com- mencement of that suit. So, here, these plaintiffs were simple con- tract creditors when the trustee's suit was commenced. That suit passed to decree of foreclosure, and up to that time these plain- tiffs had acquired no specific lien upon the property^ They entered no appearance In that suit, did not intervene, or claim any rights in the property, and they were repre- sented in that suit by the corporation, the party under whom both they and the trustee claimed. A decree of dismissal was there- fore proper. It appears in the record as a decree upon the merits. It should have been for want of jurisdiction, and to that extent the decree, as entered, will be modified. The appellants will be charged with all the costs in the case. Dismissed for want of jurisdiction. Mr. Justice BROWN and Mr. Justice JACK- SON dissented.