(flnrn^U 2Iaui ^rlynol Sjibrary Cornell University Library KF 1414.B36 V.2 Commentaries on the law£ Private corpo 3 1924 019 330 905 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/cu31924019330905 COMPANY LAW COMMENTARIES ON THE LAW OF PRIVATE CORPORATIONS ■WHETHER WITH OR WITHOUT CAPITAL STOCK, ALSO 01" JOINT-STOCK COMPANIES AND OF ALL THE VAItlOUS VOLUNTARY UNINCORPORATED ASSOCIATIONS ORGANIZED FOR PECUNIARY PROFIT OR MUTUAL BENEFIT. BY CHARLES FISK BEACH, Jr., OF THE NEW YORK BAB, AUTHOE OF " CONTKlBnTORY NBOLIOENCB," "COMMENTARIES ON THE LAW OF Eeoeivebs," "The Law of Wills" and "The Modern Law OF Eailwats;" Editor of "The American Probate ' Eeforts " and " Beach's Eailway Dioest," and lately :?ditor of "The Railway and Corporation Law Jqubnal," IN TWO VOLUMES. VOL. 11. CHICAGO: T. H. FLOOD & CO. 1891. Copyright, 1891, BY T. H., FLOOD & CO. STATE JOUENAL PRINTING COMPANY, FBINTBIIS AlID Sterbotypebs, UADISOK, WIS. TABLE OF CONTENTS. VOLUME II. CHAPTER XX. INCIDENTAL CORPOHATB POWERS. 5 385. Introductory 386. Extended powers now given by statute 387. Incidental powers of banks 388. The power to mortgage property 389. Right to mortgage franchises denied . 390. Power to make notes .... 391. Power to make aecommodation paper . 393. Power to lend money . 393. Power to hold the stock of other companies 394. The same subject continued . 395. Power to buy its own shares 396. Power of eminent domain . 397. The same subject continued 398. What corporations may have the power 399. The same subject continued 400. Public property taken by eminent domain - may be taken 401. The same subject continued 403. Compensation for property taken 403. Eminent domain in case of street i-ailways 404. Incidental powers of railways — (a) To run 405. (b) To do other connecting business 406. (c) Connected business that is not allowable 407. (d) Contract for carriage 408. (e) Traffic arrangements 409. Binding effect of traflBo arrangements 410. Changing the motive power of street railways What property steamboats Page. 629 631 633 634 636 637 639 643 644 645 648 650 653 654 657 659 660 663 664 667 668 669 672 673 675 677 CHAPTER XXI. POWERS \0F FOREIGN CORPORATIONS. 411. Introductory 413. Restrictions Page. 680 683 IV TABLE OF CONTENTS — TOLtTME II. § 413. Conditions 6S3 414. Statutory powers . , 684 415. Compliance with statutes 687 416. "Doing business," defined 689 417. Comity ' • 690 " 418. Citizenship 691 419. The same subject continued 693 420. Eminent domain . . . 694 CHAPTER XXII. ULTEA VIKES ACTS. 421. Introductory 423; Ultra vires as a defense 423. Defense by a corporation which has received benefits 424. Defense against a corporation which has given benefits 425. Ultra vires contracts executed 426. ZJZira'OTVescontracts executory only .... 427. Acts ultra vires because of a particular purpose . 428. Lia:bility of corporations for ultra vires torts 439. The right to restrain tiZira TO7'es acts . 430. A single stockholder may restrain ultra virQS acts 481. Acquiescence in tiZft-auire.'! acts 432. Ratification of ultra vires acts ..... 433. Estoppel if ultra vires contract is executed ■^34. Right of the State in case of wHra wVes acts 435. Forfeiture of franchise 436. The remedies for ultra vires acts . . 437. When the minority can not have recourse to the courts 438. Illegal corporate acts 439. The same subject continued 696 698 699 701 704 706 707 708 709 711 713 715 716 718 719 721 723 724 726 CHAPTER XXIII. TOKTS AND CRIMES. Page. 440. Introductory 738 441 . State of the authorities 729 442. Respondeat superior 731 448. Express authority need not be shown .... 733 444. Scope of authority 732 445. Whether a corporation may act maliciously . " . . 733 446. Effect of consolidation upon corporate liability . ■ ) • 734 447. False imprisonment 736 448. Fraud . 787 449. Injuries to the person 739 450. The same subject continued — Joinder of parties . . 740 451. Libel . 740 453. Libel by mercantile reporting agencies .... 742 TABLE OF CONTENTS VOLUME II. 453. Malicious proeecution — (a) In general 454. (b) Want of probable cause . 455. Illustrations 456. Nuisance .... 457. Trespass quare clauswn 458. Crimes and misdemeanors . 459. The same subject continued 460. Conspiracy .... 461. Contempt .... 482. Injuries resulting in death' . 463. Distinction between misfeasance and non-feasance 464. Penalty for crimes CHAPTER XXIV. CAPITAL STOCK. 465. Introductory 466. Distinction between capital and capital stock 467. Stock in unincorporated associations .... 468. Increase of capital stock . . . . .' . 469. Statutory authority requisite to increase or reduction 470. The same subject continued ..... 471. Constitutionality of enabling acts .... 472. Whether directors may act under the enabling statute 473. Stockholders' right to subscribe to new stock 474. The same subject continued . ■ . 475. Liability of holders of the new shares 476. Liability upon new shares issued as a bonus 477. Increase by stock dividends 478. The power to issue stock dividends .... 479. Prdhibitions of stock dividends 480. Reduction of capital stock — (a) Authority necessary . 481. (b) By purchase of shares 482. (c) By refunding 483. Loss of property not a reduction of capital stock 484. Liability of shareholders after reduction 485. Irregularly issued stock — How far valid . . . 486i The same subject continued 487. False certificates ; . . .... 488. Forged certificates 489. Liability for fraudulent issue 490. Over-issued stock 491. Fraudulently over-issued stock invalid 492. Personal liability of corporate agents over-issuing stock 493. Measure of damages for over-issuing stock . 494. Liability of holders of over-issued stock — (a) In general 495. (b) Estoppel - . 496. (c) Knowledge of the creditor VI TABLE OF CONTENTS -^ VOLUME II. CHAPTER XXV. PREFERRED STOCK. § 497. Introductory 498. Statutory 'authority 499. Validity of preferred stock 500., Acquiescence in issue 501., Preferred dividends^ (a) In general . . 502. (b) Payable only out of net profits ... 50^i (c) Arrears 504. (d) Enforcement of payment .... 505. Status of preferred shareholders 506. Preferred stock deferred to debts 507. Right of preference shareholders in distribution of capital 508. Exchanging common for preferred stock . 509. Special stock 803 805 806 808 810 810 813 813 815 817 818 820 821 CHAPTER XXVI. SUBSCRIPTIONS TO STOCK. Page. 510. Introductory 833 511. Construction of contracts 826 512. Preliminary contracts 828 513. Signing articles of association ..'.... 830 514. Application, allotment of notice 831 515. Cash deposits . . • 832 516. Subscriptions to obtain charter 835 517. Subscriptions to obtain charter not to be conditional . . 835 518. Who may receive subscriptions 836 519. Commissioners . . 837 520. Limitation of the amount of a single subscription . . 838 531. Subscriptions in excess of the capital stock . . . 839 523. Competency to subscribe — (a) Natural and artificial per- sons . . . .' 841 533. (b) Municipal corporations . . . . . . . 843 534. Municipal subscriptions 844 525. Municipal subscriptions may be conditional . . . 847 526. Municipal subscriptions as affected by consolidation . . . 848 537. Fraud in procuring subscriptions 849 538. Qualifications of the foregoing rule 853 539. Misrepresentations in prospectuses 855 530. Parol evidence of fraud 857 531. Parol agreements and conditions i 858 582. Conditions precedent . • 859 633. Conditions subseque'nt 861 534. Recitals as'implied conditions 863 585. Recitals as to the amount of capital stock .... 864 536. The same subject continued 867 537. Valid and void conditions i . 868 TABLE OF CONTENTS — VOLUME II. VI 1 Page. i 538. Secret and separate conditions ....... 870 539. Performance of conditions . . . < . . . . 87a 540. Substantial performance 874 541. Non-performance 875 548. Waiver of performance . . . \ . . . . 875 543. Fraudulent agreements . i 877 544. Irregular subscriptions — Variation from statutory form . 878 545. Waiver of irregularities . 880 546. Effect of legislation upon subscription contracts . . . 881 547. Effect of consolidation 883 548. Failure of consideration 883 549. Withdravral and abandonment . . . . . . 884 550. Substitution of subscribers 886 551. Specific performance — Damages ..... 886 553. The Statute of Limitation ....... 890 553. The same subject continued 893- 554. The same siibject continued — ; The Glenn Cases . . . 894 CHAPTER XXVII. PAYMENT OF SUBSCRIPTIONS. § 555. Introductory 556. What paper may be taken in payment 557. Payment in property or servicies . 558. What kind of property may be accepted 559. Overvaluation 560. Presumption of fraud from gross overvaluation 561. Payment of less than par .... 568. Acceptance of less than par. constructive fraud 563. Statutory and constitutional provisions construed 564. The same subject continued . ... 896 897 899 901 901 90a 905 907 908 ■ 910 CHAPTER XXVIII. CALLS. Page. 565. Payment by instalments — Calls 918 566. Calls continued 914 567. Delegation of authority . . 915 568. Calls by the court . 915 569. The same subject continued — Limitation .... 918 570. Payment of calls after transfer .~ . . . . . 92Q 571. Notice of calls 921 572., Place and time for payment 923 573. Irregularities in calls — Acquiescence —Estoppel . . 925 574. Tender of certificates . .' 927 575. Evidence 987 576. Defenses to actions upon calls — (a) In general . . . 929 577. (b) Infancy .929 578. (c) Accommodation subscription 929 Vlll TABLE OF CONTENTS — VOLUME II. Page, § 579. (d) Bankruptcy of shareholder .:.... 930 580. (e)Set-offl . 931 581. (fj The Statute of Limitations 932 582. Calls after consolidation 933 583. Pleading and practice . \ 933 584. The company's remedy upon unpaid calls . . . . 934 585. Forfeiture of shares for non-payment 936 586. Notice of forfeiture 937 587. Method of forfeiture 939 688. The company's claim for deficiency 940 589. The shareholders' remedies 942 CHAPTER XXIX. ASSESSMENTS AND DtTES. § 590. Assessments upon shareholders .... 591. Assessments upon members of voluntary associations 592. Extent of the power to assess 593. In whom the power is vested 594. Notice , . 595. Penalty for non-payment 696. Waiver of penalty and reinstatement . 597^ Pleading and practice . ' . . . CHAPTER XXX DIVIDENDS. § 598. Introductory 599. Ownership of dividends 600. The same subject continued — Life tenants and remainder- , men .... 601. Declaration of dividends 602. Actions to compel declaration of dividends .... 603. Payment of dividends . . • 604. Actions to enforce payment 605. Payment of dividends out of capital . . . . . 606. Of restraining dividends — (a) In general .... 607. (b) At instance of a single shareholder .... 608. (c) At instance of creditors . 609. Remedy for payment out of capital . . . . , 610. Recovery of dividends illegally declared .... 611. Interest and the Statute of Limitations .... CHAPTER XXXL TRANSFER OF SHARES, AND HEREIN OF TRANSMISSION OF INTEREST IN VOL- UNTARY ASSOCIATIONS. Page. § 612, Introductory 971 613. Whether directors may transfer qualification shares . . 973 614. Sales by directors and officers 976 Page. 944 945 9l46 947 947 948 950 950 Page. 952 953 955 958 960 962 964 965 966 967 968 968 969 970 TABLE OF CONTENTS VOLUME II, IX 616. Competency of the parties . . . . 616. Restrictions upon the power to buy and sell 617. Injunction . . . . . . 618. Performance of the contrjact 619. Effect of transfer — (a) Upon title to dividends 620. The same subject continued ... 621. (b) Upon liability for calls .... 622. The same subject continued 623. Breach of the contract — Remedy 624. Specific performance ..... 625. Avoidance of the contract . . . 626. Remedies for fraud and misrepresentation '. 637. Transfers otherwise than by contract . 6J8. Transmission of interest in voluntary associations 629. Transfer of shares in cost-book mining companies 630. Transfer of shares in national banks . Page. 976 977 979 980 981 984 986 988 988 989 990 991 993 993 995 CHAPTER XXXII. EXECtJTION AND ATTACHMENT OF SHARES, AND HEREIN OF PLEDGE AND THE CORPORATE LIEN, 631. 633. 633. 634. 635. 636. 637. 638. 639. 640. 641. 643, 643. 644. 645. 646. the transfer Introductory ... \ Execution and attachment of shares - (b) In foreign corporations . (c) By creditors of the transferrer The same subject continued (d) By creditors having knowledge of (e) By creditors of the transferee Pledge and mortgage distinguished The pledgee's rights — (a) In general (b) To registration > (c) To receive dividends (d) To vote .... Foreclosure of pledge. . The company's lien upon shares Statutory and charter liens Distinction between statutory and other liens CHAPTER XXXIII. EBGISTRATION OF TEANSFEES. (a) In general § 647. Introductory . . '. 648. The usual form of transferring shares . 649. Registration of defective transfers 650. Registration of transfers of shares held in trust 651. Formal requisites of registration 6^3. The object of registration .... 653. Registration as evidence and notice . 997 ^998 1000 1001 1004 1005 1006 1008 1008 lOlO 1011 1011 1013 1013 1015 1017 Page. 1031 1023 1033 1024 1036 1027 1028 X- TABLE OF CONTENTS — VOLUME U. Page. § 6.54. Grounds for refusing registration 1029 655. Tiie same subject continued 1030 656. Damages for refusal to register 1031 657. Enforcement of registration — Mandamus .... 1032 658. Wrongf urregistration and liability of the corporation there- for . . . . 1085 CHAPTER XXXIV. JIEaOTIATION OF STOCK AND BONDS, AND HEREIN OF OOTJPONS AND RECEIV- ERS' CERTIFICATES. Page. § 659. Bules and cus);oms of the Stock Exchange .... 1037 660. Brokers and agents 1089 661. The same subject continued — The principal's instructions . lOfO 662. Speculative contracts 1043 668. Future deliveries . . 1044 664. Bona ^de purchasers — (a) In general .... 1045 665. (b) Of shares of stock . ' 1046 666. (c) Of bonds and coupons . . '. . . . . 1018 667. Forgery or fraud 1050 668. . The Schuyler frauds 1053 669. Spurious stock 1053 670^. Lost or stolen certificates of stock 1056 671. The same subject continued . . . . . . 1057 672. Lost or stolen bonds 1058 673. Breach of tru.st — (a) In general 1059 674. (b) The company's right to question transfers by trustees . 1061 675. (c) The company's liability . . ' . . . . 1062 676. The same subject continued — The English rule . . 1063 677. Stock certificates not strictly negotiable .... 1064 678. QMasi-negotiability of stock grounded in estoppel . . 1066 679. Transfer by power of attorney not indorsed on the certifi- cate 1068 680. Of the registered transferee 1068 681. The same subject continued 1070 683. Of the unregistered transferee of the certificate . . . 1073 683. The same subject continued 1073 684. Negotiability pf bonds and coupons 1076 685. Essentials of negotia,bility ' . . 1078 686. Limitations on negotiability 1079 687. References between bonds, coupons and mortgages . . 1080 688. Alteration of the numbers of bonds 1081 689. Maturity of bonds 1083 690. Coupons as negotiable instruments 1083 691. Formal requisites of negotiability of coupons . . . 1084 692. Coupons likened to checks, drafts, bills and notes . . 1085 693. Coupons as instruments sui generis . , . . . 1086 694. Receivers' certificates 1087 TABLE OF CONTENTS VOLUME 11. XI CHAPTER XXXV. UNSECURED CEEDITOES. Page. 695. Introductory 1090 696. Of the forum 1091 697. Time of bringing suit and time of contracting debt . . 1093 698. Parties plaintiff 1093 699. The same subject continued 1095 700. Parties defendant 1096 701. The same subject continued . ' 1097 702. The corporation as a party defendant 1098 703. Statutory liability — (a) Parties plaintiff .... 1099 704. (b) Parties defendant 1100 705. Effect of transfer of shares — (a) The transferrer's liability thereafter .1103 706. (b) The transferrer's statutory liability .... 1106 707. (c) The transferee's common-law liability .... 1108 708. (d) The transferee's statutory liability 1109 709. (e) Purchasers at sales of forfeited stock .... 1113 710. Proceedings against members of voluntary associations . 1113 711. Remedies at law and in equity 1113 712. Bills in equity ......... 1115 713. Mandamus to compel calls 1116 714. Calls by courts of equity 1117, 715. Whether unsecured creditors may procure appointment of a receiver . . . ... . . . . . 1118 716. Powers of receivers and assignees 1119 717. The same subject continued ...... 1131 718. Remiedy when a receiver has been appointed in prior pro- ceedings . • . ,, . 1123 719. The decree in suits in equity . . . . . . 1134 720. Garnishment , 1125 731. Whether the remedy in equity is exclusive . , . . 1137 723. Actions at law . . . . . ' . . . . 1138 733. Interest and costs . . . . . . . .1130 724. Evidence — Bill of discovery ...... 1130 CHAPTER XXXVI. SHAREHOLDEES' DEFENSES TO CREDITORS' BILLS. Page. 725. Introductory 1133 726. Members precluded from questioning judgment against the company 1135 737. Set-off and counter-claim 1 136 728. Buying up claims to set-off , . 1139 729. Payment to another creditor 1140 730. Release by creditors . .' 1143 731. Nul ^ieZ corporation 1145 732. Illegal issue of stock 1146 xu TABLE OF CONTEKTS — VOLUME H. § 733. Fraud in procuring subscription . , 734. Conditions unfulfilled . ;^' 735, Forfeiture and cancellation of stock 736. Estoppel 737. Limitation . . . Page. 1147 1148 1151 1153 1154 is vested CHAPTER SXXVII. MOBTGAGES, BONDS AND COUPONS. 788. Introductory 739. Power to mortgage 740. UUra vires mortgages . . 741. What amounts to a mortgage 743. Formal requisites of mortgages 743. In whom the power to mortgage . 744. Of the shareholder's consent 745. Priorities .... 746. Liens superior to the mortgage 747. The same subject continued — Receivers' '748. What is covered by a corporate mortgage 749. Whether the mortgage covers fixtures 750. Of future-acquired property 751. Mortgages of Income . 75,3. Recording mortgages . 753. Mortgage. bonds ... 754. Registration of bonds . 755. Bonds convertible into stock 756. Validity of bonds issued below par 757. Coupons certificates 1156 lib7 1159 1161 116S 1164 1165 1166 1168 1171 1173 li74 1176 1177 1179 1181 1183 1183 1184 1186 CHAPTER XXXVIIL ENTRY AND FOBECLOSUEE. Page. 758. Introductory 1188 769. Remedy by entry . 1189 760. Mortgage trustees . . . ' . . , , , hqo 761, Trustees as receivers , , ijgi 763. Remedy by foreclosure . . . , . . .1193 763. i^uasi-TpvibUc corporations 1192 764. Jurisdiction II94 765. Parties 1196 766. Holders of dififerent liens as parties 1197 767.' Intervention 1198 768. Foreclosure by bondholders ...... 1300 769. Respective rights of majority and minority bondholders . 1301 , 770. Foreclosure for interest alone I8O3 771. Actions upon coupons 1304 773. Receivers in foreclosure proceedings 1205 TABLE OF CONTENTS — VOLUME II. XUl Page. § 773. Defenses 1207 774. The decree of foreclosure . 1308 775. Binding effect of the decree 1209 776. Redemption' 1211 777. The sale 1213 CHAPTER XXZIX. DISSOLUTION AND KEOEGANIZATION. § 778. Introductory 779. Statutory provisions respecting dissolution 780. Dissolution by lapse of time 781. Dissolution by the voluntary act of tiie corporation — Sur- render 783. Dissolution by court of equity — (a) At instance of creditors 783. (b) At instance of shareholders 784. , (c) Grounds for a winding-up order 785. Abatement of actions upon dissolution .... 786. Receivers for dissolved corporations 787. Survival of chos6s in action, etc. , 788. Enforcement of creditors' claims after dissolution 789. Distribiition of assets among shareholders .... 790; Reversion and escheat of property to grantor and to the State 791. Reorganization 793. Method of effecting reorganization — Statutory regulations 793. Obligations and rights of the parties to the reorganization agreement 794. The same subject continued 'ido. Transmission of property rights and franchises 796. Liability of the new company . . ; 797. The same subject continued 1214 1315 1216 1817 1220 1223 1223 1324 1326 1236 1237 1329 1330 1331 1334 1335 1237 1239 1241 1343 CHAPTER XL. TAXATION OP CORPORATIONS, Sj 798. Introductory 799. Franchise tax 800. Property tax 801. Franchise and property taxes distinguished 803. Taxation of capital stock — (a) In general . 803. (b) Less property exempt from taxatioti 804. (c) Less property otherwise taxed 805. (d) Less the company's debts 806. Taxation of securities and loans .. 807. Taxation of business, earnings, or. dividends-— ,eral ....... 808. (b) Gross receipts 809. So likewise the officers of a transfer company, whose articles of incorpo- ration em'power it "to engage in the general freight and transfer business, and such other business as may not be in- consistent therewith," have no power to sign its name to a contract of suretyship for the purpose of guarantying the credit of a third part}', nor have they power subsequently to sign a letter purporting to assume the payment of the amount stipulated in such contract. Both instruments are illegal as to such corporation; and, hemg ultra vires, it can not be held liable upon them.'/ A manager can not generally aiccept bills and bind his company.* But where the treasurer of a corpo- ration has for a number of years, with the knowledge and consent of his principal, signed and indorsed business paper in its name, the corporation is estopped to deny the treas- 1 National P^k Bank v. German- stood that the company recta v.ed the American Mutual Warehousing & proceeds or the direct benefit ; and it Security Co., (N. Y. 1889) 33 N. E. was lield, that the insurance com- Bep. 567. , pany had no power to indorse an 2 In assumpsit by a bank against a accommodation note for a third lifeinsurancecompany.onitsindorse- party; and even if it had, the facts ment of a note, it appeared that the gave W., as its president, no implied company was chartered with no un- authority to sign its name for such usual powers; that the note, in- purpose, ^tna Bank v. Charter dorsed in its name by W., its presi- Oak Life Ins. Co., 50 Conn. 167. dent, was that of a railroad company 3 Lucas v. White Line.Transf. Co. , of which he was also president, and (1887) 70 Iowa, 541. to the credit of which the proceeds * In assumpsit against a corpora- were put on his procuring the note tion, on acceptances by J., as man- discounted at the bank; that W. ager of defendant, there was evidence had, with the assent of the directors that J. was an employee merely, of the insurance company, been the without Express authority to sign or manager of its ifinances, and had accept paper ; that he was a stock- signed and indorsed its paper to a holder in the corporation which large amount as its president ; bufi it drew the acceptances sued on ; that did not appear that he had made a memorandum of the maturity of any use of the company's name, the drafts was, under J.'s directions, with the knowledge of the directors, entered on the books of defendant, which they , considered as binding but that the directors had no knowl- thereon, except where it was under- edge of the memoranduni or ac- § 391.] INCIDENTAL COEPOEATE POWEES. 641 urer's authority to indorse an accommodation note to a pur- chaser for value, who relied upon these transactions as evi- dence of his authority.^ And in an action on an accommodation note indorsed to plaintiff by defendant's treasurer, evideilce that at the time of the indorsement plaintiff was told that it was the defendant's regular indorsement is admissible to show plaintiff's knowledge of the agent's apparent authority to in- dorse.^ And where also a note was executed by defendant's president in his own favor for the accommodation of the company, by him discounted, and the proceeds used for de- fendant's benefit, defendant having retained the benefit of the transaction, was estopped to deny, as against the admin- istratrix of the president, who had paid the note, the authority of the president to execute it.' Although from the form of a. transaction it appeared that an individual was a principal debtor, and a corporation only a surety, yet, the fact being otherwise, and the corporation the ■ principal debtor, it was held that th^'' pledge or appropriation of its bonds upon the debt was not ultra vires, but within its powers.* Finally, it is stated to be a general doctrine of the law, that where a cor- poration has power under any circumstances to issue negoti- able paper, a bona fide holder has a right to presume that it is issued under circumstances which give the requisite authority, and the doctrine is applied to commercial paper made by a corporation for the accommodation of a third per- son when, in the hands of a bona fide holder who has dis- counted it before maturity on the faith of its being business paper.* ceptances; that J. drew notes at a Co., (1888) 56 N, Y. Super. Ct. Eep. bank to meet expenses of defendant ; 316. that the acceptances sued on were ^ Tuscaloosa &o. Co. v. Perry, (1888) for the accommodation of the drawer. 85 Ala. 158. it was held, that defendant was not < Baxter v. Washburn, 8 Lea, 1. bound by such acceptances. Mer- 5 National Bank v. Young, 5 Cent, chants' Nat. Bank v. Detroit &c. Rep. 113 (N. J.), citing Bird v. Dag- Works, (1888) 68 Mich. 630. gett, 97 Mass. 494 ; Monument Nat. . 1 Second Nat. Bank v. Pettier &c. Bank v. Globe Works, 101 Mass. 57 : Co., (1888) 56 N. Y. Super. Ct. Eep. S. C. 3 Am. Eep. 833; Mechanics' 216. Bank Assoc, v. Whitehead Co.^ 35 2 Second Nat. Bank v. Pettier &e. N. Y. 505. 41 642 INClDENl'AL COEtOKATtl P0WES8, [| 392. § 392. Poorer to lend money. — A loan of monM>^ by a cor- poration is not >tdfn'a vires. And particularly it has been held not ultra vires for a trading corporation to lend money to one dealing with it, so as to enable the borrower to carry on the transactions.* And, moreover, any corporation, public or pri- vate, has capacity, if not prohibited, to take a mortgage as security for a debt contracted in furtherance of the objects of its creation.^ But the private corporation chartered by the name of the " State Grange of the Patrons of Hnsbandry of Alabama " has no express grant of power to lend money, and no such power can be implied from the declared purposes and objects for which its charter was granted; on the contrary, such power is excluded by the declaration that the corpora- tion is not created for pecuniary' profit.' Neither does a pro- vision in the charter of a corporation giving it, a lien upon a stockholder's shares to secure any indebtedness from him to it, authorize the corporation to lend to the stockholder.* If a corporation has power " to hold, acquire and dispose of real and personal property for the uses and purposes of said cor- poration," it has power to acquire, by transfer, title to a note taken in tlie Course of its business, and to sue upon the note.* So, under a statute giving a corporation power to discount non-negotiable notes, and to take, hold, and conve}'^ any prop- erty, real, personal, or mixed, it was held, that it might take and hold city warrants." And a corporation may take a mort- gage, although unable to take the oath required by statute.' A corporation chartered to accumulate a fund^to be lent on real estate security or divided among its members, can lend 1 Holmes v. Willafd, (1889) 53 Hun, ing with it, if in its judgment it 629. Judge Van Brunt here says : thinks it for the benefit of its busi- " "We have not been referred to any ness so to do." authority or principle under which 2 state v. Rice, (1880) 65 Ala. 83. such a transaction can be held ultra » Chambers v. Falkner, 65 Ala. 448. vires of a corporation, particularly * Webster v. Howe Machine Co., a trading' corporation which has the (ISS?) 54 Conn. 394. right to exercise such mercantile 5 Wayland University v. Boorman, powers as may be convenient and 58 Wis. 657. hecessary for the successful trans- 6 AuU Savings Bank v. tiexingtoii, action' of its business, which clearly 74 Mo. 104. gives it the authority to extend mer- '' Lincoln Savings Bank v, Ewing cantile facilities to the persons deal- C1883) 13 Lea, 598. § 392.] INCIDENTAL OOEPOBATE FOWEES. 643 money tb its members and take deeds of trust on realty as se- curity, and sell and assign such contracts of loans.i And gen- erally a mortgage to a life insurance company securing a note given in consideration of a loan of the company's funds is valid.^ A party who has given a mortgage to a corporation' from which he has received a loan is estopped to deny, in a suit to fore- close, that it had authority to make the loan.' So where the charter of a company provides that its surplus funds shall be invested in mortgages on real estate in 'New York, or in cer- tain classes of bonds, it is not competent for one who in an- other State has obtained a loan on personal security, or his s.urety, to sfet up in defense the want of power in the company to make the loan.* And even where a. trust company, under its charter, had authority to invest only in such secui!"ities as were authorized thereby, it was held that it might enforce, payment of an unauthorized loan.' "Where, however, a di- rector, while indebted to his bank for an amount greater than seventy-five per cent, of the stock held by him, obtained a loan for a further amount, giving his note therefor, guaran- tied by another person, the charter of the bank prohibiting ■ its lending to a director more than seventy-five per cent, of th« amount of his stock, it was held that the note was void, ana could be enfproed neither against the director nor the guarantor.^ But a corporation by its charter prohibited from lending money at a rate of interest exceeding the legal rate, may lend money in another State at a rate of interest which, although legal there, is higher than the legal rate in the State of its incorporation.'' 1 Detweiler v. Breckenkamp, 83 * New York Mut. Life^ Ins. Co. v. Mo. 45. Wilcox, 8 Biss. C. Ct, 203. 2 ■Washington Bank v. Continental ^ Davis Sewing Machine Co. v. Life Ins. Co., 41 Ohio St. 1. Though Best, 30 Hun, (N. Y.) 638. the life insurance company's charter * Workingmen's Banking Co. v. ■ provided that its " capital stock and Rautenberg, 103 111. 460; s. C. 42 funds shall be invested either in Am. Rep. 36 ; Dickey and Craig, JJ. , loans upon bonds and mortgages dissenting. upon rii si estate . . . or in loans ^ United States Mortgage Co. v. upon . . . IJnited States stocks Sperry, 24 Fed. Rep; 838. ' Of. Reiffl and bonds." v. Bakken, 36 Minn. 333, and Gaffl- spancoast v. Travelers' Ins. Co., ble u. Central R. & B. Co. of Georgia, 79Ind. 173. (1888) 80 Ga. 595; s. c. 13 Am. St. Rep. 276i 380, as to foreign usury laws. 644 INOroENTAL OOEPOEATE POWERS. [§ 393, § 393. Power to hold the stock of other companies. — As a general rule a private corporation can not subscribe to the stock of another corporation the business of which is entirely different from its own.^ A purchase by a corporation of stock in another corporation is not, however, necessarily void.^ There is a presumption that the purchase of the stock of an- other company was necessary to the purposes of the corpora- tion purchasing.' And there is no presumption that a corpo- ration is incapable of purchasing and holding shares of the stock of another corporation, it not appearing under what cir- cumstances it was acquired or held.* A corporation may in- vest in the stock of other corporations, as well as in any other funds, provided it be done lona fide, and with no sinister or unlawful purpose, and there be nothing in its charter, or in the nature of its business, that forbids it.' But, though a rail- road corporation may take the stock of another railroad cor- poration by way of security for a debt, it has no right to in- vest its corporate funds in the purchase of such stock. Such an investment is ultra vire'd} Where one corporation makes advances to another, taking as collateral mortgage bonds of the latter,* which it is unable to redeem, defaulting in the pay- . 1 Talraage v. Pell, 7 N. Y. 328 ; was, under all the circumstances, a IVanklln Co. v. Lewiston Bank, 68 necessary or reasonable means of Me. 43 ; Mechanics' Bank «7. Meridian carrying out the object for which Agency, 24 Conn. 159; Beach on the corporation was created, or one Railways, § 80. In Pennsylvania which under the statute it might ac- corporations are forbidden by stat- complish. It must be said at once, ute to use their funds in the purchase that where the purchase of stock in of any stock in other corporations, or one corporation by another amounts to hold the same, except as coUat- to an engaging in a business other era! security for a prior indebted- than that authorized by its charter, ness. 1 Brightley's Pa. Digest, 843, such purchase is ultra vires; and § 30. And similar statutes are to be this is so, not because' the purchase found in other States. Tenn. Code, is stock, but, because the business is (1884) § 3496; Ind. Rev. Stat, (1881) outside the scope of its charter." §8858; Colo. Gen. Stat, (1883) p. 183, SRyan v. Leavenworth, 31 Kan. § 10, and p. 189,' § 35. ' ^ 365. 2Hill «. Nisbet, (1884)100Ind. 341. * Evans v. Bailey, (1884) 66 Oal. "Whether the purphase of stock in 113. one corporation by another is ultra ' Booth v. Robinson, 55 Md. 419. vires or not, must depend upon the ' Milbank v. New York, Lake Erie purpose for which the purchase was &o. R. Co. 64 How. Pr, 30, made, and whether such purchase § 394.] INCIDENTAL COKPOEATB POWERS. 645 ment of the interest, and thereafter such corporation makes further advances secured by bonds and stock of the latter cor- poration,, the transaction is not within the prohibition of the code of West Virginia forbidding one corporation to subscribe for or purchase stock, bonds, or securities of another corpora- tion except in payment of a l)ona fi^e debt.' In this case it was held that a railway company may lawfully make advances of money or supplies to another railway corporation to enable it to complete its line when the latter is to operate as a natural feeder to the former, taking the bonds or stock of the latter as collateral security. In New York it is enacted that any railroad company, created under and by the laws of that State or of any adjoining State, may subscribe for, take and hold the stock of union depot companies created under that act, in such amounts as- the directors of the subscribing company may, from time to time, deem best for its interests.^ It has even been held that the issue of stoclc for the purchase of other telegraph companies is lawful.' § 394. The same subject continued.— But the greater weight of authority is that a corporation can not, unless au- thorized by statute, subscribe to or hold the capital stock of another.* Thus a railway company can not subscribe for stock in another railway, without obtaining express legislative au- thority.^ A railway corporation is not authorized in the gen- eral railroad law of Michigan to acquire the stock and fran- 1 Taylor County v. Baltimore &o. Pearcev. Madison &c.R. Co., 21 How. E. Co., (1888) 35 Fed. Rep. 161. 441; Mutual &c. Assoc, v. Merid- ? N. Y. Laws of 1882, oh. 273, § 21. ian &c. Co., 24 Conn. 159; Franklin 3 Williams v. Western Union Tele- Co. v. Lewiston Sav. Bk., 68 Me. 43; graph Co., 48 N. Y. Super. Ct. Rep. Central E. Co. v. Collins, 40 Ga. 582; 349. Arnoux, J., dissenting. Sumner v. Marcy, 3 Wood. & M. ^ Valley Ry. Co. v. Lake Erie Iron 105. The principal case cites besides, Co., (1888) 46 Ohio St. 44. In the Central R. Co.. v. Pennsylvania R. case iQrst cited in the last section this Co., 31 N. J. Eq. 475. was admitted in terms, the court say- ^Central R. Co. v. Collins, 40 Ga. ing, " the proposition is broadly 582; Hazelhurst v. Savannah &c. R. stated in many cases, that one cor- Co. , 43 Ga. 13, 57 ; Central R. Co. v. poration can not, without express Pennsylvania R. Co., 31 iN. J. Eq. statutory authority, become the 475, 494; Elkins v. Camden &c. R. owner of any portion ot the stock of Co., 36 N. J. Eq. 5; Beach on Rail- another corporation," and cites: ways, § 81; Salomons v. Laing, 13 INCIDENTAL COEPOEATE POWEE8, [§ 394. ©hises of another completed company, with the intention of itself exercising those franchises; and, in the absence of statu- tory authority, the power does not exist at common law.^ Thus a corporation having the right to mine, in organizing another corporation for mining purposes, or in dealing in the stock of such corporation, acts beyond, the scope of its powers.* A company filing its certificate under the same law under which gas companies operate, stating its objects ta be to make and supply gas and to purchase and hold the stock of other gas companies, has no power thereunder to so hold sueh stock, the object being to control such companies and stifie compe- tition throughout a large city.' So a corporation formed for the purpose of furnishing a city with electric light, and claim- ing the exclusive privilege thereof, after its stock has been purchased by the president of the gas and water company of the city for the purpose of destroying competition, is not entitled to the aid of a court i, of equity in restraining a rival company from infringing its 'exclusive privilege.* And a Beav, 339 ; Maunsell v. Midland to a comparatively small part of the public. Every one of' the public having occasion to send materials, implements, or machinery for min- ing purposes into, or to obtain ores from, the several mining tracts ad- jacent to the location of this road, may use this railroad for that pur- pose, and of right may require the company to serve him in that respect ; and that is the test which determines ■whether the use is public. Nor will any motive of personal gain which may have influenced the projectors in undertaking the work take from it its public character. ... A par- ticular improvement, palpably for private advantage only, will not be- come a public use because of the theoretical right of the public to use it. But where the franchise 'is in its nature a public franchise, as ^he transportation of freight is, and the object promoted is one that concerns the public interests, as the develop- ment of the mining resources of a State does, the improvement is es- sentially a public benefit and advan- tage ; and if there be no restriction on the right- of the public to use it, and no inability to use it, except such as arises f rom'the circumstances, the court, in determining whether the improvement is such a public use as that the right of condemna- tion shall extend to it, will not scan closely the number of individuals immediately profited by it. Indeed, it would not be possible to indicate the number of persons, or define the area of the limits, to which the ben- efit of such an improvement may extend." 1 Colorado Eastern Ry. Co. v. Union Pac. Ry. Co., (1890) 7 Ry. & Corp. L. J. 373. 2 Colorado Eastern By. Co. v. Union Pac. By, Co., (1890) 7 Ry. & Corp. L. J. 373. 3 Jw re New York &c. By. Co., 35 Hun, 330;s. e. 99N. Y. 13. 654 mOIDENTAL OOEPOEATE POWERS. [j§ 398.- doffiain.i Statutes authorizing an exercise of the right of emi- nent domain are to be strictly construed.^ But where the pro- visions of a statute, relative to several roads changing their locations in order to meet in a union depot, can only be effect- uated by one of the companies taking land, the authority to do so must be regarded as conferred by the statute.' Al- though the power of eminent domain may not have been expressly delegated to a corporation, yet if the enterprise which it is organized to conduct appears, from its charter and the circumstances of the case, to be of a public' nature, the power is deemed to have been granted by implication, and quo warranto proceedings will not lie against it for the exer- cise thereof.* Thus where a railwuy company is organized' under a valid charter, and is shown to have done corporate acts under it, this is sufficient to establish a 'prima facie' right to take property by eminent domain, and this prima faqie right can not be successfully assailed in a mere collateral proceed- ing.^ Proof that the petitioner is a corporation defaoto \t all the law requires in this class of cases. Evidence, although it may be slight, of corporate acts done by petitioner, is accepted as sufficient. Thus where it appears that an engineer has been appointed, the line of the proposed road has been located, and other steps taken towards the building of the road, these are corporate acts sufficient to show that the petitioner is a cor- poration de facto.^ § 398. What corporations may have the power. — Only those corporations intending to devote their works to public 1 Chicago (feW. I. R. Co. ■». Illinois United States, 83 Pa. St. 389; and Central E. Co., 113 111. 156. see Kier v. Boyd, 60 Pa. St. 34. 2 Nichols r. City of Bridgeport, 33 sMass. St. 1871, ch. 348; Provi- Conn. 189; s. C. 60 Am. Dec. 636; dence & W. R. Co. ■». Norwich & W. Bird V. Wilmington &c. R. 'Co., 8 R. Co., 138 Mass. 277. Rich. Eq. 46; s. c. 64 Am. Deo. 739; « Colorado Eastern Ry. Co. «. Bensleyu.MountainLake Water Co., Union Pac. Ry. Co., (1890)7 Ry. & 13 Colo. 306 ; s. c. 73 Am. Dec. 575, Corp. L. J. 873 ; Chicago &c. R. Co. and notes; Lance's Appeal, 55 Pa. V. Chicago &o. R. Co., 112 111. 601. St. 16; S. 0. 63 Am. Dea 722, and 5 Chicago &c. R. Co. v. Chicagd note; Prather v. Jefferaonville &c. &c. R. Co., 112 111. 601. R. R. 63 Ind. 37; Darlington v. ^ Ward u. Railroad Co., 119 111. 287, § 898.] INCIDENTAL OOEFOBaTE POWEES. 655 use can obtain or exercise this power.' The principles involved in determining what companies are entitled to exercise the 1 Beekman v. Saratoga &c. R. Co., (1831) 3 Paige Ch. 73. Walworth, Chancellor, summed up the matter clearly and fully : " The constitution of the United States does not come in question in such cases. It is ad- mitted that the complainant held the land in fee ; and probably under a title derived from the crown, to the rights of which the people have now succeeded. A law declaring the grant from the crown void, and divesting his title on that ground, would impair the obligation of the contract. But it was no part of the contract between the crown and its grantees or their assigns, that the property should not be taken for public use, upon paying a fair com- pensation therefor, whenever the public interest or necessities required that it should be so taken. All sep- arate interests of individuals in prop- erty are held of the government under this tacit agreement or implied reservation. Notwithstanding the grant to individuals, the eminent domain, the highest and most exact idea of property, remains in the government, or in the aggregate body of the people in their sovereign capacity ; and they have a right to resume the possession of the prop- erty, in the manner directed by the constitution and laws Of the State, whenever the public interest requires it. This right of resumption may be exercised not only when the safety, but also where the interest or even the expediency of the State is concerned ; as where the land of the individual is wanted for a road, canal or other public improvement. The only restriction upon this power, in cases where the public or the in- habitants of any particular sfection of the State have an interest in the contemplated improvement as citi- zens merely, is that the property shall not be taken for the public use without just compensation to the owner, and in the mode prescribed by law. The right of eminent do- main does not, hcsyever, imply a right in the sovereign power to take the property of one citizen and trans- fer it to another, even for a full com- pensation, where the public interest will be in no way promoted by such transfer. And' if the legislature should attempt thus to transfer the property of one Individual to an- other, where there would be no pre- tence Of benefit to the public by such exchange, it would probably be a violation of the contract by which the land was granted by the govern- ment to the individual or those under whom he claimed title, and repugnant to the constitution of the United States. But if the public in- terest can be in any way promoted by the taking of private property, it must rest in the wisdom of the legis- lature to determine whether the benefit to the public will be of suflB- cient importance to render it expe- dient for them to exercise the right of eminent domain and to authorize an interference with the private rights of individuals for that pur- pose (3 Kent's Com. 340). It is upon this principle that the legislatures of several of the States have authorized the condemnation of the lands of in- dividuals for mill sites, where, from the nature of the country, such mill sites could not be obtained for the accommodation of the inhabitants without overflowing the lands thus condemned. Upon the same princi- ple of public benefit, not only the 656 INCIDENTAL COEPOEATB POWERS. [§398. power are ably expounded in the case cited in the foregoing note. A corporation organized for the purpose of supply- ^- ' / benefit from the improvement than agents of the government, but also individuals and corporate bodies, have been authorized to take private property for the purpose of making public highways, turnpike roads and canals ; of erecting and constructing wharves and basins; of establishing ferries; of draining swamps and marshes; and of bringing water to cities and villages. In all such cases the object of the legislative grant of power, is the public benefit derived from the contemplated improve- ment, whether such improvement is to be effected directly by the agents of the government, or through the medium of corporate bodies, or of individual enterprise. And accord- 'ing to the opinion of Chief Justice Marshall, in the case of Wilson v. The Blackbird Creek Marsh Com- pany, 2 Pet. 251, measures calcu- lated to produce such benefits to the public, though effected through the medium of a private incorporation, are undoubtedly within the powers reserved to the States, provided they, do not. come iti collision with those of the general government. It is objected, however, that a railroad differs from the other public im- provements, and particularly from turnpikes and canals, because trav- ellers can not use it with their own carriages and farmers can not trans- port their produce in their own ve- hicles; that the company, in this case, are under no obligation to ac- commodate the public with transpor- tation; and that they are unlimited in the amount of tolls which they are authorized to take. If the mak- ing of a railroad will enable the traveller to go from one place to an- other without the expense of a car- riage and horses, he derives a greater if he_ was compelled to travel with his own conveyance over a turnpike road at the same.expense. And if a mods of conveyance has been dis- covered by which the farrner can procure his produce to be transported to market at half the expense which it would cost him to carry it there in his own wagon and horses, there is no reason why the public should not enjoy the benefit of the discovery. And if any individual is so unrea- sonable as to refuse to have a rail- road made through his lands, for a fair compensation, the legislature may lawfully appropriate a portion of his property for the public bene- fit, or may authorize an individual or a corporation thus to appropriate it, upon paying a just compensation to the owner of the land for the damage sustained. The objection that the corporation is under no legal obligation to transport produce of passengers upon this road at a reasonable expense, is unfounded in fact. The privilege of making a road and taking tolls thereon is a franchise, as much as the establish- ment of a ferry or a public wharf and 'taking tolls for ,the use of the same. The public had an interest in the use of the railroad, and the ow;n- ers may be prosecuted for the dam- ages sustained, if they refuse to transport an individual, or his prop- erty, without any reasonable excuse, upon being paid the usual rate of fare. The legislature may also, from time to time, regulate the use of the franchise and limit the amount of toll which it shall be lawful to take, in the same manner as they may regu- late the amount of tolls to be taken at a ferry, or for grinding at a mill, § 399.] , INCIDENTAL OOEPORATE P0WEE8. 657 ing the inhabitants of a city with water, may exercise the right of eminent domain for thfe acquisition of land needed as a reservoir.* And a law which authorizes the water com- pany therein named to take, detain, and use the water of a certain pond and all streams tributary thereto, does not re- strict the company to such a taking as will hot interfere with the natural flow of the stream below the pond, nor to a de- tention of the waters in reservoirs outside of the pond, but authorizes it to detain such waters in the pond itself.^ So again, under a law which gave to a city the right to take the waters of a certain pond, the waters flowing into it, and ponds and streams within four miles, and any water rights connected therewith, it has been held that under a condemnation in terms as broad as the language of the statute, all the waters of any stream running into the pond were taken, and an ex- isting right to pollute the waters of such a stream.' In Cali- fornia it has been held that the right of eminent domain can not be exercised in favor of the owners of mining claims, to enable them to obtain water for their own use in working such claims, though the intention may also be tq supply water to others for mining and irrigating purposes.* § 399. The same subject continued. — The best examples of public use, and the most frequent exercise of the power of emi- nent domain, occur in securing means of transportation and intercommunication between different portions of the State.^ Thus railroad companies, being common carriers, their use of property is a public one.* Pipe lines, also have been given the same rights as railroads.' The power of the State to condemn unless they have deprived them- O'Hara «. Lexington &c. R. Co., 1 selves of that power by a legislative Dana,^ S33. contract with the owners of the * Buffalo &c. R. Co. v. Brainerd, 9 road." N. Y. 100; Beekman v. Saratoga &c. iLake Pleasanton Water Co. v. R. Co. , 3 Paige, 45 ; Raleigh &c. R. Contra Costa Water Co., 67 Cal. 659. Co. v. Davis, ^3 Dev. & B. 451 ; Swan 2Ingraham v. Camden &o. Water v. Williams, 3 Mich. 437; Tracy v. Co., (1890) 19 Atlan. Rep. 861. Elizabethtown &c. R.,Co., 80 Ky. 3 Martin v. Gleason, 139 Mass. 183. 359. 4 Lqrenz v. Jacob, 63 Cal. 73. " West Virginia &c. Co. v. Oil Co, , 5 Mills on Em. Dom. § 14; Buffalo 5 W. Va. 383. &c. R. Co. 'v. Ferris, 36 Tex. 588 ; 43 658 INCIDENTAL GOEPOEATE POWEES. [§ 399. land for the use of canal, ferry, turnpike and bridge companies has never been denied.* An act in relation to telegraph oom^ panies, authorizing the condemnation, of the right of way, is constitutional. The use contemplated is a public not a private one." Companies in accepting the benefits of this law, lay themselves under obligation to the public to permit the use of their lines to all persons under reasonable regulations, and this obligation may rest upon implication,' The right of tel- egraph companies to lay lines, etc., is the same in streets of the District of Columbia as over post roads generally, under the law. And when tjie district commissioners have author- ized the construction of an overhead line along a business street with poles at certain intervals, the construction will not be enjoined at the instance of a few store-keepers who consider it a nuisance.* "Where a telegraph company condemns a strip of land on which to place its line, it acquires no fee in the soil; there is no obligation to maintain a fence; the owner of the fee can not be excluded from the strip ; and a strip half a rod in width is not an unreasonable quantity of land to condemn for the purpose.' Telephone lines are entitled to the same privileges upon the same principle." Formerly mills, especially grist mills, were considered of public use so as to justify the exercise of the power of eminent domain in their behalf. But mill corporations can now expect such privileges only in jurisdictions where precedent is toQ strong to be de- parted from. In most cases they will not be granted. The reasons for encouraging mill^s in early times, when capital was small and steam as a motive power had not been discovered, have largely ceased to exist, and there is now no reason for indulging owners of, mills over owners of public groceries, 1 Mills on Em. Dom. § 14, and au- ^Hewett v. Western Union Tele- thorities there cited. graph Co. , 4 Mackey, (D. C.) 424 ; s. c. 2 State V. American & European 54 Am. Rep. 284 ; TJ. S. Act of July Commercial News Co., 43 N. J. L. 24, 1886; U. S. Resolution, March 8, 881 ; Pierce v. Drew, 186 Mass. 75 ; 1863. New Orleans Tel. Co. v. Southern- ^Lockie v. Mutual Union Tele- fel. Co., 53 Ala! 211. graph Co., 113 III. 4OI. 'Stat0 Vi American & European « Irwin v. Telephone Co., 87 La. Commercial News Co., 43 N. J. L. An. 63; Telephone &c. Co. v. Forke, 881. 2 Tex. App. 367. § 400.] INCIDENTAL COEPOEATE POTVEES. 659 hotels or theatres.^ Public draining companies may have the right of eminent domain ; ^ more especially as a swamp may in itself be a nuisanqe, and its reclamation a public benefit.' But a private undertaking will not be favored with this power though the work is done by a corporation formed for purposes of drainage.* Dam and boom companies have been accorded this privilege." § 400. Public property tsiken Iby eminent domain — What property may be taken.— Land already devoted to a public use may be condemned and taken for a more important use. Thus a company authorized to construct a railroad between two points, may occupy any lands of the State on the general route laid down, and it makes no difiference that the location crosses land purchased for the use of a State institution, which will not thereby be materially interfered with.* But under other circumstances it has been held that land already devoted to the public use for a blind asylum could not be so taken.' "When State land is taken, it must be paid for as in the case of an individual proprietor.^ Land within a State and held by the United States, is liable to condemnation, for streets, roads and railroads like th^ lands of a private person.' But here again, if the land is already occupied and used for a pub- 1 Mills on Em. Dom. § 14, and cases 3 Dill. 463 ; Lancaster v. Kennebeck cited ; Jordan u Woodward, 40 Me. Co., 62 Me. 273; Lawler. ii. Baring 317. Boom Co., 56 Me. 443; Cotton v. 2"yVillson V. Blackbird &c. Co., 2 Boom Co., 23 Minn. 373; SchofI v. Pet. 245; Henry v. Thomas, 119 Improvement Co., 57 N. H. 110. Mass. 583; Dingley v. Boston, 100 ^ Indiana Central E. Co, v. State, Mass. 544; Hartwell v. Armstrong, (1852)3 Ind. 431. 19 Barb. 166; Tidewater Co. v. Cos- 'St. Louis &o. R. Co. v. Blind ter, 18 N. J. Eg. 518; Norfleet v. Inst., 43 111. 303. Cromwell, 70 N. C. 634 ; Anderson v. 8 Commonwealth v. Boston E, Co., Kerns Draining Co., 14 Ind. 199; 3 Cush. 25. But in some States a Anderson v. Baker, 98 Ind. 587 ; gift of the land by the State is pre- McQuillan v. Hatton, 42 Ohio St. 202 ; sumed from the authority to enter Cheesbrough v. Commissioners, 37 thereon. Pennsylvania R. Co. v. Olio St. 508. New York &c. E. Co., 33 N. J. Eq. 3 Dingley v. Boston, 100 Mass. 544. 157; Davis v. East Tennessee &c. E. 4 Anderson v. Kerns Draining Co., Co., 1 Sneed, 94. 14 iBd. 199. > 9 Mills on Em. Dom. § 350 ; United 5 Weaver v. Mississippi Boom Co., States v. Railroad Bridge, 6 McLean, 28 Minn. 534 ; Patterson v. Boom Co. , 517. 660 INCIDENTAL COEPOEATE POWEES. [§ 401. lie use, as for a fort, light-house or armory, it can not be taken for an ordinary-local though public use.' A State legislature can authorize the use of the public streets of a municipality by a telephone company as a location for its poles.^ So a street railway may be given right of way along public streets. In several of the American States, however, the constitutions prohibit the passage of any law authorizing the construction of street railways in towns or cities, without the consent of the local authorities.' §401. The same subject continued.— The property of a corporation may be condemned to the use of another under the same power.* The taking of the property of a corpora- tion is not an alteration, modification, or repeal of its charter. It is the enforced purchase of its property.' And of course land which is o^^ned by a railroad company, and which it ex* pects at some future time to use for railroad purposes, but which it has held for several years without using in any way, is subject to condemnation for the right of way of another company.* Mere priority of aequisitiori, or even of occupa- 1 United States u. Chicago, 7. How. Gray, 553'; Boston &c. R. Co. v. 185; United States v. Bailroad Salem &c. R. Co., 2 Gray, 1; Staite Bridge, 6 McLean, 517 ; United States v. Hudson Tunnel Co., 38 N. J. V. Ames, 1 Woodb. & M. 76; Union. 548. Pac. R. Co. V. Burlington &c. R. Co., 6 Colorado Eastern Ry. Co. v. 3 Fed. Rep. 106; Grintner v. Kansas Union Pac. Ry. Co., (1890) 7 Ry. & &ci R. Co., 23 Kan. 642. - Corp. L. J. 373. The court instruct- ■ 2 Irwin V. Great Southern Tele- ively sums the matter up thus: It is phone Co., 37 La. Ann. 63, Manning, next insisted by defendant that the J., dissenting. laud sought to be condemned has 3 Stimson's Am. Stat. Law, (1886) already been appropriated by it to § 476, citing the constitutions of its use' as a public railroad corpora- West "Virginia, Missouri, Texas, tion or at least that it acquired it by Georgia, Alabama, Pennsylvania, II- purchase, with a View to such use linois and Colorado. Or of the elect- and that it is highly probable it will ors. Net). Const., (1875) art. 13, § 2. in the near future become a neces- < Mills on Em. Dom. § 41 ; Trustees sity to its increasing business. Tha V. Salmond, 11 Me, 109; Jefferson- evidence shows that this land is a ville &o. R. Co. V. Dougherty, 40 part of a body of twelve acres which Ind. 83; Illinois Canal v. Chicago was piychased by one MoCuUah &o. R. Co., 14 111. 314; East &c. R. in 1881, for defendant. This wit- Co. V, East Tennessee &o. R. Co., 75 hess stated: "I received my orders Ala. 275. to purchase it from Mr. Egbert, s Mills on Em, Dom, §41; Grand (representative of defendant road.) Junction R. Co. v, Middlesex, 14 He told m6 to go and buy it ; buy it 401,] mOIDENl'AL COEPOEATE POWEES. 661 tioti, gives no exclusive right, except in so far as the condemna- tion trenches upon the greater necessities of the other fran- quick, before the Burlington parties could get it." The Burlington was the Burlington & Missouri Valley- Railroad, about to build into Den- ver, and seeking terminal facilities. Mr. Choate, superintendent of de- fendant road, testified, substantially, that this piece of land was acquired for the reason that the Burlington Railroad was trying to get an en- trance into the eity, and to injure defendant's property, and it was necessary to buy this to keep that road from getting into their yards. He further stated that in his opinion this land would in the near future' become necessary for the use of defendant, for additional turn-outs and switch yards, and that they would have so improved it but for the lack of funds, and it was yet their purpose to so use it. It ap- pears, however, from the evidence, that the only work done upon this piece of land was the construction of some embankments along or across it prior to 1885, and before Mr. Choate took charge as superin- tendent. These embankments have washed away somewhat, and were on grades below that of defendant's railroad track, and not at an eleva- tion at all suitable for switches or turn-outs frorn the main track, No buildings of any sort have ever been constructed upon it, and no other use made of it. Without imputing to the defendant company the selfish and indefensible motive of being actuated in the acquisition of this land by a desire to obstruct the Bur- lington road's access to the Union depot, the very utmost that can be concecied to the defendant is that it lentertained the belief that this piece of ground might become necessary to the full accommodation of its business in the future, and that it expects to so apply it. This is but a prospective dedication, which may or may not ever be made. If the defendant were seeking to condemn this property upon a prospective in- crease of its business, "it should be established beyond reasonable doubt that such increase will occur.'' (Rail- road Co. V. Davis, 43 N. Y. 145.) While not holding defendant to the same rigorous rule as if it were seek- ing to condemn this property, yet " no one can blink so hard as not to see,'' from the evidence as a whole, that the defendant has not for five years done any other act looking to the subjection of this piece of ground to its use ; and if it is held exempt from the exercise of the right 'of eminent domain, it rests for its foundation upon conjecture, or a contingency that no court can say with assurance will ever arise. The evidence shows that this defendant has a large amount of other land, some two hundred and seventy-five acres, in Denver, appurtenant to its line of railroad, a part of which, at least, can be made quite available for any use similar to that for which it claims to hold this. In view of its greater necessity to the petitioner, as already deiuonstrated, I feel con- strained to hold, both on reason and authority.'that this mere prospective use by defendant should yield to the more immediate necessities of the petitioner. Springfield v. Railroad Co., 4 Cush. 63 ! Illinois & M. Canal Co. V. Chicago & R. I. R. Co., 14 111. 814 ; Prospect Park v. Williamson, 91 N. Y. 553 ; Eastern R. Co. v. Boston & M. R. Co., Ill Mass. 125; Grand Rapids, N. & L. S. R. Co. v. Grand 662 INCIDENTAL. COEPOEATE POWEES. [§ 402. chise.^ One company can not, however, condemn part of the property of anotlier for the construction of its road without compensation. The fact that property has been taken for a particular public use does not make it public property for all purposes. And the property rights of .a railroad company in its right of way, are protected by the same restrictions against appropriation by any other company for railroad pur- poses or other public use, as is afforded by the constitution 'and laws in the case of the private property of an individual.^ The corporate franchise and the property, when inseparable, can be taken together, compensation being made for both.' Franchises are held in subordination to the exercise of emi- nent domain, and must yield to its proper exercise. The in- vestiture of the franchise is not absolute. Conditions enter into all contracts, superinduced by the pre-existing and higher authority of the laws of nature, of nations, or of the commu- nity. There is no distinction between corporeal and incorpo- real property, and a franchise is as subject to the power of eminent domain as any other property.^ § 402. Compensatiou for property taken. — An arbitrary schedule of damages to be paid can not be established, but there must be a fair appraisement by an independent tribunal.' Where land is taken by a water company, its fair market Eapids & I. E. Co., 35 Mich. 365 ; S. 0. &o. E. Co. v. Boston &c. E. Co., 36 24 Am. Eep. 545, and note. ' Conn. 196 ; Salem Turnpike v. Syme, 1 East St. L. C. Ey. Co. v. East St. 18 Conn. 451 ; James Eiver Go; v. L. U. Ey. Co., 108 111. 265; Lake S. Thompson, 3 Gratt. 270; Tuckahoe & M. S. Ey. Co. V. Chicago & W. I. Canal Co. v. Tuckahoe E. Co., 11 ; E. Co., 97111. 506. Leigh, 42; Lafayette Plank Ed. v. 2 Grand Eapids &c. E. Co. v. Grand New Albany &c. E. Co., 13 Ind. 90; Eapids &C. E. Co., (1877) 35 Mich. Newcastle &o. E. Co. v. Peru &c. E. 265. • " Co., 3 Ind. 464; Pennsylvania Ei. < 3 West Eiver & Co. ■«. Dix, 6 How. Co.'s Appeal, 93 Pa. St. 150; Lake 507; Crosby v. Hanover, 36 N. H. Shore Ey. u. Chicago &c. E. Co^, 97 404. 111. 506 ; Dtfnlap v. Toledo &c. Ey. f a street railway except hy con- sent of the owners of one-half the value of the abutting prop- erty and also of the local authorities in control of the street on which it is proposed to construct or operate such railroad, ' applies not only to proposed street railroads, but also to con- struction undertEiken by corporations on their existing lines of railroad. Therefore a law authorizing any surface railroad to operate its road by cable or electricity, instead of animal or horse power, on consent of the owners of one-half in value pt' the abutting property, is unconstitutional,- in that it dis- penses with the consent of the local authorities.' Upon the application of a petitioner for permission to make such a change, claiming that it did not seek to construct or opemte a new road, but simply to change the motive power in the oper- ation of a road whibh it had already the right to maintain and opel-iate, it was hel^ that the proposed. change from horse power to cable power involved the building of an absolutely new I'oad subjecting the streets of the city to new burdens, which under its original franchise the petitioner had no right to impose.* Upon a previous application made in order to carry forward the same scheme the court said: " The relator liad then no right to again disturb the surface of the streets, except for necessary repairs and replacing of its ties and rails as occasion might require, for the proper maintenance of its road. That power it had ; no more. It now, however, asserts a legal right to make excavations, not for any of the purposes of its track or road-way, or the foundation of either, but for the purpose of laymg a cable in each track between the pres- iTaggart v. Newport Street Ey. Supp. 833; aflarming s. c. 9 N. Y. Co., (R. I. 1890), 19 Atlan. Rep. 326; Stipp. 686; N. Y. Const, art. iii, § 18; S. 0. 7 Ry. & Corp. L. J. 385. , N. Y. Laws 1889, e. 531, § 12. 2 Peopleu. Newton, (1889; 113 N.Y. * People ». Gilroy, (1890) 9 N. Y. 896. ' > Sapp. 833. 'People V. Gilroy, (1890) 9 N. Y. § 410.] INCIDENTAL bOEPOEATE POWERS. 679 ent rails as motive power for its cars by the agency of steam from stationary engines. A mere statement of tiie proposition should be a sufficient answer to the claim. To open a city street for the construction of a surface railroad track or its reparation, and to open that street for the introduction of a power to operate the road, would seem: %o, be separate and distinct things. In the first, the excavation ends with the con- struction. The material of "the street is replaced, or, in lieu of it, some other substance which restores the surface to it? un- broken condition and usefulness, and leaves all below, the sur- face to such uses as the municipality may require. In- the other case, as the record discloses, the cable requires a con- duit, of mason- work the necessary excaijaftion for which, on a ^Ij-ftight stretpb, of road without curvesj, is six feet wide and ■ from four to five feet deep. Where there is a doubly trapk, there must be, two of these trenches, aiad at intervals of thirty- five feet,along the whole distance they must go still deeper for drainage ;, and where there are curves the width of the exca- vatioii inust be at least from twelve^ to. fifteen; feet. At a cor- ner the fill will be thirty feet in, VKidtb, aftd at the engine- houses,, whence the cable extends to the conduit in the street, it will be. neqessary 1;o excavate the entire street from the en- gifte room out to and beyond the track furthest from, it; None of these things, are required for the Gonstruction of a street Siurface railroad ; uone of them, pertain even to its operatiom. They relate to some act or thing t& be done below the sur- face." » 1 People K NiBwton, (188^ US N. T. 396. CHAPTEE XXL POWERS OF FOREIGN CORPORATIONS. I 411. Introductory, 413. Restrictions. 413. Conditions. 414. Statutory powers. 415. Compliance with statutes. §416. " Doing business," defined. 417. Comity. 418. Citizenship. 419. The same subject continued. 420. Eminent domain. § 411. Introductory.— {Corporations of one State hsive no absolute right to transact business in other States.) /They de- pend for such right and power upon the comity of Statesr) H'hat comity may be extended and assent granted upon such Q terms and conditions as the States may see proper to impose/) They may exclude a foreign corporation from, the privilege of transacting business altogethejv* They may restrict its business to particular localities, or they may exact security, By requir- ing deposits, or otherwise, for the performance of its contracts with their citizens, and impose sucli taxation as is warranto^ by their own constitutions.* It is well settled that corporations of one State may exercise their faculties in another only so far, and on such terms and to such extent, as may be permittjed by the latter. The question is always one of legislative intent, and not of legislative power or legal possibility.^ Accoi'dingly a corporation created by one State can transact business in an-' other only with the consent, express or implied, of the latter. The existence of a corporation in a foreign jurisdiction is recognized, not by^right, but of grace.' In other words, the right of a corporation formed in one State to exercise its cor- I Paul V. Virginia, 8 Wall, 168. 31 N. J. L. 531 ; s. C. 86 Am. Deo. 226 ; 8 Railroad Co, v, Harris, 13 Wall. People v. Fire Assoc, 93 N. Y. 311 ; 82; poyle v. Continental Ins. Co., 94 Western &o. Co. v. Mayer, 38 Ohio XT. S. 535 ; Morawetz on "Corpora- St. 521 ; Bank of Augusta «. Earle, 18 tions, §513. Pet. 519; Lafayette Ins. Co. v. 8 Farmers' &c. Co. v. Harrah, 47 French, 18 How, 404 ; Paul v. Vir- Ind. 336; Home Ins. Co, «. Davis, ginia, 8 Wall. 168; Liverpool Ins. 29 Mich. 238; Erie Ry. Co. v. State, Co. v. Massachusetts, 10 Wall, 566. § 411-J POWEES OF FOEEIGN COEPOEATIOKS, 681 porate powers in another State is dependent upon the will of the latter.* The comity between the States in allowing for- eign corporations to make and enforce contracts therein, is a voluntary act of sovereignty, and will not be extended by a State when cpntrary to its policy or prejudicial to its inter- ests.* In accordance with these principles, a State has power to exclude from its territory corpo,rations chartered by other States, and the motive of such expulsion can not be inquired into.' A foreign corporation can not be permitted to do busi- ness that is not allowed by the laws thereof.* A distinc- tion maybe made between companies of different States of the union and those of foreign countries. Therefore under been regarded in New York as a mutual company. The amendment provides that the company is author- ized to receive from any number of persons subscriptions payable in cash, and give therefor receipts bear- ing interest, which receipt shall set forth that they are given for money received in adva,nce for premiums, that the amounts thereof are lia- ble for the expenses and losses of the company, that the receipts shall be received by the company only in payment for premiums of insur- ance, and that the company may commence business on the mut- ual plan when the whole amount subscribed and paid in cash shall 1 Commonwealth v. Milton, (1851) 13 B. Mon. 312; s. C. 54 Am. Dec. 533; Erie Ey. v. State, (1864) 31 N. J. 631; S. C. 86 Am. Dec. 336; Ducat V. City of Chicago, (1868) 48 111. 173; S. C. 95 Am. Deo, 539; Phoenix Ins. Co. V. Commonwealth, (1868) 5 Bush, 68; S. c. 96 Am. Dec. 331. 2 Ducat V. City of Chicago, (1868) 48 111. 173; s. 0, 95 Am. Dec. 539. 3 Morawetz on Corporations, § 971, (3nd ed.); People v. Fire Assoc, 98 N. Y. 311 ; Western &c. Co. v. Mayer, 28 Ohio St. 531 ; Doyle v. Continen- tal Ins. Co,, 94 U. S. 535. * The laws of Illinois provide for the organization of only two kinds of fire insurance companies, — joint- jstock companies and companies or- reach $300,000. The amendment does not, however, provide that the persons thus subscribing or lending money to the company, ostensibly f(5r insurance, should take policies of insurance the premiums on which should equal the amount lent or subscribed to the company. And it is held that the company can not, ' on this plan, be said to be a cor- poration for insurance, organized on the mutual plan, as contemplated by the laws of Illinois, and therefore is not entitled to a foreign insurance :company'B license to do business in that State. ... ganized on the mutual plan, A fire insurance company, incorporated under the laws of another State, must show itself one of these two kinds before it is entitled to a license to do business in Illinois. Mutual Fire Ins. Co. v. Surgett, (1887) 120 111. 36. This case more at large was as follows : The Mutual Fire Insur- ance Company was organized under the laws of New York as a joint- stock company, with suflacient capi- tal, to entitle it to do business in this State, but its charter was afterwards amended by law, since which it has 682 POWERS OF FOBEIGlf COEPOEATIONS. [§ 412. a statute ^equiping insurance companies, as a condition of doing business intfhe State^to make a certain deposit with, the Michigan State treasurer, or with certain nanaed officers ol the Staite where the company is " organized," a British or other foreign company can not be considered as organized in an- other State in which it is merely licensed to do business so as to meet the requirements of the statute by a deposit; made in such other State.^, § 413. Restrictions. — A State may in its discretion require a foreign corporation to comply with certain prescribed formalities, to pay taxes, licenses, and to assume obligations that may be required of it, as a condition precedent to its right to transact business within its jurisdiction.^ Further- more, it is clear that a State has, power to discriminate against foreign corporations desiring to transact business within its territory, and it has been expressly decided both by the State and federal courts that a State has the right to impose upon corporations chartered by other States a tax or burden for the privilege of transacting their business therein, although no such) burdens are imposed upon like corporations chartered by its own legislatare.' A State may impose upon foreign cor- porations the same burdens in the way of license £ees» taxes and the like,, that its corporations have to bear as a condition of their doing business in other jurisdictions.* Accordingly lEjBiployers' &e. Co.. v. GoaiiBJs- ». Fire Assoe,, 92 N. Y. 311; Western sioner,, (18S7) 64 Mieh. 614; Mich. &c. Co. v. Mayer, 28 Ohio St. 531; Lawsl8ai,.p..?,'r9. Fire, Dept v. Helfenstein, 1-6 Wis. ^Netley v.. CJark Gardner &c. Co^, 136; St. Glair «l Goxj 106 U, S. 350. 4 Col. 869 ; Goldemi for- 2 Morgan v. White, (1885) 101 Ind. eign corporation can not, by pur- 413; Ind. Rev, Stat. 1881, g§ 3033, chasing the charter of a mining 303.8. company, vesting the title to lands ' Beard v. Union & American Pub- iu the corporate name thereof, and lishing Co., (1884) 71 Ala. 60. procuring the issue to itself, 1)f the *Hynes v. Briggs, (1889) 41 Fed. stock of such mining company, be- Rep. 468; s. C. 7 Ry, & Corp, L. J. come the owner of lands in the State 388. which it is not specially authorized 44 690 POWERS OF FOEEIGN COEPOEATIONS. [§41T. State, within the law regulating foreign corporations.* The prosecution or defense of an action is not the doing of busi- ness in the State, within the meaning of siich acts.^ § 41 7. Comity. — Foreign corporations are, however, by the comity of nations permitted to make contracts in other States and to establish agencies and carry on business there, unless they are excluded from so doing, or unless such permission is against the policy or interest of such States.'! And generally corporations may enter into contracts outside of the State in which they are formed.* But, of course, comity can not ex- tend to the point of granting to a foreign corporation priv- ileges which its charter does not permit it to exerci^j^ A corporation organized for the purpose of supplying cities with water, though not especially authorized to do business outside the State, has, by inference from its object, the right so to do." So a corporation may hold and deal in land in another State.' Especially may it acquire land in another State in satisfactiou of a debt due to it.^ And it may buy at an execution sale ou ■1 Kilgore v. Smith, (1888) 133 Pa. St. 48. 3 Christian t). American &c. Co., ( A.la. 1890) 7 So. Eep. 437. ■■* Blair v. Perpetual Ins. Co., 10 Mo. 559; s. 0. 47 Am. Dec. 129; Williams v. Creswell, 51 Miss. 817; Newbury &c. Co. v. Weare, 27 Ohio St. 343 ; Ohio &c., Co. v. Merchants' &c. Co., 11 Humph. 7; s. c. 53 Am. Deo. 743; Alward v. Holmes, (1883) 10 Abb. N. C. 96. i Miller v. Ewer, (1847) 37 Me. 509; S. 0. 46 Am. Dec. 619; Blair v. Per- petual Ins. Co.,- (1847) 10 Mo. 559; s. C. 47 Am. Dec. 129. In the Maine case it was said : " If the artificial being called the Bluehill Granite. Company may be considered as hav- ing existence and active life in this State by proof of its acts within her does not imply its existence or pres- ence there. ' It may also contract without those limits. Being within them, it may, acting per se, by vote transmitted elsewhere, propose a contract or accept one previously offered. And it may, by an agent or agents duly constituted, act and con- tract beyond those linuts. But it can neither exist, nor act per se, without them, except by the exist- ence of its officers or agents duly elected or appointed within them." 5 Aild in applying for privileges it must show that it has power to exer- cise them. Diamond Match Co. v. Powers, (1884) 51 Mich. 145. « Dodge V. Council Bluffs, 57 Iowa, 560. ' Though doing ncbusiness in the State where it was organized. New limits, it will still be true that it can Hampshire Land Co. «. Tilton, (1884) not have existence without her lim- 19 Fed. Ecp. 73. its and of course can not make choice ^ Columbus Buggy Co. w, Graves of officers there. It may maintain (1884) 108 111. 459, a, 'suit without those limits, but that § 418.] POWERS OP FOEEIGK COEPOEATtONa. 691 judgraents in its favor.^ And it has been decided that a mort- gage on Illinois lands taken by the United States Mortgage Compan}', a for^eign corporation created for the business of lend- ing money, is valid ; the general incorporation law of Illinois providing'that no foreign or domestic corporation estal^lished for profit sh^U purchase or hold real estate in the State, not preventing corporations from taking mortgages on real estate as security. The' provision that foreign corporations doing business in the State shall have no greater powers than cor- porations of like character organized under the general laws of the State does not prevent the mortgage company from doing business in Illinois, because, although no provision is made by Illinois laws under which companies can be formed for the purpose of lending money, it is not to be inferred from that fact, nor from the language of the incorporation law,— pro- viding that " corporations may be formed, in the manner pro- vided by this act, for any lawful purpose, except banking, in- surance, real estate brokerage, the operation of railroads, and the business of loaning money," — that corporations sho'uld not be formed there for the business of lending money .^ The federal law prohibiting Territorial legislatures from authoriz- ing the organization of corporations except under general laws, does not preclude a corporation organized under a special charter granted by a State from doing business in a Territory.' § 41 8. Citizenship.-^ A corporation dwells only in the State of its creation and canTiot migrate therefrom.* As a cor- poration exists only in contemplation of law, and by force of law, it can have no legal existence beyond the State or sovereignty by which it is created.' It does not, by purchas- ing and operating property in another State under enabling 1 Elston V. Piggott, (1884) 98Ind. 14. Co,, (1863) 29 Ind. 492; s. C, 83 Am, 2 Stevens v. Pratt, (1882) lOr 111, Dec. 329; County of Allegheny u, 206, Walker, J., dissenting. Cleveland &c. R. Co,, (1865) 51 Pa. swells V. Northern Pacific Ry, St, 228; s. c. 88 Am. r)ec, 579; Bal- Co., 23 Fed. Rep, 469; U, S, Rev, tiuiore &c, R, Co. V. Glenn, (1868) Stat, g 1889, ' 38 Md, 287; 9. C. 92 Am, Deo. 688; 4 Clarke v. Bank of Mississippi, Phoenix Ins, Co, t", Commonv^ealth, (1850) 10 Ark. 516; s, C. 52 Am. Dec. (1868) 5 Bush, 68; s. C, 96 Am, Dec, 248 ; Ohio &c, Co. v. Mesrchants' &c, 381. Co,, (1850) 11 Humph, 1 ; s, C. 53 Am. » Reece v. Newport News &o, Co., Dec, 743; Aspinwall v. Ohio &c, R. (1889) 32 W, Va, 164, 692 fOWERS OF FOEEIGN COEPOEATIONS. , [§ 418, acts of that State, become a domestic .corporation thereinj) But where a railroad corporation chartered in Connecticut bought the franchises and property of a railroad corporation created under the laws of Connecticut and Khode Island, and the Ehode Island legislature ratified the sale and authorized the former company to exercise the rights thus acquired, it was held that the company thus became the successor of the former company, and a Ehode Island corporation.^ And where a coirporation organized in Alabama obtained an act from the Mississippi legislature authorizing it to establish one or more departments under the same name in that State, but not until citizens of that State had subscribed for a certain part of cap- ital stock, when it should be regarded as a home company, and have all the privileges of such companies, this act was not a mere license for the original corporation to do business in Mississippi, but created a new corporation.' So, a corpora- tion formed by consolidation of corporations of two States, legislation of both States authorizing the consolidation, is a corporation of each State.* And, conversely, a corporation, by the same name, may be chartered by two States, clothed 1 Wilkinson v. Delaware, Lacka- gia. Morgan v. East Tennessee &c. wana &o. E. Co., 33 Fed. Rep. 353. E. Co., 4 Woods C. Ct. 523. And So a Texas law, recognizing the ex- a railroad company incorporated in istence of a eorpopation organized Maryland to build a road there under Kansas law, and conferring which afterwards obtained a special on it within Texas the same rights* charter in Delaware to extend its and powers as were granted it by roadih that State, but did nothing Kansas, withjn its territory, but not und€r that act, was held not to have purporting to create a new corporate become a Delaware corporation, body, is merely an enabling act, Philadelphia &c. E. Co. v. Kent and does not make it a corpora- County R. Co., 5 Del. 137. tion or citizen of Texas. Missouri ^ Clarke v. Barnarci, 108 U. S. 436. &c. Ey. Co. V. Texas &c. Ey. Co., ^ Grangers', Life & Health Ins. Co. 4 Woods C. Ct. 860. And the Geor- v. Kamper, 73 Ala. 335. gia charter of the Selma, Eome & * Burgers. Grand Eapid8& Indiana Dalston Eailroad, section 6, em- E E. Co., (1885) 33 Fed. Eep. 561; powering the company to lease or Colglazier v. Louisville, New Albany sell its property within Georgia to &c. Ey. Coi, (1885) 33 Fed. Eep. 568; any railroad company authorized by State v. Chicago, B. & Q. R, Co. , law of another State to purchase it, (18S8) 35 Neb. 156; State v, Missouri said purchaser to have "all the Pao. R. Co., (1888)35 Neb. 164; State rights and privileges of this com- V: Chicago, St. P. M. & O. R. Co., pany," does not thereupon make (1888) 25 Neb. 165. the purchaser a corporation of Geor- § 419.] POWEES 01- FOEEIGN COEPOEATIONS. 693 with the same powers, and intended to accomplish the same objects, and exercise the same powers and duties in both States, but it will be two distinct, corporations,-*- one in each State, — with only such corporate powers in each State as are conferred by its crefition in that State.^^For jurisdictional purposes a corporation is a citizen of the State creating it, or within whose jurisdiction it has its domicile.^^ So, a corpora- tion is a citizen in the sense the term is used in that portion of the constitution conferring jurisdiction on the United States courts in cases between citizens of different States^ A foreign corporation, with an agent and office for the transaction of business in another State, has a legal residence where such office and agent are.* A complaint alleging that "the plaint- iff is, and at the times hereinafter stated was, a banking asso- ciation created by and organized under the laws of the State of New York, with its ^ban king-house located, and principally transacting business, at the city of New York," sufficiently shows that plaintiff is a domestic corporation.^ § 4 1 9. The sanae subject continued.— /it has been uniformly held that a corporation is not a citizen within the clause of the constitution declaring that the citizens of each State shall be entitled to all privileges and immunities of the citizens of the several States.^ The privileges secured tp corporations are 1 Reece v. Newport News &o. Co., Co. v. Whitton, 13 Wall. 270; Gaines (1889) 33 W. Va. 164. v. Fuentes, 3 Otto, 10 ; Ins. Co. v. 2 See 16 Alb. L. J. 344, article by Morse, 20 Wall. 445. S. T. Spear, considering the citizen- ^ Ducat v. City of Chicago, (1868) ship ot corporations in relation to suits 48111. 173; s. C. 95 Am. Dec. 539. in the, federal courts, and discussing ■• Harding v. Chicago & Alton R. the following cases concurring in the Co., (1885) 80 Mb. 659. doctrine in the text: Bank of Au- •' And therefoi-e complies with Code gusta t-. Earle, 13 Pet. 519; Paul Civil Proc. N. Y. § 1775, requiring a V. Virginia, 8 Wall. 168; Bank of complaint by a 'corporation to state United States v. Deveaux, 5 Cranch, whether it is a domestic or foreign 61; Hope Ins. Co. v. Boardman, 5 corporation, etc. Columbia Bank d. Cranch, 57; Louisville (Sko. R. Co. v. Jackson, (1889)4 N. Y. Sup], 433. Leston, 3 How. 497; Marshall v. Bal- « Ducat v. City of Chicago, (1868; timore &c. R. Co., 16 How. 314; 48 111. 173; s. C. 05 Am. Dec. 52d:'- Covington &c. Co. v. Shepherd, 80 Cincinnati &c. Co. ju. Rosenthal, 55 How. 327 ; Ohio &c. R. Co. v. 111. 85 ; s. o. 8 An. Rep. 630 ; Wheeler, 1 Black, 286 ; Cowles v. Farmers' &c. Co. v. Harrah, 47 Ind. Mercer Co., 7 Wall. 118; Railway 826; Phcenix Ins. Co. v. Common- 694 I'OWEES OF FOEEIGN COEPOEATIONS. [§ 420, in the nature of special privileges, which, conferred upon in- dividuals in their own State, are not secured.to them in other States by this constitutional provision.' To the same purport, it has been said that the right of individuals to be a corporation and to act in a corporate capacity is a pecViliar privilege, the creation of local law, and can not by>the mere force of that law exist or be exercis0d beyond the territorial ■ limits of the State which enacts it.^ A reason for this rule is, that other- wise the policy, interest, and desires of the weaker States might be overwhelmed by their more potent neighbors. A favorate policy of Kentucky and some other States against tying up lands in perpetuity might be revolutionized by the powers and capacities of the corporations of neighboring States, to purchase and perpetually hold real estate; and this is but one of the numerous phases in which her cherished policy on various subjects might be overwhelmed by the corporations of her neighbors, if they weTe to be regarded as citizens and within the protection of' the constitution and thereby beyond the discriminating control of the State legislature.' ' § 420. Eminent domain. — A foreign corporation can not condemn lands under the general railroad law of a State. It wealth, 5 Bush, 68; Home Ins. Co. u. wise specially provided) from in- ■ I)a vis, 29 Mich. 338 ; People u. Imlay, dividual liability. . . Having no 20 Barb. 68 ; Western &c. Co. v. absolute right of recoghitipn in other Mayer, 28 Ohio St. 521; Wheeden u. States, but depending for such recog- Camden &c. Co., 2 Phila. 23 ; Bank of nition and the enforcement of its con- Augusta i;. Earle, 13 Pet. 519. Taney, tracts upon their assent, it follows, as C. J., in delivering the .opinion of ,a matter of course, that such assent the court in Lafayette InS. Co. v. may be granted upon such terms and French, 18 How. 404, said : " No one, conditions as those States may think we presume, ever supposed that an proper to impose. They may ex- artificial being, created by an act of elude the foreign corporation en^ incorporation, could be a citizen of tirely. They may restrict Its busi- a State in the sense In which that ness to particular localities, or they word is used in the constitution of may exact such security for the per- the United States." formance of its contracts with their 1 Paul I'. Virginia, 8 Wall. 181, citizens as in the^r judgment will where Field, J., discussing this sub- best promote the public interest, ject, said: " Now, a grant of corpo- The whole matter rests in their dis- rate existence is a grant of special cretion." privileges to the corporators, en- 2 Commonwealth v. Milton, 13 B. abling them to act for certain desig- lllon. 212; s. 0. 54 Am. Deo. 582. natedpurposesa^asingleiudividual, sphoenix Ins. Co. v. Common- and exempting them (unless other- wealth, (1868) 5 Bush, 68. § 420.] POWERS OF FOEEIGN COEPOEATIONS. 695 must obtain special legislative authority .^ Some constitutions provide that no foreign corporation may condemn land nor appropriate private property.^ So foreign railways can not exercise the right of eminent domain nor acquire a right of way nor hold real estate in Nebraska until duly incorporated by that State.' Under that constitution a foreign corpora- tion, which has not become a corporation under th6 laws of IS'ebraska, can not avail itself df the services of another cor- poration to acquire a right of way, and it may be enjoined from appropriating property for that purpose.* In that State only railroad companies organized under its laws can condemn a right of way across lands owned by the State.' In New York foreign corporations, however, are entitled to the benefit of an act which provides for the acquisition of additional lands found to be necessary for the operation of a railway subse- quently to its construction.'^ And in a late case it is held that they are entitled to the benefit of an act vyhich provides that " if at any time after the construction of any railroad operated by steam, by any company now existing, or that may hereafter be created, such company, or any company owning, operating, or leasing such railroad, or any mortgagee in posses- sion of such railroad, or person appointed as receiver of any such railroad, and in the possession of and operating the same, shall require, for the purposes of its incorporation, or for the purpose of running or operating any railroad so owned, any real estate in addition to what has been already required for the purposes of such railroad, the necessary lands may be acquired in the manner therein provided.^ 1 Holbert v. St. Louis &c. R. Co., ^In re Marks, (1887) 6 N. Y. Supl. 45 Iowa, 33. 105, construing N. Y. Laws of 1850, - Ark. Const. (1874) art. xii, g 11. ch. 140, as amended by N. Y. Laws 3 Neb. Const, (1875) art. xi, § 8. of 1881, ch. 649. *Koeuig V. Chicago,^ B. & Q. B. ''In re Marks, (1889) 6 N. Y. Supl. Co., (Neb. 1889) 43 N. W. Rep. 423. 105; N. Y. Laws of 1881, ch. 619, sstateu. Scott, (Neb. 1888) 36 N.W. amending N. Y. Act of April 2, Rep. 131; Comp. Stat. Neb. 1887, 1850. ch. 73, art. 11. CHAPTER XXII. ULTRA VIRES ACTS, § 421. Introductory. 422. Ultra vires as a defense. 423. Defense by a corporation which has received benefits. 424. Defense against a corporation which has given benefits. 425. Ultra vires contracts exe- cuted. 426. Ultra vires contracts exec- utory. ,427. Acts ultra vires because of a particular purpose. 428. Liability of corporations for ultra vires torts. 429. The right to restrain ultra vires acts. § 430. A single stockholder may re- strain ultra vires acts. 431. Acquiescence in ultra vires acts. 438. Ratification of ultra vires acts. 438. Estoppel if ultra vires con- tract executed. 434. Right of the State in case 'jt ultra vires acts. 435. Forfeiture of franchise. 436. The remedies for ultra vires ' acts. 437. When the minority can not have recourse to the courts. 438. Illegal corporate acts. 439. The same subject continued. § 421. Introductory. — Ultra vires is a term used to ex- press the action of a corporation which is beyond the powers conferred upon it by its charter, or the statutes under which it is instituted ; and the strict doctrine relating to it is, that all acts of the corporation not within the powers conferred upon it or reasonably implied from its charter, are null and void.i The English doctrine may be summarized thus: Cor- porations are created for fixed purposes, with certain specified powers. It js deemed to be public polic\' to keep them strictly within the bounds so defined. There is an implied prohibi- tion to go beyond such limits,, and all persons dealing with a corporation are charged with iiotice of the limitations upon its authority. Therefore, every contract of a corporation, or its agents, which exceeds the powers of the corporation vio- lates this implied prohibition, and contravenes such public pol- icy, and is illegal and void. Consequently, as to such contracts there can be no ratification or estoppel,^ This doctrine has W. Field in 13 Am. L. Rev. 632. 2 J. 0. Harper in 12 Cent. L. J. 386 ; East Anglian R. Co. v. Eastern Coun- ties R. Co., 11 C. B. 775; McGregor V. Deal &c. R. Co., 18 Q. B. , 618; § 421.] ULTEA VIBES ACTS. 697 been sustained by the' argument that corporations being ideal and imaginary beings,' created by the*sovereign authority, should be subject to and limited by the will of the sovereign, as expressed in the charters or acts creating them, or the pro- visions of the general laws under which they are instituted ; that every person dealing with them is presumed to have no- tice of the public acts and general laws, and hence of the f owers conferred thereby upon them; and that, having such notice, no one should be allowed to enforce the performance of a contract made with them in relation to matters not au- thorized by such acts or general laws. It has been further maintained that as by creating a private corporation a part of the sovereign power of the State has been conferred upon it, and that as the contract thereby entered into between the State and the corporation is irrevocable, any power exercised on the part of the corporation, beyond what has been con- ferredj.should be ignored by courts, as it would be an infringe^ men t upon the remaining or reserved rights of the State, which might otherwise be indefinitely extended, and the recognition of such acts would therefore be dangerous to State sovereignty and against public policy.' Again it has been said that a recognition of ultra vires acts, as valid, would be against pub- lic policy, for the reason that the assets and income of the corporation might be expended in unauthorized undertakings and speculations, and the corporation thereby prevented from performing its part of the contract with the State; and be- cause the non-assenting stockholders and creditors of the cor- poration might thereby suffer loss, against which they should be protected.^ But it is submitted that, by th.e weight of mod- ern authority, there is no implied prohibition of, nor is public policy violated by, corporate acts simply ultra vires, and therefore they are^ not illegal, but merely voidable.* Leake, Contracts, 583 ; 5 Am. L. Rev. trine many cases announcing ex- 373, 283, article by O. W. Holmes, Jr. captions to the strict rule of ultra 1 G. W. Field in 13 Am. L, Eev. vires. He further says the case of 633. Franklin Co. v. Lewiston Sav. Bank, 2 G. W. Field in 13 Am. L. Rev. 68 Me. 43, decided in 1877, adheres 633. to the old rule, and is the only recent 3 This is the conclusion of a writer, case that he has been able to find Mr. J. C. Harper, in 13 Cent. L. J. that does, and that upon the facts 387, who cites in support of the doc- was an extreme case. There the 698 ULTEA VIRES ACTS. [§ 422. ■ § 422. Ultra vires as a defense. — When acts of corpora- tions are spoken of as vltra vires, it is not intended that they are unlawful or even such as the corporation can not perform, but merely those which are not within the powers conferred upon the corporation by the act of its creation, and are in vio- lation of the trust reposed in the managing board of the share- holders, that the affairs shall be managed and the funds applied solely for carrying out the objects for which the corpotation was created.' Whether a contract as originally made was ultra vires is not a very important inquiry upon suit brought, upon the contract. If it was, the State under whose sover- eignty the corporation dwells and by whose act and favor it exists, has no interest in arresting its action fojf the recovery of moneys equitably due upo.n a contract fully executed and 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 ^ direct interest in reclaiming and restoring 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 corporatjon. But the plea of ultra vires should not as a general rule prevail, whether interposed for or against a, corporation, when it would not advance jus- tice, but on the contrary would accomplish a legal wrong.^ ^In view of the inroad of exceptions to the rule, it has become practically true that the theory of ultra vires based upon the limited capacities of corporations has given way to a more modern one which rests the doctrine on illegality.' In the trustees of a savings society, al- Suit being brought upon the notes ' though at the time having no funds the supreme court held the contract for investment, subscribed for fifty ultra vires and therefore illegal and thousand dollars of stock in a man- void. ufacturing company. The trustees i Whitney Arms Co. v. Bailow, not.being able to pay, their treasurer, (1875) 63 N. Y. 68; Earl of Shafts- vclio held the same position in the bury v. North Staffordshire R, Co. manufacturing company also, paid L. R. 1 Eq. 593; Taylor v. Chichester tlie money to himself as treasurer of &c. R. Co., L. R. 2 Exch. 356 ■ Bissell the latter, and took therefor the notes v. Michigan &c. R. Co., 33 li'. Y. 358. of the savings society, secured by the 2 Whitney Arms Co. v. Barlow stock, virhich was issued directly to (1875) 63 N. Y, 69, per Allen J. the manufacturing company as col- 3 G. H. Wald in 6 Cent. L. J. 5 lateral. The savings society received citing Att'y-Gen. «. Great Northern no benefit whatever from the stock. By, Co., 6 Jur. N. S. 1006 ; McGregor §•423.] ULTEA VIEES ACTS. 699 absence of proof showing a want of authority on the part of a corporation in mailing a contract, or of a violation of its charter, a claim that the contract is idtra vires will not be up- held ; every presumption is to the contrary.^ The defense that bonds issued by a corporation are invalid under a constitution prohibitirig the increase of the bonded debt of a corporation without the consent of the majority of the stockholders in value, should be specially pleaded.^ § 423. Defense by a corporation which has received hene- fits — A corporation can not retain property acquired under a transaction ultra vires, and at the same time repudiate its obligations under the same transaction.' And if a contract made by it is not in violation of the terms of the charter of the corporation or of any statute prohibiting it, the corpora- tion is liable on the contract.* And a corporation', like a nat- ural person, may be compelled to account for benefits received from a transaction, even if it be one not enforceable by rea- V. Dover &c. Ey. Co., 18 Q. B. 618; Taylor Vi Chichester &c. Ey. Co.,' L. E. 3 Ex. 356. It is thus stated by Blackburn, J., in Eiche v. Ashbury Ey. Car Co., L. E. 9 Exch. 244, at p. 363 : " I do not entertain any doubt that if on the true construction of any statute creating a corporation, it ap- pears to be the intention of the leg- islature, express or implied, that the corporation shall not enter into a particular contract, every couj't, vyhether of law or equit3', is bound to treat a contract entered into, con- trary to the enactment, as illegal and therefore wlioUy void, and can not be ratified. The test then is, not, did the legislature expressly enable the corporation to make the particu- lar contract, but has it prohibited it, and every act not prohibited by the statute stands." 1 Eider Life Eaft Co. v. Eoach, 97 N. Y. 378. 2 German Sav. Inst. v. Jacoby, (Mo. 1889) 11 8. W. 3ep. 250; Mo. Const, art. xii, § 8^ 3 Memphis & Little Eock E. Co. V. Dow,' 19 Fed. Eep. 388 ; National Bank v. Matthews, 98 U. S. 631; Stewart v. National Bank, ^ 2 Abb. U. S. 424; Whitney Arms Co. v,' Barlow, 63 N. Y. 62 ; s. o. 2b Am. Eep. 504 ; Bissell v. Michigan &c. E. Co., 23 N. Y. 264; Tracy v. Talmage, 14 N. Y. 163; s.-c. 67 Am. Dec. 133; Parish V. Wheeler, 23 N. Y.,494; De GrafiE V. American &c. Co., 21 N. Y. 124; _ Taylor County v. Baltimore &c. ' E. bo., (188S) 25 Fed. Eep. 161 ; s. C. 4 Ey. & Corp. L. J. 10; Louisville &c. Ey. Co. V. Flannagan, (1888) 113 Ind. 488; Durst u. Gale, 83 III. 136; Hertzo v. San Francisco, 33 Cal. 134; Connecticut Eiver Savings Bank v. Fiske, 60 N. H. 363; Eastern Coun- ties Ey. Co. v. Hawkes, 5 H. L. Cas. 381. Cf. Illinois Central E. Co. v. Thompson, 116 111. 159. estate Board of Agriculture v. Citizens' Street Ey. Co., 47 Ind. 407; s. c. 17 Am. Eep. 703; Hitchcock v, Galveston, 96 U. S. 311. TOO ULTEA VIEES ACTS. [§ 423. son of the fact that its agents had no right to make It, it being neither illegal nor immoral.' To relieve injustice and hard- ship the doctrine seems to have been introduced, that although a contract may be void as ultra vires, still a recovery may be had of a corporation for money or property received on such void contraction an implied agreement to return the property or other consideration received, or pay for the same so much as it may reasonably be worth ; ^ and that this is so even where no fraud was intended or committed.' In other words when a corporation has repudiated a contract as ultra vires it must restore to the other party whatever it may have obtained from him;* unless the thing acquired has becoine so blended with the corporate property that it can not be rendered up with- out infringing the rights of persons who have never assented to the contract nor in any way acquiesced in it.' Under the rule in equity that a corporation is accountable for benefits which it has received under a transaction ultra vires, it was held that the court, while setting aside as ultra vi¥es a con- tract, should compel an account for the benefit had, and this, not on the basis of bare reimbursement, but of a fair com- iManville v. Belden Mining Co., 110; Silver Lake Bank tj. North, 4 17 Fed. Eep. 425. Johns. Ch. 376; Tracy v. Talmadge, ^"Vltra Vires," by G. W. Field, 14 N. Y. 162; Leavitt v. Palmer, 3 13 Am. Rev. 647 ; Allegheny City v. N. Y. 19 ; Gas Co. v. San Francisco, Clarkan, 14 Pa. St. 81 ; Dill v. Ware- 9 Cal. 453. ham, 7 Meto. 438 ; McCraoken a;. San 'Sherman Center Town Go. v. Francisco, 16 Cal. 571 ; East London Morris, (1890) S3 Pac. Eep. 569. &o. Ky. Co. w Bailey; 4 Bing. 283; *Brice's DZirayires, (2nd Eng. ed.) Mayor v. Charlton, 6 M. & W. 815; 769; Newcastle Northern R. Co. v. Paine v. Strand Union, 8 Q. B. 336 ; Simpson, 23 Fed. Rep. 314 ; Hum- CurtiS V. Leavitt, 15 N. Y. 9; Moss phrey u Patrons' Mercantile Assoc, ti, Rossie Min. Co., 5 Hill, 137; Peter- 50 Iowa, 607; White v. Franklin son V. Mayor, 17 N. Y. 449; Hooker Bank, 33 Pick. 181; In re Cork &o. V. Eagle Bank, 30 N. Y. 83; Steam- Ey. Co., L. R. 4 Ch. 748; Ernest v. boat Co. V. MoCutcheon, 13 Pa. St. NichoUs, 6 H. L. Gas. 401 ; Purge's 13 ; Hague v. City of Philadelphia, and Stock's Case, L. R. 5 Ch. 309 ; 48 Pa. St. 527; City of Baltimore v. Hawken v. Bourne, 8 Mees. & W. Reynolds, 20 Md. 1; Eichard v. War- 703; Hall v. Swansea, 5 Q. B. 526- ren Co., 31 Md. 381 ; Zoetman v. San Hawtayne v. Bourne, 7 Mees. & W. Francisco, 20 Cal. 96 ; Argenti v. 595 ; Ex parte Cropper, 1 De Gex City of San Francisco, 16 Cal. 255; M. & G. 147. Steam Nav. Co. «. Wood, 17 Barb. ^ Taylor on Corporations, § 810, cit- 378; Bank v. Hammond, 1 Rich. 281; ing Hill's Case, JL. R. 9 Eq. 605. Southern &c. Co. v. Louier, 5 Fla. §424] ULTEA-TIEES ACTS. ' 701 pensation, which should include the paj^ment of interest also.^ Even a religious society, formed under the auspices of the Koraan Catholic church, which incorporates a mutual life in- surance scheme as one of its features, can not defend against a suit on one of its policies upon the plea of ultra vires, when it has been receiving the assessments on the policy.'^ The established rule in Alabama, however, is that a corpora- tion is not estopped, by reason of having received the benefits of a contract which is ultra vires, from setting up its invalid- ity in defense of a suit brought to enforce it.' § 424. Defense against a corporation which has given benefits. — It is now very well settled that a corporation can not avail itself of the defense of ultj'a vires when the contract itself has been, in good faith, fully performed by the other party, and the corporation has had the full benefit of the con- tract. If an action can not be brought directly upon the agreement, either equity will grant relief or an action in some other form will prevail. The same rule holds conversely. If the other party has had the benefit of a contract fully per- formed 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 fact, the principle of the last section has been repeatedly held to be as applicable to the other contracting party as to the corporation.' A purchaser 1 Newcastle Northern R. Co. v, into the contract of sale in this case Simpson, 23 Fed. Eep. 214. and bind the company to perform 2Mott V. Roman Catholic Mut. the obligations assumed, viewed as Protective Soc, (1887) 70 Iowa, 455. a mere question of corporate power, 8 Chewacla Lime Works v. Dis- yet having undertaken to do so, and mukes, (1889) 87 Ala. 344 ; Sherwood having received the full considera- te. Alvis, 83 Ala. 115. tion agreed to be paid by the plaint- * Whitney Arms Co. v. Barlow, iff, and he having fulfilled his en- (1875) 63 N. Y. 70; Ex parte Chip- tire contract, they can not now be pendale, 4 De 6. M. & G. 19 ; In re permitted to set up that excess of National &c. Soc, L. R. 5 Ch. App. authority to excuse them from that 309; In re Cork &c. R. Co., L. R. 4 part of the contract which imposes Ch. App. 748; Fishmongers' Co. «. an obligation upon them. It is very Itobertson, 5 McG. 131. clear that if the plaintiff in this suit * De Graff v. American &c. Co., had been prosecuted upon one of the (1860) 21 N. Y. 134, where the court notes given by him upon the pur- says: " But again, if it be conceded chase, he could not, having accepted that defendants had no right to enter and retaining the good?, have set up 702 ULTRA VIEES ACTS, [§ 424. who acquired by contract and under an agreement to pay for it, the property of a corporation, can not 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 consideration of his engagement to pay money, either in services or property, can not avail himself of the objection that the contract thus fully performed by the corporation was ultra vires, or not within the char- tered privileges and powers. It would be contrary to the first principles of equity to allow such a defense to prevail in an action by the corporation.' 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. But upon the general ground of reason and justice no such answer can be set up. The defendants having had the benefit of the performance by the corporation of the several stipulations into which they have entered, have received the consideration for their own promise; such promise by them is therefore not nudum pac- tum; they never can want to sue the corporation upon the contract in order to enforce the performance of their stipu- lations which have been already voluntarily performed, and as a defense want of power in the Steam Navigation Co. v. Weed, 71 defendants to enter into the con- Barb. 378 ; Leavitt v. Pell, 27 Barb, tract. The same rule of right and 323; Standard Oil Co. v. Shofleld, 16 the same measure of justice will be Abb. N. C. 372; Oil Creek &c. R. exacted in this suit. This principle Co. v. Pennsylvania Transportation has been repeatedly held as appli- Co., 83 Pa. St. 160, where in a suit cable to an individual attempting to between two corporations it was screen himself from liability when said: " We do not think the defend- contracting with a corporation, when ants are in a position to defend upon seeking to escape responsibility on the ground of the illegality of the the plea of ultra vires for acts de- contract. There were mutual cove- liberately done with all usual and nants and mutual advantages; The needful formalities ; and where they defendants had enjoyed the advan- have received the entire benefit they tages such as they were." Chicago contracted for, such a (jefense should &c. Ry. Co. v, Derkes, 1 03 Ind. 520 • no longer be tolerated in our courts." Ehrman v. Union Central &c. Ins. National Bank v. Whitney, 103 U. S. Co., 35 Ohio St. 324. 99; Diamond Mato Farmers' Bank, (1873) 50 N. Y. 396 ; 3 Tracy v. Talmadge, (1856) 14 N. Y. Green' Brice's JJltra Vires, 263, n. 163. e'Bissell v. Michigan &c. E. Co., 4 Thompson v, Lambert, (1876) 44 (1860) 33 N. Y. 258. la. 339; Parish v, Wheelerj 32 N. Y. ^Raih-oad Co. v. Quigley, 21 How. 494. 203. 6 Merchants' Bank v. State Bank, « F. L. Cline in 5 So. L. Rev. 415. (1870) 10 Wall. 604; National Bank § ^29.] ULTEA VIEES ACTS. 709 and applied to various other torts, such as trespass, assault and battery, personal injuries, false representations and fraud.' Therefore a corporation, when sued for a tort, can not de- fend on the ground that the act from which the tort resulted was ultra vires?- Conversely, wheu damage is done to real estate held by a corporation, the party by whose negligence it was caused can not escape responsibility by showing that the corporation was not permitted by its charter to acquire title to the propert}', or that it acquired it for purposes unauthorized by law.' And it has even been held that where a corporation seeks an accounting upon an executed partnership transao- tiffiB, the defendant can Jiot set-up that a partnership trans- action was ultra vires, under the plaintiff's charter.* § 429. The right to restrain ultra vires acts. — The right of a stockholder to restrain the corporation from ultra vires acts is universally recognized. And this right may be exer- cised also by a creditor, either when the corporation is about to do such an act, or when the directors, or other officers or agents, purpose to assume powers not conferred upon the cor- poration.' This is a just and equitable right of the stock- holders. They have a right, by virtue of the contract entered into by and between them and the corporation, to have tl^e 1 MoReady v. ■ Guardians, 9 Serg. v. Curtis, 36 Conn. 456 ; McAleer v. &E. 94; Moore u. Fitchburg E. Co., McMurry, 38 Pa. St. 126; Green's 4 Gray, 465 ;- Railroad Co; v. Derby, Brice's Ultra Vires, 73, 83, 215, 593; 14 How. 468; Etting v. Bank of Kernighan v. Williams, L. R. 6 Eq. United States, 11 Wheat. 59; Na- 328; Atty.-Gen. «. Eastlake, 11 Hare, tional Exchange Co. v. Drew, 3 205; Atty.-Gen. v. Norwich, 35 L. J. Macq. H. L. Cas. 103. Vide infra, Ch. 141 ; Zabriskie v. Cleveland &c. Chapter XXIII. R. Co., 28 How. 881; Memphis v. 2Gruber v. Washington &o. R. Dean, 8 Wall. 64; Bellmont v. Erie Co., 93 N. C. 1. &c. R. Co., 52 Bai-b. 637 ; Bliss v. An- 3 Farmers' Loan & Trust Co. v. derson, 31 Ala. 618 ; Black v. Dela- Green Bay & Minnesota R. Co., 11 ware &o. R. Co., 7 0. E. Green, 130; Biss. C. Ct. 334. S. O. 9 C. E. Green, 455; Zabriskie v. * Standard Oil Co. v. Scofleld, 16 Hackensack &o.' R. Co., 3 C. E. Abb. N. Cas. 372. Green, 180; Balfour u. Earnest, 5 5 3 Eedfield on Railways, § 211; O. B. N. S. 691 ; Mayor «. Groshon, 80 Kean v. Johnson, 1 Stock. (N. J.) 401 ; Ind. 486 ; Coleman v. Eastern &c. R. March V. Easton, 40 N. H. 548; Pratt Co., 10 Beav. 1 ; Solomans v. Laing, V. Pratt, 83 Conn. 446; Durfee v. Old 13 Beav. 839; Fisk v. Chicago &o. Colony &c. E. Co. , 5 Allen, 230 ; Allen 'R, Co. , 53 Barb. 513, 710 ULTEA VIEES ACTS. [§ 429. funds of the corporation appropriated to the objects and pur- poses for which it was instituted, and to dividends arising therefrom. The creditors have also the right to restrain gen- eral speculations and ultra vires acts, as they have become creditors with the knowledge and understanding that the cor- poration was constituted for certain purposes and with certain powers, and it is to be presumed thiat the credit was given with a full knowledge of these ilaatters, and in reliance on the ability of the debtor to meet the obligation based upon such purposes and powers.^ The right of a shareholder to main- tain a bill in equity^ to impeach ultra vires acts extends also to acts of a majority of the stockholders.' As corporate acts are done by directors, or officers who are trustees for the purpose of carrying out the purpose of incorporation, it is the duty of courts of equity to protect stockholders and creditors, by requiring the officers to keep within the limits of corporate powers.' If, then, a corporation makes a contract manifestly 'beyond its powers, a court of chancery on the application of a stockholder, who has not participated or acquiesced in the act, ■will restrain the corporation from carrying out the contract.* But a court of law will sustain no action on such a contract against the corporation.* The courts will of course not sus- , tain a bill in equity against acts not ultra vires and performed with all required formality, unless in case of fraud or oppres- sion.* For a court of equity will not unnecessarily interfere with the internal policy of a corporation.' It has been said that " no case can be found where the general management of corporate property has been subject to the restrictions of judicial powers, unless, indeed, in the case of a clear violation IG. W. FieldinlSAm. L.E6V. 65fl. « Gorman r. Guardians' Sav. Bant, ■2 City of Chicago v. Cameron, 120 4 Mo. App. 180; Macdougalli;. Gardi- 111. 447. . ner, 1 Ch. Div. 13; Pender v. Lush- sSelden, J. in Bissell v. Michigan ington, 1 Ch. Div. 70; Bagshaw v. &c. R. Co., S3 N. Y. 258; Coleman v. Eastern Union Ry. Co., 7 Hare, 114; Eastern &c. E. Co., 10 Beav. 1 ; Foss v. Harbottle, 3 Hare, 495. Cohen y. Wilkinson, 13 Beav. 135; 'Beeeheru. Wells &o. Co., 1 Fed. Solomans f. Laing, 13 Beav. 339. Eep. 276 ; Camblos v. Philadelphia iDavistJ. Old Colony R. Co., 131 &o. E. Co., 4 Brews. 568; Bach v. , Mass. 358; S. Q. 41 Am. Eep. 221. Pacific &c. Co., 13 Abb. Pr. N. S. s Elevator^ Col v.. Memphis & 373; Bloxham v. Metropolitan Ry. Charleston R. Co., (18S7) 85 Tenn. Co., L. R. 8 Ch. 837; Walker v. Mad 703 ; S. c. 4 Am. St. Rep. 798. River &c. Ry. Co., 8 Ohio, 88. § 430.] ULTRA TIRES ACTS. til of express law; or a wide departure from chartered powers."^ The court can not undertake to decide questions of corporate polity merely.^ Nor can it attempt to supply the only pre- requisite to the adoption of any corporate policy — to wit, a majority vote of the stockholders.' This rule is only de- parted from when there are such dissensions in the corporate management as to make it practically impossible to carry on the business,* Where shareholders are deprived of their rights of representation, ultra vires acts may be restrained pending litigation to enforce the right of representation.^ It is uni- versally held that an uninterested person and one not a stock- holder, can not raise the question of ultima vires in an action against the company." Persons not members of a corporation have no cause of action against it for violation of its consti- tution by its officers and members.' § 430. A single stockliolder may restrain ultra vires acts. — As any stockholder may restrain the diversion of cof- porate funds, for any purpose not embraced in the original purposes of the corporation, so no majority, however large, can compel a stockholder to submit to any fundamental change in the business or objects of the company.' A stockholder, by becoming such, contraots with the corporation that he will submit his interest to the direction and control of the proper oflBcers of the company in carrying out the objects and pur- poses for which It was instituted; and the undertaking on the part of the company is, that the objects and purposes of its institution shall not be changed, without at least the unani- iBaehv. Pacific &c. Co., 13 Abb. L. R. 16 Eq. 298; Trade Auxiliary Pr. N, a 373. Co. v. Viokena, L. E. 16 Bq. 303. 2Tusoaloosa Manuf. Co. v. Cox, 68 « Mackintosh v. Flint &o., R. Co., Ala. 11 ; Fountain Ferry &a. Go. v. 34 Fei. Rep. 583. Jewell, 8 B. Man. 140. SNew OrleauB, Mobile &c. E. Co. 8 Tuscaloosa Manuf. Ce. V. Cox, 68 v. Ellerman, (1881) 105 U. S. 166. Ala. Tl; Ramsey v. Erie Ry. Co., 7 'Tomlinson v. Bricklayers' Union, Abb. Pr. N. S. 156; Edwards v. 87 Ind. 308. Shrewsbury &o. Ry. Co., 3 De Gex 8 Clearwater v. Meredith, 1 Wall. & S. 537 ; Bailey v. Birkenhead &o. 25 ; Hartford &c. R. Co. v. Cros- Ry. Co., 13 Bear. 483. well, 5 Hill, 383 ; MeCray u June- ^ Lawrence v. Greenwich &c, Co., tion R. Co., 9 Ind. 358; Winter v. 1 Paige, 587; Featherston V, Cooke, Muscogee R. Co., 11 Ga. 438; Mid- dlesex &c. Co. V, Locke, 8 Mass. 268. .712 ULTRA VIEES ACTS. [§ 430. mous consent of all the stockholders, and that no other re- sponsibilities or hazards shall be imposed on the stockholder, than those that grow out of the original undertaking.* As in- timated, the right to restrain by injunction exists in a stock- holder though every other stockholder may favor the ultra vires aots.^ And this is so even if a majority of the share- holders at a meeting of the company condemn the course ', adopted by the plaintiff.' For it is not within the powfer of the majority to ratify any ultra vires act against the will of a single dissenting shareholder.* In case an action is brought, it may be brought solely on behalf of the plaintiff, or it may be brought as representative of^ others also; and' when the acts complained of are of those having control of a majority of the stock, the company may be made a party defendant.* When an agreement has been made by the president of a railroad, subject to the approval of the directors and stock- holders, to do something which is ultra vires, and the direct- ors have approved it, the court will interfere by injunction upon the application of a single stockholder.' Where the president of a railroad is the gene^ral manager, and constitutes about all there is of the company, a demand upon and" a re- »G. W. Field in 13 Am.. L, Eev. Barclay v. Quicksilver Mining Co., 659. 9 Abb. Pr. N. S. 284; Kean v. John- 2 Hoole V. Great W. E. Co., L. E. 3 son, 9 N. J. Eq. 401 ; Middlesex &c. Ch. App. 263; Menier v. Hooper Tel. E. Co. v. Boston &c. E. Co., 115 Mass. Works, L. E. 9 Ch. App. 350; Bird 347; Eobbins v. Clay, 33 Me. 182; V. Bird &c. Co., L. E. 9 Ch. App, 358; Tippecanoe County v. Lafayette &o. Green's Brice's Ultra. Vires, 593. E. Co., 50 Ind. 85; Ashbury Eailway 'See Beman v. Buflford, 1 Sim. Carriage Co. v. Eishe, L. E. 7 H. L. (N. S.) 550; s. C. 20 L. J. Ch. 537; , 653 ; Lyde w. Eastern Bengal Ey. Co., Winch V. Birkenhead Ey. Co., 16 36 Beav. 10 ; Taylor on Corporations, Jur. 1035 ; Bagshaw v. Eastern TJnion 268. Co., 19 L. J. Ch. 410; Haenu Lon- , *Atwood v. Merryweather, 5 Eq. don & N. W. Ey. Co., 30 L. J. Ch. 464, and note; Menier v. Hooper's 817; Qreat Western Ey. Co. v. Eush- Tel. Works, 9 Ch. App. 350; Mason out, 5 De Gex & S. 290. v. Harris, 11 Ch. Div. 97; 27 Week. 4 Bird V. Bird's Patent &o. Co., 9 Eep. 699 ; Browne & Theobald's Eail- Ch. 358; Abbott v. American &c. way Law, 104 ; Hoole «. Great West- Co., 4 Blatch. 489.; S. C. 33 Barb. 578; ern Ey. Co., 3 Ch, 262; Simpson v. .Adrfance v. Eoome, 52 Bai-b. 899; Westminster &o. Hotel Co., 8 H. L. Taylor v. Earle, 8 Hun, 1 ; Smith v. , Cas,, 712. New York &c. Co. , 18 Abb. Pr. 419 ; . "> Elklns v. Camden & Atlantic E. Brady v. Mayor, 16 How. Pr. 432; Co., 36 N. J. Eq, 5. § 431.J TTLTKA VIEES ACTS. 713 fusal by him is sufficient to entitle the stockholder to bring suit in his own name to have construction bonds of the com- pany, unlawfully issued by the president, declared ultra vires and void.^ And where a court \>l equity would have interfered at the suit of the stockholder, to prevent the unlawful delivery of the bonds by the president to pay the debts of other corpo- rations which he controlled, it will interpose, after there has been such delivery, and cancel the bonds in the hands of hold- ers with notice, and release the trust deed securing them.^ 'I'hus where, in a suit by the stockholders of a railroad com- j)any to have certain of its construction and equipment bonds declared ultra vires, and the deed of trust securing them can- celed, the court found that the president and general manager, without any authority, used the bonds which came into his . hands to pay debts of other corporations of which he had con- trol, and " not in an}' way about the construction, equipment, or operation " of the railroad company, and that the holders of the bonds acquired them with fuU notice of such misappli- cation ; the findings excluded the hypothesis that the corpo- rations whose debts were thus paid might have agreed to construct or equip the road in part, and were sufficient to support a decree declaring the bonds null and void as against the railroad company.' § 431. Acquiescence in ultra Tires acts. — If a stockholder assents to acts ultra vires or although, not originally or ex- pressly assenting, has for an unreasonable time acquiesced and has permitted .them to go unquestioned, so that other parties who have acted upon the faith of them (as, for instance, by making large expenditures of money) would suffer great in- jury from their repudiation, a court of equity will not easily be induced to grant relief at the instance of such a stock- holder.^ The stockholder who seeks to prevent the consum- mation of an ultra vires corporate act, or to avoid it, should be swift to make known his desires and assert his rights 1 City of Chicago v. Cameron, ' City of Chicago v. Cameron, (1887)120111.447. (1887)120111.447. 2 City of Chicago v, Cameron, * Stewart v. Erie &c. Co., 17 Minn, (1887) 120 111. 447. 372. m ULTEA VnJES ACTS. [§ 4^1. through the tribunals appointed for that purpose.' While a majority of the stockholders of a corporation may maintain a bill in equity in behalf of themselves and other stockholders, for fraud, conspiracy, or acts wZjEras vires, against the corpora- tion, its ofiScers, or others who participate therein, the minor- ity stockholders, when they have been injured or damaged by such acts, must act promptly, and not wait an unreasonable tinie. If they postpone, their complaint from seven to fifteen years, they forfeit their right to equitable relief.^ As the stockholders may be presumed to know what is done by their agents, the directors and officers of the corporation, if they neglect to restrain acts which may be tdtra vires, and only after some considerable delaj' make any objection thereto, neither the corporation, directors nor stockholders should be heard to complain that the acts were uitra vires and there- fore void.' More especially is this so when the complainant 1 Thompson v. Lambert, (187^) 44 Iowa, 247; "Watts' Appeal, 78 Pa. St. S70. ^Alexander i-. Searey, (1889) 81 Ga. 536. A delay of three and a half years was held a bar in Peabody v. Flint," 88 Mass. 54, six years in Greg- ory V. Patchett, 33 Beav. 595, seven years in Ashurst's Appeal, 60 Pa. St. 290, and three years \and eight months in Dimpfell v. Ohio &c. E. Co., 110 U. S. 309. 3G. W. Field in 13 Am. L. Rev. 661; Zabriskie v. Cleveland &c. E. Co., (1859) 28 How. 381 ; Gary v. Cleveland &c. R. Co., 29 Bai-b. 39; Argenti v. San Francisco, 16 Cal. 255 ; McClmre v. Manchester &o. E. Co., 13 Gray, 424; Chapman v. Mad Eiver &o. R. Co., (1856) 6 Ohio St. ,137 ; Hale v. Mutual &c. Co., 32 N. H. 297; Eailroad v. Howard, 7 Wall. 413. The in justice of allowing such a plea as a defense to a claim on a contract, in case such stockholders have with knowledge of tlie facts re- ceived the benefits and the fruit of such contract, as where they have received dividends the whole or part of which were derived from such contract, will be apparent. Such action on the part of the stockhold- ers would undoubtedly be treated as an aflSrmance of the ultra vires act, and estijp them from pleading ultra vires as a defense to a claim on such contract, either against them as stockholders, or against the corpora- tion. The remedy of the stockholder or creditor is, as we have seen, ample in the first instance, and they may enjoin an ultra vires act, on the part of the corporation or its directors, or other oflicers or agents ; but if they remain indifferent and passive, and permit a contract ultra vires to be made, and especially where they re- ceive the benefits' of such contract without objection, they should not be permitted to enjoin the corporation from executing the contract on its part. Certainly it would be more consanent with principles of justice and equity to require the stockhold- ers to restrain the officers and agents of a corporation from ultra vires § 432.] ULTEA VIEES ACTS. 715 has stood by and allowed the illegal transaction to be con- summated and has allowed and induced others to become in- terested in the corporation on the supposition that the existing state of things is legal and proper.' Though purchasing, owning and voting stock in one railroad company by another railroad company may be 'ultra vires so far as the public is concerned, still a stockholder who has acquiesced therein for fifteen years and received money from the corporation by reason of the illegal act, is not allowed to raise that question. His acquiescence does not render valid the illegal act, but pre- vents him from taking advantage of its illegality. The public or the State is not thus bound.^ "Where the summary inter- ference of the court is invoked in cases of this nature it mast be invoked promptly. Parties who have lain by and permitted a large expenditure to be made in contravention of the rights for which they contend can not call upon the court for its summary interference.' Because there is an adequate means open both to stockholders and to creditors for preventing the commission of acts in excess of the corporate powers. It is the privilege, if not the duty, of those interested to prevent "ultra vires acts by injunction.^ §432. Katiflcation of ultra vires acts. — A ratification of ultra vires acts is sufiioient, if made with a full knowledge of all the material facts,' to estop the shareholders from after- wards setting up the want of corporate power; and this rule includes not only those having actual knowledge but also One who purposely shuts his eyes to means of information ivithin his own possession and control and ratifies an act de- contracts than to allow them to re- tion to set up such a defense where main indiflEerent and take the bene- they have received the benefits of fits of such contracts, and then allow the acts. G. W. Field in 13 Am. L. the plea o£ ultra vires in defense of Eev. 661. an action on them. The officers and i Terry v. Eagle Lock Co. , 47 Conn, agents of the corporation are the 141, 161. officers and agents of the stockhold- 2 Alexander v. Searcy, (1889) 81 ers, as well as their trustees ; and it Ga. S36. ■would be far more reasonable that ' Houldsworth v, Evans, L. R. 3 they should suffer loss by reason of H. L. 263. ultra vires acts, which they might * G. "W. Field in 13 Am. L. Eev. 660. with due diligence have prevented, 'Kelley V. Newhuryport &c. E. than to allow them or the corpora- Co., (1886) 141 Mass. 498. 719 , ITLTEA VIEES ACTS. [§ 433. liberately, having all the knowledge in respect to it which he cares to have.^ In accordance Avith this rule, a settlement, effected by tfie directors of a railway . company by giving notes for a road built and afterward used, should be regarded as ratified by the company, where for a number of years it has not disputed its liability on the notes, has paid interest on them, has continued to use the road, and has accepted reports which mentioned them amongst the outstanding ohligations.* The stockholders of a corporation having acknowledged the liability of the company for a particular debt, they can not afterwards repudiate it'on the ground that it was in excess of the indebtedness which the corporation was authorized by law to cc^ntract.' A purchase of shares in a railway corpora- tion by one who knows that the company is investing in the stock of railway corporations without the State which created it, operates as an implied recognition of its power to do so.* And where a corporation acted for several years under a contract of consolidation, made mortgages, and sold bonds to lona fide purchasers, both 4t, and its stockholders, were estopped to assert that the contract was ultra vires.' Torts are among the acts that can be ratified by acquiescence in the course of action leading to them, as where a railway corpora- tion, running a steanaboat beyond its powers, is estopped from setting up the defense of ultra vires in an action for an injury sustained through the negligence of an oflBcer of the steam- boat.* §433. Estoppel if ultra vires contract is executed. — A stockholder of a corporation will not be allowed after an un- reasonable time to disturb and rescind a contract made by his corporation, after the same has been fully executed, on the ground of uU7'a vires? If stockholders or creditors permit iKelley v. Newburyport &c. R. *Venner v. Atchison &c. E. Co., Co., (1886) 141 Mass. 499; Combs v. 28 Fed. Rep. 581. Scott,, 12 Allen, 493, 497; Phosphate « Dimpfel v. Ohio & Mississippi Ey. &c. Co. V. Green, L. R. 7 C. P. 43, Co., 9 Biss. C. Ct. 127. 57. 6 Central R. &c. Ca v. Smith, 76 2Kelley v, Newburyport &c. R. Ala. 572; S. o. 52 Am. Rep. 353. Co., (1886) 141 Mass. 496. "Taylor v. South &o. R. Co., 4 8 Poole V, West Point &c. Assoc. 30 Woods, 575. Fed. Rep. 513. §433.] ULTEA VIEES ACTS. T17 a corporation to enter into an ultra vires contract, or, with knowledge that it has done so, accept the benefits thereof Avithout objection, they should not be allowed to object to the contract on the ground that it is ultra vires} For a court of equity may refuse to interfere with a corporation at the instance of a stockholder in respect to an unauthorized, contract which has been fully executed, when if he had ap- plied in season for an order to restrain the execution of it, equity might have felt bound to grant that relief.^ The fact that acts complained of were ultra vires the company does ■not diminish the force and effect of the laches. If stockhold- e.'s lie by, sanctioning, or seeming b}' their silence to sanc- tion, such unwarrantable acts of the company, they will be bound by them. In order to set them aside, they must take timely steps to have them vacated. They can not wait to see if such acts will prove beneficial or not, and thus take their chances on the result. And this same rule holds, as between a minority of the shareholders and the acts of the majority. Supineness in such cases will be construed as acquiescence of the minority in the acts of the majority'.' And so every stock- holder of a corporation' who participates in the fruits of an ultra vires act, is estopped from sotting up the corporation's want of authority to perform it.* In these cases the plaintiff's recovery rests on the circumstance that all the persons that ' would have been entitled to object to the contract allowed him to go on and perform his part thereof under the reason- able assumption of their general acquiescence therein.^ Thus in New Jersey it ha^ been decided, in accordance With these 1 Field on Corp. § 265. which were alleged to be ultra vires, 2 Terry v. Eagle Lock Co., 47 Conn, had taken place. 141, 161. * Branch v. Jessup, 106 U. S. 468; 3 Burgess v. St. Louis County R. Zabriskie v. Cleveland &c. E. Co., Co., (Mo. 1890)7 Ey. & Corp. L. J. 23 How. 381; Taylor v. South & 299. In this case it was said that North Alabama E. Co., 13 Fed. Eep. the fact of the statute of limitations 152; Tyrell v. Cairo &c. E. Co., 7 not having run does not help the Mo. App. 294 ; Peoria &o. E. Co. v. matter. Laches is as good a bar to Thompson, 103 111. 187, the enforcement of a stale claim as "Taylor on Corporations, §§ 279, ever it was. Here eleven years had 280, reviewing Bissell v. Michigan elapsed since a trust deed an^d seven &c. E. Cos., 23 N. Y. 258; Bradley v. years since a compromise under it, Ballard, 55 111. 413 ; s. C. 7 Am. Eep. 656; Durst v. Gale, 83 111. 136. 718 ULTEA VIEES ACTS. [§ 434. principles, that a railway company will be estopped from setting up as a defense to an action for rent, on a lease of a branch road, the plea of wlt/ra vires, when the branch was con- structed upon the company's promise to lease it for a long term of years, and when it has actually operated it for a time without objection.^ § 434. Right of the State in case of ultra Tires acts. — "Wilful assumptions and intentional usurpations of corporate authority or any abuse, misuse., or non-use of its franchises, justifies a proceeding by or in the nature of quo warrcmto, and a judgment of forfeiture of the franchise possessed.^ The misuser or usurpation of any franchises has from the earliest times been corrected by an information and the writ of qito warranto. A franchise being a portion of the royal pre- rogative existing in the hands of a subject, to misuse or usurp this delegated right is a clear infringement in which the sovereign is directly interested. On this ground the rem- edy under consideration is still resorted to.' It is well settled that it is a tacit condition of a grant of incorporation that the grantees shall act up to the end or design for which they were incorporated, and hence through neglect or abuse of its franchises a corporation may forfeit its charter as for condition broken.* It may be affirmed as a general principle that where there has been a misuser or non-user in regard to matters which are of the essence of the contract between the corpora- tion and the State, and the acts or omissions complained of have been repeated and wilful, they constitute a just ground of forfeiture.* Thus if a corporation authorized to do an in- surance business embarks ih a general banking business, a judgment of forfeiture or ouster would be a proper one in any 1 Camden &o. E. Co. v. May's Potomac Co., 8 Pet. 287; Terrett w. Landing &c, R. Co., 48 N. J. 530. Taylor, 9 Cranch, 43. 2 High on Extr. Rem. § 616; State » Peoples. Utica Ins. Co., 15 Johns. V. Wadkins, 15 Ohio St. 114; State 358; State u Milwaukee &a Ry. Co., V. Taylor, 15 Ohio St. ISY; Updegrafl 45 Wis. 579; State v, Barron, 57 N. V. Evans, 47 Pa. St. 103; Hullman H. 498. V, Houoomp, 5 Ohio St. 337 ; Com- * Commonwealth v. Commercial monwealth v. Commercial Bank, Bank, 28 Pa. St. 383. 28 Pa. St. 383; People v. Kingston 5 Commonwealth v. Commercial &c. Co,, 23 Wend. 193; Mumma «. Bank, 28 Pa. St. 383. § 435.] TJLTEA VIHES ACTS. , 719 court having jurisdiction of the matter.' But proceedings can not be maintained by the attorney-general to restrain a cor- poration from doing ultra vires acts which are acquiesced in by all the shareholders and are not injurious to the rights of creditors, unless they be shown to be illegal, that is, in con- travention of some statute, or mala per se or against public policy.^ Such a proceeding has been entef'tained where a railroad was acquiring a monopoly of the coal trade of a cer- tain district.' And it may be resorted to in cases of public nuisance such as affect or endanger the public safety or con- venience and require immediate judicial interposition.* In all other cases the proper proceeding is by quo warranto to oust the corporation from its franchises.' §435. Forfeiture of franchise. — The right of forfeiture for misuser or non-user of its franchises is annexed as an implied condition to theexistence of every corporation, and is reserved to the State, without express mention, in the grant of every charter.* Of course the forfeiture may only be made by the sovereign power.' The question of forfeiture can not be raised in a collateral proceeding.^ So whether a corporation has 1 People" 1!. Utioa Ins. Co., 15 Johns. Gteneral v. Tudor Ice Co., 104 Mass. (N. Y.)358. \ 237; s. c. 6 Am. Rep. 237. 2 Attorney-General v. Tudor Ice ' Attorney-General t). Great North- Co., 104 Mass. 237; s. C. 6 Am. Eep. ern Ry. Co., 1 Dr. & S. 154. 237,, and authorities there reviewed * District- Attorney v. Lynn &c. R. at length; United States v. Union Co., 16 Gray, 342; Attorney-Gen- Pacifio R. Co. ; 98 U. S. 569 ; Attorney- eral *. Canabridge, 16 Gray, 553 ; At- General v. Utica Ins. Co., 2 Johns. torney-Generalu. Boston Wharf Co., Ch. 371, apd authorities there re- 12 Gray, 553; Rowe Granite Co. v. viewed; Attorney-General v. Great Bridge Co., 21 Piot: 344, 347; At- Eastern Ey. Co., 11 Ch. Div. 449; torney-Generali;. Shrewsbury Bridge Attorney-Geperal v. Cockermouth Co., 21 Ch. Div. 752; Browpe & Local Board, 18 Eq. 172; Attorney- Theobald's Ey. Law, 97. General v. Eeynolds, 1 Eq. Cas. Ab. * People v. Utica Ins. Co., 15 Johns. (3d ed.) 131; Browne & Theobald's (N. Y.)358; Attorney-General u Tu- Ry. L. 97. Contra, Hare tJ. London dor Ice Co., 104 Mass. 237; S. C. 6 SCO. Ry. Co., 2 Johns. & H. 80, 111; Am. Rep. 337. Liverpool V. Chorley Water Works «Ferrett v. Taylor, 9 Cranch, 43. Co., 3 De Gex, M. & G. 852, 860; 'Mumma v. Potomac Co., 8 Pet. Ware v. Eegents' Canal Co., 3 De 281 ; Commonwealth v. Union &c. Gex & J. 213, 338, which, however, Co., 5 Mass. 230. are declared mere dicta in Attorney- » Bank of Missouri v. Merchants' Bank, 10 Mo. 123. 720 ULTBA VIEES lOTS. [§ 435. misused or abused its franchise is a question between the State and the corporation, which can not be raised or litigated in an action between the corporation and private parties.^ Thus a plaintiff corporation, having shown no violation of duty to itself, can hot complain of the acts of defendant corporation on the ground of ulira vires. Only the State or defendant's stockholders can maintain an action on that ground.^ An " association, or number of persons," who, in conducting the business Of insurance, profess to limit their liability to the amount of money contributed by each, and assume to give perpetuity to the business by making membership certificates transferable by the assignment of the member or his personal representatives, are " acting as a corporation," so as to au- thorize a judgment of ouster on quo warranto where they are not legally incorporated.' In quowarranto proceedings against a corporation based on informalities and irregularities in its attempt to organize, judgment of ouster was rendered against it; but it was held, notwithstanding, that transactions had in good faith between it and others before the institution of the qtto warranto proceedings, were valid, it having acted as a corporation de facto} The declaration of a forfeiture has been decided not to be in violation of the law forbidding the impairing the obligation of contracts.' When a charter is repealed by the legislature the State need not first, by judicial process, prove a breach of its conditions. In this case 1 Southern Pac. E. Qo. v. Orton, is not void, but passes the title to the (1887) 33 Fed. Rep. 457. The right corporation, and it may hold the to object to the legal capacity of a property subject to the Common- corporation to hold real estate, is wealth's right of escheat. Hickory' vested in the Commonwealth alone. Farm Oil Co. v. Buffalo &c. E. Co., Hickory Farm Oil Co. v. Buffalo &c. 33 Fed. Eep. S3. C/. Commonwealth E. Co., 83 Fed. Eep. 33. Accord- v. New York &c. E. Co., 114 Pa. St, ingly a deed of land to a corporation 340. is valid even though it is prohibited '^ Belcher's &c. Co. v. St. Louis &c. by its charter from holding real es- Co., (1890) 13 S. W. Eep. 833. tate, until the State vacates such SQi-eene v. People, (111.. 1889) 31 deed by a direct proceeding insti- N. E. Eep. 605; 111. Rev. Stat. oh. tuted for that end. Mallett v. Simp- 112. son, 94 N. C. 37 ; S. 0. 55 Am. Eep. * Perun Society v. Cleveland, 43 594. And a conveyance of land to a Ohio St. 481. foreign corporation forbidden by stat- 'Aurora &c. Co. u, Holthpuse, 7 ute to acquire and hold real estate, Ind. 69. § 436.] XJLTEA VIBES ACTS. 121 the onus probandi is on the corporation disputing the validity of the repealing act.' Though a charter is repealed by the meire passage of a statute, judgment of ouster can be obtained only in a court of law.* If a charter contains a condition subsequent in defeasance of the franchises, it may be forfeited on the happening of that condition, but the franchises con- tinue if the State does not choose to take advantage of the breach.' ^436. The remedies for ultra vires acts. — The modern remedies used to correct the usurpation of corporate fran- chises, are by scire facias where ''a corporation, abuses its power, and by quo warranto information where a corporation de facto assumes powers which do not belong to it.* The statutory remedy in Yermont, for forfeiting the franchise of a corporation, is by scire facias in the name of the State, the common law provision being by implication repealed.* Where a foreign insurance company, having received from the State auditor a certificate under the provisions of the law as to insurance companies, was alleged to be offending against the laws of the State by making more than one kind of insur- ance, it -was decided that quo warranto, and not certiorari, was the proper manner of inquiring into such charges.* Courts do not favor this means of redressing the abuse of corporate powers, and will refuse to countenance it where there is other lErie &o. R. Co. v, Casey, 26 Pa. is otherwise acting illegally, " when St. 287. inthe judgment of the superior court 2 People V. Hillsdale &c. Co,, 23 there is no other plain, speedy, and Wend. 254. adequate remedy." Code, ch. 6, tit. 3 Canal Co. v. Railway Co., 4 Gill 20, is designed 'especially to "test & J. 1. • oflScial and corporate rights." Sec- *Commonwealth v. United States tion 3345 provides that a civil action Bank, 3 Ashm. 349. may be brought in the name of the 5 Green v. St. Albans Trust Co., 57 State, inter alia, "against any person Vt. 340; Vt. Rev. Laws, ch. 72, acting as a corporation within this g§ 1327, 1331. . State, without being authorized by 6 State «. Fidelity & Casualty Co., law;" also "against any corpora- (1889) 77 Iowa, 648. The statutory tion doing or omitting acts which provisions are as follows : By Code amount to a forfeiture of their rights Iowa, § 3216, certiorari lies in cases and privileges as a corporation, or where an inferior ofiBcer exercising exercising powers hot conferred by judicial functions is alleged to have law." exceeded his proper jurisdiction, or 46 7-22 ULtBA viftES acitS. [g 436. ample remedy or the abuse is doubtful.' "Where tlie informa- tion is to be filed on the relation of some one, leave of the' court must first be had. But where the proceedings are in- stituted bj"- the attorney-geueral eas officio and without any re- lator, the information is filed as of course, without leave of the court.^ It was the early practice of the courts to grant the application for leave to bring the information almost as a matter of course, but the growing frequency of the proceed- ing induced an examination intothe merits of the applications,, and led to the exercise of a discretion in the premises which gave rise to the now well settled rule, that the granting of these applications rests in the sound discretion of the court.' To entitle one to act as relator, he must have some interest in the ofiice or franchise.* • The mere interest/of a private citizen is not enough to put a private corporation on its defense to th& remedy in question.' Though for private and peculiar injury within its scope, it might lie at the relation of an individual, it would not be granted to dissolve a corporation.^ Informa- , tion in the nature of quo warranto to oust the defendants from acting as a corporation, and to test the fact of their incorpo' ration, should be filed against the individuals; but if the ob- ject is to effect a dissolution of a corporation, or to oust it from some franchise which it is unlawfully exercising, thgn the information is correctly filed against the corporation.' Information in the nature of quo warranto, however, is essen- tially a civil proceeding, and the burden of proof is upon the complainingparty to show that his adversary is illegally in pos- session of ti:ie office.^ But if the proceeding against a corporation is founded on an alleged usurpation of power, and is instituted by the State, and not on the relation of a private person, the 1 State V. Commercial Bank, 10 w.Centerville Bridge Co., 18 Ala, 678; Ohio, 535; People v. Hillsdiale &c. State «. Fisher, 38 Vt. 714. Co., 3 Johns. 190. i State v. Vail, 53 Mo. 97, 109. 2 Commonwealth v. Walter, 83 Pa. 5 state v. Paterson &c. Co. 1 St. 105; State t;. Vail, 53 Mo. 97; Zab. 9. High on Extr.- Rem. § 707. 6 MUrphy v. Farmers' Bank, 20 Pa. 3 People V. Waite, 70 111. 35; Com- St. 415. monwealfch v. Arrison, 15 Serg. & 7 People v. Rensselaer &c. R. Co. R. 133; People v. Sweeting, 3 Johns. (183(3) 15 Wend. 113. 183; State v. Tehoe, 7 Rich. 346; 8 State v. Kupferle, (1869) 44 Mo. State V. Tolan, 33 N. J. 195; State 154. § 4137.] ULTiEA VIKES ACTS. 723 burden is on the defendant to disclaim or justify, and the State is not bound to make affirmative pi-oof. In such case, the burden is upon the respondent to show title, and if the title relied upon in defense be incomplete, the State or "the people " as the case may be are entitled to judgment.^ If a corporation is shown to have been once in existence, its con- tinuance is presumed until the contrary is shown.^ Proceed- ings of a board of de facto directors of a private corporation are presumed to be regular until irregularity is shown ; there- fore, when acting under a by-law, they remove an officer, it will be presumed that they acted on sufficient grounds, until their action is impeached by proof.' Judgment of ouster is rendered against individuals for unlawfully assuming to be a corporation, or against a corporation to forfeit its corporate privileges.^ § 437. When the minority can hot have recourse to the courts. — Plolders of a majority of the stock in a corporation have a right to control it, and the minority can not interfere unless they show some good reason for interference. They must establish by their complaint that they have exhausted all the means within their power to obtain redress for their grievances or corporate action in conformity with their wishes,- and that their effort to obtain redress at the hands of the di- rectors and other stockholders has been earnest and faithful.'^ It is not enough that there may be a doubt as to the authority of the directors, or as to the wisdom of their proceedings. Grievances, real ^nd substantial, must exist, and before an in- dividual stockholder can be heard he must show, as said above, that he has exhausted all means within his reach to obtain within the corporation itself the redress of his grievances, or action in conformity to his wishes.* Before a mino'rity of the stockholders can maintain a bill against the majority there must be shown (1) Some action or threatened action of the directors or trustees which is beyond the authority conferred by the 1 Peoples. Utioalns. Co., 15 Johns. ^People v. Rensselaer &c. R. Co., 358; State v. Harris, 3 Ark. 570. (1836) 15 Wend. 118. 3 People V. Manhattan Co., 9 Wend. 5 Alexander v. Searcy, (1889) 81 Ga> 351, 378. ' 536. 3 State V. Kupferle, (1869) 44 Mo. « Field, J., in Dimpfell v. Ohio &c. 154. R. Co.,. 110 U. S. 309. T24: TTLTEA TIKES ACTS. ' [§ 438 charter or the law under which the company was organized; or (2) Such a fraudulent transaction completed or threatened by them, either among themselves or with some other party or with shareholders, as will result in serious injury to the com- pany or the other shareholders; or (3) That the directors, or a majority of them, are a(?ting for their own interests, in a man- ner destructive of the company or of the rights of the other shareholders: or (4) That the majority of the stockholders are oppressively and illegally pursuing, in the name of the com- pany, a course in violation of the rights of the other share- holders which can only be restrained by a court of equity; and (5) It must also be made to appear that the complainant made an earnest effort to obtain redress at the ,hands of the directors and shareholders of the corporation.^ He must make an earnest, not a simulated effort with the managing body of the corporation to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could ,not be done, or it was not reasonable to require it. The efforts to induce such action as complainant desires oh the part of the directors, and of the shareholders when that. is necessary, and the cause of failure in these efforts, should be stated with particularit3^^ A person who did not own stock at the time of fraudulent transactions cpmplained of, or whose shares have not devolved upon him since by operation of law, can nqt main- tain Vl suit to haye such transactions declared illegal.'' § 438. Illegal corporate acts. — Cfitra vires acts may, in addition to being beyond the powers of the corporation, be illegal because the corporation is expressly forbidden to do them, or because they are mala in se by common law or by statute, or because they are against public policy.* Of course if a corporate contract is illegal in itself it can no more be » Hawes v. Oakland, 104 U. S. 450, 536 ; Hawes v. .Oakland, 104 U. S. per Miller, J. 450; Dimpfell v. Ohio &c. E, Co., 2 Hawes v. Oakland, 104 U. S. 450, 110 U. S. 309. per Miller, J. * Taylor on Qorporations, §§ 293-3 ; i 3 Alexa,nderH Searcy, (1889)81 Ga, Whitney Arms Co. v. Barlow, 63 §438.] TJLTEA VIEES ACTS. T25 enforced by either party, than any other illegal contract. It is thus in case of an agreement to pay for lobbying/ and for procuring a government contract.^ The illegality should, how- -ever, inhere in the very act or contract itself that is sought to be declared illegal.^ In regard to statutory prohibitions of corporate acts the rule, is thus stated by an eminent text- writer : " If a statute expressly forbids a corporation to make a certain contract, the contract is void, even though not ex- pressly declared to be so, and is incapable of ratification ; and that the contract is void as unlawful may be pleaded by any one to an action founded directly and exclusively on the con- tract;^ unless (1) the statute expressly states what the conse- quences of violating it shall be, and those consequences are other than that t-he contract shall be void ; ^ or (2) unless the N. Y. 62, 68; s. C. 30 Am. Rep. 504; Bissell V. Michigan &c. E. Co., 23 N. Y. 264. 1 Marshall v. Baltimore &c. E. Co., 16 How. 314. Promoting a bill in parliament for additional powers seems to be regarded in the same way. Maunsell v. Midland &o. Ey. Co., 32 L. J. Ch. 513; Stevens v. South Devon Ey. Co., 30 L. J. Ch. 491 ; East Anglian Ey. Co. v. East- ern Counties Ey. Co., 11 C. B. 775; Munt V. Shrewsbury &c. Ey. Co., 30 L. J. Ch. 169; Caledonian Ey. Co. V. Sol way &c. Ey. Co., 49 L. T. 536; s. c. 13 Beav. 1; Wood's Ey. Law, 483. And it has even been held that an agreement to pay the expenses of an application to par- liament for enlarged powers is not merely ultra vires, but also illegal as being against public policy. Mac- Gregor v. Dover &c. Ey. Co., 18 Q. B. 618, 633. But Browne & Theo- bald's R^. Law, 96, holdb that apart from any question of the applica- tion of its funds, a company may promote or oppose a bill in parlia- ment, and cites In re London &o. Ey. Co., (1869) L. E. 5 Ch. Ap. 671; Steele v. N. Met. Ey. Co., 2 Ch. 387; Telford v: Metropolitan Board of Works, 13 Eq. 514; Heathcote v. North Staffordshire Rf. Co., 3Macn. & G. 109; 30 L. J. Ch. 82: Attorney- General V. Manchester &c. Ey. Co., 1 E. C. 436 ; Lancaster &c. Ey. Co. v. North Western Ey. Co., 2 Kay & F. 293. The English cases seem to hold also, however, that a company may devote its funds to oppose a bill, the passing of which would endanger its prosperity. Attorney-General v, Brecon, 10 Ch. Div. 204; Attorney- General V. Eastlake,, 11 H. 205; At- torney-General V. Norwich, 2 Mylne & C. 406; Bright v. North, 2 Phill. Ch. 216; Attorney-General v. An- drews, 3 Macn. & G.' 325. See Ee- giua V- White, 14 Q. B. Div. 358;. Browne & Theobald's Ey. Law, 95. 2 Tool Co. V. Norris, 2 Wall. 45. 3 Orchards v. Hughes, 1 Wall. 73 ; Atlas National Bank v. Savery, 127 Mass. 75. See Taylor on Corpora- tions, § 293. * Taylor on Corporations, § 297; In re Jaycox, 13 Blatchf. 209; New York &c. Co. V. Helmer, 77 N. Y. 64; Utica Ins. Co. v. Scott, 19 Johns. 1. ' 5 Taylor on Corporations, § 299; 7^ ULTRA VIEES ACTS. [| 439. statutory prohibition was evidently imposed for the protection of a certain class of persons who alone may take advantage of it;' or (3) unless to adjudge.the contract void and incapable of forn^ing the basis of a right of action would clearly frus- trate the evident purposes of the prohibition itself." ^ The rule applies, according to the same learned author, where a statutory pi-ohibition is not express, but arises only by implication from the charter, or enabling statute of the corporation ; the con- tract will not be held void when such a construction would defeat the intention of the statute.' Lastly, an act done b}' a corporation with public duties to perform which is plainly unauthorized by its constitution may readily be held by the courts to be illegal as against public policy. Such acts are those of the consolidation, lease and sale of transportation, gas, and other quasi-pahlio companies. These, especially, as well as all illegal acts, seem frequently to differ but in degree from ultra vires acts. One of the chief grounds for declaring them to be ultra vires is the injury to the public occasioned tbereby.* ^ § 439. The same subject continued. — The mere knowl- edge on the part of the corporation that the other party is going to use the proceeds of the contract for some illegal pur- pose, does not render the contract void so far as it is con- cerned, provided it does not participate in the illegal under- Pratt V. Short, 79 N. Y. 437, 445; S3 Ohio St. 97; Farraington Savings S. 0. 35 Am. Eep! 531 ; Lister v. How- Bank v. Fall, 71 Me. 49 ; Lester v. ard Bank, 38 Md. 558; Robinson v. Howard Bank, 33 Md. 558; Richmond Bland, 3 Burr. 1077. Bank v. Robinson, 43 Me. 589. 1 Taylor on Corporation^, §-300, ^ Taylor on Corporations, § 303; citing Beecher v. Marquette &o. Co., National Bank v. Whitney, 108 U. S. 45 Mich. 103, 108; Green v. Kemp, 13 99, reversing Crocker V. Whitney, 71 Mass. 515; s. C. 7 Am. Dec. 169. Of. N. Y. 161;, National Bank v. Mat- Johnson V. Underbill, 53 N. Y. 208 ; thews, 98 U. S. 631, 636, et seq. ; Grreenpoint Sugar Co. v. Whitin, 69 Oldham v. First National Bank, 85 N. Y. 338. N. C. 840; Thornton v. National Ex- 2 Taylor on Corporations, § 801, change Bank, 71 Ma 321; Graham ' citing Gold Mining Co. v. National v. National Bank, 32 N. J. Eq. 804; Bank, 96 U. S. 640 ; Dunoomb v. Winton v. Little, 94 Pa. St. 64. New York &c. R. Co., 84 N. Y. * Taylor on Corporations, § 305; 190 ; Union &c. Manuf . Co. v. Rocky Burbank v. Jefferson City &c. Co.,, Mountains National Bank, 3 Colo. , 35 La. Ann. 444 ; New Haven &ci. 248 ; Allen v. First National Bank, Co. v. Hayden, 107 Mass. 525. § 439.] ULTEA VIEES ACTS. 727 ,taking.i It may be laid down as the rule, that the agreement must be to do or to further some illegal or immoral purpose, or some purpose in violation of public policy. The element that destroys the validity of the agreement is the purpose by the agreement to effect the forbidden .end, else the consideration for the promise must be to do an illegal act. If this were not the rule, then a contract might be declared void as against public policy or public law, that does not stipulate for the violation of the one or the other.^ When a corporatiqn makes . a prohibited contract, while executory on both sides, it is binding on neither; and if executed on either side the courts will refuse to lend any aid to the enforcement by the other; subject, however, to this just exception, ^that if the charter clearly intended the cofitract to be illegal as to the corpora-^ tion only, and not as to the otheri party, it may be enforced against, though not by the corppration.' An illegal corporate act can not be ratified nor made valid even by the unanimous consent of the stockhoJ,ders.* Nor can the doctrine of estop- pel be invokpd to bind a corporation to a contract forbidden bj law.' ^Taylor on Corporations, § 293; ^Thomas J). The Railroad, 101 U. S. ■Puryear v. McGavock, (1871) 9 70, and authorities there reviewed; Heisk. 461 ; Jones v. Planters' Bank, Salem Mill-Dam Co. v. Ropes, 6 Pick. <1872) 9 Heisk. 455. 33, 32 ; ^Riche v. Asbbury Railway 2 Puryear v. McRfavook, (1871) 9 Carriage &o. Co., L. R. 7 H. L. 653. Heisk. 461, quoting Naff v. Craw- ijn re Comatook, 3 Sawy. 218; lord, 1 Heisk. 116. Kjent v. Quicksilver Mining Co., 78 3 "Ultra Vires," by G. H. Wald, 6 N. Y. 159, 185 ; > Ogdensburgh &c. •Centi L. J. 5, citing Oneida Bank v, R. Co. v, Vermont &c. R. Co., 4 Hun, Ontario Bank, 21 N. Y. 490 ; Tracy 368. «. Talm^dge, 14 N. Y. 163. CHAPTER XXIII. TORTS AND CRIMES. 440. Introductory. 441. State of the authorities. 443. Bespondeat superior. 443. Express authority need not be shown. 444. Scope of authority. 445. Whether a corporation may act maliciously. Effect of consolidation upon corporate liability. False imprisonment. Fraud. Injuries to the person. The same subject continued — Joinder of pai-ties. Libel. 446. 447. 448. 449. 450. 451. §453, Libel by mercantile reportiiig agencies. Malicious prosecution — (a) In general. 454. (b) Want of probable cause. 455. Illustrations. 456. Nuisance. Trespass qudre elausum. Crimes and misdemeanors. The same subject continued. Conspiracy. 461. Contempt. 463. Injuries resulting in death. 463. Distinction between misfeas- ance and non-feasance. 464. Penalty for crimes. 453. 457. 458. 459. 460, § 440. Introductory. — Corporations are liable for every wrong they coiiimit, and in such oases the doctrine of uitra vires has no application. An action may be maintained against a corporation for its malicious or negligent torts, however for- eign they may be to the objects of its creation or beyond its granted powers.' B}"- a natural extension of the rule, a pri- vate business corporation which continues its corporate busi- ness in its corporate name after the time fixed by its charter for its. duration has expired, can be sued and made liable as a corporation de facto for a tort committed by it after its char- ter has expired.^ Notwithstanding the doubts and technical refinements formerly entertained in. considering the liability of corporations and the necessity of that liability resting upon some act or instrument sanctioned or attested by the corpo- rate seal, it is now universally conceded that corporations are 1 First Nat. Bank v. Graham, 100 XJ. S. 699 ; Philadelphia &c. R. Co, V. Quigley, 31 How. 209; Alexander V Relfe, 74 Mo. 495. 2 Miller v. Newburg Orrel Coal Co., (1888) 81 W. Va. 836; s. 0. 18 Am. St. Rep. 908, a case of death from a ccal mine explosion. § 4:4:1.] TOETS AND CEIMES. 729 liable for their torts, and that this liabilitj'- may be enforced in the same manner as if the wrong complained of had been committed by a natural person.^ One court has said that it is not true that a corpbration has no mind. Its mind is the joint product of the mind of its officers . and directory in a united organization; and in point of fact, corporations bring into their service the highest order of ability and the best executive talent in the country.^ The doctrine that a corpo- ration having' no soul can not be actuated by a malicious in- tention is more quaint than substantial.' The objection that indictment requires appearance at the bar and that a corpora- tion, being an incorporeal entit}^, can not comply with this rule, is also futile, since its appearance may be entered by at- torney.* In an old case where the master and wardens of a coihpany were cited into the spiritual court by their proper nanies with the addition of their offices in the company, and the objection was raised that they were cited by their proper names, but in their political capacity, the court very quaintly observed that " if they stood out they might be laid by the heels in their natural capacity." ^ Exemplary damages may be recovered against corporations ' for the wrongful acts of their servants and agents doHe in the course of their employ- ment in all cases and to the same extent that natural persons committing like wrongs would be held liable.^ § 4:4-l. State of the authorities. — It has been said that a corporation is created by law for certain beneficial purposes. They can not commit a crime or misdemeanor by any posi- tive, affirmative act, or incite others to do so, as a corporation. While assembled at a corporate meeting, a majority may, by iCooleyon Torts, 120; Peebles v. 2 Copley v. Grover &c. Co., 2 Patapsco Guano Co., (1877) 77 N. C. "Woods, 494, following Philadelphia 233; Venas v. Merchants' Ins. Co., 27 &,c. E. Co. v. Quigley, (1858) 21 How. La. Ann. 367; Hays v. Houston R. 203. Co., 46 Tex. 273; Lee v. Village of 3 Green v. London &o. Co., 7 C. B. Sandy Hill, (1869) 40 N. Y. 443; N. S. 290. Smiths Birmingham Gas Co., 1 A. * Queen v. Birmingham &o. Ey. & E. 536; Mound v. Monmouthshire Co., 3 Gale & D. 243. Canal Co., 2 Dowl. N. S. 113; Eid- ^Rex v. Thursfleld, Skin. 27, die V. Proprietors, (1810) 7 Mass. 169 ; 6 Wheeler &c. Manuf . Co. v. Boyce, S. c. 5 Am. Dec. 35 ; Lyman v. White (1887) 36 Kan. 350 ; Lake Erie &c. E. Eiver Bridge Co., 2 Aik. 355. Co. v. Acres, (1886) 108 Ind. 548. 730 TOKTS AND OEIMES. [§ 441. a vote enterefl upon their records, require an a/gent-to commit a battery, but if he does so, it can not be regarded as a corpo- rate act for which the corporation can be indicted. It would be stepping aside altogether from their corporate powers. If indictable ks a corporation, for an offense thus incited by them, the innocent dissenting minority become equally amen- able to punisiiment with the guilty majority. Such only as take part in the measure should be prosecuted as individuals, or as aiding and abetting or procuring an offense to be com- mitted, according to it^ character or magnitude. It is a doctrine then in conformity with the demands of justice, and a proper distinction between the innocent and the guilty, thiat when a crime or misdemeanox is committed under color of corporate authority, the individuals acting in the business and not the corporation should be indicted.^ That case, however, was first disregarded in its own State,^ and then expressly over- ruled.' The whole course of the authorities,* has been said to show that an action for a wrong will lie against a corpora- tion, where the thing complained of is done within the scope of its incorporation and is one which would constitute an ac- tionable wrong if done by an individual.'^ This statement, however, is misleading, for in England for want of an express decision of the House of Lords, the point must be deemed still unsettled, although the preponderance of authority would seem to be in favor of the liability of corporations for torts involving wrongful intents.* 1 State V. Great Works Mill Co., SO Eagland, 16 East, 6, down to Whit- Mc. 41, followed by State v. Ohio .field v. Southeastern Ry., El. B. & &o. E. Co., 33 Ind. 362. E. 115. 2 State v.. Freeport, 43 Me. 198;' 'Greene. London &c. Co., 7 C. B. State V. Portland &c. B. Co., 37 Me. N. S. 390. 403. I 6 As. the law stands in England, 8 State M. Portland, (1S83) 74 Me. we have the express decision of one 268, citing, as having overruled the learned judge, (Alderson, B., in same case. State v. Vermont &o. E. Stevens v. Midland &c. Ry., 10 Ex. Co., 37 Vt. 103, and State v. Morris 353) that actions of tort involvins a &c. R. Co., 23 N. J. L. 360; and also wrongful intent will not lie against Commonwealth v. Proprietors, 3 corp6rations, supported by the extra- Gray, 345; People v. Albauy, 11 judicial opiuionsexpressed by learned Wend. 539; S. C. 37 Am. Dec. W; judges of the House of Lords in at Mayor V, Furze, 3 Hill, 615. least three different cases. On the 4 From Yarborough v. Bank of other hand, we have express decis- § 442.] irOETS AHD CKIMiES. T31 § 442. Respondeat superior. — A corporation is liable for tke acts of its agents and servants while engaged in the busi- ness of their principal, in the same manner and to the same extent that an individual is liable under like circumstances.' It would be an abandonment of the well-established principle of respondeat superior to hold that the agents of a corpora- tion, in the discharge of their official duties, might be guilty of malicious torts and j^et permit the corporation to shield itself from responsibility by relying on its soulless character.^ Accordingly, as above stated, a- corporation is liable civiliter for torts committed by its servants, or precisely as a natural person; and that it is liable as a natural person for the acts of its agjents done by its authority, express or implied, though there be neither a written appointment under seal, nor a vote of the corporation constituting the agency or authorizing the act.' Conversely, a corporation is not to be held liable for the malicious acts of its agents under circumstances which would not render a natural person liable. Accordingly, the unauthorized malicious acts of its agents will not render a corporation liable for exemplary damages unless the acts be ratified by it with full knowledge of the facts,* or unless the agents acted in a spirit of mischief or of crimmal indifference to civil obligations.' ions of several courts of appeal in at porations in " suing " as in holding least five cases, that actions of this them amenable to "being sued." nature will lie against corporations. Main v. North Eastern Ry. Co., 12 Monographic Note by Louis M. Rich. 83. Gi eeley, (1886) 25 Am. L. Reg. 765. 2 WhelesS v. .Second Nat. Bank, 1 1 First Nat. Bank v. Graham, 100 Baxt. 469. U. S. 699 ; Merchants' Bank v. State 3 Denver &c. Ry. v. Harris, (1886) Bank, 10 Wall. 645. Why, it may be 122 U. S. 597, approving State v. well asked, should not the rule be Morris &o. R. Co., 23 N. J. 369, the same substantially in reference and citing Salt Lake City v. Hollis- to corporations and their agents as ter, 118 U. S. 256; New Jersey &c. between individuals and their serv- Co. v. Brockett, 121 U. S. 637; Na- ants? The vast multiplication of cor- tional Bank v, Graham, 100 U. S. porations, and the variety of interests 699. affected thereby, have demanded Denver &c. Ry. «. Harris, (1886) well in enforcing the rights of cor- 122 U. S. 609; Philadelphia &c. R. 732 ' TOETS AND CEIMES. [§§ 443, 444. §443. Express authority need not be shown.— It is not only in. cases where a prpsecution has been instituted by the command of the corporation acting through its directors, that it may be sued for malicious prosecutioh.^ In- order to main- tain an action, for malicious prosecution against a corporation, it is not necessary to show an express authority from the cor- poration to carry it on, but it is sufficient to show that the prosecution was commenced and carried on by agents of the corporation in its interest and for its benefit, and that they acted within the scope of the authority conferred upon them by the, corporation.^ Thus a corporation may be held liable for , malicious prpsecution instituted by a general agent,' or even by his subordinate a-gent.^ In such cases the corporation and servant can be made joint defendants/ § 444. Scope of authority. — A corporation is responsible for the tortious acts of its agent done in the line of his employ- ment, and in the execution of the authority conferred, although it did not directly authorize the wrong action or subsequently ratify it.* The true test of the liability of the principal in such cases is to ascertain whether, in committing the act, for example fraud, the agent was acting in the business of his principal. If he was engaged in the course of his employment, then parties in- jured by his misconduct or fraud can resort for redress to the persons who clothed him with the power to act in their behalf, and who have received the benefits resulting from his agency.' Thus in an action for damages for malicious prosecution, wherein a corporation and its general^ manager were joined. as parties defendant, the corporation demurred on the ground that it appeared that the acts complained of were those of the gen- Co. V. Quigley, 21 How. 203; Mil- SS Mich.: 236; Hussey u. King, (1887) waukee &o. Ry. Co. v. Arms, 91 98 N. O. 34; s. c. 2 Am. St. Rep. 312. U. S. 492; Missouri &c. Ry. Co. v. ■ ^ Moore u. Metropolitan Ey. , (1872) Humes, 115 U. S. 521; Barry v. Ed- L. R. 8 Q. B. 36. Of. Wheeler &c. wards, 116 U. S. 562. Manuf. Co. v. Boyce, (1887) 36 Kan. , TBoogher v. Life Assoc, (1882)75, 350. Mo. 819; s. 0.42 Am. Rep. 413. SHussey v. Norfolk Southern E. SBoogher v. Life Assoc, (1882) 75 Co. & King, (1887) 98 N. C. 34; s. c. Mo. 325; s. C. 42 Am. Rep. 413: ap-'^ 2 Am. St. Rep. 313. proving Fenton v. Machine Co., 9 * Wheeler &c Manuf. Co. «;. Boy ce,. Phila. 189. (1887) 36 Kan. 350. 3 Turner v. Phoenix Ins. Co., (1884) ' Fogg v. Griffen, 3 Allen, 1. §445.] TOETS AND CRIMES. T33 era! manager, and not done within the scope of his authority or duty, nor in the service of the company. But it was held that although the acts complained of were tdtra vires, and could not be within the scope of the power of the company or its agents, the company was none the less liable therefor.^ It has, on the other hand, been held that the agent must be shown to have express authority for -his act or that it must have been ratified.^ § 445. Whether a corporation may act maliciowsly.— It has been argued, that inasmuch as a malicious motive,and a criminal intent can not be attributed to a corporation in its corporate capacity, it is not indictable for those crimes of which malice or some specific criminal intent is an essential ingredient.' A distinction is drawn between acts injurious in their effects, and for which the actor is liable without regard to the motive which prompted them, and conduct, the character of which depends upon the motive, and which apart from such a motive can not be made the ground of legal re- sponsibility. If this distinction is well taken, it would follow that since a corporation, as such, is incapable of malice it is not liable for a malicious prosecution. -And there are a few authorities, both English and American, which seem to sus- tain the idea that an action 'for a malicious prosecution can not be maintained against a corporation;* among which is a vigorous modern re-statement of the old rule by Lord Bram- well which is well worth consideration.^ Although in an earlier 1 Hussey v. King, (1887) 98 N. ,C. am of opinion tha:t no action for a 34; S. c. 3 Am. St. Rep. 313. malicious prosecution will lie against . 2 Carter v. Howe Machine Co., a corporation. I take this oppor- (1878) 51 Md. 390. tunity of saying that as directly and * Owsley V. Montgomery &c. E. peremptorily as I possibly can ; and Co., 37 Ala. 560. I think the reasoning is demonstra- ^ Owsley V. Montgomery &c. R. tive. To maintain an action for Co., 37 Ala. 560; Childs v. Bank, 17 malicious prosecution, it must be Mo. 213 ; Stephens v. Midland &c. shown that there was an absence of Co., 10 Ex. 353; McLellan v. Cum- reasonable and probable cause, and berland Bank, 24 Me. 566. These that there was malice in some in- American cases have been overruled: direct and illegitimate motive. If vide infra, p. 734, n. 3. the whole body of shareholders were 5 Abrath v. Northeastern Ey. Co., to meet and inso many words say, (1883) 11 Q. B. Div. 440; s. c. 25 'prosecute so and so, not because Am. L. Reg. 759, where he says: "I we believe him guilty, but because Y34 TOETS AND CRIMES. [§ 446. case in England it had been said after a review of the author- ities that the ratio decidendi of the rule,^^ that a corpora- tion can not be guilty, of a tort involving intention, had never been followed, and that the court was accordingly at liberty to decide according to what it conceived to be the true view of the' law, to wit, that a corporation could be held liable for malicious prosecution.^ The leading American cases holding that malicious prosecution does not lie against a corporation because it dan not be guilty of a malicious intent, have been overruled.' ' § 446. Effect of consolidation npon corporate liability. — Statutes authorizing ccjnsolidation frequently provide for the continuance of the separatie existence of the old companies, so- far as outstanding obligations to third persons are concerned, and these provisions include obligations arising out of torts.^ it will be for our interest to do it,' no action would lie against the cor- poration, though it would lie against the shareholders who had given such an unbecoming order. If the direct- ors even, by resolution at their board or by order under the common seal of the company (I am putting the- case plainly in order that there may be no mistake about it), were mali- ciously, with a view> of putting down a solicitor who had assisted others to get damages against them, to order a prosecution against that man, if they did it from an indirect and, im- proper motive, no action would lie against, the corporation, because the act on the part of the directors would be ultra vires; they would have no authority to do it. They are only agents for the company; the com- pany acts by them, and they have no authority to bind the company by ordering a malicious prosecution. I say, therefore, that no action lies, even if you assume the strongest case, namely, that of the very share- holders directing it, or the very di- rectors ordering it ; because it is im- possible that a corporation can have malice or motive ; and it is perfectly immaterial that some subordinate officer or individual or individuals of the company have such malice or motive." 'Referring to Alderson B., in Stevens v. Midland &c. Ry., 10 Ex. 352. 2 Edwards v. Midland Ry., (1880) 50 L. J. Q. B. 281. • See also Hender- son V. Midland Ry. Co., 20 W. R. 33. s Childs V. Bank of Missouri, 17 Mo. 213; followed only with qualification as to torts within the, scope of an agent's authority by Gillet v. Mis- souri &o. Ry. Co., 55 Mo., 315; and Owsley V. Montgomery &c. R. Co., 37 Ala. 560, in effect overruled by South &c. R. Co. V. Chappell, 61 Ala. 529, and by Boogher v: Life Assoc, (1883) 75 Mo. 319 ; and Jordan v. Ala- bama &o. R. Co., 74 Ala. 85, re- spectively. ^ Warren v. Mobile &c. R. Co., 49 Ala. 583; Selma .&o. R. Co. v. Har- bin, 45 Ga. 706. § 446.] TOETS ANO CEIMES. 735 Where by an act of the legislature one railroad company is authorized to purchase and another company to sell its rights, franchises and property, and thereupon the former corpo- ration is to be subject to all the duties, liabilities, obliga- tions and restrictions to which the latter corporation was sub- ject, upon the completion of the transaction the purchasing corporation becomes liable in an action for damage occasioned by the prior neglect of the purchased Corporation.'- Where the language of the enabling statute, is broad enough to place the defendant in all respects in the position of the other cor- poration, upon the cohveya,nce and assignment provided for, it is equivalent to an amalgamation of the two; all the fran- chises, privileges and powers are transferrdd, without reserva- tion; not merely the franchise to own and manage a railroad, but the franchise of being a body politic, with rights of suc- cession, Off acquiring, holding and conveying property, and of suing and being sued by its corporate name. It puts out of the reach of creditors all property liable to attachment to sat- isfy claims, either in contract or tort. It practically terminates the corporate existence of the selling: corporation, except per- haps so far as such existence may he necessary in order to hold and distribute the consideration received for the sale, or to meet the requirements of statutes which prolong the life of all corporations after dissolution, for the purpose of ena- . bling them to close their concerns. It operates as a dissolution of the corporation by force of the statute and of the assent main- ifested by the sale. It would be a, very narrow construction to hold that when a statute subjects the purchg,sing corpora- tion to all the duties, liabilities, obligations and restrictions of the other, it only intended to impose those obligations which the corporation owed the public under its charter and the laws of the commonwealth, and that the property transferred was only that by which it served the pubhc in the exercise iNew Bedford R. Co. v. Old ensonu. Texas &c. R. Co., 4S Tex. 163 Colony R. Co., (1876) 130 Mass. 397; Railroad Co. v. Hutchins, S7 Ohio St, Coggin V. Central R. Co., 63 Ga. 685; 383; Chicago &c. R. Co. v. Moffltt, S. 0. 35 Am. Rep. 133 ; Texas Sec. R. 75 111. 534. See Columbus &c. E, Co. V. Murphy, 46 Tex. 856; s. C. 26 Co. v. Skidmore, 69 III. 566; Indian- Am. Rep. 373; St. Louis &c. R. Co. v. ola R. Co. v. Fryer, 56 Tex. 609. Of. Marker, 41 Ark. 543 ; Warren v. Houston &c. E. Co. v. Shirley, 54 Mobile &c. R. Co., 49 Ala. 583 ; Steph- Tex. 135. T36 toetB and oeimes. [§ 44:7. of its franchise. In the, absence of express provision it is not to be inferred that it is the intention of the enabling act to impair claims of third parties for existing liabilities, or to shorten the time within which the remedy must be pursued. The question is not whether the statute compels the creditor to accept the defendant corporation as a new debtor against his Tjvill, or an injured person to resort to a stranger'for sat- isfaction, but whether it empowers the creditor or the pterson injured to resort, if he chooses, in the first instance, to the corporation which, by the terms of the statute, is made liable to him. It is held that it does, and that, the privity necessary to support an. action is created bj'^ the statute and the pur- chase and conveyance under it.' And where two railroad ' companies have been consolidated, an action for damages also lies against one of the old companies for personal injuries causing death and which resulted from its own wrongful act.^ Eut of course no liability is imposed upon tlie companies enter- ing into a consolidation for the torts of the new organization. For all purposes except the settlement of Hheir affairs they are considered as dissolved.' The consolidated company can not plead in an action against it in tort that the consolidation was not authorized by law.* § 447. False imprisonment. — Fven cases that deny the liability of a corporation for malicious prosecution admit their liability for false imprisonment.' A railway company, though it be a corporation, is liable in an action for false imprison- ment, if that imprisonment be committed by the authority of 1 New Bedford R. Co. v. Old Loan & T. Co., 49 IM. 331, 347 ; s. C. Colony E. Co., (1876) 120 Mass. 397. 95 Am. Dec. 595; Bissell v. Michigan 2 Warren v. Mobile &c. R. Co., 49 Southern &o. R. Co., 22 Ni Y. 258, Ala. 582; Miller v. Steamship Co., 263; Reynolds v. Myers, 51 Vt. 444, 67 Barb. 285. 455; Callender v. Painesville &c. R. 3 Beach on Railways, §559. And Co., 11 Ohio St. 516. Of. Carey v. a judgment against one of the orig- Cincinnati & Chicago R., (1857) 5 inal companies for a tort committed Iowa, 357. by the consolidated company being 5 Owsley v, Montgomery &c. R. void, no execution can issue thereon Co., (1861) 37 Ala. 560. The court oven against the consolidated com- said that the same reasoning that pany. Gray v. National Steamship sustained cases in trespass, against Co., 115 U. S. 116, 121. corporations applied to trespass for * Racine &c. R. Co, v. Farmers' false imprisonment. , § M8.] TOETS AND CKIMES. ' 737 the company; and it is not necessary that that authority be under seal.* The malicious and oppressive conduct of an agent of a corporation and his wanton and reckless disregard of a person's right in procuring his false imprisonment may sub- ject the company to damages.^ And in an aggravated case it will be liable in punitive damages.' / § 448. Fraud. — A corporation may be guilty of fraud, the fraud of its oflScers and agents in the course of corporate deal- ings being in law the fraud of the corporation.* Thus it is liable in an action of deceit, for a fraudulent misrepresenta- tion or concealjnent by its servants or agents,' while acting within the scope of their employment. And in this connec- tion the words " scope of authority or employment " are used 1 GoflE V. Great Northern Ey., 3 El. & El. 673 ; Eastern Counties Ey. Co. V. Broom, 6 Ex. 3l4 2 Wheeler &c. Manuf . Co, v. Boyce, (1887) 38 Kan. 856. 3 Wheeler &c. Manuf. Co. v. Boyce, (1887) 36 Kan. 350. In this case the plaintiff below was thrust into a jail at the instance of the agent of the defendant befow, without warning or trial, when there was no civil or criminal suit pending against him, and kept there for ten days with seventeen or eighteen prisoners who were either charged with or con- victed of crime. The sewing ma- chine sought to be recovered from his wife had been paid for, and be- longed absolutely to her; and de- fendants with knowledge of this fact undertook to compel the payment of money not due, or the recovery of property which they did not own, by the arrest and incarceration of the plaintiff without cause and in a manner that was clearly illegal. Apart from the loss of time, and In- terruption to his business, as well as the humiliation and indignity suf- fered by him by being thrust into jail upon a false charge, it appears 47 that the confinement resulted in his sickness; " and when we consider the malicious and oppressive conduct of the defendant, and that the case is one which calls for the infliction of exemplary or punitive damages, we can only conclude that the verdict of one thousand dollars in favor of the plaintiff was fully justified, if not too small. We say without hesi- tation, that an award of a larger amount would not have been dis- turbed on the ground that it was ex- cessive." 4 Craigis v. Hadley, (1885) 99 N. Y. 131, where receiving a deposit just before a bank was going to close its doors, when its oflicers must all have known of its hopeless insolvency and after its paper had gone to pro- test, was held to be.the fraud of the bank. 5 National Bank v. Graham, 101 U. S. 699; Butler v. Watkins, 13 Wall. 456; New York &c. E. Co. v. Schuyler, 34. N. Y. 30; Works v. Barber, 106 Pa. St. 135; Western &c. E. Co. V. Franklin Bank, 60 Md. 36 ; Lamm v. Port Deposit &c. Assoc, 49 Md. 333; Peebles v. Pa- tapsoo Guano Co., 77 N, C. 833. 738 TOETS AND CEIMES. [§ 448, in a broad and comprehensive sense.' Thus an action o>f de- ceit will lie against an incorporated bank for the fraudulent misrepresentation of its cashier, made while acting within the scope of his authority, and -for the interests of his employers.^ So such an action of deceit lies against a joint-stock banking company for the fraudulent misrepresentation of its man- ager.' "Where a person has been drawn into a contract to purchase shares belonging to a company by fraudulent mis- representations ol the directors, and the directors, in the name of the company, seek to enforce that contract, or the person who has been deceived institutes a suit against the company to rescind it on the ground of fraud, the misrepresentations are imputable to the company, and the purchaser can not be held to his contract, because a company can not retain any benefit which they have obtained through the fraud of their agents.* There is an English decision that if the person who has been induced to purchase shares by fraud of the directors, instead of seeking to set aside the contract prefers to bring an action for damages for the deceit; it can not be maintained against the company, but only against the directors person- ally.' This, however, has been practically overruled in a case where the rule was stated to be that the remedy against a company in respect of the fraud of its agents is not to be con- fined to cases where the fraud is part of a contract which can be rescinded so as to place the parties in statu quo. The ac- tion of deceit was held to be maintainable, the fraud of the agent being treated as the fraud of the principal; the court saying that they saw no. valid reason for exempting incorpo-, rated more than unincorporated principals from this form of action;^ that while, strictly speaking, a corporation can not of itself be guilty of fraud, yet since its objects can only be accomplished through the agency of individuals, there can be no doubt that conduct on the part of an agent which would iMackey v. Commercial Bank, * Westera Bank t). Addie, L. R. 1 L. R. 5 P. C. I 3^4, distinguishing So. App. 145. Vide infra, g§ 527-530. dicta in Western Bank v. Addie, 5 Western Bank v. Addie, L. R. 1 L. R. 1 So. App. 145. Sc. App. 145. Of. New Brunswick 2 Mackey v. Commercial , Bank, &c. Ry. Co. v, Conybeare, 9 H. L. L, R. 5 P. O. 394. Cas. 725. 3 Barwick v. English Joint Stock f" Mackey v. Commercial Bank, Bank, (1897) L. R. 2 Ex. 259. (1874) L. R. 5 P. C. 414. 449.] TOETS AND CRIMES. 739 subject a natural person to liability will render a corporate principal equally liable.' § 449. Injuries to the person. — A private corporation may be made a defendant in an action to recover damages for personal injuries,^ whether to its own employees and servants,' or to strangers,* or to persons to whom it owes peculiar obligations growing out of the relation between passenger and carrier.' ' But the distinction between the lia- bilities of private and public corporations is of importance in this connection.^, For example it has been held that a " House of Refuge," founded for the care, custody, and reformation of convict, vagrant, or incorrigible youths, being a charitable organization, is not liable for damages for an assault by one of its officers on an inmate.' This distinction was involved in a recent case in Massachusetts in which an organization for discovering and preventing fires and saving life and property was held to be a private and not a charitable corporation, and accordingly liable for any injuries caused by the negli- gence of its servants.^ iMackey v. Commercial Bank, (1874) L. E. 5 P. C. 414; Ranger v. Great Western By. Co., 5 H. L. 0. 86. 2 Moore v. FitchburgR. Co., 4 Gray, 465; Hanson v. European &c. Ry. Co., 63 Me. 84; S. C. 16 Am. Rep. 404; McKinley v. Chicago &c. R. Co., 44 Iowa, 314; s. C. 34 Am. Rep. 748; Passenger R. Co. v. Young, 31 Ohio St. 518; S. 0. 8 Am. Rep. 78; Eastern Counties Ry. Co. v. Broom, 6 Ex. 314. See also § 462, infra. 3 Beach on Railways, § 971 ; Beach on Contributory Negligence, §§ 371- 373. * Beach oh Railways, § 970. 5 Beach on Railways, §§ 973 et seq. 6 Insurance Patrol v. Boyd, 120 Pa. St. 634 ; Newcomb v. Boston Protec- tive Department, (Mass. 1690) 8 Ry. & Corp. L. J. 65. 7 Perry v. House of Refuge, 68 Md. 20 ; S. C. 53 Am. Rep. 495. 8 Newcomb v. Boston Protective Department, (Blass. 1890) 8 Ry. & Corp. L. J. 65. In this case the, de- fendant was incorporated by Stat. Mass. 1874, ch. 61, which limits its membership to oflScers and agents of fire insurance companies in the city of Boston . The act gi ves the corpora- tion power to maintain a corps of men and suitable apparatus for dis- covering and preventing fires and saving life and property, and its em- ployees are given the right to enter buildings and assist at fires, and have certain rights in the streets, subor- dinate to those of the fire depart- ment. The expenses of the corpora- tion are paid by assessments on all fire insurance agencies or organiza- tions doing business in Boston, which are required to make a report of the aggregate amount of plremi- ums received by each, and a penalty is provided for a failure to make uo TOETS AND CEIMES. [§§ 450, 451. . § 450. The same subject continuei — Joinder of parties. A corporation and its agents may be joined as defendants in an action to recover damages resulting from an assault and battery committed by the latter, under the previous authority or subsequent ratification of the former;-' although there is a case holding that an action for assault and battery will not lie against a corporation joined as defendant in such an ac- tion. If so joined, the writ is abatable as to all.^ § 451. Libel. — A corporation may be held civilly respon- sible for libel.' Thus an action, for libel is maintainable against a joint-stock company, or corporation which pub- lishes a newspaper in which the libel is maintained.* A rail- road corporation is liable in tort for the publication of a libel where a libelous extract from a newspaper indicating that a neighboring" ticket broker was not a reliable person from report. The corporation'has no cap- ital stock, and has no income except from the assessments ; and in levy- ing assessments, no distinction is made between companies that are members of the corporation and those which are not. The evidence was that no distinction was made at fires in protecting insured property and that which was not insured, and that it would be impracticable to make a distinction. And, as stated in the text, it was held that the defend- ant was a private and not a charita- ble corporation, and liable for the negligence of its servants, "The defendant," said the court, "places great reliance upon Insurance Patrol V. Boyd, 130 Pa. St. 624, which some- what resembles the case at bar. But in that case membership in the cor- poration was open to everybody, and the expenses were wholy paid by voluntary contributions." , 1 Moore v. Fitohburg R. Co., 4 Gray, 465 ; Hewett v. Swift, 3 Allen, 420 ; Pennsylvania E. Co, v, Vandiver, 43 Fa, St, 866; Eastern Counties Ry^ Co. V. Broom, 6 W. H. & G, 314. * Orr V, Bank of the United States, (1831) 1 Ohio, 36; s, C, 13 Am. Dec, 588. This case gives a fair state- ment of certain obsolete legal prin- ciples regarding the law of corpoi-a- tions and the reasons upon which they were supposed to be founded. The case was followed in Foote v. City of Cincinnati, 9 Ohio, 31, but is inconsistent with Atlantic &c. R. Co. V. Dunn, 19 Ohio St. 163, and Pas- senger E. Co, V. Young, 21 Ohio St. 518. 3 Missouri Pac. Ry, Co. v. Rich- mond, (1881) 73 Tex. 568; Bacon v. Michigan &c, R. Co., (1884) 65 Mich. 334 ; Philadelphia &c. E. Co. v. Quig- ley, 31 How. 203; State v. Atchison, 8 Lea, 739; s. c. 31 Am. Rep. 663; Fogg V. Boston &c. E. Co,, (18S9) 148 Mass. 518 ; s. C. 13 Am. St, Eep. 583 ; Samuels v. Evening Mail Assoc, 75 N. Y. 604, reversing s, c. 9 Hun, 388 ; Whitfield V. South Eastern Ey, Co.. El, B. & E. 115, ^Van Aernam v. Bleistein, 103 N, Y, 355; Evening Journalx Assoc. V. McDermott, 44 N. J, L, 480; s, c 43 Am. Eep. 393. § 451.J TOETS AND CRIMES. 741 whom to buy tickets, was kept posted forty days in a conspic- uous place in an oflBce of the road arranged especially for the sale and advertising of railroad tickets, under the immediate charge of an employee, and the general passenger agent, although notified, had refused to interfere with the posting.' So where a railroad corporation by its superintendent pre- pared a "discharge list" wherein a criminal act was assigned as the reason for the discharge of an employee, and sent the list to all of its agents who had power to employ men for the company, this was considered to be a sufficient publication to support an action for libel.^ A necessary correlative to the principle of the exercise of corporate powers and faculties by legal representatives, is the recognition of corporate re- sponsibility for the acts of those representatives.* To estab- 1 Fogg V. Boston &o. E. Co., (1889) 148 Mass. 513 ; s. c. 13 Am. St. Eep. 583.^ 2 Bacon v. Michigan Duby, 14 How. 468. 502; Erber v. Dun, 12 Fed. Rep. 526. § 462.] TOKTS AND CRIMES. .743 termine in view of the situation and relation so represented, and upon their finding may be dependent the question whether the words used are libelous. In these mercantile reports there is nothing except the import of the words themselves to char- acterize their purpose or effect, other than the fact that the business pi the company is to furnish information of the pecun- iary condition of persons whose vocations are such as to be likely to render business credit desirable. It is not seen that the character of the enterprise in which these companies are engaged gives to the mere statement of what purports to be a fact anything njore than is expressed or fairly implied. The meaning of words in an action of slander or libel can not be extended by innuendo beyond their import, aided, as they may be, by extrinsic facts with which they are connected. ^ The use of extrinsic evidence is to explain the application of words in connection with such facts as are alleged. Unless facts be alleged which will justify the inference that a publication of this character carries with it any meaning essentially different from that it would have if taken from any other source, the same rule \A\\ be applied. The fact that its apparent authen- ticity may have been greater, is not important.^ Where an 1 Woodruff V. Bradstreet Co., plaintiff's default, justified the in- (N. Y. 1889) 6 By. & Corp. L. J. 475, terpretation given by the jury, which where the court per Bradley, J., con- rendered the publication libelous, tinued: "The cases cited by' the That case is distinguishable from the plaintiff's counsel have been exam- present one i by reasons which may ined; and none of them seem to sup- support that recovery without aid- port his contention, In Williams v. ing the plaintiff in this action. In Smith, L. R. 22 Q. B. Div. 134, the King v. Patterson, 49 N. J. 417, the , publication in, the Hatters' Gazette, alleged libel was the publication of London, for December, 1887, was to a statement to the effect, as con- the effect that a judgment recovered strued, that the plaintiff, who was against the plaintiff, who was a engaged in the clothing business, hatter, on the 13th day of October had put a chattel mortgage on her previous, remained unpaid. This Stock of goods. The case as reported appeared under headings, and in a indicates that special damages were column known as a "black list." alleged and proved, and so far as it The judgment was recovered as there appears, the main ground ot stated, and had been paid. It was defense, upon the law, was that pub- held that the place where the words lication was privileged. That was were located in the Gazette, and the the only question considered on re- inference which was permitted by view. By a divided court it was held their use — that the judgment re- not privileged. Upon that proposi- maiued unpaid — thus indicating the tion the views of the court in Sun- in TOETS AND CRIMES. [§ 453. alleged libel consists in the publication by a mercantile re- I porting agency, for the information of its subscribers, of a sheet containing, among other business men's names, that of plaintiff, followed by asterisks, with no proof of anj^ meaning attached thereto, except the testimony of defendant's superin- tendent, who testifies that they referred only to a marginal note directing persons, desirous of further information con- cerning the person in connection with whose name they oc- curred, to call at defendant's office, a verdict for the defend- ant should be directed, as the characters are not libelous per se, and are not shown to have any libelous significance as used.^ derlin v. Bradstreet, 46 N. Y. 188, were adopted. The distinction in principle between the King Case and the present one, "as well in the char- acter of the report as in that of the damages alleged, is obvious. There the purport of the publication was that the plaintiff had mortgaged her stock of goods to secure an existing debt, and thus placed herself in a situation liable 'to result in em- barrassment by means of the oppor- ■ tunity furnished by giving the mort- gage to interrupt and break up her business. In such case an inference ' might be permitted that she would not place herself in that situation without an existing necessity for the protection of her business arising out of inability to pay. In that re- spect that case is distinguishable from Newbold v. Bradstreet, 57 Md. 88. The additional cases cited do not seem to require any special at- tention or comment here. These views lead to the conclusion that the judgment should be affirmed." All concurred, except FoUett, C. J., and Vann, J., not sitting. 1 Kingsbury v. Bradstreet Co., (N. Y, 1889) 6 Ry. & Corp. L. J. 474. The publication in question, as read in evidence upon the trial, was headed "Improved Mercantile Agency, The Bradstreet Company, Proprietors, Sheet of Changes and Corrections, Rochester, November 13, 1881. This information is fur- nished you in confidence, for your exclusive use and benefit, and sub- ject to the conditions of your sub- scription to our agency." Then fol- lowed various lists of names of per- sons, with their residences and business appended, classified by States and towns, and opposite each name were certain figures or char- acters. Those under the head of " New Yoi'k " were as follows : James, Ed. Gro. 83 $166 4S Middleport, Mortons Cor- ners, Lockport, , Buffalo, Sohroeder, H. N., G. S. 44 Lambert, Jno, Flour, &o., ** Beach, E. W. & I., Printers, 83 $143 " Taylor, Eich'd, Hotel, 60 Caiiandaigua, Kingsbury, Sherman, Gro^ ** " SMdmore, Thomas, B. & S. ** At the bottom of the page upon whidh the foregoing appeared was the following.: " **. For explana- tion, please call at our ofiioe." The opinion of the court per Vann, J., was as follows: "The circular in question, on its face, is not a libel upon the plaintiff. It can not be presumed from the nature of the words used, and it has not been proved as a consequence directly re- § 453.] TOETS AND CEIMES. Y45 §453. Malicious prosecution — (a) In general. — The old doctrine was that a corporation was not liable to an action suiting from their use, that the rep- utation of the plaintiff has been in- jured, either as a man or as a mer- chant. When construed according to their natural meaning they are innocent and harmless, and as thus consi. ued, they were not shown to be false. The use of characters in the body of the page to direct the at- tention of the reader to the margin or bottom thereof is common in many publications, and of itself can excite neither suspicion nor surprise. The plaintiff proved that such was the sole intention of the defendant in making use of the double stars in the publication complained of. The only innuendo alleged by the plaint- iff states simply what the defendant meant; not what its subscribers or the public understood. There is no apparent ambiguity as to the mean- ing or application of the words. Without proof of extrinsic facts, the language of the publication, includ- ing the character used, is capable of an innocent construction only. Standing by themselves, they are in- capable of a defamatory meaning. If there was a latent injurious mean- ing arising from facts, known both to the defendant and its subscribers, which would reasonably lead the latter to understand the words in a secondary and a defamatory sense, it was neither alleged nor proved. Words not libelous per se may be- come so from the connection in which they are used, or the circum- stances under which they are pub- lished. The situation and surround- ings of the most innocent expression may make it libelous, but they miist be distinctly alleged and proved. The mere position in a newspaper of an advertisement apparently inof- fensive, but surrounded by suggest- ive items, may make it a question for the jury whether it is libelous or not. Zier v. Hoflin, 33 Minn. 66. Words are to be construed in the light of their surroundings ; and al- though harmless upon their face, if found in bad company, may from that cii'cumstance be determined to have an injurious meaning. It be- comes a, question for the jury, if there is an}' evidence of such ex- trinsic facts to be submitted to them. Williams v. Smith, L. R. 22 Q. B. Div. 134; Odger on Sland. & Lib. 113. The notification sheet in ques- tion contained many names, each with figures or characters printed opposite. If it had appeared that those figures and characters were parts of a cypher understood, or capable of being understood, by the subscribers, through a key furnished by the defendant, and that in each case, or even in many cases, they in- dicated that the person against whose name they stood had failed in busi- ness, or was preparing to fail, or was financially embarrassed, a case would have been presented for our determination quite different in its legal aspects from the one now under consideration. Erber v. Dun, 13 Fed. Kep. 536, 533 ; Woodliiig v. Knicker- bocker, 31 Minn. 368; Shepheard v. Whitaker, L. E. IOC. P. 514; Banku. Henty, L. R. 5 C. P. Div. 514; Ruel V. Tatnnell, 39 Week. Rep. 173. This appeal must be decided upon what was alleged and proved by the plaint- iff, and not upon what might have been alleged and proved. On the record as presented, we think that it was the duty of the learned justice who presided at the circuit to direct a verdict for the defendant. We 746 TOETS AND CRIMES. [§ 453. for malicious prosecution, because malice is the gist of the ac- tion, and it was said that malice could not be imputed to a mere legal entity, which having no mind could have no mo- tive and therefore no malice. But the steady process of ju- dicial evolution tends toward the establishment of the just doctrine of the civil responsibility of a corporation for the acts of the sentient persons who represent it, and tljrough whom it acts, and of the liability of a corporation for the acts of its agents under the conditions that attach to individ- :uals.^ By the rule of analogy, also, if actions for malicious libel, for vexatiously and maliciously obstructing another in business, for wilful trespasses, and for assault and battery, in each of which the motives and intent of the mind are directly involved, can be maintained against a corporation aggregate, no reasons, founded upon principle, can be suggested why an action for malicious prosecution also should not be sus- tainable against it. When the nature of the action is con- sidered it comes strictly within the principles by which the actions above enumerated are maintainable. To hold a cor- poration amenable to this particular action is strictly in ac- have examined the exceptions relat- within the scope of their legitimate ing to evidence, but in the light of powers, they had no right to do it; the suggestions already made, it is it was not one of the objects for obvious that none of them were well which they were incorporated, and taken. The judgment should be af- therefore it is no act of the corpora- firmed with costs.'' All concurred, tion at all. This doctrine leads to except Bradley and Haight, JJ., not absolute immunity for every species sitting. of wrong, and can never be sanc- 1 Williams v. Planters' Ins. Co., tioned by any court of justice." (1880) 57 Miss. 759 ; s. 0. 34 Am. Rep. Boogher v. life Assoc, (1882) 75 Mo. 494 ; New Orleans &c. E. JDo. ' v. 325, quoting approvingly Binney's Bailey, 40 Miss. 365; Wheless v. observations in Chestnut Hill &c. Second Nat. Bank, IBaxt. 469; s. C. Co. v. Rutter, 4 Serg. & R. 11, and 25 Am. Rep. 783; Reed v. Home overruling Gillett v. Missouri &o. Savings Bank, 130 Mass. 443; s. 0. R. Co., 55 Mo. 315; s. C. 17 Am. 39 Am. Rep. 468. " If a corporation Rep. 653, where it was held that a be the intangible being it is as- criminal prosecution for embezzle- serted to be, a greater and more ment was not within the scope of mischievous "monster can not be . a corporation's general or special imagined. According to the doc- powers, and therefore the action trine contended for, if they do act would not lie. Gillett v. Missouri within the scope of their corporate &c. R. Co., 55 Mo. 315; s. o. 17 Am. powers, it is legal and they are not Rep, 653, overruled by Boogher v. amenable for it. It the act be not Life Assoc, (1883) 75 Mo. 319. § 45.3.] TOETS AND CEIMES. 7:17 cordance with well-settled legal principles. The action involves nothing more than a wrongful act intentionally done.' Ac- cordingly it is almost universallj' held in recent cases that a corporation is liable to an action for a malicious prosecution conducted by its agents.^ 1 Vance v. Erie Ry. Co., 32 N. J. 334; Fenton v. Wilson &o. Co., 9 Phila. 189; Copley r. Grover &o. Co., 2 Woods, 494. 2 Williams u Planters' Ins. Co., 57 Miss. 759; Carter v. Howe Machine Co., 51 Md. 290; Wheeless v. Second Nat, Bank, 1 Baxt. 469; S. C. 25 Am. Rep. 783; Goodspeedu East Haddam Bank, 23 Conn. 530 ; Jordan v. Ala- bama Great Southern R. Co. , 74 Ala. 85 ; S. C. 49 Am. Rep. 800, overruling Owsley v. Montgomery &c. R. Co., 37 Ala. 500 ; Pennsylvania Co. v. Wed- dle, 100 Ind. 138 ; Morton v. Metro- politan Life Ins. Co., 34 Hun, 366. " The reasons were well stated by the learned court in the leading case upon the subject. These institutions have so multiplied and extended within a few years, that they are connected with land in a great degree influence all the business transac- tions of this country and give tone and character to some extent to so- ciety itself. We do not complain of this ; but we say that as new rela- tions from this cause are formed and new interests created, legal princi- ples of a practical rather than a legal character must be applied. . . The views of the old lawyers, re- garding the real nature of corpora- tions, 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 be done practically, and consistently with their respective charters. And no good reason is discovered why this should not be so ; nor why it can hot be done, in a case likg this, without violating any sensible or useful prin- ciple. . . . But after all, the ob- jection to the remedy of this plaint- iff against the bank in its corporate capacity, is not so much that as a corporation it can not be made re- sponsible for torts committed by its directors, as that it can not be sub- jected to that species of tort which consists in motive and intention. The claim is, that as a corporation is ideal only, it can not act from malice and therefore can hot commence or prosecute a rnalioious or vexatious suit. This syllogism or reasoning might have been very satisfactory 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 can not have motives and act from motives is to deny the evidence of our senses, when we see them thus acting, and eflfecting thereby results of the great- est 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 vexa- tious suit, as it is called, was insti- tuted, 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." Goodspeed V. East Haddam Bank, 33 Conn. 530. 748 TOETS AND CEIMJIS. [§§ 454:, 455. § 454. (b) Want of probable cause. — The want of probable cause and malice on the part of the agent in making an ar- restj or causing an arrest to be made, if established, may be imputed to the corpioration.'. And in an action of malicious prosecution the burden of proving malice and the absence of reasonable or probable cause is on the plaintiff.' §455. Illustrations. — The liability of a corporation for annoyance and tiiscomfort caused 4s the same as that of in- dividuals for a similar wrong. The doctrine that an action will not lie against a corporation for a tort is exploded. The same rule applies to corporations as to individuals. They are equally responsible for injuries done in the course of their business by their servants. This is said to be so well settled as not to require the citation of authorities.' Where the local agent of a telegraph company, who was also agent of an express company at the same place, sent a forged dis- patch to a merchant in a neighboring city, requesting him to forward money to his correspondent at the former place, to use in buying grain, and the dispatch was sent and the money forwarded by express in response to the telegra,m but was in- tercepted and converted to his own use by the agent, the tele- graph company was liable though an action might also have been maintained against the express company.^ For as was said by the court, the defendant selected its agent, placed him in charge of its business at the station in question, and author- ized him to send messages over its line. Persons receiving 1 Kiulevitz V. Eastern R. Co., 140 the preponderance of evidence was Mass, 575. such as that they ought to send the 2 Abrath v. Northeastern Ry. Co., case on for trial, a finding of reason- (1883) 11 Q. B. Div. 440; s. c. 35 Am. able and properoause and of absence ' L. Reg, 757. In the case of the prose- of malice on the part of the company cution of a physician for conspiring was warranted. Abrath v. North- with a claimant of personal injuries eastern Ry. Co;, (Bng. Ct. of App. against a railroad, in pretending' 1883)11 Q, B. Div, 440; s. c. (Eng, that there were injuries suffered and H. of L.) 25 Am. L- Reg. 757. > manufacturing symptoms thereof, 'Baltimore &c. R. Co. v. Fifth where the statements of several per- Baptist Ch„ (1883) 108 U, S. 817. sonswereobtainedand carefully con- * McCord V- Western &c. Co. , ( 1 888) sidered and laid before counsel, who 39 Minn, 181 ; s. c. 4 Ry. & Corp. L. advised prosecution therefor, and J, 453; Telegraph Co, v, Dryburg, the magistrates afterward thought 85 Pa. St. 898, § 455.] TOETS AND CRIMES. 749 dispatches in tne usual course of business, when there is noth- ing to excite suspicion are entitled to rely upon the presump- tion that the agents intrusted with the performance of the business of the company have faithfully and honestly dis- charged the duty owed by it to its patrons, and that they ■would not knowingly send a false or forged message, and it would ordinarily be an unreasonable and impracticable rule to require the receiver of a dispatch to investigate the question of the integrity and fidelity of the defendants' agents in the performance of their duties before acting. Whether the agent is Unfaithful to his trust, or violates the duty to, or disobeys the instructions of, the company, its patrons may have no means of knowing. If the corporation fails in the perform- ance of its duty through the neglect or fraud of the agent whom it has appointed to perform it, the master is respon- sible. It was the business of the agent to send dispatches of a similar character, and such acts were within the scope of his employment, and the plaintifif could not know the circum- stances*that made the particular act wrongful and unauthor- ized. As to him, therefore, it must be deemed the act of the corporation.' The Pullman Palace Car Company is liable for injuries' sustained by occupants of it's sleeping-oars through the negligence or wilful misconduct of an employee whom it places in charge of a car. So where the porter placed in charge of such a car by the company makes a criminal as- sault on a female occupant thereof, she is entitled to recover from the company a fair pecuniary compensation for all in- juries, temporary or permanent, directly caused to her in her person, health and strength, including compensation for the pain and suffering, mental and physical, which has been, or may thereafter, be caused." But the obligation of a sleeping- car company for injury to an ordinary passenger on the train vi^ho entered the, car for the purpose of asking the privilege of washing his hands and is there wantonly and without prov- 1 McCordw. Western &o. Co., (1888) s Campbell v. Pullman Palace Car 39 Minn. 181; s. a 4 By. & Corp. Co., (1880) 43 Fed. Rep. 484 j S. C. 8 L. J. 453; Banku. Telegraph Co., 53 By. & Corp. L. J. 195. Cal. 380; Booth v. Bank, 50 N. Y. 400. T5,0 TORTS AND CKIMES. [§ 456. ocation assaulted and beaten by the porter of the car, is gov- erned by the principles of the law of master and servant and the company is not liable for such unauthorized wilful wrong.^ But at the suit of the same plaintiff against the railway com- pany, to whose train the sleeping-car was attached, the com- pany was held liable, as the passenger was not a trespasser on the sleeping-car.^ In another case where a corporation has been held liable under this rule of respondeat superior it appeared that a railroad company was in peaceable posses- sion of a piece of road, and while so in possession another company by an armed force of several hundred, men acting as its agents and employees, under its vice-president and as- sistant general manager, attacked with deadly weapons the agents and employees of the company having charge of the road, forcibly taking possession thereof. There was a demon- stration of armed men all along the line of the railroad seized, and while this was being done and the seizure was being made, the plaintiff, an employee of the company in possession, being on the track of the road, defending it with arms, was fired upon by the men of the attacking company and seri- ously injured. Immediately upon the seizure of the railroad the employer of the seizing forces accepted it and entered into possession, and for a time used and operated it as its own. The plaintiff brought suit to recover damages for his inju- ries, and it was held that the seizing company was liable in tort for the acts of its agents, that the plaintiff could recover not only damages for the injuries actually received, but puni- tive damages also.' § 466. Nuisance. — On an indictment for a nuisance it was said that if a corporation commits a trespass on private prop- erty or obstructs a way to the special injury and damage of an individual, no one could doubt its liability therefor.* In lilse manner, and for the same reason, if they do similar acts to the inconvenience and annoyance of the public, they are responsible in the form and mode appropriate to the prosecu- 1 Williams v. Pullman &c. Co., * Denver &c. Ry. Co, v. Harris, (1888) 40 La. Ann. 87. (1886) 123 U. S. 597. ' 2 Williams u. Pullman Palace Car * Commonwealth v. Proprietors, Co., (1888) 40 La. Ann. 417. , (1854) 2 Gray, 346. §,457.] TOETS AND CEIMES. 751 tion and punishment of such offenses.' Legislative authority to a railroad company to bring its tracks within municipal limits and to construct shops and engine houses there does not confer authority to maintain a nuisance by the noises and smoke in and from its engines and workshops.^ But the erection of telegraph poles in city streets can not be complained of by one not suffering special damage, when the erection is authorized by statute and ordinance.' Neither are telegraph poles and wires in a publicstreetnecessarily a nuisance which will be prohibited at the suit of one in front of whose lot they are erected.* § 457. Trespass quare clausum. — Trespass quare olausum lies against a corporation entering upon land under color of the power of eminent domain for the purpose of constructing its works without having complied with all the statutory pro- visions respecting condemnation, or without having paid or deposited, or given security for the amount awarded, or, as in case of a railroad company, when it wastes lands lying be- yond the limits of its right of way,' or under color of a stat- 1 Commonwealth v. Proprietors, worship. Ace. First Baptist Ch. v. (1854) 2 Gray, 34§; State u. Morris Schenectady &c. R. Co., (1848) 5 &c. E. Co., 33 N. J. 360; Maund v. Barb. 79. Monmouthshire Canal Co., 4 Man. ^ Gray v. Mutual Union Telegraph & G. 453; Queen v.' Birmingham &c. Co., 13 Mo. App. 485. Ry. Co., 3 Ad. & EI. N. S. 333; ^Hewettu. Western Union Tele- Queen v. Great North &c. Ry. Co., graph Co., 4 Mackey, (D. C.) 424; 9 Ad. & El. N. S. 315; Eastern s. C. 54 Am. Rep. 384. Counties Ry. v. Broom, 6 Exch. 314. » Blodgett v. Utica &o. R. Co., 64 2 Baltimore &a R. Co. v. Fifth Bap- Barb. 480 ; Cohen v. St. Louis &c. tist Ch., (1883) 108 U. S. 317, hold- E. Co., 34 Kan. 158; S. C. 55 Am. ing that an action lies by the church Rep. 843 ; Eaton v. Boston &c. R. in its corporate capacity against the Co. , 51 N. H. 504 ; S. C. 13 Am. Rep. railroad company for such a nui- 147; Lee v. Pembroke Iron Co., 57 sance in running their cars and en- Me. 481 ; S. C. 3 Am. Rep. 59; Beach gines, ringing bells, blowing oflf on Railways,, §§ 830, 851, where this steam, and making other noises in subject is fully treated. See also: the vicinity of a church, or meeting Imboden v. Etowah dec. Mining Co., house, on the Sabbath, and during 70 Ga. 86 ; Hobbs v. Amandor &c. public worship, as to annoy and mo- Canal Co., 66 Cal. 161. But where lest the congregation worshiping the evidence in a case failed to show there and greatly to depreciate the that defendant, a water company, value of the house and render the had not used proper care in repair- same Unfit for a place of religious ing its dam, the breaking of which 752 TOETS AlfD CRIMES. [§458. ute which does not confer the authority,' or under a statute which makes noi provision for compensation.^ A malicious and oppressive trespass by a railway's agents upon the rights of a telegraph company in pulling up its poles, upon the alleged ground that they were upon the railroad's right of way, may entitle it to exemplary or punitive damages, when the result of the trespass is to impair its credit and subject it to the ex- pense of litigation. The sense of wrong and insult, consequent on the trespass, which, a& between natural persons, entitles one to redress by way of exemplary damages, has, however, no application in a suit by a corporation.' But it has been held that in an award of two hundred dollars as actual and ten thousand dollars as exemplary damages, the disproportion was so great as to manifest that spirit of prejudice or partial- ity in a jury which required a reversal. of the judgment.* In an action against a corporation for malicious trespass, declara- tions of a servant indicating his own indifference to the con- sequences of the trespass are inadmissibk; but declarations made by him prior to the completion of the trespass as to matters within the scope of his employment are admissible to show the animus of defendant.' § 458. Crimes and misdemeanors.^ It has been said that a corporation can not be held crimin,ally liable for any act of which intent or personal violence is an, essential ingre- dient, such as larceny or assault and battery, a corporation being held incapable of either intention or violence.^ The ac- injured plaintifE'a raining claim, and Williamson v. Canal Co., 78 N. C. washed away his tobis, the judg- 156; Cogswell v. Essex Mill Co., 6 ment in plaintiff's favor for dam- Pick. 94; Beach on Railways, §851. ages was reversed, 'and a new trial 'International &o. E. Co. v. Tele- ordered. , Weldekind v. Tuolumne phone &o. Co., (1887) 69 Tex. 377 ; County Water Co., (1887) 71 Cal. S. c. 5 Am. St. Eep. 45. 386. * International. &o. E. Co. u. Tele- 1 Beach on Railways, § 851, and phone &c. Co., (1887) 69 Tex. 377; cases there cited ; Whitehead v. At- S, c. 5 Am. St. Rep. 45. kansas Central R. Co., 28 Ark, 460; 6 international &o. E. Co., v. Tele- Secomb V. Milwaukee &c. E. Co., 49 phone &o. Co., ([1887) 69 Tex. 277; How. Pr. 75 ; Pennsylvania R. Co. v, S. 0. 5 Am. St. Rep. 45. Eby, 107 Pa. St. 166. ^ Cumberland &c. Co. v. Portland, 2 Seneca R. Co. v. Auburn &c. R. (1868) 56 Me. 78 ; Androscoggin &c. Co., 5 Hill, 170; Trenton Water Co. «. Bethel &c. Co., 64 Me.' 443. In Power Co. v. Raff, .56 N. J. 335 ; both of these cases the opinion was § 458.] TOETS AND OEIMES. 16B cused must be one against whorn the accusation of the crime can be made. He must be one who could " be guilty of the offense described," and who can be punished for it, which a corporation can not be.' But this doctrine has been ques- tioned in a modern case. As the courts have shown a tend- ency to extend the liability of corporations in civil actions for the misfeasance of their agents, and it seems now well settled that they may be held liable in suits for libel, for ma- licious prosecution, and' for assaults and batteries committed by their agents in the performance of their duties, and in view of the further fact that they may in such suits be subjected to exemplary or punitive damages, the statement that they can not be held liable to any offenses which derive their crira^ inality from evil intention may well be questioned. The very basis of an action of libel, or for a malicious prosecution, is the evil intent, the malice of the party against whom such a by Appleton, C. J. The first was an action in debt to' recover a penalty for injuring the canal of the plaint- iff to which a penalty of from fifty to five thousand dollars had been at- tached by a section of the special act creating the canal. The city of Port- land had filled up two hundred yards of the canal. And it was held that although a town could be in- dicted for the neglect of duties imj posed by statute when the statute so provides, it could not be indicted for malicious tort, though com- mitted by one of its ofiScers in ac- cordance with its express vote. - Towns can not do an a6t wilfully and maliciously. The other case was in debt against a corporation for fraudulently and wilfully taking logs under a statute which attaches a penalty thereto. In the second case it was said that it is obvious that the defendant corporation could . not be indicted for a wilful taking and,, conversion. The intent with which the act prohibited is done is individual, noj corporate intent. 48 Larceny can not, by any existing law, be predicated of any corporate action of a corporation, nor is there any provision for its punishment fori the crime, if it were one which it is capable of committing. It is mani- fest, therefore, that a corporation is not, and was not intended to be, included within the word "who- ever," but that the section applies onlj'.to personal criminality. Now "whoever is guilty of the ofiEense described "' is liable to this action of debt and to the payment of "double the value of the log, mast or spar so dealt with," not those who are not and who can not be guilty of the of- fense so described. 1 Androscoggin &o. Co. v. Bethel &c. Co., (1875) 64 Me. 44;}. So it has ■ been held that a corporation is not liable for a penalty imposed by stat- ute on the owner, agent or superin- tendent of a manufacturing corpo- ration for emplo5'ing children under ten years in laboring more than ten hours a day. Benson v. Monson &c. ■Co., 9 Mete. 563» 754: TOETS AND CRIMES. [§ 459. suit is brought; and it has been said to be diflBcultto see how- it is possible to hold tha,t a corporation may be sued for a libel and punitive damages recovered, and at the same time hold that a corporation could not be indicted for such libel. The suits of libel and malicious prosecution are in their nature very like to criminal proceedings, and if they lie against a corporation, it would seem to follow that .there are cases for which indictments may lie against a corporation where the evil intention constitutes an element in the offense. And if a corporation is, as has been said, liable civilly for an assault and battery committed through its servants, it is perhaps going too far to say that a corporation can in no case be lia- ble criminally for any offenses against the person under any circumstances.^ § 459. The same subject continned. — There seems to be no reasonable objection to laws which make corporations criminally liable for the misconduct of their officers and agents in the discharge of their duties.^ If the laws impose duties of a general or public character upon corporations, they must provide-modes to compel their performance. The mode of prosecution by indictment does not seem to be open to any, objection which would not equally apply to any kind of criminal prosecution. Corporations necessarily transact their business by means of agents. If they are held responsible criminallyj it must generally, perhaps always, be for acts or neglects of those agents. If they are thus ansvverable for negligence and omissions of agents, it is argued that they may be made liable, in a pi-oper case, for their-acts.' Since the capacity to act is given corporations by law, no good reason appears why they may not intend to act in a criminal manner, as mere intentional wrong acting is all that is neces- sary in a class of criminal cases.* In Missouri the statute iPerGreen, J., in Stater. Baltimore to indictment for neglect of their &o. R, Co., 15 W. Va. 380, wliere the duty in this respect. Turnpike cor- Gorporation was held guilty of Sab- porations were usually by statute bath breaking. subjected to the same liability, so 'Boston &c. E. Co. v. State, (1855) far as we have heard, without objec- 32 N. H. 237. tion." Boston &c. R. Co. v. State, 3 " Towns and counties are at com- (1855) 82 N. H. 227. nion law responsible for the repair <.l Bishop Crim. Law, § 418. of highways and bridges and liable §§ 460, 461.] • TOETS AND CEIMES. '735 authorizes the criminal prosecution of a corporation for libel.' The criminal code of New York declaring that the grand jury has the power, and making it their duty, to inquire into all crimes, and to present them to the court, applies to crimes of corporations as well as of individuals, aud is not affected by the sections regulating criminal proceedings against corporations.' § 460. Conspiracy. — An action may be maintained against a corporation to recover damages caused by conspiracy.' If actions can be maintained against corporations for malicious prosecution, libel, assault and battery and other torts there is no reason for holding that actions may not be maintained against J;hem for conspiracy.* For it is well settled by the authorities that the malice and wilful intent needed to sustain such actions may be imputed to corporations.* § 461. Contempt.— A corporation may be punished for con- tempt of court.'' Thus where officers of a corporation are enjoined from infringing a patent right, j'et subsequently en- gage in the manufacture of the infringing article, as managing officers of another corporation, not licensed to manufacture under the patent, they will be guilty of contempt.' But a cor- poration can only be punished for contempt through its offi- cers, or those acting in aid of it. Thus through the presence iBrennan v. Tracey, 2 Mo, App. Co., (i887) 106 N. Y. 669; Morton V, 540. Metropolitan Life Ins. Co., 103 N. Y, 2 People V. Equitable Gas-Light 645 ; aflSrming 34 Hun, 367 ; Reed V, Co., (1889) 5 N. Y. Supl. 19. Re- Home Sav. Bank, 180 JIass, 443) ferring to the provisions of N. Y. Krulivitz v. Eastern R. Co., 140 Mass. Crim. Code Proc. §g »53, 675, 683, but 575 ; Western News Co. v. Wilmarcb, holding that under the laws of New 83 Kan. 510. York, a corporation can not by any '^People v. Albany &c. R. Co., 13 means be compelled to appear and Abb. Pr. 171 ; s. .0. 30 How. Pr. 858 ; submit to the jurisdiction of a Court Mayor v. Ferry Co., 64 N. Y, 634^ •syherein an indictment against the United States v, Memphis &c, R. corporation has been filed. Co., 6 Fed. Rep. 237; Golden Gate 3 Buffalo &o. Co. V. Standard Oil &c. Co. v. Superior Court, (1884) 05 Co.,(1887)106N. Y. 669. Cal. 187. ft Buffalo &c, Co, V. Standard Oil 'Iowa Barb Steel Wire Co- v. Co., (1887) 106 N. Y. 669. Southern Barbed Wire Cp., 80 Fed. s Buffalo &c Co. V, Standard Oil Rep. 133. 756 TOUTS AND CRIMES. " [§§ 462, 463. of its agent a Connecticut corporation is subject to the juris- diction of the Illinois courts for the purposes of proceedings for contempt. It. is sufficient to compel defendant, as man- ager in Illinois, to answer to the contempt proceeding, with- out making his company eo nomine a party.^ §462. Injuries resulting in death. — A civil suit to re- cover damages for injuries resulting in death could not be maintained at common law.* This defect has been remedied -in' England by Lord Campbell's Act, which provides a method whereby the family of the deceased may recover compensa- tion;' and similar acts have been passed by the legislatures of the American States.* In Maine, New Hampshire and Mas- sachusetts, indictment and fine is used as a method of recover- ing damages for causing death, the fine being for the benefit of the deceased's relatives.* ' § 463. Distinction between misfeasance and non-feasance. A distinction is drawn between the liability of a corporation for misfeasance and non-feasance, but the diflBculty in distin- guishing the character of these offenses strongly illustrates the absurdity of the doctrine that a corporation is indictable for a non-feasance but not for a misfeasance." The distinction between a wrongful act and a wrongful omission, misfeasance 1 Sercomb v. Catlin, (1889) 128 111. (1882) 8 Am. & Eng. R. Cas. 297 ; 556. Commonwealth v. Boston &c. B. 2 Beach on Railways, § 1010. Co., 129 Mass. 500; Commonwealth 'Beach on Railways, § 1010, cit- v. Boston &c. R. Co., 11 Cush. 512; ing Blake v. Midland Ry. Co., 18 Conamon wealth v. Metropolitan R. Q. B. 93; Duckworth v. Johnson, 4 ,Oo., 107 Mass. 236; Commonwealth Hurl! & N. 653; Boulte;r v. Webster, v. Fitchburg R. Co., 11 Allen, 189; 11 L. T. N, S. 598; Pym v. Great Commonwealth v. Vermont &o. R. Northern By. Co., 4 Best & Sm. 396. Co., 108 Mass. 7; Commonwealth -o. < Brown D. Buffalo &c. R Co., 23 Fitchburg R. Co., ,120 Mass. 373; N. Y. 191 ; Cooley on Torts, *371 ; 3 Commonwealth v. Boston &c. R. Thompson on Negligence, § 90; Co., 136 Mass. 61; Commonwealth w Beach on Railways, § 1010. East Boston &g. Co. , 13 Allen, 589. estate u. Maine Central R. Co., 60 * Commonwealth u. Proprietors, Me. 490 : State v. Grand Trunk Ry. (1854) 7 Gray, 346 ; Queen v. Great Go., 61 Me. 114; Boston &c. R.Co. North &e. Ry., 9 Adi & El. N. R. v. State, (1856) 33 N. H. 215; Com- 325. monwealth v. Boston &c. R. Co., § 464.J TOETS AND CEIME3. 7oT and non-feasance has been explicitly denied. No assumption can be more unfounded. Many occurrences may be easily conceived, full of annoyance and danger to the public and in-. volving blame to some individual or some corporation, of which the most acute person could not clearly define the, cause, orascribe them with more correctness to mere negli- gence in providing safeguards or to an act improper by nothing but the want of safeguards. If a company be authorized to make a bridge with parapets, but makes it without them, does the offense consist in the construction of the unsecured bridge, or in the neglect to secure it? If the distinction were always easily discoverable, why should a corporation be liable for one species of offense and not for the other? The incon- gruity of allowing the exemption is one strong argument against it.^ § 464. Penalty for crimes. — Although a corporation can not be capitally punished or imprisoned, there is no reason why it may not be lined, or suffer the loss of its corporate existence, for the same act which would subject an individual to the gallows.^ Accordingly, it is held that a corporation may be sentenced or adjudged to pay a fine and abate a nuisance.' But while it can be fined it seems it can not be compelled to perform a specific duty.* Neglect of a public duty, however, by a corporation may always be prosecuted and punished by indictment,^ except for such acts as involve criminal in»tent or personal violence.* Thus a railway company is liable to in- r 1 Eegina v. Great Northern &c. E. is said that the advantage of indict- Co., 9 Q. B. 324, where Lord Den- ing a company in nuisance cases is man continued : " The law is often that it may be compelled to abate entangled in technical embarrass- tlie nuisance, while a director, oflBcer ments, but there is none here. It is or agent could only be fined. as easy to charge one person or a * Pittsburgh &c. Ey. Co. v. Com- body corporate with erecting a bar mouwealth, 10 Am. & Eng. E. Cas. across a public road as with the non- 337. repair of it; and they may as well * Commonwealth v. Central &c. be compelled to pay a price for an Co., 12 Cush. 245; Boston &c. E. Co. act as for the omission." v. State, 32 N. H. 215, 2 1 Bishop Crim. Law, § 423. ^ Queen v. Birmingham &c. Ey. 'Delaware &o. Co. v. Common- Co., 2 Gale & D. 243. wealth, 60 Pa. St. 367, in which it 758 TOBTS AND CEIMES. [§ 464. dictment for the act of its officer or employee in issuing receipts for goods without stampiTig them, if the law requires them tb be stamped.' But it appears that a higher degree.of proof is required in indictmeiit proceedings than in civil actions against companies.^ 1 United States v. Baltimore &c. 2 East Tennessee &c. R Co. v, R. Co., (U. S. C. C. r>. W. Va. 1868) Humphreys, 13Lea,200;S. 0. 15,Am. "7 Am, L. Eeg. N. S. 757. & Eng. R. Cas. 473. CHAPTER XXIV. CAPITAL STOCK. i 465. Introductory. 466. Distinction between capital ,and capital stock. 467. Stock in unincorporated as- sociations. 468. Increase of capital stock. 469. Statutory authority requisite to increase or reduction. 470. The same subject continued. 471. Constitutionality of enabling acts. 472. Whether directors may act under the enabling statute. 473. Stockholders' right to sub- scribe to new stock. 474. The same subject continued. 475. Liability of holders of the new shares. 476. Liability upon new shares is- sued as a bonus. 477. Increase by stock dividends. 478. The power to issue stock divi- dends. 47&. Prohibitions of stock divi- dends. 480. Reduction of capital stock — (a) Authority necessary. 481. (b) By purchase of shares. 483. (c) By refunding. 483. Loss of property not a reduc- tion of capital stock. 484. Liability of shareholders after reduction. 485. Irregularly issued stock — How far valid. ' 486. The same subject continued. 487. False certificates. 488. Forged certificates. 489. Liability for fraudulent issue. 490. Over-issued stock. 491. Fraudulently over-issued stock invalid. 492. Personal liability of corpo- rate agents over-issuing stock. 493. Measure of damages for over- issuing stock. 494. Liability of holders of over- issued stock — (a) In gen- eral. 495. (b) Estoppel. 496. (c) Knowledge of the ci'ed- , itor. § 465. Introductory. — There is much conflict and cotifu- sioQ in economic writings concerning the definition of capi- tal. Adam Smith defines it as " that part of a man's stock, which he expects to afford hira a revenue." John Stuart Mill says that whatever things are destined to supply productive labor, with the shelter, protection, tools, and materials which the work requires, and to feed and otherwise maintain the laborer during the process, are capital.^ In respect of corpo- i " Interest," by John S. Watters, where the writer has collected many (Oct. 1890) 5 Belford's Mag. 777, of these definitions among which T60 CAPITAL STOCK. [§ 465- rate capital the word is in general use as signifying the sums paid in by the subscribers, with the addition of all gains and profits realized, with such diminutions as have resulted from losses incurred in transacting business.' In this sense the capital of a corporation is the fund with which it transacts its business and embraces a,ll its property, real and personal, con- stituting the assets of the corporation such as are subject to execution at law.^ So much of the capital as is represented by the capital stock issued, must always be kept unimpaired during the existence of the corporation ; but that portion of the capital which represents the surplus arising from the oper- ation of the business of the corporation is subject to the dis- cretion of the managers in regard to its disposition. There- fore profits remain a part of the fund constituting the capital until actually divided among the stockholders, and if this fund is afterward reduced by losses, only the surplus can be divided, after deducting the amount of the capital first in- vested.' Until a division by the proper authorities, this sur- plus fund belongs to the corporation.^ The words capital stock describe the interest of the stockholders in the corpo- ration.' They have been used to denote the property or means are Ricardo's : " Capital is that part he is engaged in performing the of the wealth of a country which is operation." Mr. Watters' own defl- employed in production, and consists nition is that capital is " wealth in of food, clothing, tools, raw ma- use." terials, machinery, etc., necessary to i Comstock, J. in People v. Corn- give effect to labor." McCulloch's: missioners, 33 N. Y. 193, 219. But "The capital of a country really more properly, the -amount of the comprises all those portions of the shares subscribed and not the sum produce of industry existing in it actually paid in, constitutes the capi- that may be directly employed, tal of a corporation. Hightower v. either to support human existenceor Thornton, 8 Ga. 486; s. c. 53 Am. to facilitate production." And Pro- Deo. 413; State Bank v^ Milwaukee, f essor Wayland's : " The word capi- 18 Wis. 281. tal is used in two senses. In relation ^ New Haven v. City Bank, 33 to product, it means any substance Conn. 106. on which industry is to be exerted. ^ Phelps v. Farmers' &c. Bank, 26 In relation to industry, the material Conn. 268; Morawetz on Corpora- on which industry is about to confer tions, § 348. value ; that on which it has confered * Williams v. Western &o. Co., value; the instruments which are (1888) 93 N. Y. 189. used for the conferring of value, as ^ " Stock Dividends and their Re- well as the means of sustenance by • straint," by M. Dwight Collier, (1884) which the being is supported while 7 Am. Bar Assoc. Eep. 263, § iQ6.'] CAPITAL STOCP. '761 contributed by the stockholders as the fund or basis for the business or enterprise -for which the corporation or association was formed.' But capital stock, in its strict significance, ex- ists only nominally; the monej' or property which it repre- sents is the tangible reality., The one is the representative of the other.^ § 466. Distinction between capital and capital stock. — There is a distinction between the capital of a corporation and its capital stock, though they are often used as interchangeable terms.' The capital stock is clearly not the same as property possessed by the corporation; for the capital stock remains fixed although the actual property of the corporation varies in value and'is constantly increasing or diminishing in amount. What the amount of the capital shall be is within the discretion of the managers, but the amount of the capital stock is limited and determined by the charter and the laws governing it.^ It follows, therefore, that a limit imposed upon the capital stock of a corporation does not restrict the amount of property which it may own.' Upon the distinction between the capital of a corporation which is its property, and the capital stock, which represents the interests of stockholders in the coi'- poration, and is their property, the power of the States to 1 Bailey v. Clark, 21 Wall. 384. So Ark. 708, quoting Mr. Justice Ingles also it has been said to be the property in State v. Wood, 15 Rich. 185. In of the corporation contributed by its the assessment of taxes and for stockholders, or otherwise obtained many other, purposes, the capital by it, to the extent required by its does not include land grants to a charter; Willianas v. Western Union railway corporation from the State Tel. Co., (1883) 93 N. Y. 163, 188. or federal government. Hightower Again capital stock is " that money v. Thornton, 8 Qa. 486; s. C. 53 Am. or property which is put in a single Dec. 413; St. Louis, &c. E. Co, v. corporate fund by those who by sub- Loftin, 30 Ark. 693. scrijrtion therefor become members ^ Hannibal &c. R. Co. v. Shacklett, of a corporate body." Burrall v. (1860) 30 Mo. 558. Bushwick R. Co., 75 N. y. 311. It s " Stock Dividends and their Re- has been held that the stock of a rail- straint," by M. Dwight Collier. I'oad company is the aggregate of (1884) 7 Am. Bar. Assoc. Rep.' 357, the property and eflfeots of the com- 863. pauj i and that in its general form * Farrington v. Tennessee, 95 U. S. it is sura of money contributed in 686. fixed proportions to the adventure. * Barry v. Merchants' Exchange St. Louis &o. Ry. v! Loftin, (1875) SO Co., 1 Sandf. (N. Y.) 380. m OAPITA.L STOCK. [§ 467. subject the shares of national banking associations to taxation is based.' § 467. Stock in unincorporated associations. — Stock'inan unincorporated association may cover chattels, money, or land. The owners of the stock own the land, but without power to compel a partition or divert it from the use for which it was bought, unless a majority concur. Land so held may be con- verted into personality, as between the owners, if the change is convenient and will promote any beneficiad object. Such a conversion does not afifect the nature of the property, bat merely varies the relations of the parties inter se? 1 Weatherby v. Baker, 35 N. J. Eq. 505 ; Van Allen v. Assessors, 3 Wall. 573, 584; People v. Commissioners, 4 Wall. 244, ~ 2 Crawford- «. Gross, (Pa. Ct. Com. Pleas, 1889) 7 Ry. & Corp.-L. J. 123. Here it appeared that an unincorpo- rated associaitiori known as the Beef Butchers' Hide Association, corh- posed of butchers and having no capital, appointed a committee to purchase a piece of real estate, known as the hide house, " for the butchers who subscribed to the stock.'' Subscriptions were obtained from some of the members, and cer- tificates were issued to them for "shares in the stock of the Beef Butchers' Hide Association." With the money so obtained the property ■was bought, and a deed was made to three persons in trust for the '' Beef Butchers' Association," and "for such persons as shall from time to time compose the same, for the uses and purposes and subject to the con- trol of the association," and "on the incorporation of the said association to grant and' convey" the same to it. The property had been, and con- tinued to be, used by the whole as- sociation, but after the purchase the holders of the certificates received the rents from the association in the form of interest on their certificates. Several years afterwards the associa- tion took up the original certificates, and issued to the holders new ones for "shares in the real estate of the hide-house property " of the associa- tion. The court explained that "The transactions which I have outlined were such as might have been ex- pected from the circumstances and the relative position of the parties^ The association originally formed was so loose as hardly to deserve the name. Every man following the trade of a butcher might become a, member on depositing a few pounds of hides or fat, and withdraw at the end of the year or sooner as freely as he came. There Was no capital and nothing to which thB members could lay claim, except the proceeds of the Stuff which they had brought to be cu'red or melted. The purchase of the hide-house worked no changCj except that the subscribers took the place of the landlord while remain- ing, like the other members, tenants, So long as they had hides or fat to be prepared for market, and the rent was paid out of the proceeds, it was their interest not to eject the depos- itors or take any step that would hinder the prosecution of the busi- ness which was carried on for the § 468.] CAPITAL STOCK. Y63 § 468. Increase of capital stock. — A corporation can not legally increase its capital stock bej'ond the maximum amount fixed in its ciiarter or original articles of association.' It is well settled that a corporation has no implied authority, either by resolution of the shareholders or by-law, to alter the amount of its capital stock where the cha,rter has definitely fixed it at a certain sum. The shares of a corporation can neither be increased nor diminished in number or in their nominal value, unless this be expressly authorized by the corn- common good. Such was the rela- tion of the parties for more than thirty years, and the long continued occupancy of the buildings tended to beget the idea that the depositors were the owners, whether they had or had not paid any part of the pur- chase-money; and when the sub- scribers finally assex'ted -their right, it was treated as doubtful or un- founded, and the case brought into court." 1 Scoville V. Thayer, (1881) 105 U. S. 143; Knowlton v. Congress &c. Co., 14 Blatehf. 364; Gk-angers' Life &c. Ins. Co. V. Kamper, 73 Ala. 325; Mo^es V. Oscoee Bank, 1 Lea, 398; Ferris v. Ludlow, 7 Ind. 517 ; In re Ebbw. Vale &c. Co., 4 Ch. Div. 827; Dfoitwich &c.-Co. v. Curzan, L, R. 3 Ex. Ch. 35, 43 ; Stace & Worth's Case, L. B. 4 Ch. 682; Salem Mill Dam Co. V. Ropes, 6 Pick. 33; s. C. 19 Am. Dec. 363; New York, &c. R. Co. v. Schuyler, (1866) 34 N. Y. 30; Suther- lEtTid V. Olcott, (1884) 95 N. Y. 93, 100; Mechanics' Bank v. New York &c. R. Co., 13 N. Y. 599; Lathrop v. Knee- land, 46 Barb. 433. Cf. Chetlain v. Republic Life Ins. Co., 86 111. 320; In re Kirkstall Brewery Co. , 5 Ch. Div. 535. When a corporation is to increase its capital stock, this may be dt)ne as well by increasing the j)ar value of those already outstand- ing, as by the issue of new shares. Currier v, Lebanon Slate Co., 56 N. H. 262. Cf. Howell v. Chicago &c. E. Co., 51 Barb. 378. If an in- crease is to be made by the issue of new shares, the manner of effecting the increase not being prescribed in the enabling act, it is immaterial whether it be made by awarding the stock to the stockholders as dividends in lieu of money, retaining the money for the purposes of the company, or by paying the stockholder the divi- , dends in cash from the earnings of, the enterprise, and selling the stock in the market to raise money for the corporate purposes. Howell v. Chi.- cago &c. Ry. Co., 51 Barb. 378. In- creasing the capital stock of a corpo^ ration, and issuing new shares to be sold at less than par to supply a fund- actually needed by the corporation, has been held not to be a fictitious increase of the stock within the meaning of a constitutional provis- ion making fictitious increases void. Stein V. Howard, 65 Cal. 616; Cal. Const, art. xii., § 11. But when the charter of a company does not fix its capital stock more definitely than to declare its maximum and mini- mum amount, a corporation, having begun business with less than the maximum capital, may, without leg- islative grant, increase, it to the higher limit. ' Gray v, Portland Bank, 3 Mass. 364; s. C. 3 Am. Dec. 156; Somerset &c. Ri Co. v. Cushing, 4ft Me. 534. 76^ CAPITAL STOCK. [§ 469, paiiy's charter or by an act of the* legislature.* Every attempt of the corporation to exert such power by any direct or ex- press act of its officers before it is conferred by the legislature, is void.' It is said that whether the corporate stock has been properly increased or not, is, a question the State only can raise.' Although, on the other hand, it is held that an illegal increase or diminution of the capital stock of a company may be restrained by injunction.* Eut of course a company hav- ing a portion of its originally authorized capital stock undis-i posed of, may permit one who is not a stockholder to subscribe for it.* And old shares purchased by the'corporation may be disposed of by the directors to whomsoever they will.* § 469. Statutory authority requisite to increase or re- duction. — The subject of increasing or reducing the capital . 1 Spring Co. v. Knowlton, (1880) 103 U. S. 49 ; Knowlton v. Congress &o. Co., 14 Blatch. 364; New York &c R. Ca V. Schuyler, (lfe66) 34 N. Y. 30 ; Eailway Co. ' v. Allerton, 18 Wall, 233; Oldtown E. Cr^. v. Vea- zie, 39 Me. 511; Seignouret v. Home Ins. Co., (188.5') 24 Fed. Rep. 33a ■ =5 <^. 25 Am. L. Reg. 39; Percy v. Mil- laudon, 8 La. 569; Grangers' Life Ins. Co. v. Kamper, 73 Ala. -325; Morawetz on Corporations, § 230; Taylor on Corporations, § 133; Green's Brice's Ultra Vires,' 158; In re Financial Co., L. R. 2 Ch. 714; Sewell's Case, L. R. 3 Ch. 131 ; Smith tj. Golijsworthy, 4 Q. B. 430. But see Anlbergate &c. Ry. Co. v. Mitchell, 4 Ex. 540; s. C. 6 Eng. Ry. Cas. 234. 2 Railway v. Allerton, (1878) 18 Wall. 233; Wood v. Dummer, 3 Mason, 308 ; New York &o. R. Co. «.: Schuyler, (1866) 34 N. Y. 30; Curj:y V. Scott, 54 fa. St. 270; Smith v. American Co., 1' Nev. 438; Smith v. Goldsworthy, L. R, 4 Q. B. 430. The officers, directors and stockholders of a corporation can not, even by an unanimous agreement, made under an honest misapprehension of their pawers, effect a valid increase of the capital stock. People v. Parker Vein Coal Co., 10 How. Pr. 543: The amount of shares is properly a part of the constitution of the company and does not strictly depend upon any clause, resolution or provision- of the deed. The alteration of shares seems,' therefore, not to come within provisions for the alteration of the deed. Bmith v. Goldsworthy, 4 Q. B. 430. 3 Pullman v. Upton, 96 TJ. S. 338; Upton V. Tribilcock, 91 U. S. 45; Upton V. Hansbrough, 8 Biss. 421; Upton V. Jackson, 1 Flippin, 413. * O'Brien v. Chicago &c. R. Co., 53 Barb. 568. 6 Curry v. Scott, 54 Pa. St. 270, 275. 6 Hartridge v, Rockwell, Charlt. R. M. 360; Page v. Smith, 48 Vt. 266. If the corporation uses its surplus to buy up some of its own stock, the stockholders have no right to claim this pro rata, until it is ordered to be divided among them. Wood's Ry. Law, § 73, citing Coleman v. Columbia Oil Co., 51 Pa. St. 74; Wiltbank's Appeal, 64 Pa. St. 256; St. John V. Erie R, Co., 10 Blatch. 271 ; Bradley v. Holdsworth, 3 Mees. & W. 433. § 469.] CAPITAL STOCK. ■T65 stock of corporations is regulated in England by statute,^ and in the American States both by statute and by constitutional provisions.^ The Ne^ York "Stock Corporation Law" of 1890, provides that the stockholders' vote upon the question shall be taken at a meeting especially called for that purpose after notice to the members as prescribed therein.' It is held that the provision of a similar act. which requires a weekly newspaper notice, is for the benefit of the public at large, that the certified copy of the statement of proceedings filed with the Secretary of State must show the publication of this notice, and that if it does not, the Secretary's certificate of compliance with the law can not issue.* iThe Companies Clauses Act of 1863, 26 & 27 Vic. cli. 118, §§ 12, 13, 16-21 ; the Railway Companies Act of 1867, 30 & 31 Vic. ch. 127, § 6 ; and the Railway Construction Facilities Act of 1864, 27 & 28 Vic. ch. 127, § 56. 2_Stimson's Am. Stat. Law, (Jan. 1, 1886) § 458, citing the constitutions of Colorado, Alabama, Louisiana, debts and liabilities of the corpora- § 46. If at a meeting called for the purpose, a sufficient number of votes shall be in favor of an increfise or reduction of the stock of the com- pany, a certificate of the proceed- ings showing a compliance with the law, the amouht of capital actually paid in, the whole amount of the Pennsylvania, Missouri, Arkansas, California, Illinois and Nebraska; Revision of N. J., (1877) p. 181, §24; p. 1S90, § 29 ; Pa. Bright. Purd. Dig. p. 843, g§ 38, 34; p. 348, § 55; Mo. Rev, Stat. 939 ; Mass. Pub. Stat. ch. 106, § 34; ch. 112, § 60; Ohio Rev. Stat., (1866) g§ 3262-3264; 111. Ann. Stat., (1885) ch. 32, § 50; ch. 114, §15; La. Rev. Stat. §693. »N. Y. Laws of 1890, ch. 564, which directs: § 45. Notice of the meeting, stating the time, place and object, and the amount of the in- crease or reduction proposed, signed by a majority of the directors, shall be' published once a week, for at least three successive weeks, in a newspaper in the county where the company's principal business office is located, if any is published therein, and a copy of such notice shall be personally served upon or duly mailed to each stockholder or mem- ber at his post office address at least three weeks before the meeting, tion, and the amount of the increased or reduced capital stock, shall be made, signed, verified and acknowl- edged, by the chairman and secre- tary of the meeting, and filed in the office of the clerk of the county where its principal place of business shall be located, and a duplicate thereof in the office of the Secretary of State. When the certificate pro- vided for has been filed, the capital stock' of the corporation concerned shall be increased or reduced as the case may be, to the amount specified in such certificate. In case of the increase or reduction of the capitals stock of a railroad corporation the certificate thereof shall have in- dorsed thereon the approval of the board of railroad commissioners. The proceedings of the meeting at which an increase or reduction is voted shall be entered upon the min- utes of the corporation. < State V. McGrath, 86 Mo. 239; Mo, Rev. Stat. § 939. 766 CAPITAL STOCK. [§§ 470, 471. § 470. The same subject continued. — While, however, legislative authority is usually requisite to a valid increase, the power may be inferred from charter authority to issue convertible bonds.' A telegraph company having statutory ■power to increase its stock and to purchase the property and franchises of other companies, may pay for the purchases with a part of an issue of. new stock, if the property purchased is worth the price.' A statutory provision that no increase of the capital stock of a national bank shall be valid until the whole amotint of the increase is paid in, and notice thereof has been transmitted to the comptroller of the currency, and his certificate obtained specifying the amount, is not violated where the proposed increase is reduced to the amount actually paid in, the latter being the amount of increase specified in the notice.' For the vote of the shareholders is not per se an increase of the capital stocli. Until the new stock is sub- scribed for at least, there is an element of uncertainty respect- ing the increase; and the shareholders may at anytime before the new stock is taken, reconsider their vote.* Under the Ifew York " Stock Corporation Law " of 1890 an increase of the capital stock renders the stockholders subject to the same lia- bilities with respect to the additional capital as are provided by law in relation to the original capital.' § 471. Constitutionality of enabling acts. — The power of the legislature to authorize an increase or reduction of the capital stock depends upon the principles heretofore set forth in treating of charters and amendments,' to wit, that the charter embodies a contract, the obligation of wh-ich the State may not impair;' that any alteration thereof must either be unanimously accepted by the shareholders,' or must be en- iBelmont u Erie Ey. Co., 52Barb. IT., S. 595, construing U. S. Kev, 637, 699; Ramsey v. Erie Ry. Co., 38 Stat. § 5143. How. Pr. 193, 216. , Of. Heath v. < Terry v. Eagje Lock Co., 47 Conn. Erie Ry. Co., 8 Blatchf. 337; Jenljs 141. , V. Central R. Co., cit. 53 Barb. 637, ^N. Y. Laws of 1890, oh. 564, § 44, 675 ; Van Allen v. Illinois Central R. ^ Supra, Chapters II and III. Co., 7 Bosw. 515; People v. Erje Ry. ''Vide supra, §g 17 and 18. Co., 36 How. Pr. 129. Wide' supra, § 41; Pacific R. Co. 2 Williams v. Western Union Tel. v. Hughes, (1885) 33 Mo. 294 ; Illinois Cq., 93 N. Y. 163. River R. Co. v. Ziiamer, (1858) 20 111. 'Aspinwall v. Butler, (1890) 133 654. §471.J CAPITAL STOCK. 767 acted under a constitutional reservation to the State of the power to amend ; ^ that even under this reserved power an amendment must not defeat or substantially impair the ob- ject of the corporate, charter pr any rights of property vested under it, either by impairing the rights of shareholders as be- tween themselves,* by working injustice to the corporate cred- itors and diminishing the security upon which they have relied; ' and that, accordingly, when the contract of the share- holder is materially altered he may either restrain the accept- ance of the amendment by the corporation * or may consider himself released from his contract of subscription to its stock.' As in regard to other amendments, the distinction between material and immaterial alterations, is here important as^de- . termining whether the acceptance of a majority is sufficient,* ^Vide supra, g 36; Pacific R. Co. V. Hughes, (1855) 33 Mo. 394 ; Illinois River R. Co. v. Zitnmer, (1858) 30 111. 654; Buffalo &c. R. Co. v. Dudley, (1856) 14 N. Y. 336; Joslyn v. Pacific &c. Co., 13 Abb. Pr. N. S. 329 ; Peoria &c. R. Co. t). Elting, 17 111. 439; Ot- tawa &c. R. Co. V. Black, 79 111. 363; Hay v. Ottawa &c. R. Co., 61 in. 423; Newhall v. Galena &c. R. Co., 14 111. 273; Dan bury &c. R. Co. V. Wilson, 33 Conn. 435 ; Noyes v. Spaulding, (1855) 37 Vt. 420; Bish v. Johnson, 31 Ind. 299; Burlington &c. R. Co. V. White, 5 Iowa, 409. 2 Vide mpra, %% 23, 40. 3 Fide supra, §§ 24, 40; In re State Ins. Co., (1882) 14 Fed. Rep. 28; S. q. 11 Biss. 301 ; Cooper v. Frederick, 9 Ala. 743 ; Palfrey v. Paulding, 7 La. Ann. 363 ; In re Credit Fonciei-, L, R. 11 Eq. 356; In re Telegraph Con- struction Co., L. R. 10 Eq. 384. *Vide supra, § 43. ^Vide supra, § 43; Oldtown &c. R. Co. V. Veazie, 39 Me. 571 ; Hughes V. Antietam &o. Co., (187i) 34 Md. 316. But when the power to amend the corporate charter has been re- Berved\ by the State, dissenting shareholders are not ordinarily re- leased from their duties and liabil- ities by an amendment authorizing an increase or diminution oj the capital stock. East Lincoln v. Dav- enport, (1876) 94 U. S. 801 ; Nugent V. Supervisors, 19 Wall. 341 ; Mow- rey ■;;. Indianapolis &c. R. Co., 4 Biss. 78; Pacific R. Co. v. Hughes, ■ (1855) 33 Mo. 291 ; s. c. 44 Am. Dec, 365; Buffalo &c. R. Co. v. Dudley, 14 N. Y. 336 ; Schenectady &c; Co, V. Thatcher, 11 N. Y. 102; Troy &c. R. Co. 17. Kerr, 17 Barb. 581; Moore V. Hudson River R. Co., 12 Barb. 156; Whitehall &c. R. Co. v. Myers, 16 Abbl Pr. N. S. 34; East Tennes- see &c. R.Co. V. Gammon, 5 Sneed, (Tenn.) 507. ^Vide supra, § 43, cases cited on p. 77, notes 8, 9, 10 and 11. An amendment to the charter of a com- pany takipg from the shareholders and vesting in the directors the power to authorize an increase of the capital stock, is not such a fun- damental change in the constitution of the corporation as will release dissenting shareholders from obliga- tion upon their stock. Payson v. Withers, 5 Biss. 269) Payson v, Stoever, 3 Dill. 438. '•76-8 CAPITAL STOCi. [§ 472. or whether the consent of all the members is requisite to give validity and effect to the proposed increase or redaction.' § 4-73. Whether directors may act under the enabling statute. — The enabling statutes usually providia that every increase or reduction of capital stock must be authorized by n vote of the stockholders owning at least a majority of the stook'of the corporation.^ Although the charter provide that " all the corporate powers of said corporation shall be vested in and exercised by a board of directors/' this is considered to refer to the ordinary business transactions of the corpora- ' tion, and does not extend to a reconstruction of the body itself, - or to an enlargement of its capital stock.' Accordingly in the absence of an express declaration to the contrary, power to increase or reduce the capital stock granted by statute to the company, is to be exercised by the body of members at large.* It has been said, however, tWt where no mode of exercising a power given in a charter to increase the capital stock of a company is therein provided, or is to be found in any general act; and the charter does not require the assent of stockhold- ers to the increase, nor provide for any public record of the action of the company, the only'thing required is that a mar jority of the directors determine upon the increase; and their determination, shown by the records of the company declaring an increase, fulfills all the requirements.' And in any case iVide supra, § 43. ^.Railway Co. v. Allerton, (1873) 18 2N. Y. Laws of 1890, ch. 564, § 45, Wall. 233. requiring a two-thirds vote of the * Percy v. Millaudon, 3 La.' 568 stock. By the Companies Clauses s. C. 17 Am. Dec. 196 ; Railway Co, Act of 1863, it is provided that a v. Allerton, (1873) 18 Wall. 233 ; Peo- vote of three-fifths of the sharehold- pie i;. Vein Coal Co., 10 How. Pr, lers shall be necessary, unless the en- 543; Crandall v, Lincoln, 52 Conn, abling act provides for a different 73, 99; Eidman v. Bowman, 58,111 majority. 26 & 27 Vic. ch. 118, 444; Finley Shoe &c. Co. v. Kurtz, §§ 12, 13. So, too, the consent of the 34 Mich. 89. holders of a majority of the shares is 6 Sutherland v. Olcott, (1884) 95 required by the constitutions of some N. Y. 93, holding also that when the States. Stimson's Am. Stat. Law, charter of the company practically (Jan. 1, 1886) § 453, citing the con- directs that the power to increase etitutions of Pennsylvania, Missouri, the capital stock shall be exercised Arkansas, California, Colorado, Ala- by the directors, their decision as to bama and Louisiana. the necessity for an increase, if un- § i73.] CAPITAL STOCK. Y6& the shareholders may be estopped by acquiescence from con- testing the legality of an increase or reduction made by the directors under statutory authority to the corporation.^ §473. Stockholder's right to subscribe to new stock. — A stockholder of the old stock, at the time of the vote to augment the capital of a company, has a right in the new stock, in proportion to the amount of his interest in the old, of which he can not be rightfully deprived by the other stock- holders.^ This right is now usually given by statute, so that the nature of the thing. Suppose it to have heen morally certain that the augmentation would have been double in value, to the amount of the money necessary to make it; could a combination of a majority ■have deprived the minority of their proportion? The whole number of shares was one thousand ; could the proprietors of five hundred and one have engrossed the whole, and de- prived their partners of their shares? It is impossible. At the time of the vote to augment the capital, a bank- ing! house had been purchased, and become the property of the institUr tion. In this the plaintiff was person- ally interested, in proportion as his interest in the bank was to the amount of the whole stock.' After the capital is increased,, the banking house is, as it p'as before, the joint property of the stockholders; and the consequence of excluding him from the new stock without any compensation, is depriving him without any consideration of two- thirds parts of his property in this house. This shows, in a very glar- ing light, how unfounded is the principle for which the defendants contend." Sewall, J., also referring to the partnership increase in the stock, said: "Considering an incor- poration for a bank, as I think it may be more correctly stated, to be a trust created with certain biased by fraudulent motives, is con- clusive. 1 Railway Co. v. Allerton, (1873) 18 Wall. 333; Eidman v. Bowman, 58 111. 444; Payson v. Stoever, 3 Dill. 424; Sewell's Case, L. R. 3 Ch. 131; Lane's Case, 1 De Gex, J. & S. 504. 2 Gray v. Portland Bank, (1807) 3 Mass. 363 ; s. c. 8 Am. Dec. 156, where Sedgwick, J,, said: "At the time of the vote to augment the capital of the bank, all the stockholders were partners. The augmentation was supposed to be, and intended for the benefit of the joint concern ; the ca- pacity to augment was in virtue of their joint interest; and it could only be done by the will of the ma- jority, and that in pursuance oi their original association. - The law by which the partnership existed and by which the united interest was regulated, was that alone by which the augmentation could be made. Whenever a partnership adopts a project, within the princi- ples of their agreement, for the pur- pose of profit, it must be for the benefit of all the partners in pro- portion to their respective interests in the concern. Natural justice re- quires that the majority should not have authority to exclude tl^e mi- nority. What is there in this case which should make it an exception from that general principle? There is nothing, that I can perceive, iii 49 770 CAPITAL STOCK. [§ 473 when a company determines to increase its capital stock, each holder of the original stock has a right to subscribe for and purchase a proportionate amount of the new stock at par.' Under an act which permits insurance corporations to increase their capital stock by increasing the number of shares,' to be allotted fro rata to the stockholders according to their inter- est, stockholders can not be charged a bonus, and a court of equity will enjoin the company from refusing to allow a stockholder to receive his allotment at par without paying the bonus.^ And generally, a stockholder may enjoin the cor- poration from any attempt to deprive him of this right.' Orhe may sue the company by a special count in assumpsit and re- cover for the loss.* But a clause in a charter, conferring upon s. c. 73 Am. Dec. 726 ; In re Wheeler, 2 A-bb. Pr. N. S. 364; Pratt v. American Bell Telephone Co., 141 Mass. 325; s. c. 55 Am, Rep. 65; Bank of Montgomery v. Eeese, 26 Pa. St. 143; Eidman v. Bowman, (1871) 58 111.^444; Jones t;. Morrison, 31 Minn. UO; 26 & 37 Vic. ch. 118, § 17. Contra, Ohio Ins. Co. v. Nunnemacher, 15 Ind. 294. 1 Cunningham's Appeal, 108 Pa. St. 546. If the' original ordinary stock or shares are at a premiun^, at the time of the issue of the new, the latter is to be offered at par to the holders of the former in propoi'- tion, as nearly as conveniently may be, to the number of original shares held by them respectively. 36 & 37 Vic. ch. 118, § 17. 2 Cunningham's Appeal, 108 Pa. St. 546, Paxson, J., dissenting as to the remedy in equity. SDousman v. Wisconsin &c. Co., (1876) 40 Wis. 418, where it was held that the injunction should be upon the corporation itself and not upon its directors personally, for they may be changed from time to time and thus the decree be ren- dered ineflEective. * Gray. v. Portland Bank, 3 Mast. 864; s. C. 3 Am. Dec, 156; Eid- limitations and authorities, in which the corporation is trustee for the management of the property, and each stockholder a cestui que. trust according to his interest and shares, 'then a limitation of the capital em- ployed in the trust, that it shall not be less than one sum, and not ex- ceeding a certain greater sum, is not a power granted to the trustee to create another interest for the benefit of other persons than those concerned in the original trust, or for their benefit in any other pro- portions than those determined by their subsisting shares. It is clear that a power of that kind might be given, but not by the limitation sup- posed, which plainly relates to one and the same stock. Whether the least or the greatest, or any inter- mediate sum be employed in it, the trust is the same, and for the use and benefit of the same persons. A share in the stock or trust, v^lien only the least sum has been paid in, is a share in the power of increas- ing it, when the trustee determines, or rather when the cestui que trusts agree upon employing a gi'eater sum, within the limits provided in the purposes of the trust." Reese v. Bank of Montgomery, 31 Pa. St. 78 ; §474.J CAPITAL STOCK. m tHe directors the power to increase the stock " on such terms and conditions, and in such manner as to them shall seem best," is held to exclude the shareholders' right to demand that they 'be allowed to subscribe for the new.' The propor- tion of new stock must be approximated as nearly as it may be fixed in integral shares.^ § 474. The same subject, continued.^- Shareholders, of course, have no right to demand a gratuitous distribution of the new stock in proportion to the amount of original stock held by them.' Nor can a majority of the stockholders of a corporation, without the consent of the minority, dispose of new stock without regard to its actual value.* The stock- holder must avail himself of the right within the time pre- scribed, or if none be fixed, within a reasonable time.* A stockholder who has not taken his proportion of new shares of stock in a corporation is deprived of any right to a premium obtained on a sale thereof, pursuant to a vote of the stock- man I'. Bowman, 58 III. 444; Sewall V. Eastern E. Co., 9 Cush. 5. In actions for damages the plaintiff must prove demand and tender of payment within a reasonable, or the specified time. Wilson v. Bank of Montgomery, 29 Pa. St. 537. The measure of damages is the amount ^ by which the market value of the new shares at the time they were issued exceeds the par value thereof, with interest on the excess. Gray V. Portland Bank, 3 Mass. 864; s. 0. 3 Am. Dec. 156; Eeese v. Bank of Montgomery, 81 Pa. St. 78; S. 0. 72 Am. Dec, 726; Eidman v. Bow- man, 58 111. 444. Each shareholder must sue in his own name only, the liability of the corporation in these cases being several and not joint. DousQian v. Wisconsin &c. Co., 40 Wis. 418 ; Williams v. Savage Manuf . Co., 3Md. Ch. 418. , 1 Ohio Ins. Co. v. Nunnemacher, 15 Ind. 294, 296; S. C. 10 Ind. 234. 2 Reese v. Bank of Montgomery, 31 Pa. St. 78; s. C. 72 Am. Dec. 726; 26 & 27 Vic. ch. 118, § 17. 3 Miller v. Illinois &c. E. Co., 24 Barb. 812, 330. ^ Jones V. Morrison, 31 Minn. 140. 5 Brown v. Florida Southern Ry. Co., 19 Fla. 472; Hart v. St. Charles Street E. Co., 30 La. Ann. 758, where it is also held that a verbal notification by the shareholder that he will take the new stock is suffi- cient to render the company liable in damages for disposing of it to others ; Terry v. Eagle Lock Co. , 47 Conn. 141; Sewall v. Eastern R. Co., 9 Cush. 5. By the statute, iu England, if the offer be not accepted within a month, it will be deemed to have been declined. But the direct- ors are empowered to allow a share- holder who on account of absence abroad or other satisfactory cause omitted to signify his acceptance, to take the stock after the expiration of that time. 26 & 37 Vic. ch. 118, §30. ff73 CAPITAL STOCK. [§ 475. holders, unless the vote in terms so provides.' The holders of - serip, convertible at a certain time into the stock of the com- pany, are not entitled to sh&re pro rata with the stockholders in an increase of stock made before the time for the conver- sion of the script certificates into stock:^ § 475. Liability of holders of the new shares. — The re- cital in certificates issued to and received by old shareholders, tliat the shares were fully paid up and free from all claims and demands on the part of the company, can not relieve them from liability to creditors, even if valid against the cor- poration.' In a recent case after an irregular increase was made in the capital stock, a portion of the new shares was distributed among the stockholders, upon the understanding that they were the owners of the new stock in proportion to the amounts they respectively held of the old, and the certifi- cates issued to them recited that the stock was paid up. The corporation then became indebted to complainants, who had notice of the increase of the capital stock, but not of the dis- position made of it, and afterwards the corporation became insolvent. Upon this state of facts, the stockholders were held to be liable to complainants for the full amount of the new stock so issued to them, and not paid for; the capital stock being a trust fund for the benefit of creditors.* While these stockholders entered into no express undertaking to pay for these shares, biit intended and expected to receive and hold them as fully paid, in accordance •with the recital of the certificates issued therefor, still this acceptance and holding of the certificates until the iiisolvency of the company oper- ates to impose upon them the legal obligation to pay up the shares in order to discharge the demands of creditors.' There is no difference in principle between making a stockholder 1 Masoii V. Duval Mills, 132 Mass. Rep. 332 ; s. c. 7 Ey. ft Corp. L. J. 76. 407. 2 Pratt V. American Bell Telephone 5 stutz v. Handley, (1890) 41 Fed. Co., 141 Mass. 225; s. 0. 55 Am. Rep. Rep. 332; s. a 7 Ry. & Corp. L. J. 465 ; Miller v. Illinois Central R. Co., 407 ; Upton v. Tribllcock, 91 U. S. 47, 24 Barb. 3.12. 48, where the shareholder had paid s Hawley v: Upton, 102 U. S. 316 ; twenty per cent, of the shares, and Stutz u. Handley, (1890) 41 Fed. Rep. the certificate, issued to him for the 332; s. C. 7 Ry. & Corp. L. J. 407. whole' amount, had stamped across < Stutz V. Handley, (1890) 41 Fed. its face the word "Non-assessable." § 475.] CAPITAL STOCK. 'm pay a larger per cent, on his shares than he has expressly agreed and, undertaken to pay, and compelling a shareholder to pay up the whole amount represented by certificates which he has accepted, and holds under contract as paid-up shares, but which have not in fact been paid. If the unpaid balance may be reached and subjected to the payment of corporate debts, in disregard of the contract, why may not the unpaid whole of outstanding shares be likewise reached and sub^ jected, notwithstanding the agreement that they should be treated or considered as fully paid ? ^ The court held that "the acceptance and holding of a certificate of shares in an incorporation makes the holder liable to the responsibilities of a shareholder." The legal eflfeotof the certificate was to make the remain- ing eighty per cent, payable on de- mand. The court said : " We see no qualification of this result in the word ' non-assessable,' assuming it to be incorporated into and to form a part of the contract. It is quite extravagant to allege that this word operates as a waiver of the obliga- tion, created by the acceptance and holding of a certificate, to pay the amount due upon the shares. A proniise to take shares of stock im- ports, a promise to pay for them. The same effect results from an ac- ceptance and holding of a certifi- cate." The rule thus laid down was re-afSrmed in the subsequent cases of Sanger v. Upton, 91 U. S. 64 ; Webster v. Upton, 91 U. S. 67, 71; Chubb V. Upton, 95 U. S. 666; Haw- ley V. Upton, lOa U. S. 316. 1 Stutz V. Handley, (1890) 41 Fed. Eep. 333; s. 0. 7 5y. & Corp. L. J. 407. So in Hawley v. Upton, 103 U. S. E16, the, shareholder's express written agreement with the corpora- tion was to pay $200 (or twenty per cent, of its par value) for ten shares of the increased stock.. As. between him. and the. corporation,, this would have been held valid, but as against creditors it was held not binding, and he was required to pay up the remaining eighty per cent., the court saying that " as the company could not sell its stock at less thin par, what was done amounted in law to a subscription for the stock, and nothing else. It is true the stock he took purported to be non- assessable ; but that, in law, could only mean that no a.ssessment would be made beyond' the percentage he had specially bound himself to pay, unless the legal liabilities of the com^ pany required it."/ All the Upton Oases dealt with increased or new stock, and the Supreme Court, in favor of the representative of credit- ors, disregarded the special contracts made between the corporation and the shareholders, and compelled the latter to pay in full for their sharesi To the same effect, see the well- considered case of Flinn v. Bagley, 7 Fed. Rep. 785. In harmony with the principle enforced in these cases is the decision of the Kentucky court > of appeals in the case of Haldeman V. Ainslie, 83 Ky. 395, in which the capital stock of the corporation, or'- ganized under the same general law as the Clifton Coal Company, was fixed at $1,30.0,000; and it was pro- vided, by section 5 of the articles of incorporation, tliat each subscriber, 774 CAPITAL STOCK. [§ 476. § 476. Liability upon new shares issued as a bonus.— This liability for the full amount represented by the unpaid stock, on the insolvency of the corporation, extends to persons to whom a portion of the new stock was issufed as an inducement to purchase bonds of the corporation, though they, too, received certificates reciting that the stock was paid up, since their ac- ceptance and holding of the stock is, in legal effect, a subscrip- tion therefor which imports a promise to pay.' An agreement upon executing his note for $1,000, payable in bank, and paying $500 in cash, should become entitled to paid- up stock of four hundred shares ($40,000). The private property of stockholders was exempt from lia- bility for corporate debts, and the charter further provided that " the highest amount of indebtedness to •which the corporation is at any time to subject itself shall be the sum of $15,000." The managing officers con- tracted debts far beyond this limit, and the corporation became insolv- ent. The court held that creditors could compel the payment of the entire stock (of $1,200,000), if neces- sary to satisfy their demands. The court says: "The effect of the lim- itation upon the amount to be paid by the subscribers for their, stock would not exempt them from liabil- ity to a creditor who had dealt with a corporation in ignorance of the articles of association, limiting the amount of the indebtedness to be created by the corporation or those conducting it. . . . The public had the right to believe that each subscriber, taking fpur hundred shares of stock at $100 per share, had either paid up his stock, or was liable (or the amount ; and when trusting the corporation upon the faith of ' its ability to pay, and without any knowledge as to the restrictions con- tained in the contract between the ptockholders, a creditor of the corpo- ration could compel the payment of the entire stock, if necessary to sat- isfy his demand." The case of Christensen v. Eno, 106 N. Y. 97, was especially pressed as sustaining de- fendants' position in Stutz v. Hand- ley, 41 Fed. Eep. 333, where, how- ever, the court said: "That case is certainly an authority in favor of defendants, but it is not in harmony with the authorities above referred to. The facts of the case were that the Illinois & St. Louis Bridge Com- pany issued to Euo twenty-flve shares of its capital stock, lipon wliich forty pey cent, was not paid, but was credited as paid when the stock was issued. The complainant, a judg- ment creditor of the corporation, Sought to compel Eno to pay up the unpaid forty' per cent, toward the satisfaction of his debt. The court, following the English cases cited by counsel for defendant, Snd without even referring to the decis- ions of the Supreme Court of the United States, held that the credit- ors could not recover, because Eno had entered into no contract with the company to pay the unpaid forty per cent. I am unable to reconcile this decision with the principles an- nounced and applied by the Supreme Court- in the above-cited Upton Cases, which are binding upon and should be followed by this court." Stutz V. Handley, (1890) 41 Fed. Eep. 382. 1 Stutz 11. Handley, (1890) 41 Fed. Rep. 332; s. o. 7 Ry. & Corp. L. J. § m.-] CAPITAL STOCK. Y75 by which pei'sons organizing a corporation are to have bonds of the corporation to an amount equal to the stock subscribed for, secured by mortgage on the corporate property, is illegal and void, and can not be enforced against the corporation, ' even though the rights of no creditors of the corporation are involved.' So far as the rights of creditors are involved and 407, where the court said: " On be- half of all the defendants who ac- cepted and held certificates of the new stock, 'distributed' to them along with bonds, it is urged that they can not be held liable thereon to creditors, because they were in no sense subscribers for such stock, and entered into no contract and assumed no obligation to pay therefor. It is claimed for them that neither the company nor the old stockholders could enforce such a liability upon or against them, and that creditors can assert no better or superior rights. Assuming that the subscrip- tion paper of December 80, 1886, which stated that ' it is agreed that $50,000 of the 1200,000 capital stock be distributed pro rata among the eubscribers to the above bonds,' con- stituted a contract between the sub- scribers for the bonds and the corpo- ration, rather than an agreement between themselves, made with the consent and approval of the old stockholders, are creditors, who dealt with the company without notice or knowledge of that arrange- ment, precluded from recovei-ing of defendants who accepted and held certificates of stock thereunder? The property of the company was considered ample security for the payment of the bonds, and the dis- tribution of stock to the subscribers for the bonds was, not in fact, or by the terms of the subscription paper, in any proper sense a sale of such 6tock at and for its market value." 1 Morrow v. Iron &c. Co,, (1889) 87 Tenn. 863; s. C. 5 Ey. & Corp. L. J. 206. It was said by the court that "whether this ' basis of organ- ization ' be construed to be a contract whereby each subscriber to the stock was to be given a bond as a bonus, or each subscriber to the bonds was to be given paid-up stock as a bonus, or as an agreement by which each contributor to the capital stock was to receive the obligation of the com- pany, sectfred by a primary mort- gage, that he should be repaid the amount of his subscription with in- , terest, such agreement would clearlyi be illegal and ineffective as to exist- ing or subsequent creditors of the corporation, upon the ground that the payment for the stock was un- real and simulated, or that the bond had been issued upon no considera- tion;'' citing Sawyer v. Hoag, 17 Wall. 610; and Scovill v. Thayer, 105 U. S. 143. And after approving of the principle of these cases, that the unpaid stock of a corporation consti- tutes a trust fund for the benefit of general creditors, which can by no contrivance or device be released, the court held that the legal effect of the scheme, by which every sub- scriber was to have bonds, and also stock of the company, each to the amount of the subscription, was to throw all the risks and hazards of the business upon the public, who should deal with the corporation; while the contributors were to reap all possible gains, and be secured against loss in the event the enter- prise proved unprofitable. Such a 776 CAPITAL STOCK. [§ 477. affected, precisely the same objection exists against the sub- scriber for bonds of corporations taking increased stock as a bonus that exists against the taking of original stock as a bonus, on one and the Same consideration.' § 477. Increase by stock dividends. — The capital stock of corporations may be increased by means of stock dividends which are the issue by a corporation, as a dividend, of new shares, which have been paid up by the transfer from the sur- pliis or profit and loss account to the account representing capital stock, of a sum equ-al to their par value.^ After a contract was considered invalid, even as to the corporation, •Stutz V. Handley, (1890) 41 Fed. Rep. 333; s. c. 7 By. & Corp. L. J. ' 407, where the court continued : ' ' In each case the party thus dealing with the corporation seeks, on. the payment or contribution of one amount, to acquire both a debt against the company and a. pro rata share and interest in the enterprise, withciut risk to himself. The Ifegal effect of such an arrangement, either as to increased or original stock, -is an undertaking on the part of the corporation to, return or repay his contribution or loan, with interest, confer upon him all the rights of a shareholder, and exempt him froni all obligation to account for the trust fund represented by bis share. The transaction casts upon the pub- lic, dealing with the Corporation, all the risks and hazards of the enter- prise; and allows the holders of the shares, while reaping all the beneiBts and advantages of its success with- out liabilities for losses, to call for and require a re-payment of his ad- vance. The settled principles of the law, which.impreBs upon the capital stock of a corporation the character of a trust fund, and establish trust relaitions between h<3lders of such stoek while unpaid, and creditors of the corporation, will not sanction such a contract when the rights of creditors are involved. In tdis re- spect no valid distinction exists be- tween original and new stock. . The Supreme Court in Chubb v. Upton, 95 IT. S. 667, places the increased stock of a corporation upon the same footing as the original stock, and has steadily refused, as against creditors, to recognize any disposi- tion thereof which could not have been' made of the original stoek. The settled doctrine of that court is that creditors without notice are not affected by any arrangement or de- vice between the corporation and those accepting shares of its stock which fall short of actual payment therefor in good faith. In Sawyer V. Hoag, 17 Wall. 618, 619, the trans- action was valid as between the cor- poration and the shareholders, but was held invalid as against the rep- resentatives of creditors.'' 2 " Stock Dividends and their Re- straint," by M. Dwight Collier, (1884) 7 Am. Bar Assoc. Reps. 368. In Williams v. Western Union Tel. Co., 93 N. Y. 189j a stock dividencj has been sustained on the grounds that there was no statute in the State pro- hibiting it. Such dividends do not affect the title of the property or transfer any legal consideration ol § 478.] CAPITAL STOCK. 77V stock dividend, a corporation has just as ranch property as it had before. It is just as solvent, and just as capable of meet- ing all demands upon it. After such a dividend, the aggre- gate of the stockholders own no more interest in the corpora- tion than before. The vphole number of shares before the stock dividend represented the whole property of the corpo- ration, and after the dividend they represent that and no more. A stock dividend does not distribute property but simply dilutes the shares as they existed before.' The English ' cases decided that profits and dividends must be paid in cash; ' but the leading American case has stated the rule to be that they may be declared and divided in property, if the property be capable of division. And if the profits have been invested in other property necessary for the use of the corporation which can not be divided in kind, then a dividend may be de- clared, based upon these profits, or the corporation may bor- row money on the faith of them and divide it.^ The money earned by a corporation' is corporate property, and not the , separate property of the stockholders, unless and until dis- tributed among thenl by the corporation. In the absence of any restraining statute, the corporation may treat it either as an increase of its property or as profits of its business.' § 478. The power to issue stock dividends. — The power to issue stock dividends, however, depends upon the company hay- ing authority to inoreaiSe its capital stock or upon all the origi- nal shares not having been issued.* Subject to this restriction property from the receiver to the cor- Gordon u; Richmond &c. R. Co., 78 poration., They are merely changes Va. 501. But instead of paying the of the entries in the books of the stock dividend to the shareholders company. See generally, State v. it may be issued to the corporation Baltimore &c. R. Co., 6 Gill, 363; and be sold for its benefit. Jones u. ,City of Ohio v. Cleveland &c. R. Co., Morrison, 31 Minn. 140. 6 Ohio St. 489; Rand v. Hubbell, 115 i Williams v. Western Union Tel. Mass. 461, 474;. Boston &c. R. Co. v. Co., (1888) 93 N. Y. 189. Commonwealth, 100 Mass. 399; Mil- 2 Williams v. Western &e. Co., 93 ler u. Illinois Central R. Co., 24 Barb. N. Y. 189; Beers v. Bridgeport &c. 313; Commonwealth v. Pittsburgh Co,, 43 Conn. 34. &c. R. Co., 74 Pa. St. 83; Barton's ^Rand v. Hubbell, 115 Mass. 474. Trust, L. R. 5 Eij. 339; Howell V. ^ Howell v. Chicago &o. R. Co., ni Chicago &e. R. Co., 51 Barb. 378; Barb. 378; Leland v. Hayden, 103 Clarkson v. Clarkson,. 18 Barb. 646; Mass. 543; Deland v. Williams, lul .778 CAPITAL STOCK. [§ m. and to the further restriction that every dollar of new stock shall represent an equal increase in the value of the corpo- rate property,* the discretion of the directors herein is uncon- trollable by the courts.^ A stock dividend is exceptional in its character, and the objections to it as bearing upon the value of the stock, address themselves more to the managers than to the court.' But a gratuitous distribution of stock upon no increase of value in the corporate property, a mere infla- tion, or, to use a phrase much in vogue, a " watering of Stock," is condemned by law.* The holders of preferred stock are entitled to share equally with common stockholders in a dis- tribution of stock dividends.^ Scrip certificates of debt, repre- senting profits earned by the corporation and issued to its stockholders, convertible into stock when authority to increase the stock shall be obtained, belong to the life-tenants of the stock, who are entitled to the income and profits thereof.* Mass. 571 ; Boston &c. E. Co. v. Commonwealth, 100 Mass. 399; Ml- not V. Paine, 99 Mass. 101 ; Atkins v. Albiee, 12 Allen, 359. The Western Union Telegraph Co. contracted with two other companies to purchase their property and franchises, and to pay for the same with a part of an addition of capital stock, the rest of the addition to be paid to its stock- holders as a siock dividend, and it was held, that the New York stat- utes conoe),-ning telegraph companies conferred ample power to increase the stock and to make the purchase, it appearing that the property pur- chased was worth the price, and that nothing in the law or in the prin- ciples of public policy prohibited the stock dividend ordered to be paid to stockholders, the amount of the dividend not exceeding the value of the shrplus. Williams v. Western Union Telegraph Co., 93 N. Y. 163, overruling Hatch v. Western Union Tel. Co., 9 Abb. N. C. 430, which de- clared that accumulated earnings on which no dividend has been declared, lurnish no consideration for issuing stock to be divided among the stock- holders, and that such a dividend would be ultra vires. 1 Williams v. Western Union Tel. Co., (1883) 93 N. Y. 189; Howell v. Chicago &p. Ky. Co., 51 Barb. 378; Bailey v. Eailroad Co., 23 Wall. 604. ? Williams v. Western Union Tel. Co., (1883) 93 N. Y. 193; Terry v. Eagle &c. Co., 47 Conn. 141, holding that a vote to issue a stock dividend may be revoked at any time before the certificates are issued. Of. How- ell V. Chicago &c. E. Co., 51 Barb. 307i holding that the courts of one State will not inquire into the legality of an issue of stock dividends by a corporation deriving its origin from another State. 3 Howell V. Chicago &c. E. Co., 51 Barb. 307. * Williams v. Western Union Tel. Co., (1888) 93 N. Y. 189. ■ " 5 Phillips u. Eastern E. Co., 138 Mass. 133; Gordon v. Eichmond &c. E. Co., 78 Va. 501. 6 Appeal of Philadelphia Trust. Safe Deposit &c. Ins. Co., (Pa. 1889) 16 Atlan, Bep. 734. §§ 479, 480.] CAPITAL STOCK. 779 § 479. Prohibitions of stock diyidends.— There are many statutes and constitutional provisions in the American States prohibiting the fictitious issue and increase of corporate stock.' Some of these provisions do not specifically mention stock dividends ; but a prohibition of the issue of stock except for labor done, or money or property actually received, is held to forbid the gratuitous issue of new shares even though repre- senting an increase in the value of the corporate property.'^ But the Massachusetts act, above cited, is held not to prohibiD a company from purchasing its own shares and distributing; them among its shareholders.' The prohibition in the Cali- forivia constitution is held to be self-enforcing and to require no statute to render it effective.* § 480. Eeduction of capital stock — (a) Authority neces- sary. — The capital stock of a corporation can not be reduced except by express legislative authority.* Thus a provision that for the better conduct and management of the affairs of the company, it should be lawful for a special general meet- ing called for the purpose, from time to time, to amend, alter or annul, either wholly or in part, all or any of the clauses of the deed, or of existing regulations and provisions of the com- pany, does not authorize a reduction of the number and value of the shares of the company.^ "Where a constitution and the law thereunder provide for the increase of the stock of cor- porations, but are silent as to a decrease, the power to decrease iThe New York "Stock Corpora- 3 Commonweal th u Boston &c. R. tion Law of 1890," N. Y. Laws of Co., (1886) 143 Mass. 146. 1890, oh. 564, §43; Ark. Const. (1874) *Ewing v. Oroville Min. Co., 56 art. xii; Pa. Const, art. xvi, § 7; Cal. 649, construing Cal. Const, art.. Ala. Const, art. xiii, § 6; Mo. Eev. xii, § 11. Stat. 937; N. H, Gen. Stat. ch. 134, sseignouret v. Home Ins. Co., § 8; Wis. Rev. Stat. (1878) § 1753, as (1885) 34 Fed. Rep. 333; S. C. 25 Am. amended by Laws of 1881, ch. 98 ; L. Reg. 29. Mass. Pub. Stat. ch. 113, § 61; Stim- 6 Smith v. Goldsworthy, 4 Ad. & son's Am. Stat. Law, (Jan. 1, 1886) E. N. S. 430; Droibwich &c. Co. v. § 453, citing the constitutions of Curzon, L. E. 3 Exch. 35; In re California, Alabama, Colorado, Lou- Ebbw Vale &c. Co., 4 Ch. Div. 827; isiana, Missouri and Texas, as to I?i re Financial Corporation, L. R. 3 corporations in general ; and the con- Ch. 714; Society v. Abbott, 3 Beav. stitutions of Illinois and Nebraska 559; Grangers' &c. Co. v. Kamper, as to railway companies. 73 Ala. 335 ; Salem Mill Dam v. 2Fitzpatrick v. Dispatch &c. Co., Ropes, 6 Pick. 33. (1887) 83 Ala. 604. T80 CAPITAL STOCK. [§481. the stock is intentionally denied.^ Kor does a statute giving authority to make modifications, additions or changes in their act of incorporation, or to dissolve it, with the assent of three fourths of the stock, confer upon them power to reduce the capital stook.^ Even the power to dissolve does not carry the power to change the capital stock. Eeducing the capital stock is practically the dissolution of the company and the organiza- tion of a new cornpany.' Persons dealing with the corpora- tion, its creditors, the public at large and the stockholders themselves are interested in the preservation of the capital stock intact.* A decrease of ca-pital stock affects injuriously more parties and interests than an increase thereof could do, an increase being generally considered to be beneficial to shareholders and creditors alike — to the former as tending to diminish and not to add to their individual risks; to the latter as increasing the amount of their security.' § 481. (b) By purchase of shares. — Of course a company ma}' accomplish a reduction by purchasing and extinguishing its own shares, where it has authority to buy them." This, however, does not necessarily reduce the capital stock, unless so intended, nor extinguish the shares bought in; for they may he sold, and reissued at any time.' A statute which au'- iSeignouret v. Home Ins. Co., the investments they have respect- (1885) 24 Fed. Rep. 333; Sutherland ively made. Percy v. Millaudon, V. Alcott, (1884) 95 N. Y. 93. 3 La. 569. ^Selgnouret v. Home Ins. Co., sgeignouret v. Home Ins. Co., (1885) 34 Fed. Rep. 332; s.C. 25 Am. (1885) 24 Fed. Rep. 383; Green's L. Reg. 29. Brice's Ultra Vires, 160. ^Seignouret v. Home Ins. Co., 6 Taylor v. Miami Exporting Co., (1885) 34 Fed. Rep. 833. 6 Ohio, 176 ; s. c. 5 Ohio St. 163; s. c. * Creditors and customers have a 23 Am. Bee. 785 ; City Bank v. Bruce, claim to the preservation of the capi- 17 N. Y. 507; Cun-ier w. Lebanon tal of a bank in its original integrity, Slate Co., 56 N. H. 263; State v. upon the faith of which the notes of Smith, 48 Vt. 366; "Williams v. Sav- the institution are issued, money is age Manuf. Co., 3 Md. Ch. 418. deposited and paper is lodged for ^ Taylor v. Miami Exporting Co., collection. So lias the public on ac- 5 Ohio, 168 ; s. c, 33 Am. Dec. 785 ; count of the advantages which the s. C. 6 Ohio, 176 ; Vail v. Hamilton, llBgislature has stipulated the bank 85 N, Y. 453 ; City Bank v. . Bruce, should afford, as a consideration for 17 N. Y. 507; Ex parte Holmes, 5 the imnjunities and privileges which Cow. 436 ; State Bank v. Fox, 3 the charter confers. So have stock- Blatchf. 431 ; American Ry. Frog holders, on account of the profits Co. v. Haven, 101 Mass. 898 ; Com- whichthey have a right to expect on monwealth v. Boston &o, R. Co., §.482.] CAPITAL STOCK." 781 thorizes a corporation at any meeting called for the purpose, to reduce its capital stock and the number of shares therein, does not empower it to effect a reduction by purchasing shares of a particular subscriber. Unless such a course is adopted as will work exact and even justice to all the owners of stock, the statute is inoperative.^ Therefore when the transaction would operate for the relief and benefit of those from whom the stock is purchased and would increase the liability of the remaining stockholders, it is invalid.' § 483. (c) By refunding. — A company may refund to its sto6kholders a definite portion of each share, and thereby ef- fect a reduotioTi of its capital stock." The New York " Stock Corporation Law " of 1890 provides that if the capital stock of any corporation is reduced, the amount of capital over and above the amount of the reduced capital shall be returned to the stockholders pro rata at such times and in such manner as the directors shall determine.* In construing a similar act, it has been said ;by the New York appellate court, that the objects sought to be obtained by the enactment were the pro- tection of corporate creditors, and the assurance of a fund sufficient to carry out the corporate purposes, and it permits a reduction where either it was originally fixed at too high a sum or has become impaired, so that the nominal exceeds the actual sum. It does not, therefore, permit the distribution among stockholders of a sum equal to the, difference between the nominal and the reduced capital, although if that sum may be taken out and yet leave the capital of the company unimpaired and the creditors secure, it may be divided among shareholders as a surplus entitled to be distributed in divi- dends.^ ' Upon a reduction being made, however, the share- (1886) 142 Mass. 146; State v. Smith, 2 Currier v. Lebanon Slate Co., 56 48 Yt. 266; Williams v. Savage N. H. 263. Manuf. Co., 3 Md. Ch. 418; Currier sciirrier v. Lebanon Slate Co., 56 V. Lebanon Slate Co., 56 N. H. 362; N. H. 263. Chetlain v. Republic Life Ins. Co., < N. Y. Laws of 1890, ch. 564, g 46. 86 111. 230. Cf. Percy ti. Millaudon, 5 strong n. Brooklyn &c. E. Co., 3La. 568, 587; s. C. 17 Am. nee. 196. (1883) 93 N. Y. 426. In this case a 1 Currier y. Lebanon Slate Co., 56 corporation, by proceedings under N. H. 262 ; Gill v. Balis, 72 Mo. 424 ; the statute, reduced its capital stock Chetlain v. Eepublic Life Ins. Co., 86 and issued to stockholders certifl- III. 330; N, H. G. S. o. 354, § 6. cates of indebtedness for the ap- Y82 CAPITAL STOCK. [§§ 483, iM. holders may propferly claim a distribution of the money which the corporate body, on account thereof, has no longer the right to use as capital.^ § 4:83. Loss of property not a reduction of capital stock. In case of a loss of property it is held that a reduction of capital stock which amounted to a mere writing off of t^e loss, is not a reduction of the company's capital within the meaning of statutes authorizing a reduction.'^ Thus, where since the organization of a corporation the capital had been nominal, to the extent that only by estimation had the actual capital of the company been equal to the par value of the shares, and it was proposed to write off the par value of the shares so that the par value and the estimated value might be equal, the actual capital hot being affected, the actual stock being the same after the proposed, action as before, it was said that the writing off the value of shares was such an infringe- ment of the rights of property as could only be accomplished by consent or a clear power given in the charter. It could not be lawful over the protest of dissenting stockholders.' § 4:84. Liability of shareholders after reduction. — The liability of shareholders as affected by an increase or reduc- tion of the capital stock has been already treated in a previous chapter.* The recent "Stock Corporation Law" of New York, enacts with respect to reduction of capital stock that the amount of the company's debts and liabilities shall not exceed the amount of its reduced capital, and that the owner of any stock shall not be relieved from any liability existing parent amount of the reduction, on hand capital suflScient for the The owners of all but one hundred payment of all its debts after mak- shares out of four thousand accepted ing the distribution, no reason ex- the certificates, and it was held, isted why it should not be permit- upon the application of the owner of *ted, even conceding the certificates a part of the hundred shares to have to have been illegally issued. , the issue declared illegal, that al- ' Seeley v. New York &c. Bank, 78 though the act probably contem- N. Y. 608, afi&rming s. c. 8 Daly, 400. plated a reduction of capital stock ^ In re Ebbw Vale &c. Co., (1877) only in cases where the capital had 4 Ch. Div. 832. become impaired, and, in such case, " Seignouret v. Home Ins. Co. a distribution such as was herein at- (1885) 24 Fed. Rep. 332; s. c. 25 Am. tempted would be illegal, yet as, in L. Eeg. 29. the suit at bar, the corporation had * Vide supra, § 148. § 4:&5.} CAPITAL STOCK. 783 prior to such reduction.' Where capital stock has been only partially paid in, it is not permissible to reduce the nominal capital to the sum actually paid. Even in a case where there was apparent statutory authority so to do; it was said that if such a proceeding were permitted, the shareholders' liability would be limited not, as was intended, by the amount of their shares, but by the amount of the already, paid-up portion of their shares. Justice, the language of the act, and the inten- tion of the legislature, alike forbids an interpretation which would lead to such a result.^ Where directors have increased their capital stock by resolution, as empowered by their char- ter, they can not afterwards, even at the unanimous request of the stockholders, rescind their vote increasing the stock, so as to accomplish a reduction from the figure first determined upon to one representing the amount of the stock subscribed, being a greater amount than that from which the increase was made.' § 485. Irregularly issued stock — How far valid. — T'he validity of irregularly issued stock is based upon its analogy to the case of a de facto corporation.* If a corporation is au- thorized by law to increase its capital stock, upon complying with certain prescribed forms or conditions, and the corpora- tion or its agents appear to have endea,vored to comply with the prescribed forms or conditions, and have in fact increased thre company's capital stock by issuing new shares, on the as- sumption that the legal right to increase the capital stock had 1 N. Y. Laws of 1890, ch. 564, § 44. s Sutherland v. Olcott, (1884) 95 In case of a reduction of the capital N. Y. 93. stock, except of a railroad corpora- ^Scovill v. Thayer, 105 U. S. 143; tion, the certificate thereof shall Chubb v. Upton, 95 U. S. 667, where have jndorsed thereon the approval it is said that "if it be conceded that of the comptroller, to the effect that its increased stock is but de facto, the reduced capital is sufficient for and that it could have been annulled the proper purposes Of the corpora- or suppressed by the action of the tion, and is in excess of its debts and attorney-general as acting under an liabilities, and th^t the actual mar- irregular organization, the defend- ket value of the stock before reduc- ant derives no aid from the admis- tion was less than its par value, sion. The cases cited are clear to N. Y. Laws of 1890, ch. 564, § 46. the point that he can not make the 2 Droitwich &c. Co, v. Curzon, objection, but must perform the en- (1867) L, R. 8 Ex. 43. gagement he has.made." tBi CAPITAL STOCK. '[§ *85. been acquired, and if the holder of the new shares has acted as a shareholder, and enjoyed the rights of a shareholder, then the creation of the new shares will be recognized by the courts, and given effect according to the intention of the parties, al- though the statutory forms or conditions were not complied with, and no legal right to create the new shares was in fact obtained.^ Therefore where a corporation has by its charter the power to increase its capital stock, its stockholders, who have acquiesced in such an increase and received the stock issued thereupon, when sued by a creditor of the corporation for the amount unpaid on their shares, are estopped to say that the increase was invalid because it was not published and recorded as required by the general law under which it was made.^ Being invested with authority of law to make an in- crease of its capital stock, it is settled by the-decisions, espe- cially of the federal Supreme Court, that neither the corpora- tion, nor stockholders who accept such increased stock, can, after the insolvency of the company, question its validity as against creditors, for any failure or neglect on the part of the company to do some other act, the. performance of which rested or depended upon itself. There is a clear distinction between the power to make an increase of stock and the for- mality to be observed or act to be subsequently performed by the corporation in the exercise of such power. A want of power or lawful authority will defeat or render void an at- tempted increase, while irregularities in the exercise of con- ceded power are never allowed to invalidate such stock, or to furnish the holders thereof an available defense against lia- bility thereon. Where the power to increase its capital stock exists, and is exercised, the corporation's failure to perform some act devolving upon itself, in connection therewith, such as recording and publishing its action, constitutes an irregu- larity or neglect of duty of which the State only can complain or take advantage in a direct proceeding against the corpora- tion ; but stockholders who have accepted portions of such in- creased stock are estopped from denying the validity of the 1 Morawetz on Corporations, § 763, Rep. 531 ; s. c. 7 Ey, & Corp. L. J. quoted in Stutz v. Handley, (1890) 407; Walton v. Riley, (1887) 85 Ky. 41 Fed. Rep. 531. 413, overruling Heinig «, A.dams &o, 2Siutz V. Handley, (1890) 41 Fed. Manuf. Co., 81 Ky. 30.0. § 485.] CAPITAL STOCK. 785 increase upon any such irregularity or neglect. This is clearly settled by what are known as the Upton Cases.' 1 Upton V. Ti-ibilcock, 91 U. S. 45 ; Sanger v. Upton, 91 U. S. 56; Web- ster V. Upton, 91 U. S. 65; Chubb V. Upton, 95 U. S. C65; Pullman v. Upton, 96 U. S. 328 ; and Casey v. Galli, 94 U. S. 673; Stutz v. Hand- ley, (1890) 41 Fed. Rep. 531 ; S. c. 7 Ey. & Corp. L. J. 407. The prin- ciples announced in these cases are not in anywise modified or affected bj' the subsequent decision of Sco- vill V. Thayer, 105 U. S. 148, in which the distinction between the want of power to make an increase, and irregularities or informalities in the exercise of a conceded power, as above suggested, is illustrated and applied. Stutz v. Handley, (1890) 41 Fed. Rep. 531 ; s. c. 7 Ry. & Corp. L. J. 407. In Scovill v. Thayer, 105 U. S. 143, by the law of Kansas, the power of the company to increase its stock was expressly limited and confined to double the amount orig- inally authoi'ized. The attempted * increase -was in excess of that amount. It was held that such ex- cess was void, and conferred no right and imposed no liability upon the holders thereof, upon the ground that there was a want or lack of power on the part of the company to make such an increaise. For this reason, those who received certifi- cates for such unauthorized Stock, although they attended corporate meetings, were held not to be es- topped from disputing its validity. The Supreme Court, speaking by Mr. Justice Woods, say. "We think he (the holder of such stock) is not es- topped to set up the nullity of the unauthorized stock. It is true that it has been held by this court that a stockholder can not set up informali- ties in the issue of stock which the 50 corporation had the power to cre- ate ;." citing the Uptoq Cases. '• But those were cases where the increase of the stock was authorized by law. The increase itself was legal, and withip the power of the corporation, but there were simply informalities in the steps taken to effect the in- crease. These, it was held, were cured by the acts and acquiescence of defendant ; but here, the corpo- ration being absolutely without power to increase its stock above a certain limit, the acquiescence of the shareholder can neither give it validity nor bind him or the corpo- ration." The reason for the distinc- tion thus indicated is founded upon the principle that a corporation has no inherent authority of its own motion, or by its own action, to effect fundamental changes in its constitution or organic law, such as an increase in its capital stock in- volves. It is an essential prerequi- site or condition precedent to the validity of such a change that the sovereign by whom the corporation is created, or under whose law it is organized, shall give its consent thereto, either in the company's charter, or by some general or spe- cial act. But when such authority is conferred, those who accept stock under the exercise of the power by the corporation are not allowed to shield themselves from liability in respect thereto by setting up the failure on the part of the company or of themselves to perform any sub- sequent, act or duty resting within its or their own control, such as making, recording, or publishing a certificate of such corporate action. Stutz V. Handley, : (1890) 41 Fed. Eep. 531 ; s. 0. 7 Ry. & Corp. L, J. 407. 786 CAPITAL STOCK. [§ 486. . § 486. The same subject continuea.— It can not now be denied that if a corporation having power to issue stock cer- tificates does in fact issue such a certificate, in which it af- 'firms that a designated person is entitled to a certain number of shares of stock, it therebj^ holds out to persons who may- deal in good faith with the person named in |he certificate that he is the owner and has capacity to transfer the shares. This does not rest on any view of the negotiability of stock, but on the general principle appertaining to the law of estop- pel. The certificate itself must be regarded as a continuous representation of the ownership of the holder; it is eqiiivalent to jin affirmative answer to an inquiry made at the office of the company.^ Accordingly a corporation whose agents have issued spurious stock i§ answerable where the directors of the corporation have either authorized, or by their negligence al- lowed, the fraud to be perpetrated ; but not otherwise.^ Thus it has been held that a corporation was liable for money ad- vanced to the treasui-er upon certificates of shares of stock of the company, signed in conformity with its resolutions and issued to the treasurer himself, although they were in fact spurious and fraudulently issued, it appearing that they were taken by the plaintiff in good faith.' And where a corporate agent is clothed with authority, either by direct-appointment or by recognition and ratification, or by actual enjoj'ment of the fruits of his acts, or by long acquiescence therein from which a presumption of implied agency arises, the issuing of the certificates by him must be held to be within the scope of the real and apparent authority which he possessed; and the remedy of the shareholders is not prejudiced by the^ fact that the agent used" and intended to use the avails for his own purpose.* In such cases, where the condition upon which the agent can issue a certificate of stock is a transfer on the books 1 Holbrook v. New JerseyZinc Co., 61 N. Y. 280; s. C. 6 Lans. 250-, Peo- 57 N. Y. 621, pie v. Parker &c; Co., 10 How. Pr. 2 New York &c. R. Co. v. Schuyler, 551. (1865) 34 N. Y. 30. See, , however, *N^ew York &c. E. Co. ». Schuyler, the earlier cases of Mechanics' Bsink (1865) 34 N. Y. 30, 64; Bradley i>. V. New York &c. R. Co.,, 15 N. Y. Richardson, 2 Blatchf. 343; s. c. 28 599, and New York, &e. R. Co. v. Vt. 720 ; Tome v. Parkersburg Branch Schuyler, 38 Barb. 534. R. Co., 89 Md. 36, 87.; Ang. & Ames 3 Titus u. Great Western &o. Co., on Corp. 216; Story on Agency, g 54. -187.] CAPITAL STOCK. 78.7 and the surrender of a previous certificate, if any had before be^n issued, these facts are whoU}'' extrinsic and peculiarly within the knowledge of the agent as part of the special du- ties to be attended to by hira, and are represented by him to exist by the certificate itself. Where the principal has clothed his agent with power to do an act upon the existence of some extrinsic fact necessarily and peculiarly within the knowledge of the agent, and of the existence of which the act of exe- cuting the power is itself a representation, a third person deal- ing with such an agent in entire good faith, pursuant to aU apparent power, may rely upon the representation, and the principal is estopped from denying its truth to his prejudice.' § 487. False certificates. — It is the general rule that a cor- poration is estopped to deny the validity of certificates issued in proper form under its seal, and duly signed by the officers authorized to issue certificates, if they are held by persons who took them for value without knowledge or notice that they had been fraudulently issued.^ Thus where a clerk of a 1 New York &c. R. Co. v. Schuyler, (1865) 34 N. Y. 30- 2 Allen Vi South Boston R. Co., (1889) 150 Mass. 202, citing Moores v. Citizens' Nat. Bank, 111 U. S. 156; ' Boston &c. R. Co. v. Richardson, 135 Mass. 473 ; Machinists' Nat. Bank V. Field, 126 Mass. 345; Pratt v. ' Taunton &c. Co., 123 Mass. 110; New York &c. R. Co. v. Schuyler, 34 N. Y. 30, 64 ; Titus v. Great West- ern Turnpike, 61 N. Y. 237, 345; Holbrook v. New Jersey Zinc Co., 56 N. Y. 616; Shaw v. Port Philip &c. Co., 18 Q. B. Div. 103. In a later case this rule was applied upon the following state of facts : The treas- urer of a corporation authcwized a broker to sell a number of shares of the stock for him. Plaintiff pur- chased the shares, receiving from the broker a power of attorney iri blank authorizing the transfer of the shares to him. He presented - the power of attorney to the treas- urer, who filled in the purchaser's name, and his own name as attor- ney, and thereupon issued to plaint- iff the number of shares callfed for, entering in the transfer book a transfer of the shares from himself, as treasurer, to the broker, and the transfer from the broker to plaintiff. The shares issued to plaintiff were a fraudulent overissue. The president of the corporation was in the habit of leaving blank certificates signed by him with the treasurer, and the shares thus issued to plaintiff were entered on the dividend sheets, and also iri the annual reports of the cor- poration, the footings being falsified to correspond to the authorized capi- tal stock of the corporation. The fraudulent issue being discovered, the corporation refused to transfer or redeem the shares thus issued. And the holding was that, as the negligence of the ofBcers of the cor- poration made the fraudulent over- issue possible, the corporation w;tB liable in damages to the pUiuiiiIf. 783 CAPITAr; STOCK. [§ 487. corporation fraudulently filled out a certificate for scares of its stock in the name of a fictitious person, procured the sig- Allenu South Boston E. Co., (1889) 150 Mass. 200. The next case in the same report, and involving one of the same series of transactions, indi- cates the boundary of the rule. The treasurer of a corporation, being also engaged in business as a broker, was employed by plaintiff to purchase a number of shares of stock in the cor- poration. He informed plaintiff that he had purchased the stock, and de- livered to her a certificate therefor. He entered in the transfer book of the corporation a transfer of the stock to plaintiff from himself as agent. In fact, he had no stock as agent 6t otherwise, all the stock of the corporation, having been pre- viously issued, and the issue to plaintiff was a fraudulent overissue. The court considtered, therefore, that the fraud on the part of the treasurer being for his own benefit, and against the plaintiff as well as the corpora- tion, plaintiff could not be charged with knowledge thereof, / on the ground that he was acting as her; agent in the purchase of the fetock. Craft V. South Boston E. Co., (1889) 150 Mass. 307. Where the signatures of the president and treasurer of a companj^ were left with a clerk, a son of the treasurer, during the en- forced absence of these oflBcials, the clerk forged the name of the treas- urer of the Safe Deposit Company to the receipt for coupons which was attached to the funding certificate issued by the company and nego- tiated by them with persons aware of the fact that he held the position of clerk. It may be conceded, the court said, and was doubtless the case, that the agent had no authority in fact to issue such certificates ; he had no real authority as between himself and his principal, or other parties cogmzant of the facts, for doing the particular acts complained of. But the company by its own act, and, as it turned out, misplaced coh- fidencei, placed the agent in a posi- tion to do, and procure to be done, that class and description of acts'tu w.hich the particular acts in question belong ; and in such case, where the particular acts in question are done in the name of and apparently on be- half of the principal, the latter must be answei-able to innocent parlies for the manner in which the agent has conducted himself in doing the business confided to him. Upon no other principle could the public vent- ure to deal with an agent. In such case the apparent authority must stahd as and for the real authority. Western Maryland E. Co. v. Franklin Bank, 60 Md. 36. But in an action brought to recover damages for fraudulent misrepresentations al- leged to have been made by the de- fendant corporation through their secretary, it appeared that certain ^ customers of the bank had applied to them for an advance on the secu- rity of transfers of debenture stock of, the defendant company. The plaint- iff's manager called upon the defend- ant's secretary, and was informed in effect that the transfers were valid, and that the stock which they pur- ported to transfer existed. The plaintiff thereupon made- the ad- vances. It subsequently appeared that the secretary, in conjunction with another, had fraudulently is- sued certificates for debenture stock in excess of the amount which the company were authorized to issue, and the transfers concerning which the plaintiff inquired related to this § 487.] CAPITAL STOCK. 789 natures of the oCBcers and negotiated it, signing the name of the fictitious person to the assignment and power of attorney on the back, and the transferee, buying it in good faith, ob- tained a transfer on the books and the issue of a new certifi- cate to himself, it was held, in a syit in equity whereby the corporation sought to restrain the transfer of the certificate and compel its surrender, that it was estopped from denying its validitj'.^ Tlie argument that the president and treasurer can not by a fraudulent re-issue bind the company to that which it is powerless to perform might be unanswerable, if the power to give certificates were identical with the power to create stock. But it has been said, in answer, that while a certificate of stock is not a negotiable instrument, it is a writ- ten declaration that the holder has a definite share in the cap- ital or profits of the concern, which, though delivered to him, is intended for circulation, and is virtually addressed to all the world ; so that third parties who are niisled by such instru- ments may justly require that the loss shall fall on the corpo- ration and not on them.^ In general, a party must be presumed to have notice of everything that appears upon the face of the instrument under which he claims title. Biit a transfer of stock can not, in this respect, be likened to an ordinary con- veyance of real or personal property. The instrument trans- ferring the title is not delivered to the party ; the laws require it to be written on the books of the bank in which the stock ish-eld; the party to whom it is transferred rarely, if ever, sees the entry, and relies altogether upon ihe certificate of the proper, ofiicer ,of the bank, stating that he is entitled to so many shares.* The remedy of bona fide holders is precisely the same as if the board of directors had issued the same cer- tificates in fraud of their powers under the law and obtained overissue. And it was held that al- 33 Blatchf. C. Ct, 494; s. 0. 27 Fed, though \yhat the secretary stated re- Bep. 4B4. lated to matters about which he was ^ Willis v. Philadelphia &c. E. Co., authorized to speak, he did not make 13 Phila, 34 ; People's Bank v. Kurtz, the statements for the defendant but 99 Pa. St, 346. for himself. British Banking Co. v. ^ Lowry v. Commercial &c. Bank, Charnwood &c. Ey, Co., (1887) 18- Taney's Dec. 316; Salisbury Mills v. Q. B. Div. 714, revtrsing s. C. 84 Townshend, 109 Mass, 115; Taylor W. R, 718. on Corporation?, § 598. 1 Manhattan Beach Co. v. Harned, 790 CAPITAL STOCK. [§ 488; the, shareholders' money thereon.' The advice of legal coun- sel will not relieve a corporation from liability for improperly issuing stock.^ It has been said, however, that where the sur- render and transfer of the old certificate are prerequisite to the lawful issue of a new one, a transferree who accepts a new certificate without taking any steps to assure himself that this ■prerequisite to the validity of his certificate, which was to be fulfilled by the former owner and not by the company, had been complied with, can not, as against the company, stand in the position of one who receives certificates of stock from the. proper officers without notice of any facts impairing its validity.^ . §>88. Forged certificates. — In the case of forged certifi- cates, it is essential to public welfare, where the acts of ac- knowledged agents are accompanied with all the indicia of g^enuineness, and are issued for a. valuable consideration, that the principal should be responsible, whether the indicia are 1 New York &c. E. Co. v. Schuyler, 34 N. Y. 30, 64. 2 Oaulkins v. Gas-light Co., (18fe7) 85 Tenn. 683 ; s. 0. 4 Am. St. Ee^. 786. s Moores v. Citizens' Nat, Bank, 111 U. S. 156. This case has been severely criticised, on the ground that the provision in the by-laws and ijpon tfie face of the certificates pro- . vided solely that that certificate could only be transferred upon a surrender of that certificate and did not refer to prior certilicates. Lowell - on the Transfer of Stocks, § 112, n. The case most unfecoiicilaHe with the modern "rule was one in which by-laws passed in conformity with the charter declared that all trans- fers of stock should be made in the transfer book, kept in the proper office; and where a certificate of stock iiad been issued, that the same "should be surrendered before trans- fer made. It was shown that the agent of the defendant had fraudu- lently given to a particeps criminis a certificate in the usual form for a certain number of shares of stock, when in fact the latter owned no stock, no certificate for such stock had been surrendered, and no stock stood in his name on the books. The plaintiff, in good faith, and in reli- arice upon the certificate as regularly- issued and valid, made a loan upon and received the certificate, with an assignment of the stock, and a power of attorney to transfer the same. The court held the plaintiff was not entitled to recover. Mechanics' Bank v. New York &c. R. Co., 13 N. Y. 599. But it has been judicially - said of this case that it was not de- cided "upon the ground that the plaintiffs were not in privity of deal- ing with the defendants by reason of the non-negotiable character of the certificates, and therefore could not sue for fraud," Farmers' & Mechanics' Bank v. Butchers' & Brovers* Bank, 16 N. Y. 151 ; s. c. 69 Am. Dec. 678. §488.] CAPITAL STOCK. T91 true or not.^ Wnen certificates of stock contain apparently all the essentials of genuineness, a hona fide holder thereof has a claim to recognition as a stockholder, if such stock can legally be issued, or to indemnity, if this can not be done. The fact of forgery does not extinguish his right when it has been perpetrated by or at the instance of an oflicer placed in au- thority by the corporation and intrusted with the custody of its fjtock-books, and held out by the company as the source of information on the subject.^ 1 Tome V. Parkersburg Branch &c. E. Co. , 39 Md. 36 ; North River Bank V. Aymar, 3 Hill, 863 ; Western Mary- land E. Co. V. Franklin Bank, 60 Md. 36 ; Shaw v. Port Philip &c. Co., 13 Q. B. Div. 103. Thus where the secre- tary of a company without any au- thority afiSxed the seal of the com- pany, which was in his custody, to certificates of stock, and either him- self forged the signature of a director cr procured it to be forged aCnd issued it) the court said: "It is admitted on behalf of the defendant that, if there had been merely a false issue of the certificates in the absence of the directors, it would have bound the company. But it is contended that the present case differs from these because the director's name was forged, and that the secretary carried out this fraud by means of forgery. How does this make any difference? It is said that it does so because no decision has ever yet given validity to a forged document. It is asserted that there is a distinc- tion between forgery and other fraud, but the court fail to see that it is so. A director is to sign every certificate and certain other formali- ties are to be observed. These formalities had in the present case apparently been observed. The per- son whO' receives the certificate knows whether he received it from the secretary, but he can not verify the due observance of the other formalities. The company has there- fore made it part of the duty of the secretary and within the scope of his authority to warrant the genuineness of each certificate he issues, and the plaintiff in this case is entitled to judgment. Shaw v. Port Philip &c. Co., 13 Q. B. Div. 103. 2 Baltimore &c. E. Co. v. Wilkins, 44 Md. 28. F. & Co., stock-brokers, ' were requested by defendant's trans- fer clerk to sell a certificate for one hundred shares of defendant's stock purporting to stand in the name of B. The signatures of defendant's president and treasurer were genu- ine, and at defendant's request the certificate had been regularly coun- tersigned and registered by the regis- trar of transfers. B., however, was a fictitious person, and the certificate was signed after all of defendant's stock had been issued and was in circulation. The transfer clerk had fraudulently receipted for the cer- tificate in B.'s name on the books of the company, and had signed B.'s name on the back of the certificate. F. & Co., after ascertaining that the stock was properly registered, in- quired at defendant's general trans- fer office, and were informed by its authorized agent that the stock was properly indorsed and that the agent was willing to make the transfer. Thereupon F. & Co, sold the stock, 792 CAPITAL STOCK. [§ 489. §489. Liability for fraudulent issue.— "Where stock is fraudulently overissued by tiie proper officer of a company the false certificates can not be regarded as valid stock, but hona fide holders of them are entitled to indemnity.' Thus where a batik has been held responsible although stock had been issued, beyond the limit fixed by the cha.)ctQr, hoim fide holders were entitled to indemnity, but not to become stock- holders. The court said that the idea that the purchaser of stock was to lose the property he had honestly paid for, be- cause the bank had not done its duty to itself, was unreason- able in the last degree.^ The general rule is, therefore, that a bona fide purchaser of certificates for shares in a corporation, issued in due form, by agents of the company having author- . ity to issue such certificates under ordinary circumstances, «an compel the corporation to recognize the certificate as valid and accord to him the rights of a shareholder, unless the cre- ation of new shares is prevented by some legal prohibition; .and if the shares which the certificate purports to- represent can not legally be created, by reason of some legal prohibi- tion, the purchaser is entitled to recover his damages from the corporation for the false representation, contained in the cer- tificate.^ So that " the incapacity to create the spurious stock , and gave a gliaranty in oomplianoe taken by the corpm-ation against tbe with a rule of the stock exchange, holders of overissued stocky praying which was known to defendant, that, its cancellation, a court of Equity, as between members, the seller of having granted the relief sought by stock must guaranty to the piirchaser the plaintiff, will not stop there, but the correctness of the certificate, will proceed in the same case to and also of the transfer. F. & Co. grant the defendants damages duly accounted to the transfer clerk against the plaintiff for the fraud for the proceeds. When the fraud practiced upon them by the corpo- of the transfer clerk, was discovered, rate agents. Pollock on Contracts, tliey were compelled to take back § 94 ; Simm v. Anglo- American Tel- the stock from their purchaser, and egraph Co., 5 Q. B. Div. J88; New refund the purchase price. Upon York &c. E. Co. v. Schuyler, (1865) these facts defendant was held liable 34 N. Y. 30; In re^ahia &u. Ey. to F. & Co.'s assignee for the dam- Co., L. E. 3 Q. B. 584, 595; Daly v. ages. Jarvis «. Manhattan Beach Co., Thompson, 10 Mees. & W. 809; Wa- (1889) 53 Hun, 363.. ^ terhouse i>. London &c. Ey. Co., 41 i New York &o. E. Co. v, Schuyler, L. H. N. S. 553. (iSBo) 34 N. Y. 73, where it was held 2 Bank of Kentucky u. Schuylkill tliat although the initiative step in Bank, 1 Pars. Sel. Eq. Cas. 180. the proceedings, may have been *2Morawe'tzonOorpor"atioiis,§761; § 490.] CAPITAL STOCK. 793 would be no defense to an action for damages for the injury." * To entitle the aggrieved party to sue on spurious stoclis, no privity is necessary, except such as is created by the unlaw- ful act and the consequential injury, because the injured party is not seeking redress upon the contract, but purely for tlie tortious act in the commission of which the contract is an acci- dental incident.^ Defenses by a corporation that certificates were not issued in conformity with the charter or by-laws are not considered with favor by the courts. But where the char- ter provides that certificates of stock should be signed by the president, directors and treasurer, fraudulent overissues signed by president and treasurer alone w«re not sufficient to charge the corporation.^ In the case of a fraudulent overissue of stock by the proper officer of a corporation, a joint action will lie against the company and the agent,^ or a separate action against either.' § 490. Overissued stock.— Overissued stock may, it seems, be legalized by a subsequent legal increase of the capital.^ For example, where directors took it upon themselves to issue Taylor on Corporations, § 591; Bridgeport Bank v. New York &c. U. Co., 30 Conn. 231, (one of the Schuj'ler fraud cases) ; Hail v. Rose Hill &c. Road Co., 70 111. 673; Man- delbaum v. North- American Mining Co., 4 Mich. 465; Wright's Appeal, 99 Pa. St. 425 ; People's ■ Bank v. Kurtz, 99 Pa. St. 344; Willis v. Phila- delphia &o. R. Co., 6 Week. N. Cas. 4 il ; Bruff v. Mali, 36 N. Y. 200 ; West- ern &c. E. Co. V. Franklin Bank, 60 Md. 36 ; Tome v. Parkersburg &o. R. Co., 39 Md. 36; Titus u. Great West- ern Turnpike Co., 61 N. Y. 237; Pol- lock on Contracts, § 94. But the contrary doctrine receives the sanc- tion of Redfield on Railways and Field on Corporations, t? 144 ; follow- ing Mephanics' Bank v. New York &c. R. Co., 13 N. Y. 599. And in a case where the president of a rail- way company fraudulently issued certificates Of stock, properly signed and sealed, in excess of the amount authorized by law, it was held; that the stock should be treated as genu- ine in the hands of bona fide holders. Willis i;. Fry, 13Phila. 33. 1 New York &c. R. Co. v. Schuyler, (1865) 34 N. Y. 30, 50. , 2 New York &c. R. Co. v. Schuyler, (1865) 34 N. Y. 30, quoting Bank of Kentucky v. Schuylkill Bank, 1 Parson's Sel. Eq. Cas. 180; Bruff v. Mali, 36 N. Y. 206 ; Titus v. Great Western Turnpike, 61 N. Y. 280; S. c. 5 Lans. 250. sHolbrook v. Fauquier &c. Co,, 3 Cranch C. C. 425 ; Grangers' &c. Co. V. Kamper, 73 Ala. 341. 4 Bruff V. Mali, 36 N. Y. 205; Phelps V. Wait, 30 N. Y. 78. 5 Bruff V. Mali, 36 N. Y. 305; Suy- dam V. Moore, 8 Barb. 358. •> Sewell's Case, L. R. 3 Ch. App. 131; New York &c. R. Co. v. Schuy- ler, (1866) 84 N. Y. 50. I 794: CAPITAL STOCK. [§ 491. stock in excess of the capital limited, but afterwards, by regu-' lar legislative authority, raised the capital a larger amount, and recognized the former issue as part of the latter, the ille-' gality of the first issue was cured.' But an overissue of stock by a company incorporated by two States, can not be cured except by the legislative sanction of both of the States from which it derives its existence.^ An increase in the capital stock, although not made with the formalities required by a State statute, is binding upon the stockholders and the corporation, if made with the consentof all the stockholders.' And long- continued acquiescence on the part of the stockholders will bar any remedy they may have with respect to the increase.* For assent to irregularly issued stock may be shown as con- clusivelj' by. acquiescence as by a formal vote.^ Where ail the stockholders of a corporation assent to the action of a stockholders' meeting in increasing the capital stock, or ratify that action,, they can not afterwards object to the increase that no formal notice of the meeting was given." But the con- trary has been held, on the ground that public notice of the increase was a formality in which the public was interested and could pot be waived by stockholders.' § 491. Fraudulently overissued stock invalid. — A corpo- . ration with a fixed capital divided into a fixed number of shares, can have no power of its own volition or by an}' acts of its officers and agents to enlarge its capital or increase the number of shares into which it is divided. The supreme leg- islative 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 corporate beino-, and hence fevery attempt of the corporation to exert such a power iSe well's Case, (1868) L. R. 3 Ch. spayson v. Stoever, 3 Dill. 428; App. 131, Lawe's Case, 1 De G. J. & S. 504. 2Fisji V. Bock Island &c. R. Co., sOr that it was held in another 53 Bai-b. 513 ; O'Brien v. Rock Island State than that in which the corpo- R. Co., 53 Barb. 568. ration was chartered, there being 3 Poole V. West Point &c. Assoc, nbthing in the charter to prohibit its (1887) 30 Fed. Rep. 513. being so held. Stutz ^s Handley, 4 Taylor v. South &c. R.Co., 4 (1890) 41 Fed. Rep. 531 ; s. 0. 7 Ry. & Woods, 575. In this case the ac- Corp. L. J. 407, quiescence was for ten years. " State v. McGrath, (1885) 86 Mo. 239. &492.] CAPITAL STOCK. 7'95 before it is conferred by any direct or express action of its oflScers is void, and hence every indirect and fraudulent at- tempt to do is void.^ So tiiat spurious stock fraudulently issued is "utterly invalid," even in the hands of bona fide' purchas- ers,^ whether the issue has been directed by the, corporation itself, or whether it has been made by agents without its au- thority.* Tlie corporation itself,^ or the stockholders in their own behalf, may file a bill to have the spurious stock can- celled,''' and the transfer of overissued stock, or the voting of iis holders at corporate meetings, or the payment of dividends upon it, may be restrained by injunction.^ § 492. Personal liability of corporate agents overissuing stock. — Officers of the corporation who knowingly overissue stock, incur personal liability to the shareholder, whether orig- inal taker or bona fide transferee, for damages in an action for deceit.' The holder of the overissued stock may recover from 1 New York &c. R. Co. v. Schuy- ler, 34 N. Y. 30, 49, holding that the. company is entitled to have all cer- tificates and transfers which repre- sent such spurious stock declared void and ordered to be cancelled. And in an action on the contract against the conipany, it will not be estopped from setting up its want of corporate power to issue the spurious certificates. Wood's Ry. Law, g 93, citing Hood v. New York &o. R. Co., 32 Conn. 503. 2Scovill V. Thayer, 105 U. S. 143; Bruff V. Mali, 36 N. Y. 200; New York &c'. R. Co. v. Schuyler, 34 N. Y. 30, 49; People v. Parker &c. Co., 10 How.'Pr. 543; Wright's Ap- peal, 99 Pa. St. 435; People's Bank V. Kurtz, 99 Pa. St. 344. sSoovilli;. Thayer, 105 U. S. 143; Railway Co. v. Allerton, 18 Wall. 233; New York &c. R. Go. v. Schuy- ler, 34 N. Y. 30 ; Mechanics' Bank v. New York &c. R. Co., 13 N. Y. 599; New York &c. R. Co. v. Ketch ut'n, 3 Keyes, 363 (the last three cases named growing out of the Schuyler frauds); Stace's Case, L. R. 4 Ch. 688, note. < Plimpton u Bigelow, 93 N." Y. 592, mi; Venice v. WoodruflE, 63 N. Y. 463; New York &c. R. Co. v. Schuyler, 17 N. Y. 593 ; s. c. 34 N. Y. 30 ; Lehigh Valley R. Co. v. McFar- land, 31 N. J. Eq. 730. 5 Dewing v. Perdicarie's, 96 U. S. 193; > Wood ». Union &c. Assoc, 63 Wis. 9. 6 Thomas v. The Railroad, 101 U, S. 71 ; Kent v. Quicksilver Mining Co., 78 N. Y. 139 ; Slierman v. Clark, 4 Nev. 138. ' Fairbanks v. Humphreys, 18 Q. B. Div. 54 ; Shotwell v. Mali, 38 Barb. 445 ; Beach on Railways, § 276 ; Bruff V. Mali, 36 N. Y. 200; Cazeau v. Mali, 25 Barb. 578; National Ex- change Bank v. Sibley, 71 Ga. 726; Whitehaven &o. Co. v. Eped, 54 L. Ti Rep. 360. The New York Penal Code, § 518, provides that an officer, agent or other person employed by any corporation, who wilfully ai'iil with design to defraud sells, pleii;;t's or issues or causes to be sold, pledged 796 CAPITAL STOCK. [§ 493. tbe officer in an action against him, either jointly, with the com- pany or separately.' " The injured party can sue the directors in a separate action fordeceit, if they knowingly pledge over-- issued stock.'' ' § 493. The measure of damages for overissTiiTig stock, — In actions by a hong, fide purchaser against a campany that refuses to transfer or redeem shares of stock fraudulentlyiover- issued, the measure of, damages' is the market value of the shares at the time the corporation" refused to transfer or re- deem thera;' or if no demand were made, at the date of filing the bill, subject to such lien as would properly have attached to genuine stock under similar conditions.* And the same measure is applied in an action against the vendor.* But a somewhat different rule was announced in a leading case, where, in an action against a corporation growing out of an' overissue of stock, the measure of damages was considered to be the amount which the plaintiff paid for- the stock together with interest thereon, if the jur^' deem it proper to allow in- terest." or issued, or for those purposes signs or procures to be signed a false in- strument purporting to be a scrip, certificate or other evidence of the ownership or transfer of any share in the company, or bond or other evidence of debt of the company, is guilty of forgery in the third de- gree and may be punished not only with the usual penalties for that offence, but also by a fine not ex- , ceeding three thousand dollars. iBruflE V. Mali, 36 N. Y, 205; Phelps IS Wait, 30 N. Y. 78; Suydam V. Moore, 8 Barb. 358. " National Exchange Bank v. Sib- ley, 71 Ga. 726 ; Ashbury v. Watson, 54 L. T. 30;.Bru£E v. Mall, 36 N. Y. 200; Cazeau v. Mali, 25 Barb. 578. 3 Allen D. .South Boston R, Co., (1889J 150 Mass. 307 ; In re Bahia &c. Ey. Co., L. R. 3 Q. B. 584. This would be tlie rule of damages if the certificates were valid. Allen v. South Boston E. Co., (1889) 150 Mass. 207; Sargent v. Franklin Ins. Co., 8 Pick. 90 ; Wyman v. American Pow- der Co., 8 Cush. 168. *In re Bahia &c. R. Co., L. E. 3 Q. B. 595 ; Philadelphia &c. R. Co. Cases, 13 Phila. 44; S. G 99 Pa. St. 344, 513. 5 People's Bank v. Kurtz, 99 Pa. St. 344, 349. 6 Tome V. Parkersburg Branch E. Co., 39 Md. 36, 87. And in this case it was further said that the depre- ciation of the value of the stock in the market at the time the money was paid, is not to be taken into consideration; nor if the value of the stock should exceed the amount paid therefor with interest, can the plaintiff i-ecover in any event more than that sum with interest. Qf. Fairbanks v, Humphreys, 18 Q. B. Div. 54, from which it seems that in an action against the directors for § 494.J CAPITAL STOGE. Y9.7 § 494. Liability of holders of overissued stock — fa) In general. — An attempt to increase the stock of a company beyond the limit fixed by its charter is ultra vires. The stock itself is therefore void. It confers on the holder no rights, and subjects him to no liability.' Accordingly a stockholder who agreed to take new stock of the company that was issued in excess of the amount by which the capital might be in- creased by law, is not estopped to set up the invalidity of the issue upon suit brought upon his contract to pay for it,^ r.either by having attended by proxy the meetings at which it was voted to issue it, nor by having received certificates for the stock thus voted for, nor by the fact that after the un- authorized issue the company by its agents held itself out as possessing a capital equal to the amount represented both by its genuine and its spurious certificates and obtained credit on the faith of these representations.' So of course the mere an overissue of stock the measure of damages would be the value of the stock, less, possibly, the amount which the allottees can recover from the company. 1 Scovill V. Thayer, (1881) 105 U. S. 143; Grangers' &c. Co. v, Kamper, 73 Ala. 335. 3 Scovill V. Thayer, (1881) 105 U. S. 143; Knowlton v. Congress' &c. Co., 103 U. S. 49; s. c. 14 Blatchf. 364,; Thomas v. City of Riohmond, 12 Wall. 349, 355; Nellis v. Clarke, 4 Hill, (N. Y.) 434; Morgan v. Groff, 4 Barb. 534 ; Eeed v. Boston Machine Co., 141 Mass. 454; White v. Frank- lin Bank, 23 Pick. 181; Clark v. Turner, 73 Ga. 1; Lawry v. Bour- dien, Dougl. 468; Bone v. Ekless, 5 Hurl. & N. 925 ; Hastelow v. Jack- son, 8 Barn. & 0. 221; Walker v. Chapman, Lofft. 343; Tappenden v. Eandall, 2 Bos. & P. 467 ; Aubert v. Walsh, 4 Taunt. 293; Busku. Walsh, 4 Taunt. 290. 3 Scovill V. Thayer, (1881) 105 U. S. 143, where the court said that the, public is bound to know that the law permitted no such increase of the capital stock as the company had attempted to make, and that any representation that it had been made was false. See, also, Zabriskie V. Cleveland &c. E. Co., 23 How. 381. Cf. Smith V. Co-Operative Dress Assoc, 13 Daly, 304. An act ab- solutely and wholly void, becaus,e under the law incapable of being performed, can not be made valid by estoppel. This is true where under the law there is an entire lack of power to do the act which is brought in question. The distinction is well illustrated in Scovill v. Thayer, 103 U. S. 149. Under the law of Kansas, no company like that then before the court could increase its capital to more than double an amotint orig- inally authorized. The capital was sought to be increased in excess of that amount. As against creditors, it was claimed to be a valid increase, by the operation of an estoppel, but the court ruled otherwise, on the ground thg,t the very foundation of an estoppel, the misleading of cred- itors to tkeir injury, was wanting. The latter knew, and were bound to 798 CAPITAL STOCK. ' [§495: subscription to irregularly issued stock, without any payment thereon; or other act of recognition, will not be binding, and when a subscriber has done nothing by which he may be held estopped, he may decline .to receive stock improperly issued, and may be in a, position to defend a suit br-ought to enforce his subscription to it.* He may even recover money paid thereon if it appear that the issue was irregular.' And a note, the consideration whereof is stated therein as being shares of the capital stock, is held to be non-collectible if there has been an overissue of stock; inasmuch as it can not be shown but that the shares delivered to the purchaser were among those illegally issued,' § 495. (b) Estoppel.— 7 Holders of irregularly increased stock maybe liable on account thereof by estoppel.* In a case where the meeting at which the stock was increased was not form- ^ ally called, nor the certificate of the increase of capital made and filed as prescribed by statute, where the stock was all is- sued to stockholders who had voted for the increase, and who subsequently received dividends thereon, the court held them estopped. For here 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 this increase had been lawfully effected. The necessary steps had been taken, and the doctrine of estoppel was held to apply and know, that no power existed to so i Kansas City Hotel v. Hunt, 57 increase the capital, and therefore Mo. 126 ; Sturges v. Stetson, (1858) 1 that it was not Incx-eased ; and hence Biss. 246. - they were not and couldnot be mis- ^ Spring Company v. Knowlton, led. "But where, as in the present 103 U. S. 49, aflSrming s. c. sub nom. case, the abstract power did exist, Knowlton v. Congress &c. Co., 14 and there was a way in which the Blatchf . 364 ; Peckham v. Smith, 9 increase could lawfully be made. How. Pr. 435. and. the creditors could, without ^jjerrill v. Beaver, 50 Iowa, 404; fault, believe that the increase had S. c. 46 Iowa, 646 ; Merrill v. Gamble been lawfully effected, and the neo- 46 Iowa, 615; Beach on Railways essary steps hfid been taken, then § 377. the doctrine of estoppel may apply, * Pool v. West &c. Assoc, (1887) and th(3 increased stock be deemed 30 Fed. Rep. 513; Kentt). Quicksilver valid as to creditors." Stutzu. Hand- Co., 78 N. Y. 180; Kansas City Hotel ley,, (1890) 41 Fed. Eep. 531'; s. C, ,7 v. Harris, 51 Mo. 464; Clark v, Ry. & Corp. L. J. 407, cifing Soovill Tliomas, 34 Ohio St. 46. , V. Thayer, 105, ij, S. 143. ,§ 495.] CAPITAL STOCK. 799 the increased stock' was deemed valid as to the creditors who had acted upon the faith of an increase so effected.' Where a defendant subscribed for new stock in a bank, and receiv'ed a certificate on the basis of a total subscription of one amount, and the actual increase was somewhat smaller, and he protested, and refused to vote on the stock, but re- tained his certificate until the bank went into the hands of a receiver, several months later, it was held that he was liable jTi his subscription, and that it was too late to claim that the increase as to him was invalid.^ The highest of our courts has given; an extended and authoritative resume of the law upon the. subject, saying: "It is settled by the decisions of the federal courts and by the decisions of many of the State courts, that one who contracts with an acting corporation can not de- fend himself against a claim on such contract, in a suit by the corporation J by alleging the irregularity of its organization. The same principle applies to the case of a subscription to the capital stock in an organization which has attempted irregu- larly to create itself into a corporation and has acted as such. The rule applies to increasing the stock of the corporation, when the question arises upon paying a subscription for stock forming a part of such increase. The duty and necessity of performing the contract of subscription are the same as in the case of an original stockholder.' 1 Veeder u. Mudgett, 95 N. Y. 310; case of orgaDization which claimed Sbelton V. Eickenmeyer, 90 N. Y. to have taken, and evidently sup- 613; Kent «;. Quicksilver &c. Co., 78 posed it had taken, the measures N. Y. ,159; Buffalo &c. E. Co. v. required by law to complete its in- Oary, 26 N. Y. 75 ; Aspiiiwall v. crease of capital. It acted as such, Sacchi, 51 N. Y. 831; Eaton v. As- and the defendant, by receiving his pinwall, 19 N. Y. 119. certificate of stock, entered into eu- 2 Butler V. Aspinwall, (1888) 33 gagements as such. If it be con- Fed. Rep. 217. ceded that its increased stock be but 3 "The statute authorized an in- de facto, and that it could have crease of the capital stock, papers been annulled or suppressed by the were filed under the law for that action of the Attorney-General as purpose, which were examined by acting under an irregular organizar the Attorney General and certified tion, the defendant derives no aid to in due form, and the company from the admission. The cases are proceeded to issue its stock upon clear to the point that he can not that theory. The defendant became -make the objection, but must per- a subscriber and attended meetings, form the engagements he has made.'' It is idle to deny that this was a Chubb v. Upton^ 95 U. S. 667. 800 CAPITAL STOCK. [§ 496. § 496. (c) Knowledge of the creditor. — Where, upon the purchase of additional property, the capital of a corporation is increased by the issue to the stockholders, upon the surren- der of their old certificates, of new stock to a much greater extent than the cost or value of the additional property, the stockholder can not be held individually liable upon the stock issued, at the suit of a creditor who was cognizant of the whole transaction, and acquiesced in it.^ Where it dbes not appear that a complainant had'any knowledge of, or gave any consent to, the arrangement under which increased stock was distributed to subscribers for bonds and to existiflg stock- holders, the complainant is not required to go further, and show affirmatively that he knew of the stock being increased, and treated or dealt with the corporation upon the faith that it had actually been or would be paid. If the increase of the stock is made public, those thereafter dealing with the com- pany will be presumed to have, done so in reliance upon the new stock as a part of the corporate capital pledged for their security.'' The public has the right to believe that each holder ,1 Coit V. North Carolina Gold &o. Co., (1887) 119 U. S. 343, affirming s. C. sub nom. Coit v. Amalgama- tion Co., 14 Fed. Eep. 13. In that case there was a new issue of stock, connected with the acquisition by the corporation of certain real estate, the title to,w.hich failing, or proving defective, the new stock was there- upon called in and canceled, and the transaction rescinded. The credit- ors, who after the cancellation pf the transaction and this new stock sought to compel parties to whom portions of it were issued, to pay it, knew of and acquiesced in the whole transaction. Mr. Justice Bradley said, in deciding the case on the cir- cuit, that "if a legal presumption did not arise that Mr. Coit (the cred- itor) knew of the transaction at that time, and there was no proof that he linew of it, it would present a differ- ent case." The claim originated be- fore the temporary increase of the stock, and the Supreme Court, in passing upon the case, (119 U. ^. 347) say: "Had a new indebtedness beeii created by the company after the issue of the stock, and before its recall, a different question would havearisen." In the subsequent cape of Bank t;. Aid en, 139 U. S. 373, the Supreme Court again held that a creditor of a, corporation, who had knowledge of and assented to a transaction between the corporation and a stockholder at the time when it took place, could have no resort against such stockholder. 2 Haldeman v. Airtslie, 83 Ky. 895 ; Pullman v. Upton, 96 U. S. 331 ; and> Adderley v. Storm, 6 Hill, 639. In this last case it is said : " It seems to have been thought a matter of some moment that the plaintiff, so far as appeared on the trial, had not, ex- amined the stock ledger before he gave credit to the company. But there are other ways in which he § 496.] CAPITAL STOCK. 801 of the increased stock has either paid for his share or is liable for the amount; and a creditor who trusts the corporation upon the faith of its ability to pay, and without any knowl- edge of the contract or arrangement between the stockholders and the company under which the stock is treated as paid up, may compel shareholders to make actual payment.' And aside from any provision of the statute, which is nothing more than the legislative recognition of the general principle en- forced by courts of equity, it is well settled by the authorities that old stockholders who accept and hold portions of in- creased stock, can not claim exemption from liability thereon, as against creditors, especially those who have dealt- with the company in ignorance of the arrangement that such stock was treated and received as fully paid up, when such was not the fact.^ The burden of showing any such express represen- tation that the new shares had actually been issued, as a con- dition to his right to compel stockholders to pay up their unpaid shares, is not imposed upon creditors.' After -the insolvency of the corporation, it will not avail holders of may have learned that the defend- ants were stockholders, and, besides, I do not see that the liability of the stockholder has been made to depend on the fact that the creditor knew he could be reached. ... As the defendants were in fact stockholders, they must answer to the plaintiflF, although he may not have known at the time he trusted the company that the defendants could be reached." 1 Haldeman v. Ainslie, 82 Ky. 395 ; Stutz V. Handley, (1890) 41 Fed. Rep. 333; s. C. 7 Ey. & Corp. L. J. 407. 2 Stutz V. Handley, (1890) 41 Fed. Rep. 333; s. 0. 7 Ey. & Corp. L. J. 407. 3 Stutz V. Handley, (1890) 41 Fed. Rep. 331 ; s. c. 7 Ey. & Corp. L. J. 407. The court, in this case says the statement in section 833 of Mbrawetz on Private Corporations, that sub- sequent creditors would have an equitable claim to have new shares paid Up in full, " if it was expressly 51 represented to the creditors that the new shares had actually been is- sued," is hardly warranted by the authorities. It being settled by the authorities referred to that the coal company could not lawfully give or distribute to defendants paid-up shares of its increased stock as a bonus to go with its bonds sub- scribed for by them, and it being further settled that the acceptance and holding of certificates for such shares of stock is, in effect, the same as a promise to take shares, which imports a promise to pay for them whenever the liability of the com- pany required it, (103 U. S. 816) or as expressed by Mr. Justice Bradley in Coit V. Amalgamation Co., 14 Fed. Rep. 18, "that stock issued to' a party which he receives is the same as though he had subscribed for it," the conclusion is inevitable that the defendants are severally liable for the unpaid shares of capital stock 802 ■ CAPITAL STOCK.. [§,496.. thesKares that they vtere induced by mistake or fraud to acv cept and receive the stock in question, nor can they after thes rights of creditors have attached, disclaim its ownership, so as to escape liability. Even before suit commenced, the cor- poration could not have released them, so far as creditors! were concerned.' received and held by them so far as 841; Taylor Corp. § 744; Upton v. may be necessary to satisfy the cor- Tribiloook, 91 U. S, 47, 48, 50,54, porate debt. 65, and cases cited, 12 Morawetz I?riv. Corp. §§,840, CHAPTER XXY. PREFERRED STOCK. § 497. Introductory. 498. Statutory authority. 499. Validity of preferred stock. 500. Acquiescence in issue. 501. Preferred dividends — (a) In general. 502. (b) Payable only out of net profits. 503. (c) Arrears. 504. (d) Enforcement of payment. 505. Status of preferred share- holders. 506. Preferred stock deferred to debts. 507. Right of preference stock- holders in distribution of\ capital. 508. Exchanging common for pre- ferred stock. 509. Special stock. § 497. Introductory. — Preferred shares are those the own- ers of which are entitled to profits to a certain extent in preferience to other shareholders. They differ from other' shares only in being entitled, as against them, to payment of dividends in priority to them.^ They are indifferently called' preferred, preference, preferential or guarantied shares.^ Pre- ferred stock partakes of the nature of what may be called in- terest-bearing stock, or ordinary common stock upon which -the company has promised to pay interest. This interest, however, in so far as it differs from an ordinary dividend, is a preference dividend and subject to the law governing preferred stock.' This kind of stock is usually issued by companies 1" Preferred Stock," by John D. Lawson, (1881) 20 Am. L. Reg. 633; Totten V. Tison, 54 Ga. 189 ; Chaffee V. Rutland &c. R. Co., (1883) 55 Vt. 110; Henry v. Great Northern Ry. Co., 4 Kay & J. 1. 2 Henry v. Great Northern R. Co., 4K. &J. 1.' I ' Painesville &c. R. Co. v. King, 17 Ohio St. 534;, Pittsburgh &o. R. Co. V. County of Allegheny, 63 Pa. St. 126; Troy &c. R. Co. v. Tibbits, (1884) 18 Barb. 297; Miller v. Pitts- burg &c. R. Co., 40 Pa. St. 337; S. C. 80 Am. Deo. 570 ; Lockhart v. Van Alstyne, (1875) 31 Mich. 76 ; Barnard V. Vermont &c. R. Co., 89 Mass. 512; Waterman v. Troy &c. R. Co., 74 Mass. 433; Wright v. Vermont &o. R. Co., 66 Mass. 68; Cunningham v. Cunningham, 78 Mass. 411; Rich- ardson V. Vermont &c. R. Co., 44 Vt. 613 ; Rutland R. Co. v. Thrall, 35 Vt. 543; McLaughlin v. Detroit &c. R. Co., 8 Mich. 100; Evansville &c. R. Co. V. City of Evansville, 15 Ind, 395; City of Ohio v. Cleve- land &c. R, Co., 6 Ohio St. 489; In 804 PEEFEEEED STOCK. [§ 497. which ;have expended their original capital, for the purpose of obtaining further capital, and therefore when the authority to issue it is given, it is necessary that it should be employed for that purpose alone, and the company can not paj'^ dividends "with such stock.' Accordingly the issue of preferred stock can not be justified except for the purpose of strengthening the company's standing or enlarging its business. When the corporation has reached a crisis in its aifairs, and the share- holders are unable or unwilling to sink any more monej' in the enterprise, but yet are ready to give those who will do so a preference as to any profits which the increased means may enable the concern' to make^ the transaction is fair and equi- table.^ Preferred shareholders have the same voice in the con- trol of the company, as a general rule, as the other stockhold- ers, together with the right to vote at an'y meeting of the holders of the capital stock. But to this rule there may be exceptions; and it is competent for a company, in issuing cer- tificates of preferred stock, to stipulate therein that the holders shall not have or exercise the right to vote upon it, at any meeting of the stockholders of the company.' 9'e National &c. Co., 10 Oh. Div. 118; manage might fairly be left with Salisbury v. Metropolitan Ry. Co., 38 them. In any view, it is fair to treat L. J. ,Ch. N. S. 249. Gf. Bardwell v. the proviso as but an arrangement Sheffield &o. Co., L. R. 14 Eq. Oas. between two classes of stockholders 517. which did not concern the public. iHoole V. Great Western E. Co., It is true that one characteristic of L. R. 8 Ch. 263. stock, generally is that it can be 3 Lockhart v. • Van Alstyne, 31 voted upon. But this i^' not essen- Mich. 76. tial. Indeed, instances may arise 3 Miller v. Ratterman, (Ohio, 1890) where it is good policy to prohibit 8 Ey. & Corp. L. J. 69. The court the voting upon, stock. Ryan v. here said : " The provision is not un- Railway, 10 Am. Law Rec. 263 ; Ex usual. It is sometimes found in the parte Holmes, 5 Cow. 4S6 ; Railway statute itself. Nor is it unreason- Frog Oo. v. Haven, 101 Mass. 398; able. The promise to th? preferred State v. Hunton, 28 Vt. 594. And stockholders was to award them the the point here is, not whether any first net earnings — the holders of question of public policy intervenes thb common stock to share in such to make it improper for the preferred of thej net earnings as they might, stockholders to possess a right to by good managemtent, be , able to vote, but whether any question in- make over and above the eight per tervenes to make it imperative that cent. As the burden was upon the they shall have that right." common stockholders, the power to § 498.] PEEFBEEED STOCK. 8Q5 § 498, Statutory authority.— /Preference stock is fre- quently authorized by statute, charter or articles of the cor- poration.^ And the general rule is that the power to issue preferred or guarantied stock exists onlj'^ when conferred by statute or by charter.^ The creation of preferred stock may be authorized by an alteration in the charter of the corpora- tion or by other subsequent act of legislation, as well as by the original charter or act.' And such legislation is not un- constitutional.* The power need not be granted in express words. Thus under an act which provides that where a com-' pany is unable to meet its _ engagements, the directors may prepare a scheme or arrangement with their creditors which must be assented to by three-fourths of the mortgagees, hold- ers of debenture stock and other obligations and confirmed by the court of chancery, many schemes involving the issue of preferred stock have been adopted.' And under an act au- thorizing a corporation to increase its capital stock in such nianner as it may deem advisable, or to such extent as might be deemed advisable to borrow money at a rate of in- terest not exceeding seven per cent, and to issue proper cer- tificates convertible into stock at the pleasure of the holder, it was held that the corporation was authorized to issue seven per cent, guarantied stock.^ So also it has been decided that under a power to increase the capital stock, the corporation by a majority vote may issue preferred stock, the, privilege of iSt. John V. Erie R. Co., (1874) 23 5 Railway Clauses Act 1867, 30 & "Wall. 136; s. C. 10 Blatchf. 371; 31 Vict. ch. 137, §§ 6-17; Matthews Davis V. Proprietors, 8 Mete. 331 ; *. Grea,t Northern Ey. Co., 88 L. J. Taftu. Hartford .&c. E. Co.; (1866) 8 Ch. 375; Webb ?;. ' Earle, L. E. 30 E. I. 810; Jn re Anglo-Danubian&c. Eq; 556; Corry v. Londonderry &c. Co., L. E. 30 Eq. 339; Henry v. Great E. Co., 29 Beav. 368; Stevens v. Mid- Northern E. Co., 1 De G. & J. 606; hants R. Co., L. R. 8 Ch. 448; In re Matthews v. Great Northern &c. E. Devon &c. E. Co., L. E. 8 Ch. 610; Co. , 38 L. J. Ch. 375. London &c. Assoc, v. Wrexham &c. 2Taylor v. South &c. R, Co., 4 R. Co., L. R. 18Eq. 566;Munnsu. Isle - Woods, 575 ; Sturge v. Eastern &c. of Wight E. Co., L. R. 8 Eq. 655 ; In re E. Co., 7 De Gex; M. & G; 158. East &c. R. Co., L. E. 8 Eq. 87 ; In re 'Kent V. Quicksilver Min. Co., Potteries &c. E. Co., L. R. 3 Ch. 67; (1879) 78 N. Y. 159; Rutland &c. E. In re Cambrian E. Co., L. E. 3 Ch. Co. V. Thrall, 35 Vt. 537 ; Covington e. 278. Covington &c. Co., (1873) 10 Bush, 69. « Gordon v. Eichmond &c. E. Co., * Covington v. Covington &c. Co., (1884) 78 Va. 501. (1873) 10 Bush, 69. mQ 3>EEiEEEiRBD STOCK. [§.4:9.9. so doing being founded upon the power of corporations to borrow raoney.^ And again the power to issue preferred stock, when not expressly conferred, may even be implied •from the terms used in the articles of association of a corpo- ration. As where the articles of association provided that the -directors might, with the sancti-on of a special resolution of the company, given at a general meeting, increase the capital by the issue of new shares,)the increase of capital to be- made •in such manner, to such amount and to be subject to such rules, regulations, privileges and conditions as the company, in general meeting should thii^k fit.^ § 499. Yalidity of preferred stock.— The validity of pre- .ferred stock has been sustained upon principle in many Amer- 4can cases.* The issue of preferred stock has been considered 1 Rutland &c. R. Co. v. Thrall, 35 Vt. 586; Harrison v. Mexican &c. R. Co., L. R. 19 Eq. Cas. 358. 2 Harrison v. Mexican Ry. Co., L. R. 19 Eq. 358. The court said in this case: "The capital is to be raised or to be increased in such manner, and with and subject to such rules, regulations, privileges and conditions as the company think 'fit. . . . I think there is no limit to the privilege that may be attached to the shares by the general meet- ing, as far as regards participation in dividends, or any other right ■whatever." While, however, the power to issue preferred stock need •not' be given in express words, it is not to be lightly inferred from the language of charters and statutes. ■ Moss V. Syres, 83 L. J. Ch. 711. ' Hazlehurst v. Savannah &c. R. Co., 43 Ga. 15 ; Totten v- Tison, (1875) 54 Ga. 139; Rutland &o. .R. Co. -y. Thrall, (1863; 35 Vt. 537; Richardson V. Vermont &xi. R. Co., 44 Vt. 613; -Prouty V. Michigan &c. R. Co., (1874) 1 Hun, 655 ; West Chester &c. R. Co. 'V. Jackson, (1875) 77 Pa. St. 331; Bates V. Androscoggin &o. R, Co., (1863) 49 Me. 497; Wright v, Ver- mont &c. R. Co., (1853) 13 Cush. 68; Waterman v. Troy &c. R. Co., 18 Gray, 433 ; Cunningham v. Vermont &c; R. Co., IS Gray, 411; Barnard V. Vermont &o.. R, Co., (1863) 7 Allen, 513; Bvansville R. Co. v. Evansville, 15 Ind. 395 ; Lockhart v. Van Alstyne, (1875) 31 Mich. 81; McLaughlin v. Detroit &c. R. Co., 8 Mich. 100; Covington v. Covington &c. Co., 10 Bush, 69. It has been said in the leading case upon the subject: "We ai-e not prepared to say that at the first the corporation^ might not have lawfully divided the interest in its capital stock into shares arranged into Classes, pre- ferring one class to another. The charter gave power to make such by- laws as it might deem proper, con- sistent with constitution and law; and to issue certificates of stock representing the value of the prop- erty.. We know nothing in the con- stitution or the law that inhibits a corporation from beginning its cor- porate action by classifying th^ Shares in its capital stock, with pe- culiar privileges to one share over another, and thus offering its stock tQ the public for subscription thereto.- . § 499.] PEEFEEEED STOCK. 807 as partaking of the nature of a loan and therefore not ultra vires, where there was a condition for payment of interest until the company should go into operation;^ where there was a provision for the redemption of the stock;- where the pre- ferred stock was surrendered and a bond and mortgage taken inits stead, the preferential shareholders thereafter not being ^entered as members of the corporation;^ and where such stock was secured by bond and mortgage, the holders being expressly prohibited by statute from becoming members of the corporation.* The argument used in favor of the right to create preferred stock, is that a corporation has power to bor- row money and give security therefor, and that the issuing of preferred stock is merely one way of pledging the assets of the company for that purpose, and hence justifiable. The answer given to this is that the transaction is not a loan and borrowing, because it does not create a debt which can be re- deemed, but the holders of preferred stock have a perpetual lien upon the corporate profits.^ The argument against the power is simply that by taking shares in a corporation with a fixed capital divided into a specified number of shares, one becomes the owner of a certain interest in the enterprise, measured by the :proportion which the amount of his shares bears to the whole capital. This entitles him to a correspond- ing proportion of the profits, and he can not afterwards be deprived of that fixed proportion on any pretense without a violation of the original contract.' Thus a majority of the shareholders of a company, in order to induce persons to take some of the stock unsold, can not authorize the directors to No rights are got until a subscrip- ^ -yy est Chester &c. E. Co. i;. Jaek- tion is made. Bach subscriber would son, (1875) 77 Pa. St. 321. know for what class of stock he put 'Totten v, Tison, (1875) 54 Ga. his name, and what right he got 139. when he thus became a stockholder. < Burt v. Rattle, (1877) 81 Ohio St. There need be no deception or mis- 116. And see Rutland &c. R. Co. v, take; there would be no trenching Thrall, (1863) 35 Vt. 536; Hazlehurst upon rights previously acquired ; no v. Savannah &c. R. Co., 43 Ga. 13, contraet, express or implied, would ' 5 Per Folger, J.; obiter, in Kent -v. be broken or impaired." Folger, J., Quicksilver Min. Co., (1879) 78 N. Y. in Kent v. Quicksilver Min. Co., 177. (1879) 78 N. T. 177. 6 " Preferred Stock," Editorial Ar- 1 Richardson v. Vermont &c. R. Co. , tide, (1883) 16 Am. L. Rev. 460. 44 Vt. 613. 808 ' PEEFEEEED STOCK. " [§ 500. make an arrangement for giving to them- a preferential divi- dend.i This assumes that there is at the outset a fixed capital, and also that there , is no poweV granted to create preferred stocjc. When the special charter, or the general law of a cor- poration organized under a general law, giyes that power, there is no room for the objection that the original contract has been violated. The law in that case is the contract, and the shareholder . expects to be bound by anything contained theirein.* § 500. Acquiescence in issue. — The right to create a pre- ferred stock is merely a question of contract, and if all agree to a modification of the original agreement it is legalized."' Thus, while a corporation already organized can not, after issuing common stock, create preferred stock, except by virtue of authority conferred by its charter or by-laws, it may never- theless do so with the consent of all the shareholders whose rights would be affected thereby.* And by their acquiescence the shareholders are estopped to deny the validity of the issue.^ Especially where third persons have dealt in the pre- ferred stock of the company, relying in good faith upon the ex- istence of corporate authority to issue it, is it unnecessary that there should have been an express assent thereto on the part of the stockholders to work an equitable estoppel upon them.* Mere negative conduct is sufficient to create an estoppel, 1 Hutton V. Scarborough &c. Co., ited by the charter, nor by any stat- 2 Dr. & Sm. 514; s. c. 4 De G-. J. & ute, to this corporation to classify S. 673. Hazlehurst v. Savannah &.c, the shares of its capital stock, so that , E. Co., 43 Ga. 13, conflicts with this one class should have greater right case, but was not a well considered ahd value than another. It was not opinion. malum in se so to do unless it was 2 " Preferred Stock," (1882) 16 Am. that a vested right was thereby af- L. Rev. 461, citing Prouty u. Mich- fected ; but that was not a public jgan &c. E. Co., (1874) 1 Hun, 655; evil; it was a wrong that aflEected West Chester &c. E. Co. v. Jackson, private persons only and one which (1875) 77 Pa. St. 321. they might assent to." s " Preferred Stock," Editorial Ar- 6 Taylor v. South &c. E Co., 4 tide, (1883) 16 Am, L. Eev. 160; Woods, 575 ; Hazlehurst «. Savannah Lockhart y. Van Alstyne, (1875) 81 &c. E. Co., 48 Ga. 13. See, also Mich. 81. Branch v. Jesup, 106 TJ. S. 468. * Kent V. Quicksilver Min. Co., 6 Kent v. Quicksilver Min. Co. (1879) 78 N. Y. 159, where the court (1879) 78 N. Y. 159. Baid: "It was not expressly prohib- § 500.] PEEFEEEED STOCK. 809 where to hold the issue invalid would be detrimental to third parties.' Accordingly, where a corporation by a new by-law created and issued preferred stock, the common stockholders, having for four years, with full knowledge of the issue of such stock and of the fact that the two kinds of stock were dealt in at different places, acquiesced in the corporate action, were held to be estopped by acquiescence and delay from claiming that the preferred stock was not entitled to all the privileges intended to be conferred upon it.^ And though ordinarily the power of the corporation to issue preferred stock can be exer- cised only by the shareholders, yet if the directors, without previous authority from the shareholders, issue it, their act may be validated by a subsequent ratification by the share- holders.' The purchaser of preferred stock may himself be estopped to deny its validity. Thus where he purchased such stock,, issued without statutory authority, was active in pass- ing the resolution authorizing its issue, voluntarily subscribed and paid for it, held it for many months, voted upon it, and used it to obtain control of the corporation's affairs upon the insolvency of the corporation, he can not assert its invalidity and recover the money he paid for it.* iKent V. Quicksilver Min. Co., been affirmatively expressed by vote (1879) 78 N. Y. 159. or by equivalent dct, the preferred 2 Kent V. Quicksilver Min. Co., stock was invalid. If so, the acqui- (1879) 78 N. Y. 159. The court here escSnce of the stockholder can hot said: "We suppose acquiescence or give jt validity, and he is not es- tacit assent means the neglect to topped from asserting that it is in- promptly and actively condemn the valid. Scovill v. Thayer, 105 U. S. unauthorized act, and to seek judi- 143. If a stockholder could be es- oial redress, after knowledge of the topped, Banigan would necessarily committal of it, whereby innocent be, laecause he was one of the pro- third parties have been led to put meters of the scheme, urged his co- themselves in a position from which stockholders to buy, voted upon it, they can not be taken without loss." and for. the pui-pose of favorably ex- 5 McIiOughlin t>. Detroit &o. R. Co., plaining the company's position to 8 Mich. 100. the firni which was to take and ne- * Banigan v. Bard, (1889) 30 Fed. gotiate its paper, asserted that it Kep. 13 ; s. C. 6 Ry. & Corp. L. J. could issue preferred stock, and had 170; S. 0. affirmed, (1990) 134 U. S. done so, to the amount of $25,000. 291 1 S. C. 8 Ry. & Corp. L, J. 14. Notwithstanding the Massachusetts The court below, in this case, said; authorities to the contrary (Tube " For the purposes of this case I shall Works v. Machine Co., 139 Mass. 5j assume that the unanimous consent Reed v. Machine Co., 141 Mass. 454), of all the stockholders not having I am not favorably impressed with>the 810 PEBFEEEED STOCK, [§§ 501, 605. § 501. Preferred dividends — (a) In general. — The holder of preferred stock is entitled to a preferred dividend, which, is payable -to that class of shareholders in priority to dividends payable to holders of deferred stock.* A dividend, when spaken of in reference to a going concern, means a fund which the corporation sets apart from its profits to be divided among its members. A dividend among preference stockholders is un- derstood to imply that the sum divided has been realized as profits, though the earnings do not yield a dividend to the (Stockholders in general.^ The preferred stockholders there- fore have a pledge of the funds legally applicable to the pur- ;poses of a dividend.' But as to any excess of dividends to which preferred stock may be entitled bfeyond the guarantied per cent., it must stand on the same footing w^ith the common .stock.* Thiis where the certificate of preferred stock provides, ;that after the paj'ment of the guarantied percentage, the pre- ferred stockholders shall share in any surplus beyond a certain percentage, which may be divided upon the common stock, the preference shareholders are, after receiving their guaran- tied percentage, to be deferred until the common shareholders have received their specified percentage; and then all stock- holders are to be on the same footing as to any remaining surplus.' § 50a. (b) Payable only out of net profits. — Preferred stock is entitled to dividends only out of the net profits of the enter- doctrine that as against the assignee ^ Thompson v. Erie E. Co., 11 Abb. or receiver of an insolvent corpora- Pr. N. S. 188; Belfast &c. E. Co. v. ^tidh, the owner of preferred stock, Belfast, (1887) 77 Me. 445 ; Chaffee ■rchb has voluntarily subscribed and v. Eutland &c. E. Co., (1882) 55 Vt. paid for it for the purpose of pro-, 110; Taft v. Hartford &c. E. Co., 8 .moting the scheme, and has received E. I. 310, 333. his certificate therefor, and the terms ^Cooley, J., in Lockhart- «. Van and conditions upon which the sub- Alstyne, (1875) 31 Mich. 76 ; Taft v. acription was made have been fully Hartford &c. E. Co., 8 E. I. 310. complied with by the corporation, 3 Taft v. Hartford &o. E. Co., 8 can not recover the amount paid. E. I. 310, 335. In Winters v. Armstrong, 37 Fed. ■'Gordons. Eichmond &o. E. Co., (Eep. 508, Judge Jackson guards (1884) 78 Va. 501 ; Harrison «. Mexi- • against such a broad principle, and can Ey. Co., L. R. 19 Eq. 358; Eag- ;it is not in accordance with the land u. Brpadnax, 29 Gratt. 401. teaching of Soovill v. Thayer, 105 s Bailey D. Eailroad Co., (1873) 17 U. S. 143." WaU. 96; s. C. 1 DUl. 174 §502.] PKEFEBBED STOCK. :811 prise.^ The dividends ■.thereon are not payable absolutelj' as interest is, but the preference is limited to profits whenever earned.^ The dividends are equivalent to annual or semi- annual payments, and, under the general form of certificate in •these casesy depend on no , contingency except that the net profits of the association shall be sufficient to pay them.' They are, therefore, in the nature of " interest chargeable ex- clusively upon profits." * Even an express guaranty to pay a certain dividend on preferred stock entitles the holder to div- idends only when there are profits out of which they can be paid.''* A contract to pay dividends on preferred stock at all 1 Union Paoiflo R. Co. ^. United States, (1878) 99 U. S. 403; Nickals V. New York &o. R. Co., 15 Fed. Rep. 575; Boardman v. Lake Shore &c. R. Co,, (1881), 84 N. Y. 157; Prouty V. Lake Shore &c. R. Co., 53 N. Y. 363; Thompsons. Erie Ry. Co., 45 N. Y. 465; Chaffee v. Rutland R. Co., (1883) 53 Vt. 110;- Elkins v. Camden &c. R. Co., 36 N. J. Bq. 233; Belfast &c. R. Co. v. Belfast, (1887) 77 Me. 445. 2 Chaffee v. Rutland R. Co., (1882) 55 Vt. 110, 136 ; Corry v. Londonderry &o. Ry. Co., 39 Beav. 268; McGregor V. Home Insurance Co. , 33 N. J. Eq. 181; St. John v. Erie R. Co., 10 Blatch. 371; S. c. 22 Wall. 136; Lockhart v. Van Alstyne, (1875) 31 Mich. 76; Taft v. Hartford &c. R. Co., (1864) 8 R. L 310. "Bates V. Androscoggin &c. R.' Co., 49 Me. 491. < Henry v. Great Northern Ry. Co., 1 De Gex & J. 606, 637 ; 4 Kay, 1 ; Crawford v. North Eastern &c. R. ■Co., 3 Jur. N. S. 1093. 5 Lockhart v. Van Alstyne, (1875) 31 Mich. 76; Taft v. Hartford &c. R. Co., (1864) 8 R. L 310; Scott v. Central R. Co. , 52 Barb. 45: There is always a condition, either ex- pressed or implied, that they shall be paid only from the earnings of the enterprise. WilJlston v. Michigan Southern R. Co., 13 Allen, 400; Cujr- ran v. State, 15 How. 304 ; Pittsburgh &o. R. Co. V. Allegheny Co'.; 63 Pa. St. 126 ; Evansville &c. R. Co. v. Evans- villa, 15 Ind. 395; In re Bristol &c. Ry. Co., L. R. 6 Eq. 448. Accord- ingly a general guaranty of divi- dends by a railroad company on its preferred stock is not a guaranty for payment in any event, but only in the event that the dividends are earned. Miller v. Ratterman, (Ohio, 1890) 8 Ry. & Corp. L. J. 69. The court in this case said: " It was not a stipulation to pay dividends in any event, but a stipulation to pay only out of surplus; for the company must be presumed to have pro- ceeded in view of the terms of the second section of the act referred to, and the general rule of law on the subject. That rule is that payment of dividends to preferred stockhold- ers differsfrom such payment to the holders of common stock only in that they are "entitled to dividends in priority to any dividends upon the common stock. Dividends to either are to come from one common source, to wit, from funds properly applicable to the payment of divi- dends ; that is to say, net earnings, . In the nature of things, this must be so. As well might one member of a partnership be permitted to appro- 812 PEBFEEEED STOCK. [§ 503. . events, whether any profits are made or not, would be con- trary to public policy and void.^ But it has been decided, where a corporation authorized to issue preferred stock, after it had received a certain sum for each share, which shares should be payable in full on dissolution next after the payment of debts, guarantied that each share should receive semi-annual dividends of four dollars, that the guaranty was absolute and independent of the profits earned.^ , § 503. (c) Arrears. — Arrears of preferred dividends must be paid before a dividend can be declared upon the common stock.' But in England the statute now declares that if in any year " there are not profits available for the payment of priate to his own use assets of the firm to the prejudice of creditors as for a stockholder of a corporation to do, it. A contract to permit this to be done would be contrary to public policy, and void. Pierce, R. B. 134, 125 ; St. John v. Railway Co., 23 Wall. 136; Lockliart v. Van Alstyne, 31 Mich. 76 ; Taf t v. Hartford &c. E. Co., 8 E. I. 310; Eailroad Co. v. King, 17 Ohio St. 534; 1 Ohio Eev. Stat., Smith & B. 935." 1 Miller v. Ratterman, (Ohio, 1890) 8 Ry. & Corp. L. J. 69; St. John v. Railway Co., 33 Wall. 136 ; Lockhart V. Van Alstyne, (1875) 31 Mich. 76; Evansville &c. R. Co. v. City of Ev'ans'ville, 15 Ind. 395. 2 Williams v. Parker, (1884) 136 Mass. 304. .3 Dana v. Fiedler, 13 N. Y. 40; s. o. 62 Am. Dee. 180^; Prouty v. Michigan &c. E. Co., 1 Hun, 655; Elkins u Camden &c. R. Co., 86 N. J. Eq. 233 ; Iiockhart v. Van Alstyne, (1875) 31 Mich. 76 ; Taf fu. Hartford &c. R. Co., (1864) 8 R. I. 810; Henry v. Great Northern Ry. Co., 1 De G. & J,, 606, where the defendant's coun- sel having likened the right of a preference shareholder to the right to bring a cup of a certain measure to be filled at each dividend meeting, if there were enough to fill it. Knight Bruce, L. J., said: "I may be ex- cused for suggesting another case. Let us suppose a right to have a tun of wine from a vineyard. Is that the same merely as a right to have a tun of wine froni a vintage? I do not think so. In the former case, the deficiency of an earlier would have to be supplied by a later vint- age. Not so, possibly, in the other. Here, as I apprehend, the plaintiffs have a vineyard, and not merely the chance of a particular vintage to look to." Adams v. Fort Plain Bank, 36 N. Y. 255 ; Webb v. Earle, L. R. 20 Eq. 556; Sturge v. Eastern &c. Ry. Co., 7 De Gex, M. & G. 158; Mat- thews u. Great Northern &c. Ry. Co., 38 L. J. Ch. 375 ; Crawford v. North Eastern Ry. Co., 3 Jur. N. S. 1073; Stevens v. South Devon Ry. Co., 9 Hare, 313 ; Coey u. Belfast &c. Ry. Co., I. R. 3 C. L. 113; Smith v. Cork &c. Ry. Co., I. L. R. 8 Eq. 356; Coates v. Nottingham &c. Ry. Co., 30 Beav. 86; Corry v. Londonderry &c. Ry. Co., 29 Beav. 263; Lindley on Part- nerships, (2d ed.) 781. Contra, Bel- fast &c. R. Co. V. Belfast, 77 Me. 445; Hazeltine v. Belfast & Moosehead R. Co., (1887) 79 Me. 411 ; s. c. 1 Am. St. Bepv 330. §•504.] PEEFEEEED STOCK. 813 the full amount of preferential dividend or interest for that year, no part of the deficiency shall be made good out of the profits of any subsequent year, or out of any other funds of the company." ' In some cases, however, under this act arrears have been held collectible. Thus where preference sharehold- ers had allowed the surplus profits of one year to be applied in payment of dividends to ordinaVy shareholders, instead of in payment of dividends to them, they were not prevented from claiming arrears against the profits of succeeding years.^ And where the whole net earnings of one year were appro- priated to repairs, paying the preferred shareholders nothing, it was held that the arrears for that year might be recovered out of the profits of any subsequent year, although dividends had been paid in former years that should have been spent for repairs.' Under by-laws which from their terms show that the whole net earnings are intended to be paid in each year, the dividends upon the preferred stock are not cumula- tive.* When arrears are recoverable, interest thereon may be recovered also.' § 504. (d) Enforcement of payment. — A court of equity will, by injunction and other' proper remedies, protect the rights of the holders of preferred stock.^ For a distinction is 1 The Companies. Clauses Act of rata upon all the stock." Hazeltine 1863, 26 & 27 Vic, ch. 118, § 14. v. Belfast &c. R. Co., (1887) 79 Me. 2 Matthews v. Great Northern Ry. 411 ; s. e. 1 Am. St. Rep. 330. And . Co., 28 L. J. Ch. 875; Smith ■«. Cork so also where there is a statutory &c. Ry. Co., I. L. R. 3 Eq. 856. provision that dividends on preferred 'Dent V- London Tramways Co., stock shall "not exceed" a certain 16 Ch. Div. 844. percentage, and less than thatper- ^ This is the case where a by-law centage is paid, the deficit can not ' of a railroad company provided that be claimed out of the profits of sub- " dividends on the preferred stock sequent years. Elkins v. Camden shall first be made semi-annually &c. R. Co., 86 N. J. Eq. 233; Beach from the net earnings of said road, on Railways, g 289. not exceeding a certain per centum ' Boardman v. Lake Shore &o. E. p6r annum; after whicli dividend, if • Ck>., 84 N. Y. 157. there shall remain a surplus, a divi- ^Prouty v. Michigan &c. E. Co., 1 dend shall be made upon the n6n- Hun, 655; Thompson v. ErieRy. Co., preferred stock up to a like per cent. 45 N. Y. 468; Boardman v. Lake per annum, and should a surplus Shore &c. R. Co., (1881)84 N. Y. 157; then remain of net earnings after Bailey v. Hannibal &c. E. Co., 1 both of said dividends, in any one Dill. 174 ; Ellsworth v. New York year, the same shall be divided pro &c. R. Co., 98 N. Y, 648; Henry 814 PKEFEEEED STOCK. [§ 504. made by the coutts between declaring dividends upoa pre- ferred and on common stock. The directors of the corpora- tion have a discretion as to the latter, but their action with respect to the former is subject to review'bjacourt of equity.* But equity even will not interfere with a dividend unless it appear that somebody in particular was hurt or liable to be injured. It will not iftterfete for the sake of vindicating'gen- eral principles after all danger has passed.^ "Where, however, the directors of a corporation neglect or refuse to pay a divi- dend to the preferred stockholders when the finances of the corporation justify it, and the stockholders are equitably en- titled to receive it, a court of equity has jurisdiction of a bill to compel payment thereof.' And the payment of dividends upon common stock will be restrained until the holders of guarantied stock have been paid.* So also a preferential Browne v. Monmouthshire Ry. &o. Co. 13 Beav. 33. ^Hazeltine v. Belfast &o. ,R. Co., (1887) 79 Me. 411; Boardman v. Lake Shore &o. E. Co., (1881) 84 N.' Y. 157 ; Rutland &o. R. Co. v. Thrall, ' 35 Vt, 536- Williston v. Michigan &c. R. Co., 95 Mass. 400; Barnard «. . Vermont &c. S. Co., 89 Mass. 513; Davis V. Proprietor &c,, 49 Mass. 331 ; Taft v. Hartford &c. R. Co., (1864) 8 R. 1 310; Belfast &c. R. Co. V. Belfast, (1887) 77 Me. 445; Bates V. Androscoggin &c. R. Co., 49 Me. 491 ; Richardson v. Vermont &o. R. Co., 44 Vt. 613; \Vest Chester &o. E. Co. V. Jackson, 77 Pa. St. 331 ; Bryant V. Ohio College, 1 Cin. 67; St. John • V. Erie Ry- Co., (1874) 23 Wall. 136; Bailey v. Railroad Co., 17 Wall. 96; Pj-outy V. Lake Shore &c. E. Co., 53 N. Y. 563; Thompson v. Erie Ey. Co., 45 N. Y. 468; Chase v. Vander- bilt, 37 N. Y. Super. Ct. Rep. 334; Dickinson v. Railroad Co., 7 W. Va. 390. < Adams v. Fort Plain Bank, 3fi N. Y. 255; Dana v. Fiedler, 13 N. Y. 41 ; s. a. 63 Am. Dec. 130; Prouty v Michigan &o. E. Co.,, 1 Hun, 655. V. Great Northern &c. Ey. Co., 4 Kay & J. 1 ; s. C. 1 De Gex & J. 606; Sfurge V. Eastern &c. Ey. Co., 7 De Gex, M. & G. 158; Smith v. Cork&6. Ey. Co., L E. 3 Eq. 856. Of. Chase v. Vanderbilt, 63 N. Y 807. ■ 1 Williston V. Michigan &c. E. Co., 95 Mass. 400; I'aft v. Hartford &c. R. Co., (1864) 8 R. L 310; Belfast &c. R. Co. V. Belfast, 77 Me! 445 ; Bates v. Androscoggin &o. R. Co., 49 Me. 491 ; West Chester &c. R. Co. v. Jackson, 77 Pa. St. 321 ; Prouty v. Lake Shore &c. R. Co., 53 N. Y. 563 ; Hazeltine v. Belfast & M. H. L. R. Co., (1887) 79 Me. 411; St. John v; Erie Ry. Co., (1874) 32 Wall. 136; Bailey v. Railroad Co., 17 Wall. 96; Thompson v. Erie Ry. Co., 45 N. Y. 468; Dickinson v. Railroad Co., 7 W. Va. 390 ; Richardson v, Vermont &c. R. Co., 44 Vt. 613; Rutland &c. R. Co. «. Thrall, 35 Vt.,586; Barnard V. Vermont &c. R. Co., 89 Mass. 513. ' 2 Chaffee v. Rutland E. Co., (1883) 55 Vt. 110, 133; Moore v. Hudson &c. E. Co., 12 Barb. 156; Stevens v. South Devon E. Co., 9 Hare, 313; § 505.]i PEEFEEEBD STOCK. SIS shareholder may file a bill to restrain the company from making a dividend prejudicial to his rights without waiting until there are funds to make a dividend.' Preferred share- holders can not, however, maintain an action at law to enforce the payment of dividends which have not been declared.^ § 505. Status of preferred shareholders. — Dividends upon preferred stock are not a debt that is guarantied, but consti- tute' a right to a dividend from the earnings and income of the corporation. The right to a dividend is not a debt There is no debt until the dividend is declared. The obligation and right Jo declare it does not arise until there is a fund from which it can properly be made.' Therefore preferred share- holders are n^ot creditors of the company.* The relation of a , holder of preferred stock is,- in some of its aspects, similar to that of a creditor; but he is not a creditor save as to dividends, after they are declared. Nor does he sustain a dual relation to the corporation. He is either a stockholder or a creditor. He can not, by virtue of the same certificate, be both. If the former, he takes a risk in the concerns of the iSturge v., Eastern &o. R. Co., 7 corporators are unwilling or unable De Q. M. &. Gr. 158. to put more or sufficient money into 2"Williston V. Michigan &o. R. Co., the business, but ' are nevertheless 95 Mass. 400. disposed to give those who will do 5 Chaflfee v. Rutland R. Co., (1882) so a preference in profits. Careful 55 Vt. 110, 127; In re London &c. guai-ds are therefore usually thi-own Co., L. R. 5Eq. 525. In the principal around preferred stock in the char- case it was said that it became nee- ter or contract, as was done in this essary for the defendant, consisting case; but this did not change the of the second mortgage bondholders, character of the transaction. It was to raise money to pay up the first still an obtaining of funds by sale of mortgage in order to save the prop- stock, and not a borrowing of money erty from going on that mortgage, on mortgage. Two ways were open to them — one * Warren v. King, 108 U. S. 389 ; to borrow money, the oth^r to sell Belfast &c. R. Co. v. Belfast, (1887) stock. They decided to try thelat- 77 Me. 445; Chaffee v. Rutland &c. ter method. The pressure was severe R. Co., (1882) 55 Vt. 110; Taf t «. upon them and the amount to be Hartford &c. R. Co., (1864) 8 R, I. raised was large. The stock, in order 310; Pittsburg &c. R. Co. v. County to be sold, must be carefully guarded, of Allegheny, 63 Pa. St. 128; Lock- The- issue of the preferred stock in hart v. Van Alstyne, (1875) 31 Mich, this case was made as' it usually is, 76; S. 0. 18 Am. Rep. 156; Bates v. that is, when the corporation has Androscoggin &c. R. Co., 49 Me. reached a crisis in its affairs, and the 491. 816 \PEEFEEEED STOCK. [§ 505. company, not only as to dividends and a proportion of assets on the dissolution of the company, but as to the statutory lia- bility for debts in case the corporation becomes insolvent. If the latter, he takes no interest in the company's affairs, is not concerned in its property or profits as such, but his whole right is to receive an agreed compensation for the use of the money he furnishes and the return of the principal when due. Whether he is the one or the other depends upon a proper construction of the contract he holds with the company.' Thus,' under an act to enable railroad companies to redeem their bonded debts, which authorizes the issue of certificates of preferred stock and does not authorize the issue of certifi- cates of indebtedness, the owners of certificates are stockhold- ers, and not creditors of a corporation whose stockholders adopt a re!solution authorizing the issue "of a preferred stock, reciting that the stock is tp be issued under and by virtue of the provis- ions of this act, which is referred to by its title and date of en- actment, which resolution is made a part of the certificates there- after issued by the company. For the terms of the act thereby become, in legal effect, a part of the certificates, and the cer- tificates so issued will be held to be certificates of stock, unless, considering the whole transaction, it is clear that the purpose -was to create a debt, and unless a debt was in fact created.^ And under aii act empowering certain counties to subscribe 1 Miller v. Eatterman, (Ohio, 1890) little signiflcanoe in determining 8 Ry. & Corp. L. J. 69. In this case their purpose, and when that pur- it was further said that " a mort- pose is ascertained it is of much im- gage creditor, although denominated portance in giving construction to a ' preferred stockholder,' is a mort- the contract. The object of all rules gage creditor nevertheless, and in- of construction is to arrive at the terest is not changed to dividend by meaning of the parties. What was calling it a dividend." "Theques- the object to be accomplished? What tion is not what did the parties call did the parties intend, and are the itj but what do the facts and circum- means taken in harmony with that stances require the court to call it? intent and with the law applicable The a:pthess of this language arises to the subject? These are questions in a case where it has been deter- addressed to the court in this case, mined that such holder is a creditor, and when answered the case is de- It may not furnish material aid in cided." ascertaining the fact whether he is 2 Miller v. Eatterman, (Ohio, 1890) such or not. However, what the 8 Ry. & Corp. L, J. 69, construing psirties in the given case hg,ye called Ohio Laws of 1870, 89. the subject of the contract is of no § 506.] PEEFEEEED STOCK. 817 for |)referred stock of a certain railroad, to bear seven per cent, interest, it was held that a county was not to be a cred- itor, but a stockholder, and that an expression in the certifi- cate " prior and in preference to any dividend upon the capital stock of the company " is objectionable as implying that the county was not a stockholder.' ■ § 506. Preferred stock deferred to debts. — The stock- holder must come after the creditor. The stock and property of a corporation is a trust fund pledged for the payment of its debts and the creditors' right to payment,, and their lien is prior to the right of every stockholder.^ Therefore earnings may be devoted to payment of a floating debt in preference to the payment of dividend upon preferred stock.' But after payment of current expenses and interest upon its bonded in- debtedness, a company can not in lieu of paying the remain- ing net earnings as a dividend to preferred shareholders, set it apart to provide a sinking fund for the payment of its bonded debt.* And accordingly owners of preferred railroad 1 State V. Cheraw &c. R. Co., 16 S. C. 534. 2 Chaffee v. Rutland E. Co., (1882) 55 Vt. 110, 126, citing National Bank V. Douglass, 1 McCrary, 86 ; Railroad Co. V. Howard, 7 Wall. 393; Wood V. Dummer, 3 Mason, 308; Mumma V. Potomac Co., 8 Pet. 386; Curran V. Arkansas, 15 How. 304. 3 Chaffee v. Rutland &o. R. Co., (1882) 55 Vt. 110, 137. In'thi? case the court disposes thus of the con- trary claim : " The only earnings and income was the rental, which was insufficient to pay the operating expenses and the floating debt. Upon the plaintiff's theory there was an unqualified obligation to de- clare and pay dividends to preferred stockholders from the earnings and income, notwithstanding there were debts of the company greater than the earnings and income. Under this claim the rule universally recog- nized in the books that the property 63 of a corporation is a trust fund pledged for the payment of the debts of the corporation, and the distinc- tion everywhere upheld between the stockholder and a creditor, would have been disregarded. In our view the terms of the charter neither force nor import such construction." ^Hazeltine u. Belfast &c. R. Co., (1887) 79 Me. 411; s. c. 1 Am. St. Rep. 330. Here a railroad company leased its road for a term of fifty years, ex- piring in 1920, at the annual rent of $36,000, the lessee undertaking to maintain the track, etc., and keep it in repair. There was a mortgage upon the road for $150,000, payable in 1890; the annual interest thereon being about $9,000. The company had no ijoating or unsecured debt, and there was a sum of $33,412 of cash in the treasury after payment of the current expenses and interest on the mortgage. And it was held that the company was not entitled, . 8|8 PEEPEEEED STOCK. , [§ 507. stock eatitled tor au annual noa-aocumulating dividend, de^ pendent on a declaration of profits by a board qf directors, can compel payment to themselves, when the board has re- ported more than sufficient net profits for the payment of the dividend, but has detexrained to use it all for the improvement of the road.' But equity will not interfere when by so doing an injustice would be wrought upon corporate creditors and the other stockholders, by taking money from the treasury ' without which the enterprise would be crippled.'' Preferred stockholders who are entitled to receive interest in preference to the payment of dividends on the common stock, and after payment of the mortgage interest, are not to be considered prejudiced by the corporation issuing mortgage bonds consol- idating prior and subsequent indebtedness.' For the execu- tion of a mortgage upon the whole line of a railroad for the purpose of raising funds for the company, and subsequent to the issuance by the corporation of preferred stock, is not in derogation of the rights of the preference stpckholders, and an injunction will not issue to restrain the execution of the mortgage.* Again, where preferred stock was entitled to pre- ferred dividends out ,of the net earnings of the road after payment in full of mortgage interest and delayed coupons, and subsequently to the issue of this stock the company leased new roads and borrowed money for the repair and equipment of the road as it had a right to do, the rent of the , new road and the interest on this borrowed money had priority over the preferred stock.' § 507. Right of preference shareholders in distrihution of capital. — Ordinarily preferred stockholders are given no pri- ority in the distribution of the capital of a corporation upon its dissolution or winding up. The preference generally given is merely a preference in the distribution of profits. When as against the preferred Btookhold- 2 Culver v. Reno &c. Co., 91 Pa. St. ers, to retain the sum of $19,900 as a 367. contribution to a sinking fund to ^ Thompsons. Erie R. Co., 45 N.Y. pay off the mortgage debt when it 468 ; s. c. 42 How. Pr. 68. became due. ^ Garrett v. May, 19 Md. 177. 1 Nickals v. New York, Lake Erie ^ St. John v. Erie Ry. Co., 22 Wall. &o. Ry. Co., 15 Fed. Rep. 575. 137; s. c. 10 Blatok. 271. § 507.] PEEFEESED STOCK. 819 this is the case and there is no provision for the division of the capital upon the breaking up of the corporation, any surplus remaining after the payment of debts must be distributed among the shareholders according to their shares, without reference tv) their rights in respect to dividends.' A prefer- ence, however, in the distribution of capital, as well as in the distribution of profits, is not very unusual,^ and "is sometimes authorized by the articles of association,' being under some •McGregor i;. Home Ins. Co., 33 N. J. Eq. 181 ; In re London &c. Co., L. R. 5 Eq. 519; Griffith v. Paget, 6 Ch. Div. 511, where Malins, V.-C, said : "All these companies are com- . mercial partnerships, and are, in the absence of express provisions, statu- tory or otherwise, subject to the same considerations. If, in an ordi- nai-y commercial partnership, one or more of the partners has a larger share of the profits than is the pro- portion borne by his share of the capital to the capital of the others, whether on account of his services (which is the more frequent ground in cases of partnership for giving the larger share), or on account of the services of others formerly given to the partnership, which is sometimes done, especially in the case of a sec- ond or third generation, that privi- lege ceases whefc the partnership is dissolved. If you give an annuity out of profits to a widow during the continuance of the partnership, she having no share of the capital, of course that ex m termini will come to an end at the dissolution of the partnership. If you give a manag- ing partner a salary, or a larger share of the profits than his proportion of the bapital, of course at the dissolu- tion the management comes to an end and his large share of the profits. But in the ordinary case, when the profits are unequally divided, that is, unequally as regards the share of capital, the same rule prevails, and that is quite independent of the cir- cumstances whether the excess of profits is given for services or given to a sleeping partner for the use of his name or otherwise. "When the partnership comes tb an end, the right of the share of the profits comes to an end also, and you dis- tribute the assets, after providing for the profits earned lip to the time of distribution, in proportion to the partners' shares of the partnership capital, That is the general rule of law in a commercial partnership. Therefore you would distribute the assets simply in proportion to the capital. This is a commercial part- nership. Therefore if there were no provision to be found anywhere, you would distribute the assets in pro- portion to the capital, and the mere arrangement for the division of profits inter se during the continu- ance of the partnership, would have no direct bearing on the division of the capital, as distinguished from profits earned up to the time of the dissolution, after the dissolution of the company." 2Taft V. Hartford &c. E. Co., (1864) 8 R. I. 310; West Chester &c. R. Co. V. Jackson, 77 Pa. St. 321. 3 Melhado v. Hamilton, 21 W. R. 619 ; Hutton v. Scarborough &c. Co., 3 Drew. & Sm. 514. Thus where a company, having power to increase its capital to such amount and upon such terms and either with or with- out special privileges or preferences 820 PEEFEEEED STOCK. [§.508. circumstances the only means of raising a working capital for the business.^ So under a general statute directing that in the distribution of capital the holders of preferred stock shall be first paid, before any distribution is made to the holders of the common stock, preferred stock is entitled to preference in the distribution of capital.^ In distributing the assets after payment of debts, no account should be taken of dividends previously paid to preferred stockholders.' § 508. Exchanging common for preferred stock. — Pre- ferred stock may be issued for the purpose o| exchanging and retiring the common stock.* If the proposition to common stockholders to take preferred stock, on the surrender of part ,of these shares or an additional payment, or the like, contains any time- limit, it is of the essence of the offer.' If no time is to the holders of the shares in the in- creased capital, as it should deem expedient, raised further capital by the issue of shares entitled to a pref- erential interest of ten per cent, per annum, the amount of the shares to be repaid on six months' notice, with twenty-five per cent, bonus, the pay- ment of interest, repayment and bonus to take place before any divi- dend, interest or other money was payable to the original shareholders, it was held that the. company had conferred a preference as to (fapital as well as dividends upon the new shareholders, and that they were en- titled to the surplus in preference to stock, on which dividends of not ex- ceeding seven per cent, per annum might be guarantied, it was held that in case of a division of assets, these guarantied stockholders must be paid, if need be, to the exclusion of the holders of common stock. Gordon V. Richmond &c. R. Co., 78 Va. 501. » Griffith V. Paget, 6 Ch. Div. 511. * West Chester &c. R. Co. v. Jack- son, (1875) 77 Pa. St. 331. The New York "'Stock Corporation Law" of 1890, provides : Every domestic cor- poration having preferred and com- mon stock may upon the written re- quest of the holder of any preferred stock by a two-thirds vote of the di- the original shareholders. In re rectors, exchange the same for com- Bangor &c. Co., L. R. 20 Eq. 59, 1 In re Bangor &o. Co., L. R. 20 Eq. 59. ^ McGregor v. Hoiiie Ins. Co., 33 N. J. Eq. 181. Under Virginia Act of Dec. 18, .1865, authorising the de- fendant corporation to increase its capital stock to such extent as might be requisite to enable it to" liquidate all arrears of debts, interest, aad dividends, and to niake such portion of the- increased capital stock as it might deem advisable a guarantied mon stock, and issue certificates for common stock therefor share for share, or upon such other valua- tion as may have been agreed upon in the scheme for the organization of such corporation, or the issue of preferred stock; but the total amount of capital stocji shall not be increased thereby. N. Y. Laws of 1890, ch. 564, g 47. 8 Pearson v. London &c. R. Co., 14 Sim. 541; Muhlenberg v. Philadel- phia &c. R. Co., 47 Pa. St. 16. § 509.] . PEEFEEEBD STOCK. 8iiii ■ thus fixed, the right must be exercised within a reasonable time. The principle on which it is held that where, in an executory contract, one stipulates to do some act, and no time is limited, it is to be done in a reasonable time, applies where one is en- titled to a privilege, or receives an offer, of which he may at his own option take advantage. He must avail himself of "the privilege and exercise his option within a reasonable tirae.^ A delay of thirty-thr^e years has been held unreason- able.2 §509. Special stock. — The characteristics of the special stock of Massachusetts are, that it is limited in amount to two-fifths of the actual capital; it is subject to redemption by the corporation at par after a fixed time, to be expressed in the certificates; the corporation is bound to pay a fixed half-yearlj' sum or dividend upon it as a debt; the holders of it are in no event liable for the debts of the corporation be- yond their stock; and the issue of special stock makes all the general stockholders liable for all debts and contracts of the corporation until the special stock is fully redeemed.' The guaranty of dividends upon this stock is not conditioned upon the profits of the enterprise.* And where there are no profits, they must be paid out of any property owned by the company ; the holders of stock of this kind being regarded as creditors of the corporation in respect of the guarantied dividends.* As the statute defines the. mode in which special stock may be issued, a departure from the statutory requirements invali- dates the issue ; as, for instance, where at a meeting called to consider whether preferred stock shall be issued, a vote to issue special stock is had, Or where the record fails to show the assent of the required number of stockholders. And a 1 Wilson u. Clements, 3 Mass. 1,13; 1870, oh. 334, §§ 35, 39; Pub. Stat. Atwood V. Cobb, 16 Pick. 337 ; Lor- ch. 106, §§ 43, 61 ; American Tube ing V. Boston, 7 Mete. 410, 414; Hoi- "Works w. Boston &c. Co., (1885) 139 land V. Cheshire Ry. Co., (Mass. Mass. 5. 1890)24 N. E. Rep. 306; S. C. 8 Ry. ^-yvnuams v. Parker, (1884) 136 & Corp. L. J. 49. Mass. 304; Allen ■!>. Herriok, 81 Mass. 2 Holland v. Cheshire .R. Co., 374. (Mass. 1890) 8 Ry. & Corp. L. J. 49. 5 Williams v. Parker, (1884) 136 'Mass. Stats, of 1855, ch. 390; of Mass. 304. 822 PEBFEEEED STOCK. [§ 509. holder of stock thus illegally issued can not, by estoppel or otherwise, become a member in respect to such shares.' Eut a holder of special stock which is Illegally issued, may prove against the estate of the corporation in insolvency the amount ,paid by him for the stock, deducting any dividends received, although he did not rescind the contract before insolvency.'' 1 American Tube Works v. Boston 2 Reed v. Boston &o. Co„ (1886) &c. Co., 139 Mass. 5. 141 Mass. 454. CHAPTER ZXVI. SUBSCRIPTIONS TO STOCK. §510. Introductory. § 530. 511. Construction of contracts. 531. 512. Preliminary contracts. 513. Signing articles of association. 532. 514. Application, allotment and 533. notice. 534. 515. Cash deposits. 535. 516. Subscriptions to obtain char- ter. 536. 517. Subscriptions to obtain char- 537. ter not to be conditional. 588. 518. Who may receive subscrip- tions. 539. 519. Commissioners. 540. 520. Limitation of the amount of 541. a single subscription. 543. 521. Subscriptions in excess of the 543. capital stock. 544. 532. Competency to subscribe — 545. (a) Natural and artificial 546. persons. 523. (b) Municipal corporations. . 547. 524. Municipal subscriptions. 548. 525. Municipal subscriptions may be conditional. 549. 526. Municipal subscriptions as 550. affected by consolidation. 551. 527. Fi-aud in prpcuring subscrip- tions. 553. 528. Qualification of the foregoing 553. rule. 554. 529. Misrepresentations in pros- pectuses. Parol evidence of fraud. Parol aigreements and condi- tions. Conditions precedent. Conditions subsequent. Recitals as implied conditions. Recitals as to the amount of capital stock. The same subject continued. Valid and void conditiops. Secret and separate condi- tions. Performance of conditions. Substantial performance. Non-performance. Waiver of performance. Fraudulent agreements. Irregular subscriptions. Waiver of irregulai-ities. Effect of legislationjupon sub- scription contracts. Effect of consolidation. Failure of consideration. Withdrawal and abandon- ment. Substitution of subscribers. Specific performance — Dam- The Statute of Limitation. The same subject continued. The same subject continued -~ The Glenn Cases. § 510. Introductory. — There are cases in which it has been said that no written subscription is necessary in the for- mation of joint-stock companies.' Contracts of this char- 1 National Bank v. Van Derwerker, (1878) 74 N. Y. 334; Pettis v. Atkins, ^1871) 60 111. 454. 824 STJBSCBIPTIONS TO STOCK, [§ 510. acter are not considered as within the statute of frauds iu Kentucky, even though payment is not to be made until the organization of the company at some indefinite future time.* So in Indiana, it is held that a stipulation that certain things shall be done by the company within a time longer than one year, does not bring the contract within the statute of frauds whei-e it may ie performed within one year." A municipal subscription to the stock of a railway need not be in writing. A resolution by the proper board of oflScers or agents declar- ing the subscription to be made, acceptance on the part of the railway and notice thereof to the municipality, is sufficient; and a contract made in that manner is binding upon both par- ties although there has been no exchange of the bonds of one for the stock of the other.' But generally a contract to take shares in the capital stock of an incorporated company, must be in writing,* and must be such as to constitute a valid and complete contract on both sides." " To this end it is requisite 1 The statute of frauds (Gen. Stat. Ky. oh. 23, § 1), providing that no action shall be brought to charge any one upon any agreement which is not to be performed within one year, unless the agreement is in writing, refers to contracts which are not to be performed within a year from the making of them, not to those that may he performed within that time. Bullock v. Pal- mouth & Chipman Hall Turnpike Eoad Co., (1887) 85 Ky. 184. 2 Strangham v. Indianapolis &c. B. Co., 38 Ind. 185. ' Bates County v. Winters, 112 TJ. S. 335;' Cass County v. Gillett, 100 U. S. 585 ; Nugent v. Supervisors, 19 Wall. 241; State v. Jennings, 4 Wis. 649 ; Beach on Railways, § 218, where it said that the vote of the people, however, in favor of the subscrip- tion, does not amount to a contract of subscription, nor vest in' the rail- way a right to enforce specific per- formance, where the enabling act confers any discretion in i-elation to the matter, upon the oificers of the municipality ; Bates County v. Win- ters, 97 U. S. 83; Wadsworth ■«. St. Croix County, 4 Fed. Rep. 370; Syra-', cuse Savings Bank v. Town of Sen- eca Falls, 86 N. Y. 317; Cumberland &c. R. Co. V. Barren County, 10 Bush, 604 ; Winter v. City Council of Montgomery, 65 Ala. 403 ; People v. Jackson County, 93 111. 441; People V. Pueblo County, 2 Cal. 360. Cf. Bank of Statesville v. Town of Statesville, 84 N. C. 169. *Bouwer v. Appleby, 1 Sandf, N. Y. 170; Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188; Fanning V. Hibernia Ins. Co., 37 Ohio St. 339; Pittsburgh & S. R. Co. v. Gazzam, ,82 Pa. St. 340; Galveston Hotel Co. V. Bolton, 46 Tex. 633; Fothergill's Case, L. R. 8 Ch. App. 270; Thames Tunnel Co. vt Sheldon, 6 B. & C. 341; Phoenix Warehousing Co. v. Badger, 67 N. Y. 294; Note to Parker V. Thomas, 81 Am. Dec. 393, 396. 5 Belfast & M. L. R. Co. v. Moore, 60 Me. 561; Bucher ?;. - Dillsburg & M. R. Co., 76 Pa. St. 306; Dutchess &c. R. Co. V. Mabbett, 58 N. Y. 897. 510.] STJBSOEIPTIONS TO STOCK. 825 on the- one hand that it be unconditionally delivered to an agent of the company authorized to receive subscriptions,^ and on the other hand that it be accepted by the corporation.^ The offer must be accepted, if at all, within a reasonable time.' A person can not be held bound by a subscription to See li&Xe Ontario Shore R. Co. v', Cuitiss, 80 N. Y. 319; "Subscrip- tions to the Capital Stock of Corpo- rations," by James M. Kerr, (i890) 6 Ry. & Corp. L. J. 423. 1 For there can be no acceptance of an escrow subscription until its final delivery to the company. Cass V. Pittsburgh &c. Ry. Co., 80 Pa. St. 81. ,But it is held that a delivery of a subscription of that character to an agent of the company who is taking subscriptions, or to a director, does not destroy its character as an escrow. Cass v. Pittsburgh &o. R. Co., 80 Pa. St. 31; Ottawa &c. R. Co. V. Hall, 1 Bradw. 613 ; Beach on Railways, g 76. For a subscription delivered in escrow is, strictly speak- ing, no Subscription until the occur- rence of the contingency upon which it was to be a second time delivered ; and it can only be delivered to the corporation upon the happening of • that event. Ottawa &c. R. Co. v. Hall, 1 Bradw. 613; Ashtabula &cj R. Co. V. Smith, 15 Ohio St. 338. 2 Fanning v. Insurance Co., 87 Ohio St. 539 ; Thames Tunnel Co. v. Sheldon, 6 Barn. & O. 841. Where the subscription is made in the man- ner provided by statute, acceptance by the company is presumed; but when it is irregularly made (Brown- lee V. Ohio &c. R. Co., 18 Ind. 68; Ashtabula &c. R. Co. v. Smith, 15 Ohio St. 338; Eppes v. Mississippi &c. Co. , 35 Ala. 33 ; New Albany &c. R. Co. V. McCormiok, 10 Ind. 499; S. C. 71 Am. Bee. 337 ; Clark v. Con- tinental &c. Co. 57 Ind. 134 ; Sewall V. Eastern R. Co. , 9 Cush. 5 ; Parker V. Northern &c. R. Co., 38 Mich. 33; Carlisle v. Saginaw &c. R. Co., 37 Mich. 315; St. Paul &c. R. Co. v. Rob- bins, 23 Minn. 439; Gulf &c. Ry. Co. V. Neely, 64 Tex. 344. Of. Silpher v. Earhart, 83 Ind. 178 ; Cincinnati &c. R. Co. V. Pearce, 28 Ind. 502), or made conditionally, acceptance must be proven in order to bind the sub- scriber. Taggart v. Western Mary- land R. Co., 34 Md. 563; Gait v.. Swain, 9 Gratt. 633; s. c. 50 Am. Dec. 811; Junction R. Co. v. Reeve, 15 Ind. 336 ; Lowe v. Edgefield &c. R. Co., 1 Head, (Tenn.) 659; Ashta- bula &o. R. Co. V. Smith, 15 Ohio St. 338. This may be shown by the corporation entering the subscrip- , tion upon its records, (New Albany &c. R. Co. V. McCormiCk, 10 Ind. 499 ; s. c. 71 Am. Dec. 337) or it may- even be shown by parol evidence. Mansfield &c. R. Co. v. Smith, 15 Ohio St. 338. Acceptance by a president of the company, all of whose acts are afterwards ratified by the directors, is sufficient to- bind the company and the subscriber, Pittsburgh &c. R. Co. v. Stewart, 41 Pa. St. 54; Beach on Railways, § 85. Notice of acceptance is not requisite, (Brownlee v. Ohio &c. R. Co., 18 Ind. 68), unless required by statute. Eppes v. Mississippi &c. R. Co., 35 Ala. 33. award's Case, L. R. 10 Eq. 659. A conditional subscription being a continuing off'er merely, it may be recalled if acceptance is unreason- ably deferred. Taggart v. Western Maryland &o. R. Co., 34 Md. 563; Beafeh on Railways, § 86. 826 SUBSOEIPTIONS TO STOCK. [§ 511. an incomplete copy of the articles of association;^ nor when the names of the directors were left blank and afterwards filled without their consent.^ Directors are personally liable for refusal to receive subscriptions.' §511. Construction of contracts. — The same rules are generally applicable in the construction of contracts of sub- scription to the capital stock of companies as control the con- struction of other ordinary contracts, the aim of the court being always to discover the intenj; and meaning of the parties as indicated by the' language employed by them, taken in con- nection with the circumstances attending each particular case.'' . The rale that a formal written contract, which appears upon its face to be complete, can not be enlarged, modified, or con- tradicted by proof of prior or contemporaneous parol negotia- 1 Dutchess &c. E. Co, v. Mabbett, 58 N. Y. 397; Buoher v. Dillsburg &e. E. Co., 76 Pa. St. 800. 2 Dutchess &c. E. Co. v. Mabbett, 58 N. Y. 397. 3 Union Bank v. McDonough, 5 La. 63. Contra, Ferguson v. Wil- son, L. E. 3 CK. 77. Cf. Swift v. Jewsbury, L. E. 2 Q. B. 301. * Cravens v. Eagle Cotton M. Co., (1889) 120 Ind. 600 ; s. 0. 6 Ey. & Corp. L. J. 41 1 ; Detroit &c. R. ,Co. v. Starnes, 88 Mich. 698; Beach on Railways, § 99. In the case first' cited the plaintiff corporation was organized for the. purpose of acquiring and operating a cotton mill, a proposi- tion by another corporation to sell its cotton mill and plant being at the time under consideration by the in- corporators of plaintiff, and defend- ant subscribed to plaintiff's capital stock on condition that the subscrip- tion was not to be payable until the contract with the other corporation had been ratified by a majority of the stockholders. Mitchell, J., de- livering the opinion of, the court, held in an action to enforce defend- ant's subscription, where he de- fended on the ground that the terms of contract between the two corpora- tions had been changed, that it was competent for plaintiff to show that no contract had been consummated at the time of defendant's subscrip- tion, and that it was apparent that the contract referred to was only contemplated. Under such a sub- scription it is not a condition pre- cedent to defendant's liability that plaintiff shall enter into a contract of a particular kind with the other corporation, and in an action to en- force his subscription he can not assail a contract thereafter made with the corporation, which has been ratified as provided. One who has contracted with a corporation as such is estopped to deny its legal ex- istence. For examples of the con- struction of conditional contracts of subscription see : Berryman v. Cin- cinnati &c. E. Co., 14 Bush, 755; People V. Holden, 83 111. 93; Con- necticut &c. E. Co. V. Baxter, 83 "Vt. 803 • Iowa &c. Ey. Co. v. Bliobenes, 41 Iowa, 367; Courtright v. Strickler, 37 Iowa, 383; Beach ou Eailways, §99. '§ 511.J SUBSCEIPTIOSS TO STOCK. 827 tions or agreements, is abundantly settled, and receives the fullest recognition in the decisions of the courts.^ It is equally- well settled, however, that the first duty of the court in inter- preting a contract is to discover the intention of the parties, and while that must be done solely by considering the mean- ing of the language employed in the instrument, yet when the terms employed are susceptible of more than one meaning, it is the duty of the court not only to regard the nature of the instrument, but also to inform itself of the circumstances which surrounded the parties at the time, so as to interpret the language employed from t'he standpoint which the parties occupied when they executed the contract.^ Circumstances which afterwards arose, are not to be considered in construing its meaning.' If the words of the instrument are clear in themselves, it must be construed accordingly ; but if they are susceptible of more meanings than one, the court must avail itself of the light enjoyed by the parties when the contract was executed, so as to arrive at the meaning of the words and give them a correct application to the persons and things de- scribed.'' The court may not deviate therefrom, on account 6f the contract so interprete<^' bein^ unwise for either party.' Where the language employed admits of more than one con- struction, one of which renders the contract insensible, that construction will be adopted which will give effect to the con- tract, and in cases of doubt the practical construction which the parties themselves have given it will be of great, if not controlling, influence.' Accordingly it is essential in order \ . 1 Cravens v. Eagle Cotton M. Co., ' Detroit &c. R. Co. v. Starnes, (1889) 120 Ind. 600; s. 0. 6Ey. &Corp. 38 Mich. 698; Monadnook R. Co. v. L. J. 411; Manufacturing Co. v. For- Felt, 53 N. H. 379. syth, 108 Ind. 334; Carr i;. Hays, ilO ^Cravens v. Eagle Cotton Mills Ind. 408; Tucker v. Tucker, 113 Ind. Co., (Ind. 1889) 6 Ey. & Corp. L. J. 273. Vide infra, g 531. 411, citing Springsteen v. Samson, 2 Cravens v. Eagle Cotton MfUs 33 N. Y. 703. Co., (Ind. 1889) 6 Ey. & Corp. L. J. ' Memphis &c. E. Co. v, Thomp- 411; Heath v. West, 68 Ind. 548; son, 34 Kan. 170. Ketcham v. Coal Co,, 88 Ind. 539; 6 Cravens v. Eagle Cotton- Mills Nash V. Towne, 5 Wall. 689-699; Co., (Ind. 1889) 6 Ey. & Corp. L. J. Scott V. United States, 13 Wall. 448; 411; Ashtabula &c. R. Co. v. Smith, Canal Co. v. Hill, 15 Wall. 94 ; Eeed 15 Ohio'St. 338 ; Reissner v. Oxley, 80 V. Insurance Co., 95 U. S. S3; Rey- Ind. 580; Lyles'v. Lescher, 108 Ind. nolds V. Insurance Co., 47 N. Y. 597. 383; Chicago u Sheldon, 9 Wall. 50. 828 SUBSCEIPTIONS TO STOCK. [§ 512. tbat the contract of subscription may be intelligently applied to the cdllateral matters therein referrred to, that the court should_"be informed of the circumstances existing at the time the subscription was made.^ The meaning of an ambiguous contract is a question of fact for the jury.^ § 512. Preliminary contracts. — A mere informal promise to take stock before the articles of association have been signed, does not constitute a contract of subscription.' Thus ' Cravens v. Eagle Cotton M. Co., (1889) 120 Ind. 600 ; s. c. 6 Ry. & Corp. L. J. 411, 413, where Mitchell, J., delivering the opinion of the court, continued : " It was therefore com- petent for the plaintiff, when the appellant claimed exoneration from his subscription, on the ground that the contract between the two com- panies in respect to the amount of stock which the Pittsburgh com- pany had agreed to subscribe, or the terms upon which it had agreed to sell its mills, had been changed, or that the agreement had been Varied in any other respect, to show that no contract had in fact been con- summated, and that the situation of the parties was such as to make it apparent that the contract referred to was one that might possibly be made in the future. This in no way tended to alter or modify the con- tract of subscription, but to give it intelligent application to the collat- eral matters to which it referred." 2 Connecticut R. Co. v. Baxter, 33 Vt. 805. - *, 3 Fanning, v. Hibernia Ins. Co., 37 Ohio St. 339; s. G. 41 Am. Eep. 517; Troy &c. E, Co. v. Tibbits, 18 Barb. 397 ; Troy &o. R. Co. v. Warren, 18 Barb. 310,; Thrasher v. Pike County E. Co., 35 111., 393; Charlotte &,c. R. Co. V. Blakely, 3 Strobh. 245; Mt. Sterling Coal Road Co. v. Little, 14 Bush, 439. But see Minneapolis Threshing Machine Co. v. Davis, (1889) 40 Minn. 110; g. c. 13 Am. St. Eep. 701. , Cf. Note t,o Parker v. Thomas, 81 Am. Dec. 398, 397. The defendant agreed to subscribe to the stock of a company, providing a certain appointment was secured for him, but declaring at the same time that he could not then subscribe for the stock. He subsequently author- ized the party soliciting for subscrip- tion to -the stock to appear for him by proxy at the meeting of the stock- holders, in anticipation of his future subscription, to the stock, which was, never made, and it was held, that giving the proxy was not a ratifica- tion by the defendant of the act of the one to whom it was given, in having signed defendant's name on the stock-book of the company as a subscriber without his knowledge. McClelland v. Whitely, 15 Fed. Eep. 333. Neither can one be held liable upon an oratorical declaration at a public meeting of a corporation, to the effect that he would spend half of his estate if need be to insure the success of the scheme. Andover &o. Co. V. Hay, 7 Mass. 103. Several persons signed a paper purporting to be an agreernent to take stock in a corporation, which, as the paper re- cited, was about to be formed; afterwards the paper was signed by the president and secretary, and the corporate seal aflSxed, and an action brought to recover from one of the subscribers the price named in the § 512.] SUBSCEIPTIONS TO STOCK. 829 it is held that an oral 'promise, pending the organization of a corpor^ation, to take shares of the stock does not constitute thfe promisor a stockholder or member, and will not support a note given to pay for shares.' These preliminary subscrip- tions are said to be mere continuing offers to take stock upon the organization of the corporation, which must be accepted by the company before an action will lie.^ But a subscription by a number of persons to the stock of a corporation, to be thereafter formed by them, constitutes a contract between the subscribers to become stockholders when the corporation is formed, upon the conditions expressed in the agreement, and is irrevocable from the date of the subscription. It is in the nature of a continuing offer to the proposed corporation, whichyupon acceptance by it, bpcomes as to each subscriber a contract between him and the corporation.' A promoter of paper. The complaint did not state Tvtien the company was incorporated, and it was not shown that any of the subscribers joined in its formation or membership, or were authorized to sell any of the stock, and it was held that the action could not be maintained. California Sugar Manuf . Co. V. Schafer, 57 Cal. 396. 1 Fanning v. Hibernia Ins. Co., 37 Ohio St. 339; s. c. 41 Am. Rep. 517. sStarrett v. Rockland &c. R. Co., 65 Me. 374. Cf. "Agreements to Take Shares in Joint-Stock Compa- nies," to Sol. J. & Rep. 1081, 1113, 1183 (three articles). 3 Minneapolis Threshing Machine Co. V. Davis, (1889) 40 Minn. 110; s.'c. 12 Am. St. Rep. 701 ; Starrett, v. Rockland &c. R. Cp., 65 Me. 374; Buffalo &c. R. Co. v. Gifford, 87 N. Y. 394; Rensselear &c. R. Co. v. Barton, 10 N. Y. 457; Buffalo &c. R. Co. V. Dudley, -14 N. Y. 336; Lake Ontario &c. R. Co. v. Mason, 16 N. Y. 451, 463 : Buffalo &c. R. Co. v. Clark, 22 Hun, 359; Kirkey v. Florida R. Co., 7 Fla. 23; S. c. 68 Am. Dec. 426; Peninsula &c. R. Co. v. Duncan, 28 Mich. 130; Sanger r. Upton, 91 U. S. 59; Webster v. Upton, 91 U. S. 65; Bene v. Cahawba &c. R. Co., 3 Ala. 660; Selma &o. R. Co. v. Tipton. 5 Ala. 787; s. c. 39 Am. Dec. 394; Thigpen v. Mississippi i&c. R. Co., 32 Miss. 347; Penobscot &c. R. Co. v. Dummer, 40 Me. 173; s. c. 63 Am. Dec. 654 ; Hartford &c. R. Co. v. Ken- nedy, 13 Conn. 499 ; Klein v. Alton &c. R. Co., 13 111. 514; Banet v. Al- ton &c. R. Co., 13 111. 504; Heaton V. Cincinnati &c. R. Co., 16 Ind. 275 ; s. c. 79 Am. Dec. 430. Ace. Hamilton' &c. Co. v. Rice, 7 Barb. 157; Anderson v. Newcastle &c. R. Co., 13 Ind. 876; s. C. 74 Am. Dec. 218; Hughes v. Antietam &c. Co., 34 Md. 316. But see cases cited supra, p. 129, note 3, and Pough- keepsle &c. R. Co. v. Griffin, 34 N. Y. 150 ; Charlotte &c. R. Co. v.- Blakely, 3 Strobh. L. 345; Pittsburgh &o. R. Co. «. Gazzam, 83 Pa. St. 340; Chase V. Sycamore &c. R. Co., 38 111. 315. In Carlisle v. Saginaw &o. R. Co., 27 Mich. 315; s. O. 10 Am. Ry. Rep. 383, the statute of incorporation en- acting that subscriptions to the stock of a railway should be made only in the manner t& be provided in its by- 830 SUBSCEIPTIONS TO STOCK. ' [§ 613. a proposed corporation, who solicits and procures stock sub- scriptions, is the agent of the body of the subscribers to hold the subscriptions lentil the corporation is formed, and then turn them over to it without any further act of delivery on the part of the subscribers, and a delivery of a subscription to him is a complete delivery, so that it becomes eo instcmti a binding contract as between the subscribers.^ Subscriptions mad^ prior to incorporation, however, are deemed to be con- ditional upon due performance of all acts requisite to the es- tablishment of the organization as a corporate body.^ And there are cases holding that a subscriber is at liberty to with- draw at any time before the filing of the articles of associa- tion,' notwithstanding his having induced others to subscribe."* But his associates have an action against one who refuses to carry out the agreement, for such damages as they may have sustained by reason of his refusal.* §513. Signing articles of association. — Subscriptions to the capital stock, of corporations formed under general ena- bling acts are frequently made by writing the number of shares laws, it was held that subscriptions E. Co., 78 Pa. St. 465, and cases cited made before the adoption of by-laws supra, p. 129, note 1, and infra, ■were not enforceable, although one § 548. This Is the view taken by of the by-laws subsequently passed Mr. Wood in his treatise on Railway expressly ratified them. Beach on -Law, g 36, where he says, it is diffi- Eailways, § 85; Melhadp v. Porto cult to see how a subscription made Alegre &c. Ey. Co., L. E. 9 C. P. 503, before the corporation was incorpo- Cf. Carlisle v. Saginaw &c. E. Co. , 27 rated can be enforced, unless the sub- Mich. 315; Sewell v. Eastern E. Co., ., scriber after the incorporation does 9 Cuah. 5 ; Sedalia &c. Ey. Co. v. Wil- some act in afiSrmance of his former kferson, 83 Mo.° 235 ; Phoenix &o. Co. promise. See Strasburg E. Co. v. u Badger, 67 N.Y. 394; Buffalo &c. Echternach, (1853) 31 Pa. St. 220; E. Co. V. Hatch, 20 N. Y. 157 ; Erie s. C. 60 Am. Dec. 49 ; Thrasher v. &c. E, Co. V. Owen, 33 Barb. 616; Pike County E. Co., (1861)25 III, 393; Garrett v. Dillsburg &c. E. Co., 78 Mt. Sterling' Coal Eoad Co. v. Little, iPa. St. 465; EikhofE t;. Brown's Eo- (1879) 14 Bush, 429. tary &c. Co., 68 Ind. 388. * Muncy Traction Engine Co. v. 1 Minneapolis Threshing Machine Green, (Pa. 1888) 18 Atlan. Eep. 747 ; Co. V. Davis, (1889) 40. Minn. 110; s. c. 21 Am. & Eng. Corp. Cas. 838; S.. C. 12 Am. St. Eep. 701. s. o. 12 Cent. Eep. 386. Contra, ^ Vide oases cited supra, p. 138, Cook v. Crittenden Bank, 25 Fed. note 5. Eep. 544. 3 Holt V. Winfield Bank, 35 Fed. » Lake Ontario &c. R. Co. v. Cm- Eep. 818; Garrett v. Dillsburg &g. tiss, (1880) 80 N. Y. 31,9. § 614.] SUBSCEIPTIONS TO STOCK. 831 intended to be taken by each incorporator opposite his signa- ture to the articles of association.^ Subscriptions so made are presumed to be accepted by the corporation, are equally bind- ing upon it and upon the subscriber,^ and take effect upon the filing of the certificate as required by the statute.' If, how- ever, the enabling act require the articles to be acknowledged before an officer, one who has subscribed in the manner above stated, but who has, not joined in the acknowledgment, can not be held bound as upon a complete contract.* So, also, where the enabling act requires the articles to be filed, and the subscription was made upon a duplicate copy thereof which was ij>ot filed, the contract remains incomplete.^ § 514. Application, allotnlent and notice. — The English method of taking shares in companies having capital stock is by application, allotment and -notice, the latter being of the essence of the contract,' which is thereby concluded, and the contract dates from the mailing of the notice,'' whether it ever reaches the allottee or not.^ Accordingly, in order to constitute a valid all'otment of shares, there must be an ap- 1 Coppage V. Hutton, (Ind. 1890) notice to the allottee. Hebb's Case, 24 N. E. Kep. 112; Nultoa v. Clay- 4 Eq. 9; In re Peruvian Ey. Co., L. ton, 54 Iowa, 425 ; Brie &c. E. Co. v. E. 4 Ch. 323 ; Ward's Case, L. R. 10 Owen, 32 Barb. 616; "Signing the Eq. 659. Contra, Bnvkev.ljechniere, Memorandum of Association and its ^L. R. 6 Q. B. 297; Thames Tunnel Consequences," 14 Sol. J. & Rep. 93. Co. v. Sheldon, 6 Barn. & C. 341 ; 2 Nulton V. Clayton, 54 Iowa, 425; In re Peruvian Ry. Co., L. E. 4 Ch. Phoenix "Warehousing Co. v. Badger, 323, -where it is said that /if the ap- 67 N. Y. 294. plicant become cognizant of the 3 Phoenix , "Warehousing Co. v. fact of allotment by other means Badger, 67 N. Y. ,294 ; Dayton v. and has acted or permitted others to Borst, 31 N. Y. 435. See Lake On- act upon the assumption of his being tario, A. & N. Y. E.Co. v. Mason, 16 a share-owner, he is estopped to ob- N. Y. 451, n. ; Buffalo & N. Y. City ject that he received no notification R, Co. V. Dudley, 1,4 N. Y. 336. of allotment. « Coppage V. Hutton, (Ind. 1890) 34 ' Dunlop v. Higgins, 1 H. L. 381 ; N. E. Eep. 112. Cf. Ind. Rev. Stat. Harris' Case, 7 Ch. 587. § 3851. 6 Harris' Case, 7 Ch, 587 ; Towns- 5 Erie & N. Y. City E. Co. v. Owen, end's Case, 13 Eq. 148; Household 32 Barb. 616. Fire Co. v. Grant, 48 L: J. Ex. 319 ; 6 " Application for Shares," 13 Sol. S. c. 4 Ex. Div, 216 ; Steel's Case, 28 J. & Rep. 173; Pellatt's Case, 2 Ck "W. E. 241. See, however, British 537; Gunn's Case, 3 Ch. 40. Notice & American Telegraph Co. v. Col- to an agent of the company is not son, L. E. 6 Ex. 108. 832 BUBSCEIPTIONS TO STOCK. [§515. plication followed by allotment and communication of that allotment to the applicant. So that in a case where no allotment had been made since application, the only allot- ment which the directors had resolved on being before appli- cation, there was held to be no contract, and the allottee was considered entitled to have his name withdrawn from the register of shareholders.^ The words in the Companies Clauses Act, " and whose name shall have been entered on the register of shareholders," ^ are held to be descriptive merely and not to maike registration a condition precedent to liability as a shareholder.' The letter of allotment is required to be stamped.* An application for shares may be withdrawn at any (;ime prior to allotment.' § 515. Cash deposits. — A deposit in money to the amount of ten per cent, of the subscription is required to be made at the time of subscribing b}' the New Yorii " Stock Corporation Law "/of 1890." Similar requirements are found in the stat- 1 In re Northern Electric Wire & Cable Manuf. Co., Limited, (Oh. Div. 1890) 8 Ey. & Corp. L. J. 177, per Kay, J. In this case, the proceed- ings on the part of the company having been grossly irregular, the allottee was, entitled to have his de- posit returned veith interest at four per cent, per annum from the date of payment, and he was likewise held to be entitled to the costs of the application". 2 8 Vic. ch. 16, § 8. ' Wolverhampton &o. Co; v. Hawkesford, 7 Com. B. N. S. 795, 814 ; Portal v. Emmens, 1 O. P. Div. 201, 664. * In re Northern Electric Wire &c. Co., (Ch. Diy. 1890) 8 Ry. & Corp. L. J. 177. 8 In re Northern Electric Wire &c. Co., (Ch. Div. 1890) 8 Ky. & Corp. L. J. 177. In this case, on the 14th of August, H. verbally in- formed the managing director of the company that he intended to with- draw his application for shares, but he was told that he must communi- cate with the company. H. did not, however, make any communication directly to the company, but wrote to the vendors and promoters of the company withdrawing his applica- tioii for shares. On the 33d of Au- gust the secretary of the company forwarded to H. a letter of allotment of shares dated the 4th of July and duly stamped, to replace the notice sent to hira pi-eviously, and asking him to pay the £1 per share due on allotment. Thereupon H. applied under section 35 of the Companies Act 1862 to have the register of mem- bers rectified by the removal of his name therefrom, and asking that the company might be ordered to repay the deposit of £80 paid by him upon his application for shares, which he had withdrawn, and interest thereon. Aca. Wilson's Case, 20 L. T. $1. S. 962; Ramsgate &c, Co. v. Monte- flore, L. R. 1 Ex. 109 ; In re Bowron, L. R. 5 Ex. 428. 6 N. Y. Laws of 1890, oh. 564, § 4. § 515.] SUBSCEIPTIONS TO STOCK. 833 iit(8s of other States,' and in the New York acts of which the 3t of 1890 is a consolidation.^' A promissory note, negotiated by the company and met by the subscriber at maturity, has been held equivalent to a cash payment.' It is doubtful, how- ever, whether a check can be regarded as " money " or " cash " within the meaning of these statutes.^ A subscription taken in violation of these statutory provisions can not be enforced by the corporation.' The subscription and the payment of the ten per cent, must both concur to satisfy the requirements of the statute.* A subscription unaccompanied by the required ten per cent, of the par value in cash is void.' It has been said, however, that a subscription is not invalid because a short interval of time occurs between the actual signing of the sub- scription-book and the payment of the monej^;^ and it has also been held that the failure to pay the necessary percent- age at the time of the suiascription furnishes the subscriber with no defense, on the principle that no man will be permit- ted to take advantage of his own wrong.^ But in New York ^E. g., Va. Code of 1873, ch. 57, § 3, requiring a deposit of two dol- lars; Note to Parker v. Tliomas, 81 Am. Dec. 393, 397. 2 N. Y. Laws of 1875, ch. 611 ; N. Y. Laws of 1850, ch. 140, § i. 3 Ogdensburg &c. R. Co. v. Wooley, 3 Abb. App. Dec. 398. See also Ver- mont Central R. Co. v. Cloyes, 21 Vt. 30; s. c. 1 Am. R. Cas. 336. Cf. East New York &c. R. Co. v. Lighthall, 6 Robt. (N. Y.) 407. * In California payment may be by check. People v. Stockton &c. R. Co., 45 Cal. 306. The same has been held by the inferior courts in New York. In re Staten Island Rapid Transit R. Co., 37 Hun, 423; Thorp V. Woodhull, 1 Sandf. Ch. 411. Cf. Cdmins v. Coe, 117 Mass. 45. But the New York court of appeals has held contra. Durant v. Abendroth, 69 N. Y. 148. Cf. Excelsior Grain Binder Co. v. Stayner, 35 Hun, 91 ; S. 0. 61 How. Pr. 456 ; affirming s. C. 58 How. Pr. 273. In this case a sub- 53 scriber to the stock of a cwporation organized under New York Laws 1875, ch. 611, paid ten per cent, of the amount of his subscription by check, but stopped payment of the check, so that the amount was never actually paid ; and it was held that an action could not be maintained against him upon his subscription. 6 Excelsior Binder Co. v. Stayner, 25 Hun, 91; s. c. 61 How. Pr. 456; affirming s. 0. 58 How. Pr; 373; Beach v. Smith, 30 N. Y. 116; Black River &c. R. Co. v. Clark, 25 N. Y. 308; Croker v. Crane, 21 Wend. 311. 6 Perry v. Hoadley, 19 Abb. N. C. 76. "Perry v. Hoadley, 19 Abb. IJT. C.^ 76. 8 Excelsior Grain Binder Co. v. Stayner, 35 Hun, 91 ; s. C. 61 How. Pr. 456 ; affirming s. C. 58 How. Pr. 3.73. ' ' sVicksburgh, S. & T. R. Co. ■«. McKean, 12 La, Ann. 638 ; Henry v. Vermillion & A. R. Co., 17 Ohio, 834 SUBSCEIPTIONS TO STOCK. [§ 515. and Pennsylvania a failure to comply with the requirement may be pleaded in defense to actions to enforce subscriptijons.' A few cases in other States follow the New York and Penn- sylvania rule.^ In England the authorities are conflicting, but it is thought that the only effect of a failure to make the ca^h deposit is to restrict the subscriber's right to transfer his shares.' 187; Swartwout v. Michigan &c. E. Co., 34 Mich. 389; Lake Ontario &c. E. Co. /u. Mason, 16 N. Y. 451; Illi- nois Eiver E. Co. v. Zimmer, 20 111. 654; Oler v. Baltimore &c.' E. Co., 41 Md. 583; Pittsburgh &c. E. Co.- v. Applegate, 31 W. Va. 173 ; Haywood &c. E. Co. V. Bryan, 6 Jones L. (N. C.) 82; Barrington v. Mississippi ,&c. E. Co., 33 Miss. 370; Wright v. Shelby R. Co., 16 B. Mon. 4; Minne- sota &c. Ry. Co. V. Bassett, 20 Minn. 535; Mitchell v. EomeiR, Co., 17 Ga. 574; Spartanburg &c. E. Co.u. Ezell, 14 S. C. 281; Stuart v. Valley R. Co., 82 Gratt. 146 ; Fiser v. Mississippi &o. E. Co., 33 Miss. 359; Selma &c. E. Co. V. Eoundtree, 7 Ala. 670 ; Chanj- berlain u. -Painesville &c. E. Co., 15 Ohio St. 225 ; Klein v. Alton &c. E. Co., 13 111. 514; Ryder v. Alton &c. R. Co., 13 111. 516; Ashtabula *c. E. Co. V. Smith, 15 Ohio St. 328; " Sub- scriptions to the Capital Stock of Corporations," by James M. Kerr, (1889) 6 Ey. & Corp. L, J. 433. Of. People V. Stockton &c. E. Co., 45 Cal. 306 ; McEea v. Eussell, 12 Ired. 234; Vermont Central E. Co. v. Cioyes, 31 Vt. 30 ; Hall v. Selma &o. E. Co., 6 Ala. 741; Greenville &c. E. Co. V. Woodsides, 5 Eich. L. (S. C.) 145; Blair v. Rutherford, 31 Tex. 465; Garrett v. Dillsburg &c. E. Co., 78 Pa. St. 465. iHibernia Turnpike Co. v. Hender- son, 8 Serg. & E. 319; S. C. 11 Am. Deo. 598~; Leighty v. Susquehanna &o. Turnpike Co., 14 Serg. & E. 434; Boyd V. Peach Bottom Ey. Co., 90 Pa. St. 49 ; New York &c. R. Co. v. Van Horn, 57 N. Y. 473; Jenkins v. Union Turnpike Co., 1 Caines' Cas. in Error, 86, reversing s c. 1 Caines' Eep. 381 ; Excelsior Grain Binder Co. V. Stayner, 35 Hun, 91 ; Stephens v. Fox, 83 N. Y. 313, 316, 317; Black River &c. E. Co. v. Clarke, ^5 N. Y. 308. Of. Eensselaer &c. Co. v. Bar- ton, 16 N. Y. 457, doubting Jenkins V. Union Turnpike Co., 1 Caines* Cas. in Error, 86, supra; Lake On- tario &c. E. Co. V. Mason, 16 N. Y. 451 ; Croker v. Crane, 31 Wend. 311 ; Thorp V. WoodhuU, 1 Sand. Ch. 411 ; Eastern Plank Eoad Co. v. Vaughan, 14 N. Y. 546; Highland Turnpike Co. V. McKean, 11 Johns. 98; Og- densburgh &c. E. Co. v. Wooley, 3 Abb. Ct. of App. 398 ; Ogdensburgh &c. R. Co. V. Frost, 21 Barb. 541. But only unconditional subscrip- tions, taken by commissioners after the incorporation of the company, may be thus impeached. Hanover &c. R. Co. V. Haldeman, 82 Pa. St. 36; Garrett D. Dillsburg &rc. R. Co., 78 Pa. St. 465; Beach on Railways, § 136; Philadelphia &c. R. Co. v. Hickman, 28 Pa. St. 318. Cf. Butcher V. Dillsburg &c. R. Co., 76 Pa. St. 306. 2 People V. Chambers, 43 Cal. 201 ; Farmers' &c. Bank v. Nelson, 12 Md. 35 ; Taggart v. Western Maryland R. Co., 24 Md. 588; Charlotte &c. E. Co. V. Blakeley, 3 Strobh. Eq. 245; Wood V, Coosa &c. E. Co., 33 Ga. 273. spurdey's Case, 16 W, E. 660; East §§ 516, 517.] StJBSOElPTlONS TO STOCK. 835 § 516. Subscriptions to obtain charter.— Colorable or fic- titious subscriptions,' subscriptions by persons having no rea- sonable expectation of being able to pay,* by persons under the disabilities of coverture and infancy;" and subscriptions payable in a depreciated currency, are not to be counted as a part of the subscriptions required by the statute as a prerequi- site to valid organization.* § 517. Subscriptions to obtain charter not to be condi- tional.^ A condition that payment shall be in property or services, excludes a subscription from being counted among those taken for the purpose of obtaining the charter.' The same is true of those made by contractors upon special terms." And generally, when a certain amount of stock is required by statute to be subscribed before the company shall become in- Branch R. Co. v. Sullivan, 57 Ga. 240; Fry v, Lexington &c. E. Co., 3 Met. (Ky.)'314; Dail v. Mt. Sterling Coal Road Co., 13 Bush, 33; Somer- set R. Co. V, Clarke, 61 Me. 379; Oldtown &c. R. Co. v. Veazie, 39 Me. 571 ; Contoocook &c. E. Co, v. Barker, 32 N. H. 336 ; New Hamp- shire Central E. Co. v, Johnson, 30 N. H. 390 ; s. C. 64 Am. Dec. 300 ; Peoria &c. R. Co. v. Preston, 35 Iowa, 115. 3 Phillips V. Covington &o. Co., 3 Met. (Ky.) 319. 4 Cabot &c. Bridge v. Chapin, 6 Cush. 60. 6 Troy &c. E. Co. v. Newton, 74 Mass. 596; Oldtown &c, R. Co. v. Veazie, 39 Me. 571 ; New York &c. R. Co. V. Hunt, 39 Conn. 75. Ridge- fleld &c. E. Co. V. Brush, 43 Conn. 86, is not contra, as the agreement there to pay in work was parol and could not be allowed to vary an ap- pareiltly absolute written contract of subscription. Contra, Phillips v. Covington &c. Co., 2 Met. (Ky.) 219. Boston &c, R. Co, v. Wellington, 113 Mass, 79; Oskaloosa &c. Works V. Parkhurst, 54 Iowa, 357; Beach on Railways, § 108, Gloucestershire Ry. Co. v. Bartholo- mew, L. R. 3 Ex, 15; McEwen v. West London &c. Co., 6 Ch. 655. But see Eustace v. Dublin Trunk Ry. Co. , 6 Eq. 182, and McEl wraith v. Dublin Grand Trunk Ry. Co., 7 Ch. 134, holding that the allottee can not be compelled to take the shares. 1 Memphis Branch R. Co. v. Sulli- van, 57 Ga. 240. 2Holman v. State, 105 Ind. 569, holding that under a statute making it an essential prerequisite to the valid organization of a corporation that stock to a certain amount shall be subscribed, the subscriptions must have been made in good faith by persons having a reasonable ex- pectation of being able to pay. Ace, Phillips V. Covington &c. Co.,, 2 Met, (Ky.) 219; Belfast &c, Ry, Co, i;. In- habitants of Brooks, 60 Uei 568; Lewey's Island R. Co, v. Bolton, 48 Me. 451; s. C. 77 Am. Dec. 236; Salem Mill Dam Corporation v. Ropes, 36 Mass. 187, As to whether or no a subscription may be avoided , on the ground that the subscriptions of insolvents have been counted in estim,ating the full capital stock to have be^n subscribed, see Memphis 836 SITBSOEIPTIONS TO STOCK. [§ 518. corporated, conditional subscriptions can not be reckoned,* unless it be shown that the coiiditions have been performed or have been waived.^ Any other rule would lead to the pro- curement from the Commonwealth of valuable charters with- out anyabsolute capital for their support, and thus give rise to a system Qf speculation and fraud which would be intoler- able.' After incorporation, however, the company may re- ceive conditional subscriptions.* In Wew York subscriptions taken for the purpose of obtaining incorporation, are ren- dered void by being made conditionally;^ vifhile in Pennsyl- vania the subscription itself is valid and binding, but the condition null and void.' § 518. Who may receive subscriptions. — It is essential to the validity of a subscription. that it be taken by a person authorized to receive it.' The company is under no obliga- tion to accept subscriptions taken by an unauthorized agent ;^ 1 Caley v. Philadelphia &c. R. Co., . 80 Pa. St. 363 ; Boston &c. R. Co. v. Wellington, 113 Mass. 79; Troy &c. •E. Co. V. Newton, 74 Mass. 596! Cf. Brand v. Lawrenceville Branch R. Co., (1888) 77 Ga. 506. 2 Boston &c. R. Co. v, Wellington, 113 Mass. 79; Troy &c. R. Co. v. Newton, 8 Gray, 569. 3 Caley v. Philadelphia &o. R. Co., 80 Pa. St. 363. * Caley V. Philadelphia &o. R. Co., 80 Pa. St. 363 ; - Pittsburgh &c. R. Co. V. Stewart, 41 Pa. St. 54; Union Hotel Co. V. Hersee, 79 N. Y. 454. Cf. Hanover Junction &0. R. Co. v. Haldeman, Si Pa. St. 36. 5 Troy &c. R. Co. v. Tibblts, 18 Barb. 297. See also Putnam v. City of New Albany, 4 Biss. 365, 383, where thfe United States court would seem to follow the New York rule. 6 Boyd V. Peach Bottom Ry. Co. , . 00 Pa. St. 169 ; Caley v. Philadelphia &c. R. Co., 80 Pa. St. 363; Bedford R. Co. 1). Bowser, 48 Pa. 'St. 29 : Har- rington V. Pittsburgh &o, R. Co., 44 Pa. St. 358; Pittsburgh &c. R. Co. v. Biggar, 34 Pa. St. 455: Pittsburgh &c. R.. Co. V. Woodrow, 3 Phila. S71. Cf. Legonier Valley R. Co. v. Williams, 33 Leg. Intel. 40. See also Burke v. Smith, 16 Wall. 390, where the United States court would seem to follow the Pennsylvania rule. 7 Walker v. Mobile &c. R. Co., 34 Miss, 245 ; Essex Turnpike Corpora- tion V. Collins, 9 Mass. 293; Carlisle V. Saginaw Val. & St. L. R. Co.. 27 Mich. 315; Sti'urtz v. Schoolcraft & T. R. Co., 9 Mich. 269; Troy & B. R. Co. V. Warren, 18 'Barb. 310; Gran- gers' Market Co. v. Vinson, 6 Oregon, 174; Northeastern R. Co. v. Rod- rigues, 10 Rich. (S. C.) 278; How- ard's Case, I,. R. 1 Ch. App. 561. 8 Walker v. Mobile &c. R. Co., 34 Miss. 245; Taggart v. Western &c. R. Co., 24 Md. 563; Mobile &c. R. Co. D. Yandal, 5 Sneed, (Tenn.) 294; Meivin v. Haitt, 52 N. H. 61. Com- pare, as to acceptance of such sub- scriptions, Mansfield .&c. R. Co. v. Brown, 26 Ohio St, 223, wljere it is § 519.] SUBSCEIPTIONS TO STOCK. . 83T but, of course, if it ratify his act in receiving subscriptions, the contract will be then complete.' It has been questioned whether, when the statute provides for the taking of subscrip- tions by commissioners, those given to other persons will be binding; and there are some authorities which hold that they will not.^ The better rule, however, seems to be that statutory provisions for commissioners are directory rather than man- datory, and that subscriptions taken by other persons, duly authorized, orwhose acts are subsequ'ently ratified, are valid and binding upon the parties.^ The Kew York "Stock Cor- poration Law " of 1890 provides that if the whole capital stock be not, subscribed at the time of filing the certificate, the directors may continue to take subscriptions upon giving notice thereof.* Persons taking subscriptions may incur per- sonal liability by failing to deliver them to the company.^ § 519. Commissioners. — Although the statute provide for subscriptions to be made through commissioners, those made in another way are not necessarily void.^ Commissioners ap- pointed under a statute to take subscriptions and to Uiake distribution and allotment of shares, in the performance of the former duty exercise a, ministerial function; in the latter, held that acceptance may be shown of the stock of plaintiff corporation by parol. of the face value of fifty dollars per 1 Walker v. Mobile &c. E, Co., 34 share, and, in default of delivery, Mich. 245. , for judgment condemning them to 2 Troy & B. E. Co. v. Tilabits, 18 pay the value of the list. But it Barb. 397; Field v. Cooks, 16 La. was held that 'their liability could Ann. 153 ; Parker u. Northern Cent, not exceed an obligation to dis- M. E. Co., 33 Mich. 23; Unity Ins., charge the liabilities of the subscrib- Co. V. Cram, 43 N. H. 636. ers in accordance with the terms of 3 Buffalo &. J. E. Co. V. Gifford, their subscriptions, and that a judg- 87 N. Y. 394. See also Buffalo & N. ment for |40,000 cash, where the Y. City E. Co. V. Dudley, 14 N. Y. subscriptions were on credit, and 338; Stuart v. Valley E. Co., S3 without reserving their right to re- Gratt. 146; Webster v. Upton, 91 ceive the stock subscribed for, was U. S. 65 ; Upton v. Tribilcock, 91 manifestly insupportable. U. S. 45. 6 Buffalo &c. E. Co. v. Gifford, 87 4 N. Y. Laws of 1890, ch. 564, §41. N. Y. 394; Stuart v. Valley E. Co., 5 In People's Brewing Co. v. Boe- 32 Gratt. 146. Contra, Troy &c. E. binger, (1888) 40 La. Ann. 277, the Co. v. Tibbets, 18 Barb. 297; Schurtz defendants were sued to deliver a v. Schoolcraft &c. E. Co., 9 Mich, list containing subscriptions of vari- 269; and see Parker v. Northern &c. ous parties to eight hundred shares , E. Co., 38^ Mich. 33. 838 6UBSCEIPTI0NS TO STOCK. ' [§ 520. a judicial; and when acting judicially, it is es^ntial that all of' xhem be present, otherwise the distribution of shares is void.* While the organization of the company can not be effected until the commissioners have received subscriptions and allotted shares of the requisite amount for the beginning of operations,^ they have only such general powers as are requisite to i*ender valid the subscfiptions made through them ; and upon the organization of the corporation their powers and duties are terminated." The commissioners may them- selves subscribe for the stock of the company,* provided they allow themselves no priority. The books must be open, and the public must have an opportunity to subscribe. *No sub- scription can be lawfully taken with closed doors." In Penn- sylvania commissioners are held to have no authority to accept conditional subscriptions;* while in other States con- ditions may be aniiexed to subscriptions whether made before commissioners or taken by agents of the company.' But de- livery of an escrow subscription to a commissioner will ren- der the contract absolute.', The fact that the commissioners did not take the oath prescribed by the statute does not in- validate subscriptions given to them, in other respects reg- ular.' § 520. Lii^iitation of the amount of a single subscription. There is no rule at common law forbidding a single person to 1 Beach on Railways, § 84; Croker ^Brower v. Passenger Ey. Co., 3 V. Crane, 31 ,Wend. 211; S. C. 34 Phila. 161. Am. Dec. 338. In Penobscot &c. E. 6 Pittsbnrgh &c. E. Co. v. Biggers, bo. V. White, 41 Me. 513; s. 0. 66 34 Pa. St. 455; Babington «., Pitts- Am. Deo. 357, a majority of the burgh &c. R. Co., 34 Pa. St. 15, 81 ; board of commissioners was declared Bedford E. Co. v. Bowser, 48 Pa. St. to' be a quorum for the transaction 29. See, however, Pittsburgh &c. of business. R. Co. v. Stewart, 4l Pa. St. 54. 2 Walker v. Devereaux, 4 Paige, 'Evansville &c. E. Co. v. Shen- 239. ner, 10 Ind. 244; New Albany &c. 3 Walker v. Devereaux, 4 Paige, E. Co. u. McCormick, 10 Ind. 499; 229; Croker «. Crane, 21 Wend. 311; Martin v. Pensacola &c. R. Co., 8 s. 0. 34 Am. Dec. 328; Peninsular Fla. 870. &c. Co. V. Duncan, 38 Mich. 130; s Wight v. Shelby E. Co., 16 B. James v. Cincinnati &c. R. Co., 3 Mon. 4. Cf. Price v. Pittsburgh &c. Disney, 361. R. Co., 34 III. 86. 4 Walker v. Devereaux, 4 Paige, * Hollman v. Williamspm-t &o. Co., 229. '9Gill& J. 463. § 521.J SUBSCEIPTIONS TO STOCK. 839, subscribe to the whole of a company's capital stock.' But statutory commissioners appointed to take subscriptions have authority, independent of any express provision in the statute, to limit the number of shares which a single subscriber may be allowed to take.^ And when the number of shares which one person may take is limited by the incorporating act, no agreement between the subscriber and the company in respect of a greater number is enforceable.* § 521. Subscriptions in excess of the capital stock.— As a general rule subscriptions in excess of the amount limited as the capital stock of the corporation are void ; * and no liability thereon attaches to a subscriber to whom stock in excess of the amount authorized has been issued.' A companj'^ frequently obtains subscriptions for stock beyond the limit fixed by its charter. But a suit to recover a defendant's subscription in such a case, can not be met with the defense that the taking of subscriptions beyond the prescribed amount releases him. If, however, he is a subscriber for the additional un- authorized shares, there can be no recovery against him ; but being one of the earliest subscribers, and there being stock remaining not yet issued, he is liable.^ Under acts of incor- poration making provision for the apportionment of the sub- scriptions, the contract of subscription is not complete until the apportionment has been made.' Where subscriptions are taken by commissioners the act of incorporation often vests them with a discretion in the distribution of the shares, and in case of subscriptions in excess of the capital stock, they iKing V. Barnes, (1888) 109 N. Y. * Burrows v. Smith, (1853) 10 N. Y. SG7, where it was decided that an 550 ; Lathrop v. Kneeland, 46 Barb, agreement to organize a corporation, 432; Oler d. Baltimore &c. E. Co., and that one of the persons furnish- (1874) 41 Md. 583. ing the capital should subscribe for ^ciark ^, Turner, 73 Ga. 1. the wholsJ stock intended to be taken sOler v. Baltimore &c. E. Co., by the associates, was not illegal nor (1874) 41 Md. 583 ; distinguishing void as against public policy. McCord v. Ohio &c. E. Co., 13 Ind. 2 Brown v. Passenger Ey. Co., 3 321. Phila. 161; Perkins v. Savage, 15 'Burrows «. Smith, (1853) ION. Y. Wend. 412. 550 ; Crocker v. Crane, 21 Wend. 211 ; 3 Simpson v. Greenfield Build, s. C. 34 Am. Dec. 228; Walker v. Assoc. (1882) 38 Ohio St. 349, which Devereaux, 4 Paige, 229. Of. Buf- was decided under the Ohio Act of falo &c. E. Co. v. Dudley, (1856) li May 9, 1868. N. Y. 336, 346. 84:0- ■ SUBSCRIPTIONS TO STOCK. [§ 521. may allot to each subscriber such a proportion of the whole capital stock as the amount of his subscription bears to the •whole amount subscribed, and no subscription will then be entirely void.' Equity will grant relief against the failure of the commissioners to make a proper apportionment.^ Where , a person subscribes to a certain proposed increase of stock pf a national bank, and pays his subscription, he is bound therefby, though the bank, under the provisions of its by-laws to deter- mine what disposition shall be made of the privilege of sub- scribing for the new stock when it bas not all been subscribed for within the time given in its notice, limits the amount of. the increase to the amount paid in.' But in the absence of an express statutory authority, the commissioners have no implied power to apportion an excess of subscriptions.* Where the whole amount of the corporate stock has been issued and the corporation becomes liable, either to issue certain certificates to a subscriber or to pay hiin damages, the court having no authority to direct such an issue, can only give judgment that the corporation pay damages.' For the courts have no power by mandate or decree, or in any other manner, to effect an increase or reduction of the capital stock.* Under these circumstances, specific performiance is impossible.' But in Massachusetts the rule prevails that the corporation may be compelled to issue the stock, and, to prevent an illegal over- issue, it must purchase an equal amount of shares in the market.' 1 Buffalo &o. E. Co. v. Dudley, Manuf. Co., 3 Md. Ch. 418; Smiths. (1856)]14:N. Y. 336. Cf-Danbury &c. North American Mining Co., 1 Nev. R. Co. V. .Wilson, (1860) 5J3 Conn. 435, 433. 454. 'Williams v. Savage Manuf. Co., ' 2 Walker v. Devereaux, 4 Paige, 3 Md. Ch. 418; Baker v. Wasson, 59 339. Tex. 140; Smith 1J. Korth American 3 A spin wall v. Butler, (1890) 133 &c. Co., 1 Nev. 433; 3 Mor&wetz on U. S. 595. Corporations, §. 683. 4 Van Dykq v. Stout, 8 N. J. Eq. '' Finley Shoe &c. Co. v. Kurtz, 34 333. Cf. Crocker v. Crane, 21 Wend. Mich. 89. 311 ;S. c. 34 Am. Dec. 238. 8 Boston &c. Co. v. Richardson, sPeqplew, Parker Vein &c. Co., 135 Mass. 473 ; Machinists' Nat. Bank 10 Hoisv. Pr. 551 ; Finley Shoe &c. . v. Field,, 126 Mass. 345 ; Pratt w. Co. D. Kurtz, 34 Mich. 89 ; Mechanics' Taunton &c. Co., 123 Mass. 110; Bank v. New York' &c. R. Co., 13 Lowell on the Transfer of Stocks, N. Y., 599;, Williams v. Savage g 116. § 522.] SUBSOEIPTIONS TO STOCK. 841 § 522. Competency to subscribe — (a) Natural and arti- ficial persons. — All natural persons capable of making a valid contract may subscribe to the capital stock of a corporation.' It is contraiy to the policy of the common law, however,^ and to the spirit of modern legislation that one corporation should participate in the management of another except under restrictions which are deemed necessary to protect the musses from dangers said to be incident to harmonious relations between persons controlling large aggregations of capital.' Accordingly, si corporation can not become a stockholder in another corporation, unless that power be given it by its charter or be necessarily implied therein.* Especially is an 1 Vide supra, § 61 ; Sims v. Street R. Co., 37 Ohio,' 556; s. 0. 4, Am. & Eng. R. Cas. 133. The capacity of a married woman to take, hold and transfer sliares of stock is governed by the law of her domicil. Hill v. Pine River Bank, 45 N. H. 300. As to the husband's right to transfer stock standing in vthe name of his wife, see: Stan wood v. Stanwood, 17 Mass. 57 ; Arnold v. Ruggles, 1 R. I. 165; Stamford Bank v. Ferris, 17 Conn. 259; Curtis v. Stever, 36 N. J. L. 304; Dow v. Gould &c. Co., 31 Cal. 639; Slaymaker v. Bank of Gettysburg, 10 Pa. St. 373 ; Cornell's Case, 18 Week. Notes Cas. 289 Wall V. Tomlinson, 16 Ves. 413 Wildman v. Wildman, 9 Ves. 174 Cochran v. Chambers, Ambl, 79, note. 2 Vide supra, §§ 393, 894. 3 Thus under the recent codifica- tion of the law of co'rporatibns by the legislature of New York, it is en- acted : "No corporation shall use any of its funds in the piirchase of any stock of its own or any other corporation unless the same shall have been botia fide pledged, hy- pothecated or transferred to it, by' way of security for, or in satisfaction or part satisfaction of a debt pre- viously contracted in the course of its bdsiness, or shall be purchased by it at sale upon judgments, orders or decrees which shall, be obtained for such debts, or in prosecution thereof. N. Y. Laws of 1890, ch. 564, g 40. "But any domestic corporation, trp,nsacting business in this State and. also in other "States or foreign countries, may invest its funds in the stocks, bonds or securities of other corporations, owning, lands in this State or such States, if dividends have been paid on such stocks con- tinuously for three years immedi- ately before such loans are made, or if the interest on such bonds or se- curities is not in default ; and such stock, bonds or securities shall, be continuously of a market value twenty per cent, greater than the amount loaned (sic.) or "continued (sic.) thereon." N. Y. Laws of 1890, ch. 564, § 40. * Pearson v. Concord R. Co., (1883) 63 N. H. 537; s. c.13 Am. St. Rep. 590, citing Franklin County v. Lewis- ton Bank, 68 Me. 43 ; s. C. 28 Am, Eep. 9; Mechanics' &c. Bank v. Meriden Agency Co., 24 Conn, 159 Green's Brice's Ultra Vires, 91 Morawetz on Corporations, g 329. Cf. " Contracts by Corporations to Take Shares," 17' Sol. J. & Rep. 363, 383, 423 (three articles). 842 ' SUBSOEIPTIONS , TO STOCK. [§ 522. acquisition of stock with a view to controlling or affecting tile management of tiie other corporation, obnoxious to the spirit of the common and statutory law.' Certain classes of corporations, such as those organized for religious and charita- ble and literary purposes, may legally invest their moneys in the stock of other corporations. The power if not expressly mentioned in their charters is necessarily implied, for the preservation of the funds with which institutions of that character are endowed, and to render their funds productive.^ So an insurance company, or savings bank, may rightfully invest its capital or deposits in the stocks of railroad companies, banks, manufacturing companies and similar corporations. The power so to do is necessary to enable them to engage in the business for which they are organized, and, hence, is im- plied, if not expressly granted, in their charters.' On the other hand, manufacturing or railroad corporations being in- corporated for the purpose of manufacturing or transporting passengers and merchandise, investing their funds in that of other corporatt;ons is not in the line of their business.* Under extraordinary circumstances, it may become necessary for a national bank or a manufacturing or railway company to ac- quire stock in another corporation, as in satisfaction of a valid debt or by way of security, but with a view to its subsequent sale or conversion into money, so as to make good or redeem an anticipated loss.^ This necessity is recognized in the New 1 Pearson «. Concord R. Co., (1883) * Smith, J., in Pearson v. Concord 63. N. H. 537; s. C. 13 Am. St. Eep. R. Co., (1883) 63 N. H. 537; S. C. 13 590, 603: Sumner v. Marcy, 3 Wood. Am. St. Rep. 590, 603. & M. 105; Central R. Co. v. Collins, s Smith, J., in Pearson v. Concord 40 Ga. 583; Hazeihurst v. Savannah R. Co., (1883) 63 N. H. 537; s.C. 13 &c. R. Co., 43 Ga. 13; Great North- Am. St. Rep. 590, 603, 604. ern Ry. -Co. v. Eastern &o. Ey. Co., * Smith, J., in Pearson v. Concord 21 L. J. Ch. 837; Booth v. Robinson, R. Co., (1883) 68 N. H. 537. 50 Md. 419, 439. Dealing in stocks * First National Bank v. National is not expressly prohibited in the act Ex. Bank, 93 U. S. 138 ; Fleckner v. of congress providing: for the organ- Bank of the United States, 8 Wheat, ization of national banks (0. S. 351 ; Hodges v. New England Screw Eevi Stat. § 5136, subd. 7); but it is Co., 1 R. I. 313; s. c. 53 Am. Dec held that a prohibition thereof is 634, where the court said there was implied from the failure to grant no doubt the defendant company the power. First National Bank v. might have taken stock in an iron National Ex. Bank, 92 U. S. 133, company in payment for its rolling- 128. mill, if it had been taken with a § 523.] S0BSOEIPTIONS TO STOCK. 843 York statute cited above.' But a railway company "can no more make a permanent investment of funds in tiie stock of another Toad tirian it can engage in general banking, manu- facturing, or steamboat business. It is neither incidental to the purposes of its incorporation nor necessary in the exercise of the powers conferred by its charter." ^ The purchase by a corporation of stock in another corporation will be enjoined at the instance of stockholders when it invoU'es a misapplica- tion of corporate funds, or is a mere speculation, or is induced bj a vicious purpose.' But of course there is no rule to pre- vent a controlling stockholder in one corporation from pur- chasing a controlling interest in another.* ' § 523. (b) Municipal corporations. — A municipal corpora- tion has no inherent power to make contracts of subscription to the stock of any private compan}'.^ Its authority to do so is entirely dependent upon legislative grant," expressly given to the municipality itself either in its charter or in a special view to selling again and not to holding it permanently. 1 Vide supra, p. 841, n. 3. 2 Pearson v. Concord R. Co., (1883) 63 N. H. 537 ; S. C. 13 Am. St. Eep. 590, 604. Neither can a railway com- pany indirectly through its agents ' subscribe for the stock of another railway. Pearson v. Concord R. Co., 63 N. H. 537; s. C, 18 Am. St. Rep. 090. 3 Pearson v. Concord R. Co., (1883) 63 N. H. 547 ; S. C. 13 Am. St. Rep. 590, 605, citing Pierce on Railroads, 505. " * Havemeyer v. Havemeyer, 86 N. Y. 618; s. c. 45 N. Y. Super. Ct. Rep. 464; s. c. 43 N. Y. Super. Ct. Rep. 506 ; O'Brien v. Breitenba:oh, 1 Hilt. 304. 5 Dillon on Municipal Corpora- tions, §" 161 ; Weightman v. Clark, 103 U. S. 351. Cf. Northern Bankl>. Porter Township, 110 U. S. 608. 6 City of Jonesboro v. Cairo &c. R. Co., ll'oU. S. 193; Wells v. Supervis- ors, 103 U. S. 635 ; East Oakland v. Sklnaer, 94 U. S. 255; Kenicott ?;. Supervisors, 16 Wall. 453; Thomp- son V.' Lee County, 3 Wall. 337; Gelpecke ii; Dubuque, 1 Wall. 330; Brodle *. McCable, 33 Ark. 690 ; City of Lynchburg v. Slaughter, 75 Va. 57; Pennsylvania, R. Co. 'v. Phila- delphia, 47 Pa. St. 189; Louisville &e. R. Co. V. Fairfield, 51 Vt. 2S7; Barnes v. Lacon, 84 111. 461 ; Camp- bell V. Paris &c. R. Co., 71 111. 611 ; Taylor on Corporations, § '319; Wood's Ey. Law, g 100. Under Const. Mo. 1805, art. xi, § 14, prohib- iting the legislature to authorize a municipal corporation to become a stockholder in, or lend its credit to a corporation, without the assent of two-thirds of the qualified voters at a general or special election, such a vote, under legislative authority (Gen. Stat. Mo. §338) to subscrib,e to the stock of a railroad company, will authorize a subscription, but will not validate the issue of nego- tiable bonds in payment therefor. Hill V. City of Memphis, (1 890) 10 Sup. Ct. Eep. 503. su SUBSCEIPTIONS TO STOCK. {§ 524. enabling act,' and the constitutionality of the enabling act will depend upon the nature of the business which the com- pany is organized to conduct, upon its being in some wai}' .dedicated to a public use, either wholly or in part.^ § 524. Municipal subscriptions. — It has not been without considerable doubt,' however, that the weight of authority has finally established that, in the absence of any express consti- tutional prohibition, the legislature may confer this power Upon municipal corporations in respect of enterprises not of a wholly governmental or strictly public character.^ To the ^ Beach on Railways, § 190, citing Pitzman v. Freeburg, 92 111. Ill; Sharpless v. Mayor, 21 Pa. St. 14T; S. C. 59 Am. Dec. 759; Lewis v. City of Shreveport, 108 U. S. 282; Ottawa V. Carey, -108 U. S. 110; Allen «. Louisianai 103 U. S. 80; Marsh v. Fulton, 10 Wall. 676; Commercial Bank v. lola, 2 Dillon, 353 ; Welch V. Post, 99 111. 471; Leavenworth County V. Miller, 7 Kan. 479; La Fayette v. Coy, 5 Ind. 88 ; Dillon on Munio. Corp., g 161 ; Wood's Ry. Law, § 100.' Ga. Act of Nov. 7, 1889, enacting that the railroad therein named," if its route is located within five miles of the town of T., shall run into that tbwn, provided that the excess of the cost of the route through T. over the route pro- posed by the company shall be paid " by the town of T. or the citizens thereof," was construed to mean that the requisite amount was to be raised voluntarily by the people of the town, and not furnished by the cor- poration out of the public revenue. Macon & B. R. Co. v. Stamps, (Ga. 1890) 11 S. E. Rep. 442. But see Bard v. City of Augusta, 30 Fed. Rep. 906; Copes v. Charleston, 10 Rich. 491; City Council v. Baptist Church, 4 Strob. 306; Burri;. Chare- ton County, 2 McCrary, 608. Rep. 906 ; Bloodgood v. Mohawk &c. E. 60., 18 Wend, 965; McKenzie v. Wooley, (1887) 39 La; Ann. 944; Union Pacific R. Co. ■;;. Smith, 23 Kan. 745; Weismer v. Village of Douglass, 64 N. Y. 91. Of. Turner V. Commissioners, 27 Kan. 814; Amoskeag Nat. Bank v. Town of Ottawa, 105 U. S. 866; Gilson v. Town of Dayton, 123 U. S. 59. 3 Beach on Railways, § 187,. citing, on the one hand, as contending against the constitutionality of such grants, two of the most eminent of American commentators, (Dillon on Municipal Corporations, §§ 12, 17. 153; Cooley on Constitutional Lim- itations, 261, 266) supported by the decisions of the Supreme Court of New York, (People v. Henshaw, 61 Barb. 409; Sweet v. Hurlburt, 51 Barb. 312 ; Grant v. Coorter, 24 Barb. 234; Benson v. Albany, 24 Barb. 248; Ex parte Taxpayers of Kingston, 40 How. Pr. 444. Cf. Clarke v. Rochester, 28 N. Y. 605) a line of cases in Iowa extending from 1858 to 1862, (Stokes v. Scott, 10 Iowa, 166 ; State u. Wapello, 13 Iowa, 388 ; Myers V. Johnson, 14 Iowa, 47) and an un- broken line of cases in Michigan. People V. Detroit, 28 Mich. 228; Thomas v. Port Hudson,' 27 Mich. 320; Bay City v. State Treasurer, 33 3 Cole V. La Grange, 113 U. S. 1; Mich. 499; People v. Salem, 20 Mich. Bard v. City of Augusta, 30 Fed, 453. On the other hand, sustaining § 524.] SUESCEIPTIONS TO STOCK. 8i5 validity of a municipal subscription it is essential that the re- quirements of the State constitution and of the enabling act the constitutionality of the grants, are the decisions of the New York Court of Appeals, (Lyons v. Cham- berlain, 86 N. Y. §76; Horton v. Thompson, 71 N. Y. 613; affirmed, 101 U. S. 665; Duanesburgh v. Jen- kins, 66 N. Y. 139 ; People vi Spencer, 55 N. Y. 1 ; People v. Batchellor, 53 N. Y. 128; People v. Mitchell, 35 N. Y. 551 ; Starin v. Genoa, 23 N. Y. 439: Bank v. Rome, 18 N. Y. 38) the decisions in Iowa prior to 1858 and since 1869, (Dubuque v. Dubuque &c. E. Co., 4 Greene, 1, (1853); State V. Bissell, 4 Greene, 338, (1854); Clapp V. Cedar County, 5 Iowa, 15, (1857); S. C. 68 Am. Dec. 678 ; McMillen v. Lee County, 6 lowa^ 391, (1858); Stewart V. Polk -County, 80 Iowa, 9, (1870); McGregor v. Birdsall, 32 Iowa, 149; Jordan v. Hayne, 36 Iowa, 9; Mus- catine R. Co. V. Horton, 38 Iowa, 33; Wappello v. Burlington &c. E. Co., 44 Iowa, 585) the decisions of the federal Supi-eme Court, (Knox County V. Aspinwall, 21 How. 539; Dixon County v. Field, 111 U. ^.'83; Lewis V. Barbour County, 105 U. S. 739; Taylor v. Ypsilanti, 105 U. S. 60 ; Clay County v. Society for Sav- ings, 104 U. S. 579 ; Hickory v. Ellery, 103 U. S. 433; Rock Creek u. Strong, 99 U. S. 371 ; Railroad v. County of Otoe, 16 Wall. 667 ; Kenosha v. Lam- son, 9 "Wall. 477; Beloit v. Morgan, 7 Wall. 619: Lee Cotinty v. Rogers, 7 Wall. 181; Supervisors u. Schenok, 5 Wall. 773; Campbell i'. Kenosha, 5 Wall. 194;, Von Hoffman v. Quincy, 4 Wall. 535; Mitchell u Burlington, 4 Wall. 370; Rogers v. Burlington, 3 Wall, 654 ; Thompson v. Lee County, 3 Wall. 327; Havemeyer v. Iowa County, 8 Wall. 394; Van Hastrup V. Madison, 1 Wall. 291 ; Seybert v. Pittsburgh, 1 Wall. 273; Mercer County V. Hackett, 1 Wall. 81; Gelpcke v. Dubuque; 1 Wall. 175 ; Curtis I'. Butler County, 34 How. 435; Amey v. Mayor, 34 How. 365. 376; Zabriskie v. Railroad Co., 33 How. 381) of the federal circuit and district courts, (Sibley v. Mobile, 3 Woods, 535; United States v. New Orleans, 3 Woods, 330 ; Long v. New London, 9 Biss. 539) and the decis- ions of the courts of last resort in all the other States. In Virginia: Goddin V. Crump, 8 Leigh, 120. In West Virginia: Goshorn v. County, -1 W. Va. 308; Allison v. Versailles R. Co., 10 Bush, 1. In Kentucky: Maddox v. Graham, 3 Met. (Ky.) 56; Shelby County v. Cumberland &c. R. Co., 8 Bush, 309; Slacks. Mays- ville &c. R. Co., 13 B. Mon. 1 ; Tal- bot V. Dent, 9 B. Mon. 526. In Mis- souri: State V. Greene County, 54 Mo. .540 ; Smith v. Clark County, 54 Mo. 58; Osage Valley &c. R. Co. v. Morgan County, 53 Mo. 156; State v. Sullivan County, 51 Mo. 523; State V. Linn County, 44 Mo. 504. In North Carolina: Wood v. Commis- sioners of Oxford, (1887) 97 N. C. 337 ; Hill V. Commissioners, 67 N. C. 367 ; Taylor v. Newbern, 3, Jones Eq. 141. In Tennessee: Winston v. Tennessee &c. R. Co., 57 Tenn. 60; Taxpayers V. Tennessee &c. R. Co., 11 Tenn. 339. In Arkansas: Jacksonport v. Watson, 33 Ark. 704; Mississippi &c. R. Co. V. Camden, 33 Ark. 300; English V. Chicot Co., 36 Ark. 435. In South Carolina: Copes u. Charles- ton, 10 Rich. 136. In Georgia: Powers V. Superior Ct. of Dougherty County, 23 Ga. 65; Winn v. Macon, 21 Ga. 275. In Alabama: Opelika V. Daniel, 59 Ala. 211; Gibbons v. Mobile &c. E. Co., 36 Ala. 410 ; Stein V. Mayor, 84 Ala. 591, In Missis- 846 SPBSCEIPTIONS TO STOCK. ['§524. be strictly complied with,^ except, according to the general rale of statutory construction, as to mere directory provis- sippi; New Orleans &c. E. Co. v. McDonald, 53 Miss. 240; Strickland V. Eailroad Co., 27 Miss. 209. In Florida: Cotton v. Leon County, 6 Fla. 610. In Texas: San Antonio i;, Gould, 34 Tex. 49; San Antonio v. Lane, 32 Tex. 405; San Antonio v. Jones, 28 Tex, 19. In Louisiana: Parker v. Soroggin, 11 La. Ann. 629 ; Police Jury v. McDonough, 8 La. Ann. 341. In Pennsylvania: Sharp- less V. Mayor, 21 Pa. St. 147; S. C. 59 Am. Dec. 759 ; County v. Brinton, 47 Pa. St. 367; Commonwealth v. MoWiUiams, 11 Pa. St. 61. In Mas- sachusetts: Supei-visM's t'. Wisconsin &c. R. Co., 121 Mass. 460. In Maine: Stevens v. Anson, 73 Me. 489; Au- gusta Bank v. Augusta, 49 Me. 507. In Vermont: Bennington v. Park, 50 Vt. 178; Nation.al Bank v. Con- cord, 50 Vt. 257. In New Hampshire : Perry v. Kean, 56 N. H. 514.. In Connecticut: Douglass v. Chatham, 41 Conn. 211 ; Bridgeport v. Housa- tpnic R. Co., 15 Conn. 475. In Cal- ifornia: Stockton &c. R. Co. v. Stockton, 41 Cal. 147 ; Napa Valley R. Co. V. Napa County, 30 Cal. 435; People V. Coon, 25 Cal. 635 ; Robin- son V. Bidwell, 22 Cal. 379. In Col- orado: People V. Pueblo County, 2 Col. 360. In Illinois: Chicago &c. R. Co, V. Am-ora, 99 111. 205 ; Quincy &c. R. Co. V. Morris, 84 111. 410 ; Shaw ■e. Dennis, 6 Gilm. 405. But one of the "separate articles" of the Illinois con- stitution forbidding municipal cor- porations from subscribing for rail- road stock having gone into effect July 2, 1870, municipal bonds issued for railway stock, pursuant to a vote taken after that date', are void. Casey v. People, (111. 1890) 24 N. E. Rep. 570. In Indiana: Reed v. Millikan, 79 Ind. 86 ; Brooaw v. Gib- son County, 73 Ind. 548; City of Aurora v. West, 9 Ind. 74. In Kan- sas: Leavenworth County v. Miller, 7 Kan. 479; Leavenworth &c. R. Co. V. Douglass County, 18 Kan. 169; City of Atchison v. Butcher, 3 Kan. 104, In Minnesota: State u. Clark, 23 Minn. 423; Davidson v. Ramsey County, 18 Minn, 482. In Nebraska: Eeinman v. Covington &o. R. Co., 7 Neb. 310; Hallenbeck v. Hahn, 2 Neb. 377. In Nevada: Gibson v. Mason, 5 Nev. 283. In Ohio: Walker v. Cincinnati, 21 Ohio St. 14; Cincinnati &c. R. Co. v. Clinton County, 1 Ohio St. 77. In Wiscon- sin: Lawson v. Milwaukee &c. R. Co., 36 Wis. 383; s. c. 30 Wis. 597; Clark V. Japesville, 10 Wis; 136. ' Beach on Railways, g 192. Thus Mo. Act of March 24, 1868, providing for the funding of their debts by in- corporated towns, and empowering them to issue their bonds in pay- ment of their past or future subscrip- tion to the stock of a railroad com- pany, but providing for no vote as a prerequisite to the issue, is in con- travention of Mo. Const. 1865, art. xi, § 14, prohibiting legislative au- thority to a municipal corporation to lend its credit to a cdrporation, with- out the assent of two-thirds of the qualified voters. Hill v. City of Memphis, (1890) 10 Sup. Ct, Rep, 562. So again it was held in a recent case in Kansas that where an election is^ ordered in a county under Kan. Laws of 1876, ch. 107, and the amendments thereto, including Laws of 1877, ch. 142, for the par- pose of authorizing the county to subscribe to the capital stock of a railroad company, and to issue the bonds of the county in payment for stock, and the election is ordei-ed § 525.] S0BSCEIPTIONS TO STOCK. 847 ions respecting matters of form.^ But the purchaser of munic- ipal bonds issued to a railway company is not bound to go behind the return of the board of supervisors to inquire whether all the steps necessary to their validity have been taken. ^ § 525. Municipal subscriptions may be conditional. — A municipal subscription may be made conditionally.^ Thus where a town is authorized to subscribe for railroad stock, and to issue bonds in payment therefor, the fact that the bonds are issued upon condition that the road should build its shops in that town, does not invalidate the bonds, since the impos- upori a petition presented to the county board, which does not con- tain the names and is not the petition of two-fifths of the resident tax- payers of the county, as required by those laws, but the county board de- clares it to be sufficient, and the election is held, the returns can- vassed, and the result declared in favor of subscribing for the stock and issuing the bonds, and the county clerk ordered by the county board to make the subscription does so, the election must be deemed to be void, because of the want of a sufficient petition. Chicago, K. & W. R. Co. «. Harris, (Kan, 1890) 23 Pac. Rep. 1064. And under Ky. Act of March 17, 1870, decla,ring that if more than one question of taxation is voted on at any one election the tax shall bo void, an election upon county subscriptions to the capital stock of two different railroad com- panies, at the same time, is void, and is not validated as to one of the subscriptions by the fact that it is void as to t;he other. Chl'istian County Court v. Smith, (Ky. 1890) 13 S, "W. Rep. 276. 1 Beach on Railways, § 193. 2 On a question as to the validity of certain bonds issued by a county to a railway company, it was claimed that the issue was not authorized by two-thirds of the qualified voters, as required by Const. Miss. art. xii, § 14, and that the fact would appear from an inspection of the registra- tion lists. The board of supervisprs, in the performance of their duties, had declared that two-thirds of the voters had voted for the measure. And it was held that a purchaser was not required to go behind the returns, and one who purchased for value, without actual notice of the wrongfulness thereof, was entitled to recover. Madison . County v. Brown, (Miss. 1890) 7 So. Rep. 516. 3 Casey v. People, (111. 1890) 24 N, E Rep. 570; Town of Platteville v. Ga- lena &c. R. Co., 43 Wis. 493; Port- land^ &c. R. Co. v. Inhabitants of Hartford, 88 Me. 23; Atchison &c. R. Co. V. Phillips County, 25 Kan. 261; Brocaw v. Gibson, 73 Ind. 543; Chicago &c. R. Co. v. Aurora, 99 111. 205; Noesen u. Port Washington, 87, Wis. 168; Perkins v. Port Wash- ington, 37 Wis. 177; Vicksburgh v. Ouchita, 11 La. Ann. 649; Foote v. Mt. Pleasant, 1 McCrary, 101 ; Peo- ple V. Button, 18 Hun, 206 ; Missouri Pacific R. Co. V. Tygard, 84 Mo. 263; S. C. 54 Am. Rep. 97; Jacks v. Helena, 41 Ark. 213. 848 ' SUBSCEIPTIONS TO STOCK. [§ 526. ing of' the condition does not change the object for which the bonds were issued.' A writ of mandamus will not issue to compel municipal officers to issue bonds in payment of a sub- scriptidn conditionally made, until the condition has been com- plied with by the compan3^^ So long as any condition re- mains unfulfilled by the company, or any discretionary act is to be performed by the municipal officers, neither the vote of the electors nor the order of the municipal oiScers becomes operative; but when the ofiBcers are merely to perfornl a simple ministerial or clerical duty, the vote or order is in itself the subscription, and mandamus lies, to compel the perform- ance of the ministerial duties requisite to th^ formal execution of the contract.' § 536. Municipal subscriptions as affected by consolida- tion. — A new consolidated company succeeds to the rights of either constituent company in respect of any municipal aid vphich it may be entitled under its charter to have voted to it; and if the bonds were yoted prior to the consolidation to one of the old companies,, the new company will be entitled to have them issued to it.* The enabling act is regarded as conferring a privilege upon the original corporation which is not lost by its merger in the new.' But a vote of the electors 1 Casey v. People, (111. 1890) 24 falo t). Iron Co., 105U. S. 73; Niantic N. E. Rep. 570^. ' Savings Bank v. Douglass, 5 111. 2 State ^u. Minneapolis, 33 Minn. App. 579. ' / 501. - 5 Scotland County v. Thomas, 94 3 Wood's By. Law, § 117, citing U. S. 683; SraitK v. Clarke County, People V. Pueblo County, 3 Cal. 360; 54 Mo. 58; Hannibal &c. E. Co.u Cumberland &c. R. Co. v. Barren Marion County,' 36 Mo. 294; Lewis County, lO Bush, 604. v. Clarendon, 6 Reporter, 609 ; Barter ^ State V, Greene County, 54 Mo. v. Kern6ohan, 103 U. S. 5S3; County 540 : Henry County v. Nicolai, 95 of Tipton v. Locomotive Works, 103 U. S. 017; East Lincoln v. Daven- U. S. 533; Menasha v. Hazard, 103 port, 94 U. Si 801 ; Calloway County U. S. 81 ; County of Cass v. Gillfet, V. Foster, 93 U. S. 567; Scotland 100 U. S. 585 ; Wilson v. Salamatica, County V. Thomas, 94 -U. S. 683; 99 U. S. 499; County of Schuyler Smith V. Clark County, 54 Mo. 294 ; v. Tliomas, 98 ,U. S. 169 ; Henry Washburn v. Cass County, 3 Dill. County u. Nicolai, 05 U. S. 619; Town 251 ; Nugent v. Supervisors, 19 Wall, of East Lincoln v. Davenport, 94 241 ; Atchison &o. R. Co. v. Phillips U. S. 801. Contra, Harshman v. County, 25 Kan. 261 ; Chicaming v. Bates County, 93 U. S. 569. Carpenter, 106 U. S. 663; New Buf- § 527.] SUBSCEIPTIONS TO STOCK. • 849 to take, stock in a railway company prior to its consolidation ■ with another, does not authorize the municipal officers to sub- scribe to the stock of the consolidated companj^^ Thus where a township has authorized the county court to make a sub- scription in its behalf, and the subscription has not been made at the time of the consolidation, the consolidation revokes the power, and a subscription thereafter will be invalid without a new power.^ Dissenting tax-payers may generally object to the payment, if the consolidation materially alters the plan of the enterprise to which the aid was originally voted ; and they are not estopped by any consent or acquiescence therein by the municipal authorities.' But this is not the case if the consolidation was made under authority existing at the time the vote in favor of subscription was taken.^ § 527. Fraud in procuring subscriptions! — A contract of subscription to the capital stock of a corporation procured through fraud can not be enforced against the subscriber.* Such a subscription, however,. is valid until disaffirmed,^ but the party must act promptlj'^ in disaffirming the contract after the knowledge of the fraud is brought home to him in order to secure relief.' A subscriber to the stock of a corporation 1 Harshman v. Bates, (1874) 3 Dill. Thompson, 14 Am. L. Rev. 177 ; note 150. to Parker v. Thomas, 81 Am. Dec. , 2 Harshman v. Bates County, 92 393, 401; Central Ey. Co. v. Kisch, U. S. 569. L. R. 3 H. L. 99 ; Hayman v. Euro- SMcMaban v. Morrison, 16 Ind. pean Central Ry. Co., ,7 Eq. 154; 173; s. c. 79 Am. Deo. 418; Clear- " Subscriptions to the Capital Stock water v. Meredith, 1 Wall. 40 ; State of Corporations," by James M. Kerr, V. Nehama County, 10 Kan. 569. (1889) 6 Ry. & Corp. L. J. 433. « Mansfield &c. E. Co. v. Brown, « Upton «. Englehart, 3 Dill,. C. C. 26 Ohio St. 323 ; Sparrow v. Evans- 496. -ville &c. E. Co., 7 Ind. 369. 7 Dynes v. Shaffer, 19 Ind. 165; 5 New Orleans, O. & G. W. R. . Hiighes. v. Antietam Manuf. Co., 34 Co. •!<. Williams, 16 La. Ann. 315 ; Md. 316 ; Cunningham v. Edgefield Hester v. Memphis. & C. R. Co., 33 & Ky. R. Co., 3 Head, (Tenn.) 33; Miss. 378; Upton v. Tribilcock, 91 Upton v. Tribilcock, 91 U. S. 45; U. S. 45 ; Burnes v. Pennell, 3 H. L. Upton v. Hansbrough, 3 Biss. C. C. Cas. 497: Atkinson v. Pocock, 12 417 ; Kishacoquillas Turnpike Co. i;. Jur. 60; Reese Rover S. M. Co. v. McConaby, 16 Serg. &E. 140; Chubb, Smith, L. R. 4 H. L. 641 ; Vreeiand v. Upton, 95 U. S. 665 ; Upton v. V. New Jersey Stone Co., 29 N. J. Englehart, 3 Dill. 496; Ogilvie v. Eq. 118; "Effect of Fraud on Sub- Knox Insurance Co., 33 How. 380; scriptions to Stock," by Seymour D. l>?cDermott v. Harrison, (1890) 9 N. Y. 54 850 SUBSCEIPTIONS TO STOCK. [§ 527. may bring suit to Have the contract cancelled, or may success- fully defend an action brought by the company seeking to enforce it, where he has been induced to make the subscription by fraudulent misrepresentations,' contained in a prospectus or report issued by the authority of the company, whether to the public generally or to its own members,^ or by fraudulent misrepresentations, in any other way, made by an agent of the company authorized to receive subscriptions, while acting in the line of his employment,' whether the misrepresentation consisted in an actual statement of falsehood or in a mere suppression of truth, giviag to the truth which was told the character of fJilsehood,^ either in a statement of what was Supl. 184; Parks v. Evansville &c. E. Co., 23 Ind. 567 ; Davis v. Du- mont, 37 lowa, 47; Oakes v. Tur- quand, L. E. 2 H. L. 825. 1 Litchfield Bank v: Peck, 29 Conn. 384; Brockwell's Case, 29 L. T. 375. But see Ogilvie v. Knox Insurance Co., 28 How. 380. It must appear, however, that the snhseriher relied upon the truth of the misrepresenta- tion, and that it constituted a mate- rial inducement to hitn to make the- subscription. Beach on Eail'Jyays, § 131, citing Linnett v. Males, 38 Iowa, 25; Melendy v. Keen, 89 111. 395; Mitchell v. Deeds, 49 111. 416; Selma &c. E. Co. v. Anderson, 51 Miss. 829 ; Walker v. Mobile &c. E. Co., 34 Miss. 245; Kennedy v. Pan- ama Eoyal Mail Co., L. R. 2 Q. B. 580 ; Kish v. Central Ey. of Venezu- ela, 3 De Gex, J. & S. 123. 2 Beach on Eailways, § 133. Vide infra, § 529. 3 Beach on Eailways, § 132 ; Otump V. United States Mining Co., 7 Gratt. 353; s. 0. 56 Am. Dec. 116; Penob- scot E. Co. V. White, 41 Me. 512; S. c. 66 Am. Dec. 257 ; CunniTigham V. Edgefield &c. E. Co., 2 Head, 23; GhDodrieh v. Reynolds, 31 111. 490; Eives V. Montgomery &o. Plank Boad Co., 80 Ala. 92; Ft> Wayne &c. E. Co. v. Deana, 10 Ind. 563 ; Wight t!. Shelby E- Co., 16 B. Mon. 4; Bar- ington V. Pittsburgh &c. E. Co., 34 Pa. St. 358; Buffalo. &c. E. Co. v. Dudley, U N. Y. 836 ; Vicksburg &c. . E. Co. V. McKean, 12 La. Ann. 638 ; Smith V. Tallahassee &o. E. Co., 30 Ala. 650; Hays v. Ottawa' &c. E. Co., 61 111. 422; First National Bank v. Hurford, 29 Iowa, 579.' Contra, McClellan v. Scott, 34 Wis. 81 ; At- lanta &c. E. Co. V. Hodnett, 36 Ga. 669. Statutory commissioners to take subscriptions are hot agents of the company under this rule, and mis- representations by them are not available as a ground of irecission. "While there has been much con- troversy in the courts of this coun- try over this question of fraudulent misrepresentations by commission- ers in the procurement of stock sub- scriptions, we think the doctrine is pretty well settled that this defense is not available." Eutz v. Esler &e. Manuf: Coi, (1878) 3 Bradw. (111.) 83, 88. *Bea.eh on Eailways, § 134; Di- rectors &c. of Central Ey, Co. v. Kisoh, L. E. 2 H. L. App. Gas. 99; Oakes v. Turquand, E. E. 2 H. L. App. Cas. 325 ; New Brunswick &c. Ey. Co. ti.Muggeridge, 1 Dr. & Sm. § 527.] SUBSCEirTfONS TO STOCK. 851 known not to be true, or in a statement of what was not hnown to be true;' provided the misrepresentation were in relation to some material matter of fact afifecting the status of the company,^ or the nature of the business it was organ- ized to conduct,' concerning which it was the duty of the agent to bo informed,* and the truth of which was not ascer- tainable by the subscriber as well as by the agent.^ In this 363, 381 ; Heyman v. European Cen- tral Ey. Co. , L R. 7 Eq. Cas. 154. O/. Pulsford u. Richards, 17 Beav. 87. 1 Beach on Railways, § 134 ; Hen- derson t7. Railroad Co., 17 Tex. 560; S. c. e"? Am. Dec. 675; Edgington u Fitzmaurice, 29 Ch. Div. 459 ; Eeese River Co. v. Smith, L. R. 4 H. L. 64, affirming s. c. L. R, 2 Eq. 264. 2 Waldo- ,1?. Chicago &c. R. Co.,- 14 Wis. 575 ; Montgomery &c. Ry. Co. v. Matthews; 77 Ala. 857 ; McClellan v. Scott, 24 Wis. 81; Wickham v. Grant, 28 Kans. 517; Melendy v. Keen, 89 111. 395; Bell's Case, 22 Beav. 85. But see Jackson v. Tur- quand, L. E. 4 H. L. 305. In a recent action by a railroad company in Georgia on a note given for a sub- scription to its capital stock, it was held that a good defense is set up by a, plea that plaintiff's agents pro- cured the subscriptions by represen- tations that plaintiff would issue stock only to the amount of three thousand dollars per mile, and bonds only to the amount of twelve thou- sand per mile, whereas, at the time the representations were made, stock had already been issued to the amount of twelve thousand and bonds to the amount of fifteen thou- . sand dollars per mile. Weems v. Georgia, M. & G. R. Co., (Ga. 1890) 11 S. E. Hep. 503. So misrepresen- tations that the work of constr-uction has reached a certain stage of com- pletion, (Peel's Case, L. R. 2 Ch. App. 674) that certain persona are direct- ors, (Blake's Case, 34 Beav. 639) and that the directors have taken stock in the company, (Henderson v. Lacon, L. R. 5 Eq. Cas. 249) have been held to be material and good by way of defense. 'West V. Crawfordsville &e. Co., 19 Ind. 242; Blackburn's Case, 8 Drew. 409. i ^ Selma &c. R. Co. v. Anderson, 51 Miss. 829; Waldo v. Chicago &c. R. Co., 14 Wis. 575. 5 Connecticut &c. R. Co. v. Bailey, 34 Vt. 465 ; s. C. 58 Am. Deo, 181 : Thornburg I). Newcastle &c. R. Co., 14 Ind. 499; Johnson v. Crawford- ville R. Co., 11 Ind. 280; Blodgett v. Morrill, 20- Vt. 509 ; Haskell w. Worth-' ington, (1888) 94 Mo. 560. "Every' contracting person has an absolute right to rely on the express stater ment of an existing fact, the truth of which is known to the opposite party, and unknown to him, as a basis of a mutual engagement, and he is under no obligation to investi- gate and verify statements, to the truth of which the other party to the contract, with full means of knowl- edge, has deliberately pledged his faith." Mead v. Bunn, 32 N. Y. 274 ; Upton «. Englehart, 3 Dill. 496 ; Kisch V. Central Ry. Co., L. R. 2 H. L. App. Cas. 99 ; New Brunswick &o. Ry. C(x V. Muggeridge, 1 Dr. & S. 363. But it is no defense to an action on Stock subscription that the words " of St. Louis " were added to the name of the company, as given in the sub-' soription paper, upon its incorpora- tion, or tliat defendant was induced 852 STTBSOEIPTIONS TO STOCK. [§ 527. connection matters of fact are distinguished from mere mat- ters of opinion, of expectation or-of hope.^ And as every one to sign by the false representation that certain of his friends had agreed to take stock in the company, there having been opportunity to ascei-tain the truth of the assertion. Haskell V. Worthington, (18^8) 94 Mo. 560. 1 Beach on Railways, § 136 ; Mil- waukee &c. R. Co. V. Field, 12 Wis. 346 ; Johnson v. Pensacola &c. R. Co., 9 Fla. 299 ; McCarthy v. Selinsgroye «&c. R. Co., 87 Pai St. 332; Cass v. Pittsburgh &c. R. Co., 80 Pa. St. 31 ; Piscataqua Ferry Co. v. Jones, 39 N. H. 491; Corwith v. Culver, 69111. 502 ; Cincinnati &c. R. Co. v. Pearce, 28 ind. 503; Thornburgh v. New- castle &o. It. Co., 14 Ind. 499; Selma &c. R. Co. V. Anderson, 51 Miss. 829 ; Wight V. Shelby R. Co., 16 B. Mon. 4; S.'c. 63 Am., Dec. 532; Sanger v. Upton, 91 U. S. 56; Upton v. Hans- brough, 3 Biss. C. C. 417: Tucker- man V. Brown, 33 N. Y. 297 ; Syra- cuse &o, R. Co. V. Gere, 4 Hun, 393 ; Greenville &o. R. Co. v. Smith, 6 Rich. (S. C.) 91; Ellison v. Mobile &o. R. Co., 36 Miss. 272; Swartara R. Co. V. Brune, 6 Gill, (Md.) 41; White Mountain &c. R. Co. v. East- man, 34 N. H. 124; McRae v. At- lantic &o. R. Co., 5 Jones (N. C.) Eq. 395; Dillu. Wabash Valley R. Co., $1 lil. 91 ; Oregon Central R. Co. v. Scoggin, 8 Oregon, 161; McAllister ■V. Indianapolis &c. R. Co., 15 Ind. 11 ; Miller v. Wildcat Grayel Road, 57 Ind. 341 ; Jewett v. Valley R. Co., S4 Ohio St. 601 ; Henry p. Vermil- lion &o. R. Co., 17 Ohio, 187. Thus representations as to the probable cost and profit of the road, (OgUvie V, Knox Insurance Co., 32 How. 380 ; Walker v. Mobile &c. R. Co., 34 Miss. 345; Andrews v. Ohio&c. R. Co., 14 'Ind. 169) the value of a federal granti (Walker v. Mobile &c. R. Co., 84 Miss. 245) tlie ability of the com- pany to complete the road within a certain time, (Montgomery Southern Ry.. Co. V. Matthews, 77 Ala. 357; Parker v. Thomas, 19 Ind. 213; Brownlee v. Ohio &g. R. Co., ^Slud. 68; Bish v. Bradford, 17 Ind. 490; Hardy v. Merriweather, 14 Ind. 203, and declarations of an agent as to' the route of ' the road, have been held to be mere expressions of opin- ion and as such not to release the subscriber nor bind the company, unless the agent made them with in- tent to deceive and with full knowl- edge of their falsity. Montgomery Southern Ry. Co. v. Matthews, 77 Ala. 357 ; Mississippi &o. R. Co. v. Cross, 20 Ark. 443. And as state- ments with rega,rd to the future, — the prospects and anticipated valu^e of the enterprise, (Salem Mill Dam Corporation v. Ropes, 9 Pick. 187; s. c. 19 Am. Dec. 363; Hardy v. Merriweather, 14 Ind. 203; Vawter V. Ohio &c. R. Co., 14 Ind. 174) and representations as to what the cor- poration will do, (Mississippi &c. R. Co. V. Cross, 20 Ark. 443; Eakriglit V. Logansport &o. R. Co., 13 Ind. 477 ; Evansville &c. R. Co. v. Posey, 13 Ind. 363 ; Johnson v.' Crawford- vilie &c. R. Co., 11 Ind. 280; Four Mile Valley R. Co. v. Bailey, 18 Ohio St. 208. But see Atlantic &c. R. Co. V. Hodnett, 36 Ga. 669; Vicksburgh &c. R. Co. V. McKean, 13 La. Ann. 638; Martin v. Pensacola &c. R. Co., 8 Fla. 376; s. c. 73 Am. Dec. 713; Mis- sissippi &c. R. Co. V. Cross," 20 Ark. 443) must necessarily be merely a mat- ter of opinion, they do not ordinarily constitute a ground for the recission of contracts of subscription. Beach on Railways, § 136. If, however, the opinion is falsely expressed with in- § 528.] SUBSCEIPTIONS TO STOCK. 853 is presumed to know the law, a misrepresentation as to tbe legal effect of the contract is not. deemed to have deceived the subscriber.^ But no one is presumed to know the law of a foreign State, and, accordingly, misrepresentations concerning it may amount to fraud.' § 528. Qualifications of the foregoing rule. — After rail- road stocks had depreciated, and railroad schemes had become less popular than they formerly were^ it became common to set up fraud in obtaining the subscriptions as a ground of avoiding their payment, and difficult questions were often thus presented. Kepresentations which, in the feverish ex- citement produced by an extraordinary temporary success, seemed to all as probably below the promised reality, after- wards, in the ebbing of the railroad tide to a lower stage than was natural, appeared like stupendous attempts at swindling; and means then used to obtain subscriptions of stock which the deluded, no doubt, sincerely thought justified by the sup- posed certain profitable results, now, in more sober times, shock the moral sensibility of every right-minded man. But when these questions were presented to the courts, they en- deavored to sift the exaggerated representation from the de- liberate assertion of a material fact of which the subscriber had not the means of knowledge, and for the truth of which he rightly relied upon the solicitor of stock authorized to as- sert it for his principal; it was the aim of the judiciary to separate the fraudulent device of which the subscriber was innocent from those in which he participated; in short the}'' decided upon railroad — upon corporation contracts, under the guidance and in the application of the established rules gov- erning their action upon contracts in other cases, and between private individuals.' Accordingly, it was established that tent to deceiyA the contract thereby 14 Ind. 499 ; Clem v. Newcastle &c. procured will be void, unl'ess the R. Co., 9 Ind. 488; Parker v. representation relates to a matter Thomas, 19 Ind. 313. Cf. North equally open to both parties. Mont- Eastern B. Co. v. Eodriques, 10 Rich, gomery Southern Ry. Co. v. Mat- (S. C.) 278. thews, 77 Ala. 357. 2 Upton v. Englehart, (1874) 3 Dill. I Beach on Railways, § 137; Up- 496. ton V. Tribilcock, 91 U. S. 45; Hall 3 Anderson v. New Castle &c. R. V. Selma &c. R. Co., 6 Ala. 741; Co., (1859) 13 Ind. 376; s. 0. 74 Am. Thorn burgh v. Newcastle &c. R. Co., Dec. 318, 320. 854 ' SUBSCEIPTIONS TO STOCK. [§ 528. • where there has been an innocent misrepresentation or mis- apprehension, 'it does not authorize a recissiom, unless it is suoh as to show that there is a complete difference in sub- iStance between what was supposed to be, and wb&,t were the facts, "so as to constitute a failure of consideration."' The weight of authority seems to hold that a subscriber seeking release ,f rom his contract on the ground of fraud must show some injury or detriment resulting therefrom.^ And many of the American cases hold that there must have been a fraud- ulent purpose in contemplation or that the agent knew that the statements were untrue;' arid intended them to influence the action of the subscriber.* Thus it is held that false repre- sentations by the agent of a railroad corporation, soliciting subscriptions for stock from persons living along the contem- plated l-oute, in respect to the intended location, and the time -within which it will be comlpleted to a particular place, are not fraudulent, nor available as a defense to an action on a subscription for stock made on the faith of them, unless known 'by the agent to be failse, and made by him with intent to de- ceive;' and that proof of the promoters of a railroad scheme "having guarantied that the route would pass near a certain tract, and of its having deviated therefrom, will not discharge one who has subscribed in reliajice on that statement, unless a fraudulent intent be established.* A court of equity will 1 Kennedy v. Panama, &o. Co., L. Matthews, (1885) 7.7 Ala. 357; s.. o. E. 3 Q. B. 580. 54 Am. Rep! 60 ; Selma &c. R. Co. 2 Keller v, Johnson, 11 Ind. 337; v. Anderson, 51 Miss. 829; Cunning- S. C. 71 Am. Dec. 355 ; Cunningham ham v. Edgefield &c. R. Co., 2 Head, u. Edgefield &c. R. Co., 2 Head,- 23. 23 ; Nugent v. Cincinnati &g. R. Co., Cf. Hays v. Ottawa &c. R. Co., 61 2 Disney, 302; Story on Agency, .111.423. Thus a false statement as §§ 137, 135, 137, 453 ; Chitty on Con- to the amount of stock that has been tracts, 6S3. Bubsoribed, is not ordinarily a mate- < Kennedy v. Panama Royal Mail rial misrepresentation. Goodrich v. Co., L. R. 3 Q. B. 580; Thom v. Beg- Rfeynolds, 31 111. 490; Parker c. land, 8 Ex. 725 ; Atwood u. Small, 3 Thomas, 19 Ind. 213; Brownlee v. CI. & P. 282; Taylor v. Ashton, 11 Ohio &c. E. Co., 18 Ind. 68; Bish Mees. & W. 415. V. Bradford, 17 Ind. 490; Hardy u. ^ Montgomery Southern Ry. Co. «. Merriweather, 14 Ind. 203. There is, Matthews, 77 Ala. 357; S. c. 54 Am. however, some authority to the con- Rep, 60. trary. Ross v. Estates Investment * Braddock v. Philadelphia, Marl- ,Cq.;, L. R. 3 Oh. ,683. ton &c. R. Co., 45 N. J. 363. 8 Montgomery Southern Ry. Co. v. § 529.] STJBSCBIPTIONS TO STOCK. 855 not release a subscriber on the ground of fraud, when by so doing 6ther subscribers or the ; creditors of the corporation would be injured thereby.' And one who has been induced to subscribe for corporate stock by fraudulent representations, can not recover the amount paid until the claims of creditors •of the corporation are satisfied.^ If a person is induced by the fraudulent representations of the promoter of a corpora- tion to subscribe for shares of stock in the corporation, and pays his subscription to the person holding the office of treas- urer, he can not, by rescinding the contract, maintain an action for money had and received against the other share- holders, even if the incorporation is invalid, and the share- holders are partners.' He can not be both plaintiff and de- fendant. His remedy, if upon the facts he is entitled to any, is by an action of tort against the person or persons who prac- ticed the fraud upon him; or, by a bill in equity to rescind the contract of partnership, to have the partnership articles cancelled as to him, and to compel those who practiced the fraud to repay the money and to make further compensation and indemnity, if such relief is necessary.* For the promoters are liable in damages for misrepresentations made by them.' § 529. Misrepresentations in prospectuses. — The liability of a compan}' on a prospectus is very strict. Those who issue a prospectus holding out to the public great advanta,ges which would accrue to persons who should take ,shares in a proposedl undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state every- thing with strict and scrupulous accuracy, and not only to ab- stain from stating a fact which is not so, but to omit no one fact within their knowledge the existence of which may in any degree affect the nature, or extent, or quality of the privi- , 1 Chubb V. Upton, 95 U. S. 665; ^Perry v. Hale, (1887) 143 Mass. Miller v. Hanover Junction R. Co., 540, 543, citing Richards v. Todd, 87 Pa. St. 95; Graff v.^ Pittsburgh 127 Mass. 167; Smith v. Everett, 136 &c. R. Co., 31 Pa, St. 489. Mass. 304; Duff v. Maguire, 99 Mass. 2 Turner v. Grangers' Life &c. Ins. 300 ; Rawlins v. Wickham, 3 De G. Co., 65 Ga. 649 ; s. c. 38 Am. Rep. & J. 304 ; 3 Lindley on Partnership, 841. ' (4th ed.) 935, 937, et seq. 3 Perry .v. Hale, (1887) 143 Mass. spaddock v. Fletcher, 43 Vt. 889. 540. 856 SUBSCRIPTIONS TO STOCK. [§ 529. leges and advantages which the prospectus holds out as in- inducements to subscribe.' Thus where a prospectus stated that the company had obtained a concession from a foreign government to make a railway, when in truth the company had contracted to purchase the concession from another com- pany for a large sum, this was held to be a material misrep- 1 New Brunswick & C. Ey. Co. v. Muggeridge, 3 L. T. Rep, N. S. 681 ; "Relief from Shares," 44 L. T. 40; Atlanta &c. R. Co. v. Hodnett, 36 Ga. 669; Pulsford ■■«. Richards, 17 Jur. 865; Oakes v. Turguand, L. B. 3 H. L. App. Cas. 325; Central Ey. Co. V. Kisch, L. R. 2 H. L. 99; Hey- man v. European &c. Ey. Co., L. E. 7 Eq. 154; Hallows v. Fernie, L. E. 3 Eq. 530: Blake's Case, 34 Beav. 639. In a recent English case, a company which was incorporated on the 25th of September, 1889, is- sued a prospectus on the 27th of the same month representing that cer- tain persons, four in number, were the directors. S., on the 27th of September, 1889, applied for five hundred shares on the faith of the statement in the prospectus that these persons were directors, ^nd on the Ipt of 'October, he received no- tice of allotment. On the 12th of November, 1889, S. took out a sum- mons to have his name removed from the register of shareholders, and for the return of the amount whiih he had paid on allotment, on the ground that the statement in the prospectus as to the directors was untrue. It appeared tliat the persons named in the prospectus as' directors ■were not directors at the time the • notice of allotment was sent out, but the promoters of the company and their nominees had been actually acting as directors under the provis- ions of the articles of association, which stated that the first directors were to he named by a majority of the subscribers to the memorandum of association, and until such direct- ors should have been appointed the subscribers, themselves were to be deemed to be and to have power to act as directors. Some of these sub- scribers met on the 26th of Septem- ber and passed resolutions that the prospectus be approved and issued, and that a certain agreement relat- ing to payment of the preliminary and formation expenses be adopted ; and on the 1st of October they held another meeting and passed resolu- tions for the allotment of shares, and for the election of the four persona named in the prospectus as directors. Two of the elected directors did afterwards accept the office and act, but one never accepted at all. S. swore that he applied for the shares believing that the persons named in the prospectus were the directors, and that he would not have applied for any shares in the company if he had known that they were not in fact directors. The company was ordered to be wound up on the 23d of November, 1889. The court held that the prospectus was false, as at the date it was issued persons other than those named therein were act- ing as directors, and that S. was en- titled to have his name removed from the .register of shareholders, and to prove in the winding up for the amount paid in respect of the. shares. In re Johannesburg Hotel Co., Limited, Sarle's Case, (Ch. Div. 1890), per Chitty, J., 8 Ey. & Corp. L. J, 197. § 530.] STJBSCEIPTIONS TO STOCK. 857 resentation, entitling a shareholder to have his purchase of shares set aside. The Lord Chancellor stated his opinion that the public who were invited by a prospectus to join in any new adventure ought to have the same opportunity of judg- ing of everything which had a material bearing on its true character as the promoters themselves possessed.' The com- pany can not plead that the reports were intended for stock- holders alone. The law holds that the report is known and intended to be known to all who contemplate becoming stock- holders.^ §530. Parol evidence of fraud. — The general rule that parolrepresentations are inadmissible to vary the terms of a written agreement of subscription/ is not applicable to those representations which amount to fraud on the part of the company, were made at the time of subscribing, and were the inducements by means of which the subscription was ob- tained.* Parol evidence is admissible to prove fraudulent mis- representations.^ In such cases, however, parol evidence is 1 Venezuela Ry. Co. v. Kisch, 16 L. T. Rep. N. S. 500; S. c. L. R. 2 H. L. App. Cas. 99, where, however, it was said that representations of a prospectus are to be taken with some allowance " for the sanguine expec- tations of the promoters of the ad- venture ; and no prudent man will accept the prospects which are al- ways held out by the originators Of every new scheme, without consid- erable abatement." 2 New Brunswicli &c. Ry. Co. v. Conybeare, 9 H. L. Cas. 711; Na- tional Exchange Co. v. Drew, 33 Eng. Law & E'q. 1. 3 Smith V. Plank Road Co., SO Ala. 650 ; Mississippi, O. &c. R. Co. v. Cross, 30 Ark. 343; Goodrich v. Rey- nolds, 31 111.490; Connecticut & P. Riv. R. Co. V. Bailey, 34 Vt. 465 ; Ogilvie V. Knox Ins. Co., 33 How. 380. * Rives V. Montgomery Plank Road Co., 30 Ala. 93; Martin v. Pensacola 6 G. R. Co., 8 Fla. 370; Miller v. "Wildcat Gravel Road Co., 57 Ind. 341 ; Davis v. Dumont, 37 Iowa, 47 ; ' Kennebeck & P. R. Co. v. Waters, 34 Me. 369; Water Valley Manuf. Co. V. Seaman, 53 Miss. 655 ; Ellison V. Mobile & O. R. Co., 36 Miss. 573; Piscataqua Ferry Co. v. Jones, 39 N. H. 491 ; Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188; Custar V. Titusville Gas & Water Co., 63 Pa. St. 381 : East Tennessee & V. R. Co. V. Gammon, 5 Sneed, (Tenn.) 567 ; Blodgett V. Morrill, 20 Vt. 509; Crump V. United States Mining Co., 7 Gratt. 353; "Subscriptions to the Capital Stock of Corporations," by James M. Kerr, (1889) 6 Ry. & Corp. L. J. 433. 5 Connecticut &c. R. Co. v. Bailey, 24 Vt. 465 ; S. C. 58 Am. Dec. 181 ; Wight V. Shelby R. Co., 16 B. Mon. 5; Kennebec R. Co. v. Waters, 34 Me. 369; Connecticut &c. R. Co. v. Baxter, 33 Vt. 805 ; Blodgett v. Mor- 858 S.UBS.CEIPTIONS TO STOCK. .[§ 53J. not introduced for the purpose of varyiiig or contradicting the contract but to show that no contract was properly formed.' § 531. Parol agreements and conditions. — Parol evidence is not admissible to v^vy the terms of a subscription to the capital stock of a corporation, or to show a discharge there- from in any manner other than that required by the terms of subscription, charter, and by-laws.^ All separate agreements rill, 20 Vt. 509; Piscataqua Ferry- Co. V. Jones, 39 N. H. 491 ; Jewett «. Valley Ey. Co., 34 Ohio St. 601; Henderson v. Railroad Co., 17 Tex. S60; s. c. 67 Ata. Dec. 675; Neve York Exchange Co, v. De Wolf, 31 N. Y. 273; s. C. 5 Bosw. 593; Bur- rows V. Smith, 10 N. Y. 550; Ellison V. Mobile &c. R. Co., 36 Miss. 572; Walker v. Mobile &c. R. Co., 3i Miss. 245; Hester v. Memphis R. Co., 33 Miss. 378; La Grange R. Co. u.'Mays, 29 Mo. 64. ' 1 New York, Exchange Co. v. De Wolf, 31 N. Y. 273; Jewett v. Val- ley R. Go.,, 34 Ohio St. 601 ; " Sujb- soriptions to the Capital Stock of Corporations,'' by James M. Kerr, (1889) 6 Ry. & Corp. L. J. 423. 2 Marshall Foundry Go. v. Killian, (1888) 99 N. G. 501 ; s. c. 6 Am. St, Rep. 539 ; Topeka Manuf. Co. v. Hale, (188S) 39 Kan. 33; Minneapolis Thresliing Machine Co. v. Davis, .,(jL889) 40 Minn. 110; S. C. 13 Am. St. Rep. 701; Melvin v. Lamar Ins. Go., 80 III. 446; S. C. 33 Am. Rep. 199; Anderson v. Newcastle &o. E. Co., 12 Ind. 376; S. 0. 74 Am. Dec. '318; Robinson v. Pittsburgh &c. R. Co., 32 Pa.' St. 334 ; s. c. '73 Am. Dec. 793; New Albany &c. R. Co. v. Fields, 10 Ind. 187; Jewell v. Rock River Paper Go., 101 111. 57; Chou- teau Ins. Go. V. Floyd, 74 Mo. 386 ; Swartoutv. Michigan &c. R. Co., 34 Mich. 389 ; Walker v. Mobile &c. R. .Co., 34 Miss. 345; White Mountains K. Go. V. Eastman, 34 N. H. 124; Connecticut dec. R. Co. v. Bailey, 84 Vt. 465;Si c. 58 Am. Dec. 181; Upton V. TribilcDck, 91 U. S. 45; Beach on Railways, § 138; White- hall &c. R. Go. V. Myers, 16 Abb. Pr. N. S. 34; Ellison t^. Mobile &c. R. Co., 36 Miss. 572 ; Mississippi &c. R. Co. V. Cross, 30 Ark. 443; Johnson V. Pensacola &o. R. Co., 9Fla. 399; North Carolina E. Go. v. Leach, 4 Jones, (N. C. ) 340 ; East Tennessee &c. R. Co. V. Gammon, 5 Sneed, (Tenn.) 567; Wight u. Shelby R. Co., 16 B, Mon. 4 ; McGlure v. People's Freight Ry. Co., 90 Pa. St. 269; Dill v. Wabash Valley E. Co., 21 111. 91; Eidgefield &c. E. Co. v. Br,ush, 43 Conn. 86 ; Braddock v. Philadelphia &c. E. Co., 45 N. J. 363; Kennebeck &c. E. Co. V. Waters, 34 Me. 369 ; Keller v. Johnson, 11 Ind. 337; S. C. 71 Am. Dec. 355 ; Evansville &c. R. Go. V. Posey, 13 Ind. 333; Thorn- burgh V. Newcastle &c. E. Go.j 14 Ind. 499; Cincinnati &c. R. Co. v. Pearce, 28 Ind. 503; New Albany &c. R. Co. V. Slaughter, 10 Ind. 318; Eakright v. Logansport &c. R. Co., 13 Ind. 404; Carlisle v. Evansville &c. R. Co., 13 Ind. 477 ; McAllister v. Indianapolis &c. E. Co., 15 Ind. 11; Thigpen v. Mississippi Central S. R. Co., 33 Miss. 347; Henry v. Ver- milion &c. R. ,Co., 17 Ohio St. 187; Graff V. Pittsburgh &c. R. Co., 91 Pa. St. 489. Contra, Mahan D.Wood, 44 Oal. 463, where the par value of the shares was not what was prom- ised; Rives V, Montgomery &o. 533.] SUESCEIPTIONS TO STOCK. 859 and conditions made at the time of subscribing which are in- consistent with the written oontractj are void, whether they be verbal,^ or are contained in a separate written contract.^ "When, however, the whole contract of subscription was orig- inally oral, and afterwards a part only was reduced to writ- ing, parol evidence is admissible to prove the whole original contract.' And it may be shown by parol that a corporate agent agreed that the signing of one's name upon a blank sheet of paper should not be a subscription to stock until the person so signing should see and approve the agreement subsequently to be written above.^ But as a general rule, parol declarations made by agents of the company can only avail a subscriber to enable him to escape his subscription when they amount to fraud.' § 532. Conditions precedent^ — Whether a subscription to stock be precedent or subsequent, is a question purely of in tent, to be determined by considering the words both of the Plant E. Co., 30 Ala. 93. So in Pennsylvania parol evidence is ad- missible where but for the verbal contract, the subscription would not have been made. Einesmith v. Peo- ple's Freight Ry. Co., 90 Pa. St. 263; Caley v. PhUadelphia &c. E. Co., 80 Pa. St. 363. 1 Whitehall &c. E. Co. v. Myers, 16 Abb. Pr. N. S. 34; Mississippi &c. E. Co. V. Cross, 20 Ark, 443 ; Thigpen V. Mississippi Central \R. Co., 32 Miss. 347 ; Cunningham v. Edgefield &c. E. Co., 2 Head, (Tenn.) 23; Mil- ler V. Hanover Junction E. Co., 87 Pa. St. 95 ; North Carolina E. Co. v. Leach, 4 Jones, (N. C.) 340; Con- necticut &c. E. Co. V. Bailey, 24 Vt. 465; Blodgett v. Morrill, 2 Vt. 509 ; Evansville &c. E. Co. v. Posey, 12 Ind. 363; Johnson v. Crawford- ville &c. E. Co., 11 Ind. 380. But see Einesmith v. People's Freight Ey. Co., 90 Pa. St. 263; Beach on Railways, § 128. 2 White Mountains R, Co. v. East- man, (1856) 34 N. H. 134; Brownlee V. Ohio &c. E. Co., (1862) 18 Ind. 68. But see Beach on Eailways, §94. 3 Beach on Eailways, § 138 ; Brew- ei's' Fire Insurance Co. v. Burger, 10 Hun, 56; Bross v. Cairo &o. R. Co., 9 Bradw. 363. Cf. Eigjilnie v. Tay- lor, 98 N. Y. 288 ; Hendrix v. Acad- emy of Music, 73 Ga. 437. *Beecher v. Dillsburg &c. E. Co., 76 Pa. St. 306. So again parol evi- dence, is admissible to show that a subscription delivered in escrow was not absolute. Ottawa &p. E. Co. v. / Hall, 1 Bradw. 613. Cf. Jewell v. Eock River &c. E. Co., 101, 111. 57; Tonica &c. E.' Co. v. Stein, 31 111. 96 ; Beach on Eailways, g 76. But see Minneapolis Threshing Machine Co. ■;;. Davis, (1889) 40 Minn. 110; S. C. 12 Am. St. Eep. 701. 5 Beach on Railways, § ISS ; Martin V. Pensacola &c. E. Co., 8 Fla. 370; S. 0. 73 Am. Dec. 713; Vicksburg &c. R. Co. V. McKean, 13 La. Ann. 638 ; Mississippi &c. E. Co. v. Cross, 20 Ark. 443. 860 StJBSCEIPTIONS TO STOCK. , [§ 632. clause containing the condition and of the whole contract, as well as the nature of the act required and the subject matter to which it relates.^ When subscriptions are made to take stock in an existing or proposed corporation, upon a conditioa precedent, as, for example, upon condition that a specified amount of subscriptions shall hereafter be obtained, the con^ tract of the several subscribers is twofold in character. It is, in a sense, a contract between the several subscribersj^which can not be withdrawn or revoked as to any one without the acquiescence of all. It is also a continuing offer or proposi- tion to the corporation to take and pay for the ; amount of stock subscribed, upon the terms proposed, whenever the speci- fied amount of subscriptions shall have been obtained. The obtaining^of the amount-specified within a reasonable time is an acceptance of the proposition or offer b}' the corporation, aind the contract of each subscriber then becomes absolute and unconditional.^ A subscriber can not withdraw his sub- scription even though it be conditional, unless unreasonable delay occurs in performing the condition.' When the com- pany obtains solvent subscriptions for the amount specified, that becomes an effectual acceptance of the offer of all those who have previously subscribed. Their subscriptions are no longer conditional, but become absolute, and are thereafter payable, according to the terras of the contract, on the call of the board of directors.* The subscribers thereupon become 1 Beach on Railways, § 97, citing conditioned upon sufficient subscrip- Bucksport &c. R. Co.' v. Inhabitants tions for the corporate purposes of Bremer, 67 Me. 295 ; Chamber- being secured, has been held not eu- lain V. Painesville &c. E. Co., 15 foroeable until funds for the land, Ohio St. 225 ;" Conditional Appli- structures and boats had been se- cation for Shares," 17 Sol. J. & Rep. cured. People's Ferry Co. v. Balch, a83 ; Note to Parker v. Thoma3, 81 74 Mass. 203. Am. Dec. 392. 3 Johnson v. Plank Road Co., 16 2 1 Mor. Priv. Corp. § 47; Cravens Ind. 389; Railroad Co. v. Mason, 16 V. Eagle Cotton Mills Co., (1889) 120 N. Y. 451; McClure v. Railway Co., Ind. 600 ; S. C. 6 Ry. &,Gorp. L. J. 411 ; 90 Pa. St. 269. Minneapolis Thresher Machine Co. * Railroad Co. v. Pickens, 5 Ind. V. Davis, (1889) 40 Minn. 110; S. a 247; Estell v. Turnpike Co., 41 Ind.- 12 Am. St. Rep. 701; Morawetz on 174; Beckner p. Turnpike Co., 65 Corporations, §47. Of. Buoksport Ind. 468; Warehousing Co. u. Badger, &c. R. Co. V. Buck, 65 Me. 536 ; Iowa 67 N. Y. 294, 300; Cravens v. Eagle &c. R. Co. V. Perkins, 28 Iowa, 281. Cotton Mills Co., (1889) 120 Ind. 600; A subscription to a ferry company s. c. 6Ry. & Corp. L. J. 411. § 533.] SDBSCKIPT3,0NS TO STOCK. 861 entitled to all the rights andyprivileges of stockholders, and they come under the correlative obligations and duties of holders of stock in a corporation.' § 533. Conditions suWquent.— A condition subsequent is one which does not affect the subscriber's liability to take and pay for his shares, but which gives him a right of action against the corporation upon its failure to perform the speci- fied act.^ For example, a specification in notes given for a subscription to the stock of a railway company that the road is to be operated independently of a certain existing railroad,^ relates to what is to be done after the notes are paid, not be- fore, and is therefore a condition subsequent.^ In the case last cited, notes given by a subscriber for capital stock in a railroad, each note being for an instalment, and pa3'able on completion of a section of the, road, "ready for the cross-ties, trestles and bridges," of which completion publication in a newspaper by the directors was to be conclusive notice, were held to be mature and payable as soon as the publication, was made, although the notes described the road as one which was to have a certain privilege, and the privilege had not yet been secured. The securing of it was not a condition prece- dent to payment, the specification thereof being merely part of the description of the road as it was to be ultimately, but not as it was to be at maturity and on payment of the sub- scriptions.* So an agreement that commissioners should be appointed to see that other conditions are carried out, is a con- dition subsequent.^ And a condition that the money paid shall be expended on a particular part of the route is necessarily subsequent." Although, for the purpose of procuring a sub- scription, the corporation contracted that a side track would be constructed on the premises, or "at the place" of the sub- scriber, this stipulation contemplated that the side track would 1 University v. Scoonover, 114 Ind. s Johnson v. Georgia, M. & G. R. ysi; Cravens v. Eagle Cotton Mills Co., (1889) 81 Ga. 735. Co., (1889) 130 Ind. 600; s. 0. 6 Ey. & * Johnson v. Georgia, M. & G. R ■Cbip. L. J. 411. Co., (1889) 81 Ga. 735. 2 Belfast &c. Ry. Co. v. Moore, 60 * Shaffner v. Jeffries, (1853) 18 Mo. Me. 561 : Mill Dam Foundry v. Har- 513. vey, 38 Mass. 417,-437; Beach on 6 Lane u. Brainerd, (1863) 80 Conn. Rail ways,' §97. 565, 862 SUBSCEIPTIONS TO STOCK. [§ 533. be constructed after the payment, there being no agreement that its construction was to be a condition precedent.' A stipulation that alterations shall be ordered only by a vote of the directors, is also regarded as a subsequent condition.^ An action, however, can not be maintained for an instalment not maturing until after all work on the road has been abandoned.' A condition as to location is fulfilled when^ the route is fixed in accordance with the contract,* and the subscription there- upon becomes absolute although the road has not been built.' Even where one subscribed upon condition that the line of the road should be " located and built " within one mile of the post-office in the village of Three Eivers, he was held to be as- sessable thereon when the road was finally located within one mile of the post-office, notwithstanding it was not yet con- structed. For, api)lying the condition to the subject-matter 1 Johnson v. Georgia, M. & G. R. Co., (1889) SI Ga. 735. 2 Bucksport &c. E. Co. v. Buck, 68 Me. 81. Under subscriptions to rail- road stock on the following terms : "One-fourth to be paid when the road is completed to a certain county line;" the remainder "to be paid in four equal instalments, of four months, as the work progresses through the. county, provided the company established a depot " at a certain point, -^ the erection of the depot is not a condition pi-ecedent to payment of the subscriptions; and an assignee of the subscription list may niaintain an action thereon for a call maturing after the road is completed to the county line, and while work thereon is in progress ; although, at the time the action is brought, work on the road has been abandoned, the depot has not been • built, the railway company is insolv- ent, and its property and franchises have been sold. Paducah & M, B. Co. V. Parks, (1888) 2 Pickle, (Tenn.) 554. An agreement to subscribe for the stock of a railroad company pi"0- vided that the subscription should not be due until the road was com- pleted between named points. The separate undertaking of defendant annexed to the agreement bound him to make the payjnent "when the road is completed on the within ternls." It was held that the com- pany need not complete the whole road before demanding such pay- ment, but only the part between the points named. Lesher v. Karshner, (Ohio, 1890) 24 N. E. Eep. 883. 3 Paducah & M. E. Co. v. Parks, (1888) 2 Pickle, (Tenn.) 554. 4 Smith V. Allison, 33 Ind. 366; McMillan v. Maysville &o. E. Co., 15 B. Mon. 218 ; S. O. 61 Am. Deo. 181 ; . Miller v. Pittsburgh &e. R. Co., 41 Pa. Sfc '337; S. C. 80 Axa. Dec. 570; O'Neal V. King, 3 Jones, (N. C.) 517; North Missouri &c. R. Ho. v. Winkler, 39 Mo. 318; ParKer v. Thomas, 28 Ind. 277; Branham v. Eecord, 42 Ind. 181 ; Woonsocket &o. E. Co. v. Sherman, 8 R. I. 564 ; Chamberlain v. Painesville &c. R. Co., 15 Ohio St. 235; Wai-ner v. Cal- lendar, 15 Ohio St. 190. , 6 Swartwout v. Michigan Air Lije R. Co., (1873) 24 Mich. 389, 405, cit- § 534.J , SUBSCEIPTIONS TO STOCK. 863 to which it relates, it is seen that to consider the latter a con- dition precedent would impose the unreasonable obligation upon the oo.rapany of building the road without money and delivering in a finished work to the subscribers.' So in respect to an issue of stock, a promise to pay a certain amount there- for upon condition that the company's road shall have been constructed to designated points by g, specified date, upon which the money shall be paid and the shares issued, requires the shares to be issued only after payment.^ § 534. Recitals as implied conditions. — Kecitals in the contract of subscription or charter' or articles of association are frequently regarded as implied conditions.' Thus if the charter of a corporation require certain acts to be performed before the shareholders shall become liable upon their sub- scription, the performance of those acts is a condition prece- dent to the liability upon their stock subscriptions.'' And a ing Chamberlain v. Painesville &c. . K. Co., 15 Ohio St. 235. ' Ace. Miller V. Pittsburgh &c. R. Co., 40 Pa. St. 237; S. c. 80 Am. Dec. 570. See, also, McMillan v. Maysville &c. E. Co., 15 B. Mon. 218; S. 0. 61 Am. Dec. 181. So, also, conditions that the road shall " pass through " a cer- tain county, (North Missouri E. Co. V. Winkler, 29 Mo. 318; Chamber- lain u. Painesville &c. R. Co., 15 Ohio St. 235; Ashtabula &c. R. Co. v. Smith, 15 Ohio St. 828. Of. Pitts- burgh &c. E. Co. «. Biggar, 34 Pa. St. 455) or if the road "shall be built " through a certain place, are construed to refer to the location of the route and npt to the completion of construction. Woonsocket Union E. Co. V. Sherman, 8 R. I. 564; Swartwout v. Michigan &c. R. Co., 24 Mich. 389; Warner v. Callender, 20 Ohio St. 190 ; Beach on Railways, gill. » Miller v. Pittsburgh &c. R. Co., 40 Pa. St. 3371 S. C. 80 Am. Dec. 570 ; Pittsburgh &c. R. Co. v. Biggar, 34 Pa. St. 455; Wobnsocket Union R, Co. V. Sherman, 8 E. T. 564; Warner v. Callender, 20 Ohio St. 190. Of. North Missouri E. Co. v. Winkler, 29 Mo. 318 ; Belfast &c. Ey. Co. ■«. Moore, 60 Me. 561, 576 ; Bucks- port &c. E. Co. V, Inhabitants of Bremer, 67 Me. 395 ; Chamberlain v. Painesville &c. R. Co., 15 Ohio St. 335. 2 Wemple v. St. Louis, J. & S. R. Co., (1887) 130 111, 196. 3 Carlisle v. Cahawba & M. E. Co., 4 Ala. 76; Caley v. Philadelphia &c. R. Co., 80 Pa. St. 363; Burrows «. Smith, 10 N. Y. 550; Lambu. Ander- son, 54 Iowa, 100. A subscription to the stock of a railroad company, payable on the order of the directors in instalments, when the road is compleited, is conditional, and the grantee of the first company cannot, by performing the condition prece- dent, fix and make absolute the lia- bility of the subscriber. Toledo, C. & St. L. R. Co. V. Hinsdale, (1888) 45 Ohio St. 556. < Carlisle v. Cahawba & M. E. Co., (1842) 4 Ala. 7ti. Of. White Moun- tains E. Go. V. Eastman; (1856) 34 N. H. 134. 864 SUBSCEIPTIONS TO STOCK. [§^535. recital that the capital stock of the company shall be a certain amount, may render subscriptions thereto conditional upon that amount of stock being taken.' So, again, a description of the route of a railway, and mention of the termini thereof^ although the language be not conditional, will be construed as an implied condition that the road should be so built, and any material alteratioij ot route' or a change of the termini ■will release the subscriber from payment.^ But recitals re- specting unimportant matters do not create conditions. For example, a recital that certain subscriptions to the stock of a railway company are to be expended upon a specified portion of the route, has been held to be a> mere direction or request as to the manner in which the money should be applied.^ And , recitals as to the time within which a railway is to be com- pleted, are not considered to be of the essence of the contract of subscription.* § 535. Recitals as to the amount of capital stock. — Sub- scriptions to stock are not deemed to l?e qpon condition pre- cedent that the whole capital of the company shall be paid in.' 1 Vide supra, § 108, p. 204, note 1, hall &c. R. Co. v. Myers, 16 Abb. andinfra, § 535, " / Pr. N. S. 34.' 2 Burrows v. Smithj 10 N. Y. 550; 'Beach on Railways, § 95, citing Caley v. Philadelphia &c. R. Co., 80 Lane v. Brainerd, 30 Conn. 565. Pa. St. 863; Burlington &c. R. Co. v. - *In such a case there might be an Whitney, 43 Iowa, 113; Buckfield abatement by way of damages if &c. R. Co. V. Irish, 39 Me. 44; Old- injury had resulted from the delay, town &c. R. Co. V. Veazie, 39 Me. but not an entire release from lia- 579 ; Danbury &c. R. Co. v. Wilson, bility. Kansas City &c. R. Co. v. 23 Conn. 435; Beach on Railways, Alderman, 47 Mo. 349; Beach on § 109 ; Plattsville v. Galena &c. R. Railways, § 95. Co,, 43 Wis., 493, holding tha't if a .5 Sims % Brooklyn Street R. Co., railway in submitting to a town a 37 Ohio St. 556; Wood's Ry. Law, proposition for aid, states therein § 29, citing, among others, Kennebec that it has surveyed and; located the &c. -R. Co. v. Jarvis, 34 Me. 360 ; line through certain sections of the York &o. R. Co. v. Pratt, 40 Me. 447 ; town to a designated point, and so- Somerset &c. R. Co. v. Gushing, 45 licits aid to build the road " on the Me. 524; Nutter v. Lexington &c. R. route indicated;" it will raise an im- Co., 6 Gray, 85; Boston &c, R. Co. v. plied condition that the road shall be Wellington, 113 Mass. 79 ; Lexington constructed as indicated. But see &c. R. Co. v. Chandler, 18 Met. 311 ; Jewett V. Valley R. Co., 34 Ohio St. Aronwick R. Co. v. Cady, ll R. I. 601; Greenville &c. R. Co. v. John- 121; Hoagland u. Cincinnati &c. R, son, 8 Baxter, (Tenn.) 382; White- Co., 18 Ind. 452; Hamilton &o. Plank . § 535.] STJBSCEIPTIONS TO STOCK. 865 But a recital in the charter, or articles of association, in a prospectus or the contract of subscription, that the capital stock of a company, which at the time has not comtnenoed active operations, shall be a certain amount, is an implied con- dition that the amount of stock specified, shall be taken before the subscribers shall become liable upon their contracts;^ un- Road Co. V. Rice, 7 Barb. 157. See also In re Jenuings, 1 Irish Ch. 654; Waterfoi'd &c. Ry. Co. v. Dalbiac, 20 L. J. Ex. 327; Waterf ord &c. Ry. Co; V. Dalbiac, 6 Ex. 443: Strafford &c. Co. V. Stratton, 3 Barn. & Ad. 51fi. iHaskell V. Wort>iington, (1888)94 Mo., 560 ; Bray v.. Farwell, 81 N. Y. 600^ 608 ; Memphis Branch R. Co. v. Sullivan, 57 Ga. 340 ; Templeton v. Lemon, 113 111. 51 ; Contoocook Val- ley R. Co. V, Baker, 82 N. H. 363; Rockland M. D. & S. S. Boat Co. v. Sewall, (1888) 80 Me., 400, where it was held that an agreement, signed by several, to form a corporation under the general statute of Maine, with a certain capital stock, divided into shares, by which each agrees to contribute the sum set against his name, is not an unconditional agree- ment to take and pay for a certain number of shares of the capital stock when the corporation is formed, and no action can be maintained upon it by the corporation, unless the whole amount of the capital is subscribed and taken, or there is a waiver of such subscriptioffi by the subscriber ; Allman v. Havana R. & E. R. Co., 88 111. 531 ; Santa Cruz R. Co. 'v. Schwartz, 53 Cal. 106; New York, H. & N. R. Co. -y. Hunt, 39 Conn. 75.; Hoagland v. Cincinnati & F. W. R. Co., 18 Ind. 452; Topeka B. Co. v. Cummings, 3 Ean. 55 ; Hughes v. Antietam Manuf. Co., 34 Md. 333; Cabot & W. S. B. Co. v. Chapin, 6 Cush. 50; Salem Mill Dam Co. v. Ropes, 6 Pick. 23; S. C. 9 Pick. 187; 55 Swartwout v. Michigan Air Line R. Co., 24 Mich. 390; Shurtz v. School- draft & T. R. Co., 9 Mich! 369 ; Selma, M. & M. R. Co. V. Anderson, 51 Miss. 839; Livesey v. Omaha Hotel Co., 5 Neb. 50 ; Hale v. Sanborn, 16 Neb. 1 ; Fox V. Clifton, 6 Bing. 776; Wontner V. Shairp, 4 C. B. 404, 440 ; Norwich Nav. Co. V. Theobald, 1 Moo. & M. 151; Pitchford i;. Davis, 5 Mee.s. & W. *3, in which the recital was in a prospectus. In Skowhegan & A. R. Co. V. Kinsman, (1885) 77^ Me. 370, it was iield that an unconditional promise in a stock subscription to pay for a certain number of shares^ at par is binding, though the amount of capital gtock w^s not fixed, and the minimum number of shares named in the charter was not sub- scribed for. Penobscot R. Co. v. Dummer, 40 Me. 173 ; s. C. 63 Am. , Dec. 634: Penobscot &c. R. Co. v. Bartlett, 13 Gray, 344 ; Waterf ord &c. Ry. Co. V. Dalbiac, 6 Ex. 443 ; Erie &G. R. Co. V. Owen, 33 Barb.' 616; Boston R. Co. i>. Wellington, 113 Mass. 79 ; Stoneham Branch R. Co. v. • Gould, 2 Gray, 377, where it is said : " This is no arbitrary rule. It is founded on a plain dictate of justice, and the strict principles regulating the obligation of contracts ; " War- wick R. Co. V. Cady, 11 R. L 131; Belfast &c. R. Co. v. Cottrell, 66 Me. 185 ; Lewey's Island R. Co. v. Bolton, 48 Me. 451; S. c. 77 Am. Dec. 336; Littleton Manuf. Co. v. Parker, 14 N. H. 548. Cf. Monroe v. Fort Wayne &c. R. Co., 28 Mich. 373; Hale V. Sanborn, 16 Neb, 1. See, how- SUBSCEIPTIONS TO StOCK. [§ 535. les^ a contrary intention appear in the charter, enabling act, articles of association or contract of subscription,' as where the agreement is to pay " when required." ^ Accordingly, where a stock company, incorporated under a general law, requiring that the amount of its stock be stated in the record- ing certificate, enters into active business "with a less capital subscribed than the amount thus sta,ted, a subscriber to the .stock, who is not estopped from setting up this fact in de- fense, can not be held to his subscription.' So also when the charter has left the amount of the capital stock to be fixed by the Corporate authorities, it is a general rule that no subscriber is bound until the amount has been determined and the whole subscribed.* And again, it has been held that subscribers for stock of an incorporated company, whose capital is fixed at a ever,, Eenssellaer &c. Piank R. Oo. v. Wetzel, 21 B^rb. 56; Nelson v. Blakey, 54 Ind. ,29. la seekiag to enforce a contract of subscription, the corporation must aver that the full capital stock Jias been subscribed. Hain v. North Western &c. R. Co., 41 "Ind. 196; Fry D. Lexingtgn &c. R. Co., 3 Met. (Ky.) 314. Contra, , Lewey's Islgnd R. Co. v. Bplton, 48 Me. 451 ; Lail v. Mt. Sterling &c. R, Co., 13 Bush, 34. 1 Peoria &c. R. Co. v. Preston, 85 Iowa, 118; Musgrave v. Morrison, 54 Md. 161. Under the Alabama Code of 1886, § 1663, business corporations may organize upon fifty per cent, of the capital stock being subscribed. And under this and similar statutes and charters it is not essential to the validity of subscriptions that the whole be taken. Schloss v. Mont- gomery Trade Co., (1888) 87 Ala, 411 ; S. c. 13 Am. St. Rep. 51 ; Penobscot (fee. R. Co. V. Bartlett, 12 Gray, 244; S. C. 71 Am. Dec! 753; Schenectady &c. Plank Road Co. v. Thatcher, 11 N. Y. 103; Rensselaer &c. Plank Road Co. V. Wetsel, 21 Barb. 56; Hoagland v, Cincinnati ,&c. R. 'Co., 18 Ind. 452; Hunt v. Kansas &c. Co., 11 Kan. 412; Sedalia &c. Ry. Co. «. Abell, 17 Mo. App. 645; Bos- ton &c. R. Co. V. Wellington, 113 Mass. 79; Lexington &c. R. Co. v. Chandler, 54 Mass. 31 1 ; Hanover &c. R. Co. V. Haldeman, 83 Pa. St. 36. ^Cteraw &c. E. Co. v. Garland, 14 S. C. 63; Illinois River R. Co. i;. Zimmer, 20 111. 654; Jewett v. Val- ley Ry. Co., 34 Ohio St. 601. Con- tra, Galveston Hotel Co. v. Balton, 46 Tex, 633. O/. Kennebec &c. R. Co. v., Jarvis, 34 Me. 360. SHaskell^fU. Worthington, (1888)94 Mo. 560. ^ Beach on Railways, §106; Troy &c. R. Oo. V. Newton, 74 Mass. 596 ; Worcester ,&c. R. Co. v. Hinds, 62 Mass. 110; Pike v. Shore Line, 68 Me. 445 ; Somerset R. Co. v. Clarke, 61 Me. 384. But for authorities holding that the subscriber is liable although the amount of capital has not been determined, see Kirksey v. Florida &o. R. Co., 7 Fla. 33; s. c. 77 Am. Dec. 436; City Hotel v. Dick- inson, 72 Mass. 586; Warwick R. Co, ■V. Cady, 11 R. I. 131; Ward v. Gris- woldville Manuf. Co., 16 Conn. 593. See White Mountains R. Oo. v. East- man, 84 N. H. 124. §'586.] StJBSCEIPTIONS TO STOCK. 867 certain sum, whose shares are limited to a certain number, and whose charter provides that payment shall be made, as may be determined by the board of directors, can not be com' pelled to pay until the whole capital has been subscribed for and the board has called for payment, unless it is shown that by their acts they have waived their rights in those regards.* § 536. The same subject coutinuetl. — General incorpora- tion acts providing that when articles of incorporation are filed and published according to law the incorporators shall be authorized to carry into effect the objects of the corporation, do not abrogate the common-law rule that, where the charter or the' terms of subscription do not provide otherwise, pay- ment of a subscription can not be required till the whole cap' ital stock is subscribed; but the subscriber may waive that defense by acts done by him, as stockholder or director, which constitute a part of the business for which the corporation is formed, and which assume it to be ready for business, and evince a willingness to enter upon that business, with the stock already subscribed." But a person who subscribes a certain amount for the starting of a corporation is not re- lieved from paying his subscription by the fact that the amount of capital stock provided by a subsequently adopted, charter i3 not all taken.' Nor where a company is already engaged in the prosecution of its business and the subscriber has knowl- edge of the fact that the whole capital stock has not been taken, is it to be presumed in an action against him by a re- ceiver, that his subscription was conditioned upon the full amount being taken.* And the general rule of the preceding section is seldom applicable where suit is brought by or in behalf of corporate creditors.' When the amount of stock to be subscribed is not fixed by statute, it is usually in the dis-- cretion of the commissioners to determine what amount is sufficient." "When the charter prescribes maximum and mini- 1 Exposition Ry. & Imp. Co, v, ^ Belton Coniptesg Co. v, Sanders, Canal St. E. Ry. Co., (La. 1890) 7 So. (1888) 70 Tex, 699. Rep. 637. *MusgraTeu Morrison, 54 Md. 161. 2 Masonic Temple Assoc, v. Chan- ^ Farnsworth v. Robbins, 36 Minn, nell, (Minn. 1890) 45 N, W, Rep. 716, 369, construing Minn. Gen. Stat, ch, 34, esaugatuok &c. Co, t>, Westport, § 4. 89 Conn. 337, 348, 868 . - BUBSORIFnONS TO STOCK. [§'537* tnum limits between which the directors are to Qx the capital stock and provides also that assessments be made when the minimum has been subscribed, when that amount has been taken, the subscribers are bound to pay the assessments, al- though the directors have not determined upon the amount of the full capital stock.' But ordinarily the minimum having been subscribed is not sufBcientto render the subscriber liable' unless that amount has. been fixed as the capital.' The articles of association certified by the Secreta^ry of State are prima facie evidence as to the amount of capital stock that has been subscribed.' §637. Valid and void conditions. — Conditional subscrip- tions made prior to the incorporation of a company are void,* but those made after incorporation are valid,' where not con- trary to public policy^ or inconsistent with the charter or some statute of the State,' or in conflict with the obligations 1 White Mountain E. Co. v. East- " » New Albany & S. R. Co. v. Mo- man, 34 N. H. '134; Penobscot E. Co. Cqrmick, 10 Ind. 499; McMillan v. ». Bartlett, 13 Gray, 244; si c. 71 Maysville & L. R. Co., 1& B. Mon. Am. Dec. 353; Skowhegan &c. R. (Ky.) 218; Union Hotel Co, w. Hersee, Co. V. Kinsman, 77 Me. 370; Beach 79 N. Y. 454; Burrows v. Smith, 10 oil Railways, § 106. N. Y. 550; Morris Canal & Banking 2 Pike V. Shore Line, 68 Me. 445; Co. u. Nathan, 2 Hall, (N. Y.) 239; Beach on Railways, § 106. As to Ashtabula&N. L. R. Co.i;. Smith, 15 what acts of the corporate author- Ohio St. 328. ities are equivalent to an express ,6Lake Ontario Shore R, Co. v. resolution fUing the amount of cap- Curtias, 80 N. Y. 210; Fort Edward ital, see Bucksport &c. E. Co. v. & Fort Miller Plank Road Co. v. Buck, 65 Me. 536, a resolution to Payne, '15 N. Y. 583; Macedon & limit the time of subscription and Bristol Plank Road Co. u. Snediker, then close the books ;■ Lexington &o, 18 Barb. 317; Butternuts & Oxford E. Go. V, Chandler, 54 Mass. 311, a Turnpike Co. u. North, lliill, (N. Y.) ^resolution to close the books at a cer- 618; Dix v. Shaver, 14 Hun, 393. tain time; Penobscot &c. R. Co. v. In Morrow v. Nashville &c. Co., Bartlett, 78 Mass. 244; s. c. 71 Am. (1889) 87 Tenn. 262; s. c. 10 Am. Deo. 753.' , St. Rep. 658, it is said that condi- 3 Jewell V. Rock River Paper Co,, tional subscriptions to stock of cor- 101 III. 57; porations are contrary to sdund ' ^Troy&B. R. Go. v. Tibbits, 18 publicpolicy, by reason of their tend- Barb. 297. See also Chamberlain «. ency to mislead and ensnare cred- Painesville & H. E. Co^, 15 Ohio St. itors, and they ought not, therefore, 225 ; Boyd v. Peach Bottom R. Co, , to be encouraged. 90 Pa. St. 169; Caley u. Philadelphia ' Thigpen v, Mississippi &c. R. Co., & O. C E. Co., 80 Pa. St. 363. 33 Miss. "347. §537.] SDBSCKIPTIONS TO STOCK, 869 which the contract itself imposes upon the subscribers. Ordi- narily an^'thing which may be legally done by thecorporatioa may be made a condition' to a subscription for stocl£.> Thus subscriptions may be legally conditioned as to the time, manner or means of payment.^ A condition that calls shall not be made until a certain amount has been subscribed is valid,' although the charter may allow operations to commence when a less sum has been subscribed.* But a contract with a sub- scriber to organization stocii of a corporation that for every share subscribed for he shall receive interest-bearing bonds to an equal amount, secured, by mortgage on the company's plant;^, is void, both as to creditors and the corporation.' In New York, where the general turnpike act did not authorize the commissioners to accept conditional subscriptions, it has been held that a subscription conditioned upon a certain loca- tion of the road was void as against public policy.* This rule, however, does not seem to have been generally applied to the location of railways.' In other States also conditions in sub- 1 Penobscot & K. E. Co. v. Dunn, 39 Me. 587; Hanover Junction &c. R. Co. V. Haldeman, 8a Pa. St. 36; Ticonic &c. E. Co. v. Long, 63 Me. 480; Ashtabula &o. R. Co. v. Smith, 15 Ohio St. 328 ; Milwaukee &c. E. Co. V. Field, 13 Wis. 840. Cf. Mc- Millan V. Maysville &c. E. Co., 15 B. Men. 218; s. C. 41 Am. Dec. 181; New Albany &c. E. Co. v. McCor- mick, 10 lud. 499; s. C. 71 Am. Dec, 337. , 2 Smith V. Tallahassee B. P. R. Co., 30 Ala. 650 ; People v.. Chambers, 43 Cal. 201; Mitchell v. Eome E. Co., 17 Ga. 574 ; Statara E; Co. v. Brune, 6, Gill, 41 ; "Van Allen u. Illinois Cent. E. Co., 7 Bosw, 515; Highland Turn- pike Co. V. McKean, 11 Johns. (N. Y.) 98; Milwaukee & N. I. E. Co. v. Field, 13 Wis. 340. 'Union Hotel Co. y. Hersee, 79 N. Y. 454; Penobscot &c. E. Co. v. Dunn, 39 Me. 5§7; Eidgefleld &u. E. Co. V. Brush,' 43 Conn. 86 ; Hanover Junction &c. E. Co, v. Haldeman, 83 Pa. St. 36 ; Philadelphia &c. E. Co. V. Hickman, 28 Pa. St. 318. * Union Hotel Co. v. Hersee, 79 N. Y. 454. 5 Morrow v. Nashville Iron & Steel Co., (1889) 87 Tenn. 363; s. C. 10 Am. St. Rep. 658. In this case the bonds agreed to be issued being secured by , mortgage on the plant, which could only be obtained by payment of the capital stock, and the subscriber having become a director without receiving ' his bonds, the agreement to issue bonds is not a condition precedent, and the stock subscribed stands absolute, though the agree- nient be void, 6 Beach on Eailways, § 109 ; Fort Edward &c. Plank Eoad Co. v. ,Payne, 15 N. Y. 583 ; Butternuts &c,. Turnpike Co. v. North, 1 Hill, 518; Macedon &c. Plank Eoad Co. v. Snediker, 18 Barb. 317. 7 Beach,, on Railways, g 109; Lake Ontario &c. R. Co. v. Curtiss, 80 N. Y. 219; Cayuga Lake E, Co. v. Kyle, 870 SUBSCEIPTIONS TO STOCK. [§ 538., scrlptions to the stock of railroad companies that the road j^o by a certaiji town are valid.' And it may be validly stipu- lated that the location shall be subject to the subscriber's approval.*' § 538. Secret and separate conditions.— In cases of sub- scriptions to the stock of corporations accompanied by a secret agreement between the company and the subscriber that the latter shall not be bound by his subscription, or changing in some other respects its ostensible terms, the collateral agree- ment is held to be void.' The courts hold the subscriber to the ostensible contract > and permit it to be enforced in an action b^' th6 company as the only means of preventing the consummation of the fraudulent scheme and protecting other 5 Thomp. & C. 659; Buffalo &c. E. Co. V. Pottle, 33 Barb. 21.- A«!. Eoberts v. Mobile &c. E. Co., 32 Miss, 373; Martin v. Pensacola &c. E. Co., 8 Fla. 370 ; Nashville &c. E. Co. v. Baker, 2 Coldw. 574; McMillan v. Maysville &c. E. Co., 15 B. Mon. 318: S. c. 61 Am. Dec. 181 ; Henderson «fcc. E. Co. V. Leavell, 18 B. Mon. 358 ; Charlotte &c. E. Co. v. Blakely, 3 Strobh. (S. C.) 245 ; Spartanburgh &c. E. Co. V. Graflfenried, 13 Eich. (S.\ C.) 275; Taggart v. Western Maryland E. Co., 24 Md. 563; Taylor V. Fletcher, 15 Md. 80;. Missouri Pacific Ey. Co. v. Taggard, 84 Mo. 364 ; Connecticut &c. E. Co. v. Baxter, 3i Vt. 805 ; Fisher v. BvansvjUe &c. E. Co., 7 Ind. 407; Agricultural &c. E. Co.f. Winchester, 13 Allen, 29; Caley V. Philadelphia &c. E. Co., 80 Pa. St. 363. Contra, Utica &c. E. Co. V. BrinkerhofE. 31 Wend. 139; B. 0. 61 Am. Deo. 320. 1 Jacks V. Helena, 41 Ark. 313; Moore V. Hanover Junction E. Co., 94 Pa. St. 334; Caley v. Philadelphia &c. E. Co., 80 Pa. St. 363; s. C. 80 Am. Deo. 570; Cumberland Valley E. Co. V. Baab, 9 Watts, 458 ; s. 0. 86 Am. Dec. 133; Woonsocket &c. R. Co. V. Sherman, SRI. 564 ; Paris &c. E, Co. V. Hendersc^n, 89 111. 86 ; Wear V. Jacksonville &o. E. Co. , 34 111. 595 ; Bucksport &c. E. Co. v. Brewer, 67 Me. 295; Jewett v. Lawrenceburgh &c. E. Co., 10 Ind. 539; Evansville &c. E. Co. V. Sharer, 10 Ind. 346; Detroit &c. E. Co. v. Starnes, 38 Mich. 698 ; Svyartout v. Miclvigan &c." E. Co., 24 Mich. 389; Cooper v. Mc- Kee, 53 Iowa, 239: Chamberlain v. Painesvill«'&c. E. Co., 15 Ohio St. 235 ; Mansfield &c. E. Co. v. Brown, 26 Ohio St. 323; Des Moines Valley E. Co. V. Graff, 27 Iowa, 99 ; Bur- lington &c. E. Co. V. Boestler, 15 lovvai 555; West Cornwall &c. Ry. Co. V. Mowatt, 15 Q. B. 531. - 2 Spartanburgh &c. R. Co. v. Graf- fenried, 13 Eich. (S. C.)27o; North &c. E. Co. D. Winkler, 29 Mo. 318; Chamberlain v. Painesville &c. R. Co., 15 Ohio St. 335; Mansfield &c.' R. Co. V. Stout, 36 Ohio St. 241; Mansfield &c. R. Co. v. Brown, 26 Ohio St. 234; Des Moines &c. R. Co. V. Graff, 37 Iowa, 99 ; Robert's Case, 3 De Gex & Sro. 205; s. C. 2 Mac. & G. 196 ; Beach on Eailways, § 109. 3 Meyer v. Blair, (1883) 109 N. Y. 600; S. C. 4 Am. St. Rep. 500. §538.]- SUBSCRIPTIONS TO STOCK. 871 subscribers and Creditors.* The doctrine that an agreement between one subscriber to the stock of a corporation and the company,' made concurrently with the making of the subscrip- tion, which purports to annul its obligation or materially limit and change the liability of the subscriber to the detriment of the company, is invalid and void, is founded upon the principle that a subscription to the stock of a corporation whose stock is open for general subscription, is not only an undertaking between each subscriber and the company, but between him and all other subscribers to the common enterprise; and that each subscriber has the right to suppose that the subscription of every other subscriber is a honafide undertaking according to its terms.^ Their respective suHjscriptions are contributions- or advances for a common object, /rhe action of each in his subscription may be supposed to be influenced by that of the others, and every subscription to be based on the ground that the others are what, upon their face, they purport to be.' So that where the condition is not secret and other subscribers are not thereby misled, it may be relied on by the subscriber, as valid,* except as against corporate creditors in the event of 1 Meyer v. Blair, (1888) 109 N. Y. wrote his name upon a blank sheet 600 ; S. C. 4 Am. St. Rep. 500, 503 ; of paper and the secretary of the White Mountains R. Co. i>. Eastman, compapy afterwards witliout his H4 N. H. 134;,Phcenix &c. Co. v. knowledge subscribed the name to Badger, 6 Hun, 293 ; s. o. aiHrmed an unconditional contract of| sub- 67 N. Y. 294 ; Graff v, Pittsburg &c. soription, it did not render the R. Co., 31 Pa. St. 489; Robinson w. subscriber liable upon the latter Pittsburg &c. R. Co., 33 Pa. St. 334; contract. Tonica &c. R. Co. v. s. C. 73 Am. Dec. . 793 ; Downie v. Stein, 21 111., 96. Cf. Bucher v. White, 10 Wis. 176; S. C. 78 Am. Dillsburg &c. R. Co., 76 Pa. St. 306. Dec. 736; Crawford v. Pittsburgh 2 Meyer v. Blair, (1888) 109 N. Y. &c. R. Co.,33Pa. St. 141. If persons 600; S. c. 4 Am. St. Rep. 500, 503, ; sign the subscription book of a cor- 504; Graff v. Pittsburgh &e. R. Co., • poration, leaving the amount blank, 81 Pa. St. 489 ; Miller v. Hanover intending that they shall be repre- Junction &c. R. Co., 87 Pa. St. 489; sented as subscribers for the purpose S. 0. 30 Am. Rep. 349; Melvin v.. of influencing others, as to creditors Lamar Ins. Co., 80 111. 446; s. c. 23 seeking to recover unpaid subsorip- Am. Rep. 199. tions, such persons impliedly au- " White Mountains R. Co. v. East- thorize the filling up of the blanks man, 34 N. H. 124. by those taking the subscriptions. * White Mountains E. Go. v. East- Jewell V. Rock Biver Paper Co., 101 man, 34 N. H. 124. One subscribed 111. 57. But where a person made a to bank stock on condition that at conditional parol subscription and the end of a certain period, if he 872 SUBSCEIPTIONS TO STOCK. [§ 539. the company becoming insolvent.* And there 'is nothing ille- gal in an agreement between the subscribers themselves that at the end of a j'ear the}' would take the shares off the hands of one of their number, if at that time he wished to sell, there being no actual fraud and the relations between that sub- scriber and the company being unaffected by his agreement with the other subscribers.^ If there be no evidence as to when the condition was made it will be presumed to have, been made at the time of subscribing.' It can not be Subsequently annexed without the consent of all the parties in interest.* The issuing by agreement of the stockholders of false certifi- cates of paid-up stock is no ground for one of the subscribers, a party to the agreeraenti to. have his subscription set aside.' , § 539. Performance of conditions. — The performance of conditions annexed to contracts of subscription being the con- sideration upon which they depend, the subscriber does not wished, he could return the stock, and, receive back the note he had given in paynient. The note con- tained the same stipulation, and the other stockholders thus having notice of the condition could not claim to have been deceived nor to be released from their contracts. Jones V. Johnson, (1888) 86 Ky. 530. And a written 'agreement separate from the contract of subscription, containing a covenant to return the money received if the road were not located along a certain route, has been held to be enforceable. Frank- fort &o. Turnj)ike Co.- v< Churchill, 6 Mon. 437. 1 Winston v. Brooks, (1889) 129 111. 64; s. c. 6 ^y.'& Corp. L. J. 150, where it was lield that one who subscribe? to the capital stock of a cbi'poration solely in order to enable it to obtain a certificate of organiza- tion, under an agreement with the other subscribers thathe is not to be liable on the stock, and is not to be required to pay assessments thereon, is Uot liable to an assessment on the stock as against the other subscrib- ei'S, until it becomes necessary to assess it in ordei- to pay debts of the. corporation. 2 Meyer v. Blair, (1888) 109 N. Y. 600 ; s. 0. 4 Am. St. Rep. 500. So in Morgan v. Struthers, (1889) 131 U. S. 246, it was held that an agreement by the incorporators of a cornpany to take the shares of one bf the sub- scribers, and refund his money if he should demand it within a fixed time, is valid, there being no design to deceive or defraud any one, though none of the subscriptions were to be paid in until the stock was all reliably subscribed, and the other subscribers neither made such an agreement as to their stock, nor were aware that the one in question was made. • 3 Robinson v. Pittsburgh &c. R. Co., 83 Pa. St.. 334; Wood's Ry. Law, §30. *New Hampshire Central R. Co. V. Johnson, 30 N. H. 390. 6 Gofi V. Hawkeye Pump & "Wind- mill Co., 63 Iowa, 691. § 539.] SUESCKIPTIONS TO STOCK. 873 become a member of the corporation nor liable to pay for his shares until the conditions have been fulfilled.^ A subscriber is entitled to notice of the performance of the condition, and until notice is given a general call does not apply to condi- tional subscribers.- All of several conditions must be per- formed before calls can be made ; ' but if one part of the subscription be free from condition it may be collected inde- pendently.* Whether the conditions have been fully per- 1 jrmed is a question of fact for the jur\',' the allegation of performance,^ and burden of proof being upon the company.' To bind the other party, the company must perform the con- ditions imposed within a reasonable time.^ Upon its so doing ' Montpelier &c. R. Co. v. Lang- don, 46 Vt. 384; Philadelphia &c. R. Co. V. Hickman, 38 Pa. St. 318; Monadnook R. Co. v. Felt, 53 N. H. 379 ; Ashtabula &c. R. Co. v. Smith, 15 Ohio' St. 338 ; Burrows v. Smith, 10 N. Y. 550; Chase v. Sycamore &c. R. Co., 38111. 315; McMillan v. Maysville &c. R. Co., 15 B. Mon., 318; s. c. 61 Am. Dec. 181; Evans- ville &c. R. Co. V. Shearer, 10 Ind. 344. 2 Chase v. Sycamore &o. ,R. Co., 38 111. 315. Contra, Spartanburg &o. R. Co. V. De Graffenreid, 13 Rich. 375 ; Nichols v. Burlington &c. R. Co., 4 Greene, 43^ 3 Porter v. Raymund, 53 N. H. 519. ^St. Louis &c. R. Co. V. Eakins, 30 Iowa, 379. 5 St. Iiouis &c. R. Co. u. Eakins, 30 Iowa; 279 ; .Toledo &c. R.' Co. v. Johnson, 49 Mich. 148; Jewett v, Lawrenceburg &c. R. Co., 10 Ind. 539. But see Brand v. Lawrence- Tille Branch E. Co., (1888) 77 Ga. 506, where it was held to be for the court to decide whether a condition that a certain contract should be made, had been fulfilled by an a°;ree- ment in writing which was alleged to be a compliance therewith. Per- formance may be proven by parol, ' (St. Louis , per Collier, O. J., chine Co. v. Davis, (1889) 40 Minn, citing Tipton v. Sehna & T. R. Co., 110; S. a 13 Am. St. Rep. 701; Con- 5 Ala. 787. neoticut & P. Rivers E'. Co. v. Bai- * Melvin v. Lamar Ins. Co., 80 111. 878 ' - StTESCEIPTIONS TO STOCK. [§.544, value of his stock,' or that the subscriber shall be released, or that the stock may be surrendered, are invalid.^ Thus, if one subscribe foi" the capital stock of a corporation under a parol promise by the agent who ^procures the subscription that the subscriber shall not be called upon to pay for the stock or re- spond to any assessment, he is nevertheless bound.' And again, an agreement entered into between prospective sub- scribers to the capital stock of a cor]k)ration, that they alone shall take the stock in the company when organized, is a con- tract which can not be enforced.^ §544. Irregular subscriptions — Tariation from statu- tory form* — The intention to subscribe is a question of fact for the jury." When the statute does not prescribe a fixed njode of making a subscription to the capital stock of a cor- poration, any contract of subscription, which is good at com- mon law, is valid under the statute.* The courts look to the intention of the contracting parties rather than to the man- ner in which that intention is manifested.' If the manner of 446; White Mountains R. Co. v. B. H. & E. Mach. Co., 12 Allen, 273; Eastman, 34 N. H. 134. Sewall v. Eastern R. Co., 19 Cush. 1 Union Mut. Life Ins. Co. v. Frear 5; Carlisle v. Saginaw Valley & St. Stone Manuf. Co.; 97 111. 897; Custar L. R. Co., 27 Mich. 315; Dayton W. V. Titusville Gas & Water Co., 63 B. & X. Tuj-npikfe Co. v. Coy, 13 Pa. St. 381; Upton v. Tribilcock, 91 Ohio St. 84; Strasburg R. Co. v. U. S. 45. Echternacht, 21 Pa. St. 220 ; Pitts- 2 Gill V. Baliss, 72 Mo. 424; Mel- burgh &S. R.Cb.v. Gazzam, 32 Pa. vin V. Lamar Ins. Co., 80 111. 446; St. 340; Charlotte & S, C. R. Co. v. White Mountains R. Co.-?). East- Blakely, 3 Strobh. 245 ; Wallingford man, 34 N. H. 124; " Subscriptions .Manuf. Co. v- Fox, 12 Vt. 304. to the Capital Stock of Corpora- * Philadelphia &c. R. Co. v, Cow- tions," by James M. Kerr, (1889) 6 ell, 28 Pa. St. 329; s. c. 70 Am. De'. Ry. & Corp. L. J. 422. 128; Galveston &o. Co. u. Bolton, 46 3.Chouteau Ins. Co. v. Floyd, 74 Texas, 683. Mo. 286. 6 Buffalo & Jamestown R. Co. v. * Lake- Ontario Shore R. Co. v. Gifford, 87 N. Y. 294. Curtiss, 80 N. T. 219 ; Poughkeepsie ' Dutchess &c. R. Co, v. Mabbett, 58 & S. P. Plank Road Co. v. Griffin, 24 N. Y. 379 ; Boston &c. R, Co. «. Well- N. Y. 150; California Sugar Manuf. ington, 113 Mass. 79; Pry v. Lexing- Co'. «;.' Schafer, 67 Cal. 396; Stowe ton .&c. R. Co,, 2 Met. (Ky.) 314; V. Flagg,. 72 111. 397; Chase v. Syca- Mexican Gulf &c. R. Co. v. Viavant, 6 more & C. R. Co., 38 111. 215; Mt. Rob. (La.) 303; Olerv. Baltimore &o. Sterling Coalroad Co. v. Little, 14 R. Co., 41 Md. 588; Wellersjaurg <&c. Bush, 429; Goff v. Winchester Col- Co. v. Young, 13 Md. 476; Cakes v. lege, 6 Bush, 443; Perkins v. Union Turquand, L. E. 3 H. L. 835. § 544.J SUBSOKIPTIONS TO STOCK. 879 making subscriptions is prescribed by the charter or general incorporating act, every material mandatory provision thereof must be substantially complied with, to effect a complete con- tract binding upon the parties.' But all that is required is a substantial honafide compliance with the statute.^ Where the paper as a whole clearly indicates what was the intention of the parties, many irregularities and defects are held to be im- material, and the contract will not be rendered void by reason of these slight departures from the statutory form.^ For example, subscriptions upon separate sheets of paper, or in private memorandum books, instead of in the book which the statute provides for, have been held to be valid and binding.'' 1 Dutchess &o. R. Co. v. Mabbett, 58 N. y. 379; Troy &c. R. Co. v. Tibbits, 18 Barb. 297; Troy &c. R. Co. V. Warren, 18 Barb. 310; Pitta- burgh &c. R. Co. V. Gazzam, 33 Pa. St. '340; Carlisle v. Saginaw &c. R. Co., 27 Mich. 315. AVoodruff V. McDonald, 33 Ark. 97, the loose sheets were afterwards bound together in a volume and made a part of the records of the company. Aac. Troy &c. R. Co. v. Tibbitts, 18 Barb. 297; Troy &c. R. Co. V. "Warren, 18 Barb! 310; Pough- 2 Buffalo &c. R. Co. v. Qifflord, 87 keepsie & Salt Point R. Co. v. Griffin", N. Y. 294; Ashtabula &c. R. Co. v. 34 N. Y. 150; /n re Dutchess & Smith, 15 Ohio St. 338; People v. Columbia Co. R. Co., 58 N. Y. 397; Stockton &c. R. Co., 45 Cal. 306; Ashtabula &c. R. .Co. v. 'Smith, 15 Harris v. McGregor, 39 Cal. 134; Ohio St. 328 ; Iowa &c. R. Co. ■«. Per- Brownlee v. Ohio &c. R. Co., 18 Ind. 68. 3 Peninsular &c. R. Co. v. Duncan, 28 Mich. 130; Birmingham &c. R. kins, 28 Iowa, 281. C/. Hawley v. Upton, 103 U. S. 314; Bucher v. Dillsbury &c. R. Co., 76 Pa. St. 306; " Subscriptions to the Capital Stock Co. V. Locke, I Q. B. 256 ; London of Corporations," by James M. Kerr, &c. Ry. Co. V. Fairclough, 3 Man. (1889) 6 Ry. & Corp, L. J. 423. But & G. 674. , it is said by the United States circuit < Iowa & M. R. Co. V. Perkins, 28 court in the case of McClelland v. Iowa, 281 ; Mexican Gulf R. Co. v. Whiteley, 11 Biss. C. C. 444; s. C. 15 Viavant, 6 Rob, (La.) 305 ; Ashtabula Fed. Rep. 323, that one can not be & N. L. R. Co. V. Smith, 15 Ohio St. held liable as a stockholder of a com- 328; Hamilton & D. P. R. Co. v. Rice, 7 Barb. 157; Clark v. Conti- pany, until his name has been signed by himself, or his authorized agent, nental Improvement Co., 57 Ind. in the book of the company kept 135; Boston B. & G. R. Co. v. Well- for that purpose; and that writing ington, 113 Mass. 79; St. Charles one's name in a private memoran- Manuf. Co. v. Britton, 2 Mo. App. dum book of a party soliciting Bub- 290; Clements v. Todd, 1 Ex. 268; sCriptions to the capital stock of the Brownlee v. Ohio L & I. R. Co., 18 company, is not of itself authority to Ind. 68; Buffalo & J. R. Co. v. that person to sign a subscription for Giflord, 87 N. ,Y. 294; Stuart v. shares. Valley R. Cp., 82 Gratt. 146. In 880 S0BSOEIPTION3 TO STOCK. [§ 545. Whpre duplicate sets of articles are used for the purpose of obtaining subscriptions, and only one set is properly filed in the office of the Secretary of State, the subscribers to the paper not so filed, do not become members of the corporation, and are not liable on their subscriptions.' Where the statute requires the termini of railways to be stated in the articles of association, the incorrect designation of them will not vitiate the contract, provided the road be otherwise sufficiently de- scribed.- It is essential that an irregularly made subscription be accepted by the company.^ § 545. Waiver of irregularities. — While a subscription should be in writing and in accordance with the statutory form, if one be prescribed, there are nevertheless many cases in which the liabilities incident to a regularly made subscrip- tion have been imposed by implication of law.* Thus serving as a director of a company is an implied subscription for the necessary qualification shares." So, too, accepting and hold- ing certificates-of stock,^ and selling or transferring the shares,' 1 Erie & N. Y. City R. Co. v. Owen, 33 Barb. 616. 2 Cayuga &c. R. Co. v. Kyle, 64 N. Y. 185; Bbston &c. R. Co. v. Well- ington, 113 Mass. 79; Burlington &c. R. Co. V. Palmer, 43 Iowa, 333. 3 Parker v. Northern &o. R. Co., 33 Mich. 23. < Philadelphia &c. R. Co. v. Cow- ell, 38 Pa. St. 339: s. c. 70 Am. Dec. 128; Wheeler v. Millar, 90 N. Y. 353; Phoenix &c. Co. v. Badger, 67 N. Y. 294; S. C. 6 Hun, 5i93; Dorris v. French, 4 Hun, 293 ; Hamilton &c. Co. V. Rice, 7 Barb. 159; Kansas City Hotel Co.u. Hunt, 57 Mo. 136; Upton v. Tribilcock, 91 U. S. 45; Sanger v. Upton, 91 U. S. 56; Chel- tenham &c. Ry. Co. V. Daniell, 2 Q. B. 781 ; Cromford &c, Ry. Co. v. Lacey, 3 Younge & J. 80. 6 In re Englefleld Colliery Co., 8 Ch. Div. 388; De Ruvigne's Case, 5 Ch. Div. 806, 323; Pearson*s Case, 5 Ch. Div. 836; McCoy's Case, 3 Ch. Div. 1 ; Portal v. Emmens, 1 C. P. Div. 201, 664; Hay's Case',, L. R. 10 Ch. 393; Luke's Case, L. R. 6 Ch. 469. The mere publication, how- ever, of a person's name as one of a board of directors, without his as- sent and without his participating in the management of the affairs of the corporation, does not estop him ,to deny that he is a shareholder in .an action against him by creditors of the corporation. Hume v. Commer- cial Bank, 9 Lea, 728. « Hamilton &c. Co. v. Rice, 7 Barb. JQ7; Lane v. Brainard, 30 Conn. 565; Upton V. Tribilcock, 91 U. S. 45; In re South Mountain &c. R. Co., 7 Sawy. 30; McLottghlin v. Detroit &«. R. Co., 8 Mich. 100; Inter- Mountain &c. Co. t;. Jack, 5 Mont- 568. Cf. Clarke v. Continental &c. Co., 67 Ind. 135, 138. 'Everhart v, Westchester &c. R. Co., 38 Pa, St. 339, where no cash deposit had been made. § 546.] SUBSCEIPTIONS TO STOCK. 881 attending and voting at corporate meetings, either in person or b3' proxy ,1 paying calls ^ or paying for one of the shares irregularly taken,^ accepting dividends * or acting as a director,' operate to estop a person from denying the regularity and validity of an alleged subscription.* And in general any de- fense to the subscriber's liability may be considered as waived by acquiescence or delay after discovery of the facts,' or by any act indicating a clear intent to abide by the contract or to pass over an objection thereto which might have been made.^ § 546. Effect of legislation upon subscription agreements. Non-essential irregularities in the subscription may be cured by legislative enactment.' The extension by the legislature of the time allowed by a railroad company's charter in which 1 Duffield V. Barnum &c. Co., (1887) 64 Mich. 393; Erie &c. Plank Road V. Brown, 25 Pa. St. 156 ; Buffalo &c. R. Co. V. Gifford, 87 N. Y. 294 ; Rock- ville &c. Co. V. Van Ness, 2 Cranch, C. C. 449. But see Stewart's Case, L. R. 1 Ch. App. 574; McCuUy v. Pittsburg &o. R. Co., 32 Pa. St. 25. ^Maltby v. Northwestern &c. R. Co., 16 Md. 422; Mississippi &c. R. Co. V. Harris, 36 Miss. 17; Inter- Mountain Publishing Co. v. Jack, 5 Mont. 568. 3 Bell's Appeal, (1887) 115 Pa. Bt. 88. 4 Duffield V. Barnum &c. Co. , (1887) 64 Mich. 293. Contra, Philadelphia &c. R. Co. V. Cowell, 28 Pa. St. 329 ; s. 0. 70 Am. Dec. 128, where de- manding a dividend was not consid- ered a waiver. 5 Weinman v. Wilkinsburgh &o. Ry. Co., (18^8) 118 Pa. St. 193; Rice V. Rock Island &c. R. Co., 21 111. 93; Hunt V. Kansas &c. Co., 11 Kan. 413 ; Meadow v. Gray, 30 Me. 547. . 6 But see Stewart's Case, Li R. 1 Oh. App. 574, where inerely attend- ing meeting, and Philadelphia R. Co. V. Cowell, 28 Pa. St. 839, where demanding a dividend, and G^'een- ville &c. R. Cq, 'V. Coleman, 5 Ricb,N 5S L. 118, and McCuUy v. Pittsburgh &c.,R. Co., 32 Pa. St. 35, where vot- ing by proxy, were not considered acts sufficient to amount to a waiver. 7 Cf. Schwanck v. Morris, 7 Rob. (N. Y.) 658; State v. Jefferson Turnpike Co., 8 Humph. (Tenn.) 305 ; City Bank ■w. Bartlett, 71 Ga. 797; Sharpley v. Louth &c. Ry. Co., 3 Ch. Div. 663; Ehrlanger v. Sombrero &c. Co., 8 App. Cas. 1318; Peel's Case, L. R. 2 Ch. App. 674; Ashley's Case, L. R. 9 Eq. Cas. 363; Heyman v. European Central Ry. Co., L. R. 7 Eq. Cas. 154i 8 Chubb V. Upton, 95 U.. S. 665; Ogilvie V. Knox Insurance Co., 23 Hun, 880 ; City Bank v. Bartlett, 71 Ga. 797 ; Chaffin v. Cummings, 87 Me. 76 ; Ex parte Briggs, L. E. 1 Eq, Gas. 486; Scholey v. Central Ry. Co., L. R. 9 Eq. 366, n. ; Ayres' Case, 25 Beav. 513; May v, Memphis Branch R., 48 Ga., 109; McCuUy v. Pitts- burgh &c. R. Co., 32 Pa. St. 25. 9 Rice V. Rock Island &c. R. Co., 21 111. 93; Clark v. Monongahela Navigation, Co., 10 Watts,, 364. Con- ■ tra. New York &c. R. Co. v. Van Horn, 57 N. Y. 473; Richmond &c. Co. V. Clarke, 61 Me. 351. SUBSCEIPTIONS VO STOCK. [§ SM. to build t'hS road Will hot I'elease the subsoinbers to stock.^ Where at the time a contract of subscription was made under an agiPeement that, payment should be made in property, the -laws of the State permittedi contracts of that character, but subsequently^ before the organization of the company, a change in the code of the State required paytnents of subscriptions to be made in money, it was held that the subscription, not having been accepted by the company before it had become illegal, could not be enforced.^ But a statute in respect of subscriptions to the stock of companies, not prescribing the form in which they shall be made, does hot invalidate a con- tract of that character which would be valid at common law.' A'subsequent reduction of the capital stock by the legislature to the amount actually subscribed can hot relieve prior sub- scriptions froni the implied condition that the full amount originally fixed be taken.* 'The legislature may impart validity to a municipal subscription made without its authority, pro- vided it would have had power in the first instance to author- ize it,* unless special remedial legislation of this character be prohibited by the constitution of the State.* 1 Jacks V, Helena, 41 Ark. 313. ing effect to its ratification of the 2 Knox V. Childersburg Land Co., action of the town, and holding its (166^9) 86 Ala. 180. consent thus expressed efffectuaU" 3 Buflalo & Jamestown R. Co. v. Ao&, Williams v. Duanesburgh, 66 Gifford, 87 N. Y. 294. N, Y. 189; People v. Mitchell, 35 *■ Oldtown &c. B. Oo. v. Veazie* 39 N* Y. 533' GelpeBke ». Dubuque, 1 Me. 571. Wall. 253; Dows v. Town of Elnl^ 5 Grenada County «. Brogden, 112 wood, 84 Fed, Bep-. 114; Leslie 'v. U. S. 2i61 ; Anderson v. Santa Annav Urbana, 3 Biss. 485 ; Duanesburgh lie U. S. 365; Thompsott v. Petrine, v. Jeinkins, 57 N. Y. 188, restricting 106 U. S. 589; National Bank V. People t>. Batehellor^ 53 N. Y. 131, Yankton Cos, 101 U. S. 129; Thiamp- to the eircttmstances of that partieu' soil V. Lee County, 3 Wall. 377; Be- larcase. Of. Hays v. Holly Springs, loit V. Morgan, 7 Wall. 619; St., 114 U, S. 120; Bolles v. Town of Joseph V. Eogefs, 16 Wall. 663; Brimfield, 130 U. S. 759. Theddcis-' CbopCfr J). Thompson, 18 Blatchfi 434; ions ifa the United States SupreOie Perrine v. Thompsbn, 17 Blatclif . 18 ; Court to the contrary, (see Elmwood Horton V. Thompson, 7 Hun, 452 ; v. Morey, 92 U. S. 389) do not express Rogers t>. Smith, 5 Hiih, 475 ; Du- the prevailing doctrine of the court, anesburgh v. Jenkins, 57 N. Y. 188, but simply follow the dfeoisions of whete the court said : "As it might the appellate court in the State in hdv6 authorized action in this way which the case arose. 'Wood's Rail- and on these dohditions by the town way Law, § 113, note, originally, I see no objection to giv- ^Horton B.Thoitipson,71 N. Y, 520; §§ 54:1, 548.] STJBSCEIPTIOSS TO STOOK. 88^ § 5 lY. Effect of consolidation. — A consolidation of one cor- poration with another releases dissenting subscribers who agreed to take shares at a time when consolidation was not authorized either by the charters of the companies or by some existing statute, and it is immaterial that the union may be authorized by a subsequent amendment of the charters or by a statute thereafter enacted,^ The fact that the consoli- dated company bears the same name as the original company does mot change this rule.^ Even though consolidation may have been authorized at the time the subscription contract was made, a dissenting subscriber can not be held liable thereon, if the effect of the consolidation is to work a material alteration in the original purpose for which the company was formed.' It is not necessarj' that the subscribers' consent be expressly given. It may be presumed from such acts as tak- ing stock in the new corporation formed by the consolidation.* B}'^ a converse rule to the general doctrine^ the consolidated company can not release a subscriber to one of the original companies from his liability to corporate creditors by acqui- escing in a |devise whereby he seeks to evade it.^ § 548. Failure of consideration. — If a subscription be in- duced by promises on the part of the corporation which it fails to fulfil, the contract is not enforceable, since there is held to be a failure of consideration.* Thus where a railway Gaddis v. Richland County, 92 111. Hanna V. Cincinnati &c, E. Co:, 20 114; William v. Eobferts, 88 III. 11; Ind. 30; Sprague v. Illinois River R. Marshall v. Selliman, 61 111. 218; Co., 19 111. 174; Bishop IJ. Brainerd, Richland County v. People, 3 Brad*r. 28 Conn. 289. Of. Mansfield &o. R. 210. Co. V. Stout, 26 Ohio St. 241 ; Illinois 1 lUinois &c. R. Co. v. Cook, 29 111. River R. Co. v. Zimmer', 20 III. 654. 237; Laurhan V. Lebanon Val. R. 2 Shelby ville &o. Co. u Barnes, 42 Co., 30 Pa. St. 42; Gardner v. Ham- iJid. 498. ilton, 33 N. Y. 421; Midland &c. Ry. s Illinois Grand Trunk R. Co, v. V. Leech, 3 H. L. 872 ; Cook &c. R. Cook, 29 III. 237. Co. V. Paterson, 18 C. B. 414; Shel- * Fisher v. Evansville &c. R. Co., 7 byville &c. Turnpike Co. ii. Barnes, Iiid. 407. 42 Ind. 498 ; State v. Bailey, 16 Ind. ^ Bouton v. Dement, {l687) 123 111. 46 ; s. C. 79 Am. Dec. 405 ; Hai-shman 142. V. Bates County, 92 U. S. 569 ; Martin « Burrows v. Smith, 10 N. T. 550. V. Junction R. Co., 12 Ind. 605; Of. Kennedy v. Panama &(5. Co., McCray v. Junction R. Co., 9 Ind. L. R. 2 Q. B. 580. 856; Bish v. Johnson, 21 Ind. 299; 884 SUBSOEIPTIONS TO STOCK. [§ 549. company,, by a promise of collateral securities, induced a party to subscribe to a road it proposed to build, and, after part payment on the su,bscription, placed the collaterals beyond the reach of the subscribers, in violation of the original agree- ment, he was declared relieved from his obligations.' § 549. Withdrawal and abandonment.— A subscriber who for a long period has failed to pay his subscription or to ex- ercise the rights of a member of the company, may be treated by it as having abandoned his connection therewith.^ But it is seldom that the company takes the initiative in the cancel- lation of subscriptions. It is generally the subscriber who seeks to sever his relations with the corporation; and it has been said that he may do. this at any time before the organiza- tion of the company has been completed.' Thus prior to the 1 Reusenec. Mexican National Con- struction Co., 33 Fed. Rep. 533. "Perkins v. Union &c. Co., 13 Allen, 273. Cf. Evans v. Small- combe, L. R. 3 H. L. 349. La. Civil Code,, art. 3506, (3472,) declajring that three years' possession in good faith of a movable — .which corpo- rate stock is declared to be, Civil Code, art. 474, (466) — is sufficient to give good title, does not apply to a suit brought by a stockholder against a corporation to compel it to replace in his name certain shares of stock alleged to have been negligently canceled, and the certificates there- for unlawfully issued to a third per- son ,-\ the defendant in such case never having been in possession of the stock. St. Romes v. Levee Steam Cotton-Press Co., (1888) 127 U. S. 614. 3 GafE V. Flescher, 33 Ohio St. 107; Garrett u.'Dillsburg & M. R. Co., 78 Pa. St. 465 ; Holt v. Winfield Bank, 25 Fed. Rep. 812; Cook v. Chitten- den Bank, 25 Fed. kep. 544. See Rose V. San Antonio & M. G. R. Co., 31 Tex. 49;- Tillsonburg R. Co. v. Goodrich, 8 Ont. Q. B. Div. 565. Where one signs a , subscription paper, entirely misunderstanding the nature of the agreement, he may obtain release from the obligations thereby incurred. County of Schuyl- kill V. Copley, 67 Pa. St. 386 ; Smith V. Reese &c. Co., L. R. 2 Eq. 264. Cf. Rockford &o. R. Co. v. Schunick, 65 111, 323. One induced to sub- scribe through fraud may upon dis- covery thereof recover money paid by. him on his subscription in an ac- tion for money had and received. Atkinson v. Pocock, 13 Jur. 60; Woutner v. Shairp. 4 C. B. 404; Jar- rett V. Kennedy, 6 0. B. 319. Or the suhscriber may wait'until an action at law has been brought against him by the corporation to enforce pay- ment of his subscription and then set up by way of defense any valid cause for the illegality of the con- tract; or he may file his bill in equity to restrain such suit at law and to set aside the contract and to re- cover back payments ; or, where his defense is founded upon fraud, he has also his action for damages against the parties making the misrepresen- tations. Paddock v, Fletcher, 42 Vt. § 549.] SUBSCEIPTIONS TO STOCK. 885 date of filing of the certificate from which the incorporation of the company dates under the New York General Eailroad Act of 1850, a promoter who, retains possession thereof may erase or alter his subscription thereto notwithstanding his having induced others to subscribe.^ But the better opinion is thought to be that in those cases where a subscription is made with full knowledge of the purpose and scope of the undertak- ing, and has been acted upon either by the corporation, or by other subscribers, it is irrevocable.^ Accordingly, the consent of all the other subscribers is necessary to effect a valid can- cellation of a subscription contract;' and in America, if the affairs of the companj'^ have become involved, the consent of creditors, whose equities have intervened, is also requisite to 'render the cancellation valid.* This rule grows out of the American doctrine that the subscriptions are a trust fund for the security of corporate creditors and does not prevail in England. Accordingly, in that country, the consent of the com- pany alone is required.'' While the directors have authority 1 Beach on Eailways, § 129, citing Burt V. Farrar, 24 Barb. 518. 2 See New Albany & S. R. Co. v. McCormick, 10 Ind. 499 ; Hughes v. AntietamM. Co., 34 Md. 316; Hutch- ins v: Smith, 46 Barb. 235; Gulf, C. & S. F. E. Co. V. Neely, 64 Tex. 344; Kidwelly Canal Co. v. Baby, 2 Price, 93. But see Payson v. With- ers; 5 Biss. 269, holding that the subscriber can not plead that he was ignorant of the true condition of the affairs of the corporation. 3 Eobinson v. Pittsburgh &c. R. Co., 32 Pa. St. 3U; s. C. 72 Am. Dec. 772; Zirkel v. Joliet &c. Co., 79 111. 884; Ryder v'. Alton &c. E. Co., 13 m. 516; White Mountains E. Co. v. Eastman, 84 N. H. 124; Jewett v. Valley Ey. Co., 34 Ohio St. 601; Burke v. Smith, 16 Wall. 390 ; New Albany v. Burke, 11 Wall. 96; Bed- ford E. Co. V. Bowser, 48 Pa. St. 29. Thus a receiver can not compromise subscriptions except by leave of court when all the stockholders are parties to the action. Chandler v. Brown, 77 111. 833. Of. Pearson's Case, L. R. 7 Ch. 309. In a Pann- sylvania case the defendant had been active in soliciting subscriptions for the building of a railroad, having taken a book frorh its agent, sub- scribed therein himself and persuaded others .to subsoiibe, and after 'leep- ing the book for about six months, by reason of a disagreement with the company's agent about the pay- ment for his services, cut his name , out of it and returned it to the com- pany, and it was held that he could not thus cancel his contract but was liable for the amount of his subscrip- tion. Green v. Chartiers Ey. Co., 96 Pa. St. 391; s. C. 42 Am. Eep. 548, Ace. Railroad'Co. v. White, 10 S. C. 155. Cf. Jewett v. Valley R. Co., 34 Ohio St. 601. i CofSn V. Ransdell, (1887) 110 Ind. 417. 5 Jji re Droufleld &c. Co., 17 Ch. Div. 76. 886 SUBSCEIPTIONS TQ STOCK. [§§ 5^0, 551. to compromise claims based upon subscription contracts where it is doubtful whether ajny beneflt would accrue to the com- pany from attempting. to enforce theni by legal proceedings,* this power of compromise must not he extended to cancel, a contract which the company could clearly enforce.^ And whatever be the general powers of the directors in respect of the corporate affairs, they can not cancel these contracts un- less authority to do so be expressly conferred upon them.' If they do so, they incur personal liability to the company for their unauthori?ed act.* § 550. Substitution of subscribers.— It seems that the substitution of one subscriber to the capital stock of a corpora,- tion for another subscriber therefor, can only be accomplished by the erasure of the name of the original subscriber, with the consent of the commissioners, and the substitution of an- other name.' Otherwise the corporation is not bound to rec- ognize the new party or to issue a certificate of stock to him.'. §551. Specific performance — Damages. — As has been said above, the possession of a stock certificate is not neces- 1 Philadelphia &c. B. Co. v. Hict- 390; Thomas' Case, L. R. 13 Eq. 474; man, 28 Pa. St. 318. Thus -where a Teasdale's Case, L. E. 9 Ch. 54; subscriber for two hundred shares Wright's Case, L. R. 12 Eq. 334; agrees with the directors to pay for Colville's Ca'se, 48 L. J. Ch. 633. one hundred, and be released from ^Bank u. St. John, 35 Ala. 566; further liability, and thereafter the Hodgkinson v. National Co., 26 company voluntarily dissolves, and Beav. 473. ^ new one takes its place, which sgeimg, & T. R. Co. v. Tipton, 5 linder a provision allowing holder? Ala. 787; Ryder v. Alton & S. R. Co., of paidrup stoQk in the old company 18 111. 516. See Hawley v. Upton, the .same number of sh9,res in the 102 U. S. 314; " Subscriptions to the new, credits the subscriber on its Capital Stock of Corporations," by subscription list with one hundred James M. Kerr, (1889) 6 Ry. & Corp. shares paid up, the new company's L. J. 433, gtoc^jholders are estopped to attack * Hawkins v. Mansfield G. Min. the original compromise. Whitakei; Co., 53 Cal. 513; Morrison v. Gold V. Grummond, (1888) 68 Miph, 349; Mountain G. M. Co., 53 Cal. 306; S. C. 70 Mich. 635. Coleman v. Spencer, 5 Blackf. (Ind.) 8 Adam's Case, L. E, 13 Eq. 474. 197. C/. Chater v. San Francisco 3 Robinson v. Pittsburgh &c. R. 8. F. Co., 19 Cal. 219; Baltimore City Co., 33 Pa. St. 334; S. 0.73 Am. Dec. P. R. Co. v. Sewell, 35 Md. 238; 773; In re Dronfield &c. Co., 17 Ch. State v. Crescent City G. L. Co., 24 I)iv. 76 ; Richmond's Case, 4 Kay & La. Ann. 318 ; Hunt d. Gunn, 13 J. 305; Burke v. Smith, 16 "Wall. C. B. (N. S.) 326; Tempest V. Kilner, § §51.] SUBSflEIPTIONS TO STOOg.. - 887 aary to thp ownersihip of shares;! but if the company refuse \vitJiout just cause to issue a certificate to a subscriber who, while the corporation is still a going concern, tenders the amount due and demands the certificate, he will be thereby released from iiabiiity upon his contract^ even as against cor- porate creditors.^ It is conceivable, however, that the sub- scriber may not desire to be released from his contract, that the enterprise may have proven successful and that he may seek specific performance of the contract on the part of the company,' or damages for his exclusion from the benefits re- sulting from the successful prosecution of the business. There are circumstances under which a bill in equity to enforce spe- cific performance of the contract will be sustained ; * but where . an allotment of stock has been disregar4ed by the company and the share? issued to different persons, the original allottees 3 C. B. 349. Of. " Purchase of Chance of an Allotment of Shares," 17 Co. Ct. Chr. 77. 1 Vide cases cited supra, § 63 ; and ^Iso New Albany &c. R. - Co. v. McCormicb, 10 Ind. 499 ; s, C. 71 Am. Dec. 337, u?, Buffalo &o. E,. Co. v. Dudley, 14 N, Y. 336, 347; Mitchell V. Beckman, 64 Cal. 117. But see York V. Passaic Rolling Mill Co., (1887) 30 E^ed.Rep. 471, where t^e defendant company having drawn up a certificate of stock to plaintiff, which it retained in the stock-book, and indorsed thereon a receipt by defendant for plaintiff, it was held that the certificate was never deliv- ered so as to confer any rights there- under on plaintiff. 2 Potts V. Wallace, 83 Fed. Rep. 273. Under the eighth section of the Mo. Act of 1§51, p. 368, am^ndT atory of the special act of the Mis- souri legislature of Marcji, 1849, incorporating the Missouri Pacific Railroad, which provides that, when paj'ment for the shares of any sub- scriber shall be fully majde, the pres- ident, etc., shall deliver certificates for the amount of stock belonging to him, no certificates can be demanded by a subscriber until the whole spb- soription is paid. Spurlock v. Mis- souri Pac, Ry. Co., (1887) 90 Mo. 199. 3 As to measure of damages, in such cases, see Van Allen v. Illinois &^. Dallam, 4 Dana, 574. S. C. 53 Am. Dec. 412. A purchaser ^ Duffield v. Barnum Wire & Iron of preferred stock issued without ex- Works, (1887) 64 Mich. 293. press statutory authority, who vol- * McDermott v. Harrison, (1890) untariiy subscribed and paid for it & N. Y. Supl. 184. for the purpose of jpromoting the 894 STTBSCEIPTIONS TO STOCK. [§ 65i. been obtained by false representations, and a resolution is passed bj the board of directors cancelling the subscription, and under the resolution the subscribers return to the com- p&.ny tbeir stock certificates, four years' acquiescence by the corpdi-atioh in the action of the board operates as a ratifica- tion thereof, even though it was ultra vires} The statute of limitations does hot begin to run against the creditors' right to object to an issuie of stock below par until they have brought suit against the corporation upon the debts owing them and have recovered judgment.^ A subscriber who has availed himself of the statute, even as to a part of his sub- scription, can hot, without payment, claim a certificate of ^tock; for the statute of limitations, althotigh it bars the remedy, does not pay the debtl' The "Wisconsin statute, which prohibits any action frohi being maintained against a corpo- ration after its dissolution, or against its stockholders after the expiration of three years from the date of an assignment made by it for the benefit of creditors, is limited to cases ■vVhere the corporation expires by its own limitation, or is dis- solved voluntai"iiy, av is annulled by forfeiture or otherwise, and does not appl}' to cases whete the corporation has simply ceased to do business for want of funds.* § 554. The same subject continued — The Glenn Cases.— It has bieen held that where an insolvent corporatioh ceases to do business and assigns all its propetty, including unpaid stock subscriptions, the liability of its stoeikholders at once becomes absolute, and the statute of limitations begins to run in. their favor.' But it is held ' in Georgia that the statute does npt begin to run against the assignee until a call has been made by him, either under a power conferred upon him in the deed of assignment or under a decree of a court of equity.^ The 1 McDermott v. Harrisonj (1890) 9 6 Glenn v. Dorsheimer, 23 Fed, N. y. Supl. 184. Rep. 695, per Brewer, J. 2 Christensen »i Quintard, 36 Hun, 6 Glenn w. Howard, (1889) 8i Ga^ 334. 383; s. c. 12 Am. St. Rep.i818, where 3 Johnson V. Albany &c. R; Co. , 54 commenting upon Judge Brewer's N. Y^ 416, 436. decision in the case above cit^d, the * Sleeper Vi Goodwin, (1687) 67 court said: "This is the only decision Wis. 579, construing WIS; Rev. Stat to the contrary that we have been of 1878, § 1764. able to find directly upon the, ques» § 554.] SUBSOKIFTIONS TO STOCK. 895 supreme court of Virginia, in a similar suit, involving the same question, held that the statute did not begin to run uijtil after the call was made under the decree above referred t6} The supreme court of Maryland, when the question came before it, , held to the same effect.^ The supreme court of Alabama, in a case involving the same question, likewise held that the statute of limitations did not begin to run until the call was made.' tion. Other cases have been referred to by leariled counsel who argued the case, whidh sieem to look In that direction ; and I must say for myself that there is a great deal of reason in favor of the decision Of Judge Brewer ; but the weight of authority is unquestionably against the ruling of the court below in this case." In a suit brought by a stockholder, against the corporation, seeking an injunction to prevent waste, and asking for a receiver, a receiver was appointed, and the order contained these words : ' ' And, ii there shall be any sums due upon the sharfes of the capital stock of said company, the said receiver will proceed to col- lect and recover the same, unless the persons from whom the said sums may be due shall be wholly insolv- ent, and for this purpose may pros- ecute actions," etc. It was held that the authority intended to be con- ferred was merely to bring suit in case the court should levy an assess- ment, and that the order of itself did not amount to a call, from which prescription would begin to. run. Glenn v. Macon, (1887) 33 Fed. Rep..7. J Vanderwerken v. Glenn, (1888) 85 Va. 9. 2 Glenn v. Williams, feO Md. 95. s Glenn V. Seniple, 80 A'la. 159; S. C. 60 Am. Rep. 93. dEAPTEE XXVII. PAYMENT OF SUBSCRIPTIONS. I 555. Introductory. 556. What paper may be taken in payment. 557. Payment in property or serv- ices. 558. What kind of property may be accepted. 559. Overvaluation. i 560. Presumption of fraud from gross overvaluation. 561. Payment of less than par. 563. Acceptance of less than par, constructive fraud. 563. Statutory and constitutional provisions construed. 564. The same subject continued. § 555. Introductory. — The taking of stock creates a con- tract to pay for it in the mode prescribed by the charter, and a stipulaition to that effect is not necessary'.* As was said in an early itfew York case, whatever may be th« form or lan- guage of a subscription to the stock of an incorporated com- pany, any person who in any manner becomes a subscriber for, or engages to talje any portion of the stock of such com- pany, thereby assumes to pay according to the' conditions of the charter.^ Accordingly in subscribing for stock in a rail- road compan}^ the charter of which creates and defines the terms of the contract between the company and the stock- holder, it is only necessary that the writing should indicate the. ii^tentjon to become a stockholder, and the number of shares that are taken by the subscriber.' And as the capital stock or shares of the corporation constitute a trust fund for the benefit of the general creditors of the corporation, the iFry V. Lexington &c. R. Co., Palm6r, 34 Me. 364 ; Waukon &o. R. Co. V, Dwyer, 49 Iowa, 131; Dan- bufy &o. R. Co. V. Wilson, 33 Conn. 485; Hawley v. Upton, (1880) 103 U. S. 314; Rensselaer &c. R. Co. v. Barton, (1857) 16 N. Y. 457; Lake Ontario &c. R. Co. v. Mason, (1857) 16 N. Y. 451. 2 Rensselaer &c. Co. v. Barton, (1957) 16 N. Y. 460. 3 Fry V. Lexington &c. R. Co., (1859) 3 Mete. (Ky.) 814. (1859) 3 Mete. (Ky.) 314 ; Connecticut &c. R. Co. V. Bailey, (1853) 34 Vt. 465 ; S. C. 58 Am. Dec. 181 ; Ogdensburg &c. R. Co. V. Frost, 31 Barb. 541; Hartford &c. R. Co. v. Croawell, 5 Hill, 383; Northern &c. R. Co. v. Miller, 10 Barb. 266; Chase v. Rail- road Co., 5 Lea, 415; Beene v. Ca- hawba (Sec. R. Co., 3 Ala. 660; Buck- field Branch R. Co. v. Irish, (1854) 39 Me'. 44; Kennebeck &c. R. Co. v. § 556.] PAtltENT OF SUBSOEIPTIONS. 897 subscriptions to this can only be fulfilled by a lonafide pay- ment, in conformity with the contract.' It is also held for the same reason that thd officers of the corporation can not impair the trust by accepting simulated or fictitious payment of subscriptions.^ § 556. What paper may be taken iu payment. — A corpo- ration may give credit for its stock as well as for other property sold by it, and it has the same right to enforce the contract against the subscriber.' Thus, stock may be issued for prom- issory notes where the charter clearly contemplates giving credit to subscribers.* So also a note given by a subscriber to the capital stock of a bank, in payment of a first assessment, the certificate for the stock being issued thereupon, is not void under the section of a State constitution providing that "no corporation shall issue stock except for money paid ; " nor is 1 Sawyer v. Hoag, 17 Wall. 610. 2 Coffin V. Ransdell, (1887) lio Ind. 417. Aco. Eider v. Morrison, (1882) 54 Md. 439. 3 Mitchell V. Beckman, (1883) 64 Cal. 117. * Ogdensburg &c. R. Co. v. Wooley, 3 Abb. Deo. (N. Y. App.) 398; Magee V. Badger, (1859) 30 Barb. 346; Good- rich V. Reynolds,- 31 111. 490 ; Hardy v. Merriweather, 14 Ind. 303 ; Vermont Central E. Co. v. Clays, 21 Vt. 30. In Wisconsin, stock may be issued for a note secured by real estate, where no provision as to the payment for stock is made. Clark v. Farrington, (1860) 11 Wis. 806; Blunt v. Wa)ker, (1860) 11 Wis. 334; s. 0. 78 Am. Dec. 709; Cornells Hichins, 11 Wis. 353; Andrews v. Hart, 17 Wis. 297; Lyon V. Ewings, 17 Wis. 61 ; Western Bank v. Talloian, 17 Wis. 530. In an Illinois case, the plaintiff alleged that, before the organization of the corporation, it was agreed between him and the individual members thereof that the subscriptions to the capital stock should be paid, not in 57 money, but out of the profits of the business. A by-law proyicied that the subscribers should be charged with their stock liability, and cred- ited' with the dividends, until the liability should be extinguished. This was afterwards repealed, with the plaintiff's assent, and a resolu- tion adopted that each subscriber give his note, payable , on demand, for the amount of his subscription and interest, and pledge his right to stock as collateral, and the plaintiff withdrew his dividends as they ac- crued. It was, therefore, considered that, even if such an agreement were valid and proved, it was abrogated, and the note remained valid. 14c- Dowellu. ChicagoSteel Works, (1888) 134 III. 491. But in some States it is held that stock is not to be issued for promissory notes, but that the subscriber will be credited with the amount actually collected thereon. Moses V. Ocoee Bank, 1 Lea, 398. So in New York, it can not be issued for the subscriber's own note. 1 N. Y. / Rev. Stat. ch. 18, tit. 4, § 3. 898 PAYMENT OF SUBSCEIPTIOK'S. [§ 556. it Void uild'er an act requiring corporations to publish semi- atanual statements of their paid-up capital, and that nothing should be counted as capital except money; nor is it void under the penal provision that any director of a corporation, voting to receive a note in payment of an assessttietit on a stock subscription, should be guilty of a misdemeanor.^ Again, stock may be issued for bond and mortgage.^ A subscription by a mu"nacipai corparatibn to the capital stock of a railway company may be paid in bonds of the municipality.' It is further held that the statutory requirement that subscriptions to capital stock shall be paid in cash is inet by a payment by a certified check on a national bank, whei-ein the drawee has funds sufficient to meet it.* But the subscription is void if the corporation has contracted to allow the subscriber an indefi- nite time in which'to pay.' Municipal bonds issued in aid of railways can not be made to run for a longer period than that prescribed b}' the enabling act.^ And by an indorsement they may be made to become due and payable upon default in pay- ment of interest.' In the absence of express authority to makfe 1 Pacific Trust Co. v. Dorsey, (IBS'?) 73 Cal. 55, construing Gal: Const, art. xii, § 11 ; Oal. Laws of IBT^-TC, p. 739 ; Cal. Pfen. Code, § 560. 2Valk V. Crahdall, "1 Sandf. Cb. (N. Y.) 179; Leavit* v. Pell, 37 Barb. 333. 3 Meyer v. City of Mu'scatiHe, 1 Wall. S84, 393 ; Town of Montclair V. EamsdelT, 107 U. S.147; Town of Obta'cord v. Poi"tsWoiitli Savings Bamt, 93 U. S. 635 ; Cbmmdnweialth V. Pittsburgh, 41 Pai St. 370; Cuttis Cbnnty V. Butler, 34 How. 435; Ev- ans ville &e. E. Co. iw. City of Evatis- ville, 15 Ind. 395. Contra, Stariti v. Town of Geftoa, 33 N. Y. 4^9. But it is not with the tsXW&y odm^pany to elect to take bonds tad to bring pro'ceediiigs to cofnpel their issue; its only claim is for lAohey. Chicago &o. R. Co. V. St. Anile, 101 111. 151 ; Wood's KJr- 'Law, § 1'28. * In re Staiten Isl&n'd' Rapid Transit B. Co., 37 Hun, 433. €?/. Thorp v. WoodhuU, (1844) 1 Sanuf. Ch. 411, holdiUg that ah issue ot stock upon a SUbsOriptJoil paid by check taken in payment ^s equivalent to specie ca=n not be objected to by the sub- scriber m^kilng ^oh pliytneht. 5 Van Allen v. rill'nois &c. R. Co., 7 iBosw. 515. « Cairo Sec. E. Co. v. Sparta, 17 111. 106; Pfeople ». Harp, 67 nl. 63. Cf. Wheatland t>. Taylot, 29 Hun, 70. In Norton V. Town ot- Dyershurg, 137 tr. S. 160, a general act author- ized mUnici'pal corporations to issue railroad-aid bonds runnitig six years, and a special act authorized the issue by a town dt such bonds running four years, are not to be construed together to authorise the ' tOWn to niake Its bonds payable in ten years. Cf. Wheatland v. TaylOr, 39 Hun, 70. 'Griffin *. City Bait, o8 Ga. 5M. § 557.] PAYMENT OF SUBSOEIPtlONS. 899 municipal bonds payable elsewhere, they are to be made paj'- able at the municipal treasury .^ And when the place of pay- ment is named in the bonds, neither the municipalit}' nor the legislature can make any chatige 'therein.^ §557. Payment in property or services.— Subscriptions to the capital stock of a corporation need not be paid in cash. The payjnent, if made and received in good faith, may be either in money or in property which the corporation is au- thorized to purchase.' ' Wherefore, it may be stated as a gen- eral rule that, in the absence of fraud, the courts will treat as a payment what the parties have agreed shall be a payment, even when the rights of creditors are involved.* The earlier cases held that the contract of the subscribers could only be fulfilled by payment in money. In later cases this doctrine has been relaxed, and stock issued and paid up in work and labor or in purchase of property of a kind that the corpora- tion is authorized to hold has been held to have been legally issued. Statutes have been passed authorizing corporations to purchase property needed for their business, and to issue stock in payment for it, or to accept such property in payment for subscriptions to capital stock. But transactions under these statutory powers have been upheld only when the contract for the rendition of services or the purchase of property, payable in stock, has been made in good faith and taken in payment; at a fair Valuation ; and the courts have inflexibly enforced the rule that payment of stock subscriptions is good as against creditors only where payment has been made in money or in what may fairly be considered as money's worth.' When, however, this has been done, the validity of the transaction is 1 Shelock V, Winetka, 68 111. S30. App. 527 ; Bridger's Case, L. R. 5 But in Calhoun County v. Galbraith, Ch. App. 305 ; Simpson's Case, L. E. 99 U. S. 314, it was held that the act 4 Ch. App. 184 ; 'Shampson's Cfise, 34 being silent as to place Of payment, L. J. 'Ch. S25; Fisher's Case, 53 L. T. the county might'designatethepaaoe. 833; Sherrington's Case, 34 W. E. ^Dillingham v. Hook, 33 Kan. 185; 49, Lowe v. Bliss, 34 111. 168; S. C. 76 4 Brant i). EMen, (1882) S9 Md. 1. Am. Dec. 743; Childs v. La'ftin, 55 5 Weatherby 'u. Baker, 35 N. J. Eq. 111. 159 ; Cfaitty on Bills, 566. 501, and authorities there cited. 3 Coffin V. Ransdell, (1887) 110 Ind. Ace. Litiby f. Tobey, (Me. 1890) 10 417; Elkington's Case, L. R. 3 Ch. Attan. Rcp. 'StW. 900 PAYMENT OF StTBSCEIPTiONS. [§ 557. not to be questioned.' It is not necessary «for any purpose that the ceremony of paying the money by the company to the subscriber, and by him again to the company, should be gone through with.^ The issue of stock for property or services is discretionary, however, on the part of the corporation, and ^ that discretion can not be questioned by other subscribers who ai-e not injured.' Nor, indeed, is a disposition of corporate stock upon any terms, agreed to by all the members, to be questioned save by creditors of the company. Thus where unissued stock of a corporation which had no creditors was, by agreement of all the stockholders, paid for with' corporate funds, and issued to one stockholder to be held in trust for all, it was held that the issue was valid, and that the directors had no authority afterwards to direct the stock to be sold.* 1 Frenkel v. Hudson, (1886) 82 Ala. 158 ; Sanger v. Upton, (1875) 91 U. S. , 66, 60; Brant v. Ehlen, (1883) 59 Md, 1; Searight v, Payne, 6 Lea, 283; Burkenshaw v. Nichols, L. R. 3 App. Cas! 1004, 1013; Foreman t;. Bigelow, 4 Cliff. 508, 544; Coffin v. Ransdell, . (1887) 110 Ind. 417 ; Chouteau v. Dean, 7 Mo. App. 310. Contra, Neuse River &c. Oo. v. Cbmmissioners, ,7 Jones' L. 275. Cf. Henry v. Ver- iQiIli9n &c. R. Co., 17 Ohio, 187. By 30 & 31 Vict. ch. 131, § 35, stock ia deemed to be payable in money, un- less a contract that it be otherwise payable shall be duly made in writ- ing and filed with the registrar of joint-stopk companies at or before the issue of the shares. But even though there has been no registra- tion of the contract as required by this statute, yet if the payment has been actually made in property or services rendered, or upon accounts stated and settled, where there has been no fraud, the parties will be bound. Jones' Case, L. R. 6 Ch. App. 48; Shroeder's Case, L. R. 11 Eq. Cas. 131 ; Foreman v. Bigelow, a878) 4 ClifE. 508; Phelan v. Haz- ard, 5 Dill. 45; Pell's Case^ L. R. 5 Ch. 11 ; Spayo's Case, L. R. 8 Ch. 407, 413; Drummond's Case, L. R. 4 Ch. 773 ; Maynard's Case, L. R. 9 Ch. 355 ; Ferras' Case, L. R. 18 Eq. 670 ; Nich- ol's Case, L. R. 7 Ch. 533 ; s. c. on appeal to the House of Lords, 36 W. B. 819 ; Ex parte Clarke, L. R. 7 Eq; 550. But if the accounts be not thus liquidated, and there is only an agreement that the property be taken in payment for the stock, a settle- ment in cash will be necessary upon a winding-up. Criokmei-'s Case, L. R. 10 Ch. App. 614; Fotheringill's Case, L. R. 8 Ch. App. 370; Dent's Case, L. R. 15 Eq. Cas. 407 ; Row- land's Case, 43 L. T. N. S. 785. 2 Beach v. Smith,, (1864) 30 N.Y. 116; Black River &c. R. Co. v. Clarke, 35 N. Y., 308; N. Y. Laws of 18S0, ch. 140, § 2. 8 Boston &c. R. Co. v. Wellington, (1873) 113 Mass. 79; Stoddard v. She-, tucket &o. Co., (1868) 34 Conn. 542; Vermont Central R. Co. v. Olayes, (1848) 31 Vt. 30. • * Jones V. Morrison, (1883) 31 Minn. 140. §§ 558, 559.] • PAYMENT OF SUBSCEIPTIONS. 901 § 558. What kind of property may toe accepted. — After a company is organized it often happens that new subscriptions can be obtained only on new and peculiar terfns, as, for ex- ample, that the subscriber be permitted to pay in labor or materials. And since the company frequently could not other- wise fulfil the object of its creation,^ it is held that it may ac- cept in payment of its shares any property of a kind which it is authorized to purchase, or which is necessary for the pur- poses of its legitimate business.^ Thus stock may be issued for labor, construction work, materials and land; provided alwa-ys that these transactions are entered into and carried out in good faith.' Stock may be issued by a railway company for cross-ties to be used in the construction of its road.* And subscriptions to stock of a corporation, organized to carry on an iron-furnace, may be paid in coal lands and in iron lands.' It may issue stock in lieu of damages which it is liable to pay,* and in satisfaction of its debts.' And where certain shares of- st9ck in a corporation organized to construct a bridge over a river were issued to the proprietor of a newspaper published in the city where the bridge was to be built, the cdnsideration therefor being the publication of articles and communications in his journal favoring the enterprise and pointing out its value to the community and its standing as an investment, this was held a good consideration.* § 559. Overraluation. — Where a corporation agrees to is- sue shares of its stock in payment for services rendered to it, 1 Philadelphia &c. R. Co. v. Hick- ^Ohio &o. R. Co. v. Cramer, 23 man, (1887) 28 Pa. St. 318; Erie &c. Ind. 490. Co. V. Brown, 20 Pa. St. 156. ' Searight v. Payne, 6 Lea, 283. 2 Coffin V. Eansdell, (1887) 110 Ind. 6 Philadelphia &c. R. Co. v. Hick- 417; Liebke v. Knapp, (1883) 79 Mo. man, (1857) 28 Pa. St. 318. 23; KeJilor v. Landemann, 11 Mo. ''Carr v. Le Fevre, 27 Pa. St. 413; App. 550 ; Carr v. Le Fevre, 27 Pa. Reed v. Hayt, 51 N. Y. Super. Ct. St. 413; Brant v. Ehlen, (1882)' 59 Rep. 131; Appleyard's Case, 49 L. J. Md. 1 ; American Silk Works v. Solo- Ch. 290. mon, 4 Hun' 135; Bedford County 8 Liebke v. Knapp, (1883) 57 Mo. V. Nashville &c. R. Co., 14 Lea, 525; 32, where it was said that payment Philadelphia &c. R. Co. v. Hickman, of a stock subscription may be made (1857) 28 Pa. St. 318 ; Clark v. Far- in whatever represents to the corpo- I'ington, 11 Wis. 306. ration a fair, just, lawful and needed 3 Branch v. Jessup, 106 TJ. S. 468. equivalent for the money subscribed. 902 PATHENT OF StrBSCEIPTIONS. [§ 659. tT;ie fact that the result shows that the price agreed to be paid is extravagant does not of itself furnish a ground to release the corporation from its contract, particularly where no claim is made that the contract is prejudicial to creditors.' Unless the agrpement is rescinded or impeached for fraud, the courts, as between the parties, will treat that as a paymeht whipii they have agreed should be a payment.^ ' Accordingly an ac- tion at law can not be maintained by. the receiver of a corpo- ration to collect, as'unpaid subscriptions, the difference between vrhat is claimed to be the actual value of propertj' given by certain subscribers and received by the corporation in pjay- ment of their subscriptions, and the amount of the subscrip- tions, where there was no fraud, and the property, although overvaluedj was such as the corporation required for the pur- poses of its legitimate business.^ For there must be actual fraud in the transaction to enable creditors of the corpora- tion to call the stockholders to account.* And where a cor- poration which is authorized by its charter to buy land and pay, for it in full-paid stock, issues stock to an amount greatly in excess of the value of the land, and the shares are sold to a purchaser for value, he is not liable to the creditors of the corporation on the ground that his stock is not fully paid for, where there was no fraud in the original transaction and the corporation has taken no steps to rescind it.* For even if a purchaser of stock were bound to inquire whether the stock bad been fully paid for or not, a proposition not supported by authority, such inquiry at most would, if made, only have dis- closed the fact that the stOck had been paid for in lands, and that perhaps some persons did not consider them worth as much as the stock at par, but that would not prove that the company had not accepted them in full payment, as the reso- lution of the stockholders' meeting shows it didj nor that the stock so issued was not full paid. JS^or vvguld such facts have suggested that if he purchased the stock he would become 1 Arapahoe &c. Co. v, Stevens, * Field, J., in Coit v. North Car- (Oolo. 1890) 22 Pacif. Eep. 833. olina &c. Co„ (1887) 119 TJ. S. 2 Fhelan v. Hazard, (1878) 5 Dill. 343. 45; Coffin I). Ransdell, (1887) 110 Ind. ^Du Pont v. Tilden, (1890) 43 417. Fed. Eep, 87; s. a 8 Ry. & Corp. s Qpffin V. Eansdell, 110 lod. 417. L. J. 28. § 560.] PA-yMEHT OF aUBSOEIPTIOI^S. 9,03 liable to coatribute to the difference between the value of the land and the par value af the stock. The stocii ha,ving al- ready been paid for once, that payment was sufficient to pro- tect a purchaser for value against the company or its cred- itors.^ And a creditor of the corporation can not maintp,ia a bill to compel the shareholders to pay the amount of their subscription, if it appears that the stock has been fully paid up in property, at an honest and fair val^ation, though b3'' , reason of subsequent events the property has depreciated,. and no longer represents the face value of the stock.^ § 560. Presumption of fraud from gross overvaluation. — If the property received, is grossly unequal in value to the par value of the shares, the shareholder who received the shares originally, or his subsequent transferee with notice of the cir- cumstances, may be compelled to make up the difference in value in a suit brought by or on behalf of the persons injured 1 Du Pont V. Tilden, (1890) 43 Fed. Rep. ST; S. C. 8 Ey. & Corp. L. J. 28. "But on the ground of gross overvaluation alone, the company might, if it had acted in apt time, have had this transaction set aside, and the stock surrendered and can- celled on a reconveyance of the land for the stock while it still remained in the hands of the original holder, but not when it is impossible to restore the parties to their original condition, as after the stock, at least a part of it, has gone into the hands of bona fide purchasers for value, and coal has been largely rnined out of the land. The cases of Bridge Co. V. McCluney; 8 Mo. App. 500, and Brant v. Ehlen, 59 Md. 1, seem to me to be instrubtive upon the points raised, and conclusive against complainants' right to recover." Du Pont V. Tilden, (1890) 43 Fed. Rep. 87 ; S. 0. 8 Ry. & Corp. L. J. 38. 2Coit V. North Carolina &c. Co., (1887) 119 U. S. 393. ' Ace. Schenck ». Andrews, (1874) 57 N. Y. 138, where it is held that the directc)ra are the judges of the value of the property, and subsequent deprecia- tion in prices should not be used lo impeach the good faith of the par- ties. Carr v, Le Fevre, (1856) 37 Pa. St. 413, where it was said that tak- ing property at a prospective v^lue never realized, is lan ei-ror of judg- ment merely, and, in the absence of fraud, it forms no ground for rescind- ing the contract. Schroder's Case, L. R. 11 Eq. 131. Aee. Osgood v. King, 43 Iowa, 478, where the property was worth twenty-seven thousand dol- lars and stock was issued to ih,e amount of one hundred and ninety thousand. And see Bolz v. Ridder, 19 Weekly Dig, 463, where a patent right valued at one time at one thousand dollars, being afterwards sold for shares to the amount of a hundred thousand, was held only presumptively fraudulent, and suffi- ciently capable of explanation to be submitted to the jury. 904 PAYMENT OF SmBSOEIPTIONS. [§ 560. thereby.* But where the trustees of a corporation were au- thorized to issue stock and to exchange it for property, the statute declaring that when exchanged, it should be talcen to be full paid stock and not liable to further calls, the trustees, who. were the- only members of the corporation, exchanged the whole capital stock for their own property, then distrib- uted the stock among themselves; and sold it to innocent pur- chasers as fully paid, and it was held that the purchasers could not maintain a suit to compel the trustees to account to the corporation for a fraudulent disposition of its capital stock, notwithstanding the fraudulent character of the transaction.' The fact that the property accepted in payment of stock was not at the date of incorporation worth more than one-fifth of the valuation set upon it, although presumptive evidence of fraud, does not charge the incorporators with legal fraud where they are shown to have made their valuation honestly.' While it is generally the iprovince of the jury to determine whether property has been accepted for the issue of shares at an overvaluation and whether there was a fraudulent intent in so doing,* yet it is not necessary in the action by the cred- itor to allege fraud in the petition in order to render com- petent evidence of fraud in the organization of the corporation and the issuance of the stock.' For if the evidence shows the 1 Taylor on Corporation, § 545, cit- organization of the corporation, the ing Bailey v. Coal Co., 69 Pa. St. percentage to be paid for the stock, 334, and Boynton v. Hatch, 47 N. Y. and the .issuance and acceptance 325. Under the rule of these cases, thereof, were parts of a single trans- if the defendant's claim be true, that action. Iowa Code, § 1083; Osgood he took his' shares of stock from the v. King, 43 Iowa, 478; Jackson t>. vendor as full- paid shares, his lia- Traer, 64 Iowa, 469; Sawyer v. bility would be the same as that of ,Hoag, 17 Wall. 610. the .vendor because he knew the cit- * Fos^ter v. Seymour, S3 Fed. Eep. cumstances under which it was 65. issued. Boulton &c. Co. v. Mills, s Young v. Erie Iron Co., (1887) 65 (1889) 78 Iowa, 460; S. a 6 Ey. & Mich. 111. Corp. li. J. 417, where it was held to * Lake Superior Iron Co. v. Drexel, be immaterial that all the stock was 90 N. Y. 87; Boynton v. Hatch, 47 at flrst issued to three c>f the in- N. Y. 235; Draper v. Beadle, 16 corporators, and was afterwards re- Week. Dig. 475 ; Bolz v. Bidder, 19 issued to the defendant and others. Week. Dig. 463. it being shown that he was. an orig- » Boulton &q. Co. v. Mills, (1889) inal subscriber for stock, which he 78 Iowa, 460; S. 0. 6 Ey. & Corp. only partly paid for, and that the L. J. 417. § 561.J PAYMENT OF SUBSCRIPTIONS. 905 overvaluation to have been so excessive that it must have been intentional the court will itself, as a presumption of la\;\'-, pronounce "the transaction fraudulent, unless it be reasonably explained.' Yet in order for the court to find a fraud in law, there must be shown, either an intentional . fraud in fact, or such reckless conduct in the valuation without regard to the real value of the property as would indicate, without explana- tion, an intend to defraud.^ In England, when no creditors' right? are involved and all the shareholders of the corpora- tion have acquiesced, the directors will not be liable to the company with respect to profits accruing to them from an issue of shares for property grossly overvalued.' § 561. Payment of less than par.^A corporation may dispose of its stock for less than its face value, and the trans- action, as between the corporation and the purchaser, will be valid, unless prohibited by statute.* And no suit can be main- 1 Douglass V. Ireland, 73 N. Y. 100, where property worth $64,000 was valued at $300,000; Boynton v. An- drews, 63 N. Y. 93, where property worth $50,000 was taken at $100,000; Coit V. North Carolina &o. Co., (1887) 119 U. S- 343; Van Cott v. Van Brunt, 83 N. Y. 535; Boynton V. Hatch, 47 N. Y. 235; Carr v. Le Fevre, 27 Pa. St. 413. Defend- ant having conceded that he paid , but five hundred dollars for twenty- five hundred dollars in stock can not introduce' evidence that the .prop- erty was believed to be worth three times the, par value of the stock, one-half of which was issued for it. ' Boulton &c. Co. V. Mills, (1889) 78 Iowa, 460 ; S. 0. 6 Ry, & Corp. L. J. 417. 2 Young V. Krie Iron Co., (1887) 65 Mich. Ill ; Lake Superior Iron Co. v, Drexel, 90 N. Y. 87 ; Douglass v. Ire- land, 73 N. Y. 100; Boynton v. An- drews, 63 N. Y. 93; Schenck v. Andrews, 57 N. Y. 134. In Boyn- ton V. Hatch, 47 N. Y. 335, the Court of Appeals of New York was evenly divided upon the question, whether, after having shown that the prop- erty given in payment of shares was taken at an overvaluation, it was necessary for the plaintiff to further prove that it was done knowingly and with fraudulent intent. Where property is taken in payment for shares of the capital stock of a cor- poration, and the transaction is made matter of record, and ratified by the directors and stockholders, the shares will be treated as fully paid, as against one who became assignee of a judgment creditor of the corporation, after he had pur- chased the shares with full knowl- edge of the facts attending their issue. Walburn v. Chenault, (Kan. 1890) 33 Pacif. Rep. 656. ^ In re Ambrose &c. Co., 14 Ch. Div. 390. 4 Harrison v. Arkansas Valley Ry. Co., (1883) 4 McCrary C. Ct. 364; Scovill V. Thayer, (1881) 105 U. S. 153. The court in the latter case said: "The stock held by the de- fendant was evidenced by certifi- cates of full*paid shares. It is con- yATMENT QF SUBSCEBPTIOKS. [§ 561. tained by thes c,Qni,pa,iay to collect the unpaid balaace for any purpose o| its own, the siiares being issued as full-paid on a fair understanding,' Accordingly the stockholders of a. min- ing corporation organized under the laws of Califorhiia are not, obliged to pay in the par value of their shares, and inde- pendent of ah agreement to the contrary, a,n assessment on their stock can be enforced only by the st^le of their shares.^ It has been held generally in English cases that not only is the company bound, but its creditors also are bound by such a contract.' But the American rule is that the contract, al- though binding on the company, is. a fraud in law on its cred- itors, which they can set aside ; %^d when their rights intervene and their claims are to be satisfied, the stockholders can be required to pay the subscriptions in full.* This grows out of the American doctrine that the stock subscribed is a trust fund for the payment of creditors.* It is so held out to the public, who have no means- of knowing the private contracts made between the corpora,tion and its stockholders. The creditor Ms, therefore, the right to presume that, the stock subscribed has been or will be paid up.^ The company can not compel specific, performance of a contract to take shares below par, for to carry out its own part of such an agre,e,mejit' would be an ultra, vires act.' c6ded to have .been the contract ' Waterbouse v. Jamieson, L. Ei 3 between him and the company that H. L, (Sc,) ?-9j ©urr-ie's C^e, 3 Pe G. he should never be called upon ^o J. & S, 367 ; Carling's Ca§e, 1 Ch. Div. pay any further assessment? uppn 115i jt. The same contract was made * Scovill v. Thayer, (1881) 105 U. S, with all the other shareholders, ajid 154; Sawyer v. Hoag, 17 ■Wall. 610; the fact was known to ajl as between Ne,w Albany v, Burte, 11 Wall. 96; them and the company. This was a Burke v. Smith, 16 Wall. 890. perfectly valid agreement. It was sgcoviU jj, Thayer, (1881) 105 U. S. not forbidden By the pharter or by 154; 'Wood v. Dummer, 3 Masop, any law or public policy, and as be- 308; Mumma v, Potomac Co., 8 Pet. tween th? company and the stock- 281; Ogilvje v. Knox IniS. Co., 32 holders was just as binding as if it How. 387 ; Sawyer .«> Hoag, 17 Wall, had been expressly authorized by 610. the charter. " « Scovill v. Thayer, (1881) 105 U, S. 1 Scovill V. Thayer,, (1881) 105 U. S. 154; Shickle v. "Vy^tts, (1888) 94 Mo. 154. 410, 2Jm re South Mountain Oonaoli- 'Western Ey. Co. v. MQwat^, 12 dated Mining Co., (1881) 7 Sa.vyy^r Juy. pt, J. 4Q7. 9 10 PAYMENT OF SUBSCBIPTIOirS. [§564. and having reference to legitimate cbfpo'rate purposes, atid is not a mere device to evade the law and accomplish that which is forbidden.^ But a .contract to furnish the labor and materi- als for construction of a railroad at an expenditure not to exceed a certain apm, the corporation, in consideration thereof, to issue to the contractor an amount of its capital stock fifty- per centum greater as fully paid up and an equal amount of its first mortgage bonds, was held to contravene a constitu- tional provision prohibiting issuance of stoclis or bonds except for money, labor done, or property actually received ; it ap- pearing that the materials could be furnished and the road built for kss than the first sum in cash.^ § 564. The same subject contimied. — Under a constitu- tional provision, that no corporation shall issue stock or bonds except for mottey, labor done, or money or property actually received, an increase in the value of the property in which the original stock is invested will not justify an issue of addi- tional capital stock to the stockholders as a stock dividend.^ So, also under a statute providing that a corporation shall not ' lend money to its stockholders; and prohibiting a corporation from issuing stock or bonds except " for money paid, labor, done, or money or property actually received," and making all fictitious issues of stock or bonds Void, it is held that a corporation Whose plant is not susceptible of division, or pru- dently convertible into cash, and which has no ready mon«y, can not adopt a resolution reducing its capital stock one-half, on the ground of its being necessary and the remaining^ capi- tal being all-sufficient for the purposes of the corporation ; and then on the same day of the redaction, adopt further resolu- tions requiring the directors to pay to the stockholders pro rata the amount of the surplus thus created; call in and caltl- cel the existing certificates of stock; issue new ones in their stead; authorize the directors to purchase from the stock- holders the' swplus for the use of the corporation ; for the 1 Harlan, J., in Memphis &c, R. ' Fitzpatriok v. Dispatch &i3. Co., Co. v. Dow, C188'7) 120 XJ. S. 299. (1887) 83 Ala. 604, consSruiBg Ma. 2 New castle &e. EJ'. Co. i). SiMt)^ Gbiast. art. xi'ii, § «. F«Je sMpMii, BOD, 21 Fed. Eep. 533, coristi'uing Pa. § 479. Const, art. xvi, § 7. § 564.] pAiniEirT of subscriptions. 911 payment of the amount of such surplus issue bonds; secure them by deed of trust on all the property of the company, and create a sinking fund out of the earnings of the company to pay ofif the principal and interest on the bonds.^ And, if there be no fraud; even the creditors of the corporation have no recourse against the purchasers or holders of shares origi- nally issued below par for the difiference between the par value and the price at which they were sold.^ Under a constitu- tional prohibition of the issue of stock " except for money actually received," it is held that a contract transferring shares issued at less than par, is void, as in violation of public policy.' So also a statute prohibiting a corporation from disposing of its capital stock at less than par, except at auction, for non- payment of assessments, does not apply to a holder of stock; which the corporation has pledged or mortgaged,* I'Coquard v. St. Louis &c. Co., s Williatos ii. Evabs, (1889) 87 Ala. (Mb. 1888) 7 S. W. Rep. 176, decided 735, construing Ala. Const, of 1875, under Mo. Rev. Stat. §'§ 933, 987. art. xiv, § 6. 2 Ross V. Silver & Copper Island * Peterborough R. Co. v. Nashua Min. Go., (Minn. 1887) 31 N. W. Rep. & Lawell E. Co., 59 N. H. 385, con- 219. struing N. H. Gen. Stat. ch. 134, § 8. CHAPTER XXVIII. CALLS. I 565. Payment by instalments — Calls. 566. Calls continued. - 567. Delegation of authority. 568. Calls by the court. 669. The same subject, continued. Limitajtion. 570. Payment of calls after trans- fer. 571. Notice of calls. 572. Place and time of payment. 573. Irregularities in calls — Ac- quiescence — Estoppel. 574. Tender of certificates. ■ 575. Evidence. 576. Defenses to actions upon calls. (a) In general. 577. (b) Infancy. § 578. (c) Accommodation subscrip- tioui 579. (d) Bankruptcy of stock- holder. 580. (e) Set-off. 581. (f) The Statute of Limita- tions. 583. Calls after consolidation. 583. Pleading and jjractice. 584. The company's remedy upon unpaid calls. 585. Forfeiture of shares for non- payment. 586. "Notice of forfeiture. 587. Method of forfeiture. 588. The company's claim for de- flciencyi 589. The shareholders' remedies. § 565. Payment by instalments -^ Calls. — The whole amount of a subscription is seldom required to be paid at one time, but is usually to be paid in instalments as the affairs of the corporation require. This is implied by the language of statutes conferring upon directors the power to require subscriptions to be paid in such instalments as they deem proper.' And in the contract itself, there is usually some phriase, such as, " when the directors shall require," or " when called," indicating that the balance is to be paid in instalments.^ So that, as a general rule, the, amount not paid at the time of taking the shares is not due and payable until regularly called for by the board of directors ;' and an action to enforce pay- 1 E. g. Bevision of N. J., p. 936, § 7 ; N. y. Laws of 1875, ch. 308, § 8 ; N. T. Laws of 1850, ^oh. 140, g 7. 2 Williams v. Taylor, (1890) 180 N. Y. 244 ; Grosse Isle Hotel Co. v. I'Anson, (1880) 34 N. J. 443. 'Williams v. Taylor, (1890) 120 N. Y. 244; Grosse Island Hotel v. I'Anson, (1880) 42 N. J. 10; s. C. 48 N. J. 442; Braddock v. Philadelphia &c. R. Co., (1888) 45 N. J. 363; Will- iams V, Taylor, (1890) 120 N. Y. 244, 565.] CALLS. 913 ment does not he until thej' have done so.* But notwithstand- ing such provisions as those referred to above, if the corporate affairs require it, there is no rule of law rendering a call for the whole amount invalid.^ Even an express statutory pro,- vision that only a certain sum shall be called at any one time, seems not to render a resolution of the directors void, which, while ordering several calls for that amount, makes them payable at different times.' But when the charter pro- distinguishing Lake Ontario R. Co. Eep. 287. But, as a matter of course, V. Mason, 16 N. Y. 451 ; Howland v. a call is unnecessary if the contract Edmonds, 24 N. Y. 307, and Tucker- of subscription or the charter of the man v. Brown, 33 N. Y. 397, and re- company fix a certain time for pay- versing s. c. 41 Hun, 545 ; Grissill's ment. Phoenix Warehousing Co. v. Case, L. E. 1 Ch. App. 528, 535; Badger, (1876) 67 N. Y. 294; Good- Bank V. Abrahams, L. E. 6 C. P. rich tj. Eeynolds, 31111. 490; Waukon App. 263. &c. E. Co.- v. Dwyer, 49 Iowa, 121; 1 Alabama &c. E. Co. v. Eowtey, 9 Breedlove v. Martinsville &c. E. Co., Fla. 508; Grissill's Case, L. E. 1 Ch. 12 Ind. 114; Eoss v. Lafayette &c. App. 528, 535; Wilber v. Stockhold- E. Co., 6 Ind. 297; New Albany &c. ers, 18 Bankr. Eeg. 178; Braddock v. E. Co. u Pickins, 5 Ind. 247. Philadelphia &c. E Co., 45 N. J. apox v. Aliens ville &c. Turnpike 363 ; Spangler v. Indiana &c. E. Co., Co., (1874) 46 Ind. 81 ; Haun v. Mul- 21 111. 276; Banet v. Alton &c. E. Co., 13 111. 504; Bank v. Abrahams, berry &c. Co., 83 Ind. 103; Eoss v. Lafayette &c. R. Co., 6 Ind. 297; L. E. 6 P. C. App. 263; Granite Spangler v. Indiana &c. E. Co., 21 Roofing Co. V. Michael, 54 Md. 65, 111. 276; Hays v. Pittsburgh &c. E. holding that a call is necessary be- Co., (1861)38 Pa. St. 81 ; Rutland &c. fore the subscription can be enforced E. Co. v. Thrall, (1863) 35 Vt. 536 ; even when stock has been fraudu- London &c. Ey. Co. v. McMichael, . lently issued as fully paid, for prop- 4 Eng. L. & Eq. 459 ; s. C. 20 L. J. erty taken at an overvaluation. But Ex. 227 ; Birkenhead &c. Ey. Co, when payment is to be made in land, v. Webster, and Ambergate Ey. the subscriber having failed to con- Co. v-'- Norclifl'e, 20 L. J. Ex. 234 ; vey, when suit is brought for dam- s. cases, 4 Eng. L. & Eq. 461 ; In re ages, it is not necessary to allege Jennings, 1 Ir. Ch. 654. But see that a call has been made, an alle- Stratford &c. Ey. Co. v. Stratton, gation of a general demand being 2 Barn. & Ad. 519. Cf. Lewis' Case, sufficient. Cheraw &c. E. Co. v. 28 h, T. N. S. 896. Garland, (1880) 1-4 S.C. 63; Ohio &c. spenobscot E. Co. v. Dummer, E. Co. v. Cramer, 23 Ind. 490. A (1855) 40 Mo. 172; s. c. 63 Am. Dec. balance .due on a subscription to the ' 654 ; Penobscot R. Co. v. Dunn, 39 capital stock of a corporation, to be Me. 587 ; Browne & Theobald's Ey. paid When calls should be made Law, 77, citing Ambergate Ey. Co. therefor, is not liable to garnish- v. Mitchell, 4 Eng. L, & Eq. 461 ; ment on a claim against the corpo- English Companies Clauses Act of ration when no call has been made. 1845, 8 Vic, ch. 16, § 22. league v. Le Grand, (Ala. 1889) 5 So. 58 • ' 914 CALLS. ,[§566. Vides that calls shall be made at certain intervals, several calls made at one time are invalid.^ § 566. Calls continued. — Although calls can not be val- idly made for any but a legal object,'' the necessity for them can not be questioned by the shareholders, as that is for the directors to determine.^ But where there is evidence of fraud or impending corporate insolvency the court will examine the matter, and if necessary set aside the call.* Calls must bear equally and upon all the shares;' and therefore, when made upon the towns and cities subscribing for stock, not including the stock held by private persons, they are void,^ and may be set aside and rectified.' There is no ground , upon w;hich a call can be made when the number of shares has not been fixed by charter, or determined by the directors.* Where the capital stock of a corporation is fixed at a given sum, divided into shares of a certain arhount each, the capital must be fully subscribed before the subscriber can be subject to calls.' Stock subscribed for after a call has been made is not subject thereto.'" The company can not legally contract to postpone indefinitely the making of- calls." Nor can directors legally postpone making a call ^o as to have an opportunity to escape liability by disposing of the stock held by them.'^ 1 Stratford &c. Co. v. Stratton, 3 epjket). Bangor &c. R. Co., (1878) Barn. & Ad. 518. 68 Me. 445, 446. 2 South Eastern Ry. Co. v. Hebble- ^ Preston v. Grand Dock Collier thwalte, 12 Ad. & E. 497. ' Co., 11 Sim. 327, 346. SBudd V, Multnomah St. Ey. Co., 'Somerset &c. R. Co. v. Cushing, (1887) 15 Oreg/)n, 413; s. c. 3 Am. St. (1858) 45 Me. 534; Worcester &c. R. Rep. 169; New Albany &c. R Co. Co.- v. Hinds, 8 Cush. 110; dabot V. Fields, 10 Ind. 167; Bailey v. Bir- &p. Bridge v. Chapin, 6 Cush; 50; kenhead &c. Ry. Co., 13 Beav. 433, Troy &o. R. Co. v. Newton, ^1857) 8 440; Chouteau Ins. Co. ,v. Floyd, 74 Gray, 596. Mo. 286, 290; Yetts v. Norfolk Ry. Co., ' Hale v. Sanborn, 16 Neb. 1. 3 De G. & Sm. 293; Judah v. Ameri- "Pike v. Bangor &c; R. Co., (1878) ean Live Stock Assoc, 4 Ind. 833;' 68 Me. 445. Ex parte Stanley; 33 L. J. Ch. 535. "Van Allen v. Illinois Central R. iHabertson's Case, L. R. 5 Eq. Co., 7 Bosw. 515; McComb u. Credit Cas. 286; Sykes' Case, L. R. 13 Eq,. Mobilier Co., ISPhila. 468. ' Cas. 355. 12 Gilbert's Case, L. R. 5 Ch. App. spike V. Bangor &o. B, Co., (1878) 559; Preston v. Grand Collier Dock 68 Me. 445; Preston v. Grand &c. Co., H Sim. 327. Dock Co., 11 Sim. 327. §§ 567, 568.] 0ALt9> 916 §567. Delegation of authority. — A power granted to a company to raise a fund in addition to its capital stock by assessment upon the stockholders can be exercised by the stockholders only.^ But calls for the balance due upon sub' scriptions to shares, are to be made by the directors in their capacit}'^ as general managers of the corporate affairs,^ unless the power be expressly vested by the charter in the stock- holders at .large. Even when that is the case, however, they may, and frequently do, delegate their power to the directors.' When, however, the power of making calls is vested in the directors, they can not delegate it to others, as to an executive committee of their own number,*. although they may commis- sion another, for' example, the president, to determine the amounts- and times of payment of the installments.' If the directors have illegally delegated their authority and the call has been made by another, a subsequent ratification by 'the directors will make it their own act and therefore valid.^ I, I 568. Calls by the court. — When stock is subscribed, to be paid upon call of the compan}', and the company refuses or neglects to make the call, a court of equity may itself make the call, if the interests of the creditors require it. The court will do what it is theduty of the company to do.' But under » Marlborough Manuf. Co. «. Smith, SBanet v. Alton &c. R. Co., (1851) (1818) 2 Conn. 579. 13 111. 504. Cf. Hays v. Pittsburg 2Budd V. Multnomah Street Ey &c. R. Co., 38 Pa. St. 81. Co., (1887) 15 Oregon, 413; Amber-. 6 Rutland &c, R. Co. v. Thrall, gate Ry. Co. v. Mitchell, 4 Eng. L. (1863; 35 Vt. 536. & Eq. 461 ; s. c. 4 Ex. ,Rep. 5-10. ' Scovill v. Thayer, 105 U. S. 143, Contra, Ex parte Winsor, 3 Story, 155; Hawkins v. Glenn, (1889) 131 C. C. 435. Cf. Haun ii. ' Mulberry U. S. 319 ; Glenn v. Liggett, (1890) 135 &o. Gravel Road Co., 33 Ind. 103. U. S. 533; S. c. 8 Ry. & Corp. L. J. 3 Rives V. Montgomery &c. Plank 52. The court in Hawkins v. Glenn, ' R. Co., (1857) 30 Ala. 93. But in (1889) 131 U. S. 319, cited the rule Ex parte Winsor, (1844), 3 Story, laid down in Scovill w, Thayerj 105 C. C. 411, 435, 436, it was hdd that U. S. 143, 155, as applying to the the delegation of the authority must case, and said : " In that case it was be express, and that it would not be said by Mr, Justice Woods, speaking inferred from a by-law declaring for the court : ' There was no "ob- that the directors shall take care of ligation resting on the stockholder the interests and manage the con- to pay at all until some authorized cerns of the corporation. demand in. behalf of creditors was * Rutland &c. H. Co. v. Thrall, 35 made foir payment. The defendant Vt. 536, ' owed the creditors nothing, and he 916 OAJ.M. [§ 568. such circumstanees, before there is any obligation upon .the stockholder to pay without an assessment and' call by the company, there must be some order of a court of competent jurisdiction, or, at the verx"- least, some authorized demand upon him for payment.' Accordingly, as unpaid subscrip- tions constitute a. fund for the payment of corporate debts, when a creditor has exhausted his legal remedies against the corporation which fails to make an assessment, he may, bj^ bill in equity or other appropriate means, subject such sub- scriptions to the satisfaction of his judgment, and the stock- holder can not then object that no call has been made.^ For as between creditor and stockholder, it would seem to be singular if the stockholders could protect themselves from paying what they owe by setting up the default of their own agents.^ In a suit by a creditor, where the corporation and the trustees are made parties defendant, a court of equity may by its decree direct a stock assessment for the benefit of creditors which will bind stockholders who are not individually parties to the suit.* Accordingly, where a corporation made owed the company notting save such unpaid portion of his stock as might be necessary to satisfy the claims of the creditors. Upon the bankruptcy of the company, his Ob- ligation was to pay to the assignees upon demand such an amount upon his unpaid stock as would be suf- ficient, with the other assets of the company, to pay its debts'. He was under no obligation to pay any more, and he was under no obliga- tion to pay anything until the amount necessaty for him to pay was at least approximately ascer- tained. Until then his obligation to pay did not become compliete.' " 1 Scovill V. Thayer, 105 U. S. 143, 145; Hawkins v. Glenn, (1881) 131 U. S. 319; Glenn v. Liggett, (1*90) 185 U. S, 533; s. 0. 8 By. & Corp. L. J. 52. 2 Hawkins v. Glenn, (1889) 131 U. 8. 319; Glenn v. Liggett, (1890) 139 U. 8. 533; s. G. 8 Ey. & Corp, L. J. 52, in which case the court quoting the former case said : " The condition that a call shall be made is, under such circumstances, as Mr. Justice Bradley remarks in In re Glen Iron Worlts, 20 Fed. Rep. 674, 681, ' but a spider's web, which the first breath of the law blows away.' " 'Hatch V. Dana, 101 U. S. 205, 214; Hawkins v. Glenn, (1889) 131 U. S. 319; Glenn «. Liggett, (1890) 135 U. S, 533; s. o. 8 By. & Corp. L. J. 52. * Hawkins v. Glenn, (1889) 131 U. S. 319. In Glenn v. Liggett, (1890) 135 U. S. 533 ; s. 0. By. & Corp. L. J. 52, it was said : " It was also contended in that suit by the defendant that the decree of the chancery court of the city of Richmond was void as against him, because he was not a party to the suit. On the latter, point this court said: 'We under- stand the rule to he. otherwise, and that the stockholder is bound by a §568.] CALLS. 917 an assignment to a trustee, including therein unpaid subscrip- tions, and provided that future assessments should be payable directly to the trustee, and a decree to which the stockholders were not individually parties made an assessment on said stockholders, and directed the trustee to take such steps to collect the same as he might be advised, the trustee might sue therefor in his own name, the decree being valid and binding on the stockholders.' But a receiver having been appointed to take charge of the affairs of an insolvent in- surance company upon a proceeding instituted by creditors, and the court having been petitioned to assess the stock- holders upon their unpaid stock, and having assessed them, and authorized the receiver to sue for the recovery of such assessment, it has been held that a stockholder was not made a party to these proceedings by the mere publication and mailing of notides of the petition for an assessment, in accord- ance with an order of the court to that effect, and that one who did not receive notice was not bound by the order mak- decree of a court of equity against the corporation in enforcement of a corporate duty although not a party as an individual, but only through representation by the company. A stockholder is so far an integral part of th(i corporation that in view of the law he is privy to the proceed- ings touching the body of which he is a ^member ; ' citing Sanger v. Up- ton, 91 U. S. 56, 58; County of Mor- gan V. Allen, lOa U. S. 498, 509; Glenn v. Williams, 60 Md. 93, 116; Hamilton «. Glenn, (1889) 85 Va. 901." And further : " The point is taken by the defendant that, under the stat- ute of Virginia, the balance remain- ing unpaid on subscriptions to the stock was payable as called for or required by the president and di- rectors of the company ; that it ap- pears by the amended petition that the contract between the company and the subscribers was that eighty dollars per share was payable ' oaly in such amounts and at such times as the same might be required to be paid by said company through its president and board of directors ; ' and that it is not averred in the amended petition that either the president or any of the directors was a part3' to the suit in the chancery court of the city of Richmond. But the president and directors stand for the corporation, and it is alleged in the amended petition that the cor- poration was a party to the amended bill, and that it was duly served with process in the cause in accord- ance with the laws and practice of the State of Virginia. The corpo- ration suflSciently i-epresented the president and directors in their of- ficial capacity, in which alone they were to act in making a call, and it also, as held in Hawkins v. Glenn, 131 U. S. 319, sufficiently represented the defendant." 1 Vanderwerkeu v, Glenn, (1888) 85 Va. 9. 918 CALLS. [§ 569. ing an assessment.* The fact that the court in which the suit was originally brought ordered an assessment for only part of the unpaid subscriptions, without expressly reserving the right to call for the balance,, does not prevent a court of competent jurisdiction, to which the cause is afterwards removed, from maiiing a call.^ An assessment made by a receiver pursuant tb an ex parte oj-der of the court is not con- clusive upon a stockholder, but may be questioned by him upon special statutory provisions in an action to recover it.' § 569. The same subject continued — Limitation. — In the case of a call by the court, no previous call having been made by the corporation, the statute of limitations does not begin to run against the stockholder's liability on his subscription until the date of the decree orderingthe assessment.* For, as 1 Lamar Ins. Co. ■6. Gulick, 103 111. 41. 2 Glenn v. Llgg'ei;t,(1890) 135 U. S. 533 ; s. o. 8 Ry. & Corp. L. J. 52. 3 Guykendall v. Corning, (1883) 88 N. Y. 139; Walkers. Crain, 17 Barb. 128, and Story v. Furman, 85 N. Y. 215, distinguished Hurd v. Tallnian, 60 Barb. 272,. limited New York tion,, or its trustees, violated this condition. Cuykendall v. Corning, 88 N. Y. 139. :i Hawkins v. Glenn, (1889) 131 U. S. 319; Glenn t;.- Liggett, (1890) 135 U. S. 533; S. C. 8 Ey. & Corp. L. J. 53 ; -fe^man v. Glenn, (Ala. 1889) 6 So. E?p. 44; Glenn v. Foote, 36 Fed. Rep. 834; Glenn u Semple, Laws 1852, ch.361,and 1853, ch. 179,— 80 Ala. 159; Gleim u Williams, 60 as to manufacturing corporations in Herkimer and Cayuga counties, — does not affect the liability of stock- holders of corporations formed under Laws 1848, ch. 40, Hence a receiver appointed in proceedings under said laws of 1852, and 1853, can enforce no greater liability than that im- posed by the law of 1848. He can not maintain an action against a stockholder to recover a general assessment, based on the company's entire indebtedness. And if the company, in contemplation of in- solvency, has made preferences, nei- Md. 95; Vanderwerken v. Glenn, (1888) 85 Va. 9 ; Glenn v. Howard, (1889) 81 Ga. 383; S. C. 6 Ry. & Cdrp. L. J. 191'. In the last case it was said: " We are dware that there is a decision to the contrary by Judge Brewer, of the United States circuit, Glenn v. Dorsheimer, 23 Fed. Rep. 695, in which it was held that where an insolvent corporation ceases to do business and assigns all its pi:operty, including unpaid stock stibscrip- tions, to trustees for the benefit of its creditors, the liability of its stock- holders at once becomes absolute, ther the trustees nor the receiver can and the statute of limitation begins under the proviso, in the lay? of 1853, exercise the powers conferred by the law of 1853. In an action against a stockholder to recover an assessment, it may be shown that the corpora- to run in their favor and against such creditors and trustees immedi- ately. And this is the only decision to the contrai-y that we have been able to find directly upon the ques- § 569.] CALLS. 919 between the stockholder and the corporation, it does not lie in the mouth of the stockholder to say, in response to the at- tempt to collect his subscription for the payment of creditors, that the claim is barred because the company did not dis- charge its corporate duty in respect to its creditors earlier.' Although the. occurrence , of the necessity of resorting to un- paid stock may be said to fix the liability of the subscriber to respond, he can not be allowed to insist that the amount re- quired to discharge him became instantly paj'able, though unascertained, and though there was no request or its equ,iva- lent for payment.^ The law of the State creating the corpo- 'tion." Other cases have been referred to by learned coupsel who argued the case, which seem to look in that dh-ecJ;ion — and I must say for my- self that there is a, great deal of rea- son in f a^or of the decision of Judge Brewer ; but the weight of authority is unquestionably against the ruling of the court below in this case.,'' I County of Morgan ■;;. Allen, 103 U. s; 498; Hawtins v. Glenn, (1889) 131 U. S. 319 ; Glenn v. Liggett, (1890) 135 TJ. S. 533; s. c. 8 Ry. & Corp.. L. J. 53, in which case the court said: "We are of opinion that the judgment in tavor of Liggett must he reversed. The decisions of the circuit court were made before the case of Hawkins v. Glenn, 131 U. S.. 319, was decided by this court, on the 13th of May, 1889. All the points urged on the part of the de- fendant in the ' present case were fully argued, considered and decided by this court in Hawkins v. Glenn, 131 U.S. 319. The syllabus of thatt case correctly embodies the rulings of this court in these words : ' In the absence of fraud, stockholders are bound by a decree against their cor- poration in respect to corporate mat- ters, and such a decree is not open to collateral attack. Statutes of limitation do not commence to run as against subscriptions to stock, payable as called for, until a call or its equivalent has been had; and subscribers can not object, when an assessment to pay debts has been made, that the corporate duty in this regard had not been earlier dis- , charged.' Rules applicable to a going corporation remain applicable, not- withstanding it may have become insolvent a.iad ceased to carry on its operations, where, as in this case, it continues in the possession and ex- ercise of all corporate powers essen- tial to the collection of debts, the enforcement of liabilities and the application of assets to the payment of creditors.' " 2 Glenn V. Liggett, (1«90) 135 U. S. 533; s. c. 8 By., & Corp. L. J. 53. And here there was a deed of trust made by the debtor corporation for the benefit of its creditors, and it has been often ruled in Virginia that the lien of such a trust deed is not barred by any period short of that sufficient to raise a presumption of payment. Smith v. Railroad Co. , 33 Graft. 617; Bowie v. Society, 75; Va. 300; Hamilton v. Glenn, (1889) 85 Va. 901. This deed was not only upheld and enforced by the decree of December 14, 1880, but also the power of the substituted trustee to collect the assessment by suit in his own name was declared by the 920 CALLS. [§ 570. ration governs the rights of its stockholders^ and creditors, and the statute of another State, prescribing a different period of limitation, can have no application to an action brought in that State to enforce the decree ordering the assessment' § 570. Payment of calls after transfer. — Where shares of stocli have been assigned, but from neglect, or omission from an}' cause, the assignor remains the nominal owner on the boolis o,f the company, there is ah implied obligation on the part, of the assignee to reimburse him for money paid on calls made by the company on the stock during the time he re- mains nominal'owher.^ If the shares have been a second time transferred, the oi-iginal transferrer may have recourse upon either of the transferees.* The obligation to indemnify pre- court of appeals of Virginia in Lewis V. Glenn, (1888) 84 Va. 947. See, also. Railroad Co. v. Glenn, 28 Md. 387. By the deed the subscrip- tions, so far as uncalled for, passed to the trustees, and the creditors were limited to the relief which could be afforded underit, while the stockholders could be subjected only to equality of assessment; and, as the trustees could not collect except upon call, and had themselves no power to make one, rendering resort to the president and directors neces- sary, or, failing their action, then to the courts, it is very clear that the statute of limitation could not com- mence to run until after the call was raade. • , 1 Glenn v. Liggett, (1890) 135 U. S. 533 ; s. C. 8 Ry. & Corp. L. J. 52. 2Brinkly v. Hainbleton, (1887) 67 Md. 169; Johnson v. Underbill, 52 N. Y. 203 ; Brigham v. Mead, (1865) 10 Allen, 245 ; Lord v. Hutzler, (1686) 61 Md. 534; Kellogg v. Stock well, 75 111. 68; Castellan u.Hobson, L. R. 10 Eq. Cas. 47; Kellock v. Entboven, L. R. 9 Q. B. 241 ; s. C. L. R. 8 Q. B. 408; Bowring v. Shepherd', L. R. 6 Q..B. 309; Davis v. Haycock, L. R. 4 lEx. 373; Grissell v. BristoWe, L,,R. 3 O. P. 113; Chapman v. Shepherd, L. R. 2 C. P. 22.^,; Walker 1}. Bartlett, 18 Com. B. 845; Humble v. Langs- don, 7 Mees. & W. 517 ; Morawetz on Corporations, 3nd ed. § 175. Cf. Shaw V. Fisher, 2 De Gex & Sm. 11 ; S. C. 5 i)e Gex, M. & G. 596. SKickalls v. Eaton, 23 L. T. N. S. 689, as to the first, and as to the sec- ond transferee, Hawkins v. Maltby, L. R. 3 Ch. 188. The holder of shares in a corporation agreed to sell them, and placed the certificate in the hands of a third party, to be deliv- ered to the vendee on payment of a note given for the stock, but the note was never paid, and the stock re- mained on the books of the corpora- tion in the name of the vendor. Though the vendee voted on the stock by virtue of a proxy, and the note was subsequently taken by the corporation, but not on account of any transaction between it and him, he was not liable to the corpo- ration for unpaid assessments on the stock. Cormao v. Western White Bronze Co., (1889) 77 Iowa, 33. And where one sold and delivered stock in a corporation, for a certain sum cash, and it was agreed that the vendoi- should have the option, for § 5,71.] CALLS. 921 vious holders of the stock is confined to the holders of the shares at the time the call was made by the company.^ But whether in case a call is made before, but payable after, a transfer has been completed, it should be paid by the transfer- rer, must be largely determined by .the circumstances, the con- tract between the parties, and the statutes ; '' though in some cases the transferee has been held liable.' An original stock- holder, who has been compelled to pay calls on stock after he has assigned it, is entitled to be subrogated to the rights of the corporation against the delinquent assignee only upon clear proof of acceptance of the transfer by the assignee.* § 571. Notice of calls. — "Whether notice of calls is a pre- requisite to an action to enforce their payment is a point upon which the authorities are conflicting. Many well considered cases hold that it is;'' while there seems to be a larger array a- time, to take back the stock, on entries to the effect that defendant payment of a large sum, and all as- had paid calls on the shares, were in- sessments made after the contract of admissible as evidence, the assignee sale, and the vendor afterwards paid being a stranger to the corporation. an assessment, and thereafter, be- fore the option expired, notified de- fendant that he declined to exercise the option or to. takei back the stock, it was held that the vendor could not recover from defendant the amount of the assessinent paid. Treadway v. Johnson, 33 Mo. App. 122. 1 Brinkley v. Hambleton, (1887) 67 Md. 169. 2 Schenectady &c. Plank Road Co. V. Thatcher, 11 N. Y. 102, 113; North American &c. Assoc, v. Bentley, 19 L. J. Q. B. 427. See Thompson on Liabilities of Stockholders, § 210; Morawetz on Corporations, 3nd ed. § 161. 3 West Philadelphia Canal Co. v. Innes, 3 Whart. 198; Aylesbury Ry. Co. V. Mount, 4 Man. & G. 651 ; S. 0. 5 Scott's N. R. 127. 4 Tripp V. Appleman, (1888) 83 Fed. Eep. 19. In the same case it was de- cided that the blotter of the com- pany's treasurer, and the' stubs of its check-book, both of which contained And as bet.ween the administrator of the original stockholder and his alleged assignee, who denies having bought the stock or authorized the transfer, the record of the transfer upon the books of the company is not sufficient proof of acceptance by the assignee to render him liable to the estate for calls and assessments paid by it subsequent to the assign- ment ; and this is especially so where the transfer was made under a power of attorney given by the original stockholder, and executed at his in- stance without the knowledge or consent of the assignee. ■ 6 Braddook v. Philadelphia &o. R. Co.,45N. J.. 363; Granite Roofing £!o. V. Michaels, 54 Md. 65; Dexter &c. Co. V. Millerd, 3 Mich. 91; Hughes V. Antietam Manufacturing Co., (1870) 34 Md. 316. See also Car- lisle V. Cahawba &c. R. Co., 4 Ala. 70 ; Alabama &c. R. Go. v. Rowley^ 9 Fla. 508 ; Wear v. Jacksonville &c. R. Co., 34 III. 593; Spangler v. In- 922' CALLS. [§ 571. of cases to the contrary.' After notice has been sriven, how- ever, certainly no demand is necessary before bringing suit to collect.^ Although when provision is made by statute, char- ter or bylaws for notice of calls, by publication in a gazette or journal^ the formalities prescribed must be strictly followed ; ' yet all that is generally required in the absence of statutory, charter or by-law provisions as to the form of notice, and tha time and manner of serving it, is that for a reasonable inter- val before the call is due, the shareholders shall have actual knowledge of the amount and day of pa_yment. This may be done verbally, by letter or by newspaper publication.* When notice is given by publication in a journal, it must be proven that the article was actually read by the stockholder.* Ac- diana &q. E. Co., 31 111. 275; Eutr land &c. R. Co. v. Thrall, 35 Vt. 536; Essex Bridge Co. v. Tuttle, 2 Vt. 393; Miles v. Bough, 3Q, B. 845. 1 Peaked. Wabash R. Co.i 18 111. 88; Penobscot E. Co., v. Dumm^r, (1S55) 40 Me. 172; s. C. 63 Am. Dec. 654; Eakright v. Logai:sport &c. E. Co., 13 Ind. 404; Brownlee v. Ohio &c. R Co., 18 Ind. 68; Smith v. In- diana &c. E. Co., 12 Ind. 61 ; BriSed- love u. Martinsville &c. E. Co., 12 Ind. 114; Johnson v. CrawfordsTille_ E. Co., 11 Ind. 380; New Albany &c. R. Co. V. McCormick, 10 Ind. 499 ; S. C. 71 Am. Deo. 337; Fiaher v. Evansville &c. E. Co., 7 Ind. 407; Rosa V. Lafayette &c. E. Co., 6 Ind. 297; New Albany &o. E. Co. v. Pickens, 5 Ind. 247; Lake Ontario &c. E. Co. V. Mason, 16 N. Y. 451; Harlem Canal Co. v. Seixas, 2 Hall, (N. Y.) 504; Illinois Eiver R. Co. v. Zimmer, (1858) 30 111. 654; Grubbeu. Vicksburg &c. R. Co., 50 Ala. 398; Eppes V. Mississippi &c. R. Co., 35 Ala. 33; Wilson v. Wells Valley R. Co., 33 Ga. 466; Macon &c. R. Co. v. Vason, (1876) 57 Ga. 314; Danbiiry I &c. R. Co. V. Wilson, 22 Conn. 485. 2 Winters v. Muacogee R. Co., U Ga. 438; Penobscot &c. R., Co. v. Dummer, (1855)40 Me. 172; s. 0. 68 Am. Dec. 654 ; Goodrich v. Reynolds, 31 111. 491. Of. Spangler v. Indiana &c. R. Co., 21 111. 275, b.. 2 Thus a requirement that sixty days" notice be given,' is not com- plied with by publication forty-nine days before. Macon &c. E. -Co. v. Vason, (1876) 57 Ga. 314. 4 Jeremiah Black, J., iii Lincoln «. Wright, 23 Pa. St. 76; s. c. 62 Am. Dec. 316; New Jersey Midland E. Co. V. Strait, 35 N. J. 322; Shackleford V. Dangerfieid, L. R. 3 C. P. 407 ; JSTewry &c. E. Co. v. Edmunds, 2 Ex. Eep. 118,; Mississippi &c. E. Co. v. Gaster, 20 Ark. 453 ; Tomlin v. Tonica &c. R. Co., 23 111. 429; Smith u. Tal- lahasse Plank Road Co., 30 Ala^ 650, 666; Braddock v. Philadelphia &c. Co.,' (1883) 45 N. J. 363; Hall u. United States Insurance Co., 4 Gill, (Md.) 484. Of. Louisville &c. Co. v. Merre weather, 5 B. Mon. 13;- Dan- bury &c. R. Co. V. Wilson, 23 Conn. 435. A provision for notice by pub- lication "at least sixty days," is complied with by one publication sixty days before. Muskingum Valley Turnpike Co. v. Ward, 13 Ohio, 120 ; s. c. 43 Am. Dec. 191 ; Marsh v. Burroughs, 1 Woods, 463. 8 Alabama &c. R. Co. v. Rowley, 9 Fla. 508. See obiter Lake Ontario § 572.] CALLS. 923 cording to the general principle above announced, proof of the fact of mailing is not sufficient; it must be proved to have been received also.' For the doctrine of constructive notice does not apply unless bj express statutor}' provision.^ But proof that notice of a call was duly mailed to a subscriber has been held to make a yrima facie case of notification.' In either case whether it was ever received is a question of fact for the jury.* § 573. Place and time for payment. — As interest on sub- scriptions to stock ruiis from the time that, the call is due,^ and as notice of the time of payment must be reasonable," even if no specified notice is required to be given," the resolution for a call must state the time at which it is to be paid.^ The di- &c. E. Co. V. Mason, 16 N. Y. 451; Tomlin v. Tonica &c. E. Co., 23 111. 429; Eutland &c.. E. Co. v. Thrall, 85 Vt. ' 536; . Unthank v. Henry- County Turnpike Co., 6 Ind. 125. 1 Hughes V. Antietam Manuf. Co., (1870) 54 Md. 316. 2 Hughes V. Antietam" Manuf. Co., (1870) 34 Md. 316. 3 Braddock v. Philadelphia &c. R. Co., (1883) 45 N. J. L. 368. Ace. Eastern Union By. Co. v. Symonds, 6 Ey. Gas. 578; Jones v. Sisson, 72 Mass. 228. See also Trotter v. Mao- lean, 13 Ch. Div. 574; Eeid v. Har- vey. 5 Q. B. Div. 184. * Braddock v. Philadelphia &c. E. Co., 45 N. J. L. 883. 5 Gould V. Oneonta, 71 N. Y. 298; Burr V. Wilcox, 22 N. Y. 551. The English Companies Clauses Act of 1845 provides that ''if before or on the day appointed for payment, any shareholder do not pay the amount of any call to which he is liable, then such shareholder shall be liable to pay interest for the same at the rate allowed by law from the day appointed for the payment thereof to the time of actual payment." The Companies Clauses Act, 1845, 8 Vic. ch. 16, § 23. A special claim for interest is not necessary in an ac- tion under this act ; but the amount claimed should cover the interest. Browne & Theobald's Ey. Law, 78, citing Southampton Dock Co. v. Eichards, 1 Macn. & G. 448; London &c. Ey. Co. V. FairClough, 2 Macn. & G. 674. 6 Fairfield &c. Co. v. Thorp, 13. Conn. 173. Cf. Hall v. United States Insurance Co., 4 Gill; (Md.) 484. "Fairfield &c. Co. v. Thorp, 18 Conn. 173. See § 594, infra, as to notice. 8 In re Cawley & Co., 42 Ch. Div. . 209. In an editorial article, " What is necessary to a good Call on Shares," (1890) Law Times, 166, this case is discussed as follows : In that case one of the articles laid it down "that the amount payable on the shares in the capital shall be pay- able at the bankers of the company, or at such other place as the board, -shall appoint, with such deposit and in such instalments and manner, and at such time, as shall be ap- pointed from time to time by the- board." And another said that " all calls in respect of shares shall be deemeidto be made at the time when the resolutions authorizing them are , 924 CALL8. [§ a72. rectors' resolution need not state the place of payment, neither is it necessary that it should specify the person to whom pay- ment shall be made. It is suHloient that these matters of de- passed by the board." This being so, a resolution was passed by the board in the following terms : " That the remainder of the capital be aUd is hereby called up, payable as fol- lows : As to shares niinibered, &c., the sum of 5s. per share payable on the day of , and as to the whole of the shares of the company " (except certain shares which had been issued as fully paid up) " 5s. per share payable on the day of , and 5s. per Share payable on the day of -." The dates of the calls were left in blank in the resolution, the chairman deposing that he did not think it necessary to insert the dates or to order immedi- ate notice of the calls to be sent out, because he was still Jioping that other financial arrangements might be ijiade which would dispense with the necessity of enforcing the callsj Before the next meeting of the board, three days later, the three blanks in the minutes of the resolu- tion were most improperly filled in by the secretary by the insertion of three proximate dates. It appeared that the secretary had no instruc- tions to alter the minutes, and that he inserted the dates of the calls in the exercise of his own discretion. At the next board meeting the min- utes of the previous meeting, with the dates of the calls thus inserted, were " read and confirmed." On these facts the Court of Appeal dis- tinctly laid down that a resolution for a call, to be valid, must state not only the amount of the call, but also the time at which it is to be paid ; this being • so, in this case there was no proper call iuade .until the second resolution fixing.the date of payment, and that the sec- ond resolution did not, in point of date, relate back to the first. The opinion of Lord Esher, M. R., was that at the first of the two board meetings there was no call whatever made. The directors could not, of course, make a call without a reso- lution, and there could be no valid call in this company until the time and place for its payment had been appointed by the board; that is to say, until it had been resolved by the directors that the call should be payable in certain instalments, and in a certain manner, and at a cer- tain time appointed by the board. The article quoted says, "as shall be appointed from time tj time." That means that the directors are not bound to make a call of the whole of ,the unpaid capital, but they may make a call of part only, and at another time they may deal with the rest, so that there ma}' be successive calls until the whole of the capital has been called up. After making a call, as, for instance, of 5s. per share, if a particular number of 'shareholders did not pay on the day appointed, the directors might / appoint another day, but only after they had made a valid appointment of a certain day in the first instance;, then, owing to intervening circum- stances, they might appoint a fur- ther day on which those who had been called upon to pay on the first day, and had not paid, might pay the call. Failing payment on that day, the remedy of the directors was either by action or by forfeit- ure. And again, Lord Justice Fry added that, in this company, accord- ing to the articles which we liave § 573.] CAI.I.3. 925 tail be set forth in the notice sent to the shareholders; and when not specified therein, the money is deemed payable to the treasurer of the company at his usual place of business.' § 573. Irregularities in calls — Acquiescence —Estoppel. There are no formal requisites to the validity of a call.^ A resolution by the directors showing their intent to render pay- able a part or all of unpaid subscription constitutes a call, or as it is frequently loosely termed an " assessment," ' Accord- quoted, the fixing of the time was of the essence in the making of a call : "In fact." he added, "I scarcely know what the making of a call is, except the fixing of the time at which the money is to be paid. I am clearly of opinioii that, accord- ing to the constitution of the com- pany, no call was made until the time for payment was fixed. All the articles in fact show that the fixing of the time was an, essential part of the call." It will be observed that the Lord Justice was careful to guard himself by the articles of the company, and he laid down no gen- eral proposition apart from the arti- cles. And Lord Justice Cotton did not advert to the point. But the Master of the Rolls added a post- script to his judgment, which ef- fectually prevents the decision in this case being rested merely on the particular articles. Lord Esher said : " I do not wish it to be supposed that my decision in this case re.sts only on the articles. ' I take it to be of the very essence of a call that the time and place for payment, should be de- termined." The time of the call can not, it seems, be . fixed by a mere verbal direction to the secretary of the company. Johnson v. Lyttle's Iron Agency, 5Ch. Div. 687. Though a resolution that a call "shall be made " on a future day is good, and the time, place and manner of pay- ment may be fixed by a distinct act after the original resolution. Shef- field &c. Ry. Co. V. Woodcock, 7 Mees. & W. 574 iDanbury (fee. R. Co. v. Wilson, (1853) 22 Conn. 435 ; Great North. &c. Ry..Co. V. Biddulph, 7 Mees. & W. 343. That the , resolution need not specify the time and place of pay- ment, see: Rutland &c. R. Co. v. Thrall, 35 Vt. 536; Great North. &c. Ry. Co. V. Biddulph, 7 Mees. & W. 243. That the resolution need not state the person to whom it shall be payable, see: Great North, &c. R. Co. V. Biddulph, 7 Mees. & W. 243. So k\so notice to pay to the treasurer of the company is a sufflcient desig- nation of the place of payment, namely, at his office. Muskingum tYalley Turnpike Co. v. Ward, 13 Ohio, 120; s. c. 42 Am. Dec. 191. Contra, Dexter &c. Plank Road Co. u.Millerd,3Mich. 91. ^ Fox V, AUensville &c. Turnpike Go,, 46 Ind. 31; Andrews v. Ohio &c. R. Co., 14 Ind. 169. 3Budd V. Multnomah Street R. Co., (1887) 15 Oregon, 413; s. c. 3 Am. St. Rep, 169. The word call is capable of three meanings. It may mean either the resolution by the corporate authorities that payment be made upon the subscriptions, or the notification to the subscribers, or it may be used to refer to the time when payment becomes duei. Ambergate Ac. Ry. Co. V, Mitchell, 4 Ex. Rep. 540. Cf, Newry &c. Ry. 926 CALLS. ■ [§ 573. ingly a call may be valid notwithstanding a failure to enter the resolution in the minutes of the' meeting.' A qall being nothing more than an oflBcial declai'ation that the sums sub- scribed are required to be paid,* it has been said that a share- holder shall not take advantage of any irregularity therein;' nor may a director who participated in making it set up its in- formalities.* A call is scarcely anything more than the fixing of the time when money is to be paid.' The making of the call, or informalities in the notice thereof, may be waived by the subscriber, either expressly or by implication from certain acts.^ So also errors in making a call may be cured by a sub- sequent call after the liability has accrued and. before action brought.' As a further matter, not merely formal, when calls are made by the directors, it is essential to their validity that they be made by a majority of a quorum.' AccoBdingly, in England, if directors have been illegally elected, their calls and forfeitures may be set aside." But in this country it is suf- ficient that the calls were made by directors defacto}^ And Co. V. Edmunds, 3 Ex. Rep. 118; Braddock v. Philadelphia &c. E. Co., (188S) 45 N.'J. 363. But either meaning taken must be consistently adhered to. Thus the interval be^ tween the making of calls can not be reckoned from the time the call is payable in one case, to the time when the resolution for the call is made in the other. Ambergate &c. Ey. Co. V. Mitchell, (1849) 4 Ex. 540. 1 Hays V. Pittsburgh &c. E. Co., (1860) 38 Pa. St. 81. 2 Braddock v, Philadelphia &c. R. Co., (1883) 43 N. J. 368. C/. Spangler v. Indiana (fee. E. Co., 21 111. 275, b. iln re British Sugar Eef. Co., 3 Kay & J. 408; Eichards v. South- ampton Dock Co., 1 Man, & Gr,448; B. C. 2 Ey. Cas. 215, 231. *Hays V. Pittsburgh &c. R. Co., (1860) 38 Pa. St.' 81. e/re re Cawley & Co., 43 Ch. Div. g09. ' « Macon &c. E. Co. v. Vason, (1876) 57 Ga. 314; Rutland &c E. Co. v. Thrall, 35 Vt. 5ii6. But it has been •held that the vote of a city to pay a call does not waive its invalidity. Pike V. Bangor &c. E. Co., 68 Me. 445. And payment of a portion of the subscription is no waiver of the right to require calls to be made for the balance. Grosse Isle Hotel Co. V. I' Anson, (1881) 43 N. J. L. 442. ' Philadelphia &c. R. Co. v. Hick- man, (1857) 28 Pa. St. 318. 8 Hamilton v. Grand Rapids &c. R. Co., (1859) 13 Ind-. '347; Price v. Grand Rapids &c. R. Co., 13 Ind. 58 ; Cowley v. Grand Rapids &c. R. Co., 13 Ind. 61; Pike v. Bangor &c. -R. Co., 68 Me. 445 ; Silver Hook Road V. Greene, 12 R. I. 164. In re Garden Gully &o. Co., L. R. 1 App, Cas. 39; Swansea Dock Co. v. Lewien, 20L. J. Ex. 447. i« Macon &o. R. Co. v. Vason, (1876) 57 Ga. 314 ; Eakright v. Logansport &c. R. Co., (1851) 18 111. 404; Stein- §i 574, 5^5.] CALLS. 927 an allegation that the directors were duly elected is unneces- sary.i § 574. Tender of certificates.— An action to enforce pay- ment of subscriptions ma_y be maintained without a previous tender of stock certificates.^ And this is true even though the contract may provide for their issue "upon pa^'ment." ' A willingness, however, to deliver the certificates must be averred in the company's pleadings, in actions for the whole amount subscribed or to enforce payment of the last instalment.* §,575. Evidence. — The books of a corporation are compe- tent evidence to prove that one is a stockholder, and the state of his account in respect to his shares.' They dire prima facie mitz V. Versailles R. Co., (1877) ^'^ lad. 457 ; Johnson v. Crawfordsville R. Co., 11 Ind. 280. 1 Steinmitz v. Versailles &c. Turn"- pibe Co., (1877) 57 Ind. 457; Miller v. Wild Cat &c. Co., 53 Ind. 51. 2 Paducah & M. R. Co. v. Parks, (1888) 86 Tenn, 500 ; Fnlgan v. Macon &c. R. Co., 44 Ga. 597. Of. Chelten- ham &c. Ry. Co. V. Daniel, 3 Eng. Ry. Cas. 738. Bat see St. Paul &c. R. Co. V. Robbins, 33 Minn. 439. 3 Paducah & M. R. Co. v. Parks, (1888) 86 Tenn. 500. * James v. Cincinnati &c. R. Co., 3 Disn. 361; Clark v. Continental &c. Co., 57 Ind. 135. 5 Turnbull v. Payson, 95 U. S. 418 Glenn v. Orr, (1887) 96 N. C. 413 Vanderwerken v. Glenn,^ 85 Va. 9 Barringtbn v. Pittsburgh &c. R. Co. , 34 Pa. St. 358, 364; Comfort u. Le- land, 3 Whart. (Pa.) 81, 88. In a case in which it appeared that a per- son had agreed to subscribe for some of the shares of the stock of the company, under the name it then bore; that by his proxy he partici- pated in the organization of the com- pany; and, that, 'on motion of his proxy, the corporate name was changed to that borne at the time of the assessment, his name also ap- pearing on the company's books as holder of the stock, it is suflScient evidence of his being a stockholder of the present company. In that action the books of the corporation being identified' by its superintend- ent and trustee, in an assignment, and having been previously proved before a commissioner in a chan- cery suit to which the corporation was a party, and it being shown that the books now oflfersd were the same used by the commissioner, upon which his report had been made, which report was confirmed, in the absence of any circumstances tending to discredit the books they were admitted as evidence. Vander- werken V. Glenn, (1888) 85 Va. 9. And where a statute provided that a person in whose nains shares of stock stand on the books of a com- pany shall be deemed the owner thereof, as regards the company, and a company's stock ledger showed that five certificates of fifty shares each were issued in the name of a person who testified that he trans- ferred three of these certificates to third persons, but who failed to have them transferred to their own names 928 CALLS. [§,575, evidence and throw the burden of proving the contrary upon the. person whose name or account so appears;' particularly ■when the genuineness of. the ^ subscriptions in question is not denied,; and another assessment levied .by the same authority as the one resisted, has been paid," The entry in the record book of the board of directors of a turnpike cotfipany, signed by the secretary, is competent evidence of the act of the board requiring payment from subscribers to capital stook.^i But when an action is brought to enforce payment of a call,. proof must be given that it was made by the proper corporate authorities. That the; notice itself declares the- call to' be made b\' the board of directors, is no proof of the fact.* An authorized call for a subsequent instalment is evidence that the former had been made by authority, the former being necessarily implied by the later call.' But if the directors rely upon the fact that a former call is void, they must prove it or show that it has not been paid.* An action for calls under the English Companies Clauses Act of 1845, will not lie against a person who is not shown to be the holder of some specific shares.' This act provides that it is sufficient for the company to prove, in an action to enforce the payment of calls, that the defendant at the time they were made was the holder of one or more shares, and that the call was in fact made and suc,h notice thereof given as is directed by the statute o'r the special act of incorporation ; and it is not nec- essary to prove the appointment of the directors who made the call, nor any other matter whatsoever.' on the books; and that of the re- ''Lehman v. G-lenn, (1889) 87 Ala. maining shares, he transferred fifty 618. to other persons, ifte transfer being , s Fox v. Allensville &c. Co., .(1874) made on the books, it was held that, 46 Ind. 31. , as to creditors, he still remained < New Jersey Midland Ry. Co. V. the owner of two hundred shares. Strait; (1871) 85 N. J. 333. Hawkins v. Glenn, (1889) 131 U. S. « Harrington v. Pittsburgh &c. R. 819. Co.,' (1859) 34 Pa. St. 358. iTurnbullu. Payson, 95U. S. 418j 8Welland Ry. Co. v. Berrie, 6 Hamilton &c. Co.'v. Rice, 7 Barb. Hurl. & N. 416. 157; Coffin v. Collins, 17 Me. 440; 'Wolverhampton &c. Co. v. Whitman v. Granite Church, 34 Me. Pawkesf ord, 6 C. B. N. S. 388 ; 256; Wood v. Coosa &c. R. Co., Companies Clauses Act. of 1845, 8 (1861) 33 Ga. 373; Hoagland v. Bell, Vic. eh. 16, g 36. 86 Barb. 57. 8 8 Vic. ch. 16, § 37. §§6T6-5T8:] CALLS. 929' § 676. Defenses to actions upon calls — (a) In general.—- A shareholder sued by the corporation for instalments of his subscription can not question the existence of the corporation or the regularity of its organization,' nor dispute the neces- sity for the calls.^ He is not released from liability on his subscription because the corporation changed its name after he subscribed.' Nor is it a defense to an action on a subscrip- tion to the stock of a company organized to carry on the busi- ness contemplated in the subscription, and engaged in that business only, that it might, under the act of incorporation, have carried on other business.* It is no defense that some of those subscribing were notoriously insolvent at the time.' "Where the directors of an insurance company compromised and paid the liabilities of the corporation at^less than their amounts, it was held that this did not free a stockholder from liability for a call to pay debts upon winding up.^ That the property of the company has been seized by the State under execution can not be set up in defense to a suit upon a sub- scription.' § 577. (b) Infancy. — It is no answer to an action for calls that the shareholder was an infant at the time of registration, where nothing more is alleged.' For allowing shares to re- main in his name after majority is a ratification of his liability: to the company.' And to avoid liability he must also sh;Ow that while he was an infant, or within a reasonable time after coming of age, he repudiated the shaires.'" § 578. (c) Acconimodatlon subscription. — The holder of shares may plead in defense to an action against him by iMcCune Mining Co. v, Adams, 'MuUinsti. North &o.E. Co., (1875) (1886) 35 Kan. 193. ' 54 Ga. 580. 2 Chouteau Ins. Co. v. Floyd, 74 ^Cork &c. Ry. Co. v. Cazenove, 10 Mo. 386. Q. B. 935; Leeds &o. Ry. Co. v. 8 Howard v. Glenn, (Ga. 1890) U Fearnley, 4 Ex. 36; 'London &c.Ry. S. E. Rep. 610. Co. v. McMichael, 30 L'. J. Ex. 97; < Haskell v. Worthington, (1888) 94 s, c. 5 Ex. 114. Mo. 560. 9 Cork &c, Ry. Co. v. Cazenove, 10 s Jewell V. Rock River Paper Co., Q. B. 935. 101 111. 57. 11 Newry &c. Ry. Co. v. Coombe, 3 6 Chouteau Ins. Co. v, Floyd, (1881) Ex. 565 ; Dublin &c. Ry. Co. v. Black, 74 Mo. 386. 23 L. J. Ex. 94 ; s. 0. 8 Ex. 181. 59 930 CALLS. ~ [§579, the company that the stock was issued to him as a gratuity, and that neither expressly nor by implication did he prom- ise to pay for it.' Accordingly, one who subscribes to the capital stock of a corporation solely in order to enable it to obtain a certificate of organization, under an agreement with the other subscribers that he is not to be liable on the stock, and is not to be required to pay assessments, is not liable to an assessment thereon as against the other sub- scribers until it becomes necessary to assess it in order to pay debts of the corporation.^ But a written agreement to pay assessments on the stock contained in the book of subscription will bind the signer, notwithstanding a -verbal understanding or agreement that some other member of the corporation will release him from the stock and liability thereon.' § 579. (d) Bankruptcy of shareholder. — If calls were made and remained unpaid prior to the bankruptcy of a stock- holder, undoubtedly they would be carried by his discharge in bankruptcy, but his discharge is no bar to an action for an instalment subsequently called for, the unpaid subscription not constituting such a debt or liability as is provable against his estate in bankruptcy.* If, however, the company is in liquidation at the time of his bankruptcy, the estimated amount of future calls maybe proved.' In an action by, a trustee under an assignment from an insolvent corporation.to recover an assessment on its stock, a finding that defendant never subscribed for the shares,, and was not liable to pay the assessment, is conclusive in defendant's favor, and the ques- iChristensen v. Eno, (1887) 106 De G. & Sm. 400 ; Sic parte Green- N. y. 97. hills, 5 De G. & Sm. 599; s. d 21 2 Winston «. Dorsett&o. Co., (1889) L. J. Ch. 773; Financial COrpora- 129 111.64. tion v. Lawrence, 1% W. E. 854; 3 TopekaManuf'g Co. ■W.Hale, (1888) Parbury's Case, 30 L. J. Ch. 512; 39 Kan. 28. ' Wyland Steam Fuel Co. v. Street, 10 < Glenn v. Howard, (1886) 65 Md. . Ex. 849; 8. 0. 24 L. J. Ex. 208; Mx 40. parte Hastie, 38 L. J. Ch. 43, 333 ; s General Discount Co, v. Stokes, s. 0. L. E. 7 Eq. 3; s. c. 4 Oh. 274; 35 L. J. C. P. 25; s. 0. 17C. B. N. S. Martin's Patent Anchor Co. v. Mor-, 765; s. 0. 5 New Eep. 134; In re t6n, L. E. 5 Q. B. 306; 37 L. J. Q. Monmouthshire Banking Co., Ex B. 98; South Staffordshire E. Co. v. parteNicholas, 21L. J. Q. B. 64; s. C. Burnside, 20 L..J. Ex. 120; S. C. 5 a D. M. & G. 271 ; Chappie's Case, 4, Ex. 139; Anglo Greek Steam Naviga- 580.] CALLS. 931 tion of the effect of a discharge in bankruptcy is wholly im- material.' § 580. (e) Set-off. — In the case of stock issued as fully paid up, but for which less than par was paid, the holder can not set off against the creditor of the corporation a debt due himself from the corporation.- And when a subscriber to the capital stock of a corporation is sought to be held on a judg- ment against the corporation to the amount of his unpaid subscription he can not set off against that judgment what ithe corporation may owe him for services, rent of property, and such like demands.^ An.d where one had a contract with a corporation to build its works for a certain sum, part of Avhich was to be paid in stock, which he, like other stockholders^ was to take at fifty per cent, of its par value, and a judg- ment creditor of the company sought to subject defendant to . liability, by creditors' bill, on unpaid stock which he had taken in pursuance of his contract with the company, it was held that the. creditor was not bound by the contract be- is ordinarily no individual liability of the stockholder in excess of his obligation to pay in full for his stock, it appears to us manifestly unjust to allow him to set oflE his claim as a creditor against his liability as a stockholder. If permitted to do so, his claim as a creditor might be paid in full while the other creditors would receive only a part of tlie amount due them. It is true a stockholder has a right to deal with a corporation the same as any other person, and, if sued by the corpora- tion for- unpaid instalments on his stock, he may have the right to set off debts due to him f rbm the corpora- tion. But as against the claim of a mere creditor, who has the right to demand that the capital stock shall be kept unimpaired for the payment of creditors, it is apparent that the rights of the parties are quite differ- ent. -The debt due to a stockholder ought not to be held as superior to the claims of creditors." tion Co., Ex parte Carralli, L. E. 4 Ch. 174; Ex parte King, L. R. 4 Eq. 566 ; S. C. 3 Ch. 10. 1 Glenn,'U. Sumner, (1889) 133 U. S. 153. 2Boulton &o. Co. V. Mills, (1889) •'78 Iowa, 460 ; s. C. 6 Ey. & Corp. L. J. 417. 3 Singer v. Given, 61 Iowa, 93. In , Boulton &c. Co. V. Mills, (1889) 78 Iowa, 460, the court said: "In Thomp. Liab. Stockh. § 381, it is said that a 'stockholder can not, in a proceeding against hitn by or on behalf of a creditor or creditors, set off a debt due to hiin by the corpora- tion.' An examination of the au- thorities cited in support of the re- spective views of these text-writers has led us to the conclusion that we ought not to overrule the case of Singer v. Given, 61 loiwa, 93. It is a fundamental principle that the capital stock of a corporation is in the nature of trust property held for the benefit of creditors. As there 932 oALis. [§§ 581, 582. ■tween the defendant and the company, as, to the i price for the works, and that only to ■ the extent of their reasonable value coul^ he recoup himself against the unpaid balance on the par value of the stock.* § 581. (f) The statute of limitations.— In England the liability for calls being created by statute, the limitation thereon is twenty years.^ And it has been held in this country that stockholders in a bank can not oppose the .statute; of lim- , itations to the claim of creditors to, have the stock paid up, it being a continuing trust and confidence to which the statute* has no application.' In any case a right of action to recover instalments of a subscription to corporate stock, does not ac- crue until a call is made, and the statute of limitations does not begin to run until that time or until the corporation has ceased to be a going concern.* And in Pennsylvania the rule is, that although the statute does not begin to run against a subscription until a call has been made, yet the call must have been made within six years, or the delay satisfactorily ac- counted for, or else a recovery on the subscription is barred.' § 582. Calls after consolidation. — After several compa- nies have consolidated, the new company may maintain ac- tions against the stockholders of the oM companies who have become stockholders of the new, for calls on their shares.' The 'Shioklew. Watts, (1888) 94 Mo. Fed. Kep. 695; s. C. 24 Fed. Rep. 410. 536; Glenn v. Priest, 28 Fed. Rep. , 2Cor]£&o. Ey. Co. v. Goods, 22 907. L. J. C. P. IflS; s. C. 13 C. B. 836. s Pittsburgh &c. R Co. v. Byers, 3 Payne v. Bultard, 23 Miss. 88; 82 Pa. St. 22; s. o. 72 Am. Dec. 770; S. C. 55 Am. Dec. 74. ■ McCuUy v. Pittsburgh R. Co., 32 Pa. < Gibson v. Columbia &c. Co., St. 25 ; Pittsburgh &c. R. Co. u. Gra- (1868) 18 Ohio St. 396; Scovill v. ham, 36 Pa. St. 77. Thayer, (1881) 105 IT. S. 143, 155; eCork Sec. R. Co. v. Patterson, 18 Curry v. Woodward, 53 Ala. 371; C. B. 414; Fisher v. EvausviUe &c. Harmon v. Pag'e, 62 Cal. 448 ; Glenn R. Co., 7 Ind. 407 ; Hanna v. Cincin- V. Saxton, 68 Cal. 353; Glenn v. nati &c. E. Co., 20 Ind. 30; Wash- Williams, (1883) 60 Md. 93 ; Payne u. burn V. Cass County, 3 pill. 351; BuUardrf 23 Miss. 83; s. 0. 55 Am. Swartwout v. Michigan &o. R. Co., Deo. 74 ; Thompson v. Reno Sav. 24 Mich. 389 ; Wells v. Eodgers, 60 Bank; 19 Nev. 171 ; S. 0, 3 Am. St. Mich. 525 ; Cooper v. Shropshire Eep. 881; AUibone v. Hayes, 45 Pa. Union R. &o. Co., 13 Jur. 443; Foss St. 48; Glenn V. Dorsheimer, S3 t). Harbottle, 2 Hare, 461 ; s. o. 7 Jur. § 583.] CALLS. 933 new shareholders, however, can not be sued for assessments on their new stock until the organization of the new company- has been lawfully perfected.' Moreover, calls made by the original companies, remaining unpaid at the time of consoli- dation, are also payable to the consolidated corporation, and payment thereof may be enforced by the latter as if the calls had been originally made by it,^ But the stockholder is not precluded from questioning the validity of the steps which have led up to the pretended consolidation.* For unless a consolidation be authorized, the new company can not enforce the payment of calls on the stock of the former.* It seems, too, that the corporation must prove its corporate existence unless the shareholder has in some way recognized it.^ § 683. Pleading and practice. — In actions to enforce the payment of calls, facts sufficient to show that they are due and payable must be alleged in the pleadings.* As each con- tract is to be separately construed and to be in no way affected by the terms of other subscriptions,^ an action against sub- scribers jointly to enforce the payment for stock will not lie, for the contract of subscription is not joint but several.' And accoi^dingly when one person makes two subscriptions in dif- ferent capacities, as an individual and as a trustee, actions to enforce payment must be brought separately upoii each.' The 163; Exeter &c. R. Co. v. Buller, 11 ^ Thrasher v. Pike County R. Co.,, Jur. 537; Lord v. Cooper Miners' Co., 35 111. 393. 18 L. J. Ch. 65; Mozley v. Alston, 1 » Mansfield &o. R. Co. v. Drinker, Phil. Ch. 790; s. C. U Jur. 315; 80 Mich. 124, and cases cited siipm. Mansfield &c. R. Co, v. Brown, 36 « Bethel &o. Co. v. Bean, (1870) 58 Ohio St. 333 ; Mansfield &c. R. Co. Me. 89 ; Spangler v. Indiana &c. R. V. Stout, 36 Ohio St. 341, 255; Mans- Co., 31 111. 276; Peakeu Wabash R. field &c. E. Co. V. Drinker, 30 Mich. Co., 18 111. 88. 134. 7 Connecticut &c. R. Co. v. Bailey, 1 Midland &o. R, Co. v. Leech, 3 34 Vt. 465. H. L. Cas. 873. , 6 Erie &c. R. Co. v. Patrick, 2 Abb. 2 This is expressly enacted in Eng- App. Cas. 73 ; s. o. 3 Keyes, 256 ; Price land. 36 & 27 Vic. ch. 93, § 53. v. Grand Bapids &c. R. Co., 18 » Tuttle V. Michigan Air Line R. Ind. 137 ; Herron v. Vance, 17 Ind. Co., 35 Mich. 347, 249; Peninsular 595. E. Co. u. Tharp, 38Mich. 506;Mans- '-"Erie &c. E. Co. v. Patrick, 2 field &c. E. Co. V. Brown, 36 Ohio Keyes, 356; S. C. 3 Abb. App. Cas. ,St. 223; Mansfield &C.E. Co. u Stout, 72. 36 Ohio St. 341. 934: CALLS. . [§ 584:. right to recover unpaid subscriptions for stocks vests on dis- solution in the officers who by statute represent the corpora- tion, and Hot in creditors, unless otherwise provided.' Bat where a statute gives creditors a right of action against the stockholders at the time of dissolution, a personal liability is created, which may be enforced by a common-law action in or oiit of the State of the corporation's domicile.^ The meas- ure of damages in an action, to enforcei payment of subscrip- tions is the amount of the call with interest from the time of default of payment.' It is not a sufficient defense to allege that the call was unnecessary; for, provided the directors in making it do not exceed their powers, the court will not in- quire into the necessity of it nor into the motives prompting it.* § 584. The company's remedy upon unpaid calls. — The contract of subscription is founded upon the consideration of the pecuniary advantage's and the profits anticipated through membership in the company;* although the mutual promises of the subscribers, and the implied engagement of the com- pany to issue the stock, have also been held to support the con- tract," as also have the prior acts of the parties, and the partial execution of the purpose of incorporation.' In case of the 1 Savings Assoc, v. O'Brien, (1889) v. Mason, (1857) 16 N. Y. 451, 463; 51 Hun, 45. Buffalo &c. R. Co. v. Dudley, 14 2 Savings Assoc. '% O'Brien, (1889) N. Y. 336; Schenectady &c. R. Co. 51 Hun, 45; Pollard v. Bailey, 30 v. Thatcher, 11 N. Y. 102, 108; Thig- Wall. 536; Banki;. Franoklyn, (1887) pen v. Mississippi Central R. Co., 33 120 U. S. 747 ; Flash v. Connecticut, Misg. 348 ; New Albany &c. R. Co. 109 jU. S, 371; Corning v. MoCul- v. Fields, 10 Ind. 187; Fry v. Lex- lough, 1 N. Y. 47; Perry v. Turner, ington &o. R. Co., 3 Met. (Ky.) 314; 65 Mo. 418 ; State Savings Assoc, v. Hartford &c. R. Co. v. Kennedy, 13 Kellogg, (1876) 63 Mo. 540 ; s. c. 52 Conn. 499. Cf. East Tennessee &c. Mo. 583; Donnelly?. Mulhall, 13 Mo. E. Co. v. Gammon, 6 Sneed, (Tenn.) App. 139. 567; Danbury &c. R. Co. v. Wilson, 3 Rand v. White Mountain E. Co., 33 Conn. 435. (1860) 40 N. H. 79; Upton v. Burn- 6 Bullock v. Fahnouth &o. Co., ham, 3 Biss. C. C. 520; Gould v. (1887) 85 Ky. 184; Twin Creek' &g. Oneonta, 71 N. Y. 398; Southern Co. v. Lancaster, 79 Ky. 553; St. &c. R. Go. V. Moravia, 61 Barb. 180 ; Paul &c. R. Co. v. Robbins, 33 Minn. 8 Vic. ch. 16, § 35. 439. * Oglesby v. Attrill, (1881) 105 U. S. ' Kennebec &o. R. Co. v. Palmer, 605. 34 Me. 366. Cf. McCuUy v. Pitts- , sSelma &o. R. Co. v. Tipton, 5 burgh &o. R. Co., 33 Pa. St. 25; Ala. 787; Lake Ontario &o. R. Co. Miller v. Wild Cat &c. Co., 53 Ind. J584.J CALLS. 935 failure of a stockholder to pay legal demands on account of his stock, the corporation may ordinarily bring an action for breach of contract.' The remedy of forfeiture is cumulative merely.^ Accordingly whether the law as in some States im- plies from the subscription itself a promise to pay for the. shares of stock, or whether there is an express pronaise to pay, the statute conferring upon the company authority to forfeit and sell the shares of delinquent stockholders, does not by implication exclude the common-law remedy for the enforce- ment of payment.' But unless both remedies are expressly conferred by statute,* it may not avail itself of both. It can not, after declaring the stock forfeited, sue the shareholder for the balance which the sale of his shares failed to pay.^ In 51, 64; Parker ■;;. Northern &c. R. ■Co., 33 Mich. 33; Illinois River R. Co. V. Zimmer, 20 111. 654. 1 Rand v. White Mountain R. Co., (1860) 40 N. H. 79. 2 Dexter &c. Cp. v. Miller, 3 Mich. 91; Hughes v. Antietam &c. Co., 34 Md. 316 ; Price v. Grand Rapids '&c. ' R. Co., 18 Ind. 137 ; Herron v. Vance, 17 Ind. 595 ; Thompson v. Reno Sav- ings Bank, (1885) 19 Nev. 108; s. 0. 3 Am. St. Rep. 881. 3 Hightower v. Thornton, (1850) 8 Ga. 486; S. c. 53 Am. Dec. 413; Selma &c. R. Co. v. Tipton, 5 Ala. 787; s. 0..39 Am. Dec. 344; Spear i?. Crawford, 14 Wend. 30; s. C. 38 Am. Dec 513 ; New Hampshire &c. R. Co. V. Johnson, 30 N. H. 890 ; s. C. 64 Am. Dec. 300; Rutland &c. R. Co. V. Thrall, (1863) 35 Vt. 536; Con- necticut &c. R. Co. V. Bailey, 34 Vt. 465 ; s. C. 58 Am. Dec. 181 ; Green- ville &c. R. Co. V. Smith, (1853) '6 Rich. 91; Charlotte &c. R. Co. v. Blakely, 3 Strob. 345; Greenville &c. R. Co. V. Cathcart, 4 Rich, 89; Mexican Gulf &c. R. Co. v. Via- vant, 6 Rob. (La.) 305; Boston &c. E. Co. V. Wellington, (1873) 113 Mass. 79; White Mountains &o. R. Co. V. Eastman, 34 N. H. 134, 147 ; Hartford &c. R. Co. v. Kennedy, 12 Conn. 499; Peoria &c. R. Co. v. Elting, 17 m. 439; Ryder v. Alton &c. R. Co., 13 111. 516; Klein v. Alton &c. R. Co., 13 111. 514; Barnet V. Alton &c. R. Co:, 13 111. 504; Spangler v. Indiana &o. R. Co., (1859) 31 111. 376; Dayton v. Borst, (1865) 31 N. Y. 435; Rensselaer &c. R. Co. V. Witzel, 31 N, Y. 56; I,ake Ontario' &c. R. Co. ■;;. Mason, (1857) 16 N. Y. 451 ; R9nsselaer &c. R. Co. V. Barton, 16 N. Y. 457; Buffalo &o. R. Co. V. Dudley, 14 N. Y. 836; Troy &c. R. Co. V. McChesney, 31 Wend. 396; Ogdensburgh &c. R. Co. v. Frost; 31 Barb. 541 ; Troy &o. R. Co. V. Tibbets, 18 Barb. 397; Troy it is illegal for a company to pay interest to shareholders dur- ing the construction of its works or the period which elapses before an income is earned out of capital.' But this rule does not prevent payment of interest on bonds or debenture stock representing available money raised by borrowing." When, however, the capital stock of a company has been reduced, the property thus deducted from the capital ma3'^ be distrib- uted as a dividend.' And although the property of the com- pany was in its nature of a wasting character, being a deposit of rock to be mined under a lease of the land for that purpose, and had become depreciated, both by effluxion of time, and in consequence of the rock dug out, the companj"^ was not bound, to provide a reserve fund to meet the depreciation, and there- fore dividends paid without doing so, were not a payment thereof out of capital.* § 606. Of restraining dividends — (a) In general. — The pjiyment of a' dividend already declared may be enjoined when it appears that there have been no profits earned out of which it could be legally declared; that is, when it would, I ized by the memorandum of associ- Div. 344; Lambert v. Neuchatel As- ation, or else it was an extinguish- phalte Co., 30 W. E. 912; s. C. 47 ment of the shares, and therefore a L. T. N. S. 73. reduction of the capital of the com- ^Bloxam v. Metropolitan Ey. Co., pany. Either way it was ultra vires L. E. 3 Ch. App. 337: Bard well v. and illegal. Therefore, if a com- Sheffield Waterworks Co., L. E. 14 pany's articles of association provide Eq. 517. for the payment of dividends out of ' Strong v. Brooklyn &c. E. Co., 93 capital, they are invalid, and the di- N. Y. 436, 435; Seely v. New York rectors will be restrained from act- &c. Bank, 8 Daly, 400; s. c. 78 N. Y. ing under them. Even if such pay- 608; Parker v. Mason, 8 E. I. 427. ment purported to be authorized by * Lee v. Neuchatel Asphalte Co., the memorandum of association, it (Ch. Div. 1889;6Ey. &Corp. L. J. 266. would, in the opinion of Lord Justice O/. Davison v. Gillies, 16 Ch. Div. Lindley (Company Law, p. 432), be 347; Dent ^% London Tramways Co., illegal. 16 Ch. Div. 344; Lambert v. Neu- 1 " Payment of Interest out of Cap- chatel Asphalte Co., 47 L. T. N^ S. ital," Editorial article, Law Times, 73 ; Stringer's Case, L. E. 4 Ch. App. July 19, 1890, reprinted in 8 Ey. & 475 ; Coltness Iron Co. v. Black, L. R. Corp. L. J> 178, citing and discuss- 6 App. Cas. 315, 339; Ranee's Case, ing Guinness v. Land Corporation, L. E. 6 Ch. App. 104 ; In re Oxford 23 Ch. Div. 849 ; James v. Eve, L. E. Benefit Building Society, 35 Ch. Div. 6 E. & ;i. App. 335. CoAtra, Dent 503 ; Leeds Estate, Build, and Invest. V. London Tramways Co., 16 Ch. Co. v. Shepherd, 36 Oh. Div. 787. § 607.] DIVIDENDS. 967' have to be paid out of a fund other than net profits,^ or out of funds necessary to make needed repairs,^ or where there has been an overissue of stock, until it can be determined which are the spurious certificates.' But a dividend can not be restrained en the ground that there is not cash on hand to pay it in full,* nor because the account upon which it was based con- tained some immaterial errors in calculation;^ nor upon the ground that the directors have acted in violation of their du- ties to the public;'' nor, in case of foreign corporations, except in cases of fraud injuriously affecting citizens of the Slate." § 607. (b) At instance of a single shareholder. — A bill by a single shareholder to enjoin the declaration of future divi- dends, which is simply to prevent a violation of law, may be granted on his behalf, and that of all other shareholders, this being a duty common to all and probably a benefit to all.' But a petition by a single shareholder to restrain a dividend already declared, will be refused on the ground that the decla- ration of the dividend gives the shareholders a legal right to the payment thereof which the court can not interfere with in their absence.^ iMcDongallv. Jersey &c. Co., 3 , < Stringer's Case, L. R. 4 Ch. 475. Hem. & M. 528: Carpenter v. New ' *Yool v. Great Western Ry. Co., York &c. R. Co., 5 Abb. Pr. 277; Un- 20 L. T. N. S. 74. derwood v. New York &c. R. Co., 17 * Brown v. Monmouthshire Ry. &o. How. Pr. 537; Karnes v. Rochester Co., 13 Beav. 33; Stevens v. South &o. R. Co., 4 Abb. Pr. N. S. 107; Devon Ry. Co., 9 Hare, 313. Dent V. London Tramway Co., 16 'Howell u. Chicago &c. R> Co., 51 Ch. Div. 344 ; Carlisle v. Southwest- Barb. 378. ern Ry. Co., 13 Beav. 395; Fawcett 8 Carlisle «. South Eastern Ry. Co., V. Laurie, 1 Drew. & Sim. 192. (1850) 1 Macn. & G. 689; Fawcet?;. Of. Stevens v. South Devon Ry. Co., Laurie (1860) 1 Drew. & S. 193. 9 Hare, 313 ; Mills v. Northern Ry. " Fawcet v. Laurie, (1860) 1 Drew. Co., L. R. 5 Ch. 631. But see Ward & S. 192; Carlisle v. Southeastern V. Sittingbourne &c. R. Co., L. R. 9 Ry. Co., (1850) 1 Macn. & G. 689. Ch. 488. O/. " Stock Dividends and Cf. Davis v. Bank of England, 1 their Restraint," by M. Dwight CoU- Macn. & G. 481 ; Coles v. Bank of ier, (1884) 7 Am. Bar Assoc. Rep. England, Douglas, 407 ; City of Ohio 256. V. Cleveland &c. R. Co., 6 Ohio St. 2 Dent V. London Tramway Co., 489; Carpenter v. New York &c. R. (1880) 16 Ch. Div. 344. Co., 5 Abb. Pr. 377; King u Pater- 3 Underwood v. New York &c. R. son &c. R. Co., 39 N. J. 83, 504. Co., 17 How. Pr., 587. 968 DIVIDENDS. [§§ 608, 609, § 608. (c) At instance ot" creditors. — The payment of a dividend may be restrained by the creditors of an insolvent , eorporation,' but not when the insolvency' was caused by a great fire after the dividend was declared and the money to pay it appropriated.^ Nor can they maintain a bill to restrain it from declaring dividends, in order to keep the assets in a proper state of security lor the payment of their. debt.^. V § 609. Remedy for payment out of capital.-^ An action may be maintained by a stockholder to enjoin tlie payment of a dividend where the directors are about to misapply the funds of the corporation in paying the dividend, there being in fact no money, earned for the purpose of a dividend.* And if it has been so declared and paid, it may be recovered back of the shareholders who received it.* So also, if dividends have been paid out under the pretense and denomination of surplus profits, when there were no surplus profits to divide, not onlj' may they be taken from the hands of the sharehold- ers who have received them and applied to the payment of debts, but the directors are personally liable therefor," to the company, its shareholders and creditors;" except where the 1 Karnes v. Rochester &o. E. Co., Coventry, 8 De Gex, M. & G. 835; 4 Abb. Pi-. N. S. lOt. Blirnes v. Pennell, S H. h. Cas. 497, - Lamar v. American Fire Ins. Co.,' 531 ; In re Alexander Palace Co., 31 6 Paige, 483. Cli. Div. 149; Salisbury v. Metropoli- SMills V. Northern Ry. &o. Co., tan Ry. Co., 33 L. T. N. S. 839. <1870) L. R. 5 Ch. 631. Nor will a ' Holding them liable to creditors, , dividend be enjoined at the suit of are : In re Exchange Banking Co. , another company claiming the right 81 Ch. Div. 519 ; In re County Marine of distress for non-payment of toll Ins. Co., L. E. 6 Ch. 104; Main v. charges. South Yorkshire Ry. Co. Mills, 6 Biss. 98 ; Scott v. Eagle Fire V. Great Northern Uy. Co., 9 Ex. 55. Ins. Co., 7 Paige, lt;8. Cf. Ranee's * Carpenter y. New York &c. E. Case, L. E. 6 Ch. 104. To the cor- Co., (1857)5 Abb. Pr. 377. porate creditors only : Smith w. Huid, 5 Russell V. Wakefield Waterworks 13 Met. .371 ; s. C. 46 Am. Dee. 690 ; Co., L. R. 20 Eq. 474; Holmes v. Chamberlin d. Hu^enot Manuf. Co., Newcastle '&c. Co., 1 Ch. Div. 683; 118 Mass. 533; Priest u Essex Manuf. Stringer's Case, L. R. 4 Ch. App. Co., 115 Mass. 380. Not to creditors, 475. but only to the company and the oGratz v. Rudd. (1843) 14 B. Mon. stockholders: Lexington &c. E. Co. 178, 194; Hill v. Frazier, (1853) S3 v. Bridges, (1847) 7 B: Mon. 556,5.59; Pa. St. 330; Fletcroft's Case, (1883) s. C. 46 Am. Dec. 538. To each Si Ch. Div. 519; Tarquand v. Mar- shareholder: Turquand v. Marshall, shall, L. R. i Ch. 376; Evans v. L. JR. 4 Ch. 376. Directors, howeVei. 610.] DIVIDENDS. 969 dividend was paid through a mere error in judgment.' There are statutes, however, making them liable without reference to whether the dividend infringing the capital stock was de- clared innocently or fraudulently .^ But their statutory lia- bility may be barred by laches, where they have not been guilty of actual fraud.' § 610. Recovery of dividends illegally declared. — Where dividends have been declared by the directors and received by the shareholders, they may, nevertheless, be reclaimed by the directors themselves, if they have been illegally declared under a misapprehension of the right to declare them.* And since dividends declared at a time when the corporation vi'as insolvent, or in contemplation of insolvency, are in the nature of a fraud upon creditors, a creditors' bill ^yili lie to reach and subject them to execution,'' althougli the shalreholders had received them innocently, having no actual knowledge of the fact that the capital stock was impaired." But equity will not require stockholders to surrender for the benefit of creditors who have not been guilty of fraud, and have beea compelled to make good to corporate creditors a divi- dend impairing the capital stock, are entitled to be subrogated to the ored- itoro' rights against the stockhold- ers. In re Alexander Palace Co., 31 Ch. Div. 149; Salisbury v. Metro- politan Ey. Co., 23 L. T. N. S. 839. 1 Excelsior &c. Co. v. L^cey, (1875) 63 N. Y. 432 ; Stringer's Case, L. R. 4 Ch. 475. Cf. Gillett v. Moody, 3 N. Y. 479; Scott v. Central R. &o. 'Co., 53 Barb. 45; Keppel v. Peters- burg R. Co., Chase's Dec. 167; Eeid V. Eatonton Manuf. Co., 40 Ga. 98. 2 Companies Act of 1863, § 165; Mass. Stat. 1863, ch. 318, g 3; Mass. Stat. 1870, ch. 334, §g 40, 43; Rev. of N. J. p. 178; Pa. Act of April 7, 1849, § 9 ; Hill V. Frazier, (1853) 33 Pa. St. 330 ; N. Y. 1 Rev. Stat. ch. 18, tit. 3, art. i; § 1, subs. 10. 3 Williams v. Boice, 38 N. J. Eq. 364; In re Mammoth Copperopolis, 50 L. J. Ch. 11. * Lexington &c. Co. v. Page, 17 B. Mon. 413 ; s. C. 66 Am. Dec. 165. SBirst National Bank v. Smith, (1881) 6 Fed. Rep. 315; Wood v. Dummer, 3 Mason, 308; Railroad Co. V. How^ard, 7 Wall. 393; Currau V. State, 15 How. 304; Bartlet «;. Drew, 57 N. Y. 587; Johnson v. Lafln, 5 Dill. 65, note; Hartings V. Drew, (1879) 76 N. Y. 9; Osgood V. Lay tin, 48 Barb. 463; s. C. 5 Keyes, 521; McLean d. Eastman, 21 Hun, 313 ; Bank of St. Marys v. Sfc. John, 25 Ala. 566 ; Gratz v. Redd, 4 B. Mon. 178; Heman v. Britton, (1886) 88 Mo. 549; Bartholomew v. Bentley, 15 Ohio, 659; Ranee's Case, L. R. 6 Ch. 104. Cf. Williams v. Boice, 38 N. J. Eq. 864; Pacific R. Co. V. Cutting, Jr., 37 Fed. Rep. 688; Paschall v. Whitsett, U Ala. 473; But see Spear v. Grant, 16 Mass. 9, 15 ; Vose v. Grant, 15 Mass. 505. 6 Main v. Mills, 6 Biss. 98, and note ; Hastings v. Drew, (1879) 76 N. Y. 9; Osgood V. .Laytin, 3 Keyes, 531; 970 " DIVIDENDS. [§ 611. of an ihsolvent corporation dividends declared and distributed at a time when the corporation was solvent.' § 611. Interest and the Statute of Limitations. — In New York interest, being in the nature of damages for default of payment, is not dependent upon demand.^ But elsewhere in- terest and the Statute of Limitations do not begin to run until demand and refusal.' In a recent case in Louisiana it has been held that dividends being payable on demand, until demand and refusal, prescription does not begin to run against the person entitled ; and that accordingly, where the stock of an expiring corporation is merged into the stock of a new one organized as its successor, acquiring its franchises and as- suming its obligations, a provision inserted in the charter of the new company forfeiting dividends not claimed within , three years from the time when declared, is not binding upon the old stockholders, except from the time when, expressly or by implication, they consent thereto by assuming the quality of stockholders in the new company. An^ old stockholder, who has been ignorant of his rights and of the transfer, and who claims, his dividends as soon as informed of their exist- ence, can not be affected hy the provision except in futuro.^ Sagory «. Dubois, 3 Sand. Ch. 466; 2 Adams v. Fort Plain Bank, 36 Lexington Life &c. Insurance Co. v. N. Y. 355 ; Boardman v. Lake Shore Page, 17 B. Mon.,412; s. c. 66 Am. &c. R. Co., 34 N. Y. 157, 188; Prouty Dec. 165; Gra1:z v. Redd, 4 B. Mon. v. Michigan Southern R Co., 1 Hun, 178; Bank of St. Marys u. St. John,. 655,667. 35 Ala. 566; Clapp, I). Peterson, 104 ' 3 Philadelphia &c. R. Co. u. Cowell, 111. 36 ; National Trust Co. v. Miller, 38 Pa._ St. 329 ; s. C. 70 Am. Dec. 33 N. J. Eq. 155. Cf. Sawyer ■«. 138; Philadelphia &c. R, Co. v. Hoag, 17 Wall. 610; Railroad Co. Hickman, 28 Pa. St. 318 ; Keppel u. V. Howard, 7 Wall. 392; Curran v. Petersburg E. Co., Chase's Dec. 167, Stat?, 15 How. 304; Wood i;. Dum- 313; State v. Baltimore &c. R. Co., mer, 3 Mason, 308. (18i7) 6 Gill, 363. ' iReid V. Eatonton Co!, 40 Ga. 98; * Armaut v. New Orleans & C. R. Main v. Mills, 6 Biss. 98; In re Mer- Co., (La. 1890) 7 So. Rep. 35. cantile &c. Co., L. R. 4 Ch. 475. CHAPTER XXXI. TRANSFER OF SHARES, AND HEREIN OF TRANSMISSION OF IN- TEREST IN VOLUNTARY ASSOCIATIONS. I 612. Introductory. 613. Whether directors may trans- fer qualification shares. 614 Sales by directors and officers. 615. Competency of the partii^s. 616. Restrictions upon the power • to buy and sell. 617. Injunction. ' 618. Performance of the contract. 619. Effect of transfer — (a) Uponv title to dividenas. 620. The same subject continued. 631. (b) Upon liability for calls. 622. The same subject continued. § 623. Breach of the contract — ■ Remedy. 634. Specific performance. 625. Avoidance of the contract. 636. Remedies for fraud and mis- representation. 637. Transfers otherwise than by contract. 638. Transmission ©f interest in voluntary associations. 629. Transfer of shares in cost- book mining companies. 630. Transfer of shares in national banks. § 612. Introductory. — The right to dispose of stock in the same manner as other personal property' is inherent in the title, and laws prohibiting this right or interfering with it are generally void.' It is now a well-established principle that the shares of the capital stock of corporations are personal property.^ And this applies equally to all corporations, in- cluding those whose property consists of real estate, although attempts were formerly made to give to the stock of those companies the character of an interest in real estate.' Sales 1 Bank of Attica u. Manufacturers' 595, 596; "Stock, Its -Nature and &c. Bank. 20 N. Y. 55B; Moore v. Transfer," by Henry Budd, Jr., Esq., Bank of Commerce,_53 Mo. 377 ; Sar- 7 So. L. Rev. (N. S.) 430. The recent gent V. Franklin Ins. Co., 8 Pick. 90; "Stock Corporation Law" of New s. c. 19 Am. Dec. 306; Fechheimer York enacts that, "The stock of V. National Exchange Pank, (1884) every corporation shall be deemed 79 Va. 80 ; Farmers' &c. Bank v. personal property and shall be rep- Wasson, 48 Iowa, 336. resented by a certificate prepared by 2, Allen t). Pegram, 16 Iowa, -163, the directors and signed by the pres- 173 ; Southwestern R. Co. v. Thom- ident and treasurer, and sealed with ason, 40 Ga. 408 ; Dyer v. Osborne, the seal of the corporation." N. Y. 11 R. L 331, 325; Arnold v. Ruggles, Laws of 1890, ch. 564, g 40. Cf. 8 1 R. I. 165 ; Johns v. Johns, 1 Ohio Vic. ch. 16, g 7. St. 850 ; Tippets v. Walker, 4 M^ss. 3 Welles v. Cowles, 3 Conn. 567 ; 972 TEAS'SFEE OF SHAKES. [§ 612, of stock are,' therefore, excluded from the provisions of the Stat- ute of Frauds regulating conveyances of real estate or inter- ests in real estate.^ In the IJn ted States, transfers of stock are generally decided to be within the seventeenth section of the Statute of Fraudsj which provides that in sales of "goods,, "wares and merchandise," there must be some instrument in writing, or part payment or an acceptanceof part of the prop- erty, in order to make a valid contract binding upon the parties.^ In England, iiowever, the contrary rule prevails.' ■ It must be borne in mind that, tliere is a marked distinction between cer- tificates of stock and shares in the capital of a corporation, a distinction that is not always observed. The certificate does not constitute the title to stock, which is created only by the registry of the holder's name in the corporate books, with a statement of the number of sliares of which he is the owner, the certificate being simply an evidence of that ownership;* and without a certificate a duly registered shareholder maj' Exercise the privileges and incur the obligations of a stock- holder.' The certificate holder has certain rights,, however, S. C. 4 Conn. 182; s. c. 10 Am. Deo. 115 ; Price v. Price, 6 Dana, 107 ; Meason's Kstate, 4 Watts, 341 ; Knapp V. Williams, 4 Ves. Jr. 430; Tomlinson u. Tomlinson, 9Beav. 459. 1 Ashworth vil Munn, 14 Ch. Div. 363; Walker v. Bartlett, 18 C. B. 845; Powell V. Jessopp, "IS C. B. 336-, Wat- son V. Spratley, 10 Ex. 223. Cf. Baxter v. Brown, 7 Macn. & G. 198. I 2 Mason v. Decker, 72 N. Y. 595; Eeed on Statute of Frauds, S 234 ; Col- mn V. Williams, 3 Harr. & J. 38; s. c. 5 Am. Deoi 417 ; Tisdale v. Harris, 20, Pick. 9; Baltzen v. Nicolay, 53 N. Y. 467; Sherman v. Tradesman's .National Bank, 16 N. Y. .Week. Dig. 523 ; Johnson v. Mulry, 4 Kob. (N. Y.) 401 ; North v. Forest, 15 Conn. 400 ; Pray v. Mitchell, 60 Me. 430 ; Fine v. Hornaby, 2 Mo. App. 61 ; Mayer v. Child, 47 Cal. 143. Of. Brownsonu. Chapman, 63 N. Y. 625; Vanpell V. Woodward, 3 Sandf. Ch. . 143; Storer v. Flack, 41 Barb. 163; Gads- den V. Lance, 1 McMuU. Bq. 87; Tomlinson v. Miller, 7 Abb. Pr. N. S. 364. 3Duncuft V. Albrecht, 13 Sim. 189, 199; Humble v. Mitchell, 11 Ad. & E. 305; Hibble white v. McMorine, 6 Mees. & W. 301, 3li; Heseltine v. Siggers, 1 Ex. 856; Tempest v. Kil- ner, 3 C. B. 349 ; Cheale v. Kenwood, 3 De Gex & J. 37. < Cincinnati &c. R. Co. v. Pearce, 28 Ind. 503; Hawley ii. Brumagim, 33 Cal. 394; Johnson v. Albany &c. E. Co., 40 How. Pr. 193. ''Vide supra, § 63; Beckett v. Houston, 82 Ind. 393; Mitchell v. Beckman 64 Cal. 117; Agricultural Bank v. Wilson, 34 Me. 273; Walker V Detroit Transit &c. Co., 47 Mich. 338; Buffalo &c. E. Co. «. Dudley, 14 N. Y. 336; Ellis v. Proprietors of Essex M. Bridge,. 2 Pick. 343; Na- tional Bank v. Watsontown, 105 U. S. 217; First Nat. Bank v. Gif- fprd, 47 Iowa, 575. § 613.] TEANSFEE OF SHAEES. 973 which can not be barred by laches until they are repudiated by the corporation, as the latter is a trustee for the certificate holder.' Under the English Companies Clauses Act of 1845, every transfer of stock muSt be made by a formal deed of transfer in which all the parties to the transaction are named and the consideration correctly set forth." Except where it is provided by the by-laws or charter,' a seal is not necessar}^ to give effect to a contract for the transfer of stock.^ § 613. Whether directors may transfer qualification shares. — Whether a director can transfer his qualification shares is a question still invplved in considerable doubt.' Mr. 1 Kebogum v. Jackson Iron Co., (1889) 76 Mich. 498. 2 8 Vic. oh. 16. § 14; Browne & •Theobald's Ry. Law, 71, citing Colo- nial Bank, 36 Ch. Div. 36: Hibble- white V. McMoriniB, 6 Mees. & W. 200; Societe Generale da Paris v. Walker, 11 App. Cas. 30; Regina v. General Cemetery Co., 6 El. & B. 415; Hare u. Waring, 8 Mees. & W. 363 ; Stephens v. De Medina, 4 Q. B. 433; Bowlby v. Bell, 3 C. B. 384, 394; Shaw v. Rowley, 16 Mees. & W. 8i0. Of. Cheale v. Kenwood, 8 De Gex & J. 37. But a vendee can not evade his liability to the corpo- ration when he has himself on his part executed a deed of transfer on the ground that his vendor has ex- ecuted the deed without nominating^ the vendee. Sheffield &c. Ry. Co. V. Woodcock, 7 Mees. & W. 574; Straff on's Executor's Case, IDeGex, M. & G. 576 ;. In re Barned's Bank- ing Co., 8 Ch. 105. As to the statusot unregistered transferees of prelimi- nary scrip' certificates, see Newry &c. Ry. Co. V. Edmunds, 3 Ex. 118, where it is held that they are not liable for calls ; and Jackson v. Cocker, 3 R. C. 368 ; s. 0. 4 B6av. 59, in which it ap- pears that the transferee of these certificates can not in the absence of a special agreement be compelled by his transferrer to place himself upon the register. Cf. Rumball v. Met- ropolitan Bank, 3 Q. B. Div. 194. 3 Bishop 'v. Globe Co., 135 Mass. 133. < McNeil V. Tenth Nat. Bank, 46 N. ,Y. 835; Quiner v. Marblehead Social Ins. Co., 10 Mass. 476; Atkin- son V. Atkinson, 8 Allen, 15; Walker V. Bartlett, 36 Eng. L. & Eq. 369;- In re Tees Bottle Co., 83 L. T. N. S. 834 ; Commercial Bank v. Kortright, 23 Wend. 348 ; Bridgeport Bank v. New York &c. R. Co., 30 Conn. 331, 347; German &c. Assoc, v. Send- raeyer, 50 Pa. St. 67. 5 In the case of "Jn re National Provincial Marine Insurance Com- pany, better known as Gilbert's Case; 83 L. T. Rep. N- S. 34; S. C. 5 Ch. App. 539, Gilbert was a director of the company and the holder of two hundred and forty-five shares of £25 each, on which £3 10s. had been paid. It does not appear, either in this case or another case arising out of the affairs of the same company, (Ex parte Parker, 3 Ch. App. 685) what was the number of the qual- ification shares which, a director wa4 required to hold. Gilbert parted with half his shares in order to avoid an impending call, and the transfer and registration were declared void. 974 TEAN8FEE OF SHAKES. [§ 613. Buckley in his work on Companies says: "In the matter of dealing with his shares, a director is in general as free as any other shareholder. He is not a trustee for the general body of shareholders, so as to be unable to deal with his shares in Lord Eomilly, M. E., .aid that he did not at an mean to dispute the cases which have been decided, that a person who has a certain number of shares in a company which he thinks is turning out ill may get rid of those sharea by selling them to anybody whom he can get to take them, provided there is no fraud committed : ' Whether a director can do that is a question which^has never yet been determined, and I apprehend that he can not. His sit- uation is that of trustee for the shareholders, and therefore he is not at liberty to do things which he does not think for the benefit of all the shareholders of the company. Still less may he do so to obtain pe- cuniary advantage to himself.' The case went on appeal to Lord Justice Giffard, and he also declared Gil- bert's transfers to be void. In his eyes there was no inherent power in the directors, apart from the pro- visions of the articles, to refuse to register a proper and valid transfer, if that proper and valid transfer is submitted to them. ' I quite agree that because a man is a director he is not necessarily a trustee of the shares he holds for the general body of shareholders, and in a vast variety of circumstances he is just as free to deal with his shares — except per- haps his qualification, which he can not deal with without giving up his directorship — as any other person.' These judgments were referred to and approved by Mr. Justice Kay in th6 recent case of In re South Lon- don Fish Market Company, 59 L. T. Rep. N. S. 310; s. c. 39 Ch. Div. 334; on appeal, 60 L. T. Rep. N. S. 68. There a company was incorporated by special Act of Parliament, eight persons being the first members. The company was not registered under the Companies Act of 1863, 35 & 36 Vict.-ch. 89, and never held an ordinary meeting. A vestry had recovered judgment for an action for penalties against the company for not having completed certain works by a stipulaited time. While this action was pending the eight ■ first directors held meetings at which they allotted to themselves, their qualifying shares, paid a call thereon, and applied the money in payment to one of them of jwelimi- nary expenses which he had paid and was liable to pay. Five of them then transferred their shares to a nominee in consideration of money paid to the transferee. Judgment ■was given against the company in the action for penalties. No other shares in the company bayond ,the directors' qualification shares were ever subscribed for. The plaintiffs in the action presented a petition for the winding-up of the company, and Mr. Justice Kay held that the trans- fers by the directors of their qualifi- cation shares, for the purpose of escaping liability, were fraudulent and void, that therefore there were in fact eight members of the company, and that the court had jurisdiction to make a winding-up order. The company appealed, but in vain. The court of appeal held that the special act imposed upon the eight persons incorporated thereby the statutory obligation of continuing directoi-s and members of the company until the first ordinary meeting, and no § 613.] TEANSFEB OF SHA'EKS. 975 a manner prejudicial to the interest of his cestuis que trust, but iu a vast variety of circumstances is just as free to deal with his shares — except, perhaps, his qualification, which he can net deal with without giving up his directorship — as any such meeting having been held, that Buch eight persons still continued members of the company. Conse- quently the court had jurisdiction to make a winding-up order. It will be seen that the court of appeal decided the question upon grounds difEerent from those taken by Mr. Justice Kay. True, Lord Justice Cotton referred, but only obiter, to the point which we have now in view, saying that it might be the proper construction of a section in the company's private act as it was in Portal v. Emmens, 35 L. T. Rep. N. S. 883; s. c. 1 C. P. Div. 664, that there was a parliamentary fetter upon the directors, obliging them tp continue to hold their shares. But the court of appeal did not make this the basis of their decision, as did Mr. Justice Kay. It should also be noted that the judge treated the whole of the two hundred and forty- five shares in Gilbert's Case, 5 Ch. App. 539, as having been the di- rector's qualification shares — a fact which is not so stated in the re- ports — and considered himself as having in that case the authority of two eminent judges that a director can not deal with his qualification shares as freely as he may with other shares. ' Looking at the doc- trine of this court, that a voluntary transfer to escape liability in some cases is a fraud, I cannot doubt,' said the judge, ' that a director vol- untarily transferring his qualifica- tion shares in order to escape liabil- ity is committing a fraud.' These two decisions, it will be observed, leave untouched the question whether a director can validly trans- fer his qualification shares when he does so without any design of escap- ing liability. Is the trar.sfer which he executes, purporting to vest his qualification shares in a transferee, •valid? Under g 22 of the Companies Act of 1863, 25 & 26 Vict. ch. 89, the right to transfer his shares is in- cident to every shareholder; and therefore a director shareholder has as much right as any ordinary share- holder to transfer his shares and to have his trarisfer registered, unless he falls within a provision in the company's articles of association enabling the directors to refuse reg- istration where the shareholder seek- ing to transfer is ' indebted to the company in respect of calls or otherr wise.' The point as to qualification shares was not raised in the recent case of In re Cawley & Co., 61 L. T. Eep. N. S. 601; s. C. 42 Ch. Div. 409, in which the court of appeal threw a great deal of much needed light upon the legal requisites for a valid call, upon the discretion of directors to take their business agenda in any order they may think proper, and uppn the limited discretion of di- rectors to refuse registration. It is somewhat curious that the point was not touched in In re Cawley & Co., for the case went very near it. And the very recent cases of Bain- bridge V. Smith, 60 L. T. Eep. N. S. 879 ; s. c. 41 Ch. Div. 463, and In re Bainbridge; Reeves v. Bainbridge, "Weekly Notes 1889, p. 328, have gone near the point, but have not trenched upon it except by laying down, as Mr. Justice North did in the latter case, that the mortgagor of shares holds them ia his own 976 „ ',. TEANSFEK OF SHAKES. [§§ 614:, 615. other person," implying that the point has never been directly decided. Granting that the director who transfers his quali- fication shares gi\''6S up his seat on the board; can not he make a perfectly valid transfer of his shares? As betvreen him and the company he is no longer under the slightest ob- ligation to retain the shares. Parting with his directorate,, the shares ho longer qualify him for ainythingj for no qualifi- cation is needed by him. He can surely transfer them as fully and as freely as can any shareholder in the company.' 1 § 614. Sales by directors and officers. — A stockholder has no right of action against a director growing out of any sup- posed trust relation existing between them respecting the pur- chase and sale of stock, for the contract of transfer involves none of the peculiar obligations and privileges of trustee and cestui g'we trust between such parties. ' So a director in selling stock tO; a stockholder is not bound to disclose faicts bearing upon the value of the stock which are peculiarly within his knowledge by reason of his relation to the company.^ And the same is the rule as to sides' by any official whose position affords him opportunity to obtain information ehablng him to buy and sell at a profit." > § 615. Competency of the parties. — Questions regarding the competency of parties to buy and sell shares of stock are to, be determined in accordance with the general rules appli- cable to other ordinary contracts,* and do hot ordinarily in- right for the purpose of a director's ^johnsgn v. Laflin, 5 Dill. 65, 83 qualification. It is clear law now Grant v. Attrill, 11 Fed. Eep. 469 that a director does not lose his qual- Carpenter u. Danforth, 52 Barb. 581 itication by mortgaging his qualifi- Boardof Commissioners u. Reynolds, cation shares ; and he may be quali- 44 Ind. 509 ; Heman v. Britton, 84 fled by shares to which he is entitled Mo. 657; Gilbert's Case, L. R. 5 Ch. as trustee, and not in his own right, 559; Camins v. Coe, 117 Mass. 45; and even by shares of which he is Hempling v. Burr, (1886) 59 Mich, trustee for the company." The Law 294; Johnson v. Kirby, 65 Cal. 483. Times, of Juiie 28, 1890; isame art. 3 Board of Commissioners v. Rey- 8 By. & Corp. L. J. 99. nolds, 44 Ind. 609. ' 1 The Law Times, of June 28, 1890 ; 4 As to sales of stock by insane per- Bame art. 8 Ry. & Corp. L; J. 99, cit- sons, see Chew v. Bank of Baltimore, ing Buckley on Companies, (5th ed. 14 Md. 299. 1887)25. ' § 616.] TEANSFEE OF SHAKES. 977 volve any principle peculiarto the law of corporations.'^ Thus the ability or disability of a married woman to talie, hold and transfer shares does not depend upon the charter of the com- pany nor upon statutes relating generall}' to corporations, but upon the law of married women; so that a, feme covert domi- ciled in one State may have power to buy and sell the shares of a corporation, while one having her domicil in another State may be incompetent to deal in the stock, of the same company.^ So again, according to the general rule governing contracts of minors, a purchase of stocli by an infant is not absolutely void, but merely voidable before or within a reason- able time after his becoming of age.' § 616. Eestrictions upon the power to My and sell. — There are apparently some qualifications of the general rule above stated, which, however, grow not so much out of the incompetency of the parties as out of express charter or stat- utory provision and out of principles of public policy. Thus the articles of association of a joint-stoclc company, which partakes rather of the nature of a partnership than of a cor- poration, may prohibit the transfer of shares.^ And where the holders of each block of five shares in the stock of a theater corporation were entitled by its charter to a free seat, 1 As to sales of stock by joint- as her separate estate. Howard v. owners, see Standing v. Bowring, 37 Bank of England, L. E. 19 Eq. 395. Ch. Div. 341 ; Slaymaker v. Bank of If, however, she has done so and Gettysburg, 10 Pa. St. 373; Com- registration has been permitted, stock V. Buchanan, 57 Barb. 137 ; it can not be cancelled thereafter. Gartick u. Taylor, 3 L. T. N. S. 460 ; Ward v. Southeastern Ry. Co., 3 Hill's Case, L. R. 30 Eq. 585. And Ellis & El. 813. As to the husband's by partners, see Quiver v. Marble- right to transfer shares standing in head Social Ins. Co., 10 Mass. 476; his wife's name, see cases cited Sargent v. Franklin Ins. Co., 8 Pick, supra, p. 841. 90; s. 0. 19 Am. Dec. 306. Cf. Com- 3 Dublin &c. Ry. Co. v. Black, 8 stock V. Buchanan, 57 Barb. 137; Ex. 181; Newry &c. Ry. Co. v. Weikersheim's Case, L. R. 8 Ch. 831. Coombe, 3 Ex. 655; Lumsden's Case, 2 Hill V. Pine River Bank, 45 N. H. L. R. 4 Ch. 31 ; Birkenhead &c. Ry. 300. In England this is regulated Co. v. Pilcher, 5 Ex. 34. by the " Married Woman's Property ^ And in that case the transferee Act" of 1870, 33 & 34 Vic. ch. 93, takes only the right to profits, not § 4. But in that country a married as a partner, but as an assignee, woman can not transfer her stock Harper v. Raymond, (1858) 3 Bosw. unless it has been formally set apart 39. 63 ' . 978 TKANSFEE OF SHAKES. [§ 616. it has been held that the owner of more than five shares could not by a transfer valid in form, but, fictitious in fact, confer on the transferee the right to another seat, and that a trans- fer for that purpose could be enjoined at the instance of other shareholders.' But ordinarily the corporation can not refuse to register a transfer on account of objection to the intention of the transferrer in making it.^ There is no equity, for ex- ample, to prevent the transfer of shares to a nominee, to in- crease voting power.' And where one of the articles of incorporation limited each stockholder to an ownership of one hundred shares, it was held that, as this was not requirpd by the laXvs of the State, it was a mere voluntary proposal, and that a transfer of more than that number of shares to one shareholder was valid.* But members of corporations have no such absolute right to transfer their shares as entitles share- holders of a railway company to sell their stock to another ■railroad company, in defiance of an injunction granted to pre- vent the other railroad from obtaining control thereof, con- trary to the provisions of a State, constitution forbidding the control of one railway by another, parallel and competing.' The power of corporations to buy the shares of other com- 1 Baker's Appeal, 108 Pa. St, 510 ; ing been virtually abandoned, and a S. p. 56 ^km. Rep. 331. portion of the subscriptions having ^Townsend v. Mclver, 2 S. C. 35; been returned to shareholders, a pur- Moffatt V. Farquhar, 7 Ch. Div. 591 ; chaser with notice of these facts, Barnes v. Brown, 80 N. Y. 537. In whose good faith in becoming a this case the president of a cpmpany, shareholder was questionable, was who owned a majority of its shares, not entitled to registration, contracted to sell them and to resign 'Moffatt v. Farquhar, 7 Ch. Div. his office for the purpose of enabling 591 ; Pender v. Lushington, 6 Ch. his purchasers to acquire control of Div. 70. As to purchase of shares the corporate affairs ; and it was said for the purpose of controlling the by -the court that, inasmuch as those corporation, see Havermeyer v. Ha- who have the , largest interests in vermeyer, 86 N. Y. 618; Barnes v. corporations may control them, it Brown, 80 N. Y. 537 ; Jacobs v. Mil- was unable to see that any policy of ler, 15 Alb. L. J. 188; Fremont v. the law was thereby violated, or that Stone, 43 Barb. 169 ; O'Brien v. Breit- upon the evidence any wrong was enbaoh, 1 Hilt. 304. thereby done to any one. Contra, * O'Brien v. Cummings, 13 Mo. Fremont v. Stone, 43 Barb. 169. Of. App. 197. Seymour v, Detroit Copper &c. Mills, s Pennsylvania R. Co. v. Common- 56 Mich. 117. In Regina v. Liver- wealth, (1887)' 116 Pa. St. 65. Cf. Pa. pool &c. Ry. Co., 31 L. J. Q. B. 384, it Const, art. xvii, § 4. was held that, the undertaking hav- § 61Y.] TEANSFEE OF SHAEES. 9^9 panies depends upon the principles heretofore treated in con- nection with subscriptions to stock by artificial persons.' Whether under the circumstances of a case a company had or did not have power to buy the stock of another, a shareholder in the latter can not, after having been guilty of laches, raise the question and object to the transaction as beyond the powers of the former.^ A solvent corporation, in the absence of legis- lative provision to the contrary, may purchase, hold and re- sell its own shares, and take or give them in pledge or mort- gage, provided these transactions be in entire good faith, the exchanges being of equal value, free from all fraud, actual or constructive.' § 617. Injunction. — "Whatever, it is said, be the validity of stock certificates of a corporation, and whether or not they confer on the holders the privileges of corporate shareholders, if they represent an interest in the property for which they were taken, they can not be placed Ao/'s de ooinmeroe by in- junction.* Yet there are cases in which injunctions have been granted to restrain transfers of stock, as, for example, where a pledgee was about to sell shares of stock in fraud against his pledgor.^ And where the purpose of a fictitious ^ Supra, §533. L. J. 309, 313; Bank v.' Bruce, 17 2 Alexander u Searcy, (1889) 81 Ga. N. Y. 510; Taylor v. Exporting Co., 536; s. c. 12 Am. St. Eep. 337, holding 6 Ohio, 176.; In re Insurance Co., 3 that where notice of purchases of Biss. 543; Bank v. Transportation stock of a corporation is given to Co., 18 Vt. 138; Clapp v. Peterson, the directors and stockholders, and 104 111. 26 ; Dupee v. Water Power the purchaser .regularly votes the Co., 114 Mass. 37. stock, and expends large sums for * State v. American Cotton Oil the benefit of the corporation under Trust, (1888) 40 La. Ann. 8. resolution' of the stockholders, the » Ayre v. Seymour, (1889) 5 N. Y. minority stockholders cannot com- - Supl. 650. In this case it was sought plain, seven to fifteen years after the to enjoin defendant from selling or several purchases were made, that voting on certain shares of stock the purchaser, being the majority pledged by plaintiff, the president of stockholder, has procured the mis-" the corporation, to defendant S. It management of the corporation, nor appeared that the stock of the cor- that, being a corporation, it had no poration, while very valuable, had power under its charter to make the no market value, as it had not been purchases. ' sold in the market. Including the 3 First National Bank of Salem v. stock pledged to S., four hundred Saleha Capital Flour Mills Co., (1889) and ninety-eight shares, 'plaintiff 89 Fed. Eep. 89; S. c. G Ry. & Corp. owned nine hundred and sixty-eight 980 TEANSFEE OF SHAEES. [§ 618. transfer was to entitle the transferee to a free seat in a the- atre, injunction was issued.' Again under certain circum- stances an injunction has issued to restrain one corporation from obtainiijg, control over another by purchasing the stock of the latter.^ §618. Performance of the contract. — When a contract has been made for the sale of stock by which the title is to be passed fi;om one person to another, the question of what is a suflBcient transfer is an important one. The performance of the contract on , the part of the vendor must be such' as to, vest the title to the stock in the vendee. ' Thus when the vendor tenders the certificates, indorsed with a proper assignment and with a power of attorney duly executed, authorizing the assignee to have the transfer recorded upon the corporate books, he has sufficiently ^performed upon his part.' Where such, a tender is made, the vendee can not evade performance on his part and refuse to accept the' stock, in the absence of fraud on the part of his vendor, simply because stock has been issued by the corporation at a price below par or its property has been mortgaged;* nor because the' company's title to its property turns out to be worthless;* nor because the winding up of the corporation made it inipossible to reg- shares out of a total of one thousand, in her own name, was included in S. had transferred the four hundred the injunction, though she was not and ninety-eight, shares to his son's served with summons and corn- wife, who was plaintiff's daughter, plaint, nor with the injunction and and by this means plaintiff was ex- motion papers, eluded from the management of the i Vide supra, § 616, note, business. There was proof that S. 2 Pennsylvania E. Co. v. Common- aiid his souj who had control of the wealth, (1887).116 Pa. St. 65. business, and who were parties de- s Munn v. Barnum, 24 Barb. 283 ; fendant, had conspired to keep Noyes v. Spaulding, 37' Vt. 420; jjIaintifE out of the country, and Eastman v. Fiske, 9 N. H. 182 ; Mer- away from her business, by sending chants' National Bank u.-Eichards, 6 her false telegrams, and suppressing Mo. App. 454 ; Bruce v. Smith, 44 genuine telegranis to her, by report- Ind. 1. Cf. Moore v. Hudson Eiver ing that she was insane, and by ab- E. Co., 12 Barb. 156. stracting papers, etc. The injunc- * Noyes v. Spaulding, 27 Vt. 420 ; tion was granted and a receiver Faulkner v. Hebard, 26 Vt. 452. pendente lite appointed ; and the ^ state v. North Louisiana R, Co. , son's wife, who held the four hun- 34 La. Ann. 947. dred and ninety-eight shares of stock § G19.J TKANSFEE OF SHAKES. 981 ister the transfer;^ nor because the vendor sbught to escape payment of calls by transferring his stock; ^ nor because the shares were sold at a speculative price.' Neither in the ab- sence of fraud does the fact that the corporation was insolvent at the time the contract was made constitute a defense.* In an action for damages for a breach of a contract to take stock where the defendant agreed to sec^ure to plaintiff a bid of a certain amount for' the stock within a year, and, failing so to do, to take the stock from him at his option at the end of the year for a named sum, and on the evening of the last day, plaintiff notified defendant that he was expected to take the stock, and for four or five days afterwards his agent called on defendant and tendered him the stock, who refused to take it, but not on the ground that the tender was too late, the de- fense of a failure to make a tender ^vas not available.^ It i:^as been held that the vendee may demand that the vendor shall himself cause the registration of the transfer to be made.^ A contract to exchange goods for corporate stock without nam- ing its value calls for the stock at its par value.' § 619. Effect of transfer — (a) Upon title to dividends. — A transfer of stock does not carry dividends already declared thereon.* For when a dividend is once declared, it belongs to the owners of the stock at the time and is no longer an inci- dent of the shares.' Accordingly the owner of the stock at the time that a dividend is declared is entitled thereto though it is made payable at a date subsequent to the transfer of shares.'" 1 Crubb V. Miller, 19 Week. Kep. Bosw. 29. They may, however, be 519. the subject of contract between the 2 Grant v. Attrill, 11 Fed. Rep. 469. parties, and a lawful agreement in 3 Moffat V. Winslow, 7 Paige Ch. reference to them will be enforced. 124 ; Board of Commissioners v. Hyatt v. Allen, 56 N. Y. 553. Reynolds, 44 Irid. 509; Allen v. Peg- "Hill v. Newichawanick Co., (1876) ram, 16 Iowa, 163. • 71 N. Y. 593, affirming 8 Hun, 459; *Rudgei). BovVman, L. R. 3 Q'. B. Boardman v. Lake Shore &c. Ry. 689; Crubb v. Miller, 19 Week. Rep. Co., (1881) 84 N. Y. 157, 178. 519. laCity of Ohio v. Cleveland &c. R. SDuchemin v. Kendall, (1889) 149 Co., 6 Ohio St. 489; Boardman v. Mass. 171. Lake Shore &c. R. Co., 84 N. Y. 157, 6 White V. Salisbury, 33 Mo, 150. 178; Wheeler v. Northwestern Sleigh 'Tilkey v. Augusta, G. & S. R. Co., (1889) 39 Fed. Rep. 347; Hill v. Co., (Ga. 1S90) 10 S. E. Rep. 448. Newichawanick Co., (1877) 71 pr. Y. 8 Harper v. Raymond, (1858) 3 593, affirming s. C. 45 How. Pr. 427, 982 TEANSFEE 01" SHARES. [§ 619. And where a contrarct of sale of shares is entered into, under conditions of sale by which the purchase may be completed on a future fixed day, or at any time prior thereto, and divi- dends are in the meantime declared, the dividends, upon the consummation of the sale, pass to the vendee of the stock.' So also where a transfer of shares is made with an agreement, as a condition subsequent, to transfer within a certain time at the option of one of the parties, it is generally held that if the condition is fulfilled or the option exercised, the transfer dates from the day the conditional sale was made, and the title to dividends thereafter declared and payable is in the buyer.^ But where an option was sold to take shares before a certain day, afterwards extended to another d'ay, and a dividend was declared between the last two dates, payable after the last one, the dividend was held not to pass to the buyer, as the owner- ship of the buyer did not begin until the consummation of the transfer.' It seems, however, that in any case, by special agreement, the vendee may have the dividend or it may be reserved to the vendor.^ In a suit between the seller and buyer of stock where the ownership of the dividends is in question, the courts will not undertake to apportion them ac- cording to the time when they were earned, whether before or and 8 Hun, 459 ; Spear v. Hart, 3 clared has been paid to the Vendor Eobertson, 420; Bright v. Lord, 51 the vendee can recover it from him. Ind. 272; De Gendre v. Kent, L. R. Harris v. Stephens, (1835) 7 N. H. 454. 4 Eq. 283; Wright v. Tuokett, 1 2 Harris «. Stephens, (1835) 7 N. H. Johns. & H. 266. -Contra, Black v. 454; Cm-rie v. White, (1871) 45 N. Y. Homersham, 4Ex. Div. ?4; Cliveu. 823; Black v. Homersham, (1878) , "Clive, Kay, 600; Burroughs v. North 4 Ex. Div. 24. In the first case Carolina R. Co., 67 N. C. 376. Cf. cited one offered to another shares Curry v. Woodward, 44 Ala. 305. if the buyer gave security by a cer- In Burroughs v. North Carolina Ey. tain date, which he did, arid a divi- Co., (1872) 67 N. C. 376, shares sold dend declared in the meantime be- after a dividend was declared but longed to him. ■ before it was payable, were held to ' Bright v. Lord, (1875) 51 Ind. 273. carry the dividend to the purchaser ; Cf. Central R. &c. Co. of Georgia v. for it is only when it becomes pay- Papot, 59 Ga. 343 ; Southwestern E. abld that the dividend becomes Co. v. Papot, 67 Ga. 675. "fruit fallen" and detached from * Wheeler v. Northwestern Sleigh the principal estate so as not to pass Co., (1889) 39 Fed.- Rep. 347 ; Hyatt with it. V. Allen, 56 N. Y. 553; Brewster v. ' 1 Black V. Homersham, 39 L. T. Lathrop, 15 Cal. 31. N. S. 671. If the dividend so de- § 619.] TEANSFER OF SHAKES. 983 after the transfer.^ Accordingly a dividend declared for ,a period during part of which one was entitled to the dividends declared, and during the pther portion another, does not come under a statutory provision apportioning all rents, dividends and other periodical payments in the nature of income, as in- terest is apportioned according to the lapse of time.^ And it has even been held that there can be no apportionment be- tween vendor and vendee, of a dividend declared, but payable at stated intervals,' for the profits of the enterprise, until set apart by the declaration of a dividend, remain a part of the stock itself, and will pass under a transfer of the shares.* And for the same reason that there can be no apportionment of dividends, dividends that have not been declared can not be assigned separately from the stock itself even in the case of guarantied or preferred dividends.* When, however, a divi- dend has been declared it is distinct and separable from the fund out of which it is declared, and may be the subject of as- 1 Kane v. Bloodgood, 7 Johns. Clive, Kay, 600 ; Ibbotson v. Elam, Ch. 90; s. 0. 11 Am. Dec. 417; Board- L. E. 1 Eq. 188; Bates v. McKinley, man v. Lake Shore &c. E. Co., 84 31 Beav. 280; Black v. Homersham, N. Y. 157 ; March v. Eastern E. Co., 4 Ex. Div. 34. 43 N. H. 515; s. c. 77 Am. Deo. 733; 2 Jones v. Ogle, (1873) L. R. 14 Eq. GiSord v. Thompson, 115 Mass. 470; 419; 83 and 34 Vic. ch. 35. Granger v. Bassett, 98 Mass. 463 ; » Clapp v. A^tor 3 Edw. Ch. 379. Goodwin v. Hardy, 57 Me. 143; Bi-ewster v. Lathrop, 15 Cal. 21; , Eyan v. Leaven woi-th &c. E. Co., 31 Kan. 365 ; King v. Follett, 3 Vt. 385 ; Foote's Appeal, (1839) 32 Pick. 299; Minot V. Paine, (1868) 99 Mass. 101 ; * Phelps V. Farmers' &c. Bank, 36 Conn. 269. As to preferred shares the rule holds true also. Boardman V. Lake Shore &c. E. Co., 84 N. Y. 157; Nickals v. New York &c. R. Co., 15 Fed. Eep. 575; Jermain v. Eand v. Hubbell, 115 Mass. 461; Lake Shore &c. E. Co., (1875) 91 N. Y. Phelps V. Farmers' &c. Bank, 36 483; Hyatt v. Allen, 56 N. Y. 553;' Conn. 269 ; Bailey v. Eailroad Co., 23 Coey v. Belfast &o. Ey. Co. , Irish E. Wall. 604, 637; Jermain v. Lake 3 C. L. 113. Shore &c. E. Co., (1875) 91 N. Y. 483 ; ^ City of Ohio v. Cleveland &c. E. Brundage v. Brundage, 60 N. Y. 544; Co., (1856) 6 Ohio St. 489; Manning Jones V. Terre Haute &c. E. Co., li. Quicksilver &c. Co., (1881) 34 (1874) 57 N. Y. 196 ; Currie v. White, Hun, 361. Although bargains in pro- 45 N. Y. 823; Hill v. Newichawa- spective dividends are transactions nick Co., 48 How. Pr. 437; Central which the Stock Exchange does not E. &c. Co. of Georgia v. Papot, 59 recognize nor enforce, they have Ga. 343; Coleman v. Coleman &c. been said to be not contrary to law, Co., 51 Pa. St. 74; Eyan v. Leaven- and are valid as between the par- worth &c. E. Co., 21 Kan. 365; ties. Marten v. Gibbon, 33 L. T. Paris V. Paris, 10 Ves. 184; Clive v. N. S. 561. 984 TEANSFEE OF SHAEES. [§ 620. signment bj'^ the shareholder, before he has received it from the company.' But a contract by a shareholder in reference to dividends and profits on his shares includes only dividends or profits declared by the corporation and allotted to sharehold- ers, not profits ascertained by tliird. persons or courts.^ Ac- cordingly, where a person was entitled under a contract to the dividends upon certain shares for five years and none were declared until two years afterwards, when nearly a hundred per cent, was declared, it was held that no apportionment could be made, although it was declared largely from profits accruing during the five-year period; and also that such a contract refers to dividends to be ascertained and declared by the corporation, and not to the growing profits from fiay to day or month to month to be ascertained by third persons or courts of justice looking into the accounts and transactions of the company.' § 620. The same subject continued. — The corporation is bound to recognize as stockholders only those having the legal title to stock as shown by its books, and therefore it is not bound to pay dividends to an unregistered transferee, even, when it has notice of the transfer.^* But the right to dividends 1 Marten v. Gibbon, 33 L. T. N. .S the purchaser is not entitled./ to any 561. Cf. Jermain v. Lake Shore &o. share in the profits of. the undertak- E. Co., 91 N. Y. 483. ing, nor to vote upon the stock at 2 Hyatt V. Allen, (1873) 56 N. Y. corporate meetings. 8 Vie. ch. 16, 553; Williams v. Western &c. Co., § 15. An unregistered transferee (1883J 93 N, Y. 163, aflSirming 61 can not enforce the payment of a How. Pr. 317. dividend at law, but must bring his 3 Clapp V. Astor, (1884) 8 Edw. Ch. bill in equity. Cleveland &c. R. Co. 379. V. Bobbins, 35 Ohio St. 483 ; Cham- ^ Stock well V. St. Louis Ins. Co., 9 bersburgh Insurance Co. v. Smith, Mo. App. 133 ; Continental National 11 Pa. St. 130 ; Northrup v. Curtis, Bank u Eliot National Bank, (1881) 5 Conn. 346. And mere possession 7 Fed. Rep. 369 ; Erwin v. Oregon of the certificate of stock or even a Ry. &c. Co., 85 Hun, 544; M'er- special property therein by a person chants' &c. Bank v. Richards, 6 Mo. not their owner, is not sufficient App. 654; Bright v. Lord, 51 Ind. ground upon which to base an ac- 373; Wright v. Tuckett, 1 J. & H. tion for dividends. Dow v. Gould 366. In England, the Companies &c. Mining Co. , 31 Cal. 689. Where Clauses Act of 1845 provides that an owner of bank-stock directs an- until the deed of transfer be deliv- other to obtain all the money possi- ered to the secretary of the corpora- ble thereon, and pay the owner's tion for the purpose of registration, debt to a bank, and adds: "You § 620.] TEANSIfEK OF SHAKES. 985 declared after the date of the transfer passes to the vendee as between him and his vendor, even where tlie transfer has not been recorded on the corporate books.^ , And after the com- pany has been notified of a transfer of stock, although regis- tration thereof has not been made upon the corporate records, the dividend may safely be paid to th^ transferee." But if the company has allowed a shareholder to have his stock trans- ferred upon the books without a surrender of the certificates, it will not be protected in paying dividends to the transferee as against the holder of the certificates,' although a stock- owner to whom no certificate has been issued is not therebv may apply any and all balance to- wards the payt. of my indebtedness to you," there is no assignment of the stock to the latter, and, after his debt is paid, he can not maintain an ac- tion for dividends due thereon. Ware v. Merchants' Nat. Bank, (Mass. 1890) 24 N. E. Eep. 328. Where, after a contract for the sale of certain shares in the stock of a corporation, but before the time ap- pointed for receiving payment and making delivery, a dividend is de- clared, as to which there is no express stipulation in the contract, the pur- chaser has no right to decline ac- ceptance and. making payment be- cause the seller claims the dividend as his own. Phiuizy v. Murray, (Ga. 1890) 10 S. E. Rep. 358. In ah ac- tion for the transfer of stock, and the payment of dividends, brought against the stockholder in whose name the shares are, and against the corporation, the latter has no inter- est at stake, and has no right to prosecute an appeal from a judg- ment rendered contradictorily with both parties defendant, in favor of plaintiff, where the real party in in- terest, the stockholder, has not ap- pealed, and the judgment has become final and executory. Board of Liq- uidation V. New Orleans Water Works Co., (1887) 39 La. Ann. 202. iMarch v. Eastern R. Co., (1862) 43 N. ,H. 515 ; s. c. 77 Am. Bee. 733; Central E. &c. Co. of Georgia v. Papot, 59 Ga. 342; Ambrose v. Rid- dle, 3 Md. Ch. 320; Goodwin v. Hardy, 57 Me. 143: Foote, Appel- lant, 23 Pick. 299; King v. Follett, 3 Vt. 385 ; Ryan v. Leavenworth &o. R. Co., 21 Kan. 365, 403; Black v. Honiersham, 4 Ex. Div. 24 ; Bates v. McKinley, 31 L. J. Ch. 389; Cliv6 V. Clive, Kay, 600; Jones v. Terre Haute &c. R. Co., (1874) 57 N. Y. 196; Currie v. White, 45 N. Y. 822; Hill V. Newichawanick Co., 48 How. Pr. 427; Brundage v. Brundage, 60 N. Y. 544; s. C. 65 Barb. 397; Clal)p V. Astor, (1834) 2 Edw. Ch. 379, Of. Boston &c. R. Co. v. Commonwealth, 100 Mass. 399; " Title to Dividends," 19 Am. Law Rev. 571; Nickals v. New York &c. Ry. Co.. 21 Blatchf. 177 ; Johnson u Bridgewater &c. Co., 14 Gray, 274. 2 Smith V. American Coal Co., 7 Lans. 817; Hill v. Newichawanick Co., 48 How. Pr. 427; Bell v. Laf- ferty, 1 Pennyp. 454. 3 Bank v. Lanier, (1870) 11 Wall. 869; Brisbane v. Delaware &c. E. Co., 25 Hun, 438; Lowry v. Com- mercial &o. Bank, Taney, 310 ; Mag- wood V. Railroad Bank, 5 S. C. 879 ; Brewster v. Lime, 42 Cal. 189. 986 TEAUSFBE OF SHARES. [§ 621. debarred from claiming his dividends.^ A corporation may always refuse to pay dividends to any one who has obtained a fraudulent transfer of stock upon the books of the company. It is the legal duty of the corporation to refuse payment under such circumstances.^ And where dividends have been actually paid to such parties before discdvery of the fraud, there being no fault upon the part of the original owner, he is entitled, as against the corporation, to demand the divi- dends or their equivalent.' That it is found convenient to close the transfer books of a company foi" any purpose, does not in any way impair the legal rights of a stockholder to share in dividends subsequently declared, although the closing of the books would to some extent embari-ass the transfer of stock.* The usage of the stock exchange that all stocks sold before the books of the company are closed are "dividend on" and carry the forthcoming dividend to the buyer, while all subsequent transfers are " en dividendj" that is, the dividend belongs to the seller, has no application to transfers not made . in the exchanges.' § 621. (b) Upon liability for calls. — While each assignor and assignee of shares is liable to the corporation for calls made upon the stock until the full par value has been paid, between the assignor and assignee there is no obligation im- plied on the part of the former to pay calls made after his transfer against a prior assignor.* So also when a lawful 1 Ellis V. Proprietors of Essex-Mer- 5 Lombards v. Case, 45 Barb. 95; rimac Bridge, 3 Pick. 243. Hill li, Newichawanick Co., 8 Hun, 2 2 Redfield on EailwEiys, 540. 459. 3 Davis V. Bank of England, 3 * Note to Jennings «. Bank of Cali- Bing. 393; Taylor i;. Midland R. Co., fornia, 13 Am. St. Rep. 145, 153, 38 Beav. 387; Sloman v. Bank of citing: Brinkley v. Hambleton, 67 England, 14 Sim. 775; Ashley v. Md. 169. Of. West Nashville &o. Blackwell, 3 Edw. 399. Go. V. Nashville S. Bank, 86 Tenn. 4 Jones V. Terre Haute &c. U. Co., 253; s. C. 6 Am. St. Rep. 835, and (1874) 57 N. Y. 196; affirming. s. C. note 838, 839; Caulkins«. Gas Light SO Barb. 363; Luling i;. Atlantic &c. Co., 85 Tenn. 683; s. c. 4 Am. St. Co., 45 Barb. 510 ; Phelps v. Farmers' Rep. 786, and note 798 ; Supply Ditch &c. Bank, 36 Conn. 269; March v. Co. v. Elliott, 10 Colo. 337; s. c. 3 Eastern R. Co., 43 N. H. 515; Foote's Am. St. Rep. 586, and note 594; Lip- Appeal, 32 Pick. 399! Rider v. Alton pitt v. American Wood Paper Co., 15 &c. R. Co., 13 111. 516 ; Reese v. Bank R. I. 141 ; s. C. 3 Am. St. Rep. 886, of Mantgomery Co., 31 Pa. St. 78. and note 891 ; Youngs. South Trede- § 621.J TKANSFEE OF SHARES. 987 agreement has been entered into by the stockholders of a cor- poration, by the terras of which new obligations are imposed on the stock, one purchasing some of the shares takes them subject to the agreement, and can only demand a certificate conforming to the agreement.^ In like manner where a sub- scriber to the stock of a manufacturing corporation agrees in the usual form to pay it, makes partial payments, and, at a time when there were no calls, makes a transfer in good faith, and new certificates are issued by the company in accord- ance therewith, the assignee becomes liable for the balance (jf the payments', and neither the company nor its receiver can maintain an action for the balance^ against the original sub- scriber and assignor.^ Where stock has been subscribed for but not taken by the subscribers, and is then transferred as treasury stock to the company, which afterwards sells it to third parties for less than its face value, the original subscribers can not be held to liability as assignors of the stock.' Jn an gar Iron Co., 85 Tenn. 189; s. C. 4 Am. St. Rep. 752, and note 759; Taylor v. Weston, 77 Cal. 534. A subscriber to the capital stock of a corporation who has in good faith transferred his shares to another, which transfer has been accepted by the corporation, before an assess- ment is made, is not liable for the unpaid subscription. Stewart v. Walla Walla &c. Co., (1889) 20 Pacif. Rep. 605. , In Maine a purchaser of stock assessable upon its face, or by the charter or by-laws of the corpo- ration, and payable by installments, is liable for the amount remaining unpaid as if an original subscriber, and chargeable with notice of any such unpaid balances, whether pur- chased of the corporation or in open market. LibW v. Tobey, (Me. 1890) 19 Atlan. Re(r904. A transferee of stock of a corporation who Signs a paper purporting to be an original subscription, and expressly agrees to pay the amount subscribed as the board of directors may order, as- sumes the liability of an original stockholder, and is liable for the amount of the unpaid subscription. Citizens' &c. Co. v. Gillespie, (1887) 115 Pa. St. 564. 1 Campbell v. American Zylonite Co., (1889) 55 N. Y. Super. Ct. Rep. 562. 2 Billings V. Robinson, 28 Hun, 123. * Daniels, J., dissenting. 3 Ailing V. Ward, (III. 1890) 34 N. E. Rep. 551. It was further held in this case that such stock,, though purporting to be full paid, will, when called in question by creditors of the corporation, be held to be paid up only to the amount that was actually paid for it, within the meaning of Rev. Stat. 111. ch. 33, § 8, which makes stockholders liable for corporate debts for the amount unpaid upon the stock. The statutes of Oregon provide that a transferee of corpo- rate stock is subject to the payment of balances due thereon ; and where a debtor to the company conveyed all his stock to one as trustee, to sell it to any one who would pay its in- debtedness to the corporation, and 988 TEANSFEE OF SHARES. [§§ 622, 623. action against a stockhblder by the trustee of an insolvent corporation .appointed by a competent court to collect unpaid subscriptions to its stock for the benefit of its creditors, it is no defense that subsequent to his appointment the trustee ob- tained an order from the court permitting him to compromise with those stockholders who should pay within a given time a certain per cent, of the call assessed in the origLial decree.^ §622. The same subject continued. — But where a pur- chaser of shares buys them supposing that they are full paid stock, he is not only relieved of the necessity of paying calls, but may rescind the contract and recover the payment.^ He also has his remedy, for any actual damages he has sustained, against those by whose misrepresentations he was induced to take the stock," but he must, of course, show that misrepre- sentations were made and that he relied upon them.* If the directors have participated in the profits of an issue of stOck below par, bona fide transferees of the stock have recourse against them for the damages suffered." § 623. Breach of the contract — Remedy. — When an action at law for damages on failure to perform the contract of trans- fer will afford the injured party an adequate remedy, equity will not, as a general rule, interfere for the purpose of decree- ing specific performance against the defaulting party." Thus get him a discharge therefrom, this Goddard, (1885) 77 Me. 579 ; Foster ■was held to be no sale, and the v. Seymour, 23 Fed. Rep. 65. trustee ■was not such a purchaser as * Cross v. Sackett, 6 Abb. Pr. 247; ■would create a liability, as against Barnes «. Bi-own, (1880) 80 N. Y. 527; him, for any unpaid balance on the In re Ambrose &o. Co., 14 Ch. Div. stock. Powell V. Willamette Val. 390, 397; Jn re Gold Co., 11 Ch. Div. E. Co., (1887) 14 Oregon, 356, con- 701, 718, 714. struing Hill's Misc. Laws of Oregon, ^ MoAIeer v. McMurray, 58 Pa. St ch. 32, § 3230. 126 ; Priest v. "White, 34 Alb. Law J. 1 Hambleton v. Glenu, (Md. 1890) 8 398. By. & Corp. L. J. 373. On the sub- BCrOss v. Sackett, 6 Abb. Pr. 247; ject of the two preceding sections. In re Gold Co., 11 Oh. Div. 701. see note to Thompson v. Eeno gav- SDuncuft v. Albrecht, 12 Sim. 198; ings Bank, '3 Am. St. Rep. 860 and Ross v. Union Paciiic Ry. Co., 1 866. Woolw. 26, 32 ; Buxton v. Lister, 3 2Sturges V. Stetson, 1 Bias. 346, Atk. 383; Colt v. Netterville, 2 P. 253; Messersmith v. Sharon Savings Wmsi 304; Cuddee v. Rutter, 1 P. Bank, 96 Pa. St. 440; Fosdick v. Wms. 570; Danforthu. Philadelphia Sturgess, 1 Biss. 255; Coolidge v. &c. By. Co., 30 N. J. Eq. 13; Fallon § 624.]. TKANSFEE OF SHAKES. 989 a court of equity will not decree specific performance in the transfer of particular shares of stock.^ Nor will the specific performance of, a contract be ordered when the vendor is not in a position to perform, or when he does not own the stock he has contracted to sell, or has not a sufficient amount to fill the order he has adcepted,^ though in the latter case he will bo coirpelled to perform to the extent of his ability by trans- ferring the number of shares which he has.'' "When, however, a court of equity refuses to give effect to the contract by com- pelling specific performance, it may give the suitor pecuniar}' compensation hy awarding damages; that is, it may deny the relief prayed for and grant another in the same action.* § 624. Specific performance. — Equity will compel specific performance of the contract for the transfer of stock in cases where such a contract is part of one over which equity has jurisdiction for this purpose.^ And in cases where money damages can not afford adequate compensation, as wlien the vendee can not purchase the shares, for which he has con- tracted for the amount "to which he would.be entitled as dam- ages,^ provided, of course, the contract is otherwise proper, both as regards consideratioii and public policy.' Either party may be entitled to specific performanee of the contract, the i>. Eailroad Co., 1 Dill. 131; Turner the contract is part of a contract for V. May, 33 L. T. N. S. 56 ; Poole v. thfe conveyance, of land. Leach v. Middleton, 89 Beav. 646; Parish Fobes, 11 Gray, 506; s. C. 71 Am. V. Parish, 33 Beav. Conir-ffl, Ross Dec. 783; Bissell v. Farmers' &c. V. Union Pac. Ry. Co.', 1 Woolvv. 36," Bank, 5 McLean, 495; Taylor onCor- though this is obiter. porations, § 790. 1 Hubbell V. Drexel, 31 Am. Law « Duncuft v. Albrecht, 13 Sim. 189 ; Reg. N. S. 453 ; Hardenberg v. Cheale v. Kenward, 3 De Gex & J. Bacon, 33 Cal. 356. 27. Ace. Todd v. Taft, 89 Mass. 371 ; 2 Columbine u. Chichester, 3 Phil. Baldwins. Commonwealth, 11 Bush, Ch. 27. 417; Ashe v. Johnson, 3 Jones' Eq. STurnurotJ. May, 33L. T. N. S. 56. 149; Johnson v. Brooks, 93 N. Y. ■1 Austin V. Gillespie, 1 Jones' Eq. 337; White v. Schuyler, 1 Abb. Pr. 261 ; Wason v. Fenno, 129 Mass, 405. N. S. 300 ; S. c. 31 How. Pr. 38 ; Chater 5 So where a stock transfer is in- v. San Francisco &c. Co., 19 Gal. 319; volved in the enforcement of a trust Cushman v. Thayer Manuf. Co., 76 the transfer will be ordered. Taylor N. Y. 368. on Corporations, § 790; Draper v. ' Blississippi &c. R. Co. v, Crom- Stone, 71 Me. 175 ; Coles v. Whit- well, 91 U. S. 643. man, 10 Conn. 131. So also where ■•5^90 TEANSFEE OF SHAKES. [§ 625, vendor as well as the vendee. Thus where the stock is in such a condition that some liability is imposed upon the regis- tered owner, the vendor is entitled to an order or decree in equity compelling the vendee to have the transfer recorded on the books of the company.^ § 635. Avoidance of the contract. — Where the stock has been attached in the hands of the vendor, it is sufficient" ground for the refusal of the vendee to take , it.^ And as is the rule in respect of contracts generally, fraud and fraudu- lent misrepresentations on the~ part of the vendor or his agent ' constitute a valid ground for refusing to take shares of stock which one has contracted to purchase.* This rule has been applied where it was falsely represented the prop- erty of the corporation was unincumbered;* that its affairs Avere prosperous;^ that certain persons of influence were members of the corporation;^ that certain dividends were to be guarantied by the company;' that a dividend was about to be made, thus giving the .stock a standing as a good invest- ment;' that the stock was full paid stock and not subject to calfe.'" So where the vendor instigates employees to make false memoranda and statements as to the condition of the company, the vendee may refuse to take the shares." There is a class of cases in which circumstances are relied upon as evidence of fraud in which it is held that the contract is valid, 1 Paine v. Hutchinson, L. E. 3 Eq. been the sole inducement to the con- 257; B. 0. L. R. 3 Oh. 388; Walker v. tract. Morgan v. Skiddy, 62 N. Y. Bartlett, 3 Jur. N. S. 648 ; s. o. 18 319, 338. C. B. 845. 5 Southwestern E, Co. v. Papot, 67 2 Eastman v. Fiske, 9 N. H. 183. Ga. 775. 8 Smith V. Tracy, 36 N. Y. 78. 6 Cazeaux v. Mali, 35 Barb. 578. * Bradley v. Pool, 98 Mass. 169; 'Miller «. Barber, 66 N.'Y. 558. Gammill v. Johnson, (Ark. 1887) 1 8 Gerhard v. Bates, 20 Eng. L. & S. W. Eep. 610 ; Wakeman v. Dal- Eq. 129. ley, 51 N. Y. 27 ; Nelson v. Luling, 9 Lawton v. Kittridge, 30 N. H. 63 N. Y. 645; Sohenwenck v. Nay-, 500. lor, 103 U. S. 638; Gordon v. Parker, "Sturges v. Stetson, 1 Biss. 346; 10 La. Rep. 56 ; Beach on Railways, Fosdick v. Sturges, 1 Biss. 255 ; Cross §§ 131, 132, 135, 136. The intent to v. Sackett, 2 Bosw. 617. Contra, deceive must be proven. Bellaires Nelson v. Luling, 63 N. Y. 645. Cf, V. Tucker, 13 Q. B. Div. 563; South- Colt v. Woollastqn, 3 P. Wms. 154; western R. Co. v. Papot, 67 Ga, 775, Seaman v. Law, 4 Bosw. 337. 693. Bift the fraud need not have " Hagar v. Thompson, 1 Black, 80. § 626.] TEANSFEK Olf SHAKES. 991: and no presumption of fraud is raised. Thus where the vendor states that the stock is worth its full par value, the contract will stand, for such, a statement is an expression of opinion as distinguished from misrepresentation of a material fact.' § 626. Eemedies for fraud and misrepresentation. — It may be stated as a general rule that the vendee of stock will be released from the obligations of his contract in cases where there is such a degree of deceit practiced upon him as would entitle the ' vendee of ordinary personal property to similar relief, and equity will afford him affirmative relief.^ So the whole transaction may be set aside by means of a bill in equitj% which is the most effective remedy, for the reason that, in order to entitle the party tp the relief prayed for, it is not necessary to show actual fraud, fraud being often pre- sumed from certain facts and circumstances which, at law, will not constitute a cause of action.' Thus even when repre- sentations are innocently made, the vendor will often be called upon, in equity, to make them good.^ When a trans- feree finds that he is a victim of misrepresentation, he may, of course, affirm or repudiate the contract, but in the latter case he should make a tender of the stock to the vendor and ask to be reinstated in the position existing before the con- tract was made,' and he should act .promptly. Thus when he has given a note in payment for the stock he should repudiate the contract and make a tender of the stock, for it is not a defense to an action on such a note that the transaction was tainted with fraud.* The injured party also has a remedy at law for damages.' In some cases where individuals have com- bined for the purpose of influencing the price of stock by false 1 Union Nat. Bank v. Hunt, 76 Mo. L. E. 11 Eq. 215; Campbell v. Flem- 439. ing, 1 Add. & El. 40. But see Ogil- 2 Taylor on Corporations, § 793. , yie v. Currie, 37 L. J. Ch. 541. 'Arkwright v. Newbold, 17 Ch. spi-ancis i;. New York &o. E. Co., Div. 301. 17 Abb. N. C. 1. * Jones V. Bolles, 9 Wall. 364; 6 GifEord t). Cahill, 29 Cal. 589. Bradley v. Luce, 99 111. 234; John- 'Miller v. Barber, 66 N. Y. 558; sont;. Kirby, 65Cal. 483;Stainbank Nelson v. Luling, 63 N. , Y. 645; V. Fernley, 9 Sim. 556; Peek v. Gur- Wakeman v. Dalley, 51 N. Y. 27; ney, L. E. 5 N. H. 377 ; Hill v. Lane, Newbery v. Garland, 31 Barb. 131. 992 TEANSFEE OF SHAKES. [§ 627. representations they may become liable to a criminal prosecu- tion for conspiracy.* § 627. Transfers otherwise than by contract.— The title to stock may be transferred by gift, may be the subject of gift^and by will.' Great care should be exercised by the company, however, in such cases, for it, is charged with the duty of trustee toward the stockholders for many purposes, and must, therefore, exercise due diligence to protect the in- terest of its cestui ^q^ue tmst.* Where a certificate of stock issued to one as legatee it gives him title subject to all the conditions imposed upon it by the will. If the corporation allows him to surrender his certificate and issues to him in lieu thereof a certificate with no mention of the fact that itis sub- ject to such will, it will be answerable for injury therefrom.^ If a trustee under a will, on demanding of a corporation a transfer of shares of stock standing in the name of his testator upon the books of the corporation, presents to the corporation certified copies of the will and of his appointment as trustee, as evidence of his authority to demand a transfer, the corpo- ration has no right to require that the copies shall remain in its custody'.* Under a provision in the charter of a corpora- 1 Eegina u Brown, 7 Cox's Crim. ter's Estate, 1 Whart.. (Pa.) 363; Cas..443; Eegina v. Esdaile, 1 Fost. Standing u. Bowring, 37 Ch. Div. & F. 213. Of. United States v. Brit- 341 ; Dummer v. Pitcher, 5 Sim. 35. ton, 108 U. S. 199. Except in the case of the recovery of 2 De Caumont v. Bogert, 36 Hun, the donor where the gift is causa 382. Provided the gift is one which mortis. Stainlaud v. Willott, 3 Mac. is in other respects lawful. Nicker- & G. 664. son V. English, (1886) 143 Mass. 267i. » Millard v. Bailey, L. E. 1 Eq. 378; Simple delivery has been said to be Barton v. Cooke, 5 Ves. 461 ; Caulk- sufiSeient. Eeed v. ■ Copeland, 50 ins v. Gas-Light Co., (188'7) 85 Tenn. Conn. 473. Contra, Baltimore &c. 683; s. o. 4 Am. St. Eep. 786; Eck- Co. V. Mali, 66 Md. 53. A gift of fold's Estate, 7 Week. Notes Cas. stock causa mortis may be made by (Pa.) 19. mere delivery of the certificates *Caulkins v. Gas-Light Co., (1887) without any written transfer. Walsh 85 Tenn. 683; s. C. 4 Am. St. Eep. V. Sexton, 55 Barb. 351 ; Allerton v. 786. Lang, 10 Bosw. 363. Except where ^Caulkinsv. Gas-Light Co., (1887) there are other formalities prescribed 85 Tenn. 683 ; s. c. 4 Am. St. Eep. by statute. Moore v. Moore, 43 L. J. 786. Ch. 617. And the gift once duly * Bird r. Chicago, Iowa &o. E. Co., made can not be revoked. Delama- 187 Mass. 438. § 628.] TEANSFEE OF SHARES, 993 tion that on the death of a shareholder his heirs or legal rep- resentatives might continue the relation, it was held that the right to continue the membership was in the heirs or devisees, and not in the personal representative.' Where a testator's bank-stock is sought ta be transferred by the executrix, nine years after the testator's death, and six years after the period limited by law for the settlement of estates -has elapsed, not to another person to raise money for the estate, but to hersplf individually, for the purpose of securing a note on which she is indorser for a third person, the circumstances are sufficient to put the bank on inquiry as to her authority.^ In England provision is made by statute ^ for the registration of stock in case of its transfer, by death, bankruptcy or marriage, thus recognizing, by implication, the validity /of a transfer by that § 628. Ti'ansmission of interest involuntary associations. Membership of a club whiqh is purely literary or social or scientific, and does not own property, can not be considered a right of propert}'^, nor is the right of meeting the other mem- bers a vested right of which the courts can take cognizance.^ But a member of such a voluntary association as one formed for sooial'purposes or the facilitation of business, hasundoubt- 1 Montgomery Mutual Building & society, are either, first, a right to Loan Assoc, v. Robinsoij, 69 Ala. property; second, a right to mem- 413. Cf. Security Loan Assoc, v. bership, with a view to the improve- Lake, 69 Ala. 456. - ment of the science of medicine ; 2 Peck v. Bank of America, (R. I. third, a right to practice his profes- 1890) 19 Atlan. Rep. 369. sion arid collect liis fees; or, fourth, 3 8 Vic. ch. 16, § 18. ' a right to meet the members of said *Societe Generale de Paris v. society on social equality. Suppose Walker, 14 Q. B. Divi 434; s. C. 1! the members of the society refuse to App. Gas.. 20; Bradford Banking Co. rneet with the relator, refuse to dis- V. Briggs &C, Co., 31 Ch. Div, 19; cuss medical science with him, re- S. 0. 13 App. Cas. 89; Cork &c. Ry. fuse to exert any effort, physical or Co. V. Cazenove, 10 Qt B. 985 ; Leeds mental, to carry out the purposes of &c. Ry. Co. V. Fearnley, 4 Ex. 37; the society, what power of compul- Buchan's Case, 4 App. C. 583. sioli has this court which it can * Waring v. Medical Soc, (Superior bring to bear on such recusant mem- Ct., E. Dist. of Ga. 18^9) 8 Am. L. bers? The bare question shows its Eeg. • N. S. 533, where the court impracticability. I must therefore said :" The only rights which the re- refuse the mandamus." ' later can have, as a member of the 63 994 ' TKANSFEE OF SHARES. v [§ 628. edly an interest in the general assets of the association as long as he remains a member,' which is prima facie equal or pro- portionate.^ So a bill may be maintained by the members of a roluntary association, for themselves and other members, to compel a trustee to join with his co-trustees in an assignment tp their successors of funds of the association on deposit in a savings banii.' But in absence of any rule to the contrary governing such an association, a member has no severable or transmissible interest or the right to any proportion of the assets upon ceasing to be a member, although upon dissolu- tion a membier would be- entitled to share in the effects.* Where a voluntary fire company was chartered by the legis- lature, and its piHcers were commissioned by the governor, but had no capital stock, and could not acquire property except by. donation, and the only compensation of its members was reliefvfrom militia and jury duty, it was held that the heirs of a deceased member had no interest in its property on its dis- solution." On the death of, a member of a proprietary com- pany, however, his interests and rights descend to his heirs or devisees.* A seat in the I^Tew York Stock Exchange is prop- erty, and subject to the payment of debts. The court naay order its assignment to one qualified under the rules of the exchange to hold it. Nor is the exchange a necessary party to the proceeding to compel a transfer.' And one who, by becoming a member of the I^ew York Stock Exchange, agrees that his seat may be disposed of among his creditors in the exchange in a certain manner, is bound by his agreement.' So a by-law of the board regulating the disposal of seats upon the decease of members, is binding upon the personal repre- 1 In re St. James' Club, 2 De Gex, Belton v. Hatch, 109 N. Y. 593 ;s. C. M, & G. 383, 887 ; S. C. 16 Jur. 1075, 4 Am. St. Eep. 495 ; White v. Brown- 107.6 ; S. c. 13 Eng. L. & Eq. 589, 592. ell, 2 Daly, 389, 356 ; S. C. 4 Abb. Pr. ^McMahon v. Eauhr, 47 N. Y. 67; N. S. 162, 191. Beltcn u Hatch, 109 N. Y. 593; S.C. » Mason v. Atlanta Fire Co., 70 4 Am. St. Rep. 495. Ga. 604; S. c. 48 Am. Rep. 585. 8 Birmingham v. Gallagher, 112 « Angell & Ames on Corporations, Mass. 190. (11th ed.) § 214, citing 2 Dane's *7n rest. James' Club, 2.De. Gex, Abridgment, 698. M. & G. 383, 887; S. C. 16 Jur. 1075, ' Londheim v. White, 67 How. Pr. 1076; s. C. 13 Eng, L. & Eq. 589, 592; 467. MoMahon v. Rauhr, 47 N. Y. 67, 70 ; » Weston v. Ives, 97 N. Y. 222. § 629.] TliANBFEE Off SHAKES. 993 sentatives of a deceased member.' A purchaser can not ac* quire a title to a seat in the Stock Exchange freed frdm the debts of a fornier owner to members of the board.' . § 629. Transfer of shares in cost-book mining companies. In mining communities mines are usually operated by what are known as mining partnerships with different rights and liabilities attaching to their members from those attaching to ordinary companies or trading partnerships. They are formed by the association oi a number of persons who have obtained permission to work a lode; the number of shares into which their capital is to be divided is determined and an allotment of shares is made to each member. One of their number, commonly called the " purser," is appointed to manage the affairs' of themine, and the minutes of their proceedings are entered in a book, called the " cost-book," and signed by all the parties. The cost-book contains the names of all the shareholders, and the nambet of shares held by each is set op- posite his name. A shareholder may get rid of his shares and bis liabilities so far as his partners are concerned, without their consent, and without dissolving the partnership, either by a transfer or a simple relinquishment, providing the. cost^book rules do not prohibit it, the fact of the transfer .being entered; by the purser in the cost-book, or simple notice of relinquish' ment being given the purser.' Members of a mining associa" tion, therefore, have no right to object to the admission of a stranger into the association, who buys shares of one of their associates,* for the delectus' personm which is essential to con* stitute an ordinary partnership has no place in these mining associations.' The mode of transferring shares is simple, and 1 Thompson v. Adams, 12 Phila. the proceeds under their constitu- 484 ; g. c. 93 Pa. St. 55, tion and by-laws, and it' was held 2 Thompson o. Adams, 12 Phila. that the former could not maintain 484; S. C. 93 Pa. St, 55. In this case his claim, one who furnished the money with 'Collier on Mining, 93; Skillman w hich a member of the Philadelphia v, Lackman, 23 Cal. 203 ; Dickinson brokers' board purchased his seat, «, Valpy, 10 B. & C, 138; Eicketts o. upon the death of the member Bennett, 4 C. B, 686, claimed an equitable ownership in * Bissell V. Foss, (1884) 114 U- S, the proceeds of the sale of the seat, 252. as against the-creditors of the mem- *Kahn v. Smelting Co., (1880) 103 ber within the board, who claimed U. S. 641, citing Duryea v. Burt, 28 996 TEANSFEE OF SHAEES. [§ 630. effected with great facility, and in any form, and the mere entry by the purser in the cost-book of the fact of transfer is sufficient to bind all parties, and constitutes the introduction of a neV partner into the concern.' § 630. Transfer of shares in national banks. — The stat- utes of the United States and not ihdse of the States regulate the transfer of the stock of national banks, though no exclu- sive method of transfer is prescribed by the national banking act.^ And while it is of the utmost impartance that the lia- bility of stockholders of national banks should be rigorously enforced, it is declared that the court should not treat them with exceptional severity, and apply to their transfers diflferent rules from those which obtain in other business transactions.' So where a shareholder of a national bank makes a bona fide sale of his stock, and goes with the purchaser to the bank, in- dorses the certificate, and delivers it to the pashier of the bank, with directions to make the transfer on the books, he has done all that is incumbent upon him- to discharge his lia- bility.^ Likewise in a State the courts of which lean strongly against unrecorded transfers; but where the statute gives no peculiar rights to attaching creditors of stock so transferred, precedence will be given to an unrecorded transfer of, the stock of a bank which has passed no by-law on the subject, over a subsequent attachment by a creditor of the assignor.* Cal. 569; Settembre v. Putnam, 30 Fed. Rep. 319 ;.s. c. 6 Ey. & Corp. Cal. 490; Taylor v. Castle, 43 Cal. L. J. 824; Whitney v. Butler, 118 367. U. S. 655. ; 1 Wharton's Law Lexicon, tit. * Hayes v. Shoemaker, (1889) 39 " Cost-Book Mining Companies." Fed. Rep. 319; s. C. 6 Ry. & Corp. * Scott V, Pequonnock Bank, 15 L. J. 824. Fed. Rep. 494. sgcott v, Pequonnock Bank, 15 3 Hayes v. Shoemaker, (1889) 89 Fed. Rep. 494. CHAPTER XXXII. EXECUTION AND ATTACHMENT OF SfiARES, AND HEREIN OF PLEDGE AND THE CORPORATE LIEN. 631. Introductory. 63^. Execution and attachment of shares — (a) In general. 633. (b) In foreign corporations. 634. (c) By creditors of the trans- ferrer. 635. The same subject continued. 636. (d) By creditors having knowledge of the transfer. 637. (e) By creditors of the trans- feree. 638. Pledge and mortgage distin- guished. § 639. The pledgee's rights — (a) la general. 640. (b) To registration. 641. (c) To receive dividends. 642. (d) To vote. 643. Foreclosure of pledge. 644. The company's lien upon shares. 645. Statutory and charter liens. 646. Distinction between statutory and other liens. § 631. Introductory. — Questions respecting executions and attachment of shares of stock are so intimately connected with liens thereon in favor either of the corporation or of the shareholder's pledgee that it has been found convenient to treat them together in a single chapter; for example, what are the rights of a judgment creditor as against the pledgee of his debtor's shares?^ what is the effect of a levy upon shares held only as collateral security for a loan ? ^ how far are the rights of a judgment creditor affected by his knowl- edge that the shares have beea transferred or are held iu pledge?' how far does the company have a lien for unpaid subscriptions to stock as against the shareholder's transferee, pledgee or judgment creditor?^ '■'■ Bona jide creditors," as against whom transfers of certificates of stock in a private corporation are reqjiired to be entered on the books of the corporation, under the Alabama code, are judgment creditors who have acquired a lien; and when the lien of the execution has attached before notice to the creditor, the purchaser at the sale will be protected although he had actual notice of a 1 Vide infra, § 634. 2 Vidia infra, § 637. 8 Vide infra, % C.^6. 4 Vide infra, f;f5 U44-646. 998 EXECUTION AND ATTACHMENT OF SHARES. [§ 632. prior unregistered transfer.^ "Where stock is transferred in trust for the benefit of the transferrer, and the transferee in trust is registered on the books of the corporation, the equi- table title remains in the cestui que trust and he is entitled to a re-transfer of the stock on the corporate books as against the assignee in insolvency of his trustee.^ A trustee, who has in bad faith prevented a sale of his trust stock while it was of value, is liable to his cestui que trust, in the absence of proof of market value of shares when the sale could have been made, and of the receipt of any dividends or interest by the share- holders, for the amount paid in, with interest, from the' time the trust was acknowledged;' and a sale of stock under con- ditionSj among others, that the' vendor vrould receive it back at an advanced price, and offers to purchase and statements of value, intended evidently only to inflate the stock, are not evidences of value.* In Hew York certain transfers of stock by corporations in trust are prohibited by the Stock Corpora- tion Law of 1890; as when the corporation shall have refused to pay any of its notes or other obligations when due, none of its property shall be transferred or assigned for the pay- ment of its debts, nor shall any corporate property or any stock therein be assigned in contemplation of insolvency.* § 633. Execution and attachment of shares — (a) In gen- eral. — Shares in companies having capital stock are subject to execution and attachment.* It is expressly declared by stat- ^ Jones V. Latham, 70 Ala. 164, holder consists of his right to a share construing Ala. Code, § 2043. in the net assets of the corporation', 2 Sibley v. Quinsigamond Bank, proportionate to the nujaber of 133 Mass. 515. shares to which he has title.' Bou vier 3 Snyder «. MoComb, (1889) 39 Fed. defines a ' right ' as ' a well-foua-ded Eep. r393; s. 0. 6 Ey. & Corp. L, J. claim.' Whatever may be the cv"-. 313. rect definition of the word 'rights,' * Snyder v. McComb, 89 Fed. Eep. as used in § 8 (of 111. Eev. Stat. ch. 11, 392; s. C. (1889) 6 Ey. & Corp. L. J. the Attachment Act), it refers to 312. some kind of property interest, 5 N. Y. Laws of 1890, eh. 564, which is incorporeal in its character, § 48. and not to that species of property ^Uijion National Bank v. Byram, which is capable of being actually (tU. 1889) 7 Ey. & Corp. L. J. 148, and corporeally seized by the sheriff, where Magruder, J., said : " In Peo- ' Effects ' are defined to be ' property pie V. Manufacturing Co., 99 111. Sp5, or worldly substance,' and as denot- we said : ' The property of a stock- ing ' property in a more extensive § 632.] EXECUTION AND ATTACHMENT OF SHAKES. 999 ute in some States that the shares of stock of any person in an incorporated company are personal property and mdy be levied on by execution and attachment and sold as goods and chat- sense than goods.' 1 Bouv. Law Diet. 579; 1 Schouler on Personal Property, g 16. A share of stock can not be regarded otherwise than as ' property,' nor can it be said that it is not ' worldly substance.' By the use of the word • attached ' in g§ 53, 54, and 55 (of 111. Rev. Stat. ch. 77, che Executioij Act), as above quoted, the legislature assumed that provis- » )n had aU-eady been made for at- taching shares of stock. It will not be presumed that this assumption was a mistaken one, unless it clearly appears to be so. When g 8 of the Attachment Act making use of terms which are broad enough to embrace shares of stock is carefully studied in connection with said y§ 53, 54, and 55, it is evident that the latter sections refer back to said § 8, and point to it as the provision for attaching corporate stock, which is assumed to exist. Nearly twenty years before July 1, 1872, this court had said in Newhall v. Buckingham, 14 111. 405: 'Under our statute, whatever is the subject-matter of seizure and sale on execution may be taken in the proceeding by attach- ment, and held subject to sale on the judgment that may be recovered.' .There is no such difference between the statute now in force and the statute of 1845, which was in force when the Newhall Case was decided, as would make the statement in the quotation any the less true now than it was then. The objection that the statute provides no mode of levying the writ of attachment will also dis- appear upon a comparison of the At- tachment Act with the act in regard to judgments and executions. Sec- tion 26 of the Attachment Act pro- vides that ' the practice and plead- ings in attachment suits, except as otherwise provided in this act, shall conform, as near as may be, to the practice and pleadings in other suits at law.' The word ' practice,' as here used, includes the mode of serving mesne process and the mode of ex- ecuting final process. It refers to the manner in wliich an attacliment writ is to be levied, and also in the manner in which a writ of fi. fa., or an execution, is to be levied. Fleiscli- man v. Walker, 91 111. 318. The word ' levy ' is applied to attachment writs as well as to executions. An attachment writ is levied upon per- sonal property in the same way in which an execution is levied thereon, A 'levy ' is defined by Bouvier to be a ' seizure,' and it is no less a seizure when made under an attachment tlian when made under an execu- tion. The seizure is made in the same way under the one as under the other. The acts necessary to a valid levy of an attachment are equally essential to the valid levy of an execution, (2 Freeman on Execu- tions, 2nd ed., sj 262) and the con- verse of the proposition is also true. The object of the attachment of per- sonal property is to seize and hold it until judgment is rendered, so that it may be taken and sold under ex- ecution. The object of levying an execution upon personal property is to seize and sell it, so as to make out of it the amount recovered by the judgment.'" The shares of a stock- holder in a railroad corporation are liable to attachment ; and by virtue thereof, the attaching creditor ac- quires a claim superior to that of a subsequent bona fide purchaser of 1000 EXECUTION AND ATTACHMENT OF SHAEES. [§ 633, tels.^ After shares of stock have been attached, and the cor- poration served, a transfer to a creditor of more^shares than are necessary to secure his debt, for. which there has been an equitable hypothecation, can not be made as against the attach- ing creditor.^ , , § 633. (lb) In foreign corporations. — In cases involving ex- ecution and attachment of stock in foreign corporations, the situs of the certificates is^ unimportant. Their seizure by ex- ecution or attachment would not be seizure or levy upon the stock itself without noiice to the company. It is the situs of the corporation that determines.' If it be doing business in the State in the capacity of a foreign corporation, shares of its stock can not be reached by levy, although its officers are present in the State engaged in carrying on its business there.* But if the corporation by having its officers and transacting its business in a State other than of its origin, is deemed to be itself present as an entity in the foreign State in the same sense in which it is present in the State which created it, it may be conceded that its shares might be properly attached in the foreign jurisdiction.' Accordingly, it has been held that where a foreign corporation was carrying on the business of making iron within Tennessee, and its officers and its general I the shaves for value without notice g§ 20-23 ; N. Y. Code Civ. Proc. of the attachment. Shenandoah § 647; Pa. Act of June 16, 1836; "Valley R. Co. v. Griffith, 76 Va. 913. Conn. Gen. Stat. ch. 2, § 19; oh. 14, But under Md. Act of 1886, ch. 287, § 237; Wyoming Rev. Stat, gg 2773, ■which provides that no attachment 2774. or garnishment levied on corporate 2 Kyle u. Montgomery, 73 Ga. 337. stock shall affect the rights of any 'Young v. South Tredegar Iron pledgee, acquired before the levy, Co., (1886) 85 Tehn. 189; s. c. 4 Am. orpreveht the pledgee and the cor- St. Rep. 752. pOration from transferring the shares * Plimpton v. Bigelow, 93 N. Y. on the company's, books, the court 592 ;.s. C. 66 How. (N. Y.) Pr. 131; does not, by the garnishment of a s. 'C. 13 Abb. (N. Y.) N. CaS, ,173, pledgee, obtain any control of the holding that New York Code, § 647, stock, and a bill does not lie fpr the applies only to domestic corpora- appointment of a receiver, and to tions, and reversing s. C. 29 Hun, enforce the garnishment. Morton v. 362. Grafflin, (1888) 6S Md. 545. ^Dipta in Plimpton v. Bigelow, 93 1 Ala. Code of 1876, § 2041; R. 1. N. Y. 593, quoted with approval iu Rev. Stat. ch. 196, S 31 ; ch. 197, g 9; Young v. South Tredegar Iron Co., ch. 213, §g 18-20; E. I. Pub. Stat. (1886) 85 Tenn. 189; s. c. i Am. St. oh. 207, § 22; ch. 208, § 9; oh. 333, Rep. 753. § '634.] EXECUTION AND ATTACHMENT OF SHAKES. 1001 office were required by its by-laws to be in that State, and all of its books, including its stock-books, were kept therein, its elections of directors held therein, and its directory, plant and propertj'- were located therein, it was presumed that the corporation had complied with the law, and was to be deemed a domestic corporation, the stock of whicti, owned b^'^ a non- resident stockholder, was liable to attucliment in Tennessee.' § G34. (c) Bycreditorsof the transferrer.— Where shares have been transferred by assignment of the certificates witli- o,it registration upon the bo'oks of the company, two ques-. tions arise, to wit : whether creditors of the transferrer thereby lose the riglit to levy upon the shares; and whether the trans- feree acquires thereby a property right which his creditors may subject to execution and attachment. These questions depend for their solution upon the distinction between legal and equitable titles.^ The legal title to shares, assignable only on the company's books, does not pass by an assignment not so made and recorded.' The unregistered transferee takes only an equitable title as between himself and his transferrer,, or parties having actual knowledge of the transfer.* Accurd- 1 Young V. South Tredegai- Iron ferable on the books of the company, Co., (188o) 85 Tenn. 189; s. 0. 4 Am. on presentment, properly indorsed, St. Rep. 752. But see Martin v. Mo- passes an equitable title only : and bile & O. R. Co., 7 Bush, 116. ' where the assignee delays for seven 2 In England the House of Lords years to notify the company of the having decided that shares of stock assignment, or present the stock for are choses in action, (Bank v. Whin- transfer, pending which the stock is ney, 11 App. Cas. 426) it is now held attached and sold as property of the\ that an equitable assignment of assignor, and a transfer on the books stock without notice to the corpora- tion relieves it of the claims of the judgment creditors of the assignee. Arden v. Arden. 29 Ch. Div. 702; Bevan v. Oxford, 6 D. M. & G. 492; Pickering v. Ilfrac. Ry. Co., L. R. U C. P. 235 ; Robinson v. Nesbitt, L. R. 3 C. P. 264; Browne & Theobald's Ry: Law, 76. 3 Noble V. Turner, (1888) 69 Md. 519; Lippitt v. American Wood Paper Co., (1885) 15 R. L 141; s. 0. 2 Am. St. Rep. 886, and note 891. The assignment and delivery, as col- lateral, of certificates of stock trans- made by thesheriff to the purchaser as authorized by statute, (Code Md. art. 10, § 19, and art. 26, §g 205, . Dexter, 3 MacA. 530 ; BlOuin 9 U. C. Q. B. 333. For the general V. Liquidators, 30 La. Ann. 714. law of this subject, see Lawson's 1 See note to Hubbell v. Drexel, 31 Eights and Eemedies, § 465 ; Sar- Am. L. Reg. 454; Gilpin v. Howell, gent v. Franklin Ins. Co., 8 Pick. 90; (1846) 5 Pa. St. 41; s. C. 45 Am, Dec. s.'C. 19 Am. Dec. 306; Fitzhugh v. .720; Horton v. Morgan, (1859) 19 Bank of Shepardville, 3T. B. Mon. N. Y. 170; s. 0. 75 Am. Dec. 311; 136; S. 0. 16 Am. Dec. 90. Taylor v. Ketchum, 85 How. Pr. 289 ; s Vide infra, § 645. Dykers v. Allen, 7 Hill, 497 ; Noyes ^ Mbrgan v. Bank of North Amer- V. Spaulding, (1855) 37 Vt. 430; Price ica, 8 Serg. & E. 73, 88; s. 0. 11 Am. V. Grover, 40 Md. 102; Thompson v. Dec. 576. ToIand,48Cal. 99 ; Atkins «. Gamble, svansands v. Middlesex County 43 Cal. 86 ; Hardenburgh v. Bacon, Bank, 26 Conn. 144. 33 Cal. 356; Boylan v. Huguet, 8 * Bank of Holly Springs u Pinson, Nev. 845 ; Langton v. Waite, L. fi. 6 . 58 Miss. 421 ; s. C. 38 Am. Eep. 380 ; Eq. 165; Le Cray v. Eastman, 10 Mechanics' Bank u. Merchants' Bank, Modern (K. B.), 499. 45 Mo. 513; s. 0. 100 Am. Dec. 388; 2Neale v. Jenny, 3 Cranch, 188; Spurlock v. Pacific R. Co., 61 Mo. Bates u. New York Ins. Co., 3 Johns. 319; Pendergast v. Bank of Stock- Cas. 238; Steamship Dock Co. v. ton, 3 Sawy. 108; Knight v. Old Heron, 53 Pa. St. 380 ; Massachusetts National Bank, 3 Clifford, 439 ; In re. Iron Co. V. Hooper', 7 Cush. 183 ; Bachman, 13 Nat. Bankr. Eeg. 223 ; Dana v. Brown, 1 J. J. Marsh. 304; McDowell v. Bank, 1 Harr. (Del.) 37; Byron v. Carter, 32 La. Ann. 98 ; St. Louis &o. Ins. Co. v. Qoodfellow, People V. Crockett, 9 Cal. 112; Will- 9 Mo. 149; People v. Crockett, 9 Cal. iams V. Lowe, 4 Neb. 383, 398 ; Mo- 112 ; Child u Hudson's Bay Co., 3 Murrich v. Bond Head Harbour Co., P. Wms. 307. 1014: EXECUTION AND ATTACHMENT OF SHAEES. [§644. them, provided they are not repugnant to the charter ot the . laws of the land. . . . The bank had an undoubted right ,to say to any stockholder: 'We discount your note; but re- member until ii is paid we shall hold your stock in security. You shall not be permitted 'to transfer it until you pay us.' " ^ The lien of the corporation is onlj'^ to secure it upon debts of the registered shareholder. It does not extend to the interest of an unregistered transferee for debts due from him to the company.^ Failure to assert a lien established by custom or agreement, or created by by-law, may operate as a waiver thereof. But a charter or statutory lien,' notice of which is embodied in the stock, certificates, is not ordinarily waived by mere failure to assert it,' unless the language of the statute which is construed to create a, lien is to the effect that the shares shall not be transferred until the prior holder's indebt- edness to the company has been paid; in which case the company waives its lien by permitting registration without previous payment ; and the transferee thus registered obtains a complete and unincumbered title;* If it appear that ad- vances were made to the. stockholder upon personal credit alone, or on some other security, without reference 'to the stock, this would constitute a waiver of the lien ; but other- wise waiver is not to be lightly presumed." Merely taking additional security is not a waiver.* In a recent case in Cal^ ifornia, it was held that a reorganization of a banking com- 1 Wain I'. Bank of Nortli America, Assam Tea Co., L. E. 10 Eq. 458; 8 Serg. & E. 89. Higgs v. Assam Tea Co., L. E. 4 Ex. 2 Helm V. Swiggett, 12 Ind. 194. 387. sEeese v. Bank of Commerce, 14 "Jennings v. Bank of California, Md. 271; s. C, 74 Am. Dec. 536; Hoff-' (1889) 79 Cal. 823; s. C. 12 Am. St. man &c. Co. v. Cumberland &c. Co., Eep. 145, 150, 151, where it was said 16 Md. 456 ; s. C. 77 Am, Dec. 311 ; that the facts that the bank's cashier McCready v. Eumsey, 6 Duer, 574; testified that "if a party is in good First National Bank v. Hartford &c. standing, we don't question his right Ins. Co., 45 Conn. 23. Of. National to a transfer," and that the stock- Bank V. Watsontown Bank, 105 U. S. holder was allowed a large overdraft, 217 \.Inre Hoylake Ry. Co., L. E. 9 do not show that the loan was made Ch. 557, 259. on his personal credit alone, so as to * Cecil Bank v. Watsontown Bank, waive the lien on the stock. Cf. 105 U. S. 217.; Hill v. Paine Eiver Union Bank v. Laird, 2 Wheat. 390. Bank, 45 N. H. 300 ; In re Hoylake e Union Bank v. Laird, 2 Wheat. Ky. Co., 9 Ch. 257; In re Northern 890. .§ G45.J EXECUTION AND ATTACHMENT OF SHAKES. 1015 pany, and the adoption of by-laws providing that certificates of stocii " shall be transferable by indorsement and delivery thereof, the transfer to be complete and binding upon the bank only when recorded upon the books of the bank," is not a waiver of the stipulation in the certificate or of the lien created thereby.' A waiver as to part of the shares is not a waiver as to all.^ § 645. Statutory and charter liens. — In England and in many of the American States, corporations have a statutory lien upon the stock of their shareholders for debts due from them to the company,^ which, unless especially- restricted to a certain class of debts, extends to all debts owing from the shareholder to the corporation,'* in whatever capacity, it has been said, he may hold the shares.^ Especially does the lien 1 Jennings v. Bank of California, (1889) 79 Cal. 333; s. c. 13 Am. St. Eep. 1415, 149. 2 First National Bank v. Hartford Ins. Co. , 45 Conn. 33. Contra, Pres- byterian Congregation v. Carlisle Bank, 5 Pa. St. 345. 3 E. g. Va. Code of 1860, ch. ^7, gg 31, 32, 24 ; Wis. Rev." Stat. § 1751 ; Pa. General Railroad Law of 1849 ; Oregon Misoel. Laws, ch. 33, §] 3230 ; The Companies Clauses Act of 1845, 8 Vio. ch. 16, § 16. The New York "Stock Corporation Law " of 1890 enacts that no share shall be trans- ferable until all previous calls there- on shall have been fully paid in. N. y. Laws' of 1890, ch. 564, § 40. There was a similar provision in the General Railroad Law of 1850, ch. 140, § 8. See also N. Y. Laws of 1881, ch. 468, § 13 ; National Bank V. Watsontown Bank, 105 U. S. 217; Allen u. Montgomery R. Co., 11 Ala. 437, 451; Pittsburg &c. R. Co. v. Clarke, 39 Pa. St. 146 ; Everhart v. West Chester R. Co.,' 38 Pa. St. 339; Rogers v. Huntington Bank, 13 Serg. & R. 77; Ryder v. Alton &o. R. Co., 13 111. 516; Gaff v. Flesher, 33 Ohio St. 107. All railroad companies in- corporated in Pennsylvania under special acts are subject to the General Railroad Law of February 19, 1849, unless their charters contain provis- ions inconsistent with those of the general law. Where, therefore, a stockholder in a company, organized under a special act, transferred his shares while indebted to the com- pany, it was held that the company had a lien on the shares to the amount of the indebtedness. Mount Holly Paper Co.'s Appeal, 99 Pa. St. 513. Although the statute or char- ter only specifies "shares and stock,'' the lien extends tp dividends also. Sargent v. Franklin Ins. Co., 8 Pick. 90; s. C. 19 Am. Dec. 306; Stebbinsc. Phcenix Fire Ins. Co., 3 Paige, 350; Bates V. New York Ins. Co., 3 Johns. Cas. 338 ; Grank v. Mechanics' Bank, 13 Serg. & R. 140 ; Hague v. Dander- son, 2 Ex. 147. * Taylor on Corporations, § 604. 5 In England it has been said that under the Companies Act of 1863, when a company was by its articles of association entitled to a lien upon the shares of a shareholder for all 1016 EXECUTION AND ATTACHMENT OF SHAKES. [§ 645. extend to unpaid calls on the original subscription,' and to all of the shares for balances due on other shares.^ But if the statute gives the compan}' no lien for any other debts of the BtocKholder thain for unpaid shares, one who indorses a note given for a subscription is entitled to have the stock applied to pay the debt for the unpaid subscription, in preference to the other debts due from his principal to the company, even though one of its by,-la\vs provides that the interest of any stockholder shall be liable for the payment of all debts which may be due from him to the companj', and that if there is more than onevdebt, the board of directors may prescribe which one shall be paid out of the debtor's stock. The by-law can only apply to the interest of the debtor stockholder in the stock after the lien of the stock debt is satisfied.' Ordinarily the lien can be enforced for the benefit of the corporation only.* Eut a surety, as, for example, an indorser of a note given in payment of a subscription, is entitled to be subrogated to the company's rights against his principal.' . A lien created by debts owing by him to the company, the lien attached even to shares held ■by a trustee and had priority as against the cestui que trust. Browne & Theobald's Ey. Law, 75, citing New London &c. Bank v. Brockle- bank, 21 Ch. Div. 303. But a convey- ance in trust to sell to any one agree- ing to assume the subscriber's indebt- edness to the company, does not render the trustee liable as a pur- chaser within the meaning of the statute of Oregon. Powell v. Willa- mette Valley R. Co., 15 Oregon, S93; construing Oregon Miscel. Laws, ch. 33, §3330. 1 Pittsburgh &c. E. Co. v. Clarke, 39 Pa. St. 146; Spurlock v. Pacific E. Co., 61 Mo. 319; Shaw v. Eowley, 5Eng. Ey. & Canal Cas. 47. Of. Newry &c. Ey. Co. v. Edmunds, 8 Ex. 118; Aiibergate &c. Ey. Co. v. Mitchell, 4 Ex. 540 ; Great North &o. Ey. Co. V. Biddulph, 7 Mees. & W. 243. But not to the unpaid balance on his subscription which has not been called. Hall v. United States Ins. Co., 5 Gill, (Md.) 484; Kahn v. Bank, 70 Mo. 263. See, however. In re Bachman, 13 Nat. Bankr. Eeg. 223. 2 Stebbins v. Phoenix Fire Ins. Co., 3 Paige, 350; 8 Vic. oh. 16, § 16. Contra: Only to those sliares upon which the call is made. Shenandoah Valley R. Go. t). Griffith, 76 Va. 913; Hubbersty v. Manchester &c. Ry. Co., L. E. 3 Q. B. 471. 8 Petersburg Saving . due on his shares; and it was held Globe Co., 135 Mass. 133; St. Louis that on the failure of one of the &o. Ins. Co. v. Qoodfellow, 9 Mo. stockholders to pay his note, the in- 149 ; Bohmer v. City Bank, 77 Va. dofser was entitled to have the 445; Grant v. Mechanics' Bank, 15 stock applied to his relief. And Serg. & R. 140 ; Downer u Zanesville see Klopp v. Lebanon Bank, 46 Bank, Wright, (Ohio) 477. In Loui- Pa. St. 88 ; West Branch Bank v. siana a pledge of shares of stock in a Armstrong, 40 Pa. St. 378; Hard- corporation is valid by the deliv- castle V. Commercial Bank, 1 Harr. ery of the certificate, although the (Del.) 874, n. ; Hodges v. Planters' J)ledgor is indebted to the corpora- Bank,' 7 Gill [& J. 306, 810; Young tion, and its charter prohibits trans- v.. Mough, 33 N. J. Eq. 335. , fers under such circumstances. 1 Beach on Railways, § 389; Leg- Shares of stock are not "credits" gett V. Bank of Sing Sing, 34 N. Y. within the meaning of the Louisiana 388; German Security Bank t'. Jef- Code, art. 3158, Pitot t?. Johnson, ferson, 10 Bush, 326 ; Bradford Bank- 83 La. Ann. 1386. ing Co. V. Briggs,.31 Ch. Div. 149, » Vide supra, § 645. Of. Hammond reversing S. c. 39 Ch. Div. 119. Vide v. Hastings, (1890) 134 U. S. 401. infra S 646. ' As to the force of by-laws creat- 2 Beach on Railways, § 391, citing ing a lien, vide supra, § 832, p. 523. 1018 EXECUTION AND ATTACHMENT OF SHAKES. [§ 646, the purchaser was ignorant, although provided for by a by- law of the cor'poration.' Accordingly, it is customary, where there is no charter or statutory lien, to embody in the certifi- cates representing the shares a notice that the company will not permit registration of a transfer of the stock until pay- ment of all indebtedness due to it from the shareholder. This notice may be embodied in the certificate whether there is any by-law so prescribing or not, notwithstanding that, the terms on which stock may be transferred are prescribed by statute.^ And when the stockholder accepts a certificate con- taining such a condition without objection, and thereafter borrows money from the corporation, he assents to the con- dition, and the company has an equitable lien on th^ stock for the amount due it.' In a Connecticut case in point the shareholder brought suit for damages against a banking com- pany for refusing to transfer his shares. No lien was given the bank, either by its by-laws or by charter or by statute. The stock certificates, however, contained a condition to the effect that the transfer upon the. bonds should be subject to the indebtedness of the stockholder; and the court held that the acceptance of the certificate without objection and a sub- sequent loan by means of the. discount of a note, effected a contract which created an equitaCble lien for the amount of the indebtedness.* The fact that the condition is inserted in the certificate by the president, cashier, and secretary of the bank, without authority of the board of directors, is imma- terial as against the borrower, as these officers Avill be pre- sumed to have authority to arrange the terms of the loan.^ The fact that there was no u"sage from which such a lien could arise is no defense to its enforcement, where it does not • 1 Anglo-Calif ornian Bank v. Gran- (1889) 79 Cal. 323; s. c- 12 Am. St. gers' Bank, 63 Cal. 359. Eep. 145, 149, where the court said : 2 Jennings u Bank of California, " The officers who transact the ordi- (1889) TO Cal, 828; s. 0. 13 Am, St. nary business of a corporation are Eep. 145. presumed to have authority to do all 3 Jennings v. Bank of California, acts which are usual and incidental (1889) 79 Cal. 323 ; s. 0. 12 Am. St. thereto. McKiernan v. Lenzen, 56 Eep. 145, 148. Cal. 63, 64; Domiell v. Lewis County < Vansands v. Middlesex Bank, 26 Bank, 80 Mo. 171 ; Eeynolds v. Col- Conn. 144. lins, 78 Ala. 97; Case v. Citizens' 8 Jennings v. Bank, of California, Bank, 100 U. S. 455." § 646.] EXECUTION AND ATTACHMENT OF SHAEES. 1019 appear that there was any usage against it.' An assignee of the certificates of shares which are transferable only on the books of the company takes not the legal title but a mere equity which must yield to the superior equity of the com- pany's lien.^ And at any rate, the condition respectin:;^ tho lien usually contained in the certificates themselves, is sufii- cient to put the assignee upon inquiry.' The lien does not extend to debts contracted after the company has received notification of the transfer;^ but the unregistered assignee of the certificates having given no notice to the company, is in no better position as to advances to his assignor after the transfer than as to those made before. For according to the usual form the indebtedness secured is that of the person in whose name the stock stands on the books of the company.^ But notice of an equitable claim given a company is effectual 1 JeBnings v. Bank of California, (1889) 79 Cal. 323; s. 0. 12 Am, St. Eep. 145, 150. 2 Under Cal. Civil Code, § 334, pro- viding that a transfer of stock by indorsement, and delivery of the certificate, ' ' is not valid, except be- tween the parties, until the same is entered on the books," an assignee of the certificate takes subject to the bank's equity, and, as the condition is sufficient to put him on inquiry, he is not a bona fide purchaser. Jennings v. Bank of California, (1889) 79 Cal. 338; s. C. 13 Am. St. Eep. 145, 151, citing Vansands v. Middlesex Bank, 36 Conn. 153, 154; Taylor v. "Weston, 77 Cal. 534; Steb- bins V. Phenix Ins. Co., 3 Paige, 361 ; Union Bank v. Laird, 3 Wheat. 393; McReady v. Eumsey, 6 Duer, 583. s Jennings v. Bank of California, (1889)79 Cal. 323; s. C. 13 Am. St. Rep. 145, 151, distinguishing Anglo- Calif ornian Bank v. Grangers' Bank, CO Cal. 363, where no condition was embodied in the certificate and the by-law relied on was not referred to therein nor printed thereon. ^Conant li. Seneca County Bank, 1 Ohio St. 398. See, however, Union Bank v. Laird, 3 Wheat. 390. Jt is held in England that the company has no priority of lien over an equi- table incumbi-ancer who advanced money on a deposit of the certificates, with notice to the company, before the debt to the company became due. Bradford Banking Co. v. Briggs &o. Co., 31 Ch. Div, 19; s. c. 13 App. Cas. 39. See also Miles V. New Zealand &c. Co., 83 Ch. Div. 366. 5 Jennings v. Bank of California, (1889) 79 Cal. 323; s. c. 13 Am. St. Rep. 145. In Norton v. Norton, 43 Ohio St. 509, a stockholder who owed the corporation which issued the stock, had pledged the shares for a debt, and had delivered them to his pledgee with an absolute power to sell and demand a transfer on the corporate books; but the pledgee not having exercised that power, it was held that the corporation might attach the stockholder's interest, compel a sale, and have the surplus remaining after the payment of the pledgee's debt applied to the pay- 1020 EXECUl'ION AND ATTACHMENT 6F SHAKES. [§ G'iG. only for a reasonable time and operates only as a notice not to 'allow registration of a transfer without giving the claimant an opportunity to establish his right.^ ment of the debt due the corpora- i SocieteQeneralede Paris u. Tram- tion; and that the attachment took ways ITniou Co., 14 Q. B. Div, 424, precedence over a later attachment 448 ; Bradford Banking Co. v. Briggs, by another creditor by garnishee 12 App, Cas. 29. process served on the pledgee. CHAPTEE XXXIII. EEGISTRATION OF TRANSFERS. § 647. Introductory. 648. The usual form of transfer- ring shafes. 649. Registration of defective transfers. 650. Registration of transfers of shares held in trust. 651. Formal requisites of registra- tion. 652. The object of registration. 653. Registration as evidence and notice. § 654. Grounds for refusing registra- tion. 655. The same subject continued. 656.^Damages for refusal to reg- ister. 657. Enforcement of registration — Mandamus. 658. Wrongful registration and liability of the corporation therefor. § 647. Introductory. — Where the charter or by-laws of a corporation provide that its stock shall be transferable only on the books of the company, the title to and ownership of the stock can only pass by a transfer on the books.^ But though the by-laws of a corporation require the entry of trans- fers of shares on a stock-ledger, if none is kept and such a transfer is entered, according to the custom of the company, on the subscription list, aiid an assignment is indorsed on the shares themselves, and a new certificate is issued to the pur- chaser by the company, the latt'er can not deny the validity of the transfer.^ The transfer must be registered in the manner iKoons V. Jefifersonville Bank, 89 Ind. 178. 2 Stewart v. Walla Walla Print. & Pub. Co., (Wash. T. 1889) 20 Pacif. Rep. 605; Cravsrford v. Providential Ins. Co., 8 U. 0. Com. P. 263. In Alabama under the statutory pro- visions regulating the transfer of certificates of stock in incorpoi-ated companies, and providing that no transfer shall be valid, as against bona fide creditors and subsequent purchasers without notice, "except from the time such transfer shall have been registered or made upon the book or books of such company," (Code, §§ 2041-2044) if a company has adopted no by-law regulating such transfer, and keeps only a single book of stock certificates with stub attached to each, on which ai-e entered the date, name, serial num- bers, etc., corresponding with each certificate issued, a memorandum entered on the stub, in these words, •'Transf. to Winston Jones, assignee, for collateral, December 1, '84," is a substantial compliance with the 1022 EEGISTEATION OF TEANSFBES. [§ 648, prescribed by the law under which the corporation acts, or in the manner in which it is accustomed to do business in order to bind it.' So when the by-laws require simply the produc-- tion of the old certificate and that the transfer shall be made by the owner or his^ attorney, the application for a transfer by the attorney -and the production of the certificate is a suflB- cient compliance with the rule, and the transferee is entitled to damages for a refusal to make the transfer complete on , the books.^ There has been some controversy concerning what officer the transferee should apply to for registration. No general rule can be given applicable to all cases, except, perhaps, that he should apply to the officer having general control of the books wherein registration is made.' In the case above cited an application to the president of the com- pany was held sufficient.* In another, the person acting as secretary and treasurer of a railroad company was held to be the officer to whom it was proper to apply .' And it would seem that the transferee may generally consider a refusal by the secretary equivalent to a refusal by the corporation.^ In the case of a bank, the cashier generally has authority to act for the company and to bind it in this respect.' If the by-laws require the transfer to be made in the presence of the cashier or two witnesses, it must be attested by their signatures or the transfer is void.' § 648. The usual form of transferriug shares. — Stock is ordinarily transferred by written assignment with a power of attorney to transfer upon the books of the company.' " An statutory requisition, and cnarges a * Green Mountain &o. E. Co. v. subsequent creditor or purchaser Bulla, 45 Ind. 1. •with notice of such transfer, Fisher sQoodwin v. Ottawa &c. Ry, Co., V. Jones, (1887J 83 Ala. 117. 13 TI. C. C. P. 254. } See, however, Purchase v. New «McMurrich v. Bond &o. Co., 9 York Exchange Bank, 3 Rob. (N. Y.) U. C. Q. B. 388. 164; Stockwell v. St. Louis &c. Co., ' Case v. Bank, 100 U. S, 446. Cf. 9 Mo. App. 133. Commercial Bank v. Kortright, 23 2 Commercial Bank v. Kortright, Wend. 348. 23 Wend. 348; S. C. 34 Am, Dec. 317 ; 8 Planters' &o. Ins, Go. v. Selma Green Mountain &c, Co. v. Bulla, Savings Bank, 63 Ala. 585 ; Dane v. 45 Ind. 1. Young, 61 Me. 160. 3 Green Mountain &c. Co, v. Bulla, ' Certificates of stock, in almost 45 Ind. 1. every instance, have a blank power § 649.] EEGISTEATION OF TEANSFBES. 1023 assignment of the stock in writing is made by the former owner of it, with a power of attorney to transfer it on the books of the corporation. Books of transfer are kept for that purpose, and on the production of those papers, the nomi- nated attorney makes the formal transfer, the old certificate"^ is cancelled, and a new certificate is issued to the new owner." ' § 649. Registration of defective transfers. — A defective deed of transfer does not pass title in England and will not be registered until it is remedied.^ In Louisiana a corpora- of assignment printed on their back, generally in tlie following form : ",For Value Eeceived, have bargained, sold, assigned and trans- ferred, and by these presents do bar- gain, sell, assign and transfer unto • the Capital Stocii named in the within Certificate, and do hereby constitute and appoint , true and lawful attorney, irrevocable, for , and in name and stead, but to use, to sell, assign, transfer and set over, all or any part of the said stock, and for that purpose to make and execute all necessary acts of assignment and transfer, and one or more persons to substitute with like full power. "Dated, , 18—. tt " Signed and acknowledged in the presence of ." " Business Methods & Customs of Wall Street," by John H. Davis & Co. 1 Burrallw. Bushwick E. Co., (1878) 75 N. Y. 211. See also Dunn v. Com- mercial Bank, 11 Barb. 580; State v. Ferris, 43 Conn. 560 ; Dutton v. Con- necticut Bank, 13 Conn. 493 ; Chou- teau Spring Co. v. Harris, 20 Mo. 382; First Nat. Bank v. Giflord, 47 Iowa. 575. ' The following is a usual form of an irrevocable power of assignment : " Know all men by these presents. that for value received have bargained, sold, assigned and transferred, and by these presents do bargain, sell, assign and transfer unto , shares of the stock of the standing in' name on the books of the said represented by certificate No. herewith.^ And do hereby con- stitute and appoint — , ti'ue and lawful attorney, irrevocably, for and in name and stead, but to use, to sell, assign, transfer and make over all or any part of the said stock, and for that purpose to make and execute all necessary acts of assignment and transfer thereof, and to substitute one or more per- sons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. " In witness whereof, have hereunto set hand and seal at the day of , 18—. " Signed, sealed, and delivered in the presence of " . [L. S.] 1( »» " Business Methods & Customs of Wall Street," by John H. Davis & Co. 2 Manney v. Morgan, 35 Ch. Div. 598. 1024 eegisteAtion of teansfees. [§ 650. tion which without a mandate " express and special" within the provisions of the code of that State has permitted a trans- fer of a stockholder's stock, is liable for its full value and for dividends unlawfully divested.' The lack of the owner's in- dorsement on the certificate is not inconsistent with .the right of the attorney to cause the stock to be transferred to him- self.^ The neglect of the officers to require an indorsement of the certificate is only non-feasance, and is no evidence of conversion.' , § 650. Registration of transfers of shares held in trust. When stock is held by the person in whose name it stands on the books in a fiduciary capacity, the corporation has notice of that fact, and. it is liable to the cestui que trust for a fraud- , ulent transfer made by the trustee.* Although the company is not chargeable with notice of a trust merely because certain officers have knowledge of it.' But where stock which was inadvertently registered in the name of one of several bene- ficiaries was transferred by the cestui que trust in whose name it stood instead of that of the trustefe, the corporation was held liable to the other beneficiaries.* When stock is regis- tered in the names of two or more persons as trustees, they must unite in making a transfer, and if one undertakes to transfer for all by signing the names of his co-trustees he ex- lAn order by the shareholder's name of the attorney, who appro- general business agent is not such a priates the stock wrongfully. . Taift mandate. Woodhouse v. Crescent v. Presidio & Ferries E. Co., (1889) Mut. Ins. Co., 35 La. Ann. 238, 84 Cal. 131 ; s. c. 6 Ry. & Corp. L. (Manning, J., dissenting) construing J. 839. La. Code, art. 3997. » Taff t v. -Presidio &c. E. Co. , (1889) 2 Tafft V. Presidio &o. E. Co., (1889) 84 Cal. 131 ; s. 0. 6 Ey. & Corp. L. J. 84 Cal. 181 ; s. C. 6 Ey. & Corp. L. 329. J. 339. If the attorney in fact of a * Mechanics' Bank v. Seton, 1 Pet. stockholder presents the certificate 299; Cottam v. Eastern Counties of stock, together with a poWer of Ey. Co., 1 John. &H. 243, where the attorney from the stockholder giv- signatures of the other trustees were ing him full authority to deal with forged by one. Vide supra, § 650. the stock, and the corporation's offl- ^ Ex parte Watkins, In re Kidder, cers are ignorant of any intention on 3 Mont. & A. 848 ; Ex parte Harri- the part of the attorney to misappro- son, 3 Mont. &^. 506. > priate the stock, the corporation will « Farmers' &c. Bank v. Way man, not be guilty of conversion simply 5 Gill, 336. by issuing another certificate in the § 650.] EBGIBTEATION OF TEANSFEES. 1025 poses himself to the charge of forgery/ and the other trustees are entitled to be registered together with the person ap- pointed to succeed the forger, as owners of the stock.^ Equity will compel the corporation to purchase stock, when there has been such an illegal transfer, and substitute it upon its books for that which has been the subject of transfer.' The injured party also has his remedj' against the trustee, but his right of action against the corporation is not thereby barred, unless a judgment has been recovered and satisfied as against the trustee.* The rights of the injured /party may be lost or waived by laches,' or barred by limitation.^ But a waiver of his remedy upon former breaches of trust is not considered to 1 Barton v. North Staffordshire Ry. Co., (1888) 38 Ch. Div. 458; s..o. 4 Ry. & Corp. L. J. 34; Sloman v. Bank of England, 14 Sim. 475 ; Mag- wood V. Railroad Bank, 5 Richard- son, (S. C.) 379 ; Bayard v. Farmers' &c. Bank, 53 Pa. St. 333, where the company was sustained in refusing registration until its attorney had examined the terms of the trust; Bird V. Chicago &o. E. Co., 137 Mass. 428; Bohlen's Estate, 75 Pa. 313, where there were two trustees and the transfer was made by one only ; Loring v. Salisbury Mills, 135 Mass. 135, where the certificates contained the word " trustee." Certificates in the name of an institution, or in a name with title aflBxed — as "cash- ier," " president," or other official designation — are not a good trans- fer or delivery unless the assignment be acknowledged before a notary (with seal and date), who must cer- tify that he knows the person sign- ing, and knows him to be the person authorized to sign, and that he has seen the minutes of the institution authorizing said person to make said assignment. Many companies re- quire, in addition, a certified copy of the resolution of the directors of the company in whose name the stock stands, authorizing the assign- 65 ment. The assignments of certifi- cates in name of " administi'ator," " executor," etc., must be accom- panied by a surrogate's certificate, showing that the party making the assignment is, by the terms of the will, made administrator, executor, etc., and authorized to dispose of said stock. Certificates in name of parties residing in foreign countries must have the assignments wit- nessed by United States consuls, with seal and date. " Business Methods & Customs of Wall Street," by John H. Davis & Co. 2 Barton v. North Staffordshii'e Ry. Co., (Ch. Div. March, 1880) 4 Ry. & Corp. L. J. 34, 37. 'Bohlen's Estate, 75 Pa. St. 313; Loring v. Salisbury Mills, 125 Mass. 138. < Loring v. Salisbury Mills, 135 Mass. 138. 5 Albert v. Savings Bank, 3 Md. 159; s. C. IMd. Ch. 407. * Barton v. North Staffordshire Ry. Co., (Ch. Div. March, 1888) 4 Ry. & Corp. L. J. 34, 36, citing and quoting the opinion of Best, C. J., in Davis v. Bank of England, 3 Bing. 393, and declaring that opin- ion not affected by the reversal of the case which was founded upon another point; citing also Coles v. 1026, EEGISTEATION OF TEANSFEES. [§ 651. estop him from seeking redress for a breach committed there- after.' It has been held that the Bank of England need not recognize trusts or tenancies in common, being exonerated from registering transfers to tenants in common under the terms of tha ISTational Debt Act of 1870.^ § 651. Formal requisites of registration. — In England the formalities of a stock transfer are strictly observed. .The transfer is made bj'' deed which is delivered to a;nd kept in the custody of the secretary of the company, who makes an entry of it, in a book called the "register of transfers" and indorses the entry on the^ deed.' In the United States a substantial compliance with the requirements of the charter or by-laws or pther statutorj' provisions respecting the transfer of stock is sufficient to complete the transfer.* Fropi the point of view occupied by the corporation, it is of especial importg,nce that a transfer should be properly recorded on the books, in order that it may know whom to treat as stockholders and thus avoid complications and perhaps liabilities and litigation. And an assignment of stock duly registered will, even when it con- tains some apparent irregularity, operate to protect the cor- poration." But, in order to obtain the full benefits of regis- tration', the corporation must make the transfer on the books, and, so far as it is concerned, the registration must be made on books kept for that purpose, for if the duty is neglected it can not take advantage of its own wrong.^ And such a neg- lect to make the registration after the written assignment Bank of England, 10 Ad. & E, 449, re South Mountain &o. Co., 7 Saw- and Sloman v. Bank of England, 14 yer, 30 ; Upton v. Hansborough, 3 Sim. 486. Biss. 417 ; Moore v. Jones, 3 Woods, 1 Boring V. Salisbury Mills, 135 53; Foreman u Bigelow, 4 Cliff. 508; Mass. 1S8. Seymour v. Sturges, 26 N. Y. 134 ; 2 Law Guarantee & Trust Co. v. Cole u. Ryan, 53 Barb. 168; Mann v. Bank of England, (1890) 8 Ey. & Currie, 3 Barb. 294 ; Baldwins. Can- Corp. L. J. 47 ; 33 & 34 Vic. oh. 71.- field, 36 Minn. 43. 3 8 Vic. ch. 16, i5 15. « Brown v. Adams, 5 Biss. ,181 ; * National Bank v. Watson town Northrop v. Curtis, 5 Conn. 316; Bank, 105 U. S. 317 ; Preston v. Cut- Marlborough Manuf. Co. v. Smith, 3 ter, (1888) 64 N. H, 461; Fisher v. Conn. 579; McCurry i. Suydam, 10 Jones, 82 Ala. 117, N. J. 345; Pinkerton v. Manchester 6 Pullman v. Upton, 96 U. S. 328; &c. E. Co., 43 N. H, 434. Webster v. Upton, 95 U. S. 65; In § 652.] EEGISTEATIOKT OF TKANSPEES. 1027 properly executed has been lodged with it for that purpose, or the failure to insist upon a registration after it has notice of a transfer, may operate as a waiver of its right to the pro- tection aiforde^ by a recorded transfer, particularly where it has performed certain acts or acquiesced in the performance of certain acts by the parties.^ ' So, where the statute requires certain formalities to be observed in the transfer of stock, among which is the recording of a certificatfe, signed by its president, in the county clerk's office, and the company re- cords such a certificate without the president's signature, it can not hold the original stockholder liable for unpaid calls.^ So in a case when there Is a transfer by attorney and the at- torney rectords the transfer oU the corporate books, but by mistake signs as attorney for the transferee instead of the transfei:rer, the corparation may recover instalments due upon the stock from the former.' Stock may he transferred before the issue of shares,* by substituting upon the subscription books the name of the transferee for that of the subscriber,' who is then relieved of further liability.^ § 652. The object of registration. — It is well settled that a transfer of stock, otherwise regular, operates only as a contract between the parties if there has been no record tliereof on the books when the statute, charter or by-laws pro- iWebor v. Feckey, 52 Md. 500, BHarn & J. 128; s. C. 14 Am. Dec. 516 ; Isham u Buckingham, 49 N. Y. 261; Hartford &c. E. Co. u Boor- 316; Baine v. Whitehaven Ey. Co., man, 12 Conn. 520; Brighamu. Mead, 3 H. L. Cas. 1 ; Ex parte WaltcinV26 10 Allen, 245 ; Huddersfield Canal L. J. Ch. 545 ; Clowes v. Brettell, 11 Co. v. Buckley, 7 Term Eep. 36 ; Mees. & W. 461 ; Walter's Case, 3 Evans v. Wood, 37 L. J. Ch. 159. DeGex & S. 149; Sadler's Case, 3 4 Bank v. Bank, 105 U. S. 317; Da Gex & S. 36. State v. Butler, (1888) 86 Tenn. 614 5 Cutting V. Damerell, 88 N. Y. s. c. 4 Ey. & Corp. L. J. 178, 180. 410 ; Isham v. Buckingham, 49 N. Y. 5 Ryder v. Alton &c. E. Co. , 13 III 216 ; Upton v. Bumham, 3 Biss. 431, 516. 520; Strange u. Houston &6. E. Co., « Burke v. Smith, 16 Wall. 890 53 Tex. 162 ; Murray v. Bush, L. E. Weinman v. Wilkinsburg &c. Ey, 6 H. L. 37; Bargate i;. Shortridge, 5 Co., (1888) 118 Pa. St. 193; Thorp v. H. L. 297. See also Beach oli Eail- Woodhull, 1 Sandf. Ch. 411; Brig- ways, §§ 305, 374, 389. Of. Johnson ham v. Mead, 10 Allen, 245. Cf. V. Underhill, 52 IST. Y. 203; Bosan- Upton u Burnham, 3 Biss. 431, 520; quet V. Shortridge, 4 Ex. 699. Midland Counties Ey. Co. v. Gordon, 3 Bend v. Susquehanna Bridge Co., 16 Mees. & W, 804. 1028 EEGISTEATION OF TEASTSFEES. [§ 653. vide that transfers shall be made m that way. Thus where one is sued bj a creditor of a corporation as a stockholder for the amount of his subscription remaining unpaid, it is no defense t|iat he has transferred his interest in the stock to an- other, unless the transfer is made a matter of record on the corporate books, for the omission of registration does not re- lieve a stockholder of liability.' And it is held that, except as against the corporation, the owner of stock may, as an in- cident of his proprietary right, transfer the stock in the same manner in which he may dispose of the title to other personal property. So where certificates of stock are delivered in pledge as security for the payment of notes and the return of other stock lent, the pledgees are hoiia fide holders of the shares represented by the certificates as collateral security.^ Likewise where one contracts with another to sell patent rights belonging to .the latter, by which- a corporation is to be formed, in the stock of which payment is to be made for the patent right, and half of what is realized above a certain sum is to be paid to the first party for his services, a third person who assists him in making the sale is simply his creditor, arid does not confer title to the stock when issued? It is also held that an assignment of stock made for the simple purpose of enabling the transferrer to testify on its behalf in an action in which the corporation is a party is a valid transfer as be- tween the parties, and passes the interest in the stock so as to render the transferrer a competent witness.* § 653. Registration as evidence and notice. — A transferee is riot required to carry his investigation as to the title of his assignor to the stock beyond the books of the company, but may rely upon them, and if they show the assignor to be the owner of the stock which afterwards turns out to be spurious, iTopefcd, Manuf. Co. v. Hale, (1888) 133 ; Johnson v. Underbill, 53 N. Y. 39 Kan. 23. 203; Bank of Utica v. Smalley, 2 2 Johnson v. Laflin, 103 U. S. 800, Covven, 770; s. c. 14 Am. Dec. 526; 804; Noyes v. Spanlding, 27 Yt. 420; First Nat. Bank v. Gifford, 47 Iowa, Baldwin v. Canfield, 26 Minn. 43. 575. C/. Baldwin v, Canfield, 26 8 Thurber v. Crump, (1888) 86 Ky. Minn. 43. See also Continental Na- 408. ' tional Bank v. Eliot National Bank, * Noyes v. Spaulding, 37 Yt. 420 ; 7 Fed. Eep. 369 ; Merchants' &c. Bank United States v. Cutts, 1 Sumner, v. Richards, 6 Mo, App. 654. § 654.J EEGISTEATION OF TEANSFEES. 1029 it is no defense in an action against the corporation "that its officer had no authority to keep any but correct books." ' And where the corporation is required by statute to keep a book for the registration of its stockholders, such a book is compe- tent evidence of the transfer of stock.^ § 654. Grounds for refusing to register transfers. — Under the Companies Clauses Act of England, a corporation may refuse to register a transfer of stock until the transferrer has paid all calls 'due from him upon his stock.' And a call, within the meaning of the act, is made when the resolution authorizing it has been passed.* This rule is followed in the United States.* Even if the indebtedness of the stockholder to the corporation is less than the amount of stock held by him, the corporation can not be forced to register all the shares over and above the amount of the indebtedness.* But where the original subscriber to the stock of a corporation neglected to pay the instalments, an assignee consenting to comply with the corporate regulations may, on tendering the amount of the instalments, with interest, maintaiin a suit in equity to compel an issue to him of a stock certificate.' On the other hand, where stock is actually transferred upon which the corporation has a lien, without, however, any notice of the lien to the purchaser, the lien is discharged as to him.' Under the Wisconsin statute, which provides that a corpora- tion shall have a lien on all stock for debts due it from the owner, the purchaser of stock upon which a portion of the purchase price is still duefrom the original owner, is entitled to a registration of the transfer of the stock, subject to the 1 New York &c. E. Co. v. Schuy- * McCready v. Kumsey, 6 Duer, ler, 34 N. Y. 30, 76, 77 ; Gray v. Port- 574; Brent v. Bank of Washington, land Bank, 3 Mass. 364 ; S. C. 8 Am. 10 Peters, 596 ; Newbury v. Detroit Dec. 156. &c. B. Co., 17 Mich. 141. 2 Preston v. Cutter, (1888) 64 N. H. "iPierson v. Bank of Washington, 461. 3 Cranch, 368 ; Sewall v. Lancaster 3 8 Vic. ch. 16, g 16; Hall v. Nor- Bank, 17 Serg. & E. 285. folk &c. Co., 21 L, J. Q. B. 94; Ee- 'Iron E. Co. v. Fink, 41 Ohio St. gina V. Wing, 17 Q. B. 645. 331 ; s. 0. 53 Am. Eep. 84. ^Eeginar. Londonderry &o. Ey. swest Nashville &c. Co. v. Nash- Co., 13 Q. B. 998; Ex parte Tooke, ville Savings Bank, 87 Tenn. 353; 18 L. J. Qi B. 848; In re British Erskine v. Loeweristein, 83 Mo. 301 ; Provident &c. Soc, 32 L. J. Ch. 683. S C. 11 Mo. App. 595. 1030 EEGISTEATION OF TEANSFEES. [§ 665. lien of the corporation for the unpaid balance.' A corpora- tion may not, by means of a by-law, create a lien on the stock of a stockholder indebted to it, and so defeat the transfer of the stock upon its books.^ It can not refuse to make a trans- fer upon its books for want of consideration for the transfer.' But it is not bound to recognize the transferee of one who sub- scribed before incorporation.* A valid transfer may be made to a pauper, and, in the- absence of any other objection, the transfer on the books may be compelled.* The right of a hona fide assignee of a joint-stock certificate to have the transfer made on the company's books to his name is not affected by an attachment of the stock by his creditors. A charter provision that "all stock shall be transferable only on the books of the company " refers only to the relation be- tween the shareholders and the company.* § 655. The same subject continued. — It is not the duty of the officers of a corporation to inquire into the motives of an attorney in fact, having full power to transfer stock, for desiring it to be transferred to himself. And the fact that the attorney is also a director of the corporation does not war- rant the presumption that the corporation had notice of his intention to convert the stock to his own use, as he assumed to act, not for the corporation, but for his principal.'' Where there is doubt as to the right of either of two supposed trans- ferees of the same stock to have the transfer registered, the corporation may, in an action against it for its refusal to reg- ister, either transfer or file a bill of i^erpleader.' "Where there lEev. Stat. Wis. § 1751 ; Herdegen 238; s. C. 6 Am. Rep. 402; Merrimac y. Cotzhausen, (1888) 70 Wis. 539. &c. Co. v. hevy, 54 Pa. St. 227. 2 Farmers' &o. Bank v. Wasson, SRegiha v. Midland Counties &c. 48 Iowa, 336; S. C. 30 Am. Rep. 398; Ry. Co., 15 Ir. Ch. 525. DriscoU V. West Bradley &c. Co., 59 « Clark v. German Security Bank, IJ. y. 96; Steamship Dock Co. v., 61 Miss. 611. Heron, 53 Pa. St. 286 ; Mobile Mutual ' Tafft u. Presidio &c. R. Co., (1889) Ins. Co. i;. CuUom, 49 Ala. 558; Will- 84 Cal. 131 ; s. C. 6 Ry. & Corp. L. J. iams V. Lowe, 4 Neb. 382, 398. 329. 3 Helm V. Swiggett, 12 Ind. 194. * Leavitt v. Fisher, 4 Duer, 1 ; * Hawkins v. Mansfield &c. Co., 52 Mechanics' Bank v. Richards, 74 Mo. Cal. 513 1 Morrison i;. Gold Mountain 77 ; State Ins. Co. v. Gennett, 2 Tenn. &c. Co., 53 Cal. 306. Contra, Balti- Ch. 100; Purchase v. New York Ex- more &c. Ry. Co. V. Sewell, 35 Md. change Bank, 3 Rob. (N. Y.) 164; § 65^.] EEGISTEATION OF TEANSFBE8. 1031 are two such claimants to stock he who holds the certificate is in the better position.' But if the corporation has regis- tered the transfer of either of the claimants, it can not there- after interplead, having expressly recognized a title to the stock.^ Where a corporation receives notice of a transfer but is enjoined from completing it on the books; it must still ob- serve the rights of the transferee.' In England a corporation* is bound to register shares purchased by a married woman in accordance with the terms of the Married Woman's Property Act,* unless- it can show that her title is not otherwise good.' The company, having the control of the register, has it in its own, power, while a going concern, to complete the member- ship of the transferee; but it may be doubted whether, after a winding-up order has been made, it has any right to have the register altered. * By the English Companies Clauses Act the effect of the closing of\ the register of transfers for a speci- fied time before such regular meeting is that " any transfer made during the time when the transfer books are so closed shall, as between the company and the party claiming under the same, but not otherwise, be considered as made subse- quently to such ordinary meeting." '' ' § 656. Damages for refusal to register. — Where the reg- istration of a proper transfer of stock has, through the neg- lect or refusal of the corporation, failed, the corporation be- comes responsible for the damages incurred.^ Thus when a transfer of corporate shares is made to one, but not recorded, as the corporate by-laws required, and a creditor of the as- Chapman v. New Orleans &c. Co., 4 SRegina u. CarnaticRy. Co., L. E. La. Ann. 153; Townsend v. Mclver, 8 Q. B. 299. 3 S. C. 35 ; State Ins. Co. v. Gennett, « Shelford on Joint-Stock Com- 2 Tenn. Ch. 82. panies, 115, citing Joint-Stock Dis- 1 Maybin w. Kirby, 4 Rich. Eq. 105; count Co., Riohell's Case, L. R. 3 Societe Generale de Paris v. Tram- Ch. 119; General Floating Dock Co., ways Union- Co., 14 Q. B. Div. 424; 15 L. T: N. S. 536; Mitchell's Case, S. C. L. R. IIH. of L. 30. C/. Craw- L. R. 4 App. Cas. 548; Chappell's f ord tJ. Dox, 5 Hun, 507. Case, L. E. 6 Ch. 902; Westpn's 2Dalton V. Midland Counties Ry. Case, L. E. 4 Ch. 685; Ex parte Co., 13 C. B. 458. Parker, L.'E. 2 Ch. 685. 3 Purchase v. New York Exchange ' 8 Vio. ch. '16, § 17. -Bank, 3 Rob. (N. Y.) 164. « Catchpole v. Ambergate &c. Ry. 4 33 & 34 Vic. ch. 93, g 4. Co., 1 El. & B. 111. 1032 EEGISTKATION OF TEAHSFEES. [§ 657. signer, without notice, subsequently attaches the shares as his, and causes a sale and transfer to a third party, the first transferee may maintain an action against the corporation for its refusal to record the transfer to him.' And the party. mak- , Ing the demand for registration upon the corporation, whether it be the transferee or his assignor, is entitled to jrecover for such damages as he has sustained from the refusal of the corporation.^ But on failure to transfer stock at the request of a pledgee, a bank is not liable for subsequent depreciation of the stock.' And a stock company, which refuses to trans- fer certain shares of stock on its books to the party to whom a certificate has been assigned, but marks them on tlie books as the property of another, is not liable in assumpsit for con- version of the stock, but only in an action on the case for damages f6r the refusal to note the transfer.* The measure of damages in such cases is usually the same as that govern- ing actions for conversion of stock.' §657. Enforcement of registration' — Mandamus. — The corporation must complete the transfer on its books upon the demand of either party, and equity will enforce the perform- ance of this duty.' Unless expressly provided by statute or articles of association of a corporation, its officers have no power or discretion to repudiate a transfer of stock.' The power is sometimes delegated by the charter or articles of in- 1 Hazard v. Exchange, Bank, 26 Johnson w. Laflin, 103 U. S. 800, 804; Fed. Rep. 94. ' Webster v. Upton, 91 U. S. 65, 71; ^Hussey.'U. Manufacturers' &c. Eustace v. Dublin &c. Ey. Co., L. B. Bank, 27 Mass. 414; Telford & F. 6 Eq. 182. Turnpike Co. v. Gerhab, (Pa. 1888) 13 ' Johnson v. Laflin, 5 Dill. 65 ; S. O. Atlan. Eep. 90 ; Helm v, Swiggett, 12 103 U. S. 800 ; In re Stanton &c. Ind. 194. Co., L. E. 16 Eq. 559; ChappeU's 3 Dayton Banki?. Merchants' Bank, Case, L. E. 6 Ch. App. 903 ; Gilbert's 87 Ohio St. 208. Case, L. R. 5 Ch. App. 559 ; "Weston's 4 Telford & F. Turnpike Co. v. Ger- Case, L. R. 4 Ch. App. 20. But in Ex hab, (Pa. 1888) 13 Atlan. Eep. 90. parte Penny, L. E. 8 Ch. 446, it was 5 Iron E. Co. v. Fink, 41 Ohio St. held that the directors might refuse 821 ; s. 0. 52 Am. Rep. 84 ; Cleve- to give their reasons for refusing to land R. Co. v. Robbins, 35 Ohio St, recognize a transfer and that it 483, would be presumed that their rea- . 6Cushman v. Thayer Manuf. Co., sons were sufficient. 76 N. Y. 365; s. o. 33 Am. Rep. 316; § 657.] EEGISTEATION OF TKANSFEES. 1033 corporation.' But courts will at all times scrutinize the ex- ercise of this power to determine whether it has been just and reasonable,- for it is contrary to all customs and rules regulating transactions in stocks and may easily be greatly abused.' Where, in order to complete the membership of any person, there is only wanting registration, or some for- mality ou the part of the company, he can generally com- pel the company to perform the acts to complete his mem- bership, and the transferrer has a similar right against ,the company ; * and although in general the person on the register as member at the time of a winding-up order is liable to con- tribute, if he has remained there through default of the corn- pan}', he can have his name removed and be freed from that liability." Where it is possible, the transferee may file a bill in equity praying for a decree directing the registry to be made." In an action to compel the officers of a corporation ' Bargate v. Shortridge, 5 H. L, Casi 397; Shortridge v. Bosanquet, ]6Beav. 84. 2 MofEatt V. Farquhar, 7 Ch. Div. 591 ; Eobinson v. Chartered Bank, L. R. 1 Eq. 33. 3 Johnson V. Laflin, 5 Dill. 65. < Shelf ord on Joint-Stock Com- panies, 115, citing Ex parte Ru- dolph, 33 L. J. Q. B. 369; Swan v. North British Australian Co., 33 L. J. Ex. 373; Ex parte Swan, 30 L. J. C. P, 113; Ward v. South Eastern R. Co., ^9 L. J. Q. B. 177 ; Ex parte Harris, 39 L. J. Ex. 364; S. c. 5 H. & N. 809; Taylor v. Great Indian Peninsular R. Co., 4 De G. & J. 559; Midland R. Co. v. Taylor, 81 L. J. Ch. 336, affirming Taylor v. Midland R. Co., 38 Beav. 387; Eustace v. Dublin Trunk R. Co., 16 Week. Rep. 1110; Donaldson v. Gillot, L. R. 3 Eq. 874 ; Sweeney v. Smith, L. R. 7 Eq. 334; Ash worth v. Bi-istol R. Co., 15 L. T. 561; Ex parte Rymer, 14 Week. Rep. 376; Regina v. General Cemetery Co., 6 E. & B. 415; Cope- land V. North Eastern R. Co., 6 E. & B. 377; Regina v. Liverpool R. Co., 31 L. J. Q. B. 384; In re East Wheal Martha Mining Co., 33 Beav. 119; Ex parte Marino, L. R. 3 Eq. 336; 3 Ch. 596; Iron Ship Building Co., 34 Beav., i597; Ex parte Martin,' 3 H. & M. 669; Ex parte Webb, 9 Jur. N. S. 856; Ex parte Parker, L. R. 3 Ch. 685; Ex parte Braginton, 13 L. T. N. S. 359. 5 Shelford ou Joint-Stock Compa- nies, 115, citing Ex parte Shepherd, L. R. 3 Ch. 16; Nation's Case, L. R, 3 Eq. 77 ; Ex parte Read, 36 L. J. Ch. 473; Ex parte Shiptnan, L. R. 3 Eq. 319 ; Ex parte Chatres, 1 De G.' & S. 581; Ex pdrt^ Bennett, 16 Week. Rep. 573; Ex parte Ward, L. R. 3 Ch. 431 ; reversing s. c. L. R. 3 Eq. 336; Ex parte Walker, L. R. 6 Eq. 30 ; Ex parte Fox, L. R. 5 Eq. 118; In re Overend, Gurney & Co., Ward's Case, L. R. 4 Eq. 189; Head and White's Cases, L. R. 3 Eq. 84. « Iron R. Co. v. Fink, 41 Ohio St. 331; S. C. 53 Am. Rep. 84; Cushman V. Thayer Manuf. Co.,'76 N. Y. 365; S. 0. 33 Am. Rep. 315; Mechanics' 1034 eegistkAtion of teansfees. £§ 667. to register a transfer of corporate stock, the corporation is not a necessary party.^ In a suit to compel tTie officers of a cor- poration to register a transfer of stock, an agreement between the complainant's vendor and tlie defendant, from whom he purchased the stock, that the vendor would not transfer it to any third persoB, is not a good defense where.it appears that the agreement was made after the defendant had sold the stock to complainant's vendor, and no consideration is alleged for the agreement. And an answer alleging that the com- plainant 'had acquired the stock without consideration, for the purpose of obtaining control of the corporation to the exclu- sion of defendant, and all other persons interested therein, states a good defense.^ "Where, however, the equitable rem- edy is not practicable, and the court can not direct a registry to be made, it will grant a recovery for damages.' Whether or not a court of equity will compel registration by mandamus is involved in some uncertainty, though if no public interest is involved, and no sufBcient reason is shown for the granting of a,ny remedy, or other remedies are possible, it seems to be settled upon good authority that suitors can not resort to this proceeding.* On thd other hand, where registration is denied a party without ground for it,- many valuable authorities are to the effect that this remedy is proper.' As a general rule, Bank v. Seton, 1 Peters, 399; Burrall Mo. 155; State v. St. Louis &o. Co., V. Bush wick R. Co., 75 N. Y. 211; 31 Mo. App. 526; Townes u. Nichols, lasigi V. Chicago &o. E. Co., 139 73 Me. 515 ; Wilkinsoin;. Providence Mass. 46; Walker v. Detroit Transit Bank, 3R I. 23; Baker v. Marshall, By. Co., 47 Mich. 338. Of. Eegina 15 Minn. 177; Kimball v. Union V. Liverpool &c. E7. Co., 31 L. J. Water Co., 44 Cal. 173; State v. Q. B. 284. ' Guerrero, 12 Nev. 105; King v. Bank 1 Gould «. Head, (1890) 41 Fed. Eep. of England, 3 Doug. K. B. 534; 340. King v. London. Assurance Co., 1 2 Gould V. Head, (1890) 41 Fed. Rep. Dowl. & E. 510 ; Queen v. Liverpool 240. &c. Ry. Co., 21 L. J. Q. B. 284; Rex 3 Smith V. Nprth American Mining v. ^Worcester Navigation Co., 1 Mon. I Co., 1 Nev. 433. & E. 539.' < Murray u. Levens, 110 Mass. 95; 5 people ■y. Goss Manuf. Co., 99 III. Shipley v. Mechanics' Bank, 10 355 ; State v. First Nat. Bank, 89 Ind Johns. 484; Birmingham Fire Ins. 303; Green Mountain &o. Co. v. Co. V. Commonwealth, 93 Pa. St. 72 ; Bulla, '45 Ind. 1 ; State v. Cheraw &c. JS7a! jparfe Fireman's Ins. Co., 6 Hill, R. Co., 16 S. C. 534; Townsend v. 243; People v. Parker &c. Co., 10 Mclver, 2 S. C. 25; Cooper u. Swamp How. Pr. 543; State v. Rombauer, 46 &c. Co., 3 Murph. -(S. C.) 195; Good- .§ 658.] BEGISTKATION OF TEANSFEES. . 1035 however, mandarmis does not lie against the officers of a pri- vate corporation to compel the transfer of stock.' In a recent case on application for mandamus to compel the transfer by a corporation of shares of stock on its books to relator, it was held that mandamus will only lie when there iS/ a clear le^^al right, and that the relator's right was only equitable.^ § 658. Wrongful registration, and liability of the corpo- ration therefor. — If a transfer is improperly allowed, the company is liable to the party injured.^ Accordingly, if upon presentation of an application for tlie transfer of stock, the officers of the company are not satisfied that the proposed transfer is regular and proper, they may require the person applying for the transfer to produce sufficient proof of his authority.* They may take a reasonable length of time to complete their investigations.' Where a forged transfer has been registered and the purchaser thereunder sells to an inno- cent third party new certificates issued by the company, the company is liable upon the statements contained in the new certificates. The measure of damages in such a case is the value of the stock at the time of the company's refusal to rec- ognize the last purchaser of the stock.* The fact that the win V. Ottawa &c. Ry. Co., 13 U. G. Telegraph Co. v. Davenport, 97 U. S. C. P. 254 ; People v. Crockett, 9 Cal. 369 ; Mechanics' Banking Assoc, v. 113; Eegina v. Carnatic Ry. Co., Mariposa Co., 3 Rob. (N. Y.) 395; L. R. 8 Q. B. 399 ; Norris v. Irish Davis v. Bank of England, 3 Bing. Land Co., 8 El. & B. 513; Browne & 393. Theobald's Ry. Law, 73, citing Ward « Bayard v. Farmers' &o. Bank, 53 V. South Eastern Ry. Co., 39 L. J. Pa. St. 333; Societe Generale de Q. B. 177. ' Paris v. Walker, 11 App. Cas. 31, 41 ; 1 Tobey v. Hakes, (Conn. 1887) 7 Colonial Bank v. Whinney, 11 App. Atlan. Rep. 551. Cas. 436. But a reasonable time only 2 Burnsville &c. Co, v. State, (1889) can be consumed in the investiga- 119 Ind. 383. Qf. Tregear v. Eti- -tion, and unnecessary delay, even wanda Water Co., (1888) 76 Cal. 537; the unexplained delay of more than S. C. 9 Am. St. Rep. 245. a day, has been held sufficient to en- 3 Cohen v. Gwynn, (1848) 4 Md. title the transferee to damages. Ch. 357; Mechanics' Bank v. Seton, Catchpole v. Ambergate&c. Ry. Co., 1 Pet. 399. 1 EI. & B. Ill ; Sutton v. Bank of 4 Telegraph Co. v. Davenport, 97 England, 1 Craig & P. 193. U, S. 369 ; Davis v. Bank of England, ^In re Bahia &c. Ry. Co., L. R. 3 3 Bing. 393. And if they deem it Q. B. 584; Hart v. Frontino &c. Co., necessary they may require the pres- L. R. 5 Ex. 111. The certificate is ence 'of the stockholder himself, an evidence of the title of the per- 1036 EEG'STEATION OF TEANSFEES. [§ 658. company consults counsel before making the transfer to the purchasers does not protect it from liability, if there is no evi- dence as to what facts were communicated, or what records exhibited, to the attorney upon which he based his opinion.' Where a corporation negligently cancels a member's stock, and issues certificates therefor to a third person, who has pur- chased it, from one not authorized to sell it, th£ true owner is not bound to pursue the purchaser, but may proceed directly against the corporation alone, to compel it to replace his stock, or pay him its value.^ A stockholder may sue the cor- poration alone for the value of his stock, illegally transferred, or he may contest the title of the transferee contradictorily with b©th.» son in whose name it is issued to a ' Caulkins v. Memphis Gas Light portion of the capital of the com- Co., (1887) 85 Tenn. 683; s. C. 4 Am. ■ pany, and that fact is formally cer- St. Eep. 786. tified by the corporation. Manhat- ? St. Eomes v. L^vee Steam Cotton- tan Beach Co. v. Harned, 23 Blatchf. Press Co., (1888) 127 U. S. 614. 494 ; , Machinists' National Bank v, ' Woodhouse v. Crescent. Mut. Ins. Field, 126 Mass. 345; In re Bahia - Co., 35 La. Ann. 238. &c. Ry. Co., L. E. 3 Q, E. 584. CHAPTEE XXXIV. NEGOTIATION OF STOCK AND BONDS, AND HEREIN OP COUPONS AND RECEIVERS' CERTIFICATES. § 659. 660. 661. 662. 663. 664. 665. 666. 667. 668. 669. 670. 671. 673. 673. 674. 675. 676. 677. Rules and customs ot the Stock Exchange. Brokers and agents. The same subject continued — The principal's instructions. Speculative! conti;acts. Future deliveries. Bona fide purchasers — (a) In general. (b) Of shares of stock. (c) Of bonds and coupons. Forgery or fraud, The Schuyler frauds. Spurious stock. Lost or stolen certificates of stock. The same subject continued. Lost or stolen bonds. Breach of trust — (a) In gen- eral. (b) The company's right to question transfers by trust- ees. (c) The company's liability. The same subject continued — The English rule. Stock certificates not strictly negotiable. 678. Quasi-negotiability of stock grounded in estoppel. 679. Transfer by pov^er of attor- ney not indoi'sed on the certificate. 680. Of the registered transferee. 681. The same subject continued. 683. Of the unregistered transferee of the certificate. 683. The same subject continued. 684. Negotiability of bonds and coupons. 685. Essentials of negotiability. / 686. Limitations on negotiability. 687. References between bonds, coupons and mortgages. 688. Alteration of the numbers of bonds. 689. Maturity of bonds. 690. Coupons as negotiable instru- ments. 691. Formal requisites of negotia- bility of coupons. 693. Coupons likened to checks, drafts, bills and notes. 693. Coupons as instruments sui generis. 694. Receivers' certificates. § 659. Rules and customs of the Stock Exchange.— " The rules of the Stock Exchange, like the customs of any other trade, are binding so long as they are reasonable and legal, and are binding not only, upon its members, but upon those dealing with them, and many questions have arisen as to how far those rules are reasonable, and how far members of the Stock Exchange can avail themselves of those rules to escape liability. The general principle applicable to the Stock Ex- 1038 NEGOTIATION OF STOCK AND BONDS. [§ 659. change, as well as other trades, is that a person who deals in a particular market must be taken to deal according to the custom of that market, and he who directs another to make a contract at a particular place must be taken as intending that the contract may be made according to the usage of that place. But the rules of the Stock Exchange, being the rules of a domestic forum, can not affect persons who are neither members nor their clients. Thus they can not affect the rights of the general creditors of a defaulting member. A default- ing member, therefore, can, not voluntarily pay money to the official assignee to be distributed exclusively amongst those creditors whose claims arise out of Stock Exchange trans- actions, for that is a fraud upon the general creditors. And if it be urged that that is a rule of the Stock Exchange, the answer, as Lord Justice James said, is that the Stock Exchange is not an Alsatia, the Queen's laws are paramount there, and the Queen's writ runs even into the sacred precincts of Capel Court." ^ " But the official assignee may lawfully distribute among Stock Exchange creditors the money which he receives from those members who owe differences on their contracts mth the defaulter, for that is an artificial fund created by the rules, and does not form part of the general assets of the defaulter. According to the usage of the Stock Exchange, a buying job- ber is at liberty by a given daj", called the 'name day,' to substitute another person as buyer and so relieve himself from further liability on the contract. And this is a reasonable usage fotinded on general convenience, and the purchase or sale of shares made by one who is not a member, through a broker who is a member, will be treated as made subject to such rule."/* So- where a person, competent and willing to accept the stock, has been found, and a transfer made and ex- ecuted by the vendor and accepted by the transferee, the pur- chasing broker is discharged from liability ; ' and if the transfer 1 Williams' Forensic Facts and Fal- lacies, (1885) 107 ; Browne & Theo- lacies, (1885) 106, 107. It is well bald's Ry. Law, 71 ; Maxtel v. Paine, settled that no customs among bro- L. R, 6 Ex. 133. Of. Allen v. Graves, kers or rules of Stock Exchanges can L. R. 5 Q. B. 478. divest parties of their legal rights. ^ Q-vissell v. Bristowe, 1/. R. 4 C. P, ftobinson v. Norris, 51 How. Pr. 443. 37 ; Coles v. Bristowe, 4 Ch. 8. 2 Williams' Forensic Facts and Fal- § 660.J NEGOTIATION OF STOCK AND BONDS. 1039, is accepted by the recognized brokers of the transferee, it is sufBcient to complete the contract.* But the name so given must be that of a person ahle and willing to purchase; and if the name given is that of a non-existent person, a lunatic, an infant, or a person who has not given fiuthority for the use of his name, the jobber will remain liable, though the time lim- ited by the rules for objecting has gone by, and though the jobber be unaware of the incapacity of the person named.^ The effect of this custom is to treat the ultimate buyer or seller as buying from or selling to the person whose name is given to him on the name day. And this is a reasonable cus- tom, and exempts the jobber from liability in respect of calls or otherwise where he has given the name of a person capable of purchasing.' § 660. Brokers and agents. — The general rules of agency apply to transfers of stock by agents. They must act strictly within the authority conferred, and, of course, can not trans- fer the stock when it is given for another purpose.* In a case where the same person acts as agent or broker for both the parties to a transfer,, the loss will fall entirely Upon the vendor if the certificates have been delivered and the agent 1 Loring v. Davis, 32 Ch. Div. 625 ; mortgages and shares of such rail- Sheppard v. Murphy, L. R. 2 Eq. 544 ; way and other companies as have Bowring v. Shepherd, L. R. 6 Q. B. filed with the' Exchange a sworn 309. statement of their financial condi- - Where, however, the transferee is tion, and the amount of their capital- only a fictitious person named by the and bonded debt, described in detail, real purchaser, the jobber will be and which statements have been relieved of liability, provided the thoroughly examined and approved vendor has accepted the name. Max- by the " Committee on the Listing of ted V. Paine, L. R. 6 Ex. 132. Securities" of the New York Stock 3 Where the stocks or bonds a cus- Exchange. Companies whose securi- tomer desires to trade in are not ties are so listed are required by the regularly listed in the New York Exchange to give thirty days' notice Stock Exchange, they are known as of any intention to increase or reduce " Unlisted " or " Outside " securities, their capital or bonded indebtedness, and have to be dealt in either in Davis' Business Methods & Customs, the unlisted department of the Ex- •< Persch v. Quiggle, (1868) 57 Pa. change, or on the street. They are St. 347 ; Merchants' Bank v. Living- not recognized by the Exchange and ston, 74 N. Y. 223; Fisher «. Brown, dealings in them are not governed 104 Mass. 259 ; Sabin v. Bank of by the same rules as apply to the Woodstock, 21 Vt. 353 ; Colquiioun listed securities. The latter are the v. Courtenay, 43 L. J. Ch." 338. 1040 NEGOTIATION OF STOCK AND BONDS. [§ 661. absconds, with the purchase money, even if the transfer b as not been recorded, and the vendee may demand registration.' Where, however, a principal indorses stock in blank and de- livers the certificates to his agent he can not, thereafter, repu- diate a sale of the stock which has been made by the agent.^ A broker is usually an intermediary between the buyer and seller of stock, and the details of a transaction through a stock broker are governed to a very considerable extent by the rules and customs of the Stock Exchange.' § 661. The same subject continued — The principal's in- structions.^ A broker has no power to deviate from the instructions given him by his principal when the order is made,* though he may correct a palpable error so as to pre- 1 Ex parte Shaw, 3 Q. B. Div. 463. 2 McNeil V. Tenth National Bank, (1871) 46 N. Y. 335 ; Strange v. Hous- ton & T. C. E., Co., (1880) 53 Tex. 163. ^Biederman v. Stone, L. E. 3 0. P. 504. Foi- purchases or sales in the New York market the commission is one,-eighth of one per cent, on the par of.lOO, being at the rate of $13.50 on every $10,000 in bonds, or on one hundred shares of stoCk the par value of which is $100 per share. Davis' Business Methods of Wall St. The prices quoted for bonds or stocks oh the New York Stock Exchange are so much per cent, on the par of 100.^ Quotations for bonds in the New York, Philadelphia and Baltimore markets are what are known as " flat," which means that they cover whatever accrued interest there may be due on the bonds, unless it be especially stated that to the price quoted must be added the accrued interest. In the Boston market the quotation means that accrued inter- est must be added to the price named. Accrued interest is the amount of interest on the par value of the bonds, at whatever rate of in- terest they draw, from the date the last coupon was paid to the day the purchase, or sale, is closed. Davis' Business Methods of Wall Street. As a rule any individual with the capacity for making contracts may act qs broker, though this privilege has been denied to national banks. First National Bank v. Hoch, 30 Alb. L. J. 315. < Clarke v. Meigs, 10 Bosw. 387; Parsons v. Martin, 77 Mass. 111. The whole class of stock operations or- dinarily carried on in New York may be classified as follows : 1. Buy- ing for a rise, or going "long" of' stocks. 3. Selling for a decline, or going " short " of stocks. 3. Buying or selling as above, but on " options." 4. Buying 'or selling " privileges," generally known as " puts," " calls " and " spreads." The last named are not recognized by the New York Stock Exchange. 1. Buying for a rise is by far the most ordinary transaction with non-professional speculators. In this case the cus- tomer usually deposits $1,000 in his broker's hands as a ten per cent. " margin " on one hundred shares of stock which he orders to be pur- § 661.J NEaOTIATION OF STOCK AJSTD BONDS. 1041 serve his client's interests.' And where the order given is for the purchase of stocks there is an implied authority to con- chased, and which his broker holds, ■or "carries," for him until ordered to sell the SEtme, or until the margin is about exhausted. In the latter case, if the customer, on request, fails to put up more margin, the broker is at liberty to sell the stock imm"&diat6ly, and charge him with the loss, if any. Interest is charged the customer on the purchase price, with buying commission added, usually at six per cent., as long as the stocks are carried. In case of a tight money market the broker is entitled tp charge his customer any additional price which money act- ually commands, for carrying the stocks. A party carrying stocks for a rise is said to be "long"' of the market or a "bull." ?. Selling for a decline, or going "short" of stocks (being a '' bear " ), is also a very com- mon tra,nsaction, and is simply the opposite of buying, as above, except that the seller, not having the stock, is obliged to borrow it for present delivery, and take the risk of buying it back at a future day, to retui-n to the lender. Aside from the ordinary fluctuations of the market, the chief risk in thus " selling short " is in the chance of a " corner" in the stock in case a clique get control of it and ioice prices up to extraordinary figures. This is a rare operation, but has at times been effected in the New York market with disastrous consequences to. those who were " short " of the cornered stocks. As a general rule, nothing beyond the rulipg rate of interest is paid for the use of the stock; but in case it is scarce, a consideration has to be paid for the use from day to day. Mar- gins and commissions are the same as above. 3. Buying or selling on ' ' options " is a transaction in which the purchaser or seller, as the agree- ment may be, has the option to call for or tender the stock at the price n^amed, at any time within the period limited by the contract; but the Stock Exchange does not recognize contracts running over sixty days. In purchases on buyer's option (for any time over three days) the buyer is charged with interest on the price of the stock up to the time he calls for it. 4. Stock privileges, or "Puts," "Calls," and "Spreads" or " Straddles," as they are conimonly called, are contrncts entitling the holder to receive or deliver certain stocks at any time within a period limited (usually thirty or sixty days) and at a price therein specified ; in the case of " spreads " the privilege is either to receive or deliver. A certain cash price is paid for the contract by the purchaser, and his entire liability in the transaction is limited to that amount ; and, as the question of interest does not enter into the matter, the uncertainties of the money market need not be taken into consideration. A "Put" en- titles the holder to put or deliver stock to the signer thereof, within the tiine and at the price therein named. A " Call " entitles the holder thereof to call for or demand stock from the signer thereof, ac- cording to terms specified. A " Spread " is a double privilege, and entitles the holder either to deliver to, or demand from, the signer thereof, the stocks named in it, ac- cording to the terms of the agree- 66 iLuffmant). Hay, 13 N. Y. Week. Dig. 324. 10i2 NEGOTIATIOlSr OF STOCK AND BONDS. [§662. summate the trade,^ except, of course, where, the clieat is in- capable of contracting, in which case the broker ieconies liable.^ It has been claimed that it is an unreasonable custom or rule that a broker is only bound to recognize the person, actually employing him, and to obey the directions of that person only as to the disposal of the proceeds of a sale of stock.' A broker, in" executing the instructions given by a customer, can not become a party to a contract which he makes in ,behalf of his customer,* but must act in good faith and can not derive any advantage from the transaction hostile to the best interests of his client.^ A reasonable time is given for the execution of orders.' § 663. SpecHlative contracts. — At common law a con- tract depending upon the happening of an event in the future was not invalid.' And much as the judges have lamented the ment. If the prices named in both cases are the same, then it is known as a "Straddle.'' To the purcliaser- of "Puts," "Calls," or "Spreads" there is no liability to loss beyond the amount paid in cash for the contract. Davis' Business Methods & Customs. 1 Bayley v. Wilkins, 7 Cora. B. 886. " All orders except ' stop-loss ' or- ders are considered in force for the day only on which they are given, when nothing to the contrary is stated. When no price is mentioned by a customer, in giving or sending an order, it is understood to be at the market price, and the broker fills it at the best price obtainable at the time. When the stock ordered bought (or sold) is limited, nothing can be done until that limit is reached. When the customer says buy or sell at about a certain price, it is understood that his' broker can take a discretion of one-eighth of one per cent, either way. Davis' Business Methods & Customs. 2 Euchizky v. De Haven, 97 Pa. St. 203; Nickalls v. Merry, L, R. 7 H. L. 520 ; Maxted v, Paine, L. E. 4 „Ex. 81 ; Heritage v. Paine, 2 Ch. Div. 594; s. c. 34 L. T. 947; Dent v. Nick- alls, 29 L. J. .Ch. 536. 3 Williams' Forensic Facts & Fal- lacies, (1885) p. 108. ■• Marye v.' Strouse, 5 Fed. Rep. 483; Conkey v. Bond, 36 N. Y. 427; Tausig V. Hart, 58 N. Y. 425 ; Robin- son V. Mollett, L. R. 7 H. L. 802; Brookman v. Rothschild, 3 Sim. 153. 5 Levy V. Loeb, 85 N. Y. 365 ; s. c. 89 N. Y. 386; Voris v. McCready, 16 How. Pr. 87; Dey «_ Holmes, 103 Mass. 306; Pfckering. v. Demerrittj 100 Mass. 416. 6 Fletcher v. Marshall, 15 Mees. & W. 755. ' Irwin V, Williar, 110 U. S. 499. Speculative transactions, as distin- guished from regular invested deal- ings, are those conducted on "mar- gins," and in which the operator does not pay or receive the actual price of the. stocks bought or sold, but simply places a suflSoient margin in the hands of his broker (usually ten per cent, of the par value) to pro- tect the latter against loss from fluctuations in the price, A party 662.] NEGOTIATION OS" STOCK AND BONDS. 1043 practice they have not seen their way to declare it illegal. It is no doubt reprehensible, but, so far at least as the broker is concerned, it lacks the essential element oli wafferino-, which is that each party shall win or lose according to the event.' It is under the cloak of contracts for the future delivery of shares that gambling, contracts are concealed. The latter are aoainst public policy ; and numerous attempts have been made to prohibit the practice by legislation.^ But the histor}-^ of these stock-jobbing actS' seems to prove conclusively that they have never been effective in preventing speculations in stocks. It is said that " in almost every instance in which they have been adopted, after lingering for years on the books, scorned and violated by 'the unbridled and defiant spirit of speculation,' despite the earnest efforts of the courts to enforce them, they have finally been repealed." ^ THe intent of the parties is Xhe who purchases stocks iri anticipation of a rise, but pays the actual price thereof, is not, according to the usual acceptation of the term, en- gaged in speculation. Davis' Busi- ness Methods & Customs. 1 The broker can, therefore, in such a case sue his principal for commission and indemnity. Will- iams' Forensic Facts & Fallacies, (1885) p. 108; Browne & Theobald's Ry. Law, 70. It should be clearly understood that the ultimate re- sponsibility in stock opeji-ations is with the customer. He runs the risk of the failure of his own broker ; nor can he hold him responsible for losses occasioned by the fraud or failure of others with whom he had nado contracts. The broker stands iv the position of an agent acting for his principal. 28 & 9 Vic. ch. 109, § 18; Thacker V. Hardy, 4 Q. B. Div. 689; Grize- wood V. Blane, 11 C. B. 526; Barry V. Croskey, 3 J. & H. 1; N. Y. 1 Rev. Stat. 663, § 8; Harris v. Tum- bridge,'83 N. Y. 93; Kingsbury v. Kirwan, 77 N. Y. 613; Story v. Salo- man, 71 N. Y. 430; Yerkes v. Salo- man, 11 Hun, 471 ; Laws of Pa. 1841, p. 398, § 6, (which has, how- ever, been repealed); Kiause v. Sett- ley, 3 Phila. 389; Chillas v. Sny- der, 1 Phila. 389; Rev. Stat. Illi- nois, ch. 38, g 130, (Cothran's ed. 1887); Pickering v. Cease, 79 111. 338; Sanborn v. Benedict, 79 111. 309; Pixley V. Boynton, 79 111. 351 ; 13 U. S. Stat. 719; Gen. Stat. Mass. ch. 105, § 6 ; Brown v. Phelps, 103 Mass. 313; Price v. Minot, 107 Mass. 49; Colt V. Oiapp, 137 Mass. 476 ; Ohio Laws, May, 1885. That "cornering" the market is illegal, see Arnot v. Pittston &c. Coal Co., 68 N. Y. 558; Sampson v. Shaw, 101 Mass. 145; Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; Raymond v. Leavitt, 13 Cent. L. J. 110; Barry i?. Croskey, 3 Johns. & H. 1. With re- spect to contracts to buy or sell stock for the purpose of controlling the market price, see Tobey v. Robin- son, 99 III, 303 ; Quinoy v. White, 63 N. Y, 370, 383 ; Fisher v. Bush, 35 Hun, 641 ; Livermore v. Bushnell, 5 Hun, 385. 3 Do8 Passes, Stock-brokers and Stock Exchanges, 405; Dewey on 1044 NEGOTIATION OF STOCK AND BONDS. [§ 663. element governing the application of legal rules to such con- tracts, and where the understanding is, either expressly or by implication, that there is to be no delivery, but merely an ad- justment of balances between the parties, it is a wager con- tract and void.' The question of intent in such a transaction is usually a question for the jury; and when it is found that there was an intention to deliver, even though one of the par- ties to the transaction did not share it, the contract is valid.^ When the transaction is made through a broker, the person enjploying him is responsible to him for his commissions and disbursements to the same extent as though the contract were legal and z.honafide delivery were intended,' even though the broker were aware of its being a gambling contract.* § 663. Future deliveries. — A contract by which stock' is sold at a certain jpfice with the option to the purchaser to re- sell it at a future time for an increased price, which increase is only the amount of interest which, by the time of exercising the option, would accrue on the amount paid for the stock, is Contracts for Future Delivery and Commercial Wagers, 33. 1 In an action to recover a sum^of money alleged to be due on a sale of stock the defense set up was that the transactions were gambling transactions, and that it was never intended that any of the stocks or shares should be delivered on one side or the other. It appeared from the evidence that the defendant was a working gardener in receipt of 90Z. per annum. Before the transactions, the subject of this action, com- menced, there had been various dealings between the plaintiff and the defendant, which had resulted in a balance in the defendant's favor. After this various other transac- tions were entered into, cjiiefly buying and selling "TInto" shares, -syhioh eventually resulted in a loss to the defendant of over 400Z. /There was no suggestion in any of the cor- respondence that the shares should be taken up, although in one case the plaintiff actually had taken up some shares to save himself. It was held, that whether it was a gam- bling-transaction was simply a ques- tion of evidence, and that, since neither party contemplated deliver- ing or accepting shares, it was a gambling transaction and void. James v. Sheppard', (Q. B. Div. 1889) 6 Ry. & Corp. L. J. 478; Roundtree V. Smith, 108 U. S. 269; In re Hunt, 36 Fed. Rep. 739 ; Greenhood' on Pub- lic Policy, 330-337. 2 Irwin V. Williar, 110 U. S. 499; Whitesides v. Hunt, 97 Ind. 191; Pixleyv. Boynton, 79 111. §51; Greg- ory V. Wendell, 39 Mich. 3B7. 8Thacher -o. Hardy, 4 Q. B. Div. 685; Ex parte Rogers, 15 Ch. Div, 207. * Knight V. Fitch, 15 0. B. 566; Jessopp V. Lutwyche, 10 Ex. 614; Lyne v. Liesfleld, 1 H. & N. 278; Ex:garte Rogers, 15 Ch. Div. 307. § 664.] NEGOTIATION OF STOCK AND BONDS. 1045 not a gambling contract.^ 'Nov is an agreement \Q^.d by which a trustee, with the consent of his cestui que trust, assigns stock held by him in his fiduciary capacity to a third party as trustee to sell and account to the owner, or, if not sold within a year, to return it to the owner.^ And a contract for the sale of ^tock without delivery is not necessarily void, even if the time of delivery is not fixed, for the implication is that delivery shall be made within a reasonable time, and either party may enforce the performance if he has not otherwise waived his rights.' A contract, however, to sell, " in consideration of one dollar, receipt of which is acknowledged," certain railway stoek at a stated price, " if taken on or before " a certain day, is void on its face under a statute which makes void all con- tracts for the future sale of grain or railroad stock, whether such contracts are to be settled by paying differences or not.* § 664. Bona Me purchasers — (a) In general.— The gen- eral rules of law respecting honafide purchasers of commercial paper for value, before maturity, are applied to stock and corporate securities so far as their peculiar nature will admit. Although corporate bonds may have been wrongfully put into circulation, a purchaser in good faith, ignorant of the circumstances, may enforce their payment.'' Accordingly, where a corporation was authorized to issue bonds secured by mortgage to the amount of two-thirds of its capital paid in, and it issued bonds to an amount less than two-thirds of its authorized capital, but much more than the amount paid in, the bonds were enforceable in the hands of bona fide holders.* iRichter v. Frank, (1890) 8 Ry. & R. Co., (1858) 21 How. 442; Grand Corp. L. J, 66 ; s. 0. 41 Fed. Rep. 859. Rapids &c. R. Co. v. Sanders, 17 2 Duchenim v. Kendall, (1889) 149 Hun, 552 ; Webb v. Herne Bay Corn- Mass. 171. missloners, Jj. R. 5 Q. B. 643. 8 Bruce t!. Smith, 44 Ind. 1. Ace. SHackensack Water Co. v. Da Kgichuer v. Gettys, 18 S. C. 521 ; .Kay, 36 N. J. Eq. 548. Aeo. Ells- Chealeu Ken ward, 3 De Gex & J. worth v. St. Louis &c. R. Co., 98 27 ; Stewart v. Canty, 8 Mees. & W. N. Y. 553. And where, under stat- 160. utory authority, certain mortgage 4 Schneider v. Turner, (1889) 7 Ry. bonds were issued by a water com- & Corp. L. J. 46; s. C. 130 111. 38. pany, and taken by the contractors 5De Kay v. Voorhis, 36 N. J. Eq. who built the company's works 37;HackensaokWaterCo. ■u.DeKay, in part payment therefor, and the 36 N. J. Eq, 548; Pearce v. Madison company's property and franchises 1046 NEGOTIATION OF STOCK AND BONDS. - [§ 665. So in respect of stock certificates, if the owner indorses them in blank, and puts them in the hands of a broker or agent, who sells or pledges them in fraud of theowner's rights, he nevertheless can not reclaim it from an innocent holder for value.^ But where the by-laws and certificates of a corpora- tion provide that stock shall be transferable only on the books of the company, either in person or by attorney, and upon the surrender and cancellation of the old certificate, no one can claim to be a honafic[e holder of the stock who acquiesces in the registration of his name as a stockholder without insist- ing upon the surrender and cancellation of the certificate, even if new certificates are issued to him, for the failure to produce the old certificates for cancellation is notice of the possible existence of equities against him.^ § 665. (b) Of shares of stock. — A statute which provides that the delivery of a stock certificate of a corporation to a honafide purchaser, with a written transfer or power of attor- ney, shall be a sufficienj; delivery to pass title, in no way af- fects the power of an executor or trustee to sell and convey property.' It has been held that simple knowledge of the fact that his vendor holds the stock in trust does not put the vendee upon further inquiry,^ but this has been strongly dis- approved.* Certainly, if the purchaser has any reason to were afterwards, bought by the debt due him from the equitable . contractors, who reorganized the owner thereof, the legal title to the company and conveyed the prop- stock being in another, the creditor erty and franchises to the new com- becomes the bona fide purchaser of pany, the contractors and both com- the stock, and will be protected as panics were estopped from alleging such. Thurber v. Crump, (1888) 88 any invalidity in the execution or Ky. 408. delivery of the bonds, in the hands ''Beach on Railways, §§ 383, 384. of assignees pt the contractors, or * Stat. Mass. 1884, ch. 339 j Jones v. want of power of the old company Atchison &c. R. Co., (Mass. 1890) 38 to issue them. De Kay v, Voorhis, N. E. Rep. 48. 36 N. J. Eq. 37. * Brewster v. Sims, 43 Cal. 139 ; 1 Burton v. Peterson, 13 Phila. Albert v. Baltimore, 3 Md. 159 ; 897. But one who takes it for an Thompson v. Toland, 48 Cal. 99. antecedent debt due him from the * Shaw v. Spencer, 100 Mass. 383 ; broker or agent is not such a Jones v. Williams, '24 Beav. 68 ; Ar- holder for value. Burton v. Peter- tide by Francis B. Patten, 18 Am. son, 13 Phila. 397. Where, however, L. Rev. 975. See also on this sub- one takes stock in satisfaction of a jeot: Murray v. Feindur, 13 Md. § 665.]- NEGOTIATION CF STOCK AND BONDS, 1047 suppose that his vendor is a trustee and, in selling the stock, is acting adversely to the interest of his cestui que trust, he becomes chargeable with knowledge of the breach of trust, and if he consummates the sale he becomes bound to restore the stock; for, in equit\', he also becomes a trustee,^ as an equi- table title, superior to that of his cestui que trust, can not be created in another by a trustee.^ While, generally, in such a case a 5o«(2J'j(Ze purchaser from an agent will be protected,' yet one who has notice that an agent is acting without author- ity deals with him at his own risk.^ With respect to guard- ians, there are sometimes statutes which prescribe that, before guardians can sell or transfer stock or other personal property belonging to their wards, authority to do so must be obtained from a court of competent jurisdiction.^ So that when a vendee is chargeable with knowledge of the fact that his vendor acts in the capacity of a guardian, he is put upon inquir\', and to escape loss in case of fraud must examine the authority to sell.^ A hona fide purchaser, hovv.ever, will be protected even when he purchased at private sale, in the face of a statute requiring a sale at auction, it being held that such a statute is merely director}'.' When stock is so trans- ferred before certificates are issued, and the original certifi- cates are finally issued to the transferee, he is not entitled to the advantage of the position of a Jona ^(Repurchaser without notice, but stands in the place of an original holder.^ So Ch. 418; Powlet v. Hubert, 1 Ves. < Bank of Louisville u. Gray, (Ky. 267; Ward V. Kitchen, 30 N. J. Eq. 1886) 84 Ky. 565. 31; BowTjer 17. Pierce, 130 Mass. 362; ^Mass. Rev. Stat. oli. 79, § 21; Perry on Trusts, (3rd ed.) t; 235; Wallace «. Holmes, 9 Blatcli. 65. Lewin on Trusts, (7th ed.)417; Mei-- ^Atljinson v. Atkinson, 90 Mass. chants' Bank v. Livingston, 74 N. Y. 15. But an order authorizing a 323. Cf. Ashton v. Atlantic Bank, guardian to sell stock does not vest 85 Mass. 317. him with power to pledge it. Webb iBol'len's Estate, 75 Pa. St. 313; v. Grand ville Manuf. Co., 11 S. C. Jandon v. Nat. City Bank, 8 Blalch. 396. 430; s. c. 15 Wall. 165; Bayard v. 7 Turite t;. Stevens, 98 Mass. 307. Farmers' &c. Bank, 53 Pa, St. 233. s/n re Vulcan Iron Works, Law 2 Shropshire Union &c. Co. v. Re- Times, 1885, p. 61; Rowland's Case, gina, L, R. 7 H. L. 496. 42 L. T. N. S. 785 ; Potter's Appeal, a Otis u. Gardner, (1883)105111. 436; Week. Notes, 1878, p. 81. Contra, Guliok V. Markham,(1875) 6 Daly, Carling's Case, 1 Ch. Div. 115. 139, 1048 NEGOTIATION OF STOCK AND BONDS, ■ [§ 666. when a transferee of stock executes a paper purporting to be an original subscription and makes an agreement to pay as- sessments, he becomes an original stockholder liable for un- paid subscriptions.^ But when the corporation has incurred a liability for an overvaluation of property received by it from original subscribers in payment of their subscriptions, the fact that original certificates are issued to hona fide purchasers of stock from the subscribers does not render tiiem liable to the corporate creditors.^ Neither the corporation nor the real owner of stock can compel the surrender of a new certificate by one who has purchased it in good faith.^ § 666. ,(c) Of bonds, and coupons.: — As an example of the almost complete invulnerability of tiie lidna fide hold- er's position with respect to corporate bonds, must be men- tioned the exception in their behalf to the doctrine of lis pendens.^ This exception holds even though the paper was purchased during the peodency of a suit in which their issue was finally declared unconstitutional, the purchaser not being affected with coiice thereof.^ But while the issuing and deliv- ering oT bonds voted by a municipal corporation under an al- ■ ternative proposition to one named company or another also named would be enjoined if timely application was made, yet as, by the terms of tije proposition, the commissioners were authorized to issue and deliver the bonds to the company which should build the road, and as they had complied~with such apparent autliority, their action in the premises was void- able, and not void; and the bonds were only liable to be set 1 Citizens' &c. Co. v. Gillespie, .Doixglass v. Pilre County, 101 U. S. (1887) 115 Pa. St. 5M. 687; County of. Warren v. Maroy, 2 Young V. Erieilron Co., (1887) 65 (1877) 97 U. S. 96; City v. Lamson, Mich. Ill, citing Sanger v. Upton, 9 Wall. 477. And if the law under 91 D. S! 56, 60; Steasy v. Little Eock which bonds were issued had been &c. E. Co., 5 Dill. 848, 373-377. recognized as valid by the highest 3 Machinists' National Bank u. court of the State at the time of the Field, 126 Mass. 345; In re Bahia purchase, no subsequent decision can &c. Ry. Co., L. E. 3 Q. B. 584. affect their validity in the hands of * County of Warren v. Marcy, hona fide purchasers for value. Mai-- (1,877} 97 U. 8. 96. ' '' shall «. Elgin, (1881) 3 McCrary, 35; 5 Lexington v. Butler, 14 Wall. S. c. 8 Fed. Eep. 783, 787, 788; City 283; Marshall v. Elgin, (1881) 3 Mc- v. Lamson, 9 Wall. 477; Douglass v. Crary, 35 ; s. C. 8 Fed. Rep. 783, 788; Pike County, 101 U. S. 687. ■§666.] NEGOTIATION OF STOCK AND BONDS. 1049 aside before they had passed into the hands of an innocent purchaser for value.' In the case of interest coupons the question has arisen whether one who advances money to a corporation to enable it to redeem them, can claim to be a bona fide purchaser to the extent of keeping alive their lien on the mortgaged property to secure the money advanced. This depends upon whether in taking up the coupons he acted in- dependently or as an agent of the company, that is whether they were purchased ov paid} But -it is not to be assumed, 1 North V. Platte County, (Neb. 1890) 45 N. W. Rep. 692. But it has been held that purchasers of bonds issued under an unconstitutional statute are chargeable with notice of their illegal origin. Duke v. Brown, (1887) 96 N. C. 127; Markham v. Man- ning, (1887) 96 N. C. iy2. And if bonds be issued by the oflScers of a company to a party under a contract which amounted to a fraud upon the shareholders, a hona fide purchaser takes them subject to equities. Athenseura &c. Ins. Co. v. Pooley, 3 De Gex & J. 394. So also in a case in which the bonds of a railway com- pany which had not been issued, were seized by soldiers in the war between the American States, and, together with overdue oouijons at- tached, were negotiated at a very small price and under circumstances prima facie inconsistent with any view except a bad title, the purchas- ers could not sustain the position of hona fide holders without notice. Parsons v. Jackson, (1878) 99 U. S. 434. Cf. Jackson v. Ludeling, 99 U. S. 513; Eouede v. Jersey City, 18 Fed. Rep. 733. 2 The lien of couponsupon the cor- porate propertj' is terminated by their payment and can not be kept alive to secure one vtIio advanced money to the company to enable it to pay them. Union Trust Co. v. Monticello &c. E. Co., 63 N. Y. 811; S. c. 20 Am. Rep. 541. But if the holder pi-esents the coupons at the regular depository of the corporation wheie money is lodged for their pay- ment, and accepts a draft therefor, it is payment because the agent had only authority to make payment. People V. Cromwell, (1886) 103 N., Y. 477. And again the chief owner of the stock and. bonds of a railroad company sold a majority of the stock, and bonds, and afterwards pledged some of the bonds, subject to the contract, but gave the overdue cou- pons to his wife, thinking they would pass better with these off. Coupons on the bonds had never been paid, tbe bondholders and stock- holders being the same, but were merely canceled. The purchaser sold his interests to coriiplainant, and the former owner stated at the transfer that all coupons not canceled were with the bonds, and such was the understanding of all. On subsequent inquiry' for missing coupons, the for- mer owner stated that he sold the bonds with all the coupons of the date missing attached, but after two years the coupons given to the wife, which had apparently been forgot- ten, were discovered, and the hus- band tried to have them collected without disclosing their ownership, and made evasive statements as to them. And it was held, that the wife not being a hona fide purchaser, 1050 NEGOTIATION OF STOCK AND BONDS. [§ 667. I when coupons are not paid in the usual manner, or at the usual place, or by the persons accustomed to pay them, that the transaction is intended to be a payment.^ Accordingly one interested in a company may take up its coupons to save it from temporary dilKculties and hold them against it under the original lien.^ §667. Forgery or fraud. — Neither forger^!, theft nor fraud can* confer power or con-vey title to stock. The corporation and its officers are trustees of the stockholders and are bound to protect their rights. They must therefore use extraordin,ary diligence in the examination , of applications for transfers. When in doubt as to the genuineness of the application, they may even require the person in whose name the stock stands on the books to be present, and are m general entitled to sat- isfactory evidence of the regularity of the transfer." What- ever is done bj' the corporation or officers in such a case must be done in their discretion and upon their own responsi- bility, and /therefore a corporation may maintain an action against a person who presents a forged power of attorney to transfer stock, upon the faith of which the corporation issues to him a new certificate of stock, although he acted in good faith. ^ So where a forged transfer has been regis- the coupons must be regarded as 153; Weaver t). Borden, 49 N. Y. cancelled, and complainant was en- 386; Moodie tj. Seventh Nat. Bank, titled to an injunction restraining 3 Week. Notes Gas. (Pa.) 118: Tal- coUection thereof by her, andrequir- mage v. Third Nat. Bank, 91 N. Y. , ing them to be delivered up. Chi- 531. cago &c. Ry. Co. v. Turner, (Mich. * Boston & Albany R. Co. v. Rich- 1889) 44 N. W. Rep. 174; S. C. 7 Ry. ardson, 135 Mass. 473; Davis?;. Bank & Corp. L. J. 188. ' of England, 2. Bing. 393; Dalton v. iKetohum v. Duncan, (1877) 96 Midland Ry. Co., 13 C. B, 458; Coates U. S. 662, saying : "There can be no v. London Sec. Ry. Co.. 41 L. T. N.S. payment of coupons without an in- 553; Swan v. North British &c. Co., tention ■ to pay them." See -also 7 H. & N. 603 ; Johnston i'. Reoton, Wood V. Guarantee &c. Co.., (1888) L. R. 9 Eq. 181; Midland Counties 128 U. S. 416. Ry. Co. v. Taylor, 8 H. L. Cas. 751, sKetchum v. Duncan, (1877) 96 affirming Taylor u. Midland Ry. Co., U. 8. 665. Cf. Clafflin v. Railroad 29 L. J. Ch. 731 ; Sloman v. Bank of Co., 4 Hughes, 36. England, 14 Sim. 475; Cottam v. 3 Telegraph Co. v. Davenport, 97 Eastern Counties Ry. Co., IJ. & H. U. S. 36t) ; Crocker y. Crocker, 31 N. 243 ; Ex parte Swan, 7 C. B. N. S. Y. 507; Dovey's Appeal, 97 .Pa. St. 400; Telegraph Co. v. Davenport, 97 §66T.] NEGOTIATION 0¥ STOCK AND BONDS. 1051 tered, the real owner of the stock has his remedy against the corporation either by a bill in equity to compel a re-trans- fer on the booiis, or by an action for damages.' He may force the issue of new certiiicates bj' the company.^ Inas- U. S. 369 ; Pollock v. National Bank, 7 N. Y. 274; Day v. American Tel. &c. Co., N. Y. Dailj- Reg. July ISth, 1885; Pratt v. Boston &c. R. Co., ^ 126 Mass. 443; Pratt v. Taunton &o. Manuf. Co., 123 Mass. 110; Mayor &c. of Baltimore v. Ketchum, 57 Md. i23 ; Machinists' National Bank V. Field, 126 Mass. 345; Loring v. Salisbury Mills Co., 125 Mass. 138; Sewall V. Boston Water Power Co., 86 Mass. 277; Blaisdell v. Bohr, 68 Ga. 56. 1 Blaisdell v. Bohr, 68 Ga. 56 ; Pol- lock V. National Bank, 7 N. Y. 274; Cottam V. Eastern Counties Ry. Co., 1 J. & H. 248; Midland Rj-. Co. v. Taylor, 8 H. L. Cas. 751 ; Browne & Theobald's Ry, Law, 71; Swan v. North British &c. Co., 3 H. & C. 175; Johnston v. Renton, 9 Eq. 181 ; Slo- man v. Bank of England, 14 Sim. 475. 2 Pollock V. National Bank, 7 N. Y. 274; Dalton v. Midland Ry. Co., 12 C. B. 458; Blaisdell v. Bohr, 68 Ga. 56. "It has been held in a case, the authority of which has never been judicially doubted {In re Bahia & San Francisco Railway Co., 18 L. T. Rep. 467), and which, though it arose on a foreign railway case, is very hard to distinguish, that where the trans- feree who took by a forged transfer himself receives a certificate, and on the strength of that certificate be- cor.'ies a transferrer, his transferee can call^ upon 'the company' for a complete indemnity. The cases will be few indeed in which the stock- holder will lose the value of his stock; but even a single case iu which he loses it has (and quite nat- urally) so terrifying an effect upon the sloskholders throughout the country, and upon their bankers, solicitors and brokers, that the law of the subject and the question wliether and how far it ought to be altered require instant and careful examination. . . . But is the Bahia case perfectly good law? We are rather inclined to doubt it. The ground of that decision was that the company, by giving a certificate, had enabled the transferees, 'under the forged transfer, to hold themselves out as real owners. Now, by sec- tion 12 of the Companies Clauses Act 1845, which applies to all railway companies incorporated in and after 1845, and is to a great extent similar to .section 31 of the Companies Act 1862, on which the Bahia case was decided, it is enacted that '-the cer- tificates shall be admitted in all courts as prima facie evidence of the title of tlie shareholder.' Jn the Bahia case the court held that the doctrine of Freeman v. Cooke, 2 Ex. 654, applied, and that the company was ' estopped.' 'But in Swan v. North British Australasian Co. , 3 H. & C. 188, Cockburn, C. J., observed: ' To bring a case within the ijrin- ciple established by the decision in Freeman v. Cooke, it is essentially necessary that the representation or conduct complained of, whether act- ive or passive in its character, should- have been intended to bring about the result whereby loss .has been oc- casioned to the other party, or, his position lias been altered ; ' and the opinion of Blackburn, J., is to the same effect. Curiously enough, both these judges were parties to the judgment in the Bahia case, and saw no difficulty in applying the principle of Freeman v. Cooke to it. 1052 NEGOTIATION OF STOCK AND BONDS. [§ "668. much as a forged transfer can convey no title, the corporation is under no obligation to the transferee to recognize Mm as a stockholder. So where such a transfer was made and regis- tered without knowledge on the part of the corporation of the forgery, it may cancel the registry and the transferee is without power to prevent it.' Although if the corporation makes the transfer by'mistake it can not be held liable,^ yet .when a bank takes forged certificates in pledge from the forger, and he applies for a second loan, upon which the cor- poration insists upon a registration in its narrie, it becomes liable to the pledgee for the second loan but not for the first.' But when one is not the immediate purchaser under a forged transfer but obtains the shares from one who is, he has his remedy against the latter under the implied warranty of title; even though the latter transferred the stock without knowledge of the forgery,* except that when such a transfer is made through an agent, the agent incurs no liabilit3^•' The immediate purchaser of forged certificates has no right to new certificates which have been issued to him upon the transfer, for the reason that they do not operate to divest the real Owner of his title to the stock." § 668. The Schuyler frauds. — A leading case upon this subject is that of Ifew "York &c. R. Co. v. Schuyler,' in which For ourselves, -we submit with diffi Ey. Co., 41 L. T. N. S. 553 ; Simm v. dence that there is considerable dif- Anglo-Ailierican Tel. Co., 5 Q. B. fioulty in so applying it; but, as we Div. 188; Brown v. Howard Ins. Co., have already said, the Bahia case 42 Md. 384; Hanibleton v. Central has never been judicially called in &c. R. Co., 44 Md. 551 ; Hildyard v. question; and it appears to have South Sea Co., 3 P. Wms. 76. Cf. been approved of in Hart v. Fron- Ashby v. Blackwell, 3 Eden, 299. tino &c. Company, 33 L. T. Eep. 2 Waterbouse v. London &c. Ry. N. S. 30. Be this as it may, how- Co., 41 L. T. 558 ; Simm v. Anglo- ever, it can not be said that the law American Tel. Co., 5 Q. B. Div. 188. is at present in a satisfactory state, 3 Metropolitan Savings Bank v. as it seems clear at any rate that he Mayor &o. of Baltimore, 63 Md. 6. who takes the first transfer of ' bad ' * Matthews v. Massachusetts Na- stock must bear all the loss of a tional Bank, 1 Holmes, 396. ' holder without title." 8 Ry. & Corp. ^ Machinists' National Bank v. L. J. 398. Field, 126 Mass. 345. 1 Davis V. Bank of England, 3 « Johnston v. Benton, (1870) L. E. Bing. 393; Hare v. London &c. Ry. 9 Eq. Cas. 181. Co., a Johns. & H. 480 ; 9. C. 30 L. J. ' 34 N. Y. 30. Ch. 817 ; Waterhouse v, London &o. § 069.] NEGOTIATION OF STOCK AND BONDS. 1053 it is held that a transferee must be registered in order to be protected against a fraudulent transfer.^ In this case Davis, J., said : " Where the stock of a corporation is, by the terms of its charter or by-laws, transferable only on its books, the pur- chaser 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 be- twf ^n himself and the corporation he acquires only an equita- ble ;itle 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 and the b\'-laws in order to make a transfer. Until these acts be done he is not a stockholder and has no claim to act as such. . . . The stock not hav- ing passed by the delivery of the certificates and power of attorney, the legal title remains in the seller, so far as affects the company and subsequent houa fide purchasers who take by transfer duly made on the books. And hence a buyer in good faith, who takes a transfer in conformity to the charter and by-laws, permitted to be made by the authorized officer of the corporation, becomes vested with the complete title to the stock and cuts off all the rights and equities of the holder of the certificate to the stoclc itself." '^ Where, however, the transfer is made effectual by the surrender and cancellation of the old certificates, no valid transfer can be made without compliance with "this formality.' And where a transferee has waived the right to the cancellation of the old certificates and consents to a transfer on the books without their presence, he has no recourse against the corporation for damages.* § 669. Spurious stock. — The transferee of spurious or overissued shares may hold the transferrer liable for damages iSee also Cadyi;. Potter, D5 Barb. New York &c. E. Co., 3 Kern. 621; 463. Gilbert v. Manchester Iron Co., 11 2 New York &c. E; Co. v. Schuyler, Wend. 027 ; Borgate v. Shortridge, 31 34 N. Y. 80, 80, citing Wilson v. Lit- Eng. L. & Eq. 58. tie/ S^'Comst. 443, 447; s. c. 51 Am. s Beach on Eailways, g§ 383, 384. Dec. 307; Bank of Dtica v. Smalley, < Houston &c. Ey. Co. v. Vi*n Al- 2 Cow. 770; s. C. 14 Am. Dec. 52(3; styne, 56 Tex. ,439 ; Hall v. Eose Hill Stebbins v. Phoenix Fire Ins. Co., 3 &c. Eoad Co., 70 111. 673. Cf. Shrop- Paige, 350 ; Union Bank v. Laird, 2 shire &c. Ey. & Canal Co. v. Queen, Wheat. 390; Mechanics' Bank o. L. E. 7 H. L. 496. 1054: NEGOTIATION OF STOCK AND BONDS. [§ 669. upon proof that the latter was- cognizant of the fraud.^ But when knowledge of the fraud can not be proven against the vendor, the remedy of the transferee is against the corporate officers through Whose fraud or negligence the certificates were issued, and against the company, against both jointly or either separately.^ The transferee's claim upon phe compan/ is not upon ihe stock; but it is a claim to be indemnified for the fraudulent acts of the officers of the company ftom which he has suffered damages.' Stock certificates issued by a cor- poration having power to issue are a continuing affirmation of the ownership of the special amount of stock by the person designated therein or his assignee, and the purchaser has a right to rely thereon and claim the benefit of an estoppel in his favor as against the corporation.* "This being so, it will 1 Seizer v. Mali, 41 N. Y. 619 ; Bruff v. Mali, 36 N. Y. 200; Kendall v. Stone, 5 N. y. 14; People's Bank v. Kurtz, 99 Pa. St. 344 ; State v. North Louisiana &c. Co., 34 La. Ann. 947; Kempsop v. Saunders, 4 Bing. 5; Gompertz v. Bartlett, 2 El. & Bl. 849 ; Nookles v. Crosby, 3 Barn. & C. 814. , ^Henderson v. EaiIro&,d Co., 17 Tex. 560; s. C. 67 Am. Deo. 675, holding that the company should be made co-defendant if the action be against the officers; Bruff v. Mali, 36 N. Y. 200; Ashmead v. Colby, 26 Conn. 287; State v. Jefferson &c. Co., 3 Humph. 305; Waldo v. Chi- cago &c. R. Co., 14 Wis. 575; Car- gill V. Bower, 10 Ch. Div. 502 ; Vene- zuela Ry. Co. V. Kisch, L. E. 2 H. L. ■ 99; Henderson v. Lauon, L. E. 5 Eq. 249; Askew's Case, K R. 9 Ch. 664; Ross V. Estates &c. Co., L. R. 3 Ch. App. ' 682 ; Smith v. Reese, L. E. 2 Eq. 264; Thorpe v. Hughes, 3 Mylne & C. 742. 3 Mount Holly Paper Co. 's Appefal, 99 Pa. St. 513; Appeal of Kisterbock, (1889) 127 Pa. St. 601 ; s. 0. 14 Am. St. Eep. 868, 871. * Appeal of Kisterbock, (1889) 127 Pa. St. 601 ; s. C. 14 Am. St.. Eep. 868, 871, citing Hoi brook v. New Jersey Zinc Co., 57 N. Y. 616; Willis r. Derby Ry. Co., 6 W. N. C. (Pa.) 461 ; Bank of, Kentucky v. Bank, 1 Pars. Cas. 180 ; In re Bahia & San F. Ey. Co., L. R. 3 Q. B. 585. Ace. Jarvis v. Manhattan Beach Co., (1889) 53 Hun, 362; S. C. 6 Ey. & Corp. L. J. 325, citing Beach Co. v. Harvard, 27 Fed. Rep. 484, and say- ing, in that case " the purchase had been made without any previous in- quiry of the company, yet the court held that it was estopped by issuing a new certificate. By that act ' they not only re-affirmed the authenticity of the surrendered certificate, but recognized the defendants', title to the shares, and thereby authorized the defendants to repose without further inquiry upon the validity of the title they had acquire!.' And the court further held that the com- pany was estopped by its subsequent negligence in not discovering the fraud and notifying the defendants in time to enable them to seek resti- tution from the swindler. He paid his money upon the false representa- tion, made by the certificate, that 669.] NEGOTIATION OF STOCK AND BONDS. 1055 be seen at once that the right to idief depends upon the equity of the person claiming it. If he has expended money upon the faith of the ofHcial certificates of the officers of the com- pany, he has a right to be indemnified, to the extent of his title could be acquired by a genuine assiKnment, when in truth a genuine assignment was impossible. The legal effect of such a certificate was sui^stantially the same as if it had be- n issued to ' bearer.' Such is the lult? with regard to bills put in cir- culation with a fictitious payee, Coggill V. Bank, 1 N. Y. 113; and the analogy is not strained when we consider, as was said by the learned judge in the Harvard Case, that ' shares of corporate certificates is- sued as evidence of the ownership of the shares are the indicia of title, and are treated as representing the shares themselves.' It is not neces- sary, however, to decide definitely whether the plaintiff could recover upon the representation made by the certificate standing alone, for this case differs from the Harvard Case in the crucial fact that Fox & Co. did not rely upon the certificate alone, but sought, as we have already seen, to make assurance 'doubly sure,' to quote the testi- mony, by inquiry of the defendant. In considering the effect of this in- quiry, it must be remembered that the company had caused its stock to be listed on the Stock Exchange, and that it was aware of the requirement of a guaranty, in transactions be- tween members of that body, not only of the genuineness of the cer- tificate, but of the indorsement. It knew, too, that members of the board relied upon the company fov information and invariably gave the guaranty upon the faith thereof. The company; kept a record of its stockholders' signatures, and it was its duty to verify guoh signatures when applied to for a transfer. It had also repeatedly assumed the duty of knowing and vouching for such signatures, vrhen applied to for •information as to the genuineness of a transfer. Indeed, such was the custom of Wall street, and the de- fendant was well aware that busi- ness was being transacted, and trans- fers made, upon the faith of the double inquiry, first, as to the genu- ineness of the certificate, and sec- ond, as to the genuineness of the transfer indorsed thereon. In the light of these sun-ounding circum- stances. Fox & Co. presented the certificate at the defendant's general transfer office, and were informed, as already stated, that it was prop- erly indorsed for transfer, and that the person.in charge was willing to transfer it. The proximate caiuse of Fox & Co.'s inquiry was plainly this representation, coupled with the af- firmation of the certificate. This was a re-affirmation of the validity of the certificate, of the reality of B. Bignell, and of the genuineness of the signature of that fictitious person to the transfer indorsed. It was made with full knowledge of the purpose of the inquiry, namely, that the stock might be safely pur- chased, and with the means directly at hand — in books lying before the agent — of discovering the frauds and saving the innocent inquirer from loss. This is a plain case of estoppel, entitling the plaintiff to genuine stock, if that were possible, but that being impossible, entitling him, upon the defendant's repudia- tion of the certificate, to appropriate damages. The authority of the per- 1056 NEGOTIATION OF STOCK AND BONDS. [§ 670. expenditure, against loss from false certificates, but only because of the fact of his expenditure. The false certificates are no certificates in legal contemplation and give no rights of their own force: But the act of the oflBcers in issuing them, having been accepted and acted upon by another, the com- pany can not be heard to deny the truth of the fact repre- sented, it is simply the application of the principle that if you make a representation with the intention that it shall be acted upon by another, and he does so, you are estopped from denying the truth of what you represent to be the fact." ' It is said,' however, to be a condition precedent to maintaining such an action for damages, that the holder of the overissued stock shall discharge an}' lien upon it which would have prop- erly attached to genuine stock under like circumstances.^ §670. Lost or stolen certificates of stock. — The true owner of shares of stock from whom, without his fault or neg- ligence, they have been stolen loses no right iii them even as against one who, in good faith and for value, buys them from the thief, they having been regularly indorsed by a former Bon who ra-ade these representations ofiBce, and was in the regular em- is questioned, but the evidence on ploj of the defendant. When Ful- that head was certainly sufficient to lerton was out this person was in bis go to tl»e jury. Leslie t). Insurance place, and he had personally'trans- Co., 63 N. Y. 34. And see Dunn v. f erred stock for Fox & Co. and had Insurance Co., 19 Week. Dig. 531. had transactions with their clerk in Indeed, there was testimony from regard to the transfer of certificates, which \the presence of the defend- This evidence being sufficient to go ant's treasurer, Mr. Moulton, miglit to the jurj', the questions which the have been inferred, and that it was plaintiff asked to submit should, he who answered the inquiry. Ful- under the principle of the Schuyler lerton was the transfer clerk, and he Case, 34 N. Y. 30, have been sub- acted under Mr, Moulton'sv ■ super- mitted, and if answered in the afr vision and inspection.' The defend- firmative, would have warranted a ant's present secretary, Mr. McDon- verdict for the amount, received by ough, testified that at the time when Fox & Co. from the original pur- the inquiry was made ' there was no chaser, and paid over to Fullerton."' other employee of the Manhattan Barrett, J,, in Jarvis v. Manhattan Beach Company in the office with Beach Co., (1889) 53 Hun, 363. Mr. Fullerton except the treasurer, i Appeal of Kisterbock, (1889) 127 Mr. Moulton.' But even if it were Pa. St. 601 ; s. c. 14 Am. St, Rep. not Mr. Moulton, the testimony was 868, 871, 873, ample that it was at least an author- ^ jit. Holly Paper Oo.'s Appeal, 99 ized person. Fox & Co. testified Pa. St. 513. that this person was in charge of the § 671.J NEGOTIATION OF STOCK AND BONDS. 1057 owner, in whose name they stand on the corporation book.^ It has likewise been held that even where the corporation was without fault and the stolen certificates were purchased in good faith, the real owner's rights would not be defeated.^ But when such a transfer is registered, the parties to the reg- istration being ignorant of the fact that it has been stolen, the innocent purchaser so registered is entitled to assert his right to the stock.' Where one to whom certificates of stock were issued alleges that they have been lost, the corporation will not be compelled to issue new ones in lieu thereof with- out requiring him to give a bond of inderanitj'^ according to its by-laws, where the lapse of time since their alleged loss is not so great as to exclude danger of their re-appearance.* § 671. The same subject continued. — In New York the owner of lost or stolen certificates may compel the issue of new certificates, when the corporation refuses to do so, by pe- titioning the supreme court, which, upon due proof that the petitioner is the lawful owner, will make an order directing the corporation to issue the new certificates. The proceedings are had upon an order to show cause.' In a recent case in Colorado * it was said that certificates of stock are assignable, and pass from hand to hand by indorsement, as bills of ex- change and promissory notes pass, a proposition which appears to be exactly the reverse of the law as stated in the authorities cited in the last section. It is qualified, however, by the fur- ther statement that an innocent purchaser for value will hold 1 Sherwood v. Meadow Valley &o. this was held even when the trans- Co., 50 Cal, 412; Brown v. Hartford feree had notice of the facts. State Fire Ins. Co., 42 Md. 384; Buffalo v. New .Orleans &o. Co., 25 La. Ann. &c. Co. V. Alberger, 22 Hun, 349; 418. Barstow v. Savage &c. Co., 64 Cal. * Guilford v. Western Union ,Tel. 388; S. C. 49 Am. Rep. 705, substan- Co., (Minn. 1890) 46 N. W. Rep. 70; tially overruling Winter v. Belmont N. Y. Laws of 1890, oh. 564, § 51 ; &c. Co., 53 Cal. 428. Of. Anderson Galveston City Co. v. Sibley, 56 Tex. V. Nicholas, 28 N. Y. 600; AuU v. 269. Of. Greenleaf v. Ludington, Colket, 33 Leg. Intell. 44; Biddle v. 15 Wis. 558. Bayard, 13 Pa. St. 150. = N. Y. Laws of 1890, ch. 564, §§ 50 ^Telegraph Co. v. Davenport, 97 and 51. U. S. 369. s Supply Ditch Co. ■e. Elliott, (1887) 3 Mandlebaum v. North American 10 Col. 327 ; s. C. 3 Am. St. Rep. &c.. Co., 4 Mich, 465. In one case 586. 67 1058 NEGOTIATION OS STOCK AND BONDS. [§ 672. them against the true owner where the latter hds placed it in the power of the assignor to perpetrate a fraud upon the in- nocent assignee. So qualified, it is probable that the proposi- tion may be accepted as the law, and this view is further for- tified by the fact that the case of Lanier v. Bank ' is cited as authority, in which Justice Davis, who delivered the opinion of the court, said that certificates, "although neither in form or character negotiable paper, approximate to it as nearly as possible."^ In a still more recent case in Alabama it is- said that while certificates of stock are not neigotiable instruments when indorsed in blank, they are nevertheless intended to pass from hand .to hand by delivery ; and a bona fide purchaser of certificates of stock, upon which a power of attorney, au- thorizing their transfer to any person, is indorsed by the per- son in whose name the certificates were issued, and who was the last registered stockholder, takes them relieved of a trust existing- back of the registry, though the transfer to the pur- chaser is not registered.' § 673. Lost or stolen bonds. — iLike commercial paper, cou- pon bonds are an exception to the rule that one can give no better title to personal property than he has himself.* The rule of caveat emptor does not apply to negotiable bonds and coupons. One who purchases them for value, before matu- rity, in good faith and without gross, negligence, acquires a good title, even as against a prior owner from whom they have been stolen, to the extent of the principal and of such of the interest coupons as have not matured.' Mere negligence 111 Wall. 369. from a trustee who sells the stock in 2 In Mills V. Townsend, 109 Mass. breach of trust, is protected. 115, it is said that while a transfer of ' Winter v. Montgomery Gas Light shares by an assignment of the cer- Co., (1890) 8 Ey. & Corp. L. J. 244. tificates ca.'- be eflfective only be- * Fifth Ward Sav. Bank v. First tween the parties to the assignment, Nat. Bank, (1887) 48 N. J. 513; Carr it has been held, in accordance with v. Le Ferve, 27 Pa. St. 413, holding the usages of trade, that the indorse- that possession is prima facie evl- ment of the certificates invests the dence of ownership of securities of assignee with the legal title to the this character. interest so assigned as against all 'Spooner v. Holmes, (1869) 103 persons except th^ corporation. It Mass. 503 ; s. 0. 3 Am. Rep. 491 ; wasruled that a bono 7i(ie purchaser, Seybell w. National Currency Bank, through mesne conveyances, starting 2 Daly, 388 ; Birdsall v, Kussell, 29 § 673,] NEGOTIATION OF STOCK AND BONDS, 10,69 will not defeat the title of the purchaser. There must be either fraud or such negligence" as amounts to fraud.^ But when the ownership and theft of bonds of a negotiable char- acter has bi3en proven, the burden of proof is then upon the defendant to show the good faith of his purchase.^ The pur- chaser is not' affected with knowledge by a notice in a news- paper that bonds have been stolen, unless it be proven that he read it,^ And, again, mere notice that certain bonds have been stolen will not defeat the purchaser's title, where he either failed to remember the fact or where it was impracticable, from the multiplicity of his business dealings, to record or regard notices of that fcharacter.* But there is no presumption in favor of a subsequent purchaser that the thief originally negotiated the bonds prior to maturity.' Where, however, the original holder serves notice of the loss of bonds, with coupons at- tached, on the obligor, the latter may nevertheless pay the coupons to one presetiting the paper and showing that he is an innocent holder.^ § 673. Breach of trust — (a) lu general. — A purchaser of stock in good faith and for a valuable consideration will take the stock as against the real owner although his vendor made N. Y. 320 ; Murray v. Lardner, 2 S. 0. 60 Am. Eep. 443 ; Bank of New Wall. 110; Jones u. Nellis, 41 111. York u. Carll, 55 N. Y. 440 ; Farmers' 483 ; s. c. 89 Am. Dec. 389, anno- National Bank v. Noxon, 45 N. Y. tated ; Arents v. Commonwealth, 18 763; Bank of Cortland v. Green, 43 Gratt. 750 ; note to Morris Canal &o. N. Y. 398. Co. V. Fisher, 64 Am., Deo. 43S, 485; 3 Raphael v. Bank, 17 C. B. 161 ; Evertson v. National Bank, 66 N. Y. Hagen v. Bowery Bank, 64 Barb. 14; S. C. 23 Am. Kep. 9; Hotchkiss 197. D. National Banks, (1874) 21 Wall. *8eybell v. National Currency 354; National Bank v. Texas, 30 Bank, 3 Daly, 383; Dinsmorei). Dun- Wall. 73 ; Murray v. Lardner, 3 Wall, can, 57 N. Y. 573 ; Lord v. Wilkin- 110; Gilboughu Norfolk &c. E. Co., son, 56 Barb. 593; Snowu Leatham, 1 Hughes, 410. 3 C. & P. 314. But see Vermilye v. iPhelan v. Moss, (1871) 67 Pa. St. Adams Express Co., (1874) 31 Wall. 59; s. C. 5 Am. Rep. 403; Seybell v. 138. National Currency Bank, 3 Daly, 5 Northampton National Bank v. 383; Snow v. Leatham, 2' C. & P. Kidder, (1887) 106 N. Y. 231, 339; 314; Welch v. Sage, 47 N. Y. 143; s. C. 60 Am. Eep. 443; Hinkley v. Woodman v. Simons, 20 How. 366; Merchants' Nat. Bank, 131 Mass. Hamilton v.^ Vought, 84 N. J. 187. 147. 2 Northampton National Bank v. SBainbridge v. Louisville, 83 Ky. Kidder, (1887) 106 N. Y. 331, 339; 383, 289. 1060 NEGOTIATION OF STOCK AUD BONDS. [§ 673. the sale to him in breach of atrast,^ upon the ground that the legal title, by which a trustee holds the stock, is a title which can be transferred. And the delivery of certificates, indorsed in blank, being a suflacient performance of a contract to sell stock,^ it follows that such a purchase in good faith and for .value from a trustee will vest the title in the purchaser even though no record of the transfer has been made upon the corporate books.' IVhen stock is pledged, and the pledgee knows that the pledgor holds it in trust and lends it to secure a private debt, he enters into the transaction at his own risk, and may be obliged to surrender the stock to its rightful owner.^ A distinction is made between transfers by ordinary trustees"who have no power to make transfers unless especially ' authorized to do so, and transfers by executors and adminis- trators whose general pxjwers include the power to dispose of securities by converting them into money for distribution. So where one purchases siiares in good faith for a valuable con- sideration from an executor or administrator he is not called upon to exam ine the sources of his vendee's authority.' The title of a iona fide transferee of stock that has been sold by an executor or administrator for his own benefit will be sus- tained ; * but w^here a long time has elapsed since the death of the testator or intestate, it may be evidence that neither the sale nor the purchase was made in good faith ; "' so also where it is customary for executors or administrators to ob- tain permission from the court to sell stock, a failure to obtain permission may be a reflection on the character of the * Br;ggs V. Massey, 43 L. T. 49 ; son's Select Cas. Eq. 370 ; Simmons Salisbury Mills v. Townsend, 109 v. Southwestern R. Co., 5 Bich. Eq. Mass. 115; Stinson v. Thornton, 56 370; White v. Price, 39 Hurl, 394. Qa. 377; Holbrooke. New Jersey Zinc ^Leitoh v. Wells, 48 N. Y. 585; Co., 57 N. y. 616; Cohen «. Graysen, Lowry v. Commercial &c. Bank, 4 Md. Ch. 357; Sprague v. Chicago Taney, 310; Wood's Appeal, 92 Pa. Manuf. Co., 10 Blatch. 173. St. 379; Clark v. South Metropolitan 2 Noyes v. Spaulding, 37 Vt. 430. Gas Co., 54 L. J. Ch. 359; 7ji re Lon- 3 Johnson v. Laflin, 103 U. S. 800. don &c. Telegraph Co., L. E. 9 Eij. 4 Shaw V. Spencer, 100 Mass. 383; 688. Of. Prall v. Tilt, 38 N. J. Eq. Duncan v. Jandon, 15 Wall. 165; 479; s. c. 37 N. J. Eq. 893. Loring v. Salisbury Mills, 135 Mass. « Keeney v. Globe Mill Co., 39 138 ; Loring v. Brodie, 134 Mass. 453 ; Conn. 145. Sweeny v. Bank of Montreal, 5 Can. ' Lowry v. Commercial Bank, L. T. 503; Walsh v. Stille, 3 Par- Taney, 310. § 674r.] NEGOTIATION OF STOCK AND BONDS. 1061 sale.^ The same rule applies in the case of a pledge of stock by an executor or administrator.^ § 674. (b) The company's right to q^uestion transfers by trustees. — The corporation has no power to interfere with the transfer of stock by the holder of the legal title upon the ground that it is a transfer by a guardian in fraud of the rights of his ward, for at common law a guardian has the right with- out the direction of the court to sell such personal property of the ward as he has in his possession and take proper care of the proceeds.' And it is said that to recognize such a power in a corporation would unduly interfere with the nature of shares of stock by checking their circulation.* Where a guard- ian has legal power to sell or dispose of the personal estate of his ward in any manner he may think most conducive to the purposes of his trust, a purchaser who deals fairly has a right to presume that he acts for the benefit of his ward, and is not bound to inquire into the state of the trust; nor is he respon- sible for the faithful application of the money, unless he knew, or had sufficient information, at the time, that the guardian contemplated a breach of trust, and intended to misapply the money, or was in fact, by the very transaction, applying it to his own private purpose.* And it is no part of the duty of the corporation to inquire into the purposes of the parties, or to investigate the question whether the transaction is in good faith or is fraudulent.* Accordingly, where there is no stat- ute to the contrary, the corporation will be required to record a transfer of stock by a guardian upon due proof of his ap- pointment. So, in the case of assignees in insolvencj'^, the corporation can require no more evidence of the propriety of a transfer than the duly attested assignment.' 1 Lowry v. Commercial Bank, 5 Albert v. Bank, 2 Md. 169 ; Hutch- Taney, 310; White v. Price, 39 Hun, ins v. Bank, 13 Mete. 421 ; Ashton v. 394; Prall v. Hamil, 28 N. J. Eq. 66. Bank, 3 Allen, 233. 2 Goodwin v. American National eCrocker^;. Railroad Co., 137 Mass. Bank, 48 Conn. 550. Of. Crocker v. 417; Helm v. Swiggette, 13 Ind. 195; Old Colony R. Co., 137 Mass. 417. Brewster v. Lime, 43 Cal. 143. 3 Lamar v. Micou> 112 U. S. 453, '"The Rights and Duties of Cor- 475 ; Field v. Schieffelin, 7 Johns, porations in Dealing with Stock held Ch. 154; S. C. 11 Am. Dec. 441. in a Fiduciary Capacity," by Francis 4 Bank of Virginia v. Craig, 6 B. Patten, 18 Am. Law Rev. 975, Leigh, 399, 432. - 978. 1062 -^ NEGOTIATION OF STOCK AND BONDS, [§ 675. § 675. (c) The company's liability.— So far as the corpo- ration is concerned, it incurs no liability by reason of its reg- istration of a transfer of stock by an executor or administrator nor is it under any obligation to investigate the object or inten- tion of the transferrer,' except in cases in which it is charge- able with notice that the transfer is made for the benefit of the executor or administrator.^ Where a corporation, upon the application of an administrator, transfers, the shares standing in the name of his testator to him, the adminis- trator not producing the certificate, if the transfer is unauthor- ized, the corporation is liable.' It has been held that the cor- poration is chargeable with knowledge of the contents of a will,* but, upon better authority, this is denied.^ Where, however, the time fixed by statute for the administration of an estate has passed and its affairs should be finally settled, the executor ceases to be an executor, except sub illo nomine, and assumes the duties of an ordinary trustee created subject to the terms of the will. The corporation, and parties dealing with him for a transfer of the shares, are then put upon in- quiry, and in order to become entitled to protection in the future they must examine the terms of the will to determine his power to sell.* And where an executor combines in his per- son the functions of an ordinary trustee with those of an ex- ecutor, transfers of stock by him as trustee are subject to the rules regulating &uch transfers.' The corporation is not bound to go back of the letters testamentary or letters of adminis- tration to determine the authority of an executor or adminis- trator, and they will protect the corporation where it permits 1 Crocker v. Old Colony E. Co., ^Lowry v. Commercial &o. Bank, 137 Mass. 417 ; Goodwin u. American Taney, 310, 333; "The Rights and National Bank, 48 Conn. 550 ; Hutch- Duties of Corporations in Dealing ins V. State Bank, 53 Mass. 421 ; Car- with Stock held in a Fiduciary Ca- ter V. Manufacturers' National Bank, ; pacity," by Francis B. Patten, 18 Am. 71 Me. 448. Law Rev. 975, 977 ; Bayard v. Farm- 2 Lowry v. Commercial &c. Bank, ers' &o. Bank, 53 Pa. St. 236 ; Petrie Taney, 310. v. Clark, 11 Serg. & R. 377; s. c. 14 3 Brisbane v, Delaware, Lacka- Am. Dec. 636. vvanna &c. R. Co., 25 Hun, 488. 'White i;. Price, 39 Hun, 394; * Stewart v. Firemen's Ins. Co., 53 Prall v. Tilt, 28 N. J. Eq. 479; s. a Md. 564. 27 N. J. Eq. 393. <> Hutchins v. State Bank, 53 Mass. 4S1. 676.] NEGOTIATION OF STOCK AND BONDS. 1063 \ registration.* But when a corporation has notice that a trans- ferrer is acting as agent "without power to sell, it becomes liable to the principal if it registers the transfer, even if the certificates in the agent's possession are indorsed in blank.^ § 676. The same subject continued — The English rule. ' The question of' responsibility for forged transfers of stocks has lately attracted attention in England. It is the custom of railway companies, when a deed of transfer is sent in for registration, to notify the registered holder whose stock it is proposed to transfer, that the deed has been deposited, giving at the same time the amount and description of stock and the purchaser's name, and stating that if the holder has executed the transfer no further notice need be taken of the information so conveyed. Fajling any notification to the contrary, it is assumed that the deed of transfer is cor- rect, and has been duly executed by the registered holder. So far as the company is concerned, this is all the precau- tion that can reasonably be expected. The attestation of the signature in the form required on every transfer is ac- cepted as a guaranty of its genuineness by the purchaser, as well as by the company, who act as the mere agents for transferring the stock as registered in their books. At the half-yearly meetings of some of the railway companies, the shareholders present, by resolution, authorize the directors to affix the seal of the company to the register of shareholders, and by such act they adopt all .the changes that may have been made to that date on the register of shareholders. If the registrar of the company makes the transfer required, and if the shareholders accept the transfer, the question arises, "Who, in the event of forgery or other irregularity in the deed of transfer, is to be responsible?' The London Stock 1 Bayard v. Farmers' &c. Bank, 52 ' The Railway News, London, Oct. Pa. St. 335; Lowry v. Commercial 25, 1890, where it is said further: &o. Bank, Taney, 310, 333; Field v. "The London Stock Exchange Oom- Schieffelin, 7 Johns. Ch. 155 ; Petrie mittee has expressed the opinion V. Clark, 11 Serg. & R. 377; s. C. 14 that certificates of stock should be Am. Dec. 636; Hutchins v. State made indefeasible. In support of Bank, 13 Met. 433; Keene v. Rob- the view that railway certificates erts, 4 Mad. Ch. 333. should be indefeasible, Mr. Ernest S Woodhouse v. Crescent Mutual L. Walford points out that, although Ins, Co., 35 La. Ann. 338. in the Barton Case the amount of 1064: NEGOTIATION OF STOCK AND BONDS. [§ 677. Exchange Committee has, among its rules now in force, -one to the effect that "the seller of shares of stock is re- sponsible for the genuineness and regularity of all documents delivered, and for such dividends as may be received, until reasonable time has been allowed to the transferee to execute and duly lodge such docunients for verification and registra- tion."! §677. Stock certificates not strictly negotiable. — The weight of authority denies to certificates of stock the principal characteristics of negotiable instruments,- and it is denied that North- Western Company's stock in- volved was only £1,000, the total amount involved in the various stocks forged was £40,000, and it is most melancholy to contfemplate the extent of misery which these forger- ies have caused. Among the stocks were some Sciude Railway annuities, the register of which is kept at the Bank of England. The Bank of England, however, replaced the stock, thus continuing to uphold their principle 'that registration in their books gives an indefeasible title,' Mr. Walford points out that ' during the last two years, Parlia- ment, by means of the Trust Funds Investment Act, has. authorized the transfer of these funds to various English railway securities. It is, therefore, incumbent on Parliament either to revise the Trust Funds In- vestment Act, striking out all Eng- lish railway securities, or to insist that the companies shall give an indefeasible title.' " 1 Stock Exchange Rules, No. 86. And it is added that "when an official certificate of registration of shares or stock has been issued, the committee will not (unless bad faith is alleged against the sellers) take cognizance of any subsequent dis- pute as to title until the legal issue has been decided, the reasonable ex- penses of which legal proceeding shall be borne by the seller." It is plain that this rule requires very careful examination and revision. The expression "reasonable time," for instance, is very vague, and some express prima facie limitation of time should take its place. Apropos, by what authority do the companies exact indemnities from holders of stock who have lost their certificates before they will issue new ones? The Companies Clauses Act, 1845, section 13, simply enacts that " if a certificate .be lost or destroyed, then, upon proof thereof to the satisfac- tion of the directors, a new certifi- cate shall be given to the party en- titled to the certificate so lost or destroyed." It is, we believe, the almost universal practice of compa- nies to exact these indemnities, but whether any of them has ever been successfully sued on we can not say. We gravely doubt whether they would be supported in a court of law. The Law Times, Nov. 1, 1890. 2 Hawes v. Gas Consumers' Benefit Co., (1890) 9 N. Y. Supl. 490; East Birmingham Land Co. v. Dennis, (1889) 85 Ala. 565; s. c. 7 Am. St. Rep. 73; Young v. South Tredegar Iron Co., (1887) 85 Tenn. 189; s. c. 4 Am. St. Rep. 752; McNeil v. Tenth National Bank, 46 N. Y. 325; Me- chanics' National Bank v. New York &C.-R. Co., 18 N. Y. 599; Cecil Na- § 67Y.] NEGOTIATIOIf OF STOCK AND BONDS. 1065 commercial usage can clothe them with that character.' Ac- cordingly an innocent purchaser for value of such a certificate, indorsed in blank by the owner, and stolen from him without negligence on his part, acquires no title thereto.^ It is held that the situs of the corporation will determine the situs of the stock without regard to the location of the certificates for the purpose of giving jurisdiction for the attachment of the stock ;^ and the assignee thereof takes them subject to all equi- ties existing against the assignor.* If the company transfers the shares to the indorsee of the certificate after notice of an adverse claim, it does so at its own peril.' They are said to be of the nature of quasi negotiable instruments, mere evi- dences of ownership.^ Yet while not within the category of negotiable instruments as defined by the law merchant, yet, like warehouse receipts and bills of lading, the}' frequently convey as good a title as though they were actually negotiable.' This title is grounded in estoppel.' tional Bank v. Watsontown, 105 U. S. 17; Pollard v. Vinton, 105 U. S. 5; Weaver v. Barden, 49 N. Y. 286, 288 ; Loeb v. Peters, 63 Ala. 343 ; Tledman v. Knox, 53 Md. 612 ; Sew- all V. Boston &c, Co., 86 Mass. 277; Barstow v. Savage &c. Co., 64 Gal. 391; Weyer v. Second National Bank, 57 Ind. 198, 208; Mandlebaum V. North A.merican &c. Co., 4 Mich. 465, 473, Emery v. Irving National Bank, 25 Ohio St. 860. 1 Shaw V. Spencer, 100 Mass. 382 ; Sherwood v. Meadow Valley &c. Co., 50Oal. 417. 2 East Birmingham Land Co. v. Dennis, (1889) 85 Ala. 565; s. c. 7 -Am. St. Bep. 73. ' Young V. South Tredegar Iron Co., (1887) 85 Tenn. 189; S. C. 4 Am. St. Rep. 753. < Young V. South Tredegar Iron Co., 85 Tenn. 189. ^ sHawesu. Gfas Consumers' Benefit Co.. (1890) 9 N. Y. Supl. 490. 6 Lanier v. Bank, 11 Wall. 369; Johnson v. Lafflin, 108 U. S. 800; Shaw V. Railroad Co., 101 U. S. 504; McAllister v. Kuhn, . 96 U. S. 89 Black V. Zacharie, 8 How. 483; Hub bell V. Drexel, 11 Fed. Rep. 115 StoUenwerck v. Thatcher, 115 Mass, 224 ; Shaw v. Spencer, lOO Mass. 383 Campbell v. Morgan, 4 Bradw. 100 Wood's Appeal, 93 Pa. St. 379 ; Fin- ney's Appeal, 59. Pa. St. 598; Prall V. Tilt, 27 N. J. Eq. 393; Broadway Bank v. McElrath, 13 N. J. Eq. 24; First National Bank v. Northern R. Co., 58 N. H. 203 ; Burton v. Patter- son, 13 Phila. 397 ; Conant v. Seneca County Bank, 1 Ohio St. 298. 7 McNeil V. Tenth National Bank, 46 N. Y. 325; New York &c. R. Co. V. Scjiuyler, 34 N. Y. 30 ; Mechanics' Bank v. New York &c. R. Co., 13 N. Y. 599; Weaver v. Bardin, 49 N. Y. 286; Ross v. South Western R. Co., 53 Ga. 514; First Nat. Bank V. Bryoe, 78 Ky. 42; Strange v, Houston &c. R. Co., 53 Tex. 163; Duke V. Cahawba &c. Co., 10 Ala. 83 ; State v. North Louisiana R. Co., 34 La. Ann. i947 ; Smith v. Crescent City Co., 30 La. Ann. 378. s Vide infra, § 678. 1066^ , HEGOTIATTON OF STOCK AND BONDS. [§ 678. §678. Quasi-negotiaMlity of stock grounded in estop- pel. — Although it is well established that certificates of stock are not megotiable, yet, where they have been assigned in blank with an irrevocable power of attorney, the rules of agency and estoppel are applied so as to give to the trans- action practically the same effect as if it were a transfer of commercial paper, for it is held that where such an assign- ment in blank has been made it amounts to a representa- tion that any iona fide purchaser for value will acquire good title, and that the' person to whom it is delivered is either his assignee or his agent. It offers an inducement to purchasers, and the assignor will be estopped from repudiating the conse- quences of his act.' Under some conditions simple delivery, "without indorsement of any kind, operates an an equitable assignment, and intervening equities will be defeated.^ So when executors put it in the power of one of their number to dis{)ose of stock belonging to their testator's estate, and he pledges it to secure his personal indebtedness, accompanied by an irrevocable power of attorney, it is, if it passes into the hands of a third party, presumptive evidence of owner- ship, and when all the indicia of ownership have thus been conveyed by one executor, they are all estopped from assert- ing title to the stock as against one who has purchased it in good faith and for value. It is upon this principle that the rights of a hona fide holder rest and. not upon the negotia- bility of the certificates.' Under this application of the rule of estoppel the title of an innocent purchaser of the stock for 1 McNeil «. Tenth National Bank, N. Y. 311; Walsh v.. Sexton, 55 46 N. Y. 325; Eumballu Metropoli- Barb. 251; Allerton v. Lang, 10 tan Bank, 2 Q. B. Div. 194; Honold Bosw. 362. Of. Fraser v. Charles- V. koyer, 36 La. Ann. 585; Strange ton, 11 S. C. 486. V. Houston &e. E. Co., 53 Texi 162; 3 Wood v. Smith, 92 Pa. St. 379; Dovey's Appeal, 97 Pa. St. 153. Cf. Moore v. Metropolitan Nat. Bank, State Bank u. Cox, 11 Rich. Eq. 844; 55 N. Y. 41; Matthews v. Massa- Gulick V. Markham, 6 Daly, 129; chusetts National Bank, 1 Holmes, West &c. Co.'s Appeal, 81 Pa. St. 396; Fatman v. Lobaoh, 1 Duer^ 354; ,19; Otis V. Gardner, 105 111. 436; Mount Holly &c. Co. v. Ferrie, 17 Martin v. Sedgwick, 9 Beav. 833. N. J. Eq. 117; Walker v. Detroit Contra: As to the English rule see Transit Ry. Co., 47 Mich. 338, 347 ; Taylor v. Great &c. Ry. Co., 4 De Ex parte Sargent, L. R. 17 Eq. 273; .Gex & J. 559; Donaldson v. Gillot, Rumball v. Metropolitan Bank, 2 L. R. 3 Eq. 274. Q. B. Div. 194. Cf. Briggs v. Mas- 2Burrall v. Bushwiok E. Coi, 75 sey, 42 L. T. 49. § 678.] NEGOTIATION OF STOCK AND BONDS. 1067 value comes, through the acts of the real owner, which make it possible, for any one to purchase the certificates in the be- lief that his vendor is vested with title and authority to make a valid and effective sale, and db not depend upon the rights of the apparent owner in any degree.' This doctrine has been so extended that a honafide purchaser of stock for value is protected by estoppel in almost every case in which he would be as the holder of a negotiable instrument. Thus if certificates of stock are transferred with the assignment in- dorsed in blank, and ,with an irrevocable power of attorney to have the transfer recorded on the books of the company, it invests them with the character of negotiable paper as nearly as can be done,- for any honafide holder for value may then fill in the blanks, over the signature of the assignor, with his own name as assignee and as attorney, or with the name of any one as agent and attorney to have the transfer recorded on the corporate books; ' and the person so authorized hj the indorsement of the certificates may make the demand upon the company for the issue of new certificates to the assignee so denominated.* A certificate indorsed in blank may pass through a series of hands in the course of business with the blanks unfilled, and each lona fide holder into whose posses- sion it comes may fill the blanks in the manner indicated, and in pursuance of the power require the corporation to register the transfer, either himself or through such agent as he may designate.' Such a power of attorney is not revoked by the 1 McNeil V. Tenth Nat. Bank, 46 80 ; Matthews v. Massachusetts Nat. N. Y. 325. Bank, 1 Holmes, 396 ; Bridgeport 2 Duke V. Cahawba &c. Co., 10 Bank i). NeW York &c. R. Co., 30 Ala. 83; s. 0. 44 Am. Dec. 473; Conn. 331 ; Broadway Bank v. McEl- Lanier v. Bank, 11 Wall. 369, 377; rath, l3 N. J. Eq. 34; Walker v. De- McNeil V. Tenth National Bank, 46 troit Transit Ey. Co., 47 Mich. 338 N. Y, 335 ; Leitch v. Wells, 48 N. Y. Ortigosa v. Brown, 47 L. J. Ch. 168 585, 618 ; Tome v, Parkersburgh R. Ex parte Sargent, L. R. 17 Eq. 373 Co., 39 Md. 36; Bridgeport Bank v. In re Barned's Banking Co., L. R. New York &c. R. Co., 30 Conn. 231, 3 Ch. 105. 375; Wood's Appeal, 93 Pa. St. 379; ^ Commercial Bank v, Kortright, Wood's Ry. Law, § 95. 22 Wend. 348 ; Dunn v. Commercial » Cutting V. Damerel, 83 N. Y. 410 ; Bank, 1 1 Barb. 580 ; Bridgeport Bank Holbrook v. New Jersey Zinc Co., u New York &c.R. Co., 80 Conn. 331. 57 N. Y. 616, 633; Kortright v. Buf- s Kortright v. Buffalo &c. Bank, falo &c. Bank, 20 Wend. 91; Penn- 20 Wend. 91 ; affirmed in 33 Wend, sylvania R, Co.'s Appeal, 86 Pa. St. 348 ; Leavitt v. Fisher, 4 Duor, 1. 1068 NEGOTIATIOir OF STOCK AND BONDS. [§§ 679, 680. death of the person who executed it.^ One who sells certifi- cates of corporate stock does not thereby impliedly warrant that the company by which they were issued is a corporation de jure. It is sufficient, so far as any implied warranty is concerned, if they are issued by a corporation de facto? § 679. Transfer Iby power of attorney not indorsed on the certificate.— The lack of the owner's indorsement on the cer- tificate is hot inconsistent with the right of the attorney to cause the stock to be transferred to himself. The neglect of the oflScers to require an indprsement of the certificate is only non-feasance, and is no evidence of conversion. It is not the duty of the ofiicers of a corporation to inquire into %\i6 mo- tives of an attorney in fact, having full power to transfer stock, -for desiring it to be transferred to himself. So if the' attorney in fact of a stockholder presents the certificate of stock, together with a power of attorney from the stockholder giving him full authority to deal with the shares, and the corporate ofiicers are ignorant of any intention on the part of the attorney to misappropriate the stock, the corporation will not be guilty of conversion simply by issuing another certificate in the name of the attorney, who- wrongfully appro- priates the shares. The fact that the attorney was also a di- rector of the corporation does not warrant the presumption that it had notice of his intention to convert the stock to his own use, as he assumed to act not for the corporation, but for his principal.^ The. possession of a certificate of stock, together with a power of attorney to transfer it, even if the latter is not indorsed upon the certificate, is prima facie evi- dence of an equitable assignment at least.* § 680. Of the registered transferee. — Though the failure to have stock certificates surrendered and cancelled upon a iLeavitt «. Fisher, 4'Duer, 1. Co. v. Able, 48 Mo. 136; Bank w. 2 Harter v. Elzroth (1887), HI Ind. McElrath, 13 N. J. Eq. 26; Scripture 159. V. Soapstorie Co., 5 N. H. 571; Bald- STafEtv. Presidio & Ferries R. Co., win v. Canfield, 36 Minn, 48; Bank (1889) 84 Cal. 131 ; s. Q. 7 Ry. & Corp. v. Cox, 11 Rich. Eq. 847 ; Lowell on L. J. 33. Transfer of Stocks, §§ 48, 44. 4 Colt V. IveS, 31 Conn. 25 ; Trust § 680.] NEGOTIATION OF STOCK AND BONDS. 1069 transfer on the corporate books does not necessarily render the title of the transferee incomplete, the transfer upon the books being suflBcient to vest the title in a hona fide transferee,' yet he may insist upon the production and cancellation of the cer- tificates.^ When, therefore, a corporation has finally permit- ted the transfer on its books, it will not thereafter be permitted to set it aside on the ground that the legal title of the trans- feree is not perfect, and he may enforce his right to have his name appear as a stockholder on the official records of the cor- poration.' But where stock is assigned and a certificate is obtained by the transferee from the company, upon whose books the transaction is properly entered, and the same stock is subsequently assigned to a third party, who also obtains a certificate, which, by an oversight on the part of the secretary, is issued, the second transferee acquires neither a legal nor an equitable title to the stock;* although, if he were a hona fide 1 Baker v. Wasson, 53 Tex. 150, 156 ; citing New York &c. R. Co. v. Schuyler, 34 N. Y. 30, 80. 2 Boatmen's Ins. &c. Co. v. Able, 48 Mo. 136. sCady ?;., Potter, 55 Barb. 463; Ward V. South Eastern Ey. Co., 2 El. & E. 813. When a certificate of stock is transferred as collateral vith power of attorney indorsed, the holder of the certificate is the only person entitled to make the transfer on the books, and a sale of the orig- inal owner's interest under an at- tachment in an action against him, after the delivery, passes no title, and the corporation has no power to make a transfer under the sale ; if it does it is liable. Smith v. American Coal Co., (1873) 7 Lans. 317 ; Smith v. i Crescent City &c. Co., 80 La. Ann. 1378. So that a transferee who lias been registered but has been unable to obtain the certificates must, in order to obtain title, either attach the stock or enjoin his vendor from transferring the certificates. Quarl V. Abbett, (1886) 103 Ind. 333. This is the only method in which the rights of such a transferee to the stock can be preserved, for a notice to the cor- poration is of no avail. So, in a case where a guardian is sued by sure- ties to prevent a transfer of stock by him, the filing of a suit is not effective as a notice to the corpora- tion to refuse to permit a transfer by the defendant. Bank of Virginia v. Craig, 6 Leigh, 399. Cf. Dovey's Appeal, 97 Pa. St. 153. Likewise one to whom stock is transferred by the defendant in an action in which the title to stock is involved can not be made chargeable with notice of the action. Holbrook v. New Jersey Zinc Co., 57 N. Y. 616; Leitch v. Wells, 48 N. Y. 586. But a transfer by a defendant after judgment is obtained, will ^be ineffectual to pass the title of the stock and the rights of the plaintiif and the corporation will be unimpaired. Sprague v. Co- checo Manuf. Co., (1872) 10 Blatch. 173. 4 Houston & Texas Central Ry. Co. V. Van Alstyne, 56 Tex. 439; Smith V. North American «&c. Co., 1 Nev. 433. 1070 NEGOTIATION OF STOCK AND BONDS. [§ 681., purchaser, and the sale to him had been made upon false rep- resentations of the company or its officers, he might have a remedy.^ When a transferee has had the transaction properly recorded by the company, and is without notice of the previ- ous sale of the certificates, he is not liable.- And a iona fide purchaser for value of stock standing in the name of his vendor on the books of the company does not hold it subject to equi- ties of third persons of which he had no notice.' , § 681. The same subject continued. — "When a transfer is made for the purpose of collateral security without surrender o'f the certificate and transfer on the books aS required by a statute, the corporation caji not, on the ground that it has a lien on the stock, which is prohibited by the statute, refuse to make the proper transfer of the stock without making itself liable to the assignee in damages for the conversion of the stock.* In Colorado it has been held that the title to. stock can pass, under the laws of that State, as against creditors of the stockholders, only by transfer upon the books of the com- pany. So where stock, which is purchased but not so trans- ferred by the purchaser, is subsequently sold in attachment proceedings by a creditor of the vendor, the title to the stock passes to the purchaser in the attachment proceedings.* An unrecorded transfer of corporate stock prevails, in Massachu- setts, as against the attachment of one having knowledge or notice of the transfer." The surrender of the old shares should be demanded even when the transferee is the purchaser of the stock at an execution sale.' And when an assignee takes cer- 1 Houston &c. Ey. Co. «. Van Al- 90. Cf. Van Cise v. Merchants' Nat. styne, 56 Tex. 439. ' Bank, (Dak. 1887) 33 N. W. Rep. 897 ; 2 Baker v. Wasson, 53 Tex. 150. Thurber v. Crump, (1888) 86 Ky. 408 ; 3 Caulklns u. Gas L. Co., 85 Tenn. Bates v. New York Jus. Co., 3 Johns. 683; S. 0. 4 Am. St. Rep. 786. Cf. Cas. 238. Supply Ditch Co. v. Elliot, 10 Colo. ' Hazard v. National Exchange 327; S. o. 3 Am. St. Rep, 586. BaBfe, 26 Fed. Rep. 94; Smith v. * Nicollet National Bank.v, City American Coal Co., 7 Lans. 317. Bank, (1887) 38 Minn. 85, Cf. St. Louis &c. R. Co. v. Wilson, 6 Conway j;. John, (Colo. 1890) 7 114 U. S. 60; Rogers v. Stevens, 8 Ry. & Corp, L. J. 437. N. J. Eq. 167. And when, stock was 6 Bridgewater Iron Co. v, Lissber- purchased subsequent to an attach- ger, 116 U. S. 8; Telford & F. Co. ment levy, the title did not pass su- V, Gerhab, (Mass. 1888) 13 Atlan. Eep. perior to that acquired by the pur- § 681.J !negotiation of stock and bonds. lOTl tificates of stock upon which conditions affecting the title thereof are printed, he takes it under a title subordinate to that of the corporation under those conditions when he allows the corporation to perform certain acts in pursuance of the conditions and in ignorance of the transfer.^ Where' the legal title to shares of stock is only assignable on the books of the corporation, an assignment not made or recorded on the books is not valid.^ No record on the books of the company- chaser at the attachihent sale, even when negotiations for the purchase were had before the writ was issued, and at the time of the assignment of the stock neither the vendor nor vendee had any actual notice of the levy. Young v. South Tredegar Iron Co., 87 Tenn. 189; s. o. 4 Am. St. Eep. 752. If the attachment is made and the stock levied on before a transfer of the stock, the corporation can not refuse to make a transfer on its books and issue a certificate to the purchaser at a sale in execution of the judgment on the ground that the stock had been assigned to a third party before judgment. Morehead V. Western &c. E. Co., 96 N. C. 362. In an action by the purchaser, under attachment and execution, of shares of a railroad company, to compel the corporation to transfer to him, upon the stock-books of the company, the shares so purchased, and to execute the proper certificate, it is no defense on the part of the companyjthat, prior to the judgment under- which the stock was sold, the stock had been duly assigned to a third party, there being no allega- tion or evidence that the assign- ment was made prior to the attach- ment levy. Morehead v. Western N. C. E. Co., (1887) 96 N. C. 363. Yet, when the stock purchased at an execution sale was transferred by the direction of the court after a trial and the decision of the court of last resort without the cancellation of the certificate, the corporation is not liable to the holder of the outstand- ing certificate who took no pains to protect himself. Friedlander v. Slaughter-House Co. , 31 La. Ann. 523 ; National Bank v. Lake Shore &c. E. Co., 31 Ohio St. 331. Cf. State V. Warren &c. Co., 33 N. J. 439; Chapman v. New Orleans &c. Co., 4 La. Ann. 153. When, however, the court commaiTded the defendant cor- poration to cancel, to a certain ex- tent and amount, a stock certificate which it had previously issued to one H., in which was a statement as to ownership and transfer, and in lieu thereof to issue another cer- tificate to the plaintiff, the court having jurisdiction of the defend- ant corporation and the defendant H., but not having possession of the certificate which it attempted to cancel, it was held that the decree was erroneous. Joslyn v. St. Paul Distilling Co., (Minn. 1890) 8 Ey. & Corp. L. J. 383. ■ 1 Jennings v. Bank of California, (1889) 79 Cal. 323; s. 0. 13 Am. St. Eep. 145. 2 Lippitt V. American Wood Paper Co., (1885) 15 E. L 141; S. C. 3 Am. St. Eep. 886. By the terms of a stock certificate, it was transferable upon the books of the corporation only upon its production. B., the owner of the certificate, transferred it to A. No transfer was made on the books. After B.'s death his ad- ministrator represented that the cer- 1072 NEGOTIATION OF STOCK AND BONUS. [§ 682. is required, however, to perfect the transfer of stock unless so provided by the charter and by-laws of the corporation.^ § 682. Of the unregistered transferee of the certificate. A corporation is ordinarily justified in treating the assignee or holder of stock certificates as the legal or equitable owner thereof.^ The company is trustee for the stockholders and is boand to protect the^r interest,' and having the power, upon the demand of an alleged assignee of its stock to have a trans- fer on the books made, to ascertain who this, owner is- by re- quiring the production of the certificate, it is liable to the real holder of the certificate; and the title of the transferee upon the books is not affected by the non-cancellation of the old certificate.^ And therefore the transfer of stock on the books without the presence of the original certificate, is made at the peril of the corporation.' So that, upon stock so issued tificate was lost, and the. corpora- tion thereupon issued a new one to him, made a transfer on its books 'and paid to him dividends, and it was held that, notwithstanding, A. could compel the issue of a certifi- cate to himself, but that the divi- dends were properly paid to B.'s ad- ministrator, as no rule required the production of a certificate upon making- a demand for dividends. Brisbane v. Delaware, L. & W, E. Co., 94 N. y. 204. 1 Sayles v. Bates, 15 R. I. 342. 2 Supply Ditch Co. v. Elliott, (1887) 10 Colo. 327 ; s. C. 3 Am. St. Rep. 586. . ^ 3 Supply Ditch Co. li. Elliott, (1887) 10 Colo. 327 ; s. C. 3 Am. St. Rep. 586 ; New York &o. E. Co. v. Schuy- ler, 34 N. T. 30, 81 ; Moores v. Citi- zens' National Bank, 111 U. S. 156; Bank v. Lanier, 11 Wall. 369; Bris- bane V. Delaware, L, & W. E. Co., 94 N. Y. 204; Cushman v. Thayer Manuf. Co., 76 N. Y. 365; s. C. 33 Am. Rep. 315. < New York &c. E. Co. v. Schuyler, 84;N. Y. 30, 81 ; Pollock v. National Bank, 7 N. Y. 374; s. C. 57 Am. Dec. 530; Davis v. Bank of England, 2 Bing. 397; Ashby v. Blaokwell, 2 Eden, Ch. 299. A by-law providing, that stock can only be transferred on surrender of the certificate to the president or secretary, who shall write "cancelled" thereon before issuing ii new certificate, was held merely intended to protect the in- terests of the corporation. A delivery of a certificate by A. to B., with- out transfer on the books, as collat- eral security, with A.'s name signed thereon to a blank transfer, is valid as against C. , an attaching creditor of A., and, on garnishment thereof, the. court may order the shares to be sold, and the, proceeds paid first to B., to the extent of his debt,. and the surplus, if any, to be applied to C.'s judgment. Seeligson v. Brown, 61 Tex. 114. s Supply Ditch Co. v. Elliott, (1887) 10 Colo. 327; s. c. 3 Am. St. Rep. 586; State v. New Orleans &c. R. Co., 30 La. Ann. 308 ; Smith v. Crescent City &c. Co., 30 La. Ann. 378; Strange v. Houston &c. R. Co. 53 § 683.] NEGOTIATION OF STOCK AND BONDS. 1073 by wrong or mistake, the corporation is liable to a bona fide holder of the certificate.^ The stock thus receives a character of negotiabilit3\^ § 683. The same subject continued. — " When 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 certificate has been issued. The by-laws and the certificate are notice that it must be surrendered befere the stock can be transferred, and its non-production is notice that it is not in possession of the party claiming the transfer. These facts operate as, notice that some other part}' is its owner, and they put the corporation upon inquiry that would lead ordinary sagacity to the truth; and this is equivalent in equity to actual notice t)f all the rights that inquiry might develop." ' Tex. 163; Bridgeport Bank v. New poration, where certificates have York &c. R. Co., 30 Conn. 231 ; Cleve- been is^sued therefor, taay compel land &o. R. Co. v. Robbins, 35 Ohio the corporation to replace the stock St. 483. Of. Hart v. Frontiho &c. or pay the value of it. He is not Co., L. R. 5 Ex. 111. Contra, Shrop- confined to a remedy against the ebire &c. Ry. & Canal Co. v. Queen, transferee. St. Romes v. Cottpn L. R. 7 H. L. 496, 509; Houston &c. Press Co., 127 U. S. 614; Loring v. Ey. Co. V. Van Alstyne, 56 Tex. 489; Frue, 104 U. S. 233; Telegraph Co. Hallu Rose Hill &o. Road Co., 70 v. Davenport, 97 U. S. 369; Loring 111. 673. Especially where the cer- v. Salisbury Mills, 125 Mass. 138; tificate contains the statement that Pratt v. Taunton Copper Co., 123 transfers will be made upon the Mass. 110; Pratt f. Boston &c. R. Co., books of the company upon the sur- 126 Mass. 443; Salisbury Mills v. render and cancellation of the cer- Townsend, 109 Ivlass. 115; Pennsyl- tiflcate, it is an assurance on the vania R. Co.'s Appeal, 86 Pa. St. 80; part of the company that stock will American Telegraph &c. Co. v. Day, be transferred only to those in pos- 53 N. Y. Super. Ct. Rep. 138 ; Mayor session of the certificate. Lanier v. &c. of Baltimore v. Ketohum, 57 First National Bank, 11 Wall. 377; Md. 23. Brisbane v. Delaware, L. & W. R. 2 Factors' &c. Ins. Co. v. Marine Co., 94 N. Y. 204; S. 0. 25 Hun, 438. &c. Co., 31 La. Ann. 149. I Supply Ditch Co. v. Elliott, (1887) ^ New York &c. R. Co. v. Schuy- 10 Colo. 337; S. c. 8 Am. St. Rep. ler, 34 N. Y. 30, 83; Kortright v. 586, holding that a bona fide pur- Buffalo Commercial Bank, 20 Wend, chaser of certificates of stock will 91 ; Bridgeport Bank v. New York hold them against the true owner, &c. R. Co., 30 Conn. 370; King v. where the latter placed it in the Bank of England, Dougl. 533. So if power of the assignor to perpetrate the owner of certificates of stock a fraud on an innocent purchaser, sells part of his holding and exe- The real owner of stock trans- cutes an assignment by filling up f erred by the carelessness of the cor- part of thq Jslank form on the back 68 107i JSTEGOTIATION OF STOCK AND BONDS. '[§ 683. A purchaser, in good faith, of certificates of stock which a corporatioa has transferred on its books without the surrender and canceilation thereof, when the certificate and by-laws state that transfers will be made only upon such surrender, has his remedy against the corporation or the officer responsi- ble for the improper transfer;' though if such a transfer is directed by a court of competent jurisdiction there will be no such liability.^ As between the parties, by an assignment of the stock certificates, even though the transfer be not consum- mated upon the books of the company, the transferrer's title is cut off and he is estopped from claiming any title as against anybody.' Thus a transfer of stock unrecorded on the books of the cbmpanj'^, made with blank assignment and power of at- torney to transfer on the books, gives a pledgee of the trans- feree, without knowledge of the rights of the original holder," of the certificate, the fact that the assignment is so altered afterward as to make it appear that he assigns all his stock, will not relieve the oor^ poration from liability for careless- ness in permitting the transfer to be made. Sewall v. Boston &c. Co., (1863) 86 Mass. 277 ; Coles v. Bank of England, 10 Ad. & E. 437. Thus, where a forged transfer has been made by a member of a firm, as one of the firm's transactions, the firm becomes liable for the value of the stock and dividends which may be, recovered in an action for money had and received. Marsh v. Keat- ing, 1 Bing. New Cases, 198; Marsh V. Stone, ,6 B. & C. 551. Likewise when a person owning shares in tv^^o companies gives one address to one and another to the other and depos- its the certificates with a person at one of the addresses, and the latter forges a transfer of the shares, and the companies make the transfer after communicating with him and receiving an answer from the forger, ' the companies must replace the stock ; although in an action to enforce the right the plaintifi is not entitled to costs. Johnston v. Eenton, (1870) L. R, 9 Eq. Gas. 181 ; Taylor u. Great Indian &q. Ry. Co., (1859) 4 De G. & J. 559 ; Coles v. Bank of England, 10 Ad. & E. 437 ; Donaldson v. Gillot, 3 Eq; 274 ; McKenzie-y. British Linen Co., 6 App. Cas. 82; Swan v. North British &c. Co., 2 H. & C. 175 ; Davis V. Bank of England, 3 Bing. 393; Bank of Ireland v. Evans' Charities, 5 H. L. 389. And a ward is pro- tected from the negligence of his guardian in allowing the registration of a forged transfer. Telegraph Co. V. Davenport, 97 U. S. 369. I Baker «; Wasson, 59 Tex. 140. 2Friedlander v. Slaughter-House Co., 31 La. Ann. 523. 3 Duke V. Cahawba Navigation Co., 10 Ala. 82; S. 0. 44 Am. Dec. 472; Cushman v. Thayer, 76 N. Y. 365; S. o. 32 Am. Rep. 315 ; Baltimore &c. Ry. Co. V. Sewall, 35 Md. 238; Hall V. United States Ins. Co., 5 Gill, 484; Gilbert v. Manchester &c. Co., 11 Wend. 637; Brown v. Smith, 122 Mass. 589; Beckwith v. Burroughs, 13 R. I. 294; Bank of America v. McNeil, 10 Bush, 54; People's Bank V. Gridley, 91 111, 457. § 683.] NEGOTIATION OP STOCK AND BONDS. 1075 an equitable title.^ If the corporation refuses to make the transfer on the books, the vendor is liable on the implied guaranty in his contract that the corporation will permit the transfer; 2 and the vendee's title to the stock and the dividends thereon will not be affected as between him and the vendor by the corporation's refusal;' although if the vendor dies and his administrator receives dividends on the stock before the transfer is made on the corporate books, the corporation is not liable to the vendee, no presentation of a certificate being necessary upon a demand for dividends by the owner of rec ord of the stock or his personal representative.* If scrip rep- resenting stock be stolen by means of the forgery of the true owner's name, and the stock transferred on the company's books, a bill will lie to compel the issue of new stock to the true owner and the accounting for dividends by the company, or in default thereof to compel the purchasers of the forged certificates to replace the stock.* The person whose rights have been jeopardized by a forged transfer may lose his rights by his own negligence; the omission on his part must be ma- terial, however, and must be the failure to perform some 1 Otis V. Gardner, 105 111. 436 ; Hoi- 2 Wilkinson v, Lloyd, 7 Q. B. 27. yoke Bank v. Goodman &c. Co., 9 sPooleu Middleton, 39 Beav. 646; Cush. 576: Chew v. Bank of Balti- Crawford v. Provident Ins. Co., 8 more, 14 Md. 299 ; Home Stock Ins. U. C. C. P. 263. In a New York- Co. V. Sherwood, 72 Mo. 461 ; Chel- case stock was transferred to A. on tenham &c. Ry. Co. v. Daniel, 2 Q. the day of the commencement of B. 281 ; Sheffield &c. Ky. Co. v. an action to set aside sales made by Woodcock, 7 Mees. & W. 574. In the corporation, in order that A. Cherry v. Frost, 7 Lea, 1, A. as- might join in the action. The signed to B., as collateral security money with which the purchase was for a loan, a stock certificate accom- made was placed to A.'s credit by panied by a blank power of attorney the person who wanted him to join, to transfer the stock on the books of and the shares were not transferred the corporation. B. sub-pledged the on the books of the corporation, and certificate to secure a loan from C, it was held that the transfer carried who had no knowledge of A.'s inter- title to A., and that he was properly est, but supposed the stock to be a party to the action. Ervin v. Or- B.'s property. At the time of the egon Ry. & Nav. Co., 85 Hun, 544, loan from C. to B. no transfer had Davis, P. J., dissenting, been made on the books of the cor- * Brisbane v. Delaware, L. & W. poration, and it was held that, as R. Co., 25 Hun, 438; S. c, 94 N, Y. between A. and C, C. had the bet- 203. ter equity and could hold the stock SBlaisdell v. Bohr, (1881) 68 Ga. for the amount of his advances to B. 56. 1076 NEGOTIATION OF STOCK AND BONDS. [§.684. duty.^ Failure of consideration or informality in the transfer can not be made a ground for setting it aside before registra- tion.^ § 684. Negotiability of bonds and coupons. — Bonds and coupons negotiable in form are negotiable instruments hav- ing all thequalities and incidents of commercial paper.' This 1 Arnold V. Cheque Bank, 1 C. P. Biv. 578; Baxendale v, Bennett, 3 Q. B. Div. 525 ; Coventry v. Great Eastern Ey. Co., 11 Q. B. Div. 776; Swan V. North British &o. Co., 3 H. &C. 181. "Cushman v. Thayer Manuf. Co., 76 N. Y. 365; s. C. 33 Am. Eep. 815; Hall V. United States Insi Co., 5 Gill, 484. 'Zabriskie «. Cleveland &-o. E. Co., (1859) 23 How. 381; White v. Vermont &c, E. Co., 31 How. 576, where the authorities are extensively reviewed; Kenosha v. Lamson, 9 Wall. 477 ; Chicago &c. E. Co. v. Howard, 7 Wall. 393; Eogers v. Bur- lington, 3 Wall. 664; Murray v. Lardner, 3 Wall. 110; Myer v, Mus- catine, 1 Wall. 383 ; Van HoStrup v. Madison City, 1 Wall. 291 ;' Moran v. Miami County, 3 Black, 733 ; Woods V. Lawrence County, 1 Black, 386; Ot- tawa V, Portsmouth National Bank, (1881) 105 U. S. 343; Eoberts v. Bolles, 101 U. S. 119; Humboldt v. Long, 92, U. S. 643; Lexington v. Butler, 14 Wall. 383 ; Mercer County V. Hacket, 1 Wall. 83 ; Gelpcke v. Dubuque, 1 Wall. 175; McClelland V. Norfolk Southern E. Co., (1888) 110 N. Y. 469, 475; S. 0. 4 Ey. & Corp. L. J. 545 ; Everston v. National Bank, 66 N. Y. 14; S. c. 33 Am. Eep. 9, annotated ; Brookman v. Metcalf , 32 N. Y. 591 ; Mechanics' Bank v. New York &e, Ey. Co., 13 N. Y. 699; 9onnecticut &o. Co. v. Cleve- Jand &o. E. Co., 41 Barb. 9; Brain- ard V. New York &c. E. Co., 35 N. Y. 496; Blake v. Livingston County, 61 Barb, 149; De Voss v. Eichmond, 18 Gratt. 338; Arents Vi Common- wealth, 18 Gratt; 750: Langston v. South Carolina E. Co., 3 S. C. N. S. 348; Ci-^ig v. Vicksburg, 31 Miss. 316; Maddox «. Graham, 2 "Met. (Ky.) 56; Shoonor v. Holmes, (1869) 103 Mass. 503; S. C. 8 Am. Eep. 491 ; Chapin v. Vermont &c. E. Co., 8 Gray, 575; Myers n, York &c. E. Co., 48 Me. 339; Diamond v. Law- rence Co"., 37 Pa. St. 353; s. 0. 78 Am. Dea 439 ; Junction E. Co. v. Cleneay, 13 Ind. 161 ; Johnson v. Stark County, 24 111. 93; Clark v. Janesville, 10 Wis. 140; National Exchange Bank V. Hartford &c. E. Co., 8 E. I. 875; S. c. 5 Am. Eep. 583; Bridgepoirt v. Housatonic E. Co., 15 Conn. 503; Briokley v. Welch, 31 Conn. 343; Morris Canal &c. Co. v. Fisher, (18p3) 9 N. J. Eq,,667; S. 0. 64 Am. Dec. 438, annotated ; Beaver Co. v. Arm- strong, (1868) 44 Pa. St. 63; Com- monwealth V. Perkins, 43 Pa. St. 400; Carr v. Le Fevre, 37 Pa. St. 413; Bank v. Jones, 16 Ohio St. 145; Eaton &c. E. Co. v. Hunt, 30 Ind. 457 ; Eagle v. Kohn, 84 111. 293 ; Clerk V. pes Moines, 19 Iowa, 313; Grif- fith V. Burden, 35 Iowa, 188; "Un- registered Securities & Limited Companies," 67 L. T. 260; 3 Schbuler on Personal Property, (3nd ed.) 569 ; Parsons on Contracts, 340 ; Eorer on Eailroads, ^350; Article on Cou- pons by C> W. Hassler, 4 Cent. L. J. 815. § 684.J NEGOTIATION OF STOCK AND BONDS. 1077 negotiable quality is not derived from the law merchant, but from the fact that these instruments bjive been invented for the purpose and are actually treated as negotiable.^ And it is immaterial that the bond^ may be under seal, for that is a mere incident of their issue by corporations instead of by natural persons.^ Accordingly they pass by delivery under assignment in blank and are not subject as specialties to any equities between the prior holders, nor between them and the obligor corporation.* And the lona fide holder of bonds has ft right to presume that they are properly issued, vrhere the corporation has the power under any circumstances to issue negotiable securities. They are no more liable to be im- peached in his hands than any other commercial paper.* So also, he may enforce the bond by suit in his own name, as commercial paper rather than a ehose in action.^ But, as in the case of negotiable paper generally, the transferrer only warrants the genuineness of the instrument" and his own title thereto, but not the solvency of the debtor nor the col- lectibility of the bond.' If, however, the assignee of a bond can not recover it from the obligor by reason of the consid- eration of it having failed before the assignment was made, 1 Mercer Co. v. Hacket, (1863) 1 N. Y. 14; s. 'C. 23 Ani. Rep. 9, and Wall. 95. Cf. McCoy v. Washing- note ; McClelland v. Norfolk South- ton County, 3 Wall. Jr. 381 ; Clarke ern E. Co., (1888) 110 N. Y. 469, 475; V. Janesville, 1 Biss. 98 ; Morris Canal Morris Canal &c. Co. v. Fisher, (1858) &c. Co. V. Fisher, (1853) 9 N. J. Eq. 9 N. J. Eq. 667; s. c. 64 Am. Dec. 667; s. C. 64 Am. Dec. 433 and note 433, and note; Brainerd v. New York p. 430. &o. R. Co., 25 N. Y. 496; Commis- 2 Mercer Co. v. Hacket, (1863) 1 sioners v. Aspinwall, 21 How. 539; Wall. 95; Dinsmore v. Duncan, 57 Thompson v. Lee County, 3 Wall. N. Y. 573; s. C. 15 Ara. Rep. 534; 337. Clark V. Iowa City, 30 Wall. 583; * City of Lexington u Butler, (1871) Gelpcke v. Dubuque, 1 Wall. 175; 14 Wall. 283; Cooper v. Town of Morris Canal &c. Co. v. Fisher, (1853) Thompson, 13 Blatch. 434, 487. 9N. J. Eq. 667; s. C. 64 Am. Dec. 5 Ottawa v. Portsmouth National 423, annotated; Langston v. South Bank, (1880) 108 U. S. 343. Cf. Dean Carolina R. Co., SS.C. 248; Craig 1). v. Hall, 17 Wend. 214; Brush v. Vicksburgh, 31 Miss. 216; "Virginia Reeves, 8 Johns. 439 ; 3 Kent's Com- V. Chesapeake &c. Canal Co., 33 Md. mtntaries, 78. 501 ; Cliapin v. Vermont &c. R. Co., « Utley v. Donaldson, (1876) 94 U. S. 8 Gray, 575; Jackson v. York &c. R. 39, 45; Flynn v. Allen, 57 Fa." St. Co., 48 Me. 147 ; Carr v. La Fevre, 37 482 ; Strob v. Hess, 1 Watts & S. 153. Pa. St. 413. ' Ketchura v. Duncan, (1878) 96 8 Everston v. National Bank, 66 U. S. 659, 677. 1078 NEGOTIATION OF STOCK AND BONDS. [§685. he may recover back from the assignor the money he paid for the assignment, whether he hold his guaranty or not.' § 685. Essentials of negotiability.— By the rules govern- ing commercial paper it is essential to the negotiability of bonds and coupons that they should provide for the uncondi- tional payment to a person, or order or bearer, of a certain sum at a time capable of exact ascertainment.^ But the ne- gotiability of this kind of paper is not destroyed by merely leaving the name of the payee blank,' for the holder may fill up the blank with his own name.^ And where the bond itself fulfills all the requirements of negotiability, its character is not affected by the fact that the statute under which it is issued provides that the obligdr may-pay it at pleasure before due.' But if a bond, payable at a certain time, itself contains ■a condition by, which the makers reserve the right "to pay the same at any time to be naimed by them," it is not nego- tiable.^ And again if the place of payment be left blank, the bonds are non-negotiable.' The general rule, therefore, is that uncertainty in an^' one of the essential particulars of negotia- bility reduces the instrument to a mere chose in action} iFlynn v. Allen, 57 Pa. St. 482, 6 Way v. Smith, 111, Mass. 523; 485 ; Kauffelt i;. Leber, 9 Watts & S. Hubbard v. Mosely, 11 Gray, 170; 93. Chouteau v. Allen, (1879) 70 Mo. 290. 2Evertson v. National Bank, 66 So also if coupons be subject to the N. Y. 14; s. 0. 23 Am. Rep. 9; Frank condition that the time of their pay- V. Wessels, 64 N. Y. 155 ; Dinsmore ment should be changed, altered and V. Duncan, 57 N. Y. 573, 580; s. o. postponed from time to time at the 15 Am. Eep. 534. option of a majority of the holders of a 3 Gelpcke v. Dubuque, 1 Wall. 176; series of bonds simultaneously issued Mercer County v. Hackett, 1 Wall, therewith, it would deprive them yf 83; Bronson p. La Crosse &c. E. Co., one of the essential characteristics 3 Wall. 283 ; White «. Vermont &c. of negotiable paper. Ruger, C. J., E. Co., ^1888)21 How. Tr. 575; Fin- in McClelland ■". Norfolk Southern negan v. Lee, 18 How. Pr. 186., E. Co., (1888) 110 N. Y. 469, 476 ; s. C. , ^Chapin v. Vermont &c. R. Co., 8 4 Ey. & Corp. L. J. 545. Gray, 576;' White f. Vermont &c. f Parsons «. Jackson, (1878) 99 U. S. , E. Co., (1888) 21 How;. 575; Hubbard 434; Jackson v. Vicksburg R Co., 2 ■ V. New York &c. R. Co., 14 Abb. Pr. Woods, 141. Cf. Indiana &c. R. Co. 275. V. Sprague, 103 U. S. 762; Jackson 6 Ackley School Dist. v. Hall, (1884) v. Ludeling, 99 U. S. 513 ; Eouede v. 113 U. S. 135; Indiana School Dist. Jersey City, 18 Fed. Eep. 723. V. Stone, 106 U. S. 183; Marine &c. 8 Jackson v. Vicksburg &c. E. Co., Manuf. Co. v. Bradley, 105 U. S. 280. 3 Woods, 141 ; Sedgwick v. McKim, .] NEGOTIATION OF STOCK AND BONDS. 1079 § 686. Limitations on negotiability. — There has been, es- pecially in England, considerable hesitation in fully accepting the doctrine of the negotiability of bonds and coupons. The statute in that country recognizes no method of transfer ex- cept by deed wherein the consideration is truly stated.^ Ac- cordingly it has been there held that the mere fact that a security is payable to a designated person, "his executors, ad- ministrators or transferees, or to the holder for the time being," does not make it assignable free from equities between the original parties.^ And the courts have seemed very re- luctant to hold that even a bond pa3'able to bearer and with- out more^ is commercial paper so as to cut off equities.' So also in Illinois where the hona fide assignee of commercial paper secured by mortgage seeks relief in equit\f by the fore- closure of the mortgage, the mortgagor may successfully in- terpose any defense which would have been available against the original pa3'ee or holder of the paper.* But there has been little difficulty in inducing the courts to accord practical ne- gotiability. Thus, where debentures under the seal of a joint- stock company are deemed to be negotiable, they are held to possess the most important characteristic thereof, that of being in the hands of a hona fide holder, free from equities between 53 N. Y. 307 ; Athenaeum &c. Assur- Ch. 154 ; Goodwin v. Eobarts, 1 App. ance Soc. ■;;. Pooley, 3 De Gex & J. Gas. 476. So also to exclude equities 294; Watson v. Mid- Wales Ry. Co., it has been said that it must be L. E. 3 C. P. 593. For when bonds made to appear very clearly that or coupons " contain especial stipu- the pal-ties so intended. In re lationa and their payment is subject Natal Investment Co., L. R. 3 Ch. to contingencies not within the con- App. 355. Cf. Aberman Iron Works trol of their holders, they are, by v. Mekens, L. R. 5 Eq. Cas. 485, 517. established rules, deprived of the And again, the equitable transferee's character of negotiable instruments, rights are limited to sums actually and become exposed to any defense advanced or paid. In re Romford existing thereto, as between the orig- Canal Co., (1883) 24 Ch. Div. 85. inal parties to tlie instrument. Ru- And if the instrument is not nego- ger, C. J., in McClelland v. Norfolk tiable at law, an assignee for value Southern R. Co., (1888) 110 N. Y. 469, without notice derives no higher 475 ; S. C. 4 Ry. & Corp^ L. J. 545. title than his assignor, whether the 1 8 Vic. ch. 16, gg 46, 49. . instrument is expressed to be pay- 2 Jn re Natal &c. Co., 3 Ch. App. 355. able to bearer or not. Crouch v. 3 In re General Estates Co., 3 Ch. Credit Foncier, L. R. 8 Q. B. 374. 758- In re Imperial Land Co., 11 < Chicago &c. R. Co. v. Loewen- Eq.' 478; In re Blakely &c. Co., 3 thai, (1879) 9i 111, 433, 450. 1080 ' NEGOTIATION OF STOCK AND BONDS. . [§ 687. the companj' and the primary holder:* And it has been re- peatedly held that the company may lose its right to set up equities against aholder of its bonds by a separate contract and by its conduct, and that it may even be estppped by the representation\ in the instrument itself that it is payable to bearer.'^ So also in a inodern case the facts that the instru- ments were negotiable in form, that they were so customarily r,egarded, and especially that in the particular case the}'' had been so treated, were each regarded as conclusive.' Probably there has never been any doubt that where bonds assignable at law are transferred in-accordance with the statutory pro- vision, the transferee is the proper, person to sue thereon.* .§ 687. References between bonds, coupons and mort-, gages. — ^ The reference, in coupons to the bonds and mort- gage and in bonds ip the terms and conditions of the mort- gage clearly charge the holders of both coupons and bonds with notice of the provisions contained in each of those instruments.* And again where a bond merely refers to the mortgage by which it is secured, the recitals in the mort- gage will control with respect to the bond.* But where the bond itself sets forth the terms of the contract and there is a variance between it and the mortgage deed, the bond will control.' iJnreBlakely Ordnance Co;, (1867) not myself so much afraid, so jeal- L. B. 3 Ch. App. 154, citing In re ous, as the law was in past times of Agra &o. Bank, L. E. 3 Ch. App. recognizing these instruments as ne- 391. gotiable, simply because they are not '^In re Blakely &c. Co., 3Ch. 154; in the classified category of negoti- Deckson v. Swansea yale By. Co., able instruments." L. E. 4 Q. B. 44; Graham v. John- * Vertue v. East Anglian Ey. Co., son, 8 Eq. 87; In re South Essex (1850) 5 Ex. 280. Co., 11 Eq. 157 ; Higgs v. Assam &c. 5 McClelland v. Norfolk &c. E. Co., Co., L. E. 4 Ex. 387; In re North- (1888) 110 N. Y. 469; s. o, 6 Am. St. ern Assam '&c. Co., 10 Eq. 459; In Eep. 397; McClure v. Township of j-e Hercules Ins. Co., 19 Eq. 303; Oxford, (1876) 94 U. S. 429. Eastoto V. London &c. Bank, (1886) ^Caylus v. New York &c. E. Co., 34 Oh. Div. 95; Goodwin v. Eobarts, 10 Hun,.S95. 1 App. Gas. 476. 'Indiana &o. E. Co. v. Sprague, 3 Easton v. London Joint-Stock 103 U. 8. 756. Cf. Morgan v. United Bank, (1886) 34 Ch. Div. 95. In this States, 113 U. S. 503; Rouede v. Jer- oase Brownfield, L. J., said: " I am sey City, 18 Fed. Eep. 739, § 688.] NEGOTIATION OT STOCK AND BONDS. 1081 § 688. Alteration of the numbers of bonds. — An altera- tion of the serial numbers of a corporate bond, although done by a thief and for a felonious purpose, is not such a material alteration of the bond as to invalidate it in the hands of an innocent purcliaser.' Especially is this the case where, as is usual, there is nothing in the appearance of tlie altered bonds, or the numbers, when purchased, which would excite the suspicion of a prudent and careful man, the alterations having been so skilfully effected as that they can only be dis- covered by the aid of a magnifying glass.^ For the number of a bond is put upon it for the convenience of tlie maker in identifying it, and in no wise affects the substance of the paper, and may be disregarded by the purchaser as imma- terial.' Accordingly, the original owner of a stolen bond can not recover the money due on it where the obligor had paid it, although its altered number was the same as that of a bond previously paid.* And it makes no difference that the bonds were, by statute, redeemable at the pleasure of the issuer, upon call, after a certain date, and had been duly called when bought by the purchasers.^ But it has been said obiter that the alteration of the numbers in negotiable bonds was an alteration in material particulars. The question, how- ever, in the case was whether the purchaser received the bohds under such suspicious circumstances as to deprive him of the protection of a hona fide purchaser, and the decision turned upon ia question of fact.^ 1 Wylie V. Missouri' Pacific R. Co., of a Bank of England note by eras- (1890J 41 Fed. Rep. 633; s. c. 7 Ry. & ing the number and substituting an- Corp. L. J. 250 ; Morgan v. United other was a material alteration, and States, (1884)113X7. S. 476. that a 6ona jiAe holder for value 2 Morgan v. United States, (1884) could not recover against the bank 113 U. S. 476. upon the altered note. The decis- 3 Commonwealth v. Emigrant &c. ion proceeded mainly, however. Bank, 98 Mass. 13 ; City of Elizabeth upon the consideration that the V. Force, 39 N. J. Bq. 587. number upon such a note is an es- 4 City of Elizabeth v. Force, 39 sential part of the note, because it N. J. Eq. 587. ' has always been recognized to be so 3 Morgan v. United States, (1884) by the public, so that no one would 113 U. S. 476. take it if the number were not upon SBirdsall V. Russel, 39 N. Y. 320. it. SuflEell v. Bank of England, In England, it was held, by the (1883) 9 Q. B. Div. 555. The Obser- Court of Appeals, that the alteration vations of the Master of the Rolls 1082 NEGOTIATION OB' STOCK AND BONDS. [§ 689. § 689. Maturity of bonds. — Bonds, like other commercial paper, cease to be negotiable after maturity, and the purchaser is put upon , inquiry concerning the equities of antecedent holders.' For after maturity a purchaser for value is not a l)ona fide purchaser to the extent of his being protected in his purchase except so far a^ he succeeds to the rights of one who purcliased in good faith before maturity.^ For the fact of non- payment discredits the instrument and deprives it of any im- munity which before maturity was secured to it in favor of hona fide purchasers for value without actual notice of any defect either in the obligation or in the title.^ But overdue and unpaid coupons attached to a bond with time yet to run d® not render it nor the other coupons dishonored paper, so as to subject them in the hands of a purchaser for value to defenses good against the original holder.* Bondholders can not be compelled by the legislature nor by the court to accept are in point. He says:. "In an or- dinary case it may be said tliat changing the number put on a bill of excliange or on a checlt will not affect the contract, and may not be a material alteration; but take the case of debentures issued by a com- pany, or a bond issued by a turn- pike trust or a foreign government, and that the bond is to be paid ac- cording to the number drawn by lot, which is a very cotnmon mode of payment ; tliere although the num- ber would not affect the contract on the face of the instrument, it really would affect tlie contract in another way. and I should think there would be no doubt in the world tliat in such a case an alteration of the number would be a material alteration in the instrument." 1 Northampton Nat. Bank v. Kid- der, (1887) 106 N. Y. 231, 225; s. c. 60 Am. Rep. 448 ; Morgan v. United States, 103 U. S. 476, 4B9; Vermilye V. Adams Express Co., (1874) 21 Wall. 138, 145; Hinkley v. Mer- chants' Nat. Bank, 131 Mass. l47; Evertson v. National Bank, 66 N. Y. 14; S. C. 4 Hun, 692; s. C. 23 Am. Rep. 9 ; Arents v. Commonwealth, 18 Grat. 750: First National Bank v. County Commissioners, 14 Minn. 77, 79; s. C. 100 Am. Dec. 194; Hotch- kiss V. National Banks, 21 Wall. 354 ; National Bank v. Texas, 20 Wall. 73 ; Murray ij. Lardner, 3 Wall. 110; Gelbough v. Norfollc &o. R. Cq., 1 Hughes, 410. 2 Cromwell v. Sac County, 96 U. S. 51; Grand Rapids R. Co. v. Sanders, 54 How. Pr. 314; Thompson v. Per- rine,-(1883) 106 U. S. 589; Commis- sioners V. Bblles, 94 U. S. 109; Com- missioners V. Clark, 94 'TJ. S. 379; McClure v. Township of Oxford, 94 U. S. 433 ; Arents v. Commonwealth, 18 Grat. 750. ('Northampton National Bank v. Kidder, (1887) 106 N. Y. 331, 325, per Peokham, J. * Cromwell u Sao County, (1877) 96 U. S. 51; National Bank V, Kirby, 108 Mass. 497. But see First National Bank v. County Commissioners, 14 Minn. 77; s. 0. 10^ Am. Deo. 194. § 690.] NEGOTIATldlf OF STOCK AND BONDS. 1083 payment before maturity, nor to relinquish t];ieir lien.' And a contract indorsed upon bonds, providing for a sinking fund to meet them at maturity, does not give the obligor the right to redeem them when the fund becomes sufficient for that purpose.^ Where bonds payable upon the expiration of a term of years contain a clause providing that they " will be re- deemed, if desired," at a certain earlier date, it is with the holder, and not with the payer, to choose between the two times of payment.^ Bonds bear interest after their maturity at the same rate they bore before maturity.* § 690. Coupons as negotiable instrnments. — Coupons when severed from the bonds to which they were originally at- tached are in legal effect equivalent to separate bonds for the different instalments of interest.'' They are negotiable prom- ises for the payment of ?money, and are therefore not to be considered as "goods" but as the representatives of money and subject to the same rules as bank bills and other negoti- able instruments payable in monej'.^ Accordingly, an action will lie by one bondholder against a corporation for interest due on a bond, although the principal is not yet due, and not- withstanding the fact that the mortgage securing the bond provides that upon default in payment of interest the trustees to whom the mortgage was executed shall, at the request of the holders of a certain amount of bonds, proceed by nci.fa. to collect interest and principal for the benefit of all bond- holders equally.' Detached coupons circulate as independent securities,* unless they contain references to the bonds from 1 Beach on Railways, § 648, citing 5 ciark v. Iowa City, (1873) 20 Wall. Randolph f . Middleton, 26 N. J. Eq. 589. 543. 6 Clark v. Iowa City, (1873) 30 Wall. 2 Chicago &c. R. Co. v. Pyne, 30 589 ; Connecticut v. Emigrant &c. Fed. Rep. 86. Bank, 98 Mass. 12; Spooner v. 3 Beach on. Railways, §'648, citing Holmes, 103 Mass. 507; Wookey v. AUentown School District v. Derr, Pole, 4 B. & A. 1 : Georgia v. Mee- (1887) 115 Pa. St. 439. ville, 4 D. & R. 641 ; s. C. 3 B. & C. 4 Cromwell v. Sac County, (1877) 96 45. U. S. 51, 61, where many, cases are 'Montgomery County Agricultural cited and a conflict of authority Soc. u Francis, (1883)103 Pa. St. 378. noted. Cf. Cook v. Fowler, L. R. 7 ^ Nashville v. Potomac Ins. Co., H. of L. 27 ; Price v. Great Western (1872) 31 Baxt. 296 ; Nashville v. First Ry. Co., 16 Mees. & W. 244. National Bank, 1 Baxt. 403. 1084: BEGOTIATION OF STOCK AND BONDS. [§ 691. which they were severed, which may destroy their independ- ent negotiable nature.' So also where detadhed coupons ¥efef upon their face to the bonds and purport to be for the semi- annual interest accruing thereon, this puts the purchaser upon inquiry for the bonds and charges him with notice of all they contain.^ Where, however, there are no references to the bonds, the coupons once detached and negotiated cease to be a mere incident of the bond and become independent claims, and their amount, with interest after demand of payment, is recoverable under a general count in debt,' even though the bonds for some reason may have been cancelledor paid before maturity.* And it has been said that detached coupons, even when overdue, are not to be counted as overdue paper until the maturity of the bonds from which they were cut.' § 691. Formal reijuisites of the negotiability of coupons. To be negotiable, a coupon must be so upon its face without, reference to any other paper; if it is not payable to order or 1 McClelland v. Norfolk Southern R. Co., (1888) 110 N. Y. 489. On the other hand recitals in the bonds are conclusive evidence in favor of a purchaser of the coupons who has no notice that the Conditions prece- dent to the issue have not been ful- filled.' Marshall r. Elgin, SMcCrary, 35 ; s. c. 8 Fed. Rep. 783. C/..Lex- ington V. Butler, 14 Wall. 283 ; Keno- sha V. Lawson, 9 ^all. 483 ; State v. Spartanburgh &c. R. Co., 8 S. C. 139, 163. 2 McClure IJ. Township of Oxford, (1876) 94 U. S. 439. 3 National Bank v. Hartford &o. R. Co., (1866) 8 R. I. 375; Ida v. Connecticut River R. Co., 33 Vt. 397, 399 ; Conols v. Aspinwall, 21 How. 536, 546; Beaver Co. v. Armstrong, 44 Pa. St, 63 ; Meyer v. City of Mus- catine, 1 Wall. 384; Seybert v. City of Pittsburg, 1 Wall. 373; Van Hos- trup V. Madison City, 1 Wall. 394; Sheboygan Co. v. Parker, 3 Wall. 93; Thomsons. Lee Co., 3 Wall. 337; White V, Vermont & Massachusetts R. Co., 31 How. 575, 577; Lexington V. Butler, 14 Wall. 283; Koshkonpng D. Burton, (1881) 104 U. S. 668, affirming S. C. 4 Fed. Rep. 373 ; Amy V. Dubuque, 98 U. S. 470; Knbx County V. Aspinwall, 31 How. 539; Clark V. Iowa City, (1873) 20 Wall. 583; City v. Lamson, 9 Wall. 477; First National Bank v. Bennington, 16 Blatchf. 53; Junction R. Co. v. Cleaneay, 13 Ind. 161. But see Crosby v. New London &c. B. Co., 26 Conn. 121 ; Shoemaker v. Goshen, 14 Ohio St. 569 ; White v. Vermont &c. R. Co., (1858) 31 How. 575; McElrathi). Pittsburg R. Co., 55 Pa. St. 189; Beaver County v. Arm- strong, 44 Pa. St. 63 ; Chapin v. Ver- mont &c. R. Co., 8 Gray, 575. * Walnut V. Wade, 103 U. S. 683; Clark V. Iowa City, (1873) 20 Wall. 583; Stewart v. Lansing, 104 U. S. 505. 5 Thompson v. Perrine, (1882) 106 U.. 8. 589 ; Cromwell v. Sac County, (1877) 96 U. S. 51. § 692.] NEGOTIATION OF STOCK AND BONDS 1085 bearer and does not contain other equivalent words, it is not negotiable.! Tiiere are, however, cases declaring the more lib- eral rule that words of promise connected with a definite prom' isor,' or evidently expressing the intention of the obligor that they shall be negotiable, are all that is necessary to make them negotiable paper, however informally they may be worded.' And in a suit upon coupons profert of the bond is not neces- sary, as the coupons circulate as independent securities.'' When upon their face coupons refer to the bonds to which they are attached and purport to be for the interest accruing thereon, the purchaser of them is charged with notice of all that the. bonds contain.^ § 692. Coupons likened to checks, drafts, bills and notes. Coupons, when made payable to bearer, are transferable by delivery and are subject to the same rules and regulations, so far as respects the right and title of the holder, as negotiable bills of exchange and promissory notes.^ They have been 'Augusta Bank v. Augusta, (1860) 49 Me. 507, holding that evidence of commercial custom to the contrary was properly excluded ; Evertson v. National Bank, X1876) 66 N. Y. 14, 19, 20; s. C. 23 Am. Rep,. 9, revers- ing S. 0. 4 Hun, 692; Crosby v. New London &c. B. Co., 26 Conn. 121; Jackson v. York &c. B. Co., (1858) 48 Me. 147; Meyers v. York &c. B. Co., 43 Me. 233; Cranch v. Credit Foncier, L. B. 8 Q. B. 374. The merest reference to the bond in a coupon, such as the statement that it is for interest upon the com- pany's first mortgage bonds, is suf- ficient to destroy its independent negotiable character. McClelland v. Norfolk &c. B. Co., (1888) 110 N. Y. 469 ; S. c. 6 Am. St. Bep. 397. 2 McCoy V. Washington County, 3 Wall. Jr. 381 ; Smith «. Clark County, 54 Mo. 58; Johnson v. Stark County, 24 111. 75; Haven v. Grand Junction E. Co., 109 Mass. 88. ' McCoy V. Washington County, 3 Wall. Jn 381 ; Woods v. Lawrence, (1861) 1 Black, 360; Smiths. Clark County, 54 Mo. 58 ; Note to Morris Canal &c. Co. v. Fisher, 64 Am. Dec. 428, 433. ^Nashville v. PotomaO Ins. Co., (1872) 2 Baxt. 296; Nashville v. First National Bank, 1 Baxt. 403. 5 McClure v. Township of Oxford, (1876) 94 U. S. 439; Harshman v. Bates Co., 93 U. S. 509. But see Evertson v. National Bank, (1876) 66 N. Y. 14 ; S. C. 23 Am. Bep. 9, where a recital that it was for interest upon a bond of a certain denomina- tion was held not to require the pro- duction of the bond in an action upon the coupon. 6 Lexington v. Butler, 14 Wall. 283 ; Ketchum v. Duncan, 96 U. S. 659; Cromwell v. Sac County, 96 U. S. 58; Mercer Co. v. Hacket, 1 Wall. 95 ; Murray v. Lardner, 2 Wall. 110; Stewart v. Lansing, (1881) 104 V.S. 505; Ohio v. Frank, 103 XJ. S. 697; Walnut v. Wade, 103 U. S. 683; 1086 NEGOTIATION OP STOCK AND BONDS. [§ 69^ said to be checks rather than bills.' "When payable at a par- ticular oflBce, they import that the debtor will have a deposit at the time and place specified to answer what is substantially a draft upon the fund.^ Again they are in the nature of promissory notes,' but have been held not to be promissory . notes in origin nor in common speech, so as to be within an act giving bills and notes days of grace.* It is said that it is of very little consequence, however, whether they are promis- sory not^s, bills, drafts or checks, for thej' have the same qual- ity of negotiabilit}' as either of those instruments.' § 693. Coupons as instruments sui generis. — Coupons differ in some respects from any other kind of negotiable paper except in respect of their negotiability. For example they differ from bills' of exchange in not being intended for acceptance when drawn on a bank." They differ from promissory notes in respect to presentation and demand, interest and limitations. They also differ from other independent paper in that the re- lease of the bond releases the coupons ; ' that when coupons are severed and transferred, they carry by implication an in- terest in the mortgage debt,* Coupons have no priority over the bond itself when both are due, but share in the f and pro rata? Another distinction is that when coupons are converted the measure of damages in a suit by the maker is their market value, and not as in the case of an individual note the sum he Aurora v. West, 7 Wall. 83 ; Thorn- whether bonds could be so regarded. son V. Lee County, 3 Wall. 337 ; First National Bank v. Bennington, JPhiladelphia &c. R. Co. v. Smith, 16 Blatch. 53, 56 ; Thompson v. Lee 105 Pa. St. 195; Philadelphia &c. E. County, 3 Wall. 327. Co. i;. Fidelity &c. Co., iOB Pa. St. < Chaffee u. Middlesex R. Co., (1888) 316 ; Bennington &c. Bank v. Mount 146 Mass. 324, 335. Tabor, 53 Vt. 87; "Negotiability of 6 Beaver Co. v. Armstrong, 44 Pa. Detached Coupons," 8 So. L. Rev. St. 63, 69. N. S. 368. 6 Jones on Railroad Securities, 1 In re, Brown, 3 Story, 503; Arents § 317; Daniel on Negotiable Instru- V. Common wealih, 18 Gratt. 773. ments, § 1490. 2 Philadelphia &c. R. Co. u. Adams, 'State v. North Louisiana R. Co., 54 Pa. St. 94. 25 La. Ann. 65. SHinkley v. Railroad Co., 139 8 j^ i-e Sewall u Brainerd, 85 Vt, Mass. 62 ; and are promissory notes 864, 374. within the meaning of the United » Welsh v. St. Paul &o. R. Co., 25 States .statutes conceruingi .national Minn, 814. banks; although it is doubtful § 694.] NEGOTIATION OF STOOK AND BONDS, 1087 is ultimately compelled to pay.^ Again, if coupons are pledged they can be sold on default of the pledgor,' whereas if notes of private parties are pledged, the pledgee takes only the power of collection, not that of selling it.' Another distinction, in respect of days of grace, has some authority in its support. Thus, in Massachusetts it ha.s been said that the reasons for allowing days of grace on foreign bills of exchange, payable at sight, or at a future day certain, have little application to bonds with coupons, issued by a corporation to obtain money, which usually have a long time to run, and are commonly bought and held as an investment.* The same court said that the device of separate detachable interest warrants pay- able to bearer has been adopted for convenience, and courts have invested them, when detached, with many of the quali- ties of negotiable promissory notes, to carry into effect the intention of the parties apparent on the face of the contract, but they purport to be only promises to pay certain sums of money as interest on the principal obligation:" But in a lead- ing New York case, holding that coupons are entitled to grace, the court argued that, coming within the ordinary definition of bills of exchange or promissory notes, coupons necessarily have all the characteristics of those instruments, and are entitled to the benefit of the grace allowed upon them." § 694. Receivers' certificates. — Eecei vers' certificates, fre- quently issued by receivers of railway corporations to meet the current expenses of maintaining the raiilway as a going 1 Tracy w. Talmadge, M N. Y. 103. v. Commonwealth, 18 Grat. 750; 2 2 City of Memphis. iJi Brown, 17 Daniel on Negotiable Instruments, Am. L. T. R. 434; Brown v. Ward, 3 §§ 1490a, 1505; and note to 64 Am. Duer, 660. Dec. 438, 434. sMorris Canal Co. v. Fisher, 1 5 chafEeef. Middlesex E. Co., (188S) Stockt. 667; Morris Canal Co. v. 146 Mass. 224, 235, Of. Bank v. Lewis, 1 Beasley, 333; Wheeler v. Leach, 52 N. Y. 350; Macloon v. Newboh, 5 Duer, 29; S. C. 16 N. Y. Smith, 49 Wis. 200; Jackson v. Eail- 393; Brown v. Ward, 3 Duer, 660, road Co., 48 Me. 147; Rose u. Bridge- Garlic u. Jones, 12 Johns. 146. port, 17 Conn. 343; Beaver V. Arm- * Chaffee v. Middlesex R. Co., (1888) strong, 44 Pa. St. 63. 146 Mass. 334, 235. See also Arents OEvertson v. National Bank of Newport, (1876) 66 N. Y. 14, 33. 1088 NEGOTIATION OF STOCK AND BONDS. [§ 694 concern, and constituting a lien upon the income of the road superior even to mortgage bonds and coupons, may be appror priately mentioned in this connection. They are not, strictly speaking, corporate obligations, although the property of the company in the receiver's hands is pledged to their payment.* While they are to that extent somewhat of the nature of cor- porate bonds, they differ from commercial paper in that tl>ey are acknowledgments of indebtedness rather than promises to pay. The fund upon which they are drawn is usually uncer- tain, and there is no one, personally liable for their payment. The fund in the receiver's hands is alone bound for their re- demption, and their payment can be compelled only by an application to the court by whose authority they were issued.^ It is, therefore, the ordinary rule that they are not negotiable instruments.' And the assignor, or indorser, is not liable as a guarantor or indorser of commercial paper; nor does the assigninent of them import a warranty that thfey are collect- ible or that thejj^ will be paid.* It has been said that if they 1 Meyer v. Johnson, 53 Ala. 349; Turner v. Peoria & Siiringfield R. Co., 95 111. 134; S. C. 35 Am. Rep. 144, holding that if the fund be in- sufflcleut, it is to be divided propor- tionally among the holders. 2 Beach on Receivers, § 401 ; Wal- lace V. Loomis, 97 U. S. 146, 163; Miltenberger v. Logansport R. Co., 108 U. 8. 286, 309; Union Trust Co. V. lUinoip Midland Ky. Co., 117 U. S. 434, 454; Turner v. Peoria &c. R. Co., 95 111. 134; s. c. 35 Am. Rep. 144. 3 Beach on Railroads, § 758 ; ^Hus- band V. Eppling, 81 111. 173: S. 0. 25 Am. Rep. 373; Baird v. Underwood, 74 111. 176 ; Turner v, Peoria &c. R. Co., 95 111. 134; s. C. 35 Am. Rep. 144; Bank of Montreal v. Chicago Central National Bank of Boston v. Hazard, 1 Ry. & Corp. L. J. 347. Cf. West V. Foreman, 21 Ala. 400 ; Corbett v. State, 34 Ga. 287 ; Harri- man v. Sanborn, 43 Me. 138; Railroad Co. V. Howard, 7 Wall. 393, 415; Mechanics' Bank u. New York &c. R. Co., 13 N. Y. 599; Voshell v. Hynson, 26 Md. 83; Union Trust Co. V. Soutter, 107 U. ^. 591 ; Fos- dick V. Schall, 99 U. S. 835; Fosdick- V. Car Co., 99 U. S. 256; Bright ii. North, 2 Phila.' 216; Beach on Re- cei-vers, § 898. On their face they refer to the particular power thus conferred, and to the particular case then pending in the court. This is Buflficient notice to put a prudent dealer on inquiry. Master's Report referred to in Stanton v. Alabama &c. R. Co., 48 Iowa. 518; Union &c. R. Co., 2 Wood^, 506, 512, citing Trust Co. V. Chicago Ac R. Co., 7 In re Magdalena Steam Navigation Fed. Eep, 513 ; McCurdy v. Bowes, Co. Johns. Eng. Ch. 690. 88 Ind. 583; Stanton v. Alabama Bosw. 396; Richardson v. Abpnd- Aspinwall, (1857)36 Barb. 203; Wiles roth, (1864) 43 Barb. 162. Contra, V. Suydam, (1876) 64 N. Y. 173; Sanborn v. LefEerts, (1874) 58 1^. Y. Shellington v. Howland, (1873) 53 179. N. Y. 371; Handy v. Draper, (1882) 'Garrison v. Howe, (1858) 17 N. Y. 89N.Y.334. * 458. Of. Slee v. Bloom, (1821) 5 3 Bank of Poughkeepsie v. Ibbot- Johns. Ch. 382. son, (1840) 24 Wend. 473; Van Hook 8 Woodruff & Beach Iron Works V. Whitlock, 3 Paige, 409 ; Simonson v. Chittenden, 4 Bosw. 406, to the V. Spencer, (1836) 15 Wend. 548 ; point that an assignee in bankruptcy N. Y. Rev. Stat, 283, Act of March 33, may maintain such a suit. See Gar- 1811. rett V. Sayles, (1880) 1 Fed. Rep. 371. 10&6 UNSE0nEED''cEEDITOES. [§ 700. farced, by stockholders who have not been joined in the ac- tion, is a right existing only by statute and not in equity.' § 700. Parties defendant. — The liability of a subscriber for the capital stocii of a company is several and not joint. By his subscription each becomes a several debtor to the com- pany, as much so as if he had given his promissory note for the amount of his subscription. At law, certainly, his sub- scription may be enforced against hiin without joinder of other subscribers, and in equity his liability does not cease to be several. A creditor's bill merely subrogates the creditor to the place of \the debtor, and attaches the debt due to the debtor corporation. It does not change the character of the debt attached. It may be that, if the object of the bill is to wind up the affairs of this- company, all the shareholders, at least so far as they can be ascertained, should be made par- ties, that complete justice may be done by equalizing the bur- dens, and in order to prevent a multiplicity of suits. The most that can be said is that the presence of all the stock- holders might be convenient, not that it is necessary. When the only object of a bill is to obtain payment of one judg- ment against a corporation, out of its credits or intangible property, that is, out of its unpaid stock, there is no reason for requiring all the stockholders to be made defendants.^ But when an attempt is made to enforce payment of all the cor- porate liabilities, all the solvent stockholders within the juris- diction must be joined, except where this will be excused upon an allegation that the number is too great.' And defendant stockholders may file a cross-bill to bring in all other delin- quent stockholders within the jurisdicti9n of the court.* For, iBrinham v. Wellersburg Coal Umstead w Buskirk, 17 OhioSt 118; Co., (1864) 47 Pa. St. 43; Fowler v. Erlokson v. Nesmith, 46 N. H. 371; Eobinson, (1850) 31 Me. 189. Pierce v. Milwaukee &c. Co., (1875) 2 Strong, J., in Hatch «. Dana, 101 38 Wis. 353; Carpenter v. Marine U. S. 305. Cf. " Liabilities of Share- Bank, 14*Wis. 705 ; Coleman w White, holders in Joint-stock Companies," (1863) 14 Wis. 700 ; Bogardus v. Ro- by S. S. P. Patterson, 6 Va. L, J. 579. sendale Manuf. Co., (1853) 7 N. Y. 8 Vick V. Lane, (1879) 56 Miss. 681 ;/ 147. Walsh V. Memphis &c. E. Co., 3 * Hatch v. Dana, (1879) 101 U. S, McCrary, 156; Mann«. Pentz, 3N. Y. 305; Wood v. Dummer, (1834) 8 Ma- 415; Hadley v. Russell, 40 N. H. 109; son, 307; Marsh v. Burroughs, (1871) § 701.J UNSECURED CEEDITOKS. 1097 obviously, if all who are liable have not been made parties, those who have been can not be charged with the full liability unless it be shown that the absent ones are insolvent or be- yond the jurisdiction of the court.^ Where a corporation's articles provide for a capital stock of a certain amount, the stockholders to give for their subscriptions their notes without interest, not to be liable at any time to an assessment for more than half of their face, in case ,of insolvency the whole capi- tal subscribed is liable to creditors. Thus if the corporation becomes bankrupt after a part is assessed and paid in, the stockholders are liable for the whole unpaid amount; and the balance unpaid being collected by the assignee, the fund is, on intervention, liable to the lien of attachments made be- fore the declaration of bankruptcy.^ § 701. The same subject continued.— In a suit in equity against stockholders who have not paid for their stock, where no evidence of the insolvency of any of them' is presented,- the 1 Woods, 463 ; Holmes v. Sherwood, 3 McCrary, 405; Masters v. Eossie &c. Mining Co., 2 Sandf. Ch. 301; N. Y. Code of Civil Procedure, .§§ 1791-1794; Hadley u. Russell, 40 N. H. 109 ; Umsted v. Buskirk, 17 Ohio St. 118; Hodus v. Silver Hill Mining Co. , 9 Oregon, 300. 1 Marsh v. Burroughs, 1 Woods, 463 ; Wood v. Dummerj 3 Mason, 307 ; Bonewitz v. Van Wert County Bank, 41 Ohio St. 78. Of. Erickson v. Nesmith, 46 N. H. 371 ; s. c. 77 Am. Dec. 78; Holmes v. Sherwood, 3 McCrary, 405. But under the Gen- eral Laws of Colorado, § 30 J, pro- viding that a stockholder in a corpo- ration shall be liable for its debts to the extent of his unpaid stock, and section 318, providing that a suit in equity may be brought against a stockholder of a corporation that has dissolved, or ceased to do business, leaving debts unpaid, by joining the corporation and the stockholders in such suit, a complaint in an action on an insurance policy joining the company and several stockholders as defendants, and alleging that the company had ceased to do business leaving debts unpaid, does not mis- join the parties, and a separate judg- ment may be rendered against a stockholder in the same suit. Tabor V. Goss & Phillips Manuf. Co., (1888) 11 Colo. 419, holding also that under General Laws, § 313, requiring such joinder in case the corporation had ceased to do business leaving debts unpaid, the jurisdiction of the court to render judgment against the company and a separate judgment against the stockholder in the same suit having been established, there was no error in the admission of the policy and of the judgment against the company as evidence of dam- ages, nor in the rendition of judg- ment against the stockholder. 2 In 're Glen Iron WorkSj 30 Fed, Rep. 674. .1098 UNSEOUEKD OEEDITOES. [§ 702. d-ecree should be against each of th^m in proportion to his unpaid stock. . On proof that some are insolvent, the solvent must pay the proportion due from the insolvent.' There is a class of cases in which it is held that it is not necessary to join all the stockholders ' as parties defendant, and that the suit may be instituted against any or all, leaving them to seek their remedy against those not joined by compelling them to contribute.'^ Some of these cases adopt a distinction between suits brought to wind up the corporation, and suits for the ■ simple collection of a debt.^ The corporation itself should be made a\party iii these suits if it is in existence.'' But a cor- poration which has sold everything except its right to exist,. ■ and has no officers or place of business, is not a necessary party to a suit against a stockholder to make him liable for his unpaid subscription, although having power to reorganize and collect the stockholder's dues." § 703. The corporation as a party defendant. — In a suit to enforce the statutory liability, the corporation is a neces- sary party." In a suit by the receiver of an insolvent corpo- ration to recover an assessment upon its stock, ordered by the court by which the receiver was appointed, it is no defense that the defendant stockholder was not a party defendant in the proceedings for the appointment of a receiver; for the 1 Hodges f. Silver Hill Mining Co., 3 Hatch v. Dana, (1879) 101 U. S. 9 Oregon, 200. .205 ; Bartlett v. Drew, (1874) 57 N. Y. 2 Hatch V. Dana, (1879) 101 U. S, ' 587, 589, 591 ;^ Bone witz u. Van Wert 205; Griifith v. Mangam, 57 N. Y. Co. Bank, 41 Ohio St. 78. 611 ; Bartlett v. Drew, (1874) 57 N. Y. < Patterson v. Lynde, 112 111. 196 ; 587; Brundage v. Monumental Sec. Coleman -y. White, 14 Wis. 700; Per- Mining Co., (1885) 12 Oregon, 323; kins u. Sanders, 56 Miss. 733. Marsh v. Burroughs, (1871) 1 Woods, 5 WeUman v. Howland Coal & Iron 463 ; Holmes v. Sherwood, (1881) 3 Works, 19 Fed. Rep. 51. McCrary, 405; Glenn v. Williams, ONimick t). Mingo Iron Works Co., (1883) 60 Md. 93. Cf. Von Schmidt 35 W. Va. 184. Cf. "Remedies of V. Huntington, (1850) 1, Ca,l. 55; Creditors against Companies apart Lamar Ins. Co. v. Gulick, (1883) 103 from Provisions of the Winding-up 111. 41; Wood V. Dummer, (1834) 3 Acts," by A. H. Marsh, 5 Can. L. T. -Mason, 307; Bonewitz v. Van Wert 389, 352; Mansfield Iron Works v. Co. Bank, (1884) 41 Ohio St. 78. Cf. Willcox, (1866) 53 Pa. St. 377. Cf. Erickson v. Nesmith, (1860) 46 N. H. Deming v. Bull, (1835) 10 Conn. 409; 871 ; Ogilvie v. Knox Ins. Co., (.1859) Middletown Bank v. Magill, (1833) 5 23 How. 380. Conn. 28. § Y03.] TTNSECUEED , CEEDITOES. 1099 fact that the corporation of which defendant was a merhher was a party to that suit, hinds him.' A bill against a stock- holder of a corporation, to which the company is a necessary party, brought in a federal court for a district other than that of which the company was a resident, can not be amended so as to bring the company in as a defendant, and is fatally defective.^ So in an action against the stocliholders of a certain corporation where compiainant had purchased all the assets and properties of defendants' corporation under misrepresentations as to the value of the property, and the defendants, as stockholders, had received their proportionate shares of the proceeds of the ,sale and the other assets of the company which came into their hands as a trust fund for the satisfaction of complainant's claims, it was held that as the action was primarily against the vendor corporation for damages for fraudulent representations, it was a necessary part}'.' §703. Statutory liability — (a) Parties plaintiff.— " The first thing to be determined in all such cases is, what liability has been created. There will always be difiiculty in attempting to reconcile cases of this class, in which the general question of remedy has arisen, unless special attention is gjven to the precise language of the statute under consideration. The remedy must always be such as is appropriate to the liability to be enforced. The statute which creates the liability may declare the purposes of its creation, and provide directly or indirectly a remedy for its enforcement." * Thus, under a charter provision that stock- holders shall " be bound respectively for all debts of the bank in proportion to their stock holden therein," an action at law by a single creditor against a single stockholder will not lie;* and this is the rule under a statute making the stook- 1 Great Western Tel. Co. v. Gray, 205; Terry v. Little, (1879) 101 U. S. ( 1 887) 123 111. 630. 216 ; Pollard v. Bailey, (1874) 20 Wall. 2 Swan Land & Cattle Co. v. Frank, 520. Cf. Wright v. McCormack, (1889) 39 Fed. Eep. 456. (1866) 17 Ohio St. 86 ; Sands v. Kim- 3 Swan Land & Cattle Co. v. Frank, bark, (1863) 37 Barb. 108, 120 ; Cush- (1889) 39 Fed. Rep. 456. man v. Shepard, (1848) 4 Barb. 113; i Chief Justice Waite, in Terry v. Smith z;. Huckabee, (1875) 53 Ala. Little, (1879) 101 U. S. 316. 191. 5 Hatch V. Dana, (1879) 101 U. S. 1100 UlirSBOnEBD CEEDITOES;^ [§ 704. holders of a banking company " individually responsible to the amount of their respective share or shares of stock for all its indebtedness and liabilities of every description." ^ Upon the ground that at law the indebtedness of the corporation and the several liabilities of the members could not be equi- tably adjusted,^ no one creditor can assume that he alone is entitled to what any stockholder owes, and sue at law, so as to appropriate it exclusively to himself;' for a bill filed by the creditor against a corporation alleged to be insolvent, to compel the payment of unpaid capital stock, is an equitable proceeding to enforce the equitable obligations of stock- holders.* Under such a bill there must be an account of debts, assets and unpaid capital stock, and the proper assessment made on each stockholder of the amount due from him.' § 704. (b) Parties defend ant. — If the members are liable as principals each is liable for the whole of the debts of the com- pany to the amount of his statutory liability.^ When the equitable remedy is pursued,, the corporation, and all the solv- ent shareholders within the jurisdiction who are known, should be made defendants. , Contribution among the shareholders is of the essence of the proceeding, and that is best effected when all are made parties.' And when the action is to enforce the 1 Coleman v. "Vyhite, (1863) 14 Wis. 5 Cover v. Mana way, (1886) 115 Pa. 700; Carpenter «. Marine Bank, (1862) St. 338; s. C. 2 Am. St. Rep. 553. 14 Wis. 705, n. « Morley v. Xhayer, 3 Fed. Eep. 787 ; 2 Allen i;. Walsh, (1879) 35 Minn. Ppllard v. Bailey, 20 Wall. 530; 543 ; Jones i;. Jarman, (1879) 34 Ark. Lowry ■>). Inman, 46 N. Y. 119; 323 ; Low V. Buchanan, (1879) 94 111. Windham &c. Sav. Inst. v. Sprague, 76; Flash v. Conn, (1883) 109 U. S. 43 Vt. 502; Allen u. Walsh, 35 Minn. 371 ; Queenan v. Palmer, (1886) 117 , 543. 111. 63; s. c. 34 Alb, L, J. 117. Cf. ^Walsh v. Memphis &c. E. Co., Stewart v. Lay, (1877)45 Iowa, 604; 8 McCrary, 156; s. 0. 6 Fed. Eep. Norris v. Johnson, (1871) 34 Md. 797 ; Erickson u. Nesmith, (1866)46 485; Faymonville v. McCuUough, N. H. 371; Hadley v. Eussell, 40 (1881) 59 Cal. 385 ; Garrison v. Howe, N. H. 109 ; Umsted v. Buskirk, (1866) (1858) 17 N. Y. 458; Story v. Far- 17 Ohio St. 113; Mansfield Iron man, (1863) 35 N. Y. 314. Works v. Willcox, (1866) 53 Pa. St. 3 Patterson v. Lynde, (1883) 106 377; Brinhamu. WellsburgCoalCo., U. S. 519. Cf. Terry v. Little, (1879) 47 Pa. St. 43; Hoard v. Wilcox, 47 101 U. S. 316. Pa. St. 51 ; McHose v. Wheeler, 45 i Cover V. Manaway, (1886) 115 Pa. Pa. St. 32. St, 838; s. 0. 3 Am. St. Eep. 353. § 704.] TINSECUEED CEEDITOES. 1101 statutory liability to emploj'ees, " laborers, servants, and ap- prentices," in iN'ew York; all the shareholders should be made parties.^ But the joinder of all the shareholders ma}'' be dis- pensed with in a case where it is shown to be impracticable.^ Accordingly when the complaint avers that defendants and others whose names were unknown, are stockholders, and that it is impracticable from their great number to bring them all before the court, it is not demurrable for defect of parties.^ But in an action to enforce the individual liability of stock- holders, some of whom, without any excuse therefor, are not served with process, it is error to assess those served with the whole indebtedness.* It is sometimes held that a general statutory liability means a liability on the part of the stock- holder only in the proportion which his interest bears to the total indebtedness of the corporation.^ In such a case, where the shareholders are jointly and severally personally liable for debts contracted by the corporation, which it can not or does ndt pay, in proportion to the number of shares they ovyn, it seems to be settled that they are to be held principal debtors, and not mere sureties for the corporation.^ It is sometimes held also that stockholders are not sureties for each other." But in Michigan the contrary rule prevails.^ Where an ac- tion at law can be brought, and the member's liability is lim- ited and several, each being liable for a definite sum, a sepai^ate action may be brought against each.' In New York, under 1 Strong V. Wheaton, 38 Barb. 616; 17 La. Rep. 397. Cf. "Liability "A Reporter of a Newspaper a Laws," 5 Am. Jur. 52. Laborer," 17 Am. L. Reg. N. S. 97. SMoss v. Averell, (1853) 10 N. Y. SBronson v. Wilmington N. O. 450; Corning i;. McCuUough, (1847) 1 Life Ins. Co.; (1882) 85 N. C. 411; N. Y. 47; Simonson v. Spencer, Umsted u Buskirk, (1866) 17 Ohio (1836) 15 Wend. 548; Bailey v. St. 113; Pierce v. Milwaukee Con- Bancker, (1842) 8 Hill, 188; Harger struc. Co., (1875) 38 Wis. 253; Cole- v. McCulIough, 5 Denio, 119; South- man V. White, 14 Wis. 700 ; Crease mayd v. Russ, 3 Conn. 52 ; Maroy v. V. Baboook, 10 Mete. 525; Brundage Clark, 17 Mass. ,830. D. Monumental &c. Mining Co., (1885) 'Taylor on Corporations, §§ 714, 12 Oregon, 323. 715; Laneu Harris, 16 Ga. 217, 234; 'Bronson v. Willmington N. C. Young v. Rosenbaum, 39 Cal. 646; Life Ins. Co., 85 N. C. 411. Crease v. Babcock, 10 Mete. 535. *Bonewitz v. Van Wert County suaugoni;. Donkersley, 37 Mich. Bank, 41 Ohio St. 78. 184. Cf. Grand Rapids Savings iSBo^d V. Hall, (1876) 56 Ga. 563; Bank v. Warren, 53 Mich. 157. Reynoldsu Feliciana Steamboat Co., s Terry v. Little, (1879) 101 U. S. 1102 UNSECUEED CKEDITOES. [§ 704. the Business Corporations Act of 1875,' providing that stock- holders in " full liability companies " may be joined as defend- ants in any action against the company, it is held that it does not, by implication, prohibit separate and concurrent actions against a " limited liability company " and a stockholder therein.^ * In a, case in the United States Supreme Court against a corporation it was held that the shareholders might prop-, erly be made parties, in order to avoid a multiplicity of suits. But in this case they were immediately liable under that pro- vision of their charter which made members of the company jointly and severally liable for all debts and contracts made by the company until the whole amount of the capital stock fixed and limited by the corporation is paid in.' ' Where the shareholder's liability is held to be like that of a partner, then all must be joined as defendants, and the omission of any one is ground for a plea in abatement.* In Massachusetts stock- holders in manufacturing corporations are liable as tenants in common to creditors, to the extent of the capital stock, until it has been divided into shares;^ but where some of the stock is held by the corporation itself, this will not compel the other shareholders to bear the statutory liability as to the stock so held by the corporation.^ In Pennsylvania, under the Manu- facturing Companies Act, the corporate creditor proceeds against the shareholders in an action at law upon the original contract, making the corporation and all the shareholders 216; Garrison v. Howe, (1858) 17 2 Walton v. Coe, (1888) 110 3Sr. "i;. N. Y. 458; Paine v. Stewart, (1866) 109. 33 Conn. 516; Culver v. Third Na- 3 Manufacturing Co. v. Bradley, tional Bank, (1871) 64 111. 538; Bank (1881) 105 U. S. 175.' of Poughkeepsie v. Ibbotson, (1840) < Allen v. Sewall, (1829) 2 Wend. 24 Wend. 473; Perry v. Turner, 55 327; Strong v. Wheaton, (1861) 38 Mo. 418; Boyd u. Hall, (1876)56 Ga. Barb. 616; Eeynolds v. Feliciana 563 ; Jones v. Wiltberger, 43 Ga. 575 ; Steamboat Co. , (1841) 17 La. Rep. 397 ; Lane v. Harris, (1854) 16 Ga. 317; Bouewitz v. Bank, 41 Ohio St. 78. Abbott V. Aspinwall, (1857) 26 Barb. Of. Dodge v. Minnesota &c. Slate 202; Pettibone v. McGraw, (1859) 6 Roofing Co., (1871) 16 Minn. 368; Mich. 441 ; In re HoUister Bank, Culver v. Third National Bank, (1871) (1863) 27- N. Y. 393. Cf. Pratt v. 64 111. 538; Branson v. Oregonian Bacon, (1830) 10 Pick. 122; Milroy v. Ry. Co., (1883) 10 Oregon, 278. Spurr Mountain Iron Mining Co., 'Hawesw. Anglo-Saxon Petroleum (1880) 43 Mich. 231. > Co., 101 Mass. 385; B. C. (1872) 111 1 N. Y. Laws of 1875, ,oh, 611. Mass. 300. * Crease v, Babcook, 10 Meto. 525. § 705.] UNSECURED CEEDITOES. 1103' parties defendant.' In Illinois, under the charter provision that " each stockholder shall be liable to double the amount of stock " owned, it is held that the stockholders are severally and individually liable; that is, that an action at law against one or all of them would lie.^ In Ohio, although the stated extent of the shareholder'^ liability as provided by the statute can not be exceeded, still, up to the full measure of his lia- bility, he may be charged, although it be shown that if other solvent shareholders had contributed' their full proportion it •would not be necessary for him to pay.' In Wisconsin, stock- holders in banking corporations are liable, by statute, as orig- inal and principal debtors, substantially as though they were partners, except,' as in Ohio, that the responsibility of each is limited to a sum equal to his shares of stock.* In Vermont, a . provision that shareholders " shall be personally holden " is held to create only a joint liability.' § 705. Effect of transfer of shares — (a) The transferrer's liability thereafter. — A transfer of stock, consummated in good faith upon the books of the corporation, relieves the transferrer from all liability to the corporation or its credit- ors, thereafter becoming due upon his subscription,'^ except where personal liabilit}' is imposed by statute. But the trans- ferrer will not be thus relieved unless the transaction is reg- istered on the company's books, notwithstanding the fact that the transfer is in writing and the assignee has drawn divi- iBrinham'y. WellersburgCoalCo., ^Coleman v. White, 14 Wis. 700; (1864) 47 Pa. St. 43 ; Mansfield Iron Carpenter v. Marine Bank, 14 Wis. Works V. Willcox, (1866) 53 Pa. St. 705,, n. 377; Hoard?;. Wilcox, 47 Pa. St. 51; 5 "Windham Prov. Sav. Inst. v. McHose V. Wheeler, 45 Pa. St. 32; Sprague, (1871) 43 Vt. 503. Patterson V. Wyoming Manuf. Co., ^^Ugn y_ Montgomery E. Co., 11 40 Pa. St. 117. ' Ala. 457 ; Billings v. Robinson, (1883) , 2Thebus v. Smiley, 110 111. 316; 94 N. Y. 415; Bowden v. Johnson, Hull V. Burtis, 90 111. 313 ; McCarthy (1883) 107 U. S. 351 ; Davis v. Steveps, V. Lavasche, 89 111. 370; Fuller v. (1879) 17 Blatchf. 359. Cf. Sawyer Ledden, 87 111. 310; Jacobson v. v. Hoag, 17 Wall. 610; Johnson 'u. Allen, (1883) 13 Fed. Rep. 454. Southwestern R. Bank, 3 Strobh. 8 Browi\t'. Hitchcock, 36 Ohio St. Eq. (S. C.) 363; Melvin v. Lamar Ins. 678. Cf. Stewart v. Lay, (1877) 45 Co., (1875) 80 111. 446; Zirkel v. Iowa, 604; " Individual Liability of Joliet Opera House Co., (1875) 79 111. Stockholders in Iowa Corporations," 334 ; Adderly v. Storm, 6 Hill, 624. 14 West. Jur. 837, 385, 433. 1104 UKSEQITEED CEEDIT03S. [§ 705. dends on the stock. A transfer to have such an effect, how- ever, must be made in good faith, and not to an irresponsible person to escape liability, in harmony with the principle that the capital stock, including both paid and unpaid subscrip- 1 Cutting V. Damerel-, (1883) 88 N. Y. 410 ; Isham v. Buckingham, 49 , N. Y. 316 ; Strange v. Houston & T. C. E. Co., (1880) 53 Tex. 183; Upton V. Burnham, (1873) 3 Biss. 431, 530; McEuen v. West London Wharves &c. Co., (1871) L. R. 6 Ch. 655; Mid- land &c. Ey. Co. V. Gordon; (1847) 16 Mees. & W. 804; Sayles v. Blane, (1849) 19 L. J. Q..B. 19; Cartraell's Case, (1874) L. E. 9 Ch. 691; Heri- tage's Case, (1869) L. E. 9 Bqi 5; Hennessey's Executor's Case, (1850) 3 De G. &Sm. 191; Ex parte Hen- derson, (1854) 19 Beav. 107 ; Bank v. Lanier, (1870) 11 Wall. 369. Contra, Bargate v. Shortridge, 5 H. L. Cas. 297; Evans v. Smallcombe, (1868) L. E. 3 House- of Lords, 349; In re Bachman, (1875) 13 Nat.' Bank. Eeg. 233. Cf. Head's Case, L. R. 3 Eq, 84; White's Case, L., R. 3 Eq. 86; Shepherd's Case, L. E. 2 Ch. 16; Straflfion's Executor's Case, 1 De G., M. & G. 576. Va. Code of 1860, ch. 57, § 24, relating to assignments of stock, provides that in any assign- ment the assignee and assignor shall each be liable for any unpaid in- stallments v^hich may have accrued or may thereafter accrue. Va. Acts of 1883-84, p. 654, ch. 472, authoriz- ing compromises to be made by fiduciaries with debtors of the com- pany, provides that the compromise' made with any person claimed to be liable to the company shall not im- pair the liability to the company of any other person, on account of the cause of liability, but the amount so received shall be credited on the same, except, when the liability is joint, it shall be credited with the full share of the person released. And it was held that a release of the assignor of stpck by the trustee of an insolvent corporation, on pay- ment of a certain amount on ac- count of unpaid installments, does not discharge the assignee, the liabil- ity not being joint. Glenn v. Foote,' 36 Fed. Eep. 834. And where cer- tificates of stock issued by the di- rectors provide that the shares shall be transferred only on the books, of the corporation, it was held, in an action by the receiver, that one in whose name the shares stood on tlie books, but who had sold and deliv- ered his I certificate to another, was not liable as a "stockholder" for debts, within New York Laws, 1867, ch. 474. Cutting v. Damerel, 88 N. Y. 410. Where a shareholder of a national bank makes a bona fide sale of his stock, and goes with the purchaser to the bank, indorses the certificate and delivers it to the cashier of the bank, with directions to make the transfer on the books, he has done all that is incumbent upon him to discharge his liability, and he is not liable, although the cashier failed to make the transfer, upon the subsequent suspension of ' the bank, for an assessment made by the comptroller of the currency, under U. S. Eev. Stat., § 5151, to pay the bank's debts. Hayes v. Shoemaker, 39 Fed. Eep. 319. Under Rev. Stat. Me., ch. 46, §§ 45-47, making stockholders liable to judg- ment creditors of a corporation to the extent of their unpaid .subscrip- tions, where defendant transferred all the stock subscribed for by him, except four hundred shares, prior to the date when the judgment ored- § V05.] UNSECUEED CEEDITOES. 1105 tions, is a trust fund for the benefit of creditors, and that it is inCdnsistent with the nature of such a trust to permit a trans- fer of stock to be made to one who is insolvent, for the pur- pose of escaping liability.' And this rule also applies to cases where stockholders are made personally liable by statute.^ iter's original cause of action against the corporation was contracted, de- fendant is liable only for the balance remaining unpaid upon those four hundred shares, and not upon the additional one thousand shares ■which he purchased in open market, and which were issued by the cor- poration as fully paid stock. Libby V. Tobey, (Me. 1890) 19 Atlan. Rep. 904. 1 Rider v. Morrison, 54 Md. 439 ; Thotppson's Liability of Stockhold- ers, §g 311, 315 ; Morawetz on Cor- porations, §858; Nathan v.Whitlock, 3'Edw. Ch. 315; s. o. (1841) 9 Paige, 153 ; Veiller v. Brown, (1879) .18 Hun, 571 ; Miller v. Great Republic Ins. Co., (1872) 50 Mo. 55; McLaren v. Franciscus, 43 Mo. 452 ; Mandioh v. Fireman's Ins. Co., 11 Rob. (La.) 177; In re Bachman, (1875) 13 Nat. Bank. Reg. 333 ; Central Agric. &c. Assoc. V. Alabatna Gold Life Ins. Co., (1881) 70 Ala. 120; Gafe v. Flesher, (1877) 33 Ohio St. 107 ; Union Mut. Ins. Co. V. Frear Stone Manuf. Co., (1881) 97 111. 537, 549 ; Douchy v. Brown, 34 Vt. 197; Aultman's Appeal, (1881) 98 Pa. St. 505 ; Everhart v. West Ches- ter &c. R. Co., (1857) 28 Pa. St. 839; Paine v. Stewart, (1866) 33 Conn. 516 ; Bowden v. Santos, (1877) 1 Hughes, (U. S.) 158; Johnson v. Laffln, (1878) 5 Dill. 65; s. o. 6 Cent. L. J. 124; Wehrman v. Reakirt, (1871) 1 Cin. Super. Ct. Rep. 2-30 ; National Bank V. Case, (1878) 99 U. S. 628, 632; Provident Springs Savings Inst. v. Jackson Place Skating &c. Rink, (1873)53 Mo. 557; Chouteau Spring Co. V. Harris, 30 Mo. 883 ; Roman v. 70 Fry, 5 J. J. Marsh. 634; AUibone v. Hager, 46 Pa. St. 48 ; Marcy v. Clark, 17 Mass. 330. He may, however, transfer to an irresponsible person upon guarantying the payment of calls about to be made. William's Case, (1875) 1 Ch. Div. 576; King's Case, (1871) L. R. 6 Ch. 197; Chyno- weth's Case, (1880) 15 Ch. Div. 13; Harrison's Case, (1871) L. R. 6 Ch. 286 ; Master's Case, (1873) L, R. 7 Ch. 293; Hakim's Case, (1873) L. R. 7 Ch. 296 n. ; Bishop's Case, (1873) L. R. 7 Ch. 296; De Pass's Case, 4 De G. & J. 544; Weston's Case, L. R. 4 Ch. 20; Jessopp's Case, (1858)3 De G. & J. 638 ; In re Taurine Co., (1883) L. R. 35 Ch. Div. 118; Moore v. McLaren, (1863) 11 Up. Can. C. P. 534; Baltic's Case, (1870) 39 L. J. £;h. 391. Cf. Bunn's Case, 3 De G., F. & J. 375. 2 Magruder v. Colston, (1875) 44, Md. 349 ; Paine v. Stewart, 33 Conn. 516; Holyoke Bank v. Burnham, 11 Cush. 183; Chapman v. Shepherd, (1867) L. R. 3 C. P. 328; Miller v. Great Republic Ins. Co., (1872) 50 Mo. 55 ; Billings v. Robinson, (1884) 94 N. Y. 415; s. C. (1882) 28 Hun, 133; Mann's. Case, (1868) L. R. 3 Oh. 459, n. ; Mitchell's Case, (1870) L. R. 9 Eq. 363 ; Ex parte Hatton, (1862) . 31 L. J. Ch. 340; Pugh & Shar- man's Case, (1872) L. K. 13Eq. 566; Lankester's Case, (1871) L. R. 6 Oh. 905, n. ; Gilbert's Case, (1870) L. R. 5 Ch. 559. Of. Castellan v. Hobson, (1870) L. R. 10 Eq. 47 ; Maynard v. Eaton, (1874) L. R. 9 Ch. 414; Oolqu- houn V. Courtenay, (1874) 43 L. J. Ch. 338; Richardson's Case, (1875) L. R. 19 Eq. 588. 1106 UNSECtJEBD CEEDITOES. [§706. § 706. (b) The transferrer's statutory liability.— The rule that a transferrer of stock is hot relieved of his liability until the transfer has been made upon the books of the ' company applies equally to the common-law liability and td the per- sonal liability created by statute when the statute relieves hrm of liability upon his transfer of his stock.^ And in order to hold a stockholder liable personally under the statute it is not necessary that any certificates should have been issued to him.^ According to the rule laid down in the construction of statutes making " the stockholders " liable for debts, that the term refers only to those who were stockholders at the tiine the debt was cbntracted, a stockholder can hot of course re- lieve himself of liability by transferring his stock.' Under some statutes, as was seen in the preceding section, a stock- holder may be relieved of liability on a debt when he ceases to be a stockholder before it becomes due or before an action is brought for its collection.* He can not be released from 1 Johnson V. Laffin, (1878) 5 Dill. 65 ; Grease v. Babcook, 10 Mete. 535 ; Q-rewu. Breed, 10 Mete. 569; Holyoke Bank V. Burnham, 11 Gush. 183; Shellihgton v: Howland, (1873) 53 N. Y. 371; Johnson v. UnderhMl, (1873) 63 N. Y. 303; In re Empire Bank, IS^N. Y. 200; Veiler v. Brown, (1879) 18 Hun, 571 ; Richardson v. Abendroth, 43 Barb. 162; Worrall V. Judson, 5 Barb. 210; Adderly v. Storm, 6 Hill, 624; Dane v. Young, (1873) 61 Me. 160; Skowegan Bank V. Cutler, (I860) 49 Me. 315 ; Fowler V. Ludwig, 34 Me. 455; Stanley v. Stanley, 26 Me. 191 ; State v. Ferris, (1875) 43 Gqnn. 560; See also cases cited in note 2, p. 1105, supra. 2Chaffin V. CuratningSi 37 Me. 76; Burr V. Wilcox, 33 N. Y. 551; Wheeler v. Miller, 90 N. Y. 353; Mokelumne Hill Ganal &o. Go. v. Woodbury, 14 Gal. 365-, Moss v. Oak- ley, 3 Hill, 265; JudSon v. Eossie- Galena Co., 9 Paige, 398; MeCUl- lotagh V. Moss, 5 Denio, 567 ; Chesley V. Pierce, 33 N. H. 388; Castleman ti. Holmes, 4 J. J. Marsh, 1; Mill Dam Foundry v. Hovey, 31 Pick. 417 ; Holyoke Bank v. Burnham, 11 Gush. 183; Southmayd v. Buss, 3 Conn. 53 ; Williams v. Hanna, 1 1873) 40 Ind. 535 ; Larrabee v. Baldwin, 35 Gal. 155. Cf. Rosevelt v. Brown, 11 N. Y. 148 ; Gutting v. Damerel, (1882) 88 N. Y, 410. 8 Wehman v. Eeakirt, 1 Cin. Sup. Ct. Eep. 830 ; Mitchell's Case, (1879) L. E. 4 App. Gas. 548; Weston's Case, (1868) L. K. 4 Ch. 20, 30; Ex parte Parke/, (1867) L. E. 3 Ch. 685 ; CJhappell's Case, (1871) L. R. 6 Ch. 902. * Bond V. Appleton, 8 Mass. 472 ; Longley v. Little, 36 Me. 163; Nixon V. Green, 25 L. T. Ex. 209 ; DodgsOn V. Scott, 2 Ex. 457; MoGlaren v. FranciscuS, 43 Mo. 452; Doucihy v. Brown, 24 Vt. 197. Of. Deming v. Bull, 10 Conn. 40; Middletown Bank V. Magill, 5 Conn. 38 ; Child v. Coffin, 17 Mass. 64; Curtis v. Harlow, 13 Mete. 3 ; Southmayd v. Euss, 3 Conn. 52; Kickalls v. Eaton, (1871) 33 L. T. (N. S.) 689; Hawkins v. Maltby, (1867) L. R. 3 Ch. i88. 706.] UNSEOtJE^D CEEDITOES. 1107 liability, however, by means of an agreement with the directs ors.' A vendor of stock may compel his vendee to do every- thing necessary to be done by the latter to consummate the transfer of the stock, and_ to indemnify him on account of his liability as a stockholder.^ 1 Ex parte Parker, (1867) L. R. 2 Ch. 685 ; Gilbert's Case, (1870) L. R. 5 Ch. 559; Allen's Case, (1873) 16 Eq. 449 ; Ex parte Brown, 19 Beav. 97 ; Niokalls v. Merry, (1875) L. R. 7 H..L. 530; Brown v. Black, (1873) L. R. 8 Ch. 989; Mann's Case, L. R. 8 Ch. 458, n. J- Eyre's. Case, 31 Beav, 177; Bennett's Case, 5 De G., M. & G. 284; Munt's Case, 32 Beav. 55. Of. Johnson v. Laffin, (1878) 5 Dill. 65, 81 ; Case'of the Reciprocity Bank, 32 N. Y. 9 ; Symon's Case, (1870) L. R. 5 Ch. 398; Weston's Case, (1870), L. R. 5 Ch. 614; Curtis' Case, L. R. 6 Eq. 455; Castello's Case, L. R. 8 Eq. 504; Walsh v. XTnion Bank, (1879) 5 Quebec L. R. 389. 2 Johnson V. Underhill, (1873) 52 N. Y. 203; Kellogg v. Stockwell, 75 111. 68; Wheeler v. Faurot, (1881) 37 Ohio St. 26; Brown v. Hitchcock, (1881) 36 Ohio St. 667; Paine v. Hutchinson, (1866) L. R. 3 Eq. 357; Shaw u.. Fisher, 5 DeG.,M. & G.596; Cheale v. Kenward, 3 De G. & J. 27 ; Cape's Case, (1853) 2 De G., Mj & G. 563 ; Grissell v. Bristowe, L. R. 3 C. P. 112; Kellock?;. Enthoren, (1878) L. R. 9 Q. B. 241 ; Bowfing v. Shepherd, (1871) L. R. 6 Q. B. 309; Allen v. Graves, (1870), L. R/ 5 Q. B. 478; Shaw V. Rowley, 16 Mees. & W. 810; Sayles v. Blayne, 14 Q. B. 205 ; Coles V. Bristowe, (1868) L. R. 4 Ch. 3; Humble v. Langston, 7 Mees. & W. 517; Wynne v. Price, 3 De G. & Sm. 310; Morris v. Cannan, 4 De G., F. 6 J. 581 ; Hawkins v. Maltby, L. R. 4 Ch. 200; Butler v. Cumpston, L. R. 7 Eq. 16; Evans v. Wood, L. R. 5 Eq. 9; Cruse v. Paine, L. R. 6 Eq. 641 ; s. C. 4 Eq. 441 ; James v. May, L. R. 6 House of Lords, 328 ; Webster «. Upton, (1875) 91 tf. S. 65; Castel- lan V. Hobson, (1870) L. R. 10 Eq. Cas. 47. For further information on this,subject see the following : Brew- ster V. Hartley, 37 Cal. 15; Jackson V. Sligo Manuf. Co., (1878) 1 Lea, 310 ; Allen V. Montgomery R. Co., 11 Ala. 437; Graff u Pittsburgh &c. R. Co., (1858) 31 Pa. St. 489 ; Chubb v. Upton, (1877) ,95 U. S. 665; Mann v. Currie, 2 Barb. 294; Isham v. Buckingham, (1872) 49 N. Y. 216; Chambersburg Ins. Co. u. Smith, 11 Pa. St. 120; Murray v. Bush, •(1873) L. R. 6 H. of L. 87 ; Taylor v. Hughes, 2 Jones & Lat. (Irish Ch.) 24; Upham v. Burn- ham, (1873) 3 Biss. 431; Bernard's Case, 5 De G. & Sm. 283 ; Pittsburgh &c. R. Co. V. Clarke, (1875) 29 Pa. St. 146; Messersmith v. Sharon Savings Bank, (1880)96 Pa. St. 440; Palmer V. Ridge Mining Co., 34- Pa. St. 288; Frank's Oil Co, v. McCleary, 63 Pa. St. 317 ; Pittsburgh Iron Co. if. Otteison, (1878)4 Week. Notes Cas. 545; Dela- ware Canal Co. v. Sansom, 1 Binn. 70. Cf. West Philadelphia Canal Co. u. Innes, 8 Whart. 198; Mitchell V. Beekman, 64 Cal. 117 ; S. C. 16 Rep. 586; Agricultural Bank v. Wilson, '(1.844) 34 Me. 373 ; Merrimac Mining Co. 'V. Levy, 54 Pa. St. 327; Ault- man's Appeal, (1881) 98 Pa. St. 505; Marlborough Manuf. Co. v. Smith, 3 Conn. 579; Louisiana Ins. Co, v, Gordon, 8 La. Rep. 174 ; Midland &c. Ry. Co. V. Gordon, 16 Mees. & W. 804 ; Brigham v. Mead, 10 Allen, 245 ; Walker ^. Bartlett, 18 C. B. 845; Watson V. Eales, 33 Beav, 394; 1108 TOTSECtTEED OKEDITOES. [§ TOY. § 707. (c) The transferee's common-law liability. — A per- son, may become a stockholder in a corporation either by orig- inal subscription, by direct purchase from the corporation or by subsequent transfer from the original holders, and stock- holders are equally liable for unpaid subscriptions whether they become owners of shares- by original subscription, or by subsequent transfer;^ it being well settled that an express promise to pay the unpaid balance of the subscription is not necessary to hold the original subscriber or the subsequent transferee liable thereon.^ For the acceptance arid holding of shares in a corporation m9,kes the holder liable to the respon- sibilities of a shareholder. So "if the law implies a promise b}'^ the original subscribers to pay the full par value when it may be called, it follows that an assignee of the stock wheu' he has come into privity with the' company by having stock transferred to him on the company's books is equally liable." ' Accordingly, where stock has been transferred and the trans- feree has been accepted as a stockholder and entered as such iipon the books of the company, he becomes liable for the McCready v. Rumsey, 6 Duer, 574 ; In re Bachman, (1875) 13 Bankr. Reg. 333. 1 Webster v. Upton, (1875) 91 U. S. 65; Ward v. Griswoldville Manuf. Co., 16 Conn. 593. 2 Upton V: Tribilcock, 91 U. S. 45. 3, Story, J., in Webster v. Upton^ 91 U. S. 65; Cole v. Ryan, 53 Barb. 168 ; Isham v. Buckingham, (1873) 49 N. Y. 316; Burke v. Smith, (1872) 16 Wall. 390; Brigham v. Meade, 10 Allen, 345; Thorp v. WoodhuU, 1 Sandf. Ch. 411; Upton v. Burn- ham, (1873) 3 Biss.' 431, 530; First Nat. Bank v. GifEord, 47 Iowa, 575, 583; Johnson u. Laffin, (1878) 5. Dill. 65 ; Huddersfield Canal Co. v. Buck- ley, (1796) 7 Term Rep. 96; Exec- , utors of Gilmore v. Bank of Cincin- nati, 8 Ohio, 63, 71; Billings v. Rob- inson, (1884) 94 N. Y. 415; Wakefield V. Fargo, (1883) 90 N. Y. 213; Cowle V. Cromwell, 25 Barb. 413; "Chouteau Spring Co. v. Harris, 30 Mo. 382; Miller v. Great Republic Ins. Co., 50 Mo. 55 ; Allen v. Montgomery R. Co., 11 Ala. 437i 451 ; Haynes v. Palmer, 13 La. Ann. 340 ; Hartford &c. R. Co. V. Boorman, 13 Conn. 530; Bend V. Susquehanna Bridge &c. Co., 6 Harr. & J. 138; Hall v. United States Ins. Co., 5 Gill, (Md.) 484; Aylesbury Ry. Co. V. Mount, (1843J Scott's New Rep. 137 ; Weston's Case, L. R. 4 Ch. 30. Cf. McKenzie v. Kittridge, (1874) 34 U. C. C. P. 1; Provincial Ins. Co. V. Shaw< 19 U. C. Q, B. 533; Wintringham v. Rosenthal, (1881) 35 Hun, 580; Shellington v. Howland, (1873) 53 N. Y. 3T1 ; Water- house V. Jamieson, L. R. 2 Sc. App. 39 ; Spargo's Case, (1873) L. R. 8 Ch. 407; In re Hoylake Ry. Co., (1874) 9 Ch. 357; In re European Bank, Mas- ter's Case, (1873) 41 L, J. Ch. 501; Midland &c. Ry. Co. v. Gordon, 5 Ry. & Canal Cases, 76 ; s. 0. 16 Mees. & W. 804. § T08.] TTNSECTJEED CEEDITOES. 1109 unpaid balance upon the stock, whether or not he assented to the registration or l^new of it;' and he is sometimes made liable by statute for the debts of the corporation even before his transfer is recorded.^ But if the name of an individual wrongly appears upon the books of a corporation as a stock- holder he is entitled to show that it is there without right.' § 708. (d) The transferee's statutory liability. — It is well settled that the registration of a transfer upon the books of the company imposes upon the transferee the obligation to pay any sum due upon the stock, even though he hold the stock as trustee for another, or as collateral security, for the books of the corporation ^ve prima faoie evidence of the own- ership of the stock;* and this is also the case where stock- 1 Webster v. Upton, (1875) 91 U. S. 65 ; Upton v. Burnham, (1873), 3 Biss. 520; London &o. Ey. Co. v. Fair- clough, 3 Man. & G-. 674, 703. 2 Thus in New York, "no transfer of stock shall be valid for any purpose whatever, except to render the person to whom it shall be transferred liable for the debts of the company, ac- cording to the provisions of this act, until it shall have been en- tered therein (i. e., in the corporate stock book) as required by this sec- tion, by "an entry, showing to and from whomtransferred." New York Laws of 1848, ch. 40, § 35 ; Herries^. Piatt, (1878) 13 Hun, 493; Johnson V. Underbill, (1873) 53 N. Y. 303; Shellington v. Howland, 53 N. Y. 371; Rosevelt 1). Brown, 11 N. Y. 148 ; Wotrall v. Judson, 5 Barb. 310 ; Dane v. Young, 61 Me. 160; Davis u. Essex &o. Society, (1877) 44 Conn. 583; Kellogg u Stockwell, 75111.68; London &c. Ey. Co. v. Fairclough, (1841) 3 Man. & G. 674; Humble v. Langston, 7 Mees. & W. 517 ; McEuen . V. West London Wharves &o. Co , L. E. 6 Ch. 655 ; Saylea v. Blane, 19 L. J. Q. B. 19. : 3 Webster v. Upton, 91 U. S. 65; In Jje Eeciprocity Bank, 32. N. Y. 9 ; Birch's Case, 2 De G. & J. 10; Fox's Case, 3 De G., J. & S. 465; Higg's Case, 3 Hem. &M. 657; Somerville'a Case, (1870) L. E. 6 Ch. 366; Bullock V. Chapman, 3 De G. & Sm. 311 ; Col- quhoun v. Courtenay, j;i874) 43 L. J. Ch. 338 ; Emerson's Case, L. E. 1 Ch. 4.33; Fyfe's Case, (1869) L. R. 4 Ch. 768; S. C. (1870) L. E. 9 Eq. 589; Nation's Case, (1866) L. R. 3 Eq. 77; Hill's Case, (1869) L. E. 4 Ch. 769, note; Ward & Garfit's Case, (1867j L. E. 4Eq. 189; Ward's Case, (1866) L. E. 3 Eq. 366 ; Ex parte Hender- son, (1854) 19 Beav. 107; Shortridge V. Bosanquet, (1853) 16 Beav. 84; White's Case, (1868) L. E. 3 Eq. 1866. i Turnbull v. Payson, 95 U. S. 418 ; Franklin Glass Co. v. Alexander, 3 N. H. 380; s. C. 9 Am. Dec. 93; Bend v. Susquehanna Bridge Co., 6 Harr. & J. 138; Merrimao Mining Co. V. Bagley, 14 Mich. 501 ; Brig- ham V. Mead, 10 Allen, 345; Sey- mour V. Sturges, 36 N. Y. 134; Web- ster V. Upton, 95 U. S. 65 ; Pullman V. Upton, 96 U. S. 338; Upton v. Hansbrough, (1873) 3 Biss. 417; Foreman v. Bigelow, (1878) 4 Cliff. 508; Cole v. Eyan, (1868) 53 Barb. 168; Mann v. Currie, 3 Barb. 394; Hall V, United States Ins. Co., 5 1110 UirSBOUEED CEEDITOES. [§ 708. holders are made persbnally liable by statutory provisions.* Inasmuch as the personal liability of stockholders exists only hy statute and is a contract liability, the extent to which a transferee of stock is bound for corporate debts must be de- termined by reference to the par^ticular statutes governing corporations. Where the charter or statute simply provides that "the stockholders" shall be personally liable for ^ the debts of the corporation, it has been construed to mean that the, liability attaches only to those who held that position at the time the debt was contracted, and not to those who sub- sequently became stockholders.^ In other cases, where char- ters or statutes provide that upon the return, unsatisfied, of an execution against the property of the corporation, the stock- holders shall be liable, it has been held that the liability at- tached to those who were members of the corporation at the time of the commencement of the action.' In another class Gill, (Md.) 484; Hartford &o. R. Co. V. Boorman, 12 Conn. 520 ; Moore V. Jones, (1877) 3 Woods, 53; In re South Mountain &c. Mining Co., (1881) 7 Sawyer, 30; Merrimac Mining Co. v. Levy, (1867) 54 Pa. St. 227 ; Huddersfield Canal Co. v. Buck- ley, 7 Term Rep. 96; Evans v. Wood, (ISefS) 37 L. T. Ch. 159. 1 Irons V. Manufacturers' Nat. Bank, 27 Fed. Rep. 591; Price v. Whitney, (1886) 28 Fed. Rep. 297; Magruder v.. Colston, (1875) 44 Md. 349, 356; Fisher v. Seligman, (1881) 75 Mo. 13; Adderley v.. Storm, 6 Hill, 624; Crease v. Babcock, 10 Met. 525 ; In re Empire City Bank, 18 N. Y. 200, 224; Holyoke Bank v. Burnham, 11 Cush. 183, 187. 2Mokelumne Hill Canal Co. v. Woodbury, 14 Cal. 265; Davidson V. Rankin, 34 Cal. 503; Larrabee v. Baldwin, 85 Cal. 155; Williams v. Haiina, (1872) 40 Ind. 535; Brown V. Hitchcock, (1881) 36 Ohio St. 667; Wheeler v. Faurot, (1881) 37 Ohio, 26 ; Milliken v. Whitehouse, 49 Me. 527; Moss v. Oakley, 2 Hill, 265; Judsou V. Rossie-Qalena Co., 9 Paige, 598; McCuUough v. Moss, 5 Denio, 567; Tracy v. Yates, 18 Barb. 152; Adderly v. Storm, 6 Hill, 624 ; Free- land V. McCullough, 1 Denio, 414; Hargeri). McCullough, 2 Denio, 119, Byers v. Franklin , Coal Co., (1870) 106 Mass. 131. Cf. Castleman v. Holmes, (1839) 4 J. J. MarsK. 1 ; Mill Dam Foundry, "M. Hovey, (1839) 21 Pick. 417; Holyoke Bank v. Burn- ham, (1853) 11 Cush. 183;' Garrison V. Howe, (1858) 17 N. Y. 458, 464. Bronson, J., in explanation of this rule, said in Moss v. Oakley, 2 Hill, 265: "A man 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 extent of obligations contracted by the company, and is not wholly with- out the .means of exerting an influ- ence over those who manage its concerns." 'Johnson v. Underhill, (1873) 52 N. Y. 203; Middletown Bank v. Ma- gill, 5 Conn. 28 ; Johnson v, Laffin, § 108.] XIKSECUEED CEEDITOES. 1111 of cases it is held that where the statute provides that "all members," or "all stockholders" shall be individually liable, the term includes not only those who were such when the debt is contracted but also those claiming to be stockholders at the time the action upon the debt is commenced.^ A stockholder is not liable for debts contracted before he became a member if he ceases to be a member before the debt becomes due and action is brought for its collection.^ So when stockholders are liable for debts of the corporation for which promissory notes were issued, they are discharged by the cancellation of {1878) 5 Dill. 65; Moss v. Oakley, (1842) 2 Hill, 265 ; Cowles v. Crom- well, (1857) 35 Barb. 413; Cole v. Ryan, (1868) 52 Barb. 168; Cliouteau Spring Co. v. Harris, (1855) 30 Mo. 382; McClaren v. Franciscus, (1869) 43 Mo. 452 ; Miller v. Great Republic Ins. Co., 50 Mo. 55; Grissell v. Bris- tovve, L. R. 3 C. P. 112; Hudders- field Coal Co. v. Buckley, 7 Term Rep. 36; Croxton's Case, 1 Da G., M. & G. 600; Mayhew's Case, 5 De G., M. & G. 837; Sutton's Case, 3 De G. & Sm. 263; Nixon v. Green, 11 Ex. 550; S. C. 25 L. J. Ex. 209. Of. Williams v. Hanna, (1872) 40 Ind. 535; Hager v. Cleveland, (1872) 36 Md. 476; Holyoke Bank v. Burn- ham, (1853) 11 Gush. 183; Bond v. Appleton, 8 Mass. 472; Marcy v. Clark, 17 Mass. 380; Curtis v. Har- low, 12 Met. 3. 1 Curtis V. Harlow, 12 Met. 3; "Wheeler v. Faurot, (1881) 37 Ohio St. 26; Brown v. Hitchcock, (1881) 36 Ohio St. 667. Cf. Jackson v. Sligo Manuf. Co., (1878) 1 Lea, 310. " No stockholder 'shall be personally lia- ble for any debt of the corporation not payable within two years from the time it is contracted, nor unless an action for its collection shall be brought against the corporation within two years after the debt be- comes due; and no action shall be brought against a stockholder after he shall have ceased to be a stock- holder in any such compahy, for any debt of the corporation, unless brought within two years frona the time he shall have ceased to be a stockholder." N. Y. Laws 1890, ch. 564, § 58; Handy v. Draper, (1882) 89 N. Y. 334; Hastings v. Drew, 76 ,N, Y. 9; Shellington v. Howland, 53 N. Y. 371 ; Fi-eeland v. MoCullough, 1 Denio, 414, 426 ; Veiler v. Brown, 18 Hun, 571 ; Fisher v. Marvin, (1866) 47 Barb. 159. " The liability extends to all persons who were stockholders when the debt sought to be enforced was contracted, and also to all per- sons who were stockholders when the liability is sought to be enforced, although they may have become sucli since the debt was contracted, but it does not extend to persons who had become stockholders, after the debt was contracted, and had ceased to be such before the debt became payable and action was brought." Sayles v. Bates, (1886) 15 R. L 342 ; In re South Mountain &c. Mining Co., (1881) 7 Sawyer, 30* Laing v. Burley, (1882) 101 111. 591; Brown v. Hitchcock, (1881) 36 Ohio St. 667; Cleveland v. Burnham, 55 Wis. 598. 2 Holyoke Bank v. Burnham, 11 Cush. 183; Sayles v. Bates, 15 R. I. 343; Prince v. Lynch, 38 Cal. 538; s. C. 99 Am. Dec. 434, and note. 1112 JTNSECUEED CEEDITOES. " [§§ 709, 710. the notes and the issue of new notes in payment of the debt after.they ceased to be stockholders." These three classes of statutes and the decisions construing them thus respectively, in eilect, favor the subsequent transferee, the persons who are stockholders at the time the debt was contracted, and the creditor. § 709. (e) Purchasers at sales of forfeited stock. — If the stock has been only partially paid for, the purchaser at a for- feiture sale must pay the installments due and to become due, and if he fails to do so the shares must be sold again.^ A sale of, stock pursuant to the authority contained in a pledge is not open to the charge that it was done in fraud of creditors, even though the object of the pledgees -was to avoid the lia- bility imposed by the national banking act.' § 710. Proceedings against members of voluntary asso- ciations. — The creditors of a voluntary association- may pro- ceed either against the association or its members.* In New York, however, before the individual members of an unincor- porated association, consisting of more than seven members, and having by-laws and a treasurer, can be sued for a debt of the association, an action must, first be brought against the president or treasurer.' If the persons constituting an asso- ciation send an agent into the market with unlimited author- ity to make purchases and contract debts in the name and for the benefit of the association and not in the names of the in- 1 Wheeler v. Faurot, 37 Ohio St. 26. Conn. 103 ; s. 0. 8 Am. St. Eep. 40, 2 Sturges V. Stetson, 1 Biss. 346, holding also that pei-sons permitted •251; " Contributories on Forfeited under the Connectiout Aot of 1875, Shares," 43 L. T. 97. In England, to form voluntary associations for however, it is enacted that the pur- ^trading purposes, do not acquire chaser at a forfeiture sale holds the corporate rights or immunity from shares discharged of all calls due individual liability; " Clubs and the prior to purchase. ^ He is not bound Outside World," (1883; 17 L. J. 136 ; to see to the application of the pur- "Liabilities of Members of Clubs," chase money, nor is his title to be 13 Leg. Obs. 481 ; " Partnership and afiEected by any irregularity in the Joint-stock Companies," 11 Jour. proceedings in reference to the sale. Jur. 333, 389. 8 Vic. ch. 16, § 33. «FIagg v. Swift, 25 Hun, 623; SMagruder ;;. Colston, 44 Md. 349. N. Y. Code, § 1919. * Davison /w. Holden, (1887) 55 § 711.J TJNSEC0EED CKEDITOES. 1113, dividuals composing it, the creditor may, if he is content to look only to the property of the association as such for his security, institute his action- against the association by its dis- tinguishing name.^ If he desires to reach the individual prop- erty of member-s, he must institute his suit against such and so many of them as he can name, as individuals. He may do this even if the sale was made a,nd the credit given in form to the association, and the name of no individual member was then known to him, for the reason that he gave credit upon the request of a known agent for an unknown principal. By operation of law the credit was to the principal from the be- :ginning, to be enforced whenever he can be discovered .'■* A suit may be instituted by the creditor against the individuals composing a voluntary association, as at common law, if the plaintiff will take the risk of naming all and naming them correctly.^ If he names only a part of those who should be named, a plea- in abatement may be interposed specifying omitted names.* But if no, such plea be interposed, those who are named are properly sued and must submit to judg- ment.^ I ' §711. Remedies at law and in equity. — It has been held that, where stockholders are in default after calls regularly made, a judgment creditor of the corporation has a complete remedy at law, and therefore will not, in the absence of some special circumstance, be a;llowed to proceed in equity.^ So in the case of a bank whose stockholders are subject to a per- sonal liability for losses. "As to the trust funds and saving funds deposited," individual creditors seeking to enforce this liability at law may be enjoined from prosecuting such suits at the instance of the whole body of creditors interested.' 1 Davison v. Holden, (1887) 55 * Davison v. Holden, (1887) 55 Conn. 103; s. C. 3 Am. St. Eep. 40. Conn. 103; s. C. 3 Am. St. Rep. 40. C/. "Liabilities of Partners of Joint- 5 Davison v. Holden, (1887) 55 stock Companies," 1 Scot. K J. 78, Conn. 103; s. c. 3 Am. St. Eep. 40. 117, and 3 Scot. L. J. 1. 6 Allen v. Montgomery R. Co., 11 2 Davison v. Holden, (1887) 55 Ala. 437. Cf. " Proceedings by SaVe Conn. 103; s. c. 3 Am. St. Rep. 40. Facias against Members of Corpora- Cf. Monographic Note, 7 Am. St. tions," 38 Leg. Obs. 117; "Scire Rep. 163. ' Facias against Eailv?ay Sharehold- 3 Davison v. Holden, (1887) 55 ers," 13 Sol. J. & Rep. 93, 111. Conn. 103; s. C. 3 Am. St. Rep. 40. ' Eamesi). Doris, 103 111. 350. 1114: PSfSECUEBD CEEDITOES. ' [§ 711. "Where the liability of stockholders is several, an actioii at law cannot be maintained, unless expressly provided by statute, to enforce the statutory likbility of the stockholders, in which they are all joined, but each creditor has his remedy against each stockhplder.i Under the Manufacturing Company's Act of Illinois, the creditor's remedy is held to be clearly in equity,'' though there was some doubt as to whether the bill in equity would lie; yet in case the corporation is insolvent, and the corporate creditors numerous, a bill in equity is the proper remedy.' In Minnesota an action to enforce the individual liability of a stockholder in a manufacturing corporation, in a case not falling within the provisions of the general statutes of that State relating to fraud, etc., must be in the nature of a suit in equity, prosecuted by, or in behalf of, all creditors, and against the corporation and all the stockholders upon whom the liability rests.^ Two or more creditors may join in an equitable action to enforce the statutory liability of share- holders.-'* Where, as by the laws of Ohio, the stockholders of a corporation organized thereunder are individually liable to the amount of their stock, this liability is collateral, to be re- sorted to by creditors only in case of tte insolvency of the corporation, or when payment can not be enforced against it by the ordinary process.* A joint action may be brought to recover from stockholders of an insolvent corporation the amount of a debt due from the corporation, and the judgment may be so framed as to apportion their liability ; " but in a suit by a creditor to enforce a stockholder's individual liabil- ity for a corporate debt, it is not necessary to join all the creditors of the corporation, nor all the stockholders.^ A bill having been brought originally by one who, with the assist- ance of others, buys up the whole of the company's indebted- ness, and has it assigned to himself in trust for himself and 'Abbott u Aspiawall, 26 Barb. ■• Johnson a Fischer, 30 Minn. 173, 203 ; Morrow v. Superior Court, 64 construing Minn. Gen. Stat. ch. 34, § 9. Cal. 383. SHiokling v, Wilson, (1883) 104 111. 2 Rounds V. McCormick, 114 111. 54. 252; Harper v. Union Manuf. Co., ^ Minick •«. Mingo Iron Works Co., 110 111. 322; Low v. Buchanan, 94 25 W. Va. 184. 111. 76. ' Overndyer v. Cannon, 82 Ind. 457. STunesma v. Schuttler, (1885) 114 ^ Brundage u. Monumental Gold & 111. 156. Mining Co., 12 Oregon, 323. § -713.] UNSECtlEED GEEDITOES. 1115 the others, an amendment joining the other purchasers as complainants was held to be allowable.' § 712. Bills in equity. — As a corollary to the trust-fund doctrine, it follows that when the legal assets of a corporation are insufficient to meet the demands of its creditors^ the^' may invoke the aid of a court of equity to compel the payment of the balance due upon subscriptions to the capital stock - by a bill making the corporation and all the solvent stockholders, known to the plaintiff, within the jurisdiction of the court, defendants,' (except where this will be excused upon an alle- Appeal, 98 Pa., St. i~Aultman's 505. ^ " Petition in Banltruptcy against Officers and Stockholders," 11 Alb. L. J. 155; Chandler v. Siddle, 10 Bankr. Reg. 236 ; Myers v. Seeley, 10 Bankr. Reg. 411: Ogilvie v. Knox Ins. Co., (1859) 23 How. 380; Salman V. Hamborough Co., 1 Cas. in Ch. (Eng.) 204; Henry u. Vermilion ifec. Turnpike Co., (1848) 17 Ohio, 187; Miers v. Zanesville &c. Turnpike Co. , (1842) 11 Ohio, 273; Bank of Cincin- nati, 8 Ohio, 62, 71; Judson v. Rossie Galena Co., (1843) 9 Paige, 598; Van Pelt V. United States &c. Co., (1873) 13 Abb. Prac. (N. S.) 331 ; Hammond V. Hudson River &c. Co., (1854) 11 How. Pr. 33 ; Louisiana Paper Co. v. Waples, (1-877) 3 Woods, 34; Faull *. Alaska Mining &c. Co., (1883) 8 Saw- yer, 420; Stephens v. Fox, (1881) 83 N. Y. 313; Dayton v. ^orst, (1865) 31 N. Y. 435 ; Gillet v. Moody, 5 Barb. 179; S. 0. 3 N. Y. 479; Bank of the United States v. Dallam, (1836) 4 Dana, 574; Bank of Virginia v. Adams, 1 Pars. Sel. Cas. 534; Craw- ford V. Eohrer, (1883) 59 Md. 599; Stinson v. Williams, 35 Ga. 170 ; Ad- ler V. Milwaukee &o. Co., (1860) 13 Wis. 57 ; Curry v. Woodward, (1875) 53 Ala. 371; Glenn v. Semple, 80 Ala. 159 ; s. C. 60 Am. Rep. 92, 94 ; Wincock v. Turpin, (1880) 96 111. 135; Bassett v. St. Alban's Hotel Co., 47 Vt. 313; Ward v. Griswoldville Manuf, Co., (1844) 16 Conn. 593; Lane's Appeal, 105 Pa. St. 49; and cases cited in the next note. A case for equitable relief is made out by a creditor's bill against the sharehold- ers of a corporation, which alleges that the corporation is insolvent, that the shareholders are subject to per- sonal liability, and that the assets are being wasted by the institution of separate suits at law by many creditors. Tunesmav. Sohuttler, 114 111. 156. 3 Morgan v. New York &c. R. Co., 10 Paige, 390; s. c. 40 Am. Dec. 244; Coleman v.. White, 14 Wis. 700 ; S. c. 80 Am. Dec. 797; Erioson v. Ne- smith, 46 N. H. 371 ; S. C. 77 Am. Dec. 78; Hightowet v. Thornton, 8 Ga. 486; s. c. 53 Am. Dec. 413; "Rem- edy in Equity of Creditor against Shareholders of Foreign Corpora- tion," by Gideon D. Bantz, 21 Cent. L. J. 90 ; Germantown &o. Ry. Co. V. Fitler, 60 Pa. St. 124; s. C. 100 Am. Dec. 546; Winoock v. Turpin, 96 111. 135; Harmon v. Page, (1882) 63 Cal. 448;. Sherwood v. Buffalo &c. E. Co., (1855) 12 How. Pr. 137 Hatch V. Dana, (1879) 101 U. S, 205 Sanger v. Upton, 91 U. S. 56, 60 Marsh v. Burroughs, (1871) 1 Woods, 463 ; Holmes v. Sherwood, (1881) 16 Fed. Rep. 725; Stqvens u. Fox, (1881) 83 N. Y. 313; s. C. 17 Hiin, 435; 1116 TJNSECtlEED CBEDITOES. [§m. gation that the number is too great,) ^ and so framed as to admit as plaintiffs all other creditors, who may wish to come in.^ If the other creditors do not elect to join, it is immate- rial, for although proper parties to the suit they are not nec- essary parties.' "When one such bill has been filed, the court will not allow other creditors to file similar bills, but will re- quire them all to join in one proceeding.* § 713. Mandamus to compel calls. — Mandamus by cred- itors of corporations to compel the officers to make calls for the purpose of raising funds to meet their demands is a rem- edy to which a resort does not appear to have been attempted in this country ; and the use of the writ for this purpose has been doubted.'^ But in England a mandamus is sometimes Pfohl V. Simpson, (1878) 74 N. Y. 137; Griffith v. Mangam, 73 N. Y. 611; Matliez v. Neidig, 72 N. Y. 100; Crease v. Bafecock, , 10 Met. 525; Wetlierbee vl Baker, 85 N. J. Bq. 501 ; Umsted v. Buskirk, 17 Oiiio St. 113; Carpenter v. Marine Bank, 14 Wis. 705 ; Mann v. Pentz, 8 N. Y. 415; Masters v. Rossie &c;. Mining Co., 2 Sandf. Ch. 301;' Walsh v. Miemphis &c. R. Co., 2 MoCrary, 156; Vick V. Lane, 56 Miss. 681 ; Hadley V. Russell, 40 N. H. 109; Pierce v. Milwaukee &c. Co., 38 Wis. 250; Dalton &c. R. Co. v. McDaniell, (1876) 56 Ga. 191; Hightower v. Thorn- ton, 8 Ga. 506; Curry «.' Wood ward, 38 Ala. 371; Allen v. Montgomery &o. R. Co., (1847) 11 Ala. 487; Craw- ford u. Eohrer, 59 Md. 599 ; Perry v. Little, 101 U. S. 216; Wilbur v. Stockholders, 18 Bankr. Reg. 178; Pollai-d V. Bailey. 20 Wall. 520; Smith V. Huckabee, 53 Ala. 191; Jones V. Jarman, 34 Ark. 323 ; Har- ris V. First Parish in Dorchester, 23 Pick, 112; Knowlton v. Ackley, 8 Cush. 93; Spear v. Grant, 16 Mass. 9; Hodges V. Silver Hill Mining Co., 9 Oregon, 200. iViok V. Lane, 56 Miss. 681, 684. C/. Bonewitz v. Vaa Wert Co. Bank, 41 Ohio St. 78. A bill will not be held defective merely because it fails to make all the delinquent stock- holders parties defendant. Hatch v. ■Dana, 10 U. S. 205; Ogilvie v. Kiios Ins. Co., 22 How. 380; Marsh v. Bur- roughs, 1 Woods, 463; Holmes v. Sherwood, 3 McCrary, 405 ; Griffith u. Mangam, 78 N. Y. 611; Bartlett V. Drew, 37 N. Y. 587; Glenn v. Williams, 60 Md. 98; Brundage v. Monumental &g. Mining Co., 13 Or- egon, 332, Of. Von Schmidt v. Hunt- ington, 1 Cal. 55 ; Lamar Ins. Co. v. Gulick, 103 111. 41. 2 Patterson v. Lynde, 106 U. S. 519; Terry v. Lyttle, 101 U. S. 316 ; Brown V. Fiske, 33 Fed. Rep. 228; Holmes V. Sherwood, 3 McCrary, 405; Pol- lard V. Bailey, 20 Wall. 520 ; Sawyer V. Hoag, 17 Wall. 610. 3 Hatch V. Dana, 101 U. S. 205; Marsh v. Burroughs, 1 Woods, 463 ; Crease v. Babcock, 10 Met. 525. Cf. Adler v. Milwaukee &o. Co., 18 Wis. 57. ^Crease v. Babcock, 10 Met. 525. But see Perry v. Turner, 55 Mo. 418. 5 Hays V. Lycoming F. Ins. Co., 98 Pa. St. 184; Hatch v. Dana, (1879) 101 U. S. 205 ; Dalton &o. R. Co. v. McDaniel, 56 Ga. 191. Cf. CucuUu § T14.J UNSECUEED CEEDITOES. 1117 granted. 1 Creditors need not, however, apply for a mandamus, but may compel the payment of unpaid subscriptions by suit in equity.^ § 7 1 4. Calls by courts of equity — Where stock is sub- scribed to be paid upon the call of the company, and the com- pany becomes insolvent and refuses or neglects to make the call, a court of equity will assume the function if the interests of the creditors require it.' In England the courts have at the instance of corporate creditors compelled the directors of a corporation to issue a call for unpaid subscriptions by man- damus,* a doubtful remedy in the United States:' Although a call is generall}'' necessary to fasten the obligation absolutely upon the stockholders, yet in case of corporate insolvency, no call is necessary. It is sufficient that a court of equity orders the subscriptions to be paid.^ A decree of a court of equity V. Union Ins. Co., (1842) 3 Rob. (La.) 573; Allen v. Montgomery &c. E. Co., (1847) 11 Ala. 437. 1 Queen v. Victoria Park Co., 1 Q. B. 288;' Queen «. Ledyard, 1 Q. B. 616; Kingu St. Catiiarine D^ck Co., 4 Barn. & Adol. 360. 2 Ward V. Griswoldville Manuf. Co., 16 Conn. 593, 601; Dalton &c. E. Co. V. McDaniel, 55 Ga. 191. A foreign insolvent corporation, if still in existence, could be compelled by mandamus, or by bill in equity, to collect the unpaid subscriptions from its stockiiolders. If it had ceased to exist, a receiver should be appointed, who would represent the corporar tiqn. Patterson v. Lynde, 112 111. 196, 206. 8 Sccville 17. Thayer, 105 U. S. 143; Robinson v. Bank, 18 Ga. 65 ; Curry v. Woodward, 53 Ala. 871 ; Ward v. Gris- woldville Manuf. Co., 16 Conn. 593, 601. Where shareholders are liable to the corporate creditprs as a class, the legal remedy is inadequate and the aid of equity must be invoked. Rounds V. McCormick, 114 III. 252. * Queen v. Victoria Park Co., 1 Ad. &E. N. S. 544; Queen v. Ledyard, 1 Ad. & E. N. S. 616; King v. Kather- ine Dock Co., 4 Barn. & Ad., 360. 6 Hatch V. Dana, 101 TJ. S. a05; Dalton &c. R. Co. v. McDaniell, 56 Ga. 191. Cf. Cucullu v. Union Ins. Co., 3 Rob. (La.) 573; Allen v. Mont- gomery &c. R. Co., 11 Ala. 437. 6 Sanger v. Upton, 91 U. S. 56;' Marsh v. Burroughs, 1 Woods, 463; Sagory v. Dubois, 3 Sandf . Ch. 466 ; Glenn v. Williams, 60 Md. 93 ; Sco- vi'u V. Thayer, 105 U. S. 143, 155; Hatch V. Dana, 101 U. S. 205, 314; Chubb V. Upton, 95 U. S. 665; Wil- bur- V. Stockholders, 18 Bankr. Reg. 178 ; Myers v. Seeley, 10 Bankr. Reg, 411; Curry v. Woodward, 53 Ala. 371 ; Glenn v. Semple, 80 Ala. 150 ; S. c. 60 Am. Rep. 93; Robinson v. Bank of Darien, 18 Ga. 65 ; Ward v. Griswoldville Manuf. Co., 16 Conn. 593; Henny v. Vermillion &c. R., Co., 17 Ohio, 187. Cf. Germantown &o. E. Co. V. Fitley, 60 Penn. St. 134 ; Chandler v. Keith, 43 Iowa, 99 ; Mann v. Pentz, 3 N. Y. 415 ; Ogilvie V. Knox Ins. Co., 32 How. 880; Adler V. Milwaukee Manuf . Co., 18 Wis. 63. 1118 UNSEOUEED CEEDITOES. [§715. making an assessment upon the capital stock of a corporation for the payment of corporate debts is binding upon all stock- holders whether' or not they were individually parties to the action.^ A call by trustees or directors is only a step in the process of the collection of unpaid subscriptions, and there- fore a court of equity may pursue its own method of collec- tion provided no injustice is done the stockholders.^ The dissolution of a corporation does not destroy the right of creditors to enforce the unpaid subscriptions to the stock, and they may reach this fund through the courts of equity.' Although it is a rule of the common law that debts due to and from a corporation are extinguished by its dissolution, yet when the legislature has interposed to prevent that result, the courts must sustain the legislative enactments.^ Where an assignment for the benefit of its creditors has been made by a corporation, it is competent for the court in chambers during vacation to authorize by order the collection of all the unpaid balance due on stock.* § 715. Whether unsecured creditors may procure ap- pointment of a receiver. — When ordinary remedies, either at law or in equity, are sufficient to enable unsecured creditors to enforce the payment of their claims, they can not, even though they have obtained judgment against the company, ordinarily procure the appointment of a receiver merely on the ground that it fails or refuses to satisfy their claims,' unless they can show that the company is insolvent and that there is danger of its wasting its assets.' But an application for the appoint- And see Seyrnon v. Sfciirgess, 36 N. Y. s Citizens' &c. Trust Co. v. Gilles- 134; Wheeler v. Millar, 90 N. Y, 353; pie, (1887) 115 Pa. St. 564. Briggs V. Penniman, 8 Cow. 387, 395; 6 Beach on Railways, § 696; Sage s. C. 18 Am. Deo. 454; Salmon v. u. Memphis &cl E. Co., 135 U. S. 361 ; Hamborough Co., 1 Cas. Ch. 304. Milwaukee & M. R. Co. v. Soutter, 1 Glenn v. Williams, 60 Md. 93. 3 Wall. 510, 533. 2 Crawford v. Eohrer, (1883) 59 Md, ' TurnbuU v. Prentis Lumber Co., 599. 55 Mich. 387; Powers v. Hamilton 3 Hightower v. Thornton, (1850) 8 Paper Co., 60 Wis. 33. Cf. Kelley Ga. 486 ; s, 0. 53 Am. Deo. 413 ; Tar- v. Alabama &c. R. Co., 58 Ala. 469. bell V. Page, 24 III. 46. But it is not necessary in such a case * Robinson v. Lane, (1856) 19 Ga. that they should' first sue out an ex- 337; Thornton v. Lane, 11 Ga. 459; ecution, where he deems it useless Lane v. Morris, (1850) 8 Ga. 468, 476, and no objection' is made to the ap- § 716.] TINSECUEBD OEEDITOES. 1119 ment of a receiver of a corporation will not be granted on a mere allegation of insolvency and suspension of business for want of funds, it not being shown what facts and circum- stances would constitute the insolvency.' While the appoint- ment of receivers does. not follow as a matter of course upon a decree declaring a corporation insolvent, but rests in the discretion of the chancellor, yet, generally, receivers will be appointed, unless it be shown to be for the interest of th^ creditors and stockholders to leave the directors in charge of the affairs.' § 716. Powers of receivers and assigBeies.^When the corporate assets are in the hands of a receiver, corporate cred- itors can not of course maintain any action to appropriate the corporate property. But the statutory liability is not a cor- porate asset, and corporate creditors may, without reference to the receiver, prosecute their action freely, to recover from the shareholders upon that ground.^ So a receiver of a cor- poration, organized under the general manufacturing act is not vested with the right of action given by that act to creditors of the corporation to enforce their liabilities against the stock- holders. This right is conferred only upon such creditors as are within the^ prescribed conditions, and for their personal benefit ; * and in Illinois a receiver of " all the estate, property, and equitable interest " of an insolvent banking corporation created by that State can not enforce against a stockholder in the corporation the liability imposed by the statute of Illi- nois on each shareholder for double the amount of his stock, such liability being one in favor of creditors of the bank, and plication for a receiver on the ground a receiver was appointed to inves- o£ ' his failure so to do. Sage V. tigate the legality of these sales, Memphis &c. R. Co., 135 U. S. 361, although the corporation appeared per Harlan, J. to have no property. Nichols v. 1 Newfoundland E. Construction Perry &o. Co., H N. J. Bq. 126; Co. V. Sohack, 40 N. J. Eq. 332 ; Mercantile Trust Co. v. Missouri &c. Beach on Railways, § 703. Ry. Cb., 38 Fed. Rep. 231 ; Beach on 2 So where it appeared that the in- Receivers, §'347. solvency of a corporation had beeix ^ Mason v. New York Silk Manuf. long known to the directors, and Co., 37 Hun, 307; Jacobson i;. Allen, that with such knowledge sales of 13 Fed. Rep. 454. its propertyhad been made to them, iFarnsworth «. Wood, 91 N. Y. to pay antecedent debts due to them, 308. 1130 UNSECUEED CEEDITOES. [§ 716. not in favor of the corporation.' Nor is any personal liability imposed on the stockholders of an insolvent trust company in a receiver's hands by a charter provision that if at any time the capital stock paid into said corporation shall be impaired by losses or otherwise, the directors shall forthwith repair the same by assessment." ^ ' Where the deed of trust of an insolv- ent corporation provides that the unpaid subscriptions shall be payable to the trustee, the right to collect them passes thereby, and they may be enforced in a suit for that purpose, brought by a creditor.' And a trust deed for the benefit of creditors, including " all the estate, property, rights, and credits " of the grantor, " of every kind and wherever situated," and " all moneys payable to the company, whether on calls or assess- ments on stock of the company or otherwise," passes the title to the unpaid subscriptions to the capital stock to said trustees, with power to collect and receive the same, when authori- tatively called for, to the extent of the call made.* "When unpaid subscriptions of stock, not called in, are assigned, in a general assignment for the benefit of creditors, a bill in equity by the assignee will be entertained, on behalf of all the cred- itors, to recover unpaid subscriptions.' But mere insolvency is never sufficient evidence of the surrender of corporate rights." It has been said that the filing pf a creditor's bill in equity against a corporation is equivalent to a call for unpaid sub- scriptions; ' and that since an assignee in bankruptcy succeeds to all the rights of the insolvent corporation, he has authority to make and to enforce payment of calls.' But in an action by a receiver it is said that the only condition upon which a sub- 1 Jacobson v. Allen, 20 Blatchf. be recovered by action, warrant, or C. Ct. 525. motion. 2 Dewey V. St. Alban's Trust Co., 'Lewis v. Glenn, (1888) 84 Va. 947. ' (1885) 57 Vt. 333. 5 Lipnberger v. Broadway Savings 3 Hamilton u. Glenn, (1889) 85 Va. Bank, (1883) 10 Mo. App. 499; 901, also holding that whether the . " Eights of Receivers to Sue Stock- right to collect the subscriptions holders for Unpaid Subscriptions," passes by the deed of trust or not, 29 Alb. L. J. 365. the right of the corporation to them ^ Hall v. Lackmond, (1887) 50 Ark, passes to creditors under Va. Code, 113 ; s. o. 6 Am. St. Rep. 84, ch. 57, g 38, which requires stock- ^ Hatch i). Dana, 101 U. S. 205. holders to pay their subscriptions ^ Hatch v. Dana, 101 U. S. 205. A upon call by the president and di- stockholder may, of course pay his rectors, and provides that they may subscription although no call has § 717.] UNSECURED CEEDITOES. 1121 soriber can be made liable to the corporation is bj' regular calls made in pursuance of the charter.' An assignment for the benefit of creditors may be made by the directors of a corporation without the ratification of the stockholders, so as to confer, under a statutory provision making stockholders liable to creditors to the extent of their unpaid stock, on the assignee the right, by suit in equity, to compel payment from delinquent stockholders.^ § 717. The same subject continued. — It has been held in New York, under the General Manufacturing Act of that State, that a receiver of an insolvent corporation has no rights against stockholders upon their personal liability as prescribed by the act, for the liability does not exist in favor of the cor- poration, nor of all the creditors, but only in favor of such creditors as are in a certain position.' But under special statutes in New York, trustees are vestfed with power to col- lect theseclairas on behalf of creditors.* A receiver has no greater rights with respect to calls upon delinquent stock- holders than has the corporation ; and where a stockholder has ceased to be a member of the corporation so that it can not make calls on the stock previously held by him, the receiver been made. Marsh v. Burroughs, 1 18 Eq. Cas. 670. But if the corpora- Wood, 463 ; Poole's Case, 9 Ch. Div. tion be insolvent, he must pay for 332. And by the English Companies , his shares and come in with other Act of 1845, authority is conferred creditors for a j)ro rata payment of upon the company to allow to the his claims. subscriber interest on a payment of ' Mann v. Pentz, 3 N. Y. 415 ; Sey- his subscription or any part thereof jnour v. Sturgess, 26 N. Y. 134. beyond the sums actually called for. ^ Chamberlain v. Bromberg, (1888) The Companies Clauses Act, 1845, 8 83 Ala. 576. Vict. ch. 16, § 24. "When the corpo- ^Farnsworth v. Wood, (1883) 91 ration isinsolvent, money voluntarily N. Y. 308; Pfohl v. Simpson, 74 paid by the directors upon their sub- N. Y. 137 ; Weeks v. Love, 50 N. Y. scriptions, no call having been made, 568; MaSon v. New York Silk &c. and immediately repaid them for Co., (1883) 37 Hun, 307; Billings v. fees, may be recovered by the corpo- Trask, (1883) 30 Hun, 314. ' rate creditors. Syke's Case, L, R. 13 < Cuykendall v. Corning, (1883) 88 Eq. Cas. 255. A debt due a subscriber N. Y. 139 ; Story v. Furman, 35 from a solvent corporation may be N. Y. 215 ; Walker v. Crain, 17 Barb, set off against the amount owing 128 ; Herkimer Co. Bank v. Furman, upon his subscriptioii, and payment 17 Barb. 116 j Hurd v, Tallman, 60 be thus effected although no call has Barb. 373. been made, Adamsou'S Case, L, B. H22 UNSECUKED CEEDITOES. [§ 718. is in no better position.' The creditors have the right to the exclusive control of the fund created for their benefit — may assign it inter vivos, or transmit it to their personal represent- atives.^ So the receiver or assignee in bankruptcy of a for- eign corporation may maintain an action against a resident stockholder if the corporation could have done so had, the stockholder ,been a resident of the State in which the corpo- ration is domiciled.' But to enable a receiver to sue at law for unpaid subscriptions, a call by the corporation or some competent court is first necessary.* ,And where a receiver has been appointed, a suit to compel the payment of subscriptions should be prosecuted in his name.* ' §718. Remedy when a receiver has been appointed in prior proceedings. — When a receiver has possession of the corporate property, unsecured creditors seeking to reach it must apply to the court appointing him for leave to sue its ' 1 Billings V. Robinson, (1884) 94 N. Y. 415: Farnsworth v. Wood, (1883) 91 N. Y. 308; Cutting v. Dam- erel, 88 N. Y. 410; Cuykendall v. Corning, 88 N. Y. 139; Arenz .v. Weir, 89 111. 85 ; Jacobson v. Allen, 20 Blatchf . 525 ; Hanson v. .Donkers- ley, 37 Mich. 184. 2Pfohl V. Simpson, 74 N. Y. 137; Weeks v. Love, 50 Ni Y^ 568; Za- briskie v. Smith, 18 N. Y. 822 ; Wade V. Kalbfleish, 58 N. Y. 283; Jack- son V. Daggett, (1881) 24 Hun, 204. 8 Dayton v. Borst, 31 N. Y. 435 Nathan v. Whitlock, 9 Paige, 152 Chandler v. Brown, 77 111. 888 Frank v. Morrison, (1882) 58 Md. 433. Cf. Tinkham v. Borst, (1860) 31 Barb. 407; McDonough v. Phelps,, (1856)15 How. Prac. 372; Seymour «.,Sturgess, (1862) 26 N. Y. 134. ^Nathan v. Whitlock, 9 Paige, 152; Chandler v. Keith, (1875) 42 Iowa, 99; Mills u. Scott, 99 tJ. S. 25; Cleveland' v. Burnham, (1885) 55 Wis. 598. 6 Rankine v. Elliott, 16 N. Y,. 377; Dane v. Young, 61 Me. 160; Hall v. United States Ins. Co., "5 Gill, (Md.) 434; Hightower v. Thornton, 8 Ga. 486; In re Birmingham &c. Ry. Co., (1881) 18 Ch. Div. 155. See also on this subject generally. Trustees of Louisiana Paper Co. v. Waples, 3 Woods, 34;. Burlington &c. R. Co. V. Boestler, 15 Iowa, 555; Penobscot &c. R. Co. /y. Dunn, 39 Me. 587; Philadelphia &g. R. Co. v. Hickmati, (1857) 28 Pa. St. 318; Carlisle v. Ca- hawba &c. R. Co., (1842) 4 Ala. 70; Coleman v. White, 14 Wis. 700; Um- sted «. Buskirk, 17 Ohio St. 113; Mann v. Pent?, 3 N. Y. 415; Hall v. United States Ins. Co., 5 Gill, (Md.) 484; Freeman v. Winchester, 18 Miss. 577; Pentz v. Hawley, 1 Barb. Ch. 123; Sagory u. DuBois, 3 Sandf. Ch. 466; Gas Light & B. Co. v. Haynes, 7 La. Ann. 114 ; New Orleans Gas Light Co. V. Bennett, 6 La. Ann. 457; Starke v. Burke, 9 La. Ann. 341 ; Atwood V. Rhode Island Agric. Bank, 1 R, I. 376; Eppricht v. Nick- erson, (1884) 78 Mo. 483 ; Shookley v. Fisher, (1883) 75 Mo. 498; German- town &o. Ry. Co. V. Fitler, (1369) 60 § 718.] trNSECTTEED CEED1T0E3. 1123 receiver.^ Although there may be a superior title, and that plainly appearing, the court must first be applied to for leave to sue.* For to bring suit and to seek to reach the property in a receiver's hands without leave of the court appointing him, is considered to be a contempt of court, as an interference with the possession of its officer.' It rests in the discretion of the court to allow a party claiming rights against its receiver to bring an independent action against him or to compel the part}' to proceed against him by petition in the action in which; he is receiver.* It is usual, however, to grant permission to sue receivers, unless it appears clearly from the application of the claimant that his demand has no legal foundation." For, as has been aptly said, receivers are not appointed "for the purpose of keeping persons out of their rights." " But a court Pa; St. 124; Wright w. McCormack, 17 Ohio St. 86, 95 ; Dutoher v. Ma- rine National Bank, 13 Blatchf. 435. 1 Barton v. Barbour, 104 0. S. 136 ; Davis V. Gray, 16 Wall. 203; Reed v. Receivers of Richmond &c,-R. Co., (1888) 84 Va. 231. 2 Moore v. Mercer &c. Co., (N. J. 1888) 4 Ry. & Corp. L. J. 563, citing Noe V. Gibson, 7 Paige, 513; Angel V. Smith, 9 Ves. 885 ; Brooks v. Greathed, 1 Jac. & W. 176; Beach on Receivers, g§ 213, 224, 235; 3 Daniell Chancery Pr. 174?, 1744. 3 Thompson v. Scott, 4 Dill. 508; Kennedy v. Indianapolis, C. & L. R. Co., 3 'Fed. Rep. 97;. Parker v. Browning, 8 Paige, 388; s, c.'35 Am. Dec. 717; De Groot v. Jay, 30 Barb. 483; Taylor v. Baldwin, 14 Ahb. Pr. 166; Millet v. Loeb,.64 Barb. 454; Little V. Dusenberry, 46 N. J. 614; S. 0. 50 Am; Rep. 445; . Angell v. Smith, 9 Ves. 335; Brooks v. Great- had, 1 Jac. &. W. 176; Randfield v. Randfield, 3 De G., P. & J. 766, reversing s. c. 1 Dr. & Sm. 310 ; Searle V. Choate, 25 Ch. Div. 723; Tlnk v. Rundle, 10 Beav. 818; Evelyn v. Lewis, 3 Hare, 473: In re Persse, 8 Ts. Eq. Ill ; Parr v. Bell, 9 Ir. Eq. 55 ; Andrews v, Stanton, 18 Bradw. 163, 165; Melendy v. Barbour, 78 Va. 544; Rogers v. Mobile & Ohio R. Co., (Tonn. 1883) 16 Rep. 536 ; Graffenreid V. Brunswick & A. R. Co., 57 Ga. 32; Henderson v. Walker, 55 Ga. 481 ; Wray v. Hazlett, 6 Phila. 155 ; Keen V, Breckenridge, 96 Ind. 69; Mere- dith &c. Sav. Bank v. Simpson, 23 Kan. 414; Payne v. Baxter, 2 Tenn. Ch. 517; Heath v. Missouri, K. & T. R. Co., 83 Mo. 617, 623. 4 Central Trust Co. v. Wabash, St. Louis &C. R. Co., 33 Fed. Rep. 858; Kennedy v. Indianapolis, C. & L. R. Co., 3 Fed. Rep. 97; Melendy v, Bar- bour, 78 Va. 544; Beach on Receiv- ers, § 654. ' 5 The petition should, therefore, show a probable cause of actions- one demanding adjudication by pro- ceedings in court. Jordan v. Wells, 8 Woods, 537; Randfield v. Rand- field, 3 De G„ F. & J. 766; Hills v.' Parker, 111 Mass. 508; s. c. 15 Am, Rep. 63. •iEyton V. Denbigh &c. Ry. Co., L. R, 6 Eq. 488. Although in this same case, after the railroad com- pany had, by deed, conveyed their superfluous land and chattels in trust 1124 UNSEOUEED 0BED1T0E&. [§ 719. is reluctant to grant permission to sue its receiver in other forums,^ especially where the questions to be determined are closely connected with those in the original action wherein he was appointed.* Accordingly, it is only when special facts and circumstances are shown to exist that the court will allow suit to be brought in another court.' But so long as the re- ceiver's possession- is not disturbed or questioned parties may litigate, in the^ sa,me court or elsewhere, questions concerning the ultimate right and title to the property.* § 719. The decree in suits in equity. — The prevailing rule in equitable actions against stockholders is that the decree must be drawn so as to give an opportunity to all creditors to prove their claims,* and no creditor, no matter what may be his position in the litigation in point of time, is entitled to priority over the rest.^ Nevertheless, it should be so framed as to give the stockholders all the privileges to which they are entitled under the fundamental law of the corpora- tion, where the stock is called in by the officers.' And an for the benefit of creditors, the court refused to allow distraint either upon the property so conveyed or upon the locomotives used in the operation of the road. I In re Mallery, 3 N. Y. Supl. 570; In re Piatt, 53 How. Pr. 468; Mere- dith Village Sav. Bank v. Simpson, 33 Kan. 414; Piper v. Stratten, (Tex. 1888) 75 W. Rep. 45. '2 Central' Trust Co. v. Wabash &c. E. Co., 33 Fed. Eep. 858, holding that the parties should intervene. ^tn re Piatt, 53 How. Pr. 468; Meredith Village Savings Bank v, Simpson, 23 Kan. 414. *Halliday'8 Case, 37 Fed. Eep. 830, 843. For a receiver is not dis- turbed in his possession by other courts acting after his appointment. Blake v. Alabiama & C. R. Co., 6 Nat. Bank. Eeg. 831 ; Keep v. Michi- gan L. S. E. Co., 6 Chicago Leg. News, 101; Sedgwick v. Menck/'6 Blatchf. 156;.Alden v. Boston, H. & E. E. Co., 5 Bankr. Eeg.. 330; Bill V. New Albany E. Co., 3 Biss. 390; Union Trust Co. v. Eockford, E. I. & St. L. ^. Co., 7 Chicago Leg. News, 33; Storm v. Waddell, 3 Sandf. Ch. 494; Hutchinson v. Green, 6 Fed. Rep. 833; Spinning v. Ohio L. Ins. & Trust Co., 3 Disney, 336; May v. Printup, 59 Ga. 139; Eisenmann i'. Thill, 1 Cin. Super. Ct. Eep. 188; Beecher V. Bininger, 7 Blatchf. 170; In re Clark & Bininger, 4 Benedict, 88; Conklin i). Butler, 4 Biss. 33; Mercantile Trust Co. v. Lamoille Valley E Co., 16 Blatchf. 334; Beach on Eeceivers, § 20. 6 Morgan v. New York &c. E. Co., 10 Paige, 490; s. o. 40 Am. Dec. 244. SEobinson v. Bank of Darien, 18 Ga. 65, 108. Cf. Miers v. Zanesville &c. Turnpike Co., 13 Ohio, 197; Jones V. Arkansas Mechanical &o. Co., 88 Ark. 17. ' Hightower v. Thornton, 8 Ga. 486, 503; s. c. 53 Am. Deo. 412. § 720.] OTSEOUEED OEEDITOES. 1125 equitable contribution among all the stockholders must be ordered by the court whenever it is possible.' Only so much of the capital as is necessary for the payment of the debts will be called in where the court makes the assessment, and a proper apportionment is made among the stockholders.^ But a stockholder can not enjoin a receiver from proceeding tQ en- force the balance due from him on his stock, on the ground that the. whole amount due from stockholders may not be needed to pay the debts of the corporation, if all the other solvent stockholders pay the fair share of what remains due on their stock.' § 720. Garnishment. — After a call has been made, a cred- itor of the company may garnishee the stockholder.* For if subscriptions are due, and payable, they are, to that extent, like other debts due the corporation, subject to garnishment.* But a creditor can not resort to garnishment proceedings until a call has been made, unless by the terras of the subscription the amount was payable without call," or unless, as is some- lEriokson v. Nesmith, 46 N. H. 371. 2 Bell's A.ppeal, ,115 Pa. St. 88; corporation. Dean v. Biggs, 35 Hun, 123. sFaull V. Alaska G. & S. Min. Co., S. 0. 3 Am. St. Rep. 533. Cf. Hick- 14 Fed. Eep. 657; De Mony v. John- ling V. Wilson, 104 111. 54. spentz V. Hawley, 1 Barb. Ch. 1?3. *Faull V. Alaska &c. Mining Co., ston, 7 Ala.' 51 ; Meints v. East St. Louis &c. Co., 89 111. 48; Brown v. ^Union Ins. Co., 3 La. Ann. 177, 183; (1883) 8 Sawyer, 520 ; Meints v. East Payne v. Bullard, 23 Miss. 88 ; s. c. St. Louis &c. Co., 89 111. 48; Hannah 55 Am. Deo. 74; Hannah v. Moberly V. Moberly Ba^k, 67 Mo. 678; Simp- Bank, 67 Mo. 678; Peterson v. Sin- son V. Reynolds, (1880) 71 Mp. 594; clair, 83 Pa. St. 250. See Note jto Curry v. Woodward, 53 Ala. 371; Freeland u. McCulIough, 43 Am. Dee. Bingham v. Rushing, 5 Ala. 403; 702; 3 Morawetz on Corporations, Hays V. Lycoming &c. Co., (1883) 99 § 819. Pa. St. 631. C/. "Execution against ^ Lane's Appeal, 165 Pa. St. 49; Members of CoKporations," 6 Am. S. C. 51 Am. Eep. 166; McKelvey ?;. Jur. 468. But see In re Glen Iron Crockett, 18 Nev. 338 ; Paschall v. Works, (1888) 17 Fed. Rep. 834; S. C. (l'884) 20 Fed: Eep. 674; Cucullu v. Whitsett, 11 Ala. 473, 477; Cooper V. Frederick, 9 Ala. 737, 743; Bing- Union Ins. Co., 3 Rob. (La.) 571; ham «. Eushing, 5 Ala. 403 ; Brown Bunn's Appeal, 14 Week. N. Cases, v. Union Ins. Co., 3 La. Ann. 117, 193. An unpaid balance due on a 183 ; Hannah v. Moberly Bank, 67 subscription to the stock of a eorpo- Mo. 678 ; Simpson v. Reynolds, 71 ration is a thing in action which Mo. 594; Hughes v. Oregonian Ey. may be sequestered in proceedings Co., 11 Oregon, 158; Peterson v, Sin- had upon a judgment against the clair, (1877) 83 Pa. St. 250; Langford 1126 UNSECTJEED CEEDITOJJS. [§ 720. times the case, this remedy be given by statute whether a call bias been made or not.^ In Pennsylvania the efficacy of at- tachment process is not confined to the garnishment of legal demands, but extends to those of an equitable nature, and it has been held that the unpaid 'subscriptions to the capital stock of an insolvent corporation can be reached by writ of attachment, although no assessment or call has been made.^ But a limitation has been placed upon the right of a creditor of a corporation to resort to gai'nishment proceedings. It is admitted that if the corporation is solvent, and the subscrip- tion is in the form of an absolute engagement to pay. the price of the stoci:, there is no doubt that the creditor can reach the amounts unpaid by attachment in execution, but it is denied that this can be done if the corporation be insolv- ent, because upon insolvency the unpaid amounts consti- tuted a trust fund for the benefit of all the creditors.' Al- though a statute which provides that, upon the return unsat- isfied of an execution against a corporation, execution may on notice and motion issue against any shareholder for the amount af his unpaid balance due on shares, is retrospective, it is nevertheless valid, and applicable to a corporation char- tered previously under a special act.* A petition asking for an execution against a stockholder, based on a judgment against the corporation, must be filed in the court by which the judgment was rendered;" for a proceeding by motion for execution against a stockholder of an insolvent Corporation is in no sense the institution of an independent suit, but a mere supplementary proceeding in aid of the execution against the corporation." Under the Illinois corporation act of 1872, «, Ottumwa Water Power Co., (1882) 587; Griffith?;. Mangam, (1878)*73 59 Iowa, 383; Chandler jjj Liddle, 10 N. Y. 611; Eobertspn v. Noeninger, N.B.R. 336; In re Glen Iron Works, 30 111. App. 337; Ala. Civ. Code, aO Fed. Rep, 674; s. C. 17 Fed. Rep. (1887) g 3973. 334; Bunn's Appeal, (1884) 105 Pa. 2 In re Glen Iron Works, 20 Fed. St. 49; Coalfield, Coal Co. v. Peck, Rep. 674, affirming 17 Fed. Eep. 334; (1681) 98 111. 139. Cf. Rand v. White s. c. 16 Phila. 563.' Mountains R. Co., (I860) 40 N. H. » Lane's Appeal, 105 Pa. St. 49; 79 ; Angell & Ames on Corporations, S. 0. 51 Am. Rep. 166. g 517; Thompson on Liability of < Merchants' Ins. Co. v. Hill, 86 Stockholders, gg 365, 276, 317; Dean Mo. 466. V. Biggs, (1881) 35 Hun, 122. « Paxon v. Talmage, 87 Mo. IB. 1 Bartlett v. Drew, (1874) 57 N. Y. ^Kohn v. Lucas, 17 Mo. App. 39. § 721.] UNSECUEED CEEDITOES. 1127 ,v making stofakholders liable to creditors, garnishee process lies after judgment against the corporation; it is not necessary to proceed against the stockholders at the time of instituting suit against the corporation.' Under the Kansas statute, declaring that in the absence of corporate property on which to levy execution maybe issued against any of the stockholders, but no execution shall issue except upon an order of the court in which the action, suit or other proceeding shall have been brought, made upon motion in open court after reasonable notice in writing to the person sought to be charged, the service of notice must be in like manner as in the case of an original summons, and jurisdiction can not be obtained by service withdut the State.- § 721. Whether the remedy in equity is exclusive. — In several States it is held that the creditor's remedy on the stat- utory liability is in equity alone.' In New York there are cases seeming to hold that where there is a remedy in equity it is exclusive.* So where, in South Carolina, the charter, of a bank provided that upon the failure of the bank, each stockholder shall be liable and held bound, for any sum not not exceeding twice the- amount of his shares, it was held 1 Coalfield Co. v. Peck, 98 111. 139. 537. Of. Weeks v. Love, (1872) 50 2 Howell w Marylesdorf, 33 Kan. N. Y. 568; Story v. Furman, (1863) 194; Kan. Oomp. L. 1879, oh. 23, 25 N.Y. 314; Garrisons. Howe, (1858) §33. 17 N. Y. 458; Bank of the United 3 Smith V. Huckabee, (1875) 53 Ala. States v. Dallam, (1836) 4 Dana, 574 ; 191; Perkins v. Sanders, 56 Miss. Van Hook v. Whitlock, (1833) 3 733; Eames v. Doris, (1883) 103 111; Paige, 409; Bank of Poughkeepsie 350; Patterson v. Lynde, (1882) 106 v. Ibbotson, (1840) 24 Wend. 473; U. S. 519; Garrison v. Howe, (1858) Masters v. Eossie -Lead Mining Co., 17 N. Y. 458; Brundage v. Menu- (1845) 2 Sandf. Ch. 301'; Pfohl v. mental &c. Mining Co., (1885) 13 Simpson, (1878) 74 N. Y. 137; Eames Oregon, 333. But in many States v. Doris, (1882) 103 111. 350. the action at law upon the statutory * Morgan v. New York &c. R. Co., liability is not exclusive of the equi- (1843) 10 Paige, 390 ; Sherwood v. table remedy. Culver v. Third Na- Buffalo &c. E. Co., (1855) 12 How. tional Bank, (1871)64111.538; Grund Pr. 136; Hinds v. Canandaigua &c. u Tucker, (1869) 5 Kan. 70; Perry t). R. Co., (1855) 10 How. Pr. 487; Turner. (1874) 55 Mo. 418; Norris v. Courtois v. Harrison, (1856) 13 How. Johnson, (1871) 34 Md. 485, 489; Pr. 359, Matthews v. Albert, (1866) 34 Md. 1128 ' UNSEOITEED OEEDITOES. [§ 722. by the Supreme Court of the United States, that a suit in equity by or on behalf of all the creditors is the only ap- propriate mode of enforcing the liability inc.urred by such a failure.' Accordingly i in the United States courts, under a statute makifig the persons and property of the stock- holders liable for notes iii proportion to the number of shares that each individual may hold, the remedy is exclusively in equity.- And a claim against stockholders upon a lia*)ility imposed by statute, can not be joined, in one bill in equity with a claim against the directors of the company, although the two claims are derived froni the same statute;' but an action to enforce statutory liability may be joined with an action to collect unpaid subscriptions.* An action by a cred- itor against the corporation and delinquent stockholders may be maintained in behalf of himself and all who wish to join hiin, even when a creditor's bill has been abolished.* § 723. Actions at law. — It has been said that no one cred- itor can assume that l\e alone is entitled to what any stock- holder owes, and sue at law so as to appropriate it exclusively to himself.' But the weight of authority appears to be that' i Terry \ Little, (1879)- 101 U. S. Somerville Dyeing &c. Co., (1859) 14 216. Gray, 193 ; Pope v. Leonard, (1874) 2 Mills V. Scott, (1878) 99 U. S. 25; 115 IMass. 886. Cf. Wiles u. Suydam, Terry u. Tubman, (1875) 92 U.S. 156; (1876) 64 N. Y. 173; Douglass u. Pollard. V. Bailey, (1874) 20 Wall. Ireland, (1878) 73 N. Y. 100. 530; Cuykendall v. Miles, (1882) 10 « Warner v. Calleiider, (1870) 20 Fed.. Eep. 343; Patterson^;. Lynde, Ohio St. 190. (1883) 106 U. S. 519. Cf. Revised s Alder i;, Milwaukee &c. Manuf. Statutes of the United States, § 737 ; Co., (1860) IB Wis. 57; Wilbur v. Ogilvie i;. Knox Insurance Co., 23 Stockholders, 18 Bankr. Reg. 178; Hovr. 380; Sawyer v. Hoag, (lt)73) Ogilvie v. Knox Ins. Co:, (1859) 22 17 Wall. 610; Terry v. Anderson, How. 380. A receiver may be. ap- (1877) 95 U. S. 628, 635; Hatch v. pointed and the decree affords pro-' Dana, (1879) 101 U. S. 275; Terry u. portional relief to all the parties.. Little, (1879) 101 U. S. 216; County Dalton &c. R. Co. v. McDaniel, (1876) of Morgan v. Allen, (1880) 103 U. S. 56 Ga. 191; Wilbur v. Stockholders, ' 498; BuUard v. Bell, (1817) 1 Mason, 18 Bankr. Reg. 178; Ogilvie v. Knox 243; Wood v. Dummer, 3 Mapon, Ins. Co., (1859) 28 How. 880. 309; Marsh u. Burrouglis, 1. Woods, 6 Lane's Appeal, 105 Pa. St. 49- 463 ; Holmes v. Sherwood, 3 McCrary, s. C. 51 Am. Rep. 166 ; Patterson v, 405; s. C..16 Fed. Eep. 735. . ' Lynde, 106 U. S. 519. Cf. PeMy v. 3 Cambridge Water Works v. Little, 101 U. S. 216. § 722.] UNSECURED CEEDITOES. 1129 after unpaid subscriptions have been called, anj^' one creditor may sue at law and recover the whole amount due from any one or more shareholders.' He need not join all the creditors, nor ail the shareholders of the corporation as parties plaintiff and defendant to his action.^ A corporate creditor may at- tach so much of an unpaid subscription as has been called.' And a sole corporate creditor in whose favor judgment has been rendered may maintain an action against sharehold- ers, who have in their possession the assets of the corpora- tion, and may seek a discovery, as, against the corporation, of the names of such shareholders as have been withheld from him.* iFauU V. Alaska &c. Mining Co., 8 Sawy. 420; Wilbur v. Stockhold- ers, 18 Bankr. Reg. 178; Bank of Poughkeepsie v. Ibbotson, 24 Wend. 479; Bank of the United States v. Dallam, 4 Dana, 574; Allen v. Mont- gomery &c. E. Co., 11 Ala. 437; McCarthy v. Lavasohe, 89 111. 270 ; s. 0. 31 Am. Rep. 83 ; White v. Blum, 4 Neb. 555. Cf. Holmes v. Sherwood, 3 McCrary, 405 ; s. c. 16 Fed. Rep. 735 ; Corning v. Mohawk Valley Ins. Co., 11 How. Pr. 191. And see Van Buren v. Chenango Ins. Co., 12 Barb. 6T5. ^Brundage v. Monumental &c. Co., 12 Oregon, 333. " The creditors of the corporation are seeking satis- faction out of , the assets of the com- pany to which the defendants are debtors. ^ If the debts attached are sufficient to pay their demands, the creditors need look no further. They are not bound to settle up all the affairs of this corporation, and the equity between its various stockhold- ers or'partners, corporators or debt- ors." Ogilvie V. Knox Ins. Co., (1859) 33 How. 380. 'Curry v. Woodward, 53 Ala. 371 ; Bingham r. Gushing, 5 Ala. 403; Brown v. Union Ins. Co., 3 La. Ann. 177; Hannah v. Moberly Bank, 67 Mo. 678 ; Simpson v. Reynolds, 71 Mo. 594; Bunn's Appeal, 105 Perm. St, 49; Bank of the United States v. Dallam, (1836) 4 Dana, 574 ; Allen v. Montgomery &c. R. Co., (1847) 11 Ala. 437 ; FauU v. Alaska &c. Mining Co., (1883) 8 Sawyer, 420; Wilbur v. Stockholders, 18 Bankr. Reg. 178; White V. Blum, (1876) 4 Neb. 555; McCarty v. Lavasche, (1878)89 111. 270; Hays v. Lycoming &c. Co., 99 Pa. St. 631; Meints v. East St. Louis &c. Co., 89 111. 48. See also Dean v. Biggs, 35 Hun, 133 ; Coal- field Coal Co. V. Peck, 98 111. 139. Cf. Rand v. White Mountain R, Co., 40 N. H. 79; Hughes v. Oregonian Ry. Co., 11 Oregon, 158; Peterson v. Sinclair, 83 Pa. St. 250; Langford V. Ottumwa Water Power Co., 59 Iowa, 283 ; In re Glen Iron Works, 30 Fed. Rep. 674; s. c. 17 Fed. Repi 324; Chandler v. Siddle, 10 N. B. R. 236; Bank of Poughkeepsie v. Ibbot- son, (1840) 24 Wend. 479; Holmes V. Sherwood, (1881) 3 McCrary, 405; S. 0. 16 Fed. Rep. 735; Corning v. Mohawk Valley Ins. Co., (1855) 11 How. Pr. 191 ; Van Buren v. Che- nango Ins. Co., (1852) 13 Barb. 675. * Brewer v. Michigan Salt Assoc, 58 Mich. 351. 1130 UNSECFEED CEEDITOES. [§§ 723, 724. I ^723. Interest and costs. — When interest is recoverable upon contracts, debts and engagements of the corporation, it may be allowed thereon against the shareholder as part of his personal liability,' provided the allowance thereof does not make the total amount greater than that for which the share- holder is liable under the statute.^ Interest will run against •the stockholder from the commencement of the suit again'st him, when he repudiates his liability, for that is the time at which the liability accrues; and this is so even if the principal -with interest is in excess of the amount of his liability.' And under the national banking act, interest runs from the date of the comptroller's order.* But if a statute creates a propor- tionate liability for unpaid bills, interest, will not be allowed, since no stockholder can tell what he is to pay until it is as- certained by suit.^ Where stockholders are severally liable for corporate debts, they are also severally chargeable with the costs of a proceeding against them by creditors, even where the amount with costs exceeds their individual liability, for the reason that the creditor should not be put to the ex- pense of a suit." Eut it is said that a creditor is not entitled to include in his judgment against a stockholder the costs of his proceeding against the corporation.' § 724. Evidence — Bill of discovery. — The stock-books of a corporation, as a rule, constitute prima facie evidence that the stock is owned by the individuals named as stockholders in order to make them liable for corpora,te debts.* And this 1 Richmond v. Irons, (1887) 121 IT. eon, 99 111. 349 ; Cole v. Butler, 43 Me. S. 27; Wheeler v. Millar, (1883; 90 401. N. Y. 853. * Carey «. Galli, 94 U. S. 673. 2 Wheeler v. Millar, (1883) 90 N. Y. s Grew v. Breed, 10 Met. 569, 571 ; 353; Grund v. Tucker, 5 Kan. 70. Crease u. BaUcock, 10 Met. 534, 568. Cf. "Payment of Interest qn the ^ Cole u. Butler, 43 Me. 401 ; Grose Winding-up," 18 Sol. J. & Rep. 936. . v. Hilt, 36 Me. 33. 3 Handy u Draper, 89 N. Y. 334; 'Eorke v. Thomas, 56 N. Y. 559, Burr i;. Wilcoi, 33 N. Y. 551; Mason 565; Bailey u. Baucker, 3 Hill, 188. V. Alexander, 44 Ohio St. 318; Wehr- But see Grand Rapids Savings Bank man v. Reakirt, 1 Cin. Sup. Ct. Rep, v, Warren, 53 Mich. 657, and Irons 230. Cf. ClevelE^nd i;. Burnham, 64 v. Manufacturers' Bank, (1888) 36 Wis. 347 ; Grand Rapids Savings Fed. Rep. 843. Bank v. Warren, 53 Mich. 557. Con- 8 Hoagland v. Bell, 36 Barb. 57 ; f»'a, Kackett's Harbor Bank j;. Blake, Thornton v. Lane, 11 Ga. 459. Cf. 3 Rich. Eq. 335; Munger v. Jacob- Stanley i;. Stanley, 26 Me. 191. § 724.] ' UNSECUEED CEEDITOES. 1131 is also sufficient evidence to make them chargeable for unpaid subscriptions.' But a mere informal document not appearing to have been intended as a register can not be received as the register.- The liability imposed on the stockholders of a cor. poration organized under the New- York act of 1848, is not taken away by the recording of the certificate that the stock is paid up. unless that be the fact, the certificate not being conclusive upon the fact of payment.^ On the other hand the provision of that act that stockholders of a corporation shall be liable to its creditors to an amount equal to the amount of their stock until the entire capital stock is paid in, and a cer- tificate thereof made and recorded, failure to make and record the certificate within the required time renders the^ stock- holders individually, liable, although the entire capital stock has been paid in.* In an action by a creditor of a corporation to enforce the statutory liability of a stockholder on the ground that his subscription is unpaid, the burden of proof is on the creditor to show the fact of non-payment.* In an ac- tion against a stockholder for his proportionate share of a debt of the corporation, testimony that would be competent in a suit upon the debt against the corporation to establish the demand, against it, is competent to establish the same against the stockholder.* Parol evidence is not admissible to vary the terms of a subscription, or to show a discharge from lia- bility other than as provided for by the by-laws and charter.' iTurnbull v. Payso^i. 95 U. S. 418; Supl. 235, construing N. Y. Laws of Webster v. Upton, 91 TJ. S. 65; 1S48, ch. 40, § 10. See also Barre Glenn v. Springs, 28 Fed. Rep. 494; Nat. Bank v. Hinghanl Manuf. Co., Glenn v. Orr, 96 N. C. 413. Errors (1879) 127 Mass. 563; Wheeler v. in the register not relating to the Millar, (1883) 90 N. Y. 358 ; Veederv. matter in dispute are immaterial. Mudgett, (1884) 95 N. Y. 295; Thomp- Southampton Docks Co. v. Richards, son v. Reno Savings Bank, (1885) 19 1 Mann. & Gr. 448, 461; Ixjndon &c. Nev. 103; s. o. 3 Am. St. Rep. 797. Ry. Co. V. Freeman, 3 Mann. & Gr. ^ Wellington v. Continental Const. 606. & Ins. Co., (1889) 53 Hun, 408. 2 Wolverhampton &c. Co. v. « Borland v. Haven, (1889) 37 Fed. Hawkesford, 7 C. B. N. S. 795. Rep. 394. ' Veeder v. Mudgett, 95 N. Y. 295, 'Marshall Foundry Co. v. Killian, construing N. Y. Lav7S of 1848, ch. (1888) 99 N. C. 501; s. C. 6 Am. St. 40. • Rep. 539. . Gustin Minerva Con. Mining Co., (1890) 8 Ry. & Corp. L. J. 175. In this case Mitchell, J., said: "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 deal with a corpo- ration with full knowledge of the fact that its nominal paid-up capi- tal has not in fact been paid for in money or property 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 on the contribution of a greater amount of capital by the shareholders than the c6rporation it- self could claim as parts of its assets. Colt V. Amalgamating Co., 14 Fed. Eep. 13; S. c. 119 U. S. 343. This doctrine with respect to trusts has no "application to a case where a party, like the plaintiff, was cogni- zant of the whole arrangement under which the stock of the defendant 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 knowledge of these facts, and received as great or greater security for it than it had before. To hold otherwise would be to per- petrate a fraud on the stockholders, and not on their creditors." 'Harger v. McCuUough, (1846) 2 Denio, 119. § YSl.] BHAEEHOLDEES' DEFENSES TO OEEDITOES' BILLS. 1145 non-assessable.^ And where two corporations make a valid agreement by which the indebtedness of one to the other is extinguished, it is competent for them to rescind the contract and restore the original indebtedness and make the stockhold- ers of the debtor corporation, liable as before.^ § 731. Nul tiel corporation. — It is a general principle that a person dealing with a corporation can not set up irregulari- ties occurring in the incorporation, where no act which is a condition precedent to its existence has been omitted.' But while it is true that when one contracts^ with a corporation in such a manner as to recognize its existence either dejure or de facto he will often be estopped from denying the fact of corporate existence, yet such cases arise where the corpora- tion sues one who has contracted with it in its real or supposed corporate capacity, and the principle has no application to cases where subscriptions for stock are made in anticipation of incorporation ; and to justify a finding that a person is es- topped from denying the existence of a corporation on the ground that he has participated in its organization and acts, it must appear that they were performed in its corporate capacity. Thus when a corporatibn sued subscribers to recover the bal- ance of their unpaid subscriptions, it was held that the fact that they had paid all their subscription except the amount sued for did not estop them from denying the existence of the corporation.* 1 Union Mutual Ins. Co. v. Frear topped from denying the existence Stone Manuf. Co., (1881) 97 111. 537; of the company. Weinman v. Wil- Dane v. Young, (1873) 61 Me. 160. kinsburg & E. L. Pass. Ey. Co., 2 Borland v. Haven, (1888) 37 Fed. (1888) 118 Pa. St. 193; Pope v. Cap- Rep. 394. itol Bank, (1878) -30 Kan. 440; Hol- 3 Lessee of Frost v. Frostburg Coal brook v. St. Paul Fire & Marine Ins. Jo., (1860) 34 How. 378. And al- Co., (1878) 35 Minn. 339. though the law under >vhioh a cor- *Schloss?j. Montgomery Trade Co., poration is formed is unconstltu- (1888) 87 Ala. 411. Unless the ra- tional, in an action by the corpora- quirements of the statute under tion against a stockholder who has which a corporation is formed, have been a director and participated in been complied .with, it can not main- calls upon the subscribers for pay- tain an action against a subscriber ment of installments upon their to enforce the payment of assess- subsciJiptions, the defendant is es- ments upon his stock. Anvil Min- 1146 SHAEEHOLDEES' DEFENSES TO CEEDITOEs' BILLS. [§ 732. § 732. Illegal issne of stock. — A subscriber to stock issued in excess of the amount allowed by law, is not liable on bis subscriptipn ; ' and if an overissue of stock is proved it ■constitutes a defense in an action by tbe company or by its assignee in in^olvency.^ Eor certificates of stock of an in- corporated company issued in excess of its charter limit are void and the holder of them is entitled to none of the rights and subject, to none of the liabilities of the holders of author- ized stock.' He is not estopped to set up the invalidity of the stock in an action by creditors, by the fact that he attended the meeting at which it was voted.* A holder both of valid and of spurious stock, can not offset his claim against the cor- poration upon the latter as against its claim against him for assessments upon the former, when the corporation has be- come insolvent.^ This is according to the general rule whereby alldebts o.wing the corporation on unpaid subscriptions are considered a trust fund devoted to the payment of all the creditors of the companj', which upon the insolvency of the corporation equitably vests in all its creditors to be equally divided among them pro rata.^ , ing Co. V. Sherman, (1889) 74 Wis. harapton v. Pendleton, (1890) 8 By. 236. And where a corporation con- & Corp. L. J. 492. tinned to do business after the expi- i Clark v. Turner, 73 Ga. 1. ration of its term of existence under 2 ^n insurance company, author- its charter, and one of itB members ized to commence business with a , sold property for it in the course of capital of $100,000, received $113!000, its business and collected the pro- after which it received a subscrip- ceeds, he was not estopped from tionfromA.for$12,000,as "treasurer denying its existence in an action intrust." It immediately thereafter brought by it against him to i-eoo,ver organize'd and elected A. treasurer, the money. The proper remedy was and it was held that A. was not a suit for an accounting by another liable individually upon his sub- stockholder bringing in all the stock- scription either to the company or holders. Krutz v. Paola Town Co., its assignee in insolvencyij Russell (1878) 20 Kan. 397. Where a corpo- v. Bristol, 49 Conn. 851. ration has not been properly organ- 'Scovill v. Thayer, 105 U. S. 143. ized, its records are not admissible as * Scovill v. Thayer, 105 U. S. 148. evidence ■ of an agreement among ^ Scovill v. Thayer, 105 U. S, 148. the proposed shareholders for the ^ County of Morgan v. Allen, 103 purpose of charging them as part- >IT. S. 498; Scammon v. Kimball, 93 ners. Fay v. Noble, (1851) 7 Cush. TJ. S. 362 ; Upton v. Sawyer, 91 U. S. 188; Merchants' Nat. Bank of Bing- 56; Sawyer v. Hoag, 17 Wall. 610. § 733.] SHAEEHOLDEES' DEFENSES TO OEEDITOES' BILLS. , 114Y § 733. Fraud in procuring subscription.— In case of cor- porate insolvency the equities of the creditbr supersede those of the subscriber, even when his subscription has been induced by fraud. While ordinarily the law does not readily presume acquie_scence or waiver in the case of subscriptions procured through fraud, nor hasten to impute laches to subscribers so deceived by the corporate agents; yet when the corporation has become insolvent, a contract of subscription procured through fraud can not be rescinded to the" prejudice of the rights of creditors. One induced by fraud to purchase shares of stock in a corporation can not avoid his purchase if, after becoming aware of the fraud, he acts a,s a shareholder or de- rives a benefit from his shares.^ The fact that a stockholder is induced to take his stock upon the false representation of the presideut of the corporation that it is full paid capital stock, is no defense in an action by Judgment creditors of the corporation on his statutory liability.^ And when the sub- scriber has waited until suit has been brought by a receiver, it is then too late for him to plead fraudulent misrepresenta- tion ; ' although the fraud was not discovered until after iu- 1 City Bank v. Bartlett, (1885) 71 to be a guaranty by the corporation Ga. 797; Chubb v! Upton, (1877) 95 of their payment, and of certain U. S. 665, 667 ; Upton v. Tribilcock, notes of the corporation, payable on (1875) 91 U. S. 45 5 Webster u Upton, demand, together amounting to (1875) 91 U. S. 65; Sapger v. Upton, more than the stock held by him, (1875) 91 U. S. 56 ; Farrar v. Walker, and all acquired after the corpora- (1876) 13 Bankr. Eeg. 82; Ogilvie tion had become insolvent, the orig- V. Knox Ins. Co., (18S0) 23 Hun, inal consideration for the bonds, the 380; Buggies ■u. Brock, (1876) 6 Hun, guaranty, or the notes not being 164; Duffleld v. Barnum, (1887) 64 shown, and these facts were held Mich. 293 ; Tennent v. City Bank of not to b^ available in defense. Glasgow, (1879) L. R. 4 App. Cas. 3X]pton v. Tribilcock, (1875) 91 615; Burgess' Case, (1880) 15 Ch. Div. U. S. 45; Euggles v. Brock, (1876) 6 507; Oakesu. Turquand, (1867)1.. E. Hun, 164. "Since the decision of 2 H. L. App. Cas. 325; Wright's the Cakes Case in the House of Case, (1871) L. R. 12 Eq. Cas. 331; Lords,. 16 L. !.■ Rep. N. S. 808, par- Clarke V. Dickson, (1859) 27 L. J. ticularly, if regard be had to the Q. B. 223; Collins v. Collins, 3 C. P. Lord Chancellor's judgment, there is Div. 383; Mixer's Case, (1859) 4 De an element of clear distinction, in Gex & J. 575. determining the rights of such a 2 Briggs V. Cornwell, 9 Daly, (N. Y.) member, according as the company 436. In this case the defendant held is of the one or the other class. The certain bonds, bearing an indorse- Lord Chancellor held tha,t where an ment by the president, purporting order had been m^de to wind up a 1148 SHAKEHOLDEES' DEFENSES TO OEEDITOEs' BILLS. [§734. solvency.^ Even impending,' insolvency, before an actual assignment or appointment of a receiver, may bar the sub- scriber's remedy.'' Where there are unpaid debts of the cor- poration incurred subsequent to the subscription of the defend- ant,, it is no defense that the amount paid by him on his subscription was obtained by the fraudulent representations of the officers of the company, when he had continued to act with the directors after the discovery of the fraud and until the company ceased to do business.' But if the proceedings have been commenced by a shareholder before the company has beconie insolvent his remedy will not be destroyed by a subsequent winding-up order.* § 734. Conditions nnfalfllled. — Where an individual sub- scribes for stock in a corporation on certain conditions to be performed, his liability as a stockholder does not become com- plete until the conditions have been met; for the question whether the subscription makes him a stockholder depends upon the terms of the contract, the charter, and wliether the subscription was a step prCjliminary to organization.' Thus company, the liability of a share- of a person who had agreed to be- holder was a statutable liability, un- come a member, and whose name der which the creditors had a right was upon the register, and who there- attaching upon . a person who had fore exactly answered the descrip- agrged to become a shareholder to tion of a contributory contained in contribute to the extent of his shares the Companies Act of 1863." "Relief towards the payment of the debts of from Shares," 44 L. T. 40. the company. Hence he found fault > Turner v. Granger^' &c. Insur- with the decision of the Lords Jus- aace Co., (1880) 65 Ga. 649. tices in the case of the Reese River 2 Oakes v. Turquand, (1867) L. R. 2 Silver Mining Co.-, Ex parte Smith, H. L. 325; Stone v. City & County 16 L. T. Rep. N. S. 549. Although Bank, (1877) 3 C. P. Div. 283; Steele's there was no doubt that Smith had Case, (1879) 28 W. E. 241 ; Tennent been led to take shares in the com- v. City of Glasgow Bank, (1879) 4 > pany by the false representations, of App. Cas. 615. the flourishing condition of the mines 8 Hamilton v. Grangers' Life & contained ir^ the prospectus, yet Health Ins. Co. ,"(1881) 67 Ga. 145. when the order for winding-up the * Rees Silver Mining Co. v. Smith, company was made, his name was (1869) L. R. 6 H. L. 64 ; Henderson v. upon the register; it was true that Lacon, (1867) 6 Eq. 249. lie had filed his bill against the com- * Butler University v. Scoonover, pany to be relieved of his shares, but (1887) 114 Ind. 881 ; Appeal of Halin, he still held them, and the winding- (Pa. 1887) 7 Atlan. Rep. 482; Brand up order found him in the oonditiop v, Lawrenoeville Branch R. Co., 22 § 734.] SHAEEHOLDEES' DEFENSES TO CEEDITOES' BILLS. 1149' where a subscription is made on the condition that the whole amount of the capital stock should be a fixed sum, the sub- scriber is not liable for corporate debts until the whole amount is subscribed;' and where two subscriptions were void, being made by married women, and as a matter of fact were never paid, it was held that the condition had not been complied with.^ But the rights of the subscriber in such cases may be waived, and he may be bound by his subscription, even though the conditions upon which he relied have failed.' But in order Fed. Rep. 533 ; Callanan v. Windsor, 78 Iowa, 193. 1 Temple v. Lemon, (1886) 113 111. 51. 2 Appeal of Halin, (Pa. 1887) 7 Atlan." Rep. 483. One subscribed for stock in a projected railroad, and, in coi^ideration of the subscriptions, the company agreed to deposit col- laterals to secure him. After he had paid a portion of his subscription, the company made such a disposi- tion of the collaterals as to put them beyond his control, contrary to the contract of subscription ; and it was held that he was released from his obligations. Reusens v. Mexican Nat. Construction Co., 33. Fed. Rep. 533. 3 Musgrave v. Morrison, (1880) 54 Md. 161 ; Morrison v. Dorsey, 48 Md. 468; Hager v. Cleveland, (.873) 36 Md. 476: Cf. Boston &c. R. Co. v. Pearson, 138 Mass. 445. In an ar- ticle entitled " Delay in Repudiating Shares," in the Solicitors' Journal and Reporter, in the course of a dis- cussion of the necessity of prompt- ness in the rescission of the contract of subscription it is said: "In dis- posipg of this topic we saw that there was a considerable difference according to the nature of the claim to rescission — i. e., whether the con- tention be (1) ' I admit that I agreed to take shares in the company, but I say that my agreement was pro- cured by fraud ' (misrepresentation); or (3) ' I admit that I agreed to take shares in a company, but it was a different company to. that in which I have been registered ' (variation) ; or (3) ' I deny that I have agreed to take shares in any company at all ' (e. g.) when the allotment was made too late, or accompanied by an un- accepted condition. . . . Repu- diation must not lag far behind dis- 1 covery. If suspicions have been aroused, the court expects that the party should forthwith take the trouble of satisfying his mind one way or the other. It will,not hear of his shutting his eyes and after- wards ui'ging that he had not seen anything until &o. &c. happened (see Lord Cairns in Ogilvie v. Currie, 16 W. R. 769). Doubtless many per- sons would like to hold onto their shares as long as possible, so as to take the benefit of every chance of the concern turning out well, and I'epudiate if it became hopeless. This, however, is precisely what the court very sternly sets its face against. . . . Acquiescence is founded on knowledge, ai;id a man can not be said to have acquiesced in a transaction if he is not proved to have had knowledge o4 it. Stew- art's Case, L. R. 1 Cb. App. 574, per Lord Justice Turner. ... In Lawrence and Kinoaid's Cases, L. R. 3 Ch. App. 413, 436; S. 0. 15 W. R. Hop SHAEEHOLDpES' DEFENSES TO CEEDITOEs' BILLS. [§ 734, that this defense may be made available in a creditor's action against a stockholder, it must appear that there was a con- dition precedent to liability. The subscriber cannot create unreal conditions for the purposes of defense. Thus in an ac- tion in behalf of creditors of a corporation, to recover upon a subscription to its capital stock, where the answer admits the purchase of the stock, but alleges a subsequent surrender of it, and a discharge of the obligation to pay therefor, the fact that all" of the authorized capital stock may not have been taken, is not available in defense.' 571, the memorandum was not reg- istered when these gentlemen ap- plied for shares. Lord Cairns, L. J., said the applicant ' must be taken to have known either that this memo- randum was prepared and accessible at the time of his application, or that it must be prepared forthwith ; and that in either case, both it and the articles must, in {heir very riature, be documents differing widely in form from, and, in all measures of detail at least, going beyond the prospectus ; and with regard to docu- ments of this description, on the mode of framing which consistently with the prospectus so much diflfer- ence of opinion might well arise, it would be contrary to the first princi- ples of justice to hold that Mr. Law- rence was at liberty to remain wholly passive, content to trust to what was stated in the prospectus, and, while he knew that an authority to register his name and hold him out as a shareholder had been given and probably acted upon, keeping him- self in a position to ratify all that had been doneif the compa(ny turned out prosperous, but for the first time to inquire, and, if possible, repudi- ate should a financial panic come, or the speculation turn out unsuccess- ful.' ... In Wilkinson's Case, 15 W. E. 33; s. C. L. R. 3 Oh. App. 636, Turner, L, J., said that the fact of the party having paid calls threw on him the onus of proving that he did not know of the variance, and it was not enough that he said he had not seen the articles. Lord Cairns thought that ' where a man agrees to take shares and to be bound by the memorandum and articles, he must be affected with notice of their contents, unless, at all events, within a reasonable time during which he can acquire knowledge of the con- tents he repudiates the shares.' . . . In Peel's Case, 15 W. R. 1100; s. c. L. R. 2 Ch. App^ 674, Lord Cairns repeated what he had said in Law- rence's Case, and said that if the memorandum and articles were in existence when the party applied for shares, and if he agreed to take on the footing of them, he ought to be held bound to look before he applied. Where they were not in existence when the application was made, he ought to look, at latest, when he re- ceived the allotment." 1 Farnsworth v. Robbins, (1887) 36 Minn. 369. A stipulation in a con- tract of subscription to organization stock of a corporation, that bonds se- cured by first mortgage on the com- pany's plant shall be issued to the subscriber to the full amount of his subscription, is not to be regarded as a condition precedent to liability upon the subscription ; for it is noth- § 735.] SHA.EEH0LDEE8' DEFENSES TO CEEDITOES' BILLS. 1151' § 735. Forfeiture and cancellation of stock. — "Where the ofiBcerg of a corporation, in good faith, declare certain stock to be forfeited under a power conferred upon them by the statute or charter pursuant to which the company was organ- ized, the person in whose name the stock stands upon the books of the company, is freed from liability, in respect not only to the company and his co-stockholders, but also to the corporate creditors,' and this is true whether the debts were created before or after the forfeiture of the stock.^ But the officers of a corporation haye no power to declare stock for- feited and to cancel it, unless it is -^for the benefit, not onl}' of the creditors, but also for that of the stockholders and the State, for the directors are the trustees of all the stockholders and of the State as well.^ The power can not be exercised ing aiore than an independent stipu- lation, for the breach of which the remedy would be in damages; so that where the subscriber paid part of his subscription in cash, giving notes, to be paid upon call, for the balance, and having become a di- rector, after the organization was completed, without receiving his bonds, the defense of unfulfilled condition to a creditor's action was held not good, especially as the mort- gage to secure the bonds could only be obtained by payment of the fund subscribed. Morrow v. Nashville &c. Co., (1S89) 87 Tenn. 263; S. C. 10 Am. St. Eep. 658. 1 Mills V. Stewart, 41 N. Y. 384; Allen V. Montgomery &c. R. Co., 11 Ala. 437, 450 ; Macauley v. Robinson, 18 La. Ann. 619; J?£cparfe3eresford, 3 Macn. & G. 197; Woolaston's Case, 4 De Gex & J. 437; Kelk's Case, L. R. 9 Eq. 107 ; Dawes' Case, L. R. 6 Eq. 333; Snell's Case, L. R. 5 Ch. 33. And where stock had been issuejd as a stock dividend, upon the false pretense that it had been earned, and was afterward cancelled, it was held that as to such stock the defendant was released from liability upon corporate debts, the stock hav- ing been cancelled before the debts were created. HolUngshead v. Woodward, 35 Hun, 410. The A. in- surance company, as part of a con- tract of reinsurance, transferred its assets to the B. insurance company. The B., under the agreement, issued its stock in exchange for the stock of the A., and redeemed it at par. The A. was in fact insolvent, and a re- ceiver was afterwards appointed, who sued a former stockholder in the A. who had thus exchanged hia stock and redeemed it at par, to re- cover the amount thus received by him, and it was held that the action could not be maintained. Bent v. Hart, 73 Mo. 641, Sherwood, C- J-, dissenting; s. c. 10 Mo. App. 148. 2 Mills V. Stewart, (1869) 41 N. Y. 884. But the power of forfeiture must be exercised under the author- ity conferred by the statute creating the corporation ; there is no such power at common law. Creyke's Case, L. R. 5 Ch. 63. 3 Bedford R. Co. v. Bowser, (1864) 48 Pa. St. 39. Nor is a forfeiture proper in case the stockholder is re- sponsible. Chouteau Vi Dean, 7 Mo. 1152 SHAEEHOLDFES' DEFENSES TO CEEniTOES' BILLS. [§ 736. in behalf of any one shareholder, but is only to be used where the interests of the corporation, its creditors and all the share- holders demand it. Therefore when the directors of a com- pany, who had the power In their discretion to sue a share- holder for unpaid calls on his stock, or to declare it forfeited, agreed to relieve him of farther liability on condition that he would consent to an absolute forfeiture, but afterwards discov- ered that he wa^ solvent and, refused to perform, it was held that they could not be compelled Specifically to perform the contract.' Where a stockholder who has not paid anything for his stock surrenders it to the corporation, he can not be held liable to a creditor of the corporation whose claim first ac- crues after the surrender.^ A subscriber to stock is liable to the creditors of the corporation to the amount of his unpaid subscription, although payment was to be in property, and he had, by agreement with the xiorporatibn, surrendered all claim . for stock, and it had released all claim on the property.' § 736. Estoppel. — Inasmuch as outsiders dealing with the corporation have no means of knowing of its financial con- dition except the public acts and records and declarations of its officials and sfcockhplders, they have a right to rely upon them ; and stockholders who have participated in corporate acts and made themselves responsible for representations to third' parties by their assent, express or implied, can not evade their liability to corporate creditors. Thus when a subscription to the capital stock of a corporation is made for the purpose App. 311 ; Spaohman v. Evans, L. E. Spachman's Case, 11 Jur. N. S. 207 ; 3H. L. 171. Of. Bedford E. Oo. v. Eichraond's Cas,e, ,4 Kay & J. 305; Bowser, (1864) 48 Pa. St. 39. A for- Walters' Second Case, 3 De Gex & feiture brought about ty collusion Sm. 244. And a forfeiture which is between the' stockholder and the di- intentionally fraudulent may be en- rectors, will not relieve him of liabil- joined, and, when consummated, " ity either to the corporation or its set aside. Germantown &c. E. Co. creditors." Burke u. Smith, 16 Wall. v. Filler, 60 Pa. St. 134. 394; Mills v. Stewart, (1869) 41 N. Y. i Harris v. North Devon Ey. Co., 384, 386; Slee v. Bloom, 19 Johns. (1855)20 Beav. ?84. See also Price 456; Hall's Case, L. E. 5 Ch. 707; v. Denbigh &c. Ey. Co., 38 L. J. Ch. In r-e Agricultural Ins. Co., L. E. 1 461. Ch. 161; Stanhope's Case, L. E. 1 ^ Johnson u, LuUman, (1885) 15 Ch. 161; Stewart's Case, L. E. 1 Ch. Mo. App. 55. 511 ; Gower's Case, L. E. 6 Eq. 77 ; ' Singer v. Given, 61 Iowa, 93. § 736.] SHAEEHOLDEES' DEFENSES TO CEEDITOEs' BILLS. 1153 of subsequent organization, which is afterwards had, and the' subscriber pays part of his subscription, and transfers shares, he thereby recognizes and affirms his contract of subscription.^ So, persons who subscribe to stocli and participate in an irreg- ular formation of a corporation become a corporation de facto, if not dejure, and as such are liable at least to the extent of the stock subscribed by thera;^ and one who participates in the organization of a company and acts as its president, , waives any irregularities therein, and upon him the by-laws and charter are binding.^ But whether one who subscribes for stock in a corporation is thereafter estopped from de- nying his liability as a stockholder, depends upon the terms of his contract of subscription and the organic law of the corporation. When the corporation, in its correspondence, uses letter-heads upon which is a statement purporting to be the amount of the capital stock, the officers and stockholders are not estopped from denying that the amount indicated . was the actual capital stock."* Nor, in an action by a corpo- 1 Bell's Appeal, 115 Pa. St. 188. the faith of that subscription, and The payment of one invalid assess- work having been commenced, the ment upon stock is not a waiver of subscriber is estopped to deny the another. Atlantic De Laine Co. v. subscription. Bullock v. Falmouth Mason, (1858) 5 R. I. 463. Cf. Field &Chipman Hall Turnpike Road Co., V. Pierce, (1869)103 Mass. 353; Cover (1887) 85 Ky. 184. In an action to V. Manaway, (1886) 115 Pa. St. 338; recover from defendant a debt of a Thompson v. Reno Savings Bank, manufacturing corporation, on the (1885) 19 Nev. 108 ; Inter-Mountain ground that the capital stock had Publishing Co. v. Jack, 5 Mont. 568. not been fully paid in, it appeared 2 Marshall Foundry Co, v. Killian, that defendant had signed the arti- (1888) 99 N. C. 501 ; s. 0. 6 Am. St. cles of incorporation, had subscribed Rep. 539. ■ for stock, was a trustee and secre- 3 Marshall Foundry Co. v. Killian, tary of the corporation, and actively (1888) 99 N. C. 501 ; s. C. 6 Am. St. engaged in its management, and Rep. 539. Where one, prior to the that his name was recorded in the incorporation of a turnpike com- ' corporate books as a stockholder, pany, subscribed a certain amount It was held, that he was a stock- to its capital stock, to be paid when holder, although he had neither the incorporation was completed and paid for his stock nor received a cer- work begun, the subscription is not tiflcate for it. Wheeler v. Millar, 90 a mere voluntary donation, but is N. Y. 353. Ace. Griswold v. Selig- enforoeable, having been made in' man, (1880) 73 Mo.' 110. consideration of receiving a property * Warfield, Howell & Co. v. Mar- right as stockholder in the road ; and shall County Canning Co., (1887) 73 other persons, having subscribed on Iowa, 666, 73 1154 SHAEEHOLDEES' DEFENSES TO CEEDITOfis' BILLS. [§ 737. rate creditor against a stockholder, is the defendant bound by entries' in the boolis of the corporation.' , § 737. Limitation. — Actions by corporate creditors against stoclcholders to enforce their individual liability, may, like other actions, be barred by limitation;^ and in the absence of special statutes, applicable only to this liability, the general statute, by which the right'of action on ordinary contracts is barred, controls.^ In New York, where the General Manu- i.Nielson v. Crawford, (1877) 53 Cal. 248. Where a subscriber gives to a corporation a bond which as- sumes that the obligor has sub- scribed for stock and has retained tlie subscription price as a loan for ■ which the bond is given, it appear- ing that he had never subscribed for nor received any stock, the obligor is not estopped from denying that he is a stockholder. Butler Univer- sity I'. Scoonover, (16(S7) 114 Ind. 381 ; S. C. 5 Am. St. Rep. 637. 2 Vide supra, § 553. sGridley v. Barnes, 103 111. 311; Diversey u. Smith, (1883) 103 111. 378; Cable V. McCune, 23 Mo. 380; Law- lor V. Burt, (1857), 7 Ohio St. 341; Cady V. Smith, (1883) 13 Neb. 628; Knox V. Baldwin, (1880; 80 N. Y. 610; Duckworth v. Roach, (1880)81 N. y. 49 ; Terry v. Tubman, (1875) 93 U. S. 156; Knosf v. Baldwin, (1880) 80 N. Y. 610; Hawkins u. Fur- nace Co., (1884) 40 Ohio St. 507; Prince v. Yates, 7 Weekly Notes, 51 (U. S. C. C, Pa. 1879); Holllngshead V. Woodward, (1887) 107 I^. Y. 96; King V. Duncan, (1886) 38 Hun, 461 ; Phillips V. Therasson, (1877) li Hun, 141 ; Bullard v. Bell, (1817) 1 Mason, 248, 389; Thornton v. Lane, (1852) 11 Ga. 459; Lane v. Morris, (1851) 10 Ga. 163; Corning v. McCullough, (1847) 1 N. Y. 47; Jagger Iron Co. v. Walker, (1879)' 76 N. Y. 533; Terry V. Calnan, 13 S. C. 330; Lawlor v. . Burt, 7 Ohio St. 340; King v. Dun- can, (1886) 38 Hun, 461; Stilphen v. Ware, (1873) 45 Cal. 110; Shellington V. Howland, (1873) 53 N. Y. 371; Birmingham National Bank v. Mosser, (1878) 14 Hun, 605; Lindsley v. Simonds, (1866) 2 Abb. Prac. (Nu S.) 69. Of. State Sav. Assoc. i\ Kellogg, (1873J 53 Mo. 583; Freeland V. McCullough, (1845) 1 Denio, 414, 423; Merchants' &c. Co. v. Bliss, (1860) 21 How. Pr. 366, affirmed 35 N. Y. 414; Davidson v. Rankin, (1868) 34 Cal. 503; Godfrey v. Terry, (1877) 97 U. S: 171 ; Conklin v. Fur- man, (1865) 8 Abb, Pr. (N. S.) 164; Schalucky v. Field, (111. 1888) 16 N. E. Rep. 904; Bank of Pough- keepsiei). Ibbotson, (1840) 24 Wend.' 473; Carrol v. Green, (1875) 93 U. S. 509; Baker v. The Atlas Bank, (1845) 9 Mete. 183; Lindsay v. Hyatt, (1842) 4 Edw. Ch. (N. Y.) 104; Van Hook V. Whitlock, (1832) 3 Paige, 409; Green v. Beckraan, (1881) 59 Cal. 545; s. c. 38 Fed. Rep. 777; Wiles v. Suydam, (1876) 64 N. Y. 173, 176; Mappier v. Mortimer, (1871) 11 Abb. Prac. (N. S.) 455 ; Commonwealth v. Cochituate Bank, (1861) 3 Allen, 42; Terry i\ McLure, (1880) 103 D. S. 442; Lewis v. Ryder, 13 Abb. Pr. Ij Kuykendall v. Draper, 19 Hun, 577 ; Moore v. Boyd, (Cal. 1887) 15 Pac Rep. 670; Paine v. Stewart, (1,882) 33 Conn. 516; Baker V. Bachus, 33 111. 99; In re Bank of Sing Sing, (1884) 33 Hun, 462; affirmed 96 N. Y. 673; Terry v. Anderson, (1877) 95 § 737.] SHAEEHOtDEEs' DEFENSES TO CEEDITOES' BILLS. 11.55 facturitig Act prohibits actions against stockholders of cor- porations formed thereunder, unless they are brought withia two years after they cease to be stockholders, it was held .that the statute began to run from the time the corporation ceased to do business, its property having been sequestrated and a receiver appointedi^ But where the statute bars such actions three years after an assignment for the benefit of creditors, the mere voluntary dissolution of the corporation or its ceas- ing to do business does not affect the creditor's right, the statute being limited to cases of insolvency, expiration by limitation or forfeiture.* If debts of the corporation, upon which recovery is otherwise barred by the statute, have been secured by a deed of trust under which the corporate property, including unpaid subscriptions, has been conveyed, equity w^ill give the creditors relief.^ Where the remedy is barred at law, it will be barred in equity also.^ Liability of a penal nature is barred in a shorter period than that arising ex con,' tractu? U. S. 638; Handy v. ;Draper, (1883) < Carrol u. Green, (1875) 93 tT. S. 89 N. T. 334; Merritt v. Reid, (1883) 509; Lindsay v. Hyatt, (1643) 4 Edw, 13 Week. Dig. (N. Y.) 4.53; Longley Oh. (N. Y.) 104. i>.' Little, (1846) 36 Me. 163. sLowry v. Inman, (1871) 4(5 N. Y. iHoUingsheadu Woodward, (1887) 119; Patterson v. Baker, (1867) 84 107 N. Y. 96, How. Pr. 180. Of. Union Iron Co. v. 2 Sleeper v. Goodwin, 67 Wis, 577. Pierce, (1869) 4 Biss. 327 ; Howell v. 3 Hamilton v. Glenn, (1889) 85 V£^, Manglesdorf, (1885) 88 Kan, 194. 901. CHAPTEE XXXVII. MORTGAGES, BONDS AND COUPONS. 738. Introductory. 739. Power to mortgage. 740. • Vltra vires mortgages. 741. What amounts to a mort- gage. 743. Formal requisites. 743. In whom the power to mort- gage is vested. 744. Of the shareholder's consent. 745. Priorities. 746. Superior liens. 747. The same subject continued — Keceivers' certificates. § 748. What is covered by a corpo- rate mortgage. 749. Whether the mortgage covers fixtures. 750. Of future-acquired property. 751. Mortgages of income. 753. Recording mortgages. 753. Mortgage bonds. 754. Registration of bonds. •755. Bonds convertible into stock. 756. Validity ot bonds issued be- low par 757. Coupons. § 738. Introductory. — The power to borrow money im- plies the power to secure payment thereof by mortgage of the corporate property.' But it does not generally imply the power to mortgage its franchises as distinguished from the company's tangible property; nor in any case can a company mortgage the franchise of corporate existence.^ The doctrine that a corporation can not naortgage the franchise of corporate existence is not founded upon any technical theory nor arbi- trary rule, but upon the reasonable implication that it would be contrary to the intention of the legislature and subversive of the purposes for which the franchise was granted.' This 1 Vide supra, g 388. But not of the corporate franchise. Vide supra, §389. ^ Vide supra,' %ZSQ. 8 East Boston &c. R. Co. v. Easton R. Co., (1866) 13 Allen, 432; Com- monwealth V. Smith, 10 Allen, 488 ; S. c. 87 Am. Dec. 673; Richardson ■«. Sibley, 11 Allen, 65; s. C. 87 Am. Dec. 700 ; East Boston cfcc. R. Co. v. Hubbard, lO Allen, 459; Meyer v. Johnston, (1875) 53 Ala. 337; Louis- ville &c. R.> Co. 11. Metcalf, 4 Met. (Ky.)199; Pullan. v. Cincinnati &c. R. Co., 4 Biss. 35; Pollard v. Mad- dox, (1856)28 Ala. 331; Dunham v. Isett, 25 Iowa, 284. But a mortgage of franchises and property may cre- ate a valid lien upon the property, although illegal as to the franchises. Central &c. Mining Co. v. Piatt, 3 Daly, 363. § -739.] MOETGAaES, BONDS AND COUPONS. lloT doctrine is applicable to manufacturing corporations^ as well as to quasi public companies.^ The general rule, However, has been doubted in Maine,' upon the ground tha,t the perso?mel of corporations is a matter of no importance.* And in "Wisconsin, under a charter authority to execute such securities as it miarht deem expedient, a railroad has been held to have the power to mortgage its entire road with all its franchises.' § 739. Power to mortgage. — The power to mortgage cor- porate property is co-extensive with the power to alienate it absolutely.'' Thus authority given to a company by special act of the legislature to transfer all its property artd rights to another corporation confers upon it authority to mortgage its property and rights to the other.' And, generally, a charter conferring the right to acquire, alien, transfer and dispose of property of every kind, confers the power to mortgage.^ So 1 Lord V. Yonkers &c. Co. , 99 N. Y. 547. 2 Arthur v. Commercial &c. Bank, 11 Miss. 391; Stater;. Mexican &c. R. Co., S Rob. (La.) 513; Black v. Dela- ware &c. Canal, 22 N. J. Eq. 180 ; -Stewart's Appeal, (1867) 56 Pa. St. 413; Randolph ?;. Wilmington &c. R. Co., 11 Phila. 502; Hays v. Ottawa &p. R. Co., 61 111. 482; Hart v. East- ern Union Ry. Co. , 7 Ex. 246 ; Pullan V. Cincinnati &c. k Co., (1873) 4 Biss. 35 ;^ Carpenter v. Black Hawk &c. Co., 65 N. Y. 43; Troy&c. R. Co. V. Kerr, 17 Barb. 581 ; New Orleans &c. R. Co. V. Harris, (1854) 27 Miss, 517; Stewart v. Jones, 40 Mo. 140; Daniels v. Hart, 118 Mass. 543; pierce v. Emery, 32 N. H. 484 ; Wood V. Bedford &c. R. Co., 8 'Phila. 94; Atkinson v. Marietta &c. R. Co., (18^4) 15 Ohio St. 21. 3 Kennebec &c. R. Co. v. Portland &c. R. Co., (1871) 59 Me. 9, 33. iShepley v. Atlantic &o. R. Co., (1867) 55 Me. 407. 6 Pierce v. Milwaukee &c. R. Co., (1869) 84 Wis. 551. 6 " The Power of a Railroad Com- pany to Mortgage its Property and Pracchises," (1885) by Leonard A; Jones, 19 Am. L. Rev. 440. It has been held that to confer upon a cor- poration the power to mortgage its property and franchises, it is not requisite that the words of the stat- ute or of its charter should expressly authorize it so to do if there is by reasonable implication an intention shown by the legislature to authorize it. East Boston' &c. R. Co. v. East- ern R. Co. , (1866) 13 Allen, 422. The power to mortgage the franchises of a cotporation necessarily implies the right to transfer both the franchises and the corporeal property requisite to their exercise to the purchaser at the foreclosure sale. New Orleans &c. R. Co. V. Delamore, (1885) 114 U. S. 501 ; Galveston &c. R. Co. v. Gowdrey, 11 Wall. 459; Phillips v. Winslow, 18 B. Mon. 431. Cf. Traer V. Clews,, 115 U. S. 534. " East Boston Freight Co. v, East-- ernR. Co., 13 Allen, 432. 8 McAllister u Plant, 54 Miss. 106; Coinmissioners of Craven v. Atlantic &c. R, Co., (1877) 77 N. C. 389; Burr 1158 MOETGAGES, BONDS AND COUPONS. [§ 739. also, if a corporation, besides being authorized to acquire, pur- chase, dispose of and convey real and personal property, is empowered to negotiate its paper and to borrow money, it has power to mortgage its property to secure the l:;ans.' The power of a trading corporation to mortgage its property as security for money borrowed in the prosecution of its business exists by implication in the absence of charter limitations.^ And it may be regarded as well settled that property which a com- pany has not acquired under the right of eminent domain, and which is not requisite to the performance of its duties to the public, may be alienated, or mortgaged without legislative authority.' Authority to mortgage carries with it the right to make. the usual conditions, but not those of an extraordi- V. McDonald, 3 Qrat. 315; Lucas v. Pitney, (1859) 37 N. J. 331 ; Union Bank v. Jacobs, 6 Humph. 515; Sa- vannah &c. R. Co. V. Lancaster, 63 Ala. 555 ; Oxford Iron Co. v. Spradley, 46 Ala. 98; Booth u. Robinson, 55 Md. 419; Thompson v. Lambert, 44 Iowa, 239; Ward v. Johnson, 95 111. 215; Bradley v. Bullard, 55 111. 413; s. c. 7 Am. Rep. 656; Kent/y. Quicksilver Mining Co., (1879) 78 N. T. 159 : Hope &c. Ins. Co. V. Perkins, 38 N.,,y. 404; Nelson v. Eaton, 36 N. Y. 410; Curtis V. Leavitt, 15 N. Y. 9; Clark v. Tit- comb, 43 Barb. 133; Uncas National Bank v. Rith, 33 Wis. 339; In. j-e In- ternational &c. Soc, L. R. 10 Eq. 313; Australian &c. Co. v. Mounsey, 4 K & J. 733 ; Bank of Australia v. Breillat, 6 Moo. P. C. 153, 193 ; Kelly V. Alabama &c. R. Co., 58 Ala. 489; Commissioners v. Atlantic &c. R. Co., 77 N. C. 289 ; Blackburn v. Selma &c. R. Co., 3 Flip. 535, where it was held that a railroad corporation, when not restricted by its charter, might acquire lands ad libitum, and where it executed a mortgage to se- cure bonds to be used to raise money for construction purposes, might buy lands with part of the bonds to he utilized by including them in the mortgage as additional security for all the bonds. A railway company having authority to raise money by the issue of its own bonds, has power to guaranty the bonds of municipal corporations which are issued in its aid to pay debts due it or in which it is interested. Railroad Co. v. Howard, (1868) 7, Wall. 393; Bonner V. City of New Orleans, 2 Woods, 135; Rogers Locomotive Works v. Southern R. Assoc, 34 Fed. Rep. 378 ; Law V. California Pacific R. Co., 53 Cal. 53. ' Taylor v. Agricultural & M. Assoc, 68 Ala. ^9. 2 Wood V. Meyer, (Miss.-1890) 7 So. Rep. 359. ^Farnsworth v. Minnesota &c. R. Co., (1875) 93 U. S. 49; Tucker v. Ferguson, 22 Wall. 537; Hendee v. Pickerton, 14 Allen, 381 ; Blackmoj'e V. Yates, L. R. 3 Ex. 325 ; Browne & Theobald's Ry. Law, 85; Pickering V. lifraccmbe Ry. Co., L. R. 3 C. P. 335; Gardner v. London &c. Ry. Co., 3 Ch. 301. See, however, Land- owners' &c. Co. V. Ashford, 16 Ch. Div. 411, 437." Under a general power of borrowing and of issuing debentures, debentures issued in dis- charge of an existing debt are valid. Inns of Court Hotel Company, L, R. 6 Eq. 83. § 740.]. MORTGAGES, BONDS AND COUPONS. 1159 nary or unusual nature.' Authority to mortgage the whole corporate property includes the right to mortgage property in whatever way acquired and for debts whenever incurrpd,^ or to mortgage any part of the property.' § 740. Ultra Tires mortgages. — The power of a corpora- tion established for certain specified purposes must depend upon what those purposes are, and except so far as it has ex- press powers given to it, it will have such powers only as are necessary for the purpose of enabling it in a reasonable and proper way to discharge the duties or fulfill the purposes for which it was constituted.* If, however, the objects for which the company is established render it reasonably necessary that it should borrow money and mortgage property there- for, it will have power so to do. Thus, as a rule, no doubt, trading companies would have power to borrow; although in practice the question does not very often arise, as it is usual to insert express power to borrow in the memorandum of as- sociation.* The limits and manner of borrowing to which a i-Savfinnah &c. R. Co. v. Lancas- ter, (1878) 63 Ala. 555; Pacific &c. Co. V. Dayton &c. B. Co., 5 Fed. Rep. 852; Jessup v. City Bank, 14 Wis. 331 ; Hart v. Eastern Union Ry, Co., 7 Ex. 246. '^ Galvteston &c. R. Co. v. Cowdrey, 11 Wall. 459. 3 Pullan ,v. Cincinnati Sec. R. Co., (1873) 4 Biss. 35. *Regina •«. Reed, L. R 6 Ch.'87. Accordingly if the borrowing pow- ers of the company are exceeded it is not liable, as persons dealing with it are bound to know that it has not necessarily an unrestricted power of borrowing. Chapleo v. Bruns- wick Building Society, 6 Q. B. Div. 713; Ashbury &c. Co. u. Riche. L. R. 7 H. of L. 653, where Lord Selborne said : "I think that contracts for ob- jects and purposes. foreign to or in- consistent with the memorandum of association are ultra vires of the cor- poration itself. And it seems to me far more accurate to say that the inability of such companies to make such contracts rests on an original limitation and circumscription of thefr powers by the law and for the purposes of their incorporation, than that it depends upon some expressed or implied prohibition making acts unlawful which otherwise they would have had a legal capacity to do." 5 In re Hamilton's &c. Works, 12 Ch. Div. 707. In the case of In re Patent File Company, Ex parte Bir- mingliam Banking Company, 6 Cli. App. 87, the following passages occur in the judgments of Lords Justices James and Mellish respectively: "The- company is a body corporate, and by the law of England a body corporate can hold property and dis- pose of it as freely as an individual, unless it is specially prohibited from so doing." . . . "It was, urged that no company can mortgage un- 1160 MOETGAGES, BONDS AND COUPONS. [§740. I corporatiou is restricted by its charter or act of incorporation must be strictly observed.^ Accordingly autliority to mort- gage for the purpose of carrying on its business does not con- fer the power to do so for any other purpose.^ And the grant to a railway company of the general power to bbrrovv money and to sell bonds at a rate below par, and to exdoute a mort- gage to secure the same, does not authorize it to issue irre- deemable bonds at a rate much below par, entitling the holder merely to a contingent share in the profits, nor to execute a. mortgage to secure the bonds.' But a mortgage to secure a debt in excess of the amount limited by the charter has been held not invalid.* So also where a debt of a corporation be- yond the limit" pi'escribed by its charter was owned by its directors, a.nd they in good, faith took a mortgage on the property of the corporation as security, it was held that they might enforce their securitj'-', even though they participated in the management of the corporate business in such a way as to permit the a.coumulation of the debt beyond the allowed limit, and although the corporation was insolvent when the mortgage was taken, and the mortgage gave thfem a pref- erence over other creditors.' , ^ contractor who has received debenture stock beyond the amount the company was author- ized to issue was held to be entitled to rely upon the implied less expressly authorized to do so. Co., 33 Hun, 333; Grand Junction Now, the company has property R. Co. v. Bickfoid; 23 Grant's Ch. which it is authorized to deal with, (Ont.) 302; Miller v. New York &c. and I should say that the true rule R. Co., 18 How. Pr. 374. is just the contrary, namely, that 'McCalmont v. Philadelphia &c. the company can mortgage unless R. Co., (1881) 7 Fed. Rep. 386; s. c. expressly prohibited from doing so. ' 8 Am. & Eng.- R. Cas. 163. The 43d section of the act appears *Warfield v. Marshall" &c. Co., to recognize the creation of mort- (1887) 72 Iowa, 666; s. c. 3 Am. St. gages as an ordinary incident to a Rep. 263; Garrett v. Burlington company.'' As observed by Lord Plow Co., 70 Iowa, 667; s.c. 59 Am. Justice Cotton in Reginau. Reed, 5 Rep. 461; Buell v. Buckinghaoi, 16 Q. B. Div. 486, that, was the case of Iowa, 284; s. c. 85 Am. Dec. 510. a trading corporation which- may 5 Garrett v. Burlington Plow Co,, have the power to borrow or to mort- (1866) 70 Iowa, 697; s. c. 59 Am. gage its property for the purpose of Rep. 461, citing Buell v. Bjicking- enabling it to carry on its trade. ham, 16 loyfa, 284; Farmers' &c. 'Baroness Wenlock v. River Dee Bank v. Wasson, 48 Iowa, 336 ; s. c. Co.. L. R. 10 App. Cas. 354. 80 Am. Rep. 398; Hallam v. Indian- 2 Astor V. Westchester Gas Light ola Hotel Co., 50 Iowa, 178. r74i.j 1161 warranty of the company's authority to issue the stock.' Where debenture holders under a statute are entitled 'pari passu, one can not obtain an advantage over the others by means of an additional mortgage.^ A corporation is estopped from setting up the defense of vltra vires to its mortgage contract when there is nothing on the face of the paper showing that it had exceeded its power.' And the doctrine of subsequent legisla- tive recognition applies to the making of corporate mortgages as well as to other corporate acts.* The execution of a mort- gage which is ultra vires on account of being made to secure irredeemable perpetual bonds, may be enjoined at the instance of a stockholder. ^ But a general creditor of a corporation can not obtain an injunction against its executing a mortgage of its property.^ § 741. What amounts to a mortgage. — ^^In order to create the mortgage lien, no peculiar form of instrument is necessary. Thus a trust deed is in legal effect a mortgage.' And car 1 Fairbank v. Humphreys, (1886) 18 Q. B. Div. 54. 2 De Winton v. Brecon, (1858) 26 Ueav. 533. 3 H^ys V. Gallon &c. Co., (1876) 29 Ohio St. 330 ; Bissell v. Michigan &c. R. Co., 22 N. Y. 258; Monument- Nat. Bank v. Globe Works, 101 Mass. 57 ; Whitney Arms Co. v. Barlow, 63 N. Y. 62; Singer v. St. Louis &o. Ey. Co., 6 Mo. App. 427. * White Water &c. Canal Co. v. Vallette, (1858) 21 How. 414; Shaw V. Norfolk County R. Co;, 5 Gray, 162; Shepley v. Atlantic &c. R. Co., (1867) 55 Me. 395; Troy &c. R, Co. V. Boston &c. R. Co., 86 N. Y. 107; Richards ■;;. Merrimac &c. R. Co., 44 N. H. 127; Hatcher v. Toledo &c. R. Co., (1871) 62 111. 477; Gardner v. London &c. Ry. Co., (1866) L. R. 2 Ch. App. 201 ; Shrewsbury &c. Ry. Co. V. Northwestern Ry. Co., 6 H. L. 113; East Anglian Ry. Co. v. East- ern Counties Ry. Co.. 11 C. B. 775; Winch V, Birkenhead &c. Ry. Co., 5 De Gex & S. 562; Bagshaw v. East- ern Union R^. Co., 7 Hare, ,114: Northern Ry. Co. v. Eastern Counties Ry. Co., 21 L. J. Ch. 8. 5 McCalmont v. Philadelphia &c. R. Co., (1881) 7 Fed. Rep. 386. ''Rogers v. Michigan &c. R. Co., 28 Barb. 589. But the creditors have their remedy against the directors executing an ultra vires mortgage. Fairbank v. Humphreys, ,(1886) 18 Q. B. Div. 54; Chapl'eo v. Brunswick &c. Soc, 6 Q. B. Div. 696; Richard- son V. Williamson, L. R. 6 Q. B. 276; Weeks i\ Propert, L. R. 8 C. P. 427. Of. Rashdell v. Ford, 2 Eq. 750. "White Water &c. Canal Co. v. Vallette, 21 How. 414; McLane v. Placerville &c. R. Co., 66 Cal. 606; Coe V. McBrown, 22 Ind. 253; C9e V. Johnson, 18 Ind. 218. Trust deeds for securing debentures are not so common as they used to be in England, partly, no doubt, be- cause their advantage? are not very 1163- MORTGAGES, BONDS AND COUPONS. [§741. trust agreements for the purchase of rolling stock by instal- ments regarded as rental only upon forfeiture according to the condition of the contract, are held to constitute mort- gages.^ So also where bonds are expressly made a lien upon the property of the company issuing them, either, b}' statute or stipulation contained in them, a formal mortgage or writ- ing additional to the bonds is unnecessary.^ And, if a statute be clear and explicit, in creating a lien of this characteir,*'it is not necessary that the bonds should make any mention of the statute.* Bonds of this character cover all property,^ presently owned or after acquired,^ and must be foreclosed to become available, in the manner provided by the statute,'' in ail respects as a general mortgage lien. But notes given for money borrowed to pay interest on railroad bonds, each of which stipulates that a certain amount of the gross earnings obvious, and partly because if they include chattels they must coiiiilly with the pi-ovisions of the Bills of Sale Act 1883, 45 & 46 Vict. eh. 43, on the ground that such a deed is not a debenture within the meaning of sec. 17, of that act. Brocklehurst V. Railway Printing and Publishing Co., Week. Notes 1884, p. 70, and Ross V. Army & Navy Hotel Co., 34 Ch. Div. 53. The fact that the trustees of the deed can enter and execute their powers without resort to an action in the Chancery Division is an advantage more apparent than real, as few trustees would incur the responsibility of putting in force the powers of such deed without the di- rection of the court. Even when meetings of debenture holders are intended to be held, there seems to be no sufficient "reason why provis- ions for that purpose should not be inserted in the conditions of the de- bentures themselves, and there are cases in which that' has been done. " Debentures," reprinted from the Law Times, London, (1890) 8 Ry. & Corp. L. J. 518. iHeryford i;. Davis, (1880) 103 U. S. 235; Hervey v. Rhode Island &c. Works, 93 U. S. 664; Frank v. Denver &c. Ry. Co., 23 Fed. Rep. 123. Cf. Fosdick©. Schali, (1878) 99 U. S. 235, 251 ; and on Car Trust Se- curities generally see paper by Fran- cis Rawle, 8 Am. Bar Assoc. Rep. 277; Yorkshire Ry. Wagon Co. v. Maclure, 21 Ch. Div. 309; North Central Wagon Co. v. Manchester &c. Ry. Co., 35 Ch. Div. 191. 2 White Water &c. Canal Co. v. Vallette, (1858) 21 How. 414; Eetchum V. Pacific R. Co., 4 Dill. 78, 86; Wilson II. Boyce, 92 U. S. 320 ; Wood- son v. Murdock, 23 Wall. 351; Mur- dock V. Woodson, 2 DilJ. 539; Mil- ler V. Rutland &o. R. Co. (1863) 36 Vt. 452; State v. Florida &c. R. Co., 15 Fla. 690. 8 Cincinnati v. Morgan, (1S65) 3 Wall. 375; Brunswick &c. R. Co. v. Hughes, 52 Ga. 557; Collins v. Cen- tral Bank, 1 Kelly, 435. * Dundas v. Desjardins, 17 Grant, (U. C.) 37. 5 Wilson V. Boyce, 92 U. S. 320. 6 Whitehead v. Vineyard, 50 Mo. 30. 'Florida v. Anderson, 91 U. S. 667. § 742.] MORTGAGES, BONDS AND COUPONS. 1163 of the road from darte " is pledged in liquidation of this note," are not thereb}' given priority over the bonded debt, as the' Stipulation is ineffectuair^ And a contract between two rail- road companies in relation to the carriage of freights and di- vision of earnings, which provides that this " contract, and any damages for the breach of the same, shall be a continu- ing lien upon the roads of the two contracting companies, their equipment and income, in whosesoever hands they may come," does not constitute a lien or obligation yunning with the land, so as to render it liable in the hands of a purchaser of one of the roads for supposed earnings that would have accrued during the term provided iti the lease.^ § 742. Formal requisites of mortgages. — Corporate mort- gages under the authority of a vote of -the board of directors are usually required to be signed by the president and coun- tersigned 'by the secretary or treasurer, and- sealed with the corporate seal.' Thus a mortgage signed by the president, secretary and two stockholders, and duly witnessed, but not sealed with the common seal of the corporation as required by the statute, is ineffectual.* The mortgage and the' bonds may be validly executed out of the State in which the com- pany's property is situated;" although with respect to the forms of conve3'ance, a mortgage of realty should be executed" according to the law of the State where it lies." The law of the State creating the corporation governs as to the authority of the corpbrate agents to act.'' The mortgage deed should >McIlhenny u Binz, (Tex. 1890) 13 In re Bagnalstown &c. Ry. Co., S. W. Eep. 655. Ir. Rep. 4 Eq. 505. 2Des Moines & Ft. D. R. Co. v. ^ Duke u. JIarkham, (1890) 105 N. C. Wabash, St. L. & P. R. Co., (1890) 131. 185 U. S. 576; S. 0. 8 Ry. & Corp. L. ^Herveyu. Illinois Midland Ry. J. 84. Co. , 28 Fed. Rep. 169 ; Hadder v. Ken- 3 Galveston &o. R. Co. v. Cowdrey, tucky &c. R. Co., 7 Fed. Rep. . 793. (1870)11 Wall. 459 ; Duke o. Mark- .«Saltnaarsh v. Spaulding, (1888) ham, (1890) 105 N. C. 131 ; Ohio &c. 147 Mass. 224. R. Co. u McPherson, 85Mo. 13; s. C. 'Saltmarsh v, Spaulding, (1888) 86 Am. Dec. 128; Wright v. Bundy, 147 Mass. 224, where a statute in 11 Ind. 398 ; Arms v. Conant. 36 Vt. Massachusetts prohibiting directors 744; McCurdy's Appeal, 65' Pa. St. from mortgaging the corporate prop- 290 ; 8 Vic. ch. 16, § 41 1 Londoners erty without authority from the &c. Co. V. Ashford, 16_Ch, Div. 411 ; stockholders, was held not to app'y 1164 MOETGAGES, BONDS AND COUPONS. [§ 743. describe specifically and accurately the bonds which it is given to secure.^ , But a mortgage given by a railroad company to secure the payment of dividends to tte ijolders of certificates purporting to be certificates of preferred stock, is an incident to the principal obligation ; and the terms and purport of the certificates express the real intent of the parties, even though some of the stipulations of the mortgage may be apparently inconsistent with the intent as expressed by the certificates.^ A mortgage deed maj'^ be reformed by a court of equity, so as to carry out the evident intent of the parties.' And a defect- ive mortgage which could not operate as a deed has been held to be an equitable mortgage, taking precedence over second mortgagees affected with notice of the former.* § 743. In whom the power to mortgage is vested. — While as a general rule the extraordinary powers, of a; corporation are reserved to the members at large and are not to be exer- cised by the directors, unless delegated to them b}^ the mem- bers," and while this rale is, and as it would seem appropriatelyi applied to the power to mortgage, by the statutes of several States and the charters of many companies," yet in the absence of any provision in the statutes or charter, it is held that the powers of a company herein may be exercised by the direct- to a mortgage of property situated date securities issued without the in Massachusetts, owned by a cor- authority of a geueral meeting, even poration' deriving its charter from in the hands of the original allottee, Vermont. if he has no notice of any irregular- 1 Butler «. Rahm, 46 Md. 541. ity. In re Romford Canal, 24 Ch. 2 Miller v. Ratterman, (Ohio, 1890) Div. 85 ; Landowners' &c. Co. v. 24 N. B. 'Rep. 496. , Ashford, 16 Ch. Div. 411 ; Fontaine 3Coe V. New Jersey &c. R. Co. v. Carmathen Ry. Co., 5 Eq. 316. (1879) SI N. J. Eq. 105; Randolph v. The statute giving church trustees New Jersey &c. R. Co., 28 N. J. Eq. authority, under the direction of the 49. society, to mortgage real estate, does * Miller v. Rutland &c. E, Co., not require a two-thirds vote, as in (1863) 36 Vt. 452. the case of a sale or conveyance. 5 Fide supra, § 73. Scott u.' Jackson Methodist Church, 6 8 Vic. ch. 16, S 38; Mass. Pub. 50 Mich. 528. These statutes are not Stat. ch. 106, §23; Tex. Rev. Stat, applicable, however, to foreign cor- § 4220, as to railways. The provis- porations. Saltmarsh v, Spaulding, ion of the English act is held to be (1888) 142 Mass. 224; s. 0. 4 Ey. & directory only, and does not invali- Corp. L. J. 151. § m.J MOETGAGES, BONDS AND COUPONS. 1165 ors.^ Thus the directors of a gas-light corporation organized under the 'Hew York laws relating to the organization of such companies, may execute a mortgage to. secure a debt without the written consent of two-thirds of its stockholders.' A com- mittee of the board of directors, whether especially authorized or not, may also be empowered by the board to negotiate loans and execute the company's mortgage therefor.' But di- rectors can not make a mortgage to themselves,* nor thereby secure themselves an advantage over other creditors.^ § 744. Of the shareholder's consent. — Under an act au- thorizing manufacturing corporations to mortgage their prop- erty upon obtaining the assent of the owners of two-thirds of the stock, the assent of the corporation in behalf of shares owned by it, can not be considered in making up the two- thirds." Where the assent of a majority of the stockholders 1 Australian &c. Co. v. Mounsey, (1858) 4 Kay & J. 733;, Taylor v. Agricultural &c. Assoc. (18S0) 68 Ala. 329; Burrill v. Nahant Bank, (1840) 2 Met. 163; s. C. 85 Am. Dec. 395 ; Hendee v. Pinkerton, 14 Allen, 881 ; Tripp v. Swauzey Paper Co., 18 Pick. 391 ; Wooi v. Whelen, (1879) 93 111. 153. 2 Davidson v. Westchester Gas- Light Co., 99 N. Y. 558, construing the act of 1873, which omits that provision contained in the act of 1848. 3 Taylor v. Agricultural &c. Assoc. (1880) 68 Ala. 339 ; Burrill v. Nahant Bank, (1840) 3 Met. 163. * Haywood v. Lincoln Lumber Co., (1885) 64 "Wis. 639; citing Corbett v. Woodward,, 5 Sawyer^ 403; Koehler V. Black River &o. Co., 3 Black, 715; Hoyle V. Plattsburg &c. E. Co., (1873) 54 N. Y. 314; s. C. 13 Am. Eep. 595; Butts v. Wood, 38 Barb. 188; Cumberland &c. 00. v; Sher- man, 30 Barb. 553 ; Scott v. De Peys- ter, 1 Edw. Ch. 613; Verplanck v. Mercantile Ins.. Co., l.Edw, Ch. 85; European &c. E. Co. v. Poor, 59 Me. 377; Cook v. Berlin &c. Co., 43 Wis. 434; In re Taylor Orphan Asy- lum, 36 Wis. 553; Pickett i). School District, 35 Wis. 553; Walworth Co. Bank^ v. Farmers' &c. Co., 16 Wis. 639; Great Luxemburgh Ry. Co. v. Magnay, 35 Beav. 586. See contra; Warfield v. Marshall &c. Co., (1887) 73 Iowa, 668 ; s. c. 2 Am. St. Eep. 461. 5 Haywood v. Lincoln Lumber Co., (1885) 64 Wis. 639; Curran v. Arkan- sas, 15 How. 306 ; Drury v. Cross, 7 Wall. 299; Bradley v. Farwell, 1 Holmes, 433 ; Marr v. Bank of Ten- nessee, (1867) 4 Ooldw. 471, 484; Eichards v. New Hampshire Ins. Co., 43 N. H: 363; Paine v. Lake Erie &c. Co., (1869) 31 Ind. 353; Gas- LightOo. V. Terrell, L. R. 10 Eq. Gas. 168. 6 But shares transferred by the cor- poration as collateral security for a debt can not be. so deducted, al- though the assignment be absolute on its face. Vail v. Hamilton, 85 N. Y.453. 11C6 MOETQAGES, BONDS AND COUPONS.: [§ 745. is necessary, it can not be expressed separately and priyately to a person who goes around among them, nor in any other way than at a meeting of the stockholders.^ The corporators and no one else can raise objections to proceedings under acts restricting the power of the directors to mortgage,^ And even the shareholders will be estopped from pleading their non- consent when a mortgage has been executed and issued by the directors and the company has received the proceeds thereof.' If the borrowing powers of the directors only, as distinguished from those of the company, are exceeded, the company can ratify the transaction, and that without altering its articles of, association.* § 745. Priorities. — As a mortgagee can obtain no higher right than the mortgagor possesses,' the mortgagees of a com- pany which sells its property to another,' or of a company which is consolidated with another, have a lien upon the prop- erty superior to that of the mortgagees of the purchaser or company with which the consolidation is effected.' The latter take the property cum onere? The lien of the bonds of one iDuke V. Markham, (1890) 105 Co., 29 N. J. Eq. 311; Williamson u. N. C..131. New Jersey &c. E. Co., 38 N. J. Eq, 2 Thomas «. Citizens' &c. E. Co. , 277. C/. Barnes u. Chicago &c. Ey. (1882) 104 111. 462; Beecher v. Mar- Co., 122 U. S. 1 ; Wabash &c. E. Co. quette &c. Co,, 45 Mich. 103; Hervey v. Ham, 114 U. S. 595; Chicago &c. V. Illinois Midland Ey. Co., 28 Fed. E. Co. v. Howard, 7 Wall, 392; Pitts- Eep. 169. burgh &c. E. Co. v. Indianapolis &c. ? Hadder v. Kentucky &c. E. Co., E. Co., 8 Bias. 456. 7 Fed. Eep. 793; Texas &c. Ey. Co. 6 Branch v. Atlantic &c. E. Co., 3 V. Gentry, (1888) 69 Tex. 625 ; McCur- Woods, 481. dy's Appeal, 65 Pa. St. 290. Contra, 'Eutten v. Union Pacific E. Co., where the bonds were in the hands 17 Fed. Eep. 480 ; Gale v, Troy &c. of holders with notice. City of Chi- E. Co., (1888) 2 N. Y. Supl. 354; cago V. Cameron, (1887) 120 111. 447. Polhemus v. Fitchburg E. Co., (1888) * Irvine v. Union Bank of Austra- 50 Hun, 397 ; s. C. 5 Ey. & Corp, L. lia, 2 App. Cas, 366 ; Grant v. United J. 212 ; Hamlin v. Jerrard, 72 Me. 62. Kingdom Switchback Eailway Com- Cf. Gilbert v. Washington &c. E. Co., pany, 40 Ch. Div. 135. 33 Grat. 556. 6 Eobaon v. Michigan &c. E. Co., 8 Chicago, K. & W. E. Co. v. 37 Mich. 70 ; Washington &o. E. Co. Putnam, (1887) 36 Kan. 1^1 ; Fos- V. Lewis, 83 Va. 246 ; Chicago &o. dick v. Schall, (1878) 99 U. S. 235, E. Co. V. Loewenthal, (1879) 93 III. 251, citing United States v. Nfew Or- 433; Haven v. Emery, 83 N. H. 66; leans E, Co., 13 Wall. 363. Ace. Williamson v. New Jersey &c. E.- Fosdick v. Car Co., 99 U. S. 256: § 745.] VOETGAQES, BONDS AND GOUPONa. 1167 company will not be enlarged or perfected by the consolida- tion of that company with others.' But a mortgage on the property of an old railroad corporation, given by the suc- cessor to its propertj' and franchises, is entitled to priority over the claim of a creditor for services and advances to the former, who did not obtain a judgment against either cor- poration until some years after the mortgage was given, and' the nature of whose services and advances does not entitle him to a statutory lien on the corporate property.^ The provisions of a statute that mortgages executed by corpo- rations upon their property or earnings shall not exempt the property or cannings from execution for the satisfaction of a judgment obtained for labor or materials, do not contem- plate a lien for materials furnished from abroad, where its personal credit alone was relied on and a negotiable security taken/ A statutory proviso that all debts and contracts of any corporation, prior to the execution of any mortgage by it, shall have a first lien upon its property and franchises and shall be paid off or secured before the mortgage shall be reg- istered, is not to be liinited to corporations formed by pur- chasers under a deed, of trust or mortgage ■ made by an in- solvent or expiring corporation, but extends to corporations generally, however brought into existence. Hence where a corporation executes a mortgage to secure bonds issued for the purpose of raising money, its debts, existing at the time of the execution of the mortgage, have priority over the bonds.* The purpose of a receivership being to presierve the property contested iov, pendente lite, it has no effect, of itself, upon the title to the property', either to change it or to create a lien upon it.' But a mortgagee acquires a specific lien upon the Hall V. Frost, 99 U. S. 389; Huide- Manuf. Co., (1887) 96 N. C. 298, con- koper V. Locomotive Works, 99 U. S. struing N. C. Code, § 1355. 258; Rogers Locomotive Works v. ^Traders' Nat. Bank ?;. Lawrence Lewis, 4 Dill. 158. See Coe v. New Manuf. Co., 96 N. C. 298, construing Jersey Midland E. Co., 31 N. J. Eq. Battle's Revisal, oh. 26, § 48. - 105. 5 Haruian v. McMuUin, 4 Ey. & • Wabash &c. Ey. Co. r. Ham, 114 Corp. L. J. 515; Ellis i'. Boston, U. S. 587. Hartford & E. Ey. Co., 107 Mass. 1 ; 2 Fogg V. Blair, (1890) 133 U. S. Ex parte Dunn, 8 S. C. 207; In re 534. Colvin, 3 Md. Ch. Dec. 378 ; Bever- s Traders' Nat. Bank v. Lawrence ley v. Brgoke, 4 Gratt. 311 ; Skip v^ 1168 MOETGAGES, BONDS AND COUPONS. [§ 746. rents by obtaining the appointment of a receiver of them, and if ^e be a second or third incumbrancer, the court will give him the benefit of his superior diligence over his senior in re- spect to the rents which accrued during the time that the elder mortgagee took no measures to have the receivership extended to his suit and for his benefit.^ It is sometimes necessary to appoint a receiver of property where the interests of the parties to the suit are so connected with those of third persons that the necessary possession of the officer of, the court con- flicts with the legal rights cf the latter. But the court will refuse to divest a previous possession of third persons unneces- sarily.'* § 746. Superior liens.— Debts incurred in operating con- cerns in whose continued operation the public has an inter- est are a charge upon their property superior to all mort- gage liens.' Accordingly claims for current expenses in Harwood, 3 Atkins, 564; Huguenin t). Baseley, 13 Ves. 105; 'Cooke v. Gwyn, 3 Atk. 689 ; Ellicott v. War- ford, 4 Md. 80 ; Blakeney v.'Duf aur, 15 Beav. 40; Leavitt v. Yates, 4 Edw. CI). 163; Brown v. Northrup, 15 Abb. Pr. (N. S.) 333; Ex parte Walker, 25 Ala. 104; Bitting v. Ten Eyck, 85 Ind. 357; Ellicott?;. United States Ins. Co., 7 Gill, BOX; Pitts- burgh <&c. R. Co. V. Indianapolis &c. R. Co., 8 Biss. 456 ; Beach on Receiv- ers, § 1. 1 Beach on Railways, g 715, citing Port V. Dorr, 4 Edw. Ch. 412; How- ell V. Ripley, 10 Paige, 43 ; Washing- ton Liffe Ins. Co. V. Fleischauer, 10 Hun, 117; Ranney v. Peyser, 83 N. Y. 1; Sanders v. Lisle, Ir. R 4 Eq. 43; Agra & Masterman's Bank V. Barry, Ir. R. 3 Eq. 443 ; Lanauze V. Belfast, Holy wood & Bangor Ry. Co. , Ir. R. 3 Eq. 454 ; Miltenberger V. Logansport R. Co., 106 U. S. 286. 2 Chancellor- Walworth in Vincent V. Parker, 7 Paige, 65; Howell v. Eipley, 10 Paige, 43 ; Brooks v. Great- head, 1 Jao. & W. 176; Brien v. Paul, 3 Tenn. Cb. 357; Skinner v. Max- well, 68 N. C. 400; Angel ^\ Smith, 9 Ves. 335. Of. Riggs v. Whitney, id Abb. Pr. 388 ; Beach on Receiv- ers, § 6. 3 Calhoun v. St. Louis &c. R. Co., 14 Fed. Rep. 9 ; Galveston &c. R. Co. V. Cowdrey, 11 AVall. 459, 483. And every railroad mortgagee, in accept- ing his security, is deemed by legal implication to agree that the current debts made in the ordinary course of business shall bo paid from the cur- rent receipts before he shall have any claim upon the income. Fosdick v. Schall, (1878) 99 U. S. 335, 253; Burn- ham V. Bowen, (1884) 111 U. S. 776, 783; Huidekoper v. Locomotive Works, (1878) 99 U. S. 258, 260; Hale V. Frost, 99 U. S. 389 ; American Bridge Co. v. H^idelbach, 94 U. S. 798 ; Oilman v. Illinois &c. Telegraph Co., 91 U. S..603; Schutte v. Florida R. Co., 3 Woods, 692, 713; Turner v. Indianapolis &c. R. Co., 8 Biss. 315; Williamson v. Washington City &c. § 746.] MOETGAGES, BONDS AND OOUPONS. 1169 operating a railroad for a reasonable time, usually six months before the receivership, are payable by the receiver.^ And the debts incurred by the receiver in operating the road are of course payable before the mortgage debt.^ But these ex- penses must be paid out of the income of the property while E. Co., 33 Grat. 634; Union Trust Co. V. Illinois &c. E. Co., 117 U. S. 434; St. Louis &c. E. Co. v. Cleve- land &c. Ey. Co., (1888) 135 U. S. 658 ; Central Trust Co. v. Texas &o. Ey. Co., 27 Fed. Eep. 178; Union Trust Co. V. Soutter, 107 U. S. 591 ; Farmers' Loan & Trust Co. v. Vicks- burg '&c. E. Co., 33 Fed. Eep. 778; Blair v. St. Louis &c. E. Co., 32 Fed. Eep. 471; S. C. 23 Fed. Eep. 531; S. C. 33 Fed. Eep. 778; Langdon v. Vermont &o. E. Co., 54 Vt. 593. ' Turner v. Indianapolis &c. E. Co. , 8 Biss. 315; Beach' on Eeceivers, g 869 ; Duncan v. Mobile &c. E. Co., 3 Woods, 543 ; Brown v. New York &c. Ey. Co., 19 How. Pr. 84; Huidekoper V. Locomotive Works, 99 U. S. 258 ; Douglas V. Cline, 12 Bush, 608; Skiddy v. Atlantic &c. E. Co., 8 Hughes, 320; Union Trust Co. v. 'Walker, 107 U. S. 596; Williamson V. Washington City &o. E. Co., 33 Grat. 624; Central Trust Co. v. Texas &c. Ey., 23 Fed. Eep. 135; Atkins V. Petersburg. E. Co., 3 Hughes, 307. Money due upon contracts entered into by a railroad corporation before the appointment of receivers, and which does not constitute a lien upon the property of the company, is part of the gen- eral indebtedness of the road, and although binding upon it, is not to be paid by the receiver. Such a pay- ment would clearly be giving a pref- erence to creditors of equal right and would defeat the object of fore- closure. Ellis V. Boston, H, & E. E. Co., 107 Mass. 1; s. 0. sub now,., Graham v. Boston, H. & E. E. Co., 74 118 U. S. 161, holding, however, that the contracts may be carried out by the receivers if necessary or if clearly beneficial to the trust. An order of appointment authorizing a receiver to pay amounts due and maturing, for materials and supplies for the operation of the road, is construed to refer to the payment of such obliga- tions as are necessary to preserve the line in good running conditipn ; and the court will refuse to direct its re- ceiver to pay obligations which had been incurred long before his ap- pointment, considering the rights of the mortgagees of primary impor- tance as contrasted with them. Brown v. New York &c. E. 'Co., 19 How. Pr. 84; Beach on Eeceivers, §363. 2 Wallace v. Loomis, 97 U. S. 146; Miltenbe'rger v. Logansport E. Co., 106 U. S. 286; Taylor D, Philadelphia' &c. E. Co., 7. Fed. Eep. 377; Atkins V. Petersburg E. Co., 3 Hughes, 307; Beach on Eeceivers, § 367; Deiinis- ton V. Chicago &c. E, Co., 4 Biss, 414 ; Union Trust Co. v. Illinois Mid- land E. Co., (1886) 117 U. S. 434; Duncan v. Trustees of Chesapeake &c. E. Co., 9 Am. Ey. Eep. 386; Metropolitan Trust Co. v. Tona- wanda &c. E. Co., 103 N. Y. 24.5; Union Trust Co. v. Soutter, 107 U. S. 591 ; Douglas v. Cline, 13 Bush, 608; Fosdick V. Schall, 99 U. p. 235; Burnham v. Bower, (1884) 111 U. S. 776 ; Union Trust Co. v. Walker, 107 U. S. 596; Skiddy v. Atlantic &c. Ey. Co., 3 Hughes, 320; Central Trust Co. V. Wabash &o. E. Co., 35. Fed. Eep. 69. 1170 MOETGAGES,' BONDS AND COUPONS. [§ 746. in the receiver's hands,' and can only be made a charge upon the body of the property by express order of the court.^ Again statutory liens for labor and materials outrank the mortgage lien.' If current earnings are used for the benefit of mortgage creditors before the current expenses are paid, the mortgage security is chargeable with its restoration.* Debts due the State may be a superior lien,^ and vendors' liens liave the priority the}'' would have in the case of natural per- sons.* Judgment creditors are entitled to be paid out "of the funds according to the nature of their claims, not by virtue of reducing them to judgment.'' Persons making advance- iSohutte V. Florida R. Co., 3 Woods, 693, 713; B,each onEeceivers, § 376; Hale v. Frost, (1878) 99 U. S. 389; Miltenbe'rger v. Logansport R. Co., 106 U. S. 286. 2 Hand v. Savannah &o. R. Co., (1879) 17 S. C. 219; Blair v. St. Louis &c. R. Co., 22 Fed. Rep. 471: Beach on Receivers, '§ 377 ; Vermont &o. R. Co. V. Vermont Central R. Co., 50 Vt. 500; Wallace v. Lobmis, 97 U. S. 146; Miltenberger v. Logansport R. Co., 106 U. S. 286; Kennedy v. St. Paul &c. R. Co., 3 Dill. 448; s. c. 5 Dill. 519; Duncan v. Trustees of Chesapeake &c. R. Co., 9 Am. Ry. Rep. 386; Union Trust Co. d Illinois Midland R. Co., (1885) 117 U. S. 434; Metropolitan Trust Co. v. Tona- wanda Valley &c. R. Co., (1886) 1G3 N. Y. 345: Blair v. St. Louis &c. R. Co., 33 Fed. Rep. 471; Haleu. Nashua &c. R. Co., 60 N. H. 833; McLape v. Placer ville &o. R. Co., 66 Cal. 606. 3 Poland V. Lamoille Valley R. Co., 53 Vt. 144 ; Blair i). St. Louis &c. R. Co., 25 Fed. Rep. 333; s. c. 19 Fed. Rep. 861 ; Traders' National Bank v. Lawrence Manuf". Co., 96 N. C. 298; Receivers &c. v. Mortendyke, 27 N. J. Eq. 658. Salaries of officers of a railroad company are not classed as wages to employees and have been refused preference. Addison v. Lewis, 75 Va.' 701. The matter of priority of counsel fees fpr services rendered before the receivership was considered in Bayliss v. Lafayette &c. R. Co. , 9 Biss. 90. * St. Louis &c. R. Co. V. Cleveland Ry. Co., 125 U. S. 658, 673; Union Trust Co. V. Morrison, 125 U. S. 591, 613;_Sage v. Memphis &c. R. Co., 135 U. S. 361 ; Union Trust Co. v. Illinois Midland Ry. Co., 117 U. S. 434; Burnham u. Bowen^ (1884) 111 U. S. 776, 783; Upion Trust Co. v. Soutter, 107 U. S. 591; Miltenberger V. Logansport Ry. Co., 106 U. S. 386; Fosdick V. Schall, (1878)99 U. S. 335; Menasha v. Milwaukee &c. R. Co., 52 Wis. 414; Duncan v. Mobile &c. R. Co., 3 Woods, 543; Hale v. Bur- lington &c. R. Co., 1 McCrary, 58. 5 Ralston v. Crittenden, 3 McCrary, 333. But see Brown v. State, 63 Md. 439. 6 Florida v. Anderson, (1875) 91 U. S. 667 ; Anderson v. Pensacola R. Co., 3 Woods, 638; Carpenter v. Black Hawk &o. Co., 65 N. Y. 43; Fisk V. Potter, 3 Abb. App. Dec. 138; Texas &c. Ry. Co. v. Gentry, (1888) 69 Tex. 635; Pierce v. Milwaukee &c. R. Co., 34 Wis. 551; s. C. 1 Am. Rep. 203. '' Gibert v. Washington City &c. R. Co., 3 Woods, 519; Turner v. Indian- apolis &o. R. Co., 8 Biss. 537; Legg V. Matthieson, 3 Gifif. 71 ; Gardner v. § T47.] 1171 ments to pay preferred claims do not thereby obtain the right of subrogation to the lien the debts enjoyed in the hands of the original debtor.' § 747. The same subject continiied — Eeceivers' certifi- cates. — If there are no current funds on hand, the receiver may be authorized by the court to procure credit and issue vouchers or aclcnowledgments of indebtedness known as "re- ceivers' certificates," for the purpose of preserving the prop- erty from destruction or serious injury.^ The theory of the London &c. Ey. Co., Li E. 2 Ch. App. 201. Except, of course, where they have done so before the mort- gage was executed. Bergen v. Por- poise &c. Co., 41 N. J. Eq. 238. iPenn v. Calhoun, (1887) 121 tJ. S. 521; Fosdick v. Schall, 99 U. S. 255; Memphis &c. E. Co. v. Don, 124 U. S. 652; Blair v. St. Louis &c. Ey. Co., 23 Fed. Eep. 521 ; Farmers' &c. Co. V. Vicksburg&c. E. Co., 33 Fed. Eep. 778; Kelly v. Green Bay &c. E. Co., 10 Biss. 151; Eeceivers of New Jersey Midland E. Co. v. Worten- dyke, 27 N. J. Eq. 658 ; Cairo &c. E, Co. V. Fackney, 78 111. 116. But see Farmers' Loan & Trust Co. v. Vicks- burg &c. E. Co., 33 Fed. Eep. 778. 2 Swan V. Clark, 110 U. S. '602; Barton v. Barbour, 104 F. S. 126; Shaw V. Eailrdad Co., 100 U. S. 605, 612; Wallace v. Lobmis, 97 U. S. 146, 162; Jerome v. McCarter, 94 'U. S. 734; Cowdry v. Galveston &c. E. Co., If Woods, 331; Investment Co. V. Ohio &c. K. Co., 36 Fed. Eep. 48 ; Union Trust Co. v. Chicago &o. ,E. Co., 7 Fed. Eep. 513; Meyer v. Johnson, 53 Ala. 237, 348 ; Turner v. Peoria &c. E. Co., 95 111. 134; Bank of Montreal v. Chicago &c. E. Co., 48 Iowa, 518; Jones on Eailroad Se- curities, § 533; High on Eeceivers, (2d ed.) §398, d; "The Doctrine of Eeceivers' Certifipates," by E. F. Stevens, Jr., S3 Cent. L. J. 340. As to the necessity which justifies the court in authorizing receivers' cer- tificates to be issued, see : Meyer v/l Johnson, 53 Ala. 237; Wallace v. Lootnis, 97 U. S. 146, 162; Hoover i?. Montclair &c. E. Co., 29 N. J. Eq. 4; Metropolitan Trust Co. v. Tona- wanda Valley &c. E. Co., 103 N. Y. 245 ; Vermont &c. E. Co. v. Vermont Central E. Co., 50 Vt., 500, 569; Swann v. Clark, 110 U. S. 602 ; Vilas v. ■ Page, 106 N. Y. 439, 451, 452; In re Philadelphia &o. E. Co., 14 Phila. 501; Humphrey v. Allen, 101 111. 490; Taylor v. Philadelphia &c. R. Co., 7 Fed. Eep. 377; Union Trust Co. V. Illinois Midland E. Co., 117 U. S. 434; Stanton y. Alabama &c. E. Co., 2' Woods, 506; Credit Co. (Limited) IJ. Arkansas Central E. Co., 15 Fed. Eep. 46 ; Barton v. Barbour, 104 U. S. 126; Coe v. New Jersey Midland E. Co., 27 N. J. Eq. 37; Turner v. Peoria &c. E. Co., 95 111. 184; S. C. 35 Am. Eep. 144; these cases holding that the court may au- thorize their issue to meet operating expenses, to buy machinery, rolling- stock and supplies, to maintain the i-oadway in safe repair and to pay the rent of rolling-stock. It has even been held that under some circum- stances an unfinished line of railway may be completed and paid for by means of receivers' certificates. Ken- nedy V. St. Paul &c. E. Co., 2 Dill. 11T2 I MOETGAGESj BONDS AND COUPONS. [§ 747 matter is that the expenditure is necessary to preserve the /property ; the mortgagee assents to the expenditure ; the court orders it to be made; it is, therefore, properly a lien prior to the mortgage, and must be paid first. These facts, or some others equivalent thereto, and the order of the court declaring the lieii, are usually recited in the bod}' of the certificate itself. The power of a court of equity to authorize the issue of cer- tificates by the receiver, and to make them a first lien upon the property, payable before the first mortgage bonds, is not questioned in any of the cases in our State or federal reports. It, has been expressl}'^ upheld in many leading cases.^ 448; s. o. 5 Dill. 519; Bank of Mpn- treal v. Chicago &o. R.Co., 48 Iowa, 518. 1 Aac. Gibert v. Washington &c. E. Co. , 33 Gralt. 586, 645. .Aoc. Jerome V. McOarter, 9417. S. 734, 738 (a canal case). Bu,t see Shaw v. Eailroad Co., iOO U. S. 605 ; Hand v. Railway Co., 10 S. C. 406 ; s. 0. sub nom. Hand v. Savannah &o. E. Co., 17 S. C. 219; Credit Co. v. Arkansas Central E. Co., 15 Fed. Eep. 46; Vermont &c. E. Co. V. Vermont Central E. Co. , 50 Vt. 500, 569; s. C. 46 Vt. 793; Secor «. Toledo, Peoria & Warsaw E. Co., 7 Hiss. .513. There is to be found some authority for the rule that a receiver may be allowed to issue cer- tificates in payment for, labor, ma- terials, supplies and taxes upon the property due prior to his appoint- ment. Humphreys v. Allen, 101 111. 490; Taylor v. Philadelphia . Cincinnati &c. E. Co., 1 Wall. 354; Huidekoper V. Locomotive Works, 99 U; S. 258 ; Dennislon v. Chicago &c. E. Co., 4 Biss. 414; Duncan v. Mobile & Ohio E. Co., 2 Woods, 543; Brown v. Erie Ey. Co., 19 How. Pr. 84; Vatable V. New York &c. R. Co., 96 N. Y. 49; Turner v. In4ianapolis &c. R. § 748,] MORTGAGES, BONDS AND COUPONS. 1173 § 748. What is covered Iby a corporate mortgage. — The statute under which a corporate mortgage is made, with the iatehtion of the parties to the deed, determine what property is covered thereby.' The franchise of being a corporation, however, is not included in a mortgage of the propert}'' and franchise of a company, unless by positive provision of law.' And in, general, while the mortgage is to be construed with reference to the statute, the words of description in the deed will not be extended beyond those in the enabling act.' Specific descriptions and enumerations are construed to be exclusive.* But if the statute confer the power to mortgage all the corporate property, general terms unrestricted in the deed will cover the whole property of the corporation.^ Gen- eral terms, however, M'hen connected with or allied in mean- ing to phrases most aptly describing property in use by the corporation or necessary to its business, will not pass prop- erty, especially land, which is not connected with its regular and legitimate operations.^ And a mortgage of " all the prop- erty " does not embrace ohoses in action unless specifically men- tioned.'' So, also, the word " undertaking," found in English mortgages, has a meaning entirely restricted to the going oon- Co., 8 Biss. 315; Atkins v. Peters- « Smith v. McCullough, 104 U. S. burgh R. Co., 3 Hughes, 307; Davis 35; Brainerd v. Peck, 34 Vt. 496. V. Gray, 16 Wall. 203; Douglas v. 6 Coe «. Midland &c. R. Co., (1879) Cline, 13 Bush, 608 ; Tomney v. Spar- 31 N. J. Eq. 105. tanburg &o. R. Co., 4 Hughes, 640; 6 Alabama v. Montague, (1885) 117 Kelly V. Receiver of Green Bay &c. V. S. 602 ; Shamokin Valley R. Co. R. Co., 10 Biss. 151; s. C. 5 Fed. Rep. v. Livermore, (1864) 47 Pa. St. 465; 846; Calhoun v. St. Louis &c. R. Co,, s. C. 86 Am. Dec. 552; Youngman v. 9 Biss. 380 ; Ellis v. Boston,. Hartford Elmira &c. R. Co., 65 Pa. St. 278; & ErieR. Co., 107 Mass. 28; Coe v. Van Keuren v. Central R. Co., 38 Cincinnati, P. & I. R. Co., 10 Ohio N. J. 165; Dinsmore v. Racine R. St. 373; s. 0. 75 Am. Dec. 518; Gur- Co., 13 Wis. 649; Morgan v. Doni- neyu. Atlantic &c. R. Co., 58 N. Y. van, 58 Ala. 241. Cf. Wilson v. 358 ; Union Trust Co. v. New York Boyce, 93 U. S. 320 ; St. Louis &c. &c. R. Co., 35 Fed. Rep. 803. R. Co. ■y.MoGee, 115 U. S. 476; Cal- 1 Wilson V. Gaines, 103 U. S. 417. houn v. Memphis &c. R. Co., 3 Flip. 2 Memphis &c. R. Co. v. Berry, 443; Gardner t). London 133 U. S. 267, 283, citing Fosdick v. Schall, 99 U. S. 335, 251; Dillon v. Bernard, 31 Wall. 430, 440; United States V. New Orleans R. Co., 12 Wall. 363, 365; Galveston R. Co. v. Cowdrey, 11 Wall. 459,. 480, 482; Dunham v. Cincinnati &c. R. Co., 1 Wall. 254. * Southbridg?- Savings Bank v. Mason, (1888) 147 Mass. 500; Mont- gomery v. Pickering, 116 Mass. 330; Reed v. Reed, 114 Mass. 373. 'Dunhams. Cincinnati &c. R. Co., (1863) IWall. 254; Coney v. Pitts- burgh &c. R. Co., 3 Phila. 173 ; Coop- ers, v. Wolf, 15 Ohio St. 533; Ludlow V. Hurd, 1 Disn. 553 ; In re General South American Co. , 2 Ch. Div. 337 ; In re Panama &o. Mail Co., 5 Ch. 318; Willinku. Andrews, 16 Ir. R. C. L. 201. ' 6 Williamson v. New Jersey &c. R. Co., 26 N. J. Eq. 398; Buck v. Sey-i mdur, 46 Conn. 156; Texas &o. Ry. Co. V. Gentry, (1888) 69 Tex. 625. 'Parker v. New Orleans &o. R. §751.J MOETGAGES, BONDS AND COUPONS. 1177 eral descriptive language, a futurity clause will not include property not properly connected with the company's busi- ness,' or unlawfully acquired.^ Nor do such clauses in general mortgages create a lien upon calls or unpaid subscriptions to the capital stock of the company.' A mortgage of all the property of a company in general terms embraces future ac- quisitions even without especial words of futurity,* but only of property which the company had the right at the time to acquire.'* § 751. Martgages of income.— Although when a general mortgage is paid, it must be out of the income, and the net earnings may be specifically subjected thereto by the mort- gagee's taking possession of the property, without words of futurity, income is not specifically covered by the lien of the mortgage." And so long as the earnings remain in the hands of the company they are subject to attachment by the general creditors,' unless specifically made subject to the mortgage Co., 33 Fed. Rep. 693; Galveston &o. E. Co. V. Cowdiey, (1870) 11 Wall. 459 ; New Orleans &c. R. Go. v. Mul- len, 13 Wall. 365; Scott v. Clinton &o. R. Co., 6 Biss. 535; Barnard v. Norwich &c, R. Co., 4 Cliff. 365; Dillon V. Barnard, 1 Holmes, 394. 1 Shamokin Valley R. Co. v. Liver- more, 47 Pa. St. 465; s. c. 85 Am. Dec. 552; Calhoun v. Paducah &c. R. Co., 9 Cent. L. J. 66; Mississippi Valley Co. v. Chicago &c. R. Co., 58 Miss. 896 ; s. C. 38 Am. Rep. 348, 350 ; Calhoun v. Memphis &c. R. Co., 3 Flip. 443; United States Trust Co. V. Wabash &c. R. Co., (1887) 33 Fed. Rep. 480; Seymour v. Canandaigua &o. R. Co., (1857) 35 Barb. 384; Mor- gan V. Donovan, 58 Ala. 341 ; Ham- lin V. European &c. R. Co., 73 Me. 83. 2 Randolph v. New Jersey &c. R. Co., (1878) 28 N. J. Eq. 49; Field v. Post,' 38 N. J. Eq. 346 ; Williamson V. New Jersey &c. R. Co., 38 N. J. Eq. 377; Frazier v. Frederick, 33 N. J. Eq. 163. See Coe v. New Jer- sey &o. R. Co., (1879)31 N. J. Eq. 105. 3 Dean v. Biggs, 35 Hun, 133; Gardner v, London &c. Ey. Co., 2 Ch. 301; King v. Marshall, 38 B. 565 ; Ex parte Stanley, 33 L. J. Ch. 535; Moor v. Anglo-Italian Bank, 10 Ch. Div. 681 ; 8 Vic. ch. 16, § 43. But see Pickering v. Ilfracombe Ry. Co., L. R. 3 Cr P. 235. ^Shaw V. Bill, (1877)95 U. S. 10; Pennock v. Coe, 33 How. 117 ; Farm- ers' Loan & Trust Co. v. Commer- cial Bank, 15 Wis. 465; s. 0, 83 Am. Dec. 689; Dinsmore v. Racine &c. R. Co., 13 Wis. 649 ; Pierce v. Emery, (1858) 37 N. H. 410; Ludlow v. Hurd, I Disn. 553. s Seymour v. Canandaigua &c. R. Co., (1857) 35 Barb. 284; Meyer v. Johnston, 53 Ala. 337; Campbell v, Texas &c. E. Co., 3 Woods, 263. 'spullan V. Cincinnati &c. R. Co., (1873) 5 Biss. 337; Emerson v. Euro- pean &c. R. Co., (1877) 67 Me. 887; S. 0. 34 Am. Rep. 39. ^ Gilman v. Illinbis Sec. R. Co., 91 U. S. 608; Galveston E.'Co. v. Cow- drey, 11 Wall. 459 ; Clay v. East Ten- ,1178 MOETbAGES, BONDS AND COUPONS. [§ 751. lien.i When, however, the income of a corporation is spe- cifically .mortgaged,, as it may be,^ it is only the net earnings after paying the operating expenses that are available, and if gross earnings are diverted to the mortgagees, the gen- eral creditors acquire a claim against them.' So also an in- come railway mortgage, although it is a pledge of tangible property for the payment of the principal sum, is, as a secu- rity for the payment of interest, but little more than the pledge of the good faith of the company in managing its, lines ; it necessarily contemplates that such improvements as seem nec- essary to the efficient u^e and operation of the property, and puch alterations in the corpus as, appear desirable, are to be made at the discretion of the directors, and unless it contains some limitations upon the powers of the directors, express or implied, the right of the company to conduct its operations as it may seem fit, subject onljj^ to the conditions of its organic law, is unqualified; and consequently, the company can lawfully extend its lines, acquire new ones, discontinue old ones, and thus essentially change the earning capacity of the property.* The mortgage intrusts the directors with- a ■wide discretion in determining what is to be treated as net nessee &c. R. Co., (1871) 6 Heisk. s Calhoun v. St. Louis &c. E. Co., 421; Smith v. Eastern R. Co., 134 14 Fed. Eep. 9; Parkhurst v. North- Mass. 154 ; Ellis v. Boston &c. R. Co., ern Central R. Co.', 19 Md. 472 ; s. c. 107 Mass. 1; Emerson v. European 81 Am^ Dec. 648. As to who are en- &c. R. Co., (1877) 67 Me. 387; s. C. 34 titled to rents and profits under a Am. Rep. 39; Noyes v. Rich, 53 Me. railroad mortgage, see further: Gal- 115; Bath?;. Miller, 51 Me. 341 ; Mis- veston &c. R. Co. v. Gowdrey, 11 Bissippi &c. R. Co. v. United States Wall. 459; McCalester v. Maryland, Express Co., 81111. 254; Galena &c. 114 U. S. 605; Fosdick v. Schall, E. Co. V. Menzies, 36 111. 131 ; Dun- (1878) 99 U. S. 258; American Bridge ham V. Isett, 15 lowa, 284. Co. v. Heidelbach, 94 U. S. 800; Gil- 1 Emerson't). European &c. E. Co., man v. Illinois &c. Tel. Co., 91 TT. S. (1877) 67 Me. 387; s. 0. 24 Am. Eep. 617; s. c. 1 McCrary, 173; Young v. 39; De Graff «. Thompson, 24 Minn. Northern Illinois &o. Co., 9 Hiss. 453. Cf. Thompkins v. Little Eock 805; S. c. 13 Fed. Eep. 809; Gilman &c. R. Co., 15 Fed. Eep. 6; Addison v. Illinois &c. Tel. Co., 1 McCrary, V. Lewis, (1881) 75 Va. 701 ; Kelly' v. 173; Dow v. Memphis &c. E. Co., 124 Alabama E. Co., 58 Ala. 489. U. S. 6o3 ; s. c. 20 Fed. Eep. 770 ; Hay 2Eutten V. Union Pac. Ey. Co.,. w. Eailroad Co., 4 Hughes, 374. (1883) 17 Fed. Eep. 480;'Pulian u. * Spies i;. Chicago &o.E. Co., (1889) Cincinnati &o. R. Co., (1873) 5 Biss. 40 Fed. Eep. 34; s. c. 6 Ey. & Corp. 337; Barry v. Missouri &o. Ey. Co., L. J. 463; Day v. Ogdensburgh &c. 27 Fed. Rep. 1, 7. R. Cq., 107 N. Y. 139, 146. §752.] MOETGAGES, BONDS AND COUPONS. .1179' income. Their conclusions, when embodied in a resolution of the board, are not vitiated by an error of judgment, and can only be disturbed when the circumstances establish bad faith.' But when the mortgage specifically charges the income of particular lines, their duty to the bondholder requires them to make an honest effort to ascertain the net earnings of the original lines kt the several interest periods; and this they can not do practically unless a separate account of the earn- ings and expenses of those lines are kept.^ It is important, therefore, that any limitations upon the general powers of the' directors, intended to define the boundaries of their discretion, should be given due effect if the mortgage is to afford any substantial security to bondholders for the payment of their interest, and if these are found in the instrument they should not be nullified by a latitudinarian interpretation calculated to relegate bondholders to the position of stockholders. They are not stockholders, but creditors, who contract upon the assurance that the income fund upon which they rely when they purchase the bonds, is to continue to exist during the life of the mortgage.' On application for an injunction against misappropriation of income, which has suddenly fallen from a large sum to nothing, the company must sustain its position by figures showing the condition of its business.'' § 753. Eecording mortgages. — Corporate mortgages must be recorded in -the same manner and for the same purpose as those upon the property of ' natural persons. Accordingly 1 Spies V. Chicago &c. R. Co., (1889) (1889) 40 Fed. Rep. 34; s. 0. 6 Ry. & 40 Fed. Rep. 34; S. C. 6 Ry. & Corp. Corp. L. J, 468. L. J. 463 ; Day v. Ogdens6urgh &c. , ' Spies v. Chicago &c. R. Co. , (188^) R. Co., 107 N. Y. 129, 146. 40 Fed. Rep. 34; S. 0. 6 Ry. & Corp. 2 Barry v. Missouri &c. R. Co., 37 L. J. 463. As to what sums may be Fed. Rep. 1 ; Mclntbsh v. Flint &c. deducted from the gross' earning of R. Co., 34 Fed. Rep. ^82. The per- a railway company in deterniining f unctory ceremony of passing a reso- the amount of net earnings, see lution that no income has been Beach on Railways, § 633, citing earned, without an attempt to ascer- Barry v. Missouri. &c. R Co., 37 Fed. tain the fact, is not compliance with Rep. 1; s. c. 34 Fed. Rep. 839; S. c. the letter or the spirit of the con- 4 Ry. & Corp. L. J. 198. tract. Spies v. Chicago &c. R. Co., ^ Barry v. Missouri &c, Ry Co., 36 , Fed. Rep. 338. 1180 MORTGAGES, BONDS AND COUPONS. [§ 752. car trust contracts, and other leases and ' conditional sales where payments are to be made in instalments for personal property, must be' recorded as chattel mortgages.^ But corpo- rate mortgages covering both realty and personalty need not be recorded as chattel mortgages.^ N"or in England need a debenture charging personal as well as real propert}'^ be reg- istered as a bill of sale.^ A foreign corporation being a non- resident, the recording of its mortgage covering personalty as well as realty, does not give the mortgagee a lien as against creditors who sue before the forclosure proceedings, where, under a statute, a mortgage of personalty, to be valid as against third parties, must be recorded in the county in which the mortgagor resides.* An informally executed corporate mortgage can not be recorded.^ Under a statute refusing to a corporate mortgage anj' priority over existing unsecured creditors, where a corporate debt secured by a mortgage was assumed by another corporation and a new mortgage given, the first mortgage being cancelled of record, and subsequently the original debtor resumed the debt, giving a new mort- gagej the second mortgage being cancelled, it was held that, as against intermediate creditors, no lien or priority could be claimed under the cancelled mortgages.* An unrecorded mortgage is nevertheless valid as between the piarties thereto, iHeryfordu. Davis, (1880) 102 U.S. &c. Co., 36 Ch. Div. 215; Levy v. 335; Hervey v. Rhode Island &c. Abercarris &c. Co., 37 Ch. Div. 260; Works, 93 U. S. 604; Frank v. Den- Sopham v. Grenside, 87 Ch. Div. 281 ; ver &c. E. Co., (1885) 23 Fed. Rep. Swift v. Pannell, 24 Ch. Div. 210; 133; Fosdick v. Schall, (1878) 99 Oasson v. Churchman, 53 L. J. Q. B. U. S. 335, 250; Green v. Van Bus- 335 ; Connelly ?;. Steer, 7 Q. B. Div. kirk, 5 Wall. 807; Murch v. Wright, 530; Ross v. Army i&c. Co., 34 Ch. 46 III. 488 ; S. 0. 95 Am. Dec. 455. Div. 43 ; Jenkinson v. Brandley Min. 2 Metropolitan Trust Co. v. Penn- Co., 19 Q. B. Div. 568; Brooklehurst sylvania R. Co., (1886) 25 Fed. Rep. v. Railv^ay &o. Co., Week. Notes, 760; Farmers'- Loan & Trust Co. v. 1884, p. 70. St. Joseph &c. R. Co., 3 Dill. 413. * Watson v. Thompson Lumber Of. Hammock v. Farmers' &c. Co., Co., (1887) 49 Ark. 83, construing 105 U. S. 77 ; Williamson v. New Ark. Dig. Laws, § 4743. Jersey &o. R. Co., 39 N. J. Eq. 311. ^Duke v. Markham, (1890) 105 3 Eeid V. Joannon, 35 Q. B. Div. N. C. 131. • 300. Of. Edwards v. Edwards, 2 ^ Traders' Nat. Bank v. Lawrence Ch. Div. 397 ; Davis v. Goodman, 5 Manuf. Co., (1887) 96 N. C. 398. C. P. Div. 128; Edmonds v. Blaina § 753.] MOET&AGES, BONDS AND COUPONS. 1181 and has priority over the claims of other persons extending credit to the corporation with actual knowledge thereof.' It has been decided in England, however, that under a law which requires all mortgages and charges specifically affecting prop- erty of a company to be registered in the company's register of mortgages, the omission to so register, even in the case of a mortgage to a director, will not invalidate the charge.^ § 753. Mortgage bonds. — -The debt secured by a corporate mortgage is usually in the form of bonds, although not neces- sarily so.' Neither are bonds necessarily secured by mort- gagfe. They may be wholly unsecured, or may constitute a lien without a mortgage.^ Generally there is nothing in the enabling acts which restricts the power of a corporation to issue bonds for a debt already in existence, and there is usu- ally no question as to the validity of bonds negotiated only, for the purpose of securing or paying debts contracted before the negotiation." Accqrdingly where bonds of a corporation were issued on the understanding that they were to be sold for cash, but were, in fact, pledged to a creditor as (ioUateral to corporate notes held by him, it was held that the objection that this dis- position of them was unlawful was open only to the corpora- tion or its stockholders, unless it also affected some existing right of other parties; and that it could not be raised by one who held the property of the corporation under a voluntary convej'ance, or by a purchaser of the equity of redemption at execution sale.^ But a statute may restrict corporations or- ganized thereunder to the issue of bonds for a new adequate valuable consideration increasing the available funds of the 1 Coe V. Columbus &c. E. Co., 10 2 Wright v. Hprton, (1887) 13 App. Ohio St. 372; s. c. 75 Am. Dec. 518. Cas. 371. But where creditors of the railway ^ Jones on Corporate Bonds and company, having no actual notice Mortgages, § 169 ; Fitch v. Wether- of an. unrecorded mortgage, have bee, 110 111. 475. the right to levy upon the corporate * Jones on Corporate Bonds and property, they will not be postponed Mortgages, § 170; In re Atlantic &c. to the mortgage creditors by reason R. Co., 3 Hughes, 320. of the latter having instituted fore- 'Lord v. Yonkers Fuel Gas Co., closure proceedings. Coe v. New (1886) 99 N. Y. 547. Jersey Midland R. Co., 31 N. J. Eq. SBeecheru. Marquette &c. Co., 45 105. Michi 103. 1182 MOETGAGBS, BONDS AND CODPONS. [§ 754. company.' If part of a series of bonds is issued under an agreement that the rest shall not be negotiated, the part so sold will have priorit}'' over the rest sold in violation of the agreement and held by purchasers with notice.^ Bat such a residue of unissued bonds is in no sense a collateral for the paynient of the floating debt of the company.' "Where the .holders of first mortgage bonds agree to exehatige them for second mortgage bonds, and surrender them but receive none in exchange^ their debt holds the same priority as the bonds agreed to be issued in exchange, even outranking mortgages made prior to the agreement to one with notice thereof.* Where bonds of a State are received and sold by a corpora- tion which agrees to pay them, the corporation becomes the principal debtor, and the lien reserved to the State to secure the bonds, inures to the bondholders although they have been declared unconstittitional and void as to the State.^ When an act has been held to be unconstitutional by the State court, but has been upheld by the federal courts, bonds issued under it are proper subjects of compromise, and a tax levied to pay such compromise bonds is valid.' And bonds of a corpora- tion, purchased by its receivers and entered on the books as investments, for years reported as outstanding, and then re- issued for value, Were held not to have been paid and to be still Secured by the original lien.' ,§ 754. Eegistration of bonds.— Under the provision of an act requiring the registration of all bonds issued by public and private corporations, and prescribing a penalty for non-com- pliance therewith, an action at law may be maintained for the 1 Kemble v: Wilmington &c. E. Co., 16 Fla. 708 ; State v. Florida Co., 13' Phila. 469, .construing Pa. Central R. Co. 15 Fla. 690. Cf. Lit- Act of April 8, 1861. tlefield v. Bloxam, 117 T7. S. 430; 2McMurray v. Moran, (1890) 134 Hay u. Railroad Co., 4 Hughes, 349; U. 8. 150. , Tompkins v. Little Rock &c. R. Co., 3 Merchants', Bank v. Goddin, 76 5 McCrary, 603, 610; s. 0. 18 Fed. Va. 503. Rep. 347, 353, 854; s. C. 31 Fed. Rep. « Fidelity &c. Co. v. Shenandoah 370. Val. R. Co., (1890) 33 W. Va. 761. estate v. Hannibal &c. R. Co., s Thompkins v. Little Rook &c, R. (Mo. 1890) 13 S. W. Rep. 505. Co. , 15 Fed. Rep. 6 ; Railroad Cos. ' Gibbes v. Greenville & Columbia V. Sohutte, (1880) 103 IT. S. 118, 139, E. Co., 15 S. C. 304. 140 ; Trustees v. Jacksonville &c. R. § YSo.] MOETGAGES, BONDS AND COUPONS. 1183' recovery of the penalty although the minimum amount be not fixed by the act.^ Under a section of the act which provides that any person placing corporate bonds in circula- tion without making due returns thereof to the secretary of State shall be subject to a fine for each bond so circulated, the only remedy is by indictment and an actioil at law can not be maintained.^ In a prosecution under a registration act, the corporation may submit evidence of its good faith in issu- ing bonds without making a return thereof to the secretary of Btate and of its ignorance of the law by w-ay of mitigation of damages.''' Where transfers of bonds are required to be reg- istered and the secretary of the company is required to keep a register thereof open to the inspection of persons interested, those entitled to inspect the register may do so either in per- son or by attorney.* i § 755. Bonds convertible into stock. — Bonds containing a provision for their exchange into stock of the company issu- ing them are sometimes authorized by statute together with provision for an increase of stock.J And it has been held that a statute authorizing tlie issue of bonds with the right of con- version into stock conferred authority upon the corporation to increase, its capital stock beyond the amount fixed by its charter, if it were necessary so to do in order to issue shares of stock in exchange for the bonds.^ But an eminent author- ity doubts this doctrine and discredits the cases upon which it rests.' The holder of convertible bonds may generally de- * McDaniel v. Gate City Gas-Light By. Co., 38 How. Pr. 193, 216 ; Beach Co., (1887) 79 Ga. 58, decided under on Railways, 633. Of. Ramsey v. Ga. Act of Feb. 23, 1876. Gould, 57 Barb. 398; s. c. 8 Abb. Pr. 2 McDaniel u. Gate City Gas-Light (N. S.) 170; Pratt ■«. American Bell Co., (1887) 79 Ga. 58. " Teleplione Co., (1886) 141 Mass. 235; 3 McDauiel v. Gate City Gas-Light S. o. 13 Am. & Eng. Corp. Cas. 110; Co... (1887) 79 Ga. 58. \ S. C. 5S Am. Rep. 465. ^In re Credit Co., 11 Oh. Div. 356, f Jones on Corporate Bonds and construing 8 Vic. ch. 16, § 45. Mortgages, § 63. But a company 5 ^. g. Chaffee u Middlesex R. Co., having power to increase its capital (1888) 146 Mass. 334; Muhlenburgh v. stock may receive its bonds in pay- Philadelphia &Cf R. Co., 47 Pa. St. ment for its new shares. Lohman 16. V. New York &c. R, Co., 3 Sandf. CBelmont z;. ErieRy. Co.,53 Barb. 89; Reed v. Hayt, 51 N. Y. Super. 637, 669. See also Ranisey v, Erie Ct. Rep. 131. 1184: MOETGAGES, BONDS AND COUPONS. [§ 156. mand stock in exchange for them at any time before maturity, even just before payment of a dividend, in which case he is none the less entitled to the dividend.' But the issue of notes with coupons attached convertible at two named periods into the stock of the company issuing them, does not operate as an appropriation of stock held by the company so as to give holders of the notes the rights of stockholders before the time arrives for the conversion.^ A demand for conversion at ten - niinutes before three o'clock in the afternoon of the day of' maturity has been held to be in time.' But neither convert- ible bonds nor the coupons attached theretq are negotiable promissory notes within the' meaning of sta,tutes relating to days of grace.* The right to demand the conversion of the bond into stock, runs with the bond, and can not be retained when the bond is transferred; nor can it be transferred sep- arately from the bond.^ Upon the consolidation of two cor- porations, the holder of the bonds of one, containing a clause authorizing their conversion at any time into stock at par, can not be deprived of his right to demand conversion, and relegated to different rights conferred by the articles of con- solidation, until he has had a fair opportunity, after notice, to exercise his original rights, and has elected not to do so.° § 756. Talidity of bonds issned below par. — In England debentures may be issued at a discount;' and directors them- selves may take them as others do, and at the same discount.' "Accordingly they may be deposited as security for a loan of less than their face value and rank ^ari passu with the other debentures.' The Supreme Court of the United States also 1 Jones' V. Terre Haute &o. R. Co., v. Cleveland &c. R. Co., 38 Ohio St. 57 N. Y. 196. But see SutclifiE v. 108, 114. ' Cleveland &o. R. Co. , 34 Chip St. 147. « Eosenkrans v. Lafayette &o. Ey. 2 Pratt V. American Bell Telephone Co., 18 Fed. Rep. 513. -Co., (1886) 141 Mass. 335. . ^ In re Anglo-Danubian &c. Co., 3 Chaffee v. Middlesex R. Co. , (1888) 30 Eq. 339 ; In re Regents' Canal &c. 146 Mass. 234, 336. C/. Muhlenburgh Co., (1876) 8 Ch. Div. 48; In re Coni- t). Philadelphia &o. R. Co., 47 Pa. pagnie Generate de Bellegarde, (1876) St. 16. . ' 4 Ch. Div. 470. 1 Chaffee ■«. Middlesex R. Co., (1888) ^In re Compagnie Generate de 146 Mass. 234, construing Mass. Stat. Bellegarde, (1876) 4 Ch. Div. 470. ch. 77, g§9, 10. 9 In re Regents' Canal &o.. Co., 5 Beach on Railways, § 633 ; Denny (1876) 3 Ch. Div. 43. §_ 756.] MOETGAGES, BONDS AND COUPONS. 1185 holds that a hona fide holder of bonds may collect their full araouat from the company, although he paid less than their par value.^ Justice Field, speaking for that court, says, " There are numerous decisions in conflict with this view of the law; but the sounder rule, and the one in consonance with the com- mon understanding and usage of commerce, is. that the pur- chaser, at whatever price, takes the benefit of the entire ob- ligation of the maker. Public securities, and those of private corporations, are constantly fluctuating in price in the mar- ket, one day above par and the next below it, and often pass- ing within short periods from one-half of their nominal value to their full value. Indeed, all sales of such securities are made with reference to prices current in the market, and not with reference to their par value. It would introduce, there- fore, inconceivable confusion \i lona fide purchasers on the market were restricted in their claims upon such securities to the sums they had paid for them." ^ Accordingly, in the ab- sence of fraud, bonds ten times greater in amount than the sum paid the company therefor, have been upheld as valid.' An issue below par can not be attacked under laws against usury where the charter of a corporation allows it to borrow money on such terms as its directors may determine, and issue bonds or other evidences of indebtedness.* One who has, ' without consideratidn, received from an insolvent corporation ■ 1 Cromwell v. Sac County, (1877) in the market. Texas &c. Ey. Co. 96 U. S. 5i, 59; Junction R Co. v. v. Gentry, (1888) 69 Tex. 635. Bank of Ashland, (1870) 13 Wall. SDuncomb v. New York &o. R. 326; Grand Eapids &c. E. Co. v. Co., 88 N. Y. 1. Sanders, 17 Hun, 553; Williams v. ^Traders' National Bank v. Law- Smith, 3 Hill, 301 ; Stoddard v. Kim- rence Manuf. Co., (1887) 96 N. C. 398. ball, 6 Cush. 469; Chicopee Bank v. But see Sherlock. u. Winetka, (1873) Ciiapin, 8 Met. 40; Allaire v. Harts- 68 111. 539, where in holding that horne, (1848) 31 N. J. 665; Lay v. while an issue of corporate bonds Wissman, 36 Iowa, 305. , below par is an abuse of power on 2 Cromwell v. Sac County, (1877) the part of the corporate officers for 96 U. S. 51, 60. Where plaintiff's which they are probably individ- intestate conveyed a railway to de- ually liable to the extent of the loss fendant,' and agreed to accept, as thereby incurred, yet that their act part of the purchase money, bonds would not render the bonds void, secured by mortgage on the line, he the court intimated that it might be is entitled, the bonds neverhaving relied upon in the, hands of the orig- been given, to recover their full par inal holder as usury. value, although they are bel9w par i5 ■ ■ ■ ' ' ' 1186 MOETGAGES, BONDS AND COUPONS. [§ 757. its second iHortgage bonds, is not rendered liable to the cred- itors of the corporation, as having withdrawn some of the funds of the corporation,, by the fact that an interest coupon, of the bonds has been paid, in the absehoe of proof that the payment was made by the corporation.' ISd'r is a bondholder of that pharaoter rendered liable by the fact that, on foreclos- ure of the first mortgage, the holders of the second mortgage bonds were given boiids of the new corporation formed to succeed the other, where it appears that the new corporatitta obtained the property from the purchaser at the foreclosure sale, who paid for it in' first mortgage bonds, the price for which it sold being less than the amount of the first mort- gage bonds.^ § 757. Coupons.-r- Coupons are evidences of the sums due for interest on the bonds, and the fact the}'^ are made payable at a particular place ddes not make a presentation for pay- ment at that place necessary bef&re a suit can be maintained oh them,' although the defendant may in such a case show that' there were funds on deposit to meet them.* And to maintain suit on coupons demand aiid protest is not necessary, although they be in the form of- orders.' Intet-est upon over- due coupons is not illegal although it be compounding inter- est.* Accordingl}', coupons bear interest froia the day they 1 dhristenseri v. Illinois & St. L. 3 Walnut v. "Wade, (1880) 103 U. S. Bridge Co., (1889) 53 Hun, 478', s. c. 683, 695; Wallace v. MoConnell, 13 6 Ey. & Corp. L. J. 232. Pet. 186 ; Irvine v. Withers, 1 Stew. 2Christensen v. Illinois & St. L. (Ala.) 234; Montgomery v. Elliott, 6 B^idg'eCo., (l889)S2HTin, 478; s. c. Ala. .701; Warner v. Rising Fawn 6 Ey. <& Corp. L. J. 232. On a judfe- iron Co., 3 Woods, 514; Smith v. ment for the subscription against a Tallapoosa County, 3 Woods, 5'i'4. subscriber lo railrdad bonds which *Arents v. Coihmon'wealth, 18 the company pledgfed and becaJne Grat. 750; Virginia &c. E. Co. v. unable to deliver, defendant is en- Clay,, MS., cited bjr 2 Daniel on Ne- titl'ed to have ci-edited the value Of g'otiable Instruments, § 1490. See the bonds at the timfe of their hy- note to Moi:ris Canal &c. Co. v. potheoation, arid not merely thfeir Fisher, 64 Am. Dec. 428, 488. proportional value as measured by 5 Nashville v. Potomac Iris. Co., the mortgage security, *hen, after (1872) 3 Baxt. 396; Nashyille v. First foreclosure of the mortgage, the National BaYik, 1 Baxt. ^02. bondholders sell but to another road ^ Beaver Co. v. Armstrong, 44 Pa. at a loss. Galena &c. R. Co, v. En- St. B3. And coupons are free from nor, (1888) 138 111. 505, the defense of usury. Canal Co. v. § T57.] MOETGAGBS, BONDS AND COUPONS. 1187 are payable, if payment be neglected or ref used.' The failure to present coupons for payment does not prevent the running of interest, although if the obligor shows that it -had money ready to pay the coupons at the time and . place where they were payable, this would be a defense to a claim for interest.^ Where there is no stipulation concerning the rate of interest payable upon coupons after maturity, they will draw at the regular rate of interest in the State where they were issued. And this is the rule, although they be made payable at a financial metropolis situated in another State.* Valette, 21 How. 414; Morris Canal Co. V. Fisher, 1 Stockt. 667; Bank of Ashland v. Jones, 16 Ohio St. 145. 1 Walnut u Wade, (1880) 103 U. S. 686 ; Aurora City v. West, 7 Wall. 83 ; Clark V. Iowa City, 20 Wall. bSD; Town of Genoa v. Woodruff, 93 U. S. 503 ; Stewart v. Lansing, 104 U. S. 505; Ohio v. Frank, 103 U. S. 697; Gelpoke v. Dubuque, 1 Wall. 206; HoUingsworth v. Detroit, 8 McLean, 473 ; Thompson v. Lee County, 3 Wall. 237; Vose v. Philbrook, SStory, 336; Corcoran v. Chesapeake &o. Canal Co,, 1 Mac A. 358; Huey v. Macon, (1888) 35 Fed. Rep. 481 ; s. C. 4 Ry. & Corp. L. J. 437; Williams v. Sher- mar, 7 Wend. 113; Delafield v. Illi- nois 2 Hill, 177; Arentsu. Common- wealth, 18 Grat. 750; Philadelphia &c. R. Co. V. Smith, 105 Pa. St. 195; Philadelphia &c. R. Co. v. Fidelity &o. Co., 105 Pa. St. 316. Whether attached to the bond or severed and transferred to another person. Rich V. Seneca Falls, 8 Fed. Rep. 853 ; s. 0. 19 Blatchf. 558 ; Philadelphia &c. R. Co. V. Smith, 105 Pa. St. 195; Phila- delphia &c. R. Co. V. Fidelity &c. Co., 105 Pa. St. 316. 2 Walnut V. Wade, (1880) 103 U. S. 696; Wallace v. McConnell, 13 Pet. 136; Huey v. Macon Co., (1888) 35 Fed. Rep, 481. 3 Rogers v. Lee County, 1 Dill, 539 ; Huey V. Macon County, (1888) 35 Fed.- Rep. 481 ; s. C. 4 Ry; & Corp. L. J. 427. CHAPTER XXXYIII. ENTRY AND FORECLOSUEE. . i 758. Introductory. 759. Remedy by entry. 760. Mortgage trustees. 761. Trustees as receivers. 763. Remedy by foreclosure. . 763. Quasirpubiio corporaliops. 764. Jurisdiction. 765. Partips. 766. Holders of different liens as parties. 767. Intervention, 768. Foreclosure by bondholders. § 769. Respective rights of majority and minoi'ity bondholders. 770. Foreclosure for interest alone. 771. Actions upon coupons. 772. Receivers in foreclosure pro- ceedings. 773. Defenses. 774. The decree of foreclosure. 775. Binding effect of the decree. 776. Redemption. 777. The sale. § 758. Introductory. — Although corporate mortgages are for the benefit of all the holders of the bonds secured thereby, they a»e almost necessarily made to trustees.^ For a provision in a deed of niortgage that upon default, any bondholder is entitled to enter and sell the mortgaged property, is invalid for indefiniteness of the persohs upon whom\ the power is con- ferred, and the impossibility of its execution.^ Accordingly a bondholder, to availhimself of his lien on the company's prop- erty, must induce the trustees to proceed to foreclose it in the mode pointed out by the statute.' And if they refuse to act when they ought to do so, the bondholder may either compel them by mandamus or file a billin equity to obtain the relief to which he may be entitled.* Foreclosure proceedings can not be stayed on the ground of fraud merely because the mort- gagor and mortgagee companies have a common president and directors and the mortgage, trustees Avere directors or stockholders, in the company to which the security was given.^ 1 Butler V. Rahm, (1877) 46 Md. 541. Cf. Shaw V. Norfolk &c. E. Co., 5 Gray, i62. 2 Mason v. York &o. R. Co., (1861) 52 Me. 83, 108. 'Florida v. Andefson, (1875) 91 U. S. 667. * Florida v. Anderson, (1875) 91 U. S. 667, 679. 6 Leavenworth County v. Chicago § 759.] ENTEr AND FOEECLOSUEE. 1189 § 759. The remedy Iby entry. — Under provisions for entry upon default of payment, the trustees may lawfully take pos- , session of the property without suit, and may hold it until the debt be satisfied.' If, however, the entry of the trustees be resisted, an order from a court of equity is the proper method of gaining possession.^ Accordingly a bill in equity to gain possession, is usually resorted to notwithstanding the provision that the mortgagee may take possession.'' The effect of the decree is to establish their right of possession at the time the suit was begun, and to make the company's possession after that date wrongful.* In these cases no foreclosure is asked, and possession is claimed and given by virtue of the express agreement in the mortgage.* Until the bill is filed, or pos- session otherwise obtained, the earnings and income of the propert}'' are not affected by any lien.^ But when a mort- gage provides tha,t upon default the trustees, or their survivor, shall be entitled to take possession of a mortgaged railway, a court of equity has power, in an action to enforce the spe- cific execution of the mortgage, to appoint the surviving trustee a receiver of the mortgaged property, to put him in posses- sion thereof until the amount due is paid, and, the road being without rolling stock or other equipments, to authorize him to make' provision for purchasing the necessary equipments, &o. R. Co., (1890) 134 U. S. 688. In 615; Sacramento &c. E. Co. v. Su- this case the company which had in- perior Court of San Francisco, 55 dorsad and sold the bonds had paid Cal. 453; Leeds v. Gifford, (1886) 41 out large sums of money on account N. J. Eq. 464 ; American Bridge Co. of its indorsement and on account of i;. Heidelbach, (1876) 94 U. S. 798; the construction of the mortgagor's Shaw ■», Norfolk County E. Co., 5 railway, and there was no actual Gray, 163. Cf. Andrews v. Scottori, fraud, so the trust relations existing 3 Bland, 639, 665. between the two companies was not ^Dow v. Memphis &c. E. Co., regarded as invalidating the proceed- (1888) 134 U. S. 653. ings, notwithstanding the general 'Shepley v. Atlantic &c. E. Co.,' doctrine laid down in many cases. (1867) 55 Me. 895 ; McLane v. Placer- iDowu. .Memphis &c. E. Co., ville &c. R. Co., (1885) 66 Cal. 606, (1888) 124 U. S. 652; Lee v. Swingly, 615. (1887) 6 Mont. 596. ' 6 American Bridge Co. v. Heidel- sghepley v. Atlantic &c. R. Co., bach, (1876) 94 U. S. 798; Galveston (1867) 55 Me. 395. E. Po. v. Cowdrey, 11 Wall. '459; sShepley v. Atlantic &c. E. Co., Gilman v. Illinois &c. Co., 91 U.S. (1867) 55 Me. 395; McLane v. Placer- 603. ville &o. E. Co., (1885) 66 Cal. 606, 1100 ENTET Al^D FOEEOLOSUEE. [§ 760. sp as to secure an income and profits.' When the trustees have made demand for possession under the mortgage by fil- ing suit therefor, the company must from that time account for earnings; and it is immaterial that a receiver was not ap- pointed, the company itself being treated in all respects as a receiver .of the property, holding for the benefit of whomso- ever in the end it shall be found to concern.-' § 7 60. Mortgage trustees. — Corporate mortgages are usu- ally and of necessit}' njade in the form of trust deeds to trust- ees, who act for the numerouSj widely scattered and constantly ,S:hif ting body of the bondholders secured by the deed.^ It is usual to constitute several trustees jointly, so that upon the death or incapacity of one or more of them their interests vest in the survivor or survivors.^ The trustees generally have no active duty, theirs being a dry or naked trust, until some de- fault occurs in the payment of interest upon the bonds secured,' But the}' may be allowed to participate in the ejection of di- rectors of the company if the deed so provides.' And trustees have been burdened with the duty of superintending the dis- bursement of the moneys, borrowed upon the mortgage.^ In case no duties of this nature are imposed upon them, their first active business is, upon breach of the conditions of the mortgage, to enter and take possession of the property and 1 McLane u. Placerville &o. R. Co., or the deeds themselves frequently (1885) 66 Cal. 606, 615; Shepley v. provide for supplying vacancies. Atlantic &o. R. Co., (1867) 55 Me. Fletcher v. Rutland &c. R. Co., 39 395; Shaw v. Norfolk Co. R. Co., 5 Vt. 633; Shawu. Norfolk Sk. R. Co., Gray, 163; American Bridge Co. v. 5 Gray, 162; Richards v. Men-imack Heidelbach, (1876) 94 U. S. 798; Gil- &c. R. Co., 44 N. H. 1S7. Whether man v. Illinois &c. Co., 91 U. S. 608. a foreign trust company may act as 2 Dow V. Memphis R. Co., (1888) a mortgage trustee, see Beach on 134 U. S. 653, 655 ; Galveston R. Co. Railways, g 637, citing Farmers' Loan w. Oowdrey,. 11 Wall. 459. But see & Trust Co. «. Chicago &o.Rj. ~'o,. Mercantile Trust Co. v. Missouri &c. 37 Fed. Rep. 146; Hervey v. Ili'im^is R. Co., (1888) 36 Fed. Rep. 331 ; s. C. Midland Ry. Co., 38 Fed. Rep. 169. 4 Ry. & Corp. L. J. 363. ' 5 Jones on Corporate Bonds ami 3 Jones on Corporate Bonds and Mortgages, § 387. JJortgages, § 38. « New England &c. Jns. Co. . v. 4 McAllister v. Plant, 54 Miss. 106; Phillips, (1886) 141 Mass. 585. Farmers' Loan & Trust Co. v. ^Banque Franco -Egyptienne v. Hughes, 11 Hun, 180. The statutes Brown, 34 Fed. Rep. 163. § T61.] ENTKY AND FOEEOLOSUEE. -. 1191 sell it or to' institute proceedings of foreclosure.^ When they have entered upon the property and are managing.it, they become vested with the rights and subject to the liabilities of the corporation itself.^ Although trustees usually retain theii positions until discharged at the termination of the trust,' they may be removed and their successors appointed by a court of equity.* The}' are entitled to remuneration for their services, the amount thereof being usually determined by the court and payable out of the proceeds of the mortgaged property.* § 761. Trustees as receivers. — The position and duty of a trustee in possession are practically those of a receiver.^ And in a California case, the trustee being entitled to possession under the terms of the mortgage was appointed receiver by the court, that he, might, more effectually carry out and com- plete the trust delegated to him by the mortgage.' But as they can not consult the entire body of the bondholders and as their duty is to each one severally, thf y are i;iot at liberty to follow the advice or wishes of the majority, being still liable to the minority for a faithful administration of their trust.' 1 Sturgis «. Knapp, 31 yt. 1. And ^Ketchum v. Mobile &c. E. Co., 2 they may subject themselves to per- Woods, 533 ; Beadleon v. Knapp, 13 sonal liability to the bondholders by Abb. Pr. 335 ; North Carolina E. Co. failing to preserve the fights of their ■y. Wilson, 81 N. C. 323; Farmers' cestui que trust. Eicker v. Alsop, 37 Loan & Trust Co. u.-McHenry, 9 Abb. Fed. Eep. 351. Although if it is pro- N. C. 335. vided that after default it shall be ^ Williams v. Morgan, 111 U. S. the duty of the trustees to take these 684. steps " upon the written request of 6 McLane v. Placerville &c. E. Co., the holders of a majority of the (1885) 66 Cal. 606, 617; Eensselaer bonds outstanding," they have no &c. E. Co. v. Miller, 47 Vt. 152; authority to proceed until the re- Wood v. Goodwin, 49 Me. 260; s. o. quest be made. Chicago &c. E. Co. 77 Am. Dec. 259 ; Ashuelot E. Co. v. V. Fosdiok, 106 U.S. 47; Union Trust Elliott, (1874) 59 N. H. 397; Duncan Co. V. Missouri &c. Ey, Co., 36 Fed. v. Mobile &c. E. Co., 2 Woods, 542, Eep. 485. holding that, as their primary duty 2 Jones on Corporate Bonds and is to protect the rights of their own Mortgages, § 307 ; Daniels v. Hart, bondholders, they can not consent to 118 Mass. 543; Stratton u. European the payment of other claims until &c. Ey. Co., 76 Me. 269; Wilkinson their own bondholders have been V. Fleming, 30 111. 353; Palmer v. paid or secured. / Forbes, 23 111. 301. '' McLane v. Placerville &c. E. Co., 3 Knapp V. Eailroad Co., 20 Wall. (1885) 66 Cal. 606, 614. 117. ' 8 Sturgis V. Knapp, (1858) 31 Vt. 1. 1192 ENTEY AND I'OEKOLOSTJEB. [§§ 762, 763. § 762. Eemedy by foreclosure. — Unless the mortgage by necessary implication or in express terms excludes it, the com- mon-law right to sue upon a bond is not excluded by the right of entry after default given in the mortgage.' Neither is a statutory remedy deemed exclusive of the ordinary remedy at common law.^ Nor do "provisions in the mortgage au- thorizing entry and action at law after the default in the pay- ment of interest has continued six months, bar suits in equity for the foreclosure, of the mortgage immediately upon default, unless clearly so intended.' But the procedure prescribed in the mortgage deed in the event of an entry by the trustees is not binding, upon the court in foreclosure proceedings.* The right to foreclose does not necessarily carry with it the right to have a receiver appointed.' But the inadequacy of the property as security for the mortgage debt, together wifh in- solvency, or such precarious condition of corporate finances as renders it likely that the complainant will not be in as good a position at the final decree as at the time of his application for the appointment of a receiver, is considered good ground for granting the application.' § 763. (Juasi-public corporations. — The duties to the pub- lic of some ^was^'-public corporations cause considerable varia- tion in their treatment under foreclosure from that appropriate in the case of private parties and purely private corporations. This difference is especially marked in England, where it is said that mortgages under a contract pledging a railway as securit}'' can not interfere with its internal and parliamentary '^Manning v. Norfolk &o. R. Co., Ey. & Corp. L. J. 363, following 29' Fed. Eep. 838. Chicago &c. R. Co. v. Fosdiok, 106 2 Russell V. East Anglian Ry. Co., U. S. 47. Aec. Central Trust Co. v, 3 kacn. & G. 135, construing 8- Vic. New York City &c. E. Co., 33 Hun, oh. 16, §5; 42 an-d 44 ; Howell D. West- 513; Tyson v. Weber, 81 Ala. 470. em R. Co., (1876) 94 U. S. 468. And Of. Hart v. Eastern Union Ry. Co., a mortgagee or bondholder may take 7 Ex. 246; s. c. 8 Ex. 116; Price v. measures in chancery to protect his Great Western Ey. Co., 16 Mees. & security before the money is pay- W. 244. able. Legg v, Mathieson, 3 Giff. 71 ; * Farmers' Loan & Trust Co. v. Wildy V. Mid-H^nts Ry. Co., 16 Green Bay &c. R. Co., 10 Biss. 203. Week. Eep. 409; Browne & Theo- ^ Beach on Railways, § 704, and bald's Ey. Law, 87. cases there cited. ^ Mercantile Trust Co. v. Missouri 6 Mercantile Trust Coj v. Missouri &C. E. Co., 36 Fed. Eep. 221 ; S. c. 4 &o. Ey. Co., 36 Fed. Eep. 221. § T63.] ENTET AND JOEECLOSUEE. 1193 powers of management as a " going concern," as a fruit-bearing tree, the produce of which is dedicated to secure and pay the debt. The earnings of the undertaking must be made avail- able to satisfy the mortgage ;. but the mortgagees by seizing, or by calling upon the court to seize, the capital, or the lands, or the proceeds of sales of lands, or the stock of the undertaking, can neither prevent its completion, or reduce it to its origi- nal elements when it has been completed.^ And when parlia- ment, acting for the public interest, authorizes a railway company, and imposes duties of the most important kind, with powers to be exercised only by the company, the court can not, without parliamentary authority, make itself or its officer, the hand to exercise those powers, even with the express agreement and request of the company.^ Accordingly mort- gagees of the " undertaking " can not break it up, nor,- by bringing ejectment, deprive the company of that property by which the undertaking is carried on.^ Nor have they a right to foreclose and sell the property of the railway. They merely acquire a prior right to payment out of the net earnings of the undertaking.* So also in America it is said that the large sovereign powers given by the State to railway corporations are granted and exercised only upon the theory that these public rights are to be used to promote the general welfare of the people of the commonwealth; and the people have an in- terest in the maintenance of the undertaking as a "going concern," which is not to be defeated by its creditors.^ Ac- 1 Caii-ns, L. J. in Gardner v. Lon- &c. Junction Ey. Co., 18 Ch. Div, don &c. Ry. Co., (1867) L. R. 3 Ch. 155; In re Stafford & Uttoxeter Ry. App. 201 ; Munns v. Isle of Wight Co., W. N. (1868) 113 ; In re Southern Ry. Co., L. R. 5 Ch. App. 414, and Ry. Co., 5 L. R. (Ir.) 165. Latimer v. Aylesbury &c. Ry., 9Ch. ^ Cairns, L. J, in Gardner v. Lon- Di;'. 385. The appointment of re- don &c. Ry. Co., (1867) L. R. 3 Ch. oeivers of railways is now regulated App. 201. by the Railway Companies Act of 3 Myatt v. St. Helen's Ry. Co., 3 1875, 88 & 39 Vic. ch. 31, making the Q. B. 364; s. 0. 3 Erig. Ry. Cas. 756. act of 1867, 30 & 31 Vic. ch. 137, per- ^ Gardner v. London &c. R.' Co., L. petual. The provisions of this act R. 3 Ch. App. 301. are discussed in In re Beddgelert ^ Beach on Railways, § 656, citing Ry. Co., W. N. (1871) 3; s. 0. 19 Gates u. Boston &c. -R. Co., (1885) W. R. 437; In re Manchester & M. 53 - Conn. 333, 343 ; Bnrnham v. Ry. Co., ^a; parte Cambrian Ry. Co., Bowen, (1884) 111 U. S. 776, 781; 14 Ch. Div. 645; In re Birmingham Worcester v. Western R. Cq., 4 Met. 1194 ENTET AND FOEECLOSHEE. [§ T64. cordingly the dourts are very reluctant to appoint receivers to take ciiarge of these quasi-Tpnhlic properties and decline to act unless clearly necessary to prevent a failure of justice.' It is in the application o# this doctrine that the courts in England and in the United States differ. For example in Opnneoticut the principle was invoked to justify, the overruling of the efforts of a minority to resist fpreclosure and a subsequent re- organization for the purpose of continuing the property in legitimate use.^ § 764. Jurisdiction. — As a general rule the court which first acquires jurisdiction of the res, or subject-matter, will retain jurisdiction until the end of the litigation, its posses- sion and control of the property being exclusive of interfer- ence by other courts.^ A decree foreclosing a mortgage upon 564 ; Eailroad Commissioners v. Port- land &c. R, Go., 63 Mq, 269, ?78, S79 ; s. 0. 18 Am. Eep. 208. Of. Fur- ness V. Caterham Ky. Co., 25 Beav. 614; S. 0. 27 Beav. 358; Myatt u St. Helena Ey. Co., 2 Q. B. 864. •Beach on Railways, § 699, citing Sage V. Memphis &c. E. Co., 135 U. S. 361 ; Railroad Commissioners v. Portland &c. E. Co., (1872) 63 Me. 269 ; s. 0. 18 Am. Eep. 208 ; Stevens V. Davison, 18 Grat. 819; s. C. 98 Am. Dec, 692. And see, generally, Overton v, Memphis &o.. E. Co., 10 Fed. Eep. 866 ; Meyer v. Johnston, 53 Ala. 337; Kelly u. Trustees &c. 58 Ala. 489; Milwaukee &c. E. Co. v. Soiitter, 3 Wall. 510; Wallace v. Looinis, 97 U. 8. 146. A receiver will be appointed for a railroad only as an adjunct to- the enforcement of the equitable rights of the parties^ and never merely to manage the property at the instance of parties dissatisfied with its control. Amer- ican Loan & Trust Co. v. Toledo &c. Ey. Co., 29 Fed. Rep. 416, 420; Beach on Eeceivers, S 338. Cf. Brandt v. Allen, (1888) 76 Iowa, 50; Jones «. Bank of Leadville, (Colo. 1888) 17 Pacif. Eep. 272; People «. Albany &c. R. Co., 34 N. Y. 261; s. c. 82 Am. Dec. 295 ; People v. Long Island &c. E. Co., 81 Hun, 127; State V. Hartford &c. R. Co., 39 Conn. 538; Statfe u West Wisconsin R. Co., 36 Wis. 466 ; State v. Southern Min- nesota R. Co,, 18 Minn. 40. 2 Gates V. Boston &c. R^ Co., (1885) 53 Conn. 333. ' 8 Beach on Receivers, §§ 33, 33, 348 ; Buck V. Colbath, 3 Wall. 334, 342; Union Trust Co. v. Eockford &c. E. Co., 6 Biss. 197; Conkling v. Butler, 4 Biss. 33; Bill *. New Albany &c. E. Co., ^ Biss. 390; Andrews v. Smith, 19 Blatchf. 100; Wilnier v. Atlanta &c. R. Co., 3 Woods, 409; Alden v. Boston &c. R. Co., 5 Bankr. Reg. 330; Milwaukee &c. E. Co. V. Milwaukee &c. E. Co., 20 Wis. 165 ; s. C. 88 Am. Deo. 735 ; State v. Marietta & Cincinnati R. Co., 35 Ohio St. 154; Ohio &c. R. Co. v. Fitch, 20 Ind. 498. Of. Jennings v. Philadelphia & Reading R. Co., 23 Fed. Rep. 569. But see Thompson v. Van Vechten, 3 Duer, 6ia § 764.] ENTKT AND FOKEOLOSCEE. 1195 corporate property in the federal circuit court for one district, is not invalid because a part of the property is situate in an- other district and State.^ For the citizenship of the corpora- tion rather than the situation of its property, determines the jurisdictiori of the courts.- Accordingly a State court upon bill of foreclosure therein may order the sale and conveyance of property of the company which is situated or extends into another State.' And, the purchaser will take free from all liens except such as ma3' exist under the laws of the other State upon the part of the property lying therein.'' Otherwise mortgages of bridges over boundar}'^ rivers and of railways running through more than one State, would be comparatively •insecure, because the property as well as the frahchise of the corporation owning them would be worthless, if divided.' So also a federal court will not at the instance of a mortgage , creditor restrain the enforcement of a judgment of a State court, obtained before foreclosure or the appointment of a re- ceiver, against the mortgaged railway company upon obliga- tions incurred in the operation of its roadi^ And again the! rights of the judgment creditors of a railway company, who have established their liens in a State court, will not be prej- udiced by a sale of the property in proceedings for foreclosure had in a federal court, they not having been joined as parties in the suit for foreclosure in the latter court.' A further ex- ample of this principle is in a case where a federal court was iMuller V. Dows, (1876) 94 U. S, 5 Fed. Eep.,552; Penfield v. Chesa- 444; McElrath v. Pittsburg &c. E. peake &o. E, Co., 29 Fed. Eep. 495. Co., 55 Pa. St. 189: Blackburn v. 3 McElrath u Pittsburg &c.E. Co., Selma &c. E. Co., 3 Flip. 525; Wil- 55 Pa. St. 189; Muller v. Dovvs, (1876) mer v. Atlantic &c. E. Co., 3 Woods, 94 U. S. 444. 409, 447 ; Central Trust Co. a Wabash *Hand v. Savannah &c. B. Co., &c. E. Co., 39 Fed. Eep. 630;' Atkins (1879) 12 S. C. 314. See also, Taylor V. Wabash &c. E. Co.. 29 Fed. Eep. v. Atlantic &c. E. Co., 55 How. Pr. 173; Farmers' Loan & Trust Co. v. 375; s. C. 57 How. Pr. 36; In re Chicago &c. E. Co., 37 Fed. Eep, 148; United States Eolling Stock Co., 55 Hurdi;. Savannah &c. E. Co., 13S.C. How. Pr. 286; s.' c. 57 How. Pr. 16. 314; Eandolph t). Wilmington &C.E. 5 Muller v. Dows, (1876) 94 U.S. Co., 11 Phila. 103. ' 444. 2 Muller V. Bo'wa, (1876) 94 U. S. « Eells v. Johnson, 37 Fed. Eep. 444; Copeland v. Memphis &c. E. 337. Co.,' 3 Woods, 659 ; St. Louis National ' Blair v. Walker, 26 Fed. Eep. 73. Bank v. Allen, 3 McCrary, 94 ; s. c. 1196 ENTRY AND FOEECLOSlfEE. [§ 765. prayed to take ancillary jurisdiction in a case of foreclosure in an adjoining district of property lying in both, and the prayer was' refused.^ But, on the other hand, where during the pendency of a suit in a Statecourt to enforce a statutory lien on mortgaged property, for work done and material fur- nished, foreclosure proceedings are instituted in the United States court, and a receiver is appointed and takes possession, and the plain,tiff in the first suit continues to prosecute it with- out obtaining leave of the latter court, and finally obtains judg- ment,, and is decreed to be entitled to a lien for the amount due' him upon the property, the federal court will not enter- tain a petition to hav^e that judgment declared a lien on the property in its receiver's hands, superior to the lien of a mort-' gage creditor.^- The New York statuterequiring an applica- tion for the appointment of a receiver to be made in the judi- cial district in which the principal office of the company is situated, does not apply to the case of a receiver appointed to take charge of mortgaged pr6perty pending foreclosure.' § 765. Parties. — Bondholders need not be made parties in a suit to foreclose a railroad mortgage given to trustees to secure the bonds;* for the trustees represent t^ie interests of all their bondholders, and their acts are binding upon them all.' Accordingly, although suit may have 'been begun by the bondholders, the trustees, unless their interests are adverse, will be allowed to come in and take charge of the further con- duct of the case.' But any bondholder whose rights are en- dangered is entitled to be made a party to the action.' So, also, on a bill to adjudge a mortgage and the bonds there- under void,, the bondholders have been held to be necessary 1 Mercantile Trust Co. v. Kanawha (1879) 100 U. S. 605 : Credit Co. v. &c. Ry. Co., (1889) 39 Fed. Rep. §37; Arkansas Central R. Co., 5 McCrary, S. O. 6 Ry. & Corp. L. J. 283. 30, 31 ; S. C. 15 Fed. Rep. 52; 53. 2 Blair i\ St. Louis &c. Ry. Co., 25 ^ Richards v° Chesapeake &c. R. Fed. Rep. 2. Co., 1 Hughes, (U. S. C. C.) 28. The 3 United States Trust Co. v^ New trustee of an income mortgage is a York &c. Ry. Co., 3S Hun, 841. necessary party to a suit for an ao- 4Vose V. Bronson, (1867) 6 Wall, counting. Barry u. Missouri &c. R. 452; Shaw v. Little Rock &c. R. Co., Co., 23 Fed. Rep. 631, 100 U. S. 605; Chicago &c. R. Co. v. ''Ex parte De Betz, 9 Abb. N. Cas; Howard, 7 Wall. 392. 246 ; Anderson v. Jacksonville &c. 6 Shaw V. Little "llock &c. E. Co., R. Co., 2 Woods, 628. §/r66.] ENTET AND FOEEOLOSUEE. 1197 parties.^ The stockholders need not be made parties defend- ant, for a decree against the, company is conclusive against them.'' Upon the general principle that the sovereign can not be sued without his , consent, a State which has indorsed the mortgage bonds need not be made a party to foreclosure pro- ceedings.' A temporary receiver appointed in proceedings instituted by the Attorney-General to dissolve a corporation on the ground of insolvenq}'^, is not a necessary party to a foreclosure suit brought by the mortgage creditors of the company ; for as temporarj'' receiver he is not vested with the title to the property of the corporation, and it is not divested of its property until final judgment of dissolution and the ap- pointment of a final receiver.* § 766. Holders of different liens as parties. — Second mortgagees are not necessary parties to a foreclosure by the first mortgagees except for the purpose of cutting off the right of redemption, which the former would otherwise re- tain'.* And a second mortgagee, not a party to the bill of the first mortgagee, after sale and execution thereunder, can not have an injunction to restrain the sale, as his rights are unaffected.^ So also, in a suit by a junior mortgagee to foreclose a mortgage, prior mortgagees are not necessary parties;^ especially where the bill seeks only a foreclosure of , the equity of redemption.' For a sale in, such a case Mould necessarily be made subject to the prior mortgages.' 1 Appeal of Harrisburg &o. R. Co., " Searles v. Jacksonville &c. R. Co., (Pa. 1888) 15 Atlan. Rep. 459, not (1873) 3 Woods, 621. officially reported. ' Jerome ij. McCarter, (1876) 94 U. S. , 2 Chicago &c. R. Co. v. Howard, 7 734; Hogan v. Walker, 14 How. 37; Wall. 393. Rose v. Page, 3 Sim. 471; Richards 3 Davis V. Gray, (1873) 16 Wall. v. Cooper, 5 Beav. 304; Delabere u 303 ; Young, v. Montgomery &c. R. Norwood, 3 Swanst. 144. Co., 2 Woods, 606. Cf, Elliott v. 8 Jerome u. McCarter, (1876) 97 U. S. Van Voorst, 3 Wall. Jr. 299, as to 734; Gihon v. Belleville, 3 Halst. Eq.' the federal goyernment as a party 531 ; Williamson i\ Probasco, 4 in foreclosure proceedings. Halst. Eq. 571. ^Herring D. New York &c. R. Co., 'Young v. Montgomery &c. R., 105 NJ Y. 340,' 371 ; Beach on RaU- Co., (1875) 2 Woods, 606 ; Bronson v. ways, §697. La Crosse &c. R. Co., 3 Wall. 283; 5 Searles w. Jacksonville &;o. R. Co., Howard v. Milwaukee &c. R. Cb., 7 (1878). 2 Woods, .631. Biss. 73. 1198 ENTET, AND FOEECLOSUBE. [§ ^67. And a decree in favor of junior mortgagees, even adjudging their lien to bie a first lien, does not give them precedence over a prior lien of a party without notice.' But in a suit for fore- closure of a second mortgage on a railroad, where a receiver is asked, the first mortgagee is a proper party 5 for in that case the res in the hands of the court and subject to sale is the entire mortgaged property, and not merely the equity of re- demption.^ A junior mortgagee has a right to a receiver to collect the rents of the mortgaged premises for his benefit pending a suit to foreclose brought by a senior mortgagee, to which he is made a party.' Prior mortgagees can be made parties only by service of process or voluntary appearance^ but if they are represented by trustees who are parties, a no- . tice calling upon them to present their claims to the master is eflfectual and the decree binds them.* § 767. Intefvention. — Senior mortgagees will not be al- lowed to intervene in an action for the foreclosure of a junioi' , ' Pittsburgh &c. Ri Co. v. Marshall, (1877) 85 Pa. St. 187. -Miltenberger v. Logansport &c. R. Co., (1883) 106 U. S. 286., ' Beach on Railways, § 697, citing "Washington &c. Ins. Co. v. Fleisch- auer, 20 Hun, 117. The common- law rule defining the rights of junior and senior mortgagees, where the first mortgagee ia in possession, was early stated by Lord Eldon, as fol- lows: "If a man has a legal mort- gage, he can hot have a receiver appointed ; he has nothing to do but to take possession. If he has only an equitable mortgage, that is, if there is a prior mortgagee, then if the prior mortgagee is not in possession, the other may have a receiver with- out prejudicfe to his taking posses- sion; but, if he is in possession you can not come here, for a receiver; you must; redeem him, and then in taking the account^, he will not be allO'wed any sums that he may have paid over to the mortgagor after notice, of the subsequent in- cumbrance, " So long as anything is duBj in one case it -was said, if even a sixpence is due, the receiver will be refused, and the question whether anything ia due can not be tried on motion. But it should clearly ap- pear that something is due, and' if the accounts of the mortgagee are so incomplete that he can not determine definitely whether, or not anything is due, the court will allow the mo- tion to stand over in order to allow him to find out the amount, and if he fail to show any, the court may assume that nothing is due and act accordingly. Berney v. Sewell, 1 Jac. & W. 647 ; Eowe v. Wood, 2 Jac. & W. 553; Hiles v. Moore, 15 Beav. 175; Codrington v. Parker, 16 Ves. 469; Faulkner v. Daniel, 10 L, J. (N. S,)Gh, 33; Quinn «. Brit- tain, 3 Edw. Ch. 314 ; BoUes v. Duflj 35 How. Pr. 481 ; Boston & Provi- dence R. Co. V. New York & K. E. R. Co., 12 R. I. 220; Norway v. Rowe, 19 Ves. 144; Chambers v. Goldwin, cited in 13 Ves. 377. * Young V. Montgomery &c. R. Co., (1875) 2 Woods, 606. § 767.] ENTRY AND FOEEOLOSUEE. 1199 mortgage.^ 'Nov can the shareholders intervene unless there be fraud or collusion on the part of the corporate officers hav- ing the management of the case.^ Neither can unsecured creditors intervene in foreclosure proceedings.' Thus in a suit to foreclose a railroad mortgage, the court being satisfied that money lent by a bank, an intervening creditor, at a time vri.en the company was much embarrassed and shortly before the commencement of the suit, went into the general funds of the company, and not especially to the payment of interest, and that there was no fraud or deception on the part of tlie trustees, and no misuse of current income by the receiver of the road to the injury of the bank, held that the bank had only the rights of a general creditor in the distribution of the proceeds of the sale of the mortgaged pr^operty.* But where a railroad and its entire property was mortgaged to secure an issue of bonds, and general creditors sued the company and threatened to attach rolling stock, a,nd an outside party gave an indemnity bond under which he was compelled to pay the claim against the company, which in turn gave him a mort- gage upon certain locomotives, upon foreclosure of the general mortgage he will be protected in his outlay, since it enabled the company to keep up as a going concern and resulted finally in supplying the receiver with means which he turned over to the purchasing bondholders.' And in the case of roll- ing stock in use upon a railroad under a oar-trust agreement, if it is retained and used by the receiver in a foreclosure suit, the owners may intervene in the foreclosure suit, and they will be awarded reasonable rent therefor upon the ground I Ex parte McH.mvj,(lS18) 9 Ahh. 351; Fosdiek v. Schall, 99 U. S. N. Gas. 256. 235. ^Bfonsonu. LaCroSse&o. E. C0..3 5 Union Trust Co. v. MorriSoh, Black, 524; Forbes u. Memphis &c. (1888) 125 U. S. 591; Fosdiek v. E. Co., 2 Woods, 323. But see Chou- 'Sohall, 99 U. S. 285 ; Miltenbei-ger v. teau u. Allen, 70 Mo. 290. Logansport R. Co., 106 U. Sl 286; 3 Herring i;. New York &c.'R, Co., Union Trust Co; v. Soatter, 107 (1887) 105 N. Y. 340, 370; Stoute u. U. S. 591; Burnham v. Bowen, 111 Lye, 103 U. S. 66; Condee u. Lord, U. 8. 776; Union Trust Go. v. lUi- 2 N. Y. 269; s. C. 51 Am. Deo. 294; nois &c. E. Co., 117 U. S. 484; Dow Bronson v. La Crosse R. Co., 3 w. Memphis &c. R. Co., 124 U. S. 653; Black, 524. Sage i'. Memphis &c. R. Co. , 135 U S. * PenM V. Calhoun, (186'/) 131 U. S. 361. 1200 ENTET AND FOEECLOSUEB. [§ 768, that the use was for the benefit of the realty, and necessary for the continued operation of the railway as a "going concern," in the maintenance of which the public generally is interested.' . §768. Foreclosure by bondholders. — If the trustees re- fuse or neglect to act at the request of the bondholders uppn breach of the conditions of the mortgage^ any bondholder maj'^ institute suit for himself and all who wish to come in with him.* So if the trustees are dead, the bondholders them- selves may sue.' In order to, maintain their action, however, the bondholders must prove that they are hona fide holders and owners of bonds secured by the mortgage,* and must show clearly that the trustees have neglected or refused to act upon a request properly made.' In proceedings by the bondholders the trustees must be joined as parties defendant, and duly served with process.* Where a corporation con- veyed propej'ty to trustees to secure mortgage bonds, and before ' default, certain of the bondholders and one of th6 trustees instituted proceedings based on the insolvency of the corporation, and caused a judicial sale to be had; and after- wards the remaining trustees and bondholders objected to a confirmation of the sale, and demanded to be made parties to the proceedings, it was held that the sale should be set aside, and that the other bondholders should be made parties accord- ing to their request.' If the mortgage is made directly to the bondholders by name, any one of tbem can bring his suit in foreclosure by joining all as parties.' 1 Kneeland v. American &o. Co., ' Galveston &c. R. Co. v. Cowdrey, (i890) 136 U. S. 89 ; Farmers' &c. Co. 11 Wall. 459, V. Chicago &o. E. Co., (1889) 42 * Jessup v. City Bank, 14 Wis. 331. Fed. Rep. 6. sgnapp v. Railroad Co., (1873) 30 « Webb V. Vermont Central R. Co., Wall. 117; Galveston R. Co. v. Covir- (1S83) 20 Blatchf. 218, where the drey, 11 Wall. 459; Campbell r. Rail- trustees had acquired adverse inter- road Co., 1 Woods, 368. ests , Wilmer v. Atlanta &c. R. Co.,' ^ Wutgen v. St. Paul' &c. R. Co., 4 2 \Voods, 447; Alexander v. Central Hun, 539; Morgan u. Kansas Pacific &c. R. Co., 3 Dill. 487; Wutgen v. R. Co., 15 Fed. Rep. 55. St. Paul &c. R. Co., 4 Hun, 529; ' Coann u. Atlanta Cotton Factory , March v. Eastern E. Co., 40 N. H. Co., 14 Fed, Rep. 4. 548; S. C. 77 Am. Deo. 733; Mason 8 Nashville &c.R. Co. i;., On-, (1873) ■0. York &c. R^ Co., 52 Me. 82.; Jes- 18 Wall. 471 ; Chicago &c.. R. Co. v. Bup u. City Bank, 14 Wis. 331. Howard, 7 W'all. 392, holding, how- §'769.] ENTEY AND FOEECLOSUEE. 1201 § 769. Respective rights of majority and minority bond- holders. — It is often provided in boads and mortgages that any bondholder may consider the principal due upon default in the payment of any coupon for a certain time, usually six months.' It is more usuall}' provided in corporate mortgages that upon default in payments of interest the trustees shall enter and take possession of the property upon the request of a majority of the 'bondholders.^ Eut none of the bondholders can appropriate the security to themselves or impair its value to the others.' For each bondholder enters into contract re- lation with each and all of his co-bondholders. His right to , appropriate the security in satisfaction of his bond in such lawful manner as he may choose, is modified by the same right in every other holder. His absolute right of control is limited not only by the express provisions of the bond and mortgage, but also in great measure by the peculiar nat- ure and character of the Securit}'.* And to allow a small minority of bondholders, representing a comparatively insig- nificant amount of the mortgage debt, in the absence of any pretense even of fraud or unfairness, to defeat the wishes of an overwhelming majority of those associated with them in the benefits of theic common security, would be to ignore en- tirely the relation which bondholders, secured by a mortgage, bear to each other.' It follows, therefore, that if there are differences of opinion among the bondholders as to what their interests require, it is not improper that the trustee should be governed by the voice of the majority, acting in good faitli and without collusion." And • of course where the mortgage pro- ever, that he can not sue for himself without waiting for the request of and others who may choose to come the bondholders, which is a provision in. He must name them as parties, in addition to the usual rights of ihe 1 Gates V. Boston &o. E. Co., (1885) trustee in his discretion to foreclose 53 Conn. 333. upon default. First National &c. Ins. 2 Beekman v. Hudson Eiver &c. Co. v. Salisbury, (1881) 130 Mass. 303. Ey. Co., (1S88) 35 Fed. Eep. 3; S. C. ^ jackson v. Ludeling, (1874) 21 4 Ey. & Corp. L. J. 330; State v. Wall. 616. Brown, 64 Md. 199; First National * Canada &c. E. Co. v. Gebhard, &c. Ins. Co. V. Salisbury, (1881) 130 109 U. S. 5,34. Mass. 303. Cf. 8 Vic. ch. 16, § 53. «Shaw v. Little Eook &c. E. Co., But these provisions have been held (1879) 100 U. S. 605. not to preclude the mortgage triistees ^ghaw v. Little Eoek &c. E. Co., from foreclosing in a proper case (1879) 100 U. S. 605, 76 1202 ENTET AND FOKEOLOSDEE. [§ 769. vides that the bonds may be considered due by anj'- bondholder on default in payment of interest, a majority having availed themselves of the condition, a small minority should not be allowed to thwart their action by electing not to consider their bonds as due.' So, also, where suit was brought by a small minority of the bondholders, upon default in payment of interest, the principal debt having several, years to run, it was held that dissenting bondholders should be allowed, to purchase the bonds„of those wishing to foreclose, and thereby put an end to. the proceedings.' After a default has occurred, a majority of the bondholders may instruct the trustees to waive it, but an attempt on their part to waive future defaults and instruct the trustees to give an extension upon all the coupons for a number of years, so that the sums required for interest upon the bonds may be applied in improvements to the company's road, is illegal.' And a dissenting bondholder may sue for the amount of his past-due coupons notwithstand- ing the fact that the majority in interest have waiVed the rights secured to them by the mortgage.* There is no restriction upon the right of the coupon-holderto sue, without assertt of a majority of the bondholders, except when ad vantage is sought to be taken of the default as advancing. the date when the principal becomes due.'' The suit can in any event be sus- tained for interest due.* And even though the mortgage deed expressl3' prohibit the trustees from declaring the principal due upon default in payment of an interest instalment and from entering upon the property or foreclosing for the prin- cipal sum before the maturity of the bonds, unless requested to do so by the holders of a majority of them, it has been de- cided that they may foreclose for a failure to pay interest at the request of a single bondholder.'' 1 Gates u. Boston &o. R. Co., (1885) < Manning v. Norfolk &c. R. Co,, 53 Conn, 333 ; Shaw v. Little Rock 39 Fed. Rep. 838. .&o, R. Co., (1879) 100 U. S. 605, » Beekman u. Hudson River &c. R. 612. Co., (1888) 35 Fed. Rep. 3, 11. ^Tillinghast v. Troy &c. R. Co., * Beekman «. Hudson River &c. R, (1888) 48 Hun, 420. In this case the Co., (1888) 35 Fed. Rep. 8, 11 ; Chicago bonds were above par in the market. &o. R. Co. v. Fosdick, 106 U. S. 47. 8 McClelland v. Norfolk &o. R. Co., ' Farmers' Loan & Trust Co. v. (1888) 110 N. y. 469; S. c. 6 Am. St, Chicago &c. Ry. Co,, 27 Fed. Repi Rep., 397. 146. § 770.] ENTRY AND FOBECLOSUEB. 1203 § 770. Of foreclosure for interest alone. — Where a mort- gage is security for interest as well as principal, it may be foreclosed on default in payment of the interest, in the absence of any special prbvision on that subject.^ And the right to foreclose for default in payment oS interest having been es- tablished, a receiver may be appointed at the instance of the bondholders.^ Accordingly, where the interests involved de- mand a sale, upon a default in payment of interest, before maturity of the principal, the court may so decree, although such a course is not authorized by the terms of the mortgage,' and even though'the principal does not fall due upon default in payment of interest.* So also stipulations in corporate mort- gages for the sale of the property upon default in payment of interest, are construed to contemplate but one sale, and unless the property is capable of division without material injury, it must be sold in its entirety, although no part of the principal be yet due.' But if the deed does not provide that the princi- pal sum shall become due upon default in payment of interest, and the property is capable of division without material injury, the court may direct a sale of so much thereof as is sufficient to parV the interest, or it may order the property to be leased and the interest to be paid out of the rental arising therefrom.* Or the decree may order the mortgaged property to be sold and the proceeds, after payment of costs and the interest then due, to be paid into court for the purpose of meeting future instal- ments of interest and the principal sum upon maturity.' Thus where there is no provision, either in a bond or in the mort- gage by which it is secured, or elsewhere, that the bond shall become due, or may be declared due, on the happening of some event prior to the date of maturity, it is error for a court 1 Mercantile Trust Co. v. Missouri ^McLane v. Placer ville &c. R. Co., &c. R. Co., (1888) 36 Fed. Rep, 331 ; 66 Cal. 606, S. C. 4 Ry. & Corp, L. J. 363, * Howell v. Western R. Co., (1876) 2 Hopkins v. Worcester &c. Pro- 94 IT. S. 463. prietors, L. R. 6 Eq. 437; Brassey v. 5 Wilnier v. Atlantic &c. R. Co., 8 New York &Q. R. Co., 19 Fed. Rep. Woods, 447. 663 ; Williamson v. New Albany &c. * Bardstown &o. R. Co, v. Metcalf, R. Co., 1 Biss. 198, and Tysen v. Wa- 4 Met. (Ky.) 199; s. 0. 81 Am. Dec, bash &c, Ry. Co., 8 Biss. 347 ; Amer- 541. ican Loan & Trust Co. v. Toledo &c. 'Howell v... Western R. Co. , (1876) E, Co., 39 Fed. Rep. 416, ' 94 U. S. 463, 120i ENTEY AND FOEECLOSUEE. [§ TTl- of equity to decree the unpaid balance of the bond to be due ■when in fact it has not matured, although the mortgaged prop- erty has been sold on foreclosure, and the proceeds applied to the payment of the interest and principal, on default of/ inter- est, as provided by the mortgage.' And if the intention is clear that the bonds were not to become due before the specified date of maturity, the proceeds of sale, after the sat- isfaction of the accrued amount, may be properly applied upon the outstanding liability.^ But upon payment of the whole amount of interest due, the company may demand a surrender of its property after the trustees have entered, if there be nothing in the deed to the contrary and the principal is not yet due.' The bondholders do not waive their right to con- sider the principal as due by accepting payment of a part of the interest coupons.'' § 771. Actions upon coupons. — The owner of detached coupons may bring suit upon them although he is not interested in the bonds.' And the bond need not be produced if the coupons be declared on properly." A count upon the' coupon is all that is material, for production of the coupon at the trial will show its relation to the bond,' as it contains all nec- essary information, that it is issued for interest due at a cer- tain day and place on a bond, giving its number and date.' But a recitEli in a general way of the bonds so as to bring into i Ohio Central R. Co. v. Central sealed coupons although the bonds Trust Co., (1890) 133 U. S. 83; s; o. 7 to which they were originally at- Ey. & Corp. L. J. 183. taclied were under seal. First Na- 2 Ohio Central E. Co. v. Central tional Bank v. Bennington, 16 Trust Co., (1890) 133 U. S. 88; s. C. 7 Blatchf. 53. Ey. & Corp. L. J. 183; Chicago &c. 'Kenosha v. Lamson, (1869) 9 E. Co. V. Fosdick, 106 U. S. 47, 68. Wall. 477; Kenhard v. Cass County, 3 Union Trust Co. v. Missouri &c. (1874) 3 Dill. 147. ^ Hy. Co., 26Fed. Eep. 485. "Kenosha v. Lamson, (1869) 9 ^Northampton National Bank v. Wall. 477, Kidder, 106 N. Y. 231, 239; S. C. 60 8 Kenosha v. Lamson, (1869) 9 Am. Rep. 443. Wall. 477. Therefore generally, in s Kenosha v. Lamson, (1869) 9 declaring upon coupons, they need Wall. 477 ; Thompson o. Lee County, only be identified by the number of 3 Wall. 327 ; Kennard v. Cass the bond, the date, the amount, and County, (1874) 3 Dill. 147, Aocotd- time of payment. Kennard v. Cass ingly assumpsit will lie upon un- County, 3 Dill, 147, § 772.] ENTET AND F0EE0L08UEB. 1205 view the relation which the coupons originally held to them, is proper enough although unnecessary, and being by way of inducement or preamble only, does not make the suit one on the bonds instead of on the coupons.^ But in a declaration upon income-bond coupons, it is necessary to allege and to prove the existence of net revenue.^ .The statutory limitation to the beginning of actions on coupons is the same as that on the bonds, and remains so even after- they are detached.^ But the statute begins to run against coupons from the time they mature, although they remain attached to the bonds.* They are barred by limitation from their own datCj not that of the bond.* . ' § 772. Receivers in foreclosure proceedings. — A receiver may be appointed either upon the application of the company itself,^ the shareholders ' or of creditors, whether secured or unsecured.* .But a court of equity will not appoint a receiver where the party applying therefor has an adequate remedy at Jaw.' And in making an appointment the court does not go .1 Kenosha v. Lamson, , (1869) 9 Wall. 477. 2 Corcoran v. Chesapeake &c. Canal Co., 1 MacA. 358. 3 Jones on Corporate Bonds and Mortgages, § 367 ; Kenosha v. Lam- Bon, 9 Wall. 477; Clark v. Iowa City, SO Wall. 583; Koshkonong v. Burton, 104 U. S. 668 ; Lexington v. Butler, 14 Wall. 383; McCoy v. Washington Co., 3 Wall. Jr. 881. 4 Amy V. Dubuque, (1878) 98 U. S. 470. 5 Clark V. Iowa City, 20 Wall. 588; Ferry v. Ferry, 3 Cash. 93 ; iHiiey v. Macon County, (1888) 35 Fed. Eep. 481; S. C. 4 Ey. &. Corp. L. J. 437; City of Lexington v. Butler, 14 Wall. 396; Kenosha w. Lamson, 9 Wall. 477; Amy v. Dubuque, 98 U. S. 470. 6 Wabash &c. Ey. Co. v. Central Trust Co., 33 Fed. Eep. 373; Central Trust Co. V. Wabash &c. Ey. Co., 29 Fed. Rep. 618, 633. See Atkins v. Wabash Ey. Co., 39 Fed. Eep. 161, quoted in note 3, § 16, supra. 'Merryman v. Carroll Sec. Co., 4 Ey. & Corp. L. J. 13 ; Lawrence v. Greenwich Fire Ins. Co., 1 Paige, 587. See, also, Sheppard ' v. Oxen- ford, 1 Kay & J. 491 ; Evans v. Cov- entry, 5 DeG., M. & Q. qil. 5 Vide supra, g 715, as tb appoint- ment of receivers at instance of un- secured creditors ; and as to appoint- ment at instance of mortgagees, vide § 7^3, * Beach on Eailways, § 700, cifcijig Milwaukee &c. E. E. Co. v. Soutter, 3 Wall. 51,0, 533; Winkler i'. Wink- ler, 40 111. 179; Mullen v. Jenkins; 1 Stockt. 193; Sherman v. Clark, 4 Nev. 138; s. c. 97 Am. Dec. 516; Coughron v. Swift, 18 111. 414 ; Poage V. Bell, 3 Eand. 586; Webster, v. Couch, 6 Eand. 519; Wooden v. Wooden, 3 Green's Ch. 439 ; Parmly V. Tenth Ward Bank. 3 Edw. Ch. 1206 ENTEr AND FOEECIiOSUEE. [§ 772. into the merits of the case generally.' For a receiver is a ministerial oflBcer of a court of chancery, appointed as an in- different person between the parties to a suit merely to take possessiop of and Tpresewe, pendente Hid, the fund or property in litigation, when it does not seem equitable to the court that either. party should have possession or control of it.* He holds the property for,the benefit of all the parties interested.' His title and possession is that of the court,* and any attempt to disturb his possession ,is contempt and' punishable accord- ingly." Under modern statutes the receiver's ffowers are now 395; Sollory v. Leaver, L. R. 9 Eq. 22 ; Crenien t<, Hawkes, 2 Jones & Lat. 674; Cores "■ Long, 43 How. Pr. 497; Speights v. Peters, 9 Gill, 476; Morrison v. Buckuer, Hemp. 443 ; Rice v. St. Paul & Pacific R. Co., 24 Mian. 464. 1 Skinners Co. v. Irish Soc, 1 Mylne & Cr. 163; Conro v. Gray, 4 How. Pr. 166. 2 Beach on Railways, § 695, citing Wyatt's Prac. Reg. 335 ; Chautauqua Bank v. White, 6 Barb. 584; Port- man V. Mills, 8 L. J. (N. S.) Ch. 161 ; Delaijey v. Mansfield, 1 Hogan, 234; Booth V. Clark, 17 How. 332; Green V. Bostwick, 1 Sandf. (N. Y.) Ch. 185 ; Skinner v. Maxwell, 66 N. C. 45 ; S. 0. 68 N. C. 400 ; Battle v. Davis, 66 N. C. 253; Coburn v. Ames, 57 Cal. 201 ; Hunt v. Wolfe, 2 Daly, 303; Corey v. Long, 43 How. Pr. 497 ; s. 0. 12 Abb. Pr. (N. S.)437 ; Dev- endorf v. Dickinson, 21 How. Pr. 275; ElUoott V. Warford, 4 Md. 80; Hooper v. Wihston, 24 111. 353; Kaiser v. Keilar, 21 Iowa, 95; Id- dings V. Bruen, 4 Sandf. Ch. 417; In re Burke, 1 Ball & B. 74; Fau-- field V. Weston, 3 Sim. & S. 98; Bryan v. Cormick, 1 Cox, 422 ; Field V. Jones, 11 Ga. 413; Broad v, Wiek- ham, 1 Smith's Ch. Pr. 500; Angel V. Smith, 9 Ves. 335; Curtis v. Leavitt, 10 How. Pr. 481 ; Lottimer V. Lord, 4 E. D. Smith, 183; Davis V. Marlborough,' 3 Swanst. 125 ; Ver- planck V. Mercantile Insurance Co., 3 Paige, 438, 453; 1 Grant's Chancery Practice, (2nd ed.) 398 ; Beach on Re- ceivers, § 3. 3 Skip V. HarwoOd, 3 Atkins, 564 ; In re Colvin, 3 Md. Ch. 278; ElU- oott V. Warford, 4 Md. 80; Iddings V. Bruen, 4 Sandf. Ch. 417; Beach on Receivers, § 4, citing First Nat. Bank v. Barnum Wire & Iron Works, (188§) 60 Mich. 489; s. c. (1885) 58 Mich. 315; Delaney v. Mansfield, 1 Hog. 234. ^ De Visser v. Blackstone, 6 Blatchf. 235; Robinson v. Atlantic. & Great Western Ry. Co., 66 Pa. St. 160; Angel v. Smith, 9. Ves. 335; Ohio '&o. R. Co; v. Frtch, 20 Ind. 498; EUicott v. Warford, 4 Md. 80; Albany City Bank y. Schermerhorn, 9 Paige, 372. Cf. Covel! v. Hey- man, 111 U. S. 176. 6 Walling V. Miller, 108 N. Y. 173; s, a 2 Am. St. Rep, 400, annotated;. Beverley v. Brooke, 4 Grat. 187, 311; Noe v. Gibson, 7 Paige, 513; Hull V. Thomas, 3 Edw. Ch. 336; De Visser v. Blackstone, 6 Blatchf. 235 ; Secor V. Toledo &c. Ry. Co., 7 Biss. 513; King v. Ohio &o. R. Co., 7 Biss. 529; Spinning v. Ohio Life Ins. & Trust Co., 2 Disney, 368; Vermont & Canada E, Co.. v. Vermont Cen §'ir73.] ENTET AND .FORECLOSUEE. 1^0,7 more extensive than formerly.' He may sue and be sued;' may collect unpaid subscriptions to the capital stock;' may enter into new contracts under authority of the court, to con- serve the property ; * may employ counsel,.and is entitled to compensation for his own and his counsel's services.^ § 773. Defenses. — 'No other or further defenses are allowed in an action to foreclose a mortgage to secure negotiable cor- porate bonds which were transferred to a bona fide holder for value, than would be allowed in an action at law upon' other like negotiable instruments.^ Accordingly a bill to foreclose a mortgage executed to a life insurance company to secure payment of a bond, is not subject to demurrer for failing to show affirmatively^the capacity of the company to lend money tral R. Co., 46 Vt. 793; Langford v. collect subscriptions. Billings v. Langford, 5 L. J. (N. S.) Ch. 60; Robinson, 94 N. Y. 415; s. c. 28 Broad v. Wickham, 4 Sim. 511; Hun, 123. C/. Cleveland v. Burn- Skip V. Harwood, 3 Atk."564; Anon- ham, 55 Wis. 598. ymous, 3 Mod. 499; Beach on Re- * But he can not bind the trust by Qeivers, § 237. ■ contract without the authority of 1 Verplanck v. Mercantile Ins. Co., the court. Lehigh Coal &c. Co. v. 3 Paige, 453; Hooper i). Winston, 34 Central R. Co., 35 N. J. Eq. 43B, 42^. 111. 363 ; Grant v. City of Davenport, See also Beach on Receivers, §g 257, 18 Iowa, 194; Davis v. Gray, 16 361. Cf. In re Louisiana &c. De- Wall. 319; Yeager u. Wallace, 44 posit Co., (1888) 40 La. Ann. 514; Pa. St. 394; Runyon v. Farmers' & Cowdry v. The Railroad, 1 Wood, Mechanics' Bank, 3 Green, (N. J.) 331, 330, where it is said that in. 480 ; Cooney v, Coorrey, 65 Barb, practice it has been found that the 524. receiver must be allowed a certain ^ Beach on Railways, g§ 735, 736, discretion in matters of detail in citing Coope v. Bowles, 28 How. Pr. operating railroads, in brder that hte 10 ; s. C. 43 Barb. 87 ; Griffin v. Long may discharge his duties to the best Island R. Co., 102 N. Y. 449 ; Curtis advantage. The court has power, V. Mcllhenny, 5 Jones Eq. (N. C.) on consulting the receivers, and 390. without notice to the mortgagees, to 3 Beach on Receivers, §§ 669, 670 ; order the lease of another road citing Dayton v. Borst, 31 N. Y. 435 ; which is found necessary to the Nathan '■«. Whitlook, 9 Paige, 153; profitable management of the mort- Frank I). Morrison,, 58 Md. 423; Cut- gaged property. Mercantile Trust ting v. Damerel, 88, N. Y, 410; Co. v. Missouri, K. & T. Ry. Co., Mean's Appeal, 85 Pa. St. 293. But (1890) 41 Fed. Rep. 8. he has no power to enforce statutory '" Beach on Railways, g§ 747, 748. liabilities. Farnswortli v. Wood, 91 " Kenicott v. Wayne County, (1873) N. Y. 308. And he has no greater 16 Wall. 453; Carpenter v. Longan, power than the corporation had to 16 Wall. 371. 1208 ENTET AND rOEECLOSUEE. [§ 774. and take mortgages,' nor because it was not shown that- the agent of a foreign insurance company had not complied with an act requiring hira to procure a certificate of authority from the auditor before transacting any business of insurance.* So also on foreclosure of a railroad mortgage, neither the minority stdokhblders, nor any one not a stockholder at the time of the illegal transactions, can maintain, a bill alleging in defense of the foreclosure the mismanagement of the affairs of the cor- poration in the interest of the principal bondholder and stock- holder, and usury in the negotiation of the bonds, where no demand upon, or refusal by, the directors or stockholders to make the defense is averred, and no excuse for hot doing so is made, except that the officials are in, collusion with the per- sons seeking the foreclosure.' : § 774. The decree of foreclosure. — The proceeding for a foreclosure is in the nature of a remedy w rem and not inper- sonani, and the trustees have no right to enforce the bonds in any way except that provided in the mortgage, and are confined to realizing upon the security thereof.* In the State courts they are not entitled to a personal judgment against the com- pany for any deficiency that may remain after sale and appli- cation of the trust property.' And in an action to foreclose mortgages given 'to secure advances, it is error to include in the judgment a sum sufficient to satisfy advances in excess of the amount of the mortgages.* But the federal equity rule pro- vides that in suits in equity for the foreclosure of mortgages, "a decree may be rendered for any balance that may be found due to the complainant over and abqve the proceeds of the Sale or sales." Yet this does not authorize a deficiency decree, un- less the bill shows that the amount is actually due.' A decree iBoulware v. Davis; (Ala. 1890) 8 6 Welsh v. St. Paul &c. R. Co., Ry. & Corp. L. J. 413; Alabama (1879) 25 Minn. 314, 323. Gold' Life Iris. Co. u. Central ,&c. 6 McComb f. Barcelona Apartment Assoc, 54 Ala. 73; Assoc, (1890) 10 N. Y. Supl. 546; 2 Boulware v^ Davis, (Ala. 1890) 8 McComb v. Cordova Apartment Ry. & Corp. L. J. 412. ^ Assoc, (1890) 10 N. Y. Supl. 553. 3 Alexander v. Searcy, (1889) 81 Ga. "' Ohio &c. R. Co. v. Central Trust 536. Co., (1890) 133 U. S. 83; s. c. 7 Ry. 4 Welsh V. St. Paul &c R. Co., &Corp. L. J. 183, construing Equity (1879) 25 Minn. 314, 322. Rule, No. 93. §'775.] ENTJRY AND FOEEOLOSUEB. 1209 upon suit for default in interest payments, should declare the fact, nature and extent of the default which constitutes the breach of the condition of the mortgage, and the amount then due, a substantial error in which will vitiate the proceedings, and allow a reasonable time for payment; upon which further proceedings will be suspended until default again occurs.' The decree in foreclosure proceedings in which a railway is to be sold, should name an upset price sufficiently large to cover costs, all allowances made by the court, receiver's cer- tificates and interest, liens prior to the bonds, amounts diverted from the earnings, and all undetermined claims which will be settled before the confirmation and sale.^ And where a trustee for bondholders forecloses, and one of the bondholders has had the full amount of his bonds guarantied by the others, it is error, against his objection, for the court to direct the trustee to bid in the property for the full amount of all the bonds.' It is proper to make a decree of sale subject to the rights and equities of parties to the suit under liens or judgments claimed by theoi, and to reserve those rights for further adjudication.* In strict foreclosure a decree for a sale and for the enforcement of the agreement for purchase con- tained in the deed, is appropriate under the prayer for general relief.^ A foreclosure of all of several mortgages on railroad property, and a sale of the property entire, will not be ordfered by one decree of the court." § 775. Binding eilect of the decree. — Although a decree entered by consent of the parties in interest may be ^et, aside at any time before it is executed,' one which has been entered in the usual course of judicial proceedings, after a trial of the cause, can not be vacated except upon the ground of fraud and circumvention.* It is of binding effect upon all the par- 1 Chicago &c. R. Co. v. Fosdick, ^ Sage v. Central K. Co., (1878) 99 (1882) 10b U. S. 47 ; Howell v. West- U. S. 334. em R. Co., 94 U. S. 463. « Wabash &c. Ry. Co. v. Central 2 Blair v. fet. Louis &c. R. Co., 25 Trust Co., 32 Fed. Rep. 138. Fed. Rep. 232. ' ' Union Bank v. Marin, 3 La. Ann. sSanxey v, Iowa City Glass Co., 54; Vermont &c. R. Co. ■«. Vermont (1886) 63 Iowa, 707. ' ' Central R. Co., 50 Vt. 500; Wad- '»Sage V. Central R. Co., (1878) 99 hams v. Gay, 73 111. 415. U. S. 334. * Leavenworth 'County v. Chicago- 121Q ENTRY AND FOEEOLOSUEE. [§ 776. ties in interest who had or are affected with notice, and can not be collaterally attacked.' And a judgment in a suit against the mortgagee trustees is binding upon the bondholders, unless they can show fraud or connivance on the part of their trustees.^ Accordingly underlying bondholders represented in the suit by their trustees, can not after the sale and partial execution of the contract attack the disposition of the earnings prior to the decree an"d change the rights of the purchasers.' So' also the purchasers at foreclosure sale, who are not required to pay an amount in excess of their bid, have no appealable interest in decrees adjudging to whom payment should be made.*' Nor (Sic. Ry. Co., (1885) 25 Fed. Rep. 219; Matthews v. Murchison, 15 Fed. Rep. 691; Graham u. , Boston &o. R. Co., (1885) 118 U. S. 161 ; Ward v. Mont- clair R. Co., 36 N. J. Eq. 260. A bill by second mortgagees for a reseis-. sion of a foreclosure sale is demur- rable whei'e there is no allegation of actual fraud, or that the property was sold for less than its value, nor offer to redeem. Robinson v. Iron Ry. Co., (1890) 135 U. S. 523. The mortgage trustees are indispensable parties to suits to set aside the fore- closure. Ribon t'. Chicago &c. R. Co., 16 Wall. 446; Meyer v: Utah &c. R. Co., 3 Utah, 2S0. Cf. Thayer V. Life Assoc, 112 U. S. 720; Evans V. Texas, 11 Biss. 178; Mitchell v. Tillptson, 13 Feid. Rep. 738. An ac- tion to set aside the foi-eclosure is not barred by the previous refusal to make the suing shareholders par- ties, (Taaewell County v. Farmers' &c. Co., 13 Fed. Rep. 753) for it is not a continuance of the original proceedings. . Pacific R. Co. v. Mis- souri Pacific R. Co., 3 Fed.>Rep. 773. Apd when the decree is vagated, the complainant is placed in 'his former position. Osborn v. Michigan &o. R. Co., 2 Flip. 503. • 1 Graham v. Boston &c. R. Co., (1885) 118 U. S. 161; Appeal of Hus- ton, (1889) 137 Pa. St. 620; Herring V. New York &c. R. Co., (1887) 105 N. Y. 341, 871; Grignon v. Astor, 2 How. 319. But a decree is not bind- ing upon parties withbut notice. Pittsburg &c. R. Co. v. Marshall, 85 Pa.' St. 187; Beach on Railways, § 687, saying that a decree is final as between the parties with respect to the questions thereby decided or which might have been brought up in the suit, and those matters can not be again brought in issue be- tween the same parties, unless it appear that the successful party has wrongfully prevented the other party from presenting his case fully; and citing Brooks v. O'Hara Bros., 3 McCrary, 614; Aurora City u. West, 7 Wall. 83, 102; Vermont &c. R. Co. IJ. Vermont Central R. Co., 50 Vt. 500; Woods v. Pittsburgh &c. R. Co., 99 Pa. St. 101; Wood's Ry. Law, 1636 ; 2 Taylor on Evidence, § 1518. 2 Campbell v. Railroad Co., 1 Woods, 368. Ace. Huntington v. Little Rock &c. R. Co., 16 Fed. Rep. 906, where the bondholders had been heard from time to time in the suit. 3 Central Trust Co. v. Wabash R. Co., 30 Fed. Rep. 333. * Central Trust Co. v. Grant Loco- motive Works, (1890) 135 U. S. 207; s. c. 7 Ry. & Corp. L. J. 503; Stuart ■y.Gay, 127 U. S. 518., § T76.] KNTET AND FOEECLOSUEE. 1211 can they appeal from a decree of sale subject to specified liens.' And in this case the suiBciency of the proceedings in the foreclosure suit prior to the sale can not be questioned.^ But the judgment in an action on coupons does not bar the same parties in action upon other coupons from the same bonds.' And under a rule providing that where the bill is taken jpro oonfesso the case may be proceeded with ex paj'te, and the matter of the bill may be decreed by the court, the defendant is not precluded on appeal from contesting the sufficiency of the bill, or from insisting that the averments in it do not jus- tify the decree, although he can not question the evidence.* § 776. EedempMon. — At any time prior to the confirma- tion of the sale under the decree, the mortgagor, by bringing into court fhe^ amount then due and costs, will be allowed to redeem.' Where a trustee enters under a mortgage in default and manages the property, the corporation and stockholders may, on bill to;redeem, have an accounting and hold him as a trustee for the corporation as well as of the bondholders.* 1 Swann v. Wright, 110 U. S. 590, 601. 2 Robinson v. Iron Ey. Co., (1890) 133 U. S. 533. 3 Town of Enfield v. Jordan, 119 U. S. 680. 4 Ohio &c. R. Co. V. Central Trust ■ Co., (1890) 133 U. S. 83; S. 0. 7 Ey. & Corp. L, J. 183. » Chicago &c. R. Co. v. Fosdick, (1883) 106 U. S. 47. "While the par- ties to thissuit were fiercely litigat- ing the amount of the mortgage debt and questions of fraud in the origin of that debt, the appointnient, or the discharge, of a receiver for the mort- gaged property very properly be- longed to the discretion of the court in which the litigation was pending. Biit when those questions had been passed upon by the circuit court, and by this court also on appeal, and the amount of the. debt definitely fixed by this court, the right of the defendant to pay that sum, and have a restoration of his property by dis- charge of the receiver, is clear, and does not depend on the discretion of the circuit court. It is a right which the party can claim, and if he shows himself entitled to it on the facts in the record, there is no dis- cretion in, the court to withhold it. A refusal is error — judicial error — ■which this court is bound to correct ■when the matter, as in this instance, is fairly before it." Milwaukee &c. R. Co. V. Soutter, S Wall. 510, 531. Where, on hearing, ^a receiver is dis- charged, and the land in his posses- sion restored to those from whom he received it,. the rents which accrued while he held it should be returned to those who would have taken them if he had not interfered, even though they be insolvent. Caswell v. Bunch, (1888) 77 Ga. 501 SAshuelot E. Co. ■«. Elliott, (1874) 57 N. H. 397. - 12,12 ENTET AND FOEECLOSUEE. [§777. § 777. The sale.— Jt is with the mortgage trustees to elect whether the sale shall be made under a decree pending an ap- peal, and to choose the time therefor; and they will not be compelled by mandamus to kave the property sold.^ Accord- ing!}', where the property is depreciating and becoming in- cumbered with receivers' certificates, a sale will not tie post- poned at the request of a minority interest contrarj' to the judgment of the trustees, and the decree may order the sale of the whole property together, subject to settlement of con- flicting rights after the sale.^ Although the court ordering the sale of corporate property will take the responsibility, if necessary, of delaying a sale to await a better condition of the finances and business of the company; yet where the in- creasing prosperity would require several years to pay the interest already' due, and there is no guaranty that the pros- perity will continue, the court will not postpone the sale.' Where provision was made in a deed of trust,-executed by a railway company to secure its bonds, for a, sale in case of a default in payment of any of its bonds, and it was further made the duty of the trustees, under such circumstances, to sell upon the request of a majority in interest of the bondhold- ers, the court refused to postpone the sale untilthe number of bonds due could be determined.* And as to sale in parcels, where there are several separate properties to be sold it is proper to put up for sale each of them separately and then all together,' and if the highest bid for the whole in gross exceeds the aggregate of the highest separate bids, to strike off and sell the entirety to the person making the bid.' In case the pro- ceeds of a foreclosure sale is less than the full face value of the series of bonds, each bondholder takes a part equal to the pro- portion'between the amount of his bond and that of the whole series.* For all the bonds secured by a mortgage are deemed to have beien issued at the same time, and there is no priority in favor of the holders of the bonds bearing the lower num- 1 Farmers' &o. Co. v. Central R. * Union Trust Co. u. Illinois &0.R. Co., (1877) 4 Dill. 533, Co., (1885) 117 U. S. 435, 474. 2 First National Bank v, Shedd, « Barry v. Missouri &c. R. Co., (1886) 134 U. S. 74, 86. ' (1887) 34 Fed. Rep. 829; s. 0. 4 Ry. 3 Duncan w. Atlantic &o. R. Co., 4 & Corp. L. J. 198; Hodges' Appeal, Hughes, 125. - 84 Pa. St. 359 ;, Brinkerhoff v. Lans- < State t). Brown, 64 Md. 199. ing, 4 Johns. Ch. 65; Pomroy v. § 777.] ENTEY AND FOEECLOSUEE. 121*3 bers.* Accordingly in the case of an invalid power of sale in the deed under which the''mortgaged pi'operty was sold, the proceeds must be applied to the payment of the debt to each and all of the bondholders alike.'' And the proceeds are to be divided in proportion to the full value of the bonds without regard to the amount which their holders may have paid for them.' But where a person holds bonds merely as collateral for a debt due him from the corpdration,, he is entitled to re- ceive in the distribution only the amount of his debt.* The surplus after paying the mortgage debt is to be applied to the other liens upon the railway.* And, generally, on a sale for default in interest, the proceeds, will be applied, first to the arrears of interest, then to the mortgage debt, then to the junior incumbrances, according to their respective priority of lien, and the surplus to the mortgagor." If the debenture holder has been paid out of the judgment he can not be brought back and treated as a trustee.'' Rice, 16 Pick. 33; Watkins v. Hill, 8 < Rice's Appeal, (1875) 79 Pa. St. Pick. 533! Dana *. Binney, 7 Vt. 168; Jesup v. City Bank, (1861) 14 501; Claflin v. Railroad Co., 4 Wis. 331; Ackerson v. Lodi &c. R. Hughes, 13; Pinkard v. Allen, 75 Co., (1877) 543. Ala. 73'. ^ Railroad Co. v. Howard, 7 Wall. 1 Stanton v. Alabama &c. R. Co., 393. 3 Woods, 533. 6 Chicago &c. R. Co. v. Fogdick, 3 Mason v. York &c. R. Co.; (1861) (1883) 106 U. S. 47. 53 Me. 83, 'Fountaine «;. Carmathen Ry, Co., 3 Duncomb v. New York &o. R. 5 Eq. 316, 334. Co., 84 N. Y. 190. CHAPTER XXXIX. DISSOLUTION AND REORGANIZATION, 778. Introductory. 779. Statutory provisions respect- ing dissolutioo. 780. Dissolution' by lapse of time. 781. Dissolution by the voluntary act of the corporation — Surrender. 783. Dissolution by court of equity. . (a) At instance of creditors. 783. (bj At instance of sharehold- ers. 784. (c) Grounds for, a winding-up order. 785. Abatement of actions upon . dissolution. 786. Receivers for dissolved corpo- rations. 787. Survival of choses in action, etc. 788. Enforcement of creditors' claims after dissolution, 789. Distributidn of assets among shareholders. 790. Reversion and escheat of prop- erty to grantor and to the State. 791.' Reorganization, 793. Method of effecting reorgani- zation — Statutory regula- tions. '793. Obligations and rights of the parties to the reorganiza- tion agreement. 794. The same subject continued. 795. Transmission of property rights and franchises. 79B. Liability of the new company. 797. The same subject continued. § 778. Introductory. — The old common-law rule that a corporation might be dissolved by the death of all its mem- bers, is inapplicable to modern companies having capital stock divided into shares capable of transfer. and transmission,^ There are many circumstances whichj vrhile they may constitute grounds for dissolution at the suit of the State, the corporate creditors, or shareholders, do not of themselves work a disso- lution,'' The refusal by one of the two persons constituting a 1 Boston &o. Manuf. Co. v. Lang- don, 34 Pick, 49, 53 ; S. C. 35 Am. Dec. 293; Russell v. McLellan, 14 Pick. 63, 69. Cf. Chesapeake &c. Canal Co. v. Baltimore &c. R. Co., 4 Gill & J. 1, 131. ?E. g., the voluntary discontinu- ance of business, Nimmons v. Tap- pan, 3 Sweeney, 653; Mickles v. Rochester City Bank, 11 Paige, 118; S. c. 43 Am. Deo. 103; Troy &c. R. Co. V. Kerr, 17 Barb. 581 ; Attorney- General V. Bank of Niagara, Hopk. Ch. S54. Nor the mere non-user of its franchises. Russell v. McLellan, 14 Pick. 63 ; Brandon Iron Co. v. Glea- Bon, 24 Vt. 338; EnBeld Toll Bridge Co. V, Connecticut River Co., 7 Conn. 28, 47. Cf. Pennsylvania &c. Canal Co. V. Commissioners of Portage Co., 27 § 779.] DISSOLUTION AND EKOEQANIZATION. 1215 . corporation, to be longer bound by an agreement to share the expenses and profits equally, doe^ not work a dissolution. To a suit brought b}'^ one for labor done after such an abroga- tion, the corporation must be made a party .^ § 779. Statutory provisions respecting dissolution.— The dissolution of corporations is, in most States, subject to statu- tory regulation, in which the methods of ending corporate life and settling corporate affairs are fixed with a greater or less degree of detail.^ In England, an act has recently been Ohio St. 22; Rorkeu Thomas, 36 N. Y. §59, 563 ; HoUingshead v. Wood- ward, 35 Hun, 410; Allen «. New- Jersey Southern R. Co., 49 IJow. Pr. 14 ; Kansas City Hotel Co, v. Sauer, 65 Mo. 279, 288; Chouteau Ins. Co. V. Floyd, 74 Mo. 286, 290; State Na- tional Bank v. Robldoux, 57 Mo. 446; Moseby v. Burrow, 53 Tex.. 396; State V. Barron, 58 N. H. 870 ; Har- ris V, Nesbit, 24 Ala. 398; Baptist Meeting-House v. Webb, 66 Me. 398; Rollins V. Clay, 33 Me. 132. €f. In re Jackson Marine Ins. Co., 4 Sandf. Ch. 559 ; Conro v. Gray, 4 How. Pr. 166. See also N. Y. Rev. Stat. 463, 464, §§ 38, 56. Nor by tlie acquisition of all its stock by one person. New- ton Manuf. Co. v. White, 42 Ga. 159 ; Swift V. Smith, 65 Md. 428; s. o. 57 Am. Rep. 836 ; England v. Dearborn, 141 Mass. 590 ; Hopkins v. Boseclare &o. Co., 72 m. 373; Button v. HoflE- man, 61 Wis. 20; s. o. 50 Am. Rep. 131; Sharp v. Dawes, 46 L. T. Q. B. 104. Nor is the company dissolved by being enjoined from carrying out the objects for which it was created. Kinoaid v. Dwinelle, 59 N. Y. 548. See Sanborn v. LeilertB, 58 N. Y. 179. Companies duly incorporated by the legislature of Georgia under the constitution of. 1868 did not for- feit their privileges by failing to or- ganize until after the adoption of the constitution o£ 1877, there 'being no provisioif of law to that ef- fect. Atlanta v. Gate City &e. Co., 71 Ga. 106; Beach on Railways, § 587. A street railroad company does not forfeit its charter by requir- ing its employes to work more than ten hours a day, in violation of Laws N. Y. 1887, ch. 529, which provides that "it shall be a, misdemeanor for any oiBcer or agent of any such cor- poration [street railway company] to exact from any of its employes more than ten hours' labor " per day. Peo- ■ pie V. Atlantic Ave. R. Co., (1890) 10 N, Y. S. 907. 1 McKay v. Beard, 20 S. C. 156. 2 New York, 1 Revised Statutes, 600; 2 Revised Statutes, 461, 484, g§ 39-41, §8 1784-1796, 2419-2431. In 1890 the general statutes of NeV .York were revised by the Commis- sioners of Statutory Revision and passed by the Legislature. See chap- ters 563-567 inclusive of the laws of 1890. See also The New Corporation Laws of the State of New York, by Frank White, with annotations and references by Frank White and Ed- ward J. Graham, People v. Central City Bank, 53 Barb. 412; In re Pyro- lusite Manganese Co., 29 Hun, 429; In re Dubois, 15 How. Pr. 7; S. c. sub nom. In re Westchester Iron Co., 6 Abb. Pr. 386, notes; Fisher v. World &c. Ins. Co. , 15 Abb. Pr. N.- S. 363; Mooney i;. British &c..Ins. Cp, 1216 DISgpLCTION AND EEOEGANIZATION. [§780. passed — known as the "Directors Liability Act 1890," in which proT;ision is made for the procedure to be followed in winding up corporations at considerable length.' The New Jersey statute provides for the dissolution of corporations and for the closing up of their business by the directors as trustees, and authorizes the chancellor to interpose and appoint a re- ceiver, or to continue the directors as trustees; but it is held that the chancellor's power of interference's a discretionary power, to be exercised only on good cause shown.^ The Penn- sylvania act regulating banks and establishing a system for winding up their affairs, does not apply to savings and deposit banks, but only to banks of issue.' • § 780. Dissolution by lapse of time. — Where the charter of a corporation, or the general law under which it is organ- ized, fixes the terra for the existence of the corporation, it will, upon the expiration of the term, become ipso facto dis- solved, and the assets must be distributed if .any one of the members insists upon it.* Thus if the constitution of a build- ing association provides that it shall proceed. to close when the unsold stock is. worth fifty per cent, premiiim, it can not, after that time has come, defer closing in prospect of a fur- ther ad,vance in the value of its real estate, and meanwhile compel stockholders to keep paying dues.' The business of a 9 Abb. Pr. N. S. 103; Ohio, Act of Ch. 363; Greely u. Smith, 3 Story, May 1, 1853; lU.^Rev. Stat. 577, § So; 657; People v. Walker, 17 N. Y. 503; I5wa Code, g 1074; Ala. Code, § 1775 Ashville Division v. Aston, 93 N. C. et seq.; In re Franklin Telegraph. 578; Sturges u. Vanderbilt, 73 N. T. Co., 119 Mass. 447; Mass. General 384; Bank of Galliopolis v. Trimble, Statutes, ch. 68, §§ 35-39 ; Pa. Bright- 6 B. Mon. 599 ; Bank of Mississippi ley's Pardon's Digest, 197. v. Wrenn, 11 Miss. 791; Eagle Chair 1 53 & 54 Vict. oh. 68. The portion Co. v. Kelsey, 33 Kan. 635 ; Koutz of the statute relating to winding up v. Paola Town Co., 2,0 Kan. 397 ; goes into effect Jan. 1, 1891. This Frothingham v. Barry, 6 Hun, 366; act and the Companies Acts 1863 to McVicker v. Ross, 55 Barb. 347. Cf. ] 886 are to be cited together as "The Taylor v. Earle, 8 Hun, 1; Butter- Companies Acts 1863 to 1890." field v. Beardsley, (1874) 28 Mich. 2 Newfoundland E. Construction 413. Co. V. Schack, 40 N. J. Eq. 233. 5 Burns v. Metropolitan Building 3 Bank D. Shouse, 103 Pa. St. 488 ; Assoc, 3 Mackey, (D. C.)7. Where Appeal of Ifarrisb, (Pa. 1890) 19 the charter, or certificate of iiicorpo- Atlan. Rep. 569. ration, states that the corporation is *Mann v. Butler, (1847) 3 Barb, to continue in business until such a T81.J DISSOLUTION AND EEOEGANIZATION. 1217 corporation may, however, be continued by the formation of a new organization at the end of the period limiting the ex- istence of the ojd company, and a transfer of its assets; and business. And statutory provision is made in some States for the continuance of corporate life by complying with, certain formalities.^ If a corporation has a special charter its term of existence is not aflfected by any statutory provisions for- eign to the charter.^ § 781. Dissolution Iby the voluntary act of the corpora- tion — Surrender.^ A corporation is not dissolved by the assumption on the part of its members that it is dissolved, nor by a vote of the stockholders to dissolve it merely to escape liability.' But when not actuated by improper motives, the stockholders may effect a voluntary dissolution or surrender of the charter, by a unanimous vote; and there are cases, in which it is held that certain acts and the omission of certain functions may be equivalent to surrender.* In the stockhold- date, the > last day named must be excluded from the reckoning. Peo- ple u. Walker, 17 N, Y. 503. IN. Y. Laws of 1890, ch. 563, §2i3. 2 Steadman v. Merchants' &c. Bank, (1888) 69 Tex. 50. The char- ter of the Ladies of the Sacred Heart named no limitation to its corporate existence. It stated ths purpose of the corporation to be to conduct a seminary of learning and an orphan asylum, and provided that it "by that name and style shall have suc- cession. " lie charter, also, vras specific in its grant of powers. The institutioa was purely a charitable one, Eev. Stat. Mo. 1843, ch. 34, § 1, par. 1, provides that every corpora- tion, as such, has power to have suc- cession by its corporate name for the period limited in its charter, and, when no period is limited in its charter, for twenty years. It also gives power to make laws for trans- fer of stock, and makes other pro- visions which could not apply to 77 charitable corporations having no shareholders. Arid it was held that the Corporate existence of the Ladies of the Sacred Heart was not limited to twenty years, but was made per- petual. State V, Ladies of the Sacred Heart, (1889) 99 Mo. 533. 3 Baptist Meeting House V; Webb, 66 Me. 398; Rollins v. Clay, 33 Me. 133.; Portland &c. Co. v. Portland, 13 B. Mon. 77. Of. Polar Star Lodge i}. Polar Star Lodge, 16 La. Ann. 53. * Slee V. Bloom, 19 Johns, 456; S. 0. ,10 Am. Dec. 373; Holliugshead v. Woodward, 107 N. Y. 96 ; Barclay v. Talman,. 4 Edw. Ch. 134; Mumma v.. Potomac Co., 8 Pet. 281 : Bradt v. Benedict, 17 N. Y. 93; Bruce v. Piatt, 80 N. Y. 379; Enfield , &o. Bridge Co. v. Connecticut River Co., 7 Conn. 38 ; 3 Kent's Commentaries, 305, 313, 314; Hampshire v. Firanklin, 16 Mass. 76 ; McLaren v. Pennington, 1 Paige, 102; King v. Ameryj 3 Term Rep. 515 ; King ti. Gray, 8 Mod. 858; Webster v. Turner, 31 1218 DISSOLUTION AND BEOEGANIZATION. [§ vai. ers is vested the sole and absolute power of declaring a sur- render of the charter; the directors, oflBcers and agents have no other powers than in the administration of the corporate affairs and to put in effect the objects of its existence.* But where a minority of stockholders oppose a surrender, it can not be forced upon them by the majority; ^ unless it be a case where it is plain that a continuation of the business to the ex- piration of the time fixed by the act of incorporation for* cor- porate existence would result only in financial catastrophe or the failure of the object for which the corporation was cre- ated,^ in which event a majority only of the stockholders may surrender the charter and take steps to. have the business wound up.* So also an association can not dissolve itself by a resolution without the consent of the shareholders, where the articles do not provide for its dissolution before a certain Hun, 264; Mobile &c, E. Co. v. State, 29 Ala. 573 ; La Grange &c. R. Co. v. Rainey, 7 Coldw. 420; Chesapeake &c. Canal Co. v. Baltimore &c. R. Co., 4 Gill & J. 1 ; Savage v. Walsh, 26 Ala. 619; Folger v. Columbian Ins. Co., 99 Mass. 274; s. C. 96 Am. i)ec. 747 ; Boston Glass Manufactory V. Langdon, 24 Pick. 49. I'lreadwell v. Salisbury Manuf. Co., 7 Gray, 393; S. C. 66 Am. Dec. 490; Abbot v. American &c. Co., 33 Barb. 518 ; Hancock v. Holbrook, 9 Fed. Rep. 353; Buford v. Keokuk &c. Packet Co., 3 Mo. App. 159; Black V. Delaware &c. Canal Co. , 24 N. J. Eq. 455; Kean v. Johnson, 9 N. J. Eq. 401 ; Marr v. Union Bank, 4 Coldw. 484 ; Inre Pactage Parisien, 34 L. J. Ch. 140; Bank of Switzer- land V. Bank of Turkey, 5 L. T. N. S. 549; In re Suburban Hotel Co., L. E. 2 Ch. 737. 2Zabriskie v. Hackensack &c. R. Co., 18 N. J. Eq. 178: Kean v. John- son, 9 N. J. E({. 401; Polar Star Lodge V. Polar Star Lodge, 16 La. Ann. 53 ; Mobile &g. R. Co. v. State, 29 Ala. 573 ; Savage v. , Walshe, 26 Ala. 619; Denike v. New York &o. Co., SON. Y. 599; Webster «. Turner, 13 Hun, 264. STreadwell v. Salisbury Manuf. Co., 7 Gray, 393; Wilson v. Central Bridge, 9 E. I. 590 ; Mobile &c. Co. V. State,. 29 Ala. 573; Hancook v. Holbrook, 9 Fed. Eep. 353; Revere V. Boston &c. Co., 15 Pick. 351; Black V. Delaware &c. Canal Co., 23 N. J. Eq. 130 ; Bank of Switzerland V. Bank of Turkey, 5 L. T. N. S. 549 ; McCurdy v. Myers, 44 Pa. St. 535; Lauman v. Lebanon &o. E. Co., 30 Pa. St. 431. 1 Wilson V. Central Bridge Co., 9 E. 1. 590 ; Sargent v. Webster, 13 Met. 504; Angell & Ames on Corporations, § 127 et seq. ; Binney's Case, 3 Bland, 99 ; Mayor of Colchester v. Lawton, 1 Ves. & B. 336. Cf. Kean v. John- son, 9 N. J. Eq. 401 ; Mobile &c. E. Co. V. State, 29 Ala. 373 ; Wilson v. Miers, 10 C. B. N. S. 348. Contra, Curien v. Santini, 16 La. Ann. 27; Polar Star Lodge v. Polar Star Lodge, 16 La. Ann. 53; Barry v. Broach, (1888) 65 Miss. 450. Minority stock- holders can not make a surrender. Denike v. New York &o. Co., 80 N. Y. 599. g 781.J DISSOLUTION AND EEOBGANIZATION. 1219 time.^ A private corporation may be dissolved by the stock- holders without the consent of the State.^ And a voluntary winding up by the majorit}' will not be interfered with by the courts except when the interests of the minority stockhold- ers demand it.' The consent of the State is necessary, how- ever, to an attempted voluntary dissolution by a corporation the condition of whose charter is the performance of certain ianctiorts, and the rendering of certain services of a public nature, such as a telegraph or railway company; and, except in cases in which the continuation of the corporate business q,nd existence would result in failure and insolvency, a purely voluntary dissolution is not allowed.* And there is a liae of cases holding even with respect to private companies that there must be an acceptance of the surrender by the State.' 1 Barton v. Enterprise Loan & Build. Assoc, (1887) 114 Ind. 326; S. C. 5 Am. St. Rep. 608; Polar Star Lodge V. Polar Star Lodge, (1861) 10 La. Ann. 53. 2 Merchants' & Planters' Line v. Wagner, 71 Ala. 581; HoUingshead V. Woodward, 107 N. Y. 96; Briggs V. Penniman, 8 Cow. 387; Slee v. Bloom, 19 Johns. 456 ; Bradt v. Bene- dict, 17 N. Y. 96; Bruce v. Piatt, 80 N. Y. 379. 3 In rn Beaujolais Wine Co., L. R. 3 Ch. 15; In re London &c. Dis- count Co., L. R. 1 Eq. 277; People v. Hektograph Co., 10 Abb. New Cas. 358; Booth v. Bunce, 33 N. Y. 139; S. c. 88 Am., Dec. 372; Tread well u. SaUsH»-.y Manuf. Co., 7 Gray, 393; Hodges V. New England Screw Co., 1 R. I. 347. Cf. White Mountains R. Co. »i White Mountains &c. R. Co., 50 N. H. 50; Rorke v. Thomas, 56 N. Y. 559- Barclay v. Quicksilver Mining Co., 9 Abb. Pr. N. S. 383; S, C. 6 Lans. 35; Bronson v. La Crosse Ry. Co., 3 Wall. 283; Young ■ Vi Moses, 53 Ga. 638; Talbot v. Scrips, 31 Mich. 268. . Oglebay, 25 W. Va! 36, 45; « Bruce v. Piatt,, 80 N. Y. 879; Boston &c. Manufactory v. Langdon, Knowlton v. Ackley, 8 Cush. 93 ; 24 Pick. 49; s. C. 35 Am. Dec. 393; Curry v. Woodward, 53 Ala. 375; Philips V. Wickhatn, 1 Paige, 590, Brownu. Union Ins. Co., 3 La. Ann. 596; Russell w.McLellan, 14 Pick. 63; 177; "Just and Equitable Causes Evarts u. Killingworth Manuf. Co., for Winding-up," 73 L. T. 174. 20 Conn. 447 ; Hoboken &o. Assoc, u. »Terhune u Midland R. Co., 38 Martin, 13 N. J. Eq. 427 ; Muscatine N. J. Eq. 428. Turn Verein v. Funck, 18 Iowa, 469, , 8 j?i re Norwood, 33 Hun, (N. Y.) i72. , 196;Saltma^sh^•. Planters' &c. Bank, 2 State V. Barron, 58 N. H. 870. 17 Ala. 761; Bank of Louisiana v. See State v, VinCerines University, 5 Wilson, 19 La. Ann. 1 ; Mianxi Ex- Ind. SO. porting Co. v. Gano, 18 Ohio, 269; § 785.] DISSOLUTION AND EEOEGANIZATION. 1225 cess issued after it ceased to exist are of no validity, and may be impeached by a party interested in the administration of its assets.^ But a Missouri corporation having real estate in Illinois was sued in the latter State, and the real estate at- tached. Afterwards the corporation was dissolved, and its affairs put into the hands of a receiver in Missouri, and it was held that the suit would not thereby be defeated, especially as the decree dissolving the corporation provided that suits might be brought and defended in the name of the corpora- tion.2 The several statutes relating to the dissolution and winding up of corporations generally provide, however, for a continuance of the capacity to sue and be sued so that their assets may be collected and claims against them may be en- forced.' And receivers are sometimes appointed for this pur- pose.* A private business corporation which fails to wind up pity Iris. Co. V. Commeroial Bank, 68111. 348,354; Greeley v. Smith, 3 Story, C. C. 657 ; Ingraham v. Terry, 11 Humph. 573; Carey i;. Giles, 10 Ga. 9 ; Merrill v. Suffolk Bank, 31 Me. 57; s. c. 50 Am. Deo. 649. ' Dobson V. Simonton, 86 N. O. 493; Merrill v. Suffolk Bank, 31 Me. 57. 2 Life Association of America v. Fassett, 103 111. 815. 3 Foster v. Essex Bank, 16 Mass, 245 ; Merrill v. Suffolk Bank, 31 Me. 57 ; S. C. 50 Am. Dec. 649 ; Miller v. Newburg Orrel Coal Co., (1889) 31 W_. Va. 836; Crease v. Babcock, 10 Met. 525, 567; Golger v. Chase, 18 Pick. 63; Tuscaloosa &c. Assoc, v. Green, 48 Ala. 346; Thornton v. Marginal Freight Ry. Co. . 123 Mass. 83 ; Mariners' Bank v. Sewall, 30 Me. 320; Franklin Bank v. Cooper, 36 Me. 179; Stetson v. City Bank, 13 Ohio St. 577 ; Muscatine Turn Verein V. Funok, 18 Iowa, 469; 1 How. Stat. (Mich.) 1344, §4867; McGoontJ. Scales, 9 Wdll.-23; In re Independ- ent Ins. Co., 1 Holmes, 103; Mason V. Pewabic Mining Co., 25 Fed. Rep. 883 ; Nevitt v. Bank, of Port Gibson, 14 Miss. 518 ; Van Glahn v. De Ros- set, 81 N. C. 467; Michigan State Bank v. Gardner, 15 Gray, 363 ; Blake V. Portsmouth &c. R. Co., 39 N. H. 435; Herron v. Vance, 17 Ind. 595. In West Virginia it is said that at common law, when a corporation ceased to exist by expiration of its charter, or by its dissolution by a forfeiture of its charter, judicially ascertained and declared, or in any other manner, all suits for or against it abated. But this is not now the law; the common law on this sub- ject having betin repealed by statute. A suit by or against a private corpo- ration can not be abated or dismissed because the corporation has been dis- solved by a forfeiture of its charter, so judicially ascertained or declared, or by its dissolution in any other manner. Greenbrier Lumber Co. v. Ward, (W. Va. 1887) 3 S. E. Rep. 237.< *Lothrop V. Stedman, 18 Blatchf. 134, 143; Owen v. Smith, 31 Barb. 641; Van Glahn v. De Rosset-, 81 N. C. 467; Life Assoc, v. Fassett, 103 III. 315, where it was said that if the corporation were to be regarded as really defunct, so as to defeat the 1226 DISSOLUTION AND EEOEGANIZATION. [§§ 7^6, 787. its business when its charter expires, but continues in its char- ter name to carry on its corporate business, may be sued in its' corporate name for a tort committed by it after the expira- tion of its charter;^ § 786. Receivers for dissolved corporations. — The mere fact that a corporation has been dissolved, does not in every instance give the minority stockholders the right to have a receiver appointed and the assets sold, as there may be cir- cumstances which will justify a court of equity in ascertaining the value of the assets without a sale, and in making a dis- tribution to the members on that basis.^ When directors and oflBcers of the defunct corporation are, by statute, made trust- ees of the assets for the benefit of creditors, as is the case in some States,^ the business of settling its affairs can not be taken from them and put into a receiver's hands unless there has been fraud on their part.* When a receiver has been apr pointed, the title to all the company's property vests in him as trustee for the benefit of creditors and stockholders.' § 787. Survival of choses in action^ etc. — Debts due the corporation, franchises and choses in action, are, not deStro^'ed by a dissolution and may be enforced and utilized for the benefit of those interested ; ' although the corporation may not suit against it, a writ of error brought §§ 19, 20 ; Central Gity Savings Bank with that purpose would have to be v. Waller, 66 N. Y'. 424, 428; Froth- dismissed, if brought in the name of ingham v. Barney, 6 Hun, 366, 372 ; the corporation, as, if defunct, the JTowar v. Hale, 46 Barb. 361, 365; vfvit should be prosecuted in the re- Paola Town Co. v. Krutz, 22 Kan. ceiver's name. 738. See Bhss v. Matteson, 45 1 Miller v. Newburg Orrel Coal Co., N. Y. 32. (1889) 31 W. Va. 836, holding also * Follett v. Field, 30 La. Ann. 161. that iu such a case a plea that the ^ Bacon v. Robertson, 18 How. charter of the corporation had ex- 480; Heath v. Barmore, 50 N. Y. pired, and that it had ceased to exist 303; Owen v. Smith, 31 Barb. 641; in law at the time the alleged cause Towar v. Hale, 46 Barb. 361 ; Life of action arose, will be held bad, be- Assoc, v. Fassett, 103 111. 315, 323; cause it does not also aver that the People v. College of California, 38 corporation had wound up its busi- Cal. 160. ness and ceased to exist in fact as * Greenwood u. Union Freight Co., well as in law. 105 U. S. 13 ; Peoples. O'Brien, (1888) 2 Baltimore &c. R. Co, w Cannon, 111 N. Y. 1; Read v. Frankfort (Md. 1890) 8 Ry. & Corp. L. J. 358. Bal k, 23 Me. 318. Cf. People v. 8 E. g. N. Y. Laws of 1890, oh. 563, National Trust Co., 83 N. Y. 383; § 788.] DISSOLUTIOH^ AND EEOEGANIZATION. 1227 sue in its own name.' Thus tiie property of a religious corpo- ration, dissolved by reason of the expiration of its charter, vests in its members, who may reincorporate; and the new corpo- ration may sue for breach of a condition relating to the premises, especially where it has been in possession and man- aged the property without objection for many years.^ So a franchise to construct and maintain a street railway, which is not a mere, license but an indestructible legislative authority and property in the highest sense of the term, upon the disso- lution of the corporation holding it, becomes vested in the directors then in office or those having control of the business of the corporation, in trust for creditors and stockholders.' A lease to a corporation is not terminated by its dissolution.* §788. Enforcement of creditors' claims after dissolu- tion. — Equity will enforce collection of a corporation's debts alter dissolution and after the expiration of the time within which a suit at law should have been brought.^ The doctrine that the capital stock and assets of a corporation constitute a trust fund for the benefit of creditors is especially applicable to insolvent and dissolved corporations, and has been gen- erally recognized in this country, except in a comparative!}'' few instances in which the English rule that the property in "Effect of Winding-Up on a Com- Pac. Rep. 35, De France, C, dissent- pany's Contracts," 50 L. T. 393. ing. 1 Bank of Louisiana v. Wilsonj 19 * People v. National Trust Co., 83 La. Ann. 1. Of. Greely v. Smith, 3 If. Y. 383. For a full discussion of Story, 657. this subject see note to People v. 2 Congregation of the Roman Cath- O'Brien, 7 Am. St. Rep. 717. olio Church v. Texas & P. Ry. Co., 5 Howe v. Robinson, 30 Fla. 352. (1890) 41 Fed. Rep. 564. Cf. Effect of Winding-up on a, Com- '■> Peiiple v: O'Brien, (1888) 111 pany's Contracts, 50 L. T. 293. See, N. T I. Under Gen. Stat. Colo, also, Hewett v. Hatch, 57 Vt. 16; § 340, empowering a corporation to Rundel v. Life Assoc, of America, 4 convey, its property ; and sections Woods, C. Ct. 94 ; Hampstead Build- 341, 343, by which its property, on ing Assoc, u King, 58 Md. 279 ; State dissolution, passes to its directors, Council v. Sharp, 38 N. J. Eq. 24; instead of reverting, — the right of Hibernia Fire Engine Co. v. Com- way of a ditch company does not mon wealth, 93 Pa. St. 364; People cease with the expiration of its char- v. Cohocton Stone Road, 35 Hun, 13; ter, but, having previously been con- Life Assoc, of America v. Fassett, veyed, its grantee may thereafter 102 111. 315. But see Gray v.' Na- continue the use of the same, tional S. 8. Co., 115 U. S. 116, as to Bailey f. Platte &c. Co., (Colo.) 31 claims for personal injuries. 1228 DISSOLUTION AND EEOBGANIZATION. [§ 788. such a case reverts to the king or to the original grantors, was upheld. It is a rule well settled and generally observed that the death of a corporation leaves unimpaired the rights of creditors to its property in payment of their debts," in whatever manner the dissolution may have been brought about.^ Thus the fact that a corporation has been ousted by a judgment in quo warranto proceedings^, does not affect the right of the creditors nor the liability of the stockholders.' Where, on the dissolution of an insurance company, the re- ceiver reported the total indebtedness of the company, all the premium notes held by it, the losses and expenses, and the percentage of assessments each class of notes was liable for, and the court decreed an assessment, to be made on each class in a specific amount, it was held, in a suit to recover the as- sessment, that the policy-holder was bound by this decree.* Where a decree directing that the debts of a corporation are to be paid by the del;endant stockholders in certain, pro- 1 Greenwood v. Union Freight Co., 105 U. S. 13; Terrett v. Taylor, 9 Cranch, 43; Fisk v. Union Pacific R. Co., 1 Blatcii.- 518; Tinkham v. Borst, 31 Barb. 407; Curran v. Ar- kansas, 15 How. 304; Mumma v. Po- tomac Co., 8 Pet. 281; Life Assoc. ■;;. Fassett, 102 ill. 315, 323; McCoy t. Farmer, 65 Mo. 244. In an action to dissolve a, manufacturing corpora- tion, tHe referee, in pursuance of 3 N. Y. Eev. Stat. , 469, § 73, reported that two stockholders had assets in their hands which, so far as was necessary to pay debts and produce equality of distribution, they had no light to retain, whereto no excep- tions were filed; the receiver, in- stead of entering final judgment thereon, made up his account and filed a petition reporting the precise amount they should pay, and pray- ing they be adjudged to pay accord- ingly; a copy whereof wai served on them, and they appeared and had full opportunity to be heard; and it was held that the irregularity was no ground for reversal of the judgment against them. People v. Hydrostatic Paper Co., 88 N. Y. 623. 2 Rowland v. Meader Furniture Co., (1883) 38 Ohio St. 269; McCoy «). Farmer, 65 Mo. 244 ; Howe v. Robin- son, 20 Fla. 352; Thornton v. Mar- ginal Freight Ry. Co., 123 Mass. 32; Blake v. Portsmouth &c. R. Co., 39 N. H. 435; Lum v. Robertson, 6 Wall. 277; Bacon v: Robertson, 18 How. 480. Of. McGoon v. Scales, 9 Wall. 23; Robinson V. Lane, 19 Ga. 337; Fox v. Horah, 1 Ired. Eq. 358; S. C. 36 Am. Dec. 48 ; Mallo^y v. Mal- lett, 6 Jones Eq. 345 ; Port Gibson v. Moore, 21 Miss. 157; Bank of Missis- sippi V. Duncan, 56 Miss. 166, 173. See, however, Erie &c. R. Co. v, Casey, 26 Pa. St. 387 ; Colchester v. Seaber, 3 Burr. 1866 ; Commercial Bank v. Lockwoo'd, 2 Havr. (Del.) 8. 3 Rowland v. Meader Furniture Co., (1883) 38 Ohio St. 269. * Lycoming Fire Ins. Co. v. Lang- ley, 62 Md. 1^6. § 789.] DISSOLUTION AND EEOEGANIZATION. 1229 portions, is reversed on appeal by some of the defendants,^ so as to make it necessary to find a different amount of indebt- edness, the reversal vacates the decree even as to a defendant who did not appeal.' § 789. Distribution of assets among shareholders.— Upon the dissolution of a company, whether by repeal of its charter,- or by forfeiture or insolvency or any other means, the stock- holders are entitled to share in the surplus assets remaining after the claims of creditors have been satisfied, in proportion to the amounts contributed by them to the capital stock.' In the case of building associations, after creditors' claims and the expenses incident to the administration of the assets have been paid, the residue is to be distributed among those whose claims are based on the stock of the association, whether they have withdrawn and hold orders for the withdrawal value of their stock or not.* After dissolution the corporate property is to be treated as partnership assets and divided accordingly.' And directors who conduct the business of the corporation after expiration of its charter, without attempting to wind it up, may be required to account in a proceeding by stockholders 1 Ailing V. Ward, (111. 1890) 8 Ey. & Gray, 501 ; Hart v. Boston &c. E. Corp. L. J. 124. Co., 40 Conn. 524; Graham u. Boston -2 Lothrop V. Stednian, 13 'Blatoh. &c. E. Co., 118 U. S. 161 ; Covington 134. &c. Bridge Co. v. Mayer, 31 Ohio St. 3 Krebs v. Cai^lisle Bank, 2 Wall. 319, 325 ; McGregor v. Home ^ Ins. C. C. 33; Shorb v. Beaudry, 56 Cal. Co., 33 N. J. Eq. 181; In re London 446; McVickeri;. Ross, 55 Barb. 347; &c. Co., L. E. 5 Eq, 519. But see Taylor?;. Earl, 8 Hun, 1; Frothing- Griffith v. Paget, 6 Ch. Div. 511 ham! ?;. Barney, 6 Hun, 366 ; J?i re Bangor.&c. Co., L. E. 20 Eq. 59. Of. BridgewaterNav. Co.,(Ch.[Div. 1887) Thornton v. Marginal Freight Ey 3 Ey. & Corp. L. J. 591; Fesh v. Ne- Co., 123 Mass. 32; Nathan v. Whit braska City &o. Co., 25 Fed. Rep. lock, 9 Paige, 152; Lea u American 795; Wood v. Dummer, 3 Mason, Atlantic &c. Canal Co., 3 Abb. Pr, 308, 322; Burrall«. Bush wick E. Co., k S. 1; Curren v. State, 15 How 75 N. Y. 211 ; Heath v. Barmore, 50 304, 307; Hastings v. Drew, 76 N. Y N. Y. 303; Dudley ii. Price, 10 B. 9, affirming s. c. 50 How. Pr. 254 Mon. 84; James v. Woodruff, 10 Wilde f. Jenkins, 4 Paige, 481 ; Ap Paige, 541 ; s. o. affirmed, 3 Denio, peal of Huston, (Pa. 1889) 18 Atlan, 574; Bank of Commerce's Appeal, Eep. 4l9. 73Pa. St. 59; Chappell's Case, L. E. * Cliristian's Appeal, 103 Pa. St, 6 Ch. 902 ; Callanan v. Edwards, 33 184. N. Y. 483; Sewall v. Chamberlain, 16 s Shorb v. Beaudry, 56 Cal. 446. 1230 DISSOLUTION AND EEOEGANIZATION. [§ 790. to wind up the affairs of the corporation.' A majoritj'^ of the shareholders have no right to buy in the property at an unfair valuation to the prejudice of the minority; and where they have done so, equity will grant them no relief for losses in- curred in the transaction.^ § 790. Eeversion and escheat of property to grantor jmA to the State. — At common law upon the dissolution of a cor- poration, its debts were extinguished, its real estate reverted to the grantor and its personalty escheated to the sovereign.' "While this has long ceased to be the law with respect to pri- vate companies having capital stock, there are a few modern decisions in which, with some modification, the old rule has been applied to railway and canal fcompanies and to eleemosyr nary corporations.* Thus in a late case it was held that upon 1 Mason /y. Pewabio Mining Co., (1890) 133 U. S. 50; s. c. 7 Ey. & Corp. L. J. 252. Cf. Young v. Moses, 53 Ga. 638. ^Ervinu Oregon Ry. & Nav. Co., 27 Fed. Rep. 625; s. 0. 28 Fed. Rep. 833. In tliis case tlie owners of a majority of the stock of a corpora- tion, under the form of dissolving it and disposing of its property and dis- tributing the proceeds, became the purchasers of the property at an un- fair price, through a new corpora- tion, in which they were stockhold- era, to the exclusion of the minority shareholders in the old corporation. In a suit in equity by the latter against the new corporation it was held that they had no eijui table lien to the extent of the moneys of which they had been Tieprived by the sale on the property of the old corporation in the hands of the new corporation. 3 Hightower v. Thornton, 8 Ga. 486 ; S. C. 53 Am. Dec. 413 ; Fox v. Horah, 1 Ired. Eq. 358 ; S. C. 36 Am. Deo. 48 ; State Bank v. State, 1 Blaekf . (Ind.) 267; s. c. 12 Am. Dee. 234; Coulter V. Robertson, 24 Miss. 378; S. C. 57 Am. ,Dec. 168 ; Bingham v. Weiderwax, 1 N. Y. 509; Owen v. Smith, 31 Barb. 641 ; Life Assoc, v. Fassett, 103 111. 315 ; Malloy v. Mal- lett, 6 Jones' Eq. (N. C.) 345; State V. Rives, 5 Ired. 297; White?;. Camp- bell, 5 Humph. 88; Commercial Bank V. Lockwoord, SHarr. (Del.) 8; Miami &c. Co. V. Gano, 13 Ohio St. 269; Lum V. Eertson, 6 Wall. 277; Cur- ran V. State, 15 How. 304; King v. London, 8 Howell's State Trials, 108T; Attorney-General v. Lord Gowes, 9 Mod. 224; King v. Pasmore, 3 Term Rep. 199 ; Port Gibson v. Moore, 31 Miss. 157. < Coulter V. Robertson, 34 Miss. 278; s. c. 57 Am. Dec. 168; Bank of Mississippi v. Duncan, 56 Miss. 166 ; St. Philip's Church v. Zion &c Church, 23 S. C. 297; Hopkins v. Whitesides, 1 Head, 31; Aoklin v. Paschal, 48 Tex. 147. But see Erie &c.^R. Co. v. Casey, 36 Pa. St. 387, and State v. Rives, 5 Ired. 297. In New 'York land taken for the construction of canals and park purposes reverts to the State. Rex- iford V. Knight, 11 N. Y. 308, affirm- ing s. c. 15 Barb.' 637. Cf. Common- wealth V. Fisher, 1 Pen. & W. (Pa. § 791.] DISSOLUTION AND EEOEGANIZATION. 1231 the dissolution of a theological seminary, having no debts and no stockholders, the title to its lands reveHed to the original owner.' And in the recent case of the Mormon church it, was held that upon its dissolution, its personal property vested in the federal government to be applied under the doctrine of cy pres to some kindred object, and that its realty, in excess of fifty thousand dollars in value, escheated to the United States.^ But where the charter of a religious corporation being about to expire, due application for a renewal was made, but, with- out the fault of the corporation, there was a delay in granting the renewal, it was held that when granted it related back so as to prevent a reverter of property.' § 791. Reorganization. — The reorganization of a corpora- tion is brouglrt about by the formation of a new corporation which, by one means or another, comes into possession of the property and franchises of the old corporation and continues Eep.) 462; Plitt v. Cox, 43 Pa. St. 486; De Varaigne v. Fox, 3 Blatchf. 95 ; Brooklyn Park Commissioners v. Armstrong, 45 N. Y. 234; S. C. 6 Am.. Rep. 70, reversing s. C. 3 Lans. 429 ; Heyward v. City of New York, 7 N. Y. 314; Dingley v. City of Boston, 100 Mass. 544; Haldeman v. Penn- sylvania R. Co., 50 Pa. St. 425. 1 Mott V. Danville Seminary, 129 111. 403. 3 Late Corporation of the Church of Jesus Christ v. United States, (1890) 136 U. S. 1, holding that con- gress has plenary and supreme legis- lative power over the territories of the United States and their inhabitants ; and Act Cong. Feb. 19, 1887, § 19, (Acts 1885-87, p. 638) abrogating the charter of the Church of Jesus Christ of Latter-Day Saints, granted by the legislature of Utah January 19, 1855, and dissolving the corporation, was a valid exercise of that power, and the corporation has ceased to have any existence as a civil body. Act Cong. July 1, 1862, provided that ijo religious or charitable corporation in the territories should hold real estate exceeding |50,000 in value, and that all real estate held by any such cor- poration contrary to the act should escheat to the United States. The title of all the real estate acquired by that corporation in Salt Lake City remained in the United States as part of the public domain until November 21, 1871, when it was entered by the mayor of the city under Act Cong. March 2, 1867, known as the "Town- Site Act." And it was held that on the dissolution of the corporation all of its real estate in such city ex- cept a block used for public pur- poses, reverted to the United States. The fact that all the property of the corporation was held by Indi- viduals in trust for the corporation did not prevent the title "from es- cheating according to the intent of the acts. Mormon Church Vf United States, (1890) 136 U. S. 1. 3 St. Phillip's Church v. Zion Pres- byterian Church, 38 S. C. 297. 1^32 DISSOLUTION AND EEOEGANIZATION. [§ 791. its business, it may be o'ti a new basis.' The transfer of the corporate property* and business to other control upon the ex- piration of the corporation by lapse of time, or the renew£(,l of the charter of the deceased corporation,^ or the consolidation of two or more corporatioiis which ma)' unite in a new com- panj' or undergo absorption by an existing corporation, are loosely spoken of as reorganization. None of these, however, are reorganization in its strictly legal sense.' The term " reor- ganization," in corporation law, has a technicalmeaning, and is applied to the measures taken, after corporate insolvency, to preserve and. re-adjust the interests of the stockholders and the mortgage creditors,* which measures are usually precipi- tated by the foreclosure of the mortgage resting upon the property, and may either precede, accompany or follow the decree of foreclosure and sale.' Where, upon the insolvency of a corporation and default upon its mortgage obligatioris, the mortgagees undertake to realize their security and pro- ceed to a decree of foreclosure and sale, the purchasers at the sale become the owners of the property, and may either form a new company or may transfer the property to an existing organization." By this means the rights and interests of the old stockholders are disposed of,' unless they come to some understanding with the mortgagees as to their future status) before the decree of foreclosure. This they are generally able to accomplish, for, by means of injunctions, demurrers, cross-bills, motions, commissions to take testimony and vari- ous other weapons^ they have the power to embarrass the progress of the foreclosure proceedings to such an extent that the bondholders willingly embrace the opportunity for nego- tiation which results in a plan for reorganization in which all interests are recdgnized.^ Where there has been a com- plete and valid reorganization it will not be opened or dis- 1 1 Ry. & Corp. L. J. 97. 5 Canada Southern Ry. Co. v. Geb- 2 2 Morawetz on Private Corpora- hard, 109 U. S. 509. tions. 6 People v. Brooklyn &o. Ry. Co., 3 Vide siipra. Chapter XVII. See 89 N. Y. 75. Cf. Acres v. Moyne, 59 Reilly v. Oglesby, 33 W. Va. 36; Tex. 633, 625 ; Wellsborough &o. Co. Banks v. Judah, 8 Conn. 145 ; San v. Griffin, 57 Pai St. 417. Francisco &c. R. Co. v. Bee, 48 Cal. 'Thornton v. )Vabash Ry. Co., 81 398. N. Y. 463. 4 1 Ry. & Corp. L, J. 97. ^ Jones on Railroad Securities, § 791.J niSSOLBTION AND EEOEGANIZATION. 1233 turbed, the rights of all parties having.been properly adjusted;^ and it has been held 'that stockholders' are chargeable with' notice of the existence of the law and with the general feat- ures of the scheme of reorganization, and can not maintain an action to be allowed to participate after the expiration of the time within which they should have come in.^ In New York the time is limited by statute to six months.' Bondholders who had an opportunity to purchase and neglected to do so,* or who, with notice of the facts, have approved a plan of re- organization,', or who surrender their bonds to the trustees, taking stock and bonds, in pursuance of a plan for foreclosure and sale, ia order to form a new company, can not, in the ab- sence of fraud, be heard to interpose any objection to the proceedings.^ The bare fact that some of the trustees are holders of bonds secured by their trust, is not sufficient of § 614. Ordinary foreclosure, -with- out the intervention of these ami- cable methods, is "destructive of vast pecuniary interests, harsh to junior lienors, and inconsistent with the public right to have a highway continuously operated. Those who are subordinate to the first lien have opposed it bitterly, since they earn- estly believe their expectations to be of the nature of a vested interest, which should not be interfered with so long as they are willing to bear some sacrifices for the realization of those expectations. ' Almost. end- less and Titanic litigations have been the result. Courts have leaned against the strict forfeiture of equi- ties of redemption forever cutting off such contingent but vast pecun- iary interests." . . . "' The ab- solute right of foreclosure, while ad- mitted in theory, is made so difficult of accomplishment in practice that it amounts almost to a denial of a contract obligation of the railway- mortgagors. Therefore there is a semi-enforced acquiescence by first mortgagees in almost every case where the junior lienors and stock- . 78 ' holders exhibit any willingness to place, by assessment on their own holdings, the property in proper re- pair and efiicient condition ; adding thereby to the security of the first lien, and either paying or funding the defaulted: interest " on prior, liens.'' "Railway Reorganization," by Simon Sterne, (Sep. 1890) 10 Forum, 37. Cf. "Arrangements in Connection with Insolvent Com- nies," 57 L. T. 76 ; Robinson v. Phila- delphia &c. R. Co., 28 Fed. Rep. 340 ; Ricker v. Alsop, 37 Fed. Rep. 351, 1 Matthews v. Murchison, 15 Fed. Rep. 691;.Wetmore v. St. Paul &c. R. Co., 5 Dill. 531. Bondholders, who have assented to the plan, in order to obtain new bonds, must de- liver up the old ones before the pur- chase at the foreclosure sale. Car- penter V. Catlin, 44 Barb. 75. 2Vatable v. New York &c. R. Co., 96 N. Y. 49. 3N. Y, Laws of 1890, ch. 564. J Credit Co. v. Arkansas Central E. Co., 15 Fed. Rep. 46. 5 Matthews v. Murchison, 15 Fed. Rep. 691. liCrawshay v. Soutter, 6 Wall. 789. 1234 DISSOLUTION AND KEOEGANIZATION. ' [§ 792. itself to make them incompetent to consent to a decree of foreclosure embodying a plan for reorganization.^ §793. Method of effecting reorganization — Statutory regulations. — The purchasers of corporate property upon a foreclosure sale are vested with rights in the property which are absolute as against the corporation and stockholders,, all of whose interests are thereby barred ; ^ but the conflicting in- terests are usually compromised for the reasons stated in the preceding section, under a plan or scheme of reorganization which is in many States regulated by statute. In liTew York there are a , number of statutes prescribing methods of reor- ganization.^ The New York , Stock Corporation Law of 1890 provides that at or prior to the sale, the purchasers, or the persons, for whom the purchase is to be made,, may make an agreement for the adjustinent of the interests of the mort- gage creditors and the stockholders for a representation of the interests in the new corporation, and may make regula- tions with respect to voting by the stockholders and bond- holders. The plan must be consistent with the laws of the State, and is binding upon the corporation until changed as provided therein, or as otherwise provided by law. Bonds and stock may be issued in accordance with the plan, in the new corporation, which may, at any time within six months after its organiization, settle any debts of the old corporation upon such terms as may be approved by the trustees or agents 1 Shaw V. Little' Eock &c. R. Co., to a certain percentage of the cap- (1879) 100 U. S. 605. ital stock, subsequent to the forma- 2 Vatable v. New York &c. R, Co., tion of the insolvent company, ap- 96 N. Y. 56. plies to a corporation formed by the 3 N. Y. Laws of 1850, ch. 140, § 5, purchasers at a foreclosure sale, as amended by N. Y. Laws of 1854, (People v. Cook, 110 N. Y. 443) for ch. 283, and by N. Y. Laws of 1874, it is held that statutes authorizing ch. 430; "The Stock Corporations the mortgaging of corporate prop- Law of 1890," N. Y. Laws of 1890, erty do not constitute a contract on ch. 564, §§ 1-7; Fratt v. Munson, the pai't of the State with the mort- 84 N. Y. 583. The fee for incorpo- gagors that the act providing for ration must be paid in the case of a the incorporation of purchasers at a corporation so organized as if it were mortgage sale will not be altered, originally formed. People «. Cook, Memphis &c. R. Co. v. Commission- 110 N. Y. 443. And the passage of ers, 113 U. S. 609. See also Beach an act requiring the payment, upon on Railways, § 766. incorporation, of a tax amounting § 793.] DissoLUTio]Sr asd eeobganization. 1235 intrusted with the execution of the plan of reorganization. Stockholders in the old corporation may assent to the plan at any time within six months after the formation of the new company, and, upon complying with the terms of the plan, may become entitled to their share of the benefits.' Similar statutes exist in other States.^ Special acts are also sometimes passed incorporating the purchasers of corporate property at a foreclosure sale.' § 793. Obligations and rights of the parties to the re- organization agreement. — The agreement usually provides that stockholders of the old corporation may have stock in' the new one upon certain conditions, such as the surrender of two shares of_ stock for one, or submitting to an assess- ment upon their stock for reorganization purposes. A certain time is given them to signify their acceptance of the condi- tions; * andjif they neglect to do so within the required time they lose their rights and the courts can give no relief,^ for the new corporation can not be forced to admit them. The only remedy left is to impeach the foreclosure proceedings.^ All the provisions of the reorganization agreement must be strictly carried out bj' the parties.' A committee, therefore, appointed to receive and disburse subscriptions for the pur- 1 N. Y. Laws of ,1890, ch. 564, § 3. the present constitution was adopted, 2 Ohio Eev. Stat. (1880) §§ 339a et even though they thereby receive seg.; Indiana Rev. Stat. (1881)^^3945 both- stock and bonds in a large ?i seg. The provision ,of the Arkan- amount, of which the amount of sas Constitution (Ark. Const. 1874, the stock alone is sufficient to cover art. xii) that "no private corporation the full value of the property, riglits shall issue stock or bonds except for and privileges of the reorganized money or property actually received, company. Memphis & Little Rock and all fictitious increase of stock or E. Go. v. Dow, 130 TJ. S. 287. indebtedness shall be void," has been ^ "Wilmington &c. R. Co. v. Down-' held not to prohibit mortgage bond- ward, (Del. 1888) 4 Ry. & Corp. L. J. holders, . who buy in the property 330. and franchise of a corporation upon * N. Y. Laws of 1890, ch. 564. foreclosure sale under their mort- ^ Yatable v. New York &c. R. Co., I gage, from declaring upon what 96 N. Y. 57. terms they will surrender those in- * Vatable v. New York &c. R. Co., terests, and it is competent for them 96 N. Y. 57 ; Thornton v. Wabash Ry. to reorganize on substantially the Co.. (1880) 81 N. Y. 463; Vanalstyne same basis, with regard to capital v. Houston &c. R. Co., 56 Tex. 377. stock and bonded indebtedness, as ^Miller v. Rutland &c. R, Co., 40 that of the old corporation before Vt. 399. i23e DlSSOtUTION- AND. BEOESAiNIZATmif.* [§ T93. pose of effecting a consolidation' of^ certain railroad' com- panies, and extending the lines, may be ■ required to account to the subscribers for the amount' so received, and it is im- material whether or not they were originally trustees, or were legally appointed.^ Fraud on the part of the promoters of a reorganization scheme, secret agreements and the like, con- stitutb a wrong for which equity will grant relief.^ Apd it has been held that even where a sale is authorized by the majority of , the stockholders, it may be set aside;' and the minority shareholders are not bound by a reorganization scheme ' of the majority whereby the property is to be trans- ferred to the new company at a valuation fixed by the major- ity, unless it be shown that no more could be obtained at a cash sale at auction.* A minority of the bondholders secured, by a mortgage have no right to enter into -an agreement to purchase the railroad and, mortgaged property at the lowest possible price, for the exclusive benefit of the parties to the agreement, with jqo reference to the other bondholders.' Those 1 Gould V. Seney, (N. Y. Sup. Ct. 1890) 5 N. Y. Supl. 928 ; s. 0. 9 id. 818. In this case a cousoUdation of three railroad companies was proposed, the necessary funds to be raised by sub- scriptions of the stockholders of the several companies. It was doubtful whether one of the companies (the E. & A.) could obtain legislative consent to enter the combination, but it was arranged that the other two should combine at all events, and the subscribers were aware of this. The first call under the sub- scription stated that it was' for the extension of one of the two roads whose consolidation was definitely arranged for, and for ," other pur- poses." Afterwards the entire fund was paid ih. A committee was ap- pointed, after the first installment was paid, to receive and disburse the fund. After this the ccinsolidated agreement was filed. It was held that a loan by the committee to the E. & A. Company, for the purpose of completing its line of railroad, to be re-paid in case the agreement should not become operative as to that com- pany, was a misappropriation of the fund, for which they became lia- ble to account to the subscribers upon the legislature refusing to con- sent to the company entering the combination; but that the share- holders could not, at the time of compelling the accounting, insist that the committee should also ac- count for bonds taken as collateral for the loan. 2 Cf. Ex parte White, 3 S. C. 469; Bliss V. Matteson, 45 N. Y. 22. SEeilly v. Oglesby, (1884; 25 W. Va. 36. Though when they act 'in good faith and take no improper ad- vantage of their co-stockholders or other interests, a purchase of them will be ratified. Carter v. Ford &c. Co., 85 Ind. 180. * Mason v. Pewabic Min. Co., 25 Fed. Eep. 883. s Jackson v. Ludeling, 31 Wall. 616. :§ 794:.] DISSOLUTION AND EEOEGANIZATION. 1237 who hold fiduciary positions in the corporation can not ac- quire the corporate property in a manner adverse to the inter- ests of their cestuis que trustent, and can not become the pur- chasers of the property directly or indirectly at a foreclosure sale, nor participate in an arrangement to obtain the corpo- rate property at the lowest possible figure.^ But where a mortgage of a railroad contained a covenant that the trustee named therein should, at a request of a majority of the bond- holders, purchase the premises at a sale thereunder, for the benefit of the bondholders, and organize a new company, it was held to be proper to decree, on a foreclosure of the mort- gage, that the trustee should be authorized and directed to bid at the sale, as trustee for first-mortgage bondholders, at least the amount of the principal and interest of the first- mortgage bonds.^ § 7 94. The same subject continued.—;- When there is noth- ing in the plan proposed that is, of itself,, illegal or expressly prohibited by statute, the stockholders who are, present at the time of the discussion of its adoption and who voted for it, are thereafter estopped from attacking it on the ground that it is ultra vires, for a corporate act not prohibited by law, for the performance of which there is only want of power, may after- wards be made good by the ratification of the stockholders.' And the assignee of stockholders who voted for. the ratification of a reorganization plan can not thereafter complain that there was want of power, provided there is no legal objection.* So, also, where a plan of reorganization of a railroad company 1 Hoyle V. Plattsburgh &c. Ey. Co., Paul &c. R. Co., 1 McCrary, 301 ; s. c. (1873)54N.Y. 314; Jackson ij.Ludel- ^ Fed. Rep, 304. And the court ing, 21 Wall. 616, 635 r Munson v. may decree that any person other Syvacuse &c. R. Co„ 39 Hun, 76; than.the mortgage trustee who shall Harts i;. Brown, 77 111. 336. But see purchase the property at the sale Twin Lick Oil Co. v. Marbury, 91 U. shall make an immediate payment S. 587. in cash of a part of his bid, by way 2 gage V. Central R. Co., (1878) 99 of earnest. Sage v. Central R. Co., U. S. 334 In foreclosure proceed- 99 IT. S. 334. ings permissibn is usually granted ^Kent v. Quicksilver Mining Co., by the court to the bondholders to 78 N. Y. 186. buy in the property and pay for it *Kent v. Quicksilver Mining Co,, with their bonds. Ketchum v. Dun- 78 N. Y. 186. can, 96 U. S. 659; KrophoUer v. St. 1238 DISSOLUTION AND EEOEGANIZATION. [§ 79i. has l^een presented to and ratified by the stockholders at an annual meeting, and a majority of the stockholders have sub- scribed for stock in pursuance of the scheme, a plaintiff, who has acquired his stock since the adoption of the plan from stockholders who ' voted in favor of it, can not, where noth- ing in thfe plan is expressly prohibited by statute, insist that the plan is ultra vires, nor ask a court of equity to enjoin the officers of the corporation from doing what his predecessors, as owners, expressly authorized.' On the other hand, although, where the foreclosure proceedings have reached the stage at which a sale is had, without an agreement between bondhold- ers and stockholders, the rights, of the latter are barred, yet, if there has been an agreement, the stockholders may maintain an action for damages for a breach thereof.^ And if the trustee of the mortgage, in whose name the foreclosure pro- ceedings are had, is under contract with the bondhblders, he is- liable to them for a breach of trust in case he fails to per- form.' Where there is an agreement between the stockhold- ers of a corporation and its creditors for reorganization of the company, and the issue of new stock in lieu of the old, on condition that the old stockholders pay an assessment suffi- cient to discharge the floating debt, and another corporation is designated to make the assessment and distribute the stock, 1 HoUins V. St. Paul &c. E. Co., the company to do. Whether or (N. Y. Sup. Ct. 1890) 6 Ey. & Corp. not a preliminary injunction should L. J. 493. Upon a motion for a pre- be granted in such an action Is liminary injunction enjoining the largely in the judicial discretion of proceedings for reorganization, In- the court ; and where a single stook- graham, J., said: "I do not think holder owning a very small propor- as againpt either the corporation or tion of the stock of the corporation, the persons who relying upon the seeks tp restrain a corporation from action of the stockholder have sub- doing an act ratified by a large ma- scribed for the capital stock of the jority of the stockholders, he must new company to carry out the plan present to the court a clear legal proposed, the plaintiff can now in- riglit to the relief demanded, and sist that tl^e proposed plan is ultra show that the injunction he asks vires, or at any rate is in such a for is essential to the preservation position as to ask a court of equity of his legal rights." ■ to enjoin the officers of the corpora- 2 Marie v. Garrison, (1880) 83 N. Y. tion or the corporations defendants 14. from doing what his predecessors, 3 James t;. Cowing, (1880) 83 N. Y. as owners of 'the stock, expressly au- 449. thorized and directed the officers of f 795.J DISSOLUTION AND EEOEGANIZATION. 1239 it has no arbitrary power to fix the assessment, but is charged with a trust duty, and the stockholders may enjoin the distri- bution of the stock until the determination of their rights under the agreement.^ There is some conflict of opinion as to whether a majority of the mortgage creditors may legally bind the minority by the provisions of an agreement for reor- ganization. In a case in Connecticut this right has been up- • held.^ On the other hand, in' a more recent case in New York it was held that a scheme of reorganization can only be made effective by the consent of all the bondholders or by a fore- closure cutting off their lien ; that even a single bondholder may staijd upon his rights as stated in the contract, and that the trustees had no power to make a new one for him.' "Where, however, the mortgage provides that the majority of the bondholders should decide the terms of reorganization, the minority are, of course, bound by the contract.* § 795. Transmission of property riglits and francliises.— The purchasers acquire only such property as was covered by the mortgage; and a statute incorporating the purchasers at a foreclosure sale and vesting in them all the right, title, in- terest, property, possession, claim, and demand at law or in equity " of the corporation as whose property the same was sold," does not vest in the new company any title to a judgr ment obtained by the old company, not covered by the mort- 'Gernsheim v. Olcott, (1890) 7 by the law. The plaintiff's argu- N. Y. Sup. 873. ment treats this matter as one of 2 Gates V. Boston &c. R. Co., (1885) strict legal private right of an indi- 53 Conn. 333; Shaw v. R. Co., 100 vidual creditor against or to private U. S. 605. Cf. Canada Southern Ry. property of an individual debtor, Co. V. Gebhard, 109 U. S. 537. The instead of a claim of exceptionttl court said: "In making this claim characteruponproperty of a peculiar the plaintiff ignores, or subordinates nature, in which private rights of to his own claim, both the private others and the right of the public rights of his co-bondholders and the exist, which must be regarded and public rights vested in trust in the protected." State, while upon every true theory 3 Holiister v. Stewart, 111 N. Y. and exposition of his contract, the 644, distinguishing Canada Southern rights of the public are superior to R. Co. v. Gebhard, 109 U. S. 537, his private rights, and the rights and - cited supra. interests of his co-bondholders are ^Sage v. Central R. Co., 99 U. S. equally with hisown to be protected 334. 1240 DISSOLBTION AJSP EEOEGANIZATION. [§ 795. gage rnidei; which the property was sold. For the grant must be interpreted as having relation to what was sold and not to that which was not, and could notrhave been legally, sold; under the idecree offoreclosure.' It is upon this principle also that the purchasers are held not to acquire corporate existence ; for a corporation can not, without legislative authority, alienate or mortgage its franchise to be a corporation;^ and accordingly purchasers ^t the foreclosure sale do not acquire the franchise •of corporate entity,^ independently of statutory authority.* Other franchises, however, which are capable of alienation and ■mortgage do pass under a foreclosure sale and vest in the pur- . chasers.' In the case of 2"was^-public corporations, when such franchises as the right of eminent domain or the right to main- ftainand operate a railway are transferred by virtue of fore- closure proceedings, the purchasers take them subject to the obligations to the public which their possession imposes. " The public have an interest in the continuous user of the railroad, its franchises and corporate property, in the manner and for the purposes contemplated by the terms of the charter; and upon.principle it would seem plain that^ railroad property, once , devoted and essential to public use, must remain pledged to that use, so as to carry to full completion the purpose of its creation.^ The property of a religious corporation, dissolved by re^,son of the expiration of its charter, vests in its mem- bers, who may re-rincorporate ; and the new corporation may sue for breach of a condition relating to the premises, espe- 1 Wilmington ifeo. E. Co. v. Dowil- tiflcate mentioned, and then they •ward, (Del. 1888) 4 Ry. &Corp. L. J. obtain it by direct grant from the ■23i, 336. State, and not in any degree by the 2 Fide § 7.38, sitpra, and oases cited sale and purchase of -the franchises supra, p. 587, note 1, and p. 589, of the old corporation." note 1. *In Texas this authority is given ^Metz V. Buffalo &o. R. Co., 58 by Tex. Rev. Stat. art. .4260. Cf. N. Y. 61 ; Wellsborough ,&c. Plank Acre3 v. Mayne, 59 Tex. 625. And it ;R. Co. i;. Gtriflan, ,87Pa. St. 417;.P,eo- .has been conferred in other cases, pie V. Cook, (1888) 110 N. Y. 443, See 1 Borer on Railroads, 357, and where the court said: "The right to cases cited supra, p. 589, note 3. be a corporation, which the old cor- 5 Peoples. O'Brien, (1888) 111 N. Y. poration had, was not mortgaged 1; Marshall u. Western North Caro- and was not sold, and did not pass lina R. Co., 93 N. C. 323. to the purchasers, and they only ob- « Yates v. Boston &c. R. Co., (1885) tain such a right upon filing the cer- 53 Conn. 333. § T96.] DISSOLUTION AND KEOKGANIZATION. 1241' cially where it has been in possession and has managed the property without objection for many years.^ § 796. Liability of the new company. — The debts, liabili- ties, contracts and torts of the old company are not necessarily assumed by the purchaser.^ Thus, where a moi-tgage on the property and franchises of a corporation is foreclosed, and purchasers at the sale reorganize under the name of the original corporation, neither they nor the property become liable for its debts.' And it is held that even when it is provided by statute 1 Congregation of the Roman Cath- olic Church of the AscensiOii v. Texas & Pacific ily, Co., (1890) 41 Fed. Rep. 364; s. 0. 7 Ry. & Corp. L. J. 477. 2 St. Louis &c. R. Co. V. Miller, 43 111. 199 ; Memphis Water Co. v. Ma- ■jeus, 15 Lea, 37 ; Cook v. Detroit &c. Ry. Co., 48 Mich. 349. 3 Memphis Water Co. v. Majeus, 15 Lea, 57. A plan of reorgan- ization providing for the issue of second preferred income bonds of the new company at par (secured by a seconVi mortgage) to "the holders of the floating debt of the old company in place of their surrendered evi- dences of indebtedness, was sustained as against one of the holders of the floating debt charging that it was inequitable and seeking to have the stock of the new company provided in the agi-eement to be issued to the stockholders of the old, company, placed in the hands of a receiver and sold, and the proceeds applied to the Dayment of his claim and of such other creditors as should come in and be made parties ; the court say- ing, "it was the evident purpose of the parties to this agj-eement to place 'these floating- debt holders in at least as good a relation to the new com- pany as they bore to the old com- pany. They got for their unsecured indebtedness something which at least bears the resemblance pf ase-, curity. It was a second mortgage bond. . . . The plan adopted had what seems to have been a due and equitable regard to the intei'ests of all classes of creditors and stockholders, and it does not seem that upon the statements in this bill any injustice was intended or has been done to this creditor." Hancock v. Toledo &c. R. Co., 9 Fed. Rep. 738, 743. Where an order of court made the purchase price of rolling stock bought by its receiver a first lien "upon the mortgaged premises," although it also authorized its pay- ment out of the proceeds of sale, it was held that, there being no pro- ceeds of sale, the mortgage bond- holders having bought in the prop- erty by surrendering their bonds, the purchasers could claim to have the premises discharged from the lien.r And it was said "if the purchasers on the sale, whether bond- holders or third persons, had paid the purchase-money in cash or se- cured its payment, there would, we conceive, be no doubt that the lien would be transferred to the proceeds. There would then be a substitute for the thing sold, upon which the lien would attach, relieving the land in the hands of the purchasers. But it could not have been the intention of the court to make a constructive payment on a purchase by the mort- gagees, through a cancell'atiou-'of the 1242 DISSOLUTION AND EEOEGANIZATION. [§ 797. or by the mortgage that the stockholders of the old company may obtain an interest in the new, the latter is not thereby made liable for the former's debts.' Neither is a new com- pany formed by the purchasers at foreclosure sale liable on the contracts and torts of the former company.'^ Thus when the old company had bound itself by an agreement not to ex- tend its i-ailroad in a certain direction, the new corporation is not bound by this agreement if its charter permits the exten- sion.' ' § 797. The same subject continued. — Cases holding that the reorganized company is not liable upon the contracts and obligations of its predecessor, are usually those in which the reorganization has resulted frbm foreclosure proceedings by which all equities have been quieted; and the rule does not apply where the sale has been decreed subject to existing liens, nor where the purchasers at foreclosure sale have taken with knowledge of incumbrances;* nor does it apply where, the property of the old company has been otherwise acquired than in foreclosure proceedings. In the latter event it may still be reached by creditors of the former owner, although it has passed into the hands of a reorganized companj',^ and the new mortgage debt, equivalent to an act- * Swanson v. Wright, 110 U. S. ual payment, so as to relieve tlie 590; Williams v. Morgan, 311 U. S. property from the charge." Vilas w. 679; Vilas ?;. Page, (1887) 106 N. Y. Page, 106 N. Y. 439, 45d,,455. 439; Commonwealth «. Susquehanna 1 Sullivan v. Portland &c. R, Co., &o. R. Co., Bell's Gap p. Co. v. Common- wealth, (1890) 134 IT. a 282; City of Chester v. Commonwealth, (1890)134 U. S. 240. 2 Bell's Gap R. Co. v. Common- wealth, (1890) 134 U. S. 233; City of Chester v. Commonwealth, (1890) 134 U. S. 240; commonwealth v. Dela- ware Div. Canal Co., (1889) 133 Pa. St. 594, holding that the legislature has power to fix the face, value of corporate obligations as their value for taxing purposes ; that the tax was in the nature of a specific tax, not a tax upon actual value; that the legislature having fixed the nom- inal value of the bonds as the basis of taxation, no further assessment, properly so called, was required;, that it was a proper exercise of leg- islative power to require the com- pany's treasurer to "assess" the tax — that is to say, to determine the amount of the company's loans liable to taxation at their nominal value, and to apply thereto the rate fixed by law ; the taxation being the result of the rule thus applied; Lehigh Valley R. Co. v. Common- weiilth, (1889) 129 Pa. St. 429; s. 0. § 806.] TAXATION OF OOEPOEATIONS. I 1257 law does not impair the obligation of the contract between the company and its creditors;' and again, that this mode of taxation is not open to the objection that the corporation is taxed for property not its own, since the tax is in fact on the 7 Ry. & Corp. L. J. 13, where the court having cited the foregoing, case with approval, continued: " Taxes have been levied and col-, lected in Pennsylvania in this form for more than half a century. The fourth section of the Act of ISSS is' but a transcript of the forty-second section of the Act of 1844, which pro- vides the only method, since its pas- sage, for the assessment and collec- tion of taxes upon municipal loans. The Act of 1844 is still in force, and its validity, until the very recant case of Commonwealth v. City of Chester, 123 Pa. St. 636, has never been disputed. On the trial of the cases involving the construction and validity of other statutes differ- ing from that of 1844, this provision of the last-mentioned act has been uniformly and consistently recog- nized as a valid exercise of legis- lative powei'. (Maltby v. Railroad Co., 53 Pa. St. 140.). Specific taxes for a long series of years have been imposed within this State, not only upon particular classes of property, but upon classes of persons, and we hdve never known the power, when properiy exercised, to have been called in question. Taxes- are gen- erally classified as specific, ad valo- rem, and for public beneiit. The last two classes are necessai'ily based upon an assessment of actual values, whereas in the first class the value is either fixed by statute, or the tax is intended to subserve some sup- posed public interest or policy. ' Of the different taxes which the State may impose,' says Mr. Justice Field in Hagar v. Reclamation Dist., Ill TJ. S. 709, ' there is A vast nurnber of which, from their nature, no no- tice can be given to the tax-pa^'er, nor would notice be of any possible advantage to him, such as poll taxes, license taxes, (not dependent upon the extent of his business,) and gen- erally specific taxes on things, or persons, or occupations. In such' cases the legislature, in authorizing the tax, fixes its amount, and that is the end of the matter. If the tax be not paid, the property of the de- linquent may be sold, and he be thus deprived of his property Yet there can be no question that the proceeding is due process of law, as there is no inquiry into the weight of evidence, or qther element of a judicial nature, and nothing could be changed by hearing the tax- payer. No right of his is therefore invaded.' Though differing from the ordinary forms pursued in courts of justice, the general system of pro- cedure for the levy and collection of taxes, if not arbitrary, oppressive and unjust, has always been re- garded as due process of law. Kelly V. Pittsburgh, 104 U. S. 78; David- son u. New Orleans, 96 U. S. 97." 'Lehigh Valley R. Co. v. Com- monwealth, (1889) 129 Pa. St. 439; S. C. 7 Ry. & Corp. L. J. 13, where the court said: " It is difficult to see how the imposition of a tax upon money at interest can be supposed to impair the obligations of the con- tract which secures payment; the tax is upon the debt The debtor is simply the collector of the tax, and his remedy for collection is to de- falk it from the interest ; this, and no more, is the legal effect of the statute. The whole question turns 1258 ' TAXATION OF OOEPOEATIONS. [§ 807. t bondholder, and not on the corporation.' The Ohio statute entitled " An act to enable railroad companies to redeem their bonded debts," which authorizes the issue of certificates of preferred stock, does not authorize the issue of certificates of indebtedness; and hence holders of certificates issued by virtue of the provisions of the act are stockholders in,' and not creditors of, tiie corporation; and are hot required to list their shares for taxation in that State.^ Bonds issued by a railv\'ay company are not " public stocks and securities " within the meaning of the tax acts of Massachusetts,* but aro "debts due;" and money invested in them is "money at in- terest," for which the owner is entitled to the rights secured by those statutes, even though the company was created by and is to some extent subject to the control of the United States government.'' §807. Taxation of business, earnings or dividends — (a) In general. — The fourth method of taxing corporations is based upon either the business transacted, or their gross earn- ings, or net earnings, or dividends. The tax upon the business transacted is imposed in several States upon savings banks, their deposits being reckoned as showing the arnount of busi- ness ;° on insurance companies in Connecticut and Massachu- setts, the amount insured being taken as representing the amount of business in the former two States ; on foreign life insurance companies in 'Sew York, the criterion being the amount of their premiums;^ on telephone companies, in Con- upon the validity of the tax ; for, if 24 N. E. Rep. 496, construing Ohio the tax is valid, the creditor oer- Act of April 16, 1870, and Ohio Eev. tainly can not complain of the remedy Stat, g 3746. provided for its collection. The con- ^jiass. Pub. Stats, ch. 11, § 4; tract is in no sense impaired ; the Stat, of 1820, ch. 64, § 1. debtor is held for the payment of * Hale v. Hampshire County Com- tbe whole debt, but upon the exact missioners, (I8S6) 37 Mass. 111. footing of his contract. He is sim- 5 Me. Rev. Stat. tit. 1, gS 64-67; ply permitted to defalk such part N. H. Gen. Laws, ch. 65, § 8; Vt. thereof as he has under legal' obli- Rev, .Laws, § 3595 ; MaSs. Pub. Stat, gation paid, laid out, and expended ch. 13, §§ 30-24; R. I. Pub.- Stat. ch. on behalf of the creditor." 37, § 3; Conn. Gen. Stat. ,§ 3918; Md. 1 Bell's Gap B. Co. v. Common- Pub. Gen. Laws, art. 81, § 86. wealth, (1890) 134 U. S. 332, , e n. f. Laws of 1887, ch. 699. Vide a Miller v. Ratterman, (Ohio, 1890) infra, § bOS. ' § 807.] TAXATION OF OOEPOEATIONS. 1259 necticut, according to the number of telephones and mileage of wire;' and in Georgia upon the number of telephone sta- tions.^ In Mississippi the number of subscribers is the criterion of the business done by telephone companies.' Sleeping-car companies are taxed upon the number and mileage of their cars in Georgia and Iowa;* railway companies in Delaware, according to the number of locomotives and passengers ; ' in Missouri according to mileage;" express companies in Ten- nessee, according to mileage and number of packages ; ' mining, smelting and refiping companies in Michigan upon tonnage of product.' ^E. g. Conn. Laws of 1889, ch. 178. a Ga. Laws of 1888, ch. 123, § 7, subd. 3. 3 Miss. Laws of 1880, p. 17. < Ga. Laws of 1888, ch. 123, § 8, subd. 3; Iowa Eev. Stat. §§2033- 2025. See also infra, § 821. 5 Del. Code, 874, p. 29. 6 Under Eev. Stat. Mo. 1879, §§ 6871, 6873, which make it the duty of the State board of equalization, after assessing a railroad in its entire length, to apportion the aggregate value to each county according to the ratio which the number of miles in each county bears to the whole number of miles in the State, an as- sessment of a railroad by a county court for State, county, township and school taxes, need not describe the property other than as so many miles of road of a giyen value ; and a petition, in a suit to recover these delinqiient taxes, which sets forth the numbe; ,if miles of road owned by the defendant in a designated county, is sufficient, as it need not be more specific than the assessment, although the form for a petition pre- scribed by § 6889 contemplates a de- scription of the road. State v. Han- nibal & St. J. E. Co., (Mo. 1890) 13 S. W. Rep. 505. ' The legislature of Tennessee, by an act approved March 29, 1887, pro- vided that the following taxes should be paid by express companies: "In lieu of all other tax:es, except ad valorem tax, if the lines are less than one hundred miles long, per annum, $1,000. If the lines are over one hundred miles long, per annum, $3,000." The same author- ity, by an act approved April 8, 1889, provided that express compa- nies should pay a tax " in lieu of all other taxes except ad valorem tax, if the lines are less than one hundred miles long, for one or more packages taken up at one point in this State and transported to another point in this State, per annum, $1,000, If the lines are more than one hundred miles long, for one or more packages taken up at one point in this State and transported to another point in this State, per annum, $3,000." By this act it is made a misdemeanor, punishable by a fine and imprison- ment, to conduct the express busi- ness without prepayment of the tax. 8 Mich. Gen. Stat. §§ 1187, 1326, 1239; "Taxation of Corporations," by Prof. E. E. A. Seligman, (1890) 5 Polit. Science Quart, 269, 807. 1260 TAXATION OF OOEPOEATIONS. [§§ S(\8, 809. §808. (b) Gross receipts. — The tax upon gross receipts or earnings is imposed by many States ,on insurance companies, the gross amount of their premiums being regarded as their earnings.' But if a statute taxing the gross receipts of foreign insurance companies, provides no method of ascertaining the amount of the gross receipts, they can not be taxed.^ The tax- ation of gross receipts is the method applied to transportation companies in many instances.' Telegraph companies are taXed on their gross receipts in many States.* Electric-light com- panies in Georgia," and gas companies in Massachusetts, are similarly taxed.^ § 809. (cXNet earnings. — The net earnings of railway companies are taxed in Georgia, Virginia and Delaware ; ' of insurance companies, in Alabama, Illinois, Maine, Missouri, ]^evada and Indiana;' of savings banks without capital stock, 1 E. g. Ala. Civ. Code, § 454. The panies in Arkansas are taxed on New Act of 1886, ch. 679, entitled gross receipts, less amount paid for " An act to provide for the taxation transportation to domestic railways, of fire and marine insurance com- Ark. Rev. Stat. § 5640. In Maine, panies," providing that all insurance where horse railways are taxed on companies doing business in the gross receipts according to a gradu- State shall pay a,' certain tax on the ated scale of one-tenth of one per amount of their premiums ; that cent, for pvery thousand dollars, their real estate shall continue to be Me. Rev. Stat. tit. 1, § 47. For other assessed and taxed for State, city, examples, wde in/ra, §g 815 and 821. town, county', -village, school, or * Ark. Rev. Stat. § 5640 ; Ala. Civ. other local purposes, but their per- Code, § 454 ; Ga. Laws of 1887, pp. 23, sonal property, franchise, and busi- 24, and cases cited infra, S 823. ness shall be exempt from all assess- 5 Qa. Laws of 1887, pp. 22, 24. ment or taxation, " except as in this « Mass. Acts of 1882, ch. 106, § 4 ; act prescribed," provided that the Ma;ss. Acts of 1885, ch. ^14. fire department shall not be af- 'Ga. Code, § 818. And flfty cents fected, and this is held to apply as on every himdred doUai-s In value of well to local as to State taxation property in Virginia. Va. Acts of and assessment. People v. Coleman, 1874, p. 353. In Delaware railway (1890)121 N. Y. 543. and canal companies. D»l. Code, 2 British Foreign Marine Ins. Co. v. p. 41. Assessors, (1890) 43 Fed. Rep. 90, con- 8 Ala. Act of Deo. 11, 1886, § 3 ; 111. struing La. Acts of 1886, ch. 78. - Rev. Stat. ch. 73, § 30, foreign oom- ' j;. fif. Express companies in Geor- panies only; Me, Rev. Stat. tit. 1, gia: Ga. Laws of 1887, pp. 23, 24. § 59, foreign companies only; Mo. Sleeping-car companies -in Alabama: Rev. Stat. § 6057, foreign companies Ala. Civ. Code, § 454. Express com- 6nly; Neb. Comp. Stat, ch, 77, § 38; §§ 810, 811.] TAXATION OF COKFOEATIONS. 1261' in Pennsylvania;' and of gas-works, water-works, electric- light companies, ferries, toll-bridges, public mills and gins and cotton compresses, in Alabama.^ And ih England the Customs and Inland Eevenue Act of 1855 imposes a duty on the prop- erty of bodies corporate and unincorporate. This is a duty of five per cent, upon the a:nnual value, income or profits of the real or personal property of these bodies, after deducting all necessary outgoings, costs, charges and expenses properly in- curred in the management of their property.' § 810. (d) Dividends.— In Alabama the general corpora- tion tax is upon dividends declared or earned, and not divided, and upon the capital stock.* Gas and electric-fight companies are taxed upon their dividends in New Jersey, and turnpike, street-railways and gas companies in Kentucky.* In New York and Pennsylvania the tax, while upon the capital stock, depends upon the contingency of the company being a divi- dend-paying concern." § 811. Tenure of property as affecting liability for taxes. Generally speaking, a company does not have such an owner- ship in property leased by it as to be liable for taxes imposed thereon." Thus the Missouri sta,tute,' declaring all other prop- erty " owned " by any railway company to be subject to taxa- Ind. Rev. Stat. § 6351, home compa- laws repealed," it has been' held that nies only. a corporation which was chartered 1 Pa. Act of Jane 1, 1889, §§ 25, 27. February 18, 1885, and declared div- 2 "Taxation of Corporations," by idends during the year amounting Prof. E. R. A. Seligman, (1890) 5 to twelve per cent., viz., one of six Poiit. Science Quart. 369, 296, citing per cent., May 12th, and another of Ala. Code, § 454, subd. 5. like amount, August 6th, was sub- 3 Customs and Inland Rev. Act of jeot to taxation upon its capital 1855, § 11. stock, measured by the amount of * Ala. Civ. Code, § 453. its dividends, for the proportion of 6Ky. Rev. Stat. ch. 90, art. 4, g§ 1 the tax year from February 18th, and 3. when it was incorporated, -to June 6 Vide supra, § 803. Upder the 30th, the date of the repeal. Mac- Pennsylvania act of June 30, 1835, Kellar &c. Co. v. Commonwealth, which repealsi all laws laying taxes (Pa. 1887) 10 Atlan. Rep. 780, not re- upon certain manufacturing corpo- ported. rations, "reserving and excepting ^ State v. St. Louis County, (1886) unto the Commonwealth the right to 84 Mo. 234. collect any taxes acerued under the 'Mo. Act of March 10, 1871, 12G3 TAXATIOS OF CORPORATIONS. [§ 812. tion, does not apply to Pullman cars operated by a company under a lease.' A railroad company which has acquired from a city the right to perpetual possession of certain land, and is in the actual occupancy thereof, is liable for the taxes thereon, although it does not own the title to the fee.- "W-herfe in a grant of land to a railway company, there is a provision that a conveyance of the land to the company shall not be exe- cuted, until payment be made to the federal government for the cost of surveying, selecting, and conveying it, no taxes can be levied upon it by any State until that payment has been made.' * § 812. Taxation of banks — (a) Who are bankers. — One whose business is buying and selling stocks for his customers, and who employs capital in his business, and has a regular place- for transacting it, is a "banker," within the meaning of the federal statute w^hich provides that every person having a place of business where money is advanced or lent on stock, bonds, etc., or where stocks, bonds, etc., are received for dis- count or for sale, shall be regarded as a banker.* But it has 1 State V. St. Louis County Court, bank upon money loaned to its cus- I (1886) 13 Mo. App. 53. , toiners. In the parlance of the 2 City of Muscatine v. Chicago, stock exchange he might be called a E. I. & P. E3'. Co., (Iowa, 1890) 44 'stock-broker;' yet here were all N. W. Rep. 909. the conditions which under the stat- 3 Northern Pacific 'R. Co. v. Traill ute made the case of a banker whose County, (18S6) 115 U, S. 600. capital employed in his business was ^Richmond v. Blake, (1890) 133 liable to a tax of one twenty-fourth U. S. 593; S. 0. 7 Ry. & Corp. L. J. of one per centum each month." 194, construing U. S. Rev. Stat. Field and Miller; JJ., dissenting. In gg 3407 and 3408, and saying: " This Warren v. .Shook, 91 U. S. 704, the language embraces the present case, question was whether a firm, hold- The plaintiff was not a broker who, ing a special license as bankers, was without employing capital of his liable to the tax imposed by U.' S. own, simply negotiated purchases Act of June 30, 1864, § 99. That and sales of stocts for others, receiv- statute imposed a tax of one-twen- ing only the usual commissions for tieth of one per centum upon the services of that character, In his par value of stock and bonds sold by business of buying and selling Stocks "brokers and bankers doing busi- for others, he regularly employed ness as brokers." It was held that capital, by the use of which interest congress intended to impose the was earned upon moneys advanced duty prescribed by section 99 upon by him for his customers substan- bankers doing business as brokers, tially as it would be earned by a although a person, firm or company, § 813.] TAXATION OF C0EP0EATI0N8. 1263 been decided that corporations whose business is to invest their own capital, and not that of others, in bonds secured by mortgage upon real estate, and to negotiate, sell, and guaranty those bonds, are not banks or bankers, within the meaning of this act; and that congress did not intend that a person or corporation selling its own property, not that received from other owners for sale, should be classed as a banker or bank for the purposes of taxation.' §813. (b) National banks. — By the federal statute it is provided that shares of national bank stock may be taxed as having a license as a banker, might be exempted by subdivision 9 of section 79 of the Act of 1864, as amended by the Act of March 3, 1865, from paying the special tax imposed upon brokers. See gener- ally on taxation of banks: Taxation of State Banks, (Boston, 1865) by W. B. Stevens; "Bank Taxation," by Samuel T. Spear, 21 Alb. L. J. 437; "Report of the Conamittee of Bank Officers of the City of New York in relation to Baiik Taxation," New York, 1875; "Reports of the American Bankers' Association upon Baflk Taxation," New York, 1876- 1889; "Taxation of Bank Stock,'' (Albany, 1833) being a speech by S. M. Hopkins; " Taxation of Banks by the State of New York," (New York, 1880) Thomas J. Hallhouse. iSelden v. Trust Co., 94 U. S. 419. The court in this case referred to U. S. Rev. Stat. § 3407 as describing three distinct classes of artificial and natural persons, distinguished by the nature of their business : First, those who have a place of business where credits are opened by the deposit or collection q^ money or currency sub- ject to be paid or remitted upon draft, check, or ovder; second, those hav- ing a place of business where money is advanced or lent on stocks, bonds, bullion, bills of exchange, or prom- issory notes; tJiird, those having a place of business where stocks, bonds, bullion, bills of exchange, or promissory notes are received for dis- count or for sale. la respect to the third' class it was said: "The lan- guage of the statute is, ' where ' such property is 'received' 'for discount or for sale.' The use of the word ' re- ceived' is significant. In no proper sense can it be understood that one receives his own stocks and bonds or bills or notes for discount or for sale. He receives the bonds, bills or notes belonging to him as evidences of debt, "though he may sell them afterwards. Nobody wQuld understand that to be banking business. ' But when a cor- poration or natural person receives from another person, for discount, bills of exchange or promissory notes belonging to that other, he is acting as a banker ; and wheh a customer brings bonds, bullion, or stocks for sale, and they are received for the •purpose for which th^ are brought, that is, to be sold, the case is pre- sented which we think was conteni; plated by the statute. In common understanding, he w-ho receives goods for sale is one who receives them as agent for a principal, who is the owner. He is not one who buys and sells on his own account." '126i TAXATION OF COEPOBATIONS. , [§ 813. part of the personalty of the owner, and that each State may tax them in its own manner, except that the taxation shall not be at a greater rate than is imposed on other "moneyed capital" owned by citizens of the State, and that the shares of non-residents shall 'only be taxed in the city wherein the bank is located.' A considerable number of cases involving the construction of this section of the "United States Revised Statutes have gone to the Supreme Court, in which the complaijiLhas. been of-diserimination against national lanks and- their shareholders, in favor of owners of other moneyed capital,' in the assessment of taxes by the States. In most of them the court has upheld the tax, in others it has pronounced against it. From the nature of the subject, each case has pre- sented its own special facts, and has differed in these facts from every other case. Tlie Supreme Court has dealt fairly with the tax laws of the States which have been brought under its review. It has held that the shares of national banks may be taxed by the States, although no provision be made in assessing it for deducting from computation the al- ways large amount of United States bonds held by the banks.^ It is held both by the supreme and circuit courts that the tax upon the shares of these banks may be assessed upon and collected from the banks tliemselves.* The Supreme Court 1 U. S. Eev. Stat. § 5219. Seegen- 526; 6 Am. L. Heg. 475; 8 Am. L. ■ erally on taxation of national banks : Eeg. 272; "State Taxation of Na- " National Banks & State Taxation," tional Corporations," by Russell H. (New York, 1887) by Chauncey P. Curtis, (1885) 21 Cent; L. J. 428. Williams; "Taxation of National 2 Hughes, J. in First Nat. Bank v. Banks," monographic note by Robert City of Richmond, (1889) 39 Fed. Eesty, 13 Fed. Rep. 433; "Power of Rep. 009; s. C. 6 Ry. & Corp. L. J. .States to Tax Property of National 331 ; s. c. (1890) 42 Fed. Rep. 877. Banks," monograph'ic note, 96 Am. 3 La. Act of 1888, § 27, providing Dec. 290, 297; "Taxation of Na- that shares in banks shall be as- tional Bank Shares by or under sessed to the shareholders, but re- State Authorities," by John W. quiring the bank to pay taxes so - Daniel, 5 Va. L. J. 535 ;" Taxation assessed, and authorizing it to col- of Shares in National Banks," mono- lect them from the shareholders, graphic note by John F. Dillon, 6 imposes a tax, not upog the bank. Am. L. Reg. N. S. 475; "The Ques- but upon its shares, as permitted by tion of Taxation — State & National act of congress, providing that a Banks," (Albany, 1864); "Taxation State may determine the manner of of National Bank Shares," by Isaac taxing the shares of national banks F. Redfield, ' 5 Am. L. Reg. N. S. located in the State. Whitney Nat. § 813,] TAXATION OF COEPOEATIONS. 1265 has held that neither of these circumstances in itself vitiates a tax. Even in cases where it has appeared that the system of taxation enforced by a State has operated unequally as be-, tvveen shareholders of national baniis and owners of other moneyed capital; thei court has hot looked upon the system with unfriendly scrutiny and illiberal spirit, but in cases where the discrimination was trivial or technical, or such as must al- ways result from the 'greater' or less imperfection of all human legislation, it has declined to interpose in behalf of th'e tax- payer. Further than thus indicated, there does not appear in the many decisions in which that court has given construc- tion to the prohibition in the federal statute, to be any\gen- eral principle laid down applicable to all ca§es that have arisen. The court has decided each case upon its own special facts. The question has continu9,lly been, does the tax mate- rially and injuriously discriminate against. the shareholders of national banks? And in ever}'^ case the question has been rather one of fact than of law.^ In deciding that sharehold- ers of national ban|ks may be taxed at a rate in fixing which no account has b;een taken of the non-taxable United States bonds required by law to be held by those banks, the court has not made so absolute a ruling that if it should be shown in any particular case that such an omission operates as a, material and injurious discrimination against national bank shareholders, in favor of other moneyed capitalists, the tax thus operating may not be pronounced illegal. The para- mount question in every case is, whether or not the tax, or system of taxation, complained of, materially and injuriously discriminates against national bank shareholders, in favor of .other moneyed capitalists, in a degree tending to discourage investments in the shares of the national banks. Upon this question of fact, the decisions of the Supreme Court have turned, and all decisions on this subject must turn.^ But it is doubtful whether congress, in authorizing the States to tax the shares of national banks, under legislation of their own, Bank V. Parker, (1890) 41 Fed. Rep. 2 Hughes, J., in First Nat. Bank t;. 403, and cases tliere cited. City of Bichmond, (1889) 39 Fed. 'Hughes, J., in First Nat. Bank v. Rep. 309, City of, Richmond. (1889) 39 Fed. Kep, 309. 80 1266 TAXATIOir OF COEPOEATIONS. [§ 813. ptescribing the manner and place of doing so, intended thereby to authorize cities, counties, and towns to exercise the same power. The mere fact that municipal corporations may tax national banks at their pleasure would temd strongly to dis- courage investments in their shares, and no instance of such a tax has yet gone to the Supreme Court of the United States.' Congress requires the tax to be assessed as part of the per- sonal property of the owners of the shades of the bank.' It does not authorize the taxation of the stock of a bank ifi so- lido by the city in which it does business; but only the shares of individual owners residing in the cit3'are taxable, and they must be taxed separately, in order that the owner may de- duct from their value the amount of his personal indebted- ness, where the State laws or municipal ordinances permit such deductions, and require equality of taxation.^ By an act of her legislature in 1890, Yirginia attempted to legalize the 1 Hughes, J., in First Nat. Bank v. City of Richmond, (1889) 39 Fed. Rep. 309. 2 First Nat. Bank v. City of Rich- mond, (1889) 89 Fed. Rep. 309, where Hughes, J., continued: ''To. assess the, tax as if against the banjs in solido, on a value made up of the w.hole amount of the back's capital and surplus fund, without deduction for non-taxable securities, constitut- ing nearly half the bank's capital; to require this tax to fall upoh'the whole body of the bank's shareliold- ers, wherever resident, whether in Richmond or Virginia, and to give no shareholder the privilege of de- ducting the amount of his debts from that of securities due him in determining the net value of his es- tate — these features of the tax com- plained of by the bill under consid- eration all'seem to me to condemn it as contrary alike to national. State, and municipal lav^, and as discrim- inating against the owners of na- tional bank shares iil favor of other moneyed capitalists, in a manner ob- noxious to the policy of congress ia regard to the national banks, and seriously discouraging to invest- ments in national bank shares. I will sign a decree of perpetual in- junction, this ruling being founded on the decisions of the Supreme Court of the United States in the cases of Hills v. Bank, 105 U. S. 319, and Whitbeck v. Bank, 127 U. S. 193. In dealing with thei subject I have also considered the decisions of the same court iu Van Allea v. As- sessors, 3 Wall. 573 ; People v. Com- ^missioners, 4 Wall. 244; Bank v. Commissioners, 9 Wall. 353 ; Bank v. New York, 121 U. S. 138; Lionberger V. Rouse, 9 Wall. 475 ; Waite u. Dow- ley, 94 U. S. 533 ; Supervisors v. Stanley, 105 0. S. 311; Bank v. Kimball, 103 U. S. 733; Pelton v. Bank, 101 U. S. 143; Cummings v. Bank, 101 U. S. 153; Bank v. Daven- port, 123 U.' S. 83, alid People v. Weaver, 100 U. S. 539. The juris- diction of this court, eis a court of chancery, to entertain this bill, I have thought too plain to need dis- cussion." §§814,815.] TASATION OF COEPORATIONS. 1267 taxes levied upon the assessments declared invalid in the cp.ss above cited ; but the act has been declared void.' § 814. (c) Savings Ibanks.— The reserved profits of a sav* ings bank, whose charter empowers the directors by majority vote to " divide the whole property among the depositors in propc^rtion to their respective interests therein," belong to the depositors, and can not be taxed as the property of the bank.' Under the Michigan tax law, providing that, except as to real estate, all taxation of State banks shall be against the share- holders, a savings bank is not liable to taxation, as a corpora* tion, upon its bank fixtures and surplus of property beyond its nominal capital stock, wtiere its shareholders have been taxed upon their shares.' Under the Massachusetts act providing for a tax upon savings banks of a percentage to be paid semi- annually, on the average amount of deposits for the six months preceding, the tax is to be computed on the amount deposited, together with the interest and dividend accruing and payable to depositors, and does not include the guaranty fund of the bank, nor the undivided profits.* § 815. Railway and, transportation companies. — The tax upon railways is usually either upon their property or upon their gross receipts. In Alabama it is a property tax.* So, the local taxation in !New York is upon the railway propert^'.^ In California it is upon the franchise and property, the assess- ment being made by the State ttnd apportioned among the municipalities for, taxation by them.' So \n Colorado the tax is upon the property, the realty being taxed wheire it lies and 1 National Bank v. City of Bich- 5Ala.,Cir. Code, §453, subd. 11. mond, (1890) 43 Fed. Rep. 877, con- 6 Taxation of the Elevated Rail- Bti-uing Va. Act of Jan. 37^ 1880. roads in the City of New York, (New ^Mechanics' Sav. Bavtkv. Granger, York, 1883) by Eoger Foster. Whether (R. I. 1890) 20 Atlan. Rep. 303; "Ob- a railway is constructed upon or be- jections to the-Tasation of Savings neath the surface, or on pillars, is Banks," (New Yor.k, 1880) by W. G. immaterial, aa regards its liability to Abbott. taxation, the law regarding as land SLenawee Co. Sav. Bank?;. City the structures adapted, to support it, df Adrian, (1887) 66 Mich. 273. or to facilitate and protect its use. • J Suffolk -Sav. Bank v. Common- People v. New York Tax Gommis- wealth, (1889) 151 Mass. 103, constru- sioners, <1886') 101 N. Y. 333. ing Mass. Pub. Stati ch. is, § 20. 'Cal. Const, art. xiii, § 10. 1268 TAXATION OF COEPOEATIONS. [§ 815. the other property assessed by the State and notice given to the municipalities of its value.* So again in Kansas/ railway property is taxed, the assessment being made by the State and apportioned as in California.^ In Iowa, while the assessment is of the property, the gross earnings per mile are taken into consideration in fixing its value. This is done by the State and, as above, the municipal corporations tax. Railway and transportation companies are in many States taxed upon their gross receipts;' or, in the case of interstate roads, upon such part of the gross receipts as their mileage within the State is to the mileage of the whole line.* A tax on the undivided profits of a railway " which have accrued, been earned and added to any surplus, contingent, or other fund " during the year, is not to be assessed upon undivided profits used for new construction.* In Minnesota the State was declared to be de- prived of the right to assess in specie the land of a railway company, by a statute requiring the company ^o pay into the State treasury on or before a certain day in each year three per cent, of its gross earnings, and declaring that sum to be in lieu of all taxes and assessments.* Bat a statute which pro- vides that a company shall at all times, and as fixed by statute for similar reports from other railway companies, make a re- port of its gross earnings for the preceding year, and shall each year pay into thfe State treasury, at the times fixed by the revised statutes for payment by railway companies of their license fees, a sum equal to five per cent, of its gross earnings for the preceding year, which should be in lieu of all other license fees exacted from the company, merely prescribes a way for ascertaining the amount of the license fee for the year in which it is to be paid, and does not impose a tax on the iColo. Gen. Stat. §2847. at a convention of State Kailroad 2 Kan. Comp. L. p. 95. Commissioners. 3j&. g. Me. Rev. Stat. p. 136, and i * Vide infra, §831. cases cited infra. But in Virginia ^ Marquette, H. & O. R. Co. v. and Delaware the tax is on the net United' States, (1888) 133 U. S. 722, earnings of railways. "Taxation of construing Act Cong. July 14, 1870. Railroads & Railroad Securities,'' ^ Hennepin County y. St. Paul M. (New York, 1880) being a report by %. do., (1886) 33 Minn. 534, constru- C. F. Adams, W. B.Williams and ing Minn. Special Laws of 1857, ch. 1, J. H. Oberly, a committee appointed g 18. ' § 815.] TAXATION OF C0EP0EATI0N8. ' 1269 gross earnings of the road.* The Maryland code provides that "Whenever the road of any railroad company, organized under the laws of this. State, shall extend beyond the limits of this State, into any other State or States, and the return of the treasurer or other financial officer of said company, made to the comptroller, shall not show certainly and accurately the precise amount of gross receipts within this State, the comptroller may ascertain said amount by making the gross receipts in this State bear the same proportion to the whole- gross receipts of said company' as the number of mil^s of said road in this State does to the whole number of miles in the length of said rpad." ^ This method of ascertaining the gross receipts within the State is declared to be fair and reasonable. It is true the gross receipts on one part of the road may be greater than on another, but perfect equality in the assessment and apportionment of taxes is unattainable, and hence this rule is adopted.' In a late case in Maryland it is held that ■where a portion of a line of a street railway company, which is required to pay t© the city in which it is located a certain per- centage of the gross receipts from passenger .travel within the city limits, runs beyond the city limits, and the company keeps no separate account of the receipts from this portion of the road, it.is proper, in arriving at the amount of its receipts, to take the amount which bears the same proportion to the receipts of the whole line as the number of miles of road beyond the city limits bears to the.total number of miles operated.* Under the ppovision of the Wisconsin statute, requiring railway com- panies annually to make and return a "statement of the gross earnings of their respective roads for the preceding calendar 1 State i;. Harshaw, (Wis. 1890) 45 * Baltimore Union Passenger Ey. N. W. Eep. BOS. Co. v. City of Baltimore, (Md. 1890) 2Md. Code, II, art. 81, § 15», 18 Atlan. Rep. 917; S. C. 7 Ry. & p. 1264 "Corp. L. J. 203 ; holding also that the 3 Delaware Railroad Tax Case, 18 testimony of passengers who had Wall. 208,„231, where this rule was been riding on the line beyond the approved by the Supreme Court city limits several times a day, stat- of the United States. It was also ing from casual observation their approved in State Railroad Tax estimate of the number of passen- Cases,93U. S. 608-611, and West- gers who' roiije on that portion of the em Union Telegraph Co.'b Case, line, is incompetent to show the 135 U. S. 530-553 ; and in State v. amount of the receipts. Railroad Co., 45 Md. 384. 1270 ■ TAXATION OF COEPOEATIONS. [§ 815. 3'ear, of the number of miles operated;, and the gross earnings per mile, per annum, during Such year," requiring also the payment of a license fee, and dividing, rail ways into classes ■with respect to the gross earnings " per mile per annum af operated road," it was held immaterial, in determining the class to which a road belongs, that it was operated for only a short while during the year.' And under this act it is also held that spur tracks are to be included in the mile- age; that payments for rent of a leased road must not be deducted from the gross earnings, and that the excess of the amount received for the use of cars over the amount expended for that purpose, is to be accounted as a part of the gr6ps earnings.^ An assessment of taxes due the State on the gross receipts of a railway company should properly be made in the name of the company alone, even though ' it has passed into the hands of a recei'ver appointed by a United States court.^ In New York there is a statute pro- A'iding that all taxes, except fdr schools and roads, assessed 'upon any railroad in a town which has issued bonds in aid thereof, shall be hpld as a sinking fund for the redemption of the municipal bondsi^ Where a town has collected from a railroad company money to pay the interest on bonds issued in its aid, and it appears that the bonds were void, the railroad Avill be entitled to recover the money, and no limitation will bar it of that right." So far as railway and transportation companies do business entirely within the limits of a single , State, questions arising under its tax laws are to be determined by the construction put upon them by the courts of the State.^ 1 State V. McFetridge, (1886) 64 Clark v. Sheldon, (1887)- 106 N: Y. Wis. 130, construing Wis. Rev. Stat. 109, holding also that it is theduty of §g 1311 et seq. the county treasurer under this act ^Stateu. McFetridge, (1886) 64 Wis. to set aside and invest all such taxes 130. paid him by the railways, altbdugh 3 Philadelphia & Beading E. Co. v. , by doing so he will not have money Commonwealth, (1886) 104 Pa. St. 80. enough to pay the obligations of the ■1 N. Y. Laws of 1869, ch. 907, § 4, county to the State arid to the county as amended by N. Y. Laws of 1871, officials and other couniy creditors, ch. 283. And this statute is held to Beach on Railways, § 227. apply not only to railways con- • 'Aurora v. Chicago &c. R. Co. 19 structed under the act of 1869, but Ill.App. 360;, 'Beach on Railways, tpall towns bonded in aid of railroads § S37, constructed in or through them. « United States Ex. Go. v. Allen, §81.6.] TAXATION OF COEPOEATIONS. J271 § 816. Bridge companies. — Eailway bridges are frequently constructed -and owned by companies distinct from those own- ing and operating the railways which cross them. And where this is the case, the bridge is not to be taxed as part of the property of the railway company,^ even though the stock- holders of both companies are the same, and all of the bridge company stock i,s pledged to the railway company, whiqh by contract has the permanent use of the bridge.^ The liability for taxation is upon the bridge company itself. From, this it follows that these structures are subject to local taxation, where if owned by the railway company they might be ex- empt. And the return of the bridge to the railroad assess- ors of the State as a part of the road's mileage does not ex- empt it from taxation as an independent structure.' The Iowa Code makes railway bridges across the Mississippi river taxable as real estate.* In a recent Kentucky case, a city (1889) 39 Fed. Rep. 713. Mass. Acts of 1884, ch. 157, § 2, authorizes a rail- road to take so much land in a cer- tain region " as it may deem neces- sary or suitable for station purposes, and for tracks and yard -room to be used in connection therewith ; " sec- tion 5 provides that the company, In the exercise of the powers granted, is to be subject to all the duties, liabilities, and restrictions which are provided by the general laws in like cases ; and Mass. Pub. Stat. ch. 113, § 92, provides that "land with- out the limits of the route, fixed as aforesaid, and taken or purchased for depot or station purposes, shall not be exempt from taxation," tJnder these provisions it was held that land taken for station purposes is liable to taxation, \ although the limits of the road have not been fixed as provided; that it would be as- sumed that the whole of the taking is for station purposes, as the tracks and yard-room are merely inciden- tal ; and that although part of the taking was once within the limits, yet if it, has been sold, and the whole of the taking is for station purposes. that part will not be exempt. Nor- wich & W. E. Co. u. County Com- missioners, (Mass. 1890) 23 N. E. Eep. 721. iSt, Louis & S. F. Ry. Co. v. %i\\- iams, (Ark. 1890) 13 S. W. Rep. 796. 2 St. Louis & S. F. Ry. Co. v. Will- iams, (Ark. 1890) 13 S. W. Rep. 796, distinguishing State v. Depot Co., (1889) 42 Minn. 143. ■ , 3 St. Joseph & G. I. R. Co. v. Dev- ereux, (1890) 41 Fed. Rep. 14. ■• Accordingly, the assessment of a tax against a bridge company, own- ing a bridge across the Mississippi river from Iowa to Illinois, by the county auditor, (after the assessment lists for that year have passed from, the assessor,) under Code Iowa, § 841, giving the county auditor power to correct the assessment or tax books, where the assessment is made as on personal property, when the only property owned by the com- pany is part of its bridge and the approach thereto, is void, since Code Iowa, § 808, makes railroad bridges across the Mississippi river taxable as realty. Keithsburg Bridge Co. v, McKay, (1890) 43 Fed. Eep. 487. ' 1272 TAXATION OF COEPOEATIONS. [§ 817. / wTiose corporate limits extend to low-water mark on the op- posite side of the Ohio river, is held to have authority to make an assessment for railroad and school taxes of the district, against a railroad bridge built across the river, where the city granted the' land on which the approaches of the bridge are built, reserving as a consideration therefor the right to tax the bridge itself, and all its appurtenances within the cor- porate limits of the cit}'.' §817. Foreign corporations — (a) The power to tax. — When a foreign corporation goes into a State and engages in business there, undoubtedly it d,oes so subject to the general polic\' and the course of legislation in the State.^ It can ex; ercise its franchises there only so far as it may be permitted by the local sovereign. The right rests wholly upon the comity, of States.' A corporation of one State can not do business in another' without the latter's consent, express or implied; and the consent may be accompanied with such conditions as the latter may think proper to impose.* These conditions will be valid and effectual, provided they are not repugnant to the constitution, or laws of the United States, inconsistent with the jurisdictional authority of the State, or in conflict .with the rule which forbids condemnation .without opportunity for de- fense.' A foreign corporation can not invoke the provision of iHendersDn Bridge Coi u. City of April 18, 1884, for taxing corpora- Henderson, (Ky. 1890) 14 S. W. Eep. tions, is successfully assailed on con- 85. stitutional grounds, a tax imposed 2 Runyan v. Coster, 14 Pet. 133, under color of it, and not stayed in cited in New York, L. E. & W. R. its collection by pending proceedings Co. V. Commonwealth, (1889) 129 Pa. in certiorari, presents a proper case St. 463 ; s. C. 7 Ry. & Corp. L. J. 14. for the granting of an injunction See generally : " Argument for a against the corporation doing busi- Change in the Law in regard to Tax- ness until the tax is paid as provided ing Foreign CoTporations," (Boston, by the act. Standard Under-Grouud 1877) by Edward Atkinson; "Tax- Cable Oa. v. Attorney-General,. (N.J. ation of Bonds or Stock of Foreign 1890) 19 Atlan. Rep. 733. States, Municipalities and Corpora- * St. Clair v. Cox, 106 U. S. 350. lion," 18, Am. L.'Reg. N. S. 1 ; "Tax-, oinsuranc^ Go. v. French, 18 How- ation of Shares of Stock in Foreign ard, 404 ; Doyle v. Insurance Co. , 94 Corporations," monographic note by 0. S. 535; Milling Co. v. Pennsyl- A. J. Marvin, 19 Am. L. Reg. N. S. vania, l?o U. S. 181 ; New York, L. ,774. E. & W. R. Co. V, Cojiiraonwealth, 3 Paul I'. Virginia, 8 Wall. 181. (1889) 139 Pa. St. 463; S. C. 7 Ry. & Unless the validity of N. J. Act of Corp. L. J. 14. § 817.] TAXATION OF COEPOEATIONS. 1273 the federal constrtution that "citizens of each State shall be entitled to all privileges and immunities of citizens in the sev- eral States," against legislation requiring it to pay a license for the privilege of keeping an office within the State, corpo- rations not being citizens within the meaning of tha,t clause.' Neither can it invoke the fourteenth amendment providing that "no State shall den\' to any person within its jurisdiction the equal protection of its laws," against legislation requiring ■ the payment of a license for the privilege of keeping an office therein.'^ And a tax upon the franchise of all corporations doing business /within the State, can not be evaded by a for- eign corporation on the ground that, as applied to foreign corporations, the tax is an unconstitutional interference with interstate coin/merce.' A tax (upon the gross receipts of for- eign companies is void only as to that part of their receipts derived from interstate commerce.* The legislature, in levy- ing a tax upon the gross receipts of the business conducted in the State by a foreign corporation, may require it to be paid by the resident agent, and this liability, on default by him, may be enforced by action.' A company incorporated by an act of congress is not a foreign corporation within the mean- ing of the Pennsylvania revenue act; and, although it does business in that State, is not, therefore, obliged to take out the license and to pay the tax provided for by the act.* The proviso in that act, that, if a majority of the stock of a for- eign corporation doin* business in the State be owned or con- trolled by a corporation, of the State, it shall not be obliged to take out a license and pay a privilege tax, is construed as, referring to a majority of the stock actually issued by the |oreign corporation, and not to a majority of the total amount, of stock which, it is by the terms of its charter iauthorized to issue.' Under the statutes regulating taxation in Michigan,* 1 Pembina Consolidated Silver Min. ^Ratterman v. Western Union & Milling Cp. u. Eennaylvania, (1888) Tel. Co., 127 U. S. 411. Vide infra, ; 125 U. S. 181. . .§823. 2 Pembina Consolidated Silver Min. 5 state v. Sloss, (1888) 87 Ala. 119. & Milling Co. v. Pennsylvania, (1SS8) * Conimonwealtb v. Texas & Pa- 125 0. S. 181. ' ciflc E. Co.; 98 Pa. St. 90, construing 3 People V. Wemple, (1890) 117 N. Y.' Pa. Act of June 7, 1879. " ISjS, construing N. Y. Laws of ISSO, 'Commonwealth i).j Texas & Pa- oh. 543, g 3, as amended by Laws of ciflc R. Co., 98 Pa. St. 90. 1881, oh. 861. 8 Mich. Tax Law of 1882. 127-i TAXATION OF COEPOEATIONS. [§ 81S. taxes can not be imposed on a foreign railwaj' company, made by the consolidation of lines partly within and partly wHihout the State, as though it derived its powers from the laws of the State.^ A legacy to a foreign college is subject to the New York collateral inheritance tax, providing thaj; all property which shall pass by will from any person who may die seized or possessed thereof, while a resident of that State, to any body, politic or corporate, other than to the societies, corpo- rations, or institutions now exempted by law from taxation, shall be subject to a tax of five dollars on every hundred.^ . §818. (b) " Doing business " construed. — Under statutes imposing a tax upon foreign corporations doing business within the State, questions have arisen as to wherein doing business consists.' A pipe line company organized in another State, whose line extends across a part of New Jersey', is held to be within the act imposing a license tax upon all corporations doing business in that State.* A New York railway company which, to avoid certain engineering difficulties, constructed a small portion of its road through Pennsylvania, is held to be subject to taxation there like other companies doing business witihin the State; and this although it pays a privilege tax , ■ / 1 Chicago & N. Ey. Co. v. Auditor- porated company not made liable to General, (1886) 63 Mich. 79. taxation on its (japital," they are sub- 2 In re McCoskey's Estate, (1888) 1 jeot to the tax on their bequests ; that N. Y. Supl. 783, construing N. IT. the foreign corporation, although Laws of 1887, ch. 7 1 3, § 4. In an- exempt from taxation by its char- other case, construing the same act, ter, is not exempted by the statute, a testator died, leaving legacies to a and is subject to its provisions. Cat- church, a missionary society incor- lin u. St. Paul's Church, (1888) 1 N. Y. porated in New York, and a foreign Supl. 808. corporation. In a controversy to spa. Act of June 30, 18'85, § 4; determine the rights of the three N. Y. Laws of 1880, ch. 542, § 3; Re- corporations to take the legacies free vision of N. J. Supl. p. 1016, par. trim the collateral tax, it was held 156. that, since a church is fexempt only * State v. Berry, (N. J. 1890) 19 as to its buildings, lots, and furni- Atlan. Rep. 665, construing Revision tyre, under 3 N. Y. Rev. Stat. § 4, of N. J. Supl. p. 1016, par. 156, and and both the church and the mission- holding further that the company is ary society fall outside of the exemp- also subject to be taxed for real ea- tions of subd- 6, of "all stock owned tate owned by it in the State in the by the St^te, or by literary or char- township where it is located, under itable institutions,'' and -eubd. 7, of the general tax law. i '"the personal estate of every iilcor- § 819.] TAXATION OF COEPOEATIONS. 127o I also for the right to construct its road through her territory.^ It has been held that although an occasional business transac- tion in New York, maintaining an office where meetings of the directors ara held, transfer-books kept, dividends declared and paid, and other business merely incidental to the regular busi- ness of a corporation is done, may not bring the corporation within the statute of that State imposing a tax on corporations organized under the. laws of other States and doing business in New York; yet that, when all these things are done, and, besides, its president, secretary and treasurer have their offices there, its silver bullion is all sold there, and the proceeds there received, some of the proceeds lent and some used in the State, such a substantial portion of the business is done as brings the corporation within the act.^ , §819. (c) Movable property of foreign- corporations. — Movable property of a corporation in use in ocher States is taxable only in the State of the company's domicile.' Thus, rolling-stock used by a railway company in operating a leased road in another State is taxable not in the latter State but in the Siate in which the company is domiciled.* And that, por- tion of the stock of a Pennsylvania corporation represented by dredges, tug-boat, and scows, not permanently located an^'- 1 New York, L. E. & W. R. Oo. v. shares in foreign corporations, (ex- Commonwealth, (1889) 139 Pa. St. cept national banks,) and their 463; s. c. 7 Ry, & Corp. L. J. 14. value." Section 3 provides that, for ? People V. Horn Silver Mio. Co., the purpose of taxation, personal (1887) 105 N. Y. 76, construing N. Y. property " shall include all goods Laws of 1880, ch. 543, § 3. and chattels within the State; all 8 Mich. Sess. Lavvs 1885, No. 153, ships, boats, and vessels belonging to §3, provides that shares in certain inhabitants of this State;" and that foreign corporations owned by in- the personal property of a non-resi- habitants of that State shall be taxed, dent can not be taxed unless it has an " Shares in corpoiations, the property actual situs in the State. Plaintiff of which is taxable to itsfelf, shall was taxed on stock in a foreign cor- not be assessed to the shareholders." poratlon, whose boats lying in the Section 4 enacts that ,all corporals same State were taxed there. And property, except when otherwise pro- it was decided that, as the boats vided, shall be assessed to the corpo- were improperly taxed, the stock ration as to a natural person, wheie was taxable against plaintiff. Grar its principal office in th s State is. ham v. Township of St. Joseph, (1888) By subdivision 2 of section 13, each 67 Mich. 653. *' person is required to set forth, as ■■ Baltimore & O. R. Co. v. Allen, property liahlp to taxation,' "all (1886) 33 Fed. Rep. 376. 1276 TAXATION OF COEPOEATIONS. [§ 820. ■ where, and not registered, but carried from State to State for dredging purposes, is taxable in Pennsylvania, although the boats were built outside the State^ and have never been in it.* § 820. (d) Discriminations. — A distinction, however, is drawn between sums required to be paid by foreign corpora- tions for the privilege of acting in a corporatecapaeity wi-thin the State, and taxes discriminating against them by reason of their foreign origin.^ - If there be a condition imposed by the State that corporations shall pay a fixed sum for this privilege before they shall be allowed to do business at all, this is ^'a condition and not a tax; s6,> perhaps, if the. license were re- quired to' be renewed at stated periods." ' And it has been held that when the corporation is required to pay a percent- age upon its receipts, and the payment is required to be secured by a bond before- the corporation is allowed tb'do business in the State, this special requirement distingnishes it from ordi- nary taxation and stamps its character as a license-fee.* iSut having paid the license-fee and thus haying acquired the priv- ilege of doing business in the State, foreign corporations, are entitled to the protection of its laws as fully as citizens thereof.* They are likewise subject to the same burdens imposed on other corporations. For the payment of a license-fee does not exempt a foreign corporation from taxes levied upon all cor- porations doing business in the Cottimonwealth." tf, however, 1 Commonwealth v. American Western Railroad Company, a for- Dredging Co., (1888) 132 Pa. St. 336. eign corporation, was permitted by ^Sto Francisco v. Liveirpool &c. Pa. Acts of Feb. 16, 1841, Priv. Laws, Ins. Co., (1887) 74 Cal. 113; s. c. 5 28, and of March 26, 1846, Priv. Am. St. Eep. 425. Laws, 179, to build a portion of its 3 San Francisco v. Liverpool &c. road in the State on payment of ten Ins. Co., (1887)74 Cal. 113; s. c. 5 tho.usand dollars annually to the Am. St. Kep. 425. • State after its completion. And it * Ti'ustees Exempt Firemen's Fund was held thaf the Act of June 80, V. Roome, 93 N. Y. 325 ;,S. C. 45 Am. 1885, § 4, taxijiig the indebtedness of Eep. 217. corporations doing business in the s San Francisco v. Liverpool &c. State, and compelling them to col- Ins. Co., (1887) 74 Cal. 113; s. 0. 5 lect that tax, applied to this corn- Am. St. Rep, 425. ' pany, and did not iuipair the obliga- 6 New York, L. E. & W. E. Co. v. tion of the contract between the Commonwealth, (1889) 129 Pa, St. State and the corporation, as set 463; s. C. 7 Ry. & Corp. L. J. 14. In forth above in the private statutes, this case the New York, Lake Erie & The court said in conclusion : " Thua § 821.J TAXATION OF C0EP0RATI0N8. 1277 the statutes of a State permit foreign corporations to do busi- ness therein, but impose on them conditions which could not be imposed on citizens, the permit is held to be valid while the condition is void.' Accordingly, a State can not levy a tax on foreign corporations licensed to do business therein, if its constitution prohibits it from levjnng a like tax on its own inhabitants.^ But the two classes of cases, one of which is plainly taxation, and the other a sum paid for a permit, may be approximated until it is difficult or impossible to say to which class a given case may belong. These difficulties in discriminating the principles underlying different cases con- stantly included in different classes, and to which the same rule of decision can not be applied, constitute the perpetual debating-grounds of the law, and occasion much of the con- fusion of the decisions.' § 831. (e) Interstate railway and transportation com- panies. — When these companies become instrumentalities of- interstate commerce, the federal courts have jurisdiction with- out regard to the citizenship of the parties.*, And ma,nj ques- tions have arisen in respect' of attempts on the part of the State? to impose taxes which are in effect a regulation of in- terstate commerce, — thus whether a State may impose a tax, it will, be seen that the defendant ^ Temple, J., in San Francisco v. exercises powers and franchises Liverpool &c. Ins. Co., (1887) 74 Cal. which it has Received directly from 113; s. c. 5 Am. St. Rep. 435, 439. the legislation of Pennsylvania ; that * Uhited States Ex. Co. v. Allen, a part of its property is actually (1889) 39 Fed. Eep. 713; but holding within the limits of this State, and that under Act of Congress, March 3, received the protection of our laws ; 1887, providing that no: civil suit and there is no good reason why the shall be brought in either the dis- company should not be held subject triot or circuit court against any to the same regulations as corpoi-a- jierson by any original process in tions of our own State." any other district than tlls^t whereof iSan Francisco v. Liverpool &c. he is an inhabitant, except when Ins, Co., (1887) 74 Cal. 113; s. C. 5 jurisdiction is founded only on the Am. St. Rep. 485. fact that the action is between citi- 2 San Francisco v. Liverpool &o. zens of different States, a suit to Ins. Co., (1887) 74 Cal. 113; s. C. 5 enjoin collection of a tax on the Am. St. Eep. 43.'5. See further as to ground that it violates thp federal the power of a State to discriminate constitution, must be dismissed as against foreign corporations, the exr to such defendants as are non- haustiye note to Ducat v. Chicago, ' residents of the district in which it 03 Am. Dec. 536. , is brought. ,, , , 1278 TAXATION OF OOKPOEATIONS. C§ 821. upon freight carried into or out of its territory ; * whether it may tax in transitu through its jurisdiction, goods transported from one State to another;^ whether it may impose a license or privilege tax upon foreign companies doing interstate busi- ness;' whether it may tax the gross receipts of fpreign com- panies derived in part from interstate traflBc ; * and each of these questions has been decided in the negative: In short no State has the right to lay a tax on interstate commerce in any form, whether by way of duties laid on the transportation of the subjects of that commerce, or on the receipts derived from that transportation, or on the occupation or business of carry- ing it on, and the reason is that such taxation is a burden on that commerce and amounts to a regulation of it which be- longs solely to congress.' But a distinction is made between taxing the gross receipts of foreign companies and domestic ;^ and it is held that the State piay impose a tax/of that kind upon its own railways even though the receipts be partly de- rived from interstate traffic* And the same rule is applied 1 State Freight Tax Case, 15 Wall. B32; Philadelphia &c. S. S. Co. v. Pennsylvania,' 123 U. S. 326; Fargo V. Michigan, ISl TJ. S. 230; Tele- graph Co. V. Texas, 105 U. S. 460; Erie Ey. Co. v. New Jersey, 3 yroora, 531. 2Farg^ V. Michigan, 121 U. S. 230 ; Goe V. Errol, 116 U. S. 517. 3 United States Ex. Co. v. Allen, (1889) 89 Fed. Rep. 713; s. c. 7 Ry. & Corp. L. J. 45, holding that Tenn. Adt of March 29, 1887, imposing a license tax upon express companies, is unconstitutional, a;S invading the exclusive power of congress to regu- late interstate commerce, as against an express company engaged in in- terstate transportation; and that Tenn. Act of April 8, 1889, provid- ing that a tax shall be paid for transporting one or more packages betv^een points within the State, the amount being regulated by the length of the company's lines, isj in effect, a tax on interstate buai> ness, and is unconstitutional ; citing and quoting Leloup v. Mobile, 127 D. S. 645: " Ordinary occupations are taxed in various ways, and -in most cases legitimately taxed ; but we fail to see how a State can tax a business occupation when it can not tax the business itself. Of course, the exac- tion Of a license tax as a condition of doing an}' particular business is a tax on the occupation; and tlie tax on the occupation of doing a busi- ness is surely a tax on the business." < Cf. Telegrapli Co. v. Texas, 105 U. S. 460. 5 Leloup V. Port of Mobile, 137 U. S. 640, 648. 6 Baltimore & O. R. Go. v. Mary- land, 21 Wall. 456; Minot v. Phila- delphia, W. & B. E. Co., (1873) 18 Wall. 206; State Freight Tax Case, 15 Wall. 232. Cf. Railroad Co. v. Maryland, 21 Wall. 456, where a charter stipulation that the railway- should pay a part of its earnings as a bonus to the State, was considered I 822.] TAXATION OF COEPOEATIONS. 1279 to a franchise tax proportioned to the capital stock and divi- dends of companies organized under the laws of the State imposing it, even though they be engaged in interstate com- merce.' § 823. (f) Sleeping and parlor car companies.— Sleeping and parlor cars, being usually owned by corporations distinct from the railway companies over whose lines they are run, and these corporations having extensive business in many States, the question of their taxation becomes one of the taxing of interstate commerce. Thus an attempt oii the part of the State of Texas to impose a privilege tax upon every sleepirjg- car not owned by the railway companies, run over their lines in the State, has been declared to be a regulation of interstate commerce and unconstitutional.^ But where sleeping-cars are run wholly within a State, the. business may be taxed as a privilege.' ,For every State, exercising the sovereign power of taxation, may tax all articles of property found Avithin its borders, and all business carried on there, whether owned and done by its own citizens or foreigners. The protection given diflferent in principle from a tax and em Car Co., (1890) 42 Fed. Rep. 578; not unconstitutional. S. c. 8 Ry. & Corp. L, J. 263, where 1 People V. Weuiple, (1889) 117 the court said: "It must be con- N. Y. 136; s. C. 7 Ry. & Corp. L. J. ceded that the State of Tennessee 127, where Danforth, J., said: "We had the right to tax the two sleep' are also of opinion that the tax ing-cars engaged in business between sought to be enforced is neither in Nashville and Mem'phis, wholly form nor substance obnoxious to within, the State, and that so far as any provison of the federal constitu- ' the federal' authoi-ity is concerned, tion. It interferes in no respect that power of taxation la plenary, with commerce with foreign nations The authorities need not be cited or among the several States. It is here, since it is not necessary to confined to capital employed in this support the concession made to the State by an entity existing under its plaintiff on that point, and the cases laws, and the manner in which its in the Supreme Court upon the sub- value shall be assessed and the rate jeot of taxation, in its relation to of taxation are matters of legislative interstate commerce, are far too discretion,- In no aspect does it pro- numerous and well known to re- fess 'to regulate commerce,' nor in quire any especial application of any proper sense has the legislation them to this case. The very latest in question that effect." of them cites the others, and fully 2 Pickard vj Pullman Southern Car establishes this ruling. Western Co., 117 tJ. S. 34. Union Tel. Co. v. Alabama State » Gibson-County v. Pullman South- Board, 132 U. S. 473." 1280 TAXATION OF COKPOEATIONS. [§ 822. while within the State is the consideration received for the contribution by taxation to the exchequer ,of the power that protects, and the fact that the same property or business may be taxed by the home power of the foreigner, because of its authority over him artd his property wherever situated, does not iippose any restriction on the taxing power of the State where the property is situated or the business carried on hy him. That fact, however, and other considerations of amity and comit]^ among nations, induce each to withhold, generally, any taxation of articles which are merely in tran- sit through the territory, or business temporary in character; but this exemption is purely voluntary and gracious, except so far as mutual benefits derived i^rom civilized internationg,l intercourse may influence it. The only restrictions upon this plenary power of the State must be found in its constitu- tion and those obligations which it assumed by entering into the federal compact. Where there is no discrimina- tion in the statutes against the propertj' or business of the citizens or other States, and the business of running cars to furnish sleeping and other comfortable accommodations to passengers between points wholly within the State, being do- mestic; and not interstate -conimerce, there can not be said to be any violation of the federal constitution in exercising the taxing power over them.' Whether counties may levy a sim- ilar tax depends upon whether the statutes of the State au- thorize them to do so.' The authorization must be express 1 Gibson County v. Pullman South- revenue laws, and of all subjects of ern Car Co., (1890) 42 Fed. Eep. 572; legislation these are the most char- S. a 8 Ey. & Corp. L; J. 263. acterized by want of uniformity and 2 Gibson County v. Pullman South- system, and are irregular and slip- em Car Co., (1890) 43 Fed. Eep. 572 ; shod in habit, not to 8ay slovenly ; s. o. 8 Ev. & Cojp. L. J. 263, where yet it will be seen that there is a Hammond, J., criticises our Ameri- habit about it that precludes, that can system of tax legislation as fol- which the county, assumes in this lows: " It is undoubtedly generally case, which is that once in a while true that whenever the State levies a general revenue statute, or a pair a tax, the counties are authorized to or several of them, will be attempted, levy a similar tax, not exceeding the wherein taxes are authorized for State tax or that specially fixed by State and county purposes, the the act, and this is always so, I county being always specially men- think, in a general revenue law, tioned, and all other acts are re- Theveisnonicely'adjustedsysteraof pealed. Then commences the pro- § 822.] TAXATION OF COEPOEATIONS. 1281 and is not to be lightly implied from loose and ill-considered statutes. ' Eor a sleeping-car company can hardly be said to- be doing business in a county through which its cars are car- ried in the course of a few minutes.^ cess of patching and tinkering, often unskillfully done and creating naore confusion, but the general law re- mains the foundation of the amend- atory legislation until the confusion becomes so great that a new start is made by another general law, to be put through the same process of amendment as before. These amend- atory acts do not always couple the county with the State, but some- times do, and the authority of the county depends upon the original act, as often the State levy does also,, notwithstanding the amend- atory act. But this is an entirely diilerent habit from that urged here in behalf of the county, that the code confers a general power, and nothing excludes it but special ex- clusion of the county in the particu- lar act. So far as these revenue laws are concerned, the codes are as tran- sitory as the other tax laws are found to be, and only embody the general foundation act in existence at the time the code happens to be enacted. There is not an intention by a fixed code statute to give the counties general power of taxation to operate somewhat like a constitu- tional power would act, and only to be withdrawn by special exclusion of the counties, but they must, like the State, take their chances in the constantly changing revenue enact- ments, and depend upon them for whatever authority they give when construed altogether. It might be a very useful and beneficial power for the counties to be comparatively ex- empt from changing authority, and thus have a right to tax, absolutely, whenever.the State taxes, unless for- 81 bidden, but such is not our law nor our habit of legislation, as any one will see upon cai-eful investigation historically and critically made. "See also Carlisle v. Pullman Palace Car Co., (1886) 8 Colo. 320; s. 0. 54 Am. Rep. 553. ^ Gibson County v. Pullman South- ern Car Co., (1890) 43 Fed. Rep. 573, where the court criticising the Ten- nessee act said : "The original sleep- ing-car tax was a special and fixed tax, not found in a general revenue law, nor intended as an amendment extending the county tax to that subject of taxation. , It was a loose and evidently ill-considered bit of legislation in not making the inten- tion nrore manifest, but in the very nature of the case, in view of the- business taxed, it probably never oc- curred to the draughtsman or the legislature that running a sleeping- car across a icounty a few minutes each day was such ' a doing of busi- ness in that county as would justify its taxation, as a privilege, by coun- ties. It was so incongruous in its relation to county taxation that it did not occur to the legislature that such a construction could be claimed for it. And, really, no business is carried on in Gibson county when the car rolls through it, possibly in sixty minutes or less, and taxable county privileges are those where the business is located and done in the county. To use the illustrations of the counsel for the plaintiff, the peddler, although in one sense tran- sitory, really is, for the time being, located in Gibson county, and sells quite exclusively to its population while there, and so the circus shows 1282 TAXATION OF C0E3POEATIONS. [§ 823. § 823. (g) Telegraph and telephone companies. — The State may tax such real and personal property of -telegraph companies as is located within its borders.^ But neither the State nor a municipality can impose a license tax upon lines used in the transmission of interstate messages.^ ^Neither can the State or municipal governments impose a tax upon the gross receipts of telegraph companies a part of v/hose earnings is from interstate messages.? A tax of gross receipts is not almost exclusively 'to them for the time being; but the sleeping-car, while it may take up a Gibson county man now and then, or sell a ticket at its stations to him who enters the cars, can hardly be said to be doing business in that county in such a sense as would justify taxing it as a privilege by counties, while as to the whole State it might be fair and well enough to tax the privilege, as has been done by these acts. It is in the light of such considerations as. these that we arrive at the legisla- tive intention, certainly when we are asked to imply it, in the absence of all express declaration to that end which is contrary to all sense of justice." iCityof St. Louis v. Western U. Tel. Co., (1889) 39 Fed. Rep. 59; s: 0. 6 Ry. & Corp. L. J. 293, citing Tel- egraph Co. V. Massachusetts, 135 U. S. 580 ; Leloup v. Port of Mobile, 137 U. S. 640. 2 City of St. Louis v. "Western U. Tel. Co., (1889) 39 Fed. Rep. 59, cit- ing Almy V. California, S4 How. 169; Crandall v. Nevada, 6 Wall. 85; State Freight Tax, 15 Wall. 233; Oar Co. V. Nolan, 22 Fed. Rep. 276; Le- loup V. Port of Mobile, 127 U. S. 640, and holding that a tax of five dollars a year upon every pole in the city is a "license tax" and not within the city's charter power to "regulate" telegraph companies. " By virtue of such power," said Thayer, J,, "the city authorities may undoubt- edly make reasonable regulations touching the location of telegraph poles, their height and size, and very likely, as was recently held by Judge Wallace in the southern district of New York, (Telegraph Co. v. Mayor, 38 Fed. Rep. 552,) may require them to be carried underground rather than overhead. The section of the ordinance on which this suit is based is not, however, a regulation of that character, nor is it in any proper sense a regulation, Within the meaning of the city charter. The object of the enactment was evi- dently to secure revenue for the municipality ; hence the burden im- posed is a tS'X, and it is imposed in such form that it can only be re- garded as a privilege or license tax which the city has no authority to impose." 8 Western Union Tel. Co. v. Seay, (1889) 133 U. S. 472. In this case the Supreme Court, referring to similar cases decided in that court, said but little remained except to show that this case comes within the same principle. " That principle is, in re- gard to telegraph companies whibh have accepted the provisions of the Act of Congress of July 24, 1866, sections 5363 to 5268 of the Revised Statutes of the United States, that they shall not be taxed by the au- thorities of a State for any messages, or receipts arising from messages from points within the State to points without, or from points with- § 823.] TAXATION 01" COEPOEATIOlirS. 1283- wholly invalid, however; but is invalid only in proportion to the extent that the gross receipts are derived from interstate commerce.^ Neither is the capital stock of 3\, foreign tele- out the State to points within, but that such taxes may be levied upon all messages carried and delivered exclusively within the State. The foundation of this principle is that messages of the former class are elements of commerce between the States, and not subject to legislative control of the States, while the latter class are elements of internal com- merce, solely within the limits and jurisdiction of the State, and there- fore subject to its taxing power. The following cases in this court have fully developed and established this proposition: Pensaoola Tel. Co. V. Western Union Tel. Co., 96 U. S. 1 ; Telegraph Co. v. Texas, 105 XJ. S. 460 ; Telegraph Co. v. Massachusetts, 135 U. S. 530; Eatterman v. Tele- graph Co., 137 U. S. 411; Leloup v. Port of Mobile, 127 U. S. 640 ; Fargo V. Michigan, 131 TJ. S. 330; Steam- ship Co. V. Pennsylvania, 133 TJ. S. 33G. ... In the earliest of these cases, Telegraph Co. v. Telegraph Co., the statute of Florida had at- tempted to confer upon a corpora- tion of its own State, the Pensacola Telegraph . Company, . an exclusive right of doing the telegraph business within that State. This court held, afiii-ming the judgme'nt of the cir- cuit court of the United States for that district, that tliis statute was a regulation of commerce among the States forbidden by the constitution of the United States to the State of Florida, In the next case, that of Telegraph Co. v. Texas, 105 U. S. 466, in which the State had imposed a tax of one cent for every full-rate message sent, and one-half cent for every message less than full-rate, on the business of the Western Union Telegraph Company, many of the messages were by the ofScers of the government, on public business, and a large portion of them were to places outside of the State. The company contested the constitution- ality of this law, and the case came to this court, where it was said that a^ telegraph company occupies the same relation to commerce, as a car- rier of messages, that a railroad does as a carrier of goods. . . t The case of Telegraph Co. v. Massa- chusetts, 135 U. S. 530, was a ques- tion growing out of the taxation of the telegraph company by the State of Massachusetts, and the same principle we have already considered was, asserted in that case, after a general review of the authorities upon the subjeqt." In Leloup v. Port of Mobile, 137 U. S. 640, the, question arose upon a conviction, under the statute of Alabama, on an indictment for failing to take out a license tax by the telegraph com- pany, imposed by the city of Mobile on all telegraph companies. Edward Leloup, the agent of the company, i was convicted under this proceeding, his conviction affirmed by the Su^ preme Court of Alabama, and its judgment brought to this court on writ of error. This court held that, his company having complied with the act of Congress of July 24, 1866, the State could not require it to take out a license for the transaction of business in the city, and that a ^en; eral license tax on the telegraph company affected its entire business, interstate as well as domestic an4 internal, and was unconstitutional." 1 Ratterman v. Telegraph Co., 137 U. S. 411. 1284 TAXATION OF COEPOEATIONS. [§823. phone company having no officer or agent in the State, and doing business there only in renting instruments to other cor- porations, which own the wires and opoi*ate the telephones, under contracts made outside the State, taxable in the State, althpugh the , instruments remain the property of the com- pany, and it reserves the right in certain events to take posses- sion of and operate them.\ There is a decision in ISTew York, however, to the contrary, in which the same company was held liable to taxation on such part of its capital as is em- ployed in that State, on dividends realized thereon and on its gross earnings within the State, upon the ground that the 1 Commonwealth v. American Bell Tel. Co., (1889) 139 Pa. St. 317; S. C. 7 Ey. & Corp. L. J. 99. The court, per Paxon, C. J., in affirming the judgment below, said: "The com- pany is a corporation created by the laws of the State of Massachusetts. Its principal office or place of busi- ness is in the city of Boston. It has no office, agent, or place of business in this State. AUthe contracts for rent and royalty of telephones were made in Boston, and the payments therefor were made there. It leases to certain Pennsylvania corporations the use of the telephone and fur- nishes the instruments, which re- main the property of the company, and are to be paid for, whether used or not. The Pennsylvania corpora- tions carry on the business here. They construct and own the neces- sary lines of wire, switches, switch- boards and other apparatus neces- sary to carry on the business. They maintain their own offices, and em- ploy and pay the officers and agents needed to carry it on. The telephone company transacts no business here. It has no part of its capital or prop- erty here, except the instruments in question, which, as before observed, are leased to Pennsylvania corpora- tions with a license to use the same. Under such a state of facts it would seem clear that the telephone com- pany could not be taxed as doing business within this State. It was contended, however, on the part of the Commonwealth, that because the company has in its contract with the Pennsylvania corporations reserved a certain power of control over tele- phones 'leased to them, and might, upon certain breaches of said con- tracts, enter upon, take possession of, and operate said telephones, the said company was doing business here, and became liable to the tax. There is a wide distinction, however, be,tvpeen the right to do business and actually doing it. It may be that should said company proceed to en- force their rights under these con- tracts, and after taking possession of the telephones operate them, it would be doing business here. But that contingency has not arrived. It is to be observed that this was not a tax upon the instruments owned by the company, and operated here under license. The instruments as such are perhaps within the taxing power of the Commonwealth, for the reason that they are here, and within her jurisdiction. It matters not to the State to whom they belong. But the State has not laid such a tax. On the contrary, it is a tax upon capital stock ; and, as the com- ,§824.] TAXATION OF COEPOEATIONS. '128"5 local companies were merely its ageats, and that it was, ac- cordingly, " doing business within the State." ^ , § 834. Taxation of shareholders — Double taxation. — A tax on the shares of stockholders in a corppratioh is a dif- ferent thing from a tax on the corporation itself or its stock, and may be laid irrespective of any taxation of the corpora- tion where no contract relations forbid.^ Upon this principle that the tangible property of a corporation and the shares of its stock are distinct kinds of property under different owner- ship, the former being the property of the corporation, the pany transacts no business within the State, no portion of its capital is here in point of fact or by construc- tion of law. Authorities are scarcely needed for so plain a proposition. It is suflScient to refer to Common- wealth V. Oil Co., 101 Pa. St. 119." Commonwealth v. American Bell Telephone Co., (1889) 129 Pa. St. 317. iThe American Bell Telephone Company of Massachusetts licenses corporations to do business in New York under the "exchange system," by which a cenfral office is estab- lished, and communication carried on through it. The instruments are supplied by the company, and re- main its property, and a royalty is paid to it on each, though they are leased by the local corporations to their subscribers. The other appa- ratus belongs to the local corpora- tions. The latter make the leases, and collect the rents, but each lease stipulates that the company owns the instruments, and the, company reserves the right to intervene and collect its portion of the rSnts. An- other form of contract with the local corporations provides for coimecting lines on similar terms, reserving to the company the right to use the telephones thereon, and to connect the lines with the lines of the local corporations in order to forward through messages, and provides for a division of the tolls, and that the leases shall express the title of the company to the instruments, and the company may enforce, or require the local corporation to enforce, all its rights against the subscriber. Leases for private lines are made di- rectly with the company, and . coun- tersigned by the local corporations, which collect the rents,' and trans- mit them to the company. The company also has lines connecting with the offices of the Western Union Telegraph Company, under an ar- rangement by which it receives a certain proportion of the income de- rived from that business. And as stated in the text, it was held that the local corporations are merely the agents of the company, which thus does business within the State, within the intendment of N. Y. Laws of 1881, ch. 361, §§ 3, 6, said act being an amendment of Laws of 1880, ch. 543, and is liable to pay the percent- age, at least on its capital employed in the State, and on the dividends realized on that capital, as prescribed by section 3 of the act of 1881, and also the tax of five-tenths per cent, on its gross earnings in the State. People V. American Bell Tel. Co., (1889) 50 Hun, 114, Van Brunt, P. J. dissenting. 2 Cooley on Taxation, 331. ,1286 TAXATION OK OOKPOEATIONS. [§ 824. Jatter that of the shareholders, it is heiid that although the company may pay taxes upon its property, yet a tax upon the shares is not unjust as being double taxation.' But al- though the State has the power to levy double taxes, they are never to be presumed in the absence of explicit statutory lan- guage.^ In many States shares of stock are exempt by stat- ute from taxation when the corporation itself is taxed,' Under such a statute it is held that the shareholder is not taxable even when the company does not fulfil its duty in re- turning its property for taxation.* In some States the con- stitutions forbid double taxation.' Other States tax the shares but collect it from the company.* In others again, in the as- sessment of the shares to the holders, a proportionate part of the value of ' th^ corporate property otherwise taxed, is de- ducted from each share.' The State having jurisdiction of iFarrington v. Tennessee, (1877) S5 U. S. 679, 6B7; Belo v. Commis- sioners, (1880) 83 N. C. 415; New Orleans v. Canal Co., 33 La. Ann. 61; Emsly v. Memphis, 6 Baxter, ,553; Pittsburgh ,Ei Co. v. Common- wealth, 66 Pa. St. 77; Whitesell v. Northampton County, 49 Pa. St. 536; State v. Thomas, 26 N, J. 181; Frazer v. Seibern, (1866) 16 Ohio St. 614; Salem Iron Co. v. Danvers, (1813) 10 Mass. 514 ; Tremont Bank V. Boston, 1 Cush. 143; Toll Bridge •eo. V. Osborn, (1868) 35 Conn. 7; Cumberland M. E. Co. v. Portland, 37 Me. 444 ; Danville Banking Co. v. Parks, 88 111. 170; Porter v. Eock- ford &o E. Co., (1875) 76 111. 561; Conwell V. Connersville, 15 Ind. 159 ; Cook V. Burlington, 59 Iowa, 251. Of. Eyan v. Commissionets, (1883) 30 Kan. 185. 2 New Orleans v. Houston, 119 .U. S. 365 ; Tennessee v. Whitworth, 117 U. S. 136; Eepublio Life Ins. Co. V. Pollock, (1874) 75 111. 292; " Taxation of Corporations," by Prof. E. E. A. Seligtnan, (1890) 5 Polit. Science Quart. 636. 3 N. Y. Eev. Stat. pt. 1, ch. xiii, tit. 1, § 7; Gordon v. Baltimore, 5 Gill. 331 ; Ala. Eev. Code, of 1884, sec. 2, § 8; N. C. Eev. Laws, oh. 103, § 7 ; S. C. Eev. Stat. ch. xii, sec. 6, § 19; Fla. Dig. ch. 138, § lO; "W. Va. Code, ch. 39, § 5i; Tex. Eev. Stat, art. 4683; Ohio Eev. Stat. § 2746; Mich. Laws of 1885, ch. 153, g 2; Wis. Eev. Stat. sec. 1038, § 9; Neb. Comp. Stat. ch. 77, art. i, § 7 ; Idaho Eev; Stat. §§ 1401, 1440; Mont. Act of March 14, 1889, g 9; Utah Comp. Laws, § 2009; In Cheshire County Telephone Co; v. State, (1886) 63 N, H. 167, the principle was declared that no legal assessment of taxes can be made against corporate prop- erty at the same time that the stock of the corporation is taxed as to its owners. 4 Gillespie v. Gaston, (1887) 67 Tex. 599. 5 Cal. Const, art. xii, § 1, construed in Burke v. Badlam, (1881) 57 Cal. 594. 6Ga. Code, § 815; 13 Del. Laws, ch. 393; N. C. Machinery Act of March 11, 1889, § 16; Kan. Comp. Laws, ch. 107, § 6. 7 Tenn. Laws of 1868-69, ch. 9, § 9 ; ■§ 825.] TAXATION OF COEPOEATIOHS. 1287 the person may tax him upon shares held in a foreign corpo- ration whose property is beyond its jurisdiction,^ the situs of the shares being the residence of the owner when the con- trary is not declared by statute.^ But the taxing powers of a State are limited to persons and property within and subject to its jurisdiction, and therefore do not extend to intangible personal property owned by a non-resident of th« State. Thus, where one residing in the State of New York owns stock representing the debt of the city of Baltimore, it is not tax- able by the State of Maryland.^ § 825. Exemptions — (a) In general. — The constitution- ality of statutes or charters exempting corporate property from taxation has been considered in a preceding chapter.'' But as was said in that connection, an exemption is not to be 'lightly presumed from the language oif a charter or statute.' The power of taxation can be surrendered only by clear and unambiguous language, which will not bear any reasonable construction consistent with a reservation of that power.* La. Acts of 18S8, No. 85, § 27 ; N. H. Gen. Stat. chs. 53-55; Vt. Rev. Laws, tit. 9, ch. 33, § 388 ; Me. Eev. Stat, tit: i, sec. 14, § 3 ; Minn. Gen. Stat. ch. xi; Neb. Act of 1879, §^33. And as to banks in New York, N. Y. Laws of 1866, ch. 761; of 1883, oh. 409, § 313. iQgden v. City of St. Joseph, (1887) 90 Mo. 533. ^Ogden u. xCity of St, Joseph, (1887) 90 Mo. 533. 3 City of Baltimore v. Hussey, (1887) 67 Md. 113. * Vide supra, § 34. See also Rail- road Co. V. Anderson County, 59 Tex. 654; Railroad Co. v. Smith County, 65 Tex. 31. In a recent Kentucky case it was held that an exemption of the stock of The Louis- ville Water Company from taxation on account of its being owned by the city of Louisville and the company being under obligation to furnish water for fire protection, is contrary to the provision of the State consti- tution that "no man or set of men are entitled to public emoluments or privileges but in consideration of public services," since the city owns the stock in its private and not in its governmental capacity, and the ob- ligation to supply water for fires without charge is merely a service rendered by the city to itself. Clark 17. Louisville Water Co., (Ky.\1890) 14 S. W. Rep. 503. 5 Vide supra, % 85. * Southwestern R. Co. v. Wright, (1886) 116 U. S. 331, and cases cited supra, % 35. Under Laws Wis. 1874, ch. 136, the State granted lands to a railroad company, to aid in the con- struction of its road, on condition that it should construct twenty miles each year until the road should be completed, patents for a certain amount of the land to be issued to the company on completion of each twenty miles. Laws Wis. 1879, ch. 33, provided that all of such lands there- tofore patented, or which might 1288 TAXATION OF COEPOEATIONS. [§'825. Thus an exemption from taxation of the capital stock and " all the property and effects " of a railroad company, will not be extended by implication to outlying and detached lands which the corporation had no power to acquire when the ex- emption was granted; but which were acquired under a power granted by a subsequent charter.^ And, generally, exemp- tions of railway property extend only to property necessary to, the construction, maintenance and operation of the road, and not to outlying lands acquired for resale or for the tim- ber thereon.^ So an act which provides that "the taxes laid upon manufacturing- corporations, by and under the revenue laws of this Commonwealth, be, and they are hereby, abol- ished as to such corporations," does not exempt from taxation the capital stocli of a rolling-mill company " invested in dwell- ings which are reasonably necessary for the use of/ its em- ployees," as those dwellings, although conveiiient and advan- tageous, have no necessary connection with the business for which the company was incorporated.'' The same statute has been held to operate simply on capital employed in manufact- uring, and not to exempt the capital of a manufacturing com- pany invested in bonds, mortgages, city lots and store good.s.* Likewise, a statute exempting from taxation the real property of a board of trade, so long as occupied by it for the purposes contemplated in its organization, does not exempt such portion of a building owned by the corporatibn and partly used for board of trade purposes, as is rented to third persons, although the, rent is applied to the purposes of the board.* An exemp- tion of railways has been held not to apply to a corporation which, under authority to construct and operate railways and thereafter be patented, under the i Ford v. Delta & Pine Land Co.., law of 1874, should be exempted from (1890) 43 Fed. Eep. 181. taxation of all kinds for ten years. 2 McCuUoch v. Stone, (Miss. 1890) 8 And it was held that the period of So. Eep. 236. exemption did not begin to run as to ' s Commonwealth i;. Mahoning Roll- each batch of land thereafter pat- ing-Mill Co., (1889) 129 Pa. St. 360, ented from the date of the patent, construing Pa. Act of June 30, 1885, and continue ten years therefrom, § 20.' but began to run at once as to all * Appeal of Commonwealth, (1889') the land granted, and ceased entirely, 129 Pa. St. 846. as to all, at the end of ten years. ^City of Louisville v. Louisville, State V. Harshaw, (Wis. 1890) 45 N. Board 6f Trade, (Ky. 1890) 14 S. "W. W. Rep. 308, ' Eep. 408. § 826.] TAXATION OF COEPOEATIONS. 1289 / to build and use steamships in foreign and domestic trade, con- structed a short line of railway, sold it, and subsequently en- gaged chiefly in running a steamship line.^ Again, under a general statute empowering towns by vote to exempt from taxation any establishment proposed to be erected and put in operation therein, and the capital used in operating the same, for the manufacture of fabrics of cotton or any other material, and declaring that the vote shall be a contract binding for the term specified therein, it is held that a vote to exempt "any establishment thereafter ' erected in this town for the manufacture of fabrics," is not sufiBcient to exempt an estab- lishment not expressly mentioned in the vote.^ But under a constitutional provision exempting from taxation the capital, machinery and other property employed in the manufacture of textile fabrics, property of that kind used in making cord- age, rope and twine is not taxable.^ Under the cit}' code of Baltimore, which provides that, whenever the per centum of the receipts of any passenger railway company now required to be paid to the city for the use of the park fund shall be re- duced, the reduction shall apply to the railways hereby author- ized to be constructed, it is held that deductions by the city of Baltimore in compromising with street-railwaj' companies in suits for the percentage of their passenger earnings due the city, is not such a reduction as will entitle all companies con- structed under the provisions of that code to the same reduc- tion.'' § 826. (b) From municipal taxes. — Kailway companies are frequently exempted from the payment of "county taxes," but there has been some litigation as to what taxes are prop- erly included in the exemption.-' A tax levied to pay the 1 International Navigation Co. v. 1890) 7 So. Rep. 784, construing La.. Commonwealth, (1886) 104 Pa. St. Const, art. 307. 38, construing Pa. Act of May 1, ■* Baltimore Union Pass. Ry. Co. v. 1868. City of Baltimore, (Md. 1890) 18 At- 2 Frantlin Falls Pulp Co. v. Frank- Ian. Rep. 917, construing Bait. Rev. lin, (N. H. 1890) 20 Atlan. Rep., 333, City Code of 1885, p. 333. ' construing N. H. Gen. Laws, ch. 53, ^Ma. Act 1868, p. 151, repealing § 10. former acts relating to , taxes for 8 Waterbury i>. Atlas Cordage Co., maintenance of public roads, pro- (La. 1890) 7 So. Rep. 783 ; Hernsheim vides in section 7 that county courts V. Atlas Steam Cordage Co., (La. may borow money on the credit of 1290 TAXATION OF COEPOEATIONS. [§ 827. bonds of the coiinty, given by it for stock in a railfoad com- pany, is a county tax ; and this, although the bonds can only be paid out of the tax levied for that special purpose.' But in the case above cited a local tax levied only on property within the limits of a particular township to pay township fundihg bonds, has been held not to be a county tax within the mean- ing of the defendant's charter.^ § 827. (c) Charitable, scientific etc. institations. — Be- nevolent, religious, scientific and educational associations and corporations are frequently exempted by the constitutions and general laws from payment of taxes.' These provisions generally contain a proviso that the property must be used exclusively for the purposes designated in order to receive the benefit of exemption from taxation. If used for other pur- poses, it then becomes liable to tai^tioUj although the pro- ceeds are to be applied for the promotion of the institution.* the eoiinty for the purpose of Open- ing and repairing public toads, and levy a tax to meet the interest thereon. Section 37 provides that, for the purpose ofopening, repairing and improving roads, and in ordet to raise the necessal-y funds, the county courts shall levy a special tax, \yhich shall be known as the "road tax," this levy to be made as the county revenue is levied; and that all property subject to pay a county tax shall be made subject to pay a road tax. Subsequent acts classify all taxes into State, county, township, school and municipal taxes. It is held that the road tax is a county tai, within the mean- ing of the special charter of the de- fendant company (Mo. Act . 1847, p. 157, § 4), exempting it from pay- ment of county taxes: State v. Han- nibal & St. J. E. Co., (Mo,- 1890) 13 S. W. Rep. 4b6. Mo. Acts 1847, p. 157, gives to defendant company all the privileges and immunities ■which were granted to the Louisiana & Columbia Railroad Company by Acts 1836-37, p. 253; which provide, inter alia, that "the stock of said company shall be exempt from all State and county taxes." Act Sept. 20, 1852, granting lands to defend- ant, arid accepted by it, provides that it shall "{)ay into the treasury of the State a sura of money equal to the amoiint of State tax on other real and personal property of like value for that year, upon the actual value of the road-bed and other property of the company.'' But it is held that this act in no way affects defendant's charter exemption from taxation for county purposes. State i;. Hannibal & St. J. R. Co., (Mo. 1890) 13 S. W. Rep. 505. 1 State V. Hannibal & St. J. R. Co., (Mo. 1890) 13 S. W. Rep. 505. 2 State V. Hannibal & St. J. R. Co., (Mo. 1890) 18 S. W. Rep. 505. ^E. g. Mo. Const, art. x, § 31. * Trustees v. Exeter, 68 N. H. 306; Old South Society v. Boston, 137 Mass. 378 ; Orr v. Baker, 4 Ind. 86 ; Trustees v. Ellis, 38 Ind. 3; Con- necticut &o. Assoc. V. East Lyme, § 827.] TAXATION OF COEPOBATIOUS. 1291 The English tax upon associations and companies exempts, inter alia, property which, or the income or profits whereof, shall be legally appropriated and applied for any purpose con- nected with any religious persuasion, or for any charitable purpose, or for the promotion of education, literature, science or the fine arts; property belonging to or constituting the capital of a body corporate or unincorporate established fbr any trade or business; property acquired by or with funds voluntarily contributed to any body corporate or unincorpo- rate within a period of thirty years immediately preceding; and property on which legacy or succession duty has been paid.' There is a statute in New TorJj exempting every " in- cbrporated company" not liable to taxation on its capital stock.^ The difiiculty under these statutes is in determining whether particular associations or corporations are within the exemption; whether,, looking at the facts of. the case, the ob- jects of the body claiming exemption and the manner iii which those objects have been carried out, it is entitled to im- munity.' Masonic lodges are generally considered as institu- 54 Conu. 153; State v. Board, 34 La. Ann. 668; State v. Board, 34 La, Ann. 574 ; Blackman v. Houston, 39 La. Ann. 592; Washburne College V. Shawnee County, 8 Kan. 344; Cincinnati College v. State, 19 Ohio, 110; St. Mary's College v. Crawl, 10 Kan. 443 ; Morris v. Lone Star Chap- ter, 68 Tex. 698 ; First M. E. Church ■i}. Chicago, 26 111. 483; Wyman v. City of St. Louis, 17 Mo. 335. Cf. Massachusetts Gen. Hospital v. Sommerville, 101 Mass. 319; Monti- cello Seminary v. People, 106- 111. 398 ; " Non-Taxable Institutions, " by D. H. Pingrey, (1890) 31 Cent. L. J. 35. Accordingly, statutes exempt- ing houses for religious worship, owned by religious societies, do not include a parsonage erected upon the church grounds, or the lands on which it is situated, although the parsonage is occupied by the pastor of the , church, rent . free. Third Congregational Soc. v. Springfield, 147 Mass. 396; State v. Lyon, 33 N. J. 360; State v. Krallman, 38 N. J. 117; State v. Axtell, 41 N. J. 117; Church u Board, 13 Minn. 395; Hennepin v. Grace, 27 Minn. 503; Church V. Providence, 12 R. I. 19 ; Gerke v. Purcell, 35 Ohio St! 239; Trustees v. Ellis, 38 Ind. 3. Cf. " Taxation of Christian Associa- tions,'' by B. V. Abbott, 13 Chicago L. N. 15; "Taxation of Churches, Colleges & Charitable Institutions," by Lyman H. Atwater, 46 Princeton Eev. 340. 1 Customs and Inland Eev. Act of 1855. 2N. Y. Eev. Stat. 388, § 4, sub. 7. 2 Commissioners of Inland Eev. v, Forrest, 59 L, T. Eep, N. S. 383; S. C. 39 Q. B. Div. 631. In this case, the institution in question was that of civil engineers. It was incorpo- rated in 1828 by Royal Charter, for the general advancement of mechan- ical science, and more particularly 1292 TAXATION OF COEPOEATIONS. ■[§827.- tions of purelj' public charity, and so long as their property is used exclusively for the purposes set forth in the law, it is ex- empt from taxation. But when their real estate is rented for other purposes, then it becomes subject to taxation.' In ISTew York it has been held that a religious corporation is not ex- empt under the exemption of incorporated companies not liable to taxation on their capital stock.^ An association for the encouragement of debating, reading, and literature, and the enjoyment of rational and social amusements, and the playing of ten-pins, chess, and. checkers, and other lawful games of the kind, but which excludes all drinks, and has no , for promoting the acquisition of that species of knowledge which constitutes the profession of a civil engineer. The secretai-y's aflBdavit stated that the whole property of the institution-was, and always had been, e^xclusively devoted to the fur- therance of these objects. The Divis- ional Court, consisting of Lord Cole- ridge and Mr. Justice Field, held that this institution did not come within the exemption. On appeal, Lord Justice Lopes agreed with the Divisional Court, but Lord Esher and Lord Justice Fry being of the contrary opinion, the judgment of that court was reversed. "The- question in this case,'' said the Master of the Rolls, '^-is not one as to thp construction of the section, but whether, looking at the facts as to this institution, its main object is the promotion of science, and whether that object has been carried out." "Science," said Lord Justice Fry, " is not the less science because it is also able, in the language of one of its most distinguished professoi's, ' to be a rich storehouse for the re- lief of man's estate.' Finally, it is not necessary that it should be sci- ence for all ; there is nothing to pre- vent the exception applying to the promotion of science among a par- ticular class." The House of Lords have agreed with the majority of the Court of Appeal, but the Lord Chancellor dissented. From this case, it follows that all institutions which have for their main object the promotion of science will be ex- empt from this tax, although the members may find the institution an assistance to them in the way of their profession. 1 College V. Mercer Co., 101 Pa. St. 530; Institute v. Delaware Co., 94 Pa. 163; Asylum v. School District, 90 Pa. St. 21 ; Donahugh's Appeal, 86 Pa. St. 306; Swift v. Easton, 73 Pa. St. 363; Gerke v. Purcell, 25 Ohio St. 229 ; Humphries v. Little Sisters, 29 Ohio St. 201 ; Association v. Pel- ton, 36 Ohio St. 258 ; Morris v. Lone Star Chapter, 68 Tex. 698 ; State v. . Board; 84 La. Ann. 574 ; Massenbury V. Grand Lodge, 81 Ga. 212; Mayor V. Lodge, 53 Ga. 93; "Non-Taxable Institutions," by D. A. Pingrey, (1890) 31 Cent. L. J. 25; "Exemption of Friendly and Other Societies," 16 Sol. J. & Rep; 3. Whether fraterni- ties are charities to the extent of having their property free from tax- ation, see Hirschl's Law of Fraterni- ties & Societies, (1883) 8-12. 2 Catlin V. Trusteesi of Trinity Col- lege, 113 N. Y., 138, construing N. Y. Rev. Stat. 388, g 4, sub. 7. ,827.]. TAXATION OF OOEPOEATIONS. 1293 connection with business purposes, nor politics, nor has in view any pecuniary profit, was held to be exempt from the paynient of an incorporation tax under the Missouri exception of asso- ciations incorporated for benevolent, religious, scientific, fra- ternal, beneficial, and educational purposes, and of any asso- ciation which tends to the public advantage in relation to education, literature, history, or skill among the learned pro- fessions.i But a club of the ordinary kind can not' be said to be formed for the promotion of education, literature, science, or the fine arts; neither can it claim exemption under an exception in favor of property acquired by or with " funds voluntarilj'- contributed." ^ The English Council of Law Ke- 1 State V. Lesueur, (Mo. 1890) 13 S. W. Rep. 237, construing Mo. Eev. Stat, of 1889, §g 2831, 2825, and hold- ing that so much of Mo. Rev. Stat. of 1889, § 2834, as undertakes to al- low corporations to be created for other than benevolent, religious, scientific, or educational purposes, without payment of the tax, violates Mo. Const, art. x, § 31, requiring that corporations other than those mentioned shall provide for a capi- tal stock, and pay a tax. -In re New University Club, 18 Q. B. Div. 720, where it was ai-gued that those who enjoyed the privileges of the club need not have become menjbers unless they chose, and ac- cordingly that the funds were volun- tarily contributed. The court, how- ever, disagreed with this contention, for, as Mr. Justice Hawkins pointed out, "Every contract is the result of. a voluntary agreement, and yet it is difficult to see how moneys paid out under an obligation imposed by suCh contract can be said to be a volun- tary payment." The same learned judge suggested, without attempting a definition, that this sixth exemp- tion would refer to " property ac- quii-ed for the mere innocent amusement and recreation, or for promoting the general health and comfort of the public, from which no special advantage or benefit is sought to be derived by the .con- tributor to the funds raised for its acquisition, for instance, a people's palace, a public recreation ground, public baths and washbovises, or other institutions of a like -nature." A similar attempt to escape duty was made by the Linen Drapers' In- stitution, which had been founded with a view "to afford relief to de- cayed and distressed lineu and woolen di-apers, etc. ; to extend re- lief in sickness, assistance to the aged and those past labor and destitute ; to aid the widow and to protect the orphan and forlorn child.'' A large sum was subscribed by donations which formed the nucleus of the funds of the institute, but members also paid subscriptions. Baron Pol- lock, in his judgment, p. 953, spoke of "the well-known principle that there is a wide distinction between a mere gift by wealthy or benevoleat persons to a charity or to individuals for a mere charitable purpose, and the creation of an institution which is really in the nature of a mutual benefit society." Mr. Justice Haw- kins pointed out, p. 956, thp,t "the institution has a right to look at the fund in two different ways -* that is 1294 TAXATION OF COEPOEATIONS. [§ 828. porting claimed exemption under an exception of property belonging to or constituting the capital of a body corporate or unincorporate established for any trade or business. The Solicitor-General argued on behalf of the Crown that this coun- cil did not carry on a trade or business in the ordinary sense of the term. They had obtained, he urged, a license from the Board of Trade to omit the word " limited " from their regis- tered name, and the board would not gj'ant such a license to a trading company. The Lord Chief Justice thought that it was capable of strong argument that the council carry on a trade, although they make iio profits from it, bat at all events they carry on a business. Mr. Justice Manisty was of the same opinion, stating that it was never intended to cripple the business of companies by putting the new tax on them.^ § 828. (d) Transmission of exemptions. — Immunity from taxation is a privilege personal to the corporation to which it is granted,^ and does not pass to its successor unless the char- ter or statute express a clear intent to that effect.' Thus to divide it, and to say that a certain portion of the thirty years' accu- mulations have been derived from voluntary gratuitous contributions within the terms of exemption 6, and from property on which legacy or succession duty has been paid within the terms of exemption 7," and th&t the institution would not have to pay duty on that portion; but that the contributions of the subscribing members stood on a dif- ferent footing, and wei-e liable to be assessed, unless it should be shown that they were "legally appropriated and applied for any charitable pur- pose." In re Linen Drapers' &c. Inst,, 58 L. T. Eep. N. S. 949. iJw re Incorporated Council of Law Reporting, 33 Q. B. Div. 279; 8. C. 60 L. T. Eep. N. S. 505. ? Vide supra, % 35. A consolida- tion of two railroad companies under the Missouri consolidation act of March 8, 1869, operates as the crea- tion of a new corporation, whoUj distinct from the constituent corpo rations out of which it is formed, wliich new corporation derives ita powers and franchises from the con- solidation act ; and since Mo. Const. 1865, art. xi, § 16, prohibiting legis- lative exemption from taxation, was adopted before the passage of the act, the consolidated corporation does not acquire the immunity from taxation granted in 1857 to one of its constituent Qorporations. Keokuk & W. E. Co. V. County Court, (1890) 41 Fed. Eep. 305, following State u. Railroad Co., (1889) 99 Mo. 80. ^Vide supra, § 35; Wilson tj, Gaines, 103 U. 8. 417; Morgan o. Louisiana, 93 U. S. 217; Lord a, Litchfield, 36 Conn. 116; New Haven V. Shefaeld, 30 Conn. 160; State v. Whit worth, 8 Lea, 594; People v. BearBley, 53 Barb. 205; St. Louis &e. Ry. Co. V. Berry, 113 U. S. 465; Louisville &c. R, Gp. v. Palmes, 109 • § 828.] TAXATION OF COEPOEATIONS. 1295 immunity from taxation does not pass merely by a conveyance of the " property and franchises " of a railroad company under a judicial sale, in a suit brought by the State to enforce a statutory lien, although the company's property was held by it exempt from taxation.^ So lands embraced in a railroad land grant and exempt from ordinary taxation while held by the corporation for whose beneSt the grant was made, be- come subject, to taxation upon the entire beneficial interest of the corporation being conveyed by a trust deed, to se- cure a specified charge upon the lands exceeding their value, the cestuis que trustent being empowered, at their mere elec- tion, to take and appropriate the entire property in satis- faction of their claims upon it, so as to leave nothing to revert to the grantor.^ Eut where an act of consolidation grants to the new company the rights and privileges of the original corporations, it is held to confer upon the former an exemption from taxation enjoyed by the latter.' At a time when the Tennessee constitution of 1834: was in force, an in- surance and trust company was incorporated, a provision in its chafter declaring that it should " pay to the State an annual tax of one-half of one per cent, on each share of the capital stock subscribed, which shall be in lieu of all other taxes." The name of the company was afterwards changed, and au- thority conferred on it to do a banking instead of an insurance business, all the " present rights, privileges, and immunities, excepting only th^t of insurance " appertaining to the old company being transferred to the new; and it was held that the exemption passed to the new company, and that an in- crease of capital stock beyond the amount originally fixed was exempt in like manner as the original amount.'' Eut only to the extent that property of the original company was exempt from taxation, does the reorganized company enjoy the immu- nity.^ And even though the consolidating act may provide U. S. 344. Of. Memphis &o. R. Co. 2 In re St. Paul, S. & T. F. R. Co., V. Railroad Commissioners, 112 U. S. (Minn. 1890) 7 Ry. & Corp. L. J. 335. 609. ' 3 Tennessee v. Whitworth, 117 iPickard v. East Tennessee, V. & IJ. S. 145, and cases cited in opinion G. R. Co., (1889) 130 U. S. 637 ; S. 0. of Chief Justice Waite. 6 Ry. & Corp. L. J. 131, reversing * State v. Butler, 13 Lea, 400. S. 0. 24 Fed. Rep. 614. 5 Chesapeake &c. R. Co. v. Vir- J 29 6 TAXATION OF COEPOEATIONS. ' [§ 829. that the new company shall have all the privileges and im- munitids of the original companies, yet if their exemption, from taxation was qualified by their duties and dependent upon them, and they incapacitated themselves from the per- formance of those duties by their consolidation, the new com- pany thus formed can not claim the benefit of the exemption.' § 829. (e) Repeal and forfeiture of exemptions. — Exemp- tions from taxation in the nature of bounties, having been granted without consideration, may be repealed by the legis- lature.^ Where, however, one legislature has entered, as it were, into a contract exempting certain property or persons from taxation in consideration of certain advantages accruing to the public, no subsequent legislature can repeal the statute or. charter making the exemption.' ^Neither can the judicial department of the State forfeit an exemption inherent in property owned by a corporation, upon grounds which are sufficient cause of forfeiture .of its franchises. For the im- munity of the property from taxation is not a corporate fran- chise, but is a property right; and although the corporation be dissolved by forfeiture of its charter, the exemption con- tinues for the benefit of those who may have a just claim upon its assets.* But it has been held that the exemption from tax- ginia, 94 XJ. S. 718 ; Minot v. Phila- of Corporations from Taxation," by delphia, W. & B. R. Co., (1873) 18 A. Martin, a monographic note, 7 Wall. 206; Charleston v. Branch, 15 Am. L. Eeg. N. S. 390; "AutHority Wall. 470 ; Branch v. Charleston, 93 of the State to Exempt from Taxa- tr. S. 677 ; State v. Philadelphia &c. . tion," by Isaac F. Eedfield, 10 Am. E. Co., 45 Md. 361; Southwestern E. L. Reg. N. S. 493; "Power of the Co. V. Georgia, 93 U. S. 676 ; Central Legislature to grant Perpetual Im- R. ) 8 Ry. & Corp, L. J. 333, where the court also said : " Alcohol is an article of commerce. It is applied to a thousand uses in arts and manufactures. The amount which is rectified and used as intox- icating drink forms but a very small part of the quantity actually dis- tilled. And being an article of com- merce, any contract creating a mo- nopoly therein is against public policy, and void." Then recurring to the technical rule, the court con- tinued ; " A corporation can exercise no powers except such as are granted to it by tlie charter under which it exists. (Thomas v. The Railroad, 101 U. S. 71 ; Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U. S. 1.) It is no part of the powers of the dis- tilling company to sell all its prop- erty, real and personal, together with the franchises and powers nefc- essary to properly carry on the busi- ness. (Oregon Ry. & Nav. Co. v. Oi-egonianRy. Co., 130 U. S. 1.) The fact that the corporation has author- ity to put an end to its existence by a vote of a majority of its stock- 134:2 VISITATION, [§, 854. § 854r. The Steamship Conference. — Certain English, ship- ping companies and ship owners combined to form a "con- ference " or " ring; " and their agents in China issued circulars, to shippers there to the effect that exporters in China who confined their shipments of goods to vessejls owned by mem- bers of the "conference" should be allowed a certain rebate, payable half yearly, on the freight charged, any shipment at any port in China,by ah outside steamer to exclude the ship- per from participating in the return during the whole six monthl}' period within whicli that shipment should have been made. The plaintiffs, who were owners of vessels in the same trade,had thereby suffered damage; but it was held, that the "conference," being formed by the defendants with the view oi keeping the trade in their own hands, and not with the view of ruining the trade Of the plaintiffs, or through any personal malice or ill-will towards them, was not unlawful, and that no action for conspiracy was maintainable.^ In this case Lord Justice Bo wen said in substance, there seem to be no burdens or restrictions in law upon a trader which arise merely from the fact that he is a trader, and which are not equally laid on all other subjects of the Crown. Intimida- tion, obstruction, and rriolestation are forbidden ; so is the in- tentional procurement of a violation of individual rights,' con- tractual or other, assuming always that there' is no just cause for it.^ But the defendants have been guilty of none of these acts. They have done nothing more against the plaintiffs holders, in which event it may pro- stage by preconcerted hiaaing, (Clif- ceed to settle up its affairs, dispose ford v. Brandon, 2 Camp. 358 ; Greg- ' of its property and divide its capital ory v. Brunswick, 6 M. & G. 305) stock, and surrender its charter to the disturbance of wild fowl in de- the State, does not authorize it to coysby firing of guns, (Carringtonu. terminate its existence by a sale and Taylor, 11 East, 571 ; and Keeble v. disppsal of all its property and rights. Hichergill, H East, 574, n.) the im- Oregon Ey. & Nav. Co. v. Oregonian peding or threatening servants or Ey. Co., 130 U. S. 1." workmen, (Garret v. Taylor, Cro. 1 Mogul Steamship Co., Limited v, Jac. 567) the inducing persons under McGregor, (Bng. Ct. of App. 1889) 7 personal contracts to break their Ey. & Cori$. L. J. 233. contracts, (Bowen v. Hall, 6 Q. B. 2 The intentional, driving away Div. 836; Lumley v.'Qye, 2 E. & B. of' customers by show of. violence, 216) all are instances of these forbid- (Tarleton v. M'Gawley, Peak N. P, C. den acts. 270) the obstruction of actors on the § 854.J VISITATION. 1343 than pursue to the bitter end, a war of competition waged in the interests of their own trade. To the argument that a competition sopursued ceases to have a " just cause or excuse," when there is ill will or a personal intention to harm, it is suflSoient to reply that there was here no personal intention to do any other or greater harm to the plaintiffs than such as was necessarily involved in the desire to attract to the defend- ants' ships the entire tea freights of the ports, a portion of which would otherwise have falleii to the plaintiffs' share. No authority can be found for the doctrine that such a com- mercial motive deprives of " just cause or excuse " acts done in the course of trade whi(jh would, but for such a motive, be justifiable. So to hold would be' to convert into an illegal motive the instinct of self-advancement and self-protection, which is the very incentive to all trade.' Of the general prop- osition that certain kinds of conduct not criminal in any one individual may become criminal if done by combination among several, there can be no doubt. The distinction is based on sound reas&n, for a combination may make oppressive or dangerous that which, if it proceeded only from a single per- son, would be otherwise; and the very fact of the combination may show that the object is simply to do harm and not to exer- cise one's own just rights. In the application of this undoubted principle it is necessary to be very careful not to press the 1 Mogul Steamship Co., Limited v. to limit English competition in this McGregor, (Eng. Ct. of App. 1889) 7 way, would probably be as hopeless Ey. & Corp. L. J. 333, saying : "All an endeavor as the experiment of commercial men with capital are King Canute. But on oi-dinary acquainied with the ordinary ex- principles of law no such fetter on pedient of sowing one year a crop of freedom of trade can, in my opinion, apparently unfruitful prices in order be warranted. A man is bound not by driving competition away to reap to use.his property so as to infringe a fuller harvest of profit in the future, upon another's rights — Sioutere tuo and until the present argument at ut alienum non Icedas. If engaged the bar, it may be doubted whether in actions which may involve danger ship owners or merchants were ever to others, he ought, speaking gen- deemed to be bound by law to con- erally, to take reasonable care to form to some imaginary 'normal' avoid endangering them. But there standard of freights or prices, is surely no doctrine of law which or that law courts had a right compels him to use his property in to say to them in respect of their a way that judges and juries may competitive tariffs — ' Thus far shall consider 'reasonable.' See Chase- they go and no further.' To attempt more w. Kichards, 7H, of L. C, 349." 13M VISITATION. [§ 854 doctrine of illegal conspiracy bej'ond that which is necessary for the protection oif individuals or of the public; and it may be observed in passing that as a rule it is the damage wrong- fully done and not the conspiracy, that is the gist of actions on the case for conspiracy.' Lastly, we are asked to hold the plaintiBFs' conference or association illegal as being in restraint of trade. The terra "illegal" here is a misleading one. ^Con- tracts, as they are called, in restraint of trade are not, in --ly opinion, illegal in any sense except that the law will not enforce them. It does not prohibit the making of suxsh contracts — it merely declines after they have been made to recognize their validity. The law considers the disadvantage so imposed upon the contract, a sufficient shelter to the public- 1 Mogul steamship Co., Limited w. McGregor, 7 Ry. & Corp.. L. J. 223, saying: "See Skinner v, Gunton, 1 Wm. Saund. 229 ; Hutchins v. Hutch- ins, 7 Hill's N. Y. Cas. 104; Bigelow's Leading Cases on Torts, 207. But ■vvhat is the definition of an illegal combination? It is an agreement by one or more to do an unlawful act or to do a lawful -act by unlawful means. Regina v. O'Connel, 11 CI. & F. 155; Regina i>. Parnell, 14 Cox C. C. 508. And the question to be solved is whether there has been any such agreement here. Have the de- fendants combined to do an unlawful act? Have they combined to do a lawful act by unlawful means? A moment's consideration will be sufH- cient to show that this new inquii-y only drives us back to the circle of definitions and legal propositions which I have already traversed in the previous part of this judgment." 2 Mogul Steamship Co., Limited v. McGregor, 7 Ry. & Corp. L. J. 223, continuing: " The language of Comp- ton, J. , in Hilton v. Eckersley, 6 E. & B. 47, is I think not to be sup- ported. No action at common law will lie or ever has' lain againiit any individual or individuals for enter- ing into a contract merely because it is in restraint of trade. Lord Eldon's equity decision in Cousins v. Smith, 13 Ves. 542, is not very intel- ligible even if it be not open to the somewhat per.'ional criticism passed on it by Lord Campbell in his ' Lives of the Chancellors.' If indeed it could be plainly proved that the mere for- mation of ' conferences,' ' trusts,' or ' associations ' such as these was always necessarily injurious to the public — a view which involves per- haps the disputed assumption that ill a country of free trade and one which is not under the iron, regime of. statutory monopolies, ^uoh con- federations can never be really successful — and if the evil of them were not sufficiently dealt with by the common law rule, which held such agreements to be void as dis- tinct from holding them to he crimi- nal, there might be some reason for thinking that the common law ought to discover within its arsenal of sound common sense principles some further remedy commensurate with the mischief. Neither of these as- sumptions are to my mind at all evident, nor is it the province of judges to mould and stretch the law of conspiracy in order to keep pace with the calculationa of political § 855J VISITATION. 1345 § 865. Legality of shareholders' Totiiig trusts.— The grounds upon which proceedings of corporations have been held void as beyond their charter powers have been: First, because the charter, when accepted, constitutes a contract be- tween the stockholders that. the corporation shall be confined to its proper business and that a majority can not change it;^ second, because public policy requires that they should be con-i fined to the business and the mode of managing business pre- scribed by the charter, which is their law.^ It is evident that neither of these reasons is applicable to stockholders' voting trusts, unless, as in the North Eiver Sugar Refinery Case, the corporations, by ratifying their shareholders' private agree- ment, become pai-ties to the contract.^ For it is not against the policy of the law to accord to the owners of the larger in- terests in the stock a right to control the corporation.* It is not against the policy of the law for two : or more persons to economy. If peaceable and honest combinations of capital for purposes of trade competition are to be struck at, it must, I think, be by legislation, for I do not see that they are under the ban of the common law." 1 Potter, J., in Allen v. Woonsocket Co., (1876) 11 E. I. 288, 300, where the court further said : ".A minority have been held bound in some cases by the fact of the acquiescence in or ratification of the acts of the major- ity. In the present cas& there was no one who had a right to complain on this ground, Crawford Allen be- ing sole stockholder." , , 2 Potter, J., in Allen v. "Woonsocket Co., (1876) 11 B. I. 288, 300, continu- ing, said: "No portion of the act specifies even by^ implication the business to be done, and nothing-can be implied even from its name." In Allen V. Woonsocket Co., (1876) 11 E. I. 288, 301, the court said: "In this case the contention is that the respondent had no right to form a partnership, that a corporation must transact its business through its proper officers, and can not delegate 85 its powers in such a manner as to put / its business beyond its control. If the partnership had been for a defi- nite period, it might well be argued that the I'espondent had no right to make such a contract. 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 Phillip Allen & Sons simply as agents, and its ^ right to do that can not very well be denied." 3 Vide supra, § 847 ; Voting Trusts, 5 Eailw. & Corp. L. J. (1889) 597; 19 Abb. N. C. (1888) Note of Cases, p. 448; 84 Ala. (1888) 608; 6 Pa. Co. Ct. Eep. (1889) 193; 7 Eailw. & Corp. . L. J. (1890) 87; The Atchison, 6 Eailw. & Corp, L. J. (1889) 501; Beach, (Charles P., Jr.) 7 id. (Ig90) 21-22; The Beading, N. Y. Star, Jan. 11, 1890 ;' 7 Eailw. & Corp. L. J. (1890) 87; 47 Leg. Int. (1890)26— cited by Wm. H. Winters I in "The Bibliog- raphy of Commercial Trusts," (1890) T By. & Corp. L, J. 286. * Barnes v. Brown 80 N. Y. 527, 134:6 TISITATION. [§ 855. hold shares of stock jointly as partners.^ It is not against the policy of the law for owners of stock to place their shares in trust.^ And if the trustee and cestui que trust, or the pledgor and pledgee, agree as to which of the two shall cast the vote, their decision is binding and concltisive, and third party stock- holders have not a Vight to appeal to equity to set aside the agreement.' To secure the continuance of the copartnership, shareholders may agree inter sese to deposit the stock by way of pledge to and with and in the name of a trust com- pany until the objects of the copartnership be accomplished;* ilf a purchase for joint account be made, those severally interested therein become partners, precisely as they would have become partners had the venture been in grain or coal. Weed v. Littlefalls, 31 Minn. 154. 2 Such a trust or pledge may be lawfully entered into) and when so perfected is in the hands of the trustee or pledgee known as a volun- tary and active trust, and such trust may be created with regard to stock certificates and shares. Stone v. Hackett, 12 Gray, 330. 3 Hopping V. Buffam, 9 R. I. 518; Vowell V. Thompson, 8 Cranch, C. C. 428; Strong v. Smith, 15 Hun, 223, cited by Clarence A. Seward in Brief for Defendants in Starbuok v. Shepang, L. & N. E. Co., (Super. Ct. Fairfield Co. Conn. 1890) not yet re- ported. The right of suffrage may be lawfully disassociated .from that- to which the exercise of the right ap- pertains, and one may lawfully hold the property and another may law- fully exercise the right of suffrage. This has been so from time imme- morial. An advowson or a right of presentation to a vacant living re- poses in the owner of the manor; if he mortgages the manor, and the mortgagee enters and takes posses- sion, equity, if the cirdumstanoss justify the exercise of the power, will direct the mortgagee to vote as the mortgagor may require, or to give the mortgagor a proxy. Craft V. Powel, Comyn's Eep. 609; Ara- hurst V. Bowling, 3 Vernon, 401; MacKenzie v. Robinson, 3 Atkyns, 559. The same principle has been established as law in this country with relation to corporate stock since , 1839. Thus, in Vowell v. Thomp- son, 3 Cranch, C. C. 438j where three hundred shares of stock had been transferred to the defendant in trust as collateral security for a debt, the court said, the question was whether before forfeiture and foreclosure the mortgagor is not entitled to vote and for that purpose to obtain a proxy of power from the trustees, and it as- serted the analogy between- an elec- tive franchise and the advowson, and said that they were of the opinion that the defendant should be or- dered to give the plaintiff a power of attorney to vote upon the stock until it had been sold under the mortgage or deed of trust. See also Bradford &c. E. Co. v. New York &c. R. Co., as stated supra page 96, *The law permits this. Such a pledge is the legal equivalent of an agreement inter sese not to sell for a like period and for corresponding purposes, and for a division of profits at the close of the copartnership; and such an agreement the law as- § 855.] VISITATION. ■ 1347 taking receipts or trust certificates therefor.' Such an agree- ment, so lawfully formed at the outset, and for a proper con- sideration, and for a limited period, is binding upon the hold- ers of the trust certificates claiming only under and by virtue of the stock deposited in pursuance thereof, and all the terras of which are, by appropriate statement, made a portion of the trust certificates. Even if one of the motives w^hich led to the creation, of the trust was to enable either the trustee or the cestui que trust to vote in a given manner at an ap- proaching election, that motive will not invalidate the trans- fer.^ "Voting trusts then not being illegal upon any principle peculiar to corporation law, can be attacked only on the ground of public policy. What agreements are void as against public policy, is very well defined in the law, and contracts which have been held to be so void arrange themselves in five classes: {a) those founded upon corrupt considerations or moral tui-pitude; (5) those in violation of a public trust; (c) those in restraint of trade ; {d) those in restraint of mar- riage; {e) those to influence persons in authority.' But an agreement by all the members of a copartnership owning one or more shares of stock, that the same shall be conveyed to a trustee for the benefit of the copartnership and until its ob- jects are accomplished, and that the trustee shall vote thereon in accordance with the instructions of the copartners, is not such an agreement as falls within any one of these five classes of contracts which are void upon grounds of public policy. Some new class must be invented, and some new definition of public policy be found, before such a voting trust can be said to fall within any of the recognized rules which avoid a contract as being against public policy.* serts to be valid. Havemeyer v. field Co. Conn. 1890) not yet re- Havemeyer, 43 N. Y. Super. Ct. ported. Eep. 506; affirmed 86 N. Y. 618; " 4 Bouvier's Inst. § 3854. Fisher v. Bush, 35 Hun, 641. * Clarence A. Seward's Brief for lAs to the validity of trust cer- Defendants in Starbuck r. Shepang, tiflcates, see: Crawford v. Gross, 7 L. & N. R. Co., (Super. Ct. Fairfield Ey. & Corp. L. J. 1?3. Co. Conn. 1890) not yet reported. The 2 State 'v. Sniith, 48 Vt. 290, cited decision in the case of the Reading by Clarence A. Seward in Brief for Trust, Shelmerdine v. Welsh, (Pa. Defendants in Starbuck v. Shepang, Com. PI.- 1690) 47 Leg. Int. 26, shows L. & N. R. Co., (Super. Ct. Fair- that such a trust will not be ad- 1348 VISIT ATION. [§ 856. § 856. The bibliography of trusts. — An extensive litera- ture on the subject of trust combinations has sprung up of late years, not only in the regular legal publications,^ but also judged to be void upon the grounds of public policy. 1 " The Bibliography of Cqmmer- cial Trusts — Law Literature of Trust Cbmbinations, Monopolies, etc." by Wm. H. Winters, Libi'arian of the New York Law Institute, (1890) 7 Ry. & Corp. L. J. 336, citing: Ab- bott (Austin), 33 Daily Reg. (1887) 812; 34 id. (1888) 484, sVS; Beach (Charles F., Jr.), 3' Railw. & Corp. L. J. (1888) 317-21; Dwight (Theo. « W.), 3 Pol. Sci' Quar (1888) 593- 633; 28 Centr. L. Jour. (1889) 29; Heinsheimer (N.^, 3 Columbia L. Times (1888) 51-58; 4 Pol. Sci. 'Quar. (1889) 190-3; Mickey (D. M.), '32 Am. L. Rev. (1888) 538-549; 30 Week. L. Bull. (1888) 159-165 ; Ross (Geo. W.), 10 Chic. Law Jour. (1889) 113-144 ; Stimson (F. J.), 1 Harvard Law Rev. (1877) 132-143; Uhle(J. B.), ■Amer. L. Reg. N. S. Legal Misc., Sept. No. 1888, pp. v, vi. — Adams (Geo. H.), The "Trusts" arid the Civil Code, Paraphlet, New York, 1888 (8 pp.). Beach (Charles B\, Jr.), 1 Facts about Trusts, Pamphlet, New York, 1889 (73 pp.); Railway Federa- tion, — the Proposed Railway Trusts, Pamphlet, New York, 1890 (20 pp.). Dodd (S. C. T.), Combinations,— Tlieir Uses and Abuses ; with a His- tory of the Standard Oil Trust, Pam- phlet, New York, 1888 (46 pp.); Statement of Pending Legislation and its Consequences, Pamphlet, New York, 1887 (35 pp.); Combi- nation and Competition, — an ad- fdress delivered before the Mer- , chants' Association of Boston, Jan. 8, 1889, Pamphlet, New York, 1889, (17 pp.); 5 Railw. & Corp. L. Jour.' (1889) 97-100; Authorities on Combi- nations, Pamphlet, New York, 1889 (4 pp.). Sullivan (A. S.), Address at the laying of the corner stbne of the new building of the Consolidated Stock Exchange in New York City, Sept. 8, 1887, Stock Exoh. Annual Rep. -1888, pp. 120, 133. Sumner (Wm. G.), Good Sense on the Trust Question, N. Y. Independent, 1888. Thurber (F. B.), Combination and Competition, Pamphlet, New York, 1888 (13 pp.); 5 Railw. & Corp. L. Jour. (1889) 30-24. Wiman (Eras- tus). The Waste of Competition, Pamphlet, New York, 1889, (8 pp.).— Bugaboo of Trusts, A. Carnegie, 148 No. Amer. Rev. (1889) 141-150 ; Bug- bear of Trusts, Henry Wood, 5 Forum (18S8) 584-590; 'Commercial "Trusts" in Rome, A. H. Marsh, 3 Can. L. Times (1888) 299-300; 23 Amei'. L. Rev. (1889) 261 ; 13 N. J. Law Jour. (1890) 28; Competition and the Trusts, Geo. lies, 34, Pop. Sci. Mo. (1889) 619-630; Dangerous Trusts, W. M. Rapsher, 146 N. A. Rev. (1888)509-514; Development of the Whiskey Trust, J. W. Jenks, 4 Pol. Sci. Quar. (1889) 396-319; Dif- ference in Trusts, 5 Railw. & Corp. L. Jour. (1889) 455-6; Amer. Grocer, March 27, 1889; Economic and So- cial Aspect of Trusts, Geo. Gunton, 8 Pdl. Sci. Quar. (1888) 385-408 ; Eco- nomic Effects of Combination, Age of Steel, Jan. 5, 1889; Facts about Trusts, Charles F. Beach, Jr., 8 Forum (1889)61-73; also Pamphlet, New York; 1889 (12 pp.); Gunton's ■ Apology of Trusts, Nation, Feb. 7, 1889; History of Trusts, Jas. F. Min- turn, 3 Bedford's Mag. (1889) 61-66 ; Industrial Trusts, 18 American, Phil. (1889) 346; List of the Syndi- cates of the World, Handel's Mu- seum, 1888, Wien, Austria; Morality § 836.] VISITATION. 1349 in newspapers, general magazines, pamphlets, reports and- ad- dresses.i Much that is valuable in this ephemeral literature would be lost to the profession and to the student of political' economy but for the diligent researches of Mr. Williain H. of Trusts, 66 Sat. Review, London (18S8) 609; Pepper Trust of Ger- many, Karl Braun, 97 Vierteljahr- schrif t fur Volks w. — Railway Trusts, 5 Railw. & Corp. L. J. (1889) 165-; 6 lb. (1889) 61, 101, 201; Beaoh (Charles F., Jr.), Railway Federa- tion, Pamphlet, New York, 1890, (20 pp.); Bonham (John M.), Rail- »- way Secrecy and Trusts, 12mo., New York, 1890 (138 pp.); McOook's (John J.) Proposed Railway " Trust," 5 Railw. & Corp. L. J. (1889) 165-166; 6 lb. (1889) 201-202 i N. Y. Star, Jan. 13, 1890; Proceedings of Con- ferences of Railway and Bank Presi- dents,' New York City, Jan. 8-10, 1889. Pamphlet, New York, 1889 (96 pp.) 5 Railw. & Corp. L. J. (1889) 165-166 ; History of the " Gentlemen's Agreement," N. Y. Star, Jan. 12, 1890. — Sugar Refineries Company's • Deed, 3 Pol. Sci. Quar. (1888) 611- 617; N. Y. Senate Rep. (1888) No. 50, ■ pp. 644-651 ; Syndicates, Trusts and Corners, E. M. Gierke, 31 Dublin Rev. (1889) 353-377; s. s., art. 6 Railw. & Corp. L. J. (1889) 341-250; The Monopoly Trust, London R. W. News, Feb. 18, 1888; 3 Railw. & Corp. L. J. (1888) 315-317; The Trust Company Fancy, 67 Sat. Review (1889) 347-348 ; Trusts, The New Jug- gernaut, E. Willett, 7 Drake's Mag. 1889; Trusts according to Ofiicial ' Investigation, E. B. Andrews, 3 Quar. Jour, of Econ. (1889) 117-153; Trusts and how to deal with them, Chautauquan, Feb. 10, 1890; Trusts and Syndicates; Copper (France), Salt Union (England) etc., 66 Cham- bers' Jour. (1889) 33-36; Trusts in America, 61 London Spectator (1888) 1353 ; Trusts in Germany, No. 106, Rep. U. S. Consuls (1889) pp. 371- 375; 48 Nation (1889) 463. 1 " Bibliography of Commercial Trusts," by Wm. H. Winters, (1890) 7 Ry. & Corp. L. J. 336, citing: What shall be done with Trusts, M. I. Swift, 10 Andover Rev. (1888) 10°9- 137 ; Pamphlet Reprint, 18 pp. ; A Tyrant Trust, N. Y. Evening World, June 28, 1889; After the Trusts, Views of S. C. T. Dodd, John R. Dos Passos, John E. Parsons, etc., N. Y. Mail and Express, Feb. 1, 1890; American Cotton Oil Trust, How a Million was lost, N. Y. Evening P^st, Sept. 2, 1889; American Cot-; ton Oil Trust Secrets, N. Y. Times, Feb. 15, 1890; An Old Trust, 1579, Independent, June 13, 1889; Book Trust, N. Y. Mail and Express, Feb. 7, 1890; N. Y. World, Mar. 7, 189Cj; Butchers, Envelope, Milfc, Oil and Rubber Trusts, N. Y. Times, Feb. 34-39, 1888; Chicago Gas Trust, N. Y. Daily Times, Jan. 4, 1888; 5 Ry, & Corp. L. J. (1889) 536; Coffin-Makers' and Undertakers' Trust, Industrial Journal, Feb. 1889 ; Defense of Trusts, S. C. T, Dodd, N. Y. Tribune, Feb. 3, 1890; Effect of Trust Combinations, N. Y. Comm. , Bull., April 1, 1889; Farmers' Trust of the Northwest, N. Y. Comm. Ad- vertiser, Mar- 26, 1888; Ferry Syndi- cate of New York City, N. Y. Star, Feb. 20, 1890; Foes of Competition, N. Y. Daily Times, Feb., 30, Feb. 27, Mar., 19, 1888; N. Y. Daily World, Feb. 21, 1888; Frenzy for Trusts, N. Y. Evening Sun, June 37, 1889; How Fortunes are Made, — Combi- nation as a Fortune-Getter, Erastus Wiman, N. Y. Tribune, Dec. 5, 1889; Lead Trust Secrets, N. Y. Heraldi 1350 TISITATIOir. [§ 85G. Winters, the Librarian of the New York Law Institute,^ who in his " Bibliography pf Commercial Trusts," has collated all the authorities of value upon the general subject of trade com- binations, syndicates and pools,^ together with citations to Feb. 6, 1890; Power of Trusts, Pub- lic Opinion, Mar. 1, 1890; Striking at Trusts,^ Congressional Legisla- tion, N. Y. Tribune, Feb. 21, 1890; N. Y. Sun, Mar. 1, 1890; The Law Defied, N. Y. Daily Times, Nov. 31, IS'ST; Trusts and Syndicates, Edin- burgh Scotsman, Feb. 5, 1889. 1 " Bibliography of Commercial Trusts," by Wm. H. Winters, (1890) 7 Ey. & Corp. L. J. 236, citing: Re- port of the speeches at the Banquet of the Merchants' Association, Bos- ton, Jan. 8, 1889, Boston Journal, Jan. 9, 1889 ; Pamphlet Report, Bos- ton, 1889 (80 pp.) ; Report of the Ad- dresses to the Plymouth League, subject, "Trusts," Brooklyn Eagle, Feb. 7, 1889 ; Proceedings of Confer- ences between Presidents of Railroad Lines and Representatives of Bank- ing Houses, held at New York City, Jan. 8-10, 1889, Pamphlet, New York, 1889 (96 pp.); 5 Railw. & Corp. L. Jour. (1889) 165-166.— Report No. 4165, Part I, U. S. House of Repre- sentatives, 50th Congress, 2d Session, March 2, 1889,^ — From the Committee on Manufactures, in relation to the Whiskey Trust and the Cotton-bag- ging Combination, Pamphlet, Wash- ington, D. C, 1889 (188 pp.); Report No. 4165, Part H, U. S. House of Representatives, 50th ^ongress, 2d Session,. March 3, 1889,— Views of the Minority of the Committee on Manufactures on the Investigation of the Sugar and Standard Oil Trusts; Pamphlet, Washington, D. C, 1889 (37 pp.); Report of Cbmmittee on General Laws on the Investigation relative to Trusts, March 6, 1888, New York Senate Doc. No. 50, Pam- phlet, Albany, 1888 (693 pp.) ; Report of Committee on General Laws rela- tive to Combinations commonly known as Trusts, May 9, 1889, Ma- jority and Minority Reports, etc., New York Senate Doc. No. 64, Pam- phlet, Albany, 1889 (307 pp.) ; 5 Railw. & Oorp. L. J. (1889) 478-9 ; see 3 Quar. Jour, of Economics <1889) 118-119; 4 Polit. Science Quarterly (1888) 190- 198 ; Report of the Select Committee to the Canadian House of Commons upon alleged Combinations in Manu- factures, Trade and Insurance in Canada, May 16, 1888, Sixth Parlia- ment, 3d Session, Pamphlet, Ottawa, 1888 (750 pp.) ; Report of Proceedings of the Special Committee on Rail- roads of the New York Assembly to Investigate alleged Railway Abuses, A. B. Hepburn, Chairman, 5 vols. 8 vo. New York, 1879; Report of the Special Committee, Investigation of . alleged Railway Abuses, Vol. 3. New York Assembly Doc. 1880, No. 88 (78 pp.); Report and Testimony, Spe- cial Senate Comm^ittee of the State of Jifew York appointed to investi- gate the Cornering of Grain, Com- binations, Pools, etc.. Vol. 5, New York Senate Doc. 188'3, No. 45 (934 pp.). 2 Acts Illegal by General Law, Free- man's Note of Cases, 8 Amer. St. Rep. (1889) 191-198; Anti-Combine Acts, .25 Can. Law Jour. (1889) 417-418; 9 London Pump Court. (1889) 31-33; Car Trust Securities, 8 Amer. Bar Assoc. Rep. (1885) 277-322; 140 Mass. Rep. (1886) 346; 29 Fed. Rep. (1887) 410; 36 lb. (1889) •'520; Cost-Book Min- ing Companies, 11 County Ct. Chron. 50; 10 Law Rep. Q. B. (1874) 7 ; Share Trusts, 70 London Law Times (1880) 94-95 ; Statutory Enactments against ^§ 856.J VISITATION. 1351 reviews, monographs and annotated cases, bearing more par- ticularly upon the subjects of competition, combination and criminal conspiracy,' with references to recent legislation and proposed legislation on the subject.^ In this exhaustire com- " Trusts," 28 Central L. Jour. (1889) 533-534; Stock Trusts for the Con- trol of Corporations, Austin Abbott's Note of Cases, 19 Abb. N. C. (1888) 448-466 ; Syndicates and Pools, Aus- tin Abbott's. Kote of Cases, 16 Abb. N. C. (1886) 380-394; The So-Called "Trusts," SI Amer. L. Rev. (1887) 976-979; The Commercial "Trusts" . Stevens Point Lum- Co., (1888) 87 Ala. 411; S. 0. 13 Am. ber Co., (1888) 73 "Wis. 437. St. Eep. 51. * Independent Order v. Paine, 2 Miami Powder Co. V. Hotchkiss, (1887) 123 III. 635. 17 111. App. 633. . '' Johnson v. Gibson, 78 Ind. 382. 'Moxie &c. Co. v. Baumbaoh, ^Kirkpatrick v. Keota United Presbyterian Church, 63 Iowa, 873. §§ 868, 869.] ACTIONS by and against coepoeations. 1365 ciation was a corporation de facto was not error, although superfluous.' If a corporation sues, and its corporate existence is denied, tlie*denial may be pleaded in bar as well as in abate- ment.^ But an answer under oath that " plaintiff had not complied with the provisions of " a certain act, is not suffi- ciently certain for a plea in abatement, and is bad in bar for stating only conclusions.' § 868. (b) Not raised by demurrer. — A corporation's legal existence and capacity to sue can not be raised on demurrer.* If corporate capacity is disputed, it should be by answer.* And a failure of the complaint to allege that the plaintiff, designated as a national bank, is a corporation, as required by statute, is not a failure to state facts constituting a cause of action; and even if: it fails to show legal capacity to sue, ob- jection must be taken by answer, and not by demurrer.' But failure to allege in a complaint that a party is a corporation, as required by statute, is ground for demurrer.' Failure, how- ever, of the complaint to allege compliance with a statute which provides that no corporation shall maintain or defend any action in relation to its property until it has filed a copy of its articles of incorporation with the clerk of the county in which the property is situate, does not render it demurrable where it contains no averment on the subject; the defense must be specially pleaded.' § 869. (c) Not raised by the general issue. — An allegation in the complaint that defendant is a corporation is not put in issue by a general denial;' although some older cases hold 1 Jewell v. Grand Lodge, (1889) 41 6 Stanly V. Eiohmond &c. E. Co., Minn. 405; St. ^^ Anthony &o. Co. v. 89 N. O. 331. King Bridge Co., 23 Minn. 186; East « Irving Bank v. Corbett, 10 Abb. Norway Lake Church v. Froislie, 37 N. Cas. 85, construing N. Y. Code Minn. 447. Civ. Proc. §§ 1775, 488, subd. 8. 2 Oregonian Ey. Co. u. Oregon By. 'Oesterreicher i>. Sporting Times & Nav. Co., 33 Fed. Eep. 345; s. C. Pub. Co., (1889) 5 N. Y. Supl; 2. 33 Fed. Eep. 233. s South Yuba '&o.' Co. v. Eosa, sSingerManuf. Co. u. Efflnger, 79 (1889) 80 Cal. 333, construing Cal. Ind. 264. Civ. Code, § 399. * Irving Bank v. Corbett, 10 Abb. ^jjembert v. South Carolina Ey. N. Oas. 85; Stanley v. Eiohmond & Co., (S. 0. 1888) 9 S. E. Eep. 968. D. E. Co., 89 N. C. 331 ; Crane &c. Where a corporation sues in a fed- Manaf. Co. v. Eeed, 3 Utah, 506. eral court it need not prove its cor* 1366 , ACTIONS BY AND AGAINST COEPOKATIONS. [§ 8T0. that a corporation suing must prove its incorporation under the general issue.' And the eorporate existence of a plaintiff . corporation is not in issue under an answer which denies the plaintiff's allegations generally on information and belief.^ "Where an answer simply alleges that the defendant has no knowledge or information sufficient to form a belief as to whethelr the plaintiff is a corporation under a certain law as alleged, this is not enough to put the corporation upoti proof of its corporate existence, for the language has no greater force than a general denial, and is not tanta&aount to an af- firmative allegation that the plaintiff is not a corporation as required by the law.' ' § 870. (d) Not to be raised after verdict. — A corporation bringing suit in a justice's court is not, upon an appeal, bound to prove its corporate existence, if no objection was made, by the defendant, to its failure to do so on the trial in the court below.* So also if an action is brought against a defendant by the name of the Waycross Lumber Company, and service . is made on a party as president thereof, who files pleas to the declaration, an objection taken after verdict, for the first time, that the declaration did not allege that the defendant "w&s a corporation, is not available.' porate existence where defendant Winsted Assoc, v. Ford, S? Conn, has pleaded the general issue only. 382 ; s. c. 71 Am. Dec. 447. Union Cement Co. v. Noble, 15 Fed. i Welland Canal C9. v. Hathaway, Eep. 5Q3. So in the State courts alle- 8 Wend. 480 ; s. c. 24 Am. Dee. gations in an answer, that the plaint- 51 ; Selma &c. E. Co. v. Tipton, iff never was a corporation duly or 5 Ala. 789; S. C. 39 Am, Dec. otherwise organized under the laws 344; Harris v. Muskingum Manuf. of this. State, nor a copartnership nor Co., 4 Blackf. 267 ; s. C. 29 Am. Dec. an individual, do not raise that issue. 372 ; Phenix Bank v. Curtis, 14 Conn. Ontario State Bank v. Tibbits, (1889) 437 ; S. c. 36 Am. Dec. 492. 80 Cal. 68. And again it has been 2Lit,erian Exodus JointstockSteam held that pleading the general issue Ship Co. v. Rodgers, 21 S. C. 27. admits the corporate existence. Har- 3 Concordia &o. Assoc, v, Eead, rison v. Martinsville &c. E. Co., 16 (1883) 93 N. Y. 474; Eock Island Ind. 506 ; s. 0. 79 Am. Dec. 447. Cf. Bank v. Loyhed, (1881) 28 Minn. 396. Commercial Bank v. Pfeiffer, 108 * State v. New York &o. Co., (N. J. N. Y. 242; Orono v. Wedgewood, 44 1887) 8 Atlan. Eep. 290. Me. 49; s. C. 69 Am. Dec. 81; West sCribb v. Waycross Lumber Co., (1889) 83 Ga. 597. § 8Y1.J , ACTIONS BY AND AGAINST OOEPOEATIONS. 1S67 § 871. (e) Estoppel. — A person who contracts with a de facto corporation therteby recognizes its corporate existence and can not, in an action against him on the contract, impeach the legality of -its- organization.^ Accordingly, where the de- fendant gave a note to the plaintiff in its corporate capaciUy, it was held that he had adtnitted that it was a duly insti- tuted corporation.^ And one who has signed the certificate of incorporation, has conveyed property to the company, and has acted as one of its officers, is estopped from denying its de facto existence.' The corporate character and existence of a plaintiff in an action may even be established by proof that a defendant had contracted with it as such, having recognized the existence of a legal entity with a corporate name, and having capacity to contract.^ Where an effort has been made in good faith to organize a corporation under a statute, and all formalities are complied with except the filing of the cer- tificate of incorporation with the Secretary of State, and cor- porate functions are assumed, there is a corporation de facto, and persons dealing with it as such can not allege, that it is not so de jure, nor hold the incorporators liable as partners. For the recording of the certificate is not a condition prece- dent to the* legal existence of the corporation.' So under a statute which enacts that no person sued on a contract made with a corporation shall set up in defense want of legal or- ganization, it was held that heirs petitioning to set aside a bequest, can not allege illegal organization against a corpora- tion seeking to maintain the validity of the bequest." Again a party who has recognized an association claiming to be a cor- poration, by dealing and contracting with it, will be deemed to have admitted its legal existence in an action on contracts made upon the faith of the transactions. And where an asso- 1 Butchers' & Drovers' Bank v. 3 Bates v. Wilson, (Colo. 1890) 24 McDonald, 130 Mass. 264; Cravens Pacif. Rep. 99. V. Eagle &c. Co., (1889) 120 Ind. 6; < French «. Donohue, 29 Minn. Ill; Smelser v, Mayne &c. Co., 83 Ind. Johnston Harvester Co. v. Clark, 30 417; McCord &c. Co. v. Glen, (Utah, Minn, 308; Holbrook v. St. Paul &c. 1889) 31 Pacif. Rep. 500; Beekman Co., 35 Minn. 339. V. New York &c. Go,, 85 Fed. svanneman v. Young, (1890) 53 Rep. 3. N. J. 403. 2Studebaker Bros. Manuf. Co. v. eQump v. Shields, 63 Iowa, 129, Montgomery, 74 Mo. 101. construing Iowa Code, § 1089. 1368 ' ACTIONS BY AND AGAINST COEPOEATIONS. [§§ 872, 873. ciation, or corporation, and another have assumed to enter into a partnership and have done business jointly, they may re- cover upon obligations made to theim in their partnership name, irrespective of their rights and duties as between them- selves, or the power of the association to execute the powers incident to a partnership.' §872. (f ) A "company" prima facie a corporation.— Where a party sues and obtains judgment under a name such as would imply that it is a corporation, but without alleging the fact of its incorporation, the judgment will be sustained.' Thus a plaintiff sued under the name of the "Johnston Har- vester Company," upon a contract made under that name with the defendant, who interposed no -defense in his answer, ex- cept a denial of the executfon of the contract, and it was held that no proof of incorporation was necessary, and that the justice's judgment should not be set aside for want of that proof.' Furthermore, under laws making trustees of the Metho- dist Church a body corporate, and nothing appearing to the contrary, plaintififs, who sue in their individual names as trustees of the Bars'tow-Street Methodist Episcopal Church, are presumed to have been lawfully incorporated.* But it has been held that, where individuals sued by their own names, "as trustees of the Printing Establishment of the United Brethren in Christ," which was averred to be a corporation, the individuals, and not the corporation, were the real plaint- iffs.* It should generally be left to the court as a matter of law to determine whether or not the name in which a party sues is such as to imply its incorporation.' § 873. Evidence of corporate existence — (a) Certificates and copies. — The original record of incorporation is admis- sible to prove the fact of incorporation, as well as the letters of incorporation,' and a copy of the articles of association of 1 French v. Donohue, 29 Minn. 111. « Eike v. Floyd, (1890) 43 Fed. Rep. 2 St. Cecilia Academy v. Hardin, 247. (1887) 78 Ga. 39. « St. Cecilia Academy /u. Hardin, 3 Johnston Harvester Co. v, Clark, (1887) 78 Ga. 39. 80 Minn. 308. ' State v. Abernathy, 94 N, C. 545. * Skinner v. Richardson, (1890) 76 Wis. 464. §.874.] ACTIONS BY AND AGAINST COEPOEATIONS. 1369 a corporation, filed in the county recorder's ofiBoe, when offi- cially oertified"^to as a full, true, and complete copy from the record, is admissible as evidence of the original articles which have been lost.^ A copy of the organization certificate of a bank, certified and sealed by the comptroller of the currency, is sufficient evidence of the corporate existence of the bank.* But a paper lacking three or four of the essentials for a paper declared by statute to serve as proof of corporate organiza- tion, can not be received in proof thereof.^ Where, at the trial, the admission of articles of incorporation is objected to as immaterial, irrelevant and incompetent evidence, the specific objection on appeal that the articles were not sufficiently au- thenticated to render them admissible, and that the certifi- cates were made by, deputy officers, will not be considered.* § 874. (b) Performance of corporate acts. — Generally " it may be safely relied on as a sound proposition, that, when an association of persons have for a long time acted as a private corporation, have been uniformly recognized as such, and rights have been acquired under them as a corporation, the law will countenance every presumption in favor of their legal corporate existence, at least, unless against the sover- eign." * The execution of a note and depd to a corporation is prima facie proof of the existence of the corporation, by way of estoppel to deny it.' Where it appears that plaintiff was recognized in the community as a corporation, its records show that it was acting as such, and in all its dealings was so styled; that it had held corporate meetings, and pursued cor- porate forms of action, sufficient is shown to bring it within a statute which declares that the due incorporation of any company claiming in good faith to be a, corporation, and doing business as such, shall not be inquired into collaterally 1 Walker v. Shelbyville &c. Turn- (11th ed.) § 70, citing Hagerstown pilie Co., 80 Ind. 453. Turiipike v. Creeger, 5 Harris. & J. 2Book Island Bank v. Loyhed, 28 123; Shrewsbury t". Hart, 1 Car. &P. Minn. 396. 113; Dillingham v. Snow, 7 Mass. . Con- gan, 16 ' Abb. Pr. (N. S.) 391; tinental Ey., & Trust Co., 15 Fed. Bank of Utica v. HiUiard, C Cow. Rep. 716. 419. For, it is said: "Whei'e a 2 Justice V. Bank, 83 N. C. 8. So corporation is not a party to the also it has been held under the Com- action, no power of enforcing an ex- panies Clauses Consolidation Act, amination or production of its books 1845, that a party, who had recov- and papers is afforded on a trial be- ered judgment against a corpora- tween other parties. Nor can its tion was not precluded from issuing agents or officers, in their individ- execution against the shareholders ual capacities, be compelled to pro- who had not paid for their shares, duce the books of the corporation although lands of the company have over which they have no absolute been delivered in elegit, if the pro-, control." And, "Even in a case of ceeds of the lands be insufficient to an action, in which a corporation is satisfy the debt. And that, there- a party, the iDroduction of its books fore, a mandamMSj should issue com- cannot be enforced by svbpc&na manding the company to give the duees tecum, served on its officers, creditor inspection of the register of that can only be effected by way of shareholders. Queen v. Derbyshire discovery under the provisions of &c. Ey. Co., 3 El. & Bl. 784. the revised statutes." Morgan v, 8 La Farge v. La Farge Ins. Co., Morgan, 16 Abb.' Pr. (N. S.) 391. 14 How. Pr. 36; Morgan v. Mor- 1372 ACTIONS BY AND AGAINST COEPOEATIONS. [§ 877. ration, or to the officer thereof in whose custody the book or paper is." ' But this does not authorize an order in the nature of a euhpcena duces tecum to the directors of a defendant cor- poration. They are not "parties."* A clerk of a bank can not be compelled to produce the books of the bank, because he is a mere servant of the corporation and the books are not in his possession or under his control.' And a court refused to grant an attachment against a secretary and solicitor of a railway company, on the ground that he was nothing more than the servant of the directors, and as such had no author- ity to produce the books.* § 877. Production of Ibooks of foreign corporations. — The provision of the New York code in respect to the production of its corporate records in suits to which the corporation is a party, is held to apply to foreign corporations keeping their books within that State;' although, if the books are out of the State, officers in the State can not be required under this provision to produca^them.* In any case an order for inspec- tion before a referee, of books of a oorp'oration in a distant State, should merely direct a delivery of sworn copies within a reasonable time.' The New Jersey statute giving the courts of that State authority to require a foreign corporation to bring its books into the State, does not give the courts authority to require a foreign corporation to bring in all its papers and memoranda.' IN. Y. Code Civ. Proc, § 868. 33 Hun, 566; Bas v. Steele, 3 Wash. 2 Boorman v. Atlantic &o. Ry. Co., 381 ; Bank of U.. S. v. Wilson, 3 Cr. 17 Hun, 555. C. C. 313; Tuttle v. Mechanics' 3 Bank of Utica v. Hilliard, 5 Cow. Bank, 6 Whart. 316; Humphroy v. 133. " Coleman, 1 Blackf. 199; Rose v. i Crowther v. Appleby, L. R. 9 King, 5 S. & R. 241 ; Arrott v. Pratt^ C. P. 37. 3 Whart. 566; Gilpin v. Howell, 5 5 In re Sykes, 10 Ben. 163, con- . Pa. St. 41 ; Willis v. Bayley, 19 struing N. Y. Code Civ. Proc. § 868. Johns. 368. 6 United States I). Tilden, 18 Alb. SHuylar v. Cragin Cattle Co., L. J. 416. (1887) 43 N. J. Eq. 139. 1 Ervin v. Oregon Ry. & Nav. Co., CHAPTEE. XLIII. SHAREHOLDERS' ACTIONS AGAINST AND IN BEHALF OP THE CORPORATION. i 878. Introductory — Shareholders' right to sue on behalf of the company. 879. Shareholders' i-ight to defend on behalf of the company. 880. Shareholders' actions against the company. 881. Shareholders' actions against directors, officers and agents. 883. The same subject continued — The corporation a necessary party. 883. Suits by a single shareholder. 884. The shareholders' necessary interest. 885. Shareholders should request directors to sue. 886. The same subject continued. 887. Acquiescence and delay. §878. Intro fluctory — Shareholders' right to sue on he- half of the company.-^ Every litigation on the part of a compan}'^ should be in the name of the company if it really desires to engage therein.' Accordingly one who becomes the owner of all the capital stock of a corporation, does not thus entitle himself to maintain, in his own name, replevin for its property.^ And, generally, stockholders can nob sue indi- vidually for the conversion of corporate property ; ' to enforce the payment of subscriptions to the capital stock;* to obtain an injunction to restrain slander of the title of property be- longing to the corporation ; ' or to remove a cloud from the title of the company's property.* "Where, however, the re- fusal of the corporate management to institute or defend legal proceedings with respect to the corporate interests partakes more of a disregard of duty than of an error of judgment, where it is a non-performance of a manifest official obligation, amounting to what the law considers a breach of trust. 1 MacDougall v. Gardiner, (1875) 1 * Wallworth v. Holt, 4 Mylne & 0. Ch. Div. 13. 613. 2 Button V. Hoffman, 61 Wis. SO; ^Langdon v. Hillside Coal & Iron S. 0. 50 Am. Rep. 131. Co., (1890) 41 Fed. Rep. 609. 3 Tomlinson v. Bricklayers' Union, * Baldwin v. Canfleld, 26 Minn. 43, 87 Ind. 308. 56. 1374 SHAEEHOLDEBS ACTIONS, [§ 879. although it may not involve an intentional moral delinquency, the stockholders have the ^ight to interfere.' §879. Shareholders' right to defend on behalf of the company. — The rightiof a stockholder to defend on behalf of his company, is governed by the same principles as his righl; to sue on its behalf.^ Accordingly he has no right to defend the company against an illegal tax;' to appeal from a judg- ment rendered against it,^ nor to object to a compromise of an action against the company agreed to by the directors." Nor can a stockholder question a judgment against the corpora- tion even when called upon to satisfy it personally.^ And in a suit against a corporation, he can not file an answer without showing that the corporation has refused to defend.' So, also, a, conveyance- of all the capital stock of a corporation to an individual stockholder, does not .entitle him to defend a suit brought against the corporation, uriless the latter refuses to ' Beach on RaUways, §g 415, 416 ; Dodge V. Woolsey, 18 How. 331; Sheridan v. Sheridan Electric Light Co., 38 Hun, 396. " It is admitted that according to Gray v. Lewis, 29 L. T. Kep. (N. S.) 13, and Foss v. Harbottle, 3 Hare, 361, a sui^t for the benefit of shareholders ought to be instituted by the company and not by a shareholder on behalf of himself and the other shareholders who take a similar view with him- self. Is there aoy exception to that I'ule? Vice Chancellor Bacon sug- gests two : (1) Where the company can tiot sue, and (3) where it will not sue. He thought the difficulty in the latter case might be got ov«r by application to the court for leave to use the name of the company." 56 L. T. 453 (1874). ' 2 Stockholders in an old corpora- tion, the property of which has come into the hands of a new corporation standing in the shoes of the old one, some of whom permitted their stock to be forfeited for non-payment of assessments, some of whom never paid anything for their stock in the first place, and some of whom took part in the organization of the new corporation, and encouraged its ex- penditures, have no standing in court to oppose its claim to the prop- erty of the old. corporation. St. Louis &c. Co. V. Sandoval &g. Co., 116 111. 170. s Dodge V. Woolsey, 18 How. 331. '*■ Silk Manuf. Co. v. CampbeH, 37 N. J. 539. oShawhan v. Zinn, ,79 Ky. 300; Donohue v. Mariposa &c, Co., 66 Cal. 317. ^Farnum v. Ballard &c. ShOp, (1853) 12 Cush. 507; Came'u Brig- ham^ (1854) 39 Me. 35. Vide supra, % 736. Except in the case of fraud, a decree against a corporation is con- clusive against a stockholder thereof, even though there was no personxtl service upon him. Glenn v. Springs, 26 Fed. Rep. 494. 'Park V. New York &rc. Co., 26 W. Va. 486. § 880.] SHAEBHOLDEBS' ACTIONS. 1375 defend.* But where a bond of a corporation expressly created a lien on the corporate property, and by law the stockholders were jointly and severally liable, it has been held, in a suit against the corporation to enforce the lien, that the.' stock- holddrs were properly made defendants to avoid a multiplicity of suits.^ And where any fraud has been perpetrated by the directors of a company, by which the property or the interest of the stockholders is • affected, they have a right to come in as parties to a suit, against the company, and ask that their property shall be relieved from the effect of the fraud.' So, also, where land pf a private corporation was sold in a suit in- stituted by creditors for the satisfaction of their debts against the corporation, it has been held that the proceedings might be opened four years afterwards, at the instance of stockhold- ers denying the validity of the debts under which the sale was made, and charging fraud in procuring the sale.* § 880. Shareholders' actions against the company. — Stockholders can not usually bring actions against their com- pany, unless there has been some illegal, oppressive or f raud*- ulent or ultra vires act on the part of the pooipany or a major- ity thereof.* Accordingly, a stockholder h9,s no right of action against the corporation based on a depreciation in value of his stock in common with the rest of the stock.^ And a member of an incorporated society can not sue to have declared null and void, as illegal, certain by-laws thereof, althougii indi- rectly injurious to him in his business relations.' So also a bill alleging that one class of stockholders was being fa,vored by the company to the injury of another class, without an al- legation that the rights of the latter were imminently threat- 1 Park V. Ulster &o. Co., (1884) 35 461. Aca. Graham v. Boston &c. E, W. Va. 108. Co., 118 U, S. 161, afflrming s. C. 14 2 Marine &c. Manuf. Co. «. Brad- Fed. Rep. 753; Oglesby «.' Attril], ley, 105 U. S. 175. 105 U. S. 605 ; Forbes v. Whitlock, 3 Bayliss v. Lafayette, Muncie &o. (1841) 3 Edw. Ch. 446; Dale v. Grant, Ry. Co., 8 Biss. C. Ct. 193. 34 1,. J. 143. ^Kirtland v, Purdy University, 7 ^oiiphant v. Woodburn &o. Co,, Lea, 343. (1885) 63 Iowa, 333. sMaoDougall v. Gardiner, (1875) 1 'Thomas v. Musical &c. Union, Ch. Div. 13, citing Mozley v. Alston, (1890) 131 N. Y. 45 ; reversing s. C. 1 Ph. 790; Lord v. Copper &c. Co., 3 49 Hun, 171, Ph, 740; Foss v. Harbottle, 3 Hare, 1376 SHAEBHOLDEES' ACTIONS. [§ 881. ened, is no ground for an injunction restraining the first class from voting their stock, or the payment oi dividends until the controversy was settled.^ But a corporator whose member- ship has been denied by the corporation, may sue it to estab- lish his right thereto.^ And a petition by a stockholder to restrain his company fcom expending money in the operation of a road, and in the construction of other lines, in violation of the franchises of another company, has been held not to present a fictitious issue in fraud of the court.' So also hold- ers of scrip who accepted it under an agreement that it was to be taken for lands of the company or be redeemed in cash, may enjoin the company from re-issuing scrip retired; as the redemption of their scrip and its security would be impaired thereby.* On a bill by stockholders to hold a corporation liable for mismanagement, irregularities in its formation can not be inquired into; ' although it has been held that a stock- holder is not estopped by his subscription to deny the lawful existence of a corporation prohibited by the State constitu- tion.' § 881. Shareholders' actions against directors, officers and agents. — The stockholders may sue the corporate direct- ors or officers only upon the same principles that govern their suits against the corporation.' Accordingly, only in cases of aggravated misconduct, will equity interfere with the acts of corporate officers.* And although a shareholder in a proper 1 Mackintosh i;. Flint &c. E. Co., ' St. Louis Colonization Assoc, v. (1887) 33 Fed. Rep. 350. Hennessy, 11 Mo. App. 555. 2 Tipton Fire Co. v. Barnheisel, 93 ' Cicotte v. Anoiaux, (1884) 53 lud. 88. Mich. 337. 3 Teachout v. Des Moines &c. Ey. 8 Cicotte v. Aocianx, (1884) 53 Co., 75 Iowa, 733. Mich. 387. After the undertaking * Rogers t;. New York &c. Co., 49 has been under statutory . lowers Hun, 606, holding also that a com- handed over to another compaay in plaint by scripholders against a land consideration of moneys which are company for refusing to carry out its in the control of the directors of the agreement to take its scrip for land, old company, a shareholder may is defective if it does not state that maintain an action for' account the plaintiffs had been damaged, or against the directors. Browne & that defendant had refused to receive Theobald's Ey. Law, 104, citing Cra- from them scri|) for lands as agreed, mer v. Bird, 6 Eq. 143. Similarly, 'Merchants' & Planters' Line v. when an act direct3d that a company Waganer, 71 Ala. 581. should transfer its property to an- § 881.] SHAKEHOLDEES' ACTIONS. 1377 case may maintaiu proceedings to restrain the directors from a contemplated action which is illegal and ultra vires, not- withstanding that all the other shareholders approve and as- sent to the action, an injunction will not be granted unless a clear and strong showing is made.^ A stockholder can not hold the corporation itself liable for the negligence of its di- rectors.^ He may, however, maintain an action on behalf of the dorporation against the officers for fraud, wrongs, breaches of trust and for the money of which the}'^ have fraudulently deprived the company, and the corporation may be joined as a party defendant.' Actions against directors to compel them to the performance of their duties, must be instituted ordir narily in the name of the company,* and the damages recov- ered belong not to the stockholders but to the corporation.' other company and be dissolved, and that the money to be paid by the purchasing company should be ap- plied in a particular way among creditors and preferential sharehold- ers, it was held that a properly framed bill by a creditor and pref- erential shareholder might be sus- tained. Wardw. Sittingbourne &c. Ky. Co., 9 Ch. 488. 1 Thus in an action under a stat- ute providing that stockholders and creditors of corporations may sue the ofiBcers to compel an accounting for official misconduct, where the alle- gations of the complaint are that plaintiff is a creditor and stock- holder of the corporation; that the president, who was one of the de- fendants, had appropriated property of the corporation to his own use, and intended to remove all the cor- porate property from the county where the corporation did business ; that it had ceased to do business ; and that both it and the president were insolvent, although specifically denied, an injunction against de- fendant's interfering with the corpo- rate property until the trial will not be disturbed. Hayt v. Malone, 87 (1890) 9 N. Y. Supl. 877, construing N. Y. Code Civ. Proc. §§ 1781, 1783; Du Pont V. Northern Pacific R. Co., 18 Fed. Eep. 467; s. 0. 21 Blatchf. • C. Ct. 534, which was a proceeding to restrain the directors of defend- ant corporation from issuing a large amount of second mortgage bonds. 2 Oliphant «. Woodburn &c. Co., 63 Iowa, 333. 8 Beachu. Cooper, (1887) 72 Cal. 99. * Hersey v. Veazie, 24 Me. 9 ; s. C. 41 Am. Dec. 364 ; Smith v. Hurd, 13 Met. 371; S. C. 46 Am. Deo. 690; Taylor on Corporations, § 615. But where the organizers of a joint- stock company put in, as a part of the capital stock, certain patent- rights, and by fraudulent puffing in- duced others to buy the stock at fictitious rates, it was held that, whether the buyers could set aside the sales or not, they were not en- titled to gain control of the com- pany, and pursue tlieir remedy against the directors in the corpo- rate name. Flagler &c. Co. v. Flag- ler, 19 Fed. Eep. 468. 5 Dewing v. Perdicaris, 96 U. S. 193, 198; Smith t). Hurd, 58 Mass. 371; S. c. 46 Am. Dec. 690; Smith?;. 1378 BHAEEHOLDEES' ACTIONS. [§ 882. Where the plaintiffs, stockholders and owners of scrip in a land company, sued the company, and the directors thereof, to secure an accounting for land-scrip issued by the company, which was distributed among the stockholders but afterwards retired, then distributed as dividends and taken again for land of the company to the detriment of the redemption of other land-scrip, it was'held that as the action was brought, not for any Joss or injury to plaintiffs, but to sustain the rights of the company alone against the misconduct of its directors, the right to maintain it depended upon plaintiffs showing a misappropriation of the scrip by the directors.' In these cases in the nature of an accounting, the acts constituting the default of the oiiicers need not be set forth in detaij.* The fact that one of the stockholders of a corporation is offensive to the trustees and obstructive in his manner and methods, is no excuse for their neglect of the business of the corporation.' And the fact that a stockholder has a suit pending at law against the trustees of a corporation, does not deprive him of a standing in a court of equity to set aside a purchase by trustees at a foreclosure sale of the company's property.* "Where directors of a railway company voted unlawfully to pay a salary, and at a subsequent meeting some of them voted to issue the com- pany's notes for the salary, an action by the stockholders can not be maintained against those who voted to pay the sal- ary, but did not vote for the issue and negotiation of the notes.^ § 883. The same subject continued — The corporation a necessary party. — If justice to stockholders can not be at- tained through an action by the corporation, they may sue, making the corporation a party defendant.* In all cases Poor, 40 Me. 415; S. O. 63 Am. Deo. 3 Raleigh v. Ktzpatrick, (1887)43 673 ; Evans v. Brandon, 58 Tex. 56 ; N. J. Eq. 501. Carter v. Ford &c. Co., 85 Ind. 180. « Raleigh «. Fitzpatrick, (1887) 43 ' 1 Rogers v, Phelps, (1890) 9 N. Y. N. J. Eq. 501. ,Supl. 886. 5 Metropolitan By. Co. v. Knee- 2 Halsey v. Acker,man, 38 N. J. Eq. land, (1890) 130 iST. Y. 134, modifying 501, affirming 37 N. J. Eq. 356. See s. C. 45 Hun, 590. also Gardner v. Pollard, 10 Bosw. <■ Brewster v. Hatch, 10 Abb. N. 674 ; 3 N. Y. Rev. Stat. 589, § 1, and Cas. 400. In this case, although a 591, § 16, mining corporation was the party § 882.] SHABEHOLDEES' AOTIONS. 1379 where the corporation is not a party plaintiff it must be made defendant, as in proceedings to restrain the usurpation of corporate franchises; ' in a suit against directors of a dissolved corporation for mismanagement of its affairs;^ where a bill is filed to set aside a mortgage made by the corporation ; ^ and where a bill is filed under a statute to wind up and dissolve the company and sell its property and distribute the pro- ceeds.* A stockholder, to maintain a suit for a corporation, or for his associate stockholders, where the rights of the cor- poration are involved, must allege that the directors decline to bring suit or permit him to do so in the name of the corpo- ration, and the corporation must be made a party, otherwise no cause of action appears, a necessary party not being before the court; and the defect can not be remedied by special de- murrer, nor can thfe court require the corporation to be made a party, but the suit must be dismissed; ' although leave may be given to amend and to add the company as a defendant.* "Where, in an action by^ corporation, the complaint avers that the action was commenced hj a minority of the stock- holders " by express consent, direction and authority of the corporation," a demurrer that it, has no legal capacity to sue, because the suit was commenced without authority of the di- rectors or a majority o^ its stockholders, is not well taken.' It would seem that in England where a single shareholder brings an action in the name of the company, the court may direct a meeting of the company, and if a rhajority disapprove primarily aggrieved, the complaint the corporation must be made a showed special damages entitling party defendant. Byers v. Rollins, the plaintiff subscribers to maintain (1889) 13 Colo. 23. the action as against defendant pro- i People v. Flint, 64 Cal. 49. motefrs who had retained certaip ^Oamp v. Taylor, (N. J. 1890) 19 proceeds of a trust sale. So, where Atlan. Rep. 968. officers of a corporation have assets s Cdxe v. Hart, (1884) 53 Mich. in their possession belqpging to the 557. corporation, the corporation, and * Hurst v. Coe, (1887) 30 W. Va. not the stockholders, is the proper 158. party to bring an action to compel 5 ghawhan v. Zinn, (1883) 70 Ky. them to account, unless it is made 300. to appear that it is necessary for <■ Silber Light Co. v. Silber, 12 Ch. • the stockholders to bring the action Div. 717. in order to prevent a complete fail- ' Lang Syne Min. Co, v, Ross, ure of justice. In the latter case, (1888) 30 Nev. 137. 1380 SHAEEHOIiDEIffi' AGTIQJfS. [§883. of the action, the name of the company will be struck out as plaintiff.* §883. Suits by a single stockholder. — A single stock- holder, in a proper case, may sue for himself and others,^ as when a corporation is under the control of officers who should be made defendants in a suit to investigate the mismanage- ment of the corporate affairs.* So also where a company's charter was repealed by the legislature and its franchises and property transferred to another, and the company refused to seek a remedy, it was held that a stockholder asking for an injunction on the ground that the statute impaired the obli- gation of a contract, had a standing in equity.* So again where the majority of the stockholders of a corporation are illegally pursuing a course, in the name of the corporatioq, which IS in violation of the rights of the other stockholders, and which can only be restrained b}'^ a court of equity, an ac- tion to obtain equitable relief may- be maintained by an ag- grieved stockholder, and those whose rights are thus affected may join as plaintiffs in the actjon.* And a complaint, to procure the cancellation of illegal stock, although in form in behalf of plaintiff alone, stating that other stockholders are injured, and that the stock was issued against their wishes, and praying for relief which inures to the benefit of all, is in behalf of all, and any stockholder may become a party plaint- iff on application." But one who is a stockholder in two cor- porations can not bring suit to enjoin the owner of a control- ling interest in one of them from voting at a stockholders' meeting in favor of its engaging in a certain business, on the ground that engaging therein would be an illegal interference with the rights of the other corpoi-ation.' Nor can he main- tain a suit to enjoin the corporation itself from engaging in i MacDougall v. Gardiner, 1 Ch. s Ithaca Gas Light Co. v. Truman, Div. 13 ; Exeter &c. Ey. Co. v. Buller, 30 Hun, 218. , 5 Rob. C. 311; East Pant Du Lead < Greenwood v. Union Freight R. Mining Co. v. Merryweather, 13 W. Co., 105 U. S. 13. R. 316 ; 3 H. & M. 354. See, too, » Barr v. New York, L. E. &c. R. Cape Breton Co. v. Fenn, 17 Ch. Co., 96 N. Y. 444. Div. 198. 6 Wood v. Union &c. Assoc, (1885) 2 Ithaca &o. Co. v. Truman, 30 63 Wis. 9. Hun, 313. ■! Converse v. Hood, (1889) 149 Mass. 471. § 883.] SHAREEOLDEES' AOTIOKS. 1381 the business, on the ground that by so doing it wiir expose itself to vexatious and expensive litigation, and so dimmish the value of plaintiff's stock.^ Nor does he acquire the right to maintain the suit by the fact that when he subscribed for his stock he remonstrated against the corporation engaging in that business, and that the corporation and its principal stockholder thereupon agreed not to engage therein.^ Where an action is thus brought in respect of " an ultra vires act, which may affect the rights of any partipular class of share- holders, that class is suiRciently represented by one of its members.' But one can not sue on behalf of scrip and stock holders, when it is conceded that the stockholders have no cause of action.* For the class which the plaintiff represents must be a class of persons having the same interest, and must not be composed of persons who have adverse claims;* al- though if the illegal act is the act of the whole company or its executive, different classes of shareholders need not be in- dependently represented.'* Under a constitutional provision that a list of the stockholders of the corporation shall be kept in its office for the inspection of stockholders and creditoi's', mandamus will not lie to compel the corporation to allow a stocltholder to make a list of the other stockholders in order that they may be induced to join with him in. a suit he pro- poses to institute against the corporation and to share with him the expenses of the suit.' 1 Converse v. Hood, (1889) 149 Mass. ally precluded from suing. Burt v. 471. British &c. Assoc, 4 De Gex & J. 2 Converse v. Hood, (1889) 149 Mass. 158. 471. * Rogers v. New York &o. Co., 3 Hoole V. Great Western Ry. Co., (1888) 1 N. Y. Supl. 908. 3 Ch. 263. See Cramer v. Bird, 6 6 Ward v. Sittingbourne &o. R. Eq. 143. He is entitled to sue on be- Co., 9 Ch. 88. , half of himself and all others simi- * Browne & Theobald's Ry. Law, larly interested, although no mem- 105, citing Hoole v. Great Western ber of the class besides himself may Ry. Co., 3 Ch. 262. be willing to sue. Browne & Theo- 'Appeal of Empire &o. Co., (Pa, bald's Ry. Law, 104, and cases there 1890) 7 Ry. & Corp. L. J. 470; Com. cited. But though there may be monwealth v. Iron Co., 105 Pa. St members of the class willing and en- 111: Buck v. Collins, 57 Ga. 391 titled to sue, the suit can not be Webber v. Townley, 43 Mich. 584; maintained if the plajntiff iSi person- Bean v. People, 7 Colo. 200. 1382 SHABEHOLDEES' ACTIONS. [§ 884. § 884. The stockholders' necessary interest. — A real and present interest in the stock is necessary to enable the owner thereof to bring a suit against the company. It is no objec- tion to an action by a shareholder that he has become a share- holder for the purpose of bringing the action.^ And a stock- holder may maintain an action to set aside an election of directors, although at the time of the election no stock had stood in his name on the books of- the corporation sufiBciently long to entitle him to vote.^ So also the original allottee, or the purchaser of scrip issued to raise funds for a particular purpose, whether he has been registered or not, may maintain an action on behalf of himself and other scripholders to re- strain the company from applying the funds to other purposes, and the vendor of the, scrip need not be a party.' And again- a stockholder may enjoin the misapplication of corporate funds under an agreement entered into before his stock was issued, where he had a vested right to receive it before the agreement was made.* A further example of this principle is that owners of stock in a corporation have the right to en- join the corporation from performing an ultra vires contract made before they became stockholders, and the right can not be defeated by the refusal of the oflBcers to transfer the stock upon the company's books.^ But an action can not be main- tained against a corporation by a stockholder where the bill contains no allegation that plaintiff was a stockholder at the time of the transaction complained of, or that he acquired his shares by operation of law.* ISTeither should a corporation be iSeaton v. Grant, 3 Oh. 459; By. Co., 1 Hurl. & M. 489; Browne Bloxam v. Metropolitan Ey. Co., 3 & Theobald's Ey. Law, 105. Oh. 337. But §ee Eice v. Eookefeller, 2 Wright v. Central California Col- (N. Y. Sup. Gt. Gen. Term, 1890) 8 ony Water Co., (1884) 67 Cal. 533. Ey. & Corp. L. J. 139, reviewed at ' Bagshaw v. Eastern Union Ey. length, supra, § '848. And a person Co. , 7 Hare, 114. who is indemnified by other parties, * Hill v. Glasgow E. Co., (1890) 41 and is not bonn fide acting in his Fed. Eep. 610. own interest as shareholder, will not 5 Carson v. Iowa City &c. Co., be allowed to maintain an action. (Iowa, 1890) 45 N. W. Eep. 1068. Forrest v. Manchester &o. Ry. Co., ^ Whittemore v. Amoskeag Bank, 7 Jur. N. S. 887; S. 0.4 De Gex, F. & 36 Fed. Eep. 819; Dannemeyer v. J. 136; Tilberv. London, B. &S.C. Coleman, 8 Sawy. 51; Taylor v. Holmes, 137 U. S. 489. § 885.] SHAEEHOLDEES' AOTIOHS. 1383 enjoined from paying a debt in the mode agreed to by all of its shareholders except the plaintiff, who had not paid for his stock.' JSTor, it would seem, may a shareholder who is a mere trustee maintain a representative action against the company ; ' nor the holder of a scrip certificate after he has assigned the shares mentioned in the scrip.' And a shareholder in one com- pany can not sue a second company to enjoin it from making an exchange of stock witii a third in the stock of which his company has an equitable interest. Even if he has the right to sue for his company, it can not interfere with a company in which it holds no stock.* § 885. Stockholders should request directors to sue. — Stockholders can not sue the corporation for the purpose of remedying the wrongs committed by its officers, without first applying to the directors to interfere and put a stop to the wrongs, and a refusal by the directors to do so.^ Nor can they sue on behalf of the cpmpany in their own names, with- out showing that they have endeavored in vain to secure action on the part of the directors.^ And a bill by stockholders against a corporation for mismanagement, should show that plaintiff's have endeavored to secure their rights through the meetings of the corporation, and that they have solicited the use of its name to bring suit against the offending directors/ Eefore an individual stockholder can be heard in equity to ask 1 Landes v. Globe Planter Manuf. the directors of the former, it not Co., (1885) 73 Ga. 176. appearing that they have unsuccess- 2 Bagshaw v. Eastern Union Ey. fully tried, within the corporation, Co., 7 Hare, 114; S. C. ^ Macn. & G. to get what they want, or that their 389. See Great Western Ey. Co. v. interests are betrayed or jeopar- Eushout, 5 De G. & S. 390. dized. It is not enough that the, s Doyle iJ. Muntz, 5 Hare, 509. former corporation is violating its * Mayor v. Denver &o. E. Co., contract. Converse v. Dimock, 23 (1889) 38 Fed. Eep. 197. . Fed. Eep. 573. SBoyd V. Sims, (1889) 87 Tenn. 771 ; " Taylor v. Holmes, (1888) 137U. 8. Hawes v. Oakland, 104 U. S. 450; 489, 493 ; Eothwell u Eobinson, (1888) Dimpfelli;. Eailroad Co., 110 U. S. 89 Minn. 1; City of Chicago v. Cam- 209. Where a corporation by a valid eron, 120 111. 447 ; Park v, Ulster &c, contract acquires a majority of the Co., 25 W. Va. 108. stock of another corporation, share- 'Merchants & Planters' Line v. holders in the latter have no stand- Waganer, 71 Ala. 581. ing in cpurt to restrain the acts of 1384 SHAEEHOEDEBS' AOTIOHS. [§ 885. that the transactions of the corporation, acting through a majority of its stockholders and through its directors, be inter- fered with aind set aside, he must show that he has exhausted all the means within his reach to obtain, within the corpora- tion itself, the redress of his grievances or action in conformity to his Wishes.' And where a stockholder brings suit to obtain redress for grievances common to others, and to vindicate the rights of the corporation, he ninst show that he has made an earnest, not a simulated effort to obtain redress within the corporation, and, where time has permitted, that he has en- deavored to induce the stockholders, as a body, to take action.^ His bill must also set foi-th in detail the efforts made by him to secure, on the part of the corporation, the desired action, or it will be dismissed.' An averment that the corporation re- fuses to sue is essential, and the want of it may be taken advantage of by demurrer or by objection to evidence.* But in an action by a stockholder to procure the cancellation of illegal stock, the objection that i the plaintiff did not, before suit, apply to the directors for relief, goes to the capacity of the plaintiff to sue, and is waived if not demurred to.' If through fraudulent conspiracy the directors have refused tO' sue, they should be made parties, defendant to the action brought by the stockholder.* When a Corporation has been dissolved by a foreclosure sale of its franchises, but its exist- ence is continued, by statutory provision for a term of fiv& years, during which suit may be brought in its name to wind up its affairs, a bill by stockholders is well filed if it appears, that the suit is not a collusive one, and that the plaintiffs have applied to such of the late directors as they can reach to bring the suit, but they have refused to do so. Under these circum- stances the stockholders may in their individual right sue the receiver, to call him to an accounting.' 1 Dimpfell v. Ohio &c. By. Co., 110 * Doud v. Wisconsin &o. Ey. C!o., V. S. 309. (1885) 65 Wia. 103. ^Dannenieyer v. Coleman, ,8 "Wood v. Union Gospel Church Sawy. 51. Building Assoc. ^ (1884) 63 Wis. 9. 'Foote V. Cunard Mining Co., 17 * Slattery u. St. Louis &c. Co., 91 Fed. Eep. 46 ; Dannemeyer v. Cole- Mo. 317 ; s. C. 60 Am. Rep. 345. man, 8 Sawy. 51. ' Lafayette Co. v. Neely, 21 Fed. Rep. 738. 886.] SHAEEHOLDEES ACTIONS. 1385 §886. The same subject continued. — Where a request that the corporation itself bring the desired suit is apparently useless, it is excused and need not be made.^ Accordingly, where the directors of a corporation, having the. authority to direct its litigation, are themselves guilty of the wrong com- plained of, a court of equity will interfere at the instance of the stockholders, without a demand and refusal upon the part of the directors to bring the suit.^ For it would be against the plainest principles of justice to permit the perpetrators of the wrong to conduct a litigation against themselves.^ Thus an unlawful consolidation sanctioned by the directors 1 t)oud V. Wisconsin &c. Ry. Co. , (1885) 65 Wis. 108. 3 Davis V. Gemmell, (1889) 70 Md. 356, 376. And where the officers of a corporation have wasted its funds, a shareholder desiring redress need not, before resorting to the courts, make a demand, which necessarily would be unavailing, on the officers to bring suit. Kelsey v. Sargent, (1885) 40 Hun, 150. So suit for the rescission of an illegal contract may be brought by a stockholder of an in- solvent corporation without a pre- vious demand upon the corporation to sue, if the corporation appears unable to act by reason of its direct- ors being under the control of the persons with whom- the contiiact was made. Currier v. New York &o. E. Co., 35 Hun, 355. And where in a suit by a stockholder against a cor- poration of which he was a member, the declaration alleged a conversion and misapplication of money by the corporation and its president, and that the latter kept false books of account and refused to pay over money rightly ' due plaintiff, it was held, that a sufficient cause of action had been stated, without alleging that the corporation had refused to bring suit. Brown v. Buffalo &c. K. Co., 37 Hun, 343, 3 Davis V. Gemmell, (1889) 70 Md. 356, 376; Peabody v. Flint, 6 Allen, 53; Brewer v. Boston Theatre, 104 Mass. 378; Pond v. Vermont Valley R. Co., 13 Blatch. 380; Salomons v. Laing, 13 Beav. 377; Currier v. New York &c.' E. Co., 35 Hun, 355; BrinckerhofE v. Bostwick, 88 N. Y. 53; Rothwell v. Robinson, (1888) 39 Minn. 1. Where a stockholder filed a bill against the corporation, and all the directors thereof, and another stockholder, charging that the latter defendants had entered into a con- spiracy to do an unlawful and fraud- ulent act, in furtherance of their in- dividual interests, which would de- stroy or seriously impair the value of the property of the corporation ; that the directors and their co-de- fendant stockholder held among themselves seven-tenths of the stock of the corporation, and that they had procured a vote, of the stock- holders authorizing the directors to carry out the project, he could main- tain the bill to protect his individual rights, and his suit' was not to be de- feated because it did not show a pre- vious effort on his part to secure re- dress by an appeal to the directors or stockholders for remedial action. Barr v. Pittsburgh Plate-Glass Co., (1890) 40 Fed. Kep. 412. 1386 ' SHAEEHOLDBES' ACTIONS. [§ 886. and a majority of the stockholders,' or the unlawful voting by an outside corporation of a majority of the stock of the com- plainant's corporation, when the former has already constituted its' friends a majority of the board of the latter, may be re- strained without previous request to sue.^ But the fact that a majority is apparently against the party desiring to bring suit, is not sufiBcient to excuse failure to make a request that the corporation act in the matter.' So also where, although a corporation has expired by lapse of time, if it still exists for the purpose of winding up; and although most of the direct- ors are dead, if one ol them survives, application should be made to him to bring the suit, or an effort should be made to call together the stockholders and obtain united action in sup- port of a claim.* An allegation that the stockholders re- peatedly protested against the evils complained of, without averring that their protests were made to the directors, is en- tirely insufficient to authorize them to sue.* Again, where two of the three directors voted against bringing any suit, al- leging, as the ground for their action, that they feared they could not obtain justice in the State courts, while the third director, a non-resident, was willing to trust the local courts,, upon suit brought in the federal court by him the next day 1 Nathan v. Tompkins, 82 Ala. 146 Mass. 495. Nor can stockhold- 437. ers of a company, without a like de- 2 Mack V. DeBardlaben, (Ala. 1890) mand upon it and refusal, sue an- 8 By. & Corp. L. J, 394. other company, which is charged 3 Thus a stockholder can not sue with wrongfully interfering with the manager until he has tried to the rights of their conapany, simply obtain his rigljts within the corpo- because a majority of their directors ration, even though the manager , are stockholders to a larger extent owns a majority of the stock and in the defendant company than in elects a majority .of i the directors, their own, and a minority are also Allen V. Wilson, 28 Fed. Rep. 677. directors in the defendant company. And a stockholder, complaining of Boyd v. Sims, (1889) .87 Tenn. 771; misconductof the treasurer of a cor- Huntington v. Palmer, 104 U. S. 482 ; poration, is not excused from, apply- Gas Co. v. Williamson, 9 Heisk. 314, ing to the directors to brihg suit, 338; Deaderick, i;. Wilson, 8 Baxt. before bringing it himself, by the 131. fact that the treasurer owns the ma- * Taylor v. Holmes, (1888) 127 IJ. S. jority of the stock, though thfit fact 489. does excuse him from applying to a 5 Boyd v, Sims, (1889) 87 Tenn. stockholders' meeting. Dunphy v, 'ill. Travelers' Newspaper Assoc, (1888) § 881] SHAEEHOLDEES ACTIONS. 1387 after the vote, it was held that the refusal was not so clearly real and persistent as to give him authority to sue on behalf of the corporation.^ §887. Acquiescence and delay. — The right to restrain corporate acts ceases when the members have consented to the will of the majority.^ Acq/uiescence and the receipt of money -from the corporation by reason of the illegal acts, will prevent the stockholder from impeaching its legality.' Con- sent may be either express or inferred from the acquiescence of the shareholders after full knowledge of the transaction,* or it may be implied by their silence for a long period of time.® Accordingly, to maintain a bill for fraud, conspiracy ov ultra vires acts, against the corporation, its oiRcers and others who participate therein, the stockholders must act promptly or forfeit their right to equitable relief.^- They can 1 Detroit v. Dean, 106 U. S. 537. Aec Ha was v, Oakland, 104 U. S. 450; Huntington v. Palmer, 104 U. S. 483. In a case where the only ef- fort appearing to have been made to induce the corporation to' assert its rights consisted of a written demand sixteen days before suit brought, and where the facts justified the in- ference of an attempt by a simulated arrangement to foist upon the fed- eral court jurisdiction of a case not belonging to it, the court refused to consider the complaint. City of Quincy v. Steel, (1887) 120 U. S. 314. 2 Leo V. Union Pacific Ey. Co., 19 Fed. Rep. 383. Where a stockholder buys into a railroad corporation, with knowledge that it is acting on lin assumed power to invest in the stock of railroad corporations out- side the State of its creation, his purchase under these circumstances will be regarded as an implied rec- ognition of the assumed power. Venner v. Atchison &c. E. Co., 28 Fed, Eep. 581. 3 Alexander v. Searcy, (1889) 81 Ga. 536; S. C. 13 Am. St. Eep. 337. ^ Evans v. Smallcombe, L. R. 3 H. L. 249, affirming L. E.. 3 Eq. 769. 6 Allen V. Wilson, 28 Fed. Eep. 677; Graham v. Boston &c. R. Co., 118 U. S. 161; Pneumatic Gas Co. v.^ Berry, 113 U. S. 333; Kitchen v. St. Louis &c. R. Co., 69 Mo. 224; Inter- national &c. R. Co. V. Bremond, 53 Tex. 96 ; Royal Bank v. Grand Junc- tion E. Co., 125 Mass. 490; In re Pinto &c. Co., 8 Ch. Div. 273; In re Magdaleiia &c. Co., 6 Jur. N, S. 975; Harwood v. Eailroad Co., 17 Wall. 78; Badger v. Badger, 2 Wall. 87; Boardman v. Lake Shore &c. Ey. Co., 84 N. y. 157; Eochdale Canal Co. V. King, 2 Sim. N. S. 89; Shel- ' den &c. Co. v. Eickemeyer &:c. C9., 90 N. Y. 607 ; Alexander v. Searcy, (1889) 81 Ga. 536; Gifford v. New Jersey E. Co., 10 N. J. Eq. 171; Bos- ton &c. E. Co. V. New York &c. Ei Co., 13 E. L 260; Ashhurst's Appeal, 60 Pa. St. 290. 6 Alexander v. Searcy, (1889) 81 Ga. 536; S. 0. 13 Am. St. Rep. 337 j Dimpfell v. Ohio &c. ,R. Co., 110 TJ. S. 309 ; Peabody v. Flint, 88 Mass. 54 ; Dumphy v. Travelers' Newspaper 1388 SHAEBHOLBEES' ACTIONS. [§ S8t. not, however, be charged with acquiescence by remaining still while some of their number are seeting to impeach the trans- actions.' The weight which is due to mere lapse of time^ varies with the extent of the interests involved, and the cir- cumstances of ea,ch particular case.^ Assoc, (1888) 146 Mass. 495; Metro- politan Elevated Ry. Go. v. Manhat- tan Elevated Ey. Co., 11 Daly, 373; s. C. 14 Abb. N. Gas. 103 ; Zabriskie V. Hackensack &c. E. Go., 18 N. J. Eq. 178; Ashhurst's Appeal, 60 Pa. St. 390; McLoughlin v. Deti;oit &c. Ey. Go., 8 Mich. 100; Spackmau v. Evans, I.. E. 3 H. L. 171 ; Downes V. Ship, L. R. 3 H. L. 343; Gray v. Chaplin, 3 Russ. 136; Zabriskie v, Cleveland &q. E. Co., S3 Hovs^. 381; Hervey v. Illinois &o. Ey. Co., 38 Fed. Rep. 169; Thompson u. Lam- bert, 44 Iowa, 239 ; Vigers v. Pike, 8 Clarke &F. 562, 650; Graham v. Bir- kenhead &c. Co., 2 Macn. & G. 146; Great Western Ey. Co. v. Oxford &o. Ey. Co., 3 De Gex, M. & G. 341 ; Aurora &c. Soo. v. Paddock, 80 111. 363; Stewart v. Erie &c. Transpor- tation Co., 17 Minn. 373; Gregory c. Patchett, 33 Beav. 595; Brother- hood's Case, 81 Beav. 365. 1 Metropolitan Elevated Ey. Co. v. Manhattan Elevated Ey. Co., 11 Daly, 573; s. c. 14 Abb. N. Cas. 103. 2 Beach on Railways, § 414, citing Great Western Ry. Co. v. Oxford &c. Ry. Co., 3 De Gex, M. & G. 341; Houldsworth v. Evans, L. R. 3 H. I* 368. Aco. Mills v. Central E. Co., 41 N. J. Eq. 6. CHAPTER XLIV. ACTIONS BY AND AGAINST FOREIGN CORPORATIONS. 888. Introductory — Citizenship. 889. Service of process. 890. The same subject continued — "Doing busmees" con- strued.' 891. Garnishee process. 892. Actions by foreign corpora- tions. 893. Actions by receivers of for- eign corporations. 894. Actions by stociiholders of foreign corporations. j 895. Actions against foreign corpo- rations. 896. Actions by non-residents against foreign corpora- tions. 897. Actions by foreign corpora- tions against foreign corpo- rations. 898. Actions in federal courts. 899. Removal of causes into fed- eral courts. , §888. Introductory — Citizenship. — A corporation cre- ated by a State is a citizen of that State within the meaning of the constitution and statutes defining the jurisdiction of the federal courts,^ even if all its business is transacted elsewhere, and all of its offices and places of business are outside of the State.^ And the members of a foreign corporation, where it sues or is sued in a United States court, are conclusively pre- sumed to be citizens 'of the State or country which created it.' An allegation that a corporation is doing business in a certain State does not necessarily import that it was created by the 1 State of Wisconsin v. Pelican Ins. Co., (1888) 127 U. S. 265. Where a citizen of Louisiana brings suit in the State court against a corporation, alleging that defendant is incorpo- rated under the laws of the State, an affidavit for removal to the fed- eral court, on the gi-ound of diverse citizenship of the parties, which merely alleges that the corpbration is a citizen of another State, and does not BiUege that the corporation is not domiciled in Louisiana, is insuffi- cient. Guinault v. Louisville &c. E. Co., (La. 1890) 6 So. Rep. 850. ' 2 Pacific R. Co. -V. Missouri Pacific Ry. Co., (1885) 23 Fed. Rep. 565. 3 National S. S. Co. v. Tugman, 106 U. S. 118. A corporation can not acquire a residence in a State other than one in which it is incor- porated, within the meaning of the . act of congress which provides that, "when the jurisdiction is founded only on the fact that the action is between citizens of different States, suit shall be brought only in the dis- trict of the residence of either plaint- iff or defendant." Booth v. St. Louis &c. Manuf. Co., (1889) 40 Fed. Rep. 1. 1390 ACTIOlfS BY AND AGAINST FOEEIGN COEPOEATIONS. [§ 889. laws of that State and is a citizen thereof.^ So also the buy- ing and making use of property by a corporation in another State than that in which it was incorporated, under enabling acts of that State, does not make it a corporation of the latter.* It has been decided that a corporation created by the consoli- dation of several corporations existing in diflFerent States, by an act of the legislature, which provided that it should be treated as a corporation created by the laws of the State au- thorizing the consolidation, is, as concerns a suit against it by an alien, a citizen of that State, and not entitled to a removal of the suit under the local prejudice clause of the Removal of Causes Act.' And when the charter of a corporation in one State is duplicated in another State, and the legislature as- sumes to create a home corporation, the effect is to consoli- date the two; but for purposes of jurisdiction it is a separate corporation within the State of its adoption. In such a case separate organization is not necessary.^ § 889. Service of process. — Yalid service upon foreign cor- porations may be made upon their managing agents, under the ISTew York code.' In that State a general agent of the passenger department of a foreign railway, may be served with process intended for the corporation.* And in a local action for penalties for stamping articles as patented, without " license, recoverable only in the district where the stamping is done, an agent of a foreign corporation who has the general management and control within the district of the manufact- uring business in the course of which the stamping i^ done, is a "managing agent" of the corporation within the mean- ing of the code, and service upon him is a valid service upon the corporation.' So also service upon a managing agent for a State of a foreign corporation, is sufficient under acts pro- viding that service may be made upon local agents in the 1 Brock I). Northwestern Fuel Co., ^E. g. N. Y. Code Civ. Proc. (1889) 130 U. S. 341. §483. 2 Wilkinson v. Delaware '&o. R. ^Tuohband v. Chicago &o. R. Co., Co., 22 Fed. Rep. 353. (1889) 115 N. Y. 487. 8Cohnu. Louisville &c. R. Co., 89 'Hat-Sweat Manuf. Co. v. Davis Fed. Rep. 227. &c. Co., 31 Fed. Rep. 294. * Blackburn v. Selma &c. R. Co., 3 Flip. 625. § 889.] ACTIONS BY AND AGAINST FOEBIGN COEPOEATIONS. 1391 county where the suit is brought.' Again where Service upon an agent simply is prescribed, the person to whom the foreign corporation commits the management and control of its business in executing a building contract, is well served.* An agreement bj'' a foreign corporation and an individual who is to sell its manufactures in a certain county in another State, makes him its agent within the statutes regulating the service of process.' And the agency will not be regarded as terminated upon the last day of the term of the agreement as to a third party who has bought a machine of the agent, w^hen there has been no final settlement with and discharge of the agent,* It has been held that under a statute provid- ing that in the absence of the principal oiBcers of a foreign corporation, service maj' be made on a managing agent " within the State," service on the general manager of a foreign corpo- ration, while within the State temporarily, and not performing the duties of his office, is suflicient.^ But in an action by a resident of New York against a foreign corporation, which does not do business, or have office, agent, or property within that State, service of process upon an officer of the corpora- tion, while temporarily there, does not confer jurisdiction upon the court from which it issued.* And under an act of con- gress which declares that "no civil suit shall be brought against any person by any original process in any other dis- iSociete Fonciere et Agrioole v. vit that subsequently he sustained Milliken, (1890) 135 U. S. 304; Tex. no relation to defendant except as a Rev. Stat. art. 1333. member of a firm which was under 2 Norton v. Berlin &c. Co., 51 N. J. contract to sell defendant's goods . 443. ■ and to advance moneys to defendant. 3 Gross V. Nichols, (1887) 73 Iowa, On the day of the service of sum- 23; Brunson v. Nichols, (1887) 73 mons B. gave directions as to the Iowa 763. disposition of certain property con- 4 Gross V. Nichols, (1887) 73 Iowa, signed to defendant, but with the 23; Brunson v. Nichols, (1887) 73 directions B. communicated the fact Iowa, 763. In Sturgis v. Crescent of his resignation. And the court Jute Manuf. Co., (1890) ION. Y. decided that the service could not be Supl.' 470, it appeared that prior to sustained. the service of summons upon one B. , ^ Porter v. Sewall Safety Car-Heat- as officer or managing agent of de- ing Co., 7 N. Y. Supl. 166; N. Y. fendant, a foreign corporation, under Code Civ. Proc. § 433, subd. 3. N. Y. Code Civil Proc. § 432, B.' had « Golden v. The Morning News, resigned his position of president of (1890) 43 Fed. Rep. 113. the corporation, and he made affida- 1392 - ACTIONS BY AND AGAINST FOEEIGN COEPOKATIONS. [§ 889. triot than that whereof he is an inhabitant or in which he shall be found," a corporation can not be served with process ' outside of the State where it was created.' "Where a foreign corporation had appointed the commissioner of ^corporations to be its attorney, on whom process might be served pur- suant to the statute, and its attorney in the suit accepted serv- ice to the same extent that the plaintifif would have obtained service by leaving a copy of the writ with the commissioner of corporations, it was held that the service was suiflcient to give jurisdiction to render a personal judgment against defendant.^ A plea in abatement in an action commenced in the State court against a foreign corporation showed that the writ was not properly served as a writ of summons, but the writ and return showed that the writ issued and was served as a writ of attachment. , And it was held that as the plea did not deny that the person with whom the copy was left was defendant's known agent or attorney, or that it was left with him at the place of attachment, it was bad, such service being authorized by the State laws.' Under the statutory provision that service of process "can be made upon a foreign corporation only, either when it has property within the State, or the cause of action exists in favor of a resident of the State," it is not nec- essary, in order that the court may obtain jurisdiction in an action against it, for an allegation to be made setting fortk the existence of some one of these facts, and a failure to do so will not.be sufficient ground to sustain a demurrer.* In Mis-' 1 Hume V. Pittsburgh &o. Ey. Co., by a formal resolution of the direct- 8 Biss. C. Ct. 81.> - ors, and signed by the president and 2 Wilson «. Martin-Wilson &c. Co., secretary, with the corporate seal (1889) 149 Mass. 24. An appointment afiSxed, and its execution acknowl- by a foreign insurance company of edged and proved before a notary, the superintendent of the insurance is sufiSciently certified and authenti- department as its attorney, on whom cated to fulfill the requirements of process for the commencement of the act, which does not provide that actions may be served as required the appointment be authenticated in by the statute, is valid, although the any particular manner. Lafflin v. appointment is of the superintend- Travelers'Ins.'Co.,(1890)121!NiY.713. ent and "his successor in-ofHce," ^Shampeauu. Connecticut &o. Co., described only by his ofBcial title, (1889) 37 Fed. Rep. 771, construing and not by his individual name. Vt. Rev. Stat. § 881. The appointment, being authorized *Friezen ■», Allemania&c. Ins. Co., §§ 890-1.] ACTIONS BY AND AGAINST FOEEIGN COEPOBATIONS. 1393 souri the law for the service of corporations places them on the same footing as individuals, and authorizes a general judg- ment against the party served.^ § 890. The same subject continued — " Doing business " construed. — Under the statute limiting suits to foreign cor- porations doing business within a State, the purchasing of raw material in a city thereof by correspondence or by sending an agent, is not such a doing business as will make a service in that city of the managing agent of the corporation there upon a pleasure trip effectual.'^ And under the federal statute it is always for the federal court to determine whether a non-resi- dent corporation has transacted business to such an extent "within the district, and has such a representative or agent therein, that jurisdiction to render a personal judgment against the corporation may be acquired by service on that agent.' A State statute providing for service upon foreign corpora- tions doing business in the State, does not repeal a former one regulating the service upon them when having local agents.* But the mere fact that a corporation has sent its property in the charge of its agents into a foreign State for the purpose of exhibition and advertisement, does not constitute such a carry- ing on of business there as to subject it to beiing served with process.* § 891. (irarnishee process. — A statutory provision for the service of process in suits against foreign corporations does not apply to the service of writs of garnishment.* And where garnishee process against a foreign corporation, to show cause why judgment should not be rendered against it, is served on oificers of the corporation, who make .affidavit that they are not principal officers, and the corporation appears only spe- cially to move to quash the proceedings on the ground of no 30 Fed. Rep. 349, construing Wia. ^ Cumberland &c. Co. v. Turnej-, Bev. Stat. § 3637, subd. 11. (1889) 88 Xenn. 265, construmg Tenn. iMcNiohol V. .United States Mer- Code, §§ 2831-2834, 3536-3539. can tile Reporting Agency, (1883)74 'Carpenter v. Westjinghouse &c. Mo. 457. Co., 32 Fed. Rep. 434, 437. 2 St. Louis &c. Co. V. Consolidated ? Milwaukee &c!, Co. v, Brevoort, &o. Co., 32 Fed. Rep. 803. 73 Micl/. 73. 3 St. Louis &c. Co. V. Consolidated &o. Co., 83 Fed, Rep. 802. 1394: ACTIONS BY AND AGAINST FOEEIGN COEPOKATIONS. [§ 892. service, no judgment can be rendered against the corpora- tion.^ § 893. Actions by foreign corporations.— An action will generally lie in favor of a foreign corporation for the purpose of enforcing its contracts.^ And it will be presumed that a foreign corporation plaintiff has done that which entitles i,t to do business and to sue in the State, its complaint being silent on the subject.' Under a law making invalid the contradts of foreign corporations for. failure to comply with certain regu- lations, before doing business in the State, it was held that a demurrer to a suit by a foreign corporatioii on a nbte and mortgage for money lent, was bad, it not appearing where the loan was made.* Even a provision prohibiting foreign 1 First Nat. Bank v. Burch, 76 Mich. 608. 2 Diamond Match Co. v. Boeber, 106 N. Y. 473. The California stat- ute providing that no corporation shall maintain or defend any action in relation to its property until it has filed a copy of the articles of its incorporation with the clerk of the county, does not apply to foreign corporations. South Yuba &c. Co. V. Rosa, (1889) 80 Cal. 333, construing Cal. Civ. Code, § 399. 'Sprague v. Cutlei- &6. Co., 106 Ind. 243. Accordingly a foreign corporation need not allege in its complaint that it has filed with the secretary of the Territory a copy 6t its articles of incorporation, and ap- pOintmeilt of an agent to receive service of process; a demurrer, therefore, to the complaint, because of such omission, can not be sus- tained. American Button-Hole &6. Co. V. Moore, (1884) 3 Dak. 360. Al- though the failure to obtaii a permit as required by statute tnay preclude a foreign corporation from transact- ing further business in the State, it can not be made to divest its right to go into court and assert rights and recover property already acquired. Texas &c. Co. v. Worsham, (1890) 76 Tex. 556. And it is no defense to an action by a corporation on the bond of its agent to recover for the agent's default, that at the time of default it was a foreign Qorporation doing business in the State where action was brought, without having complied with the laws iregulating foreign corporations doing business therein. Singer Manuf. Co. v. Hardee, (N. M. 1888) 16 ,Pacif. Eep. 605. So also an objection that a for- eign corporation has no authority to sue on account of non-compliance with the laws relating to such cor- porations, will not be considered on appeal, where the answer merely states legal conclusions, as that' plaihtiff hkd not recorded a " duly- authenticated copy " of the appoint- ment or commission of any agent " duly authorized " to accept service of process, and vyhere there is no evidence in the abstract that the statute relating to foreign corpora- tions has not been complied with. Gull Elver Lumber Co. v. Keefe, (Daki 1889) 41 N. W. Bep. 743. 'Finch u. Travellers' Ins. Co., 87 Ind. 303, construing Ind. Eev. Stat. §§ 3033-3025; §§ 893-4.] ACTIONS BX AHD AGAINST FOKEIGN OOBPOEATIONS. 1395 corporations from transacting business within the State un- less they have therein a known place of business and an agent capable of being served with process, does not invali- date an individual contract between a foreign corporation and a citizen of the State, nor does it preclude an action by the corporation within the State on a breach of the contract.' On the other hand, it has been held that in a suit by a foreign corporation it must show, not only the papers and proceedings of incorporation, but the statute of the State where it was in- corporated, authorizing incorporation.^ § 893. Actions by receivers of foreign corporations. — A foreign corporation having the right to institute suits in a State, it follows that its assignee, it having become insolvent, has a similar right.' And in a suit by the receiver of a foreign corporation against its olKcer to reach its assets, defendant can not set up the legal incapacity of the corporation to do business in the State where sued, the State not having com- plained.* In an action on a note in the name of a foreign corporation, where the plaintiff proved the appointment of the receiver, and then introduced in evidence the statute of the foreign State authorizing the appointment on dissolution of a corporation, it was held that the evidence showed that the corporation was dissolved, and was not the real party in interest, and the action was properly dismissed.' § 894. Actions by stockholders of foreign corporations. — |Under a law providing that a resident of the State or a do- mestic corporation may sue a foreign corporation for any cause of action, resident stociiholders of a foreign corporatioi) may sue it in the courts of their State to enjoin it and its directors from constructing branch lines of railroad, and /rOm expending funds therefor, which are within the State, to the irreparable injury of the stockholders.* And resident stock- 1 Cooper Manuf. Co. v. FergusOin, ^Wijliams v. Hintermeister, 26 113 U. S. 727. Fed. Eep. 889. 2 Savage «. Russell, (1887) 84 Ala. 5 Merchants' Loan & Trust Co. 103. V. Clair, (1887) 107 N. Y. 6B3. 3 Life Association of America t>. « Ives i). Smith, (1890) 8 N. Y. Supl. Levy, (1882) 83 La. Ann. 1203. 46, affirming 3 N. Y. Supl. 645, con- struing N. Y. Civ, Code Proo. § 1780. 13S3 ACTIONS BY AND, AGAINST FOREIGN CoWoEATIONS. [§ 895. holders of a foreign corporation may sue. another foreign cor- poration to compel it to perform its agreement to issue certain of its capital stock to the company of which plaintiffs are stockholders, or, in case of its failure to issue the same, then to recover damages.^ To enable a stockholder, suing as sucb, to, maintain an action agd/inst a foreign corporation, it is not necessary that his stock should be registered.^ But a con- troversy between lotia fide stockholders of a corporation on the one side,-' and those claiming to be stockholders and the president and directors on the other, can only be determined by the courts of the State by which the corporation was created.' And the courts of Maryland will not interfere in controversies relating only to the internal management of the affairs of a foreign corporation. They hold that where the act of a foreign corporation affects one solely in Kis capacity as a member, it may be said to relate to the management of the internal affairs of the corporation; othei"wise where the act affects his individual rights.* § 895. Actions against foreign corporations. — By the constitution of Alabama suit may be brought agfiinst a for- eign corporation in any county where it does business.* And under a statute providing that when all the defendants are non-residents of the State, suit may be brought in any county, a foreign corporation having an office in the State may be sued in any county thereof.* Under the West Virginia code, a foreign corporation which does business in the State may be sued in any county where process can be legally served, al- though the cause of action arose out of the State.' Under the provision of the Texas act that a company may be sued in any 1 Babcock i;. Schuylkill &c. R. Co., terms "any private corporation" (1890) 9 N. Y. Supl. 845. and " any incorporated company," 2 Ervin iJ. Oregon Bail way &Navi- in the Texas statutes relating to gation Co., (1883) 63 How. Pr. 490. suits against corporations, are broad 8 Wilkins v. Thorne, (1884) 60 Md. enough to include foreign corpora- 353. tions. Augerhoefer v. Bradstreet * North State Copper &c. Mining Co., (1885) 22 Fed. Rep. 353, oonstru- Co. V. Field, (1886) 64 Md. 151. ing Tex. Rev. Stat. art. 1233, 5 Ala. Const, art. xiv, § 4. ' Humphreys v. Newport News 6 Estill V. New York &c. R. Co., &c. Co., (1889) 38 W. Va. 135, con- (1890) 41 Fed. Rep. 849, construing struing W. Va. Code, ch. 123; § 1. Mo. Rev. Stat. § 3481, subd. 4. The §895.] ACTIONS BY AND AGAINST FOBEIGN COEPOEATIONS. 1397 county- where it has an agent or representative, it is held that it can be sued only in counties where it has an agent or rep- resentative.' A statutory provision that a company can not maintain or defend suits relating to its property without first having filed a certified copy of its articles of incorporation iu the county where the property is situated, does not apply to an action against it for work and labor.^ And under a stat-, ute requiring a foreign corporation doing business in a terri- tory to record its charter, it is held that failure to comply therewith simply relieves the party suing it from proving the incorporation except by reputation.' But it has been held proper to sue as partners persons claiming to be a foreign cor- poration, when it was shown that not until after the right of action accrued was the statutory requirement of the foreign State complied with as to filing the articles of incorporation.'' For a tort committed by a foreign corporation within the State of Pennsylvania, the corporation is liable to be sued therein if found in the State in the person of an oiflcer or agent upon whom process may be served.^ So also under an act authorizing suits against foreign corporations by residents of ISTew York for any cause of action, a suit may be brought by a resident executor, upon a policy issued by a Connecticut cbrporation upon the life of the testator, who lived and died in that State, letters having issued in New York.* ■ And again a resident _of New York may maintain an action against a foreign corporation, although the acts out of which the cause of action arises, and the property from the management and disposition of' which plaintiff's loss and damage were sustained, are beyond the jurisdiction, and the relief which, it is in the power of the court to grant may be incomplete.' But it is held that a railroad corporation controlling a line in several States, but not in Iowa, can not be sued there by a citizen of Iowa on 1 St. Louis &c. K. Co. v, Whitley, 5 Gray v. Taper Sleeve Pulley (1890) 77 Tex. 126. Works, (1883) 15 Fed. Rep. 436. 2 Weeks v. Garibaldi &c. Co., * Palmer «. Phoenix Mut. Life Ins. (1887) 73 Cal. 599. Co., 84 N. Y. 68, construing N. Y, 8 King f. National M. & E. Co., Code Civ. Proc. § 437. (1884) 4 Mont. 1, construing Mont. f Ervin u. Oregoln Railway & Nav- Cod. Stat. 1873, p. 419, § 46. igation Co., 62 How. Pr. 490. « Smith V. Warden, 86 Ma 383. 1398 ACTIONS BY AND AGAINST FOKEIGN OOKPOEATIONS. [§ 896. a cause of action not arising there.' In a suit against a for- eign corporation it is not necessary that the. existence of any of the statutory facts giving jurisdiction should be alleged to give the coui-t jurisdiction,, and the petition is not demurrable for the failure.^ So also, where, in an action on a policy issued by a foreign insurance corapan}', the declaration, the ' application, and the policy shovfed that defendant was doing business in the State; and it pleaded nothing to the contrary, and did nothing to oust the jurisdiction of the court, it was considered that the objection that there was no allegation or proof that the company was doing business in the State, was not well taken.' A contract of fire insurance naade in Iowa, the statutes of which State provide in what counties an action may be brought on the policy, does not limit the right to bring aft action for loss of the propertj'^ to that State, for the action is transitory in its nature, and may' be brought wher- ever service raaj' be had on the company.* It seems- that a 'company established in two States Tnay be sued in either as a non-resident.* § 896. Actions Iby non-residents against foreign corpora- tions. — A foreign corporation can be sued by a non-resident only in one of the cases specified in the statutes giving the jurisdiction.^ ,And the right of the non-resident to sue a for- eign corporation depends on the plaintiff's residence, not on his citizenship.' -Therefore a' statute restricting this power to cases where the cause of action arisen in the State, is not un- constitutional as violating the privileges and immunities of citizens in the several States.^ Neither is it unconstitutional as impairing the obligation of contracts, as a corporation, , 1 Elgin Canning Go. v. Atchison ^ Brvin v. Oregon Ry. & Naviga- &c. R. Co., 24 Fed. Rep. 866. , tion Co., (1883) 28 Hun, 269; Central ^Friezen. v. AUemania Fire Ins. R. &c. Co. v. Georgia &c. Co., (1889) Co., 30 Fod. Rep. 349. 32 S. C. 319; N. Y. Code Civ. Proc. 3 Hall V. Alabama Gold Life Ins. § 1780;. S. 0. Code, g 433. Co., (1887) 79 Ga. 93. 7 Adams v. Penn Bank, (1885) 35 * Insurance Co. of North America Hun, 393. V. McLimans, (Neb. 1890) 44 N. W. 8 Central R. &c. Co. v. Georgia, &c. Rep. 991. Co., (1889) 33 S. C. 819. « Newport & C. Bridge Co. v. Wooley, 78 Ky. 533. § 896.] ACTIOXS BY AND AGAINST FOEEiaN OOEPOEATIONS. 1399 being the mere creatioa of the local law, depends for recogni- tion of its legal existence by other States on the assent of the States, and a State may make such regulations in regard to corporations created in another State as it deems best, or may exclude them altogether. Neither is it in conflict with a con- stitution of a State which provides that " all courts shall be public, and every person, for any injury that he, may receive in his'lands, goods, person or reputation, shall have remedy by due course of law," as the object of that section of the consti- tution was not to open the courts of the State to all persons, to demand redress for injuries received anywhere, but simply to secure to the inhabitants of the State access to the courts for the redress of injuries which they may have received.^ Under statutes which either simply give non-residents the right to sue foreign corporations if the cause of action arises within "the State; Or for enumerated causes all of which arise within the State, a. suit between such parties upon causes of action not arising within the State can not be maintained.^ And where plaintiff, a national bank organized and doing business in Louisiana, purchased of another bank, also a Lou- 1 Central R. &c. Co. v. Georgia &c. affidavits that a part of plaintiff's Co., (1889) 32 S. C. 319. claim is evidenced by notes executed 2 Robinson «. Oceanic &o. Co., (1889) in this State, the motion will be de- 113 N. Y. 315 ; Central R. &c. Co. v. nied. Central R. &c. Co. v. Georgia Georgia &c. Co., (1889) 83 S. C. 819. &c. Co., (1889) 32 S. C. 319. Al- Cf. S. G. Code, § 423; N. Y. Code though property seized under at- Civ. Proo. § 1780. But where a mo- tachment proceedings does not oon- tion is made under these statutes to stitute " the subject of the action," dismiss an action based on the com- so as to give the court jurisdiction plaint and affidavits in the case, on of an action by a non-resident against the ground that the court has no a foreign corporation, when there is jurisdiction because the action is by no allegation in the complaint filed a non-resident against a foreign cor- in the action of any title to, or any poration on a cause of action which interest ii;, the property levied on ; did not arise in this State, and the as an attachment is only a provis- <3om plaint alleges that plaintiff en- ioial remedy, which requires, an ac- tered into a contract with defendant tion legally .instituted as a necessary to do work on a railroad running condition precedent to the right to from a certain place in this State to maintain it, and the real subject of a place in another State, and the the action must necessarily be the complaint contains a bill of particu- subject of the complaint. Central •Jars showing that a considerable R. &c. Co. u. Georgia &o. Co., (1889) amount of work was done in this 83 S. C. 319. State, and it also appears from the 1400 ACTIONS BY AND AGAINST FOEEIGN COEPOEATIONS. [§ 8&7. isiana corporation, a draft on bankers in New York, drawn to plaintiff's order, and payment was refused, and a suit begun in New York, and funds of the second bank attached therein, it was held that under the section of the code providing that an action may be begun in New York against a foreign corpora- tion by a plaintiff not a resident of the State " when the cause of action shall have arisen in this State," the court had juris- diction.i § 897. Actions by foreign corporations against foreign corporations. — Foreign corporations may sue one another if both are doing business within the State, and the cause of ac- tion accrued there.^ Accordingly, where an unlawful transfer of stock is made in New York by the transfer agency of a foreign corporation, the wrongful act is committed there, and. therefore the State courts have jurisdiction although the party injured is also a foreign corporation.' And a foreign corpo- ration may institute proceedings in New York for an injunc- tion against the prosecution of an arbitration begun under an agreement with another foreign corporation.* So also, when there is a statutory provision for acquiring jurisdiction, a cor- poration of another State can sue an alien corporation in the federal courts.* But the legislature may restrict the right of one foreign corporation to sue another.* And a foreign con- struction company can not maintain a bill in equity in Massa- chusetts against a foreign railroad corporation and a citizen of Massachusetts, to enforce specific performance of a cove- nant in a contract for the delivery of bonds and certificates of stock in payment of work to be performed by the construc- tion company in a foreign State, and to restrain, by injunction, the citizen of Massachusetts from disposing there of shares of stock and bonds of the railroad company, alleged to have iHibernia Bank v. Lacombe, 84 Dominion Telegraph Co., 84 N. T. N. Y. 367; s. C. 38 Am. Eep. 518. 153, reversing s. c. 22 Hun, 568. 2 Emerson v, McCormiok Harvest- "Merchants' Manuf. Co. v. Grand ing Machine Co., (1884) 51 Mich. 5. Trunk Ey. Co., (1882) 63 How. Pr. 'Toronto General Trust Co. v. 459. Chicago &c. R. Co., 32 Hun, 190. *Duquesne Club v. Penn Bank, Cf. N. Y. Code Civ. Proc. § 1780, (1885) 35 Hun, 390. Cf. N. Y. Code subd. 8. Civ. Proc. § 1780. * Direct United States Cable Co. v. § 898.-] ACTIONS BY AND AGAINST FOEEIGN OOKPOEATIONS. 1401 been delivered to him in violation of the plaintiff's rights, al- though the railroad corporation has an office in Massachusetts for the transfer of stock, and has appeared by attorney in the suit.' § 898. Actions in federal courts. — In the absence of a voluntary appearance, three things are requisite to give the federal courts jurisdiction in personam over a corporation created without the territorial limits of the State in which the court is held. First, it must appear as a matter of fact that the corporation is carrying on its business in the foreign State or district. Second, that the business is transacted or man- aged b}"- some agent or officer appointed by and representing the corporalion in the State. Third, some local law making that corporation, or foreign corporations generally, amenable to suit there.^ A corporation can not acquire a residence in a State other than the one in which it is incorporated within the meaning of the act which -provides that suit in the federal courts shall be brought in the district of the residence of either the plaintiff or defendant.' Accordingly a corporation can not be sued in a State other than the one of its incorpora- tion because of its maintaining an office^ and having an agent there.* But where corporations in consideration of the grant of the privilege of doing business in a State have agreed that they may be sued there, they may be so sued in the federal as well as State courts.^ It has been decided that a 'Siew York corporation, having its principal office in that State, and doing business in Illinois, can not be sued in the federal courts in Illinois.' And a citizen of Mexico can not sue a Connecti- cut corporation in the United States circuit court for the southern district of California, although the corporation has an office and managing agent in that district.' The pres-\ 1 Kansas R. &c. Co. v. Topeka &c. &c. Co., 42 Fed. Rep. 81; s. C. 8 Ry. R. Co., (1884) 135 Mass. 34; s. C. 46 & Corp. L. J. 63. Am. Rep. 439. ^ Ex parte BchoWenbev^nr, 96 U. S. 2 Case of Telephone Co., 29 Fed. 377; Lafayette Ins. Co. u. French, 18 Rep. 17 ; Carpenter v. Westinghouse How. 404. Air-Brake Co., 33 Fed. Rep. 434. « Preston v. Fh-e-Extinguisher » Booth V. St. Louis &c. Co., 40 Manuf. Co., 36 Fed. Rep. 731. Fed. Rep. 1. ' Denton v. International Co., 38 ^Bensinger &c. Co. v. National Fed. Rep. 1. ' 1402 ACTIONS BY AND AGAINST FOKEIGN COKPOEATIONS. " [§ 899. ence of the chief officers of a corporation in a State other than that of its creation, does not change the residence of the , corporation, nor does the fact that the officers carry into the State property of the corporation, for the purpose of exhibi- tion and advertisement, bring the corporation into the State as an " inhabitant," or so that it can be said to be " found " there, within the meaning of the act of congress.^ Where, however, a plaintiff is a citizen of Massachusetts, and defend- ant a corporation created by the law of Rhode Island as well as by the law of Massachusetts, the suit may be brought in the federal court for the Rhode Island district. For the pur- poses of the suit, defendant is to be deemed a citizen of Rhode Island.'^ And the fact that a foreign corporation is in liqui- dation, and has been placed by the courts of that country in the hands of a liquidator, will not prevent a persDn from es- tablishing his claim against the corporation by suit in a federal ••ourt, and subjecting its property to the satisfaction thereof.' § 891). Removal of causes into federal courts. — The filing by a foreign corporation of its articles of incorporation with the Secretary of State of' a foreign State, as required by an act thereof, does not alter its status as a foreign corporation. Ac- cordingly, in an action brought against it by a corporation of that State, the defendant may have the cause removed from a State court to a United States circuit court.* And a statutory restriction, to prevent foreign corporations fron transacting • Thus the operation of a train of suits growing out of or connected its cars by a foreign corporation in with the bhsiness of that office or Iowa, for the purpose of exhibition agency may be bro^ght in the and advertisement, when neither county where the agency is located ; , passengers nor freight are trans- and this is so, although the wrong ported, does not come within the complained of was the alleged in- law authorizing suits to be brought fringement of a patent by such oper- against railway companies and ,the ation of a train of cars. Carpenter owners of lines, or persons operating v. Westinghouse &c. Co., 32 Fed. the same, in any county through Rep. 434. which the line or road passes or is ^page v. Fall Eiver &c. R. Co., operated ; nor does it come within (1887) 31 Fed. Rep. 357. that which provides that when a 'Societe Fonciere et Agricole v, corporation, company] or individual Milliken, (1890) 135 U. S. 304. ;haB an office or agency in any county * Chicago &c. R. Co. v. Minnesota for the transaction of business, any &c. R. Co., 29 Fed. Rep. 337, 899.] ACTIONS BY AND AGAINST FOREIGN COEPOEATIQNS. 1403 business in the State without a permit, is rendered void by a provision that, as a condition precedent to the issue of such permit, they shall surrender their right to remove certain suits into the federal courts, it appearing to be the entire purpose of the statute to deprive those companies of that right.^ Wher.e a consolidation of a foreign with a domestic railroad has not taken place till after suit brought against the foreign corpo- ration by a domestic corporation, and the filing of a petition for removal, the consolidation does not alter the foreign cor- poration's right to a removal of the causd.^ An action for trespass against two corporations jointly, brought in a State court, can not be removed to a federal court by one of the de- fendants upon the ground of a separable controversy between itself and plaintifi', though defendants plead severally, on the mere allegation that, the other defendant was not in existence at the tinie of the alleged trespass, as this affects the merits, and not the jurisdiction.' Where, in an action by a State in 1 Barron v. Burnside, 131TJ. S. 186 ; Texas &o. Co. v. Worsham, (1890) 76 Tex. 556. And where a foreign corporation commenced a suit of foreclosure in the circuit court' of the United States, but discontinued that suit, and commenced an action in the State court for the same purpose, the commencement of the suit in the federal court, although prohibited by the terms of the statute forbidding foreign corporations doing business in the State from commencing suitg in or removing them to federal courts, did not affect the right of the corporation to maintain the ac- tion in the State court. ^ Northwest- ern Mut. Life Ins. Co, v. Stone, (Minn. 1886) 31 N. W. Eep. 54. 2 Chicago &c. E. Co. v. Minnesota &c. R. Co., 39 Fed. Eep. 837. 3 Louisville &c. E. Co. v. Wange- lin, (1890) 133 U. S. 599, following Eailroad Co. v. Grayson, 119 U. S. 340, 244, which was a suit in equity against two corcorations, where the question being whether there was a separa- ble controversy between one of them and the platntifl which would war- rant a removal into -the circuit court of the United States, it was said by Chief Justice Waite, and adjudged by this court, that the allegations of the bill must, for the purposes of that inquiry, be taken as confessed. In the case at bar the declaration charged two corporations vfrith hav- ing jointly trespassed on the plaint- iff's land. Whether they had done so or not was a question to be decided at" the trial ; and it is not contended, and could not be, in the face of the decisions already cited, that the rec- ord of the State court, as it stood at the time of the filing of the peti- tion for removal, showed a separable controversy between the plaintiff and either defendant. The argu- ment in support of the jurisdiction of the federal court is that the Lousville & Nashville Eailroad Com- pany was the only real defendant, because, at the time of the trespass complained of, the other defendant was not in existence. But this was a matter affecting the merits of the 14:04: ACTIONS BY AND AGAINST f OEEIGN OOEPOEATIONS. [§ 899. its own courts to recover certain penalties imposed on for- eign insurance companies for doing business without comply- ing with the State laws, the right of recovery, depends on the question of mixed law and fact, whether service of sum- mons has been made on a person who was at the time an agent of the company within the State on whom process might legally be served, ^so as to bind the company and bring it within the jurisdiction of the court, there is no question de- pendent on a construction of the constitution or any law of the United States, and therefore no cause for removal, since until the question of jurisdiction is decided there is no "suit brought," within the terms of the act of congress authorizing such removals.' case, and one which the plaintiff was whether it could be now sued, but entitled to deny and disprove at the the question of its liability in the ao- trial upon the issues joined by the tion; in other words, not the juris- pleadinge. Both the defendants were diction, but the merits, to be deter- sued and served as corporations, and mined when the case came to trial, pleaded as such, in the State court ; It could not be tried and determined audit is not denied that each of them in advance, as incidental to a peti- was a corporation when the action tion by a co-defendant to remove was brought. The question whether the case into the circuit court of the one of them was in existence as a United States. corporation at the time of the alleged i Germania Ing. Co. v. State of Wis- trespass did not affect the question cousin, (1886) 119 TJ. S. 473. CHAPTEE XLV. ACTIONS BY AND AGAINST VOLUNTARY ASSOCIATIONS. ) 900. Introductory. 901. Suits by members. 903. Suits by officers — (a) At com- mon law. 903. (b) Statutory suits through agents. 904. The same subject continued. 905. Actions by members against their associates. § 906. The same subject continued. 907. Actions for "benefits." 908. Actions by and against with- drawing members. 909. Actions on subscriptions, 910. Actions to prevent illegal and ultra vires acts. § 900. Introductory. — Suits by and against unincorpo- rated associations can not at common law be brought and maintained in the name pf the, association, nor in the name of its a.gents or trustees.^ As in case of partnerships consisting of numerous members, the action must in the first instance be instituted in the names of all the members.^ Therefore an unincorporated lodge of free masons can not sue for the re- covery of property of the lodge, but will be permitted to sue only as individuals.' So the members of an unincorporated association, formed with a view to pecuniary profit, should not sue as a corporation or society but as partners.* So also unincorporated business associations are partnerships and each member is liable to the full extent of the partnership indebt- edness, and all the members must be joined in a suit against the association.* And an action on a promissory note signed iCurd V. Wallace, 7 Dana, 190; S. C.',32 Am. Dec. 85 ; Detroit Schuet- zen Bund v. Detroit Agitations Ver- "ein, 44 Mich. 313; s. c. 38 Am. Eepi 270, holding that a court will not entertain a suit in the name of an unincorporated associatioij, espe- cially where it has been formed for the purpose of resisting the liquor laws of the State. Detroit Schuet- zen Bund v. Detroit Agitations Ver- ein, 44 Mich. 313. 2 Curd V. Wallace, 7 Dana, 190; s. 0. 33 Am. Dec. 85; Williams v. Bank of Michigan, 7 Wend. 543; Sullivan u Campbell, 3 Hall, 371;, Pipe V. Bateman, 1- Iowa, 369 ; Teed V. El worthy, 14 East, 310. 8 Lloyd V. Loaring, 6 Ves. Jr. 773 ; Fells V. Bead, 3 Ves. Jr. 70 ; Smith V. Smith, 3 Desaus. 557. ^ Pipe V. Bateman, 1 Iowa, 369. 5 Williams v. Bank of Michigan, 7 Wend. 543; Wells v. Gates, 18 Barb. 14:06 ACTIONS BY Ann AGAINST VOLUNTAET ASSOCIATIONS. [§§ 901-2. by the directors of a voluntary association, should be in the names of all the members as defendants; but if the action is brought against the directors the non-joinder of the members must be pleaded in abatement.^ One, however, whose name is improperly signed to the articles of association, may be omitted as a defendant in an aiction against an association.^ An association having made an unsuccessful attempt to in- corporate does business as a partnership.^ § 901. Suits by members. — Although a voluntary associa- tion can not sue in a corporate capacity, yet on the ground of their common interest, the members may sue in their own names on behalf of the societj'^,* and on behalf of themselves and others having a like interest for purposes common and beneficial to all,' to protect the funds or property of the asso- ciation," especially where the parties are numerous;' the general rule being that where the members of an unincor- porated association are too numerous to be joined in an action, or where the society is composed of very many members, one or more of them may sue on behalf of all the interested parties, but the representative capacity of the few members must be distinctly stated in the declaration.' Foe the mere fact that the society is unincorporated and its members numer- ous will not warrant a suit by one member in behalf of the society, unless the nature and terms of his authority to bring suit appear in the complaint.' § 902. Suits by oiilcers — (a) At common law. — Although one member of^a voluntary association may not in his own name sue for the benefit of all ; "• and although in general an 554; Hess v. Werts, i Serg. & W. s Dennis w. Kennedy, 19 Barb. 517; 356. ■ Wood t;. Draper, 24 Barb. 187; Smith iMcGreary v. Chandler, 58 Me. v. Lockwood, 1 Code Eep. N. S. 319; 537 ; Robinson v. Robinson, 10 Me. Birmingham v, Gallagher, 113 Mass. 340. 190; Snowu. Wheeler, 113 Mass. 179; 2 Boyd V. Merrill, 53 III. 151. Pipe v. Batemar, 1 Iowa, 369 ; Mar- 3 Coleman v. Coleman, 78 Ind. 344. shall v. Lovelass, Cam. & N. 217 ; i Mears v. Moulton, 30 Md. 143. Lloyd v. Loaring, 6 Ves. 773. SBeatty v. Kurtz, 3 Pet. 566. ^Habicht v. Pemberton, 4 Sandf. 6 Lloyd V. Loaring, 6 Ves. 778; 657. Mears v. Moulton, 30 Md. 143. "> Habicht v. Pemberton, 4 Sandf. ^ Beatty v. Kurtz, 2 Pet. 566. 657. § 903.] ACTIONS BY AND AGAINST VOLBNTAEY ASSOCIATIONS. 1407 unincorporated compiany can not at common law sue in the name of its trustees;' it may bring suit by its agents properly appointed.^ For a plain equity principle allows a committee of an unincorporated society to sue and be sued as represent- atives of the whole.' And as religious societies have from the earliest times been invested as g'was^-corporations with the right to acquire and hold pi-operty as a means of promoting their praiseworthy objects,* the trustees de facto of a relig-. ious society, Whether it be incorporated or not, may maintain an action against a trespa,sser for an injury to a meeting house.' So also the regularly appointed committee of a vol- untary religious society, who are in the actual possession of certain premises used as a church and burial ground, may file a bill to restrain the heirs of the donor from disturbing the possession.'^ And again the holder of a check being the cashier of an unincorporated banking association, and holding it for the use of the concern, was allowed to recover upon it in his own name.' But it has been held that the treasurer of a vol- untary association could not maintain a suit on a note given to the association and made payable to " the treasurer " thereof.^ On the other hand, a Shaker community, whose property is held and whose contracts are made by trustees,- may beheld liable on their contracts in suits brought against the trustees; judgment rendered against the trustees in such suits may be satisfied by levy on the property of the community; and the writs, judgments and executions, may run against the trustees and their successors in their official capacity.' § 903. (b) Statutory suits through officers.— In some of the American States and in England there are statutes author- izing unincorporated societies to sue and be sued in the names of their officers, trustees, committees and the like.^" Thus the iNiven v. Spickerman, 13 Johns. SQ-reen v, Cady, 9 Wend. 414. 401. SBeatty v. Kurtz, 3 Pet. 566. ? E[abicht v. Pemberton, 4 Sandf . ' ' O'Brien v. Smith, 1 Blackf . 99. 657, 8 E wing v. Medlock, 5 Port. (Ala.) 3 Phipps V. Jones, (1853) 20 Pa. St. 82. 260; Cullen v. Queensberry, 1 Bro. 'Davis v. Bradford, 58 N. H. 476. 0. C. 101 J Cousins 1J. Smith, 13 V^. ^^E. g. 3 Geo. IV, ch. 136, § 74; 544. N. Y. Code Civ. Proo, § 1919; 1 4 Burton's Appeal, 57 Pa. St. 218. Chitty Pleading, le,* 17. 1408 ACTIONS BT AND AGAINST VOLUNTAEY ASSOCIATIONS. [§903. code of New York provides that any unincorporated company or association composed of not less than seven persons, may sue and be sued in the name of its .president or treasurer.' And an English statute allows church-wardens to be sued in certain respects.^ As these statutes give a right not existing at common law, in order that they may be effective they must be strictly pjirsued.' Accordingly under a statute authoriz- ing suit against the president or treasurer, an action is im- properly brought if instituted against the president, secretary and treasurer.* The liability of members of an unincorpo- rated association as partners is preserved though not extended by these acts;' although an action can not be maintained against the individual members of the association upon a d,ebt due froni the association, unless action was first brought against its president or treasurer.^ These acts were intended to apply to suits having in view a remedy against the joint property and effects of such companies and associations, and when a suit is brought for an injunction, it is not well brought against the president of the association merely.'' As they re- spect the remedy only, however, they are of local application, and as a joint-stock company of New York which may be sued in the names of its officers, is not a corporation, but a partnership, a member may be liable in another State as an individual partner.^ The objection of a non-joinder of par- IN. Y. Code Civ. Proo. § 1919; STimms i;. Williams, 3 Gale & D. Tibbets v. Blood, 31 Barb. 650 ; 631 ; Hughes v. Thorpe, 5 Mees. & Olery v. Brown, 51 How. Pr. 93 ; W. 656, 667. Sewell V. Ives, 61 How. Pr. 54; * Schmidt u. Gunther, 5 Daly, 452. Poultney v. Bachmau, 63 How. Pr. 5 Kingsland v. Braisted, 2 Lans. 17. 466. An averment that the associa- Therefore where, without organiza- tion consists of seven or more mem- tion, articles of association or by- bers is^enough ; their names need not laws, a society is formed for social be contained in the complaint. Tib- and recreative purposes, and a name bets V. Blood, 31 Barb. 650. The . is assumed by which liabilities are judgmentandtheexecutionareprop- incurred, the members become ei'ly against the president as such, jointly liable for any indebtedness and they bind the joint property of incurred. Park -v. Spaulding, 10 the association, not the individual Hun^ 138. property of the president. Schuy- * Flagg v. Swift, 35 Hun, 623. lerville Bank v. Van Derwerker, 74 'Rorke v. Russell, 3 Lans. 344. N. Y. 284. s Boston &o. B. Co. v. Pearson, 138 ,2 Doe V, Harpur, 2 Dow. & Ry. Mass. 445. Cf. Dinsmore v. Phila- 708. • delphia &o. R. Co., 11 Phila. 483; §§ 904-5.] ACTIONS BY AHD AGAINST VOLUNTAET ASSOCIATIONS. 1409 ties defendant is not available to tiie defendant association wiien sued by a firm, several members of which are also mem- bers of the association.' § 904. The same subject continued. — By statute in Indiana a church organization can sue only in the name of wardens and vestrymen or trustees of the church.'' And in Kentucky the trustees of an unincorporated religious society, in whom title is vested, may sue in their own names for the preservation of the property.* In that State by another statute a church may appoint and sue. by a committee,* who need not be members of the church.' Where a law provides that a religious asso- ciation by voluntarily associating and performing other acts shall become a body corporate, the society by performing those acts obtains a corporate existence and may maintain suit in that capacity.* And a compromise of a suit brought by a majority, of the members is binding upon the minority.' Under a statute providing that a voluntary unincorporated association may sue by its distinguishing name, a military company having such a name may sue by it.^ None of these acts confer upon these officers any right to sue except in cases where the stockholders or associates could before have prosecuted.' § 905. Actions Iby members against their associations. — Similar principles are followed in actions by members of unin- corporated societies against the societies as govern actions by stockholders against the corporation.'" And, generally, courts will not interfere until every means afforded by the society are exhausted." Before it. interferes with voluntary associations Maltz V. American Express Co., 1 'Horton v. Baptist Church, 34 Flipp. 611. Vt. 309. iKingsland v. Bfaisted, 2Lans. 17. ^¥ox t. Narramore, 36 Conn, 882. 2 Drumheller v. First &c. Church, *• Corning v. Greene, 23 Barb. 33. 45 Ind. 275. '" Thus building associations are 3 Curd V. Wallace, (1838) 7 Dana, not exceptions to the general law 190 ; s. c. 32 Am. Dec. 85. governing corporations, that a stock- * Hadden v, Chorn, 8 B. Mon. 70. holder can not sue at law as a stock- * Humphrey v. Burnside, 4 Bush, holder, O'Eourke v. West Penn- 215, 234. syjvania Loan &c. Assoc, (1880) 93 eghelburne &o. Soa «. Lake, 51 Pa. St. 308; s. C. 14 PhUa. 145. Vt. 358. " Chamberlain v. Lincoln, 139 Mass. 14:10 ACTIONS BY AND AGAINST VOLUNTAET ASSOCIATIONS. [§ 905. the court must see that it is under obligation to act, and that it can effectually act for the benefit of those persons who have laid out their money in a way in which there must be difficulty in recovering it.' As a further illustration of this principle, where the property rights of an unincorporated church or vol- untary association of persons for religibus purposes are de- pendent on the questions of doctrine, disciplinCj ecclesiastical law, rule or custom, or church government, and that has been carried to and decided by the highest tribunal within the or- ganization, the , civil court will accept the decision as conclu- sive and be, governed by it in its application to the case before it.' The result then is that the courts will not usually inter- fere for the purpose of protecting property rights of members of unincorporated associations, and when they do interfere the rules which the courts follow are essentially the same as those which guide them in dealing, wiih formally incorporated bodies of the same kind.' And although the articles of association provide for the management of the society, yet any member may resort to the courts for redress in case of fraudulent or wilful destruction of the joint property.* A court will not treat a private unincorporated association as a partnership, nor declare its dissolution and divide its assets among its mem- bers on the application of a minority." "Where there is nothing in the constitution of a joint-stock company which regulates the remedies of shareholders as between themselves, the gen- eral law of partnership must govern, and a shareholder or his assignee can not maintain an action against the company for goods furnished until a final settlement of the partnership ac- count and a balance struck.' 70; Lafond v. Deems, 81 N. Y. 607; Osceola Tribe v. Schmidt, 57 Md. 98; Fischer v. Baab, 57 How. Pr. 87 ; Anacostia &o. v. Murbach, IS Md. Olery v. Brown, 51 How. Pr. 93; 94; Black v. Vandyke, 2 Whart. White V. Brownell, 3 Daly, 339 ; s. 0. 309. S Abb. Pr. N. S. 318; s. c. 4 Abb. Pr. 'Hirschl, Fraternities and Socie- N. S, 163, 199. ' ties, § 4711. , 1 Ellison V.' Bignold, 8 Jao. & W. * Dennis u. Kennedy, 19 Barb. 517. 505. s Thomas v. EUmaker, 1 Pars. Eq. 2 Watson V. Jones, 13 Wall. 679. Gas. 98. Of. Pipe «, Batemaa, 1 And the decisions of the highest tri- Iowa, 867. bunals of the order of Red Men have "Bullard v. Kinney, 10 Cal. 60. been held binding upon the courts. Cf. McMahon v, Rauhr, 47 N. Y. 67. §§906-Y.] ACTIONS BY AND AGAINST VOLUNTAEY ASSOCIATIONS. 1411 § 906. The same subject continued. — "Where there is a statute making an officer of the company its representative, legal proceedings between the public officer and individual members are as unobjectionable as proceedings between incor- porated companies and their shareholders.^ Accordingly the society may be so sued by a member upon a contract made by the authorized agents of the society.^ And a member of a joint-stock association may maintain an action against the as- sociation or an officer thereof to recover damages for maintain- ing a private nuisance.' Again, a bill filed in the name of a corporation which consisted of nine trustees, against five of the trustees in their individual capacity, is maintainable.* Even at common law, a member of a mutual insurance asso- ciation having suffered loss may sue the treasurer, secretary and seven members.' But an act allowing suits b3' a joint- stock company against any person to be commenced in the name of the cha,irman, which it was also permissible to use in all cases where it before would have been necessary to state the names of the partners, was held not to authorize suit to be commenced by the chairman against one of the partners with- out making the other partners parties.' § 907. Actions for "benefits." — As a rule a member of a voluntary benevolent association can not seek redress in the courts for a violation of the obligation of the association con- cerning " benefits," until he has first exhausted the remedies provided by the rules of the association^, for it has been well said that mutual benefit societies never intended to be subject to petty and vexatious suits.^ And where a benefit is payable " while so much remained in funds," a member can not main- tain a suit in the courts for his benefit, as they would pre- sume that the corporation had determined that there was not so much in the funds, and that determination would be con- 1 Dicey on Parties, 156. 6 Bromley v. Williams, 33 Beav. 2 Sawyer v. Methodist. &o. Soo., 10 177. Vt. 405. * MoMahon v. Upton, 3 Sim. 473. 8 Saltsman v. Shults, 14 Hun, 256. See also Hiohens v. Congreve, 4 4 Bethel v. Carmack, 2 Md. Ch. Euss.563. 143, ' ' Poultney v. Bachman, 31 Hun, 49. 8 Black v. Vandyke, 2 Mart. 309. 14:12 ACTIONS BY AND AGAINST VOL0NTAET ASSOCIATIONS. , [§ 908. elusive upon the courts.^ But, a suit has been entertained g,gainst the order of Eed Men for benefits.'' And where an order or society has not provided a tribunal within the organ- ization or association possessing conclusive jurisdiction, a member may sue at law for weekly benefits.' So also it has been decided that a member of the order of Chosen Friends may appeal to a court of law to enforce his rights in a benefit fund, even' without first'exhausting his remedies in the courts of the order, and this right can not be taken away from him by any provision in the constitution or by-laws of the order.* And again where several men voluntarily associate themselves together for mutual insurance, and a loss occurs to a member of the^ association against which he is insured, he may bring suit against the society and ask that his loss be paid out of the funds of the association; and in case they are insufficient a ratable contribution may be required from all members of the organization.' TJuder statutes allowing actions against the society: through its officers, a member of a benevolent soci- ety may maintain an action against the treasurer for such bene- fits." § 908. Actions by and against withdrawing members. — As a general rule members withdrawing from an unincorpo- rated society, whether going singly or in numbers, have no rights in- the property of the society. Thus the seceding members of a chartered society,^ forming, a new voluntary association, can • not maintain a suit for the . recovery of debts due the corporation.' And the title to the cburch property of a divided congregation is in that part, though a minor- ity, which adheres to the laws, usages and principles of the denomination under which the church was constituted.* But 1 Foram u. Howard Ben. Assoc, 4 6 Bromley v. Williams, 3a Beav. Pa. St. 519. I ' 177. 2 Logan Tribe v. Schwartz, 19 Md. « Poultney v, Baohman, 62 How. 565. Pr. 466. ' Dolan V, Court Good Samaritan, ' Smith v. Smith, 3 Desaus. 557. 128 Mass. 437; Smith v. Society, 12 sSchnorr's Appeal, 67 Pa. St. 138. Phila. 380; Cattan v. Father Mat- Vide supra, § 99; Roshe's Appeal, thew &c. Soc, 8 Daly, 20. 69 Pa. St. 462; Harmon v. Dreber, 1 < Supreme Council D, Garrigus, SpeeiS Eq. 87 ; Kniskern «. Lutheran .(1885) 104 Ind. 183; Bauer v. Sam- Church, 1 Sandf . Ch. 439; Attorney- eon Lodge, 102 Ind. 262. Gen. if. Pearson, S Mer. 853 ; Baker § 909.] ACTIONS BY AND AGAINST TOLUNTAEY ASSOCIATIONS. 1413 a contrary doctrine is held by the New York courts.^ So also where a minority of an unincorporated lodge or secret society withdraw from the grand lodge and surrender their charter and the minority continue the organization under the old name, and have their own officers installed by the grand lodge, a court of equity will interfere to compel the with- drawing majority to turn over the lodge property to the re- maining minority.^ It is otherwise, however, where the charter , had not been surrendered or declared forfeited by the su- preme lodge.' Again a departing member of a community of Shakers can not maintain a suit against the community for wages.* And a member of a band, one of the by-laws of which provides that any member . upon withdrawing shall ■leave all his interest -with the band, who leaves it and takes his instrument with him, and refuses to give it up, may be sued in trover to recover the instrument by the remaining members.' But it has been held where the grand lodge of Odd Fellows revoked the charter pf a certain lodge, and ap- pointed the plaintifif as agent to receive from the subordinate lodge all the lodge property, that the subordinate lodge was not bound by the decree of the grand body; and that neither the agent appointed to receive, nor the grand lodge itself, had any right to the property of the subordinate lodge. Audit was intimated that if the members of the subordinate lodge had subscribed to a constitution of the grand lodge as well as of the subordinate lodge requiring it, public policy would not admit of the parties binding themselves by such agreements.' § 909. Actions on subscriptions. — A subscription to an association or partnership is merely voluntary until the society* is formed, and those subscribers not consenting to'the organiza- V. Fales, 16 Mass. 487 ; Stebbins v, ' Chamberlain v. Lincoln, 189 Jennings, 10 Pick. 172. Mass. 70. 1 Petty V. looker, 21 N. T. 267; * Waite i;. Merrill, 4 Me, 102. Gram v. Prussia &c. Soc, 36 N. Y. ^Danbury Cornet Band v. Bean, 161 ; Burrel v. Associate Beformed 54 N. H. 524, as it was a case of dis- Church, 44 Barb. 282; Robertson v. solution where a settlement had Bullions, 11 N. Y. 343. been reached. 2Altmann v. Benz, 27 N. J. Eq. « Austin v. Searing, 16 N. Y. 118; 331. Lamphere v. Grand Lodge, (Mich. 1888) 11 N. W. Eep. 868. 1414 ACTIONS BY AND AGAINST VOLUNTAEY ASSOCIATIONS. [§ 909. tion are not bound.^ Accordingly a subscription for the pur- pose of ascertaining whether a sufficient amou^nt could be raised to build and form a church, is not binding where the subscriber dies before the building commiltee is chosen by the subscribers.* It seems, however, that if the association had been formed, and a contract for a lot or building entered into on the faith of the subscription, in the life-time of the subscriber, and with his express or implied consent, he, and, of course, his representatives, would have been bound to pay the sub- scription.' A subscription to pay money to such persons as may be appointed trustees for the erection, is merely voluntary and without consideration; but if upon the faith of the sub- scription trustees are afterward appointed and incorporated, and expenses incurred, of which the subscriber had linowledge, and to which he assented by paying part of the amount sub- scribed, the law will, imply a promise to pay the remainder, and an action will lie by the corporation to recover it.* So also, generally, a contract of subscription for the purpose of building a church, the congregation having already been formed, and the promise being to pay the building committee when appointed, may be enforced by the committee." And again, the other members of a building committee appointed by an unincorporated religious association to superintend the erection of a church have been allowed to maintain an action to enforce a promise by one of their number to pay a certain amount toward the expenses of the edifice although they had finished it and been discharged.* But if there is no express promise to pay trustees, the action must be brought in the 1 Hedge's Appeal, 63 Pa. St. 379. promisor being one of the com- 2 Phipps V. Jones, (1853) 20 Pa. St. mittee. 260. 6 It was of no consequence that 2 Phipps V. Jones, (1853) 20 Pa. St. the congregation had appointed an- 260. other committee to wait upon the ^Farmingtqn Academy v. Allen, promisor, for they could not transfer (1817) 14 Mass, 172; s. C. 7 Am. Dec, this chose in action to another com- 201 ; Phillips Academy v. Dayis, 11 mittee, so as to enable them to sue 113; s. 0. 6 Am. Dec. 192; in their own names. Chambers v. Cross V. Jackson, 5 Hill, 478. Calhoun, (1838)18 Pa. St. 13; s. c. S5 5 Chambers v, Calhoun, 18 Pa. St. Am. Deo. 583 ; Townsend v. Goewy, 13'; a C. 55 Am. Dec. 583. Even by 19 Wend. 434. the residue of that committee, the §910.] ACTIONS BY' AND AGAINST VOLUNTAKY ASSOCIATIONS. 1415 names of all the other subscribers.^ And it has been held that the treasurer of an unincorporated association can not maintain an action upon a subscription, although it be pa^'able to the treasurer of the association.^ The members of an association are liable for goods furnished their agent with their conctir- rence; but the party furnishing the goods can not sue upon the subscription of the members of the association.' A corporation ' formed from an association of individuals for business purposes, without the consent of a subscriber to the association, can not recover upon the subscription for money laid out and expended by itself for the use of the defendant, as there is no privity between the parties;* § 910. Actions to prevent illegal and ultra vires acts.— The remedies for fraudulent, illegal and ultra, vires acts by the oflBcers and managers of voluntary and unincorporated asso- ciations, are governed by the analogies of the law of corpo- rations.^ Thus a diversion of the funds from the objects designed, without the consent of the contributors, will be re- strained.* And a fund raised by an association for a specific purpose can not be devoted by the members of the association while a single one objects, to any other object. The diversion amounts to an ultra vires act and may be enjoined.' So also the members of a joint-stock company may bring actions to remedy the fraud of the trustees.' And again the trustees are liable in tort for'their frauds on the Company.* Further- more, trustees recpiving gifts are liable therefor to the com- pany,'" and they can not sell to the company." The treasurer may be compelled to pay over funds belonging to the com- 1 Cross V. Jackson, 5 Hill, 478. 5 Waterbury v. Merchants' Union 2 But that such an action might Ex. Co., (1867) 50 Barb. 157. have been maintained if the subscrip,-- ^Penfield v. Skinner, 11 Vt. 296,- tion had been made payable to him Morton v. Smith, 5 Bush, 467. by his individual name, and in that ' Abels v. McKean, (1867) 18 N. J, case the description of him as treas- Eq. 463. urer of the society would not affect s Iq guoh proceedings the other the right. Ewiag v. Medlock, 5 members are not proper parlies. Port. 83. Boody v. Drew, (1874) 46 How. Pr. SRidgely «. Dobson, 3 Watts & S. 459. • ■ 118. 9 Dennis v. Kennedy, (1854) 19 4MachiasHotelCo. z».Coyle,(1853) Barb. 517, 35 Me. 405; S. C. 58 Am. Deo. 7,13, "In re Fry, (I860) 4 Phil. Eep. 139. where the subscriber had not prom- 'i Bobbins v. Butler, (1860) 34 111. ised to pay the corporation anything. 387. 1416 ACTIONS BY AND AGAINST VOLUNTAET ASSOCIATIONS. [§ 910. paliy.' And the treasurer of, a voluntary association for char- itable purposes will be decreed to account for moneys in his hands, to pay them over according to the intention of the as- sociation.'' "While mere contributors to a fund creating a trust for mere charitable purposes, can hot call the trustees to an account for a breach of trust, they may if they have an in- terest in the trust.' The members of a voluntary company for profit, need not make good to the officers, debts paid by the latter, growing out of ultra vires acts.* For if a member has not participated or acquiesced in the ultra vired act, he is not liable thereon;' although the officers themselves are liable to third persons.' If the directors of a mutual insurance company misapply money specifically collected for the pur- pose of paying a' certain policy-holder, the company is a nec- essary party to a suit by him against the directors.' Less, than all the shareholders in a joint-stock company, may sue in behalf of themselves and other shareholders for the purpose of compelling the directors of the company to refund moneys improperly withdrawn by them from the company and applied to their own use; iand to such a case an act of parliament providing that all suits by or on behalf of the company shall be prosecuted in the name of the chairman of the directors does not apply.' The infidelity or mlisconduct of some or even all of the trustees or managers , of an association doing business as an express companj', affords no ground for taking away the rights of the shareholders who constitute the com- pan^"^, either by dissolving it, or taking away its management, or placing it in the hands of an officer of the court. In such a case the principles of remedial or preventive justice go no further than to enjoin the misconduct or remove the unfaith- ful officer." 1 Sharp V. Warren, (1818) 6 Price, 6 gullivan v. Campbell, (1839) 2 131. Wall. 271. s Penfield «. Skinner, 11 Vt. 296. '' Brown v. Orr, 112 Pa. St. 233. 8 Ludlum V. Hlgbee, 11 N. J. Bq. * Hichens v. Ctongreve, 4 Buss. 843. 862. < Crum's Appeal, (1878) 66 Pa. St. ^ Waterbury v. Merchants' Union 474. Ex. Co., (1867) 50 Barb, 157. 5 Roberts' Appeal, (1880) 93 Pa. St. 407, END or VOLUME 11, GENERAL INDEX. INDEX. [The references are to sections. Sections 1 to 384, inclusiye, are in Volume I; sections 3 to 910, incIuslTe, are In Yolume n.] A. ABANDONMENT OF UNDERTAKING: effect to release subscribers, 111. re'covery of payments upon subscriptions, 111. ABATEMENT OF ACTIONS: upon dissolution of company, 785. ABUSE OF FRANCHISES: See Misuser. ACCEPTANCE OF CHARTER: necessary to render effective, 15. not to be done at meeting in foreign State, 286. ACCOMMODATION PAPER: authority of treasurer of company to accept, SIS- ACTIONS AND DEFENSES: capacity of corporations to sue and to be sued, 373, 857. venue, 858. service of process, 859. upon foreign corporations, 889, 890. averments necessary, 860. in actions by corporations, 860. in actions against corporations, 86S. in shareholders' actions for or against the corporation, 885, 886. verification of corporate pleadings, 861. agent's authority need not be alleged, 863. misnomer, 864. actions on notes of the company, 865. existence and powers not to be collaterally attacked, 866. estoppel to deny, 871. nul tiel corporation, 867. not to be put in issue by demurrer, 868. is not put in issue by general denial, 869. not to be raised after verdict, 870. estoppel to deny corporate existence, 781, 871. a " company " is prima facie a Corporation, 873. evidence of corporate existence, 873. certificates of incorporation and copies, 873. performance of corporate acts, 874. of foreign corporations, 875. pEOduction of corporate books, 876. of domestic corporations, 876. of foreign corporations, 877. abatement by dissolution of company, 785. by foreign corporations, 888, 893. citizenship, 888. against other foreign corporations, 897. " doing business" in the State, construed, 889. - in federal courts, 898. removal of causes from State to federal courts, 899. 1420 • muBx. pThe references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] ACTIONS AND DEFENSES {continued): by receivers of foreign corporations, 893. by etockliolders of foreign corporations, 894. against foreign corporations, 895. citizenship, 888. service of process, 889. " doing business " in the State, construed, 890. by non-residents, 896. by other foreign corporations, 897. - in federal courts, 898. removal o( causes, 899. . lay shareholders, 878. • ■ on behalf of the corporation, 878. their right to sue, 256, 878. their right to defend, 879. against the corporation, 880. against directorsj officers and agents, 256, 881. the corporation a necessary party, 883. ' representative actions by a single shareholder, 883: necessary interest, 884. demand upon directors to act, 885, 886. usually prerequisite to shareholder's right, 885, 886. when not prerequisite, 886. laches, 887. against shareholders, to enforce payment of subscriptions, see Liabiutt of Members, Calls and Creditors of Companies. to enforce statutory liability, see Statutory Liability. to enforce partnership liability, see Partnership Liability. shareholders' defenses, see Creditors of Companies. voluntary associations, 900. no capacity at common law to sue or be sued, 900. suite by members, 901. on behalf of the association, 901. against other members, 905, 906. against managers of association, 910. to prevent illegal acts, 910. to enforce payment of benefits, 907. Buits by officers, 902. . at common law, 902. under modern statutes, 903, 904. against members, by persons dealing with the association, 700, 900. by other members, 905. withdrawing from association, 908. to enforce payment of subscriptions and dues, 597, 909. injunction against illegal and ultra vires acts, 910. See generally In,I0NOtion, Mandamus, Quo Warranto and Scire Facias. ADDITIONAL CAPITAL: issue of preferred stock to obtain, 497. ADJOURNED; MEETINGS: of shareholders and directors, 298, 294. ADMINISTEATOBS AND EXECUTORS: liability to corporate creditors, 136. ADOPTION OF ACTS OF AGENTS: See Officers and Aaaans. AGENCY: liability of promoters dependent upon law of, 159, 160. liability of members of voluntary associations dependent upon, 168-173. See Voluntary Associations. INDEX. , 1421 [The references are to sections: Vol. I, §§ 1-384; Vol. U, §§.385-910.] AGENTS OF CORPORATIONS: See Officers and Agents and Di- rectors. AGENTS OF SHAREHOLDERS: liability to corporate creditors, 137. to transfer shares, see Stock-Bkokers. ALLEGATIONS: necessary in actions by and against corporations, 860, 863. as to corporate existence, 860, 863. , ALLOTMENT OF SHARES: application for shares, 514. notice of allotment, 514. AMALGAMATION: See Consolidation. AMENDMENT OF CHARTERS: reservation of the power by the States, 36, 146. how power is acquired over previously existing charters, 36, 334. construction of constitutional statutory and charter reservations, 37. liberally in favor of the State, 37. construction of amendatory statutes, 38. merger of prior act into later, 38, legislative discretion net to be questioned, 39. limitations upon power of the legislature, 40. ' acceptance by the corporation, 41. when requisite, 41, may be given by majority, 41. when amendment not fundamental, 41, 43. unaniraous consent requisite, 41, 43. when amendment is fundamental, 41, 43. immaterial and fundamental amendments distinguished, 43, injunction to restrain, 43. operation as relea,sing subscribers, 107. by general statutes imposing personal liability, 46. AMOTION FROM OFFICE: subordinate agents, 184. removable at pleasure, 184.' by oflScer or board appointing, 184. managing officers, 184. power of amotion vested in electing body, 184, 233. equity will not aid, 184. remedy by quo warranto, 184. pastors, 216. not to be effected indirectly by reduction of salary, 316. of directors and trustees, 333. power not vested in the board, 233. vested in electing body, 323. courts will not interfere, 184, 223. grounds for, under English statute, 333. ANNUAL MEETINGS: of shareholders an'd directors, 379. ANNUAL REPORTS: statutory requirements, 838. personal liability of directors failing to render, 838. failure to make not a ground of forfeiture, 838. time of filing, 838. APPRENTICES: See SERVANTS. APPORTIONMENT OP SHARES: when subscriptions are in excess of capital stock, 531( ARTICLES OF ASSOCIATION: contents of, 9, 163. filing of, 9, 163. 1422 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. II, §§ 385-910.] ' ARTICtES OF ASSOCIATION (continued): effect of amenduient of enabling act, ST. amendment of by incorporators, 44. rights of minority lierein, 441 distinction between English and American ruleSj 44. defects in, 163. may render incorporators liable as partners, 163, take the place of charters, 167. subscription to capital stock by signing, 513. recitals in, as implied conditions, 534. ASSESSMENTS: irregularly levied, 88. refusal to pay, not ground of expulsion, fe6. not to be made at special meeting without notice of purpose thereof, 297. forfeiture of shares for non-payment, 320. not to be effected by, resolution, 320. upon members of stock-companies, 590. distinction between calls and assessments, 590. dependent upon statutory authority, 590. statutory authority may be restricted by by-law, 490. upon members of voluntary associations, 591. extent of the power, 592. governed by circumstances, 592. must conform to charter or by-laws, 592. validity of, 593. effect of director being interested therein, 593. effect of absence of director from meeting, 593. to be made by directors, 598. delegation of authority, 593. by receiver in quo warranto proceedings, 593. ' notice of, 88, 594. i not requisite when dues are payable at stated periods, 594. , is rejjuisite when times and amounts vary, 594 service of, 594. payment by draft or post-offlce order, 594. penalty for non-payment, 595. must be reasonable, 318. fines, 695. suspension, 96, 97, 595. expulsion, 595. See Expulsion prom Membership, forfeiture of building association shares, 595. forfeiture of policies of insurance, 595. forfeiture of benefits, 333. only the penalty prescribed can be imposed, 595. judicial inquiry into reasonableness, 318i 319. waiver of penalty, 596. restoration of privileges, 97, 596. ■ mandamus to compel, 94. actions to enforce payment. 597, 909. necessary averments, 597. records of society as evidence, 597. ASSIGNEES: of companies, see Assignment for Benefit of Creditors. of shareholders, see Transfer of Shares. ASSIGNMENT FOR BENEFIT OF CREDITORS: may be made by directors, 376. , powers of assignee, 716: to collect assets of company, 716. to enforce payment of subscriptions, 716. ASSIGNMENT OF SHARES: See Transfer of Shares. ATTACHING CREDITORS; See Creditors of Companies. INDEX. 1423 [The references are to sections: Vol. I, §§ 1-384; Vol. Il, §§ 385-910.] ATTACHMENT OF SHABES: See Execution and Attachment of Shares. , ATTORNEY-GENERAL: suits by against corporations, see Mandamus,, SciEE Facias and Quo Warranto. AVERMENTS: See Allegations. B. BANKINQ COMPANIES: president's powers, 806. treasurer's powers, 213. liability of directors to depositors, 255. , liability of directors for default of cashier or teller, 362. incidental powers, 887. governmental control, 832. BANKRUPTCY OF COMPANIES: See Insolvency of Companies, Corporate Creditors, Mortgages and Dissolution, BANKRUPTS' ESTATES: liability u^ou shares, 184. BENEFITS: enforcement of payment, 907. BENEFIT SOCIETIES: failure to pay dues, 318. penalty tcr be reasonable. 318. judicial inquiry into, 318, 319. reduction of benefit during sickness, 323. forfeiture of benefits, 823. formation of, 80. New York Act of 1865, 80. New York Act of 1875, 80. BENEVOLENT SOCIETIES: formation of, under-general laws, 11. two statutes in New York, 80. BILL OF DISCOVERY: in actions by corporate creditors, 724 BILLS OF EXCHANGE: See-NBGOTIABLE Paper. BLA.NK ASSIGNMENT OF SHARES: \ the usual form of transferring, 648. BOARD OF TRADE stock, 767, INDEX. > 1^29 [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 385-910.] CERTIFICATES OF INCORPORATION: under general enabling acts, 9. as evidence of corporate existence, 873. copies in evidence, 873. CERTIFICATES OF STOCK: See Stock Ceeteficates and Trust Cer- tificates. CHARGES: governmental control of, see Governmental Control. CHARGES UPON REALTY: See Mortgages. CHARITABLE SOCIETIES AND INSTITUTIONS: formation of, under general laws, 11. how far subject to governmental control, 17. CHARTERS: granted to companies already organized under general law, 11. should not provide for internal management, 11. must be open to inspection of public in Pennsylvania, 11. granted upon condition precedent, 13. not to be collaterally attacked, 13. to be accepted before effective, 15. may not be accepted in foreign State, 386. sanctity of, as contracts, 17. See Vested Corporate Rights. between the State and the incorporators, 33. between the incorporators themselves, 33. between the incorporators and third parties, 34. construction of, 35. together with other statutes, 38. when against grantee, 35, 37. amendment of, see Amendment op Charters and Minority Rights. repeal of, see Repeal op Charters, forfeiture of, see Forfeiture of Charters and Franchises. recitals in, as implied conditions, 534 expiration of, 78U, dissolution by lapse of time, 780. surrender of, 781. ^ dissolution by voluntary act of the incorporators, 781. CHOSES IN ACTION: ' ^ survival upon dissolution, 787. CHURCHES: See Religious Corporations; Pewholders; Pastors, liability of subscribers to meeting-house fund, 169. CITIZENSHIP: powers of foreign corporations do not grow out of, 417-419, 888. as affecting jurisdiction of federal courts, 898. CLUBS: formation of, under general laws, 11. rifle club not to be formed under general law for literary etc. pur- poses, 11. twft general enabling acts in New York, 80, for political purposes. New York Act of 1886, 80, nature of, social clubs, 173. not partnerships, 173, as to outsiders, 173. nor mutual benefit associations, 173. nor joint-stock companies, 178. nor corporations, 173. having no existence apart from members, 178. nor gwasz-corporations, 173. liability of members, see Voluntary Associations, trustees, 318. title to property vested in, 318. 1430 ' INDEX. [The references are to sections: VoL I, §§ 1-384; Vol. II, §§ 385-910.] CLUBS (continued): executive' oommittee, 218. duties of, 218. enforcement of rules by, 318. house-committee, 218. power to bind club by contracts and representations, 218, COLLEGES: whether public or private corporations, 1.7. subject to synod of denomination, 190. receiving State or federal aid, 831, 832. subject to governmental control, 831, 882. COLORABLE SUBSCEIPTIONS : to influence others, see Subscriptions to Capital Stock, COMBINATIONS AMONG SHAREHOLDERS: See Voting .Trusts, COMBINATIONS BETWEEN CORPORATIONS: See . Partnerships, Pools and " Trusts." COMITY BETWEEN STATES: legality of corporate acts done in foreign State, 289. pdnaj statutes have no extra-territorial effect, 141. does not permit State to spawn corporations forth into other States, 164. companies organized to do business out of the State, 164. COMMERCE AMONG THE STATES: taxation of companies doing interstate commerce, 821-833. COMMISSIONERS TO RECEITE SUBSCRIPTIONS: rights, duties and liabilities of, 519. COMMISSIONS: State railway commissions; 832. , the Interstate Railway Commission, 833. OOMMITTEES : See Directors, Trustees and Committees. of promoters, see Paetnebship LIABILITY OF Members. COMMON CARRIERS: subject to State control, 833, 836, 837. COMMON STOCK: See Shares oe Stock and Dividends. COMPANIES; distinguished from "corporations" in English usage, 308. See generally Coeporations. COMPANY: is prima facie a corporation, 873. CONDITIONAL SUBSCRIPTIONS : See Subscriptions to Capital Stock. CONFLICT OF LAWS: See Statutes and Contracts. CONGRESS: power to create corporations, see Corporations, CONNECTING CARRIERS: traffic agreements between, 839. are matters of private contract, 839. can not be required to make, 839, CONSOLIDATION: definition, 826. sundry methods of effecting, 337. by lease, 327, 331. See Lease. by pui;chase of stock, 327. by purchase of property, 337. by partnership agreements, see Trusts. by " trust " combinations, see Trusts. INDEX. [The references are to sections: Vol. I, |§ 1-384; Vol. II, §§ 885-910.] 1431 CONSOLIDATION (fiontinued): prerequisites of effecting, 338. , provisions of the New York Act of 1890, 338. requirements in other States, 329. favored by public policy, 330. between non-competing companies, 330. statutory prohibitions, 331. , between competing companies, 331. power of legislature to authorize, 333. whether the legislature may compel, 333. legislative recognition of defective cohsolidation, 833, 334 legislative authority, 333. once conferred is a vestedright, 333. not to be withdrawn except under power to amend, ^33. to one company is sufficient, 333. expressed in.charter, 334. by special statute, 334. by general statute, 334. not retroactive, 334. by curative statutes, 332, 334. conditions subjecting new company to reserved power of amend- ment and repeal, 334. with foreign corporations, 335. whether one company may be created bv concurrent legislation, 335. bifold existence as foreign and domestic, 335. status of new company, 336. as to taxation, 336, 3B7. as to powers, rights and duties, ,336, 337. as to management, 33(5. i as to contracts, 336. as to attachment, 836, as to shareholders' meetings, 336. as to regulation of rates, 337. as to insolvency laws, 337. as to specific liens, 387. as td jurisdiction of courts, 837. as to removal of causes to federal courts, 337. dissolution of old companies, 338., consolidation distinguished from merger, 388. not a necessary result, 339. rights of dissenting members, 339. suobession Of new company, 340. , to rights of its constituent parts, 340, 341. to duties and restrictions of powers, 840, 341, to property and franchises, 343. the New York Act of 1890, '343. the Victorian Act of 1863, 843. to liabilities, 348-350. for torts or crimes, 446. following assets,' 843, 348, 849. the New York Act of 1890, 343. the Victorian Act of 1863, 348. actions to enforce, 334. evidence of consolidation, 335. pending suits, 336. substitution of defendant, 337. judgment against new company, 337. general creditors, 348. mortgage and lien creditors, 349. contractual obligations, 850. status of shareholders of old companies, 351, exchange of old shares for new, 353t 1432 INDEX. [The references are to sections:, Vol. I, §§ 1^384; Vol. H, |§ 385-910.] CONSOLIDATION {continued] : consent of shareholdersj 353. not to be compelled, 358. whether unanimous consent necessary, 353. a question of fact, 354. purchase of dissenting stock, 355. statutory provisions for, 355. injunction to restrain, 356. at instance of shareholders, 356. will not issue at instance of creditoi'Sj 348. proceedings to annul, 356. not maintainable by'shareholders, 356. may be instituted by the State, 356. effect upon municipal subscriptions, 536. effect upon ordinary subscriptions, 547. CONSPIRACY: rule applicable, to corporate combinations, 56. criminal liability of>i!orporations, 460. CONSTITUTIONAL PROVISIONS: as to personal liability of members, 143, 144. whether seii-enforcing, 145. changes in, 146. as to fictitious increase or " watering" of stock, 479. CONSTRUCTION OF CHARTERS AND STATUTES: See Charters and Statutes. CONTEMPT OF COURT: interfering with possession of receiver, see Receivers. CONTRACTS: laws impairing obligation of, 17. construction of State courts not conclusive, 18. ' ' law " in this connection defineii, 30. license not a contract, 31. i See Eminent Domain, Police. Power, Public Use and Taxa- tion. ' changes in State constitutions, 146. declaration of forfeiture is not, 435. between companies having common directors, 347. to withdraw opposition to grant of charter, 269. against public policy, 6(33. wager contracts on rise and fall of stock values, 663. • CONTRIBUTION BETWEEN MEMBERS: where some have paid more than their pro rata of corporate debts, 141. where liable as partners from defective incorporation, 163. CONVERTIBLE BONDS: statute authorizing issue, 755. implied authority to increase capital stock, 670, 755. time of conversion, 755. right to conversion not separable from bond, 755. effect of consolidation, 755. "CORNERING" THE MARKET: meaning of the term, 661. illegality of, 663, 845. CORPORATE EXISTENCE: termination of, see Dissolution of Companies. implication of power to sue and capaicity to be sued, 373, 857. whether necessary to allege in^leading, 860. i in actions by corporations, 860. in actions against corporations, 863. INDBX. 1433 [The references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] CORPORATE EXISTENCE {continued) : evidence of, in actions, 873. <;ertificates of incorporation and copies, 873. performance of corporate acts, 874. acting under a corporate name, 873. /of foreign corporations, 875. estoppel to deny, 867-873. CORPORATE NAME: See Names of Companies. ' CORPORATE SECURITIES: stipulations as to individual liability of stockholders, 143. CORPORATIONS: definition of, 1. ' fiction of a legal person, 1. I attacks upon the principle, 1. autliority for maintaining, 1. whether distinct from members, 1. is as a general rule, 1. may be regarded as an aggregation of persons, 1, power of state to create, 2. incident to sovereignty, 3. unless restricted by constitution, 3. not impaired by secession from the federal compact, 2, whether tlie federal government may create, 3. nature of the federal government, 3. not a sovereign, 3. possesses only delegated powers, 3. effort to invest congress with the general power, 3, refusal of the States to do so, 3. may create corporations, 3. in the District of Columbia, 3. inthe territories, 3. as a necessary instrumentality of its expressly delegated pow- ers, 4. , See National Banks. power of the federal government to create railway corporations, 5. in the territories, 5. • Pacific railwaj's legislation, 5. care pf congress not to overstep its powers, 5. power of federal government to incorporate the Nicaragua canal, 6. nature of that company, 6. doubts as to congress' power, 6. creation of by implication, 7. ■ words of incorporation unnecessary, 7. constitutional limitations of special legislation, 8. general acts for formation of, 9. ordinary business companies, 9. religious corporations, 10. '• benevolent, charitable, scientific or missionary purposes," 11. "literary, scientific and charitable purposes," 11. societies and clubs, 11. " mutual profit and benefit," 11. requirement of payment of ten per cent, of capital stock, 11. by chancery court, 11. substantial compliance with provisions, 13. irregularities in compliance with, 12. not to be collaterally attacked, 13, 14. effect of upon personal liability, 16. public and private, distinguished, 17. as to governmental control, 17, 18. See Quasi-Public Corporations. distinct entity apart from members, 372. acquisition of whole capital stock by one person, 273. in English authorities means municipal corporat ons, 308. 14:3i INDEX. [The references are to seeHons: Vol. I, §§ l-38i; Vol. n, §§ 385-910.] CORPORATIONS (continued): exemption of members from personal liability, 16S. is the chief characteristic, 162. irregular organization of, 163. not to be collaterally pleaded, 731. in action by corporate creditor to enforce shareholder's liability, 731. estoppel" to deny regularity, 871. See Actions and Defenses. existence and powers not to be collaterally attacked, 866-873. are not such "' persons " as may participate in formation of other cor- porations, 332. whether one corporation may be "employee" of another, 383, creation by concurrent legislation of two States, 835. bifold existence as domestic and foreign, 335. CORPOE ATOES : See Members and Stockholders. COST-BOOK COMPANIES: nature and purpose, 83. . management, 83, 179. minutes, 83. rights of shareholders, 83. distinguished from partnerships, 179. in respect of transferability of shares, 179. powers of managing agents 179. liability of members, 179. ' , to creditors of company, 179. upon subscriptions to stock, 179. transfer of shares in, 629. COSTS : See Actions by and against Coeporations. COUNTERCLAIM: by shareholder sued upon subscription, see Cbeditobs OF Companies. COUPONS: negotiability of, see Negotiable Paper. detinition of, 757. presentation not prerequisite to suit upon, 757. effect of failure to present, 757. interest upon coupons, 757. foreclosure for default in payment of, 770. actions upon detached coupons, 771. purchase and payment distinguished, 666. as affecting continuance of lien, 666. reissue after purchase, 666. on income bonds, 771. income must be alleged and proven, 771. limitation of actions upon, 771. days of grace, 693. CEEDITOES' BILLS: See Creditors of Companies. I CEEDITOES OF COMPANIES: See Mortgagees, Unsecured Creditoks and Liability op Members. liability of directors to, see Dikectoes, Trustees and Committees. liability of officers and agents to, see Oijficers and Agents. liability of members and stockholders to, see Liability op Members. interest of in capital stock as a trust fund, 113, 114, 116. priority in enforcement of members' liability, 140. preference of one over others, 358. legality of, 358. assignment for benefit of, 358. remedies against members and stockholders, 695. to enforce payment of subscriptions, 695. bill in equity, 695. INDEX. 1435 [The references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] CREDITORS OF COMPANIES , (con«)iMed) : , against non-resident stockholders, 6S6. preliminary suit against company must be in forum of its domicile, 696. statutory liability of penal nature not enforceable in foreign State, 696. against iiolders of stock at time debts ^were incurredj 697. i parties plaintiff, 698. to enforce common-law liability, 698, 699. to enforce statutory liability', 703. parties defendant, 700. to enforce common-law liability, 700, 701. the company as a party, 703. to enforce statutory liability, lOi. ' contribution among shareholders, 699, 704. against members of voluntary associations, 710. specification of names of defendants, 710. abatement specifying; omitted names, 710. whether in law or in equity, 695, 711. whether remedy in equity is exclusive, 731. bills in equity, 695, 713. Tnanciamus to compel calls, 713. calls by courts of equity, 714. calls by receivers and assignees, 716. the decree, 719. whether receiver will be appointed, 713. powers of receivers and assignees, 716, 717. when receiver has been appointed in prior proceedings, 718. leave to sue must be first obtained, 718. garnishment, 720. actions at law, 733. interest, 733. costs, 738. evidence, 734 bill of discovery, 734. intervention in foreclosure proceedings, 767. right to surplus profceeds of foreclosure sale, 777. shareholders defenses to creditors' bills, 735. judgment against company not to be questioned, 736, set-off and counterclaim, 727. buying up claims to set-off, 738. payment to another creditor, 739. i-olease by creditors, 730. nul tiel corporation, 731. illegal issue of stock, 733. fraud inducing to subscription, 733. that conditions of subscription are unfulfilled, 734. forfeiture of stock, 735. , cancellation of subscriptions, 735. transfer of shares before debt was contracted, 697. See Liability OF Mbmbees. estoppel, 736. Statute of Limitations, 737. CRIMES AND MISDEMEANORS: whether a corporation can be held liable, 458. criminal intent, 458, 459. of the company itself, 458, 459. ' of corporate agents, 459. criminal prosecution of corporations, 459, 464, conspiracy, 56, 460. contempt of court, 461. 1438 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 385-910.] CRIMES AND MISDEMEANORS (eontinued): injuries resulting in death, 462. the common-law rule, 463.. Lord Campbell's Act, 463. similar statutes in America, 463. misfeasance and non-feasance distinguished, 463. a distinction without a substantial difference, 463. penalty for, 464. punitive damages, 458. tines, 463, 464. degree oi proof, 464. CUMULATIVE VOTING: See Corpoeatb Elections. CURRENT EXPENSES: of gMasz-public corporations, 746. prior to mortgage lien, 746, 747. CUSTOM: as affecting scope of agent's authority, 187. corporate Ben upon shares created by, 646. of brokers, see Stock Exchanges. D. DAMAGES: See Torts. DAM COMPANIES: may be gMnsi-publio corporation's, 399. power to take private property for public use, 399. DEATH: injuries resulting in, see Lord Campbell's Act. DEBENTURES: See Shares and Bonds and Preferred Stock. DECEDENTS' ESTATES: lia,bility of, to corporate creditors, 135, DE FACTO CORPORATIONS: existence not to be collaterally attacked, 13, 14. defective incorporation, 16. DE FACTO DIRECTORS AND OFFICERS: contesting title of, 233. whether equity will aid in removing, 184, 323, 334. public may safely deal with, 233. until judgment of ouster recorded, 233. legality of act between judgment and record thereof, 1 powers of, grounded in estoppel, 322, 333. no estoppel where others are contesting, 333. rule operates against third parties also, 334. liabilities of, 363. for failing to make reports, 263. DE FACTO OFFICERS: may serve until de jure officers be chosen, 390, 398. DEFERRED STOCK: See Preferred Stock and Dividends. DEFICIENCY DECREE: in foreclosure proceedings, 774. DELEGATION OF POWERS: by directors, see Executive Committees. to make calls, 567. by corporations, 847. ground of forfeiture of charter, 847. INDEX. 14:3T [The references are to sections: Vol. I, §§ 1-S84; VoUHj §§ 385-910.]; TEPOSIT (CASH): upon subscribing to capital stock, 515. DEVISEE OF SHARES : See Teansfbr of Shares and Liability of Members. DIRECTORS, TRUSTEES AND COMMITTEES: power to have, incident to corporate existence, 317. number of, 217. generally prescribed by statute, 317. statutory provision for reducing, 317. qualifications, 317. may be prescribed by by-laws, 317. not to be determined by board, 317. need not be shareholders at common law, 330. required to be shareholders by statute, 320. whether "holding" is equivalent to "owning," 330. disqualified to vote in raattei:s affecting own interests, 376. ' residence in the State, 221. ^ election of unqualified person, 333. acquiescence of company, 333. contest of title, 333. new election, 322. sale or pledge of qualification shares, 232, 223, 613. amotion from office, 32iJ. See Amotion from Office. can act only as a board, 334. vacancies in board, 335. supplving of, 225. term of office, 183, 236. appointment of officers aild agents beyond, 315. usually one year in America, 326. usually three years in England, 226. continues until election of successors, 336. prolonging or shortening, 336. by changing time of shareholders' meeting, 336, 293. powers, 337. to manage the corporate affairs, 337. .as to management of railways, 338. to pay corporate debts, 377. limitations of, 339. as to election of directors, 339. as to sale of franchises, 339. as to sale of property, 357, 358. as to dissolution, 339. ^ , , . as to radical changes in organization, 339. as to increase and reduction of capital stock, 339, 473. as to sale of stock below par, 339. as to discount of convertible bonds, 339. as to releasing subscribers, 339. as to converting association into corporation, 339. as to costs of suit against themselves, 239. as to expense of sending out proxy forms, 339. to levy assessments, 593. unauthorized acts, 194, 327, 229. do not release subscribers, 110. ratification of, by members, 194, 195, 377. repudiation of, by members, 196. not barred by election of new board, 196. delegation of powers, 230. to executive committees, 231. as to making assessments, 593. discretion not subject to control by members, 383. the English Statutory exception, 233. de facto, 233, 234. See Db Facto Dikeotors and Officers. 1438 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. n, S§ 386-910.] DIRECTORS, TRUSTEES AND COMMITTEES (continued): remuneration of, 235. only for services beyond scope of duties, 235. fiduciary position toward company creditors, 341. fiduciary position toward company, 240. contracts with company voidable, 243, 243. secret profits, .344. loans to company, 245. directors entitled to security, 245. dealings in corporate stock and securities, 246. contracts between companies having common directors, 247. injunction against consummation of contract, 248. personal liability, 16, 103, 249-365, 371.- from failure to make annual reports, 838. from defective incorporation, 16. from releasing subscribers, 103. degree o£ care and ability required, 249, 350. upon contracts, 251. for mistakes of law, 353. for frauds and misrepresentations, 353. for torts, 353. whether joint or several, 254. " assent" to unlawful act construed, 263. to shareholders, 255. > suits by shai-eholders in behalf of the company, 256. to the compa^iy, 855, 356. for refusing to receive subscriptions, 510. for paying dividends out of capital, 609. to creditors of the company, 357. • for misfeasance, 357. for contracting debts in excess of statutory limit, 258, 264 "debts" in this connection construed, 359. "assent" in this connection construed, 363. for false reports, 360. for declaring dividends out of capital, 609. for failure to make reports, 261, 363, 364. prior judgment against company unnecessary, 264. for acts of appointees, 363. actions to enforce, 364. abatement by death of creditor, 364. survival against director's estate, 364. efifect of appointment of receiver, 364. defenses tliereto, 364. contribution, 265. whether rule as to joint tort-feasors applies, 365. depends upon innocence of those held liable, 365. under the New York Penal Code, 368. under the English Directors Liability Act of 1890, 371. none from dissolution by consolidation, 334. , election of, at extra-State meeting, 390. may act as de facto officers, 390. until ousted by direct proceedings, 290. term of office, 293. postponeiment of election to extend, 293. whether entitled to indemnity for unauthorized expenditures, 251. of voluntary associations, 218. of clubs, 318. See CLUBS. of churches, 219. See Religious CokpokatioNS. liability of company for frauds of, 448. , DIRECTORS' MEETINGS: See Meetings of Members and Directors. DISABILITY: rendering subscriptions void, see Subscription^ to Capitai. Stock. rendering transfers of stock void, see Transfer or Shares. INDEX. 14:39 ' [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 385-SIO.] DISCRIMINATION: ' ' in charges and facilities by gimsi-pahlio corporations, see Govern- mental Control. DISSOLUTION OF COMPANIES: statutory liability of members arising upon, 153. continuance of business after, 165. partnership liability of members, 165. power of shareholders to dissolve, 277. by consolidation, 338, 839. by death of all the members, 778. circumstances which do not work a dissolution, 778, 784. statutory provisions respecting, 779. the " Directors Liability Act of 1890," 779. the New Jersey Act, 779. the Peiinsylvania Act, 779. by lapse of titne, 780.' by surrender of oharter, 781. power vested in shareholders, 781. rights of minority, 781. consent of the State, 781. winding up by court' of equity, 782. at instance of creditors, 782. at instance of shareholders, 783. grounds for winding-up order, 784. abatement of actions, 785. statutory continuance of power to sue and be sued, 785, receivers for, 786. ' directors as statutory receivers, 786. not to be divested by court, 786. survival of choses in action; 787. of franchises, 787. of creditors' claims, 788. ' distribution of assets, 788, 789. to creditors, 788. to shareholders, 789. reversion to grantor, 790. escheat to the sovereign, 790. the Mormon. Church case, 790. DIVIDENDS: definition, 598. presumably payable in cash, 598. scrip dividends, 598. effect of declaring, 599. separation of fund from other corporate assets, .599. shareholder's right becomes absolute,' 599. ownership of, 599. ' as between persons owning the stock at different times, 599, 600. life tenants and remaindermen, 600. transferrer and transfei-ee, 619, 620. pledgor and pledgee, 641. to be daolared'by directors in America, 601. to be declared by shareholders in England, 601, to be declared only out of net profits, 601, 605. discretion of directors in declaring, 601, 602. actions to compel declaration, 602. payment of, 603. place and time, 603. actions to enforce, 604. not to be paid out of capital, 605. injunction, 606-608. recovery a^ter payment, 609, 610, 1440 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. II,' §§ 385^910.] DIVIDENDS Ccontitiued): restraining dividends illegally declared, 606. at instance of single shareholder, 607, 609. at instance of corporate creditors, 608, recovery of dividends illegally declared, 609, 610, interest upon, 611. Statute of Limitations, 611. DOCUMENTS: S?e Eecobds. DOMICILE: of company chartered to do business in foreign/ State, 289. See generally Fokeign Corporations. DRAINAGE COMPANIES: may be gttasi-publio corporations, 399. may take private property for public use, 399. DUES: See Assessments. E. EARNINGS: See Net Earnings and Taxation. ELECTIONS OF CORPORATE OFFICERS: I'egulated largely by custom, 298, 301. inspectors to be chosen by shareholders, 298. effect of injunction restraining \jnspector3, S99. presumption of regularity, 398. courts reluctant to question validity of, 398, 303. officers irregularly elected may serve, when, 298. > opening polls before time appointed, 398. premature closing of polls, 398. refusal of president to recognize duly elected pflScers, 298. failure to hold at time prescribed, 398. effect upon qualifications of new members, 298. effect upon tenure of persons in office, 299. mandamus to compel call, 399. injunction restraining inspectors from serving, 399. eligibility of candidates, 300. effect of votes for an ineligible, 300. cumulative voting, 301. minority representation, 801. judicial review of, 303. when new election will be ordered, 303. when contestants will be ordered admitted, 303. ouster of illegally elected officials, 303. who may question validity of, 308. effect of votes cast by unqualified persons, 303. EMBEZZLEMENT: by corporate officers, 214 liability of company, 314, 315. liability of officers, 814. liability of directors appointing defaulter, 363. EMINENT DOMAIN: See Quasi-Public Corporations. power of consolidated company to exercise, 341. governmental control of companies, enjoying the franchise, 832, 833. corporate /property and franchises subject to, 33. property acquired under, not mortgageable, 739. except under express legislative authority, 389. EMPLOYEES: See Servants. mPEX. 14:4:1 ; [The references are to sections: Vol. I, §§ 1-384; Vol. n,'|S 885-910.] ENABLING ACTS: corporations not to be created except by general law in many States, 8. provisions of general laws, 9. as to articles of association, 9. as to filing articled, 9, 11. as to certificate of incorporation, 9, 11. inviolability of, 18. power of State to amend, 37. effect of amendment, 37. unconstitutionality of, 163. renders incorporators liable as partners, 163. non-compliance with mandatory provisions, 163, partnership liability of incorporators, 163. EQ.UAT.ITY QE CHARGES: See Governmental Control. EQUITABLE LIENS : See MoETaAGES and Eeceivers' Certificates. ESCHEAT: reversion of property to sovereign upon dissolution, 788, 790. ESCROW: See Subscriptions to Capital Stock. ESTOPPEL: from corporate records, see Records. fi'om receiving dividends, 67. . from accepting benefits of membership, 67. from voting at corporate meetings, 67, 69. from signing proxy to vote, 67. from paying calls, 67. to deny corporate existence and powers, 13, 14, 866, 871. EVIDENCE: of corporate existence, 878, 874. See Actions and Defenses. EXCESSIVE CHARGES: See Governmental Control. EXCHANGES: See Stock Exchanges. EXCLUSIVE PRIVILEGES: constitutionality of,' 383. construed strictly against grantee, 37, 35, 383. See generally Taxation, Governmental Control and Vested Cor- porate Rights. EXECUTION AND ATTACHMENT OF SHARES : shares are subject to execution and attachment, 633. by statute in some States, 6S3. transfer after service of notice on company, 633. in foreign corporations, 633. by creditors of transferrer, 634, 635. may reich shares prior to registration, 634. contra in New York, 635. knowledge of transfer as affecting creditor's remedy, 636. by creditors of transferee, 637. by the company itself, 644, 645. n to enforce its lien upon the shares, 644, 645. EXECUTIVE COMMITTEES: of boards of directors, 230, 331. legality of acts from ratification, 231. EXECUTORS : See Administrators and Executors. EXECUTORY CONTRACTS: See Ultra Vires. EXEMPLARY DAMAGES : See Torts and Crimes. EXEMPTIONS AND EXCLUSIVE PRIVILEGES: See Vested Corpo- rate Rights. EXEMPTION FROM LIABILITY; See Liability of Members and Stockholders. 91 1442 INDEX. [The references are to sentions: VoL I, S§ 1-384; Vol. H, §| 385-910.] EXPENSES (CTJREENT): prior lien to mortgage lien upon quasi-pahlic corporations, 746, 747, EXPRESS COMPANIES: See COMMON Caeriers. EXPULSION FROM MEMBERSHIP: the power depends upon statutes and by-laws, 83. failure to defend not excused by insanity, 83. unjust resolution of expulsion, a libel, 83. the power determined by constitution and by-laws, 84. grounds of, 86. sufficiency of, not to be questioned judicially, 87, 93. exceptions, 87, 318, 319. notice, 88-90. nature thereof, 89. service thereof, 89. waiver of service, 89. hearing and trial of fcharges, 88. the member entitled to, 88, 89, 93. at regular meeting, 90. nature of inquiry, 91. evidence of charges, 91, equitable intervention, 93, 93. sources of jurisdiction, 93. grounds of intervention, 93, injunction, 94. mandamus, 94. remedy within society to be first exhausted, 95. ipso facto termination of membership, 96, suspension, 97, 595. , reinstatement, 97, 596. mandamus to compel, 94. F. FACILITIES: ' duty of gitasi-public corporations to supply equal facilities to all, see QUASI-^PUBIilC CORRORATIONS. FEDERAL COURTS: jurisdiction of, see Actions and Defenses. FELONY: See Crimes. FICTITIOUS STOCK: See Spurious Stock. FICTITIOUS SUBSCRIPTIONS : See Subscriptions to Capital Stock. FIDUCIARY RELATION: See Directors and Officers and Agents, FIXTURES: See Mortgages of Property and Franchises, FORECLOSURE OF MORTGAGES: by trustees at instance of bondholders, 758, man(tamv^ to compel, 758. right of entry is not exclusive of, 763. statutory remedy is not exclusive of, 763, when i-eceiver may be appointed, 763, of gwasi-publio corporations, 763. peculiar principles applicable to, 763. interest of the public superior to mortgagee's, 763. jurisdiction, 764. priority in obtaining, 764. as between State and federal courts, 764. parties, 765. to suit by mortgage trustees, 765. whether bondholders are necessary parties, 765, 768. INDEX. 1443 [The -references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] FORECLOSURE OF MORTGAGES (continued): to suit by bondholders, 765. intervention of mortgage trustees, 765. trustees should be made parties, 768. to bill to adjudge mortgage void, 765. stockholders not necessary, 765. State indorsing bonds need not be made party, 765. receiver in prior dissolution proceedings, 765. second mortgagees, 766. prior mortgagees, 766. trustees of' prior mortgagees, 766. intervention, 767, by mortgage trustees, 765. by senior mortgagees, 767. by shareholders, 767. by unsecured creditors, 767. by owners of rolling-stock, 767. by bondholders, 768. upon refusal of trustees to act, 768. when trustees are dead, 768. ■when mortgage is made directly to bondholders, 768. upon default in payment of interest, 769, 770. actions upon coupons, 771. defenses to suits to foreclose, 773. the decree, 774. in rem not in perrsonam, 774. for deficiency, 774. not given in State courts, 774. is given in federal courts, 774. should declare fact, nature and extent of default, 774. should name "upset-price." 774. to cover all priorities, 774. reserving questions for further adjudication, 774. in strict foreclosure, 774. when there are several mortgages, 774. binding effect of, 775. setting aside, 775. appealable interest, 775. redemption, 776. sale of mortgaged property, 777. deficiency after, 774. " upset-price," 774. »,, discretion of inortgag^ trustees, 777, postponement of, 777. of separate properties, 777. severally and in gross, 777. distribution x>f proceeds of sale, 777. no priority among bondholders of same series, 777. to purchasers of bonds at less than par, 777. to holder of bonds as collateral, 777. of surplus after paying mortgage debt, 777, FOREIGN CORPORATIONS: creditors' remedy againfet members of, 123, 148. enforceable wherever jurisdiction obtainable, 148. , ' partnership liability from migration, 164. organization to do business out of the State, 164. no legal existence out of incorporating State, 164, 335, 411, 417, 418, 419,888. powers depend upon comity alone, 164, 417-^19. knowledge of powers, 384. directors' meetings, 389, scope of powers determined by law of incorporating State, 389. 1444 INDEX. [The references are to sections: Vol. I, g§ 1-384; Vol. n, §§ 385-910.] FOREIGN CORPORATIONS (continued): exercise of powers to conform to law of forum, 389. interstate consolidation/ 335, 336. See Consolidation. lease of domestic railway by, 371. powers of, 411. presumption as to knowledge of, 8S4. restrictions upon, 413. conditions of "doing business," 418, 414. non-compliance with conditions, 415. "doing business" defined, 416, 889. dependent upon comity alone, 417-419. do not grow out of citizenship, 418, 419, 888. to exercise power of eminent dornain, 430. execution and attachment of' shares in, 633. actions by and against, see Actions and Defenses. FORESTALLING: rendlted impossible under modern conditions, 55. FORFEITURE OF CHARTERS AND FRANCHISES: proper mode of trying the issue, 45. power of courts herein exclusive, 45. legislature cannot forfeit, 45. boundaries separating legislatiye and judicial acts, 45, 47, 48. to be judicially declared, 49. not wrought ipso facto, 49., in direct proceedings by State, 49, 50. not to be collaterally tried, 49, 50, 435. exception to the rule, 49. . jurisdiction of the courts, 51. court of law the proper tribunal, 51. court of equity has none at common law, 51. proceedings to be brought by the State, 5?. unless private persons are authorized by statute, 53. tlirough attorney-general, 52. on his own motion, 53. " upon leave granted," construed, 53. against corporation itself, 53. exception, 53. scire facias, 53, 436. superseded now by gito warranto, 53, 436. gMO warranto, 58, 485, 436. nature of the writ and of proceaiings thereunder, 53, 436, 840, 841. grounds of, 54-58. misuser, 54, q. v. t non-user, 54, q. v, ' unauthorized lease or sale, 364. "trust" agreements, vidie "Tkusts." ultra vires acts, 434, 435. waiver by the State, 59. express remission of penalty, 59. subsequent legislative recognition, 59. long-continued acquiescence, 59. power to forfeit dependent upon statute, 83, 585, notice of forfeiture, 88, 586. tender before sale, 88, 589. power not exclusive of right to sue, 584. method of forfeiting shares, 587. the company's claim for deficiency, 588. liability of purchasers of forfeited stock to corporate creditors, 709. elf ect upon liability to corporate creditors, 735. FORGERY: transfer of shares by forged assignment, 667. INDEX. 1445 [The references are to eeotions: Vol. I, §§4-384; Vol. II, §§ 385-910.] FRANCHISES : inviolability of, 17, 18, 19. ' distinguished fr6ni license, 21. of exclusive privileges,. 37. construed against grantee, 37. exemption from taxation, 34. of corporate entity, 166. not transferable, 166, 363. partnership liability of purchasers, 166, of banking privileges, 361. to operate railways, 363. may be acquired by natural persons, 363. survival after dissolution of company, 787. transmission of, to reorganized company, 795, FRAUD: in procuring subscriptions, 109. fictitious subscriptions to influence others, 109. partnership liability of incorporators arising from, 163. incorporation for illegal purpose, 163. of officers and agents, 193, 198. imputed to corporation, 193, 193, 448. fraud of treasurer, 314. liability of officers, 314. of directors, trustees and oopamittees, 353. • liability for, 3S3. liability of the company, 353. in transfer of shares, 667. FRAUDS (STATUTE OF): See Statute of Frauds. FRAUDULENT REPRESENTATIONS: See SUBSOBlPllOlfS TO Capital Stock and Prospectuses. FRAUDULENT STOCK: See Spurious Stock. FUTURES: See Speculative CoHTRACTS, ) GAMBLINQ IN SHARES: See Speculative CoNteacts, GARNISHMENT: to enforce claims of corporate creditors, 720. GAS COMPANIES: business is of public character, 885. duties and povi?ers, 885. reasonable conditions, 835. shutting off supply, 835. erroneous charges, 885, See generally Governmental Control. GENERAL INCORPORATION LAWS: See BNABLma Acts. GOODS, WARES AND MERCHANDISE: whether shares of stock are, under the Statute of Frauds, 613. GOVERNMENTAL CONTROL: of gwasi-public corporations, 17, 48, 881. through the judiciary, 48. See Quo Warranto and Mandamus. through boards appointed by the legislature, 831. through State x'ailway commissioners, 833. through the Interstate Railway Commission, 833, through the English Board of Trade, 833. through municipal boards of supervisors, 884. ■water companies, 834. 14i6 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 385-910.] GOVERNMENTAL CONTROL (continued): grounds upon which control is based, 833. railway carriers, 833. duty to repair streets, 833. discrimination in rates, 833. subject td control of Board of Trade in England, 833. subject to control of State and federal commissiouers in Amer- ica, 833. , classification of freights, 833. car-load lots, 833. cost of service, 833. no power to compel making of joint-rates, 839. water companies, 83i. their franchise a natural monopoly, 834. duty to supply all persons at reasonable rates, 834. shutting off supply without just cause, 834, municipal boards of supervisors, 884. arbitrary action of, 834. meters, 834. rates based upon, 834. expense of, not to be imposed on customer, 834. gas companies, 29, 835. regulations idi public security, 29. business is of public character, 835. duties growing out of use of public streets, 835. may impose reasonable conditions, 835. penalty for refusing to supply gas, 835, erroneous charges, 835. injunction to restrain cutting off supply, 835. shutting off supply for non-payment of previous bill, 835. telegraph and telephone companies, 399, 836, are common carriers, 836. duties growing out of franchise of eminent domain, 399, 836. contracts to evade statutory penalty, 836. power of State to fix maximum charges, 836. mandamus to compel performance of duty, 836, removal of wires from city streets, 29. transmitters of stock quotations, 837. must furnish all persons with reports, 837. grain elevators, 30. are property dedicated to public use, 30. State may prescribe rates, 30, 31. colleges receiving State or federal aid, 831, 833. banks, 833. dam companies, 399, of corporations generally, 831, 838, annual reports, 838, statutory requirements, 838. ^ liability of directors failing to render, 838. failure to make, not a grpund of forfeiture, 838. time of filing, 838, same as controlof citizens, 33, 38, 30, 33. no peculiar exemption of corporations from control of the State, 33, 28, 30, 33, See Vested Ooeporate Rights. limits Of the power to regulate, 834, 839. regulation amounting to confiscation, 834, 839, equitable relief, 834. power to regulate is not power to destroy, 839. forfeiture of charters and franchises, for neglect of public dutfes^ 54, 364, for abuse of corporate powers, 54, for mere ultra vires adts, 434, 435, 843, 843, 844. for ultra vires acts injurious to the public, 845, INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol, H, §§ 885-910.] GRAIN ELEVATORS: are property dedicated to a public use, 30. governmental control of tolls, 30, 31. GUARANTIED STOCK: See Pkbfbebed Stock. GUARDIANS: sales of stock by, 674. HEIRS: only entitled to dividends after registration, 599. HOLDER FOR VALUE: general status of, 664. of shares, 663. of bonds and coupons, 666. HUSBAND AND WIFE: to whom dividends on wife's shares are payable, 599. law of company's domicile determines, 599. HYPOTHECATION OF STOCK: See Pledge. I. ILLEGAL CHARGES: of railway carriers, 883. of water companies, 834. of gas companies, 883. of telegraph and telephone companies, 886. ILLEGAL CONTRACTS: sense in which " illegal " is used, 854. distinguished from acts mala prohibit a, 854. IMPLIED POWERS: of corporations, 385-410. See Powees of Corporations. of directors, 227. See Directors, Trustees and Committees. of officers and agents, 186. See Officers and Agents, of congress, 4. INCIDENTAL POWERS: of corporations, 385-410. of directors, 237. of officers and agents, 186. of congress, 4. INCOME: dividends to be paid only out of, 601, 605. whether covered by mortgage, 751. mortgage of, 751. INCOME BONDS: payable only out of net income, 751. necessary to allege and prove existence of income, 771. INCORPORATION: by special charter, see Charters. prohibited by constitution, 8. under general laws, see Corporations, Enabxjng Acts. , defects in, 13, 14, 16. not to be taken advantage of collaterally, 13, 14. effect upon personal liability, 16, 163. effect as release of subscribers, 106. conditions precedent and subsequent distinguished, 13, 16, 1447 14J:8 INDEX. [The references are to sections: Vol. I, S§ 1-384; Vol. n, §S 385-910.] INCOEPOEATION (continued): colorable compliance with no enabling act, 163. may be pleaded collaterally, 162. partnership liability resulting from, 163. as cloak for fraud, 163. INCORPORATION ACTS: See Enabling Acts. INCREASE OF CAPITAL, STOCK: See Capital Stock. INDICTMENT OF CORPORATIONS: for crimes and misdemeanors, 45^ INDORSEMENT: of shares of stock, 648. in blanlc, 64S. the usual form, 648. INFANTS: efiect of transfer to, upon liability of transferrer, 138. liability of to corporate creditors, 1B8. may vote by guardians, 303. INFORMATION: in nature of quo warranto, see Quo Warranto. INFRA VIRES ACTS: See Powers op Corporations. INJUNCTION: against expelling member, 94. to restrain voting, 377. to restrain ultra vires acts, 910. at instance of members of voluntary association, 910, at instance of corporate shareholders* 439, 881. of minority shareholders, 430, 883. at instance of creditors, 439. INJURIES: See Torts. INJURIES RESULTING IN DEATH: See Lord Campbell's Act. INSPECTION OF CORPORATE RECORDS: See Records. INSOLVENCY OF COMPANIES: statutoi'y liability of members arising upon, 153, INSOLVENCY: as a ground of forfeiture of charter, 54, INSURANCE COMPANIES: assessments upon members, 593. forfeiture of policy, 595. waiver of right to forfeit, 596. INTEREST: upon bonds, see Bonds, Coupons and Foreclosure. INTEREST-BEARING STOCK: similar to preferred stocki 497. INTERSTATE COMMERCE: See Taxation. ISSUE OF SHARES: below par, 118. validity as between company and subscriber, 118, 119. how far valid as to corporate creditors, 118, 119. for property or services, 130. presumption of fraud from overvaluation, 130, 156. as gratuity, 131. J. JOBBERS: See Stock Brokers. JOINT-STOCK COMPANIES: having corporate powers are corporations, 7, 167. although the statute may declare otherwise, 7, 167. INDEX. 1M9 [The references are to sections: Vol. I, §§ 1-384; Vol. n, S§ 385-910.] JOINT-STOCK COMPANIES (oontihued): distinguishable from ordinary business corporations, 167. only in respect of liability of members, 167. distinguishable from partnerships, 167. • in respect of transferability of shares, 167. illegal at common law, 55. still illegal in Louisiana, 55, n. 849. proceedings againt Cotton Seed Oil Trust, 849. JUDGMENT CREDITORS: ' of corporations, 698. satisfaction of judgment against shareholders, 698. L. LABORERS: See Servants. LANDS: See Moktgages. LAW OF PLACE: governs execution of contracts by corporate agents, 743. LEASE OF CORPORATE PROPERTY AND FRANCHISES: may amount to a consolidation, 337. power to lease property, 363. private companies, 363. gMasi-public corporations, 363. railway companies, 363, 366. telegraph companies, 363. power to lease franchises, 364. conflicting authorities, 364. forfeiture for unauthorized lease, 364. statutory authority, 365. does not authorize against consent of minority, 365. ' injunction, 365. not implied from power to consolidate, 365. to be strictly complied with, 365. vested in shareholders, 365. directors can not radically modify terms, 865. injunction to restrain unauthorized lease, 365. annulment of unauthorized lease, 365. liability of lessor company, 366. not terminated by lease, 366. line between liability of lessor and lessee, 367, liability of le'ssee, 368, ,370. assumption of public duties, 370, 371. the New York " Railway Law of 1890," 369. what is carried by a lease, 370. joint-lease between several railway companies, 370. foi-eign railway companies, 371, receiver of leased, railway, 371. restrictions upon charges for transportation, 371. of property not necessary for corporate purposes, 877. whether action for rent maintainable, 377. LEGATEES: liability upon shares, 133, 135. LEGISLATIVE CONTROL: See Governmental -Control. LESSEES OF CORPORATE PROPERTY: See Lease oe Coepoeatb PjRopeety and Franchises. LEX LOCI REI SITU: governs execution of mortgage, 743, 1450 IKDEZ. [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 385-910.] LIABILITY OF MEMBERS: not dependent upon holding certificates, 63. as affected by cancellation of subscriptions, 113, 114, none directly to corporate creditors at common law, 115, 143, to contribute to capital stock of company, 116. the "trust fund" doctrine, 113, 114, 116. statement of the doctrine, 113, 116. effect of cancellation of subscriptions,, 113, 114, applications of doctrine, 113, 114, 117-121. to cancellation of subscriptions, 113, 114. to distribution of assets among members, 117. to issue of shares bfelow par, 118, 119. to issue for property or services, 120. to gratuitous issue, 131. not recognized in England, 114, 123.( secondary liability to corporate creditors, 123. creditor's remedy against company to be first exhausted, 133. exceptions, 124. registered holders of stock, 125, 126. right of creditor to examine register, 135. effect of transfer, 126. to " men of straw," 137, 128. to infants, 128. to married women, 128. to the corporation, 139. registration requisite to render effective, 126, 130. upon transferrer's common-law liability, 705. upon transferrer's statutory liability, 706. upon transferee's common-law liability, 131, 707. upon transferee's statutory liability, 708. upon pledgees, 183. upon legatees, 133. upon distributees, 138. upon purchasers of forfeited stock, 709. banlirupts' estates, 134. decedents' estates, 185, trustees, 136. executors, 136. administrators, 186, agents, 187. infants, 138. married women, 139. priority between creditors, 140. contribution between members, 141. effect of increase and reduction of capital stock, 143. liability upon new shares, 475, 476. when issued below par, 475. when issued as a bonus, 476. beyond amount unpaid on subscription, 143. constitutional guaranties against, 143, 144. not to be created save by statute, 143. - statutes merely declaring the common-law rule, 144* See Pabtnership Liability, Statutory Liability and Voluntahy Associations, Joint-Stock Companies, Limited Partnerships Cost-Book Companies, CAB-Tstrsi Associations, Spurious Stock! Calls and Assessments. LIBEL: by joint-stock newspaper company, 451. by railway company, 451, black-list of discharged employees, 451. by mercantile reporting agencies, 453. LICENSE: distinguished from franchise, 31. INDEX. 1451 I [The references are to sections: Vol. I, §§ 1-384; Vol, 11, §§ 385-910.] LIENS: of the company upon shares, 644-616. upon corporate property superior to mortgage, see MOKTGAGE OB" Peopekty and Franchises. LIFE TENANTS AND EBMAINDERMEN : Bcrip dividends belong to life tenant, 478. LIMITATION: of actions against corporations, 857, n. constitutional prohibition of shorter term than for natural persons, 857, n. LIMITED PARTNERSHIPS: nature of, 178. occupy middle ground between corporations and ordinary partner- ships, 178. liability of members, 178. determined by statute, 178. constructive notice of provisions, 178. provisions of statute binding upon courts of equity, 178. LIS PENDENS: doctrine of notice from, 666. not applied to corporate bonds, 666. LITERARY SOCIETIES: formation of under general laws, 11. LOBBYING: as a ground of forfeiture of charter, 54. to procure withdrawal of opposition to charter, 369. LODGES: nature of as benevolent and social societies, 175. liability of members, 175. See Voluntary Associations. assessments upon members, see Assessments. LORD CAMPBELL'S ACT: injuries resulting in death, 462. right of action by family of deceased, 463. similar legislation in America, 463. LOSS AND THEFT: of stock certificates, 670, 671. of bonds and coupons, 673. LUNATICS AND IDIOTS: may vote bj' committee, 303. M. MAJORITY BONDHOLDERS: rights of as against minority, see Bondholders. MAJORITY SHAREHOLDERS : See Minority Eights. MALICIOUS ACTS: See ToRTS. MANAGERS OF COMPANIES: scope of authority, 309. See Officers and Agents. service of process on, 859. MANDAMUS: to admit to membership, 60, to register legatees, 61. to permit inspection of corporate books, 79. to reinstate expelled member, 94. to call corporate meetings, 377. to compel attendance at vestry meeting, 377. ■ to compel admission of student to public college, 833. to compel telephone companies to supply facilities, 836. 1452 INDEX. [The references are to sections: Vol. I, §§ 1-884; Vol. n, |j 385-910.] MAN OF STRAW: , definition, 137, n. efiEect of transfer to, upon liability of transferrer, 137. MARRIED WOMEN: subscriptions to capital stock by, 533. payment of dividends to husband, 599. transfers of stock to, 138. effect upon liability of transferrer, 128. liability to corporate creditors, 139. MASONIC LODGES: See Lodges. MECHANICS' LIENS': priority over mortgage, 745, 746. MEDICAL COLLEGES: institution for instruction in electricity can uotconfer degree, 11. ' not to be incorporated under general law for benevolent etc. purposes, visitation of public medical college, 831, MEDICAL SOCIETIES: mandanius to compel admission of member, 60. where right to practice depends upon membership, 60. MEETINGS OF MEMBERS AND DIRECTORS: when necessary for corporate action, 373. separate consents inefifectual, 373. subsequent ratification, 272. exception, under 35 & 36 Vict. cb. 89, 272. exception, in Colorado, 271. chairman, how chosen under 8 Vic. ch. 16, 373. deputy chairman, 372. supplying vacancy, 373, casting vote, 377-. may delegate his duties, 396. refusal of, to recognize duly elected oflScers, 298. adjourning meeting contrary to majority vote, 398. counting votes otherwise than as cast, 398. proceedings of, by what law governed, 373. suspension of rules, 373, 397. irregularities in, 396. ^ general and special meetings distinguished in respect of notice, 379. called meetings, 278. / special meetings, 273. provisions for calling, 373. by whom to be called, 373. irregularity in calling, 373. failure of proper officials to call, 373, mandamus to compel, 373. irregularity in notification, 373. purpose of, to be, set forth in notice, 373. presumption omnia rite acta, 373. irregularities cured, 373. qualifications of voters, 374. in voluntary associations, 374. in companies having capital stock, 374. registered ownership of shares prior to meeting, 274, 398^ citizenship, 274. right to vote, 374. incident to owaeriliip of shares, 374. not to be impaired by by-laws, 374. may be stipulated against in issue of preferred stock, 274. upon shares owned by other corporations, 374. upon shares owned by partners, 374. upon shares i^ued as dividends, 374. INDEX. 1453 rrhe references are to sections: Vol. I, §§ 1-384; Vol. □, §§ 385-910.] MEETINGS OF MEMBERS AND DIRECTORS {continued): upon shares held in pledge, 305, 643. upon scrip cei'tiflcates, 374. ^ ' evidence of, 274. > challenge of, 374, 375. estoppel from laches, 396. trustees, 375. for the corporation itself, 375, oath required, 375. See Voting Trusts. agents, attorneys, proxies, 375, oath required, 375. See Proxies. executors and administrators, 375, letters of probate, 375. quorum, 376. number requisite to constitute, 376. one shareholder can not constitute. 376. not destroyed by refusal of some to vote, 376. presumption of presence of, 395. majority, 376. constitute a quorum unless otherwise provided, 276. when whole capital stock has not been taken, 376. of quorum sufficient to take corporate action, 376. even though a minority of whole body, 376, of the number voting, control, 276. when some refuse to vote, 276. of directors must be disinterested, 376. when counted per capita, 376. \ in directors' meetings, 376. in meetings of voluntary associations, 276. when counted by shares represented, 376. in eocnpanies having capital stock, 376. diminishing scale, 376. presumed to ha^e voted for resolution entered on the minutes passed, 395. ~ powers of, in companies having capital stock, 377, to control corpoi-ate action, 277, 304. to ratify directors' acts, 377. to dissolve corporation, 377. not to be restrained by injunction, 377. powers of, in voluntary associations, 378. dependent upon agreement in articles, 378, tie votes, 377. minority, rights of, 377. to require meeting to be called, 377. to discuss proposed corporate action, 279. to have notice of time, place and purpose of meetings, 279. cumulative voting, 301. mandainus to compel call of, 377. for election of officers, 299. general meetings, 279. distinguished from special, 279. in respect of notice, 279. in respect of scope of action, 379, stated meetings, 279. are usually general in respect of scope of action, 279. when restricted to certain action, are special, '279, effect of distinction upon necessity for notice, 279, 297* notice, 279. right of members to receive, 279. to specify time and place, 279, 283. 1454: INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] MEETINGS OP MEMBERS AND DIRECTORS (continued): when purpose of meeting should be specified, 379, 283, 297. general and special meetings distinguished, 379, 283. custom as rendering notice unnecessary, 279. of regular meetings when not required, 279. of adjourned nieetings, 379, 294. charter provisions concerning, 279. by-law contravening, nugatory, 279. mandatory and directory distinguished, 279. waiver of, 279. by attending meeting etc., 279, 281. _ , member receiving actual notice, not to object to form, S96. to be unconditional, 280. service of, 281.' actual service, 281. upon pledgor or pledgee of shares, 281. by what law regulated, 281. upon executors and administrators, 281. time of, 281. by mail, 281. prescribed manner to be strictly followed, 281. presumption of regularity, 281. waiver of, by attending meeting, 281. leaving notice at usual place of residence, 283. to directors absent from the State, 283. form of, 283. , technical accuracy not required, 283. presurded to have been given, from entry- that meeting was dulv held, 395. compelling attendance, 284. at vestry meeting, 384. place of assembling of shareholders or members, 335, to be within the State, 285. at place prescribed in charter, 383. even when authorized to do business beyond, 385. even when corporators act as directors. 885. of interstate consolidated companies, 836. extra-State meetings, S85. whether void or merely voidable, 385, 390. ratification of proceedings of, 285. legislative authority to hold, 285. curative legislation, 385. estoppel, 290. for organization and acceptance of charter, 286. of companies incorporated by two States, 287. in either State, 387, 836. of church societies, 388. in or at the house of worship, 288. place of holding directors' meetings, 389. directors as agents may meet in foreign State, 289. unless prohibited by statute, 289. scope of powers determined by charter, 289. exercise of powers to conform to local law, 389. time of holding, 391. how determined, 391. discretion of directors herein, 391. not to be lightly questioned by the courts, 291. premature organization of meeting, 392. void as a surprise, 292. subsequent reorganization at appointed hour, 292. delay beyond appointed hour, 293. if reasonable, permissible, 293. may invalidate proceedings, 293. INDEX. 1455 [The references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] MEETINGS OF MEMBERS AND DIRECTORS {continued): postponement to another day, 293. may invalidate proceedings, 293. by directors to extend their term of oflSoe, 298. adjournment to subsequent day, 294. notice of, 294. unfinished business, 294, new business, 294. resolution of adjournment should be entered on minutes, 294. fraud, 294. minutes, 294.. See Records. irregular proceedings, 296. . when the courts will not review, 296. estoppel from participation, 296. estoppel from laches, 296. rule applicable to transferees also, 296, when the courts will review, 297. trick, 297. secrecy, 297. surprise, 297. variation from purpose stated in notice, 297. do not invalidate other and regular proceedings, 297, 298. bribery, 297. See COEPORATB Elections ; Peoxies. MEMBERS AND STOCKHOLDERS: gttasi-trust relation between, 70. See Minority Rights. rights and powers of, 71-73. See Membership, not to participate directly in ^management, 74. expulsion of, see Expulsion from Membership. non-resident, remedy of corporate creditors against, 123. not bound to contribute when liability is penal, 141, 150. combinations among, 804. legal unless for illegal purpose, 304. ■ injunction will not be granted, 305. right to sue and defend on behalf of the company, 256, 881. to remedy misfeasance of directors, 256, 881. See ACTIONS AND Defenses. MEMBERSHIP: in voluntary associations, 60. religious societies^ 60, q. v. mutual benefit societies, 60. medical societies, 60. . " mandamus to compel admission, 60. in companies having capital stock, 61. consists in ownership of shares, 61. not dependent upon holding certificate, 63, does not consist in merely holding certificate, 63. acquisition of^ 62-67. by subscription before incorporation, 63. by subscription after incorporation, 64, 65. acceptance requisite, 64. evidence of acceptance, 65. by transfer of shares, 66. registration requisite, 66. by estoppel, 67. in representative capacity, 68. as trustee, 68. as pledgee, 68, 69. of shareholder, 69. of treasury-stock, 69. 1456 INDEX. [The referenoes^are to sections: Vol. I, §§ 1-384; VdL U, §§ 385-910.] MEMBERSHIP {continued): rights and powers incident to, 71-83. general powers, 71. to admit new members, 73. in voluntary associations, 73. in companies having capital stock, 72. to exercise extraordinary powers of the corporation, 73, 473. but not the ordinary corporate powers, 74. to sue and defend for the company, see Actions and Defenses. to examine books and records, 75. See EecokdS. peculiar rights of, in voluntary associations, 80. rights of pewholders, 81. , rights of, in cost-book companies, 83. expulsion from, see Expulsion from Membership. MERCANTILE REPORTING AGENCIES: privileged communications, 452. liability for libel, 452. MERGER: See Consolidation. distinguished from cpnsolidation, 838. in respect of dissolution of the companies, 338. MIGRATION: principal place of business in another State, 54. as a ground of forfeiture, 54. partnership liability resulting from, 164. ^ transaction of business in foreign State is not, 389. meeting of directors in foreign State is not, 389. meeting of sharehplders in foreign State may be, 289. MILLING: " no longer a public use, 899. whether millers may exercise power of eminent domain, 399; MINING COMPANIES: See Cost-Book Companies. MINORITY RIGHTS: / as to fundamental amendments of charter, 41, 42, 107. as to changing terminus of railway, 42. as to dividing railway and forming two companies, 43. • as to comraenci'ng business, 43, as to duration of charter, 43. as to enlarging scope of business, 43, proceedings to enforce, 43, 44. to cancel subscription, 43. as to change of articles of association, 44, guasi-trust relation between members, 70. contribution between, to corporate debts, 141, as to dissolution, 70. as to retiring and cancelling shares, 70. as to loan from building association, 70. as to purchase of corporate property, 70. / as to expulsion from membership, 84, 85. as to fraudulent contracts of directors, 348, 439. as to misfeasance of directors, 255, 256.' right to sue in behalf of the coLipany, 256, a^ to consolidation, 42, 61. whether unanimous consent is requisite, 353, consent not to be compelled, a53. no presumption of consent, 354. purchase of shares of dissenting holders, 355. mjunction to restrain ultra, vires consolidation, 356. as to sale of corporate property, 857, 358. when business is prosperous, 357, 858, [The referencfe^ are to sections: Vol. I, §§ 1-384; Vol. II, §§ 385-910.] MINORITY RIGHTS (continued): as to lease of property and franchises, 365. injunction, 365. annulment, 365. as to increase or reduction of capital stock, 471. as to gratuitous distribution of new stock,. 474. as to surrender of charter, 781. , as to dissolution of company, 786. sale of property, 786. purchase of property by majority at unfair valuation, 789, ^ restraining ultra vires acts, 439, 430. right to object lost by delay, 431. ' when minority can not have recourse to the courts, 437. MINORS: may vote by guardians, 303. transfer of shares to, 138. effect upon liability of transferrer, 138. liability as shareholders to corporate creditors, 138. MINUTES: recitals in, preRumption from, 383. that meeting was duly called, 383. See Records. MISFEASANCE: Fide Misuser. distinguished from non-feasance, 463. MISNOMER: See Names of Corporations. MISREPRESENTATIONS : inducing to subscriptions to stock, 193. by agents of company, 193. in prospectuses, 539. liability of directors and pi'omoters for, 271. scope of authority as affecting, 193, 193. MISSIONARY SOCIETIES:^ formation of, under general laws, 11. MISTAKE: iu making subscriptions to stock, 105, of law, 105. J of fact, 105. MISUSER: as a ground of forfeiture of charter, 54^58. must be shown to be wilful, 54, n. MONOPOLY: contrary to public policy, 55. combinations between corporations to create, 845. See "TRUSTS." natural monopoly, see Public Use. MORTGAGE OF PROPERTY AND FRANCHISES-, authorized by members Acting separately, 373. subsequent ratification by collective action, 273, by acceptance of proceeds, 373. invalidity as to other creditors) 373. power to mortgage an incidental power,'388, restrictions upon, 388. power to mortgage franchises, 389, 738. g«asi-public corporations have none, 389, without express legislative authority, ^9. franchise of corporate entity not mortgageable, 738, contra in Maine, 738. power implied from power to borrow, 738, 739. 93 1457 1458 INDEX, [The references are to sections: Vol. I, §§ 1-384; Vol. IT, §§ 385-910.] MORTGAGE OF PROPERTY AND FRANCHISES (continued): power is co-extensive with power to alienate absolutely. 739. as to property acquired under power of eminent domain, 739. authority carries right to make usual conditions, 739. but not the right to make extraordinary conditions,, 739. power limited by purpose of organization, 740. to secure debt in excess of charter limits, 740. to prefer one debenture holder over others, 740. ultra vires mortgages,' 740. estoppel of company to plead ultra vires, 740, ' injunction to restrain, 740. forni of the instrument, 741. i ' no peculiar form essential, 741, trust deeds, 741. car-trust agreements, 741. bonds declared to be lien are mortgages, 741, as to lien notes, 741. as to contract making damages for breach a lien, 741. execution of the instrument, 743. signature of officers and seal of the company, 743. place of executing, 743. compliance with lex rei situ, 743. authority of officers governed by law of company's domicile, 743. should describe bonds which are secured, 743. ' reformation of patent defects, 743. directors' powers herein, 743. statutes prohibiting mortgage by directors, 743. only the shareholders may object, 744. shareholders' consent, 744. treasury stock has no voice herein, 744. only by concurrent action, 744. estoppel from acceptance of benefits, 744. to directors exceeding their powers, 744, priorities, 745. consolidation, 745. reorganization, 745; , statutory liens, 745. in favor of existing debts, 745. for labor and materials, 745, 746. superior diligence of second mortgagee, 745. operating expenses of gitasi-public corporations, 746. debts incurred by receivers, 746. receivers' certificates, 747. debts due the State, 746. vendors' liens, 746. judgment creditors, 746. subrogation to superior liens, 746. what is covered by mortgage, 748. general words of description, 748. of "all the property," 748. of " the undertaking,?' 748, fixtures, 749. ' future acqiiisitions, 750, income, 751. not inpluded except under words of futurity, 751. covers only net earnings. 751. injunction against misappropriation, 751. recording, 753. of ordinary mortgages, 752. of car-trust leases, 752. of mortgages of personalty, 753. effect of failure to record, 753. validity of, to company having common officers, 758. INDEX, 1459 [The references are to sections: Vol. I, §§ 1-884; Vol. H, §§ 385-910.] MORTGAGE OF PROPERTY AND FRANCHISES {continued): entry by mortgage trustees, 758, 759. resistance by company, 759. bill in equity to gain possession, 759. i effect of decree, 759. not exclusive of right to foreclose, 762. procedure prescribed in mortgage in event of entry, 763. not binding in event of foreclosure, 763. bill to declare mortgage and bonds void, 765. bondholders necessary parties, 765. See Bondholders, Bonds, Foreclosure, Mortgage Trustees and Receivers. MORTGAGE OF SHARES: See Pledge, MORTGAGE TRUSTEES: necessity for, 758, 760. refusal to act at request of bondholders, 758, mandamus, 758. appointment of as receivers, 759, 761. have a naked trust until default, 760. provision for participation in election, 760. duty upon default, 760. removal of, 760. remuneration of, 760. status of when in possession, 761. is that of a receiver, 761. not bound by directions of majority of bondholders, 761. MORTMAIN STATUTES: extent to which they may be collaterally pleaded, 380. forfeiture of lands under, 790. example of the Mormon Church, 790, See Real Estate. MUNICIPAL CORPORATIONS: liability of as stockholders, 158. for debts due servants of company, 158. power to subscribe for stock, 523-526. See Subscriptions to Capital Stock. MUTUAL BENEFIT SOCIETIES: formation of under general laws, 11. membership- in, 60. / wherein it consists, 60. partnership relation of members, 174, inter sese, 174. none as to outsiders, 174. liability of members to creditors, 174. See VOLUNTABT ASSOCIATIONS, MUTUAL PROTECTIVE SOCIETIES: formation of, under general laws, 11. N. NAMES OF CORPORATIONS: essential to'corporate entity, 373. identity of, 373, 374. injunction, 373. quo warranto, 374. names indicating locality, 373. use of name of foreign by domestic company, 374, federal court can not restrain, 374. statutes re(j[uiring words indicating corporate character and business, 374, 14:60 INDEX. [The references are to sections: Vol. I, 8§ 1-384; Vol. II, §§ 385-910.] NAMES OF CORPQRXtIONS (continued): misnomer in deeds, 374. misnomer in pleading, 864 change of name, 54, 375, §64. without authority, no ground of forfeiture, 54, statutory authority requisite, 375. does not affect dutieg, liabilities or property rights, 375. effect upon actions by and against company, 864. NATIONAL BANKS: power of federal government to create, 4. seriously doubted, 4. Madison's opinion, 4. Washington's hesitation, 4 Randolph's opinion, 4. Hamilton's opinion, 4. renewal of pharter refused, 4. reopening of ther controversy, 4. based upon necessity as instrumentality of expressly , delegated powers, 4. origin of the present national banking system, 4. not subject to State taxation, 4. liability of shareholders to corporate creditors, 155. increase of capital stock, 470. transfer of shares in, 630. NATURAL MONOPOLY: See Public Use. NEGOTIABLE PAPERS: authority of corporate officers, 189. the president's power, S05. the treasurer's power, 212. to draw and accept, 212. to accept accommodation paper, 212. actions upon notes made or indorsed by the company, 865. essentials of negotiability, 685. bona fide purchasers, 664. of stock certificates, 664, 665. forged assignment, 667, 668. spurious stock, 668, 669, lost or stolen certificates, 670. i sold in breach of trust, 673-675. of bonds and coupons, 664, 666. lost or stolen bonds, 673. issued below par, 756. doctrine of Zis pendens not applicable, 666 stock certificates not strictly negotiable, 667. rights of bona fide purchasers, 664, 665. guasi-negotiability grounded in estoppel, 678. registration as affecting negotiability, 680-683. bonds and coupons, 684. ■ essentials of negotiability, 685. 691. limitations on negotiability, 686. references between bonds, coupons and mortgages, 687. alteration of the numbers of bonds, 688. maturity as affecting negotiability, 689. coupons as negotiable instruments', 690i formal requisites of negotiability, 691. likened to checks, drafts, bills and notes, 693, are sui generis, 693. receivers' certificates as negotiable instruments, 694. NET EARNINGS: distinguished from net profits, q. v. INDEX. liSl [The references are to sections: Vol. I, §| 1-8,84; Vol. H, §§ 385-910,] NET PROFITS: distinguished from net earnings, 601. ■witli respect to jfund for payment of dividends, 601. NON- ASSESSABLE STOCK: is liable for calls, 590, n. NON-FEASANCE: Vide Non-user. distinguished from misfeasance, 463, NON-RESIDENT SHAREHOLDERS: remedy of corporate creditors against, 133, 148. NON-USER: as a ground of forfeiture of charter, ,54. failure of bank to redeem notes, 54, suspension of business, 54. failure to supply water, 54. failure to run trains, 54. failure to rebuild bridge, 54. failure to keep road in repair, 54. failure to make reports, .54. making false reports, 54. keeping principal place of business out of State, 54. lease and sale of property and franchises, 364. NUL TIEL CORPORATION: See Actions and Defenses. NUISANCE:, indictment of corporations for, 456. OATH: required of shareholders voting, 397. that they have not been bribed, 397. required of proxy holders, 375. t that their principals are owners of shares, 375. that they have not purchased proxy, 297. OBLIGATION OF CONTRACTS: See Contracts, Statutes and Vested Corporate Rights. ODD-FELLOWS LODGES : See Lodges. OFFICE: keeping principal office out of the State, 54. as a ground of forfeiture, 54. OFFICERS AND AGENTS: mismanagement of corporate affairs, 110. does not release subscribers, 110. appointment, 181. i evidence of appointment, 181. evidence of acceptance, 181. de facto, 183, 863. authority of, grounded in estoppel, 183, 863. serve until dejure be chosen, 398. terms of office, 183. not limited by term of directors, 315. amotion, 184, q. v. notice to, affect company with knowledge, 185. scope of authority, 186. enlargement of, 186. determined by custom and by-laws, 187. , persons dealing with, must know, 187, 193, 384. incidental powers, 188. to issue negotiable paper, 189. 1462 iNUEx. [The references are to sections: Vol. I, §§ l-88i; Vol. n, S§ 385-910.] OFFICERS AND AGENTS (continued): of minor officers and agents, 190. determined by custom, 191. of insurance agent, 188, 192. of chief engineer of railway, 190. of road master, 190. of conductor, 190. of business manager, 190. of promoters, 191, 198. as affecting liability of company for torts, 444. ■whether necessary to allege in pleading, 863. misrepresentations by, 192. imputed to corporation, 193, 448. as to matters peculiarly within their knowledge, 193. scope of authority as affecting, 193, 193. unauthorized acts, 193. ratification of, by company, 194. does not render ultra vires acts valid, 194. ratification by directors and superior officers, 195. depends upon their own powers, 195. acquiescence in, 196. not to be lightly presumed from silence, 196. acceptance of benefits, 197. promoters' acts, 198. are necessarily without authority, 198. , validity dependent upon ratification, 198, 199. acceptance of benefits, 198. compensation, 200. whether presumed from appointment, 200. of president, 208. of treasurer, 200. of secretary, 200. of promoters, 201; for services beyond scope of duty, 201, 208, president, 203. generalscope of authority, 203. power to make contracts, 303. by-law limiting, 203. necessarily incidental powers, 204. may act a.% secretary also, 204. ' power in respect to negotiable paper, 205. of banks, 206. of railways, 207. compensation, 208. service of process upon, 859. general manager, 209, general scope of authority, 309. persons dealing with, affected with notice, 309. by-law limiting, 209. authority to engage legal and medical services, 210. admissions and representations, 311. I service of process upon, 859. treasurer, 313. authority as general fiscal agent, 313. to draw and accept drafts, 212. to accept accommodation paper, 213. to compromise, 812. to borrow and give security, 218. liability fot fraud, 314, liability of company for his fraud, 314. service of process upon, 859. secretary, 215. scope of authority, 315. INDEX. U63: [The references are to sections: Vol. I, §§ 1-384; Vol. II, §§ 385-910.] OFFICERS AND AGENTS (continued): fraud and embezzlement, 315. term of office, 215. not dependent upon directors' term, 215. liability of bondsmen, 215. \ not limited to original term, 215. service of process upon, 859. pastors, 316, q. v. fiduciary position toward company creditors, 241. fiduciary position toward company, 336, 240. particularly' of promoters, 237, 238, 239. contracts with company voidable, 243. secret profits, 239, 244. by promoters, 239. by officers and agents generally, 244 loans to company, 245. officers entitled to security, 245. dealings in corporate shares and securities, 246. injunction to restrain performance of fraudulent contracts, 348, whether entitled to indemnity for unauthorized expenditures, 251. personal liability, from defective incorporation. 16. from releasing subscribers, 103. ' from fraud, 214, 267. degree of diligence required, , 366. for sundry acts of misfeasance and non-feasance, 266. upon contracts in behalf of company, 267. under the New York Penal Code, 268. of promoters, 269. upon contracts for withdrawing opposition to charter, 269. upon failure of the scheme, 370. upon false prospectus, 371. the English Act of 1890, 271. for issue of spurious stock, 489, 492. liability of company for torts and crimes of, see TOBIS AMD Ceimes. for their issue of spurious stock, 489. measure of damages, 493. shareholders' actions againstv 881, 883. OPERATING EXPENSES: priority over mortgage lien, 745-747. OPPOSITION TO CHARTER: lobbying to quiet, 369. ORAL SUBSCRIPTIONS: whether subscriptions must be in writing, 510. mere informal promises, 512. parol agreements and conditions,' 531. ORGANIZATION OF CORPORATIONS: , defects in, 16. rendering members liable as partners, 16, 163. not to be' collaterally pleaded, 866. OUSTER FROM CORPORATE FRANCHISES: by scire facias, 53. by quo warranto, 53. OUSTER FROM OFFICE: of persons claiming under illegal election, 303, OVER-ISSUED STOCK: See Spumous Stock. 1464 INDEX. CThe references are to sections: Vol. I, §§ 1-384; Vol. n, §S 385-910.] P. PAROL SUBSCRIPTIONS: See Oral Subsceiptions. PAUPERS: transfer of shares to, 137, 631, 705. PARTNERSHIP LIABILITY: - from acts prior to incorporation, 159. promoters, 159. are lilie agents of undisclosed principal, 159. creditor may look to conipany or individuals, 159. unless agreeing to look to company alone, 159. notwithstanding charter provisions, 159. stipulations against power to bind each other, 159. signing on behalf of the company, 159. failure of the undertaking, 159. participation in meeting authorizing expenditures, 159. fpr preliminary expenses, 160. question for jury, 160. . reorganization of partnership as a corporation, 161. from illegal and irregular incorporation, 16, 162. in failing to comply with, enabling act, 163. in unconstitutionality of enabling act, 163. / from fraud, 163. ^ secret agreements, 163. misi-epresentations, 163. using corporate existence as cloak for illegal purpose, 163, from migration of corporation, 164. from continuance of business after dissolution, 165. from purchase of corporate property and franchises, 166. in joint-stock companies, -167, g. v. in voluntary associations, 168, q. v. in limited partnerships, 178, q. v. in car-trust associations, 180, q. v. PARTNERSHIPS: ' reorganization, of, as corporations, 161. liability of members, 161. whether corporations may be members of, 842. PASTORS OF CHURCHES: bound by rules and doctrines of denomination, 316. remedy against heterodox preaching, 316. remedy against usurpation of office, 816. may enjoin closing of church against them, 316. may enforce payment of salary as originally fixed, 216. Romish priest removable by bishop at pleasure, 316. not entitled to tenant's notice to vacate, 216. PATENT RIGHTS: issue of stock for, 130. over-valuation, 130. PERSONAL INJURIES: See Torts. injuries resulting in death, 462. See Lord Campbell's Act, PERSONAL LIABILITY TO CORPORATE CREDITORS: See Liabilitt OF Members, Partnership Liability and Statutory Liability op Members. PEWHOLDERS: rights of, 81. whether in nature of fee or easement, 81. whether title to pew is real estate, 81. subject to convenience of congregation, 81. INDEX. [The references are to sections: Vol. I, |§ 1-334; Tol. It, §§ 385^910.] PIPE-LINE COMPANIES: are quasi public corporations, 399. may exercise power of eminent domain, 399. PLEADING : See Actions and Defenses. PLEDGE OF SHARES: by company of treasury stock, 69. distinguished from mortgage, 688. writing not necessary, 639. effect of, 641. upon payment of dividends, 641. upon right to vote, 305, 643. foreclosure of, 643. PLEDGEES OF SHARES: not liable as shareholder, 69, 133. rights of, 689. to retain stock until satisfaction of debt, 639. ] to be registered as o\?ner, 639, 640. to transfer, 639. to receive dividends, 641. to vote, 305, 643. POLICE POWER: natural and artificial persons alike subject to, 38, 39. suppression of lotteries, 39. suppression of intoxicating liquor traffic, 39. abatement of nuisances, 89. See generally Governmental Control. POLITICAL CLUBS: formation of, under New York statute, 80. personal liability of members, 177. POOLS: legality of, at common law, 844. doubts as to power of congress to legislate against, 844, POWER OF ATTORNEY: to register transfer of shares, 648. indorsed on certificate, 648, separate from certificate, 679. estoppel of persons making, 604. POWERS OF CORPORATIONS: extraordinary, 73. to be exercised by the body of members, 73. unless vpsted expi-essly in directors, 73. e. g. increase or reduction of capital stock, 473. ordinary powers, to be exercised by directors, enumeration *of, 373. at common law, 373. by the New York Act of 1890, 373. to sue and be sued, 372, 857. to have a corporate name, 373. See Names OF Corporations. to have a corporate seal, 376. See Seals of Corporations. to hold lands, 377. necessary for purposes of the enterprise, 377. to acquire lands by purchase or lease, 377. as tenant in common, 377. not affected by alien owning stock, 377, ultra vires holdings, 378. the State alone can-object, 378. not to be questioned collaterally, 378, exceptions to foregoing rule, .378. , voluntary associations, 379. See Voluntary Associations. 1466 1466. INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 385-910.] POWERS OF CORPORATIONS {continmd): religious societies, 380. See Religious Coepoeations. conveyance prior to incorporation, 379. to borrow money, 381. to give security therefor, 881, 388. exclusive privileges, 38^, g. v.. presumption as to knowledge of, 383, 421. charter and statutory powers, SSS, 431. restrictions in by-laws, 383. powers of officers and agents, 384. powers of foreign companies and their agents, 384. incid.ental powers, 385, 410. definition, 385. at common law, 385. ' statutory extension by modern legislation, 388. liberal construction of enabling acts, 386, to borrow money, 381. to mortgage property, 381, 388. none to mortgage franchises, 389. to make notes, 390. to accept bills, 390. to make accommodation paper, 390. to lend money, 393. to take security therefpr, 893. as to loans to stockholders, 392. as to loans to directors, 392. to acquire and hold Stock of other companies, 393. conflitt of authoritieSr393, 394. > staturory prohibitions, 393, 394. to guaranty dividends on stock of another company, 394. to acquire their own Shares, 395. by purchase, 395. by pledge, 395. ■to take private property for a public use, 396, See Quasi-Pubmc Corporations. oi banks, 387. of railway companies, 404-409. as to running steam-boats, 404. as to other connecting business, 405, 406. as to contracts fof transportation, 407. as to traffic agreements with other lines, 40S, 409. of foreign companies, 411. restrictions upon, 413. , conditions of •' doing business" in State, 413. statutory powers, 414, compliance with statutory conditions, 415. effect of non-compliance, 415. ' "doing business," deKned, 416. dependent upon comity, 417. . citizenship, 418, 419. to take private prpperty for public use, 430. to subscribe to stock of other companies, 533. PREFERRED STOCK: rights of holders of, to receive stock dividends, 478. definition of, 497. synonymous terms, 497. siLoilarity to interest-bearing stock, 497. grotind upon which it may be issued, 497. right of holders tp vote, 497. may be stipulated against, 497. legislative authority, 498. . , may be granted by charter or statute, 498. may be presumed, 49rf. froiil power to borrow, 499. INDEX. U67 priie references are to sections: Vol. I, §§ 1-384; ToL H, §§ 385-910.1 PREFERRED STOCK (continued): acquiescence in unauthorized issue, 500. dividends upon, 501. payable only out of net profits, 503. arrears, 503. whether recoverable, 503. whether interest upon, is recoverable, 503. enforcement of payment, 504, 506. bill in equity, 504. injunction against dividends on common stock, 504. deferred to floating debts, 506. priority over funded debts, 506. holders of, not corporate creditors, 505. except after dividends declared, 505. right of holders in distribution of capital^ 5071 no priority unless by contract, 507. exchanging common stock for, 508. See generally Special Stock. PRESIDENTS OF COMPANIES : See Opficees and A&entS. PRINCIPAL AND AGENT: liability of subsequently organized corporation for acts of promoters, 159, 198. liability of members of voluntary associations, 168. PROCESS: See Service. PRODUCTION OF CORPORATE BOOKS: See Actions and Defenses. PROFITS: See Dividends. "PROHIBITION" LAWS: See' Police Power. PROMOTERS: See Partnership LiiBiLiTY, Officers and Agents. PROSPECTUS: false representations in, 271, 539. inducing to subscribe to stock, 539. liability of directors and promoters, 371. the English "Directors Liability Act of 1890," 271. ground for cancelling subscription, 529. PROVISIONAL COMMITTEES: to organize companies, 159, 160. liabilities of members, 159, 160. PROXIES: voting by, 308. did not exist at common law, 303. is authorized by statute, 803. may be authorized by by-law, ,303. English statutory regulation of, 303. votes by lunatics and idiots, 303. votes by minors, 303. injunction to restrain, 303. not to be rejected for matters of form, 803. deposits of stock with authority to vote, 303, revocable before sale, 803. injunction to restrain voting upon, 303. See Voting Trusts. agreement not to vote by, is void, 305. oath required of person offering, 275. PUBLIC CORPORATIONS: subject to governmental control, 17. See QUASI-PUBLIC CORPORATIONS. PUBLIC POLICY: contracts contrary to, see Ultra Vires Acts and " Trusts." Ii68' INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 386-910.] PUBLIC USE: dedication of property tOj basis of gpvernmentul control, 30, 31, grain elevators, 30, 31. railway carriers, 838, 844. water companies, 834. gas companies, 835, 851. telegraph and telephone companies, 836. stock-quotation transmitters, 837. PUNITIVE DAMAGES: See Torts. PUECHASE-MONEY: See Vendor's Lien. Q. QUASI-PUBLIC CORPORATIONS: whether protected by the Dartmouth College rule, 19, subject to extensive governmental control, 31. as owners of property dedicated to a public use, 31. consolidation, 330. of non-coaipeting railways, 330. of competing railways, 331. public duties not to be evaded by, 330, 333. effect of intex'state consolidation, 337. upon regulation of rates, 337. effect upon public duties of the companies, 841. effect upon franchises, 341. sale of property, 361, 3t)3. ■ necessary to performance of public duties, 361, 363. legislative sanction necessai-j, 361, 363. sale of franchises and privileges, 361, 863. legislative sanction necessary, 363. banking companies, 363. railway companies, 368. telegraph companies, 363. water companies, 363. lease of property, 363. railway companies, 363. lease of road, 363. lease of rolling-stock, 363. building of branch road to lease, 863. telegraph companies, 363. lease of wire-stringing privilege, 363. lease of franchises, 364. conflict between -federal and State decisions, 364, mortgage of franchise, 389. express legislative authority requisite, 389. of franchise to use streets for railway, 403. power to take private property for public use, 396. duties resulting from, 396, 399. not lost by lease of railway, 397. statutes authorizing strictly construed, 397. may arise by implication of statute, 397. evidence of de facto corporate existence sufficient, 397. ■water-coinpanies, 398. railway companies, 399. pipe-line companies, 399. telegraph companies,. 399. telephone companies, 399. mill companies, 399. change in the law, 399. milling not now a public use, 399. 1469 INDEX. [The references are to sections: Vol. I. §§ 1-384; Vol. 11, §§ 385-910.J QUASI-PUBLIC CORPORATIONS (continued): drainage companies, 399. dam companies, 399. boom companies, 399. street-railway companies, 403. q. v. definition of, 403. foreign companies, 420. what property may be taken, 400. land already in public use, 400. federal lands within a State, 400. public streets, 400. corjjorate property, 401. corporate franchises, 401. compensation, 401, 403. must be paid even for property already in public use, 401. measure of damages, 403. discrimination in rates, 407. foreclosure of mortgage of, 763. peculiar principles applicable to, 763. interest of public in continued operation of, 763. is superior to rights of mortgagees, 763. public duties not to be avoided by lease, 366, 367, 368. nor by surrender of charter, 781. QUOEUM : See Meetings of Members and Directors. QUO WARRANTO: to test right to exercise corporate franchises, 58, 840. to remedy abuse of corporate powers, 53, 436, b40, 841. having superseded scire facias herein, 53, 436, 840. information in nature of, 840, 841. to try dejure existence of corporation, 13, 14, 435, 840, 841. R. RAILWAY COMMISSIONS: State contrpl of railways exercised through, 833. RAILWAY COMPANIES : See generally Quasi-Public Corporations. as to powers, see Powers op Corporations. power to run steam-boats, 404. power to do other connecting business, 405, 406. power to make traffic agreements, 408. not to be compelled to make traffic agreements, 839. RATES : See Governmental Control. RATIFICATION: See Officers and Agents. REAL ESTATE: shares of stock representing realty are personalty, 613, power of corporation to hold, 377. 1 power of voluntary associations to hold, 379. how religious societies may hold, 380. illegal corporate holdings, 378. foreign corporations, 378. power not to be collaterally attacked, 378, 380. statutory grant of power, not retroactive, 378, forfeiture and escheat, 790. RECEIVERS: appointment of, 54. not ground of forfeiture of charter, 54, n. at instance of general creditors, 715, 773. at instance of second mortgagees, 745, 766. effect to give priority in rents and profits, 743. . M70 INDEX. rilie references are to sections: Vol. I, §§ l-38i; Vol. n, SS 885-910.] RECEIVERS {continued): grounds for, 762, inadequacy of security, 763. inadequacy of remedy at lav7, 773, ' dissolution of company, 786. at instance of company, 773, at instance of sliareliolders, 773, at instance of mortgage creditors, 773, does not work dissolution of company, 783. , of national banks, 155, of interstate consolidated companies, 337. of leased railways, 371, of mutual benefit society, 593. power to assess members, 593. of foreign corporations, 893. actions by, 893, are mere ministerial officers, 773, holds for benefit of all parties, 773, 786. possession of property is possession of court, 773. duties of, 773. to preserve the property pendente lite, 773, compensation of, 77^. powers, none in respect- of statutory liability of shareholderSj 716, 717. to enforce common-law liability of "shareholders, 716. to make calls and enforce payment,' 716, .773. extension of, under modern legislation, 773. to sue and be sued, 773. to enter into new contracts, 773. to employ counsel, 772. suits against, 718. without leave of appointing court, 718. is contempt, 718, 773, mortgage trustees rnay be appointed receivers, 759, 761. in dissolution proceedings, 765. whether necessary party to foreclosure bill, 765, whether dissolution is ground for appointing, 786. directors as statutory receivers, 786. not to be divested of possession, 786. RECEIVERS' CERTIFICATES: as negotiable instruments, 694, purpose of issue, 747, implied assent of mortgagees, 747, power of court of equity to authorize, 747. ' as first lien upon the property, 747. RECISSION: See Cancellation. RECORDS: company estopped from controverting, 65. , how far conclusive against a subscriber, 65. inspection of by members, 75, extent of the right, 75, for what purposes allowable, 70, refusal by the coflipany, 77, grounds of, 77, damages for, 78. enforcement of right by mandamus, 79, 876. production of, in bourt,, 876. of domestic corporations, 870, when the company is a party, 876, when the company is not a party, 870. of foreign corj^orations, 877. , INDEX. 1471 [The references are to sections: Vol. I, §§ l-384j Vol. n, §§'885-910.] EECORDS {continued): minutes of corporate meetings, 295. best evidence of action talien, 295, in absence of entries parol evidence admissible, 395. provisions of English statute, 293. signing of, 295. presumed to be true, 295. presumptions arising from certain entries, 295. on. the principle omnia rite acta, 293. failure to state that majority were present, 395. contradiction of, 295. supplementing, 393. fraudulent interpolations, 395. minutes of meetings, entries in, prima facie evidence, 373. reading and approval of, to cure irregularities, 373. inspection of by corporate creditors, 133. to ascertain vrho are liable to contribute, 135. REDEMPTION: of mortgaged property, 770, 776. REDUCTION OF CAPITAL STOCE: See Capital Stock. REGISTER OF SHAREHOLDERS: See Records. REGISTRATION: See Transfer of Shares. REGISTRATION OF TRANSFERS: requisite to constitute membership, 66. , REGRATING: rendered impossible undet modern conditions, 55, REGULATION OF CORPORATIONS: See Governmental CONTROL an* Visitation. RE-ISSUE of COUPONS: after purchase, 666. ' purchase distiiiguished from payment, 666. whether they continue a lien upon the mortgaged property, 666. RE-ISSUE of SHARES: after forfeiture, 709. RELEASE FROM SUBSCRIPTIONS: See Cancfj^lation of SuBSORn* tions. RELIGIOUS CORPORATIONS AND SOCIETIES: formation of under general laws, 10. membership in spiritual and temporal bodies distinguished, 60. eligibility for former, beyond cognizance of the law, 60. no legal remedy for expulsion from former, 60. expulsion from, S3, 96. See Expulsion from Membership. secession from, 99. is an abandonment of property rights, 99. even though majority secede, 99. decision of ecclesiastical courts binding upon civil courts, 100, power of synods, 190. See Synods and Ecclesiastical Assemblies trustees, 319. power to sign notes, 319. must act as a board, 319. qualifications, 319. ' who are dejure, 319. statutory moile of determining in New York, 319. not to be tried by ejectment in New York, 219. decision of ecclesiastical body final, 319. . recovery of church property from, 819. rector entitled to vote at veptry meeting, 319. 1472 - INT EX. [The references are to sections: V. L I, §§ 1- K4; V»l 1, 8§ 385-910,] RELIGIOUS CORPORATIONS AN! SOCIETIES (K'aMwwed): sale of property by trustees, 858. injunction against, 358. v how lands may be held by or for, 880. limitations upon amount of holdings, 380. , statutes of mortmain, 380. power to give notes, 390. forfeiture of surplus lands, 790. , repeal of charter of Mormon Church, 790. REMAINDERMEN: after hfe interest in shares, see Dividends. REMOVAL OF CAUSES: -to which corporations are parties, 899. ' REMOVAL OF CAUSES TO FEDERAL COURTS: effect of interstate consolidation, 337. REORGANIZATION: technical meaning of the term, 791. distinguished from consolidation, 791. power of shareholders to enforce, 791. regarded favoi-ably by the courts, 791. method of effecting, 793. statutory regulations, 793. the New York "Stock Corporation Law of 1890," 793. obligation^ and rights of parties,. 793, 794. estoppel of shareholders, 794. transmission of property rights and franchises, 795. liabilities of new conipany, 796, 797. upon contracts and torts. '06, i97. liens upon the property, 797. REPEAL OF CHARTERS: reservation of the power by the States, 86. how power "acquired pver previously granted charters, 36. construction of constitutional, statutory and charter reservations, 37. legislative discretion not to be questioned, 39. for non-performance of conditions of ohai-ter, 39. judicial declaration, 39. ' not necessary where condition is express, 39, 435. is necessary where condition is implied, 39. not to be arbitrarily done, 40. distinguished from forfeiture, 46. legislative inquiry and judicial trial distinguished, 47, reserved poyver of State herein vests in legislature, 48. not to be judicially questioned, 48. , except when reservation was conditional, 48. plenary power of congress over territorial corporations, 790. " repeal of charter of Mormon Church, 790. REPORTS: neglect of company to make, 54. liability of directors for failure, 361. false reports, 54. as a ground of forfeiture of charter, 54. liability of directors for, 360. judgment against company not conclusive, 263. REPRESENTATIONS (FRAUDULENT) : See Offickbs and Agents and Sdbsceiptions to Capital Stock. REPRESENTATIVE ACTIONS: , by a single shareholder, 883. REPUDIATION OF SHARES: See Cancellation of Subscriptions. im INDEX. [The references are to. sections: Vol. I, §§ 1-384; Vol. H, $S 885-910.] RESPONDEAT SUPERIOR: liability of the company, 253, 443. for misfeasance of directors, 353; general application of doctrine, 443. RESTRAINT OF TRADE: by-laws in general restraint, void, 314. oy-laws in partial restraint, 315. when valid, 315. in respect of time, place and form, 315. as to uniformity of rates, 315. as to transfer of shares, 315. as to working with non-union men, 317. ^Toe "Trusts."" REVERSION: to grantor upon dissolution of corporation, ROLLING STOCK: See Car-Tkust Agreements and Mokt(3AGES. SALARIES: of corporate officials and agents, 300. in general, 200. of the president, 308. of pastors and rectors, 316. not to be reduced, 316. statutory method of fixing, 316. not to be departed from by the Conference, 316., fixed by charter not to be altered by by-law, 317, SALE OF CORPORATE PROPERTY AND FRANCHISES: power to sell incident to ownership of property, 357. rights of minority shareholders, 357, 358. of prosperous concern, 357, 358. of failing enterprise, 357. authority of directors, 357. of prosperous concern, 357. in case of impending failure, 357. of religious corporations, 358. injunction to restrain, 358. ' to other corporations, 359. may amount to consolidation, 337, 359, 360. accepting stock in payment, 359. effect upon contracts of vendor company, 359, 860. liability of purchasing company, 360. upon contracts, 360. upon torts or crinies, 446. of gtiasi-public corporations, 361. of property necessary to performance of public duties, 361. of property acquired under eminent domain, 361. power to sell not incident to possession of franchises, 863. legislative sanction requisite, 363. banking powers, 361. franchise to operate a railway, 363. franchise to operate a telegraph line, 363. ^ franchise to supply water, 363. SALE OP SHARES: See Transfer of Shakes and NEOOHABtE Paper. SCIENTIFIC SOCIETIES: formation of, under general laws, 11. SCIRE FACIAS: to forfeit charter for abuse of powers, 58. superseded now by quo warranto, 53, 840. 93 T474 INDEX. [The references are to sections: VoL I, S§ 1-384; Vol. n, §| 885-910J SCRIP: payment of dividends in, 598. SEALS OF COEPORATIONS: power to have and use, 376. presumption from aiSxing, 376. use of wafers as, 376. alteration of, 376. private seals of agents not considered to be, 376. SECRETARIES OF COMPANIES : See OrPigKRS and Agents. SECURED CREDITORS: See Mortgagees and BoNDHOtDEES. SERVANTS: liability of members for debts of company to, 157, 158. is in addition to unpaid subscriptions, 158. See Statdtoby Lia- bility. SERVICE: of process, 859, 889, 890. upon domestic corporations j 859. upon foreign corporations, 889, 890. SET-OFF: See Creditors of Companies. SHAREHOLDERS: See Members and Stockholders. SHAREHOLDERS' MEETINGS: See Meetings of Members and Di- rectors. SHARES OF STOCK: forfeiture for non-payment of assessments, 320. not to be affected by resolution, 320. are personal property, 613. although .capital of company be invested in realty, 613. evidence of title, 613. lien of the company upon, 644-646. SLEEPING AND PARLOR OAR COMPANIES: See Taxation. SPECIAL STOCK: limit of amount, 509. subject'to redemption, 509. dividends not contingent upon ptofits, 509. liability of holders, 509. statute authorizing to be strictly followed, 509. irregular issue, 509. ' not cured by estoppel, 509. right of holder against company, 509. SPECIFIC PERFORMANCE: of contracts to issue stock, 551. of contracts to transfer stock, 634; SPECULATIVE CONTRACTS: in shares of stock, 663. for future delivery, 668, not necessarily void, 663. stai'-utes making void, 663. go.'' ^ long or short," 661. options, 661. privileges, "puts," "calls," "spreads" and " straddles," 661. margins, 661. bulls and bears, 661. corners, 661. stop-orders, 661. SPURIOUS STOCK: irregula^rly issued shares, 485. estoppel, 485. liability of company to purchasers, 486, INDEX. [The references are to sections: Vol. I, §§ 1-364; Vol. II, §§ 385-910,] SPURIOUS STOCK {continued): false certificates, 487. forged certificates, 488, 489. over-issued stock, 490. invalidity of, 491. liability of corporate agents, 493. measure of damages upon, 493. liability of holders, 494. estoppel, 495. knowledge of corporate creditor, 496. transfer of, 669. remedy of transferee, 669. ^ STATE CONTROL: of corporations, see Governmental Control. STATUTE OF FRAUDS: whether transfer of shares must be in writing, 612. ^ STATUTE OF LIMITATIONS: prescribing shorter time for actions against corporations, 857. constitutional prohibition of, 857. STATUTES: amendment of, 38. merges former into latter act, 38. so that repeal of latter repeals both, 88. constitutionality of, 146. those imposing personal liability upon members, 146. those abolishing existing liability, 146. authorizing increase or reduction of capital stock, 471. relating to remedies, 146. may operate upon pre-existing debts, 146. in derogation of common law, 147. strictly construed, 147. as to personal liability of members, 147. extra-territorial effect of, upon non-resident members, 148. upon foreign corporations, 149. penal statutes sti;ictiy local, 15(1. unconstitutionality of enabling act, 163. renders incorporators liable as partners, 163. STATUTORY LIABILITY OP MEMBERS: constitutional guaranties against imposing, 143. not enforceable save as provided by statute, 143, 149. general extent of, 143. unlimited when extent not specified, 143. five kinds of constitutional and statutory provisions, 144 whether constitutional provisions are self -enforcing, 145. constitutionality of statutes. 146. imposing additional liability, 146, abolishing existing liability, 146. construction of statutes, 147. extra-territorial effect of statutes, 148. upon non-resf(lent members, 148. upon foreign corporations, 149. penal statutes strictly local, 150. for "debts and liabilities" of company, 151, only includes those ex contractu, 151. "to the amount of their stock," 153. " to double the amount," 153. upon " dissolution " of the company, 153. upon "failure" of the company, 153. •'in proportion to the amount of the shares," 154. shareholders in national banks, 155, contingent upon capital stock not being' wholly paid up, 156. 1475 1476 INDEX. [The references are to sections: Vol. I, S§ 1-884; Vol. n, §§ 385-910.] STATUTORY LIABILITY OF MEMBERS .{eontinued): to servants, laborers, employees and apprentices, 157. - what persons protected by statutes, 157. attaches to municipal as well as private shareholders, 158. is not exclusive of common-law remedy, 158. right to enforce is assignable, 158. not dependent upon judgment against company, 158. waiver of right to enforce, 168. not destroyed by dissolution, 158. construction of statutes in foreign State, 158. eSect of transfer of shares, 706. upon transferrer's liability, 706. upon transferee's liability, 708. See Limited Paktnbeships. STATUTORY LIENS: In favor of servants and mechanics,, 745, 746. priority over mortgage lien, 745, 746. of bondholders, 741. STOCK BOOKS: See Records. STOCK-BROKERS: transfer of seat on exchange, 638. rights of creditors against, 638, 659. lien upon seat by other members of exchange, 638. rules concerning liability upon stock transactions, 659. substituting name of ultimate buyer on " name-day," 659. substituting name of infant or lunatic, 659, as to calls upon shares, 659. general law of agency applicable to, 660. absconding with client's money, 660. upon whom the loss falls, 660. client bound by contracts of, 660. commissions, 660. upon speculative contracts, 663. compliance with principal's instructions, 661. liability from customer's disability to contract, 661. can not be a party to contract made for customer, 661, fiduciary position, 661. time for executing orders, 661. STOCK CERTIFICATES: possession of, not requisite to membership, 63, 104. , liability of members not dependent upon, 63, 66, 104. mere possession of, does not constitute membership, 63, 66, 613. failure of company to tender, 104. * no ground for cancellation of subscription, 104. no ground for refusing to pay calls, 574. false certificates, 487. forged certificates, 488. distinguished from the stock itself, 613. rights of holder of, 613. negotiability of, see Negotiable Paper. lost or stolen, see Negotiable Paper. • STOCK DIVIDENDS: definition of, 477. are not a distribution of property, 477. when allowable, 477. profits having been permanently invested, 477. to company having authority to increase capital stock, 478. or all original stock not having been issued, 478. "watering" stock, 478. issue of stock dividends in excess of increase of value of corporate property, 478. agaiost public policy, 478. ' INDEX. 14T7 [Tlie references ore to sections: Vol. I, §§ 1-3S4; Vol. n, §§ 385-910.] STOCK DIVIDENDS (continued): rights of preferred shareholders to receive, 478. rights of life tenants and remaindermen, 478. statutory and constitutional prohibitions, 479. STOCK EXCHANGES: nature of, as business clubs, 176. distinguished from partnerships, 176, liability of members as partners, 176. for illegal acts of managers, 176. for moneys deposited as wagers, 176. rules and by-laws of, 323. how far binding upon strangers, 322, 659, transfer of seat, 628. at suit of creditors of broker, 638. upon broker's death. 628. lien of other members of board, 628. defaulting member, 659. general ci-editors' rights, 659. ' absconding member, ,660. , custom in respect of accrued interest on bonds, 660. "flat " quotations, 660. technical terms of, 661, " going long," 661. "going short." 661, " options," 661. " privileges," 661. "puts," 661. " calls," 661. " spreads," 661. " straddles," 661. " margins," 661, 662. " bull," 661. "bear," 661. " selling short," 661. " cornering " the market, 661. ," stop-orders," 661, STOCKHOLDERS : See Members and Stockholdebs. STOCK-JOBBING LEGISLATION: futility of, to prevent speculative contracts, 662. STREET RAILWAY COMPANIES: are gwosi-public corporations, 403. use of streets by, 403. not an additional servitude, 403. conditions annexed to use, 403. distinction between street and othef railways, 403. motive t>ower not the criterion, 403. cable-roads, 403. vested rights of, 403. repair of streets by, 403. mortgage of franchise to use streets, 403. changing motive power, 410. SUBROGATION OF CORPORATE CREDITORS: to company's right to enforce payment of subscriptions, 700. to mortgagee's lien by one advancing money to pay coupons, 666. SUBSCRIPTION TO CAPITAL STOCK; before incorporation, 68, hovv far binding, 63. after incorporation, 64. acceptance of, 64. renders contract binding, 64. evidence of, 65, necessary when, 510. 14^78 INDEX. [The references are to sections: Vol. I, §§ 1-^384; Vol. n, §§ 385-910:] SUBSCRIPTION TO CAPITAL STOCK {continued): fictitious, to influence others, 109, 543. right of shareholders to take new stock at par, 473, consideration of the contract, 584. ■whether writing is necessary, 510, 513. delivery, 510. acceptance, 510. signing incomplete articles of association, 510. ' refusal to receive, 510. construction of contrapt, 511. informal promises to subscribe, 513. signing articles of association, 513. with number of shares taken opposite incorporator's name, 513. application for shares, 514. allotment of ^hares, 514. notice of, 514; cash deposits upon subscribing, 515, the New York Acfof 1890, 515. wheit is equivalent to, 515. to obtain charter, 516. not to be conditional, 516. who may receive, 518. commissioners to receive, 519. limitation of amount of, 530. in excess of capital stock, 531. by natural persons, 533. ■competency to contract, 533. by other corporations, 533. for purpose of control, 523. injunction, 533. by municipal corporations, 533. dependent upon legislative authority, 533. constitutionality of statutes authorizing, 534. may be conditional, 535. effect of consolidation upon, 536. I fraud in procuring, 527. concealment and misrepresentation, 537. qualifications of the general rule, 528. misrepresentations in prospectuses, 539. parol evidence of fraud, 530. ' as defense to action by corporate creditors, 638. conditions, 531. parol agreements, 531. precedent, 533, 539. subsequent, 533, 539. implied from recitals, 534. recitals as to amount of capital stock, 535, 536. validity of, 537. secret conditions, 538. separate conditions, 538. performance, 533, 539. substantial rather than literal, 540. failure to perform, 541. waiver of, 543. non-perf orniance as defense to creditor's action, 784. . fraudulent agreements respecting, 543. to influence others, 109, 64C. irregularities, 544. variation from statutory form, 544. failure to make cash deposit, 515. waiver of, 545. curative legislation, 546. effect of legislation upon contralots, 546. effect of consolidation, 547. INDEX. 1479 [The references are to sections; Vol. I, §§ 1-384; Vol. H, |§ 385-910.] SUBSCRIPTION TO CAPITAL STOCK (continued]: failure of cousideration, 548. withdrawal from, 549. abandonment of, 5491 substitution of subscribers, 650. specific performance, 551. damages, 551. limitation upon, 553. when the statute begins to run. 5521, 653. whether equity follows the law, 553. effect of corporate insolvency upon running of statute, 554. payment, 555. implication of promise, 555. in money, 556. in negotiable paper, 556. in services, 557. in property, 657. ' wliat property may be accepted, ISO, 558t overvaluation, 120, 659. presumption of fraud from overvaluation, 560. of less than face value. 561. acceptance as fraud upon creditors, 561. statutory and constitutional requircruents, 563, 564. fictitious issue prohjbited, 563, 564. in instalments, 565. See Calls. the company's lien to enforce, 644. statutory and charter liens, 645. statutory and other liens distinguished, 646. SUITS BY AND AGAINST CORPORATIONS: See ACTIONS AMD De- fenses. SURPLUS EARNINGS: See Dividends. SURRENDER OF CHARTER: dissolution by voluntary act of incorporators, 781. non-user as creating presumpition of, 58. SURRENDER 'OF SHARES: consent of all parties requisite, 98, 101, 102. how effected, 101. SUSPENSION FROM MEMBERSHIP: for non-payment of dues, 97, 595. re-instatement, 97, 696. by payment on death-bed, 97. mandamus to compel, 94. SUPERINTENDENTS: scope of authority, 209. See Officers and Agents. SYNODS AND- ECCLESIASTICAL ASSEMBLIES: power to bind college corporation by contract, 190. power to fix pastor's salary contrary to statute, 316. T. "TAKING" OF PRIVATE PROPERTY: for public use, 396. See Quasi-Puelic Corporations. compensation, 403." without compensation, 834, 839. governmental interference amounting to, 834, 889. TAXATION: of corporations and of shareholders distinguished, 798, of franchises, 799, 1480 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. II, §5 SSS-910.] TAXATION (continued)'. of projierty, 800. franchise and property tax distinguished, 801. of capital stock, 802. in proportion to dividends, 803. less property otherwise exempt, 803. less the corporate d^bts, 804. of securities and loans, 805. of business etc., 807. of gross receipts, 808. of net earnings, 809. of dividends, 802, 810. tenure of property as affecting, 811. of banks, 812. who are baiikers, 812. national banks, 813. early attempts of the States to tax, 4. savings banks, 814. of railway and transportation companies, 815. doing interstate |;)usiness, 821. of bridge companies, 816. of foreign corporations, 817. "doing business" within the State,. 818. movable propertj' of, 819. discrimination in, 820. telegraph and telephone companies, 823. of intersta/te commerce, 821. railway and transportation companies, 821. sleeping and parlor car compahies, 822. telegraph and telephone companies, 823. of interstate consolidated companies, 836, 337. of shareholders, 824. double taxation, 824.. exemptions, 22, 835. power of legislature to grant irrevocable, 34, 825. construed against grantee, 34, 825. unlfess clearly expressed, 35.. from municipal taxation, 826. of charitable etc. institutions, 837. transmission of exemptions, 828. repeal and forfeiture, 829. restraining illegal taxation, 830. injunction, 830. resistance of collection of unauthorized tax, 830. by shareholders, the directors failing to defend, 830. TELEGRAPH AND TELEPHONE COMPANIES: are gitasi-publio corporations, 399. are Common carriers, 836. may exercise power of eminent domain, 399. duties incident to their extraordinary privileges, 399, 836. whether their poles are a nuisance, 456. remedy against railway company for pulling up poles, 457. governmental control of, 836. contracting against statutory penalty, 836. Tnandamus to telephone company, 836. See generally Quasi-Public Cokporations and Governmental Con- trol. TENANTS FOE LIFE: of shares of stock, see DIVIDENDS. TENANTS IN COMMON; of shares of stock, 855. INDEX. 1481 [The references are to sections: Vol. I, §§ 1-384; Vol. H, §§ 385-910.] TENDER; See Stock Cektifioates and Transfer op Shares. TOLLS AND TARIFFS: of guosi-publio corporations, see Governmental Control. TORTS: liability for, not enforceable as a " debt " against members, 151. nor against directors, 259. liability of lessor company, 366. for its own torts, 366. for torts of lessee, 367. line between liability of lessor and lessee, 367. liability of lessee, 368. plea of ultra vires not available, 438, 433, 440. corporate mind and intent, 440, 445. conflict of authorities, 440, 441, 445. respondeat superior, 443, 455. applied to corporations as to natural persons, 443. misfeasance of directors, 253. express authority need not be shown, 443. scope of agent's authority as affecting, 444. two companies having common agent, 455. ■whether a corporation may act maliciously, 440, 441, 445, 453, effect of consolidation, 446. false imprisonment, 447. fraud, misrepresentations and concealments, 448. injuries to the person, 449. joinder of parties, 450. libel, 451, 453, g. v. malicious prosecution, 453. the old common-law rule, 453. the modern doctrine, 453. ■want of probable cause, 454. liability of companies having common agent, 455. telegraph and express companies, 455. . criminal assault by porter of sleeping-car, 455. upon passenger of sleeping-car company, 455, upon passenger of the railway company, 455. injuries inflicted during seizure of a railway, 455, nuisance, 456. private nuisance, 456. public nuisance, 456. legislative authority, 456. how far an excuse, 456. trespass quare dausum, 457. entry under color of eminent domain, 457. wasting lands beyond right of way, 457. railway agents pulling up telegraph poles, 457. exemplary damages, 457. conspiracy, 460. injuries resulting in death, 463. Lord Campbell's Act, 463. similar acts in America, 463. misfeasance and non-feasance distinguished, 463. no substantial difference, 463. committed after dissolution, 785. TRADE UNIONS: illegal at common law, 314. legal for some purposes under Victorian Trade Union Act, 314. courts refuse to enforce rules of, 314. by-laws repugnant to enabling act, 317. as to expulsion, 317. as to working with non-union men, 317. 1482 INDEX. [The references are to sections: Vol I, |§ 1-384; Vol. H, §§ 385-910.] TRAFFIC AGREEMENTS: do not amount to consolidation, 327. legality of, 327. TRAFFIC ARRANGEMENTS: between connecting carriers, 408. legality of, 408. binding effect of, 409. State can not compel making, 839. TRANSFER BOOKS: See Reqistration and Records. TRANSFER OF SHARES: effect upon liability to corporate creditors, 125-183. See LIABILITY OP Members. right to transfer incident to ownership, 612. invalidity of attempted restrictions, 612. certain restrictions valid, 616. whether within the Statute of Frauds, 612. rights of certificate-holder, 612. manner of effecting in England,. 612. whether directors may transfer quallflcatiou shares, 613. by directors and officers, 614. not affected by any trust relation to purchaser, 614. competency of parties to the contract, 615. restrictions upon, 616. invalidity of, 618. validity of in certain cases, 616. injunction to enforce, 616, 617. to enforce the company's lien, 644^646, performance of the contract, 618. what is sufficient, 618. grounds for refusing tender, 618. damages for breach, 618, 623. specific enforcement of, 624. avoidance of, 635. effect of transfer, upon liability to corporate creditors, 1S5-183. See TiTABTTiTyY Off Members. ' upon title to dividends, 619, 620. upon liability for calls, 621, 622. breach of the contract, 623. remedy therefor, 618, 623. specific performance, 624. avoidance cf the contract, 625. fraud and misrepresentation, 636. otherwise than by contract, 627. by gift, 627. by will, 637. by execution and attachment, 631-637, q. V, iit cost-book mining companies, 629. in national banks, 630. by pledge, 638-643, q. v. as affected by the company's lien, 644. statutory and charter liens, 645. statutory and other liens distinguished, 646. by pledge and forfeiture thereof, 638-643. See PLKDaB OF ^AEES. creditors of transferrer, 634. may attach shares before registration, 634. usual form of transfer, 648. registration of transfers, 647, 648. of defective transfers, 649. of shares held in trust, 650. liability of company, 650, INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. II, §§ 38&-910,] 1483 TRANSFER OF SHARES (continued): formal requisites, 651. purpose of registration, 653. as evidence and notice, 653. refusal to register, 654. grounds for, 654, 655, 674. damages for, 656. enforcement of registration, 657. mandamus, 657. ■wrongful registration, 658. liability of company, 658, 675. of transfers in breach of trust, 673-675. necessary to perfect title, 680-6831 the registered transferee, 680, 681. the unregistered transferee, 683, 683. speculative contracts, 663. futility of legislation against, 663. vtest of illegality, 663. intention merely to adjust balances, 663. contracts for future delivery, 663. not necessarily void, 663. statute making void, 663. by power of attorney not Indorsed on certificate, 679. rights of registered transferee, 680', 681. rights of unregistered transferee; 683, 683. See generally Negotiable Paper, Pledge of Shares, Execution AND Attachment of Shares, Stock Exchanges, Stock-Brokers, Spurious Stock, Liability of Members and Cebditors of Com- panies. TRANSPORTATION COMPANIES: See Governmental Control and Taxation. TREASURERS OF COMPANIES : See Officers and Agents. TRESPASS: See Torts. TRUSTEES: See Directors, Trustees and Committees. TRUSTEES OF SHAREHOLDERS: vchether liable as shareholders, 68, 136. "TRUST FUND" DOCTRINE: peculiarly American, 113, 114, 133. statement of the doctrine, 113. liability of shareholders growing out of, see Liability of Members. liability of directors for impairing the " trust fund," by releasing subscribers, 103. by any act of misfeasance, 257. application to consolidation of companies^ 343. to dissolution of companies, 788. "TRUSTS:" modern combinations, 55, 843, 843. general literature of the subject, 55, n. and 856. contracts in partial restraint of trade, legal, 55, 846. evils of excessive competition, 55, n., 847. i-eason of the ancient rule against combinations, 55. exception in favor of stock companies and corporations, 55. popular opposition to any exception, 55. the reason inapplicable to modern conditions, 55. certain agreements held valid, 56, 846. between shareholders to control corporation, 56, 855. to fix minimum price, 56. to buy out competing business, ^6. to divide rail-waj earnings proportionally, 56, 844. between vessel owners to destroy competition, 56, 854. between manual laborers, 56. tendency of modern decisions to relax the rule, 846 1484 INDEX. [The references are to sections: Vol. I, §§ 1-384; Vol. n, || 385-910.] "TRUSTS" (continued]: ' certain agreements held ultra vire's, 56, 645. and to be grounds for forfeiture, 5t>, tJ45. and to be grounds for criminal indictment, 56. combinations of corporations and of shareholders distinguished, 57, 855. private nature of shareholders' agreements, 57, 855. how far to be imputed to the corporation, 57. only when ratified by corporate acts, 57, 8i7. injury to the public to be proven, 58. actual or prospective, 58, 847, partnership agreements, 842. whether a corporation may enter into, 843. only prima facie ultra vires, 843. legality of agreements admitted, 843. weight of authority contra, 843. pools, 844. legality of at common law, 844. whether congress may legislate against, 844, The Sugar Trust, 847. The Standard Oil Trust, 848. The Cotton Seed Oil Trusts, 849. The Diamond Match Trust, 850. The Chicago Gas Trust, 851. Tiie Cattle Trust, 853. The Alcohol Trust, 853. The Mogul Steamship Conference, 854. See VoTiNa Trusts, Trust Certificates, TRUST CERTIFICATES : receipts for stock deposited with trustees, 307. form of, 307. suit to compel registration of transfer, 848. form of Standard Oil certificates,' 848. holders of, bound by agreement, 855. not to be placed hors de commerce by injunction, 858. validity of, 853. u. ULTRA VIRES ACTS: definition, 431. English doctrihe, 431. modern doctrine, 431. ultra vires acts not necessarily illegal, 431; 433. ultra vires acts voidable merely, 431. . do not render members liable as partners, 163. ultra vires aa a defense, 433. not available to accomplish legal wrong, 433. d.epends upon act being illegal also, 433. retention vt benefits by the company, 438, 433, general rule of estoppel, 433. the Alabama rule, 433. accounting for benefits upon repudiation of contract, 433. retention of benefits by the other party, 434. «• estoppel arising from, 434. the Alabama rule, 434. executed contracts, 435, 483. executory contracts, 436. unauthorized purpose rendering acts ultra vires, 437. torts resulting from ultra vires acts, 438, 483, See Tobts. restraining ultra vires acts, 439. - at instance of shareholders, 439. at instance of creditors, 439. INDEX, 1485 [The references are to sections: Vol. I, §§ 1-384; Vol. n, §§ S85-910.] ULTRA VIRES ACTS {continued): at instance of minority shareholders, 480, 437. right lost by delay, 431. right lost by ratification, 433. right lost by execution of contract, 433. at instance of attorney -general, 434. rights of the State, 434. where exceeding powers is material, 434. forfeiture of franchises, 435. where exceeding powers is immaterial, 58, 434, and stockholders acquiesce, 434. quo warranto, 435, 436. scire facias, 435, 436. waiver by the State, 163. may be illegal also, 438. examples of, 438. not enforceable by either party, 438. can not be ratified, 439. no estoppel as to, 439, sundry exaijiples, combinations of corporations, 56. See also Trusts. consolidation without express authority, 333, injunction to restrain, 356. proceedings to annul, 356. establishment of steamboat line by railway company, 333. holding land against statute of mortmain, 378, the State alone can object, 378. mortgages, 740. estoppel) 740. injunction, 740. combinations between corporations, 845. See TEUSTg. ' : " UNDERTAKING " (THE): mortgage of, 748. UNDUE PREFERENCE: duty of gMasi-public corporations to serve all persons impartially, see Governmental Control, UNEQUAL FACILITIES: duty of gitast-public corporations to supply equal facilities to all, see Governmental Control, UNLIMITED COMPANIES: formed without compliance with any enabling act, 163. UNPAID STOCK: See Subscriptions to Capital Stock. UNSECURED CREDITORS: See Creditors of Companies. UPSET-PRICE: in foreclosure sale, 774. should be named in decree, 774. USER OF CORPORATE FRANCHISES: presumption of grant arising from, 874, USURY: defense of not allowed to corporations in New York, 857, n. V. VACATION OP CHARTER: See Forfeiture of Chabteb. VENDOR'S LIEN: priority over mortgage lien, 745, 746. VENUE: in actions by and against corporations, 858. domestic corporations, 858. foreign corporations, 889, 890. I486 INDEX. [The references are to sections: Vol. I, |§ 1-384; Vol. n, |§ 385-910.] VERIFICATION: of corporate pleadings, 861. VESTED COEPORATE RIGHTS: sanctity of, 17. modern attacks upon, 19. not greater than sanctity of private rights, 22, 28, 30, 32. franchise and license distinguished, 31. subject to police power of the State, 38, 39. to interest of the public in a public use, 30, 31. to changes in legal procedure, 32. , to power of eminent domain, 33. to power of taxation, 34, 35. statutes imposing additional liability, 146. changes in State constitution. 146. charter power to consolidate, 332. not to be withdrawn exeeptunderreservpd power of amendment, 333. subject to power of eminent domain, 401. limits of the power to regulate, 834, 839. ' property not to be taken without due process of law, 834, 839, regulation amounting to confiscation, 834, 839. VESTRY: rector entitled to vote at meetings of, 219. VISITATION: purpose of, 831. failure of founder to appoint visitor, 831. power rests in his heirs, 831.- private visitation nearly obsolete in America, 831. by the State, 17, 48, 831. through the judiciary, 48. through visitors appointed by the legislature, 831. by the writs of scire facias and quo warranto and mandamus, see SciEE Facias, Quo Waekanto and MANnAMUs. See also gen- erally FOEFEITDRE OF CHARTERS AUD FEANCHISES and GOVEEN- MENTAL CONTBOL. VOLUNTARY ASSOCIATIONS: membership in,^ 60. rights incident to, 80, 81. depend upon purpose of organization, 80. formation of, 80. New York Act of 1865, 80. New York Act of 1875, 80. expulsion from, see Expulsion from Membership. withdrawal from, see Withdrawal from Membership. partnership relation among inembers for many purposes, 168, 173. liability of members, 168. does not grow out of partnership relation, 168. dependent upon law of agency, 168. none from mere membership, 169, dependent upon pledging personal credit, 170. authorization actual and constructive, 171. distinction between general and special agents, 178. voting for and assenting to incurring debts, 173. social clubs, 173, mutual benefit associations, 174. lodges, 175. political associations, 177. campaign committees, 177. cost-book mining companies, 179. dependent upon partnership relation, 176, 178, 180, in stock exchanges, J76. in limited partnerships, 178. in car-trust associations, 180. creditors' proceedings to enforce, 710, 900, INDEX. 1487 [Tlie references are to sections: Vol. I, §§ 1-384; Vol. n, §§ 3S5-910;] VOLUNTARY ASSOCIATIONS (oontinued) : , - powers of, 379. to hold landa, 379. none at common law, 379. grant to, 'passes no title, 379. grant to trustees, 379. i conveyances by, must be executed by all the members, 379. to sue and be sued, see Actions and Defenses. capital stock of, 467. may cover chattels, money or land, 467. members own the property directly, 467. without power to compel partition, 467. without power to divert from original use, 467. land may be converted into personalty, 467. effect of conversion, 467. assessments upon members, see Assessments. transmission of interest in, 688. suits by and against, see Actions ANfa Defenses. VOTING TRUSTS: legality of agreements between shareholders, 304, 30.1, 306, 307, 855. necessity for concerted action, 304.' transfer of shares to trustees with authority to vote, 304, 305, 855. separation of legal title and beneficial mterest, 304, 306. illegal when the purpose is illegal, 804, 805. distinguished from bribery, 304. injunction will not issue to restrain, 304, 306. revocable nature of, 305. agreement not to give proxy, void, SO.'). ■agreement not to transfer shares, 305. when void, 305. when valid, 305. not per se against public policy, 305, 306, 307, 855. " The Reading Voting Trust," 306. " The Wisconsin Central Voting Trust," 307. w. WAGER-CONTRACTS : upon rise and fall of valtie of shares, 663, WAGES: statutory liability of shareholders, 157, 158. WAREHOUSEMEN: public nature of business, 30, 31. WATER COMPANIES: are gwasi-public corporations, 398. may condemn private property, 398. governmental control of, 834. "WATERING" STOCK: See Stock Dividends. WINDING-UP OF COMPANIES : See Dissolution op CoMPANlBa. WITHDRAWAL FROM MEMBERSHIP: in voluntary associations, 98. , consent of the company, 98. not to be temporary, 98. abandonment of property rights, 99. even though majority withdraw, 99. in companies having capital stock, 101. See CANCELLATION or SUB- sceiptions and Surrendek of Shares. (Whole number of pages 1895.)