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CASES 
 
 ON 
 
 PRIVATE CORPORATIONS 
 
 SELECTED FROM DECISIONS OF 
 
 ENGLISH AND AMERICAN COURTS 
 
 BY 
 
 HARRY SANGER RICHARDS 
 
 LL. B. (harvard), LL. D. (iowa) 
 
 PROFESSOR, OF THE LAW OF CORPORATIONS AND DEAN OF THE 
 LAW SCHOOL, UNIVERSITY OF WISCONSIN 
 
 AMERICAN CASEBOOK SERIES 
 JAMES BROWN SCOTT 
 
 GENERAL EDITOR 
 
 ST. PAUL 
 
 WEST PUBLISHING COMPANY 
 
 1912 
 
"B /^^^^/p^ 
 
 COPSTIIGHT, 1912 
 BY 
 
 WEST PUBLISHING COMPANX 
 
 (RiCH.OOBP.) 
 
THE AMERICAN CASEBOOK 
 SERIES 
 
 For years past the science of law has been taught by lectmres, the 
 use of text-books and more recently by -the detailed study, in the 
 class-room, ■ of selected cases. 
 
 Each method has its advocates, but it is generally agreed that the 
 lecture -system should be discarded because in it the lecturer does 
 the work and the student is either a willing receptacle or' offers a 
 passive resistance. It is not too much to say that the lecture system 
 is doomed. 
 
 Instruction by the means of text-books as a supplement or sub- 
 stitute for the formal lecttire has made its formal entry into the educa- 
 tional world and obtains widely ; but the system is faulty and must pass 
 away as the exclusive means of studying and teaching law. It is an 
 improvement on the formal' lecture in that the student works, but if it 
 cannot be said that he works to no purpose, it is a fact that he works 
 from the wrong end. The rule is learned without the reason, or both 
 rule and reason are stated in the abstract as the resultant rather than 
 as the process. If we forget the rule we cannot solve the problem ; if 
 we have learned to solve the problem it is a simple matter to formulate 
 a rule of our own. The text-book rriethod may strengthen th^ mem- 
 ory; it may not train the mind, nor does it necessarily strengthen it. 
 A text, if it be short, is at best a summary, and a summary presup- 
 poses previous knowledge. 
 
 If, however, law be considered as a science rather than a collection 
 of arbitrary rules -and regulations, it follows that it should be studied 
 as a science. Thus to state the problem is to solve it; the laboratory 
 method has displaced the lecture, and the text yields to the actual 
 experiment. The law reports are in more senses than one books of 
 experiments, and, by studying the actual case, the student co-operates 
 with the judge and works out the conclusion however complicated 
 the facts or the principles involved. A study of cases arranged his- 
 torically develops the knowledge of the law, and each case is seen to 
 be not an isolated fact but a necessary link in the chain of develop- 
 ment. The study of the case is clearly the most practical method, 
 for the student already does in his undergraduate days what he must 
 do all his life ; it is curiously the most theoretical and the most prac- 
 tical. For a discussion of the case in all its parts develops analysis, 
 the comparison of many cases establishes a general principle, and 
 
iV PREFACE 
 
 the arrangement and classification of principles dealing with a sub- 
 ject make the law on that subject. 
 
 In this way Training and knowledge, the means and the end of 
 legal study, go hand aiid hand. 
 
 The obvious advantages of the study of law by means of selected 
 cases make its universal adoptidn a mere question of time. 
 
 The only serious objections made to the case method are that it takes 
 too much time to give a student the requisite knowledge of the sub- 
 ject in this way and that the system loses sight of the difference be- 
 tween the preparation of the student and the lifelong training of the 
 lawyer. Many collections of cases seem open to these objections, 
 for they are so bulky that it is impossible to cover a particular sub- 
 ject with them in the time ordinarily allotted to it in the class. In 
 this way the student discusses only a part of a subject. His knowl- 
 edge is thorough as far as it goes, but it is incomplete and frag- 
 mentary. The knowledge of the subject as a whole is deliberately 
 sacrificed to training in a part of the subject. 
 
 It would seem axiomatic that the size of the casebook should cor- 
 respond in general to the amount of time at the disposal of instructor 
 and student. As the time element is, in most cases, a npnexpansive 
 quantity, it necessarily follows that, if only a half to two-thirds of the 
 cases in the present collections can be discussed in class, the pres- 
 ent casebooks are a third to a half too long. From a purely practical 
 and economic standpoint it is a mistake to ask students to pay for 
 1,200 pages when they can only use 600, and it must be remembered 
 that in many schools, and with many students in all schools, the mat- 
 ter of the cost of casebooks is important. Therefore, for purely 
 practical reasons, it is believed that there is a demand for casebooks 
 physically adapted and intended for use as a whole in the class-room. 
 
 But aside from this, as has been said, the existing plan sacrifices 
 knowledge to training. It is not. denied that training is important, 
 nor that for a law student, considering the small amount of actual 
 knowledge the school can hope to give him in comparison with the 
 vast and daily growing body of the law, it is more important than 
 mere knowledge. It is, however, confidently asserted that knowledge 
 is, after all, not unimportant, and that, in the inevitable compromise 
 between training and knowledge, the present casebooks not only de- 
 vote too little attention relatively to the inculcation of knowledge, 
 but that they sacrifice unnecessarily knowledge to training. It is be- 
 lieved that a greater efifort should be made to cover the general prin- 
 ciples of a given subject in the time allotted, even at the expense of 
 a considerable sacrifice of detail. But in this proposed readjustment 
 of the means to the end, the fuhdamenta;l fact cannot be overlooked 
 that :1a w is a developing science and that its present can. only be un- 
 ifier stood *hr,ough;th6 medium of its past; It is recognized as im- 
 perative that a sufficient number of cases be given under each topic 
 
PBSFAOI! . 7 
 
 treated to afford a basis for comparison and discrimination ; to show 
 the development of the law of the particular topic under discussion ; 
 and to afford the mental training for which the case system neces- 
 sarily stands. To take a familiar illustration: If it is proposed to 
 include in a casebook on Criminal Law one case on abortion, one on 
 libel, two on perjury, one on larceny from an office, and if in order to 
 do this it is necessary to limit the number of cases on specific intent to 
 such a degree as to leave too few on this topic to develop it fully 
 and to furnish the student with training, then the subjects of abor- 
 tion, libel, perjury, and larceny from an office should be wholly omit- 
 ted. The student must needs acquire an adequate knowledge of these 
 subjects, but the training already had in the underlying principles of 
 criminal law will render the acquisition of this knowledge compara- 
 tively easy. The exercise of a wise discretion would treat fundamen- 
 tals thoroughly; principle should not yield to detail. 
 
 Impressed by the excellence of the case system as a means of Ipgal 
 education, but convinced that no satisfactory adjustment of the con- 
 flict between training and Icnowledge under existing time restrictions 
 has yet been found, the General Editor takes pleasure in announcing 
 a series of scholarly casebooks, prepared with special reference to 
 the needs and limitations of the class-room, on the fundamental sub- 
 jects of legal education, which, through a judicious rearrangement 
 of emphasis, shall provide adequate training combined with a thor- 
 ough knowledge of the general principles of the subject. The coUec- ' 
 tion will develop the law historically and scientifically; English cases 
 will give the origin and development of the .law in England; Ameri- 
 can cases will trace its expansion and modification in America; notes 
 and annotations will suggest phases omitted in the printed case. 
 Cumulative references will be avoided, for the footnote may not hope 
 to rival the digest. 
 
 The law will thus be presented as an organic growth, and the neces- 
 sary connection between the past and the present will be obvious. 
 
 The importance and difficulty of the subject as well as the time that 
 can properly be devoted to it will be carefully considered so that each 
 book may be completed within the time allotted to the particular sub- 
 ject. 
 
 It is equally obvious that some subjects are treated at too great 
 length, and that a less important subject demands briefer treatment. 
 A small book for a small subject. 
 
 In this way it will be alike possible for teacher and class to com- 
 plete each book instead of skimming it or neglecting whole sections; 
 and more subjects may be elected by the student if presented in short- 
 er form based upon the relative importance of the subject and the 
 time allotted to its mastery. 
 
 Training and knowledge go hand in hand, and Training and Knowl- 
 edge are the keynotes of the series. 
 
Tl PBEFAOE 
 
 If it be granted that all, or nearly all, the studies required for ad- 
 mission to the bar should be studied in course by every student — and 
 the soundness of this contention can hardly be seriously doubted^it 
 follows necessarily that the preparation and publication of collections 
 of cases exactly adapted to the purpose would be a genuine and by 
 no means unimportant service to the cause of legal education. And 
 this result can best be obtained by the preparation of a systematic 
 series of casebooks constructed upon a uniform plan under the super- 
 vision of an editor in chief. 
 
 For the basis of calculation the hour has been taken as the unit. The 
 General Editor's personal experience, supplemented by the experience 
 of others in the class-room, leads to the belief that approximately a 
 book of 400 pages may be covered by the average student in half a 
 year of two hours a week ; that a book of 600 pages may be discussed 
 in class in three hours for half a year; that a book of 800 pages may 
 be completed by the student in two hours a week throughout the year .; 
 and a class may reasonably hope to master a volume of 1,000 pages 
 in a year of three hours a week. The general rule will be subject to 
 some modifications in connection with particular topics on due con- 
 sideration of their relative importance and difficulty, and the time 
 ordinarily allotted to them in the law school curriculum. 
 
 The following subjects are deemed essential in that a knowledge of 
 them (with the exception of International Law and General Juris- 
 prudence) is universally required for admission to the bar: 
 
 Administrative Law. Insurance. 
 
 Agency. International Law. 
 
 Bills and Notes. Jurisprudence. 
 
 Carriers. Mortgages. 
 
 Contracts. Partnership. 
 
 Corporations. Personal Property, including 
 
 Constjtytional Law. the Law of Bailment. 
 
 Criminal Law. o i t> . 1 1st Year. 
 
 Criminal Procedure. ^^^^ Property. ] 2d , ;; 
 
 Common-Law Pleading. Public Corporations. 
 
 Conflict of Laws. Quasi Contracts. 
 
 Code Pleading. Sales. 
 
 Damages. Suretyship. 
 
 Domestic Relations. Torts. 
 
 Equity. Trusts. 
 
 Equity Pleading. Wills and Administration. 
 
 Evidence. 
 
 International Law is included in the list of essentials from its in- 
 trinsic importance in our system of law. As its principles are simple 
 in comparison with municipal law, as their application is less technical. 
 
PEEFACB VU 
 
 and as the cases are generally interesting, it is thought that the book 
 may be larger than otherwise would be the case. 
 
 As an introduction to the series a book of Selections on General 
 Jurisprudence of about 500 pages is deemed essential to completeness. 
 
 The preparation of the casebooks has been intrusted to experienced 
 and well-known teachers of the various subjects included, so that the 
 experience of the class-room and the needs of the students will fur- 
 nish a sound basis of selection. 
 
 While a further list is contemplated of usual but relatively less im-- 
 portant subjects as tested by the requirements for admission to the 
 bar, no announcement of them is made at present. 
 
 The following gentlemen of standing and repute in the profession 
 are at present actively engaged in the preparation of the various case- 
 books on the indicated subjects: 
 
 George W. Kirchwey^ Dean of the Columbia University, School of 
 Law. Subject, Real Property. - 
 
 Nathan Abbott, Professor of Law, Columbia University. (Formerly 
 Dean of the Stanford University Law School.) Subject, Per- 
 sonal Property. ■ \ 
 
 Frank Irvine, Dean of the Cornell University School of Law. Sub- 
 ject, Evidence. 
 
 Harry S. Richards, Dean of the University of Wisconsin School of 
 Law. Subject, Corporations. 
 
 James Parker Hall, Dean of the University of Chicago School of Law. 
 Subject, Constitutional Law. 
 
 William R. Vance, Dean of the 'George Washington University Law 
 School. Subject, Insurance. 
 
 Charles M. Hepburn, Professor of Law, University of Indiana. Sub- 
 ject, Torts. 
 
 William E. Mikell, Professor of Law, University of Pennsylvania. 
 Subjects, Criminal Law and Criminal Procedure. 
 
 George P. Costigan, Jr., Professor of Law, Northwestern University 
 Law School. Subject, Wills and Administration. 
 
 Floyd R. Mechem, Professor of Law, Chicago University. Subject, 
 Damages. (Co-author with Barry Gilbert.) 
 
 Barry Gilbert, Professor of Law, University of Illinois. Subject, 
 Damages. (Co-author with Floyd R. Mechem.) 
 
 Thaddeus D. Kenneson, Professor of Law, University of New York. 
 Subject, Trusts. 
 
 Charles Thaddeus Terry, Professor of Law, Columbia University. 
 Subject, Contracts. 
 
viii PREFACE 
 
 Albert M. Kales, Professor of Law, Northwestern University,. Sub- 
 ject, Persons. 
 
 Edwin C. Goddard, Professor of Law, University of Michigan. Sub- 
 ject, Agency. 
 
 Howard L. Smith, Professor of Law, University of Wisconsin. Subr 
 
 ' ject. Bills, and Notes. (Co-author with Wm. Uncierhill Moore.) 
 
 Wm. Underhill Moqre, Professor of Law, University of Wisconsin. 
 Subject, Bills and Notes. (Co-author with Howard L. Smith.) 
 
 Edward S. Thurston, Professor of Law, George Washington Univer- 
 sity. Subject, Quasi Contracts. 
 
 Crawford D. Hening, Professor of Law, University of Pennsylvania. 
 Subject, Suretyship. 
 
 Clarke B. Whittier, Professor of Law, University of Chicago. Sub- 
 ject, Pleading. i 
 
 Eugene A. Gilmore, Professor of Law, University of Wisconsin. 
 Subject, Partnership. 
 
 Ernst Freund, Professor of Law, University of Chicago. Subject, 
 
 Administrative Law. 
 
 Frederick Green, Professor of Law, University of Illinois. Subject, 
 Carriers. 
 
 Ernest G. Lorenzen, Professor of Law, George Washington Univer- 
 ' sity. Subject, Conflict of Latvs. 
 
 Frederic C. Woodward, Dean of the Stanford University Law School. 
 
 Subject, Sales. ' , 
 
 James Brown Scott, Professor of Law, George Washington Univer- 
 sity; formerly Professor of Law, Columbia University, New 
 York City. Subjects, International La7.v; General Jurisprudence; 
 Equity. 
 
 James Brown Scott, 
 Washington, D. C, November, 1912. General Editor 
 
 Following are the books of the Series now published, or in press j 
 
 Administrative Law Damages 
 
 Bills and Notes Partnership 
 
 Carriers PeTsons 
 
 Conflict of Laws Pleading 
 
 Corporations Suretyship 
 
 Criminal Law Trusts 
 
 Criminal Procedure Wills and Administration 
 
TABLE OF CONTENTS 
 
 CHAPTER I 
 
 Ohaeactebibtic Featdbes or a Coeporation 
 Section ' Page 
 
 1. The Corporation as Distingulsbed from Other Forms of Business As- 
 
 sociation 1 
 
 2. The Corporation as Distinguished from its Stockholders 18 
 
 3. The Corporation as a Person 47 
 
 CHAPTER II 
 
 FOEMATION 
 
 1. Steps Essential to Organization 60 
 
 2. EfCect of Failure to Comply With the Statute — De Facto Corporations 79 
 
 S. Subscription to Stock 112 
 
 4. Promoters 164 
 
 I. The Promoter as a Fiduciary 164 
 
 II. Promoters' Contracts and Corporate Liability 186 
 
 CHAPTER III 
 PowEBS AND Liabilities 
 
 1. Interpretation of Charters and Franchises 209 
 
 2. Implied Powers 216 
 
 3. Ultra Vires Acts 285 
 
 L In General 285 
 
 II. Executory and Partly Executed Contracts 306 
 
 III. Executed Contracts and Ultra Vires Leases 318 
 
 IV. Ultra Vires Transfers as a Source of Title 335 
 
 V. Estoppel 359 
 
 VI. Rights in Quasi Contract .' 369 
 
 VII. Torts 381 
 
 VIII. Crimes 396 
 
 CHAPTER IV 
 Bights of Stockholdees 
 
 1. Rights Incident to Status 407 
 
 I. Right to Inspect Records 407 
 
 IL Voting Rights 418 
 
 III. Dividends 445 
 
 IV. Distributive Share 470 
 
 2. Powers of Majority 477 
 
 3. Representative sdits 499 
 
 4. Transfer of Stock 572 
 
 RiCH.(5oEP. (ix) 
 
TABLE OF CONTENTS 
 
 CHAPTER V 
 
 Section DiEECTOBS Page 
 
 1. Powers and Liabilities , 603 
 
 2. Remedies Against Directors 652 
 
 CHAPTER VI 
 
 Legislative Contbol 
 
 1. Power of the Legislature to Repeal the Corporate Charter 658 
 
 2. Power of the Legislature to Altai? or Amend the Corporate Charter.. 665 
 
 CHAPTER VII 
 
 DlSSOLUTlOIir 
 
 1. Methods of Dissolution ._ 692 
 
 2. Causes for Dissolution 706 
 
 3. -EfEect of Dissolution , 712 
 
 CHAPTER VIII 
 
 Cbbditobs op the Coepoeatiow 
 
 1. Rights and Remedies at Law and in Equity Against the Corporation 730 
 
 2. Creditors' Rights Against Transferees of Corporate Property 758 
 
 3. Creditors' Rights as Affected by Merger or Consolidation 779 
 
 4. Creditors' Right as Affected by Dissolution 789 
 
 5. Creditors' Rights Against Stockholders and Their Transferees 793 
 
 I. At Common Law 1 793 
 
 IL By Statute 836 
 
 6. Creditors' Rights Against the OflScers of the Corporation 848 
 
TABLE OF CASES 
 
 [CASES CITED IN FOOTNOTES AEE INDICATED BY ITALICS. WHERE SMALI, CAPITALS 
 AEE USED, THE CASE IS EEEEEEED TO IN THE TEXT] 
 
 AVbott V. Bapgood 
 
 Aberseen R. Co. v. Blakie Bros. . . 
 Abeath v. Nobtheasteen R. Co. 
 
 Adams v. Johnson 
 
 Adams & Westlalce Co. v. Deyette 
 Adler v. Milwaukee Patent Brick 
 
 Mfg. Co 
 
 Allen v. Chuech 
 
 Allen V. North Dea Moifies M. E. 
 
 Church 
 
 Allen v. Railboad Co 
 
 Allen v. Russell 
 
 Almada & Tirito Co., In re 
 
 Alton Mfg. Co. v. Garrett S^bli- 
 
 cal Institute '. 
 
 American Loan & Trust Co. v. 
 
 General Electric Co 
 
 American RaiVway-Frog Co. v. 
 
 Haven 
 
 Ammant v. Pbesident, Etc 
 
 ArmAl, The v. Savery 
 
 Api^leton V. Citizens' Cent. Nat. 
 
 Bank 
 
 Archer's Case , 
 
 Arkansas Pass Barhor Co. v. 
 
 Manning 
 
 Ashbuey Ry. Oabeiage & Ieon 
 
 Co. V. Riche 
 
 Asiatic Banking Co., In eb.... 
 Athol Music Hall Co. v. Caeby 
 Atlantic & B. R. Co. v. Johnson. . 
 Atlantic & G. R. Co. y. Georgia. . 
 Atlantic £ P. Tel. Co. v. Vmion 
 
 Poo. R. Co 
 
 Attorney General, Ex parte 
 
 Attoeney Geneeal v. Stevens.. 
 Attorney General v. Superior & 
 
 St. C. R. Co 
 
 Attorney General v. Tudor Ice Co. 
 
 Atwool V. Merryweather 
 
 Aurora Soc. v. Paddock 
 
 Austin v. Tecumseh Nat. Bank 
 Automatic Self-Cleansing Filter 
 
 Syndicate Co. v. Cunningliam. ■ 
 Avondale Land Co. v. Shook.... 
 
 Bacon V. Rotertson 
 
 Badger Paper Co. v. Rose. 
 
 RiCH.OOKP. 
 
 Page 
 188 
 632 
 395 
 586 
 278 
 
 795 
 
 767 
 
 761 
 601 
 474 
 817 
 
 241 
 
 248 
 
 423 
 733 
 
 742 
 
 260 
 649 
 
 612 
 
 279 
 265 
 120 
 789 
 703 
 
 331 
 725 
 107 
 
 701 
 710 
 51^ 
 
 244 
 781 
 
 604 
 678 
 
 715 
 135 
 
 Page 
 Bagshaw v. Easteen Counties 
 
 R. Co 504 
 
 Bahia & S. F. R. Co., In re 594 
 
 Baker Furniture Co. v. Hall 771 
 
 Baldwin v. Canfleld 534 
 
 Ball Electric Light Co. v. Child. . 844 
 BalUn V. Merchants' Exch. Bank 774 
 
 Ballin v. Mossbacher 774 
 
 Baltzell V. Church Home & Infirm- 
 ary of Baltimore 30 
 
 Bangor Electric Light & Power 
 
 Co. V. Robinson 586 
 
 Bank v. Stowell 589 
 
 Bank of Augusta v. Eaele . . 75, 340 
 Bank of Columbia v. Pattbe- 
 
 son's Adm'es 387 
 
 Bank of Poughkeepsie v. Ibtotson 841 
 Bank of St. Mary's v. St. John 
 
 Powers d Co. . . r 747 
 
 Bank of United States v. Plant- 
 ers' Bank of Georgia '. 41 
 
 Banks V. Poitiauso 339 
 
 Barter v. International Co. of 
 
 Mexico 747 
 
 Bardstown & L. R. Co. v. Met- 
 
 . calfe 215, 254 
 
 Baened's Bank, In ee 265 
 
 Baeoness Wenlock v. Rivee Dee 
 
 Co 374 
 
 Baroness Wenlock v. River Dee 
 
 Co 369 
 
 Babby v. Mbechants' Exch. Co. 293 
 
 Baetlett v. Deew 762 
 
 Bartlett v. Drew 846 
 
 Bateman v. Mid- Wales R. Co. . . 241 
 
 Bates V. Coronado Beach Co 264 
 
 Bath Gas Light Co. v. Claffy.... 314 
 Bathe V. Decatur County Agri- 
 cultural Soc 390 
 
 Battelle v. Northwestern Cement 
 
 & Concrete Pavement Co 188 
 
 Bausman v. Kinnear 806 
 
 Bay less v. Orne 652 
 
 Beatty v. Maeine Ins. Co 383 
 
 Beatty v. Northwestern Transp. 
 
 Co 483 
 
 Beckett v. Bouston 428 
 
 Beers v. Bridgeport Spring Co. . . 452 
 
 (xi) 
 
Xll 
 
 TA6LB OF CASUS 
 
 Pago 
 Bellerly v. Rowland £ Marwood's 
 
 8. 8. Co 284 
 
 Bellows V. Hallowell & Augusta 
 
 Bank 759 
 
 Benbow v. Cook 78 
 
 Bentlnck v. Fenn 183 
 
 Berea College v. Commonwealth 
 
 of Kentuoley 682 
 
 Bergeron v. Hobbs 84 
 
 Bergeron v. Boibs 65 
 
 Best Bee wing Go. v. Klassen.. 259 
 
 Bigelow V. Gregory 92 
 
 Binghampton Bridge, The 215 
 
 Bish V. Johnson 497 
 
 Bissell V. Michigan Southern & N. , 
 
 I. R. Cos 285, 389 
 
 Blackburn & District Ben. Bldg. 
 Soc. V. Cunliffe, Brooks & Co.y. 318 
 
 Bltjm v. Whitney 177 
 
 Boice V. Bodge 844 
 
 Boldenweck v. Bullis 548 
 
 . Booth V. Robinson 264 
 
 Booth V. RoMnson 657 
 
 Boston Beer Co. v. Massachusetts 685 
 Boston Glass Manufactory v. 
 
 Landgon 698 
 
 Boston Music Hall Ass'n v. Cory 581 
 
 Bowden v. Johnson '. 846 
 
 Boyd V. American Carbon Black 
 
 Co 326 
 
 Boyer v. Nesbitt 441 
 
 Brandensteln v. Hoke 83 
 
 Brant v. Bhlen 831 
 
 / Breene v. Merchants' & Mechan- 
 ics' BanJc ' 777- 
 
 Briggs V. Spaulding 617 
 
 British Seamless Paper Box Co., 
 
 In re . .' 170 
 
 Brown v. Citizens' Ice & Cold 
 
 Storage Co 244 
 
 Brown v. Hitchcock 846 
 
 Brown v. Winnisimmet Co 229 
 
 Brunswick Gas Co. v. United Oas 
 
 Co 380 
 
 Bryant's Pond Steam-Mill Co. v. 
 
 Felt 116 
 
 Buffalo Lubricating Oil Co. v. 
 
 Standard Oil Co 394 
 
 Burland v. Earle 647 
 
 Burrill v. Nahant Bank 614 
 
 BuET V. Rattle 464 
 
 Button V. Hoffman 18 
 
 Byrne v. Schuyler Electric Mfg. 
 
 Oo 497 
 
 Byronville Creamery Ass'n v. 
 Ivers 65 
 
 California Bank v. Kennedy 318 
 
 Camden £ Atlantic R. Co. v. 
 
 Landing, etc., Co 814 
 
 PaK« 
 
 Campbell v. Watson 627 
 
 Capital City Water Co. v. Mao- 
 
 DONALD i 708 
 
 Carmody v. Powers 188 
 
 Catlin V. Eagle Bank of New Ha- 
 ven 771 
 
 Gatskill Bank v. Gray 264 
 
 Central Branch, Union Pac. R. 
 
 Co. V. Western Union Tel. Co. 331 
 Central Transp. Co. v. Pullman 
 
 Co 334 
 
 Central Transp. Co. v. Pullman 
 
 Palace Car Co 300 
 
 Chadwick v. Old Colony R. Co. . . 245 
 
 ChafCee v. Rutland R. Co 460 
 
 Ghamberlin v. Huguenot Mfg. Co. 698 
 
 Chapman v. Bates 435 
 
 Charles River Bridge v. Warren 
 
 Bridge 209 
 
 Charlestown Boot & Shoe Co. v. 
 
 Dunsmore 603 
 
 Chenango Bridge Co. v. Bingham- 
 
 ton Bridge Co 215 
 
 Chestnut Hill & Spring House 
 
 Turnpike Co. v. Rutter 381 
 
 Chewacla 'Lime Works v. Dis- 
 
 mukes 378 
 
 Chicago Hansom Ckb Co. v. 
 
 Yerkes 483 
 
 Chicago, M: <S^ St. P. R. Co. v. 
 
 Supervisors 215 
 
 Chicago & N. W. R. Co. v. Bllson 732 
 Chicago d N. W. R. Co. v. Forest 
 
 County 735 
 
 Ghristensen v. Eno (,, 826 
 
 Christian Union v. Yount 352 
 
 Chubb v. Upton ,. 159 
 
 Citizens' Life Assur. Co. v. Brown 395 
 Citizens' Sav. Bank v. Owens- 
 
 boro '. 665 
 
 City of Atlanta v. Gate City Gas- 
 light Co 71 
 
 City of Louisville v. Louisville 
 
 Water Co 39 
 
 City of Louisville v. McAteer. ... 39 
 
 Clapp V. Peterson 793 
 
 Clapp V. Peterson 278 
 
 Clark V. Bever 823 
 
 Clark V. Farrington 219 
 
 Clark V. Memphis St. R. Go 265 
 
 Glarksville <& R. Turnpike Co. v. 
 
 Montgomery County 215 
 
 Clearwater v. Meredith 706 
 
 Clough V. Rocky Mountain Oil 
 
 Co 761 
 
 Coe V. Columbus, etc., R. Co 215 
 
 Colt v. North Carolina Gold 
 
 Amalgamating Co. 821 
 
 Cole V. Millerton Iron Co 761 
 
 Coleman v. White 841 
 
TABLE OF CASES 
 
 XUl 
 
 Page 
 
 Collins V. Sherman 215 
 
 Coltman, In re 361 
 
 Commonwealth, v. Bringhurst . . . 429 
 Commonwealth v. Eastern E. Co. 672 
 Commonwealth v. Essex Co. . . . . 665 
 Commonwealth i?. Prop, of New 
 
 Bedford Bridge 401 
 
 Compton V. Waco Bridge Co 215 
 
 Cone V. Russell 432 
 
 Congregational Church Bldg. 8oc. 
 
 V. Everett 359 
 
 Continental Nat; Bank v. Eliot 
 
 Nat. Bank, 583 
 
 Cook V. Chittenden 154 
 
 Coppin v. Qreenlees & Ransom Co. 284 
 Corhus V. Alaska Treadwell Cold 
 
 Min. Co 525 
 
 Corning v. McCuUough 836 
 
 COBBUGATINQ Co. V. ThACHEE . . 851 
 
 Covington Drawbridge Co. v. 
 
 Shepherd 737 
 
 Cox V. Bank 590 
 
 Craig V. Hesperia Land & Water 
 
 Co. ...;:.. ••■ 583 
 
 Craycraft v. National Building & 
 
 Loan Ass'n 470 
 
 Crease v. Babcock 667 
 
 Crocker v. New York .' 215 
 
 Crown Cork & Seal Co. v. State 39 
 Cumberland Coal & Iron Go. v. 
 
 Sherman 641 
 
 CUNLIF V. Manchestbe & B. 
 
 CAJiTAL Co 493 
 
 CuNtrBTE v; Manchester & B. 
 
 Canai, Co.. 504 
 
 Cunningham v: German Ins. Bank 612 
 
 Curran v. State of Arkansas 793 
 
 Curson v. African Co 758 
 
 Cutting v. Mabloe 625 
 
 Daniel v. Cold Hill Min. Co..... 580 
 
 Daniels v. Davison 773 
 
 David Payne & Co., In re 361 
 
 Davis V. Edwards 742 
 
 Davis V. Old Colony B. R 305 
 
 Davis V. Stevens 81 
 
 Day V. Spiral Springs Buggy Co. 378 
 
 DeCamp v.' Dobbins 350 
 
 Delaware & H. Co. v. Albany & 
 
 S. E. Co 564 
 
 Densmore Oil Co. v. Densmore. . . 180 
 
 Denton v. Livingston 572 
 
 Denver Fire Ins. Co. v. McClel- 
 land ..'.'......... 315 
 
 De Pass" Case 814 
 
 DicKiNsoi«f V. Central Nat. 
 
 Bank 582 
 
 DiMPFEii V. EailboaD Co 546 
 
 Directors, etc., of Ashbury Ey. 
 Carriage & Iron Co. v. Eiche. . 301 
 
 r Page 
 
 Discotlerer's Finance Corp., In re 586 
 
 Doctor v. Habbington 569 
 
 Dodge V. Pyrolusite Manganese 
 
 Co 740 
 
 Dodge V. Woolsey 503 
 
 Donnell v. H erring-Hall-Marvin 
 
 Safe Co 24 
 
 Donnelly v. Sampson 526 
 
 Dorris v. French 139 
 
 Dorsey Mach: Go. v. McCaffrey. . 394 
 
 Dovey v. Cory 627 
 
 Dow v.. Northern E. E 50 
 
 Dow V. Northern R. Co 497 
 
 Downer v. Union Land Co. of St. 
 
 Paul 827 
 
 Deonpibld Silkstone Coal Co., 
 
 In re ^ 283 
 
 Dr. Sainton v. Haniborough Co. . . 795 
 Dudley v^ Kentucky High School 477 
 
 Duncuft y. Albrecht , 580 
 
 Dunphy v. Travelers' Newspaper 
 
 Ass'n 523 
 
 Dunston V. Imperial Glass Go. .,. 507 
 Dupee V. Boston Water Power 
 
 Go 278 
 
 Durfee v, Old Colony R. Co 678 
 
 Dykman v. Keeney 654 
 
 D. & J. F. Edwards v. Fairbanks 
 
 & Oilman 335 
 
 Eagle jns. Go. v. Ohio 688 
 
 Earie v. Carson 846 
 
 East Anglian Rys. Go. v. Eastern 
 
 Counties R. Go 318 
 
 Eastern Counties R. Co. v. Broom 389 
 Easton Nat. Bank v. American 
 
 Brick & Tile Go 831 
 
 Baton v. Walker 82 
 
 Edwards v. Midland R. Co 394 
 
 Edwards v. Warren Linoline & 
 
 Gasoline Works 8 
 
 Elevator Co. v. Eailboad Co... 262 
 
 Emerson v. Gaither 657 
 
 Empress Engineering Co., In re. . 190 
 English & Colonial Produce Co., 
 
 In re 194 
 
 Erie & North East R. Go. v. Casey 665 
 Erlangerv. New Sombrero Phos- 
 phate Go 180 
 
 Ervin v. Oregon Ry. & Nav. Go. 487 
 
 Estey Mfg. Go, v. Runnels 100 
 
 European ■ Assur. Soc, In re 778 
 
 Ewing V. Composite Brake Shoe • 
 Co. .......^.,..... 778 
 
 FamiVif Endowment Soc, Iti re..' 778 
 Farmers' Bank of Vine Grove v. ■ 
 
 Smith 206 
 
 Farmers'- Loan & Trust Co. v. ■ 
 
 New-York &N. Ri Co. ...*.... 4&t 
 
XIV 
 
 TABLE OF CASES 
 
 Page 
 Parnsteorth v. Lime Rocle B. Co. 68 
 
 Fa/rrington v. Putnam 359 
 
 Farwell Co. v. Sweetzer 77T 
 
 Parwell & Go. v. Wolf 308 
 
 Ffooks V. Southwestern R. Go.-. . 548 
 Fidelity Tetjst Co. v. Lehigh 
 
 Val. K. Co 468 
 
 Fifth Ave. Bank of New York 
 V. Forty-Second St. & G. St. 
 
 Ferry R. Co 601 
 
 Finnegan v. Knights of Labor 
 
 BWg. Ass'n 79 
 
 Finney v. Bennett 742 
 
 First Ave. Land Co. v. Parker.. 597 
 
 First Nat. Bank v. Gustin 830 
 
 First Nat. Bank v. National 
 
 Exch. Bank of Baltimore 266 
 
 Fislc V. Union Pac. B. Go 790 
 
 Piske's Estate, In re 345 
 
 Fletcher v, Peck 662 
 
 FUmn V. Bapley 826 
 
 Fogg V. Blair 783 
 
 FoLOER V. Columbian Ins. Co. . . 715 
 Ford V. Easthampton RuTylier 
 
 Thread Go 457 
 
 Foreman v. Bigelow . . v 835 
 
 Forrest v. Manchester, S. & L. 
 
 R. Co 534 
 
 Foss V. Harbottle 509 
 
 Foster v. Potter 574 
 
 Foster V. White 409 
 
 Fox V. Horah 719 
 
 Franklin Co. v. Lewiston Institu- 
 tion for Savings 361 
 
 Franklin Co. v. Leiciston Institu- 
 tion for Savings 274 
 
 Fraser v. Ritchie 274 
 
 Fulkerson v. Taylor 732 
 
 Gallagher v. Germania Brewing 
 
 Co 45 
 
 Galvin v. Shaw 2' 
 
 Gamble v. Water Co 481 
 
 Garmany v. Lawton 612 
 
 Gashwiler v. Willis 27 
 
 Gashwiler v. Willis 608 
 
 Gaslight Co. v. Claffy 379 
 
 Geer v. School Dist 507 
 
 George Whitechuroh v. Gavanagh 597 
 
 Geurinck v. Aleott 264 
 
 Gilchrist v. Highfield 278 
 
 Gilman v. Goss 154 
 
 Given v. Simpson 2 
 
 Glenn v. Busey 118 
 
 Gluckstein v. Barnes 180 
 
 Glymont Improvement & Excur- 
 sion Oo. V. Toller 75 
 
 Goddard v. Importing Co 763 
 
 GoocH V. McGee 731 
 
 Page 
 Goodman v. Jedidjah Lodge, 
 
 Etc 693 
 
 Goodrich v. City L. & B. Ass'n 474 
 Goodspeed v. East Haddam Bank 390 
 
 Goodwin v. MoGehee 808 
 
 Graham v. La Crosse & M. R. Co. 752 
 
 Graham v. Railroad Co. 745 
 
 Grand Lodge v. Waddill 378 
 
 Greeley v. Smith 789 
 
 Greenwood v. Union Freight R. 
 
 Co 658 
 
 Gress v. Knight r • 158 
 
 Gress v. Knight 813 
 
 Griffith v. Boom & Lumber Co... 719 
 
 Grommes v. Sullivan 241 
 
 Guclcert v. Haoke 100 
 
 Hale V. Cheshire B. Co 675 
 
 Hall -v. Klinck 842 
 
 Hall's Safe Co. v. Herring-Hall- 
 Marvin Safe Co 22 
 
 Hamilton v. Menominie Falls 
 
 Quarry Co 758 
 
 Hamsher v. Hamsher 345, 359 
 
 Handley v. Stutz 826 
 
 Hanson v. Little Sisters of the 
 
 Poor 357 
 
 Harris v. First /Parish in Dor- 
 chester 838 
 
 Harris v. independence Gas Co. . . SOC 
 Hartford & N. H. R. Co. v. Boor- 
 man 813 
 
 Hawes • v. Oakland 548 
 
 Hawes v. Oakland 508 
 
 Hawley v. Upton 141 
 
 Hawthorne v. Calef 838 
 
 Hayward v. Leeson 180 
 
 Hearst v. Putnam Min. Co 41 
 
 Heath y. Bairmore 723 
 
 Heath v. Silverthorn Mining & 
 
 Smelting Co 75 
 
 Hellman v. Pennsylvania Electric 
 
 "Vehicle Co 475 
 
 Henderson v. Royal British Bank 808 
 
 Henry v. Babcock 413 
 
 Henry v. Vermillion & A. R. Co. 804 
 
 Hess V. W. & J. Sloane 260 . 
 
 Hlbbs V. Brown , 12 
 
 Hibernia Ins. Co. v. St. Louis & 
 
 N. 0. Transp. Co 766 
 
 Higgins v. Calif omia Petroleum 
 
 etc., Co. 761 
 
 Higgins v. Illinois Trust & Sav- 
 ings Bank 836 
 
 Higginson & Dean, In re 725 
 
 Hightower v. Thornton 795 
 
 Hill V. Manchester & Salford Wa- 
 terworks 507 
 
 Hinckley v. Schwarsschild & SOlz- 
 herger Co 682 
 
XABLE OF CASKS 
 
 XV 
 
 Page 
 HoADliET V. COUNTT Com'BS 10 
 
 Bodge v. United States Steel 
 
 Corp , 536 
 
 Hodges £ Wilson v. Silver Hill 
 
 Min. Go 798 
 
 Hoffman Steam Coal Go. v. 
 
 Cumberland Coal & Iron Go. 642 
 Hoffman Steam Coal Co. v. Cum- 
 berland Goal & Iron Co 637 
 
 Hollins V. Brierfield Coal & Iron 
 
 Co 742 
 
 Holyoke Bank v. Burnham . . 846 
 
 Home Fire Ins. Co. v. Barker. . . 541 
 
 Horst V. Traudt 514 
 
 Hospes V. Northwestern Mfg. Co. 831 
 House of Mercy v. Davidson. . . . 351 
 
 Howard v. Patent Ivory Oo 189 
 
 Howe V. Boston Carpet Co 268 
 
 Hoyt V. Thompson's Ex'rs 612 
 
 Hubbard v. Worcester Art Muse- 
 um 352 
 
 Hudson Real Estate Co. v. Tower 121 
 
 Htjn v. Gaby 626 
 
 Hunt V. O'Shea 460 
 
 Huntingtvri v. Attrill 858 
 
 Hurd V. New York & Commercial 
 
 Laundry Co 771 
 
 Hutchinson v. Oreen 608 
 
 Hutchinson v. Western Atlantic 
 B. Co 389 
 
 Imperial, etc., Hotel Co. v. Hamp- 
 
 son 654 
 
 Imperial Land Co. of Marseilles, 
 
 In re 802 
 
 Imperial Mer. Credit Ass'n, In re 815 
 Indianapolis, C. & L. R. Co. v. 
 
 Jones 785 
 
 Inhabitants of Worcester v. West- 
 ' em R. Co 215 
 
 Jackson V. Meek 844 
 
 Jacksonville, M. P. R. & Nav. Co. 
 
 V. Hooper 232 
 
 Janesville Bridge Oo. v. Stough- 
 
 ton 215 
 
 Jeaffreson, Ex parte 802 
 
 Jemison v. Citizens' Sav. Bank. . 308 
 
 Johnson v. Corseb 80 
 
 Jones, In re 8 
 
 Jones v. Cincinnati Type Foun- 
 dry Co 102 
 
 Jones v. Habersham 357 
 
 Jotpes V. Habersham 359, 685 
 
 Jones V. Missouri-Edison Electric 
 
 Co ., 706 
 
 Jones V. Williams 614 
 
 Juristic Person, The 59 ^ 
 
 Just V. Idaho Land & Imp. Co. . . 541 
 
 Page 
 Kadish «; Oarden City E. L. & 
 
 B. Ass'n 318 
 
 Kavanaugh v. Commonwealth 
 
 Trust Co. 627 
 
 Kearris v. Leaf 751 
 
 Kelner v. Baxter 190 
 
 Kelner v. Baxter 190 
 
 Kenosha, R. & R. I. R. Go. v. 
 
 Marsh 674 
 
 Keokuk <& W. Ry. v. Missouri 706 
 
 Kessler & Go. v. Ensley Co 514 
 
 Kimball v. Cedar Rapids 555 
 
 King, The v. Biggs 387 
 
 King V. Masters & Wardens of 
 
 Merchant Tailors' -Co 407 
 
 King V. Paterson & H. R. Co 457 
 
 KirtDin v. Washington Match Co. 612 
 Eoehler & Co. v. Reinheimer . . . . 260 
 
 Kraft v. Brewing Co 259 
 
 Ereissl v. Distilling Co. of Amer- 
 ica 440 
 
 Lagunas Nitrate Co. v. Schroeder 
 
 & Co 457 ' 
 
 Langhorije v. Richmond R. Co. . . 786 
 Lauman v. Lebanon Val. B. Co. 675 
 Lauraglenn Mills v. Preidheim & 
 
 Bro 841 
 
 Lauraglenn Mills v. Roddy 841 
 
 Lauraglenn Mills v. Ruff 841 
 
 Layng v. A. French Spring Go. . . 265 
 
 Leazure v. HiHegas 336 
 
 Le Blanc, Petition of 460 
 
 Lehigh Val. R. Go. v. Dupont 264 
 
 Le Roy v. Globe Ins. Co 458 
 
 Lindlar's Case ' 586 
 
 Lipscomb v. Condon 583 
 
 Livingston v. Lynch 494 
 
 Livingston County Agricultural 
 
 Soc. V. Hunter 761 
 
 Long V. Georgia Pac. R. Co 324 
 
 Lord V. Equitable Life Assur. Soc. 
 
 of United States 678 
 
 Louisville ' Banking Co. v. Eisen- 
 
 man 703 
 
 Louisville, N. A. & C. Ry. Co. v. 
 
 Boney 732 
 
 Louisville, N. A. & C. R. Co. v. 
 
 Louisville Trust Go 363 
 
 Low V. Railroad 208 
 
 Lowe V. Pioneer Threshing Co. . . 278 
 
 LowRY V. Bank 590 
 
 Luedeclse v. Des Moines Cabinet 
 
 Go 766 
 
 Lydney Megpoal Iron Ore Co. v. 
 
 Bird 184 
 
 McArthur v. Times Printing Go. . . 189 
 
 McGlaime v. Rankin 838 
 
 MeCormick v. Market Nat. Bank 318 
 
XVI 
 
 TABLE OF CASES 
 
 Page 
 
 McCutcfieon v. Mere Capsule Go. 331 
 
 McDonald v. Dewey 846 
 
 McDonald v. Williams 801 
 
 McGraw's Estate, In re 345 
 
 Machinists' Nat. Bank v. Field . . 597 
 McLap V. Corporation of Bruce. . 396 
 McLeary v. Erie Telegraph & Tel- 
 ephone Co • • 483 
 
 McMillan v. Maysville & L. R. Co. 144 
 Macon & Wbstben R. Co. v. 
 
 Paekee 739 
 
 Madison, W. & M. Plank Road 
 Co. V. Watertown & P. Plank 
 
 Road Co 339 
 
 Mallory v. Hanaur Oil-Works 260, 329 
 Mallory v. Banaur Oil-Works . . 329 
 
 Marble Co. v. Harvey ^. . 315 
 
 Maech v. Raileoad 604 
 
 Marion Trust Go. v. Blish 161 
 
 Marion Trust Co. v. Crescent 
 
 Loan GO ...;... 362 
 
 Marr v. Bank of West Tennessee 777 
 
 Maeshall v. Bank 626 
 
 Maeshall v. R. Co. 57 
 
 Marshall v. Western N. G. R. Go. 761 
 Marsters v. Vmpgua Val. Oil Co. 852 
 Martin Vi South Salem Land Go. 813 
 
 Maetin v. Webb 625 
 
 Marysville Electric Light & Pow- 
 er Co. V. Johnson 133 
 
 Mason v. Garrothers 180, 529 
 
 Mason v. Haeeis . . . ; 516 
 
 Mason v. Stevens 83 
 
 Mason v. Supreme Court of Eq- 
 uitable League of 'Baltimore 
 
 City 692 
 
 Matteson v. Dent 838 
 
 Mattingly v. Nye 754 
 
 Melhado v. Porto Alegre, N. B. 
 
 & B. B. Co 190 
 
 Melvin v. Lamae Ins. Co 157 
 
 Memphis R. Co. v. Commissioners 215 
 
 Mbniee v. Telegraph Woeks 481 
 
 Mercantile Trading Co., In re. . . . 801 
 Mercantile Trust Go. v. Missouri, 
 
 K. & T. R. Co 742 
 
 Merchants' Nat. Bank v. Wehr- 
 
 mann 3 
 
 Mexican & South American Co., 
 
 In re 814 
 
 Mexican & South American Co., 
 
 In re 815 
 
 MiCKLES V. Rochestee Citt 
 
 Bank \. 611 
 
 Miers v. Zanesville & M. Turn- 
 pike Co. 804 
 
 Miers & Caulson v. Zanesville & 
 
 Mayville Turnpike Co 777 
 
 Mills V. Central R. Co 678 
 
 Mills V. Bawker 389 
 
 Page 
 Mills V. Northern Ry. of Buenos 
 
 Ayres Co 748 
 
 Milwaukee Gold Storage Co. v. 
 
 Dewter 183 
 
 Milwaukee d St. P. R. Co. v. 
 
 Supervisors 215 
 
 Miners' Ditch' Co. v. Zelleriach . . 361 
 Minneapolis Threshing Mach. Co. , 
 
 V. Davis 150 
 
 Mitchell V. Hotchkiss 856 
 
 Montgomery & West Point R. Co. 
 
 V. Branch Sons & Co 785 
 
 Monument Nat. Bank v. Globe 
 
 Works 359 
 
 MOOEE V. BUTLEE 773 
 
 MooRE V. Whitcomb 696 
 
 Morgan v. Lewis 284 
 
 Morrison v. American Snuff Co.. 789 
 
 Moss V. Averell 216 
 
 JIf OSS V. Rossie Lead Min. Co 361 
 
 Movcer v. Staples ^97 
 
 Mowrey v. Indianapolis & C. R. 
 
 Go 497 
 
 Mumma v. Potomac Co. 790 
 
 Munson v. S. &. & C. B. Co 636 
 
 Ufappanee Canning Co. v. Reid, 
 
 Murdock A Co 852 
 
 Nassau Bank v. Jones 273 
 
 Nassau Bank v. Jones 311 
 
 Nathan v. Whitlock 815 
 
 National Bank v. Wilmington N. 
 
 C. d S. B. Co 789 
 
 National Bank of Jefferson v. 
 
 Texas Inv. Co 759 
 
 National Discount Co. v. Mid- 
 Wales R. Co 241 
 
 National Docks R. Co. v. Cen- 
 tral R. Co , 108 
 
 National, etc., Bldg. Soc, In re 373 
 National Funds Assur. Co., In re 855 
 National Borne Bldg. Ass'n v. 
 
 Bome Sav. Bank 318 
 
 National Motor Mail Coach Co., 
 
 In re 197 
 
 Natuzeh v. Irving 494 
 
 Neall V. Bill 654 
 
 Nebraska Chicory Co. of Schuy- 
 ler, Neb., V. Lednicky 123 
 
 Newcomb-Endicott Co. v. Fee 100 
 
 New Orleans, J. & G. N. R. Co. 
 
 V. Harris 491 
 
 Newton Mfg. Co. v. White 701 
 
 Newton Nat Bank v. Newbegin 810 
 New York Cent. & H. R. Co. v. 
 
 United States 403 
 
 New York, i. E. & W. R. Co. v. 
 
 Nickals .-. 466 
 
 New York & L. I. Bridge Co. v. 
 Smith 694 
 
TABLE OF CASES 
 
 XVll 
 
 Page 
 "New Torft <£ TH. B. R. Co. v. 
 
 Schuyler 602 
 
 NiCHOLLs' Case 834 
 
 'Nims V. Mt. Herman Soys' School 389 
 
 Ifoble V. Gattender 805 
 
 North V. Forest 580 
 
 North Australian Territory Co., 
 
 In re 649 
 
 NoRTHEEN TeustOo. V. Sntdee. . 527 
 North Missouri R. Co. v. Miller. . 114 
 North Side R. Co. v. Worthington 254 
 fforthumherland Hotel Co., In re 189 
 Northwestern tTnion Packet Co. v. 
 
 Shaw 376 
 
 NOEWICH V. NOEFOLK Rt 280 
 
 Oakes v. TueQuand 158 
 
 Oakes v. Turguand £ Harding.. 810 
 
 Oakes & Peek, Ex paete 803 
 
 Oakland R. Co. v. OaTcland Brook- 
 lyn R. Co.' \ 695 
 
 O'Brien v. Fitzgeeald ........ 655 
 
 O'Conner Min. & Mfg. Co. v. Coo- 
 sa Furnace Co 850 
 
 Old Colony R. Co. v. Chadwick.. 245 
 Old Dominion Copper Co. v. Bige- 
 
 low 180 
 
 Old Dominion Copper Mining & 
 
 Smelting Co. V. Lewisohn 174 
 
 Oliver Lee & Co.'s Bank, Mat- 
 tee OF 677 
 
 Ooregum Gold Min. Co. v. Roper 820 
 Oregon R. Go. v. Oregonian R. 
 
 Go 318 
 
 Osewego Falls Bridge Go. v. Fish 215 
 
 Ossipee Mfg. Co. v. Canney 361 
 
 Ottumwa Screen Co. v. Stodffhill.583 
 Overend, Gurney & Co. v. Mid- 
 Wales R. Co 241 
 
 Overton Bridge Co. v. Means 730 
 
 Owensboro Wagon Co. v. BUss. . 89 
 
 Pape v. Capitol Bank . . •. 109 
 
 ParJc V. Grant Locomotive Works 451 
 
 Parker v. Nickerson 649 
 
 Parrot V. ^awrence 215 
 
 Parsons v. Joseph 545 
 
 PbaSce v. Raileoad Co. 255, 366 
 
 Peitce V. Partridge 507 
 
 Pellio V. Bulls Head Coal Co 529 
 
 Penn Match Co. v. Hapgood 186 
 
 Pbnniman v. Beiggs 697 
 
 Pbnns¥-lvania, etc., Steam Nav. 
 
 Co. V. Dandeidge 230 
 
 Pennsylvania R. Co. v. St. 
 
 liouls, A. & T. H. R. Co 233 
 
 People v. Cheeseman 63 
 
 People V. Cheeseman 60 
 
 J^eoplie V. Dashaw^y Ass'n ...... 710 
 
 People V. -Devin ............... 418 
 
 RIOH.COBP. — b 
 
 Page 
 People V. Globe Mut. Life Ins. Co. 715 
 
 People V. Hill 421 
 
 People V. Improvement Co 710 
 
 People V. Monteclto Water Co... 62 
 People v. National Trust Co. . . 717 
 People IB. New York Building 
 
 Loam Banking Co 477 
 
 People V. North River Sugar Re- 
 fining Co 54 
 
 People V. North River Sugar Re- 
 fining Co 264 
 
 People V. O'Brien 665 
 
 People V. Phoenix Bank 710 
 
 People V. Pullman Go 219 
 
 People V. Rochester Ry. & Light 
 
 Co 402 
 
 People v. Sbctjeity Life Ins. Co. 716 
 People v. Stockton & V. R. Co. 63 
 People ex rel. Britton v. Ameri- 
 can Press Ass'n 413 
 
 People bx eel. Coopee Union v. 
 
 Gass 679 
 
 People ex rel. National Exp. Co. 
 
 V. Coleman 4 
 
 People ex rel. Union Trust Co. v. 
 
 Coleman 32 
 
 People's Pleasure Park Co. v. 
 
 Bohleder 27 
 
 Percy v. Millattdon 620 
 
 Perkins v. Trinity Realty Go 
 
 311, 341 
 
 Perrine v. Canal Co 215 
 
 PbtIees v. Bain 826 
 
 Philudelphia, etc., R. Co. v. Quig- 
 
 ley 396 
 
 Philadelphia, W. i& B. Ry. v. 
 
 OoWELL 458 
 
 Phillips V. Providence Steam-En- 
 
 gine Co ' 226 
 
 Pieece v. Emery 249 
 
 Pierce v. Security Co 844 
 
 Pietsch V. Milhrath 180 
 
 Pikes Peak Go. v. Pfuntner 651 
 
 Pitcher v. Lone Pine-Surprise 
 
 Consol. Min. Go 545 
 
 PittsHurg, In re 8 
 
 Pittsburg ^in. Co. v. Spoouer 164 
 
 Pittsburgh & S. R. Co. v. Biggar 146 
 
 Plant V. Macon Oil & Ice Co 233 
 
 Planters' Bank v. Leavens 576 
 
 Planters' Fire & Marine Ins. Co. 
 
 V. State of Tennessee 65 
 
 Piatt V. Archer 790 
 
 Plymouth R. Go. v. Colwell 732 
 
 Pollard <o. Bailey 841 
 
 PoUiba V. Gould 537 
 
 Pond V. Framingham & L. R. Co. 751 
 
 PondviUe Co. v. GVark 808 
 
 Poughkeepsie Bridge Go., Matter 
 of 215 
 
xViu 
 
 TABLE OF CASES 
 
 Page 
 
 Poultdn v. London Southwestern 
 
 R. Go ••• 389 
 
 ■ Pratt V. Bacon 1 
 
 Pratt V. Pratt, Read & Co 445 
 
 Prefontaine v. Oreni&r 632 
 
 President, etc., of Bank of Michi- 
 gan V. Niles .... ^ 309 
 
 President & Visitors of Maryland 
 
 Hospital V. Foreman 321 
 
 Process Against Corporations - . . 793 
 
 Proctor Coal Co. v. Finley 428 
 
 Prouty V. Lake Shore d M. S. R. 
 
 Co 789 
 
 Peovidence Steam Engine Co. v. 
 
 HUBBAED 858 
 
 Provident Bank £ Trust Go. v. 
 
 Saxon ■ 100 
 
 Provident Life & Guaranty Ass'n, 
 
 In re 836 
 
 Provincial Life Assur. Soc, In re 778 
 
 Pullman v. Upton 3 
 
 Pullman v. Upton 815 
 
 Pullman's Palace Car Co. v. Cen- 
 tral Transp. Co 378 
 
 QxiEEN, The v. Biemingham & G. 
 
 R. Co 397 
 
 Queen, The v. Birmingham & G. 
 
 R. Co 402 
 
 Queen, The v. Great North of 
 
 England R. Co 401 
 
 Raccoon Riveb Nav. Co. v. 
 
 Eagle ., 112 
 
 Raileoad Co. v. Howard 765 
 
 Railroad Co. v. Boward 260, 848 
 
 Raileoad Co. v. State 733 
 
 Railroad Tax Cases, The 668 
 
 Reed V. Home Sav. Bank 394 
 
 Rehbein v. Rahr 127 
 
 Reid V. Eatonton Mfg. Go 801 
 
 Reid V. Owensboro Sav. Bank & 
 
 Trust Co 161 
 
 Rex v. The Hostmen of Newcas- 
 tle 408 
 
 Riche V. Ashhury Park R. Co. . . 305 
 Roberts v. Owensboro Sav. Bank 
 
 & Trust Co 161 
 
 Robertson v. Bullions 654 
 
 Robinson v. Holbrook 268 
 
 Robinson v. Smith 448, 652 
 
 Ro'botham v. Prudential Ins. Co. 265 
 Rogers v. Danby Vniversalist Soc. 507 
 Rosenbaum v. United States 
 Credit System Go 719 
 
 ROTHEKHAM ALTJM AND CHEMI- 
 CAL Co., In ee 196 
 
 Rough V. Breitung 25 
 
 , Mouse V. Merchants'. Nat. Bank. , 774 
 
 Page 
 
 Russell V. McLellan ..3-, 703 
 
 Ryau V. Martin 101 
 
 Sf Louis, V. & T. H. R. Co. v. 
 
 Terre Haute & I. R. Co 331 
 
 St. Peter's Roman Catholic Con- 
 gregation V. Germain . ; , 341 
 
 San Diego Gas Co. v. Frame ... 65 
 San Mateo County v. Southern 
 
 Pac. R. Co ..58, 668 
 
 Saegent v. Feanklin Ins. Co... 582 
 Savings Bank of Rock Hill, Ex 
 
 parte 763 
 
 Savings Trust Go. v. Bear Valley 
 
 Irr. Co 341 
 
 Sa-Wyee v. Ho as 824 
 
 Sawyer v. Methodist Episcopal 
 
 Society 507 
 
 Schenok v. Andrews 822 
 
 Schenectady & S. P. R. Go. v. 
 
 Thatcher ." 678 
 
 Scheuer v. Smith & Co 698 
 
 Schleider v. Dielman 719 
 
 Schnittger v. Old Home Consol. 
 
 Min. Co 644 
 
 School Dist. No. 56 v. St. Joseph 
 
 Fire & Marine Ins. Co. 688 
 
 Schwartz v. State '. 428 
 
 Soott V. Baltimore & 0. R. Co.. . 470 
 
 Scott v. Insurance Co 448 
 
 Scripture v. Prancestown Soap- 
 stone 'Go 583 
 
 Seaton v. Grant 541 
 
 Security Nat. Bank v. St. Groim 
 
 Power Co 309 
 
 See V. Eeppenhevmer 822 
 
 Sexton v. Wheaton 754 
 
 Seymour v. Chicago Guaranty 
 
 Fund Life Soc 315 
 
 Shaeples v. Habdinq .V. 767 
 
 Shepaug Voting Trust Gases 440 
 
 Shoe Co. v. Hoit 135 
 
 Simpson v. Directors ofi Westmin- 
 ster Palace Hotel Co ; . 488 
 
 Slaek v. Highgate Aechway Co. 242 
 
 Slee v. Bloom . . •. 696 
 
 Slocum V. Head 65 
 
 Small V. Minneapolis Electro Ma- 
 trice Go :... 236 
 
 Smith V. Hurd 499 
 
 Smith V. San Francisco & N. P. 
 
 R. Co 435 
 
 Smith V. Sheeley 84 
 
 Smith V. Silver Valley Min. Co. 72 
 Society of Middlesex Husband- 
 men & Manufacturers v. Davis 69 
 
 Society Perun v. CleveEind 104 
 
 Society Perun v. Hay , 104 
 
 Southern Life Insurance & Trust 
 ■ C.a.v.. Gole ,.,.. 580 
 
TABLE OF CASES 
 
 XIX 
 
 Page 
 South Mountain Min. Go., In re. . 822 
 Southwestern Slate Co. v. Ste- 
 phens : 139 
 
 Southwest Mo. Light Co. v. Jop- 
 
 Un 21^ 
 
 Spahr v. Bank 101 
 
 Spear v. Bach 580 
 
 . Speab v. Grant 848 
 
 Speeing's Appeal 620 
 
 Spring Valley Waterworks, In 
 
 RE 63 
 
 State V. Baltimore & O. R. Go. . . 402 
 State V. Golleptors of WewarTc. . . . 215 
 
 State V. Gom'rs of Mansfield 215 
 
 State V. Ferris 421 
 
 State V. Hancock 215 
 
 State V. Janesville Water Go. .. 710 
 
 State V. Morris & B. E. Co 396 
 
 State V. Portage Gity Water Go. 215 
 State V. President & Directors of 
 
 Ohio & Miss. R. Go 402 
 
 State V. Southern B. & L. Ass'n 710 
 
 State V. Standard Oil Co 52 
 
 State V. Stevens 83 
 
 State v. Stockley 429 
 
 State V. Topeka Water Co 215 
 
 State V. United States Endow- 
 ment & Trust Co , 706 
 
 State V. Western Irrigating Canal 
 
 Co , . . . 224 
 
 State V. Western Irrigating Ganal 
 
 Go 215 
 
 State Board of Agriculture v. Git- 
 
 ieens' St. R. Go 305 
 
 State Savings Ass'n of St. Louis 
 
 V. Kellogg 696 
 
 State Trust Co. v. Turner 768 
 
 Steact v. Little Rock E. Co. . . 835 
 
 Stevnway's Petition, In re 412 
 
 Sternbergh v. Brock 466 
 
 Stevens v. Rutland & B. R. Co. . . 497 
 
 Sticknet's Will, In re 357 
 
 Stourbridge Ganal Go. v. Wheeley 215 
 
 String v. Turnpike Co 215 
 
 Stuart V. Sayden 846 
 
 Sturdevant Bros. & Go. v. Fa/r- 
 
 mers' & Merchants' Bank 362 
 
 Sturgeon Bay, etc.. Go. v. Lea- 
 
 tham 215 
 
 Sutton's Hospital, In re 216 
 
 Swan Land <& Cattle Go. v. Frank 848 
 
 Swift V. Smith 703 
 
 Swim v. Wilson 584 
 
 Taft V. Hartford, etc., R. Go 466 
 
 Talladega Ins. Co. v. Landers ... 71 
 
 Taylor v. Gummmgs 822 
 
 Taylor v. Griswold 423 
 
 Telegraph, The v. Loetscher 184 
 
 Tempel t. Dodge 615 
 
 P^ge 
 Thomas v. Dakin . . ., 5 
 
 Thomas. y. Railroad Cp 233, 332 
 
 Thompson v. Candor 109 
 
 Thornton v. Marginal Freight R. 
 
 Co ., 712 
 
 Thrasher v. Pike County R. Co... 112 
 
 Tiffln Glass Co. v. Stoehr 719 
 
 Tilson V. Warwick Gaslight Go. . . 197 
 Timm v. Grand Rapids Brewing 
 
 Co 258 
 
 Tisdale v. Harris 580 
 
 TiTcoMB V. Union Marine & Fire 
 
 Ins. Co 576 
 
 ToMKiNSON V. Railroad Co 255 
 
 Treat v. Insurance Co. 530 
 
 Trevor v. Whitworth 278 
 
 Troy V. Rutland R. Go. v. Kerr. . 678 
 
 Trust Co. v. (jEILFUSS 776 
 
 Trustees of School Dist. No. S in 
 
 Blandford v. Qiits 74 
 
 Turniull v. Prentiss Lumter Co. 742 
 Turner v. Grangers' Life & 
 
 Health Ins. Co 813 
 
 Twin-Lick Oil Co. of West Virgin- 
 ia v. Marbury 641 
 
 Ulmer v. Lime Rock R. Co 30 
 
 Union Bank v. Jacobs 236 
 
 Union Mut. Fire Ins. Go. v. Key- 
 
 ser 608 
 
 United States v. Milwaukee Re- 
 frigerator Transit Co 55 
 
 United States v. Stanford 829 
 
 United States Electric Power & 
 Light Co. v. State .^ 37 
 
 Vance & Kirley v. McNabl) Goal, 
 etc., Go 771 
 
 Yan Cleve v. Bretelle 822 
 
 VenaMe Bros. v. Southern Gran- 
 ite Go 715 
 
 Venner v. Chicago City-R. Co 
 
 418, 682 
 
 Venner v. Great Northern R. Co. 557 
 
 Vermont MarMe Co. v. Declez 
 Granite Co 826 
 
 Veeplanck v. Mercantile Ins. 
 Co. 652 
 
 Vicksturg & Yazoo Gity Tel. Co. 
 V. Citizens' Tel. Go 771 
 
 Tillage of Hyde Park v. Oak- 
 woods Cemetery Ass'n 691 
 
 VosE V. Grant 848 
 
 Wagner Institute v. Philadelphia 665 
 
 Wales v. Stetson , 661 
 
 Wallace v. Carpenter Co 830 
 
 Walla Walla Water Go. v. Walla 
 
 Walla 215 
 
 Wallerstein v. Ervin 328 
 
tx 
 
 *ABLB OF CASKS 
 
 Page 
 Wake v. GRiND JtrNCiroN Wa- 
 ter Co 504 
 
 Warren v. Pirn 445 
 
 Water Co. v. Herberger 585 
 
 Waterhouse v. Jamieson 836 
 
 Weatherford, M. W. & N. W. K. 
 
 Co. V. Granger 199 
 
 WeinVurgh v. Union St. Ry. Ad- 
 vertising Co 428 
 
 Welland Canal Go. v. Hathaway 96 
 
 Welton V. Saffery 820 
 
 Western of Canada Oil Lands & 
 
 Worhs Co., In re 836 
 
 Westwn Vftion Tel. Go. 'v. Bur- 
 lington & S. W. R. Co 331 
 
 West Kiver Bridge Co. v. Dii.. 688 
 West Winsted 8av. Ba/ik & Build- 
 ing Ass'n V. Ford 100 
 
 White V. Commercial & Farmers' 
 
 Bank of Rock Hill 763 
 
 White Mountains R. Co. v. 
 
 Eastman 156 
 
 Whitfield V. South Eastern R. Co. 396 
 
 Whitney Arms Co. v. Barlow 311 
 
 Whittenton Mills v. Upton 264 
 
 Willcinson v. Bertoclc & Co SOS 
 
 Williams v. Cheney 102 
 
 Williams v. Hewitt 100 
 
 Williams v. McKay 852 
 
 Williamson t. Kokomo, B. & L. 
 
 F. Ass'n 108 
 
 WlUmott V. London Road Car Co. 47 
 Wilmington City R. Co. v. Peo- 
 ple's R. Co 665 
 
 Page 
 Wilmington City R. Co. v. Wil- 
 mington & B. 8. R. Co 665 
 
 Wilson V. Carter Oil Co 264 
 
 Wilson V. Leary ^ 723 
 
 WindmuUer v. Standard Distil- 
 ling & Distributing CO 479 
 
 Winter v. Baker 848 
 
 Winterfi^ld v. Cream City Brew- 
 ery Co 260 
 
 WoLE V. Railroad Co 530 
 
 Wood v. Dummer 275 
 
 Wood V. Dummer 848 
 
 Woodforic V. Union Banlo 678 
 
 Woods V. OreenSboro Natural Gas 
 
 Co .'215 
 
 Wooten V, Wilmington & W. R. 
 
 Co 589 
 
 Wragg, In re 822 
 
 Wrexham, Mold & Connah's Quay 
 
 R. Co., In i:e 373 
 
 Wright V. Floyd 532 
 
 Wright V. Pipe Line Co 361 
 
 Teaton v. Bank of Old Dominion 665 
 Young v. Erie Iron Go 822 
 
 ZaBmfcte v. Maclcensaolc & N. Y. 
 
 R. Co. 678 
 
 Zabriskib v. Railroad Co 366 
 
 Zeimer v. C. G. Bretting Mfg. Co. 779 
 Zinc-Cwrbonate Co. v. First Nat. 
 
 Bank 309 
 
 
CASES ON THE LAW OF 
 CORPORATIONS 
 
 CHAPTER I 
 CHARACTERISTIC FEATURES OF A CORPORATION 
 
 SECTION 1.— THE CORPORATION AS DISTINGUISHED 
 FROM OTHER FORMS OF BUSINESS ASSOCIATION 
 
 PRATT V. BACON et al. 
 (Supreme Court of Massachusetts, 1830. 10 Pick. 123.) 
 
 Bill in equity by the plaintiff, a stockholder in the Merino Wool 
 Factory Company, against the defendants, also stcickholders, alleging 
 that the corporation has ceased to carry on business ; that the defend- 
 ants have unjustly possessed! themselves of all the property of the 
 corporation, and sold the same in the name of the corporation and 
 received the proceeds; that the defendants, refuse to account, etc. 
 Prayer for account and for general relief. Plea filed to the juris- 
 diction of the Court as a court of equity.^ 
 
 Per Curiam. The Court are all of opinion, that this bill cannot be 
 sustained. It is, in effect, a bill by one corporator against other cor- 
 porators, for an account of the corporate property. The plaintiff con- 
 siders the act of incorporation as still in force, and the corporation 
 as still subsisting, and proceeds upon the ground, that as between 
 each other, corporators are partners, joint-tenants or tenants in com- 
 mon, within the meaning of the statute, conferring upon this Court 
 equity jurisdiction in controversies between parties standing in those 
 relations. The equity jurisdiction of this Court is strictly limited, in 
 regard to the subject matter of it, though ample and entire, as to every 
 incidental question, and every remedy and course of proceeding, fall- 
 ing within the scope of such subject matter. It has often been de- 
 cided, that the Court does not take equity jurisdiction, except where 
 it is given by statute, either in express terms or by necessary implica- 
 
 1 statement of facts substituted. 
 Rich. Corp. — ^1 
 
2 CHARACTERISTIC FEATURES OF A CORPORATION (Cll. 1 
 
 tion, and that it will not be assumed, by analogy or equity of construc- 
 tion.^ 
 
 There is certainly some resemblance between a corporation and 
 a partnership, inasrriuch as each may consist of two or more persons 
 associated together, and acting in concert, for the promotion of some 
 private or public object. But the difference between the relative rights 
 and dtities, the legal qualities and characteristics of the members of 
 a manufacturing corporation, and copartners and tenants in common, 
 is obvious and strongly marked. A corporation is an ideal body, sub- 
 sisting only in contemplation of law, which may be composed of 
 members constantly changing, which is deemed, for useful purposes, 
 to have an existence independently of that of all the-, members of 
 which it is composed, to be capable of perpetual succession, and of 
 acquiring, holding and conveying property. Its real and personal 
 property is deemed to be vested in the corporation and not in the in- 
 dividuals composing it; and these have no other interest in it, or 
 control over it, than the qualified ones, of electing officers, and re- 
 ceiving dividends and profits in the manner provided by the act of 
 incorporation, or the votes and by-laws, which may be made pur- 
 suant to the powers conferred by it. They cannot bind their as- 
 sociates, or the corporation, either in any personal obligation, or ex- 
 ecutory contract, nor alienate, pledge or otherwise affect the corpo- 
 rate property, by any sale, mortgage, contract or other personal act. 
 They may change their relation to the corporation, at any time, by 
 a sale of their shares; and such sale is not deemed to be a transfer 
 of any legal interest in the corporate property, but of the qualified, 
 beneficial interest before mentioned. By a like transfer of shares, 
 strangers may become members without the consent of the corpora- 
 tion, unless when some restraint is imposed upon the general right 
 by a by-law, and such by-law, by imposing a particular limitation, 
 would itself imply the existence of the general rule. It is true, that 
 at the time this corporation was established, by force of a particular 
 provision of law, the individual members were made conditionally 
 liable for the debts of the corporation; but as the law then stood, 
 this liability ceased, by their ceasing to be members, by a sale of their 
 'shares, even for debts and obligations incurred whilst they were mem- 
 bers, contrary to the well known rule of law in relation to partners. 
 But further, this liability was several and not joint; it was provi- 
 sional and collateral, in the nature of a guaranty, not the debt or ob- 
 ligation of the corporators themselves personally; it resulted from 
 the positive provision of the statute, and not the common law obliga- 
 tion of a contract deemed to be made by them, and growing out of 
 the relation in which they were placed. In all these respects the mem- 
 bers of a manufacturing corporation, in their legal relations to each 
 
 2 See Galvin v. Shaw, 12 Me. 4i54 (1835) ; Given v. Simpson, 5 Greenl. (Me.) 
 303 (1828). 
 
Sec. 1) DISTINGUISHED FROM OTHER BUSINESS ASSOCIATIONS 3 
 
 other, differ essentially and radically from partners, joint-tenants and 
 tenants in common ; and however beneficial it might be for the mem- 
 bers of corporations, now so extensively multiplied through the Com- 
 monwealth, to have the aid of a court of equity, in adjusting the mul- 
 tifarious and perplexing controversies, which are likely to arise out 
 of this relation, still we are all of opinion, that by no reasonable con- 
 struction of the statute relied upon, can their case be brought within 
 the equity jurisdiction given by that statute.^ 
 
 MERCHANTS' NAT. BANK v. WEHRMANN (1906) 202 U. 
 S. 295, 300, 26 Sup. Ct. 613, 614, 50 L. Ed. 1036, Holmes, j. ; * * * 
 "We may assume further, in accordance with a favorite speculation of 
 Jhese days, that philosophically a partnership and a corporation illus- 
 trate a single principle, and even that the certificate of a share in one 
 represents property in very nearly the same sense as does a share in the 
 other. In either case the members could divide the assets after paying 
 the debts. But from the point of view of the law there is a very im- 
 portant difference. ,The corporation is legally distinct from its mem- 
 bers, and its debts are not their debts. Therefore when a paid-up 
 share in a corporation is taken, no liability is assumed, apart from 
 statute, but simply a right equal in value to a corresponding share 
 in the assets and goodi will of the concern after its debts are paid. 
 If the right is worth something it is a proper security, and if it is 
 worth nothing no harm is done. It is true that a statute may add a ' 
 liability, but when, as usual, this is limited to the par value of the 
 stock, it has not been considered to affect the nature of the share so 
 fundamentally as to prevent a national bank from taking it in pledge, 
 with qualifications, as it might take land or bonds. 
 
 "But to take a share by transfer on the books means to become a 
 member of the concern. The person who appears on the books of the 
 corporation as the stockholder is the stockholder as between him and 
 the corporation, and his rights with regard to the corporate property 
 are incident to his position as such. National Bank v. Case, 99 U. S. 
 628, 631 [25 L. Ed 448] ; Pullman v. Upton, 96 U. S. 328 [24 h. 
 Ed. 818]. This does not matter, or matters less, in the case of a 
 corporation,* for the reasons which we have stated. But when a sim- 
 ilar transfer is made of a share in a partnership, it me'ans that the 
 transferee at once becomes a member of the firm and goes into its 
 business with an unlimited personal liability, in short, does precisely 
 what a national bank has no authority to do. This the Supreme 
 'Court of Ohio rightly held beyond the powers of the bank." 
 
 sjlussellv. McLeUan, 14 Pick. (Mass.) 63 (1833). ' 
 
4 CHARACTERISTIC FEATURES OF A COBPORATION (Ch. 1 
 
 PEOPLE ex rel. NATIONAL EXP. CO. v. COLEMAN et al.. 
 
 Tax Com'rs. 
 
 (Court of Appeals of New York, 1892. 133 N. T. 279, 31 N. E. 96, 16 L. 
 
 R. A. 183.) 
 
 Proceedings on the relation of Lock W. Winchester, as treasurer 
 of the National Express Company, to review the action of the tax 
 commissioners in taxing the company on its capital stock as a corpora- 
 tion. From a judgment of the general term, affirming a judgment of 
 the special term vacating the assessment, the commissioners appeal. 
 
 Finch, J. The relator was taxed upon its capital, on the ground 
 that it had become a corporation, within the meaning of thle provi- 
 sion of the Revised! Statutes which enacts that^ "all moneyed or stock 
 corporations deriving an income or profit from their capital, or other- 
 wise, shall be liable to taxation on their capital in the manner here- 
 inafter prescribed." 1 Rev. St. pt. 1, c. 13, tit. 4, § 1. The com- 
 pany was formed 'as a joint-siock company or association, in 1853, 
 by a written agreement of eight individuals with each other, the whole 
 force and effect of which, in constituting and creating the organiza- 
 tion, rested upon the common-law rights of the individuals, and their 
 power to contract with each other. The relation they assumed was 
 wholly the product of their mutual agreement, and dependent in no 
 respect upon the grant or authority of the state. It was entered into 
 under no statutory license or permission, neither accepting nor de- 
 signed to accept any franchise from the sovereign, but founded) wholly 
 upon the individual rights of the associates to join their capital and , 
 enterprise in a relation similar to that of a partnership. A few years 
 earlier the Legislature had explicitly recognized the existence and 
 validity of such organizations, founded upon contract, and evolved 
 from the common-law rights of the citizens. Laws 1849, c.^ 258. 
 That act provided that any joint-stock company or association which 
 consisted of seven or more members might sue or be sued in the name 
 of its president or treasurer, and with the same force and effect, so 
 far as the joint property and rights were concerned, as if the suit 
 should be prosecuted in the names of the associates ; but the act ex- 
 plicitly disclaimed any purpose of converting the joint-stock associa- 
 tions recognized as existing into corporations by a section prohibit- 
 ing any such construction. Section 5. In 1851 the act was amended 
 in its form and application, but in no respect material to the present 
 inquiry. There is no doubt, therefore, that, when the- company was 
 formedl and went into operation, the law recognized a distinction and 
 substantial difference between joint-stock companies and corporations, 
 and never confused one with the other; and that the existing statute 
 which \taxed the capital of corporations had no reference to or opera- 
 tion upon joint-stock companies or associations. 
 
 But two things have since occurred. The legislature, while stead- 
 
Seel) DISTINGUISHED FROM OTHER BUSINESS ASSOCIATIONS '5 
 
 ily preserving the distinction of names, has, with equal persistence, 
 confused the things, by obliterating substantial and characteristic 
 marks of difference; vmtil it is now claimed that the joint-stock as- 
 sociations have grown into and become cdrporatipns by force of the 
 continued bestowal upon them of corporate attributes. It is said, and 
 very probably correctly said, that the legislature may create a cor- 
 poration without explicitly declaring it to be such, by the bestowal 
 
 , of a corporate franchise or corporate attributes, and the cases of bank- 
 ing associations are referred to as instances of actual occurrence. 
 Thomas v. Dakin, 22 Wend. 9 ; Bank v. Watertown, 25 Wend. 686 ; 
 People V. Niagara, 4 Hill, 20. It is added that such result may hap- 
 pen even without the legislative intent, and because the gift of corpo- 
 rate powers and attributes is tanta!mount to a corporate creation. It 
 is then asserted that a series of statutes, beginning with the act of 
 1849, has ended in the gift to joint-stock associations of every essential 
 attribute possessed by and characteristic of corporations (Laws 1853, 
 c^. 53 ; Laws 1854, c. 245 ; Laws 1867, c. 289 ;) that the lines of dis- 
 tinction between the two, however far apart in the beginning, have 
 steadily converged, »ntil they have melted into each other and become 
 identical ; that every distinguishing mark and characteristic has been 
 obliterated ; and no reason remains why joint-stock associations should 
 not be, in all respects, treated and regarded as corporations. 
 
 Some of this contention is true. The case of People v. Wemple, 
 117 N. Y. 136, 22 N. E. 1046, 6 L. R. A. 303, shows very forcibly 
 how almost the full measure of corporate attributes has, by legislative 
 enactment, been besfowed upon joint-stock associations, until the dif- 
 ference, if there be one, is obscure, elusive, , and difiEcult to see and 
 describe. And yet the truth remains that all along the line of legis- 
 lation the distinctive names have been retained as indicative and rep- 
 resentative of a difference in the organizations themselves. I As re- 
 cently as the acts of 1880 and 1881, which formed the subject of 
 consideration in the Wemple Case, the legislature, dealing with the 
 subject of taxation, and desiring to tax business and franchises, im- 
 posed the liability upon "every corporation, joint-stock company, or 
 association whatever, now or hereafter incorporated or orgaijiized un- 
 dler any law of this state." It is significant that the words "or or- 
 
 ■ ganized" were inserted by amendment, and evidently fpr the under- 
 stood reason that joint-stock companies could not properly be said to 
 be "incorporated," but might be correctly described as "organized" 
 under the laws of the state. This persistent distinction in the lan- 
 guage of the statutes I should not be inclined to disregard! or treat 
 as of no practical consequence, when seeking to arrive at the true in- 
 tent and proper construction of the statute, even if I were unable to 
 discover any practical or substantial difference between the two classes 
 of organizations upon which it could rest or out of which it grew ; 
 
6 CHAEACTEEISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 for the distinction so sedulously and persistently observed would 
 strongly indicate the legislative intent, and so the correct cbnstruction. 
 
 But I think there was an original and inherent difference between 
 the corporate and joint-stock companies, known to our law, which 
 legislation has somewhat obscured, but has not destroyed, and that 
 difference is the one pointed out by the learned counsel for the re- 
 spondent, and which impresses me as logical, and well supported by 
 authority. It is that the creation of the , corporation merges in the 
 artificial body and drowns in it the individual rights and liabilities of 
 the members, while the organization of a joint-stock company leaves 
 the individual rights and liabilities unimpaired and in full force. The 
 idea was expressed in Supervisors of Niagara v. People, 7 Hill, 512, 
 and in Gifford v. Livingston, 2 Denio, 380, by the statement that the 
 corporators lost their individuality, and merged their individual char- 
 acters into one artificial existence ; and upon these authorities a cor- 
 poration is defined, on behalf of the respondents, to be "an artificial 
 person created by the sovereign from natural persons, and in which 
 artificial person the natural persons of which it is composed become 
 merged and nonexistent."- I am conscious that legal definitions invite 
 and provoke criticism, because the instances are rare in which they 
 prove to be perfectly accurate; and yet this one offered to us may 
 be accepted, if it successfully bears some sufficient test. In putting 
 it on trial, we may take the nature of the individual liability of the 
 corporators on the one hand, and of the associates on the other, for 
 the debts contracted by their respective organizations, as a sufficient 
 test of the difference between them, and contrast their nature and 
 character. 
 
 It is an essential and inherent characteristic of a corporation that 
 it alone is primarily liable for its debts, because it alone contracts them, 
 except as that natural and necessary consequence of its Creat^pn is 
 modified in the act of its creation by some explicit command of the 
 statute which either imposes an express liability upon the corporators 
 in the nature of a penalty, or affirmatively retains and preserves what 
 would have been the conimon-law liability of , the members from the 
 destruction involved in the corporate creation. In other words, the 
 individual liability of the members, as it would have existed at com- 
 mon law, is lost by their creation into a corporation, and exists there- 
 after only by force of the statute, upon some new and modifying con- 
 ditions, to some partial or changed extent, and so far preventing by 
 the intervention of an express command the total destruction of in- 
 dividual liabilities which otherwise would flow from- the inherent ef- 
 fect of the corporate creation. The penalties sometimes imposed are 
 of course new statutory liabilities which never, at common law, rested 
 upon the individual members. The retained liability occasionally es- 
 tablished is in the nature and a parcel of such - original liability, as 
 
Sec. 1) DISTINGUISHED FROM OTHER BUSINESS ASSOCIATIONS 7 
 
 we had occasion to show in' Rogers v. Decker, 131 N. Y. 490, 30 N. 
 E. 571, but is retained by force of the express command of the statute, 
 and in that manner saved from the destruction which otherwise would 
 follow the simple creation of the corporation. Ordinarily these in- 
 dividual liabilities exist upon other than common-law conditions, and 
 make the corporators rather sureties or guarantors of the corpora- 
 tion than original debtors, since in general their liability arises after 
 the usual remedies against the cdrporation have been exhausted. But, 
 where that is not so, the invariable truth is that the creation of the 
 corporation necessarily destroys the common-law liability of the in- 
 dividual, members for its debts, and requires at the hands of the creat- 
 ing power an affirmative imposition of new personal liabilities, or a 
 specific retention of old ones from the destruction which would other- 
 wise follow. 
 
 Exactly the opposite is true of joint-stock companies. Their for- 
 mation destroys no part or portion of their common-law liability for 
 the debts contracted. Those debts are their debts, for which they 
 must answer. Permission to' sue their president or treasurer is only 
 a convenient mode of enforcing that liability, but in no manner creates 
 or saves it. The statute of 1853' did interfere with it. That act re- 
 quired, in the first instance, a suit against the president or treasurer, 
 and so a preliminary exhaustion of the joint property. But that act 
 ■was modal, and determined the procedure. It suspended the common- 
 law right, but recognized its existence. Wle so held in Witherhead v. 
 Allen, 4 Abb. Dec. 628, and at the same time said that the associations 
 were not corporations, but mere partnership concerns. Even that 
 mode of procedure has been modified by the Code (sections 1922, 
 1923) so that the creditor, at his option, may sue the associates with- 
 out first bringing his action against the president or treasurer. These 
 last and quite recent enactments show that the legislative intent is 
 still to preserve and not destroy the original difference between the 
 two classes of organizations ; to maintain in full force the common- 
 law liability of associates, and not to substitute for it that of corpo- 
 rators ; and, preserving in continued operation that normal and dis- 
 tinctive difference, to evince a plain purpose not to merge the two 
 organizations in one, or destroy the boundaries which separate them. 
 That intent, once clearly ascertained, determines the construction to 
 be adopte'd, and may be the only reliable test in view of the power of 
 the state to clothe one organization with all the attributes of the other. 
 The drift of legislation has been to lessen and obscure the original and 
 characteristic difference. On the one hand, corporations have been 
 created with positive, provisions retaining more or less the individual 
 liability of the members, and on the other, the joint-stock companies 
 have been clothed with most of the corporate attributes; but enough 
 of the original difference remains to show that our legislation not only 
 carefully preserves the distinction of names, but sufficient, also, of the 
 
8 CHAEACTEEISTIC FEATURES OF A COEPOKATION (Ch. 1 
 
 original difference of character and quality to disclose a clear intent 
 not to merge the two. 
 
 We may thus see upon what the legislative intent to preserve theni 
 as separate and distinct is founded, and what distinguishing charac- 
 teristics remain. The formation of the one involves the merging and 
 destruction of the common-law liability of the members for the debts, 
 and requires the substitution of a new, or retention' of the old, lia- 
 bility by an affirmative enactment which avoids the inherent effect of 
 the corporate creation ; in the other the common-law liability remains 
 unchanged and unimpaired, andl needing no statutory intervention to 
 preserve or restore it. The debt of the corporation is its debt, and 
 not that of its members ; the debt of the joint-stock company is the 
 debt of the associates, however enforced. The creation of the corpo- 
 ration merges and drowns the liability of its corporators; the crea- 
 tion of the stock company leaves unharmed and unchanged the lia- 
 bility of the associates. The one derives its existence from the con- 
 tract of individuals ; the other, from the sovereignty of the state. 
 The two are alike, but not the same. More or less they crowd upon 
 andl overlap each other, but without losing their identity ; and so, 
 while we cannot say that the joint-stock company is a corporation, 
 we can say, as we did say, in Van Aernam v. Bleistein, 102 N. Y. 
 360, 7 N. E. 537, that a joint-stock company is a partnership, with' 
 some of the powers of a corporation. Beyond that we do not think 
 it is our duty to go. The order should be affirmed, with costs. All 
 , concur.* , 
 
 EDWARDS V. WARREN LINOLINE & GASQUNE WORKS, 
 
 Limited. 
 
 (Supreme Judicial Court of Massachusetts, 1897. 168 Mass. 564, 47 N. E. 502, 
 I 38 L. R. .A. 791.) 
 
 Action by one Edwards against the Warren Linoline & Gasoline 
 Works, Limited, in which the Walworth Manufacturing Company 
 was summoned as trustee. From a judgment discharging the trustee, 
 and dismissing the action, plaintiff appeals. Affirmed. 
 
 Lathrop, J.° It is conceded by the plaintiff that as the jurisdic- 
 tion of the court depends upon charging the Walworth Manufactur- 
 ing Company as trustee, inasmuch as there was no service upon the 
 principal defendant, the action was properly dismissed upon discharg- 
 ing the trustee. The question, then, is whether the trustee was prop- 
 erly discharged, and this depends upon whether the principal defend- 
 ant, an association formed under the laws of the state of Pennsyl- 
 vania, is a partnership or a corporation. 
 
 * Accord: In re Jones, 172 N. Y. 575, 65 N. E. 570, 60 L. R. A. 476 (1902). 
 Compare In re Pittsburg, 204 Pa. 432, 54 Atl. 316 (1902). 
 e A part of the opinion is omitted. 
 
I 
 
 Sec. 1) DISTINGUISHED FBOM OTHER BUSINESS ASSOCIATIONS 9 
 
 The trustee's answers to interrogatories refer to Brightly's Purd. 
 Dig. (12th Ed.) 1086-1088, and to the cases of Eliot v. Himrod, 108 
 Pa. 569, and Sheble v. Strong, 128 Pa. 315, 18 Atl. 397, as containing 
 the law relative to the statement in the answer that the principal de- 
 fendant was a partnership, and not a corporation. From the Digest 
 it appears that such an association is styled a "partnership associa- 
 tion," and not a corporation. By the terms of the various acts which 
 have been passed upon the subject, such an association may be formed 
 by three or more persons. The capital is alone to be liable for the 
 debts. There is no personal liability of the members, except to the 
 extent of any unpaid subscription, if certain provisions of the act 
 are complied with. "Interests in such partnership associations" are 
 declared to be personal estate, and are transferable, under such rules 
 and regulations as shall from time to time be prescribed; but, if 
 there are no such rules andl regulations, the transferee of any interest 
 in any such association is not entitled to any participation in the sub- 
 sequent business of the association, unless elected to membership there- 
 in, by a vote of a majority of the members in number and value of 
 their interests. The business is to be conducted by a board of man- 
 agers. The duration of the association may be fixed by the articles 
 of association, but is not to exceed 20 years. 
 
 Power to adopt and use a common seal is given in case the associa- 
 tion has occasion to execute a deed of conveyance or bonds and mort- 
 gages. Land sold to the association, or by it, is required to be con- 
 veyed in the name of the association. It is further provided : "Said 
 association shall sue and be sued in their association name ; and, when 
 suit is brought against any such association, service thereof shall bev 
 made upon the chairman, secretary, or treasurer thereof, which service 
 shall be as complete and effective as if made upon each and every 
 member of such 'association." 
 
 In Eliot V. Himrod, 108 Pa. 569, 580, it is said' by Mr. Justice Trun- 
 key, in delivering the opinion of the court: "The formation of a 
 limited partnership association is materially different from the crea- 
 tion of a corporation. Such association is treated in the statute as 
 a partnership, which, upon ;the performance of certain acts, shall pos- 
 sess specified rights and immunities. In contemplation that the as- 
 sociation may consist of many members, for convenience it is clothed 
 with many of the features and powers of a corporation, such as the 
 right to sue and be sued, grant and receive, in the association name. 
 But no man can purchase the interest of a member, and- participate 
 in the subsequent business, unless by a vote of a majority of the 
 members in number and value of their interests. No charter is grant- 
 ed to the persons who record their statement." Sheble v. Strong, 128 
 Pa. 318, 18 Atl. 397, is to the same effect. 
 
 If the question presented were an open one in this commonwealth, 
 it might well be held that such an association could be considered to 
 
10 CHARACTEEISTIC FEATURES OP A COEPOEATION (Ch. 1 
 
 have so many of the characteristics of a corporation that it might be 
 treated as one. At common law, a joint-stock company formed for 
 business purposes is considered in this commonwealth merely as "a 
 partnership. Tappan v. Bailey, 4 Mete. 529; Tyrrell v. Washburn, 
 6 Allen, 466. The same rule has been applied to joint-stock associa- 
 tions formed under the laws of the state of New York, which do not 
 differ, in any essential respect, from the laws of Pennsylvania. Taft 
 v. Ward, 106 Mass. 518, 111 Mass. 518; Bodwell v. Eastman, 106 
 Mass. 526; Gott v. Dinsmore, 111 Mass. 45, 51 ; Railroad v. Pearson, 
 128 Mass. 445. See, also. Frost v. Walker, 60 Me. 468 ; Dinsmore v. 
 Railroad, 32 Leg. Int. 388, 11 Phila. 483, and Fed. Cas. No. 3,921. 
 
 In Taft v. Ward, 106 Mass. "518, 524, speaking of the New York 
 statutes, it was said by Chief Justice Chapman : "These statutes pro- 
 vide, in substance, that any association consisting of seven or more 
 shareholders or associates may sue and be sued in the name of the 
 president or treasurer; that in such suit a judgment may be rendered 
 against the company; and until an execution is issued against the 
 company and returned unsatisfied, no action shall ^e maintained 
 against individuals. These statutes seem to apply to all corpartner- 
 ships consisting of seven or more members. The members of such 
 companies are authorized to hold their interests in shares, which are 
 assignable like shares of stock in a corporation, and the action against 
 the members is regarded as supplementary to the action against the 
 company. Waterbury v. Express Co., 50 Barb. (N. Y.) 157; Rob- 
 bins V. Wells, 1 Rob. (N. Y.) 666. So far as these statutes relate to 
 the procedure in courts for the recovery of debts, they are limited to 
 the state of New York ; for e.ach state adopts its own forms of rem- 
 edy. Story, Confl. Laws, §§ 556-558. The plaintiff could not in this 
 commonwealth bring an action against the president or secretary, and 
 obtain a judgment against the company by its name; nor could he 
 bring an action against the members,' or any of them, as a supplement 
 to such an action. In order to do so, we must hold that the statutes 
 of New York prescribing forms of action are in force here. In this 
 commonwealth, such a company is a mere co-partnership." 
 
 There is nothing inconsistent with an association being a partner- 
 ship that it has shares, or that the shares are transferable, or that the 
 death of a member shall not work a dissolution of the partnership. 
 Phillips V. Blatchford, 137 Mass. 510. See, also, Hoadley v. County 
 Com'rs, 105 Mass. 519; Gleason v. McKay, 134 Mass. 419. 
 
 The case mostly relied on by the plaintiff is Liverpool Ins. Co. 
 V. Massachusetts, 10 Wall. 566, 19 L. Ed. 1029, which was taken to 
 the supreme court of the United 'States on a writ of error from this 
 court. See Oliver v. Insurance Co., lOQ Mass. 531. It was a bill in 
 equity, filed by the treasurer of the commonwealth, under St. 1862, c. 
 224, § 11, to restrain the defendant from prosecuting its business, un- 
 til the tax assessed upon it by section 2 of the statute had been paid. 
 
Sec. 1) DISTINGUISHED FROM OTHER BUSINESS ASSOCIATIONS 11 
 
 This section provided that "each fire, marine, and fire and marine in- 
 surance company incorporated or associated under the laws of any 
 government or state, other than one of the United States," should an- 
 nually pay a certain tax. The defendant was an English company, 
 formed for the business of insurance, and organized under a deed of 
 settlement. Its property was divided into transferable shares. It 
 had power to sue and be sued by the name of its chairman, and a 
 suit did not abate by reason of the death of such officer. The com- 
 pany could sue its own members, and be sued by them. Execution 
 on any judgment recovered against the company could be issued 
 against any proprietor. The statute under which it was formed, and 
 subsequent statutes, declared that it should not be deemed to be in- 
 corporated. The company was composed in part of British subjects, 
 and in part of citizens of the state of New York. 
 
 This court, after stating that it was not a pure corporation nor a 
 pure partnership, but was an association intermediate between corpo- 
 rations known to the common law and ordinary partnerships, and was 
 so far clothed with corporate powers that it might be treated, for the 
 purposes of taxation, as an artificial bod^, proceeded to say: "We 
 think the defendants are an association of the kind to. which the stat- 
 ute of 1862 was expressly intended to apply, as well as to bodies 
 wholly corporate in their character ; and ■ that, being permitted by 
 the comity of our laws to exercise their functions within this common- 
 wealth, they can claim no exemption from regulations appropriate to 
 their collective: action on account of the citizenship or nationality of 
 their individual members." 
 
 In the supreme court of the United States the decree of this court 
 was affirmed, on the ground that the company was a foreign corpo- 
 ration ; but Mr. Justice Bradley, while agreeing in the result, differed 
 on the question whether the company was a corporation. He was of 
 opinion that it was one of those special partnerships called "joint-stock 
 companies," and that it could not sue or be sued in this country with- 
 out legislative aid). This view of Mr. Justice Bradley is in accord with 
 the view of this court, and we are not aware that the view taken by the 
 supreme court of the United States has been followed in this common- 
 wealth. The decisions which we have already cited show that -a for- 
 eign joint-stock company is considered as an association or partner- 
 ship, and not as a corporation. * * * 
 
 Unless the principal defendant can be considered a corporation, it 
 cannot be sued here under the name which the laws of Pennsylvania 
 authorize it to use. Such laws have no extraterritorial force or effect. 
 The trustee, therefore, was properly discharged, In the opinion of a 
 majority of the court, the order discharging the trustee, and dismissing 
 the action, must be affirmed. 
 
12 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 HIBBS V. BROWN et al. 
 (Court of Appeals of New York, ^907. 190 N. Y. 167, 82 N. B. 1108.) 
 
 Action by William B. Hibbs against Alexander Brown and others. 
 From an order of the Appellate Division (112 App. Div. 214, 98 N. Y. 
 Supp. 353), reversing a judgment and order of the Appellate Term, 
 affirming a judgment of the Municipal Court for plaintiff and ordering 
 a new trial, he appeals. 
 
 This is an action to replevy some coupons originally attached to a 
 bond issued by the Adams Express Company, and appellant's right to 
 succeed turns on the question whether said bond and coupons were 
 negotiable and acquired by respondents in due course for value. The~ 
 controlling facts may be summarized as follows : 
 
 In January, 1902, the appellant owned a certain bond of the Adams 
 Express Company, to which were attached interest coupons for $20 
 each, then unmatured. The bond was stolen, and on April 23, 1902, 
 with the coupons still attached, was presented by an unknown individ- 
 ual at the office of respondents, who were conducting a brokerage 
 business at Baltimore, Md., with a request that they buy it. This be- 
 ing declined, such person then requested that they sell it for him, and 
 they thereupon wired Brown Bros, in New York to sell it, which was 
 done on the floor of the Stock Exchange to brokers acting for an 
 undisclosed principal, at the market price. Brown Bros, then notified 
 the respondents that the sale had been made, and the latter accepted 
 the bond and coupons, and paid the vendor thereof in cash the entire 
 proceeds of the sale which they -were to receive from Brown Bros. ' 
 The respondents then forwarded the bond and coupons to Brown 
 Bros, in New York, and they were delivered through the brokers who 
 purchased the same to Erico Bros., the clients for whom they were 
 purchased, and who it is conceded were innocent purchasers for full 
 value before maturity. 
 
 The appellant did not discover the loss of the bond and coupons 
 until July, 1902, and then he notified every bank and trust company in 
 Washington, and also the express company and the Mercantile Trust 
 Company of New York, the trustee at whose office the coupons were 
 payable, to stop payment of the latter, and to identify any person 
 presenting any of them for payment. Erico Bros, presented the cou- 
 pons for September, 1902, and March, 1903, for payment, and the same 
 were paid notwithstanding the previous notice. In March, 1904, 
 Erico Bros, also presented for payment to the trust company the 
 coupons for September, 1903, and March, 1904, and payment was 
 refused. They then through their brokers through whom they origi- 
 nally made the purchase dtemanded of the brokers who had sold 
 them for Brown Bros, that they take back the bond and unpaid cou- 
 pons, and refund the purchase price. Brown ,Bros. made a similar 
 claim on the respondents, who, by purchasing and delivering another 
 
Sec. 1) DISTINGUISHED FROM OTHER BUSINESS ASSOCIATIONS 13 
 
 bond of the same issue, settled the claim and received back the bond 
 and unpaid coupons. When the appellant ascertained! these facts, he 
 demanded the bond arid coupons on the ground that they had been 
 stolen from him; and, on defendants' refusal to deliver, he brought 
 this action to recover three of the coupons which had been detached 
 from the bond. 
 
 The Adams Express Company, which, as before stated, issued the 
 bond, is an unincorporated voluntary association or joint-stock associa- 
 tion organized under the laws of this state for the purpose of carrying 
 on an express business, and having a president and other officers, and 
 issuing certificates of stock which represent and whereby are trans- 
 ferred the rights of the respective shareholders. The bond was issued 
 by the express company in and under its association name, and was 
 one of an issue of $12,000,000, secured! by a certain trust indenture con- 
 veying and pledging for its payment a large amount of securities and 
 property. It bore interest coupons of the ordinary form payable to 
 bearer, and, except for two clauses to be specifically referred to, may 
 be assumed to have been, iti the usual form of a corporation negotiable 
 bond payable to bearer or the registered holder. Of the clauses to be 
 particularly noted, one which is especially important provides that 
 "no person, or future shareholder, officer, manager or trustee of the 
 express company shall be personally liable as partner or otherwise in 
 respect to this bond or the coupons pertaining thereto, but the same 
 shall be payable solely out of the assets assigned and transferred! to the 
 said trust company or out of other assets of the express company." 
 The other clause refers to the deed of trust for a statement of the 
 rights of the bondholders and of the securities and property securing 
 the payment of the bonds. Amongst the provisions of said trust in- 
 denture thus referred to and made controlling upon the bondholdlers 
 are several relating to enforcement of the trust and collection of the 
 bonds which are claimed to confer upon a certain proportion of the 
 bondholders the right to waive default in and postpone payment of in- 
 terest coupons. 
 
 HiscoCK, J.* , * * * And thus we come at once to the last prop- 
 ositionj and to the interesting and important question upon which we 
 differ, whether the bonds, of which the one here involved is one, were 
 rendered nonnegotiable because of the clause already quoted exempting 
 members of the Adams Express Company from that personal liability 
 thereon which Would ordinarily attach to the individual members of a 
 joint-stock association. * * * 
 
 The decisions which I have quoted state the rule that a negotiable 
 instrument may not be madle payable out of a particular fund as the 
 equivalent of the one that it must be "drawn on the general credit of 
 the drawer" ; and so, if we fairly can say that, notwithstanding the ex- 
 emption, the maker of the-bonds did pledge its general credit, then it 
 
 «A part of the opinion is omitted. 
 
/ 
 
 14 CHAEACTEEISTIC FEATURES OF A COEPOEATION (Ch. 1 
 
 will follow that there has not been that limitation of promise of pay- 
 ment to a particular fund which is prohibited by the statute. 
 
 Was the general credit of the obligor pledged? The Adams Ex- 
 press Company was the maker of the bonds. They were issued by it 
 in its artificial, corporate-appearing name, under its common seal, by 
 its authorized executive officers and for its benefit. They expressed 
 the general promise and obligation of the company which thus issued 
 them, and were a claim against it, upon which, as we shall see here- 
 after, judgment might be obtained or a receiver be appointed of it, and 
 satisfaction obtained out of any or all of its joint business, well-un- 
 derstood assets and property, and which we know aggregated many 
 millions of dollars. Payment was not limited to the pledged securities 
 or to any other part or parcel 'Of the property of the association which 
 made the bonds, but was a charge against the whole theteof. Thus 
 far, therefore, they were entirely similar to the familiar bonds issued 
 by an ordinary corporation which are general claims against it, and 
 which are concededly negotiable ; but here it is that we come against 
 the contention that this view of the character of the bonds, however 
 practical and desirable, cannot prevail; that the exemption of the 
 personal liability of the individual members of the association after 
 all works a limitation upon the pledging of the general credit of the 
 company which issued the bonds, and turns all of its assets, from 
 which their payment may be enforced, into a special, limited fund. 
 
 As the foundation for this contention much care has been devoted 
 to pointing out the difference between a joint-stock association andl a 
 corporation, a/id to emphasizing the fact that the former is in effect a 
 partnership, and that the individual liability of its members is just as 
 essential a cl/aracteristic as it is in the case of a partnership, and that, 
 therefore, it may not be eliminated without materially affecting the con- 
 tract of the association. Of course, there can be no doubt that a joint- 
 stock association differs from a corporation, or that in its original 
 conception and, ultimate analysis it is like a partnership in respecjt to 
 the individual liability of its members; but, upon the other hand, so 
 many of the attributes and characteristics of a corporation have been 
 impressed upon the modern joint-stock association that in my opinion, 
 for the purposes of the question now before us, we are amply justi- 
 fied in regarding simply the joint, quasi corporate entity, and in say- 
 ing that an obligation issued in its name upon its general credit, and 
 binding all of its assets, compHes with the requirements for a negotia- 
 ble instrument, even though the practically unimportant individual 
 liability of members is excluded. ^ 
 
 We may briefly refer to some of these characteristics which, as I 
 think, have led both courts and laymen to regard joint-stock associa- 
 tions largely as corporate creations, and in ordinary business dealings 
 quite to ignore the feature of individual membership and liability, 
 even though it does exist. They are, like corporations, organized un- 
 der and regulated by statutes. Lavirs 1894, p. 412, c. 235. They 
 
Sec. 1) DI8T1NGXJISHED FROM OTHER BUSINESS ASSOCIATIONS 15 
 
 have, and transact business under, an artificial name. Their capital 
 and ownership is represented by shares of stock transferable at will, 
 and their existence is not dissolved or affected by the death of or 
 transfer of interest by members. They have regular officers in whose 
 names actions may be commenced in behalf of and against the associa- 
 tion, and, upon a judgment rendered in the latter case, execution may 
 be issued only against property belonging to the association or to all 
 of its members jointly. Formerly action could not be brought against 
 the individual members of the association until after judgment and ex- 
 ecution unsatisfied against the association. Now, although an action 
 may, be brought in the first instance against the members, still, if the 
 claimant elects to bring suit against the associattion, he must then, as 
 formerly, proceed to judgment and' execution unsatisfied before insti- 
 tuting other suit against the members. And, as illustrating the com- 
 plete and separate existence of the association as between it and the 
 individual members, suit may be brought by it against such members. 
 Code, §■§ 1919-1924. * * * 
 
 Now, while it is true that these statutes conferring upon joint-stock 
 associations the attributes of corporations, and the opinions discussing 
 the similitude of the former to the latter do not destroy the element 
 of individual liability, they do irresistibly force upon us appreciation of 
 the fact that a great association like the Adams Express Company is 
 very unlike an ordinary copartnership, and that it has assumed for 
 ordinary, practical purposes in its business and contractual relations 
 the features and characteristics of a corporate creation, whereby the 
 joint aggregate entity has been made prominent, and the individual 
 units composing it have been overshadowed and obscured. Amongst 
 other things, as we have seen, this organization in its aggregate ca- 
 pacity and under its artificial name which bears no relation to the 
 identity of its members may not only hold property, transact business, 
 and make contracts, but, what is especially pertinent in this contro- 
 versy, those contracts may be enforced by proceedings against it which 
 are entirely independent of any liability of individual members. In 
 short, I do not think that we should transgress any proper limits, if 
 we assumed that the public in dealing with the present bonds did so 
 solely upon the faith and credit of the association, the entity which 
 issued them, and without knowledge or thought of the jndividuals 
 who composed it or their financial responsibility. 
 
 Under such circumstances, we ought not to sacrifice substance to 
 form and destroy the negotiable character of the bonds because of the 
 exemption of individual liability, unless we are compelled to, either 
 by some controlling principle or authority, and, as I believe, there is 
 neither which commands such a course. * * * The order appealed 
 from should be affirmed, and judgment absolute rendered against ap- 
 pellant upon his stipulation, with costs. 
 
16 CHAEACTEEISTIC FEATURES OF A COKPOKATION (Ch. 1 
 
 O'Brien, j.t * * * The only question is the case as to which 
 there is any serious dispute is, as I conceive, whether the clause on the 
 face of the bonds, which provides that "no present or future share- 
 holder, officer, manager or trustee of the express company shall be 
 personally liable as partner or otherwise in respect of these bonds or 
 the coupons appertaining thereto," deprives them of the character of 
 negotiable paper. The contention of the plaintiff is that this clause 
 destroys the negotiable quality of the bonds, though payable to the 
 bearer or holder. This clause contains also the statement that the 
 bonds "shall be paid solely out of the assets assigned and transferred 
 to the said trust company or out of the other assets of the express 
 company." So that all the property of the company issuing the bonds 
 was and is available to the holders as the source of payment and satis- 
 faction thereof. I do not think that the obligations of a joint-stock 
 company payable to bearer are rendered nonnegotiable from the fact 
 that the paper upon its face contains a clause which exempts the share- 
 holders and officers from liability so long as the general assets of the 
 company are pledged for payment. 
 
 But this is the disputed question in the case, and the contrary view 
 is supported by an argument which rests mainly, if not entirely, upon 
 the proposition that joint-stock associations are partnerships, and that 
 the obligations in question are the obligations of the individual share- 
 holders, and that they are liable upon them, jointly and severally, the 
 same as partners. Stating the argument in another way, it comes to 
 this: The bonds in this case are the bonds of a partnership, made in 
 the name of the firm, and, though containing a promise ■ to pay the 
 bearer or holder a specified sum of money in the future upon a day 
 certain, yet the promise is coupled with a condition that none of the 
 partners shall ever be held liable. If the premises upon which the 
 argument is based are correct, it would, I admit, be difficult to,, resist 
 the conclusion, unless, indeed, it could be held that the conditions 
 might be rejected as utterly inconsistent with and repugnant to the 
 promise, and therefore void. Adopting the theory that the bonds are 
 the obligations of the shareholders (as partners, the repugnancy is 
 quite obvious. But I do not think that the bonds in question are in 
 any proper or legal sense partnership obligations made by the share- 
 holders as partners. .Primarily the promise to pay the bearer or hold- 
 er is not the promise of the shareholders, but of the legal entity repre- 
 sented by the express company as such. 
 
 A joint-stock company, whatever else may be said about it, is cer- 
 tainly for most, if not all practical, purposes, a legal entity, capable in 
 law' of acting and assuming legal obligations quite independent of the 
 shareholders. The idea that these companies occupy some undefined 
 and undefinable ground midway between a partnership and a corpora- 
 tion has practically faded away, and cannot be applied to the ques- 
 
 7 A part of tlie opinion ia omitted. 
 
Sec. 1) DISHNGUISHEb FKOM OTHER BUSINESS ASSOCIATIONS 17 
 
 tion with which we are now concerned. It is not very important to 
 inquire what they were in their origin, but rather what they are now, 
 or at least were when the bonds in question were issued and sold to 
 the public. It seems to be ponceded or assumed that, if the express 
 company, at the time of issuing the bonds, had been incorporated by 
 filing the usual certificate for that purpose, the clause exempting the 
 shareholders from liability would 'not affect their negotiable character. 
 It remains only to consider what sound distinction, if any, can be made 
 between the $12,000,000 of bonds issued by the express company and 
 the other untold millions of other bonds issued by corporations. They 
 are all negotiable in form ; that is to say, payable to order or bearer, as 
 - the case may be. Assuming that the shareholders of a corporation are 
 or may be liable for the corporate debts, and that the clause referred 
 to would not affect the negotiable quality of its paper, what reasoix is 
 there for holding that the claxise destroys the negotiable quality of the 
 bonds in question? The proposition that in the one case the bonds 
 import a promise to pay by a corporate body, and in the other the prom- 
 ise of individuals as partners or as a partnership firm, does not seem 
 to me to be reasonable or tenable. The argument in support of that 
 theory would seem to be somewhat strained. 
 
 The general rules of law that govern partnerships have very little 
 application to joint-stock companies, at least so far as concerns the 
 question now under consideration. The principle of agency which 
 enables one partner to bind all his associates, las well as the firm, has 
 no application to such companies. The death of one or more of the 
 members of the company does not work a dissolution. The doctrine of 
 survivorship, so important as between partners, does not exist as to 
 such companies, and so it would be difficult to state a single general 
 rule of partnership law that in itg full extent could be applied to such 
 companies. On the other hand, there are very few of the legal prin- 
 ciples that apply to corporations that do not apply in some form to 
 these companies. They are taxed and perpetuated through the shares 
 of stock as corporations are. They are entitled to assume an artificial 
 name, to sue, and are subject to be sued. They may use a common 
 seal, and through the shares of stock they have perpetual life even in a 
 larger sense than corporations have. Their general powers and diuties 
 to the public are practically the same and regulated in the same way 
 as corporations. I need not pursue the comparison any further, nor 
 enlarge upon it, since the learned opinion of my associate, Judge 
 HxscocK, who has referred to the various judicial views, on the sub- 
 ject, pro and con, fully covers that feature of the case. 
 
 It is very true that the shareholders of such companies are liable 
 ultimately for the company's obligations, but that does not make such 
 companies partnerships in the sense that their obligations are the con- 
 tracts or promises of the shareholders. The shareholders of corpora- 
 tions are or may be liable in the same way, but such liability is not, of 
 
 RiCH.COBF. — 2 
 
18 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 course, that of partners. The statutes of this state prescribing the 
 method of procedure in suits by and against joint-stock companies 
 (Code Civ. Proc. §■§ 1919-1924) db not qualify what has been stated 
 concerning the legal nature of such companies. They embody the 
 distinct idea that the liability of the shareholders is not primary, but 
 secondary, the same as in case of corporations ; and, even if these stat- 
 utes had never been enaeted, it is quite likely that the Adams Express 
 Company could, in that artificial nam^, sue and be sued in the same 
 manner as a corporation, since the state Constitution (article 8, § 3), 
 while enacting that corporations have the right to sue and are subject 
 to be sued the same as natural persons, defines joint-stock companies 
 having any of the powers and privileges not possessed) by individuals 
 or partnerships as corporations within the meaning of that section. 
 The main purpose of these provisions of the Code would seem to be 
 the enactment of a mode of procedure which would enable creditors of 
 the company, or parties having a cause of action against it, to exhaust 
 all legal remedies against the company as a legal entity before resort- 
 ing to the personal liability of the shareholders analogous to similar 
 rules applicable to corporations. It is, I think, very difficult to avoid 
 the conclusion that these companies at this day and in this state pos- 
 sess substantially and practically all the attributes of corporations, 
 and still more difficult to assign any sound reason for any distinction 
 to be made between the negotiable character of. the bonds of each when 
 made payabl? to bearer. These companies are for all practical pur- 
 poses quasi corporations, and it seems to me are clearly such so far as 
 concerns the negotiable character of its commercial paper or promise 
 to pay a specific sum of money to bearer upon a day certain.' * * * 
 Gray and Haight, JJ., concur with Hiscock, J. CuLtEN, C. J., 
 concurs in result in memorandum. WernjJ-r, J., reads opinion. Or- 
 dered accordingly. 
 
 SECTION 2.— THE CORPORATION AS DISTINGUISHED 
 FROM ITS STOCKHOLDERS 
 
 BUTTON V. HOFFMAN. 
 
 (Supreme Court of 'Wisconsin, 1884. 61 Wis. 20, 20 N W. 667, 
 50 Am. Rep. 131.) 
 
 Orton, J. This is an action of replevin in which the title of the 
 plaintiff to the property was put in issue by the answer. In his in- 
 structions to the jury the learned judge of the circuit court said: "I 
 
 8 The concurring opinions of Cullen, G. J., and Edward T. Bartlett and 
 Werner, JJ., are omitted. 
 
Sec. 2) DISTINGUISHED FROM STOCKHOLDERS 19 
 
 think the testimony is that the plaintiff hadi the title to the property." 
 The evidence of the plaintiff's title was that the property belonged to 
 a corporation known as "The Hayden & Smith Manufacturing Com- 
 pany," and that he purchased and became the sole owner pi all of the 
 capital stock of said corporation. As the plaintiff in his testimony ex- 
 pressed it, "I bought all the stock. I own all the stock now. I became 
 the absolute owner of the mill. It belonged at that time to the com- 
 pany, and I am the company." There Vas no other evidence of the 
 condition of the corporation at the time. Is this sufficient evidence 
 of the plaintiff's title? We think not. The learned counsel of the 
 respondent in his^brief says : "The property had formerly belonged to 
 the Haydeq & Smith Manufacturing Company, but the respondent 
 had purchased and become the owner of all the stock of the company, 
 and thus became its sole owner." 
 
 From the very nature of a private business corporation, or, indeed, 
 of any corporation, the stockholders are not the private and joint 
 owners of its property. The corporation is the real, though artificial, 
 person substituted for the natural person who procured its creation, 
 and have pecuniary interests in it, in which all its property is vested, 
 andl by which it is controlled, managed, and disposed of. It must 
 purchase, hold, grant, sell, and convey the corporate property, and do 
 bHsiness, sue, and be sued, plead and be impleaded, for corporate pur- 
 poses, by its corporate name. The corporation must do its business in 
 a certain way, and by its regularly appointed officers and agents, whose 
 acts are those of the corporation only as they are. within the powers 
 and purposes of the corporation. In an ordinary copartnership the 
 members of it act as natural persons and as agents for each other, 
 and with unlimited liability. But not so with a corporation; its 
 members, as natural persons, are merged into the corporate identity. 
 Ang. & A. Corp. ■§§ 40; 46, 100, 591, 595. A share of the capital stock 
 of a corporation is defined to be a right to partake, according to the 
 amount subscribed, of the surplus profits obtained from the use and 
 disposal of the capital stock of the company to those purposes for 
 which the company is constituted. Id. § 557. The corporation is the 
 trustee for the management of the property, and the stockholders are 
 the mere cestui que trust. Gray v. Portland Bank, 3 Mass. 365 ; Eid- 
 man v. Bowman, 4 Amer. Corp. Cas. 350. 
 
 The right of alienation or assignment of the property is in the cor- 
 poration alone, and this right is not affected by making the stockholders 
 individually liable for the corporate debts. Ang. & A. Corp. § 191 ; 
 Pope v. Brandon, 2 Stew. (Ala.) 401; Whitwell v. Warner, 20 Vt. 
 444. The property of the corporation is the mere instrument whereby 
 the stock is made to produce the profits, which are the dividends to 
 be declared from time te time by corporate authority for the benefit 
 of the stockholders, while the property itself, which prodhces them, 
 continues to belong to the corporation. Bradley v. Holdswoxth, 3 
 
20 
 
 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 Mees. & W. 422; Waltham Bank v. Waltham, 10 Mete. (Mass.) 334; 
 Tippets V. Walker, 4 Mass. 595. The corporation holds its property 
 only for the purposes for which it was permitted to" acquire it, and 
 even the corporation cannot divert it from such use, and a sharehold- 
 er has no right to it, or the profits arising therefrom, until a lawful 
 division is made by the directors or other proper officers of the corpo- 
 ration, or by judicial determination. Ang. & A. Corp. ■§§ KO, 190, 
 557 ; Hyatt v. Allen, 4 Amer. Corp. Cas. 624. A conveyance of all the 
 capital stock to a purchaser gives to such purchaser only an equitable 
 interest in the property to carry on business under the act of incorpo- 
 ration and in the corporate- name, and the corporation is still the legal 
 owner of the same. Wildte v. Jenkins, 4 Paige (N. Y.) 481. A legal 
 distribution of the property after a dissolution of the corporation and 
 settlement of its affairs, is the inception of any title of a stockholder 
 to it, although he be the sole stockholder. Ang. & A. Corp. § 779a. 
 
 These general principles sufficiently establish the doctrine that the 
 owner of all the capital stock of a corporation does not, therefore, own 
 its property, or any of it, and does not himself become the corporation, 
 as a natural person, to own its property, and do its business in his own 
 name. While the corporation exists he is a mere stockholder, of it, 
 and nothing else. The consequences of a violation of these principles 
 would be that the stockholders would be the private and joint owners 
 of the corporate property, and they could assume the powers of the 
 corporation, and supersede its functions in its use and disposition for 
 their own benefit ■\yithout personal liability, and thus destroy the cor- 
 poration, terminate its business, and defraud its creditors. The stock- 
 holders would be the owners of the property, and, at the same time, 
 it. would belong to the corporation. One stockholder owning the 
 whole capital stock could, of course, do what several stockholdlers 
 could lawfully do. 
 
 It is said in City of Utica v. Churchill, 33 N. Y. 161, 'W interest 
 of a stockholder is of a collateral nature, and is not the interest of an 
 owner" ; and in Hyatt v. Allen, supra, that "a shareholder in a corpo- 
 ration has no legal title to its property or profits until a division is 
 made." In Railroad Co. v. Railroad Co., 23 Minn. 359, it is held that 
 the corporation, is still the absolute owner, and vested with the legal 
 title of the property, and the real party in interest, although another 
 party has become the owner of the sole beneficial interest in its rights, 
 property, and immunities. In Baldwin v. Canfield, 26 Minn. 43, 1 N. 
 W. 261, it was -held that the sole owner of the stock did not own the 
 land of the corporation so as to convey the same. In Bartlett v. Brick- 
 ett, 14 Allen (Mass.) 62, an action of replevin was brought by A., 
 B., and C, as the "trustees of the Ministerial Fund in the North Par- 
 ish in Haverhill," which was the corporate name. In portions of the 
 writ the plaintiffs were referred to as "the said trustees" and "the said 
 plaintiffs." In the bond, "A., B., and'C, Trustees as aforesaid," be- 
 
Sec. 2) DISTINGUISHED FKOM STOCKHOLDERS 21 
 
 came bound, and the officer, in his return, certified that he had) taken 
 a bond "frorn the within named A., B., and C," and the property was 
 receipted by "A., B., & C, plaintiffs." It was held that the action was 
 not by the corporation, as it should have been, and judgment was 
 rendered for the defendant. It is said' in Van Allen v. Assessors, 3 
 Wall. 584, 18 L. Ed. 229, "the corporation is the legal owner of all 
 the property of the bank, both real and personal." In WSlde v. Jen- 
 kins, supra, where a copartnership bought all the property and effects, 
 together with the franchises, of a corporation, and elected themselves 
 trustees of the corporation, it was held that the corporation was not 
 dissolved, and that the legal title to the real and personal property was 
 still in the corporation for their benefit. In Mickles v. Bank, 1 1 Paige 
 (N. Y.) 118, it was held that, although a corporation was dteemed to 
 have surrendered its charter for non-user, it was not dissolved, and 
 would not until its dissolution was judicialljf declared, and that until 
 then its property could be taken and sold by its judgment creditors. 
 In Bennett v. American Art Union, 5 Sandf. (N. Y.) 614, it was held 
 that, "as a general rule, the whole title, legal and equitable, (to its 
 property,) is vested in the corporation itself," and that the individual 
 members have no other or greater interest in it than is expressly, given 
 to them by the charter, and the prayer of complainant, as a sharehold- 
 er in the art-union, for an injunction against a certain disposition of 
 its property, was denied, because it had no interest in it. See, also, 
 Goodwin v. Hardy, 57 Me. 143. 
 
 It is true that none of the above cases are precisely parallel with 
 the present case in facts, but they are sufficiently analogous to be au- 
 thority upon the principle that the plaintiff, as the sole stockholder of 
 the corporation, is not the legal owner of the property. He may have 
 an equitable interest in it, but in this action he must show a legal title 
 to the property in himself in order to recover, and he has shown that 
 such title is in another person. Timp v. Dockham, 32 Wis. 146; Sen- 
 senbrenner v. Mathews, 48 Wis. 250, 3 N. W. 599. In analogy to 
 the above principle it was held in Murphy v. Hanrahan, 50 Wis. 485, 
 7 N. W. 436, that the sole heirs of an estate did not have such a legal 
 title to a promissory note' given to their fathpr as would entitle them 
 to sue the maker upon it, because the title to it was in the administra- 
 tor, and they could obtain the title only by administration and distribu- 
 tion according to law. The heirs in that case certainly had as much 
 equitable interest in that note as this plaintiff has in the property in 
 controversy. 
 
 The want of title to the property being fatal to the plaintiff's recov- 
 ery in the action between the present parties, other alleged errors will 
 not be considered. The judgment of the circuit court is reversed, and 
 the cause remanded for a new trial. 
 
22 CHABACTERISTIC FEATURES OF A CORPOEATION (Ch. 1 
 
 HAIvVS SAFE CO. v. HERRING-HALL-MARVIN. SAFE CO. 
 
 (Circuit Court of Appeals, Sixth Circuit, 1906. 146 Fed. 37, T6 C. C. A. 495, 
 14 L. E. A. [N. S.] 1182.) 
 
 Bill to restrain the defendants, the Hall's Safe Company, Ei C. and 
 W. H. Hall, et al., from carrying on the business of manufacturing 
 or selling fireproof safes or vaults under the name of the Hall's Safe 
 Company, or any other name calculated to deceive the public in the 
 belief that the Hall's Safe Company is the manufacturer of the origi- ' 
 nal Hall's safes. 
 
 The Hall's Safe & Lock Company, having an established business 
 and reputation as manufacturer of Hall's safes, sold all its real estate 
 and leasehold interests, trade-marks, and good will to the Herring- 
 Hall-Marvin Company, successor and assignee to the original com- 
 plainant in this suit, agreeing to dissolve and not again engage in the 
 same business. This agreement was signed by E. C. and W. H. Hall, 
 as officers of the Hall Safe & Lock Company. Subsequently H. C, 
 W. H., and C. O. Hall organized the defendant corporation, the Hall's 
 Safe Company." 
 
 Before Lurton, Sbveeens, and Richards, Circuit Judges. 
 
 Severens, Circuit Judge.^" * * * The gravamen of the com- 
 plaint is that the defendants invade and injure the good will and 
 reputation of the complainant's business by the adoption of the cor- 
 porate name of the defendant, the "Hall's Safe Company," and ?lso 
 by inducing the public, through advertisements, circulars, and other' 
 representations, to believe that their safes are the product of the com- 
 plainant's business. The defendants adipit the acquisition by com- 
 plainant of the properties, including, the good will, of the Hall's Safe 
 &. Lock Company, but claim that the individual defendants were not 
 by the sale of the latter company deprived of the right to organize a 
 new company which shall include their family name, and that the name 
 of "Hall's Safe Company," is one which may lawfully be adopt- 
 
 Upon this contention it becomes important to determine what were 
 and are the relations between the complainant and its predecessor in 
 title and the several defendants. Undoubtedly the Herring-Hall- 
 Marvin ' Company acquired by its contract of purchase with the Hall 
 Safe & Lock Company all its physical properties and the good will 
 which it had acquired in its business, as well as the right to use such 
 trade-names as had been customarily used to identify its products. It 
 acquired also the right to require that /the Hall's Safe & Lock Com- 
 pany should go out of business, or, in substance, that it should not 
 longer engage in business of the kind which it sold to the Herring- 
 
 9 Statement of facts rewritten. 
 loA part of the opinion is omitted. 
 
Sec. 3) DISTINGUISHED FROM STOCKHOLDERS 23 
 
 Hall-Marvin Company. But it is contended) that the contract reaches 
 beyond the corporation, the Hall Safe & Lock Company, and binds 
 the defendants who were stockholders and officers of the corporation, 
 and prevents them and any corporation of which they may become 
 stockholders and managers from doing what the Hall Safe & I^ock 
 Company could not do ; and the principal reason for this contention is 
 the fact that these individual defendants participated in the sale, and 
 as stockholders received its benefits. 
 
 We are of opinion that this proposition cannot be sustained. The 
 contract which the Herring-Hall-Marvin Company had was with the 
 corporation only, and not with its stockholders or officers. The of- 
 ficers who conducted the business of the selling company were not 
 parties to -the contract. It is a familiar rule that an agent, who, hav- 
 ing lawful authority, makes a contract with another for a known prin- 
 cipal, does not bind himself, but his principal only (Story on Agency, 
 § 261 ; Mechem on Agency, ■§ 555 ; Whitney v. Wyman, 101 U. S. 
 392, 25 L. Ed. 1050) ; and the officers of a private corporation, in 
 respect to their liability on contracts entered into by them in behalf of 
 the corporation, stand upon the same footing as agents of private 
 individuals (21 Am. & Eng. Ency. of Law [2dl Ed.] .879; Whitney 
 v. Wyman, supra). If the purchaser desired to make the officers and 
 agents of the selling, corporation subject to the stipulations of the 
 company in the contract of sale, it should have required their per- 
 sonal agreement to that effect. 
 
 The cases cited by counsel for the complainant to support their 
 contention that the court may look through _the form of a corporate 
 organization, and fasten upon the , stockholders a liability for the acts 
 of the corporation, do not support such a doctrine as applicable to 
 contract relations. These are State v. Standard Oil Co., 49 Ohio St. 
 137, 30 N. E. 279, 15 L. R. A. 145, 34 Am. St. Rep. 541, McKinley 
 v. Wheeler, 130 U. S. 630, 9 Sup. Ct. 638, 32 L. Ed. 1048, and An- 
 thony V. American Glucose Co., 146 N. Y. 407, 41 N. E. 23. They 
 were all cases 'where, for special purposes and in special circum- 
 stances, the court heldl that it was competent and proper to regard 
 the rights and duties of stockholders in corporations. None of them 
 impugns the general rule above stated that in matters of contract the 
 officers and agents of a corporation are not bound personally by stipu- 
 lations made by them in behalf of their principal. This rule. is not 
 affected by the circumstance that they are indirectly interested as 
 stockholdlers in the contracts of their corporation. If it were so, it 
 would break down all distinction between the corporate entity and its 
 component parts. 
 
 Counsel for the appellee have printed in their brief a recent decision, 
 not yet publishedl, of the Circuit Court of Appeal's for the Seventh 
 Circuit, in a case entitled Hall's Safe & Lock Company and James 
 W. Donnell v. Herring-Hall-Marvin Safe Co. The suit was brought 
 
34 CHARACTBKISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 to restrain the defendant from using in its business the corporate 
 name of the complainant as descriptive of its products. The defend- 
 ant filed a cross-bill to restrain the complainant in the original bill 
 from using the name of the Hall's Safe & Lock Company in their 
 business of making and selling safes, and from selling such safes as 
 "Hall's Safes." It appears from the opinion that Donnell had or- 
 ganized an Illinois corporation, the codefendant, with the name of the 
 old Hall's Safe & Lock Company, having no member of the name 
 of Hall, and vs^as carrying on the safe business under that style at 
 Chicago. The court holds — what we should suppose quite clear — ^that 
 this assumption of the name of "Hall's Safe & Lock Company" was a 
 fraudulent device to appropriate the good will of the old company, 
 to which the Herring-Hall-Marvin Safe Company had succeeded. It 
 is also held that the defendant in the cross-bill should be restrained 
 from selling safes which were not of the manufacture of the Herring- 
 Hall-Marvin Company, as "Hall's Safes." It was claimed that the" 
 defendant in the cross-bill was selling under that name safes made 
 by the Hall's Safe Company, the defendant here. It was only in this 
 incidental way that the rights of the Halls were considered, and of 
 course they could not be adjudged in that suit. 
 
 We do not think there is any substantial difference between the 
 conclusion of that court upon the propriety of the use of the designa- 
 tion "Hall's Safes" and our own. We think it quite likely that court 
 would have accepted the qualification that the use of such a designa- 
 tion in the business of the Halls would not be unlawful provided it 
 was accompanied by explanatory matter showing that the product was 
 their own, and not that of the old company or its successors in busi- 
 ness. It is true that the learned judge who delivered the opinion 
 said arguendb that the court might look behind the corporation, and 
 find whether there wei^ equities between the Herring-Hall-Marvin 
 Company and the members -of the Hall's Safe & Lock Company which 
 would attach to the Hall's Safe Company, of which they are now 
 members, and, concluding there were such equities, proceeded to de- 
 duce the consequences. Without repeating what we have said upon 
 this subject, we are constrained to think that the defendants Hall 
 were not bound individually, in law or in equity, by the contract of 
 their corporation.^^ * * * 
 
 The costs of this appeal will be borne by the appellant Hall's Safe 
 Company andl the appellee, to be equally divided. 
 
 11 Accord: See Donnell v. Herring-Hall-Marvla Safe Co., 208 U. S. 267, 273, 
 28 Sup. Ct 288, 52 L. Ed. 481 (1907). 
 
Sec. 2) DISTINGUISHED PEOM STOCKHOLDERS 25 
 
 ROUGH et al. v. BREITUNG. 
 (Supreme Court of Michigan, 1898. 117 Mich. 48, 75 N. W. 147.) 
 
 Action by James H. Rough and others against Edward N. Breitung 
 for breach of contract. 
 
 The Davis Mining Company was a foreign corporation organized 
 in Illinois. The plaintiffs were the owners of the entire capital stock ; 
 Rough being president and Nightingale secretary. They had always 
 transacted business as a corporation. The contract in suit was em- 
 braced in the following writings: 
 
 "Chicago, Dec. 19, 1895. Mr. James Rough, Mining Inspector, 
 Negaunee, Michigan — Dear Sir: The parties I have will take the 
 Davis mine, and all the property, machinery, etc., belonging thereto 
 on the following terpis : We will pay all the debts of the mining com- 
 pany as reported to me per statement of the secretary, Mr. Night- 
 ingale^ and also those incidental debts that you mentioned in our con- 
 versation on my last trip to Negaunee, and" give stockholders of the 
 Davis mine, as it now stands, $3,000 in first mortgage bonds to be se- 
 cured on all property of the Davis and Milwaukee mines, said bonds 
 to be made payable on or before six years from January 1st, 1896, 
 at 5 per cent, per annum. If you can accept these terms, let me know 
 at once, so I can obtain coal and make nedessary improvements. Tele- 
 graph me at once upon receipt of this at Hotel Richelieu, so that I 
 may know just what to do. Yours, very truly, E. N. Breitung." 
 
 Telegram : "Dec. 20th, 1895. E. N. Breitung, Care Hotel Richelieu, 
 Chicago, 111. : Letter received ; will accept terms as stated in the 
 letter. James H. Rough." 
 
 Pursuant to this agreement the books of the company were de- 
 livered! to Breitung; The mining lease owned by the Davis Mining 
 Company was assigned to Breitung by the Davis Mining Company 
 by indorsement of Rough and Nightingale as officers of the company. 
 Defendant took possession and transacted business as the Davis Min- 
 ing Company, signing his name as secretary and treasurer. January 
 1, 1896, the defendant wrote to the Davis Mining Company purpos- 
 ing to rescind the agreement for various reasons set forth. The laws 
 of Michigan provided that all contracts made by foreign corporations 
 failing to pay a franchise fee after the 1st of January, 1894, shall be 
 wholly void. This fee had never been paid by the Davis Mining Com- 
 pany. 
 
 When the plaintiffs had rested! their case, the court directed a 
 verdict for the defendant, because under the first cdunt of the declara- 
 tion, and under the undisputed evidence, plaintiffs were simply stock- 
 holders of the corporation, and, although owning all the capital stock, 
 they were not owners of its property, which belonged to the corpora- 
 tion, and that as stockholders they did not possess the right or title 
 to the; property, so that they could convey it. The court also held 
 
26 CHAEACTBEISTIC fFBATUEBS OF A CORPORATION (Ch. 1 
 
 that there could be no recovery under the second count, because the 
 evidence was undisputed that there was no sale of the cap^tal_ stock, 
 the Davis Mining Company was a necessary party to the litigation in- 
 volving the sale of its property, and the corporation had never paid 
 the franchise fee.** ' 
 
 Grant, C. J." * * * 2. Under the second count, it becomes 
 necessary to determine what the contract was andl with whom it was 
 made. The offer stated in the letter of December 19th, and the tele- 
 gram accepting it, constitute the contract. Its terms are clear and 
 unmistakable. All prior conversations and negotiations, whether writ- 
 ten or verbal, cannot be invoked to change the letter of the contract. 
 The defendant offered to buy "the Davis Mine, and all the property, 
 machinery," etc., "belonging thereto." It was not an offer to buy the 
 stock of the individual stockholders. This is further made clear by 
 the proposed ierms of payment, to wit, to pay all the debts of the 
 mining company and) $3,000 to the stockholders. It meant a purchase 
 of the franchise of the corporation, with all its rights and property. 
 The letter was written to the president of the company. There is 
 nothing in the record to indicate that the parties understood that the 
 one was selling and the other was buying the stock of the plaintiffs. 
 Their conduct at the time and subsequently clearly shows that they 
 understood that they were acting in a corporate capacity, and not as 
 individual stockholders. They retained their certificates of stock. 
 They had previously attempted to sell defendant 12,000 shares of it, 
 but he refused to purchase. They made no tender of the certificates 
 until the close of the trial. 
 
 The original declaration was filed March 26, 1896, and was upon 
 the common counts alone. Nothing further appears to have been done 
 in the case until July 6, 1896, when they filed an amended declaration 
 containing a special count setting forth that they were the owngrs of 
 the property, and describing it, and that they had sold it to the de- • 
 fendant for $26,000. To tbis amended declaration the defendant 
 pleaded the general issue. Subsequently, by the permission of the 
 court, he filed an amended plea, giving the special matters in defense 
 as stated in his letter of January 31, 1896. Plaintiffs, by leave of the 
 court, on March 20, 1897, filed a second amended declaration, in which 
 for the first time they alleged a sale of the stock. 
 
 There was tio corporate action taken by the stockholders or by the 
 directors authorizing the transaction. The assignment of the lease 
 was made by the secretary and treasurer in behalf of the corporation, 
 and on the face of it was a corporate act. Stockholders do not own 
 the corporate property, ^nd cannot mortgage, sell, or convey it. The 
 title is in the artificial being called the corporation, not in the stock- 
 holders. Such property is not under the control of its stockholder.^, 
 
 12 Statement of facts substituted. 
 ISA part of the opinion is omitted. 
 
Sec. 2) DISTINGUISHED FROM STOCKHOLDERS 27 
 
 whether they act separately or collectively. The laws under which 
 these corporations are organized provide the agencies and methods 
 by which their property can be sold and transferred. Randall v. Dud- 
 ley (Mich.) 69 N. W. 729; Humphreys v. McKissock, 140 U. S. 
 304, 11 Sup. Ct. 779, 35 L. Ed. 473; Fitzgerald v. Railway Co. (C. C.) 
 45 Fed. 812; England v. Dearborn, 141 Mass. 590, 6 N. E. 837; But- 
 ton V. Hoffman, 61 Wis. 20, 20 N. W. 667; Baldwin v. Canfieldl, 
 20 Minn. 43, 1 N. W. 261 ; Gashwiler v. Willis, 33 Cal. 11. * * * 
 The artificial being known as the Davis Mining Company was still 
 in existence after the alleged sale" and transfer to defendant. The 
 transfer of the stock book to him, either individually or as secretary 
 of the company, did no't operate to cancel the stock standing in the 
 names of these plaintiffs. They might have sold the stock to an in- 
 nocent purchaser, who would take a good title. Such certificates, in 
 the absence of some provision of law to the contrary, stand upon the 
 same basis as commercial paper, and innocent persons and pledgees 
 take title by assignment and delivery. McLean v. Medicine Co., 96 
 Mich. 479, 56 N. W. 68, and authorities there cited. 
 
 We are forced to the conclusion from this record that this was a 
 corporate contract, and void under the law above cited. While the 
 corporation might be estopped to plead such a contract in its defense, 
 it cannot maintain an action upon it without annulling the law. Sea- 
 mens v. Temple Co., 105 Mich. 400, 63 N. W. 408 ; Society v. Lester, 
 105 Mich. 716, 63 N. W. 977; People v. Hawkins, 106 Mich. 482, 64 
 N. W. 736. 
 
 3. If, however, all the stockholders of the corporation could by 
 unanimous action contract, instead of the corporation, acting through 
 its properly authorized officers, it would not aid the plaintiffs. What 
 such a corporation couldl not do in its corporate capacity all its stock- 
 holders acting together could not do for it. . If the act or contract of 
 the corporation is void under the law, so, also, is the joint act or 
 contract of all the stockholders, designed! to accomplish the same pur- 
 pose and thus evade the law. The judgment is affirmed. The other 
 justices concurred. ^ 
 
 PEOPLE'S PLEASURE PARK CO., Inc., et al. v. ROHLEDER. 
 (Supreme Court of Appeals of Virginia, 1908. 109 Va. 439, 61 S. E. 794.) 
 
 Action by one Rohleder against the People's Pleasure Park Com- 
 pany, Incorporated, to enforce covenants contained in a deed, and to 
 cancel a deed to defendant and enjoin defendants from making a cer- 
 tain disposition of property. From a decree granting an injunction, 
 defendant appeals. 
 
 CardwELL, J." * * * It is further averred that, after the title 
 to the remaining land (Fulton Park) had again been acquired by 
 
 X4 A part of the opinion is omitted. 
 
28 
 
 CHAKACTEEISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 Black and wife, they conveyed it as a whole to the Revere Beach 
 County Fair & Musical Railway Company, excepting the lots previous- 
 ly sold, and in this conveyance is the covenant, condition, and stipula- 
 tion : "The title to this land never to vest in a colored person or per- 
 sons" — that afterwards the Revere Beach County Fair & Musical Com- 
 pany transferred the property to one Jessie M. Sniith, providing in 
 the deed that the same should be subject to the covenant, condition, 
 or stipulation imposed thereon by Black in his deed to the company; 
 that, after Jessie M. Smith had held the property a few months, she 
 transferred the title thereto by a conveyance from herself as an in- 
 dividual to herself as trustee without specifying the nature of the trust 
 or naming the beneficiary or beneficiaries thereof, and omitting men- 
 tion of the "covenant, condition, or stipulation" under which she had 
 held the property, as an individual; that Jessie M. Smith, as trustee, 
 but without disclosing the nature of the trust or the beneficiary or ben- 
 eficiaries thereof, conveyed the property again to Ida M. Butts, trustee, 
 making no mention of a restriction upon the latter's power to alienate 
 the property, or as to whom she might convey it ; and that on or about 
 May 3, 1906, a deed was recorded in the clerk's office of Henrico 
 county, by which all the unsold portion of Fulton Park was conveyed 
 by Ida M. Butts to one D. G. Fulton, who by deed recorded in the 
 same office, on the same day, conveyed the property to appellant. Peo- 
 ple's Pleasure Park Company, Incorporated. The bill theii charges 
 that the People's Pleasure Park Company is a corporation composed . 
 exclusively of negroes, and that this corporation purchased Fulton 
 Park for the express purpose of converting the same into a park or 
 place of amusement for colored people; that the corporation before 
 it purchased the property was fully apprised of the "condition, cove- 
 nant, or stipulation" theretofore in the bill mentioned as having been 
 incorporated in the deed conveying the property to the Revere Beach 
 County Fair & Musical Company, and also aware of the pendency of 
 injunction proceedings to prevent said appellant from acquiring title 
 to Fulton Park. * * * 
 
 The deeds exhibited with the bill, conveying lots in Fulton Park 
 to individual purchasers, and the deed of the residue of the land to 
 the Revere Beach, etc.. Company, were conveyances in fee simple, with 
 general warranty and all the usual covenants of title; and between 
 the grant of a fee-simple estate, followed by a description of the prop- 
 erty, and the covenants of title, appears this language: "Subject to 
 the following restrictions: the title to this land never to vest in a 
 person or persons of African descent" or "colored person." If the 
 conveyance to appellant corporation. People's Pleasure Park Com- 
 pany, was not a conveyance to "a person or persons of African de- 
 scent" or "colored persons," it is clear that the bill is fatally defective 
 on demurrer, since the parol conditions upon which appellee alleges 
 she bought her lots cannot be ingrafted on the, deed containing the 
 restriction. Dev. on Deeds, § 976. * * * 
 
Sec. 3) DISTINGUISHED FROM 8TO0KHOLDEE8 29 
 
 Aside from the question whether or not appellee could obtain the 
 relief she asks against appellants — ^that is, an annulment of the convey- 
 ance to appellant, People's Pleasure Park Company, Incorporated — on 
 the ground that the restriction on the right of alienation of any of the 
 Fulton Park land to "a person or persons of African descent" or "col- 
 ored person" had been violated by a sale of a part of the land to said 
 appellant, the bill fails to allege facts showing a violation of the restric- 
 tion, and should have been dismissed upon the demurrers thereto. Such 
 a conveyance, by no rule of construction, vests the title to the property 
 conveyed in "a person or persons of African descent." Although a copy 
 of the charter of the grantee is filed as an exhibit with the bill and 
 madle a part thereof, and which sets out that the object for which the 
 corporation is formed is "to establish and develop a pleasure park 
 for the amusement of colored people," a contemplated sale of the 
 property to "a person or persons of African descent" is not even al- 
 leged, but only a contemplated use of the property as a place of amuse- 
 ment for colored persons, which the restriction relied on neither ex- 
 pressly, nor by implication, prohibits. 
 
 "A corporation is an artificial person, like the state. It is a dis- 
 tinct existence — an existence separate from that of its stockholders 
 and directors." 1 Cook on Corp. (4th Ed.) § 1. 
 
 Prof. Rudolph Sohm, in his Institutes of Roman Law, pp. 104- 
 106, says : "In Roman law the property of the corporation is the sole 
 property of the collective whole ; and the debts of a corporation are 
 the sole debts of the collective whole. * * * j^ represents a kind 
 of ideal private person, an independent subject capable of holding 
 property, totally distinct from all previously existing persons, includ- 
 ing its own members. It possesses, as such, rights and liabilities of 
 its own. It leads its own life, as it were, quite unaffected by any 
 change of members. It stands apart as a separate subject or pro- 
 prietary capacity, and, in contemplation of law, as a stranger to its 
 own members. The collective whole, as such, can hold property. Its 
 property, therefore, is, as far as its members are concerned, another's 
 property, its dtebts another's debts. * * * Roman law contrived 
 to accomplish a veritable masterpiece of juristic ingenuity in discover- 
 ing the notion of a collective person ; in clearly grasping and distin- 
 guishing from its members the collective whole as the ideal unity 
 of the members bound together by the corporate constitution ; in rais- 
 ing this whole to the rank of a person (a juristic person, namely) ; 
 and in securing it a place in private law as an independent subject of 
 proprietary capacity standing on the same footing as other private 
 persons." 
 
 Marshall, C. J., in the Dartmouth College Case, 4 Wheat. (U. S.) 
 518, 4 Iv. Ed. 629, defined a corporation as, "an artificial being, in- 
 visible, intangible, and existing only in contemplation of law." 
 
30 CHAEACTBRISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 In Green's Brice, Ultra Vires (2d Am. Ed.) §§ 1, 2, it is said that 
 "a corporation is a person which exists in contemplation of law only, 
 and. not physically." __ k-d r 
 
 The same author in commenting on Kyd''s definition says : ' But_ suf- 
 ficient stress' is not laid upon that which is its real characteristic in 
 the eye of the law, viz., its existence separate and distinct from the 
 individual or individuals composing it. * * * This is the one 
 important fact. The members of a corporation aggregate and the one 
 individual who is constituted a corporation sole may, from their con- 
 nection with such, have rights and privileges, and be under obligations 
 and duties, over and above those affecting them in their private ca- 
 pacity; but they get them by reflection, as it were, from the corpora- 
 tion. They individually are not the corporation — ^cannot exercise the 
 corporate powers, enforce the corporate rights, or be responsible for 
 the corporate alcts." * * * 
 
 For the above reasons, we are of opinion that the decree complained 
 of is erroneous, and it will be set aside and annulled, the demurrers 
 of appellants to the bill sustained, and the bill dismissed with costs 
 to the appellants. Reversed.^" 
 
 ULMER et al. v. LIME ROCK RAILWAY CO. 
 
 (Supreme Judicial Court of Maine, 1904. 98 Me. 579, 57 Atl. 1001, 66 L. 
 
 R. A. 387.) 
 
 Report from the Supreme Judicial Court, Knox County. Bill by 
 Fred. T. Ulmer and another to enjoin proceedings instituted by the 
 Lime Rock Railway Company seeking to condemn a right of way over 
 the complainant's premises for the purpose of a branch line to the 
 plant of the Rockland-Rockport Lime Company. The defendant com- 
 pany was chartered with authority to construct lines of railway from 
 the lime quarries in the city of Rockland and town of Thomaston in 
 such direction as will best provide for the transportation of limestone 
 from the quarries to the limekilns in said city and town, together with 
 other freight. Power to condemn land for a right of way is given by 
 statute. 
 
 The complainants ask that the proceedings for condemnation be en- 
 joined on the grounds that the complainants' real estate is not to be 
 taken for a public use by the railway company, but solely for the pri- 
 vate use of the company and the owner of the quarry to which the 
 branch in question is projected.^' 
 
 IB Accord: Baltzell et al. v. Church Home & Infirmary of Baltimore, 110 
 Md.,244, 73 Atl. 151 (1909). 
 16 Statement of facts substituted. 
 
Sec. 2) DISTINGUISHED FROM STOCKHOLDERS 31 
 
 WiswELi,, C. J.^^ [After discussing the question of public purpose, 
 the Court proceeds:] 
 
 Another cause of complaint, much relied upon in argument, and 
 which appears in different forms of allegation throughout i the bill, 
 is that all of the stock of the railroad company is at the present time 
 owned by the Rockland-Rockport Lime Company. It appears from 
 the evidence that each of the directors of the railroad company is 
 the owner of one share of its capital stock, and that all of the rest of 
 the stock is owned by the lime company. It is argued from this that 
 the lime company, a corporation organized purely for private purposes, 
 with no duties to perform of a public nature, is in fact the owner of, 
 and is in possession and control of, the railroad, and of all the fran- 
 chises and privileges that were granted by the Legislature to the rail- 
 road company, and that as such owner it is operating and managing 
 the same for the sole benefit of the lime company, to the exclusion 
 of all others. 
 
 But the, argument is based upon a wrong assumption. Whoever 
 rhay be the owner of the stock of the railroad company, or however 
 many or few such owners there may be, that corporation still con- 
 tinues to exist as a separate and independent corporation. It pre- 
 serves its corporate existence. It operates its own road. It has its 
 own officers and makes its own contracts. Although the lime com- 
 pany is the owner of nearly all of its capital stock, that company does 
 not thereby become the owner of the railroad cornpany's road, fran- 
 chises, or other property. That corporation, whoever may be the 
 owner of its stock, still owns its property. Neither do the stockholders 
 of a corporation control the property of the corporation. Of course, 
 a majority of the stockholdters control the election of directors and 
 other officers and agents of the corporation; but the control of the 
 property of the corporation is in the corporation itself, and in its of- 
 ficers and agents who are invested with such control by virtue of the 
 by-laws of the company. 
 
 The franchises granted to a railroad corporation must be exercised 
 by that corporation, and by it alone. There is no identity between the 
 individual or the corporation which owns stock in another corporation 
 and that latter corporation. .A corporation is an entity, irrespective of 
 the persons who own all of its stock, and the fact that one person 
 owns all the stock does not make him and the corporation one and the 
 same person. It would seem that the citation of authorities in sup- 
 port of these well-established principles would be unnecessary, but 
 we call attention to a feW of the many that might be referred to: 
 Pullman Palace Car Company v. Missouri R. R. Co., 115 U. S. 587, 
 6 Sup. Ct. 194, 29 L. Ed. 499 ; Exchange Bank v. Macon Construc- 
 tion Company, 97 Ga. 7, 25 S. E. 326, 33 L. R. A. 800; Button v. 
 
 I 17 A part of the opinion is omitted. 
 
32 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 Hoffman, 61 Wis. 20, 20 N. W. 667, SO Am. Rep. 131 ; Morawetz on 
 Private Corporations, § 227 et seq. We cannot, therefore, see how 
 this allegation can in any way affect the question here involved. 
 * * * 
 
 We have considered all the reasons set out in the complainants' bill 
 why the relief asked for should be granted. In our opinion, it should 
 not be granted for any of these reasons. The bill will therefore be 
 dismissed, with costs. So ordered. 
 
 PEOPLE ex rel. UNION TRU^T CO v. COLEMAN. 
 
 (Court of Appeals of New York, 1891. 126 N. Y. 433, 27 N. E. 818, 12 li. R. 
 
 A. 762.) 
 
 Finch, J.^^ The relator has been assessed upon an "actual value" 
 of its capital stock derived entirely from the market value of its 
 shares. These are selling at the large premium of something over 
 $500 for each share of $100, andl the assessors have concededly taken 
 that valuation, or the principal part thereof, as the "actual value" of 
 the company's stock liable to taxation, instead of its own proved and 
 established value. The rela,tor challenges the assessment, and through 
 all the proceeding has persistently raised and pressed the inquiry, not 
 so much as to mode or manner of ascertaining value, but, rather, as 
 to what is the precise thing to be valued, — whether the capital stock 
 of the company, or the capital stock held in shares by the corporators. 
 If these are the same, or, in any just sense, equivalents, either might 
 be valued without substantial error ; but, if they are not such, we must 
 determine which is to be valued before we can solve the problem of 
 how to value it. 
 
 Now, it is certain that the two things are neither identical nor equiv- 
 alents. The capital stock of a compatiy is one thing; that of the 
 shareholders is another and a different thing. That of the company 
 is simply its capital, existing in money or property or both ; while 
 that of the shareholders is representative, not merely of that existing 
 and tangible capital, but also of surplus, of dividend earning power, 
 of franchise, ^nd the good-will of an established and prosperous busi- 
 ness. The capital stock of the company is owned -and held by the 
 company in its corporate character; the capital stock of the share- 
 holders they own and hold! in different - proportions as individuals. 
 The one belongs to the corporation; the other, to the corporators. 
 The franchise of the company, which may be deemed its business op- 
 portunity and capacity, is the property of the corporation, but consti- 
 tutes no part or element of its capital stock ; while the same franchise 
 does enter into and form part,^and a very essential part, of the share- 
 holder's capital stock. While the nominal^or par value of the capital 
 
 i« A part of the opinion Is omitted. 
 
Sec. 2) DISTINGUISHED FROM STOCKHOLDERS 33 
 
 Stock and of the share stock are the same, the actual value is often 
 widely different. The capital stock of the company may be wholly in 
 cash or in property, or both, which may be counted and valued. It 
 may have in addition a surplus, consisting of some accumulated! and 
 reserved fund, or of undivided profits, or both; but that surplus is 
 no part of the company's capital stock, and therefore is not itself 
 capital stock. The capital cannot be divided and distributed ; the sur- 
 plus may be. But that surplus does enter into and form part of the 
 share stock, for that represents and absorbs into its own value surplus 
 as well as capital, andl the franchise in addition ; so that the property 
 of every company may consist of three separate and distinct things, 
 which are its capital stock, its surplus, and its franchise; but these 
 three things, several in the ownership of the company, are united in 
 the ownership of the shareholders. The share stock covers, embraces, 
 represents all three in their totality; for it is a business photograph 
 of all the corporate possessions and possibilities. 
 
 A company also may have no surplus, but, on the contrary, a de- 
 ficiency which works an impairment of its capital' stock. Its actual 
 value is then less than its nominal or par value, while yet the share 
 stock, strengthened by hope of the future and the support of earn- 
 ings, may be worth its par, or even more. And thus the two things, 
 the company's capital stock and the shareholder's capital stock, are 
 essentially and in eVery material respect different. They differ in 
 their character, in their elements, in their ownership, and in their 
 values. How important and vital the difference is became evident in 
 the effort by the state authorities to tax the property of the national 
 banks. The effort failed, and yet the share stock in the ownership 
 of individuals was held to be taxable as against them. The corpora- 
 tion and its property were shielded, but the shareholders and their 
 . property were taxed. 
 
 Now, some degree of confusion and trouble have come in because 
 these two different things are denominated alike "capital stock," mak- 
 ing the expression sometimes ambiguous. It is the important and 
 decisive phrase in the law of 1857 under which the assessment here 
 resisted was made, and requires of us to determine at the outset in 
 which sense it was used. The section reads thus : "The capital stock 
 of every company liable to taxation, except such part of it as shall 
 have been excepted in the assessment roll, or shall have been exempted 
 by law, together with its surplus profits or reserved funds exceeding 
 10 per cent, of its capital, after deducting the assessed value of its 
 real estate, and all shares of stock in other corporations actually owned 
 by such company which are taxable upon their capital stock under the 
 laws of this state, shall be assessed at its actual value, and taxed in 
 the same manner as the other real and personal estate of the county." 
 
 There are reasons in abundance for the conclusion that by the phrase 
 "capital stock" the statute means not the share stock, but the capital 
 
 RiCH.COBP — 3 
 
34 CHAKACTBRISTIC FEATURES OF A COBPOEATION (Ch. 1 
 
 owned by the corporation ; the fund required to be paid in and kept 
 intact as the basis of the business enterprise, and the chief factor in 
 its safety. One ample reason is derived from the fact that the tax is 
 assessed against the corporation, and upon its property, and! not 
 against the shareholders, and so upon their property. In theory, every 
 tax is charged against some person, natural or artificial, resident or 
 non-resident, known or unknown. It is assessed, not upon property 
 irrespective of ownership, but against persons in respect to their 
 property (People v. Commissioners, 23 N. Y. 215;) and effects, not 
 merely a lien, but also a personal liability. On the assessment rolls in 
 this case appeared the name of the relator as the person assessed, and 
 the amount of the tax became a charge against it. Of course, it 
 could only be assessed and taxed in respect to its own property, — 
 that which in its corporate character it owned and! possessed ; and so 
 it follows inevitably that the statute concerns the company's capital 
 stock, — ^that is, its real and actual capital, — and not in any respect 
 the share stock which it does not own, and whose possessors have 
 not been assessed. 
 
 Another reason is found in those terms of the statute which in- 
 clude and exclude, respectively, specific kinds or classes of property 
 in the corporate ownership. Thus, the assessment is to be laid, not 
 merely upon the capital stock of the corporation, but also upon its 
 surplus. No such explicit direction was necessary, except on the as- 
 sumption that by the words "capital stock" was meant simply "capi- 
 tal," which would not include surplus, and so requiredl that it be sub- 
 jected by name to the valuation. If the share stock was meant, its 
 value would include surplus, and make its specification not only need- 
 less, but confusing. But, while the statute includles surplus by specific 
 mention, it excludes franchjse by omitting it. The omission of fran- 
 chise is emphasized by the careful inclusion of surplus. It is fully and , 
 definitely settled that the tax imposed by the statute is not upon 'fran- 
 chise. People V. Commissioners, 2 Black, 620, 17 L. Ed. 451. But, if 
 that be so, it is not upon the share stock, for that- represents the value 
 of the corporate franchise as a part of the total of the corporate prop- 
 erty ; and so, both by what it specifically includes and silently ex- 
 cludes, the statute itself informs us that by "capital stock" it means 
 and intends the company's actual capital paid in and possessed, and 
 not at all or in any sense the share stock. 
 
 The same thing becomes apparent from a study of the whole line 
 of legislation which culminated in the law of 1857. It was traced 
 in detail upon the argument with great industry and wealth of illustra- 
 tion. Wie have verified it by traveling over the same track, and, with- 
 out taking pains to reproduce it, may assert the general result which it 
 discloses, and select out one or more illustrations. The investigation 
 shows that the word "capital" and the phrase "capital stock" are used 
 interchangeably and synonymously, and, where the latter phrase oc- 
 
Sec. 3) DISTINGUISHED FKOM STOCKHOLDERS 35 
 
 curs, there is almost always something in the statute which stamps 
 and labels it as referring to the actual capital of the company. Thus 
 the law of 1823 (chapter 262,) after providing for the taxation of all 
 persons owning or possessing property, proceeds to declare that cor- 
 porations shall be deemed persons for the purposes of the act, and 
 requires them to furnish a statement of the amount of "capital" ac- 
 tually paid in ; and then, referring to turnpike and bridge companies, 
 requires them to state "the amount of capital stock actually paid in 
 or secured to be paid in." Both clauses refer to the same assets or 
 fund, naming it indiscrimiiJately "capital" and "capital stock." Again, 
 in the law of 1825, (chapter 254,) the assessors, after putting the cor- 
 poration by name on the assessment roll, are required to add the 
 amount "of its capital stock paid in or secured to be paid in," and to 
 designate how much of it is in real and how much in personal prop- 
 erty, and so, no dbubt is left that by "capital stock" was meant simply 
 the "capital" possessed in dash or invested in securities or real estate. 
 
 The illustrations might be multiplied and fortified by reference to 
 numerous acts relating to the formation or management of manufac- 
 turing, railroad business, and telegraph companies, in which the two 
 forms of expression are used indiscriminately and as convertible 
 terms; but I think- quite enough has been said to require unhesitating 
 assent to the proposition that, under the law of 1857, the thing to be 
 taxed is the capital of the company, and not the shares of the stock- 
 holders. 
 
 Indeed, I should feel bound to apologize for arguing what seems to 
 me so simple and, plain a proposition, were it not for the fact that it 
 has been largely ignored by assessors, and not always clearly kept in 
 mind by the courts, and but for the further fact that the right to 
 adopt, as the taxable valuation, the value of the shares, totally disre- 
 garding the value of the company's capital, has been asserted in this 
 case, maintained by the courts below, and claimed to be fully justified 
 by very much which we ourselves have decided or said. 
 
 Before examining the cases in detail, to see whether they hamper 
 our freedom of judgment upon the question presented, I think it safe, 
 and also prudent, to assert three, things as applicable generally, and 
 to all the cases alike: First, this court has never decided, either by 
 a direct determination or by necessary implication, that the law of 
 1857, authorizes the imposition of a tax upon anything else than the 
 actual capital of the corporations, together with their surplus ; second, 
 that the precise question whether the capital of the companies or the 
 share stock of the shareholders forms the basis of valuation, andl the 
 thing to be assessed, has jiot been heretofore formally and distinctly 
 presented; and, third, thaf all seemingly erroneous expressions of 
 opinion are corrected at once when they are referred to the permis- 
 sible conditions under which the value of the share stock in the mar- 
 ket may be, referred to, not as the thing to be valued and assessed, 
 
38 CHAEACTBEISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 but as an ai(J or help in discovering the value of the other and dif- 
 ferent thing which is to be valued and assessed. Keeping these gen- 
 eral propositions in mind, we now recur to the cases. [After reviewing 
 the authorities the Court, proceeds:] 
 
 I think the authorities either fairly permit or fully justify the con- 
 clusions which I have reached, and which may be stated with reason- 
 able accuracy thus: — First, the subject of valuation and assessment 
 is never the share stock, but always the company's capital and surplus ; 
 second, such capital and surplus must be assessed at its own value, 
 and, when that is correctly known andl ascerta!ined, no other value can 
 be substituted for it; third, where its amount and value are undis- 
 closed and unknown, the assessors may consider the market value of 
 the share stock, and the general condition of the company, as indica- 
 tive of surplus or deficiency, and of the probable amount of either; 
 fourth, they may further resort to such means of information when 
 the amount of capital and surplus is disclosed, but the assessors have 
 sufficient reason to disbelieve the statement, andl such reason is found- 
 ed upon facts established by competent proof. 
 
 If these conclusions are correct, it will follow that the assessment 
 complained of should be canceled. The corporation presented to the 
 assessors a sworn statement of its assets and liabilities. If it be true, 
 there was nothing subject to assessment. But its truth is not ques- ' 
 tioned, and there is not the least reason to doubt it. The assessors did 
 not doubt it. They merely deemed it immaterial, and so testified! when 
 examined. In other words, knowing with certainty the value of one 
 thing, they claimed the right to affix to it the larger value of a dif- 
 ferent thing. Authorized only to tax against the company its capital 
 and surplus, they assumed the right, practically, to tax it for the share 
 stock held by individuals. They have not in terms claimed that the share 
 stock is the subject of taxation, nor has the counsel who represented 
 them on the argument, but both have maintained andl defended^'what 
 is the exact and complete equivalent. The right asserted is a dis- 
 cretion in the assessors, at their free will, to assess corporations upon 
 and at the value of their capital and surplus, or upon and at the value 
 of the share stock, independently of established facts, and whenever 
 they please. The law gives them no such discretion. How it has been 
 exercised, and how destructively to the rights of tax-payers, may be 
 seen by comparing the aqtion in this case with that in one of the cases 
 which we have reviewed. Where the share stock was selling at 90, 
 and so below par, the assessors refused! to take that value, and went to 
 the company's books in search of a larger one, which they found and 
 adopted. Here, where the actual value of capital and surplus is es- 
 tablished so that they frankly admit the fact, they calmly disregard 
 it, and fly to the larger value of the share stock. The statute has given 
 them no such right. They are not lawless rovers, wandering among 
 corporations at will, but regular officers, bound by discipline and con- 
 
Sec. 3) DISTINGUISHED FROM STOCKHOLDERS 37 
 
 trolled by the law, and whose dliscretion exists within fixed and definite 
 limits. 
 
 It is said, and it is true, that large masses of personal property es- 
 cape taxation, and the owners are persistent and artful, and not over- 
 nice, in their efforts to avoid a just share of the public burdens, and 
 so we should uphold' faithful assessors in every attempt to do their 
 full duty. I think this court will not be unmindful of the situation, 
 but, before all, we must first ascertain, and then obey, the law. If 
 in that process evils result or are disclosed, the remedy must be sought 
 elsewhere. 
 
 It follows that the judgment and order of the general and of the 
 Special term should be reversed, and the assessment against the re- 
 lator vacated and canceled, without costs. 'All concur, except Peck- 
 HAM, J., not voting, and Gray, J., absent. 
 
 UNITED STATES ELECTRIC POWER & LIGHT CO. v. 
 
 STATE. 
 
 (Court of Appeals of Maryland, 1894. 79 Md. 63, 28 Atl. 768.) 
 
 McSherry, J.^* We find no difficulty in affirming the judgment 
 appealed from in this case. The appellant is a company incorporated 
 under the laws of Maryland, and transacts its business within this 
 state. It has a capital stock divided into shares, and owns real and 
 personal property. This real property has been duly assessed for 
 taxation, and the valuation placed thereon has been deducted from 
 the assessed value of the capital stock, as required* by section 141, art. 
 81, of the Code. The state taxes upon the company's real estate have 
 been paid, aiid so, also, have the state taxes. on its shares of stock. 
 In addition to these taxes, the state levied, under the Act of 1890, c. 
 559, a further tax of one-half of 1 per cent, on the gross receipts 
 of this and other like companies, and for a failure to pay this latter 
 tax the pending suit was instituted. The defense reliedl on is that the 
 gross-receipt tax is a double tax upon the same property, and there- 
 fore unauthorized and illegal. It is claimed to be a double tax because 
 it is insisted that the value which the capital stock possesses after the 
 assessed value of the real estate has been deducted is such, only, as 
 arises out of the o'wnership and operation of the franchises of the com- 
 pany, and, as a tax on gross receipts is a tax 'on the franchise, a tax on 
 the capital stock, whose value is the ownership and use of the com- 
 pany's franchises, is an additional tax on the same thing ; but this ar- 
 gument is obviously fallacious. 
 
 The taxable value of shares of capital stock is fixed by the state 
 tax commissioner. He is required, by the statutes, to deduct from the 
 
 18 A part of the opinion is omitted. 
 
38 CHARACTEBISTIC FEATURES OP A CORPORATION (Ch. 1 
 
 aggregate value of all the shares of the capital stock of banks and 
 other corporations the assessed value of the real estate owned by 
 the company, and to divide the residuum by the number of shares of 
 the stock, and the quotient is declared) to be the taxable value of each 
 share for state purposes of taxation. Upon the valuation thus ascer- 
 tained, the state tax is levied. But the tax is not a tax upon the stock, 
 or upon the corporation, but upon the owners of the shares of stock, 
 though the officers of the corporation are made the agents of the state 
 for the collection of the state tax. It is nol; material what assets or 
 other property make up the value of the shares. Those shares are 
 property, and, under existing laws, are taxable property. They belong 
 to the stockholders, respectively and individually, and when, for the 
 sake of convenience in collecting the tax thereon, the corporation pays 
 the state tax upon these shares into the s^ate treasury, it pays the tax, 
 not upon the company''^ own property, nor for the company, but upon 
 the property of each stockholder, and for each stockholder, respective-, 
 ly, by whom the company is entitled to be reimbursed. Hence, when 
 the owner of the shares is taxed on account of his ownership, and the 
 tax is paid for him by the company, the tax is not levied upon or col- 
 lected from the corporation at all. 
 
 The gross-receipt tax is quite another and a different thing. It is a 
 tax imposed upon the corporation because of the value of its fran- 
 chises as distinguished from its ownership of tangible and visible 
 property. And, while the value of its franchises may to some extent 
 give value to its capital stock, the gross-receipt tax is not a tax upon 
 the owner of the stock measured by the value of the stock, but upon 
 the corporation as the owner of the franchise or right to exist and to 
 transact business, which franchise or right, though property, is the 
 property of the artificial body as a body corporate. It has been re- 
 peatedly held by this Court that a gross-receipt tax may be validly 
 imposed. State v. Philadtelphia, W. & B. R. Co., 45 Md. 379; State 
 V. Northern Cent. R. Co., 44 Md. 169. 
 
 As, then, the tax, in the one instance, is upon the owner of the 
 capital stock, whose liability is fixed by the value placed upon the 
 shares by the state tax commissioner, and in the other instance the 
 tax is upon the corpor,atipn, the extent of whose liability is measured 
 by the amount of its gross receipts, it is perfectly apparent that the 
 two taxes are not upon the same individual, natural or artificial, in 
 consequence of his or its ownership of the same property, notwith- 
 standing the franchises of the corporation in some measure give value 
 to the shares of stock. 
 
 But, if this were conceded to be a double tax, it would not necessa- 
 rily, on that amount, be void. The declaration of rights requires equal- 
 ity in taxation, and, in so far as a double tax destroys that equality, 
 it is invalid, but not otherwise. Cooley, Tax'n, 161, etc. Taxes are 
 levied upon the individual, and not upon property, though the value 
 
Sec. 3) DISTINGUISHED FROM STOCKHOLDBE8 39 
 
 of the property owned by him is the standard by which the extent of 
 the individual's liability is ascertained and measured. Hence, the im- 
 position of a tax twice upon one person for the same purpose, because 
 of his ownership of a particular' piece of property, would be a double 
 tax, which, in consequence of its inequality, wouldl not be sustained. 
 But when the same property represents distinct values belonging to 
 different persons, be those, persons natural or artificial, both persons 
 may be lawfully taxed, and the amounts of their separate contributions 
 would be fixed by the values which the same property represented in 
 the hands of each, respectively; and this would not be double taxa- 
 tion, in the sense in which it-is obnoxious to the organic law. * * * 
 Judgment affirmed, with costs.^" 
 
 CITY OF LOUISVILLE v. McATEER et al. 
 SAME V. LOUISVILLE WATER CO. 
 
 (Court of Appeals of Kentucky, 1904. 81 S. W. 698, 26 Ky. Law Rep. 425, 
 1 L. R. A. [N. S.] 766.) 
 
 Suit by the city of Louisville for mandamus to compel John McAteer 
 and others to pass upon the assessment of the Louisville Water Com- 
 pany. From a judgment refusing the mandamus, the city appeals. 
 Petition by the city of Louisville against the Louisville Water Com- 
 pany, and from a judgment^ dismissing the petition the city appeals. 
 
 O'Rear, J."^ The question for decisiqn in this case is whether the 
 property of the Louisville Water Company is liable for taxation by 
 the city. For five years before the beginning of these suits the water 
 compdny had not been assessed on any of its property for taxation for 
 "city purposes., It claims that its property is exempt from city taxa- 
 tion becauS^ the city owns all its stock, or did own all but one or two 
 shares for the years in question. The Louisville Water Company is 
 a corporation created by an act of the Legislature approved March 
 6, 1854 (Acts 1853-54, p. 121, c. 507). Its location, and that of most 
 of its property, is within the city of Louisville. Its business is to 
 furnish water to the citizens of Louisville and vicinity, for which it 
 charges rates based upon the quantity of water used. Many years 
 ago the city, by authority conferred by the Legislature and exercised 
 by the city council, subscribed and otherwise acquired the great major- 
 ity of the capital stock of the corporation, and now owns all of the 
 stock. This stock is owned by the sinking fund commissioners of the 
 city. The water company owes a large bonded debt, secured by mort- 
 gage on its plant. The income of the water company is used to pay 
 the expenses of operating and maintaining the plant, then to pay the 
 
 20 Accord: Crown Cork & Seal Co. v. State, 87 Md. 687, 40 AU. 1074, 53 
 L. R. A. 417 (1898). 
 
 21 A part of the opinion is omitted. 
 
40 CHARACTEEISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 interest on its bonded debt, and then to provide a sinking fund for 
 the ultimate payment of its debt. Rates to consumers are fixed) so as 
 to meet these fixed charges. No dividends are paid on the stock. 
 The plan is and has been to operate the plant so as to 'place the price 
 of water to consumers at the lowest possible figure. As the net in- 
 come increases, rates are lowered. The contention of the water com- 
 pany in these cases is that, as the city owns all the stock, it in effect 
 owns the plant ; that to tax the plant is to tax the city, which it must 
 pay by levying and collecting other taxes from its taxpayers, thus doing 
 the absurd thing of going to the trouble and expense of taking money 
 from one pocket to put it in the other. ' 
 
 It is not true, in law, that the owner of all the stock of a corpora- 
 tion owns the property of the corporation. Dartmouth College v. 
 Woodward, 4 Wheat. 518, 4 L. Ed. 629; Fietsam v. Hay, 122 111. 
 293, 13 N. E. 501, 3 Am. St. Rep. 492; People v. Watertown, 1 Hill 
 (N. Y.) 616; State v. Standard Oil Co., 49 Ohio St. 137, 30 N. E. 
 279, 15 Iv. R. A. 145, 34 Am. St. Rep. 541. Even if there was not 
 the weight of authority for the last statement, the city would scarcely 
 want to take the full effect of its contention, for, if it did, then it would 
 follow that the company's debt was the city's debt ; adding the bonded 
 debt of the water company, of about one and one-half millions, to the 
 city's other authorized debt, might operate to invalidate some of its 
 recent bond issues. If, upon a foreclosure of the njortgage upon' the 
 water plant, it was insufficient to pay the bonded dlebt, the city would 
 not care to be bound for the balance because it happened to own all 
 the debtor corporation's stock. 
 
 There is another fallacy in appellee's position: This is not an ef- 
 fort to tax the capital stock or shares of the water company. If it 
 were, then the question would be here whether the city could tax it? 
 own property for its own uses. There is a marked distinction, thpugh, 
 between taxing the property of a corporation and taxing its shares of 
 stock. Cook on Stock & Stockholders, §§ 7, 567 ; Bank of Commerce 
 v. Tennessee, 161 U. S. 416, 16 Sup. Ct. 1113, 41 L. Ed. 211; Ten- 
 nessee V. Whitworth, 117 U. S. 129, 6 Sup. Ct. 645, 29 L. Ed. 830. 
 Cases from other jurisdictions are cited as authority for the proposi- 
 tion that a municipality cannot tax its own property for city purposes. 
 Strictly, these cases are made to turn upon the legislative intent, as, 
 in our opinion, this one must also turn. It is generally held that, un- 
 less expressly authorized) or directed by statute, it will not be con- 
 sidered that a municipality was authorized or required to list its own 
 property for taxation for its own purposes. 
 
 If it be conceded that taxing the plant of the vater company, all 
 the shares of which are owned by the city, is inJrectly a taxing by 
 the city of its own property, it brings us dire:tly to consider the 
 source of appellant's power and the extent of its duty to tax alike all 
 property within its jurisdiction. Section 171 of the Constitution of 
 
Sec. 3) D1STINGDI8HED FROM STOCKHOLDERS il 
 
 this state requires that taxes "shall be uniform upon all property sub- 
 ject to taxation within the territorial limits of the authority levying 
 the tax, and all taxes shall be levied and collected by general laws." 
 Section 170 of the same instrument creates and limits the exemptions 
 from taxation. It provides : "There shall be exempt from taxation 
 public property used for public purposes." This is the only reference 
 to property owned by a municipality. Property owned by or on be- 
 half of the public, but not used for j)ublic purposes, is not exempt. 
 "The express mention of one thing implies the exclusion of another." 
 That the water company, if owned by the city, is public property, is 
 not questioned. But although its stock is owned by the city, and the 
 property is used in supplying the citizens water, the waterworks are 
 not "used for public purposes," within the meaning of section 170, 
 supra, and are subject to taxation for state and county purposes. City 
 of Louisville v. Commonwealth, 1 Duv. 295, 85 Am. Dec. 624; Negley, 
 Sheriff,, V. City of Henderson, 55 S. W. 554, 21 Ky. Law Rep. 1394; 
 Same v. Same, 59 S. W. 19, 22 Ky. Law Rep. 912; Clark, Sheriff, 
 V. Louisville Water Co., 90 Ky. 522, 14 S. W. 502, 12 Ky. Law Rep. 
 309. * * * 
 
 For the reasons indicated, the 'judgment of the circuit court in the 
 suit against McAteer, etc., refusing the mandamus against the board 
 of equalization to compel them to pass upon the assessment of the 
 water company's property as returned by the assessor, and the judg- 
 ment of the circuit court in the franchise tax case, dismissing the city's 
 petition, are each reversed, and they are remanded for proceedings 
 consistent herewith.''^ 
 
 PayntEr and Hobson, JJ., dissent. 
 
 HEARST et al. v. PUTNAM MINING CO. et al. 
 
 (Supreme Court of Utah, 1904. 28 Utah, 184, 77 Pac. 753, 66 L. E. A. 784, 
 
 107 Am. St. Rep. 698.) 
 
 Action by a stockholder to set aside a conveyance of property made 
 by the Putnam Mining Company, a corporation, to the Quincy Min- 
 ing Company. The bill alleges that the transfers were fraudulent and 
 asks that the conveyances be declared void and prays for a decree 
 compelling the Quincy Mining Company to account for all the money 
 and stock received by the latter company, or due to it, to ascertain the 
 just proportion that shall be paid by the defendants to the plaintiffs 
 and that upon such accounting judgment be entered in favor of the 
 plaintiffs for the amount due them.** 
 
 2 2 See accord: (semble) Bank of United States v. Planters' Bank of Georgia. 
 9 Wheat. 905, 6 L. Ed. 244 (1824). 
 23 Statement of facts substituted. 
 
42 CHARACTERISTIC FEATDEBS OF A CORPORATION (Ch. 1 
 
 Bartch, J.''* The decisive question presented in this case is wheth- 
 er the court erred in overruling the demurrer to the special and sepa- 
 rate defense set up in the answer, and in denying the motion to strike 
 out that portion of the answer. 
 
 The appellants contend that the judghient in the case of Rogers v. 
 Ferry et al., wherein the Putnam Mining Company was made a de- 
 fendant, constitutes no bar to this suit, and that their demurrer should 
 have been sustained and their motion granted. 
 
 The respondents insist not only that this action is barred biy the 
 judgment in the Rogers Case, but also that these plaintiffs must fail 
 because they have brought and are attempting to maintain this suit in 
 their own right, and not in the right of the Putnam Mining Company, 
 although they claim only as stockholders of the corporation. The 
 position of the respondents seems to be sound. And first as to the 
 suit having been brought for the benefit of the plaintiffs, in their own 
 right, and not that of the Putnam Mining Company: In their com- 
 plaint the plaintiffs allege the corporate existence of the Putnam Min- 
 ing Company ; that they are stockholders of the corporation ; that the 
 corporation owned and operated certain mining property ; that, through 
 certain fraudulent dealings and transactions, the directors and agents 
 of the company conveyed all its property to Ferry and his associates ; 
 and that, although the property has since been very productive, and 
 has paid large sums in dividends, no accounting has been made to the 
 plaintiffs, nor to the Putnam Mining Company. They then demandl 
 that the alleged fraudulent dealings and transactions be set aside, and 
 the instruments of conveyance decreed null and void ; that an account- 
 ing be had of all the money and stocks received by or due the vendlee ; 
 that the just proportion to be paid the plaintiffs be ascertained ; and 
 that judgment be entered in their favor 'for the 'amount found due 
 them. They then ask "for such further or all other relief as plaintiffs 
 may be entitled to in equity and good conscience." They thus sue in 
 their own right and for their own benefit only, notwithstanding the 
 general allegation that' the suit is also for the benefit of others who 
 are in like situation, and who may appear as parties. 
 
 They appear to proceed upon the theory that, because of the alleged 
 fraudulent transactions, they are cestuis que trust of a constructive 
 trust, or a trust created in their favor, ex maleficio, by wrongfill acts 
 of the defendants, in dealing with the property and assets of the Put- 
 nam Mining Company. , Under the facts disclosed by this complaint, 
 no suit can be maintained upon such a theory. As has been seen, the 
 allegations of the complaint clearly show that all the property in con- 
 troversy was owned by and belonged to the corporation, and not to the 
 plaintiffs, and it is not disputed that the corporation could own and 
 hold its corporate property in absolute right, same as an individual. 
 Nor can it be, for a corporation is a distinct entity, an artificial person, 
 
 24 A part of the opinion is omitted. 
 
Sec. 2) DISTINGUISHED FROM STOCKHOLDERS 43 
 
 created by law, and, as such, in this state, is capable of suing and being 
 sued, of acquiring, owning, and disposing of property, within the ob- 
 jects of its creation, the same as a natural person; and one may deal 
 with it, respecting its property, the same as with an individual owner, 
 and without any greater danger of being held to have received prop- 
 erty into his possession burdened with a direct trust or lien. Being a 
 creature of statute, and having conferred upon it its individuality by 
 law, which has endowed it with a legal existence, independent of any 
 or all of its stockholders, the corporation has the same dominion over 
 its corporate property, with the same right of disposition, as a private 
 person has over his. 
 
 In Weyeth H. & M. Co. v. James-Spencer-Bateman Co., 15 Utah, 
 110, 121, 122, 47 Pac. 604, 608, it was said: "The natural person has 
 such powers and rights as are conferred upon him by nature, except as 
 restricted by human laws for the good of society. The artificial person 
 or corporation has such powers and rights as are conferred upon it by 
 the law of its creation, and such as are incidental and necessary to its 
 corporate existence. Both the natural and artificial personages act in 
 an individual capacity. Among the most important attributes of a 
 natural person are his absolute dominion over his property and his 
 right of disposition, and the same may be said of a corporation aggre- 
 gate as to its corporate property. It has the right to contract and be 
 contracted with, to sue and be sued, to implead and be impleaded, the 
 same as k natural person ; and it has the right to do all other acts in 
 regard to its property that a natural person may do in regard to his." 
 Since, then, the corporation was capable of owning, and in fact did 
 own, the" property in controversy, absolutely, as a distinct entity, how 
 could that property be held to be property in trust for the benefit of 
 persons who are admittedly not the owners thereof, and who have, at 
 most, but an interest in the fund created by the operation or disposition 
 of the property ? The very fact that the plaintiffs were not the owners 
 of the property in dispute precludes the ideia of a trust having arisen 
 in their favor, ex maleticio or otherwise, for in the existence of every 
 trust there are three essential elements, the absence of any one of 
 which is fatal to the trust. These are a trustee, a beneficiary or cestui 
 que trust, and property belonging to the cestui que trust. Here the 
 property proposed to be impressed with a trust does not belong to the 
 plaintiffs, and, as to them, is not in trust, they having but an indirect in- 
 terest therein ; and neither the plaintiffs nor any other stockholders 
 have any interest or estate in the property, legal or equitable, which 
 they can enforce in -their own right and for their own special benefit. 
 Nor is there any trust relation which enables a stockholder to sue in 
 such a case. "The relation of trustee and cestui que trust, or of debtor 
 and creditor, or of partnership, does not exist between the stockhold- 
 ers of an incorporated company and the corporation itself. But the 
 corporation and the individual shareholder may deal with each other 
 
44 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 at arm's length, the same as two strangers may, and a shareholdler may 
 contract with his corporation, and sue and be sued on his contracts." 
 1 Thomp. Corp. •§ 1076. 
 
 If a right of action exists, because of the alleged fraudulent acts and 
 dealings in relation to the property in controversy, it exists in favor of 
 the corporation, and of necessity the action must be brought in the 
 right of the corporation for its benefit. If the defendants must ac- 
 count to any one for the property in litigation, the accounting must be 
 to the corporation, and not to the plaintiffs or any other stockholders. 
 The prayer of this complaint, in effect, asks the court to adjudge that 
 the defendants have obtained for themselves, through fraudulent acts 
 and dealings, the property of the corporation, and, instead of asking 
 that the property sp obtained, or its proceeds, be returned to the right- 
 ful owner, demands that the plaintiffs, for their own benefit, be de- 
 creed a portion of the \f ruits of the fraud. In other words, according 
 to their prayer, they seek to obtain a portion of the property and as- 
 sets of a third party, which they say was obtained from such third 
 party by fraud. 
 
 That a stockholder of a corporation cannot recover corporate prop- 
 erty, fraudulently or otherwise disposed of by the officers or agents of 
 the corporation, by suing in his own right and for his own benefit, is 
 settled by the authorities. It is true, where the property or assets of 
 a corporation have been sequestered and dissipated by fraud or other- 
 wise, a stockholder may, if the board of directors will not act, and a 
 suit clearly ought to be brought, sue in the right of the corporation to 
 have its property restored to it, or to obtain for it such other relief 
 as the circumstances may demand, but in no such case can he sue for 
 himself in his own right. This right of a stockholder to sue, in cases 
 of fraud, for the benefit of the corporation, when it will not sue, is an 
 exception to the general rule "that actions to redress wrongs dope to 
 a corporation must be brought by the corporation itself, and that such 
 actions cannot be brought by its stockholders." 4 Thomp. Corp. § 
 4488. * * * 
 
 There are instances, however, where a stockholder may apply to a 
 court of equity for a preventive remedy by injunction to restrain those 
 who are administering the affairs of the corporation from doing acts 
 which are ultra vires, or to prevent a misapplication of the corporate 
 funds which might result injuriously to the stockholders, where the 
 acts intended to be performed would amount to a breach of trust. In 
 such and like cases a preventive remedy may be applied at the instance 
 of a stockholder, but such cases are wholly different from those like the 
 one at bar. * * * 
 
 Baskin, C. J., and McCarty,. J., concur. 
 
Sec. 2) DISTINGUISHED FROM STOCKHOLDERS 45 
 
 GALlvAGHEk V. GERMANIA BREWING CO. (BARGE et al, 
 
 Interveners). 
 
 (Supreme Court of Minnesota, 1893. 53 Minn. 214, 54 N. W. 1115.) 
 
 MiTCHBivL, J. The plaintiff, as assignee of one Westphal under a 
 general assignment for the benefit of creditors, brought this action to 
 recover for goods sold and delivered by his assignor to the defendant 
 corporation. Barge & Vander Horck intervened, and sfet up in their 
 complaint that they owned, aiid for nearly two years had owned, (each 
 one half,) all the capital stock of the defendant, no other 'person but 
 themselves having any interest in the stock or property of the corpora- 
 tion ; that each of them had a valid and unsatisfiedl judgment against 
 Westphal upon a cause of action which accrued before the assignment 
 to plaintiff ; that Westphal was, and for over two years had been, ut- 
 terly insolvent ; and that his estate, of which plaintiff is the assignee, 
 was so hopelessly insolvent that it was insufficient to pay even the ex- 
 penses of administering the assignment. The relief sought was that 
 their claims against Westphal might be allowed, in equal amounts, as 
 equitable set-offs to the claim of the plaintiff against the defendant 
 corporation. From an order overruling a demurrer to the complaint, 
 the plaintiff appeals, his contention being — First, that Barge & Vander 
 Horck had no such interest in the litigation as to entitle them to inter- 
 vene; second, that their claims cannot be set off against a claim 
 against the corporation, because a corporation is a legal entity, entire- 
 ly distinct from its stockholders. 
 
 These two propositions amount really to the same thing, for, if 
 Barge & Vander Horck cannot set off their claims against that of 
 plaintiff against the corporation, they have no such interest in the sub- 
 ject of litigation as would entitle them to intervene ; on the otjier hand, 
 if their claims are proper, equitable set-offs, their right to intervene 
 for the purpose of setting them up is very clear. The case is certainly 
 a novel one, for we doubt whether an instance can be found in the 
 books where stockholders ever attempted to set up their several equi- 
 ties by way of set-off to claims against the corporation. Of course, 
 the want of a precedent is by no means controlling with courts, es- 
 pecially in administering equitable relief; but it would seem that, if 
 the relief here asked was consistent with legal or equitable principles, 
 some case would be found where it had been granted. The facts of 
 the present case appeal to a natural sense of justice, for while, by fic- 
 tion of law, a corporation is a distinct entity, yet in reality it is an as- 
 sociation of persons who are in fact the beneficial owners of all the 
 corporate property. Hence, if interveners cannot set off their claims, 
 the practical result is that Westphal's estate will collect its entire claim 
 out of what is really their property, while the estate is at the same time 
 indebted to them on claims of greater amount, which they will wholly 
 
46 
 
 CHAKACTEEISTIC FEATURES OF ' A COEPOKATION (Ch. 1 
 
 lose because of Westphal's insolvency; but, as has been often said, 
 hard cases are liable to make bad law. 
 
 The right of equitable set-off is, of course, not derived from, or de- 
 pendent upon, statute, but rests upon a distinctly equitable doctrine,, 
 which courts of equity have applied on certain well-recognized equita- 
 ble grounds, the object being to effect a clear equity and prevent ir- 
 remediable injustice; and it may be stated as a general rule that, 
 whenever necessary to accomplish that end, the courts will permit an 
 equitable set-off, although the debts accrued in different rights; as, 
 for example, by allowing a separate debt to be set off against a joint 
 debt, or, conversely, a joint debt against a separate debt. They will 
 also disregard the nominal parties to the record, and consider the real 
 parties in interest; as, for example, when the assignor of a chose in 
 action sues for the benefit of the assignee,^ or a trustee for the benefit 
 of the cestui que trust. Hence, had the plaintiff's claim been a joint 
 one against the interveners, there would have been no doubt of their 
 right to set off their separate claims against it, for insolvency is well 
 recognized as a distinct eqiiitable ground for allowing such a set-off. 
 
 But such a case is not analogous to the present. To allow the set- 
 off here, it is necessary to wholly ignore the legal doctrine, or fiction, 
 whichever you may call it, that a corporation is an entity separate 
 and distinct from the body of its stockholders, and to treat it as a 
 mere association of individuals who are the real parties in interest. 
 In dealing with the rights of creditors, and the obligations existing be- 
 tween a corporation and its shareholders by reason of their contract 
 of membership, undoubtedly the courts often find it necessary to con- 
 sider the real parties in interest as the individual shareholders; but 
 it may be laid down as a rule that, except in such cases, it has been 
 found absolutely essential, for th^ administration of justice, to treat 
 a corporation as a collective entity, without regard to its indisridual 
 shareholders. In no other way can the title to corporate property be 
 kept free from complication and uncertainty. The traijsferable nature 
 of stock in a corporation is also a good reason why the theory of a 
 corporate entity should be preserved, and why it is necessary to dis- 
 criminate sharply between corporate rights and obligations and those 
 of shareholders personally. If the rights or liabilities of a corpora- 
 tion could.be affected by the acts of the stockholders, except when act- 
 ing in the corporate name, or if shareholders could set up their several 
 equities against persons having claims against the corporation, or, 
 conversely, if claims in favor of the corporatioi^ could be set off 
 against claims against individual stockholders, it can easily be seen 
 into what confusion and chaos corporate affairs would inevitibly fall. 
 
 Inasmuch as the two interveners own all the stock of this corpora- 
 tion, the facts of this case seem comparatively free from embarrass- 
 ments, and the contention of respondent quite plausible. But, suppose 
 there were 50 other stockholders, (which would not alter the princi- 
 
Sec. 3) THE CORPORATION AS A PERSON 47 
 
 pie,) what would be the result? Co^ld interveners then interpose their 
 claims as set-offs, and, if so, could they do so to the full amount of 
 their claims, or only in the proportion which their shares bore to the 
 whole capital stock ? And, if the former, would they have a claim for 
 the excess against the corporation, or a right to call on the other stock- 
 holders for contribution? 
 
 Again, the right of set-off, if any exists, must be mutual. Hence, if 
 stockholders can interpose their individual demands as set-offs to a 
 demand against the corporation, it follows that a defendant can set 
 up demands against the individual stockholders as set-offs to demands 
 in favor of the corporation. Illustrations might be multiplied indefi- 
 nitely to show that to recognize any such right wbuld result in the 
 worst sort of complications, and that the only safe or sound rule is to 
 adhere strictly, in such cases, to the doctrine of a. corporate entity dis- 
 tinct from the individual stockholders. 
 
 What means, if any, the interveners might have had, or may here- 
 after have, of protecting themselves, it, is not now our business to in- 
 quire, but we are clear that their claims against plaintiff's assignor are 
 not the subjects of equitable set-off to a claim againsi the defendant 
 corporation. Order reversed. 
 
 Vanderburgh, J., absent, took no part. 
 
 SECTION 3.— THE CORPORATION AS A PERSON. 
 
 WILLMOTT v. LONDON ROAD CAR CO., Limited. 
 
 (Supreme Court of Judicature. [1910] 2 Ch. Div. 525.) 
 
 Cozens-Hardy, M. R.^° This is an appeal from a judgment of 
 Neville, J., by which he has declared that the London General Omni- 
 bus Company, being a corporation, is not a respectable and responsi- 
 ble person within the meaning of a covenant contained in a lease 
 which I will read in a moment, and has decl|ared that the lessor is en- 
 titled to recover possession of the demised premises. The appeal rais- 
 es a question undoubtedly of importance and undoubtedly too, iiji my 
 judgment, of difficulty. Two learned Judges, Romei", J., and Neville, 
 J.j have taken a view which, with the utmost respect, I am unable to 
 acqept. The lease was a lease granted in 1900 to a Mr. Porter of some 
 premises at Putney. The rent was i95 a year. The property was 
 insured for £5,000; it was a valuable property apparently, and the 
 lease contained this covenant. [His Lordship read the covenant.] 
 
 2 5 Facts sufficiently stated in the opinion of the Master of the Rolls and 
 part of the opinion omitted. 
 
48 CHAEACTBEISTIC FEATURES OF A COEPORATION (Ch. 1 
 
 Mr. Porter did assign to the present defendants, the Londlon Road 
 Car Company, in 1901, and the plaintiff gave his consent to the as- 
 signment. The defendants were minded to assign to the London Gen- 
 eral Omnibus Company. It is quite immaterial, but we are told that 
 the assignment was part of a scheme of reconstruction. 
 
 The real question, and the only question which has been decided by 
 Neville, J., is that in his view a corporation is not a "person" and 
 cannot be a "responsible and respectable person" within the meaning 
 of this covenant. I think it is' necessary to consider with some care 
 what is the true prima facie meaning of the word "person" — what is 
 its meaning at common law and apart from any statutory enactment. 
 I go back to Lord Coke and his exposition of the Statute of 39 Eliz. c. 
 5. The language of the statute there was quite positive. It was a 
 statute that all and every person and persons seized of an estate in fee 
 simple might — I am stating the substance of the act very shortly — 
 found hospitals or almshouses, and Lord Coke upon those words "all 
 and every person -and persons" says this (2 Inst. [1797 Ed.] p. 722) : 
 "These words regularly doe extend to any body politick or corporate, 
 but not to such as are restrained by any act of Parliament to alien 
 &c., but doth extend to such bodies politick and corporate as may 
 alien." He does not put that on any context in the act — on the con- 
 trary there is no context — ^but he puts it as a general proposition. 
 "These words regularly doe extend to any body politick or corporate 
 such as may alien." Of course a corporation which had no power of 
 alienation could not be a person within the meaning of this act, which 
 says that any person may alien. It did not authorize an act which 
 was otherwise ultra vires. Then we come to Blackstone's authority. 
 The passage which was read by Farwell, L. J., from the Commentaries 
 (I, 123) is quite explicit. "Persons are divided by the law into either 
 natural persons, or artificial." Then, again, w€ come to the very 
 important case of Pharmaceutical Society y. London and Provincial 
 Supply Association, S App. Cas. 857, in the House of Lords. Lord Sel- 
 borne, in language which I think is perfectly unambiguous, said that 
 prima facie in a statute the word "person" would include an artificial 
 person or a corporation. Lord Blackburn indicated the same view, 
 although he said he was not so clear about it. It is said, True, that 
 may be so as to statutes, but that is a construction which is limited to 
 statutes ; it has no application to instruments eVen of the most formal 
 character under seal such as this lease is. Is there any authority for 
 that? So far as I am aware there is not. Is there any authority to 
 the contrary of that ? I think there is, for Chitty, J.'s, decision in In re 
 Jeffcock's Trusts, 51 L. J. (Ch.) 507, which was a case of a will, 
 shews that where trustees of a will have power given to them to grant 
 leases to any person or persons as they may think fit, a limited com- 
 pany, that is to say, a corporation, is, within the meaning of that pow- 
 er, a person to whom the trustees may lawfully and properly grant a 
 
Sec. 3) THE COEPORATION AS A PKR80N 49 
 
 lease. I am not aware that the precise point has arisen with reference 
 to a lease, but certainly I should be most unwilling to draw a dis- 
 tinction which I think would be contrary to the whole trend of modern 
 dealings, and to say that a corporation in a lease of this kind was not 
 to be regarded as a person. 
 
 The real stress of Mr. Peterson's and Mr. Draper's able arguments 
 rested on the words "responsible and respectable." Let me take 
 them one by one. It is plain, of course, that under this lease and apart 
 from this covenant a company could be in assign of the lease. There 
 is no dispute about that. It was not ultra vires of the company to ac- 
 cept a lease and it was perfectly competent to become an assign. Sup- 
 pose the words had simply been that consent should not be withheld 
 in the case of a responsible person, I cannot bring myself to doubt 
 that in that case a company which was admitted to be responsible in 
 the sense of being able to discharge all obligations in respect of rent 
 and covenants under the lease would be a responsible person within 
 the meaning of that covenant, and therefore a person with respect to 
 whom consent could not be refused. But then it is said, and this is the 
 point which alone has given me difficulty in this case, "Can it be said 
 that a corporation can be respectable ? Does not the addition of that 
 word 'respectable' compel you to say that in this case the word 'per- 
 son' must be limited to an individual, a human personality, a person 
 wjio is capable of acts moral or immoral ?" In my opinion that is not 
 so. I think the ordinary use of language justifies you in saying that a 
 company is a respectable company. We all use that language habitually. 
 We talk of a respectable insurance company, or a respectable bank, and 
 in that case we refer to the mode in which the company or the bank con- 
 ducts its business. But I think we are not without assistance from au- 
 thority which is absolutely binding on us. A limited company or a 
 company whether limited or not can maintain an action of libel for an 
 injury to its reputation without proving any special damage. South 
 Hetton Coal Co. v. North Eastern News Association, [1894].! Q. B. 
 133, which is a decision of this court in 1893, is a clear authority on 
 that point. The material passages of the judgments have been read 
 and I do not propose to 'read them again. I am content to rely on a 
 passage there quoted from the judgment of Pollock, C. B., in Metro- 
 politan Saloon Omnibus Co. v. Hawkins, (1859) 4 H. & N. 87, .90, 
 where he says that in order to carry on business it is necessary that 
 the reputation of a corporation should! be protected, and therefore in 
 cases of libel and slander it must have a remedy by action. , A com- 
 pany can~ have a reputation which is not the reputation of the indi- 
 vidual directors, but the reputation of the company, the reputation 
 which the company itself and itself alone can protect by means of an 
 action of libel. 
 
 Are we to draw a distinction and say, "True, that might be applica- 
 ble, if the word in the covenant had been 'reputable/ but it is not 'rep- 
 
 RlCH.COBP. i 
 
50 CHARACTERISTIC FEATDEES' OF A COEPO RATION (Ch. 1 
 
 utable' but 'respectable'?" I decline to draw that fine distinction. It 
 seems to me that the better view (which I think is in accordance with 
 modern policy and the trend of all mercantile proceedihgs) is to say 
 that a company in a clause of this kind is a person who may be both 
 respectable and responsible, and that therefore there can be no right 
 to refuse to assign to it. In other words, I think, taking the whole 
 context of this clause, that it really amounts to this : "You shall not 
 assign or underlet without my previous consent, but such consent shall 
 not be withheld in the event of the contemplated assignee or under- 
 lessee, who might be an incorporated company, being a respectable 
 and responsible person," the word "person" being there used as a term 
 which is equally applicable to an artificial and to a natural person. 
 
 DOW et al. v. NORTHERN RAILROAD et al. 
 
 (Supreme Court of New Hampshire, 1887. 67 N. H. 1, 36 Atl. 510.) 
 
 Case Reserved from Merrinikck County. 
 
 Bill in equity, by Samuel H. Dow and John E. Robertson, stock- 
 holders in the Northern Railroad, against the Northern Railroad, the 
 Boston & Lowell Railroad, and the directors of the Northern Rail- 
 road, seeking to enjoin the operation of the Northern Railroad by the 
 Boston & Lowell Railroad under a contract of lease. Answers wdre 
 filed, and the case was heard at the trial term before Carpenter, J., 
 both parties introducing evidence. Eacts were found by the court, and 
 the case was reserved for the law term by request of parties. Decree 
 for plaintiffs. 
 
 The facts material to the points upon which the case was decided are 
 as follows : The Northern Railroad was chartered in 1844. The cor- 
 poration was authorized to construct and keep in use a railroad from 
 Concord to Lebanon. Section 11 provides that "the legislature may 
 alter, amend, or modify the provisions of this act, or repeal the same, 
 notice being given to the corporation, and an opportunity to be heard." 
 The road was constructed and put in operation within a few years 
 after the charter. Chapter 100, Laws 1883, enacts that (subject to 
 certain conditions and qualifications) "any railroad corporation may 
 lease its road, railroad property, and interests to' any other railroad 
 corporation," upon such terms and for such time as may be approved 
 by a two-thirds vote of the stockholders of each corporation. Section 
 17. This act contains no provision for the compensation of dissent- 
 ing stockholders. It was assumed that the Northern Railroad had no- 
 tice of the proposed passage of this statute. On June 18, 1884, the 
 stockholders of the Northern Railroad, by a vote of more than two- 
 thirds, approved a lease to the Boston & Lowell. On the same day, 
 
 as Concurring opinions of Lord Justices Moulton and Farwell are omitted. 
 
Sec. 3) THE CORPOBATION AS A PEBSON 51 
 
 pursuant to this vote, the Northern Railroad, by its president, exe- 
 cuted to the Boston & Lowell Railroad a lease for 99 years of the rail- 
 road, rolling stock, etc., of the lessor; the lessee to pay a specified 
 quarterly rental, and perform various other covenants. The plaintiffs 
 voted against approving the lease, and seasonably filed their bill in 
 equity, praying that the Boston & Lowell Railroad be enjoined from 
 operating the NorthernfRailroad under the lease, and that the North- 
 ern Railroad and its directors be ordered to assume the management 
 of the road. 
 
 Doe, C. J."'^ The Northern Railroad is the name of "a collection of 
 many individuals, united into one body," with certain rights and duties. 
 Kyd, Corp. 13. A private business corporation is "an association 
 formed by the agreement of its shareholders," and its existence "as an 
 entity, independently of its members,' is a fiction." It is "essential to 
 bear in mind distinctly that the rights andl duties of an incorporated 
 association are in reality. the rights and duties of the persons who 
 compose it, and not of an imaginary being." Mor. Priv. Corp., pref- 
 ace. "The statement that a corporation is an artificial person or en- 
 tity, apart from its members, is merely a description, in figurative lan- 
 guage, of a corporation viewed as a collective body. A corporation is 
 really an association of persons. * * * " Mor. Priv. Corp. § 227. 
 
 By the first section of the Northern Railroad charter (Laws 1844, 
 c. 190) it is enacted "that Timothy Kenrick" and twenty other per- 
 sons, "their associates, successors, and assigns, shall be and hereby 
 are made a body politic and corporate by the name of the Northern 
 Railroad." Here is no evidence of an attempt to introduce a mystery, 
 or to create a fictitious being, to whom the state can give neither body 
 nor mind. The stockholders are the corporation. They have the en- 
 tire equitable title and beneficial interest of the property by them put 
 in the corporate trust, and they are the corporate trustee in whom is 
 vested the legal title. All of them, assembled at their annual meeting, 
 choosing their seven directors by ballot, and exercising their stock- 
 holding rights in any other legal act, would be the visible body, and 
 the acting mental and moral faculty, whose partnership name is the 
 Northern Railroad. They are made a body, not by the legislature, 
 but by their own several acts of becoming stockholders and joint prin- 
 cipals. Under the common law, without a charter, they can form a 
 partnership body by becoming stockholders and joint principals in the 
 business of a stagecoach common carrier between Concord and Leb- - 
 anon. Under general law, without a special act of incorporation, if 
 a majority of them are inhabitants of this state, the)' can make them- 
 selves a railroad corporation. Laws 1883, c. 100. "May associate 
 themselves together, by written or printed articles of agreement, for 
 the purpose of forming a railroad corporation," is the language of the 
 
 27 A part of the opinion is omitted. 
 
52 CHARACTERISTIC FEATURES OF A CORPORATION (Gh. 1 
 
 act. They are no more made a body by the law than they would be 
 if they should form a corporation under the act of 1883, or an un- 
 incorporated partnership under the common law. Whether they are 
 incorporated or not, their company is formed by their contract with 
 each other, and it has such.powers and duties as the law allows them 
 to give it, and such as the law grants and imposes. For whatever 
 legal purposes their corporate body may be regarded as unreal the fic- 
 tion dbes not vest all the property in an imaginary being, and does not 
 make the shareholders owners of an imaginary capital stock, for the 
 purpose or with the consequence of giving to the majority of them, or 
 to the state, a leasing power which the majority or the state would 
 not have if the partnership were not incorporated."* * * * 
 
 STATE ex rel. ATTORNEY GENERAL v. STANDARD OIL CO. 
 
 (Supreme Court of Ohio, 1892. 49 Ohio St. 137, 30 N. E. 279, 15 L. R. A. 145, 
 34 Am. St. Rep. 541.) 
 
 The State, by its Attorney Gerieral, commenced this action to oust 
 the defendant of its rights to be a corporation, on the ground that it 
 had abused its corporate franchises by becoming party to an agree- 
 ment that is against public policy. The agreement in question was 
 entered into by the stockholders of the defendant company, together 
 with the stockholders of other corporations, partners and individluals, 
 whereby the stock held by the contracting parties was conveyed to 
 trustees, with power to vote and manage the corporation and enter- 
 prises thus controlled. The contracting parties received trust certifi- 
 cates in lieu of the stock surrendered. The purpose of this agreement 
 was to secure a uniform control over the principal organizations en- 
 gaged in the oil business. This purpose is alleged to be contra to pub- 
 lic policy and ultra vires of the defendant corporation."* 
 
 MiNSHALL, J.^" Three questions arise upon the pleadlings: (1) 
 Should the defendant, the Standard Oil Company, be regarded as a 
 party in its corporate capacity to the agreement constituting the Stand- 
 ard Oil Trust? (2) Had the company power to become a party to 
 such an agreement? (3) If so, is the right of the state to demand a 
 forfeiture of its corporate franchises, or of the power to make and 
 perform such agreements, barred by lapse of time? 
 
 1. It will be observed on reading the answer that while the dtef end- 
 ant denies that it "entered into or became a party to either or both of 
 the agreements in said petition set forth," and also "denies that it has 
 at any time or in any manner acquiesced in or observed, performed, or 
 
 2 8 For a detailed discussion of the principles of this case, see 6 Harv. Law 
 Uev. 161, 213 ; 8 Harv. Law Rev. 295, 396. 
 28 Statement of facts abridged, 
 so A part of the opinion is omitted. 
 
Sec. 3) THE CORPORATION AS A PERSON 53 
 
 carried oiit either or both of said agreements," it does not deny the 
 averment of the petition that "all of the owners and holders of its 
 capital stock, including all the officers andl directors of said company, 
 signed said agreements." Nor could it have been the intention to do so, 
 as the answer proceeds to admit "that it [the corporation] is informed 
 and believes that the individuals named in the agreement, being the 
 same individuals who executed" it, "did enter into the agreements set 
 forth" in the petition; claiming "that said agreements were agree- 
 ments of individuals in their individual capacity and with reference to 
 their individual property, and were not, nor were they deisigned to be, 
 corporate agreements." The claim is based upon the argument that 
 the corporation is a legal entity, separate from its stockholders; that 
 in it is vested all the property and powers of the coinpany, and can 
 only be affected by such acts and agreements as are dbne or executed 
 on its behalf by its corporate agencies, acting within the legitimate 
 scope of their powers; that its stockholders are not the corporation; 
 that their shares are their individual property, and that they may each 
 and all dispose of and make such agreements affecting their shares as 
 best suit their private interests ; and that no such acts and agreements 
 of stockholders, subservient ojE their private interests, can be ascribed 
 to the company as a separaite entity, though done and concurred in by 
 each and all of its stockholders. 
 
 The general proposition that a corporation is to be regarded as a 
 legal entity, existing separate and apart from the natural persons com- 
 posing it, is not disputed ; but that the statement is a mere fiction, ex- 
 isting only in idea, is well understood, and not controverted by any one 
 who pretends to accurate knowledge on the subject. It has been in- 
 troduced for the convenience of the company iii making contracts, in 
 acquiring property for corporate purposes, in suing and being sued, 
 and to preserve the limited liability of the stockholders by distinguish- 
 ing between the corporate debts and property of the company and of 
 the stockholders in their capacity as individuals. All fictions of law 
 have been introduced for the purpose of convenience, and to subserve 
 the ends of justice. It is in this sense that the maxim in fictione juris 
 subsistit sequitas is used, and the doctrine of fictions applied. But 
 when they are urged to an intent and purpose not within the reason 
 and policy of the fiction, they have always been disregarded by the 
 courts. Broom, Leg. Max. 130. "It is a certain rule," says Lord 
 Mansfield, C. J., "that a fiction, of law shall never be contradicted so 
 as to defeat the end for, which it was invented, but for every other 
 purpose it may be contradicted." Johnson v. Smith, 2 Burrows, 9(3,. 
 
 No reason is perceived why the principles applicable to fictions in 
 general should not apply to the fiction "that a corporation is a per- 
 sonal' entity, separate from the natural persons who compose it, and 
 for whose benefit it has been invented." One author seems to think 
 that it has outlived its usefulness; that it is "a stumbling block in the 
 
54 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 advance of corporation law towards the discrimination of the real 
 rights of men and women," and should be abandoned. Tayl. Corp. 
 8 51. * * * 
 
 Applying, then, the principle that a corporation is simply an associ- 
 ation of natural persons, united in one body under a special denomina- 
 tion, and veSjted by the policy of the law with the capacity of acting in 
 several respects as an individual, and disregarding the mere fiction o-f a 
 separate legal entity, since to regard it in an inquiry like the one before 
 us would be subversive of the purpose for which it was invented, is 
 there, upon an analysis of the agreement, room for doubt that the act 
 of all the stockholders, officers^ and directors of the company in sign- 
 ing it should be imputed to them as an act done in their capacity as a 
 corporation? yVe think not, since thereby all the prooerty and business 
 of the company is, and was intended to be, virtually transferred to 
 the Standard Oil Trust, and is controlled, through its trustees, as ef- 
 fectually as if a formal transfer had been made by the directors of 
 the company. On a question of this kind, the iact- must constantly be 
 kept in view that the metaphysical entity has no thought or will of its 
 own ; that every act ascribed to it emanates from and is the act of the 
 individuals personated by it; and that it can no more do an act, or 
 refrain from doing it, contrary to the will of these natural persons, 
 than a house could be said to act independently of the will of its own- 
 er ; and, where an act is ascribed to it, it must be understood to be the 
 act of the persons associated as a corjioration, and, whether done in 
 their capacity as corporators or as individuals, must be determined by 
 the nature and tendency of the act. 
 
 It therefore follows, as we think, from the discussion we have given 
 the subject, that where all, or a majority, of the stockholders compris- 
 ing a corporation do an act which is designed to affect the property and 
 business of the company, and which through the control their numbers 
 give them over the selection and conduct of the corporate agencies, 
 does affect the property and business of the company, in the same 
 manner as if it had been a formal resolution of its board, of directors, 
 and the act so dbne is ultra vires of the corporation and against pub- 
 lic policy, and was done by them in their individual capacity for the 
 purpose of concealing their real purpose and object, the act should be 
 regarded as the act of the corporation; and, to prevent the abuse of 
 corporate power, may be challenged as such by the state in a proceed- 
 ing in quo warranto. * * ' * 
 
 Judgment ousting the defendant from the right to make the agree- 
 ment set forth in the petition, and of the power to perform the same. 
 
 PEOPLE V. NORTH RIVER SUGAR REFINING CO. (1890) 
 121 N. Y. 582, 24 N. E. 834, 9 L. R. A: 33, 18 Am. St. Rep. 843, 
 Finch, J. : "The abstract idea ' of a corporation, the legal entity, the 
 
Sec. 3) THE COKPOEATION AS A PERSOW 55 
 
 impalpable and intangible creation of human thought is itself a fic- 
 tion, and has been appropriately described as a figure of speech. It 
 serves very well to designate in our minds the collective action and 
 agency of many individuals as permitted by the law; and the sub- 
 stantial inquiry always is what in a given case has been that collec- 
 tive action and agency. As between the corporation and those with 
 whom it deals, the manner of its exercise usually is material, but as 
 between it and the state, the substantial inquiry is" only what that col- 
 lective action and agency has done, what it has, in fact, accomplished, 
 what is seen to be its effiective work, what has been its conduct. It 
 ought not to be .otherwise. The state gave the franchise, the charter, 
 not to the impalpable,' intangible and almost nebulous fiction of our 
 thought, but to the corporators, the individuals, the acting and living 
 men, to be used by them, to redound to their benefit, to strengthen 
 their hands and add energy to their capital. If it is taken away, it 
 is taken from them as individuals andl corporators, and the legal fic- 
 tion disappears. The benefit is theirs, the punishment is theirs, and 
 both must attend and depend upon their conduct; and when they all 
 act, collectively, as an aggregate body, without the least exception, and 
 so acting, reach results and accomplish purposes clearly corporate in 
 their character, and affecting the vitality, the independence, the utility, 
 of the corporation itself, we cannot hesitate to conclude that there 
 has been corporate conduct which the state may review, and not be 
 defeated by the assumed innocence of a convenient fiction. As was 
 said in People ex rel. v. K. & M. T. R. Co., 23 Wend. 193, 'Though 
 the proceeding by information be against the corporate body, it is the 
 acts or omissions of the individual corporators that are the subject of 
 the judgment of the court.' " 
 
 UNITED STATES v. MILWAUKEE REFRIGERATOR 
 
 TRANSIT CO. et al. 
 
 (Circuit Court, B. D. Wisconsin, 1905. 142 Fed. 247.) 
 
 Sanborn, District Judge.*^ This is a bill in equity for an injunc- 
 tion to prevent the payment of alleged rebates on freight, brought 
 under Elkins Act Feb. 19, 1903, c. 708, 32 Stat. 847 [U.. S. Comp. 
 St. Supp. 1905, p. 599] . The defense outlined in argunjent of the de- 
 murrers is that it appears on the face of the bill that the alleged re- 
 bates were not paidi back to the shipper (the brewing company), but 
 to the Refrigerator Transit Compar^y, and, in substance and effect, 
 nothing more is shown than the payment to a soliciting agent (the 
 transit company) of a commission of an eighth or tenth of the pub- 
 lished tariff rates, thus showing, in real effect, acts neither unlawful, 
 immoral, nor injurious. * * * 
 
 81 A part of the opinion is omitted. 
 
56 CHARACTERISTIC FEATURES OF A CORPORATION (Ch. 1 
 
 The Question of Corporate Identity or Control. 
 
 It is further essential, to bring the case within the law, that the re- 
 payments be made to the brewing company, or for its benefit, directly 
 or indirectly, and not merely to third persons for obtaining the busi- 
 ness ; otherwise the repayment is no more than a salary or other ex- 
 pense incident to the carrier's business. The remaining question, 
 then, is whether this is sufficiently shown in the bill. It is forcibly 
 argued that the bill carefully avoids the statement that the brewing 
 company received the money repaid, or even that it was paidi back for 
 its benefit; and that the two corporations are not only distinct legal 
 entities, but have different stockholders. The bill shows the creation, 
 by the controlling interests of the brewing company, of a dummy cor- 
 poration, with dummy directors, and scienter of its character by the 
 carriers, with intent to evade the law. It is argued that these aver- 
 ments show that the transit company is merely the alter ego of the 
 brewing corporation; both being substantially identical in interest 
 and control, and the brewing company the ultimate beneficiary, in 
 some form, of the operations in question. Now is not this the usual 
 device of a shipper securing discrimination by manipulation of car- 
 riers in which it is interested? 
 
 That the transit company is controlled by the managing agents of 
 the brewing company is entirely clear. But is it controlled by the 
 shipper corporation? The solution-^ of this question depends on 
 whether the brewing corporation, in a case like this, is an association 
 of individuals, rather than a legal entity apart from those who own 
 and control it. No doubt the general rule that a corporation is a 
 legal entity, an institution, artificial, intangible, existing only by legal 
 contemplation, and separate and apart from its constituents, is firrply 
 imbedded in the common law of this country. It has been so laid 
 down in hundreds of cases. In the Dartmouth College Case Chief 
 Justice Marshall adopted and expressed it, almost in the exact lan- 
 guage of Lord Coke, in Coke on Littleton, 27b; and this definition 
 has been universally approved, especially in cases involving ,the extent 
 of the corporate powers. 
 
 It is, however, most significant that the Supreme Court of the 
 United States was the first to break away from the notion that a 
 corporation is only a legal entity, when its literal application would 
 operate with injustice. If a corporation is only a legal entity, of 
 course, it cannot be a citizen of a state. Hence the Supreme Court, 
 in order to sustain the most important and far-reaching jurisdiction 
 of the national courts over corporations, depending on the citizenship 
 of the parties, was obliged to adbpt some other t^ieory of corporate 
 constitution than that laid down by the great chief justice. This was 
 accomplished by holding that a corporation is an association of per- 
 sons who may have citizenship, and following this with the adop- 
 tion of a fiction of law, supported by a conclusive presumption, by 
 
Sec. 3) THE ,CORPOBATION AS A PEESON 57 
 
 which the members of a corporation are conclusively presumed to be 
 citizens of the state creating it. Hope Ins. Co. v. Boardman, 5 Cranch, 
 57, 3 L. Ed. 36; Louisville, etc., R. Co. y. Letson, 2 How. 497, 11 h. 
 Ed. 353 ; Marshall v. R. Co., 16 How. 314, 14 L. Ed. 953. In reach- 
 ing these results, the court, in answering the argument that a corpora- 
 • tion is an artificial person, a mere legal entity, invisible and intangible, 
 said that it was not reasonable that those who deal with corporate 
 affairs or agents should Idc deprived of the yaluable privilege of liti- 
 gating in the federal courts by a syllogism, or rather sophism, which 
 deals subtly with woi-ds and names, without regard to the things 
 or persons they are used to represent. 16 How. 327, 14 L. Ed. 953. 
 "For all purposes of acting, contracting, and judicial remedy," said 
 Mr. Justice Grier, "they can speak, act, and plead only through their 
 representatives or curators." Id. Thus the idea that a corporation is, 
 for some purposes, an aggregation of individuals, and not a legal 
 entity, was adopted, t|irough a fiction of law, and given full effect. 
 It was the same kind of fiction by which the English Court of Ex- 
 chequer usurped jurisdiction by permitting an allegation that plaintiff 
 was the King's debtor, and then allowing no one to deny it. * * * 
 Applying the rule here laid down to the. circumstances shown to 
 surround the brewing company and transit company, can it b* doubted 
 that there really is, in substance and effect, an idlentity of interest, or 
 that the brewing company, considered as an association of individuals, 
 really owns and fully controls the transit company? Or that the pay- 
 ment of the eighth or tenth of the rate is in reality, and in some form, 
 a payment to, or for the benefit of, the shipper? I think sufficient is 
 alleged to show this. Moreover, it clearly appears that the shipper 
 practically controls the transit company, and I think this shows a 
 sufficient identity of interest among the shareholders of both in these 
 repayments to make them rebates, if paid and received with unlawful 
 intent. It is said that the procurement of the shipments through the 
 contract is the mere soliciting of them for the carriers, for which they 
 are lawfully authorized to pay a part of the rate, in order to get the 
 business ; and the transit company, owning a large number of refrig- 
 erator cars, and wishing to keep them employed, simply gives the 
 freight to those competing shippers who will make the best terms, the 
 business being of great volume, and the sums paid for freights large. 
 But this theory of innocence is exploded by the fact, as alleged (what- 
 ever the actual proof may show), that the transit company is a mere 
 separate name for the brewing company, being in fact the same col- 
 lection of persons and interests. Assuming the truth of the aver- 
 ments, the device adopted is "neither new, nor deserving of new suc- 
 cess." As the patent lawyers say of an aggregation, there is no new 
 mode of operatipn, new use, or new result — simply the use of old 
 things in a different situation. * * * 
 
58 OHARACTBKISTIC FEATURES OF A COEPOEATION (Ch. 1 
 
 SAN MATEO COUNTY v. SOUTHERN PAC. R. CO. (1882) 
 13 Fed. 722, 743, Field, J.: "Private corporations are, it is true, 
 artificial persons, but with the exception of a sole corporation, with 
 which we are not concerned, they consist of aggregations of individ- 
 uals united for some legitimate business. In this state they are formed 
 under general laws; and the Civil Code provides that they 'may be 
 formed for any purpose for which individuals may lawfully associate 
 themselves.' Any five or .more persons may by voluntary association 
 form themselves into a corporation. And, as a matter of fact, nearly 
 all enterprises in this state, requiring for their execution an expend- 
 iture of large capital, are undertaken by corporations. They engage 
 in commerce; they build and sail ships; they cover our navigabfe 
 streams with steamers ; they construct houses ; they bring the prod-^ 
 ucts of earth and sea to market ; they light our streets and buildings ; 
 they open and work mines; they carry water into our cities; they 
 build railroads, and cross mountains and deserts with them ; they 
 erect churches, colleges, lyceums, and theaters; they set up manufac- 
 tories, and keep the spindle and shuttle in motion; they establish 
 banks for savings ; they insure against accidents on land and sea ; they 
 give policies on life; they make money exchanges with all parts of 
 the world; they publish newspapers and books, and send news by 
 lightning across the continent and under the ocean. Indeed, there 
 is nothing which is lawful to be done to feed and clothe our people, 
 to beautify and adorn their dwellings, to relieve the sick, to help the 
 needy, and to enrich and ennoble humanity, which is not to a great 
 extent done through the instrumentalities of corporations. There are 
 over 500 corporations in this state; there are 30,000 in the United! 
 States, and the aggregate value of their property is several thousand 
 millions. ^^ It would be a most singular result if a constitutional pro- 
 vision intended for the protection of every person against partial and 
 discriminating legislation by the states, should cease to exert such 
 protection the moment the person becomes a member of a corpora- 
 tion. We cannot accept such a conclusion. On the contrary, we 
 think that it is well established by numerous adjudications of the su- 
 preme court of the United States and of the several states, that when- 
 ever a provision of the constitution, or of a law, guaranties to persons 
 the enjoyment of property, or affords to them means for its protection, 
 or prohibits legislation injuriously affecting it, the benefits of the pro- 
 vision extend to corporations, and that the courts will always look 
 beyond the name of the artificial being to the individuals whom it 
 represents." 
 
 8 2 Note. — The number of corporations here stated is much less than the 
 number actually existing. There are over 6,000 corporations in California 
 alone. 
 
Sec. 3) THE CORPORATION AS A PERSON 59 
 
 ' THE JURISTIC PERSON. 
 
 For discussion of the nature of a juristic person, see Legal Per- 
 sonality, 27 E. Q. R. 90; Corporate Personality, 24 Harv. Law Rev. 
 253 and 347; The General Principles of the Law of Corporations,' 
 Carr (York Prize Essay, 1902) ; Early Forms of Corporateness, 3 
 Ang. Am. Leg.. Essays, 161 ; History of Business Corporations Prior 
 to 1800, 2 Harv. Law Rev. 105, 3 Ang. Am. Leg. Essays, 195 ; Pol- 
 lock and Maitland, History of English Law, Vol. 1, pp. 469-495, 425 
 and 660-661; The Juristic Person, 57 Am. Law Reg. (O. S.) 131 
 (U. of Pa. Law Rev. and Am. Law Reg.) ; Legal Personality of 
 a Foreign Corporation, 22 L. Q. R. 178 ; The Personality of the Cor- 
 poration and the State, 21 L. Q. R. 365 ; Historical Development of 
 the Conimon-Law Conception of a Corporation, 42 Am. Law Reg. 
 (N. S.) 529; Corporations at Home and Abroad, 2 Colo. Law Rev. 
 351; Maine, Ancient Law, 181; Nature of Corporations, 12 Pol. Sci. 
 Qr. 273; Freund, Legal Nature of Corporations (University of Chi- 
 cago — Studies in Political Science). 
 
60 £<ORMATION (Ch. 3 
 
 CHAPTER II 
 FORMATION 
 
 SECTION 1.— STEPS ESSENTIAI. TO ORGANIZATION 
 
 PEOPLE ex rel. BERNARD et al. v. CHEESEMAN et al. 
 (Supreme Court of Colorado, 1884. .7 Colo. 376, 3 Pac. 716.) 
 
 Helm, J.^ Relators, in the name of the people, seek by an action 
 in the nature of quo warranto to directly challenge the corporate ex- 
 istence of "The Union Depot & Railroad Company." Their theory 
 is that respondents, under that name, wrongfully usurped the privi- 
 leges and franchises of a corporation; that respondent's attempted 
 organization of the company was void ab initio, by reason of a fail- 
 ure to comply with the precedent requirements of our general incor- 
 poration act. The action is brought under chapter 28 of the Code 
 of 1883. 
 
 It is somewhat doubtful if relators are in position to maintain 
 the sanie in the name of the people or otherwise, giving the Code 
 provisions the interpretation most favorable to them. But we prefer 
 to base our determination of this proceeding in error upon other 
 grounds. * * * 
 
 We have no doubt but that in this state a substantial compliance 
 with the provisions of the general law is an essential prerequisite to 
 the creation of a private corporation, and that a failure to comply 
 therewith in any material particular is ground for the impeachment 
 of corporate existence, in an appropriate proceeding prosecuted by 
 the proper authority. 
 
 Twelve different alleged defects are named and discussed at length 
 in the briefs. Many of these, however, are already disposed of, and 
 we only deem it important to consider two of the remainder. 
 
 1. Was the fact that the articles of incorporation provide for an 
 existence of 50 years fatal? Section 238 of the General Statutes 
 requires that these articles shall state, among other things, "the term 
 of existence, not to exceed twenty years." The defect here suggested 
 is not an omission to insert something required. Respondents com- 
 ply with the statutes by declaring the term of existence. As to the 
 length of this term they ask more than the law allows. In the face 
 of a restriction to 20 years they assume the right to act for 50. 
 This statutory provision as to time may, we think, properly be re- 
 
 i A part of the opinion is omitted. 
 
Sec. 1) STEPS ESSENTIAL TO ORGANIZATION 61 
 
 garded as a limitation ; and we are of opinion that the irregularity is 
 not such a non-compliance with law as operated to prevent the cor- 
 poration from coming into existence. It cannot without renewal live 
 for 50 years ; but, so far as this objection is concerned, it may exer- 
 cise the rights and privileges of a corporation in carrying on the busi- 
 ness intended for the period of 20 years. 
 
 2. Was there a fatal defect in the certificate of acknowledgment of 
 the articles of incorporation ? This certificate is as follows : 
 "State of Colorado, Arapahoe County — ss. : 
 
 "I, William B. Tebbets, a notary public within and for the county of 
 Arapahoe and state of Colorado, do hereby certify that on the twenty- 
 fourth day of November, A. D. 1879, personally appeared before me 
 the persons whose names, are signed to the foregoing articles of as- 
 sociation, namely, Walter S. Cheeseman, Bela M. Hughes, D. C. 
 Dodge, A. A. Egbert, and J. F. Welborn, and they each of them ac- 
 knowledged that they had signed the foregoing articles of associa- 
 tion for the purposes therein set forth. In testimony whereof, I have 
 hereunto set my hand and affixed my official seal this, the day and 
 year aforesaid. 
 
 "[Seal.] William B. Tebbets, Notary Public." 
 
 The specific objection to this certificate is that it is not stated 
 therein that "the individuals who acknowledged the same were per- 
 sonally known to the officer who took the acknowledgment, or 
 proven to him to Jdc the persons who executed the certificate." Were 
 this omission in the certificate of an acknowledgment to a deed con- 
 veying real estate, we might be constrained to hold such certificate 
 defective. Such is the conclusion reached under a statute identical 
 with our section 212, which provides for the acknowledgment of in- 
 struments relating to realty. Shephard v. Carriel, 19 111. 319. But 
 the statute under which the certificate of acknowledgment to these 
 articles of incorporation was made, contains no such specific require- 
 ment as said section 212;, it simply declares ^hat the acknowledg- 
 ment shall' be "before some officer authorized to take the acknowl- 
 edgment of. deeds." The declaration that the same officer shall offi- 
 ciate does not necessarily imply that he must certify to precisely the 
 same matters in both instances. The provision requiring the officer 
 to state that the individual subscribing and the one acknowledging 
 are -personally known by him to be ideiftical, was inserted for the 
 purpose of preventing one individual from personating another in 
 the execution of instruments relating to real' estate. As will be ob- 
 served, the notary public certifies that the persons whose names are 
 signed to the articles of incorporation under consideration personally 
 appeared before him. In early times this would have been ample in 
 the certificate to an acknowledgment of a deed to realty, and we are 
 satisfied that it is a sufficient compliance with the incorporation stat- 
 ute upon the subject. 
 
 The judgment of the district court will be affirmed. 
 
62 FORMATION (Ch. 2 
 
 PEOPLE V. MDNTECITO WATER CO. et al. 
 
 (Supreme Court of California, 1893. 97 Cal. 276, 32 Pac. 236, 
 33 Am. St. Rep. 172.) 
 
 Action by the people against the Montecito Water Company, C. 
 B. Hall, and others. From a judgment sustaining a demurrer to the 
 complaint, plaintiff appeals. Reversed. 
 
 Tbmpi<e, C. Plaintiff apepals from a judgment entered upon de- 
 murrer to complaint. The demurrer was general, and on the ground 
 of insufficiency of the facts. 
 
 It is a proceeding taken by the attorney general of the state, in the 
 nature of a quo warranto, to deprive the defendant corporation of 
 its corporate charter, and procure its dissolution on two grounds — 
 First, for want of a substantial compliance with the statutory require- 
 ments in its formation; arid, second, for abandonment and misuse 
 of its corporate franchise and powers, and for alleged violations of 
 law. 
 
 In answer to the first point the respondent raises the preliminary 
 objection that, by making the corporation a defendant, its corporate 
 character is admitl;ed, and cannot be questioned in this proceeding. 
 As authority for this proposition the case of the People v. Stanford, 
 77 Cal. 360, 18 Pac. 85, and 19 Pac. 693, 2 L. R. A. 92, is chiefly 
 relied upon. 
 
 In that case it was alleged in the complaint that the assumed cor- 
 poration had never been a corporation. If it were not a corporation 
 of any character, it had no legal existence, and could not be sued. 
 By making it a party, plaintiff conceded that it was a person that 
 could be sued. It was said that the corporation could not be treated 
 as a person which could be sued simply to obtain a judgment; that 
 it was not and never had been such a person. There is no such in- 
 consistency here. It is averted that the corporate defendant is a cor- 
 poration de facto, but it is claimed that it di^ not become a corpora- 
 tion de jure, because- the persons who attempted the incorporation 
 did not comply with the conditions which the statute makes condi- 
 tions precedent to its rightful incorporation. Under such circum- 
 stances, although the association is a legal entity, which may be sued, 
 its right to corporate existence may be questioned by the state in a 
 proceeding of this character. Section 358, Civil Code. 
 
 This court said in People v. La Rue, 67 Cal. 530, 8 Pac. 84, and re- 
 peated the language in First Baptist Church v. Branham, 90 Cal. 
 22, 27 Pac. 60 : "A corporation de facto may legally do and perform 
 every act and thing which the same entity could do or perform were 
 it a de jure corporation. As to all the world, except the paramount 
 authority under which it acts, and frOm which it receives its charter, 
 it occupies the same position as though in all respects valid; and 
 e-\'en as against the state, except in direct proceedings to arrest its 
 
Sec. 1) STEPS ESSENTIAL TO ORGANIZATION 63 
 
 usurpation of power, it is submitted its acts are to be treated as 
 efficalcious." Under such circumstances it seems clear that the cor- 
 poration is not only a proper, but a ^necessary, party. People v. 
 Flint, 64 Cal. 49, 28 Pac. 495 ; People v. Gunn, 85 Cal. 244, 24 Pac. 
 718. 
 
 It is contended that the corporation is not rightfully such because, 
 while five incorporators signed the articles of incorporation, only 
 four acknowledged the same. Section 292 of the Civil Code reads 
 as follows: "The articles of incorporation must be subscribed by 
 five, or more persons, a majority of whom must be residents of this 
 state, and acknowledged by each before some officer authorized to 
 take and certify acknowledgments of conveyances of real property." 
 It was said in People v. Selfridge, 52 Cal. '331 : "The right to be 
 a corporation is in itself a franchise ; and, to acquire a franchise un- 
 der a general law, the prescribed statutory conditions must be com- 
 plied with." Still, a substantial, rather than a literal, compliance will 
 suffice. People v. Stockton & V. R. Co., 45 Cal. 313, 13 Am. Rep. 
 178. 
 
 Was there substantial compliance in this case? Because a sub- 
 stantial compliance will do, it does not follow that any positive stat- 
 utory requirement can be omitted, on the ground that it is unimpor- 
 tant. They are conditions precedent to acquiring a statutory right, 
 and none can be dispensed with by the court. What is a substan- 
 tial, rather than a literal, compliance, may be illustrated from the 
 cases. 
 
 In In re Spring Valley Waterworks, 17 Cal. 132, the certificate 
 stated the place of business, but did not describe it as the "principal 
 place of business," as required. The court said : "The statement that 
 San Francisco was the placfe of business would seem to imply that 
 it was not only the principal, but the only, place of business." In 
 People V. Stockton & V. R. Co., 45 Cal. 306, 13 Am. Rep. 178, the 
 affidavit required in such cases to be attached to the certificate stated 
 that 10 per cent, of the amount subscribed had been actually paid 
 in, omitting the words "in good faith," which the statute required. 
 In the certificate it wa« stated that more than 10 per cent, had been 
 actually in good faith paid in. It was held sufficient, and it would 
 seem that, if it was actually paid in cash, it must have been paid in 
 good faith; .and it was further held that payment by checks drawn 
 against sufficient funds in a b^nk, which was ready to accept and 
 pay the checks, was substantially payment in cash. In People v. 
 Cheeseman, 7 Colo. 376, 3 Pac. 716, the acknowledgment taken by 
 the notary omitted to state that the persons whose acknowledgments 
 were taken were personally known to the notary. The certificate 
 did state that the persons who signed appeared before him and Ac- 
 knowledged it. The statute did not prescribe what the acknowledg- 
 ment should contain, and it was held a substantial compliance with 
 
64' FORMATION ' (Ch. 3 
 
 the requirement, although the form prescribed for acknowledgments 
 to deeds was not followed. It was acknowledged. 
 
 In all these cases it will be seen that the thing required was done, 
 but not literally as directed; but there was no omission of any re- 
 quirement. No case has been cited where the entire omission of a 
 thing prescribed has been excused, unless it be the case of Larrabee 
 V. Baldwin, 35 Cal. 155. That was not an action instituted by the 
 state to disincorporate on the ground of noncompliance. As we have 
 seen, unless the state complains, a de facto corporation must be con- 
 sidered, under our Code, as possessing a corporate character; and 
 the stockholders, when sued upon, their individual liability, should 
 not be allowed to make the point that they did not comply with the 
 law. In that case the certificate was signed by five directors, but 
 two failed to acknowledge it. Other questions are discussed at great 
 length in the opinion, but in regard to the point made on the certifi- 
 cate it was simply remarked: "It is not clear that any fatal defect 
 exists in the certificate of incorporation. If so, it is cured by the act 
 of April 1, 1864." Plainly it was unnecessary to consider the ques- 
 tion. 
 
 The curative act referred to declares : "All associations or compa- 
 nies heretofore organized, and acting in the form and manner of cor- 
 porations, and that have filed certificates for the purpose of being 
 incorporated, but whose certificates are in some manner defective, or 
 have been improperly acknowledged before a person not authorized 
 by law to take such acknowledgments, are hereby declared to be, 
 and to have been, corporations from the date of the filing of such 
 certificates, in the same manner and to the same effect and intent 
 as if such certificates were without fault, and properly acknowledged 
 before the proper officer; and all such certificates are hereby vali- 
 dated, and declared to be legal, and shall have the same force and 
 effect as if such certificate? were free from all fault or defect, and 
 were properly acknowledged," etc. St. 1863-64, p. 303. 
 
 Section 292 of the Civil Code requires the articles to be subgcribed 
 and acknowledged by each. As this is an express condition pre- 
 cedent to a valid incorporation, it is not of consequence to the court 
 whether it be a wise or necessary requirement or not. Still it is 
 easy to see a reason for it. The certificate secures the state, and 
 all concerned, against the possibility of any fictitious names being 
 subscribed to the articles, and furnishes proof of the genuineness of 
 the signatures. If the acknowledgment can be dispensed with as to 
 one, why not as to two or three, or all? Ordinarily, no doubt, the 
 state would not be expected to institute a proceeding of this charac- 
 ter for such a defect alone, and we must presume that the attorney 
 general would not have instituted this inquiry if he were not con- 
 vinced that there were reasons sufficient to justify it. 
 
 Other reasons are alleged; but, as the statute authorizes a pro- 
 ceeding to forfeit the charter where the statute has not been com- 
 
Sec. 1) STEPS ESSENTIAL TO OBGANIZATIOH 65 
 
 plied with, although the corporation is acting in good faith, and is a 
 de facto corporation, the complaint must be held to state a cause of 
 action, and the demurrer should be overruled. The judgment should 
 be reversed, and the cause remanded, writh directions to overrule the 
 demurrer. 
 
 We concur : Haynes, C. ; Belc-her, C. 
 
 Per Curiam. For the reasons given in the foregoing opinion the 
 judgment is reversed, and the cause remanded, with directions to 
 overrule the demurrer.* 
 
 PLANTERS' FIRE & MARINE INS. CO. et al. v. STATE OF 
 TENNESSEE, to Use of CITY OF MEMPHIS. 
 
 (Supreme Court of the United States, 1896. 161 C. S. 193, 16 Sup. Ct. 466, 
 
 40 L. Ed. 667.) 
 
 In Error to the Supreme Court of the State of Tennessee. 
 
 Bill by the state of Tennessee, for the use of the city of Memphis, 
 against the Planters' Fire & Marine Insurance Company and F. B. 
 Hunter. A decree for defendants was reversed by the state supreme 
 court (95 Tenn. 203, 31 S. W. 992), and defendants bring error. 
 Affirmed. • 
 
 This is another bill filed by the state of Tennessee, for the use 
 of the city of Memphis, against defendants below to recover taxes 
 alleged to be due on the capital stock or shares of stock in the cor- 
 poration plaintiff in error. The supreme court of Tennessee gave 
 judgment in favor of the plaintiff below, and the plaintiffs in error 
 have brought the case here for review. The case was tried upon an 
 agreed statement of facts, among which are the following: 
 
 On the 24th day of March, 1860, the Energetic Insurance Com- 
 pany of Nashville was incorporated.- By the sixtieth section of that 
 charter it was provided "that said company shall pay to the state an 
 annual tax or bonus of one-fourth of one per cent, on each share 
 of the capital stock subscribed, .which shall be in lieu of all other 
 taxes." On the 10th day of December, 1866, the Planters' Insurance 
 Company was incorporated, and thereafter it conducted a general 
 fire insurance business in the city of Memphis up to the year 1885. 
 
 2 Filing the original articles of incorporation with the register of deeds 
 does not constitute substantial compliance with a statute requiring that a 
 verified copy be filed. Slocum v. Head, 105 Wis. 431, 81 N. W. 673, 50 U R. 
 A. 324 (1900). Merely depositing a "certificate of organization" with the 
 proper oflScer with instructions to record and return, such Instructions being 
 complied with, does not constitute a substantial compliance with a statute 
 requiring that the certificate be filed. Bergeron v. Hobbs et al., 96 Wis. 641, 
 71 N. W. 1056, 65 Am. St. Rep. 85 (1897). As to recording articles of incorpo- 
 ration, see Byronville Creamery Ass'n v. Ivors, 93 Minn. 8, 100 N. W. 387 
 (1904). Compare San Diego Gas Co. v. Frame, 137 Cal. 441, 70 Pac. 295 (1902). 
 
 RlOH.Ck>BF. — 5 
 
66 , FORMATION (Ch. 2 
 
 No immunity from taxation was granted that company. On the 27th 
 day of March; 1885, the name of the Energetic Insurance Com- 
 pany was changed to the PJanters' Fire & Marine Insurance Com- 
 pany of Memphis, and the company was authorized to remove its 
 situs and office to the then taxing district of Shelby county, now the 
 city of Memphis. 
 
 From the time of the passage of the act providing for the incor- 
 poration of the Energetic Insurance Company in 1860 down to the 
 30th day of January, 1884, no action was taken by the incorporators 
 nanied in the act towards organizing a corporation accepting the 
 charter. On the last narned date a meeting was had of some of the 
 incorporators named in the act, and the first minutes which can be 
 found in the ofi!ice of the defendant corporation, or which it can pro- 
 duce, are the minutes of the incorporators", stockholders, and direc- 
 tors held on that day. Six individuals were named in the original 
 charter as incorporators, together with such other persons as might 
 thereafter be duly associated with them, and at this meeting of the 
 stockholders in January,- 1884, four of them were present, and the 
 other incorporators mentioned in the charter were dead at that time. 
 It appears from those minutes that, pursuant to the terms and stip- 
 ulations of an act' of the legislature, of Tennessee, a meeting was that 
 day — ^January 30, 1884 — called of the incorporators of the Energetic 
 Insurance Company of Nashville, and in response to that call four 
 of such incorporators .appeared. A moderator was selected and 
 books were, opened, or ordered. to be opened, for subscriptiohs to the 
 capital stock of the company, and it was resolved that the first di- 
 rectory should consist of five persons. Stock was then subscribed 
 by the various persons, amounting to $100,000, and, the stockhold- 
 ers thus, subscribing being present either in person or by proxy, it 
 was unanimously agreed by the incorporators present that the stock- 
 holders should go intO' an election for directors, and that the incor- 
 porators, as such, should adjourn. Thereupon, on the same day, it 
 appears, from the minutes, that a meeting of the stockholders of the 
 company was held, and a board of directors elected, and the stock- 
 holders then voted to call a meeting of the directors for the same 
 day. A meeting of the directors was then held, and a president, sec- 
 retary, and treasurer of the company elected, and from that day 
 (January, 1884) the organization of the corporation plaintiff in error 
 was regular and continuous. 
 
 After its name was changed by the legislature to the Planters' Fire 
 & Marine Insurance Company, and it was authorized to remove its 
 situs to the city of Memphis, its stock was increased to $150,000, and 
 it removed its place of business to Memphis, and bought out the 
 assets and property of the Planters' Insurance Company, and rein- 
 sured its risks. Since that time the defendant has regularly paid the 
 commutation tax of one-fourth of 1 per cent, on each share of cap- 
 
Sec. 1) STEPS ESSENTIAL TO ORGANIZATION 67 
 
 ital stock subscribed to the state of Tenhessee, pjirsuant to the terms 
 ,of the charter, up to the present time. By virtue of the general rev- 
 enue laws of the state, the corporation plaintiff in error, or .its stock- 
 holders, have been taxed upon the capital stock or shares of stock 
 at a greater rate than that provided for in the sixtieth section of the 
 act of incorporation, and' the plaintiffs in error claim that, by virtue 
 of that sixtieth section, they are entitled to exemption from all taxa- 
 tion, except that therein provided for. 
 
 Mr. Justice Peckham, after stating the facts in the foregoing lan- 
 guage, delivered the opinion of the court. 
 
 The claim set up by plaintiffs in error is that the insurance compa- 
 ny was duly incorporated as the Energetic Insurance Company of 
 Nashville, under the act passed March 24, 1860; that it is the same 
 company as therein incorporated, and entitled to all the benefits and 
 immunities, among them that of exemption from taxation, granted 
 by that charter. 
 
 The defendants in error deny that claim, and assert the right to tax 
 by virtue of the general revenue laws of the state. They assert that, 
 by reason of the failure to accept the charter, and organize there- 
 under, until after the lapse of 24 years, the corporation did not ac- 
 quire the right of exemption provided for in the sixtieth section of 
 the charter, because, at the time the company was organized, in 1884, 
 the constitution of the state of Tennessee, adopted in 1870, was in 
 full force, and by that constitution any exemption of the property of 
 the corporation, its capital stock, or its shares of stock was pro- 
 hibited. 
 
 The plaintiffs in error answer that they are either a corporation or- 
 ganized under that charter, or else there is no corporation, and the 
 individuals assuming to act as such should be sued in their individual 
 capacity, and, if liable at all for any taxes whatever, they must be 
 liable as individuals only. They further say that the state, by its 
 action herein, recognizes them as a corporation, and, if a corporation 
 at all, they are such under the original charter above mentioned, and, 
 if they be a corporation under such charter, they are entitled to all 
 the rights and privileges and immunities granted by that charter as 
 a whole, and that they cannot be prosecuted as a coi;poration under 
 that charter for the purpose of compelling them to pay taxes, and, at 
 the same time, be denied the right of exemption from such payment 
 granted by that sixtieth section. They also allege that this action 
 of the state vis a collateral attack upon their charter by denying their 
 immunity from taxation, given by its sixtieth section, and therefore 
 calling in question its existence as a corporation, and an action of 
 that kind can only be maintained by the state by means of a quo 
 warranto, either against the corporation itself for the exercise of 
 powers not granted it, or against the individuals for assuming to- ex- 
 ercise the corporate powers. 
 
68 FORMATION (Cll. 2 
 
 For the purpose of effecting a dissolution of a corporation, 
 grounded upon some alleged forfeiture of its rights and powers, the 
 state must act through its attorney general, and by action in the na- 
 ture of quo warranto. This is not such an action, and the dissolu- 
 tion of the corporation is not its object. The state, in effect, so far 
 recognizes it as a corporation as to demand payment of taxes on its 
 capital stock, or on its shares of stock, and when, as a defense to 
 that action, the corporation plaintiff in error, or its stockholders, set 
 up its alleged right of exemption under the sixtieth section of the 
 ' charter, the answer of the state is, "You are not entitled to that ex- 
 emption, because, at the time your charter was accepted, 24 years 
 after it was granted by the legislature, the constitution of the state 
 prevented the grant of any exemption such as is claimed by you." 
 To which the plaintiffs in error rejoin that, "In this action, you can- 
 not look at the time when the charter was accepted, but, as the cor- 
 poration is acting under the original charter, the sixtieth section re- 
 mains in full force." 
 
 We think that, even in this action, it is proper for the state to in- 
 quire as to the time of the acceptance of the charter, for the purpose • 
 of determining what powers were actually granted. If the charter 
 had been accepted, and the individuals organized under it, prior to 
 the adoption of the constitution of 1870, then the exemption might 
 have gone with it ; but we think it entirely possible to hold that, by 
 the acceptance of the charter, assuming it to have been within a rea- 
 sonable time, but after the constitution was adopted, such acceptance 
 (while subsequently recognized by the legislature in permitting it to 
 change its situs) must be taken in connection with the provisions of 
 the constitution existing at the time, and that, while the incorpora- 
 tors might take all the other rights, powers, and privileges granted 
 by the charter, so far as to give them the franchise to be a corpora- 
 tion, and exercise the powers therein granted, the immunity of^ ex- 
 emption would not pass under the grant. 
 
 It might possibly have been held, in a direct attack of the state 
 upon the charter, that there had been an unreasonable delay in ac- 
 cepting it, and that, consequently, there was in law ho corpqration 
 under the charter. That course was not taken, and the legislature, 
 after the assumed organization under the charter in 1884, passed an 
 act changing the name of the corporation, and permitting it to 
 change its situs. It might, therefore, be claimed that it thereby rec- 
 ognized the existence of the corporation under the charter, but in 
 subordination to the constitution and laws. existing at the time when 
 the charter was accepted.. 
 
 We think, upon these facts, the exemption from taxation did not 
 pass to the corporation, and the assessments were, in consequence, 
 legal and vaUd. The judgment is therefore affirmed.' 
 
 3 See Lucy C. Farnsworth at al. v. Lime Rock Eailway Co., 83 Me. 440, 444, 
 22 Atl. 373 (1891). 
 
Seel) STEPS ESSENTIAL TO OEGANIZATION 69 
 
 SOCIETY OF MIDDLESEX HUSBANDMEN & MANUFAC- 
 TURERS V. DAVIS. 
 
 (Supreme Court of Massacliusetts, 1841. 3 Mete. 133.) 
 
 Assumpsit on a promissory note for five dollars, dated October 
 20, 1824, payable to the plaintiffs, with interest annually. The action 
 was commenced before a justice of the peace, and was carried by ap- 
 peal into the court of common pleas. In that court, the defendant 
 filed a specification of defence, requiring the plaintiffs to prove their 
 case in legal form, and relied on being able to prove that the note 
 declared on was obtained by false representations, and was given 
 without consideration, or that the consideration, if any, had failed. 
 
 The plaintiffs produced an act (St. 1802, c. 94) incorporating "The 
 Western Society of Middlesex Husbandmen," and also the St. of 
 1819, c. 73, by which it was enacted, that said corppration should 
 thereafter be called and known by the name in which they brought 
 this action. In the first of these statutes were the following provi- 
 sions : "That every person being a member of the Massachusetts So- 
 ciety for promoting Agriculture shall be considered as an honorary 
 m^nber of the Western Society of Middlesex Husbandmen, and shall 
 have a right to assemble and vote at all meetings thereof ;" "that the 
 end and design of the institution hereby incorporated is to promote 
 useful improvements in agriculture;" "that Ebenezer Bridge, Esq., 
 be authorized to appoint the time and place for holding the first 
 meeting of said society, and to notify the members thereof, by pub- 
 lishing the same in one or more newspapers printed in Boston, 14 
 days at least before the time of such meeting." 
 
 The plaintiffs then produced books, of records to show the accept- 
 ance of said act of 1802, and an organization under it. These books 
 had belonged to an unincorporated association, that had borne the 
 same name from the year 1794. It appeared from the entry in these 
 books, that said association, on the 18th of October, 1802, appointed 
 a committee to petition the legislature for an Act "to incorporate 
 them into a body politic." It further appeared from these books, 
 that on the 25th of April, 1803, the Western Society of Middlesex 
 Husbandmen met at Westford — ^21 members being present — and 
 voted that the third Monday of the following October should be the 
 day "for holding the first meeting of the society under the incorporat- 
 ing act ; to be held at Littleton" ; and that the choice of officers for 
 that year should be "deferred to the abovesaid day;" that on the 
 19th of October, 1803, said society met at Littleton — 19 members 
 being present — and chose a president, two vice presidents, two secre- 
 taries, four trustees, and a treasurer; that on the 19th of October 
 1819, the president of the society was appointed "to apply to the 
 legislature to alter the corporate name of the society," so that it 
 
70 ' FORMATION (Ch. 2 
 
 might thereafter be called "The Society of Middlesex Husbandmen 
 and Manufacturers." 
 
 The plaintiffs also proved, that from and after the date of the act 
 of 1819, c. 73, the recording secretary uniformly designated the so- 
 ciety by the name given to it by that act. 
 
 Abel Moore, the subscribing witness to the note in suit, testified 
 that he procured the defendant to give said note, and that it was giv- 
 en on his representation, that by giving it, the defendant would be- 
 come a member of the corporation, and that the note would consti- 
 tute a part of the capital or fund of $3,000, which the corporation 
 wished to raise, in order to entitle it, as an agricultural society, under 
 St. 1818, c. 114, to draw from the treasury of the Commonwealth 
 $200 for each $1,000 raised, as a fund or capital', by the corporation; 
 and that there was no other consideration for the note. 
 
 It was proved that the plaintiffs had, at the time of th'e trial, about 
 $1,770 in notes of $S eadi, and a like amount in other funds and 
 stocks, and that, by virtue thereof, their secretary had drawn from 
 the treasury of the Commonwealth $600 each year since 1824. 
 
 To show that the defendant became a. member of the society by 
 giving this note, the plaintiffs introduced the following vote from 
 their records and by-laws, adopted September 27, 1819: "Any gen- 
 tleman, paying to the treasurer the sUm of five dollars, shall thereby 
 become a member of the society during his lifetime, and be entitled 
 to, all the privileges and benefits, as such, without any other assess- 
 ment whatever." 
 
 The defendant objected that the records, which were produced, did 
 not show an acceptance or adoption by the plaintiffs of the original 
 act of incorporation, or of the act of 1819, changing the name of the 
 corporation; that there was no evidence that the first meeting was 
 called agreeably to the requisition of the incorporating act ; and 
 that the corporation never was organized according to that act.- He 
 further objected, that the note was given without consideration, be- 
 cause he did not, by giving it, become a member of the corporation 
 and because it did not constitute a part of such a fund as by the 
 true construction of St. 1818, c. 114, authorized an agricultural so- 
 ciety to draw money from the treasury of the Commonwealth : That - 
 the note was obtained by mistaken and false representations and was 
 therefore void. 
 
 These objections were overruled, and the case was' brought into 
 this court upon exceptions. 
 
 Wilde, J.* Two objections have been urged by the defendant's 
 counsel to the plaintiffs' right of action, upon the facts proved at 
 the trial. The first is, that there is no sufficient evidence of the plain- 
 tiffs' acceptance of their act or charter of incorporation, granted in 
 1803, or of their legal organization according to the provision of 
 
 * Part only of the opinion is given. 
 
Sec. 1) STEPS ESSENTIAL TO ORGANIZATION 71 
 
 that act, or of their acceptance of the additional act of 1819, c.,73. 
 The second objection is, that the note in suit was given without con- 
 sideration, and was obtained from the defendant by the misrepre- 
 sentations of the plaintiffs' agent. 
 
 As to the first objection, it is true that it does not appear by the 
 records of.the society that the act of incorporation has been accepted 
 by an express vote to that effect ; nor does it appear in what manner 
 the first meeting of the corporation was called. But the presumptive 
 proof, both of the acceptance of, the act of incorporation, and of the 
 legal organization of the society, is exceedingly strong, and quite as 
 satisfactory as direct evidence. That such presumptive evidence is 
 admissible and proper is fully maintained by the decisions in DedRam 
 Bank v. Chickering, 3 Pick. 335, and in Bank of United States v. 
 Dandridge, 12 Wheat. 71, 6 L,. Ed. 552, and by the numerous author- 
 ities cited in the latter case. By these authorities it is now well set- 
 tled, whatever may have been the ancient doctrine as to corporations, 
 that as the acts of private persons, even of the most solemn nature, 
 may be presumed, 'or proved by presumptive evidence; so as to the 
 acts of a corporation, if they cannot be reasonably accounted for but 
 on the supposition of other acts done to make them legally operative 
 and binding, they are presumptive proofs of such other acts. Thus, 
 as deeds and grants to private persons, which are beneficial to them, 
 are presumed to have been accepted, .so also may the acceptance of 
 an act or charter of incorporation, beneficial to the corporation be 
 presumed, for the like reason. And ajlong lapse of time, and the 
 continued exercise of the corporate powers granted to a corporation, 
 sufficiently justify the presumption of the acceptance of the charter. 
 So if a particular charter is applied for, and it is granted, the accept- 
 ance may be presumed from such previous application. 
 
 All these grounds of presumption seem to concur in the present 
 case; and we think, therefore, that the presumptive proofs of the 
 acceptance of the act of incorporation, and the organization of the 
 society, are full and satisfactory. * * * » Judgment for the 
 plaintiffs. 
 
 5 Accord, City of Atlanta et al. v. Gate City Gaslight Company, 71 Ga. 106, 
 116 (1883). 
 
 In Talladega Insurance Co. v. Landers, 43 Ala. 115, 136 (1869), tbe court 
 said: "As a general proposition it is true that the charter of a corporation 
 must be accepted, but in cases of private corporations like these under con- 
 sideration, created for individual beneflt, the presumption is that they are 
 created at the instance and on the request of the parties to be benefited 
 thereby, and, consequently, are accepted by them. If, therefore, they are 
 found exercising privileges" granted, it will be almost conclusive evidence of 
 the fact of acceptance." 
 
72 FORMATION (Ch. 2 
 
 SMITH V. SILVER VALLEY MINING CO. et al. 
 
 (Court of Appeals of Maryland, 1885. 64 Md. 85, 20 Atl. 1032, 
 54 Am. Rep. 760.) 
 
 Appeal from the Circuit Court of Baltimore City. 
 
 The facts are stated in the opinion of the Court. 
 
 Miller, J.,° delivered the opinion of the Court. 
 
 The charter of the "Silver Valley Mining Company" was granted 
 by the Legislature of North Carolina by an Act which was ratified 
 on the 15th of February, 1861. 
 
 Tfhe title of this statute is "An Act to Incorporate the Silver Valley 
 Mining Company, in the County of Davidson." By the first section 
 it is enacted that five named persons and "their associates, successors, 
 and assigns,, be and they are hereby created and constituted a body 
 politic and corporate, by the name and style of the Silver Valley Min- 
 ing Company, for the purpose of working, mining, and exploring 
 for silver, gold, copper, iron and all other metals and minerals, and 
 for mining, rending, smelting and working the same, and by that 
 name may sue and be sued," "may have a common seal, and may 
 enjoy all the privileges and powers incident to mining or smelting 
 corporations, and may also purchase, hold and convey any real or 
 personal property or estate as capital stock, to the amount of one 
 million of dollars." 
 
 The second section provides "that the said corporation may divide 
 their stock into such numbfr of shares, and may provide for the 
 sale and transfer thereof in such manner and form as said corpora- 
 tion shall from time to time deem expedient, and may levy and col- 
 lect assessments, forfeit and sell delinquent shares, declare and pay 
 dividends on the shares, and may make, alter and repeal such by-laws 
 and regulations as said corporation may deem necessary, not r^ug- 
 nant to the laws of this state and of the United States." * * * 
 
 The appellant by his bill in this case filed in February, 1880, avers 
 that in March, 1869, he became the holder of a certificate which just- 
 ly and legally entitled him to the ownership of 1800 shares of the 
 capital stock of this corporation, each of greater value than one 
 dollar, and his complaint is that at a meeting, of the directors held 
 in Baltimore in February, 1879, a resolution was passed imposing 
 an assessment of two cents a share, and declaring tliat if this was not 
 paid before the 31st of March following, the stock on which it was 
 not paid should be forfeited to the corporation and sold for its ben- 
 efit, and that his stock was under this assessment declared forfeited, 
 and the form of a sale thereof had. He charges that the directors 
 had no right to hold a meeting for this purpose out of the state of 
 North Carolina, and that their proceedings in the premises were 
 wholly void ; that he had no notice of the proceedings of this meet- 
 
 « A part of the recitals In the bill is omitted. 
 
Seel) STEPS ESSENTIAL TO ORGANIZATION 73 
 
 ing until many months ,afterwards, though he was and has been for 
 many years a resident of Baltimore, and that the directors and other 
 authorities of the corporation did not wish their said proceedings to 
 be known by him ; that no suitable or effective means were taken to 
 give notice thereof even by advertisement in the public papers, the 
 same having been, as he is informed, published in a paper which 
 he does not take and very seldom, sees; that the pretended sale of 
 his stock was made to Wilkins, the president, and Denison, the treas- 
 urer of the corporation, and that these pretended proceedihgs of 
 forfeiture were carried out by their influence, co-operating with 
 other persons who are unknown to him ; that shortly after these pro- 
 ceedings came to. his knowledge, he made, through his counsel, a 
 formal tender to' the president of the amount of the assessment with 
 interest thereon, and demanded to be reinstated in the possession 
 and enjoyment of his stock, but this demand was refused; that all 
 these proceedings purporting to forfeit his stock are merely illu- 
 sory, have been carried out for the benefit of Wilkins and Denison, 
 officers of the corporation as aforesaid, and that they are not only 
 void in law by reason of holding the meeting beyond the limits of 
 the state which granted the charter, and by reason of the attempt to 
 deprive him of his property without notice in contravention of the 
 first principles of justice, and of the organic law of the State of 
 North Carolina, as it existed at the time this corporation was char- 
 tered, but that they are by reason of the fadts above stated, inequi- 
 table, unjust and in fraud of his rights. 
 
 •The bill then prays that the company and Wilkins and Denison 
 may Severally answer under oath, and set forth explicitly and fully 
 the proceedings whereof the forfeiture of his stock is alleged to have 
 occurred, and may discover when, by whom, and to whom it was 
 sold and at what price, who, is now the holder or ostensible holder 
 thereof, * * * that the supposed forfeiture and sale may be 
 annulled, that he may be reinstated in the possession and enjoyment 
 of his said stock, that the said company and Wilkins and Denison 
 may be forever enjoined and prohibited from setting up this sup- 
 posed forfeiture, and from claiming any benefit therefrom, and that 
 he may have full and fair compensation from them on account of 
 the premises, and for general relief. 
 
 All the defendants filed a demurrer to the bill, which was over- 
 ruled. They then filed Separate answers in which they put the com- 
 plainant upon proof of his ownership of stock, deny all the charges 
 of combination or fraud, set out the proceedings under which the 
 forfeiture and sale were made, and insist that the same were duly 
 and lawfully conducted, and are legal and valid. Proof was then 
 taken, and upon the hearing the Court below passed a decree dis- 
 missing the bill, and from that decree this appeal is taken. 
 It thus appears that one of the grounds upon which the bill as- 
 
74 FORMATION (Ch. 3 
 
 sails the validity of the forfeiture, is that the meeting of the direc- 
 tors at which the proceedings to that end were adopted, was not held 
 within the limits of the sovereignty granting the charter, but another 
 question is presented, and this goes to the corporate existence of 
 this company at the time the appellant became a holder of its stock. 
 The mere grant of a charter like this, where it does not appear upon 
 the face of the incorporating act, or otherwise, that the named cor- 
 porators applied for it, does not create "the corporate body. Some- 
 thing more must be done. There must be at least an acceptance of 
 the grant by a majority of the corporators, before corporate Hfe 
 and existence can begin. Angell and Ames on Corp. (11th Ed.) § 
 81; Morawetz on Private Corp. §§ 14, 17; Boone 'on Corp. § 23. 
 Nor is this a case in which acceptance is to be presumed or inferred 
 from the assumption and exercise of the corporate powers,' for the 
 proof clearly shows when, where, and how this charter was accepted. 
 The testimony is explicit and without contradiction, that the named 
 corporators held their first meeting in the City of Baltimore on the 
 5th of March, 1861, less than a month after the passage of the Act, 
 and that on the next day (March 6, 1861) 'they accepted the charter at 
 a meeting held by them at the same place. It also appears that at 
 the same time or shortly thereafter, they elected a president, secre- 
 tary and treasurer, adopted a seal, determined upon the number and 
 par value of the shares of capital stock, and in fact did everything 
 pertaining to the orgariization of the company, at meetings held by 
 them at the same place. In short, the proof is direct and positive, 
 that no official meeting either Of the corporators, stockholders or 
 directors was ever held in North Carolina until the spring of 1882, 
 nearly two years after this bill had been filed. In view of the fact 
 that all tiiese corporate acts are thus clearly proven to have been 
 done out of the State granting the charter, the question arises as to 
 • their validity and the consequent leg'al existence of this corporation 
 in March, 1869, when the appellant purchased his stock. This ques- 
 tion is as directly presented under the averments of the bill and an- 
 swers in this case, as it ever can be in a civil suit. Legal ownership 
 of the stock which is the foundation of the relief prayed is alleged 
 in the bill, and not admitted by the answers. What then is- the law 
 upon this subject? 
 
 It seems to be well settled, by the weight of authority, that direc- 
 tors may hold meetings, have an office, make contracts, and transact 
 a part at least of the general business of the corporation in another 
 state, unless prohibited by local legislation. But the directors when 
 so acting are not the corporate body, but its mere agents. Angell & 
 Ames on Corp. § 104; Bait. & Ohio R. R. Co. v. Glenn et al., 28 
 Md. 287, 92 Am. Dec. 688. ' Nor do we think it makes any differ- 
 
 ' See Trustees of School District No. 3 In Blandford v. Gibbs, 2 Gush. 
 (Mass.) 39 (1848). 
 
Sec. 1) STEPS ESSENTIAIi TO ORGANIZATION 75 
 
 ence, as to the operation of this rule, that the named corporators, 
 as in this case, are empowered by the charter to manage the affairs 
 of the corporation, and to exercise all such rights as the charter 
 grants, "as directors" until others are elected. The two capacities 
 of corporators and directors are distinct, and they cannot do in 
 the latter those acts which the law requires them to do in the for- 
 mer capacity. We find nothing in this charter which dispenses with 
 the necessity of its acceptance, and of organization under it, by them 
 as corporators, and certainly nothing which authorizes them, even 
 if the grant of such authority would in any case be valid, to do these 
 acts in apother state. But while the directors may thus act' as agents 
 of the corporation it has, ever since the decision of the Supreme 
 Court in the case of Bank of Augusta v. Earle, 13 Pet. 519, 10 
 L. Ed. 274, been the recognized rule of Americjan law, that a corpo- 
 ration can have no legal existence out of the boundaries of the 
 sovereignty by which it is enacted; that it ejtists by force of the 
 law, and where that ceases to operate the corporation can have no 
 existence; that it must dwell in the place of its creation and carmot 
 migrate to another sovereignty; and that it cannot hold meetings, 
 pass notes, or do any corporate acts strictly so-called outside of that 
 sovereignty. Angell & Ames on Corp. § 104; Green's Brice's Ultra 
 Vires," 442, note a ; Boone on Corp. § 66. * * * * 
 
 GLYMONT IMPROVEMENT & EXCURSION CO. v. TOLLER. 
 
 (Court of Appeals of Maryland, 1894. 80 Md. 278, 30 Atl. 651.) 
 
 Action by the. Glymont Improvement & Excursion Company 
 against Washington N. Toller to compel defendant to accept stock 
 in plaintiff company in exchange for stock in a company whicn 
 plaintiff succeeded. Decree for defendant. ' Plaintiff ;appeals. Re- 
 versed. ' 
 
 Argued before Robinson, C. J., and Bryan, McSherry, Fowler, 
 Briscoe, Page, and Boyd, JJ. 
 
 Robinson, C. J." The Upper "Glymont Improvement & Excursion 
 Company was incorporated in 1883 under the general incorporation 
 law, with a capital stock of $25,000, divided into 1,000 shares, of the 
 par value of $25 each. The object of its incorporation was to buy a 
 tract of land on the Potomac river at or near Glymont, in Charles 
 county, about 20 miles below Washington, and to erect thereon ho- 
 tels, cottages, and' other b^iildings necessary and suitable for a surfi- 
 mer resort; also for the purpose of cultivating flowers, growing 
 vegetables, and agricultural products. 
 
 8 Compare Heath v. Silverthorn Mining & Smelting Co. et al., 39 Wis. 146 
 (1875). 
 
 » The statement of facts is omitted. Part only of the opinion is given. 
 
76 FORMATION (Ch. 2 
 
 Soon after its organization the company bought a tract of land 
 called "Upper Glymont," and then it bought another tract, "Lower 
 Glymont," the two tracts containing about 1,000 acres. On the 
 property thus purchased it has expended large sums of money in 
 buildings and other improvements, in order to make it an attractive 
 summer resort. After the purchase of the Lower Glymont tract, it 
 was deemed advisable to change the name of the conipany, by leav- 
 ing out the word "Upper," thus making the name "The Glymont Im- 
 provement & Excursion Company" ; and also to strike out the clause 
 in the charter forbidding the sale of intoxicating drinks on the prop- 
 erty; and for this purpose an amended charter was, prepared by 
 Toller, the defendant, then one of the directors, and was acknowl- 
 edged by him and six other corporators, as required by the Code, 
 before the proper officer, and submitted by him to the stockholders 
 at a special meeting held 20th May, 1886. 
 
 It does not appear that any definite action was had in regard to 
 the amended charter at this meeting, but at a meeting of the direc- 
 tors, June 10th of the saitie year, the committee on charter reported 
 that they had submitted the amended charter to Judge Stone, one of 
 the judges of the circuit court, as required by the Code, and that he, 
 while being of opinion that the amendments were in conformity with 
 the statute, suggested it might be better to adopt a new charter, and 
 this suggestion was concurred in by the directors. Instead, then, of 
 amending the charter, articles of incorporation were signed by the 
 directors for the incorporation of "The Glymont Company," and, 
 having been duly acknowledged by the parties signing the same, they 
 were submitted to Judge Stone, who thereupon certified they were 
 in conformity with the provisions of the law authorizing the forma- 
 tion of said corporation; and on the 17th March, 1888, they were 
 filed for record in the clerk's office of the circuit court for Charles 
 county. 
 
 This charter, which is called the "new charter," is identical in terms 
 and provisions with the amended charter prepared, signed, acknowl- 
 edged, and submitted by the defendant at the stockholders' meeting 
 of May 20th, and it is substantially the same as the charter of 1883, 
 the only alterations being in the name of the company and the omis- 
 sion of the clause forbidding the sale of intoxicating drinks. The 
 reason for filing new articles of incorporation, instead of an ariiended 
 charter, was the fact that the whole capital stock had not been taken, 
 and it was deemed best to avoid any trouble that might arise under 
 section 64 of article 23 of the Code, which provides that the capital 
 stock of a corporation shall be paid within four years from and 
 after its incorporation, "or such corporation may be dissolved." 
 
 •After the articles of incorporation had been filed of record, a spe- 
 cial meeting of the stockholders was called, to be held April 7, 1888, 
 at Glymont, where the principal office of the company was located; 
 
Sec. 1) STEPS ESSENTIAL TO OEGANIZATION 77 
 
 and at this meeting the charter, after full consideration, was adopted, 
 without a dissenting vote, more than two-thirds of the shares of 
 stock having been voted. And in adopting the charter it was further 
 resolved: "That the trustees are hereby authorized and instructed 
 tp convey the land atid all its betterments and improvements to the 
 Glymont Improvement & Excursion Company, provided said com- 
 pany shall assume aU the debts and liabilities ^(fhatsoever of the Up- 
 per Glymont Improvement & Excursion Company, and agree to issue 
 to each stockholder of this company certifipates of stock in the new 
 company equal to the amount of paid-up stock owned by him in the 
 old company." There being only two charter members of the new 
 company present, the meeting adjourned to meet at the branch ofiSce 
 in Washington on the 9th April. At this adjourned meeting, held 
 in Washington, the directors formally organized by electing a pres- 
 ident and other officers. 
 
 The defendant was the owner of 64 shares of stock of "The Up- 
 per Glymont Company," and he refuses to exchange this stock for 
 the stock of "The Glymont Company," because the charter of 1888, 
 he says, has never been accepted, and the latter company has no 
 power therefore to issue certificates of stock ; and, secondly, because 
 it has no right to compel him, a dissenting stockholder, to exchange 
 his stock for the stock of that company. 
 
 The acceptance of the charter is necessary, of course, to the cor- 
 porate existence of every corporation, and for the reason that the 
 corporators are not obliged to assume the responsibilities and dis- 
 charge the duties imposed by the charter without their consent. It 
 is well settled, however, that it is not necessary, even when the char- 
 ter is granted by special act of the legislature, to prove Such accept- 
 ance by a formal vote of the corporators; on the contrary, it may 
 be inferred from the exercise of corporate acts by them under the 
 charter. 
 
 In this case, however, we are not dealing with a charter granted by 
 a special act of the legislature, but one created under the general in- 
 corporation law; and this law provides, in the first place, that any 
 five or more persons "* * * who may desire to form a corpo- 
 ration * * * shall make, sign, seal, and acknowledge before 
 some person competent to take the acknowledgment of deeds, a cer- 
 tificate in writing in which shall be stated," etc. And then it provides 
 that it shall be the duty of the persons executing the same to submit 
 it to one of the judges of the judicial circuit within which the prin- 
 cipal office shall be located, in order that he may determine whether 
 the certificate is in conformity with the law, "and if he shall so de- 
 termine, he shall certify his said determination upon said certificate, 
 which shall thereupon be recorded in the office of the clerk of the 
 circuit court for the county in which the principal office of said cor- 
 poration shall by the terms of the certificate be located." And then 
 
78 FORMATION (Ch. 2 
 
 it further provides "that when the said certificate shall have been re- 
 corded, the persons who have signed and acknowledged the same 
 and their successors, shall according to the objects, purposes, articles, 
 conditions and provisions in said instrument contained, become and 
 be a body politic and corporate in fact and in law, by the name 
 stated in such certificate." 
 
 So, upon compliance with these provisions, the persons who have 
 signed and acknowledged the articles of incorporation thereby become 
 a corporate body, by the name stated in the articles. It would be 
 idle, under such circumstances, to require further proof that the cor- 
 porators had accepted that which they had in express terms applied 
 for, and to obtain which they had complied with all the requirements 
 of the law. 
 
 But then, it is said, there must not only be an acceptance of the 
 charter, but the company must be organized in the state where the 
 Charter was granted; and the argument is that, inasmuch as the 
 plaintiff company was organized by the directors in Washington on 
 the 9th April, 1888, there is no proof of their acceptance of the 
 charter and organization of the corhpany in this stat-e. To this we 
 cannot agree. There is abundant proof throughout this record of 
 the acceptance and organization of the company in this state, inde- 
 pendent altogether of the organization in Washington. It shows 
 that from 1888, when the company was incorporated, down to the 
 filing of this bill, in 1892, the corporators and their successors have 
 exercised corporate rights of every kind under the charter ; that they 
 have issued certificates of stock under the seal of the company; that 
 they have expended money in further developing and improving the 
 property; and that a board of directors has been annually elected 
 by the stockholders at Glymont, in this state, and that the directors 
 thus elected have controlled and managed all the property and affairs 
 of the company. * * * 
 
 Decree reversed, and cause remanded, in order that a decree may 
 be passed as^ prayed.^" 
 
 10 Accord: D. W. C. Benbow v. J. 0. Cook, 115 N. C. 324, 20 S. E. 453, 44 
 Am; St. Rep. 454 (1894). 
 
Sec. 3) EFFECT OF FAILURB TO COMPLT WITH THE 8TATUTB 79 
 
 SECTION 2.— EFFECT OF FAILURE TO COMPLY WITH 
 THE STATUTE— DE FACTO CORPORATIONS 
 
 FINNEGAN v. KNIGHTS OF LABOR BLDG. ASS'N et al. 
 
 (Supreme Court of Minnesota, 1893. 52 Minn. 239, 53 N. W. 1150, 18 L. E. A. 
 778, 38 Am. St. Eep. 552.) 
 
 GiLFiLijAN, C. J.^^ Eigftt persons signed, acknowledged, and 
 caused to be filed and recorded in the office of the city clerk in 
 Minneapolis, articles assuming and purporting to form, under Laws 
 1870, c. 29, a corpor,ation, for the purpose, as specified in them, of 
 "buying, owning, improving, selling, and leasing, of lands, tenements, 
 and hereditanjents, real, personal, and mixed estates and property, 
 including the construction and leasing of a building in the city of 
 Minneapolis, Minn., as a hall to aid and carry out the general pur- 
 poses of the organization known as the 'Knights of Labor.' " The 
 association -received subscriptions to its capital stock, elected direc- 
 tors and a board of managers^ adopted by-laws, bought a lot, erected 
 a building on it, and, when completed, rented different parts of it to 
 different parties. The plaintiff furnished plumbing for the building 
 during its construction, amounting to $599.50, for which he brings 
 this action against several subscribers to the stock, as copartners 
 doing business under the firm name of the "K. of L. Building Asso- 
 ciation." The theory upon which the action is brought is that, the 
 association having failed to become a corporation, it is in law a 
 partnership, and the members liable as partners for the debts in- 
 curred by it. 
 
 It is claimed that the association was not an incorporation because 
 — First, the act under which it attempted to become incorporated, to 
 wit. Laws 1870, c 29, is void, because its subject is not properly 
 expressed in the title ; second, the act doe'fe not authorize the forma- 
 tion of corporations for the purpose or to transact the business stated 
 in the articles ; thir^, the place where the business was to be carried 
 on was not distinctly stated in the articles, and they had, perhaps, 
 sorne other minor defects. 
 
 It- is unnecessary to consider whether this was a de jure coirpora- 
 tion, so that it could defend against a quo warranto, or an action in 
 the nature of quo warranto, in behalf of the state ; f ot, although 'an 
 association may not be able to justify itself when called on by the 
 state to show by what authority it assumes to be, and act as, a cor- 
 poration, it may be so far a corporation that, for reasons of public 
 policy, no one but the state will be permitted to call in q\iestion the 
 
 " A part of the opinion is omitted. 
 
?0 POEMATION (Ch. 2 
 
 lawfulness of its organization. Such is what is termed a corporation 
 'de facto, — ^that is, a corporation from the fact of its acting as such, 
 though not in law or of right a corporation. What is essential to 
 constitute a body of men a de facto corporation is stated by Seldejn, 
 J., in Methodist, etc.. Church v. Pickett, 19 N. Y. 482, as "(1) the 
 existence of a charter or some law under which a corporation with 
 the powers assumed might lawfully be created ; and (2) a user by the 
 party to the suit of the 'rights claimed to be conferred by such char- 
 ter or law." This statement was apparently adopted by this court in 
 East Norway I^ake Church v. Froislie, 37 Minn. 447, 35 N. W. 260; 
 but, as it leaves out of account any attempt to organize under the 
 charter or law, we think the statement of what is essential defective. 
 The definition in Taylor on Private Corporations (page 145) is more 
 nearly accurate: "When a body of men are acting as a corpora- 
 tion, under color o.f apparent organization, in pursuance of some 
 charter or enabling act, their authority to act as a corporation can- 
 npt be questioned collaterally." 
 
 To give to a body of men assuming to act as a corporation, where 
 there has been no attempt to comply with the provisions of any 
 law authorizing them to become such, the status of a de facto cor-- 
 poration might open the' door to frauds fipon the public. It would, 
 certainly be impolitic to permit a number o£ men to have the status 
 of a corporation to any extent merely because there is a law under 
 which they might have become incorporated, and they have agreed 
 among themselves to act, and they have acted, as a corporation. 
 That was the condition in Johnson v. Corser, 34 Minn, '355, 25 N. 
 W. 799, in which it was held that what had been done was ineffectual 
 to limit the individual liability of the associates. They had not gone 
 far enough to become a de facto corporation. They had merely 
 signed articles, but had not attempted to give them publicity by filing 
 for record, which the statute required. ' 
 
 "Color of apparent organization under some charter or enabling 
 act" does not mean that there shall have been a full compliance with 
 what the law requires to be done, nor a substantial compliance. A 
 substantial compliance will make a corporation de jure. But there 
 must be an apparent attempt to perfect an organization under the 
 law. There being such apparent attempt to perfect an organization, 
 the failure as to some substantial requirement will prevent the body 
 being a corporation de jure; but, if there be user pursuant to. such 
 attempted organization, it will not prevent it being a corporation de 
 facto. * * * Judgment affirmed. ' 
 
Sec. 8) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 81 
 
 DAVIS et al. v. STEVENS et al 
 (District Court, D. South Dakota, S. D., 1900. 104 Fed. 235.) 
 
 Garland, District Judge." On March 21, 1900, John Davis, 
 Wayne Mason, and William C. Harris, who are creditors of the Bank 
 of Plankinton in a sum exceeding $500, and who are citizens of the 
 state of South Dakota, filed a petition in this court praying that the 
 Bank of Plankinton be adjudged bankrupt, as a private banking in- 
 stitution, and a co-partnership consisting of the above-named de- 
 fendants. In due time all of the above defendants answered said pe- 
 tition, except the defendant Fred. L. Stevens, who, after due serv- 
 ice, has not appeared in this action. In their answer defendants deny 
 generally the allegations of the petition, and, further answering, al- 
 lege that the Bank of Plankinton was during the times alleged in 
 the petition, and now is, a corporation duly organized under the 
 laws of the territory of Dakota and the state of South Dakota. The 
 defendant Charles A. Johnson admits that he was a stockholder 
 in said corporation prior to May, 1898, but on the 9th day of May 
 in said year he sold and transferred all his stock and interest in said 
 corporation, and since said time has had no connection with the 
 business of said corporation. The defendant Bartow admits that he 
 owned one share of stock in said,corporation, but sold it on or 
 about the month of June, 1899. The defendant Francis G. Fox is 
 shown by the testimony to have been a stockholder in the corporation 
 for about 10 years last past. 
 
 It appears from the testimony and admission of the parties to this 
 proceeding that the petitioners are creditors of the Bank of Plankin- 
 ton in a sum exceeding $500, and that on the 27th day of November, 
 1885, articles of incorporation, duly signed and acknowledged by 
 Edwin S. Rowley, Fred L. Stevens, Charles A. Johnson, Joseph D. 
 McCormick, and William M. Smith, were duly filed in the office of 
 the secretary of the territory of Dakota, wherein it was stated that 
 the business of the proposed corporation, which was to be called the 
 Bank of Plankinton, should be a general banking, real-estate, and 
 loan business. Upon the filing of said 'articles there was issued by 
 the secretary of the territory of Dakota a certificate of corporate ex- 
 istence to the parties above named, wherein it was certified that said 
 parties, their associates and successors, had become a body politic 
 and corporate under the corporate name of Bank of Plankinton, and 
 by that name had a right to sue and be sued, purchase, hold, and 
 convey real and personal property, and to have and enjoy all the 
 rights and privileges granted to a private corporation under the laws 
 of this territory, subject to their articles of incorporation, and all le- ' 
 gal restrictions and liabilities in relation thereto. It further appears 
 
 12 Part only of the opinion is given. 
 
 RiCH.COBP. — 6 
 
82 FORMATION (Ch. 2 
 
 ■from the testimony and the pleadings in the case that the Bank of 
 Plankinton did business as a banking corporation from the time of 
 its alleged incorporation until on or about the 10th day of January, 
 \900, when it closed its doors and ceased to do business; the busi- 
 ness of the bank being transacted at Plankinton, Aurora county, in 
 this state. 
 
 It is claimed by the petitioners that, as there was no law of the 
 territory of Dakota which authorized the incorporation of individuals 
 to do a banking business, the defendants in this proceeding, who are 
 alleged to have owned stock in this corporation, were simply part- 
 ners, and as such were doing business as a private bank, and thus 
 subject to be adjudicated a bankrupt as a private bank. It is con- 
 tended by the defendants that whether or not the Bank of Plankinton 
 was a corporation cannot be inquired into collaterally, and that the 
 state of South Dakota is the only power which could, by proceed- 
 ings in the nature of a quo warranto, inquire into the legal organiza- 
 tion of this corporation. ' 
 
 If the Bank of Plankinton was a de facto corporation, this posi- 
 tion would be unassailable. But, in order that there may be a de 
 facto corporation, it must have been possible for the territory of 
 Dakota to have chartered a de jure corporation, and as there was 
 no law of the territory of- Dakota permitting the incorporation of 
 banking corporations at the time the Bank of Plankinton received 
 its. certificate of corporate existence, it results that there cannot be 
 a de facto corporation. The limitation of the doctrine that the va- 
 lidity of corporate existence cannot be litigated collaterally is that, 
 where there is no law under which a corporation might exist, then 
 the validity of corporate existence may be attacked collaterally. 
 Heaston v. Railroad Co., 16 Ind. 275 ; Krutz v. Town Co., 20 Kan. 
 397 J ; Eaton v. Walker, 76 Mich. 579, 43 N. W. 638, 6 L. R. A. 102; 
 1 Thomp. Corp. § 505. * * * , 
 
 Defendants invoke section 2892 of the Compiled Laws of Dakota, 
 which is in the following language: "The due incorporation of any 
 company claiming in good faith to be a corporation under this' chap- 
 ter and doing business as such, or its right to exercise corporate 
 powers, shall not be inquired into collaterally in any private suit to 
 which such de facto corporation may be a party, but such inquiry 
 may be had and action brought at the suit of the territory in ,the - 
 manner prescribed in the Code of Civil Procedure." 
 
 This section, as I understand it, simply declares the law in the 
 same manner that the courts declare it. It presupposes that there is 
 a de facto corporation, which cannot exist if there could have ex- 
 , isted no de jure corporation. In the case of Oroville & V. R. Co. v. 
 Superyisors of Plumas Co., 37 Cal. 354, it was held by the supreme 
 court of California that a similar provision in the laws of that state 
 did not go to the extent of precluding private persons from denying 
 the existence de jure or de facto of the alleged corporation. In sec- 
 
Sec. 2) EFFECT OF FAILTJEB TO COMPLY WITH THE STATUTE 83 
 
 tion 506, 1 Thomp. Corp., it is stated : "The simple and true view is 
 that if men undertake to form themselves into a business company 
 which the state cannot recognize as a corporation, or which is even 
 forbidden by the state, and in that character contract debts which 
 would be valid and enforceable if contracted by individuals, the courts 
 of justice should hold them Uable as partners. It is intolerable that 
 A., B. & C., by merely assuming a corporate name and pretending 
 to be a corporation, can incur with innocent members of the public 
 obligations which would be valid if incurred by them individually, 
 and then escape Hability because the law forbids them to act as a cor- 
 poration in the incurring of such obligations. A simple rule, and 
 one which should apply to all cases, is that, where the obligations of 
 a pretended corporation are neither inequitable nor immoral, the 
 judicial courts should enforce them against the corporations as part- 
 ners. So to do -would be strictly consonant with public policy, be- 
 cause, if business adventurers learn that, unless their corporate or- 
 ganization is lawful and valid they are liable as partners, this will 
 deter them from attempting to form illegal or prohibited corpora- 
 tions." 
 
 As the claims of the creditors who are petitioners in this action 
 arise from simply depositing money with the Bank of Plankinton, 
 ther^ is no such relation between the bank and the creditors as would 
 allow the principle of estoppel to ,be urged. I, therefore, am of the 
 opinion that the parties interested in the Bank of Plankinton were 
 co-partners. * * * Petition dismissed.^' 
 
 Per Curiam. For the reasons given in the foregoing opinion, said 
 judgment and order are affirmed. 
 
 BRANDENSTEIN v. HOKE et al., (BRANDER; Intervener.) 
 
 (Supreme Court of California, 1894. 101 Cal. 131, 35 Pac. 562.) 
 
 Garoutte, J.^* The defendants, other than George L. Brander, 
 an intervener, are the supervisors of the county of Sutter, and, as 
 such, are ex officio members of and constitute the board of reclama-, 
 tion fund commissioners of levee district No. 5. The plaintiff is the 
 holder of certain bonds of said district, which were issued and sold 
 for the purpose of securing funds to carry on improvements in such 
 levee district. A writ of mandate is prayed for, requiring said board 
 of fund commissioners to take certain steps provided in the statute 
 looking towards the levy and collection of a tax upon the property 
 
 isa?he petition was denied on grounds discussed in the omitted portion of 
 the opinion. State v. Stevens, 16 S. D. 309, 92 N. W. 420 (1902) ; Mason v. 
 Stevens, 16 S. D. 320, 92 N. W. 424 (1902). 
 
 14 Facts stated in the opinion, and a part of the opinion omitted. 
 
84 FOEMATION (Ch. 3 
 
 within the limits of the district, to be applied in liquidation of the 
 principal and interest of plaintiff's bonds. 
 
 [The court, after holding the act under which the levee district 
 was organized to be unconstitutional, proceeds :] 
 
 It is claimed that this levee district is at least a corporation de 
 facto, and that defendants will not be allowed to set up the unconsti- 
 tutionality of the law under which it was organized for the purpose 
 of defeating this proceeding; and Dean v. Davis, 51 Cal. 406, is 
 relied upon to support this doctrine. That case does not extend to 
 the limits insisted upon. While it is true that the regularity of the 
 proceedings taken in the organization of a corporation cannot be 
 questioned collaterally, still that principle does not arise in this case. 
 This is not a question of regularity of pfioceedings. The matter here 
 presented is, was there any law whatever under which a corporation 
 similar to this so-called "levee district" could be organized at all? If 
 there is no such law, then there is neither fund commissioners nor 
 corporation, and a void law is no law. It is said in Norton v. Shel- 
 by County, 118 U. S. 442, 6 Sup. Ct. 1125, 30 L. Ed. 178: "An un- 
 constitutional act is not a law. It confers no rights. It imposes no 
 duties. It affords no protection. It creates lio office. It is, in legal 
 contemplation, as inoperative as though it had never been passed." 
 
 It is also insisted that respondents are estopped from disputing the 
 validity of the bonds by retaining the benefit derived from the pro- 
 ceeds of their sale, and also by the payment of interest upon them 
 for several years. We cannot assent to this view. It might possibly 
 have some weight if the district was a corporation organized under 
 a valid law, and these bonds were issued ultra vires, although the 
 principles declared in Sutro v. Pettit, 74 Cal. 332, 16 Pac. 7, seem 
 to negative such contention. But here the principle cuts underneath 
 all mere questions of irregularity of organization, or even the ultra 
 vires issuance of bonds, for there is no organized body or person or 
 persons against whom to urge a waivei: or plead an estoppel. It is 
 ordered that the judgment be affirmed. 
 
 We concur: Harrison, J.; Paterson, J.^' 
 
 BERGERON v. HOBBS et al. 
 
 (Supreme Court of Wisconsin, 1S97. 96 Wis. 641, 71 N. W. 1056, 65 Am. 
 
 St. Rep. 85.) 
 
 Action by J. A. Bergeron against A. A. Hobbs and others. From 
 a judgment on a verdict directed for plaintiff, defendants appeal. 
 
 The defendants, under the name of Bayfield Agricultural Associa- 
 tion, employed several persons to perform labor in improving their 
 grounds and in erecting fences and buildings. Time checks given by 
 
 i» Compare: Smith v. Sbeeley, 12 Wall. 358, 20 L. Ed. 430 (1870). 
 
Sec. 2) EFFECT OF FAILURE TO c6mPLY WITH THE STATUTE 85 
 
 the defendants to such laborers, for such labor, were assigned to 
 the plaintiff, who brings this action to recover their amount, alleging 
 that the defendants were a co-partnership.- The defendants alleged 
 that they were members of a corporation, and denied that they were 
 co-partners, or liable as such. This was the issue which was tried. 
 It appeared upon the trial that artides of organization of the de- 
 fendants as the Bayfield County Agricultural Association, and a 
 certificate showing the election of officers, had been recorded in the 
 office of the register of deeds of Bayfield, but were not on file there. 
 They had been deposited, with instruction to record and return them, 
 which had been complied with. When the testimony of both sides 
 was in, the court directed a verdict for the plaintiff for the amount 
 of the time checks. From a judgment on that verdict the defend- 
 ants appeal. 
 
 Newman, J. (after stating the facts). There are two questions 
 raised on this appeal: (1) Was the mere recording of the articles of 
 incorporation, with the certificate of the election of officers, without 
 the intention or fact of the papers themselves remaining in the office, 
 a sufficient compliance with the statute, so that the organization of 
 the corporation became complete, as upon a proper filing of the 
 papers themselves? And (2) if the recording was not sufficient for 
 that purpose, are the defendants liable to the plaintiff only as a de 
 facto corporation, or are they liable as co-partners? 
 
 1. The statute (section 1460, Rev. St.) provides that, up'On the fil- 
 ing of "a certificate of organization, * * * with a copy of the 
 constitution, * * * in the office of the register of deeds of the 
 county, such society shall have all the powers of a corporation, nec- 
 essary to promote the objects thereof." It cannot be doubted that 
 the filing of the proper papers in the proper ofiSce is made, by the 
 statute, a condition preceHent to the vesting of corporate powers. 
 The court may not be able to clearly define the respect wherein the 
 mere recording and removal of the papers from the office fails to 
 serve the full purpose which the legislature intended to accomplish 
 by the filing of them. The legislature, no doubt, had good and suffi- 
 cient reasons for its choice of means to promote its purpose. For 
 the court it is not a question of equivalents. A literal filing of the 
 papers is necessary because it is so written in the law. The term 
 "filing" and the verb "to file," as related to this subject, include the 
 idea that the paper is to remain in its proper order on file in the 
 office. A paper is said to be filed when it is delivered to the proper 
 officer, and by him received, to be kept on file. Bouv. Law Diet. 
 The statute is plain and easy of observance. Valuable rights and 
 exemption from personal liability are to be secured by its observ- 
 ance. It is no undue severity to require its strict observance. The 
 defendants had not observed it, and had not secured corporate pow- 
 ers. 
 
86 FORMATION (Ch. 2 
 
 2. Had the defendants secured immunity from individual liability? 
 No doubt, as a general rule, where an attempt to organize a cor-, 
 poration fails, by omission of some substantial step or proceeding 
 required by the statute, its members or stockholders are liable as 
 partners for its acts and contracts. Beach, Priv. Corp. §§ 16, 162b; 
 1 Thomp. Corp. §§ 239, 416, 417. But the defendants' contention 
 is that they are not within this rule, because they are, at least de 
 facto, a corporation, and their right to be a corporation cannot be 
 inquired into in a collateral actionj but only in a direct action for 
 that purpose by the state. The infirmity of the defendants' conten- 
 tion is in the assumption that they are, de facto,' a corporation. In 
 oi-der to secure this immunity from inquiry into its right to be a cor- 
 poration in a collateral action, its action, as a corporation, must be 
 under a color, at least, of right. It is immaterial that they have car- 
 ried on business under the supposed authority to act as a body cor- 
 porate, in entire good faith. If they had not color of legal right, 
 they have obtained no immunity from individual liability for the 
 debts oi the supposed corporation. Until the articles of incorpora- 
 tion are filed in the office of the register of deeds of the county, there 
 is no color of legal right to act as a corporation. The filing of such 
 paper is a condition precedent to the right to so act. So long as an 
 act, required as a condition precedent, remains undone, no immunity 
 from' individual liEtbility is secured. 1 Thomp. Corp. §§ 226, 508. 
 
 The defendants are not a corporation either de jure or de facto, 
 but are liable for the plaintiff's claim, as partners. It was not nec- 
 essary to prove a co-partnership by evidence. That was established 
 by impHcation of law. Nor was it necessary to prove that the debt 
 was unpaid. There was no presumption that it had been paid to be 
 rebutted. The judgment of the circuit court is right, and must be 
 affirmed. The judgment of the circuit court is affirmed. » 
 
 _Maeshai,i„ J.^" (dissenting). With the decision that the defend- 
 ants failed to comply, with all the conditions precedent to the cor- 
 porate existence of the agricultural association I concur, but from 
 the decision that because of such failure such association was not a 
 corporation de facto I respectfully dissent; hence dissent from the 
 conclusion reached that the defendants are personally Hable to plain- 
 tiff, and that the judgment should be aiSirmed, but, on the contrary, 
 hold that it should be reversed. 
 
 My brethren cite Beach, Priv. Corp. § 162b, and 1 Thomp. Corp. 
 §§ 239, 508, to the ei¥ect that; unless all the conditions precedent 
 to the creation of a corporation are performed, there can be no cor 
 poration in fact, and that the members of the pretended corpora- 
 tion will be personally liable. Then sections 417 and 420 of Judge 
 Thompson's work are cited, to the effect that, if the corporation 
 
 1 8 Part of the dissenting opinion, consisting largely of an exhaustive ex- 
 amination of authorities, has been omitted. 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 87 
 
 never comes into being in fact, so as to. be regarded as a corpora- 
 tion de facto, the persons who have assumed to contract in its naine 
 are personally liable. These sections seem to be tied together, in 
 the opinion of the court, as if the two ideas are in harmony, when 
 the contrary, to my mind, is manifestly true. Thompson treats this 
 subject in such a way as to naturally confuse one who attempts to 
 follow him as authority. After saying, in sections 239, 508, in effect, 
 that all the conditions precedent to the creation of a corporation 
 must be complied with, in order that the members may escape per- 
 sonal liability, he says, in section 417, that the rule does not apply 
 to corporations de facto, and in section 420 that where there is a 
 corporation de facto, — in other words, where the circumstances are 
 such that a corpoiration might exist, and where the party seeking to 
 charge the members individually has dealt with them as a corpora- 
 tion, — he is estopped from setting up the fact that they are not a 
 corporation de jure, in order to charge them personally. Prom this 
 confusion it- is not to be wondered at that if a person tries' to follow 
 Judge Thompson he will be led inevitably into the position of hold- 
 ing that, unless all the conditions precedent to the existence of a 
 corporation are complied with, personal liabiHty of the members of 
 the corporation will exist, though the rule does not apply if the 
 organization be a corporation de facto. That comes from trying to 
 harmonize conflicting decisions, that proceed on theories so oppo- 
 site that harmony is impossible, 
 
 If we hold with Missouri, Arkansas, and some other states, that 
 unless all the steps necessary to the creation of the corporation have 
 been taken there is no corporate existence, and that the members 
 of the association are personally liable, we, in effect, say that it is 
 not sufficient to enable such members to escape personal liability tp 
 show that their organization is a corporation de facto ; that nothing 
 short of a corporation de jure will. do. But if we adopt the growing 
 doctrine, supported, as we shall show, by the overwhelming weight 
 of authority in this country, that a person who contracts with a de 
 facto corporation, the members of the latter and such person be- 
 lieving, in good faith, in its legal existence, such members cannot be 
 held personally liable, then we concede, necessarily, that it is not 
 essential to freedom from such liability that all the statutory requi- 
 sites to the existence of a corporation be complied with, because, 
 when that is done, the organization, obviously, is not a corporation 
 de facto only; it is a corporation de jure. This is too plain to admit 
 of serious discussion. 
 
 While the decision in this case, as I read the opinion of the court, 
 in one view, goes upon the ground that the members of a de facto 
 corporation are not responsible personally, inasmuch as it may be 
 held that the decision really is to the effect that personal liability ex- 
 ists because all the conditions precedent to a corporation de jure were 
 
88 FORMATION (Ch. 2 
 
 not complied with, some reference to authorities on the subject of 
 whether to escage such liabihty it is necessary that the corporation 
 exist in fact may be proper. 
 
 The development of the law on this subject has been rapid in re- 
 cent years in the direction of holding that the state only can chal- 
 lenge the legality of the exercise of corporate powers. The ancient 
 doctrine was that all contracts made by a corporation in excess of 
 its powers were void. That has not been changed, but the doctrine 
 has grown up, and become well-nigh universal, that the state only 
 can raise the question by proceedings to punish the corporation. 
 
 Our court is fully committed to such doctrine. John V. Farwell 
 Co. V. Wolf, 70 N. W. 289. Following closely upon the growth of 
 such doctrine, as apphed to transactions in excess of corporate pow- 
 ers, where there is no question as to the existence of the corpora- 
 tion, it has been extended, so as to prevent private persons, who 
 have contracted with a de facto corporation, from questioning its 
 existence; holding that, sovereign power only can raise that ques- 
 tion. This court having fully adopted the doctrine where there is 
 a corporation in fact, how it can be rejected where the corporation 
 is de facto merely is not perceived, inasmuch as a controlling reason 
 for it in the one case applies equally to the other. In both cases 
 there is an exercise of powers that can only be lawfully exercised 
 by sovereign authority; hence the unauthorized exercise of power 
 constitutes a public offense, not against any individual, but against 
 the sovereignty of the state. * * * 
 
 From the foregoing, we are warranted in asserting that, by well- 
 settled principles of law, the agricultural association with whom 
 plaintiff contracted was a de facto corporation. Every element nec- 
 essary to make it such appears clearly by the record. There was a 
 law under which it might have existed. The association prepared 
 their constitution, and adopted it in the form of ordinary articles of 
 organization, under the general incorporating act, and by mistake 
 they filed it -for record, and it was recorded and returned, insteadi^ 
 of fihng it to be left in the office, as the law requires. They sup- 
 posed that they had corporate existence by reason of the recording 
 of their articles of organization. They assumed to act as a corpora- 
 tion, and exercised corporate powers for a considerable length of 
 time, and, for aught that appears, in the utmost good faith. Cer- 
 tainly, the existence of the law, the making and recording of arti- 
 cles of organization, in an honest attempt to become a corporation, 
 and the honest assumption and exercise of corporate powers, prima 
 facie estabHshes good faith. Plaintiff supposed that the corporation 
 was a corporate body till long after his contract relations with the 
 association ceased. Now to allow him to come in and say that the 
 corporation did not exist which all supposed had legal existence; 
 that, though the officers of the association and plaintiff contracted for 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 89 
 
 a corporate liability on the part of the former, it shall be held, nev- 
 ertheless, that the members of such association are bound as partners, 
 in direct violation of the well-settled law that such an association, 
 under the circumstances, was a de facto corporate body; that, as 
 between the parties, the relations are the same in all respects as 
 though the corporation had a de jure existence, and contrary to the 
 settled doctrine, as I beli'eve, of this and most other courts, — is what 
 the judgment in this case does, in my opinion. 
 
 I think the judgment of the circuit court, holding the defendants 
 liable as partners, was wrong, and that it should be reversed, and 
 the cause remanded for a new trial. 
 
 OWENSBORO WAGON CO. v. BUSS et al. 
 
 {Supreme Court of Alabama, 1901. 132 Ala. 253, 31 South. 81, 90 Am. St. 
 
 Rep. 907.) 
 
 Appeal from circuit court, Lauderdale county; E. B. Almon, 
 Judge. 
 
 Action by the Owensboro Wagon Company against R. L. Bliss 
 and others. From a judgment in favor of the defendants, the plain- 
 tiff appeals. 
 
 Haralson, J.^^ * * * The facts in this case, without conflict, 
 show that the defendants and a number of other persons, pursuing 
 closely the provisions of the statute for the purpose (Code, p. 425, 
 art. 11), associated themselves together for the purpose of incorpo- 
 rating the Farmers' Implement Company. They filed their declara- 
 tion in the office of the probate judge of Lauderdale county, in ac- 
 cordance with the provisions of section 1252 of the Code. This 
 declaration was indorsed: "Farmers' Implement Co. Declaration." 
 ■"I hereby certify that the within conveyance, was filed in the office for 
 record, on the 5th day of February 1898, and duly recorded in Vol. 
 
 — of on page . , Judge of Probate." The word 
 
 "conveyance," in this certificate, was a mere self-corrective clerical 
 error, used for the word, "declaration"; and the fact that the name 
 of the judge of probate is not signed thereto, amounts to nothing. 
 In the absence of statute prescribing what constitutes the filing of a 
 paper, it is said to be filed whenever it is delivered to and is received 
 by the proper officer. A bill in chancery, for instance, is to be con- 
 sidered as filed, when it is put in the custody and power of the court, 
 by depositing it with the register, or with his assistant in his, office, 
 with the intention of filing it, although the fact and date of filing 
 are not then indorsed^ on it. Ex parte Stow, 51 Ala. 69; Truss v. 
 Harvey, 120 Ala. 636, 24 South. 927; 8 Am. & Eng. Enc. fl. & 
 Prac. 928. 
 
 17 A part of the opinion' Is omitted. 
 
90 FORMATION (Ch. 2 
 
 On the same day the declaration was filed, the judge of probate, 
 issued to two of the proposed incorporators, a commission to open 
 books of subscription to the capital stock of the corporation, as per 
 section 1253 of the Code. Afterwards, the commissioners, acting 
 under this commission, opened books of subscription, and more than 
 50 per cent, of the capital stock was duly subscribed by parties 
 deemed solvent, .a list of whom was returned to the court, as a part 
 of the report of the commissioners, and payments in money were 
 made by each of the subscribers of at least 20 per cent, of the stock 
 subscribed by them, respectively. The subscribers met and organized 
 the corporation by the election of a board of directors, a president, 
 a secretary and gei^eral manager, and a treasurer, all of which was 
 duly certified and returned in writing to the judge of probate, as 
 provided by section 1255 of the Code. The only missing links for 
 the perfection of a corporation de jure under the statute, as ap- 
 pears, were, that these papers, so returned and filed with the probate 
 judge, were never recorded in his office, and no certificate of incor- 
 poration was issued by said judge, declaring said corporation fully 
 organized, as provided by said section 1255 of the Code. 
 
 It is too plain for controversy, that a corporation de facto was 
 thus created, there being no allegation or evidence of fraud on the 
 part of defendants and associates in the" premises. The evidence 
 shows, and the fact is undisputed, that under such incorporation, the 
 company entered upon the transaction of business; that it was un- 
 derstood in the community to be a corporation, and, as such, it in- 
 stituted and maintained suits in the, justice's court of Florence. It 
 was shown, that these defendants took no part in the management 
 of the corporation; that they each paid in full, the stock subscribed 
 by them, and never knew that' a de jure corporation was not in fact 
 organized, but supposed and believed it had been done. The defend- 
 ant. Young, was president of the company, and testified that one 
 J. M. Lassiter, the secretary and general manager, transacted all the 
 business, and he, the witness, had nothing to do with its manage- 
 ment, and never examined the books of the concern. The defend- 
 ant, Bliss, testified to the same thing, as for himself. There was 
 no evidence tending to show, that defendants had anything to do 
 with contracting the account on' which they are sued, or knew any- 
 thing about it ; nor that they ever consented to become partners in 
 said corporation, or agreed to be anything more than stockholders 
 therein, or ever held themselves out, or agreed that any one else 
 should hold them out as partners therein, or were guilty of any 
 fraud in the organization of said company. So far as the evidence 
 shows or tends to show, their conduct was characterized by good 
 faith towards their associates "and the persons transacting business 
 with the company. 
 
 The evidence of plaintiff tended to show, that it had no actual no- 
 tice of the incorporation of said company as a de facto organization. 
 
Sec. 2) EFFECT OF FAILTJEB TO COMPLY WITH THE STATUTE 91 
 
 even. Its secretary and treasurer, W. A. Steele, testified by deposi- 
 tion, that no member of the Farmers' Implement Company, ever in- 
 formed the plaintiff that said implement company was a corporation ; 
 that plaintiff never heard that it was such an organization, and that 
 he thought that J. M. Lassiter, deceased, who was the secretary and 
 managing agent of said implement company, informed the plaintiff 
 by letter that defendants were members of a copartnership by that 
 name, though he could not find or produce said letter. The evidence 
 does not show, however, — even if that statement were taken as evi- 
 dence of the fact, a question we need not decide, — ^that either of de- 
 fendants ever authorized L,assiter to make such an admission' as to 
 them, or that they ever knew he made any such statement, without 
 which, they were not bound by his declarations. The declarations of 
 one partner, not made in the presence of his copartner, are never 
 competent to prove the existence of the partnership between them. 
 It is only when the partnership has been otherwise proved, that the 
 declarations of one partner ^are evidence against the other, as to the 
 conduct of the partnership business. The existence of a partnership 
 can never be established by general reputation or on hearsay evi- 
 dence. Bank v. Leland, 122 Ala. 289, 25 South. 195. 
 
 In the absence of an agreement to become partners in the com- 
 pany, defendants cannot be held liable as such, unless they hold 
 themselves' out as partners. Holding - one's self out, or permitting 
 himself to be held out as a partner in a firm, will make him liable 
 as such, to third persons who have been misled by, or who have 
 acted upon such holding out; and in such case, the one so held out 
 would be estopped as to them to deny that he was a partner. 17 
 Am. & Eng. Enc. Law, 879; George, Partn. p. 80; Marble v. Lypes, 
 82 Ala. 322, 2 South. 701 ; Fertilizer Co. v. Reynolds, 85 Ala. 19, 
 4 South. 639. As we have said, there is an entire absence of evi- 
 dence tending to show tTiat defendants ever knowingly or intention- 
 ally entered into a partnership relation with their associates, or ever 
 held themselves out as copartners with them, or permitted any other 
 person to do so. 
 
 The evidence shows, furthermore, beyond conflict, that at the time 
 the plaintiff's contract with the Farmers' Implement Co. was entered 
 into, — on the 2d July, 1898, — the papers above referred to, for the 
 incorporation of said company, were on file in the office of the pro- 
 bate judge, having been filed therein, on the 5th of February, pre- 
 ceding, and remained, there on file, until the 28th of October follow- 
 ing, when' the judge of probate allowed J. M- Lassiter to take them 
 away, — for what purpose, is not shown. The judge took the receipt 
 of Lassiter for the papers, which receipt the judge himself wrote or 
 dictated, reciting what papers they were, and that they were "all the 
 papers that were ever filed in the office of the said probate judge, of 
 said corporation." 
 
92 FOEMATION (Ch. 3 
 
 The plaintiff, at the time it contracted with said association, had 
 thus, constructive notice of what was done towards the incorpora- 
 tion of the company, and that it had, at least, a de facto existence, 
 which status was unaffected by the action of said Lassiter, in taking 
 sSid papers from the probate office. 
 
 The fact that the Farmers' Implement Company had not, at the 
 time it purchased the goods from plaintiff, paid the state and county 
 license to do business, could not affect the status of the de facto 
 corporation differently from what it would have affected a de jure 
 corporation. The only possible effect such failure could have, would 
 have been to render the company liable to the penalty prescribed 
 by statute in such cases. 
 
 It is' contended, again, that the failure to pay the fee prescribed 
 by section 1287 of the Code, rendered the effort at incorporation 
 abortive, and that the company, in consequence, did not have a de 
 facto existence, even. In Christian & Craft Grocery Co. v. Fruit- 
 dale Lumber Co., 121 Ala. 340, 25 South. 566, we heldj that if a 
 commission is issued to a corporation organized under the statutes, 
 the fact that the required fee was not paid, would not, of itself, 
 prevent the .corporation from having a de facto existence ; but its 
 contracts as stated, would be void. The statute under which that 
 decision was made (Acts 1894—95, p. 1024), provided that all con- 
 tracts by any corporation which had not first complied with the re- 
 quirement for the payment of this fee, should be wholly void. That 
 provision was not carried into the Code of lS96, but was omitted 
 therefrom. Section 1287. Without reference to that fact, however, 
 the failure to pay the fee, would not, as stated, of itself have pre- 
 vented the formation of a de facto corporation. If they never in- 
 tended, and did not a^ree to become partners, but desired in good 
 faith to organize under the statute a corporation, which they failed 
 to fully perfect, but did organise one de facto, under color of law, 
 which came into the exercise of corporate functions, the stockhold- 
 ers of such an organization, cannot be made liable as partners. Au- 
 thorities supra. 
 
 U,nder the pleadings, and the legal evidence as developed on the 
 trial, the court, in trying the case without a jury, very properly, as 
 we think, found in favor of the defendants, and rendered judgment 
 accordingly. Affirmed. 
 
 , BIGELOW-v. GREGORY et al. 
 
 (Supreme Court of Illinois, 1874. 73 111. 197.) 
 
 This was . an action of assumpsit, brought by Bigelow, appellant^ 
 against Charles A. Gregory, FrankUn H. Watriss, Oramel S. Hough, 
 and Reuben Hatch, as co-partners,, doing business under the name 
 and style of the Warfield Cold Water Soap Company, to recover 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 93 
 
 for goods sold and delivered. The defendants in the court below 
 pleaded the general issue, and also interposed a further plea denying 
 the partnership, verifying the same by affidavit. The cause was 
 tried by the Cpurt without a jury, and the issues found and judg- 
 ment rendered for the defendants. The plaintiff brings the record 
 here by appeal to reverse the judgment. 
 
 From the testimony, it appears that, in November, 1870, the de- 
 fendants, with one Isaac N. Gregory, signed a certain paper, com- 
 inencing : 
 
 "Articles of association of Warfield's Cold Water Soap Company 
 of Milwaukee. 
 
 "We, the undersigned, being desirous of forming a company for 
 the purpose of carrying on a manufacturing business, as hereinafter 
 stated, under authority of the act of the Legislature of the State of 
 Wisconsin, relating to joint stock companies, approved April 2, 1858, 
 and acts amendatory thereof, do hereby agree and certify that the 
 name of the company is and shall be, Warfield's Cold Water Soap 
 Company, of Milwaukee," proceeding to state at length the objects 
 of the company, the amount of its capital stock, its number of shares, 
 the term of existence of the company, the number and names of the 
 directors for the first year, *they feeing the subscribers themselves, 
 how the capital stock should be paid, the signers, subscribing for all 
 the stock, and agreeing to pay it as required by the directors, and 
 concluding : 
 
 "We hereby adopt the foregoing as the articles of association of 
 said Warfield's Cold Water Soap Company, of Milwaukee, for the 
 purpose of becoming a body politic and corporate under said name. 
 
 "Witness our hands, at Chicago, Illinois, this twenty-third day of 
 November, A. D. 1870. Charles A. Gregory, 
 
 "Franklin H. Watriss, 
 "Oramel S. Hough, 
 "Reuben Hatch, 
 "Isaac N. Gregory." 
 
 This paper was filed in the office of the Secretary of State of Wis- 
 consin, on the 8th day of July, 1871, and in the office of the city 
 clerk of Milwaukee, August 23, 1871. It was also published in two 
 newspapers in Milwaukee, the "Guide" and the "Herald," September 
 13th and ISth, 1871. 
 
 The Revised Statutes of Wisconsin were introduced in evidence, 
 and the act under which defendants claimed to have become incor- 
 porated. * * * 
 
 Business was done under the name of the company, in which the 
 defendants were jointly interested. There is no controversy as to 
 the sale and delivery of the goods.^* 
 
 Sheldon, J. The only question here arising is, whether the de- 
 
 is statement of facts abridged. 
 
94 FORMATION (Ch."3 
 
 fendants were exempt from individual liability by reason of having 
 become a corporation. ^ 
 
 The second section of the act of Wisconsin, under which defend- 
 ants claim to have become incorporated, provides that, the persons 
 who, by articles of agreement in writing, should associate according 
 to the provisions of that law, and who should comply with the pro- 
 visions of that chapter, should become a body politic and corporate, 
 etc. Not that they should so become by articles of agreement in 
 writing, but the further thing was required, of a compliance with the 
 provisions of that chapter. 
 
 Section 17 is express that, before any corporation formed and es- 
 tablished by virtue of the provisions of law shall commence business, 
 the articles of association should be published in two newspapers in 
 the county in which the corporation was located, and the certificate 
 required should be deposited with the Secretary of State, and a 
 duplicate with the clerk of the town or city where the corporation 
 was to transact its business. 
 
 We are of opinion that in this case, as the question here comes up, 
 the right of the defendants to be considered a corporation depends 
 upon their having complied with the requirements of the statute, at 
 least to the extent of the publication of their articles of association, 
 and the filing of the certificate. These are important acts as affects 
 the public interest, as affording means of notice respecting the cor- 
 poration to such as deal with it, so that they may regulate their ac- 
 tion and give or withhold credit accordingly, and we think they are 
 to be regarded as statutory prerequisites, essential to corporate ex- 
 istence. ' ^ ' V 
 
 The defendants are seeking escape from individual liability; let 
 them show that they have complied with the statute which enables 
 them to do so, at least substantially, as respects the above named 
 acts. Such we regard to be the doctrine of the authorities. Unity 
 Insurance Co. v. Cram, 43 N. H. 641 ; Mokelumne Mining Co. v. 
 Woodbury, 14 Cal. 425, 73 Am. Dec. 658;, Harris v. McGregor, 29 
 Cal. 124; Spencer Field v. Paul Cooks, 16 L,a. Ann. 153; Angell 
 & Ames on Corp. § 83. ' 
 
 Various cases decided by this court have been cited by appellees' 
 counsel, containing general expressions to the effect that an organi- 
 zation in fact and user under it are sufficient to show a corporation 
 de facto, although there might have been irregularities or omissions, 
 and that these could not be urged collaterally against the existence of 
 the corporation, but only in a direct proceeding by scire facias, or 
 by information in the nature of a quo warranto. But these cases, 
 we conceive, have but an imperfect application here. Some of them 
 were cases where special charters had been granted, and almost all 
 were cases between the company and its. stockholders. There is a 
 ■ manifest difference where a corporation is created by a special char- 
 
Sec. 3) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 95 
 
 ter and there have been acts of user, and where individuals seek to 
 form themselves into a corporation under the provisions of a general 
 law. In the latter case, it is only in pursuance of the provisions of 
 the statute for such purpose, that corporate existence can be ac- 
 quired. And there would seem to be a distinction between the case 
 where, in a suit between a corporation and a stockholder or other in- 
 dividual, the plea of nul tiel corporation is set up to defeat a liability 
 which the one may have contracted with the other, and the case of 
 a suit against individuals who claim exemption from individual lia- 
 bility, on the ground of their having become a corporation formed 
 under the provisions of a general statute. In the latter case, a 
 stricter measure of compliance with statutory requirements will be 
 required, than in the former. 
 
 The most pertinent of these cases referred to in this court are 
 Cross V. Pinckneyville Mill Co., 17 111. 54, and subsequent cases fol- 
 lowing it, where it was held that, under the Act of 1849, p. 87, the 
 filing of the duplicate certificate of organization in the office of the 
 Secretary of State, required by. the first section of that act, was but 
 directory, and the omission to so file, it did not" defeat the organiza- 
 tion. But it was put upon the grtjund that, as the first section re- 
 quired the certificate to be filed in the oifice of the clerk of the 
 county in which the business of the company was to be carried on, 
 the filing of the duplicate in the office of the Secretary of State was 
 regarded as a secondary object ; and that that view was. confirmed by 
 the language of the second section, in declaring that ''when the cer- 
 tificates shall have been filed as aforesaid," the persons signing, and 
 their successors, "shall be a body politic and corporate in fact and 
 in name." And it was there said: Whatever is expressly or im- 
 pliedly required to be done, as essential to bring the corporation 
 into existence, must be done. 
 
 This court has never held that individuals could make themselves 
 a corporation by the mere signing of articles of agreement. And in 
 the language of Parsons on Partnership, p. 544, "we do not believe 
 that a joint-stock company, or any other partnership, can limit its own 
 liabilities and become a corporation or limited ^ partnership by its 
 own act and without any regard to the formalities or requirements 
 of the law ;" and see Stowe v. Flagg et al., 72 111. 397. 
 
 The account sued on commenced March 2, 1871, and ende^ Au- 
 gust 19, 1871. 
 
 Nothing had been done toward incorporation, except the sign- 
 ing of the articles of association, until July 8, 1871, when the arti- 
 cles were filed with the Secretary of State of Wiscon^n. They may 
 be regarded, perhaps, as substantially embracing the particulars re- 
 quired in the certificate. The greater portion of the indebtedness - 
 sued for had been contracted prior to that time. 
 
 The filing of the articles in the office of the city clerk 'of Mil- 
 
96 FORMATION (Ch. 2 
 
 waukee, in which place the business of the corporation was to be 
 transacted, and the publication in the newspapers, did not take place 
 until after August 19, 1871, when the whole indebtedness had been 
 contracted. 
 
 We are of opinion the defendants were liable as partners, and had 
 not absolved themselves from responsibility as such by having be- 
 come a corporation. 
 
 The judgment will be reversed. Judgment reversed. 
 
 WELLAND CANAL CO. v. HATHAWAY. 
 (Supreme Court of New York, 1832. 8 Wend. 480, 24 Am. Dec. 51.) 
 
 The declaration contained the common money counts, and the plea 
 was the general issue. A special verdict was found by the jury, 
 from which it -appears that the defendant was a contractor to execute 
 and construct a portion of the Welland Canal in Upper Canada, and 
 that by mistake, for the work done by him, he was overpaid the 
 sum of $1,000, to recover back which sum this suit was brought. In 
 support of the action, the plaintiffs gave in evidence a receipt, signed 
 by the defendant, in these words: "Received from Wm. Hamilton 
 Merritt, agent W. C. C. the sum of £250 currency. April 7, 1827." 
 
 The jurors found that" the letters W. C. C. stood for and were 
 understood to mean the Welland Canal Company, and that William 
 Hamilton Merritt was the agent of the company; and they found 
 various other facts relative to the work done by the defendant and 
 his contract in relation to the same, but whether or not, upon the 
 whole matters, the plaintiffs are a body corporate, by the name of 
 the Welland Canal Company, the jurors are ignorant and pray the 
 advice of the court — ^which is the sole question presented "by the 
 special verdict. 
 
 Nelson, J.'* That the plaintiffs must, at the trial, prove them- 
 selves duly incorporated by competent authority, on the plea of the 
 general issue, is not to be contested at this day in this court. Bank 
 of Auburn v. Weed, 19 Johns. 300; Utica Ins. Co. v. Tilman, 1 
 Wend. 555. This is conceded by the counsel for the plaintiffs, but 
 it is contended that the receipt of the cdefendant and his contract 
 with the agent of the company ought to estop him from denying 
 their legal existence; or at least are prima facie evidence of that 
 fact, subject to be rebutted. There is a dictum of Ch. J. Thomp- 
 son, in Dutchess Cotton Manufactory v. Davis, 14 Johns. 245, 7 Am. 
 Dec. 459, which is relied on by the plaintiffs. In that case there was 
 a demurrer to some of the counts in the declaration, and one of 
 the causes assigned was the want of an averment that the plaintiffs 
 
 19 A part of the opinion is omitted. 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 97 
 
 were a body corporate, duly organized in pursuance of the law, which 
 the learned judge was considering when the opinion was pronounced. 
 The remark, therefore, "The defendant having undertaken to enter 
 into a contract with the plaintiffs in their corporate name, he thereby 
 admits them to be duly constituted a body politic and corporate 
 under such name," was not necessary to the point under consideration. 
 
 The case of Henriques v. Dutch West India Company, 2 Ld. 
 Raym. 1535, was there cited, and is relied upon in this case as an 
 authority for the plaintiffs. Upon examination, I think it will be 
 found rather favoring the defendant's position. The Dutch West 
 India Company sued Henriques in the C. B. in England, for money 
 borrowed of' them in Holland, and recovered. See the case before 
 the C. B. on questions reserved at the trial by Ld. Ch. J. King, 1 
 Str. 608. From this report it appears that the cause went to the 
 K. B. and House of Lords, and was affirmed. From the case in Ld'. 
 Raymond it appears that a scire facias was brought in the C. B. 
 against the bail of Henriques in the above suit upon their recog- 
 nizance. The bail pleaded there was no record of such recognizance 
 as set forth in the scire facias, to which the company replied there 
 was ; and upon this issue the court rendered judgment for the plain- 
 tiffs. This judgment was carried to the K. B. and two objections' 
 taken to its correctness by the plaintiffs in error, neither of which 
 touch the question under consideration. The judgment was af- 
 firmed in the K. B. except as to damages for the delay of execution, 
 5th of July, 1728. On the 25th April, 1730, the cause having been 
 brought into the House of Lords, was there heard, and the counsel 
 for the planitiffs in error for the first time raised the question that 
 no recognizance could be given to this company in England, as the 
 law does not take notice of a foreign corporation, nor can a foreign 
 corporation, in their corporate name and capacity, maintain an action 
 at common law, and, therefore, the recognizance was void. To this 
 the counsel for the company artswered that the plaintiffs were estop- 
 ped, by their recognizance, to say there was no such pompany; and 
 the judgment was affirmed. 
 
 The correctness of this decision may be safely admitted without 
 affecting in any way the question now before the court. It was 
 clearly not competent for the bail to draw into litigation the right 
 of the company to sue them in their corporate name, in that particu- 
 lar case, after a recovery against their principal in the suit in which 
 they had entered into the recognizance in question, and this, no doubt, 
 was what the counsel meant in their answer to the objection before 
 the House of Lords. In a note to this case, the reporter states that 
 Ld. Ch. J. King, who tried the cause of the' Company v. Henciques, 
 told him he made the , plaintiffs give in evidence the proper instru- 
 ments by which, according to the laws of Holland, they were created 
 a corporation. The report of the case (1 Str. 608) also shows- this 
 Rich. Corp. — 7 
 
98 FORMATION (Ch. 3 
 
 fact. The circumstances under which this company were constituted 
 a body corporate, and their privileges, are there briefly stated. The 
 species of the evidence by which the factg were shown does not ap- 
 pear, but that is suppHed by the note above. The whole case, there- 
 fore, I think, must be considered' an authority against the principle 
 contended for by the plaintiffs in this suit. 
 
 An estoppel is so called, because a man is concluded from saying 
 any thing, even the truth, against his own act or admission. The acts 
 set up in this case, it is not pretended, constitute a technical estoppel, 
 which can only be by deed or matter of record, but it. is said they 
 should operate by way of estoppel — an estoppel in pais. Such es- 
 toppels cannot be pleaded, but are given in evidence to the court and 
 j-ury, and may operate as effectually as a technical estoppel, under 
 the direction of the court. Co. Lit. 352 ; Vin. Abr. tit. Estoppel, 422 ; 
 19 Johns. 490; 1 Gilb. Ev. 87. From the manner in which a party 
 must avail himself of them, it is obvious that there can be no fixed _ 
 and settled rules of universal application, to regulate them, as in 
 technical estoppels. There are many acts which have been adjudged 
 to be estoppels in pais, Such as livery, entry, acceptance of rent, etc. ; ' 
 but in many and probably in most instances, whether the act or ad- 
 mission shall operate by way of estoppel or not, must depend upon 
 the circumstances of the case. 
 
 As a general rule, a party will be concluded from denying his own 
 acts or admissions, which were expressly designed to influence, the 
 conduct of another, and did so influence it, and when such denial 
 will operate to the injury of the latter. The case of First Presby- 
 terian Congregation of Salem v. Williams, strikingly illustrates this 
 general proposition. There the plaintiffs,^ by their attorney, called 
 upon the defendant for his rent, and inquired if there was any prop- 
 erty upon the premises- out of which it could be collected by distress ; 
 he answered there was not, and pointed out all the property "he had, 
 which was but a trifle. On the trial of the ejectment, brought for the 
 default in payment of the rent, the defendant offered to show there 
 was sufficient property on the premises out of which the rent could 
 have been collected. The court decided that he was 'estopped from 
 disputing the truth of his admission to the plaintiff's attorney. All 
 the cases I have seen in which the acts or admissions of the party 
 are adjudged to operate against him, in the nature of estoppel, are 
 generally cases where, in good conscience and honest dealing, he 
 ought not to be permitted to gainsay them. 
 
 From this brief view of the nature and reasons of the law of estop- • 
 pel, as sought to be applied by the plaintiffs, I am satisfied the case 
 under consideration does not fall within them. The plaintiffs held 
 themselves out to the world as a corporate body, duly constituted to 
 transact business in the manner and under the circumstances de- 
 tailed in the special verdict, and the defendant has contracted with 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 99 
 
 and done labor for them under the supposition that these professions 
 were correct. If they have not the powers and privileges assumed 
 on their part in their dealings with him, it is their own fault, not his. 
 Whether they had these powers must have been known to them- 
 selves, not to the defendant, and no act of his could legally add to 
 or detract from them. Why, then, should he be estopped from de- 
 nying their corporate capacity, or they be excused from establishing 
 it by legal evidence, when they are endeavoring to enforce their rights 
 in a manner, and before a tribunal, which can eutertain their suit 
 only upon the proof or assumption that they are a corporate body, 
 duly constituted by_ competent authority? A'gain, every estoppel 
 ought to be reciprocal, and binding on both parties. Viner's Abr. 
 tit. Estoppel, 463 (26), 422. This is universally true in all technical 
 estoppels, and I apprehend it must be so in all cases to which the 
 doctrine is applied, where the nature of the transaction will admit of 
 it. Would, then, plaintiffs, in a suit by the defendant on a contract, 
 be estopped from denying their corporate capacity to enter into such 
 contract? I apprehend they would not, and that in effect it has been 
 thus frequently adjudged. Head & Armory v. Providence Insurance 
 Company, 1 Condensed R. 371, and cases there referred to; Beatty 
 V. Marine Ins. Co., 2 Johns. 109, 3 Am. Dec. 401 ; New York Fire 
 Ins. Co. V. Sturges, 2 Cow. 664; Goszler v. Corporation of George- 
 town, 6 Wheaton, 593, 5 L. Ed. 339; Bank of Columbia v. Patter- 
 son, 7 Cranch, 299, 3 L. Ed. 351; 2 T. k. 169; 5 Common Law R. 
 216. All these cases either expressly or impliedly determine that a 
 corporation can bind itself only in pursuance of the powers given 
 by the act of incorporation,! and not otherwise. 
 
 But it is said that the defendant, by his contracts with the com- 
 pany, has admitted that they are a body corporate, duly constituted 
 by law. I cannot assent to this pbs;tion. The evidence proves that 
 he has contracted with the agent -of an association denominating 
 themselves the Welland» Canal Company, and nothing more. Wheth- 
 er they were incorporated by competent authority, or if incorporated, 
 what were their legal capacities, are not admitted by him. To jus- 
 tify the inference attempted to be drawn from the contract' with the 
 plaintiffs, it must first be shown that there cannot exist an asso- 
 ciation styling themselves the Welland Canal Company, unless such 
 association be incorporated and possess a legal capacity to contract, 
 and to prosecute suits in courts of justice: but if such association 
 can exist without being incorporated, why infer more than appears 
 upon the fact of the contract,? Suppose the defendant had brought 
 an action against the agent of this company on a contract made with 
 him, could the agent set up as a defence that by the terms of the 
 contract the defendant had admitted that he not only acted as agent,' 
 but that he was duly constituted such agent? Certainly not. It is 
 well settled that he must plead and prove his authority so as to give 
 
100 FORMATION (Ch. 3 
 
 a remedy against the company. Randall v. Van Vechten, 19 Johns. 
 60, 10 Am. Dec. 193 ; White v. Skinner, 13 Johns. 307, 7 Am. Dec. 
 381 ; Mott V. Hicks, 1 Cow. 536, 13 Am. Dec. 550. And this must 
 generally involve proof of the legal existence of the corporation. 
 The contract on its face would show that he acted as agent, but he 
 must prove that he was duly constituted such agent, and show the 
 nature and' extent of his powers. 
 
 So in this case, the receipt and contract show the fact of an asso- 
 ciation, acting under a particular name. So much appears pn the 
 face of the contract, and may be said to be admitted, but that is 
 not enough for the plaintiffs; it must also appear that they had le- 
 gal authority and capacity thus to act, and to prosecute suits by such 
 name, before their suit can be entertained. In Jackson v. Plumbe, 8 
 Johns. 378, the court say, the rule seems to be that when a corpora- 
 tion sues, either on a contract or to recover real property, they must 
 at the trial under the general issue prove that they are a corporation. 
 In the case of Bill v. Fourth Great Western Turnpike {Company, 14 
 Johns. 416, the suit was brought on a contract made by the plaintiffs 
 in error with the defendant. The court reversed the judgment be- 
 cause there was no legal proof that the plaintiffs below were a cor- 
 poration. In the case of the National Bank of St. Charles v. De 
 Bernales, 11 Common Law R. 475, letters of the defendant were 
 proved on the trial before Ch. J. Abbott, confessing an indebtedness 
 to the bank of £19,000, yet the copy of the charter of the king of 
 Spain was produced, incorporating the bank. This it seems was 
 deemed necessary by the counsel and court. It is true the question 
 here presented was not raised in either of the above cases, though it 
 might have been in the two last, and I cite them only to show the 
 understanding of the profession, and the practice of the courts. 
 Without pursuing the examination of this question further, the con- 
 clusion to which I have arrived is, that the defendant has "neither 
 admitted the legal existence of the plaintiffs as a corporate body, 
 
 nor has he done anything by which he is estopped from denying it. 
 * * * 
 
 On the ground,, then, of the error of the judge, and that the special 
 verdict is wholly unauthorized and void, so much so that no final 
 judgment can be rendered upon it, we grant a new trial, with costs 
 to abide the event.^" 
 
 20 Accord: Williams v. Hewitt, 47 La. Ann. 1076, 17 South. 496, 49 Am. St. 
 Rep. 394 (1895) ; Provident Bank & Trust Co. v. Saxon et al., 116 La. 408, 40 
 South. 778 (1906). But see Estey Manufacturing Co. v. Runnels, 55 Mich. 
 130, 20 N. W. 823 (1884) ; West Winsted Savings Bank & Building Association 
 V. Ford, 27 Conn. 282, 71 Am.- Dec. 66 (1858); Newcomb-Endlcott Co. v. Fee, 
 167 Mich. 574, 133 N. W. 540 (1911). 
 
 V In Guckert v. Hacke et al., 159 Pa. 303, 28 Atl. 249 (1893), where the plain-' 
 tiff was seeking to hold the associates as partners, the court through Chief 
 Justice Sterritt says: "It may be conceded that had plaintiff dealt with de- 
 fendants as a corporation he would have been estopped from claiming against 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY W^TH THE STATUTE •'■®-'- XM»T\0^ 
 
 RYAN V. MARTIN et al. 
 (Supreme Court of North Carolina, 1884. 91 N. C. 464.) 
 
 Ejectment, tried at July special term, 1884, of Guilford Superior 
 Court, before Graves, J. 
 
 The plaintiff bought the land in dispute at a sheriff's sale under 
 
 a judgment and execution (obtained in a suit begun by attachment 
 
 under the law as it existed prior to the C. C. P.) against the Deep 
 
 River Mining Company; and -with a view to conclude the defendant 
 
 froni denying the title of said company, and to obviate the necessity 
 
 of showing title out of the state the plaintiff put in evidence the 
 
 transcript of the record of a suit in Rowan Superior Court, of B. 
 
 T. Martin (defendant in this case) against the said company, which 
 
 showed a judgment in favor of Martin, and the same was docketed 
 
 in Guilford County and executions issued thereon, and returned. 
 * * * 
 
 The plaintiff, on objection, was allowed to prove by what names 
 the said company was called, to-wit, sometimes the "Deep River Min- 
 ing Company," and sometimes the "Deep River Copper Mining Com- 
 pany." Defendant excepted upon the ground that parol, evidence 
 was not admissible for such a purpose, and also that the existence of 
 such company, under which plaintiff claims, had not been shown by 
 a charter or an organization; and that its existence not being thus 
 proved, it had no capacity to hold and have title to land, and there- 
 fore the sheriff's sale and deed to plaintiff conveyed no title, and the 
 deed was void; and further, that the doctrine of estoppel does not 
 apply in this case, and the plaintiff must show title out of, the state 
 to enable him to recover. 
 
 His honor being of opinion against the defendant, instructed the 
 jury accordingly. Verdict and judgment for plaintiff, and appeal by 
 defendant.^^ 
 
 Mberimon, J.^" The defendant contended, that it did not appear 
 by any proper evidence that the Deep River Mining Company had 
 
 them in any other capacity, even though they faUed to record their charter. 
 Spahr V. Bank, 94 Pa. 429 (1880). But it is not pretended that he had any 
 knowledge of the existence of the charter; and there was certainly nothing, 
 either in the name under which they did business or in their conduct, which 
 should have put him upon inquiry. In these circumstances he was amply 
 justified in dealing with them as partners. It was through their default — 
 not his — that they were so treated ; and it would be manifest injustice that 
 he should lose his admittedly honest claim. In the absence of an express 
 agreement the acceptance of a note from the defendants, as a corporation, 
 after the plaintiff had performed his part of the contract, cannot operate by 
 way of election or estoppel. The relation of the parties was fixed by their 
 status when the original contract was made and cajinot be changed by gratu- 
 itous inference. The members of the alleged corporation were the defendants 
 and were not injured by the acceptance of said note." 
 21 Statement of facts abridged. 22 A part of the opinion is omitted. 
 
102 FORMATION (Ch. 2 
 
 any corporate organization or capacity to hold and have title to land, 
 or other property, and therefore, the deeds put in evidence on the 
 trial were void. ' 
 
 It is true, that it must appear that there was a corporate existence 
 either de jure, or de facto, at least. And if the corporation itself 
 were suing, it would be necessary for it to prove its charter and an 
 organization in accordance therewith, if these were properly put in 
 issue. But if a person entered into a contract with a body purport- 
 ing to be a corporation, or claims to hold property pflrchased and 
 derives title thereto from it, this is prima facie evidence against such 
 person that such corporation was in existence de facto at least, at 
 the time of the contract with or purchase from it, and the presump- 
 tion arises in such case, that the existence of the corporation con- 
 tinues at the bringing of the action. 
 
 ■ Accordingly, it has been held in an action against the maker of a 
 promissory note executed to a corporation as payee, in its corporate 
 name, the production of the note duly endorsed to the plaintiff was 
 sufficient evidence that the corporation was duly organized and com- 
 petent to transact business. Williams v. Cheney, 3 Gray (Mass.) 215, 
 220. It was said in that case, that "^he defendants, by giving their 
 notes to the corporation in their corporate name as payees, admitted 
 their legal existence and capacity to make and enforce the contracts 
 declared on, so far at least, as to render proof on that point unnec- 
 essary in the opening of the plaintiff's case." 
 
 And in Jones v. Cincinnati Type Foundry Co., 14 Ind. 90, it was 
 so held. In that case, the action was brought by a corporation upon 
 a note executed to it in its corporate name; the defendant, in his 
 answer, insisted that the plaintiff had no legal capacity to sue, be- 
 cause it was not a corporation. The court held, however, that the 
 , production of the note was sufficient evidence to warrant a judgment 
 for the plaintiff, no other evidence having been offered. In that case, 
 it was said, "As a general proposition, it is the law of this state, 
 (Indiana,) that a contract with a party as a corporation, estops the 
 party so contracting to deny the existence of the corporation at the 
 time it was contracted with as such. * * * jjj New York, to 
 work such estoppel, it has been necessary that the contract should 
 state that the party contracted with was a corporation. But this 
 rule does not prevail in other states. It has not been acted upon in 
 this state. If the style by which a party is contracted with is such as 
 is usual in creating corporations, viz. : naming an ideality, but dis- 
 closing that of no individual, as is usual in the cases of simple part- 
 nerships, it has been treated as prima facie, at least, indicating a cor- 
 porate existence. * * * gy^ i^ ^yg dass of cases it would seem, 
 after all, that the courts have proceeded upon a rule of evidence 
 rather' than the strict doctrine of estoppel. They have treated the 
 contract with a party by name implying a corporation, really as evi- 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 103 
 
 dence of existence of a corporation, more than an estoppel to dis- 
 prove such fact." 
 
 This seems to us a just and reasonable exposition of the rule of 
 law applicable itl such cases. It is not to be presumed that a party 
 will contract and deal with a nonentity. It will be presumed to the 
 contrary as to him, that he did not. Stanly v. Railroad, 89 N. C. 331 : 
 Mor. on Pr. Corp. §§ 136, 138. 
 
 The objection that the corporation in question was sometimes 
 called the "Deep River Mining Company," and likewise, "Deep River 
 Copper Mining Co.," and othef like names, is not well founded. A 
 corporate name is essential, but the inadvertent or mistaken use of 
 the name, is ordinarily not material, if the parties really intended the 
 corporation by its proper name. If the name is expressed in the 
 written instrument, so that the real name can be ascertained from it, 
 this is sufficient ; but if necessary other evidence may be produced to 
 establish what corporation was intended. And the same rule applies 
 to devises and bequests to corporations. A misnomer of a corpora- 
 tion has the same legal effect as a misnomer of an individual. Deaf 
 & Dumb Inst. v. Norwood, 45 N. C. 65 ; Mor. on Pr. Corp. § 181, 
 and cases there cited. 
 
 The defendant likewise insisted that, admitting the Deep River 
 Mining Company was the source of title common to the plaintiff and 
 defendant, and was capable of holding and having title to the land 
 in question, the sheriff's deed to the defendant put in evidence, could 
 not so operate as to estop the latter from denying the title of the 
 company, and thus relieve the plaintiff from the burden of showing 
 title^out of the state, because, the evidence offered in respect to such 
 deed was mainly parol, and not the deed itself. 
 
 It is a well established rule of law, that when both the plaintiff 
 and the defendant claim the property in controversy under the same 
 person, neither of them can deny the right or title of the person 
 under whom they so claim ; and as between themselves, the one hav- 
 ing the elder has the better tijle and must prevail. The conclusion 
 thus established between the parties is not so strictly and technically 
 an estoppel, bu^ it is in the nature of and has the practical force and 
 effect of an estoppel. This rule of law is founded in justice and con- 
 venience, and its jiurpose is to prevent the necessity on the part of 
 the plaintiff in cases Hke this, of proving title, out of the state, and 
 a gpod title in the person under whom he claims, when the opposing 
 party claims the same property under the same person. If the de- 
 fendant has the same source of title as the plaintiff, and no other, 
 wherefore need the plaintiff go beyond th^t as to the defendant? 
 
 Such an inquiry would be idle. It is plain that no injustice in such 
 case could be done the defendant ; and if the rule were otherwise, it 
 might and would in many cases put the plaintiff to great inconven- 
 ience and much needless expense. This court has recognized and up- 
 
104 FORMATION (Ch, 2 
 
 held the rule in many cases.- Murphy v. Barnett, 6 N C. 251 ; Ives 
 V. Sawyer, 20 N. C. 179; Love v. Gates, 20 N. C. 498; Gilliam v. 
 Bird, 30 N. C. 280, 49 Am. Dec. 379; Johnson v. Watts, 46 N. C. 
 228; Thomas v. Kelly, 46 N. C. 375; Feimster v. McRorie, 46 N. 
 C. 547. * * * 
 No error. Affirmed. 
 
 SOCIETY PERUN v. CITY OF CLEVELAND. 
 
 SAME V. HAY. 
 
 (Supreme Court of Ohio, 1885. 43 Ohio St. 481, 3 N. E. 857.) 
 
 On January 28, 1874, the city of Cleveland conveyed to Perun (an 
 incorporated school and literary society) certain real estate situated 
 in that city, and, to secure the unpaid purchase money therefor, 
 Perun, on the same date, executed and delivered to the city its four 
 promissory notes and a mortgage upon the premises conveyed. The 
 city neglected to file this mortgage for record until October 21, 1879. 
 In February, 1874, certain persons attempted to organize a mutual 
 benefit association, under an act supplementary to an act to provide 
 for the creation and regulation of incorporated companies, passed 
 May 1, 1852, (Swan & C. St. 271,) passed April 20, 1872, (69 Ohio 
 Laws 82,) under the corporate name of "Society Perun." There- 
 after, in May, 1874, Perun delivered to Society Perun its deed pur- 
 porting to convey to the latter the premises theretofore mortgaged 
 to the city. From that time forward, and prior to the filing of the 
 city's mortgage for record, Society Perun, acting in its supposed 
 corporate capacity, from time to time executed and delivered deeds, 
 mortgages, and executory contracts of sale, purporting to CQuvey, 
 incumber, and sell parcels of these mortgaged, premises to various 
 parties, who were made defendants in the action below, and some of 
 whom (including Amasa Stone, a mortgagee, and who had paid tax- 
 es upon the premises mortgaged to him) are cross-petitioners in 
 error. 
 
 Thereafter, in June, 1880, in a proceeding in quo warranto in this 
 court, instituted by the attorney general. Society Perun was adjudged 
 not to have become incorporated in conformity to the laws of this 
 state, but that its pretended incorporation was in violation thereof; 
 and it was accordingly ousted of all rights and franchises to be a 
 corporation. These proceedings in quo warranto were had pending, 
 and prior to the final judgment in, the action below; which was 
 brought by the city to foreclose her mortgage, and also to foreclose 
 her supposed vendor's lien on the mortgaged premises, as against 
 these subsequent grantees, mortgagees, and purchasers. The cause 
 was appealed from the court of common pleas to the district court, 
 
Sec. 2) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 105 
 
 wherein it" was tried upon the issues ; the court finding, among other 
 things, that, as to the city of Cleveland, Society Perun was not a 
 corporation either in law or in fact, and that the conveyance to it by 
 Perun was void as against the city ; and that the mortgages and other 
 liens and claims of all the defendants (except the lien of Amasa 
 Stone for taxes, and the claims of certain defendants for improve- 
 ments on the premises) were subsequent and inferior to the lien of 
 the city, in whose favor the court adjudged the second hen, and sub- 
 sequent only to the lien of Amasa Stone for taxes paid by him, but of 
 equal rank and merit with the holders of liens for expenditures on 
 account of improvements above mentioned. 
 
 By the judgment in the quo warranto proceeding it was by this 
 court in form adjudged that the defendants, (the pretended incorpo- 
 rators,) ever since their pretended incorporation, had unlawfully and 
 without authority exercised the franchise of, and usurped the right to 
 be, a body corporate; that the pretended organization of these de- 
 fendants as a corporation was wholly void and of no effect, and 
 vested in them no corporate rights, powers, privileges, or franchises 
 of any description whatever. * * * f ^e sole ground upon which 
 this judgment of ouster was rendered, was that while the statute re- 
 quired that they should set forth in their certificate of incorporation 
 (among other things) the manner of carrying on the business of the 
 association, the attempted compliance with this requirement was in 
 these words : "Third. That the manner of carrying on the business 
 of said association shall be such as may be from time to time pre- 
 scribed by the by-laws of such association: provided, that the same 
 shall not be inconsistent with the laws of the state of Ohio." 
 
 Upon the trial below the plaintiff gave in evidence, against the ob- 
 jection of defendants, the record of the quo warranto proceedings. 
 The defendants offered in evidence the writing which was filed with 
 the secretary of state as the certificate of incc«:poration of Society 
 Perun. They also offered to prove that the pretended incorpora- 
 tors proceeded to comply strictly with requirements of the statutes; 
 that they elected trustees, prepared a certificate of incorporation 
 stating explicitly the manner of carrying on the business; that this 
 was forwarded to the secretary of state, who submitted it to the at- 
 torney general for examination and approval; that the secretary 
 of state returned this paper with another form of certificate, which 
 had been approved by the attorney general and secretary of state, and 
 which was the identical certificate actually filed with the secretary 
 of state, and under the supposed authority of which an organization 
 was in good faith attempted, and that they proceeded in' good faith 
 to act and transact its business under the supposed authority of 
 such incorporation. All this was excluded, and the defendants ex- 
 cepted. To reverse this judgment the present proceeding is pros- 
 ecuted. 
 
106 FORMATION (Ch. 2 
 
 The alleged errors chiefly relied upon are the exclusion of the evi- 
 dence offered to prove an attempt, in good faith, to incorporate Socie- 
 ty Perun; the finding and holding of the court that Society Perun had 
 never been, in law or fact, a corporation; that as against the city 
 the deed from Perun was void; and adjudging the city's lien to be 
 prior to the rights and liens of Society Perun and its mortgagees, 
 grantees, and purchasers. ^^ , 
 
 Owen, J.'* The defendants below, conceding that Society Perun 
 had never been a corporation de jure, maintain that the court below 
 should have permitted them to prove that such society was a de facto 
 corporation; that it attempted in good faith to become a body cor- 
 porate; proceeded to act and transact business in good faith under 
 the supposed authority of incorporation; and that its acts ought not 
 to have been declared to be wholly void as against the city of Cleve- 
 land. The judgment of ouster was an adjudication between the state 
 and the society upon the right of the latter to exercise coirporate 
 franchises. For the purposes of such adjudication, it was competent 
 for this court to consider and determine what had been its status 
 from, its first attempt to incorporate. But it had no power to pass 
 upon or determine the rights of parties not before it. It was not 
 competent for this court to determine in that proceeding that Society 
 Perun had never been a corporation de facto, or that its acts and 
 business transactions, under the color of its supposed charter powers, 
 were void. The authority of the court in that behalf was derived 
 from section 6774, Rev. St., which provides: "When a defendant is 
 found guilty of usurping, intruding into, or unlawfully holding or 
 exercising an office, franchise, or privikge, judgment shall be ren- 
 dered that such defendant be ousted and altogether excluded there- 
 from, and that the relator recover his costs." 
 
 Wh^n the court had excluded thie society from its franchises to be 
 a corporation, it extiausted its jurisdiction over the subject-rftatter. 
 It had no power to speak concerning whatever rights may have been" 
 acquired by the society as a corporation de facto, or by third par- 
 ties in their transactions with it as an acting corporation. It is con- 
 ceded by the city that parties who had recognized the existence of the 
 society by their transactions with it as a supposed corporation are 
 estopped to deny its corporate existence. But it is maintained that 
 the city having engaged in no transactions with it, is free to challenge 
 its existence as a corporation, de facto as well as de jure. The ar- 
 gument is that "lio case can be found where it is held that there is a 
 corporation de facto against persons who have in no way recognized 
 its existence as a corporation;" and that "the notion of a de facto 
 corporation is based on the doctrine of estoppel; when estoppel 
 cannot be invoked, there can be no de facto corporation." The the- 
 ory that a de facto corporation has no real existence, that it is a 
 
 28 statement of facts abridged. "* A part of the opinion is omitted 
 
Sec. 2) EKFECT OF FAILUKE TO COMPLY WITH THE STATUTE 107 
 
 fnere phantom, to be invoked only by that rule of estoppel which for- 
 bids a party who has dealt with a pretetided corporation >to deny its 
 corporate existence, has no foundation, either in reason or authority. 
 A de facto corporation is a reality. It has an actual and substan- 
 tial legal existence. It is, as the term implies, a corporation. "It is 
 a self-evident proposition that a contract cannot be made with a- cor- 
 poration unless the corporation be in existence at the time. A real 
 contract with an imaginary corporation is as impossible, in the nature 
 of things, as a real contract with an iinaginary person. It is essen- 
 tial, therefore, in order to establish the existence of a contract with 
 a corporation, to show that the corporation was in existence, at least 
 de facto, at the time the contract was made." Mor. Priv. Corp. § 
 137. It is bound by all such acts as it might rightfully perform as 
 a corporation de jure. Where it has attempted, in good faith, to 
 assume corporate powers; where its proceedings in that behalf are 
 colorable, and are approved by those officers of the state who are 
 authorized to act in that regard ; where it has honestly proceeded for 
 a number of years, without interference from the state, to transact 
 business as a corporation; has been reputed and dealt with as a 
 duly-incorporated body, and valuable rights and interests have been 
 acquired and transferred by it, — no substantial reason is suggested 
 why its corporate existence, in a suit involving such transactions, 
 ■ should be subject to attack by any other party than the state, and 
 then only when it is called upon, in a direct proceeding for that pur- 
 pose, to show by what authority it assumes to be a corporation. * * * 
 Did the court err? This fairly presents the controlling and very 
 important question: Was it competent to show, as against a party 
 who was not estopped to deny its' corporate existence, that Society 
 Perun was, at the time of the transactions involved in controversy, 
 a corporation de facto? In Attorney General v. Stevens, 1 N. J. Eq. 
 369, the relator sought to enjoin-the Camden & Amboy Railroad & 
 Transportation Company, and others acting under its authority, from 
 erecting a bridge over a navigable stream. The claim was that the 
 act authorizing the corporation had been perverted and disregarded, 
 and that there was no legal incorporation. The relators were in no 
 , , manner estopped from attacking the corporate existence of the re- 
 
 spondent. The court held: "Where a set of men claiming to be a 
 fif/ /' / / legally incorporated company, under an act, of the legislature, have 
 '•^•''■' done everything necessary to constitute them a corporation, colora- 
 
 bly, at least, if not legally, and are exercising all the powers and 
 functions of a corporation, they are a corporation de facto, if not de 
 jure ; and this court will not interfere, in an incidental way, to declare 
 all their proceedings void and treat them as a body having no rights 
 or powers." 
 
 The chancellor, speaking for the court, said: "Here, then, is a, set 
 of men, claiming to be a legally incorporated company, under the 
 
108 FORMATION (Ch. 3 
 
 act of the legislature, exercising all the powers and functions of a 
 corporation. They are a corporation de facto, if not de jure. 
 Everything necessary to constitute them a corporation has been 
 done, colorably, at least, if not legally ; and I do not feel at liberty, 
 in this incidental way, to declare all their proceedings void, and treat 
 them as a body having no rights or powers. It has been seen that 
 the court will not do this where a corporation properly oi-ganized 
 has plainly forfeited its privileges; and there is but Uttle difference 
 in principle between, the two cases. In both, the corporation is ac- 
 tually in existence, but whether legally and rightfully so is the ques- 
 tion. And it appears to me that if the court can take cognizance of 
 the matter in this case, it must in all others where it can be brought 
 up not only directly but incidentally." ' 
 
 This case is approved and followed in National Docks R. Co. v. 
 Central R. Co., 32 N. J. Eq. 755, which held: "Where a corpora- 
 tion exists de facto, the court of chancery cannot, at the instance of 
 private parties, restrain its operations upon the ground that its or- 
 ganization is not de jure. In such case the proper remedy is by quo 
 warranto, or information in the nature thereof, instituted by the 
 attorney general." 
 
 The rule of estoppel found no place in this case. In Stockton & 
 L. G. R. Co. V. Stockton & C. R, Co., 45 Cal. 680, it was held that 
 "if a corporation de facto is in the actual possession of a public 
 highway, under a grant of a franchise to improve and collecl: tolls 
 on the same, a mere trespasser cannot justify his entry thereon on 
 the ground that it was only a corporation de facto, and was not de 
 jure entitled to the franchise." In Williamson v. Kokomo, B. & L. 
 F. Ass'n, 89 Ind. 389, one Leach' gave to an acting corporation his 
 mortgage, on real estate. Subsequent to the execution and record- 
 ing of it, he executed another mortgage on the same land to Wil- 
 liamson. In a proceeding to. foreclose the junior mortgage, William'- 
 son maintained that the pretended corporation had no legal exist- 
 ence, by reason of defects and omissions in the proceeding to incor- 
 porate, and that the senior mo,rtgage was void. He was in no man- 
 ner estopped by dealings with, or recognition of, the first mortgagee 
 to deny its corporate existence. The court held that "a junior mort- 
 gagee cannot defeat a senior mortgage by showing that the corpora- 
 tion to which the senior mortgage was executed was defectively or- 
 ganized, if it be a corporation de facto." Elliott, J., said: "Where 
 persons assume to incorporate under the laws of the state, and in 
 part comply with their requirements, assume corporate functions, 
 and transact business as a corporation, private persons cannot col- 
 laterally question the right of such an association to a corporate ex- 
 istence, although there has not been a full compliance with the pro- 
 visions of the statute. Baker v. Nefif, 73 Irid. 68. This rule is not 
 
Sec. S) EFFECT OF FAILURE TO COMPLY WITH THE STATUTE 109 
 
 limited to cases where one by contract admits corporate existence, 
 but is a rule of general application." 
 
 It is not easy to distinguish the principle of this case from that of 
 the case at bar. In Pape v. Capitol Bank, 20 Kan. 440, Pape and 
 wife gave their notes to "James M. Spencer or^ bearer," and their 
 mortgage on real estate to secure them. Spencer transferred the 
 notes to the Capitol Bank of Topeka, an acting- corporation, with this 
 indorsement: "Pay the bearer, without recourse on me. James M. 
 Spencer." The mortgage was also transferred to the bank, which 
 proceeded by suit to collect the notes and foreclose the mortgage. 
 Pape and- wife interposed the defense that the bank was not, and 
 never had been, a body corporate, by reason (among others) of a de- 
 fective organization. The bank had assumed corporate functions 
 after an attempt, in good faith, to incorporate, and for a number of 
 years was in the actual and notorious exercise of corporate fran- 
 chises. Pape had transacted banking business with the plaintiff prior 
 to the purchase of the notes and mortgage, but such business was 
 wholly unconnected with the notes 'and mortgage in suit. His wife, 
 however, had not in any manner recognized the existence of the 
 bank as a corporate body, and the doctrine of estoppel was not in- 
 voked to aid the court in sustaining a judgment of foreclosure 
 against Pape and wife. Brewer, J., says : "The corporation is one de 
 facto ; and only the state can inquire, and that in a direct proceeding, 
 whether it be one de jure. * * * There must in such cases be 
 a law under which the incorporation can be had ; there must -also 
 be an attempt in good faith on the part of the corporators to incor- 
 porate under such law; and when, after this, there has been for a 
 series of years an actual, open, and notorious exercise, unchallenged 
 by the state, of the powers of a corporation, one who is sued on a 
 note held by such corporation will not be permitted to question the 
 validity, of the incorporation as a defense to the action. No mere 
 matters of technical omission in the incorporsttion, no acts of forfei- 
 ture for misuser after the incorporation, are subject to inquiry in 
 such an action. This is not upon the ground of equitable estoppel, 
 but upon grounds of public policy. If the state, which alone can 
 grant the authority to incorporate, remains silent during the open 
 and notorious assertion and exercise of corporate powers, an in- 
 dividual will not, unless there be some powerful equity on his side, 
 be permitted to raise the inquiry." 
 
 In Thompson v. Candor, 60 111. 244, Willetts, in February, 1858, 
 deeded to "Mercer Collegiate Institute," a body pretending to be a 
 corporation, the tract of land in controversy. He died in March, 
 1858. In 1868 his heirs quitclaimed their interest in the land to 
 Thompson, who^ filed a bill in chancery for the cancellation of the 
 deed from Willetts to the "Institute;" alleging as one of the grounds 
 of relief that the named grantee was not legally incorporated, had 
 
110 FORMATION (Ch. 2 
 
 no capacity to take title, and that the deed was void. The court held : 
 "Where parties endeavored to organize a corporation for educational 
 purposes, under the general law, adopt a name, elect trustees, and 
 organize by electing a president and officers, and the trustees had 
 acted for years in managing the property, had leased and mortgaged 
 it, and expended a large sum of money in its improvement, these acts 
 constitute it a corporate body de facto, and the regularity of its 
 organization cannot be questioned collaterally. Such irregularity 
 can only be questioned by quo warranto or scire facias." Thornton, 
 J., says : "In 1856 an attempt was made to organize a corporation 
 under the general incorporation law. A corporate name, was se- 
 lected, trustees were appointed, and an organization effected by the 
 election of a president and proper officers. The trustees thus ap- 
 pointed acted for years in the general management of the property, 
 leased and mortgaged it, and expended a large amount of money. 
 Here, then, was a corporate body de facto which had been engaged 
 in an undertaking involving important interests. The regularity of 
 its organization cannot be questioned collaterally. Any alleged non- 
 compliance with the law can only be inquired into by the writ of 
 quo warranto or scire facias." 
 
 There is no suggestion throughout the entire case of the rule of 
 estoppel as an element affecting its disposition. In Persse v. Willett, 
 1 Robt. (N. Y.) 131, it is held that formal defects in proceedings to 
 organize a corporation are not available to defeat an action brought 
 by s! corporation for trespass in wrongfully taking property out of 
 its possession. See, also, as illustrating the principle under discus- 
 sion: Smith V. Sheeley, 12 Wall. 361, 20 L. Ed. 430; Grand Gulf 
 Bank v. Archer, 8 Smedes & M. (Miss.) 151, 173; Dunning v. Rail- 
 road Co., 2 Ind. 438; Dannebroge Min. Co-, v. Aliment, 26 Cal. 
 286; Searsburgh Turnpike Co. v. Cutler, 6 Vt. 315; Mitchell v. 
 Deeds, 49 111. 416; Elizabeth City Academy v. Eindsey, 28 N. C. 476, 
 45 Am. Dec. 500; Darst v. Gale, 83 111. 136; Rondell y. Fay, 32 
 Cal. 354; Dewitt v. Hastings, 40 N. Y. Super. Ct.'463; Rice v. 
 Railroad Co., 21 111. 93 ; Commissioners v. Bolles, 94 U. S. 104, 24 
 E. Ed. 46; Banks v. Poitiaux, 24 Va. 136, IS Am. Dec. 706; Goun- 
 die V. Water Co., 7 Pa. 233 ; Baker v. Backus, 32 111. 79 ; Tarbell 
 V. Page, 24 111. 46; Thornburgh v. Railroad Co., 14 Ind. 499; Tar 
 River Nav. Co. v. Neal, 10 N. C. 520; Bear Camp River Co. v. 
 Woodman, 2 Greenl. (Me.j 404. 
 
 In Jones v. Dana, 24 Barb. (N. Y.) 395, it was held that if a com- 
 pany has in form a charter authorizing it to act as a body corpo- 
 rate, and is in fact in the exercise of corporate powers at the time 
 of taking a note from an ■ individual, it is, as to him and all third 
 persons, a corporation de facto, and the validity of its corporate ex- 
 istence can only be tested by proceedings in behalf of the people. 
 
 In the case at bar, the certificate which was last filed by the society 
 
Sec. 2) EFFECT OF FAILURE TO COMPL'i WITH THE STATUTE 111 
 
 embraced a full statement of the objects of incorporatron and in- 
 dicated what the nature of its business must necessarily be, and was 
 sttongly suggestive of the manner in which it must necessarily be 
 transacted; and while it is not our purpose to call in question the 
 action of this court in the quo warranto .proceedings, we have no 
 hesitation in saying that if we were now called upon to determine 
 whether the corporate life of Society Perun should be taken, the 
 question, upon the facts oflfered in proof, would not be free from 
 doubt and difficulty. It is very clear that the proceedings to incor- 
 porate were colorable ; and so far as this fact is a test of the exist- 
 ence of a corporation de facto, it is most amply established. That 
 there was proof of user is manifest from the evidence, which was 
 received without objection. That the judgment of ouster did not 
 ■and could not have a retroactive effect upon the rights of the society, 
 and^of the parties who had dealt with it during its de facto existence, 
 is suggested by the opinion of Wright, J., in Gaff v. Plesher, 33 Ohio 
 St. 115. The evidence which was offered and excluded would, if 
 credited, have shown Society Perun capable of holding and trans- 
 ferring the legal title to the lands in controversy. Walsh v. Barton, 
 24 Ohio St. 43; Darst v. Gale, 83 111. 136; Shewalter v. Pirner, 55 
 Mo. 218 ; National Bank v. Matthews, 98 U. S. 628, 25 L. Ed. 188 ; 
 Goundie v. Water Co., 7 Pa. 233 ; Barrow v. Nashville, etc., Co., 9 
 Humph. (Tenn.) 304; Kelly v. People's Transp. Co., 3 Or. 189; 
 Bogardus v. Trinity Church, 4 Sandf. Ch. (N. Y.) 758. ' 
 
 The public and all persons dealing w^th the society were justified 
 in assuming that the certificate filed with the secretary of state, and 
 by him admitted to record in his office, had been approved by hi^n 
 and also by the attorney general, as required by statute, (69 Ohio 
 L. 150,) and that it so far conformed to all legal requirements that, 
 as provided in section 2 of the act Of incorporation, (69 Ohio L,aws, 
 80,) "a copy duly certified by the secretary of state, under the great 
 seal of the state of Ohio, shall be evidence of the existence of such 
 association." It would seem that such approval, record, and cer- 
 tificate, followed by uninterrupted and unchallenged user for nearly 
 six years, of all of which proof was tendered, would constitute a 
 corporation de facto, if such a body is, under any circumstances, en- 
 titled to legal recognition. The highest considerations of public, pol- 
 icy and fair dealing protest against treating such an organization 
 as a nullity and all of its transactions void. 
 
 The principle of these cases is to be distinguished from a case 
 , where a mere corporation de facto attempts to assert the power of 
 eminent domain by the appropriation of private property to public 
 use. It has been held that the exercise of this right (which is but 
 a delegation of the sovereign power of the state) depends upon the 
 sufficiency, and legal validity of the certificate of incorporation and 
 public record of its organizatioh. Railroad Co. v. Sulhvant, 5 Ohio 
 
112 . . FORMATION (Ch. 2 
 
 St. 276; Atkinson v. Railroad Co., 15 Ohio St. 21. The case of 
 Raccoon River Nav. Co. v. Eagle, 29 Ohio St. 238, is relied upon 
 by the defendant in error. It was an action to recover upon a stock 
 subscription. A plea of nul tiel corporation was interposed. The 
 plaintiff claimed to be organized under an act to authorize the incor- 
 poration of companies "for the purpose of improving any stream 
 of water * * * declared navigable by any law of the state of 
 Ohio." On the trial the plaintifiE offered in evidence a certificate by 
 which it appeared that the company was formed for the purpose 
 of improving, etc.. Big Raccoon river. Unfortunately, there was no 
 navigable stream in Ohio by that name. No other testimony was 
 offered. There was no proof of user. There was no defect in the 
 form of the proceedings to incorporate, but an attempt to organize 
 and incorporate for a purpose impossible of accomplishment. There 
 was neither a de jure nor de facto corporation. Judgment was prop- 
 erly rendered for defendant. 
 
 In excluding proof of what was actually done, looking to the in- 
 corporation of Society Rerun, and of the subsequent acts of user, 
 which was offered in evidence, there was error, for which the judg- 
 ment in the first entitled case (as well as that in the Same Plaintiff 
 V. Hay and others, which was tried with it, and involves the same 
 general questions) is reversed. Numerous other questions are pre- 
 sented by the voluminous records in these cases, but as they all de- 
 pend upon the one central and controlling question discussed above, 
 and as the disposition here made of the cases must lead to a retrial 
 in the light of the principles indicated in this opinion, they are not' 
 separately considered. Judgment reversed. 
 
 SECTION 3.— SUBSCRIPTION TO STOCK 
 
 THRASHER v. PIKE COUNTY R. CO. 
 
 (Supreme Court of Illinois, 1861. 25 111. 393.) 
 
 This was an action of assumpsit, by the Pike County Railroad 
 Company- against Charles Thrasher, upon an agreement to subscribe 
 for stock in the plaintiff corporation. * * * ^ jury was waived 
 and a trial had by the court, who found the issues for the plaintiff, 
 and, refusing a motion for a new trial, rendered judgment against 
 the defendant for $3,000 and costs. The opinion of the court states 
 • the other material facts of the case.^' 
 
 2 5 Statement of facts abridged. 
 
Sec. 3) SUBSCRIPTION TO STOCK 113 
 
 I Breese, J.*' The appellee, who was plaintiff in the court below, 
 urges several reasons justifying a recovery in this case, which it is 
 necessary to notice. The declaration contains a special count, aver- 
 ring, that on the nineteenth of March, 1856, the plaintiffs were a 
 body politic and corporate, with power to construct and operate a 
 railroad within the county of Pike, and authorized by law, as such 
 corporation, to secure subscriptions to the capital stock of the com- 
 pany to the amount of one million of dollars, in shares of one hun- 
 dred dollars each, and, desiring to ascertain what amount of stock 
 would be sjjbscribed, and not having opened regular subscription 
 books, but intending so to do, agreed with the defendant that they 
 would, in a reasonable time thereafter, open books for the purpose 
 of securing such subscriptions, and that they would permit and allow 
 the defendant, when the book should be opened, to subscribe to the 
 capital stock of the company thirty shares of one hundred dollars 
 each, and upon payment therefor, the defendant should be the owner 
 of thirty shares of the capital stock of the company. It is then aver- 
 red, that the defendant, in consideration of this promise, undertook 
 and promised the plaintiff that he would subscribe to the stock of 
 this company the sum oiC three thousand dollars, when the books 
 should be opened for subscriptions; that this promise was by a 
 writing, signed by the defendant, and by him delivered to the plain- 
 tiff. It is then averred, that on the same day, subscription books 
 to the capital stock of the company were opened, of which the de- 
 fendant had notice. The breach is, that the defendant neglected and 
 refused to subscribe anything to the capital stock, accompanied by 
 an averment that the subscription, when the books were opened, was 
 due and payable before the commencement of the suit, and although 
 notified thereof, the defendant has refused to pay any part of the 
 sum of three thousand dollars. The common counts are added, in 
 one of which the indebtedness is alleged to be for one hundred shares 
 of the stock of the Pike County Railroad, before that time bargained 
 and sold to the defendant. 
 
 This is the cause of action as set forth by the plaintiffs, and it is 
 claimed by them, that they are entitled to recover as damages the 
 par value of the stock, or the amount of calls made from time to 
 time upon it, and which, at the commencement of the suit, amounted 
 to fourteen installments, of five per cent each, making, in all, twenty- 
 one hundred dollars. 
 
 This, we do not think, is a fair view of the defendant's liability 
 upon his promise, if one was made to the plaintiffs. His under- 
 taking is, to subscribe a certain amount of stock, when the subscrip- 
 tion books should be opened. This promise does not make him a 
 stockholder, ^nd, as such, liable to calls. The company has parted 
 
 *8 A part of the opinion is omitted. 
 
 BICH.COBP. — 8 
 
114 FORMATION , (Ch. t 
 
 with no stock to him, and can only claim as damages, the actual 
 loss sustained by them by his failure, or refusal to subscribe, when 
 he was notified the books were opened for such purpose. The com- 
 pany has the stock which the defendant promised to take, but did 
 not take. His promise is like any other promise, or agreement to 
 purchase any specific article of property. If the property contracted 
 for be retained by the vendor, and there is no delivery to the pur- 
 chaser, or offer to deliver, the damages must not be measured by 
 the value of the property; for it would not be just, in such cases, 
 that the vendor should retain the property, and recover, also, the 
 value of it from the promisor. Some damage might result from the 
 loss of a bargain, and to such the vendor would be entitled, if the 
 extent could be established. In many cases, they would be rnerely 
 nominal. On an agreement for the sale and purchase of stocks, and 
 a refusal by the purchaser to take the stocks, the measure of dam- 
 ages, ordinarily, might be the difference between the par value of , 
 the stocks and their market value, or between them and money. As 
 well argued by the appellant, the defendant having violated his prom- 
 ise by failing to subscribe, he has acquired no right to stock; nor 
 could a recovery in this action entitle him to become a stockholder. 
 The company retains its stock, and the defendant his money. A 
 stock certificate of three thousand dollars would represent a value 
 to the company equivalent to so much money, and, in a statement 
 of their liabilities, this would appear against the company as so much 
 held by the stockholders, for which the company was responsible. 
 If there is no actual subscription, the company does not incur this 
 liability. 
 
 There being no special damages alleged, or proved, we do not 
 think the plaintiffs could recover under this declaration, as they have 
 done, the par value of the stock the defendant promised and agreed 
 to take. A proper count might doubtless be so framed as to jflstify 
 a full recovery, under sufficient proof. * * * Judgment reversed. 
 
 NORTH MISSOURI R. CO. v. MILLER et al. 
 
 (Supreme Court of Missouri, 1860. 31 Mo. 19.) 
 
 The plaintiff in her petition sets forth that the defendants executed 
 an agreement in writing, dated July 21, 1856, which is set forth be- 
 low in the opinion of the court, by which they bound themselves 
 to subscribe to the capital stock of the plaintiff certain sums; that 
 the plaintiff located the depot in compliance with the condition of 
 said agreement. The breaches assigned are that the .defendants did 
 not subscribe as agreed ; that they did not pay to the plaintiff the 
 sums agreed. 
 
 / 
 
Sec. 3) , SUBSCRIPTION TO STOCK 115 
 
 At the trial the said agreement was introduced in evidence. The 
 sum set opposite the names of defendants, who signed as partners, 
 was five hundred dollars. It was also shown that a depot was located 
 b}^ the plaintiff on the lands of Diggs near High Hill, and is now 
 used by the plaintiff. The cause was tried by the court without a 
 jury. The court rendered judgment in favor of the plaintiff. 
 
 Henderson, for plaintiff in error. 
 
 I. The contract was a mere agreement to subscribe. If the con- 
 tract has been broken, the only remedy is in damages for a failure 
 to subscribe. The location of the depot is not the entire consider- 
 ation, but upon the location they would subscribe. The fourth in- 
 struction asked should therefore have been given. It should appear 
 that the company assented to the contract. The location of the de- 
 fendant is not evidence of such assent. Barcus v. Hannibal, R. C. & 
 P. Plank Road Co., 26 Mo. 102. The company still holds the stock 
 for sale. There was no evidence that the stock was worth less than 
 par. There are no damages beyond a nominal sum. 
 
 EwiNG, J. The material question in this case is whether the in- 
 strument, which is the foundation of the suit, is an actual subscrip- 
 tion to the capital stock of the company or a mere agreement to 
 subscribe thereafter. It reads as follows : "We, the subscribers, 
 bind and obligate ourselves to subscribe to the capital stock of the 
 Nor^h Missouri Railroad Company the sums set opposite our names, ' 
 one-half of' the amount to be paid in six months, and one-half in 
 twelve months from this date, on condition that a depot is located 
 on the lands of John F. Diggs, which adjoins High Hill. This 
 subscription is made to comply with the terms on which the directors 
 of said company have made the location of a depot on said Diggs' 
 land." The instrument bears date July .21, 1856, and purports to be 
 signed by a number of persons, among whom are the defendants. 
 If the introductory and more formal words of the instrument, taken 
 literally, might contemplate a future subscription, we think it is 
 manifest, from a view of the whole instrument, that an actual sub- 
 scription was intended, and that such is the legal effect of the under- 
 taking. That clause of the writing which, purports to be explanatory 
 of its objects, and which therefore is more truly expressive of its 
 intent than any other, says; "This subscription is made to comply 
 with the terms on which the directors of said company have made 
 the location of a depot," &c. — thus clearly excluding the idea of 
 a mere agreement to subscribe stock at a future period. The clause 
 relating to the payments also sustains this construction. If it were 
 a mere agreenjient of the kind contended for, why the stipulation to 
 pay the money within a given time from the date of the instrument, 
 one-half the sum in six and the remainder in twelve months? No 
 corresponding limit is imposed on the company as to the fulfillment 
 of the condition on their part; no right of action could accrue to 
 
116 FORMATION (Ch. 2 
 
 it until the depot was located ; and yet the subscribers have obliged 
 themselves to pay the sums promised within a specified period, with- 
 out exacting from the company the performance of the condition 
 (which creates the liability to pay) before such payment is to be 
 made. This stipulation is consistent only with the idea of an actual 
 subscription in prsesenti. This interpretation of the instrument dis- 
 poses of the questions arising upon the instructions. 
 
 As to the assent of the company to the terms of the instrument, 
 which it is maintained is not shown, it is' only necessary to observe 
 that the directors represent the corporation, and the contract pur- 
 ports to have been entered [into] with them, and on a sufficient 
 consideration, respecting a matter within the scope of their powers. 
 The subscription, which was conditional, has become absolute by the 
 location of the depot at the place designated in the instrument. 
 Judgment affirmed ; the other judges concurring. 
 
 BRYANT'S POND STEAM-MILL CO. v. FELT. 
 
 (Supreme Judicial Court of Maine, 1895. 83 Me. 234, 32 Atl. 888, 33 L. R. A. 
 593, 47 Am. St. Rep. 323.) 
 
 This was an action of assumpsit by Bryant's Pond Steam-Mill 
 Company against John G. Felt, brought to recover of the defendant 
 the sum of $200, as appeared by his alleged subscription upon an 
 original subscription book, and upon the outer cover of which was 
 the following writing : "Subscrip|;ion f©r a steam mill to be erected 
 at or near Bryant's Pond." 
 
 The original agreement was as follows: "We, the undersigned, 
 hereby agree to pay for the number of shares set opposite our names, 
 — said shares to be ten dollars each, and nonassessable, — fou the 
 purpose of erecting suitable buildings, with steam power, for the 
 manufacturing of the various kinds of wood to be used in the con- 
 tract of one C. H. Adams ; he paying three per cent, annually as 
 rent on all money so paid; said moneys to be paid when needed 
 for the purpose above named, — providing the town will abate taxes 
 On said buildings and stock for the term o^ ten years." 
 
 Plea, general issue, and the following brief statement: "And for 
 a brief statement of special matter of defense, to be used under the 
 general issue pleaded, the defendant further says that said defendant 
 never subscribed for, nor promised to pay for, any shares in the 
 said Bryant's Pond Steam-Mill Company; that the signature of 
 said defendant was procured and affixed to said paper declared on, 
 if at all, on .Sunday, and whatever contract was made, if any, was 
 made on Sunday, and therefore void; that subsequent to the time 
 his said name was affixed to said paper, and prior to the commence- 
 ment of this suit, and prior to the organization of this company, 
 
Sec. 3) SUBSCRIPTION TO STOCK 117 
 
 this defendant revoked said subscription, and notified the plaintiff and 
 the solicitors for said stock that he should not accept the same, and 
 requested his name stricken from the list of subscribers ; that no per- 
 son is named in said subscription paper as payee, and no contract 
 was ever entered into with any {ierson or persons; that no sum is 
 named in said paper declared upon as a limit to the amount to be 
 raised and is indefinite and uncertain; that a sufficient sum was not 
 raised or subscribed for erecting buildings with steam power for the 
 manufacturing of the various kinds of wood, as alleged, and plain- 
 tiff was obliged to and did mortgage the property to complete the 
 amount; that, at the time the plaintiff company pretended to or- 
 ganize, this defendant was not recognized as a subscriber, did not 
 piarticipate in the organization, and is not named therein as one of 
 the subscribers to the stock of the same; that there were conditions 
 attached to said subscription paper which are essential to be per- 
 formed, and which have never beeii performed, on the part of this 
 plaintiff, or any other parties interested in said subscription, or on 
 the part of the town of Woodstock; that said paper, purporting to 
 be a subscription of shares of stock, is without consideration and 
 void." 
 
 Judgment for defendant. 
 
 Walton, J.^' The only question we find it necessary to consider 
 is whether a subscriber to the capital stock of an unorganized cor- 
 poration has a right to withdraw from the enterprise, provided he 
 exercises the right before the corporation is organized and his sub- 
 scription is accepted. We think he has. Such a subscription is not 
 a completed contract. It takes two parties to make a contract. A 
 nonexisting corporation can no more make a contract for the sale 
 of its stock than an unbegotten child can make- a contract for the 
 purchase of it. 
 
 The right of subscribers to the capital stock of a proposed corpo- 
 ration to withdraw their subscriptions at any time before the organiza- 
 tion of the corporation is completed has. been affirmed in several re- 
 cent and well-considered opinions. The right rests upon the im- 
 pregnable ground of the legal impossibility of completing a contract 
 between two parties, only one of which is in existence. There can 
 be no meeting of the minds of the parties. There can be no accept- 
 ance of the subscriber's proposition to become a stockholder. There 
 can be no mutuality of rights or obligations. There can be no con- 
 sideration for the subscriber's promise. As said in one of our own 
 decisions, it is a mere nudum pactum, — a promisor without a prom- 
 isee; a contractor without a contractee. In fact, every element of 
 a binding contract is wanting. If the subscriber's promise to take 
 and pay for shares remains unrevoked till the organization of the 
 proposed corporation is effected and his promise has been accepted, 
 
 27 A part of the opinion is emitted. 
 
118 ' FOEMATION (Ch. 2 
 
 then we have all the elements of a valid contract: Competent par- 
 ties ; mutuality of duties and obligations ; a valid consideration, the 
 promise of one party being a sufficient consideration for the promise 
 of the other; a promisee as well as a promisor; a contractee as 
 well as a contractor. In fact, all the elements of a valid contract are 
 present, and the subscription has become binding upon both of the 
 parties. But, till the corporation has come into existence, all these 
 elements are necessarily wanting; and the subscriber's promise 
 amounts to no more than an offer, which, like all mere offers, , may 
 be withdrawn at any time before acceptance. When accepted, it 
 becomes binding. Till accepted, it remains revocable. This conclu- 
 sion is sustained by reason and authority. * * * 
 
 It is urged by the counsel for the plaintiff corporation that such 
 subscriptions create binding and enforceable contracts between the 
 subscribers themselves, and are therefore irrevocable, except with 
 the consent of all the subscribers, and some of the authorities cited 
 by him seem to sustain that view. But we find on examination that 
 such views, when expressed, are in most cases mere dicta, and that 
 the cases are very few in which such a doctrine has been acted upon. 
 Reason and the weight of authority are opposed to such a view. Of 
 course, subscription papers may be so worded as to create binding 
 contracts between the subscribers themselves. But we are not now 
 speaking of such subscriptions, or of voluntary and gratuitous sub- 
 scriptions to public or charitable objects, which, when accepted and 
 acted upon, become binding. We are now speaking only of subscrip- 
 tions to the capital stock of proposed business corporations. With 
 regard to such subscriptions, we regard it as settled law that they 
 do not become binding upon the subscribers till the corporations have 
 been organized, and the subscriptions accepted, and that till then the 
 subscribers have a right to revoke their subscriptions. And iij view 
 of the fact that such subscriptions are often obtained by overpersua- 
 sion, and upon sudden and hasty impulses, we are not 'prepared to' 
 say that the rule of law which allows such a revocation is not founded 
 in wisaom. We think it is. * * * 
 
 Other grounds are urged in defense of the action, but it is un- 
 necessary to consider them. Judgment for defendant. 
 
 GLENN V. BUSEY. 
 
 (Supreme Court of tlie District of Columbia, 1886. 5 Mackey, 2.33.) 
 
 Cox, J."* * * * lu the declaration in this suit, the averment 
 
 is that the defendant's testator was a subscriber to the capital stock, 
 
 and undert9ok and promised to pay the said company, for each and 
 
 every share so subscribed, the sum of $100, etc. Then it goes on to 
 
 28 A part of the ojiinion Is omitted. 
 
Sec. Sy SUBSCRIPTION TO STOCK 119 
 
 set up the assignment made by the express company to the trustees, 
 and avers that the defendant's testator assented and agreed to said 
 deed of trust and thereby becarrie bound, and undertook and prom- 
 ised to pay said trustees for each and -every share of stock above 
 stated subscribed for by him, a balance of over $100 on each share 
 of stock, etc. Then it goes on to recite also the decree in the Rich- 
 mond court and thfe substitution of the plaintiff for the original 
 trustees. 
 
 The declaration was demurred to. Of course this admitted all the 
 facts stated in it, and the demurrer was overruled. The cause was 
 then brought to issue by filing a general issue and several other spe- 
 cial pleas, and comes here to be decided in the first instance upon an 
 agreed statement of facts. The ground of the defendant's alleged 
 liability is a stock subscription signed by her testator in the follow- 
 ing form, viz. : "We, the undersigned, hereby subscribe the amount 
 and the number of shares opposite our names to the stock of the Na- 
 tional Express Company, and bind ourselves, our heirs, etc., to pay 
 said arnount in such installments as may be called for by said com- 
 pany, and to pay 1 per cent, at the time of subscription." 
 
 It will be observed that no promisee is named in the instrument. 
 The corporation is not in existence at the time of the subscription. 
 It is only after this is complete that the subscribers become a corpo^ 
 ration. A promise cannot be made directly to a person, natural or 
 artificial, not in existence; and therefore the corporation cannot be 
 considered the promisee. 
 
 The nature of these subscriptions may be said to be that they are 
 mutual promises by the subscribers to each other, to pay the amounts ' 
 subscribed; and each subscription is the consideration for the oth- 
 ers. But to whom is the payment to be made? The payee is not 
 expressed, and the payment is certainly not to be made to the other 
 subscribers. 
 
 In the absence of any designation, the payee must be understood 
 to be the corporation when it comes into existence. Although a 
 promise cannot be made to a person not in existence, there is no 
 reason why a promise may not be made to a living person to pay 
 money to another person, natural or artificial, when he or it comes 
 into existence. This is one of those cases in which a promise made 
 to one person for the benefit of a third can be enforced by suit by 
 the latter. In fact, in the case of a stock subscription, it would be 
 impracticable to enforce it in any other way. 
 
 'The statutes of Virginia evidently contemplated the subscription 
 as a debt due to the company. It is provided that on every subscrip- 
 tion for shares in any joint stock company (not otherwise provided 
 for), there shall be paid at the time of subscribing, to the commis- 
 sioners appointed to receive subscriptions, $2 on each share, and the 
 
120 FORMATION (Ch. 3 
 
 residue thereof as required by the president and directors. See 2 
 R. C, p. 212, § 1. 
 
 And immediately after the election of president and directors, 
 the money so paid is to be paid by the commissioners who may have 
 received the same, to such person or in such manner as they may 
 require, that is, the president and directors; and in case of failure 
 so to pay, the company may recover the same against the commis- 
 sioners by warrant or action or motion in lieu of an .action. And 
 if the money which the stockholder has to pay on his shares be not 
 paid as required by the president and directors, "it may be recovered 
 by warrant, action or motion as aforesaid," that is, by the company, 
 in the same way in which the money is to be recovered from the 
 commissioners ; or the shares may be sold at auction, etc., and if the 
 sale does not produce enough "the company may recover against 
 such stockholder whatever may remain unpaid," etc. The declaration 
 in this case also avers that this was a promise to pay to the company ; 
 and the agreed statement of facts also makes the company the payee. 
 
 In some jurisdictions it is held that. a subscription does not give 
 a cause of action, but that a default simply involves a forfeiture of 
 the stock. This legislation makes ■ the subscription an actionable 
 agreement, and gives the right of action exclusively to the company. 
 
 Views as to the nature of a stock subscription somewhat variant 
 from the foregoing, but leading to the same result, have been ex- 
 pressed in the Massachusetts Supreme Court. 
 
 In the cases of Thompson v. Page, 1 Mete. (Mass.) 565, and Ives 
 V. Sterling, 6 Mete. (Mass.) 310, the subscriptions were in terms 
 made payable to such persons as might be thereafter authorized by 
 the corporation to receive them ; and the persons so authorized were 
 sustained in actions brought by them. 
 
 In Athol Music Hall Co. v. Carey, 116 Mass. 471, the subscrip- 
 tion contract was by the subscribers to and with each other, to asso- 
 ciate themsel\^es into a corporation and to pay to the treasurer of 
 said corporation the amount set against their respective names, etc. 
 The action for the unpaid subscription was brought by the corpo- 
 ration. The court said : 
 
 "In agreements of this nature, entered into before the organiza- 
 tion is formed, or the agent constituted to receive the amounts sub- 
 scribed, the difficulty is to ascertain the promisee, in whose name 
 alone suit can be brought. The promise of each subscriber, 'to 
 and with each other,' is not a contract capable of being enforced 
 or intended to operate literally as a contract to be enforced between 
 each subscriber and each other who may have signed previously, or 
 who should sign afterwards, nor between each subscriber and all the 
 others collectively as individuals. The undertaking is inchoate and 
 incomplete as a contract, until the contemplated organization is ef- 
 fected, or the mutual agent constituted to represent the association 
 
Sec. 3) SUBSCRIPTION TO STOCK 121 
 
 of individual rights in accepting and acting upon the propositions of- 
 fered by the several subscriptions. When thus accepted, the promise 
 may be construed to have legal effect according to its purpose and 
 intent, and the practical necessity of the case, to wit, as a contract 
 with the common representative of the several associates. * * * 
 
 "In this agreement the treasurer of the corporation to be estab- 
 Ushed is expressly made a payee. The corporation is the aggre- 
 gate of the several individuals entering into the > agreement, one 
 of whose terms was that they should thus associate and confer 
 their individual rights upon the corporation. We are of opinion that 
 the corporation, and the corporation alone, is the proper party to 
 bring an action upon such an agreement. The corresponding agree- 
 ments of the other subscribers, the organization of the corporation, 
 and the allotment to the defendant of the shares for which he sub- 
 scribed, furnish sufficient consideration for his promise to take and 
 pay for those shares. Although his promise was originally volun- 
 tary, * * * yet having been accepted and acted on by the party 
 authorized so to do before he attempted to retract it, he has lost the 
 right to revoke. His proposition has become an accepted mutual 
 contract, and is binding upon him as well as upon the corporation." 
 
 We may assume, then, that although the subscribers are the prom- 
 isees, the payee is the corporation, and it has the same relation to 
 the subscriber as if the promise had been made to the corporation 
 after its legal existence was complete. * * * Judgment for the 
 defendant. 
 
 HUDSON REAL ESTATE CO. v. TOWER et al. 
 
 (Supreme Judicial Court of Massachusetts, 1892. 156 Mass. 82, 30 N. E. 465, 
 
 32 Am. St. Rep. 434.) 
 
 Action by the Hudson Real Estate Company against Herman C. 
 Tower and others, copartners, to recover the amount of a subscrip- 
 tion by defendants. Judgment for plaintiff. .Defendants except. 
 Exceptions sustainee^. 
 
 As an answer and defense to the plaintiff's claim the defendants 
 offered to prove the following, viz. : That Dr. Harriman, as a solici- 
 tor of subscriptions for the capital stock of the corporation, which 
 was to be formed at some time after the subscription was made, 
 asked the defendant Herman C. Tower to subscribe; that, in the 
 course of conversation relative to the matter of subscribing. Tower 
 said that if the subscribers were going to mortgage the property to 
 be bought with the subscriptions his subscription would be merely 
 nominal, but that if they would raise the full amount by subscrip- 
 tion, and not mortgage the property, he would subscribe for 10 
 shares, or $500 worth; that Dr. Harriman thereupon asked him to 
 
1 22 FORMATION (Ch. 2 
 
 subscribe with that understanding, but he declined to do it that day; 
 that, the doctor urging again that he should subscribe upon that un- 
 derstanding, Tower said that he would put down his name if it was 
 understood between them that that was the condition of his sub- 
 scription, and upon this assurance from Dr. Harriman he did sub- 
 scribe at the time for that amount; that thereafter Dr. Harriman 
 reported to the meeting of the subscribers the condition of the de- 
 fendant's subscription, and that in consequence of that report the 
 meeting voted "that there shall be no mortgage on the property;" 
 that thereafter, and before anything was done by the subscribers, one 
 of their number, then active in their affairs 'and now president of the 
 corporation, informed Tower, the defendant, that they intended to 
 rescind the vote whereby, they voted not to .mortgage; that there- 
 upon the defendant Tower told this gentleman that if they so voted 
 he would not pay a penny of his subscription ; that this information 
 had come to the ears of a number of the subscribers ; that thereafter, 
 namely, upon the 31st of /August, 1889, they voted "that the vote 
 whereby we votdd August 14, 1889, not to place a mortgage on the 
 property be rescinded;" that thereafter the subscribers formed a 
 corporation, and the corporation did on the 1st day of April, 1890, 
 place a mortgage for $17,000 upon said property in consequence of 
 a legal and proper vote so to do. The defendants further offered to, 
 show that nothing had been done by the subscribers in consequence 
 of said subscriptions before said revocation by defendants. 
 
 -Ai,lb;n, J. At the time wjien the defendant signed the subscrip- 
 tion paper declared on it was not a contract, for want of a contract- 
 ing party on the other side; but it has now been established that a 
 subscription of this sort becomes a contract with the corporation 
 when the corporation has been organized, and in this way the ob- 
 jfection of the want of a proper contracting party is finally avoided, 
 provided everything goes on as contemplated, without any interrup- 
 tion. Until the organization of the corporation, the subscription 
 is a mere proposition or offer, which may be withdrawn, like any 
 other unaccepted offer. Unless the signer is bound upon a contract, 
 he is not bound at all. It is open to him to withdraw. It is not 
 on the ground that there was no sufficient consideration. The seal 
 would do away with any doubt on that score. , But it is on the ground 
 that for the time being, and until the corporation is organized, the 
 writing does not take effect as a contract, because the contemplated 
 party to the contract, on the other side, is not yet in existence, arid 
 for this reason, there being no contract, the whole undertaking is 
 inchoate and incomplete ; and, since there is no contract, the party 
 may withdraw. Music Hall Co. v. Carey, 116 Mass. 471; Ives v. 
 Sterling, 6 Mete. 310; Thompson v. Page, 1 Mete. 565; Academy 
 V. Davis, 11 Mass. 113; Phipps v. Jones, 20 Pa. 260. 
 
 In the present case there was evidence which would warrant a 
 
Sec. 3) SUBSCRIPTION TO STOCK 123 
 
 finding that the defendant thus withdrew before the time came when 
 his subscription would have become a contract. Exceptions sus- 
 tained. 
 
 NEBRASKA CHICORY CO. OF SCHUYLER, NEB., v. 
 
 EEDNICKY. 
 
 (Supreme Court of Nebraska, 1907. 79 Neb. 587, 113 N. W. 245.) 
 
 Commissioners' Opinion. Department No. 1. Appeal from Dis- 
 trict Court, Cuming County; Graves, Judge. 
 
 Action by the Nebraska Chicory Company of Schuyler, Neb., 
 against Anton Lednicky, to recover an unpaid balance on a stock 
 subscription.' Judgment for defendant and plaintiff appeals. Re- 
 versed and remanded for new trial. 
 
 Epperson, C.^* In February, 1897, certain citizen's of Schuyler, 
 Neb., united in a movement for the organization of a company for 
 the manufacture of chicory at that place. Articles of incorpora- 
 tion were prepared and discussed on one or more occasions by the . 
 interested parties, and during said month a written agreement, of 
 which the following is a copy, was prepared and circulated and 
 signed by a considerable number of persons ; the signature of the 
 defendant being attached thereto as below indicated:. "We, the un- 
 dersigned, do hereby agree to take shares of stock in the Nebraska 
 Chicory Company of Schuyler, Nebraska, to be organized on the' 
 plan set forth in the articles of incorporation, and we agree to pay 
 for the number of shares set opposite our respective names in ac- 
 cordance with the by-laws, rules and regulations of the company, 
 which provide for a division of the capital stock of $50,000.00 in 
 shares of $50 each, to be paid in monthly installments of 4 per cent, 
 per month, beginning the first Saturday of March, 1897. [Signed] 
 Anton Lednicky, 5 shares." Some time after the defendant signed 
 the foregoing, and on or about March 8, 1897, a certificate of incor- 
 poratiop was ^ filed with the county clerk, and with the Secretary of 
 State on Match 25th. 
 
 Section 4138, Cobbey's Ann. St. 1903, provides that upon this lat- 
 ter filing the organization should be deemed completed, and the per- 
 sons whose names are subscribed thereto be deemed a body corporate. 
 Section 4140 is as follows : "The persons named in the certificate of 
 incorporation, or a majority of them, shall be commissioners to open 
 the books for the subscription to the capital stock of said company, 
 and at such time and places as they deem proper, and the said com- 
 pany are authorized to commence operations upon the subscription 
 of ten per cent, of said stock." 
 
 20 A part of the opinion is omitted. 
 
124 FORMATION (Ch. 2 
 
 No stock^subscription book, other than the paper above set out, 
 was opened by the authority of the corporation, but that body pro- 
 ceeded to transact business by the purchase of grounds and the erec- 
 tion of buildings and supplying the same with fixtures and machin- 
 ery, chicory, etc., and the defendant, for eight months consecutive- 
 ly, paid into its treasury monthly installments of $10 each pursuant 
 to the terms of his agreement. ■ On June 29, 1897, the president and 
 secretary executed and delivered to him a paper certifying that he 
 had subscribed for five shares of the capital stock of the company 
 and would be entitled to the same "upon the surrender of this cer- 
 tificate and compliance with the rules and by-laws of this company," 
 For this "certificate of entitlement," as it was called, he subscribed 
 and delivered to the company a written receipt. He ceased to pay 
 on and after the ninth installment, and this is an action to recover 
 the unpaid residue upon his promise of subscription above copied. 
 At the close of plaintiff's evidence, the court directed a verdict for 
 defendant. Plaintiff appeals. 
 
 The principal question for determination is whether the written 
 agreement for subscription to the capital stock of the corporation is 
 a contract which the corporation can enforce. It appears that more 
 than 10 per cent, (about $20,000) of the capital stock, had been sub- 
 scribed before the company began business ; that the paper signed by 
 defendant and other subscribers was the only subscription book used 
 or kept by the company ; that defendant signed the instrument before 
 the time of the filing of the articles of incorporation, and had paid 
 $80 on his subscription before this suit was instituted. It has been 
 held (Bolton v. Nebraska Chicory Co;, 69 Neb. 681, 96 N. W. 148) 
 that this identical corporation is a manufacturing corporation; the 
 court saying: "The statute here in question was obviously designed 
 to encourage the promotion of manufacturing enterprises of all kinds 
 in the widest sense by relaxing the rules as to organization. There 
 is every reason for giving it a hberal construction, and no fraud can 
 result from so doing." 
 
 Defendant contends, however, that one who signs a subscription 
 paper, whereby he agrees to take a certain number of shares in a 
 corporation thereafter to be formed, does not become hable as a 
 shareholder even after the corporation is formed, and the corporation 
 tannot maintain an action against him upon the subscription paper. 
 There are courts, notably Kansas, Massachusetts, Michigan, Pennsyl- 
 vania, and West Virginia, which hold to this doctrine. 'Nemaha Coal, 
 etc., Co. V. Settle, 54 Kan. 424, 38 Pac. 483 ; Hudson Real Estate Co. 
 v. Tower, 161 Mass. 10, 36 N. E. 680, 42 Am. St. Rep. 379; Shurtz 
 V. Schoolcraft & T. R. R. Co., 9 Mich. 269 ; Parker v. Northern Cen. 
 M. R. R. Co., 33 Mich. 23; Northern Cent. M. R. Co. v. Eslow, 40 
 Mich. 222; Fair Ass'n v. Walker, 88 Mich. 62, 49 N. W. 1086; Tav- 
 ern Co. v. Burkhard, 87 Mich. 182, 49 N. W. 562; Traction Co. v. 
 
Sec. 3) SUBSCKIPTION TO STOCK 125 
 
 Green, 143 Pa., 269, 13 Atl. 747; Auburn Bolt, etc.. Works v. Shultz, 
 143 Pa. 256, 22 Atl. 904; Greenbrier Ind. Exposition v. Rodes, 37 
 W. Va. 738, 17 S. E. 305. See decisions cited in 10 Cyc. p. 385, note 
 97; Id., p. 386, note 99; also, Thrasher v. Pike County R. R. Co., 25 
 111. 393; Sedalia, W. & S. R. R. Co. v. Wilkerson, 83 Mo. 235; 
 Coyote G. & S. Mining Co. v. Ruble, 8 Or. 284. 
 
 The doctrine of these cases cannot be regarded as settled in Amer- 
 ican law. "This rule proceeds upon the narrow and strict ground 
 that a contract, such as will bind^the intending obligors, must be ten- 
 dered to the other contracting party, to an artificial being not yet in 
 esse, and in the precise statutory mode, or not at all." 10 Cyc. 386, 
 note 2. 
 
 It is said that this court is committed to the rule of the cases above 
 cited, and our attention is called to Livesey v. Omaha Hotel Co., 5 
 Neb. 50, and Macfarland v. West Side Improvement Association, 53 
 Neb. 417, 73 N. W. 736. In Livesey v. Omaha Hotel Co., supra, the 
 sole ground upon which the defendants were held not liable upon 
 their subscription was that the specified amount of capital stock was 
 not subscribed for, and in Macfarland v. West Side Improvement 
 Ass'n, supra, the same principle was announced, to wit, that the sub- 
 scriber was not liable upon his subscription until the capital stock 
 was fully subscribed for, "unless by law or charter provisions the 
 corporation is permitted to proceed with its main design with a less 
 subscription." In that case, however, it was held that the defendant 
 was estopped by his conduct to deny his liability. Neither of the 
 above cases have any application to the case at bar, since the statute 
 under which this corporation was formed provides that the corpora- 
 tion may commence operations upon the subscription of 10 per cent, 
 of its capital stock. In Lincoln Shoe Mfg. Co. v. Sheldon, 44 Neb. 
 279, .62 N. W. 480, it is held that a contract as follows : "For value 
 received, we, the undersigned subscribers hereto, bind ourselves to 
 purchase the number of shares set opposite our names in the Lincoln 
 Shoe Manufacturing Company at $50 per share" — upon several con- 
 ditions recited, was a subscription to the stock of the corporation. 
 
 This case, however, may be distinguished from the case in hand. 
 In thatcase, the subscription paper was signed after the articles of 
 incorporation were filed. In the case at bar, it was alleged, and we 
 understand the evidence to show, that the defendant placed his name 
 to the subscription paper prior to the filing of the articles of incor- 
 poration. Therefore whether defendant herein is liable to the corpo- 
 ration on the subscription paper we deem an open question in this 
 state. * * * ^ 
 
 In Planters' & Merchants' Independent Packet Co. v. Webb, 144 
 Ala. 666, 39 South. 562, it was held: "Any agreement by which a 
 person shows an intention to become a stockholder in a corporation 
 is sufficient as a contract of subscription as against both him and the 
 
126 FOEMATION (Ch. 2 
 
 corporation." A subscription by a number of persons to the stock 
 of a corporation, to be thereafter formed by them, constitutes a con- 
 tract between the subscribers themselves to become stockholders 
 when the corporation is formed, upon the conditions expressed in the 
 agreement, and as such it is binding and irrevocable from the date of 
 its subscription. It is in the nature of a continuing offer to the pro- 
 posed corporation, which, upon acceptance by it, becomes as to each 
 subscriber a' contract between him and the corporation. See Thresh- 
 ing Machine Co. v. Davis, 40 Minn, 110, 41 N. W. 1026, 3 L. R. A. 
 796, 12 Am. St. Rep. 701. Such a contract is based upon a sufficient 
 consideration. Such subscriptions are mutual promises among "the 
 subscribers as toward each other, and this mutuality of promise 
 among the subscribers constitutes a sufficient consideration for such 
 a subscription. There is in the act of the particular subscriber, in 
 subscribing with others, a mutuality of promise which obHges him to 
 make good his promise to the corporation after it comes into its ex- 
 istence. 10 Cyc. 394, note 58, and cases there cited. 
 
 "Whenever an intent to become a subscriber is manifested, the 
 courts incline, without particular reference to formality, to hold that 
 the contract of subscription subsists. It is, as in the case of other 
 contracts, very much a question of intent. Formal rules are for the 
 most part disregarded. And in general a contract for subscription 
 may be made in any way in which other contracts may be made. 
 Any agreement by which a person shows an intention to become a 
 stockholder is sufficient to bind him and the corporation." 1 Cook 
 on Corporations, § 52; 26 Am. & Eng. Encyc. Law (2d Ed.) 902, 903. 
 That "a subscription for stock implies a promise to pay for it, even 
 though the subscription was before incorporation, is the rule sustain- 
 ed by the great weight of authority." 1 Cook on Corp. §§ 71,,75 ; 26 
 Am. & Eng. Encyc. Law (2d Ed.) 902 ; 1 Morawetz on Corp. §§ 47, 
 54. We gather this proposition from the decisions, and think it is 
 sustained by the weight of authority. A subscription to corporate 
 shares, made before the corporation comes into existence, but accept- 
 ed by the corporation after coming into existence, either expressly by 
 issuing the share certificates, or impliedly by recognizing the sub- 
 scriber as a shareholder, makes him a shareholder, and the corpora- 
 tion may maintain an action upon the subscription against the sign- 
 ers. 
 
 It is argued, however, that the subscription in the case at bar is in- 
 valid because not entered by the commissioners in the corporate 
 books as provided by section 4140, Cobbey's Ann. St. 1903. As a 
 general rule, unless the charter or governing statute so provides, it 
 is not necessary to the validity of the subscription that it should be 
 originally made in a book prepared for that purpose. 10 Cyc. 39^. 
 We believe our statute should be liberally construed, and are of opin- 
 ion that the true rule is that, although the statute provides for the 
 
Sec. 3) SUBSCKIPTION TO STOCK 127 
 
 opening of books, the use of subscription papers in the first instance, 
 instead of a book^ does not make the subscription void. 10 Cyc. 392, 
 citing, in note 43, Brownlee v. Railroad Co., 18 Ind. 68; Hamilton, 
 etc.. Plank Road Co. v. Rice, 7 Barb. (N. Y.) 157; Railroad Co. v 
 Smith, 15 Ohio St. 328; Railroad Co. v. Yandal, 5 Sneed (Tenn.) 
 294; Stuart v. Railroad Co., 73 'Va. 146. "Inasmuch as Acts 1903," 
 p. 310, containing provisions for stock subscriptions, does not pro- 
 vide that unless the specified conditions are complied with a subscrip- 
 tion shall not be binding, a subscription is binding, though npt for- 
 mally, or even regularly, made." Planters' & Merchants' Independent 
 Packet Co. v. Webb, 144 Ala. 666, 39 South. 562. 
 
 The trial court was in error in directing a verdict for defendant, 
 and we recommend that the judgment be reversed, and the cause re- 
 manded for a new trial. 
 
 Per Curiam. For the reasons stated in the foregoing opinion, the 
 judgment of the district court is reversed, and the cause remanded 
 for a new trial. 
 
 REHBEIN et al. v. RAHR et al. 
 (Supreme Court of Wisconsin, 1901. 109 Wis. 136, 85 N. W. 315.) 
 
 Action by A. M. Rehbein and others against William Rahr and 
 others. From a judgment in favor of defendants, ,plaintiffs ' appeal. 
 Reversed. 
 
 The T. C. Shove Company, a state banking corporation, having 
 assigned April 12, 1892, plaintiffs, being creditors of said bank to the 
 extent of $2,800 out of an aggregate of about $485,000, brought suit 
 against defendants, nominally impleading with them the corporation 
 and the other stockholders thereof, who, however, were not served 
 with process, they being alleged to be insolvent. The action was 
 brought by plaintiffs for the benefit of the creditors of said corpora- 
 tion, and to enforce the statutory liability of the defendants Rahr, 
 under subsection 47, § 2024, Rev. St. 1898, for an additional amount 
 equal to the par value of the stock claimed to have been held by 
 them. 
 
 It appeared that in 1884, preliminary to the organization of the 
 Shove Bank 'by T. C. Shove, theretofore a private banker, these de- 
 fendants, with their brother. Max Rahr, constituted a business part- 
 nership under the name of William Rahr's Sons; that Shove spoke 
 to William Rahr about his firm becoming a stockholder for 25 shares 
 in the proposed banking corporation; that William, after talking 
 with Reinhardt, expressed his own and Reinhardt's approval of such 
 proposition, and they, at the request of Shove, signed their names to 
 a certificate of incorporation under the bank incorporation statute 
 (now section 2023a), with the understanding, as found by the court. 
 
128 FORMATION (Ch. 2 
 
 that such signature was only for the purpose of performing their 
 individual part towards constituting the firm of William Rahr's Sons 
 a stockholder, and that, in order to bind the firm, the other member 
 was to subscribe and acknowledge, to accomplish which blanks were 
 left for the name of Max Rahr. 
 
 The court further found that there was no intent or understanding 
 on the part of any one that William Rahr or Reinhardt Rahr should, 
 individually or jointly, become contracting parties by virtue of their 
 signatures. Max, on being informed of what they had done, did not 
 approve, and thereupon, a day or two after their signatures had been 
 affixed, William notified Shove, who held the paper, that they had 
 reconsidered, and declined ind refused to become stockholders. All 
 this was nearly a month before the papers were filed with the register 
 of deeds to create the corporation. Thereafter, on June 3, 1884, 
 Shove, notwithstanding said notification, did file the certificate in 
 question bearing the names of William Rahr and Reinhardt Rahr, 
 and specifying among the list of stockholders "William Rahr's Sons, 
 of Manitowoc, Wis., holds 25 shares." Subsequently, about July 1, 
 1884, Shove brought and tendered to William Rahr a certificate of 
 stock for 25 shares. Rahr refused, saying that the firm had declined 
 to become a stockholder, and would not take it, and persisted in such 
 refusal, although Shove offered to accept the note of the firm for this 
 amount, whereupon Shove took the certificate of stock away. It ap- 
 pears that it wa§ never destroyed, and that the stub in the stock book 
 continued to show certificate No. 16, 25 shares, in the name of Wil- 
 liam Rahr's Sons, although it did not show any signature to the re- 
 ceipt therefor printed on the stub. Thence onward the officers of the 
 bank continued, in their reports to the state treasurer, to include Wil- 
 liam Rahr's Sons among the list of stockholders, but of none of such 
 facts had the respondents any knowledge. It does not appear that 
 lists of stockholders were at any time after the incorporation filed 
 with the register of deeds. 
 
 The insufficiency of the general assets of the bank to pay more 
 than about 29 per cent, of its debts was found. There was evidence 
 that most of the plaintiffs had newspaper information at the time of 
 the incorporation of the bank in 1884 that William Rahr's Sons were 
 stockholders, and plaintiff Stolze had seen the reports of the state 
 treasurer from time to time thereafter containing their names, and 
 had examined the record of certificate for incorporation in the regis- 
 ter's ofiice. The court found that neither William Rahr, nor Rein- 
 hardt, nor both of them, were by the plaintiffs supposedto be holders 
 or owners of any of the capital stock of said bank. There was no 
 evidence as to whether any other creditors had knowledge or infor- 
 mation, before the assignment, of any connection of respondents 
 with the bank. The court found as a fact that at none of the times 
 involved did the respondents William Rahr or Reinhardt Rahr, either 
 
Sec. 3) SUBSCEIPTION TO STOCK 129 
 
 jointly or severally, own or hold any of the capital stock of the in- 
 solvent banking company. Judgment was entered dismissing tjie 
 complaint,' from which the plaintiffs appeal. 
 
 ^DoDGE, J.*" * * * The primary question, — and, indeed, that 
 most litigated in the, present case, — is, were the respondents stock- 
 holders of the defendant corporation? The circuit court evidently 
 faced exactly this proposition, and held that the respondents never 
 became stockholders, predicating his conclusion on one specific find- 
 ing of fact, namely, that they did not execute the certificate of incor- 
 poration. True, they signed their names to it, but he found as fact 
 that the signature was preliminary only, and understood by all par- 
 ties to be as if not done until consummated by the assent and signa- 
 ture of the third member of the firm of William Rahr's Sons, Max 
 Rahr. Assuming the facts of the transaction to be as found by the 
 court, the first and vital question is whether his conclusion of non- 
 stockholding by these defendants may lawfully be drawn therefrom, 
 notwithstanding the fact that by the filing of the paper bearing their 
 signatures they were apparently shareholders. 
 
 It must be conceded that the general rule is perfectly well settled 
 by thfe decisions of this state that a document which requires delivery 
 to be effectual is wholly ineffectual unless voluntary delivery thereof 
 be made; that otherwise such paper never comes into existence as a 
 legal instrument. This was decided as early as Everts v. Agnes, 4 
 Wis. 343, and has been reiterated in Railroad Co. v. Palmer, 19 Wis. 
 574; Walker v. Ebert, 29 Wis. 194; Kellogg v. Steiner, 29 Wis. 626; 
 Tisher v. Beckwith, 30 Wis. 55 ; Andrews v. Thayer, 30 Wis. 228 ; 
 Chipman v. Tucker, 38 Wis. 43; Hillsdale College v. Thomas, 40 
 Wis. 661. * * * 
 
 The findings in the case at bar disclose a situation which, on the 
 authority of the Wisconsin cases above citjed, would probably defeat 
 a promissory note, mortgage, or other like paper, but would not de- , 
 feat a probate or public bond similarly deposited. The question, then, 
 recurs whether the rule so well established in Wisconsin, that ordi- 
 narily a paper shall have no efficacy whatever unless made current by 
 voluntary delivery, is to be subjected to further exception in favor of 
 documents like that before us, which, in order to become valid and 
 effective, was not to be delivered to an adversarily interested indi- 
 vidual, who was to acquire his rights thereby, but was to be delivered 
 to the public by filing with the register of deeds, upon whom rests 
 no duty to scan or scrutinize the instrument, or to ascertain any of 
 the facts bearing upon its due execution or upon the authority of 
 him who files jt, but merely to receive and give to it apparent, osten- 
 sible authenticity and force by spreading it upon the public records. 
 
 80 A part of the opinion is omitted, 
 
 RiCH.OOEP. — 9 
 
130 FORMATION , (Ch. 3 
 
 It would seem that the question, thus stated, answers itself, in the 
 light of the reasons which induced this court to insist on the validity 
 of probate bonds although no voluntary delivery thereof had occur- 
 red. Certainly, more duty and opportunity for scrutiny, precaution, 
 and inquiry rests upon ,the county judge before the acceptance of a 
 bond which shall give existence and authority to an administrator, 
 guardian, or trustee than rests on the register of deeds in accepting 
 and filing articles of incorporation. Again, those who are to be af- 
 fected thereby, and who are to rely on the state of facts which depends 
 upon the existence of such paper, are even more remote and unable to 
 protect themselves in the case of the establishment of a bank 'than in 
 the case of the creation of a court officer. They may have no interest 
 until years after the event, and they may well be as helpless, and, as 
 entitled to invoke rules of public policy,' as are the widows, orphans, 
 or beneficiaries whose property depends upon the sufficiency of the 
 bond. Such reasons lie at the foundation of the policy of this and 
 other states to place about the business of banking extraordinary re- 
 strictions and safeguards to minimize as far as possible the grievous 
 results of insolvency. 
 
 The disturbance of the business world, and the impoverishment of 
 those who rely on the semipublic character of banks for the safe- 
 keeping of their moneys, are considerations which involve so much 
 of public policy and general welfare that they invite and hav^ receiv- 
 ed the most anxious care at the hands of both legislature and judici- 
 ary. By virtue of his bond the county judge confers upon an admin- 
 istrator custody and control of moneys and property of the few peo- 
 ple interested in an estate. By virtue of the pubhc record of incor- 
 poration papers the state confers upon a bank in practical effect the 
 custody of the moneys of a whole community, whose members, what- 
 ever their right, have practically not the power of ascertaining its 
 safety, but ex necessitate rely therefor on the status the st&te has 
 given it. This comparison leaves no doubt of the duty of a court to 
 adopt for the protection of the latter situation quite as stringent 
 rules as for the former. 
 
 We are unable, therefore, to escape the conclusion that all the con- 
 siderations which justified the decision in Belden v. Hurlbut necessi- 
 tate the holding that public policy demands that the certificate of in- 
 corporation of a bank, when filed and acted on, must be given full 
 effect, according to its terms, against those who execute the same, 
 although its filing miiy have occurred in contravention of the under- 
 standing and directions of some of them. This is on the ground of 
 estoppel, but estoppel quoad the state, the benefit of which extends 
 to all those who deal with the corporation on the faith of its status as 
 such; just as the contract which would result from intentional exe- 
 cution and filing of the certificate inures to the benefit of those who 
 deal with the corporation in after years, though they, may never have 
 
Sec.' 3) SUBSCRIPTION TO STOCK 131 
 
 known who were the parties thereto as incorporators, and may never 
 have relied on the fact that any particular person was thereby made 
 liable to them. 
 
 From the foregoing it results that all of the signers of the certifi- 
 cate for incorporation, of the Shove Banking Company are placed in 
 exactly the same position as if that document had been filed by their 
 direction and with their assent. Upon that attitude, however, it is 
 contended by respondents that the paper itself excludes the idea that 
 William Rahr and Reinhardt Rahr were to become holders of the 
 entire 25 shares of stock, because the stock is listed as to belong to 
 William Rahr's Sons, a firm which they could not bind. The ques- 
 tion of their intent, and of the force and effect of their act, must be 
 resolved from the instrument itself, the terms .of which cannot be 
 varied or contradicted by parol nor by inference as to the intention 
 or purpose of those executing. 
 
 The original force and effect of such instrument is, at the least, 
 to express a ^contract by its signers to take the amount of stock 
 which that certificate declares them to hold. Further, the statute evi- 
 dently contemplate^ that the certificate is to be signed by the holders 
 of all of the stock as the corporation is to be originally organized. 
 Section 2024, subsec. 18, provides that "any number of persons may 
 associate * * * and rnay become incorporated." Section 2024, 
 subsec. 19: "Such persons * * * shall make a certificate," etc. 
 These provisions leave no doubt that those who are to constitute the 
 original corporation must sign the certificate. But it clearly, appears 
 that those who constitute the original corporation must be holders 
 of the capital stock thereof, for the certificate above mentioned is re- 
 quired to state the amount and number of shares of the capital stock 
 and the names and residence of the stockholders. 
 
 Clearly, this contemplates and requires that the corporation, when 
 created, shall consist of the shareholders already ascertained, and that 
 it shall also consist of "such persons" a make the certificate, and 
 thereby "become incorporated." The two classes, shareholders and 
 niakers of the certificate, must, of necessity, be identical, in order to 
 give effect to the various calls of this statute. This legislative pur- 
 pose is rendered the more certain by the fact that in no other man- 
 ner is any requirement m'ade, as in the case of other corporations, 
 that any given amount of capital stock shall have been subscribed be- 
 fore engaging ip business. If this is not what the statute demands, 
 one man, holding one share of stock, may execute and file a certifi- 
 cate declaring who are the holders of the rest, it is true, but not 
 binding them, and may thus alone "become a body politic' and cor- 
 porate," with all the powers and privileges specified (section 2024, 
 subsec. 19, cl. 5), — a result too absurd to be contemplated. 
 ■ Taking together these two propositions, namely, that the certificate 
 declares that the subscribers have together agreed to take all the 
 
132 FORMATION (Cll. 2 
 
 stock and the amount which each has agreed to take, and finding that 
 the amount of stock to be held by each of the other signers is speci- 
 fied in the certificate, no interpretation can be adopted other than that 
 William Rahr and Reinhardt Rahr, who were sons of William Rahr, 
 agreed to become stockholders for the other 25 shares in the certifi- 
 cate mentioned. If the contract- is ambiguous as to whether by the 
 expression "Wm. Rahr's Sons" is intended those of his sons who 
 have signed, or a partnership consisting of others as well, that' ambi- 
 guity is to be resolved most strongly against those responsible for it, 
 and so as to give some, instead of no, effect to the acts of, the parties. 
 If, by their signatures, the respondents could not constitute the firm 
 a stockholder, it must be presumed that they did not, intend to, but 
 did intend to bind whom they could within the description adopted. 
 
 Another proposition irresistibly results from the conclusion that 
 the respondents' act in signing the paper was a completed one, name- 
 ly, that the paper was thereby agreed to be used for the purposes 
 for which the law required it to be executed, and that the act of 
 Shove or any of the other signers of the paper in placing it in the 
 register's office was in accordance with its te^rms, and thereby created 
 a corporation consisting of the signers as shareholders. That im- 
 mediately upon the coming into existence of such a corporation all of 
 the signers tO this certificate became stockholders therein, is obvious- 
 ly the contemplation of the statute. 
 
 The organization of banking corporations differs radically, in that 
 respect, from the method prescribed for others. Generally, corporate 
 existence is created by the execution and filing of an instrument by 
 men who may never hold stock, and the relationship of stockholder is 
 created either by the purchase of stock or the subscription therefor 
 accepted by the corporation. Paper Co. v. Rose, 95 Wis. 145, 70 N. 
 W. 302, 37 L. R. A. 162. In the case of the banking corporation, 
 however, the statute provides that the certificate shall be o"f actual 
 stockholding, and that statute, upon the filing of the papers so as to 
 constitute the corporation, itself iindoubtedly supplied the acceptance, 
 so that the relationship immediately arises. The contract, so soon as 
 the state becomes a party to it by the filing of the certificate, is an 
 executed one. It is not Uke the promise to marry, which may be 
 effectively broken, but like the contract of marriage, which creates a 
 status irrevocably. 1 Mor. Priv..Corp. § 56; Railway Co. v. Dudley, 
 14 N. Y. 336, 346, 355; Spear v. Crawford, 14 Wend. (N. Y.) 20; 
 Stanton v. Wilson, 2 Hill (N. Y.) 153. 
 
 Some argument is submitted as to the right or power of these re- 
 spondents to rescind their contract of subscription, but the question 
 does not present itself for decision, for the present record prfesents 
 no evidence of any effective rescission. If respondents made any at- 
 tempt to that end, it could not be effective without consent of their 
 
Sec. 3) SUBSCRIPTION TO STOCK 133 
 
 associates and of the corporation, nothing of which is disclosed by 
 the record. 
 
 We conclude, therefore, that by the certificate of incorporation, 
 signed by the respondents, and filed with the register, they agreed, 
 with their associates, that it might be used to create a banking cor- 
 poration, and that upon its creation they should ipso facto be and 
 become stockholders therein to the amount of 25 shares; that, upon 
 the legal filing of such document, they did become such; that there, 
 has been neither rescission of such agreement nor termination of 
 such status ; and, as a result, that they were, at all times material to 
 their liability, shareholders in such corporation. * * *. 
 
 By the Court. Judgment reversed, and cause remanded, for fur- 
 ther proceedings according to law. 
 
 MARYSVILLE ELECTRIC LIGHT & POWER CO. v. 
 JOHNSON. 
 
 (Supreme Court of California, 1892. 93 Cal. 538, 29 Pac. 126, 27 Am. 
 
 St. Rep. 215.) 
 
 r 
 
 Action by the Marysville Electric Light & Power Company against 
 one Johnson. Complaint dismissed, and plaintiff appeals. 
 
 De Haven, J.' ^ This is an action brought by the plaintiff against 
 the defendant upon the following agreement, alleged to have been 
 signed by him and others: "For the purpose of forming a corpora- 
 tion to have for its object the furnishing of the incandescent system 
 of electric lighting to those who may desire the same, artd to provide 
 the funds for the purchase of the necessary plant, we, the undersigned, 
 hereby subscribe for stock to the amount set opposite to our re- 
 spective names ; amounts to be due and payable upon the formation 
 of the company and th^ issuance of the stock." 
 
 The complaint alleges that the agreement was made and signed 
 in contemplation of incorporating the plaintiff for the purpose of car- 
 rying on the business therein stated, and- that thereafter it was duly 
 incorporated under the laws of this state by the defendant and the 
 other persons signing said agreement. It is further alleged "that 
 said corporation, this plaintiff, succeeded to and acquired all the 
 rights of said subscribers, and each of them, to the amounts so sub- 
 scribed" under the said agreement, and that plaintiff has issued its 
 stock to the subscribers, and tendered to the defendant the amount 
 of stock subscribed for by him, and that he has refused to pay for thje 
 same. It is also alleged that plaintiff "duly made," at different times, 
 calls for 15, 60, and 25 per cent, of the amounts so subscribed by the 
 defendant and others. The court below sustained a demurrer to the 
 
 »i A part of the opinion is omitted. 
 
134 FORMATION (Ch. 2 
 
 complaint upon the ground that the facts therein stated are not suffi- 
 cient to constitute a cause of action. This ruHng of the court pre- 
 sents the only question to be considered by us at this time. 
 
 1. The agreement above set out is certainly valid. The corre- 
 sponding promises of the other signers, and the common object 
 sought to be accomplishd'd by all the parties to it, constitute a suffi- 
 cient consideration for the promise of defendant ; and upon the for- 
 mation of the plaintiff corporation by the persons signing the agree- 
 ment, and 'plaintiff's acceptance of the agreement, the defendant be- 
 came bound to take and pay for the number of shares subscribed for 
 by him. Music-Hail Co. v. Carey, 116 Mass. 471 ; Hotel Co. v. Frie- 
 drich, 26 Minn. 112, 1 N. W. 827; Hughes v. Manufacturing Co., 34 
 Md. 316; Association v. Walker (Mich.) 47 N. W. 338. And it is 
 not material to the right of the plaintiff to maintain this action that 
 it is not expressly named in such agreement as the promisee. The 
 agreement is to be construed according to the evident intention of the 
 parties to it. It just as clearly appears, that it was the intention of all 
 the parties that the promise of each should inure to the benefit of the 
 corporation when formed, as if such intention were expressly de- 
 clared ; and therefore, in legal effect, the promise of defendant was to 
 pay to the plaintiff corporation when organized. The corporation 
 really represents the parties to the agreement. It was brought into 
 existence by them as an agent to carry on the business named in the 
 agreement, and through which they were to secure the benefits to 
 arise from their mutual and corresponding promises. 
 
 There is ' no difference in principle between the above contract, 
 signed by the defendant, in this case, arid that construed by the su- 
 preme court of Massachusetts in the case of Music-Hail Co. v. Car- 
 ey, 116 Mass. 471. In that case the agreement was that the parties 
 signing it would form a corporation, and "pay to the treasurer of the 
 corporation the amount of the several shares" subscribed for; and, 
 in speaking of such an agreement, the court said : "In agreements of 
 this nature, entered into before the organization is formed, or the 
 agent constituted to receive the amounts subscribed, the difficulty is 
 to ascertain the promisee, in whose name alone suit can be brought. 
 The promise of each subscriber, 'to and with each other,' is not a 
 contract capable of being enforced, or intended to operate literally 
 £^s a contract to be enforced, between each subscriber and each other 
 who may have signed previously, or who should sign afterwards, nor 
 between each subscriber and all the others collectively as individuals. 
 The undertaking is inchoate and incomplete as a contract until the 
 contemplated organization is effected, or the mutual agent constitut- 
 ed to represent the association of individual rights in accepting and 
 acting upon the proposition offered by the several subscriptions. 
 When thus accepted, the promise may be construed to have legal ef- 
 fect according to its purpose and intent, and the practical necessity of 
 
3) SUBSCRIPTION TO. STOCK 135 
 
 case, to-wit, as a contract with the common representative of the 
 :ral associates." 
 
 1 Shoe Co. V. Hoit, 56 N. H. 548, certain persons signed the fol- 
 ^ng paper: "The undersigned mutually agree that they will take 
 pay for the number of shares set against their respective names 
 be capital stock of a corporation to be organized under the gen- 
 statute of New Hampshire for the purpose of manufacturing 
 ts," etc. Immediately following the names of those signing this 
 ;ement, the defendants in that action signed the following : "We, 
 undersigned, agree to pay in cash a gratuity of one thousand dol- 
 ." The plaintiff in that case was subsequently incorporated by 
 persons who had subscribed the above agreement to take its 
 :k, and brought the action to recover the gratuity of $1,000 agreed 
 je paid by the defendants therein ; and the court held that the ac- 
 i could be maintained, although the plaintiff was not named in the 
 tten promise of defendants to pay such gratuity, nor was it in ex- 
 nce when defendants signed the same. The court said: "The 
 eement was, on the one part, by the subscribers to the stock, of 
 3m the plaintiffs are the successors, or, rather, with the plaintiff, — 
 the understanding and agreement was that the subscribers to the 
 :k should unite and form the plaintiff corporation, — and, on the 
 er part, by the defendants." 
 
 io, in this case, the agreement between the parties signing it was, 
 legal effect, that they would form the plaintiff corporation, and 
 to it, as their common representative, the amount by them sub- 
 bed' for its stock ; and the plaintiff is therefore authorized to sue 
 (n such agreement as a contract made for its benefit. * * * 
 gment reversed. , > 
 
 BADGER PAPER CO.. v. ROSE et al. 
 
 (Supreme Court of Wisconsin, 1897. 95 Wis. 145, 70 N. W. 302, 
 37 L. B, A. 162.) 
 
 Lction by the Badger Paper Company against David S. Rose and 
 ers to recover the price of goods alleged to have been sold and 
 vered by plaintiff to defendanj:s. From a judgment in favor of 
 ;ndants, plaintiff appeals. 
 
 'rior to' the 1st day of September, 1893, in contetnplation of or- 
 izing a corporation to publish a Democratic morning newspaper 
 :he city of Milwaukee, a subscription list was circulated, for the 
 pose of obtaining signers thereto, of persons who were willing to 
 e stock in such an enterprise. The subscription paper was headed 
 'ollows : "'We, the subscribers, do hereby subscribe for the capital. 
 :k of a corporation to be organized under the laws of Wisconsin, 
 )wn and operate and publish a Democratic morning newspaper in 
 
136 FORMATION (Ch. 2 
 
 the city of Milwaukee. Our said subscriptions to be paid as follows, 
 to wit, 25 per cent.' at the time of the organization of said corpora- 
 tion upon call of the treasurer, and the remaining 75 per cent, in in- 
 stallments, as the same may be called upon assessment levied by the 
 board of directors." All the defendants signed such subscription list 
 prior to, or soon after, the 1st day of September, 1893. 
 
 For some time prior to such date Clarence L. Clark operated a 
 pubHshing estabHshment at the city of Madison, Wis., and there pub- 
 lished a Democratic newspaper called the "Madison Times." It was 
 in contemplation that the plant would be removed to Milwaukee, and 
 sold to the proposed corporation. Pursuant to such scheme, articles, 
 of organization of a corporation were duly prepared,, according to the 
 laws of this state on the subject of the organization of corporations, 
 the original of which was filed and recorded in. the oiiSce of the regis- 
 ter of deeds for Milwaukee county. Wis., on the 5th day of Septem- 
 ber, 1893, and a properly verified copy thereof was duly filed in the 
 office of the secretary of state. Clarence L,. Clark was one of the 
 chief promoters of the enterprise, and one of the signers of the arti- 
 cles of organization. 
 
 About the time such articles were filed Clark removed the afore- 
 said newspaper plant from Madison, Wis., to Milwaukee, and there 
 rented rooms and fitted the same up ready for the use of the corpo- 
 ration. All of the business of making such removal, renting rooms, 
 and fitting up the plant in Milwaukee^ ready for operations, was con- 
 ducted by Clark, up to the meeting for the purpose of perfecting the 
 organization of such corporation, hereafter mentioned. On the 27th 
 day of September, 1893, pursuant to a request made by Clark, as 
 manager of the corporation, H. A. Frambach, on behalf of plaintiff, 
 visited Milwaukee, and there contracted to sell to the Times Printing 
 Company a quantity of paper for the use of such company^ The 
 business was done with Clark, who assumed to act for the corpora- 
 tion. He told plaintiff's agent that the company was incorporated, • 
 and to bill the paper to it. Thereafter, pursuant to the contract, the, 
 paper was sent to the Times Printing Company, and after the 6th 
 day of October, 1893, ^he same was used by the corporation in the 
 conduct of its business, but without nqtice on the part of the direc- 
 tors of the corporation, or any of the defendants, that any one was 
 indebted to plaintiff therefor. 
 
 On the 6th day of October mentioned the persons who had signed 
 the subscription paper, including defendants, convened for the pur- 
 pose of organizing the corporation. Such subscription paper was 
 then presented, and the signers participated in the organization, which 
 was then and there completed, Clark being chosen manager. There- 
 after, under the directions of Clark, the paper theretofore purchased 
 was used. Clark subscribed for $40,000 of the stock, and turned over 
 to the corporation the newspaper plant theretofore fitted up by him 
 
3) SUBSCRIPTION TO STOCK 137 
 
 foresaid, and all material on hand, with the good will of the Mad- 
 i Times and its subscription list, also the franchise of the United 
 ss Association, in payment of such subscription, 
 his action was brought against the defendants as stockholders, 
 er the statute which provides that if any corporation contracts 
 ts before half its stock is subscribed for, and 20 per cent, thereof 
 I in, its stockholders then existing shall be personally liable for 
 li debts. On the trial the facts above set forth appeared by the 
 lence uncontroverted ; whereupon the court, on motion, directed 
 erdict in favor of the defendants, to which plaintiff excepted, 
 gment was entered pursuant to such verdict, from which plaintiff 
 ealed. 
 
 Iarshali,, J.'^ (after stating the facts). The first question to be 
 ;rmined is, to whom did plaintiff contract to sell the paper ? In de- 
 nining that question, the date when the Times Printing Company 
 ame a corporation competent to contract, as such, is important, 
 tion 1772, Rev. St., provides that the articles of organization, or a 
 fied copy thereof, "shall be recorded by the register of deeds of the 
 nty in which such corporation is located ; and no corporation shall, 
 il such articles be so left for record, have legal existence." Section 
 3, Rev. St., provides that, "until the directors or trustees shall be 
 ted, the signers of the articles of orgs.nization shall have direction 
 he affairs of the corporation," and that "no such corporation shall 
 isact business with any others than its members, until at least one- 
 : of its capital shall have been duly subscribed, and at least twen- 
 )er centum thereof actually paid in; and if an)' obligation shall 
 contracted in violation hereof, the corporation offending shall 
 e no right of action thereon j but the stockholders then existing 
 luch corporation shall be personally liable upon the same." 
 : is hardly possible that one can misunderstand the plain meaning 
 hese provisions. Clearly, the Times Printing Company became a 
 Doration on the 5th day of Septeinber, 1893, the day the articles 
 organization were filed for record in the office of the register of 
 Is for ]yiilwq.ukee county. From that day till October 6, 1893, 
 signers of the articles, D. S. Rose, Clarence L,. Clark, and Peter 
 hoUand, had lawful authority to manage its affairs. During that 
 ; it was capable of contracting obligations in its corporate ca- 
 ty, subject to the statutory disability respecting the enforcement 
 he same, but liable, nevertheless, thereon, and its stockholders ex- 
 ig at the time of the making thereof personally liable as well. It 
 3ws that the Times Printing Company, as a corporation, had law- 
 authority on the 27th day of September, 1893, to contract with 
 ntiff for the paper. On that day its agent testifies that he sold 
 paper to such corporation, and with knowledge that, though in- 
 )orated, it had not yet been organized. * * * 
 
 A part of the opinion is omitted. 
 
138 FORMATION (Ch. 2 
 
 The only remaining question is, were the defendants stockholders 
 of the corporation at the time the contract was made? It is alleged, 
 in effect, that they were such stockholders, and on that the case turns. 
 On the subject of when a person may be said to be a stockholder in 
 a corporation there is some conflict of opinion, but it is nowhere 
 ' held that one can become such without being the owner or holder 
 of stock or a subscriber therefor. If the defendants were stockhold- 
 ers, they were such by virtue of having mei'ely signed a paper which 
 bound them to take stock in a corporation to be formed. To be 
 sure, the paper signed is in the form of a present subscription for 
 stock, but all, oij nearly all, the signers subscribed before the articles 
 of organization were filed. All signed long before there was any 
 corporate organization, and the paper expressly states that the sub- 
 scribers subscribed for stock in a corporation to be formed. At 
 most, it can only be said to have constituted an agreement to take 
 stock. The mere signing of the paper did not make the signers 
 stockholders. 
 
 Much learning has been displayed respecting this subject by the 
 text writers, and many adjudications exist in the courts of this coun- 
 try respecting, just what the status is of a mere signer to such a sub- 
 scription paper under such circumstances. The subject is treated in 
 article 21 of Thompson's Commentary on the Law of Corporations, 
 under the title "The Contract of Subscripltion," commencing with sec- 
 tion 1136. But all the authorities substantially agree that, until the 
 subscription paper has been presented to the corporation and assented 
 to by it, the signers are not stockholders. In Machine Co. v. Davis, 
 40 Minn. 110, 41 N. W. 1026, the character of such a subscription 
 paper was considered, and the conclusion reached that it was a bind- 
 ing contract between the subscribers to take stock and to pay there- 
 for according to their respective subscriptions, and hence that they 
 becamp stockholders at the instant such subscriptions were accepted 
 by the corporation. Says Mr. Justice Stone on the same subject, in 
 Knox v. Land Co., 86 Ala. 180, 5 South. 578: "Such an agreement 
 is in no sense a subscription to stock. Something more must be 
 done before it can be affirmed that the subscription is a complete 
 contract." To the same effect are Music Hall Co. v. Carey, 116 
 Mass. 473; Shoe Co. v. Hoit, 56 N. H. 548; Railroad Co. v. Gifford, 
 87 N. y. 294. 
 
 In Waterman on Private Corporations (sectioh 177), it is stated, 
 in effect, that if a number of persons mutually agree to become 
 stockholders in a corporation to be formed, their agreement is in 
 the nature of a continuing offer, which offer, by acceptance, consum- 
 mates the contract of membership, and makes the subscribers stock- 
 holders. In McClure v. Railway Co., 90 Pa. 269, the form of the 
 subscription paper was that of a present subscription for the stock 
 of an existing corporation. The, court held, in efifect, that the sub- 
 
3) SUBSCRIPTION TO STOCK '139 
 
 ers became stockholders 'from the instant of the acceptance of 
 subscription by the corporation, not before. In Railway Co. 
 ifford, supra, the form of the subscription was as follows : "We, 
 mdersigned, in consideration of, and for the purpose of, becom- 
 itockholders in the Buffalo & Jamestown Railroad Company, do. 
 ay subscribe ^nd take the number of shares, of $100 each share, 
 le capital stock of said company set opposite our respective 
 2S, and agree to pay therefor," etc. The subscriptions were ob- 
 ;d by one who afterwards became a' director of the corporation 
 rganized. ' The subscription paper was delivered to and accepted 
 he corporation, and the subscribers participated as such in the 
 less of the corporation. The court held that the subscription 
 not valid to make the subscribers stockholders in the first in- 
 :e, but that they became such by the acceptance of' their sub- 
 »tion by the corporation. 
 
 ecisions along this line could be multiplied at great length, but 
 :e it to say that no well-considered case can be found which holds 
 a mere agreement to subscribe for, or a subscription to, the 
 f of a corporation to be formed, will constitute the subscribers 
 {holders, and as all of the defendants were so circumstanced 
 ember 27, 1893, they were not stockholders existing at the date 
 :ontract was made, upon which this action depends, hence not 
 2 thereon under the provisions of section 1773, Rev. St. The 
 ment of the circuit court is affirmed.^* 
 
 DORRIS»v. FRENCH. 
 
 (Supreme Court of New York, 1875. 4 Hun, 2^2.) 
 
 otion for a new trial on exceptions ordered to be heard in the 
 instance at the General Term, 'after a verdict directed in favor 
 e plaintiff. 
 
 lis action was brought to recoyer from the defendant the amount 
 led to be due from him on certain shares of stock in the Biiffalo 
 t Preserving Company. 
 
 the latter part of October, 1865, the defendant and others 
 'A a paper whereby they agreed to unite in the formation of a 
 )any for the purpose of purchasing the exclusive right to make, 
 md vend Nyce's patent for preserving fruit, the paper designat- 
 he number of shares to be subscribed for by each. Subsequently, 
 lefendant and nine others executed and acknowledged the cer- 
 te of incorporation required by the act of 1848, c. 40, authorizing 
 Drmation of corporations for manufacturing purposes. Subse- 
 tly the plaintiff 'was appointed receiver of the corporation, which 
 
 Jompare: Southwestern Slate Co. v. Stephens et al., 139 Wis. 616, 120 
 408, 29 L. R. A. (N. S.) 92, 131 Am. St. Rep. 1074 (1909). , 
 
140 FORMATION (Ch. 2 
 
 had been dissolved for failing to exercise its privileges for one year. 
 The defendant set up, as a defense, that he was not a stockholder; 
 that the company was never legally incorporated; and that his sub- 
 scription was procured through fraud. 
 
 Gii,be;rt, J.^* This case is unlike that of Dorris v. Sweeney, 64 
 Barb. 636, in this, namely, that the defendant subscribed and ac- 
 knowledged the certificate of incorporation. The statute authorizing 
 the formation of manufacturing companies, 3 Stat, at Large (Ed- 
 monds' Ed.) p. 733, provides that the persons who shall have signed 
 and acknowledged the certificate, and their successors, shall be a body 
 politic and corporate. It requires that the aggregate amount of the 
 capital stock of the company, and the number of shares of which it 
 consists, shall be stated. But it does not require that the interest of 
 the subscribers to the certificate, respectively, shall be set forth. That 
 must, therefore, necessarily be fixed by some agreement separate 
 from the certificate. SucTi an agreement, consummated by signing the 
 certificate, amounts to the same thing as subscribing formal articles 
 of association, preliminary to organizing a corporation. The agree- 
 ment and the certificate constitute but one transaction, having a 
 single object, namely, the formation of the corporation. It has long 
 been held, and never, I believe, disputed, that the corporation, when 
 formed, may enforce payment of the subscriptions to its capital stock 
 against persons who subscribed its articles of association before the 
 corporate body had a legal existence. Buffalo & P. R. Co. v. Hatch, 
 20 N. Y. 161; Burr v. Wilcox, 22 N. Y. 551; Strong v. Wheaton, 
 38 Barb. 622; Ang. & A. Corp. § 517 et seq. It was with this rule of 
 law in view, probably that the legi^ature omitted any specific pro- 
 vision regulating the manner of becoming stockholders, while at the 
 same time they authorized the capital stock to be paid in — one-half 
 thereof within one year, and the other half within two years, and 
 made the stockholders severally liable for the debts of the corpora- 
 tion, to an amount equal to the amount of stock held by them re- 
 spectively, until the whole amount of capital stock should have been 
 paid in (section 10), and authorized the corporation to demand from 
 the stockholders, respectively, payment of their subscriptions, on 
 pain of a forfeiture of their stock (section 6). 
 
 It is very evident from these provisions, that the design of the 
 legislature was to provide protection to creditors, by devolving per- 
 sonal Hability on the stockholders, and to give to the corporation, 
 for the indemnity of the latter, the power of coercing payment of 
 subscriptions. But neither of these objects could be accomplished, 
 unless there were some means of ascertaining who had become stock- 
 holders, and the amount of stock held by them, besides the certifi- 
 cate of incorporation ; for that might not show .the names of all the 
 stockholders, or the amount of stock held by any of them. These 
 
 8* Part of opinion omitted. 
 
3) SUBSCRIPTION TO STOCK 141 
 
 s might be established by proof of payments on account of stock, 
 the taking of the usual stock certificates ; but that kind of proof 
 Id not be as satisfactory as the ordinary mod? of subscribing 
 :h was adopted in this case. We are of opinion, therefore, that 
 original liability of the defendant as a subscriber to the stock 
 established. Stockholders are estopped to deny the lawful ex- 
 ice of, corporations which they have helped to create. * * * 
 V trial granted, costs to abide event. 
 
 HAWLEY V. UPTON. 
 
 ireme C!ourt of the United States, 1880. 102 U. S. 314, 26 !>. Ed. 179.) 
 
 n Error to the Circuit Court of the United States for the Dis- 
 
 t of Iowa. 
 
 'he case is fully stated by the court. 
 
 his case presents the following finding of facts and certificate of 
 
 sion of opinion thereon in the court below : 
 
 The plaintiff is assignee in bankruptcy, as alleged in the petition. 
 
 On the second day of January, 1871, Rossitur, agent of the Great 
 
 stern Insurance Company, requested defendant to take stock in 
 
 . company. 
 
 The defendant, on certain representations by Rossitur, signed the 
 
 3wing paper or bond: 
 
 \d. y $200. 
 
 " 'The Great Western Insurance Company. 
 
 [Stanip.] 
 'Capital Stock $500,060, with Liberty to Increase to $5,000,000. 
 
 " 'Stock Non-Assessable, 
 irganized July 20, 1857, under Act of Legislature. Approved 
 
 March 4, 1857. 
 'Know all men by these presents, that for and in consideration 
 ten shares of the capital stock of the Great Western Insurance 
 npany of Chicago, ' 111., received by me, I am held and firmly 
 nd, and agree to pay the Great Western Insurance Company of 
 :ago the sum of two hundred dollars in installments, as follows : 
 ;nty-five per cent thereof upon receipt of stock certificate, twen- 
 ive per cent in three months from date hereof, twenty-five per 
 : six months from date hereof, twenty-fiye- per cent nine months 
 n date, with interest ten per cent after due. 
 'Chicago, 7th Jan'y, 1871. 
 
 'Theo. Hawley. [Seal.] 
 
 'Signed and delivered in presence of— 
 
142 FORMATION (Ch. 3 
 
 "At the time the said bond or paper was issued to Hawley the 
 latter paid Rossitur twenty-five dollars, and delivered to him the 
 bond. It was not delivered on any particular conditions. It was 
 delivered to an agent of the company's, namely, the said Rossitur. 
 
 "The company afterwards came into possession of the bond, and 
 entered Hawley's name on their books as a> stockholder, and pub- 
 lished him in their publications as one of their stockholders, Hawley 
 having no knowledge of the publications. Hawley paid no other 
 money, and no calls were made upon him prior to the bankruptcy. 
 
 "No certificate of stock was ever sent or delivered to Hawley, 
 and he made no demand on the company for any certificate of stock. 
 
 "The bankruptcy of the insurance company was caused by fire 
 in October, 1871. 
 
 "The defendant signed no subscription paper or any other paper 
 than the bond above set out. 
 
 "On the foregoing facts and the pleadings judgment was rendered 
 for the plaintiff. The judges were opposed in opinion on the follow- 
 ing questions: 
 
 "1. Whether the delivery of a stock certificate under the above 
 circumstances was necessary to constitute the relation of stockholder 
 between the defendant and the insurance company. 
 
 "2. Whether the above facts constitute a defense to the action. 
 
 "The Judges [John F. Dillon and J. M. Love] being divided in 
 opinion on the above questions, hereby certify such division to the 
 Supreme ' Court, pursuant to the statute in such case made and 
 provided." 
 
 Waite, C. J. . It cannot be doubted that one who has become 
 bound as a subscriber to the capital stock of a corporation must pay 
 his subscription if required to meet the obligations of the corpora- 
 tion. A certificate in his favor for the stock is not necessary to 
 make him a subscriber. All that heed be done, so far as creditors 
 are concerned, is that the subscriber shall have bound himself to be- 
 come a contributor to the fund which the capital stock of the cor- 
 poration represents. If such an obligation exists, the courts can 
 enforce the contribution when required. After having bound him- • 
 self to contribute, he cannot be discharged from the obligation he 
 has assumed until the contribution has actually been made, or the 
 obligation in some lawful way extinguished. 
 
 These are elementary principles. Upton, Assignee, v. Tribilcock, 
 91 U. 6. 45, 23 L. Ed. 203 ; Webster v. Upton, 91 U. S. 65, 23 
 L. Ed. 384. And the only question we have to consider is whether, 
 from the facts found it appears that Hawley, the plaintiff in error, 
 had become an accepted subscriber to the stock of the company be- 
 fore the bankruptcy. There can be no doubt that he was approached 
 by an agent of the company with a view of securing him as a siib- 
 scriber. It is equally true that after the representations made to him, 
 
5) SUBSCRIPTION TO STOCK 143 
 
 IS willing to become a stockholder. The result was that he ex- 
 d the paper set out in the findings, by which he acknowledged 
 eceipt from the company of ten shares of its stock; and agreed 
 n the time named to pay to the company $200,,, or twenty per 
 of its par value. As the company could not sell its stock at less 
 par, what was done amounted in law to a subscription for the 
 :, and nothing else. It is true the stock he took purported to 
 Dn-assessable ; but that in law could only mean that no assess- 
 : would be made beyond the percentage he had specially bound 
 elf to pay, unless the legal liabilities of the company required 
 Jpton, Assignee, v. Tribilcock, supra. 
 
 le paper he signed was delivered to the company by the agent 
 got it. That it was accepted by the company as a subscription 
 own conclusively by the fact that his name was entered on the 
 :s as a stockholder and publication made accordingly. It mat- 
 not' that he had no knowledge of such a publication. His re- 
 ; for the stock was an acknowledgment, so far as he was con- 
 ed, that he had become a stockholder, and, after an acceptance 
 tie company, his liability was fixed whether any publication was 
 e or not. The publication is only important as a means of show- 
 that his subscription made to an agent had been accepted and 
 ed by the company. The entries on the books had the same 
 t. ,The publication only made it more notorious. The ultimate 
 to be established is that a subscription had not only been made 
 lawley, but accepted by the company. 
 
 3th in the pleadings and the argument the defense was put prin- 
 ly on the fact that no certificate of stock had been issued. It 
 
 be conceded that if a suit had been brought by the company 
 he express promise to pay the twenty per cent., there could 
 
 been no recovery without a tender of the certificate; but that 
 Dt this case. Here the creditors ' of the bankrupt company are 
 ceding against Hawley as a stockholder, to compel him to con- 
 tte to the fund which the law had provided for their security, 
 ; he by his. subscription agreed he would pay. The suit is not 
 ght on his special agreement to pay the twenty per cent., but on 
 general liability as a subscriber to pay for his stock whenever it 
 wanted to meet the liabilities of the company. As the certificate 
 not needed to perfect the subscription, its non-delivery cannot 
 i in the way of a recovery in this action. 
 
 e have no hesitation in answering each of the questions certified 
 le negative, and the judgment is consequently affirmed. 
 
144 FORMATION (Ch. 2 
 
 McMillan v. maysville & l. r. co. 
 
 (Court of Appeals of Kentucky, 1854. 15 B. Mon. 218, 61 !Am. Dec. 181.) 
 
 This suit was brought by the Maysville & Lexington Railroad 
 Company against McMillan, to compel the payment of ten shares of 
 stock in said road, alleged to be due upon the subscription of the 
 defendant. The following is the subscription paper which is the 
 foundation of the suit: "We, the undersigned, citizens of Nicholas 
 County, State of Kentucky, hereby subscribe for the number of 
 shares in the capital stock of the Maysville & Lexington Railroad 
 Company set opposite our names respectively, and hereby promise 
 and agree to pay fifty dollars on each share so subscribed in such 
 installments and at such times and places as may be required by the 
 board of directors of said road company, upon condition that said 
 road shall be so located and constructed as to make the town of 
 Carlisle a point in said road; otherwise these subscriptions shall be 
 null and void." The appellant demurred to appellee's petition, which 
 was overruled. The appellant answered, which was demurred to, 
 and the demurrer sustained to the second and third paragraphs of 
 the answer; an amended petition was filed which was demurred to, 
 and the demurrer overruled, a trial had, and judgment for the appel- 
 lee, from which the appellant prayed an appeal. 
 
 Simpson, J. (1) The obligors,, among whom the appellant was 
 one, agreed to pay to the Maysville & Lexington Railroad Company 
 $50 on each share of stock, subscribed by them, upon condition that 
 said road should be so located and constructed as to make the town 
 of Carlisle a point, otherwise the subscriptions were to be null and 
 void. Now this stock was to be paid only upon the condition that the 
 road should be so located and constructed as to make the town of 
 Carhsle a point. But when was it to be paid? The appellant con- 
 tends that it was not to be paid until the road was finished, and that 
 such is the meaning of the stipulation that the road should be so 
 located and constructed as to make the town of Carlisle a point, 
 otherwise the subscriptions were to be null and void. 
 
 The place and not the extent of the construction of the road was 
 evidently referred to in this stipulation. The stock was to be paid, 
 if the road was so constructed as to make the town of Carlisle a 
 point, not when the construction of the road should be completed. 
 But the writing itself fixes the time of payment. By it the subscrib- 
 ers agreed to pay the stock subscribed by them, in such installments, 
 and at such times as might be required by the board of directors 
 of said company. In giving construction to the instrument the 
 whole of it must be considered. Now it is evident, looking to all 
 the stipulations contained in it, that the entire construction of the 
 road was not understood or intended by the parties to be a preced- 
 ent condition to the payment of the stock. The construction, and 
 
. 3) SUBSCRIPTION TO STOCK 145 
 
 ment of the stock, were to be concurrent acts. No payment was 
 )e made unless the road was so constructed as to make the town 
 Carlisle a point, but if it were constructed in that manner, the 
 ment was to be made, at such time and place as the board of 
 sctors might designate. 
 
 2) But if, instead of restricting ourselves to the letter of the in- 
 iment, to ascertain its true meaning, we take intp consideration! 
 object to be accomplished by the subscription, the nature and ex- 
 t of the enterprise in which the parties were embarking, and the 
 ins by which it was to be effected, no difficulty can exist in de- 
 nining the intention of the parties, or in giving such an exposition 
 :he writing as will be consistent with it. The stock was subscribed 
 
 the very purpose of aiding in the construction of the road. To 
 ;ct this object it must be paid as the work progresses. The post- 
 lement of its payment, until the work should be finished, is in- 
 isistent with the very end to be accomplished by it. No road 
 lid ever be made on this principle, and therefore it cannot be 
 iposed that these stockholders could have intended that the pay- 
 tit of the stock subscribed by them should not be made until the 
 rk had been completed? They desired to make the town of Carlisle 
 oint in the road, and the payment of their stock was made to de- 
 id upon that condition. The road has been so located as to effect 
 t object, and it is incumbent on them, according to any fair in- 
 pretation of their agreement, to pay the stock .subscribed by them, 
 lid in its construction. 
 
 t is also contended, on the part of the appellant, that the agree- 
 nt sued on is void, on the ground that the company had no au- 
 rity under their charter to receive any but unconditional subscrip- 
 is of stock. 
 
 3) By section 24 of the charter (Sess. Acts 1849-50, p. 302), the 
 sident and directors were authorized to sell or dispose of the un- 
 iscribed stock for the benefit of the company. The only limit 
 this power was that the stock should not be disposed of under its 
 
 value. The right to make a conditional disposition of the stock 
 ms to be unquestionable, under this provision in the charter. The 
 istance of the agreement of the company, and the signers of the 
 trument of writing sued upon was, that if the former would lo- 
 e the road so as to make the town of Carlisle a point, the latter 
 uld take the amount of stock subscribed by them. When the 
 d was thus located, the signers became unconditional stockhold- 
 , and as such were entitled to all the corporate rights and priv- 
 ies of members of the company. The stock itself was not con- 
 onal; it was only the agreement to take it that was conditional, 
 e subscribers were not stockholders until the compiny had per- 
 med the condition upon which their undertaking (depended, and 
 
 RiCH.COBP. — 10 
 
146 FOEMATION (Ch. 3 
 
 when that was done, they became stockholders by" force of the agree- 
 ment of the parties. The acquisition of stock in this manner was 
 in our opinion sanctioned by the foregoing section of the charter, 
 and does not seem to be prohibited by sound poHcy, or by any of 
 the other provisions in the statute. Besides it has been usual under 
 similar charters to make contracts of this kind, which fact, although 
 insufficient of itself to give validity to such subscriptions of stock, 
 may very properly be referred to for the purpose of showing the 
 contemporaneous construction which has been given to clfarters con- 
 taining similar provisions. 
 
 (4) The other matters of defense set up and relied; upon in the 
 answer are obviously untenable. The fact that the company have 
 suspended operations upon the road, and that it will require a large 
 additional expenditure of labor and money to complete its construc- 
 tion, and even the additional fact that the means of the company 
 are wholly inadequate to the accompHshment of this object, do not 
 furnish any sufficient reason why the defendant should riot pay his 
 stock. It may be, and probably is necessary, to aid in the payment 
 of debts already incurred in the work previously done upon the road, 
 or it may be required for the purpose of assisting in its further prose- 
 cution. The defendant could only be absolved from liability for the 
 payment of his stock, by alleging and proving a final abandonment 
 of the work by the company, and also that its payment was not nec- 
 essary for the purpose of satisfying any existing demand against the 
 corporation. 
 
 Wherefore the judgment is affirmed. 
 
 PITTSBURGH & S. R. ,CO. v. BIGGAR. 
 (Supreme Court of Pennsylvahia, 1859. 34 Pa. 455.) ^ 
 
 Error to the Common Pleas of Washington County. 
 
 This was an action of assumpsit by the Pittsburgh & Steubenville 
 Railroad Company against Andrew Biggar, to recover nine unpaid 
 instalments of $10 each, on ten shares of the stock of the company, 
 subscribed for by the defendant, with interest thereon. 
 
 The following facts were stated and agreed upon by the parties, in 
 the nature of a special verdict : 
 
 "The Pittsburgh & Steubenville Railroad Company was incorpo- 
 rated by an Act of Assembly, approved March 24, 1849, and letters 
 patent were issued by the governor, dated July 22, 1851. Before 
 the issuing of the letters patent, the defendant Andrew Biggar, resi- 
 dent in Washington county, subscribed ten shares to the capital stock 
 of the company, in a book provided for that purpose by the commis- 
 sioners named in the act of incorporation, which subscription is in 
 the words and figures following: 
 
3) STJBSCEIPTION TO STOCK 147 
 
 We, the undersigned, a^ree to pay to the Treasurer of the Pitts- 
 h & Steubenville Railroad Company, the sums set opposite our 
 active names, to the stock of said company; provided, that no 
 cription shall be considered as due and valid, until the sum of 
 ,000 shall have been bona fide subscribed on the books of the 
 pany ; provide,d, the road goes within half a mile of Florence. 
 
 Andrew Biggar, 10 shares $500.' 
 
 !*he name of the said defendant; as a subscriber of ten shares, is 
 ained in the report of the commissioners filed in the State De- 
 ment, and also in the letters patent. More than $200,000 have 
 I bona fide subscribed on the books of the said company to the 
 k thereof. The road of the said company was definitely located 
 ;he Barman's creek route, which is more than two miles from 
 ■ence, on the 24th day of May, 1852. * * * 
 I the court should be of opinion, upon' these facts, that the 
 itiff is entitled to recover, then judgment to be entered against 
 defendant and in favor of the plaintiff, for ■ the sum of $450, 
 . interest at such rate, and from such dates, as the court may 
 ;t; otherwise, judgment to be entered for the defendant. Both 
 ies reserve the right to sue out a writ of error." 
 lie court below gave judgment for the defendant on the case 
 ;d; whereupon, the plaintiffs removed the cause to this court, 
 here assigned the same for error.^° 
 
 rEONG, J.*° * * * Conditional subscriptions are not contem- 
 ;d. They would be a fraud upon the Commonwealth. It is the 
 ' of the Commissioners to certify the name of every subscriber, 
 
 the number of shares subscribed by him, and on the faith of 
 : certificate, the charter' is granted. They are not required to 
 ify the form or any conditions of subscription, for the law hav- 
 declared what the contract shall be, excludes the possibility of 
 litions. If the commissioners may receive subscriptions clogged 
 
 terms unknown to the statute,nhen the securities which the law 
 ands, as prerequisites to issuing the letters patent, may have 
 existence. Then the Commonwealth may be defrauded out of 
 ffanchise; for, instead of their being ten per cent, of the au- 
 ized capital pledged for the prosecution of the work, and for the 
 Iment of the contract of the company with the state, no part 
 t may be available for any such purpose'. The subscribers may 
 in the charter without assuming any liability to invest a dollar. 
 
 unless the conditional subscription is a nullity, it must be cer- 
 i ; and if the commissioners may not receive conditional subscrip- 
 3, it is equally true, that no person can attach conditions to his 
 icription. The law offers him membership in the proposed com- 
 r, on his absolute subscription and payment of $5 on each share. 
 
 Statement of facts abridged. «* A part of the opinion is omitted. 
 
148 FORMATION (Ch. 2 
 
 He must secure membership in that way, and on those terms, or 
 not at all. If he may add a condition to his subscription, by which 
 it becom'es less than an absolute engagement to pay, he becomes a 
 party to the fraud practiced upon the Commonwealth, for the com- 
 missioners are the agents of the subscribers, as well as of the state, 
 to certify each subscription. 
 
 Besides, a stipulation for a particular route of the projected canal 
 or railway is, in other respects, against the policy of the law, and 
 therefore illegal. The law casts upon the board of directors who may 
 be chosen after the organization of the company, the selection of 
 the route. In the choice of this board, each subscriber is to have a 
 voice proportionate to the amount of his' stock. The state is inter- 
 ested, as well as the stockholders in the corporation, in having this 
 board exercise an unbiased judgment. But a stipulation in a sub- 
 scription, in favour of a particular route, if it have any efficacy, tends 
 to deprive the state and the stockholders of the benefits of such un- 
 trammeled selection, and it is conceivable, that it might entirely de- 
 stroy the public utility of the enterprise. 
 
 If it be urged, that the construction of the road over a designated 
 route, may be regarded as a part of the consideration for the promise 
 to pay the subscription, it does not alter the case; such a stipula- 
 tion is none the less illegal. But this is an erroneous view of the 
 matter. The law offers to the subscriber membership and stock, as 
 the consideration for his subscription, and it offers no more. If he 
 could secure more, it would be a wrong to the other subscribers, not 
 less than if the stipulation were, that he should have a certificate for 
 two shares of stock, on payment for one. The rights of all sub- 
 scribers are necessarily equal ; nor can there be any such thing as 
 conditional membership ; either the defendant in error became a cor- 
 porator on the issuing of the letters patent, by virtue of his sub- 
 scription, and the payment of five dollars for each share, or the 
 subscription amounted to nothing. If the contract was binding, he 
 was entitled to vote for directors, and was entitled to the stock, as 
 he certainly would have been, it is admitted, if the road had been 
 built within half a mile of Florence. But suppose that, including 
 the subscription of the defendant, the whole authorized capital had 
 been taken. Will it be contended, that more might have been re- 
 ceived, and the defendant's subscription displaced? If it might, then 
 no certificate could have been issued to him; then he would be, at 
 the same time, a member, and not a member. If it might not, then 
 it would be only because the membership of the company was full, 
 because the defendant's subscription made him a member; and if 
 he was a member, certainly a failure to adopt the route stipulated 
 for would not divest his membership. It would not authorize the 
 company to forfeit his stock, and while a stockholder, he continued 
 a member. 
 
3) SUBSCRIPTION TO STOCK 149 
 
 ^as then the sul^scription a nullity? Certainly, it was operative 
 some purposes. It enabled the commissioners to receive and to 
 in the five dollar^ paid upon each share subscribed, and it aided 
 btaining the letters patent. On the faith of it, the Commonwealth 
 ;ed with franchise conferred upon the company. If such sub- 
 ptions, with such conditions, are invalid, then the whole capital 
 1 company might be withheld, even after charter granted, and 
 objects of the grant thus be entirely defeated. It is not for the 
 mdant to say, that his subscription is a nullity; that he has as- 
 led no liability, when his act induced the. grant of the charter, 
 fastened upon his co-corporators the obligation to pay the 
 )unt of their subscriptions. It is the condition of the subscrip- 
 :, which is the illegal part ; it is that which is repugnant to the 
 ire of a subscription, and which is in conflict with the policy of 
 law, and therefore the defendant cannot assert it. 
 Lt most, also, the stipulation in the contract of subscription was 
 Dndition subsequent; certainly, subsequent to membership, in the 
 ipany, and subsequent also to the liability to pay. The thing 
 vided for could only be determined, after the organization of the 
 ipany. The words of the condition show this. The defendant 
 mised to pay, "provided' the road goes within half a mile of Flor- 
 ;." But payment of the subscriptions was necessary to enable 
 road to go anywhere; no other means was provided for either 
 location or construction of the road; payment was, therefore, 
 sssarily antecedent to a compliance with the condition. But if 
 as a condition subsequent, and illegal, as we have endeavoured to 
 w, then it is void, and. the subscription is in law absolute. * * * 
 'he authorities, therefore, appear to establish that the defendant 
 ime an actual subscriber for the stock of the company, and not 
 ere contractor to subscribe on the subsequent performance of a 
 dition. His engagement was in law absolute, and not rendered 
 tingent, by his express recital of the motive which persuaded him 
 ubscribe. This grows out of the nature of the contract, 
 /hen a subscription is received, after the organization of a-com- 
 y, dififerent principles apply. There, a party is in existence with 
 )m the subscriber can stipulate, and then his conditional promise 
 work no fraud upon the Commonwealth, or his co-subscribers. 
 5 distinction is clearly taken in many of our cases, 
 he judgment of the Court of Common Pleas is reversed, and 
 jment is ordered to be entered for the plaintiffs for $450, with 
 rest, at the rate of 12 per cent., from the time the calls became 
 ible, to wit, in all, $825.24. 
 
150 FORMATION (Ch. 2 
 
 MINNEAPOLIS THRESHING MACHINE CO. v. DAVIS. 
 
 (Supreme Court of Minnesota, 1889. 40 Minn. 110, 41 N. W. 1026, 3 L. E. 
 A. 796, 12 Am. St. Rep. 701.) 
 
 MiTCHELi,, J.°' This was an action to recover installments due 
 on subscriptions to stock of the plaintiff. The facts fully appear 
 from the findings of the court in connection with Exhibits A and B 
 attached to the complaint. Those material for presfent purposes are 
 that, a scheme having been started to organize a manufacturing cor- 
 poration with $250,000 capital, whose works should be located at 
 Junction City, near Minneapolis, and one McDonald having proposed 
 that if the citizens of Minneapolis would subscribe $190,000 to t.lje 
 capital stock he would subscribe the remaining $60,000, one Janney, 
 , a promoter, but not a subscriber to the stock of the proposed corpo- 
 ration, acting as a voluntary solicitor, having with him the subscrip- 
 tion paper, (Exhibits A and B) about April 1, 1887, proceeded to 
 canvass for subscriptions to the stock of the proposed corporation 
 on the terms and conditions embodied in the paper. He first applied 
 to defendant, who subscribed $5,000 of stock. Afterwards, and 
 about the same date, other citizens respectively subscribed to the 
 stock, on the same paper, to the aggregate .amount, including defend- 
 ant's subscription, of $190,000, of which over $65,000 has been paid 
 into plaintiff. Thereupon McDonald, in accordance with his proposi- 
 tion, subscribed the remaining $60,000, which he has, paid iip in full. 
 All the conditions expressed in the written subscription (Exhibit A) 
 having been fully performed and complied ^ith, the proposed corpo- 
 ration was afterwards, about April 25, 1887, organized, and these 
 subscriptions to its stock delivered over to it. The corporation, act- 
 ing in good faith upon such subscriptions, including that of defend- 
 ant, expended large sums of .money in locating and constructmg its 
 works, and entered into large contracts, and incurred liabilities to 
 the amount of over $75,000. During all this time, the corporation 
 had no notice or knowledge of any condition being attached to de- 
 fendant's subscription other than those expressed in the subscription 
 paper itself. Neither is it found or claimed that any of the other 
 subscribers to the stock had any such notice or knowledge. Deien^- 
 ant was not present at the organization of the corporation, and never 
 attended or took part in any of its meetings, and had no notice or 
 knowledge that the subscription paper had been transferred or de- 
 livered over to the plaintiff, or that plaintiff relied on itj until about 
 November, 1887, just prior to the commencement of this action. 
 
 Upon the trial the defendant was permitted, against plaintiff's ob- 
 jection and exception, to testify that he signed or subscjibed tO' the 
 stock only upon the express oral condition and agreement then had 
 
 '^ Statement of facts omitted. 
 
3) SUBSCRIPTION TO STOCK 151 
 
 reen him and Janney that the latter should retain in his posses- 
 said agreement with his name signed thereto, and not deliver 
 
 > any one, or use it ii^ any way, until certain four persons shotild 
 icribe to the stock, each in the sum of $5,000; that Janney took 
 agreement from defendant on that exprfess condition and under- 
 ding, and not otherwise; that none of these four persons ever 
 subscribe to the stock of the plaintiff; and that defendant never 
 lorized Janney or any one to deliver said agreement to any one 
 ;pt upon the condition referred to. The court found the facts to 
 in accordance with the testimony, and upon that ground found 
 I conclusion of law that defendant never became a subscriber to 
 
 plaintiff's stock. The competency of this evidence is the sole 
 stion in this case. 
 
 Jnder the ' elementary rule of evidence that a written agreement 
 not be varied or added to by parol, it is not competent for a sub- 
 ber to stock to allege that he is but a conditional subscriber. 
 : condition must be inserted in the writing to be effectual. This 
 i applies with special force to a case like the present, where to 
 w the defendant now to set up a secret parol arrangement by 
 ch he may be -released, while his fellow-subscribers continue to 
 bound, would be a fraud, not only upon them, but upon the cor- 
 ation which has been organized on the faith of these subscriptions 
 
 upon its creditors. The defendant of course does not attempt 
 controvert so elementary a rule as the one suggested, but con- 
 is that the effect of this evidence was not to vary or contradict 
 terms of the writing, but to prove that there was never any de- 
 fy of it, and hence that there never was any contract at all, de- 
 ry being prerequisite to the. very existence of a contract. His 
 m is that the subscription paper was given to and received by 
 ney merely as an escrow, or as in the nature of an escrow, only 
 je delivered or used upon the performance of certain conditions 
 :edent, and that until they were performed there could be no valid 
 very. 
 
 a determining this question it becomes important to consider the 
 are of a subscription to the stock of a proposed corporation, and 
 relation of the different parties to each other, 'under the facts of 
 
 case. A subscription by a number of persons to the stock of 
 orporation to be thereafter formed by them has in law a double 
 racter: First. It is a contract between the subscribers them- 
 es to become stockholders without further act on their part imme- 
 ely upon the formation of the corporation. As such a contract 
 
 > binding and irrevocable from the date of the subscription, (at 
 t in the absence of fraud or mistake,) unless canceled by consent 
 all the subscribers before acceptance by the corporation. Sec- 
 . It is also in the nature of a continuing offer to the proposed 
 poration, which, upon acceptance (by it after its formation^ be- 
 
152 , FORMATION (Ch. 3 
 
 comes as to each subscriber a contract between him and the cor- 
 poration. 1 Mor. Priv. Corp. § 47 et seq. ; Hotel Co. v. Friederick, 
 26 Minn.' 112, 1 N. W. 827. 
 
 Janney, the promoter who solicited and obtained the subscriptions, 
 occupied the position of agent fbr the subscribers as a body, to hold 
 the subscriptions until the corporation was formed in accordance 
 with the terms and conditions expressed in the agreement, and then 
 turn it over to the company without any further act of delivery on 
 part of the subscribers. The corporation would then become the 
 party to enforce the rights of the whole body of subscribers. It fol- 
 lows, then, that, considering the subscription as a contract between 
 the subscribers, a delivery to Janney by a subscriber was a complete 
 and valid delivery, so that his subscription became eo instanti a 
 binding contract. The case stands precisely as a case where a cop- 
 tract is delivered by the obligor to the obligee. It cannot therefore 
 be treated as a case where a writing has been delivered to a third 
 .party in escrow. 
 
 The defendant, however, attempts to bring the case within the 
 rule of Westman v. Krumweide, 30 Minn. 313, 15 N. W. 255, in 
 which this court held that parol evidence was admissible to show 
 that a note delivered by the maker to the payee was not intended to be 
 operative as a contract from its delivery, but only upon the happen- 
 ing of some contingency, though not expressed by its terms ; that is, 
 that the delivery was only in the nature of an escrow. We so held 
 upon what seemed the great weight of authority, although the doc- 
 trine, even to the extenj it was applied in that case, is a somewhat 
 dangerous one. The distinction between proving by parol that the 
 delivery of a contract was conditional, and that the contract itself 
 contained a condition not expressed in the writing, is one founded 
 more on refinement of logic than upon sound practical grounds. 
 It endangers the salutary rule that written contracts shall not be 
 varied by parol. Said Erie, J., in Pym v. Campbell, 6 EL & Bl. 370, 
 in sustaining such a defense: "I grant the risk that such a defense 
 may be set up without ground, and I agree that a jury should there- 
 fore look on such a defense with susp^tcion." And in all the cases 
 where such a defense has been sustained, so far as we can discover, 
 they have been cases strictly between the original parties, and where 
 no one has changed his situation in reliance upon the contract and 
 in ignorance of the secret oral condition attached to the delivery, and 
 hence no question of equitable estoppel arose. Many of the cases 
 have been careful to expressly limit the rule to such cases. Benton 
 V. Martin, 52 N. Y. 570; Sweet v. Stevens, 7 R. I. 375. 
 
 Conceding the rule of Westman v. Krumweide, supra, to its full 
 extent, there are certain well recognfzed doctrines of the law of 
 equitable estoppel which render it , inapplicable to the facts of the 
 present case. This subscription agreement was not intended to be the 
 
3) SUBSCRIPTION TO STOCK 153 
 
 contract of defendant. It was designed to be also signed by 
 ••parties, and from its very nature defendant must have known 
 Each succeeding subscriber executed it more or less upon the 
 of the subscriptions of others preceding his. The paper pur- 
 1 on its face to be a completed contract, containing all the terms 
 ;onditions which the subscribers intended it should. When this 
 :ment was presented to others for subscription defendant had 
 )nly signed, it in this form, but he had also done what, under 
 acts, constituted, to all outward appearances at least, a complete 
 ^alid delivery. He had placed it in the proper channel according 
 e ordinary and usual course of procedure for passing it over to 
 ;orporation when organized, and clothed Janney with all the in- 
 of authority to hold and use it for that purpose without any 
 • or further act on his part, untrammeled by any condition other 
 those expressed in the writing. In reliance upon this, others 
 not only subscribed to the stock, but have since paid in a large 
 : of it. The corporation has been organized and engaged in 
 less, expending large sums of money, and contracting large lia- 
 ss, all upon the strength of these subscriptions to its stock, and 
 itire ignorance of this secret oral condition which defendant 
 claims to have attached to the delivery. To permit defendant to 
 re himself from liability on any such ground under this state of 
 , would be a fraud on others who have subscribed and paid for 
 :, upon the corporation, which has been organized and incurred 
 ities in reliance upon the subscriptions, and on creditors who 
 trusted it. The familiar principle of equitable estoppel by con- 
 applies, viz. : Where a person, by his words or conduct, will- 
 causes another to believe in the existence of a certain state of 
 and induces him to act on that belief so as to /alter his own 
 ous condition, he is estopped from denying the truth of such 
 to the prejudice of the other. 
 
 •t have examined all of the numerous cases cited by defendant's 
 sel, and faihto find one which, in our judgment, is analogous in 
 lets, or the law of which will cover the present case. The two 
 1 at first sight might seem most strongly in his favor are Rail- 
 Co. V. Palmer, 19 Wis. 574, and Railroad v. Hall, 1 111. App. 
 But an examination of those cases will show that in neither 
 ir could any question of estoppel arise, and in both the court 
 that the person to whom the instrument was delivered after sig^ 
 e was a stranger to it, so that it was strictly a delivery in es- 
 to a third party. Cases are cited where a surety signed a bond 
 >n-negotiable note, and delivered it to the principal obligor upon 
 itioh that it should not be delivered to the obligee until some 
 person signed it, and where, without such signature, the prin- 
 obligor delivered it to the obligee, and yet the courts held that 
 urety was not liable, although the obligee had no notice of 
 
154 FOEMATION (Ch. 2 
 
 the condition. Such cases seem usually to proceed upon the theory 
 that a delivery to the principal obligor under such circumstaflces is 
 a mere delivery in escrow to a stranger ; the term "stranger," in the 
 law of escrows, being used in opposition merely to the party to 
 whom the contract runs. It may well be doubted whether in such 
 cases where the instrument is complete on its face the courts have 
 not sometimes ignored the law of equitable estoppel. No; such de- 
 fense would be allowed in the case of negotiable paper, and it is 
 not clear why the distinction should be drawn on that line. The doc- 
 trine of estoppel rests upon totally different grounds, and operates 
 independently of negotiability, being founded upon principles of 
 equity. But whether the cases referred to be right or wrong, we do 
 not see that they are in point here. 
 
 Our conclusion is that the court erred in admitting the evidence ob- 
 jected to, and for that reason a new trial must be awarded. Order 
 reversed.^' ' 
 
 COOK, Assigiiee, v. CHITTENDEN. 
 (Circuit Court, E. D. Michigan, 1885. 25 Fed. 544.) 
 
 On Motion for New Trial. 
 
 This was an action by the assignee of the State Insurance Com- 
 pany, of Chicago, to recover an assessment upon its capital stock. 
 The declaration averred in substance that the by-laws of the company 
 provided that the capital stock should be divided into shares of 
 $100 each, 20 per cent, of which was required to be paid in cash at 
 the time of subscription and delivery of the certificate of stock", and 
 that no further assessment should be made unless the original paid- 
 up capital should become impaired by losses; that on the^ twelfth 
 of July, 1870, the defendant subscribed for 50 shares of the stock, 
 ' paid the assessment, and received the certificate ; that in consequence 
 of the losses sustained by the Chicago fire in 1871 the company was 
 declared bankrupt, and plaintiff subsequently became its assignee; 
 that in July, 1882, an assessment of $25 a share was made, by an 
 order of the district court of Northern Illinois, for which this suit 
 was brought. The plea was that defendant never became a stock- 
 holder, and therefore was not liable for the assessment. A verdict 
 was directed for the defendant. The facts are stated in the opinion of 
 the court. 
 
 Brown, J. The only evidence offered by the plaintiff tending to 
 show the subscription was the stock-book of the company, in which 
 the name of the defendant apj)eared in the handwriting of the secre- 
 tary as the owner of 50 shares. This book was admitted upon the 
 authority of Turnbull v. Payson, 95 U. S. 421, 24 L. Ed. 437, in 
 
 88 Compare: Oilman v. Goss, 97 Wis. 224, 72 N. W. 885 (1897). 
 
i) SUBSCRIPTION TO STOCK 155 
 
 1 it was held that Where the name of an individual appeared on 
 tock-book of a corporation as a stockholder the presumption 
 that he was the owner of the stock, and in an action against 
 as a stockholder the burden of proving that he is not a stock- 
 ;r, or of rebutting that presumption, is cast upon the defend- 
 This was criticised as a mere dictum, but the point was directly 
 ved in the case, and we think the decision is controlling. 
 ;fendant then proved by his own testimony, and that of another 
 ;ss who was employed in aiding the agent of the company. to 
 lire subscriptions to the stock, that he agreed to take SO shares 
 le stock, provided he should be allowed to withdraw his sub- 
 tion at any time before the agent of the company left the city. 
 [id not know whether the condition was embodied in the subscrip- 
 or not. Before the agent left the city he notified him of his wish 
 ithdraw, to which the agent assented. The book containing the 
 criptions was subsequently destroyed. The 20 per cent, was 
 r demanded nor paid, nor was any certificate made out or deliv- 
 to him. How his name appeared upon the stock-book was not 
 lined. At this time the company was already organized, and 
 free from, debt, except its contingent liability upon policies al- 
 y issued. The question, then, is not whether the defendant had 
 DOwer to withdraw, after having made a valid and binding sub- 
 tion, but whether his contract to take the shares ever took effect 
 1, or he ever became a stockholder. There are numerous cases 
 le supreme court which hold that if an individual actually sub- 
 es for and agrees to take stock in a corporation, he will not be 
 litted, as against creditors, to set up fraudulent representations 
 le agent that he would only be responsible for a certain percent- 
 of the subscription, even though he receives a certificate with 
 vords "non-assessable" written across the face. Upton v. Tribil- 
 , 91 U. S. 45, 23 L. Ed. 203. 
 
 lere is no doubt that one who receives a certificate of stock for 
 ■tain number of shares at a stated sum per share, thereby be- 
 ;s liable to pay the amount thereof when called upon by the cor- 
 tibn or creditors; and in Hawley v. Upton, 102 U. S. 314, 26 
 d. 179, the court went still further, and'held that such obligation 
 hed to a party who had agreed simply to pay one-fifth of the 
 iralue of 10 shares received by him, though no certificate was 
 issued! There is no intimation, however, in any of these cases 
 an actvial subscription and intent to take stock is not necessary 
 reate the relation of stockholder. A by-law of this company 
 ided and required that 20 per cent, of the capital stock should 
 aid in cash at the time of the subscription and delivery of the 
 ficate. Whether the payment of this installment was a condition 
 ident to the valid organization of the company, or to the fur- 
 liability of the stockholder, may admit of some doubt. There 
 
156 FORMATION , (Ch. 2 
 
 are a large number of cases upon the question, most of which turn 
 upon the language of the charter. But conceding that if the certifi- 
 cate were tendered and refused an action would lie against the de- 
 fendant for the installment, it does not follow that the subscription 
 could not be canceled by mutual consent. It was evidently contem- 
 plated by the by-laws that the subscription, the delivery of the cer- 
 tificate, and the payment of the 20 per cent, should be practically con- 
 temporaneous acts, and there is no doubt in my mind that the agent 
 who acted for the corporation in receiving the money of a subscriber 
 had also authority to release him before the subscription i^as per- 
 fected; in other words, that if the subscription was not void by -rea- 
 son of the non-payment of 20 per cent, and the non-delivery of the 
 certificate, it was at least voidabie by the mutual assent of both par- 
 ties. There were no creditors then in existence to be defrauded. 
 The name of the defendant had not then been put upon the books 
 of the company as a stockholder. He had never acted or held him- 
 self out as a stockholder by voting for directors' or attending 
 meetings. 
 
 But even if the agent had no authority either to receive a condi- 
 tional subscription, or to release the ;def endant from his obligation 
 to take the ^tock, the failure of the company for the 17 months 
 which elapsed before its bankruptcy to insist upon the defendant 
 receiving the certificate and paying his installment was a ratification 
 of the agent's acts, and conclusive evidence that he never was looked 
 upon as a stockholder. The only case to which my attention has 
 been called which is supposed to conflict with this view is that of 
 White Mountains R. Co. v. Eastman, 34 N. H. 124. In this case de- 
 fendant's intestate agreed to take 30 shares of the capital stock of 
 a railroad. Before his death 13 assessments were ordered by the 
 directors, of which due notice was given the intestate, and it appeardc} 
 that he acted as one of the directors during the time of maKing the 
 assessment, and was present at a meeting of the board when 10 
 of the 13 were ordered. In defense, a paper was introduced, signed 
 by a clerk of the corporation, and contemporaneous with the sub- 
 scription, in which, in consideration of his taking the 30 shares, the 
 corporation agreed to release him from 25 of said shares, or such 
 portion thereof as he might within one year elect to withdraw from 
 his subscription ; and if he had been 'assessed and paid anything on 
 those shares that he elected to be released from, such payments 
 should be allowed him on the shares that he should retain in said cor- 
 poration. It was further shown that the subscriptions of the direc- 
 tors were so taken in order to show as large a subscription as possi- 
 ble at a hearing before the railroad commissioners upon the question 
 of the location of the road between this and another railroad corpo- 
 ration, and also to induce other persons to subscribe. It also ap- 
 peared that the board extended the time year after year for the 
 
I) ' SUBSCRIPTION TO STOCK 157 
 
 Dn to be made by the directors whether they would or not di- 
 h the number of shares for which they would be accountable, 
 : was admitted that the defendant, as administrator of Eastman, 
 notice to the corporation of his election not to take 25 of the 
 ares subscribed by him. 
 
 2 court held that if no person was to be affected by the contract 
 de parties themselves, it would be competent for them to make 
 ^reement for the reduction in the shares, and that the two 
 igs might be considered both as parts of the same agreement, but 
 :hey should be regarded as separate and independent contracts 
 ever it was necessary to so regard them to protect innocent 
 parties against the fraud attempted to be practiced upon them 
 cans of it. The court held the agreement for a reduction of 
 tiares to be void, and in delivering the opinion observed : "The 
 
 1 in this case consists not in the fact the parties agreed that the 
 ate should have the right to repudiate his subscription to a cer- 
 ;xtent, but in suppressing that material feature in the agreement, 
 n holding out to others as their contract one which speaks in 
 different terms from that which, in fact, they made. If the Gon- 
 ial character of the subscription had appeared upon the sub- 
 ion book itself, by inserting the provision that the intestate was 
 erty thus to reduce his subscription, no person could have been 
 /ed, and the contract would undoubtedly have been valid. The 
 ;s, for the purposes of deception, severed and disconnected the 
 tional stipulation from the contract, so as to render it on its 
 an absolute engagement by the intestate to pay for the thirty 
 s, and in this form held it out to others as their true contract." 
 e case under consideration obviously differs from this in the 
 that the defendant never perfected his subscription by taking his 
 icate and paying his first installment, and never acted or held 
 :lf out as a stockholder, and there was not the slightest evidence 
 
 intent on his part to defraud, or anything to warrant the belief 
 lefendant's name was ever used as an inducement to other per- 
 to subscribe. 
 
 2 case of Melvin v. Lamar Ins. Co., 80 111. 446, is equally want- 
 1 analogy. In this case the defendants took 5,500 shares of 
 
 in an insurance company, paid 20 per cent, down in cash, and 
 'ed certificates. The agreement under which they took the stock 
 led that they might, at their option, surrender it, when the cer- 
 es would be canceled and the money repaid. Subsequently all 
 tock was surrendered and canceled. Meantime, however, de- 
 nts were held out as large stockholders. This enabled the com- 
 to obtain ihe proper certificate from the state auditor's ofHce 
 o procure other subscribers to a large amount. The transac- 
 n3lS held to be a fraud partly upon the authority of the New 
 
158 FORMATION (Ch. 2 
 
 Hampshire case, which it much resembles, but for the same reasons 
 is not controlUng here. 
 
 The case, then, is substantially this : The defendant agreed to take 
 50 shares of stock, with the understanding that he might withdraw 
 within a certain time if he chose. He elected to withdravy within 
 this time, and notified the agent of the company, who assented to 
 such withdrawal, and released him. ' The directors of the company 
 made no effort during the life of the company t-o collect the install- 
 ment that should have been paid, or to tender him a certificate. 
 Twelve years thereafter, and long after the statute of limitations had 
 run against any action to recover the original assessment, he is sought 
 to be charged as a stockholder. The attempt to hold him as such is 
 so manifestly unjust that we feel no difficulty as to the proper dis- 
 position of the case. The motion for a new trial will therefore be 
 denied. 
 
 GRESS et al. v. KNIGHT et at. (six cases). 
 
 (Supreme Court of Georgia, 1910. 135 Ga. 60, 68 S. E. 834, 31 L. R. A. [N. 
 
 S.] 900.) 
 
 Proceedings for the appointment of receivers for the Bank of Way- 
 cross. A. M. Knight and others were appointed receivers, and M. 
 C. Gress and others intervene, praying for a rescission of their sub- 
 scription to the stock of the bank. Demurrers to the interventions 
 were sustained, and' interveners bring error. 
 
 The rescission is sought on the ground of the false and fraud- 
 ulent character of the representations made by the bank and its 
 agents to the interveners to induce the taking of the stock. Some 
 had paid for the stock, some had given notes therefor. The prayers 
 were for a rescission and other equitable relief. General and spe- 
 cial demurrers were filed. They were sustained and the interventions 
 dismissed; and the interveners each excepted.^" 
 
 Lumpkin J.*° 1. In England it is settled that after the com- 
 mencement of winding up proceedings against a corporation an ap- 
 plication to be relieved from liability as a shareholder on the ground 
 of fraud practiced upon him by agents of the company in procuring 
 the subscription comqs too late. Oakes v. Turquand, L. R. 2 H. L. 
 325 ; Stone v. City & County Bank, 3 C. P. Div. 282. By the com- 
 panies act of 1862 (Statutes at Large ; 25 & 26 Vict. 434, §§ 23, 26, 
 37, 38) every company was required to keep a register of members 
 or sharesholders, showing the name and address of each, and the 
 date of becoming a member and ceasing to be a member, and a 
 penalty was provided for a failure so to do. Once a year a list was 
 required to be made up and forwarded to the public registrar. The 
 
 »o Statement of facts abridged. *o a part of the opinion is omitted. 
 
i) . SUBSCRIPTION TO STOCK 159 
 
 er of members was made prima facie evidence of what it was 
 red^ to contain. On winding up every present and past member 
 had not ceased to be a member for a year was liable to con- 
 :e to the payment of debts. How far the English decisions may 
 been affected by the requirements of that act need not be con- 
 id. 
 
 this state there is no similar law. The courts must determine 
 uestion by applying general principles of equity. A -stockholder 
 )ies a threefold relation: First, to the corporation itself; see- 
 to other stockholders; and, third, to creditors of the corpora- 
 Fraud does not render a contract absolutely void, but voidable, 
 mains valid until repudiated or avoided. As between a stock- 
 ir and the corporation, unless special circumstances alter the 
 the general rule that contracts obtained by fraud may be 
 led by the party defrauded applies to a stock subscription in- 
 i by the fraud of the company through its authorized agents, 
 so where only the rights of other shareholders are affected ; the 
 )any being solvent and "a going concern." These matters are of 
 )aratively easy solution. But, where the rights of creditors are 
 ved, the question is one of greater difficulty, 
 me American decisions have announced in general terms the rule 
 down by the English courts ; but in most of them additional 
 mstances existed, such as receiving benefits after knowledge or 
 e of the fraud, acts done, after notice or knowledge, incon- 
 it with a disaffirmance, laches, estoppel, the intervening of rights 
 nocent third parties, or the like. Thus in Chubb v. Upton, 95 
 . 665, 667 (24 L. Ed. 523), Mr. Justice Hunt said: "It has 
 several times adjudged in this court that in an action by such 
 nee to recover unpaid subscriptions upon stock in such an or- 
 atjon • the defense of false . and fraudulent representations in- 
 ig such subscription cannot be set up, especially when the sub- 
 ;r has not been vigilant in discovering such fraud, aijid in re- 
 .ting his contract." 
 
 cannot be easily determined just how far a rule laid down in 
 ■al terms would be applied in the absence of the facts added 
 under an "especially." In the case just cited Chubb was sued 
 1 assignee in bankruptcy of the company. He sought to set 
 regularities and. informalities in the increase of capital stock 
 lich he became a subscriber, and also fraud in the procurement 
 > subscription. It appeared that he was president of a branch 
 e company, took part in its meetings, paid money on his stock, 
 it one time gave a proxy to another person to attend and vote 
 stockholders' meeting at the main office. He made no effort 
 ncel his subscription. The company incurred liabilities, and 
 idjudicated a bankrupt about 15 months after his subscription 
 ly he should not have been relieved. 
 
160 FORMATION (Ch. 3 
 
 In Upton V. Tribilcock, 91 U. S. '45, 23 L. Ed. 203, the share- 
 holder had delayed repudiating his subscription for three years and 
 until an assignee in bankruptcy had been appointed, and there were 
 other circumstances showing laches. Discussions of the subject will 
 be found in 2 Thompson on Corporations, §§ 1440, 1449; Upton v. 
 Engleh'art, 3 Dill., 496, Fed. Cas. No. 16,800; Farrar v. Walker, 3 
 Dill. 506, Fed. Cas. No. 4,679; Newton National Bank v. Newbegin, 
 74 Fed. 135, 20 C. C. A. 339, 33 D, R. A. 727, and note; Parker 
 V. Thomas (Ind.) 81 Am. Dec. 385, 401, note. A number of Ameri- 
 can decisions are to the effect that where one subscribes to stock 
 and the company proceeds to do business, incurs liabilities and 
 later fails and is adjudged a bankrupt, or its assets are placed in the 
 hands of a receiver for the purpose of winding it up, no rescission 
 will be allowed, unless under exceptional circumstances. Thompson, 
 Corporations, § 1450. * * * 
 
 When a person becomes a stockholder of a corporation, he be- 
 comes a part of it. Its agents are in a sense his agents. They go 
 out and deal with the public. If through their dealings debts are 
 incurred, assuming both the stockholder and the creditor to be in- 
 nocent and that one must suffer, the former, who put it in the 
 power of the agents to do the wrong, should suffer rather than third 
 parties who dealt with such agents. Civ. Code 1895, § 3940. As to 
 creditors whose claims arose after the stockholders became such, 
 their rights are superior to any right of rescission. The status of 
 a stockholder relative to creditors who became such after he took 
 the stock is not in all respects identical with that relative to ante- 
 cedent creditors. As to creditors whose debts were created before 
 he took the stock, questions of laches, acts inconsistent with re- 
 scission, estoppel, etc., might arise. The new stockholder may have 
 permitted the increase of indebtedness and the lessening of the assets 
 with which to pay. 
 
 It does not affirmatively appear in this case whether debts were 
 created after the interveners became stockholders, or their amount. 
 There was originally an allegation in each intervention on informa- 
 tion and belief that all the creditors were the same as those existing 
 before the new stock was issued; but this was stricken by amend- 
 ment. We do not think that it can be said as matter of law that 
 such laches or conduct on the part of the interveners affirmatively 
 appears on the face of the respective interventions as to authorize 
 us to declare that no rescission could be had, whatever may be devel-' 
 oped by the evidence. 1\ was error to sustain the general demurrers. 
 If the interventions were not otherwise demurrable, they did not be- 
 come so by reason of failing to negative the existence of any debts in- 
 curred after they took their stock. That was matter of defense to 
 the intervention under the facts alleged. 
 
J) SUBSCRIPTION TO STOCK 161 
 
 )st of the special demurrers were not meritorious. These were 
 riginal suits, but interventions in the main suit, where the assets, 
 s, and memoranda were in the hands of the receivers. The 
 al demurrers, if they were all sustained, would have required 
 ttaching to each intervention of a large part of the items from 
 books, in order to show insolvency, or that the representations 
 there were no overdrafts and that there was a large surplus, 
 were false. We do not think this wias necessary. When the 
 are shown, it can be made to appear whether a fraud was 
 r perpetrated on each of the interveners, whether there was 
 ack of diUgence in discovering such fraud or unreasonable delay 
 seking relief after its discovery, whether there was any active 
 cipation by the interveners in the management of the corpora- 
 or whether debts had been incurred after the intervener became 
 )ckholder, which either gave corporate creditors superior equi- 
 : rights or estopped the intervener from denying that he was a 
 [holder, and generally whether his conduct was such as to pre- 
 relief. * * * 
 
 dgment in each case reversed, with direction. All the Justices 
 ur, except Bbck, J., absent.** 
 
 D V. OWENSBORO SAVINGS BANK & TRUST CO. et al. 
 ROBERTS V. SAME. 
 
 ourt of Appeals of Kentucky, 1911. 141 Ky. 444, 132 S. W. 1026.) 
 
 )peals from Circuit Court, Daviess County, 
 lions by the Owensboro Savings Bank & Trust Company and 
 ler against Allen Reid and against M. L. Roberts to recover 
 ends paid when the corporation was insolvent. Defense that 
 lefendants were induced to take the stock by false representa- 
 as to the condition of the bank and value of the stock made 
 ificers of the bank, and praying that the stock be canceled. From 
 igment for plaintiffs in each action, defendant in each action 
 als." 
 
 ■RROLL, J.** * * * Defendants averred that at the time they 
 tiased the stock the bank was in fact insolvent, and that its condi- 
 was unknown to them. They each tendered to the receiver the 
 :s of stock issued to them, and asked that the contract be re- 
 ed and that they have judgment for the amount paid for the 
 :, less the dividends paid to them,~br that the amount paid by 
 
 ompare: Marion Trust Co. v. BUsh, 170 Ind. 686, 84 N. B. 814, 85 
 
 344, 18 L. R. A. (N. S.) 347 (1908). 
 
 Itatement of facts substituted. *» A part of the opinion is omitted. 
 
 KiCH.COBP. — 11 
 
162 FORMATION (Ch. 2 
 
 them, less the dividends, be treated as a claim against the bank. As 
 the real purpose of this defense was to obtain a rescission of the con- 
 tract upon the ground of fraud, we will so treat it, and not further 
 allude to the doctrine of equitable set-off presented in argument. 
 General demurrers jiled to these answers were sustained by the 
 lower court, upon the ground that the answers did not present a de- 
 fense to the action, and, declining to plead further, judgment was 
 rendered against the appellants for the dividends respectively received 
 by them. ' ' 
 
 We will take up and determine first the question of the right of 
 the appellants to have a cancellation of the stock, and a judgment 
 for the return of the money paid by them, less the dividends received. 
 In disposing of this question it may be conceded that when the 
 stock was purchased the bank was insolvent, and that neither of the 
 appellants knew this fact, and further conceded that they were in- 
 duced to and did purchase the stock by reason of the false and 
 fraudulent representations as to the value of the stock made to them 
 by the president and officers of the bank, and that they in good faith 
 believed at the time of their purchase that the bank was a solvent 
 and prosperous institution and its stock reasonably worth the amount 
 paid for it, which was largely in excess of its par value. 
 
 Assuming this much as true,- it may further be admitted that if 
 the bank had "not gone into insolvency, or the rights of depositors 
 and creditors would not be prejudicially affected, these stockholders 
 would have the right to a cancellation of their shares and a return 
 of the money paid for them, as it is well settled that, when a pur- 
 chaser of shares of stock in a bank or other corporation is induced 
 to make the purchase by reason of the false and fraudulent repre- 
 sentatioijs of the officers and directors of the corporation that the 
 concern is solvent and the shares worth the amount at which they 
 are offered to be sold, the purchaser may, upon the discover]} of the 
 fraud, if action is brought within seasonable tifne and during the 
 solvency of the corporation, have a cancellation of the stock and 
 a return of his money. Upon this point there is practical agreement 
 among the authorities, as may be seen by an examination of Fear 
 V. Bartlett, 81 Md. 435, 32 Atl. 322, 33 L. R. A. 721, and note; 
 Chamberlain v. Trogden, 148 N. C. 139, 61 S. E. 628, 16 Ann. Cas. 
 177, and note; Dorsey Machine Co. v. McCaffrey, 139 Ind. 545, 
 38 N. E. 208, 47 Am. St. Rep. 290; Coles v. Kennedy, 81 Iowa, 
 360, 46 N. W. 1088, 25 Am. St. Rep. 503; Virginia Land Co. v. 
 Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. Rep. 939; Zang v. 
 Adams, 23 Colo. 408, 48 Pac. 509, 58 Am. St. Rep. 249; Kentucky 
 Mutual Investment Co. v. Schaefer, 120 Ky. 227, 85 S. W. 1098, 
 27 Ky. Law Rep. 657; Prewitt v. Trimble, 92 Ky. 176, 17 S. W. 
 356/ 36 Am. St. Rep. 586; Cook on Stockholders, §§ 151-165; 
 Clarke and Marshall on Private Corporations, §§ 1478-1487. 
 
3) SUBSCRIPTION TO' STOCK 163 
 
 It the question here presented is : Has a stockholder the right 
 lis relief after the corporation has become insolvent, and pro- 
 ings have been instituted to wind 'up its affairs, and when to 
 t the relief would prejudice the rights of its creditors? Upon 
 question there is considerable diversity of opinion in the cases 
 have considered it. In some jurisdictions the right of a share- 
 er, when a fraud in the sale of stock has been practiced upon 
 by the corporation, to have a rescission of his contract, is not 
 ved after the corporation has become insolvent and proceedings 
 ; been taken to liquidate its affairs, although the fraud was not 
 Dvered before insolvency and there was no laches in failing to 
 Dver it. 2 Thompson on Corporations, §§ 1360-1378; Cook on 
 ;kholders, §§ 151, 154; Hinkley v. Oil & Pipe Line Co., 132 
 a, 396, 107 N. W. 629, 119 Am. St. Rep. 564; note to Fear v. 
 tlett, 81 Md. 435, 32 Atl. 322, 33 L,. R. A. 721. But a number 
 ourts of last resort, including our own, hold that if the share- 
 ler has been vigilant in discovering the fraud, and has not been 
 ty of any laches, he may rescind the contract after the corpora- 
 has become insolvent, and proceedings have been instituted to 
 i up its affairs. Newton National Bank v. Newbegin, 74 Fed. 
 20 C. C. A. 339, 33 L. R. A. 727; 10 Cyc. 440. * * * 
 1 brief, our conclusion is that, when a stockholder has been in- 
 ;d by the false or fraudulent representations of the officers of 
 trporation to purchase its stock, he may, during the solvency of 
 corporation, if the action is brought within' a reasonable time 
 r the fraud is discovered and before the statute of limitation has 
 ed it, have a rescission of his contract upon equitable terms or 
 iver the loss sustained by .the fraud. But if the corporation is 
 Ivent when the action for rescission or other relief is brought, or 
 roceedings have then been instituted to liquidate it^ affairs on 
 ground of insolvency, and the rights of creditors will be affected, 
 shareholder who has been induced by fraud or misrepresentation 
 lurchase stock cannot obtain relief from his contract, unless he 
 ime a stockholder so shortly before the insolvency as not to hiave 
 reasonable time or opportunity to investigate its affairs and 
 over the fraud, nor unless upon the discovery he without delay 
 rts his right to appropriate relief. Having this view of the' ques- 
 , we think the lower, court properly refused to permit the share- 
 iers to rescind their contracts. Scott v. Deweese, 181 U. S. 203, 
 Jup. Ct. 585, 45 L,. Ed. 822; Scott v. Abbott, 160 Fed. 573, 87 
 :. A. 475; Wallace v. Bacon (C. C.) 86 Fed. 553; Wallace v. 
 )d (C. C.) 89 Fed. 11 
 
 he remaining question is the right of Reid to set off against the 
 )n to recover dividends the deposit in the bank at the time it 
 t into the hands, of a receiver. Keeping in mind the settled 
 ;rine in this state that the assignee or receiver of an insolvent cor- 
 
164 POEMATION (Ch. 3 
 
 poration does not occupy any better position than his assignor, as 
 held in Kentucky National Bank v. Louisville Bagging Co., 98 Ky; 
 371, 33 S. W. 101, 17 Ky. Law Rep. 983, Exchange & Deposit Bank 
 V. Stone, 80 Ky. 109, Bridgford v. Barbour, 80 Ky. 529, and Ken- 
 tucky Mutual Investment Co. v. Schaefer, 120 Ky. 227-, 85 S. W. 
 1098, 27 Ky. Law Rep. 657, there is not much difficulty in reaching 
 the conclusion that the receiver could not recover from Reid $600, 
 when the institution of which he bepame receiver at the time it 
 was placed in his hands owed Reid $2,000. If the action had been 
 brought by the bank before it became insolvent to recover from 
 Reid these dividends, there could be no doubt that Reid could set off 
 against the claim the money on deposit by him in the bank, and his 
 rights in this particular are the same whfen the action is brought by 
 the receiver. Finnell v. Nesbit, 16 B. Mon. 351 ; Ely v. Horine, 5 
 Dana, 398; Harlan v. Lumsden, 1 Duv. 86. 
 
 Wherefore the judgment in the case of M. L. Roberts against the 
 appellee bank and trust company is affirmed, and the case of Allen 
 Reid against the appellee bank and trust company is reversed, with 
 directions for proceedings in conformity with this opinion. 
 
 SECTION 4.— PROMOTERS 
 I. The Promoter as a Fiduciary 
 
 PITTSBURG MIN. CO v. SPOONER et al. 
 
 (Supreme Court of Wisconsin, 1889. 74 Wis. 307, 42 N. W. 259, 17 Am. 
 
 St. Bep. 149.) 
 
 A complaint alleged, in substance, that defendants, having obtained 
 the right to purchase a certain mining option for $20,000, proceeded 
 to form a corporation to make such purchase, representing to the 
 persons who subscribed for stock that the option would cost $90,000 ; 
 and that, having first induced third persons to subscribe for the stock 
 upon such representations, and to pay to the corporation the sum 
 of $100,000 for their stock, the corporation then, through defend- 
 ants, its officers, purchased the option nominally for $90,000, paying 
 the $20,000 which it actually cost them with the money received by 
 the corporation from the sale of stock, and converting the remaining 
 $70,000 to their own use. The action was brought in the name of 
 the corporation, to recover the $70,000.** 
 
 ** Statement of facts substituted. 
 
4) PROMOTERS 165 
 
 (VYLOR, J.*" * * * (11) It is further alleged in the complaint 
 the amount paid to the owners of said option by the defendants 
 ehalf of the plaintiff was the sum of $20,000; that the amount 
 obtained by the defendants from the corporation on the fraudu- 
 pretext that such payment was $90,000, $70,000 of which the 
 mdants have diverted from the company, and fraudulently appro- 
 ted to their own use, and for this amount they are jointly in- 
 :ed to thp plaintiff as for so much money had and received to 
 lase, and the plaintiff demands judgment for the said sum of 
 000, with interest an3 costs. 
 
 this complaint the defendants demurred, and allege as grounds 
 iemurrer: (1) That the plaintiff has not legal capacity to sue; 
 that t4ie complaint does not state facts sufficient to constitute a 
 ie of action. Upon the argument of the demurrer in the circuit 
 rt, the court sustained the demurrer, and from the order sus- 
 ing the demu'rrer, the plaintiff appealed to this court. 
 
 Tpon the hearing of the appeal in this court, no contention was 
 le by the learned counsel for the respondents that the demurrer 
 properly sustained upon the first alleged ground, viz., that "the 
 ntiff has not legal capacity to sue." The only question argued 
 ength was whether the complaint stated facts sufficient to con- 
 ite a cause of action. The learned counsel, for the appellant cor- 
 ition contends that the complaint states facts constituting a cause 
 ction — First, upon the ground of actual fraud committed by the 
 mdants upon the company by the sale of the mining option to 
 company for a sum greatly in excess of its real value, brought 
 ut by false representations as to its actual cost ; and, second, that 
 ;ates a cause c^f action against the defendants as the promoters 
 the corporation, and, as such, holding a relation of trust and 
 fidence towards it; and that, acting as the agents and officers 
 he corporation, they sold to the corporation, and bought for the 
 joration, the mining option for the sum of $70,000 more than its 
 lal value and more than they paid for the same; that this was 
 e without the knowledge and consent of the real stockholders- of 
 corporation, and in fraud of their rights, and upon that ground 
 ' are liable to the corporation for the profits made by them on 
 
 1 sale to the corporation. The last alleged cause of action is 
 one upon which the learned counsel for the appellant mainly re- 
 in this court, and is the one in favor of which the main argu- 
 it of the learned counsel for the appellant is made. 
 Onsidering the defendants as the officers and promoters of the 
 joration at the time of the alleged purchase and sale complained 
 it seems to me very clear that — flaying out of view the fact that 
 money of the stockholders paid for their stock to the corpora- 
 
 A part of the opinion Is omitted. 
 
166 FORMATION (Ch. 2 
 
 tion, and which money was paid to defendants for the mining option, 
 was obtained by the issuing of full-paid shares to the stockholders. 
 * * * Under the allegations of the complaint we must treat the 
 alleged sale of the mining option to the defendant Main for the 
 entire stock of the corporation, viz., $1,000,000, as a mere subterfuge 
 and device to cover up the real transaction, which is substantially as 
 follows : 
 
 The defendants, having obtained a right to purchase the mining 
 option mentioned in the complaint for $20,000, proceeded to form 
 a corporation to make such purchase, representing to the persons 
 who subscribed for the stock that it would cost $90,000 to make 
 such purchase, and, having first induced other persons to subscribe 
 for the stock upon such representations, and to pay to the corpora- 
 tion upon or for their stock $100,000, the corporation then, through 
 its officers, the defendants themselves, purchased the option for 
 $90,000, paying the $20,000 which it cost them with the money re- 
 ceived by the corporation, and -converting the $70,000 to their own 
 use. This is the substance of what is alleged to have been done by 
 the company, and it appears to me to be immaterial as to the manner 
 of doing it. It being shown that the defendants formed the com- 
 pany for the purpose of purchasing this option, and having induced 
 the present stockholders to furnish $90,000 of their money to make 
 the purchase under the false impression created by the defendants 
 that the defendants would be compelled to pay that amount for the 
 purchase price, and the defendants having afterwards, as officers and ' 
 agents of the company, purchased for the cdmpany such option, and 
 paid themselves $70,000 more than they knew they could purchase 
 it for, and $70,000 more than they in fact paid for the same, it 
 seems to me there can be no doubt of their liability to refund to 
 the corporation the $70,000 so obtained. In making this statement 
 we are not, to be understood as making any charge of fraud or un- 
 fair dealing on the part of the very respectable citizens who are the 
 defendants in this action; all /that is intended is that, admitting that 
 the allegations of the complaint in this action are true, then the re- 
 sult indicated follows. The truth or falsity of these statenients are 
 not now under consideration. For the purposes of this case, the 
 defendants do not controvert them. 
 
 That the defendants were promoters of the corporation, and as 
 such, and as the officers bi the same, they assumed the position of 
 agents and trustees of the corporation in the transaction of its, busi- 
 ness, admitting the facts to be as stated in the complaint to be' true, 
 there can be no doubt. This is well established by the following 
 cases cited by the learned counsel for the appellant, viz. : Society v. 
 Abbott, 2 Beav. 559; Sombrero Phosphate Co. v. Erlanger, L,. R. 
 5 Ch. Div. 73; and Sewage Co. V. Har'tmont, Id. 394; 1 Mor. Priv. 
 Corp. § 291 ; In re Paper Box Co., L. R. 17 Ch. Div. 471. See, 
 
4) PROMOTERS 167 
 
 , the case of Railroad Co. v. Tiernan, cited by the learned counsel 
 the respondents, 15 Pac. 558, 559. 
 
 ssuming that these defendants were the promoters of this cor- 
 ition, and it being alleged in the complaint- that two of them 
 e the officers of the corporation when the sale and purchase 
 e made, they must be treated as the agents and trustees of the 
 poration, and as such their duties and obligations towards it are 
 rly defined by the authorities above cited. The learned judge, 
 deciding the case pf Railroad Co. v. Tiernan, cites the rule of 
 
 governing their action, as laid down by the supreme court of 
 ssachusetts in the cases of Parker v. Nickerson, 137 Mass. 487, 
 
 Same v. Same, 112 Mass. 195. In these cases the rule is stated 
 ioUows : "A trustee or agent cannot purchase on his own 'account 
 It he sells on account of another, nor purchase on account of 
 ther what he sells on his own account; * * * ^nd, if he 
 !S so, the cestui que trust or principal, unless upon the fullest 
 )wledge of all the facts Jie elects to confirm the act of the trustee 
 agent, may repudiate it, or he may charge the profits made by 
 
 trustee or, agent with an implied trust for his benefit." See 
 rrell v. Bank, 10 H. L. Cas. 26; Kimber v. Barber, L. R. 8 Ch. 
 Simons v. Mining Co., 61 Pa. 202. Thjs rule has been sanc- 
 led and affirmed by this court. See Puzey v. Senier, 9 Wis. 370 ; 
 kett V. School-Dist, 25 Wis. 551; Cook v. Mill Co., 43 Wis. 
 '<; In re Orphan Asylum, 36 Wis. 534. 
 
 !Jonstrued as I think the allegations in this case ought to be con- 
 led upon a demurrer, they present the case of trustees and agents 
 the corporation selling property to the corporation on the one 
 id, and on the other hand buying for the corporation and making 
 )rofit for themselves by the transaction of $70,000. Under the 
 s of law above stated the corporation may charge such profits 
 de by the trustees and agents with an implied trust for the benefit 
 the corporation, and may recover such money in an action brought 
 the corporation. i 
 
 t is urged against this claim that at the time of the sale and 
 ■chase there were no persons interested in the corporation except 
 
 said agents and trustees theniselves, and so no one was injured, 
 all parties then interested were fully aware of all the facts. We 
 
 not think this a true statement of the case. According to the 
 jgations of the complaint, all the present owners of the stock 
 re interested parties. They were in fact, the corporation, and the 
 endants represented them in making the sale, and not merely 
 mselves. 
 
 the relations which the defendants bore to the corporation in this 
 e, according to the facts alleged in the complaint, are well stated 
 
 Chief Justice Thompson in the case of Simons v. Mining Co., 
 >ra. After stating that it was claimed that the organized board of 
 
 I 
 
168 FORMATION (Ch. 2 
 
 directors was the company, and whatever It did could not be in- 
 quired into by the corporation put in motion by the instance of the 
 stockholders, he says: "This is an, error, and results from- over- 
 looking the fact that directors are but the agents and trustees of 
 the company; that they have power to act only for the interest of 
 the company, and not against it. The shareholders constitute the 
 company, where there is stock, and not the directors. It was there- 
 fore well put in the charge of the learned judge that the directors 
 .had no power to bind the stockholders by allowing profits to the 
 defendants, after holding out in their prospectus that the property 
 was obtained at original prices, and that the defendants could not 
 claim any if they hold out that they had purchased the property for 
 the company, and were conveying at original prices. A fraud per- 
 petrated against- the corporation by any or all of the directors may 
 assuredly be redressed by such an action in the name of the cor- 
 poration. As already said, they are its agents and trustees, which 
 implies accountability to their principal.',' 
 
 In the case of In re Paper Box Co., L. R. 17 Ch. Div. 471, the 
 master of the rolls says : "I quite agree to this : that, if promoters 
 make an arrangement to get a profit for themselves out of what is 
 appa'rently paid to the vendors, it is immaterial whether the contract 
 with the vendors is approved of by the directors of the company, 
 who are the promoters, just before the allotment or just after. In 
 both cases it is intended to cheat the future shareholders, and of 
 course it makes no difference whatever that the persons who at the 
 time the allotment was made were in fact the promoters, or their 
 nominees, knew of the fraud." 
 
 It seems to me, unless we are prepared to go contrary to the 
 cases above cited, and to very many others cited in the brief of the 
 appellant, we must hold that an action can be maintained in the 
 name of the corporation to redress the wrong alleged to have been 
 done by the defendants. \ 
 
 What would have been the relations of the defendants to the cor- 
 poration if they had in fact owned the mining option, and had 
 formed the corporation and issued full-paid stock to themselves for 
 such option, and transferred such stock to themselves in payment 
 for such mining option, and then, by exaggerated or false statements 
 as to the value of such mining option, or as to its actual cost, had 
 induced others to purchase from them such stock, need not be deter- 
 mined in this action; nor whether in such case any action for such 
 fraud could be maintained by the corporation. Under the allega- 
 tions of the complaint, such was not the transaction in this case. 
 In this case no sale to or purchase by the corporation was made 
 until all the stock, or nearly all, had been agreed to be taken by 
 other parties than the defendants, and, although the written agree- 
 ment which they signed stated that they were to buy the stock of 
 
1) PROMOTERS 169 
 
 idants, the allegations of the complaint show that at the time 
 contract was signed by the present stockholders the defendants 
 lot have or own any of the stock pf the corporation, nor did 
 
 own the mining- option. The allegations also show that no 
 : was ever issued to the defendants except to the amount of 
 00, and the balance of the stock was issued by the corporation 
 tly to the present holders; and the mining option was bought 
 le defendants and sold to the company after such stock 'had 
 
 subscribed and paid for by the present stockholders, with the 
 ly paid by the stockholders to the corporation, 
 hat is said by the learned author (1 Mor. Priv. Corp. § 292, p. 
 
 in commenting upon the Sombrero Phosphate Co. Case is 
 liarly applicable to the case at bar. In discussing the question 
 her the action would lie in favor of the corporation he says : 
 ore any shares had been issued the existence of the company 
 a fiction. The shareholders really formed the company, each 
 becoming a member when he took his shares. While the con- 
 
 for the purchase of the property was nominally in force from 
 ime of its approval by the board of directors, yet it really took 
 t only after the shareholders had taken their shares. It then 
 tne binding upon all the shareholders collectively, or, in other 
 Is, on the company. The fraud really consisted in inducing the 
 iholders to enter into this contract in their collective capacity, 
 in using the funds belonging to the shareholders collectively in 
 ig the purchase price. It is evident, -therefore, that the injury 
 le shareholders was an injury to their collective or corporate 
 ests, and that the company was thp proper complainant." 
 lese remarks are strictly applicable to the transaction in this 
 It is true that it is alleged that the defendants formed a cor- 
 tion under the statutes of this state, and that such corporation 
 ;d a resolution to permit the defendant Main to subscribe for 
 vhole capital stock, and pay for it by a transfer of the mining 
 n to the corporation; but it appears from the complaint that 
 re this was done an agreement had been made between the de- 
 mts and the corporation that other persons should become the 
 irs of the stock of the corporation, and pay a certain sum of 
 ;y for such stock, and thereby become the real parties constitut- 
 he corporation, and that their money should pay for the mining 
 in; and it further appears that the transfer was not made to 
 :orporation until after the real stockholders had become such 
 aying their money for the stock. The fraud in the- sale was 
 fore a fraud upon the collective interests of the shareholders, 
 
 was in the Sombrero Phosphate Co. Case, 
 king all the allegations of the complaint together, they charge 
 lefendants with purchasing tfie mining option for the sum of 
 00 from themselves for the benefit of the corporation, the cor- 
 
170 FORMATION (Ch. 2 
 
 poration at the time of the sale and purchase representing the present 
 holders of its stock, and not simply the interest of themselv^. That 
 this complaint states a good cause of action in favor of the corpora- 
 tion against the defendants, we think, is wd,l settled upon principles 
 and authority. The cases of Sombrero Phosphate Co. v. Eranger, 
 Sewage Co. v. Hartmont, and Simons v. Miniiig Co., supra, as well 
 as many of the other cases cited in the brief of the counsel for the 
 appellant, very clearly sustain this action. * * * 
 
 We think the complaint states a good cause of action in favor 
 of the plaintiff, and that the circuit court erred in sustaining the 
 demurrer to the complaint. The order of the circuit court is re- 
 versed, and the cause is remanded for further proceedings according 
 to law. 
 
 Lyon, J., dissents. 
 
 In re BRiTlSH SEAMLESS PAPER BOX CO. 
 (Court of Appeal, 1881. L. R. 17, Ch. Div. 467.) 
 
 Jessel, M. R.** * * * First of all, as far as I know, there 
 is' no case like this. If there were, I should only be too glad to 
 follow it. It is an entirely new case, and entirely distinguishable 
 from that of the Society of Practical Knowledge v. Abbott, 2 Beav. 
 5S9, before Lord Langdale, which was a very peculiar case. It was 
 simply this : The company was a chartered company, and by the 
 terms of the charter the shares wer;e to be paid for in cash, and 
 in no other way. The four 'gentlemen who obtained the charter al- 
 lotted the shares to themselves without paying for them in cash, and 
 sold them to other people, and then the corporation sued them for 
 the balance of cash due on their allotments. Lord Langdale held 
 that, having regard to the terms of the charter of the corporation, 
 these four gentlemen had no right to allot the shares to themselves 
 except for cash,, and therefore that the claim made by the bill Vvas 
 .well founded. 
 
 That case does not appear to me to have the slightest application 
 to a company formed as this is. The other case of New Sombrero 
 phosphate Company v. Erlanger appears to me also to have no ap- 
 plication. , I quite agree to this, that if promoters make an arrange- 
 ment to get a profit for tl;iemselves out of what is apparently paid 
 to the vendors, it is immaterial whether the contract with the vendors 
 is approved of by the directors of the company, who are the pro- 
 moters, just before the allotment or just after: in both cases it is 
 ■ intended to cheat the future shareholders; and of course it makes 
 no difference whatever that the persons who, at the l^ime the allot; 
 
 '*« The statement of facts and part oi the bpiiiion have been omitted. 
 
t) PROMOTERS • 171 
 
 was made, were in fact the promoters or their nominees, knew 
 le fraud. You can defraud future allottees as well as present 
 ees. Therefore that case appears to me to have no direct bearing 
 
 the case before me. 
 
 hat, then, is this case? I must say I am convinced of the 
 )ugh honesty of all parties engaged in the transaction. Of 
 3e, to a certain extent, the honesty of the parties engaged in a 
 ci|ilar transaction must naturally affect the case in the mind of 
 fudge who has to consider the transaction; but, as far as I 
 ;oncerned, -I always endeavour to administer justice fairly, ac- 
 ing to law, even if it should bear hardly on people, as it some- 
 5 does. I say "fairly," because my mind is affected — as every 
 ;e's mind must be affected — ^to some extent, at all events, by 
 : I will call the "morality" of the transaction. I should be more 
 3US to find reasons to trounce a rogue than I should be to find 
 Dns to rob an honest man. 
 
 le present question is this: Three Americans, who appear to 
 iventors, were possessed of a certain patent. Whether it is 
 ible or not I do not know — it has not been successfully worked 
 lis country; but it was supposed to be valuable. An English 
 iie6r of the name of'Ransome appears to have had some faith 
 ; at all events, he agreed to advance £2000 for the purpose of 
 •ducing a machine into this country to make seamless paper 
 :s according to the patent. This he agreed to do under an agree- 
 ; in writing of a very curious character, and the effect of 
 h it is very difficult to state in a few words. The' agreement is 
 i the 7th of January, 1874. In substance it was this, I think: 
 he was to advance £2000 to get the machine at work ; if he got 
 
 work satisfactorily the company was to be formed, he was to 
 E2000 worth of shares for his £2000 advanced, the three Ameri- 
 were to get £30,000 in shares out of a total capital of £50,000, 
 DUt of , those shares Mr. Ransome was to receive £6,000; but if 
 nachine turned out a failure, ^nd through no fault of Mr. Ran- 
 i's, he was then to be entitled to have a fifth of the patent, 
 hat the moment this agreement was signed Mr. Ransome was 
 ; treated as a substantial owner of one-fifth part of 'the patent. 
 
 was the substance of the agreement, 
 ten a meeting of the promoters was called, at which three other 
 emen were present. They divided the interest with the Eng- 
 lan, and they agreed to get up a company on the footing of 
 agreement of 1874; they not only knew all about it, but their 
 igement was to form a company on that footing; and it having 
 
 arranged to form what I will call for this purpose a private 
 )any — for it was not intended to come before the public at all — 
 rmal agreement, not a real agreement, was made on the 27th 
 ebruary, 1875, between the three Americans of the one part, and 
 
172 , FORMATION (Ch. 3 
 
 a Mr. Bennett, who was their nominee, of the other part, for the 
 nominal sale to the company of the patents for £32,000 in shares. 
 Of course this was a mere bit of form, with the view of launching 
 the company. The company was registered on the 4th of March, and 
 contemporaneously they prepared a memorandum of association to 
 carry out the formal agreement, with articles of association making 
 all the members of the company directors, with the exception of the 
 solicitor, who knew all about the formation of the company and was 
 the only additional person who came in to sign the memorandum of 
 association. The result was that, at the time of the formation of 
 the company, the company consisted of eight men, and it was not 
 intended to consist of any more. There was power, of course, to 
 issue the remainder of the shares, but the intention of these eight 
 men was to carry on -the company with these shares, and accprdingly 
 we find this, that there is a meeting of directors after the company 
 is formed, ratifying the formal agreement of 1875 and allotting the 
 shares, and allotting them on the principle of recognizing the agree- 
 ment of 1874, of which they were all aware, and which is actually 
 mentioned by its date in one of the early meetings of the directors: 
 so that they recognize Mr. Ransome's right to be treated as one of 
 the vendors, and to be paid his share of the purchase-money. 
 
 That .being so, it appears — though not so clearly as might be — 
 that the other directors thought that Mr. Ransome had incurred ex- 
 penses to the extent of £3000; but when they found that he had 
 only paid £2000, they insisted that the other £1000 should be ap- 
 plied by him in taking up £ 1000 worth of shares, which he did ; and 
 then, again, a few days after the formation of the company, it seems 
 that five shares apiece extra were given to the Messrs. Stevens (I 
 will assume that it was a bonus), apparently with the knowledge of 
 everybody, in consideration of their having furnished the* capital, 
 which they in fact did. 
 
 Now, if this company had been intended to be formed as a com- 
 pany in which the shares were to be taken by the public, and a pro- 
 spectus had been issued immediately after these transactions, con- 
 cealing them from the allottees, and the allottees had come in, and 
 afterwards, with reasonable promptitude, repudiated the contract, I 
 think a great deal could have been said in favor of their contention; 
 but that is not the case. The company went on, as they intended to 
 go on, with these eight people. In 1875 there is a regular general 
 meeting of the company, and the seal of the company is put to the 
 register of shareholders, treating it as then complete. I then find 
 another regular meeting of shareholders held on the 30th of June, 
 1876, and at that time there are still only eight shareholders, so that 
 the position of the company up to June, 1876, was this, that every 
 member of the company was perfectly well aware of the whole of 
 the transaction. It was confirmed in March, 18'75, and the members 
 
Sec. 4) PEOMOTBRa 173 
 
 carried on business for the whole period — ^that is, from March, 1875, 
 to June, 1876 — without attempting to repudiate the transaction, even 
 if they could have repudiated it. 
 
 What then was the position of the company — not the promoters 
 only-^as regards the vendors and as regards Mr. Ransome? They 
 are actually the same people with the exception of Mr. Tindell, but 
 the company itself had adopted this contract of 1874 with full 
 knowledge of every member of it (which is a case I never heard of 
 before), without any intention of bringing in any other shareholder, 
 without any notion of defrauding any future allottee, and had made 
 this bargain with knowledge of the facts. Is it possible to say that 
 the company is not bound by that? It would be impossible to say 
 so. The transaction was entirely bona fide in every respect. 
 
 What occurred subsequently was this : In June, 1876, the company 
 wanted more capital; Messrs. Stevens and the other English share- 
 holders were willing to contribute a lit-tle more, but not enough; 
 five gentlemen, who were strangers, then came in and joined the 
 company, and they had an allotment of shares to a considerable 
 amount no doubt, but not to a large amount. I agree it would have 
 been right that the agreement of 1874 should have been stated in the 
 memorandum and articles of association, and that is one reason why 
 I am not disposed to give costs to these gentlemen, because I think 
 their neglect in not so stating it has induced the liquidator to make 
 this application ; but, even assuming (and this is a point upon which 
 I give no opinion, because I have not heard the evidence fully) that 
 the people who' subsequently came in did not know what the original 
 transaction was, they would have no right to bring an action on 
 the facts, and say they were thereby induced to become members of 
 the company; that is, if they were defrauded at all. I give no opin- 
 ion as to what their state of knowledge was, because there is a con- 
 flict of evidence about it; but I cannot see that that would make 
 those persons guilty of misfeasance who had actually entered into 
 a contract with a bona fide company carrying on business, every ar- 
 ticle of which contract was known to every member of the company. 
 
 It appears to me that on the 30th of June, 1876, the company, hav- 
 ing acted on the contract with that knowledge, the subsequent allot- 
 ment of a portion, of the shares not being part of the scheme origi- 
 nally contemplated, were not bound to alter the relations between 
 the company and their vendors, and consequently that this application 
 which is made by the liquidator under the 16Sth section of the 
 Companies Act, 1862, must fail. 
 
 From this judgment the ofiicial liquidator appealed. The appeal 
 was heard on the 5th of April, 1881. 
 
 James, L. J. It appears to me that the Master of the Rolls has 
 really put the matter on the true footing in that passage of his judg- 
 ment in which he makes the question resolve itself into one of hon- 
 
174 FOEMATION (Ch. 2 
 
 esty or dishonesty. He was of opinion, and I agree with him, that 
 the directors were, and intended to be, thoroughly honest, and that 
 they were, and intended to remain, the sole proprietors of the prop- 
 erty of the company and the sole members of the company, and that 
 whatever agreements they chose to make among themselves as to the 
 division of the property, concerned themselves alone. That being 
 so, it distinguishes this case from the case of the Society of Practical 
 Knowledge v. Abbott, because in all these cases, when anything like 
 a' bonus has been given to directors, and it is called in question by 
 allottees of shares, the burden of proof is thrown on those who have 
 received it, to satisfy the Court that it was intended to be and was 
 in fact honestly received. If they were intending, although then con- 
 stituting the whole company, that other people should come in after- 
 wards to whom what had been done would be injurious, the Court 
 would feel no difficulty in saying, as Lord Langdale did in Society of 
 Practical Knowledge v. Abbott, 2 Beav. 559, that they intended to 
 commit a fraud. Here there was nothing of that kind. That is 
 the ground taken by the Master of the Rolls, and I concur in his 
 opinion. It is said that our decision in favour of these directors 
 ;nay open a door for dishonest, practices in future. But I think we 
 ought not to punish an honest man for an action in order that it 
 may discourage dishonest men from doing something like it. The 
 appeal must be dismissed with costs.*' 
 
 OLD DOMINION COPPER MINING & SMELTING CO., Pe- 
 titioner, v. LEWISOHN et al. 
 
 (Supreme Court of the United States, 1907. 210 U. S. 206, 28 Sup. Ct. 634, 
 
 52 L. Ed. 1025.) » 
 
 On writ of Certiorari to the United States Circuit Court of Ap- 
 peals for the Second Circuit to review a decree which affirmed a 
 decree of the Circuit Court for the Southern District of ^ New York, 
 sustaining a demurrer to, and dismissing, a bill brought by a corpora- 
 tion to rescind a sale of property to it by its promoters. Affirmed. 
 See same case below, 79 C. C. A. 534, 148 Fed. 1020.^ 
 Mr. Justice Holmes delivered the opinion of the court : 
 This is a bill in equity brought by the petitioner to rescind a sale 
 to it of certain mining rights and land by the defendants' testator, 
 or, in the alternative, to recover damages for the sale. The bill was 
 demurred to and the demurrer was sustained. 136 Fed. 915. Then 
 the bill was amended and again demurred to, and again the demur- 
 rer was sustained, and the bill was dismissed. This decree was af- 
 firmed by the circuit court of appeals. 79 C. C. A. 534, 148 Fed. 
 
 *> The concurring opinions of Brett and Cotton, L. JJ., have been omitted. 
 
Sec. 4) PROMOTERS 175 
 
 1020. The ground of the petitioner's case is that Lewisohri, the de- 
 'ceased, and one Bigelow, as promoters, informed the petitioner that 
 they might sell certain properties to it at a profit; that they made 
 their sale while they owned all the stock issued, but in contemplation 
 of a large further issue to the public without disclosure of their 
 profit, and that such an issue in fact was made. The supreme judicial 
 court of Massachusetts has held the plaintiff entitled to recover from 
 Bigelow upon a substantially similar bill. 188 Mass. 315, 108 Am. 
 St. Rep. 479, 74 N. E. 653. 
 
 The facts alleged are as follows: 
 
 The property embraced in the plan was the mining property of the 
 Old Dominion Copper Company of Baltimore, and also the mining 
 rights and land now in question, the latter being held by one Keyser, 
 for the benefit of himself and of the executors of one Simpson, who, 
 with Keyser, owned the stock of the Baltimore company^ Bigelow 
 and Lewisohn, in May and June, 1895, obtained options from Simp- 
 son's executors and Keyser for the purchase of the stock and the 
 property now in question. They also formed a syndicate to carry 
 diat their plan, with the agreement that the money subscribed by the 
 members should be used for the purchase and the sale to a new cor- 
 poration, at a large advance, and that the members, in the proportion 
 of their subscriptions, should receive in cash or in stock of the 
 new corporation .the profit made by the sale. On May 28, 1895, 
 Bigelow pai^ Simpson's executors for their stock on behalf of the 
 syndicate, in cash and notes of himself and Lewisohn, and in June 
 Keyser was paid in the same way. 
 
 On July 8, 1895, Bigelow and Lewisohn started the plaintiff cor- 
 poration, the seven members being their nominees and tools. The 
 next day the stock of the company was increased to 150,000 shares of 
 $25 each, officers were elected, and the corporation became duly or- 
 ganized. July 11, pursuant to instructions, some of the officers re- 
 signed, and Bigelow and Lewisohn and three other absent members 
 of the syndicate came in. Thereupon an offer was received from the 
 Baltimore company, the stock of which had befen bought, as stated, 
 by Bigelow and Lewisohn, to sell substantially all its property for 
 100,000 shares of the plaintiff company. The offer was accepted, and 
 then Lewisohn offered to sell the real estate now in question, ob- 
 tained from Keyser, for 30,000 shares, to be issued to Bigelow and 
 himself. This also was accepted and possession of all the mining 
 property was delivered the next day. The sales "were consummated" 
 by delivery of deeds, and afterwards, on July 18, to raise working 
 capital, it was voted to offer the remaining 20,000 shafes to the public 
 at par, and they were taken by subscribers who did not know of the 
 profit made by Bigelow and Lewisohn and the syndicate. On Sep- 
 tember 18 the 100,000 and 30,000 shares were issued, and it was voted 
 to issue the 20,000 when paid for. 
 
176 FORMATION (Ch. 3 
 
 The bill alleges that the property of the Baltimore company was 
 not worth more than $1,000,000, the sum paid for its stock, and the 
 property here concerned not over $5,000, as Bigelow and Lewisohn 
 knew. The market value of the petitioner's stock was not less than 
 par, so that the price paid was $2,500,000, it is said, for the Balti- 
 more company's property, and $750,000 for that here concerned. 
 Whether this view of the price paid is correct, it is unnecessary to 
 decide. 
 
 Of the stock in the petitioner, received by Bigelow and Lewisohn 
 or their Baltimore corporation, 40,000 shares went to the syndicate 
 as profit, and the members had their choice of receiving a like addi- ^ 
 tional number of shares or the repayment of their original subscrip- 
 tion. As pretty nearly all took the stock, the syndicate received about 
 80,000 shares. The remaining 20,000 of the stock paid to the Bal- 
 timore company, Bigelow and Lewisohn divided, the plaintiff believes, 
 without the knowledge of the syndicate. The 30,000 shares received 
 for the property now in question they also divided. Thus the plans 
 of Bigelow and Lewisohn were carried 6ut. 
 
 The argument for the petitioner is that all would admit that the 
 promoters (assuming the English phrase to be well applied) stood 
 in a fiduciary relation to it, if, when the transaction took place, there 
 were members who were not informed of the profits made and who 
 did not acquiesce, and that the same obligation of good faith extends 
 down to the time of the later subscriptions, which it was the pro- 
 moters' plan to obtain. It is an argument that has commanded the 
 assent of at least one court, and is stated at length in the decision. 
 But the courts do not agree. There is no authority binding upon us 
 and in point. The general observations in Dickerman v. Northern 
 Trust Co., 176 U. S. 181, 44 L. Ed. 423, 20 Sup. Ct. 311, were obiter, 
 and do not dispose of the case. Without spending time upon the 
 many "dipta that were quoted to us, we shall endeavor to weigh the 
 considerations on one side and the other afresh. 
 
 The difficulty that meets the petitioner at the outset is that it has 
 assented to the transaction with the full knowledge of the facts. It 
 is said, to be sure, that on September 18, when the shares were issued 
 to thp sellers, there were already subscribers to the 20,000 shares 
 that the public took. But this does not appear from the bill, un- 
 less it should be inferred from the ambiguous statement that on that 
 day it was voted to issue those shares "to persons who had sub- 
 scribed therefor," upon receiving payment, and that the shares "were 
 thereafter duly issued to said persons," etc. The v^rords "had sub- 
 scribed" may refer to the time of issue and be equivalent to "should 
 have subscribed," or may refer to an already past event. But that 
 hardly matters. The contract had been made and the property de- 
 livered on July 11 and 12, when Bigelow, Lewisohn, and some other 
 members of the syndicate held all the outstanding stock, and it is 
 
Sec. 4) FBOMOTBRS 177 
 
 alleged in terms that the sales were consummated before the vote 
 of July 18, to offer stock to the public, had been passed. . 
 
 At the time of the sale to the plaintiff, then, there was no wrong 
 done to any one. Bigelow, Lewisohn, and their syndicate were on 
 both sides of the bargain, and they might issue to themselves as much 
 stock in their corporation as they liked in exchange for their con- 
 veyance of their land. Salomon v. A. Salomon & Co. [1897] A. C. 
 22; Blum v. Whitney, 185 N. Y. 232, 17 N. E. 1159; Tompkins 
 V. Sperry, 96 Md. 560, 54 Atl. 254. If there was a wrong, it was 
 when the innocent public subscribed. But what one would expect 
 to find, if a wrong happened then, would not be that the sale became 
 a breach of duty to the corporation nunc pro tunc, but that the in- 
 vitation to the public without disclosure, when acted upon, became a 
 fraud upon the subscribers from an equitable point of view, accom- 
 panied by what they might treat as damage. For it is only by virtue 
 of the innocent subscribers' position and the piromoter's invitation 
 that the corporation has any pretense for a standing in court. If 
 the promoters, after starting their scheme, had sold their stock before 
 any subscriptions were taken, and then the purchasers of their stock, 
 with notice, had invited the public to come in, and it did, we do not 
 see how the company could maintain this suit. If it could not then, 
 we do not see how it can now. 
 
 But it is said that, from a business point of view, the agreement 
 was not made nferely to bind the corporation as it then was, with 
 only 40 shares issued, but to bind the corporation when it should have 
 a capital of $3,750,000; and the implication is that practically this 
 was a new and different corporation. Of course, legally speaking, a 
 corporation does not change its identity by adding a cubit to its stat- 
 ure. The nominal capital of the corporation was the same when the 
 contract was made and after the public had subscribed. Therefore, 
 what must be meant is, as we have said, that the corporation got a 
 new right from the fact that new men, who did not know what it 
 had done, had put in their money and had become members. It is 
 assumed in argument that the new members had no ground for a 
 suit in their own names, but it is assumed also that their position 
 changed that of the corporation, and thus that the indirect effect of 
 their acts was greater than the direct; that facts that gave them no 
 claim gave one to. the corporation because of them, notwithstanding 
 its assent. We shall not consider whether the new members had a 
 personal claim of any kind, and therefore we deal with the case 
 without prejudice to that question, and without taking advantage 
 of what we understand the petitioner to concede. 
 
 But, if we are to leave technical law on one side, and approach the 
 case from Ayhat is supposed to be a business point of view, there are 
 new matters to be taken into account. If the corporation recovers, 
 
 KICH.COBP.— 12 
 
] 78 FORMATION (Ch. 3 
 
 all the stockholders, guilty as well as innocent, get the benefit. It is 
 answered that the corporation is not precluded from recovering for 
 a fraud upon it, because the party committing the fraud is a stock- 
 holder. Old Dominion Copper Min. & Smelting Co. v. Bigelow', 188 
 Mass. 315, 327, 108 Am. St. Rep. 479, 74 N. E. 653. If there had 
 been innocent members at the time of the sale, the fact that there 
 were also guilty ones would not prevent a recovery, and even might 
 not be a sufficient reason for requiring all the guilty members to be 
 joined as defendants in order to avoid a manifest injustice. Stock- 
 ton V. Anderson, 40 N. J. Eq. 486, 4 Atl. 642. The same principle is 
 thought to apply when innocent members are brought in later under 
 a scheme. But it is obvious that this answer falls back upon the tech- 
 nical diversity between the corporation and its members, which the 
 business point of view is supposed to transcend, as it must, in order 
 to avoid the objection that the corporation has assented to the sale 
 with full notice of the facts. It is mainly on this diversity that the 
 answer to the objection of injustice is based in New Sombrero Phos-i 
 *phate Co. V. Erlanger, L. R. 5 Ch. Div. 73, 114, 122. 
 
 Let us look at the business aspect alone. The syndicate w^as a 
 party to the scheme to make a profit out of the corporation. Wheth- 
 er or not there was a subordinate fraud committed by Bigelow and 
 Lewisohn on the agreement with them, as the petitioner beheves, is 
 immaterial to the corporation. The issue of the stock was apparent, 
 we presume, on the books, so that it is difficult to suppose that at 
 least some members of the syndicate, representing an adverse inter- 
 est, did not know what was done. But all the members were engaged 
 in the plan of buying for less and selling to the corporation for more, 
 and were subject to wl;iatever equity the corporation has against Bige- 
 low and the estate of Lewisohn. There was some argument to the 
 contrary, but this seems to us the fair meaning of the bill. Bigelow 
 and Lewisohn, it is true, divided the stock received for the real estate 
 now in question. But that was a matter between them and the syn- 
 dicate. The real estate was bought from Keyser by the syndicate, 
 along with his stock in the Baltimore company, and was> sold by the 
 syndicate to the petitioner, along with the Baltimore company's prop- 
 erty, as part of the scheme. The syndicate was paid for it, whoever 
 received the stock. And this means that ^/is of the stock of the cor- 
 poration, the 20,000 shares sold to the public, are to be allowed to 
 use the name of the cofporation to assert rights against Lewisohn's 
 estate that will inure to the benefit of ^^/i^ of the stock that are 
 totally without claim. It seems to us that the practical objection is 
 as strong as that arising ifWe adhere to the law. 
 
 Let us take the business point of view for a moment longer. To 
 the lay mind it would make 'little or no difference whether the 20,000 
 shares sold to the public were sold on an original sfibscription to the 
 articles of incorporation or were issued under the scheme to some 
 
Sec. 4) PEOMOTHES 179 
 
 of the syndicate and sold by them. Yet it is admitted, in accordance 
 with the decisions, that, in the latter case, the innocent purchasers 
 would have no ,claim against anyone. If we are to seek what is called 
 substantial justice, in disregard of even peremptory rules of law, it 
 would seem desirable to get a rule that would cover both of the almost 
 equally possible cases^of what is, deemed a wrong. It might be said 
 that if the stock really was taken as a preliminary to selling to the 
 public, the subscribers would show a certain confidence in the en- 
 terprise, and give at least that security for good faith. But the syndi- 
 cate believed in the enterprise, notwithstanding all the profits that 
 they made it pay. They preferred to take stock at par rather than 
 cash. Moreover, it would have been possible to issue the whole stock 
 in payment for the property purchased, with an understanding as to 
 20,000 shares. 
 
 Of course, it is competent for legislators, but not, we think, for 
 judges, except by a quasi legislative declaration, to establish that a 
 corporation shall not be bound by its assent in a transaction of this 
 kind, when the parties contemplate an invitation to the public to 
 come in and join as original subscribers for any portion of the shares. 
 It may be said that the corporation cannot be bound until the contem- 
 plated adverse interest is represented, or it may be said that pro- 
 moters cannot strip themselves of the character of trustees ' until that 
 moment. But it seems to us a strictly legislative determination. It 
 is difficult, without inventing'new and qualifying established doctrines, 
 to go behind the fact that the corporation remains one and the same 
 after once it really exists. When, as here, after it really exists, it 
 consents, we at least shall require stronger equities than are shown 
 by this bill to allow it to renew its claim at a later date because its 
 internal constitution has changed. 
 
 To sum up : In our opinion, on the one hand, the plaintiff cannot 
 recover without departing from the fundamental conception embodied 
 in the law that created it, — the conception that a corporation, remains 
 unchanged and unaffected in its identity by changes in its members. 
 Donnell v. Herring-IIall-Marvin Safe Co., 208 tJ,. S. 267, 273, 28 
 Sup. Ct. 288, 52 L. Ed. 481; Salomon v. A. Salomon & Co. [1897] 
 A. C. 22, 30. On the other hand, if we should undertake to look 
 through fiction to facts, it appears to us that substantial justice would 
 not be accomplished, but rather a great injustice done, if the corpora- 
 tion were allowed to disregard its previous assent in order to charge 
 a single member with the whole results of a transaction to which 
 12/iB of its stock were parties, for the benefit of the gfiilty, if there 
 was guilt in any one,- and the innocent alike. We decide only what 
 is necessary. We express no opinion as to whether the defendant 
 properly is called a promoter, or whether the plaintiff has not been 
 oniilty of laches, or whether a remedy can be had for a part of a 
 smgie transaction m the torm m wnich it is sought, or whether there 
 
180 FORMATION (Ch. 2 
 
 was any personal claim on the part of the innocent subscribers, or as 
 to any other questio,n than that which we have discussed. 
 
 The English case chiefly relied upon, Erlanger v. New Sombrero 
 Phosphate Co., L. R. 3 App. Cas. 1218, Affirming L. R. 5 Ch. Div. 
 73, seems to us far from establishing a different doctrine for that 
 jurisdiction. There, to be sure, a syndicate had made an agreement 
 to sell, at a profit, to a company to be got up by the sellers. But 
 the company, at the first stage, was made up mainly of outsiders, 
 some of them instruments of the sellers, but innocent instruments, 
 and, according to Lord Cairns, the contract was provisional -on the 
 shares being taken and the company formed. (P. 1239.) There never 
 was a moment when the company had assented with knowledge of 
 the facts. The shares, with perhaps one exception, all were taken 
 by subscribers ignorant of the facts (L,. R. 5 Ch. Div. 113), and the 
 contract seems to have reached forward to the mothent when they 
 subscribed. As it is put in 2 Morawetz, Priv." Corp. (2d Ed.) § 292, 
 there was really no company till the shares were issued. Here ^'/lo 
 of the stock had been taken by the syndicate, the corporation was in 
 full life, and had assented to the sale with knowledge of the facts be- 
 fore an outsider joined. There, most of the syndicate were strangers 
 to the corporation, yet all were joined as defendants. (P. 1222.) 
 Here, the members of the syndicate, although members of the cor- 
 poration, are not joined, and it is sought to throw the burden of their 
 act i^on a single one. 
 
 Gluckstein v. Barnes [1900] A. C. 240, certainly is no stronger for 
 the plaintiff, and in Yeiser v. United States Board & Paper Co., 52 
 Iv. R. A. 724, 46 C. C. A. 567, 107 Fed. 340, another case that was 
 relied upon, the transaction equally was carried through after inno- 
 cent subscribers had paid for stock. Decree affirmed.** 
 
 DENSMORE OH. CO. v. DENSMORE et al. 
 (Supreme Court of Pennsylvania, 1870. 64 Pa. 43.) 
 
 Sharswood, J.*" There are two principles applicable to all partner- 
 ships or associations for a common purpose of trade or business, 
 which appear to be well settled on reason and authority. 
 
 The first is, that any man or number of men, who are the owners 
 of any kind of property, real or personal, may form a partnership or 
 
 4 8 Contra: Old Dominion Copper Co. t. Bigelow, 203 Mass. 159, 89 N. E. 
 193 (1908) ; s. c, 188 Mass. 315, 74 N. B. 653, 108 Am. St. Rep. 479 (1905) ; 
 Hayward v. Leeson, 176 Mass. 310, 57 N. B. 656, 49 L. R. A. 725 (1900); 
 Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030 (1909) ; Pietsch v. Milbrath, 
 123 Wis. 647, 101 N. W. 388, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 
 1017 (1905). Compare: Brlanger v. New Sombrero Phosphate Co., I* R. 3 
 App. Cas. 1218 (1878); Gluckstein v. Barnes, A. C. 240 (1900). 
 
 *» The statement of facts and the arguments of counsel are omitted. 
 
Sec, 4) PKOMOTEKS 181 
 
 association with others, and sell that property to the association at 
 any price which may be agreed upon between them, no matter what 
 it may have originally cost, provided there be no fraudulent misrep- 
 resentation made by the vendors to their associates. They are not 
 bound to disclose the profit which they may realize by the transac- 
 tion. They were in no sense agents or trustees in the original pur- 
 chase, and it follows, that there is no confidential relation between 
 the parties, which affects them with any trust. It is like any other 
 case of vendor and vendee. They deal at arms' length. Their part- 
 ners are in po better position than strangers. They must exercise 
 their own judgment as to the value of what they buy. As it is suc- 
 cinctly and well stated in Foss v. Harbottle, 2 Hare, 489 : "A party 
 may have a clear right to say, I begin the transaction at this time. I 
 have purchased land, no matter how or from whom, or at what price. 
 I am willing to sell it at a certain price for a given purpose." 
 
 This principle" was recognized and applied by this court in the re- 
 cent case of Mc'Elhenny's Administrators v. Hubert Oil Co., decided 
 May 11, 1869 (61 Pa. 188). "It nowhere appears," said the present 
 Chief Justice, "that McElhenny, the purchaser from Hubert, the orig- 
 inal owner, did it as the agent of Messrs. Baird, Boyd & Co. and oth- 
 ers, though he bought it to sell again, no doubt; he had a perfect 
 right; therefore, to deal with them at arms' length, as it seems he 
 did." And again: "If the property was not purchased by McEl- 
 henny for the use, and as agent for the company, but for his own use, 
 he might sell it at a profit,^ most assuredly. No subsequent purchas- 
 ers from his vendees would have any right to call upon him to account 
 for the profits made on his sale." In that case, McElhenny, being 
 the owner of property which had cost him only $4,000, sold it to 
 Baird,^ Boyd & Co., and others, who associated with him to form an 
 oil company for $12,000, and it was decided that the company could 
 not call him in equity, to account for the profit he had made. 
 
 The second principle is, that where persons form such an asso- 
 ciation, or begin or start the project of one, from that time they 
 do stand in a confidential relation to each other, and to all others who 
 may subsequently become members or subscribers, and it is not com- 
 petent for any of them to purchase property for the purposes of 
 such a company, and then sell it at an advance without a full dis- 
 closure of the facts. They must account to' the company for the 
 profit, because it legitimately is theirs. It is a familiar principle of 
 the law of partnership, one partner cannot buy and sejl to the part- 
 nership at a profit ; nor if a partnership is in contemplation merely, 
 can he purchase with a view to a future sale, without accounting for 
 the profit. Within the scope of the partnership business, each asso- 
 ciate is the general agent of the others, and. he cannot divest him- 
 self of that character without their knowledge and consent. This is 
 the principle of Hichens v. Congrove, 4 Russ. 562, Fawcett v. White- 
 
182 FOKMATION (Ch. 2 
 
 house, 1 Russ. & M. 132, and" the other cases which h^ve been re- 
 lied on by the appellants. It was recognized in McElhenny's Admin'rs 
 V. Hubert Oil Co., just cited ; and also in iSimons v. Vulcan Oil Co., 
 decided by this court May 11, 1869 (61 Pa. 202, 100 Am. Dec. 628). 
 Both of these cases were complicated with evidence of actual mis- 
 representations as to the original cost of thfe property to the vendors. 
 In the opinion of the court in the last case, delivered by Thompson, 
 C. J., it is said: "If the defendants in fact, acted as the agents of 
 the company in acquiring the property, they could, not charge a prof- 
 it as against their principal. Nor was their position any better if 
 they assumed so to, act without precedent authority, if their doings 
 were accepted as the acts of agents by the association or company. 
 If, in order to get up a company, they represented themselves as 
 having acted for the association to be formed, and proposed to sell 
 at the same prices they paid, and their purchases were taken on these 
 representations, and stockholders invested in a reliance upon them, 
 it would be a fraud on the company, and all those interested, to allow 
 them to retain the large profits paid them by the company in igno- 
 rance of the true sums actually advanced." The defendants in that 
 case were subscribers with others, to the stock of a projected oil 
 company, and after the plan had been formed, secured to them- 
 selves by contract, the refusal- of the property which they afterwards 
 sold to the company at a greatly advanced price. 
 
 The question now presented is, under which of these two principles 
 is the present case to be classified ? That will depend upon the facts, 
 which; though the testimony is somewhat voluminous, may be briefly 
 stated. Densmore, Roudebush and Canfield, three of the defendants, 
 were the owners of certain lands, leases and rights, in Veriango 
 county, in the oil region. They had acquired them, so far as ap- 
 pears, with no idea of disposing of them, or of forming a company, 
 but had spent over $100,000 in improving and developing them while 
 \they were owners. In March, 1864, they came to Philadelphia to 
 ascertain whether they could be sold to advantage. They called upon 
 Mr. Lawrence, another of the defendants, and consulted him as to 
 the best mode of effecting this object. They stated that they were 
 willing to accept $202,000, provided that sum could be procured clear 
 of all expenses. That seemed impossible, unless by naming a prtcje 
 so much beyond that sum as would cover all such probable expenses 
 and contingencies. The only mode by which so large an amount 
 could be realized, was by the organization of a stock company, and 
 to do that effectively persons must be employed as agents to sell or 
 solicit subscriptions to the stock; and they must be gentlemen of 
 character and influence, well acquainted with the subject, who could 
 bring the land to the notice of those desirou^ of engaging in such 
 an enterprise. The amount to be raised was large; the result un- 
 atTtain. Several agents must be employed, and their compensation 
 
Sec. 4) PROMOTERS 183 
 
 must be at a liberal, rate. It was arranged that the price should be 
 fixed at $250,000; that the stock should be 50,000 shares at $10 a 
 share, and $5 to be paid in cash. Mr. Densmore and his associates 
 agreed to take $122,500 in money, and the balanqe in stock, and that 
 from this stock they would compensate the agents for their services. 
 Mr. Densmore, who was examined as a witness on behalf of the ap- 
 pellants, testified: "The ' $122,500 was the proceeds of the sale of 
 24,500 shares. That added to the 16,000 shares we were to get, 
 amounted to 40,500 shares. The arrangement as I understood it 
 was, that Messrs. Lawrence, Hugel, Watson, and perhaps parties un- 
 known to me, were to receive the balance of the stock for their serv- 
 ices in forming the company, and disposing of the stock." The gen- 
 tlemen named were accordingly engaged for this purpose. They 
 proceeded and did sell the 24,500 shares in order to make the cash 
 payment. There was no subscription paper. Mr. Lawrence and his 
 associates did not subscribe for any stock. They did not appear, and 
 were not held out as subscribers to those who made purchases from 
 them. It is true, that after the company was organized, the stock 
 which thpy were to receive from Densmore, Roudebush and Canfield, 
 as a compensation for their services, was issued to them directly — not 
 to the vendors, a'nd by them transferred. But this was done by a 
 special order, as is satisfactorily explained in the testimony of E. B. 
 Schneider: "I heard Mr. Densmore request Mr.' Lawrence to have 
 the Densmore stock, which he (Mr. Lawrence), Watson, Hugel and 
 Whitney, were entitled to, issued direct to themselves, as he might 
 not be here when the certificates would be ready." It has not been, 
 and cannot be controverted, that the stock which they received was 
 part of that, which under the original terms of sale, Densmore, 
 Roudebush and Canfield, were to have in payment of the purchase- 
 money. 
 
 Now it can hardly be questioned, and indeed, apart from their al- 
 leged liability as confederates with the other defendants, it has not 
 been questioned, that Densmore, Roudebush and Canfield, fall within 
 the first principle hereinbefore stated.' They had, for a considerable 
 time, been the owners of the property, had acquired it with no refer- 
 ence to the formation of this or any other company and had im-^ 
 proved and developed it by a very large outlay of their own capital. 
 They had a clear and undoubted right to put their own price upon 
 it in the formation of a company, in which they were to be partners 
 or associates."* They did put upon it the price of $250,000, which 
 it is admitted at the rates at which such property was then selling in 
 the majket, was a fair and reasonable, nay, even a low price. "Froni 
 my knowledge of mining properties in the oil region at the time," 
 said N. B. Browne, Esq., in his testimony, "and especially of the 
 
 , so See Bentinck v. Fenn, D, R. 12 App. Cas. 652 (1887) ; . Milwaukee Cold 
 Storage Co. v. Dexter, 99 Wis. 214, 74 N. W. 976, 40 U E, A, 837 (189S>.. 
 
184 FORMATION (Ch. 3 
 
 leasehold and other interests conveyed to this company, I regarded 
 their interests at the price named, $250,000, as cheaper than any that 
 were offered in this market. Their actual productive value was very 
 great; the leases were on what was regarded as the best territory 
 oh Oil Creek." Had Messrs. Densmore, Roudebush and Canfield, 
 employed no agents, but sold all the stock themselves, the transaction 
 as to them could not have been impeached. They certainly stood in 
 no confidential relation to the subscribers or purchasers of the stock 
 in the future, when they acquired the property. This is necessary, 
 as we have seen. A company or partnership must have been then 
 formed or forming, or at least the project must have been started, in 
 order that any confidential relation should arise. How then is their 
 position varied by the fact that they employed agents and agreed to 
 compensate these agents by a transfer of a certain part of the stock 
 they were to receive? It is not easy to see. The whole $250,000, 
 money and st-ock, when received, was their own absolute property; 
 they could give or transfer it to whomsoever they pleased. If, as 
 we have seen, they stood in no confidential relation to the company, 
 no trust could attach to the price or any part of it in their hands. 
 We may dismiss, therefore, the case of Messrs. Densmore, Roude- 
 bush and Canfield, as clearly within the first principle to which we 
 have before adverted."^ 
 
 But what confidential relation did the other defendants sustain to 
 the purchasers of the stock or to the company? It is a clear and 
 unquestionable fact in the cause that they did not subscribe for a 
 single share. Their contract was with Densmore, Roudebush and 
 Canfield, to receive from them a part of their stock. Without an or- 
 der from them, Mr. Lawrence and the others could not have com- 
 pelled the company to issue any of it to them. If Densmore, Roude- 
 bush and Canfield, had received all the certificates to whic^ they 
 were entitled, and then refused to transfer, the only remedy of 
 Messrs. Lawrence and others, would have been against them to re- 
 cover damages for violation of their contract. It is clearly proved 
 that the paper among the exhibits headed "Subscription List to the 
 Densmore Oil Company," was made out by Mr. Lawrence after the 
 organization as a list of those to whom certificates of stock were to 
 be issued. The names of Lawrence, Whitney, Watson, and Hugel, 
 appeared on that list, but clearly ^only as appointees or assignees of 
 Densmore, Roudebush, and Canfield. The same appointment or 
 order might have been given by them to mere strangers. 
 
 It is strenuously contended, however, that if these defendants did 
 not stand in a confidential relation to the purchasers of stock, then 
 there was nobody who stood in that relation. But is there anythin-g 
 
 01 See Lydney Megpoal Iron Ore Go. v. Bird, L. R. 33 Ch. DIv. 85 (1886) ; 
 The Telegraph v. Loetscher, 127 Iowa, 383, 101 N. W. 773, 4 Ann. Cas. 667 
 (1904). 
 
Sec. 4) PROMOTERS 185 
 
 extraordinary in that ? Nine-tenths of the transactions and contracts 
 of Hfe are at arms' length. If a man buys stock in the market of a 
 broker, there is nobody who stands in any fiduciary relation to him. 
 He acts on his own judgment. He is bound to pay the broker the 
 price agreed, and the broker 15 bound when paid to deliver him the 
 stock. This was the only relation in which Lawrence, Whitney, 
 Huge! and Watson stood to those who bought stock from them, and 
 who according to all the testimony in the cause, so understood it. 
 They supposed, as they state, that these gentlemen were to receive 
 compensation for their services. What it was to be they did not 
 inquire, because it was none of their business. 
 
 A strong effort, however, has been made, to show that these de- 
 fendants, Lawrence, Whitney, Watson and Hugel, were purchasers 
 from Densmore, Roudebush and Canfield, of an interest in the prop- 
 erty, and sold it at an advance. But of this there is not a spark of 
 evidence. It can hardly be pretended that Densmore, Roudebush 
 and Canfield, could have held them liable on a contract to purchase 
 any interest in the land, or that the agents could in any event have 
 sued them for not conveying to them such interest. If this was so, 
 how can it be contended that they were vendors of any part of the 
 property to the company ? 
 
 Densmore, Roudebush and Canfield were first and last the only 
 vendors. They executed the deed, and very properly receipted for 
 the'whole of the purchase-money, for they were entitled to the whole 
 of it. ' Nor is the fact that Lawrence, Whitney, Watson and Hugel, 
 joined with Densmore, Roudebush and Canfield, as original corpo- 
 rators, and signed the articles for the organization of the company, 
 under the Act of July 18th, 1863 (Pamph. L. 1864, p. 1102), a fact 
 of any significancy. That act does not require that the corporators 
 should be subscribers to stock. They need have no interest what- 
 ever in the company to be formed. They are mere instruments of 
 the law for purposes of preliminary organization. The moment that 
 is accomplished, the amount required as capital paid in, the necessary 
 certificate signed, and the charter granted, they are functi officio. 
 The corporation is thenceforth composed of the stockholders. 
 
 It is supposed that the cases of McElhenny's Administrators v. 
 Hubert Oil Co., and Simons v. Vulcan Oil Co., before referred to, 
 ought to rule this cause. But an examination of the opinions in 
 those cases will show that the facts upon which they were decided, 
 were entirely differeiit from those which appear on this record. The 
 defendants there were subscribers to the stock; they became pur- 
 chasers of the property after the project of a company was started, 
 and moreover, falsely represented that they had purchased it at the 
 same price at which they sold. 
 
 These facts, which were the grounds upon which those determina- 
 tions were based, are not, as we have seen, the iActs of this case. It 
 
1 86 FORMATION (Ch. 2 
 
 is not pretended that any false representation was made by any of 
 these defendants in the sale of the stock. Some other points have 
 been raised, which are, however, sufficiently disposed of in the opinion 
 below. 
 
 Decree affirmed and appeal dismissed at the costs of the appellants. 
 
 II. Promoters' Contracts and Corporate Liabii^ity 
 
 PENN MATCH CO. v. HAPGOOD et al. 
 (Supreme Court of Massachusetts, 1886. 141 Mass. 145, 7 N. E. 22.) 
 
 The declaration in an action by a corporation alleged that certain 
 persons agreed to form a corporation under general laws, if they 
 could obtain certain machinery from the defendant, and to build a 
 factory for the manufacture of/ certain goods; that such persons in- 
 formed the defendant of the premises, and, in the name and for the 
 benefit of the proposed corporation, applied to the defendant, who 
 was a manufacturer of the machinery desired, for 'such machinery, 
 and informed the defendant that the proposed corporation would 
 proceed with its organization and would build a factory only in case 
 a contract could be made, with the defendant for the machinery-; that 
 thereupon the defendant made two contracts in writing, one of which 
 was under seal, to furnish the corporation with the machinery upon 
 certain specified terms ; that afterwards, in anticipation of the de- 
 fendant's fulfilling his agreement a factory was built for the corpora- 
 tion ; that said machinery could not be procured otherwise than from 
 the defendant, which he well knew; that the persons named, in be- 
 half of the proposed corporation, before its organization was com- 
 pleted, were always ready to receive and pay for said machinery, and 
 frequently demanded the same, but the defendant neglected and re- 
 fused to furnish said machinery or any part thereof; and that said 
 corporation was now duly organized and existed under the general 
 laws.^'' 
 
 W. Ai<LEN, J. The plaintiff was not in existence when the writings 
 were made, and cannot maintain 4he actions unless it became a party 
 to the contracts after its incorporation. There is no ground for the 
 contention of the plaintiff that the declaration shows the existence 
 of the corporation, though unorganized, sufficient to be a party to a 
 contract, as in Vermont Cent. R. R. v. Clayes, 21 Vt. 30. All that is 
 alleged is th^ verbal conditional agreement of certain individuals to 
 form a corporation under general laws. The power of a corporation 
 
 6 2 Statement of facts substituted. 
 
Sec. 4) PROMOTERS 187 
 
 to make contracts can be exercised in accepting and adopting pro- 
 posed contracts, made in its name and behalf, before its incorporation. 
 Such a contract must derive its validity from the meeting of minds 
 when both parties are in existence ; until then, it can be nothing more 
 than an offer by one party. The writings, as between the plaintiff 
 and the defendants, show no more than proposals by the defendants,, 
 revocable at any time before acceptance by the plaintiff after its 
 incorporation. The fact that one is under seal is immaterial in this 
 respect. 
 
 The. only consideration shown for the defendant's promises is the 
 acceptance of them by the plaintiff, and the promise to accept and pay 
 for the goods implied in that ; and the acceptance must be by some 
 act or assent of both parties, which will fix the rights of both, and 
 is as essential to a promise under seal as by parol. The defendants 
 could not be bound until such acceptance by the plaintiff as -would 
 give them a right of action against it for a refusal to accept and pay 
 for the goods. There is no allegation of acceptance by the plaintiff 
 after its incorporation. The demand is not stated as an att of ac- 
 ceptance respecting the contract, but, in connection with the refusal, 
 to show a breach of an existing contract. 
 
 The plaintiff contends that it was a consideration of the contract, 
 moving from it, that it should perfect its organization, and purchase 
 a building and prepare to carry on business ; or that the proposals of 
 the defendants were made in view of these acts, and of the expecta- 
 tion that the plaintiff should accept them when it should be competent 
 to, and should do the other acts relying on t^e contracts; and that 
 the plaintiff h3s done the acts accordingly.! A corporation may be- 
 come bound to fulfill a contract made, in its name and behalf, in an- 
 ticipation of its existence, by afterwards accepting the benefits of the 
 contract, as it. may acquire a right to enforce such a contract against 
 the other party by his acceptance of performance by the corporation. 
 Low V. Connecticut & P. R. R. R., 45 N. H. 370, relied on by the 
 plaintiff, is an instance of the former; and the common liability of 
 subscribers of stock, of the latter. ' 
 
 In the case at bar the formation of the corporation and procuring 
 ,a building were no part of the contract, or of the consideration of it. 
 There was no agreement to do the acts, and the doing of them was 
 not made by the parties a consideration upon which the contract was 
 to arise. The promises or proposals of the defendants, though a mo- 
 tive for doing the acts by the plaintiff, are not alleged to have been 
 inducements offered by the defendants, nor are the acts alleged to 
 have been done at their request. The defendants are not so connected 
 with the acts to be done by the plaintiff that they would have a right 
 to regard the doing of them as the acceptance of the proposals so 
 that, without 9ther acts of acceptance by the plaintiffs, they could 
 have maintained an action against it upon refusal to accept and, pay 
 
18g FORMATION (Ch. 3 
 
 for the goods. See Dayton, etc., Turnpike Co. v. Coy, 13 Ohio St. 
 .84. The declaration alleges contracts made before the plaintiff had a 
 legal existence, and does not show any contract to which the plaintiff 
 was a party. 
 Judgment for the defendants. 
 
 S3 
 
 BATTELLE v. NORTHWESTERN CEMENT & CONCRETE 
 
 PAVEMENT CO. '' 
 
 (Supreme CJourt of Minnesota, 1887. 37 Minn. 89, 33 N. W. 327.) 
 
 The defendant was incorporated on March 27, 1884. The plaiur 
 tiff was one of the promoters and organizers of the defendant, and 
 became an incorporator, stockholder, director, and officer. On June 
 26, 1884, he sold his stock, and ceased to have any interest in the de- 
 fendant. On. January 16, 1884, the plaintiff purchased certain real 
 and personal property used in the business of laying down concrete 
 pavements, giving back a mortgage for part of the purchase money. 
 On March 27, 1884, he sold and conveyed this property to the de- 
 fendant, which agreed, as alleged, to assume and pay the mortgage. 
 Default was made in the payment of the mortgage, and it was duly 
 foreclosed, the property not selling for enough to pay the whole 
 amount of the mortgage debt. The plaintiff, being liable for the 
 deficiency, brought this action in the district court for Hennepin 
 county, to recover the amount thereof. The action -v^as tried before 
 Lochren, J., and a jury, and plaintiff had a verdict. Among other 
 facts, it appeared on the trial that a preliminary agreement was made 
 by the plaintiff on March 13, 1884, with two other' persons, for the 
 transfer of the above-mentioned property to a corporation to be 
 formed, and it was in evidence that the defendant was organized and 
 the transfer was made in pursuance of this agreement; the parties, 
 to the preliminary agreement becoiping the incorporators. Defend- 
 ant appeals from an order refusing a new trial. 
 
 Gii<Fii<LAN, C. J. It is self-evident that a corporation is not bound 
 by engagements of its "promoters," (i. e., those who bring about its 
 organization,) assuming to contract for it in advance. It cannot have 
 agents till it has an existence. The promoters are not the corpora- 
 tion, and their contracts cannot be its contracts. This is so, though 
 the promoters become, at the creation of the corporation, its only 
 stockholders, directors, and officers. After it comes into existence 
 
 B 8 Accord: Carmody v. Powers, 60 Mich. 26, 26 N. W. 801 (1886). 
 
 On a demurrer to a declaration on the same contract by the promoters, it 
 was held that the promoters were entitled to recover. Abbott let al. v. Hap- 
 good et al., 150 Mass. 248, 22 N. B. 907, 5 I* R. A. 586, 15 Am. St. Rep. 193 
 (1889). 
 
Sec. 4) PROMOTERS 189 
 
 and operation, it may, by adopting the engagements thus made for 
 it in advance, make them its contracts, precisely as it might make 
 similar contracts had no previous engagements been entered into. 
 There can be no difference between its making' a contract by adopt- 
 ing an agreement originally made in advance for it by promoters, 
 and its making an entirely new contract. No greater formality can 
 be I'equired in the one case than in the other; and if it could make 
 an entirely new similar contract, without the use of its seal, or with- 
 out writing, or without formal action of its board of directors, it may 
 also so adopt, an agreement assumed to be made for it in advance by 
 promoters. It is not requisite that such adoption or acceptance be 
 express, but it may be shown from acts or acquiescence of the cor- 
 poration or its authorized agents as any similar contract may be 
 shown. 
 
 It is true that the relations between the promoters and the agents 
 and shareholders may be such, or the engagements made in advance 
 by the promoters be of such a character, that the matter of adoption 
 will be scrutinized by the courts with great strictness. The highest 
 degree of fairness is required. In this case no complaint can be 
 made as to the fairness of the transaction. Not only did every stock- 
 holder and director and officer of the corporation, after it was 
 formed, know that the property was conveyed to it upon the agree- 
 ment that, when formed, it should assume and pay the indebtedness 
 , to which the property was subject, but each of them was a party to 
 that agreement. After receiving the benefit of the previous engage- 
 ment, and accepting and using the property in its business, knowing 
 that, as part of the price of the property, the corporation was to 
 pay the indebtedness, it can hardly be permitted now to deny its lia- 
 bility to pay it; a^d the same may be said as to the claim that, be- 
 cause plaintiff was a director, the agreement of the corporation, by 
 its adoption of the. previous arrangement with him, was not binding 
 upon it. The rule that a contract between a director of a corporation 
 and the corporation is voidable at the instance of the latter, or of 
 its stockholders, cannot be applicable to a case where all interested in 
 the corporation, its officers, directors, and stockholders, not only 
 know of but consent to it, and where the property acquired by the 
 corporation under the contract is kept and used by it, no one dis- 
 senting. 
 
 The evidence was sufficient to sustain a verdict for plaintiff, within 
 the rules herein stated. Order affirmed."* 
 
 8* Compare In re Northumberland Hotel Co., L. R. 33 Oh. D. 16 (1886);- 
 Howard v. Patent Ivory Co., L. R. 38 Ch. D. 156 (1888). 
 
 For a discussion of the liability of corporations on contracts made by pro- 
 moters, see 19 Harv. Law Rev. 97. 
 
 Mitchell, J., in McArthur v. Times Printing Co., 48 Minn. 319, 51 N. W. 
 216, 31 Am. St. Rep. 653 (1892): "The defendant, however, claims that the 
 contract was void under the statute of frauds, because 'by its terms not to be 
 
V 
 190 FORMATION (Ch. 2 
 
 KELNER V. BAXTER et al. 
 (Common Pleas, 1866. L. R. 2 C. P. Cas. 174.) 
 
 At the trial before Erie, C. J., at the sittings in London after last 
 Trinity term, the following facts appeared in evidence: The plain- 
 tiff was a wine merchant, and the proprietor of the Assembly Rooms 
 at Gravesend. In August, 1865, it was proposed that a company 
 should be formed for establishing a joint-stock hotel company at 
 Gravesend, to be called the Gravesend Royal Alexandra Hotel Com- 
 pany, Limited, of which' the following gentlemen were to be the di- 
 rectors, viz. : Mr. L. CaHsher, Mr. T. H. Edmands, Mr. M. Davis, 
 Mr. Macdoriald, Mr. Hulse, Mr. N. J. Calisher (one of the defend- 
 ants), and the plaintiff. The plaintiff was to be manager of the pro- 
 posed company, and Mr." Dales (another of the defendants) was to 
 be the permanent architect. One part of the scheme was that the 
 company should purchase the premises of the plaintiff for a sum 
 of £5000 of which £3000 was to be paid in cash, and £2000 in paid- 
 up shares, the stock, etc., to be taken at a valuation; and this was 
 carried into effect and completed, the other defendant (Baxter) being 
 the nominal purchaser on behalf of the company. In December a 
 prbspectus was settled. On the 9th of January, 1866, a memorandum 
 of association was executed by the plaintiff and the defendants and 
 others. 
 
 Pending the negotiations the business had been carried on by the 
 plaintiff, and for that purpose additional stock had been purchased 
 by him ; and on the 27th of January, 1866, an agreement was entered 
 
 performed within one year from the making thereof,' which counsel assumes 
 to be September 12th, the date of the agreement between plaintiff and the pro- 
 moter. This proceeds upon the erroneous theory that the act of the corpora- 
 tion, in such cases, is a ratification, which relates back to the date of the con- 
 tract with the promoter, under the familiar maxim that 'a subsequent ratifi- 
 cation has a retroactive effect, and is equivalent to a prior command.' But 
 the liability of the corporation, under such circumstances, does not rest upon 
 any principle of the law of agency, but upon the Immediate and voluntary ad 
 of the company. Although the ^cts of a corporation with reference to the 
 contracts made by promoters in ' its behalf before its organization are fre- 
 quently loosely termed 'ratification,' yet a 'ratification,' properly so called, im- 
 plies an existing person on whose behalf the contract might have been made 
 at the time. There cannot. In law, be a ratification of a contract which could 
 not have been made binding on the ratifler at the time it was made, because 
 the ratlfier was not then in existence. In re Empress Engineering Co., 16 Ch. 
 Div. 125 (1880) ; Melhado v. Porto Alegre, N. H. & B. Ry. Co., L. R. 9 C. P. 
 503 (1874) ; Kelner v. Baxter, L. R. 2 C. P. 174 (1866). ' What is called 'adop- 
 tion,' in such cases, is, in legal effect, the making of a contract of the date 
 of the adoption, and not as of. some former date. The contract in this case 
 was, therefore, not within the statute of frauds. The trial court fairly sub- 
 mitted to the jury all the issues of fact in this case, accompanied by instruc- 
 tions as to the law which were / exactly in the line of the views we have 
 expressed, and the evidence justified the; verdict." 
 
Sec. 4) PROMOTERS 191 
 
 into for the transfer of this additional stock to the company, in the 
 following terms : 
 
 "January 27th, 1866. 
 
 "To John Dacier Baxter, Nathan Jacob Calisher, and John Dales, 
 on behalf of the proposed Gravesend Royal Alexandra Hotel Com- 
 pany, Limited — ^Gentlemen : I hereby propose to sell the extra stock 
 now at the Assembly Rooms, Gravesend, as per schedule hereto, for 
 the sum of £900, payable on the 28th of February, 1866. 
 
 "[Signed] John Kelner." 
 
 Then followed a schedule of the stock of wines, etc., to be pur- 
 chased, and at the end was written as .follows : 
 
 "To Mr. John Kelner — Sir : We have received your offer to sell 
 the extra stock as above, and hereby agree to and accept the terms 
 proposed. , [Signed] J. D. Baxter, 
 
 , "N. J. Calisher, 
 "J. Dales, 
 * "On ' Behalf of the Gravesend Royal Alexandra Hotel 
 
 Company, Limited." 
 
 In pursuance of this agreement the goods in question were handed 
 over to the company, and consumed by them in the business of the 
 hotel; and on the 1st of February a meeting of the directors took 
 place, at which the following resolution was passed: "That the ar- 
 rangement entered into by Messrs. Calisher, Dales, and Baxter, on 
 behalf of the company, for the purchase of the additional stock on 
 the premises, as per list taken by Mr. Bright, the secretary, and 
 ' pointed out by Mr. Kelner, amounting to £900 be, and the same is 
 hereby ratified." There was also a subsequent ratification by the 
 company, viz. on the Uth day of April, but this was after the com- 
 mencement of the action. 
 
 The articles of association of the company were duly stamped on 
 the 13th of February, and on the 20th the company obtained a cer- 
 tificate of incorporation under the 25 & 26 Vict. c. 89. 
 
 The company having collapsed, the present action was brought 
 against the defendants upon the agreement of the 27th of January. 
 
 On the part of the defendants oral evidence was tendered for the 
 purpose of showing that it never was intended that they should be 
 personally liable ; but his Lordship rejected it. It was then submitted 
 that, inasmuch as the agreement was not entered into by the defend- 
 ants personally, but only as agents for the hotel company, they there- 
 by incurred no personal obligation to the plaintiff, who was himself 
 one of the promoters. 
 
 For the plaintiff it was insisted that, there being no company in 
 existence at the time of the agreement, the parties thereto had ren- 
 dered themselves personally liable ; and that there could be no ratifi- 
 cation of the contract by a subsequently created company. 
 
 A verdict was taken for the plaintiff for £900, subject to leave re- 
 
192 FORMATION (Ch. 3 
 
 served to the defendants (upon giving security) to move to enter a 
 nonsuit, on the ground that the agreement of the 27th of January did 
 not make them personally liable." 
 
 ErlE, C. J. I am of opinion that this rule should be discharged.. 
 The action is for the price of goods sold and delivered : and the ques- 
 tion is whether the goods were delivered to the defendants under a 
 contract of sale. The alleged contract is in writing, and commences 
 with a proposal addressed to the defendants, in these words: "I 
 hereby propose to sell the extra stock now at the Assembly Rooms, 
 Gravesend, as per schedule hereto, for the sum of £900, payable on 
 the 28th of February, 1866." Nothing can be more distinct than this 
 as a vendor proposing to sell. - It is signed by the plaintiff, and is 
 followed by a schedule of the stock to be purchased. Then comes 
 the other part of the agreement, signed by the defendants, in these 
 words : "Sir, We have received your oiifer to sell the extra stock as 
 above, and hereby agree to and accept the terms proposed." If it 
 had rested there, no one could doubt that there was a distinct pro- 
 posal by the vendor to sell, accepted by the purchasers. A difficulty 
 has arisen because the plaintiff has at the head of the paper ad- 
 dressed it to the plaintiffs, "on behalf of the proposed Gravesend 
 Royal Alexandra Hotel Company, Limited," and the defendants have 
 repeated those words after their signatures to the document ; and the 
 question is, whether this constitutes any ambiguity on the face of 
 the agreement, or prevents the defendants from being bound by it. 
 I agree that if the Gravesend Royal Alexandra Hotel Company had 
 been an existing company at this time, the persons who signed the 
 agreement would have signed as agents of the company. But, as 
 there was no company in existence at the time, the agreement would 
 be wholly inoperative unless it were held to be binding on the de- 
 fendants personally. 
 
 The cases referred to in the course of the argument fully bear out 
 the propositioh that, where a contract is signed by one who professes 
 to be signing "as agent," but who has no principal existing at the 
 time, ai;id the contract would be altogether inoperative unless bind- 
 ing upon the person who signed it, he is bound thereby ; and a stran- 
 ger cannot by a subsequent ratification reUeve him from that respon- 
 sibility. When the company came afterwards into existence it was a 
 totally new creature, having rights and obligations from that time, 
 but no rights or obligations by reason of anything which might have 
 been done before. It was once, indeed, thought that an inchoate 
 liability might be incurred on behalf of a proposed company, which 
 would become binding on it when subsequently formed : but that no- 
 tion was manifestly contrary to the principles upon which the law of 
 contract is founded. There must be two parties to a contract ; and 
 
 6 6 The pleadings have been omitted. 
 
Sec. 4) PROMOTERS 193 
 
 the rights and obligations which it creates cannot be transferred by 
 one of them to a third person who was not in a condition to be 
 bound by it at the time it was made. The history of this company 
 makes this construction to my mind perfectly clear. It was no doubt 
 the notion of all the parties that success was certain: but the plain- 
 tiff parted with his stock upon the faith of the defendants' engage- 
 ment that the price agreed on should be paid on the day named. It 
 cannot be supposed that he for a moment contemplated that the pay- 
 ment was to be contingent on the formation of the company by the 
 28th of February. The paper expresses in terms a contract to buy. 
 And it is a cardinal rule that no oral evidence shall be admitted to 
 show an intention different from that which appears on the face of 
 the writing. 
 
 I come, therefore, to the conclusion that the defendants, having no 
 principal who was bound originally, or who could become so by a 
 subsequent ratification, were themselves bound, and that the oral 
 evidence offered is not admissible to contradict the written contract. 
 
 WiLLES, J. I am of the same opinion. Evidence was clearly inad- 
 missible to show that the parties contemplated that the liability on 
 this contract should rest upon the company and not upon the persons 
 contracting on behalf of the proposed company. The utmost it could 
 amount to is, that both parties were satisfied at the time that all 
 would go smoothly, and consequently that no liability would ensue 
 to the defendants. The contract is, in substance, this, "I, the plaintiff, 
 agree to sell to you, the defendants, on behalf of the Gravesend 
 Royal Alexandra Hotel Company, my €tock of wines ;" and, "We, 
 the defendants, have received your offer and agree to and accept the 
 terms proposed, and you shall be paid on the 28th of February next." 
 Who is to pay? The company, if it should be formed. But, if the 
 company should not be formed, who is to pay? That is tested by 
 the fact of the immediate delivery of the subject of sale. If pay- 
 ment was not made by the company, it must, if by anybody, be by 
 the defendants. That brings one to consider whether the company 
 could be legally liable. 1 apprehend the company could only become 
 liable upon a new contract. It would require the assent of the plain- 
 tiff to discharge the defendants. Could the company become liable by 
 a mere ratification ? Clearly not. Ratification can only be by a per- 
 son ascertained at the time of the act done — by a person in existence 
 either actually or in contemplation of law ; as in the case of assignees 
 of bankrupts and administrators, whose title, for the protection of 
 the estate, vests by relation. The case of an executor requires no 
 such ratification, inasmuch as he takes from the will. It is unneces- 
 sary, however, to pursue this further. In addition to the cases cited 
 at the bar, I would refer to Gunn v. London and Lancashire Fire 
 Insurance Company, 12 C. B. N. S. 694 (E. C. L. R. vol. 104), 
 
 RiCH.COBP. 13 V 
 
194 FORMATION (Ch. 2 
 
 where this Court, upon the authority of Payne v. New South Wales 
 Coal and International Steam Navigation Company, 10 Ex. 283; 24 
 L. J. Ex. 117, held that a contract made between the projector and 
 the directors of a joint-stock company provisionally registered, but 
 not in terms made conditional on the completion of the company, 
 was not binding upon the subsequent completely registered compa- 
 ny, although ratified and confirmed by the deed of settlement: and 
 Williams, J., said that, "to make a contract valid, there must be par- 
 ties existing at the time who are capable of contracting." That is an 
 authority of extreme importance upon this point; and, if ever there 
 could be a ratification, it was in that case. . 
 
 Both upon principle and upon authority, therefore, it seems to me 
 that the company never could be liable upon this contract: and, as 
 was put by my Lord, construing this docurtient ut res magis valeat 
 quam pereat, we must assume that the parties contemplated that_the 
 persons signing it would be personally liable. Putting in the words 
 "on behalf of the Gravesend Royal Alexandra Hotel Company" would 
 operate no more than if a person should contract for a quantity of 
 corn "on behalf of my horses." As to the suggestion that there 
 should have been a special count, that is quite a mistake. There need 
 not be a special count unless there was a person existing at the time 
 the contract- was made, who might have been principal. The com- 
 mon count perfectly well represents the character of the liability which 
 these defendants incurred. It is quite out of the' question to suppose 
 that there was any mistake. The document represents the real trans- 
 action between the parties. I think that the course taken at the trial 
 was perfectly correct, and that the rule should be dischai'ged. 
 
 Rule discharged."* 
 
 In re ENGLISH & COLONIAL PRODUCE CO., Limited. 
 (Court of Appeal, 1906, 2 Ch. Div. 435.) 
 
 This was a summons taken out in the winding-up of the English 
 and Colonial Produce Company, Limited (below called the Produce 
 Company), by Messrs. Dyson, Smith & Marchant, solicitors, to re- 
 view the taxation of a bill of costs delivered by them to that company. 
 
 A company named "The English and Colonial Forage Company, 
 Limited" (below called the Forage Company), passed special resolu- 
 tions for winding-up voluntarily and authorizing its Uquidator to 
 enter into an agreement with a new company (the Produce Company) 
 for the sale of its assets on certain terms, one of which was that the 
 
 i>« The concurring opinions of Byles and Keating, JJ., have been omitted 
 
Sec. 4) PEOMOTBKS 195 
 
 Produce Company should take over the liabilities of the Forage 
 Company. 
 
 The solicitors alleged that the Forage Company, before going into 
 liquidation, instructed them to do what was necessary to form the 
 Produce Company. 
 
 On November 2, 1901, according to a minute in a book of the 
 Produce Company, a meeting of the following persons was held, 
 namely, Messrs. Church, Sutton, Meyer, Porritt, and Sternberg, at 
 which the memorandum and articles of association were read, and it 
 was resolved that the solicitors of the company be instructed to forth- 
 with register the company. 
 
 These five persons did in fact on November 2, 1901, sign the mem- 
 orandum and articles of the Produce Company, and a member of 
 the firm of solicitors attested their signatures. 
 
 On November 9, 1901, the solicitors registered the company, and 
 paid to the Registrar of Joint Stock Companies the registration fees, 
 amounting to £33 2s. 6d. The company was formed to acquire the 
 undertaking of the Forage Company, and also the business of Messrs. 
 Meyer & Porritt. 
 
 Clause 109 of the articles of association of the Produce Company 
 provided as follows: "The business of the company shall be man- 
 aged by the directors, who may pay all such expenses of and pre- 
 liminary and incidental to the promotion, formation, establishment 
 and registration of the company as they think fit." 
 
 In July, 1902, an order was made for the winding-up of the Prod- 
 uce Company, and, in accordance with the directions of Kekewich, 
 J., in an action by the company against the solicitors, the solicitors 
 lodged certain bills of costs in the winding-up proceedings. The bill 
 of costs now in question was taxed by Mr. Registrar Hood, who dis- 
 allowed items, amounting to i216 14s. 6d., covering counsel fees, filing 
 and printing fees, incident to the formation of the Produce' Company. 
 
 The solicitors in their objection to the taxation said that the For- 
 age Company originally instructed them to do what was requisite to 
 form the Produce Company which was to acquire its assets, and they 
 relied on the minute of November 2, 1901, as showing that the pes- 
 sons who subsequently became directors confirmed the instructions 
 of the Forage Company. They also relied on the agreement of the 
 Produce Company to pay the debts of the Forage Company, and on 
 clause 109 of the articles of association of the Produce Company. 
 
 The registrar disallowed the objection on the following grounds: 
 "The costs in question appear to have been authorized by certain 
 persons who afterwards joined the board of the company ; but though 
 the company had power to pay, they never took any steps to pass any 
 resolution to that effect. The company are therefore not liable to pay 
 the costs of the registration of the company." 
 
 The solicitors thereupon took out a summons to review the taxa- 
 
196 FORMATION (Ch. 3 
 
 tion in respect of the disallowance of the items amounting to £216 
 14s. 6d." 
 The summons was heard before Buckley, J., on May 30, 1906. , 
 BucKi,EY, J. I have to review the taxation by the registrar in com- 
 panies winding-up of a bill of costs in respect of certain items, amount- 
 ing in the aggregate to i216 14s. 6d., which have been disallowed by 
 him. I will deal first with two items of il60 and. £16 10s., which 
 are, shortly stated, for work relating to the formation of a company 
 and to the preparation of its memorandum and articles of .association. 
 As appears by the bill, there were attendances on Messrs. Church, 
 Sutton, Porritt, and Meyer as to forming a new company to take 
 over the business of the Forage Company and of Messrs. Meyer & 
 Porritt, and instructions were given for the memorandum and ar- 
 ticles for the incorporation of the new company. The persons giv- 
 ing those instructions were prima facie the persons I have named. 
 The solicitors iii their objectipns state that the Forage Company prior 
 to going into voluntary liquidation originally instructed the solicitors 
 to do what was requisite to form the Produce Company to acquire 
 the assets, and that in pursuance of such instructions they did all 
 things necessary before the resolution for the voluntary winding-up 
 of the Forage Company was passed. The first entry in the minute- 
 book of the Produce Company is the minute of a meeting on Novem- 
 ber 2, 1901, of the four persons mentioned in the bill and a Mr. Stern- 
 berg, and at that meeting the memorandum and articles of association 
 were read and signed, and it was resolved "that the solicitors of the 
 company be instructed to forthwith register the company." The 
 Produce Company was incorporated on November 9, 1901, and its 
 memorandum and articles were then filed with the Registrar of Joint 
 Stock Companies. Therefore the liability for the work done by the 
 solicitors had already been incurred before the incorporation , of the 
 Produce Company. 
 
 Under these circumstances the question arises, who retained the 
 solicitors, and did the solicitors 4o the work intending to look for 
 payment to the Produce Company, when incorporated, or to the gen- 
 Jtlemen I have mentioned? The registrar finds as a fact, and in my 
 judgment rightly, that these gentlemen retained the solici|:ors. The 
 Produce Company, after it was incorporated, took the benefit of the 
 work done by the solicitors. Is the company rendered liable by that 
 fact to pay for the work done? The doctrine which is applicable 
 is to be found in the judgment of Fry, L,. J., in In re Rotherham 
 Alum and Chemical Co., [1883] 25 Ch. D. 103, 111. The Lord Jus- 
 tice says : "The appellant rests his case on two grounds. One is that 
 where a person takes property on which labour has been expended 
 and gets the benefit of that labour he must pay for it. As pointed 
 dut by Lord Justice Lindley, that is by no means universally true. 
 
 Bi statement of facts abridged. 
 
Sec. 4) ^ PROMOTERS 197 
 
 It is not true where the work was done for the vendbr of the prop- 
 erty, and that was the case here, these costs having been incurred 
 on the retainer of Mycock." That statement mutatis mutandis, ap- 
 plies here. I hold that the case is governed by In re Rotherham 
 Alum and Chemical Co. (1883) 25 Ch. D. 103, 111, and that the 
 company was not liable for the costs incurred in respect of its pro- 
 motion. 
 
 The fee of £33 12s. 6d. paid by the solicitors to the Registrar of 
 Joint Stock Companies on registering the company stands upon a 
 different footing. By section 17 of the Companies Act, 1862, the 
 memorandum and articles are to be delivered to the Registrar of 
 Joint Stock Companies, and "there shall be paid to the registrar by 
 a company having a capital divided into shares" — and the Produce 
 Company was such a Company — certain fees. Under that section and 
 a subsequent Act of Parliament the company became liable to pay the 
 fees on its registration amounting to i33 12s. 6d. The solicitors paid 
 that sum, which the company was under a statutory liability to pay 
 to the revenue authorities, and the solicitors were in my judgment 
 entitled to charge the company in respect of this item.°* As to the 
 other claims which the registrar has disallowed, it was for the so- 
 licitors to make out that they were entitled to make the charges, and 
 they have failed to do so. In respect of the first item, the charge of 
 £160, the solicitors have craved in aid clause 109 of the articles of 
 association. But that clause is really inconsistent with the sugges- 
 tion that the company was liable for all the expenses of the forma- 
 tion, establishment, and registration of the company. The result is 
 that the certificate of the registrar is varied to this extent, that the 
 fee of £33 12s. 6d. is allowed, and that his decision as to the other 
 items is affirmed, and I make no order as to the costs. 
 
 The Court, being of opinion that the solicitors had been instructed 
 by Messrs. Church, Suttop, Porritt and Meyer, held that the com- 
 pany was not liable for the items in dispute; but, it appearing that 
 the company had already paid the solicitors £100 for work done in 
 connection with its formation, they held that the solicitors were en- 
 titled to appropriate that payment to those items, and referred the 
 taxation back to the registrar to review on this footing; and they 
 made no order as to the costs of the appeal. 
 
 Vaughan Williams, L,. J. I wish to say one word about the 
 proposition which was put forward by Mr. Gore-Browne, and for 
 which he cited a passage from the judgment of MelUsh, L. J., in Re 
 Hereford and South Wales Waggon and Engineering Co., 2 Ch. 
 D. 621, 624. Mellish, L. J., was there delivering the judgment of 
 
 B8 No appeal was taken by the liquidators from the decision in favor of 
 the solicitors on this point. The judgment as to this point was, however, 
 overruled in the case of In re National Motor Mail Coach Company, limited, 
 [1908] 2 Ch. Div. 515. ■ 
 
 Compare: Tilson v. Warwick Gaslight Co., 4 B. & C. 962 (1825). 
 
198 FORMATION (Ch. 2 
 
 the Court of Appeal, consisting of himself, James, L. J., and Bag- 
 gallay, J. A. It is said that that case is an authority for the proposi- 
 tion that if expenses are incurred before the formation of a compa- 
 ny which afterwards comes into existence, and the company takes 
 the benefit of the work in respect of which those expenses arose, 
 although the company could not be sued at law for those expenses, 
 inasmuch as it was not in existence at the time when the expenses 
 were incurred, and was therefore unable to authorize agents to act 
 for it and ratification was impossible, yet it was under some liability 
 in equity. 
 
 That passage is as follows : "'We' think, however, that if the cortl- 
 pany can properly be considered to have adopted and derived benefit 
 from these services, they would in equity be bound to pay for them." 
 Those wordls do look as if they would cover the proposition that the 
 adoption and taking the benefit of the services^by the new company 
 would make the company liable in equity before it came into exist- 
 ence. I do not, however, think that that is the right way to look at 
 the judgment. It was a case in which, even supposing there was au- 
 thority for asserting that proposition, there was, by reason of the 
 fraudulent concealment of the claimants, a complete answer to the 
 claim based on that liability. I think that all the Court did in that 
 case was not to decide that there was such liability in equity, there 
 being no liability in law, but merely to say that even on that assump- 
 tion there was no liability under the circumstances of that case. Still 
 I recognize that that case has been cited several times since as an 
 authority for the proposition I have mentioned. It cannot be said, 
 however, that that propositioil has ever been affirmed in the subse- 
 quent cases on this subject. The dictum has been explained and not 
 applied in the subsequent cases, and the explanation in each case 
 was a different one. 
 
 I If the cases of In re Empress Engineering Co., 16 Ch. D. 125, 
 and In re Rotherham Alum and Chemical Co., 25 Ch. D. 103, are 
 looked at, it will be seen that, though the argument which has, been 
 addressed to us here was advanced in each of those cases, it was 
 not adopted by the Court. In these circumstances I think we were 
 all prepared to hold that there is no binding authority for the propo- 
 sition that a company, because it has taken the benefit of work done 
 uhder a contract entered into before the formation of the company, 
 can be made liable in equity under that contract. On the contrary, 
 it seems to me that the authorities are the other way. Perhaps it is 
 sufficient for me to say this, because on the facts of the present case 
 we have not to decide the qufestion of the judgment in In re Here- 
 ford and South Wales Waggon and Engineering Co., 2 Ch. D. 621, 
 624. But it Was so pressed upon us that this case was cited in the 
 text-books as an authority for the proposition in question that I 
 thought it right to say, although it is merely an obiter expression of 
 
Sec. 4) PROMOTERS 199 
 
 opinion, that I do not myself think that case Is any authority for 
 that proposition. 
 
 Rome;r, L. J. I also think it right to state my views on this point. 
 In my opinion, with respect to a solicitor's claim for costs for work 
 done by him in relation to the formation of a company which is sub- 
 sequently formed, in order to substantiate a claim against the new 
 company for his costs as solicitor he must estabhsh a legal claim 
 against the company either on his own behalf or on behalf of some 
 person or persons in whose shoes he is entitled to stand. If he can- 
 not do that he cannot succeed, in my opinion, in establishing a claim 
 on what are called equitable grounds. The idea that a company 
 merely because it has obtained the advantage of the solicitor's work 
 done before the formation of the company is liable in equity for the 
 costs of that work appears to me to be wholly untenable. In my 
 opinion there is no such equity, and any claim based upon it ought 
 to fail. I 
 
 Fletcher Moulton, L. J. My decision is based on the special 
 facts of this case and I do not consider that any point "of law is in- 
 volved. I wish however to say that I reserve my decision as to the 
 liability of a company in respect of the necessary costs of the legali 
 steps in 1:he course of its formation, although I quite agree th^t there 
 is no binding, decision that the company is liable to pay such costs. 
 I also agt'ee with my brothers in thinking that there is no general 
 equitable principle that because you have got the benefit of a man's 
 work therefore you are liable to pay for it. Stated so broadly, that 
 proposition is, in my opinion, absolutely incapable of being supported. 
 
 WEATHERFORD, M. W. & N. W. RY. CO. v. GRANGER. 
 
 (Supreme Court of Texas, 1894. 86 Tex. 350, 24 S. W. 795, 
 40 Am. St Rep. 837.) 
 
 Action by Francis Granger against the Weatherford, Mineral 
 Wells & Northwestern Railroad Company for services rendered in 
 procuring a bonus. A judgment for plaintiff was affirmed at the 
 court of civil appeals, (23 S. W. 425,) and defendant brings error. 
 
 Gaines, J. This suit was brought by the defendant in error 
 against the plaintiff in error to recover upon open account for serv- 
 ices rendered. The plaintiff in the trial court obtained a judgment 
 which was afifirmed by the court of civil appeals. This writ of error 
 is sued out for the purpose of reversing that judgment. 
 
 The plaintiff in error, the defendant in the trial court, is a corpora- 
 tion organized under the general law of the state for the purpose of 
 constructing and operating a railroad. The defendant in error, the 
 plaintiff in the trial court, is a practicing attorney at law. The serv- 
 
200 FORMATION (Ch. 3 
 
 ices for which a recovery was sought were for aiding to raise a bonus, 
 and for legal advice and assistance, and were rendered both before 
 and after the filing with the secretary of state of the company's ar- 
 ticles of incorporation. 
 
 The testimony, as shown by the statement of facts, in so far as it 
 bears upon the question before the court, is, in substance, as follows : 
 
 The plaintiff testified that in March, 1889, he was employed by one 
 Anderson to assist in raising a bonus for the defendant company, and 
 "agreed that the said company would pay him well for his services ;" 
 that Anderson was a promoter of the corporation, and represented 
 himself as its general manager, and employed plaintiff not only to 
 assist in procuring the bonus, but to attend to all the company's sbusi- 
 ness as its attorney; that in September, 1889, Anderson allowed his 
 account, and was at that time the owner of a majority of the stock, 
 which he subsequently transferred to one Stone, the president of the 
 company, and his associates. 
 
 Stone testified, on behalf of the company, that in the spring of 
 1889, in Kansas City, Mo., he employed Anderson to go to Weath- 
 erford and to procure a bonus of $40,000, and survey the right of 
 way for a railroad from that city to Mineral Wells, and to pay him 
 $1,000 for his services; that he had paid Anderson according to his 
 agreement; that he did not know that Anderson had ever employed 
 plaintiff for any purpose ; that Anderson was never general manager 
 for the company, and held no office in it except that of director ; that 
 he knew that the plaintiff was interesting himself in procuring the 
 bonus, but supposed that he was working for one Johnson, who was 
 one of the charter members, and who owned certain coal lands which 
 he wished to sell to the projectors of the railroad; that plaintiff 
 never said anything to him about the company owing him anything, 
 and that the first he knew of plaintiff's claim was when this suit was 
 brought. 
 
 There was further testimony, tending to show that Anderson was 
 the chief active promoter of the enterprise, and that he had the 
 principal management of the business from its inception, in March, 
 until he retired in September, 1889; and that during this time the 
 plaintiff was frequently in attendance upon him, aiding and assisting 
 him in procuring the bonus, and otherwise promoting the objects of 
 the company. No controversy is raised in this court as to the fact 
 of plaintiff's services, or as to their value. 
 
 The trial judge, as conclusions of fact, found, in substance, that 
 some kind of a company was formed to build the railroad from 
 Weatherford to Mineral Wells; that Anderson was the "principal 
 mover in said scheme, and was so recognized by all parties;" that 
 he employed plaintiff to insist him in procuring a bonus and in oth- 
 erwise advancing the enterprise, and that the plaintiff rendered serv- 
 ices under said employment both before and after the articles of the 
 
Sec. 4) PE0M0TEE8 201 
 
 company were filed ; that the bonus was raised; and was, after its in- 
 corporation, accepted by said company. 
 
 The court of civil appeals- adopt the findings of the trial judge, and 
 additional findings as follows : "The charter of the defendant com- 
 pany was signed and acknowledged about June 1, 1889, and was filed 
 in the office of the secretary of state at Austin July 2, 1889. The 
 bonus or subsidy was not secured until after the filing of the char- 
 ter. The record would have justified the trial court, and so justifies 
 us, in finding, as we do, the fact to be that in avaiUng itself of the 
 subsidy secured the company knew of the services of the plaintiff in 
 raising the bonus." 
 
 Under the statute, the corporation came into existence when its 
 articles of incorporation were filed in the ofiJice of the secretary of 
 state. Rev. St. arts. 4104, 4105. Although the trial court found 
 that the services for which plaintii? sued were rendered in part before 
 and in part after the filing of the articles, their value was assessed as 
 an entirety at $500, and judgment was rendered for the whole amount. 
 In this there was error. We are of opinion that, under the circum- 
 stances of this case as shown by the evidence, the defendant corpo- 
 ration cannot be held liable to the plaintiff for any services rendered 
 by him before it was brought into legal existence. 
 
 Upon the question as to the liability of a corporation growing 
 out of contracts made on its behalf by its promoters there is con- 
 siderable diversity and some conflict of opinion. But there are some 
 propositions affecting this question upon which the authorities seem 
 to be in substantial accord. A promoter, though he purport to act 
 on behalf of the projected corporation, and not for himself, cannot 
 be treated as agent, because the nominal principal is not then in ex- 
 istence; and hence, where there is nothing more than a- contract by 
 a promoter, in which he undertakes to bind the future corporation, 
 it is generally conceded that it cannot be enforced. Kelner v. Bax- 
 ter, L. R. 2 C. P. 174; Melhado v. Railway Co., L. R. 9 C. P. 503. 
 
 The promoters themselves are liable upon the contract, unless 
 the person with whom they engage agrees to look to some other 
 fund for payment. Kerridge v. Hesse, 9 Car. & P. 200. The stat- 
 ute, however, which authorizes the incorporation, may provide that 
 the corporation, when formed, shall pay the necessary expenses of 
 promoting the scheme. In such a case, though the right of action 
 is dependent uppn the contract, the liability is created by the statute. 
 In re Rotherham, etc., Co., 50 Law T. (N. S.) 219. 
 
 It is now held in England that, although the articles of association 
 bind the company to pay the expenses of its promotion, a third 
 party cannot avail himself of such a provision so as to maintain an 
 action against the company. In re Rotherham, etc., Co., supra; 
 Ely V. Assurance Co., 34 Law T. (N. S.) 190. It is also generally 
 held that contracts by promoters, made on behalf of the corporation 
 
202 
 
 FORMATION (Ch. 2 
 
 within the scope of its general authority, may be adopted by. the 
 latter after its organization. Some of the courts say they may be 
 ratified, but ratification presupposes a principal existing at the time 
 of the agent's action, and it seems to us, therefore, that the term 
 is not applicable in its technical sense. McArthur v. Printing Co. 
 (Minn.) 51 N. W. 216; Spiller v. Skating Rink Co., 7 Ch. Div. 368. 
 
 With the exception of the law courts of England, the rule is 
 also very generally recognized that if a contract be made on behalf 
 of a corporation by its promoters, and the corporation, after its 
 organization, with a knowledge of the facts, accept its benefits, it 
 must take it with its burdens ; and, if the other party has performed 
 the stipulation binding upon him, it may be enforced as against the 
 corporation. Spiller v. Skating Rink Co., supra; Tuche v. Ware- 
 housing Co., 6 Ch. App. 67. 
 
 But as to the application of the rule last announced the courts 
 differ in opinion. A leading case upon this subject is Edwards v. 
 Railway Co., 1 Mylne & C. 650. There the promoters of the railway 
 company had entered into a contract with the trustees of a turn- 
 pike company, in whidi the latter agreed to withdraw their opposi- 
 tion to an act of parliament for _the incorporation of the railway 
 company, in consideration of an agreement by the promoters to 
 insert certain clauses in the act as to the nature of the necessary 
 constructions at the crossing of the railway and the turnpike road, 
 and the opposition was withdrawn, but the clauses were not inserted ; 
 and it was held that the railway company should be enjoined from 
 constructing the crossing in a manner different from that specified 
 in the clauses which had been agreed upon and had been omitted. 
 The correctness of the ruling in this case was seriously questioned 
 in the house of lords in Preston v. Railway Co., 5 H. L. Cas. 605, 
 and in Railway Co. v. Magistrates of Helensburgh, 2 Macq. 391, 2 
 Jur. (N. S.) 695. We presume the doubt as to this case arises 
 from the fact that the only benefit accepted by the defendant com- 
 pany was the exercise of the powers conferred upon it by the act 
 of parliament. 
 
 Where the promoters of a railway company have agreed with a 
 landed proprietor, through whose estates the road is projected to 
 run, to take the requisite quantity of his land at a stipulated price, 
 and after the corporation is formed it takes the land, it is certainly 
 equitable that the company should be made to pay the agreed com- 
 pensation ; and the doctrine is recognized in many English equity 
 cases. Stanley v. Railway Co., 3 Mylne & C. 773 ; Gooday v. Rail- 
 way Co., 15 Eng. Law & Eq. 596; Prestoii v. Railway Co., 7 Eng. 
 Law & Eq. 124; Edwards v. Railway Co., 1 Mylne & C. 650. The 
 same rule has been announced also in many American cases. Rail- 
 way Co. V. Perry, 37 Ark. 164; Paxton Cattle Co. v.. First Nat. 
 Bank, 21 Neb. 621, 33 N. W. 271 ; Manufacturing Co. v. Small, 40 
 
Sec. 4) PROMOTEES 203 
 
 Md. 395; Bommer v. Spring, etc., Co., 81 N. Y. 468; Battelle v. 
 Pavement Co., 37 Minn. 89, 33 N. W. 327; McArthur v. Printing 
 Co., supra. 
 
 Having exercised rights and enjoyed benefits secured to it by the 
 terms of a contract made by its promoters in its behalf, a corpora- 
 tion should be held estopped to deny its validity. Again, where the 
 promoters of a corporation have made a contract in its behalf, to 
 be performed after it is organized, it may be deemed a continuing 
 offer on part of the other party to the agreement, unless withdrawn 
 by him, and may be accepted and adopted by the corporation after 
 such organization; and the exercise of any right inconsistent with 
 the nonexistence of such contract ought to be deemed conclusive 
 evidence of such adoption. 
 
 But there are some cases which go a step further. Low v. Rail- 
 road Co., 45 N. H. 370, was a case of a Vermont corporation sued 
 in New Hampshire upon a contract made in the /former state. After 
 a charter had been granted, but before an organization had been 
 effected, a public meeting was held to promote the enterprise, at 
 which, it is to be presumed from the opinion, the corporators were 
 present or were represented. A proposition was made that the 
 plaintiff should be employed, and paid to visit various towns and 
 cities to interest capital in the projected scheme, and to solicit and 
 procure subscriptions. The plaintiff accepted the offer, and per- 
 formed the services ; and it was held that the corporation was liable. 
 The court determined that the question of liability depended upon 
 the law of Vermont as announced in tlie case of Hall v. Railway 
 Co., 28 Vt. 401. But they were also incUned strongly to think that 
 upon general principles the company, by accepting subscriptions, 
 which were procured by the plaintiff, bound itself to pay for his 
 services. They also seem to recognize the doctrine that after a char- 
 ter has been granted a majority of the corporators have the power to 
 make contracts necessary to perfect the organization, which may 
 be binding, upon the company when formed. But they also lay 
 stress upon the fact that the charter of the defendant corporation 
 provided that "the expenses of all surveys arjd examinations, as 
 also of the preliminary surveys already made and making, and all 
 manner of incidental expenses relating thereto, shall be paid by said 
 corporation." 
 
 In Hall v. Railway Co., supra, a corporator was held entitled to 
 recover for necessary* services in organizing the company, although 
 there was no express promise by any one 'that he should be paid. 
 Unless the charter of the company provided for the payment of 
 such expenses, this decision, we think, is unsupported by authority. 
 
 It is generally held that, in the absence, of such provision, in the 
 act of incorporation in case of a speicial charter, or in the general 
 law, or in the articles of incorporation under a general law, no 
 
204 FOEMATION (Ch. 2 
 
 implied promise can be imputed to a corporation to pay for the 
 services of a corporator or promoter before the corporation comes 
 into existence. A contract made by promoters may be adoptefl by 
 a corporation expressly or impliedly by exercising rights under it; 
 but otherwise it is not binding upon such corporations. Kelner v. 
 Baxter, supra; Melhado v. Railway Co., supra; Railway Co. v. 
 Ketchum, 27 Conn. 170; Kerridge v. Hesse, 9 Car. & P. 200; Mun- 
 son V. Railroad Co., 103 N. Y. 58, 8 N. E- 355 ; Morrison v. Mining 
 Co., 52 Cal. 306 ; Gent v. Insurance Co., 107 111. 652 ; Railway Co. v. 
 Sage, 65 111. 328; Manufacturing Co. v. Coustey, 72 111. 531; Buf- 
 fington V. Bardon, 80 Wis. 635, 50 N. W. 77l5. See, also, Railway 
 Co. V. Magistrates of Helensburgh, 2 Macq. 391, 2 Jur. (N. S.) 695; 
 Tift V. Bank, 141 Pa. 550, 21 Atl. 660. , 
 
 Now, when it is said that when a corporation accepts the benefit 
 of a contract made by its promoters it takes it cum onere, it is im- 
 portant to understand distinctly what is meant. There is, so far as 
 this matter is concerned, a radical difiference between a promise made 
 on behalf of the future corporation in the contract itself, the benefits 
 of which the corporation has accepted, and the promise in a previous 
 contract to pay for services in procuring the latter to be made. This 
 is well illustrated by the facts of the present case. Here a proposi- 
 tion was made on behalf of the company, by its promoters, that if a 
 bonus should be subscribed and^ paid to it, it would build its road 
 between certain points, and would carry coal at a certain stipulated 
 rate. By accepting the bonus, thfe company became bound to ful- 
 fill the stipulations of that contract. That was the burden which it 
 took with the benefit of the'agreement. But it also appears that one 
 of the promoters promised the plaintiff that if he would assist in pro- 
 curing subscribers to the bonus the company would pay him for his 
 services. This was no part of the contract the benefits of which 
 were taken by the defendant. 
 
 The benefits of a contract are the advantages which result to 
 either party from a performance by the other, and in like manner 
 its burdens are such as its terms impose. A. more accurate manner 
 of stating the nature of the plaintiff's demand is to say that the de- 
 fendant has accepted the benefit of the plaintiff's services, and should 
 pay for them. It is true in one sense that the company has had the 
 benefit of plaintiff's services, and it is equally true that it would have 
 had that benefit if the services had been rendered under an employ- 
 ment by the subacribers to the bonus ; and yet in the latter case it 
 could not be claimed that the company would be liable for such serv- 
 ices unless payment for them by the company were made one of the 
 terms of the contract between the company and the subscribers. 
 
 In Re Rotherham, etc., Co., 50 Law T. (N. S.) 219, in the opin- 
 ion of one of the justices, this language is used : "It is said that Mr. 
 Peace has an equity against the company because the company had 
 
Sec. 4) PROMOTERS 205 
 
 the benefit of his labor. What does that mean? If I order a coat 
 and receive it, I get the benefit of the labor of the cloth manufacturer, 
 but does any one dream that I am under any liability to him? It is 
 a mere fallacy to say that because a person gets the benefit of work 
 done by somebody else he is liable to pay the person who did the 
 work." 
 
 There is more doubt as to the plaintiff's right to recover for his 
 legal services in advising as to the articles of incorporation, and in 
 correcting and preparing this paper. Such services are usually nec- 
 essary, and it would seem that the corporation should pay for them. 
 Such payment is frequently provided for in the act of incorporation 
 or in the articles when the incorporation is effected under a general 
 law. When such is the case, persons who take stock in the company 
 are chargeable with notice that a liability for this purpose has already 
 been created, and it is proper for the corporation to discharge it. 
 But, in the absence of such provision in the statute or in the articles, 
 it may be unjust to shareholders to charge the corporation with lia- 
 bilities of which they had no actual knowledge at the tjme they ac- 
 cepted the shares. We therefore hold with some hesitation that 
 claims for the necessary expenses of the organization under our stat- 
 ute should not be excepted from the general rule applicable to con- 
 tracts made before the corporation has come into legal existence. 
 
 Applying the rules we have announced to the case before us, it is 
 apparent that the plaintiff has recovered, in part at least, for services 
 for which the defendant was not bound to pay. He made his contract 
 before the company had a legal existence as a corporation, with a 
 single promoter ; and it is a matter of no moment that the promoter 
 was the general manager of the project, and became the owner of the 
 majority of the stock upon its organization. There were other stock- 
 holders. The law requires that there should be 10 at least. Rev. St. 
 art. 4099. 
 
 The evidence does not disclose that his contract with Anderson was 
 actually known to any other person, nor do we see any oth^ circum- 
 stance from which knowledge should necessarily be inferred. Since 
 Anderson had no power to bind the future corporation, but could 
 bind himself, the inference from his assisting Anderson would be that 
 he was acting gratuitously, or that Anderson had agreed to pay him. 
 Anderson was interested in shifting his .contract upon the company, 
 and it may be doubted whether, although he became a director, notice 
 to him could be deemed notice to the company. The court of civil 
 appeals find, however, that the company had notice. 
 
 Waiving the question of the right of the court to supplement the 
 finding of the trial judge under such evidence, and the further ques- 
 tion whether there be any evidence to support this conclusion, it 
 follows from what we have already said that the question of the com- 
 pany's knowledge does not affect the case. The plaintiff's contract 
 
206 , FORMATION (Ch. 2 
 
 with Anderson, though made by latter on behalf of the company, was 
 not a lien, incumbrance, or burden upon the contract between the 
 subscribers to the bonus and the defendant, and it incurred no lia- 
 bility on the former contract by accepting the benefit of the latter. 
 The evidence was sufficient to sustain a recovery by plaintiff for the 
 value of his services rendered after the corporation was created; but 
 the court below failed to find separately the reasonable worth of 
 such services. Therefore the entire judgment must be reversed. 
 
 We deem it proper to say in conclusion that if the opinion in the 
 case of McDonough v. Bank, 34 Tex. 309, is to be construed as 
 holding that by merely accepting the benefit of the plaintiff's labor 
 the defendant ratified and became bound under the promoter's con- 
 tract, it does not meet our approval. Whether the contract in that 
 case was one which the bank had the power to ratify is, to say the 
 least, a doubtful question; but it is one that does not concern us 
 here, and upon which we express no opinion. The judgments of the 
 district court and of the court of civil appeals are reversed, and the 
 cause remanded. 
 
 FARMERS' BANK OF VINE GROVE v. SMITH. 
 
 (Court of Appeals of Kentucky, 1899. 105 Ky. 816, 49 S. W. 810, 
 88 Am. St. Rep. 341.) 
 
 Action by H. H. Smith against the Farmers' Bank of Vine Grove 
 to recover for services rendered. Judgment for plaintiff, and defend- 
 ant appeals. 
 
 White, J. The appellee by this action sought to recover of appel- 
 lant the sum of $500 for services rendered in organizing the bank, 
 'Securing and soliciting stock, superintending the work of buiMing, 
 writing the articles of corporation, and various services, before, and 
 some after, the date it commenced business. ' The answer is a denial 
 of any contract, either expressed or implied, or any liability to pay, 
 a denial of the value, and an allegation that the services were rendered 
 gratuitously by appellee. The case was tried before a jury, and re- 
 sulted in a verdict and judgment for appellee in the. sum of $350. 
 After reasons and motion for new trial had been overruled, this ap- 
 peal is prosecuted. The reasons for a new trial are: The error of 
 the court in refusing to give a peremptory instruction ; permitting in- 
 competent evidence to go to the jury, over its objection; error in 
 giving instructions 1 to 7, inclusive, and in refusing others (1 to 4) 
 asked for ; error in modifying instruction 7, and in refusing to give 
 same as asked; that the verdict is flagrantly against the evidence; 
 that the pleadings do not warrant the judgment. 
 
 From the proof introduced as to the amount and value of the serv- 
 ices rendered, there can scarcely be a question as to the amount found 
 
Sec, 4) PE0M0TER8 207 
 
 by the jury, if, as a matter of law, appellee has shown himself entitleci 
 to recover any sura. Appellee actively, and almost e:^clusively, se- 
 cured all the stock to be taken. He made trips to Hodgenville, Louis- 
 ville, and Frankfort in the interest of the corporation, superintended 
 the construction of the banking house, let out contraqts, negotiated 
 the purchase of the lot on which was erected the banking house, drew 
 the articles of incorporation, and, after the bank began, work, , gave 
 its officers such advice as they sought. .The verdict of $350 is not 
 unreasonable. 
 
 The question of gratuity was submitted to. the jury on conflict- 
 ing evidence, and it cannot be said their verdict is flagrantly against 
 the evidence; and, unless it be so, it will not be disturbed. It is 
 earnestly contended that appellee cannot recover any sum for this 
 service, although it was rendered, and was beneficial and accepted 
 by the appellant, for the reason that he, had no contract, and because 
 there was no corporation to make a contract with, and any agree- 
 ment made by any person before the organization would not bind 
 the corporation, for the reason that it was ultra vires as to the corpo- 
 ration. We do not assent to this doctrine. We are of opinion that a 
 corporation is, by an implied, contract, liable for such or any services 
 rendered for the use of the corporation as are necessary to its forma- 
 tion, or may be necessary to be done by it, after its incorporation, in 
 furtherance of its corporate business.- 
 
 The case of Low v. Railroad Co., 45 N. H. 370, 377, is directly in 
 point, and has been approved by this court. It says : "It may then 
 be safely assumed that under the laws of Vermont the corporation is 
 liable in some form for services necessary to perfect its organization, 
 and which, when such organization was perfected, it accepted, and 
 enjoyed the benefits arising therefrom. Such would be the case in 
 respect to services in obtaining subscriptions to the capital stock, ren- 
 dered by a corporator or associate, and which subscriptions were, 
 after the organization, accepted by the corporation. Of course, to 
 entitle the plaintiff to recover, such services must have been necessary 
 and reasonable, and rendered, not gratuitously, but with the under- 
 standing and expectation that they were to be paid for." This case, 
 supra, was expressly approved by the supreme court of Pennsylvania 
 (Railroad Co. v. Cristy, 79 Pa. 54), the court holding: "It may 
 very well be that, where a number of persons not incorporated are 
 yet informally associated together in the pursuit of a common object, 
 and with the intent to procure a charter in the furtherance of their 
 design, they may authorize certain acts to be done by one or more 
 of their number, with an understanding that compensation shall be 
 made therefor by the company when fully formed. And if such acts 
 are necessary to the organization and its objects, and are subsequently 
 accepted by the company, and the benefit thereof enjoyed by them, 
 they must take such benefits cum onere, and make compensation 
 
208 FORMATION (Ch. 3 
 
 therefor." This principle was recognized in the case of Waddy Blue- 
 Grass Creamery Co. v. Davis-Rankin Bldg. & Mfg. Co. (decided May 
 12 1898) 103 Ky. 579, 45 S. W. 895, as well as Morton v. Hamilton 
 College, 100 Ky. 281, 38 S. W. 1, 35 L. R. A. 275. 
 
 It seems to us that any other rule would render it difficult to or- 
 ganize any corporation, however necessary. No person would ren- 
 der the services, or pay another to do so, however essential it be to 
 the organization, if there was no obligation to pay by the corpora- 
 tion after it is brought into existence. We are of opinion that appel- 
 lee was entitled to recover for the services rendered and sued for, as 
 they were necessary to the organization of the corporation. 
 
 We are referred to the case of Oldham v. Improvement Co. (de- 
 cided May 3, 1898) 103 Ky. 529, 45 S. W. 779, as holding that the 
 corporation cannot be made liable by the representations or acts of 
 its promoters. The question in that case was the right of a sub- 
 scriber for stock to defeat the collection of his unpaid subscription 
 of stock by reason of false and fraudulent representations of a pro- 
 moter as to the condition and prospects of the company. The court 
 holds that the corporation is not bound by such representations, and 
 a stockholder cannot be relieved by reason thereof. Any other ex- 
 pression of opiniori was but dictum. This case is clearly distinguish- 
 able from the Oldham Case, supra. The charges here made are for 
 necessaries for the organization of the corporation. 
 
 Appellant complains of the ruling of the court in admitting certain 
 testimony of Young. The effect of this testimony is that witness was 
 a stockholder and a preliminary director, and that he had no knowl- 
 ' edge or information of any contract or agreement to pay appellee for 
 his services, but that th« witness expected such would be paid, as 
 that was customary in organizing corporations. We do not think 
 that the admission of this evidence is suph error, if any, as alone 
 would authorize a reversal. The instructions given the jury clearly 
 state the law of the case, and are approved. Finding no error, the 
 judgment is affirmed, with damages."" 
 
 »» Compare: Low v. Railroad, 45 N. H. 370 (1864). 
 
Sec. 1) INTEKPEETATION OF OHAKTEBS AND FEANCHISES 209 
 
 CHAPTER III 
 POWERS AND LIABILITIES 
 
 SECTION 1.— INTERPRETATION OF CHARTERS AND 
 
 FRANCHISES 
 
 CHARLES RIVER BRIDGE v. WARREN BRIDGfe. 
 (Supreme Court of the United States, 1837. 11 Pet. 420, 9 L. Ed. 773.) 
 
 This suit in chancery was commenced in the supreme court of 
 Massachusetts, where the bill was dismissed by a decree, pro forma, 
 the members of that court being equally divided in opinion; and a 
 writ of error was taken to this court, on the ground that the right 
 asserted by the complainants, and which has been violated under the 
 charter of the respondents, is protected by a special provision in the 
 federal constitution. 
 
 The complainants' right is founded on an act of the legislature 
 of Massachusetts, passed March 9, 1785 ; which incorporated certain 
 individuals, and authorized them to erect a bridge over Charles 
 River, a navigable stream between Boston and Charlestown, and an 
 amendatory act, passed in 1791, extending the charter 30 years. 
 
 As explanatory of this right, if not the ground on which it in 
 part rests, a reference is made to an ancient ferry, over the same 
 river, which was held by Harvard College; and the right of which 
 was transferred, it is contended, in equity, if not in law, to the bridge 
 company. . 
 
 The wrong complained of consists in the construction of a new 
 bridge over the same river, under a recent act of the legislature, 
 within a few rods of the old one, and which takes away the entire 
 profits of the old bridge. 
 
 The act to establish the Charles River Bridge required it to be 
 constructed within a limited time, of certain dimensions, to be kept 
 in repair, and to afford certain specified accommodations to the pub- 
 lic. The company were authorized to charge certain rates of toll; 
 and they were required to pay, annually, two hundred pounds to 
 Harvard College. The first charter was granted for forty years. 
 
 The facts proved in the case show that a bridge of the descrip- 
 tion required by the act of 1785, was constructed within the time 
 limited; that the. annual payment has been made to the college; ^"d 
 that, in every other respect, the corporation has faithfully perfqrmed 
 the conditions and duties enjoined on it. 
 
 It is contended that the charter granted to the respondents vio- 
 
 BlCH.COEP. — ^14 
 
210 POWERS AND LIABILITIES 
 
 (Ch. 3 
 
 lates the obligations of that which had been previously granted to 
 the complainants; and that, consequently, it is in conflict with that 
 provision. of the constitution which declares that no "State shall pass 
 any law impairing the obligation of contract's." ^ 
 
 Taney, C. j/ * * * Much has been said in the argument of 
 the principles of construction by which this law is to be expounded, 
 and what undertakings, on the part of the state, may be implied. 
 The Court think there can \)e. no serious difficulty on that head. It 
 is the grant of certain franchises by the public to' a private corpora- 
 tion, and in a matter where the public interest is -concerned. The 
 rule of construction in such cases is well settled, both in England, 
 and by the decisions of our own tribunals. In 2 Barn. & Adol. 793, 
 in the case of Proprietors of the Stourbridge Canal v. Wheely and 
 Others, the court say: "The canal having been made under an act 
 of parliament, the rights of the plaintiffs are derived entirely from 
 that act. This, like many other cases, is a bargain between a com- 
 pany of adventurers and the public, the terms of which are ex- 
 pressed in the statute; and the rule of construction in all such cases, 
 is now fully established to be this ; that any ambiguity in the terms 
 of the contract, must»operate against the adventurers, and in favour 
 of the public, and the plaintiffs can claim nothing that is not clearly 
 given them by the act." And the doctrine thus laid down is abun- 
 dantly sustained by the authorities referred to in this decision. The 
 case itself was as strong a one, as could well be imagined, for giving 
 to the canal company, ty implication, a right to the tolls they de- 
 manded. Their canal had been used by the defendants, to a very 
 considerable extent, in transporting large quantities of coal. The 
 rights of all persons to navigate the canal, were expressly secured 
 by the act of parliament; so that the company could not prevent 
 them from using it, and the toll demanded was admitted to be rea- 
 sonable. Yet, as they only used ' one of the levels of the canal, and 
 did not pass through the locks ; and the statute, in giving the right 
 to exact toll, had given it for articles which passed "through any 
 one or more of the locks," and had said nothing as to toll for nav- 
 igating one of the 'levels; the court held that the right to demand 
 toll, in the latter case, could not be implied, and that the company 
 were not entitled to recover it. This was a fair case for an equitable 
 construction of the act of incorporation, and for an implied grant ; 
 if such a rule of construction could ever be permitted in a law of 
 that description. For the canal had been made at the expense of 
 the company; the defendants had 'availed themselves of the fruits 
 of their labours, and used the canal freely and extensively for their 
 own profit. Still, the right to 'exact toll could not be implied, be- 
 cause such a privilege was not found in the charter. 
 
 1 Statement of facts from opinion of McLean, J. , 
 
 2 A part of the opinion Is omitted. 
 
Sec. 1) INTEEPBBTATION OF OHAETEBS AND PfiAHTCHISBS 211 
 
 Borrowing, as we have done, our system of jurisprudence from 
 the English law; and having adopted, in every other case, civil and 
 criminal, its rules for the construction of statutes ; is there any thing 
 in our local' situation, or in the nature of our political institutions, 
 which should lead us to depart from the principle where corporations 
 are concerned? Are we to apply to acts of incorporation,' a rule of 
 construction differing from that of the English law, and, by impli- 
 cation, make the terms of a charter in one of the States, more^ un- 
 favourable to the public, than upon an act of parliament, framed in 
 the same words, would be sanctioned in an English court? Can any 
 good reason be assigned for excepting this particular class of cases 
 from the operation of the general principle; and for introducing a 
 new and adverse rule of construction in favour of corporations, while 
 we adopt and adhere to the rules of construction known to the Eng- 
 lish common law, in every other case, without exception? We think 
 not ; and it would present a singular spectacle, if, while the courts in 
 England are restraining, within the strictest limits, the spirit of mo- 
 nopoly, and exclusive privileges in nature of monopolies, and confin- 
 ing corporations to the privileges plainl)^ given to, them in' their char- 
 ter ; the courts of this country should be found enlarging these priv- 
 ileges by implication ; and construing a statute more unfavourably to 
 the public, and to the rights of the community, than would be done 
 in a like case in an English court of justice. * * * 
 
 Adopting the rule of construction above stated as the settled one, 
 we proceed to apply it to the charter of 1785, to the proprietors of 
 the Charles River Bridge. This act of incorporation is in the usual 
 form, and the privileges such as are commonly given to corporations 
 of that kind. It confers on them the ordinary faculties of a corpora- 
 tion, for the purpose of building the bridge ; and establishes certain 
 rates of toll, which the company are authorized to take. This is 
 the whole grant. There is no exclusive privilege given to them over 
 the waters of Charles River, above or below their bridge. No right 
 to erect another bridge themselves, nor to prevent other persons from 
 erecting one. No engagement from the State, that another shall not 
 be erected; and no undertaking not to sanction competition, nor to 
 make improvements that may diminish the amount of its income, 
 tjpon all these subjects the charter is silent; and nothing is said in 
 it about a line of travel, so much insisted on in the argument, in 
 which they are to have exclusive privileges. No words are used, from 
 which an intention to grant any of these rights can be inferred. If 
 the plaintiff is entitled to them, it must be implied, simply, from the 
 nature of the grant ; and cannot be inferred from the words by which 
 the grant is made. 
 
 The relative position of the Warren Bridge has already been de- 
 scribed. It does not interrupt the passage over the Charles River 
 Bridge, nor make the way to it or from it less convenient. None of 
 the faculties or franchises granted to that corporation have been re- 
 
212 POWERS AND LIABILITIES (Ch. 3 
 
 voked by the legislature, and its right to take the tolls granted by 
 the ^charter remains unaltered. In short, all the .franchises and rights 
 of property enumerated in the charter, and there mentioned to have 
 been granted to it, remain unimpaired. But its income is destroyed 
 by the Warren Bridge ; which, being free, draws off the passengers 
 and property which would have gone over it, and renders their fran- 
 chise of no value. This is the gist of the complaint. For it is hot 
 pretended that the erection of the Warren Bridge would have done 
 them any injyry, or in any degree affected their right of property, if 
 it had not diminished the amount of their tolls. In order then to en- 
 title themselves to relief, it is necessary to show that the legislature 
 'contracted not to do the act of which they complain, and that they 
 impaired, or, in other words, violated that contract by the erection 
 of the Warren Bridget 
 
 The inquiry then is. Does the charter contain such a contract on 
 the part of the State? Is there any such stipulation to be found in 
 that instrument ? It must be admitted on all hands that there is none 
 — no words that even relate to another bridge, or to the diminution 
 of their tolls, or to the line 'of travel. If a contract on that subject 
 can be gathered from the charter, it must be by implication, and 
 cannot be found in the words used. Can such an agreement be im- 
 plied ? The rule of construction before stated is an answer to the 
 question. In charters of this description, no rights are taken from 
 the public, or given to the corporation, beyond those which the words 
 of the charter, by their natural and proper construction, purport to 
 convey. There are no words which import such a contract as the 
 plaintiffs in error contend for, and none can be implied; and the 
 same answer must be given to them that was given by this Court to 
 the Providence Bank. The whole community are interested in this 
 inquiry, and they have a right to require that the power of. promoting 
 their comfort and convenience, and of advancing the public prosperi- 
 ty, by providing safe, convenient, and cheap ways for the transporta- 
 tion of produce and the purposes of travel, shall not be construed to 
 have been surrendered or diminished by the State, unless it shall ap- 
 pear by plain words that it was intended to be done. * * * 
 
 Story, j.s * * * Before we can properly enter upon the con- 
 sideration of this subject, a preliminary inquiry is presented as to the 
 proper rules of interpretation applicable to the charter. Is the char- 
 ter to receive a strict or a liberal construction? Are any implications 
 to be made, beyond the express terms ? And if so, to what extent are 
 they justifiable by the principles of law ? No one doubts, that the char- 
 ter is a contract, and a grant; and that it is to receive such a con- 
 struction as belong to contracts and grants, as contradistinguished 
 from mere laws. But the argument has been pressed here, with un- 
 wonted earnestness; and it seems to have had an irresistible influ- 
 
 » A part of the opinion is omitted. 
 
Sec. 1) INTEBPEETATION OF CHABTBB8 AND FEAN0HI8ES 213 
 
 ence elsewhere ; that this charter is to be construed as a royal grant, 
 and that such grants are always construed with a stern and parsi- 
 monious strictness. Indeed, it seems tacitly conceded that unless such 
 a strict construction is to prevail, (and it is insisted on as the positive 
 dictate of the common law,) there is infinite danger to the defence as- 
 sumed on behalf of the Warren Bridge proprietors. Under such (Cir- 
 cumstances, I feel myself constrained to go at large into the doctrine 
 of the common law in respect to royal grants ; because I cannot help 
 thinking that upon this point very great errors of opinion have crept 
 into the argument. A single isolated position seems to have been 
 taken as a general axiom. In my own view of the case, I should not 
 have attached so much importance to the inquiry. But it is now fit 
 that it should be sifted to the bottom. 
 
 It is a well-known rule in the construction of private grants, if 
 the meaning of the words be doubtful, to construe them most strong- 
 ly against the grantor. But it is said that an opposite rule prevails, 
 in cases of grants by the king; for, where there is any doubt, the 
 construction is made most favourably for the king, and against the 
 grantee. The rule is not disputed. But it is a rule of very limited 
 application. To what cases does it apply ? To such cases only, where 
 there, is a real doubt, where the grant admits of two interpretations, 
 one of which is more extensive, and the other more restricted; so 
 that a choice is fairly open, and either may be adopted without any 
 violation of the apparent objects of the grant. If the king's grant 
 •admits of two interpretations^ one of which will make it utterly void 
 and worthless, and the other will give it a reasonable effect, then the 
 latter is to prevail; for the reason, (says the common law,) "that it 
 will be more for the benefit of the subject, and the honour of the 
 king, which is to be more regarded than his profit." Com. Dig. 
 Grant, G. 12; 9 Co. R. 131. a.; 10 Co. R. 67, b; 6 Co. R. 6. And 
 in every case the rule is made to bend to the real justice and integrity 
 of the case. No strained or extravagant construction is to be made 
 in favour of the king. And, if the intention of the grant is obvious, 
 a fair and liberal interpretation of its terms is enforced. The rule 
 itself is also expressly dispensed with, in all cases where the grant 
 appears upon its face to flow, not from the solicitation of the subject, 
 but from the special grace, certain knowledge, and mere motion of 
 the crown; or, as it stands in the old royal patents, "ex speciali 
 gratia, certa scientia, et ex mero motu regis." See Arthur Legate's 
 Case, 10 Co. R. 109, 112, b.; Sir John Moulin's Case, 6 Co. R. 6; 2 
 Black. Comm. 347 ; Com. Dig. Grant, G. 12. And these words are 
 accordingly inserted in most of the modern grants of the crown, in 
 order to exclude any narrow construction of them. So the court 
 admitted the doctrine to be in Attorney-General v. Lord Eardly, 8 
 Price, 69. But what is a most important qualification of the rule, it 
 never did apply to grants made for a valuable consideration by the 
 crown ; for in such grants the same rule has always prevailed, as in 
 
214 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 cases between subjects. The mere grant of a bounty of the king may 
 properly be restricted to its obvious intent. But the contracts of 
 the king for value are liberally expounded, that the dignity and jus- 
 tice of the government may never be jeoparded by petty evasions, 
 "and technical subtleties. * * * 
 
 If, then, the present were the case of a royal grant, I should most 
 strenuously contend, both upon principle and authority, that it was 
 to receive a liberal, and not a strict construction. I should so con- 
 tend upon the plain intent of the charter, from its nature and objects, 
 and from its burthens and duties. It is confessedly a case of con- 
 tract, and not of bounty; a case of contract for a valuable consid- 
 eration; for objects of public utility; to encourage enterprise; to 
 advance the public convenience; and to secure a just remuneration 
 for large outlays of private capital. What is there in such a grant of 
 the crown, which should demand from any court of justice a narrow 
 and strict interpretation of its terms? Where is the authority which 
 contains such a doctrine, or justifies such a conclusion? Let it not 
 be assumed, and then reasoned from, as an undisputed concession. 
 If the common law carries in its bosom such a principle, it can be 
 shown by some authorities, which ought to bind the judgment, even 
 if they do not convince the understanding. In all my researches I 
 have not been able to find any, whose reach does not fall far, very 
 far short of establishing any such doctrine. Prerogative has never 
 been wanting in pushing forward its own claims for indulgence, or 
 exemption. But it has never yet (as far as I know) pushed theni to ■ 
 this extravagance. 
 
 I ^tand upon the old law; upon law established more than three 
 centuries ago, in cases contested with as much ability and learning, 
 'as any in the annals of our jurisprudence, in resisting any such en- 
 croachments upon the rights and liberties of the citizens, secured by 
 public grants. I will not consent to shake their title deeds, by any 
 speculative niceties or novelties. 
 
 The present, however, is not the case of a royal grant, but of a 
 legislative grant, by a public statute. The rules of the common law 
 in relation to royal grants have, therefore, in reality, nothing to do 
 with the case. We are to give this act of incorporation a rational 
 and fair construction, according to the general riiles which govern 
 in all cases of the exposition of public statutes. We are to ascertain 
 the legislative intent ; and that once ascertained, it is our duty to give 
 it a full and liberal operation. * * * * 
 
 Note on Interpretation of Franchise Grants in General. — The princi- 
 pal case, although generally regarded as a leading case on the subject of 
 corporate charter interpretation, has no importance peculiar to the law of 
 corporations. There is a clear distinction between the so-called corporate 
 franchise— that is, the right to be a corporation, which is conferred upon 
 the individuals of which the corporation is composed — and those powers 
 
 4 Dissenting opinion 'of Mr. Justice McLean Is omitted. 
 
Sec. 1) INTEBPEETATION OF CHAKTEES AND FBANOHISES 215 
 
 Which are conferred upon the artificial person which is created. Coe v. 
 Columbus, etc., Ry. Co., 10 Ohio St. 372, 75 Am. Dec. 578 (1850)'; Memphis 
 Ry. Co. V. Commissioners, 112 V. S. 609, 5 Sup. Ct. 299, 28 L. Ed. 837 (1884) ; 
 State V. Western Irrigating Canal Co., 40 Kan. 96, 19 Pac. 349, tO Am. St. 
 Rep. 166 (1888) ; State v. Topeka Water Co., 61 Kan. 547, 60 Pac. 337 (190O) ; 
 Bardstown & Louisville R. Co. v. Metcalfe, 4 Mete. (Ky.) 199, 81 Am. Dec. 
 541 (1862); State ex rel. Atty. Gen. v. Portage City Water Co., 107 Wis. 
 441, 83 N. W. 697 (l900). 
 
 Such powers, in turn, may be divided into those which any individual who 
 , is sui juris may exercisie as a matter of common right and those which are 
 not yithin the common rights of individuals, but can be exercised only by the 
 sovereign, or by those to whom the sovereign has granted the privilege of 
 exercising 'them. A power or privilege of the latter class is a franchise, 
 in the true sense of that word, and an instrument by which such franchise 
 is granted presents a distinct problem of interpretation, applicable to grants 
 to individuals as well as to grants to corporations. Thus where, as in the 
 principal case, the power to build and maintain a toll bridge is granted by 
 the state to a corporation, such grant, being in derogation of public right, 
 may well be strictly construed, and, in the absence of express stipulations 
 making the power exclusive will not be construed as including an implied 
 agreement by the state not to grant a similar privilege to others under such 
 circumstances as to render the grant in question valueless to the corpora- 
 tion. Janesville Bridge Co. v. Stoughton, 1 Pin. (Wis.), 667 (1846); Oswego 
 Falls Bridge Co. v. Fish, 1 Barb. Ch. (N. Y.) 547 (1846) ; Collins v. Sherman, 
 31 Miss. 679 (1856) ; Clarksville & R. Turnpike Co. v. Montgomery County, 
 100 Tenn. 417, 45 S. W. 345, 58 L. R. A. 155, and note (1897). Compare 
 Walla Walla Water Co. v. Walla Walla (0. C.) 60 Fed. 957 (1894); South- 
 west Mo. Light Co. V. City of Joplin (C. 0.) 113 Fed. 817 (1902) ; Crocker v. 
 New York (C. C.) 15 Fed. 405 (1883). 
 
 The same strictness of construction is applied In determining the subject- 
 matter and amount of the charges, which, under a franchise, a corporation 
 can legally collect. Perrine v. Canal Co., 9 How. 172, IS L. Ed. 92 (1850) ; 
 Stourbridge Canal Co. v. Wheeley, 2 Barn. & Adol. 792 (1881); String v. 
 Turnpike Co., 57 N. J. Eq. 227, 40 Atl. 774 (1898); Sturgeon Bay, etc., Co. 
 V. Leatham, 164 111. 239, 45 N. E. 422 (1896). And where the franchise is by 
 its terms exclusive, it is confined closely to the privileges expressly granted. 
 Thus an exclusive right to bnild and maintain a bridge across a river and 
 to establish and collect tolls for crossing it is not invaded by a subsequent 
 grant of a license 'to operate a ferry at the same place. Parrot v. Lawrence, 
 2 Dill. 382, Fed. Cas. No. 10,772 (1872). See, also, Compton v. Waco Bridge 
 Co., 62 Tex. 715 (1884). Compare Chenango Bridge Co. v. Binghampton 
 Bridge Co., 27 N. Y. 87 (1863), and The Bmghampton Bridge, 3 Wall. 51, 
 18 L. Ed. 187 (1865). 
 
 Note on Inteepbetation of Geants of Powee of Eminent DomaIn. — 
 The exercise of the power of eminent domain so directly affects the rights 
 of the owner of private property that franchise grants conferring this power 
 are held to permit its exercise only for the purposes expressly stated in the 
 grant and for such objects as are absolutely essential to carrying out the ex- 
 pressed general purposes. Woods v. Greensboro Natural Gas Co., 204 Pa. 
 606, 54 Atl. 470 (1903) ; Matter of Poughkeepsie Bridge Co., 108 N. Y. 483, 
 15 N. E. 601 (1888). 
 
 Note on Inteepbetation of Geants Exempting Coepoeate Pbopeett 
 FBOM Geneeal Taxation. — Following the general rule that, as to subjecting 
 particular property to the general burden of taxation, the presumption is 
 always in favor of the taxing power, statutes and charters exempting the 
 property of corporations from general taxation are generally held not to in- 
 clude within the exemption all the property which the corporations can le- 
 gally hold. Inhabitants of Worcester v. Western Ry. Co., 4 Mete. (Mass.) 564 
 (1842) ; State v. Com'rs of Mansfield, 23 N. J. Law, 510, 57 Am. Dec. 409 
 (1852); State v. Collectors of Newark, 26 N. J. Law, 519 (1856). See, also, 
 State V. Hancock, 35 N. J. Law, 537 (1871). Compare Milwaukee & St. P. R. 
 Co V. Supervisors, 29 Wis. 116 (1871) ; Chicago, M. & St. P. Ry. Co. v. Super- 
 visors,' 48 Wis. 666, 5 N. W. 3 (1880). 
 
216 POWERS AND LIABILITIES (Ch. 3 
 
 SECTION, 2.— IMPLIED POWERS 
 
 In re SUTTON'S HOSPITAL (1612) 10 Coke, 23a, Coke, C. J.: 
 "3. That when a corporation is duly created, all other (1 Roll. 513.' 
 Vin. Ab. Corp. G. Com. Dig. Franch. F. 10. Bac. Ab. Corp. D. Hob. 
 211) incidents are tacitS annexed. And for direct authority in this 
 point in 22 E. 4, Grants 30, it is held by Brian, Chief Justice, and 
 Choke, that corporation is sufficient without the words to implead 
 and to be impleaded, &c. and therefore divers clauses subsequent in 
 the charters are not of necessity, but only declaratory, and might 
 well have been left out. As 1. By the same to have authority, abil- 
 ity, and capacity to purchase, but no. clause is added that they may 
 alien, &c. and it need not, for it is incident. 2. To sue and be sued, 
 implead and be impleaded. 3. To have a seal, Src.that is also de- 
 claratory, for when they are incorporated, they may make or use 
 what seal they will. 4. To restrain them from aliening or demis- 
 ing but in certain form; that is an ordinance testifying the King's 
 desire, but it is but a precept, and doth not bind in law. 5. That 
 the survivors shall be the corporation, that is a good clause ,to oust 
 doubts and questions which might arise, the number being certain." 
 
 MOSS V. AVERELL. 
 
 (Court of Appeals of New York, 1853. 10 N. Y. 449.) 
 
 Action against the defendant as a stockholder in the Rossie Lead 
 Mining Company, a corporation authorized to engage in raising and 
 smelting lead ore, to enforce, in favor of the plaintiff as creditors, the 
 individual liability of the defendant under the charter. 
 
 The plaintiff was the holder of promissory notes issued by the com- 
 pany in payment for the certain real and personal property pur- 
 chased from Moss and Knapp, and formerly used by them, in the 
 business of smelting. In addition to the smelting house and tools 
 the property included certain houses for workingmen, fifty acres of 
 land, the timber on which was used in smelting, also a lease of certain 
 boats, used in transporting ore. 
 
 On the part of the defence it was insisted that the purchase of the 
 property and the giving of the notes were not authorized by the cor- 
 poration, and that a portion of the property was such as the corpo- 
 ration had no right to purchase. A motion by the defendant for a 
 nonsuit for these causes was denied, and the defendant' excepted. 
 Verdict and judgment for the plaintiff, for the amount of the notes. 
 
Sec. 3) IMPLIED POWERS 217 
 
 There was an affirmance at general term, and the defendant appealed 
 to this court. Additional facts are stated in the opinion of Mr. Jus- 
 tice WlLLARD." 
 
 WiLLARD, J.s * * * The acts of corporations may be proved 
 in the same way as the acts of individuals. If there be no record ev- 
 idence, they may be proved by the testimony of witnesses ; and even 
 where no direct evidence of such acts can be given, facts and circum- 
 stances may be proved from which the acts may be inferred. The 
 tendency of the modern decisions is to assimulate the actions, rights, 
 duties and liabilities of corporations to those of individuals. Bank of 
 United States v. Dandridge, 12 Wheat. 64, 6 L. Ed. 552; Bank of 
 Columbia v. Patterson's Adm'rs, 7 Cranch, 299, 3 L. Ed. 351; Trus- 
 tees V. Cagger, 6 Barb. (N. Y.) 576, 580; Perkins v. Washington 
 Insurance Company, 4 Cow. (N. Y.) 645 ; Munn v. Commission Com- 
 pany, 15 Johns. (N. Y.) 44, 55, 8 Am. Dec. 219; Conro v. Port 
 Henry Iron Company, 12 Barb. (N. Y.) 27, 53. Moss & Knapp 
 made an absolute conveyance in presenti of all the smelting property 
 to the corporation, and the proper corporate officers gave their notes 
 for the price, and took immediate possession of all the property, and 
 used and employed it in its corporate business of smelting lead. This 
 act of payment and taking possession was an unequivocal act of rat- 
 ification. Subsequent ratification is equivalent to previous authority. 
 Moss V. Rossie Lead Mining Company, 5 Hill (N. Y.) 137; Clark's 
 Executors v. Van Riemsdyk, 9 Cranch, 153, 3 L. Ed. 688; Conro v. 
 Port Henry Iron Company, 12 Barb. (N. Y.) 27, 53; Corning v. 
 Southland, 3 Hill (N. Y.) 552. 
 
 The purchase of the property of Moss & Knapp for which the 
 notes in question was given was within the scope of the legitimate 
 business of the company. The business for which the company was 
 incorporated was "for the purpose of raising and smelting lead ore at 
 Rossie." Had the company embarked at the beginning in both 
 branches of the business, no doubt can be entertained that they would 
 have been empowered to adopt the proper means, and to make the 
 requisite purchase^ for accomplishing those objects. Acts of 1837, p. 
 441, § 1 ; 1 R. S. p. 599, § 1. The officers of the company saw fit 
 in the beginning to restrict their operation to one branch of the busi- 
 ness for which they were incorporated, that of raising the ore, and 
 to employ Moss & Knapp to perform the business of smelting. At 
 length they judged it for their interest to purchase the works of Moss 
 & Knapp, and to carry on both branches of business themselves. 
 They did not embark in any other business than that for which they 
 were incorporated. The property they purchased had been got to- 
 gether by Moss & Knapp for the* smelting business and nothing 
 €lse, and was necessary to carry on that business. It was situated in 
 
 5 statement of facts substituted. 
 • A part of the opinion is omitted. 
 
218 POWERS AND LIABILITIES (Ch. 3 
 
 a new country, at a distance from any village, and required for the 
 accommodation of their hands the erection of suitable habitations. 
 The country was a wilderness and had to be cleared. The men and 
 animals employed by them had to be supported. If they raised a 
 little grain on their clearings it must be harvested and prepared for 
 food, or it would be lost. The few implements of husbandry which 
 had been procured by Moss & Knapp were of no V9,lue to be re- 
 moved and were sold in a lump with the residue of the property. 
 They .were mere incidents, and whether added to the inventory or 
 omitted would not eventually havfc varied the result. One of the 
 shanties had been used by Moss & Knapp as a school-house for the 
 children of their men. Whether it was so used at the time of the 
 purchase, does not appear. It would have been no objection to the 
 validity of the sale had it been at that time devoted to so laudable an 
 object. There was no attempt on the part of this company to divert 
 .their fund from the legitimate objects of the charter, to the support 
 and endowment of Uterary institutions, or for agricultural purposes. 
 
 The company had the same right to compromise and settle the 
 claim which Moss & Knapp had against them, as to pay or to com- 
 promise any other debt. And they had the same right to do either, 
 that a natural person possesses in relation to his outstanding liabili- 
 ties. * * * 
 
 ' On the argument the greatest stress was laid upon the objection 
 that the corporation had no right to make the purchase of the smelt- 
 ing works; and certainly not of the building called a school-house, 
 and the implem,ents of husbandry mentioned in the inventory. A few 
 observations will be added on this branch of the case. 
 
 It is conceded that, in addition to the powers enumerated in the 
 Revised Statutes, and those expressly granted by its charter or act of 
 incorporation, no corporation can possess or exercise any corporate 
 pbwers except such as shall be necessary to the exercise of the pow- 
 ers so enumer,ated and given. This principle is expressly enacted. 2 
 R. S. p. 600, § 3. Had the corporation subscribed $15,000 for the 
 erection of a chapel to Union College, or purchased a farm for an 
 agricultural seminary, or a wholesale store in the city of New York 
 for the general purposes of trade, it would not have been denied that 
 those acts were unauthorized by the charter. In a case so strongly 
 marked as the ones supposed, the judge at the circuit would have 
 been authorized to nonsuit the plaintiff, if the sustaining of the action 
 required the acknowledgment of the validity of those acts, or to di- 
 rect a verdict in conformity to the law. ' But where a case is not so 
 strongly marked, when the property purchased falls within the gen- 
 eral scope of the charter, and th& only objection is that some articles, 
 apparently unnecessary, are included, the good faith of the purchaser 
 should be submitted as a question of fact to the jury. The corpora- 
 tion should not be permitted to repudiate the purchase after acquiring 
 the plaintiff's property, except under circumstances which would jus- 
 
Sec. 2) IMPLIED POWERS 219 
 
 tify .an individual to repudiate it. 'The individual stockholders are in 
 no better plight than the corporation. 
 
 The defendant did not ask to submit the question to the jury, 
 whether the property purchased was adapted to the legitimate busi- 
 ness of the corporation, but he called upon the court to nonsuit the 
 plaintiff upon the ground, anaong others, that the debt for which the 
 notes were given was not contracted in the ordinary and legitiniate 
 business of said company, or within their corporate powers. He thus 
 called upon the court to decide, as matter of law, what was the ap- 
 propriate province of the jury to determine under suitable instruc- 
 tions. The objection to the purchase was not of such a character 
 that the court could, as matter of law, pronounce it void. * * * 
 
 A case must be i strongly marked which would warrant a judge in 
 pronouncing a purchase void, without submitting it to the considera- 
 tion of a jury. 
 
 On every ground, therefore, I think the judgment should be af- 
 firmed. 
 
 RuGGLES, Mason and Morsb, JJ., concurred. Jewett, Gardiner, 
 Johnson and Taggart, JJ., were for reversal. 
 
 This being the second re-argument of the cause, and a majority 
 of the judges not agreeing, by force of the statute, judgment af- 
 firmed.^ 
 
 CLARK v. FARRINGTON. 
 (Supreme Court of Wisconsin, 1860. 11 Wis. 306.) 
 
 Action by, William D. Clark against William Farrington and wife 
 on a promissory note made by the latter to the order of the La Crosse 
 & Milwaukee Railroad Company., The ^ note was secured by mort- 
 gage on certain real estate. The note was given for shares of stock 
 in the railroad company. 
 
 Appeal from the decision of the trial court holding that the rail- 
 road company had no power to accept for this stock a note and mort- 
 gage in lieu of cash ; that the stock delivered had no legal value ; that 
 the defense is good against the plaintiff.' 
 
 Paine, j.9 * * * The question is. Had the companies the power 
 to take these notes and mortgages for stocks? In this case it arises 
 under the charter authorizing the construction of a railroad from Mil- 
 waukee to La Crosse. The counsel for the defendants contend that 
 the company had not the power, and that the transaction was a viola- 
 tion of its charter. To lay a foundation on which to sustain this posi- 
 tion, they cited a large niimber of authorities establishing the propo- 
 
 7 Compare: People v. Pullman Co., 175 111. 125, 51 N. E. 664, 64 L. R. A. 
 366 (1898). 
 
 s Statement of facts substituted. 
 » A part of the opinion is omitted. 
 
220 POWERS AND LIABILITIES (Ch. 3 
 
 sition that a corporation has no powers except such as are conferred 
 by its charter ; and that its acts outside of those are void. This is too 
 well settled to admit of dispute, and a moment's consideration of, the 
 great increase of corporations in modern times, and of the vast pow- 
 ers entrusted to them, as well as of the natural tendency of their ac- 
 cumulated capital to laccumulate also influence and power, is suffi- 
 cient to satisfy every intelligent mind of the absolute necessity of ad- 
 hering to the rule of confining these bodies strictly to the accomplish- 
 ment of those ends and objects which their charters authorize, and 
 prohibiting them from all others. But while this is conceded, it is 
 also true that to these organizations is entrusted the accomplishment 
 of "enterprises of great pith and moment," which, when properly ex- 
 ecuted, contribute greatly to the convenience and prosperity of man- 
 kind, and even to the advancement of civilization — enterprises impos- 
 sible to private unassociated capital, and which sometimes task even 
 the enormous energies of corporations beyond their strength, so that 
 after expending the best efforts of human ingenuity to accomplish the 
 end, they either fail entirely, or succeed perhaps in completing an 
 improvement of which others may reap the benefit, only by the pe- 
 cuniary ruin of its originators. 
 
 These considerations are sufficifent to show that the rule that cor- 
 porations can exercise no powers not delegated, should not, from an 
 undiscriminating timidity or apprehension, be extended so as to un- 
 wisely and unnecessarily cripple and restrict them, as to the means of 
 executing the powers that are delegated. Powerful as they are, it 
 must be assumed that the law is powerful enough not only to control 
 and confine them within their proper limits, but also within those lim- 
 its, to allow them the exercise of a reasonable discretioi;i .in selecting 
 among the various means that may be adapted to the execution of 
 their powers. It is accordingly held in a large class of cases, many 
 of which are cited by the counsel for the plaintiff, and which we do 
 not deem it necessary to refer to in detail, that a corporation may 
 adopt any of the usual means employed to accomplish the purposes 
 authorized by its charter. It is true, that this right of selecting 
 among the means adopted to the end, is generally stated as limited to 
 those usual and necessary. But precisely what limits those terms im- 
 ply does not seem to be well defined. 
 
 The constitution of the United States gave Congress the power to 
 pass all laws "necessary and proper" for carrying into execution the 
 powers conferred upon the federal government. That government 
 chartered a bank, and its constitutionality being called into question, 
 the supreme court of the United States placed a construction upon 
 these words. They held that the word '"necessary" did not imply 
 that the means used must be absolutely indispensable,, but that the 
 government might select any which were "needJul," "requisite," "es- 
 sential," or "conducive to" the end, and tended directly to its accom- 
 plishment, and therefore might charter a bank. Whether or not it 
 
Sec. 2) IMPLIED POWERS 221 
 
 justifies that conclusion, there is undoubtedly great force in the rea- 
 soning of Chief Justice Marshall, as to the necessity of the power on 
 the part of the government to select convenient means for the exe- 
 cution of its powers. And bearing in mind the disproportion between 
 the powers of a government and those of an ordinary corporation, 
 we think that reasoning goes to sustain the right of the latter to an 
 equal freedom in selecting among various means proper for the ex- 
 ecution of its powers. There is a close relation between the princi- 
 ples applicable to the government of the United States and those ap- 
 plicable to a corporation. The former like the latter can exercise no 
 powers except such as are delegated to it either expressly or implied 
 as necessarily incident to those expressly delegated. The reasons for 
 confining both within the limits of the delegated powers are equally 
 obvious and familiar, yet this being constantly conceded, it by no 
 means follows, that either, within those limits, should be restricted, 
 with narrow and illiberal rigor, in the choice of means adapted to the 
 execution of their respective powers. And the same reasoning which 
 excludes such rigor in the case of the government, in our opinion, 
 justifies its exclusion in the case of a corporation. But in applying. 
 it to the latter, due allowance should be made for the difference in the 
 magnitude of their powers, for it would not at all follow that a corpo- 
 ration might adopt any means which the government might. * * * 
 
 This doctrine must, of course, be properly understood. It does not 
 mean that a corporation may engage in a separate distinct business, 
 not authorized by its charter, as a means of raising funds to accom- 
 plish the things authorized. This it could not do. A railroad compa- 
 ny could not engage in banking, nor in manufacturing, nor speculat- 
 ing in real estate, as a means of raising money to build a railroad. 
 It is oiily that it may adopt any convenient me^ns proper in them- 
 selves, tending directly to the execution of the powers conferred, and 
 not amounting to the transaction of any distinct, unauthorized busi- 
 ness; though such means may not have been usually adopted in the 
 execution of like powers. 
 
 We have, then, two established propositions of law : 
 
 1. A corporation can exercise no powers except those conferred 
 by its charter. 
 
 2. In executing those powers it may adopt any proper and conven- 
 ient means tending directly to their accomplishment, and not amount- 
 ing to the transaction of a separate, unauthorized business. 
 
 In order to decide this case, two questions remain to be determined. 
 Was the taking of the note and mortgage for stock an attempt by the 
 company to execute powers not delegated? Or was it a mere means 
 of executing those that were conferred? If it was the latter, then 
 was it a means which the company was prohibited from using? 
 
 Upon the first question there seems to be no room for doubt. The 
 company did not attempt to do anything, except to execute its pow- 
 er of building a railroad. The defendant was willing to take stock, 
 
222 POWERS AND LIABILITIES (Ch. 3 
 
 but had not the money to pay for it. He was willing to give his 
 note for it, and secure it by a mortgage. The company took it in 
 payment with the sole intention of transferring it to raise the mon- 
 ey. The result is the same as it would have been if the defendant 
 had mortgaged his farm to a third party, and obtained the money 
 himself, and paid it for his stock. In the end, by either method, the 
 company has the money, the defendant the stock, and the third party 
 the note and mortgage. The company has simply resorted to a double 
 transaction to get the money for stock, instead of a single one. But 
 it was a means tending directly to the execution of its power of 
 building a railroad, by disposing of its stock for the money necessary 
 therefor. 
 
 The other question is, whether this means was prohibited to the 
 company? And towards this point the strongest arguments for the 
 mortgagors is directed. It is said that the charter provides a specific 
 method of raising funds for building the road; that is, by opening 
 books for subscription for stock, and then requiring payment from the 
 subscribers; and that this method having been provided for, every 
 other is necessarily excluded. As a part of the argument, it is assum- 
 ed that the charter contemplates and requires a payment in cash, and 
 therefore, that the company is ija effect forbidden to receive anything 
 else as such. This assumption is, of course, necessary, for the valid- 
 ity of the whole argument depends upon it. Let us examine whether 
 it is correct. There is no express provision in" the charter that the 
 stock must be paid for in cash. Is such a provision implied? It was 
 suggested that the language fixing the amoiint of each share at one 
 hundred dollars, necessarily implies that the payment must be in cash. 
 It was said that "dollars," meant money, and was' not descriptive of 
 anything else. But these suggestions seem entitled to but little weight 
 when it is remembered that money is the standard of value and is 
 used as the representative and measure of the value of all other ar- 
 ticles. Thus a note to be paid in specific articles, is drawn for the 
 payment of so many dollars in the articles agreed on. The use of 
 the denomination of money, to fix the amount in value, is necessary 
 in all such instruments. And the mere circumstance that the legisla- 
 ture used that language in fixing the amount of each sljare of the 
 •capital stock, cannot be considered as indicating any intention that the' 
 shares must necessarily be paid for in cash. Because such a literal 
 construction would require the company to keep its capital stock, con- 
 sisting of money. For that capital stock is to continue after the road 
 is built, and would still consist of shares of one hundred dollars each. 
 And if the use of the word "dollars", necessarily requires . each share 
 to be paid for in cash in the first instance, it would equally require 
 it to continue in money. * * * 
 
 [After discussing the authorities the court proceeds :] 
 We are' satisfied, therefore, that the authorities utterly fail to sus- 
 tain the position here contended for, that this company had no power 
 
Sec. 2) IMPLIED POWERS 223 
 
 to dispose of its stock for anything except money. But that, on the 
 contrary, they show with entire unanimity, as well by silent acquies- 
 cence as by positive adjudication, that it had the power to dispose of 
 it in such a manner as would accomplish the objects authorized by 
 the charter. 
 
 It was said that taking the mortgage was an unwarrantable dealing 
 in real estate, but this is not so. There is nothing in the transaction 
 approaching a speculation in lands. , The mortgage is taken as a 
 mere security, and as such is only an incident to the debt. It is sim- 
 ply obtaining by contract what the company could obtain by opera- 
 tion of law on any ordinary stock subscription. Where there was 
 default in payment, judgment could be recovered, which would be a 
 lien on real estate. It would be a mere means of collecting the debt, 
 and the mortgage was nothing more. Suppose such a suit brought, 
 could not the company settle it on the party's securing the debt by 
 mortgage? Could they not take from a willing party, by contract, 
 what the law would give them against him if unwilling, that is, a se- 
 curity for the debt on his real estate ? We can see no reason to 
 doubt it. And if they could do it on the settlenient of a suit, there is 
 no more objection to it in the first instance, without suit. Ang. & 
 Ames on Corp. § 156. But it is further said that, such a contract is 
 a fraud on the cash-paying subscribers. It is a sufficient answer to 
 say that those subscribers do not complain. If the transaction is 
 liable to no other objection, a party to it cannot set up his own 
 fraud to defeat his contract, when the party defrauded chooses to 
 acquiesce. Redfield on Railways, 87, 88, and note.^ But we are un- 
 able to perceive that the objection is valid. The directors are the 
 agents of the stockholders, 'and their acts,, within the powers con- 
 ferred, are binding on the latter. This mode of receiving payment 
 for stock was directed by them, and it being within the scope of their 
 authority, it was to be deemed assented to by all. It is to be assumed 
 that the company could negotiate the securities for their present 
 worth, which would be equivalent to the full amount paid in succes- 
 sive installments. 
 
 We are therefore clearly of the opinion, that the company had 
 power to make this contract, and that the securities are valid. It was 
 not an attempt to go outside of its charter and accomplish things un- 
 authorized, but was a means of executing the powers granted, as to 
 which, except so far as positively restricted, the company possessed the 
 powers of an individual. Says Justice Nelson, in Willmarth v. Craw- 
 ford 10 Wend. (N. Y.) 342 : "Unless there is some express restric- 
 tion,' either in the charter or some other act of the legislature, as to 
 the nature of the evidence of the debts due to or from them, or se- 
 curities to be taken or given by them, they have in this respect the 
 same powers that belong to individuals. Corporations, while acting 
 within the scope of their authority under the act creating them, that 
 is, in the execution of the powers granted to or duties imposed upon 
 
224 POWERS AND LIABILITIES (Ch. 3 
 
 them by the charters, are to this extent and end like natural per- 
 sons." And our whole conclusion is only an application to_ corpora- 
 tions of the rule familiar as between individuals, that securities may, 
 by contract, be received in payment. 
 
 ' The court below erred in holding these securities invalid, and the 
 judgment must be reversed, with cost's, and the cause remanded for 
 further proceedings. 
 
 STATE ex rel. BRADFORD, ATTY. GEN., v. WESTERN IRRI- 
 GATING CANAL CO. 
 
 (Supreme Court of Kansas, 1888. 40 Kan. 96, 19 Pac. 349, 10 Am. St. 
 
 Rep. 166.) 
 
 Proceeding in quo warranto. Action by the state against the West- 
 ern Irrigating Canal Company, praying that the defendant be required 
 to show by what authority it holds, possesses, and assumes to exer- 
 cise the powers and franchises granted to the Enterprise . Irrigating 
 Company; that the plaintiff have judgment of ouster against the 
 defendant in the further exercise of their powers, etc. At the trial a 
 deed was offered in evidence by plaintiff, showing that the Enterprise 
 Irrigating Company had sold its right of way, together with its canal, 
 also its franchises, of whatever kind or description, to- the Western 
 Irrigating Canal Company.^" 
 
 HoRTON, C. J. It is claimed that the Enterprise Irrigating Com- 
 pany, even if its stockholders desired it, had no right to sell all of 
 its property, surrender its franchises, and terminate its existence, 
 without the assent of the state. Therefore that the Western Irrigat- 
 ing Canal Company could not execute the powers, privileges, and 
 franchises granted to the Enterprise Company. For the purposes of 
 this case we assume this to be true, and that so much of the deed of 
 December 11, 1886, as attempts to transfer and convey the franchises 
 of the Enterprise Company, is wholly void ; and yet we do not think 
 the plaintiff is entitled to its judgment of ouster in this action. The 
 Enterprise Company was organized under the laws of the state, and 
 had the power, during its existence as a corporation, "to hold, pur- 
 chase, mortgage, or otherwise convey such real and personal estate 
 as the purposes of the corporation should require. * * * Also 
 to enter into any obligation or contract essential to the transaction of 
 its ordinary affairs." Section 11, c. 23, Com^. Laws 1885. See, also, 
 the general provisions of chapter 23, Comp. Laws 1885, relating to 
 private corporations. The word "franchise" is generally used to des- 
 ignate a right or privilege conferred by law. What is called "the fran- 
 chise of forming a corporation" is really but an exemption from the 
 general rule of the common law prohibiting the formation of cor- 
 porations. All persons in this state have now the right of forming 
 
 10 Statement of facts substituted. ' 
 
Sec. 2) IMPLIED POWERS 225 
 
 corporate associations, upon complying with the simple formalities 
 prescribed by the statute. The right of forming a corporation, and 
 of acting in a corporate capacity, under the general incorporation 
 laws, can be called a franchise only in the sense in which the right 
 of forming a limited partnership, or of executing a conveyance of 
 land by deed, is a franchise. 2 Mor. Priv. Corp. § 923. Even if the 
 Enterprise Company had attempted so to do, it could not, we sup- 
 pose, sell or convey its corporate name, or its right to maintain and 
 defend judicial proceedings, or to make and use a common seal. 
 
 It is not essential to the existence of a corporation that it should 
 possess property. Its legal, existence, therefore, is not necessarily 
 determined by the deed or its attempted conveyance. Its franchises 
 remained, although the corporation may have conveyed all its prop- 
 erty. There is no stockholder or creditor intervening or objecting. 
 Therefore we are not called upon to consider the rights of such par- 
 ties. There is no complaint that the property of the Enterprise Com- 
 pany was not properly acquired, and that the corporation legally 
 owned it. The power to sell or dispose of the same necessarily at- 
 tached as an incident to the ownership. If the corporation could con- 
 vey a part, it could convey all, if its stockholders assented, and its 
 creditors, if it had any, did not interfere or object. It may be that 
 the business of the Enterprise Company had proved unprofitable, 
 and rendered it necessary to dispose of its property, and wind up the 
 concern, as the only means of avoiding insolvency. It may have 
 been necessary to sell the whole of its property in order to raise 
 means to pay its debts and avoid a sacrifice by forced sale. In ei- 
 ther event, the sale and conveyance of the property, with these ob- 
 jects in view, would be a lawful purpose of the corporation. Ditch 
 Co. V. Zellerbach, 37 Cal. 543, 99 Am. Dec. 300; Manufacturing Co. 
 v. Bank, 119 U. S. 191, 7 Sup. Ct. 137, 30 L. Ed. 384; Town v. 
 Bank, 2 Doug. (Mich.) 530; Manufactory v. Langdon, 24 Pick. 
 (Mass.) 49, 35 Am. Dec. 292. 
 
 A private person could make a transfer of all his property, if it 
 was done bona fide. Now, the Enterprise Company possessed all of 
 the powers of a private person in regard to the disposition 'of its 
 property. It had the absolute jus disponendi. 
 
 The route and profile of the Western Irrigating Canal Company 
 is practically the saihe as that laid out and proposed by the Enter- 
 prise 'Company. The Western Company, under the statute, has full 
 power to purchase and hold real and personal estate for the purposes 
 of the corporation. Therefore the Western Company was acting for 
 the benefit of its stockholders when it purchased and took possession 
 of the right of way of the Enterprise Company, and in purchasing 
 and taking possession of such property it was carrying out the pur- 
 poses of its corporation. Under its charter, it had the power to ex- 
 cavate and construct an irrigating canal, commencing at some point 
 in section 35, in township 27 south, of range 22 west, on the north 
 
 RiOH.COEP. 15 
 
226 POWEES AND LIABILITIES (Ch. 3 
 
 bank of the Arkansas river, in Ford county,. Kan., with dam and 
 such lateral ditches as it deemed necessary for irrigation, water- 
 works, and manufacturing purposes. Upon the agreed statement of 
 facts, and the evidence produced upon the trial, the Western Canal 
 Company is only exercising the powers, privileges, and franchises 
 conferred by its charter of November 26, 1886. In taking posses- 
 sion of and in using the property purchased of the Enterprise Com- 
 pany it exercises its own rights and privileges. 
 
 Again, all of the franchises of the Enterprise Conipany have been 
 extinguished by the state in an action brought in this court for that 
 purpose. The state has resumed its franchises, and that compalny is 
 no longer in existence. Therefore the Western Canal Company can- 
 not exercise the powers, privileges, and franchises granted the En- 
 terprise Company, because they have been taken away by the state, 
 and the latter company has no franchises to be exercised by any per- 
 son or corporation. ^ 
 
 Further, if the deed from the Enterprise Company to the West- 
 ern Company transfers and conveys nothing, as it is alleged, then, 
 of course, there is nothing to complain of. If the Western Com- 
 pany has not obtained any right or title to the public domain over 
 which its right of way is laid out, the state has no cause of action 
 therefor. 
 
 Judgment will be rendered in favor of the defendant for all costs. 
 All the justices concurring. 
 
 PHILLIPS V. PROVIDENCE STEAM-ENGINE CO. 
 
 (Supreme Court of Rhode Island, 1899. 21 R. I. 302, 43 Atl. 598, 
 45 L. R. A. 560.) 
 
 Bill by Theodore W. Phillips against the Providence Steam-Engine 
 Company. 
 
 Stiness, J. The complainant, a stockholder, seeks to restrain the 
 respondent corporation from disposing of its property. The com- 
 pany is doing business under an extension by. its creditors, in the 
 terms of which an installment becomes due in November next. It 
 is agreed that this cannot be met, and that the company •\^ill be un- 
 able to go on in business, because the creditors refuse a further 
 extension. In view of these facts, an arrangement has been made to 
 form a new company, in which creditors holding extension notes will 
 take preferred stock to the extent of one-half of their claims, while 
 other subscribers will furnish enough cash to pay for the plant and 
 provide a working capital. The terins of the proposed sale give to 
 the present stockholders $70,000 over and above, tlae indebtedness of 
 the company, amounting to about $228,000, making a total payment 
 of about $298,000. The estimates of the value of the property vary 
 from $327,000 to $397,000,— the latter being the complainant's esti- 
 
Sec. 2) IMPLIED P0WER8 227 
 
 mate, — but It does not appeaf that either party has reason to expect 
 that either sum would be realized at a forced sale. 
 
 This is not a sale in which the other stockholders are to gain any 
 advantage, beyond the privilege, which is also offered to the com- 
 plainant, of takiijg his proportionate amount of cash or its equiva- 
 lent stock in the new company, as he may prefer. It is, in effect, a 
 cash sale to strangfers, approved by stockholders representing 3,675 
 shares against 75 held by the complainant. While this majority can- 
 not affect any rights to which he is entitled, it tends to show a fair 
 price. It is a well-known result, to which courts of justice cannot 
 be blind, that large plants of this kind are'.often, if not usually, sold 
 at a great sacrifice in case of a forced sale. We should not have 
 to go outside of the records of our own court to find proof of this 
 fact. A sale being necessary, the question is, how shall it be made? 
 The prayer of the bill is that a receiver may be appointed, that the 
 business may be wound up and the company dissolved; and the ar- 
 gument is, that the sale of the effects should be at public auction. 
 
 The question, then, is whether the complainant is entitled to such 
 a decree. ' 
 
 There is a difference of opinion as to the, power of a corporation 
 to sell its entire property, and thus practically to retire from busi- 
 ness. Some courts hold that it may be done by the consent of all 
 the stockholders (7 Am. & Eng. Enc. Law [2d Ed.] p. 734, note 1), 
 and others hold that ^ may be done by a majority (Id. notes 2-4). 
 All of the authorities cited in note 1, however, do not hold that the 
 consent of all the stockholders is necessary; e. g. Treadwell v. Man- 
 ufacturing Co., 7 Gray (Mass.) 393, 66 Am. Dec. 490; Wilson v. 
 Miers, 100 E. C. L. 348; and others. But the editor adds, "There 
 seems to be no doubt that it may do so when it is no longer able to 
 profitably continue its business." 
 
 We think that this is the correct rule. It has been recognized in 
 this state. Hodges v. Screw Co., 1 R. I. 312, 350, 53 Am. Dec. 624. 
 In Wilson v. Proprietors, 9 R. I. 590, Brayt-on, C. J., said : "No case 
 has been cited, and, in view of the diligence of counsel in this case, 
 we may say there is no case, which holds that where the purpose of 
 the incorporation could not be accomplished, the business contem- 
 plated could not be carried on, — ^where the capital had ^been exhausted 
 in endeavors to go on, having no means to go further, — a company 
 thus laboring under burdens which they could no longer bear could 
 not release themselves by a surrender of their franchise to the state 
 which granted and which was, willing to receive it, and that by a 
 majority. This is not only for their benefit, but it is a necessity, and 
 it would be hard indeed if one stockhdlder could by his dissent pre- 
 vent such relief against the prayer of all other members of the com- 
 pany." In Peabody v. Water Works, 20 R. I. 176, 37 Atl. 807, a nec- 
 essary limitation to this rule was recognized, in the words: "The 
 action of the company was taken by a vote' of more than 1,100 out of 
 
228 POWERS AND LIABILITIES (Ch. 3 
 
 a total of 1,350 shares. There is no proof of unfairness, oppression, 
 or fraud in such action. The case, as presented, is simply that of a 
 stockholder who differs from a large majority of his fellow stock- 
 holders as to the expediency of a sale." 
 
 The principle upon which these cases rest is that a corporation may 
 dispose of its property by a majority vote, in cases which. are free 
 from unfairness, oppression, and fraud. Against wrongs of this kind 
 equity will interfere. To this effect are Lauman v. Railroad Co., 30 
 Pa. 42, 72 Am. Dec. 685 ; Treadwell v. Manufacturing Co., 7 Gray 
 (Mass.) 393, 66 Am. Dec. 490; Leathers v. Janney, 41 La. Ann. 
 1120, 6 South. 884, 6 L- R. A.-661; Sewell v. Beach Co., 50 N. 
 J. Eq. 717, 25 Atl. 929; Sargent v. Webster, 13 Mete. (Mass.) 497, 
 46 Am. Dec. 743; Warfield v. Canning Co., 72 Iowa, 666, 34 N. 
 W. 467, 2 Am. St. Rep. 263 ; Wilson v. Miers, 100 E. C. L. 348. 
 See. also. Ditch Co. v. Zellerbach, 37 Cal. 543, 99 Am. Dec. 300. , 
 
 The complainant does not charge improper, conduct, but simply 
 that he considers the price ina:dequate and unjust, and hence he prays 
 for a receiver, and a sale of the property by auction. Ordinarily, 
 when a court orders a sale, it can only be done by auction. A court 
 cannot negotiate a private sale, and it orders an auction, as the fair- 
 est chance for all parties to bid and buy. But when the parties in 
 interest have negotiated a sale which is fair to all concerned, and 
 there is nothing to show that a larger price may reasonably be ex- 
 pected, it does not follow that an auction sale would be ordered. 
 This question was considered in Quidnick Co. v. Chafee, 13 R. I. 402, 
 in which the trustee had an offer for the entire property, approved by 
 nearly all the creditors. Then other parties intervened, agreeing to 
 bid the amount named at auction, and the court ordered a sale by 
 auction. In the present case there is no evidence that anybody is will- 
 ing to give as much as the offer proposed, or that there is any reason 
 to suppose that it will bring as much or more. The only testimony 
 put in by the complainant is that the tools will probably bring more 
 than they are valued at by the company, while, as to the bulk of the 
 property, — the real estate, etc., — there is no evidence of market value. 
 Moreover, the complainant does not show that he desires to bid up- 
 on the property himself, or that he knows of ^ any one who would 
 bid at a sale. • In this absence of evidence that a larger total might 
 be expected from, an auction sale, we see no reason to disturb the 
 agreement already made, which, upon the testimony given, seems to 
 be fair. 
 
 The complainant relies strongly on Mason v. Mining Co., 133 
 U. S. 50, 10 Sup. Ct. 224, 33 L. Ed. 524. In that case the court had 
 appointed a master to value the property, which he reported to be 
 nearly $500,000. A majority of the company had arranged a sale 
 to themselves at $50,000. Naturally, in view of such gross inade- 
 quacy, the court ordered a sale by auction. The case was very dif- 
 ferent in its details from the case before us. In Wilson v. Proprie- 
 
Sec. 2) IMPLIED POWERS 229 
 
 tors, 9 R. I. S90, the city of Providence had control of the corpo- 
 ration, and had sold the corporate property to itself. The court 
 restrained the city from taking possession, and ordered a sale by 
 auction. That, too, was a different case from this one. 
 
 The court is bound to look to the interests of all parties, and es- 
 pecially to protect the rights of a minority from oppression and fraud. 
 But where, as in this case, no such thing is charged, and nothing is 
 shown to lead to the belief of a better total price, the complainant 
 makes no case for interference. To show that movable tools 'may 
 be §old at a price somewhat, , but not largely, higher than -that at 
 which they are schedule^, is quite a different thing from showing that 
 the plant as a whole would sell for more than the price offered. To 
 set aside the sale under these circumstances would be to risk a cer- 
 tainty for an uncertainty, without any testimony on which to base 
 a hope of benefit to the stockholders from such interference. 
 
 We see no reason for such a step in the dark. Bill dismissed. 
 
 BROWN et al. v. WINNISIMMET CO. 
 (Supreme Judicial Court of Massachusetts, 1865. 11 Allen, .326.) 
 
 The suit is founded on an agreement by which the defendant com- 
 pany agreed to charter to plaintiffs their iron ferry boat Winnisim- 
 met, with the understanding that she was to be rechartered to Unit- 
 ed States. Plaintiffs to pay $125 per day rent, and account to the 
 company for one half of all sums realized on a rechartering in excess 
 of $125 per day under a charter executed. The company has collect- 
 ed from 'the United States at the rate of $200 per day. The declara- 
 tion was on an account annexed. One item being a charge of $1650 
 for one half, cash due and paid by the United States to the defendant 
 company as charter money. Plaintiff had verdict and defendants al- 
 lege exceptions. Among other questions presented on appeal was 
 whether or not the company had authority under its charter to make 
 the lease in question.^^ ' 
 
 BiGELOW, C. J.^" Thd^main defence to this action appears to have 
 been that the contracts or agreements on which the plaintiffs rely in 
 support of their claim against the defendants were such that the lat- 
 ter had no powtr or authority to make them under the act of the leg- 
 islature by which they were incorporated, and that they cannot for 
 that reason be enforced in a court of law. The later English author- 
 ities seem to sanction the doctrine that such a ground of defence, al- 
 though it may be "unbecoming and ungracious," or, in the stronger 
 language of Lord St. Leonards, "indecent," is nevertheless legal and 
 valid, if it be made to appear, either by the express provisions of an 
 act of incorporation or by necessary and reasonable implication there-' 
 
 11 Statement of facts substituted. i« A part of the opinion is omitted. 
 
230 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 from, that a contract which is sought to be enforced in an action at 
 law against a corporation is beyond the scope of the powers granted 
 by its charter ; or, in other words, that the legislature did not intend 
 that the body created by them should enter into contracts of a char- 
 acter like that which a plaintiff makes ' the foundation of a claim 
 against it. South Yorkshire Railway, etc., v. Great Northern Rail- 
 way, 9 Exch. 55, 85; Bateman v. Ashton-under-Lyne, 3 Hurlst. & 
 Norm. 323 ; Norwich v. Norfolk Railway, 4 El. & Bl. 397, and cases 
 cited ; Hawkes v. Eastern Counties Railway, 1 De G., Macn. & Gord. 
 77>7, 760. A similar doctrine has been recognized and applied by 
 courts in this counti-y. Pennsylvania, etc.. Steam Navigation Co. v. 
 Dandridge, 8 Gill & J. (Md.) 248, 29 Am. Dec. 543 ; Hood v. New 
 York & New Haven Railroad, 22 Conn. 502 ; Pearce v. Madison & 
 I. R. Co., 21 How. 441, 16 Iv. Ed. 184; Angell & Ames on Corp. 256, 
 and cases cited. It is on the principle which seems to be adopted by 
 these authorities that the defendants rely to defeat the present ac- 
 tiofi. 
 
 We have no occasion now to examine at length into the correct- 
 ness of this doctrine, or to ascertain with precision its proper limita- 
 tions or operation, because we are of opinion that the defendants do 
 not bring the case at bar within any recognized application of the 
 rule. Looking only at the words of the act by which the defendants 
 were incorporated, St. 1833, c. 197, we are unable to say that the 
 contracts on which the plaintiffs rely are so far foreign to the ob- 
 ject for which a charter was granted to the defendants as to require 
 us to declare them to have been Ultra vires and illegal, and that no 
 action upon them can be maintained in a court of law. In the ab- 
 sence of all evidence of extraneous facts, and taking the oase as it 
 was presented at the trial; on a comparison of the contracts set up 
 by the plaintiffs with the act incorporating the defendants, it appears 
 to us that the scrupulous care and anxiety to keep within the limit of 
 their corporate powers, which the defendants now manifest will not 
 avail them in defence of this action, although it may induce them to 
 exercise a greater caution in entering into contracts which they can- 
 not fulfill without violating their charter. ^.They were incorporated 
 with power to establish, continue and maintain a ferry between the 
 city of Boston and the town of Chelsea, and were authorized to own, 
 hold and possess vessels, stearnboats and such other personal property, 
 not exceeding in value one hundred thousand dollars, as might be nec- 
 essary and convenierit for the better management of such ;ferry and 
 of the affairs of said corporation. There can be no doubt that under 
 ■ this charter the main purpose for which' the defendants were incor- 
 porated was to carry on the transportation of persons, vehicles, mer- 
 chandise and other articles by means of a ferry across Charles Riv- 
 er between the points designated in the act. All else was to be sub- 
 ordinate and incidental to this main design. So far, the argument 
 urged in behalf of the defendants is sound and irrefragable. * 
 
Sec. 3) IMPLIED POWERS 231 
 
 But the next step is not so easily taken, nor does it lead to the 
 point at which the defendants seek to arrive. It was not shown at 
 the trial that the steamboat which was the subject of the contracts 
 with the plaintiffs was not a necessary and proper vessel to be used 
 by the defendants in the prosecution of the business of their ferry, 
 nor that by reason of its ownership they had exceeded the limit of 
 personal property which they were empowered by their charter to 
 hold. Nor could it be properly inferred that it was not reasonably 
 required for the legitimate business of the corporation, because it was 
 not in actual use by them on the ferry at the time the contract for let- 
 ting it was entered into with the plaintiffs, and because it was char- 
 tered under that contract for the use of the government of the Unit- 
 ed States. Such an inference could 'be made only on the theory that 
 the defendants were so restricted by their charter that they could not 
 hold any greater number of vessels or steamboats than were absolute- 
 ly required for present or immediate and constant use on their ferry, 
 or, if they could be allowed to possess a larger number, that they 
 could not use or employ them in any other business or for any other 
 purpose whatever, but must suffer them to remain at their wharf to 
 decay or deteriorate for the want of use, or, at least, in a condition 
 in which they could be of no advantage to themselves or others. 
 
 But we think such a narrow an.d restricted construction of the pow- 
 ers granted to the defendants is inconsistent with any reasonable view 
 of the intention of the Legislature in conferring on them a corporate 
 franchise, and is not required by any considerations of justice or sound 
 policy. On the contrary, we cannot doubt that under their charter 
 they are authorized to hold any amount or kind of personal prop- 
 erty, within ,the limit of value fixed by the act, which they may deem 
 necessary or expedient, for the proper conduct and management of the 
 business of the ferry; that it is no excess of their corporate powers 
 to own steamboats which are not required for immediate or constant 
 use in the daily prosecution of their ordinary business, but which may 
 be convenient or useful in case of sudden emergency or accident, or 
 when those which are employed in the regular service of the ferry 
 might be withdrawn for repairs; that it is not necessary that such 
 extra or additional steamboats should be kept unernployed when not 
 required for the business of the ferry, but that it is competent for 
 the defendants to use them or to let them to others to be used in 
 carrying on any legitimate business for which they are suitable, such 
 as the towage of vessels and the transportation of passengers or mer- 
 chandise, so long as such use is only temporary and incidental to the 
 main purpose for which they are owned by the defendants. 
 
 We know of no rule or principle by which an act creating a corpora- 
 tion for certain specific objects or to carry on a particular trade or busi- 
 ness is to be strictly construed, as prohibitory of all other dealings or 
 transactions, not coming within the exact scope of those designated. 
 Undoubtedly the main business of a corporation is to be confined to 
 
232 POWERS AND LIABILITIES (Ch. 3 
 
 that class of operations which properly appertain to the general pur- 
 poses for which its charter was granted. But it may also enter into 
 contracts and engage in transactions which are incidental or auxiliary 
 to its main business, dr which may become necessary, expedient or 
 profitable in the care and management of the property which it is 
 authorized to hold under the act by which it was created. For ex- 
 ample, it might perhaps be held that a corporation established for the 
 purpose of manufacturing cotton and woollen cloth could not properly 
 invest all its capital in mill powers and privileges, and engage exclu- 
 sively in the business of leasing them to others to be used for man- 
 ufacturing purposes, or that it could not lawfully confine its opera- 
 tions to the making of steam-engines and machines for sale. But no 
 one could doubt that it would be Vithin the scope of its powers to al- 
 low another person or corporation, for a reasonable compensation, to 
 draw surplus water from its mill-pond, or to employ that portion of 
 its steam power which was not required for its own use. So a stage- 
 coach company or a street railway corporation would exceed its corpo- 
 rate powers if it engaged extensively in the transportation of passen- 
 gers and merchandise on land or' sea by steam; but it would be act- 
 ing strictly within the limits of its capacity if it should occasionally 
 let a horse or a coach or car, not required for its own immediate pur- 
 poses, to another person or corporation, or should enter into a con- 
 tract for the employment of its horses in another occupation during 
 a portion of the year when the business of the corporation did not 
 require their use. We can see no substantial difference between trans- 
 actions of this character and that which the defendants entered into 
 when they made the contracts with the plaintiffs. 
 
 These views of the extent of the authority granted to the defend- 
 ants by the legislature are a decisive answer to the defence relied on 
 by them at the trial. The steamboat, under the contract with the 
 plaintiffs, was let to the United States in a season of great public 
 exigency, for military purposes ; the defendants did not part with her 
 control for any definite period of time, but only from day to day, nor 
 did they send her to a great distance, where she could not be speedily 
 recalled. The defendants retained the right and power to resume the 
 possession and use of her at any moment. In this state of facts, we 
 are of opinion that the court below took a correct view of law,, and 
 was right in refusing to rule, as requested by the defendants, that 
 the contracts entered into with the plaintiffs were not authorized by 
 the defendants' charter, and were therefore void. * * * 
 
 Exceptions overruled.^* 
 
 i» Accord: Jacksonville, M. P. K, & Nav. Co. v. Hooper, 160 U. S. 514, 16 
 Sup. Ct 379, 40 L. Ed. 515 (1896), semble. 
 
Sec. 2) IMPLIED POWBEiS 233 
 
 PLANT et al. v. MACON OIL & ICE CO. et al. 
 (Supreme Court of Georgia, 1898. 103 Ga. 666, 30 S. E. 567.) 
 
 Petition by R. H. Plant and another against the Macon Oil & Ice 
 Company and others for an injunction. Judgment for defendants, 
 and plaintiiifs bring error. 
 
 Lewis, J.^* This was a petition filed by R. H. Plant and W. E. 
 McCaw, as minority stockholders of the Macon Oil & Ice Com- 
 pany, a corporation, against that company, 'E. N. Jelks, R. J. Tay- 
 lor, and the Southern Phosphate Works, for an irijunction to pre- 
 vent the corporation from making or carrying info. effect a lease of 
 its property and franchises, which petitioners contended was ultra 
 vires. * * * 
 
 It was contended by counsel for the plaintiffs that the enumeration 
 of the pcSwers granted to this corporation by the order of the judge 
 of the superior court excluded the exercise of all powers not con- 
 ferred by its charter; that the order of incorporation did not include 
 the po^er to lease the entire plant of the corporation, — or, in other 
 words, to gQ out of business as a manufacturing concern. The gen- 
 eral doctrine that the powers of a corporation, whether public or 
 private, are such only as are conferred by its charter, either express- 
 ly or by fair implication, is too well settled to require discussion. 
 The question, however, whether a private corporation, unless ex- 
 pressly restrained by statute, has an unlimited power of alienating or 
 leasing its property, is one upon which the authorities do not appar- 
 ently agree. A distinction must be drawn between the powers of a 
 public corporation and those of a private corporation in this partic- 
 ular. 
 
 Our attention has been called to the cases of Thomas v. Railroad 
 Co., 101 U. S. 71, 25 L. Ed. 950, and Pennsylvania R. Co. v. St. 
 Louis, A. & T. H. R. Co., 118 U. S. 290, 6 Sup. Ct. 1094, 30 L. 
 Ed. 83, in which that court ruled that a railroad company, unless 
 specially authorized by its charter, or aided by some other legislative 
 action, cannot, by lease or other contract, for a long period of time, 
 turn over to another company its appurtenances, franchises, and pow- 
 ers. In Reese, Ultra Vires, § 137, it is stated : "This rule is based 
 upon the theory that public or quasi public corporations, which pos- 
 sess and exercise the right of eminent domain or its equivalent, owe 
 duties to the public as well as to their stockholders ; and they cannot 
 sell or lease their corporate powers and privileges, and thereby dis- 
 able themselves from performing their jpublic duties, without legisla- 
 tive authority." The public, however/have no such interest in the 
 franchises of a private corporation; and that rule cannot, with the 
 same force, be applied to an alienation made by the latter class. 
 
 1* A part of the opinion is omitted. 
 
234 
 
 POWEES AND LIABILITIES (Ch. 3 
 
 Tayl. Corp. § 132. In 4 Am. & Eng. Enc. Law, p. 219, is this text: 
 "Corporations, unless expressly restrained by statute, have an unlim- 
 'ited power of alienation, like that of an individual; and, since the 
 greater power includes the less, they may lease property, which is but 
 a partial lOr temporary alienation." In Treadwell v. Manufacturing 
 Co., 7 Gray (Mass.) 393, 66 Am. Dec. 490; this right of alienation, 
 in pursuance of the vote of a majority of the stockholders against 
 the protest of the minority, was recognized. On page 404 of that 
 case the court said: "But we entertain no doubt of the right of a 
 corporation, established solely for trading and manufacturing pur- 
 poses, by a vote of the majority of their stockholders to wind up 
 their afifairs, and close their business, if, in the exercise of a sound 
 discretion, they deem it expedient so to do. At common law, the 
 right of corporations, acting by a majority of their stockholders, 
 to sell tlieir property, is absolute, and is not limited as to objects, 
 circumstances, or quantity," — citing a number of authorities. 
 
 On the other hand, respectable authority can be found denying this 
 right of alienation to a private corporation, unless expressly confer- 
 red by its charter. Among the cases relied on by the plaintiff in sup- 
 port of this latter view is that of Cass v. Steel Co. (C. C.) 9 Fed. 
 640, in which the power of a private corporation to lease its plant 
 ■wfas denied by the court. It appeared, however, in that case, that the 
 board of directors exercised, this power against the protest of the 
 holders of a majority of the stock. It further does not appear in 
 that case that there was any emergency or necessity calling for a 
 lease of its property by the company. Reason, as well as authority, 
 we think, will sustain the position that neither a majority of stock- 
 holders nor the directors of a corporation as such, without special 
 authority for that purpose, can generally do an act which, to all in- 
 tents and purposes, terminates the corporation; that they coul4 not, 
 for instance'^ while the company was in a prosperous condition, upon 
 their own mere caprice, sell out the whole source of their emolu- 
 ments, and abandon their enterprise, where a minority desired a pros- 
 ecution of the business. Such is the effect of rulings in the cases of 
 Kean v. Johnson, 9 N. J. Eq. 401; Abbot v. Rubber Co., 33 Barb. 
 (N. Y.) 578. These authorities, however, are based upon the idea of 
 an abandonment of corporate franchises without any special necessi- 
 ty requiring such a Course. * * * 
 
 Upon a cursory glance at the authorities above cited, and a num- 
 ber of others we have investiga:ted upon the subject, th^re would seem 
 at first to be an irreconcilable conflict upon the powers and rights of 
 a majority and a minority of stockholders in a private corporation 
 touching its authority to alienate or lease its property and franchise^. 
 But we think that nearly, if not quite, all of the authorities upot; the 
 subject can be reconciled, and that from a careful consideration of 
 all of them together can be deduced the following principles, about 
 which there seems to be very little,, if any, conflict : 
 
Sec. 2) IMPLIED POWERS 235 
 
 First. While a public or quasi public corporation cannot, without 
 express authority, convey or lease its property and privileges, as a 
 general rule this can be done by a private corporation. 
 
 Second.' But a private corporation, limited as to duration, while 
 doing a successful business, cannot sell out, and, abandon its enter- 
 prise, over the protest of a minority of its stockholders, who. have 
 the right to insist upon a continuance of its business. 
 
 Third. While a minority of stockholders have the right recognized 
 in the paragraph just above, it cannot compel a majority to continue 
 indefinitely in the business of the corporation, provided a majority, 
 in arrangements to discontinue the business, fully protects the in- 
 terests of the minority by payment in full of the value of their shares, 
 should it be demanded. 
 
 Fourth. A minority of stpckholders cannot compel a corporation, 
 against the wishes of a majority of the owners of the stock therein, 
 to continue a business that would be unprofitable or ruinous in its 
 results to the interests of all concerned. Hence it has been often held 
 that an insolvent corporation has the right to make an assignment 
 for the benefit of creditors, which right does not depend upon the 
 assent of all its stockholders. 
 
 From these principles it follows as an inevitable conclusion that a 
 private corporation has the right temporarily to lease or rent its 
 property, when the purpose of such action is not an abandonment 
 of its franchises, but to meet an urgent necessity of raising a fund, 
 so as to enable it afterwards to conduct its business profitably, and 
 to continue the enterprise for which it was ' created. Especially 
 is this the case where the managing officer of the corporation re- 
 mains in charge of the property during this temporary rental. The 
 emergency for immediately raising money to meet urgent claims 
 against the corporation in this case was clearly shown. 
 
 The trial judge was authorized in drawing the conclusion that there 
 was no purpose on the part of the corporation of abandoning its 
 enterprise or i franchises ; that, on the contrary, this temporary rental 
 of its property was really necessary for its protection, and to enable 
 the company to continue its business. Its own manager still remains 
 the manager of the property during the tenancy. The rights of none 
 interested in the company are jeopardized by this temporary ar- 
 rangement. To place it in the power of a minority of stockholders, 
 simply by refusing acquiescence, to defeat a scheme looking to the 
 protection of the company's property, and a continuation of its enter- 
 prise, migljt, under certain circumstances, clothe them with the au- 
 thority of wrecking the company, and defeating the very objects of its 
 corporate existence. 
 
 It was argued by counsel for plaintifif in error that a right to rent 
 for one year would necessarily imply, at the expiration of the lease, 
 the power to continue the rental for another year, and so on indefinite- 
 ly, and thus would follow the power of entirely and permanently 
 
236 POWERS AND LIABILITIES ' (Ch. 3 
 
 transferring the franchises of the company into the hands of another. 
 The reply to this is, "Sufficient unto the day is the evil thereof." 
 Should a scheme of this sort in the future be attempted without any 
 necessity for such alienation, the plaintifJs could doubtless then have 
 redress of their grievances. No such case is made by this record, 
 and what we now rule is that, under the undisputed facts of this 
 case, the judge properly exercised his discretion in refusing the in- 
 junction. 
 Judgment affirmed. All the justices concurring." 
 
 UNION BANK v. JACOBS. 
 (Supreme Court of Tennessee, 1845. 6 Humph. '515.) 
 
 On the 28th day of September, 1841, Jacobs, as president of the 
 Hiwassee Railroad Company, e>i;ecuted a note, binding that company 
 to pay said Jacobs the sum of $5,641, negotiable and payable at the 
 Branch of the Union Bank at Knoxville, four months after date. The 
 note was endorsed by Jacobs to Trautwine, and by Trautwine to the 
 Union Bank, and delivered to the president and directors of the Bank, 
 and discounted by the Bank for the benefit of the Hiwassee Cornpa- 
 ny. At maturity, the note was protested and suit 'rought by the 
 Bank against Jacobs, as endorser, in the circuit court of Knox 
 county. 
 
 It was tried by Judge Lucky and a jury, at the February term, 
 1845. He charged the jury that the Hiwassee Company had no pow- 
 er to borrow inoney, and that the note given in execution of a void 
 contract was null and void also. 
 
 The jury returned a verdict for the defendant, and plaintiff ap- 
 pealed. 
 
 TuRLBY, J.^* * * * These authorities fully establish the propo- 
 sition, that, in the construction of charters of corporations, the power 
 to contract, and the mode of contracting, is not limited to the express 
 grant, but may be extended by implication to all necessary and prop- 
 er means for the accomplishment of the purposes of the charter. 
 Now, what are necessary and proper means? Mr. Story, as we have 
 seen, says, if the means are usual and appropriate, the implication of 
 power arises. Story on Bills, 95. 
 
 Chief Justice Marshall, in the case of McCulloch v. State of Mary- 
 land, 4 Wheat: 413, 4 L. Ed. 579, says : "But the argument on which 
 most reliance is placed is drawn from the peculiar language of this 
 clause of the Constitution. Congress is not empowered by it to' make 
 all laws which may have relation to the powers conferred on the gov- 
 
 15 See Small v. Minneapolis Electro Matrix Co., 45 Minn. 264, 47 N. W 
 797 (1891). ' 
 18 A part of the opinion is omitted. 
 
Sec. 2) IMPLIED POWERS 237 
 
 ernment, but such only as may be necessary and proper for carrying 
 them into execution. The word 'necessary' is considered as control- 
 ling the whole sentence, and as limiting the right to pass laws for the 
 execution of the granted powers, to such as are indispensable, and 
 without which the power would be nugatory. That it excludes the 
 choice of means, and leaves Congress, in each case, that only' which 
 is most direct and simple. Is it true that this is the sense in which 
 the word 'necessary' is always used? Does it always import an ab- 
 solute physical necessity, so strong that one thing to which another 
 may be termed necessary cannot exist without that other ? We think it 
 does not. If reference be had to its use in the common affairs of 
 the world, or in approved authors, we find that it frequently imports 
 no more than that one thing is convenient or useful or essential to an- 
 other. To employ the means necessary to an end is generally un- 
 derstood as employing any means calculated to produce the end, and 
 not as being confined to those single means, without which the end 
 would be entirely unattainable. Such is the character of the human 
 mind that no word conveys to it, in all situations, one single definite 
 idea, and nothing is more common than to use words in a figurative 
 sense. Almost all compositions contain words which, taken in their 
 rigorous sense, would convey a meaning different from that which is 
 obviously intended. It is essential to just construction that many 
 words, whijch import something excessive, should be understood in a 
 more mitigated sense — in that sense which common usage justifies. 
 The word 'necessary' is of this description. It has no fixed character 
 peculiar to itself. It admits of all degrees of comparison, and is often 
 connected with other words, which increase or diminish the impres- 
 sion the mind receives of the urgency it imports. ' A thing may be 
 necessary, very necessary, absolutely or indispensably necessary. To 
 no mind would the same idea he conveyed by these several phases." 
 
 In conclusion upon this subject, he says [4 Wheat. 421, 4 L. Ed. 
 579], same case: "We admit, as all must admit, that the powers of 
 the government are limited, and that its limits are not to be trans- 
 cended. But we think the sound construction of the Constitution 
 must allow to the National Legislature that discretion, with respect 
 to the means by which the powers it confers are to be carried into 
 execution, which will enable that body to perform the high duties as- 
 signed to it, in the manner most beneficial to the people. Let the 
 end be legitimate, let it be within the scope of the Constitution, and 
 all the means which are appropriate, which are plainly adapted to 
 that end, which are not prohibited, but consist with the letter and 
 spirit of the Constitution, are constitutional." 
 
 Now, if this be true doctrine in relation to the Constitution of the 
 United States, surely it will not be contended that a more stringent 
 rule will be applied in the construction of the powers of a corpora- 
 tion than is applied in the construction of the powers of Congress 
 under the Constitution of the United States. 
 
238 POWBES AND LIABILITIES " (Ch. 3 
 
 To apply these principles, as established by the authorities cited, to 
 the case under consideration. The Htwassee Railroad Company is 
 chartered to construct a railroad, a thing of itself necessarily involv- 
 ing a heavy expenditure of money ; but, in addition thereto, it is em- 
 powered to sue and be sued, to acquire and hold, sell, lease and con- 
 vey estates, real, personal and mixed, which necessarily involves the 
 power of making contracts for the same. How shall these contracts 
 be made; both for the construction 6f the road and the purchase of 
 the property? It is argued, that the capital stock of the company 
 is the only means provided for the payment, and that no other can be 
 resorted to for that purpose; or, in other words, that it must pay 
 cash for every contract, for that no power is given by which it may 
 contract upon time; for if it may create a debt, of necessary con- 
 sequence it may create written evidences of that debt, and these may 
 be either promissory notes or bills of exchange. It is true that the 
 capital stock of the company is the source from whence an ultimate 
 payment of the debts of the company must be made; but to hold 
 that a . sufi&cient amount of this stock' must always be on hand, to pay 
 immediately for every contract made, would be destructive of the op- 
 erations of the company. By the provisions of the. charter, not more 
 than one fourth of the stock shall be called for in any one ye^r, and 
 this upon thirty days' notice; and if, within thirty days after such 
 notice, the amount called for be not paid, the company is authorized 
 to take steps against the delinquent stockholders, to enforce payment. 
 Now, it is obvious that it never was intended that all the stock should 
 be paid in before the company commenced operations. The early 
 completion of the road was a desirable object for commercial pur- 
 poses, and can it be pretended that the expenditures of the company 
 were to be limited and restricted to the amount of, capital actually 
 paid in by the stockholders, and that under no circumstances were 
 the company to exceed them? If, upon a failure of the means on 
 hand, the stockholders should neglect to pay upon a proper call, are 
 the works to be suspended until such time as payjnents could be en- 
 forced? Are the persons who may have done work for it, and for 
 which they have not been paid, to wait the slow process of the law 
 before they can receive satisfaction? And shall the company not be 
 permitted to use its credit in such emergency? It is so argued for 
 the defendant. This construction of the charter would be ruinous 
 in its consequences. The company might be compelled to suspend 
 all operations at a time when great loss would result from deteriora- 
 tion to unfinished work, and be greatly injured also in its credit. 
 
 The restriction contended f6r is too refined and technical. It 
 might have suited the days of the Year Books, when it was held that 
 a corporation could contract for nothing except under its corporate 
 seal; but it is strange that it should be urged at this day of enlighten- 
 ed jurisprudence, when the substance of things is looked to rather 
 than forms. A corporation is, in the estimation of law, a body crea<- 
 
Sec. 3) , IMPLIED POWERS .j 239 
 
 ed for special purposes^ and there is jio good reasoit why it should 
 not, in the execution of these purposes, resort to any means that 
 would be necessary and proper for an individual in executing the 
 same, unless it be prohibited by the terms of its charter, or some 
 public law, from so doing. 
 
 There is no principle which prevents a corporation frojn contract- 
 ing debts within the scope of its action; and, as has been. observed, 
 if it may contract a debt, it necessarily rnay rnake provision for its 
 payment, by drawing, or endorsing, or accepting notes or bills. It is 
 not pretended that this power extends to the drawing, endorsing or 
 accepting bills or notes generally, apd disconnected from the pur- 
 poses for which the corporation was created. 
 
 The corporation, in the present case, was indebted to one of its 
 contractors for work done upon the road, for the payment of which 
 the note in question was drawn. This, upon principle and authority, 
 was a usual and appropriate means for accomplishing the object and 
 purposes of the charter, viz., the construction of the road. Not only 
 do all the elementary writers sustain this view of the subject, but, 
 as we have seen, there are three adjudicated cases in courts of high 
 authority directly in its favor. The case of Munn v. Commission 
 Company, IS Johns. (N. Y.) 52, 8 Am. Dec. 219; the case of Mott 
 v. Hicks, 1 Cow. (N.. Y.) 513, 13 Am. Dec. 550; and the case of Hay- 
 ward V. Pilgrim Society, 21 Pick. (Mass.) 270. 
 
 There has not been produced a single case to the contrary. The 
 ■ cases cited relied upon are decided upon different grounds entirely. 
 The case of Broughton and Others v. Company and Proprietors of 
 the Manchester ^nd Salford Water Works, 3 Barnwall & Alderson, 
 1, reported in the EngHsh Common Law Reports, 215, decides noth- 
 ing more than that a corporation, not established for trading pur- 
 poses, cannot be acceptors of a bill of exchange, payable at a less 
 period than six months from the date, because such a case falls 
 within the provisions of the' several acts passed for , the protection 
 of the Bank of England, by which it is enacted that it shall not be 
 lawful for any body coporate to borrow, owe, or take up any money 
 upon their bills or notes payable at demand, or at any less time 
 than six months from the borrowing thereof. It is true that Bayley, 
 J., in his opinion, says : "There being no power expressly given to 
 the corporation to make promissory notes or becoftie parties to bills 
 of exchange, I should doubt very much (even if the Bank acts were 
 entirely out of the question) whether such corporation would have 
 any power to bind itself for purposes foreign to those for which 
 it was originally established ;" and Best, J., in his opinion says : 
 "I am also of opinion that this action is not maintainable, because, 
 this case comes within that rule of law by which corporations are pre- 
 vented from binding themselves by contract not under seal. When a 
 company, like the Bank of England, or East India Company, are 
 corporated for the purposes of trade, it seems to result from the 
 
240 POWERS AND LIABILITIES (Ch. 3 
 
 very object of their being so incorporated, that they should have 
 power to accept bills or issue promissory notes ; it would be impos- 
 sible for either of these companies to go on without accepting bills. 
 In the case of Slark v. The Highgate Archway Company, 5 Taunt. 
 792, the court of common pleas seemed to think that, unless express 
 authority was given by the act establishing the company to make 
 promissory notes eo nomine, a corporation could not bind itself ex- 
 cept by deed. Now, there is nothing in the act of Parliament es- 
 tablishing this company, which authorizes them to bind themselves 
 except by deed." So, the authority of this case for the defendant 
 rests solely upon the dubitatur of Bayley and the opinion of Best, that 
 the company could only bind itself by deed. How much, under 
 these circumstances, it is worth, need not be said. 
 
 The case of People, of State of New York v. Utica Insurance 
 Company, ,15 Johns. (N. Y.) 358, 8 Am. Dec. 243, decides, "that, 
 since the act to restrain unincorporated banking associations, (April 
 11, 1804, re-enacted April 6, 1813,) the right or privilege of carrying 
 on banking operations by an association or company, is a franchise 
 which can only be exercised under a legislative grant ; that a corpo- 
 ration has no other powers than such as are specifically granted by 
 the act of incorporation, or are necessary for the purposes of carry- 
 ing into effect the powers expressly granted; and that the act to 
 incorporate the Utica Insurance Company does not authorize the 
 company to institute a bank, issue bills, discount notes, and receive 
 deposits. Such powers not being expressly granted by the Legis- 
 lature, and not being within their intention, as collected from the 
 act of incorporation, and that the company having assumed and 
 exercised these powers, they were held to have usurped a franchise." 
 
 It is scarcely necessary to enter into an investigation, to show the 
 groiiiid upon which this decision rests. Banking privileges, by an 
 association or company, in New York, rest upon express grant. 
 There was no such grant to the Utica Insurance ^Company, and an 
 exercise of the poWer was not necessary and proper to the perform- 
 ance of the purposes for which it is created, but wholly foreign 
 thereto. 
 
 In the case of New York Firemen Insurance Company v. Ely, 2 
 Cow. (N. Y.) 678, it is held that a company incorporated for the 
 purpose of insurance, and forbidden to carry on any other trade or 
 business, also forbidden to exercise banking powers, with a clause 
 in the act incorporating them, enumerating the kind of securities 
 upon which they may loan money, but not including promissory 
 notes in such enumeration, have no power to loaa moneys upon 
 promissory notes or any securities other than those especially enu- 
 merated. This company being incorporated for the purpose of in- 
 surance only, the discounting of promissory notes would have been 
 foreign to the purpose of its creation; but, in addition thereto, it 
 is exprfessly prohibited from carrying on any other trade or busi- 
 
Sec. 3) IMPLIED POWERS 241 
 
 \ 
 
 ness, or exercising banking powers, and the kind of securities upon 
 which it may loan money are especially enumerated, promissory 
 notes being excluded, it is a well-settled maxim of the law, the ex- 
 pressio unius exclusio est alteriiis ; then, for many reasons, this com- 
 pany had no power under its charter to discount notes. It is not only 
 not given expressly or by implication, but upon every principle of 
 legal construction, is withheld. 
 
 In the case of Life & Fire Insurance Company v. , Mechanics' Fire 
 Insurance Company of New York, 7 Wend. (N. Y.) 31, it is held 
 that "a corporation, authorized to lend money only on bond and 
 mortgage, cannot recover money lent by the corporation, except a 
 bond and mortgage be taken for its re-payment; every other se- 
 curity, as well as the contract itself, is void, and not the basis of 
 action. The reason for this decision is obvious ; bond and mortgage 
 being specified as the securities upon which the company might lend 
 money, all others were considered as excluded, upon the principle 
 mentioned above, expressio unius exclusio est alterius. - 
 
 These are all the cases relied upon by the .defendant for the support 
 of the position assumed by him; we are satisfied that they have no 
 applicability to the question, and are not authority in this case. 
 
 We are then of opinion (to use the words, of Chief Justice Mar- 
 shall, in the case of McCulloch v. State of Maryland) that the end 
 proposed by the Hiwassee Railroad Company, in executing the note 
 .in question, was legitimate, and within the scope of its charter: 
 that as a means it was appropriate, and plainly adapted to that end, 
 which is not prohibited but consistent with the letter and spirit of the 
 charter, and therefore not void, but 'binding and effectual upon the 
 company and the endorsers. 
 
 Let' the judgment of the circuit court be reversed, and the case 
 be remanded for a new trial. ^' 
 
 BATEMAN v. MID-WALES RY. CO. NATIONAL DISCOUNT 
 
 CO., Limited, v. SAME. OVEREND, GUR- 
 
 NEY & CO., Limited, v. SAME. 
 
 (Court of Common Pleas, 1866. L. R. 1 C. P. 499.) 
 
 ERLE, C. J.^* These were actions by the endorsees against the ac- 
 ceptors of several bills of exchange. The defendants pleaded in each 
 action that they did not accept. It appeared that the defendants are 
 a company incorporated by an act of 22 & 23 Vict. c. Ixiii. for the 
 purpose of making and working a railway in Wales. The precise 
 
 1? Accord: Grommes v. Sullivan, 81 Fed. 45, 26 C. C. A. 320, 43 L. R. A. 419 
 (ISO?), semble; Alton Mfg. Co. v. Garrett Biblical Institute, 243 111. 298, 90 
 N. E. 704 (1909), semble. 
 
 18 statement of facts sufficiently appears in the opinion of the court 
 
 RiCH.COBP. — 16 
 
242 POWERS AND LIi^BILITIES " (Gh. 3 
 
 purj OSes for which they are incorporated, and the powers which are 
 intr isted to them, are limited and defined by the special act and the 
 provisions of the general acts incorporated therewith. I take it to 
 be well established that a corporation established for a specific pur- 
 pose cannot bind itself by a contract which is entirely unconnected 
 with the purposes of its incorporation. The question then is, whether 
 this company, being a corporation created for the specific purpose 
 of rriaking a railway, can lawfully bind itself by accepting a bill 
 3f exchange. I. am of opinion that it cannot. The bill of exchange 
 M a cause of action, a contract by itself, which binds the acceptor in 
 the hands of any endorsee for value; and I conceive it would be 
 iltogether contrary to the principles of the law which regulates such 
 instruments that they should be valid or not according as the con- 
 sideration between the original parties was good or bad, — or whether, 
 in the case of a corporation, the consideration in respect of which the 
 acceptance is given is sufficiently connected with the purposes for 
 which the acceptors are incorporated. It would be inconvenient to 
 the' last degree if such an inquiry could be gone into. Some bills 
 might be given for a consideration which was valid, as for work 
 done for the company, and others as a security for money obtained 
 on loan beyond their borrowing powers. It would be a pernicious 
 thing to hold that, in respect of the former, the corporation might 
 be sued by an endorsee, but in respect of the latter not. 
 
 So much for the general bearing of the question upon principle. 
 How stands the matter as to authority? Subject to three excep- 
 tions, I find no case in which an action upon a bill of exchange or 
 promissory note has been sustained against a corporation ; and these 
 exceptions prove the rule. In Slark v. Highgate Archway Company, 
 5 Taunt. 792 ,(E. C. L. R. vol. 1), the company was empowered by 
 its act of parliament to accept bills for the specific purpose: and 
 in the cases of the Bank of England and the East India Company, 
 the negotiation of bills and notes was within the very scope and ob- 
 ject of their incorporation. In no other case that I am aware of 
 has the liability of a corporation ever been enforced. In Broughton 
 V. Manchester Waterworks Company, '3 B. & A. 1 (E. C. L. R. vol. 
 5), the doctrine I have stated is laid down in general terms: and 
 Bayley, J., entertained a doubt whether the holder of a bill of ex- 
 change accepted by a corporation could sue the corporation without 
 showing that the acceptance was given for a purpose for which it 
 was competent to the corporation to accept. That proposition derives 
 much more force when applied to the case of a corporation created 
 for a specific purpose, as we have judicial notice from the act of Par- 
 liament that this is. Upon both principle and authority, therefore, I 
 am of opinion that the acceptances given by this company are iiot 
 binding acceptances, and that the plea is established." 
 
 »» Concurring opinions of By leg and Keating, J J., omitted. 
 
Sec. 3) IMPLIED POWERS 243 
 
 Montague Smith, J. I am of the same opinion. The plaintiffs 
 are endorsees, and not immediate parties to these bills, and therefore 
 cannot recover unless the bills are in their inception valid instru- 
 ments. I am clearly of opinion that it was not within the compe- 
 tency of this company to accept bills. It is a company incorporated 
 for the formation of a railway, with a limited capital and limited 
 powers of borrowing money. If such a company had power to -ac- 
 cept bills of exchange, the consequence would be either that they 
 might bind themselves by acceptances to an unlimited extent, or 
 there must in each case be an inquiry whether the bill was given for 
 the payment of a just debt, or for a purpose ; not warranted by their 
 incorporation. I think it was not the intention of the legislature 
 that they should accept bills at all. The shareholders advance their 
 money upon the faith of the limited borrowing powers. This limit 
 would be illusory if the, directors could be held bound by accept- 
 ances. There is no authority to show that they have power to ac- 
 cept, and there is much authority in analogous cases the other way. 
 It has been held that mining companies, waterworks companies, gas 
 companies, salt and alkali companies, and many others, all more in 
 the nature of trading companies than this company, are incapable 
 of drawing, accepting, or endorsing bills of exchange. The first 
 object of a railway company is the making of a railway, though they 
 may and practically always do carry on the business of carriers. That 
 corporations created for the purpose of trading may have power to 
 issue negotiable instruments is the well-known exception. But that 
 applies where the prima'ry object of the incorporation is thp carry- 
 ing on of trade as other persons carry it on, viz. by buying and 
 selling. 
 
 In addition to the cases already referred to, there is the distinct 
 authority of many eminent text-writers that a railway company can- 
 not accept. I will refer to one considerable authority, the late J. W. 
 Smith. In his treatise on Mercantile Law, after speaking of the 
 disability of corporations in general to accept bills, he says (7th Ed., 
 by Dowdeswell, pp. 105, 106): "However, it has been considered 
 that a trading corporation may differ from others as to its powers of 
 contracting, and its remedies on contracts relating to the purposes 
 for which it was formed. Thus, such a corporation may in some 
 cases bind itself by promissory notes and bills of exchange; and it 
 was even held that the Bank of England might without deed ap- 
 point an agent for such purposes. But a corporation will not have 
 these extraordinary powers unless the nature of the business in which 
 it is engaged raises a necessary implication of their existence." No 
 express power to accept is given to this company; nor is there, in 
 my judgment, any necessary implication from the purposes for which 
 it was created. For these reasons, I am of opinion that the rule in 
 each of these actions should be made absolute. 
 
 Rules absolute to enter a nonsuit. 
 
244 POWBES AND Liabilities (Ch. 3 
 
 BROWN V. CITIZENS' ICE & COLD STORAGE CO. et al. 
 
 (Court of Errors and Appeals of New Jersey, 1907. 72 N. J. Eq. 437, 
 
 66 Atl. 181.) 
 
 Appeal from the Court oi Chancery. 
 
 Suit by James Brown against the Citizens' Ice & Cold Storage 
 Company and another to foreclose a mortgage. From a decree for 
 complainant, defendant the Pennsylvania Iron Works Company ap- 
 peals. ' 
 
 The opinion of Bergen, V. C, is as follows : 
 
 "The defendant company gave two mortgages, one for $10,000 to 
 the complainant, another for $7,235 to Annie Lisle Ballingall, which 
 she assigned to the complainant. There is no dispute about the 
 amount of the loans, nor that they represent debts due by the compa- 
 ny, but the defendant insists that under the terms of defendant's char- 
 ter, as expressed in the following words : 'And the doing of any other 
 act or acts, thing or things, incidentally to grow out of, or connected 
 with said business or any part or parts thereof; to issue bonds se- 
 cured by mortgage or mortgages upon the property, and franchises 
 of said corporation, and to sell the same for the purpose of raising 
 money, with which to erect machinery, and otherwise to improve said 
 lands' — the corporation had no authority to mortgage its property, 
 other than for the purposes above stated, and as the money, to secure 
 which the two mortgages were given, was not applied to the payment 
 of debts due for "machinery and otherwise to improve said lands,' 
 the mortgages are ultra vires, and cannot stand as incumbrances on 
 the land. 
 
 "In my opinion, the general power given a corporation, under our 
 act, to mortgage its property, is not restricted by the terms of the 
 charter invoked. That clause has reference alone to the is§uing of 
 bonds in the usual commercial form, of a negotiable character, to 
 be sold and passed by delivery, and was not intended to, and does 
 not, prevent the corporation from securing to a creditor its debt by 
 way of mortgage, in common form ; and the power to do so is fully 
 conferred by the clause in the charter, which authorizes the compa- 
 ny "to do any act or thing incidentally to grow out of or in connec- 
 tion with said^ business,' implying the right to borrow money and 
 pledge its property as security. The complainant is entitled to a de- 
 cree." 
 
 Per Curiam. The decree appealed from in this case is affirmed, 
 for the reasons stated in the opinion filed in the Court of Chancery 
 by Vice Chancellor Bergen.^" 
 
 20 See Aurora Society v. Paddock, 80 111. 264 (1875). 
 
Sec. 2) IMPLIED POWERS 245 
 
 CHADWICK V. OLD COLONY R. CO. 
 
 OLD COLONY R. CO. v. CHADWICK. 
 
 (Supreme Judicial Court of Massachusetts, 1898. 171 Mass. 239, 50 N. B. 629.) 
 
 Case reserved and appeal from superior court, Dukes county. 
 
 Action by Edward W. Chadwick, assignee of Joseph M. Wardwell, 
 against the Old Colony Railroad Company, to recover money paid 
 for a note and mortgage. There was a judgment for defendant in 
 the superior court. Affirrried. 
 
 The second case is an appeal by Edward W. Chadwick from the 
 decree of the court of insolvency directing a sale of a railroad on 
 the petition of defendant. Appeal dismissed. 
 ' Knowlton, J.^^ The first of these actions is brought to recover 
 the sum of $10,000, with interest, paid by Joseph M. Wardwell to 
 the defendant. Wardwell is an insolvent debtor, and the plaintifJf is 
 his assignee. The payment was made under an agreement whereby 
 Wardwell became the purchaser from the defendant of a note given 
 by the Martha's Vineyard Railroad Company to the defendant, se- 
 cured by a mortgage on the property and franchises of this railroad 
 company. The note and mortgage were given in pursuance of the 
 provisions of St. 1874, c. 351, § 4, which authorizes a railroad corpo- 
 ration to aid in the construction of any "connecting railroad within 
 the limits of this commonwealth, whether connected by railroad or 
 steamboat lines, by subscribing for shares of stock in such corpora- 
 tion, or by taking its notes or bonds, to be secured by mortgage or 
 otherwise, as the parties may agree." There is no dispute that the 
 Martha's Vineyard Railroad Company was connected with the Old 
 Colony Railroad Company by a steamboat line, and that the Old Col- 
 ony Railroad Company was authorized by the statute to aid in the 
 construction of the railroad of the other corporation to the amount 
 of ^he note, which was for $36,000, payable in 10 years after date, 
 with interest semiannually at 7 per cent, per annum, and that it fur- 
 nished moritey to that amount for that purpose. 
 
 The only questions raised in regard to this transaction are as to 
 the form of the note and the form of the mortgage, the note being 
 in terms negotiable, and the mortgage containing a power to the 
 mortgagees to sell the property and franchises at auction for a breach 
 of the condition of the mortgage. The mortgage was made to two in- 
 dividuals as trustees for the defendant. On January 18, 1890, more 
 than 15 years after the mortgage was given, the defendant entered 
 into an agreement with Wardwell in consideration of $5,000 paid by 
 him on that day, and $5,000 more! to be paid on May 19th of the 
 same year, and $26,000. to be paid on January 1, 1895, with interest 
 at 5 per cent., to transfer and' deliver the note to him, or to such 
 
 21 A part of the opinion is omitted. 
 
246 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 persons as he might, in writing, request; and the trustees agreed in 
 the same writing that upon the transfer and delivery of the note they 
 would assign the mortgage to the person to whom the vote was trans- 
 ferred and delivered. It was also agreed that, until the payments 
 should all be made, the defendant should hold the note, and the, trus- 
 tees should hold the mortgage, and enforce it for his benefit in such 
 manner as he might, jn writing, request. Wardwell made the second 
 payment of $5,000, but failed to pay the balance. To recover the sum 
 of $10,000, made up of these two payments, and also the interest, the 
 plaintiff brings this suit, contending that the agreement was illegal 
 and void: His contention is, in substance, that such a mortgage as 
 the statute authorizes could not give a title to the road that could 
 pass by a foreclosure or otherwise to the hands of any natural per- 
 son, or to any railroad company except the one which aided in the 
 construction by taking the notes or bonds'. * * * 
 
 The questions raised in the action at common law involve a con- 
 sideration of the rights of mortgagees of railroads. Our statutes au- 
 thorize railroad corporations to mortgage railroads in certain cases, 
 but they do not particularly define the rights of the mortgagees. Pub. 
 St. c. 112, §§ 61-80. The general language used implies that their 
 rights are like those of mortgagees of other kinds of property, ex- 
 cept so far as they are affected by tha provisions of the statutes for 
 the management or use of the property. 
 
 It has sometimes been contended that the franchises of a corpora- 
 tion cannot be conveyed by mortgage in connection with its property. 
 It is true that the franchise to be a corporation is not assignable, 
 or in any way transferable. The distinction between the franchise 
 to be a corporation and the franchise to use the corporate property 
 for the purposes for which the corporation was organized was pointed 
 out by Mr. Justice Curtis in Hall v. Railroad Co., Fed. Gas. No. 
 5,948, and has been recognized many times by courts of high au- 
 thority. 
 
 In Memphis & h. R. R./Co. v. Railroad. Com'rs, 112 U. S. 609-619, 
 5 Sup. Ct. 299-303 (28 L. Ed. 837), the court says : "The franchise of 
 being a corporation need not be implied as necessary to secure to the 
 mortgage bondholders or the purchasers at foreclosure sale the sub- 
 stantial rights intended to be secured. They acquire the ownership 
 of the railroad, and the property incident to it, and the franchise of 
 maintaining and operating it as such, and the corpqrate existence 
 is not essential to its use and enjoyment. All the franchises neces- 
 sary or important to the beneficial use of the railroad could as well 
 be exercised by natural persons. The essential properties of corpo- 
 rate existence are quite distinct from the franchises of the corpora- 
 tion." 
 
 In the opinion in New Orleans, S. F.i& L. R. Co. v. Delamore, 114 
 U. S. 501-509, 5 Sup. Ct. 1009-1013 (29 L. Ed. 244), is this language : 
 "The authority to mortgage the franchises of a railroad company 
 
Sec. 3) ^ IMPLIED POWERS 247 
 
 I 
 
 necessarily implies the power to bring the franchises so mortgaged to 
 sale, and to transfer them with the corporeal property of the company 
 to the purchaser. It could not be held that when. the mortgage of a 
 railroad and its franchises was authorized by law that the attempt of 
 the mortgagor to enforce the mortgage would destroy the main value 
 of the property by the destruction of its franchises." 
 . In Bank v. Edgerton, 30 Vt. 182, 190, it is said that : "The right 
 to build, own, manage, and run a railroad, and take ihe tolls thereon, 
 is not of necessity of a corporate character, or dependent upon cor- 
 porate rights. It may belong to and be enjoyed by natural persons,, 
 and there is nothing in its nature inconsistent with its being assign- 
 able." 
 
 A similar doctrine has been stated or recognized in many other 
 cases. See Morgan v. Louisiana, 93 U. S. 217-223, 23 L. Ed. 860; 
 Trask v. Maguire, 18 Wall. 391^09, 21 L. Ed. 938; Railway Co. 
 V. Miller, 114 U. S- 176, 5 Sup. Ct. 813, 29 L. Ed; 121; Jackson v. 
 Ludeling, 21 Wall. 616, 22 L. Ed. 492; Id., 99 U. S. 513, 25 L. Ed. 
 460; State v. Sherman, 22 Ohio St. 411^28; Meyer v. Johnston, 
 53 Ala. 237-327; Chaffe v. Ludeling, 27 La. Ann. 607; Willink v. 
 Banking Co., 4 N. J.Eq. 377. 
 
 So far as we are aware, the cases bearing upon the subjfects all 
 hold that a mortgage of a railroad and other property of a railroad 
 corporation includes the franchise to use thfe property for the pur- 
 poses for which it is held by the corporation. This right will pass 
 to a purchaser at a foreclosure sale, whether the sale is to a corpora- 
 tion or to an individual. A mortgage of pwjperty necessarily im- 
 plies the right in the mortgagee to make the property valuable. This 
 may be either by a sale or by use. There is no good reason why the 
 right to sell should be restricted to cases in which an existing railroad 
 corporation is willing to become the' purchaser. With such a restric-. 
 tion a mortgage on the property and franchises of a railroad ordi- 
 narily could only be made available through an actual use by the 
 mortgagee, or through a contract under Pub. St. c. 112, § 66, with 
 the mortgagor. 
 
 By Pub. St. c. 151, § 2, the supreme judicial court is given jurisdic- 
 tion "of all cases arising out of railroad mortgages." In Troy & G.. 
 R. Co. V. Com., 127 Mass. 43, it is said that chapter 140 of the Gen- 
 eral Statutes (Pub. St. c. 181) relates only to mortgages qf real estate, 
 and it is implied that the only jurisdiction to foreclose mortgages up- 
 on railroads is in equity. We think there is no doubt that a court of 
 equity, under our statutes, has jurisdiction over suits to foreclose 
 rtiortgages of railroads, and in such cases may order a sale of the 
 property and franchises covered by the mortgage. 
 
 Th6 right to foreclose such a mortgage by a sale, and the right of 
 an individual as well as a corporation to purchase at the sale, and to 
 transfer to others the title which he acquires,- is recognized by St. 
 1886, c. 142, §, 1, which is as follows: "A purchaser of a railroad at 
 
248 POWERS AND LIABILITIES (Ch. 3 
 
 a sale under a valid foreclosure of a legal mortgage thereof and his 
 grantee and successors in title, shall be subject to all and the same 
 duties and liabilities, restrictions and other provisions respecting such 
 railroad) or arising from the construction, maintenance and operation 
 thereof, and have all and the same powers and rights relating to said 
 railroad and the construction, maintenance and operation thereof 
 which the corporation by which said mortgage was made was sub- 
 ject and had at the time of said sale." 
 
 This statute is declaratory of the law as it exists without legislation 
 in other jurisdictions, and as doubtless it would have been held to be 
 in this commonwealth upon general principles before the enactment 
 of the statute. It follows that the agreement under which the pay- 
 ments were made by Wardwell was not contrary to public policy, and 
 it gave him equitable rights in the mortgaged property and fran- 
 chises that furnish a valuable consideration for his payments. It also 
 follows that the original mortgage was not illegal in that it was made 
 to secure a negotiable promissory note. 
 
 The effect of a power of sale inserted in a mortgage of a railroad, 
 it is not necessary in this suit to determine, inasmuch as the validity 
 of the payments made by Wardwell under the agreement does not de- 
 pend upon it. Powers of sale in mortgages have been recognized 
 by the courts and by the statutes in this commonwealth for many 
 years; and, if they are not objectionable in terms, we see no reason 
 why they should not be given effect in mortgages of railroads as 
 well as of other property. 
 
 The fact that St. 1874, c. 351, § 4 (Pub. St. c. 112, § 80), in author- 
 izing the making of mortgages , of railroads, does not expressly men- 
 tion their franchises, is immaterial. The franchise to use the railroad 
 and its appurtenances goes with the railroad by implication when an 
 entire railroad is conveyed. That a mortgage can be' made originally . 
 only to a connecting railroad under this statute does not indicate that 
 the mortgagee can make it available only by operating the railroad, 
 and that the franchises cannot be used by a purchaser. So to hold 
 would put a limitation upon the mortgage for which there is no war- 
 rant in the statute. 
 
 ■ The grounds upon which the plaintiff seeks to recover are unten- 
 able. Judgment for defendant. Appeal dismissed. 
 
 AMERICAN LOAN & TRUST CO. v. GENERAL ELEC- 
 TRIC CO. 
 
 (Supreme Court of New Hampshire, 1901. 71 N. H. 192, 51 AU. 660.) 
 
 Bill in equity to restrain the General Electric Company, a judg- 
 ment creditor of the Concord Electric Company, from completing a 
 levy on property of the latter company mortgaged to the American 
 Loan & Trust Co. Facts agreed. Case transferred on a special 
 
Sec. 2) IMPLIED POWERS 249 
 
 question. The Concord Electric Co. was organized to take over the 
 property and franchises of the Concord Land & Water Power Co. 
 The mortgage in question was executed to the American Loan & 
 Trust Co. to secure a bond issue made to pay the purchase price in 
 part, receivers' charges and for betterments. The bonds are all in 
 the hands of investors.^^ 
 
 Chase, J. The power of private corporations generally to secure 
 the payment of their debts by a mortgage of their property is not 
 denied; but it is alleged that the Concord Electric Company is a 
 quasi public corporation, and, being such, cannot mortgage or other- 
 wise alienate its franchises and the property required for the per- 
 formance of its public duties without the assent of the legislature. 
 According to the weight of authority, measured by the number of 
 the cases, quasi public corporations have this disability. 4 Thomp. 
 Corp. §§ 5352, 5355, and authorities cited. Whether the reasons up- 
 on which the doctrine rests are sufficient to support it has been 
 seriously questioned. 3 Cook, Corp. 1782a; Miller v. Railroad Co., 
 36 Vt. 452 ; Shepley v. Railroad Co., 55 Me. 395, 407 ; Kennebec & 
 P. R. Co. V. Portland & K. R. Co., 59 Me. 9; Hunt v. Gaslight Co., 
 95 Tenn. 136, 31 S. W. 1006. The doctrine has been approved in this 
 state in respect to railroad corporations. Pierce v. Emery, 32 N. H. 
 504; Richards v. Merrimack & C. R. R., 44 N. H. 127; State v. 
 Hayes, 61 N. H. 264, 324. 
 
 Whether the secondary franchises of a quasi public corporation — 
 the~franchises other than that of bein^ a corporation — and the prop- 
 erty required for the fulfillment of the public purposes of the corpo- 
 ration may be mortgaged depends upon the terms upon which the 
 franchises are granted, "or, in the absence of anything special in 
 the grant itself, upon the intention of the legislature, to be deduced 
 from the general purposes it had in view, the means it intended to 
 have employed to execute those purposes, arid the course of legisla- 
 tion on the same or similar subjects ; or, as it is sometimes compen- 
 diously expressed, upon the public policy of the state." Hall v. Rail- 
 road Co., Fed. Cas. No. 5,948. 
 
 The Concord Electric Company was formed under the general law 
 of the state. This provides, that any five or more persons of lawful 
 age may associate together by articles of agreement to form a corpo- 
 ration for certain specified purposes, and for "the carrying on- of any 
 lawful business except banking, life insurance, the making of con- 
 tracts for the payment of money at a fixed date or upon the happen- 
 ing of some contingency, and the construction and maintenance of 
 railroads." Pub. St. c. 147, § 1. When the articles are recorded as 
 required, and the charter fee, if any, is paid, the signers become a 
 corporation, "and such corporation, its officers and stockholders, 
 shall have all the rights and powers and be subject to all the duties 
 
 22 statement of fact substituted. 
 
250 POWERS AND LIABILITIES (Ch. 3. 
 
 and liabilities of other similar corporations, ' their officers and stock- 
 holders, except so far as the same are limited or enlarged by this 
 chapter.'' Id. § 4. Among the powers expressly granted to such 
 corporations is the power to make "contracts necessary and proper 
 for the transaction of their authorized business," and to "purchase, 
 hold, and convey real and personal estate necessary and proper" for 
 such purpose, not exceeding the amount authorized by their charter 
 or by statute. Id. c. 148, §§ 8, 9. 
 
 One reason that has been assigned for the nonvehdibihty of a 
 quasi public corporation's franchises and property without the spe- 
 cial assent of the legislature is that the state, in granting the corpo- 
 rate powers, relies more or less upon the ability and character of the 
 persons to whom the grant was made for accomplishing the public 
 purposes in view. If this is a sound reason in any case (Miller v. 
 Railroad Co., 36 Vt. 452, 492; Shepley v. Railroad Co., 55 Me. 395, 
 407 ; 4 Thomp. Corp. § 5352), it certainly is not in the case of a cor- 
 poration formed under the general law of this state. The state has 
 no part in determining who the members of the corporation shall be, 
 other than that they shall be of lawful age. Any five persons of 
 lawful age may become a corporation by force of their own acts in 
 making the agreement, causing it to be recorded, and paying the re- 
 quired charter fee. After the corporation is- organized, and its cap- 
 ital stock is paid in, the stockholders are liable to constant change 
 by transfers of stock in various ways. The grant of corporate pow- 
 ers under these circumstances is not in any sense a personal trust. 
 Threadgill v. Pumphrey, 87 Tex. 573, 578, 30 S. W. 356. 
 
 The only special privilege which the Concord Electric Company 
 acquired by its incorporation was the right to be a corporation. The 
 power of eminent domain was not delegated to it, it was not ex- 
 empted from taxation, nor was it granted a monopoly of furnishing 
 electric lights to the city and its inhabitants. It was granted no other 
 or greater power in respect to its proposed business than a natural 
 person would have in the prosecution of the same business. It ac- 
 quired the right to construct lines of wire in highways of the city 
 not by virtue of its incorporation, but by virtue of licenses granted by 
 the mayor and aldermen. The statute provides that "telegraph, tel- 
 ephone, electric Hght, and electric power poles may be erected and 
 maintained in any public highway, and the- necessary wires may be 
 strung on such poles or placed beneath the surface of such highway 
 by any person or corporation as provided in this chapter, and not 
 otherwise." Pub. St. c. 81, § 1. It further provides that the select- 
 men, or, in case of a city, the mayor and aldermen (Id. c. 48, § 14), 
 upon petition of any person or corporation, may locate the routes 
 of lines of wire and grant licenses therefor for such a period of time 
 as they deem expedient, may change the terms and conditions of the 
 licenses from time to time, and may revoke the same whenever the 
 public good requires. If a person is damaged in his estate by a 
 
Sec. 2) IMPLIED POWHES 251 
 
 license or any act done under it, he may have his damages assessed 
 by the selectmeh. Appeals from the decisions of selectmen to the 
 superior court are allowed in certain cases. Id. c. 81, §§ 2-9. 
 
 These provisions were designed to regulate and control the use 
 made Df highways for such purposes, so that such use will not unduly 
 interfere with the other public uses to which the highways are dedi- 
 cate^i. A license under these provisions is not a grant of a franchise, 
 but a mere permission to use highways, subject to limitations and 
 constant control and regulation by public officers. People v. Gas- 
 light Co., 38 Mich. 154, 155 ; Commercial Electric Light Co. v. City 
 of Tacoma, 17 Wash. 661, 672, 50 Pac. 592. So far as the operation 
 of the provisions is concerned, it does not matter who the , licensee 
 may be for the time being. If a license was granted to the Concord 
 Land & Water Power Company, and the Concord Electric Com- 
 pany, as the vendee of the property, rights, and franchises of that 
 company, is now operating the electric light plant, its use of the 
 highways may be regulated and controlled under these provisions, the 
 same as if there had been no change in the ownership of the plant. 
 If the transfer of the property _ had the effect to revoke the license, 
 the statute provides a way for obtaining a renewal. Id. c. 81, § 18. 
 
 The statute further provides that "all telegraph, telephone, and elec- 
 tric light companies serving parties for hire shall be deemed to be 
 public, and shall reasonably accommodate persons wishing to enjoy 
 their facilities without discrimination and at reasonable rates." Pub. 
 St. c. 81, § 13. In the original act, of which chapter 81 of the Pub- 
 lic Statutes is a revision, the corresponding provision relating to 
 electric light companies reads as follows : The "proprietors of any 
 electric lighting apparatus or lines shall furnish the means of lighting 
 by such electric light to all persons. within reach thereof and applying 
 therefor upon similar terms and conditions without discrimination 
 and at reasonable rates." Laws 1881, c. 54, § 12. The words "elec- 
 tric light companies" in the revised section were evidently intended to 
 describe the same parties as the words "proprietors of any electric 
 lighting apparatus or lines" in the original section, and to include 
 natural persons as well as corporations. This provision imposes 
 certain duties in behalf of the public upon the corporation or natural 
 person engaged in the business of furnishing electric lights for hire 
 and making use of highways in the business. By virtue of it, and 
 also in consideration of the license to make use of highways, the cor- 
 poration or natural person assumes an obligation to the state to car- 
 ry on the business faithfully and impartially so far as the public are 
 concerned. While the obligation is personal so long as the corpora- 
 tion or person holds the property used in its performance, it passes 
 with the property to a vendee, and must be assumed by the latter. 
 
 The Concord Electric Company is under the same obligation to 
 furnish electric lighting facilities to the public at reasonable rates 
 and without discrimination as was the Concord Land & Water Pow- 
 
252 , POWEES AND LIABILITIES (Ch. 3 
 
 er Company. It succeeded that company in the business and the 
 ownership of the plant, and the statute now appHes to it the same as 
 it formerly did to the Water Power Company. The state relies for a 
 fulfillment of the public purposes in view, not upon its confidence in 
 particular persons, but upon statutory provisions defining the duties 
 of persons engaged in the business and regulating their conduct. Al- 
 though a corporation or a person becomes incapacitated for perform- 
 ing the public duties and obligations pertaining to the business by 
 disposing of the property and franchises used in it, the public pur- 
 poses are not thereby defeated. All the public duties and obligations 
 pertaining to the business follow the property and franchises into 
 the possession of whomsoever they go, and attach to their owners for 
 the time being. Under these circumstances public policy does not 
 require that such corporations should be disabled from alienating 
 their property and franchises. 
 
 But there is another consideration that seems conclusive. A nat- 
 ural person may engage in the business of furnishing electric lights 
 for hire, and acquire all the privileges and be subject to all the du- 
 ties and obligations pertaining to the business as provided in the 
 statute. There can be no doubt that a person so engaged is at lib- 
 erty to dispose of his business and property at pleasure. The fact 
 that the legislature have placed a corporation engaged in the business 
 of electric lighting upon the same footing in all respects' as a natural 
 person shows that they understood and intended that a corporation of 
 this kind should have equal freedom as to the disposition of its prop- 
 erty and rights. 
 
 It is not difficult to see why the legislature adopted this course. A 
 policy that would deprive an electric light corporation of the pow- 
 er of selling out its business and property when it becomes finan- 
 cially embarrassed, or of raising money to carry on the business by 
 a pledge of its property and franchises, would tend to defeat the ful- 
 fillment of its public purposes. A corporation so hampered might 
 be worse than useless to its stockholders and the public. It might 
 not be able either to use its property and franchises, or to transfer 
 them to others for use. "It is said, if a corporation is permitted to 
 dispose of its franchises and of its property essential to their exercise, 
 it will disable itself from performing its obligations to the pubHc. It 
 might seem_ to be an answer in point that, unless it is permitted so 
 to do, it will never have any ability to perform those obligations." 
 Miller V. Railroad Co., 36 Vt. 452, 491. 
 
 Nor is it apparent how unsecured creditors of a 9orporation could 
 avail themselves of the property and franchises to pay their debts. 
 The policy that would disable the corporation from pledging its prop- 
 erty a'nd franchises for its indebtedness would prevent them from be- 
 ing taken by judgment, creditors upon a levy., 4 Thomp. Corp § 
 5364; 6 Thon;ip. Corp. § 7853. All the supposed evils attending the 
 substitutioii of another person or corporation for the original cor- 
 
Sec. 3) IMPLIED POWERS 253 
 
 poration would arise if the property and franchises were transferred 
 by a levy, the same as if they were transferred by the foreclosure of 
 a mortgage or by a sale. For example; how would the public be any 
 better off by a transfer of the Bridge street station and its apparatus 
 ■ — property that is indispensable to the, business — to the General 
 Electric Company by a levy than it would be by a transfer to other 
 persons upon a foreclosure of the mortgage to the American Loan 
 & Trust Company? 
 
 The right to sell or pledge property is one of the principal rights 
 pertaining to ownership, and one that is generally essen^al to enable 
 the owner to use the property in business successfully. The policy 
 adopted by the state, so far as electric light corporations are con- 
 cerned, allows this right to remain unimpaired, and secures the assur- 
 ance that corporations will fulfill their public duties by providing for 
 a regulation of their use of the property. It regards mortgages of 
 the property and franchises of such corporations, made to ^ecure 
 debts incurred in their authorized business, as contracts or convey- 
 ances "necessary and proper for the transaction of their authorized 
 business," as well as necessary and proper for the fulfillment of their 
 obligations to the public. 
 
 There are general laws which expressly authorize railroad corpora- 
 tions and street railway corporations to incur debts and secure their 
 payment by mortgages of their property and franchises. Laws 1897, 
 c. 71, § 1; Laws 1895, c. 27, §§ 16, 17; Laws 1897, c. 74, § 1. Dur- 
 ing the past 10 years 14 electric light companies have been incorpo- 
 rated in this state by special charters, and each of them was express- 
 ly authorized to mortgage its property and franchises. Laws 1893, 
 cc. 201, 227, 273, 303; Laws 1897, cc. 144, 172, 173, 184, 202, 203, 
 206 ; Laws .1899, cc. 208, 218 ; Laws 1901, c. 243. Five acts have 
 been passed authorizing the consolidation of electric light companies, 
 each of which expressly gave the consolidated corporation like au- 
 thority. Laws 1897, c. 137; Laws 1899, c. 164 j Laws 1901, cc. 189, 
 195, 276. The charters of three corporations previously granted have 
 been amended by introducing into them authority of this kind. Laws 
 1893, cc. 177, 193, 301. 
 
 It is said by the defendants upon their brief that of 98 special char- 
 ters granted by the legislature since 1887 to gas, electric light, electric 
 railway, water, aqueduct, telephone, and telegraph companies 80 have 
 contained authority to mortgage the corporation's property or proper- 
 ty and franchises. This legislation all tends very strongly to prove 
 the existence of a public policy in this state which allows quasi public 
 corporations — even railroad corporations — the same freedom to incur 
 debts and pledge their property and franchises therefor that is pos- 
 sessed by other corporations and by natural persons. Whatever the 
 public policy may be in respect to other corporations, no doubt is 
 entertained that it allows electric light and power corporations, 
 formed under the general law, and making use of public highways for 
 
254 POWERS AND LIABILITIES (Ch. 3 
 
 Stringing wires under licenses grarited by selectmen, to alienate or 
 mortgage their property and secondary franchises. 
 
 Accordingly it is held that the Concord Electric Company has 
 power to mortgage its property and franchises. In other states sim- 
 ilar views have been taken under similar conditions. City of Detroit 
 V GasUght Co., 43 Mich. 594, 5 N. W. 1039; Hunt v. GasUght Co., 
 95 Tenn. 136, 31 S. W. 1006; Hays v. Coal Co., 29 Ohio St. 330; 
 Evans v. Heating Co., 157 Mass. 37,. 31 N.,E. 698. 
 
 Case discharged. All concurred.^* ' 
 
 NORTH SIDE RY. CO. et al. v.' WORTHINGTON et al. 
 
 (Supreme Court of Texas, 1895. 88 Tex. 562, 30 S. W. 1055, 
 53 Am. St'Eep. 7T8.) 
 
 Suit by Worthington and others against the North Side Railway 
 Company, the Ft. Worth City Company, and others, on certain 
 bonds issued by the two companies and secured by a mortgage on 
 their joint property. Both corporations were organized by the same 
 parties, and in furtherance of a plan of suburban development. Both 
 companies were organized under general incorporation laws ; the 
 railroad company being authorized to construct and operate street 
 railways, and the City Company to purchase, subdivide, and sell 
 lands in cities and villages.^* 
 
 Gaines, C. J.^° * * * It is contended on behalf of the plain- 
 tiffs in error that the execution of the bonds was ultra vires, and that, 
 therefore, they are void. In determining this question, we may recur 
 to a few leading principles. Corporations are the creatures of me 
 law, and they can only exercise such powers as are granted by the 
 law of their creation. An express grant, however, is not nec^sary. 
 In every express grant there is implied a -power to do whatever is 
 necessary or reasonably appropriate to the exercise of the author- 
 ity expressly conferr'edj The difficulty arises in any particular case 
 whenever we attempt to determine whether the power of a corpora- 
 tion to do an act can be implied or not. The question has given 
 rise to much litigious controversy and to much conflict of , decision. 
 * * * If the means be such as are usually resorted to, and a di- 
 rect method of accomplishing the purpose of the incorporation, they 
 are within its powers. If they be unusual, and tend in an indi- 
 rect manner only to promote its interests, they are held to be ultra 
 vires. * * * 
 
 As illustrative of the principle which we have announced, we call 
 attention to some cases in addition to those already cited. In Davis 
 
 28 Accord: Bardstown & L. E. Co. v. Metcalfe, 4 Mete. (Ky.) 199, 81 Am. 
 Dec. 541 (1862). v * / > 
 
 2 4 Statement of facts substituted. 
 2IS A part of the opinion is omitted. 
 
Sec. 3) ^ IMPLIED POWERS 255 
 
 V. Railroad Co., 131 Mass. 258, 41 Am. Rep. 221, it is held that it 
 is beyond the powers of a railway company, or of a corporation or- 
 ganized under the General Statutes of Massachusetts for the manu- 
 facture and sale of musical instruments, to guaranty the payment of 
 the expenses of a musical festival. The opinion in that case is by 
 Chief Justice Gray, and is a very able and exhaustive discussion of 
 the question. In Pearce v. Railroad Co., 21 How. 441, 16 L. Ed. 
 184, it was held that two railroad companies which had consoHdated 
 were not authorized to establish a steamboat line to run in, connec- 
 tion with their railroads. In Railroad Co. v. Col well, 39 PaT 337, 80 
 Am. Dec; 526, it was decided that a railway company was not au- 
 thorized by its charter to maintain a canal. In Tomkinson v. Rail- 
 way Co., 35 Ch. Div. 675, it was held that a proposed subscription 
 by the company to an institution known as the "Imperial Institute" 
 was not prevented from being ultra vires by the fact that the estab- 
 lishment of the institute might benefit the company by causing an 
 increase of passenger traffic over their line." 
 
 To these cases others might be added, but they are sufficient to il- 
 lustrate the doctrine that a corporation created for the purpose of 
 carrying on a business, under a statute, which merely states the na- 
 ture of the business, and does not further define its powers, may ex- 
 ercise such powers as reasonably necessary to accomplish the purpose 
 of its creation, and it may be such as are usually, incidental in prac- 
 tice to the prosecution of the business, and no more. See' Lime 
 Works V. Dismukes, 87 Ala. 344, 6 South. 122, 5 h. R. A. 100; Sea- 
 right V. Payne, '6 Lea (Tenn.). 283. 
 
 These principles, applied to the facts of this case, lead to the con- 
 clusion that neither the Ft. Worth City Company nor the North Side 
 Street-Railway Company had the power to extend its credit to foster 
 the interests of the other company. Viewed in the light of the pe- 
 culiar facts of the case, it is apparent that the building up and set- 
 tlement of the suburb tended to increase the business of the street 
 railway which connected that suburb with the city of which it was 
 the outgrowth. On the other hand, it is equally clear that the es- 
 tablishment of the street railway tended to promote the enterprise 
 of the other corporation. ' It is also clear that the estabUshment and 
 maintenance of a street railway is not an object which was expressed 
 in the articles of incorporation of the City Company, and that the 
 building up an addition to a city is not a purpose expressed in the 
 charter of the other corporation. That the success of the one enter- 
 prise tended to promote the success of the other was not itself suffi- 
 cient to authorize the one corporation to aid the other, for the rea- 
 son that the benefit which was to accrue was not the direct result of 
 the means employed. 
 
 The transaction in controversy, when properly analyzed and strip- 
 ped of its form, is one in which the two corporations agreed to 
 borrow a sum of money, to be divided between them, and that each 
 
256 POWERS AND LIABILITIES (Ch. 3 
 
 should become the surety for the other for the amount received by 
 such other. It is too well settled to require the citation of authority 
 that a corporation of the character of those in question, in the ab- 
 sence of statutory authority, cannot bind itself by accommodation 
 paper executed for the benefit of another party. It follows that, if 
 either corporation in this case is to be held bound for m'ore than its 
 proportionate amount of the debt incurred, it must be upon the 
 ground that it had power to aid in the prosecution of the business of 
 the other. 
 
 Did the street-railway company have such power? If it is to be 
 held that, because of the indirect benefits which would result to it 
 from the success of the enterprise, it was authorized by the law to aid 
 in building up the suburb of the City Company, then it should also 
 be held that it had the power to employ its funds and its credit in 
 fostering any other undertaking which was calculated to increase 
 the population of the city of Ft. Wortji, or of any portion of the 
 territory which lies along its line. The effect of that ruling would 
 be to empower every business corporation, not only to carry on the 
 very business it was created to prosecute, but also to engage in every 
 enterprise which would tend to increase the volume of its principal 
 business, and the revenues to be derived therefrom. This would leave 
 the scope of its operations without any reasonable limit. That such 
 is not the law, the authorities already cited are sufficient to show. 
 Street railways are projected for the carriage for hire of people living 
 within and near cities and towns. Street-railway companies are char- 
 tered for the specific purpose of establishing and operating street 
 railways, and not to increase the population of the towns and cities 
 through which they are established, though their operation may have 
 that effect, and though an increase of population may result indirectly 
 to their benefit. 
 
 The same principles apply to the case of the Ft. Worth City Com- 
 pany. The general law in force at the time this corporation wsts 
 created provided that a private corporation might be formed for the 
 purpose, among others, of "the purchase, subdivision, and sale of 
 lands in cities, towns, and villages." See Laws 1885, p. 59. We con- 
 strue this to give the power to purchase lands, and to lay them off 
 into streets, blocks, and lots, and to sell them in subdivisions for the 
 purpose of profit. Many enterprises suggest themselves which might 
 be entered into by such a corporation, which would tend to promote 
 the success of the undertaking. As a general rule, there is probably 
 none that would be better calculated to produce that effect than the 
 construction and maintenance of an ordinary railroad. But can it 
 be said that such a corporation has the power to embark its capital 
 in such an enterprise ? A limit must be laid down as to the implied 
 powers of a corporation ; and, with reference to a company chartered 
 for a business purpose, we think the proper line of demarkation is 
 between those powers which are reasonably necessary to the busi- 
 
Sec. 3) IMPLIED P0WBE8 257 
 
 ness, or which are usually incident to its prosecution, and those which 
 are not. 
 
 It occurs to us that, in determining the powers of a corporation, a 
 distinction should be observed between such as are created by spe- 
 cial charters and such as come into existence by virtue of authority 
 conferred by a general law. A charter is in the nature of a contract, 
 and it may be that, in construing a special charter, we should con- 
 strue it in the light of the special circumstances attending the enter- 
 prise which was intended to be promoted; as, in case of a railroad, 
 its connection with other lines of transportation, whether by water 
 or land, or its terminus at a seaport. The last-mentioned circum- 
 stance seems to have had a controlling influence upon the court in 
 the case of Railway Co. v. Redrpond, 10 C. B. (N. S.) 675, already 
 cited. For example,'if the legislature had the power Jo grant and had 
 granted a special charter to the City Company, and it had appeared 
 that a street railway was necessary to the success of the corporation, 
 and that this fact was known, it may be that the power to construct, 
 ,or at least to aid the construction of, the street railway, would have 
 been implied. But, this corporation having been created under a 
 general law, we do not see that it can claim the right, by reason of 
 its peculiar surroundings, to exercise a power which another like 
 corporation could not exercise by reason of different circumstances. 
 Our constitution provides that corporations shall be created only by 
 general laws, and it would seem that one purpose of the provision was 
 to prevent the legislature from granting to one corporation special 
 powers or special privileges. At all ejvents, the general law, as we 
 think, should be construed as a general rule, conferring upon each 
 member of each particular class of corporations precisely the same 
 powers. 
 
 Cities and towns have grown up without the aid of street railways. 
 The origin of the latter is comparatively very recent. The law does 
 not recognize them as a usual means of carrying out the purpose of 
 a corporation organized to purchase and subdivide lands, and to sell 
 them in lots. They are' provided for in the general law as a distinct 
 purpose. for which corporations may be created. The two enterprises 
 may be of mutual assistance ; and if the same persons desire to form 
 two distinct corporations for the prosecution at the same time of 
 two undertakings, with a view to the mutual benefit which may re- 
 sult from the concurrent operation of the two, no reason is seen why 
 they should not do so. But each should confine itself to its proper 
 business, and should not divert its capital or extend its credit to the 
 assistance of the other. 
 
 In the cAse of Ft. Worth City Co. v. Smith Bridge Co., 151 U. S. 
 294, 14 Sup. Ct. 339, 38 L. Ed. 167, the supreme court of the United 
 States held that the contract of the City Company to contribute to 
 the construction of a bridge across a river which separated its lands 
 from the city of Ft. Worth was not ultra vires. The court say: 
 
 KlOH.COEP. — 17 
 
25S POWEES AND LIABILITIES (Ch. 3 
 
 "The object of the creation of the corporation was the acquisition 
 and sale of lands in subdivision, and it cannot be successfully denied 
 that the object would be directly promoted by. the use of legitimate 
 business methods to render the lands accessible. This involved the 
 expenditure of money or the assumption of liability; but there is no 
 element in this case of any unreasonable excess in that regard, or the 
 pursuit of any abnormal and extraordinary method." The same can 
 hardly be said of the transactioij developed in the present case. The 
 argument of the court draws a line between such ordinary means as 
 are generally necessary to carry out the purposes of the corporation 
 and such as are abnormal and exitraordinary. We think the powers 
 attempted to be exercised by the two corporations in this case, and 
 now in question, fall within the latter class. * * * 
 The judgment is reversed, and the cause remanded. 
 
 TIMM V. GRAND RAPIDS BREWING CO. 
 
 (Supreme Court of MicMgan, 1910. 160 Micli. 371, 125 N. W. 357, 
 ,27 L. R. A. [N. S.] 186.) 
 
 Hooker, J. The defendant is a corporation engaged in the busi- 
 ness of manufacturing and selling all kinds of malt and fermented liq- 
 uors. The declaration alleges that it made a practice of furthering 
 its business by aiding such keepers of saloons as purchased its prod-; 
 uct in obtaining sureties upon their bonds required by law; that in 
 April, 1906, the defendant owned a hotel including a bar with fix- 
 tures and equipment designed for the retail liquor trade, and it de- 
 sired to have such a business conducted there by one Carrel, and, to 
 induce the plaintiff to befcome one of the sureties upon the bond re- 
 quired by the state of said Carrel, promised to indemnify the_ plain- 
 tiff against loss thereby and in accordance with such promise executed i 
 and delivered to the plaintiff a bond of indemnity set forth in the 
 declaration; that Carrel entered upon said business and subse- 
 quently a judgment upon the bond executed by the plaintiff was ren- 
 dered against Carrel and heirs, and execution was issued thereon, and 
 plaintiff was compelled to and did pay said judgment. It alleges fur- 
 ther the liability of defendant and its duty to reimburse plaintiff, 
 and its refusal to do so. The defendant demurred to plaintiff's dec- 
 laration on the ground that the execution and delivery of said bond 
 of indemnity was beyond the power of defendant, being outside of 
 the scope of the business for which defendant was organized, and 
 that the promise was ultra vires and the bond void. Upon the ar- 
 gument in this court, it was also claimed that the bond was void 
 because against public policy. The demurrer being overruled, the 
 cause is before us on certiorari. 
 
 The. purpose for which the "Brewing Co.", was organized was 
 stated in its articles to be "the manufacture and sale of malt and all 
 
Sec. 2) ^ IMPLIED FOWEBS 259 
 
 kinds of malt and fermented liquors and aerated and charged wa- 
 ters." Under the well-settled rule the defendant had implied power 
 to do those things necessary and helpful to the conduct of itsi au- 
 thorized business. It could itself engage in the sale at retail of its 
 product in as many places as it might desire, and therefore might 
 contract with its own sureties requisite to such business, and in our 
 opinion it might also render assistance to purchasers of its product 
 in furtherance of a c6ntract for such purchase. Thus it has been 
 held that the guaranty of the performance of the covenants in a 
 lease by a saloon keeper was a contract within the power of a brew- 
 ing company. See Aaronson v. Brewing Co., 26 Misc. Rep. 655, 56 
 N. Y. Supp. 387. The same was held of a guaranty of payment of 
 rent by one of the brewing company's customers. Winterfield v. 
 Brewing Co., 96 Wis. 239, 71 N. W- 101. Also of the guaranty of 
 payment of notes given by a saloon keeper to enable him to com- 
 mence business. Blue Island Brewing Co. v. Fraatz, 123 111. App. 
 26 ; Standard Brewery v. Kelly, 66 111. App. 267 ; Keeley Brew. Co. 
 V. Emrick, 64 111. App.- 247. It has. also been held that the signing 
 a saloon keeper's bond as surety was not an ultra vires act. Horst 
 V. Lewis, 71 Neb. 365, 98 N. W. 1046, 103 N. W. 460. See, also, 
 Kraft V. W. S. Brew. Co., 219 111. 205, 76 N. E. 372. 
 
 In Best Brewing Co. v. Klassen, 185 111. 37, 57 N. E. 20, 50 L. 
 R. A. 765, 76 Am. St. Rep. 26, the Supreme Court of Illinois held 
 that the signature of an appeal bond for a defeated defendant in a 
 forcible entry case was an act that was ultra vires under articles 
 which showed the corporation signing the bond to have been or- 
 ganized to manufacture and sell beer, ale, and porter and to carry 
 on a general brewing business in all its braijches. The opinion states 
 that there was no evidence tending to prove that the business of the 
 corporation had been or was ever likely to be benefited in any de- 
 gree by the execution of the bond. In a later case the same court 
 held that loaning money to enable a borrower to erect a building 
 in which he promised to Sell only the beer manufactured by the cor- 
 poration loaning the money was not ultra vires. The case is dis- 
 tinguished from the Klassen Case in the opinion. See Kraft v. Brew- 
 ing Co., 219 111. 205, 76 N. E. 372. The foregoing and other cases 
 cited by counsel sufficiently indicate the application of- the general 
 rule as to implied .powers to such cases as the present. 
 
 Furthermore, the great weight of authority sustains the claim of 
 the plaintiff's counsel that the defendant is estopped from denying 
 its liability on the ground that the act was ultra vires. In Sav. Bank 
 V. Elevator Co., 90 Mich. 550, 51 N. W. 641, 30 Am. St. Rep. 454, 
 we said : "The plea of ultra vires should not as a general rule pre- 
 vail, whether interposed for or against a. corporation, when it would 
 not advance justice, but, on the contrary, would accomplish a legal 
 wrong." See, also, Coit v. Grand Rapids, 115 Mich. 493, 73 N. W. 
 811; Rehberg v. Tontine Surety Co., 131 Mich. 135, 91 N. W. 132; 
 
260 POWERS AND LIABILITIES (Ch. 3 
 
 Citizens' Sav, Bank v. Globe Brass Works, 155 Mich. 9, 118 N. W. 
 
 507. 
 
 Counsel's contention that the giving of this bond is contrary to 
 public policy is perhaps a proper suggestion to be considered for its 
 bearing upon the questions already discussed. We are of the opinion, 
 however, that it is not controlling. The sale of beer .was lawful, and, 
 while restricted to persons or companies giving the statutory bonds, 
 there is nothing to justify the inference that one may not hire or 
 indemnify lawful bondsmen, or that the implied powers of the cor- 
 poration are restricted or the rule relating to ultra vires acts aflected 
 thereby. 
 
 The order of the learned judge of the superior court is affirmed." 
 
 Moore, McAlvay, and "Stone, JJ., concur. 
 
 OsTRANDER, J. I think the business of becoming surety upon sa- 
 loon keepers' bonds ultra vires the powers of defendant. I concur in 
 the result upon the grourid that defendant is estopped to urge the 
 defense of ultra vires. 
 
 MALLORY et al. v. HANAUR OUTWORKS. 
 (Supreme Court of Tennessee, 1888. 86 Tenn. 598, 8 S. W. 396.) 
 
 LuRTON, J.^^ This is an action of unlawful detainer, brought by 
 the Hanaur Oil- Works, a corporation created under the general in- 
 corporation act of 1875, and engaged in the manufacture of cotton- 
 seed oil at Memphis, Tenn. The facts which raise the question to be 
 determined are these: 
 
 In July, 1884, a contract was entered into by and between four 
 corporations engaged in' manufacturing cotton-seed oil at Memphis, 
 for the formation of what is designated in the agreement as a "combi- 
 nation," "syndicate," and partnership. The contracting mills agreed 
 to select a committee, composed of representatives from each corpora- 
 tion, and to turn over to this committee the properties and machinery 
 of each mill, to be managed and operated by this committee, through 
 officers, agents, and employes selected by them, for the common bene- 
 fit; the profits and losses of such operation to be shared in propor- 
 
 2 8 Accord: KoeWer & C!o. v. Reinhelmer, 26 App. Div. 1, 49 N. Y. Supp. 
 755 (1898) ; Railway Co. v. Howard, 7 Wall. 392, at 412, 19 L. Ed. 117 (1868) ; 
 Winterfield v. Cream City Brewery Co., 96 Wis. 239, 71 N. W. 101 (1897) ; 
 Hess V. W. & J. Sloane, 66 App. Div. -522, 73 N. Y. Supp. 313 (1901), on ap- 
 peal 173 N. T. 616, 66 N. B. 1110 (1903). 
 
 In Appleton v. Citizens' Central Nat Bank, 190 N. Y. 417, 83 N. E. 470, 
 32 L. R. A. (N. S.) 543 (1908) the court (OuUen, C. J.), in passing on the lia- 
 bility of a bank guaranty of a loan to its debtpr, said: "We think, however, 
 that the defendant's , power to guarantee was limited by the extent of its in- 
 terest in the subject-matter of the guaranty. To allow a bank to guarantee 
 the payment by one of its debtors of a larger sum in order that the bank 
 might receive or retrieve a lesser sum would be to permit it to enter upon 
 very hazardous speculation, and authorize very wild and unsafe banking." 
 
 21 A part of opinion relating to ultra vires is omitted. 
 
Sec. 2) IMPLIED POWERS 261 
 
 tions agreed Upon. This arrangement was to last one year, but, with 
 consent of all, might be renewed for two additional years; and, as 
 appears, was at the end of the first year renewed for two other years, 
 terminating August 1, 1887. 
 
 The facts clearly establish that the possession of the several mills 
 was turned over to this executive committee, and they were operated 
 by these managers thenceforward under the name of the "Independ- 
 ent Cotton-Seed Association." There was a provision in the con- 
 tract by which other mills were to be admitted by consent, and a 
 fifth corporation was in fact subsequently admitted. The Hanaur 
 Oil-Works was one of these contracting corporations; the contract 
 being authorized by both shareholders and directors. In July, 1886, 
 the business of the second year having been about concluded, the 
 board of directors of the Hanaur Oil- Works passed a resolution de- 
 claring this contract void, as being an agreement ultra vires, and their 
 president was instructed to take possession of their mill. * * * 
 
 The argument here has largely turned upon the correctness of 
 the charge of the circuit, judge, who distinctly instructed the jury 
 that the contract between the Hanaur Company and the other four 
 corporations was a contract for a partnership between corporations, 
 and that, under the charter of the Hanaur Oil- Works, it had no pow- 
 er to make such a contract, and that it was therefore void, and that 
 it had a right to recover possession of its property, it being withheld 
 solely under and by virtue of an agreement ultra vires. "A partner- 
 ship," says Judge Story, "is usually defined to be a voluntary con- 
 tract between two or more competent persons to place their money, 
 effects, labor, and skill, or some or all of them, in lawful commerce 
 or business, with the understanding that there shall be a communion 
 of the profits thereof between them. Pothier says that a partnership 
 is a contract whereby two or more persons put, or contract to put, 
 something in common, to make a lawful profit in common, and recipro- 
 cally engage with each other to render an account thereof." Story, 
 Partn. § 2. 
 
 A careful examination of this agreement discloses every essential 
 element to a contract of partnership. The absolute ownership of the 
 corporate property, the mills, machinery, etc., is not conveyed to the 
 partnership, nor is this necessary. The beneficial use of all such prop- 
 erty is surrendered to the' common purpose. The provisions for the 
 complete possession, control, and use of the properties of the several 
 corporations by the partnership or syndicate is perfect. Nothing is left 
 to the several copartners but the right to receive a share of the profits, 
 and participate in the management and control of the consolidated in- 
 terest as one oi the new associations. The contract is both technically 
 and in its essential character a partnership, in so far as it is possible 
 for corporations to form such an association. 
 
 It is, however, argued by the learned counsel for appellants, that 
 if it be a partnership, that it does not therefore follow that it is ultra 
 
262 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 vires ; that such a contract, not being prohibited! by law, or the char- 
 ter of the defendant in error, or against public policy, is not void even 
 ff in excess of powers expressly conferred ; that the business^ propos- 
 ed by the contract being within the purposes of the charter, is there- 
 fore within the implied powers of the corporation, and not ultra vires. 
 In other words, "that the question is not whether the corporation had, 
 by virtue of the act of incorporation, authority to make the contract, 
 but whether they are by those statutes .forbidden to <lo it." In this 
 doctrine we do not concur. There is, however, respectable authority 
 for the position. A corporation, being an artificial creation, is the 
 very thing it is made by the statute which brings it into being, and 
 nothing more. The extent of its powers are those enumerated in 
 its charter, or implied by fair and natural construction of powers ex- 
 pressly conferred. 
 
 The charter is the measure of its powers, and the enumeration 
 thereof implies the exclusion of all others. We are not to look to 
 the charter to see whether the thing done be prohibited, but whether 
 there is authority to do it. These principles we understand to have 
 the support of the great weight of authority in this country, and to 
 have the sanction of the supreme court of the United States. Thomas 
 v. Railroad Co., 101 U. S. 71, 25 L. Ed. 950. This view of the law 
 has been the one entertained by this court, and clearly and distinctly 
 enforced, in an opinion by the present chief justice in the case of 
 Elevator Co. v. Railroad Co., 85 Tenn. 703, 5 S. W. 52, 4 Am. St. 
 Rep. 798. 
 
 The power to enter into a partnership is not expressly or impliedly 
 conferred by our act of 1875, under which the Hanaur Oil-Works is 
 incorporated. Neither is such authority within the implied powers of 
 corporations. A partnership and a corporation are incongruous. 
 Such a contract is wholly inconsistent with the scope and tenor of 
 the powers expressly conferred, and the duties expressly enjoined 
 upon a corporation, w)iether it be a strictly business and private cor- 
 poration, or one owing duties to the public, such as a common car- 
 rier. In a partnership each member binds the firm when acting with- 
 in the scope of the business. A corporation must act through its di- 
 rectors or authorized agents, and no individual member can, as such 
 member, bind the corporation. Now, if a corporation be a mem- 
 ber of a partnership, it may be bound by any other member of the 
 association, and in so doing he would act, not as an officer or agent 
 of the corporation, and by virtue of authority received from it, but 
 as a principal in an association in which all are equal, and each capa- 
 ble of binding the society by his acts. 
 
 The whole policy of the law creating and regulat-ing corporations 
 looks to the exclusive management of the affairs of each corporation 
 by the officers provided for or authorized by its charter. This man- 
 agement must be separate and exclusive, and any arrangement by 
 which the control of the affairs of the corporation should be taken 
 
Sec. 2) IMPLIED POWEES 263 
 
 from its stockholders and the authorized officers and agents of the 
 corporation would be hostile to the policy of our general incorpora- 
 tion acts. The decided weight of authority is that a corporation has 
 not the power to enter a partnership, either' with other corporations, 
 or with individuals. Says 'Mr. Morawitz : "It seems clear that cor- 
 porations are not impliedly authorized to enter into partnership with 
 other corporations or individuals. ' The existence of a partnership not 
 only would interfere with the management of the corporation by its 
 regularly appointed officers, but would \ impair the authority of the 
 shareholders themselves, and involve the company in new responsibil- 
 ity, through agents oVer whom it had no control." 1 Mor. Priv. Corp. 
 § 421 ; Whittenton Mills v. Upton, 10 Gray (Mass.) 582, 71 Am. Dec. 
 681 ; Ang. & A. Corp. § 272. 
 
 It is unnecessary to consider this contract as constituting a mere 
 traffic arrangement, for the conclusion already announced, that it was 
 an effort to form a partnership, determines that in its scope and ef- 
 fect it sought to accomplish much more than would be understood by 
 the phrase "traffic arrangement." * * * 
 
 But the defense here made would result, if successful, in enforc- 
 ing the performance of the unexecuted part of a void contract. It 
 is not a case of contract fully executed. The part remaining to be 
 executed is a material part, and is, beyond the power of defendant 
 in error to make or sanction. Having' entered into it, it was its duty 
 to rescind or abandon it. In a case where a lease had been made 
 by a railway company for a term of twenty years of its road and 
 franchises, and which, after a lapse of five years, it rescinded, and 
 was thereupon sued for damages under a clause in the lease which 
 authorized rescission, and provided for compensation for unexpired 
 term, the supreme court of the United States said : "It is not a case 
 of a contract fully executed. The very nature of the suit is to re- 
 cover damages for non-performance. As to this it is not an execut- 
 ed contract. , Not only so, but it is a contract forbidden by public 
 policy, and beyond the power of defendant to make. Having entered 
 into the agreement, it was the duty of the company to rescind or aban- 
 don it at- the earliest moment. This duty was independent of the 
 clause which gave them the right to do it. Though they delayed its 
 performance several years, it was nevertheless a rightful, act when 
 done. Can this performance of a legal duty — a duty both to stock- 
 holders and to the public — give to plaintififs a right of action? Can 
 they found such a right on an agreement void for want of corporate 
 authority and forbidden by the policy of the law ? To hold that they 
 can is, in our opinion, to hold that any act performed in executing a 
 void contract makes all its parts valid, and that the more that is done 
 under a contract forbidden by law the stronger is the claim to its en- 
 forcement by the courts," Thomas v. Railroad Co., 101 U. S. 86, 25 
 L. Ed. 950. 
 
264 POWERS AND LIABILITIES (Ch. 3 
 
 That the defendant in error has submitted to a void contract by 
 which it has been deprived of the use of its property for two years, 
 furnishes no sound reason why it shall submit for three years. To hold 
 that it did would be to apply the doctrine of part performance in a 
 way to perfect and legalize illegal contracts which were partly per- 
 formed. 
 
 We have not deemed it necessary to consider the question of the 
 legality of such a combination of corporations as one tending to create 
 a monopoly, for the ground upon which we place the case needs no 
 additional proof. The question of the validity of such an arrange- 
 ment is a very grave one, but need not now be considered. 
 
 The suggestion that, if this contract was Void, yet nevertheless it 
 operated to convert the managers of the combination into tenants 
 from year to year, and that such tenancy could only be terminated at 
 the end of a year, and upon six months' notice, is not tenable. The re- 
 lation of landlord and tenant never existed under the contract if it be 
 considered as valid, and ^ could not spring from its illegality. The 
 Hanaur Mill Company had a right to repudiate the arrangement at 
 any time, and it was the duty of plaintiffs in error to have at once sur- 
 rendered possession. 
 
 The service of a writ in a; suit of unlawful detainer was the only 
 notice they could legally demand. When the action of unlawful de- 
 tainer will lie under our statutes, no other notice than the suing out 
 of a writ is necessary. Code Mill & V. § 4082. The result is that we 
 hold that there was no error in the charge of the circuit judge, or his 
 refusal to charge, and the judgment must be affirmed with costs.^^ 
 
 FoLKES, J., having been of counsel, did not sit in this case. 
 
 BOOTH et al. v. ROBINSON. 
 
 (Court of 'Appeals of Maryland, 1880. 55 Md. 419.) 
 
 Bill by certain stockholders in the Powhatan Steamship Company 
 against the defendants, some of whom are directors in the compa- 
 ny, to obtain redress for loss in value of their shares due to the al- 
 leged fraudulent and wilful mismanagement of the company. Among 
 the questions raised was that of the power of the Baltimore Steam 
 Packet Company to purchase and hold stock in the Powhatan Com- 
 pany.^' ^ 
 
 2 8 Accord: Whlttenton Mills v. Upton et al., 10 Gray (Mass.) 582, 71 Am. 
 Dec. 681 (1858) ; Geurlnck v. Alcott, 66 Ohio St. 94, 63 N. E. 714 (1902) ; Wil- 
 son V. Carter Oil Co., 46 W. Va. 469, 33 S. E. 249 (1899) ; People v. North 
 River Sugar Refining Co., 121 N. T. 582, 24 N. E. 834, 9 L. R. A. 33, 18 Am. 
 St. Rep. 845 (1890). 
 
 Contra: Catskill Bank v. Gray et al., 14 Barb. (N. Y.) 471 (1851). 
 
 Compare: Bates v. Coronado Beach Co., 109 Cal. 160, 41 Pac. 855 (1895); 
 Lehigh Valley Ry. Co. v. Dupont, 128 Fed. 840, 64 O. C. A. 478 (1904). 
 
 2« Statement of facts substituted. 
 
Sec. 3) IMPLIED POWERS 263 
 
 AtVEY, J.*" * * * This, it is contended by the plaintiffs, could 
 not be done without express authority by law. But, while some 
 courts have so held, the great weight of authority is the other way. 
 There is nothing in the charter of the Steam Packet Company, or in 
 the nature of its business, that would, in the slightest manner, for- 
 bid the exercise of such power ; and havtng money to loan or in- 
 vest, there would appear to be no good reason why it might not in- 
 vest in the stock of other corporations as well as in any other funds, 
 provided it be done bona fide, and with no sinister or unlawful pur- 
 pose. The courts of England, at one time, strongly opposed the 
 right of one corporation to deal or invest in the stock of another cor- 
 poration without express authority for so doing ; but that opposition 
 has been entirely overcome, and is now settled there, that one cor- 
 poration may deal in the shares of another without express authority 
 so to do, unless where expressly prohibited, or the nature of its 
 business render it improper so to deal. In re Barned's Bank, L. R. 
 3 Ch. 105 ; In re Asiatic Banking Co., L. R. 4 Ch. 252. In the lat- 
 ter of the cases just cited. Lord Justice Selwin, in speaking of this 
 power of corporations, said: "As to the capacity of a trading cor- 
 poration to accept shares in another trading corporation, it is suffi- 
 cient for me to say that I entirely agree with the judgment of Lord 
 Cairns, in the case of Barned's Banking Company, viz., that there is 
 not, either by the common or statute law, anything to prohibit one 
 trading -corporation from taking or accepting shares in another trad- 
 ing corporation. There may, of course, be circumstances which pro- 
 hibit or rendier it improper for a company so to do, having regard to 
 its own constitution, as defined by its memorandum and articles." 
 
 It is in accordance with this statement, that the law is laid down 
 as settled, by Brice, in his work on Ultra Vires, pp. 91, 92. And in 
 tjiis state, the same principle has been fully sanctioned in the case of 
 Elysville Mfg. Co. v. Okisko Co., 1 Md. Ch. 392, and same case af- 
 firmed on appeal in 5 Md. 152. Here, the stock that was purchased 
 on account of the Steam Packet Company was transferred to the 
 names of Robinson and Shoemaker, who held it as trustees for the 
 benefit of the Steam Packet Company; and being thus qualified, they 
 were legally eligible as directors in the Powhatan Company. The 
 fact of their being directors of the Steam Packet Company in no 
 way disqualified them from also being directors of the Powhatan 
 Company. But if there have been as alleged, illegality or impropriety 
 in their acts and proceedings in the management of the affairs of the 
 latter named company, such acts and proceedings are subject to dif- 
 ferent considerations. * * * 
 
 Decree reversed and cause remanded."^ 
 
 30 A part of the opinion is omitted. 
 
 81 Layng v. A. French Spring Co., 149 Pa. 308, 24 Atl. 215 (1892). Compare 
 Robotham v. Prudential Ins. Co., 64 N. J. Bq. 673, 53 Atl. 842 (1903) ; Qarls 
 et al. v. Memphis St. Ry. Co., 123 Tenn. 232, 130 S. W. 751 (1910). 
 
266 POWERS AND LIABILITIES (Ch. 3 
 
 FIRST NATIONAL BANK OF CHARLOTTE v. NATIONAL 
 EXCHANGE BANK OF BALTIMORE. 
 
 (Supreme Court of the United States, 1875. 92 U. S. 122, 23 L. Ed. 679.) 
 
 Action by the First National Bank of Charlotte, N. C, against the 
 National Exchange Bank of Baltimore to recover $40,000 paid to 
 the latter under the following circumstances. The First National 
 Bank desiring to increase its capital stock, and for that purpose to 
 deposit $50,000 in bonds with the treasurer of the United States, em- 
 ployed Bayne & Company of Baltimore as its agent, to procure the 
 bonds and deliver them at the treasury. Not having money to pay 
 for them at the time, a certificate was issued, stating that the plain- 
 tiff held on deposit for Bayne & Co. fifty-five thousand United States 
 5/20 bonds. 
 
 This certificate was pledged by Bayne & Co. with other securities 
 to the defendant bank as collateral to secure certain loans. 
 
 Shortly afterwards, the plaintiffs paid the amount due for the bonds, 
 but the certificate was not surrendered. Bayne & Co. failed and the 
 defendants refused to deliver the certificate, claiming to hold for 
 value and demanding the delivery of the bonds. A settlement was 
 finally made by which the plaiqtiff paid to the defendant $55,000 in 
 return for the certificate, and 400 shares of railroad stock, one thou- 
 sand shares of coal mining stock and one hundred and twenty-five 
 shares of its own stock. Three years after this settlement the pres- 
 ent action was brought to recover the amount paid by the plaintiff 
 under the settlement less $15,000, the estimated value of its own stock 
 purchased. Writ of error to the court of appeals from a judgment 
 afifirming. the decision of the trial court in favor of the defendant. °^ 
 
 Waite, C. J. The question presented for our consideration in this 
 case is, whether a national bank, organized under the National Bank- 
 ing Act, may, in a fair and bona fide comprofnise of a contested claim 
 against it growing out of a legitimate banking transaction, pay a 
 larger sum than wquld have been exacted in satisfaction of the de- 
 mand, so as to obtain by the arrangement a transfer of certain stocks 
 in railroad and other corporations; it being honestly believed at 
 the time, that, by turning the stocks into money under more favor- 
 able circumstances than then existed, a loss, which would otherwise 
 accrue from the transaction, might be averted or diminished. Such, 
 according to the finding below, was the state of facts out of which 
 this suit has arisen. That finding is conclusive upon us. 
 
 A national bank can "exercise by its board of directors, or duly 
 authorized officers or agents, subject to law, all such incidental pow- 
 ers as shall be necessary to carry on the business of banking, by 
 discounting and negotiating promissory notes, drafts, bills of ex- 
 
 S2 Statement of facts substituted. 
 
Sec. 2) IMPLIED POWEES 267 
 
 change, and other evidences of debt ; by receiving deposits ; by buy- 
 ing and selling exchange, coin, arid bullion; by loaning money on 
 ■personal security; and by obtaining, issuing, and circulating notes." 
 Rev. St. § 5136, par. 7, 13 Stat. 101, § 8 (U. S. Comp. St. 1901, p. 
 3456). 
 
 Authority is thus given to transact such a banking business as is 
 specified, and all incidental powers necessary to carry it on are 
 granted. These powers are such as are required to meet all the legiti- 
 mate demands of the authorized business, and to enable a bank to 
 conduct its affairs, within the general scope of its charter, safely and 
 prudently. This necessarily implies the right of a bank to incur lia- 
 bilities in the regular course of its business, as well as to become the 
 creditor of others. Its own obligations must be met, and debts due 
 to it collected or secured. The power to adopt reasonable and ap- 
 propriate measures for these purposes is an incident to the power 
 to incur the liability or become the creditor. Obligations may be 
 assumed that result unfortunately. Loans or discounts may be made 
 that cannot be met at maturity. Compromises to avoid or reduce 
 losses are oftentimes the necessary results of this condition of things. 
 These compromises come within the general scope of the powers 
 committed to the board of directors and the officers and agents of the 
 bank, and are submitted to their judgment and discretion, except to 
 the extent that they are restrained by the charter or by-laws. Banks 
 may do, in this behalf, whatever natural persons could do under* like 
 circumstances. 
 
 To some extent, it has been thought expedient in the National 
 Banking Act to limit this power. Thus, as to real estate, it is pro- 
 vided (Rev. St. § 5137, 13 Stat. 107, § 28 [U. S. Comp. St. 1901, 
 p. 3460]) that it may be accepted in good faith as security for, or in 
 payment of, debts previously contracted ; but, if accepted in payment, 
 it must not be retained more than five years. So, while a bank is 
 expressly prohibited (Rev. St. § 5201, 13 Stat. 110, § 35 [U. S. Comp. 
 St. 1901, p. 3494]) from ^loaning money upon or purchasing its own 
 stock, special authority is given for the acceptance of its shares as 
 security for, and in payment of, debts previously contracted in good 
 faith ; but all shares purchased under this power must be again sold 
 or disposed of at private or public sale within six months from the 
 time they are acquired. - < 
 
 li)ealing in stocks is not expressly prohibited; but such a prohibi- 
 tion is implied from the failure to grant the power. In the honest 
 exercise' of the power to compromise a doubtful debt owing to a 
 bank, it can hardly be doubted that stocks may be accepted in pay- 
 ment and satisfaction, with a view to their subsequent sale or con- 
 version into money so as to make good or reduce an anticipated loss. 
 Such a transaction would not amount to a dealing in stocks. It 
 was, in effect, so decided in Fleckner v. Bank of United States, 8 
 Wheat. 351, 5 L,. Ed. 631, where it was held that a prohibition against 
 
268 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 trading and dealing was nothing more than a prohibition against en- 
 gaging in the ordinary business. of buying and selling for profit, and 
 did not include purchases resulting from ordinary banking transac- ' 
 tions. For this reason, among others, the acceptance of an indorsed 
 note in payment of a debt due was decided not to be a "deaUng" in 
 notes. Of course, all such transactions must be compromises in 
 good faith, and not mere cloaks or devices to cover unauthorized 
 practices. 
 
 It is difficult to see how a debt due from, or a contested obligation 
 resting upon, a bank, occupies any different position in respect to 
 this power of adjustment and compromise from that of a debt owing 
 to it. The object in both cases is to get rid of or reduce an appre- 
 hended loss growing out of legitimate business; and it would seem 
 that whatever might be done in the one case ought not to be excluded 
 from the other under the same circumstances. Often a discharge by 
 a bank of its own obUgation creates a debt due to it from another. 
 Such was the case here. Bayne, without authority, transferred to 
 the defendant, as collateral security for his indebtedness, a certifi- 
 cate of deposit issued to him by the plaintiff, and afterwards collected 
 the money due upon the certificate from the plaintiff without disclos- 
 ing the transfer. Any payment by the plaintiff to the defendant, 
 therefore, in discharge of its liability upon the certificate, became a 
 lawful charge against Bayne. He was insolvent. It was, on this ac- 
 couiit, not only the right, but the duty, of the officers and agents of 
 the plaintiff to protect by their arrangements, as far as possible, the 
 stockholders whose interests they represented. This was necessarily 
 left to their judgment and discretion. No question of good faith 
 is involved. The transaction for all the purposes of this suit must be 
 taken to have been, in fact, what it purports to be, — a fair and hon- 
 est compromise of an outstanding claim, with a view to ultimate 
 protection against an impending loss. As such, we think it was with- 
 in the corporate powers of the bank, and that the Court of Appeals 
 did not err in so holding. ^ 
 
 Judgment aifirmed.^^ 
 
 ROBINSON V. HOLBROOK et al. 
 
 (Circuit Court, D. Rhode Island, 1906. 148 Fed. 107.) 
 
 Brown, District Judge. In disposing of this petition for a pre- 
 liminary injunction, we may pass all questions as to the regularity of 
 the call for the special meeting of the shareholders of the Gorham 
 Manufacturing Company, and as to the breadth of the powers con- 
 ferred upon the directors, and proceed at once to the substantial 
 questions presented by the resolution of the board of directors of the 
 
 SB Accord: Howe v. Boston Carpet Co., 16 Gray (Mass.) 493 (1860). 
 
Sec. 2) IMPLIED POWERS ' 269 
 
 Gorham Manufacturing Company, passed May 1, 1906. This reso- 
 lution instructed Mr. Holbrook, the treasurer of the Gorham Com- 
 pany, to vote upon the shares of stock of the Silversmiths' Company 
 held by the Gorham Company, in favor of an increase of the capital 
 stock of the Silversmiths' Company from $100,000 to $10,000,000, di- 
 vided into 100,000 shares at $100 each ; for an issue of 70,000 shares 
 at par, as follows : $1,750,000, or 17,500 shares, at par for cash to 
 holders of preferred and common stock of the Gorham Company in 
 proportion to their holdings, any portion of said 17,500 shares not 
 taken by the Gorham Company shareholders to be sold to the public ; 
 $5,250,000, or 52,500 shares, or so much thereof as may be taken in 
 exchange at par, to holders of the common stock of the Gorham 
 Company, in exchange for their holdings in the Gorham Company at 
 a valuation of $2,10 per share for the common stock of the Gor- 
 ham Company. The treasurer was further instructed to sell to the 
 Silversmiths' Company, the Gorham. Company's holdings of shares of 
 stock of the Whiting Manufacturing Company, of the William B. 
 Durgin Company, of the Silversmiths' Company of New Jersey, of 
 the Silversmiths' Company of New York, and all the assets late of 
 W. B. Kerr & Company, Inc., at a price not less than the cost there- 
 of to the Gorham Company to the date of sale. 
 
 The complainant, a nonassenting shareholder of the Gorham Com- 
 pany, seeks to enjoin the carrying out of this plan, contending that 
 it is beyond the corporate powers of the Gorham Company, is offen- 
 sive to the principle that a person occupying a fiduciary relation, who 
 is authorized to sell property for another, cannot himself become the 
 purchaser, directly or indirectly, and is against the rights and finan- 
 cial interest of the coinplainant. It is also alleged that this plan is not 
 in.,pursuance of any need or purpose of the Gorham Company, but is 
 solely for the purposes of the majority of shareholders, and es- 
 pecially of Mr. Holbrook; and contemplates and will result in a 
 control of the Gorham Company's affairs by the Silversmiths' Com- 
 pany, as a holding company. 
 
 After a careful consideration of the complainant's bill, of the af- 
 fidavits, and of the authorities cited, I am of the opinion that the con- 
 troversy is of a' substantial character, involving important questions 
 of law as to the corporate powers of the Gorham Manufacturing 
 Company, and as to the legal right of a majority of the shareholders 
 of the Gorham Company to eflfect or to aid in this manner the trans- 
 fer of important assets of the Gorham Company to the Silversmiths' 
 Company, or to provide for the ownership by the Silversmiths' Com- 
 pany of shares of Gorham Company stock. There is reason for 
 thinking that the plan disclosed by the resolutions of the directors 
 may comprehend purposes which hardly can be regarded as corporate 
 purposes of the Gorham Company, or as properly incident thereto. 
 
 Assuming that it may be for the interest of the Gorham Company 
 to dispose of its shareholdings in other corporations, though this is 
 
270 POWERS AND LIABILITIES (Ch. 3 
 
 disputed by the complainant, there are serious doubts of the right 
 to do this at a price fixed arbitrarily by persons who are to become 
 Shareholders in the Silversmiths' Company, which is to acquire these 
 shares of stock; and it is questionable, at least, whether it is a cor- 
 porate purpose of the Gorham Company to promote, to provide for, 
 or to lend the sanction of its corporate vote to the acquisition by the 
 Silversmiths' Company of a considerable proportion of the shares of 
 stock in the Gorham Cbmpany, so that the .Silversmiths' Company is 
 to have a considerable voice in, if not control of, the management of 
 the Gorham Company. 
 
 It is apparently the purpose of the majority of shareholders of the 
 Gorham Company that the Silversmiths' Company shall be a holding 
 company which shall hold not only the shares of stock in other com- 
 panies now owned by the Gorham Company, but also shares of stock 
 to the amount of 25,000 shares in the Gorham Company itself. A 
 holding of this amount of shares by the Silversmiths' Company would 
 give it an equal voice with all other shareholders of the Gorham Com- 
 pany in the management of the affairs of the Gorham Company; 
 and but a single additional share, acquired either by the Silversmiths' 
 Company or by a person interested in the Silversmiths' Company, 
 would be sufficient to constitute a complete control of the Gorham 
 Company. 
 
 Ordinarily, corporate combinations effected through a holding cor- 
 poration are organized by dealings which are Entirely between the 
 holding corporation and the shareholders of the several companies 
 whose shares are to be held. Noyes on Intercorporate Relations, § 
 310, par. 1. 
 
 In the present case, substantially all the shares of stock of the 
 Silversmiths' Company, whose present capital is $100,000, are owned 
 by the Gorham Company, which is to be the author of a conversion 
 of the $100,000 corporation into a $10,000,000 corporation which is 
 to acquire stocks in other companies to the extent of nearly $7,000,- 
 000. The Gorham Company's authorized capital stock is $5,000,'- 
 000. It is permitted to purchase, own, hold, and dispose o^ shares 
 of the capital stock of other corporations to the extent of 35 per 
 cent, of its capital stock. It is intended to base upon corporate ac- 
 tion of the Gorham Company, the practical creation of a distinct cor- 
 poration holding nearly $7,000,000 of said stock, or about $5,000,- 
 000 in excess of what the Gorham Company is authorized by its own 
 charter to hold. The fact that the Silversmiths' Company is already 
 incorporated does not alter the fact that it is intended that the Gor- 
 ham Company is to institute a substantially new corporation. 
 ' Assuming that the amendment to the charter of the Gorham Com- 
 pany, which authorizes it to hold stock in other corporations, gives 
 to the Gorham Company the ordinary rights of a shareholder to vote 
 upon the shares of stock which it holds, can it be said that the vot- 
 ing power which is incident to its right to hold shares of stock in 
 
Sec. 3) IMPLIED POWERS 271 
 
 .other corporations enables it to take such corporate action as will 
 conve'rt a subsidiary company into a corporation of larger capital 
 stock than itself? Was it the intention of the Rhode Island Legisla- 
 ture, in granting to the Gorham Company the right to be a stock- 
 holder, to confer upon it, as an incident to that right, the unlim- 
 ited right to create, by increase of capital stock of its subordinate 
 companies, an indefinite and unlimited amount of shares? If the 
 right exists to enlarge the Silversmiths' Company from a $100,000 
 to a $10,000,000 corporation, it equally exists as to every other com- 
 pany whose shares of stock are now owned by the Gorham Com- 
 pany. 
 
 Looking to the substance of the complainant's rights as a large 
 shareholder in the Gorham Company, there certainly is force in the 
 complainant's objection that the Gorham Company, by its stockhold- 
 ers' vote and by the action of its board of directors in pursuance' 
 thereof, has embarked in the promotion of an enterprise foreign to 
 that for which it was created, and which, if effected, will leave the 
 complainant tl^e choice of investing a considerable amount of addi- 
 tional capital in the Silversmiths' Company and of parting with his 
 shares in the Gorham Company in exchange for shares in the Silver- 
 smiths' Company, a holding corporation, or, on the other hand, of 
 remaining a shareholder in the Gorham Company with the risk that 
 it shall be managed not solely for its own interests, but with regard 
 to the interests of other corporations controlled by the Silversmiths' 
 Company. 
 
 ' One of the advantages of the plan which was specifically urged at 
 the stockholders' meeting was, "providing a central control which 
 shall be exercised over the different properties." It will be for the 
 interest of the shareholders of the Silversmiths' Company to so op- 
 erate the various corporations as to yield the largest result from 
 their aggregate operations. There is a substantial difference between 
 the present status of the Gorham Company, as a prosperous and in- 
 dependent corporation, and its proposed status as a corporation con- 
 trolled by a holding company, and managed with regard to the in- 
 terests of other distinct corporations under the control of the same 
 holding company. 
 
 The defendants' contention' is that the right to purchase, own, hold, 
 and dispose of shares in other corporations gives the Gorham Com- 
 pany the ordinary right of a shareholder to vote upon these shares, 
 and also an unlimited right as a shareholder to initiate whatever cor- 
 porate action of the Silversmiths' Company the Gorham Company as 
 a shareholder may see fit. The conclusion to which this argument 
 logically leads arouses a suspicion of its soundness. No limitation 
 is placed upon the kinds of shares which the Gorham Company may 
 hold. It may own shares in railroads and manufacturing companies, 
 and corporate shares of every kind. If, by virtue of its sharehold- 
 ings, it may create holding companies for the silversmith business. 
 
272 POWERS AND LIABILITIES (Ch. 3 
 
 the same argument would authorize it to create holding companies 
 for other branches of industry. 
 
 The power to invest in shares of other corporations must, how- 
 ever, be regarded as incidental to the charter purposes of the Gor- 
 ham Company; i. e., "manufacturing goods made of gold, silver, or 
 other metallic substance, and for the transaction of other business 
 connected therewith." The incidental power to invest granted by 
 amendments to the charter is to be narrowly construed, being in der- 
 ogation of the ordinary rule that one corporation cannot invest in 
 shares of stock Of another. It would involve great practical diffi- 
 culties were we to hold that the power to invest in shares of other 
 corporations can be construed as an unlimited power to initiate or 
 to promote new enterprises different in character and scope, perhaps 
 exceeding in magnitude, that for which original charter powers were 
 granted. It seems probable that the power of holding shares is a 
 subordinate power, not to be so exercised as to enlarge the general 
 scope of the business of the corporation by promoting other distinct 
 corporate enterprises, whether in a different field or in the same field. 
 It is very doubtful whether, by giving the Gorham Company power 
 to invest in the shares of other corporations, the Legislature intended 
 to confer the power to set up and practically create a new corpora- 
 tion in the same line of business which should control its creator. 
 
 In deciding upon this petition, I do not proceed upon the ground, 
 that a fraudulent intention is exhibited in any of the acts of the de- 
 fendants. Apparently it was not regarded by a majority of the share- 
 holders of the Gorham Company as undesirable that Mr. Holbrook 
 should have a large or controlling voice in the Silversmiths' Com- 
 pany. But whether or not this plan is preferred by a majority of the 
 shareholders is not the question. Giving due consideration to the 
 fact that a majority of shareholders may regard this action as for 
 their pecuniary advantage, and to the rule that all problems of busi- 
 ness judgment are to be determined by a majority vote, yet it must 
 be remembered that the majority ar,e limited in their powers by the 
 charter, and that this cannot be overridden however profitable it 
 might be for the majority to carry out what they apparently, in good 
 faith, regard as a sound business proposition. 
 
 In view of the importance of the questions which have been pre- 
 sented, I am of the opinion that the complainant presents a proper 
 case for a preliminary injunction. Having regard to the interests 
 of a majority of the shareholders, it seems to me highly undesirable 
 that this plan should proceed ; that the Silversmiths' Company should 
 put forth the new issue of shares, and the exchange of Gorham Com- 
 pany shares be made and the assets of the Gorham Company trans- 
 ferred to the Silversmiths' Company, while this bill is pending. 
 Should an injunction "be refused at this time, and the complainant's 
 bill subsequently be sustained, the injury to the complainant from a 
 failure to grant temporary relief would be great, and perhaps irrepar- 
 
Sec. 2) IMPLIED P0WBE8 273 
 
 able ; and the injury to the defendants which would result from un- 
 doing what had been done would doubtless be great. The best in- 
 terests of all parties will be subsefved by granting this preliminary 
 injunction. Having in mind the statements of complainant's counsel 
 as to his willingness to proceed speedily to a hearing on the merits, 
 I think that if the defendants desire a shorter time than that allowed 
 by the rules should be fixed for the taking of testimony, in order that 
 the case may be finally determined on full hearing as speedily as 
 possible. 
 
 The petition for a preliminary injunction is granted. 
 
 NASSAU BANK v. JONES et al. . 
 (Court of Appeals of New York, 1884. 95 N. T. 115, 47 Am. Rep. 14.) 
 
 Appeal from judgment of the General Term of the Superior Court 
 of the city of New York, entered upon an order made April 9, 1883, 
 which affirmed a judgment in favor of defendants, entered upon a de- 
 cision of the court on trial at Special Term. (Reported below, 49 
 N. Y. Super. Ct. 498.) 
 
 Action against the defendants, executors of the will of ^Daniel Jones 
 to compel them to transfer and deliver to plaintiff $50,000 of bonds 
 and twenty-five shares of stock in the Denver & Rio Grande Rail- 
 way Company or to pay over the value thereof and all interest and 
 dividends received by their testator therein. It is claimed by the 
 plaintiffs that, the stocks and bonds in question were acquired by de- 
 fendants' testator as agent for the plaintiffs.'* 
 
 RuGER, C. J.*° The question involved in this case, as we regard 
 it, is the right of a banking corporation chartered under the laws of 
 this state to subscribe for the stock of a railroad. * * * 
 
 It becomes necessary, therefore, to inquire into the nature of the 
 proposed contract, and the legal capacity of the plaintiff to transact 
 business. 
 
 The proposition of the railroad company contemplated either a 
 loan of money, or a sale of its stock and bonds; and the view we 
 take of the case does not render it material to determine which con- 
 struction should be given. By whatever name it be called, the trans- 
 action contemplated that its subscribers should become the legal 
 owners of the certain stock and bonds thereby offered to be dis- 
 posed of. 
 
 If it be regarded as a loan, the subscriber would receive the bonds 
 with their mortgage security, as an evidence of the company's in- 
 debtedness to him; and the stock as a bonus to induce the making 
 of the loan. On the other hand, if it be considered as a purchase of 
 
 «* Statement of facts abridged. 
 
 SB A part of the opinion dealing witli ultra vires is omitted. 
 
 RiCH.COBP. — 18 
 
274 POWERS AND LIABILITIES (Ch. 3 
 
 the stock and securities of the railroad corporation, the subscriber 
 becomes the owner of such stock and bonds upon complying with 
 the conditions of the proposition. 
 
 In either event he becomes the absolute owner of the property pro- 
 posed to be delivered in exchange for the money advanced, and ac- 
 quires all the rights and privileges, and subjects himself to all the lia- 
 bilities pf such proprietorship. 
 
 The acquisition by the railroad of a new class of stockholders, 
 was as much a part of the scheme as the creation of a debt; and its 
 proposition to loan money could not be availed of, under the terms 
 of the offer without necessarily involving an acceptance of the priv- 
 ileges, and incurring the Habilities of a stockholder. The offer of 
 this stock was a material part of the proposition, and was undoubt- 
 edly largely relied upon as an inducement to investors. The in- 
 crease of creditors and stockholders would proceed pari passu, under 
 this scheme ; and the subscribers to the loan rnight, in case of the 
 company's insolvency, eventually, as the owners of its stock, be com- 
 pelled to contribute to the payment of its debts. 
 
 It is clear that a banking corporation cannot enter into a con- 
 tract of this character, unless it has authority under its charter to 
 become a subscriber for the stock of railroad corporations, and there- 
 by assume the obligations to which stockholders are subject by stat- 
 ute. Adderly y. Storm, 6 Hill, 624. 
 
 It is scarcely conceivable that it can be seriously urged, that a 
 moneyed corporation, havir(g under its charter the right to transact 
 a banking business only, may legally engage, as a corporation, in the 
 construction of railroads, or in furnishing money for such an object, 
 in exchange for the stock of a railroad corporation, and yet when 
 this case is analyzed and stripped of its irrelevant details and cir- 
 cumstances, we cannot see why this is not precisely what was at- 
 tempted by the plaintifif. * * * 
 
 Judgment affirmed.** 
 
 FRASER v. RITCHIE. 
 
 (Appellate Court of Illinois, 1881. 8 111. App. 554.) ' 
 
 The appellees are judgment creditorsof the Eagle Works Manufac- 
 turing Company, a corporation., After a nulla bona return on an ex- 
 ecution against the corporation, the present bill was filed against 
 appellants, seeking to subject to this judgment certain personal prop- 
 erty, formerly owned by the corporation but sold to the appellants 
 in consideration of the sale and surrender to the corporation of $30,- 
 000 worth of its own stock. The bill charges that the sale is fraud- 
 
 3 6 Accord: Franklin Company v. Lewiston Institution for SaviiiKs 68 Me 
 43, 28 Am. Eep. 9 (1877). . ' 
 
Sec. 2) IMPLIED POWBKS 275 
 
 ulent and void as against appellees. From a decree in favor of the 
 appellees an appeal is taken.^' 
 
 Wilson, J.^* The principal question arising in this case relates to 
 the power of a torporation to purchase its own capital stock. 
 
 It must be admitted that no fixed nor very well-defined rule is 
 deducible from the authorities as to the right of an incorporated 
 company to use its corporate funds or property in the purchase of its 
 stock. The doctrine, as commonly stated in general terms is, that the 
 capital stock of a corporation constitutes a trust fund for the pay- 
 ment of its debts, such stock being regarded as a substitute for the 
 personal liability which subsists in private partnerships. It is said 
 that when debts are incurred, a contract arises with the creditors, 
 that the capital stock „ or property of the company shall not be with- 
 drawn or applied otherwise than to the satisfaction of their demands ; 
 that the creditors have a lien upon .it in equity, and that if diverted 
 they may follow it as far as "it can be traced, and subject it ,to the 
 payment of their' claims, except. as against holders who have taken it 
 bona fide for a valuable consideration without notice. 2 Story, Eq. 
 § 1252; Perry on Trusts, § 217; Wood v. Dummer, 3 Mason, 308, 
 Fed. Cas. No. 17,944. - 
 
 This principle, as a general proposition, would seem to be founded 
 in reason and justice, and may be regarded as settled law. But it 
 remains to be considered whether the principle, as stated, is one of 
 universal application^ admitting of no exceptions, or whether it is 
 limited in its application, depending upon the circumstances of each 
 ■particular case, the time and manner of its application,, the provi- 
 sions of the charter. of the corporation, the nature of its business, etc. 
 
 In England the doctrine seems to be settled that corporations, 
 whatever may be the nature of their business, cannot, without an ex- 
 press authority in. their charters, deal in their own stock. 
 
 In Brice on Ultra Vires (2d Am. Ed.) 94, it is said: "There is a 
 great difference between dealing in the shares of other companies and 
 its own. The former is ordinary business, attended with the usual 
 risks of ordinary transactions, but the latter tends inevitably to 
 breaches of their duty on the part of the directors, and to fraud 
 and rigging of the market on the part of the corporation; conse- 
 quently a corporation to possess such power, must have it confer- 
 red by -the plainest, and most explicit language in the constating in- 
 struments." ^ 
 
 The current of American authorities; on the other hand, seems to 
 be to the efifect that under certain circumstances and for certain pur- 
 poses, moneyed corporations and corporations possessing banking 
 powers, and in some instances other corporations, may invest their 
 funds in the purchase of their own stock, subject to certain restric- 
 tions and limitatidns, one of which is that it shall not be done at 
 
 87 statement of facts substituted. «» A part of the opinion is omitted. 
 
276 
 
 POWERS AND LIABILITIES (Cll. 3 
 
 sucb time and in such manner as to take away the security upon 
 which the creditors of the corporation have the right to rely for the 
 payment of their claims, or in- other words, so as not to diminish 
 the fund created for their benefit. Each case must therefore depend 
 upon and be 4etermined by its own facts and circumstances, and the 
 difficulty sometimes met with grows out of the proper application of 
 the rule of law to the facts of the particular case. Bartlett v. Drew, 
 57 N. Y. 587; Curran v. Arkansas, 15-How. 304, 14^ L. Ed. 705; 
 Wood V. Dummer, 3 Mason, 308, Eed. Cas. No. 17,944; Spear v. 
 Grant, 16 Mass. 9; Taylor v. Miami Exporting Co., 6 Ohio, 177; 
 Dudley v. Price, 10 B. Mon. (Ky.) 84; Bank v. St. John, 25 Ala. 
 568; Scott v. Eagle Fire Ins. Co., 7 Paige (N. Y.) 198; Bigelow v. 
 Society, etc., 11 Vt. 283; Perry on Trusts, supra. 
 
 In many of the cases just cited, and in others which we have ex- 
 amined, the refusal of the courts to uphold the purchase by the cor- 
 poration of its stock, was placed upon the ground that the corpora-^ 
 tion was at the time insolvent, or that the stock was surrendered for 
 the purpose of winding up the company. In other cases the stock 
 was not purchased and held by the corporation as an investment of 
 its funds, but was immediately canceled and never re-issued, thereby 
 diminishing by so much the capital stock. Under such circumstances 
 the purchase and cancellation of the stock was held to be in fraud of 
 the rights of creditors in lessening the fund upon which they had the 
 right to rely for their protection. We shall not stop to quote from 
 the cases cited nor review them in detail, it being sufficient to say that 
 in none of them is the power of a corporation to purchase its stock 
 denied, except where the circumstances were such as to render the 
 transaction either actually or constructively fraudulent, either as to 
 creditors or to other stockholders of the corporation. 
 
 In Peterson v. 111. Land & Loan Co., decided by this courj and 
 reported in 6 111. App. 257, it was not intended to assert the doctrine 
 that a corporation had no power under any circumstances to pur- 
 > chase shares of its own stock. In that case, Clapp, a stockholder, 
 surrendered to the.fompany 555 shares, or more than one-half of its 
 entire capital stock, in exchange for real estate owned by the com- 
 pany. The shares were not purchased by the company, and held by 
 it as an investment, but were immediately canceled and never re-is- 
 sued. The cancellation of the stock and the alienation of the real 
 estate was simply an extinguishment of more than half the assets of 
 the corporation, leaving it without the means to pay its creditors in 
 full. It was thus practically the first step in the winding up of the 
 company. We then said : "It was not the taking of stock pledged ' 
 for the payment of a debt due to the company, nor yet a purchase of 
 the stock to be held as an investment for the benefit of the company 
 and the stockholders generally. The stock was never re-issued, but 
 was canceled and extinguished, thus diminishing by more than one- 
 half the entire capital of the company. The company conveyed to 
 
Sec. 2) IMPLIED POWERS 277 
 
 Clapp valuable real estate in exchange for his stock, and thereby re- 
 duced, its available assets to the extent of the value of the property 
 conveyed. If it could do this with one shareholder, it could do it 
 with another, until there should be neither capital stock nor corporate 
 property remaining out of which to satisfy creditors." 
 
 As will be perceived, our decision was based, not upon the ground 
 of an entire want df power of a corporation to purchase its stock, 
 but that under the circumstances of the case for it to do so was in 
 fraud of the rights of the creditor. And upon principle, we think it 
 would be pushing the doctrine of trusts as applied to the capital 
 stock of an incorporated company too far to hold that it takes away 
 the power of the corporation to purchase its stock under any and 
 all circumstances, for this would be to deprive it of the right to 
 make an investment which, in a given case, might be highly advan- 
 tageous both to the creditor and the corporation, and would more- 
 over ignore all distinctions between a corporation which is insolvent 
 or in process of dissolution, and one which is engaged in a prosper- 
 ous and active business, with abundant means to meet all its obliga- 
 tions. , If, in contemplation of winding up, or when insolvent, a 
 corporation should attempt to divide its effects among its stock- 
 holders, either directly or indirectly, by accepting a surrender of their 
 stock in exchange for the corporate property, the transaction would 
 not be upheld as against the equitable rights of creditors; and this, 
 it is apprehended, is the limited application of the doctrine which the 
 American courts and text-writers have intended when speaking of 
 the trust character of capital stock, rather than that general and uni- 
 versal application which would deprive a corporation of all power 
 and discretion in respect to the disposition of its capital stock. 
 
 Without going more at large into this branch of the case, our con- 
 clusion is that the weight of authority in this country is in favor of 
 the power of a corporation to purchase its own capital stock, except 
 where the circumstances are such as to show that the purchase was 
 fraudulent in fact, or that the corporation was insolvent or in pro- 
 cess or contemplation of dissolution at the time of the purchase. 
 
 Most of the cases which we have examined were, it is true, cases 
 relating to financial or commercial corporations, but we are unable 
 to see any valid grounds for holding that a corporation for manu- 
 facturing purposes may not, as between itself and its creditors^ in- 
 vest its surplus earnings in the purchase of shares of its stbck, which 
 would not apply with equal, force to the former class. 
 
 By the stipulation of the parties, it is admitted that the purchase 
 of the stock by the company from Fraser and Chalmers was entire- 
 ly fair, and made by both parties in good faith. It is admitted that 
 at the time of the purchase the company was solvent, and had assets 
 sufiScient to pay all its liabilities, including the capital stock, leaving 
 a large surplus ; that the stock was worth more than par, and known 
 to be so by all the parties ; and that the property received by Fraser 
 
278 ' POWERS AND LIABILITIES (Ch. 3 
 
 and Chalmers in exchange for the stock was fairly valued. It is ad- 
 mitted that the stock bought of Fraser and Chalmers was no.t sur- 
 rendered by them for cancellation, and if canceled, was not canceled 
 until after they had ceased to be members of the company, except 
 as to $600 surrendered by Fraser, and $1,520 by Chalmers, Decem- 
 ber 30, 1871.- It is also admitted that the stock was not surrendered 
 for the purpose of winding up the company, and that no winding up 
 was contemplated for at least a year after Fraser and Chalmers sold 
 their stock and retired from the company, and that meantime the 
 company continued doing a prosperous business. 
 
 These admitted facts exclude all actual fraud, and if the view 
 which we have adopted as to the law be correct, they also exclude all 
 constructive fraud, and place the transaction beyond the attack of 
 creditors. * * * ss 
 
 TREVOR et al. v. WHITWORTH et al. 
 (House of Lords, 1887. L. R. 12 App. Cas. 409.) 
 
 Appeal from a decision of the Court of Appeal. 
 
 James Schofield & Sons, Limited, were incorporated in 1865 under 
 the Companies Act 1862 with a capital of £150,000. in 15,000 shares 
 oi £10. each. The objects, as stated in the memorandum of asso- 
 ciation, were to acquire arid carry on the business of certain flannel 
 manufacturers, and any other businesses and transactions which the 
 company I might consider to be in any way conducive 'or auxiliary 
 thereto, or proper to be carried on in connection therewith. 
 
 The memorandum did not authorize the company to purchase its 
 own shares. 
 
 The company having in 1884 gone into liquidation in the Cottrt of 
 , Chancery of the County Palatine of Lancaster, a claim was made 
 agamst the company by the respondents, as executors of Whitworth 
 a deceased shareholder, for the balance of the price of Whitworth's 
 shares sold by the executors to the company in 1880, and not wholly 
 paid for. The circumstances under which the purchase in question 
 and other purchases by the company of its own shares were effected 
 are stated in the judgments. 
 
 A summons having been taken out by the appellants, the official 
 liquidators, to determine whether the claim ougl^t to be allowed the 
 Vice-Chancellor of the county Palatine made an order declaring 
 that, without prejudice to any claim by the claimants against any per- 
 
 1257 "^S.^ nnn^'^'^* ^ Highfleld, 140 Wis. 476, 123 N. W. 102, 17 Ann. Cas. 
 
 v'pye^'s'oi'i?4"?lT^fl8l2T ^^'^^ "''^'^ ^«- "^ ^^^ ^7 (1873); Clapp 
 
 Compare: Adams & Westlake Co. v. Deyette, 8 S. b. 119, 65 N. W. 471, 31 
 
Sec. 2) IMPLIED POWERS 279 
 
 sons other than the liquidators and the company,, the claim against 
 the company ought not to be allowed. 
 
 The Court of Appeal (Cotton, Bowen, and Fry, L. JJ.) reversed 
 this decision and allowed, the claim. Against this decision the liqui- 
 dators now appeal. The only question presented is whether such a 
 company can purchase its own shares. The judgment on the other 
 points is omitted.*" 
 
 Lord Herschell, L,ord Chancellor.*^ [After stating the facts and 
 considering the question of whether or not the shares were purchased 
 on behalf of the company:] * * * j p^ss now to the main ques- 
 tion in this case, which is one of great and general importance, 
 whether the company had power to purchase the shares. The result 
 of the judgment in the Court below is certainly sottiewhat startling. 
 The creditors of the company which is being wound up, who have a 
 right to look to the paid-up capital as the fund out of which their 
 debts are to be discharged, find coming into competition with them 
 persons who, in respect only of their having been, and having ceased 
 to be, shareholders in the company, claim that the company shall 
 pay to them a part of that capital. The memorandum of association, 
 it is admitted, does not authorize the purchase by the company of its 
 own shares. It states, as the objects for which the company is estab- 
 lished, the acquiring certain manufacturing businesses and the under- 
 taking and carrying on the businesses so acquired, and any other 
 business and transaction which the company consider to be in apy 
 way ^.uxiliary thereto, or proper to be carried on in connection 
 therewith. 
 
 It cannot be questioned, since the case of Ashbury Railway Car- 
 riage & Iron Company v. Riche,, Law Rep. 7 H. L. 653, that a com- 
 pany cannot employ its funds for the purpose of any transactions 
 which do not come within the objects specified in the memorandum, 
 and that a company cannot by its articles of association extend its 
 power in this respect. These propositions are not and could not be 
 impeached in, the judgments of the Court of Appeal, but it is said to 
 be settled by authority; that although a company could not under 
 such a memorandum as the present, by articles authorize a trafficking 
 in its own shares, it might authorize the board to buy* its shares 
 "whenever they thought it desirable for the purposes of the compa- 
 ny," or "in cases where it was incidental to the legitimate objects of 
 the company that it should do so." The former is Lord Justice Cot- 
 ton's expression ; the latter that of Lord Justice Bowen. 
 
 I will first consider the question apart from authority, and then ex- 
 amine the decisions relied on. 
 
 The Companies Act 1862 requires (section 8) that in the case of 
 a company where the liability of the shareholders is limited, the mem- 
 orandum shall contain the amount of the capital with which the com- 
 
 1 
 
 4 Statement of facts abridged. ** A part of the opinion is omitted. 
 
280 POWERS AND LIABILITIES (Ch. 3 
 
 pany proposes to be registered, divided into shares of a certain fixed 
 amount; and provides (section'^ 12) tiiat such a company may in- 
 crease its capital and divide it into shares of larger amount than the 
 existing shares, or convert its paid-up shares into stock, but that 
 "save as aforesaid, no alteration shall be made by any company in 
 the conditions contained in its memorandum of association." 
 
 What is the meaning of the distinction thus drawn between a com- 
 pany without limit on the liability of its members and a company 
 where the liability is limited, but, in the latter case, to assure to those 
 dealing with the company that the whole of the subscribed capital, 
 unless diminished by expenditure upon the objects defined by the 
 memorandum, shall remain available for the discharge of its liabil- 
 ities ? The capital may, no doubt, be diminished by expenditure upoo 
 and reasonably incidental to all the objects specified. A part of it 
 may be lost in carrying on the business operations authorized. Of 
 this all persons trusting the company are aware,, and take the risk. 
 But I think they have a right to rely, and were intended by the Leg- 
 islature to have a right to rely, on the capital remaining undiminished 
 by any expenditure outside these limits, or by the return of any part 
 of it to the shareholders. 
 
 Experience appears to have shown that circumstances might' occur 
 in which -a reduction of the capital would be expedient. Accordingly, 
 by the Act of 1867 provision was made enabling a company under 
 strictly defined conditions to reduce its capital. Nothing can be 
 stronger than these carefully-word«d provisions to show how incon- 
 sistent with the very constitution of a joint stock company, with 
 limited liability, the right to reduce its capital was considered to be. 
 
 Let me now invite your Lordships' attention to the facts of the 
 present case. The company had purchased, prior to the date of the 
 liquidation, no less than 4142 of its own shares ; that is to say, con- 
 siderably more than a fourth of the paid-up capital of the company 
 had been either paid, or contracted to be paid, to shareholders, in 
 consideration only of their ceasing to be so. I am quite unable to 
 see how this expenditure was incurred in respect of or as incidental 
 to any of the objects specified in the memorandum. And, if not, I 
 have a difficulty in seeing how it can be justified. If the claim under 
 consideration can be supported, the result would seem to be this, that 
 the whole of the shareholders, with the exception of those holding 
 seven individual shares, might now be claiming payment of the sums ' 
 paid upon their shares as against the creditors, who had a right to 
 look to the moneys subscribed as the source out of which the com- 
 pany's liabilities to them were to be met. And the stringent pre- 
 cautions to prevent the reduction of the capital of a Hmited company, 
 without due notice and judicial sanction, would be idle if the com- 
 pany might purchase its own shares wholesale, and so effect the 
 desired result. I do not think it was disputed that a company could 
 not enter upon such a transaction for the purpose of redycing its 
 
Sec. 3) IMPLIED POWERS 281 
 
 •capital, but it was suggested that it might do so if that were not the 
 ■object, but it was considered for some other reason desirable in the 
 interest of the company to do so. To the creditor, whose interests, 
 I think, sections 8 and 12 of the Companies Act were intended to 
 protect, it makes no difference what the object of the purchase is. 
 The result to him is the same. The shareholders receive back the 
 moneys subscribed, and there passes into their pockets what Ipefpre 
 existed in the form of cash in the coffers (.of the company, or of 
 buildings, machinery, or stock available to meet the demands of the 
 •creditors. 
 
 What was the reason which induced the company in the present 
 case to purchase its shares? If it was that they might sell them 
 again, this would be a trafficking in the shares, and clearly unauthor- 
 ized. If it was to retain them, this would be to my mind an indirect 
 method of reducing the capital of the company. The only suggestion 
 •of another motive (and it seems to me to be a suggestion unsupported 
 by proof) is that this was intended to be a family company,' and that 
 the directors wanted to keep the shares as much as possible in the 
 hands of those who were partners, or who were interested in the old 
 firm, or of those persons whom the directors thought they would like 
 to be amongst this small number of shareholders. I cannot think 
 that the employment of the company's money in the purchase of 
 shares for any such purpose was legitimate. The business of the 
 company was that of manufacturers of flannel. In what sense was 
 the expenditure of the company's money in this way incidental to 
 the carrying on of such a business, or how could it secure the end of 
 enabling the business to be more profitably or satisfactorily carried 
 on ? I can quite understand that the directors of a company may 
 sometimes desire that the shareholders should not be numerous, and 
 that they should be persons likely to leave them with a free hand to 
 carry on their operations. But I think it would be most dangerous to 
 countenance the view that, for reasons such as these they could le- 
 gitimately expend the moneys of the company to any extent they 
 please in the purchase of its shares. No doubt if certain shareholders 
 are disposed to hamper the proceedings of the company, and are will- 
 ing to sell their shares, they may be bought out; but this must be 
 done by persons, existing shareholders or others, who can be indiaced 
 to purchase the shares, and not out of the funds of the company. 
 
 It is urged that the views I have expressed are inconsistent with 
 the forfeiture and surrender of shares in a company. ' I do not think 
 so. The forfeiture of shares is distinctly recognized by the Compa- 
 nies Act, and by the articles contained in the schedule, which in the 
 absence of other provisions regulate the management of a limited 
 liability company. It does not involve any payment by the company, 
 and it presumably exonerates from future liability those who have 
 shown themselves unable to contribute what is due from them to the 
 capital of the company. Surrender no doubt stands on a different 
 
282 
 
 POWBES AND LIABILITIES (Ch. 3 
 
 footing. But it also does not involve any payment out of the funds 
 of the company. If the surrender, were made in consideration' of any 
 such payment it would be neither more nor less than a sale, and open 
 to the same objections. If it were accepted in a case when the com- 
 pany were in a position to forfeit the shares, the transaction would 
 seem to me perfectly vaHd. There may be other cases in which a 
 surrender would be legitimate. As to these I would repeat what was 
 said by the late Master of the Rolls in In re Dronfield, etc., Co., 17 
 Ch. D. 76: "It is not for me to say what the limits of surrender are 
 which are allowable under the Act, because each case as it arises! must 
 be decided upon its own merits." 
 
 I turn now to the authorities. In Teasdale's Case, Law Rep. 9 Ch. 
 54, Lord Justice James said : "There is no doubt that a company may 
 give itself power to purchase its own shares, to take surrenders of 
 shares, and to cancel the certificates of shares." But in the subse- 
 quent case 'of Hope v. International Financial Society, 4 Ch. D. 327, 
 336, that learned judge said : "I am reported to have said in Teas- 
 dale's Case, Law Rep. 9 Ch. 54, that 'the power to purchase shares 
 would be good. I am not quite sure whether that was not too wide 
 a 'deduction from the cases to which I was then referring, and cer- 
 tainly it was not necessary for the decision of the case. But however 
 that may be, when the company deals with an individual shareholder, 
 and does what appears to be right under the circumstances^ viz. to 
 accept the surrender from the shareholder who cannot pay, and to 
 release him from further liability, that might be good, although inci- 
 dentally and to a small extent it may be said to diminish the capital." 
 In the ,case which gave rise to these observations, a company having 
 150,000 shares issued, passed a' special resolution that the directors 
 should have power to apply the company's assets to purchase from 
 shareholders willing to sell any number of shares not exceeding* 100,- 
 000, and that such shares should not be re-issued by the directors 
 without the authority of a general meeting. The Court of Appeal, 
 affirming Vice-Chancellor Bacon, held that this scheme was invalid. 
 Lord Justice James said : "Either this is a purchase of shares in the 
 sense of trafficking in shares, which is a purchase not authorized by 
 the memorandum of association, or it is an extinguishment of the 
 shares, and therefore a reduction of the capital of the company." 
 And the present Master of' the Rolls made the following observa- 
 tions: "I agree with the Lord Justice that the dilemmia is made per- 
 fect ; for if you assume that there was to be a reissue of these shares, 
 the shares are not canceled, they are existing shares, and the only 
 way of geting rid of them again is to sell them. It is said that a 
 selling of shares is not of itself a trafficking in shares. Well, that 
 may be quite true. If I make a present of a horse I cannot be said 
 to be dealing in horses, but I apprehend if I buy a horse for the pur- 
 pose of selling it again, I do deal in a horse. So here, if you take 
 that to be the reasonable meaning of the resolution, then the reso- 
 
Sec. 2) IMPLIEP POWERS 283 
 
 lution is this, that the company are to buy the shares for the pur- 
 pose of re-issuing them, that is, for the purpose of selling them again. 
 They do not say so in terms, but that is the necessary eifect of what ^ 
 they intend to do by the resolution. That seems to be a trafficking 
 in shares and a carrying on of the business which is not within the 
 terms of the memorandum of association. It is true that that may 
 not be a continuing business, but no more was that which was done 
 in the case of the Ashbury Railway Carriage & Iron Company v. 
 Riche, Law Rep. 7 H. L. 653. That was only to be one transaction 
 but because the transaction was a business transaction not contem- 
 plated or mentioned in the memorandum of a§sociation, it was not 
 allowed. If that therefore was the intention of this resolution, then 
 it broke the rule's, by enabling or forcing the company to enter upon 
 a business which is not mentioned in the niemorandum of association. 
 But if it was not intended to re-issue these shares, then it seems to mfe 
 to follow that the amount of capital represented by them was nec- 
 essarily extinquished." 
 
 It appears to me that every word which I have just quoted from 
 the judgment of the Master of the Rolls is strictly applicable to the 
 circumstances of the present case. Again, in the case of Guinness v. 
 Land Corporation of Ireland, 22 Ch. D. 349, 375, Lord Justice Cot- 
 ton, after referring to sect. 38 of the Companies' Act, said : "From 
 that it follows that whatever has been paid by a member cannot be 
 returned to him. In my opinion, it also follows that what is de- 
 scribed in the memorandum as the capital cannot be diverted from 
 the objects of the society. ' It is, of course, liable to be spent or lost 
 in carrying on the business of the company, but no part of it can 
 be returned to a member so as to take away from the fund to which 
 the creditors have a right to look as that out of which they are to 
 be paid." 
 
 The learned, judges of the Court of Appeal in the present case did 
 not purport to depart from the views thus expressed, but their judg- 
 ments were based upon the decision of that Court in the case of In 
 re Dronfield Silkstone Coal Company, 17 Ch. D. 76. In that case 
 disputes having arisen as to the conduct of the business, the directors 
 agreed with Ward, one of the largest shareholders, to purchase his 
 shares and also his interest as landlord in the mines worked by the 
 company. This arrangement was confirmed by an extraordinary 
 general meeting of the company, and was carried into effect in March 
 1872. The business of the company was very prosperous for several 
 years, but in 1879 it was ordered to be wound up, and the question 
 then arose whether Ward was liable to be placed on the list of con- 
 tributories. The late Master of the Rolls held that he was, on the 
 ground that the company had no power to pul-cha'se the shares, but 
 this decision was reversed by the Court of Appeal. Upon the question 
 whether the company had the power contended for, I agree with the 
 reasoning of the Master of the Rolls rather than with that of the 
 
284 POWBES AND LIABILITIES (Ch. 3 
 
 Court of Appeal. But I am not prepared to say that the judgment 
 of the Court of Appeal refusing to make Ward a contributory was 
 erroneous, looking at the circumstances which intervened subsequent 
 to the purchase, and prior to the winding-up. It is not necessary, 
 however, to detain your Lordships , by i consideration of this ques- 
 tion, as it can have no application to the present case. The' trans- 
 action here is inchoate, and the Court is asked to compel its com- 
 pletion. This, I think, for the reasons I have given, they would not 
 be justified in doing. 
 
 I ought to notice one other case, as it was much relied on by the 
 learned counsel for the respondents. I refer to Phosphate of Lime 
 Company v. Green, Law Rep. 7 C. P. 43. In that case the learned 
 judges appear to have considered that the transaction amounted to a 
 purchase of shares in the company, which was prohibited by its ar- 
 ticles of association, but they held that it had been ratified by the 
 shareholders. No question was raised in argument or determined as 
 to the powers conferred by the memorandum of association, and it 
 is to be observed that at that time it was not so clearly settled as 
 it has been since the judgment in Ashbury Railway Carriage and 
 Iron Company v. Riche, Law Rep. 7 H. L. 653, that a transaction 
 not within the scope of the memorandum is incapable of ratification. 
 
 I move your Lordships that the judgment appealed from be re- 
 versed, and the judgment of the Vice-Chancellor restored, and that 
 the respondents do pay to the appellants the costs in the Court of 
 Appeal and in this House, and do repay to the appellants any 
 moneys and costs received from them.*^ 
 
 ' Lord MACNAGHTaiiN. * * * There remains, however, a more 
 serious objection still. It seems to me. that if a power to purchase 
 its own shares were found in the memorandum of, association of a 
 limited company, it would necessarily be void. There are two condi- 
 tions of the memorandum — the condition defining the objects of the 
 company, and the condition defining its capital — one or both of which 
 would be affected by such a power. It must, therefore, be considered 
 in connection with each. Suppose the dealing in its own shares were 
 stated as an object for which a company was proposed to be estab- 
 lished, could it be said that the subscribers were associated for a 
 "lawful purpose" within the meaning of section 6 of the Act of 
 1862? If it were the only object of the company, no one would say 
 so. Does the purpose of the association become lawful if legitimate 
 objects are combined with an object which is not legitimate? It is 
 significant that the Stock Exchange will not grant a settling day, 
 or allow a quotation to any company which purports to have the 
 
 42 Concurring opinions of Lord Watson and Lord FitzGerald and part of 
 opinion of Lord Macnaghten omitted. 
 
 Accord: Bellerly v. Rowland & Marwood's Steamship Co., Ltd., L. R. 2 Ch. 
 Dlv. 14 (1902) ; Coppin v. Greenlees & Ransom Co., 38 Ohio St. 275, 43 Am. 
 Rep. 425 (1882). But see Morgan v. Lewis, 46 Ohio St. 1, 17 N. E. 558 (1888). 
 
Sec. 3) ULTEA VIEES ACTS 285 
 
 power of buying its own shares. But let me suppose a case where the 
 purchase of its own shares is not one of the objects of the company, 
 properly soicalled, but a case where the subscribers to the memoran- 
 dum think that the power of purchasing its own shares might be 
 useful in the management of the company if it were permissible by 
 law. Then it seems to me that one way of trying whether it is per- 
 missible or not would be to read it into the memorandum in connec- 
 tion with the condition which states what the capital is to be. Let 
 me try it here in that way, using the very language of Cotton, L,. J., 
 who thought the power in the present case valid, because it was only 
 "a power to authorize the board, whenever they thought it desirable 
 for the purposes of the company, to buy the shares." The condition 
 would then run thus: "The capital of the company is £150,000. in 
 15,000 shares of £10. each; but the board may buy back shares 
 whenever they think it desirable for the purposes of the company to 
 do so." It seems to me that a condition so qualified would be re- 
 pugnant and contradictory to itself. At any rate, the qualification 
 would have the efifect of reducin'g one of the statutory conditions of ' 
 the memorandum to an empty form. * * * 
 
 SECTION 3.— ULTRA VIRES ACTS 
 I. In Generai, 
 
 BISSELL V. MICHIGAN SOUTHERN & N. I. R. COS. 
 
 (Court of Appeals of New York, 1S60. 22 N. Y. 258.) 
 
 CoMSTocK, Ch. J.*' A general statement of the plaintiff's case is, 
 that the two corporations defendant were jointly engaged in the busi- 
 ness of carrying passengers and freight between Chicago and Lake 
 Erie, through a part of the state of Illinois, and through the states of 
 Indiana and Michigan, by three connected railroads which they own- 
 ed or controlled, and the business of which was managed under a 
 consolidated arrangement which had been in force between the de- 
 fendants for some time previous to the injury complained of; that, 
 being so engaged, they undertook and assumed to carry him, the 
 ■plaintiff, as a passenger from Chicago, or a point near that place, 
 eastward over the consolidated line of road; that he took his seat 
 in their cars accordingly, and that during the transit he was injured 
 by an accident which happened through their carelessness and neg- 
 lect. 
 
 4s Facts sufficiently stated in tbe opinion, and part of the opinion is 
 omitted. 
 
286 POWBES AND LIABILITIES (Ch. 3 
 
 Assuming the truth of this statement, there is no doubt of the 
 plaintiff's right to recover. But the defendants deny the legal truth 
 of these facts, be'cause one of the companies was chartered by the 
 Legislature of Michigan, with power to biiild a road in that State, 
 and the other by the Legislature of Indiana, with power to build one 
 in that State. They both insist that they had no right or power un- 
 der their respective charters to consolidate their business in the 
 manner stated, and especially that they could not legally, either sepa- 
 rately or jointly, acquire the possession and use of a connecting road 
 in the State of Illinois and undertake to carry passengers or freight 
 over the same. They do not deny that their boards of directors and 
 agents, duly authorized to wield all the powers which the corpo- 
 rations themselves possessed, entered into the arrangements which 
 have been mentioned, nor that, in the execution of those arrange- 
 ments, they made the contract with the plaintiff to carry him as 
 a passenger; nor do they deny that they received the benefit of that 
 contract in the customary fare which he paid. 
 
 Their defense is, simply and purely, that they transcended their 
 own powers and violated their own organic laws. On this ground 
 they insist that their business was not, in judgment of law, consoli- 
 dated ; that they did not use and operate a road in Illinois ; that they 
 did not undertake to carry the plaintiff over it ; and did not, by their 
 negligence, cause the injury of which he complains ; but that all these 
 acts and proceedings were, in legal contemplation, the acts and pro- 
 ceedings of the natural persons who were actually engaged in pro- 
 emoting the same. 
 
 Can then two railroad corporations, having connecting lines, thus 
 unite their business, for the purpose of promoting their common in- 
 terest; charter another connecting road in furtherance of the same 
 policy; hold themselves out to the public as carriers over the whole 
 route; enter into contracts accordingly; receive the benefit of those 
 contracts; and then, when liabilities arise, interpose the violation 
 of their own charters to shield them from responsibility? Such a 
 defense is shocking to the rnoral sense, and although it appears to 
 have some support in judicial opinions, I think it has no foundation 
 in the law. 
 
 The doctrine has certainly been asserted on some occasions, that^ in 
 all cases where the contracts and dealings of a corporation are claimed 
 to be invalid for want of power to enter into the same, a comparison 
 must be instituted between those contracts and dealings and the char- 
 ter, and, if the charter does not appear to embrace them, then that 
 they must be adjudged void to all intents and purposes, and in all 
 conceivable circumstances. The reasoning on which this doctrine has 
 been usually claimed to rest denies, in effect, that corporations can, or 
 ever do, exceed their powers. They are said to be artificial beings, 
 having certain faculties given to them by law, which faculties are 
 limited to the precise purposes and objects of their creation, and can 
 
Sec. 3) ULTRA VIBES ACTS 287 
 
 no more be exerted outside of those purposes and objects than the 
 faculties of a -natural person can be exerted in the performance of 
 acts which are not within human power. In this view these arti- 
 ficial existences are cast in so perfect a mould that transgression and 
 wrong become impossible. 
 
 The acts and dealings of a corporation, done and transacted in 
 its name and behalf by its board of directors, vested with all its pow- 
 ers, are, unless justified by its charter, according to this reasoning, 
 the acts and dealings of the individuals engaged in them, and for 
 which they alone are responsible. But sUch, I apprehend, is not the 
 nature of these bodies. Like natural persons, they can overleap the 
 legal and moral restraints imposed upon them; in other words, they 
 are capable of doing wrong. To say that a corporation has no right' 
 to do unauthorized acts is only to put forth a Very plain truism ; but 
 to say that such bodies have no power or capacity to err is to impute 
 to them an excellence which does not belong to any created existenc- 
 es with which we are acquainted. The distinction between power and 
 right is no more to be lost sight of in respect to artificial than in 
 respect to natural persons. 
 
 I think this doctrine of theoretical perfection in corporations would 
 convert them practically into most mischievous monsters. A banking 
 institution, through its board of directors, may invest its funds in the 
 purchase of stocks or cotton, and every 'holder of its stock may ac- 
 quiesce, expecting to profit by the speculation. If the enterprise is 
 successful, the corporation and its stockholders gain by the result. If 
 a depression occurs in the market, and disaster is threatened, the 
 doctrine that a corporation can never act outside of its charter en- 
 ables it to say, "this is not our dealing," and the money used in 
 the adventure may be unconditionally reclaimed from whatever par- 
 ties have received it in exchange for value; while the injured dealer 
 must seek his remedy against agents perhaps irresponsible or un- 
 known. Corporations may thus take all the chances of gain, without 
 incurring the hazards of loss, l^amiliar maxims of the law must be 
 reversed. In the relation of private principal and agent, the adop- 
 tion of an agent's unauthorized dealing is equivalent to an original 
 authority ; and the adoption is perfect when the principal receives the 
 proceeds of that dealing. Corporations may practically act in the 
 same manner. The proceeds of unauthorized adventures may be re- 
 "ceived and become blended with their legi|imate business and funds 
 so as to be wholly undistingxiishable ; but, as the adventures them- 
 selves were, in judgment of law, impossible, considered as. corporate 
 transactions, so they cannot become possible upon any principle of 
 ratification or estoppel. If we say there is an utter absence of pow- 
 er or faculty to engage in the dealing, it is a self-evident proposi- 
 tion that no rule of estoppel can change the result. * * * 
 
 One of the sources of error in reasoning upon legal as well as oth- 
 er questions is inexactness in the use of language, or, perhaps, in the 
 
288 POWERS AND LIABILITIES (Ch. 3 
 
 imperfectness of language, to express the varieties of thought. It is 
 a self-evident truth, that a natural person cannot exceed the powers 
 which belong to his nature. In this proposition we use words in 
 their literal and exact sense. In the same sense it is a truth equally 
 evident that a corporation cannot exceed its powers ; but this is only 
 asserting that it cannot exercise attributes which it does not pos- 
 sess. As an impersonal being, it cannot experience religious emotion, 
 or feel the moral sentiments. Corporations are said to be clothed 
 with certain powers enumerated in their charters or incidental to 
 those which are enumerated, and it is also said they cannot exceed 
 those powers ; therefore, it has been urged that all attempts to do 
 so are simply nugatory. 
 
 The premises are correct when properly understood; but the con- 
 clusion is false, because the premises are misinterpreted. When we 
 speak of the powers of a corporation, the term only expresses the 
 privileges and franchises which are bestowed in the charter; and 
 when we say it cannot exercise other powers-, the just meaning of the 
 language is, that as the attempt to do so is without authority of law, 
 the performance of unauthorized acts is a usurpation which may be a 
 wrong to the State, or, perhaps, to the shareholders. But the usur- 
 pation is possible. In the same sense natural persons are under the 
 restraints of law, but they may transgress the law, and when they do 
 so they are responsible for their acts. From this consequence corpo- 
 rations are not, in my judgment, wholly exempt. The privileges and 
 franchises granted are not the whole of a corporation. Every trad- 
 ing corporation aggregate includes an association of persons hav- 
 ing a collective will, and a board of directors or other agency in 
 which that will is embodied, and through which it may be exerted in 
 modes of action not expressed in the organic law. Thus, like moral 
 and sentient beings, they may and do act in opposition to the ' inten- 
 tion of their creator, and they ought to be accountable for such acts. 
 
 But the doctrine that corporations can never be bound by engage- 
 ments not justiiied by the grant of power from the* State is next de- 
 fended on a different ground. Although it be conceded that they 
 are present and acting as legal persons or entities when such en- 
 gagements are entered into, it is said that all contracts in excess of 
 the rightful power possessed by corporations are illegal and, therefore, 
 void. This is an argument totally different from the one which has 
 been so far examined, because it necessarily imputes the making of 
 the contract to the corporate person or being ; whereas the doctrine 
 which I have endeavored to refute denies that proposition. The very 
 point pf the supposed illegality consists, or at least it may consist, in 
 the performance of acts perfectly lawful in themselves, but which, 
 being done by a corporation and not by individuals, are pronounced 
 illegal because they are so done without authority contained in the 
 charter. 
 
Sec. 3) ULTRA VIBES ACTS 289 
 
 But is it true that all contracts of corporations for purposes not 
 embraced in their charters are illegal, in the appropriate sense of 
 that term? This proposition I must deny. Undoubtedly such en- 
 gagements may have the vices which sometimes infect the contracts of 
 individuals. They may involve a malum in se or a malum prohib- 
 itum, and may be void for any cause which would avoid the con- 
 tract of a natural person. But where no such vices exist, and the 
 only defect is one of power, the contract cannot be void because it 
 is illegal or immoral. Such a doctrine may have some s%ht founda- 
 tion in the earlier English railway cases (East Anglian Railways' 
 Co. V. Eastern Counties Railway Co., 7 Eng. L. & Eq. 509; Mc- 
 Gregor v. Official Manager of the Deal & Dover Railway Co., 16 Eng. 
 L. & Eq. 180) ; but it was never established, and is nqt now received 
 in the English courts (Mayor of Norwich v. Norfolk Railway Co., 
 30 Eng. Law and Eq. 120 ; Eastern Counties Railway Co. v. Hawkes, 
 35 Eng. L. & Eq. 8, 37). The books are full of cases upon the 
 powers of corporations and the effect of dealing in a manner and for 
 objects not intended in their charters; but with the slight exception 
 named, there is an entire absence, not only of adjudged cases, but of 
 even judicial, opinion or dicta, for the proposition that mere want of 
 authority renders a contract illegal. 
 
 Such a proposition seems to me absurd. The words ultra vires 
 and illegality represent totally different and distinct ideas. It is true 
 that a contract may have both those defects, but it may also have 
 one without the other. For example, a bank has no authority to en- 
 gage, and usually does not engage, in benevolent enterprises. A 
 subscription, made by authority of the board of directors and un- 
 der the corporate seal, for the building of a church or college or 
 an alms-house, would be clearly ultra vires, but it would not be il- 
 legal. If every corporator should expressly assent to such an appli- 
 cation of the funds, it still would be ultra vires, but no wrong would 
 be committed and no public 'interest violated. So a manufacturing 
 corporation may purchase ground for a schoolhouse or a place of 
 worship for the intellectual, religious and moral improvement of its 
 operatives. It may buy tracts and books of instruction for distribu- 
 tion amongst them. Such dealings are outside of the charter; but, 
 so far from being illegal or wrong, they are in themselves benevo- 
 lent and praiseworthy. So a church corporation may deal in ex- 
 change. This, although ultra vires, is not illegal, because dealing in 
 exchange is, in itself, a lawful business, and there is no State policy 
 in restraint of that business. 
 
 To illustrate the subject in another manner: An agent may make 
 a contract in the name and behalf of his principal, but not within the 
 scope of his agency. If the consideration and purpose of such a con- 
 tract be lawful, it may be void as against the principal, but not on 
 the ground of illegality. A corporation is not an agent of the State. 
 or, in any strict sense, of the shareholders. But it derives its pow- 
 
 BlCH.COEP. — 19 
 
290 POWERS AND LIABILITIES (Ch. 3 
 
 ers from the State, and it, may transcend those powers for purposes 
 which, in themselves considered, involve no public wrong. Contracts 
 so made may be defective in point of authority, and may contem- 
 plate a private wrong to the shareholders; but they are not illegal, 
 because they violate no public interest or policy. My meaning in 
 short is, that the illegality of an act is determined in its quality and 
 does not depend on the person or being which performs it. 
 
 There has been, I think, some want of reflection, even in judicial 
 minds, uponjthe reasons and policy which mainly govern in the grant- 
 ing of charters to corporations, with certain specified powers and no 
 others. A private ot trading corporation is essentiilly a chartered 
 partnership, with or without immunity from personal liability beyond 
 the capital invested, and with certain other convenient attributes which 
 ordinary partnerships do not enjoy. It is also something more than 
 a partnership, because the legal or artificial person becomes vested 
 with the title to all the estate and capital contributed, to, be held and 
 used, however, in trust for the shareholders. Now, in a well-reg- 
 ulated unincorporated partnership, the articles entered into by the 
 associates specify the objects of their association. But, suppose the 
 same associates desire a charter of incorporation for the, more con- 
 venient prosecution of the same business, and obtain one. We shall 
 find it to contain the like specification, which becomes the grant or 
 power from the sovereign authority of the State. I am speaking of 
 powers and privileges granted which are not, in their essential nature, 
 corporate or public franchises as distinguished from the private enter,- 
 prises which any class of citizens may embark in; and, with the 
 exception of municipal or governmental charters, the class of powers 
 here referred to will be found to cover nearly the whole field of 
 corporate rights. 
 
 It is not difficult, then, to see the reason and policy which under- 
 lie such grants. The associates ask for a charter in order to carry 
 on their business with greater advantages; and the same reason 
 exists for a specification of the purposes of their organization as in 
 the case of an association without a charter. The charter takes the 
 place of the articles of agreement, and becomes the appropriate rule 
 of action. No public interest or policy is involved, because the ob- 
 jects of the grant are not of a public nature. The powers and 
 rights specified are identical with those which any private person 
 or association of persons may exercise. If those who manage the 
 concerns of a simple partnership deal with the funds in a manner or 
 for purposes not specified, their acts are ultra vires ; and if the direc- 
 tors of such a corporation as I am here speaking of do the same 
 thing, their acts are also ultra vires in the same sense and no other. 
 To apply the word "illegality" to such transactions is to confound' 
 things of a totally different nature. It is only private interests which 
 are affected by them ; and there is no statute or rule of the common 
 law by which' they become public offenses. * * * 
 
Sec. 3) ULTRA VIRES ACTS 291 
 
 Let us now concede that the unauthorized contracts of a corporation 
 are illegal in the sense contended for. It by no means follows that 
 they are never to be enforced. An agreement declared by statute 
 to be void cannot be enforced because such is the legislative will. 
 But when without any such declaration it is simply illegal, it is ca- 
 pable of enforcement where justice plainly requires it. Circumstances 
 may and often do exist, which estop the offender from taking advan- 
 tage of his own wrong. The contract may be entered into on the 
 other side without any participation in the guilt and without any 
 knowledge even of the vice which contaminates it. An innocent per- 
 son may part with value, or otherwise change his situation, upon the 
 faith of the contract. A railroad coi-poration for example may pur- 
 chase iron rails and give its obligation to pay for them with a de- 
 sign to sell them again on speculation instead of using them for con- 
 tinuing -its track! Such a transaction is clearly unauthorized, and 
 is, therefore, said to be illegal. But if the corporation is deemed to 
 make the contract — in other words, if, as I have above shown, it is a 
 legal possibility for corporations to make contracts outside of their 
 just powers, how can its illegality be set up against the other par- 
 ty who J«nows nothing of the unlawful purpose ? So "an incorporat- 
 ed bank may purchase land, having power to do so, for a banking- 
 . house, but actually intending to speculate in the transaction. This is 
 also ultra vires, but can the want of authority be interposed in repu- 
 diation of a just obligation to pay for the same land, the vendor not 
 being in pari delicto? Such a doctrine is not only shocking to the 
 reason and conscience of mankind, but it goes far beyond the law in 
 regard to the illegal contracts of private individuals. 
 
 As I am not contending that the unauthorized dealings of a cor- 
 poration are never to be questioned, the object of this discussion has 
 been to ascertain the true ground on which the'y can be impeached 
 where they are not attended by the vices which are fatal to private 
 contracts also. I have shown, I trust, 1. That such dealings are pos^ 
 sible in law, as they often take place in fact: in other words, that 
 it is in the nature of these bodies to overleap the restraints imposed 
 upon them. 2. That a transgression of this natiire is a simple ex- 
 cess of power (using that word to express the rules of action pre- 
 scribed in their charters, and by which they ought to regulate their 
 conduct"), but is not tainted with illegality so as to avoid the contract 
 or dealing on that ground. This proposition, it seems hardly neces- 
 sary to repeat, is applied only to transactions which involve or con- 
 template no violation of the code of public or criminal law, but on 
 the contrary are innocent and lawful in themselves. 3. Even illegal 
 contracts in the proper sense are not universally and indiscriminately 
 to be adjudged void; and especially this is not so where the offend- 
 er alleges his own wrong to avoid just responsibility, the other party 
 being inndcent of the offense. 
 
292 
 
 POWERS AND LIABILITIES (Ch; 3 
 
 If these negative conclusions cannot be denied, it follows that con- 
 tracts and dealings such as I have been speaking of are to be con- 
 demned by the courts, only on the ground that they are a breach of 
 the duty which private corporations owe to the stockholders to Whorti 
 the capital beneficially belongs. It is the undoubted right of stock- 
 holders to complain of any diversion of the corporate funds to pur- 
 poses unauthorized in the charter. This, as a general principle, can- 
 not be too strongly asserted; and by this principle justly applied 
 to particular instances, the question in such cases is to be resolved. 
 The original subscribers contribute the capital invested, and they 
 and those who succeed to their shares are always in equity the own- 
 ers of that capital. But legally the ownership is vested in the cor- 
 porate body impressed with the trusts and duties prescribed in the 
 charter. In these relations we have the only true foundation of the 
 plea of ultra vires. 
 
 That term is of very modern invention, and I do not think it 
 well chosen to express the only principle which it can be allowed to 
 represent in cases of this nature. It is not to be understood as' an 
 absolute and peremptory defense in all cases of excess of power, 
 without regard to other circumstances and considerations. It is not 
 to be looked upon as a plea which denies the actual exertion of cor- 
 porate power when a corporation enters into an engagement which, 
 according to its charter, it ought not to make; but, because such 
 was the nature of the contract, it presents the breach of trust or 
 duty to the shareholders as an excuse for the non-performance. And 
 I do not deny the validity of this excuse in many cases, I may say in 
 all cases where it can be received without doing greater injustice to 
 others. If the person dealing with a corporation knows of the wrong 
 done or contemplated, and he cannot show the acquiescence of the 
 shareholders, he ought not to complain if he cannot enforce the con- 
 tract. Aside from the law of corporations, agreements which in- 
 volve or propose a violation of trust will not be enforced by the 
 courts where no greater equities demand it. Corporate bodie^ are 
 more than mere agents. They are more than a partner who manages 
 as the agent of his associates. Their powers are undelegated. They 
 are the legal owners of the capital, or estate, and they have capacity 
 to deal with it in contravention of duty or trust. * * * 
 
 But little more need be said in reference to the particular case now 
 before us. If the defendants did not become liable for the breach 
 of their undertaking to carry the plaintiff, or of their duty resulting 
 from that undertaking, I can see no ground for holding them ac- 
 countable as simple wrongdoers. If their contract was ultra vires, 
 and that defense to an action upon it must be received as absolute 
 and peremptory— if no principle of estoppel or rule of justice can 
 be urged against that defense — then it is more clear that the simple 
 wrong to the plaintiff's person was also ultra vires. It was with con- 
 siderable difficulty that the liability of a corporation in any case for 
 
Sec. 3) ULTEA VIRES ACTS 293 
 
 a pure tort was ever established ; and they are never so liable except 
 when engaged in the performance of some duty or undertaking in 
 respect to which accountability arises. If the defendants' express un- 
 dertaking was absolutely void, so that no duty could arise thereupon, 
 the implied undertaking resulting from the actual attempt to carry the 
 plaintiff as a passenger is encountered by the same objection; and 
 there is nothing left of the transaction except a pure and simple tort, 
 committed by the defendants' servants while not engaged in any busi- 
 ness which could bring responsibilities upon the defendants them- 
 selves. I think it plain that this theory of liability will not sustain 
 the plaintiff's case. * * * 
 
 Sei^dbn, J.** * * * Nq court has ever held that the defense of 
 ultra vires rested upon any such ground, as that the contract sought 
 to be enforced could not be considered as an act of the corporation. 
 The object of the distinction, so frequently drawn, between natural 
 persons and corporations as mere artificial existences with no pow- 
 ers or faculties except svich as are derived from their charters, is 
 simpiy to show that the latter cannot legitimately and rightfully exer- 
 cise any powers but those with which they are endowed by the law 
 which creates them, and not that they may not wrongfully exceed the 
 just limits of those powers. 
 
 The case of Barry v. Merchants' Exchange Company, 1 Sandf. Ch. 
 280, will serve to illustrate the force and application of the distinction. 
 The question in that case was, whether a corporation, created for the 
 purpose of erecting a building to be used as a public exchange, in 
 the city of New York, had power to borrow money to enable' it to 
 accomplish the object of the incorporation, no provision conferring 
 this power be^ng contained in the charter. The vice-chancellor, in 
 deciding this question in the affirmative, said : "Every corporation, 
 as such, has the capacity to take and grant property, and to contract 
 obligations in the same manner as an individual." This remark pre- 
 sents one theory in regard to the nature of corporations, which is, 
 that unless specially restrained, they have the same power to bind 
 themselves by contract as any natural person. The distinction re- 
 ferred to stands opposed to this theory, and is designed to show that^ 
 as corporations have no existence independent of their charters, they 
 can, of course, have no powers except such as are specifically con- 
 ferred. 
 
 When a corporation, sued for a breach of contract, sets up as a 
 defense its own want of power to enter into the contract, two ques- 
 tions are involved : first, whether the contract was, in truth, beyond 
 the corporate powers; and second, if so, whether this is available 
 as a defense. It is only in reference to the first of these questions, 
 and to prove that the contract was really ultra vires, that the argu- 
 ment has been resorted to, that a corporation has no natural powers. 
 
 «* A part of the opinion Is omitted. 
 
294 POWERS AND LIABILITIES (Ch. 3 
 
 The excess of power being established, the question whether this con- 
 stitutes a valid defense depends upon entirely different considerations. 
 
 The assumption, therefore, that the doctrine, which declares the 
 unauthorized contract of a corporation to be void, rests in any de- 
 gree upon the theory that a corporation can never Be said to have 
 done anything but what it had a legitimate right to do, is wholly un- 
 warranted; and hence the irresistible logic with which it is shown^ 
 that corporations must necessarily partake of the imperfection which 
 attaches to all created things, is wholly without force in its application 
 to the present case. Corporations, as well as natural persons, may no 
 doubt err. They may exceed their pqwers and violate their charters, 
 and may be held responsible for so doing. Were it otherwise, they 
 could never be made hable for a tort; nor could they be proceeded 
 against by quo warranto. The statute which authorizes the attor- 
 ney-general to file an information in the nature of a quo warranto 
 against an offending corporation (2 R. S. 583, § 39), assumes that 
 corporations may transgress the limits prescribed by their charters. 
 Subdivision S of the section referred to provides that the proceeding 
 may be instituted "whenever it (the corporation) shall exercise any 
 franchise or privilege not conferred upon it by law." 
 
 The real ground upon which the defense of ijiltra vires rests, and 
 the only one upon which it has ever, to any extent, been judicially 
 based is, that the contracts of corporations which are unauthorized 
 by their charters are to be regarded as illegal, and, therefore, void. 
 There are three classes of illegal contracts, viz. : those which are 
 mala in se — i. e., which embrace something which the law deems in 
 and of itself criminal or immoral; 2d, those which violate the pro- 
 visions of some statute, and are hence called mala prohibita ; and 3d, 
 those which contravene some principle of public policy. Corporations 
 may make contracts falling within either of the two first of these 
 classes, and such contracts are no doubt subject to the same rules as 
 if made by individuals. Of course, where the only objection to the 
 contract of a corporation is that it exceeds the corporate powers, it 
 cannot be considered as malum in se; and although, in this State, 
 where we have a statute (1 R. S. 600, § 3) expressly enacting that 
 no corporation shall exercise any corporate powers except such as 
 their charters confer, the contrary might, with much plausibility, be 
 contended. I shall, nevertheless, concede, for the purposes of this 
 case, that such contracts do not belong to the class styled mala pro- 
 hibita. 
 
 But the contracts of corporations which are not authorized by their 
 charters are illegal, because they are made in contravention of public 
 policy. That contracts which do in reality contravene any principle 
 of public policy are illegal and void is not and cannot be denied. The 
 doctrine is universal. There is no exception. Although the unau- 
 thorized contract may be neither malum in se nor malum prohibitum, 
 but, on the contrary, may be for some benevolent or worthy object, 
 
Sec. 3) ULTRA VIRES ACTS 295 
 
 as to build an alms-house or a college, or to purchase and distribute 
 tracts or books of instruction, yet, if it is a violation of public policy 
 for corporations to exercise powers which have never been granted 
 to them, such contracts, notwithstanding their praiseworthy nature, 
 are illegal and void. Those, therefore, who hold that corporations 
 are liable upon their contracts, notwithstanding they were made with- 
 out authority, are forced to contend that no principle of public policy 
 is violated by such contracts. This is the ground which they do take, 
 and which, it is obvious^ they must necessarily take, in order to sus- 
 tain their position. Here, then, we have an issue made up, which, 
 if I am right, is decisive of the question under consideration. 
 
 What, then, is the , argument, by which it is sought to be showii 
 that there is no principle of public policy involved in this question 
 of the liability 'of corporations for their unauthorized acts? It is 
 said that a private corporation, is simply a chartered partnership, pos- 
 sessing certain attributes conferred by its charter for the purpose of 
 enabling it the more conveniently to transact its business : that, even 
 in unincorporated partnerships, the articles of copartnership always 
 specif)*^ the objects of the association; and that, when such associa- 
 tions choose to become incorporated, those objects are, for the same 
 reason, specified in the charter: that the charter simply takes the 
 place in this respect of the articles of agreement, in the case of an 
 unincorporated partnership : that, as the objects of such associations, 
 although incorporated, are of a private nature, there is no question ol 
 public policy involved; and that no public interest requires that the 
 transactions of the corporations should be kept within its chartered 
 limits. 
 
 If we admit the soundness of this argument, and assume that the 
 directors of a corporation are npt under any public obligation to 
 keep within their chartered powers, but are to be regarded simply as 
 the agents of the corporators, so that any excess of power on their 
 part amounts sirnply to a breach of trust toward their principals, it 
 would not follow that the corporation is liable upon its unauthorized 
 contracts. But I apprehend there are serious objections to this view 
 of the nature of corporations, and of the efifect of their charters. 
 
 In the first place, if there is no public interest involved, how is it 
 possible to justify the creation of private corporations at all? Such 
 corporations are endowed with valuable franchises and privileges, 
 which give them great advantages over mere private citizens, whether 
 individual or associated. The grant of such privileges upon the 
 principles for which some of my associates contend would be a pure 
 piece of legislative favoritism, which should be indignantly con- 
 demned. In this country, if in no other, it is held to be the duty of 
 government to protect the people in the enjoyment of equal rights 
 and privileges, and not to use its power for the special benefit of its 
 favorites. Every privilege or advantage given to one man or set of 
 men is necessarily at the expense of others; and it is against the 
 
296 POWERS AND LIABILITIES (Ch. 3 
 
 fundamental principles of our government that this should be done, 
 unless required by interests of a public nature. No doubt these 
 principles are frequently violated, and corporate powers and priv- 
 ileges are conferred which no public interest demands; but, nev- 
 ertheless, such interest is the ostensible reason for the grant in every 
 case. * * * 
 
 The fact that a mere excess of power on the part of a corporation, 
 by the assumption of privileges not conferred, affords ground for a 
 quo warranto, is in itself proof that the public has an interest in keep- 
 ing such bodies within the Kmits of their charters. But it is said that 
 the proceeding by quo warranto is of a purely civil nature, designed 
 solely- to try a mere civil right, and that it in no manner assumes that 
 any public right or interest has been infringed. Upon this position I 
 take issue. In the first place the assertion derives no' support from, 
 if it is not in direct conflict with, the legislative enactments on the 
 subject. Not one of the provisions of the section by which the attor- 
 ney-general* is authorized to institute proceedings in the nature of a 
 quo warranto contemplates injury to any private right as the ground 
 .of the proceeding. He is authorized to act in the following cases, 
 viz. : Whenever a corporation shall "1st. Offend against any of the 
 provisions of the act or acts creating, altering or renewing such cor- 
 poration; or, 2d. Violate the provisions of any law, by which such 
 corporation shall have forfeited its charter by misuser; or, 3d. 
 Whenever it shall have forfeited its privileges and franchises by non- 
 user ; or, 4th. Whenever it shall have done or omitted any acts which 
 amount to a surrender of its corporate rights, privileges and fran- 
 chises ;^ or, 5th. Whenever it shall exercise any franchise or privilege 
 not conferred upon it by law." (2 R. S. 583, § 39.) 
 
 Not one of these subdivisions contemplates a case of injury to the 
 private interests of stockholders. They all, without exception, relate 
 to violations, not of individual rights, but of public law. These pro- 
 visions, therefore, strongly, and, as I think, conclusively, repel the 
 idea that a quo warranto is a mere civil remedy, the object of which 
 is to redress or prevent a private injury. The proceeding is not only 
 public and quasi criminal in form, but is not in its nature adapted to 
 the enforcement of any mere private right. The rights of stock- 
 holders in corporations are abundantly protected against every un- 
 authorized assumption of power, or any breach of trust on the part 
 of their managing officers. If the violation of duty or breach of 
 trust is only threatened, a court of equity will prevent it by injunc- 
 tion, and if committed will afford the proper redress. There is neither ' 
 occasion for, nor propriety in, a resort to the proceedings by quo 
 warranto for any mere private purpose, and I hazard nothing in say- 
 ing that such is not the nature of that proceeding. If this conclusion 
 is right, it inevitably follows that the assumption of any unauthorized 
 power by a corporation is a violation of public policy and public 
 right, and, therefore, illegal. 
 
Sec. 3) ULTRA VIRES ACTS 297 
 
 This, then, is the true foundation of the defense we are considering. 
 It is permitted upon the same principle and for the same reason that 
 a private individual is permitted to plead his own illegal act as a 
 defense to a suit brought to enforce a contract which public policy 
 forbids, viz. : To discourage and restrain such violations of law. 
 There are, no doubt, cases in which a corporation would be estop- 
 ped from setting up this defense, although its contract might have 
 been really unauthorized. It would not be available in a suit brought 
 by a bona fide indorsee of a negotiable promissory note, provided the 
 corporation was authorized to give notes for any purpose; and the 
 reason is, that the corporation, by giving the note, has virtually rep- 
 resented that it was given for some legitimate purpose, and the in- 
 dorsee could not be presumed to know the contrary. The note, 
 however, if given by a corporation absolutely prohibited by its 'char- 
 ter from giving notes at all, would be voidable not only in the hands 
 of the original payee, but in those of any subsequent holder ; because 
 all persons dealing with a corporation are bound to take notice of 
 the extent of its chartered powers. * * * 
 
 My conclusion, therefore, is that the contract of the defendants to 
 transport the plaintiffs from Chicago to 'Toledo was illegal and void, 
 they having, as we have seen, no power under their charters to enter 
 into the engagement for running their cars on joint account between 
 those two places. It does not follow, however, that they are not 
 liable to the plaintiff in this action. The complaint is founded upon 
 the duty which rested upon the defendants^ growing out of the rela- 
 tion in which they stood to the plaintiff, to take care that he should 
 not be injured by their negligence. If this duty could only arise out 
 of some contract between the parties, then the conclusion arrived at 
 would be fatal to the recovery. The contract actually made by the 
 defendants to transport the plaintiff can form no part of the plain- 
 tiff's case, and he must recover, if at all, irrespective of that contract. 
 
 It is said that if the contract was ultra vires and the corporation is 
 protected from jll responsibility for its violation on that ground, it 
 must be equally free from- responsibility for an injury inflicted while 
 attempting to perform it. But this, I apprehend, by no means fol- 
 lows, though it is probably true so far as the duty to observe due 
 care grew out of the contract. The plaintiff's claim, however, rests 
 not upon his contract, but upon the right which every man has to be 
 protected from injury through the carelessness of others. It has the 
 same legal foundation as that of one who has been injured by the 
 negligent driving of some person upon the public highway, or who 
 has been run over by a train of cars when crossing the railroad track. 
 The duty to observe care in these cases arises, not upon any contract, 
 but from the obligation which rests upon all persons, whether natural 
 or artificial, so to conduct as not through their negligence to inflict 
 injury upon others. 
 
298 POWERS AND LIABILITIES (Ch. 3 
 
 It is unnecessary to cite authorities to show that corporations are 
 liable for the culpable negligence of their servants or agents while 
 engaged in the business of the corporation, in the same manner as 
 individuals are liable for the negligence of themselves or their serv- 
 ants. It will scarcely be doubted that if the defendants' cars, through 
 the carelessness of their employees, had run over the plaintiff, while 
 passing upon a highway across the track of any portion of the road 
 used by them, the corporation would have been liable. They could 
 not set up that having no power to run their cars beyond the limits 
 prescribed by their respective charters; all acts outside of those limits 
 must be regarded as the acts of the individuals performing them, and 
 not of the corporation. We have already seen that corporations may 
 exceed their powers and may perform unauthorized acts, and incur 
 responsibilities thereby. There is no doubt that all that was done' 
 under the arrangement between the defendants, found by the referee, 
 unauthorized and contrary to law, is nevertheless to be treated as done 
 by the corporations themselves. The business was carried on under 
 the direction of their managing officers, with their property and for 
 their benefit, and they cannot now be heard to deny that it was done 
 by them. It follows that at least in respect to all persons with whom 
 they had no conventional relations, their responsibilities would be 
 precisely the same as if the business in which they were engaged was 
 lawful. 
 
 To test the liability of the defendants, therefore, in this case, it is 
 necessary to inquire what would b6 the responsibility of railroad com- 
 panies in general toward persons sitting in their cars, but whom they 
 have made no contract to transport. This must depend upon the cir- 
 cumstances under which, the individuals had entered the cars. If they 
 were there as mere trespassers, without shadow of right, the company 
 would not, perhaps, be responsible for any injury they migjit sus- 
 tain, through the negligence of its servants. But ,if , on the other 
 hand, the entry into and remaining in the cars was with the assent, 
 express or implied, of the company, and injury should result from the 
 negligence of the latter or its agents, the company would, I think, 
 be responsible. It was held by this court in the case of Nolton v. 
 Western Railroad Corporation, 15 N. Y. 444, 69 Am. Dec. 623, that 
 when a railroad company voluntarily undertakes to carry a passenger 
 upon their road, although without compensation, if such passenger 
 is injured by the culpable negligence of the agents of the company, 
 the latter is liable, in the absence of any express agreement exempt- 
 ing it. The principle of that case is applicable to this. Although 
 here, if we lay aside the contract, there was no undertaking to trans- 
 port the plaintiff, either with or without compensation ; yet this can 
 make no difference, as the liability in such cases arises, not from any 
 contract express or implied, but from the universal obligation of all 
 persons to avoid injury to others through their negligence. 
 
 Suppose, while standing upon your own premises, you accidentally, 
 
Sec. 3) ULTEA TIRES ACTS 299 
 
 but through sheer carelessness, discharge a gun and wound a person 
 walking upon the highway, you are clearly liable for the injury. If 
 the person injured, instead of being upon the highway, were in your 
 own house with your assent, would not your liability be the same? 
 No one can doubt it. Suppose, then, instead of being in a house with 
 the owner's assent, the individual is in the car of a railroad company 
 with the consent of the company, would he not have the same right 
 to immunity from injury through the negligence of the company or 
 its' agents ? This is self-evident. The company might not be liable 
 in such a case for the careless discharge of a gun by one of its serv- 
 ants, because using the gun would be no part of the servant's duty to 
 his employers. But if, through the carelessness of the engineer, the 
 boiler of the engine should burst, and, injury should ensue, the lia- 
 bility of the company would be clear. So, if the injury arose from a 
 collision, running off the track, or any such cause. 
 
 It will be 'seen, therefore, that the question of responsibility for 
 injuries sustained from negligence, when the person injured is within 
 the domain Or upon the premises of the party guilty of the negli- 
 gence, turns upon the "inquiry whether he is there lawfully or as a 
 trespasser. It is true that when the negligence occurs in the course 
 of the perforiftance of some gratuitous service by the party guilty of 
 the negligence for the party injured, the former is only liable for gross 
 negligence ; but no question on this subject arises in the present case, 
 as the proof in that respect will be presumed to have been such as 
 to support the judgment, since nothing appears to the contrary. 
 
 Was the plaintiff, then, in the defendants' cars as a mere trespasser, 
 or was he there lawfully, as between him and the defendants? To 
 this question there ^an be but one answer. The defendants can never 
 allege that the plaintiff was in their cars as a trespasser, when he was 
 there by their express assent. The contract between him and the 
 company, it is true, for reasons of policy could not be enforced. 
 The defendants might at any time have repudiated it, and required 
 the [plaintiff] to leave the cars ; and if he refused might thereafter 
 have treated him as a trespasser. But neither his entry into the 
 cars, nor his remaining there until required to leave, could ever be 
 regarded by the defendants as an infringement upon their legal rights. 
 
 It may be said that the plaintiff by consenting to travel in the de- 
 fendants' cars became a participator in their unlawful conduct, and 
 hence is not entitled tp recover; but for this position there is not a 
 shadow of authority. The law oifended against by entering into the 
 illegal contract in this case is a law of restriction upon the defend- 
 ants and not upon the plaintiff. The implied prohibitions which were 
 violated rested solely upon them. There was no law prohibiting the 
 plaintiff from traveling in their cars. I have already adverted to the 
 rule that where the illegality of the contract consists in the violation 
 of some law, the prohibitions of which are aimed at one of the par- 
 ties only, the other party is to be treated as comparatively innocent, 
 
300 POWERS AND LIABILITIES (Ch. 3 
 
 and may have relief against the more guilty party even in an action 
 ex contractu. If, then, he is entitled to enforce -a mere equity against 
 the other party a fortiori may he claim redress for injuries consequent 
 upon their tortious acts. He is so far regarded as particeps criminis, 
 that he forfeits the whole benefit of his contract. He could not re- 
 cover for any failure of the company to transport him in due time or 
 to transport him at all, whatever damages he might thereby sustain ; 
 but he cannot be said, like an outlawed felon, to have caput lupinum 
 and thus to be liable to be knocked on the head like a wolf or to 
 have his limbs broken with impunity. (4 Bl. Com. 320.) Upon 
 these grounds I think the recovery was right, and that the judgment 
 should be affirmed. 
 
 Ci,ERKE,7-. delivered an opinion for affirmance, on the ground last 
 stated by Selden, J. Denio, J., was for reversal. All the other 
 Judges were for affirmance, but without passing upon the questions 
 discussed by Comstock, C. J., and SeldEn, J. 
 
 Judgment affirmed. 
 
 CENTRAL TRANSP. CO. v. PULLMAN PALACE CAR CO. ( 
 
 (Supreme Cpurt of tlie United States, 1891. 139 U. S. 24, 11 Sup. Ct. 478, 
 
 35 L. Ed. 55.) 
 
 Gray, J.*" * * * The view which this court has taken of the 
 question presented by this branch of the case, and the only view' 
 which appears to us consistent with legal principles, is as follows : A 
 contract of a corporation, which is ultra vires, in the proper sense, 
 that is to say, outside the object of its creation as. defined in the law 
 of its organization, and therefore beyond the powers conferred upon 
 it by the legislature, is not voidable only, but wholly void, and, of no 
 legal effect. The objection to the contract is not merely that the 
 corporation ought not to have made it, but that it could not make 
 it. The contract cannot be ratified by either party, because it could 
 not have been authorized by either. No performance on either side 
 can give the unlawful contract any validity, or be the foundation of 
 any right of action upon it. When a corporation is acting within the 
 general scope of the powers conferred upon it by the legislature, the 
 corporation, as well as persons contracting with it, may be estopped 
 to deny that it has complied with the legal formalities, which are 
 prerequisites to its existence or to its action, because such requisites 
 might in fact have been complied with. But when the contract is 
 beyond the powers conferred upon it by existing laws, neither the 
 corporation, nor the other party to the contract, can be estopped, by 
 assenting to it, or by acting upon it, to show that it was prohibited 
 by those laws. * * * 
 
 *o A part of the opinion is omitted. 
 
Sec. 3) ULTRA VIRES ACTS 301 
 
 DIRECTORS, ETC., OP ASHBURY RAILWAY CARRIAGE & 
 
 IRON CO., Limited, v. RICHE. 
 
 (House of Lords, 1875. D. R. 7 H. L. 653.) 
 
 The third clause of Memorandum of Association of the Ashbury 
 Railroad Carriage & Iron Company provided "The objects for which 
 the company is established are to make or sell, lend or hire railway 
 carriages and waggons, and all kinds of railway plant fittings, machin- 
 ery, rolling stock ; to carry on the business of mechanical engineers and 
 general contractors ; to purchase and sell as merchants, timber, coal, 
 metals, or other materials ; and to buy and sell any such materials on 
 commission or as agents. In 1865, an agreement was entered into 
 between the directors of the company, Messrs. Riche, railway con- 
 tractors, and Messrs. Gillon and Bertsoen to form a company (so- 
 ciete anonyme) for the purpose of working a concession obtained by 
 Messrs. Gillon and Bertsoen from the Belgium Government for the 
 cbnstruction of a line of railway from Antwerp to Tourney in Bel- 
 gium. It was agreed that Messrs, Riche were to have the construc- 
 tion of the line. The Ashbury company to purchase the Concession 
 from the Concessionaires for £70,000 and to supply the societe 
 anonyme with the requisite funds. 
 
 Messrs. Riche began and for some time continued the works for 
 the construction of the line ; and for some time the Ashbury Compa- 
 ny paid money to the societe anonyme to which the Messrs. Riche 
 became entitled. 
 
 At the annual meeting of the Ashbury Company in 1867, a reso- 
 lution was passed, as a result of the stockholders' disapproval of the 
 directors' action in financing the working of this concession, by the 
 terms of which the directors were to take over the Concession and 
 indemnify the Company. 
 
 The company repudiated the contract with the Messrs. Riche as 
 ultra vires. The Messrs. Riche brought the present action against 
 the Ashbury Company to recover damages for breach of contract. 
 
 The Court of Exchequer entered a verdict for the plaintiff, Riche. 
 This judgment was taken on error to the Exchequer Chamber, where, 
 the Judges being equally divided in opinion, the judgment stood af- 
 firmed, and error was brought to the House of Lords.*' 
 
 The Lord Chancellor (Lord Cairns),*^ [after discussing the pur- 
 poses- for which' the company was formed, and the construction of 
 the contract by the dissenting judge in the Court of Exchequer 
 proceeds :] 
 
 Those being the results of the documents to which I have referred, 
 I will ask your Lordships now to consider the effect of the Act of 
 Parliament — ^the Joint Stock Companies Act of 1862 — on this state of 
 things. And here, my Lords, I cannot but regret that by the two 
 
 *« Statement of facts substituted. " A part of the opinion is omitted. 
 
302 POWERS AND LIABILITIES (Ch. 3 
 
 Judges in the Court of Exchequer the accurate and precise bearing 
 of that Act of Parliament upon the present case appears to me to 
 have been entirely overlooked or misapprehended; and that in the 
 Court of Exchequer Chambers, speaking of the opinion of those 
 learned Judges who thought that the decision of the Court of Ex- 
 chequer should be maintained, the weight which was given to the 
 provisions of this Act of Parliament appears to me to have eiitirely 
 fallen short of that which ou^ht to have been given to it. ' Your 
 Lordships are well aware that 'this is the Act which put upon its pres- 
 ent permanent footing the regulation of joint stock companies, and 
 more especially of those joint stock companies whiph were to be au- 
 thorized to trade with a limit to their liability. 
 
 The provisions under which that system of limiting liability was 
 inaugurated, we're provisions not merely, perhaps I might say not 
 mainly, for the benefit of the shareholders for the time being in the 
 company, but were enactments intended also to provide for the in- 
 terests of two other very important bodies; in the first place, those 
 who might become shareholders in succession to the persons who ' 
 were shareholders for the time being; and secondly, the outside pub- 
 lic, and more particularly those who might be creditors of companies 
 of this kind. And I will ask your Lordships f.o observe, as I refer to 
 some of the clauses, the marked and entire difference there is between 
 the two documents which form the title deeds of companies of this 
 description — I mean the Memorandum of Association on the one 
 hand, and the Articles of Association on the other hand. With regard 
 to the memorandum of association, your Lordships will find, as has 
 often already been pointed out, although it appears somewhat to have 
 been overlooked in the present case, that that is, as it were, the char- 
 ter, and defines the limitation of the powers of a company to be es- 
 tablished under the Act. With regard to the articles of association, 
 those articles play a part subsidiary to the memorandum of associa- 
 tion. They accept the memorandum of association, as the charter of 
 incorporation of the company, and so accepting it,. the articles proceed 
 to define the duties, the rights and the powers of the governing body 
 as between themselves and the company at large, and the mode and 
 form in which the business of the company is to be carried on, and 
 the mode and form in which changes in the internal regulations of 
 the company may from time to time be made. With regard, there- 
 fore, to the memorandum of association, if you find anything which 
 goes beyond that memorandum, or is not warranted by it, the ques- 
 tion will arise whether that which is so done is ultra vires, not only 
 of the directors of the company, but of the company itself. With 
 regard to the articles of association, if you find anything which, still 
 keeping within the memorandum of association, is a violation of the 
 articles of association, or in excess of them, the question will arise 
 whether that is anything more than an act extra vires the directors, 
 but intra vires the company. * * * 
 
Sec. 3) ULTRA VIRES ACTS 303 
 
 Now, my Lords, if that is so — if that is the condition upon which 
 the corporation is established — if that is the purpose for which the 
 corporation is established — it is a mode of incorporation which con- 
 tains in it both that which is affirmative and that which is negative. 
 It states affirmatively the ambit and extent of vitality and power 
 which by law are given to the corporation, and it states, if it is nec- 
 essary so to state, negatively, that nothing shall be done beyond that 
 ambit, and that no attempt shall be made to use the corporate life 
 for any other purpose than that which is so specified. * * * • 
 
 Now, my Lords, bearing in mind the difference which I have just 
 taken the liberty of pointing out to your Lordships between the mem- 
 orandum and the articles, we arrive at once at all which appears to 
 me to be necessary for the purpose, of deciding this case. I have 
 used the expressions extra vires and intra vires. I prefer either ex- 
 pression very much to one which occasionally has been used in the 
 judgments in the present case, and has also been used in other cases, 
 the expression "illegality." 
 
 In a case such as that which your Lordships have now to deal 
 with, it is not a question whether the contract sued upon involves 
 that which is malum prohibitum or malum in se, or is a contract 
 contrary to public policy, and illegal in itself. I assume the contract 
 in itself to be perfectly legal, to have nothing in it obnoxious to the 
 doctrine involved in the expressions which I have used. The question 
 is not as to the legality of the contract ; the question is as to the 
 competency and power of the company to make the contract. Now, 
 I am clearly of opinion that this contract was entirely, as I have said, 
 beyond the 'objects in the memorandum of association. If so, it was 
 thereby placed beyond the powers of the company to make the con- 
 itract. If so, my Lords, it is not a question whether the contract ever 
 was ratified or was not ratified. If it was a contract void at its be- 
 ginning, it was void because the company could not make the con- 
 tract. If every shareholder of the company had been in the room, 
 and every shareholder of the company had said, "That is a contract 
 which we desire to make^ which we authorize the directors to make, 
 to which we sanction the placing the seal of the company," the case 
 would not have stood in any different position from that in which it 
 stands now. The shareholders would thereby, by unanimous consent, 
 have been attempting to do the very thing which, by the Act of Par- 
 liament, they were prohibited from doing. 
 
 But, my Lords, if the shareholders of this company could not ab 
 ante have authorized a contract of this kind to be made, how could 
 they subsequently sanction the contract after it had, in point of fact, 
 been made. I endeavoured to follow as accurately as I could the 
 very able argument of Mr. Benjamin at your Lordships' Bar on this 
 point; but it appeared to me that this was a difficulty with which 
 he was entirely unable to grapple. He endeavoured to contend that 
 when the shareholders' had iound that something had been done by 
 
304 POWERS AND LIABILITIES (Ch. 3 
 
 the directors which ought not to have been done, they might be au- 
 thorized to make the best they could of a difificulty into which they 
 had thus been thrown, and therefrom might be deemed to possess 
 power to sanction the contract being proceeded with. My Lords, I 
 am unable to adopt that suggestion. It appears to me that it would 
 be perfectly fatal to the 'whole scheme of legislation to which I have 
 referred, if you were to hold that, in the first place, directors might 
 do that which even the whole company could not do, and that then, 
 the shareholders finding out what had been done, could sanction, 
 subsequently, what they could not antecedently have authorized. 
 
 My Lords, if this be the proper view of the Act of Parliament, it 
 reconciles, as it appears to me, the opinion of all the Judges of the 
 Court of Exchequer Chamber ; because I find Mr. Justice Blackburn, 
 whose judgment was concurred in by two other Judges who took the 
 same view, expressing himself thus (Law Rep. 9 Ex. 262) : "I do not 
 entertain any doubt that if, on the true construction of a statute 
 creating a corporation it appears to be the intention of the Legis- 
 lature, expressed or implied, that the corporation shall not enter into 
 a particular contract, every Court, whether of law or equity, is bound 
 to treat a contract entered into contrary to the enactment as illegal, 
 and therefore wholly void, and to hold that a contract wholly void 
 cannot be ratified." My Lords, that sums up and exhausts the whole 
 case. In my opinion, beyond all doubt, on the true construction of 
 the statute of 1862, creating this corporation, it appears that it was 
 the intention of the Legislature, not implied, but actually expressed, 
 that the corporation should not enter, having regard to its memo- 
 randum of association, into a contract of this description. If so, 
 according to the words of Mr. Justice Blackburn, every^ Court, 
 whether of law or of equity, is bound to treat that contract, entered 
 into contrary to the enactment, I will not say as illegal, but as extra 
 vires, and wholly null and void, and to hold also that a contract 
 wholly void cannot be ratified. 
 
 My Lords, that relieves me, and, if your Lordships agree with' me, 
 relieves your Lordships from any question, with regard to ratification. 
 I am bound to say that if ratification had to be considered I have 
 found in this case no evidence which to my mind is at all sufficient to 
 prove ratification; but I desire to say that I do not wish to found 
 my opinion on any question of ratification. This 'contract, in my 
 judgment, could not have been ratified by the unanimous assent of 
 the whole corporation. 
 
 I have only to add to what I have already said, that I observe that 
 some cases have been referred to here — those arising out the Agricul- 
 turist Cattle Insurance Company in your Lordships' House, Spack- 
 man v. Evans, Law Rep. 3 H. L. 17L Evans v. Smallcombe, Id. 249, 
 and Houldsworth v. Evans, Id. 263, and the case of the Phosphate 
 of Lime Company v. Green in the Court of Common Pleas, Law 
 Rep. 7 C. P. 43 — as if they had some bearing on the present ques- 
 
Sec. 3) ULTRA VIRES ACTS 305 
 
 tion. Those cases have a bearing upon some of the observations with 
 which I have troubled your Lordships. They are cases which illus- 
 trate extremely well what I have said just now, that the articles of 
 association of a company of this kind are the documents which de- 
 fine the power of directors as between' themselves and the company. 
 In those cases which I have mentioned the whole question was, 
 whether the directors had gone beyond the powers which were en- 
 trusted to them, and by which their authority was limited under the 
 articles of association, or whether that which had been agreed to had 
 been duly performed. In no one of those cases was there any ques- 
 tion as to whether the power of the whole company had been ex- 
 ceeded. In the cases of the Agriculturist Cattle Insurance Company 
 [Spackman v. Evans, L. R. 3 H. L. 171; Evans v. Smallcombe, Id. 
 249'; Houldsworth v. Evans, Id. 263] no person ever doubted that 
 if the shareholders had assembled together they might have released 
 from the obligation of a partnership contract inter se (for there 
 was no question of outside creditors) any member of the company 
 upon any terms that they thought fit. The only question was wheth- 
 er the directors had released those who were released upon terms 
 which they were authorized to make, or whether, if they had not 
 released them upon such terms, the release slibsequently became 
 known to the company and was sanctioned by the company. The 
 shareholders might have passed a resolution sanctioning the release, 
 or altering the terms in the articles of association upon which re- 
 leases might be granted. If they had sanctioned what had been done 
 withput the formality of a resolution, it was quite clear that that 
 would have been perfectly sufficient. So also in the case of the 
 phosphate of Lime Company [L. R. 7 C. P. 43] the question was, 
 whether that had been done by the sanction of the company which 
 clearly might have been done by a resolution passed by the compa- 
 ny. Those cases have no application whatever to the present case. 
 The present case stands upon the power, not of the directors alone, 
 but of the whole company as settled by the Act of Parliament. 
 
 My Lords, for the reasons which I have thus endeavoured to ex- 
 press, I submit to your Lordships and move your Lordships that the 
 judgment in the present case should be reversed, and judgment en- 
 tered for the Defendants.** 
 
 *s The concurring opinions of Lords Chelmsford, Hatherley, O'Hagan, and 
 Selborne are omitted. 
 
 Accord: Davis et al. v. Old Colony Railroad, 131 Mass. 258, 41 Am. Rep. 
 221 (1881). 
 
 Contra r State Board of Agriculture v. Citizens' Street Railway Company, 
 47 Ind. 407, 17 Am. Rep. 702 (1874). 
 
 Compare Riche v. Ashbury Park Railway Co., 9 Ex. 274, 292 (1874). 
 
 Rich, Corp.— 20 
 
306 POWBES AND LIABILITIES (Ch. 3 
 
 II. Executory and Partly Executed Contracts 
 
 HARRIS et al. v. INDEPENDENC'E GAS CO. 
 
 (Supreme Court of Kansas, 1907. 76 Kan. 750, 92 Pac. 1123, 13 D. R. A. 
 
 [N. 'S.] 1171.) 
 
 Mason, J.** Cornelius Carr and his wife executed to the Inde- 
 pendence Gas Company an oil and gas lease— that is, an instrument 
 granting the right to explore a tract of land for oil or gas, and to 
 appropriate either if found^ The company is a Kansas corporation, 
 and, at the time of the execution of the lease, the only purpose 
 mentioned in its charter was "to dig or mine for natural gas, and 
 sell the same for heat and lighting purposes." Later, an amendment 
 was made adding thereto the mining and selling of oil. What are 
 called the "gas rights" under the leasCj have been transferred to an- 
 other gas company, and no point is raised with regard to them. The 
 Carrs, claiming that the lease so far as it related to oil was void, 
 because at the time it was executed the lessee had no authority to 
 engage in the oil business, undertook to grant the oil privileges anew 
 to C. C. Harris, who, upon that ground, brought a suit against the 
 Independence Company to cancel all of its, contract excepting that 
 portion relating to gas — joining his grantors as coplaintiffs. The 
 trial court sustained a demurrer to a petition setting out substantially 
 these facts, and this proceeding is brought to review that ruling. 
 
 The defendant maintains: (1) that it had the impHed powei" to 
 produce and market oil as an incident to the express power grant- 
 ed to it to produce and market gas ; (2) that if it originally lacked 
 such power the defect was supplied by the charter amendment; and 
 (3) that even if it had no autljority to enter into the contract the 
 plaintiffs cannot take advantage of the fact. It will only be neces- 
 sary to consider the questions involved in the third proposition. 
 
 Although the decisions relating to the doctrine of ultra vires are 
 characterized by some confusion, as well as by much conflict, they 
 admit of classification into fairly well-defined groups, and exhibit a 
 development in the direction of restricting the scope oi its opera- 
 tion. Those courts which accord it the most favorable treatment — ■ 
 allow it the largest field of action — proceed upon the conception that 
 a corporation, being the creature of the state, possesses no power 
 whatever beyond that granted in its charter, and cannot directly or 
 indirectly acquire rights, or incur liabilities, under any contract not 
 thereby authorized.' They refuse, undei- siny circumstances, to ' en- 
 force or give effect to an unauthorized contract as siicli, but, where it 
 
 *» A part of the opinion, reviewing the authorities, is omitted. 
 
Sec. S) ULTRA VIEES ACTS 307 
 
 has been acted upon, will protect the parties against hardship and 
 injustice, by allowing whatever relief may be suited to the facts of 
 the case — for instance, by permitting either party to recover money 
 or property which has been parted with in the transaction, or to have 
 compensation therefor. The cases illustrating this treatment of the 
 matter are collected in 29 A. & E. Encycl. of L,. 54, note 2. The 
 theory is consistent and logical, but its practical effect is so to cir- 
 cumscribe the power of the court as to make the reUef furnished at 
 times inadequate to the occasion. 
 
 In a larger number of jurisdictions, although the same conception 
 of corporate capacity is adopted, its effect is greatly changed by the 
 appUcation of another principle. Here the courts concede that a 
 corporation has -no power to make a contract except such as is 
 conferred by its charter, expressly, or by necessary implication. But 
 they hold that as it must have some discretion in the manner of 
 carrying out the purposes of its creation — some freedom of action 
 — ^it is amenable to the same rules of conduct as a natural person, 
 and may estop itself to question the validity of an agreement it has 
 assumed to make, or may acquire the right to invoke a similar estop- 
 pel in its own behalf. Where this theory is accepted, recovery may 
 be had upon a contract which is in fact void, simply because its va- 
 lidity cannot be put in issue. The cases in point are gathered in 29 
 A. & E. Encycl. of L,. 57, note 1. 
 
 These cases have been criticised for the use they make of the word 
 "estoppel," as descriptive of the principle upon which llhey are based. 
 It is argued that, as a corporation must know the terms of its own 
 charter, and as one dealing with it is charged with like knowledge, 
 neither party to an ultra vires contract can be misled in that respect, 
 and therefore there must always be lacking an essential element of 
 '' what could, with technical accuracy, be called estoppel. This, how- 
 ever, is a mere question of terminology. The requirement that one 
 shall be consistent in conduct — shall not occupy contradictory posi- 
 tions, shall not retain the advantages of a transaction, and reject 
 its burdens — is often spoken of as a form of estoppel. The term is 
 convenient, and, if inaccurate, is not misleading. This rule of y estop- 
 pel affords a good working hypothesis to accomplish just results. 
 If it fails to accomplish all that might be desired in a practical way, 
 it is because it is not made sufficiently far-reaching. It is generally 
 held to be' inapplicable to purely executory contracts, one reason 
 stated being that, "Where neither party has acted upon the contract, 
 the only injustice, caused by a refusal to enforce it, is the loss to the 
 parties of prospective proiits, and this is too slight a consideration 
 to weigh against the reasons of public policy for declarnig it void 
 and not enforceable." 29 A. & E. Encycl. of L. 49, 50. 
 
 It might seem reasonable "that a system whiph attempts not only 
 to protect a party to an ultra vires contract from actual loss, but, 
 where equity requires it, to insure to him the actual fruits of his 
 
308 POWERS AND LIABILITIES (Ch. 3 
 
 bargain, ought/for the sake of completeness and symmetry, to en- 
 able him to insist upon the performance even of a purely executory 
 contract. It certainly seems against conscience that one who has 
 entered into a contract in the expectation of deriving a profit from it, 
 may, upon discovering the probability of a loss, repudiate it, and 
 escape responsibility by raising the question of want of corporate 
 capacity. Parties to a contract, who deal with each other upon the 
 assumption that one of them is a corporation, are ordinarily pre- 
 cluded from questioning the validity of its organization. * * * 
 
 A large majority of the adjudications on the subject of ultra vires 
 fall into one or the other of the two groups already referred to. The 
 conception of corporate power, upon which they depend, has been 
 styled that of "special capacities," in distinction from that of "gen- 
 eral capacities." See article by George Wharton Pepper, on Exer- 
 cise of Corporate Power, 9 Harvard Law Review, 255. The con- 
 ception, designated by the latter term, is, in brief, that while a cor- 
 poration has no right to exceed the limits of its charter it has the 
 power to do so. * * * 
 
 No Kansas statute declares that a contract made by a corporation 
 in excess of its legitimate powers shall be void ; or in terms permits 
 the question of corporate capacity to be raised by one of the par- 
 ties. Where it is held that no recovery can ever be had upon an 
 ultra vires contract, as such, whatever relief is afforded is logically 
 made to turn upon whether and how far the agreement has been 
 acted upon. Where a recovery is sometimes permitted under the con- 
 tract itself, upon the principle of estoppel, the question whether it 
 has been carried out is likewise of manifest importance, there being 
 a difference in degree, at least, between the attitude of one who has 
 merely entered into an engagement in expectation of obtaining an 
 advantage from it, and that of one who has actually reaped its ..bene- 
 fits in whole or in part. But the doctrine that only the state can 
 challenge the validity of acts done under color of a corporate char- 
 ter, if accepted, must necessarily protect an executory contract from 
 collateral attack, equally with one that has been executed. The court 
 is convinced of the soundness of the view that, in the absence of 
 special circumstances affecting the matter, neither party to even an 
 executory contract should be allowed to defeat its enforcement by 
 the plea of ultra vires. The doctrine is logical in theory, simple in 
 appHcation, and just in result. It, of course, does not apply to con- 
 tracts which are immoral, or which are illegal (as distinguished from 
 merely unauthorized), or to those made by public corporations. Nor 
 does it forjjid interference by a stockholder to protect his rights as 
 such. ' I 
 
 Upon these considerations the judgment is affirmed."" 
 
 00 Compare Jemison v. Citizens' Savings Bank, 122 N. Y. 135, 25 N. E. 264, 
 9 L. R. A. 708, 19 Am. St. Rep. 482 (1890). 
 Accord (semble): Farwell & Co. v. Wolf, 96 Wis. 10, 70 N. W. 289, 71 N. 
 
Sec. 3) ULTRA VIRES ACTS 309 
 
 PRESIDENT, ETC., OF BANK OF MICHIGAN v. NILES. 
 (Supreme Court of Michigan, 1844. 1 Doug. 401, 41 Am. Dec. 575.) 
 
 Appeal from the Court of Chancery. (Vide s. c. Walk. Ch. 99.) 
 
 The complainants filed their bill in the Court of Chancery, to ob- 
 tain the specific performance of a contract, entered into between them 
 and the defendant, July 1st, 1839. The complainants thereby bound 
 themselves, within sixty days thereafter, to convey to the defendant 
 certain real estate described in the contract, and to obtain from 
 one Jeremiah H. Pierson, a good and sufScient deed of the property 
 called the Rochester miir property, and convey to him three undi- 
 vided fourth parts of it; and, in case a mortgage or incumbrance 
 should be created for the purchase money of the mill property, they 
 covenanted to pay the same, and have it released within five years 
 from the date of the contract. They further agreed to deliver to 
 defendant certain certificates signed by him, amounting to $796.63. 
 The defendant, on his part, agreed to execute a mortgage to the com- 
 plainants for the purchase money to be paid by him, amounting to 
 $28,000, and tq include, in addition, in the securities, certain notes, 
 and the' amount of the above mentioned certificates. The mortgage 
 was to be executed on the property conveyed to him, and upon the 
 remaining interest which he already possessed in it, as tenant in 
 • common. 
 
 Within the sixty days, the complainants purchased and obtained a 
 deed for the mill property of Pierson, for $5,000, which they paid 
 and secured to be paid to him. They then made out and executed 
 a deed to the defendant for three-fourths of it, together with the 
 other property they were bound by the contract to convey to him, 
 and were ready and willing to perform their part of the contract. 
 
 The defendant demurred ; and, the Chancellor having sustained the 
 demurrer, the complainants appealed. 
 
 Fei<ch, J.°^ [The court, after discussing the powers of the cor- 
 poration, proceeds:] This leads to the second inquiry in the case: 
 Can this suit be maintained? 
 
 It was one of the earliest principles established, that courts of 
 justice will not lend their aid in enforcing contracts which are con- 
 trary to law. If, in transactions of this character, either party has 
 obtained the advantage of the other, however great may be the 
 hardship of the case, courts will not aid one violator of law against 
 the other, but will leave them as they are found. "Melior est con- 
 ditio possidentis" is the maxim in such case, both in law and equity. 
 
 W. 109, 37 L. R, A. 138, 65 Am. St. Rep. 22 (1897); Zinc-Carbonate Co. v. 
 First National Bank, 103 Wis. 125, 79 N. W. 229, 74 Am. St. Rep. 845 (1899) ; 
 Security National Bank v. St. Croix Power Co., 117 Wis. 211, 94 N. W. 74 
 (1903). 
 
 Bi Part of the opinion is omitted. 
 
310 POWERS AND LIABILITIES (Ch. 3 
 
 The rule applies as well wfien the subject matter of the contract is 
 malum prdhibitum, as when it is malum in se. In Aubert v. Maze, 
 2 Bos. & Pull. 371, the doctrine which applies in cases of malum 
 in se, was applied to a transaction prohibited by statute. In Watts 
 V. Brooks, 3 Ves. Jr. 612, the same doctrine was applied in equity. 
 In Ribbans v. Crickett, 1 Bos. & Pull. 264, under the statute pro- 
 hibiting the furnishing of, provisions to voters, the court refused 
 to enforce a contract by the defendant to pay for such provisions, 
 upon the ground that it was a contract to disobey the law. The 
 same principle runs through all the English cases. 
 
 The courts of this country have uniformly adopted the same prin- 
 ciple, and refused to assist either party in the enforcement of a con- 
 tract to violate the law. Mitchell v. Smith, 1 Bin. (Pa.) 110, 2 Am. 
 Dec. 417; s. c. 4 Dall. (Pa.) 269, 1 L. Ed. 828; Maybin v. Coulon, 
 4 Dall. (Pa.) 298, 1 L. Ed. 841 ; Duncanson v. McLure, 4 Dall. (Pa.) 
 308, 1 L. Ed. 845; Nichols' v. Ruggles,, 3 Day (Conn.) 14S, 3 Am. 
 Dec. 262 ; Pratt v. Adams, 7 Paige (N. Y.) 615 ; Armstrong v. Toler, 
 11 Wheat. 258, 6 E. Ed. 468; Hannay v. Eve, 3 Cranch, 242, 2 L. 
 Ed. 427; Patton v. Nicholson, 3 Wheat. 204, 4 L. Ed. 371; Ex'rs 
 of Cambioso v. Assignees of Maffett, 2 Wash. C. €.• 98, Fed. Cas. 
 No. 2,330; Bartle v. Nutt, 4 Pet. 18^, 7 E. Ed. 825; Craig v. State 
 of Missouri, 4 Pet. 410, 7 L. Ed. 903. 
 
 In Hunt V. Knickerbacker, 5 Johns. (N. Y.) 327, the rule is laid 
 down correctly, to be, that all contracts, which have for their object 
 any thing which is repugnaint to the general policy of the common 
 law, or contrary to the provisions of any statute, are void, and not 
 to be enforced. This was a contract to sell lottery tickets without 
 authority from the legislature of New York, which was rendered il- 
 legal by a law of that state; and the court refused to enforce the 
 contract. "No case, I believe, can be found," says Thompson, J., 
 "where an action has been sustained, which goes in affirmance of an 
 illegal contract." Burt v. Place, 6 Cow. 431. The inquiry as to the 
 character of the act to be done, is, whether it is rendered illegal. It 
 is, I apprehend, of no importance to determine what is the conse- 
 quence of the violation of the law to the parties,— whether it is visited 
 with punishment as a criminal act, or is attended with civil conse- 
 quences affecting the pecuniary interests of the parties, or whether 
 they are left to the mercy of each other. When once it is determined 
 that the act contracted to be done is prohibited by law, the court 
 will aiTord no aid. 
 
 There may be a difficulty in cases where contracts are made in 
 reference to matters but remotely tainted with immorality or illegal- 
 ity, and not the immediate subject of the undertaking of parties to 
 determine in what instances the principle should be applied; 'but 
 when the very act contracted to be done is itself illegal, there can 
 be no doubt of the application of the principle. 
 
 The Bank of Michigan contracted to obtain and convey a title to 
 
Sec. 3) ULTRA VIRES ACTS 311 
 
 real estate, under circumstances which made it a transaction pro- 
 hibited by the spirit and terms of its charter. The defendant, with 
 Icnowledge of ^ the unlawfulness of the transaction, (for the, charter is 
 declared to be a public act,) entered into the contract. Each party 
 to the contract put himself in the; power of the other ; and, as a court 
 of equity would not interfere to compel the bank to perform its 
 agreement, by buying and selling lands in violation of the law, so 
 aid cannot be afiforded to the bank to compel the defendant to per- 
 form on his part. The decree of the Chancellor sustaining the de- 
 murrer, must be affirmed."* 
 Decree affirmed. 
 
 WHITNEY ARMS CO. v. BARLOW. 
 (Court of Appeals of New York, 1875. 63 N. Y. 62, 20 Am. Rep. 504.) 
 
 The plaintiff is a corporation organized in the state of Connecticut, 
 as declared by its charter, for the purpose of manufacturing every 
 variety of firearms, and other implements of war. This action was 
 brought against the defendants as trustees of the American Seal Lock 
 Company, a corporation organized under the General Manufacturing 
 Act (chapter 40, Laws of 1848), to enforce the statutory liability to 
 pay the debts of said corporation because of an alleged failure to 
 make, publish and file annual reports. 
 
 Said corporation was organized in May, 1871. Its capital stock 
 was $300,000, all of which was issued to pay for certain patent rights 
 purchased by the company. No report was made and filed until 
 January 19, 1872,. when a report was. made, verified and filed con- 
 taining the following statement : 
 
 "The amount o^ the capital stock of this company, and which has 
 been issued for the purchase of patent rights and which has not 
 been paid in cash, is $300,000; amount of existing debts, $45,393.88." 
 
 A report, similar as to the statement of capital stock, was filed 
 January 18, 1873. On the 6th October, 1871, said corporation en- 
 tered into a contract with plaintiff by which the latter agreed to man- 
 ufacture and deliver 20,000 railroad locks to be paid for sixty days 
 after delivery. Plaintiff made and delivered 10,000 locks under the 
 contract when, by mutual agreement, the contract was suspended as 
 to the residue. The evidence as to the time of delivery was conflict- 
 ing and uncertain, but the balance of testimony was to the effect that 
 a few were delivered in Deceniber, 1871; the greater portion in 
 January, and a few in February, 1872. Two notes were given by 
 defendant's company for the purchase-price at two months, one dated 
 January 24, 1872. the other January 31, 1872. * * * 
 
 82 Compare Nassau Bank v. Jones, 95 N. Y. 115, 47 Am. Rep. 14 (1884); 
 Perkins v. Trinity Realty Co., 69 N. J. Eq. 723, 61 Atl. 167 (1905). 
 
312 POWERS AND LIABILITIES (Ch. 3 
 
 The court directed a verdict for the plaintiff for the amount of 
 the indebtedness, which was rendered accordingly." 
 
 AllBn, J." [After discussing the sufficiency of the reports filed 
 by the defendant company, the court proceeds:] As it is left in 
 doubt whether some portion of the debt did not accrue during the 
 default of 1871, and as other questions may arise, it is necessary to 
 consider the other objections taken by the appellant to the judgment. 
 
 It must be conceded that the manufacturing and vending of "rail- 
 road locks" is not within the purposes for which the plaintiff was 
 incorporated, or within the powers conferred by its charter. Neither 
 is such business incidental to the purposes of the incorporation, or 
 in -any way necessary to, or as far as appears even an aid in the ex- 
 ercise of the powers conferred upon the plaintiff by its constitution, 
 so that it could be regarded as among the implied powers granted 
 by the Legislature and assumed by the corporators. 
 
 Did the question now made arise upon an application by the 
 stockholders and corporators to restrain the corporate agents from 
 applying the corporate funds to purposes foreign to the corpora- 
 tion, or engaging in business outside of that for which the company 
 was formed, or on proceedings by the sovereign power to annul 
 the charter for an abuse of the powers granted, or in a proceeding 
 to enforce and for the performance of an executory contract, where, 
 upon a rescission ot annulling the agreement, both parties would 
 have the same position as if no contract had been made, the rules of 
 decision would be different from those which must prevail in the 
 present action. In either of the cases suggested it is very likely the 
 courts would be compelled to give full effect to the objection and 
 hold the business unauthorized and a violation of the charter, and a 
 forfeiture of the chartered rights and the contract null, and refuse 
 to perform it or give effect to it. The manufacture of the locks, or 
 contract to sell them to the Seal-Iyock Company, were not acts im- 
 moral in themselves or forbidden by any statute, neither mala in 
 sese or mala prohibita, so as to make the contract illegal and in- 
 capable of being the foundation of an action; such a contract as 
 the law will not recognize or enforce, but applying the maxim, ex 
 facto illicito non oritur actio, leave the parties as it finds them. 
 
 When acts of corporations are spoken of as ultra 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 con- 
 ferred upon the corporation by the act of its creation, and are in 
 violation of the trust reposed in the managing board by the share- 
 holders, that the affairs shall be managed and the funds applied solely 
 for carrying out the objects for which the corporation was created. 
 Earl of Shrewsbury v. North Staffordshire R. Co., L. R., 1 Eq. 593; 
 
 »8 Statement of facts abridged. »* A part of the opinion is omitted. 
 
Sec. 3) ULTRA VIRES ACTS 313 
 
 Tayler v. Chichester & Midhurst R. Co., L. R. 2 Exch. 356; Bissell 
 v.. Mich. C. R. Co., 22 N. Y. 2^8. 
 
 Whether the contract as originally made was ultra vires is not a 
 very important inquiry at this time. If it was, the State under whose- 
 sovereignty it dwells and by whose act and favor it exists, has no 
 interest in arresting its action for the recovery of moneys equitably 
 due upon a contract fully executed and a work fully accohiplished, 
 whatever may be its right to annul its charter. The shareholders 
 whose ' confidence has been abused and whose funds have been di- 
 verted from their proper use, have a 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 corporation. The plea of ultra vires 
 should not as a general rule prevail, whether interposed for or against 
 a corporation, when it would not advance justice, but on the con- 
 trary would accomplish a legal wrong. 
 
 Here as between two corporaltions, the debtor and creditor cor- 
 poration, the contract has been fully performed by the creditor, the 
 plaintifif in this action, and the Seal-Lock Company has received the 
 full consideration of its promise to pay. The plaintiff has parted 
 with its property to the latter corporation, and unless a legal liability 
 exists on the part of the latter to pay, the plaintiff can neither re- 
 claim the property nor recover compensation, and under this technical 
 plea a great wrong will be perpetrated. A purchaser who acquired 
 by contract, and under an agreement to pay for it the property of a 
 corporation cannot defeat the claim for the purchase-price by im- 
 peaching the right of the corporation to become the owner of the 
 property. One who has received from a corporation the full con- 
 sideration of his engagement to pay money either in services or 
 property, cannot avail himself of the objection that the contract thus 
 fully performed by the corporation was ultra vires, or not within 
 its chartered privileges and powers. It would be contrary to the 
 first {Principles of equity to allow such a defense to prevail in an ac- 
 tion by the corporation. 
 
 It is now very well settled that a corporation cannot avail itself of 
 the defense of ultra vires when the contract has been in good faith 
 fully performed by the other party, and the corporation has had the 
 full benefit of the performance and of the contract. If an action 
 cannot be brought directly upon the agreement, either equity will 
 grant relief or an action in some other form will prevail. The same 
 rule holds e converso. If the other party has had the benefit of a 
 contract fully performed by the corporation, he will not be heard to 
 object that the contract and performance were not within the legiti- 
 mate powers of the corporation. Ex parte Chippendale, 4 De G., M. 
 & G. 19; In re National P. B. Build. Soc, L. R. 5 Ch. App. 309; 
 In re Cork, etc., R.; Co., L. R. 4 Ch. App. 748 ; Fishmongers' Co. v. 
 . Robertson, 5 McG. 131. 
 
314 POWERS AND LIABILITIES (Ch. 3 
 
 The only justification for such a plea by an individualsued upon a 
 contract with a corporation is that the obligation is not mutual, as 
 the other party, the corporation, would not be bound by it. The 
 objection to such a defense in an action upon an executed contract 
 is given by Tindal, Ch. J., in the case last cited, in these words: 
 "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 entered,, 
 have received the consideration for their own promises; such prom- 
 ise by them is therefore not nudum pactum; they never can want 
 to sue the corporation upon the contract in order to enforce the per- 
 formance of their stipulations which have been already voluntarily 
 performed, and therefore no sound reason can be suggested why 
 they should justify their refusal to perform the stipulations made 
 by them on the ground of inability of the corporation, which suit 
 they can never want to sustain." * * * 
 
 In Jones v. Barlow, 62 N. Y. 202, we held that the liability of a 
 trustee, upon the failure of the corporation to malce the annual re- 
 port called for by the statute, was co-extensive and concurrent with 
 that of the corporation, quoad the debt which was sought to be 
 fixed upon him. That there must be not only an existing debt against 
 the corporation but a debt presently due, and for the recovery of 
 which an action would lie against the corporation; and that if the 
 corporation was not suable by reason of a novation or renewal of 
 the debt, an action Vould not lie against the trustee. We gave the 
 defendant the benefit of that rule. Applying the same principles 
 here, and for the reasons assigned in the prevailing opinion there 
 given, we are constrained to hold, that if a valid debt exists against 
 the corporation, to which there is no good defense in law pr equity in 
 behalf of the corporation, it must be adjudged and held a valid debt 
 where the trustee is sought -to be charged with its payment. This- 
 necessarily follows as the converse of the decision in Jones v. Barlow, 
 62 N. Y. 202. The first step is taken in establishing the liability of 
 the trustees where the facts proved would entitle the plaintiff to a 
 judgnient against the corporation for the debt in suit. That es- 
 tablishes the existence of a debt against the corporation ; and upon 
 proof of the other facts, viz. : the trusteeship and default in making 
 the report, the liability o^ the trustee is proven and judgment must 
 go against him. Other questions may arise in respect to the report 
 of 1873, and we do not pass upon that. 
 
 The judgment must be reversed and a new trial granted, costs to 
 abide event. All concur. 
 
 Judgment reversed."" 
 
 »6 Accord: Bath Gas Light Co. v. Qaffy, 151 N. Y. 24, 45 N. B. 390 36 L 
 R. A. 664 (1896) ; Camden & Atlantic R. K, Co. v. Mays Landing, etc., Co.j! 
 
Sec. 3) ULTRA VIRES ACTS 315 
 
 MARBLE CO. v. HARVEY. 
 
 <Supreme Court of Tennessee, 1892. 92 Tenn. 115, 20 S. W. 427, 18 li. R. A. 
 252, 36 Am. St. Rep. 71.) 
 
 LuRTON, J."' The complainant is an Ohio corporation, and was 
 organized, under the general incorporation law of that state, "for the 
 purpose of cutting, dressing, manufacturing, selling, and disposing of 
 marble, stone, slate, granite, and other substances, with such other 
 incidental and necessary powers essential to carrying on said busi- 
 ness." This company, with its place of business in Cincinnati, Ohio, 
 has acquired! the entire issues of shares made by a Tennessee cor- 
 poration engaged in a similar business, and under a similar charter, 
 and known as, the McMillin Marble Company. Its last acquisition 
 of shares was under a contract with the defendant, who was president 
 of the Tennessee company, and who owned at the time of the sale 
 25 shares, being one half of the entire stock of the company. These 
 shares he conveyed to a trustee selected by the purchasing corpora- 
 tion, for its use and benefit. The consideration for the sale was the 
 payment of $6,000, the defendant assuming and agreeing to person- 
 ally pay ofif and discharge one half of all liability which might be 
 fixed upon the McMillin Marble Company as a result of certain suits 
 against that company then pending in the courts of this state. 
 
 The bill alleges, and the evidence establishes, that the complainant 
 company has been compelled, in order to protect the property of the 
 McMillin Marble Company, 'to pay out about the sum of $3,000 in 
 the settlement and satisfaction of the claims in suit at time of its con- 
 tract with defendant. 
 
 The relief sought is a decree against defendant for one half this 
 sum, being the proportion he agreed to pay under the agreement of 
 sale. 
 
 The defense is that the contract of sale to the complainant com- 
 pany v^as unlawful and void, — that is to say, that the purchase of 
 
 48 N. J. Law 5.S0, 7 Atl. 523 (1^86) ; Seymour v. Chicago Guaranty Fund Life 
 Society, 54 Minn. 147, 55 N. W. 907 (1893). , 
 
 In Denver Fire Insurance Co. v. McClelland, 9 Colo. 11, 22, 9 Pac. 771, 
 776, 59 Ami Rep. 134 (1885), the court in sustaining a recovery on an ultra 
 vires insurance policy said: "We are aware that the courts have been very 
 slow to concede that a defendant setting up as a defense the ultra vires of 
 a contract, where said contract was clearly not authorized, should be held 
 liable on the contract, since this would appear to sustain the enforcement of 
 an unauthorized contract, and therefore the cases show that whenever the 
 courts could avoid this seeming inconsistency by resting the recovery upon 
 some other ground they have done so. This has often led to equal incon- 
 sistency in other directions. The true ground would seem to be that of equit- 
 able estoppel, whereby the defendant is not permitted to rely upon or ^ow 
 the invalidity of the contract. In such case, the contract is, assumed by the 
 <rourt to be valid, the party seeking to avoid it not "being permitted to attack 
 its character in this respect." 
 
 Be A part of the opinion is omitted. 
 
316 POWERS AND LIABILITIES (Ch. 3 
 
 these shares was outside the objects of its creation, as defined in its 
 charter, and is therefore such a contract as is not only voidable, but 
 wholly void, and of no legal effect; that it is not a case of exces- 
 sive use of a power granted, but that no power whatever ^yas con- 
 ferred to deal in or hold the shares of another corporation; that 
 the suit is one upon a void contract, and in furtherance of it, and 
 that it should not be entertained by a court of law or equity. 
 
 "The rule in the United States" says Mr. Green, the American 
 editor of Brice's Ultra Vires, "is that a corporation cannot become 
 a stockholder in another corporation unless by power specifically 
 granted by its charter or necessarily implied in it." Green's Brice's 
 Ultra Vires, 91, note b, and American cases cited. 
 
 "A corporation has no implied right to purchase shares in another 
 company for the purpose of controlling its management, nor may a 
 corporation hold shares in another company as an investment, un- 
 less this be the usual method of carrying on its proper business. A 
 corporation must carry on its business by its own agents, and not 
 through the agency of another corporation. It is clear, also, that 
 a corporation has no implied right to speculate in shares, unless this 
 be the kind of business for which the company was formed." 1 Mor. 
 Priv. Corp. § 431. 
 
 The evidence shows that the declared purpose of complainant in 
 buying in the shares held by the defendant was to enable it to manage 
 and control the business of the Tennessee company in the interest 
 of the Ohio company. There is no pretense that it had any express 
 power to purchase shares in another company, and it is too clear to 
 need argument or further citation of authority that it had no im- 
 plied authority to purchase and hold shares, either in its own name 
 or in that of a trustee, for the purpose of controlling another cor- 
 poration. That these corporations were engaged in a similar busi- 
 ness does not help the case. The purpose and intent in grariting a 
 charter is that the corporation shall carry on its business through 
 its own agents, and not through the agency of another corporation. 
 The public policy of this state will not permit the control of one 
 corporation by another. Especially is this true when a foreign cor- 
 poration thus undertakes to control and swallow up a domestic com- 
 pany. Such control of one corporation by another in a like busi- 
 ness is unlawful, as tending to monopoly. 
 
 The result is that this purchase of shares for the express object of 
 controlling and managing another corporation was ultra vires, and 
 therefore unlawful and void. Being void, it was of no legal effect, 
 and no rights result from it, enforceable by or through the courts of 
 this state, when such aid is invoked in furtherance of the unlawful 
 agreement. 
 
 But it has been insisted very earnestly by the able and learned 
 counsel for complainant that, when the contract has been fully Ex- 
 ecuted by the plaintiff, the defendant should not be permitted to 
 
Sec. 3) ULTRA VIRES ACTS .317 
 
 invoke such defense to a suit brought to compel performance; that 
 to permit such a defense would work injustice, and enable defendant 
 to repudiate his liability while holding on to the price he has receiv- 
 ed. There are cases where, the contract being fully executed on 
 both sides, the court, in the interest of justice, has refused to aid ei- 
 ther in obtaining a rescission. Arms Co. v. Barlow, 63 N. Y. 52, 20 
 Am. Rep. 504, is one of this class. So there are cases where 
 the defense of ultra vires has not been entertained when the defect 
 was in the mode of executing the contract or in the power of the 
 agent. 
 
 So there are many cases holding the party relying upon the defense 
 of ultra vires to an accountability for the benefits received. Green's 
 Brice's Ultra Vires, 717, and the note at end of chapter. 
 
 Again, there are cases where the courts have refused to entertain 
 suits to recover property from corporations which is held in excess 
 of charter capacity. In such cases the courts have held that the de- 
 fect in the power could not be set up in a collateral way, and that 
 the state only could complain of such violation. To this effect were 
 our own cases of Barrow v. Turnpike Co., 9 Humph. 304, and Heis- 
 kell V. Lodge, S7 Tenn. 668, 11. S. W. 825, 4 L,. R. A. 699. 
 
 The question here is not like any of these. The complainant sues 
 upon its contract, and in affirmance of it seeks to have the defend- 
 ant perform an agreement which sprang from and was collateral to 
 it. It has received the shares it purchased, and holds on to them. 
 It simply asks that the defendant be further compelled to perform its 
 contract, by contributing, in accordance with his agreement, his pro- 
 portion of the "liability paid off by complainant in protection of the 
 property of the McMillin Marble Company. The suit is clearly in 
 furtherance of the original unlawful and void contract. That the 
 contract has been executed by the plaintiff does not make it lawful, 
 or entitle it to an enforcement of it. 
 
 This proposition was very plainly put in Pittsburgh, C. & St. L. 
 Ry. Co. V. Keokuk & H. Bridge Co., where it was stated, as a re- 
 sult of all the previous discussions of that court upon the subject, that 
 "a contract made by a corporation, which is unlawful and void, be- 
 cause beyond the scope of its' corporate powers, does not, by being 
 carried into effect, become lawful and valid; but the proper remedy 
 of the party aggrieved is by disaffirming t^e contract, and suing to re- 
 cover, as on a quantum meruit, the value of what the defendant has 
 actually received." 131 U. S. 389, 9 Sup. Ct. Rep. 770, 33 L. Ed. 
 157. * * * 
 
 To sustain the suit as now presented would be in affirmance and 
 furtherance of an unlawful and void contract. It is in no sense a 
 suit in disaffirmance. 
 
 Whether complainant could tender back the shares received, and 
 maintain a suit to recover the money paid for the shares upon an 
 
318 POWBES AND LIABILITIES (Ch. 3 
 
 implied agreement to return money which the defendant had no right 
 to retain, is a question not presented upon this record. 
 
 The decree dismissing the bill must, upon the grounds herein stat- 
 ed, be, and accordingly is, affirmed." 
 
 III. Executed Contracts and Ultea Vires Leases 
 
 BLACKBURN & DISTRICT BEN. BLDG. SOCIETY v. CUN- 
 LIFFE, BROOKS & CO. . 
 
 (Supreme Court of Judicature, 1885. !>. R. 29 Ch. Div. 902.) 
 
 Cotton, L. J., now delivered the following judgment of the Court 
 (Brett, M. R., and Cotton and LindlEy, L. JJ.) : ^' 
 
 This is an action brought by the official liquidators of the Black- 
 burn & District Benefit Building Society against the bankers of the 
 society. In form the action is for an account, but in substance it 
 is to recover from the bankers moneys from time to time paid to them 
 by the society and applied by them towards discharging the bal- 
 ance alleged by the bankers to be due to them from the society upon 
 their banking account, which was considerably overdrawn. 
 
 The society is a benefit building society established in 1868 under 
 the Act 6 & 7 Will. IV, c. 32. It was never incorporated under 
 the Building Societies Act, 1874. On the 23rd of July, 1881, a peti- 
 tion was presented for ■v^inding up the society, and on the 25th of 
 October, 1881, it was ordered to be wound up. 
 
 The rules of the society were certified on the 7th of May, 1868, 
 and those rules did not authorize the directors to borrow money on 
 behalf of the society. 
 
 In 1874 the directors of the society, in accordance with one of 
 the rules (47) opened a banking account in the names of the trustees 
 of the society with the defendants. The account was headed "The 
 Trustees of the Blackburn and District Building Society, Broadbent 
 and Hutchinson, secretaries, in account current with Messrs. Cunliffe, 
 Brooks, & Co., Old Bank, Blackburn.*' ' 
 
 Into this account the moneys of the society were paid from time 
 to time as received, and on the other hand cheques were drawn upon 
 
 7 Accord: East Anglian Ey.'s Co. v. Eastern Counties Ry. Co., 11 O. B. 
 775 (1851); Oregon R. Co. v. Oregbnian R., Co., 130 U. S. 1, 9 Sup. Ct. 409, 
 32 L. Ed. 837 (1889) ; McCormiclc v. Market Nat. Bank, 165 V. S. 538, 17 Sup. 
 Ct. 433, 41 L. Ed. 817 (1897) ; California Bank v. Kennedy, 167 U. S. 362, 17 
 Sup. Ct. 831, 42 L. Ed. 198 (1896). 
 
 Compare Kadish v. G. C. E. L,. & B. Ass'n, 151 111. 531, 38 N. E. 236, 42 
 Am. St. Rep. 256 (1894) ; National Home Bldg. Ass'n v. Home Savings Bank, 
 181 111. 35, 54 N. E. 619, 64 L. R A. 399, 72 Am. St. Rep. 245 (1899). 
 
 68 Tacts sufficiently stated in the opthion, a part of which is omitted. 
 
Sec. 3) ULTRA VIRES ACTS 319 
 
 it -for the purposes of the society, or for what the directors consid- 
 ered to be such purposes. The account was sometimes overdrawn and 
 sometimes in credit. From the 6th of March, 1875, to the 3rd of 
 May, 1878, it was largely overdrawn. On the last mentioned day it 
 was in credit ; but after that day until the winding-up of the society 
 the account was always overdrawn. The overdraft often amounted 
 to. more than £ 10,000, but at the commencement of the winding-up 
 the account was only overdrawn to the extent of about £2,700, the 
 balance against the society having been reduced to' this amount by 
 payments made from time to time to the credit of the account. 
 
 The mortgage and other securities of the society appear to have 
 been kept from the first at its bankers for safe custody; but on the 
 27th of September, 1876, the directors signed a memorandum giviiig 
 the bankers a lien upon all the society's deeds and documents to 
 secure all moneys which from time to time might be owing by the 
 society to the bankers on the balance of the banking account. An- 
 nual balance-sheets shewing the amounts due to the bankers were 
 sent to all the members of the society. 
 
 In November, 1881, the liquidators of the society brought an ac- 
 tion against the bankers to recover the securities held by them, and 
 the Vice-Chancellor of the county palatine gave judgment in the 
 plaintiffs' favour, and ordered the bankers to deliver up the securities 
 they held. From this judgment the bankers appealed. The Court of 
 Appeal agreed with the Vice-Chancellor in thinking that the directors 
 of the society had no power to borrow money on the credit of the 
 society, or to give any security on the property of the society for 
 money borrowed; but the Court of Appeal held that the bankers 
 were entitled to a lien on the securities they held for such of their 
 advances (but for such only), as had been applied in payment of the 
 debts and liabilities of the society properly payable, and the Court of 
 Appeal accordingly reversed the order of the Vice-Chancellor, and 
 remitted the case back to him with various declarations and inquiries 
 based upon the above principle: see 22 Ch. Div. 61. From this deci- 
 sion the bankers appealed to the House of Lords, but their appeal 
 was unsuccessful: see 9 App. Cas. 857. 
 
 This litigation decided, in addition to the question already mention- 
 ed, that the bankers were not entitled to a lien for moneys paid by 
 the society to members who had withdrawn from the society, nor to 
 the benefit of moneys advanced by the society to borrowing mem- 
 bers on the ground that nothing ought to have been either paid to 
 withdrawing members or advanced to borrowing membiers out of 
 borrowed capital. 
 
 In directing the accounts and inquiries to give effect to the lien 
 of the bankers to the limited extent to which it was upheld, the 
 Court, amongst other things, declared that the bankers were to be 
 charged with all sums received by them on account' of the society 
 since the time when the society last ceased to have any balance stand- 
 
320 POWERS AND LIABILITIES (Ch. 3 
 
 ing to its credit on its account with the bankers, and that the bankers 
 were not to be allowed any sums advanced by them to the order or 
 on account of the society since the same time and applied by the so- 
 ciety otherwise than in paying debts and liabilities of the society prop- 
 erly payable. 
 
 The object of the present action is to go still further than_ before, 
 and -to compel the bankers to refund all moneys of the society ap- 
 plied by the bankers in discharge of their loan to the society. For 
 this purpose the liquidators of the society claim an account of all 
 moneys received and paid by the bankers for the society, with a dec- 
 laration that in taking the account the bankers are to be charged with 
 all sums received by them on account of the society since the date 
 when they were appointed bankers thereof, and that they are not 
 to be allowed any sums paid by way of overdraft, or otherwise by 
 way of loan, which have been applied otherwise than in payment of 
 the legitimate debts and liabilities of the society. 
 
 The action came on to be heard before the Vice-Chancellor of the 
 county palatine, and his decision was in favor of the liquidators and 
 against the bankers, and from his decision the bankers have ap- 
 pealed. 
 
 It was urged on behalf of the appeal that the moneys sought to 
 be recovered were applied by order of the directors in repayment of 
 the moneys borrowed under a mistake of law as to their power to 
 borrow, and that no one can recover money so paid voluntarily, or 
 money paid on an illegal contract. This is correct where the same 
 person who made the payment, or was party to the contract, seeks to 
 recover the money. But here the liquidators are suing on behalf 
 of the society, and complain that the directors, both in borrowing 
 and in directing the application of the moneys of the society, acted in 
 excess of the authority given to them; and that their acts do not 
 bind the society, and that the bankers knew that the directors had 
 no authority so to deal with the moneys of the society. This, in our 
 opinion, is correct, and consequently the acts of the directors were un- 
 authorized, and are not to be considered as acts of the society, and 
 this objection cannot, be maintained. 
 
 It was also urged by the appellants that the society was not a 
 corporation, that all the individuals who made up the society, by 
 seeing the accounts circulated, knew that the directors had borrow- 
 ed money, and were applying' the funds of the society in repaying 
 the money so borrowed, and that they must be taken to have ratified 
 the acts of the directors. But these acts were not within the scope 
 and objects of the society, so that no majority could even in general 
 meeting bind the minority present, or any absent member, and in our 
 opinion it would be wrong to hold that all members of the society, 
 from merely receiving the accounts, knew that the directors had bor- 
 rowed money from their bankers, and had authorized repayment out 
 of the funds of the society. For although this was a conclusion 
 
Sec. 3) ULTRA yiEBS ACTS 321 
 
 which would probably be drawn from a careful examination and 
 comparison of the accounts, it would, in our opinion, be wrong to 
 draw the conclusion that all members in fact understood that this 
 was the effect of the accounts, or even that they examined or read the 
 accounts. Even if they did, there was no ratification. For although 
 nothing was done to question the accounts, no other ratification was 
 alleged, and mere omission to question the accounts or acts of the 
 directors cannot properly be treated as ratification. The loans and 
 repayment were not stated as matters to be ratified, they were rep- 
 resented as, and considered to be, acts within the power of the di- 
 rectors, and there was no intention to ratify. In our opinion, there- 
 fore, it cannot be maintained that all the members of the society had 
 ratified the application of the money sought to be recovered. 
 
 Possibly the bankers may be able to prove that some of the mem- 
 bers not only knew of but intended to adopt and ratify the deal- 
 ings of the directors. This judgment in no way deals with and will 
 not prejudice such claim, if any, as the bankers may be advised to 
 make in respect of any moneys payable to such of the members, or 
 representatives of deceased members, as concurred in the dealings 
 of the directors with the moneys of the company. This is not ' a 
 question for decision in the present action. 
 
 On the main question the appellants, in our opinion, fail. * * * 
 
 PRESIDENT & VISITORS OF MARYLAND HOSPITAL v. 
 
 FOREMAN. 
 
 (Court of Appeals of Maryland, 1868. 29 Md. 524.) 
 
 On the 17th of April, 1863, Foreman paid to the Maryland Hospi- 
 tal through its superintendent $1,200 in consideration of the under- 
 taking of the latter to support Foreman's sister in the hospital during 
 life. Miss Foreman died on the 12th of August, 1864. Foreman 
 claimed that after deducting the expense of support during this inter- 
 val the balance of the $1,200 was rightfully payable to him, and the 
 present action was instituted to recover the same."® 
 
 Bartol, C. J."" This suit was instituted by the appellee to recov- 
 er money paid by him upon a contract alleged to be illegal and void. 
 At the first argument, heard near the close of the last term, the 
 validity of the contract, evidenced by the receipt dated the 17th of 
 April, 1863, was assailed chiefly on the ground that it was condemn- 
 ed by public policy, and was, therefore, illegal and void. The con- 
 tract having been executed, and there being no evidence whatever of 
 any duress, hardship or oppression practised upon the • party com- 
 plaining, there seemed to be great force in the objection that the 
 
 »» Statement of facts substituted. so A part of the opinion is omitted. 
 
 ElCH.COBP. — 21 
 
322 POWERS AND LIABILITIES (Ch- 3 
 
 plaintiff came too late to have the contract set aside, and that the 
 principle, in pari delicto, ought to be applied. * * * 
 
 The contract upon which the money was paid by the appellee hav- 
 ing been made by a corporation, the question lying at the basis of 
 the whole case is, whether the corporation possessed the power to 
 make such a contract. This depends upon the true construction 
 of the 44th article of the Code by which its powers are conferred 
 and defined. The only sections bearing upon the question before us 
 are the 7th and 9th. The 7th section provides that the President and 
 Visitors "may make, ordain, alter, amend and abolish all by-laws, 
 rules and regulations for the administration and government of the 
 hospital as they may deem beneficial and advantageous." The 9th 
 section provides that "they, or any number of them, not less than sev- 
 en, shall have power to prescribe such rules and regulations as they 
 may deem necessary for the management, government and regula- 
 tion of said hospital, and for the admission and discharge of per- 
 sons therein or therefrom, which rules and regulations shall be bind- 
 ing on all persons whatsoever." In our opinion, these sections cannot 
 be properly construed to confer on the appellants the power to make 
 the contract in question. They obviously refer first to the internal 
 policy and management of the hospital, and confer power to make 
 rules for its regulation and government; and, secondly, to make rules 
 for the reception and discharge of patients, and as incidental thereto, 
 the power to fix the terms or rate of compensation to be paid for 
 the nursing, attendance and care of patients. The contract before 
 us was not made under, or in conformity with, any such rule or reg- 
 ulation. It was in the nature of a life insurance, or a lottery, or wa- 
 ger contract, depending upon the duration of the life of the patient, 
 without regard to the duration of her unfortunate malady, and made 
 the loss or profit of the appellants depend upon the life or death of 
 the patient. The power to prescribe rules fixing the rate of compen- 
 sation for the care of insane patients, cannot, we think, be construed 
 into a power to make a speculative contract of that kind. 
 
 No principle is better established than that which limits corpora- 
 tions to the exercise of such powers only as are expressly granted by 
 law, and such as are necessary and usual in the course of their busi- 
 ness, to enable them to attain the purposes of their creation. No 
 express power to make the contract before us was conferred upon the 
 appellants, nor was it either usual or necessary in the course of their 
 business. The proof shows that it was unusual; no such contract 
 had ever before been made by them, and, in order to fix upon its 
 terms, they found it necessary to resort to the tables of life insur- 
 ance companies, compiled from calculations of the probable duration 
 of human life. The power to enter into contracts of that nature can- 
 not be inferred from the terms of the charter. 
 
 The President and Visitors of the Maryland Hospital are a cor- 
 poration established for the purpose of receiving insane patients, an 
 
Sec. 3) ' TJLTEA VIRES ACTS 323 
 
 unfortunate class of persons most helpless and dependent upon the 
 care and protection of those who have them in charge. The ob- 
 ject of the law in establishing the institution was to provide for its, 
 inmates such attention and treatment as will secure their comfort 
 and promote their cure. It was not designed that the appellants 
 should speculate upon the life or death of the patient, or enter into 
 a contract by which it might become the interest of the corporation 
 to shorten the life or protract the cure of the patient. It seems to 
 us that it would be contrary to public policy to confer such a power, 
 and, in the absence of express legislative grant, its existence will not 
 be inferred. In the opinion of this Court, the appellants had not the 
 power, under their charter*, to enter into the contract of the 17th of 
 April, 1863 ; it was made ultra vires ; was not binding upon them, 
 and could not have been enforced in favor of the appellee. Is he 
 entitled to recover back the money paid under it, or does the princi- 
 ple, in pari delicto apply? 
 
 If a contract be illegal in-'itself, or is in violation of some statute' 
 or against public morals. Courts of justice will not aid to enforce it, 
 for the Court will not contribute the means of infringing the law. 
 Merrick v. Trustees, etc., 8 Gill, 72 ; Bayne v. Suit, 1 Md. 86. Such 
 a contract, while it remains executory, may, in some cases, be dis- 
 affirmed by either party, and the money paid upon it recovered back. 
 But, after it has been executed, if it appear that the parties stand 
 strictly in pari delicto, it is too late for either to disaffirm or re- 
 scind it, and the parties are left without remedy against each other. 
 1 Story's Eq. Jur. § 298; 2 Parsons on Contracts, 252, 253; Sed- 
 wick V. Sedwick, 6 Gill, 39. 
 
 These principles are well settled, and apply where the contract is 
 in violation of some positive law, or involves moral turpitude; the 
 contract made between the appellants and the appellee is not one of 
 that kind; it was neither malum in se nor malum prohibitum; the 
 parties, therefore, cannot be said to be in pari delicto, for, in the 
 proper sense of the word, there- is no delictum. Here the objection, 
 which is fatal to the validity of the contract, is, that the power to 
 make it was not conferred upon the corporation by its charter, either 
 expi-essly or by implication. It was simply ultra vires, and, there- 
 fore, not bindings upon the parties. 
 
 To such a contract the principle in pari delicto does not apply ; but 
 if the party dealing with the corporation has paid money upon it, 
 he is entitled to recover it back. This point was very fully con- 
 sidered and discussed by the Supreme Court of New York in Tracy 
 V. Talmage, 14 N. Y. 162, 67 Am. Dec. 132, and in Curtis et al. v. 
 Leavitt, 15 N. Y. 9. 
 
 In the able and elaborate opinions of Judges Selden and Com- 
 stock in the former, and in the latter of Comstock, Selden and Paige, 
 Justices, many authorities are collected and reviewed, and the doc- 
 trine is asserted, that if a party makes a contract with a corporation, 
 
324 POWERS AND LIABILITIES (Ch. 3 
 
 which is simply beyond the powers of the latter, he may recover 
 back the money paid thereon, whether the contract be executed or 
 executory. "The contract in j,ll such cases will be regarded as void, 
 and the party who delivered the property or advanced the money to 
 such corporation will be entitled to his legal remedy, not founded 
 upon, but in repudiation of the contract to recover the property or the 
 money from the corporation, upon the principle that it had acquired 
 no right or title to either under the contract" 15 N. Y. 239. 
 
 We consider this rule as consonant with reason and sound public 
 policy, and supported by the weight of adjudged cases. This will 
 abundantly appear by reference to the authorities cited in the opin- 
 ions of the Judges, in Tracy v. Talmage and Curtis v. Leavitt, be- 
 fore referred to. We are therefore, of opinion that, upon the find- 
 ing by the jury of the facts stated in the prayer of the plaintiff be- 
 low, he was entitled to their verdict. By that prayer, the jury were 
 instructed that the plaintiff was entitled to recover the sum of $1,200 
 which had been paid by him under the contract, "less the amount 
 properly chargeable as a fair and reasonable allowance to the defend- 
 ants for the care and keeping of the lunatic during the period which 
 intervened between the 30th of June, 1863, and the 12th of August, 
 1864, the date of the lunatic's death." This being, in its nature, an 
 equitable action, the measure of the plaintiff's recovery must be deter- 
 mined upon equitable principles, the deduction or abatement was 
 therefore, properly allowed. , 
 
 Finding no error in the ruling of the Superior Court upon the 
 prayers, the judgment must be aiErmed. 
 
 Judgment afifirmed. 
 
 LONG V. GEORGIA PAC. RY. CO. 
 
 (Supreme Court of Alabama, 1890. 91 Ala. 519, 8 South. 706, 
 24 Am. St. Rep. 931.) 
 
 McClellan, J." The case made by the amended bill is this : On 
 April 23, 1883, the complainant, B. M. Long, and his wife, Amanda 
 C. Long, executed to the Georgia Pacific Railway Company a deed, 
 upon valuable consideration presently paid, to and of the iron, coal, 
 and oil interests and properties in and pertaining to certain tracts of 
 land, aggregating about 4,000 acres, the said Long retaining the fee 
 to said lands, except in respect to said mineral interests, and con- 
 tinuing in possession thereof. The grantee is a corporation, and was 
 and is without power to purchase and hold said land, or the mineral 
 interests in the same. The bill seeks to have the deed declared void 
 because of this incapacity of the corporation, and to have the same 
 canceled as a cloud upon complainant's title. The bill was demurred 
 
 81 Statement of facts omitted. 
 
Sec. 3) ULTRA VIRES ACTS 325 
 
 to on several grounds, and tKe demurrer was sustained generally, the 
 decree to that end being now assigned as error. 
 
 Only those grounds of error which present the question, whether a 
 vendor who has sold, received payment for, and conveyed land to 
 a corporation, which had no power to hold the same, can have any 
 relief in respect to the transaction, are discussed in argument, and to 
 these our consideration will be confined; since it is manifest that 
 the deterrhination of this question in line with the decree below, as 
 we think it must be determined, will be fatal, not only to the present 
 appeal, but to complainant's cause of action. < 
 
 It is thoroughly well-settled law that a party to an ultra vires ex- 
 ecutory contract, made with a corporation, is not estopped to set 
 up the want of corporate capacity in the premises either by the fact 
 of contracting, whereby the power to contract is in a sense admitted 
 or recognized, or by the fact that the fruits or issues of the contract 
 have been received and enjoyed; and this, though the assault upon 
 the transaction comes from the corporation itself. Bank v. Dunkin, 
 54 Ala. 471 ; Chambers v. Falkner, 65 Ala. 448 ; Sherwood v. Alvis, 
 83 Ala. 115, 3 South. 307, 3 Am. St. Rep. 695 ; L,ime Works v. Dis- 
 mukes, 87 Ala. 344, 6 South. 122, 5 L. R. A. 100. 
 
 But where the contract is fully executed, where whatever was con- 
 tracted to be done on either hand has been done, a different rule 
 prevails. In such case the law will not interfere, at the instance of 
 either party, to undo that which it was originally unlawful to do, and 
 to the doing of which, so long as the contract to that end remained 
 executory, neither party could have coerced the other. As declared 
 by Mr. Bishop, "the parties' voluntary doing of what they had un- 
 lawfully agreed places them, in effect, in the same "position as if the 
 contract had been originally good; neither can recover of the other 
 what was parted with; the reason for which is that, since they are 
 equally in fault, the law will help neither." Bish. Cont. § 627. 
 
 The former decisions of this court are in line with this doctrine, 
 and fully recognize the distinction between executory and executed 
 void contracts, to the effect that, while suits to enforce the former 
 may always be defended on the ground of their invalidity, no relief 
 prayed upon such ground can be granted with respect to the latter. 
 Morris v. Hall, 41 Ala. 510; IngersoU v. Campbell, 46 Ala. 282; 
 Sherwood v. Alvis, 83 Ala. 115, 3 South. 307, 3 Am. St. Rep. 695; 
 Dudley v. Collier, 87 Ala. 431, 6 South. 304, 13 Am. St. Rep. 55; 
 Craddock v. Mortgage Co., 88 Ala. 281, 7 South. 196. And this is 
 {he doctrine generally declared by other courts. Thomas v. Railroad 
 Co., 101 U. S. 71, 25 L. Ed. 950; Day v. Buggy Co., 57 Mich. 146, 
 23 N. W. 628, 58 Am. Rep. 352; Parish v. Wheeler, 22 N. Y. 494; 
 Ditch Co. V. Zellerbach, 37 Cal. 543, 606, 99 Am. Dec. 30; Terr^ 
 V. Lock Co., 47 Conn. 141 ! 
 
 There is no question but that the case presented by the bill in- 
 volved a contract on the part of the railway company to buy, and 
 
326 POWERS AND LIABILITIES (Ch. 3 
 
 on the part of the complainant to sell, certain interests in the land 
 described. It is equally clear that the payment of the agreed price on 
 the one hand, and the execution of the conveyance on the other, 
 fully executed this contract on both sides, left nothing to be done 
 by either party in the premises, and brings the transaction within 
 the principle we have been considering, which denies to complainant 
 any relief in respect to it. 
 
 The same conclusion is reached by another well-established prin- 
 ciple. It is that when a party sells and conveys property to a corpo- 
 ration, which is without power to purchase and hold the same, and 
 receives compensation therefor, there being no fraud in the trans- 
 action, he is in no sense injured or prejudiced by the incapacity of 
 the corporation, nor can he be heard to complain of it ; but the ques- 
 tion becomes one between the corporation and the state, the sover- 
 eign alone having the right to impeach the transaction; and, until 
 it supervenes for this purpose, the co;rporati9n is vested with per- 
 fect title against all the world, defeasible only on ofifice found. Rail- 
 road Co. V. Proctor, 29 Vt. 93 ; Leazure v. Hillegas, 7 Serg. & R. 
 (Pa.) 313; Goundie v. Water Co., 7 Pa. 233; Baird v. Bank, 11 
 Serg. & R. (Pa.) 411; Lathrop v. Bank, 8 Dana (Ky.) 114, 129, 33 
 Am. Dec. 481; Hough v. Land Co., 73 111. 23, 24 Am. Rep. 230; 
 Cowell V. Springs Co., 100 *U. S. 55, 25 L. Ed. 547; Reynolds v. 
 Bank, 112 U. S. 405, 413, 5 Sup. Ct. 213, 28 L. Ed. 733; 2 Mor. 
 Priv. Corp. § 710. 
 
 The decree of the chancellor is affirmed, and the same result is 
 reached in the case of B. L,. Jones and B. B. Long v. Georgia Pacific 
 Railway Company, submitted with this case, and involving the same 
 question. Affirn^ed. 
 
 BOYD V. AMERICAN CARBON BLACK CO. 
 (Supreme Court of Pennsylvania, 1897. 182 Pa. 206, 37 Atl. 937.) 
 
 Bill in equity by one Boyd against the American Carbon Black 
 Company, praying for the dissolution of a partnership existing be- 
 tween the parties, the appointment of a receiver and an accounting. 
 
 The agreements in question were made in 1891, and 1893, for the 
 manufacture of carbon gas black. Boyd had a one-fifth interest un- 
 der the first contract, and a one-half interest under the second. The 
 Carbon Black Company has entered into a combination with the 
 Columbian Black Company and refuses to carry out the partnership 
 agreement with Boyd. 
 
 Boyd is a stockholder and director in the American Carbon Black 
 Company. The trial court sustained a demurrer to the bill: ap- 
 peal.^'' 
 
 •2 Statement of fficts substituted. 
 
Sec. 3) : TILTEA VIRES ACTS 327 
 
 Dean, J." * * * Of course, the demurrer admits the truth of 
 the averments in plaintiff's bill. We have, then, the facts that the 
 contracts of partnership were made by the plaintiff with the corpora- 
 tion of which he was a stockholder and director, and a gross viola- 
 tion by defendants not only of the contract of partnership, but . of 
 the contracts made with him for the purchase of gas from his prem- 
 ises by the partnership. The principal reason given by the learned 
 judge of the court below for sustaining the demurrer is that the con- 
 tract of partnership by the corporation was ultra vires ; that no cor- 
 poration has authority to share its corporate management with nat- 
 ural persons, in a partnership; And for this, ample authority is 
 cited, and the rule cannot be questioned. 
 
 But, conceding, the full force of this rule, does it deprive the plain- 
 tiff, on the facts, of all remedy in equity? Assume that the partner- 
 ship has not now, and never had, a legal existence. That is only 
 because one of the partners had no power to enter into it. But, while 
 it had no legal existence, it had one in fact, and the other partner 
 fully performed. The corporation had the full benefit of the contract 
 up to the time it concluded th&t it was more profitable to violate 
 its agreements. 2,Beach, Priv. Corp. § 842, says: "It may be con- 
 sidered prima facie ultra vires for an incorporated company to enter 
 into a partnership with other persons." But all the authorities hold 
 that, notwithstanding the prima facie, if it be shown that the other 
 partner had fully performed his obligations under the contract this 
 plea will not avail. "A corporation may not avail itself of the de- 
 fense, ultra vires, when the contract has been in good faith fully per- 
 formed by the other party, and it has had the full benefit of the per- 
 formance and of the contract." 27 Am. & Eng. Enc. Law, p. 363 ; 
 Mor. Corp. § 688; Wrighf v. Pipe-Line Co., 101 Pa. 204, 47 Am. 
 Rep. 701 ; Oil Creek & A. R. R. Co. v. Pennsylvania Transp. Co., 
 83 Pa. 160. 
 
 Taking, as we must, every material averment of plaintiff's bill as 
 ' an admitted fact, the defense, if it should prevail, would work a pal- 
 pable injustice. While public policy demarids that the courts should 
 declare such contracts by corporations unlawful, and that they will 
 make ho decree which prolongs their life in fact for a single day, 
 every principle of equity commands that the corporation receiving a 
 benefit from such contract shall account for what it has received 
 from him who has fully performed. The contract is not malum in se, 
 but only malum prohibitum. It was illegal, but not iniquitous. If 
 the corporation has had the benefit of $15,000 paid by Boyd for the 
 construction of the second plant, has received the proceeds of the 
 manufactured product, has used and continues to use his gas, it 
 ought to and must account. It is wholly immaterial whether the 
 partnership be declared dissolved because it is illegal to carry it on, 
 
 •8 A part of the -opinion Is omitted. 
 
' 328 POWERS AND LIABILITIES (Ch. 3 
 
 or it be declared at an end in fact because of want of power on part 
 of the corporation to enter it ; in either case the plaintiff is entitled 
 to his property in possession of defendants, and whatever money 
 they have received more than their share. As they allege that the 
 contracts with plaintiff were illegal, they can claim no rights of pos- 
 session of the whole partnership assets, and plaintiff's property under 
 them, and must deliver them up to be canceled. 
 
 As to the agreement with the Columbian Company, the court be- 
 low properly held that, as that company was not a party to this suit, 
 no decree affecting it could be made. In so far as the American 
 Carbon-Black Company has made contracts with other parties in- 
 jurious to its stockholders, such contracts are not involved in rthis 
 issue. Plaintiff's plea here is as an individual member of an alleged 
 partnership, and our decree is on that issue alone. While the fact 
 that he was a stockholder and director in the corporation confers no 
 authority on the corporation to defraud him in partnership transac- 
 tions with itself, neither does that fact confer on him authority in 
 this issue to assert his rights as a stockholder. ' ' 
 
 It is possible, in the averments in the bill, plaintiff might have sus- 
 tained an action at law, but, at best, that form of remedy would have 
 been cumbersome and inconvenient, and therefore would not have 
 been adequate. Brush Electric Co.'s Appeal, 114 Pa. 574, 7 Atl. 794. 
 It is therefore directed that the decree of the court below, sustaining 
 the demurrer and dismissing the bill, be reversed, and that plaintiff's 
 bill be reinstated and taken pro confesso. Further, that the partner- 
 ship which was in fact entered into and carried on between plaintiff 
 and defendants under the three several agreements marked Exhibits 
 A, B, and C be declared at an end, and that said contracts be surren- 
 dered by defendants for cancellation; that an account be taken of "all 
 the rents, royalties, income, and profits due plaintiff from said de- 
 fendants, according to said contracts; that all the business of said 
 partnership in fact be wound up, and all the assets of the same be 
 turned into cash, and an account be then stated between the parties, 
 and distribution of the cash be made as in and by the said contracts 
 the parties have a right to demand; and that proper decrees for en- 
 forcing payment according to said distribution be made on the parties 
 by the court below. 
 
 It is further directed that under the equity rules a receiver be ap- 
 pointed by the court below to take into his possession the, in fact, 
 partnership property, books and accounts, to the end that a settle- 
 ment may be had of its business, and that such further and other 
 decree or decrees be entered by the court below as will promote 
 equity between the parties, in accordance with this opinion. It is 
 further ordered that appellees pay the costs of this appeal." 
 
 84 Accord: Wallerstein v. Ervin et al., 112 Fed. 124, 50 O. O. A. 129 (1901). 
 
Sec. 3) DLTKA VIRES ACTS 329 
 
 MALLORY V. H>i.NAUR OIL-WORKS. 
 (Supreme Court of Tennessee, 1888. 86 Tenn. 598, 8 S. W. 396.) 
 
 Action of .unlawful detainer 'brought by the Hanaur Oil-Works 
 against the defendants to recover possession of property surrendered 
 to the defendant^ under a combination or partnership agreement."^ 
 
 LuRTON, J.*' This is an action of unlawful detainer, brought by 
 the Hanaur Oil- Works, a corporation created under the general in- 
 corporation act of 1875, and engaged in the manufacture of cotton- 
 seed oil at Memphis, Tenn. 
 
 The facts which raise the question to be determined are these : In 
 July, 1884, a contract was entered into by and between four corpora- 
 tions engaged in manufacturing cotton-seed oil at Memphis, for the 
 formation of what is designated in the agreement as a "combination," 
 "syndicate," and partnership. The contracting mills agreed to select 
 a committee, composed of representatives from each corporation, and 
 to turn over to this committee the properties and machinery of each 
 mill, to be managed and operated by this committee, through officers, 
 agents, and employes selected by them, for the common benefit; the 
 profits and losses of such operations to be shared in proportions 
 agreed upon. This arrangement was to last one year, but, with con- 
 sent of all, might be renewed for two additional years; and, as ap- 
 pears, was at end of first year renewed for two other years, terminat- 
 ing August 1, 1887. 
 
 The facts clearly establish .that the possession of the several mills 
 was turned over to this executive committee, and they were operated 
 by these managers thenceforward under the name of the "Indepen- 
 dent Cotton-Seed Association." There was a provision in the con- 
 tract by which other mills were to be admitted by consent, and a fifth 
 corporation was in fact subsequently admitted. The Hanaur Oil- 
 Works was one of these contracting corporations; the contract 
 being authorized by both shareholders and directors. In July, 1886, 
 the business of the second year having been about concluded, the 
 board ol directors of the Hanaur Oil-Works passed a resolution 
 declaring this contract void, as being an agreement ultra vires, and 
 their president was instructed to take possession of their mill. There 
 is some proof tending to show that, upon demand of the president 
 of the defendant in error, the general superintendent of the "Inde- 
 pendent Cotton-Seed Association" surrendered possession of the 
 Hanaur mill to him, and agreed to hold for him, and that he after- 
 ward repudiated this agreement, by surrendering possession to Mr. 
 Mallory, one of the executive committee, who thereupon locked up 
 
 «» For a full statement of facts, see Mallory v. Hanaur Oil- Works, p. 260. 
 66 A part of the opinion is omitted. 
 
330 \ POWERS AND LIABILITIES (Ch. 3 
 
 the mill, and gave instructions to a watchman, in the employ of the 
 committee, not to admit the Hanaur officers. 
 
 [The Court, after holding the agreement is a partnership and ultra 
 vires, proceeds:] 
 
 It is next argued that if the contract be ultra vires, that it is an 
 executed contract, and that the courts will not in such case interfere. 
 This contract had yet a little over one year to run. The possession 
 of the Hanaur mills had been obtained under it, and was withheld 
 under a claim of right by reason of the supposed validity of the 
 partnership. 
 
 As to the unexpired time, during which the defendants in error 
 might be deprived of the use of their propertyi, and subjected to the 
 hazards of another year's operationsj it was not an executed contract. 
 The possession obtained under this contract was illegal, and it was 
 the duty of the officers of ,the Hanaur company to renounce the ar- 
 rangement and recover possession. There are cases where, an invalid 
 contract being fully executed, the courts will not entertain a suit to 
 recover money or property transferred under such agreement, or, if 
 they do interfere, will do so ,only upon equitable terms. But the de- 
 fense here made would result, if successful, in enforcing the perform- 
 ance of the unexeciited part of a void contract. It is not a case of 
 contract fully executed: The part remaining to be executed is a 
 material part, and is beyond the power of defendant in error to make 
 or sanction. Having entered into it, it was its duty to rescind or 
 abandon it. 
 
 In a case where a lease had been made by a railway company, for 
 a term of twenty years of its road and franchises, and which, after a 
 lapse of five years, it rescinded, and was thereupon sued for damages 
 under a clause in the lease which authorized rescission, and provided 
 for compensation for unexpired term, the supreme court of the 
 Ujiited States said: "It is not a case of a contract fully executed. 
 The very nature of the suit is to recover damages for non-perform- 
 ance. As to this it is not an executed contract. Not only so, but 
 it» is a contract forbidden by public policy, and beyond the power of 
 defendant to make. Having entered into the agreement, it was the 
 duty of the company to rescind or abandon it at the earliest mo- 
 ment. This duty was independent of, the clause which gave them the 
 right to do it. Though they delayed its performance several years, 
 it was nevertheless a rightful act when done. Can this performance 
 of a legal duty — a duty both to stockholders and to the public — give 
 to plaintiffs a right oiE action? Can they found such a right on an 
 agreement void for want of corporate authority and forbidden by the 
 policy of the law ? To hold that thpy can is, in our opinion, to hold 
 that any act performed in executing a void contract makes all its 
 parts valid, and that the more that is done under a contract forbidden 
 by law'the stronger is the claim to its "enforcement by the coufts." 
 Thomas v. Railroad Co., 101 U. S' 86,-25 t. Ed. 950.- 
 
Sec. 3) ULTRA VIBES ACTS 331 
 
 That the defendant in error has submitted to a void contract by 
 which it has been deprived of the use of, its property for two years, 
 furnishes no sound reason why it shall submit for three years. To 
 hold that it did would, be to apply the doctrine of part performance 
 in a way to perfect and legalize illegal contracts which were partly 
 performed. We have not deemed it necessary to consider the ques- 
 tion of the legality of such a combination of corporations as one tend- 
 ing to create a monopoly, for the ground upon which we place the 
 case needs no additional prop. The question of the validity of such 
 an arrangement is a very grave one, but need not now be considered. 
 
 The suggestion that, if this contract was void, yet nevertheless it 
 operated to convert the managers of the combination into tenants 
 from year to year, and that such tenancy could only be terminated 
 at end of a year, and upon six months' notice, is not tenable. The 
 relation of landlord and tenant never existed under the contract if it 
 be considered as valid, and could not spring from its illegality. The 
 Hanaur Mill Company had a right to repudiate the arrangement at 
 any time, and it was the duty of plaintiffs in error to have at once 
 surrendered possession. The service of a writ in a suit of unlawful 
 detainer was the only notice they could legally demand. When the 
 action of unlawful detainer will lie under our statutes, no other notice 
 than the suing out of a writ is necessary. Code Mill & V. § 4082. 
 
 The result is that we hold that there was no error in. the charge of 
 the circuit judge, or his refusal to charge, and the judgment must be 
 affirmed with costs. 
 
 FoLKES, J., having been of counsel, did not sit in this case.'^ 
 
 ST.^LOUIS, V. & T. H. R. CO, v. TERRE HAUTE & I. R. CO. 
 
 (Supreme Court of the United States, 1892. 145 U. S. 393, 12 Sup. Ct. 953, 
 
 36 L. Ed. 748.) 
 
 Gray, J.** The object of this suit between two railroad corpora- 
 tions, as stated in the amended bill, is to have a contract, by which 
 the plaintiff transferred its railroad and equipment, as well as its 
 franchise to maintain and operate the road, to the defendant for a 
 term of 999 years, set aside and canceled, as beyond the corporate 
 powers of one or both of the parties. * * * 
 
 In short, by this contract one railroad corporation undertook to 
 transfer its whole railroad and equipment, and its privilege and fran- 
 chise to maintain and operate the road, to another railroad corpora- 
 
 et See Atlantic & Pacific Telegraph Co. v. Union Pacific Ey. Co. (C. C.) 1 
 Fed. 745 (1880); Central Branch, Union Pacific Ey. Co. v. Western Unio^ 
 Telegraph Co. (C. C.) 3 Fed. 417 (1880) ; Western Union Telegraph Co. v. Bur- 
 lington & S. W. Ey. Co. (C. C.) 11 Fed. 1 (1882) ; McCutcheon v. Merz Capsule 
 Co., 71 Fed. 787, 19 C. C. A. 108, 31 L. E. A. 415 (1896). 
 
 68 Statement of facts ^nd a part of the opinion are omitted. 
 
332 POWERS AND LIABILITIES (Ch. 3 
 
 tion for a term of 999 years, in consideration o£ the payment from 
 time to time by the latter to the former of a certain portion of the 
 gross receipts. This was, in substance and effect, a lease of the rail- 
 road and franchise for a term of almost a thousand years, and was a 
 contract which neither corporation had the lawful power to enter 
 into, unless expressly authorized by the state which created it, and 
 which, if beyond the scope of the lawful powers of either corpora- 
 tion, was unlawful and wholly void, could not be ratified or validated 
 by either or both, and would support no action or suit by either 
 against the other. Thomas v. Railroad Co., 101 U. S. 71, 25 L. Ed. 
 950; Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U. 
 S. 290, 630, 6 Sup. Ct. 1094, 7 Sup. Ct. 24, 30 L. Ed. 83, 284;, Ore- 
 gon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U. S. 1, 9 Sup. Ct. 
 409; 32 L. Ed. 837; Central Transp. Co. v. Pullman's Palace Car 
 Co., 139 U. S. 24, 11 Sup. Ct. 478, 35 L. Ed. 55. 
 
 [After discussing the power of the corporation to make the lease, 
 he proceeds :] 
 
 It may therefore be assumed, as contended by the plaintiff, that 
 the contract in question was ultra vires of the defendant, and there- 
 fore did not bind either party, and neither party could have main- 
 tained a suit upon it, at law or in equity, against the other. 
 
 It does not, however, follow that this suit to set aside and cancel 
 the contract can be maintained. If it can, it is somewhat remarkable 
 that, in the repeated and full discussions which the doctrine of ultra 
 vires has undergone in the English courts within the last 50 years, ' 
 no attempt has been made to bring a suit like this. The only cases 
 cited in the elaborate briefs for the plaintiff, or which have come to 
 our notice, approaching this in their circumstances, are in American 
 courts not of last resort, and present no sufficient reasons for main- 
 taining this suit. Auburn Academy v. Strong, Hopk. Ch. (N. Y.) 
 278; Atlantic & P. Tel. Co. v. Union Pac. Ry. Co., 1 McCrary, 541, 
 1 Fed. 745 ; Western Union Tel. Co. v. St. ;[oseph & W. Ry. Co., 1 
 McCrary, 565, 3 Fed. 430 ; Union Bridge Co. v. Troy & L. R. Co., 
 7 Lans. <N. Y.) 240; Railway Co. v., Simpson (C. C.) 21 Fed. 533. 
 
 The English cases reUed on by the plaintiff were either suits to set 
 aside marriage brokage bonds, as in Drury v. Hooke, 1 Vern. 412, 
 and Smith v. Bruning, 2 Vern. 392, nom. Goldsmith v. Bruning, 1 
 Eq. Cas. Abr. 89-; or to recover back money paid for the purchase, 
 without leave of the crown, of a commission in the military or naval 
 service, as in Morris v. McCullock, Amb. 433, 2 Eden, 190. Those 
 cases have sometimes been justified upon the ground that, the agree- 
 ment being, against the pohcy of the law, the relief was given to the 
 public through the party. Debenham v. Ox, 1 Ves. Sr. 276; St. 
 John v. St. John, 11 Ves. 526, 536; Cone v. Russell, 48 N. J. Eq. 
 208, 21 Atl. 847. But Sir William Grant explained them as proceed- 
 ing upon the ground that the plaintiff was less guilty than the de- 
 fendant. Osborne v. Williams, 18 Ves. 379, 382. And Morris v. Mc- 
 
Sec. 3) ULTRA VIRES ACTS 333 
 
 CuUock can hardly be reconciled with his decision in Thomson v. 
 Thomson, 7 Ves. 470, or with the current of later authorities. 
 
 The general rule, in equity, as at law, is in "pari delicto potior est 
 conditio def endentis" ; and, therefore, neither party to an illegal con- 
 tract will be aided by the court, whether to enforce it, or to set it 
 aside. If the contract is illegal, affirmative relief against it will not 
 be granted, at law or in equity, unless the contract remains execu- 
 tory, or unless the parties are considered not in equal fault, as where 
 the law violated is intended for the coercion of the one party and the 
 protection of the other, or where there has been fraud or oppression 
 on the part of the defendant. Thomas v. Richmond, 12 Wall. 349, 
 355, 20 L. Ed. 453; Sj^rings Co. v. Knowlton, 103 U. S. 49, 26 L. 
 Ed. 347; Story, Eq. Jur. § 298. 
 
 While an unlawful contract, the parties to which are in pari delicto, 
 remains executory, its invalidity is a defense in a court of* law ; and 
 a court of equity will order its cancellation only as an equitable mode 
 of making that defense effectual, and when necessary for that pur- 
 pose. Adams, Eq. 175. Consequently, it is well settled, at the pres- 
 ent day, that a court of equity will not entertain jurisdiction to order 
 an instrument to be delivered up and canceled, upon the ground of 
 illegality appearing on its face, and when, therefore, there is no 
 danger that the lapse of time may deprive the party to be charged 
 upon it of his means of defense. Story, Eq. Jur. § 700a, and cases 
 cited; Simpson v. Howden, 3 Mylne & C. 97; Ayerst v. Jenkins, 
 U R. 16 Eq. 275, 282. 
 
 When the parties are in pari delicto, and the contract has been 
 fully executed on the part of the plaintiff, by the conveyance of 
 property, or by the payment of money, and has not been repudiated 
 by the defendant, it is now equally well settled that neither a court 
 of law nor a court of equity will assist the plaintiff to recover back 
 the property conveyed or money paid under the contract. Thomas 
 V. Richmond, above cited; Ayerst v. Jenkins, L,. R. 16 Eq. 275, 284.' 
 For instance, property conveyed pursuant to a contract made in 
 consideration of the compounding of a crime, and the stifling of a 
 criminal prosecution, and therefore clearly illegal, cannot be recovered 
 back at law, nor the conveyance set aside in equity, unless obtained 
 by such fraud or oppression on the part of the grantee that the 
 conveyance cannot be considered the voluntary act of the grantor. 
 Worcester v. Eaton, 11 Mass. 368, and 13 Mass. 371, 7 Am. Dec. 155; 
 Atwood v. Fisk, 101 Mass. 363, 100 Am. Dec. 124; Bryant v. Peck 
 & Whipple Co., 154 Mass. 460, 28 N. E. 678; Williams v. Bayley, 
 L. R. 1 H. L. 200; Jones v. Society, [1892] 1 Ch. 173, 182, 185, 187. 
 
 In the case at bar, the contract by which the plaintiff conveyed its 
 railroad" and franchise to the defendant for a term of 999 years was 
 beyond the defendant's corporate powers, and therefore unlawful and 
 void, of which the plaintiff was bound to take notice. The plain- 
 tiff stood in the position of alienating the powers which it had re- 
 
334 POWERS AND LIABILITIES (Ch. 3 
 
 Ceived from the state, and the duties which it owed to the public, to 
 another corporation, which it knew had no lawful capacity to exer- 
 cise those powers or to perform those duties. If, as the plaintiff 
 contends, the contract was also beyond its own corporate powers, it 
 is certainly in no better position. In either aspect of the case, the 
 plaintiff was in pari delicto with the defendant. The invalidity of the 
 contract, in view of the laws of which both parties were bound to 
 take notice, was apparent on its face. The contract has been^ fully 
 executed on the part of the plaintiff by the actual transfer of its rail- 
 road and franchise to the defendant; and the defendant has held the 
 property, and paid the stipulated consideration, from time to time, 
 for, 17 years, and has taken no steps to rescind or repudiate the 
 contract. 
 
 Upon this state of facts, for the reasons above stated, the plain- 
 tiff, considered as a party to the unlawful contract, has no right to 
 invoke the assistance of a court of equity, to set it aside. And so far 
 as the plaintiff corporation can be considered as representing the 
 stockholders, and seeking to protect their interests, it and they are 
 barred by laches. Harwood v. Railroad Co., 17 Wall. 78, 21 L. Ed. 
 558; Graham v. Railway Co., 2 Hall & T. 450, 2 Macn. & G. 146; 
 Pfook's V. Railway Co., 1 Smale & G. 142, 164; Gregory v. Patchett, 
 11 LawT. (N. S.) 357. 
 
 This case is not like those in which the defendant, having aban- 
 doned or refused to perform the unlawful contract, has been held 
 liable to the plaintiff, as upon an implied contract, for the value of 
 what it had received from him, and had no right to retain. Springs 
 Co. V. Knowlton, 103 U. S. 49, 26 L. Ed. 347 ; Bank v. Townsend, 
 139 U. S. 67, 11 Sup. Ct. 496, 35 L. Ed. 107, andi cases there cited. 
 
 But the case is one in which, in the words of Mr. Justice Miller, 
 in a case often cited in this opinion, the court will not disturb the 
 possession of the property that has passed under the contract, 'but 
 will refuse to interfere as the matter stands. Pennsylvania R. Co. v. 
 St. Louis, A. & T. H. R. Co., 118 U. S. 290, 316, 317, 6 Sup. Ct. 
 1094, 30 t. Ed. 83. See, also. Union Trust Co. v. Illinois M. Ry. 
 Co., 117 U. S. 434, 468, 469, 6 Sup. Ct. 809, 29 E. Ed. 963; Central 
 Transp. Co. v. Pullman's Palace Car Co., 139 U. S. 24, 56, 57,-61, 
 11 Sup. Ct. 478, 35 L. Ed. 55. 
 
 Decree affirmed."" ' 
 
 «» Compare Central Transportation Co. v. Pullman Co., 171 U. S. 138. 18 
 Sup. Ct 808, 43 L. Ed. 108 (1898). 
 
Sec. 3) ULTRA VIRES ACTS 335 
 
 IV. Ultra Vires Transfers as a Source op Title 
 
 D. & J. D. EDWARDS v. FAIRBANKS & OILMAN et al. 
 (Supreme Court of Louisiana, 1875. 27 La. Ann. 449.) 
 
 Morgan, J.'» D. & J, D. Edwards obtained judgment against 
 Fairbanks & Oilman for $17,609 45 for machinery furnished and 
 work and labor performed in a refinery which is alleged to belong to 
 the defendants. 
 
 Under execution the machinery was seized. Subsequently, certain 
 sugars and molasses found in the refinery, and which had been re- 
 fined there, were also seized. 
 
 The New Orleans Mutual Insurance Company claim that the ma- 
 chinery seized belongs to them. Cavaroc & Son aver that the su- 
 gars and molasses seized are their property. The insurance company 
 claims the property under a notarial act, dated November 8, 1872, 
 in which it is declared by Fairbanks & Oilman that they had sold 
 certain machinery, etc., which is detailed in the act, to the company 
 for $25,000, reserving to themselves the right of redemption within 
 three years on the .repayment of the like sum. 
 
 By the same act the machinery, etc., was to remain in the posses- 
 ' sion of Fairbanks & Oilman; the building in which it was located 
 was rented to them for several years upon their paying a monthly 
 rent therefor. To which the plaintiffs answer that, as an insurance 
 company, the laws of Louisiana will not permit them to enter into 
 any such contract as that now set up, and that the contract now in- 
 sisted upon being in direct violation of their charter, as well as the 
 law, can not be enforced against any third person not party or privy 
 to it, who has rights independent of it, and growing out of it. 
 
 It may be admitted that the company had no right to purchase the 
 property in question from Fairbanks & Oilman. Does that make 
 the property liable to Fairbanks & Oilman's creditors in payment of 
 their debts? We think not. If the company did any thing con- 
 trary to law, the result might be a forfeiture of its charter. But we 
 do not understand the law to be that if a corporation acquires prop- 
 erty in a manner even prohibited by law, the property thus acquired 
 still belongs to the vendor who has received his price, and that it 
 can be seized by his creditors to pay his debts. * * * ti 
 
 70 a part of the opinion is omitted. 
 
 71 The dissenting opinion of Wyly, J., is omitted. 
 
336 POWERS AND LIABILITIES (Ch, 3 
 
 LEAZURE V. HILI.EGAS. 
 (Supreme Court of Pennsylvania, 1821. 7 Serg. & E. 313.) 
 
 TiLGHMAN, C. ].'" Frederick Hillegas, the plaintiff below (who is 
 defendant in error), claimed the land in dispute under a warrant and 
 survey to Thomas Holt, who conveyed to George Armstrong, who 
 conveyed to William Henry, who conveyed to the Bank of North 
 America, who conveyed to James Ross, who conveyed to the plain- 
 tiff. On the trialof the cause several exceptions were taken to the 
 opinion of the Court on points of evidence, on which exceptions 
 this Court is now to decide. [After discussing the exceptions to the 
 admission of certain documentary evidence, the court proceeds:] 
 
 But the great points in this cause are the capacity of the bank to 
 take the land conveyed by William Henry's deed, and afterwards 
 to convey the same to James Ross. There is no doubt that a corpora- 
 tion must be governed by the charter from which it derives its ex- 
 istence. It can do no act nor take any estate contrary to its char- 
 ter. If therefore it can be shown that the Bank of North America 
 is forbidden by its charter either to take or to convey the land con- 
 tained in William Henry's deed, the plaintiff's action cannot be sup- 
 ported. By the 3d section of the Act of Incorporation (17th of 
 March, 1787, 2 Sm. 1,. 399), the bank is made capable "to have, hold, 
 purchase, receive, possess, enjoy, and retain lands, rents, tenements, 
 goods, chattels, and effects of . whatsoever kind, nature, or quality, to 
 the amount of two millions of dollars and no more, and also to 
 sell, grant, etc., the same lands, etc. Provided nevertheless, that such 
 lands and tenements, which the said corporation are hereby enabled 
 to purchase and hold, shall only extend to such lot and lots of ground,^ 
 and convenient buildings, and improvements thereon erected or to be 
 erected, which they may find necessary and proper for carrying on the 
 business of the said bank, and shall actually occupy for that purpose^ 
 and to such lands and tenements which are or may be bona fide mort- 
 gaged to them as securities for their debts." 
 
 It is remarkable, that with regard to the holding of lands, the 
 charter of this bank is more restricted than that of any other bank 
 in the State, for all the others are enabled to hold, not only the 
 lailds which have been bona fide mortgaged to them by way of secu- 
 rity for debts, but also those "which may be conveyed to them in sat- 
 isfaction of debts previously contracted in the course of their busi- 
 ness, or purchased at sales upon judgments which shall have been 
 obtained for such debts." This difference of restriction must have 
 arisen from the extreme jealousy of moneyed corporations which per- 
 vaded the mind of the Legislature when the Bank of North America 
 was incorporated. It never could have been intended to place that 
 
 72 Facts sufficiently stated in the opinion, a part of which Is omitted 
 
Sec. 3) ULTRA VIEBS ACTS 337 
 
 bank on a worse footing than others, for it was the only one which 
 risked its capital on a field altogether untried in America, and which 
 had the merit of rendering essential service to the United States 
 during the War of the Revolution. It would be improper therefore 
 to carry the restriction by construction further than the words of the 
 law plainly import. 
 
 The restriction is that the bant shall not purchase and hold. Pur- 
 chasing and holding are very different things, and the consequences 
 of each are very different. If the words had been that the bank 
 should neither purchase nor hold, then it could have done neither one 
 nor the other. But although purchasing and holding might have been 
 thought dangerous, because of the power which it would have giv- 
 en the bank to bring too much land into mortmain, yet to purchase, 
 subject to the statutes of mortmain, which authorized the Common- 
 wealth to appropriate the land to its own use, could be attended with 
 no danger. This construction would satisfy the jealous policy of 
 the Legislature, preserve the community from the danger of too great 
 a mass of real property held in mortmain, and at the same time put it 
 in the power of the Commonwealth to act towards the bank as jus- 
 tice might seem to require. This is a consideration of no small im- 
 portance; for when the directors of the bank accepted from Wil- 
 liam Henry a conveyance of his land at a fair price, in payment of 
 a debt bona fide due, it would be hard to presume that they knew 
 they were acting in violation of their charter. 
 
 But granting that the restriction in the charter did not extend to 
 the simple act of purchasing, it may be asked, whence did the cor- 
 poration derive the right to purchase, and what would be the situation 
 of land purchased without a capacity of holding? The answer is 
 that a corporation has from its nature a right to purchase lands, 
 though the charter contains no license to that purpose. And in this 
 respect the statutes of mortmain have not altered the law, except in 
 case of superstitious uses. But since those statutes, it is necessary, 
 in order to, enable a corporation to retain lands which it has pur- 
 chased, to have a license for that purpose; otherwise, in England, 
 the next lord of the fee may enter within a year after the aliena- 
 tion, and if he do not, then the next immediate lord, from time to 
 time, has half a year to enter, and for default of all the mesne lords 
 the king takes the land so aliened forever. That this is the law 
 appears from the following authorities : 2 Black. Com. 268, 269 ; Co. 
 Lit. 2; 6 Vin. Ab. 265 (G. pi. 2), id. 266, pi. 8; Jenk. Cent. 270; 3 
 Com. Dig. 399 (f. 10), id. 401 (f. 15); 1 Rol. Ab. 513, I. 35; 10 Co. 
 30. But in Pennsylvania, where there are no mesne lords, the right 
 would accrue immediately to the Commonwealth. 
 
 It has been objected, however, that according to the report of 
 the Judges of this Court, made on the 14th December, 1808, in pur- 
 suance of an Act of Assembly requiring them to make a report of the 
 English statutes which are in force in the Commonwealth, etc., it 
 
 BiCH.GOBF. — ^22 
 
338 POWERS AND LIABILITIES (Ch. 3 
 
 appears that all conveyances of land to a corporation without license 
 are absolutely void. I will consider this objection. The Judges re- 
 ported the following statutes of mortmain : "7 Ed. I (Stat. 2), 13 Ed. 
 I, c. 32, 15 Rich. II, c. 5, and 23 Hen. VIII, c- 10, which are in 
 part inapplicable to this country and in part applicable and in 
 force. They are so far in force that all conveyances by deed 
 or will of lands, tenements, or hereditaments, made to a body 
 corporate, are void, unless sanctioned by charter or Act of Assem- 
 bly. So also are all such conveyances void made either to an in- 
 dividual or to any number of persons associated, but not incorpo- 
 rated, if the said conveyances are for uses or purposes of a supersti- 
 tious nature, and not calculated to promote objects of charity or util- 
 ity." I have quoted the words of the report, and it is evident that 
 the Judges could have no intent nor had they power to make any 
 addition to the statutes, or in any manner to alter them. 
 
 Now, by reference to the statutes, it will appear that in all of them 
 except, the 23 Hen. VIII, c. 10, the conveyance is not absolutely 
 void, but the estate passes to the corporation, subject as before men- 
 tioned to the right of the several mesne lords, and, in their default, 
 of the king, to enter and hold in fee. But by the statute of 23 Hen. 
 VIII, c. 10 (which has been determined to extend to superstitious 
 uses only, see 2 Black. Com. 273, 1 Co. Rep. 24), uses and trusts 
 made and contrived in favor of religious persons or any bodies cor- 
 porate for more than twenty years, shall be utterly void. Now the 
 meaning of the report of the Judges is that according to the statute 
 cited by them, conveyances to superstitious uses are absolutely void, 
 and conveyances to corporations, to uses not superstitious, are' so far 
 void that these corporations shall have no capacity to hold the es- 
 tates for their own benefit, but subject to the rights of the Com- 
 monwealth, who may appropriate them to its own use at pleasure ; in 
 other words, that such conveyances have no validity for the' pur- 
 pose of enabling the corporation to hold in mortmain. 
 
 But to support the plaintiff's title, it must be shown that the cor- 
 poration had power, not only to take by purchase, but to alien. In 
 this respect, I consider a corporation in the situation of an alien, who 
 has power tOitake, but not to hold. That an alien may take by pur- 
 chase (though not by descent), has been settled, from the earliest times. 
 It is so laid down in Co. Lit. 2, and I believe has never been ques- 
 tioned. Neither has it been questioned that the land is subject to 
 forfeiture, and may be seized for the king after office found. But it 
 has been questioned what is the right of the alien before office found 
 for the king. 
 
 Without reference to English cases which leave the matter in 
 doubt, we have the highest authority in our own country for saying 
 that until some act done by the Commonwealth according to its own 
 laws to vest the estate in itself, it remains in the alien, who may con- 
 vey it to a purchaser, but he can convey no estate which is not de- 
 
Sec. 3) ULTRA VIRES ACTS 339 
 
 feasible by the Commonwealth. This principle was asserted by Judge 
 Story, who delivered the opinion of the Supreme Court of the United 
 States in the case of Fairfax's Devisee v. Hunter's Lessee, 7 Cranch, 
 603, 3 L. Ed. 453, and this was the opinion of the Supreme Court 
 of Massachusetts in the case of Sheaffe v. O'Neil, 1 Mass. 256, cited 
 by Judge Story. 
 
 It is reasonable in theory, and can have no ill effect in practice, 
 that he who has a defeasible estate may convey a defeasible estate. 
 Provided the right of the Commonwealth to defeat the estate grant- 
 ed by the alien remains entire, it is immaterial who holds the land 
 until that right be prosecuted. Supposing, then, that the cases of tKfe 
 alien and the corporation be similar (and I see not how they can be 
 distinguished), it follows that the deed from the Bank of North 
 America to James Ross, conveyed a fee simple, defeasible by the 
 Commonwealth. * * * 
 
 Upon the whole, I am of opinion that there was error in admitting 
 the deed from the Bank of North America to James Ross without 
 proof of the corporate seal, and that there is no other error in the 
 record. The judgment is therefore to be reversed, and a venire fa- 
 cias de novo awarded.''' 
 
 Judgment reversed, and a venire facias de novo awarded. 
 
 MADISON, W. & M. PLANK ROAD CO. v. WATERTOWN & 
 P. PLANK ROAD CO. 
 
 (Supreme Court of Wisconsin, 1859. 7 Wis. 59.) 
 
 Bill in Equity to recover payments made by the Madison Company 
 on account of a guaranty given to certain creditors of the Watertown 
 Company at the request of the latter company, and to foreclose a 
 mortgage given by the Watertown Company to the Madison Company 
 to secure the guaranty. The Madison Company was chartered to build 
 and operate a plank road from Milwaukee to Madison, which road 
 was completed to Watertown. The Watertown Company was char- 
 tered to buildl and operate a plank road, from Watertown to Port- 
 land and westward. The guaranty in question was given to enable 
 the Watertown Company to borrow money for the extension of its 
 road. The latter Company defaulted on the loan and the Madison 
 Company paid the same under its guaranty. The present action is 
 to recover the amount so paid and foreclose the mortgage given as 
 security.'* 
 
 Whiton, C. J. However ungenerous it may seem, (to give the con- 
 d'uct of these defendants no harsher name,) for the defendants to re- 
 
 J 8 See Banks v. Poitiaux, 24 Va. 136, 15 Am. Dec. 706 (1825). 
 I* Statement of facts substituted. 
 
340 POWERS AND LIABILITIES (Ch. 3 
 
 fuse to pay the money which the plaintiffs have paid on their guaranty, 
 we are of the opinion that this bill cannot be sustained. The charter 
 of the plaintiffs conferred only the ordinary powers necessary for the 
 purpose of constructing their road. It gave no more. Indeed, it is 
 not contended that the guaranty which the plaintiffs acquired was ex- 
 pressly authorized by the charter; but it is contended, that as the 
 guaranty was made for the purpose of enabling the Watertown & 
 Portland Plank Road Company to construct their road "westwardly 
 from Watertown along a route and through a district of, country so 
 nearly identical with that along and through which said complainants 
 were authorized to extend their road from Watertown westward" that 
 the power to make the guaranty for such a purpose may be fairly in- 
 ferred from the general powers given to build their own road. 
 
 We do not think that the facts stated authorize any such inference. 
 The complainants were authorized by their charter, and the amend- 
 ments made to it, to construct their rpad from Milwaukee to Madison. 
 They had completed the road from Milwaukee as far as Watertown, 
 on the way to Madison. Instead of building the road between the 
 last two named places, they (as stated in the bill) "determined to leave 
 the field west of Watertown, at least temporarily, to the other com- 
 pany." That is to say, the complainants signed a guaranty for the 
 purpose of enabling the Watertown & Portland Plank Road Com- 
 pany to borrow money with which to construct a road westwardly 
 from Watertown, on a route nearly identical with their own, and 
 abandoned, at least temporarily, the construction of the remainder 
 of their road. 
 
 It is to be remembered that the bill does not allege that the route 
 of the road which the Watertown & Portland Plank Road Company 
 was to construct, extended to Madison, or that the road was in any 
 way intended to connect the last mentioned town with Watertown 
 or Milwaukee. In our opinion, the signing of the guaranty by the 
 complainants, for the purpose stated in the bill, was clearly without 
 authority, and created no legal obligation. It has not been contended 
 by the complainants that a corporation could enforce a contract which 
 it was not authorized to make by its charter ; we shall therefore cite 
 but few authorities upon the contrary dbptrine. Angell & Ames on 
 Corporations, §§ 111, 256, 258, 273, 391, 392, 393; Bank of Augusta 
 V. Earle, 13 Pet. 587, 10 ly. Ed. 274; People v. Utica Insurance Co., 
 15 Johns. (N. Y.) 383 ; Bank of U. S. v. Dandridge, 12 Wheat. 68, 
 6 L,. Ed. 552; Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. 
 Ed. 629. 
 
 But the counsel for the complainants contends that "the defendants 
 have had the money for which the bills and mortgage were given, for 
 a lawful purpose ; and it is inequitable and fraudulent for them now 
 to set up the act of the plaintiff in aiding them to get the money or 
 in paying it when it became due to Cramer and Birchard, to defeat a 
 recovery upon their mortgage." 
 
Sec. 3) TTLTEA VIEBS ACTS 341 
 
 We do not think this view of the matter changes the legal rights 
 of the parties. The plaintiff of course was aware of the extent of 
 its own power. Those who managed the affairs of the corporation 
 must have known that it had no authority to guaranty the payment 
 of the not-es or bonds of third persons, and that if they attempted to 
 do so, no legal obligation could result from such attempt. 
 
 The payment of the money under such circumstances by the plain- 
 tiff was a payment in their own wrong, for -which they cannot charge 
 the defendants. The counsel for the complainants also claims that 
 this contract of the complainants has been executed, and that, as it 
 was not illegal, but at least only unauthorized by the charter of the 
 company, the court should pot now interfere to set it aside, after the 
 defendants have reaped all its benefits, although, perhaps, it could not 
 have been enforced. We cannot view the matter in this light. The 
 contract, so far as it is relied upon for^he purpose of affecting the 
 defendants, is not executed, but executory merely. It is the founda- 
 tion of the first action. The complainants seek to recover upon it, andl 
 upon it alone. We must regard it as wholly insufficient to authorize 
 the action, and must therefore reverse the order of the circuit court. 
 Order reversed and cause remanded for further proceedings.'* 
 
 ST. PETER'S ROMAN CATHOLIC CONGREGATION v. 
 
 GERMAIN. 
 
 (Supreme Court of Illinois, 1882. 104 111. 440.) 
 
 MuLKEY, J.''" The St. Peter's Roman Catholic Congregation 
 brought to the February term, 1882, an action of ejectment, against 
 Nicholas Germain, for the recovery of a valuable tract of land, sit- 
 uate in St. Clair county, consisting of about eighty acres. There was 
 a judgment for the defendant in the court below, and the plaintiff 
 brings the case here for review. 
 
 It appears, from a stipulation of the parties, that Catharine Agnes 
 Germain, being the owner in fee of the premises, on ,the 2d day of 
 November, 1878, executed knd delivered to the plaintiff a deed there- 
 for, properly acknowledged, and purporting to convey the same; 
 that the plaintiff is, and was at the time of the conveyance, a reli- 
 gious ' corporation, organized and existing under the act of March 8, 
 1869, entitled "An act to provide for the holding of Roman Catholic 
 churches, cemeteries, colleges, and other property" (Laws 1869, p. 
 67) ; and that at the time of said conveyance the plaintiff owned and 
 
 T6 Contra: Perkins v. Trinity Realty do., 69 N. J. Bq, 723, 61 Atl. 167 
 (1905), semble; Savings Trust Co. v. Bear Valley Irr. Co. (O. O.) 112 Fed. 
 693 (1902), semble. 
 
 76 Facts sufficiraitly stated in the opinion. 
 
342 POWERS AND LIABILITIES (Ch. 3 
 
 occupied more than ten acres of land in St. Clair county, exclusive 
 of the land described in the deed. 
 
 Under these facts the question is presented — and indeed this is the 
 only question in the case — ^whether the title to the land in dispute 
 passed by the deed from Catharine Germain to the plaintiff. No 
 question is mad-e by counsel for defendant in error as to the form or 
 sufficiency of the deed, or the manner in which it was obtained, or 
 with respect to the right or power of the gra^^tol- to convey, but the 
 only question made is as to the capacity of the plaintiff in error to 
 take under the deed. The determination of this question depends 
 upon the construction that rtiust be given to the statutes then in _ 
 force authorizing religious corporations to acquire lands in this State. 
 By the 2d section of the act of 1869, above mentioned, religious so- 
 cieties organized under it are authorized "to receive, hold, dispose of, 
 and convey, any kind of property," and by the 10th section the act 
 is declared to be "subject to any limitation or modification which 
 may hereafter be enacted by general law as to the amount of real 
 estate to be held by the corporations, respectively, provided for here- 
 in." It will be perceived this act contains no limitaticjn as to the 
 quantity of lands religious societies incorporated under it may "re- 
 ceive" and "hold," but, as we have just seen, the legislature, by the 
 10th section, reserves the right to Umit and modify the amount "to 
 be held" by them. 
 
 At' the time of the adoption of this act the 44th section of chapter 
 25, Revised Statutes 1845, entitled "Corporations," was in force, 
 which authorized any religious society or corporation then existing, 
 or Which might thereafter be formed, "to receive, by gift, devise or 
 purchase, any quantity of land not exceeding ten acres," etc. This 
 act continued in force until in 1872 (Laws 18?l-72, p. 296), when it 
 was repealed, and section 42, of chapter 32, of the present revision, 
 was adopted in its stead, which provides, that "any corporation that 
 may be formed for religious purposes under this act, or under any 
 law of this State, for the incorporation of religious societies, may re- 
 ceive, by gift, devise or purchase, land not exceeding ten acres," etc. 
 By comparing tjie two sections it will be perceived that so far as 
 the present inquiry is concerned, they are substantially the same, so 
 that the adoption of the latter section was in effect merely continuing 
 in force the' former. This being so, it follows that in determining 
 what, if any, effect the latter section had on the conveyance in ques- 
 tion, it must be treated precisely as if it existed at the time of the 
 adoption of the act of 1869. 
 
 The question then arises, assuming, as we do, the limitation con- 
 tained in these two sections was in force at the time of the adoption 
 of the act of 1869, and that it has continued to be in force ever since, 
 what, if any, effect did it have on the conveyance in question? As 
 already observed, the act of 1869 contains no limitation upon the 
 power of a religious socifety or corporation organized under it to ac- 
 
Sec. 3) ULTRA VIRES ACTS 343 
 
 quire real estate, and if that act is to be given eflfect without regard 
 to the limitation contained in the two sections we have been consider- 
 ing, it is clear the title to the land in question passed by the deed. 
 But can such a construction of these acts be maintained upon legal 
 principles? Both of the sections containing the limitation are un- 
 doubtedly conceived in terms sufficiently broad and comprehensive to 
 include religious corporations organized under the act of 1869, as 
 well as others, and no reason has been suggested, nor are we able to 
 perceive any, why they do not so include them. 
 
 Would not religious societies organized under other acts have the 
 same right, and with the same show of reason, to contend that they 
 do not fall within the limitation? And if they are to be excluded 
 from its operation also, what effect could be given to it? We see no 
 fair, reasonable or just mode of enforcing the limitation, except by 
 extending it to all religious societies alike. In doing so we but con- 
 form to the general, well recognized rule, that all statutes relating to 
 the same subject sbould be construed in pari materia, so as to give 
 them all their appropriate effect and operation; and courts have no 
 right to depart from this rule unless there is some imperative reason 
 for doing so, which is clearly not the case here. The fact that the 
 legislature failed to impose a limitation in the act of 1869, is no ev- 
 idence they intended there should be none. Why provide for such a 
 limitation when there was already a general law imposing one? To 
 have inserted a similar provision in that act would have been simply 
 to declare what the law would be without it, and the fact that noth- 
 ing was said on the subject is simply evidence that the existing- limi- 
 tation was satisfactory to the legislature. 
 
 In the light of judicial history, and t^ie legislation of this .country 
 on the subject, we cannot for a moment believe that it was th*e in- 
 tention of the legislature to put it in the power of any religious so- 
 ciety or corporation to acquire lands to any indefinite extent, as is 
 claimed here. It has ever been the policy of this country, including 
 our own State, to keep landed estates as much unfettered as possible, 
 so that their free transfer from one person to another may not be 
 interrupted or hindered, and it will not be denied that to permit cor- 
 porations to acquire real estate to an unlimited extent would be de- 
 structive of this policy. Under the legislation of our State, which 
 we have been considering, a religious corporation is authorized to 
 receive or acquire lands to the extent of ten acres, and no more. 
 Any amount in excess of that is expressly forbidden by the statute, 
 and it follows that all conveyances, deeds or other contracts made 
 in violation of this prohibition, are absolutely void. 
 
 It is a well settled rule that where a corporation is forbidden to 
 take or receive lands, such a prohibition goes to its capacity to ac- 
 quire, and a deed rnade to it under such circumstances passes no 
 title, such a conveyance being absolutely void; and the correctness 
 of this rule is conceded by the learned counsel for plaintiff in error. 
 
344 POWERS AND LIABILITIES (Ch. 3 
 
 it is claimed, however, this rule only applies where the prohibition is 
 total, and not merely partial, as in this case; — that where there is a 
 capacity to take to a hmited extent, and a conveyance is made for a 
 quantity in excess of that which the law permits,, the title will nev- 
 ertheless, pass to the whole, subject to the right of the State to inter- 
 pose for the excess. We cannot give our adhesion to this doctrine, 
 for it would be conceding that a corporate body might clothe itself 
 with the legal title to an estate in contravention of an express provi- 
 sion of the statute, which is inconsistent with well recognized princi- 
 ples. Whether a deed of that kind would be good for the amount of 
 land that might lawfully be conveyed, and inoperative for the residue, 
 or whether it would be regarded as void for uncertainty as to what 
 particular ten acres passed by it, it is not necessary for us to stop to 
 inquire, for whatever might be the rule in such a case, it could have 
 no application to the one before us. Here it is admitted the plaintifif 
 in eiTor had, previous to the conveyance of the land in dispute, al- 
 ready acquired, and was then the owner of ten acres of land, — ^the 
 outside limit it was permitted to take. This being so, it is clear its 
 capacity to acquire other lands was fully exhausted, and there was a 
 total want of power to take the land in question. 
 
 Moreover, we are of opinion that conceding the act of 1869 was 
 not adopted subject to the limitation contained in the -Wth section 
 of the act of 1845, as we have seen it was, nevertheless the reserva- 
 tion, in the 10th section of the former act, of the power to regulate 
 by general law the amount or quantity of land which corporations 
 organized under it might hold, fully authorized the legislature — as- 
 suming the power did not exist independently of it — ^to prescribe the 
 amount or quantity of land which such corporations might take^or, 
 acquire. If the legislature has the power — ;and this is conceded — to 
 say these organizations shall not hold to exceed a specified number of 
 acres of land, we are of opinion, as the most effectual way of enforc- 
 ing such power, it may say they shall only take or acquire the spec- 
 ified quantity. 
 
 Leaving out of view the legal aspects of the question, it looks like 
 a great hardship that the purposes of the grantor in the deed should 
 be thus thwarted, and that the church should be deprived of the es- 
 tate so generously attempted. to be given to it; yet such considera- 
 tions must not be permitted to disturb .the balance of the scales of 
 legal justice. "Ita lex scripta est," and it is the duty of all to submit 
 to its mandate, and we are assured that none will do so more cheer- 
 fully than the plaintiff in this case. 
 
 The judgment of the circuit court is affirmed. 
 
 Judgment affirmed. 
 
 Craig, J. I do not concur in the decision of this case. The St. 
 Peter's Roman Catholic CongreJgation, a corporation existing by 
 law, under our statute had authority to take and hold lands by deed 
 or devise, and whether it has exceeded its power in accepting a con- 
 
Sec. 3) ULTRA VIRES ACTS 345 
 
 veyance of the land in question, can, in my judgment, only be in- 
 quired into by the State. The question is one between the corpora- 
 tion and the sovereign power, in which individuals have no concern. 
 De Camp v. Dobbins, 29 N. J. Eq. 36. 
 
 Dickey, J.^ I concur with the view expressed by Mr. Justice 
 Craig." 
 
 In re McGRAW'S ESTATE. 
 In re FISKE'S ESTATE. 
 
 (Court of Appeals of New York, 1888. Ill N. T. 66, 19 N. E. 233, 
 2 Lu R. A. 387.) 
 
 Jennie McGraw Fiske died in 1881, leaving a will, which directed 
 that the estate be converted into money or available securities, and 
 after the payment of numerous bequests, the residue to go to Cornell 
 University to be added to "the McGraw Library Fund." The amount 
 of the estate including a trust fund, created by the will of John Mc- 
 Graw, over which the /testatrix had a 'power of disposition, was $2,- 
 275,933.46. The total amount bequeathed to Cornell University, 
 specifically or as a part of the residue was $1,154,363.46. The stat- 
 utes of the State of New York contain the following provisions 
 touching the taking and giving of real estate by corporations : 
 
 1 R. S. pp. 599, 600, §§ 1, 2, 3 : "Every corporation has power to 
 hold, purchase and convey such real estate, personal estate, as the 
 purposes of the corporation shall require, not exceeding the amount 
 limited in its charter. * * * " 
 
 2 R.' S. p. 57, §§ 1, 2, 3 (providing for disposition by will) : "Such 
 devise may be made to every person capable by law of holding real 
 estate; but no devise to a corporation shall be valid unless such 
 corporation be expressly authorized by its charter or by statute to^ 
 take by devise." 
 
 1 R. S. p. 460, §§ 31-37: "The trustees of every such college, be- 
 sides the general powers and privileges of a corporation, shall have 
 power * * * to take and hp\d by gift, grant or devise, any real 
 or personal property, the yearly income or revenue of which shall not 
 exceed the value of twenty-five thousand dollars." 
 
 Section 5, Charter of Cornell University, granted subsequent to 
 the acts above set out, provides that the corporation hereby created 
 may hold "real and personal property, not exceeding three millions 
 of dollars in the aggregate." 
 
 The heirs and next of kin of the testatrix, and the beneficiaries 
 under the will of John McGraw, contested the validity of the bequest 
 to Cornell University on the ground that the property of the Univer- 
 
 77 Compare Hamsher v. Hamsher et al., 132 111. 2T3, 23 N. B. 1123, 8 L. R. 
 A. 556 (1890). 
 
U6 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 sity already equaled or exceeded the amount it was authorized to 
 hold under its charter. From an order of the Surrogate accepting the 
 executor's report and directing the payment of the residue of the es- 
 tate to Cornell University, the contestants appealed to the General 
 Term of the Supreme Court. The present appeal is from their de- 
 cision reversing the order of the Surrogate.''* 
 
 Peckham, J. '° [after commenting on the statutes]. Looking for 
 a moment outside of and beyond the statute laws of the state, and in 
 order to strengthen his' position regarding the true construction to be 
 given that law as to the material, distinction in the case at least of a 
 corporation, between the power to take and the power to hold proper- 
 ty, the counsel for the appellant has made a most able and learned 
 argument. Its outlines are, in substance, as follows: A corporation 
 at common law could take and hold property by devise. At ah early 
 stage in the history of the law of England relating to the power of 
 corporations to hold real property, and while the feudal system still 
 prevailed, it was enacted that no man should ""alien his feud to a cor- 
 poration under a penalty of a forfeiture thereof to his next superior 
 of whom he held the land, and, in default of such superior insisting 
 upon the forfeiture, then his superior might do so, and thus on, until 
 the king, as the general superior and lord of all, was reached. But, 
 in case the forfeiture was not insisted upon, the corporation, which 
 had taken a defeasible title to the land, could hold it as against all the 
 world. 
 
 He therefore insists that this distinction between taking and holding 
 strengthens his claim that the use of the word "hold" in the charter 
 was intentional, and for the specific purpose of permitting the cor-\ 
 poration to take an unlimited amount of property, and to hold only the 
 amount specified. No sound reason for giving such unlimited power 
 to take, while limiting the power to hold, can, as it seems to me, be 
 stated ; and, if such were ihe intent, I think it would have been plainly 
 stated in the charter, instead of trusting to such a conjectural appli- 
 cation to be given to another statute. 
 
 The counsel cites about all the writers upon the subject of corpora- 
 tions, and they have all adverted to this distinction, as existing in re- 
 lation to the English corporations subject to the mortmain statutes, 
 and they state that licenses to hold in mortmain were granted to such 
 bodies, but without such licenses they took the title to the real prop- 
 erty aliened, subject only to the right of the superior lord to enter and 
 take th,e land under the power of forfeiture. The only penalty, there- 
 fore, which a corporation risked when it took lands without a license 
 in mortmain, was that of a forfeiture of the land to the next superior 
 of the grantor, and so on up to the king; and the counsel claims that 
 in this state, in the case of a corporation with unlirhited power to take, 
 but not to hold more than a certain amount, the penalty for holding 
 
 T8 statement of facts substituted. t» A part of the opinion is omitted. 
 
Sec. 3) ULTRA VIRES ACTS 347 
 
 more is that the state, representing the whole people and standing in 
 this respect in Heu of the king, (there being no mesne lords,) can for- 
 feit the charter of the corporation, and thus prevent the further hold- 
 ing ; and, assuming this to be the fact, he uses it as strengthening his 
 argument as to the existence of this clear and material distinction be- 
 tween taking and holding property. 
 
 The further claim is then made that, as title to the property has 
 vested in the corporation, which, in holding it, has become subject to 
 the forfeiture of its charter, the heirs or next of kin of the testator 
 have no more right to raise the question than any other third parties 
 who have no interest therein. It is said that it is a matter for the 
 state alone to take cognizance of, and until it does the corporation 
 holds the property, however much it may transcend the limitation pre- 
 scribed in its charter. 
 
 The counsel states accurately the law of mortmain in England, and 
 its consequences of possible forfeiture of the estate granted, and, un- 
 til forfeiture, the vesting of the title in the corporation indefeasible, 
 except by the re-entry of the person entitled to take it by reason of 
 the forfeiture. But the circumstances under which lands are held by 
 citizens of New York, where their tenure is so wholly different from 
 that which prevailed in England when the early mortmain acts were 
 enacted, render any argument in regard to those acts and their effect 
 totally inapplicable to the case of a corporation of this state. Taking 
 the law as it exists in our statutes, including the special provision 
 upon the subject in the charter of the university it seems to me that 
 the provision therein, limiting the holding of property, is, as, I have 
 said, a restriction also upon the power to take in excess of the specified 
 amount. As, at common law, a corporation could take real property 
 in the same way as an individual, the consequence was that in England 
 large landed possessions were held by religious corporations, and, by 
 reason of alienations of real estate to them, the services due by the 
 vassal to the lord were partially, if not totally, paralyzed, and the chief 
 lords lost their estjheats. This was a constantly growing and alarming 
 evil. 
 
 To remedy the difficulty, the first mortmain act was placed in rriagna 
 charta, which declared all such alienations to corporations entirely 
 void, and that the lands should revert to the lord in fee. It was held, 
 however, that the reversion must be accomplished by an entry, and 
 then and from that time there was a forfeiture, the corporation having 
 taken the title and held the property until such forfeiture by re-entry. 
 Shelf. Mortm. 8, 34; 1 Kyd, Corp. 81; Grant, Corp. 106. Other 
 statutes upon the subject were subsequently enacted, all for the pur- 
 pose of preventing the great accumulation of real property in the 
 hands of .corporations, and they all provided substantially for a re- 
 entry on the part of the next superior lord whenever lands had been 
 aliened in mortmain, and, until such entry enforcing the forfeiture, 
 the corporation held the lands. There was one law, directed against 
 
348 POWBBS AND LIABILITIES (Gh. 3 
 
 superstitious uses, (23 Henry VIII, c. 10), which provided that the 
 ^rant to such uses for more than 20 years was absolutely void, and 
 the estates thus aliened would have gone to the grantor or his heirs, 
 excepting for a provision, subsequently made, giving such estates to 
 the king. Wilm. 9, 10, in Attorney General v. Downing, variously re-' 
 ported; 2 Amb. 550, 571, 1 Dick. 414; Attorney General v. Bowyer, 
 3 Ves. 714, 5 Ves. 300, 8 Ves. 256. The mortmain statute (9 George 
 II, c. 36) renders all devises to charitable uses void. Shelf. Mortm. 
 118-120. 
 
 The nature of the tenure of real property at the time of the passage 
 of the early mortmain acts in England bears no resemblance to the ten- 
 ure by which a citizen of this state holds lands. Here there is no vas- 
 sal and superior, but the title is absolute in the owner, and subject only 
 to the liability to escheat. Const. N. Y. art. 1, § 13. The escheat 
 takes place when the title to lands fails through defect of heirs. Id. 
 § 11. , _ 
 
 A devise to a corporation which is forbidden to take (or forbidden 
 to hold, if the word, under the circumstances of the case, is construed 
 to include a taking also) does not, therefore, give a title subject to 
 the right of some superior to claim a forfeiture of the land; but, if 
 it be in violation of a statute, I think the devise is void, and the land 
 descends to the heir or residuary devisee. We have not in this state 
 re-enacted the statutes of mortmain, or generally assumed them to 
 be in force, and the only legal check to the acquisition of lands by 
 corporations consists in those special restrictions contained in the acts 
 by which they are incorporated and which usually confine the capacity 
 to purchase real estate to specified and necessary objects. 2 Kent, 
 Comm. 282. Of course, the restrictions contained in any general law, 
 if applicable, must also be referred to. 
 
 There is by reference to our laws, no such necessary and universal 
 distinction between taking and holding property by corporations as 
 is seen in the laws of England relating to alienations in mortmain. 
 Whether the legislature, when using language providing for a limita- 
 tion upon holding property, meant to permit an unlimited taking, is 
 a question of legislative intent; and I think the general inference 
 would be, in the absence of some plain and controlling circumstance to 
 the contrary, that the legislative body meant to limit a taking as well 
 as a holding beyond the specified amount. As is said in the Chamber- 
 lain Case this is in accordance with the policy of the state, — a policy 
 which has been recognized as existing for many years, and which 
 the courts have concurred in approving and carrying out. I do not 
 think the statute (Laws 1779, c. 25, § 13) touches this case. It pro- 
 vided that the absolute property of all lands, etc., and all rents, fran- 
 chises, debts, dues, duties, and services, escheats and forfeitures, which 
 before the 9th of July, 1776, vested in or belonged or were due to the 
 crown of Great Britain, were, and forever after the 9th day of July, 
 
Sec. 3) ULTRA VIRES ACTS 849 
 
 1776, shall be, vested in t&e people of the state, in whom the sover- 
 eignty and seigniory thfereof are and were united and vested. 
 
 The counsel for the appellant does not claim that this property was 
 itself forfeited to the state, if the state should choose to enforce the 
 forfeiture. His claim is, as I understand it, that if the university ex- 
 ceeded its limitation by holding more property than it was allowed 
 by law to hold, a cause of forfeiture of the charter was thereby cre- 
 ated, and that in enforcing such forfeiture, after the payment of the 
 debts of the corporation, the rest of the property would (as he insists) 
 probably go to the state, because there would be no living claimant 
 to it who would have any right to acquire it. A forfeiture the state 
 may claim and may- enforce at pleasure, when the occasion arises, but 
 it is a forfeiture of the charter, and not a forfeiture of the property 
 held by the corporation. 
 
 It is further claimed that this distinction between the right to take 
 and the power to hold property is one which has been admitted and 
 enforced in the courts of England, of this state, and of the other states 
 of the Union for a long number of years; and that there is no rea- 
 son why effect to such a distinction should not be given in this case, — 
 the result being, as is stated, that the corporation has an- unlimited 
 right to take property and also an unlimited right to hold it as against 
 any one but the state in its capacity of sovereign. There is undoubted- 
 ly a distinction between the right to take afld the power to hold prop- 
 erty under some circumstances ; the only question being whether the 
 legislature had such distinction in mind, and meant to provide for it 
 in the case in hand. It is said that an alien has the right to take 
 property by purchase, but he cannot hold it as against the state. That 
 is so. He takes, howeverj a defeasible title, good as to all but the 
 sovereign power, which mtist take it upon office found or by escheat. 
 Wright V. Saddler, 20 N. Y. 320. 
 
 In such case it is not exactly an accurate description of the alien's 
 title to simply say that he can take, but cannot hold: That is a con- 
 tradiction in terms. If he take, he must hold, if for but a fractional 
 part of a second of time. The expression is but a short one for 
 the statement that he cannot hold, as against the claim of the state, 
 where properly made and enforced. The same expression is used in 
 the case of a corporation under the mortmain laws, that it can take, 
 but not hold; the iheaning being that it cannot hold as against the 
 claim for forfeiture, when made by the next superior lord of the 
 grantor of the lands, ^hat the words lose all their meaning when 
 wrenched from the circumstances under which they were used, and 
 applied to corporations existing by virtue of the laws of this state, 
 seems to me a plain proposition. * * * 
 
 [After commenting on the decisions, the court proceeds:] 
 
 Ujnder our general statutes upon the subject of the right to take 
 or hold property by corporations, and reading them in connection 
 with the provisions of the charter of the university, we should be 
 
350 POWERS AND LIABILITIES (Ch. 3 
 
 astute in our arguments against the application of the mortmain 
 statutes, instead of in favor of them, if we should decide that the 
 language of the charter did not apply as well to a taking^as of a 
 holding of property beyond the expressed limit. 
 
 There can be no doubt that it is the law, in this state at least, that, 
 ■ if there be a prohibition against the taking of property beyond a cer- 
 tain amount or value, a devise or bequest to a corporation of prop- 
 erty which will exceed the amount or value which the corporation 
 is permitted to take will be void for the excess. This is expressly 
 decided in the Chamberlain Case [43 N. Y. 424], and we think it 
 was rightly decided. Nor is there any doubt that in such a case the 
 heirs or next of kin can raise the question. This was also decided 
 in the, same case. See, also, White v. Howard, 46 N. Y. 144. When 
 we come to the conclusion, therefore, that this university is by law 
 precluded (or was precluded at the time of the death of Mrs. Fiske) 
 from taking njore than the amount of property limited in its charter, 
 we bring the case precisely within the rules laid down in the cases 
 just cited. 
 
 The language of Chief Justice Beasley, in the case of De Camp v. 
 Dobbins, 31 N. J. Eq. 690, is very appropriate here. He says : "Nor 
 can I assent to the other proposition that if, as the contention as- 
 sumes, this bequest is violative of the law if carried into effect, that 
 none but the state can inl:ervene. I find no warrant for such a doc- 
 trine', either in the legal principles belonging to the subject or in 
 the adjudications. There can be no. doubt that, there are cases in 
 which, where a corporation has ' acquired rights of property to an 
 extent or in a manner unwarranted by its charter, no one but the 
 public can have the right to complain. A grantor making title to a^ 
 corporation might be estopped from questioning the effect of his 
 own conveyance. So a mere stranger could not question such a cor- 
 porate title. But I have not observed any decision that asserts, when 
 a title is created by devise which vests in a corporation for its own 
 use a larger quantity of property than the laws authorize, that the 
 heir at law has no right to make objection. The authorities referred 
 to do not lend countenance to such a doctrine." 
 
 The learned judge refers to the cases of Bogardus v. Trinity 
 Church [4 Sandf. Ch. 633] and Leazure v. Hillegas [7 Serg. & Ri 
 (Pa.) 313] both cited supra, and continues : "These cases rest on the 
 obvious principle that the capacity of the corporate body to become 
 the grantee in the given case cannot be challenged by a party who 
 does not stand in a position to raise the question. In such a position 
 it would be true that tbfe state alone could object to such corporate 
 act. But such instances are to be discriminated from that other class, 
 where the corporation claims to take .and hold by devise, in contra- 
 vention of law, and the heir of the deVisor is the party complaining. 
 In this latter situation the doctrine enforced in the cases does not 
 
Sec. 3) ULTKA VIRES ACTS 351 
 
 apply. * * * I have no doubt that the heir at law has a standing 
 in court to raise such a contention, and that in a court of equity 
 he would be entitled to prevail if he could succeed in establishing the 
 proposition on which such defense rests." The court afifirmed the 
 judgment below on the ground that the corporation was not pro- 
 hibited from taking the property. ' 
 
 The counsel claims, however, that a devise to a corporation vests 
 the title in it, so far as the question of capacity is concerned, when- 
 ever it would in the case of a sale for a valuable consideration. 
 Hence he says that the cases of sales above cited are decisive of this, 
 if they be admitted as well decided. In the case of an executed sale, 
 however, the question of ultra vires, as set forth in the modern cases, 
 comes in play, and the question of a want of title in the corporation 
 in such case would not be permitted to be raised by the grantor or 
 his heirs, because it would be against justice and would accompHsh 
 a legal wrong. Arms Co. v. Barlow, 63 N. Y. 62, 20 Am. Rep. 504. 
 
 The question of an executed gift without consideration by a donor, 
 by an absolute delivery to a corporation without power to take, is 
 also instanced, and the question is asked whether the title vests in 
 such a case in the corporation so that the donor or his heirs could 
 not recover it back, and, if it do, the counsel: asks where is the dif- 
 ference in the two cases. It is time enough to decide such a case 
 when it arises. But it seems to me there is a decided difference. In 
 the one case the gift is made inter vivos by the absolute owner, and 
 it is made effectual as to him by a delivery. In such case it would 
 seem that he stands in no position to ask the aid of the court to get 
 him out of a situation into which he voluntarily entered with his 
 eyes open, "and the court might well say to him that he stood in no 
 position to attack the right of his donee to property which he freely 
 and absolutely gave it. As to his heirs, it could be said that their 
 ancestor had made a disposition of property which was absolutely his 
 own. in his life-time, and in such a way that he could not question 
 its validity, and that, as he could not, they, succeeding only to his 
 rights, were alike disabled.'" 
 
 In the case of a devise, however, the case is essentially different. 
 The will does not take effect until the testator's death, and then^ if 
 his property is not legally devised or bequeathed, no title vests for a 
 single moment in the devisee or legatee, but it vests instantly in the 
 heir or next of kin ; and the corporation clsjiming under the will asks 
 the aid of the law to give the property to it, and in so doing it 
 must show the authority it has to take. And, if there were only a 
 prohibition in words against holding the property, would the law 
 not be doing a vain thing in handing it over to a corporation, which, 
 by the very fact of holding, would render itself liable to have its 
 
 80 See House of Mercy v. Davidson, 90 Tex. 529, 39 S. W. 924 (1897). 
 
352 POWERS AND LIABILITIES (Ch. 3 
 
 charter forfeited on that account? Would not the prohibition against 
 holding be firoperly and necessarily construed as a prohibition against 
 taking also? Is not this an argument against the right of the cor- 
 poration to take, if by holding it is thus rendered liable to such a 
 penalty? And is it not an argument in favor of the construction of 
 the language in the charter that the limitation upon the power to hold 
 property is, under aU the circumstances, a limitation upon the power 
 to take any more than it can legally and properly hold ? 
 
 One more statement must be noticed. It is said that as the leg- 
 islature, subsequently to the death of Mrs. Fiske, passed an act 
 which took away any limitation on the power of the university to 
 hold property, this action of the legislative department of the govern- 
 ment throws a strong light upon what is the policy of the state re- 
 garding institutions of learning, and, in the view of appellants' coun- 
 sel, waives the right wEich might have existed on the part of the 
 state to claim a forfeiture of the charter of the corporation. But the 
 policy of the state in relation to what may be called its mortmain laws 
 is to be gathered from its statutes of general application on that 
 subject, and cannot be said to be altered by the passage of special 
 acts regarding particular corporations. 
 
 [After discussion of the question whether the property of the Uni- 
 versity exceeds $3,000,000, the court concludes :] 
 
 The judgment of the general term must be affirmed, with costs.*^ 
 All concur, except Finch, J., taking no part. 
 
 HUBBARD V. WORCESTER ART MUSEUM. 
 
 (Supreme Judicial Court of Massacliusetts, 1907. 194 Mass. 280, 80 N E 
 490, 9 L. R. A. [N. S.] 689, 10 Ann. Gas. 1025.) 
 
 Knowlton, C. J." This is a petition brought by the heirs of Stephen 
 Salisbury, late of Worcester, deceased, for leave to file an information 
 in the nature of a quo warranto against the respondent, under Rev. 
 
 QooS?o:5m'^'<."'.-' in Christian Union v. Tount, 101 U. S. 35'2, at 361, 25 L. Ed. 
 8b8 (1879): Appellees,' in their pleadings, allege that the lots conveyed by 
 their ancestor to the American & Foreign Christian Union were not required 
 or necessary for the convenience or transaction of its business. These alle- 
 gations are both insufficient and immaterial; insufficient, because they may 
 be true, and yet the appellant, with the lots in dispute added to its property 
 may not have had more real estate than its charter permitted ; immaterial 
 because if, as we hold, the appellant could consistently with its own charter 
 and the law of Illinois take title to real property in that State for the pur- 
 poses of Its creation, its acquisition of a larger quantity of real estate than 
 Its charter allowed, or its business required, or was consistent with the law 
 of Illinois, was not a question which the appellees have any right to raise 
 If the title passed by valid conveyance from their ancestor, it is of no con- 
 cern to them that the appellant has acquired or is holding more real estate 
 than its charter authorizes." 
 82 A part of the opinion dealing with the cy pres doctrine is omitted. 
 
Sec. 3) tJLTEA VIRES ACTS 353 
 
 Laws, c. 192, §'§ 6-13. The Worcester Art Museum is a corporation, 
 established under the provisions of Pub. St. 1882, c. 115 (Rev. Laws, 
 c. 125), whose purposes, as set forth in the agreement for its organi'za- 
 tion, are "to found an institution for the promotion of art and art edl- 
 ucation in said Worcester, for erecting and maintaining buildings for 
 the preservation and exhibition of works and objects of art, the mak- 
 ing and exhibiting collections of such works, and providing instruction 
 in the industrial, liberal, and fine arts; for holding real and personal 
 estate in the furtherance of this purpose, andl for the holding and ad- 
 ministering of f uinds acquired by the corporation for these and kindred 
 objects, in accordance with the will of the donors. All of such prop- 
 erty and funds of- the corporation, however, are to be held solely in 
 trust for the benefit of all the people of the city of Worcester." 
 
 By the will of Mr. Salisbury this corporation is made his residuary 
 legatee, and if the intention of the testator is carried out, it will re- 
 ceive, under the will, real and personal estate amounting in value 
 to between $2,000,000 and $3,500,000. By Rev. Laws, c. 125, ■§ 8, 
 such corporations are authorized to "hold real and personal estate to 
 an amount. not exceeding one million five hundred thousand dollars." 
 By St. 1906, p. 278, c. 312, enacted after the probate of the will, the 
 right of this respondent to hold real and personal estate was enlarged 
 to an amount not exceeding $5,000,000. The petitioners contend that, 
 by reason of the limitation in the statute, the gift was void; that, as 
 heirs at law of the testator, their rights in this part of his estate be- 
 came vested on the probate of the will ; that St. 1906 is prospective in 
 its operation, and does not affect the right of the respondent to hold 
 property under this will, and that, if it were construed as applying to 
 property devised by this will, it would be unconstitutional and void. 
 
 The statute under which the petition is brought has been considered 
 inGoddard v. Smithett, 3 Gray, 116, in Hartnett v. Plumbers' Supply 
 Association, 169 Mass. 229, 47 N. E. 1002, 38 L. R. A. 194, and in 
 other cases. We will assume in favor of the petitioners without de- 
 ciding, that if they were right in their view of the questions of sub- 
 stantive law involved, it would be available to give them the remedy 
 which they seek. We come directly to the effect of the residuary 
 clause in the will. 
 
 The attack upon its vaUdity may be considered from two points of 
 view: First, in reference to the rights of testators, as against their 
 heirs, to dispose of their property for charitable or other purposes; 
 secondly, in reference to the provisions of the law giving this kind 
 of corporations a right to hold property to an amount not exceeding 
 a certain sum. 
 
 From the first point of view this gift is perfect arid complete. Ex- 
 cept for the protection of the statutory rights of a husband or wife, 
 the power of a testator in this commonwealth to dispose of his estate 
 by a will is unlimited. There is nothing in our law to restrain one 
 from giving free course to his charitable inclinations, up to the last 
 
 RICH.CORP.— 23 
 
354 POWBES AND LIABILITIES (Ch. 3 
 
 moment of his possession of a sound, disposing mind. Making char- 
 itable gifts in this commonwealth is not against public policy, and we 
 have no -legislation, 'such as has long existed iti England, andl in New 
 York and some of the other American states, putting obstacles in the 
 way of such testamentary acts. The only ground of objection to this 
 part of the will is not from the point of view of the testator or of 
 his heirs, but, on account of the provision of the statute regulating the 
 rights of corporations as to the holding of property. We must, there- 
 fore, determine the meaning and effect of this statute on which the 
 petitioners rely. 
 
 They contend that it is by implication an absolute prohibition- against 
 the holding, at any time, in any form, for any purpose, of a greater 
 amount of property than that stated, and that any attempt of a cor- 
 poration to hold more, or of any person to put more, into the owner- • 
 ship of a corporation, is illegal and absolutely void. The respondent 
 contends that this implied limitation' of the right to hold is made on 
 grounds of public policy; that it is a provision only in favor of the 
 state, which the state may enforce or not, as it chooses ; that grants or 
 devises in excess of the amounts stated are not void, but only void- 
 able ; that third persons cannot question the validity of such grants 
 or devises, but that they are legal so long as the state' leaves them un- 
 disturbed, and, that the state may at any time by a legislative act or m 
 some other proper way, completely w^ive its right of enforcement. 
 
 In interpreting the act the history of earlier kindred provisions may 
 be helpful. At common law, corporations were. authorized to acquire 
 and hold both real and personal property without limit. Matter of 
 McGraw, 111 N. Y. 66-84, 19 N. E. 233, 2 L. R. A. 387. "The crea- 
 tion of a corporation gives to it, amongst other powers, as incident to 
 its existence and without any express grant of such powers, that of 
 buying and selling." Banks v. Poitiaux, 24 Va. 136, 15 Am. Dec. 706. 
 "A corporation has, from its nature, a right to purchase lands, though 
 the charter contains no license to that purpose." Leaztire v. Hillegas, 
 7 Serg. & R. (Pa.) 313. See, also. Page v. Heineb'erg, 40 Vt. 81, 94 
 Am. Dec. 378; Mallett v. Simpson, 94 N. C. 37-41, 55 Am. Rep. 595. 
 
 Under the feudal system, when land was given to a corporation, the 
 chief lords of whom the land! was held, and the king as ultimate chief 
 lord, lost their chances of escheat, and various other rights and inci- 
 dents of njilitary tenure. During the Middle Ages, the accumulation 
 of land^in the ecclesiastical corporations was so great as to be thought 
 a national grievance. Hence the English mortmain acts, which go 
 back for their origin to Magna Charta, St. 9 Hen. Ill, c. 36, and which 
 have continued with various modifications to this' day. See St. 7 Edw.' 
 I, c. 2, St. IS Rich. II, c. 5 ; ShelfordI on Mortmain, 2, 6, 8, 16, 25, 
 34, 39, 809, 812 ; Tyssen on Charitable Bequests, 2, 383. Under these 
 acts the alienations were riot void, so as to let in the grantors and their 
 heirs ; but they merely operated as a forfeiture which gave a right to 
 the mesne lord and the king to enter after due inquest. This right 
 
Sec. 3) ULTBA VIEES ACTS 355 
 
 to enter was often waived by a license in mortmain; See citations 
 above, and Tyssen on Charitable Bequests, 383 ; St. 7 & 8 Wm. Ill, 
 c. 37. In form these licenses commonly authorized a holding of prop- 
 erty "not exceeding" a certain value. In later years this authority 
 sometimes has been inserted in the charter, andl this limited power of 
 purchase has, it is said, been exceeded by almost all corporations. 
 Shelford on Mortmain, 55. See, also, pages 10, 44, 49, 56, 891 ; Tys-- 
 sen on Charitable Bequests, 393, 394, 396. 
 
 Another act, St. 9 Geo. II, c. 36, which is usually called the "Mort- 
 main Act," but is called by Tyssen the "Georgian Mortmain Act," is 
 of a very different nature. One' of its purposes,* as declared in the 
 preamble, is to avoid "improvident alienations or dispositions 'tnadle^ 
 by languishing or dying persons to uses called charitable uses, to take 
 place after their deaths, to the disherison of their lawful heirs." Con- 
 sidered in reference to its purposes, it is not properly called a mort- 
 main act. It applies only to gifts for charitable uses ; and under it 
 all such gifts, unless made as the statute allows, are absolutely void. 
 
 We never have had any real mortmain acts in Massachusetts. The 
 nearest approach to one was the provincial statute of 28 Geo. II. Acts 
 1754, c. 12 (January 12, 1755) ; 3 Prov. Acts (State Ed.) p. 778. This 
 made deacons a corporation to take gifts for charitable purposes, lim- 
 ited the grants to such as would produce an income not exceeding 
 £300 a year, and provided that they should be made by deed, three 
 months before death, and that all bequests, devises or later' grants 
 should be void.^ This statute related only to gifts to deacons, and was 
 repealed by St. 1785, p. 532, c. 51 (February 20, 1786); 1 Mass. Laws, 
 p. 282 — which re-enacted a part of the law, but omitted the provision 
 that gifts not authorized by the act should be void. Bartlet v. King, 
 12 Mass. 537-545, 7 Am. Dec. 99. See Rev. Laws, c. 37, § 1. 
 
 The significance of this reference to English law and to our legisla- 
 tion is, first, that, except for this short period, we have never had in 
 Massachusetts any legislation prohibiting charitable gifts, to trustees 
 or corporations, or providing that any kind of conveyances, devises or 
 bequests to corporations shall be void. On the other hand, the policy 
 of the commonwealth, as expressed both by legislation and the deci- 
 sions of its courts, has; been exceedingly liberal to testators and pub- 
 lic charities. Sanderson v. White, 18 Pick. 328, 333, 334, 29 Am. Dec. 
 591 ; American Academy v. Harvard College, 12 Qray, 582, 595, 596 ; 
 Saltonstall v. Sanders, 11 Alien, 446; Jackson v. Phillips, 14 Allen, 
 539-550. Secondly, the implied limitations upon the power of corpora- 
 tions to hold property, which appear in numerous enactments, have 
 been made not in the interest of grantors or devisors or their heirs, 
 but in the interest of the state, on considerations of public policy. 
 
 The general form of these limitations, which appears in the statute 
 before us, and with slight variations in special charters (a list of 
 which 274 in number, granted in this state before 1850, has been fur- 
 nished us through the industry of counsel), corresponds with the form 
 
356 POWBES AND LIABILITIES (Ch. 3 
 
 of licenses granted by the crown in England under the old mortmain 
 acts, and sometimes embodied in charters granted by Parliament. Un- 
 der these English acts, grants or devises to a corporation to hold prop- 
 erty without a license, or in excess of the amount licensed, were not 
 void, but only voidable by the mesne lord, or the king, upon entry, 
 after inquest according to law. In view of the close relations between 
 Massachusetts and the mother country in early times, this justifies an 
 argument, of considerable strength, that the implied limitaitions in our 
 statutes were intended to have no greater force than the old mortmain 
 acts of England, as distinguished from the Georgian mortmain act. 
 
 We start with the inherent right, already referred to, of every cor- 
 poration to take and hold property at common law, by virtue of the 
 act of its creation. This right is recognized in our statutes by implica- 
 tion, without express mention. Rev. Laws, c. 109, ■§§ 4-6. What 
 force is to be given to the words, "may hold real and personal estate 
 to an amount not exceeding one million five hundred thousand dol- 
 lars"? The respondent contends that their meaning is as if words 
 were added as follows: "And beyond that amount it shall have no 
 right as against the commonwealth, and the commonwealth may take 
 proper measures, through action of the Attorney General or otherwise, 
 to prevent or terminate such larger holding." According to the ar- 
 gument, a taking and holding by a corporation, above the prescribed 
 amount, is under its inherent right. As between it and the state as tlie 
 guardian of the public interest, a provision as to amount is made, 
 which does not affect its right as to third persons. As to the general 
 legality of the holding, except when the state chooses to enforce the 
 law for its own benefit, the condition is similar to that resulting from 
 a statutory provision which is merely directory. It is not very unlike 
 the old law as to conveyances to aliens. Such conveyances, whether 
 by grant or devise, were good against every one but the stale, and 
 could be set aside only after office found. Fox v. Southack, 12 Mass. 
 143; Waugh v. Riley, 8 Mete. (Mass.) 290; Judd v. Lawrence, 1 
 Cush. (Mass.) 531 ; Kershaw v. Kelsey, 100 Mass. 561, 97 Am Dec 
 124, 1 Am. Rep. 142. * * * 
 
 The counsel for one of the petitioners says in his brief : "It is fully 
 conceded at the outset that where a corporation takes and holds prop- 
 erty by conveyance, or by executed gift inter vivos, contrary to its 
 charter rights, no one but the state can complain. This is settled by 
 a practically unbroken line of decisions in, all the states," etc. 
 
 But if the statute were a prohibition that renders the holding utterly 
 void, and the taking also void, as is argued in the opinion in Matter 
 of McGraw, 111 N, Y. 66, 19 N. E. 233, 2 L. R. A. 387, anybody in- 
 terested could take advantage of the violation of law, unless he was 
 precluded by estoppel. Most of the cases which we have cited do not 
 put their decision on the ground of estoppel. Often the question > 
 might arise when there was no estoppel. The ground on which most 
 of the cases go is that the implication is not an absolute prohibition. 
 
Sec. 3) ULTRA VIRES ACTS 357 
 
 but only a condition affecting the rights of the corporation as between 
 it and the state. If the holding were an illegality which was utterly 
 void, the condition would be the same whether the taking was by grant 
 or devise, and a variety of unfortunate consequences might follow. 
 The property might greatly increase in value after its acquisition, as 
 was the case in Evangelical Baptist Society v. Bbston, 192 Mass. 412, 
 78 N. E. 407. In that case, although the property of the corporation 
 largely exceeded in value the amount authorized by the statute, there 
 was no intimation that the holding was illegal, so long as^ the state did 
 not interfere. See, also, Humbert v. Trinity Church, 24 Wend. (N. 
 Y.) 587-605. As to all interests of private persons, in the absence of , 
 interference by the state, the cases generally treat titles to property 
 held by corporations in excess of the specially authorized amount as 
 good. They allow the corporations to give good titles to purchasers 
 of such property. 
 
 Some judges, in holding that such titles cannot be taken under wills, 
 endedvor lo found a distinction upon the executed character of a title 
 by grant, and suggest that a devise or bequest is executory. It seems 
 to us that there is no good reason for the distinction. When a will is 
 proved and allowed, it takes effect immediately to pass all property 
 affected by it. The provision in the law against large holdings by cor- 
 porations has no relation to the probate of the will. The act of the 
 testator in executing the will is confirmed and given effect as a com- 
 plete and executed disposition of the property, by the allowance of 
 the will. In this respect a recorded will does not materially differ 
 from a delivered deed. The heirs at law are bound by one as well 
 as by the other. 
 
 The decisions upon the precise point at issue are conflicting. In 
 Jones V. Habersham, 107 U. S. 174, 2 Sup. Ct. 336, 27 L. Ed. 401, a 
 case similar to that now before us, it was held by the court, in an 
 opinion by Mr. Justice Gray, that "restrictions imposed by the charter 
 of a corporation upon the amount of property that it may hold cannot 
 be taken advantage of collaterally by private persons." In the same 
 case in the circuit court the question had been considered previously, 
 and the same result was reached, in an opinion by Mr. Justice Bradley 
 of the Supreme Court of the United States, which is found in 3 
 Woods, 443^75, Fed Cas. No. 7,465. The same rule is established 
 in Maryland. Hanson v. Little Sisters of the Poor, 79 Md. 434, 32 
 ,Atl. 1052, 32 L. R. A, 293 ; In re Stickney's Will, 85 Md. 79-104, 36 
 Atl. 654, 35 L. R. A. 693, 60 Am. St. Rep. 308. De Camp v. Dob- 
 bins, 29 N. J. Eq. 36-40, was decided by the chancellor on this ground. 
 The decree was affirmed on another ground in the Court of Errors 
 and Appeals, 31 N. J. Eq. 671-690, in an opihion by Beasley, C. J., 
 which contains a dictum disapproving of the view of the chancellor. 
 In Farrington v. Putnam, 90 Me. 405, 37 Atl. 652, 38 L,. R. A. 339, 
 the court, in a very elaborate opinion, in a case identical in its leading 
 features with that now before us, held that the gift was good. The 
 
358 POWERS AND LIABILITIES (Ch. 3 
 
 same doctrine is stated in Brigham v. Brigham Hospital (C. C.) 126 
 Fed. 796-801, s. c. 134 Fed. 513-527, Q C. C. A. 393. It is also stated 
 in text-books. Beach on Corporations' (Purdy's Ed.) § 825 ; 2 Thomp- 
 son on Corporations, §§ 5795-5797. 
 
 The leading case which presents the opposite view is Matter of Mc- 
 Graw, 111 N. Y. 66, 19 N. E. 233, 2 L. R. A. 387. Although the de- 
 cision necessarily puts a construction upon a statute of that state, this 
 construction seems to be materially affected by the policy of New 
 York in reference to charities. Said Judge Peckham, who delivered 
 the opinion: "We have a decided mortmain policy. It is found in 
 our statute in relation to wills, prohibiting a devise to a corporation, 
 unless specially permitted! by its charter or by some statute to take 
 property by de.vise." In Chamberlain v. Chamberlain, 43 N. Y. 424, 
 the court refers to the prohibition of dievises, and to Laws N. Y. 1860, 
 p. 607, c. 360, still in force, which makes void all bequests or devises 
 to charity in excess of one-half the testator's property, where he leaves 
 relatives. Other statutes have been passed, limiting the amount that 
 can be devised to certain corporations by one testator, forbidding a 
 devise or bequest to charities, by a person leaving relatives, of more 
 than one-fourth of his estate, and making void such gifts where the 
 will was executed within two months before the death of the testator. 
 4 Heydecker's Gen. Laws (1901') pp. 4885, 4891, 4892, c. 53. The 
 policy of that state in regard to charities has been very unfavorable. 
 See Allen v. Stevens, 161 N. Y. 122, 139, 140, 55 N. E. 568; People 
 V. Powers, 147 N. Y. 104, 41 N. E. 432, 35 L. R. A. 502; Fosdick 
 V. Hempstead, 12S N. Y. 581, 26 N. E. 801, 11 L. R. A. 715. 
 
 The doctrine of the New York court is stated as the law in Trustees 
 of Davidson College v. Chambers' Executors, 56 N. C. 253, and adopt- 
 ed in Wood V. Hammond, 16 R. I. 98-115, 17 Atl. 324, 18 Atl. 198, 
 and House of Mercy v. Davidson, 90 Tex. 529, 39 S. Wi. 924. In ' 
 the case in North Carolina the decision was by two of the three judges 
 of the court, the chief justice giving an able dissenting opinion. The 
 courts in Kentucky and Tennessee have expressed approval of the 
 McGraw Case in New York, but jn terms that do not leave the grounds 
 of their decisions entirely clear. Cromie's Heirs v. Louisville Or- 
 phans' Home Society, 3 Bush (Ky.) 365-383 ; Heiskell v. Chicl^asaw 
 Lodge, 87 Tenn. 668-686, 11 S. W. 825, 4 L. R. A. 699. In referejice 
 to supposed errors in the opinion in the last case, see Pritchard on 
 Wills, § 153, note, and Farrington v. Putnam^ 90 Me. 405-433, 37 Atl 
 652, 38 L. R. A. 339. 
 
 In the construction of our statute, when the question arises whether 
 a different rule shall be established in regard! to the taking and hold- 
 ing by a corporation under a will from that which is universally laid 
 down in regard to a holding under a deed, we are much influenced 
 by the policy of our law as to devises and bequests for charitable pur- 
 poses. We are of opinion that, under Rev. Laws, c. 125, § 8, a gift 
 to a corporation under a will, to an amount in excess of the sum 
 
Sec. 3) ULTRA VIRES ACTS 359 
 
 specially authorized, should be held no less valid than a similar ac- 
 quisition of title under a deed. It is good as against every one but 
 the commonwealth. It follows that the St. 1906, p. 278, c. 312, operat- 
 ed as a waiver of the commonwealth's right to terminate the holding, 
 and a legislative declaration of the pntire validity 'of the provision in 
 the will. * * * 88 
 
 V. EsTOPPEi, 
 
 MONUMENT NAT. BANK v. GLOBE WORKS. 
 (Supreme Court of Massachusetts, 1869. 101 Mass. 57, 3 Am. Rep. 322.) 
 
 Hoar, J. The single question presented for our decision in this 
 cause; all others which arise upon the report having been waived, is, 
 whether the note of a manufacturing corporation, in the hands of a 
 holder in good faith for value, who took it before maturity, and with- 
 out any knowledge that the makers had not received the full con- 
 sideration, cannot be enforced against them, because it was in fact 
 made as an accommodation note. 
 
 The argument for the defendants takes the ground that to issue an 
 accommodation note is not within the powers conferred upon the cor- 
 poration; and that, as any persons taking it had notice that it was 
 the note of the corporation, they had notice that it was of no validity 
 unless issued for a purpose within the scope of the corporate pow- 
 ers, and were therefore bound to ascertain not only, that it was exe- 
 cuted by the officer of the corporation who "had the general author- 
 ity to sign the notes which they might lawfully make, but that the 
 purpose for which it was issued was such as the charter authorized 
 them to entertain and execute. 
 
 The court are all of opinion that this position is not tenable, and 
 that the defence cannot be maintained. 
 
 It has long been settled in this Commonwealth that a manufactur- 
 ing corporation has the power to make a negotiable promissory note. 
 Narragansett Bank v. Atlantic Silk Co., 3 Mete. 282. And it was 
 held in Bird v. Daggett, 97 Mass. 494, as a just corollary to that 
 proposition, that such a note in the hands of a holder in good faith 
 for value is binding upon the maker, although made as an accommo- 
 dation note. The question was not discussed, nor the reasons for the 
 decision fully stated, in Bird v. Daggett ; but it was assumed that the 
 doctrine announced was clear and undoubted law. 
 
 88 Compare Farrington v. Putnam, 90 M6. 405, 37 Atl. 652, 38 L. R. A. 339 
 (1897); Jones v. Habersham, 107 U. S. 174, 2 Sup. Ct. 336, 27 L. Ed. 401 
 (1882) ; Congregational Church Building Society v. Everett, 85 Md. 79, 36 
 Atl 654, 35 L. R. A. 693, 60 Am. St. Rep. 308 (1897) ; . Hamsher v. Hamsher, 
 132' 111. 273, 23 N. E. 1123, 8 L. R. A. 556 (1890). 
 
360 POWERS AND LIABILITIES (Ch. 3 
 
 The doctrine of ultra vires has been carried much farther in Eng- 
 land than the courts in this country have been disposed to extend it; 
 but, with just limitations, the principle cannot be questioned, that 
 the limitations to the authority, powers, and liability of a corporation 
 are to be found in the act creating it. And it no doubt follows, as 
 claimed by the learned counsel for the defendants, that when powers 
 are conferred and defined by statute, every one dealing with the cor- 
 poration is presumed to know the extent of those powers. 
 
 But when the transaction is not the exercise of a power not con- 
 ferred on a corporation, but the abuse of a general power in a par- 
 ticular instance, the abuse not being known to the other contract- 
 ing party, the doctrine of ultra vires does not apply. As was said by 
 Selden, J., in Bissell v. Michigan Southern & Northern Indiana Rail- 
 road Co., 22 N. Y. 289, 290: "There are no doubt cases in which 
 a corporation would be estopped from setting up this defence, al- 
 though its contract might have been really unauthorized. It would 
 not be available in a suit brought by a bona fide indorsee of a nego- 
 tiable promissory note, provided the corporation was authorized to 
 give notes for any purpose; and the reason is, that the corporation, 
 by giving the note, has virtually represented, that it was given Tor 
 some legitimate purpose, and the indorsee could not be presumed to 
 know the contrary. The note, however, if given by a corporation 
 absolutely prohibited by its charter from giving notes at all, would 
 be voidable not only in the hands of the original payee, but in those 
 of any subsequent holder; because all persons dealing with a cor- 
 poration are bound to take notice of the extent of its chartered 
 powers. The same principle is applicable to contracts not negotiable. 
 When the want of power is apparent upon comparing the act done 
 with the terms of the charter, the party dealing with the corporation 
 is presumed to have knowledge of the defect, and the defence of ultra 
 vires is available against him. But such a defence would not be 
 permitted to prevail against a party who cannot be presumed to 
 have had any knowledge of the want of authority to make the con- 
 tract. Hence, if the question of power depends not merely upon the 
 law under which the corporation acts, but upon the existence of cer- 
 tain extrinsic facts, resting peculiarly within the knowledge of the 
 corporate officers, then the corp'oration would be estopped from de- 
 nying that which, by assuming to make the contract, it had virtually 
 affirmed." 
 
 This doctrine seems to us sound and reasonable ; and in conform- 
 ity with it, it was held in Farmers' & Mechanics' Bank v. Empire 
 Stone Dressing Co., 5 Bosw. (N. Y.) 275, that an accommodation 
 acceptance by an officer of a manufacturing corporation, on behalf 
 of the company, was not binding, unless the consideration had been 
 advanced upon the faith of the acceptance ; but that if the considera- 
 tion was paid, in good faith after the accegtance, and upon the credit 
 of it, it could be enforced. 
 
Sec. 3) ULTRA VIRES ACTS 361 
 
 So it was said by LorH St. Leonards that he fdt a disposition "to 
 restrain the doctrine of ultra vires to clea'r cases of excess of power, 
 with the knowledge of the other party, express or implied from the 
 nature of the corporation, and of the contract entered into." East- 
 ern Counties Railway Co. v. Hawkes, 5 H. L,. Cas. 331, 373. 
 
 The cases on which the defendants rely are cases against munic- 
 ipal corporations, in respect to which the rule is much more rigid, 
 or for the most part those in which the other contracting party had 
 notice upon the face of the transaction of the want of corporate 
 power. 
 
 There can be no doubt that it is very often true that a corporation 
 may be responsible for the unauthorized, and even for the unlawful 
 acts of its agents, apparently clothed with its authority. No corpo- 
 ration is empowered by its charter to commit an assault and battery; 
 yet it has frequently been held accountable, in this Commonwealth, 
 for one committed by its servants. 
 
 Bills of a bank issued without consideration, and even stolen, are 
 good in the hands of an innocent holder for value. Many other il- 
 lustrations might be given, but enough has been said to show the 
 principle on which our decision rests.** 
 
 Judgment for the plaintiffs. 
 
 FRANKLIN CO. v. LEWISTON INSTITUTION FOR 
 
 SAVINGS. 
 
 (Supreme Judicial Court of Maine, 1877. 68 Me. 43, 28 Am. Rep. 9.) 
 
 Walton, J.*" The claim which we are required to pass upon orig- 
 inated in this way : 
 
 In April, 1875, the trustees of the Lewiston Institution for Sav- 
 ings subscribed for $50,000 worth of the capital stock of the Conti- 
 nental Mills, one of the manufacturing corporations doing business 
 at Lewiston. The savings bank had no money with which to pay 
 for the stock, and in July following the Franklin Company, another 
 corporation doing business at Lewiston,^ agreed to pay the $50,000 
 to the Continental Mills, take the notes of the savings bank for the 
 amount, and hold the stock as security. Five notes for $10,000 
 each, payable in one year from date, with interest semi-annually, 
 were prepared and signed by the treasurer of the savings bank, and 
 sent to WilUam.B. Wood, at Boston; and he being treasurer of 
 
 84 Accord: Moss v. Rossle Lead Mining Co., 5 Hill (N. T.) 137 (1843), sem- 
 ble; In re Coltman, L. R. 19 Ch. D. 64 (1881); In re David Payne & Co., 
 Ltd., L. R. 1904, 2 Ch. 608 ; Miners' Ditch Co. v. Zellerbach, 37 Cal. 543, 99 
 Am. Dec. 300 (1869), semble; Ossipee Mfg. Co. v. Canney, 54 N. H. 295 
 (1874). 
 
 Compare Wright v. Pipe Line Co., 101 Pa. 204, 47 Am. Rep. 701 (1882). 
 
 SE A part of the opinion is omitted. 
 
362 
 
 POWERS AND LIABILITIES (Ch. 3 
 
 the Continental Mills as well as treasurer of the Franklin Company, 
 paid the money in his latter capacity to himself in his former pa- _^ 
 pacity, and afterwards (when does not appear) made a certificate, 
 signed by himself and the president of the Continental Mills corpo- 
 ration, stating that the Franklin Company was the "proprietor of 
 five hundred shares in the Continental Mills, as collateral." It does ' 
 not appear that this certificate was ever delivered to the savings 
 bank,' or offered to them, or that any of its officers ever knew of- its 
 existence. And it does not show upon its face that the saving^ bank 
 has any interest in the stock, or connection with it whatever. The 
 Lewiston Institution for Savings having become insolvent, in May, 
 1876, commissioners were appointed to receive and decide upon all 
 claims against the institution. The Franklin Company presented for 
 allowance the five notes above described, and afterwards filed a 
 claim for $50,000 and interest, as so much money paid out by the 
 Franklin Company at the request and for the benefit of the savings 
 institution. Both claims were rejected by the commissioners, and 
 the case is before the law court on, report agreed to by counsel. 
 There is no other consideration for the notes, and no other basis for 
 the claim for money paid, than the payment to the Continental Mills 
 above described. The claims, therefore, are one in substance, al- 
 though presented in two forms. 
 
 [After discussing the power of the^trustees to make_ the instrument 
 in question, the Court proceeds :] 
 
 II. The second ground on which the claim of the Franklin Com- 
 pany is sought to be maintained is this; it is said that where a cor- 
 poration is authorized to hire money for any purpose, mere knowl- 
 edge on the part of the lender that it is to be used for an illegal pur- 
 pose will not preclude a recoverjr. This may be true.^" But the 
 claim in this case is not for money lent. It is for money paid. •^ And 
 the latter is the only cladm which the evidence tends to support. Or- 
 dinarily such a distinction is unimportant.i But. in this case It is vital. 
 It is the hinge on which the case turns. It may be true that when 
 money is lent, and the borrower is left free to use it as he pleases, 
 mere knowledge on the part of the lender that the borrower intends 
 to use it for aji illegal purpose will not bar a recovery. But it is well 
 settled, that if it be a part of the agreement that the money shall- be 
 used for an illegal purpose, or anything, is done by the lender in 
 furtherance of such a use of the money, a recovery therefor can- 
 not be had. iThus, the mere knowledge of the lerider that the bor- 
 rower of money intends to gamble with it, if, by the terms of the 
 agreement, the latter is left free to use it as he pleases, may not 
 constitute a bar to a recovery of it. But it is well settled that if 
 
 80 See Marion Trust Co. v. Crescent Loan Co., 27 Ind. App. 451, 61 N. E. 
 688, 87 Am. St. Hep. 257 (1901) ; Sturdevant Bros. & Co. v. Farmers & Mer- 
 chants Bank, 69 Neb. 220, 95 N. W. 819 (1903). ■ 
 
Sec. 3) 
 
 ULTRA VIRES ACTS 3G3 
 
 the money is lent for the express purpose of enabling the borrower to 
 
 gamble with it, a recovery cannot be had. Cannan v. Bryce, 3 Barn. 
 
 & Aid. 179; McKinnell v. Robinson, 3 M. & W. 434; Tracy v. Tal- 
 
 mage, 14 N. Y. 162, 67 Am. Dec. 132. 
 
 As already stated, there is no claim in this case for money lent. 
 
 And the evidence would not support such a claim, if there was one. 
 
 The money was never for a moment in the possession of the bank. \ 
 
 Never, for a moment, did the bank possess either the right or the 
 
 power to use the money as it pleased. The agreement was that the 
 
 Franklin Company should pay, for the stock for which the trustees 
 
 of the bank had subscribed, and take the stock and hold it as security. 
 
 We thus see that by the very terms of the agreement the money was 
 
 to be applied to a specified purpose, and that purpose an illegal one. 
 
 We use the word "illegal," not in the sense of malum in se, nor 
 
 malum prohibitum, but in the sense in which it is used to describe the 
 
 unauthorized acts of corporations, — acts and contracts ultra vires. 
 * * * ' , 
 
 III. Another ground on which the FrankUn Company claims to 
 recover is that, when a contract has been executed, in whole or in 
 part, and the corporation has thereby received a benefit, a recovery 
 may be had by the other contracting party to the extent of the bene- 
 fit thus conferred, notwithstanding the contract was ultra vires.- It 
 is a sufiScient answer to this argument to say that the case, fails to 
 show that the savings bank has been thus benefited. The $50,000 
 paid by the Franklin Company was paid directly to the Continental 
 Mills. Not a cent of it ever came into the possession of the savings 
 bank. The stock for which the $50,000 was paid was issued directly 
 to the Franklin Company. The title never for a moment vested in 
 the savings bank. Although, by the terms of the agreement, the 
 Franklin Company was to hold the stock as collateral security merely, 
 still, the agreement, being ultra vires, cannot be enforced. Nothing 
 possessing the slightest intrinsic value, not even a right of action, 
 was ever secured to or vested in the savings bank. There is abso- 
 lutely nothing on which a quantum meruit or a quantum valebat 
 claim can be sustained. 
 
 Decision of the commissioners afifirmed. Claim of the Franklin 
 Company disallowed. 
 
 Appleton, C. J., and Barrows, Virgin, Peters, and Libeey, JJ., 
 concurred. 
 
 LOUISVILLE, N. A. & C. R. CO. v. LOUISVILLE TRUST CO. 
 
 (Supreme Court of the United States, 1899. 174 U. S. ^52, 19 Sup. Ct. 817, 
 
 43 L. Ed. 1081.) 
 
 This was a bill in equity filed April 9, 1890, in the circuit court of 
 the United States for the district of Kentucky, by the Louisville, New 
 
364 I POWERS AND LIABILITIES (Ch. 3 
 
 Albany & Chicago Railway Company (hereafter called the "New Al- 
 bany Company"), described as "a corporation duly organized and ex- 
 isting under the laws of the state of Indiana," against the Ohio Valley 
 Improvement & Contract Company (hereafter calledl the "Construc- 
 tion Company"), the Richmond, Nicholasville, Irvine & Beattyville 
 Railway Company (hereafter called the "Beattyville Compapy"), and 
 the Louisville Trust Company, all corporations of the state of Ken- 
 tucky, and other citizens of Kentucky, of New York, and of Illinois, 
 for the cancellation of a contract between the New Albany Company 
 and the Construction Company, and of a guaranty indorsed by the 
 New Albany Company, in accordance with that contract, upon bonds 
 issued by the Beattyville Company, and held by the other defendarits, 
 and for an injunction against suits thereon. The Louisville Banking 
 Company, a corporation of Kentucky, and other bondholders, were 
 afterwards made defendants by a supplemental bill. 
 
 The bill alleged that the guaranty was fraudulently placed on the 
 bondls of the Beattyville Company by a minority of the plaintiff's di- 
 rectors, who, as individualsj had secured the option to buy the bonds 
 at a low price, and .also averred that the guaranty was void for want 
 of the presence of a quorum of the directors at the meeting which 
 directed it to be executed, as well as for want of a previous petition 
 in writing by a majority of the stockholders, pursuant to a statute of 
 Indiana. 
 
 Pleas to the jurisdiction, asserting that the plaintiff was a corpora- 
 tion and a citizen of Kentucky, as well as demurrers to the bill for 
 want of equity, were overruled by the court. 69 Fed. 431, 432; 57 
 Fed. 42. 
 
 The case was afterwards heard upon pleadings and proofs, and, so 
 far as is material to be stated, appeared to be as follows: st * * * 
 
 Mr. Justice Gray.'' [After discussing questions of jurisdiction, the 
 court proceeds :] 
 
 The statute of Indiana of 1883 is entitled "An act to authorize 
 railroad corporations organized under the laws of the state of Indi- 
 ana to indorse and guarantee the bonds of any railroad company 
 organized under the laws of any adjoining state," and enacts, in sec- 
 tion 1, that "the board of directors of any railway company organized 
 under and pursuant to the laws of the state of Indiana, whose line 
 of railway extends across the state in either direction, may, upon the 
 petition of the holders of a majority of the stock of such railway 
 company, direct the execution by such railway company of an in- 
 dorsement guaranteeing the payment of the principal and interest of 
 the bonds of any railway company organized under or pursuant to 
 the laws of any adjoining state, the construction of whose line or 
 lines of railway would be beneficial to the business or trafific of the 
 railway so indorsing or guaranteeing such bonds." Section 2 pro- 
 
 «7 statement of facts abridged. ss a part of the opinion is omitted. 
 
Sec. 3) ULTRA VIBES ACTS 365 
 
 vides that such petition of the stockholders shall state the facts relied 
 on to show the benefits accruing to "the corhpany indorsing or guar- 
 anteeing the bonds"; and section 3 provides that "no railway com- 
 pany shall, under the provisions of this act," indorse or guarantee 
 such bonds to an amount exceeding half the par value of the stock 
 of "the railway company so indorsing or guaranteeing." 
 
 The Ivouisville, New Albany & Chicago Railway Company was a 
 railway company organized urider and pursuant to the laws of In- 
 diana, and its line of railway extended across the state ' from south 
 to north. On October 8, 1889, the board of directors, at a regular 
 meeting, passed a resolution, entered upon its records, authorizing 
 the president and secretary to execute, under seal of the company, 
 a contract by which the company agreed with a corporation which 
 was constructing the railroad of the Beattyville Company, a railroad 
 corporation of Kentucky, to guarantee the payment by the Beattyville 
 Company of the principal and interest of bonds of that company, by 
 indorsing on each bond a guaranty, executed in like manner, by 
 which, "for value received, the Louisville, New .Albany & Chicago 
 Railway Company hereby guarantees to the holder of the within 
 bond the payment, by the obligor thereon, of the principal and in- 
 terest thereof in accordance with the tenor thereof." The contract, 
 as well as the guaranty on many of the bonds, was accordingly ex- 
 ecuted by the president and secretary, and under the. seal of the com- 
 pany, and the contract was spread upon the records of the board of 
 directors. No petition of a majority of the stockholders for the ex- 
 ecution of the guaranty was ever presented, as required by the stat- 
 ute; there was no evidence that the stockholders ever authorized or 
 ratified the contract or the g'uaranty; and, at the next annual meet- 
 ing of the stockholders, in March, 1890, it was voted to reject and 
 disapprove both the contract and the guaranty, as having been made 
 without legal authority or the approval of the stockholders. 
 
 Before that meeting was held, 125 of the bonds thus guaranteed 
 had been sold by the Construction Company to the Louisville Trust 
 Company, and 10 bonds to the Louisville Banking Company, each of 
 which companies took those bonds in good faith and without notice 
 that no petition had been presented by a majority of the stockholders 
 for the execution of the guaranty. 
 
 Forty-five more of the bonds were purchased by the Louisville 
 Banking Company from the Construction Company after that meet- 
 ing, and with notice that a majority of the stockholders had never 
 petitioned for, but had disapproved, the execution pf the guaranty. 
 The Louisville Banking Company, thus having notice, when it took 
 these 45 bonds, that the prerequisite to the execution of the guaranty, 
 under the statute of Indiana of 1883, had not been complied with, 
 was not a bona fide holder of these bonds, and should not be allow- 
 ed to enforce the guaranty thereon against the plaintiff. 
 
366 POWERS AND LIABILITIES (Ch. 3 
 
 The controverted question is whether the bonds which the Louis- 
 \dlle Trust Company and the Louisville Banking Company, respec- 
 tively, purchased in good faith, and without notice of the want of the 
 assent of the majority of the stockholders, are valid in the hands of 
 these companies. 
 
 The guaranty by the Louisville, New Albany & Chicago Railway 
 Company of the bonds of the Beattyville Company was not ultra 
 vires, in the sense of being outside the corporate powers of the for- 
 mer company ; for the statute "of 1883 expressly authorized such a 
 company to execute such a guaranty, and its board of directors to 
 direct its execution by the company. The statute, indeed, made it 
 a prerequisite to the action of the board of directors that it should 
 be upon the petition of a majority of the stockholders; but this 
 was only a regulation of the mode and the agencies by which the 
 corporation should exercise the power granted to it. 
 
 The distinction between the doing by a corporation of an act be- 
 yond the scope of the powers granted to it by, law, on the one side, 
 and an irregularity in the exercise of the granted powers, on the 
 other, is well . established, and has been constantly recognizted by 
 this court. 
 
 It was clearly indicated in two of its earliest judgments on the 
 subject of ultra vires, both of which were delivered by Mr. Justice 
 Campbell. 
 
 In Pearce v. Railroad Co., 21 How. 441, 16 L. Ed. 184, two rail- ' 
 road . corporations of Indiana were held not to have the power to 
 purchase a steamboat to be employed on the Ohio river, to run in 
 connection with their railroads, because this "diverted their capital 
 from the objects. contemplated by their charters, and exposed it to 
 perils for which they aiforded no sanction. * * * Persons deal- 
 ing with the managers of a corporation must take notice of the 
 limitations imposed, upon their authority by the act of incorporation. 
 * * * The public have an interest that neither the managers nor 
 stockholders of the corporation shall transcend their authority," and 
 the contract in question "was a departure from the business" of the 
 railroad corporations, and "their officers exceeded their authority." 
 21 How. 443, 445 (16 L. Ed. 184). 
 
 In Zabriskie v. Railroad Co., 23 How. 381, 16 L. Ed. 488, the 
 statutes of Ohio empowered railroad corporations, "by means of 
 their subscription to the capital stock of any other company, or other- 
 wise," to aid it in the construction of its road, for the purpose of 
 forming a connection between the two lines, .provided that no such 
 aid should be furnished until two-thirds of the stockholders repre- 
 sented and voting, at a meeting called by the directors, should have 
 assented thereto. The directors of three raili;oad corporations made 
 a contract with another railroad corporation to guarantee its bonds, 
 as part of an arrangement for connecting the four roads ; and the 
 
5eC.3) , ULTRA VIRES ACTS 367 
 
 bonds were accordingly guaranteed, and .were Issued to bona fide 
 holders, without any meeting of the stockholders having been called. 
 But, upon evidence that the stockholders had subsequently assented to 
 the transaction, the bonds were held to be valid ; and the court ex- 
 pressly declared that the doctrine that a corporation cannot vary from 
 the object of its creation, and that persons dealing with a company 
 must take, notice of whatever is contained in the law of its organiza- 
 tion, does not apply to "those cases in which a corporation acts with- 
 in the range of its general authority, but fails to, comply with some 
 formality or regulation which it should not have neglected, but which 
 it has chosen to disregard." 23 How. 398, 16 L. Ed. 488. * * * 
 
 One who takes from a railroad or business corporation, in good 
 faith, and without actual notice of any inherent defect, a negotiable 
 obligation issued by order of the board of directors, signed by the 
 president and secretary, in the name and under the seal of the cor- 
 poration, and disclosing upon its face no want of authority, has the 
 right to assume its validity, if the corporation could, by any action 
 of its officers or stockholders, or of both, have authorized the execu- 
 tion and issue of the obligation. 
 
 In Merchants' Bank v. State Bank, 10 Wall. 604, 644, 645 (19 U 
 Ed. 1008), this. court stated, as an axiomatic principle in the law of 
 corporations, this proposition : "Where a party deals with a cor- 
 poration in good faith (the transaction is not ultra vires), and he, is 
 unaware of any defect of authority or other irregularity on the part 
 of those acting for the corporation, and there is nothing to excite 
 suspicion of such defect or irregularity, the corporation is bound by 
 the contract, although such defect or irregularity in fact exists. If 
 the contract can be valid under any circumstances, an innocent party 
 in such a case has a right to presume their existence, and the corpo- 
 ration is estopped to deny them." The proposition was supported 
 by citations of many English and American cases, and among them 
 -Bank v. Turquand (1856) 6 El. . & Bl. 327. And the justices of, this 
 court, while differing among themselves in the application of the 
 principle to municipal bonds, have always treated Bank v.. Turquand 
 as well decided upon its facts. Knox County v. Aspinwall, 21 How. 
 539, 545, 16 L-Ed. 208; Moran v. Miami County, 2 Black, 722, 724, 
 17 L. Ed. 342; Gelpcke v. City of Dubuque, 1 Wall. 175, 203, 17 
 L. Ed. 520; St. Joseph Tp. v. Rogers, 16 Wall. 644, 666, 21 L. Ed. 
 328; Humboldt Tp. v. Long, 92 U. S. 642, 650, 23 L. Ed. 752. And 
 see Zabriskie v. Railroad Co., 23 How. 381, 16 L. Ed. 488, above 
 cited. 
 
 Bank v. Turquand was an action upon a bond signed by two di- 
 rectors, and under the seal of the company, and given for money 
 borrowed by a joint stock company formed under an act of parlia- 
 ment Hmiting its powers to the acts authorized by its deed of settle- 
 ment, and whose deed of settlement provided that the directors might 
 
368 POWERS AND LIABILITIES (Ch. 3 
 
 SO borrow such sums as should, by a resolution passed at a general 
 meeting of the company, be authorized to be borrowed. The de- 
 fense was that no such resolution had been passed, and that the bond 
 had been given without the authority of the shareholders. The court 
 of exchequer chamber, affirming the judgment of the queen's bench, 
 without passing upon the sufficiency of the resolution in that case, 
 held the company liable on the bond, and, speaking by Chief Justice 
 Jervis, said: "We may now take for granted. that the dealings with 
 these companies are not like dealings with other partnerships, and 
 that the parties dealing with them are bound to read the statute and 
 the deed of settlement. But they are not bound to do more. And the 
 party here, in reading the deed of settlement, would find, not a pro- 
 hibition from borrowing, but a permission to do so on certain con- 
 ditions. Finding that the authority might be made complete .by a 
 resolution, he would have a right to infer the fact of a resolution 
 authorizing that which on the face of the document appeared to be 
 legitimately done." 6 El. & Bl. 332. 
 
 The decision in Bank v. Turquand has been followed, and Lord 
 Wensleydale's dicta to the contrary, a year later, in Ernest v. Nicholls 
 (1857) 6 H. L. Cas. 401, 418, 419, have been disapproved or quahfied, 
 in a long line of decisions in England. Agar v. Society (1858) 3 
 C. B. (N. S.) 725, 753, 755 ; Society v. Harding (1858) El., BL & El. 
 183, 221, 222; In re Athenseum Soc. (1858) 4 Kay & J. 549, 560, 
 561 ; Fountaine v. Railway Co. (1868) L. R. 5 Eq. 316, 321 ; Bank 
 v..Willan (1874) L. R. 5 P. C. 417, 448; Mahony v. Mining Co., 
 (1875) L. R. 7 H. L. 869, 883, 893, 894, 902; County of Gloucester 
 Bank v. Rudry Merthyr Steam & House Coal Colliery Co. [1895] 
 1 Ch. 629, 633. The only English decision, cited at the bar, which 
 appears to support the opposite conclusion, is Commercial Bank v. 
 Great Western Railway (1865) 3 Moore, P. C. (N. §.) 295, which, 
 unless it can be distinguished on its peculiar circumstances, is against 
 the- general current of authority. See, also, a very able judgment of 
 the court of errors and appeals of New Jersey, delivered by Mr. 
 justice Depue, in Water Co. v. De Kay, 36 N. J. Eq. -548, 559-567. 
 
 "In the present case, all natural persons or corporations by whom 
 bonds of«the Beattyville Company bearing the guaranty of the Louis- 
 ville, New Albany & Chicago Railway Company, signed by the prop- 
 er officers of the company and under its seal, were purchased in 
 good faith, and without notice that there had been no petition of a 
 majority of the stockholders . for their execution, had the right to 
 assume that such a petition had been presented, as required by the 
 statute of '1883. 
 
 The records of the railroad corporation and of its board of direc- 
 tors, which would naturally show whether such a petition had on had 
 not been filed, were private records, which a purchaser of the bonds 
 was not obliged to inspect, as he would have been if the fact had 
 
Sec. 3) ULTRA VIRES ACTS 369 
 
 been required by law to be entered upon a public record. Brewer, J., 
 in Blair v. Railroad Co. (C. C.) 25 Fed. 684; ^ Water Co. v. De Kay, 
 36 N. J. Eq. 548, 568; McCormick v. Bank, 165 U. S. 538, 551,>17 
 Sup. Ct. 433, 41 L. Ed. 817; Irvine v. Bank,. 2 App. Cas. 366; 379. 
 
 It follows that the decree of the circuit court of appeals, so far as 
 it ordered the bill to be dismissed with regard to the guaranty on the 
 bonds which the Louisville Trust Company and the Louisville Bank- 
 ing Company took in good faith, and without notice of any want of 
 authority to; execute the guaranty, was correct. 
 
 But, in regard to the guaranty on the bonds which the Louisville 
 Banking Company took with notice that the guaranty had not been 
 authorized by a majority of the stockholders, the decree of the circuit 
 court of appeals needs to be modified. * * * 
 
 VI. Rights in Quasi Contract 
 
 - BARONESS WENLOCK et al. v. RIVER DEE CO. 
 (Supreme Court of Judicature, Court of Appeal, 1887. L. R. 19 Q. B. Div. 155.) 
 
 Application to vary the report of a special referee. The facts 
 were as follows: 
 
 An action had been brought by the plaintiffs, as executors of 
 the late Lord Wenlock, deceased, to recover from the- defendants the 
 amount of moneys -advanced by 'the testator to them. The defence 
 set up was in substance that the moneys had been borrowed by the 
 company ultra vires. It appeared that the testator had advanced 
 large sums of money to the defendant company, tie had also paid 
 off a previous advance of £56,000. from the Rock Insurance Com- 
 pany to the defendants, taking an assignment of that debt and a 
 fresh covenant for repayment to himself by the defendants. The 
 judge at the trial gave judgment for the plaintiffs for the full amount 
 of the advances by the testator to the defendants. Upon appeal the 
 Court of Appeal varied his judgment, and, by order dated May 9, 
 1883, ordered that judgment should be entered for the plaintiffs for 
 the amount of £25,000. (that sum being the full amount which the 
 company had power to borrow) and interest, and also that in addi- 
 tion thereto the plaintiffs should recover judgment for so much and 
 so much only of the sums advanced as was employed in payment of 
 any debts or liabilities ,of the company properly payable by them, and 
 interest from the respective dates of such employment, and that it 
 should be referred to a special referee to inquire as to and report 
 the amount of the interest payable on the said sum of £25,000. as 
 aforesaid, and the amount of the parts of the said sums so em- 
 ployed as aforesaid and the interest thereon. On appeal to the 
 House of Lords they afifirmed the decision of the Court of Appeal. 
 
 RiOH.COKP. — 2i 
 
370 POWERS AND LIABILITIES (Ch. 3 
 
 10 App. Cas. 354. The special referee held am inquiry under the 
 above order, upon which inquiry counsel were heard and witnesses 
 examined, and he thereupon made a report. The plaintiffs now ap- 
 plied to the Court of Appeal to decide certain questions of law raised 
 by such report and to vary the report in certain respects, and there 
 was a cross appHcation to vary such report by the defendants. Vari- 
 ous questions arose on the report with regard to items allowed or 
 disallowed by the referee, whiph the plaintiffs claimed to have al- 
 lowed 'under the order of May 9, 1883, but which the defendants 
 contended should be disallowed. 
 
 The questions raised were briefly as follows: 
 
 In addition to the portions of the moneys advanced which had 
 been applied to the'payment ,of debts or liabilities of the company 
 existing at the time of the ■ respective advances the referee allowed, 
 subject to the opinion of the Court, items in respect of portions of 
 the moneys advanced which had been applied in payment of debts and 
 liabilities of the company which arose subsequently to the respective 
 advances, whereas the defendants contended that he should have dis- 
 allowed such items and allowed only items in respect of moneys ad- 
 vanced which had been applied in payment of debts and liabilities ex- 
 isting at the date of the advances. * * * 
 
 The plaintiffs further claimed to be entitled to. be allowed under 
 the order, in addition to the £25,000. for which they had judgment as 
 being validly borrowed, the amount of all debts and liabilities of 
 the company paid out of that sum of £25,000.^° 
 
 The judgment of the Court (Lord Esher, M. R., and Fry and 
 Lopes, L. J J.) was delivered by 
 
 Fry> L. J. The questions which now require determination in this 
 case arise from the application of the order of this Court of May 9, 
 1883, to the facts as found by Mr. Robinson, the special referee 
 named in the order. 
 
 By that order it was directed that judgment should be entered 
 for £25,000. and interest, and in addition thereto for so much and so 
 much only of the sums advanced to the defendant company by the 
 Rock Life Assurance Company and Baron Wenlock as was employed 
 in the payment of any debts or liabilities of the defendant company 
 properly payable by them, with interest from the respective dates of 
 such employment. It appears that some of the moneys were applied 
 in payment of dfebts and liabilities properly payable by the company 
 at the date of the advances, and some in payment of debts and lia- 
 bilities which arose br became properly payable at dates subsequent 
 to the advances. The defendants contend that only the advances 
 employed in payment of debts and liabilities actually payable at the 
 date of the advance can be brought within the operation of the di- 
 rection in the order. The plaintiffs contend that all these advances 
 
 88 Statement of facts abridged. 
 
Sec. 3) ULTRA VIRES ACTS 371 
 
 are within the direction, and that the date of the accruer of the lia- 
 bility is ihimaterial. 
 
 We are of opinion that the plaintiffs' contention ought to prevail. 
 We are not at liberty to travel beyond or review the declaration con- 
 tained in^ the order of May 9, .1883, which is binding on us not only 
 as a decision of this" Court but by reason of its affirmation by the 
 House of Lords: and in our opinion the order rightly bears the 
 wider construction. It is silent as to any limit of time within which 
 the liabilities are to accrue, or within which they are to be paid: 
 and by fixing the respective dates of the employment of the, sums 
 as the periods of time from which interest is to run, it seems to in- 
 dicate ^hat the date of the employment and not of the advance is the 
 material one. If the court had intended any such limitation of the 
 inquiry as that now contended for by the defendants, we think that 
 it would have found expression, if not in the formal order, at any 
 rate in the oral judgments, but we can find no trace of it. 
 
 But we go further and say that in our judgment the equity in ques- 
 tion knows of no such limitation as that suggested. This equity is 
 based' on a fiction, which, like all legal fictions, has been invented 
 with a view to the furtherance of justice. The court closes its eyes to 
 the true facts of the case, viz., an advance -as a loan by the quasi- 
 lender to the company, and a payment by the company to its cred- 
 itors as," out of its own moneys, and assumes on the contrary that 
 the quasi-lender and the creditor of the company met together and 
 that the former advanced to the latter the amount of his -claim 
 against the company and took an assignment of that .claim for his 
 owio,' benefit. There is no reason that we can find for supposing that 
 this imaginary transaction between the quasi-lender and the creditor 
 was confined to the day and hour of the advance of the money to 
 the "company: in the coffers of the company the money really ad- 
 vanced as a loan is still thought of by the court as the money hi 
 the quasi-lender : and the court, as the author -. of the benevolent 
 fiction on which it acts, can fix its own time ancl place for the en- 
 actment' of the supposed bargain between the two parties who have 
 met and contracted together only in the imagination of the court. 
 
 The true limit of the doctrine we conceive to be stated by ; Lord 
 Selborne, L. C, in delivering the judgment of this court in 'the case 
 of the Blackburn Building Society v. Cunliffe, Brooks & Co., 22 
 Ch. D. 61, at page 71 : "The test," said he, "is, has the transaction 
 really added to the liabilities of the company? If the amount of 
 the company's : liabilities remains in substance unchanged, but there 
 is merely for the convenience of payment a change of the creditor, 
 there is no substantial borrowing in the result, so far as -relates to 
 the position of the company. Regarded in that light, it is consistent 
 with the general principle of equity that those who pay legitimate de- 
 mands which they are bound in some way or other to meet and have 
 
372 POWERS AND LIABILITIES (Ch. 3 
 
 had the benefit of other people's money advanced to them for that 
 purpose, shall not retain that benefit so as, in substance, to make those 
 other people pay their debts. I take that to be a principle sufficiently 
 sound in equity; and, if the result is that by the transaction which 
 assumes the shape of an advance or loan nothing is really added to 
 the liabilities of the company, there has been no real transgression of 
 the principle on which they are prohibited from borrowing." 
 
 Now, the payment of bona fide liabilities arising or accruing sub- 
 sequently to the actual date of the advance has in no way really added 
 to the liabilities of the conipany and thereforfe in no way transgresses 
 the boundaries of the doctrine as laid down by this Court in the case 
 to which we have referred. ' Sir Horace Davey forcibly warned us of 
 the danger of the proposition which we have laid down, and said 
 that it would afford to companies a facile ineans of evading the limit 
 of their borrowing powers. But the danger appears to us imaginary. 
 We do not think that capitalists will be found knowingly and willingly 
 to advance money in the hope of recovering it on the ground of some 
 future subrogation to the future rights of some future creditor. The 
 doctrine has rarely, if ever, done more for any one than snatch a few 
 brands from the burning. In the present case the utmost extension of 
 the doctrine will leave the plaintiffs heavy losers. 
 
 The next question arises in this way. Certain creditors of the com- 
 pany were paid by the bankers of the company: these bankers were 
 paid by the advances of the Rock Company or Lord Wenlock: are 
 the plaintiffs entitled to be subrogated to the rights of these creditors ? 
 It appears to us that they are entitled to be so subrogated : that the 
 right of the bankers, which they obtained by subrogation from the 
 creditors whom they paid, was an equitable liability of the company: 
 and that for the purposes of this inquiry it is immaterial whether the 
 rights of the creditors accrued before or after the advances by the 
 bankers, or the Rock Company, or L,ord Wenlock. 
 
 A similar question was discussed as to a Mr. Green, who was a man- 
 aging director and agent of the company, and to whom payments were 
 made by the company out of which he made disbursements for the 
 company. It was argued that the inquiry must stop at the first pay- 
 ment by the company. But we can find no 'ground for this contention. 
 To follow the money into a debt or liability of the conipany does not 
 add to the liabilities of the company, whether that pursuit be through 
 one or more hands and by one or many steps. 
 
 It is conceded that under the order 6i May 9, 1883, the plaintiffs 
 are entitled to the £25,000. andl to so much of the sums advanced be- 
 yond the i2S,000. as was expended in satisfaction of the debts and lia- 
 bilities of the company. The plaintiffs contend that they are entitled, 
 in addition to all this, to so much of the £25,000. itself as was so ex- 
 pended. They contend that this is given to them by the express terms 
 of the order, and that the point, therefore, is not open to further con- 
 sideration. We do not so read the order ; for it appears to us that the 
 
Sec. 3) ULTRA VIRES ACTS 373 
 
 £25,000. is dealt with separately, in the first plac?, and that the rest 
 of the order deals with sums in every respect outside of and beyond 
 the £25,000. The words in the order "in addition" exclude, in our 
 opinion, all further consideration both of the borrowing of the £25,000. 
 and of its application. And in our opinion this is right in point of 
 reason and principle; for the £25,000. having been validly borrowed 
 became part of the moneys of the company as much as the original 
 subscriptions of the members or the produce of sales of its lands; 
 and no application by the company of its own moneys to the payment 
 of its own debts can be conceived of as a transaction between a quasi- 
 lender to the company and the creditors of the company, or lead to a- 
 subrogation of the creditors' rights to the stranger. If the plaintiffs 
 were to be subrogated to the rights of those creditors who were paid 
 with the £25,000., we do not see why they should not be subrogated 
 to the rights of every creditor paid by the company with its own 
 moneys from' any source whatever. 
 
 The matter must be referred back to the referee with the following 
 declarations and the costs of the hearing which has led to partial suc- 
 cess and failure on each side,' must be costs in the cause. 
 
 Judgment accordingly.'" 
 
 In re WREXHAM, MOLD & CONNAH'S QUAY RY. CO. 
 (Supreme Court of Judicature, 1S99. L. R. 1 Ch. 440.) 
 
 The above railway company had power to borrow money by the 
 creation of three classes of debenture stock. A, B, and C, to the ex- 
 tent of £175,000. by A stock, £175,000. by B stock, and £145,000. by 
 C stock. The A stock had priority as to both principal and interest 
 over the B and C stocks, and the B stock had a similar priority over 
 the C stock. In July, 1897, these borrowing powers were exhausted, 
 the whole of the three classes of debenture stock having been created, 
 and the company had no further power to borrow money. The com- 
 pany had not any funds to enable them to pay the half-year's interest 
 which was about to become due on August 1 on the debenture stocks, 
 and they applied to their bankers, the North and South Wales Bank, 
 to advance them money for the purpose. This the bank consented to 
 do, and the advance was made by their paying the interest-warrants 
 to the stockholders when they presented them for payment. The total 
 sum thus applied was £9,672., of which £3,850. went to pay the interest 
 due to the holders of A debenture stock, £3,380. to pay the interest on 
 the B stock, and the residue to pay the interest on the C stock. 
 
 On September 8, 1897, upon a petition under the Railway Com- 
 panies Act, 1867, presented by the Great Central Railway Company, 
 who were judgment creditors of the Wrexham Company, an order 
 
 9 Compare In re National, etc., Building Society, li. E. 5 Ch. App. 309 
 (1869). 
 
374 POWERS AND LIABILITIES (Ch. 3 
 
 . for the appointment of a receiver was made against that company. 
 The receiver had in his hands enough money to pay a half-year's in- 
 terest to the A stockholders and to leave some surplus for the B stock- 
 holders. The bank claimed, in the first instance, that, to the extent 
 of the whole i9,672. which they had paid to the debenture stockhold- 
 ers, they should be subrogated to the rights of those stockholders, 
 and should, out of any moneys in the hands of the receiver, be paid 
 what they had advanced! in priority to any payment to the debenture 
 stockholders. Romer, J., held that this claim was unfounded. The 
 bank then claimed that, at any rate to the extent of the £3,850. paid 
 to the A stockholders, they were entitled to stand in the shoes of those 
 stockholders and to be paid in priority to any payment to the B and 
 C stockholders out of any surplus remaining after paying the interest 
 due to the A stockholders. Romer, J., decided against this claim also. 
 The bank appealed against both decisions. 
 
 LiNDLEY, M. R. Agreeing as I do with Romer, J., and with the 
 judgments which my brothers have prepared!, and which I have read, 
 I should say nothing more, if it were not that I think I ought to ex- 
 press my dissent from the observations of Fry, L. J., on which the 
 appellants base their contention. The decision of the Court in Bar- 
 oness Wenlock v. River Dee Co., 19 Q. B. D. 155, was quite right, and 
 the judgment in it is very valuable. Fry, L. J., who delivered it, was 
 the last person to shut his eyes and not get at the real facts and sub- 
 stance of any case before him. But in dealing with that case he says 
 (19 Q. B. D. 165) that "the Court closes its eyes to the true facts of 
 the case." I cannot help thinking that this is incorrect. A prohibition 
 against borrowing more tha'n a given sum is only in reality and sub- 
 stance disobeyed when an obligation to pay more than that sum is 
 contracted. Courts of Equity have always looked into the facts to 
 see whether the prohibition has been really disobeyed or not. If it 
 is disobeyed, and to the extent to which it is disobeyed, the prohibi- 
 tion is enforced. But, if the facts when ascertained show that in truth 
 it has not been disobeyed, an advance of money is treated as not pro- 
 hibited, although it may at first sight appear to be so because it is 
 beyond the limited amount. The application of the money borrowed 
 shows whether the obligations of the borrowing company have been 
 increased or not, and the extent, if any, to which they have been in- 
 creased. So far as the money has been applied in discharging debts 
 or liabilities which could be enforced against the company, the prohi- 
 bition against borrowing does not apply to it, and the Courts have so 
 decided. 
 
 The subrogation theory has been had recourse to in order to ac- 
 count for the decisions ultimately arrived at ; but that theory was real- 
 ly not wanted in order to justify them. It was, however, adequate 
 for the purposes for which it was used, and as applied to the cases ' 
 before the Courts it led to just results. But, if logically followed out 
 in other cases, it leads to consequences not only not foreseen by those 
 
Sec. 3) ULTRA VIEBS ACT8 375 
 
 who had recourse to it, but to results so startling that I cannot accept 
 the theory as sound. There is no decision yet in whicl; it has been 
 applied so as to defeat any innocent person, nor so as to place the 
 lender in a better position than that in which he would have been if 
 his loan had not been prohibited!. But that would be the result in the 
 present case, if we adopted that theory and pushed it to its logical 
 consequences, as the appellants contended we ought to do. The Leg- 
 islature (30 & 31 Vict. c. 127, § 26) has recognised and partially acted 
 upon the true principle in enacting that money borrowed by a com- 
 pany for the purpose of paying off, and duly applied in paying off, 
 existing statutory mortgages or bonds of the company shall, so far as 
 the same is so applied, be deemed money borrowed within, and not in 
 excess of, the company's statutory powers. This principle obviously 
 cannot in reason be confined to statutory bonds or mortgages; and 
 Courts of Equity have acted upon the principle, and have not confined 
 its application within arbitrary limits, but have enforced! it more wide- 
 ly than the Legislature, in order to prevent great injustice. They have 
 done so, however, not by closing their eyes to the real facts and acting 
 on a fiction, but by diligently ascertaining the real truth, and by at- 
 tending to the real substance of each case. Even if the fiction of sub- 
 rogation were correct, the maxim "In fictione juris semper existit 
 sequitas" would prevent its application to the present case. 
 
 RiGBY, L. J."^ * * * J think that the great preponderance of 
 authority shews that the doctrine of subrogation has very little, if any- 
 thing at all, to do with the equity really enforced in the cases, and that 
 there is, at any rate, no authority for any subrogation to the securities 
 or priorities of the creditors paid off. Dealing with this case inde- 
 pendently of the authorities, I see no reason why the parties to an 
 illegal lending should have anything more than bare justice dealt out 
 to them; and this they get if they are allowed, as they have hitherto 
 been allowed, to have that portion of the advance actually expended 
 in payment of debts of the company treated as ,a valid advance. If 
 the advance had been within the borrowing powers of the company, 
 the bank could have had no right to the securities or priorities of 
 the creditors paid off. It seems to me that it would be unjust to other 
 creditors that a fiction should be invented for the purpose of making 
 an invalid loan more valuable than a valid one. I entirely agree with 
 what Romer, J., said! about the unsatisfactory way in which such a 
 doctrine as is contended for by the appellants would work in practice, 
 and I do not consider it necessary to repeat it. ' . 
 
 Vaughn Williams, L. J.*^' (after stating the facts). Generally 
 speaking, if a company, which has exhausted its borrowing powers, 
 purports to borrow further money, and thus obtains a supply of money, 
 the loan so contracted is void and ultra vires, and the. lender has no 
 
 »i A psirt of the opinion Is omitted. 
 92 A part of the opinion is omitted. 
 
376 POWERS AND LIABILITIES (Ch. 3 
 
 right of action against the company ; but, nevertheless, in some cases, 
 the person supplying the money is able to obtain recoupment from 
 the funds of the company, and the question to be determined in such 
 a case may be 'stated generally to be, what is the principle upon which 
 the person supplying the money is entitled to recoupment as against 
 the company, and what is his relation in regard to priority to the vari- 
 ous classes of creditors of the company? Now, there seem to me to 
 be two principles upon which the right of recoupment may be enforced 
 by the person supplying the money against the company which has 
 exceeded its borrowing powers. The one principle is, that, although 
 the borrowing power is exhausted, and the transaction which pur- 
 ported to be a loan to the company is as such ultra vires, and there- 
 fore null a^d void, so that the would-be lender can neither enforce re- 
 payment of the loan nor rely upon the securities which he has taken 
 for the loan, yet, if the company apply the money in their hands to 
 the payment of debts actually owing by them, there is thereupon a 
 new transaction between the company and the person who has paid 
 the money for the purpose of the ultra vires loan. * * * 
 
 NORTHWESTERN UNION PACKET CO. v. SHAW. 
 (Supreme Court of Wisconsin, 1875. 37 Wis. 655, 19 Am. Rep. 781.) 
 
 Action by the Northwestern Union Packet Company, a corporation 
 organized to engage in the business of a common carrier on the Mis- 
 sissippi river and its tributaries, against Shaw to recover for the breach 
 of a contract. Shaw agreed to sell 4,000 bushels of wheat to the 
 Packet Company, to be delivered into the barge of the latter company 
 at Shaw's mill. The Packet Company alleges that it has paid $1,000 
 on account of the contract, and furnished the barge, but that Shaw 
 failed to deliver the wheat or to repay the $1,000 so advanced to him. 
 The Packet Company asks judgment for the $1,000 paid on account 
 of the contract ; a specific sum as damages for breach of the contract ; 
 a specific sum for the value of the use of the barge while so detained. 
 The trial court held that the Packet Company had no power to make 
 the contract and directed a verdict for Shaw, on which judgment was 
 entered. Appeal from this ruling. °° 
 
 Lyon, J.** [After sustaining the ruling of the trial court, that the 
 contract is ultra vires, the Court proceedls :] 
 
 But the questions remains whether the plaintiflf is entitled to recover 
 the $1,000. If it can recover it, no good reason is perceived why it, 
 may not do so in this action. The complaint states all the facts es- 
 sential to be averred in an action to recover the same, except that the 
 
 63 Statement of facts substituted. «* A part of the opinion is omitted. 
 
Sec. 3) ULTRA VIRES ACTS 377 
 
 plaintiff had no power to make the contract, and that omission may be 
 supplied by amendment. Such an Amendment cannot prejudice the 
 defendant, for, in the progress of the case thus far, he has constantly 
 asserted such want of power as a defence. 
 
 An extended discussion of the question will not be profitable. There 
 are many adjudications in this country and in England, bearing upon 
 it, some of which are cited in the brief of counsej for the plaintiff. 
 The cases have been carefully examined, and we think the rule may 
 fairly be deduced from them, that when money has been paid upon 
 an executory agreement, which is free from moral turpitude, and is 
 not prohibited by positive law, but which is invalid by reason of the 
 legal incapacity of a party thereto, otherwise capable of contracting, 
 to enter into that particular agreement, or for want of compliance with 
 some formal requirement of the law (as that the contract shall be in 
 writing, and the like), the money so paid may, while the agreement 
 remains executory, be recovered back by the party paying it, in an 
 action for money had and received. 
 
 Many of the cases go farther, and sustain the action when some of 
 the foregoing conditions are wanting. But the' exigencies of this case 
 do not require us to determine how far^the rule may be extended, or 
 what conditions may be omitted therefrom without defeating the ac- 
 tion. The rule is here stated most favorably for the defendant; and 
 yet it is clear that under it the plaintiff may maintain an action 
 to recover the money paid on the invalid agreement., A contract to 
 buy wheat is an innocent one; no statute has prohibited it; and this 
 particular agreement is invalid only because of the accident, that the 
 purchaser is a corporation instead of a natural person, and happens to 
 lack authority to make this particular contract. 
 
 In addition to the cases on this subject cited by counsel, the follow- 
 ing will be found to sustain the views above expressed : . Bagott v. Orr, 
 
 2 Bos. & Pul. 472 ; Lowry v. Bourdieu,. Doug. 468 ; Aubert v. Walsh, 
 
 3 Taunt. 277 ; Busk v. Walsh, 4 Taunt. 290. In Thomas v. Sowards 
 25 Wis. 631, the rule above stated was appHed. See also Brandeis v. 
 Neustadtl, 13 Wis. 142. But it is argued by the learned counsel for 
 the defendant, that the case of M. W. & M. P. R. Co. v. W. & P. P. 
 R. Co., 7 Wis. 59, is an authority fatal to the plaintiff's right to re- 
 cover. That was a mortgage given to secure the performance of an 
 agreement which the court held to be ultra vires. It was, as Chief 
 Justice Whiton said in the opinion, an action founded on the agree- 
 ment and on it alone. The contract failing, the action failed! as a mat- 
 ter of course. In strict obedience to the authority of that decision, 
 we hold in this case, that so far as the action is founded on the void 
 agreement, it cannot be maintained. Had that been simply an action 
 to recover the amount paid by the plaintiff for the use of the defend- 
 ant, it might have been decided! differently. But it was not such an 
 action, and the court did not determine whether such an action could 
 be maintained. The case is not, therefore, an authority against the 
 
378 POWERS AND LIABILITIES (Ch. 3 
 
 plaintiff's right to recover his advances on account of the void execu- 
 tory agreement.''^ > 
 
 By the Court. The judgment of the Circuit Court is reversed, and 
 the cause remanded for a new trial. 
 
 A motion, for rehearing was denied. 
 
 PULIvMAN'S PALACE CAR CO. v. CENTRAL TRANSP. CO. 
 
 (Supreme Court of the United States, 1898. 171 Uw S, 138, 18 Sup. Ct 808, 
 
 43 L. Ed. 108.) 
 
 Bill in Equity by the Pullman Company against the Central Com- 
 pany, praying that the latter company^'be enjoined from bringing 
 more suits against the Pullman Company for rent under a lease by 
 the terms of which the Central Company in 1870 leased to the Pull- 
 man Company its entire plant, and personal property, together with 
 its contracts which it had with railroad companies for the use of 
 its sleeping cars on their roads, also patents belonging to it, for 
 the' term of ninety-nine years. In consideration of these various 
 obligations the Pullman Coftipany agreed to pay an annual rental. 
 The rent was paid until 1885, when the Pullman Company repudiated 
 the lease, since which date the Central Company has brought sev- 
 eral actions for installments of rent. The present bill was filed to 
 enjoin further actions of this kind, and for the adjustment of the 
 rights of the parties with respect to the property of the 'Central Com- 
 pany in possession of the Pullman Company under the lease. 
 
 After the bill was filed, the Supreme Court in the case of Central 
 Transportation Co. v. Pullman Palace Car Co., 139 U. S. 24, 11 
 Sup. Ct. 478, 35 L. Ed. 55, decided the lease, was ultra vires and* void. 
 Thereupon the Pullman Company moved the dismissal of this bill. 
 The Central Company opposed the motion, and filed a cross bill 
 asking for an accounting and relief. 
 
 The trial court refused to dismiss the bill, allowed the cross bill, 
 and on a report of a master awarded the Central Company the sum 
 of $4,235,044. App6al.»» 
 
 Peckham, J."' * * * This brings us to a discussion of the 
 principles upon which a recovery in this case should be founded. 
 The so-called "lease" mentioned in this case has been already pro- 
 nounced illegal and void by this court. 139 U. S. 24, 11 Sup. Ct. 
 478, 35 L. Ed. 55. The contract' or lease vvas held to be unlawful and 
 
 SB Accord: Day v. Spiral Springs Buggy Co., 57 Mich. 146, 23 N. W. 628, 
 58 Am. Rep. 352 (18^85), semble. 
 
 Contra: Grand Lodge v. Waddill, 36 Ala. 313 (1860) ; Chewacla Lime Works 
 V. Dlsmukes et al., 87 Ala. 344, 6 South. 122, 5 L. R. A. 100 (1888), semble. 
 
 88 Statement of facts substituted. 
 
 87 A part of the opinion, dealing with questions of practice and measure of 
 recovery, is omitted. 
 
Sec. 3) ULTRA VIRES ACTS 379 
 
 void, because it was beyond the powers conferred upon the Central 
 Company by the legislature, and because it involved an abandon- 
 ment by that company of its duty to the public. It was added that 
 there was strong ground also for holding that the contract between 
 the- parties was void because in unreasonable restraint of trade, and 
 therefore contrary to public policy. In making the lease, the lessor 
 was certainly as much in fault as the lessee. It was argued on the 
 parb^ of the Central Company that even if the contract sued on were 
 void, yet that having been fully performed on the part of the lessor, 
 and the benefits of it received by the lessee for the '.period covered 
 by the declaration in that case, the defendant should be estopped from 
 setting up the invalidity of the contract . as a defense to the action to 
 recover compensation for that period. But it was answered that this 
 argument, though sustained by the decisions in, some of the states, 
 finds no support in the judgments of this court, and cases in this 
 court were cited in which such recoveries were denied. 
 
 It is true that courts in different states have allowed a recovery in 
 such cases, among the latest of which , is the case of Gaslight Co. v. 
 Claffy, 151 N. Y. 24, 45 N. E. 390, 36 L. R. A. 664, where Chief 
 Judge Andrews, of the court of appeals, examines the various cases; 
 and that court concurred with him in permitting a recovery of rent 
 upon a void lease where the lessee had enjoyed the benefits' of the 
 possession of the property of the lessor during the time for which the 
 recovery of rent was sought. 
 
 But in the case of this lease, now before the court, a recovery of 
 the rent due thereunder was denied the lessor, although the lessee had 
 enjoyed the possession of the property in accordance with the terms 
 of the lease. It was said (page 60 of the report in 139 U. S., and 
 page 488, 11 Sup. Ct. [35 L. Ed. 55]): "The courts, while refusing 
 to maintain any action upon the unlawful contract, have always 
 striven to do justice between the parties so far as could be done con- 
 sistently with adherence • to law, by permitting property, or money 
 parted with on the faith of the unlawful contract to be recovered back 
 or compensation to be made for it. In such case, however, the action 
 is not maintained upon the unlawful contract nor according to its 
 terms, but on an implied contract of the defendant to return, or, fail- 
 ing to do that, to make compensation for, the property or money 
 which it had no right to retain. To maintain such an action was not 
 to affirm, but disaffirm, the unlawful contract." And the opinion of 
 the court ended with the statement that "whether this plaintiff could 
 maintain any action against this defendant, in the nature of a quan- 
 tum meruit or otherwise, independently of the contract, need not be 
 considered, because it is not presented by this record., and has not 
 been argued. This action, according to. the declaration and. evidence, 
 was brought and prosecuted for the single purpose of recovering 
 sums which the defenda;nt had agreed to pay by the unlawful contract. 
 
380 POWERS AND LIABILITIES (Ch. 3 
 
 and which, for the reasons and upon the authorities above stated, 
 the defendant was not liable for." 
 
 The 'principle is not new ; but, on the contrary, it has been fre- 
 quently announced, commencing in cases considerably over 100 years 
 old. It was said by Lord Mansfield, in Holman v. Johnson (decided 
 in 1775) 1 Cowp. 341, that "the objection that a contract is immoral 
 or illegal, as between the plaintifif and defendant, sounds at all times 
 very ill in the mouth of the^ defendant. It is not for his sake, how- 
 ever, that the objection is ever allowed; but it is founded in general 
 principles of policy, which the defendant has the advantage of, con- 
 trary to the real justice, as between him and the plaintifif, by accident, 
 if I may so say. The principle of public policy is this : 'Ex dolo nialo 
 non oritur actio.' No court will lend its aid to a man who founds 
 his cause of action upon an immoral, or an illegal act." 
 
 The cases upholding this doctrine are numerous and emphatic. In- 
 deed, there is really no dispute concerning it, but the matter >of con- 
 troversy in this case is as to the extent to which the doctrine* should 
 be applied to the facts herein. Many of the cases are ^referred to 
 and commented upon in the Opinion delivered in the case in 139 U. 
 S.i24, 11 Sup. Ct. 478, 35 L. Ed. 55, already cited. The right to a 
 recovery of the property transferred under an illegal contract is 
 founded upon the implied promise to return or make compensation 
 for it. For illustrations of the general doctrine as applied to par- 
 ticular facts, we refer in the margin to a few of the multitude of cases 
 upon the subject. 
 
 They are substantially unanimous in expressing the view that in 
 no way and through no channels, directly or indirectly, will (the 
 courts allow an action to be maintained for the recovery of prop- 
 erty delivered under i an illegal contract where, in order to maintain 
 such recovery, it is necessary to have recourse to that contract. The 
 right of recovery must rest upon a disaffirmance of the (contract, and 
 it is permitted only because of the desire of courts to do justice as 
 far as possible to the party who has made payment or delivered 
 property under a void agreement, and which in justice he ought to 
 recover. But courts will not in such endeavor permit any recovery 
 which will weaken the rule founded upon the principles of public 
 policy already noticed.'* * * * 
 
 Judgment appealed from reversed. 
 
 Mr. Justice 'Harlan dissented. , Mr. Justice White dissented, on 
 the ground that the judgment appealed from was the correct amount, 
 and should not be reduced. 
 
 »8 See Brunswick Gas Co. v. United Gas Co., 85 Me. 532, 27 Atl. 525, 35 
 Am. St Rep. 385 (1893). 
 
Sec. 3) ULTEA VIRES ACTS 381 
 
 VII. Torts 
 
 CHESTNUT HILL & SPRING HOUSE TURNPIKE CO. v. 
 
 RUTTER. 
 (Supreme Court of Pennsylvania, 1818. 4 Serg. & R. 6, 8 Am. Dec. 675.) 
 
 This' was an action of trespass on the case, in the common pleas 
 of Montgomery county, for stopping a water course. 
 
 The declaration stated that the defendants below, the plaintiffs in 
 error, were incorporated by an; act of assembly, passed on the Sth" 
 day of March, 1804, entitled "An act to enable the Governor of this 
 Commonwealth to incorporate a company to make an artificial road, 
 from the top of Chestnut Hill, through Flourtown, to the Spring 
 House tavern, in Montgomery county"; that the plaintiff was seised 
 of a messuage, tanyard, and tract of land,; through which a rivulet 
 from time immemorial, had flowed, etc. : and that the defendants 
 contriving, and wrongfully, and injuriously intending to • injure the 
 said plaintiff, and to deprive him of the benefit of working and tan- 
 ning leather, in the said tanyard, and of the profit that might accrue 
 therefrom, did wrongfully and unjustly erect and i set up, certain jet- 
 ties or piers on each side of the said rivulet, by reason whereof the 
 said rivulet was thrown; back, and overflowed the said tanyard, and 
 destroyed a great quantity of hides, etc. 
 
 By the 9th section of the act of incorporation (Pamph.iL. 215) 
 the company had power "to erect permanent bridges over all the wa- 
 ters crossing the; said road." 
 
 The jury found a verdict in favor of the plaintiff, for $305. 
 
 The errors now assigned were: 1. That the Court below, .permit- 
 ted an action to be maintained against a body corporate for a tort. 
 2. That the declaration, ; if such an action could be maintained, set 
 forth no cause of action. 
 
 E. Ingersoll and Ingersoll, for the plaintiffs in error. 
 
 A recurrence to the history of actions will show that, as early as 
 the time of Bracton, a distinction existed between those which arose 
 ex contractu, and those which arose ex delicto. Anciently the action 
 of; debt was almost the only remedy for the recovery of money. Tres- 
 pass was confined to cases of force. In the times of Edward I debt 
 was the form of action in which money was recovered, whether due 
 on parol contracts or by specialty; specific chattels in detipue, while 
 trespass was restricted to cases of direct and immediate injury to 
 person or property. In the reign of Edward III debt continued to be 
 the usual remedy for the recovery of money .on most contracts, but 
 actions of account, annuity, and covenant, were also in use. Trespass 
 became in this reign more general, (but was usually confined to the 
 
382 POWHES AND LIABILITIES (Ch. 3 
 
 redress of injuries to, the person, as by battery or assault, and to prop- 
 erty, as by taking goods ; and entering into houses and lands; it was 
 never held, however, to extend to corporate bodies., -About the mid- 
 dle of the reign of Edward III, the statute, of Westminster 2d au- 
 thorized writs to be framed in consimiU casu, under which the action 
 of trespass was greatly enlarged in its scope, and so modified as to 
 be adapted to every man's own case. The first action of this de- 
 scription occurred in the 22d year of this , reign, and was brought 
 against a man who undertook to convey the plaintiff's horse across 
 the Humber, and so overloaded his boat that the horse was lost. 
 During the reigns of Richard II, Henry IV, and Henry V actions 
 on the case became very frequent. In;the time of Henry IV the 
 term trespass on the case, was in familiar use. Before that period, 
 this action, though applied to cases .of consequential damage, was 
 called an action of trespass simply. Its nature and character were 
 theti better understood, and the distinction betweeh trespass and tres- 
 pass on the case, was marked by a more nice discrimination. Wheth- 
 er it could be maintained on an executory promise, was much dis- 
 cussed at this time; it was however discountenanced, and did not 
 receive the sanction of the Judges until the reign of Henry VII. 
 Reeve's History of English Law. Part i. 230. Part. ii. 28, 36, 138, 
 179, 182, 297, 346. Part ii. 22 Hen. VII. 
 
 It was never, however, pretended, that an action of trespass vi et 
 armis, would lie against a coi^poration, which, from its nature, ;is 
 incapable of committing a tort; nor can the same thing in effect be 
 done, by; changing the form of action, and calling it an action on the 
 case. Corporations can no more be guilty of torts than executors; 
 the analogy between them, in this respect, is strong, and it has been 
 decided, that trover does not lie against an executor for a conver- 
 sion by his testator. Hambly v. Trott, Comp. 372. Indeed, it was 
 once doubted, whether assumpsit would lie against a corporate body, 
 because it could make no promise without affixing its seal, and the 
 Supreme Court of this state, went so far on one occasion as to de- 
 cide, that it would not. Breckbill v. Turnpike Company, 3 Dall. 496, 
 1 E. Ed. 694. The remedy for a tort is; not against the corporation, 
 but against the individual who commits it, who may have his action 
 over against those; who employed him. The relation of master and 
 servant, as it exists between individuals, does not hold between cor- 
 porations and those who act under their orders. Kyd on Corp. 223, 
 260, 450. If the servant of a corporation commit an assault and 
 battery, it; will not be pretended, that the corporation is responsible. 
 If it be not responsible for an assault and battery committed by its 
 servant, the relation of master and servant does not exist; because 
 nothing is more clear than that a master is responsible for the torts 
 of his; servant, committed in the course of his master's business. How 
 can a distinction be drawn between an assault and battery, and in- 
 
Sec. 3) ULTRA VIKES ACTS 383 
 
 juries of the nature of that complained of in this suit?; It is impossi- 
 ble to say where the line should be placed. 
 
 Corporations ; are the creatures of the law, of a highly refined and 
 intangible nature, whose properties and attributes, lawyers alone can 
 understand. Deriving their existence from the law, they must be 
 governed by the terms of the law which creates them. They must 
 proceed and be pursued in the path prescribed by the law. If the cor- 
 porators do an act, beyond; their corporate powers, they, as individ- 
 uals, and not the corporation of which they are members, must an- 
 swer it. If the corporation itself enter into; a contract not authorized 
 by its charter, no action founded on the contract can be sustained, 
 though the individual members may; be sued. Suppose an insurance 
 company should undertake to make a turnpike road, or to build a 
 church, could those who were, employed by them, recover against the 
 corporation as such ? Every principle of the law of corporations for- 
 bids it. Now, a corporation never was and never; can be authorized 
 by law to commit a tort ; they can invest no one with power for that 
 purpose.; If, therefore, an agent constituted for a legal purpose, in- 
 flict an injury, the corporation is no more answerable, than it would 
 be for an act of that agent, done without any authority whatever; de- 
 rived from it, because being unauthorized to commit a wrong, it is 
 out; of the scope of its corporate powers. The act of the laW, like 
 the act of God, can work a wrong to no one, and if a man sustain 
 damage by it, it is damnum absque injuria. The plaintiff in this case, 
 therefore, must look to the individual from whose acts, he sustained 
 an injury, who never was,; and never could be authorized to commit a 
 tort. The principle that a body corporate can only act in strict pur- 
 suance of the objects of its incorporation, | is stated and exerriplified in 
 the conclusion of the Lord Chancellor's opinion, in the case of Child 
 V. Hudson's Bay Company, 2 P.;Wms. 209. It 'is also established by 
 the cases of Beatty v. Marine Insurance Company, 2 Jo]ins. (N. Y.) 
 1 14, 3 Am. Dec. 401, Head v. ; Providence Insurance Company, 2 
 Cranch, 166, 2 L. Ed. 229, Steele v. President, etc., of Lock Naviga- 
 tion, 2 Johns. (N. Y.);283, and McClenachan v. Curwen, 6 Bin. (Pa.) 
 509. " ' , ■ 
 
 Between nonfeasance and malfeasance, a marked distinction exists. 
 It is not denied, that for; nonfeasance, actions of trespass on the case 
 have been sustained, as in the case of the Mayor of Lynn (in error) 
 V. Turner, Cowp. 86, where the action was against the corporation of 
 Lynn Regis, for neglect of duty, in not keeping a creek in repair; 
 in the case of Townsend v. Susquehannah Company, 6 Johns. (N. Y.) 
 90, for neglecting to repair a bridge, and in several similar cases. 
 Gray v. Portland Bank, 3 Mass. 364, 3 Am. Dec. 156; Stevens v. 
 Middlesex Canal, 12 Mass. 466." - In Riddle v. Proprietor of Locks 
 and Canals on the Merrimac, 7 Mass; 169,; 5 Am. Dec. 35, Parsons, 
 C. J., lays down the law more broadly than by his authorities he is 
 
384 POWERS AND LIABILITIES (Ch. 3 
 
 warranted in doing, .yet he does not go so far as to assert the genr 
 eral proposition, that trespass will lie against a corporation. He 
 merely says, that in certain cases, trespass may be maintained; and 
 it is to be observed, that the action in which the opinion was deliv- 
 ered, was for a nonfeasance; a neglect of a corporate duty in not 
 keeping the canal in order. 
 
 On recurring; to ancient authorities, it will appear, that trespass 
 against a corporation for a tort, has never been sustained. Thorpe, 
 J., in the Book of Assizes, 22 Edw. Ill, p. 100, expressly; says, that 
 trespass never lies against a corporation. A corporation and an in- 
 dividual cannot;be joined in trespass as defendants. 8 H. VI, 1. pi. 
 2. A corporation cannot commit a disseisin except for its own use. 
 Mich. 8 H. VI, pi. 34. p. 14. Mich. 9. H.;VI, pi. 9. p. 36. Hil. 22. 
 H. VI, pi. 36. p. 46. Trespass does not lie against a corporation; in 
 its corporate name. Vin. Corp. pi. 15. p. 300. Nor will; an attach- 
 ment lie. Id. B. A. pi. 3. p. 311. Nor replevin. Id. X. pi. 17. p. 308. 
 In trespass against an abbot he shall be named by his name of bap- 
 tism. Id. Q. pi. 9. p. 300. An action for a false return to a manda- 
 mus, must be against the individual members of the corporation. Id. 
 Q.pl. SO. p. 303. A corporation cannot beat or be beaten. Id. Z. 
 pi. 2. p. 309. If a corporation disseise, it is in their natural and 
 not in their corporate capacity. Bac, Ab. Corp. E. pi. 5. Tres- 
 pass does not lie against a corporation. Com. Dig. Plead. 2. B. 
 p. 196. * * * 
 
 Binney, for the defendant in error. 
 
 This case presents three questions. 1. Whether a corporation can 
 commit a tort? 2. Whether, if it can^ this is the proper form of ac- 
 tion? 3. Whether the cause of action is well set forth? 
 
 It must now be taken as proved, that the company gave authority 
 to their servants to do the act complained of. The rule betwe& cor- 
 porations and their servants is substantially the same, as between in- 
 dividuals and their servants. If, therefore, they gave their servants 
 power to do an act in pursuance of their corporate character, and they 
 do it improperly, the corporation are responsible in the same manner 
 as any other master. Why should a difference exist, and why should 
 a corporate body be protected in the commission of wrong? If a cor- 
 poration be the intangible being it is asserted to be, a greater and more 
 mischievous monster cannot be imagined. According' to the doctrine 
 contended for, if they do an act within the scope of their corporate 
 powers, it is legal, and they are not answerable for the consequences. 
 If the act be not within the range of their legitimate powers, they had 
 no right by law to dto it; it was not one of the objects for which they 
 were incorporated, and, therefore, it is no act of the corporation at all. 
 This doctrine leads to absolute impunity for every species of wrong, 
 and can never be sanctioned by any Court of justice. This master is 
 responsible for the acts of the servant, not because he has given him an 
 authority to do an illegal act, but from the relation subsisting between 
 
Sec. 3) ULTRA VIRES ACTS 385 
 
 them. If the servant exceed the power he has received, the master 
 must answer it. So if the company give their servant authority to 
 make a rbad, in pursuance of their power to do so, and he exceeds that 
 authority, they are answerable, because he is their servant. 
 
 The rule which makes the master responsible for the acts of the 
 servant, is declared by Sedgwick, J., in delivering the opinion of the 
 Court, in the case of Gray v. Portland Bank, 3 Mass. 385, 3 Am. Dec. 
 156, to apply with peculiar force to corporations and their agents. 
 The position that a corporation can do no wrong, is pernicious in 
 its consequences, and unfounded in law. If I put a note in bank, and 
 wish to get it out, to put it in suit, and the bank refuse to deliver it, 
 surely the remedy is an action of trover. If I refuse an exorbitant toll, 
 in consequence of which, my horse is taken from me, and I cannot get 
 him from the toll gatherer, can it be doubted, that I may have an ac- 
 tion of trover against the company ? If I cannot look to the company 
 there is no remedy, because the toll gatherer may be worth nothing, 
 or may have gone off; nor can the individual members be resorted 
 to, unless, they were guilty of malice. If a quagmire or any other 
 nuisance exist, the supervisors where there is no turnpike company 
 may be indicted ; and where a company are invested with the duties 
 of supervisors they may be indicted. The corporators as individuals 
 cannot be indicted, because it is not within the line of their duty as 
 such. 
 
 As to the form of action, it is difficult to point out any other rem- 
 edy for injuries of this description than trespass on the case, and if 
 there be no other remedy, this is the right one. Assumpsit certainly 
 would not lie, because there was no contract ; nor would trespass, vi et 
 armis, because the damage was consequential. The old! authorities 
 which have been referred to, belong to a period, when the English 
 lawyers were more distinguished for subtlety than for sound sense; 
 and when the nature of corporations was greatly refined upon. It 
 appears, however, from 2 Inst. 697, 703, that a corporation was then 
 considered as substantially an inhabitant or occupier ; and subsequent- 
 ly 'in Re* V. Gardener, Cowp. 79, it was held, that a corporation seised 
 of land for their own profit in fee, are within the statute of 43 El. c. 
 2, inhabitants or occupiers of such lands, and liable in respect there- 
 of, to be rated in their corporate capacity to the poor. In the Supreme 
 Court of the United States, it has been decided, that a corporation 
 may sue in the Circuit Court of the United States as a citizen. Bank 
 of the United States v. Deveau, 5 Cranch, 65, 3 L. Ed. 38. The law 
 on the subject of corporations, has of late been greatly and beneficially 
 altered. It was formerly held, that they could do nothing except under 
 their seal, and for that reason assumpsit would not lie against them. 
 All these niceties, however, are now repudiated, and they may enter 
 into contracts either express or implied, without seal. When a cor- 
 poration is acting within the scope of the legitimate purposes of its 
 institution, all parol contracts made by its authorized agents, are ex- 
 
 RlCH.CORP. — 25 
 
386 POWERS AND LIABILITIES \ (Ch. 3 
 
 press promises by the corporation, and all duties imposed on them by 
 law, and all benefits conferred at their request, raise implied promises, 
 on which an action lies. Bank of Columbia v. Patterson's Administra- 
 tors, 7 Cranch, 299, 3 L. Ed. 351. 
 
 The opinion of Thorpe, J., which is much relied on, was nothmg 
 more than a dictum, and was grounded upon the necessity which then 
 existed of a capiatur pro fine and exigent, which could not be entered 
 against a corporation. These, however, are now exploded, and giv- 
 ing to the assertion of Thorpe, all the weight to which it can possibly 
 be entitled, the authority must fail, because the reason of it no longer 
 exists. The distinction taken between a misfeasance and a nonfeas- 
 ance is altogether ideal; it has no solid foundation. The authorities 
 all show, that the action will lie in either case. If a company be guilty 
 of a tort by neglecting a road or bridge, how can they be reached but 
 in this form of action ? That this is the proper form, is proved by the 
 cases adduced on the opposite side. Mayor of Lynn v. Turner, was 
 clearly an action of trespass on the case, for a tort ; so was Townsend 
 V. Susquehannah Turnpike Company and) Riddle v. Proprietors of 
 Locks, etc., on Merrimack. In two of these cases the point was not 
 made, and in the third it was overruled. As respects the form of 
 action, there is no difference between nonfeasance and misfeasance; 
 trespass on the case, is the general form. , 
 
 We are, therefore brought back to the point from which we set out, 
 whether a corporation can commit a misfeasance, which is clearly 
 proved, not only by the late, but by the ancient authorities, and even 
 by some of those which have been cited for the plaintiffs in error. 
 Trespass against the Mayor and Commonalty of York; plea that all 
 the inhabitants had right of common, in the place where the trespass, 
 &c. ; not good, because the action is against the corporation, and the 
 plea is a justification as to individuals. Plea altered, and the cofpora- 
 tion said to be aiding in the trespass; adjudged that they cannot be 
 aiding, nor can they give a warrant to commit a trespass without writ- 
 ing. 4 H. VII, pi. 11. p. 13. A corporation cannot authorize a wropg 
 to be committed, except by writing under their common seal. Brook. 
 Corp. pi. 34. p. 189. These authorities prove the capacity of a corpo- 
 rate body to commit a wrong, and show the position said to have been 
 laid down by Thorpe, to be erroneous. Trespass against the Mayor, 
 Bailiffs, and Commonalty of Ipswich, and one Jabez. Objection was 
 taken, that a corporation and an individual cannot be joined in one 
 writ, but no objection taken, to trespass having been brought against 
 a corporation. 8 H. VI, pi. 2, p. 1. Id. pi. 34. p. 14. An assize of 
 novel disseisin was maintained against the mayor and commonalty 
 of Winton. Libb. Ass. 31. Ass. pi. 19. In trespass against a corpora- 
 tion, if defendant plead a misnomer, plaintiff may reply, known by 
 one name or the other.\ 6 Vin. pi. 42. p. 303. The result of these au- 
 thorities is, that even in ancient times, trespass could be sustained 
 against a body corporate. * * * 
 
Sec. 3) ULTRA VIBpiS ACTS 387 
 
 TiLGHMAN, C. J. 1 This is an action on the case, brought by James 
 Rutter against the Chestnut Hill & Spring House Turnpike Company, 
 for an injury done to the plaintiff's land and tanyard, in consequence 
 of certain piers erected' by the defendants, on each side of a stream 
 of water, by which the stream was obstructed and thrown back, and 
 overflowed the plaintiff's land,. 
 
 The defendants below, who are plaintiffs in error, rely on two ob- 
 jections. 1. That a corporation is not suable in "this kind of action. 
 2. That the declaration does not state a good cause of action, even if 
 the defendants were liable to an action in this form. 
 
 1.' Corporations have lately been so multiplied in the United States, 
 that they stand a very prominent part in the business of the country. 
 It has, therefore, been necessary to consider, with great attention, their 
 nature and their , rights, both as to suing and being sued. And as it 
 would be extremely inconvenient that they should do wrong without 
 being amenable to justiqe, the inclination pf the Court has been to 
 hold them responsible. There was a time, when it seems to have been 
 supposed, that they could make no contract but by writing under their 
 common seal. The reason assigned was, that being incorporeal,, and 
 consequently incapable of speaking, it was impossible that they should 
 enter into a parol contract. But upon reflection, this reason has been 
 thought insufficient ; for, if pursued to its full extent, it would prove 
 that a corporation could not act at all. It has no hand to affix a seal, 
 and must therefore employ an agent for the purpose. But this agent 
 must receive his authority previous to his affixing the seal. It is nec- 
 essary, therefore, that the corporation should ,have the power to act 
 without seal, so far as respects the appointment of a person to affix 
 the seal. Now, if it can appoint an agent without seal, for one pur- 
 pose, there is no reason why it may not for another. 
 
 Accordingly in the case of The King v. Biggs, 3 P. Wms. 419, on a 
 special verdict in a case of capital felony, it was held, that the Bank 
 of England might, without seal, authorize a person to sign notes in 
 its behalf. And it was decided by the Supreme Court of the United 
 States, in the case of Bank of Columbia v. Patterson's Administrators, 
 7 Cranch, 299, 3 L. Ed. 351, that a corporation may, without seal, 
 enter into a contract, express or even implied. In the words of Judge 
 Story, by whom the opinion of the Court was delivered, "When a 
 corporation is actihg within the scope of the legitimate purpose of its 
 institution all parol contracts made by its authorized agents are ex- 
 press promises of the corporation, and all duties imposed on them by 
 law and all benefits conferred at their request, raise implied promises, 
 for which an action lies." By this decision, I consider the law as set- 
 tled. It does, indeed, seem to have been the opinion of this Court, in 
 the case of Breckbill v. Lancaster Turnpike Company, 3 Dall. 496, 
 1 L. Ed. 694, that an action of assumpsit would not lie against a cor- 
 
 1 A part of the opinion is omitted. 
 
388 POWERS AND LIABILITIES (Ch. 3 
 
 poration. But the law had not been at that time fully considered, and 
 I may say that our late brother Yeates, who was on the bench when 
 Breckbill v. Lancaster Turnpike Company was decided, was satisfied 
 as to the propriety of acquiescing in the authority of Bank of Colum- 
 bia V. Patterson's Administrators. 
 
 But it is objected that the present action is not on contract but on 
 tort, and a very refined argument is brought forward, to prove that 
 a corporation cannot be guilty of a tort. A corporation, say the de- 
 fendant's counsel, is a mere creature of law, and can act only as au- 
 thorized by its charter. But the charter does not authorize it to do 
 wrong, and therefore it can do no wrong. The argument is fallacious 
 in its principles, and mischievous in its consequences, as it tends to 
 introduce actual wrongs and ideal remedies ; for a turnpike company 
 may do great injury, by means of laborers who have no property to 
 answer the damages recovered against them. It is much more rea- 
 sonable to say, that when a corporation is authorized by law to make 
 a road, if any injury is done in the course of making that road by 
 the persons employed under its authority, it shall be responsible, in 
 the same manner that an individual is responsible for the actions of 
 his servants, touching his business. The act of the age;nt is the act 
 of the principal. There is no solid ground for a distinction between 
 contracts and torts. Indeed, with respect to torts, the opinion of the 
 courts seem to have been more uniform than with, respect to contracts. 
 For it may be shawn, that from the earliest times to the present, cor- 
 porations have been held liable for torts. 
 
 Many cases have been cited from the Year Books. Upon examina- 
 tion, they do not all answer the citations, but enough appears to show 
 that the law was so understood. In 4 Hen. VII, p. 13, pi. 11, we find 
 an action of trespass against the Mayor and Commonalty of York. 
 Plea, that all the inhabitants had a right of common in the land where 
 the trespass is supposed to have been committed : held, not good, be- 
 cause the action is against the corporation, and the plea is a justifica- 
 tion as to individuals. In a subsequent part of this case, it is said 
 that a corp'oration cannot give a warrant to commit a trespass without 
 writing. This, if it be law, proves that a warrant may be given by 
 writing, which is sufficient for the plaintiff's purpose, the point being, 
 whether a corporation can commit a trespass. In 8 Hen. VI, p. 1, 
 pi. 11, and p. 14, pi. 34, trespass was brought against the Mayor and 
 Bailiffs, and Commonalty of Ipswich, and one J. Jabez. It was ob- 
 jected, that a corporation and an individual cannot be joined in one 
 action; but it was not objected that trespass does not lie against a 
 corporation; and the objection is said to have been overruled in 14 
 Hen. VIII, 2. In the book of Assizes (31 Ass. pi. 19), it appears that 
 an assize of novel disseisin was maintained against the Mayor and 
 Commonalty of Winton. Brook lays it down, that if the mayor and 
 commonalty disseise one who releases to several individuals of the 
 corporation, this will not serve the mayor and commonalty, because 
 
Sec. 3) ULTEA VIRES ACTS 389 
 
 the disseisin is in their corporate capacity. In the old books of entries 
 are numerous precedents of writs of quare impedit against corpora- 
 tions, and in Vidian's Ent. 1, is a declaration in an action on the case 
 (16 Car. II) against the Mayor and Commonalty of the city of Can- 
 terbury, ior a false return to a mandamus. 
 
 To come to more modern times, it was held in the Mayor of Lynn, 
 etc. (in error) v. Turner, Cowp. 86, that an action on the case lies 
 against a corporation for not cleansing and keeping in repair a stream 
 of navigable water, which it was bound to do by prescription, in con- 
 sequence of which the plaintiff was injured. This was in the year 
 1774, a little before our Revolution. The laws of the Commonwealth 
 forbid my tracing this point through the English courts, since the 
 Revolution, but we shall find abundant authority in the courts of our 
 own country. In Gray v. Portland Bank, 3 Mass. 364, 3 Am. Dec. 
 156, it is laid down, that the bank was responsible for wrongs done 
 by itself or its agents. In Riddle v. Proprietors of the Locks, &c. on 
 Merrimack River, 7 Mass. 169, 5 Am. Dec. 35, an action was main- 
 tained against the company for damage suffered by the plaintiff in 
 consequence of the locks not being kept in repair. And in Townsend 
 V. Susquehanna Turnpike Company, 6 Johns. (N. Y.) 91, an action 
 was supported for the loss of a borse killed by the falling of a bridge, 
 which the company had built of bad materials. These authorities put 
 
 it beyond doubt that the form of action, in the present case, is good. 
 * * * 
 
 Judgment affirmed.* 
 
 BISSELL V. MICHIGAN SOUTHERN & N. I. RY. COS. 
 
 (Court of Appeals of New York, 1860. 22 N. Y. 258.) 
 See, supra, p. 285, for a report of the case.* 
 
 2 Compare Mills v. Hawker et al., L. R. 9 Bxeh. Cas. 309 (1874) ; Poulton 
 T. London Southwestern Ry. Co., L. R. 2 Q. B. Cas. 534 (1867). 
 
 Accord: Hutchinson v. Western Atlantic Railroad Co., 6 Heisk. (Tenn.) 
 634 (1871) ; Eastern Counties Railway Co. v. Broom, 6 Exch. Rep. 314 (1851); 
 
 8 In Nims v. Mt. Hermon Boys' School, 160 Mass. 177, at 180, 35 N. E. 776, 
 at 778, 22 L. R. A. 364, 39 Am. St. Rep. 467 (1893), where the plaintiff was 
 suing for injury sustained while a passenger on a ferry operated by a chari- 
 table corporation, ultra vires, the court, through Knowlton, J., said: "In the 
 present case we think it makes no difterence that the defendant was not a 
 manufacturing or trading corporation, but was chartered for educational 
 purposes only. It could acquire and hold property, make contracts, and do 
 anything else incidentECl to the maintenance of the school. Doubtless some 
 of its officers or agents thought it would be an advantage to its students and 
 managers to have a public ferry at the place where the plaintiff was injured. 
 Its maintenance of such a ferry was ultra vires, but its acts in that respect 
 were not different in kind from the ordinary acts of corporations in excess 
 of the power given them by their charter. We are of opinion, therefore, 
 that if the defendant while running the ferry-boat accepted the plaintiff as 
 a passenger to be transported for hire, and undertook to carry him across 
 
390 POWERS AND LIABILITIES (Ch. 3 
 
 GOODSPEED V. EAST HADDAM BANK. 
 (Supreme Court of Errors of Connecticut, 1853. 22 Conn. 530, 58 Am. Dec. 439.) 
 
 Church, C. J.* This action is based upon the provisions of our 
 statute, entitled "An act to prevent vexatious suits," and is subject to 
 the same general principles as are actions on the case for malicious 
 prosecutions, at common law. 
 
 The plaintiff alleges, that the defendants, the East Haddam Bank, 
 a body politic and corporate, without probable cause, and with a mali- 
 cious intent unjustly to vex, harass, embarrass, and trouble the plain- 
 tiii, commenced by a writ of attachment, and prosecuted against him, 
 a certain vexatious suit or action for fraudulent representations, to 
 the injury of said bank, and which action resulted in a verdict and 
 judgment against the bank, and in favor of the present plaintiff. 
 
 On the trial of this cause, by the Superior Court, the defendants 
 moved for a nonsuit, on the ground that the plaintiff by his evidence 
 had failed to make out a prima facie case; which motion the court 
 granted, and judgment of nonsuit was entered against the plaintiff, 
 which he now moves to set aside. 
 
 The judgment of the Superior Court, in granting the nonsuit, as 
 we understand, was founded solely upon the ground that a corpora- 
 tion aggregate was noty by law, liable, for such a cause of action as 
 was set up by the plaintiff, in his declarationj — at least, no other 
 ground of nonsuit or objection to the plaintiff's action had) been ar- 
 gued before us. And, therefore, irrespective of the evidence detailed 
 in the motior/, we confine ourselves to what we suppose to be the sole 
 question in the case. 
 
 We assume that the plaintiff has sustained the damage he claims, 
 by reason of the prosecution of the vexatious suit, and the question 
 is, has he a legal remedy against the bank? 
 
 The claim of the defendants is, that the remedy for this injury is 
 to be sought against the directors of the bank, or the individuals, 
 whoever they might- have been, by whose agency the vexatious suit 
 was prosecuted, and not against the corporation. We think, that, to 
 turn the plaintiff round to pursue the proposed remedy, would be tri- 
 fling with him and with his just rights, and would be equivalent to 
 declaring him remediless; and, in this case, at least,, that there was 
 a wrong where there is no remedy. It is notorious that, ordinarily, 
 the action of bank directors is private, — ^that their records do not dis- 
 close the names of the individuals supporting or opposing any resolu- 
 
 the river, he was in the. boat as a licensee, it owed him the duty to use proper 
 care to carry him safely, and, whether an action could be maintained for a 
 breach of the contract or not, It is liable to the plaintiff in an action of tort 
 for neglect of that duty." 
 
 See Bathe v. Decatur County Agricultural Society, 73 Iowa, 11, 34 N. W. 
 484, 5 Am. St. Rep. 651 (1887). 
 , * Facts sufficiently stated In the opinion, and part of the opinion is omitted. 
 
Sec. 3) ULTEA VIRES ACTS 391 
 
 tion or vote, and if they do, that the offending persons may be irre- 
 sponsible and insolvent. 
 
 The language of Tilghman, C. J., in a case very siniilar to the pres- 
 ent, in which it was urged th?it a corporation was not liable for a 
 suit, but only the individuals committing it, is applicable here. "This 
 dbctrine," he said, "was fallacious in principle, and mischievous in its 
 consequences, as it tends to introduce actual- wrongs and ideal rem- 
 edies; for a turnpike company might do great injury, by means of 
 laborers haying no property to answer damages," &:c. Chestnut Hill 
 & Spring House Turnpike Co. v. Rutter, 4 Serg. & R. (Pa.) 16, 8 Am. 
 Dec. 675. To the same effect is the language of Shaw, C. J., in the 
 case of Thayer v. Boston, 19 Pick. (Mass.) 511, 31 Am. Dec. 157. He 
 says, "The court are of opinion, that this argument, if pressed to all 
 its consequences, and made the foundation of an inflexible practical 
 rule, would often lead to very unjust results." * * * 
 
 The truth is, the action complained of as vexatious was instituted 
 by the bank, in the name of the bank, and, as should be presumed, 
 -in just the same way and by the same agencies and means, as all other 
 suits by these institutions are commenced and prosecuted, and nothing 
 appears here, showing any different procedure than is usual, in actions 
 by corporations. The action was brought for the sole benefit of the 
 bank, for the recovery of money to which the bank was entitlpd, if any- 
 body, and for an injury sustainedFby the bank in its corporate capacity. 
 The bank, by its charter and the general laws, had power to sue for 
 such a cause of action ; and what seems to us yet more conclusive, is, 
 that if this suit was originated by the misconduct of directors, or any 
 officer of the company, it has- never been repudiated, and may, by the 
 acquiescence of the bank, be considered as sanctioned by it. Ang. & 
 Ames, ch. 10, § 9. No act of agency appears here, which does not ap- 
 . pear in all suits brought by corporations, and nothing to show that any 
 individuals are, or ought to be, made responsible for the institution 
 and prosecution of the groundless suit, as distinct from the corpora- 
 tion itselfi * * * 
 
 But, after all, the objection to the remedy of this plaintiff against 
 the bank, in its corporate capacity, is not so much, that, as a cor- 
 poration, it cannot be made responsible for torts committed by its 
 directors, as that it cannot be subjected for that species of tort 
 which essentially consists in motive and intention. The claim is, that, 
 as a corporation , is ideal only, it cannot act from malice, and there- 
 fore, cannot commence and prosecute a malicious 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 ev- 
 ery wrong. 1*0 say that a corporation cannot have motives, and 
 act from motives, is to deny the evidence of our senses, when we 
 see them thus acting, and effecting thereby results of the greatest 
 importance, every day. And if they can have any motive, they can 
 
392 POWEES AND LIABILITIES (Ch. 3 
 
 have a bad one, — ^they can intend to do evil, as well as to do good. 
 If the act done is a corporate one, so must the motive and intention 
 be. In the present case, to say that the. vexatious suit, as it is called, 
 was instituted, prosecuted, and subsequently sanctioned by the bank, 
 in, the usual modes of its action;; and still to claim, that, although 
 the acts were those of the bank, the intention was only that of the 
 individual directors, , is ai. distinction too refined, we think, for prac- 
 tical application. 
 
 It is asked, how can the malice of a corporation be proved ? It 
 must be proved, it is said, as well as alleged, in an action for a mali- 
 cious prosecution, as a distinct and essential fact; and the declara- 
 tions and admissions of individual members, whether directors or 
 others, are not admissible to prove it. True, malice must be proved, 
 and, as we suppose, very much in the same manner as it is proved in 
 other cases of a similar nature, against individual persons. The want 
 of probable cause of action is proof of malice, and for aught wc 
 know, also, the records of the bank may show it. It is enough to 
 ^ay, in this, as in all other cases,. that if the plaintiff cannot, in some 
 legitimate way, prove the malice he has alleged, he cannot recover; 
 but we have no right to, assume it as a legal principle, that it can- 
 not be proved. '* 
 
 We do not know that it has ever ^en adjudged that a corporation 
 is civilly responsible for a libel. B'A, among the great variety and 
 objects of these ^institutions, it is probable that the newspaper press 
 has come in for its share of the privileges supposed to be enjoyed 
 under corporate powers. Proof of the falsehood of slanderous 
 charges ^ is evidence of malice, and which must, as in this case, be 
 proved; but, would it be endured that an association, incorporated 
 for the purpose suggested, could, with impunitjr, assail the charac- 
 ter and break down the peace and happiness of the good and virtu- ' 
 ous, and the law afford no remedy, except by a resort to insolvent 
 and irresponsible type-setters, and for no better reason than that a 
 corporation is only an ideal something, of which malice or intention 
 cannot be predicated? And, if, as we have suggested, the directors 
 are, for all practical purposes, the corporation itself, acting at least 
 as its representatives, we can see no , greater difficulty in proving 
 their motives good or bad, than in thus proving the motives of 
 other associated or conspiring bodies. We ,are sure, that this ob- 
 jection of the defendants was not discovered, or was not regarded 
 as sufficient, nor the difficulty of proving malice upon a corporation 
 felt, when the case of Merills v. Tarifif Manufacturing Co., 10 Conn. 
 384, 27 Am. Dec. 682, , was tried at the circuit, and discussed and 
 decided by this court. That was an action against a corporation for 
 a malicious injury, and the sole question in, this court was, whether, 
 by reason of the malicious intent, the company was liable for aggra- 
 vated or vindictive damages; and ^ it was holden to be thus liable. 
 
Sec. 3) ULTRA VIRES ACTS 393 
 
 in a very elaborate opinion, drawn up, and strongly expressed, by 
 Huntington, J. , 
 
 The interests of the community, and the policy of the law de- 
 mand that corporations should be divested of every feature of a 
 fictitious character which shall exempt them from the ordinary lia- 
 bilities of natural persons, for acts and injuries committed by them 
 and for them. Their immunities for wrongs are no greater than can 
 be claimed by others, and they are entitled to an equal protection, for 
 all their rights and privileges, and no more. 
 
 For the, reasons suggested, a majority of the court is of opinion, 
 that the nonsuit granted by the Superior Court should be set aside, 
 and a new trial granted. 
 
 In this, opinion, Waite, J., concurred. ' 
 
 Ellsworth, J." I do not feel quite satisfied that the plaintiff can 
 recover against the defendants, for a malicious suit brought, in fact, 
 by ^ the directors of the bank. Certainly, no such action has been 
 found in the books, though I admit there are analogous cases which 
 show that courts have gone very far in subjecting corporations for 
 wrongs, by, their agents, but I think there are none going to the ex- 
 tent now claimed. 
 
 An indispensable requisite in an action for a malicious suit, is mal- 
 ice, — malice in fact, — a , wicked criminal purpose. An unsuccessful 
 suit is not sufficient. It must have originated in malice; and this 
 idea of actual, as contradistinguished from legal malice is in my 
 judgment deserving of the highest Qonsideration. It gives character 
 to the action. The language of Greenleaf (2 Greenl. Ev. 367) is, "To 
 sustain this averment (malice), the charge must be shown to have 
 been wilfully false." Now I ask, in view of this essential requisite, 
 if any such malicious intent can be said to belong to a body of 
 stockholders (the corporation), ^ whose affairs are conducted by their 
 agents, under the provisions of the charter of the company, and who, 
 themselves, are in no way or manner really implicated in the sup- 
 posed malicious intent? Again I ask, whose malice is the ground 
 of the action? not the malice of the president and cashier, — ^not 
 that of the directors; this is not even admissible in proof against 
 the company. Whose malice then ? Certainly not that of the ideal 
 corporation; for this is a mere fictitious entity, and cannot enter- 
 tain malice. It must never be forgotten, that malice, as already 
 said, is the very ground and gist of the action, and no case, has been 
 read to us, of a recovery against a corporation, where there was 
 not a perfect cause of action, independent of any malicious inten- 
 tion. Doubtless the directors may be guilty of malice, and of a 
 malicious injury; but to proceed further, and subject stockholders, 
 for their malice, is quite another question, 
 
 s A part of the opinion is omitted. 
 
394 POWERS AND LIABILITIES (Ch. 3 
 
 It is likewise to be kept in mind, that this action does not belong 
 to that class of actions against corporations or other principals for 
 injuries sustained, through a false, confidence reposed by strangers in 
 the supposed authority of agents. This action is for an original 
 unauthorized wrong of the directors, and is in no way the result of 
 any false confidence. It is a mere malicious contest between the 
 directors themselves. The stockholders may. well say: We cannqt 
 be involved in this malicious contest. We entertain no malice 
 against Mr. Goodspeed, and no one can entertain it for us. 
 
 I think it has been incorrectly assumed, by counsel, that the mali- 
 cious suit was , brought by the East Haddam Bank. It was, in fact, 
 brought by the major vote of the directors. They made use of the 
 company name for their own malicious purpose, while they were 
 only intrusted with the powers delegated, i for a lawful and laudable 
 purpose. The company do not at all admit that they are repre- 
 sented in this instance, — no more than they would, had the directors/ 
 voted that the cashier should inflict personal chastisement upon Mr. 
 Goodspeed, wherever he could find him. * * * ^ 
 
 It is asked, will you not hold corporations to the same rule of jus- 
 tice and law, as you do all others ? I answer, yes, where the cases are 
 parallel. Now, this interrogatory assumes two things, which are not 
 entirely clear or conceded, viz., that you can pass by the only actual 
 malice in the case, and assume malice in the stockholders, or corpora- 
 tion, who are avowedly ignorant and innocent ; and. further, that the 
 principal is liable for the wilful wrongs perpetrated by his agent. 
 Now, I go for the same rule to all, and therefore,, I hold, that those 
 who in fact do the wrong must answer for it. If a different view 
 of the case is taken, and corporations are held liable for the malicious 
 acts of the directors, and other inferior agents, I insist, that a different 
 rule is made to apply to them from others, and that the property of 
 stockholders, vested under the exact limits and provisions of the char- 
 ter, will be subjected to very great and alarming hazards. 
 
 These are, briefly, my views expressed with no little distrust, since 
 some 'of my brethren feel well satisfied the plaintiff is entitled to re- 
 cover. 
 
 In this opinion, Hinman, J., concurred. Storrs, J., having tried 
 the cause in the court below, was disqualified. 
 
 Nonsuit set aside, and new trial to be granted.' 
 
 e Accord: See (malicious prosecution) Edwards v. Midland Railway Co, 
 50 L. J. Q. B. 281 (1880) ; Reed v. Home Savings Bant, 130 Mass. 443 39 Am 
 Rep. 468 (1879); (conspiracy) Buffalo Lubricating Oil Co. v. Standard Oil 
 Co., 106 N. Y. 669, 12 N. B. 825 (1887) ; Dorsey Machine Co. v. McCaffrey 
 139 Ind. 545, 38 N. E. 208, 47 Am. St Rep. 290 (1894). ivicoanrey. 
 
Sec. 3) ULTRA VIKES ACTS 395 
 
 CITIZENS' LIFE ASSUR. CO., Limited, v. BROWN. 
 (Privy CouncU. L. -R. [1904] App. Cas. 423.) 
 
 On appeal from the Supreme Court of New South Wales. Appeal 
 from an order of the Full Court (October 31, 1902) refusing a rule 
 nisi against the plaintiff to set aside a verdict obtained by him for 
 £650. damages, and to enter a non-suit or verdict for the defendants, 
 or for a new trial. 
 
 The appellants are an assurance company carrying on business in 
 New South Wales. The respondent. Brown, was formerly employed 
 by the appellant as a. local agent. Brown left the employ of the ap- 
 pellants and entered the service of a rival company. For the purpose 
 of inducing policy holders of the appellant to abandon their policies 
 and insure with the rival company, statements derogatory to the ap- 
 pellant were made by Brown. Fitzpatrick, the superintendent of 
 agencies for the appellant, issued a circular letter to certain policy 
 holders in response to inquiries from them. Statements in this let- 
 ter constituted the, libel complained of. Some statements were un- 
 true to the knowledge of Fitzpatrick. There was evidence of express 
 malice on Fitzpatrick's part. The jury found for the plaintiff for 
 £650. damages and also found that "Fitzpatrick was acting in pub- 
 lishing the libel within the scope of his employment, and in the course 
 of his employment. Judgment was entered for the plaintiff on the 
 verdict; and the Supreme Court refused to set aside the verdict, and 
 enter judgment for the defendants, and refused to grant a new trial. 
 Hence the present appeal.'' 
 
 The judgment of their Lordships was delivered by Lord Lindley : * 
 
 * * * Counsel for the appellants contended, first, that the ver- 
 dict was wrong in finding that Fitzpatrick acted in publishing the libel 
 within the scope and in the course of his employment; and, secondly, 
 that even if he did, yet the malice with which he wrote it cannot be 
 imputed to the company. In support of this proposition reliance 'was 
 placed on the well-known judgment of the late Lord Bramwell in 
 Abrath v. North-Eastern Ry. Co., 11 App. Cas. 247, at page 250. 
 
 It will be convenient to dispose of the second question first. There 
 is no doubt that Lord Bramwell held strongly to his opinion that a 
 corporation was incapable of malice o/ motive, and that an action 
 for malicious prosecution could not be maintained against a company. 
 Lord Cranworth in Addie v. Western Bank of Scotland (1867) L. 
 R. 1 H. L. Sc. ^ 145, had expressed a similar opinion as to the liability 
 of corporations for frauds. But these' opinions have not prevailed, 
 and their Lordships are not prepared to give effect to them. If it 
 is once granted that corporations are for civil purposes to be re- 
 garded as persons, i. e., as principals acting by agents and servants, 
 
 T statement of facts abridged. « A part of the opinion omitted. 
 
396 POWERS AND LIABILITIES (Ch. 3 
 
 it is difficult to see why the ordinary doctrines of agency and of mas- 
 ter and servant are not to be applied to corporations as well as to or- 
 dinary individuals. These doctrines have been so applied in a great 
 variety of cases, in questions arising out of contract, and in questions 
 arising out of torts and frauds; and to apply them to one class of 
 libels and to deny their application to another class of libels on the 
 ground that malice cannot be imputed to a body corporate appears to 
 ' their Lordships to be contrary to sound legal principles. To talk 
 about impiitirtg malice to corporations appears to their^ Lordships to 
 introduce metaphysical subtleties which are needless and fallacious. 
 
 Their Lordships concur with the view of the Acting Chief Justice 
 in this case that, if Fitzpatrick published the libel complained of in 
 the course of his employment, the company are liable for it on ordi- 
 nary principles of agency. Fitzpatrick's letter, although published on 
 a privileged occasion, was not itself privileged; and not being priv- 
 ileged the letter must be treated as any other libel written and pub- 
 lished by an officer of the company. * * * Their Lordships will, ■ 
 therefore, humbly advise His Majesty to dismiss the appeal, and the 
 appellant company must pay the costs.* 
 
 VIII. Crimbs 
 
 STATE v. MORRIS & E. R. CO. 
 (Supreme Court of New Jersey, 1852. 23 N. J. I^w, 360.) 
 
 The defendant was indicted for maintaining a nuisance on a public 
 highway by maintaining cars thereon and by erecting a building. Writ 
 of error from a conviction in the trial court. ^'' 
 
 The^ Chidp Justice (Green). The indictment charges the defend- 
 ants with the creation of' a nuisance, by erecting a building upon the 
 public highway, and continuing it there ; and also by placing cars in 
 the public highway, and! suffering them to remain therein. The single 
 question presented for the consideration of the court is, whether a 
 corporation aggregate is liable to be proceeded against by indictment 
 for any offence committed by active means or by an affirmative act, 
 which must of necessity be charged to have been done vi et armis. 
 
 The law is well settled, that a corporation aggregate is. liable to in- 
 dictment. ^ It is said, indeed, by Blackstone, that a corporation can- 
 not commit treason, felony, or other crime, in its corporate capacity, 
 citing the case of Sutton's Hospital, 10 Coke, 32. The original au- 
 thority is simply, that a corporation cannot commit treason. While 
 
 » See Whitfield v. South Eastern Railway Co., E. B. & B. 115 (1858) • MeLay 
 V. Corporation of Bruce, 14 Ont. 398 (1887); Philadelphia, etc., Ky. Co v 
 Quigley, 21 How. 202, 16 L. Ed. 73 (1858). j v^"- >■ 
 
 10 Statement of facts substituted. 
 
Sec. 3) ULTRA VIEBS ACTS 397 
 
 it is conceded that a corporation cannot, from its nature, be guilty of 
 treason, felony, or other crime involving malus animus in its commis- 
 sion, it be believed that there is no authority, ancient or modern, which 
 denies the liability of a corporation aggregate .to indictment, except 
 an anonymous case, said to have been decided by Chief Justice Holt, 
 in the Court of King's Bench, in the 13 Will. Ill (1701). The case 
 is reported, in 12 Mod. 559, briefly as follows : "Note per Holt, Chief 
 Justice. A' corporation is not indictable, but the particular members 
 of it are." 
 
 It may well be doubted whether this is not one of those cases which 
 extorted from LordI Holt the bitter complaint of his reporters, "that 
 the stuff which they published would make posterity think ill of his 
 understanding, and that of his brethren on the bench." Aside from 
 the apochryphal character of the report, it is hardly credible that so 
 learned and accurate a judge as L,ord Holt should have laid) down the 
 broad proposition imputed to him by his reporter. It is certain that 
 while he was chief justice of the King's Bench, there were cases be- 
 fore that court of indictments against quasi corporations for neglect 
 to repair roads and bridges. 
 
 Regina v. County of Wilts, 1 Salk. 359 ; The Queen v. Inhabitants 
 of Cluworth, 6 Mod. 163, s. c, 1 Salk. 359, and in The Queen v. 
 Saintiff, 6 Mod. 255, Lord Holt himself held, that if a common foot- 
 way h^e in decay, an indictment must of necessity lie for it, because an 
 action will not lie without a special damage. It seems to be true, 
 moreover, as was stated by Talfourd, Sergeant, arguendo in The Queen 
 V. Railway Co., 3 Queen's- Bench, 227, that although there was at that 
 time no direct authority in England for the position, that a corporation 
 aggregate is indictable in the corporate name, yet the course of prec- 
 edents has been uniform for centuries, and the doctrine has frequent- 
 ly been taken for granted, both in arguments and! by the judges. The 
 case of Langforth Bridge, Cro. Car. 365 (1635) ; Regina v. Inhabitants 
 of the County of Wihs, 1 Salk. 359 (1705) ; The King v. Inhabitants 
 of the West Riding of Yorkshire, 2 Blac. Rep. 685 (1770) ; Rex v. In- 
 habitants of Great Boughton, 5 Burr. 2700 (1771) ; The King v. In- 
 habitants of Clifton, 5 D. & E. 499 (1794) ; Rex v. Corporation of 
 Liverpool, 3 East, 86 (1802) ; Rex v. Mayor of Stratford upon Avon, 
 14 East, 348 (1811); Rex v. City of Gloucester, Douherty's Crown 
 Circ. Ass. 259. 
 
 Notwithstanding the frequent instances to be found in the books 
 of indictments against aggregate corporations for neglect of duty im- 
 posed by law, the liability of a corporation to indictment was not ex- 
 pressly adjudicated in Westminster Hall until the very recent case of 
 The Queen v. Birmingham & Gloucester Railway Co., 9 Car. & Payne, 
 469, 3 Queen's Bench, 223. In that case, it was directly adjudged 
 that a corporation aggregate may be indicted by their corporate name 
 for disobedience to an order of justices requiring such corporation to 
 execute works pursuant to a statute. 
 
398 POW^KS AND LIABILITIES (Ch. 3 
 
 The same principle has been repeatedly recognized in the American 
 courts, both before and since the decision in The Queen v. Birmingham 
 & Gloucester Railway Company. Mower v. Leicester, 9. Mass. 250, 6 
 Am. Dec. 63; Howard v. North Bridgewater, 16 Pick. (Mass.) 190; 
 Susquehanna & Bath Turnpike Co. v. People, 15 Wend. (N. Y.) 267 ; 
 Freeholders v. Stradter, 18 N. J. Law, 108, 35 Am. Dec. 530. 
 
 In this state, there is an express legislative recognition of the lia- 
 bility of corporations to indictment. The act of February 10, 1837 
 (Rev. Stat; p. 999), provides a mode of compelling the appearance of 
 corporations to indictments, and of enforcing sentence upon convic- 
 tion. It is not understood that the counsel for the defence question or 
 deny the liability of a corporation aggregate to indictment. The ques- 
 tion discussed upon the argument was, not whether a corporation ag- 
 gregate may be indicted, but for what offence it may be indicted, or 
 what offence a corporation aggregate may in ' its corporate capacity 
 commit. 
 
 It is insisted, that although a corporation is liable to indictment for 
 neglect of duty or mere nonfeasance, it cannot be indicted for any of- 
 fence requiring for its commission a direct and positive act. I am 
 aware of but two cases in which this question has been direjctly pre- 
 sented for judicial decision. In the case of State v. Great Works 
 Milling & Man. Co., 20 Me. 41, 37 Am. Dec. 38, the defendants were 
 indicted' for a nuisance in the erection of a dam across the Penobscot 
 .river. At June term, 1841, the Supreme Court of Maine decided that 
 the indictment could not be sustained, on the ground that where a 
 crime or misdemeanor is committed by any positive or affirmative act, 
 under color of corporate authority, the individuals acting, and not 
 the corporation, should be indicted. 
 
 In The Queen v. Great North of, England Railway Co., 9 Queen's 
 Bench, 315, the defendants were indicted for cutting through and ob- 
 structing a highway, by works performed in a course not conforma- 
 ble to the powers conferred on the company by act of parliament. 
 The indictment, after solemn argument and deliberate advisement, 
 was sustained by the unanimous opinion of the Court of Queen's 
 Bench, the court thus sustaining the principle, that a corporation 
 aggregate may be indicted for a misfeasance. 
 
 These two authorities being directly in, conflict, it may be neces- 
 sary to consider the principle involved in the inquiry. It being con- 
 ceded that an indictment will lie against, a corporation aggregate for 
 a nonfeasance, or for any cause whatever, all preliminary and for- 
 mal objections arising out of the invisibility and intangibility of the 
 body aggregate, the impossibility of arresting it, its inability to ap- 
 pear, its incapacity for punishment, and the injustice of punishing 
 innocent stockholders for the acts of others, are at once disposed of. 
 These objections apply, it is obvious, with equal force to indictments 
 for acts of nonfeasance. If they are invalid as to the one, they are 
 equally so as to the other. 
 
Sec. 3) ULTBA VIRES ACTS 399 
 
 But it is said, that although a corporation may omit to perform 
 acts made obligatory upon it by law, and thus bfe liable for nonfea- 
 sance, yet from its very nature it cannot use force, and therefore 
 cannot commit any act involving force, and which must be charged 
 to have been committed vi et armis. This argument rests entirely 
 upon the disability of the corporation to commit any act of trespass 
 or positive wrong, and applies to its capacity to commit civil as 
 well as criminal injuries. It is the very argument by- which it was 
 sought to be established that no action for a trespass or tort would 
 lie against a corporation. But it has been well said, that if a corpo- 
 ration has itself no hands with which to strike, it may employ the 
 hands of others ; and it is now perfectly well settled, contrary to the 
 ancient authorities, that a corporation is liable civiliter for all torts 
 committed by its servants or' agents by authority of the corporation, 
 express or implied. Thus it is liable in trover. Tarborough v. Bank 
 of England, 16 East, 6; Duncan v. Surrey Canal, 3 Stark. SO; Foster 
 V. E^sex Bank, 17 Mass. 503, 9 Am. Dec. 168 ; Beach v. Fulton 
 Bank, 7 Cow. (N. Y.) 485. In case for indirect injuries resulting 
 from tortious acts as well as from negligence. Bridge v. Grand 
 Junction Railway Co., 3 Mees. & W. 244; Chestnut Hill Turnpike 
 Co. V. Rutter, 4 Serg. & R. (Pa.) 6, 8 Am. Dec. 675; Thayer v. 
 Boston, 19 Pick. (Mass.) 511, 31 Am. Dec. 157; Bailey v. Mayor of 
 New Yorki 3 Hill (N. Y.) 531, 38 Am. Dec. 669, s. c. (in error), 2 
 .Denio (N. Y.) 433 ; Baptist Church v. Schenectady & Troy Railroad, 
 
 5 Barb. (N. Y.) 79; Wilson v. Rockland Manufacturing Co., 2 Har. 
 (Del.) dT. In trespass quare clausum fregit. Bloodgood v. Mohawk 
 
 6 H. Railroad Co., 14 Wend. (N. Y.) 54, s. c, 18 Wend. (N. Y.) 
 9, 31 Am. Dec. 313; Thatcher v. Dartmouth Bridge Co., 18 Pick. 
 (Mass.) 501; Seneca Railroad Co. v. Auburn & R. Railroad Co., 5 
 Hill (N. Y.) 170; Van Wormer v. Mayor. of Albany, 15 Wend. (N. 
 Y.) 262. In trespass vi et armis to personal property. Maund v. 
 Monmouthshire Canal Co., 4 Man. & Gran. 452; Hay v. Cohoes Co., 
 3 Barb. (N. Y.) 42; Whiteman's Executors v. Wilmington & Susq. 
 Railroad Co., 2 Har. (Del.) 514, 33 Am. Dec. 411. And in eject- 
 ment. ■ Dater v. Troy Railroad & Turnpike Co., 2 Hill (N. Y.) 631. 
 So a corporation may be guilty of a disseisin. Second Precinct v. 
 Catholic Cong. 23 Pick. (Mass.) 140; Proprietors of the Canal 
 Bridge v. Gordon, 1 Pick. (Mass.) 297, 11 Am. Dec. 170; and even 
 of an assault and false imprisonment, Eastern Counties Railroad Co. 
 V. Brown, 2 Eaw & Eq. 406. 
 
 These cases have all arisen within the present century, and are 
 certainly in conflict with the ancient doctrine, as laid down by the 
 venerable sages of the law, if not by the authority of the courts. 
 Liber Ass. fol. 100, pi. 67; Brooke's Ab. "Corporations," 43, "Tres- 
 pass," 239; Com. Dig. "Corporations," F. 19, "Pleader," 2 B.; 2 
 Impey's Prac. 675; 2 Sell. Pr. 78; Viner's Ab. "Corporations," P. 
 
400 POWERS AND LIABILITIES (Ch. 3 
 
 § 2, 2 § IS; 1 Saupd. P. & E. 386; 1 Bl. Com. 476; 1 Wooddeson's 
 Lee. 296; and 8 East, 230, per Lawrence, J. The earlier authorities, 
 •denying the liabilityof corporations civiliter for torts, ,are nearly all 
 traceable to the dictum of Chief Justice Thorpe, in Liber Ass. 100, 
 pi. 67, that "a writ of trespass Ues not against a commonalty, for, he 
 said, a man shall never have a capias or exigent against a com- 
 monalty." From this view of the law, it would seem that the diffi- 
 culty in holding corporations liable civiliter for their tortious acts 
 was originally supposed to consist not in the inability of the cor- 
 porations to commit the wrong, but in the incapacity of the courts 
 to administer the remedy. , 
 
 The result of the. modern' cases is, that a corporation is liable 
 civiliter for torts committed by its, servants or agents precisely as a 
 natural person ; and that it is liable as a natural- per on for the acts 
 of its agents done by, its authority, express or implied, though there 
 be neither a written appointment under seal, nor a vote of the cor- 
 poration constituting the agency or authorizing the act. The doc- 
 trine is founded on sound principle, and applies, so far at least as 
 the present objection is concerned, , as weir to the criminal as to the 
 civil liability of the corporation. 
 
 It is further objected, that a corporation aggregate cannot be plia- 
 ble to indictment for any crime, because the commission of the crim- 
 inal act is ^ not warranted by their corporate powers. This argument, 
 pushed to its legitimate conclusion, would exempt a corporation from 
 all liability for wrongs, civil as well as criminal. It is most , aptly 
 answered by Mr. Binney, in his argument in Chestnut Hill Turnpike 
 Co. V. Rutter, 4 Serg. & R. (Pa.) 12. "According to the doctrine 
 contended for, if they do an act within the scope of their corporate 
 powers it is legal, and they are not answerable for the consequences. 
 If the act be not within the range of their corporate powers, they 
 had no , right by law to do it; it was not one of the objects for 
 which they were incorporated, and therefore it is no act of the cor- 
 poration at all. This doctrine leads to absolute impunity for every 
 species of wrong, and can never be sanctioned by any court of jus- 
 tice." 
 
 But why should corporations be held liable for nonfeasance, and 
 not for misfeasance? Why for neglect of duty, and not for viola- 
 tion of, law? The startling incongruity of allowing the exemption, is 
 (as was said by Lord Denman, in The Queen v. Great North of Eng- 
 land Railway Company) one strong argumeiit against it. 
 
 It is said, again, that the individuals who concur in making the 
 order or in doing ^ the work are individually responsible. And so is 
 every servant or agent By whose agency a tort is committed, but it 
 has never been supposed that the principal is, therefore exempt from 
 liability. On the contrary, the principle and the policy of the law 
 has ever been to look to the principal rather than to the mere agent; 
 
Sec. 3) ULTRA VIRES ACTS 401 
 
 and in the case of corporations, it is the clear dictate of sound law 
 not only, but of public policy, to look rather to the corporation at 
 whose instance and for whose benefit 4;he wrong is perpetrated, than 
 to the individual directors by whose order the wrong was done, who 
 may be entirely unknown, or to the laborers by whom the work was 
 performed, who, in a great majority of cases, would be alike un- 
 known and irresponsible. 
 
 It is true that there are crimes (perjury, for example) of which a 
 corporation cannot, ,in the nature of things, be guilty. There are 
 other crimes, as treason and murder, for which the punishment im- 
 posed by law cannot be inflicted upon a corporation. Nor can they 
 be pliable for any crime of which a corrupt intent or malus animus 
 is an essential ingredient. But the creation of a mere nuisance in- 
 volves no such element. It is totally immaterial whether the person 
 erecting the nuisance does it ignorantly or by design, with a good 
 intent or an evil intent; and there is no reason why for such an of- 
 fence a corporation should not be indicted. 
 
 There is a strong reason, which does not seem to have been Ad- 
 verted to in the reported cases, why the corporation, and not the 
 individual directors or laborers, should be indicted for the creation 
 of a nuisance. _ The principal object of an indictment for a, nuisance, 
 is to compel it to be abated; and regularly a part of the judgment 
 upon conviction is, that the nuisance be abated. 1 l^awk. P. C. ch. 
 75, § 14; Queen v. Inhabitants of Chuworth, 1 Salk. 358, s. c, 6 
 Mod. 234; 1 Chit. Crim. Law, 716; The King v. Stead, 8 D. & E. 
 142 ; Commonwealth v. Wright, Angell on Tidewaters, 222. 
 
 A similar judgment was rendered in the case of State v. King, in 
 the Passaic Oyer and Terminer, which has since been affirmed in the 
 Court of Errors and Appeals. If the rights of the corporation are to 
 be concluded by the judgment, as in the present case, a valuable 
 building, erected by the company at great cost for their own con- 
 venience, is to be ordered to be torn down as an encroachment upon 
 the highway, there is peculiar propriety in making the corporation 
 itself a party, and giving it an opportunity of being heard in defence. 
 To condemn the property of the corporation to destruction upon an 
 indictment against an irresponsible individual who was employed in 
 the construction of the work, but who has no interest in the compa- 
 ny, and who perhaps is hostile to its interests, savors strongly of the 
 injustice of condemning them unheard. And it is not clear how the 
 sentence is to be executed against the corporation, who are in pos- 
 session, and in no sense parties to the proceeding. 
 
 I am of opinion that the judgment below should be affirmed.^^ 
 
 II The opinion of Nevius, J., is omitted. 
 
 Accord: Tlie Queen v. Great Nortti of England Railway Company, Queens 
 Bench, 2 Cox, C. C. 70 (1846); Commonwealth v. Prop, of New Bedford 
 
 RiCH.CoEP. — 26 
 
402 POWBES AND LIABILITIES (Ch. 3 
 
 I 
 
 PEOPLE V. ROCHESTER RY. & LIGHT CO. 
 
 (Court of Appeals of New York, 1909. 195 N. Y. 102, 88 N. E. 22.) 
 
 HiscocK, J.^" The respondent has been indicted for the crime of 
 manslaughter in the second degree, because, as alleged, it installed 
 certain apparatus in a residence in Rochester in such a grossly im- 
 proper, unskillful, and negligent manner that gases escaped and 
 caused the death of an inmate. The demurrer to the indictment has 
 presented the question whether a corporation may be thus indicted 
 for manslaughter under section 193 of the Penal Code. * * * 
 
 Within the principles thus and elsewhere declared, we have no 
 doubt that a definition of certain forms of manslaughter might have 
 been formulated which would be applicable to a corporation, and 
 make it criminally liable for various acts of misfeasance and non- 
 feasance when resulting in death, and amongst which very probably 
 might be included conduct in its substance similar to that here charg- 
 ed against the respondent. But, this being so, the question still con- 
 fronts us whether corporations have been so made liable for the 
 crime of manslaughter as now expressly defined, in the section alone 
 relied on by the people, and this question we think must be decisive- 
 ly answered in the negative. 
 
 Section 179 of the Penal Code defines homicide as "the killing 
 of one human being by the act, procurement or omission of another," 
 We think that this final word "another" naturally and clearly means a 
 second or additional member of the, same kind or class alone refer- 
 red to by the preceding words, namely, another human being, and 
 that we should not interpret it as appellant asks us to, as meaning 
 another "person," which might then include corporations. It seems 
 to us that it would be a violent strain upon a criminal statute to 
 construe this word as meaning an agency of some kind othef than 
 that already mentioned or referred to, and as bridging over a radical 
 transition from human beings to corporations. Therefore we con- 
 strue this definition of homicide as meaning the killing of one human 
 being by another human being. 
 
 Section 180 says that "homicjde is either: 1. Murder; 2. Man- 
 slaughter;" etc. Section 193 says that: "Such homicide"— that is, 
 "the killing of one human being * * * by another"— is man- 
 slaughter in the second degree when committed "without a design to 
 to, effect death. * * * 3. By any act, procurement or culpable 
 negligence of any person, which * * * ^oes not constitute the 
 
 Bridge, 2 Gray (Mass.) 339 (1854) ; State v. Baltimore & O. R. R. Co.. 15 W. 
 Va. 362, 36 Am. Kep. 803 (1879). 
 
 Compare Queen v. Birmingham & Gloucester Railway Co., 3 Q. B. 223 
 (1842) ; State v. President and Directors of the Ohio & Miss. Ry. Co.. 23 Ind. 
 362 (1864). 
 
 12 Statement of facts omitted and a part of the opinion, dealing with the 
 common-law liability. Is omitted. 
 
Sec. 3) ULTRA VIKBS ACTS . 403 
 
 crime of murder in the first or second degree, nor manslaughter in 
 the first degree." 
 
 Thus we have the underlying and fundamental definition of hom- 
 icide as the killing of one human being by another human being, and 
 out of this basic act thus defined and according to the circumstances 
 which accompany it are established crimes of varying degree includ- 
 ing that of manslaughter for which the respondent has been indicted. 
 In the definition of these crimes as contained in the sections under 
 consideration (sections 183-193), we do not discover any evidence of 
 an intent on the part of the Legislature to abandon the limitation of 
 its enactments to human beings or to include a corporation as a crim- 
 inal. Many of these sections could not by any possibility apply to 
 a corporation and in our opinion subdivision 3 of section 193 relating 
 to manslaughter manifestly does not. It is true that the term "per- 
 son" used therein may at times include corporations, but that is not 
 the case here. The surrounding and related sections are not calculated 
 to induce the belief that it has any such meaning, and the classifica- 
 tion of manslaughter as a form of homicide and the definition of 
 homicide already quoted forbid it. 
 
 The judgment should be affirmed. 
 
 CuLLEN, C. J., and Gray, Edward T. Bartlett, Werner, Wii,- 
 laRd Bartlett, and Chase, JJ., concur. 
 
 Judgment affirmed. 
 
 NEW YORK CENT. & H. R. R. Co. v. UNITED STATES. 
 (Supreme Court of the United States, 1909. 212 U. S. 481, 29 Sup. Ct. 304.) 
 
 Day, J.*' This is a writ of error to. the circuit court of the Unit- 
 ed States for the southern district of New York, sued out by the 
 New York Central & Hudson River Railroad Company, plaintiff in 
 error. In the circuit court the railroad company and Fred L. Pome- 
 roy, its assistant traffic manager, were convicted for the, payment of 
 rebates to the American Sugar Refining Company and others, upon 
 shipments of sugar from the city of New York to the city of Detroit, 
 Michigan. * * * 
 
 Upon the trial there was a conviction upon all of the six counts, 
 two to seven inclusive. The assistant traffic manager was sentenced 
 to pay a fine of $1,000 upon each of the counts; the present plain- 
 tiff in error to pay, a fine of $18,000 on each count, making a fine of 
 $108,000 in all. 
 
 The facts are practically undisputed. They are mainly established 
 by stipulation, or by letters passing between the traffic managers and 
 the agent of the sugar refining companies. It was sh,own that the 
 
 IS Statement of facts sufficiently stated in tlie opinion, a part of wliicli is 
 omitted. • 
 
404 POWERS AND LIABILITIES (Ch. 3 
 
 established, filed, and published rate between New York, and Detroit 
 was 23 cents per 100 pounds on sugar, except during the month of 
 June, 1904, when it was 21 cents per 100 pounds; * * *. 
 
 Numerous objections and exceptions were taken at every stage of 
 the trial to the validity of the indictment and the proceedings there- 
 under. The principal attack in this court is upon the constitutional 
 validity of certain features of the Elkins act. 32 Stat, at L. 847, 
 chap. 708, U. S. Comp. Stat. Supp. 1907, p. 880. That, act, among 
 other things, provides: 
 
 "(1) That anything done or omitted, to be done by a corporation 
 common carrier subject to the act to regulate commerce, and the 
 acts amendatory thereof, which, if done or omitted to be done by any 
 director or officer thereof, or any receiver, trustee, lessee, agent, or 
 person acting for or employed by such corporation, would constitute 
 a misdemeanor under said acts, or under this act, shall also be held 
 to be a misdemeanor committed by such corporation ; and, upon con- 
 viction thereof, it shall "be subject to like penalties as are prescribed 
 in said acts, or by. this act, with reference to such persons, except 
 as such penalties are herein changed. 
 
 * 4c 4s * 4c 4c 4c 4i,4c 
 
 "In construing and enforcing the provisions of this section, the 
 act, omission, or failure of any officer, agent, or other person acting 
 for or employed by any common carrier, acting within the scope of 
 his employment, shall, in every case, be also deemed j;o be the act, 
 omission, or failure of such carrier, as well as of that . person." 
 
 It is contended that these provisions of the law are unconstitutional 
 because Congress has no Authority to impute to a corporation the 
 commission of criminal offenses, or to subject a" corporation to a 
 criminal prosecution by reason of the things charged. The argu- 
 ment is that to thus punish the corporation is in reality to punish the 
 innocent stockholders, and to deprive them of their property with- 
 out opportunity to be heard, consequently without due process of 
 law. And it is further contended that these provisions of the statute 
 deprive the corporation of the presumption of innocence, — a pre- 
 sumption which is part of due process in criminal prosecutions. It 
 is urged that, as there is no authority shown by the board of direc- 
 tors or the stockholders for the criminal acts of the agents of the 
 company, in contracting for and giving rebates, they could not be 
 lawfully charged against the corporation. As no action of the board 
 of directors could legally authorize a cr.inie, and as^ indeed, the 
 stockholders could not do so, the arguments come to this: that, 
 owing to the nature and character of its organization and the extent 
 of its power and authority, a corporation cannot commit a crime ^of 
 the nature charged in this case. * 4c 4! 
 
 In this case we are to consider the criminal responsibility of a cor- 
 ptjration for an act done while an authorized agent of the company 
 
Sec. 3) ULTRA VIRES ACTS 405 
 
 is exercising the authority conferred upon him. It was admitted by 
 the defendant at the trial that, at the time mentioned in the indict- 
 ment, the general freight traffic manager and the assistant freight 
 traffic manager were authorized to establish rates at which freight 
 should be carried over the line of the New York Central & Hudson 
 River Company, and were authorized to unite with other companies 
 in the establishing, filing, and publishing of through rates, including 
 the through rate or rates between New York and Detroit referred 
 to in the indictment. Thus, the subject-matter of making and fixing 
 rates was within the scope of the authority and employment of the 
 agents of the company, whose acts in this connection are sought to 
 be charged upon the company. Thus clothed with authority, the 
 agents were bound to respect the regulation of interstate commerce 
 enacted by Congress, requiring the filing and publication of rates 
 and punishing departures therefrom. Applying the principle govern- 
 ing civil liability, we go only a step farther in holding that the act 
 of the agent, while exercising the authority delegated to him to 
 make rates for transportation, may be controlled, in the interest of 
 public policy, by imputing his act to his-employer and imposing pen- 
 alties upon the corporation for which he is acting in the premises. 
 
 It is true that there are some crimes which, in their nature, can- 
 not be committed by corporations. But there is a large class of of- 
 fenses, of which rebating under the Federal statutes is one, wherein 
 the crime consists in purposely doing the things prohibited by stat- 
 ute. In that class of crimes we see no good reason why corpora- 
 tions may not be held responsible for and charged with the knowl-' 
 edge ,and purposes of their agents, acting within the authority con- 
 ferred upon them. 2 Morawetz, Priv. Corp. § 733; Green's Brice, 
 Ultra Vires, 366. If it were not so, many offenses might go unpun- 
 ished and acts be committed in violation of law where, as in the pres- 
 ent case, the statute requires all persons, corporate or private, to re- 
 frain from certain practices, forbidden in the interest of public policy. 
 
 It is a part of the public history of the times that statutes against 
 rebates could not be effectually enforced so long as individuals only 
 were subject to punishment for violation of the law, when the giving 
 of rebates or concessions inured to the benefit of the corporations of 
 which ""the individuals were but the instruments. This situation, de- 
 veloped in'^more than one report of the Interstate Commerce Com- 
 mission, was no doubt influential in bringing about the enactment 
 of the Elkins law, making corporations criminally liable. 
 
 This statute does not embrace things impossible to be done by a 
 corporation; its objects are to prevent favoritism, and to secure 
 equal rights to all in interstate transportation, and one legal rate, to 
 be published and posted and accessible to all alike. New York, N. 
 H. & H. R. Co. v. Interstate Commerce Commission, 200 U. S. 399, 
 
406 POWERS AND LIABILITIES (Ch. 3 
 
 26 Sup. Ct. 272, SO L. Ed. 524; Armour Packing Co. V. United 
 States, 209 U. S. 56, 28 Sup. Ct. 428, 52 L. Ed. 681. 
 
 We see no valid objection in law, and every reason in "public policy, 
 why the corporation, which profits by the transaction, and can only 
 act through its agents and officers, shall ,be held punishable by fine 
 because of the knowledge and intent of its agents to whom it has 
 intrusted authority to act in the subject-matter of making and fixing 
 rates of transportation, and whose knowledge and purposes may well 
 be attributed to the corporation for which the agents act. While the 
 law should have regard to the rights of all, and to those of corpora- 
 tions no less than to those of individuals, it cannot shut its eyes to 
 the fact that the great majority of business transactions in modern 
 times ai'e conducted through these bodies, and particularly that in- 
 terstate commerce is almost entirely in their hands, and to give them 
 immunity from all punishment because of the old and exploded doc- 
 trine that a corporation cannot commit a crime would virtually take 
 away the only \ means of effectually controlling the subject-matter and 
 correcting the abuses aimed at. * * * 
 
 Judgment affirmed. 
 
Sec. 1) BIGHTS OF STOCKHOLDBBE^ 407 
 
 CHAPTER IV 
 EIGHTS OF STOCKHOLDERS 
 
 SECTION 1.— RIGHTS INCIDENT TO STATUS 
 I. Right to Inspect Records 
 
 KING V. MASTERS AND WARDENS OF MERCHANT 
 
 TAILORS' CO.. 
 (Court of King's Bench, 1831. 2 Barn. & Ad. 115.) 
 
 A rule was obtained in Michaelmas term, calling on the Masters and 
 Wardens of the Company of Merchant Tailors to show: cause why a 
 mandamus should not issue commanding them to present the pe- 
 titioners or their attorney ito inspect and make copies of the books 
 and records of the company at all seasonable times. The rule was 
 obtained upon affidavits in which petitioners stated that they were 
 members of the company of .Merchant Tailors and alleged grounds 
 upon which they believed that its affairs were improperly conducted 
 and the officers unduly chosen, and complained of misgovernment in 
 particular instances not affecting the petitioners themselves.^ 
 
 Lord TenTerden^ C. J.^ Since I have had the honour of a seat on 
 this bench, I have always thought that the power and authority of the 
 Court were limited by the practice of our predecessors, and I have 
 been anxious not to assunie or be a party to assuming any authority 
 for the exercise of which I could find no precedent. For this reason, 
 when my attention was called to the terms of the present rule, which 
 demands an inspection, and liberty to take copies, of all records, books, 
 papers, and muniments belonging to this company, or relating to its 
 affairs, I asked early in the discussion, if there were any precedent for 
 granting a mandamus under such circumstances, my general recollec- 
 tion being that there was not, but that in all the cases where a man- 
 damus had been granted, the application had been limited by some le- 
 gitimate and particular object, in which the party had an interest. The 
 cases which- have been cited are no authority for this application: reli- 
 ance has indeed been placed on some expressions of a general nature 
 occurring in them ; but general words, whether uttered by a Judge in 
 court, or spoken elsewhere, or published in a treatise, must, on sound 
 
 1 statement of facts substituted. 
 
 2 The concurring opinions of Llttledale, Taunton, and Patterson, JJ., have 
 been omitted. 
 
408 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 principles of logic and criticism, be limited to "the subject-matter on 
 which they are employed: the attempt to carry them further only 
 leads to error. 
 
 In Rex V. The Hostmen of Newcastle, 2 Stra. 1223, a question was 
 depending as to the right of a party to be admitted into the company, 
 and it was material to ascertain whether the master whom that party 
 had served, had been admitted to his freedom in the corporation at 
 large; a rule was prayed for generally on his behalf, to inspect the 
 corporation books, and the Court said that every member of the cor- 
 poration had, as such, a right to look into the books for any matter 
 that concerned himself, though in a dispute with others; but they 
 Hmited the rule to the book wherein admissions of freemen were en- 
 tered. And so I believe in all the subsequent cases of the same kind, it 
 'will be found that the mandamus has been limited to the inspection 
 of particular documents which related to a subject then in discussipn, 
 and in which the party applying had an interest. In Rex v. Tower, 4 
 M. & S. 162, which was .the case of a copyholder, there was indeed 
 no suit depending, but what were the facts? A distinct controversy 
 had arisen between Lord St. Vincent, as tenant of a manor, and the 
 defendant, as lord, on a particular subject, the cutting of underwood. 
 On the Earl's application under these circumstances, the Court granted 
 a mandamus to inspect ,the court-rolls, so far only as related to that 
 subject. Lord Ellenborough there said, "The copyhold tenant claims 
 "a right to the underwood, against which the lord sets up a counter- 
 right, and the lord has the custody of the muniments which contain 
 the evidence of the manorial rights. And shall he, who is a trustee 
 and guardian of the evidence of the tenants' rights, lock it up from 
 them, and in a matter too where his own ihterest is in question ? I do 
 not see upon what principle of justice that is to be done." There are 
 many instances of applications by copyholders, some, I believe, in 
 which no suit has been depending, where questions have arisen as to 
 the course of descent, or to customs within the manor, in which the 
 party has shown himself to have a particular interest, and the Court 
 has granted a mandamus to inspect the court-rolls, so far as related 
 to the matter immediately in question; but I do not know that any 
 case can be mentioned which goes further. In Rex v. i^Hgood, 7 T. 
 R. 746, a freehold tenant of a manor applied for a mandamus to en- 
 able him to inspect the court-rolls and take copies of them, merely 
 stating in his affidavit that he was such freehold tenant, that he had oc- 
 casion to inspect the court-rolls, and that the inspection had been denied 
 him. But the Court there were of opinion that unless there were some, 
 cause depending, the tenant had no right to call for the inspection, and 
 they observed that in each of the cases cited in support of the rule (Rex 
 V. Shelley, 3 T. R. 141, and other cases there referred to), there was 
 some cause or proceeding instituted. The party there did not show 
 any particular occasion with reference to which the inspection should 
 be granted, and the Court refused to interfere. There appears, there- 
 
Sec. 1) RIGHTS INCIDENT TO STATUS 409 
 
 fore, to be no instance in which a rule has been granted like that now 
 applied for. 
 
 The object of the present application is an inspection of all docu- 
 ments. It is contended that that liberty may be claimed at any rate 
 as to some ; those particularly which regard the funds of the company. 
 And it is said, admitting that those funds are vested in the master and 
 wardens, they can only be vested in them as trustees for the frater- 
 nity. Be it so ; this is not a court in which ^ cestui que trust can call 
 tipon his trustee for an account, or an inspection of deeds. Again, 
 it is said that the fines now exacted on the admission of liverymen 
 form a ground for this application. As far as I have means of 
 judging, the persons who pray for this rule must all have paid those 
 fines already. If they are exorbitant, and a party applying to take up 
 his livery is refused admission unless he will pay such exorbitant de- 
 mand, there a particular grievance arises, and the party may apply to 
 this Court; in such a case there would be good ground at least for a 
 rule to show cause ; I do not say what would be the result of the ap- 
 plication, but it would be in the ordinary course. Then it is said the 
 terms of the oaths taken by freemen and liverymen of this company 
 form a reason for granting an inspection of the ordinances to which 
 the oaths refer. I do not say that, if a distinct application were made 
 to the company for an inspection of those ordinances, and were re- 
 fused, this Coiirt would deny a mandamus; that case is not now be- 
 fore us; but the opinion of the Court on the matter at present in 
 question would be no reason for refusing such a rule. The ground 
 of our present decision is, that there is no instance of such an appli- 
 cation as this having been granted. Nor can I see any good reason 
 for allowing particular members of a body corporate to inspect every 
 document belonging to such body. I am sure it would lead to great 
 inconvenience and much expensive litigation. The rule must, there- 
 fore be discharged. 
 
 Lord Tbnterden, C. J. The rule must be discharged with costs, be- 
 cause where parties make an entirely novel application, in which they 
 fail, they ought to pay the expense of it. 
 
 Rule discharged with costs. 
 
 FOSTER V. WHITE. 
 
 (Supreme Court of Alabama, 1888. 86 Ala. 467, 6 South. 88.) 
 
 In this case, an application, was made on the 30th January, 1889, 
 in the name of the state,' on the relation of Joel White, for a man- 
 damus to T. Gardner Foster, as secretary and treasurer of the Mont- 
 gomery Gas-Ivight Company, or the Montgomery Light Company, a 
 private corporation, requiring him to allow the relator, who was a 
 stockholder in said corporation, to inspect and examine its books, 
 
410 EIGHTS OF STOCKHOLDBES (Ch. 4 
 
 records, and papers. The petition alleged that demand for an inspec- 
 tion of the books, etc., was made by the petitioner, as a stockholder, 
 through P. C. Massie, "his attorney in fact, duly and legally author- 
 ized to that end ;" and that "it was in all respects, as to time, place, 
 and circumstances, reasonable and proper, having been made during 
 the regular office hours of said Foster, at the office of said corpora- 
 tion, where its books and records were kept, and at a time when they 
 were not being used by any other person." The defendant demurred 
 to the petition (1) because it showed that the demand was not made 
 by the stockholder himself, and it was not shown that he was person- 
 ally incapacitated; (2) because it did not allege or show that the de- 
 mand was made for any lawful purpose; nor (3) that any particular 
 purpose or reason was specified. He also filed an answer, admitting 
 his refusal to allow an inspection as demanded, in the absence of in- 
 structions from the president of the corporation, who was absent from 
 the city at the time; and he set up a resolution of the board of direc- 
 tors, adopted after the demand and refusal in this case, instructing 
 hirii to refuse an inspection of the books "to any agent of a stock- 
 holder, unless it is made apparent to him that the stockholder is 
 physically unable to make the examination in person." The court 
 overruled the demurrer, and granted a peremptory mandamus; and 
 this judgment is here assigned as error. 
 
 Ci,opTON, J. Section 1677, Code 1886, declares : "The stockholders 
 of all private corporations have the right of access to, inspection and 
 examination of, the books, records, and papers of the corporation, at 
 reasonable and proper times." As we do not concur in the proposi- 
 tion that the statute is merely declaratory of the common law, it be- 
 comes unnecessary to consider the character and extent of the right 
 of a shareholder, in the absence of statutory regulations, to inspect aijd 
 examine the books and recqrds of the corporation of which he is a 
 member. The statute was enacted in view of the restrictions and lim- 
 itatipns placed by the common law upon the exertise of the right; 
 and the purpose is to protect small and minority stockholders against 
 the power of the majority, and against the mismanagement and faith- 
 lessness of agents and officers, by furnishing mode and opportunity to 
 ascertain,' establish, and maintain their rights, and to intelligently per- 
 form their corporate duties. Its terms are clear and comprehensive, 
 and afford narrow room for construction. It was intended to enlarge 
 and disembarrass the exercise of the right, rendering it consistent and 
 co-extensive with the stockholder's right, as a common owner of the 
 property, books, and papers of the corporation, and with the duties 
 and obligations of the managing officers, as agents and- trustees. The 
 only express limitation is that the right shall be exercised at reason- 
 able and proper times; the implied limitation is that it shall not be 
 exercised from idle curiosity, or for improper or unlawful purposes. 
 In all other respects the statutory right is absolute. The shareholder 
 is not required to show any reason or occasion rendering an exami- 
 
Sec. 1) RIGHTS INCIDENT TO STATUS ill 
 
 nation opportune and proper, or a definite or legitimate purpose. The 
 custodian of the books and papers cannot question or inquire into his 
 motives and purposes. If he has reason to believe that they are im- 
 proper or illegitimate, and refuses the inspection on this ground, he 
 assumes the burden to prove them as such. If it be said this con- 
 struction of the statute places it in the power of a single shareholder 
 to greatly injure and impede the business, the answer is, the legisla- 
 ture regarded his interests in the successful promotion of the objects 
 of the corporation a sufficient protection against unnecessary or in- 
 jurious interference. The statute is founded on the principle that the 
 shareholders have a right to be fully informed as to the condition of 
 the corporation, the manner in which its affairs are conducted, and 
 how the capital to which they have contributed is employed and man- 
 aged. 
 
 It is further contended that, if the petitioner has the right, he can- 
 not exercise it by an agent. The right may be regarded as personal 
 in the sense that only a stockholder possesses and can exercise it, but 
 the inspection and examination may be made by another ; otherwise it 
 would be unavailing in many instances. In Brewer v. Watson, 71 
 Ala. 299, it was held that an attorney at law, employed by a tax col- 
 lector to settle his accounts with the auditor, has an interest which 
 entitles him to an inspection of the book in which his client's accounts 
 are entered, but that the auditor may demand evidence of his author- 
 ity, and, on failure or refusal to furnish it, decline to allow the in- 
 spection. We perceive no sufficient reason why the same principle 
 should not be extended to an attorney in fact. If a shareholder, who 
 from physical infirmity, or want of skill and knowledge, or other 
 cause, is unable to make a satisfactory and intelligent examination, is 
 debarred the privilege of procuring the aid and services of a compe- 
 tent accountant, the right itself would be worthless, — a mockery. In 
 State V. Oil- Works Co., 28 La. Ann. 204, it is said : "The possession 
 of the. right in question would be futile, if the possessor of it, through 
 lack of knowledge necessary to exercise it,, were debarred the right of 
 procuring in his behalf the services of one who could exercise it." 
 
 In High, Extr. Rem. § 310, speaking of mandamus in cases like the 
 present, it is said : "The writ will not be granted merely to enable a 
 corporator to gratify an idle curiosity in the examination of the cor- 
 porate records, but he must show some specific interest at stake ren- 
 dering the inspection necessary, or some beneficial purpose for which 
 the examiilation is desired. And unless there is some particular mat- 
 ter in dispute between members of the corporation, or between the 
 corporation and its individual members, or some specific purpose for 
 which the inspection is necessary, mandamus will not lie, since the 
 courts will not permit the use of the writ upon merely speculative 
 grounds, or to gratify a spirit of curiosity." We do not assent to the 
 narrow limits to which the jurisdiction is confined in King v. Tailor's 
 Co. 2 Barn. & Adol. 115; that is, that the inspection must be shown 
 
412 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 to be necessary in reference to some specific dispute or question de- 
 pending, in which the parties have an interest. The purpose may be 
 entirely prospective, and an examination would be proper and legiti- 
 mate, if the object is to obtain information as to the management and 
 condition of the affairs of the corporation, in order to enable the 
 shareholder to determine whether any and what steps are necessary to 
 establish or maintain his rights, or in order to enable him to dis- 
 charge his corporate duties. Huylar v. Cattle Co., 40 N. J. Eq. 392, 
 2 Atl. 274. Ordinarily, a mandamus will be awarded whenever an 
 inspection and examination are necessary, for any reason, to protect 
 the interests of the stockholders, present or prospective, and is not 
 sought from idle curiosity, or for any improper or unlawful purpose. 
 
 The petition merely demands to inspect at a reasonable and proper 
 time, and a refusal. In my own opinion, the petition should prima 
 facie shpw a clear legal right to the examination of the books and 
 records; and that a clear legal right is not shown unless the petition 
 not only affirms that the demand was made at a reasonable and proper 
 time, but also negatives that the inspection is sought from a spirit of 
 curiosity, or for an improper purpose, thereby making the demand 
 without both the express and implied limitations upon the statutory 
 right. I am apprehensive that to establish the rule that a shareholder 
 may demand an examination of the books and papers as often as he 
 pleases, and, on being refused, obtain a writ of mandamus to enforce 
 an absolute right, without being required to exclude all unfavorable 
 intendments by proper averments in the petition, which must be veri- 
 fied, will prove detrimental to the interests of corporations and their 
 stockholders. But the majority of the members of the court com- 
 petent to sit in this case hold that the statute secures to the stockhold- 
 er' the general right to examine the books at any and all reasonable 
 times. They hold, further, that, when this right is claimed and re- 
 fused, he is entitled to a mandamus on the averments that he is a 
 stockholder of the corporation, that he has demanded the right of 
 inspection, that the time was reasonable and proper, and that the 
 right was denied him. These averments being made, if there be any 
 reason why the right should not be granted this is a matter of defense. 
 The difference between us relating only to a matter of pleading, and 
 not to any principle involved, I yield to the opinion of the majority. 
 
 The result is an affirmance of the judgment.* 
 
 McCi<Ei<i<AN, J., not sitting. 
 
 » Accord: In re Stein way's Petition, 159 N. T. 250, 53 N. H. 1103, 45 L. R. 
 A. 461 (1899). 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 413 
 
 PEOPLE ex rel. BRITTON v. AMERICAN PRESS ASS'N. 
 
 (Supreme Court, Appellate Division, First Department, 1912. 148 App. Div. 
 651, 133 N. Y. Supp. 216.) 
 
 Appeal from Special Term, New York County. 
 
 Mandamus by the People, on the relation of William R. Britton, 
 against the American Press Association, to compel allowance of an 
 inspection of defendant's stock book. From an order granting a per- 
 emptory writ, defendant appeals. Reversed, and motion denied. 
 
 Argued before Ingraham, P. J., and Laughun, Clarke, Scott, 
 and Mii,LERj JJ. 
 
 Scott, J. This is an appeal from an order granting relator's mo- 
 tion for a wfit of mandamus to compel the defendant corporation to 
 permit him to inspect its stock book. 
 
 Plaintiff is the owner of five shared of stodk of the defendant cor- 
 poration, and has demanded and been refused the- right to inspect its 
 stock book. The defendant meets the application by the statement 
 of certain facts leading to the conclusion that the application is made 
 in the interest of a business rival of the defendant, and that relator's 
 purpose in seeking an examination is, in the language of the justice 
 at Special Term, "sinister and inimical to the defendant." The re- 
 lator makes no denial of the facts stated by defendant, and no dis- 
 claimer of the purpose attributed to him, and we are therefore justi- 
 fied in assuming that his attitude is inimical to the defendant, and that 
 his purpose is to injure it in some way through the possession of 
 the information which he seeks. It is definitely settled that the mo- 
 tives of a stockholder, however sinister, constitute no answer to an 
 action by him to recover the penalty prescribed by statute for the 
 refusal of a corporation to exhibit its stock book upon a proper de- 
 mand. The statute recognizes an absolute right in the stockholder, 
 and imposes an absolute duty upon the corporation and the custodian 
 of the stock book. Henry v. Babcock, 196 N. Y. 302, 89 N. E. 942, 
 134 Am. St. Rep. 835. 
 
 The case just cited establishes the absolute right of the stockholder 
 either to be allowed an inspection, or, if that, be denied him, to a re- 
 covery of the penalty prescribed by statute. The right to a mandamus 
 to compel compliance with the statute is not, however, specifically giv- 
 en by the written law, and there still remains open the question 
 whether or not, in a case like the present, the court will aid a stock- 
 holder in pursuing his sinister designs upon the corporation by issu- 
 ing its writ of mandamus. It has repeatedly been held that it will not 
 (People ex rel. Althause v. Giroux Con. M. Co., 122 App. Div. 617, 
 107 N. Y. Supp. 188 ; People ex rel. Hunter v. Nat. Park Bank, 122 
 App. Div. 635, 107 N. Y. Supp. 369), and it would be unnecessary 
 to further consider that question but for the fact that the court below 
 was of the opinion, and counsel for the respondent strenuously argues, 
 
414 BIGHTS OP STOCKHOLDEES (Ch. 4 
 
 that in some way the decision by the Court of Appeals in Henry ,v. 
 Babcock has overruled the cases last above cited. 
 
 In neither of those cases was any question made as to the manda- 
 tory nature of the statute relied upon. That was assumed and con- 
 ceded. The only question considered and decided was as to the grant- 
 ing of a peremptory writ to enforce an absolute right sought to be 
 enforced for a sinister purpose. That is to say, the only question was 
 as to granting a particular and extraordinary remedy, and this ques- 
 tion is not touched upon in Henry v. Babcock, and, so far as the Court 
 of Appeals is concerned, remains an open question. It is true that 
 relator has a strict and absolute legal right to inspect the stock book, 
 but the mere existence of an undisputed right, although necessary to 
 the granting of a mandamus, is not sufficient of itself to require the 
 issuance of the writ, for that still rests in the sound judicial discre- 
 tion of the court. This has been the rule from the earliest times. So 
 well established is it in this state that the granting or refusing of a 
 writ of mandamus rests in the sound discretion of the Supreme Court 
 that the Court of Appeals has uniformly refused to entertain appeals 
 in such cases, unless it is made to appear that the discretion of the 
 court has been abused. Sage v. L. S. & M. S. R. Co., 70 N. Y. 220; 
 People ex rel. Lunney v. Campbell, 72 N. Y. 496; People ex rel. 
 Faile v. Ferris, 76 N. Y. 326; In re Dederick, 77 N. Y. 595; People 
 ex rel. Lentilhon v. Coler, 168 N. Y. 6, 60 N. E. 1046. / 
 
 Doubtless the I^egislature might have provided that a stockholder 
 wrongly refused an inspection of a stock book might' have a peremp- 
 tory order in the nature of a mandamus to enforce his right, but it 
 has not done so. In Matter of Steinway, 159 N. Y. 250, 53 N. E. 
 1103, 45 Iy. R. a. 461, Judge Vann, writing for the court, examined 
 exhaustively the right of stockholders to examine the books of a cor- 
 poration, including the right conferred by the statute now invoked by 
 relator, and the authority of the Supreme Court to enforce that right 
 by mandamus. His conclusion was thus expressed: "We think that 
 the common-law right of a stockholder with reference to the inspec- 
 tion of the books of his corporation still exists, unimpaired by leg- 
 islation; that the Supreme Court has power in its sound discretion 
 upon good cause shown tp enforce the right ; and that such power is 
 part of its general jurisdiction as the successor of the Courts of the 
 Colony of New York, which had the jurisdiction of the Court of 
 King's Bench and the Court of Chancery in England." 
 
 It is quite unnecessary to cite authorities to sustain the principle re- 
 ferred to by Judge Vann that the exercise of the jurisdiction to grant 
 mandamus rests, to a considerable extent, in the sound discretion of 
 the court, and' that in certain cases, although the applicant may have 
 an undoubted legal right, and mandamus would be an appropriate 
 remedy, still the court in the exercise of its sound discretion will 
 refuse to issue the writ. Such a case is presented when the effect 
 of the writ will be to enforte compliance with the strict letter of the 
 
Sec. 1) EIGHTB INCIDENT TO STATDS 415 
 
 law in disregard of its real spirit. See High on Extraordinary Legal 
 Remedies (3d Ed.) § 9. We need not speculate as to the particular 
 purpose sought to be gained by providing by statute that a stock- 
 holder shall have the right to inspect upon demand the stock book 
 of his corporation. It is quite safe, however, to assume , that the 
 Legislature intended that the right should be exercised for the ben- 
 efit of the corporation itself, or of its stockholder as such, and that 
 it did not intend that it should be exercised for the destruction or 
 serious injury of the corporation and its stockholders generally, as 
 it is the apparent purpose of the present relator to use the informa- 
 tion which he seeks. In reversing the order appealed from therefore, 
 we are holding nothing contrary to what was decided by the Court 
 of Appeals in Henry v. Babcock. On the contrary, we concede that 
 relator has a strict legal right to an inspection of the stock book. 
 But, conceding that, following an unbroken line of authorities, we 
 further hold that the application for a writ of mandamus is an ap- 
 peal to our sound discretion, and that under the circumstances of the 
 present case we should not exercise that discretion to issue the writ. 
 The application and enforcement of this rule, as we conceive, will 
 tend to carry into effect precisely what the Legislature intended. 
 An applicant whose purposes are honest and who is not shown to be 
 actuated by a sinister motive will have no difficulty in obtaining the 
 inspection the statute allows him, while one who is shown to act from 
 an improper motive will be relegated to the remedy which the stat- 
 ute itself provides. 
 
 For these reasons, the order appealed from will be reversed, with 
 $10 costs and disbursements, and the motion denied, with $10 costs.' 
 
 Ingeaham, p. J., and Miller, J., concur. 
 
 CifARKEj J. (dissenting). The appellant is a domestic corporation, 
 having an office for the transaction of its business in the borough 
 of Manhattan, and is not a moneyed corporation or a railroad cor- 
 poration. The relator is the holder of record of a certificate for 
 five shares of the capital stock of the defendant. As a stockholder 
 he demanded an inspection of the stock book of appellant, and, hav- 
 ing been refused, brought this proceeding to obtain a peremptory 
 mandamus to compel the corporation to permit such inspection. 
 
 In the answering affidavits the appellant attempts to show that the 
 application is not made in good faith and for legitimate purposed, but 
 in the interests of an inimical business rival. The learned court be- 
 low granted the application and stated in itsv opinion : "That the stock- 
 holder of a corporation has an absolute right to an inspection of the 
 stock book without stating his intent." The corporation appeals. 
 
 Section 32 of the stock corporation law (chapter 59, Cons. Laws 
 1909; chapter 61, Laws of 1909) provides that: "Every stock corpo- 
 ration shall keep at its office * * * a book to be known as the 
 stock book, Containing the names, alphabetically arranged, of all per- 
 sons who are stockholders of the corporation, showing their places 
 
416 EIGHTS OF ST0CKH0LDEE3 (Ch. 4 
 
 of residence, the number of shares of stock held by them respectively, 
 the time when they respectively became the owners thereof, and the 
 amount paid thereon. The stock book of every such corporation shall 
 be open daily during at least three business hours for the inspection 
 of its stockholders and judgment creditors, who may make extracts 
 therefrom. * * * Every corporation that shall neglect or refuse 
 to keep or cause to be kept such books or to keep any book open for 
 inspection as herein required, shall forfeit to the people the sum of 
 $50 for every day it shall so neglect or refuse. If any officer or agent 
 of any such corporation shall * * * neglect or refuse to exhibit 
 the same or to allow them to be inspected and extracts taken there- 
 from, as provided in this section, the corporation and such officer or 
 agent shall each forfeit and pay to the party injured a penalty of $50 
 for every such neglect or refusal and all damages resulting to him 
 therefrom." 
 
 Section 33 o^ the statute contains somewhat similar provisions af- 
 fecting foreign stock corporations having an office for the transac- 
 tion of business in this state. 
 
 It is true that in said section a penalty is provided for a violation 
 of the provisions thereof, and it is also true that it is not specifically 
 provided that a mandamus may be issued to compel the observance 
 thereof. People ex rel. Gunst v. Goldstein, 37 App. Div. 550, 56 N. 
 Y. Supp. 306, was an ^ippeal from an order commanding the defend- 
 ant, the secretary and treasurer of a corporation, to produce the stock 
 book of the company, and to allow the relator to inspect and to make 
 extracts therefrom. In affirming the order, Mr. Justice Barrett, speak- 
 ing for a unanimoiis court, said: "Then, too, the relator's motives are 
 of no moment. The defendant has no right to question them. The 
 inspection of its books by the president of the company is a matter of 
 right." 
 
 In People ex rel. Callanan v. Keeseville, etc., R. Co., 106 App. Div. 
 349, 94 N. Y. Supp. 555, Mr. Justice Houghton, writing in the Third 
 Department for a unanimous court, said : "We think his demand was 
 sufficient, and that he had an absolute right of inspection, and that the 
 peremptory writ of mandamus should have been granted. * * * 
 The motives of a stockholder in inspecting the stock book alone are 
 immaterial. * * * it ^vas a privilege accorded him expressly by 
 the statute and he should have been granted an inspection." And 
 the order denying peremptory writ of mandamus was reversed; and 
 the writ granted. 
 
 In People ex rel. Fennelly v. Amalgamated Copper Co., 110 App. 
 Div. 892, 96 N. Y. Supp. 1141, affirmed 184 N. Y. 573, 77 N. E. 
 
 1193, and People ex rel. Fennelly v. United Copper Co., 110 App. 
 Div. 892, 96 N. Y. Supp. 1141, affirmed 184 N. Y. 578, 77 N. E. 
 
 1194, orders directing a mandamus to compel inspection of the stock 
 books were affirmed by this court and the Court of Appeals, in spite 
 of voluminous allegations, as appears upon, the inspection of the rec- 
 
Sec. 1) - BIGHTS INCIDENT TO STATUS 417 
 
 ords in those cases, that the inspection was desired from selfish and 
 improper motives. But in People ex rel. Hunter v. National Park 
 Bank, 122 App. Div. 635, 107 N. Y. Supp. 369, writing for a divided 
 court, Mr. Justice Ingraham held that the granting of a mandamus 
 is always in the judicial discretion of the court, and that a strict legal 
 right would not be enforced when it appeared that the application 
 was not made in good faith for a legitimate and proper purpose. 
 
 Henry v. Babcock & Wilcox Co., 196 N. Y. 302, 89 N. E. 942, 
 134 Am. St. Rep. 835, was an appeal from a judgment of the Appel- 
 late Division in the First Department in favor of defendant upon the 
 submission of a controversy upon an agreed statement of facts. It 
 is true that in that controversy was involved enforcement of the pen- 
 alty provided by the statute for denial of the right to inspect, but 
 this court (125 App. Div. 538, 109 N. Y. Supp. 853), although great- 
 ly divided, applied the doctrine which it had announced in People ex 
 rel. Hunter v. National Park Bank, supra, saying: "Whenever appli- 
 cation is made to inspect and the motive of the applicant is questioned, 
 he should make known what the motive is so that the person having 
 the book in charge may refuse to produce it, if the purpose is to work 
 an injury to the corporation or is purely personal to the applicant and 
 not connected with any interest which he has in the corporation. Here 
 the plaintiff knew what his motive was. He refused to disclose it, and 
 it is fairly to be inferred from that fact that the motive was not a 
 proper one." The court gave judgment for the defendant. 
 
 With the above cited cases all brought to the attention of the Court 
 of Appeals, that court said: "No doubt the Legislature could make 
 the stockholder's privilege of inspection dependent upon the motive or 
 purpose with which it is sought ; but it has not seen fit to do so. The 
 language of the statute is plain and mandatory. It recognizes an ab- 
 solute right in the stockholder, and imposes an absolute duty upon 
 the corporation and the custodian of the stock book. The law re- 
 quires no statement or proof of any particular intent upon the part 
 of the person demanding the inspection. He must be a stockholder 
 and must prefer his request during business hours; that is all. 
 * * * The plaintiff was refused any inspection at all in the ab- 
 sence of the disclosure of his purpose; and this action of the defend- 
 ant has been sanctioned by the judgment of the Appellate Divisiom. 
 We think that judgment is based upon a mistaken -construction of the 
 statute in this respect." The judgment was reversed, and judgment 
 directed for the plaintiff. 
 
 It will not do in my opinion to disregard the plain and emphatic lan- 
 guage of the Court of Appeals upon the ground that it was obiter, 
 that the proceeding before it was not mandamus. This precise statute 
 was before it, and the judgment appealed from was based upon the 
 prior decision of this court in mandamus proceedings, and upon the 
 interpretation therein made of this statute, into which this court had 
 read the requirement of establishing a proper motive or intent upon 
 EicH.CoBP.— 27 
 
418 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 the part of the applicant to entitle him to inspect That claim the 
 Court of Appeals brushed away and held emphatically that the lan- 
 guage of the statute is plain and mandatory. It recognizes an abso- 
 lute right in the stockholder, and. imposes an absolute duty upon the 
 corporation. If that be so, mandamus is an appropriate reAiedy to 
 enforce that absolute right and compel the performance of that ab- 
 solute duty. For this court to refuse tq enforce such a mandatory 
 statute so interpreted by the court of last resort is to set up its dis- 
 cretion against the clearly expressed will of the Legislature, and in 
 my judgment to reverse, in effect, the Court of Appeals. 
 
 I therefore vote to affirm the order appealed from, with costs and 
 disbursements to the respondent.* 
 
 Laughun, J., concurs. 
 
 II. Voting Rights 
 
 PEOPLE ex rel. PICKERING v. DEVIN. 
 (Supreme Court of Illinois, 1855. 17 111. 84.) 
 
 This was a proceeding by quo warranto, commenced by the State's 
 Attorney on the relation of Pickering, against Joseph Devin, Elisha 
 Embree, Robert Parkinson, J. N. Jacques, George W. Brown, Francis 
 B. Thompson, Jonas Hardy, Samuel Thompson and James H. Em- 
 bree, for usurping the offices of President and Directors of the Alton, 
 Mt. Carmel & New Albany Railroad Company. The defendants pleadi- 
 ed to the information, that on the sixth day of June, A. D. 1853, 
 there was an election held for nine directors of said company, at which 
 all stockholders, legally qualified, had been notified to appear and cast 
 their votes, at which- time the respondents were duly elected, Having 
 received a majority of all the votes of the legally qualified stockhold- 
 ers, and were so declared elected ; that they were each of them eligible, 
 having the legal qualification required by the acts incorporating said 
 company. To this plfa the complainant filed several replications — 
 denying that a legal election was held on the said sixth dlay of June, 
 1853 — denying that the respondents received a majority of all the votes 
 of the legally qualified stockholders on the said day — denying that the 
 respondents were stockholders in the corporation. At September 
 term, 1854, of the Edwards Circuit Court, the cause having been sub- 
 mitted to Marshall, Judge, without the intervention of a jury, judg- 
 ment was entered for the respondents; thereupon Pickering took an 
 appeal. 
 
 The evidence showed that a notice had been given as pleaded ; that 
 the election was held as notice required, and that the respondents were 
 
 4 Contra: Venner v. Chicago City Ry. Co., 246 111. 171, 92 N. E. 643, 138 
 Am. St. Rep. 229, 20 Ann. Cas. 607 (1910). 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 419 
 
 declared elected; that a book containing a list of st(*)ckholders was 
 produced, showing that each of the respondents held two shares of 
 stock in said corporation, and also a valuation made to relator, show- 
 ing him to be entitled to 1494 shares of stock issued to him by the 
 board, for a portion of his interest in said road, by virtue of his pur- 
 chase at a sale at public auction, made by the Governor of the State, 
 by authority of the act of the 12th of February, 1849 ; that said 1494 
 shares of stock had been sold on execution against the company, and 
 that Robert Parkinson became the purchaser; that Parkinson had 
 transferred one half of this stock to Joseph Devin, and the remainder 
 to James H. Northcott; that these shares of stock were those voted 
 on at the election on the said sixth of June. Pickering offered in evi- 
 dence the certificate of the Secretary of State, showing that a certifi- 
 cate of entry was made in the books of his office, declaring that the 
 State was entitled to 5259'/oo shares pf fifty dollars each in the cap- 
 ital stock of said company; also, a certificate or declaration from 
 the Governor of the State, that Pickering had become the purchaser 
 of the right of way, embankm.ents, &c., owned by the State in said 
 railroad!, for a sum specified, on the payment of which sum, he would 
 be entitled to the legal evidences of his purchase; also, a conveyance 
 from the Governor in conformity to the above certificate; also, a 
 certificate for 5259'/so shares of stock issuedl to the State by said com- 
 pany, and assigned by the Governor to Pickering ; also, a copy of the 
 vote offered by him on the said sixth day of June, for certain per- 
 sons therein named as directors, on the said 5259 ' shares of stock, 
 which was rejected andl the rejection thereof was written on the back 
 of the vote and signed by the three judges or directors of the election ; 
 also, that Pickering offered to vote on 3756 shares of stock, which 
 vote was rejected, and that the judges of the election refused to al- 
 low Pickering to vote at that election ; that Pickering exhibited to the 
 judges of the election all the evidences of his right and title to the 
 stock, as hereinbefore recited, at the time he offered his vote. 
 
 CAToiir, J. Although many of the irregularities urged against the 
 election of the defendants, we consider well taken, we shall prin- 
 cipally confine ourselves to the refusal to allow the relator to vote on 
 the stock which he had purchased from the State and still held. We 
 shall not enter upon a review of the laws which authorized the Gover- 
 nor to sell this stock, and under which the relator purchased it. This 
 point was conceded in the very election under which the defendants 
 claim ^o hold their offices, for by far the greatest number of votes 
 which they received was upon this very stock, and the only ground 
 upon which the objection was placed to allowing the relator to vote 
 upon the balance of that stock which had not been sold on the execu- 
 tion against the company, was that its transfer did not appear upon the 
 stock-books of the company. This brings us to the simple question 
 whether that objection was a valid one. In pursuance of law and by 
 order of the board of directors, there had been issued, to the State, a 
 
420 BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 certificate of stock for S259''/bo shares. In pursuance of law, all of 
 the interest of the State in the road was sold by the Governor, and a 
 formal conveyance made to the purchaser, and an assignment of the 
 certificate of stock was made on the back thereof by the Governor. 
 This vested in the purchaser all the rights of the State to the stock, 
 both legal and equitable, unless some statute of the State, or by-law 
 of the company, prescrilDed some other mode of conveyance, or some 
 additional formality. It may well be conceded that the company had 
 the right to provide by by-laws that stock in the company should only 
 be transferred upon transfer-books kept for that purpose, and even 
 requiring the old certificates of stock to be surrendered and canceled, 
 and new certificates issued to the assignee ; but the evidence does not 
 show, nor was there any pretence upon the argument, that any such 
 by-law, resolution or order had ever been passed, either by the stock- 
 holders or board of directors. In the absence of such regulation, any 
 mode or form of conveyance, sufficient in law to transfer the' title to 
 any other property or chose in action which' by law is transferable, 
 must be held sufficient to vest the legal title in the assignee, and en- 
 title him to all the rights and benefits accruing to the legal owner of 
 the stock, as much as if it had been transferred on the stock-books of 
 the company, had there existed! a by-law requiring such a mode of 
 transfer. 
 
 Was then the relator entitled to vote, at the election in question, 
 upon the stock which he had) purchased of the State and then held? 
 To this question but one answer can be given. 
 
 He not only shows to us, upon this record, that the stock had been 
 regularly transferred to him, but he laid before the judges or directors 
 of the election the evidences of such transfer, the same which we now 
 have before us. Upon this evidence of his right, he offered to vote 
 the 5259 shares for a set of directors other than the defendants, but 
 the vote was refused. He then offered to vote 3765 shares, which 
 were left him after deducting the 1494 shares which had been sold 
 on the execution' againsf the company, and which had already been 
 voted for the defendants by the assignee of the purchaser at the sher- 
 iff's sale. This vote was also rejected, and the defendants declared 
 duly elected. Had this latter vote been received, it would have decided 
 the question at once against the defendants, and would have elected 
 the candidates for which the relator offered to vote. Here was a 
 manifest and gross violation of the rights of the relator, who owned 
 more than two-thirdls of the stock of the company, and yet who wis 
 allowed no voice in the election of the directors who were to manage 
 its concerns ; but a set of directors were thrust upon him, whose whole 
 previous conduct, so far as this record shows, was hostile to his in- 
 terests, and in whom he well might feel a want of confidence. Nor 
 was he deprived of his rights in pursuance of any by-law which he, or 
 those who had formerly owned the stock which he then held, had ever 
 consented to. Had the owners of this stock, or their representatives 
 
Sec. 1) RIGHTS INCIDENT TO STATUS 421 
 
 in the board of directors, adopted a regulation requiring any different 
 evidence of the transfer of the stock than that which was presented, 
 the case would have been different. But there ife no pretence that such 
 was the case. The persons having charge of the election, and who 
 in no way represented the stock br stockholders, for the purpose of 
 making rules concerning the mode of transfer, arbitrarily disfranchised 
 the relator's stock, and treated him as an utter stranger. And in this, 
 too, they were guilty of the grossest inconsistency, by allowing the 
 vote on 1494 shares of stock for the defendants, of Which there was 
 no sort of transfer by the State, except the one under which the relator 
 claimed) the -right to vote. 
 
 That the, transfer by the sheriff, to the purchaser at his sale, was 
 made in a mode conformable to their notions of propriety, could not 
 help the case, for, in tracing back the title to this stock, reliance was 
 necessarily had upon the transfer from the State to the relator, for 
 through that alone could any claim of right to the stock be asserted. 
 If, then, the relator's title was bad, the title of those claiming through 
 him, under the same transfer, was necessarily defective also. But 
 these inconsistencies are of little moment, except as showing the arbi- 
 trary manner in which the relator's rights were treated ; for, although 
 the vote admitted on the 1494 shares may have been illegally admitted, 
 they still got som%Dther votes which secured the defendants' election, 
 if the vote of the relator was properly rejected. But we have no sort 
 of doubt that he had a right to vote his stock and secure the election 
 of those for whom he offered to vote, holding as he did a majority of 
 all the stock offering to voj;e. 
 
 The election of the defendants was clearly illegal, and in manifest 
 violation of the rights of the relator, and a judgment of ouster should 
 have been entered by the Circuit Court, whose judgment must be re- 
 versed, andl the proper judgment of ouster entered here. 
 
 Judgment reversed-" 
 
 STATE ex rel. WHITE v. FERRIS, 
 
 (Supreme Court of Errors of Connecticut, 1875. 42 Conn. 560.) 
 
 Park, C. J.' The controversy in this case is with regard to the 
 right of L,indley M. Ferris, Jr., to vote on five hundred and sixty- 
 four shares of stock of the Hartford & Albany Transportation Com- 
 pany, at the annual meeting of the company for the choice of di- 
 rectors and other officers in the month of February, 1875. These 
 shares formerly belonged in part and principally to the co-partnership 
 of Murray, Ferris & Co., of which L. M. Ferris, Jr., was a member, 
 and in part to L,. M. Ferris, Jr., and at the time of the annual meet- 
 
 B Accord: People ex rel. Allen v. Hill, 16 Cal. 113 (1860). 
 e Statement of facts is omitted. 
 
422 RIGHTS OF STOCKHOLDEKS , (Ch. 4 
 
 ing they still stood on the books of the company as belonging to them, 
 although the firm of Murray, Ferris & Co. and L. M. Ferris, Jr., had 
 previously been declared bankrupts, and an assignee of their estates 
 had been appointed in bankruptcy. The by-laws and regulations of 
 the Hartford & Albany Transportation Company, in force at the 
 time of the annual meeting in question, required that certificates of 
 ownership of stock should be signed by the president' and secretary, 
 and recorded upon the books of the company; and that whenever a 
 stockholder should transfer his stock, the secretary should make an 
 entry of the cancellation of the old certificate on the books of the com- 
 pany, and record the new certificate ther«on, and lodge a certificate of 
 the transfer with the clerk of the town, according to law. Some time 
 previous to the annual meeting of the transportation company, L. M. 
 Ferris, Jr., applied to the assignee in bankruptcy for a power of at- 
 torney to vote on these shares, and one was given him duly signed, 
 and in proper form, with the exception of the name of the attorney. 
 
 These are the principal facts of the case, and we think they show 
 that L,. M. Ferris, Jr., had the right to vote at the annudl meeting on 
 the shares in controversy. 
 
 It has been repeatedly held by this court that the books and records 
 of a corporation determine who are its stockholders for the time 
 being, and who have the right to vote on the stock, jalthough the same 
 may have been sold, or pledged as collateral security. In such cases 
 the party who appears to be the owner by the books of the corpora- 
 tion has the right to be treated as a stockholder and to vote on what- 
 ever stock stands in his name. Marlborough Manufacturing Co. v. 
 Smith, 2 Conn. 579; Northrop v. Newtown & Bridgeport Turnpike 
 Co., 3 Conn. 544; Vansands v. Middlesex County Bank, 26 Conn, 
 144; Gen. Statutes, Rev. of 1875, p. 279, §§ 8, 10; Ex parte Will- 
 cocks, 7 Cow. (N. Y.) 402, 17 Am. Dec. 525; Matter of Barker, 6 
 Wend. (N. Y.) 509; Angell & Ames on Corp. § 132. 
 
 Besides, in this case it appears that the assignee did not claim the 
 right to vote on this stock at the annual meeting, but on the contrary 
 consented in advance that L. M. Ferris, Jr., might vote on it. What 
 matters it to the other stockholders which of these parties voted on 
 the stock, so long as one party or the other manifestly had the right 
 to vote, and both were agreed as to who should vote? The stock 
 stood in the name of the co-partnership, of which L. M. Ferris, Jr., 
 was a member, except a few shares which stood in his own name, and 
 the' assignee, the only other party in interest, assented to his voting 
 on the stock. This being so, we think the' other stockholders have 
 no right to complain. 
 
 But it is said that the bankrupt act of the United States conflicts 
 with this view of the case ; and we are referred to sections 5044 and 
 5046 of the act. But these sections refer generally to the property 
 of the bankrupt, and as applied to this case, mean no more than that 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 423 
 
 the stock is vested in the assignee. This appears by section 5051 of 
 the act, which provides that "the debtor shall, at the request of the 
 assignee, make and execute any instruments, deeds and writings which 
 may be proper to enable the assignee to possess himself fully of all 
 the assets of the bankrupt." This provision is made in view of the 
 fact that, in many cases, such instruments are necessary to transfer 
 possession, of the bankrupt's property to the assignee. 
 
 It is further said, that however it may be in regard to the right of 
 L. M. Ferris, Jr., to vote on the stock, still he, and the other members 
 of tlje firm, were not eligible to the office of directors unless they were 
 stockholders. But L. M. Ferris, Jr., would not have had the right to 
 vote unless he had been a stockholder, for the time being at least, f or 
 the power of attorney did not confer upon him that right, because his 
 name was not inserted in it. He was a stockholder so far as the cor- 
 poration was concerned, and so was R. M. Ferris, inasmuch as the 
 stock stood in their names on the books of the company; and conse- 
 quently they were eligible to office. 
 
 There is manifest error in the judgment complained of, and a new 
 trial is advised. In this opinion the other judges concurred.^ 
 
 TAYLOR V. GRISWOLD. 
 
 (Supreme Court of New Jersey, 1834. 14 N. J. Law, 222, 27 Am. Dec. 33.) 
 
 HoRNBLOwER, C. J. This is a proceeding under the fourth section 
 of the act to prevent fraudulent elections by incorporated companies, 
 &c., passed the 8th of December, 1825. On the 3d day of August 
 last, an election was held for directors, etc., of the Passaic & Hacken- 
 sack Bridge Company, which resulted in the choice of George Gris- 
 wold and others. An application is now made by John Taylor and 
 others, to set aside that election on three distinct grounds, viz. : 
 
 1. That notice of the time and place of election was not given ac- 
 cording to law. 
 
 2. That the inspectors acted contrary to law, in rejecting the votes 
 that were offered by proxies; and 
 
 3. That the inspectors also erred, in allowing to each stockholder 
 but one vote, instead of a vote for each share owned by him. 
 
 Each of these objections will be considered in the order above 
 stated.' * * * I 
 
 The last, and certainly the most important, though by no means, 
 the most difficult question, ' remains to be answered, viz.: 
 
 Third. Are the stockholders entitled to only one vote each, or to a 
 
 T Compare American Railway-Frog Company v. Hayen, 101 Mass. 398, 3 
 Am. Rep. 377 (1869). 
 8 Part of the opinion, dealing with first two objections, has been omitted. 
 
424 BIGHTS OF' STOCKHOLDERa (Ch, 4 
 
 vote for every share of stock they respectively own? This question 
 is not put in reference to the ilnere matter of election. The right to 
 a plurality of votes, if it exists at all, extends to every subject that 
 may be discussed, and every resolution that may be submitted at any 
 meeting of the stockholders. The by-law does not restrict the right 
 of voting upon shares, to the election of officers; nor did I under- 
 stand the counsel as confining the rule to, that subject. Indeed it is 
 not easy to perceive how it can be, or why it should be so limited. If 
 the right exists under this charter, it is a general right, and may be 
 exercised upon every subject. 
 
 To my mind the answer to this question is perfectly plain, whether 
 it is considered upon general and common law principles; or upon 
 the terms of the charter itself. 
 
 1st. Upon general principles. Every corporator, every individual 
 member of a body politic, whether public or private, is, prima facie, 
 entitled to equal rights. If, for political purposes, every person re- 
 siding within the chartered limits, and possessing the requisite qualifi- 
 cations, whether rich or poor, is a corporator, and entitled to an equal 
 vote in the administration of its affairs. So too, if it is a private cor- 
 poration, prima facie, the same parity exists. In joint stock companies, 
 the owner of one share or action of the capital stock, is, in general, a 
 member of the company; a corporator; and as such, entitled to, and 
 cannot be denied, the entire rights and privileges of a member. An- 
 gell & Ames on Corporations, 62. Those rights and privileges, are 
 definite and certain ; they cannot be greater or different in one mem- 
 ber, than' they are in another: In Rex v. Ginever, 6 T. R. 735, the 
 power of making by-laws, was delegated by the charter, in very com- 
 prehensive terms. A by-law, giving to the senior bailiff a casting 
 vote in case of a tie, was held to be illegal. So a by-law, imposing 
 an oath of officfe, where none was required by the charter, was de- 
 clared to be invalid. Rex v. Dean, etc., 1 Str. 536. So a by-law, 
 restricting or extending the right of admission as a member, or of 
 eligibility to office, or prescribing new or additional tests, or qualifi- 
 cations to voters, is illegal. Rex v. The Wardens, etc., 7 T. R. 743; 
 Rex V. Tapenden, 3 East, 186; Rex v. Spencer, 3 Burr. 1833; Peo- 
 ple V. Tibbets, 4 Cow. (N. Y.) 358; People v. Kip et al., 4 Cow. (N, 
 Y.) 382, note; Angell & Ames on Corporations, 192; Id. 182, etc. 
 But the by-law contended for in this case, is as obviously a viola- 
 tion of the charter, as were those in the cases just cited. The charter, 
 if not in terms, yet in its spirit and legal intendment, gives each mem- 
 ber the same rights, and consequently, but one vote: whereas, this 
 by-law, gives theni unequal rights, and an unequal number of votes. 
 It makes one a member for one purpose, and another a member for 
 another purpose. It imposes a test or qualification unknown to the 
 charter, by which to determine how many votes a member may give; 
 whether one, five, ten or fifty. In short, a by-law excluding a mem- 
 
Sec, 1) EIGHTS INCIDENT TO STATUS 425 
 
 ber from office, or from the right to vote at all, unless he owns five, 
 or ten, or twenty shares, would not be a more palpable, though it 
 might be a more flagrant violation of, the charter. A man with one 
 share, is as much a member, as a man with fifty; and it is difficult 
 to perceive any substantial difference between a by-law, excluding a 
 member with one share from voting at all, and a by-law reducing his 
 one vote to a cipher, by giving another member fifty or a hundred 
 votes. 
 
 The legislature have thought proper, in some instances, to annex 
 certain and different degrees of rights, to -certain and different quanti- 
 ties of property; sometimes they have given by express enactment, 
 one vote for each share, and at other times, they have graduated the 
 number of- votes, by giving for each share not exceeding five or ten, 
 one vote each, and then diminishing the number of votes as the num- 
 ber of shares are increased; but this charter is silent upon the sub- 
 ject, and therefore, the by-law is illegal and void. 
 
 2d. By the very terms of the charter, this question is completely 
 put at rest. The first section incorporates the individuals by name, 
 who were then the proprietors of the bridges; thereby conferring 
 upon them severally, equal corporate rights and privileges, and mak- 
 ing them, collectively, a corporate body. The second section, author- 
 izes the company to purchase, and with the consent of "a majority of 
 the body," to sell real estate, etc. The third section appoints the 
 president, secretary, etc., by name, to continue in office until others 
 shall be appointed in their places "by a majority of the stockholders, 
 at a meeting of the said stockholders;" and then adds, "the said cor- 
 poration or a majority thereof," may appoint annually, etc. And by 
 the fourth section, the power to make by-laws is given to "the said 
 corporation or a majority thereof." 
 
 In the first place, it is obvious to remark, that this charter incor- 
 porates certain individuals by name; that they therefore, and their 
 successors and assigns, collectively constitute "the corporation," "the 
 body," politic and corporate. When, therefore, the second section 
 speaks of the consent of "a majority of the body," what "body" 
 does it mean? The answer is inevitable; '"the corporate body," 
 "the bo^y," politic and corporate. But what composes that "body"? 
 The aggregate amount of property? or the collective number of 
 individual' proprietors who were incorporated? Manifestly the lat- 
 ter. The corporation property is not, in any sense, "a body" politic. 
 "A majority of the body" then, can only mean, "a majority of the in- 
 dividuals comprising that body." The third section .is, if possible, more 
 explicit, and admits of no doubt. The officers named, are to continue 
 until others are appointed — how? By "a majority of the stockhold- 
 ers," not by the holders of a majority of the stock. The difference 
 between the two forms of expression, is too palpable to admit of illus- 
 tration. To consider them as meaning one and the same thing, would 
 
426 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 be to confound all langauge and destroy the use of terms. The dis- 
 tinction is plainly recognized, not denied by the court in Gray v. L. 
 & S. Turnpike Co., 25 Va. 578, Angell & Ames on Corporations, 290. 
 But it is said the term stockholders, is not used in the general au- 
 thority subsequently given in the third and fourth sections, to appoint 
 officers,^ and ordain by-laws. That is true, but the terms used, viz: 
 "The said corporation or a majority thereof," evidently mean the cor- 
 porators, or a majority of them, unless the property constitutes' the 
 corporation, and not the stockholders. 
 
 There is nothing then in. this charter to change the common law 
 rights and relative influence of the individual corporators. No rights 
 or privileges are annexed by it to any specific or designated quantity 
 of interest. It does not give the election of officers, and the control 
 of the property to a minority of the corporators, as the by-law in 
 question may do, and in practice as it seems by depositions, generally 
 has done. If the charter gave to the stockholders a vote for every 
 share, then they might claim and exercise that right, not on the mere 
 ground of membership, but as a special chartered privilege. It was 
 insisted, howeyer, at the bar, that the legislature recognized the com- 
 pany when the act of incorporation was passed in 1797, with their 
 by-laws and usages as they then existed; that the charter was in the 
 nature of a legislative confirmation of their pre-existing by-laws and 
 regulations, one of which was, that members might vote by proxy, 
 and have one vote for every share they owned. That, therefore, their 
 right to do so, is a chartered right. 
 
 This argument is too broad. If true, in its extent, the company 
 could not repeal or modify any of its pre-existing rules. They have, 
 upon this principle, become a part of the charter, part of its funda- 
 mental constitution, and cannot be changed, unless the charter gives 
 the corporation power to do so. This it does not do. On the con- 
 trary, in terms, as well as on general principles, it restrains them from 
 making any by-laws repugnant thereto. It is true, 'if an ancient, or 
 other existing corporation, accepts a chartfer of confirmation, their 
 rights, regulations and ancient usages, will not be superseded or im- 
 paired, except so far as the same are altered by, or repugnant to the 
 new charter. Newling v. Francis, 3 T. R. 196 ; Rex v. Westwood, 7 
 Bing. 1, s. c. 20 Eng. Com. Law. Rep. 11, etc. But this is not a char- 
 ter of confirmation ; it is an original charter, creating and "giving life 
 to what did not before exist. If, therefore, this corporation has now 
 any by-laws in force, on the subject of elections, or in relation to any 
 other matter, it cannot be because such by-laws existed prior to the 
 charter; but because the corporation, since its creation, has adopted 
 them, either by a formal act of legislation, or by tacitly conforming 
 to such pre-existing regulations ; and in either case, their legality and 
 validity are liable to be questioned in this, and in other courts of com- 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 427 
 
 petent Jurisdiction. However prudent and advisable, it is not neces- 
 sary, that a corporation should ordain its by-laws by a formal act of 
 legislation, nor that they should reduce them to writing, unless re- 
 quired to do so by the charter : and this is all that is proved by the 
 cases cited on this point. Angell & Ames on Corporations, 179, etc. ; 
 Union Bank of ^Maryland v. Ridgely, 1 Har. & G. (Md.) 324; Rex 
 v. Ashwell, 12 East, 22 ; and see United States v. Fillebrown, 7 Pet 
 28, 8 Iv. Ed. 596; U. S. Bank v. Dandridge, 12 Wheat. 69, 6 L. Ed. 
 552. 
 
 Neither can the argument founded on the uniform practice and 
 usage of this company, be maintained. It can have no prescriptive 
 rights founded on immemorial lisage; and the validity of any other 
 must depend upon the charter. If that is ambiguous, or doubtful, 
 usage may help us to fix the construction, but cannot alter its terms 
 or change its fundamental constitution. Rex v. Miller, 6 T. R. 268; 
 Rex V. Varlo, Cowp. 248, 250; Rex v. Ashwell, 12 East 22; Angell 
 & Ames on Corporations, 64. Finally : the by-law in question is not 
 authorized by the charter ; is inconsistent with the popular spirit and 
 design of the institution ; is not essential or necessary to effect the ob- 
 ject the legislature had in view; is contrary to the great principles and 
 policy of our laws ; and is not even for the apparent good of the com- 
 pany itself. It is, therefore, void. ' The object of the legislature was, 
 to give permanency and protection to the public improvement that had 
 been erected, and security to the individuals who had embarked in the 
 enterprise. Instead of promoting and securing these legitimate de- 
 signs, the tendency, at least, the apparent tendency, of the by-law in 
 question, iS to encourage speculation and monopoly, to lessen the 
 rights of the smaller stockholders, depreciate the value of their shares, 
 and throw the whole property and government of the company, into 
 the hands of a few capitalists ; and it may be, to the utter neglect or 
 ; disregard of the public convenience and interest. I do not say, that 
 such was the design, or that such has been the effect ; but only, that 
 the natural or probable tendency of the by-law in question, is to pro- 
 duce such a result. 
 
 If the by-law, allowing votes by proxy and a plurality of votes, had 
 been a legal one, the vote repealing it, or rejecting the proxies, at the 
 time of the election, could not have been justified or sustained; but 
 as the by-law was illegal and void in itself, the proxies and the excess 
 of votes, were properly rejected; and the application to set aside the 
 election, must be denied. Void things are as no things ; this is a uni- 
 versal rule. 22 Vin. Abr. 13, pi. 16, 17; Cable v. Cooper, 15 Johns. 
 (N. Y.) 157. 
 
 I have not reached this conclusion, /without the most serious and sol- 
 emn consideration of the subject; and I may add, not without some 
 reluctance, since a contrary practice has so long prevailed in this com- 
 
428 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 pany. But my solemn conviction is, that "ita lex scripta est." The 
 application must be denied." * * * 
 Application refused.^" 
 
 SCHWARTZ V. STATE ex rel. SCHWARTZ. 
 (Supreme Court of Ohio, 1899. 61 Ohio St. 497, 56 N. E. 201.) 
 
 Error to circuit court, Hamilton county. 
 
 An action in quo warranto was brought against the five plaintiffs 
 in error to oust them from the directory of the Rape Bros. Molding 
 Company, a corporation organized under the laws of the state of Ohio 
 and doing business in Hamilton county, they having been elected in 
 August, 1898, and continuing to hold notwithstanding the alleged fact 
 that at an election in August, 1899, five others named were elected over 
 them as directors of the board, which consists of nine members. Is- 
 sues were joined for the purpose of determining, which candidates for 
 the directory were elected. The cause was submitted in the circuit 
 court on an agreed statement of facts, which shows that at the election 
 in August, 1899, the holders of a majority of the shares cast their full 
 votes for the plaintiffs in error andl four others, whose election as di- 
 rectors is not disputed. A minority voted their shares cumulatively 
 for the five persons whose induction is claimed, except that one vote 
 was given to each of the four whose election is not disputed. It result- 
 ed that the plaintiffs in error received the votes of the holders of a 
 majority of the shares, but did not receive a majority of the votes ; and 
 that those whose induction is sought received a majority of the votes, 
 but did not receive the votes of the holders of a majority of the shares. 
 The circuit court rendered a judgment of ouster and induction, hold- 
 ing that those who by cumulative voting had received a majority of 
 the votes were elected. 
 
 Pee Curiam. The correctness of the judgment depends upoft the 
 construction which should be given to section' 3245, Rev. St., as amend- 
 ed April 23, 1898 (93 Ohio Laws, p. 230). The material portion of 
 the section is as follows: 
 
 "Every stockholder shall have the right to vote in person or by 
 proxy the numiber of shares owned by him for as many persons as 
 there are directors to be elected, or to cumulate said shares and give 
 one candidate as many votes as the number of directors multiplied 
 by the number of his shares of stock shall equal, or to distribute them 
 on the same principle among as many candidates as he shall think fit ; 
 and such directors shall not be elected in any other manner. A major- 
 ity of the number of shares shall be necessary for a choice." 
 
 » The conctirrlng opinion of Ford, J., has been omitted. 
 
 10 S(« Proctor Coal Company v. Flnley, 98 Ky. 405, 33 S. W. 188 (1895) : 
 Welnburgh v. Union Street Railway Advertising Co., 55 N. J. Eq. 640, 37 
 Atl. 1026 (1897). Compare: Beckett v. Houston, 32 Ind. 393 (1869). 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 429 
 
 Before the amendment of the statute it was held in State v. Stockley, 
 45 Ohio St. 304, 13 N. E. 279, that the statute did not authorize cum- 
 ulative voting at elections of directors of corporations. For the plain- 
 tiffs in error it is contended that, although the amended statute plainly 
 authoriz.es cumulative voting, the result of the election must in all 
 cases be the same as before such voting was authorized. This is said 
 to be the necessary result of the requirement that "a majority of the 
 number of shares shall be necessary for a choice." We cannot suppose 
 that the general assembly amended the statute to the end that it should 
 remain unchanged. The amendment clearly authorizes two modes of 
 voting ; that is, either by or without cumulating shares. The require- 
 ment of a majority of shares must, in order that the clearly-defined 
 purpose of the legislature be not defeated, be regarded as applying 
 only when the shares are voted without cumulating. The statute af- 
 fords no reason for the conclusion that votes were authorized for any 
 purpose except to influence the result of the election. Judgment af- 
 firmed. 
 
 COMMONWEALTH ex rel. VERREE v. BRINGHURST. 
 (Supreme Court of Pennsylvania, 1883. 103 Pa. 134, 49 Am. Rep. 119.) 
 
 Before Mbrcur, C. J., and Gordon, Paxson, Trunkey, Green 
 and Clark, JJ. ; Stereett, J., absent. 
 
 Error to the Court of Common Pleas No. 2, of Philadelphia county ; 
 of January Term, 1883, No. 261. 
 
 Quo warranto, by the commonwealth of Pennsylvania, ex relatione 
 John P. Verree et al., against John H. Bringhurst et al., to determine 
 the right of the defendants to hold the office of directors of the Phil- 
 adelphia Iron & Steel Company, a corporation chartered by special 
 act of April 12, 1867 (P. L. 1211). 
 
 The suggestion of the relators set forth, inter alia, the following 
 facts : Section 2 of the act of incorporation provides : "That the af- 
 fairs of said company shall be managed by a board of five directors, 
 one of whom shall be the president, who shall be chosen by the stock- 
 holders ; all elections shall be by ballot, and every share of stock upon 
 which the required installments have been paid in, shall entitle the 
 holdJer thereof to one vote." Article 8 of the by-laws provides : "The 
 stockholders shall meet on the second Thursday in October in every 
 year, at such place in the city of Philadelphia as may be designated 
 by the notice issued by the board." And article 9 provides: "The 
 election of officers shall hereafter take place annually at the stated 
 meeting in October." 
 
 On October 12, 1882, a stated annual meeting of the company was held, 
 for the purpose of electing five directors to serve for the ensuing year, 
 and to designate one of these directors as president of the company. At 
 this election William W. Liebert, a stockholder, having voted upon 200 
 
430 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 shares of stock in his own right, presented the proxy of Allen Middleton, 
 who was the registered owner of 125 shares, and offered to vote the 
 same in favor of the relators as directors, designating John P. Verree 
 as president. Objection was made thereto, upon the ground that votes 
 by proxy could not be given. The said vote by proxy was receivedl by 
 the inspectors of election under protest, the judge of the election de- 
 ciding that the offer to vote by proxy was regular and lawful. Other 
 votes by proxy were then received Sy the inspectors of election, also 
 under protest. At the close of the poll the inspectors of the election 
 refused to count any of the votes cast for the relators which had 
 been given by proxy, amounting to thirteen hundred and fifty-two 
 shares (notwithstanding the fact that the judge of the election had 
 decided in favor of their validity), and reported to the meeting that 
 two hundred shares had) been cast for the relators for the office of 
 directors, and two hundred shares for John P. Verree as president, 
 and that twelve hundred and thirty shares had been cast for the dle- 
 fendants, John H. Bringhurst et al., and for John H. Bringhurst as 
 president. The judge of the election refused to sign this report, and 
 himself presented a report setting out that the relators had received 
 a majority of all the votes according to the above facts. 
 
 The defendants demurred, upon the ground that, under the charter 
 of the corporation, which did not expressly confer the power to vote 
 by proxy, votes could not be received unless presented by the share- 
 holder in person. 
 
 ' After argument the court sustained the demurrer and entered judg- 
 ment for the defendants. ~ Whereupon the relators took this writ, 
 assigning for error the action of the court sustaining the demurrer. 
 
 Mercue, C. J. The relators aje stockholders of the Philadelphia 
 Iron & Steel Company. It was incorporated by special act of 12th of 
 April, 1867. 
 
 The contention is, whether the stockholders may vote by proxy, in 
 the annual election of officers of the corporation ? 
 
 Section 2 of the act declares "the affairs of said company shall be 
 managed by a board of five directors, one of whom shall be the presi- 
 dent, who shall be chosen by the stockholders. All elections shall be 
 by ballot, and every share of stock upon which the required instalments 
 have been paid, shall entitle the holder thereof to one vote." Section 
 3, inter alia, authorizes the corporation to "Make all needful rules, 
 regulations, and by-laws for the well ordering and proper conduct of 
 the business and affairs of the corporation. Provided the same in no 
 wise conflict with the constitution 'and laws of this State or of the 
 United States." 
 
 The charter in no wise refers to voting by proxy. No by-law has 
 been adopted authorizing the stockholders to so vote. 
 
 In the absence of any express authority in the charter, and without 
 
Sec. 1) EIGHTS INCIDENT TO STATUS ^1 
 
 any by-law authorizing it, the question is whether the stockholders may 
 vote by proxy. In other words, is it a power necessarily incident to 
 the corporate rights of the stockholders? 
 
 A corporation is the mere creature of the law. It cannot exercise 
 any power or authority other than those expressly given by its charter, 
 or those necessarily incident to the power and authority thus granted, 
 and therefore, in estimation of law, part of the same. Wolf v. God^ 
 dardi, 9 Watts, 550; Diligent Fire Co. v. Commonwealth, 75 Pa. 291. 
 
 The right of voting at an election of an incorporated company by 
 proxy is not a general right. The party who claims it must show a 
 special authority for that purpose. Angell & Ames on Corporations, 
 § 128; Philips v. Wickham, 1 Paige (N. Y.), 590. In this case. Chan- 
 cellor Walworth says, the only case in which it is allowable at the 
 common law is by the peers of England, and that is said to be in 
 virtue of a special pei^mission of the King. He adds : "It is possible 
 that it might be delegated in some cases by by-laws of a corporation, 
 where express authority was given to make such by-laws, regulating 
 the manner of voting." In People v. Twaddell, 18 Hun (N. Y.), 427, 
 it was held, a stockholder cannot so vote unless expressly authorized by 
 the charter or by-laws. • Taylor v. Griswold, 14 N. J. Law, 222, 27 Am. 
 Dec. 33, holds that a right of voting by proxy is not essential to the 
 attainment and design of a charter, and even a general clause therein 
 authorizing the company to make by-laws for its government was in- 
 sufficient of itself to give that right. In State v. Tudor, 5 Day (Conn.) 
 329, 5 Am. Dec. 162, there was no clause in the charter authorizing 
 the stockjiolders to vote by proxy; yet the company made a by-law 
 authorizing them to so vote. The validity of this by-law was sus- 
 tained by a majority of rthe court. So in People v. Crossley, 69 111. 
 195, effect was given to a by-law of the corporation, authorizing vot- 
 ing by proxy, the by-law not being in conflict with the Constitution and 
 laws of the state. 
 
 That a right to vote by proxy is not a common law right, and) there- 
 fore not necessarily incident to the shareholders in a corporation ap- 
 pears to have been recognized in Brown v. Commonwealth, 3 Grant, 
 Cas. 209, and in Craig v. First Presbyterian Church, 88 Pa. 42, 32 
 Am. Rep. 417. 
 
 The selection of officers to manage the affairs of this corporation 
 requires the exercise of judgment and discretion. They must be elect- 
 ed by ballot. The fact that it is a business corporation in no wise dis- 
 penses with the obligation of all the members to assemble together, 
 unless otherwise provided, for the exercise of a right to participate 
 in the election of their officers. Although it be diesignated as a private 
 corporation, yet it acquired its rights from legislative power, and it 
 must transact its business in subordination to that power. As then 
 the relators cannot point to any language in the charter expressly 
 
432 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 giving a right to vote by proxy, and it is not authorized by any by- 
 law, they have no foundation on which to rest their claim. 
 
 Judgment was correctly entered for the defendants on the demurrer. 
 Judlgment affirmed. 
 
 CONE V. RUSSELL et al. 
 (Court of Chancery of New Jersey, 1891. 48 N. J. Bq. 208, 21 Atl. 847.) 
 
 The complainants, Lorenzo H. Cone and Rebecca C. Cone, executors 
 of Jonathan Cone and trustees under his will, by their bill, ask that 
 the defendants, William F. Russell and Charles H. Mason, be en- 
 joined from voting at any stockholder's meeting of the Upper Dela- 
 ware River Transportation Company, by virtue of a proxy or power 
 of attorney executed by them, four hundred and seventy-seven shares 
 of the stock of said corporation belonging to them as executors, and 
 pray that the power of attorney and a certain written agreement be- 
 tween the parties be decreed null- and void and ordered to be delivered 
 up to be cancelled. By this agreement the complainants were to give 
 to the defendants a power of attorney, irrevocable for five years, to 
 vote the stock held by them as executors in consideration of the de- 
 fendant's agreement to so vote the stock as to secure Lorenzo H. 
 Cone the office of manager of the corporation for a period of five years 
 at an annual salary of $2,500. The power of attorney was duly ex- 
 ecuted in accordance with said agreement.^ ^ 
 
 Pitney, V. C.^^ * * * Complainants base their right to the re- 
 lief now sought upon three grounds : First. They say they were in- 
 duced to enter into the agreement and execute the proxies by a fraud 
 practiced upon them by the defendants, the particulars of which are 
 set out in the bill. Ex parte affidavits on both sides, bearing on the 
 question of fraud or no fraud, have been read. I deem it worth while 
 to say, on this point, only that I think the fraud is not made out with 
 sufficient certainty and clearness, and with sufficient weigiit of evi- 
 dence, to warrant interposition by interlocutory injunction. 
 
 The second ground taken by the complainants- is that the contract 
 in question is against public policy, and tends to work a fraud on the 
 other stockholders, and is void upon that ground. . And the third 
 ground is that the complainants, executors and trustees, had no right 
 to depute their trust to others, as is done by this agreement, and that 
 on that account also it should be decreed void. 
 
 The theory upon which the capital of numerous persons is asso- 
 ciated in various proportions, in the shape of a trading corporation, 
 to be managed by a committee of the stockholders, is that such com- 
 mittee shall truly represent and be subject to the will of the majority 
 
 11 Statement of facts substituted. 
 
 12 A part of the opinon is omittedi 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 433 
 
 in interest of the stockholders. The security of the small stockholders 
 is found in the natural disposition of each stockholder to promote the 
 best interests of all, in order to promote his individual interests., A 
 member of an ordinary partnership has an additional security in the 
 personal character of each of his partners, and may decline to be as- 
 sociated with any whom he does not know and approve. But a stock- 
 holder in a corporation cannot control the personnel of his associates, 
 and must rely upon their self-interest alone. 
 
 Upon the foundation of the natural disposition of persons to pro- 
 mote their own interests rests the- rule established in this state in the 
 famous case of Taylor v. Griswold, 14 N. J. Law, 222, 27 Am. Dec. 
 33, that a trading corporation could not, without special legislative 
 authority, make a by-law authorizing a stockholder to vote by proxy. 
 The principle established by that case is "that the obligation and duty 
 of corporators to attend ip person, and execute the trust or fran- 
 chise reposed in or granted to them, is implied in and forms a part 
 of the fundamental constitution of every charter in which the con- 
 trary is not expressed ;" and the reason given by Chief Justice Horn- 
 blower, 14 N. J. Law, at page 227, 27 Am. Dec. 33, and again by Jus- 
 tice Ford, 14 N. J. Law, at page 250, 27 Am. Dec. 33, is that the good 
 of the stockholders, as well as of the public, requires that each stock- 
 holder should exercise his individual judgment as to all matters pre- 
 sented. In Fuller v. Dame, 18 Pick. (Mass.) 472, at page 484, Chief 
 Justice Shaw says: "Mr. Fuller was one of the original proprietors 
 of the Worcester Railroad. His associates had a right to believe that 
 in all his acts as such stockholder, in choosing directors, in framing 
 by-laws, and doing other acts, pursuant to the powers of the corpora- 
 tion, he had a common, and, in proportion to his shares, an equal, in- 
 terest, and they had a right to rely on his judgment, his recommenda- 
 tions of directors, and other acts, with all the confidence inspired by 
 such a belief." 
 
 Our legislature has, since the decision in Taylor v. Griswold, au- 
 thorized the use of proxies, limiting them, however, to three years. 
 But the principle still remains that the proxy is supposed to vote for 
 the principal, and in his interest. If a majority of the stock is owned 
 by one person, he has no right to use his power as such owner to ad- 
 vance his private interests at the expense of the minority. And in like 
 manner he has no right to depute to another, who has little or no in- 
 terest in the corporation, a power to use his stock for that purpose. 
 Such deputation is the more dangerous because the person intrusted 
 with the power has no such inducement to promote the interests of 
 the corporation as the stock-owner has. Where the majority of the 
 stock, is owned by one man, or 'set of men acting in concert, the mi- 
 nority are, to some extent, protected by the natural interest of the ma- 
 jority to promote the real interest of the corporation; but where a 
 person who has little or no actual ownership has the unrestricted vot- 
 ing power of a majority of the stock, the minority loses this protection 
 
 RiCH.COBP. — 28 
 
434 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 and what may be properly termed the underlying and fundamental 
 understanding and contract upon which the association is founded is 
 abandoned and broken. 
 
 The motive which may induce the owner of a controlling interest in 
 the corporation to deprive himself of and depute to another the pow- 
 er to use it as he rnay see fit, during a fixed period, may be of little 
 consequence to his associates, but is usually found in some considera- 
 tion of personal /gain. In the case in hand it is the employment of 
 complainant L. H. Cone as manager for a fixed term, and at a fixed 
 salary, and irrespective of the actual value of his Services. The 
 avowed object and purpose of the ' defendants was to secure to them- 
 selves like employment and salaries. The mere statement of the affair 
 seems to me to condemn it. The motive was in itself improper arid 
 unlawful. Servants of a corporation should be employed arid paid 
 upon their merits ; and buying votes for an office in a corporation is 
 of the same objectionable character as buying them for a public office. 
 The same may be said of buying the right to control the business' policy 
 and management of the affairs of a corporation. 
 
 In Guernsey v. Cook, 117 Mass. 548, Id., 120 Mass. 501, the con- 
 tract was that the defendant, who with another, acting in concert with 
 him, owned the majority of the stock of a corporation, ^agreed with 
 the plaintiff that the plaintiff should be employed as treasurer, at a 
 salary of $3,500 per year, and should purchase 100 shares of the de- 
 fendant's stock at par, but leave it in the control of the defendant, 
 and, in case plaintiff should be discharged as treasurer, defendant 
 should repurchase the shares at the same price, with interest. Plaintiff 
 was discharged, and brought his action for the price of the shares of 
 stock. The contract was declared to be void as a fraud upon the other 
 stockholders, and as againsi; public policy ; and the action, "which," to 
 use the language of the court, "is not in avoidance, but in direct 
 affirmance, of the contract," was defeated. The reasoning of the 
 court in arriving at this conclusion seems to me to be sound. 
 
 This case was followed by Woodruff v. Wentworth, 135 Mass. 309, 
 whei-e it was held that a contract between two stockholders in a corpo- 
 ration, by the terms of which one, in consideration of a sum of money 
 paid to him by the other, agrees to vote for a certain person as man- 
 ager of the corporation, and also to vote to increase the salary of the 
 officers of the corporation including that of the manager, is void as 
 against public policy; and doubt is expressed as to whether such as- 
 sent would cure its vice. In Foil's Appeal, 91 Pa. 434, 437 (36 Am. 
 Rep. 671), the supreme court of Pennsylvania went so far as to re- 
 fuse specific performance of a contract to sell a comparatively few 
 shares of stock in a national bank, where the avowed object was to 
 enable the purchaser to obtain the control of the bank, and who, for 
 that purpose,' had already bought up, largely with borrowed money, 
 almost a majority of the stock. The learned judge, speaking for the 
 court, says : "The stock, as now held, is scattered among a variety of 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 435 
 
 people, and held in greater or lesser amounts. It is difficult to see how 
 the small, stockholders who have modest earnings invested in it, the 
 depositors who use it for the safe-keeping of their money, or the busi- 
 ness public who look to it for accommodation in the way of loans, are 
 to be benefited by the concentration of a majority of its stock in the 
 hands of one man, or in such a way that one man and his friends shall 
 control it. Especially is this so when, as here, an attempt is made to 
 control it by the use of borrowed capital. The temptation to use it for 
 personal ends, in such case, is very strong." For an instance of the 
 abuse of power by an actual majority in ownership of stock in a cor- 
 poration, see Meeker v. Iron Co. (C. C.) 17 Fed. 48. 
 
 Following the reasoning of these cases, I conclude that the contract 
 complained of in this suit is void as against public policy. This con- 
 clusion does not reach so far as to necessarily forbid all pooling or 
 combining of stock, where the object is to carry out a particular policy 
 with the view to promote the best interests of all the stockholders., 
 The propriety of the object validates the means, and must aifirma- 
 tively appear. * * * 
 
 For these reasons I am of the opinion that the contract and proxy 
 set out and mentioned in the bill are void, and complginants are en- 
 titled to relief against them, and that the injunction prayed for must 
 go. I will advise an order accordingly.^' 
 
 ' SMITH et al. v. SAN FRANCISCO & N. P. R. CO. et al. 
 
 (Supreme Court of California, 1897. 115 Cal. 584, 47 Pac. 582, 35 L. R. A. 
 309, 56 Am. St. Rep. 119.) 
 
 Smith, Foster and Markham purchased stock in the defendant cor- 
 poration under a pooling agreement whereby it was agreed that the 
 stock should be voted as a unit for the period of five years, the vote 
 to be cast as determined by ballot between them. At a meeting for the 
 election of directors held before the five-year period had elapsed. 
 Smith, who was present in person, sought to vote the stock standing 
 in his name regardless of a ballot duly taken by Foster and Markham, 
 he declaring he refused to be bound thereby. Foster offered to vote 
 the same stock according to the ballot taken. The vote of Smith was 
 rejected and that of Foster accepted. The votes so rejected and so 
 accepted were sufficient to change the result of the election. This 
 action was brought under the Code to determine the validity of the 
 election. 
 
 The superior court gave judgment in favor of the plaintiff." 
 Harrison, J.^" * * * The instrument executed between the 
 
 18 Compare: Chapman v. Bates, 61 N. J. Eq. 658, 47 Atl. 638, 88 Am. St. 
 Rep. 459 (1900). 
 
 1* Statement of facts substituted. 
 18 Part only of the opinion is given. 
 
436 EIGHTS OF STOCKHOLDEES (Ch. i 
 
 parties must * * * be held to be a proxy, and to authorize the 
 vote of the 42,000 shares of stock to be cast in accordance with the 
 determination of the majority of the parties thereto; and, if it was 
 made upon a consideration sufficient to bind the parties to its enforce- 
 ment, it must be regarded as still operative. One of the inducements 
 for the purchase of the stock, and under which the parties entered 
 into the agreement, was that the shares should be voted in one body, 
 and held for five years as a unit. It is immaterial that the voting 
 agreement was not reduced to writing and executed until after the 
 bid had been made for the stock. It was so executed before the par- 
 ties thereto had completed the purchase, and become the owners of 
 the stock by paying the purchase price. Nor is the validity of the 
 agreement or the effect of its terms different by reason of different 
 certificates having been issued in the names of the several parties to the 
 transaction, rather than in the name of one of them. The agreement 
 between them was with reference to the 42,000 shares of stock, and 
 that it should be voted as a unit, and the purpose of the agreement was 
 the economical management of the rbad, and to prevent irresponsible 
 persons from getting control. 
 
 It was within the power of the parties to contract in reference to 
 this property as fully as with regard to any other property. They 
 were at liberty to make as a condition of their purchase that its man- 
 agement should be held by either of them, or by a majority of the 
 three, and the terms of the agreement for such purchase could not be 
 repudiated by either after the purchase had been made. It may be 
 assumed that neither of the parties would have entered into the trans- 
 action or agreed upon the purchase of the stock except upon these 
 conditions, and it must be held that each contributed his money to the 
 purchase of the stock upon the promise made to him by the others. 
 There was thus a sufficient consideration for the agreement granting 
 the right to vote the stock. It was in the nature of a power coupled 
 with an interest, and, being given for a valuable consideration, could 
 not be revoked at the pleasure of either. Hey v. Dolphin, 92 Hun, 
 230, 36 N. Y. Supp. 627. 
 
 Although the court, in excluding this, evidence, assumed that the in- 
 strument was valid, counsel for respondents have presented an argu- 
 ment in support of their further objection thereto that the instrument 
 is invalid by reason of being against public policy; and it therefore 
 becomes necessary to consider this objection, inasmuch as the. action 
 of the court, rather than its reason for so acting, is to be reviewed; 
 for, if the instrument is invalid, the refusal of the court to allow any 
 effect to be gained from its exercise was proper. 
 
 "Public policy" is a term of vague and uncertain meaning, which it 
 pertains to the lawmaljing power to define, and courts are apt to en- 
 croach upon the domain of that branch of the government if they 
 characterize a transaction as invalid because it is contrary to public pol- 
 icy, unless the transaction contravenes some positive statute or some 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 437 
 
 well-established rule of law. Sir George Jessel, as master of the rolls, 
 said in Besant v. Wood, 12 Ch. Div. 60S, that public policy is "to a 
 great extent a matter of individual opinion, because what one man or 
 one judge might think against public policy another might think alto- 
 gether excellent public policy." And in another case (Registering Co. 
 V. Sampson, L. R. 19 Eq. 465) the same jurist said: "If there is one 
 thing which, more than another, public policy requires, it is that men 
 of full age and competent understanding shall have the utmost liberty 
 of contracting, and that their contracts, when entered into freely and 
 voluntarily,' shall be held sacred, and shall be enforced by courts of 
 justice." 
 
 It is not in violation of any rule or principle of law for stockholders 
 who own a majority of the stock in a corporation to cause its affairs to 
 be managed in such way as they may think best calculated to further 
 the ends of the corporation, and for this purpose to appoint one or 
 more proxies, who shall vote in such a way as will carry out their 
 plan. Nor is it against public policy for two or more stockholders to 
 agree upon a course of corporate action, or upon the officers whom 
 they will elect ; and they may do this either by themselves or through 
 their proxies, or they may unite in the appointment of a single proxy 
 to effect their purpose. Any plan of procedure they may agree upon 
 implies a previous comparison of views, and there is nothing illegal 
 in an agreement to be bound by the will of the majority as to the 
 means by which the result shall be reached. If they are in accord as 
 to the ultimate purpose, it is but reasonable that the will of the major- 
 ity should prevail as to the mode by which it may be accomplished. It 
 would not be an illegal agreement if articles of partnership should 
 provide that stock in a corporation owned by the partnership, though 
 standing in the individual names of the partners, should be voted by 
 one of its members ; and it is no more against public policy for such 
 an agreement to be entered into between stockholders whose interests 
 in the stock are separate than where their interests are joint. 
 
 Viewed from considerations of public policy merely, it is immaterial 
 whether such an agreement is made by the members of an existing 
 partnership, which owns the shares, or in pursuance of an agreement 
 by two or more persons to form a 'partnership for their purchase, or to 
 purchase them for their joint account, or as one of the terms of an 
 agreement for their purchase by persons who contemplate no relation 
 to each other, further than that of owning stock in the same corpora- 
 tion. Such agreement would in any case be outside of the corporation, 
 and disconnected with the interest of every other stockholder, and in 
 either case the same rules would control. Whether such an agreement 
 is illegal, so that any action or vote under it can be set aside, or is of 
 such a character that it will not be enforced, will depend upon the ob- 
 ject with which it is made, or the acts that are done under it, and will 
 be governed by othe;r rules of law. * * * . 
 
 In cases of "voting trusts," where the owners of stock transfer the 
 
438 EIGHTS OF STOCKHOLDERS (Ch. 4^ 
 
 shares to trustees with authority to vote at elections according to the 
 direction of a majority of those holding trust certificates, and the only 
 consideration for such transfer and agreement is the mutual promises 
 of the several stockholders, it has been held that any stockholder may 
 revoke his agreement and withdraw his stock at will; and it is also 
 held that stockholders who become such after an agreement of this 
 nature is entered into are not bound by its terms, but will hold their 
 shares freed from the limitations of the agreement. * * * 
 
 The agreement in question cannot be regarded as illegal by reason 
 of being in restraint of trade. The rule invalidating contracts in re- 
 straint of trade does not include every contract of an individual by 
 which his right to dispose of his property is limited or restrained'. Sec- 
 tion 1673, Civ. Code, makes void every contract by which one is re- 
 strained from "exercising a lawful profession, trade, or business," 
 except in certain instances. But this is far different from a contract 
 limiting his right to dispose of a particular piece of. property except 
 upon certain conditions. As the owner of property has the right to 
 withhold it from sale, he can also, at the time of its sale, impose con- 
 ditions upon its use without violating any rule of public policy; and 
 there is nothing inconsistent with public policy for two or more per- 
 sons who contemplate purchasing certain property to agree with each 
 other, as a condition of the purchase, that, neither will dispose of his 
 share within a limited period, or for less than a fixed sum, or except 
 upon certain limitations. They have the same right to contract with 
 reference to the terms under which they will hold or dispose of the 
 property after it shall have been purchased, as they have to agree 
 upon any other terms upon which the purchase shall be made; and 
 they no more violate a rule of public policy in making such agreement 
 a consideration of their purchase than would two or more partners, 
 who should.purchase property for partnership purposes, and agree that 
 it should not be disposed of unless their vendee would assent to cer- 
 tain conditions regarding its use. These terms enter into and form a 
 •part of the consideration for the agreement to purchase, and are as 
 binding and enforceable as any 'other terms of the agreement. Trust 
 Co. V. Abbott, 162 Mass. 148, 38 N. E. 432, 27 L,. R. A. 271 • Hodge 
 V. Sloan, 107 N. Y. 244, 17 N. E. 335, 1 Am. St. Rep. 816; Williams 
 V. Montgomery, 148 N. Y. 519, 43 ,N. E. 57; Matthews v. Associated/ 
 Press, 136 N. Y. 333, 32 N. E. 981, 32 Am. St. Rep. 741. 
 
 The contract in F^isher v. Bush, 35 Hun (N. Y.) 641, was held to 
 be invalid for want of any other consideration than the mutual prom- 
 ise of the parties ; but it was said in that case : "If these parties and 
 their associates were the promoters of this corporation, then, doubtless, 
 they could have entered into a valid agreement regulating a sale of' the 
 same, and requiring the owners to hold them from market for a reason- 
 able and definite period of time, and thus forbidding a sale by either of 
 his interests to one against whom his associates might have a reason- 
 able objection. Moffatt v. Farquhar, 7 Ch. Div. 591 ; reported in 23 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 439 
 
 Moak, Eng. R. 731. A stipulation of that character would not be ille- 
 gal, as against public policy, as it would be simply a provision, as- 
 sented to by all, that the newcomer into the business transaction should 
 be with the approval of the other joint owners." 
 
 Neither is it illegal or against public policy to separate the voting 
 power of the stock from its ownership. The statute authorizes the 
 stockholder to vote by proxy, and it was held in People's Home Sav. 
 Bank v. Superior Court of City and County of San Francisco, 104 
 Cal. 649, 38 Pac. 452, 29 L. R. A. 844, 43 Am. St. Rep. 147, that a by- 
 law restricting the selection of proxies to stockholders was invalid, 
 that the statute places no limitation upon the right of selection, and 
 that a stockholder may appoint as his proxy one who is an entire stran- 
 ger to the corporation. The right to appear by proxy implies, of itself, 
 that the voting power may be separated from the ownership of the 
 stock; and, unless the authority of the proxy is limited by the terms 
 of his appointment, he is necessarily required to use his own discretion 
 in any vote that he gives. Being the agent of the stockholder, he is 
 required to exercise this discretion in behalf of his principal ; but he 
 is at liberty to use his own discretion as to the means by which his 
 principal's interest will be best subserved. The cases in which it has 
 been said that the stockholder could not divest himself of the voting 
 power of his stock, and that it should not be separated from the owner- 
 ship of the stock, were cases which involved, either tfie sufficiency of 
 the agreement by which the voting power was transferred, or the va- 
 lidity of the purpose for which the power was to be exercised. The 
 proxy must exercise a discretion of the same nature as that which the 
 stockholder is authorized to exercise, and an authority to do otherwise 
 would be invalid; but the authority to exercise a discretion differs 
 from an authority to perform a particular act. * 
 
 Under an appointment without words of limitation, the proxy may 
 act against the interests of the stockholder, or even against the inter- 
 ests of the corporation, and the corporation, as well as the stockholder, 
 will be bound by his act as fully as if the stockholder had acted in 
 person ; while, if the authority had been directed in terms to that act, 
 it might have been invalid. The distinction is that between an unlaw- 
 ful exercise of a lawful power and the attempt to authorize the exer- 
 cise of an unlawful power. The question has been presented in cases 
 of voting trusts, but an examination of these cases will show that the 
 question has arisen either when the authority was expressly given to 
 carry out some illegal purpose, or when, having been given without any 
 consideration, though purporting, to be for a definite term, subsequent 
 owners of the stock have sought to revoke it before the expiration of 
 the term. Shepaug Voting-Trust Cases, 60 Conn. 553, 24 Atl. 32, 
 sometimes reported under the name of Bostwick v. .Chapman ; White 
 v. Tire Co., 52 N. J. Eq. 178, 28- Atl. 75. 
 
 We have been cited to no instance where the purpose of a proxy 
 given upon a sufficient consideration was lawful, and the person by 
 
440 EIGHTS OP STOCKHOLDERS (Ch. 4 
 
 whom the proxy was created continued to be the owner of the stock, 
 in which the agreement has been held invalid. The stockholder can- 
 not separate the voting power from his stock by selling his right to 
 vote for a consideration personal to himself alone, any more than he 
 could agree, for the same consideration, to cast the vote himself ; and 
 an agreement with others to appoint a proxy upon the same consider- 
 ations would be equally invalid. In Cone v. Russell, 48 N. J. Eq. 208, 
 21 Atl. 847, an agreement by the purchaser of stock to give to other 
 stockholders his irrevocable proxy, for the purpose of securing and 
 maintaining the control of the company, was lield invalid, for the rea- 
 son that it was one of the terms of the agreement that the directors 
 to be elected under its provisions should employ the one giving the 
 proxy at a fixed salary during its existence. Such an agreement was 
 held to operate as an inducement to elect directors who would not act 
 disinterestedly for the benefit of all of the stockholders, but rather to 
 promote the interest of the parties to the agreement alone, and was 
 therefore void, as being against public policy. The court, however, 
 said: "This conclusion does not reach so far as to necessarily forbid 
 all pooling or combining of stock, where the object is to carry out a 
 particular policy with the view to promote the best interests of all the 
 stockholders." 
 
 It was upon this principle that the agreements in Hafer v. New 
 York, etc. R. R. Co., 14 Wkly. Law Bui. (Ohio) 68, Guernsey v. 
 Cook, 120 Mass. 501, and Fennessy v. Ross, 5 App. Div. 342, 39 N. 
 Y. Supp. 323, were held invalid. The same principle was declared 
 in Gage v. Fisher, 5 N. D. 297, 65 N. W. 809, 31 L. R. A. 557. In 
 Railroad Co. v. Nicholas, 98 Ala. 92, 12 South. 723, the court held 
 that there was nothing illegal or contrary to public policy in separating 
 the voting power of the stock from its ownership, saying: "Where 
 a proxy is duly constituted, and the power of the appointment is with- 
 out limitation, the vote cast by the proxy binds the stockholder, wheth- 
 er exercised in behalf of his interest or not, to the same extent as if 
 the vote had been cast by the stockholder in person. The invalidity 
 of acts of this character by a proxy, rightly understood, is not made 
 to rest upon the ground that there has been a separation of the voting 
 power from the stockholders, but because of the unlawful purpose for 
 which the proxy was appointed, or the unlawful end attempted to be 
 eifected by the exercise of the voting power." * * * 
 The judgment and order denying a new t;-ial are reversed.^^ 
 Van Fleet, McFarland, and Henshaw, J J., concurred.^'' 
 
 le See Kreissl v. Distilling Company of America, 61 N. J. Eq. 5, 47 Atl. 471 
 (1900). Compare Shepaug Voting Trust Cases, 60 Conn. 553, 24 Atl. 32 
 (1890). 
 
 17 The dissenting opinion of Beatty, C. J., Is omitted. 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 441 
 
 BOYER V. NESBITT. 
 
 {Supreme Court of Pennsylvania, 1910. 227 Pa. 398, 76 Atl. 103, 136 Am. St. 
 
 Rep. 890.) 
 
 Appeal from a decree dismissing a bill in equity. The bill was 
 brought to revoke a voting trust, which by its terms was to continue 
 for a period of five years, with the provision for further continuance 
 at the desire of a majority. The facts appear in the opinion.^* 
 
 Elkin, J. It is apparent from this record that many citizens of the 
 city of Wilkes-Barre desirous of building up a local enterprise pro- 
 cured the incorporation of the Adder Machine Company, andl became 
 subscribers to its capital stock. It is in the nature of a private trading 
 corporation, and questions of public policy relating to public and quasi 
 public corporations do not arise. After the business of the corpora- 
 tion, had been successfully started under competent and satisfactory 
 management, a large number of the shareholders representing a ma- 
 jority of the stock concluded that the mutual interests of the stock- 
 holders, as well as the interest of the corporation itself, would be best 
 served by a continuation of the business policy of the company in- 
 augurated by the officers then in control of its affairs. To effectuate 
 this purpose, an agreement in writing was entered into between all of 
 the stockholders who chose to become parties to it and the three stock- 
 holders who at the time of its execution had formulated the policy 
 of the company, and were directing its business affairs. 
 
 This agreement named the three persons then constituting the board 
 of directors and in charge of the business management of the company 
 as trustees. It defined the rights of the shareholders on one side, and 
 the powers and duties of the trustees on the other. The duty of man- 
 agement was imposed upon the trustees who accepted the responsibil- 
 ities and have continued to perform the duties of their trust. Under 
 the agreement, each of the contracting shareholders transferred his 
 stock to what is called voting trustees who surrendered the same to 
 the corporation, and received new certificates in the individkial names 
 of the trustees in lieu thereof. The trustees then issued trust cer- 
 tificates to the shareholders who had thus contracted, defining the rights 
 and interests of the contracting parties. The trustees therefore hold the 
 legal title to the stock, have imposed upon them the duties of manage- 
 ment, and are clothed with power to continue through their stock con- 
 trol a business policy helpful to the corporation and beneficial to the 
 shareholders. ' 
 
 The important question raised by this appeal is whether this agree- 
 ment is invalid because against sound public policy. It may be con- 
 ceded that the question is not free from diificulty, and in our own state 
 there is no decided case squarely ruling it. In othef jurisdictions, 
 courts have differed as to the rule properly applicable to such a state 
 
 18 Statement of facts substituted. 
 
442 EIGHTS OF STOCKHOLDERS ' ' (Ch. 4: 
 
 of facts and creditable authority may be cited in support of either side 
 of the present controversy. Courts as a rule have predicated their 
 decisions upon the character of the trust agreement and the statutory 
 requirements as to the control and management of corporations in the 
 particular state where the question arose. 
 
 In Shepaug Voting Trust Cases, 60 Conn. 553, 24 Atl. 32, and War- 
 ren V. Pim, 66 N. J. Eq. 353, 59 Atl. 773, the leading cases cited by 
 counsel for appellant, the courts treat the question of public policy 
 indicated by the statutes of the respective states as the basis of their 
 reasoning and the foundation upon which their conclusions rest. This 
 seems to be the sounder rule because the public policy which should 
 prevail in the management and control of corporations is primarily 
 a legislative rather than a judicial question. 
 
 In this connection it is very ably argued that the agreement in ques- 
 tion is in contravention of our Pennsylvania statutes. If this were 
 true in fact, it would necessarily follow that the agreement must fall 
 because void as against a declared statutory policy of the state, but 
 no such statute has been called to our attention, nor does the agree- 
 ment offend in terms or by necessary implication against any positive 
 legislative enactment. It is argued that the corporation acts of 1874 
 and 1891 provide for annual elections by the stockholders, and so 
 they do, but annual elections are held by the appellee corporation, and 
 directors are annually chosen by the stockholders. The agreement in 
 question in no way disregards the duty to hold annual elections, but, 
 on the other hand, contetnplates the holding Of such elections. 
 
 It is further contended that the act of March 5, 1903 (P. L. 14), 
 confirming the right to vote by proxy sind providing that proxies dated 
 more than two rnonths prior to a meeting or an election shall not con- 
 fer the right to vote, is in effect contravened by the agreement relied 
 on by the appellees in the present case. In answer it may be said that 
 no question of the right to vote by proxy arises in this case. It seems 
 perfectly clear that the proviso referred to has reference to formal 
 proxies given by a stockholder authorizing the person designated there- 
 in to vote his stock at a meeting or at an election. No proxy of any 
 kind was given in the calse at bar, and therefore the 60-d'ay limitation 
 has no application. In the present case, the persons in whose names 
 the stock stands on the books of the company vote the same as they 
 have the prima facie right to do under the express provisions of our 
 statutes. The act of 1893 recognizes the right of a trustee to vote 
 stock so held by him at elections of the company, and provides that, 
 , if the character of his trusteeship be not disclosed on the face of the 
 certificate, how the question of his right to vote shall be determined. 
 This act clearly contemplates, not only the right of a trustee to hold 
 stock, but the power to vote it, and this is what was done in the pres- 
 ent case. 
 
 But it is argued with great force by the learned counsel for appel- 
 lant that, even if the agreement in question is not invalid as against 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 443 
 
 public policy, it is at all events revocable. We concede the weight of 
 authority to be that the general policy of the law prohibits the separa- 
 tion of the voting power from the beneficial interest, and, to justify 
 such a separation, there must be a property interest to conserve, some 
 definite policy in the interest of the corporation to be carried out, some 
 beneficial interest of the stockholders to be served, or some purpose 
 not unlawful of an advantageous character to the stockholders to be 
 effectuated. As we read this record and view the facts found by the 
 learned court below, there was a property interest to conserve, a 
 definite policy of the corporation in the interest of the stockholders to 
 be carried out, and a lawful purpose beneficial to all concerned to be 
 effectuated. This was the very purpose of the agreement, and the re- 
 sults seem to be a confirmation of the wisdom of the plan adopted. 
 All of the cases turn upon the question whether the irrevocable trust 
 is or is not coupled with an interest. If coupled with an interest, such 
 agreements have been generally sustained, but, if not coupled with an 
 interest, they are regarded) as in the nature of a revocable power. 
 
 We think this is the turning point of the present case, and, after 
 consideration, have concluded the learned court below properly held 
 that, the power being coupled with an interest, the agreement is valid 
 and binding upon the parties who entered into it. The beneficial in- 
 terest is set forth in the eighth paragraph qi the agreement, which 
 gives the trustees the first right to purchase, the stock of any contract- 
 ing party who does not desire to continue the trust relation at double 
 the par value of the same for the use and benefit of the remaining, par- 
 ties. Wie think this comes within the definition of a' power coupled 
 with an interest which has been held to be an interest in the subject 
 upon which the power is to be exercised, or an interest in that which 
 is produced by the exercise of the power. It cannot be doubted under 
 the rule of all our cases that, if the parties to the present agreement 
 had entered into a similar contractual relation as partners for the pur- 
 pose of accomplishing the same results and with the view of continu- 
 ing a business policy, the contracting parties would be bound by their 
 •covenants, and the contract would be enforced according to its terms. 
 There does not seem to be any sufficient reason for the application of 
 a. different rule because, instead of binding themselves together as 
 partners, the parties chose to adopt the more modern method of in- 
 corporation for the transaction of their business in an enterprise in 
 the nature of a private trading corporation. 
 
 This view of the law was tersely expressed by Chief Justice Mitchell 
 in Fitzsinimons v. I^indsay, 205 Pa. 79, 54 Atl. 488, where, in discuss- 
 ing the question of restraint of alienation arising under a somewhat 
 similar agreement, it was said: "Such agreements are quite common 
 among partners as to their shares in the firm assets, and are enforced 
 by courts without hesitation. No reason of overruling public policy 
 is apparent why they should not also be sustained in relation to shares 
 
444 EIGHTS OF STOCKHOLDEES (Ch. 4: 
 
 of stock in what is really only a private trading corporation." Agree- 
 ments between the stockholders of a private trading corporation re- 
 lating to the alienation, purchase, and sale of the shares of stock of 
 contracting shareholders have been sustained by this court in twp re- 
 cent cases— Boswell v. Buhl, 213 Pa. 450, 63 Ath 56; Boggs v. Boggs 
 & Buhl, 217 Pa. 10, 66 Atl. 105. Our cases hold that a beneficial in- 
 terest coupled with a power is a property interest, and as such is ir- 
 revocable. Smyth v. Craig, 3 Watts & S. 14; Blackstone v. Butter- 
 more, 53 Pa. 266; Fitzsimmons v. Lindsay, 205 Pa. 79, 54 Atl. 488; 
 Wood V. Kerkeslager, 225 Pa. 296, 74 Atl. 174; Garrett v. Lawn Mow- 
 er Company, 39 Pa. Super. Ct. 78. 
 
 In addition, it may be said that, under the present agreement, there 
 is something rnore to be considered than the mere abstract legal ques- 
 tion of power to vote stock coupled with a beneficial interest. The 
 agreement contains all the essential elements of an active trust and 
 the trustees have not only been charged with active duties, but they 
 have performed, and are performing, these duties in the interest of 
 the corporation and for the benefit of the stockholders. They give 
 their services without compensation in the interest of all concerned, 
 and it seems to be conceded that the management is competent and 
 the business policy intended to be continued under the agreement high- 
 ly satisfactory. No question of fraud, mistake, or misapprehension 
 has been raised, nor has even a suggestion been made reflecting upon 
 the management. No stockholdler is complaining about the manage- 
 ment, and no question has been raised respecting the rights of minority 
 stockholders. The appellant purchased his stock with full knowledge 
 of the agreement, and took it impressed with the trust. He is not a 
 purchaser without notice, and, if the agreement is valid, he is bound 
 by its terms. 
 
 We do not agree with the contention of appellant that the option to 
 purchase is not such a substantial interest as will support the trust, 
 especially in view of the fact that the trustees during the period in 
 which the right to purchase runs have active and important duties to 
 perform in the interest of all the contracting parties. Nor is the argu- 
 ment sound that the option is invalid because contingent. In a sense 
 all options are contingent because they may or may not be exercised 
 within the time or upon the conditions stipulated. An option is a uni- 
 lateral agreement binding upon the party who executes it from the 
 date of its execution and becomes a contract inter partes when exer- 
 cised according to its terms. Optional agreements have been before 
 this court for- construction in several recent cases, and the right of 
 parties to make them and the power of courts to enforce them if ex- 
 ercised according to their terms have always been sustained. Barnes 
 V. Rea, 219 Pa. 279, 68 Atl. 836; McHenry v. Mitchell, 219 Pa. 297, 
 68 Atl. 729. 
 
Sec. 1) RIGHTS INCIDENT TO STATUS 445 
 
 There is no substantial merit in the contention that the contract lacks 
 mutuality of parties, and is without consideration. Decree affirmed, at 
 the cost of appellant.^* 
 
 III. Dividends 
 
 PRATT et al. v. PRATT, READ & CO. 
 
 (Supreme Court of Errors of Connecticut 1866. 33 Conn. 446.) 
 
 , Bill for an injunction, brought to the superior court for Middlesex 
 county. * * * 
 
 Upon the bill and the answer of the respondents the court found 
 the following facts: 
 
 The respondents, a joint stock corporation under the name of Pratt, 
 Read & Co., was on the 6th day of October, 1863, duly organized and 
 located in the town of Meriden and county of New Haven, with a 
 capital of $175,000, divided into seven thousand shares of $25 each, 
 for the "purpose of manufacturing, selling, and dealing in all kinds 
 of ivory, shell, horn, bone, rubber, wood and other combs, all kinds of 
 piano and melodeon ivory, and other articles made in whole or in part 
 of ivory, shell, bone, India rubber, gutta percha, composition, wood or 
 metal, and to purchase, hold, sell, and deal in all real and personal es- 
 tate necessary and convenient for the prosecution of said business, 
 and generally to do all acts connected with or incidental to said busi- 
 ness or the prosecution of the same." The stockholders of the cor- 
 poration are exclusively composed of the former members of the 'firms 
 of George Read & Co. and Pratt Brothers & Co., late of Saybrook, 
 in Middlesex county, and the stockholders in the former corporation 
 of Julius Pratt & Co., late of Meriden. The petitioners are the for- 
 mer members of said copartnership of Pratt Brothers & Co., and now 
 own 1,441 shares of the stock. The remaining 5,559 shares are owned 
 and held by those individuals who formerly composed said copartner- 
 ship of George Read & Co. and said corporation of Julius Pratt & 
 Co. One of the principal objects in the formation of the new corpora- 
 tion by the consolidation of said copartnerships and corporation, was 
 to secure as far as practicable uniformity in prices, and certainty in 
 profits, and to that end it was understood by all concerned that the 
 respondent^ were not to receive and be prejudiced by any competition 
 from any of its own stockholders, and that they should not carry on 
 the same business independently of the business of the respondents. 
 
 In June, 1864, Ulysses Pratt, one of the petitioners, purchased from 
 the Deep River Ivory Comb Company, a corporation located in Say- 
 brook, their factory, machinery, fixtures and privileges, and in Febru- 
 ary or March, 1865, formed a copartnership with other persons, and 
 
 i» Compare Warren v. Plm, 66 N. J. Eq. 353, 59 Atl. 773 (1904). 
 
446 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 commenced and still carries on thereat the business of manufacturing 
 ivory combs, and sells their manufactured goods in competition with 
 the respondents. 
 
 At the time 'the respondents were organized, the real and personal 
 assets of the corporation of Julius Pratt & Co. and of tlie copartner- 
 ships of George Read & Co. and Pratt Brothers & Co., was appraised 
 by persons mutually selected at $446,000, which was held in the fol- 
 lowing proportions, to wit : by Julius Pratt & Co. $258,511, by George 
 Read & Co. $89,593, and by Pratt Brothers & Co. $97,917; and in 
 the subscriptions to the capital stock of the respondents the mem- 
 bers of said corporation of Julius Pratt & Co. and of said copartner- 
 ships of George Read & Co. and Pratt Brothers & Co., subscribed and 
 owned in the same proportions. The remainder of the real and per- 
 sonal estate of said corporation and copartnerships, amounting to 
 $271,000, '^after deducting and applying the capital of the respondents, 
 $175,000, was taken by the respondents, and the notes of the new 
 corporation given, in the same proportions that the stock was sub- 
 scribed, to said corporation of Julius Pratt & Co; and said copartner- 
 ships of George Read & Co. and Pratt Brothers & Co. All the notes 
 so given to George Read & Co. an4 Pratt Brothers & Co. were paid 
 at maturity, and all those given to said corporation of Julius Pratt & 
 Co. had been paid at the time of the bringing of the suit, except about 
 $36,000, which for the accommodation and convenience of the re- 
 ' spondents had been extended and allowed to remain over-due. 
 
 At the time of the organization of the new corporation there was a 
 general understanding by the parties that the notes should be paid at 
 its convenience, and that they should be extended to suit its conven- 
 ience in the reasonable prosecution of its business, and that the pay- 
 ment of these notes to the holders should be received by them in lieu 
 of dividends, until they were all cancelled and discharged; but the 
 petitioners Alexis Pratt and Felix A. Dennison were not cognizant 
 of and did not participate in that understanding, and it did not clearly 
 appear that the other petitioner, Ulysses Pratt, did. 
 
 At the time of the bringing the petitioners' bill, to wit, on the 8th 
 of March, 1866, the outstanding indebtediiess of the respondents was 
 about $72,000, of which $30,000 was n;iatured and had been extended 
 as aforesaid, and the respondents had then on hand in cash $21,000, 
 and a surplus of property and earnings including said cash of about 
 $130,000. This surplus, aside from said $21,000 in cash, consisted of 
 stock, manufactured goods, and some $50,000 in paper, taken on short 
 time, upon the sales of manufactured goods at their agency in New 
 York. The amount and value of the respondents' surplus was arrived 
 at by an inventory and estimate of its assets made, so far as that por- 
 tion which consisted of manufactured goods was concerned, at 28 per 
 cent, below the selling prices in market. 
 
 The building now in process of erection by the respondents in Say- 
 
Sec. 1) EIGHTS INCIDENT TO STATUS, 447 
 
 brook is designed for the manufacture pf piano key boards, a busi- 
 ness iricidental to the manufacture of piano keys, and, if carried on 
 to' a considerable extent by the respondents, requires the additional 
 room and power and expenditure contemplated in the building and 
 improvements which the respondents have commenced to erect and 
 make, and which, with the machinery and fixtures, and the necessary 
 additional outlay in lumber and materials, will call for some $30,000 
 or $35,000. 
 
 The directors of the corporation at the time of its organization con- 
 templated the prosecution in some manner of this branch of business, 
 and the said Ulysses Pratt was then and for some time thereafter one 
 of its most earnest advocates; but the petitioners have never been in 
 favor of conducting it at so great expense, or so as to interfere with 
 the payment of fair and reasonable dividends; and the successful 
 prosecution of the business has not yet been fully established, and at 
 the time of the commencement by the respondents of said building; 
 and at other times since, the petitioners have objected to and re- 
 monstrated with the directors, and insisted upon having their share of 
 the earnings of the corporation paid to them, and the said Alexis Pratt 
 has little other means or source of income for the support of himself 
 and family, and needs whatever justly belongs to him as the avails of 
 his stock and interest in the .corporation. ^ 
 
 The corporation has made no dividends since its orga,nization, ex- 
 cept one of five per cei^t. in July, 1865, which was declared for some 
 purpose connected with the United States income tax; and at the 
 same meeting at which the dividend was declared, the said Ulysses 
 Pratt, acting for himself and as agent of the other petitioners, desired 
 and moved a dividend of forty per cent., which motion was rejected. 
 
 The business of the corporation has from its organization been and 
 still is very prosperous, but it has not cash funds to pay its debts, 
 erect and make the contemplated buildings, improvements and ex- 
 penditures, and pay a dividend; and if it assumes or undertakes to 
 do all these at present it must either borrow money to a considerable 
 amount or force the sale of its manufactured goods at a loss ; but if 
 the erection of the new building and the prosecution of the piano key 
 board business is abandoned, it can safely make a liberal dividend 
 from its accumulated profits. Its pro^Jerty cannot be forced upon the 
 market and disposed of faster than by its regular sales at its agency 
 in New York without material sacrifice, and the present tendency in 
 the prices of its goods is somewhat downward, partly in consequence 
 of sales at under prices made by Pratt Smith & Co., a corporation of 
 which the said Ulysses Pratt is a member and agent, and partly from 
 other causes connected with the business of the country; and to con- 
 duct the business successfully a large capital in said material and man ■ 
 ufactured goods is necessary, and a" much larger sum than $175,000 is 
 required, unless a considerable amount in surplus can be retained and 
 
448 EIGHTS OF STOCKHOLDEES (Ch. 4 
 
 employed for that purpose. The corporation, through its directors, 
 has acted in the premises without malice, improper motive or fraud 
 towards the petitioners or either of them, and in the management of 
 its business and concerns has exercised what they believed to have 
 been a sound and reasonable judgment and discretion. 
 
 Upon these facts the case was reserved for the advice of this 
 court. ^0 
 
 HiNMAN, C. J. The petitioners seek in this case the aid of a court 
 of equity to compel the respondents, a joint stock corporation, to de- 
 clare and pay over to its stockholders a reasonable dividend out of its 
 surplus earnings ; and also to enjoin it from making farther expendi- 
 tures in the erection of a large factory building for the purpose of en- 
 larging its business and thereby exhausting its surplus funds, to the 
 injury of the petitioners, who are a minority of its stockholders op- 
 posed to such enlargement. The petitioners make in their petition a 
 very strong case for the equitable interference of the court in their 
 behalf. And if it had been sustained by the facts found by the court, 
 we could have no hesitation in granting them the relief asked for. 
 Where a corporation is about to exceed its powers by applying its 
 property to objects beyond the authority of its charter, it is well set- 
 tled that a courti of equity will grant relief to a minority of its stock- 
 holders who dissent from such use of its funds. Railroad Co. v. 
 Croswell, 5 Hill (N. Y.) 383, 40 Am. Dec. 354; Stevens v. Railroad 
 Co., 29 Vt. 545; Sears v. Hotchkiss, 25 Conn. 171, 65 Am. Dec. 557; 
 Scofield V. School Dist., 27 Conn. 499. 
 
 Indeed this doctrine necessarily results from the principle which 
 underlies the cases, that the corporation and its directors are trus- 
 tees, and as such may be called into a court of chancery, either for an 
 account, or to restrain them from mismanagement of the corporate 
 property, especially for a fraudulent mismanagement of it, or for the 
 purpose of compelling the corporation and its directors to declare 
 dividends from its surplus earnings, where such dividends are need- 
 lessly and improperly withheld. Robinson v. Smith, 3 Paige (N. Y.) 
 222, 24 Am. Dec. 212; Scott v. Insurance Co., 7 Paige (N. Y.) 198. 
 Indeed, joint stock companies in modern times are nothing but com- 
 mercial partnerships, which have taken the form of corporations for 
 the greater facility of transacting business, and to prevent a dissolu- 
 tion of the concern by those numerous events which are so liable to 
 work a dissolution in a partnership composed of a great number of in- 
 dividuals; and they must have applied to them principles making 
 them accountable like all trustees, or the grievance would be intolera- 
 ble, since otherwise a majority of the stockholders, acting through the 
 directors, who would thus cease to be in fact what the law considers 
 them,— the agents of the whole body of stockholders, — and would 
 become the private agents of the majority, might set the minority at 
 
 so Statement of facts abridged. 
 
Sec. 1) RIGHTS INCIDENT TO STATUS 449 
 
 defiance, and manage the affairs for their own supposed benefit and 
 the benefit of the majority who appointed them. 
 
 The true doctrine upon this subject appeaA to us to be very fairly 
 and correctly stated by Chancellor Walworth in the case of Scott v. 
 Insurance Co., 7 Paige (N. Y.) 203, where he says, that "as the di- 
 rectors are bound to exercise a proper discretion in making dividends 
 of surplus profits, if they abuse that power by dividing the unearned 
 premiums without leaving sufGcient to satisfy the probable losses, they 
 may, in case of an extraordihary loss which is sufficient to exhaust the 
 whole capital and more, make themselves personally liable to the cred- 
 itors of the company. On the other hand, should they without rea- 
 sonable cause refuse to divide what is 'actually surplus profits, the 
 stockholders are not without remedy, if they apply to the proper tri- 
 bunal before the corporation has become insolvent." The surplus of 
 this corporation over its nominal capital which the petitioners seek 
 to have divided is so large, and bears so great a proportion to the cap- 
 ital, that we have felt the necessity of stating our views of the prin- 
 ciple which should govern in determining questions of this sort the 
 more distinctly, in order to prevent the case ffom being used as a prec- 
 edent against ordering a dividend to be made, where there is con- 
 fessedly a large surplus over the capital on hand, and no reason can 
 be given for withholding it from the stockholders except the mere 
 will of the directors, acting by the advice of a majority of the stock- 
 holders. 
 
 In cases of this description the question must always be, where a 
 surplus is asked to be divided, and the directors refuse to declare a 
 dividend, whether there is a reasonable cause for withholding it. Now, 
 in the first place, before a dividend is ordered to be made, it should ap- 
 pear clearly that there is a surplus to be divided. In this case the sur- 
 plus appears to be very large in reference to the nominal capital of 
 the company; but when examined in reference to its actual capital, 
 it is otherwise; and we think we find a sufficient reason in this fact 
 for not ordering a dividend. In the first organization of the corpo- 
 ration the sum of $175,000 was named as the nominal capital in the 
 articles of association. But it is evident from all the facts in the case 
 that the actual capital was much larger and consisted of all the prop- 
 erty purchased of the individual stockholders, who had all been en- 
 gaged in the business contemplated to be carried on by the company, 
 which was of the agreed value of more than $400,000; the difference 
 being made up to the stockholders by the corpol-ation notes, which were 
 expected to be paid, as they principally have been, out of the subse- 
 quent profits of the business, and not by an immediate sale of any 
 large portion of the assets thus purchased of its stockholders. 
 
 It could not have been the intention to force the sale of this large 
 amount of property. This could not have been done without great 
 sacrifice, and if such had been the intention, the corporation never 
 EicH.CoBp.— 29 
 
450 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 would have purchased it. They therefore must have intended to use 
 it as a part of their capital, or to keep it on hand as surplus until 
 that part of it which cdlnsisted of manufactured goods could be sold, 
 in -the regular course of business, with which all the stockholders 
 were familiar. There is no evidence th^at they have not converted 
 their manufactured goods into cash as fast as it can be done in the 
 successful prosecution of their business, and to order them to do it 
 faster than this is simply to order them to make needless sacrifices. 
 The reason for stating the amount of tljeir capital at so much less 
 than it actually was does not appear, and it is not very important 
 that it should. It is enough to say of it, th^t while it is not a course 
 to be recommended for general adoption, the finding in this case is 
 Very full to the effect that nothing improper or fraudulent was in- 
 tended by it,; and the success of their business fully sustains the find- 
 ing, that the directors have in all their transactions exercised a sound 
 judgment and discretion. 
 
 Again the court finds that it was the general understanding of the 
 stockholders that their notes against the corporation, given for the 
 largest part of the property purchased at the time of the organization, 
 as they should be paid, should be regarded and received by them in 
 lieu of dividends, which implies certainly that no dividends should be 
 declared until that large indebtedness was paid; and this has not yet 
 been done, by some thirty thousand dollars. But there was as much 
 reason for declaring a dividend when the corporation was first organ- 
 ized as there is now, except so far as the comparatively small sum in 
 cash on hand is concerned. As then the business appears to have been 
 honestly and discreetly managed, and as it is fouhd moreover that to 
 conduct it successfully requires a much larger capital than $175,000, 
 unless a considerable surplus is retained, and as we believe it to have 
 been the intentibn of the stockholders in the organization of the com- 
 pany to retain a surplus to at least the amount of its capital for that 
 purpose, and as the ordering of a dividend would necessarily involve 
 the sacrifice of a large amount of manufactured goods at a forced 
 sale, it appears to us that it would be very inequitable and unjust to 
 the managing majority to advise the superior court to order such a 
 dividend to be made. 
 
 The remaining question is, whether the corporation ought to be re- 
 strained from erecting their new factory, for the manufacture of 
 piano key boards. The directors at the time the corporation was or- 
 ganized contemplated the prosecution of this business. The articles 
 of association state the purpose of the organization to be to manu- 
 facture, sell and deal in all kinds of ivory, shell, horn, bone, rubber, 
 wood and other combs, and all kinds of piano and melodeon ivory, 
 and other articles made in whole or in part of ivory, shell, horn, bone, 
 India rubber, gutta percha, composition, wood or metal, and to pur- 
 chase, &c., and to do all acts connected with or incidental, to the said 
 
Sec. 1) EIGHTS INCIDENT TO STATUS ' 451 
 
 business or the prosecution of the same. It is not very strenuously 
 claimed but that the manufacture of piano key boards, as connected 
 with the manufacture of all kinds of piano ivory, and especially of all 
 other articles made in whole or in part of ivory, composition, wood or 
 metal, comes within the contemplated purpose of the corporation, as 
 expressed in the articles. The question, therefore, in this part of the 
 case, is confined merely to whether the contemplated expenditure for 
 this new factory is so great as unnecessarily and unreasonably tO' haz- 
 ard the petitioners' stock. 
 
 On a question of this sort much must necessarily be left to the dis- 
 cretion of the managing directors, and so long as they keep within the 
 objects contemplated by the articles of association, and the expendi- 
 ture is not unreasonable in reference to the amount of their capital, 
 a court of equity ought very seldom to interfere with them. In the 
 organization of these companies, parties, if they see fit. to do so, can 
 provide specifically as to the business that shall be 'transacted ; and 
 if they omit to do this, but, on the contrary, express the purposes of 
 the organization in such general terms as to admit of a very large 
 discretion in the management of their business, the presumption is 
 that it was intended that the discretion of the managers in this respect 
 should be unlimited. There is nothing in the articles here that shows 
 any intention to limit the discretion of the managers in respect to the 
 particular business contemplaited, except it be the naming of a sum 
 as the amount of the capital. This in most' cases would and ought to 
 be some guide in respect to the amount that it would be reasonable to 
 expend in permanent fixed property and machinery; but this, in this 
 case, appears to have been fixed without much' reference to the amount 
 of business to be done. We feel therefore that it is impossible for us . 
 to say that the expenditure of some $35,000 for this new factory is 
 so clearly extravagant and disproportioned to the amount of capital 
 stock as to justify the court in enjoining against it. We therefore 
 advise the superior court to dismiss the petitioners' bill. , 
 
 In this opinion the other judges concurred, except Carpenter, J., 
 who, having heard the case upon a, motion to dissolve the injunction 
 in the court below, did not sit."^ 
 
 21 In Park v. Grant Locomotive Works, 40 N. J. Eq. 114, 3 Atl. 162 (1885), 
 It was held that, where the stock of an insolvent corporation had been as- 
 signed to the creditors to hold until the , debts due had been realized out of 
 the "net profits," the directors were bound to make a distribution of such 
 profits' when realized. 
 
452 EIGHTS OF STOCKHOLDBES (Ch- 4 
 
 BEERS V. BRIDGEPORT SPRING CO. 
 (Supreme Court of Errors o£ Connecticut, 1875. 42 Conn. 17.) 
 
 Bill in equity to compel the respondents, a joint stock corporation, 
 to pay over certain dividends claimed to have been declared by the 
 directors, brought to the Superior Court in Fairfield County. The 
 following facts were found by the court : 
 
 On the 29th day of March, 1864, the Bridgeport Spring Company 
 was organized as a joint stock company, with a capital stock of $20,000, 
 which it increased in the manner required by law in November fol- 
 lowing to the sum of $30,000. The company went on in the business 
 for which it was organized, making earnings and paying dividends as 
 hereinafter stated. 
 
 At a meeting of the board of directors, held July 11th, 1866, they 
 declared the first dividend of the company, one of 15 per cent., payable 
 January 1st, 1867. This dividend was paid when due. 
 
 At a meeting of the directors, held July 13th, 1866, it was voted 
 "To declare a further dividend of 26 per cent.; the amount to be 
 placed, pro rata, to the credit, on the books of the company, of each 
 stockholder, and made payable, without interest, at such time as may 
 by the directors be ordered." At a meeting held July 15th, 1^67, it , 
 was voted "That the balance due on last year's earnings, 26 per cent, 
 dividend declared, be made payable January 1st, 1868," and the divi- 
 dend was paidi at that time, 
 
 At the same meeting of the directors they passed the following res- 
 olution : "To declare a dividend of 70 per cent, on the capital stock 
 of this company; amount of said dividend to be placed!, pro rata to 
 the credit, on the books of the company, of each stockholder, and 
 made payable, without interest, at such time as may be directed by 
 the, board." 
 
 Dividendls were afterwards declared by the directors in the same 
 terms as this last resolution, as follows: July 15th, 1868, one of 40 
 per cent. ; July 19th, 1869, one of 25 per cent. ; July 18th, 1870, one 
 of 10 per cent. 
 
 During the same time the following dividends were dieclared in 
 cagh and paid by the corporation, viz. : July 15th, 1868, one of 15 per 
 cent., out of the earnings of 1867; June 26th, 1869, one of 15 per 
 cent., also out of the earnings of 1867; both which dividends were 
 paid out of the 70 per cent, set apart July 15th, 1868. Also July 13th, 
 1872, one of 10 per cent, which was duly paid ; and July 12th, 1873, 
 one of 6 per cent., to be taken out of the 70 per cent, before mentioned 
 and payable on the 1st of January, 1874. The payment of this last 
 dividend has been twice postponed, and is still unpaid, because the 
 directors have not deemed it advisable to take the funds necessary 
 therefor from the business. 
 
Sec. 1) EIGHTS INCIDENT TO, STATUS 453 
 
 At a meeting of the directors, held on the 13th day of July, 1872, 
 the following resolution was passed: 
 
 "Resolved, That 115 per cent, of the earnings of this company pre- 
 vious to July 1, 1870, and now standing credited, pro rata, to each 
 stockholder, and subject to the direction of the board of directors, 
 shall be taken from the account of each stockholder, pro rata, and 
 carried to an account to be known as a surplus fund account." 
 
 And at a subsequent meeting of the board, held on the 16th day of 
 September, 1872, the following resolutions were passed : 
 
 "Resolved, That dividends shall hereafter be made as soon as the 
 .money in the hands of the company shall, in view of the needs of 
 the company, warrant. 
 
 Resolved, That all dividends hereafter made, shall be declared) from 
 the account kno-vyn as the surplus fund account, till the full amount of 
 115 per cent, on the capital stock be paid." 
 
 The corporation has made the profits or earnings represented by 
 said sum of 115 per cent, of its capital, which has, from time to time, 
 been invested in improvements upon real estate, and in machinery, 
 tools, fixtures and material, in the opinion of the directors advanta- 
 geous to the business of the corporation. 
 
 There are in Bridgeport other corporations organized for and carry- 
 ing on the same business, that have larger capital than the one in ques- 
 tion and a very favorable reputation, and this corporation, in the opinion 
 of the directors, has been better able, by means of the property now 
 in its control, to successfully compete with these corporations. 
 
 If the respondents are compelled to pay, within a comparatively 
 short time, the whole of the 115 per cent, to the stockholders, the cor- 
 poration will be required! to contract its business and encumber its 
 property to such an extent as would be seriously injurious to and per- 
 haps destructive of its credit and business. 
 
 In the adoption of the resolutions of the board of directors, passed 
 at meetings held on the 13th of July, 1872, and on the 16th of Sep- 
 tember, 1872, the object was to keep that account in such form as 
 would show to the stockholders at each annual meeting how much of 
 the 115 per cent, was still unpaid to the stockholders, and to simplify 
 the keeping of the books. • 
 
 The company never had, .since July, 1868, in actual money, at any 
 one time, more than sufficient to carry on its ordinary business and 
 to pay the dividends that have been ordered paid; and when a cash 
 dividend has been paid, the company has found it necessary to borrow 
 some money on accommodation paper from the banks, to enable it 
 to meet its obligations with promptness. 
 
 The 115 per cent, was, and has been continued to be, invested, as 
 its several portions were froin time to time earned, in real estate, in 
 improvements upon such real estate, in machinery, tools, fixtures, and 
 material required and needed in properly carrying on the business, and 
 has in no wise been changed in its use or appropriation, at the time of 
 
454 EIGHTS OF STOCKHOLDBES (Ch. 4 
 
 or since the adoption of the resolutions aforesaid ; nor has the amount 
 been impaired or lost, but exists in the form of the investment stated. 
 
 The directors have acted in good faith and in the belief that the 
 action taken by them was for the interest of the company and its stock- 
 holders. 
 
 The whole number of shares into which the capital stock of the 
 company was divided is twelve hundred, of which the petitioners 
 owned 360 at the time the suit was brought. Since then Wheeler Beers, 
 one of the petitioners, has sold his stock, but, in making the sale, he 
 reserved to himself all such dividends as had, prior to the bringing 
 of the suit, been declared by the directors. 
 
 The vote of the directors, passed July 15th, 1867, was reported to 
 the meeting of the stockholders, held afterwards on the same day, and 
 approved by them by a formal vote. The vote of the directors, passed 
 at their meeting held July 13th, 1872, by which they directed the 115 
 per cent, to be "carried to an account to be known as a surplus fund 
 account," was passed without the knowledge of those of the stock- 
 holders who were not included among the directors, and without the 
 knowledge of any of the petitioners. 
 
 The entire earnings of the company, unexpended in dividends actu- 
 ally paid over, and existing at their statement in July, 1872, was about 
 131 per cent, of the capital stock, and at the statement in July, 1873, 
 155 per cent, of such capital; all of which earnings were invested 
 in real estate, improvements thereon^ tools, fixtures, material and ac- 
 counts and cash, the item of cash then on hand amounting to the sum 
 of $718.11. 
 
 The petitioners, prior to the bringing of the petition, caused to be 
 delivered to the president and directors of the company the following 
 request in writing, which was signed by all the petitioners by their at- 
 torney : 
 
 "Bridgeport, February 17th, 1873. 
 
 "To the President and Directors of the Bridgeport Spring Com- 
 pany: Gentlemen — ^The undersigned, stockholders of said company, 
 hereby request you to restore to the stockholders thereof the earnings 
 of said company with which said stockholders had been credited pre- 
 vious to July 1st, 1870, amounting to 115 per cent, of the capital 
 stock, and which had been declared as dividends to the saidi stockhold- 
 ers before that time, and taken from them by a resolution of said 
 directors, passed July 13th, 1872, and to the condition the^ were in 
 prior to the passage of said resolution. They also request you, with- 
 out delay, to pay over to them their respective shares of said earn- 
 ings as dividends before, declared to them." 
 
 Upon these facts the case was reserved for the advice of this court. 
 
 Pardee, J. When the defendant corporation, hy the legal votes of 
 its directors, declared the dividends in question from profits thereto- 
 foije earned and received, made the same payable without interest at 
 such time as might be directed by the board, and ordered the amount 
 
Sec. 1) RIGHTS INCIDENT TO STATUS 455 
 
 / 
 
 to be placed pro rata' to the credit of the stockholders upon its books, 
 the share of each stockholder in the several amounts was thereby sev- 
 ered from the common funds of the corporation and became his in- 
 dividual property.; Thenceforth the company owedl him a debt, pay- 
 ment of which at a proper time he might demand, and upon refusal, 
 enforce by the aid of a court of equity. King v. Paterson & Hudson 
 River R. R. Co., 29 N. J. Law, 504; Redfield on Railways (1st Ed.) 
 240, 597; Le Roy v, Globe 'Ins. Co., 2 Edw. Ch. (N. Y.) 657. The 
 proviso as to the time of payment does not absolve the company from 
 all obligation to him; there remain all the essential elements of a 
 dlebt, certain in amount, and certain to be paid upon a day not yet ap- 
 pointed, but which it is the duty of the debtor at some time to name. 
 The legal effect of the vote is that the debt is to be paid within a 
 reasonable time. The corporation, having declared that it had re- 
 ceived for and owed to each stockholder a certain sum of money, and) 
 having set the same apart from its own funds for his sole and separ- 
 ate use, cannot thereafter nullify its votes or repudiate its obligations 
 by declining to pay the dividend or to name any time when it would 
 pay it. 
 
 The interests of each stockholder, so far forth as the share of the 
 profits set to him as a dividend is concerned, become not only several 
 and distinct from, but positively adverse to, those of every other stock- 
 holder and of the corporation itself, and the directors cease to repre- 
 sent him in relation thereto and cannot dispose of or deal with the 
 same in any manner without his authority or consent. As between 
 the corporation and the petitioning shareholders, therefore, the vote 
 of July 13th, 1872, could in no manner affect their right to dividends 
 theretofore declared and placed to their credit,' unless they gave actual 
 or constructive assent thereto. As the result of the vote, that which 
 previously stood upon the books of the corporation as a debt due from 
 it to the stockholders, assumed the form of an addition to its surplus 
 fund. An intending purchaser of stock who should examine these 
 books for the purpose of learning the financial condition of the com- 
 pany might be misled as to the amount of its assets and consequently 
 as to the value of its shares, and each stockholder who assents to this 
 change in the statement of, the corporation accounts in reference to 
 himself, might under certain circumstances be estopped from asserting 
 his right to any portion of the surplus fund as a dividend declared. 
 
 The finding of the court is, that if the corporation is compelled to 
 pay, within a comparatively short time, the whole amount of unpaid 
 dividends, it will be required to contract its business and encumber 
 its property to such an extent as would seriously injure, and perhaps 
 destroy, its credit and business. While there is not sufficient force 
 in this fact to induce us to deny all relief to the petitioning minority 
 of shareholders, it requires us to be cautious as to the manner in which 
 relief shall be granted. We must keep in mind the financial condition 
 
456 EIGHTS OF STOCKHOLDERS ^ (Ch. 4 
 
 of the company at the time of declaration of the dividends and the 
 language of the votes respecting the payment thereof. 
 
 These dividends are based upon profits actually earned and received ; 
 these profits came from time to time into the treasury of the corpora- 
 tion in the form of money; this money has been expended for such 
 purchases of additional real estate, machinery and materials, as in the 
 judgment of the directors would promote the best interests of the 
 company; and in that form of investment these profits now exist. 
 The directors in the exercise of their discretion made an estimate as 
 to the amount of the surplus profits of the corporation, looking at the 
 assets as they actually existed, and upon a balance thus drawn de- 
 clared, as they had a right to do, the dividends in question. 
 
 In Scott V. Eagle Fire Ins. Co., 7 Paige (N. Y.) 203, Chancellor 
 Walworth says, that if directors "without reasonable cause refuse to 
 divide what is actually surplus profits, the stockholders are not with- 
 out remedy if they apply to the proper tribunal before the corpora- 
 tion has become iiisolvent." In Pratt v. Pratt & others, 33 Conn. 456, 
 our own court said that joint stock companies "must have applied to 
 them principles making them accountable like all trustees, or the 
 grievance would be intolerable, since otherwise a majority of the 
 stockholders, acting through the directors, who would thus cease to 
 be in fact what the law considers them, the agents of the whole body 
 of stockholders, and would become the private agents of the majority, 
 might set the minority at defiance and manage the affairs for their 
 own supposed benefit and the^benefit of the majority who appointed 
 them." 
 
 Therefore, as there can be such a condition of things as will justify 
 a court of equity in compelling directors to declare a dividend con- 
 trary to their judgment, of course circumstances may justify the court 
 in compelling them to pay dividends which they have voluntarily de- 
 clared. 
 
 One of the dividends in question was declared and credited to the 
 stockholders more than seven years since, another more than six, a 
 third more than five ; the rust of interest meanwhile consuming them ; 
 and yet the respondent majority still refuses to indicate any time of 
 payment even in the distant future; practically claiming the right to 
 retain them as Jong as they can profitably use borrowed money for 
 which they pay no interest. In this they have failed to meet the rea- 
 sonable expectations, or recognize the equitable rights of the minority. 
 
 By an usage or custom which is as well established as if it stood 
 upon legislative enactment, corporations steadily earning profits are 
 expected to divide a portion of the same. Most of them make a divi- 
 sion at least annually. A division declared imports payment thereof 
 within a reasonable time. Indeed, in the mind of the purchaser of 
 shares investment and dividends are so closely associated as are seed 
 time and harvest in the thoughts of the husbandman. And this un- 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 457 
 
 written law of the commercial world influences us somewhat in the 
 determination of the case at bar. 
 
 One of the petitioners has sold his stock, reserving the declared 
 dividends, and has no farther or other interest in the prosperity or 
 even existence of the corporation. 
 
 We think that the majority cannot equitably compel the minority 
 to loan money to the corporation without interest in the form of divi- 
 dends declared and withheld, beyond the earliest time when they can 
 be paid without serious injury to the company. And in saying this 
 we are not unmindful of the fact that during the time these dividends 
 have been retained the directors have declared and paid to such persons 
 as have continued to be shareholders, other dividends from their prof- 
 its to a percentage larger than the ordinary rate of interest upon money 
 loaned. This indeed indicates successful management thus far. This 
 success however should not cause us to overlook the rights of the 
 stockholders in reference to other dividends declared and unpaid. They 
 have thus long borne the risks attendant upon the business ; they are 
 entitled to reap the profits. 
 
 But the finding does not present the details of the present invest- 
 ments of the corporation with sufficient particularity to enable this 
 court safely to name a day for the payment of the declared dividends 
 to the petitioning stockholders. We therefore advise the Superior 
 Court to ascertain, upon further hearing to be had for that purpose, 
 at what time or times the same can be paidi without serious injury to 
 the corporation and to decree accordingly. We also advise the Superi- 
 or Court to decree that the corporation shall, by its duly authorized 
 agents restore the dividends so declared by its directors and received 
 by it from the credit of the stockholders, to the condition they were in 
 when credited to the stockholders prior to the vote of July 13th, 1872. 
 
 In this opinion the other Judges concurred.^ ^ 
 
 . KING et al. v. PATERSON & H. R. R. CO. 
 
 (Court of Errors and Appeals of New Jersey, 1861. 29 N. J. Law, 504.) 
 
 The Chancellor. The action is brought to recover the amount 
 of two dividends, declared in January and July, 1857, upon two hun- 
 dred shares of 'the capital stock of the corporation owned by the 
 plaintiffs. The dividends were made payable at the branch office 
 of the Ohio Life Insurance & Trust Company^ in 'the city of New 
 York, the trust company being appointed registers of the railroad 
 company to transfer stock and to pay dividends., Notice of the 
 dividends and of the time and place of payment was published in 
 
 22 Compare: Ford v. Eastnampton Rubber Thread Co., 158 Mass. 84, 32 N. 
 B. 1036, 20 L. R. A. 65, 35 Am. St. Rep. 462 (1893); Lagunas Nitrate Co., 
 Ltd., V. ScJiroeder & Co., 85 L. T. R. 22 (1901). 
 
458 BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 a newspaper printed and published in the city of New York. The 
 money to pay the dividends was deposited by the defendants in the 
 office of the trust company, before the day of payment of each of 
 said dividends, ready to be paid to the plaintiffs on their application. 
 The money was left in the hands of the trust company until the 24th 
 of August, 1857, when the company failed, and the money was lost. 
 
 After a dividend is declared, all community oi interest in re- 
 lation to such dividend, as between the stockholders themselves and 
 between the stockholders and the corporation, is at an end. The 
 right of a party to whom the dividend is payable is recognized as a 
 separate and independent right, which may be enforced as against 
 the corporation. Davis v. Bank of England, 5 Barn. & Cress. 185; 
 Coles V. Bank of England, 10 Ad. & E. 437; Carlisle v. South East- 
 ern Railway Co., 6 English Rail. Cas. 685 ; 1 Shelf, on Rail. 205. 
 
 This principle was fully recognized in Le Roy v. Globe Insurance 
 Co., 2 Edw. Ch. (N. Y.) 657, although the precise character of the 
 relation subsisting between the stockholder and the corporation in 
 respect to the dividend was not clearly defined. In the opinion of 
 the Vice Chancellor, if payment of the dividends declared is withheld^ 
 by a solvent corporation, payment may be enforced at the instance 
 of the stockholders by mandamus, by suit at law on behalf of indi- 
 vidual stockholders for the payment of the money, or by bill in equity 
 to obtain possession of the money as a trust fund, which the corpo- 
 ration were bound to distribute, and over which they had no other 
 control. In that case, the company being insolvent, it was held that 
 the money appropriated and set apart for distribution among the 
 stockholders by way of dividend became a trust fund in the hands 
 of the corporation, to which the stockholders, as individuals, had 
 acquired vested rights, and that they consequently were entitled to 
 the fund in preference to the creditors of the corporation. 
 
 In Kane v. Bloodgood, 7 Johns. Ch. (N. Y.) 90, 11 Am. Dfec. 417, 
 Chancellor Kent held than an action at law for money had and re- 
 ceived would lie by a stockholder against a corporation for the re- 
 covery of a dividend, and that it was not such an express trust as 
 would take the case out of the statute of limitations. 
 
 The true principle is, that the dividend, from the time that it 
 is declared, becomes a debt due from the corporation to the, individ- 
 ual stockholder, for the recovery of which, after demand of payment, 
 an action at law may be maintained. State v. B,alt. & Ohio Rail- 
 way, 6 Gill (Md.) 363 ; Phil., Wil. & Bait. Railway v. Cowell, 28 Pa. 
 329, 70 Am. Dec. 128; Ohio City v. Cleveland & Toledo Railway, 6 
 Ohio St. 489. 
 
 L,ike any other debt, it may be set off against the debt of the 
 stockholder to the corporation. Bates v. New York Insurance Co., 
 3 Johns. Cas. (N. Y.) 238; Rogers v. Huntingdon Bank, 12 Serg. & 
 R. (Pa.) 77. 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 459 
 
 It may be, by banking corporations, sometimes carried to the gen- 
 era.1 account of the stockholder with the corporation, and is thus ap- 
 pHed in adjusting balances between the parties or in satisfying the 
 claims of the corporation, against the stockholder. They thus act 
 in the character not of trustees, but of debtors. The fund is dealt 
 with not as a trust fund, but as money due. And why should it not 
 be so regarded? What principle is violated? Does not sound policy 
 require that the relation between the stockholder and the corporation 
 in relation to the dividend should be simply that of debtor and cred- 
 itor; that the stockholder should have his remedy at law, and that 
 the corporation should be permitted to apply it by way of set-off to 
 satisfy demands against the stockholder? 
 
 why is the case distinguishable in principle from that of a stock- 
 holder who is also a depositor? The dividend and .the deposit are 
 alike debts due from the corporation to the stockholder. Both are 
 in the keeping and under the control of the corporation with the 
 assent and concurrence of the stockholder. It has been repeatedly 
 decided that an action lies for a deposit by a depositor against a cor- 
 poration after demand. The fact that he is a member of the corpo- 
 ration cannot vary the principle. Downes v. Phoenix Bank of Charles- 
 town, 6 Hill (N. Y.) 297; Watson v. Phoenix Bank, 8 Mete. (Mass.) 
 217, 41 Am. Dec. 500. 
 
 In a limited sense, the deposit and the dividend in the hands of 
 the corporation are alike trusts. Every deposit is a direct trust. Ev- 
 ery person who receives money to be paid to another, or to be ap- 
 plied to a particular purpose, to which he does not apply it, is a trus- 
 tee. Kane v. Bloodgood, 7 Johns. Ch. (N. Y.) 110, 11 Am. Dec. 417; 
 Scott V. Surman, Willes, 404. In this limited sense, and in no oth- 
 er, the corporation is a trustee of the dividend unpaid to the. stock- 
 holder. 
 
 The debt is strictly demandable and to be paid at the office of 
 the ' corporation. Admitting the right of the corporation to make it 
 payable elsewhere, it must be done at the risk of the corporation. 
 The debtor has no jight, without the consent of the creditor, ex- 
 press or implied, to intrust a third party with^ the fund for the pur- 
 poses of payment. The trust company with whom the funds were 
 deposited for payment was the agent of the corporation, not of the 
 stockholders; of the debtor, not of the creditor. If the agent prove 
 faithless, or the fund is lost in his hands, the loss must fall upon the 
 owner. The deposit was made in the name of the corporation, and 
 was subject to their control. There is nothing in the special verdict 
 that shows a consent, express or implied, on the part of the plaintiffs 
 to their funds being intrusted to, or deposited with, the Ohio L,ife 
 & Trust Company. 
 
 Strong considerations in support of this conclusion may, perhaps, 
 as was urged upon the argument, be derived from the peculiar pro- 
 
460 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 visions of the charter of the railroad company, as well as from the 
 policy of the law, which would deny to a corporation within this state 
 the right to deposit moneys due to its creditors in the hands of a for- 
 eign corporation. But the decision is designedly based upon the sole 
 ground, that after a dividend is declared, it becomes a debt due 
 from the corporation to the stockholder as an individual, and that 
 the selection of an agent for the payment of that debt by the debtor 
 without the concurrence of the creditor must be at the risk of the 
 debtor alone. The fund remains the property of the corporation un- 
 til payment is made. If a loss is sustained, it falls upon the owner. 
 The judgment must be affirmed.^* 
 
 CHAFFEE V. RUTLAND R. CO. et al. 
 (Supreme Court of Vermont, 1882. 55 Vt. 110.) 
 
 Vbazey, J. The Rutland & Burlington Railroad Company had two 
 mortgages resting upon its property, and the road was in possession of, 
 and being operated by, the trustees of the second mortgage bondhold- 
 ers. The trustees of the first mortgage bondholders had brought suit 
 to foreclose that mortgage. While this suit was pending the bond- 
 holders under the second mortgage obtained an act of incorporation 
 under the name of the Rutland Railroad Company, for the purpose 
 of "holding, maintaining and operating" said Rutland & Burlington 
 Railroad, and in July of that year, 1867, the company was organized. 
 Under the authority of the eighth and ninth sections of the charter 
 and for the purpose therein named ; and under the circumstances de- 
 tailed in the referee's report, the defendant by corporate vote, issued 
 prior to February, 1872, "preferred or guaranteed stock, commonly 
 called preferred guaranteed stock," to the amount of $4,300,000. The 
 company had also issued , common stock to the amount of $2,500,000. 
 February 1, 1872, the company made its first issue of certificates of 
 "scrip dividend," specified therein as being "in settlement of dividends 
 on the preferred guaranteed stock." Thereafter from time to time 
 the company continued to issue similar certificates, but varying some- 
 what in their terms. The plaintiff having become the owner and 
 holder of such certificate of different issues to an amount of over 
 $21,000, and having demanded an exchange into the bonds of the com- 
 pany referred to in the certificates, and the company having refused 
 to make the exchange, and then having demanded payment and been 
 refused, brought this suit declaring in the common counts in assumpsit, 
 to recover the amount of his certificates. 
 
 The plaintiff was a preferred stockholder from June 4, 1872, to Oc- 
 as See same case In lower eourt, 29 N. J. Law, 82 (1860). Compare Hunt 
 V. O'Shea, 69 N. H. 600, 45 Atl. 480 (1899), and Petition ol Le Blanc, 14 Hun 
 (N. T.) 8 (1878). 
 
Sec. 1) RIGHTS INCIDENT TO STATUS 461 
 
 tober 9, 1877, iind during this time purchased the certificates in suit 
 and others, and had issued to him certificates on his own stock. The 
 referee gives a statement of the floating debt of the defendant at 
 yearly and half yearly intervals, beginning August 1st, 1868, and end- 
 ing August 1st, 1879, and says these were the balances of the bills 
 payable as shown by the treasurer's books at the several dates named, 
 which both parties treated as a fair representation of the floating debt 
 of the defendant. 
 
 The referee finds that if the floating debt and current expenses were 
 to be first paid out of rent or income, the defendant has had no funds 
 with which to pay the plaintiff's certificates, and had none' at the 
 time the demands were made and this suit brought. If the preferred 
 stock was entitled to be paid dividends before the floating debt was 
 paid, the income of the company at the time of the demands had been 
 sufficient to pay all such certificates issued by the defendant. The 
 road was leased before the certificates were issued and its sole income 
 was from rents. 
 
 The defendant claimed before the referee and now insists that it 
 never had income or earnings out of which a dividend could properly 
 be made at the time when any of the scrip certificates were issued, and 
 that the certificates were issued without authority and without con- 
 sideration and are not binding on the defendant. 
 
 I. A primary question on the facts reported is : Which has the first 
 right to the income, the creditors of the defendant company, or the 
 preferred stockholders? The provision of the charter, section 8, is, 
 that the preferred or guaranteed stock shall be entitled to dividends 
 from the earnings or income of the corporation before any other divi- 
 dend shall be paid. 
 
 The construction of similar provisions has not unfrequently been 
 involved in causes in this country and in England, and the struggle 
 has been to gain for the preferred guaranteed stockholders the double 
 advantage of a shareholder and creditor, but without success. The 
 legislation in this Staite and telsewhere has been in accord with the 
 idea developed in the reported cases, that 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. In the late case of National Bank v. Douglass, 1 
 McCrary, 86, Fed. Cas. No. 14,375, the court say "sacredly pledged," 
 and quoting the language of Judge Clifford in Railroad Co. v. Howard, 
 
 7 Wall. 392, 19 L. Ed. 117, adds that "stockholders are not entitled to 
 any share of the capital stock nor any dividend of the profits until all 
 the debts of the corporation are paid." To similar purport and equally 
 strong is the language of Judge Story in Wood v. Dummer, 3 Ma- 
 son, 308, Fed. Cas. No. 17,944, and again in Mumma v. Potomac Co., 
 
 8 Pet. 286, 8 L. Ed. 945, and of Judge Curtis in Curran v. State of 
 Arkansas and Others, 15 How. 304, 14 L. Ed. 705.. See also the 
 numerous cases in defendant's brief on this point. 
 
462 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 It is now well established that dividends on preferred stock are pay- 
 able only out of net earnings which are applicable to the payment of 
 dividends ; Pierce on Railroads, p. 125, and cases cited in notes ; and 
 that such dividends are not payable absolutely and unconditionally as 
 interest is, but only out of profits made by the company. The prefer- 
 ence is limited to profits whenever earned. Jones on Railroad Securi- 
 ties, § 620, and cases cited in notes; Field on Corporation, § 121, and 
 cases cited; Corry v. Railroad Co., 29 Bevan, 263; McGregor v. 
 Ins. Co., 33 N. J. Eq. 181 ; St. John v. Erie R. R. Co., 10 Blatchf. 
 271, Fed. Cas. No. 1^,226; s. c, 22 Wall. 136, 22 L. Ed. 743; Lock- 
 hart v. Van Alstyne, 31 Mich. 76, 18 Am. Rep. 156; Taft v. Railroad 
 Co., 8 R. I. 310, 5 Am. Rep. 575. 
 
 Under the provision of this charter it is not a debt that is guaran- 
 teed, but the 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 to declare it 
 does not arise until there is a fund from which it can properly be 
 made. See cases supra; also In re London India Rubber Co., Law 
 Rep., 5 Eq. Cases, 525. 
 
 In this case it could only be made from "earnings and income." 
 The only earnings and income was the rental which was insufficient 
 to pay the operating expenses and the floating debt. Upon the plain- 
 tiff's theory there was an unqualified obligation to declare and pay div- 
 idends to preferred stockholders from the earnings and income, not- 
 withstanding there were debts of the company greater than the ear'n- 
 ings and income. The creditor must come after the stockholder. Un- 
 der this claim the rule universally recognized in the books that the 
 property of a corporation in a trust fund pledged for the payment of 
 the debts 6f the corporation, and the distinction everywhere upheld 
 between a stockholder and creditors, would have to be disregarded. In 
 our view the terms of the charter neither force nor import such con- 
 struction. 
 
 II. But the learned counsel for the plaintiff deny that the preferred 
 stock was capital stock, and insist that the only capital stock of the 
 defendant company is the common stock, or the stock that was is- 
 sued to the second mortgage bondholders, and that the intent and 
 meaning of the charter in reference to the issue of preferred stock, 
 was to provide means of exchanging the first mortgage bonds into 
 preferred stock, but not to affect the security, and that such was the 
 understanding of all parties at the time, and that wherever preferred 
 stockholders have been held to be stockholders in distinction from 
 creditors, it has-been upon the ground that by the tern^s of the act or 
 contract their stqck formed a part of the capital stock, and that they 
 by taking the same become in reality and in substance, as well as in 
 name, stockholders, holders of shares of capital stock. 
 
 It is true the charter was granted to the second bondholders, and 
 provides that the capital stock, meaning undoubtedly the stock to be 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 463 
 
 obtained by the second mortgage bonds, should be 3,000,000 dollars, 
 and in the provision, section S, for issuing the preferred or guaranteed 
 stock, it is not called capital stock. But the counsel nowhere intimate 
 in their able brief wherein the preferred stock lacked any element or 
 quality of the common stock. It seems to have had every privilege 
 and recognition of the common stock in the meetings and administra- 
 tion of the company. The referee puts it in this way: "Besides the 
 preferred stock the company had issued about $2,500,000 of common 
 stock, the holders of which were entitled to and did vote in the stock- 
 holders' meetings, having equal power in .shaping and controlling the 
 action of the company, with the holders of preferred stock to the 
 same amount.", The preferred stockholders had not only every priv- 
 ilege but were exempt from none of the liabilities of the common 
 stockholders. If the eighth section of the charter had said preferred 
 capital stock instead of preferred stock, what different quality would 
 that have given the. stock? The charter specifies the amount of the 
 capital stock of the company, which was sufficient to cover the second 
 mortgage bonds, but much less than the value of the road, the 'char- 
 ter being granted to those bondholders, and it then provides for the 
 issue of preferred stock, and limits that to the amount of prior claims 
 or incumbrances. 
 
 , The terms of this charter are plain to the intent of providing for 
 two kinds of stock, viz. : common stock and preferred or guaranteed 
 stock. It makes no distinction between them except to the effect that 
 the preferred stock should receive dividends from the earnings and 
 income of the corporation, at a rate and time named, with interest 
 thereafter if not paid, "before any other dividend shall be made there- 
 from." What is there in the charter to indicate that the legislature in- 
 tended to simply create a creditor class in creating preferred stock- 
 holders, and meant interest by the word "dividend"? As stated by 
 Jones on Railroad Secu. § 619, "whatever rights attached to it [pre- 
 ferred stock] when issued contmue to adhere to it." The peculiar 
 right specified in the charter to-be attached to it, is the right to a divi- 
 dend before any should be made upon the common stock, and that it 
 may be converted into common stock. In St. John v. Erie R. R. Co., 
 s,upra. Judge Blatchford based his result upon a "fair and reasonable 
 construction of the contract." Judge Swayne, in the same case in the 
 Supreme Court,- says : "The question presented in the present case 
 depends for its solution wholly upon the construction given to the 
 fifth clause of the agreement." The defendant's charter is the instru- 
 ment to be construed here, and to borrow the words of Judge Swayne, 
 "The language employed is apt to express the relation of stockholders. 
 None to express the relation of creditors is found in the instrument." 
 Under it "the preferred stockholders are entitled to have the full 
 amount of their dividends paid before any payment is made in re- 
 spect of dividends upon the ordinary stock." Jones, § 620, and cases 
 cited. In Taft v. Railroad Co., 8 R. I. 310, 5 Am. Rep. 575, it was 
 
464 EIGHTS OF ST0CKH0LDEE3. (Ch. 4 
 
 held that the word "guaranteed" in connection with preferred stock, 
 did not change the legal effect of the rights of holders of such stock. 
 Bradley, C. J., after referring to the English cases, says : "Without 
 dwelling longer upon these and similar authorities, it is perfectly appar- 
 ent that the guaranty of dividends by a railway company is considered 
 by th^ courts and by the business community also, to mean nothing 
 more than a pledge of the funds legally applicable to the purposes of 
 a dividend; that, in short, it is a dividend and not a debt." 
 
 No claim is made in this case that the preferred shareholder does 
 not have all the rights as a shareholder that is enjoyed by the holder 
 of the common stock. The claim is that he is also a creditor with all 
 the rights pertaining to that relation. Agaiiist this claim are the terms 
 of the charter, the presumptions of law and the usual course of busi- 
 ness. The evidence of his relation to the company is a certificate of 
 stock which under the charter should, and probably does, guarantee a 
 dividend to be paid to him before any dividend shall be paid on the 
 common stock. Mr. Pierce, page 120, defines dividends to be corporate 
 funds derived from the earnings of the corporation, and appropriated 
 by a corporate act to be divided among the stockholders. A preferred 
 dividend is the fund paid to one class of shareholders in priority to 
 that to be paid to another class. See authorities cited by Pierce. 
 
 The case mo^t relied upon by the plaintiff's counsel, where it was 
 held that a holder of stock was a creditor, is that of Burt v. Rattle, 
 reported in The Reporter, March 6, 1878, p. 310, (31 Ohio St. 116.) 
 The preferred stock in that case was issued under a statute that pro- 
 vided that the "holders of such preferred stock shall not have the right 
 to vote on any question, at any meeting of the stockholders of such 
 corporation, or for the election of officers, and shall not be liable for 
 the debts of such corporation." And the corporation pursuant to a 
 vote of the corporation secured the preferred stock then in suit by a 
 bond and mortgage of the corporate property. Welch, C. J., in deliv- 
 ering the opinion of court says: "A majority of us think that the 
 transaction between the corporation and the so-called preferred stock- 
 holders, was in fact and in law a loaning of money upon mortgage se- 
 curity and not the creation of additional members of the corporation. 
 A man who advances his money to a corporation, and takes a bond and 
 mortgage for its repayment, and also by express agreement between 
 the parties takes no interest or risks in the concerns of the company, 
 is a creditor of the company, and to call him a stockholder is a simple 
 misnomer." 
 
 The distinction between that case and the one at bar is apparent. It 
 is insisted that the provisions of the defendant's charter to the effect 
 that the preferred stock should be issued only for the/'purpose of sat- 
 isfying, paying or purchasing prior claims, or incumbrances upon or 
 interests in said road and property," and should be limited to the 
 amount of sUch claims, and providing the rate of dividend, and for 
 its payment semi-annually, and, "until declared," interest thereon to be 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 465 
 
 added from the end of the half year when the same should be de- 
 clared, and that no mortgage should take precedence of the preferred 
 stock in the application of income, all show a purpose to create a pre- 
 ferred stock with all the security of a first mortgage, taken in connec- 
 tion with the fact that the prior claims consisted largely of the first 
 mortgage then in process of foreclosure. 
 
 Courts have not favored the creation of different classes of share- 
 holders with superior rights in one over others. Doubt is expressed 
 in the books whether there is power in a corporation to distinguish 
 between its stockholders by making them unequal in interest and right, 
 except as it is expressly granted. Although some courts and law 
 writers have said that the issue of preferred stock is but a method of 
 borrowing money, and that preferred stock is only a form of mortgage, 
 we think ti\f law as now settled is better expressed by Pierce, who 
 says, page 124 : "The issue- of preferred stock is a mode by which a 
 corporation obtains funds for its enterprise, without borrowing money 
 or contracting a debt." The other view has been expressed generally 
 in cases where the claim was that no dividend could properly be paid 
 on preferred stock before and without paying on the other stock, as in 
 R. & B. R. R. Co. V. Thrall, 35 Vt. 536; or where the preferred stock- 
 holders had no right in the management of the company, and were 
 not liable for debts, and were nominal stockholders only, as in Burt 
 V. Rattle, supra. 
 
 It was necessary for the defendant, consisting of the second mort- 
 gage bondholders, to raise money to pay up the first mortgage, in or- 
 der to save the property from going on that mortgage. Two. ways 
 were open to them, qne to borrow money, the other to sell stock. They 
 decided to try the latter method. The pressure was severe upon them, 
 and the amount to Ibe raised was large. The ' stock in order to be 
 sold must necessarily be carefully guarded. The issue of the pre- 
 ferred stock in this case was made as it usually is, that is, when the 
 corporation has reached a crisis in its affairs, and the corporators are 
 unwilling or unable to put more or sufficient money into the business, 
 but are nevertheless disposed to give to those who will do so a prefer- 
 ence in profits. Careful guards ar6, therefore, usually thrown around 
 preferred stock in the charter or contract, as was done in this case ; 
 but this did not change the character of the transaction. It was still 
 an obtaining of funds by sale of stock, anfl not a borrowing of money 
 on a mortgage. 
 
 These provisions of the charter seem to us to point to a careful se- 
 curity of the benefit of the preference as between the two kinds of 
 stock, but not a preference over the creditors of the corporation ; not 
 a preference with a perpetual promise to pay more than a legal rate of 
 interest on the sum invested, out of the earnings, without regard to 
 what the corporation owes as a "floating debt," not a preference that 
 would give to the holders of the preferred stock the character of cor- 
 porators with the right to be the corporate managers, and also make 
 RicH.CoRP.— 30 
 
466 RIGHTS OF STOCKHOLDERS (Ch. 4 
 
 them the preferred creditors of the corporation; not a preference un- 
 der which the debts of the corporation might, and, as the company was 
 situated, must go on increasing from year to year indefinitely unpro- 
 vided for, while the stockholders and< managers were receiving the 
 whole income in dividends. We think the language of the charter well 
 expresses what the report shows was the only object which the par- 
 ties in interest needed or wanted to secure, so far as they then under- 
 stood the situation, viz. : a preference in dividend between the two 
 kinds of stock and nothing more. Under their preference the common 
 stock can receive nothing until all the dividends on the preferred stock 
 are paid according to the terms of the charter. Pierce on Railroads, 
 page 125, and cases cited in notes. 
 
 It follows from this construction of the charter that the earnings of 
 the defendant corporation should have been appropriated, to the pay- 
 ment of its floating debt, in preference to the payment of dividends on 
 preferred stock. * * * ^* 
 
 The pro forma judgment of the County Court is reversed, and judg- 
 ment for the plaintiff to recover^the amount of his scrip dividend cer- 
 tificates with interest as found by the referee, with interest thereon, 
 and both the Central Vermont Railroad Company and the Cheshire 
 Railroad Company are adjudged chargeable as trustees.'" 
 
 STERNBERGH v. BROCK. 
 
 (Supre'me Court of Pennsylvania, 1909. 225 Pa. 279, 74 Atl. 166, 24 L. R. A. 
 [N. S.] 1078, 133 Am. St. Eep. 877.) 
 
 Appeal, No. 11, January Term, 1909, by plaintiffs, from decree of 
 Common Pleas No. 4, Philadelphia County,, March Term, 1907, No. 
 1,624, dismissing bill in equity in case of J. H. Sternbergh et al. v. 
 Arthur Brock et al., directors, and H. M. Richards, treasurer, of the 
 American Iron & Steel Manufacturing Company, and the said Ameri- 
 can Iron & Steel Manufacturing Company. 
 
 Potter, J.''" On July 7, 1899, four manufacturing concerns, the 
 Pennsylvania Bolt & Nut Company, J. H. Sternbergh & Son, the 
 Lebanon Iron Company, and the East Lebanon Iron Company, entered 
 into an agreement, by which they were to transfer to a proposed cor- 
 poration the whole of their respective "plants, franchises, good will, 
 business, patents, trade-marks, and property of every sort and kind." 
 The agreement further provided that they should receive for the prop- 
 
 24 Part of the opinion Is omitted. It was held that the company was estop- 
 ped to deny the validity of the certificate. 
 
 2 5 See Taft v. Hartford, etc., Ry. Co., 8 R. I. 310, 5 Am. Rep. 575 (1866); 
 Neve York, L. B. & W. Ry. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 209, 30 
 L. Ed. 363 (1886). 
 
 26 Part of the opinion, dealing with the question of practical construction of 
 the contract, has been omitted. 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 467 
 
 erty so transferred full-paid and nonassessable preferred stock of the 
 proposed corporation of the par value of $50 per share, of which 
 $3,000,000 worth were to be issued and divided among them' in desig- 
 nated proportions. The agreement also provided : "The said -preferred 
 stock shall have an accumulative preference of five per cent. (5%) 
 dividend annually, payable quarterly on the first days of January, April, 
 July and October, and the first preference as to the distribution of the 
 assets of the company ; and further none of the property or franchises 
 of the proposed company can be mortgaged without the consent of at 
 least a majority of the preferred stock." Common stock to the extent 
 of $17,000,000 was also to be issued, divided into 340,000 shares, with 
 a par value of $50 each, upon which $5 per share was to be paid in 
 cash. 
 
 In pursuance of this agreement, the American Iron & Steel Com- 
 pany was incorporated on August 21, 1899, under the laws of Penn- 
 sylvania, for the manufacture of iron and steel products. The capital 
 named in the articles of incorporation was 20 shares, with a par value 
 of $1,000, but this was increased by action of the stockholders on Au- 
 gust 23, 1899, to $20,000,000, divided in $3,000,000 of preferred and 
 $17,000,000 of common stock, all of a par value of $50 a share. 
 
 By resolution adopted at the stockholders' meeting of August 23, 
 1899, it was provided "that the preferred stock whose issue was there- 
 by authorized to the amount of $3,000,000 should be entitled (a) 'to 
 receive a cumulative yearly dividend of five per cent., payable quarter- 
 ly on the first days of January, April, July, and October, in each year, 
 before any dividends shall be set apart or paid on the common stock; 
 (b) to be paid in full both principal and accrued dividends in the 
 event of liquidation or dissolution of the company before any amount 
 shall be paid to the holders of the common or general stock; (c) to 
 require the consent in writing of a majority of the holders thereof to 
 the creation of any mortgage.' " 
 
 The stock was issued as provided for in the agreement and th^ res- 
 olution of the stockholders. On February 27, 1905, the common 
 stock was reduced, after an assessment of $2.50 a share had been 
 levied, to 51,000 shares, of the par value of $2,550,000, making the 
 total capital stock $5,550,000. 
 
 From the organization of the company until the year 1907 the hold- 
 ers of preferred stock were paid the stipulated 5 per cent, annual div- 
 idend, and no more, while all profits above the amount so paid were 
 distributed by dividends to the common stockholders. In March, 1907, 
 a quarterly dividend of 2 per cent, was declared by the directors upon 
 all the stock, both preferred and common, which was at the rate of 8 
 per cent, per annuih. 
 
 J. H. Sternbergh, who was a holder of the common stock, filed this 
 bill in equity against the directors and treasurer of the company and 
 the corporation itself, alleging that the preferred stockholders were 
 not entitled to receive more than 5 per cent, per annum on the par 
 
468 EIGHTS OF STOCKHOLDERS ^ (Ch. 4 
 
 value of theif stock, and praying the court to enjoin the payment to 
 them of the dividend declared in excess of one-quarter of that amount. 
 
 Answers and replication were filed, and the case was tried before 
 Audenried, J., who found that the plaintiffs were not entitled to an 
 injunction and recommended that the bill be dismissed. Exceptions to 
 the findings of the trial judge were dismissed by the court in banc, 
 and a decree made dismissing the bill, with costs. Plaintiffs have ap- 
 pealed, and have assigned for error the dismissal of their exceptions 
 and the decree dismissing the bill. 
 
 Three questions are raised by the arguments of counsel on this 
 appeal : 
 
 ( 1 ) Whether preferred stock issued by a company incorporated un- 
 der the corporation act of 1874 is limited as to dividends to the amount 
 of its preference; or whether, after payment of an equal amount as 
 dividend on the common stock, it is entitled to participate in the dis- 
 tribution of the remaining profits, if any. 
 
 (2) Whether, under the agreement and resolution in the present 
 case, the preferred stockholders can receive dividends of more than 
 5 per cent, per annum on the par value of their stock. 
 
 (3) Whether the alleged fact that for a long series of years the 
 preferred stockholders were paid without objection on their part only 
 5 per cent, per annum and the entire balance of profits was paid to the 
 common stockholders is to be considered in determining the present 
 rights of the parties. 
 
 The authority to issue the preferred stock in the present case is 
 derived from Act April 29, 1874 (P. L. 81) § 16, which provides: 
 "Every corporation created under the provis"ions of this act, or accept- 
 ing its pi;ovisions, may, with the consent of a majority in interest of 
 its stockholders, obtained at a meeting to be called for that purpose, 
 of which public notice shall be given during thirty days in a newspaper 
 of the proper county, issue preferred stock of the corporation, the 
 holders of which preferred stock shall be entitled to receive such div- 
 idends thereon as the board of directors of the corporation may pre- 
 scribe, payable only out of the net, earnings of the corporation." 
 
 The learned judge of the trial court was of opinioh that the present 
 case is ruled by Fidelity Trust Co. v. Lehigh Valley R. R. Co., 215 
 Pa. 610, 617, 64 Atl. 829, 832, 7 Ann. Cas. 613. It was there said: 
 "When each class of stock had been paid 10 per cent., they were equal, 
 and equally entitled to partake of whatever remained in the fund 
 applicable for dividend purposes. The preferred stockholders were 
 net creditors." 
 
 In West Chester, etc., R. R. Co. v. Jackson, 77 Pal 321, a loose ex- 
 pression was used when it was said that "prefert-ed stock is only a 
 form of mortgage." Whatever the extent of the preference in that 
 case may have been, speaking generally, stock, whether it be common 
 or preferred, does not represent indebtedness. Its possession means 
 ownership of the company. 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 469 
 
 The authority under which the preferred stock was issued in Fidelity 
 Trust Co. V. Lehigh Valley R. R. Co., 215 Pa. 610, 64 Atl. 829, 7 
 Ann. Cas. 613, was c!ontained in Act March 4, 1850 (P. L. 130), 
 which provided : "And the said additional stock so issued shall be en- 
 titled to a preference over all the other stock of the said company in. 
 every future dividend of profits which may be declared by the said 
 company, until the holders of such additional stock shall have been 
 paid from the funds applicable to the payment of such dividend, ten 
 per cent, per annum on the amount of capital stock of the company 
 represented by said shares of additional stock so held by them re- 
 spectively; and the holders of the other stock of the company shall 
 not be entitled to participate in any future dividend of the profits of 
 the company until the holders of said additional stock shall have been 
 paid from the funds applicable to such dividend, ten per cent, per 
 annum on the amount of the capital stock of the company repre- 
 sented by said additional shares so held by them respectively." 
 
 In (reply to the same contention which is made here, the court be- 
 low very appropriately, and as we think convincingly, said : "In at- 
 tempting to distinguish between the contract in the present case and 
 that considered by the Supreme Court in Fidelity Trust Co. v. Lehigh 
 Valley R. R. Co., much reliance is placed by counsel for the plaintiffs 
 on three peculiarities of expression in the act of 1850. These are, 
 first, the use of words alluding to the preferred stock thereby au- 
 thorized as representing a definite part of the company's aggregate 
 capital stock; second, the limitation of the preference by the words, 
 'until the holders of such additional stock shall have been paid 10 per 
 cent, per annum' ; and, third, the employment of the word 'participate' 
 as applied to the right of the holders of the common stock to receive 
 dividends from the company's profits. These points of difference are 
 but trifling, and constitute no sound distinction, between the essential 
 terms of the two contracts under comparison. With respect to the 
 use of the word 'participate,' it is enough to say that it probably refers 
 here to the sharing of the profits of the corporation among the holders 
 of the common shares themselves rather than to the distribution be- 
 tween the two classes of stockholders. The words which serve to limit ' 
 the preference of the additional shares, viz., 'until the holders of such 
 additional stock shall have been paid 10 per cent, per annum,' imply 
 nothing different from what is implied by the words 'before any divi- 
 dend shall be paid or set apart on the common stock' contained in 
 clause 'a' of the resolutions of the American Iron & Steel Manufac- 
 turing Company, above quoted. The words 'amount of capital stock 
 represented by said additional stock,' in the act of 1850 are devoid of 
 the significance ascribed to them. They are merely a clumsy para- 
 phrase of the expression 'par value' whicl^ the draftsman of the kct 
 probably regarded as too colloquial a term for use by the Legislature." 
 
 Where there is no stipulation in the contract to the contrary, the 
 weight of authority clearly favors the right of preferred stockholders 
 
470 EIGHTS OF STOCKHOLDEES (Ch- 4 
 
 to share with the common stockholders in all profits distributed, after 
 the latter have received an amount equal to the stipulated dividend on 
 the preferred stock. "In the absence of special provisions, the holders 
 of preferred stock in a corporation are in precisely the same position, 
 both with respect to the corporation itself and with respect to creditors 
 of the corporation, as the holders of common stock, except only that 
 they are entitled to receive dividends on their shares, to the extent 
 guaranteed or agreed upon before any dividends can be paid to the 
 holders of common stock." 2 Clark & Marshall on Priv. Corp. (1901) 
 § 417c. "A share of stock is a share of stock, whether preferred or 
 common." 1 Cook on Corps. § 269, note. See, also, 1 Elliott on 
 Railroads (2d Ed.) § 84; 2 Beach on Priv. Corp. § 501. 
 
 We do not find anything in the agreement or resolution in the pres- 
 ent case which limited the preferred stockholders to a dividend of 5 
 per cent, per annum upon their stock. * * * 
 
 The assignments of error are overruled, and the decree is affirmed.*^ 
 
 IV. Distributive Share 
 
 CRAYCRAFT et al. v. NATIONAL BUILDING & LOAN ASS'N. 
 (Court of Appeals of Kentucky, 1904. 117 Ky. 229, 77 S. W. 923.) 
 
 Appeal from Circuit Court, Jefferson County, Chancery Division. 
 
 O'Rear, J. Appellee is a building and loan association organized 
 and operating under the laws of Kentucky, and subject to the pro- 
 visions of the present Constitution and statutes. Appellee found it 
 was unable' to prosecute its business with success, and, in the course 
 of its business, by investment in real estate and the purchase of real 
 estate for debts, it acquired real property of the value of about $140,- 
 000 at its book value; that is, at the price which the property cost 
 appellee. It had a large number of stockholders, holding a large 
 amount of its capital stock, which at its book value (that is, the ag- 
 gregate of dues paid on stock, and of the dividends which had been 
 declared and credited to the stock), amounted to a sum much in ex- 
 cess of the value of the real estate. Its assets, consisting of notes 
 secured by mortgages and by pledges of stock, together with the book 
 value of the real estate, practically balanced the liabilities of the com- 
 pany to its stockholders. 
 
 The pleadings claim, and proof in this case indicates, that this real 
 estate could not be sold in the ordinary and usual way of selling for 
 as much as $140,000, by practically one-third of that amount; that 
 is, the real estate could not have been sold in the usual way for 
 more than $93,000 or $94,000. To sell this property, therefore, in 
 this way, would have made the company unable to pay its ,stock- 
 
 2T See Scott v. Baltimore & Ohio R. Co., 93 Md. 475, 49 Atl. 327 (1901). 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 471 
 
 holders in full, by the sum of $46,000, if the result should be as an- 
 ticipated. Taking into account depreciations in value and losses 
 which must necessarily result in collecting its personal assets, the 
 company, in the usual way of winding up, is probably insolvent. 
 With this condition confronting them, the directors, through a com- 
 mittee, while in process of liquidation, conceived a plan of disposing 
 of this real estate to its stockholders by adding to the cost value of 
 the real estate arbitrary amounts, not exceeding 8 per cent, of any 
 one piece of property, and accepting in payment therefor stock of 
 the stockholders at ifs book value, with the stipulation that in the 
 event the assets, upon final distribution, were sufficient to pay to the 
 stcokholders who did not purchase real estate more than was re- 
 ceived by the stockholders who exchanged stock for real estate, 
 such surplus should be distributed to all of the stockholders alike. 
 It will be observed that there was no final surrender of the stock, or 
 of the rights of stockholders, upon the exchange of stock for real 
 estate. 
 
 In order to ratify this plan, a meeting of the stockholders was 
 called, and was attended, by the holders of a bare majority of stock — 
 a bare quorum — and the plan was ratified by a bare majority; and, 
 of this bare majority of the stock, 26 shares attending the meeting 
 voted against approving the plan. Under the plan adopted, offers 
 for the property by stockholders, to be paid in stock, were authorized 
 to be made up to February, 1903, at which time the right of stock- 
 holders to make such exchange expired, under the terms of the plan. 
 After such approval as was made by the stockholders of the pro- 
 posed plan for disposing of the real estate, printed propositions con- 
 taining the substance of the above plan, and a list of real estate of 
 the appellee, with prices, were mailed to each of the stockholders. 
 Prior to the 1st of February, 1903, the company received proposi- 
 tions under the plan for about $30,000 worth of its real estate, and 
 no more. About the time this plan was adopted by the directors, 
 a resolution was adopted by the corporation, in substance, that it 
 would proceed to dispose of its assets, pay its liabilities, and wind 
 up the business. This did not legally put the company in liquida- 
 tion. See Economy, etc., Association v. Paris Ice Company, 113 Ky. 
 246, 68 S. W. 21. 
 
 In the meantime, however, a consent such as is required by sec- 
 tion 561, Ky. St. 1899, was signed by the necessary number of stock- 
 holders, and lodged with the directors in the latter part of January, 
 1903; and between that time and the 1st of February, at which 
 time the plan above n^entioned expired, the appellant Craycraft made 
 a proposition to exchange stock of appellee of the book value of 
 $648 for the lot described in the petition, upon condition that the 
 corporation would convey the property to him by a good, merchant- 
 able, indefeasible, fee-simple title. This proposition was accepted 
 
472 EIGHTS OF STOCKHOLDBES (Ch. 4 
 
 by the appellee, and a deed was drawn and tendered to appellant, 
 which he declined to accept. This suit was brought for the s'pecific 
 performance of that contract. 
 
 The question involved here is whether the plan for disposing of its 
 real estate is legal, whether appellant, at this stage of the winding 
 up of appellee, would obtain by the deed ,tendered a good merchant- 
 able, indefeasible, fee-simple title to the property described in the pe- 
 tition. These propositions involve the question whether the transac- 
 tion above set forth is a sale of the lot described in the petition, such 
 as they can lawfully make, or whether it is a mere distribution of 
 assets to the stockholders receiving the property, and whether the 
 property itself remaining in the hands of the stockholders, at the 
 suit of dissenting or nonconsenting stockholders, would be brought 
 in for the purpose of procuring an equal distribution of the assets 
 of the corporation among all of its stockholders alike. It will be 
 observed that only about $30,0d0 worth of this $140,000 worth of 
 real estate was bargained for on the plan above described before the 
 expiration of the plan, which leaves $110,000 worth, as to which 
 there is no assurance that it can be sold in the same way or upon the 
 terms under renewal or extension of the plan; land, if not sold, its 
 sale in the ordinary way of winding up a corporation may make the 
 corporation so insolvent as to result in other stockholders receiving 
 a much less pro rata from the assets of the corporation than those 
 who get real estate for their stock. 
 
 That appellant was entitled to receive not only a deed, with cove- 
 nant of general warranty, conveying the fee-simple title, but was 
 to receive an indefeasible title, is, admitted. If the scheme evolv- 
 ed by the majority stockholders, an,d above set forth, did not enable 
 the corporation to pass such title to the stockholders whose bids 
 might be accepted, then the specific execution of the contract be- 
 tween appellant and the association should not be adjudged. It 
 should be borne in mind that the corporation is not indebted. Its 
 sole liability is to its stockholders. 
 
 The argument is made that, in the course of a voluntary liqui- 
 dation upon a statutory dissolution of a corporation, the will of the 
 majority in interest as to the time and method of procedure, so 
 long as it does not produce a substantial inequality in the result, must 
 be allowed to control. The argument is utilitarian, and is opposed 
 by the characterizing principles of the common law, which regard 
 the rights of the individual in private property, in preference to the 
 will or welfare of any greater contending number. The question 
 of the rights of the stockholders as among themselves is one of im- 
 plied contract. It is that, upon a dissolution of the joint enterprise 
 for which they formed the corporation, its assets, after paying its in- 
 debtedness, will be distributed pro rata among the stockholders ac- 
 cording to interest. It may be that, if these assets were of a qual- 
 
Sec. 1) BIGHTS INCIDENT TO STATUS 473 
 
 ity capable of an exact partition in the proportion represented by 
 each shareholder's interest, they might be distributed in specie. But 
 that can rarely happen. ' The only dividend which can ordinarily re- 
 ceive the devisor of §hare interests is money. The basis or contribu- 
 tion, of reckoning liability, and of apportioning the final results is 
 money. To liquidate, in law, is to make certain or exact, in units of 
 money, and, in the sense in which the word is used in winding up a 
 corporation, to discharge, in lawful money, the liabilities so ascertain- 
 ed. Each stockholder is entitled, as a matter of right, and as an 
 incident of his contract, to participate in the distribution on that 
 basis. Although the majority in interest and numbers may conceive 
 their interest to be, and although it may be a fact that their in- 
 terest is, to hold the assets of the corporation for future enhancement 
 of value or for other uses, the dissident members are not bound to 
 yield their right to a legal liquidation to the welfare of the others. 
 To make them do so would be compelling them, against their wills, 
 to enter into a different contract from the one originally made. The 
 doctrine being discussed is thus stated by Cook on Stock and Stock- 
 holders (1st Ed.) 636: "When the regular business of a corporation 
 has been brought to a close, the shareholders have a right to an 
 immediate distribution of the corporate assets. They cannot there- 
 fore, be compelled to accept other property or rights in lieu of cash." 
 The authorities cited by the author support the text. 
 
 Using the instant case as an illustration, it may be, and probably 
 is, that among the nonconsenting or dissenting stockholders there are 
 some who hold but a few shares — possibly some who hold only a 
 single share — of stock. It is not likely that such of them would be 
 able to find a piece of real estate on the list of the same value as 
 his share or shares. He may not be able or willing to invest money 
 in addition in the real estate offered, and especially at the price of- 
 fered. He would then be compelled to yield absolutely to other 
 stockholders his claim as stockholder upon $140,000 of real estate of 
 the corporation, and to take the chances of realizing an equal propor- 
 tion from the remaining assets of the company. It might be advis- 
 able for him to adopt that plan. But the question is, does the law 
 compel him to relinquish a present valuable interest for a chance? 
 It is not true, strictly, that every stockholder has an equal chance in 
 the proposed plan, even if an even chance in any thing except money 
 would satisfy his right. For there are about $200,000 worth of 
 shares, at book value, with only about $140,000 of real estate at book 
 value. Some of these shares must necessarily fail to participate 
 in this partition of the real estate, and therefore be compelled to 
 take whatever chance there may be in realizing an equivalent sum, 
 proportionately, from the other assets of the company. If they 
 should fail, to that extent there would be an unequal distribution of 
 the assets of the corporation among the shareholders of the same 
 
474 EIGHTS OF STOCKHOLDERS (Cll. 4 
 
 rank, if the scheme here involved^should be adjudged by the court. 
 Such a distribution would never be decreed or sanctioned by a 
 court of chancery. Nor are we aware of either principle or prece- 
 dent that would allow a minority^ stockholder to.be bound against his 
 will by a resolution of the majority that would or could produce 
 such result. 
 
 It is suggested that this scheme is particularly desirable and bene- 
 ficial to all stockholders, because thereby extraordinary costs of wind- 
 ing up by proceedings in the courts are averted. Under section 561, 
 Ky. St. 1899, the board of directors of a corporation in voluntary 
 liquidation are given ample power to do all that is necessary to pass 
 title to its real estate by sales and conveyances, by public or pri- 
 vate sales. Indeed, it is made their duty to expeditiously take these 
 steps to reduce the assets into condition for distribution. The sug- 
 gestion of the costs and court expenses is probably more a bugaboo 
 than a danger. 
 
 We do not mean to say that the plan submitted to the stockholders 
 was not a judicious one. If all the stockholders had agreed, to it, 
 it is altogether probable it would have worked out satisfactorily. 
 But even if that were clearer than is made to appear, we know of 
 no legal way to compel them to enter into the agreement, for, at 
 last, any deviation from the legal enforcement of the stockholders' 
 rights is a matter of agreement among the parties. All the assets 
 of the corporation in liquidation are a trust . fund, which must be 
 ratably distributed among all the stockholders of the same rank. 
 If any of them are permitted to withdraw a- greater proportion than 
 others (i. e., any part of it that they were not entitled to), the for- 
 mer would be compelled to restore at least the surplus, that the oth- 
 ers might be made equal. William Goodrich v. City L,. & B. Ass'n, 
 54 Ga. 98; Allen v. Russell, 78 Ky. 105; Endlich on Building As- 
 sociations, 526. > I 
 
 From this it follows that appellant would not get an indefeasible 
 title to the lot contracted by him, for, upon a failure of any of the 
 nonconcurring stockholders to receive an equal sum or value on 
 final distribution, he could be compelled, at the suit of such stock- 
 holders, to surrender to them at least the surplus in value in the lot 
 over his pro rata of -all the corporation assets. 
 
 The judgment of the circuit court decreeing the specific perform- 
 ance of the contract of exchange of the lot for the seven shares of 
 stock is reversed, and cause remanded, with directions to dismiss 
 the petition. 
 
Sec. 1) EIGHTS INCIDENT TO STATUS 475 
 
 HEIvLMAN V. PENNSYLVANIA ELECTRIC VEHICLE CO. 
 (Court of Oiiancery of New Jersey, 1907. 73 N. J. Eq. 269, 67 Atl. 834.) 
 
 Leaking, V. C. The affairs of defendant corporation are being 
 settled by its board of directors, as statutory trustees, under proceed- 
 ings of voluntary dissolution. The bill in this case seeks the appoint- 
 ment of a receiver to supersede the trustees in winding up the corpo- 
 rate affairs. The assets of the company being ample to pay its debts, 
 no rights of creditors are involved. The present controversy arises 
 through a claim upon the part of the common stockholders that the 
 preferred stockholders are preferred only as to the payment of divi- 
 dends and are not to be preferred in the distribution of the assets. 
 This claim is based upon the fact that neither the amended certificate 
 of incorporation which provides for the issuance of preferred stock 
 nor the certificates of preferred stock as issued state that the preferred 
 stock is to have a preference in the distribution of assets at dissolu- 
 tion. 
 
 The provision in the amended certificate of incorporation is as fol- 
 lows: "Holders of the preferred stock of this company to receive, 
 and the company to pay, a fixed yearly dividend of six per cent. {6fo). 
 before any dividend shall be set apart on the common stock." 
 
 I am unable to reach the conclusion contended for by complainant. 
 It appears to be well settled that preferred stock is not entitled to a 
 preference over comrrion stock in the distribution of the surplus assets 
 of a corporation at its dissolution in the absence of anj* provision to 
 the contrary in the statute or in the contract under which the preferred 
 stock was issued, and that the language above quoted from the cer- 
 tificate of incorporation, standing alone, would be held to create a 
 preference in the payment of dividends only. 1 Morawetz on Pri. 
 Corp. § 461; 1 Cook on Corp. § 278; 26 Am. & Eng. Enc. of Law 
 (2d Edi.) p. 834. But I think that the language above quoted from the 
 certificate of incorporation must be regarded as having been used and 
 understood by the contracting parties in the light of a long-existing 
 legislative declaration of the rights of holders of preferred stock, and 
 when so regarded! I am convinced that the language used must be held 
 to have been intended to confer upon preferred stockholders a pref- 
 erence over common stockholders in the distribution of surplus assets 
 at dissolution. 
 
 The legislative declaration of the rights of preferred stockholders 
 to which I allude is first found in section 80 of the revised! corpora- 
 tion act of 1875 (Gen. St. p. 923). That section provided that in the 
 final distribution of the assets of a corporation the surplus funds, "aft- 
 er the payment of the creditors and the costs and expenses as afore- 
 said, and the preferred stockholdlers, may be divided and paid to the 
 general stockholders proportionately, according to their respective 
 shares." In the year 1880 Vice Chancellor Van Fleet, in McGregor 
 
476 EIGHTS OF STOCKHOLDBKa (Ch. 4 
 
 V. Home Insurance Co., 33 N. J. Eq. 181, in determining the rights of 
 preferred stockholders at the dissolution of a corporation, where the 
 express contract touching the issuance of the stock provided for a 
 preference as to dividends and was silent as to preference in the dis- 
 tribution of assets at dissolution, recognized the general rule that such 
 a stipulation, standing alone, would be held to relate only to the rights 
 of the stockholders in the corporation as a going concern; but con- 
 strued the section of the statute above referred to as a legislative 
 declaration of the rights of preferred stockholders where no contrary 
 provision could be found in the law or in the contract under which 
 the preferred stock was issued. Section 25 of the act of 1875 (Revi- 
 sion 1877, p. 181) provided that the corporation should have power to 
 issue general and preferred stock; but contained no provision con- 
 templating a statement in the certificate of incorporation touching 
 the rights of holders of the several kinds of stock. The revised cor- 
 poration act of 1896 under which the corporation now in question was 
 incorporated (P. L. 1896, p. 277, c. 185), re-enacts section 80 of the 
 act of 1875 (Revision 1877, p. 191), in substantially the same language, 
 retaining the provision touching distribution of assets to preferred 
 stockholders at dissolution in preference to general stockholders (P. 
 •L. 1896, p. 304, § 86). Section 18, p. 283, of the act of 1896, provides 
 that "every corporation shall have power to create two or more kinds 
 of stock of such classes, with such designations, preferences and vot- 
 ing powers, or restrictions or qualifications thereof, as shall be stated 
 and expressed in the certificate of incorporation." 
 
 Section 8 requires that the certificate of incorporation shall set forth, 
 among other things, "a description of the different classes of stock, 
 if there be more than one class created by the certificate, with the 
 terms on which preferred shares are created." 
 
 It will thus be seen that the act of 1896, while reasserting the old 
 declaration that the holders of preferred stock shall participate in the 
 distribution of surplus assets at dissolution in preference to the hold- 
 ers of common stock, at the same time adopts provisions to enable a 
 corporation to create preferred stock the holders of which shall not 
 be so privileged. In view of the fact that the effect of the language 
 used in section 80 of the act of 1875 had been regarded in this state 
 for so many years, under unquestioned judicial construction, as a leg- 
 islative dieclaration that the stipulation for per ferment as to dividends 
 would, in the absence of contrary stipulations or law, be treated as suf- 
 ficient to effect a preferment as to .assets at dissolution, I think that the 
 re-enactment of the same language in section 86, p. 304, of the act of 
 1896, in connection with other provisions enabling a corporation to 
 specifically define in its certificate of incorporation, the extent of pre- 
 ferments of various classes of stock must be held to be a continuation 
 of the same legislative declaration in all cases where a contrary rule 
 of preference is not specifically and clearly stipulated. In the Mc- 
 Gregor Case the express contract of preferment was as to dividends 
 
3ec. 2) ?OWEES OF MAJORITY 477 
 
 only. In the present case the preferment defined by the certificate of 
 iricorporation is in the sufcsjtance the same. I think that the contract- 
 ing parties in the present case, in view of the provisions of section 86 
 of -the act of 1896 and the prior legislation and its judicial construc- 
 tion, were entitled to regard the language .of the certificate of incor- 
 poration touching preferment as sufficient to effect a preferment in dis- 
 tribution of surplus capital at the dissolution of the corporation. 
 
 This view disposes of the other questions raised. It was urged that 
 there, has been an unlawful reduction of the par value of the preferred 
 stock, and that with this unlawful action set aside the holders of the 
 preferred stock will be subject to further calls on their subscriptions. 
 These considerations were urged as reasons for the removal of the 
 present statutory trustees whose personal interests are opposed to these 
 contentions. It is manifest, however, that if the preferred stockhold- 
 ers are entitled to preference in the distribution of assets it is entirely 
 purposeless to adjudge their stock to be of the par value at which it was 
 originally established and to then require payment by them of the 
 amount of the increase, for the money so paid would necessarily b^ 
 repaid to the same parties. 
 
 I am unable to find any sufficient reason for the appointnient of a 
 receiver."* 
 
 SECTION 2.— POWERS OP MAJORITY 
 
 DUDLEY V. KENTUCKY HIGH SCHOOU 
 (Court of Appeals of Kentucky, 1873. 9 Bush, 576.) 
 
 Lindsay, J."* The order from which this appeal is prosecuted must 
 be regarded as final. The special demurrer to the jurisdiction of the 
 court was sustained, and a judlgment rendered against appellant for 
 the costs of the entire proceeding. This is equivalent to dismissing the 
 petition for the want of jurisdiction in the court, and effectually pre- 
 cludes appellant from taking further steps in this litigation to obtain 
 the relief desired. * * * 
 
 The object of the corporation was to establish and maintain a high- 
 school, and not to make money, and it has no legal right to engage in 
 speculations or investments in real estate for the last-named purpose ; 
 but it has the expressly delegated power "to receive and hold for the 
 benefit of said high-school any lands, tenements, etc., * * * by gift, 
 devise, dbnation, contract, or purchase." It is not complained that the 
 house and lands purchased or about to be purchased from Gaines 
 
 28 Compare People v. New York Building-Loan' Banking Co., 50 Misc. Rep. 
 23, 100 N. Y. Supp. 459 (1006). 
 2» Part of the opinion is omitted. 
 
478 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 are. not to be held for the benefit of the school, but that the cor- 
 poration is unable to pay the contemplated price, and that the inevit- 
 able result of the purchase, if consummated, "will be the bankruptcy 
 of the corporation and the failure of the project to establish the 
 school. * * * 
 
 It is true that a majority of stockholders, no matter how great, 
 have not the right to divert the funds of a joint-stock incorporated 
 company to any other than the purposes for which it was organized ; 
 and if such fundis are about to be so diverted, a stockholder may file 
 a bill in equity against the company to restrain it by injunction from 
 such diversion or misapplication. Bagshaw v. Eastern Counties Rail- 
 way Co., 7 Hare, 114; 1 Beavan, 1 ; March v. Eastern Railwaj^ Co., 
 40 N. H. 548, 17 Am. Dec. 732. But relief will not be granted unless 
 the corporation is about to do some act outside of the scope of its au- 
 thority, or in disobedience to the provisions of its constitution, for so 
 long as it exercises the powers granted by the charter the acts of the 
 company must be treated by the courts as the acts of all the stockhold- 
 ers. 
 
 Each and every stockholder contracts that the will of the majority 
 shall govern in all matters coming within the limits of the act of in- 
 corporation ; and in cases involving no breach of trust, but only error 
 or mistake of judgment upon the part of the directors who represent 
 the company, individual stockholders have no right to appeal to the 
 courts to dictate the line of policy to be pursued by the corporation, 
 Angell and Ames on Corporations, § 393. Nor does the irregular 
 manner in which the board of directors voted upon the proposition 
 to make the purchase from Gaines authorize the chancellor to inter- 
 pose to prevent its consummation. In the case of Foss v. Harbottle, 
 2 Hare, 461, where the object of the bill in equity was to obtain re- 
 lief against what was alleged to be a fraud committed by certam of 
 the directors in an incorporated company, which fraud consisted in the 
 sale to themselves, as representatives of the company, of lands in 
 which they were individually interested, Vice-Chancellor Wigram held 
 that although the act might be voidable by the company, yet, inasmuch 
 as a majority of the proprietors might at 'a general meeting confirm 
 it, he declined to interfere, saying, "While the court may be declaring 
 the acts complained! of to be void at the suit of the present plaintiffs, 
 who in fact may be the only proprietors who disapprove of them, the 
 governing body of proprietors may defeat the decree by lawfully re- 
 solving upon the confirmation of the very acts whifch are the subject 
 of the suit." So in this case, while it may be that the corporation has 
 the right to avoid the purchase from Gaines, because one of the di- 
 rectors, without whose vote the proposition would have been rejected, 
 was allowed to vote by proxy, yet it may be that Dudley is the only 
 stockholder who disapproves of the purchase, and it might result 
 that, at the time the court was protecting him against the payment of 
 his subscription because of the unauthorized action of the directors. 
 
Sec. 2) POWERS OF MAJORITY 479 
 
 a majority of the stockholders in general meeting might ratify or have 
 already ratified the purchase, and bound Dudley under his contract of 
 subscription to submit to their will thus regularly and legally ex- 
 pressed. \ 
 
 It may be that the price agreed to be paid for the house and lands 
 is greatly more than its value, but about this matter the opinion of 
 the majority of the stockholders as expressed through the directory 
 must control, and so far as the action of the court in this case is con- 
 cerned it is immaterial whether the corporation acted wisely or un- 
 wisely in contracting a debt which possibly it will be unable to pay. 
 The charter empowers it to make purchases of land, to contract debts, 
 and to issue bonds to an amount not over two thirds of the stock sub- 
 scribed; and if these powers are so exercised as to result in loss to 
 the stockholders, it is a misfortune against which the courts can af- 
 ford no protection. Judgment affirmed. 
 
 WINDMULLER v. STANDARD DISTIIvLING & DIS- 
 TRIBUTING CO. 
 
 (Circuit Court of the United States, 1902. 114 Fed. 491.) 
 
 The complainants are the holders of certain shares of the first 
 aiid second preferred stock of the Spirits Distributing Company, up- 
 on which the Standard Distilling & Distributing Company have 
 guaranteed a dividend of 6 per cent, upon the first preferred and 2 
 per cent, upon the second preferred stock, during the existence of 
 the Spirits Distributing Company. This guaranty was given in con- 
 sideration of the transfer to the Standard Company of the common 
 stock of the Distributing Company. This stock constituted a ma- 
 jority of the stock of that company. The Standard Company, after 
 such transfer, took charge of the business of the Distributing Com- 
 pany by qualifying and electing as directors a majority of the board. 
 The Distilling Company of America has become the holder of the 
 greater part of the preferred stock of the Distributing Company and 
 a majority of the stock of the Standard Company, and through the 
 Standard Company and the holding of such preferred stock controls 
 the Distributing Company. At a meeting of the board of directors 
 of the Distributing Company it was resolved that, in the judgment 
 of the directors, it was most advisable and for the benefit of the 
 corporation that it should be dissolved. In accordance with the gen- 
 eral incorporation act of New Jersey, a meeting of the stockholders 
 was called to vote upon the propriety of adopting such a course. 
 The complainants have obtained a rule to show cause why an injunc- 
 tion should not be granted, restraining the Standard and the Distilling 
 
480 EIGHTS OF STOCKHOLDBRS (Ch. 4 
 
 / 
 
 Companies from voting the shares held by each, respectively, in the 
 Distributing Company.*" 
 
 KiRKPATRiCK, District Judge.'^ * * * '^i^^ prayer of the com- 
 plainants' bill is that the Standard Company may be enjoined from 
 voting upon its $3,675,000, par value, common stock in favor of said 
 proposition, because it has guarantied the dividends on the stock of 
 the Distributing Company as aforesaid, and that the Distilling Com- 
 pany be enjoined from voting upon its $2,592,650, par value, of first 
 and second preferred stock, which it has purchased and owns, because 
 it also owns a majority of the stock of the Standard Company, which 
 is the guarantor thereof. That is to say, however advisable and for 
 the benefit of the corporation it may be that the same should be dis- 
 solved, yet it cannot be done because two-thirds of the stockholders 
 whose votes are necessary to accomplish such result are disqualified 
 from voting by reason of their interest in the cancellation of a guar- 
 anty which the complainants now conceive to be adverse to their in- 
 terests. 
 
 To carry the doctrine to its logical conclusion would be to hold 
 that, if the guarantor's company and those who own a majority of 
 the stock in the guarantor's company should also be the owners of 
 all the stock in the guarantied company except one share, the owner 
 of that one share could prevent the dissolution of the company for- 
 ever, if its fharter were perpetual, or coitipel its operation at a loss 
 until all its assets were wasted or consumed. Section 51 of the gen- 
 eral corporation act of New Jersey provides that any corporation or- 
 ganized under it "may, hold the shares of any other corporation of 
 that or any other state," and, while the owner thereof, "may exer- 
 cise all rights, powers, and privileges of ownership, including the 
 right to'vote thereon." In respect to the voting power, the rights of , 
 a corporation are identical with the rights of an individual, and only 
 those reasons would operate to prevent a corporation from voting ' 
 on its stock which would effect the same object if the stock was held 
 by an individual. 
 
 I have not been referred to any authority which holds that one 
 stockholder is in any sense a trustee for other stockholders, or that 
 he is debarred from voting on his stock according to what he may 
 conceive to be his interest, or in a way which may result in a bene- 
 fit to himself, and which other stockholders may not enjoy. Direc- 
 tors, by whomsoever elected, are the representatives of all the stock- 
 holders, and, as such, are charged with the duty of administering the 
 affairs of the company for the equal benefit of their cestuis que trus- 
 tent. But the doctrine is new that the stockholders are trustees one 
 for another, or that an interest of one stockholder, which in the 
 judgment of another stockholder may seem to be adverse to his own, 
 
 so The statement of facts Is abridged. 
 81 A part of the oplnloniis omitted. 
 
Sec. 8) POWERS OP MAJORITY 481 
 
 can c^erate to prevent him from voting on his' own stock as he 
 sees fit. 
 
 In the case of Transportation Co. v. Beatty, 12 App. Cas. 589, one 
 of the directors owned a majority of the stock of the corporation, 
 and at a meeting of the shareholders, by reason of his majority, he 
 caused to be passed a Tesolution ratifying a contract to sell to the 
 company, upon advantageous terms, a- vessel belonging to himself. 
 In passing upon the propriety of his right to vote, the court said : 
 "Unless some provision to the contrary is to be found in the char- 
 ter or other instrument by which the company is incorporated, the 
 resolution of a majority of the shareholders, duly convened, upon 
 any question with -which the company is legally competent to deal, is 
 binding upon the minority, and consequently upon the company; 
 and every shareholder has a perfect right to vote upon any such 
 question, although he may have- a personal interest in the subject- 
 matter opposed to or different from the general or particular inter- 
 ests of the company. A shareholder has a perfect right to exercise 
 his voting power in such manner as to secure the election of directors 
 whose views on policy agree with his own, and to support those 
 views at any shareholders' meeting." 
 
 The court cannot be called upon to manage the internal affairs of 
 corporations, or to determine whether this or that stockholder is dis- 
 qualified from voting upon one or another question which may be 
 presented to the stockholders for their consideration by reason of 
 his own interest. If the directors, who are the trustees of all, con- 
 spire with a few or some of the stockholders to deprive the others 
 of their property, the court will interfere to see that justice is done. 
 The court will not permit the directors to divert the business of the 
 corporation so that a sale and sacrifice of its assets will become obliga- 
 tory, and the distribution of the proceeds unequal among its share- 
 holders. This is the doctrine which is at the foundation of the opin- 
 ion in the case of Farmers' Loan & Trust Co. v. New York & N. R. 
 Co., 150 N. Y. 410, 44 N. E. 1043, 34 L. R. A. 76, 55 Am. St. 
 Rep. 689, and Ervin v. Navigation Co. (C. C.) 27 Fed. 625. 
 
 No case has been brought to the attention of the court where any 
 stockholder has been deprived of his right to vote' on his stock in 
 such a way as may, in his opinion, best subserve his own interests. 
 He may vote, his stock as he pleases for the purpose of his own in- 
 terest, but he may not sell, or cause to be sold, assets and keep the 
 consideration. Menier v. Telegraph 'Works, 9 Ch. App. 350. In 
 Gamble v. Water Co., 123 N. Y. 91, 25 N. E. 201, 9 L. R. A. 527, 
 a stockholder's right to vote was questioned because of interestj , and 
 the court of appeals, reversing the decision of the lower court, said: 
 "A. shareholder: has a legal right, at a meeting of shareholders, to 
 vote upon a measure, even though he baS a personal interest therein 
 separate from other shareholders. At such a meetirig each sharer 
 
 RICH.COBP. — 31 
 
482 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 holder represents himself and his own interests, and he in no sense 
 acts as the representative of others. The law of self-intetest has at 
 such time very great and proper sway. There can be little doubt, 
 too, that at such meetings those who do vote on their own stock vote 
 upon it in the light solely of their own interest, or at least in what 
 they conceive to be their own interest." 
 
 In the case at bar the court is not in possession of facts which 
 would enable them to determine whether the interests of the cor- 
 poration, as distinct from the interests of the individual sharehold- 
 ers, require that it should be dissolved. Under the general corpora- 
 tion act of the state of New Jersey, any corporation may be dissolv- 
 ed whenever in the judgment of the board of directors it shall be 
 deemed advisable and most for the benefit of such corporation that it 
 should be dissolved; provided that, at a meeting of the stockholders 
 called for the purpose of passing upon the propriety of such dis- 
 solution, two-thirds^ in interest of all the stockholders shall consent 
 thereto. Laws 1896, c. 185. There is no provision in the law which 
 authorizes the court to review the judgment of the directors as to 
 the advisability of dissolution. And in 4 Thomp. Corp. § 4443, it is 
 said: "It is believed that no case can be found in which a court of 
 equity has granted an injunction at the suit of a minority stockhold- 
 er against the majority to prevent them from discontinuing the busi- 
 ness of the corporation and winding up its affairs." 
 
 It is urged in behalf of the complainants that it would be inequi- 
 table to allow the Standard Company, after having received a valuable 
 consideration for their guaranty, by their own act to dissolve the, cor- 
 poration, and thereby cancel its said obligation. But it must be re- 
 membered that, in the proposition made to the stockholders of the 
 Distributing Company by Mr. Eicks, Mr. Eicks said that, if such 
 stockholders would consent to a reduction of the rate of their divi- 
 dends, he would procure the Standard Company to guaranty and 
 pay, during the existence of the company, dividends at the rate 
 of 6 per cent, per annum on the first preferred, and 2 per cent, 
 per annum on the second preferred, stock of the Distributing Com- 
 pany. To that proposition the complainants assented, and they did 
 so with the knowledge that at any time, under the laws of the 
 state of New Jersey, two-thirds in interest of the shareholders of 
 the Distributing Company could dissolve the' company, and there- 
 by put it out of existence. They are in no. position to complain if, 
 in accordance with the terms of the agreement, the Standard Com- 
 pany and the Distilling Company, who are the stockholders of the 
 Distributing Company, propose to put an end to their liability there- 
 under. 
 
 Other reasons are urged in behalf of the defendant company why 
 this injunction should not be granted, but, having come to the con- 
 clusion that the Standard Company and the Distilling^ Company of 
 
Sec. 2) POWERS OP MAJOEITT '4kSS 
 
 America are not prohibited from exercising tHeir right to vote at the 
 stockholders' meeting upon the question of dissolution submitted by 
 the board of directors, it is not. necessary to enter into any discussion 
 of them. 
 
 For the reasons already stated, therefore, the rule to show cause 
 in this case must be discharged.** 
 
 CHICAGO HANSOM CAB CO. v. YERKES. 
 
 (Supreme Court of Illinois, 1892. 141 111. 320, 30 N. E. 667, 33 Am. St. Rep. 
 
 315.) 
 
 Charles T. Yerkes, a stockholder of the Chicago Hansom Cab Com- 
 pany, filed his bill in chancer^ in the Cook circuit court against that 
 company, Warren Springer, Rose Abernethy, and others, to have a 
 sale and conveyance of real estate and personal property of the com- 
 pany to said Rose Abernethy declared void, and set aside, and for an 
 injunction and the appointment of a receiver. A temporary injunc- 
 tion was issued asd a receiver appointed, as prayed. Answers were 
 filed to the bill, putting in issue its material allegations. By consent 
 of parties, before the hearing, the receiver was directed by the court 
 to inventory the personal property. An appraiser was appointed to 
 assess the value of the personal property, and it was further decreed 
 that the property should thereafter be turned over to Rose Abernethy 
 upon her giving bond, all of which was done. Upon final hearing, 
 Yerkes filed, by consent of court, a supplemental bill to wind up the 
 corporation and sell the real estate, apply the proceeds to the payment 
 of the corporate debts, and distribute any surplus there might be, 
 after such payment, among the stockholders. The court decreed as 
 prayed in the original and supplemental bills, and Springer and Aber- 
 nethy appeal from that decree. 
 
 The facts material to the questions discussed in the opinion are, in 
 brief, these : The Chicago Hansom Cab Company was organized for 
 the purpose of carrying on the business of the transportation of per- 
 sons and property by hansom cabs and other vehicles drawn by ani- 
 mals. It carried on this business for some time. The business proved 
 unprofitable, however, and in 1889, all of the stockholders being in 
 favor of closing up the affairs of the corporation, a meeting of them 
 was called to consider the feasibility of such a step. At this meeting 
 Yerkes was duly instructed to consult with an attorney as to the 
 proper and legal method of winding up the affairs of the corporation, 
 and to report thereon at an adjourned meeting. Before this meeting 
 
 82 See Beatty v. Northwestern Transportation Co., L. R. 12 App. Cases, 589 
 (1887). 
 
 Compare McLeary v. Erie Telegraph & Telephone Co., 38 Misc. Rep. 3, 76 
 N. Y. Supp. 712 (1902). 
 
48# EIGHTS OF STOjCKHOLDPES (CJl. 4 
 
 was had, however,, C. A. Needham, one o£ the directors and the secre- 
 tary of the company, had conceived the scheme of purchasing the 
 stock of the company aad dividing the property thereof with one 
 Springer, who agreed to supply the money for the purpose of securing 
 the, stock. By the date of the. adjourned meeting all of the stock of 
 the company had been purchased by Needham, with the exception of 
 that owned by Yerkes, and with the further exception of certain 
 shares owned by one Pullman, upon which Needham had secured an 
 option. At the meeting Pullman offered to purchase the stock of 
 Yerkes at a valua:tion placed upon it by Yerkes himself some time 
 previous. Pullman was acting as the agent of Springer in making the 
 offer, though this fact was unknown to Yerkes at the time. Yerkes 
 refused the offer. No action was taken at this meeting with regard to 
 a sale of the property of the stockholders. The president and secre- 
 tary, who were Pullman and Needham, respectively, were authorized 
 to mortgage or sell the property of the company at their discretion. 
 The stock of Yerkes was voted against this proposition. Acting un- 
 der this authority the property was sqM to Needham and Springer; 
 the deed of the real estate and the bill of sale of the personal property 
 being made out to Rose Abernethy, a niece of Springer, but both 
 deed and bill of sale being delivered to him personally. Af an ad- 
 journed meeting of the stockholders this sale was approved against 
 the vote of the stock of Yerkes.*^ 
 
 ScHOLFiELD, J. From the foregoing statement it is clear that when 
 Needham entered into the contract with Springer the former was a 
 director in the Chicago Hansom Cab Company, and its secretary. As 
 director, he owed the duty to the company to preserve its property 
 and protect the company against loss, so far as that could be done by 
 the exercise of ordinary care and diligence; and he could not himself 
 become the purchaser of any property of the corporation which it was 
 his duty to sell. Wardell v. Railroad Co., 103 U. S. 651, 26 L. E;d. 
 509. The contract between Needham and Springer requires the pur- 
 chase of all the property of the cab company, and the subsequent 
 transfer of the personal property to Needham. It is an entire and in- 
 divisible contract, and Needham is therefore directly interested in 
 every part of the claimed contract of sale by the company to bpringer. 
 
 But it is claimed the authority to make this sale is derived from a 
 vote of a majority of the stockholders. That vote was given at the 
 stockholders' meeting on the 6th of May, 1889, in these words: 
 "Therefore, be it resolved that a committee consisting of the presi- 
 dent and secretary be appointed to mortgage or sell all or part of the 
 property of the company, at their discretion, and be authorized to 
 sign, seal, and deliver any mortgage, deed, or bill of sale necessary, 
 and to report at an adjourned meeting May 8th, at 2:30 p. m., at the 
 same place." This required the exercise of judgment and discretion 
 
 88 A short statement has been substituted for that in the original report. 
 
Sec. 8) ~ POWERS OF MAJOBITI 485 
 
 by both the presidfent and the secretary; and, being a special power, 
 it could not be exercised by one only. Perry, Trusts, § 413. And so, 
 necessarily, if one was disqualified to act, neither could act. The reso- 
 lution of the stockholders invested Needham, as well as Pullman^ with 
 a special confidence and trust; which required that he should act solely 
 with a view to the best interests of all the stockholders. But he was 
 disqualified to thus act by reason of his previous contract with 
 Springer, which gave him a personal interest to be promoted by his 
 action under the resolution. The rule is familiar that a trustee is dis- 
 qualified to act by the intervention of a personal interest in the per- 
 .. formance of his duties as trustee. He cannot obtain title to property 
 where he has a duty to perform inconsistent with the character of a 
 purchaser on his own account. Borders v. Murphy, 125 111. 577, 18 
 N. E. 739. ( 
 
 It is, however, contendeji that this sale was ratified by a vote of a 
 majority of the stockholders at their meeting on the 8th of May. 
 Whether, in any case, a ratification is eflfective, depends upon whether 
 those assuming to ratify might have legally authorized the act to be 
 done in the first instance. At the time this vote was taken, Springer 
 either really owned or had contracted to purchase, and by virtue 
 thereof was entitled to and did control, a majority of the shares of 
 stock, — indeed, all except those, owned by Yerkes ; and so upon the 
 record of the meeting of the 8th of May the names and votes of Pull- 
 man, Himrod, Hagerty, Cotton, and Cutler, being the votes in favor 
 of the ratification of the sale, are but another form of expressing the 
 name and votes of Springer in favor of it. The question is therefore 
 presented whether, after it is determined to wind up a corporation and 
 settle its business, it is competent for a holder of a majority of its 
 shares of stock to make or ratify a sale of all its property to himself, 
 .against the protest of a holder of a minority of its shares, and in dis- 
 regard of his rights. 
 
 That a holder of a majority of the shares of stock in a corporation 
 may, where the law authorizes a vote of ' stockholders, so vote upon 
 any matter of policy in the conduct of the corporation as to best sub- 
 ,serve his own interests, and that this may relate to the ceasing to do 
 corporate business, the winding up of its affairs, and the sale of its 
 property, we do not question. But the authorities cited by counsel 
 for appellant (Gamble v. Water Co., 123 N. Y. 91, 25 N. E. 201, 9 L. 
 R. A. 527, and Transportation Co. v. Beatty, E. R. 12 App. Cas. 589) 
 concede that even in such cases the action resulting from such vote 
 must not be so detrimental to the corporation itself as to lead to the 
 necessary inference that the interests of the majority of the share- 
 holders lie wholly outside of, and in opposition to, the interests of the 
 corporation and of the minority of the shareholders, and that their ac- 
 tion is a wanton or a fraudulent destruction of the rights of such 
 minority. ' <■ J' 
 
486 RIGHTS OF STOCKHOLDERS (Ch. 4 
 
 In the cases cited, and, so far as we are informed, in all other cases 
 where the majority of the stockholders may by their votes lawfully 
 affect the interests of the minority of the stockholders, the interests 
 of the minority, are, theoretically at least, protected, either by direc- 
 tors or trustees of the corporation, who it will not be presumed will 
 betray their trust by acting in the interest of one stockholder to the 
 prejudice of another, or by reason of the transaction being such as is 
 presumed to be alike beneficial to all stockholders, as where the cor- 
 porate property is in good faith appropriated to the payment of the 
 corporate debts, or is sold at a fair sale; and ilo case cited or within 
 our knowledge goes to the extent of holding that a majority of the , 
 stockholders may take the property of the corporation, and retain it, 
 if the minority shall elect to deny its right to acquire title to it in that 
 way. Undoubtedly, if in such case the minority of the stockholders 
 shall elect to treat the majority as purchasers, they may do so, and re- 
 quire them to account for the value of the property. Here Springer, 
 who, through Pullman, Hinirod, Hagerty, Cotton, and Cutler, assumes 
 to ratify this sale, is the same Springer who, with ' Needham, is the 
 purchaser of the, property. In other words, he assumes to ratify a 
 sale to himself. But a man cannot be both buyer and seller in the 
 same transaction; and, where he assumes to be such, his action simply 
 amounts to a taking of the property, and would be quite as valid' 
 without as with the circumlocution of the form of a sale through 
 dummies. 
 
 The right of a majority of the stockholders to sell the corporate 
 property can by no reasonable construction be held to involve the right 
 to seize the property to their own use. A sale conducted, as it must 
 be,' fairly and openly, cannot theoretically operate to the prejudice of 
 one stockholder more than to another. There is in such case no pre- 
 sumptive antagonism between the different stockholders. But where, 
 under pretense of a sale to therpselves, the majority seize the prop- 
 erty, and undertake to invest themselves with title, their interests are 
 wholly hostile ; for the gain of the one is the loss of the other. 
 
 It is a general rule, administered by courts of eqiiity, that where 
 one person has the power of disposition of the property of another, 
 without the consent of that other, het shall not be allowed to become 
 personally interested in it himself ; , and this without regard to any 
 question of fairness in the immediate transaction, for he shall not be 
 allowed to occupy a position where self-interest would tempt a be- 
 trayal of duty. This rule is plainly applicable here, and it has been 
 so applied in adjudicated cases. It is said in Cook, Stocks, § 656: 
 "It is illegal and fraudulent for the majority of the stockholders to 
 purchase the- property of the company at a sale authorized by them- 
 selves. Such a purchase by the majority may be set aside in the same 
 way and to the same extent that a purchase of corporate property by 
 a director may be set aside." See, also, 2 Bigelow, Frauds, p. 645, 
 
Sec. 3) POWERS OF MAJOKITT 487 
 
 where it is said: "No act of the majority can purge the fraud" of 
 appropriating the common property to their own benefit by any por- 
 tion of the corporators. And to like effect is the ruling in Meeker v. 
 Iron Co. (C. C.) 17 Fed. 49; Ervin v. Navigation Co. (C. C.) 20 Fed. 
 577. And see, also, Menier v. Telegraph Works, 9 Ch. App. 350; 
 Brewer v. Boston Theater, 104 Mass. 378; Preston v. Dock Co., 11 
 Sim. 327; Hodgkinson v. Insurance Co., 26 Beav. 473; Atwool v. 
 Merryweather, L,. R. 5 Eq. 464, note. 
 
 The action of the board of directors on the 8th of June, as affect- 
 ing the validity of the sale, is not, under the pleadings, properly before 
 us for consideration. Counsel for appellants are mistaken in saying, 
 as they do, that appellee, in his supplemental bill, relies upon it. The 
 allegation of the supplemental bill, to which reference is made, is 
 this, only: "Your orator further shows that a majority of the stock- 
 holders of said corporation having resolved to discontinue the business 
 of said corporation, the directors of said corporation, since the filing 
 of said bill, have ratified such action of the majority of the stock- 
 holders." There is no reference, whatever to the sale of the property. 
 "Such action" means plainly the resolution to discontinue the business 
 of the company. 
 
 We think it unimportant whether the money furnished by Springer, 
 and used by Needham, in purchasing the stock of the corporation and 
 in paying for the property claimed to be purchased from it, was that 
 of Rose Abernethy, as said by Springer, at the time he began negotiat- 
 ing with Needham, or whether, as the evidence strongly tends to 
 prove, it was in fact that of Springer; for in either view the money 
 was furnished and used, as is shown, in performance of the contract 
 between Needharh and Springer, and Rose Abernethy can, therefore, 
 only take subject to that contract, and she must be affected by what- 
 ever has been done by Needham and Springer to acquire title to the 
 property. 
 
 It appears from the evidence that the directors of the corporation 
 were in the interest and under the control of Springer, so that a de- 
 mand upon the corporation to bring suit against him would have been 
 unavailing; and the suit is therefore properly brought by Yerkes. 
 City of Chicago v. Cameron, 120 111. 447, 11 N. E. 899. 
 
 We are unable to perceive any sufficient reason for reversing the 
 decree below. It is therefore afi&rmed.** 
 
 8* Accord: Ervln v. Oregon Railway & Navigation Co. (O. O.) 27 Ted. 625 
 (1886) ; Farmers' Loan & Trust Company v. N. X. & N. R. Co., 150 N. Y. 410, 
 44 N. E. 1043, 34 L. R. A. 76, 55 Am. St. Rep. 689 (1896). 
 
488 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 SIMPSON V. DIRECTORS OF WESTMINSTER PALACE 
 
 HOTEL CO. 
 
 (House of Lords, 1860. 8 H. U Cas. T12.) 
 
 In June, 1857, a company was formed under the provisions of the 
 Joint Stock Companies Act, 1856, to erect and maintain a great hotel 
 for purposes set forth in a prospectus. So far as they are material 
 to be considered in this case, they are the following : The third article 
 of memorandum of association declared that "the objects for which 
 the company is established are the purchase of leasehold lands in the 
 city of Westminster, the erection, furnishing, and maintenance of an 
 hotel thereon, the carrying on the usual business of an hotel and tav- 
 ern therein, and the doing all such things as are incidental or otherwise 
 conducive to the attainment of the above objects." 
 
 The 32d article contained, among others, these terms : "The direc- 
 tors shall, subject to the powers of the general meetings, have the en- 
 tire management of the company, arid they shall have power to enter 
 into, alter, or rescind contracts in such manner as they shall think fit. 
 And also to incur debts in the ordinary course of business, and to 
 issue bills of exchange and promissory notes, and also to advance upon 
 security any money which may be in their hands and not immediately 
 required for the purposes of the company, and generally to do all acts, 
 matters, and things which are necessary for carrying on the business of 
 the company." 
 
 There was a plan of the building issued, and attached to it was the 
 following explanatory note : "There are, therefore, two hundred and 
 fifty-seven rooms for the occupation of visitors, independently of the 
 coffee rooms (one for ladies), arbitration rooms, the library, billiard, 
 and smoking rooms, and the suite intended to be set apart for a pro- 
 posed engineers' club. The grand total, including the offices, being 
 four hundred and fifteen rooms." 
 
 The appellant became a holder of fifty shares in this company. In 
 the early part of 1860, when the building was nearly completed, an 
 offer was made on behalf of Sir C. Wood, then Secretary of State 
 for India, to take on a lease a part of the hotel. For this purpose the 
 proposals stated (article 5)': "The building is to be adapted to the 
 uses of the Secretary of State for India agreeably to the plans of Mr. 
 Wyatt." Article 10 : "The Secretary of State to take for three years 
 certain, with the option on his part only of remaining for one or two 
 years beyond the first three years of occupation. Notice of his inten- 
 tion to exercise or vacate his option must be given by the Secretary of 
 State to the Westminster Palace Hotel Company, six months at least 
 previous to the expiration of the original term of three years." ' 
 
 Article 13 : "The Secretary, of State to afford the Westminster Pal- 
 ace Company, limited, a monopoly (during the tenancy by the Secre- 
 tary of State of the portion of the hotel now agreed for) for the sup- 
 
Sec.:8) POWERS OP MAJOEITT 489 
 
 ply of the premises sboccupied with provisions, beer, wine, liquors, and 
 refreshments, the whole to be supplied of equal quality and at sim- 
 ilar prices to those now sanctioned in her Majesty's Treasury offices; 
 and if in the exercise o'f this monopoly any difference should arise 
 between the parties, the same is to be submitted to the arbitration of 
 Mr. William Moseley and Mr. M. Digby Wyatt, who are previously 
 to proceeding to appoint an umpire to decide any difference which 
 may arise between them." 
 
 And subject to the conditions of the agreement, the Secretary of 
 State for India was to pay an annual rent of £6000. The rent was 
 to commence from the date of hisljeing put into complete possession. 
 The directors accepted these terms. About ''^/iiths of the whole build- 
 ing was thus made the subject of the lease. Differences of opinion 
 arose among the shareholders as to the propriety knd as to the legality 
 of such a disposal of part x>i the hotel, and an extraordinary genera,l 
 meeting of the whole body was held, when the act of the directors 
 was affirmed, upon a poll, by 1690 to 1345 votes. 
 
 The appellant afterwards filed his bill, praying that the agreement 
 rnight be declared invalid, and for an injunction and general relief. 
 Evidence was taken on both sides. The cause was heard on motion 
 for an injunction, which was treated as a hearing on a motion for a 
 decree, and Vice-Chancellor Wood made an ord^r dismissing the bill. 
 On appeal to the Lords Justices, Lord justice Knight Bruce was of 
 opinion that it should be affirmed. Lord Justice Turner thought that 
 an injunction ought to issue. 
 
 The order,; therefore, stood affirmed. The appeal was then brought. 
 
 The Lord Chancellor (Lord Campbell). I think that this case is 
 to be determined on the principle laid down by Mr. Giffard, in his 
 very able argument for the appellant; and I bow to the authority of 
 Natusch V. Irving, and the other decisions to which he referred. The 
 funds of a joint-stock company established for one undertaking cannot 
 be applied to another. If an attempt to do so is made, this act is ultra 
 vires, and although sanctioned by all the directors and by a large ma- 
 jority of the shareholders, any single shareholder has a right to resist 
 it, and a Court of equity will interpose on his behalf by injunction. 
 A railway company cannot apply its funds to make a line of railway 
 different from that described in the Act by which the company was 
 constituted; a company established for granting fire. and life, insurances 
 cannot engage in marine insurances ; a company established to make a 
 railway, and exercise the tradfe' of carriers Upon the line from one 
 town in England to another, cannot add to it the ttaide of a steam 
 packet company ; and no company can ever abandon the business for 
 which it was established, and undertake another. 
 
 Nevertheless, I cannot say that Vice-Chancellor Page Wood and 
 Lord Justice Knight Bruce were wrong in holding that this agreement 
 between the Westminster Hotel Company and the Secretary of State 
 for India is not ultra vires ; for I think that under this agreement the 
 
490 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 directors do not abandon the undertaking for which the company was 
 established, and they cannot be said to engage in any new undertaking. 
 
 I agree that the case depends upon the fair construction of the third 
 article of the Memorandum of Association. ' There is 'a difficulty in 
 saying, that the letting of so large a portion of the hotel to the^Indian 
 Board for so long a time is "carrying on the usual business of an hotel 
 6r tavern therein," but I conceive that it is (in the words of the third 
 article) doing a thing "otherwise conducive to the attainment of the 
 described objects of the undertaking." An hotel, to be used as suth, 
 still remains in the hands of the Company. This hotel is larger than 
 any other hotel in England, and in this portion of the building the 
 usual business of an hotel and tavern is to 'be carried on. Mr. Ellis, 
 the experienced hotel-keeper, who is to carry it on, swears that, in his 
 opinion,' it can be more advantageously carried on in this manner, than 
 if the whole building were from the first put under his management 
 as master of the establishment. I \rely much upon the consideration 
 that the arrangement is temporary and prelihiinary, and conducive to 
 the ultimate object of the whole building being devoted to the proper 
 business of the hotel. From the large rent immediately to be received 
 by the company for the occupation of the one hundred and sixty-nine 
 rooms by the India Board; from the monopoly to be enjoyed by the 
 company in supplying so many persons with refreshments; and from 
 the fashionable reputation to be conferred upon the hotel by this as- 
 sociation, the opinion expressed by the majority of the shareholders, 
 that the arrangement is beneficial to them, is likely to be verified. 
 This anticipation would not be sufficient, if the original undertaking 
 had been abandoned, or if there was any extension of the original 
 undertaking ; , but as there is neither abandonment nor extension of 
 the original undertaking, and the arrangement may assist, instead of 
 obstructing the prosecution of the original undertaking, I must "advise 
 your Lordships to affirm the decree appealed against. 
 
 Should your Lordships concur in this opinion, I would farther advise 
 that the appeal be dismissed without costs ; for the appellant like the 
 respondents, appears to have acted with perfect good faith ; and con- 
 sidering the division of opinion in the first Court of Appeal to which 
 he resorted, he was fully justified in bringing the question to be de- 
 termined by your Lordships. 
 
 Decree affirmed.'" 
 
 88 The concurring opinions of Lords Cran worth, Chelmsford, and Kings- 
 down have been omitted. 
 
Sec. 2) POWERS OF MAJOEITY 491 
 
 NEW ORLEANS, J.y& G. N. R. CO. v. HARRIS. 
 (High Court of Errors and Appeals of Mississippi, 1854. 27 Miss. 517.) 
 
 A charter to construct a railroad was granted by the legislature of 
 the state to a company styled the Canton, Kosciusko, Aberdeen & 
 Tuscumbia Company. After the granting of said charter, the legisla- 
 ture passed an act which authorized the company to assign to the New 
 Orleans, Jackson & Great Northern Railroad Company all the rights, 
 powers, privileges,' franchises, immunities and exemptions then owned 
 and possessed by said company, by virtue of their charter, and of any 
 other act passed by the legislatures of the states of Mississippi and 
 Alabama, as well as the stock subscribed to the first named company 
 upon such terms as should be agreed on by the boards of directors of 
 both companies. By a provision to this act it was not to take efifect 
 unless accepted and approved by the stockholders representing a ma- 
 jority of the stock subscribed to said company, at a meeting of the 
 stockholders called specially for that purpose. Such a meeting was 
 called and the act was accepted and approved accordingly. In accord- 
 ance with such action a transfer was duly made. The defendant was a 
 subscriber to the iirst company. To a complaint in an action brought 
 against the defendant as a stockholder in the New Orleans, Jackson 
 & Great Northern Railroad Compiany 'for unpaid calls, alleging |;he 
 foregoing facts and the further fact that the assignment was made 
 with the knowledge and consent of the defendant, the defendant de- 
 murred. The demurrer being sustained, and the plaintiffs refusing to 
 plead further, final judgment was rendered in favor of the defendant, 
 whereupon the plaintiffs sued out their writ of error."" 
 
 Smith, C. J.°' * * * The object of the transfer and assign- 
 ment, and the agreement entered into by the respective companies, 
 and the necessary effect of these transactions, on the supposition of 
 their validity, was to make the defendajut, to all intents and purposes, 
 a stockholder in the New Orleans, Jackson, and Great Northern Rail- 
 road Company; to vest him with all the rights and immunities, and 
 to subject him to all the duties and responsibilities which attached to 
 that relation. If the transfer and assignment were valid, the defend- 
 ant thereby became boundl for the payment of his stock to the plain- 
 tiffs, and his liability is sufficiently alleged in the first count of the 
 complaint. 
 
 Our inquiry, therefore, must necessarily, in the first place, be di- 
 rected to the authority and power of the respective companies, as 
 defined jn the acts of incorporation; to the capacity of the one to 
 make the transfer and assignment; and to that of the other, to ac- 
 cept of it. 
 
 86 A short statement of facts, taken largely from the headnotes, has been 
 substituted for that contained la the opinion. 
 
 87 Part of the opinion is omitted. 
 
492 EIGHTS OF STOCKHOLDERS (Gh. 4 
 
 It is very manifest that if neither corporation possessed the .req- 
 uisite authority and power to make the transfer and assignment 
 valid and effective, the whole transaction was simply void. No rights 
 were either transmitted or acquired under it. Upon the supposition 
 that the transfer and assignment were void for the want of power 
 in the parties to it, it is clear that the assent of the defendant to the 
 transfer could not have the effect to render him liable to the plain- 
 tiffs upon the facts alleged in the second count of the complaint. As 
 the very foundation of the asserted claim was, that by virtue of the 
 transfer and assignment, the corporate existence of the Canton, Kos- 
 ciusko, Aberdeen, and Tuscumbia Railroad Company, was put an 
 end to, and that the New Orleans, Jackson, and Great Northern Rail- 
 road Company were invested, fully and to the same extent, with all 
 its rights, immunities, and franchises, as the same were heldl and 
 possessed by it before the transfer; and that being so invested with 
 said rights, immunities, and franchises, they were authorized to de- 
 mand and recover the claim in controversy. But if the objection, based 
 upon the want of power in these corporations, shall be found not to 
 apply to the former, it will be necessary to determine whether the as- 
 sent given to the transfer by the defendant, made him liable upon the 
 said second count in the complaint. 
 
 It is not controverted that the Canton, Kosciusko, Aberdeen, and 
 Tuscumbia Company, under its. charter, granted on the '3d of April, 
 1852, were incapable of making the alleged transfer and assignment. 
 But it is insisted, that ample power and authority for that purpose was 
 conferred by the act of the legislature of this State, approved on the 
 9th of October, 1852. 
 
 By reference to this act it will be seen that by the first section the 
 said company were authorized and empowered to assign, transfer, and 
 set over to the New Orleans, Jackson, and Great Northern Railroad 
 Company, all of the rights, powers, privileges, franchises, immunities, 
 andl exemptions (then) owned and, possessed by said company by vir- 
 tue of their charter and of any other acts passed by the legislatures of 
 the States of Mississippi and Alabama, as well as the stock subscribed 
 to said company, upon such terms and conditions as should be agreed 
 upon by the board of directors of the said companies. By a proviso 
 the said act "was not to take effect unless accepted and approved by 
 the stockholders representing a majority of the, stock subscribed to 
 said company at a meeting of stockholders called specially for that 
 purpose." It was alleged in the complaint that this act was duly ac- 
 cepted and approved in the mode prescribed. 
 
 It will not be questioned, if it was within the competency of the leg- 
 islature to direct in what manner the proposed amendment of their 
 charter was to be approved and accepted by the stockholders, that the 
 power conferred under the dct was altogether sQfficient to authorize 
 the contemplated transfer and assignment. 
 
Sec. 2) POWERS OF MAJORITY . 493 
 
 If the legislature pbssesSed; the iauthority t6 confer tfpotfany fiurtib^r 
 of the stockboldlers in said company, who might, be the owners of a 
 majority of the stock, the power to accept any proposed amendments 
 to the charter, and by such acceptance to bind the . remainder of the 
 stockholders, it might with equal propriety, so far as the isolated' ques- 
 tion of power was concerned, delegate the same right to a minority, 
 owning but a small proportion of the stock, or to any specified number 
 less than a majority, or even to a single corporator. A charter is a 
 contract, within the meaning of the constitution of the United States, 
 between the State granting the charter and the corporation itself, the 
 obligation of which it is not within the power of the legislature to 
 impair. The contract subsisting between the members of a corporate 
 bodly and the corporation is equally within the protection of the con- 
 stitution. According to the doctrine that the legislature had the right 
 to confer upon any number of the stockholders, who might own more 
 than one half of the stock subscribed, the authority to accept of amend- 
 ments to the charter, it is evident that the charter might be altered 
 in its most essential stipulations, not only without the approbation but 
 against the consent of the great body of the corporators, thereby sub- 
 jecting them to duties and responsibilities not imposed! by their contract 
 with the company. This, we think, cannot be done without a clear 
 violation of the constitution. Hence, we conclude that the act in ques- 
 tion did not invest the stockholders representing a majority of the 
 stock subscribed with authority to accept the amendment proposed to 
 the charter. 
 
 The charter is silent as. to the method in which amendlments thereto 
 may be accepted by the stockholders. But it will not be questioned, 
 that the power to accept of any alterations and amendments to the 
 charter, proposed by the legislature, and which may be deemed by 
 the members necessary or beneficial, exists, whether such power be 
 regarded) as incident to their corporate character, or as belonging to 
 them as members of the community. Disregarding, therefore, the 
 provision directing the mode in which the amendatory act was to be 
 approved and accepted, we come to the question, Whether the accept- 
 ance of the amendment, as alleged, was a valid act, binding the com- 
 pany ? 
 
 . Incorporated companies are subject to the same principle which pre- 
 vails in the community at large, that the acts of the majority, in cases 
 within their charter powers, are obligatory on the minority. The gen- 
 eral rule on the subject is well expressed by Ch. J. Tilghman^ He 
 says: the fundamental principle of every association for self-govern- 
 ment is, that no one shall be bound, except with his own consent, exr 
 pressed by himself or by his representatives ; but actual assent is im- 
 material; the assent of the majority being the assent of all; and, this 
 is not only constructively but actually true ; for that the will of the 
 majority shall in all ciases be taken as the will of". the whole is an im- 
 plied, but an essential .stipulation, in all associations of this sort. In 
 
i94 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 re St. Mary's Church, 7 Serg. & R. [Pa.] 517. When the charter has 
 made no provision on the subject, this is unquestionably the rule, in 
 regard! to all acts authorized by the funjlamental -law, performed in 
 execution of the objects of the incorporation. But it cannot be said 
 that the acceptance of the amendatory act was a matter connected with 
 the business, or designed to promote or carry into effect the objects 
 for which the company was chartered. On the contrary, it looked to 
 the destruction of its franchises and the utter extinction of its cor- 
 porate existence. And this object was to be effected not by a sur- 
 render, in which case the primary objects of the incorporation would 
 be abandoned, and the stockholders discharged of their corporate du- 
 ties and liabilities; but by an assignment and transfer, to another com- 
 pany, of its immunities, franchises, and of the stock subscribed; under 
 the operation of which the stockholders would, also, be transferred 
 and subjected to the performance of contracts to which they had never 
 assented. Here it is^manifest the general rule in regard to acts per- 
 formed within the scope of the charter powers, dbes not ^pply. A 
 different principle must be resorted to in order to uphold, if it can be 
 sustained, the position that the alleged approval and acceptance bound 
 the company. 
 
 The rule is unquestioned that, in partnerships and joint-stock as- 
 sociations, the fundiamental articles of copartnership or association 
 cannot be altered by a vote of the majority against the consent of the 
 minority, unless there is an express or implied provision in the articles 
 themselves, that th^ may do it. Natuzeh v. Irving et al., Gow on 
 Part. 576; Livingston v. Lynch, 4 J. Ch. R. [N. Y.] 573. This prin- 
 ciple is equally applicable to incorporated companies. The charter in 
 these cases constitutes the fundamental articles of the association. 
 It defines the rights and powers of the corporation, determines its ob- 
 jects, and fixes the individual contract of the member with the corpora- 
 tion itself. His contract is as clearly defined as the charter can make 
 it. It must be conceded, that the legislature have no constitutional 
 power, unless reserved in the grant, to. change or alter, without con- 
 sent, an act of incorporation, and thereby to cast upon them additional 
 obligations, or take from them rights guaranteed by their charter. Its 
 power over the corporator can be no greater; it can impose no ad- 
 ditional obligation without his assent; or release him from any duty, 
 against the will of the party thereby to be affected. In what respect 
 can the power of a majority of a corporation transcend the authority 
 of the legislature? He must have as perfect a right to stand upon his 
 contract with the corporation in opposition to the action of a majority, 
 as he would to insist upon his rights under it against the action of the 
 legislature. This is a proposition too clear to be doubted, in all cases 
 in which there is no stipulation, express or implied: that he shall be 
 bound by the voice of the majority. 
 
 The incapacity of the majority to alter, fundamentally, the charter 
 against the consent of even a single corporator, was recognized by the 
 
Sec. 2) POWERS OF MAJOKITT 495 
 
 vice-chancellor in the case of Cunlif v. The Manchester and Bolton 
 Canal Company, 13 Eng. Ch. R. 131, note. In that case an injunction 
 was granted upon the application of a single shareholdler in an incor- 
 porated company, restraining the company from affixing their corpo- 
 rate seal to a petition to parliament for an act to convert a part of the 
 canal into a railway, and from using the corporate funds for that pur- 
 pose. So in Manly against the same company, an injunction was grant- 
 ed for a similar purpose. lb. 132. So also in Ware v. The Grand 
 Junction Water Company, 2 Russ. & Mylne, 461, the same principle, 
 was applied to a corporation upon tha application of a single share- 
 holder. It is true, on appeal, the injunction granted by the vibe-chan- 
 cellor was dissolved by Lord Brougham, so far as the company were 
 restrained by it from petitioning parliament for an act to authorize the 
 contemplated change in the charter. But the decision of the lord chan- 
 cellor cannot be considered here as an authority against the principle 
 contended for, as his decree seems to have been based upon the ground 
 that the alteration, if made, would not affect, radically, the organiza- 
 tion of the company, or upon the ground that the power of parliament 
 over the subject was unrestricted. To the same effect is the very 
 learned and able opinion of the chancellor, delivered in the recent case 
 of Stevens v. Rutland & Burlington Railroad Company, 1 Am. Law 
 Reg. 154. 
 
 There can be no doubt, under the uniform decisions of the courts 
 in this confederacy, that the acceptance of the amendatory act, in the 
 manner it was averred to have been made, could not bind the stock- 
 holders who did not assent to it. But the question is not one of as- 
 sent, as applied to the individual corporators, but one of power in the 
 stockholders possessing a majority of the stock to accept a legislative 
 amendment which would produce a fundamental change in the stipula- 
 tions of the charter. The amendatory act imposed no obligation upon 
 the company. It vested in the corporation no right which it did not 
 possess under its charter. It amounted simply to a legislative per- 
 mission to accept the amendment, if it should choose to do so, and 
 could consistently with its charter rights and obligations. No case 
 has been brought to our attention, in which it was directly decided that 
 the acceptance of an amendment of this character, by a majority of 
 the corporators, was absolutely void as to the corporation itself. In 
 all the cases we have examined, the decision turned upon the question 
 of the individual consent of the party charged or affected by^ the alter- 
 ation. Generally, an act performed without any authority whatever is 
 absolutely void. The principle applied to corporations is, that they 
 possess only the powers which are specifically granted by the act of 
 incorporation, and such as are necessary to carry into effect the pow- 
 ers expressly granted. 2 Kent, Com. 298. 
 
 In this case it is not pretended that the stockholders representing a 
 majority of the stock were expressly, under the charter, vested with 
 the power to accept of amendments thereto of the character of that 
 
i96 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 under consideration ; and it is impossible to conceive that it existed on 
 the part of even a majority of the whole of the stockholders, as an 
 implied right. Such a doctrine is repugnant to the principles of sound 
 sense and common justice. When a person becomes a member of an 
 incorporated company by his subscription to the stock, he agrees to 
 be boundl by the terms of his contract, as defined in the charter of in- 
 corporation ; he agrees to be bound by the acts of the corporation and 
 its officers, performed within the scope of the charter powers; but 
 upon no principle can it be held that he impliedly consents to any al- 
 teration which would work a radical change in the structure of the as- 
 sociation, which might be voted or accepted by even a majority of the 
 whole of the corporators, and thereby be subjected to burdens and ob- 
 ligations wholly foreign to the purposes and objects of the original 
 charter. It is our opinion, therefore, that the act of acceptance was 
 absolutely void for want of power on the part of the stockholders rep- 
 resenting a majority of the stock to vote an acceptance of the amend- 
 atory act. It follows hence that the transfer and assignment were 
 also void and ineffectual. 
 
 But it is insisted that the defendant is bound by his assent to the 
 transfer and assignment, and that the plaintiffs were entitled to a re- 
 covery upon the second count. 
 
 The ground upon which he must be held liable, if bound at all, is 
 that by virtue of his subscription to the stock of the Canton, Koscius- 
 ko, Aberdeen, and Tuscumbia Railroad Company, he became bound 
 to pay the calls upon his stock, as alleged, to said company; that his 
 stock and his incidental obligation, together with the rights, immu- 
 nities, and franchises of the company were transferred to the New Or- 
 leans, Jackson, and Great Northern Railroad Company ; and that, un- 
 der the operation of the assignment, the. defendant became a stock- 
 holder in said company to the amount of his subscription to the stock 
 of the former company, and as such is liable. 
 
 Upon the principle laid down in regard to the assignment, it is 
 clear that the rights of neither party to it were in anywise affected 
 The act of transfer was void; the assignors parted with no right or 
 immunity; the assignees acquired nothing. The defendant remained 
 a stockholder in the company for whose stock he had subscribed, and 
 as such was liable to the same extent after the attempted transfer as 
 before the attempt was made. It is impossible to conceive that the as- 
 sent of the defendant could bind him, unless his assent to the transfer 
 rendered it effectual for the pdrposes intended, or unless upon some 
 consideration passiilg from the assignees to him, outside of the trans- 
 fer, he should be estopped from denying its validity.' The only con- 
 sideration, or in other words, the only ground for his liability alleged 
 was, that the transfer in law and in fact madle him a stockholder in 
 the company to the extent of his subscription to the stock in the Can- 
 ton, Kosciusko, Aberdeen, and Tuscumbia Company. It was not aver- 
 red that he became a stockholder in any other way than through 
 
Sec. 2) POWERS OF MAJOKITT 497 
 
 the said assignment and transfer, made with his' knowledge, approba- 
 tion, and consent. His assent did! not and could not impart validity 
 to a transaction in itself void. This, we presume, will not be con- 
 troverted. He did not therefore become, in virtue of the transfer and 
 assignment, a stockholder in the company suing in this action ; conseT 
 queritly, no sufficient ground was shown in either count, whereon the 
 defendant was chargeable.** 
 Judgment affirmed. 
 
 MOWE;r v. staples et al. 
 (Supreme Court of Minnesota, 1884. 32 Minn. 284, 20 N. W. 225.) 
 
 B^RRY, J.*» By Sp. Laws 1876, § 3, c. 230, it is provided that the 
 board of directors of the St. Croix Boom Corporation shall consist of 
 five members. The section was amended by section 1, c. 87, "Sp. 
 Laws 1883; so as to provide that the board of directors shall consist 
 of nine members. 
 
 The charter of a private corporation being a contract between 
 the state and the corporators, and between the corporators therri- 
 selves, (Mor. Priv. Corp. §§ 149, 198,) and therefore constitutionally 
 protected from impairment against the will of the corporators, it is 
 not questioned that, to become binding and effectual, an amendment 
 must be accepted on their part. This general proposition is, to some 
 extent, subject to an exception in favor of the right of the state to 
 amend a charter under an express reservation of authority to do so, 
 or in the exercise of its police power. 
 
 The question presented by this case is whether the legislative 
 amendment increasing the directors from five to nine can be effec- 
 tually accepted so as to become a part of the charter, by a majority 
 of the stock, (each share being entitled to one vote under the char- 
 ter,) over the objection of a minority. We are of opinion that this 
 .question is to be answered in the affirmative. Without exception, so 
 far as we have been able to discover, the courts, and, with a single 
 exception, the text-writers, are agreed that alterations in a charter 
 which are not "fundamental," and are authorized by the legislature, 
 may, be effectually accepted by a majority of the stockholders. By 
 a niajority of stockholders we understand a majority per capita, when 
 the right to vote is per capita, and a majority of the stock, where, 
 as in the present instajice, each share of stock is entitled to one vote. 
 Alterations which materially change the nature and purposes of the 
 
 8s Accord: Byrne v. Schuyler Electric Mfg. Co., 65 Conn. 336, 31 Atl. 833, 
 28 L. R. A. 304 (1894) ; Stevens v. Rutland & B. R. Co., 29 Vt. 545 (1851). 
 
 Comparei Bish v. Johnson, 21 Ind. 299 (1863); Mowrey v. Indianapolis & 
 C, R. Co., 4 Biss. 78, Fed. Gas. No. 9,891 (1866) ; Dow v. Northern Ry. Co., 67 
 N. H. 1, 36 Atl. 510 (1886). 
 
 «» Dickinson, J., because of Illness, took no part in this decision. ' ' ' 
 
 RiCH.OoBP. — 32 
 
498 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 corporation, or of the enterprise for the prosecution of which it 
 was created, are fundamental, while those which work no such ma- 
 terial change are not fundamental. 
 
 In support of these propositions we cite the following authorities: 
 H. & ISF. H. R. Co. V. Croswell, 5 Hill (N. Y.) 383, 40 Am. Dec. 
 354; Stevens v. R. & B. R. Co., 29 Vt. 546; Curry v. Scott, 54 Pa. 
 270; K. R. & R. I. R. Co. v. Marsh, 17 Wis. 13; Pierce, R. R. 66 
 et seq. ; Nugent v. Sup'rs, 19 Wall. 241,' 22 L. Ed. 83 ; Everhart v. 
 W. C. & P. R. Co., 28 Pa. 339; N. H. & D. R. Co. v. Chap- 
 man, 38 Conn. 56; Joy v. J. & M. Plank-road Co., 11 Mich. 156; 
 Clearwater v. Meredith, 1 Wall. 25, 17 L. Ed. 604; Union Locks & 
 Canals v. Towne, 1 N. H. 44,. 8 Am. Dec: 32 ; Martin v. Railroad 
 Co., 8 Fla. 382, 73 Ana. Dec. 713; Witter v. M., O. & R. R. R. Co., 
 20 Ark. 463 ; Hester v. M. & C. R. Co., 32 MiSs. 378 ; Winter v. 
 Muscogee R. Co., 11 Ga. 438; Hoey v. Henderson, 32 La. Ann. 
 1069; Banet v." Alton & S. R. Co., 13 111. 504; Zabriskie v. H. & N. 
 Y. R. Co., 18 N. J. Eq. 178, 90 Am. Dec. 617; Mowrey v. I. & C. 
 R. Co., 4 Biss. 78, Fed. Cas. No. 9,891 ; Field, Corp. §§ 81, 388. 
 
 The principle upon which these cases appear to go is that altera- 
 tions, or, as they are sometimes called, amendments-, which do not 
 change the nature, purpose, or character of a corporation or its en- 
 terprise, but which are designed to enable the corporation to con- 
 duct its authorized business with greater facility, more beneficially, 
 or more wisely, are auxiliary to the original object, and that, there- 
 fore, when one becomes a stockholder, he impliedly assents that such 
 alteration or amendment may be made. Stevens v. Railroad Co., su- 
 pra; N. H. & D. R. Co. V. Chapman, supra; Banet v. A. & S. R. 
 Co., supra ; H. & N. H. R. Co. v. Croswell, supra ; Kenosha R. Co. v. 
 Marsh, supra; Joy v. J. & M. Plank-road Co. supra. We may add, 
 what appears to be an obvious consideration, that, if no alteration or 
 amendment of a corporate charter can be made even in matters of ad- 
 ministrative detail, or as to the means and agencies through which the 
 corporate enterprise shall be carried on except with the consent of ev- 
 ery stockholder, the result would be not only great public and private 
 inconvenience, but, in many cases a complete practical failure of the 
 enterprise itself. Certainly this is not in accordance with the un- 
 derstanding nor the practice of the courts, of the profession, or of 
 those who have been engaged in carrying on our great corporate un- 
 dertakings. 
 
 The alteration proposed in the present case, by increasing the nurn- 
 ber of directors from five to nine, is clearly not fundamental, with- 
 in the definition above given and sanctioned by the authorities cited. 
 It in no way changes the nature or purpose of the boom company, 
 or of the enterprise for which it was created. It is a change respect- 
 ing modus operandi merely; a change, not of the nature or purpose 
 or character of the company, or of the company's enterprise, but a 
 
Sec. 3) EHPRBSBNTATIVB SUITS 499 
 
 change of the instrumentalities and agency, — the machinery by which 
 that purpose is to be effected and that enterprise carried on. 
 
 Everhart v. W. C. & P. R. Co., supra, was a case in which a 
 charter amendment providing for the election of three additional 
 managers, i. e., directors, was upheld. N. H. & D. R. Co. v. Chap- 
 man, supra, was a casd of an amendment authorizing two of the di- 
 rectors to be appointed by the city of New Haven a subscriber for 
 stock. Joy V. J. & M. Plank-road Co., supra. 
 
 It is argued that if the four additional directors are elected it will 
 be in the power of the board, and the board will manage the busi- 
 ness of the corporation for the .private advantage of some of the di- 
 rectors, and against the interest of the corporation and of the stock- 
 holders, and particularly of this plaintiff. We see no reason why this 
 might not be done with five, the present number of directors. The 
 plaintiff owns a little over one-third of the shares. Although this 
 makes him a large stockholder, he is still in the minority. But the 
 danger apprehended is cc»nmon to all corporations, and the. remedy 
 lies, not in withholding the power to make amendments to the char- 
 ter, but in enforcing the responsibility of the directors for abuse of 
 trust. They have no right to run the corporation for the individual 
 benefit of any of their number, to, the detriment of the stockhojders, 
 and if they do or attempt to do this, the law furnishes a remedy, as 
 in other cases of abuse of -trust or disregard of legal duty. Pierce, 
 R. R. 43, and cases cited; Ewell's Evans, Ag. [276.] 
 
 For these reasons we think it is competent for the majority of the 
 stock of the St. Croix Boom Corporation to effectually accept the ' 
 amendment increasing the number of directors from five to nine, and 
 the order dissolving the temporary injunction obtained is accordingly 
 affirmed. 
 
 SECTION 3.— REPRESENTATIVE SUITS 
 
 SMITH V. HURD. 
 
 (Supreme Judicial Court of Massachusetts, 1847. 12 Mete. 371, 46 Am. Dec. 
 
 690.) 
 
 This was a special action on the case, by a stockholder of the 
 Phoenix Bank, against those who were directors of the said bank, 
 for several years next before and at the time of the failure of said 
 bank, in October, 1842. There were two counts; one founded in 
 nonfeasance of official duty, the other in misfeasance. * * * 
 
 The defendants demurred to the declaration, and the plaintiff 
 joined in demurrer.** 
 
 *o Part of the statement of facts Is omitted. 
 
500 RIGHTS OF STOCKHOLDERS [(Ch, 4 
 
 Shaw," C. J. This is certainly a case of first impressidn. We afe 
 not aware that any similar action has been sustained in England, or 
 in any of the courts of this country. It is founded on no statute. 
 It is an action on the case, at common law, brought by an individual 
 holder of shares in an incorporated bank, against the directors, not 
 including the president, setting forth various acts of negligence and 
 malfeasance through a series of, years, in consequence of which, as 
 the declaration alleges, the whole capital of the bank was wasted 
 and lost, and the shares of the plaintiff became of no value. The 
 circumstance that no such action has been maintained would cer- 
 tainly be no decisive' objection, if it could be shown to be maintain- 
 able on principle. But the fact, that similar, grievances have existed 
 to a great extent, and in numberless instances, where such , an ac- 
 tion would have presented an obvious and effective remedy, af- 
 fords strong proof, that in the view of all such suffering parties, and 
 their legal advisers and guides, there was no principle on which 
 such an aqtion can be maintained. 
 
 If an action can be brought by one stockholder, it may be brought 
 by the holder of a single share; so that for one and the same de- 
 fault of these directors, thirty-fiv6 hundred actions might be brought. 
 If it 'may be sustained by proof of an act, or series of acts, of care- 
 lessness, neglect, and breach of duty in managing the affairs of the 
 bank, by which the whole value of the steck is destroyed, it may, on 
 the same principle, be maintained on any act or instance of such 
 negligence, by which the shares are diminished in value, fifty, ^n, 
 five or one per cent. Still, notwithstanding these consequences, if 
 the plaintiff has a good right of action, upon recognized and sound 
 legal principles, .his action ought to be sustained. 
 
 But the court are of opinion that the action cannot be maintained; 
 and that on several grounds, a few of the more prominent of which 
 may be alluded to. 
 
 1. There is no legal privity, relation, or immediate coiijiection, be- 
 tween the holders of shares in a bank, in their individual capacity, 
 on the one side, and the directors of the bank on the other. The di- 
 rectors are not the bailees, the factors, agents, or trustees of such 
 individual stockholders. The bank is a corporation and body politic, • 
 having a separate existence as a distinct person in law, in whom 
 the whole stock and property of the bank are vested, and to whom 
 all agents, debtors, officers, and servants are responsible for all con- 
 tracts, express or implied, made in reference to such capital, and 
 for all torts and injuries diminishing or impairing it. The very pur- 
 pose of incorporation is, to create such legal and ideal person in law, 
 distinct from all the persons composing it, in order to avoid the ex- 
 treme diificulty, and perhaps it is not too much to saly the utter 
 impracticability, of such a number of persons acting together in their 
 individual capacities. The practical difficulty would be nearly as 
 
Sec. 3) REPRESENTATIVE SUITS 501 
 
 great whether it were held that all must join in an action to recover 
 damage for an injury to the common property, or that each might 
 sue separately. 
 
 The stockholders do, indeed, ordinarily elect the directors ; but it 
 is as parts and members of the corporation, in their corporate capac- 
 ity, in modes pointed out by the charter and by-iaws, so that the 
 directors are the appointees of the corporation, not of the individ- 
 uals. Indeed, I believe there is a provision in the bank charters 
 — there certainly was formerly — which is equally to the present pur- 
 pose; namely, that the Commonwealth shall be at liberty to add 
 a certain amount .to the capital of various banks, and' appoint a 
 proportional number of directors. Such directors, so appointed, pur- 
 suant to the charter regulating the legal organization of the body, 
 would stand in all respects on the footing of directors chosen by 
 the stockholders. If these were liable to the action of individual 
 stockholders, those would be in like manner. 
 
 2. The individual members of the corporation, whether they should 
 all join, or each act severallyj have no right or power to intermeddle 
 with the property or concerns of the bank, or call any officer, agent, 
 or servant to account, or discharge them from any liability. Should 
 all the stockholders join in a power of attorney to any one, he could 
 not take possession of any real or personal estate, any security or 
 chose in action; could not collect a debt or discharge a claim, or 
 release damage arising from any default; simply because they are 
 not the legal owners of the property, and damage done to such propt- 
 erty is not an injury to them. Their rights and their powers are lin> 
 ited and well defined. They are members of an organized body, 
 and exercise such powers as the organization of the institution gives 
 them. Stockholders in banks have a separate right to dividends, 
 when declared, and to a distributive share of the capital stock, if any 
 remains when the charter of the bank is at an end, and its debts 
 paid. 
 
 3. But another irnportant consideration is, that the injury done to 
 the capital stock, by wasting, impairing, and diminishing its value, 
 is not, in --the first instance, nor necessarily, a damage to the stock- 
 holders. All sums which could, in any form, be recovered on that 
 ground, would be assets of the corporation, and when collected and 
 received by directors, receivers, or any other persons entitled to re- 
 ceive the same, they would be held in trust, first to redeem the bills 
 and pay the debts of the bank; and it would be only after these debts 
 were paid, and in case any surplus should remain, that the stock- 
 holders would be entitled to receive anything. It is, therefore, ah 
 indirect, contingent, and subordinate interest, which each stockholder 
 has, in damages so to be recovered against directors. If, upon such 
 indirect, contingent, and remote interest, individual stockholders could 
 recover for the defaults of directors, and especially, as is alleged in 
 
502 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 this case, where these defaults have been so great as to sink the 
 capital, a fortiori would the creditors of the bank individually have 
 a right to maintain similar actions; because their claim upon the 
 funds, being prior to that of stockholders, would be somewhat more 
 immediate and direct. 
 
 In the same connection, it is obvious to remark, that a judgment 
 in favor of one stockholder would be no bar to an action by a cred- 
 itor, nor a judgment by both, to an action by the corporation. 
 
 4. But it is said, that although the real and personal estate, the^ 
 securities and capital stock, are, in legal contemplation, vested in the 
 corporation, yet the individual has a separate and distinct property 
 and interest in his particular shares, by any injury to which he may 
 have a separate damage. To some extent, it is true that he has a 
 several interest in his shares; but it is to be taken with some qualifi- 
 cations. Strictly speaking, shares in a bank do not constitute a legal 
 estate and property; it is rather a limited and qualified right which 
 the stockholder has to participate, in a certain proportion, in the 
 benefits of a common fund, vested in a corporation for, the common 
 use; it is a qualified and equitable interest, a valuable interest' mani-, 
 fested usually by a certificate, which is transferable. To th^ extent 
 of this seijarate and peculiar interest, a stockholder, no doubt, might 
 maintain his separate and special action, according to the nature of 
 the wrong done to him in respect to it ; as trover or trespass, for the 
 conversion or tortious taking of his certificate; trespass on the case 
 for refusing to make a transfer on a proper occasion ; assumpsit for a 
 dividend declared, and the like. But an injury done to the stock and 
 capital, by negligence or misfeasance, is not an injury to such sepa- 
 rate interest, but to the whole body of stockholders in common. It 
 is like the case of a common nuisance, where one who suffers a 
 special damage, peculiar to himself, and distinguishable in kind from 
 that which he shares in the common injury, may maintain a special 
 action. Otherwise, he cannot. Co. Lit. 56a; 3 Steph. N. P. 2372; 
 Lansing v. Smith, 8 Cow. (N. Y.) 146. 
 
 But we are pressed with the argument, that for every damage 
 which one sustains, yvhich is caused by the wrongful act of another, 
 he ought to have a remedy. This is far from being universally true. 
 Another maxim in regard to claims for damage is, causa proxima, 
 non remota, spectatur. Thousands of instances occur, in which one 
 sustains consequential and incidental damage from the niisconduct of 
 another, without a remedy at law. By the misconduct of the officers 
 or agents of a parish, town, county, or even of the State or the Un- 
 ion, defalcations may take place, treasure be squandered and wasted/ 
 and all the members of the respective aggregate bodies suffer dam- 
 age,- for which the law, from the nature of the case, can afford no 
 direct remedy. But the true answer to the objection is, that stock- 
 holders have a remedy, a theoretic one indeed, and perhaps often in- 
 
Sec! 3) EEPRBSBNTATIVB SUITS 503 
 
 adequate, in the power of the corporation, in its corporate capacity, 
 to obtain redress for injuries done to the common property, by the 
 recovery of damages; and each individual stockholder has his rem- 
 edy through the powers thus vested in the corporation, for the com- 
 mon benefit. 
 
 On the whole, the court are of opinion that the demurrer is well 
 taken, and that the action cannot be maintained. 
 
 DODGE V. WOOLSEY. 
 (Supreme Court of the United States, 1855. 18 How. 331, 15 L. Ed. 401.) 
 
 This action was begun by bill in equity in the United States circuit 
 court for the district of Ohio to enjoin the collection of a tax assessed 
 by the State of Ohio on the Commercial Branch Bank of Cleveland, a 
 branch of the State Bank of Ohio. The complainant, who was a 
 citizen of Connecticut, was a stockholder in the Branch Bank. He 
 made George C. Dodge, the tax collector, the directors of the bank, 
 and the bank itself defendants. The bill alleged that the law authoriz- 
 ing the tax was unconstitutional, in that it violated the tenth section 
 of the first article of the Constitution of the United States, which de- 
 clares that no state shall pass any law impairing the obligation of a 
 contract. The bill further alleged, and the truth of the allegation was 
 admitted, that the complainant had requested the directors of the bank 
 to take measures, by suit or otherwise, to prevent the collection of the 
 tax, but that they had refused to do so. This refusal was based upon, 
 the alleged existence of obstacles in the way of testing the law in the 
 state courts. 
 
 The defendant Dodge alone answered. The circuit court rendered a 
 final decree for the complainant, perpetually enjoining the collection of 
 the tax. From that decision the defendant Dodge appealed to the Su- 
 preme Court.*^ 
 
 Wayne, ].*" * * * His counsel have relied upon the following 
 points to sustain the appeal : 
 
 1. The complainant does not show himself to be entitled to relief in 
 a court of chancery, because the charter of the bank provides, that its 
 affairs shall be managed by a board of directors, and that they are not 
 amenable to the stockholders for an error of judgment merely. And 
 that in order to make them so, it should have been averred that they 
 were in collusion with the tax-collector in their refusal to take legal 
 steps to test the validity of the tax. 
 
 2. It was urged that this suit had been improperly brought in the 
 circuit court of the United States for the district of Ohio, because it 
 is a contrivance to create a jurisdiction, where none fairly exists, by 
 
 *i Statement of facts substituted. 
 *2 Part only of the opinion is given. 
 
504 EIGHTS OF STOCKHOLDBES (Ch. 4 
 
 substituting an individual stockholder in place of the Commercial 
 Bank as complainant and making the directors defendants ; the stock- 
 holder being made complainant, because he is a citizen of the State 
 of Connecticut, and the directors being made defendants to give coun- 
 tenance to his suit. 
 
 3. It was said, if the foregoing points were not available to defeat 
 the action, that it might be contended that the defendant was in the 
 discharge of 'his official duty when interrupted by the mandate of the 
 circuit court, and that the tax had been properly assessed by a law of 
 the State, in conformity with its constitution of the 1st of Septem- 
 ber, 1851. 
 
 We will consider the points in their order. The first comprehends 
 two propositions, namely: that courts of equity have no jurisdiction 
 over corporations, as such, at the suit of a stockholder for violations 
 of charters, and none for the errors of judgment of those who man- 
 age their business ordinarily. 
 
 There has been a conflict of judicial authority in both. Still, it 
 has been found necessary, for prevention of injuries for which com- 
 mon-law courts were inadequate, to entertain in equity such a juris- 
 diction in the progressive development of the powers and effects of 
 private corporations upon all the business and interests of society. 
 
 It is now no longer doubted, either in England or the United States, 
 that courts of equity, in both, have a jurisdiction over corporations, at 
 the instance of one or more of their members, to apply preventive 
 remedies by injunction, to restrain those who administer them from 
 doing acts which would amount to a violation of charters, or to pre- 
 vent any misapplication of their capitals or profits, which might result 
 in lessening the dividends of stockholders, or the value of their shares, 
 as either may be protected by the franchises of a corporation, if the 
 acts intended to be done create what is in the law denominated a breach 
 of trust. And the jurisdiction extends to inquire into, and to enjoin, 
 as the case may require that to be done, any proceedings by individuals, 
 in whatever character they may profess to act, if the subject of com- 
 plaint is an imputed violation of a corporate franchise, or the denial 
 of a right growing out of it, for which there is not an adequate remedy 
 at law. Cunliffe v. Manchester & Bolton Canal Company, 2 Russ. & 
 Mylne Ch. R. 480, n. ; Ware v. Grand Junction Water Company, 2 
 Russ. & Mylne, 470 j Bagshaw v. .Eastern Counties Railway Company, 
 7 Hare Ch. R. 114; Angell & Ames (4th Ed.) 424, and the other cases 
 there cited. 
 
 It was ruled in the case of Cunliffe v. Manchester & Boltp^i Canal 
 Company, 2 Russ. & Mylne Ch. R. 481, that where the legal remedy 
 against a corporation is inadequate, a court of equity will interfere, and 
 that there were cases in which a bill in equity will lie against a corpora- 
 tion by one of its members. "It is a breach of trust towards a share- 
 holder in a joint-stopk incorporated company^ established for certain 
 definite purposes prescribed by its charter, if the funds or credit of the 
 
Sec. 3) REPRESENTATIVE SUITS 505 
 
 company are, without his consent, diverted from such purpose, though 
 the misapplication be sanctioned by the votes of a majority ; and, there- 
 fore, he may file a bill in equity against the company in his own behalf, 
 to restrain the company by injunction from any such diversion or mis- 
 application." In the case of Ware v. Grand Junction Water Company, 
 2 Russell & Mylne, a bill filed by a member of the company against it, 
 Lord Brougham said : "It is said this is an attempt on the part of the 
 company to do acts which they aire not empowered to do by the acts of 
 Parliament," meaning the charter of the company ; "so far I restrain 
 them by an injunction." "Indeed, an investment in the stock of a cor- 
 poration must, by every one, be considered a wild speculation, if it 
 exposed the owners of the stock to all sorts of risk in support of plausi- 
 ble projects not set forth and authorized by the act of incorporation, 
 and which may possibly lead to extraordinary losses." 
 
 The same jurisdiction was invoked and applied in the case of Bag- 
 shaw V. Eastern Counties Railway Company; so, also, in Coleman V. 
 Same Company, 10 Beavan's Ch. Reports, 1. It appeared in that case 
 that the directors of the company, for the purpose of increasing their 
 traffic, proposed to guarantee certain profits, and to secure the capital 
 of an intended steam-packet company, which was to act in connection 
 with the railway. It was held, such a transaction was not within the 
 scope of their powers, and they were restrained by injunction. And 
 in the second place, that in such a case one of the shareholders in the 
 railway company was entitled to sue in behalf of himself and all the ' 
 other shareholders, except the directors, who were defendants, al- 
 though some of the shareholders had taken shares in the steam-packet 
 company. It was contended in this case that the corporation might 
 pledge without limit the funds of the company for the encouragement 
 of other transactions, however various and extensive, provided the ob- 
 ject of that liability was to increase the traffic upon the railway, and 
 thereby increase the traffic to the shareholders. But the Master of the 
 Rolls, Lord Langdale, said, "There is no authority for anything of 
 that kind." 
 
 But further, it is not only illegal for a corporation to apply its 
 iJcipital to objects not contemplated by its charter, but also to apply its 
 profits. And therefore a shareholder may maintain a bill in equity 
 against the directors and compel the company to refund any of the 
 profits thus improperly applied. It is an improper application for a 
 railway company to invest the profits of the company in the purchase 
 of shares in another company. The dividend, says Lord Langdale, in 
 Solamons v. Laing, 14 Jurist for December, 1850, which belongs to 
 the shareholders, and is divisible among them, may be applied severally 
 as their own property ; but the company itself or the directors, or any 
 number of shareholders, at a meeting or otherwise, have no right to 
 dispose of his shares of the general dividends, which belong to the par- 
 ticular shareholder, in any manner contrary to the will, or without the 
 consent or authority of that particular shareholder. 
 
506 RIGHTS OF STOCKHOLDERS (Ch, 4 
 
 We do not mean to say that the jurisdiction in equity over cor- 
 porations at the suit of a shareholder has not been contested. The 
 ' cases cited in this argument show it to have been otherwise ; but when 
 the case of Hodges v. New England Screw Company et al. was cited 
 against it, (we may say the best argued and judicially considered case 
 which we know upon the point, both upon the original hearing and 
 rehearing of that cause), the counsel could not have been aware of 
 the fact that, upon the rehearing of it, the learned court, which had de- 
 cided that courts of equity have no jurisdiction over corporations as 
 such at the suit of a stockholder for violations of charter, reviewed and 
 recalled that conclusion. The language of the court is: "We have 
 thought it our duty to review in this general form this new and un- 
 settled jurisdiction, and to say, in view of the novelty and importance 
 of the subject, and the additional light which has been thrown upon it 
 since the trial, we consider the jurisdiction of this court over corpora- 
 tions for breaches of charter, at the suit of shareholders, and how far 
 it shall be extended, and subject to what limits, is still an open question 
 in this court." 1 R. I. 312, S3 Am. Dec. 624, — rehearing of the case 
 September term, 1853. 
 
 The result of the cases is well. stated in Angell & Ames, paragraphs 
 391, 393. "In cases where the legal remedy against a corporation is 
 inadequate, a court of equity will interfere, is well settled, and there 
 are cases in which a bill in equity will lie against a corporation by one 
 of its members." "Though the result of the authorities clearly is, that 
 in a corporation, when acting within the scope of and in obedience to 
 the provisions of its constitution, the will of the majority, duly ex- 
 pressed at a legally constituted meeting, must govern ; yet beyond the 
 limits of the act of incorporation the will of the majority cannot make 
 an act valid; and the powers of a court of equity may be put in mo- 
 tion at the instance of a single shareholder, if he can show that the 
 corporation are employing their statutory powers for the accomplish- 
 ment of purposes not within the scope of their institution. Yet it is to 
 be observed, that there is an important distinction between this class of 
 cases and those in which there is no breach of trust, but only error 
 and misapprehension, or simple negligence on the part of the direc- 
 tors." " 
 
 43 So it has been repeatedly decided that a private corporation may be 
 sued at law by one of its own members. The text upon this subject is so 
 well expressed, with authorities to support it, that we will extract paragraph 
 390 from Angell & Ames entire: "A private corporation may be sued by one 
 of its own members. This point came directly before the court, in the state 
 of South Carolina in an action of assumpsit against the Catawba Company. 
 The plea in abatement was that the plaintifC himself was a member of that 
 company, and therefore could maintain no action against it in his individual 
 capacity. The court, after hearing argument, overruled the plea as containing 
 principles subversive of justice; and they moreover said that the point had 
 been settled by two former cases, wherein certain officers were allowed to 
 maintain actions for their salaries due by the company. In this respect, the 
 cases of incorporated companies are entirely dissimilar from those of ordinary 
 
Sec. 3) KBPEESBNTATIVB SUITS 507 
 
 We have then the rule and its limitation. It is contended that this 
 case is within the limitation ; or that the directors of the Commercial 
 Bank of Cleveland, in their action in respect to the tax assessed upon 
 it, under the Act of April 18, 1852, and in their refusal to take proper 
 measures for testing its validity, have committed an "error of judg- 
 ment merely." 
 
 It is obvious, from the rule, that the circumstances of each case 
 must determine the jurisdiction of a courtof equity to give the relief 
 sought; that the pleadings must be relied upon to collect what they 
 are, — to ascertain in what character and to what end a shareholder in- 
 vokes the interposition of a court of equity, on account of the mis- 
 management of a board of directors, whether such acts are out of or 
 beyond the limits of the act of incorporation, either of commission con- 
 trary thereto, or of negligence in not doing what it may be their char- 
 tered duty to do. 
 
 This brings us to the inquiry, as to what the directors have done 
 in this case, and what they refused to do, upon the application of 
 their co-corporator, John M. Woolsey. After a full statement of 
 his-case, comprehending all of his rights and theirs also, alleging in 
 his bill that his object was to test the validity of a tax upon the ground 
 that it was unconstitutional, because it impaired the obligation of a 
 contract made by the State of Ohio with th^ Commercial Bank of 
 Cleveland, and the stockholders thereof ; he represents in his own be- 
 half, as a stockholder, that iie had applied to the directors requesting 
 them to take measures, by suit or otherwise, to prevent the collection of 
 the tax by the treasurer, and that they refused to do so, accompanying, 
 however, their refusal with the declaration that they fully concurred 
 with Woolsey in his views as to the illegality of the tax; that they 
 believed it in no way binding upon the bank ; but that, in consideration 
 of the many obstacles in the way of resisting the collection of the tax 
 in the courts of the State, they could not consent to take legal meas- 
 ures for testing it. Besides this refusal, jthe papers in the case dis- 
 close the fact that the directors had previously made two protests 
 against the constitutionality of the tax, because it was repugnant to 
 the Constitution of the United States, and to that of Ohio also, both 
 concluding with a resolution that they would not, as then advised, 
 
 copartnerships, or unincorporated joint-stock companies. In the former, the 
 individual members of the company are entirely distinct from the artificial 
 body endowed with corporate powers. A member of a corporation, who is a 
 creditor, has the same right as any other creditor to secure the payment of 
 his demands, by attachment or by levy upon the property of the corporation, 
 although he may be personally liable by statute to satisfy other judgments 
 against the corporation. An action was maintained against a corporation 
 on a bond securing a certain sum to the plaintiff, a member of the corpora- 
 tion, the member being deemed by the court a stranger. Pelree v. Partridge, 
 3 Mete. (Mass.) 44 ; so of notes and bonds, accounts, and rights to dividends. 
 Hill V. Manchester & Salford Waterworks, 5 Adol. & Ellis, 866; Dunston v. 
 Imperial Glass Company, 3 B. & Adol. 125 ; Geer v. School District, 6 Vt. 76; 
 Sawyer v. Methodist Episcopal Society, 18 Vt. 405; Rogers v. Danby Uni- 
 versalist Society, 19 Vt. 187," 
 
508 EIGHTS OP STOCKHOLDERS (Ch. 4 
 
 pay the tax, unless compelled by law to do so, and that they were de- 
 termined to rely upon the constitutional and legal rights of the bank 
 under its charter. Now, in our view, the refusal upon the part of the 
 directors, by their own showing, partakes more of disregard of duty, 
 than of an error 6f judgment. It was a non-performance of a con- 
 fessed official obligation, amounting to what the law considers a breach 
 of trust, though it may not involve intentional moral delinquency. It 
 was a mistake, it -is true, of what their duty required from them, ac- 
 cording to their own sense of it, but, being a duty by their own confes- 
 sion, their refusal was an act outside of the obligation which the char- 
 ter imposed upon them to protect what they conscientiously believed to 
 be the franchises of the bank. A sense of duty and conduct con- 
 trary to it 1s not "an error of judgment merely," and cannot be so 
 called in any case. It amounted to an illegal application of the profits 
 due to the stockholders of the bank, into which a court of equity will 
 inquire to prevent its being made. 
 
 Thinking, as we do, that the action of the board of directors was 
 not "an error of judgment merely," but a^ breach of duty, it is our 
 opinion that they were properly made parties to the bill, and that the 
 jurisdiction of a court of equity reaches such a case to give such 
 a remedy as its circumstances may require. This conclusion makes 
 it unnecessary for tfs to notice further the point made by the counsel 
 that the suit should have been brought in the name of the corporation, 
 in support of which they cited the case of Osborn v. Bank of United 
 States [9 Wheat. 738, 6 L. Ed. 204]. The obvious difference between 
 this case and that is, that the Bank of the United States brought a 
 bill in the circuit court of the United States for the district of Ohio, 
 to resist a tax assessed under an act of that State, and executed by its 
 auditor, and here the directors of the Commercial Bank of Cleveland, 
 by refusing to do what they declared it to be their duty to do, "have 
 forced one of its corporators, in self-defence, to sue. If the directors 
 had done so in a State court of Ohio, and put their case upon the 
 unconstitutionality of the tax act, because it impaired the obligation 
 of a contract, and had the, decision been against such claim, th6 judg- 
 ment of the State court could have been re-examined, in that partic- 
 ular, in the Supreme Court of the United States, under the same 
 authority or jurisdiction by which it reversed the judgment of the 
 supreme court of Ohio on the case of Piqua Branch of State Bank of 
 Ohio V. Jacob Knoop Treasurer of Miami County, 16 How. 369, 14 
 L. Ed. 977. * * * 
 
 We affirm the decree of the circuit court, and direct a mandate ac- 
 cordingly. 
 
 Mr. Justice Catron, Mr. Justice Dani^i, and Mr. Justice Camp- 
 BELi, dissented.** 
 
 *4 The decision of point 2, omitted here, should be read, if possible, in con- 
 nection with the case of Hawes v. Oakland, post, p. 548. 
 
Seci 3) , BEPRBSENTATIVE SUITS r 609 ' 
 
 FOSS V. HARBOTTLE. 
 (High Court of Chancery, 1843. 2 Hare, 461.) 
 
 Vice Chancellor [Wigram].''^ The relief which the bill in this 
 case seeks, as against the defendants who have demurred, is founded 
 on several alleged grounds of complaint ; of these it is only necessary 
 that I should mention two, for the consideration of those two grounds 
 involves the principle upon which I think all the demurrers must be 
 determined. One ground is that the directors of the Victoria Park 
 Company, the defendants Harbottle, Adshead, Byrom, and Bealey, 
 have, in their' character of directors, purchased their own lands of 
 themselves for the use of the company, andl have paid for them, or, 
 rather, taken to themselves out of the moneys of the company a price 
 exceeding the value of such lands ; the other ground is that the defend- 
 ants have raised money in a manner not authorized by their powers 
 undei* their act of incorporation ; and, especially, that they have mort-. 
 gaged or encumbered the lands and' property of the company, and ap- 
 plied the moneys thereby raised in effect, though circuitously, to pay 
 the price of the land which they had' so bought of themselves. 
 
 I do not now express any opinion upon the question, whether, leav- 
 ing out of view the special form in which the plaintiffs have pro- 
 ceeded in the suit, the bill alleges a case in whi^:h a court of equity 
 would say that the transactions in question are to be opened or dealt 
 with in the manner which this bill seeks that they should be; but I 
 certainly would not be understood by anything I said during the argu- 
 ment to do otherwise than express my cordial concurrence in the doc- 
 trine laid dbwn in the case of Hichens v. Congreve, 4 Russ. 562, and 
 other cases of that class. I take those cases to be in accordance with 
 the principles of this Court, and to be founded on justice and common 
 sense. Whether particular cases fall within the principle of Hichens 
 v. Congreve is another question. * * * por the present purpose, 
 I shall assume that a case is stated, entitling the company, as matters 
 now stand, to complain of the transactions mentioned in the bill. 
 
 The Victoria Park Company is an incorporated body, and the con- 
 duct with which the defendants are chaijged in this suit is an injury 
 not to the plaintiffs exclusively; it is an injury to the whole corpora- 
 tion by individuals whom the corporation entrusted with powers to 
 be exercised only for the good of the corporation. And from the case 
 of the Attorney-General v. Wilson Cr. & Ph. 1, without going fur- 
 ther, it may be stated as undoubted law, that a bill or information by 
 a corporation will lie to be relieved in respect of injuries which the 
 corporation has suffered at the hands of persons standing in the situa- 
 tion of the directors upon this record. This bill, however, differs 
 "from that in the Attorney-General v. Wilson in this, — ^that instead of 
 
 46 The statement of facts is omitted. Part only of the opinion is given. 
 
510 BIGHTS OF STOCKHOLDBKS (Ch. 4 
 
 the corporation being formally represented as plaintiffs, the bill in 
 this case is brought by two individual corporators, professedly on be- 
 half of themselves and all the other members of the corporation, ex- 
 cept those who committed the injuries complained! of,— the plaintiffs 
 assuming to themselves the right and power in that manner to sue 
 on behalf of and represent the corporation itself. 
 
 It was not, nor. could it successfully be argued, that it was a matter 
 of course for any individual members of a corporation thus to assume 
 to l:hemselves the right of suing in the name of the corporation. In 
 law, the corporation, and the aggregate members of the corporation, 
 are not the same thing for purposes like this ; and the only question 
 can be, whether the facts .alleged in this case justify a departure from 
 the rule which prima facie would require that the corporation should 
 sue in its own name and in its corporate character, or in the name of 
 some one whom the law has appointed to be its representative. 
 
 The demurrers are, — first, of three of the directors of the com- 
 ■pany, who are also alleged to have sold lands to the corporation un- 
 der the circumstances charged; secondly, of Bealey, also a director, 
 alleged to have made himself amenable, to the jurisdiction of the 
 Court to remedy the alleged injuries, though he was not a seller of 
 land; thirdly, of Denison, a seller of land, in like manner alleged to 
 be implicated in the frauds charged, though he was not a director; 
 fourthly, of Mr. Bunting, the solicitor, and Mr. Lane, the architect 
 of the' company. These gentlemen are neither directors nor sellers of 
 land, but all the frauds are alleged to have been committed with 
 their privity, and they also are in this manner sought to be implicated 
 in them. The most convenient course will be, to consider the de- 
 murrer of the three against whom the strongest case is stated; and 
 the consideration of that case will apply to the whole. 
 
 The first objection taken in the argument for the defendant! was, 
 that the individual members of the corporation cannot in any case 
 sue in the form in which this bill is framed. During the argument 
 I intimated an opinion, to which, upon further consideration, I fully 
 adhere, that the rule was much too broadly stated on the part of the 
 defendants. I think there are cases in which a suit might properly 
 be so framed. Corporations like this, of a private nature, are in 
 truth little more than private partnerships; and in cases which may 
 easily be suggested, it would be too much to hold, that a society of 
 private persons associated together in undertakings, which, though 
 certainly beneficial to the publfc, are nevertheless matters of private 
 property, are to be deprived of their civil rights, inter se, because, 
 in order to make their common objects more attainable, the Crown or 
 the legislature may have conferred upon them the benefit of .g cor- 
 porate character. If a case should arise of injury to a corporation 
 by some of its members, for which, no adequate remedy remained, 
 except that of a suit by individual corporators in their private char- 
 acters, and asking in such character the protection of those rights 
 
Sec. 3) HEPKBSENTATIVE SUITS 511 
 
 to which in their corporate character they were entitled, I cannot but 
 think that the principle so forcibly laid down by Lord Cottenham in 
 Wallworth v. Holt (4 Myl. & Cr. 635 ; see also 17 Ves. 320/ per Lord 
 Eldon), and other cases, would apply, and the claims of justice would 
 be found superior to any difficulties arising out of technical rules re- 
 specting the' mode in which corporations are required to sue. 
 
 But, on the other hand, it must not be without reasons of a very 
 urgent character that established rules of law and practice are to 
 be departed froti», — rules, which, though in a sense technical, are found- 
 ed on general principles of justice and convenience ; and the question 
 is, whether a case is stated in this bill, entitling the plaintiffs to sue 
 in their private characters. [His Honor stated the substance of the 
 act, sections 1, 38, 39, 43, 46, 47, 48, 49, 67, 70, 114, and 129.] The 
 result of these clauses is, that, the directors are made the governing 
 body, subject to the superior control of the proprietors assembled in 
 general meetings; and, as I understand the act,' the proprietors so 
 assembled have power, due notice being given of the purposes of the 
 meeting, to originate proceedings for any purpose within the scope of 
 the company's powers, as well as to control the directors in any acts 
 which they may have originated There may possibly be some excep- 
 tions to this proposition but such is the general effect of the provi- 
 sions of the statute. 
 
 Now, that my opinion upon this case may be clearly understood, I 
 will consider separately the two principal grounds of complaint to 
 which I have adverted, with reference to a very marked , distinction 
 between them. The first ground of complaint is one which, though 
 it might prima facie entitle the corporation to rescind the transac- 
 tions complained of, does not absolutely and of necessity fall under 
 the description of a void transaction. The corporation might elect 
 to adopt those transactions, and hold the directors bound by them. 
 In other words, the transactions admit of confirmation at the option 
 of the corporation. The second ground of complaint may stand in 
 a different position ; I allude to the mortgaging in a manner not au- 
 thorized by the powers of the act. This, being beyond the powers 
 of the corporation, may admit of no confirmation whilst any one dis- 
 senting voice is raised against it. This distinction is found in the 
 case of Preston v. Grand Collier Dock Company, 11 Sim. 327; s. c. 
 2 Railway Cases, 335. 
 
 On the first point, it is only necessary to refer to the clauses of the 
 act to show, that, whilst the supreme governing body, the proprie- 
 tors at a special general meeting assembled, retain the power of 
 exercising the functions conferred upon them by the act of incor- 
 poration, it cannot be competent to individual corporators to sue in 
 the manner proposed by the plaintiffs on the present record. This 
 in effect purports to be a suit by cestui que trusts, complaining of 
 a fraud committed or alleged to have been committed by persons in 
 
512 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 a fiduciary character. The complaint is, that those trustees hAve 
 sold lands to themselves, ostensibly for the benefit of the cestui que 
 trusts. The proposition I have advanced is, that although the act 
 should prove to be voidable, the cestui que trusts may elect to con- 
 firm it. Now, who are the cestui que trusts in this case? The cor- 
 poration, in a sense, is undoubtedly the cestui que trust; but the 
 majority of the proprietors at a special general meeting assembled, 
 independently of any general rules of law upon the^ subject, by the 
 very terms of the incorporation in the present case, has power to 
 bind the whole body, and every individual corporator must be taken 
 to have come into the corporation upon the terms of being liable to 
 be so bound. 
 
 How then can this Court act in a suit constituted as this is, if it 
 is to be assumed, for the purposes of the argument, that the powers 
 of the body of the proprietors, are still in existence, and may lawfully 
 be exercised for a purpose like that I have suggested? Whilst the' 
 Court may be declaring the acts complained of to be void at the suit 
 of the present plaintiffs, who in fact may be the only proprietors 
 who disapprove of them, the governing body of proprietors may de- 
 feat the decree by lawfully resolving upon the confirmation of the 
 very acts which are the subject of the suit. The very fact that 
 the governing body of proprietors assembled at the special general 
 meeting may so bind even a reluctant minority, is decisive to show 
 that the frame- of this suit cannot be sustained whilst that body re- 
 tains its functions. In order then that this suit may be sustained, 
 it must be shown either that there is no such power as I have sup- 
 posed remaining in the proprietors, or, at least, that all means have 
 been resorted to and found ineffectual to set that body in motion; 
 this latter jioint is nowhere suggested in the bill : thfere is no sug- 
 gestion that an attempt has been made by any proprietor to set the 
 body of proprietors in motion, or to procure a meeting to be con- 
 vened for the purpose of revoking the acts complained of. The 
 question then is, whether this bill is so framed as of necessity to 
 exclude the supposition that the supreme body of proprietors is 
 now in a condition to confirm the transactions in question; or, if 
 those transactions are to be impeached in a court of justice, whether 
 the proprietors have not power to set the corporation in motion for 
 the purpose of vindicating its own rights.*' * * * 
 
 The second point, which relates to the charges and incumbrances 
 alleged to have been illegally made on the property of the company, 
 is open to the reasoning which I have applied to the first point, up- 
 
 4 8 It was held that, upon the facts stated, the continued existence of a 
 board of directors de facto must be presumed, and that the possibility , of 
 , calling a meeting of shareholders ca,pable of ratifying the transactions ques- 
 tioned, or compelling the bringing of action in the name of the corporatiba, 
 was not excluded by the allegations of the bill. ' ■ i 
 
Sec. 3) REPRESENTATIVE SUITS 513 
 
 on the question whether, in the present case, individual members are 
 at liberty to complain in the form adopted by this bill; for why 
 should this anomalous form of suit be resorted to if the powers 
 of the corporation may be called into exercise? But this part of the 
 case is a greater difficulty upon the merits. I follow with entire as- 
 sent, the opinion expressed by the Vice-Chancellor in Preston v. The 
 Grand Collier Dock Company, that, if a transaction be void, and not 
 merely voidable, the corporation cannot confirm it, so as to bind a 
 dissenting minority of its members. But that will not dispose of 
 this question. TJie case made with regard to these mortgages -or 
 incumbrances is, that they were executed in violation of the provi- 
 sions of the act. . The mortgagees are not defendants to the bill, nor 
 does the bill seek to avoid the security itself, if it could be avoided, 
 on which I give no opinion. The bill prays inquiries with a view 
 to proceedings being taken aliunde to set aside these transactions 
 against the mortgagees. The object of this bill against the defend- 
 ants is to make them individually and personally responsible to the 
 extent of the injury alleged to have been received by the corpora- 
 tion, from the making of the mortgages. Whatever the case might 
 be, if the object of the suit was to rescind these transactions, and 
 the allegations in the bill showed that justice could not be done to 
 the shareholders without allowing two to sue on behalf of them- 
 selves and others, very different considerations arise in a case like 
 the present, in which the consequences only of the alleged illegal 
 acts are, sought to be visited personally upon the directors. The 
 money forming the consideration for the mortgages was received, 
 and was expended in, or partly in, the transactions which are the 
 subject of the first ground of complaint. 
 
 Upon this, one question appears to me to be, whether the com- 
 pany could confirm the former transactions, take the benefit of the 
 money that has been raised, and yet, as against the directors per- 
 sonally, complain of the acts which they have done, by means where- 
 of the company obtains that benefit which I suppose to have been ad- 
 mitted and adopted by such confirmation. I think it would not be 
 open to tthe company to do this ; and my opinion already expressed 
 on the first point is, that the transactions which constitute the first 
 ground of complaint may possibly be beneficial to the company, and 
 may be so regarded by the proprietors, and admit of confirmation. 
 I am of opinion that this question, — ^the question of confirmation or 
 avoidance, — cannot properly be litigated upon this record, regard be- 
 ing had to- the existing state and powers of the corporation, and that 
 therefore that part di the bill which seeks to visit the directors per- 
 sonally with the consequences of the impeached mortgages and charg- 
 es, the benefit of which the company enjoys, is in the same pre- 
 dicamerit as that which relates to the other subjects of complaint. 
 RicH.OoEP. — 33 
 
514 BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 Both questions stand on the same ground, and, for the reasons which 
 I stated in considering the former point, these demurrers must be 
 allowed.*' 
 
 KESSLER & CO. v. ENSLEY CO. et al. 
 (Circuit Court of the United States, 1903. 123 Fed. 546.) 
 
 This is a bill by minority stockholders of the Ensley Land Company, 
 brought in behalf of the corporation, which refused to sue, to set aside 
 certain transactions between the company and the defendants, Ensley 
 Company et al., who, it is alleged, while occupying fiduciary relations, 
 defrauded the corporation in the sale of 240 acres of land, of which 
 defendants became purchasers.*' ^ 
 
 Jones, District Judge.*' * * * Equity permits a stockholder to 
 maintain a bill to enforce the rights of his corporation, solely to pre- 
 vent a failure of justice. "The circumstances of each case determine 
 the jurisdiction to give the relief sought." Dodge v. Woolsey, 18 
 How. 344, 15 Iv. Ed. 401. To entitle the stockholder to relief, it is not 
 enough that the governing body has refused to act, or that the refusal 
 evinces mistaken judgment. The stockholder who seeks redress as 
 to any corporate act which the charter permits the corporation to per- 
 form must show either that the governing body is so, disorganized that 
 it cannot act; or that it is interested adversely to the corporation, or 
 under the dominion of those who are; or will be required to disap- 
 prove its own breaches of trust, as distinguished from mistakes or 
 errors of judgment; or that its refusal will endanger^the rights and 
 franchises of the corporation, or result in irreparable loss and injury; 
 or that its attitude, under the situation presented by the bill, discloses 
 negligence or indifference to the interest of the corporation, in such 
 degree as amounts to the practical equivalent of bad faith; or else 
 bring forward other pertinent 'facts which challenge and impeach the 
 fitness of the governing body to properly decide the question at issue. 
 Even then, if the case will admit of delay, the complaining stockholder 
 must appeal from the decision of the directors to the body of the 
 stockholders at large, and the facts averred in the bill must plainly 
 put them in the wrong, before the court will feel authorized to enter- 
 tain the complaint of the stockholder. Hawes v. Oakland, 104 U. S. 
 450, 26 L. Ed. 827; Corbus v. Gold Mining Co., 187 U. S. 458, 23 
 Sup. Ct. 157; 47 L,. Ed. 256; Tuscaloosa Manufacturing Company v. 
 Cox, 68 Ala. 71. 
 
 It not being charged in this case that either of the two boards, or 
 the body of the stockholders, who declined to bring or authorize 
 
 «T Accord: Horst v. Traudt, 43 Colo. 445, 96 Pac. 259 (1908). 
 *8 Statement of facts substituted. 
 *o Part only of the opinion is given. 
 
Set. 3) BEPEBSENTATIVE SUITS 515 
 
 "the bringing of this suit, were themselves guilty participants in any 
 of the frauds complained of, or in any wise interested adversely to 
 the corporation, or under the dominion or control of those who were 
 instrumental in bringing about the sales sought to be avoided, or that 
 they acted otherwise than in the exercise of honest judgment as to the 
 interest of the Land Company, their decision not to litigate is binding 
 upon the court, unless that refusal will result in enforcing some ultra 
 vires or illegal act of the corporation, or evinces such recklessness and 
 indifference to the rights of the corporation as amounts to bad faith 
 or fraud, or will needlessly work the practical destruction of the cor- 
 porate enterprise. To properly determine these questions the court 
 must look to the states and condition of affairs as they reasonably ap- 
 peared to the stockholders, under the facts set forth in tl;ie bill, at the 
 time of entering into the transactions now sought to be set aside, and 
 then weigh their decision not to disturb them in the light of existing 
 conditions at the time that decision was made."" * * * 
 
 Making due allowance for the charges on "information and belief," 
 and for facts so stated as to amou!nt to no more than the opinion of 
 the pleader, the bill charges actual fraud of a grave nature, not 
 merely constructive fraud, upon all the defendants except Barlcer. 
 On the facts stated, a court of equity would unquestionably have set 
 aside the sale on seasonable application. Nevertheless, under decisions 
 which are controlling here, the transactions complained of were not 
 void as to the corporation, but merely voidable. Twin-Lick ^Oil Co. 
 V. Marbury, 91 U. S. 587, 23 L. Ed. 328; Thomas v. Brownville R. 
 Co., 109 U. S. 524, 3 Sup. Ct. 315, 27 L. Ed. 1018. The title con- 
 veyed by the proceedings complained of was not bad until the Land 
 Company made it good, but remained good until it was made bad. It 
 was a defeasible title which would ripen into a good title if not sea- 
 sonably avoided. The conveyances were not ultra vires the corpora- 
 tion. The Land Company was formed for the purpose of selling this 
 very land, and the sales were made in the exercise of the corporate 
 power of providing for the debts of the company. 
 
 The power must reside somewhere in every corporation, when it 
 has been defrauded, whether by its own officers or third prsons, to 
 determine what course it will pursue with reference to the fraud. The 
 
 .fact that the corporation has been defrauded does not strip it of power 
 to elect to stand upon the transaction as made. Every wronged per- 
 son, who is sui juris, has that right against the wrongdoer. If the 
 corporate tribunal exercises its judgment upon the question honestly, 
 and is not adversely interested, or under the control of other influ- 
 ences which sway it from a fair and impartial judgment, from the 
 
 BO The court found that, under the facts stated, the decision of the majority 
 not to bring suit was not open, in the absence of any charge ofLimproper mo- 
 tive on their part, "to reasonable condemnation, as evincing such negligence 
 or criminal Indifference to the interest of the corporation as amounts to bad 
 faith, fraud, or oppression of the minority." 
 
516 
 
 EIGHTS OF STOCKHOLDEES (Ch. 4 
 
 standpoint of the, interest of the corporation itself, a decision not to 
 disturb the fraud, unless it evinces such recklessness and negligence 
 as amounts to bad faith, is not a fraud upon the objecting stockhold- 
 ers, though it results in a refusal to redress a fraud upon the cor- 
 poration. The duty which the corporation, or its governing body, owes 
 its stockholders in such cases, is to fairly and impartially consider 
 the question of redressing the wrong, and not to commit a corporate 
 fraud upon its stockholders by refusing to set aside the fraud upon 
 the corporation from selfish interest or other bad motives, or from 
 such negligence and indifference as is equivalent to bad faith, and 
 aniounts to a clear breach of trust, as distinguished from mere bad 
 judgment. 
 
 Complainants cite Mason v. Harris, L. R. 11 Chan.' Div. 97, in 
 support of their contention that the grievances complained of were 
 either incapable of ratification, or that the refusal to redress them, 
 under the circumstances here disclosed, amounts to a fraud upon the 
 minority. They quote the following paragraph from the opinion 
 in that case: 
 
 "Whenever a fraud is committed by persons who command the ma- 
 jority vote, the minority can sue. The reason is plain, as, unless such 
 suit were allowed, it would put it in the power of the majority to de- 
 fraud the minority with impunity. If the majority were to make a 
 fraudulent sale and put the money in their own pockets, would it be 
 reasonable to say that the majority could affirm the sale?" 
 
 The court was, there speaking of the injustice of compelling a 
 stockholder to abide the judgment of those who were interested in 
 upholding the fraud." It was referring to the fitness of the governing 
 body at the time the individual stockholder seeks redress. Although 
 the defendants here had "command of the majority vote" at the time 
 of the grievance complained of, by reason of the deceit charged in the 
 bill, whereby the majority was overreached and deceived, just as the 
 complaining stockholders charge they were, the fact that the majority 
 had been thus deceived into voting for the proposition does not dis- 
 qualify it from passing on the matter when discovery is made. It is 
 not to be driven from the judgment seat merely because it has been 
 the victim of fraud. It must be shown to have some adverse inter- 
 est, or to be under ulterior influences which prevent it from fairly 
 determining what is to the best interest of the corporation, under all 
 the circumstances, in view of the nature and result of the fraud prac- 
 ticed upon it. To bring this case within the rule of Mason's Case, 
 supra, the defendants must "command the majority vote" at the time 
 redress is sought. 
 
 Other cases cited in behalf of complainants on this point relate ei- 
 ther to ultra vires or illegal acts of the corporation, as where the gov- 
 erning body to which application for redress must be made has itself 
 either defrauded the corporation, or is under the control of those who 
 overreached it, or is otherwise shown to be an unfit tribunal to de- 
 
/- 
 
 Sec. 3) REPRESENTATIVE SUITS 517 
 
 termine the policy of the corporation; or, where the act complained 
 of not only affects the rights of the corporation against the person 
 sought to be sued, but also involves some wrong, by the corporation to 
 
 ; separate and individual rights of the stockholders against their corpo- 
 ration. The principle which forbids the majority of the corporation 
 to profit at the expense of the minority, by condoning a fraud against 
 
 ^ their corporation, is wholesome, and not in any wise questioned. We 
 have no such case here. The great body of the stockholders who 
 agreed to the transactions complained of in the first instance, and aft- 
 erwards refused to set them aside, are shown to have been ignorant 
 of the fraud at the time it was committed, and are not shown then, or 
 at any subsequent period, to have been influenced by any interest ad- 
 verse to the corporation, or by any motive which unfits them to pass 
 upon the matter. Their vote refusing to disturb the transaction could 
 not put any fruits of the wrong in their pockets. They gained noth- 
 ing which the minority lost. They applied the identical measure of 
 justice to themselves and the dissenting stockholders. As they con- 
 stituted almost the entire body of stockholders, almost the entire bur- 
 den of any loss entailed by their decision would fall upon them. On 
 the face of the bill, there was unselfish determination. 
 
 The recovery sought by this bill is for the benefit of the corpora- 
 tion. The bill is filed solely in right of the corporation, and does not 
 seek to enforce any separate or individual right of the stockholders. 
 The corporation is only a nominal defendant. It is the real plaintiff. 
 It is clear upon principle, in such a case, that the stockholders cannot 
 maintain the suit, if the corporation itself is not in position to do so. 
 It is an elementary principle of law that one claiming through and in 
 subordination to a party estopped is himself estopped. The cases 
 which permit a recovery in behalf of the corporation, in avoidance of 
 transactions which it is estopped to rescind, because it has consum- 
 mated them and retained the benefit, are those in which the corpora- 
 tion has entered into some ultra vires or illegal transaction, done 
 something involving infraction of some direct right of t'he shareholder 
 against the corporation — as where, without the authority of law, it 
 subordinates the exercise of its corporate powers and control of its 
 property to the dominion of a rival, or embarks in enterprises not au- 
 thorized by the charter, or takes some action impairing the rights of 
 the stockholders as among themselves, as by unlawfully issuing prefer- 
 red stock, and the like. . In such cases the illegal transaction is a dis- 
 tinct wrong of the corporation, against the rights of the stockholders 
 separately and individually. It gives each stockholder a right to re- 
 strain its action and to compel it to retrace its steps. In such cases, 
 justice can generally be done only by returning the corporation to its 
 original status, and restoring the stockholder's rightful legal status 
 towards it, by ripping up the whole transaction, although the corpora- 
 tion itself, as such, may be estopped to complain. The stockholders in 
 this case are seeking to enforce no such right. They demand the en- 
 
518 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 forcement of a right which belongs to the corporation solely, as such. 
 The sales complained of are not ultra vires the corporation, and were 
 not forbidden by statute. The grievances relate to transactions whol- 
 ly intra vires. The corporation has deliberately refused to disturb 
 them. This solemn corporate decision puts an end to any right of 
 the, dissenting stockholder to disaffirm or to compel the corporation to 
 avoid the transaction. 
 
 An a,nalysis of the premises of the argument in support of the con- 
 trary conclusion shows that it is unsound. The transactions here com- 
 plained of not being void, but merely voidable, who can avoid them? 
 Certainly, only the parties to the transaction, no rights of creditors 
 being involved. There are only two parties — the corporation and the 
 fraudulent grantees. The latter cannot set up their own misconduct 
 to avoid the transaction. The former can act only by its governing 
 body or by the stockholders collectively. There is tut one subject- 
 matter, and that is the saje and purchase of the land. The transac- 
 tions must either be good as to the Land Company or bad as to the 
 L,and Company. They must either be avoided in toto or must stand 
 in toto. If one stockholder, acting for himself, can affirm, another, act- 
 ing for himself, can disaffirm. There is but one thing to affirm, and it 
 must either be binding upon all the stockholders or not binding on any 
 of them. The power to affirm or to disaffirm in a case of this kind 
 is not an individual prerogative, but the right and power of the whole 
 body of stockholders collectively. This collective body must act and 
 decide according to the vote of the majority. "The rule is that the 
 majority governs, and every stockholder contracts that such shall be 
 the rule." Morawetz on Corporations, § 474. When, therefore, the 
 majority, in such a case as this, refuses to disaffirm, all right of the 
 majority to disaffirm is gone. There can be but one disaffirmance, 
 and that must be the disaffirmance of the governing body of the cor- 
 poration. A majority of the stockholders, in a case of this kind, rep- 
 resent thte ultimate corporate sovereignty, within the limits of its char- 
 ter, and can Bind the minority by its refusal to disaffirm as to a inat- 
 ter intra vires. The only remedy of the minority is to appeal to, a 
 court of equity to enforce the rights of the corporation, if the ma- 
 jority has acted fraudulently, or in bad faith "to the minority, in re- 
 fusing to redress a fraud upon the corporation. Foss v. Harbottle, 
 2 Hare, 461; Urner v. Sollenberger, 89 Md. 316, 43 Atl. 810. That 
 charge is not made here.. * * * 
 
 The demurrers are sustained, and the cost decreed against com- 
 plainants. If the complainants desire to amend, they may apply for 
 leave under the thirty-fifth rule in equity within 40 days. If amend- 
 ment is not allo>ved within that time, gnal decree will then be ren- 
 dered dismissing the bill as to all the defendants, but without preju- 
 dice to the right of the Ensley Land Company or complainants to^ 
 maintain such actions at law as they may hk advised. The Land 
 Company is a nominal defendant, and has not demurred, but answered. 
 
Sec. 3) REPRESENTATIVE SUITS 519 
 
 It is, however, the real complainant. If its answer could be looked to, 
 it gives no support to the equity of the bill. It would be an idle cere- 
 mony to proceed with the case between it and the complainants, since 
 the ruling on demurrer establishes there can be no decree in its favor, 
 and no relief is sought against it."^ 
 
 ATWOOL V. MERRYWEATHER. 
 (Court of Chancery, 1868. L. R. 5 Eq. Cas. 464, note). 
 
 This was a bill by the plaintiff, on behalf of himself and all other 
 the shareholders in the East Pant Du United Lead Mining Company, 
 Limited, except the persons who were defendants thereto, against 
 Samuel Merryweather, Henry Whitworth, and the East Pant Du Com- 
 pany, Limited, for the purpose of setting aside a contract for the sale 
 and purchase of certain mines .(for the purpose of purchasing arid 
 working which the company was formed), and compelling repayment 
 from Merryweather and Whitworth of the sum of £3940., or such 
 portions as had been received by them, and a return 6f the 600 shares 
 allotted to Merryweather. 
 
 The bill stated the incorporation, in 1863, of the company under 
 the promotion of defendants Merryweather and Whitworth, who pub- 
 lished a prospectus stating that the company was formed "for the 
 purpose of purchasing and working the extensive andl valuable min- 
 ing sets known as the East Pant D^ & Colomendy Lead Mines," and 
 containing very favourable representations of the value of the mines, 
 for the purchase of which the company was stated to have arranged 
 for £7000.— £4000. to be paid in cash, and £3000." in shares of the 
 company. 
 
 The capital was fixed at £30,000., divided into 6000 shares of £5. 
 each,; but only 2000 shares had been taken altogether, on which £3940. 
 had been received. This money was paid to Merryweather, and 600 
 shares were registered in his name as paid up, in part payment of 
 the £7000, the alleged price of the mines. 
 
 Upon inquiries, the following circumstances were discovered in 
 reference to the formation of the company : Merryweather applied to 
 Whitworth to assist him in disposing of the mines in question, which 
 he held under an agreement for a lease for twenty-one years, and had 
 then' discovered to be of no" value. Merryweather proposed to dispose 
 of his interest for £4000., and the scheme concocted "between himself 
 and Whitworth was, that a company should be formed for the pur- 
 pose of purchasing and working the mines, which were to be sold to 
 such company for £7000. 
 
 61 For later stages of the same litigation, see same title, 129 Fed. 397 
 (1904) ; 141 Fed. 130 (1905) ; 148 Fed. 1019, 79 O. C. A. 534 (1906). 
 
520 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 I 
 
 Of this money Merryweather was to get £4000., while the remain- 
 ing £3000. was to be paid to Whitworth for his assistance in getting 
 up the company. This agreement was concealed from the other di- 
 rectors, who were induced to believe that £7000. was bona fide to be 
 paid as the purchase-money. 
 
 A committee appointed at a meeting of the 1st of June, 1864, recom- 
 mended by their report that the undertaking should be abandoned!, steps 
 taken to relieve the company from any liability on the contract, and 
 to recover back the money already paid by the shareholders. 
 
 At an extraordinary general meeting held on the 16th of June, 1864, 
 a resolution was passed for receiving the report by a majority of the 
 shareholders, and on the S.OthTjf June, 1864, a bill was filed in the 
 name of the company, alleging that the contract for the purchase of 
 the mine had been fraudulently obtained by the defendant Merry- 
 weather, and was void, and that he was not entitled to the 600 shares 
 allotted to him in respect of it, and praying that the purchase of the 
 mine might be set aside, and the money paid returned to the share- 
 holders who had advanced it. 
 
 On the 6th of July Merryweather and Wlhitworth' caused notices to 
 be issued for a meeting of the board of directors "to consider the 
 course to be taken in reference to the chancery proceedings which 
 have been instituted in the name of the company." At the meeting 
 held on the 9th of July Merryweather, Whitworth, and Ashworth (the 
 three out of the six directors present at the meeting) passed a resolu- 
 tion that proceedings should be taken to get the bill taken oft the file. 
 
 On the 1st of August, 1864, the Court was moved to take the bill 
 off the file, but the motion was ordered to stand over until the next term 
 in order to give in opportunity to call a general meeting of the share- 
 holders of the company to take the matter into consideration. A meet- 
 ing was accordingly held on the 12th of October, "for the purpose of 
 taking the said bill into consideration, and adopting such resolutions 
 in reference thereto as the meeting may determine upon." 
 
 A resolution was proposed for adopting and continuing the chan- 
 cery proceedings, whereupon an amendment was proposed by Whit- 
 worth for referring all matters in difference between the shareholders 
 and Merryweather to arbitration, and for staying all legal proceed^ 
 ings. This amendment ,was lost by 11 votes to 4 upon a show of 
 hands, and the original resolution was, carried by 10 to 4. A poll having 
 been demanded upon the amendment, proxies were produced, and 14 
 persons, holding altogether 1070 shares and 324 votes, voted against the 
 amendment, and 12 persons, holding 1490 shares and having 344 votes, 
 voted for the amendment. But excluding the votes of the defendants 
 Merryweather and Whitworth, there was a majority of 86 votes against 
 the amendment, and excluding only the votes of Merryweather there 
 • was a majority against it of 58 votes." The motion to take the bill 
 off the file was renewed, and on the Sth of December, 1864, the Vice 
 
Sec. 3) BEPEBSBNTATIVE SUITS 521 
 
 Chancellor Sir W.- P. Wood directed! the bill to be taken oflf the file, 
 but made no.order as to the costs of the motion. See 2 H. & M. 254. 
 
 The present bill, which was filed on the 14th of December, ,1864, by 
 a holder of 100 shares in the company (purchased on the faith of the 
 statements contained in the prospectus), suing on behalf of himself 
 and all other the shareholders in the East Pant Du Company, except 
 the defendants, against Merryweather, Wfhitworth, and the company 
 as .defendants, alleged that none of the shareholders in the company 
 other than the defendants were desirous that the contract with Merry- 
 weather should be carried into effect, or that the relief prayed should 
 not be granted ; that the defendants had altogether 106 votes as share- 
 holders in the company, and obtained the proxies of the other share- 
 holders who voted for the amendtaent by entering into engagements 
 to indemnify them against loss; "and such votes, together with the 
 aforesaid 106 votes of the said defendants, constitute a majority of the 
 shareholders' votes in the company." 
 
 The bill also alleged, that even without such proxies the 106 votes 
 .held by the defendants made it impossible to obtain a fair decision at 
 a general meeting. 
 
 The bill further charged, that the contract was obtained by misrep- 
 resentations as to the value, with full knowledge by the defendants that 
 the mines were worthless, that i4000. was an exorbitant price for 
 them, and that no other portion of the i7000. was ever intended to be 
 treated as purchase-money of the mines, but was intended to be paid 
 to Whitworth, the defendants having become promoters of the com- 
 pany solely for the purpose of raising the £7000. for their own private 
 benefit; that these facts were fraudulently concealed from the other 
 directors and shareholders, andl that if they had been disclosed the com- 
 pany never would have contracted to purchase the mines. The bill pray- 
 ed that the contract for the purchase of the mine might be set aside, 
 and a return of the money and shares received by Whitworth and 
 Merryweather; and an injunction to restrain any proceeding to recov- 
 er the balance of the purchase-money; compensation for all damage 
 and loss occasioned to the company, and, if necessary, that the com- 
 pany might be dissolved and wound up under the direction of the 
 Court. 
 
 Sir W. Page Wood, V. C. I think that, upon principle, a contract 
 of this kind cannot stand, and that there is not such a defect in the 
 constitution of the suit as would be fdtal according to the authority 
 of Foss V. Harbottle, 2 Hare, 461. 
 
 Looking at the facts as they come out, I am clearly of opinion that 
 this arrangement, by which Merryweather was to have i4000. and 
 Whitworth i3000., was concealed from everybody, and that Merry- 
 weather assisted in that concealment by allowing his name to appear 
 as the sole vendor, and taking the purchase-money. 
 
 Upon such a transaction the Court will hold that the whole contract 
 is a complete fraud. I do not in the least say that where persons with 
 
522 EIGHTS ,0F STpCKHOLDBRS (Ch. 4 
 
 their eyes open know that the agent who secures them the bargain 
 is going to take money for it, that would not be all righi enough. If 
 the company knew this gentleman was to have this amount as promo- 
 tion-money, well and good. There might have been some difficulty, 
 Mr. Whitworth being a director, if it had been a sale by Merryweath- 
 er and Whitworth eo nomine, both of them together. If that had been 
 the case more might have been said about the frame of the suit. But 
 here it is a simple fraud, and nothing else. Merr'yweather knowing 
 Whitworth's position with regard to the company, and that as an hon- 
 est man Whitworth was bound to tell the comparty what price he 
 bought the mines for, agreed that the mine should be sold to the com- 
 pany for £7000., andl that the real price, i4000., should not be dis- 
 closed to the company. 
 
 With regard to the frame of the suit, a question of some nicety 
 arises how far such relief can be given at the instance of a shareholder 
 on behalf of himself and other shareholders on the ground that the 
 transaction might be confirmed by the whole body if they thought fit, 
 and that the case would fall' within Foss v. Harbottle, according to 
 which the suit must be by the whole company. On the previous oc- 
 casion, when it was desired to take proceedings to set aside this trans- 
 action, a gentleman took upon himself to file a bill in the name of the 
 company. A motion was made to take that bill off the file, as the per- 
 son filing, the bill was not the solicitor of the company, and was not 
 authorizted to file the bill, and I ordered the bill to be taken off the 
 file. There was a majority against setting aside this transaction. The 
 number of votes for rescinding the transaction was 324, and 344 the 
 other way. Biit Merryweather, in respect of the shares ob,ta^ned by 
 this sale, which I have held cannot standi, had 78 votes, and Whit- ■ 
 worth 28, making altogether 106 out of the 344. If I were to hold 
 that no bill could be filed by shareholders to get rid of the transaction 
 on the ground of the doctrine of Foss v. Harbottle, it would be simply 
 impossible to set aside a fraud committed by a director under such 
 circumstances, as the director obtaining so many shares by fraud would 
 always be able to outvote everybody else. I held on a former occa- 
 sion, and I adhere to that decision, that the Court must first be satis- 
 fied that the plaintiffs were authorized! to call themselves the company, 
 the solicitor who put the bill upon the file having no retainer under 
 the corporate seal. 
 
 This bill being filed by thfe plaintiff on behalf of himself and the 
 other shareholders, it is suggested that the proper course would be to * 
 file a bill on behalf of himself and the other shareholders for leave to 
 use the name of the company, in order to set aside that contract. I dio 
 not think that circuitous course is necessary under any circumstances. 
 It is quite clear that it is not necesSary here, because in this case the 
 purchase of the, mines is the only thing for which this company was 
 incorporated.- It appears to me that it" would not b?- competent for 
 a-,maiority,Qf;the. sbareholdiers against a minofity.to -say .that they m- 
 
Sec. 3) ■ REPRESENTATIVE SUITS 523 
 
 sist upon a matter of that kind 'where the whole inception of the com- 
 pany is siriiply a motion by a fraudulent agent, qua director, to con- 
 firm a purchase as made for £7000., which was made for i4000. The 
 whole thing was obtained by fraud, and the persons who may possibly 
 form a majority of the shareholders, could not in any way sanction a 
 transaction of that kind. 
 
 I think in this particular case it is hardly necessary to rely upon that, 
 because, having it plainly before me that I have a majority of the 
 shareholders, independent of those implicated in the fraud, supporting 
 the bill, it would be idle to go through the circuitous course of say- 
 ing that leave must be obtained to file a bill for the company, and pro 
 forma have a totally different litigation. The only course now to take 
 is to set aside the contract for sale and purchase of the mines, and 
 cancel the agreement for such sale. The purchase-money must be re- 
 paid with interest, and the share certificates given to Merryweather, 
 delivered up. The profits made by the company to be set off, and the 
 compariy to h^ve a lien for the balance. I shall also declare that the 
 company ought to be wound up. 
 
 DUNPHY v. TRAVELERS' NEWSPAPER ASS'N. 
 
 (Supreme Judicial Court of Massachusetts, 1888. 146 Mass. 495, 16 N. B. 426.) 
 
 Knowlton, J. The plaintiff brings this bill in equity, filed on De- 
 cember 18, 1886, as a stockholder in the defendant corporation, in 
 behalf of himself and such other stockholders as may join him there- 
 in, alleging that Roland Worthington, one of the defendants, is the 
 , president and treasurer of said corporation, and is, and for a long 
 time has been, the owner or controller of a majority of the shares of 
 its capital stock, and, by means of his Ownership and control, has 
 chosen such persons to be directors as he has seen fit, and has improp- 
 erly used and invested large sums of the money of the corporation in 
 certain specified ways, .and has kept other large sums of its money on 
 hand, drawing no interest ; and has improperly received large amounts 
 as his salary as president of the corporation, and as rent for a building 
 owned by him and occupied by it ; and has prevented the making of div- 
 idends upon the capital stock, and has otherwise improperly managed 
 the affairs of said corporation, to the great damage of the plaintiff and 
 other stockholders. The plaintiff prays that said Worthington may be 
 directed to render accounts of all. his dealihgs with the assets of the cor- 
 poration; and to refund all moneys improperly received or paid out 
 by him, and to pay to certain stockholders such sums of money as 
 shall equalize among all the stockholders certain distributions alleged 
 to have been irregularly njade among some of them ; and to file a cor- 
 rect statement in detail of all the present assets and liabilities of the 
 corporation; and hereafter annually to render accounts of his deal- 
 
524 EIGHTS OP STOCKHOLDERS (Ch. 4 
 
 ings with it as treasurer, so long as he holds that office. He ••also 
 prays that all funds of the corporation on hand in excess of $5,000 be 
 ordered distributed among the stockholders at once, and that the cor- 
 poration be required hereafter to declare dividends as often as the 
 cash on hand shall equal 5 per cent, of the amount of its capital stock, 
 and for general relief. 
 
 Courts of equity are swift to protect helpless minorities of stock- 
 holders of corporations from the oppression and fraud of majorities. 
 But the legal relations into which the members of a corporation enter 
 require them to seek redress of supposed wrongs done them as stock- 
 holders from its officers, and from the corporation itself, before ap- 
 plying elsewhere. Misconduct in dealing with a corporation, or in the 
 management of its affairs, can affect its members only through the cor- 
 poration itself. The wrong, in such a case, is done primarily to the 
 corporation. It is the duty of its directors, or other managing officers, 
 to protect it from, those who would do it injustice, and to seek com- 
 pensation for any injury which it receives. Stockholders in a cor- 
 poration impliedly agree, when they join it, to act in the corporate 
 business through officers chosen to represent them, or by vote at meet- 
 ings of the members regularly called; and so, if they deem them- 
 selves aggrieved as shareholders by the dealings of others with it, or 
 by the acts of its managers, they are bound to seek their remedy 
 through corporate channels — First, by application to the officers in 
 charg_e; and, failing there, secondly, to the corporation itself, at a 
 meeting of its members. If they can obtain justice at the hand of 
 neither, the courts are open for their relief. 
 
 It would be contrary to the fundamental principles of ^corporate 
 organization to hold that a single shareholder can at any time launch 
 the corporation into litigation to obtain from another what he deems 
 to be due to it, or to prevent methods of management which he thinks 
 unwise. Intelligent and honest men differ upon questions of business 
 policy. It is not always best to insist upon all one's rights ; and a corpo- 
 ration, acting by its directors or by vote of its members, may properly 
 refuse to bring a suit which one of its stockholders believes should be 
 prosecuted. In such a case the will of the majority must control. It 
 is only when the action of a corporation in refusing to proceed at the 
 reqiiest of a stockholder is fraudulent as against him, br in disregard 
 of his rights, that he can maintain a suit in his own name in the cor^ 
 porate right. The court cannot interfere with the management of cor- 
 porations in matters which are properly within their discretion, so long 
 as their discretion is fairly exercised ; and it is always assumed, until 
 the contrary appears, that they and their officers obey the law, and 
 act in good faith towards all their members. Even when their acts are 
 ultra vires, or otherwise illegal, a complaining member must first seek 
 his remedy within the corporation. The only exception to the rule' 
 that a stockholder must apply to the directors, and also, if need be, 
 to the corporation for redress of a wrong done it, before he can sue 
 
Sec. 3) EBPRESBNTATIVB SUITS 525 
 
 in a court of equity for himself, and in behalf of other stockholders, 
 is when it appears that such application would be unavailing to pro- 
 tect his rights. Brewer v. Theatre, 104 Mass. 378; Allen v. Wilson 
 (C. C.) 28 Fed. 677; Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 
 827; Detroit v. Dean, 106 U. S. 537, 1 Sup. Ct. 500, 27 L. Ed. 300; 
 Dimpfel V. Railway Co., 110 U. S. 209, 3 Sup. Ct. 573, 28 L. Ed. 121 ; 
 Foss V. Harbottle, 2 Hare, 461. That may happen when the direc- 
 tors themselves are the wrong-doers, or are in fraudulent combination 
 with them, or when the corporation is controlled by them, or when it 
 is necessary that action should be taken too speedily to leave time 
 for a corporate meeting of stockholders. 
 
 In the case at bar there is an averment that Roland Worthington, 
 the alleged wrong-doer, has for a long time controlled a majority of 
 the stock, and has elected such persons directors as he chose. That 
 states a sufficient reason for not applying to the corporation at a meet- 
 ing of its members for action to redress -its wrongs. But it is not 
 alleged that the plaintiff ever attempted to move the directors, in the 
 interest of the corporation, in the matters complained of, or that any 
 good reason existed for^his failure so to do. It does not even appear 
 who, or how many, the directors are. It is said that the defendants 
 Roland Worthington and Roland Worthington the younger, are di- 
 rectors, but no others are named. The law proyides that there shall 
 be at least three, and it is to be presumed that there are others be- 
 sides these defendants. Rev. St. c. 38, § 3; Pub. St. c. 106, § 25. 
 There is no allegation of fraud, or of wroAgful combination with 
 Roland Worthington, or of other misconduct on the part of any of 
 them; and it cannot be presumed, in the absence of such averments, 
 that they would refuse to do their duty if their attention were called 
 to it. 
 
 In Brewer v. Theatre, ubi supra, — a much stronger cafee for the 
 plaintiff than this, — an allegation was in these words : "A majority of 
 the present board of directors of said defendant corporation are acting 
 in the interest of, and are under the control of, said Tompkins and 
 Thayer," the authors of the alleged fraud, and it was held that this 
 allegation did not set forth a sufficient reason for bringing a suit with- 
 out first requesting the directors to do it. 
 
 For the reasons which we have stated the demurrer must be sus- 
 tained, but, inasmuch as the bill may be amended, it may be well to 
 consider some other objections made by the defendants." * * * 
 Demurrer sustained."* 
 
 B2 The consideration of the other objections Is omitted, 
 sa See Corbus v. Alaska Treadwell Gold Mining Company, 187 U. S. 455, 23 
 Sup. Ct. 157, 47 L. Ed. 256 (1903). 
 
526 BIGHTS OF STOCKHOtDBES ~ (Ql. 4 
 
 DONNELLY V. SAMPSON. 
 (Supreme Court of Wisconsin, 1908. 135 Wis. 368, 115 N. W. 1089.) 
 
 Appeal from a judgment of the Circuit Court for Florence Coun- 
 ty; John Goodland, Circuit Judge. Affirmed. 
 
 Stockholder's action against the defendant corporation and its pres- 
 ident to vindicate the corporation's right to certain real estate claimed 
 to have been wrongfully diverted to the use of such president. 
 
 The following is the substance of the complaint, omitting formal 
 allegations as regards the status of the plaintiff and of the defendant,, 
 such allegations being confessedly sufficient : Since prior to May 16, 
 1903, the corporation has been the owner of lands in Florence county, 
 Wisconsin, described as follows: (The particular descriptions we 
 omit.) It has not held any meetings either of stockholders or directors 
 for many years, the entire business having been left wholly under 
 the control of the defendant Sampson, its president. During such 
 time such president has suffered the corporate real estate mentioned 
 to be sold for taxes and suffered and procured deeds thereof to be 
 issued to divers persons (naming the grantee as to each tract of land), 
 with intent to procure the title under such tax deeds to be vested in 
 himself and has procured conveyances from such persons accordingly. 
 vAU of said tax deeds and conveyances from the grantees therein have 
 been duly recorded. Said tax titles are clouds on the title of the cor- 
 poration to said lands. Plaintiff has been unable with due diligence 
 to induce the corporation to commence an action to right the wrong 
 aforesaid. He applied to the secretary of the corporation, who owns 
 a large amount of its capital stock, for information as to who are its 
 officers and directors and was refused such information. The corpo- 
 ration has for several years failed to comply with the law as regards 
 filing with the Secretary of State of the state of Wisconsin a state- 
 ment as to its business and officers. Plaintiff cannot request the cor- 
 poration tQ bring an action to remedy the wrong aforesaid without the 
 president becoming informed of the danger of his being called to ac- 
 count in court for his misdeeds, /in which case, plaintiff believes, he 
 would before the court could act efficiently in the matter, place the tax 
 titles beyond its reach. December 16, 1906, plaintiff requested the sec- 
 retary to have this action brought in the name of the corporation, 
 which was refused. 
 
 The defendants demurred to the complaint for insufficiency of facts 
 to constitute a cause of action and for other reasons. The demurrer 
 was overruled. 
 
 Marshai,l, J. (after stating the facts as above). This case is ruled 
 by the familiar principle that in case of a wrong to a corporation, 
 remediable only by judicial interference, and the persons possessing 
 the primary right as its officers to move in that regard fail upon de- 
 mand or request being made by a stockholder, or stocKholders, to do 
 
Sec. 3) RHPRBSENTATIVE SUITS 527 
 
 SO or without such request or demand in case of the circumstances be- 
 ing such as to indicate that the same would be useless, any one or more 
 of them may on behalf of all sue to protect the corporate rights, mak- 
 ing the wrongdoer, or doers, and the corporation parties defendant. 
 Doud V. Wisconsin, Pittsville & Superior Ry. Co., 65 W|is. 108, 25 N. 
 W. 533, 56 Am. Rep. 620; Cunningham v. Wechselberg, 105 Wis. 
 359, 81 N. W. 414; Egaard v. Dahlke, 109 Wis. 366, 85 N. W. 369; 
 Northern Trust Co. v. Snyder, 113 Wis. 516, 89 N. W. 460, 90 Am. 
 St. Rep. 867; Kircher v. Pederson, 117 Wis. 68, 93 N. W. 813. 
 
 Whether any case fails within the principle stated or not mus^ be 
 determined by its own peculiar circumstances. In that regard there is 
 no absolutely certain test. The trial court has considerable discretion 
 in the matter. In case of its deciding that the situation is proper, 
 within the principle stated for the exercise of its equity jurisdiction 
 upon the ground that the facts alleged fairly satisfy the calls of the 
 rule, the determination cannot properly be reversed upon appeal un- 
 less it clearly appears that such decision is wrong. 
 
 In this case it can not be well questioned but that a serious wrong 
 to the corporation requiring judicial interference to remedy it is 
 charged. The allegations to the effect that the president had full con- 
 trol of all the corporate affairs and suffered and procured its real es- 
 tate to be sold for taxes and the tax titles based thereon through 
 mesne conveyances to be vested in himself, amply shows, with 'or 
 without that reasonable intendment which must be considered in favor 
 of a pleading, that he needlessly and fraudulently allowed the taxes 
 upon the lands to go unpaid, having in view a purpose of divesting the 
 corporation of its land and acquiring tl^e same for his personal use. 
 The charge that for many years he has been permitted to so handle 
 the corporate affairs in a purely personal way, sufficiently shows that 
 he so dominated its affairs that a" demand upon him, as its executive 
 officer, or upon its board of directors, to institute an action to reme- 
 dy the wrong complained of would not only be useless but, as alleged, 
 \yould rather efficiently stimulate him to pass the wrongfully ac- 
 quired titles on to some innocent party, or parties, and beyond- the 
 reach of the court. 
 
 On the whole, it is considered that the facts alleged fairly satisfy 
 the test laid down in Northern Trust Co. v. Snyder, supra. In that 
 case it was said in regard to the essential status of a stockholder to 
 enable him to bring such an action as this : "In order that the situa- 
 tion in that regard, may be complete to the satisfaction of equity, it 
 is necessary to show that such persons (the corporate officers) will not 
 perform their duty. * * * That may be done in either of two 
 ways. By showing that they have neglected or refused to proceed 
 after being requested so to do by some person or persons whose re- 
 quests in that regard should be honored ; or by showing, expressly or 
 by necessary inference, that they are so concerned in the wrong to be 
 redressed, and hostile to any vindication or attempt to' vihdicate the 
 
528 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 corporate rights, that it is reasonably certain that a request to them to 
 proceed to that end by judicial remedies would be unavailing. Ob- 
 seirvations may be found in some legal opinions tending to convey 
 the idea that a demand upon the proper corporate officers to enforce 
 a corporate right of action, and their refusal so to do, i-egardless, of 
 circumstances, is a condition precedent to the right of a member of 
 a corporation to stand in their place and do their duty. Such is not 
 the law. If it appears, reasonably, by all the allegations of the com- 
 plaint, in a suit instituted by a member of a corporation in its right, 
 that those persons in whom the duty and the primary right rests to 
 represent it will not perform that duty, from any cause, a case is 
 thereby presented, subject to proof, entitling an interested person, 
 * * * to protect his right and that of all others similarly situated, 
 by suing in his and their behalf, and presenting to a court for adjudi- 
 cation the cause of action of the corporation." 
 
 We have treated the case from the viewpoint most favorable to 
 appellants, viz. : that the complaint does not state facts sufficient to 
 show that any fair attempt was made to demand or request the cor- 
 poration to commence an action to remedy the wrong complained of. 
 Reliance is placed by appellants' counsel on Doud v. Wis., P. & S. 
 R. Co., supra, but neither the decision there nor anything said in the 
 opinion is necessarily controlling here. Tht trial court in that case 
 refused to exercise its jurisdiction, holding that the facts alleged did 
 not sufficiently excuse demand upon the corporation to commence ju- 
 dicial proceedings to protect its interest, and the decision was sus- 
 tained on appeal. That does not make a judicial rule necessarily re- 
 quiring, in just such a case, reversal of a trial court's decision sustain- 
 ing the action. It may well be that under the facts the discretion of 
 the court was broad enough to enable it to take or refuse jurisdiction 
 free from appellate interference. It was there said, and counsel for 
 appellants now point thereto with confidence : "It is insisted by .plain- 
 tiff's counsel that the facts stated in the complaint show that the di- 
 rectors would have refused to proceed in the name of the corpora- 
 tion, or would, if they had so proceeded, have studied to make the suit 
 fruitless of results, We cannot, however, make that inference from 
 the matters in the complaint. It may well be that the president had 
 such influence over the board of directors that he would control their 
 action in the matter, but we cannot presume that this would be the 
 case." 
 
 Here, as appears, the board of directors did not for many years pay 
 any attention to the corporate affairs ; that they left the president in 
 full control of everything as if he were the only one interested and 
 that the secretary, who was himself a large stockholder, had full 
 knowledge of the president's misdeeds, was agreeable thereto and so 
 hostile to stockholders circumstanced as plaintiff was that he sup- 
 pressed from them knowledge of the names of other officers of the cor- 
 poration. Under those circumstances it seems that the trial court had. 
 
Sec. 3) REPRESENTATIVE SUITS 529 
 
 •reasonable ground at least to conclude that an efficient demand upon 
 the corporation to appeal to the court against its president was im- 
 practicable, if not impossible. 
 
 By THE Court. The judgment is affirmed."* 
 
 PELLIO V. BULLS HEAD COAL Co. 
 (Supreme Court of Pennsylvania, 1911. 231 Pa. 157, 80 Atl. 71.) 
 
 The following opinion was filed in the court below : 
 
 Edwards, P J." * * * The defendants named in plaintiff's 
 bill are the Bulls Head Coal Company, David J. Whiteford, Emma J. 
 Dudley (formerly Emma J. Burr), and Emma J. Dudley, executrix of 
 C. A. Burr, deceased — four defendants. 
 
 "The allegations of plaintiff's bill are, briefly, and in part, as fol- 
 lows: 
 
 "(1) The Bulls Head Coal Company was organized in 1901 with a 
 capital stock of $25,000, the total number of shares issued amounting 
 at par to $22,500, Burr owning $10,000, and Whiteford $9,000. _ 
 
 "(2) The defendant company immediately after its incorporation 
 engaged in the mining and selling of coal. Burr was president, and 
 Whiteford, secretary and treasurer. 
 
 "(3) Burr and Whiteford managed the company in a manner to 
 suit themselves, paid such dividends as they pleased, drew large sal- 
 aries, and otherwise misapplied the funds of the company. From 
 about April, 1904, to July, 1906, the sum of $49,000 was paid in sal- 
 aries to three of his defendants, viz., C. E. Burr, D. J. Whiteford, and 
 Emma J. Dudley. 
 
 "(4) On July 31st there was in the treasury of the company the sum 
 of $14,496.01. On August 17th of the same year plaintiff was in- 
 duced to part with his stock. 
 
 "(5) In accordance with the decree of the court in a former pro- 
 ceeding, plaintiff has again become a stockholder of the company. The 
 money in bank July 31, 1906 ($14,496.01) has been distributed to the . 
 stockholders as dividend, none of which has been paid to the plaintiff. 
 A new board of directors and new officers have been elected, and the 
 company still carries on the business of mining and selling coal. . 
 
 "(6) A written notice was served on May 24, 190^, on the Bulls 
 Head Coal Company to bring suit against D. J. Whiteford and the es- 
 tate of C. A. Burr, deceased, and the company has neglected to do so. 
 < "There are other paragraphs in the bill ; but we need not refer to 
 them now. The plaintiff prays for the appointment of a receiver and 
 for various accountings. 
 
 »« See Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030 (1909). 
 BB Part only of the opinion filed In the court below is given. 
 RiCH.CoEP. — 34 
 
OjSO BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 "It is clear that the plaintiff is before us as a stockholder of the de- 
 fendant company, and, under the allegations of his bill, that he is en- 
 titled to relief either in equity or law; the main question to be con- 
 sidered now being one of procedure. The substance of his complaint 
 is that certain sums of money were unlawfully diverted from the 
 treasury of the company and paid to three individuals under the guise 
 of salaries, and he is seeking the aid of the court to secure the return 
 of the funds so misappropriated into the treasury of the corporation. 
 
 "There are two ways in which this can be done. Under certain 
 conditions a stockholder may bring suit on behalf of the corporation 
 without first requesting the managers or directors to bring such pro- 
 ceedings; but this may be done only under exceptional circumstances. 
 A case in point is that of Treat v. Insurance Co., 203 Pa. 21, 52 
 Atl. 60. In this case the officers of the insurance company had re- 
 insured all of its risks in another company. The company had no 
 office, solicited no risks, and was practically defunct; in other words, 
 the business had been abandoned. The officers, it appeared, had ap- 
 propriated the funds of the company to their own use. It was held 
 that in such a case it was not necessary for a shareholder to request 
 the manager to apply for a-receiver, before filing his bill. 
 
 "The facts of the case at bar, as gathered from the bill, are differ- 
 ent. The defendant company is a-going corporation. It has a presi- 
 dent, secretary, treasurer, and a board of directors, and was carrying 
 on 'the business of mining coal' when the t)ill was filed. It is true 
 that there are new officers, new directors, and some new stockholders ; 
 but the corporation is an active one and is clothed with the usual cor- 
 porate powers. 
 
 "The other way to secure the relief sought by the plaintiff is indi- 
 cated in the case of Wolf v. Railroad Co., 195 Pa. 91, 45 Atl. 936. 
 This case fully explains the law. Mr. Justice Mitchell says ^ 'The 
 first matter for consideration is the status of the plaintiff to maintain 
 such a bill. It. is a bill to assert rights of the corporation, and there- 
 fore must ordinarily be brought by the corporation itself. Thei right 
 of an individual stockholder to act for the corporation is exceptional 
 and only irises on a clear showing of special circumstances, among 
 which inability or unwillingness of the corporation itself, demand 
 upon the regular corporate management, and refusal to act are im- 
 perative requisites. And the refusal by the corporate management 
 must appear affirmatively to be a disregard of duty, and not an error 
 of judgment, a nonperformance of a manifest official obligation, 
 amounting to a breach of trust. 2 Beach on Private Corporations, § 
 878. There must be averred and proved an actual application to the 
 directors, and a refusal by them to bring suit or to allow plaintiff to 
 do so in the corporate name, and where misconduct of the directors 
 themselves is alleged, the bill must show an effort to secure plaintiff's 
 rights through meetings of the corporation. 2 Beach, on Private Cor- 
 
Sec. 3) BBPBBSBNTATIVH SDITB 531 
 
 porations, §§ 882, 885. "The shareholder should set forth in his bill 
 the efforts that he has made to induce the corporation to aqt in the 
 matter, should allege its refusal or failure to sue," and "facts show- 
 ing that he has left undone nothing which in reason he might have 
 done to prevail on the corporate management to bring the action." 
 Taylor on Private Corporations, §§ 138, 140. See, also, Morawetz 
 on Private Corporations, §§ 241, 244.' 
 
 "The counsel for plaintiff appears to have followed the procedure 
 suggested, in Wolf v. Railroad Co., 195 Pa. 91, 45 Atl. 936, because 
 he attempted to comply with the requirement of notice to the corpora- 
 tion. A copy of the notice is attached to plaintiff's bill as 'Exhibit A.' 
 We hold this notice to be insufficient. It is directed to the 'Bulls Head 
 Coal Co.; S. S. Spruks, President; C. Comegys, Esq., Attorney — 
 Gentlemen: You are hereby notified to bring suit,' etc. A corpora- 
 tion is managed by its board of directors, and as is stated in the case 
 cited : 'There must be averred an actual application to the directors, 
 and a refusal by them to bring suit.' ' 
 
 "We hold also that the notice ought to state specifically the parties 
 against whom the corporation is to bring suit. Only in an inferential 
 way can this be gathered from the notice in this case. 
 
 "We are not called upon to decide the question of the right of the 
 plaintiff to bring suit in his own name, rather, than in his name for 
 the benefit of the corporation, the Bulls Head Coal Company. If 
 the money alleged to have been misappropriated by the former officers 
 of the company were recovered in legal proceedings, the sum so re- 
 covered should go into the treasury of the company, and the plaintiff 
 would thereby reap a profit depending upon the amount of stock held 
 by him and depending also upon the financial condition of the com- 
 pany at the, time. The money recovered in such a suit after satisfying 
 creditors would belong to the stockholders of the company and could 
 be ■ distributed among them as dividends. As an illustration we can 
 use the facts set forth in the bill. During a period of about two 
 years the -sum of $49,000 was paid in the form of salaries to three 
 persons who controlled the corporation. Supposing that $4,000 would 
 have been a fair compensation for their services, the balance of $45,- 
 000 would hz the amount of the misappropriation. Because the plain- 
 tiff owns five shades of the stock, or'V*" of the capital, 'it does not 
 follow that he would be entitled to that proportion of the money re- 
 covered in a suit. His right as a stockholder to a distributive share 
 of the assets of the company would depend on other factors in the 
 equation. 
 
 i"Reducing the plaintiff's case, as set forth in his bill, to its lowest 
 terms, it means that the directors of the defendant company, being 
 trustees for all the stockholders, are under a legal obligation to bring 
 suit against certain alleged^ wrongdoers to recover certain sums of 
 money belonging to the company ; and that, the said directors failing 
 
532 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 in this duty after notice, the plaintiff has the right to bring such a suit 
 for and in behalf of the corporation. This is the substance of the 
 plaintiff's case. 
 
 "It should be understood that we sustain the demurrer in this case 
 on the single ground of the insufficiency of the notice exhibited in 
 plaintiff's bill, leaving open the other questions, which are not specific- 
 ally raised by the demurrer. The nature of the case is such that the 
 plaintiff's bill cannot be amended. 
 
 "Now, March 7, 1910, the demurrer is sustained, and the plaintiff's 
 bill is dismissed, with costs." 
 
 Per Curiam. The judgment is affirmed on the opinion of the 
 learned court below. 
 
 WRIGHT et al. v. FLOYD et al. 
 (Appellate Court of Indiana, 1909. 43 Ind. App. 546, 86 N. E3. 971.) 
 
 Hadlby, J. Appellants sued appellees to set asidte a judgment 
 against the United Brethren Publishing Establishment, a corporation, 
 and in favor of the Local Endowment BoardI for Central Church of 
 the United Brethren in Christ of Rohrersville, Md., which, it is aver- 
 red, was based upon a fraudulent claim and a fraudulent confession 
 of judgment, all to the knowledge of all of the parties interested. It 
 is averred: "That appellantSj together with appellees Floyd, Barnaby, 
 Tharp, and Montgomery, constitute the board of trustees of the ap7 
 pellee, United Brethren Publishing Establishment, and have the man- 
 agement of its affairs; that said named appellees constitute the major- 
 ity of the board of trustees of said corporation, and over the protests 
 of appellants did and performed the acts complained of, and appel- 
 lants bring said action for the use and benefit of said publishing es- 
 tablishment. It is nowhere averred that appellants are members either 
 of the corporation or of the church, for whose benefit the printing es- 
 tablishment was operated, or that they have apy interest whatever in 
 the controversy either as shareholder, stockholder, member, or bene- 
 ficiary. Moreover, it is apparent from the averments of the complaint 
 that appellants seek to bring the suit as minority trustees and in their 
 trust capacity for the benefit of the corporation. 
 
 The question we are called upon to decide is whether they thereby 
 show sufficient interest to prosecute this suit. It cannot lie said that the 
 corporation is prosecuting the suit, since the corporation only acts by 
 a majority of its board of trustees, or at least a majority of a quorum 
 present. Price v. Railroad Co., 13 Ind. 58; 2 Cook, Corp. (5th Ed.) 
 § 712. And it is well settled that one or more members and less than 
 such majority of a board cannot bind the corporation to any action. 
 2 Cook, Corp., supra ; Noblesville, etc., Co. v. Loehr, 124 Ind. 79, 24 
 N. E. 579 ; AUemong et al. v. Simmons et al., 124 Ind. 199, 23 N. E. 
 768. In 2 Cook, Corporations, supra, the learned author says: "All 
 
Sec. 3) EBPEESENTATIVB SUITS 533 
 
 contracts of a corporation are to be made by or under the direction of 
 its board of directors. The board of directors make corporate con- 
 tracts by a regular vote of the board. * * * The board of di- 
 rectors have the widest of powers. All of the various acts and con- 
 tracts which a corporation may enter into are entered into by and 
 through the board of directors. The board of directors make or au- 
 thorize the making of the notes, bills, mortgages, sales, deeds, liens, and 
 contracts generally of the corporation. They appoint the agents, di- 
 rect the business, and govern the policy and plans of the corporation. 
 * * * They institute, prosecute, compromise, or appeal suits at law 
 and in equity which the corporation brings or has brought against it. 
 But there are limitations on their powers. If the board of directors 
 attempt to do an act or make a contract which the corporate charter 
 does not give the corporation the power to do or enter into, then any 
 stockholder may enjom that act or contract. Moreover, the directors 
 can contract and act only as a board, duly notified and assembled. 
 The members of the board cannot agree separately and outside of 
 the meeting and thereby bind the corporation. Nor can a minority of 
 the board meet and bind the board. A majority must be present, and 
 then a majority of that majority binds the corporation. A single di- 
 rector has no power to contract for the corporation." 
 
 Neither can it be said that they are bringing the suit as interested 
 members, since there is no averment of their being such. It does not 
 appear that they have any personal interest in the controversy. 
 
 It is well settled that shareholders or stockholders in a corporation, 
 or an interested member, may bring suit on behalf of the corporation 
 to protect the interest of the corporation and incidentally the interest 
 of the members; but, in doing so, their inteirest must be shown, and 
 it also must be shown that a demand has beea made upon the corpora- 
 tion to protect such interest, and a refusal so to do, or such facts be 
 exhibited as show that such demand would be unavailing. Carter v. 
 Glass Co., 85 Ind^ 180; Sheridan Brick Works v. Marion Trust Co., 
 157 Ind. 292,' 61 N. E. 666, 87 Am. St. Rep. 207; Tevis v. Hammer- 
 smith, 31 Ind. App. 281, 66 N. E. 79, 912; Wayne Pike Co. v. Ham- 
 mons, 129 Ind. 368, 27 N. E. 487; 3 Cook, Corp. (5th Ed.) § 750. 
 
 But we have made diligent search and have been unable to find any 
 authority warranting a member of the board of trustees or directors 
 to bring such a suit in his trust capacity, or in his personal capacity, 
 solely by reason of his interest on account of such membership, since 
 such membership gives him no personal interest. In the absence of a 
 statute or rule of the corporation, a member of a board! of directors 
 or trustees does not' necessarily have to be a member or shareholder 
 of such corporation. 1 Cook, Corp. (5th Ed.) § 11. 
 
 The complaint does not show under what statute the appellee print- 
 ing establishment was organized, neitl;ier does it aver any rule requir- 
 ing the trustee of such corporation to be a member, andl under such 
 circumstances the mere avertnent of plaintiff that be is a member of 
 
534 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 the board of trustees is not sufficient to show such interest as to au- 
 thorize the prosecution of suits of this character. It is clear that 
 where a suit is prosecuted, as this is prosecuted on behalf of the cor- 
 poration by minority members of the board of trustees, a determination 
 of such cause would not be an adjudication of the rights of the corpo- 
 ration in the controversy since the corporation does not prosecute the 
 suit. Nor would it be an adjudication of the right of a member or 
 shareholder to prosecute such a suit in the name of the corporation, 
 since it does not appear that such member or shareholder has so prose- 
 cuted the same. 
 Judgment affirmed."' 
 
 FORREST V. MANCHESTER, S. & L. R. CO. 
 
 (High Court of Chancery, 1861. 4 De Gex, F. & J. 126.) 
 
 This was the appeal of the plaintiff from the dismissal of -his bill 
 by the Master of the Rolls. The plaintiff- was a shareholder in the 
 Manchester, Sheffield and Lincolnshire Railway Company, and sued 
 on behalf of himself and the other shareholders of the company for 
 an injunction to restrain the defendants itom conveying in vessels 
 or boats passengers, cattle, or goods from Hull or Grimsby to Spurn 
 Point. * * * 
 
 Evidence was gone into, and the plaintiff on his cross-examination 
 admitted that he held only £82 stock in the railway company, but 
 was the holder of twelve £30 shares in the packet company, which 
 was paying a dividend of £10 per cent; and that the excursion 
 traffic had been continued for eight or ten years. He also admitted 
 that the directors of the packet company had directed the institu- 
 tion of the suit, and indemnified him against costs. The Master of 
 the Rolls dismissed the bill on the ground that the act sought to be 
 restrained was nOt ultra vires."' 
 
 The Lord Chancellor (Westbury). In this case I am asked to 
 reverse the order of the Master of the Rolls dismissing this bill with 
 costs. I desire it to be distinctly understood that my decision does 
 not proceed upon the grounds stated by the Master of the Rolls. It 
 is unnecessary for me to express any opinion upon the ground stated 
 by -His Honor which, if they are correct, would be confined enth'ely 
 to this particular case, because they have reference to the peculiar 
 constitution of the present company. But the ground upon which 
 I proceed is entirely that of personal exception to the character of the 
 plaintiff and the foundation of my decision) is contained in this pas- 
 sage of the plaintiff's own examination not attempted to be qualified 
 or questioned. He says in that examination, "The directors^of the 
 
 58 Compare Baldwin v Canfleld, 26 Minn. 43, 1 N W. 261, 276 (1879). 
 0' Part of the statement is omitted. 
 
Sec. 3) EEPKESENTATIVB SUITS 535 
 
 packer company directed the institution of this suit and indemnify 
 me against costs." It is not that they persuaded him to institute the 
 suit, not that they instigated the suit, but that the directors of the 
 other company have "directed the suit," and are to indemnify the 
 plaintiff against the cost of it. To use a familiar expression, the 
 plaintiff is the puppet of that company. 
 
 It has been a very wholesome doctrine of this Court that one 
 shareholder having in view the legitimate purposes of the company 
 may be permitted in this Court to maintain a suit on behalf of him- 
 self and the other shareholders of the company, but the principle 
 upon which that constructive representation of the shareholders is 
 permitted indisputably requires that the suit shall be a bona, fide one, 
 faithfully, truthfully, sincerely directed to the benefit and the inter- 
 ests of those shareholders whom the plaintiff claims a right to repre- 
 sent. But can I permit a man who is the puppet of another com- 
 pany to represent the shareholders of the company against whom he 
 desires to establish the interests and benefits of a rival scheme? That 
 would be entirely contrary to the principle upon which this con- 
 structive representation has been permitted to be founded. When the 
 plaintiff sues in that capacity any personal exception to the plaintiff 
 remains, and it wOuld be in direct contradiction of every principle of 
 truth and justice if I permitted a man to come here clothed in the 
 garb of a shareholder of company A., but who is ip reality a share- 
 holder in company B., and has no sympathy whatever with, no real 
 purpose of promoting the interests of the other company. Such a 
 , thing would be so much at variance with the principles of a court of 
 equity that it would be impossible for it to entertain a suit of that 
 description which is a mere mockery, a mere illusory proceeding. 
 
 It is however, said that this objection was considered some years 
 ago in the well-known case of Colman v. Eastern Counties Railway 
 Company, 10 Beav. 1, and was overruled by the late Master of the 
 Rolls, Lord Langdale. All I mean to say about that case is that 
 the objection there proceeded upon a different ground. The prop- 
 osition of Lord Langdale is that it is no ground of personal excep- 
 tion to a plaintiff that he has been instigated to institute his suit by 
 another company. If the proposition be limited to the extent of 
 the words in which it is expressed, possibly there may be no excep- 
 tion to that proposition, but undoubtedly I would not assent to it if 
 carried one jot beyond those limits. I desire, however, to point 
 out again the wide difference which exists between a suit "directed" 
 tq, be instituted by the directors of another company, and a suit 
 , which is bona fide instituted by the plaintiff, persuaded only to the 
 institution of it by the arguments of another company.. . In the 
 one case the suit is the suit of the plaintiff, and is for aught that 
 appears instituted at the peril of the plaintiff. In the other case, 
 the whole origin of the suit and the direction and conduct of it 
 
& 
 
 536 EIGHTS OF STOCKHOLDEEa (Ch. 4 
 
 emanate altogether from the other company, and the suit would 
 have no existence whatever but for the order of the other compa- 
 ny. I consider, therefore, that the language in which the Master 
 of the Rolls expresses himself upon the proposition then submitted 
 to him does not in the smallest degree interfere with or weaken the 
 Sfround that I have taken; 
 
 I have nothing to do with the motives of the plaintiffs suing in 
 this Court. If they come here in a bona fide character, the reason 
 for their coming here is a matter beyond the province of a court of 
 justice to inquire into. See Kerr, Inj. 549. But if a man comes 
 here representing to me that he is a bona fide shareholder in a com- 
 pany, and that it is the bona fide suit of that company, and it turns 
 out not to be the suit of that company, but in reality to be in its origin 
 and its very birth and creation the suit of another company, then 
 I repeat that this is an illusory proceeding, and ought not to be 
 attended to by the Court. The well-known, words, — the trite quo- 
 tation, — will occur to the minds of those who hear me. Fabula non 
 est judicium in scena, non in foro res agitur. If this gentleman be 
 permitted to come and assume merely for the purpose of coming into 
 this Court the garb of a shareholder, but at the same time explicitly 
 announces, "This suit is not directed to the purposes of that com- 
 pany ; I have nothing , in common with the shareholders of that 
 company; it has not emanated from the wish of the shareholders; 
 it does not emanate from me as a shareholder; it is not my act; I 
 am directed to do it by another party, and another body of men," 
 then in point of fact the suit is not the expression of his own will, 
 nor is it the legitimate prosecution of his own interests or his own 
 objects, but it is the prosecution of the interests and objects of per- 
 sons who have no right whatever to invoke the interference of this 
 Court. 
 
 I treat this suit as an imposition on the Court. By these words 
 I mean no reflection upon the plaintiff himself, because he has told 
 the truth, and does not appear at any time to have desired to con- 
 ceal it. But as he comes here in the character of a shareholder in 
 the company, and tells me frankly that the institution of the suit 
 is not his own act,, but an act that he has been directed to do by the 
 other company, then, using the words without offence, I denominate 
 that suit an imposition on the Court, and I dismiss it accordin,gly, 
 and affirm, though on a different ground, the order that has been 
 made. 
 
 I refuse this application with costs."* 
 
 08 feee Hodge v. United States Steel Corporation, 64 N. J, Eq. Ill, 53 Ati. 
 553 (1902). 
 
Sec. 3) EBPEESENTATIVE SUITS 537 
 
 POLLITZ V. GOULD et al. 
 (Court of Appeals of New York, 1911. 202 N. Y. 11, 94 N. E. 1088.) 
 
 Appeal, by permission, from an order of the Appellate Division of 
 the Supreme Court in the first judicial department, entered January 
 13, 1911, which affirmed an order of Special Term denying a moti.on 
 to dismiss the complaint upon the pleading. 
 
 The following questions were certified: "l.Does the fact that the 
 plaintiff acquired his stock of the defendant, the Wabash Railroad 
 Company, upon which he bases his right to ask the court to enforce a 
 cause of action in favor of the railroad company against the individual 
 defendants, after all the transactions which the plaintiff insists imposed 
 a liability in favor of the railroad company against the individual de- 
 fendants had been consummated, all stocks and bonds issued and the 
 transactions complained of in ' all respects completed, prevent the 
 plaintiff from maintaining this action? 2. Is the enforcement of such 
 a cause of action confined to stockholders who actually owned stock 
 "at the time the transactions complained of were consummated and 
 completed ?" 
 
 The nature of the action and the facts, so far as material, are stated 
 in the opinion. 
 
 HiscocK, J. This action was brought by plaintiff as a stockholder 
 in the Wabash Railroad Company in behalf of said company, for the 
 benefit of himself and all other stockholders, to set aside as fraudu- 
 lent a transfer and exchange of several millions of dollars par value of 
 its stock for an equivalent amount of the capital stock of the Wabash 
 Pittsburg Terminal Railway Company. It is unnecessary to go into 
 the details of the transaction which is being attacked by the plaintiff 
 through and in behalf of the company, for the sole question presented 
 for our consideration may be discussed without doing this. This 
 question is whether a stockholder may bring an action of this character 
 for the purpose of avoiding an improper ttansaction consummated at 
 the expense of the corporation before he acquired his stock, and as 
 presented here the question is unembarrassed by any incidental consid- 
 erations, as that the prior holder of the stock consented to the trans- 
 action, or that plaintiff's subsequent acquisition of the stock was ac- 
 companied by any circumstances which would render it inequitable for 
 him to seek relief. 
 
 While somewhat strangely this question does not appear to have 
 been decided by this court, it has been passed on by the lower courts 
 of this state, and by those of many other states, and by the Supreme 
 Court of the United States. It has also been somewhat considered by 
 the courts of England. Conflicting conclusions have been reached by 
 these decisions. Without reviewing the English authorities, which so 
 far as cited do not seem to be very decisive, reference may be made 
 to the decisions in this country. 
 
538 EIGHTS OF STOCKHOLDERS (Ch.-4 
 
 The question was presented in Hawes v. Oakland, 104 U. S. 450, 
 26 L. Ed. 827, and it was there held that a stockholder might not 
 bring an action in behalf of the corporation to avoid a fraudulent 
 transaction consummated before he acquired his stock. While the 
 question was directly passed on it is fair to state that it was not consid- 
 ered at any great length, and that the court seems to have been more 
 concerned with establishing this rule as one of practice than of sub- 
 stantive law. The decision resulted in the adoption of a rule requir- 
 ing the plaintiff in such an action to show, before bringing suit, that he 
 owned the stock on which it was brought at the time the transaction 
 complained of occurred, and, whether it be regarded as establishing a 
 principle of law or a rule of practice, this authority has been subse- 
 quently followed in the United States courts. 
 
 In addition, this i-ule in such a stockholder's action has been ap- 
 proved in the following cases: Alexander v. Searcy, 81 Ga. 536, 8 
 S. E. 630, 12 Am. St. Rep. 337; Boldenweck v. Bullis, 40 Colo. 253, 
 90 Pac. 634; Rankin v. S. W. B. & I. Co., 12 N. M. 54, 71 Pac. 614; 
 Moore v. Silver Valley Co., 104 N. C. 534, 10 S. E. 679; Clark v.' 
 American Coal Co., 86 Iowa, 436, 53 N. W. 291, 17 L. R. A. 557; 
 Home Fire Ins. Co. v. Barber, 67 Neb. 644, 93 N. W. 1024, 60 L. R. 
 A. 927, 108 Am. St. Rep. 716. 
 
 The contrary doctrine that a stockholder acquiring his stock subse- 
 quent to the occurrence complained of may maintain this character of 
 an action has been affirmed in the following cases outside of this state : 
 Winsor v. Bailey, 55 N. H. 218; City of Chicago v. Cameron, 22 111. 
 App. 91, affirmed 120 111. 447, 11 N..E. 899; Montgomery Light Co. 
 V. Lahey, 121 Ala. 131, 25 South. 1006; Forrester v. B. & M., etc., 
 Co., 21 Mont. 544, 565, 55 Pac. 229, 353; Just v. Idaho, etc., Co., 
 16 Idaho, 639, 102 Pac. 381, 133 Am. St. Rep. 140; Rafferty v. Don- 
 nelly, 197 Pa. 423, 47 Atl. 202 ; Appleton v. Am. Malting Co., 65 N. 
 J. Eq. 375, 54 Atl. 454. It has also been approved in this state, di- 
 rectly or indirectly in the following cases : Ramsey v. Gould, 57 Barb. 
 (N. Y.) 398; Young v. Drake, 8 Hun (N. Y.) 61; Ervin v. Oregon 
 Ry. & N. Co., 35 Hun (N. Y.) 544; Frothingham v. Broadway & 
 Seventh Ave. R. R. Co., 9 N. Y. Civ. Pi:oc. R. 304; Sayles v. Cen- 
 tral Nat. Bank, 18 Misc. Rep. 155, 41 N. Y. Supp. 1063; O'Connor v. 
 Virginia P. & P. Co., 46 Misc. Rep. 530, 535, 92 N. Y. Supp. 525. 
 
 Assuming this question to be an open one in this court, we have no 
 hesitation in approving the rule, which has heretofore prevailed in 
 this state, that in the absence of special circumstances this character of 
 action may be maintained by a stockholder acquiring his stock subse- • 
 quent to the' transaction which is challenged, rather than' the contrary 
 one prevailing elsewhere. We do this, not only because a long and 
 uniform line of decisions by our own courts ought to have weight, but 
 because the rule established by these decisions seems to be I the sound- 
 er one. ' 
 
Sec. 3) REPRESENTATIVE SUITS 539 
 
 . A stockholder has an indivisible interest in the property and assets 
 of a corporation, subject to the discharge of its obligations. This indi- 
 visible interest, generally speaking, is represented by certificates of 
 stock, and is transferred by their transfer. The general character of 
 these certificates, and the effect of their transfer in passing the interest 
 of the holder, is too well established and understood to require any 
 discussion. As an original proposition it would seem to be clear that 
 a right of action by or in behalf of the corporation for fraud, to set 
 aside a conveyance of its assets, or to- avoid obligations imposed upon 
 it, is part of its rights, property, and assets, in which a stockholder 
 has this indivisible interest, transferable by the transfer of his cer- 
 tificates. I am unable to see any real or substantial distinction by vir- 
 tue of which a stockholder, transferring his certificates, would trans- 
 fer all/ of his indivisible interest in bonds or real estate on hand, but 
 would not transfer his interest in a right of action to recover bonds 
 or real estate which had been fraudulently withdrawn from the pos- 
 session of the corporation, and which it was entitled to recover; and 
 if the subsequent holder, by acquiring the certificates, does acquire 
 such latter interest, it seems to follow that he may, if necessary, in 
 behalf of the corporation, assert and prosecute an action to protect 
 and enforce the same. 
 
 Brief reference may be made to some of the reasons advanced in. 
 opposition to this view. Counsel points out practical inconvenience 
 which he says will result from its application, owing to the difficulties 
 in tracing stock and distinguishing that which has not assented to the 
 transaction from that which has, or from that which perhaps has been 
 issued since its consummation. These arguments, however, are so 
 counterbalanced by corresponding claims from the opposite standpoint 
 as to be of little weight. 
 
 Again, it is argued that, if one buys stock subsequent to the trans- 
 action, he should be regarded as buying subject to it, and not be 
 permitted to question it. If the prior holder should give binding con- 
 sent to the transaction, this under certain circumstances undoubtedly 
 would prevent the subsequent purchaser from questioning it. But, 
 win the absence of special circumstances, I fail to see any principle of 
 estoppel or logic which makes a subsequent purchase of stock so 
 subject to a fraudulent corporate transaction that the purchaser may 
 not insist upon its being set aside. There is scarcely any analogy be- 
 tween the situation of one who buys from an individual property which 
 has been subjected to a transaction which has not been disaffirmed, 
 and that of one who purchases stock in a corporation which has the 
 continuing right both before and after the purchase, to disaffirm a 
 wrong which has been perpetrated on it by its agents. There is little 
 or no basis for the practical consideration that one wl;io buys stock 
 should be deemed to have adjusted his price to an existing transaction, 
 even though voidable. If he knows of it, he may just as properly be 
 
540 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 assumed to have adjusted his price to the knowledge that the transac- 
 tion may still be disaffirmed and avoided. 
 
 Then, lastly, an argument is made which seems to be founded on the 
 idea that, in order to bring an action of this nature, the stockholder 
 must in effect/ disaffirm the corporate transaction, and that this disaf- 
 firmance involves a personal right of election, which vests in the one 
 holding the stock when the transaction is consummated, and which 
 cannot be transferred. It is said "the right to question a fraud is not 
 a purchasable commodity," and is not "capable of assignment and 
 transfer," and does not pass "as an implied incident to every sale of 
 corporate stock," and this view seems to be supported by some of the 
 many cases which have been collected and reviewed by counsel with 
 manifest industry and care. 
 
 So far as this argument means to assert that a mere naked right to 
 question a corporate transaction could not be transferred to a stranger, 
 if such an attempt can be conceived of, it may be assumed to be true. 
 But the assertion that the right to protect stock by procuring an im- 
 proper corporate transaction to be vacated does not pass on a transfer 
 of the stock is a very different proposition., • 
 
 The election to disaffirm a fraudulent corporate transaction belongs 
 Ja and is exercised in the right and name of the corporation, and not 
 of the stockholder. The stockholder demands that the right shall be 
 exercised and the cause of action be prosecuted by the corporation, or 
 does it himself for the corporation. It is conceded that the one hold- 
 ing the stock when the fraud is consummated has this right. When 
 he transfers his certificates, the transaction still stands, a continuing 
 wrong, impairing the surplus of the company and affecting the stock. 
 If the transferee has the right to have it avoided, this will protect 
 and increase the value of his stock. If he has not acquired this^ right, 
 it is the only one held by his predecessor in or through the corporation, 
 which has been thought of, which has not been transferred by the 
 transfer of the stock. It will be an anomalous exception if the prior 
 holder retains the right to maintain or have maintained this action, 
 while he passes all of his other rights by the transfer of his stock. 
 
 The only justification pleaded for this is 1;he idea suggested of a 
 personal and nontransferable right of election to disaffirm vested in 
 the original holder. But this theory is entirely unsubstantial. Such 
 prior holder does not acquire this right to object to the transaction and 
 bring an action to set it aside as a power conferred upon him by rea- 
 son of any personal qualities, but because of his character as a stock- 
 holder, and when he loses this character, and transfers it to another 
 with his stock, there is no reason why the latter should not exercise 
 the right as a proper and necessary incident to his stock ownership. 
 
 The order should be affirmed, with costs, and both questions certified 
 to us answered in the negative. 
 
Sec. 3) REPRESENTATIVE SUITS 541 
 
 CuLLEN^ Ch. J., Vann, Werner, Wii,laed Barti,ett, and Chase, 
 JJ., concur. Haight, J., absent. 
 Order affirmed."* 
 
 SEATON V. GRANT. 
 (Court of Appeal In Chancery, 1867. L. R. 2 Cb. App. 459.) 
 
 This was an appeal from an order made on the 12th of February, 
 1867, bf Vice-Chancellor Malins, refusing an application of the de- 
 fendants that the bill might be taken off the file, or that all further 
 proceedings might be stayed. 
 
 The bill was filed by Charles Seaton, on behalf of himself and all 
 other shareholders in the Credit Foncier and Mobilier of England, 
 Limited, except the defendant, Albert Grant, against Albert Grant, 
 George Edward Seymour, and the above-named company, under the 
 following circumstances : 
 
 The defendant, Albert Grant, was the managing director of the 
 above-named company. The defendant, George Edward Seymour, was 
 the chairman of a company called the City of Milan Improvements 
 Company. The plaintiff alleged that the two last-named defendants 
 had, in the year 1865, formed what is called a "syndicate" on the Stock 
 Exchange; that is, a combination for the purpose of raising the value 
 of the shares of the Milan Company to a fictitious premium ; and that, 
 with this end. Grant had purchased 12,129 shares in the Milan Com- 
 pany, and paid for them out of the funds of the Credit Foncier, by 
 which the latter company had sustained a great loss, the shares of the 
 Milan Company having fallen very much in value. 
 
 He also alleged that the defendants were taking measures to re-con- 
 stitute the Credit Foncier, by dissolving the company, and transferring 
 its assets and liabilities to a new company. 
 
 The bill prayed that the defendants. Grant and Seymour, might re- 
 pay to the Credit Foncier the money expended in the purchase of the 
 shares in the Milan Company, and that the Credit Foncier might be 
 restrained from handing over their assets to any other company, until 
 all their debts and liabilities had been paid and satisfied. 
 
 The bill was filed on the 19th of July, 1866, and immediately after- 
 wards the plaintiff moved for an injunction, in terms of the prayer, 
 before Vice-Chancellor Kindersley, who refused the motion with costs. 
 
 On the occasion of the motion, the plaintiff was cross-examined in 
 Court, when it appeared that he held only five shares of £20. each in 
 the Credit Foncier, which he acquired solely for the purpose of filing 
 this bill ; and that his reason for filing the bill was that he and several 
 
 68 Accord: Just v. Idabo Land & Improvement Co., 16 Idaho, 639, 102 Pac. 
 381, 133 Am. St. Rep. 140 (1909). 
 
 Contra: Home Fire Insurance Co. v. Barber, 67 Neb. 644, 93 N. W. 1024, 
 60 L. R. A. 927, 108 Am. St. Rep. 716 (1903). 
 
542 RIGHTS OF STOCKHOLDERS (Ch. 4 
 
 of his friends had lost money by speculating in shares of the Credit 
 Foncier, and that he was advised that if he bought shares, and then 
 filed a bill to impeach certain transactions of which he had notice, he 
 would probably be bought off at a high price, and so obtain com- 
 pensation. 
 
 Subsequently to the filing of the bill, two extraordinary meetings of 
 the Credit Foncier were held on the 30th of July and the 15th of Au- 
 gust, 1866, at which resolutions were passed for winding up the com- 
 pany voluntarily, and for the formation of a new company, for objects 
 which would include the carrying on of the business of the Credit 
 Foncier. 
 
 The defendants put in answers to the bill, but refused to give full 
 information to the plaintiff as to the transactions complained of ; and 
 their answers were excepted to by the plaintiff. 
 
 The motion now under appeal was made by the. defendants Grant 
 and the Credit Foncier, and, having been refused by the Vice-Chan- 
 cellor, was now renewed before the Lords Justices. 
 
 Sir G. J. Turner, L,. J. In every case of this description, we must 
 consider what is the nature of the case made by the bill. In the pres- 
 ent instance, the bill complains of a gross fraud which the Plaintiff 
 alleges to have been committed upon a company of which he is a 
 member. The persons now moving to take the bill off the file are Mr. 
 Grant and the company, the alleged parties to the fraud. They have 
 not thought fit at present to put in any answer to the bill, with the 
 exception of an answer raising the personal exception to the plain- 
 tiff, which is one of the grounds of the present motion. There is, 
 therefore, nothing before the Court disputing the allegations of fraud 
 contained in the bill. In this state of circumstances, the question is, 
 whether the Court ought to interfere upon motion, as it now asked to 
 do, to stop this suit. • 
 
 In the first place, on what basis would the Court proceed in acced- 
 ing to such a motion? It cannot at this stage of the proceedings be 
 assumed as against the plaintiff, that the allegations of fraud made by 
 the bill will necessarily be wholly displaced in the suit. Suppose that 
 answers are put in which should contain a direct admission of the al- 
 leged fraud. Is it to be said that, if those facts were altogether ad- 
 mitted, the Court would interfere at once, brevi manu, to stay the pro- 
 ceedings or dismiss the bill? 
 
 But it is said that everything which is sought by the bill could be 
 obtained in the winding-up proceedings. The first observation iipon 
 that is, that the resolutions to wind up the company were passed after 
 the institution of the suit. The second observation is, that we are in 
 total ignorance of the circumstahces under which the resolution to wind 
 up the company were passed, whether these alleged frauds were or 
 were not brought to the attention of the meeting. The validity of 
 those resolutions may possibly be open to dispute upon the bill as it now 
 stands, and if it is no1\, the bill might be amended for the purpose of 
 
Sec. 3) REPKBSBNTATIVE SUITS 543 
 
 raising the question, and it might then appear that these resolutions 
 were passed for the express purpose of evading these charges of fraud. 
 Another very material circumstance is this : that if the suit goes on, it 
 will be quite in the discretion of the Court whether these charges shall 
 be worked out in the suit or in the winding-up proceedings ; and yet we 
 are asked to stop the suit at once, on the assumption that it will be 
 more advantageous to the company that the proceedings should be car- 
 ried on under the winding-up than in the suit. I can at present see no 
 foundation for that conplusion. 
 
 But the strongest argument which has been used in support of the 
 motion is what may be called the personal exception to the plaintiff. 
 Npw I by no means approve of the plaintiif 's conduct ; but the ques- 
 tion is, whether his conduct has been such as to deprive him of all 
 right whatever in this suit? The plaintiff's case is, that he has sus- 
 tained great loss by speculating in the shares of the company, and that 
 he afterwards purchased a small number of its shares, and then filed 
 this bill to impeach certain transactions by the manager of the compa- 
 ny. Now, although I by no means approve of such conduct, yet I can- 
 not venture to say that for this reason the Court ought to interfere 
 upon motion to deprive a plaintiff of his rights, if, upon the hearing, 
 he should appear to be entitled to anything. 
 
 Another objection that has been taken is the insignificance of the 
 plaintiff's interest in the subject mattter of the suit. He is, however, 
 stiing on behalf of himself and the other shareholders of the compa- 
 ny, and I am not prepared to say that the ordinary rule as to suits for 
 a subject matter of less value than £10. applies to a case of this kind. 
 I see no reason for dissenting from the conclusion of the Vice-Chan- 
 cellor. I might be inclined to go even farther than he lias done, and 
 to say, that even if a sufficient answer had been put in, a motion of 
 this kind could not be acceded to. It is sufficient, however, to rest the 
 refusal of the motion upon the ground that no answer has been put in. 
 I must add, however, that questions of fraud are proper to be tried at* 
 the hearing of the cause, and not on such an application as this. The 
 motion must be refused with costs. 
 
 Lord Cairns, L. J. This motion is one of a very novel, but of a 
 very important character, because it asks the Court to shut the door in 
 the face of the plaintiff, not on the merits of the case, but. on the 
 ground that he has by his conduct disentitled himself to institute the 
 suit. The theory of the law of this country is, that every subject has 
 a right to bring his complaint to a hearing, if it be not capable of 
 being stopped by a demurrer or a plea. The exceptions which have 
 been established to this rule merely shew the strength of the general 
 rule. Those exceptions are four in number: First, where the plain- 
 tiff' is required to give security for costs. That is hardly an exception, 
 because the Court only stays the proceedings in the suit until the se- 
 curity is given. Second, where the defendant is willing to give to the 
 plaintiff all the relief which he asks, and to pay his costs of the suit. 
 
544 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 Third, where the subject matter of the litigation has perished, or has 
 been removed, and nothing remains to be decided but the payment of 
 costs of the suit. There the Court considers that it would be useless 
 to allow the suit to go on to a hearing when the only question to be 
 determined can be as well decided upon motion. Fourth, where the 
 bill has been filed without the authority of the person who appears as 
 the plaintifE, or where the name of a corporation has been used without 
 a sufficient title to use it. In such a case the bill is treated as a fraud 
 upon the Court, and is therefore ordered to be taken off the file. 
 
 The grounds alleged for the present motion are three : First, a per- 
 ^ sonal exception to the plaintiff. I do not think that I unfairly repre- 
 sent the conclusion which the parties desire to draw from the cross- 
 examination of the plaintiff if I put it in this way. The plaintiff had 
 in a collateral way lost some money, and he then finds a blot in the 
 management of the company of which he thinks the shareholders might 
 complain. He buys five shares in the company, and then files this bill, 
 in order to induce the company to bu}' off the litigation. That, no 
 doubt, is a course of conduct which would meet with little approval in 
 this- Court, or, indeed, in any other Court, and such conduct might be 
 material at the hearing with reference to the amount of relief which 
 the plaintiff could obtain, or whether he was entitled to any relief 
 at all. But the question is, whether these facts are necessarily fatal to 
 the plaintiff's claim to relief? Suppose an answer were put in admitting 
 all the allegations contained in the bill, it would be difficult to say at 
 this stage of the suit that the plaintiff's conduct would altogether dis- 
 entitle him to relief. The case of Forrest v. Manchester, Sheffield & 
 Lincolnshire Railway, 9 W. R. 818, which was relied upon in the 
 argument, is distinguishable from the present case upon two grounds: 
 First, because that was the hearing of the cause; and, secondly (and 
 this is the main distinction), because there the Court came to the con- 
 clusion that the plaintiff was simply a puppet in the hands of another 
 •company, and that he was indemnified by that company against the 
 costs of the suit. That objection amounted to this; that a suit pro- 
 fessing to be the suit of Company A, w^s really the suit of Company B. 
 
 The second ground relied on in support of this motion was, that the 
 plaintiff's quantum of interest in the suit was very insignificant. But 
 if we should hold that the suit can be maintained in other respects, I 
 think that the aggregate interest of all the shareholders in the subject 
 matter of the suit is amply sufficient to sustain the suit. 
 
 The third ground relied upon is the resolution which has been passed 
 to wind up the company voluntarily, and it is said that the conse- 
 quence of that resolution is that the company is at an end, or that, at 
 any rate, if any relief is to be obtained, it can be obtained in the wind- 
 ing-up proceedings. I give no opinion how the matter would stand if 
 it were admitted that a winding-up of the company, either voluntarily 
 or compulsorily, had taken place. But the complete answer to this 
 ground of objection is this, that the bill in substance impeaches the 
 
Sec. 3) BBPEBSBNTATIVE SUITS 545 
 
 proceedings which have been taken to wind up the company. Before 
 the bill was filed, two circulars respecting the intended proceedings in 
 relation to the winding up were sent to the shareholders. The bill 
 contains allegations directed to the invalidity of the proceedings, and a 
 part of the prayer is for a declaration to the same effect. The allega- 
 tion could not at that time have been more definite than it was ; bu't a 
 clear intention is shewn on the part of the plaintiff to challenge the 
 proceedings to wind up the company. At any rate, the time for amend- 
 ing the bill has not yet come, and, therefore, I think that we are 
 bourid to take it that the plaintiff may be able to shew that the winding- 
 up proceedings are invalid." I ithink, therefore, that all the grounds 
 that have been stated in support of the motion fail. I do not go into 
 the question of delay, because I prefer to rest the case on the other 
 grounds. I think that the motion should be refused, with 'costs.** 
 
 PARSONS V. JOSEPH. 
 (Supreme Ckrart of Alabama, 1891. 92 Ala. 403, 8 South. '788.) 
 
 The bill in this case was filed on the 19th day of July, 1890, by Hen- 
 ry Joseph, as a stockholder in the Birmingham, Povirderly & Bessemer 
 Street Railroad Company, against the said corporation andl J. H. 
 Parsons, aAd sought the cancellation of certain certificates of stock 
 issued by the corporation to said Parsons, on the ground that the stock 
 was fictitious and fraudulent. There was a demurrer to the bill, and 
 a motion to dissolve the injunction, each of which was overruled ; and 
 this appeal is sued out by the defendants from that interloqutory de- 
 cree. 
 
 Coleman, J. The purpose of the bill is to have cptain certificates 
 of stock issued by the Birmingham, Powderly & Bessemer Street Rail- 
 road Company to defendant Parsons canceled, on the ground! that the 
 stock is fictitious, and was issued in violation of the constitution and 
 statute law of the state. The bill prayed an injunction, and the 
 writ was awarded by the chancellor. A demurrer was interposed!, and 
 also an answer by the defendant Parsons. The cause was submitted 
 for decree on the demurrer, and upon motion to dissolve the injunc- 
 tion. The court overruled the demurrer, and denied the motion to 
 disolve the injunction, and from this interlocutory decree the appeal 
 is taken. \ 
 
 Among other averments, the bill substantially alleges that plaintiff 
 is a bona fide stockholder in said company; that shortly after the or- 
 ganization of the company the defendant subscribed for 107 shares 'of 
 the capital stock of the company, of the par value of $50 each, and 
 paid for the same in full by conveying to the company 39 acres of land, 
 
 60 Contra : Pitcher v. Lone Pine-Surprise Consolidated Mining Company, 
 39 Wash. 608, 81 Pac. 1047 (1905). 
 RicH.COBP. — 35 
 
546 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 (describing the land,) at an agreed price and valuation of $137 per 
 acre, when the land was hot worth more than $25 per acre, and for 
 this land Parsons was to receive 107 shares of the stock ; that shortly 
 thereafter the capital stock of the company was doubled, and, with- 
 out further consideration than the 39 acres of land. Parsons' stock was 
 doubled, and he received 214 shares of the capital stock. The bill, 
 as amended, charges that the excessive valuation of the land was 
 made knowingly, willfully, and with the fraudulent intent of having 
 issued to Parsons the fictitious stock, in violation of law. This is a 
 sufficient statement of the facts for the consideration of the demurrer. 
 
 The demurrer admits the truth of the averments. It is contended 
 that the bill is defective, in not averring that plaintiff was a- stock- 
 holder at the time of the transaction complained of as being fraudu- 
 lent, or that his stock devolved upon him by operation of law. In the 
 case of Dimpfel v. Railroad Co., 110 U. S. 209, 3 Sup. Ct. 573, 28 
 L,. Ed. 121, relipd upon by appellants, it was held that a stockholder, 
 contesting as ultra vires an act of the directors, should aver "that he 
 was a stockholder at the time of the transaction of which he complains, 
 or that his shares have devolved on him since by operation of law." 
 To the same effect was Hawes v. Oakland, 1Q4 U. S. 450, 26 L. Ed. 
 827, and many others might be cited. Upon an examination of these 
 authorities, it will be seen that, the principle asserted rests solely upon, 
 equity rule No. 94, adopted by the United States supreme court, and 
 which may be found in the preface to volume 104 of the United States 
 Reporter. Morawetz on Private Corporations, speaking of this rule, 
 says it was evidently designed as a rule of practice merely, and was 
 deemed necessary to guard courts from being imposed upon by col- 
 lusion of parties. Mor, Priv. Corp. §§ 269, 270. The rule is not a 
 general principle of law, applicable to pleadings in all the courts, and 
 has never beeh applied to the courts of this state. The demurrer to 
 the bill for failing to make this averment was piroperly overruled. 
 
 The motion to dissolve the injunction was heard upon the 
 sworn bill and answer. The answer denied that plaintiff was a 
 bona fide stockholder, and set up that plaintiff was the transferee 
 of one E. Lesser. The answer admits that defendants' stock was 
 doubled without the payment of any additional consideration than 
 that of the land; but, by way of explanation and defense, avers the 
 lands were not truly and properly valued at first, and the increased 
 valuation of the lands only raised them to their real and true value, 
 and the additional issue of stock was for property at its fair valua- 
 tion. The answer continues, however, as follows : That if said trans- 
 action had been illegal and fraudulent, and not done in good faith, 
 complainant is estopped from setting up fraud in said transaction, or 
 seeking to cancel said stock, because E. Lesser, who was complain- 
 ant's transferrer, participated in all of said transactions, and himself 
 fixed the value of said lands, with full' knowledge of, and after full 
 investigation of, the value of said land. 
 
Sec. 3) EEPEBSENTATIVB SUITS 547 
 
 A transferee of stock is not necessarily disqualified as a suitor in all 
 cases, because the prior holders were personally disqualified. If the 
 transferee purchased the shares in good faith, andl without notice of 
 the fact that the prior holder had precluded himself from suing, he 
 would have as just a title to relief as if^he had purchased from a share- 
 holder who was undler no disability; but if the purchaser was aware 
 that the prior holder had barred his right to relief, neither justice nor 
 public policy would tequire that the transferee,' under these circum- 
 stances, should be accorded any greater rights than his transferrer. 
 Id. § 267. The same rule prevails in this state in favor of derivative 
 purchasers. A claimant who was a bona fide purchaser, without notice 
 of a fraud, or of facts which the law considers sufficient to establish 
 it, or from which it is inferable, then he could not be affected by a 
 notice to his vendor. Horton v. Smith, 8 Ala. 78, 42 Am. Dec. 628; 
 Fenno v. Sayre, 3 Ala. 458,; Wier v. Davis, 4 Ala. 442; Martinez 
 V. Lindsay, 91 Ala. 334, 8 South. 787; Wait, Insolv. Corp. §§ 628, 
 630. 
 
 If a stockholder participates in a wrongful or fraudulent contract, 
 or silently acquiesces until the contract becomes executed), he cannot 
 then come into a court of equity to cancel the contract, and more es- 
 pecially if the company or hirnself as a stockholder has reaped a ben- 
 efit from the contract ; and this rule holds good, although the consid- 
 eration of the contract may be one expressly prohibited by statute. 
 The same disability M^ould attach to the transferee of his stock who 
 bought with notice. We consicfer this general rule of equity abundant- 
 ly sustained. Mor. Priv. Corp. §§ 261, 262; Cook, Stocks, §§ 39, 40, 
 735; Wright v. Hughes, 119 Ind. 324, 21 N. E. 907, 12 Am. St. Rep. 
 412. It is sustained by the familiar rule that he who invokes the aid of 
 a court of equity must have clean hand's. Mr. Cook states the condi- 
 tions upon which a stockholder can sustain a suit to remedy the frauds, 
 ultra vires acts, or negligence of directors to be — First, the acts com- 
 plained of must be such as to amount to a breach of trust,\ and such 
 as neither a majority of the directors nor of the stockholders can 
 ratify or condone ; second, that the complaining stockholder himself is 
 free from laches, acquiescence in the acts to remedy which the suit 
 is brought ; third, that the corporation has been requested, and refused 
 or neglected, to institute the suit, that the suit is instituted by bona fide 
 stockholders as complainants, and that the corporation and the guilty 
 parties, and other proper parties, have been made defendants'. Cook, 
 Stocks, § 646. 
 
 If the averments of the bill are sustained by proof, the stock issued 
 to the defendants was in violation of section 1662 of the Code, and 
 of section 6, art. 14, of the constitution. On the contrary. If the proof 
 shows that the property was received in payment of stock, at a fair 
 valuation, such would not be the result. Davis v. Chemical Co., 101 
 Ala. 127, 8 Sbuth. 496. 
 
648 EIGHTS OF STOCKHOLDEES (Ch. 4 
 
 In, cases where the stockholders or the company, by any laches, ac- 
 quiescence, or participation in the unlawful and fictitious issue of 
 stock, or for any other sufficient cause, are precluded from instituting 
 the proper proceedings to remedy the wrong, the remedy is still open 
 to the state to institute all necessary and proper proceedings to vacate 
 and dissolve the corporation, or have such other proper judgments 
 and decree rendered as the proof and justice may demand. 
 
 It may be that stockholders who knowingly and intentionally have 
 subscribed and paid for stock with property upon a fictitious valuation 
 are liable as stockholders who have not paid up in full for their stock, 
 within the meaning of the statute, to creditors who have not precluded 
 themselves from maintaining the suit. Wait, Insolv. Corp. § 593; 
 Douglass V. Ireland, 73 N. Y. 100; Boynton v., Andrews, 63 N. Y. 93. 
 
 Applying the rule of law applicable when a niotion to dissolve an 
 injunction is submitted upon bill, exhibits, and answer, and considering 
 only so much of the answer as is responsive to the bill, we are of opin- 
 ion that the decretal order, overruling the demurrers and motion to 
 dissolve the injunction, is free from error. Affirmed,*^ 
 
 HAWES v. OAKLAND. 
 (Supreme Court of the United States, 1881. 104 U. S. 450, 26 L. Ed. 827.) 
 
 Mii.i,ER, J." This is an appeal from a decree in chancery dismissing 
 the complainant's bill, wherein he, a citizen of New York, alleges 
 that he is a stockholder in the Contra Costa Water- Works Company, 
 a California corporation, and that he files it on behalf of himself and' 
 all other stockholders who may choose to come in and contribute to 
 the costs and expenses of the suit. 
 
 The defen,dants are the city of Oakland, the Contra Costa Water- 
 works Company, and Anthony Chabot, Henry Pierce, Andrew J. 
 Pope, Charles Holbrook, and John W. Coleman, trustees and direc- 
 tors of the company. _, 
 
 The foundation of the complaint is that the city of Oakland claims 
 at the hands of the company water, without compensation, for all 
 municipal purposes whatever, including watering the streets, public 
 squares and parks, flushing sewers, and the like, whereas it is only 
 entitled to receive water free of charge in cases of fire or other great 
 necessity; that the company comply with this demand, to the great 
 loss and injury of the company, to the diminution of the dividends 
 which should come to him and other stockholders, arid to the decrease 
 in the value of their stock. The allegation of his attempt to get the 
 directors to correct this evil will be given in the language of the bill. 
 
 81 Contra: Ffooks v. Southwestern Railway Company, 1 Smale & G. 142 
 (1853) ; Boldenweck v. Bullis, 40 Colo. 253, 90 Pae. 634 (1907). 
 
Sec. 3) REPRESENT?AT1VE SUITS 549 
 
 He says that "on the tenth day of July, 1878, he applied to the 
 president and board of directors or trustees of said water company, 
 and requested them to desist from their illegal and improper prac- 
 tices aforesaid, and to limit the supply of water free of charge vto said 
 city ' to cases of fire or other great necessity, and that said board 
 should take immediate proceedings to prevent said city from taking 
 water from the works of said company for any other purpose without 
 compensation; but said board of directors and trustees have wholly 
 declined to take any proceedings whatever in the premises, and 
 threaten to go on and furnish water to the extent of said company's 
 means to said city of Oakland free of charge, for all municipal pur- 
 poses, as has heretofore been done, and in cases other than cases of 
 fire or other great necessity, except as for family uses hereinbefore 
 referred to; and your orator avers that by reason of the premises 
 said water company and your orator and the other stockholders 
 thereof have suffered, and will, by a continuance of said acts, here- 
 after suffer, great loss and damage." 
 
 To this bill the water-works company and the directors failed to 
 make answer;- and the city of Oakland filed a demurrer, which was 
 sustained by the Court and the bill dismissed. The complainant ap- 
 pealed. 
 
 Two grounds of demurrer were set out and relied on in the Court 
 below, and are urged upon us on this appeal. They are : 
 
 1. That appellant has shown no capacity in himself to maintain 
 this suit, the injury, if any exists, being to the interests of the cor- 
 poration, and the 'right to sue belonging solely to that body. 
 
 2. That by a sound construction of the law under which the com- 
 pany is organized the city of Oakland is entitled to rebeive, free of 
 compensation, all the water which the bill charges it with so using. 
 
 The first of these causes of demurrer presents a matter o| very 
 great interest, and of growing importance in the courts of the United 
 States. 
 
 Since the decision of this court in Dodge v. Woolsey, 18 How. 331, 
 15 L. Ed. 401, the principles of which have received more than once 
 the approval of this court, the frequency with which the most ordinary 
 and usual chancery remedies are sought in the Federal courts by a- 
 single stockholder of a corporation who possesses the requisite citizen- 
 ship, in cases where the corporation whose rights are to be enforced 
 cannot sue in those courts, seems to justify a consideration of the 
 grounds on which that cas^ was decided, and of the just limitations of 
 the exercise of those principles. 
 
 This practice has grown until the corporations created by the laws 
 of the States bring a, large part of their controversies with their 
 neighbors and fellow-citizens into the courts of the United States for 
 adjudication, instead of resorting to the State courts, which are their 
 natural, their lawful, and their appropriate forum. It is not difificult 
 
550 BIGHTS OP STOCKHOLDEES (Ch. 4 
 
 to see how this has come to pass. A corporation having such a con- 
 troversy, which it is foreseen must end in litigation, and preferring 
 for any reason whatever that this litigation shall take place in a 
 Federal, court, in which it can neither sue its real antagonist nor be 
 sued by it, has recourse to a holder of one of its shares, who is a 
 citizen of another State. This stockholder is called into consultation, 
 and is told that his corporation has rights which the directors refuse 
 to enforce or to protect. He instantly demands of them to do their 
 duty in this regard, which of course they fail or refuse to do, and 
 thereupon he discovers that he has- two causes of action entitling him 
 to equitable relief in a Court of Chancery; namely, one against his 
 own company, of which he is a coporator, for refusing to do what 
 he has requested them to do; and the other against the party which 
 contests the matter in controversy with that corporation. These two 
 causes of action he combines in an equity suit in the Circuit Court 
 of the United States, because he is a citizen of a different State, 
 though the real parties to the controversy could have no standing in 
 that court. If no non-resident stockholder exists, a transfer of a few 
 shares is made to some citizen of another State, who then brings the 
 suit. The real defendant in this action may be quite as willing to 
 have the case tried in the Federal court as the corporation and its 
 stockholder. If so, he make no objection, and the case proceeds to a 
 hearing. Or he may file his answer denying, the special grounds set 
 up in the bill as a reason for the stockholder's interference, at the 
 same time that he answers to the merits. In either event the whole 
 case is prepared for hearing on the merits, the right of the stock- 
 holder to a standing in equity receives but little attention, and the 
 overburdened courts of the United States have this additional impor- 
 tant litigation imposed upon them by a simulated and conventional 
 arrangement, unauthorized by the facts of the case or by the sound 
 principles of equity jurisdiction. 
 
 That the vast and increasing proportion of the active business of 
 modern life which is done by corporations should call into exercise 
 the beneficent powers and flexible methods of courts of equity, is 
 neither to be wondered at nor regretted; and this is especially true 
 of controversies growing out of the relations between the stockholder 
 and the corporation of which he is a member. The exercise of this 
 power in protecting the stockholder against the frauds of the govern- 
 ing body of directors or trustees, and in preventing their exercise, in 
 the name of the corporation, of powers which are outside of their 
 charters or articles of association, has been frequent, and is most 
 beneficial, and is undisputed. These are real contests, however, be- 
 tween the stockholder and the corporation of which he is a member. 
 
 The case before us goes beyond this. This corporation, like others, 
 is created a body politic and corporate, that it may in its corporate 
 
Sec. 3) EEPEBSENTATIVB SUITS 551 
 
 name transact all the business which its charter or other organic act 
 authorizes it to do. 
 
 Such corporations may be common carriers, bankers, insurers, mer- 
 chants, and may make contracts, commit torts, and incur liabihties, and 
 may sue or be sued in their corporate name in regard to all of these 
 transactions. The parties who deal with them understand this, and 
 that they are dealing with a body which has these rights and is sub- 
 ject to these obligations, ' and they do not deal with or count upon a 
 liability to the stockholder whom they do not know and with whom 
 they have no privity of contract or other relation. 
 
 The principle involved in the case of Dodge v. Woolsey permits 
 the stockholder in one of these corporations to step in between that 
 corppration and the party with whom it has been dealing, and in- 
 stitute and control a suit in which the rights involved are those of 
 ' the corporation, and the controversy is one really between that cor- 
 poration and the other party, each being entirely capable of assert- 
 ing its own rights. 
 
 This is a very different affair from a controversy between the 
 shareholder of a corporation and that corporation itself, or its man- 
 aging directors or trustees, or the other shareholders, who may be 
 violating his rights or destroying the property in which he has an 
 interest. Into such a contest the outsider, dealing with the corpora- 
 tion through its managing agents in a matter within their authority, 
 cannot be dragged, except where it is necessary to prevent an abso- 
 lute failure of justice in cases which have been recognized as excep- 
 tional in their character and calling for the extraordinary powers 
 of a court of equity. It is, therefore, always a question of equitable 
 jurisprudence, and as such has, within the last forty years, received 
 the repeated consideration of the highest courts of England and of 
 this country.'^ * * * , 
 
 The case of Dodge v. Woolsey, decided in this court in 1855, is, 
 however, the leading case on the subject in this country. 
 
 And we do not believe, notwithstanding some expressions in the 
 opinion, that it is justly chargeable with the abuses we have men- 
 tioned. It was manifestly well considiered, and the opinion is un- 
 usually long, discussing the point now under consideration with a full 
 reference to the decisions then madie in the courts of England. The 
 suit — a bill in chancery — was brought in the Circuit Court for the 
 District of Ohio, by Woolsey, a stockholder of the Commercial Bank 
 of Cleveland, and a citizen of Connefcticut, against that bank, its 
 managing directors, and Dodge, tax-collector of the county in which 
 the bank was situated, citizens of Ohio. The bill alleged that Dodge 
 had levied upon property of the bank to make collection of a tax, 
 which by the Constitution of the State of Ohio the bank was bound 
 to pay ; that in that respect the Constitution, then recently adopted, 
 
 a: Part of tbe opinion, containing a discussion of autborities, is omitted. 
 
552 BIGHTS or STOCKHOLDERS (Ch. 4 
 
 imp)aired the obligation of the contract* of the State with the bank, 
 contained in its charter. It appeared in the case that Woolsey had, . 
 by letter directed to the board of directors, requested them to insti- 
 tute proceedings to prevent the collection of this tax ; but the board, 
 by a resolution, declined to take any such action, while expressing 
 their opinion that the tax was illegal. 
 
 In the opinion of the court, reciting the circumstances which justified 
 its iriterposition at the suit of- the stockholder, the allegation of the , 
 bill is adverted to, that if the taxes are enforced it will annul the 
 contract with the State concerning taxation, and that the tax is so 
 onerous upon the bank that it will compel a suspension and final ces- 
 sation of its business. The following extract from Angell & Ames 
 on Corporations is cited) with approval: "Though the result of the 
 authorities clearly is that in a corporation, when acting within the 
 scope of, and in obedience to, the provisions of its constitution, the 
 will of the majority, clearly expressed, must govern, yet beyond the 
 limits of the act of incorporation the will of the majority cannot make 
 the act valid, and the power of a court of equity may be put -in motion 
 at the instance of a single shareholder, if he can show that the cor- 
 poration are employing their statutory powers for the accomplishment 
 of purposes not within the scope of their institution. Yet it is to be 
 observed that there is an important distinction between this class of 
 cases and those in which there is, no breach of trust, but only error 
 and misapprehension or simple negligence on the part of the directors." 
 And the court adds: "It is obvious from this rule that the circum- 
 stances of each case must determine the jurisdiction of a court of 
 equity to give the relief sought." ' 
 
 A very large part of the opinion is devoted to the consideration 
 of the high function of this court in construing the Constitution of 
 the United States, and it is impossible not to see the influence on the 
 mind of the writer of that opinion of the fact that the only question 
 on the merits of the case was one which peculiarly belonged to the 
 Federal judiciary, and especially to this court to decide; namely, 
 whether the Constitution of the State of Ohio violated the obliga- 
 tion of the contract concerning taxation found in the charter of the 
 bank. 
 
 As the law then stood there was no means by which the bank, be- 
 ing a citizen of the same State with Dodge, the tax-collector, could 
 bring into a court of the United States the right which it .asserted 
 under the Constitution, to be relieved of the tax in question, except 
 by writ of error to a State court from the Supreme Court of the 
 United States. 
 
 That difficulty no longer exists, for by the act of March 3, 1875, 
 c. 137 (18 St, pt; 3, p. 470), all suits arising under the Constitution 
 or laws of the United States niay be brought originally in the Circuit 
 Courts of the United States without regard to the citizenship of the 
 parties. ^ Under this statute, if it had then existed, the bank, in 
 
Sec. 3) EEPRESENTATIVB SUITS 553 
 
 Dodge V. Wbolsey, could undoubtedly have brought suit to restrain 
 the collection of the tax in its own name, without resort to one of its 
 shareholders for that purpose. 
 
 And this same statute, while enlarging the jurisdiction of the Cir- 
 cuit Courts in cases fairly within the constitutional grant of power to 
 the Fedeiral judiciary, strikes a blow, by its fifth- section, at improper 
 and collusive attempts to impose upon those courts the cognizance of 
 cases not justly belonging to them. It declares, if at any time in the 
 progress of a case, either originally commenced in a Circuit Court, 
 or removed there from a State court, it shall appear to said court 
 "that such suit does not really and substantially involve a dispute or 
 controversy properly within the jurisdiction of said Circuit Court, or 
 that the parties to said suit have been improperly or coUusively made 
 or joined, either as plaintiffs or defendants, for the purpose of creat- 
 ing a case cognizable or removable under this act, the said Circuit 
 Court shall proceed no further, but shall dismiss the suit or remand 
 it to the court from which it was removed." 
 
 It is believed that a rigid enforcement of this statute by the Cir- 
 cuit Courts .would relieve them of many cases which have no proper 
 place on their dockets. 
 
 This examination of Dodge v. Woolsey satisfies us that -it does not 
 establish, nor was it intended to establish, a doctrine on this subject 
 different in any material respect from that found in the cases in th^ 
 English and in other American courts, and that the recent legislation 
 of Congress referred to leaves no reason for any expansion of the rule 
 in that case beyond its fair interpretation. ' 
 
 We understand that doctrine to be that to enable a stockholder in 
 a corporation to sustain in a court of equity in his own name, a suit 
 founded on a right of action existing in the corporation itself, and in 
 which the corporation itself is the appropriate plaintiff, there must 
 exist as the foundation of the suit — 
 
 Some action or threatened action of the managing board of direc- 
 tors or trustees of the corporation which is beyond the authority con- 
 ferred on them by their charter or other source of organization; 
 
 Or such a fraudulent transaction completed or contemplated by the 
 acting managers, in connection with some other party or among (them- 
 selves, or with other shareholders, as will result in serious injury to 
 the corporation, or to the interests of the dther shareholders; 
 
 Or where the board of directors, or a majority of them, are acting 
 for their own interest, in a manner destructive of the corporation 
 itself, or of the rights of the other shareholders; 
 
 Or where the majority of shareholders themselves are oppressively 
 and illegally pursuing a course in the name of the corporation, which 
 is in violation of the. rights of the other shareholders, and which can 
 only be restrained by the aid of a court of equity. 
 
 Possibly other cases may arise in which, to prevent irremediable 
 injury, or a total 'failure of justice, the court would be justified in 
 
554 BIGHTS OP STOCKHOLDERS (Ch. 4 
 
 exercising its powers, but the foregoing may be regarded as an out- 
 line of the principles which govern this class of cases. 
 
 But, in addition to the existence of grievances which call for this 
 kind of relief, it is equally important that before the shareholder is 
 permitted in his own name to institute and conduct a litigation which 
 usually belongs to the corporation, he should show to the satisfaction 
 of the court that he has exhausted all the means within his reach to 
 obtain, within the corporation itself, the redress of his grievances, or 
 action in conformity to his wishes. He must make an earnest, not a 
 simulated effort with the managing body of the corporation, to induce 
 remedial action on their part, and this must be made apparent to the 
 court. If time permits or has permitted, he must show; if he fails 
 with the directors, that he has made an honest effort to obtain action 
 by the stockholders as a body, in the matter of which he complains. 
 And he must show a case, if this is not done, where it could not be 
 done, or it was not reasonable to require it. 
 
 The efforts to induce such action as complainant desires on the 
 part of the directors, and of the shareholders when that is necessary, 
 and the cause of failure in these efforts should be stated with par- 
 ticularity, and an allegation that complainant was a shareholder at 
 the time of the transactions of which he complains, or that his shares 
 have devolved on him since by operation of law, and, that the suit is 
 not a collusive one to confer on a court of the United States jurisdic- 
 tion in a case of which it could otherwise have no cognizance, should 
 be in the bill, which should be verified by affidavit. 
 
 It is needless to say that appellant's bill presents no such case as 
 we have here supposed to be necessary to the jurisdiction of the court. 
 
 He merely avers that he requested the president and directors to 
 desist from furnishing water free of expense to the city, except in 
 case of fire or other great necessity, and that they declined to do as 
 he requested. No correspondence on the subject is given. No rea- 
 son for declining. We have here no allegation of a meeting of the 
 directors, in which the matter was formally laid before them for 
 action. No attempt to consult the other shareholders to ascertain 
 their opinions, or obtain their action. But within five days after his 
 application to the directors this bill is filed. There is no allegation 
 of fraud or of acts ultra vires, or of destruction of property, or of 
 irremediable injury of any kind. 
 
 Conceding appellant's corfstruction of the company's charter to be 
 correct, there is nothing which forbids the corporation from dealing 
 with the city in the manner it has dbne. That city conferred on the 
 company valuable rights by .special ordinance ; namely, the use of the 
 streets for laying its pipes, and the privilege of furnishing water to 
 the whole population. It may be the exercise of the highest wisdom 
 to let the city use the water in the manner complained of. The di- 
 rectors are better able to act understandingly on this subject than a 
 stockholder "residing in New York. The great body of the stockholders 
 
Sec. 3) EBPRBSENTATIVH SUITS 655 
 
 residing in Oakland or other places in California may take this view 
 of it, and be content to abide by the action of their directors. 
 
 If this be so, is a bitter litigation with the city to be conducted by 
 one stockholder for the corporation and all other stockholders, be- 
 cause the amount of his dividends is diminished? 
 
 This question answers itself, and without considering the other 
 point raised by the demurrer, we^ are of opinion that it was properly 
 sustained, and the bill dismissed, because the appellant shows no 
 standing in a court of equity, — no right in himself to prosecute this 
 suit. Decree aiSrmedl. 
 
 KIMBAI.L V. CITY OF CEDAR RAPIDS. 
 
 (Carcuit Court of the United States, 1900. 99 Fed. 130.) 
 
 Shiras, District Judge.** From the averments in the bill filed in 
 this case it appears that the complainant is a stockholder in the 
 Cedar Rapids Water Company, and in that capacity he seeks by 
 this proceeding to restrain the city of Cedar Rapids and its officials 
 from publishing and putting in force an ordinance adopted by the 
 city council fixing the rates to be charged by the waterworks com- 
 pany for supplying water to the city and its inhabitants, it being 
 averred that the rates and provisions of the ordinance adopted are 
 such that it would prevent the earning of sufficient money by the 
 company to enable it to pay a dividend to the stockholders after 
 providing for the expenses and outlay incident to the management 
 of the plant of the waterworks company and the interest upon the 
 bonded debt of the company; and, furthermore, that the putting in 
 force of the ordinance would be a violation of a contract now in 
 force between the city and the waterworks company, regulating 
 the rates to be charged and the purposes for which water is to be 
 furnished for city use. It is further expressly charged in the bill 
 that the effect of the enforcement of the ordinance will be to de- 
 prive the stock in the waterworks company of Any earning ability, 
 and thus complainant will be deprived of his property without 
 compensation, and therefore without due process of law, and there- 
 by complainant will be deprived of the equal protection of the law 
 in express violation of the fourteenth amendment to the constitu- 
 tion of the United States. It is further averred in the bill that 
 complainant is a citizen of the state of Massachusetts; that the wa- 
 terworks company and the city of Cedar Rapids are corporations cre- 
 ated under the laws of the state of Iowa; that the individual defend- 
 -ants — ^being the mayor and other city officials — are all citizens of 
 Iowa; and that complainant owns 255 shares of stock in the water- 
 works company, of the par value of $11,250. The case is now before 
 
 S3 Fart of tbe opinion is omitted. 
 
556 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 the court upon an application for a preliminary writ of injunction to 
 restrain the publication and putting in force the proposed ordinance 
 until the validity thereof is heard and determined. The defendants 
 named in the bill are the city of Cedar Rapids, the mayor, aldermen, 
 and recorder of the city, and the waterworks company. 
 
 As the bill is framed for the purpose of invoking the protection of 
 the provisions of the federal constitution, and as the matter involved 
 exceeds $2,000 in- amount, the case is one which falls within the ju- 
 risdiction of this court, irrespective of the citizenship of the parties 
 in interest; but it is strongly urged on behalf of the city and its offi- 
 cials that this court ought not to take jurisdiction of the bill as 
 framed, because the proceedings are instituted by a stockhdder of 
 the waterworks company to protect rights properly belonging to the 
 company in its corporate capacity; that it appears that the company 
 has already brought an action in the district court of Iowa for Linn 
 county to restrain the enforcement of the ordinance; and that com- 
 plainant has not complied with the requirements of equity rule 94, 
 and therefore the bill should be dismissed. The purposes for which 
 this rule was promulgated by the supreme court are clearly set forth 
 in Hawes v. Oakland, 104 U. S. 450, 26 L,. Ed. 827, it being there- 
 in stated that the rule is aimed at two evils, — one being the effort to 
 invoke federal jurisdiction wrongly by using the name of a stock- 
 holder in cases wherein, if the suit was brought in the name of the 
 corporation, jurisdiction in the federal tribunal would not exist; and 
 the other to prevent a minority of the stockholders from controlling 
 and dictating the action of the corporation in matters properly within 
 the control of the directors as the representative of the whole body 
 of the stockholders. In the case now before the court, as already 
 stated, it is one within federal cognizance, irrespective of the citi- 
 zenship of the parties, and therefore the provisions of rule 94 'cannot 
 be invoked on the ground that the suit is in the name of a stockhold- 
 er, in order to confer jurisdiction on this court, which would not ex- 
 ist if the suit had been brought by the waterworks company. * * * 
 
 Upon the argument several questions were discussed which do 
 not properly arise upon this application for a preliminary injunc- 
 tion, and which cannot be intelligently presented or considered un- 
 til the facts are brought before the court. For the present, and up- 
 on the showing made in the bill, it must be held that complainant 
 is entitled to the preliminary injunction prayed for, and it is there- 
 fore ordered that upon filing with the clerk a bond in the sum of 
 $5,000 conditioned to pay all costs and damages that may be award- 
 ed defendants by reason of the issuance of the injunction, with sure- 
 ties to be approved by the clerk of this court or his deputy at Ce- 
 dar Rapids, a writ of preliminary injunction under the seal of the 
 court shall be issued as prayed for in the bill herein filed. 
 
Sec. 3) EBPRBSENTATIVE SUITS ^ 557 
 
 VENNER V. GREAT NORTHERN RY. CO. et al. 
 (Circuit Court of the United States, 1907. 153 Fed. 408.) 
 
 In Equity. Demurrer to amended bill of complaint oil the ground 
 that on the complainant's own showing he is not entitled, m equity, to 
 the relief demanded, or to any relief, as to any of, the matters alleged 
 or contained in such bill of complaint. 
 
 Ray, District Judge;'* The complainant, Clarence H. Venner, is 
 a citizen and a resident of the state of New York ; defendant. Great 
 Northern Railway Company, is a corporation organized and existing 
 under the laws of the state „of Minnesota ; and defendant James J. 
 Hill is a citizen and resident of said state of Minnesota. The amount 
 involved, exclusive of interest and costs, is upwards of $2,000.' The 
 bill of complaint alleges, in substance, that in or about November, 
 1900, the defendant James J. Hill, then being a director in and the 
 president of the Great Northern Railway Company, and in acting as 
 such, and in violation of his trust and duty as such, and to the great 
 damage and injury of said railway company and its stockholders, 
 did certain acts, fully stated, which, if done, created a cause of ac- 
 tion in equity which said Great Northern Railway Company might 
 have maintained against said Hill. The bill of complaint then alleges 
 that about March 6, 1907, thexomplainant, a stockholder in 'Said cor- 
 poration, made a demand upon it, its directors and president, that this 
 or a like action be instituted against said James J. Hill for the relief 
 demanded in this action, and that they neglected and refused to in- 
 stitute such action. The bill of complaint also alleges that complain- 
 ant now is, and that "on and, before the date of the demand," the 
 demand just stated, the complainant was, the owner of 300 shares of 
 the preferred capital stock of said corporation of the par value of 
 $100 per share and of the present market value of about $100,000. 
 
 Complainant brings suit on behalf of himse;lf and all others -simi- 
 larly situated, demanding that said Hill be required to account and 
 pay over to the corporation for its benefit and the benefit, etc., of 
 its creditors and stockholders. The bill of complaint contains no al- 
 legation or statement that' the complainant was a stockholder or 
 shareholder in the Great Northern Railway Company at the time of 
 the transactions complained of, or that his shares have devolved upon 
 'him since that time by operation of law. There are no allegations 
 from which we may legally even infer that such are the facts.' 
 
 Hence the amended bill of complaint fails to comply with the 
 ninety- fourth rule of equity practice (see 104 U. S. ix) promulgat-^ 
 ed January 23, 1882, and which provides : "Every bill brought by one 
 or more stockholders in a corporatiqn, against the Corporation and 
 other parties, founded on rights which may properly be ..asserted 
 
 «* A part of the opinion is omitted. 
 
558 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 by the corporation, must be verified by oath, and must contain an al- 
 legation that the plaintiff was a shareholder at the time of the 
 transaction of which he complains, or that his share had devolved 
 on him since by operation of law; and that the suit is not a col- 
 lusive one to confer on a court of the United States jurisdiction of 
 a case of which it would not otherwise have cognizance. It must also 
 set forth with particularity the efforts of the plaintiff to secure such 
 action as he desires on the part of the managing directors or trus- 
 tees, and, if necessary, of the shareholders, and the causes of his 
 failure to obtain such action." 
 
 This action was commenced in the Supreme Court of the state 
 of New i;ork, and removed thence to the Circuit Court of the Unit- 
 ed States. A motion to remand was denied. A motion that conj- 
 plainant replead was granted, and complainant did replead, but has 
 failed to strictly comply with the order in the respect named. How- 
 ever, a failure to comply with that order in such respect is not 
 ground of demurrer.^ The question is: Does the amended bill of 
 complaint state facts which in the Circuit Court of the United States 
 entitle .complainant to any relief in equity, or which entitle him to 
 maintain an action in equity against these defendants ? The complain- 
 ant contends that in the Supreme Court of the state of New York, 
 where this action was originally commenced, it is unnecessary to al- 
 lege or prove, in order to maintain the action on this state of facts, 
 that complainant owned his shares at the time of the transactions of 
 which he complains', or that they thereafter devolved upon him by. 
 operation of law; in other words, to show that he was then inter- 
 ested in the corporation, or that the title to shares of one who then 
 was interested therein has devolved upon him by operation of law. 
 He insists that, as he had a cause of action in equity in the courts 
 of the state of New York, when and where he brought his ac- 
 tion, he has the same equitable cause of action in the Circuit Court 
 of the United States, and that it may here be made out and sus- 
 tained upon the same allegations and proof as are sufficient there. 
 In short, he contends that equity rule 94, above quoted, has no 
 application to a suit in equity removed to this court from a state 
 court. * * * ^ 
 
 It seems that in New York state its courts give equitable relief to 
 a plaintiff, shareholder, who sues in behalf of himself and all others 
 similarly situated to enforce a cause of action like this, which the 
 corporation itself might enforce for its own benefit, and consequently 
 for the benefit of its shareholders, but will not, even if such plaintiff 
 had no interest in the corporation or in the enforcement of the cause 
 of action at the time the wrong complained of was committed and 
 his present interest has not devolved upon him by operation of law^ 
 since. * * * 
 
Sec. 3) EEPEBSBNTATIVB SUITS 559 
 
 It must te regarded as settled law in the courts of the United 
 States that a shareholder or stockholder in ? corporation cannot main- 
 tain an action in equity of the description pointed out in equity rule 
 94, before quoted, unless he was a shareholder at the time of the 
 transactions of which he complains, or his shares or share have since 
 devolved upon him by operation of law. To give the courts of the 
 United States equitable jurisdiction, the right to give equitable relief, 
 this fact must be pleaded and proved. If the fact does not exist, 
 then the courts of the United States have no equitable jurisdiction of 
 the case ; that is, they will not exercise their general equitable powers 
 and jurisdiction. Unless that fact appears, it is not a case cognizable 
 in equity in the courts of the United States, whatever may be the 
 rules of equity 'or of equity jurisdiction in the several states, or in 
 any one of them. * * * 
 
 By Act March 3, 1875, c. 137, § 1, 18 Stat. 470 (U. S. Comp. St. 
 1901, p. 508), original jurisdiction was conferred on the Circuit 
 Courts of the United States in controversies between citizens of dif- 
 ferent states when the matter in dispute exceeded $500, but limited 
 the jurisdiction of such Circuit Court as follows: "Nor shall any 
 Circuit or District Court have cognizance of any suit founded on 
 contract in favor of an assignee, unless a suit might have been prose- 
 cuted in such court to recover thereon if no assignment had been 
 made, except in cases of promissory notes, negotiable by the law mer- 
 chant, and bills of exchange." 
 
 Section 2 of the same act authorized the removal of causes be- 
 tween citizens of different states involving that amount from the state 
 court to the Circuit Court, but did not impose the above restriction as 
 to assignees and assignments. 
 
 It has been twice held by the Supreme Court of the United States 
 that the limitation on the jurisdiction of the Circuit Court irnposed 
 by the first section has no application to suits commenced in the state 
 courts and removed 'to the United States Circuit Court, and that such 
 suits could be removed and maintained provided the laws of the state 
 from the courts of which the removal took place recognized and sus- 
 ; tained the cause of action. Delaware 'County Commissioners y. Die- 
 bold, 133 U. S. 473, 10 Sup. Ct. 399, 33 L. Ed. 674; Claflin et al. v. 
 Commonwealth Ins.- Co., 110 U. S. 81, 3 Sup. Ct. 507, 28 L. Ed. 76. 
 See, also, language of Mr. Justice Clifford in City of Lexington v. 
 Butler, 14 Wall. 282, 20 L. Ed. 809, and Bushnell v. Kennedy, 9 Wall. 
 387, 19 L. Ed. 7Ze. 
 
 These cases would seem to hold that, notwithstanding an express 
 special limitation on the jurisdiction of the Circuit Court as to ac- 
 tions commenced therein, such limitation has no application to a suit 
 commenced in a state court and removed to the Circuit Court; there 
 being, of course, the necessary diversity of citizenship and amount 
 in controversy to bring the case within the general jurisdiction of 
 
560 RIGHTS OF STOCKHOLDEKS (Ch. 4 
 
 the Circuit Court. But this limitation on the right of a plaintiff to 
 bring his suit in the Circuit Court is not necessarily a declaration 
 that he has no cause of action, legal or equitable. In the first in- 
 stance, it denies to that court the right to exercise jurisdiction of the 
 case. It excepts out of the general jurisdiction conferred of a cer- 
 tain class of cases special cases otherwise within it. On the other 
 hand, equity rule 94 and the cases cited seem to hold that a share- 
 holder in a corporation has no cause of action in equity in a case like 
 this, anywhere, unless he held his shares at the time of the transac- 
 tions complained of, or they have devolved upon him by operation of 
 law since. 
 
 Jurisdiction of parties and of the subject-matter in controversy, 
 and to determine whether a cause of action exists, is one thing, but 
 equitable jurisdiction is quite another. Thus, the Circuit' Court has 
 jurisdiction of a controversy between parties residing in different 
 states, if the amount involved, exclusive of interest and costs, exceeds 
 $2,000. The jurisdiction to hea^ and determine this controversy is 
 expressly conferred. So jurisdiction to hear and determine actions 
 of ejectment may be expressly conferred on the Supreme Court of 
 a state, and not on its county courts. In such case the county court 
 has no jurisdiction of such a case. Equitable jurisdiction resides 
 in the Circuit Court as a general proposition and a general power; 
 but whether or not, in a given case, that court has "equitable ju- 
 risdiction," depends upon whether or not on general equitable princi- 
 ples, as established by the courts, the action in equity will lie. If not, 
 there is no "equitable jurisdiction" of the particular case. Certain 
 facts must exist, or there is no equitable jurisdiction of the particular 
 case, while there is general equitable jurisdiction and power in the 
 court. * * * 
 
 If A. sues B. for assault and battery, and asks equitable relief that 
 B. be restrained from committing further assaults, no cause of action 
 in equity is stated, or there is no "equitable jurisdiction" of the case, 
 for the reason courts of equity do not grant such relief or any relief 
 in such cases; but if A. sues B. for cutting down his orchard trees 
 on his farm, and asks an injunction, the court of equity will grant the 
 relief, if B. is doing the acts alleged, as here the case is within the 
 equitable jurisdiction of the court. That is, in- this class of cases, 
 courts of equity, on well-established, equitable principles, grant such 
 relief. In both cases the court has jurisdiction, but not equitable 
 jurisdiction. In the first case it dismisses the cause for the reason 
 the facts stated do not bring the case within the "equitable jurisdic- 
 tion" of the court; that is,, they do not make out a case where the 
 court gives relief. In the class of cases of which this is one, the Su- 
 preme Court of the United States has held, in the cases cited, that 
 equitable jurisdiction will not be exercised, equitable relief will not ' 
 be given, unless the complainant avers and proves that he was a share- 
 
iSeC. 3) REPRESENTATIVE SUITS 56l 
 
 holder in the corporation at the time of the transactions complained 
 of, or that his shares have devolved upon him since by operation of 
 law. That court has plainly and repeatedly said that, if such fact does 
 not appear, no cause of action within the equitable jurisdiction of the 
 United States court is stated. This being so, it seems to me imma- 
 terial hdw the case comes into that court. 
 
 Congress has provided that: "The Circuit Courts of the United 
 States shall have original cognizance, concurrent with the courts of 
 the several states, of all suits of a civil nature; at common law or in 
 equity, where the matter in dispute exceeds, exclusive of interest and 
 costs, the sum or value of two thousand dollars, and arising under 
 the Constitution or laws of the United States, or treaties made, or 
 which shall be made under their authority, or in which controversy 
 the United States are plaintiffs or petitioners, or in which there shall 
 be a controversy between citizens of different states, in which the mat- 
 ter in dispute exceeds, exclusive of interest and costs, the sum or value 
 aforesaid." Act March, 1875, Rev. St. § 629, c. 137, cl. 1, as ainended 
 March 3, 1887, and corrected Aug. 13, 1888, 25 Stat. 433, c. 866 (U. 
 S. Comp. St. 1^01, p. 508). 
 
 The jurisdiction conferred in equity exists independently of state 
 laws, and is similar to the equity jurisdiction of England. Allen v. 
 BJunt, 1 Blatchf. 480, Fed. Cas. No. 215. While the Supreme Court 
 of the United States may and must, when occasion demands, decide 
 what civil cases are "at law" and what are "in equity," and in what 
 cases equitable relief will be ^iven, what cases are within the equitable 
 jurisdiction and power of the court, it may not by rule or otherwise 
 limit the jurisdiction of the Circuit Courts of the United States con- 
 ferred by the acts of Congress, and say that a partyMitigant residing 
 in one state may not bring his equitable action, if he has one, against 
 a resident of another state, in the proper Circuit Court, and h^ve it 
 there decided. It may, however, as stated, say what cases are within 
 the equitable jurisdiction of the court; in what cases and upon what 
 state of facts that court may grant equitable relief. This is what the 
 Supreme Court has done in this class of cases, and, it seems to me 
 clear, that court has decided, repeatedly, that a complainant suing as 
 a shareholder or stockholder ha,s no cause of action in equity, in be- 
 half of himself and others similarly situated, against a corporation and 
 others, founded on rights which may properly be asserted by the cor- 
 poration itself, if it would, unless he was such shareholder or stock- 
 holder in the corporation at the time of the transactions of which he 
 complains, or such shares have devolved upon him since by operation 
 of law. 
 
 This was decided by the Supreme Court before it promulgated rule 
 94. The rule was to emphasize the decision. The courts of the United 
 States administer equity in accordance with the principles of equity 
 jurisprudence as laid down and declared by the Supreme Court of the 
 United States, and not as laid down and declared by the courts of the 
 K1CH.C0BP.— 36 
 
562 EIGHTS OF STOCKHOLDEKS (Ch. 4 
 
 several states, and if a citizen and a corporation of the state of Minne- 
 sota have committed some act or acts of which complaint is made (not 
 against some statute of a state), and a citizen of some other state brings 
 suit in equity asking equitable relief, and the case is one of which the 
 acts of Congress referred to give the Circuit Court of the United States 
 jurisdiction, it seems to me very clear that the rights of the parties 
 must be determined according to the rules and principles of equity ju- 
 risprudence as determined and administered in the courts of the United 
 States. 
 
 It is not a question of enforcing the provisions of some statute of a 
 state conferring or defining some right, but one involving the appli- 
 cation of the principles of the common law and of equity jurispru- 
 dence which are general throughout the United States, and in applying 
 which the courts of the United States are not bound or governed by 
 the decisions of the state courts, but by the decisions of the Supreme 
 Court of the United States. See 2 Foster, Fed. Practice (3d Ed.) 
 pp. 876, 877; New York, N. H. & H. R. Co. v. Cockcroft (C. C.) 
 49 Fed. 4, per Wheeler, J. 
 
 In Burgess v. Seligman, 107 U. S. 20-33, 2 Sup. Ct. 21, 27 L. Ed. 
 359, the court said: "The federal courts have an independent juris- 
 diction in the administration of state laws, co-ordinate with, and not 
 subordinate to, that of the state courts, and are bound to exercise 
 their own judgment as to the meaning and efifect of those laws. The 
 existence of two co-ordinate jurisdictions in the same territory is pe- 
 culiar, and the results would be anomaldus and inconvenient, but for 
 the exercise of mutual respect and deference. Since the ordinary ad- 
 ministration of the law is carried on by the state courts, it necessarily 
 happens that by the course of their decisions certain rules are estab- 
 lished which become rules of property and action in the state, and have 
 all the effect of law, and which it would be wrong to disturb. ^ This 
 is especially true with regard to the law of real estate and the construc- 
 tion of state Constitutions and statutes. Such established rules are 
 always regarded by the federal courts, no less than by the state courts 
 themselves, as authoritative declarations of what the law is; but, 
 where the law has not been thus settled, it is the right and duty of 
 the federal courts to exercise their own judgment, as they also always 
 do in reference to the doctrines of commercial law and general juris- 
 prudence." 
 
 In Manhattan Life Ins. Co.' v. Broughton, 109 U. S. at page 126, 
 3 Sup. Ct. at page 101 (27 L. Ed. 878), the court said: "The question 
 involved was not a question of local law, but of general jurisprudence, 
 upon which Mrs. Ferguson, and Broughton, as her trustee, had a right 
 to seek the independent judgment of a federal court. Railroad Co. v. 
 Lockwood, 17 Wall. 357, 368, 21 L. Ed. 627; Myrick v. Michigan 
 Central Railroad, 107 U. S. 102, 1 Sup. Ct. 425, 27 L. Ed. 325 ; Bur- 
 gess V. Seligman, 107 U. S. 20, '2 Sup. Ct. 21, 27 L. Ed. 359." 
 
 It seems to me clear that the question here is one of general equity 
 
Sec. 3) EEPRESENTATIVB SUITS 563 
 
 jurisprudence, where the courts of the United States are to be gov- 
 erned by their own- independent judgment, and where the Circuit 
 Court should follow the decision of the Supreme Court of the United 
 States as to what the law is. 
 
 In Myrick v. Michigan Central R. R. Co., 107 U. S. at page 109, 
 1 Sup. Ct. at page 425 (27 L. Ed. 325), the court said, in relation to a 
 contract of carriage and in referring to the decisions of the Supreme 
 Court of the state of Illinois : "Assuming that such is the purport of 
 the decisions, they are not binding upon us. What constitutes a con- 
 tract of carriage is not a question of local law, upon which the decision 
 of a state court must control. It is a matter of general law, upon 
 which this court will exercise its own judgment. Chicago City v. Rob- 
 bins, 2 Black, 418, 17 L. Ed. 298; Railroad Company v. National Bank, 
 102 U. S. 14, 26 L. Ed. 61 ; Hough v. Railway Company, 100 U. S. 
 213, 25 L. Ed. 612." 
 
 It seems to me it would be a strange medley in the law, as admin- 
 istered by the courts of the United States, to hold in this class of 
 cases, in administering equity, where no local law, or state statute, or 
 state Constitution is involved, that a citizen of New York has a cause 
 of action in equity against a Minnesota corporation and a citizen of 
 that state cognizable and enforceable by the Circuit Court of the 
 United States sitting in New York, if he commences his action in the 
 state court, and it is removed to the United States Circuit Couri, but 
 that another citizen of the state of New York, on the same facts and 
 equities, has no cause of action in equity cognizable and enforceable 
 by the United States Circuit Court sitting in, New York if such ac- 
 tion is brought in that court in the first instance. This would make 
 his right of action and right to relief depend, not on the facts of the 
 case, but on the coi|rt in which he commenced his action. I do not 
 think that is the law. Where a line of uniform decisions has been es- 
 tablished by the highest court of a state, so they have become a local 
 rule of property, and parties are presumed to contract with reference 
 thereto, the courts of the United States should, and except in special 
 cases and for special reasons do, follow them. Neves v. Scott, 13 
 How. 268, 271, 14 L. Ed. 140; Gaines v. Fuentes, 92 U. S. 10-20, 23 
 L. Ed. 524; Ellis v. Davis, 109 U. S. 485, 3 Sup. Ct. 327, 27 L. Ed. 
 1006. But that is not this case. 
 
 In 2 Foster, Federal Prac. (3d Ed.) pp. 876, -877, it is said: "The 
 Revised Statutes provide that 'the laws of the several states, except 
 where the Constitution, treaties, or statutes of the United States other- 
 wise require or provide, shall be regarded as rules of decision in trials 
 at common law, in the courts of the United States, in cases where they 
 apply.' This rule applies to condemnation proceedings and to all civil 
 proceedings in the federal courts, except equity and admiralty cases, 
 although they are not strictly according to the common law." 
 I In N. Y., N. H..& H. R. Co. v. Cockroft (C. C.) 49 Fed. 3, 4, Judge 
 Wheeler said : "By section 721 of the Revised Statutes of the United 
 
564 EIGHTS OF STOCKHOLDEEa (Ch. 4 
 
 States, the laws of the several ^ates, except where the Constitution, 
 treaties, or statutes of the United States otherwise require or provide, 
 are to be regarded as rules of decision in trials at common law in the 
 courts of the United States in cases where they apply. This seems 
 to govern all proceedings in court, except equity and admiralty cases, 
 although they are not strictly according to the common law, and to be 
 applicable here." 
 
 And I wish to emphasize two facts : First, I am not pointed to any 
 decision of the Court of Appeals of the State of New York holding 
 a doctrine contrary to that laid down in Hawes v. Oakland, supra; 
 and, second, in Hawes v. Oakland the Supreme Court first decided the 
 case and enunciated the equitable doctrine and rules applicable to such 
 a case, and then immediately adopted and promulgated the rule in 
 equity quoted to emphasize that decision. See Corbus v. Gold Min- 
 ing Co., 187 U. S. 462, 23 Sup. ,Ct. 157, 47 L. Ed. 256. I think the 
 rules laid down in that case are not local in their application, but 
 general ; that they constitute a general rule of equitable jurisprudence 
 and equitable jurisdiction throughout the entire United States, and 
 govern all like cases tried in the Circuit Court of vthe United States, 
 whether instituted there or removed thereto from a state court. In 
 giving equitable relief in such cases, the holdings of the Circuit Courts 
 ,of the United States should be uniform, and all shareholders in cor- 
 porations should stand on an equality therein. Many state courts, as 
 those of New York, hold that a plaintiff in a negligence action must 
 allege and prove absence of contributory negligence. In the United 
 States Circuit Court contributory negligence is an affirmative defense, 
 and must be alleged and proved. This is the rule where the case is re- 
 moved from the state court to the circuit court. R. R. Co. v. Glad- 
 mon, 15 Wall 401, 21 L. Ed. 114; I. & St. L. R. Co. v. Horst, 93 U. 
 S. 291, 23 L. Ed. 898; N. Pac. R. Co. v. Mares, 123 U. S. 710, 8 
 Sup. Ct. 321, 31 L. Ed. 296. 
 
 The demurrer must be sustained ; but defendant may answer with- 
 in 30 days after being served with a copy of the order to be entered 
 pursuant hereto. "^ 
 
 DEI.AWARE & H. CO. v. ALBANY & S. R. CO. 
 
 (Supreme Court of the United States, 1909. 213 U. S. 435, 29 Sup. Ct. 540, 53 
 
 h. Ed. 862.) 
 
 McKenna, J. The certificate of the court is as follows : 
 "This cause comes here upon appeal from a final decree of the cir- 
 cuit court, southern district of New York, which directs that the de- 
 fendant, Delaware & Hudson Company (hereinafter called the Dela- 
 ware Company) pay to the defendant the Albany & Susquehanna 
 Railroad Company (hereinafter called the Susquehanna Company) the 
 amount of $1,107,923.24. 
 
Sec. 3) REPRESENTATIVE SUITS 565 
 
 "The case was fully argued and submitte^i on briefs. It thereupon 
 developed that there was a question presented whether the bill could 
 be maintained under the 94th equity rule. That question is a prelim- 
 inary one, it has been held to be jurisdictional in character. Chicago 
 V. Mills, 204 U. S. 321, 51 L. Ed. 504, 27 Sup. Ct. 286 ; Doctor v. Har- 
 ' rington, 196 U. S. 579, 49 L. Ed. 606, 25 Sup. Ct. 355), and this court 
 desires the instruction of the Supreme Court for its proper decision, 
 
 "Statement of Facts. ' 
 "The facts upon which the question arises are as follows : 
 "The defendant corporations are both citizens of the state of New 
 York ; the complairlants are citizens of the states of Connecticut and 
 Rhode Island. The bill was brought to obtain an accounting for vari- 
 ous sums of money which it was alleged became due at intervals during 
 a series of years from the Delaware Company to the Susquehanna 
 Company as rental or in the nature of rental under a lease made in 
 1870. For the convenience of all, a copy of the pleadings is hereto 
 annexed, marked Exhibit 'A,' which may be referred to for a more 
 detailed statement of the cause of action. The bill does not 'set forth 
 with particularity the efforts of the plaintiffs to secure such action as 
 they desire on the part of the managing directors or trustees.' Nor did 
 the proofs show any such efforts. Nor. does the bill set forth any ef- 
 forts to secure 'such action on the part of the shareholders.' Nor did 
 the proofs show any such efforts. Nor did the bill set forth, or the 
 proof show, 'the causes of their failure to obtain such action' otherwise 
 than is hereinafter disclosed. 
 
 "The complaint was filed on June 12, 1906. The Susquehanna Com- 
 pany was organized under the act of April 2, 1850, which provides 
 that 'there shall be a board of thirteen directors * * * to manage 
 its affairs,' and for many years before this suit was brought a majority 
 of the board of directors of the Susquehanna Company consisted of 
 persons who were officers, directors, or employes of the Delaware Com- 
 pany. At the time this suit was instituted the directors and officers of 
 the Susquehanna Company, the dates of their election as such, and 
 their relations to the Delaware Company, with dates of election, were 
 as shown on the following statement: «^ * * * 
 
 "Of these, Robert M. Olyphant, R. Suydam Grant, Charles A. Pea- 
 body, Williarn S. Opdyke, Abel I. Culver, and Robert C. Pruyn, at 
 the time this suit was begun, did not own or hold, in their own right, 
 any shares of stock in the Susquehanna Company, but shares of stock 
 of that company owned by the Delaware Company were transferred to 
 each of them on the books of the Susquehanna Company by the Dela- 
 ware Company for the purpose of qualifying them as such directors. 
 Charles A. Walker owned five shares of Susquehanna stock from 1901 
 
 6 5 The names of the directors of the Susquehanna Company are omitted. 
 They were, apparently without exception, ofScers or nominees of the Delaware 
 Cimipany. 
 
566 EIGHTS OF STOCKHOLDEES (Ch. 4 
 
 to 1906 ; it does not appear that he owned any stock in the Susquehan- 
 na Company during the year 1906. 
 
 "So far as appears from anything shown in this record, none of the 
 directors or officers of the Delaware Company ever, before or after the 
 bringing of this suit, treated the claim therein set forth otherwise- than 
 as one of doubtful validity, the payment of which was to be resisted. 
 
 "On June 12, 1906, and for thirty years prior thereto, the capital 
 stoclc of the Susquehanna Company had been fixed at and limited to 
 35,000 shares. Of this capital stock on June 12, 1906, the Delaware 
 Company owned 4,500 shares and its directors or officers owned or 
 controlled 4,340 shares; the complainants owned 1,312 shares, and a 
 so-called 'protective committee' who, from and after December, 1905, 
 had been opposing the administration of the Delaware Company upon 
 the questions involved in this bill, controlled 6,688 shares. The entire 
 35,000 shares were held by 546 different persons, of whom 423 owned 
 50 shares or less, and of whom 383 resided in the state of New York. 
 
 "An annual meeting 'of the Susquehanna Company was held subse- 
 quent to the beginning of this suit, on October 16, 1906. At that meet- 
 ing the nominees of the protective committee were elected, receiving 
 15,501 ballots, the nominees of the forriier management receiving 15,- 
 441 ballots. About two weeks before such annual meeting the Susque- 
 hanna Company, being then controlled by the directorate above named, 
 filed a demurrer to the bill, which is hereto annexed as Exhibit 'B.' 
 Copies of such demurrer were sent by stockholders opposed to the ex- 
 ' isting control to all stockholders, and thereafter and before the meeting 
 proxies for several thousand shares were received by the persons who 
 voted for the nominees then elected. 
 
 "Questions Certified. 
 
 "Upon the facts above set forth, the questions of law concerning 
 which this court desires the instruction of the Supreme Court are : 
 
 "First. 'Does the fact that, before institution of this suit, complain- 
 ants made no demand for relief upon the board of directors of the 
 Susquehanna Company, prevent them from maintaining this bill?' 
 
 "Second. 'Does the fact that, before institution of this suit, com- 
 plainants made no effort to obtain relief at a stockholders' meeting, 
 prevent them from maintaining this bill ?' " 
 
 I The questions in connection with the 94th equity rule present the 
 issue in the case. The rule is as i follows : 
 
 "94. Every bill brought by one or more stockholders in a cor- 
 poration against the corporation and other parties, formed upon rights 
 which may properly be asserted by the corporation, must be verified 
 by oath, and must contain an allegation that the complainant was a 
 shareholder at the time of the transaction of which he complains, or 
 that his share had devolved on him since by operation of law, and that 
 the suit is not a collusive one to confer on a court of the United 
 States jurisdiction of a case of which it would not have otherwise 
 
Sec. 3) EEPEBSBNTATIVB SUIT8 567 
 
 cognizance. It must also set forth with particularity the efforts of 
 the plaintiff to secure such action as he desires on the part of the- man- 
 aging directors or trustees, and, if necessary, of the shareholders, and 
 the causes of his failure to obtain such action." 
 
 Do the facts show a compliance with the rule, or rather that part 
 of it which we have expressed in italics? The other parts of it are 
 not involved. 
 
 It is the contention of appellant that the averments in the bill, as ex- 
 hibited in the certificate, do not satisfy either the language of the rule 
 or its substance. The argument is that (1) a shareholder, as a condi- 
 tion of his suit, must show that he has exhausted all the means within 
 his reach to obtain within the corporation itself the redress of his 
 grievances; that his efforts must be earnest, not simulated, and this 
 must be made apparent to the court; (2) his failure to apply to the 
 managing body of the corporation will not, in the absence of fraud, 
 be excused by the fact that such managing body are also officers, di- 
 rectors, or employes of the corporation against which the suit is 
 brought; (3) if the facts of this case excused from a preliminary de- 
 mand upon the directors, the complainants were required to show "that 
 they could not have secured appropriate action by an appeal to the 
 stockholders of the Susquehanna Company." The appellees counter 
 these contentions by asserting that (1) the case is not within the re- 
 quirements of rule 94. "The bill shows, under oath," it is said, "that 
 the directors were hostile, and that demands upon them would be 'idle 
 
 I and nugatory.' * * *" (2) Complainants (appellees here) were 
 not required to appeal to the stockholders of the Susquehanna Com- 
 pany because (a) the stockholders, under the charter of the company, 
 could not grant relief; (b) even if such power existed, the stockhold- 
 ers "could not oust directors from office before expiration of their 
 terms." And it is further contended that, at the time the suit was in- 
 
 ■ stituted, "the Delaware Company controlled the stock vote of the Sus- 
 quehanna Company." / 
 
 These opposing contentions present a not unusual case where the 
 rule or principle of law is clear enough, but its application to a par- 
 ticular case is not so clear, and there is a contest of plausible con- 
 structions between which it is not always easy to decide. The purpose 
 of rule No. 94 hardly needs explanation. It is intended to secure the 
 Federal courts from imposition upon their jurisdiction, and recognizes 
 the right of the corporate directory to corporate control; in other 
 words, to make the corporation paramount, even when its rights are to 
 be protected or sought through litigation. Cases in this court have 
 indicated such right. But the directory may be derelict and the in- 
 terests of stockholders put in peril, and a case hence arises in which 
 the right of protecting the corporation accrues to them. Rule 94 ex- 
 presses primarily the conditions which must precede the exercise of 
 such right, but emergencies may arise in which the antagonism be- 
 tween the dij-ectory and the corporate interest may be unmistakable, 
 
568 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 and the requirements of the rule may be dispensed with ; or, it is more 
 accurate to say, do not apply. There are cases which illustrate these 
 contingencies. 
 
 As a typical case of the first kind, that is, which enforces the doc- 
 trine that the rights of the corporation must be asserted through the 
 corporation, Hawes v. Oakland (Hawes v. Contra Costa W^ter Co.) 
 104 U. S. 450, 26 L. Ed. 827, is cited. In that case Dodge v. Woolsey, 
 18 How. 331, 15 L. Ed. 401, was declared to be the leading case, on 
 the subject in this country, and, examining the latter case, it was said 
 that it did not establish, nor was it intended to establish, a doctrine 
 different in any material respect from that found in the other Ameri- 
 can cases and the English cases. And the doctrine was said to be that, 
 to enable a stockholder in a corporation to sustain in a court of equity 
 a suit founded on a right of action existing in the corporation itself, 
 and in which the corporation itself is the appropriate plaintiff, there 
 must exist as a foundation for the suit some action or threatened action 
 of the managing board of directors which is beyond their authority ; a 
 fraudulent transaction, completed or contemplated, which will result 
 in serious injury to the corporation or stockholders ; where the board 
 of directors, or a majority of them, are acting for their own interest in 
 a manner destructive of the corporation itself or of the rights of other 
 stockholders ; or where a majority of the stockholders themselves are 
 oppressively and illegally pursuing a course inimical to the corporation 
 or to the rights of the other stockholders. The court expressed the 
 possibility that other cases might arise, but said "the foregoing may be 
 regarded as an outline of the principles which govern this class of 
 cases." , 
 
 Determined by the principles enumerated, the court affirmed a de- 
 cree sustaining a demurrer to a bill by a stockholder of the Contra 
 Costa Waterworks Company, filed in behalf of himself and sther 
 stockholders against the company, its directors and the city of Oak- 
 land, to enjoin the city from taking, and the directors from permitting 
 it to take, water from the works of the company without compensation. 
 The bill alleged a request of the directors to take proceedings, and that 
 they declined to do so. The bill also alleged injury to the corporation, 
 diminution of dividends of the complainant and other stockholders, and 
 a decrease of the value of their stock. Appellant adduces, as repeating 
 and illustrating the doctrine of Hawes v. Oakland, the following cases : 
 Dimpfel v. Ohio & M. R. Co., 110 U. S. 209, 28 L. Ed. 121, 3 Sup. 
 Ct. 573 ; Quincy v. Steel, 120 U. S. 241, 30 U Ed. 624, 7 Sup. Ct' 
 520; Taylor v. Holmes, 127 U. S. 489, 32 L. Ed. 179, 8 Sup. Ct. 
 1192; Corbus v. Alaska Treadwell Gold Min. Co., 187 U. S. 455, 47 
 L. Ed. 256, 23 Sup. Ct. 157. 
 
 The latter case is quoted by appellant as putting unmistakable empha- 
 sis on rule 94, and that the facts of the case at bar do not satisfy its 
 requirements. The object of the suit was to enjoin the board of direc- 
 tors of the corporation from paying a license tax levied upon the cor- 
 
Sec. 3) EEPRBSBNTATIVB SUITS 569 
 
 poration under the provisions of an act of Congress. Corbus, the 
 complainant in the suit, was a stockholder of the corporatibn, and al- 
 leged, as the reason of the suit by him, that he was unable to request 
 the directors of the company to refuse to pay the tax or apply for the 
 license required by reason of their great distance from him ; but that 
 he had made such request of the officers of the company residing in 
 Alaska, and that they had refused to comply with the request. Of 
 this allegation the court said that it showed no compliance with rule 
 94, and that complainant simply relied on the' distance of the directors 
 from where he resided as an excuse for not applying to 'them.. , "We 
 are of opinion," it was said, "that the excuse is not sufficient. He 
 should, at least, have shown some effort. If he had made an effort 
 and obtained no satisfactory result, either by reason of the distance of 
 the directors or by their dilatoriness or unwillingness to act, a different 
 case would have been presented ; but to do nothing is not sufficient." 
 
 A case sustaining the second proposition which we have mentioned, 
 to wit, where the circumstances take the case out of the rule, is Doc- 
 tor v. Harrington, 196 U. S. 579, 49 L. Ed. 606, 25 Sup. Ct. 355. The 
 suit was brought by Doctor and others as stockholders of a corpora- 
 tion called the Sal Sayles Company to set aside a judgment obtained 
 by the Harringtons against that company. The bill alleged that the 
 suit wa,s not collusive ; that complainants were unable to obtain redress 
 from the company or "at the hands" of its stockholders. It further 
 alleged that the board of directors of the corporation was "under the 
 absolute control and domination of the defendant, John J. Harrington, 
 and that said Harrington, by reason of having the possession of a ma- 
 jority of the capital stock of said corporation," likewise controlled "the 
 action of the stockholders." It was further alleged that he refused to 
 give any information with regard thereto, and declined to redress the 
 wrongs of which complaint was made, or give complainants any op- 
 portunity to lay before the board of directors or the stockholders of 
 the company the facts set forth. 
 
 It will be observed, therefore, that there was no compliance with the 
 requirements of rule 94, as expressed in its letter. The efforts that 
 were made to secure the action of the managing directors or trustees 
 were not "set forth with particularity." Nothing was alleged but the 
 domination of John J. Harrington and his control of the directors. 
 What he did, in what way he exerted control, was' not alleged. In 
 other words, the bill seemed to show a case, not of compliance with 
 the requirements of rule 94, but circumstances which excused from 
 such compliance. 
 
 Coming to consider the effect of those allegations, we said that rule 
 94 contemplates that there may be, and provides for, a suit by the 
 stockholder in a corporation, founded on rights which may be properly 
 asserted by the corporation. And we further said that "the ultimate 
 interest of the corporation made defendant may be the same as that of 
 the stockholder made plaintiff, but the corporation may be under a 
 
570 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 control antagonistic to him, and made to act in any way detrimental to 
 his interest. In other words, his interests and the interests of the cor- 
 poration may be subservient tp some illegal purpose." And we de- 
 cided that these principles were satisfied by the allegations of the bill, 
 and that such antagonism existed between the complainants in the suit 
 and the directors of the corporation that they would "suffer irreme- 
 diable loss if not permitted to sue." In other words, the complainants 
 were in such a situation by reason of the power which Harrington pos- 
 sessed over those who managed the corporation — directors and stock- 
 holders^that appeals to them for action would have been futile. Prior 
 cases were considered, including Dodge v. Woolsey and Hawes v. 
 Oakland, and the conclusion reached was pronounced to be in accord- 
 ance with their doctrine. 
 
 Do the facts in the case at bar present the same situation that was 
 passed on in Doctor v. Harrington ? The certificate shows the follow- 
 ing facts : The complaint was filed June 12, 1906. The suit was 
 brought to obtain an accounting for various sums of money, which it 
 was alleged became due at intervals during a series of years from the 
 Delaware Company to the Susquehanna Company as rental, or in the 
 nature of rental, under a lease made in 1870. The Susquehanna Com- 
 pany was organized in. 1850, and, under the law, its board of directors 
 consisted of thirteen members, a majority of whom for many years 
 before this suit was brought were also "officers, directors, or employes 
 of the Delaware Company." Indeed, they served as its president, vice 
 president, treasurer, secretary, directors, and general counsel, — officers 
 of dominating influence, it must be said. It appears that certain of the 
 persons occupying those offices did not, at the time the suit was 
 brought, own or hold, in their own right, any shares of stock in the 
 Susquehanna Company, but shares of stock in that company owned by 
 the Delaware Company were transferred to each of them on the books 
 of the former company by the latter company for the purpose of qual- 
 ifying them as directors. The number of shares of the capital stock 
 of the Susquehanna Company, and how held or owned, and the atti- 
 tude of the owners thereof to the Delaware Company, appear in the 
 certificate and need not be repeated. , 
 
 The certificate recites the following : "So far as appears from any- 
 thing shown in the record, none of the directors or Officers of the Del- 
 aware Company ever, before or after the bringing of this suit, treated 
 the claim therein set forth otherwise than as one of doubtful validity, 
 the payment of which was to be resisted." 
 
 The situation was unique. The compaify whose interest it was to 
 assert the right to payment and to demand it was under the control 
 or could be influenced by the company whose interest it was to deny in- 
 debtedness and resist payment. And though there are allegations in 
 the bill of contrary import, the good faith of the directors need not 
 be questioned. They might, notwithstanding, be firm in their views, — 
 firm to resist appeals against them. Their views seemed to persist 
 
Sec. 3) REPRESENTATIVE SUITS 571 
 
 through many years. At any rate, a situation was presented fully as 
 formidable to the interest of stockholders in the Susquehanna Com- 
 pany as that presented in the Harrington Case. And it may be well 
 doubted whether the directors of the Susquehanna Company, so being 
 directors of the Delaware Company, and who, either from an apathy 
 that endured through many years, could discern no right in that com- 
 pany to assert, or, through conviction of the absence of right, were 
 not the best agents to begin or conduct a litigafion of such right. It 
 was certainly natural enough that a stockholder should seek more 
 earnest representatives, and consider that the directors "occupied," 
 to use the language of Dodge v. Woolsey, "antagonistic grounds in re- 
 spect to the controversy" as to him. The attitude of the directors need 
 not be sinister. It may be sincere; It was so in Chicago v. Mills,' 204 
 U. S. 321, 51 L. Ed. 504, 27 Sup. Ct. 286, and Ex parte Young, 209 
 U. S. 123, 52 L. Ed. 714, 13 T.. R. A. (N. S.) 932, 28 Sup. Ct. 
 441, 14 Ann. Cas. 764; and other cases. In this case it was certainly 
 determined. It continued until after this suit was brought. Both the 
 Delaware Company and the Susquehanna Company, then under "the 
 administration of the Delaware Company," to quote from the circuit 
 court of appeals, demurred to the bill. 
 
 But it is contended that efforts should have been made and alleged 
 to move the corporation to action through a stockholders' meeting. In 
 this contention there is again similarity to the Harrington Case. It was 
 there alleged that Harrington controlled the action of the stockholders 
 "by reason of having possession of a majority" of the capital stock of 
 J:he corporation. The control in the case at bar, therefore, may not 
 have been as direct as in Doctor v. Harrington, but it was practically 
 efficient. The stock of the Susquehanna Company consisted of 35,000 
 shares, of which the Delaware Company and its directors and officers 
 held 8,840. The complainant and a so-called protective committee, a 
 committee which, the certificate states, "froni and' after December, 
 1905, had been opposing the administration of the Delaware Company 
 upon the questions involved in this bill," controlled 8,000 shares. The 
 certificate also states that the "entire 35,000^ shares were held by 546 
 different persons, of whom 423 owned 50 shares or less, and of whom 
 , 383 resided in New York." 
 
 The proposition then is, that notwithstanding the power of 8,840 
 shares, held by the managers of both corporations, against 8,000 held 
 by complainants and the protective committee, coihplainants were re- 
 quired by rule 94 to engage and organize all other stockholders, or 
 enougb of them to direct or change the corporate management; in 
 other words, struggle for the control of the corporation with an ad- 
 verse board of directors. And such struggle, appellant contends, 
 "could not be regarded as presumptively futile," as there would be an 
 appeal to "the self-interest of the remaining stockholders;" and, it is 
 pointed out, that the certificate recites that control through the stock- 
 holders was subsequently obtained. But it was obtained after the suit 
 
572 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 was began and the antagonism of the directors was more clearly ex- 
 hibited. The circumstances of this case preclude, therefore, an ac- 
 ceptance of appellant's proposition. E^ule 94 is intended to have prac- 
 tical operation, and to have that it must, as to its requirements, be given 
 such play as to fit the conditions of different: cases. Therefore, con- 
 sidering that this case, by reason of^ its facts, falls within the principle 
 of Doctor v. Harrington, we do not review the cases cited by appellees, 
 wherein, it is contended, suits were justified by demand on the direc- 
 tors alone, nor consider whether stockholders have the power to com- 
 pel directors to institute suits to which the directors are opposed. 
 We answer both questions certified in the negative. 
 
 SECTION 4.— TRANSFER OF STOCK 
 
 DENTON et al. v. LIVINGSTON. 
 (Supreme Court of New Xork, 1812. 9 Johns. '96, 6 Am. Dec. 264.) 
 
 This was an action .of assumpsit. Besides the usual money counts, 
 the declaration contained two special counts: 1. That the defendant, 
 on the 20th June, 1811, being indebted to the plaintiffs in 1,000 dol- 
 lars, for so much money by the defendant before that time collected 
 and received on a writ of venditioni exponas, issued out of this court 
 and directed to, and received by, the defendant, as sheriff of the coun- 
 ty of Columbia, at the suit of the plaintiffs, against the goods, &c. of 
 one Samuel Edmonds, &c. for 631 dollars and 12 cents, damages and 
 costs, &c. and being so indebted, the defendant, in consideration there- 
 of, &c. undertook &c. 2. Whereas the defendant, late sheriff, &c. by 
 virtue of another venditioni exponas, to him directed commanding him 
 to levy the sum of 631 dollars and 12 cents, of the goods and chattels 
 of Samuel Edmonds, &c. the defendant, then being sheriff, &c. by vir- 
 tue of the said venditioni exponas, the said goods and chattels of the 
 said Samuel Edmonds, found in his bailiwick, sold at public auction or 
 vendue ; and that divers goods and chattels of the said Edmonds, so 
 exposed for sale, were purchased by W. A. he being, the highest bidde'r 
 for the same, for a large sum of money, to wit, a sum which, together 
 with the moneys before collected on the venditioni exponas, by the de- 
 fendant, were sufficient to pay and satisfy the money directed to be 
 levied by the said venditioni exponas, together with the fees of- the de- 
 fendant, as sheriff, and were delivered to the said W. A. to his satis- 
 faction; yet the defendant has not paid to the plaintiffs the surn of 
 money so directed to be levied, &c. or any part thereof, although," &c. 
 The defendant pleaded non assumpsit, with notice. , 
 The cause was tried at the Columbia circuit, before Mr. Justice 
 Yates. 
 
Sec. 4) TRANSFER OF STOCK 573 
 
 An exemplifieatiop of the judgment at the suit of the plaintiffs 
 against Edmonds, and a test, fieri facias was produced, on which the 
 defendant had endorsed a return, as follows : "By virtue of the with- 
 in writ of test. fi. fa. I have taken goods and! chattels of the within 
 named Samuel Edmonds, to the value of the damages within men- 
 tioned, which goods and chattels remain in my hands unsold, for want 
 of buyers," &c. 
 
 The venditioni exponas under which the sale was made was also 
 produced. The plaintiffs also proved that the amount of the sales 
 was sufficient to satisfy their execution, and that the sale was for 
 immediate payment. 
 
 The defendant proved, that among the goods, and chattels sold' 
 was a sloop which sold for 275 dollars, e£ share in the Ba:nk of Col- 
 umbia, which sold for 50 dollars, andi three shares in the Hudson 
 library, which sold for 9 dollars ; that at the time of the sale the sloop 
 was at Poughkeepsie, and Ashley, the purchaser, afterwards refused 
 to pay for her, on the ground that the defendant had not delivered to 
 him the possession of the sloop ; and she was afterwards sold on an- 
 other execution against Edmonds, by the sheriff of Dutchess county, 
 which execution issued subsequent to the levy under the execution of 
 the plaintiffs. The diefendant contended that the shares were not 
 liable to be sold on execution, and that the defendant was not liable 
 for them, Ashley having refused to pay for them. 
 
 The plaintiffs proved, that when the levy was made on the sloop 
 she lay at Hudson, in the county of Columbia, and Ashley gave a re- 
 ceipt for her to the sheriff, vfho, at the time of the sale, stated that 
 she was receipted by a responsible person; and she was struck off 
 to Ashley, as the highest bidder. 
 
 The judge charged the jury, that the plaintiffs were not entitled to 
 recover for the shares, as they were not the subject of sale, nor for 
 the amount at which the sloop sold, as it did not appear that the de- 
 fendant had ever received the money; and that the jury must find for 
 the plaintiffs the balance, after deducting those items. The jury ac- 
 cordingly found a verdict for the plaintiffs, for 95 dollars. 
 , Kent, C. J.°' It is not a question, upon the present motion, whether 
 the last count stated in the case was properly joined with the other 
 counts. , The first special count stated, is upon an implied assumpsit 
 to pay the amount of moneys collected and received upon the writ of 
 venditioni exponas, andl the point is, how far the evidence supports 
 the count. * * * In the present case the counsel for the plaintiffs 
 do not appear to have contended, at the trial, for the value of the goods 
 as returned to the fi. fa. but to have equitably referred the case to the 
 fact of the amount of the sales. If the sheriff conducts himself 
 throughout the business with diligence and fidelity, this is certainly 
 the more just rule, and the judgment ought not to be considered as any 
 
 «• Part only of the opinion is given. 
 
574 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 further satisfied, as against the original defendant, than the amount 
 of the proceeds of such sale ; for it may often happen ihat the prop- 
 erty seized and returned as of the value of the debt may be found not 
 to belong to the defendant, or may be found to be of much less value, 
 by the fall of the market between the levy and the sale, or by means 
 of some concealed defect or infirmity. We shall, therefore, waive 
 the further consideration of this point, and proceed as the plaintiffs 
 did at the trial, to consider the actual sum for which the sheriff ought 
 to account upon, the sale, as made andl proved. 
 
 1. He is answerable for the amount of the sale of the sloop, and 
 his excuse for not returning the money is insufficient. Instead of re- 
 taining the sloop in his possession between the levy and the sale, he 
 delivered her to Ashley, the purchaser-; and as he afterwards sold her 
 to him, and has lost the possession, he is answerable for the money 
 she sold for. There is no other remedy for the plaintiffs. They can- 
 not call upon the original defendant for the amount of this sloop, for 
 he would plead this seizure by the sheriff in bar ; ^ and if the sheriff, 
 by such means as the delivery and subsequent sale of the chattel, with- 
 out the money, could avoid answering for the amount, there would 
 be no certainty and safety to the creditor, by the process of execu- 
 tion. 
 
 2. But the bank and library shares were levied on by mistake, for 
 these were mere choses in action, and not the subject of a levy and sale 
 by fi. fa. any more than bonds and notes ; and such things cannot be 
 taken in execution. Francis v. Nash, 7. Geo. II. K. B. cited in Com. 
 Dig. tit. Execution, c. 4. 
 
 As, therefore, the charge of the judge was incorrect in ruling that 
 the defendant was not answerable for the amount of the sale of the 
 sloop, there must be a new trial, with costs to abidle the event. Rule 
 granted. 
 
 FOSTER V. POTTER. 
 
 (Supreme Court of Missouri, 1866. 37 Mo. 525.) 
 
 Holmes, Judge. This is a petition in the nature of a bill in equity 
 to compel the parties defendant to interplead and establish their rights 
 to a fund held by the plaintiff, and which he is ready to pay over to 
 the party entitled to it. It appears that the firm of J. & W. McDowell, 
 owners of certain ^hares of stock in the Pacific Insurance Company 
 (of which John McDowell afterwards became sole owner), gave to 
 the plaintiff, as trustee for the benefit of the corporation, a deed of 
 trust in the nature of a mortgage upon this stock, to secure the pay- 
 ment of certain notes held by the company. The deed was duly ejce- 
 cuted and recorded, and the transfer was entered on the books of the 
 company, and signed by the grantors. Afterwards, the defendant 
 Potter caused an attachment to be levied upon these shares of stock 
 
Sec. 4) TRANSFER OF STOCK 575 
 
 as the property of McDowell, and other attachments followed. The 
 manner of the levy does not appear; but judgments were obtained 
 in the attachment suits, and executions were issued thereon, under 
 which, this stock was levied upon and sold by the sheriff, in pursuance 
 of the act concerning executions, as the property of McDowell, the 
 defendant therein. Potter becoming the purchaser ; and an instrument 
 in writing was executed and delivered to him by the sheriff, as pro- 
 vided by the statute, purporting to convey all the interest of Mc- 
 Dowell in these shares of stock. Subsequently to these proceedings, 
 and when the notes became due, there was a sale by the trustee under 
 the deed of trust, which realized a balance, over and above the debt 
 secured, amounting to $1,644.46, which sum remained in the hands of 
 the trustee. Some time after this, the trustee (the plaintiff here) was 
 garnished as the debtor of McDowell, under an execution issued upon 
 a judgment in favor of John Lyon and others' against him; and while 
 proceedings in the matter ,of the garnishment were still pending, this 
 suit was commenced against all the parties concerned. The court 
 below ordered the fund to be paid to John Lyon and others, and Pot- 
 ter was decreed to pay the costs of the suit. Potter appeals to this 
 court. 
 
 ' The court below refused to instruct the jury for the defendant Pot- 
 ter, to the effect, that the levy of the attachment (in the manner pro- 
 vided in the act concerning executions) created a lien upon the balance 
 of the proceeds of the trustee's sale after payment of the notes se- 
 cured, and that the levy and sale to Potter, under the executions' is- 
 sued in the attachment suits, gave him a good title to the fund re- 
 maining in the hands of the trustee; and further, that the equity of 
 redemption in the shares of stock was subject to levy and sale in the 
 same manner as the shares themselves would have been, if they had 
 , been standing in the name of the defendant without any encumbrance 
 thereon. 
 
 The statute subjects shares of stock in incorporated companies to' 
 levy and sale under execution, and prescribes the manner in which 
 the thing may be done; but there are no such provisions in the act 
 concerning attachments. At common law, such property could not be 
 the 'subject of attachment or execution. This principle has been recog- 
 nized by this court, and applied to a levy under execution upon an 
 equity of redemption in movable personal chattels, where the mort- 
 gagor retained nothing more than a permissive possession, determina- 
 ble at the will of the mortgagee, or upon an equitable interest in per- 
 sonal property assigned; and, it has been held that such mere equita- 
 ble interests could not be reached by process of law, nor be bound by 
 execution, and that no title or interest in the chattels could pass to 
 the purchaser under such levy and sale, even where the chattels were 
 actually seized by the officer and delivered to the purchaser. King v. 
 Bailey, 8 Mo. 332; Yeldell v. Stemmons, 15 Mo. 443; Boyce v. 
 
576 EIGHTS OP STOCKHOLDBES (Ch. 4 
 
 a 
 
 Smith, 16 Mo. 317. The deiendant in the execution having no prop- 
 erty in the thing, but a bare possession only, no interest could pass to 
 the purchaser ; and a mere right of redemption could not be actually 
 seized. An attachment creates a lien upon property that can be at- 
 tached and seized, or garnished ; and a sale under execution, in such 
 case, will be effectual to pass the property levied on, where such lien 
 exists. It is not made to appear in what manner this attachment was 
 undertaken to be levied on these shares of stock. The statute provi- 
 sions, authorizing a levy of an execution, did not therefore authorize 
 the levy of an attachment also. 
 
 In general, stock owned by an individual in a corporation cannot be 
 subjected to the payment of his debts by the process of attachment, 
 nor by garnishee process, served on the 'corporation. Such property 
 is neither a specific chattel, nor a debt, but a mere chose in action. A 
 certificate of stock is merely an evidence of an interest or property 
 owned in the corporation, but not of a debt due as a liquidated money 
 demand. Planters' Bank v. Leavens, 4 Ala. 753 ; Titcomb v. Union 
 Marine & Fire Ins. Co., 8' Mass. 326. It does not appear that any cer- 
 tificate was actually seized. The property interest of the shareholder 
 is an intangible and invisible thing, and cannot be actually seized by 
 the officer. There can be no change of possession; and the sale of 
 such interests under execution or attachment was a mode of transfer 
 unknown to the common law. Arig. Corp. § 588. The attachment act 
 provides no method by which a levy can be made. It is clear, there- 
 fore, no levy of this attachment could have been made that would be 
 valid and effectual as such. 
 
 The statutes of some States make special provision for the levy of an 
 attachment upon such shares of stock. Our statute authorizes a levy 
 upon books, accounts, notes, bonds, certificates of deposit, evidences of 
 debt, and real and personal property ; and provides that when such 
 things are to be attached, the officer shall take the same and keep them 
 in his custody, if accessible ; and if not accessible, he may summon the 
 person in whose possession they are, if in their nature seizable at all, 
 as a garnishee. Neither shares nor certificates of stock in a corporation 
 come under any one of these specifications otherwise than as chattels, 
 or personal property. A certificate, as a chose in action and a chattel, 
 might be seized, but stock, as personal property, could not be seized. 
 It would seem to be very clear, that this kind of property is by its 
 very nature wholly inaccessible to actual seizure by an officer He 
 could not take "it into his custody. Nor can the corporation be said 
 to have possession of it, as an article of property belonging to the de- 
 fendant, in such manner that the corporation could be summoned as a 
 garnishee. A garnishee may discharge himself by paying the debt into 
 court, or delivering up articles of property in his possession as a gar- 
 nishee, to the officer, to be disposed of under the order of the court 
 Nothing of this kind could be done here. We must conclude that the 
 
Sec. 4) TRANSFER OF STOCK 577 
 
 statute has not cljanged the common law rule in relation to the levy 
 of an attachment upon shares of stock. 
 
 But the act concerning executions does provide a specific mode in 
 which shares of stock in incorporated companies may be levied upon 
 and sold under execution; and an execution upon a general judg- 
 ment in an attachment suit is to be a common law fi. fa., and may be 
 levied upon all the property of the defendant (subject to execution), 
 whether attached or not. R. C. 1855, p. 256, § 61. It would appear 
 that these shares were levied upon under executions issued upon 
 general judgments, and sold and conveyed to the defendant Potter, 
 in pursuance of the statute. If the defendant had been the absolute 
 owner of the shares at the time of the levy, there could have been no 
 doubt that the purchaser would acquire a good title by his purchase 
 at the sheriff's sale. The statute provides, that when an execution 
 is issued against a person, "being the owner of any shares or stock" 
 in any corporation, it shall be the duty of the secretary, or other 
 oiScer, to furnish to the levying officer a certificate of the number' of 
 shares held by the defendant, "with the encumbrance thereon" (sec- 
 tion 23) ; that the levy shall be made by leaving, a copy of the writ with 
 tHe secretary or other officer, with a certificate attested by the officer 
 making the levy, that he levies and takes such shares to satisfy his 
 execution (section 24) ; and that when such shares are sold, the officer 
 shall execute and deliver to the purchaser an instrument in writing 
 (a bill of sale) conveying the same, and leave with the secretary a 
 copy of his execution and of his return thereon, and thereupon the 
 purchaser is to become entitled to the dividends and stocks, and all 
 the privileges in the corporation which the debtor himself had (section 
 55). It is also provided that such shares may be claiijied, when levied 
 upon, by any other person claiming an interest or title to the same, as 
 in other like cases. 
 
 Here is an effectual mode of levy, sale and transfer of all the in- 
 terest of the debtor defendant, without an actual seizure, ojr anything 
 like a delivery of the property in specie. The purchaser is put into 
 the place of the debtor. The prior tights of the mortgagee are not 
 necessarily interfered with. He may still proceed to sell under his 
 mortgage, or he may claim the property before the sheriff, or he may 
 assert his rights in any other way known to the law. His conveyance 
 upon a sale under his power may be effectual to pass the whole prop- 
 ,erty in the stock, notwithstanding the sale under execution. The 
 purchaser takes the property subject to the deed of trust. It does not 
 appear that the notes had become due before the levy and sale under 
 the executions. The deed itself provides that the trustee may sell, 
 after the notes become due, whenever the holders of the notes shall 
 require payment. Under such a deed, the absolute ownership does 
 not vest in the trustee until a forfeiture, or even until an actual sale 
 
 RiCH.COKP. — 37 
 
578 RIGHTS OF STOCKHOLDBES (Ch- 4 
 
 shall pass the title and interest in the property to the purchaser. He 
 has a conditional legal title, with a power to sell and pass the title or 
 absolute ownership to the purchaser. He can no more have an actual 
 possession, or make a seizure or delivery of possession of the specific 
 property, than the sheriff. Whatever possession or control the mort- 
 gagor could exercise over such property still remain with him as be- 
 fore, and was to continue until the trustee should be required to sell. 
 He has thus an equity of redemption, with the possession and control 
 of the property, according to its nature, for a definite period of time. 
 In short, he remained the owner of the stock, subject only to the en- 
 cumbrance. This encumbrance was noted on the books of the cor- 
 poration in such manner that the secretary could furnish tha levying 
 officer with the certificate ' required by the statute. The amount of 
 the defendant's interest could thereby be definitely ascertained and 
 rendered certain. The words of the act are not necessarily confined to 
 such claims as the corporation itself may have on the stock for unpaid 
 assessments or otherwise ; they are broad enough to include any and , 
 all encumbrances. 
 
 The decisions heretofore made, as above, related to movable arti- 
 cles of personal property, which may admit of seizure, change of pos- 
 session, and actual delivery ; they contemplate a case where the mort- 
 gagor has no right to retain possession of the property for any definite 
 period. In King v. Bailey it was said that the bare possession of a 
 chattel by the mortgagor with the permission of the mortgagee, and 
 determinable at his will could not be the subject of sale under execu- 
 tion; that such bare possession gave no such interest in the property 
 as could be levied on ; but that it was not intended to convey the idea 
 that a certain and determined interest in chattels, accompanied with 
 possession, however limited, could not be sold under execution. The 
 same intimation was repeated in the subsequent cases. The property 
 consisted of slaves, lumber, and the like. It did not appear that the 
 mortgagor had a right of possession for any definite period ; nor did 
 the property come under the same provisions of the statute as these 
 shares of stock. The same distinction is clearly made in the author- 
 ities therein referred to. Hendricks v. Robinson, 2 Johns. Ch. (N. 
 Y.) 283; Bailey v. Burton, 8 Wend. (N. Y.) 345. The former case 
 concerned an indeterminate equitable interest in the surplus which 
 might remain in the hands of the assignees after the purposes of the 
 assignment were answered. In both cases it was expressly declared 
 that the principle did not apply where the mortgagor had a right of 
 possession for some definite period ; but that where there was an eq- 
 uity of redemption, with such right of possession for a definite period, 
 before the property could become forfeited and liable to be taken and 
 sold by the mortgagee, the mortgagor has an interest which may be 
 levied on and sold under execution, and that the purchaser would take 
 
Sec. 4) TKANSPER OP STOCK 579 
 
 the property subject to the encumbrances. Mattison v. Baucus, 1 N. 
 Y. 295. These cases related only to such articles of personal prop- 
 erty as may be the subject of actual seizure and change of possession, 
 and they proceed upon' the idea that indefinite and uncertain interests 
 are not to be sacrificed under the legal process in this manner, when 
 there is a more suitable remedy in equity; they havje no direct tear- 
 ing upon a case of this kind. 
 
 In those States where the statutes authorize an attachment to be 
 levied on shares of stock in corporations, under various provisions, 
 it is held that a levy may be made upon the equity of redemption of 
 the mortgagor in such shares, and a sale made subject to the mort- 
 gage, even when the mortgage is given to indemnify against uncer- 
 tain liabilities other than for the payment of money. 2 Hill. Mortg. 
 ch. 48. The purchaser under the execution may pay off the prior 
 mortgage, and he will thereby become the absolute owner of the 
 shares. Forbes v. Parker, 16 Pick. (Mass.) 462. The surplus arising 
 from the sale of such equity of redemption under an execution is to 
 be held by the officer and paid over to the next in order of priority. 
 Denny v. Hamilton, 16 Mass. 402. 
 
 At the time of this levy and sale under execution we think the de- 
 fendant had an equity of redemption, with a right of possession and 
 control for a definite period, and such an ownership and property" 
 in this stock as "could properly be levied on under the statute relating 
 to executions, subject to the existing encumbrances ; and that the sale 
 and conveyance by the sheriff passed to the purchaser the property in 
 these shares, subject only to the prior deed of trust. When the prop- 
 erty was sold under the deed of trust for the payment of the notes 
 secured, the surplus ' remaining over became subject in his hands to 
 a trust for the benefit of the party next entitled thereto. And the pur- 
 chaser under these executions having acquired the equity of redemp- 
 tion, by the bill of sale from the sheriff, became substituted ihereby to 
 the right and place of the mortgagor, and entitled in equity to re- 
 ceive that surplus in his stead. It follows, that- at the date of this gar- 
 nishment of Lyon 'and others, the trustee was not indebted to the de- 
 fendant in the execution, under which he was summoned as garnishee, 
 but stood indebted or at least accountable in equity to the purchaser 
 under the first execution. 
 
 This being a proceeding in equity, we see no difficulty in the way 
 of a decree in favor of the defendant Potter, as the party in equity 
 entitled to the funds. 
 
 The first instruction refused for the defendant was not entirely 
 correct. The levy of the attachment was unauthorized and void, and 
 gave no lien; but the levy and sale under the execution issued in 
 the ^attachment suits did create a lien, and give a good title to the pur- 
 chaser, to the extent of the balance of the fund. The other instruc- 
 
580 EIGHTS OF STOCKHOLDBES (Ch. 4 
 
 tion, though somewhat too general in its terms, might very well have 
 been given, upon the evidence before the jury. 
 
 Judgment reversed, and cause remanded. Judge WagnBr concurs; 
 Judge Lovelace absent.*' 
 
 DUNCUFT V. ALBRECHT. 
 (High Court of Chancery, 1841. 12 Sim. 189.) 
 
 Bill in equity for specific performance of an-oral agreement for the 
 sale of fifty shares of stock in the London & Southwestern Railway 
 Company. The defendant diemurred to the bill on the ground, among 
 others, that shares in a railway company come -wfithin the description 
 of goods, wares, and merchandise, and hence that an oral contract for 
 their sale comes within the 17th section of the Statute of Frauds.'* 
 
 The Vice-Chancellor (ShadwELL)*', without hearing them, said : 
 I do not feel any difficulty about this case ; because I think that the 
 verbal agreement, as it is stated), is quite sufficient. * * * 
 
 In my opinion this is a case to which the 17th section of the Stat- 
 ute of Frauds does not apply ; because it is impressed upon my mind 
 that, in the decisions which have been made with respect to the 17th 
 section, it has been held to apply .only to goods, wares and merchan- 
 dizes which are capable of being in part delivered. If there is an 
 agreement to sell a quantity of tallow or hemp, you may deliver a part ; 
 but the delivery of a part is not a transaction applicable, as I appre- 
 hend, to such a subject as railway shares. They have been decided not 
 to be land. They have been decided to be, in effect, personal estate ; 
 but not personal estate of the quality of goods, wares and merchandizes 
 within the meaning of the 17th section. * * * 
 
 Then there is nothing, as I understand, either in the stalute of 
 frauds or in the law of this court, which prevents the execution of 
 such an agreement as is here stated : and, though it may be true that 
 the plaintiff has asked<. more than this court would give or might 
 give under certain circumstances; my opinion is that he has stated 
 quite enough to show that he is entitled to some relief : and, therefore, 
 the demurrer must be overruled. See Hibblewhite v. McMorine, 6 
 Mees. & Welsh. 200; Adderley v. Dixon, 1 Sim. & Stu. 607; Ex 
 parte Lancaster Canal Company, Montagu's B. C. 116; and Humble 
 v. Mitchell, 2 Railway Cases, 70." 
 
 87 See Daniel v. Gold Hill Mining Oompany, 28 Wash. 411, 68 Pac. 884 
 (1902). I 
 
 8 8 Statement of facts substituted. 
 
 80 A part of the opinion is omitted. 
 
 10 The decision was affirmed by the Lord Chancellor July 23, 1841. 
 
 Contra: TisdaJe v. Harris, 20 Pick. (Mass.) 9 (1838) ; North v. Forest, 15 
 Conn. 400 (1843). Compare Southern Life Ins. & Trust Co. v. Cole, 4 Fla. 
 359 (1852) ; Spear v. Bach, 82 Wis. 192, 52 N. W. 97 (1892). 
 
Sec. 4) TEANSPEE OF STOCK 681 
 
 BOSTON MUSIC HALL ASS'N v. CORY et al. 
 (Supreme Judicia^ Court of Massachusetts, 1880. 129 Mass. 435.) 
 
 Colt, J. In 1874, Howard L. Hayf ord sold five shares in. the stock 
 of the Boston Music Hall Association to his brother Nathan H. Hay- 
 ford, to whom he delivered a stock certificate, and upon which he in- 
 dorsed andl signed a written transfer in the usual form. No transfer 
 was made on the books of the corporation, and there was no provision 
 in the charter or by-laws of the association, requiring it. It was not 
 until after the shares were levied on as the property of Ho ward. L., 
 in May, 1878, that the corporation was notified of the alleged sale 
 and transfer to Nathan H. In the meantime Howard L., with the 
 knowledge of his brother, collected the annual dividends declared on 
 the stock, attended meetings of the stockholders, and served upon 
 committees appointed at such meetings. Under the levy made in 1878, 
 Barney Cory bought the stock as the property of Howard L., and the 
 question presented by this bill of interpleader is, which of the two ac- 
 quired the title. 
 
 The case comes up on an appeal from the decree of a single judge 
 in favor of Nathan H. Hayford, accompanied by a report of the evi- 
 dence taken at the hearing. In the first place, it is contended that 
 the evidence fails to show that the stock was ^ sold and assigned) to 
 Nathan H., in gOod faith at any time before the levy. Upon this 
 question of fact, the decision of the single judge will not be reversed 
 unless it clearly appears to be erroneous. Reed v. Reed, 114 Mass. 
 372; Montgomery v. Pickering, 116 Mass. 227. 
 
 The only evidence of the transaction in 1874 comes from the two 
 Hayfords, who were the parties to it. But we cannot say that the 
 fact that the apparent ownership remained unchanged! for such an 
 unusual length of time upon the books of the corporation, and that 
 Howard L. received the dividends and continued to act as the real 
 owner, is sufficient to lead us to believe that the judge erred in not 
 treating it as sufficient to overcome the positive evidence of a valid 
 sale of the property, coming from the two witnesses who were before 
 him, and of whose truthfulness he had the best opportunity to judge. 
 
 In the next place, it is strenuously urged that, by force of the vari- 
 ous statutes of this Commonwealth relating to the ownership and 
 transfer of stock in corporations, authorizing the attachment of shares, 
 requiring returns to the Secretary of the Commonwealth, and imposing 
 a personal liability on stockholders for the debts of the corporation, 
 there can be no transfer of stock, valid against the claims of an at- 
 taching creditor, unless such transfer be recorded in the books of the 
 corporation. Gen. Sts. c. 68, §§ 10, 12; c. 123, §§ 59-^1; c. 133, 
 § 46. St. 1864, c. 201. The intention of the Legislature, it is said, must 
 
582 BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 have been to provide for the owners of stock a convenient and uni- 
 form method of transferring title on the books of the corporation, 
 which should be the only valid transfer as to creditors, and others in- 
 terested; and, although the statutes have not provided ii^ express 
 terms, that as to creditors transfers shall not be valid till they are so 
 recorded, yet such, it is contended, is the necessary implication, for 
 otherwise the design of the statutes, requiring registration and mak- 
 ing the shares liable to be taken for debts, would be defeated. But 
 this consideration is not suificient to control the law as long since 
 settled by the decisions of this court. It requires a clear provision of 
 the charter itself, or of some statute, to take from the owAer of such 
 property the right to transfer it in accordance with known rules of 
 the common law. And by Jiose rules the delivering of a stock certifi- 
 cate, with a written transfer of the same to a bona fide purchaser, is 
 a sufficient delivery to transfer the title as against a subsequent attach- 
 ing creditor. Sargent v. Essex Marine Railway, 9 Pick. 2d2 ; Sargent 
 V. Franklin Ins. Co., 8 Pick. 90, 19 Am. Dec. 306; Fisher v. Essex 
 Bank, 5 Gray, 373; Dickinson v. Central National Bank, 129 Mass. 
 279, 37 Am. Rep. 351. 
 
 It would not be in accordance with sound rules of construction to 
 infer, from the provisions of severaj different statutes passed for the 
 purpose of obtaining information needed to secure the taxation of 
 such property, or for the purpose of subjecting stockholders to a lia- 
 bility for the debts of a corporation, or for protecting the corporation 
 itself in its dealings with its own stockholders, that the Legislature in- 
 tended thereby to take from the stockholder his power to transfer 
 his stock in any recogffiized and lawful mode. If a change in the mode 
 of transfer be desirable, for the protection of creditors, or for any 
 other reason, it is for the Legislature to make it by clear provisions, 
 enacted for that purpose. 
 
 We see nothing in the facts which can be held to deprive Nathan 
 H. Hayford of the stock in question, on the ground that he is charge- 
 able with laches in not causing the transfer to be sooner recbrded, or 
 that he is now estopped from setting up his title to the shares in his 
 possession. It must be taken, upon the findings of the judge, that 
 Nathan H. bought these shares in good faith in 1874; and that all 
 which the law required was done to vest a perfect title in him, as 
 against an attaching creditor of Howard L. He was under no legal 
 duty to have the transfer recorded in order to perfect his title as 
 against strangers, and he can be charged with no neglect or laches 
 which would involve the forfeiture of his title. 
 
 The evidence in the case does not require us, against the findings 
 of the single judge, to find that Nathan H. is estopped to set up his 
 title against a creditor of Howard L. The acts and declarations of 
 the latter, after the sale, would not affect the title, except so far as 
 they were authorized by Nathan H., and there is nothing to show 
 
Sec. 4) TRANSFER OP STOCK B83 
 
 any act or declaration authorized by the latter, with intent to give 
 a false credit to Howard L,., or that any creditor .of his was in fact 
 defrauded. Decree affirmed." 
 
 CRAIG V. HESPERIA LAND & WATER CO. 
 
 (Supreme Court of California, 1896. 113 Gal. 7, 45 Pac. 10, 35 L. R. A. 306, 
 
 54 Am. St. Rep. 316.) 
 
 Haynes, C" Action for the conversion of stock in a corporation. 
 Defendant is a corporation, organized under the laws of this state. 
 On November 18, 1893, plaintiff was the owner of 50 shares of stock 
 in the defendant corporation, represented by certificates Nos. , 72 and 
 79, each for 25 shares. These certificates were in defendant's pos- 
 session. On the day above mentioned, plaintiff, having agreed to 
 sell 40 of said shares to one Kaelin, offered to indorse and deliver 
 said certificates to the corporation, and demanded that 40 shares 
 thereof be transferred to said Kaelin, and new certificates issued, — 
 one to Kaelin for 40 shares, and one to himself for the remainder. 
 This demand was refused, for reasons about which there was some 
 controversy, though it is reasonably clear that the only reason given 
 for not complying with the demand was that the stock was "in liti- 
 gation." On November 20th, two days after the demand,- this action 
 was brought. The defense to the action is based upon the claim 
 that the stock in question is liable for certain unpaid assessments. 
 The court refused all the instructions requested by the plaintiff, and 
 instructed the jury to return a verdict for the defendant. This ap- 
 peal is from the judgment and an order denying plaintiff's -motion for 
 a new trial. * * * 
 
 The record is silent as to any provision in the by-laws of the cor- 
 poration affecting the question', nor is there any express provision of 
 the statute permitting or prohibiting the transfer of certificates 'of 
 stock upon the books of the corporation during delinquency; and the 
 question to be determined is whether the corporation, by a transfer 
 of plaintiff's shares after an assessment thereon became delinquent, 
 affected its right to enforce its assessment against the shares so trans- 
 ferred ? 
 
 Respondent contends, "that, after an assessment, and before delin- 
 quent sale, the assessment not having been paid, a transfer of de- 
 
 Ti See Lipscomb v. Condon, 56 W. Va. 416, 49 S. E. 392, 67 L. R. A, 670, 107 
 Am. St. Rep. 938 (1904). 
 
 On the effect of a by-law or statute providing that an assignment may be 
 
 made only by transfer on the books of the company, or that it is void except 
 
 ' as between the immediate parties, see Continental National Bank v. Eliot 
 
 National Bank (C. C.) 7 Fed. 369 (1881), and Ottumwa Screen Co. v. Stodg- 
 
 hill, 103 Iowa, 437, 72 N. W. 669 (1897). 
 
 Compare Scripture v. Prancestown Soapstone Co., 50 N. H. 571 (1871). 
 
 T2 Part of the opinion is omitted. 
 
584 RIGHTS OF STOCKHOLDERS (Ch. 4 
 
 linquent shares to a stranger would entirely defeat tlie power or the 
 authority of the corporation to collect its dues in the manner provid- 
 ed for in the Civil Code " 
 
 In support of this contention counsel argue that "the corporation 
 had a lien (or the equivalent of a lien, so far as holding appellant to 
 his status as a book owner of the shares), which appellant could not 
 defeat by diverting the shares into a new channel of ownership be- 
 yond the reach of the corporation." The lien, however, is upon the 
 shares, and not upon the certificate. The certificate is merely evi- 
 dence of ownership of the shares. When an old certificate is sur- 
 rendered, and a new certificate is issued, the new certificate repre- 
 sents the same shares; but the shares themselves remain subject to 
 any lieil tiie corporation may have upon them, and the new owner 
 takes subject to such lien. The identity of the stock is not affected 
 by the transfer. Hawley v. Brumagim, 33 Cal. 394; Atkins v. Gam- 
 ble, 42 Cal., at pages 99, 100, 10 Am. Rep. 282. The keeping of a , 
 stock book, in which the original issue and all subsequent transfers , 
 must be entered, enables the holder or purchaser to trace his shares 
 back to the original issue by the numbers of the different cer- 
 tificates, and thus identify the shares upon whifch any assessment has 
 been made, and enables him to ascertain with certainty, in connec- 
 tion with the other records of the corporation relating to assess- 
 ments and delinquent salfes, whether his shares are free from liens 
 or liability in favor of the corporation, and in the same manner en- 
 ables the corporation to enforce its delinquent assessment upon the 
 shares liable therefore, no matter how many transfers have been 
 made subsequent to the assessment; each transferee taking the legal 
 title, but subject to the assessment, just as the grantee of the legal 
 title to land takes it subject to all valid recorded liens. 
 
 If respondent's contention is sound, it must follow that transfers 
 upon the books must cease, when the assessment is made, for any or 
 all of the shares assessed may become delinquent; and it would also 
 follow that, if an assessment were made which Stockholders gener- 
 ally regarded as illegal, and they should contest the same in the 
 courts, they would be obliged, pending the litigation, however pro- 
 tracted it might be, either to hold their stock subject to all the liabil- 
 ities of a "bookholder" until the end of the litigation, or pay an un- 
 just or illegal assessment. Such ruling would improperly and un- 
 justly interfere with the disposition of property by the owner, and 
 would not add to the security of the corporation in the collection 
 of delinquent assessments. A certificate of stock is not a negotiable 
 instrument. Barstow v. Mining Co., 64 Cal. 388, 1 Pac. 349, 49 
 Am. Rep. 705; Graves v. Mining Co., 81 Cal. 304, 22 Pac. 665; 
 Swim V. Wilson, 90 Qal. 129, 27 Pac. 33, 13 L. R. A. 605, 25 Am. St. 
 Rep. 110. In analogy to other nonnegotiable instruments,, a pur- 
 chaser would take subject to all equities in favor of the corporation; 
 
Sec. 4) TRANSFER OF STOCK 585 
 
 but whether a transferee upon the books would take his stock dis- 
 charged of any lien undisclosed by the corporation at the time of 
 the transfer and the issuance of a new certificate, need not now 
 be determined, nor do I think it was determined in the case of Craig 
 V. Water Co., 107 Cal. 675, 40 Pac. 1057 (the pleadings in which 
 case are set out in the record in this case), inasmuch as it may have 
 been held in that case that the voluntary payment of $7 per share 
 was regarded as an indebtedness of the corporation to the contribu- 
 tors, and that assessment No. 4 was made to meet that and other lia- 
 bilities. 
 
 If, then, the transfer of plaintiff's shares upon the books of the 
 corporation, and the issuance of new certificates, would not have af- 
 fected the power of the corporation to collect the delinquent as- 
 sessment on such shares by a sale thereof, such delinquency did not 
 justify the refusal to ma^e the transfer, and plaintiff's objection to 
 evidence of those facts set up in the answer, if offered as a full de- 
 fense to the action, should have been sustained, though proof of the 
 unpaid delinquent assessment would have been admissible as affect- 
 ing the value of the stock; and it also follows that the codrt erred 
 in instructing the jury to find for the defendant. 
 
 Water Co. v. Herberger, 82 Cal. 603, 23 Pac. 134, cited by re- 
 spondent, sustains the views we have expressed. I can discover no 
 difference between the right of a corporation to collect a valid as- 
 sessment, and its right to collect a stipulated part of subscription to 
 stock, nor how the nonpossession of the certificate affedts that right 
 in either case. In Mandlebaum v. Mining Co., 4 Mich. 465, cited by 
 respondent, the question arose between a stockholder who had lost 
 his certificate, to which was attached a blank power of attorney for 
 its transfer signed by the original holder, of whom the loser pur- 
 chased it, and the vendee of the finder, who had purchased it in good 
 faith, and to whom the company issued a certificate after notice of 
 the loss by .the true owner. It was there held that the holder of a 
 certificate so indorsed and transferred is entitled to the same rights 
 respecting it, as against third parties, which the law confers upon the 
 holder of commercial paper. It is obvious that a broad distinction 
 exists between that case and this. The corporation there might well 
 be estopped to deny the title pf one to whom it transferred the stock 
 after notice of the loss, but that does not touch the question of its 
 right to enforce a delinquent assessment notwithstanding the trans- 
 fer. In this state neither the finder of an" indorsed certificate nor his 
 vendee would acquire any right to the stock. Sherwood v. Mining 
 Co., 50 Cal. 412. 
 
 The fact that plaintiff did not know of the assessment at the time 
 he demanded the transfer, nor at the time suit was commenced, does 
 not affect the validity of the assessment, nor the liability of the stock 
 therefor; but it is evident that, if respondent's contention is sound, 
 
586 BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 the holder of stock may not only be deprived of the benefit of an 
 advantageous sale, which he would desire to make under any cir- 
 cumstances, but he would be denied the right to dispose of his stock 
 to avoid personal liability for debts about to be incurred which he did 
 not approve, and which, in his judgment, would be ruinous, not only 
 to the corporation but to himself as a stockholder. The judgment 
 and order appealed from should be reversed. 
 
 We concur : Britt, C. ; Belcher, C. 
 
 Per Curiam. For the reasons given in the foregoing opinion, the 
 judgment and order appealed from are reversed.'* 
 
 BANGOR ELECTRIC LIGHT & POWER CO. v. ROBINSON. 
 
 (Circuit Court of the United States, 1892. 52 Fed. 520.) 
 
 In Equity. Bill of interpleader brought by the Bangor Electric Light 
 & Power Company, a Maine corporation, and Frederick M. Laughton, 
 president thereof, and a citizen of Maine, against Elizabeth R. Lee and 
 Augustus G. Robinson, both citizens of Massachusetts, to determine the 
 right to a certificate of 100 shares of stock in the complainant corpora- 
 tion. Decree in favor of defendant Robinson. 
 
 T^e bill shows that complainant Laughton, in his individual capacity, 
 sold to defendant Robinson the certificate of stock in question, and 
 transferred the same to him by an indorsement in blank, that no trans- 
 fer on the books of the company had ever been made, and that the 
 stock had subsequently come into possession of defendant Lee, who 
 still retained it, and claimed a right to hold it as collateral security, 
 and that Robinson also still claimed to be the owner thereof, and had 
 notified the company to that effect. From the separate answers of the 
 defendants and the proofs, it appeared that R.obinson had certain busi- 
 ness relations with one Williams, a broker, and that they had in com- 
 mon a safety deposit box, to which each had access ; that Robinson 
 placed the certificate therein, and that, without his authority or knowl- 
 edge, Williams abstracted it therefrom, and transferred it to Mrs. Lee, 
 as collateral security for a loan, and that he subsequently disappeared 
 without repaying the money borrowed. The answer of Mrs. Lee aver- 
 red, among other things, that Williams was introduced to her by Rob- 
 inson, who recommended him to her in high terms, represented that 
 he was honest, and advised her to buy stocks through him and deal 
 with him, and stated that he himself had employed Williams as his 
 financial agent to buy and sell stocks, and intended to do so in future. 
 She further averred that, believing these representations, she had vari- 
 ous dealings with Williams, including that already mentioned. 
 
 Putnam, Circuit Judge.''* * * * The court is of the opinion 
 
 73 See In re Discoverer's Finance Corporation, Ltd., Llndlar's Case [1910] 1 
 Ch. 207 ; . Adams v. Johnson, 107 U. S. 251, 2 Sup. Ct. 246, 27 L. Ed. 386 (1882). 
 '* A part of the opinion is omitted. 
 
Sec. 4) TRANSFER OF STOCK 587 
 
 that whatever took place personally between Robinson and Mrs. Lee 
 was purely of a friendly character, in no sense allied to business trans- 
 actions, entirely in good faith, and not to be heldl by the law to prej- 
 udice ei'Eher. The counsel for Mrs. Lee bring forward the proposition 
 that when one of two innocent persons must suffer from the fraud of 
 a third, the loss must be borne by him whose negligence enabled the 
 third person to commit the fraud; and they cite on this point Allen 
 V. Railroad Co., ISO Mass. 200, 207, 22 N. E. 917, 5 L. R. A. 716, 
 15 Am. St. Rep. 185. It can hardly be said that this is a rule of the 
 common law; but, if it were, the practical application of it is not 
 helped! by the general terms in which it is expressed. The court is 
 forced to the conclusion that it does not apply to relieve Mrs. Lee any 
 more than it would an innocent purchaser for full value of jewelry 
 stolen as the result of careless exposure by the owner. Mrs. Lee either 
 purchased outright, or advan,ced money on a pledge of the certificate, 
 or both; but the details of this are of no consequence, because, hav- 
 ing advanced a valuable consideration in good faith, she stands in the 
 courts of the United States the same in either, view. Robinson was 
 absent when the transaction took place; and, if he had been within 
 reach, non constat that she would have inquired of him concerning 
 the certificate, there being nothing on it to show that he had any in- 
 terest in it. Indeed, there was no person of whom she could inquire, 
 unless of Laughton, the indorser of the certificate. As he had parted 
 with it long before, he could not have aided her. She had no means 
 of protecting herself. Robinson, with reasonable care, couldl easily 
 have protected all parties. If it were a mere question of balancing 
 equities, or of throwing the loss on the innocent party, the court would 
 have little difficulty, and it regrets that the result of the case must be 
 contrary to what seems natural justice. 
 
 The evidence shows, and it is not disputed, that the certificate of 
 stock was deposited by Robinson in a box in the Boston Safe-Deposit 
 & Trust Company, under such circumstances that both Robinson and 
 the broker of whom Mrs. Lee purchased! had access to it. The certifi- 
 cate, however, was not intrusted to the possession of the broker, either 
 directly, indirectly, or impliedly; nor was he authorized to remove 
 it from the box. His misdoing was not embezzlement or fraud, but 
 criminal larceny at common law. The con,dition of things was like that 
 of two persons, lawyers or brokers, occupying the same office, with a 
 common safe or vault, to which each has access, and in which each is 
 accustomed to deposit his papers 'or securities. The general principle 
 which the court must follow has been stated as late as. April of the 
 current year by Lord Herschell in Bank v. Simmons, [1892] App. Cas. 
 201, 215, as follows : "The general rule of the law is that, where a per- 
 son has obtained the property of another from one who is dealing with 
 it without the authority of the true owner, no title is acquired as against 
 that owner, even though full value be given, and the property be taken 
 
588 EIGHTS OF STOCKHOLDERS .(Ch. 4 
 
 in the belief that an unqi^estionable title thereto is being obtained, un- 
 less the person taking it can show that the true ownef has so acted as 
 to mislead him into the belief that the person dealing with the property 
 had authority to do so. If this can be shown, a good title is acquired! 
 by personal estoppel against the true owner. There is an exception 
 to the general rule, however, in the case of negotiable instruments." 
 
 Consider first the exception in behalf of negotiable instruments. This 
 does not extend to bills of lading indorsed in blank, certificates of 
 stock indorsed in blank, bonds or scrip payable to bearer or indorsed in 
 blank and overdue, nor to instances like those in Parsons v. Jackson, 
 ubi supra [99 U. S. 434, 25 L,. Ed. 457], and Baxendale v. Bennett, 3 
 Q. B. Div. 525, where the negotiable paper had been drawn and signed, 
 but never issued. Iif the view of the court, the rule concerning cer- 
 tificates of stock indorsed in blank is correctly stated in Daniel on Ne- 
 gotiable Instruments (4th Ed) §§ 1708, 1709. They have a certain 
 quasi negotiability, arising largely, if not entirely, from the fact that 
 the holder has voluntarily made delivery to some other person, and thus 
 precluded himself by the general principles of estoppel ; and more par- 
 ticularly by the fact that he has given an apparently unrestricted au- 
 thority, which cannot be limited to the injury of others by undisclosed 
 instructions. This latter proposition is the ordinary rule applicable to 
 all agencies, and is thoroughly illustrated in Breckenridge v. Lewis, 
 84 Me. 349, 24 Atl. 864, 30 Am. St. Rep. 353. In this case the de- 
 fendant intrusted to a third person her signature in blank for a busi- 
 ness purpose. It was used) in violation of the undisclosed authority, 
 and the court sustained the transaction. Certificates of stock indorsed 
 in blank afe so far of a negotiable character that they ordinarily pass 
 from hand to hand, that they are not subject to lis pendens, and that, 
 as stated by Daniel, in order to effectuate the ends of justice and the 
 intention of the parties, the courts ordinarily decree a better^ title to 
 the transferee than actually existed in the transferrer. Nevertheless, 
 we do not find that any court of authority has ever gone so far as to 
 hold that the holder of them may lose the title to such as may be stolen 
 from him, as he may of negotiable promissory notes, bills, scrip, or 
 bonds, payable to bearer or indorsed in blank. 
 
 Touching the other proposition found' in 'the foregoing citation from 
 Bank v. Simmons, namely, that the purchaser shows that "the true 
 owner has so acted as to mislead him into the belief that the person 
 dealing with the property had authority to do so," the rule is stated 
 quite generally, but its application is limited. The court need not refer 
 to the well7known cases in which a party stands by silently, and per- 
 mits his property to be disposed of without a protest. The contest at 
 bar relates to the mere negligence of the original holder, and how far 
 this may prevent him from reclaiming his property. At first it oc- 
 curred to the court that, inasmuch as Robinson had seen fit to leave 
 this certificate in such condition as to indicate that somebody was au- 
 thorized to acquire it and fill in the indorsement, he was barred ; but 
 
Sec. 4) TKANSFEE OF STOCK 589 
 
 the court is unable to find any authorities sustaining this suggestion, 
 and is compelled to treat this certificate, indorsed in blank and stolen, 
 as it would any other stolen property, aside from strictly negotiable 
 securities. 
 
 There has been at times a disposition to lay dbwn broadly rules 
 touching negligence in cases analogous to this. In Bank v. Stowell, 
 123 Mass. 196, 25 Am. Rep. 67, these rules were largely discussed. 
 The opinion pointed out that they apply only when there is some spe- 
 cial duty or confidential relation between the parties, as between a de- 
 positor and the bank; and it was held that the maker of a note was 
 not liable for the increased! amount by which it was raised, notwith- 
 standing the careless manner in which he had drawn it. The same 
 principle was also discussed in Baxendale v. Bennett, ubi supra ; where 
 it was held that, although the defendant had completed a blank ac- 
 ceptance, and left it in the drawer of his writing table, which was un- 
 locked, from which it was stolen, and afterwards filled up and pur- 
 chased by an innocent party, yet he was not liable thereon. In Abbott 
 V. Rose, 62 Me. 194, 204, 16 Am. Rep. 427, the broader rule was 
 stated with favor, but it was not material to the case, and is not har- 
 monious with the principles of the later decisions, — Breckenridge v. 
 Lewis, ubi supra, and! other cases already cited. In all the cases in any 
 way pertinent relied on by the counsel of Mrs. Lee there was a volun- 
 tary intrusting of actual possession by the holder. On the whole, the 
 court is unable to find any principle of the common law which will 
 protect her ; and the case at bar, though in equity, involves only com- 
 mon-law rights. 
 
 L^t there be a decree that the blank transfer on the certificate of 
 stock in question in this case, deposited in the registry of the court, 
 be filled up in favor of defendant Robinson, and that the plaintiff 
 corporation issue hin\ a new certificate in exchange therefor, and that 
 complainants recover one half of their costs from defendant Robinson 
 and one half from defendant Lee. 
 
 WOOTEN v. WILMINGTON & W. R. CO. 
 
 (Supreme Court of North Carolina, 1901. 328 N. C. 119, 38 S, B. 298, 56 L. R. 
 
 A. 615.) 
 
 Montgomery, J.'" This case was heard in the court below upon an 
 agreed state of facts, those material to the decision of the case being 
 as follows : Eliza Claudia Bradley died in 1854, leaving a last will and 
 testament, in which she bequeathed to her son Charles W. Bradley 20 
 shares of capital stock of the Wilmington & Raleigh Railroad Compa- 
 ny (now the Wilmington & Weldon Railroad Company), registered in 
 her own name on the stock ledger of the company, to ht held by him 
 
 7B A part of the opinion is omitted. 
 
590 RIGHTS OF STOCKHOLDERS (Ch. 4 
 
 in trust for the sole and separate benefit of the testatrix's daughter 
 Lucy A. Jewett during her life, and upon her death to the use and 
 benefit of such children as she might leave surviving her. On De- 
 cember 1st following, Charles W. Bradley and James A. Bradley, the 
 duly-qualified executors named in the will, transferred the 20 shares 
 of stock on the books of the company "to Charles Wl. Bradley, trustee 
 for Lucy A. Jewett," and a new certificate of stock was issued by the 
 company in those words. In July, 1869, Charles W. Bradley", trustee, 
 transferred the stock to Lucy A. Jewett absolutely, the word "trustee" 
 appearing on the company's transfer ledger after Bradley's name, and 
 a new certificate of stock was issued by the company to Mrs. Jewett 
 individually. Afterwards, in the same year (1869), after her husband's 
 death, Mrs. Jewett sold and transferred the stock to other persons ab- 
 solutely, and new certificates of stock were issued to the purchasers, 
 but the stock cannot now be identified nor its ownership traced. The 
 stock was not sold by the executors to pay the debts of Mrs. Bradley, 
 the financial condition of her estate not requiring a sale for that pur- 
 pose. The defendant company had no knowledge of the condition of 
 Mrs. Bradley's estate, and no actual knowledge of the contents of 
 her will. Mrs. Jewett died in 1898, and the plaintiffs are her children,, 
 except the plaintiff Edward Wboten, who intermarried with Eliza 
 Yonge Jewett. 
 
 The action is brought to recover from the defendant the value of 
 the stock and the increment, by way of dividends, which has accrued 
 since the death of Mrs. Jewett. The question for decision, then, is 
 this : Does the transfer of the stock of a corporation on the books of - 
 the company by an executor fix the coporation with knowledge of the 
 contents of the will? If so, then the transfer of the stock by the exec- 
 utors of Mrs. Bradley to Mrs. Jewetti was wrongful, because the trust 
 created in the will in favor of the plaintiffs was not observed in the 
 transfer, and the plaintiff would be entitled to recover the value of 
 the stock and the, accrued dividends since the death of Mrs. Jewett. 
 
 It is incumbent on a corporation to protect the rights of persons 
 interested in the stock of the corporation, against unauthorized trans- 
 fer of the stock. Cox v. Bank, 119 N. C. 302, 26 S. E. 22 ; Lowry v. 
 Bank, 15 Fed. Cas. 1040. The contention of the plaintiffs is that, when 
 the executors of Mrs. Bradley transferred on the books of the com- 
 pany the stock to Charles W. Bradley as trustee for Mrs. Jewett, the 
 company was fixed with knowledge of the contents of the will, and that 
 in the transfer the trust in favor of the children of Mrs. Jewett, the 
 plaintiffs, should have been preserved, under the provisions of the 
 will; that the defendant should have seen that the transfer should 
 have been made to Charles W. Bradley in trust, or as trustee for Mrs. 
 Jewett for her life, and at her death to her children who might survive 
 her. The plaintiffs further contend that the defendant also committed 
 a wrongful and unlawful act in permitting on its books the transfer 
 
Sec. 4) TEANSFEE OF STOfcK 591 
 
 of tfie stock by Charles W. Bradley, trustee of Mrs. Jeiwett, to his 
 cestui que trust, absblutely, and the transfer by Mrs. Jewett to others. 
 
 The defendant insists that, as the stock on the books stood in the 
 name of Mrs. Bradley, the only thing necessary for it to take notice 
 of, when an entry of transfer of the stock should! be requested to be 
 made on the books, was the exhibition to it of the letters testamentary 
 from the proper court by the executors, the transfer to follow as a 
 matter of course, according to the directions of the executors; that 
 the executors, so far as defendant's liability is concerned, could have 
 sold and transferred not only the stock, notwithstanding it was specif- 
 ically bequeathed, but^ that they could have done so even in f raudi, 
 provided the company had no reasonable ground to believe that they 
 were acting fraudulently, or disposing of the money for their own 
 benefit in the transaction, and that they could have negligently or fraud- 
 ulently failed to execute. the trust imposed by the will upon them in 
 . reference to this stock and its transfer, provided the defendant did 
 not have actual knowledge or information, which might reasonably put 
 them on their guard concerning the fraud or negligence, at or before 
 the time of the transfer, and on the ground that in law the personal 
 property of a testator is vested in the executor, with the right to sell 
 or dispose of it, and that the company was not compelled to take notice 
 of the contents of the will. * * * 
 
 In support of its position, the defendant's counsel referred the court 
 to the cases in our own Reports of Tyrrell v. Morris, 21 N. C. 559; 
 Gray v. Armistead, 41 N. C. 75 ; Bradshaw v. Simpson, 41 N. C. 246 ; 
 London v. Railroad Co., 88 N. C. 584; Wilson v, Doster, 42 N. C. 
 231 ; to the Bank of England Cases on the same subject; to Hutchins 
 v. Bank, 12 Mete. (Mass.) 421, especially, among other decisions of 
 other states; to Thomp. Corp. § 2531; Schouler-, Ex'rs, § 351; 1 
 Cook, Corp. § 330, and Lowell, Stocks. We will now examine these 
 citations of the defendant. 
 
 We think the cases referred to in our own Reports have no applica- 
 tion directly to the question to be decided. They are upon a point 
 about which there is no controversy, to wit, that executors and admin- 
 istrators having the right of property in the personal property of the 
 decedent have therefore the right to sell securities of the estate, and 
 the mere fact of selling is no breach of trust, and a purchaser is not 
 liable without actual notice that the administrator intended to mis- 
 apply the funds or to use them for his own' purpose ; for the purposes 
 of the estate may require the representative to dispose of it. In 1 
 Cook, Corp. § 330, there is a treatise concerning the sale of stock by 
 executors and administrators, and the rights and duties of corporations 
 in allowing and refusing to allow a registry on the corporate transfer 
 book of the sale of the stock by an executor or administrator, and the 
 concluding part of the section is read: "In general, a corporation has 
 a fight to assume that the executor is transferring stock for the pur- 
 poses of the estate. It is not obliged to inquire into the purposes of 
 
592 EIGHTS' OF' STOCKHOLDBES (Ch.4 
 
 the party, nor to mvestigate whether the transaction is in good faith 
 or fraudulent, nor to examine the will." 
 
 That seems to sustain the defendant, although the matter treated of 
 is the sale of stock, and not the registration of the transfer of stock 
 to a legatee, and its effect upon the corporation, without taking notice 
 of the contents of the will. But the only case cited under that section 
 (Smith V. Railroad Co., 91 Tehn. 221, 18 S. W. 546) is diametrically 
 opposed to the doctrine of the text. In that case the owner of the 
 stock died testate, but without having named an executor. An adminis- 
 trator cum testamento annexo was appointed, and he delivered a part 
 of the stock to % legatee named in the will absolutely, although she had 
 only a life estate therein, and had the same transferred to the legatee 
 on the books of the corporation. He made the transfer as administra- 
 tor simply, without the words "cum testamento annexo." The court 
 said there: "We are of the opinion that upon the facts of this case 
 the corporation is not now liable to an action on this ground. It had 
 no knowledge that there was a will limiting the title of Fannie Baugh 
 to this stock, and there were no circumstances connected with the 
 transfer by Mr. Howe, as administrator, calculated to put it upon in- 
 quiry as to the existence or terms of a will. He assigned the certifi- 
 cate standing in the name of his decedent simply as administrator. If 
 he had assigned as administrator cum testamento annexo, it would have 
 been notice of a will. The assignment was to the 'heirs and distribu- 
 tees,' riot legatees, of J. W. Baugh. In this respect, the case is to be 
 distinguished from Covington v. Anderson, 16 Lea (Tenn.) 310, and 
 Caulkins v. Gaslight Co., 85 Tenn. 685, 4 S. W. 287," 4 Am. St. Rep. 
 786. 
 
 Section 2531 of Thompson's Commentaries on the Law of Corpora- 
 tions contains the broad statement that the "letters testamentary show 
 an apparent right to dispose of the stock of the testator, even though 
 bequeathed specifically, and, on principle, the company is bound to re- 
 spect his title, and transfer them according to his desire." And the 
 cases of Bayard v. Bank, 52 Pa. 232, and Hutchins v. Bank, 12 Mete. 
 (Mass.) 421, support the text. The matter embraced in section 351, 
 Schouler, Ex'rs, is to the same effect, with a reference to Bayard v. 
 Bank, supra. • 
 
 But, in addition to the authorities cited by defendant's counsel, they 
 say that the case of Lowry v. Bank, supra, when properly understood, 
 is authority for the defendant, and Mr. Rountree in his brief quotes an 
 extract from the opinion in that case, to wit : "Undoubtedly the mere 
 act of permitting this stock to be transferred by one of the executors 
 furnishes no ground for complaint against the bank, although it turns 
 out that this executor was by the act of transfer converting the prop- 
 erty to his own use, for an executor may sell or raise money on the 
 property of the deceased in the regular execution of his duty, and the 
 party dealing with him is not bound to inquire into his object, nor liable 
 for his misapplication of the money. Such is the doctrine of the Eng- 
 
Sec. 4) TKANSFHR OF STOCK 598 
 
 lish courts, and would seem to have been the law of this state prior to 
 Act Assem. Dec. Sess. 1843, c. 304, and the transaction now before us 
 took place before that act went into dperation. But it is equally clear 
 that if a party dealing with an executor has at the time reasonable 
 ground for believing that he intends to misapply the money, or is in the 
 very transaction > applying it to his private use, the party so dealing is 
 responsible to the persons injured." 
 
 But in that part of the opinion last quoted the chief justice was con- 
 • sidering the matter of a sale of the stock by the executor, without in- 
 tending to weaken the force or to affect the correctness of the other 
 doctrine decided in the case, and which we have been discussing; that 
 is, that knowledge by a corporation that there is an executor is knowl- 
 edge that there is a will, and also constructive knowledge that the con- 
 tents of the will are known to the corporation. 
 
 After mature consideration of all the cases cited and the text in the 
 law books to which our attention has been called, our opinion is : 
 
 First, that, where a transfer of stock of a corporation is made on its 
 books by an executor, the corporation is fixed with a knowledge that 
 there is a will, and is chargeable with a knowledge of its contents to the 
 same extent as if the officers had actually read it. 
 
 Second, that, notwithstanding such knowledge of the contents of 
 the will, the executor may, even with intent to convert to his own use 
 the money, sell and transfer such stock to a purchaser under the cor- 
 poration's supervision, and that, even though the stock be specifically 
 bequeathed in the will, without liability on the part of the corpora- 
 tion, unless it has at the time of the transfer reasonable ground to 
 believe that the executor intends to misapply the money, or is in the 
 very transaction applying it to his own private use. 
 
 We have arrived at the conclusion, however, that, as the corpora- 
 tion is fixed with the knowledgeof the contents of the will when the 
 executors transfer stock on its books, the provisions of the will in 
 reference to the stock must be carried out in the transfer at the peril 
 of the company in cases where the transferee is a Ipgatee named in 
 the will ; that is, the corporation must, at the time of the transfer, as- 
 certain whether the transfer is to a purchaser from the executor in the 
 usual course of administration and the regular execution of his duty 
 as executor or to a legatee named in the will. 
 
 The defendant, for another defense, takes the position that before a 
 recovery can be had the negligence of the defendant must not only be 
 established, but it must be shown that the transfer by the executor to 
 Charles W. Bradley, trustee for Lucy A. Jewett, individually, was the 
 proximate cause of the loss to the plaintiffs. Mr. Davis in his brief 
 says : "But assuming, for the sake of the argument, that the defend- 
 ant was negligent in this respect, yet it is clear that this was not the 
 proximate cause of the loss to the plaintiffs. The title was in their 
 trustee, and, under the law, he held it as well for them as for Lucy A. 
 E1CH.C0KP. — 38 
 
594 EIGHTS OF STOCKHOLDERS (Ch, 4. 
 
 Jewett. No loss was occasioned to them by- this transfer, and no iri- 
 jury or damage sprung from it, and, but for another and subsequent 
 intervening cause, to wit, the act of the trustee, Charles W. Bradley, 
 in 1869, in transferring the stock to Lucy A. Jewett, none would have 
 occurred." 
 
 But the legal title to the stock was not in any trustee of the plain- 
 tiffs. It was in Charles W. Bradley, the trustee of Mrs. Jewett, in- 
 dividually. The first transfer, however, was the effective cause of the 
 loss, and the other transfers were steps made possible by the first one, 
 which led to the loss even of the identity of the stock or its ownership. 
 The first transfer was wrongful, in that it was the duty of the defend- 
 ant to have protected the rights of the plaintiffs, and the plaintiffs had 
 the right, at the death of their mother, to call for a return of the stock 
 or its value. St. Romes v. Cotton-Press Co., 127 U. S. 614, 8 Sup. 
 Ct. 1335, 32 L. Ed: 289. 
 
 The defendant further sets up the statute of limitations against the 
 demand of the plaintiffs. We are not deciding that the plaintiffs had 
 no right to interfere in the, transfer of the stock to have it restored to 
 its proper ownership at any time after the wrongful transfer, but they 
 were not compelled to take action for the recovery of the stock or its 
 value until after the death of their mother which occurred in 1898. 
 This action was commenced in 1899, and is not, therefore, barred by 
 the statute of limitations. 
 
 His honor rendered judgment, upon the facts agreed, that the de- 
 fendant company was liable to the plaintiffs for the value of the stock 
 at tne date of the death of Mrs. Jewett, and, by consent, that the mat- 
 ter be referred to a referee "to hear evidence and take testimony, and 
 determine the value of said stock; and all other issues of law and 
 fact raised by the pleadings not herein set out and adjudicated, and 
 to determine what sum, if any, the plaintiffs are entitled to recover." 
 There was no error in the judgment of the court, and the same is af- 
 firmed. 
 
 In re BAHIA & S. F. RY. CO., Limited. 
 
 (Court of Queen's Bench, 1868. L. R. 3 Q. B. Oas. 584.) 
 
 On the Uth of May, 1867, it was ordered by rule of court, under 
 25 & 26 Vict. c. 89, § 35, that the name of Amelia Trittin be restored 
 to the register of the Bahia and San Francisco Railway Company in 
 respect of the five shares in the company numbered 84,511 to 84,515, 
 both inclusive, and that the company do pay to Amelia Trittin any 
 dividends that have fallen due since the shares were transferred from 
 her name. And it was further ordered that a special ca!se be stated 
 for the opinion of this Court between the Reverend Richard Burton 
 and Mary Anne Goodburn and the company, for the purpose of de- 
 
vsec. 4) TRANSFER OF STOCK 595 
 
 termining the amount of damages (if any) which the company were 
 liable to pay them respectively. 
 
 1. On the 8th of March, 1866, Miss Amelia Trittin was the regis- 
 tered holder of five shares in the Bahia and San Francisco Railway 
 Company, Limited, hereafter called "the company," and deposited the 
 certificates of the shares with one Thomas Charles Oldham, a stock- 
 broker, and requested him to keep the same and to receive the divi- 
 dends payable thereon. 
 
 2. On or about the 17th of April, 1866, a transfer of the five shares 
 to John Alfred Stocken and Samuel Goldner, purporting to be exe- 
 cuted by Amelia Trittin, but which for the purpose of this case is ad- 
 mitted to have been a forgery, was left with the secretary of the com- 
 pany for registration, together with the certificates of the shares. 
 
 3. The secretary of the company, in the ordinary course of business, 
 then sent by post to the last place of residence of Miss Trittin a writ- 
 ten notice that the deed of transfer had been so received by him, 
 and after ten days having received no answer from her, registered the 
 deed of transfer and removed the name of Miss Trittin from and 
 placed the names of John Alfred Stocken and Samuel Goldner upon 
 the register of shareholders as holders of the aforesaid five shares, and 
 share certificates in respect of the said shares were handed to them. 
 
 4. In May, 1866, the Reverend Richard Burton through his broker 
 bought on the Stock Exchange four shares in the company, and Mrs. 
 Mary Anne Goodburn by her broker bought one share. 
 
 5. About the same time, John Alfred Stocken and Samuel Goldner 
 sold five shares in the company to Arthur Bristowe, a stockbroker, and 
 in pursuance of the above contracts transferred four of the shares 
 comprised in the forged transfer to Mr. Burton, and the remaining 
 one to Mrs. Goodburn. 
 
 6. It is admitted that Mr. Burton and Mrs. Goodburn entered into 
 the contracts above-mentioned bona fide and for value of the shares, 
 without, notice of any fraud, and according to the usual course of 
 business with reference to the purchase of shares, and on or shortly 
 after the 28th of May, 1866, they were duly registered by the company 
 as the holders of the shares, and share certificates in respect thereof 
 were handed to them. 
 
 ^ 6a. In the above transactions everything was done by the company 
 in accordance with the usual custom of business, and there was noth- 
 ing in the circumstances so far as they were known to -the company to 
 excite their suspicion or to induce them to depart from such usual 
 course of business. * * * 
 
 The questions for the opinion of the Court were : 1. Whether, as 
 against the company, Mr. Burton and Mrs. Goodburn are entitled to 
 the said shares in the company, or an equivalent number. 2. Whether 
 they are entitled to any and what damages to be paid to them by the 
 company under the above circumstances. 
 
596 EIGHTS OF STOCKHOLDERS (Ch. 4 
 
 The Court were to make such order and give such judgment a:s they 
 might think fit, and have power to make and giveJ* 
 
 CocKBURN, C. J. I am of opinion that our judgment must be for 
 the claimants. If the facts are rightly understood, the case falls within 
 the principle of Pickard v. Sears, 6 Ad. & E. 469, and Freeman v. 
 Cooke, 2 Ex. 654, 18 L. J. (Ex.) 114. The company are bound to 
 keep a register of shareholders, and have power to issue certificates 
 certifying that each individual shareholdfer named therein is a regis- 
 tered shareholder of the particular shares specified. This power of 
 granting certificates is^to give the shareholders the opportunity of 
 more easily dealing with their shares in the market, and to afford 
 facilities to them of selling their shares by at once showing a mar- 
 ketable title, and the effect of this facility is to make the shares of 
 greater value. The power of giving certificates is, therefore, for the 
 benefit of the company in general ; and it is a declaration by the com- 
 pany to all the world that the person in whose name the certificate is 
 made' out, and to whom it is given, is a shareholder in the company, 
 and it is given by the company with the intention that it shall be so 
 used by the person to whom it is given, and acted upon in the sale 
 and transfer of shares. It is stated in this case that the claimants 
 acted bona fide, and did all that is required of purchasers of shares; 
 they paid the value of the shares in money on having a transfer of the 
 shares executed to them, and on the production of the certificates which 
 were handed to them. It turned out that the transferors had in fact 
 no shares, and that the company ou^ht not to have registered them 
 as shareholders or given them certificates, the transfer to them being a 
 forgery. That brings the case within the principle of the decision in 
 Pickard v. Sears, 6 Ad. & E. 469, as, explained by the case of Freeman 
 v. Cooke, 2 Ex. 654, 18 L. J. (Ex.) 114, that if you make a represen- 
 tation with the intention that it shall be acted upon by anothgr, and 
 he does so, you are estopped from denying the truth of what you rep- 
 resent to be the fact. 
 
 The only remaining question is, what is the redress to which the 
 claimants are entitled. In whatever form of action they might shape 
 their claim, and there can be no doubt that an action is maintainable, 
 the measure of damages would be the same. They are entitled to be 
 placed in the same position as if the shares, which they purchased 
 owing to the company's representation, had in fact been good shares, 
 and had been transferred to them and the company had refused to put 
 them on the register, and the measure of damages would be the mar- 
 ket price of the shares at that time; if no market price at that time 
 then a jury would have to say what was a reasonable compensation for 
 the loss of the shares. 
 
 Per Ct-triam. The rule will be that the company do pay to the 
 claimants the value of their respective shares on the 10th of October, 
 
 7 8 Statement of facts abridged. 
 
Sec. 4) TEANSPKR OP STOCK 597 
 
 1866, and interest from that time at 4 per cent., as damages, together 
 with costs. 
 Rule absolute accordingly.'^ 
 
 FIRST AVE. LAND CO. v. PARKER. 
 
 (Supreme Court of Wisconsin, 1901. Ill Wis. 1, 86 N. W. 604, 87 Am. St. Rep. 
 
 841.) 
 
 The complaint alleged incorporation of the plaintiff; that on No- 
 vember 12, 1891, E. L. Babcock, since deceased, was duly elected sec- , 
 retary, and that he gave, and the defendant George F. Parker, as 
 surety, executed, a bond conditioned that he should pay and account 
 for all moneys, security, and property coming into his hands as secre- 
 tary, and well and truly perform all the duties of his office and trust 
 as such secretary; that by the articles of association and by-laws it 
 was the duty of the secretary to sign, with the president, all certificates 
 of stock, and to issue and deliver the same to the several subscribers 
 on payment of the several subscriptions, and not otherwise ; that said 
 E. ly. Babcock subscribed for 500 shares of $10 each, and that one 
 Charles Wilhelpa' subscribed for a like amount, thereby agreeing to 
 pay the sum of $1,000 in cash, the time of payment of the balance not 
 being specified ; that among Babcock's duties was, as secretary, to col- 
 lect and pay over to the treasurer the full amount of the cash payments 
 due from Wilhelm and himself upon their stock subscriptions, before 
 issuing, or delivering said stock to either of them ; that at the first 
 meeting of the stockholders it was provided and agreed that the first 
 20 per cent, of each subscription should be paid in cash at the date of 
 such meeting, to apply upon the purchase price of a tract of land, and 
 that certificates of paid-up stock should be issued to each of the sub^ 
 sci;ibers to the amount of their several cash payments; that said E. 
 L. Babcock, as secretary, unlawfully combining with the president, also 
 now deceased, caused to be issued to himself thereafter 100 shares of 
 paid-up stock in said corporation without consideration, and without 
 making the said cash payment of $1,000, or paying any other sum; 
 and subsequent to such issue, he, during his lifetime, conveyed the 
 same to Hattie E. Babcock and J. M. Babcock for value, who now 
 claim to be the holders and owners thereof free from all equities or 
 fights of the plaintiff ; and also, in like combination, issued a tertificate 
 for 100 ishares of the paid-up capital stock to said Wilhelm, without 
 the payment of any consideration therefor, and without the making of 
 any part payment, which said Wilhelm transferred for value to one 
 William Yewdale, who has ever since held the same, and claims to be, 
 
 7 7 The concurring opinions of Blackburn, Mellor, and Lush, J J., have been 
 omitted. 
 
 Compare George Whitechurch, Limited, v. Cavanagh, [1902] L. R. App. Gas. 
 117. See Machinists' National Bank v. Field, 126 Mass. 345 (1879). 
 
598 RIGHTS OF STOCKHOLDEKS (Ch. 4 
 
 and, as plaintiff believes, is, the bona fide holder thereof for full value ; 
 that thereafter said assignees of stock presented their certificates, duly 
 assigned, which thereupon were canceled, and new certificates issued 
 therefor by the said president and the said Babcock as secretary, in due 
 form, purporting on their face to be fully paid and nonas,sessable, and 
 were delivered by said Babcock to said transferees, who ever since 
 have held the same, claiming title thereto, and interest in the property 
 and assets of the plaintiff corporation, free from all infirmity or ille- 
 gality; that Wilhelm has no property, and is insolvent, and that Bab- 
 cock died in the year 1894, leaving no estate whatever, and insplvent; 
 that the other surety to the bond died in March, 1894 ; that by reason 
 of the premises the plaintiff has suffered damages in the sum of $2,000, 
 together with interest from the 26th day of December, 1891, for re- 
 covery of which the complaint prays. 
 
 A general demurrer to this complaint was sustained, from which ac- 
 tion the plaintiff appeals. 
 
 Dodge, J. (after stating the facts). The case presented by this com- 
 plaint is a very simple one, and not in accord with the situation dis- 
 cussed in Land Co. v. Hildebrand, 103 Wis. 530, 79 N. W. 753, of 
 which we are told that this is a sequel. As now before us, it merely 
 appears that there were issued two certificates of stock, each for $5,000 
 par value, without any consideration; that is, neither for money, nor 
 for labor or property, actually received by the corporation, equal to 
 the par value thereof, as required by section 1753, Rev. St. 1898. This 
 being so, no reason is apparent upon which to escape the further provi- 
 sions of the same section that "all stocks and bonds issued contrary to 
 the provisions of this section shall be void." Indeed, counsel for appel- 
 lant concedes effective applicability of that section to the stock origi- 
 nally issued, but contends that, certificates of stock having been issued 
 by the corporation asserting the ownership of stock by the parties 
 named, upon duecohsideration therefor, the corporation is estopped to 
 deny, as against one innocently purchasing such stock in reliance upon 
 the facts so certified to be true, that the persons named did own such 
 shares of stock. As a result of this estoppel, he contends that the in- 
 nocent purchasers have become entitled to the same rights as if the 
 certificates were true, namely, to a share in the ownership of the cor- 
 poration itself, and all other rights incident to the actual ownership 
 of stock. This is the damage to the corporation claimed to have re- 
 sulted from Babcock's breach of his official duty. It is, of course, ob- 
 vious that, if this position is sound to its full extent, section 1753 is 
 very much' emasculated, for that doctrine would give practical validity 
 to stock which the statute declares shall be void. It would likewise 
 give practical existence and validity to stock beyond the power of the 
 corporation. Certificates issued and passed to innocent holders would 
 give to them the right to hold stockholders' meetings, of which they 
 might constitute a majority, to control the affairs of the company, and 
 to share with the owners of actual capital in distribution of dividends 
 
Sec. 4) TKANSFBE OF STOCK 599 
 
 or assets. A corporation limited by its charter to $100,000 of stock 
 might thus have outstanding rights in individuals to represent twice 
 that volume. 
 
 As already stated, appellant plants his contention on the doctrine of 
 estoppel, and cites numerous authorities asserting applicability of that 
 doctrine to corporations in issuing certificates of stock. The cases cited 
 present several phases of the effect of the doctrine. Thus courts have 
 refused affirmative relief by way of cancellation of outstanding certifi- 
 cates improperly issued, but held in good faith, and for value (Bank v. 
 Field, 126 Mass. 345; Beach Co. v. Harned [C. C] 27 Fed. 484; Cin- 
 cinnati, N. 0. & T. P. Ry. Co. V. Citizens' Nat. Bank, 56 Ohio St. 
 351, 47 N. E. 249, 43 L. R. A. 771) ; also by way of compelling pay- 
 ment of unpaid subscription or assessments where certificates falsely 
 declared stock full paid (Steacy v. Railroad, 5 Dill. 348, 372, Fed. Cas. 
 No. 13,329; Rood v. Whorton [C. C] 67 Fed. 434; NichoU's Case, 26 
 Wkly.- Rep. 334). In other cases the false ' certification of stock has 
 been held to support action for damages on the ground of fraud. Hol- 
 brook v. Zinc Co., 57 N. Y. 616; Shaw v. Mining Co., 13 Q. B. Div. 
 103. In one case the supreme court of Michigan held the holder of a 
 certificate issued upon a forged transfer of valid stock entitled to the 
 rights of a stockholder, but based it& decision on a peculiarly drastic 
 statute of that state. Mandlebaum v. Mining Co., 4 Mich. 465. 
 
 We are not inclined to dispute the propositions that, when the offi- 
 cers of a corporation act within the scope of their powers, the corpora- 
 tion acts, nor that, subject to inherent distinctions between artificial 
 and natural persons, a corporation may be estopped by its acts as ef- 
 fectively as may a natural person. But neither legal rules nor legal 
 fictions can overcome physical facts nor laws of nature. Closing the 
 mouth of a party to deny will not create what cannot exist. The es- 
 toppel, however complete, against one who makes two conveyances of 
 the same piece of land, cannot transpose it into two pieces; and that 
 impossibility must be recognized by courts in the practical application 
 of the estoppel and adjustment of rights. Hence it is not surprising 
 that all courts, in applying to corporations estoppel to deny the asser- 
 tions of their certificates, have stopped short -of holding that thereby 
 could be created capital stock which, under the law, could not have 
 existence. 
 
 Counsel for appellant concedes such limit in the case of attempted 
 overissue of stock, recognizing that, when all of the capital stock possi- 
 ble of existence under the law has been issued, no more can come into 
 being by any process. A corporation capable of only 1,000 shares of 
 capital stock cannot, by estoppel, be transformed into one of 2,000. 
 "Overissued stock, no matter how overissued, represents nothing, and 
 is wholly and entirely valueless and void." Cook, Corp. § 292. "Any 
 issue of stock in excess of the amount of the capital stock as fixed by 
 the charter is null and void. * * * His [the purchaser's] certifi- 
 cate is so much waste paper, and he is not a stockholder," Id. § 426. 
 
GOO EIGHTS OF ST0CKH0LDBR8 (Ch. 4 
 
 This principle that estoppel cannot create capital stock which the law 
 does not pef-mit to exist is conclusive, under our statute, supra, against 
 appellant's contention that by the official misconduct of the secretary in 
 issuing full-paid certificates without any payment in fact the corpora- 
 tion has been damaged by the creation of stockholders' rights in those 
 who hold such certificates, or reiss^es in place of them. No such rights 
 have been created, for by section 1753,, Rev. St. 1898, such stock is 
 "void." That statute, as this court has heretofore said, was a "declara- 
 tion of a public policy." Clarke v. Lumber Co., 59 Wis. 655, 660, 18 
 N. W. 492. It asserts the legislative will that those otherwise dealing 
 with corporations shall be protected, rather than those dealing in stock 
 certificates. To effectuate that legislative purpose, the law must be 
 enforced as it is written, and the prohibited issues of stock must be 
 held void as stodk, although those procuring such unlawful issues may 
 often be held liable to pay therefor. Jenkins v. Bradley, 104 Wis. 540, 
 80 N. W. 1025; Shaw v. Gilbert (decided May 21, 1901) 111 Wis. 165, 
 86 N. W. 188. Attempts by the corporation to issue stock in defiance 
 of this statute are as completely ineffective as attempts to issue in ex- 
 cess of the total authorized by law or charter. 
 
 It thus appearing that the corporation has not suffered the damage 
 pointed out and principally insisted on by appellant, it remains to be 
 considered whether any other damage to it appears with reasonable 
 certainty from the allegations of the complaint. There is a suggestion 
 that in some way the corporation has lost its opportunity to collect 
 from those who subscr,ibed for this stock by reason of the wrongful 
 delivery of the certificates, followed by their transfer, and issue of new 
 certificates to others. No such loss is apparent. The liability of Bab- 
 cock and Wilhelm upon their respective subscriptions was not thereby 
 impaired, and there is no allegc^tion that the solvency or collectibility of 
 either of them diminished subsequently to the stock issue, if that fact 
 were in any wise material. We can discover no damage in that con- 
 nection resulting from the secretary's acts. There is, however, a pos- 
 sible injury to the corporation, which may result from the issue and 
 transfer of the void certificates by the officers having general power and 
 authority to issue certificates of capital stock, so that their acts, whether 
 valid or invalid, must be deemed to be the acts of the corporation itself. 
 The consensus of decision is well-nigh uniform to the effect that, al- 
 though such certificates cannot create stock or stockholding beyond 
 that authorized by law, they do constitute declarations of fact of the 
 most solemn and unambiguous character, reliance upon which in the 
 community is to be expected ; and that the corporation must respond 
 in the only way it can to protect from loss those who innocently and 
 without negligence act in -reliance on the truth of such declarations. 
 While the corporation, by reason of its legal limitations, cannot make 
 good the false certificate of existence and ownership of stock, it can 
 respon'd in money to reimburse any damages actually suffered by those 
 who rely on the facts so certified. 
 
Sec. 4) TRANSFER OP STOCK 601 
 
 We find Its liability so to do declared with great unanimity. Cook, 
 Corp. § 293, says : "Although it is settled law that ovet-issued stock is 
 void and valueless, and that no action lies either to compel the corpo- 
 ration to recognize the holder as a stockholder or to issue in place 
 thereof a valid certificate, yet where overissued certificates of stock, 
 signed or purporting to be signed by the corporate officers having the 
 authority to issue stock, and actually issued by such officers, are pur- 
 chased by any person, or are taken in any manner in good faith and for 
 value, such bona fide holder may sue the corporation in tort and re- 
 cover damages." Some of the more important cases supporting this 
 view are the following : Railroad Co. v. Schuyler, 34 N. Y. 30 ; Bank 
 ,of Kentucky v. Schuylkill Bank, Pars. Eq. Cas. (Pa.) 180; Bank v. 
 Kurtz, 99 Pa. 344, 44 Am. Rep. 112 ; Kisterbock's Appeal, 127 Pa. 601, 
 18 Atl. 381, 14 Am. St. Rep. 868; Holbrook v. Zinc Co., supra; Cin- 
 cinnati, N. O. & T. P. Ry. Co. V. Citizens' Nat. Bank, supra ; Bridge- 
 port Bank v. New York & N. H. R. Co., 30 Conn. 231; Fifth Ave. 
 Bank of New York v. Forty-Second St. & G. St. Ferry R. Co., 137 
 N. Y. 23'l, 33 N. E. 378, 19 L. R. A. 331, note, 33 Am. St. Rep. 712; 
 Moores v. Bank, 111 U. S. 156, 4 Sup. Ct. 345, 28 L. Ed. 385; Allen 
 V. Railroad Co., 150 Mass. 200, 22 N. E. 917, 5 L. R. A. 716, IS 
 Am. St. Rep. 185. 
 
 The result of the view above stated is that by the secretary's breach 
 of his official duty there may be cast upon the corporation a liability 
 for damages. That action is founded on the fraud accomplished by 
 the false declarations in the certificate. To the existence of such lia- 
 bility, however, are necessary all the elements of the usual action for 
 deceit. Of those elements the false representation is supplied by the 
 certificate itself, but, in addition, it is necessary that the person making 
 demand shall have relied thereon and shall have been ignorant of- the 
 falsity of the statements and free from any want of ordinary care and 
 diligence. Shaw v. Gilbert (decided May 21, 1901) 111 Wis. 165, 86 
 N. W. 188; Moores v. Bank, 111 U. S. 156, 166, 4 Sup. Ct. 345, 28 
 L. Ed. 385 ; Farrington V. Railroad, 150 Mass. 406, 23 N. E. 109, 5 
 L. R. A. 849, 15 Am. St. Rep. 222. The complaint, upon most liberal 
 construction, fails to allege that either of the purchasers of the stock 
 certificates wrongfully issued by Babcock was ignorant of their falsity 
 or relied thereon. It therefore does not state facts sufficient to show 
 even that any liability has been cast upon the plaintiff by reason of 
 their issue. 
 
 Such being the case, there is no occasion to consider the further 
 question whether an action could be maintained upon breach of the 
 bond in suit when such breach had merely resulted in creating a lia- 
 bility, and before plaintiff had actually been compelled to pay any- 
 thing thereon. On that general subjeict see Lyle v. Machine Co., 108 
 Wis. 81, 84 N. W. 18, 51 L. R. A. 906; Farnsworth v. Boardman, 131 
 Mass. 115, 122; Kip v. Brigham, 7 Johns. (N. Y.) 168; Jackson v. 
 
602 BIGHTS OF STOCKHOLDERS (Ch. 4 
 
 Port, 17 John^. (N. Y.) 479. We cannot avoid the conclusion that, 
 although the complaint sufficiently alleges official misconduct of Bab- 
 cock, and, consequently, a technical breach of the bond, it fails to 
 show that any damage has thereby been caused the company J)y im- 
 posing upon it either pecuniary loss or liability thereto. Hence the 
 demurrer must be sustained. 
 By THE Court. Th^ order appealed from is affirmed.^' 
 
 T8 See New York & New Haven R. Co. v. Schuyler, 34 N. T. 30 (1865). 
 
Sec 1) DIBBCIOBS SOS 
 
 CHAPTER V 
 DIRECTORS 
 
 SECTION 1.— POWERS AND LIABILITIES 
 
 CHARLESTOWN BOOt & SHOE CO. v. DUNSMORE et al. 
 
 (Supreme Court of New Hampshire, 1880. 60 N. H. 85.) 
 
 Case. Demurrer to the declaration in which the following facts 
 were alleged : The plaintiffs are a manufacturing corporation having 
 for its object a dlividend of profits, and commenced business in 1871. 
 Dunsmore was elected! director in 1871 and Willard in 1873, and en- 
 tered upon the discharge of their duties, and have continued so to act 
 by virtue of successive elections until the present time. December 10, 
 1874, the corporation voted to choose a committee to act with the di- 
 rectors to close up its affairs, and chose one Osgood for such com- 
 mittee. Osgood tendered his services, but the defendants refused to 
 act with him, and contracted new debts to a larger extent than allowed 
 by law. By their negligence, debts dlue to the corporation to the 
 amount of $2,161.23 have been wholly lost. By their negligence in 
 disposing of the goods of the corporation a loss has accrued of 
 $3,300.40. By their neglect to sell the buildings and machinery of the 
 corporation when they might and ought, and were urged by Osgood 
 to sell, the same depreciated in value tp the extent of $20,000. 
 
 Also for that the plaintiffs owned and possessed a certain shop of 
 the value of $10,000, and a large amount of machinery and fixtures 
 of the value of $10,000 ; "and whereas it was the duty of said defend- 
 ants directors as aforesaid, to procure sufficient and proper insurance 
 against fire to be made on said property, and keep the same so suffi- 
 ciently insured, of all which the said defendants had notice, yet they 
 did not and would not keep the said property so insured, and after- 
 wards, to wit, on the 28th dlay of April, 1878, while the said property 
 was so remaining without insurance, the same was wholly consumed 
 by fire and wholly lost to the plaintiff, whereby the plaintiff suffered 
 great loss and damage, to wit, $20,000." 
 
 ■ Smith, J. The provision of the statute is, that the business of a 
 dividend paying corporation shall be managed by the directors. The 
 statute reads, "The business of every such corporation shall be man- 
 aged by the directors thereof, subject to the by-laws and votes of the 
 corporation, and under their direction by such officers and agents as 
 shall be duly appointed by the directors or by the corporation." G. 
 
604 DIRECTORS (Ch. 6 
 
 L,. c. 148, § 3 ; Gen. St. c. 134, § 3. The only limitation upon the judg- 
 ment or discretion of the directors is such as the corporation by its 
 by-laws and votes shall impose. It may define its business, its nature 
 andl extent, prescribe rules and regulations for the government of its 
 officers and , members, and determine whether its business shall be 
 wound up or continued; but when it has thus acted, the business as 
 thus defined and limited is to be managed by its directors, and by such 
 officers and agents under their direction as the directors or the corpora- 
 tion shall appoint. The statute does not authorize a corporation to 
 join another officer with the directors, nor compel the directors to act 
 with one who is not a director. They are bound to use ordinary care 
 and diligence in the care and management of the business of the cor- 
 poration, and are answerable for ordinary negligence. March v. Rail- 
 road, 43 N. H. 516, 529; Scott v. Depeyster, 1 Edw. Ch. (N. Y.) 513, 
 543 ; Ang. & Ames, Corp. § 314. There is no difference in this resp;ect 
 between the agents of corporations and those of natural persons, un- 
 less expressly made by the charter or by-laws. Idl. § 315. It would 
 be unreasonable to hold them responsible for the management of the 
 affairs of the corporation if compelled to act with one who to a greater 
 or less extent could control their acts. The statute not only entrusts 
 the management of the business of the corporation to the directors, 
 but places its other officers and agents under their direction. When a 
 statute provides that powers granted to a corporation shall be exer- 
 cised! by any set of officers or any' particular agents, such powers can 
 be exercised only by such officers or agents, although they are re- 
 quired to be chosen by the whole corporation; and if the whole cor- 
 poration attempts to exercise powers which by the charter are lodged 
 elsewhere, its action upon the subject is void. Insurance Co. v. Key- 
 ser, 32 N. H. 313, 315, 64 Am. Dec. 375. The vote choosing Osgood 
 a committee to act with the directors in closing up tfte affairs of the 
 plaintiff corporation was inoperative and void. 
 
 The declaration also alleges that it was the duty of the diefendants 
 as 'directors, to keep the property of the corporation insured. There 
 is no statute that makes it the duty of the directors of a corporation 
 to keep its property insured, and there are no facts alleged from which 
 we can say, as matter of law, that it was the duty of the defendants 
 to insure the property of the corporation. 
 
 Demurrer sustained 
 
 AUTOMATIC SELF-'CIvEANSING FILTER SYNDICATE^ CO., 
 Limited, v. CUNINGHAM 
 
 (Supreme Court of Judicature. L. R. [1906] 2 Ch. Dlv. 34.) 
 
 Motion. The Automatic Self-Cleansing Filter Syndicate Company, 
 Limited, was incorporated on June 10, 1896. The original capital of 
 the company was £700., divided into 700 shares of £1. each; but the 
 
Sec. 1) POWERS AND LIABILITIES 605 
 
 capital had since been increased, and there had now been issued 2700 
 shares of £1. each. 
 
 The objects of the company, As stated in clause 3 of its memoran- 
 dum of association, were (inter alia) : (a) To acquire from James Wil- 
 son the benefit of certain existing inventions in relation to the filtra- 
 tion, treatment, purification, storage, application, distribution, and use 
 of liquids; and (k) to sell the undertaking of the company, or any 
 part thereof, for such consideration as the company might deem fit, 
 and in particular, for shares, debentures, or securities of any other 
 company having objects altogether or in part similar to those 'of this 
 company. 
 
 The articles provided as follows : 
 
 "81. The company may by special resolution remove any director 
 before the expiration of his period of office and appoint another qual- 
 ified person in his stead. * * * " 
 
 "96. The 'management of the business and the control of the com- 
 pany shall be vested in the directors, who, in addition to the powers 
 and authorities by these presents expressly conferred upon them, may 
 exercise all such powers and dio all such acts and things as may be 
 exercised or done by the company, and are not hereby or by statute 
 expressly directed or required to be exercised or done by the company 
 in general meeting; but subject nevertheless to the provisions of the 
 statutes and of these presents, and to such regulations, not being in- 
 consistent with these presents, as may from time to time be made by 
 extraordinary resolution, but no regulation shall invalidate any prior 
 act of the directors which would have been valid if such regulation had 
 not been made. 
 
 "97. Without prejudice to the general powers conferred by the last 
 preceding clause, and to the other powers and authorities conferred 
 as aforesaid, it is hereby expressly dieclared that the directors shall 
 be entrusted with the following powers, namely, power — 
 
 "(1) To purchase or otherwise acquire for the company any prop- 
 erty, letters patent, rights or privileges which the company is author- 
 ized to acquire, at such price, and generally on such terms and condi- 
 tions, as they think fit; also to sell, lease, abandon, or otherwise deal 
 with, any property, rights, or privileges to which the company may 
 be entitled, on such terms and conditions as they may think fit." 
 
 "(16) To enter into all such negotiations and contracts and rescind 
 arid vary all such contracts, and execute and do all such acts, deeds, 
 and things in the name or on behalf of the company as they might 
 consider expedient for or in relation to any of the matters, aforesaid, 
 or otherwise for the purposes of the company." 
 
 The plaintiff A. H. McDiarmid, who was the holder of 1202 shares 
 in the plaintiff company, being desirous that the assets and under- 
 taking of the plaintiff company should be sold, arranged terms on be- 
 half of the company for the sale of them to a new company formed for 
 
606 DIRECTORS ^ (Ch. 5 
 
 the purpose of acquiring them, and had these terms embodied in a 
 contract which was engrossed! ready for execution by the cpmpaily. 
 
 On January 2, 1906, a meeting of the shareholders of the company, 
 convened by the directors in accordance with a requisition signed by 
 the plaintiff McDiarmid and other shareholders in the company, was 
 held for the purpose of considering and if thought fit passing the fol- 
 lowing resolution: 
 
 "That the company do sell the assets specified in the contract which 
 has been produced to the meeting at the price and on the terms there- 
 in mentioned and contained and that the directors be and they are here- 
 by directed to cause the common seal of the company to be affixed! 
 thereto within seven days and to carry the same into effect." 
 
 The meeting was adjourned until January 16, when the resolution 
 was passed. by a majority of 304 votes, 1502 votes for and 1198 votes 
 against it. Practically the whole of the 1502 votes were given in re- 
 spect of shares held by the plaintiff McDiarmid or his friends. 
 
 The directors, being of opinion that it" would not be in the interests 
 of the plaintiff company that the contract should! be Carried out, de- 
 clined to comply with the resolution. 
 
 This was a motion by the plaintiff ^company and by the plaintiff 
 McDiarmid, suing on behalf of himself and all other shareholders in 
 the company, against the directors asking that the defendants might 
 be ordered forthwith to affix the seal of the plaintiff company to the 
 contract and to carry it into effect; that the defendants might be re- 
 strained by injunction until judgment or further order from dealing 
 with or disposing of the assets of the plaintiff company intended to 
 be comprised in the said agreement in any manner inconsistent with 
 the terms thereof ; and for the appointment of a receiver of the said 
 assets. 
 
 The motion was heard before Warrington J. on February 23, 1906. 
 
 Cave, K. C, and A. H. Jessel, for the plaintiffs. The directors are 
 the agents of the company, and as such are bound to obey the direc- 
 tions of their principal, the company. The plaintiffs merely desire that 
 the directors shall do what the company in general meeting has or- 
 dered them to dio. 
 '(Warrington, J. Why not remove the directors?) 
 
 That would require a three- fourths majority. The company in gen- 
 eral meeting has power to direct and control the directors in the man- 
 agement of the affairs of the company. Isle of Wight Ry. Co. v. 
 Tahourdin (1883) 25 Ch. D. 320. 
 
 (Warrington, J. The company has by article 96 delegated the 
 management of its business to the directors.) 
 
 The company can revoke that delegation. 
 
 (Warrington, J. The article can only be altered by a special reso- 
 lution.) , 
 
Sec. 1) POWBBS AND LIABILITIES 607 
 
 (Norton, K. C, referred to Grant v. United Kingdom Switchback 
 Railways Co. [1888] 40 Ch. D. 135, and Bucltley on Companies, [8th 
 Ed.] p. 5S7.) 
 
 The articles are subject to the general rule that agents must obey the 
 directions of their principal. 
 
 (Warrington, J. If you are right in your contention a simple ma- 
 jority of the shareholders might control the company.) 
 
 A company does not part with its powers by delegating them to its 
 directors. The Court will not force upon a company a policy of which 
 it does not approve. Bainbridge v. Smith (1889) 41 Ch. D. 462. 
 
 Norton, K. G., and L,. Mossop, for the directors, were not called 
 upon. 
 
 Warrington, J., stated .the facts, and continued : The question I 
 have to determine in this case is whether the shareholders of a com- 
 pany have power by a resolution passed by a simple majority of their 
 number to order the directors to seal an agreement for the sale of the 
 whole of the assets of the company notwithstanding that the directors 
 may think that the sale is improvident, and that the terms on which it 
 is to be carried out are not fit terms on which the company ought to 
 carry out such a sale. To my mind this question depends upon the 
 true construction of the articles. The only articles which are material 
 are articles 96 and 97. (His Lordship read the articles, and continued :) 
 
 The effect of this resolution, if acted upon, would be to compel the 
 directors to sell the whole of the assets of the company, not on such 
 -terms and conditions as they think fit, but upon such terms and con- 
 ditions as a simple majority of the shareholders think fit. But it does 
 not rest there. Article 96 provides that the management of the busi- 
 ness and control of the company are to be vested in the directors. 
 Now that article which is for the protection of a minority of the share- 
 holders, can only be altered by a special resolution, that is to say by 
 a resolution passed by a three- fourths majority, at a meeting called 
 for the purpose, and confirmed at a subsequent meeting. If that pro- 
 vision could be revoked by a resolution of the shareholders passed by 
 a simple majority, I can see no reason for the provision which is to 
 be found in article 81 that the directors can only be removed by a 
 special resolution. It seems to me that if a majority of the sharehold- 
 ers can, on a matter which is vested in the directors, overrule the dis- 
 cretion of the directors, there might just as well be no provision at all 
 in the articles as to the rernoval of the directors by special resolution. 
 Moreover, pressed! to its logical conclusion, the result would be that 
 when a majority of the shareholders disagree with the policy of the 
 directors, though they cannot remove the directors except by special 
 resolution, they might carry on the whole of the business of the com- 
 pany as they pleased, and thus, though not able to remove the direc- 
 tors, overrule every act which the board might otherwise do. It seems 
 to me on the true construction of these articles that the management 
 
608 DIEECT0E3 (Ch. 5 
 
 of the business and the control of the company are vested in the direc- 
 tors, and consequently that the control of the company as to any par- 
 ticular matter, or the management of any particular transaction or any 
 particular part of the business of the company, can only be removed 
 from the board by an alteration of the articles, such alteration, of 
 course, requiring a special resolution. 
 
 No case has been cited to me which, in my opinion, has really any 
 bearing on' this question, which depends on the construction of the 
 articles. In Isle of Wight Ry. Co. v. Tahourdin, 25 Ch. D. 320, which 
 was a case under the Companies Clauses Consolidation Act, 1845, it 
 was pointed out by the Court of Appeal that the resolution which it was 
 proposed to submit to the meeting, and upon which the, question arose, 
 was one which could be carried by a simple majority of the company. 
 Moreover, all that was there decided was that the Court would riot 
 interfere to prevent a meeting of shareholders being held. No decision 
 was given as to what would be the result with reference to the valid- 
 ity of any resolution which might be passed at the meeting. 
 
 On the whole, it seems to me that the resolution which was passed 
 at the general meeting on January 16, 1906, is not one which the di- 
 rectors are bound to carry into eifect. The consequence is, I must re- 
 fuse the motion, with the usual result — that is to say, the costs will be 
 the defendants' costs in the actiorj.^ 
 
 GASHWILER et al. v. WILLIS et al. 
 
 (Supreme Court of California, 1867. 33 Cal. 11, 91 Am. Dec. 607.) 
 
 Sawyer, J." The Rawhide Ranch Gold & Silver Mining Compa- 
 ny is a corporation duly organized under the statutes of California, 
 for the purpose of carrying on the business of mining. On the 29th 
 of April, 1865, a special meeting of the stockholders of the corpora- 
 tion was held, pursuant to notice, at the office of the company, at 
 which all the stockholders were present. At this meeting of the 
 stockholders, all the stockholders being present and all the capital 
 stock represented, a resolution was unanimously adopted authoriz- 
 ing S. S. Turner, T. N. Willis and James J. Hodges, Trustees of 
 said corporation, for and on behalf of said corporation, to sell and 
 convey to D. W. Barney the mine, mill, buildings, mining imple- 
 ments, and appurtenances belonging to said conipany. In pursuance 
 of said resolution, and without any other authority shown, on the 
 
 1 The concurring opinions of Collins and Cozens-Hardy, JJ., are omitted. 
 The ruling of Warrington, J., was sustained by the Court of Appeal. 
 
 See Union Mutual lire Ins. Co. v. Keyser, 32 N. H. 313, 64 Am Dec 375 
 (1855) ; Hutchinson et al. v. Green et al., 91 Mo. 367, 1 S. W. 853 (1886). 
 
 2 Statement of facts omitted as sufficiently stated In the opinion a nart 
 of which is omitted. , > *" " 
 
Sec. 1) , POWERS AND LIABILITIES G09 
 
 5th of June following a conveyance was executed by said Turner, 
 Willis and Hodges, Trustees, the commencement and forrn of execu- 
 tion of which are as follows: 
 
 • "This indenture, made the 5th day of June, A. D. 1865, between 
 the Rawhide Ranch Gold & Silver Mining Company, a corporation 
 under the laws of the State of California, by S. S. Turner, T. N. Wil- 
 lis and James J. Hodges, Trustees of said corporation, who are duly 
 authorized and empowered by resolution and order of said corpora- 
 tion to sell and convey," etc. 
 
 "In witness whereof we, as the Trustees of and for and on behalf 
 of said corporation, have hereunto set our hands and seal (the said 
 corporation having no seal) the day and year first above written. 
 
 "T. N. Willis, [U S.] 
 
 "James J. Hodges, [I.. S.] 
 "S. S. Turner, [h. S.] 
 
 "Trustees of the Rawhide Ranch Gold & Silver Mining Company." 
 On the trial, after proving the adoption of the resolution before re- 
 ferred to at a meeting of the stockholders, as stated, the plaintiffs 
 offered said deed in evidence, and defendants objected to its intro- 
 duction on the three grounds — that it did not appear to be the act 
 or deed of the corporation; that it had not the signature of the cor- 
 poration, and that it was not sealed with the corporate seal but with 
 the individual seals of the Trustees. The Court sustained the objec- 
 tion and excluded the deed, to which ruling plaintiffs excepted; and 
 this ruling presents the question to be determined. 
 
 Ui^der the view we take, it will only be necessary to consider the 
 first ground of the objection, and the question is, does the instru- 
 ment in question appear to be the act or deed of the corporation? 
 If not, it was properly excluded, and the judgment must be affirmed. 
 It is claimed by respondents that no authority is shown in the parties 
 executing to execute the deed on behalf of the corporation. If the 
 deed of a natural person, purporting to have been executed by an 
 attorney in fact, were offered in evidence, it would, clearly, be inad- 
 missible, without first showing the authority of the attorney. The 
 recital of the authority in the deed itself would furnish no evidence 
 wha^ver of its existence. The same is true of an artificial person — 
 a corporation — at least, ' where the corporate seal is not affixed. 
 Whether the rule would be different when the regularly adopted cor- 
 porate seal is shown by competent proof to be affixed it is not neces- 
 sary now to inquire; for it affirmatively appears in this instance that 
 the corporation has no seal, and that the parties executing the in- 
 strument used their respective private seals, no express authority to 
 adopt such seals being shown. It may also be admitted for the pur- 
 poses of this decision, that it is competent for the corporation to 
 adopt the private seal of the several Trustees, or any one of them as 
 its seal pro hac vice, and that the conferring upon the agent power 
 RicH.CoRP.— 39 
 
610 DIRECTORS 
 
 (Ch.5 
 
 to execute the deed necessarily includes the power to adopt a seal on 
 behalf of the corporation for the occasion. Still, as a seal regularly 
 adopted by the corporation was not in fact used, it is necessary to 
 show authority in the agent to execute the deed, in order to show, by. 
 implication authority in him to adopt a seal for the occasion. - The 
 authority of the Trustees to execute the instrument in question must, 
 therefore, affirmatively appear, or it does not appear to be the act 
 or deed of the corporation. 
 
 We are not aware of anything in the law, independent of any au- 
 thority expressly conferred by the corporation, which authorizes Tur- 
 ner, Willis and Hodges, in their official character as Trustees, to exe- 
 cute the instrument in question on behalf of the corporation. No law 
 of the kind has been called! to our attention, and we do not under- 
 stand that any is claimed by appellants' counsel to exist. And there 
 is nothing in the nature of those offices, as connected with the ob- 
 ject and business of the company, from which a general power in the 
 Trustees, when not acting as a Board, to sell and convey the mine, 
 mill and other property of the company, could be implied. McCul- 
 lough V. Moss, 5 Denio (N. Y.) 575. The parties executing the in- 
 strument, then, if they , had any authority in the premises, must have 
 derived it from some corporate act; and the pnlyact proved or re- 
 lied on is the resolution adopted at the stockholders' meeting before 
 mentioned. This was a meeting of the stockholders only. It was called 
 as such, and the proceedings all appear to have been conducted as a 
 stockholders' meeting. The resolution authorizing the sale andl con- 
 veyance of the mine, etc., in question, was adopted by the stockhold- 
 ers, as such, at said meeting, and not by the Board of Trustees, or at 
 any meeting of said Board. The Board of Trustees do not appear 
 to have ever acted at all upon the matter in the character of a Board, 
 but the testimony shows that they acted) in pursuance of the said res- 
 olution adopted at the meeting of stockholders. 
 
 Section five of the Act authorizing the formation of corporations 
 for mining purposes provides : "That the corporate powers of the 
 corporation shall be exercised by a Board of not less than three Trus- 
 tees, who shall be stockholders," etc. And section seven provides that : 
 "A majority of the whole number of Trustees shall form a Board for 
 the transaction of business, and every decision of a majority of the 
 persons duly assembledl as a Board shall be valid as a corporate act." 
 Laws 1853, p. ?8, § 5 ; 7 Hittell's Gen. Laws, arts. 936, 938. Con- 
 ferring authority to sell and convey the corporate property is the 
 exercise Of a corporate power, and under these provisions the "cor- 
 porate powers of the corporation" are to be exercised by the Board 
 of .Trustees when the majority are "duly assembled as a Board." 
 When thus assembled and acting the decision of the majority "shall 
 be valid as a corporate act." We find nothing in the Act authorizing 
 the stockholders, either individually or collectively in a stockholdiers' 
 meeting, to perform corporate acts of the character in question. The 
 
Sec. 1) POWERS AND LIABILITIES 611 
 
 property in question was the property of the; artificial being created 
 by the statute. The whole title was in the corporation. The stock- 
 holders were not in their individual capacities owners of the prop- 
 erty as tenants in common, joint tenants, copartners or otherwise. 
 Gorham v. Gilson, 28 Cal. 484; Mickles v. Rochester City Bank, 11 
 Paige (N. Y.) 128, 42 Am. Dec. 103. This proposition is so plain that 
 no citation of authorities is needed. Had the stockholders all executed 
 a deed to the property, they could have conveyed no title, for the 
 reason that it was not in them (Wheelock v. Moulton et al., 15 Vt. 
 521) ; and what they could not do themselves they could not by resolu- 
 tion or otherwise authorize another to do for them. 
 
 The corporation could only act — could not speak — ^through themedi- 
 um prescribed by law, and that is its Board of Trustees. ■ As well 
 might the citizens of San Francisco in public meeting assembled, by 
 unanimous resolution authorize certain Supervisors, designated by 
 name, to sell and convey the City Hall. It is said, however, that the 
 Trustees were also all present and participated in the proceedings at 
 the stockholders' meeting and assented to the resolution; that the 
 resolution therefore was approved by 'all of the constituents of the 
 corporation, and the powers of the corporation were exhaustively ex- 
 ercised. But they were acting in their individual characters as stock- 
 holders, and not as a Board of Trustees. In this character they were 
 not authorized to perform a corporate act of the kind in question. 
 As well, also, might a valid ordlinance be "passed by the citizens of 
 San Francisco in public meeting assembled, at which the Supervisors 
 were all present and voted in the affirmative. Such an ordinance, when 
 signed by the Mayor, would have the assent of all the constituents 
 of the corporation as clearly as the resolution in question has in the 
 present instance. But such is not the mode in which the corporation 
 is authorized by the law of its creation to manifest its will and exer- 
 cise its corporate powers. The power to sell and convey could only 
 be conferredl by the Trustees when assembled and acting as a Board. 
 This is the mode prescribed. As a Board they could perform valid 
 corporate acts, and confer authority within the province of their 
 powers, upon the Trustees individually or upon any other parties to 
 perform acts as the agents of the corporation. We are not without 
 authorities upon this precise point. * * * 
 
 In this case, the resolution adopted by the stockholders was not a' 
 corporate act, and it conferred on the three Trustees named — whether 
 they constituted the whole number of Trustees does not appear-:— no 
 authority to perform a corporate act, to execute the deed, or adopt a 
 seal for the occasion. It not only does not appear, then, that the in- 
 strument in question is the act or deed of the corporation, but it af- 
 firmatively appears that it was executed in pursuance of a resolution 
 that conferred no authority whatever to perform a corporate act ; for 
 tVe plaintiflfs themselves introduced in evidence the authority under 
 which they claimed the act to have been performed, and! upon which 
 
612 DIKECTOES (Ch. 5 
 
 they relied. Having done this, we are not at liberty to indulge the 
 presumption that the parties executing the deed on behalf of the cor- 
 poration were otherwise duly authorized. The authority acted upon 
 is affirmatively shown, and this fails. We think the deed! p/operly 
 excluded. But even if it had been admitted without further proof 
 of the authority of the parties to execute it, it would not have availed 
 the plaintiffs. 
 
 As there does not appear to have been any authority in the parties 
 assuming to act, to sell or convey at all, it is unnecessary to discuss 
 the other questions. Judgment affirmed; 
 
 Rhodes, J., did not express an opinion.* 
 
 HOYT v. THOMPSON'S EX'RS. , 
 
 (Court of Appeals of New York, 1859. 19 N. Y. 207.) 
 
 CoMSTocK, J.4 * * * The precise point in controversy is, 
 whether the plaintiff or one Abraham G. Thompson became entitled 
 to a bond and mortgage of $60,000, executed in November, 1839, by 
 the Long Island Railroad Company, a corporation chartered by this 
 State, to the Morris Canal & Banking Company. The last mentioned 
 company was a New Jersey corporation, and held and owned this se- 
 curity until December 9, 1840, when an assignment of it was made 
 to the State of Michigan. Thompson claimed title and acquired pos- 
 session of the security under this transfer, having purchased it at 
 auction from the agent of Michigan, in May, 1843. The plaintiff 
 claims under a transfer, junior in point of time, made to one Sanxay 
 his immediate assignor, by the receivers of the Morris Canal & Bank- 
 ing Copipany, on the 13th of November, 1845. Those receivers were 
 appointed in January, 1842, by the Court of Chancery of the State of 
 New Jersey, in a suit instituted against the Company in August, 1841, 
 by Richards and Selden, who were its judgment creditors. If the 
 plaintiff can impeach the prior transfer to the State of Michigan and 
 the title which the plaintiff derived from that State, no doubt exists 
 in regard to the validity of his own title. The validity of that assign- 
 ment to Michigan is denied by the plaintiff on two grounds : First, 
 that it was made by the executive officers of the company without the 
 authority of the board of directors, in other words, that it was not 
 the act of the corporation, and for that reason was utterly void. Sec- 
 ond, on the ground that it was voidable as to creditors, under an act 
 
 8 Opinion denying a rehearing omitted. 
 
 Compare Arkansas Pass Harbor Co. v. Manning, 94 Tex. 558, 63 S. W. 
 627 (1901) ; Garmany v. Lawton, 124 Ga. 876, 53 S. E. 669, 110 Am. St. Rep. 
 207 (1905) ; Cunningham v. German Ins. Blank, 101 Fed. 977, 41 C. C. A. 609 
 (1900); Klrwin v. Washington Match Co., 37 Wash. 285, 79 Pac. 928 (1905). 
 
 * Facts sufficiently stated In the opinion, a part of which is omitted. 
 
Sec. 1) POWEKS AND LIABILITIES 613 
 
 of the Legislature of New Jersey, passed February 16, 1829, "To pre- 
 vent frauds by incorporated companies." These two grounds of ob- 
 jection have no dependence on each other, and they will, therefore, be 
 separately considered. 
 
 First. The Morris Canal & Banking Company was authorized by 
 its charter, granted in 1824, to construct a canal in the State of New 
 Jersey, and also to carry on the business of banking; to buy and sell 
 bills of exchange; to deal in public and corporate stocks; to loan 
 money on bond and mortgage; to receive money or property in trust 
 and to execute trusts. Its capital stock, for the purpose of building 
 the canal, was fixed at $1,000,000, and $1,000,000 more could be added 
 for the purpose of banking. The number of directors, originally , fif- 
 teen, was increased by a supplementary act to twenty-three, and it 
 was declared that "the corporate powers of the company should be 
 exercised by the board." Authority was given to establish such by- 
 laws, ordinances and regulations as should be deemed necessary or 
 convenient for the transaction of its business. A code of by-laws was 
 adopted, one of which provided for stated meetings of the directors, 
 in each week, and declared that five directors, including the president, 
 should form a quorum for the transaction of the ordinary business 
 of the company. In the intervals between the stated meetings of the 
 directors, the business and affairs of the company were to be managed 
 by the standing and special committees, which were to report their 
 proceedings for the appirobation of the board. The same by-laws set 
 forth certain acts which could not be done without the concurrence 
 of a majority of all the directors, such as the election of officers and 
 the filling of vacancies in the board. * * * 
 
 The first inquiry suggested by the facts stated is, whether the by- 
 law of the company authorizing a quorum of five directors, including 
 the president, to transact ordinary business was a valid regulation. 
 We are clearly of opinion that it was. The charter of the company, 
 it is true, declared that its powers should be exercised by a board of 
 twenty-three directors, and it may well be conceded that in the ab- 
 sence of any different regulation, a majority of the whole number 
 would be necessary to constitute a legal quorum for the transaction 
 of any business whatever. But it would be a very extraordinary con- 
 struction of the charter in this respect, to hold that the board of 
 twenty-three directprs, or a majority thereof, must meet and act 
 whenever any corporate power was to be exercised, and that no dele- 
 gation of authority could be made to subordinate agents, to copi- 
 mittees, or to a quorum consisting of a smaller number. The board 
 of directors of a corporation do not stand in the same relation to the 
 corporate body which a private agent holds toward his principal. In 
 the strict relation of principal and agent, all the authority of the latter 
 is derived by delegation from the former, and if the power of sub- 
 stitution is not conferred in the appointment, it cannot exist at all. 
 
614 DIRECTORS (Ch. 5 
 
 But in corporate bodies the powers of the board of directors are, in 
 a very important sense, original and undelegated. The stockholders 
 do not confer, nor can they revoke those powers. They, are derivative ^ 
 only in the sense of being received from, the State in the act of in- 
 corporation. The directors convened as a board are the primary pos- 
 sessors of all the powers which the charter confers, and like private 
 principals they may delegate to agents of their own appointment the 
 performance of any acts which they themselves can perform. The 
 recognition of this principle is absolutely necessary in the affairs of 
 every corporation whose powers are vested in a board of directors. 
 Without it the most ordinary business could not be carried on, and 
 the corporate powers could not be executed. It is upon this principle, 
 not less than upon the express power contained in the charter to enact 
 by-laws, that the by-law in question, adopted by the 'Morris Canal .& 
 Banking Company, rests. It ' was, in substance and effect, a regula- 
 tion which constituted a subc^rdinate agency to conduct the ordinary 
 business of the corporation. The persons composing the agency would 
 change according as the quorum of five or more directors attending 
 the meetings might be constituted of different individuals. But if 
 the board could delegate the power of transacting business to five or 
 more individuals named no doubt exists that the same authority might 
 be imparted to a shifting quorum, composed of the same num- 
 ber. * * * 
 
 On the whole, having re-examined the case, we are satisfied, for 
 the reasons stated, that there is no error or misapprehension in the 
 decision already pronounced. The motion for a reargument must, 
 therefore, be denied, with costs. ' , 
 
 Johnson, C. J., and Strong, J., took no part in the decision ; Sei.- 
 DEN, J., dissented. All the other judges concurring. Motion denied." 
 
 5 In Burrill v. Nahant Bank, 2 Mete. (Mass.) 163, 35 Am. Dec. 395 (1840), 
 Shaw, C. J., in passing on the power of a board of directors to delegate the 
 power of conveying real estate to a committee of the board, said : "A board 
 of directors of the banks of Massachusetts is a body recognized by law. By 
 the by-laws of these corporations, and by a usage, so general and uniform as 
 to be regarded as part of the law of the land, they have the general superin- 
 tendence and active management of all the concerns of the bank, and con- 
 stitute, to all purposes of dealing with others, the corporation. We think 
 ' they do not exercise a delegg.ted authority, in the sense in which the rule 
 applies to agents and attorneys, who exercise the powers especially conferred 
 on them and no others. We think, therefore, that a board of directors may 
 delegate an authority to a committee of their own number, to alienate or 
 mortgage real estate ; that an authority to convey necessarily implies an au- 
 thority to execute suitable and proper instruments for that purpose ; and, In 
 case of a corporation, to affix the corporate seal to an instrument requiring 
 it." 
 
 In Jones v. Williams, 189 Mo. 1, 39 S. W. 486, 40 S. W. 353, 37 L. R. A. 
 682, 61 Am. St. Rep. 436 (1897), Macfarlane, J., speaking for the court, said: 
 "At common law the power to have a board of directors was Inherent in the 
 corporation. The statute of Missouri requiring the business and property of 
 a corporation to be managed and controlled by directors, is but an affirmance 
 of the common law power. So likewise the directors have the power, without 
 
Sec. 1) POWERS AND LIABILITIES 615 
 
 TEMiPEL V. DODGE. 
 (Supreme Court of Texas, 1895. 89 Tex. 69, 32 S. W. 514.) 
 
 BrowNj J. It appears from the application, and the record accom- 
 panying it, that the Pacific Railway Improvement Company was 
 incorporated in the state of Connecticut in the year 1879, and or- 
 ganized for the purpose of constructing the Texas & Pacific Railway. 
 In the charter of the said corporation is this provision : "The of- 
 ficers of this corporation shall consist of a president, vice president, 
 secretary, and treasurer, and its affairs will be managed by a board 
 of fiv,e directors," A by-law provided that : "An executive committee 
 shall, immediately after the adoption of the by-laws, be appointed by 
 the president, and afterwards, after the annual election in each year, 
 consisting of two. members and the president. Said committee shall 
 continue in office until after the next annual election, and to said 
 committee shall be, and is hereby, confided all the powers of the board 
 of directors"; and further providing that the president should have 
 power to appoint such counsel, etc., as should be necessary for carry- 
 ing on the business of the company, subject to the approval of the 
 board of directors or executive committee. These are all of the pro- 
 visions of the charter and by-laws that the record discloses. The fore- 
 going is taken from the opinion of the court of civil appeals. [See 11 
 Tex. Civ. App. 42, 31 S. W. 686.] 
 
 The Pacific Railway Improvement Company purchased about 17,000 
 acres of land in El Paso county, paying the money therefor through 
 its then president, G. M. Dodge, the defendant in error herein, who 
 took the deed in his own name, with the distinct understanding that 
 it was to be the property of the said company. Some time afterwards 
 Dodge purchased the land from the company by a verbal agreement, 
 and claimed the same, and paid taxes thereon as his own. After this 
 verbal purchase by Dodge, C. L. Frost, the president of the said Pacific 
 Railway Improvement Company, and John Adiamson, one of the di- 
 rectors of the said company, on the 23d day of February, 1890, entered 
 into a contract with the plaintiff in error, by which he was engaged, 
 on behalf of the said company, to institute legal proceedings in the 
 name of the said company against G. M. Dodge for the recovery of 
 the land before mentioned, and was to have for his services one-half 
 
 statutory authority, to delegate to officers, agents or executive committees tlie 
 power to transact, not only ordinary and routine business, but business re- 
 quiring the highest degree of judgment and discretion. Thus authority to 
 manage the business of railroad corporations, insurance companies, banking 
 Institutions and other corporations having large and complicated business 
 interests, is, usually, delegated by the directors to agents, often, but not nec- 
 essarily, officers of the corporation. These agents, or managing officers, have 
 incidental power to employ all assistants and to do all acts necessary to 
 properly conduct the business over vyhich they are given charge. Formal ac- 
 tion of the board of directors is not necessary in order to confe.t the author- 
 ity." 
 
61G DIEECTOES (Ch. 5 
 
 of the land! recovered, ^aid appointment was in writing, and con- 
 tained this clause : "And if, for any cause, the Pacific 'Railway Im- 
 provement Company fails to execute such deeds to such landls as he may 
 recover for said company, or in case any suit or suits instituted under 
 this authority be compromised without the concurrence of the said 
 E. W. Tempel, then this obligation is to operate as a deed of convey- 
 ance of one undivided half of all lands as he may recover for said 
 company." This instrument was sigiied. "C. L. Frost, President. 
 John Adamson, Secretary. Approved) by the Executive Committee: 
 C. L. Frost. John Adamson." 
 
 No executive committee had been appointed since 1887, and none 
 existed when this instrument was first made. The business for the 
 transaction of which the Pacific Railway Improvement Company was 
 created had been completed, and this committee was appointed for the 
 sole purpose of approving this contract. After it wds made and signed 
 by Frost, as president, and Adamson, as secretary. Frost appointed 
 John Adamson and Max Elser, directors of the said company, as said 
 committee, and after such appointment, the indorsement, "Approved 
 by the executive committee," was placed upon the said contract, and 
 signed by Frost and Adamson. 
 
 This contract was never approved by the board of directors, nor 
 by the stockholders, but afterwards the board of directors, by regular 
 proceedings, acknowledged Dodge's right to the property, and made 
 him a quitclaim deed therefor. Tempel had taken some steps towards 
 recovering the property from Dodge before the quitclaim deed was 
 made from the corporation to Dodge. He then sued Dodige and the 
 company for one-half of the land mentioned in the agreement, and 
 which was conveyed to Dodge by the quitclaim deed. The only title 
 that Tempel had was derived through the instrument of writing madle 
 by Frost and Adamson ; and if that conferred upon him no title, then 
 he had no right of recovery, and this application must be denied. 
 
 Upon this statement the question arises, can the board of directors 
 of a corporation, under a charter which imposes upon it the entire 
 management of its affairs, confer that authority upon an executive 
 committee, to be appointed by the president of the company? Un- 
 doubtedly, the board of directors can appoint agents^ whether in the 
 form of committees or as single agents, to transact the ordinary busi- 
 ness of the corporation; but we believe that the ruleJs well settled 
 by authority, and sus;tained by sound principle, that a. board of di- 
 rectors cannot confer upon others the power to dlischarge duties im- 
 posed upon them which involve the exercise of judgment and discre- 
 tion, except in the transaction of the ordinary business of the corpo- 
 ration, unless authorized so to do by the charter. Thomp. Corp. § 
 3944 et seq. ; Green's Brice, Ultra Vires, pp. 490-492 ; Railroad Co. 
 v. Richie, 40 Me. 425 ; Tippets v. Walker, 4 Mass. 595 ; Weidenfeld 
 V. Railroad Co. (C. C.) 48 Fed. 615. The by-laws in express terms sub- 
 stituted the executive committee, to be appointed by the president, for 
 
Sec. 1) POWERS AND LIABILITIES 617 
 
 the board of directors, and attempted to confer upon that committee 
 all of the powers given by the charter to the board of directors. Such 
 a provision in the by-laws is so palpably in conflict with the charter 
 under which the corporation was organized that there could scarcely 
 be a question that the by-law would be absolutely null. This being 
 true, the executive committee appointed by Frost, and one of which, 
 with himself, acted in this instance, was, under the facts shown in this 
 case, without any authority to convey the title of the Pacific Railway 
 Improvement Company to the lands in question; and its attempted 
 conveyance to Tempel was without any effect, and conferred upon him 
 no right or title to the land, and Dodge having acquired the title to the 
 land by a quitclaim deed, the judgment of the court in his favor was 
 correctly rendered. 
 
 For the reasons above given, that Tempel had no title to the land, 
 and, therefore, could not recover in this suit, the application for writ 
 of error is refused. 
 
 We do not find it necessary to pass upon the other question raised 
 in the case, which is, whether or not the verbal agreement between. 
 Dodge and the improvement company was sufficient to convey to 
 Dodge the right of the company's equity in the land.* 
 
 BRIGGS v. SPAULDING. 
 
 (Supreme Court of the United States, 1890. 141 U. S. 132, 11 Sup. Ot. 924, 
 
 35 L. Ed. 662.) 
 
 Bill by the receiver of the First National Bank of Buffalo against 
 R. P. Lee, F. E. Coit, E. G. Spaulding, W. H. Johnson, T. W. Gush- 
 ing, as directors of the bank, Anna Vought, as executrix of J. H. 
 Vought, F. C. .Coit, J. E. Barnes, administrators of C C. Vought, 
 former directorst^ to recover for losses sustained by the bank in con- 
 sequence of the negligence of the directors. 
 
 The losses resulting in the failure of the bank were .due for the 
 most, part to the misapplication of the bank's funds by R. P. Lee, 
 cashier and director. The evidence disclosed that the directors allowed 
 Lee to actually conduct the business. Reports to the comptroller of 
 the currency on the condition of the bank were signed by them with- 
 out examination and on assurance of Lee that the bank was in good 
 condition. No meetings were held or called from Oct. 3, 1881, to 
 April 14, 1882, during the period when the greatest losses were sus- 
 tained. No exchange committee nor examination committee vvas ap- 
 pointed as provided by the by-laws and meetings of the board were 
 infrequent and perfunctory although the articles of the bank provided 
 for monthly meetings. 
 
 6 The opinion overruling a motion for a rehearing Is omitted. 
 
618 DIRECTORS (Ch. 5 
 
 It was not contended that the defendants knowingly violated, or 
 permitted the violation of any of the provisions of the banking act, 
 or that they were guilty of any dishonesty in administering the affairs 
 of the bank, but it is charged that they did not diligently discharge 
 the duties devolving upon them by the National Banking Act. 
 
 Appeal from a decree dismissing the bill as to defendants who an- 
 swered, the bill having been taken as confessed as to Lee, ^nd th^ 
 executrix of J. H. Vought.' 
 
 Fuller, C. J.* In the language of appellant's counsel, the bill was 
 framed upon the theory of a breach by. the defendants as directors 
 "of their common-law duties as trustees of a financial corporation, 
 and of breaches of special restrictions and obligations of the national 
 banking act." 
 
 And it is claimed that the defendants should have been held liable 
 for the losses which occurred through loans of the bank's funds 
 and moneys during their term of office as directors to Lee, his fa- 
 ther, his wife, and certain designated persons, which were the prin- 
 cipal losses, though there were others smaller in amount for which 
 they were responsible. 
 
 This liability is aljeged to have been incurred by Lee for all loans 
 from October 3, 1881, until April 14, 1882; by F. E. Coit for all 
 losses through the mismanagement of the bank from October 3, 1881, 
 until April 14j 1882, which could have been prevented by reasonable 
 'diligence and care on the part of the directors; by John H. Vought 
 on the same basis and for the same time; by Charles T. Coit from 
 October 3 to December 11, 1881; by Cushing from October 3, 1881, 
 to January 10, 1882, unless his liability terminated with the transfer 
 of his stock on the books of the bank; by Spaulding and Johnson 
 from January 10 to April 14, 1882. 
 
 It is contended as an independent proposition that each of 'the de- 
 fendants should have been held liable for all loans made during the 
 periods before mentioned when the loans exceeded 10 per cent, of 
 the capital of the bank, in violation of section 5200, Rev. St., and 
 also for all loans made while the bank's reserve was below 15 per 
 cent, of its deposits, in violation of section 5191, Rev. St., where 
 such loans resulted in losses. 
 
 And finally, that each of the defendants should have been held 
 absolutely liable for all losses of the bank incurred by carrying on its 
 business after its capital became impaired or exhausted, and the bank 
 insolvent. * * * 
 
 Our attention has not been called, however, to any duty, specifically 
 imposed upon the directors as individuals by the terms of the act. 
 although, if any director participated in or assented to any violation 
 of the law by the board, he would be individually liable. The cor- 
 
 I Statement of facts abridged. Further facts appear in the opinion. 
 8 i part of the opinion is omitted. 
 
Sec. 1) POWERS AND LIABILITIES '619 
 
 1 
 
 poiration, after the amendment of 1874, had power to carry on its 
 business through its officers; and although no formal resolution au- 
 thorized the president to transact the business, yet in view of the 
 practice of 14 years or more, we think it must be held that he was 
 duly authorized to do so. It does not follow that the executive offi- 
 cers should have been left to control the business of the bank ab- 
 solutely and without supervision, or that the statute furnishes a 
 justification for the pursuit of that course. Its language does enable 
 individual directors to say that they were guilty of no violation of 
 a duty directly devolved upon them. Whether they were responsi- 
 ble for any neglect of the board as such, or in failing to obtain prop- 
 er action on its part, is another question. Indeed, it is frankly 
 stated by counsel that, "although special provisions of the statute are 
 quoted and relied upon, these do not create the cause of action, but 
 merely furnish the standard of duty and the evidence of wrong do- 
 ing;" and section 556, Mor. Priv. Corp., is cited, which is to the 
 effect that "the liability of directors for damages caused by acts 
 expressly prohibited by the company's charter or act of incorpo- 
 ration is not created by force of the statutory prohibition. The per- 
 formance of acts which are illegal or prohibited by law may subject 
 the corporation to a forfeiture of its franchises, and the directors 
 to criminal liability; but this would not render them civilly liable for 
 .damages. The liability of directors to the corporation for damages 
 caused by unauthorized acts rests upon the common-law rule, which 
 renders every agent liable who violates his authority to the damage 
 of his principal. A statutory prohibition is material, under these 
 circumstances, merely as indicating an express restriction placed up- 
 on the powers delegated to the directors when the corporation was 
 formed." 
 
 It is perhaps unnecessary to attempt to define with precision the 
 degree of care and prudence which directors must exercise in the 
 performance of their duties. The degree of -care required depends 
 upon the subject to which it is to be applied, and each case has to 
 be determined in view of all the circumstances. They are not insur- 
 ers of the fidelity of the agents whom they have appointed, who are 
 not their agents, but the agents of the corporation; and they cannot 
 be held responsible for losses resulting from the wrongful acts or 
 omissions of other directors or agents, unless the loss is a conse- 
 quence of their own neglect of duty, either for failure to supervise 
 the business with attention, or in neglecting to use proper care in 
 the appointment of agents. Mor. Priv. Corp. § 551 et seq., and cases. 
 Bank directors are often styled "trustees," but not in any technical 
 sense. The relation between the' corporation and them is rather that 
 of principal and agent, certainly so far as creditors are concerned, 
 between whom and the corporation the relation is that of contract, 
 and^not of trust. But, undoubtedly, under circumstances, they may 
 
620 DIRECTORS (Ch. 5 
 
 be treated as occupying the position of trustees to cestui que trust. 
 In Percy v. Millaudon, 8 Mart. (N. S.) 68, which has been cited 
 as a leading case for more than 60 years, the supreme court . of 
 Louisiana, through Judge Porter, declared that the correct mode of 
 ascertaining whether an agent is in fault "is by inquiring whether he 
 neglected the exercise of that diligence and care which was neces- 
 sary to a successful discharge of the duty imposed on him. That 
 diligence and care must again depend on the nature of the under- 
 taking. There are many things which, in their management, require 
 the utmost diligence and most scrupulous attention, and where the 
 agent who undertakes their direction renders himself responsible 
 for the slightest neglect. There are others where the duties im- 
 posed are presumed to call for nothing more than ordinary care and 
 attention, and where the exercise of that degree of care suffices. 
 The directors of banks, from the nature of their undertaking, fall 
 within the class last mentioned, while in' the discharge of their ordinary 
 duties. It is not contemplated by any of the charters which have come 
 under our observation, and it was not by that of the Planters' Bank, 
 that they should devote their whole time and attention to the institu- 
 tion to which they are appointed, and guard it from injury by con- 
 stant superintendence. Other officers, on whom compensation is be- 
 stowed for the employment of their time in the affairs of the bank, 
 have the immediate management. In relation to these officers the 
 duties of directors are those of ^control, and the neglect which would 
 render them responsible for not exercising that control properly must 
 depend on circumstances, and in a great measure be tested by the 
 facts of the case. If nothing has come to their knowledge to awaken 
 suspicion of the fidelity of the president and cashier, ordinary at- 
 tention to the affairs of the institution is sufficient. If they become 
 acquainted with -any fact calculated to put prudent men on their 
 guard, a degree of care commensurate with the evil to be avoided 
 is required, and a want of that care certainly makes them respon- 
 sible." 
 
 Spering's Appeal, 71 Pa. 11, 10 Am. Rep. 684, was the case of a 
 bill filed by Spering, as assignee of a trust company, against its direc- 
 tors and others, to compel them to make good losses sustained by the 
 depositors on the ground of fraudulent mismanagement of the af- 
 fairs of the_ company ; and Judge Sharswood, speaking for the court 
 said: "It is by no means a well-settled point what is the precise 
 relation which . directors sustain to stockholders. They are, undoubt- 
 edly, said in many authorities to be trustees, but that, as I apprehend, 
 is only in a general sense, as we term an agent or any other bailee 
 intrusted with the care and management of the property of another. 
 It is certain that they are not technical trustees. They can only be 
 regarded as mandatories,— -persons who have gratuitously undertaken 
 to perform certain duties, and who are therefore bound to apply 
 
Sec. 1) POWERS AND LIABILITIES 621 
 
 ordinary skill and diligence, but no more. * * * We are dealing 
 now with their responsibility to stockholders, not to outside parties, — 
 creditors and depositors. It is unnecessary to consider what the 
 rule may be as to them. Upon a close examination of all the re- 
 ported cases, although there are many dicta not easily reconcilable, 
 yet I have found no judgment or decree which has held directors to*^ 
 account, except when they have themselves been personally guilty of 
 some fraud on the corporation, or have known and connived at some 
 fraud in others, or where such fraud might have been prevented had 
 they given ordinary attention to their duties. T do not mean to say 
 by any means that their responsibility is limited to these cases, and 
 that there might not ^xist such a case of negligence, or of acts clear- 
 ly ultra vires, as would make perfectly honest directors personally 
 liable. But it is evident that gentlemen selected by the stockhold- 
 ers from their own body ought not to be judged by the same strict 
 standard as the agent or trustee of a private estate. Were such a 
 rule applied, no gentlemen of character and responsibility would be 
 found willing to accept such places." And see Association v. Coriell, 
 34 N. J. Eq. 383 ; Hodges v. Screw Co., 1 R. I. 312, S3 Am. Dec. 624; 
 Wakeman v. Dalley, 51 N. Y. 27, 10 Am. Rep. 551. 
 
 It was in this aspect that Lord Hatherley remarked in Land Credit 
 Co. V. Lord Fermoy, L. R. 5 Ch. 763 : "Whatever may be the case 
 with a trustee, a director cannot be held liable for being defrauded. 
 To do so would make his position intolerable." And the same view 
 is expressed by Sir George Jessel, M. R., in his opinion in Re Dean 
 Coal Min. Co., 10 Ch. Div. 450, where he says : "One must be very 
 careful in administering the law of joint-stock companies not to press 
 so hard on honest directors as to make them liable for these con- 
 structive defaults, the only eflect of which would be to deter all men 
 of any property, and perhaps all men who have any character to 
 lose, from becoming directors of companies at all. On the one 
 hand, I think the court should do its utmost to bring fraudulent di- 
 rectors to account ; and, on the other hand, should also do its best to 
 allow honest men to act reasonably as directors. Willful default 
 no doubt includes the case of a trustee neglecting to sue, though he 
 might by suing earlier have recovered a trust fund. In that case he 
 is made liable for want of due diligence in his trust. But I think 
 directors are not liable on the same principle." 
 
 The theory of this bill is that the defendants afe liable, not to 
 stockholders nor to creditors, as such, but to the bank, for losses al- 
 leged to have occurred during their period of office, because of their 
 inattention. 
 
 [After discussing the evidence, and the reputation for integrity of 
 Lee, the- cashier, the court proceeds:] But it is contended that de- 
 fendants should have'insisted on meetings of the board of directors, 
 or had special meetings called, and at those meetings or otherwise 
 
622 DIRECTORS (Ch. 5 
 
 made personal examination into the affairs of the bank, and that, had 
 they done this, they would have discovered the condition of the bank, 
 and prevented losses occurring subsequently to the 10th of January. 
 
 Here, again, it should be observed that even trustees are not liable 
 for the wrongful acts of their co-trustees unless they connive at them 
 or are guilty of negligence conducive to their commission, and that 
 Lee and Vought had long been directors. 
 
 It is shown that for 14 years the affairs of the bank had been left 
 wholly with the president and cashier, and that from the 10th of Jan- 
 uary to the stoppage 'of the bank the business was done as it had 
 always been done. No bonds had been required of the officers for at 
 least 14 years. No meetings were held by the board of directors ex- 
 cept the annual meeting and meetings to declare dividends, or on some 
 special occasion. No exchange committee had been appointed since 
 1875; and no committees 'had ever been appointed to examine into 
 the bank's affairs, question its cashier, or compare its assets and lia- 
 bilities with the balances on the general ledger. So that this manner 
 of conducting the business had been sanctioijied by long-continued 
 usage, and the evidence tends to show that the method pursued must 
 have been and was well known to many bf its customers, including 
 those who were creditors at the time of its failure, as well as its 
 stockholders. All this was not as it should have been, and ought not 
 to be countenanced; but the facts have an important bearing on the 
 question whether Spaulding and Johnson should be held liable be- 
 cause they did not at once endeavor to change the entire methods of 
 doing business, and enter upon an exhaustive investigation of the as- 
 sets. Would ordiharily prtident and diligent men have done so under 
 similar circumstances? It is hot so much a question of holding meet- 
 ings as of examination, searching, and thorough; an overhauling of 
 the bills receivable, and the detection of the uncollectible indebttedness 
 which rendered the bank insolvent. Were Spaulding and Johnson 
 guilty of negligence in that they did not make such an examination 
 within 90 days after they became directors, in the teeth ot the assur- 
 ances of Lee, in whoiii they reposed confidence, who had been con- 
 nected with the bank for so many years, and who owned two-thirds 
 of the stock? 
 
 The kind of examination required is indicated by the fact that, al- 
 though the evidence leaves it beyond question that the bank was in- 
 solvent on the 3d of October, 1881, its capital'and surplus wholly ex- 
 hausted, and losses incurred for thousands of dollars beyond that 
 amount, complainant, after a year's close investigation, alleges that 
 the bank was at that time solvent, engaged in a prosperous business, 
 with an unimpaired capital and a surplus, and with stock standing 
 at SO per cent, above par. Indeed, the books and papers of the bank 
 were kept in such a condition that even the cashier swore that he 
 
Sec. 1) POWERS AND LIABILITIES 623 
 
 did not suspect anything wrong in the management until April 10, 
 1882. * * * 
 
 We are of opinion that these defendants should not be subjected 
 to liability upon the ground of want of ordinary care, because they 
 did not compel the board of directors to make such an investigation, 
 and did not themselves individually conduct an examination during 
 their short period of service; or because they did not happen to go 
 among the clerks, and look through the books, or call for and run 
 over the bills receivable. 
 
 Of course a thorough examination would have ascertained that the 
 bank ought to be put into liquidation at once. Nothing that could 
 have been done on or after the 10th of January would have saved it. 
 Insolvent on the 3d of October; its condition had changed for the 
 worse January 10th. And it is worthy, of notice that the persons or 
 firms, losses by reason of advances to whom are tiamed in argument 
 as the main cause of the failure and basis of recovery, were all debt- 
 ors of the bank October 3, 1881, some of them for a long time before, 
 and all debtors January 10, 1882, and the figures of the experts seem 
 to show that the amounts due from them at the latter date were not 
 many thousand dollars greater in the aggregate on April 14, 1882. 
 The indebtedness of Lee, his father, and his wife was nominally less, 
 while that of some of those through whom he appears to have con- 
 ducted his operations was larger. Accor;ding to him, such increase 
 in poor assets as there was was substantially attributable to increased 
 loans made in the hope of carrying through parties already in debt 
 to the bank, and he says that there was really no material change in 
 the character of the paper between January 9 and the stoppage of 
 the bank. 
 
 But it is unnecessary to do more than refer to these matters as in- 
 dicative of the uncertainty as to what losses would have been pre- 
 vented if the bank had been wound up earlier than it was, and as to 
 the point of time to which the supposed liability should be referred 
 if an interlocutory decree had been entered. 
 
 We are not disposed, therefore, to reverse the decree as to defend- 
 ants Spaulding and Johnson, and, although the case of Francis E. 
 Coit was in some aspects different, and particularly in that he was a 
 director for a longer period, we think it should take the same course. 
 He was elected a director May 20, 1881, to fill a vacancy created by 
 the death of George Coit. He was at the time an invalid, and by rea- 
 son of his infirnlity in health unable to transact business, at least with 
 facility. His co-directors at the time of his election were Charles T. 
 Coit, Vought, Cushing, and, Lee. He was re-elected January 10, 1882. 
 The evidence shows that he had for many years been afflicted with 
 rheumatism. So far as appears, Lee, Vought, and Cushing were in 
 good health, although Charles T. Coit was not, but the latter continued 
 in the management of the bank down to the 3d of October. While 
 
624 DIRECTORS (Ch. 5 
 
 it may be said that Francis E. Coit should not have accepted the posi- 
 tion of director, and should not have allowed himself to be re-elected, 
 yet upon this question of passive negligence the rule would be an ex- 
 ceedingly rigorous one which made no allowance for the person 
 charged under such circumstances; and upon the whole we do not 
 feel called upon tcj question the decision as to him. 
 
 It must be remembered that in cases turning upon questions of 
 fact in order to reverse, we must be prepared to hold that the findings 
 were not justified, and this we cannot do, taking into consideration 
 all the facts contained in this voluminous record, which we have at- 
 tempted thoroughly to explore. 
 
 The turning point, so far as defendants Spaulding and Johnson are 
 concerned, (and we include with them Francis E. Coit,) is whether 
 under all the circumstances they were guilty of negligence, produc- 
 ing any of the losses in question, not affirmatively, but because they 
 did not prevent them; and this depends upon whether they should 
 have made an examination of the books and assets of the bank, and 
 whether, if they had, that would have enabled them to discover such 
 a condition of affairs as would have resulted in placing the bank in 
 liquidation, and whether thereby some of the losses would have been 
 averted. 
 
 Without reviewing the various decisions^ on the subject, we hold 
 that^' directors must exercise ordinary care and prudence in the admin- 
 istration of the affairs of a bank, and that this includes something 
 roore than officiating as figure-heads. They are entitled under the law 
 to commit the banking business, as defined, to their duly-authorized 
 officers, but this does not absolve them from the duty of reasonable 
 supervision, nor ought they to be permitted to be shielded from lia- 
 bility because of want of knowledge of wrongdoing, if that ignorance 
 is the result of gross inattention; but in this case we do not think 
 these defendants fairly liable for not preventing loss by putting the 
 bank into liquidation within 90 days' after they became directors, and 
 it is really to that the case becomes reduced at last. For the reasons 
 given, the decree will be affirmed. 
 
 Harlan, J. (dissenting.) Mr. Justice Gray, Mr. Justice Brewer, 
 Mr. Justice Brown, and myself are unable to concur in the opinion 
 and judgment of the court.' * * * 
 
 We are of opinion that when the act of congress declared that th^ 
 affairs of a national banking association shall be "managed" by its di- 
 rectors, and that the directors should take an oath to "diligently and 
 honestly administer" them, it was not intended that they should -ab- 
 dicate their functions, and leave its management and the administra- 
 tion of its affairs entirely to executive officers. True, the bank may 
 act by "duly-authorized officers or agents" in respect to matters of 
 
 » A' part of the opinion Is omitted. 
 
Sec, 1) POWERS AND LIABILITIES 625 
 
 current business and detail that may be properly intrusted to them by 
 the directors. But certainly congress never contemplated that the duty 
 of directors to manage and to administer the affairs of a national 
 bank should be in abeyance altogether during any period that particu- 
 lar officers and agents of the association are authorized or permitted 
 by the directors to have full control of its affairs. If the directors of 
 a national bank chose to invest its officers or agents with such control, 
 what the latter do may bind the bank as between it and those dealing 
 with such officers and agents. But the duty remains, as between the 
 directors and those who are interested in the bank, to exercise proper 
 diligence and supervision in respect to what may be dbne by its officers 
 and agents. 
 
 As to the degree of diligence and the extent of supervision to be 
 exercised by directors, there can be no room for doubt under the au- 
 thorities. It is such diligence and supervision as the situation and the 
 nature of the business require. Their duty is to watch over and guard 
 the interests committed to them. In fidelity to their oaths and to the 
 obligations they assume, they must do all that reasonably prudent and 
 careful men ought to do for the protection of the interests of others 
 intrusted to their charge. 
 
 In respect to the dealings of a bank with others this court has said : 
 "Directors cannot, in justice to those who deal with the bank, shut 
 their eyes to what is going, on around them. It is their duty to use 
 ordinary diligence in ascertaining the condition of its business, and to 
 exercise reasonable control and supervision of its officers. They have 
 something more to do than, from time to time, to elect the officers of 
 the bank, and to make declarations of dividends. That which they 
 ought, by proper diligence, to have Itnown as to the general course 
 of business in the bank, they may be presumed to have known, in 
 any contest between the corporation and those who are justified by 
 the circumstances in dealing with its officers upon the basis of that 
 course of business." Martin v. Webb, 110 U. S. 7, 15, 3 Sup. Ct. 
 428, 28 L. Ed. 49. A rule no less stringent should be applied as be- 
 tween a banking association and directors representing the interests of 
 stockholders and depositors. Subscriptions to the stock of a banking 
 association, and deposits with it, are made in reliance upon the statu- 
 tory requirement, which cannot be dispensed with, that its affairs are 
 to be managed and administered by a board of directors, acting under 
 oath, and with such diligence as the situation requires. 
 
 In Cutting v. Marlor, 78 N. Y. 454, 460, Chief Justice Church, de- 
 livering the unanimous judgment of the court, said: "A corporation 
 is represented by its trustees and managers. Their acts are its acts, 
 arid their neglect its neglect. The employment of agents of good char- 
 acter does not discharge their whole duty. It is misconduct not to do 
 this, but, in addition, they are required to exercise such supervision and 
 RiCH.CoEP. — 40 
 
626 DIBBCTOES (Ch. 5 
 
 vigilance as a discreet person would exercise over his own affairs. 
 The bank might not be liable for a single act of fraud or crime on the 
 part of an officer or agent, while it would be for a continuous course 
 of fraudulent practice, especially those so openly committed and easily 
 detected as these are shown to have been. Here were no supervision, 
 no meetings, no examination, no inquiry." This case was referred to 
 with approval in Preston v. Prather, 137 U. S. 604, 614, 11 Sup. Ct. 
 162, 34 L. Ed. 788. So in Hun v. Gary, 82 N. Y. 65, 71, 37 Am. Rep. 
 546, which involved the question of the degree of diligence to be ex- 
 ercised by directors of a savings bank, Judge Earl, speaking for the 
 whole court, said : "Few persons would be willing to deposit money in 
 savings banks, or to take stock in corporations, with the understand- 
 ing that the trustees or directors were bound only to exercise slight 
 care, such as inattentive persons would give to their own business in 
 the management of the large and important interests committed to 
 their hands. When one deposits money in a savings bank, or takes 
 stock in a corporation, thus divesting himself of the immediate control 
 of his property, he expects, and has the right to expect, that the trus- 
 tees or directors, who are chosen to take his place in the management 
 and control of his property, will exercise ordinary care and prudence 
 in the trusts committed to them, — the same degree of care and pru- 
 dence that men prompted by self-interest generally exercise in their 
 own affairs. When one voluntarily takes the position of trustee or 
 director of a corporation, good faith, exact justice, and public policy 
 unite in requiring of him such degree of care and prudence, and it 
 is a gross breach of duty — crassa neglegentia — not to bestow them." 
 Ackerman v. Halsey, 37 N. J. Eq. 356, 361 ; Halsey v. Ackerman, 38 
 N. J. Eq. 501, 510; Spciety v. Underwood, 9 Bush, 609, 621; Min- 
 ing Co. v. Ryan, 42 Minn. 196, 44 N. W. 56 ; U. S. v. Means (C. Cl) 
 42 Fed. 599, 603; Delano v. Case, 121 111. 247, 249, 12 N. E. 676, 2 
 Am. St. Rep. 81 ; Percy v. Millaudon, 3 La. 568, 591 ; Marshall v. 
 Bank, 85 Va. 676, 684, 8 S. E.,586, 2 L. R. A. 534, 17 Am. St. Rep. 84 
 and Bank v. Bosseiux (D. C.) 3 Fed. 817. * * * 
 
 These salutary doctrines, if applied to the present case, — as, in our 
 judgment, they ought to be, — require a reversal, with directions that 
 a decree be entered! adjudging Elbridge G. Spaulding, Francis E. 
 Coit's estate, and "\V. H. Johnson liable for such losses occurring dur- 
 ing the period in question as could have been avoided by the exercise 
 of reasonable diligence upon the part of said Coit, Johnson, and Spauld- 
 ing, respectively, in performing the duties appertaining to them as 
 directors. The case is one of supine, continuous negligence upon the 
 part of the three directors named, in the discharge of duties they owed 
 to the bank and to those interested in it. No usage of a national 
 bank, nor any authority to carry on its business through executive of- 
 ficers and agents, will relieve its directors from the duty imposed upon 
 them by law of diligently managing and diligently administering its 
 affairs, and actively supervising the conduct of its officers and agents. 
 
Sec. 1) POWERS AND LIABILITIES 627 
 
 There was here no diligence, no supervision, but absolute inaction in 
 respect to the affairs of the bank. 
 
 It was said at the bar that if such a rule be rigidly applied, a gentle- 
 man of propei^y and means would hesitate long before accepting the 
 position of director in a banking association. This could not be the 
 result if gentlemen of that class, becoming directors of such institu- 
 tions, would exercise anything like the care and supervision they or 
 any other prudent, discreet persons give to the management of their 
 own business. They ought not, by accepting and holding the position 
 of directors, give assurance to stockholders and depositors, whose in- 
 terests have been committed to their control, that the bank is being 
 safely and honestly managed, without doing what prudent men of busi- 
 ness recognize as essential to make such an assurance of value. A 
 banking corporation, publicly avowing that its business was to be whol- 
 ly administered by executive officers, and that the directors would have 
 nothing in fact to do with its management, would not long retain the 
 confidence of stockholders and depositors; a fact which, of itself, 
 shows that the abdication by directors of their duties and functions 
 not only tends to defeat the object for the creation of such an institu- 
 tion, but puts in peril the interests of stockholders and depositors.^* 
 
 DOVEY V. CORY. 
 (House of Lords, 1901. L. R. App. Cas. 477.) 
 
 Earl op Halsbuey, L. C.^^ My Lords, in this case the liquidator 
 of the National Bank of Wales, Limited, appeals against a judg- 
 ment of the Court of Appeal, whereby Mr. John Cory, the respond- 
 ent, was discharged from the liability which Wright, J.'s judgment 
 had imposed upon him to pay i37,000 for the benefit of the share- 
 holders of the company in respect of dividends already distributed, 
 and a further sum for interest. 
 
 Mr. John Cory was a director of the company, and it is for his 
 supposed misconduct in the management of the affairs of the com- 
 pany that this liability was imposed upon him. It is alleged and 
 proved that certain losses have been sustained by the company, and 
 the ground upon which Mr. John Cory is sought to be made liable 
 is the very short and intelligible ground that he was a party to false 
 and fraudulent statements as to the position of the company, and had 
 had a share, in causing those losses. The Court of Appeal have ac- 
 quitted him' of any knowledge of what was falsely stated, and Sir 
 Robert Reid, in opening this appeal, stated to your Lordships that ha 
 
 10 Compare Campbell v. Watson, 62 N. J. Eq. 398, 50 Atl. 120 (1901); 
 Kavanaugh v.' Commonwealth Trust Co., 64 Misc. Rep. 303, 118 N. Y. Supp. 
 758 (1906). 
 
 11 Facts sufficiently stated in tlie opinion. 
 
628 DIRECTORS (Ch. 5 
 
 did not intend, in arguing for Mr. John Cory's liability, to impute to 
 him any moral obliquity. Now, there is no doubt that there were 
 balance-sheets laid before meetings of the shareholders which, to use 
 the language of the articles of association, were not proper and which 
 did not truly report as to the state and condition of the company, 
 and did not co'mply with the requirements of the articles in question 
 in respect of the particular sum which the directors recommended as 
 dividend that it should be paid out of profits, but a greater sum was 
 paid out as dividend than would have been paid if certain things had 
 been taken into consideration, and therefore larger than should have 
 been paid. 
 
 A great part of 'the judgment, both of Wright J. and of the Court 
 of Appeal, is occupied by discussing matters which are not now 
 before your Lordships as matters in debate. It is now admitted that 
 Mr. John Cory ceased to be a director in December, 1890. 
 
 My Lords, I am very clearly of opinion that the judgment of the 
 Court of Appeal is right and ought to be affirmed; but my opinion 
 is entirely based upon the question of fact that he was guilty of no 
 breach of duty whatever, and, for reasons which I will refer to here- 
 after, I am very anxious not to deal with some reasons given for 
 their judgment by the Court of Appeal, which, in the view of the 
 facts that I take, do not arise here ; and in what I say I desire to be 
 understood as only dealing with the facts of this particular case. 
 
 Now, in the first instance, I will assume that the company has sus- 
 tained loss by the issue of fraudulent balance-sheets, by the improper 
 advance of money to the customers of the bank, and that it has al- 
 so sustained loss by the lending of money to directors without se- 
 curity. With respect to the default involving liability, if Mr. John 
 Cory was conscious of the falsehood it is not necessary to go any 
 further. Like any one else who is a party to a false statement act- 
 ed upon to the prejudice of the person to whom it is made, he would 
 be liable to the extent to which his falsehood has inflicted loss on his 
 victims. But after the admission that has been made it is unneces- 
 sary to pursue this head of inquiry. He certainly could not be ac- 
 quitted of moral obliquity if party to a fraudulent statement; but it 
 is said he has so grossly neglected his duty as a director, that though 
 he may not have knowrj the true state of the facts, he ought to have 
 known them, and his breach of duty in that respect renders him 
 liable. In order to see how far this obligation is made out, it is 
 necessary, to consider what the business of the coinpany was, and 
 what was the position of Mr. John Cory in relation to it. 
 
 My Lords, I think it is idle to talk in general terms of the duty 
 of a director to look after the concerns of the company of which he 
 is one of the managers without seeing what in the ordinary course 
 of business he ought to do or to have done. Now, there are some 
 things which, of course, must be, or at all events ought to be, ap- 
 
Sec. 1) POWERS AND LIABILITIES 629 
 
 parent to any one responsible for the conduct of a commercial busi- 
 ness, and one may apply that observation to the business of which 
 we are speaking, namely, a banking business; but I do not under- 
 stand that any one has suggested that there was neglect or default 
 by reason of the absence of some system under which, if honestly 
 carried out, the interests of the bank would have been in that respect 
 secured. 
 
 It is admitted that "the company's principal bank and its head 
 office were at Cardiff, where the directors met and the general man- 
 ager was in daily attendance. The company had also many branch 
 banks, each with its own manager. The course of business was this: 
 each branch 'manager sent weekly to the head office what is called 
 a 'weekly *state' — i. e., an account shewing how the assets and lia- 
 bilities of the branch stood, what advances or overdrafts had been 
 made or allowed, and to whom, what securities the bank held, and 
 other matters. Every quarter each branch manager made a more 
 formal return to the head office shewing the position of the branch 
 and the business done during the past quarter. It was the duty of . 
 the general manager to examine these documents and to report to the 
 board anything disclosed by them which required their attention. 
 The weekly states or quarterly returns were in the board room for 
 reference in case of need, but unless attention was called to them the 
 directors did not think it necessary to examine them. The chairman 
 of the directors was Mr. Thomas Cory, a brother of Mr. John Cory. 
 The chairman and the general manager (Mr. Collins) visited each 
 branch bank every year ; and in addition, two skilled inspectors fre- 
 quently went round and inspected the accounts and reported to the 
 general manager. The accounts of the branch banks appear, how- 
 ever, not to have been separately audited by professional accountants. 
 The auditors employed to examine the company's accounts, and to 
 certify the annual balance-sheets and accounts laid before the share- 
 holders, only saw the head office books, and the returns from the 
 branch offices certified by their respective managers to the head of- 
 fice. These certified returns formed part of the weekly states, but 
 omitted much that they contained. The minutes of the directors' 
 meetings shew that, speaking generally, they attended with reasonable 
 regularity and transacted a large amount of business. No director, 
 unless it was the chairman, attended to any details not brought before 
 the board either by the chairman or by the general manager. Mr. 
 John Cory stated in his affidavit the general course of business at 
 board meetings, and his cross-examination does not substantially dif- 
 fer from the account he there gives." See statement taken from the 
 judgment of the Court of Appeal, [1899] 2 Ch. 635, 636, 664, 665. 
 
 But it is suggested that Mr. Cory is responsible because this and 
 other portions of the system were not faithfully adhered to. And 
 indeed what is really made the test of his responsibility is that he did 
 
G30 DIRECTORS (Ch. 5 
 
 not find out what was fraudulently withheld from his knowledge. 
 So the warning letters of the auditor which were never suffered to 
 reach him are suggested as wa'rnings to him which he ought not to 
 have neglected. 
 
 Again, the insufficient striking out of bad and doubtful debts by 
 which it is alleged that the amounts paid in dividends to himself and 
 other directors as well as shareholders are by a process of reasoning 
 and calculation assumed to be payments out of capital. These things 
 are all assumed to have been done ais though done with knowledge 
 and intention while at the same time the admission is made that 
 there was no evil mind or conscious fraud. 
 
 Now I think such things, ^ if done with evil mind and intention, 
 would be fraud, and it comes back again to the proposition that the 
 responsibility must be based upon the assumption that Mr. Cory is 
 responsible because he did not find out the fraudulent knaves by 
 whom he was surrounded. One was his own brother, another was 
 the general manager; and once I arrive at^the conclusion that there 
 were those about him whose interest anti object was to deceive him, 
 I certainly do not think that the things which were designedly con- 
 cealed from him are things which ought to be relied upon as mat- 
 ters for which he was ^responsible. In the view I take, the whole of 
 the evidence which is relevant and important to the question, did Mr. 
 Cory knowingly permit the things to be done which were done, be- 
 comes to my mind entirely immaterial if one is to start with the as- 
 sumption that he knew nothing about thems 
 
 Dealing with the several heads of charge as they have been formu- 
 lated in the judgment of Wright, J., namely, negligence, breaches of 
 trust in respect of advances made contrary to the said articles of 
 association, and payment of dividends out of capital, I think each and 
 all of them may be disposed of by the proposition that Mr. Cory 
 was not himself conscious of any one of these things being done, 
 and that unless he can be made responsible for not knowing these 
 things, and, as Wright, J., put it, he is shewn to have exhibited a 
 complete neglect of the duties he had undertaken, the charges are 
 not made out. 
 
 The charge of neglect appears to rest on the assertion that Mr. 
 Cory, like the other directors, did not attend to any details of busi- 
 ness not brought before them by the general manager or the chair- 
 man, and the argument raises a serious question as to the responsibil- 
 ity of all persons holding positions like that of directors, how far 
 they are called upon to distrust and be on their guard against the pos- 
 sibility of fraud being committed by their subordinates of every de- 
 gree. It is obvious if there is such a duty it must render anything 
 like an intelligent devolution of labour impossible. Was Mr. Cory 
 to turn himself into an auditor, a managing director, a chairman, and 
 find out whether auditors, managing directors, and chairman were all 
 
Sec. 1) POWERS AND LIABILITIES 631 
 
 alike deceiving him? That the letters of the auditors were kept 
 from him is clear. That he was assured that provision had been 
 made for bad debts, and that he believed such assurances, is involved 
 . in the admission that he was guilty of no moral fraud ; so that it 
 comes to this, that he ought to have discovered a network of conspir- 
 acy and fraud by which he was surrounded, and found out that his 
 own brother and the managing director (who have since been made 
 criminally responsible for frauds connected with their respective of- 
 fices) were inducing him to make representations as to the prospects 
 of the concern and the dividends properly payable which have turned 
 ) out to be improper and false. I cannot think that it can be expected 
 of a director" that he should be watching either the inferior officers 
 of the bank or verifying the calculations of the auditors himself. 
 The business of life could not go on if people could not trust those 
 who are put into a position of trust for the express purpose of at- 
 tending to details of management. If Mr. Cory was deceived by 
 his own officers — and the theory of his being free from moral fraud 
 assumes under the circumstances that he was — there appears to me 
 to be no case against him at all. The provision made for bad debts, 
 it is well said, was inadequate; but those who assured him that it 
 was adequate were the very persons who were to attend to that part 
 of th^ business; and so of the rest. If the state and condition of 
 the bank were what was represented, then no one will say that the 
 suqi paid in dividends was excessive. 
 
 If I assume, as I do, that Mr. Cory acted upon representations 
 made to him which he believed and which came from the officers of 
 the bank, to whom he was, in my judgment, justified in giving cred- 
 it, the discussion of whether the dividends actually paid were or were 
 not properly divisible has no bearing on Mr. Cory's liability, and 1 
 am very reluctant to give any opinion upon it inasmuch as the ques- 
 tion may arise, when it may be necessary to decide it. I deprecate 
 any premature judgment. 
 
 My Lords, I am, as I have said, very reluctant to enter into a 
 question which for the reasons I have given does not arise here, 
 and into which the Court of Appeal has entered at someslength. The 
 only reason why I refer to it at all is lest by silence I should be 
 supposed to adopt a course of reasoning as to which I am not satis- 
 fied that it is correct. I doubt very much whether such questions 
 can ever be treated in the abstract at all. The mode and manner in 
 which a business is carried on, and what is usual of the reverse, may 
 have a considerable influence in determining the question what may be 
 treated as profits and what as capital. Even the distinction between 
 fixed and floating capital, which may be appropriate enough in an 
 abstract treatise like Adam Smith's "Wealth of Nations," may with 
 reference to a concrete case be quite inappropriate. 
 
 It is easy to lay down as an abstract proposition that you must not 
 
632 DIRECTORS (Ch. 5 
 
 pay dividends' out of capital; but the application of that very plain 
 . proposition may raise questions of the utmost difficulty in their solu- 
 tion. I desire as I have said, not to express any opinion, but as an 
 illustration of what difficulties may arise the example given by the 
 learned counsel of one ship being lost out of a considerable number,, 
 and the question . whether all dividends must be stopped until the 
 value of that lost ship is made good out of the further earnings of 
 the company or partnership, is one which one would have to deal 
 with. On the one hand, people put their money into a trading con- 
 cern to give them an income, and the sudden stoppage of all divi- 
 dends would send down the value of their shares to zero and possi- 
 bly involve its ruin; on the other hand, companies cannot at their 
 will and without the precautions enforced by the statute reduce their 
 capital. But what are profits and what is capital may be a difficult 
 and sometimes an almost impossible problem to solve. When the 
 time comes that these questions come before us in a concrete case we 
 must deal with them but until they do I for one decline to express 
 an opinion not called for by the particular facts before us, and I 
 am the more averse to doing so, because I foresee that many matters 
 will have to be considered by men of business which are not alto- 
 gether familiar to a Court of Law. 
 
 I move that this judgment be affirmed, and this appeal dismissed 
 with costs.^"" 
 
 ABERDEEN RY. CO. v. BLAKIE BROS. 
 (House of Lords, 1854. 1 Macqueen, 461.) 
 
 The action was by Messrs. Blakie, iron-founders in Aberdeen, 
 against the Railway Company for performance of a contract whereby 
 the Company had agreed to purchase and accept from Messrs. Blakie 
 certain iron chairs, which they were to manufacture for the Company 
 at the rate of £8. 10s. per ton. The summons concluded for implement 
 of the contract or for damages. 
 
 The principle defence was, that Mr. Thomas Blakie, the managing 
 partner of the Pursuers, was at the time of the contract a Director, 
 and indeed Chairman, of the Railway Company, and so incapacitated 
 from dealing in that character with his own firm. 
 
 The Court of Session held that the Coiripanies' Clauses Consolida- 
 tion Act (8 Vict. c. 17, §§ 88 and 89) did not nullify the contract, al- 
 though under it the contractor ceased to be a Director. They there- 
 fore decided in favour of the Pursuers. Hence this appeal.^* 
 
 12 The concurring opinions of Lords Macnaghten and Davey are omitted. 
 Accord : Prefontalne v. Grenier, L. R. [1907] App. Gas. 101. 
 la Statement of facts abridged. 
 
Sec. 1) POWERS AND LIABILITIES 633 
 
 The Lord Chancellor (Lord Cranworth)." [After consider- 
 ing the pleadings the court proceeds :] 
 
 This, therefore, brings us to the general question, whether a Di- 
 rector of a Railway Company is or is not precluded from dealing on 
 behalf of the Company with himself, or with a firm in which he is a 
 partner. 
 
 The Directors are a body to whom is (delegated the duty of manag- 
 ing the general affairs of the Company. 
 
 A corporate body can only act by agents, and it is of course the 
 duty of those agents so to act as best to promote the interests of the 
 corporation whose affairs they are conducting. Such agents have 
 duties to discharge of a fiduciary nature towards their principal. See 
 Mr. Hudson's- Case, 16 Beav. 485. And it is a rule of universal 
 application, that no one, having such duties to discharge," shall be 
 allowed to enter into engagements in which he has, or can have, a 
 personal interest conflicting, or which possibly may conflict, with the 
 interests of those whom he is bound to protect. 
 
 So strictly is the principle adhered to, that no question is allowed 
 to be raised as to the fairness or unfairness of a contract so entered 
 into. 
 
 It obviously is, or may be, impossible to demonstrate how far in 
 any particular case the terms of such a contract have been the best 
 for the interest of the cestui que trust, which it was impossible to 
 obtain. 
 
 It may sometimes happen that the terms on which a trustee has 
 dealt or attempted to deal with the estate or interests of those for 
 whom he is a trustee, have been as good as could have been obtained 
 from any other person, — they may even at the time have been better. 
 
 But still so inflexible is the rule that no inquiry on that subject is 
 permitted. The English authorities on this head are numerous and 
 uniform. 
 
 The principle was acted upon by Lord King in Keech v. Sandford, 
 Select Cases, temp. King, p. 61, and by Lord Hardwicke in Whelpdale 
 V. Cookson, 1 Ves. Sen. 8, and the whole subject was considered by 
 Lord Eldon on a great variety of occasions. It is sufficient to refer 
 from what fell from that very learned and able judge in Ex parte 
 James. 
 
 It is true that the questions have generally arisen on agreements for 
 purchases or leases of land, and not, as here, on a contract of a mer- 
 cantile character. But this can make no difference in principle. The 
 inability to contract depends riot on the subject matter of the agree- 
 ment, but on the fiduciary character of the contracting party, and I 
 cannot entertain a doubt of its being applicable to the case of a party 
 who is acting as manager of a mercantile or trading business for the 
 
 1* A part of- the opinion is omitted. 
 
634 DIRECTORS (Ch. 5 
 
 benefit of others, no less than to that of an agent or trustee employed 
 in selling or letting land. 
 
 Was then Mr. Blakie so acting in the case now before us? — if he 
 was, did he while so acting contract on behalf of those for whom he 
 was acting with himself ? 
 
 Both these questions must obviously be answered in the affirmative. 
 Mr. Blakie was not only a Director, but (if that was necessary) the 
 Chairman of the Directors. In that character it was his bounden duty 
 to make the best bargains he could for the benefit of the Company. 
 
 While he filled that character, namely, on the 6th of February, 1846, 
 he entered into a contract on behalf of the Company with his own 
 firm, for the purchase of a large quantity of iron chairs at a certain 
 stipulated price. His duty to the Company imposed on him the ob- 
 ligation o*f obtaining these chaii-s at the lowest possible price. 
 
 His personal interest would lead him in an entirely opposite direc- 
 tion, would induce him to fix the price as high as possible. This is 
 the very evil against which the rule in question is directed, and I 
 here see nothing whatever to prevent its application. 
 
 I observe that Lord Fullerton seemed to doubt whether the rule 
 would apply where the party whose act or contract is called in ques- 
 tion is only one of a body of Directors, not a sole trustee or manager. 
 
 But, with all deference, this appears to me to make no. difference. 
 It was Mr. Blakie's duty to give to his co-Directors, and through them 
 to the Company, the full benefit of all the knowledge and skill which 
 he could bring to bear on the subject. He was bound to assist them 
 in getting the articles contracted for at the cheapest possible rate. As 
 far as related to the advice he should give them, he put his interest in 
 conflict with his duty, and whether he was the sole Director or only 
 one of many, can make no difference in principle.. 
 
 The same observation applies to the fact that he was not the sole 
 person contracting with the Company; he was one of the firm of 
 Blakie Brothers, with whom the contract was made, and so inter- 
 ested in driving as hard a bargain with the Company as he could 
 induce them to make. 
 
 It cannot be contended that the rule to which I have referred is one 
 "confined to the English law, and that it does' not apply to Scotland. 
 
 It so happens that one of the leading authorities on the subject is a 
 decision of this House on an appeal from Scotland. I refer to the 
 case of York Buildings Company v. Mackenzie, decided by your liord- 
 ships in 1795. 
 
 There the respondent, Mackenzie, while he filled the office of "Com- 
 mon Agent" in the sale of the estate of the appellants, who had be- 
 come insolvent, purchased a portion of them at a judicial auction ; and 
 though he had remained in possession for above eleven years after 
 the purchase, and had entirely freed himself from all imputation of 
 fraud, yet this House held that filling as he did an office which made 
 it his duty both^ to the insolvents and their creditors to obtain the 
 
Sec. 1) POWERS AND LIABILITIES 
 
 635 
 
 highest price, he could not put himself in the position of purchaser, 
 and so make it his interest that the price paid should be as low as 
 possible. 
 
 This was a very strong case, because there had been aequiescence 
 for above eleven years ; the charges of fraud were not supported, and 
 the purchase was made at a sale by auction. Lord Eldon and Sir 
 William Grant were counsel for the respondent, and no doubt every- 
 thing was urged which their learning and experience could suggest in 
 favour of the respondent. 
 
 But this House considered the general principle one of such im- 
 portance and of such universal application, that they reversed the 
 decree of the Court of Session, and set aside the sale. 
 
 The principle, it may be added, is found in, if not adopted from, 
 the civil law. In the Digest is the following passage : "Tutor rem 
 pupilli emere non potest : idemque porrigendum est ad similia ; id est 
 ad curatores, procuratores, et qui negotia aliena gerunt." Dig. Lib. 
 xviii, t. 1, c. 34, § 7. 
 
 In truth, the doctrine rests on such obvious principles of good sense 
 that it is difficult to suppose there can be any system of law in which 
 it would not be fouhd. 
 
 It was argued that here the contract ultimately acted on, was not 
 entered into while Mr. Blaikie was Director; for that, though a con- 
 tract ha,d been entered into in February, yet that contract was after- 
 wards abandoned and new terms agreed on in the following month of 
 June. This, however, is not a true representation of the facts. The 
 contract of February was, it is true, afterwards modified by arrange- 
 ment between the parties; but this cannot vary the case. If indeed 
 the contracting parties had in June unconditionally put an end to the 
 original contract, so as to release each other from all obligation, the 
 one to purchase, and the other to sell at a stipulated price, the case 
 would have assumed a different aspect. But this was not done. The 
 contract of June was not a contract entered into between the parties 
 on the footing of there being no obligation then binding on them; 
 but an agreement to substitute one contract for another supposed to 
 be binding. Messrs. Blaikie did not say to the Directors in June: 
 We have no binding contract with you, but we are now willing to 
 contract. 
 
 What they said amounted in fact to this : We have a contract which 
 was entered into in February, but we are ready, if you desire; to mod- 
 ify it. To hold that this in any manner cured the invalidity of the 
 original contract, would be to open a wide door for enabling all per- 
 sons to make the rule in question of no force. 
 
 It was further contended that whatever may be the general prin- 
 dple applicable to questions of this nature the Legislature has in cases 
 of corporate bodies like this Company modified the rule. 
 
 The statute, i. e. the Companies' Clauses Act, it was argued, has im- 
 pliedly if not expressly recognized the validity of the contract, by en- 
 
G36 DiEBCTORa (Ch. 5 
 
 acting that its effect shall be to remove the Director from his office; 
 indicating thereby that a binding obligation would have been created, 
 which would render the longer tenure of the office of Director inex- 
 pedient; amd your Lordships yfere referred to the case of Foster v. 
 Oxford, Worcester & Wolverhampton Railway Company. That was 
 an action for breach of a contract under seal, whereby the defend- 
 ants covenanted with the plaintiffs (as in the case now before your 
 Lordships) to purchase from them a quantity of iron. The defend- 
 ants pleaded that, at the time of the contract, one of the plaintiffs was 
 a Director of their Cbnipany, and to this plea there was a general 
 demurrer. 
 
 That such a contract would in this country be good at common law 
 is certain. The rule which we have been discussing is^a mere equi- 
 table rule, and therefore all the Court of Common Pleas had to con- 
 sider was how far the contract was affected by the statute. The deci- 
 sion was that the statute left the contract untouched, and that its 
 operation was only to remove the Director from his office. The 85th 
 and 86th sections of the English statute 8th and 9th Vict. c. 16, on 
 which the Court proceeded, are in the same words as the 88th and 
 89th sections of the Scotch statute, and the Counsel at your Lordships' 
 - bar relied on this decision as being strictly applicable to the case now 
 under appeal. But there is a clear distinction between them. In Scot- 
 land there is no technical division of law and. equity. The whole 
 question, equitable as well as legal, was before the Court of Session. 
 AH that the Court of Common Pleas decided was that a contract 
 clearly good at law was not made void by an enactment that its e:^ect 
 should be to deprive one of the contracting parties of an office. This 
 decision will not help the Respondents unless they can go further and 
 show that the statute has had the effect of making valid a contract 
 which is bad on general principles, that is to say, principles enforce- 
 able here only in equity, but not recognized in our Courts of common 
 law. 
 
 I can discover no ground whatever for attributing to the statute 
 any such effect. 
 
 Its provisions, however, will still be applicable to the case of Di- 
 rectors who become interested in contracts, as representatives or oth- 
 erwise, and not by virtue of contracts made by themselves. -■ 
 
 I have therefore satisfied myself that the Court of Session came to 
 a wrong conclusion. 
 
 I therefore move your Lordships that this Interlocutor be re- 
 versed.^" 
 
 "Concurring opinion of Lord Brougham Is omitted. 
 
 See Munson v. S. G. & C. Ry. Co., 103 N. T. 58, 8 N. B. 355 (1886). 
 
Sec. 1) POWERS AND LIABILITIES 637 
 
 HOFFMAN STEAM COAL CO. v. CUMBERLAND COAL & 
 
 IRON CO. 
 
 (Court of Appeals of Maryland, 1860. 16 Md. 456, 77 Am. Dec. 311.) 
 
 Bill to declare null and void certain deeds of lands from the com- 
 plainant, the Cumberland Coal & Iron Company to 'Messrs. Sherman 
 and Dean, andl the cancellation of a contract, entered into with them 
 by the complainant for the transportation of coal, etc. over a railroad 
 belonging to the latter. The Hoffman Steam Goal Company is a cor- 
 poration organized by Messrs. Sherman and Dean, subsequent to the 
 conveyance complained of and the grantee of the lands in question from 
 Messrs. Sherman and' Dean. 
 
 Appeal from an order granting an injunction. The Hoffman Coal 
 Company alone appeals.^" 
 
 Le Grand, C. J.^^ * * * ^j^^^q gj-st matter of inquiry is, the na- 
 ture and legal effect of the transactions of Sherman with the Cumber- 
 land Coal & Iron Company. 
 
 The whole evidence incontestably establishes these facts : 
 
 1st. That Sherman was a director of the Cumberland Goal & Iron 
 Company, from the 21st of February 1855, to the 29th of May 1858. 
 
 2nd. That, on the 9th of October 1855, on motion of Sherman, a 
 committee was appointed to visit the lands of the company in Mary- 
 land, and report on the expediency of selling a portion of them, and of 
 which committee he acted as chairman, and, as the organ of which, 
 he recommended a sale, etc., etc. 
 
 3rd. That, on the 22nd of April 1856, Sherman received the deed 
 to himself and Dean for the land, and the contract relating to the 
 transportation over the railroad of complainant. 
 
 It thus appears that Sherman was a director in the Cumberland Coal 
 & Iron Company, from the incipiency of the project to dispose of a 
 part of its property down to its consummation, and so remained for 
 more than two years thereafter. He actively participated in all meas- 
 ures tending to the completion of the sale, and, of course, had full 
 knowledge o<' all the circumstances attendant on its progress. About 
 this the documentary proof allows of not a shadow of doubt. 
 
 Under this state of case the question is, whether Sherman was com- 
 petent to become a purchaser of the property of the plaintiff. 
 
 In considering the capacities of a trustee to purchase the property 
 of his cestui que trust, the authorities regard them under two classi- 
 fications: First, wherfe a trustee buys or contracts with himself, or 
 several trustees, of which he is one, or a board of trustees ; second, 
 where the dealing of the trustee is with a cestui que trust, who is ^ui 
 
 i« Statement of facts abridged. 
 
 IT A part of tbe opinion Is omitted. 
 
«)38 DIRECTORS (Ch. 5 
 
 juris and! competent to deal independently of the trustee in respect to 
 the trust' estate. 
 
 Whether the transactions of Sherman be considered, under the one 
 or the other head, is immaterial so far as this appeal is concerned, 
 for, in our judgment, in either case, they cannot be upheld if resisted. 
 The distinction between the two classes of cases consists in this : that 
 in the first, the contract is voidable absolutely at the instance of the 
 cestui que trust, without regard to its fairness ; whilst in the second, 
 although the presumptions of the law are against the contract, yet, 
 permission is given to the trustee,! to show the perfect bona fides of 
 the transaction and circumstances relieving it from the censure of the 
 law. This is a distinction recognized in most of the books, but, it is 
 not universally so. So far from it, some of the' cases insist with great 
 earnestness, that the governing principle ought to be, and is, the same 
 in bpth cases. It is not necessary we should investigate the solidity 
 o;f this last mentioned doctrine; for, whether the dealings of Sher- 
 man belong to the one or the other class, they equally fall under the 
 correction of a court of -equity. 
 
 The necessity of good faith — and that free from suspicion, as far 
 as practicable — between the principal and agent, is the main pillar of 
 support to the doctrine; the necessity of it underlies all the decisions. 
 Remembering the weakness of humanity, its liability to be seduced, 
 by self-interest, from the straight line of duty, the sages of the law 
 inculcate and enjoin, a strict observance of the divine precept: "Lead 
 us not into temptation." 
 
 In this State, as elsewhere, it is well settled that trustees cannot pur- 
 chase at their own sales, either directly or indirectly, and if they db, 
 such purchase will be set aside, on the proper and reasonable applica- 
 tion of the parties interested. Richardson v. Jones, 3 Gill & J. 184, 
 22 Am. Dec. 293. This doctrine, which is applicable to trustees, ap- 
 plies also to purchases by persons acting in any fiduciary capacity, 
 which imposes upon them the obligation of obtaining the best terms for 
 the vendor, or which has enabled them to acquire a knowledge of the 
 property. The authorities supporting it are numerous and uncontra- 
 dktory ; they will be found brought together to a considerable number 
 in the notes to the case of Fox v. Mackreth, 1 White & Tudor's Lead- 
 ing Equity Cases, 105. A director in a company holds such a relation 
 to its stockholders. The House of Lords, in the case of the Aberdeen 
 Railway Company v. Blaikie, 1 Macqueen Rep., 461, held that a con- 
 tract, entered into by a manufacturer for the supply of iron furnish- 
 ings to a railway company of which he was a director, or the chair- 
 man, at the date of the contract, was invalid, and not enforceable 
 against the company ; and Lord Cranworth, in delivering the opinion, 
 said: "A corporate body can only act by agents, and it is of course 
 the duty of those agents so to act as best to promote the interests of 
 the corporation, whose affairs they are conducting. Such an agent 
 has duties to discharge of a fiduciary character towards his principal. 
 
Sec. 1) POWERS AND LIABILITIES 639 
 
 and it is a rule of universal application, that no one having such du- 
 ties to discharge, shall be allowed to enter into engagements in which 
 he has, or can have a personal interest conflicting or which possibly 
 may conflict, with the interests of those whom he is bound) to protect. 
 So strictly is this principle adhered to, that no question is allowed to 
 be raised, as to the fairness or unfairness of a contract so entered into. 
 It obviously is, or may be, impossible to demonstrate how far, in any 
 particular case, the terms of such a contract have been the best for 
 the cestui que trust, which it was possible to obtain. It may sometimes 
 happen, that the terms on which a trustee has dealt, or attertipted to 
 deal with the estate or interests of those for whom he is a trustee, 
 have been as good as could have been obtained from any other per- 
 son ; they may even, at the time, have been better. But still so in- 
 flexible is the rule, that no inquiry on that subject is permitted. The 
 English authorities on this subject are numerous and uniform." The 
 same views are expressed in the case of Michoud v. Girod, 4 How. 
 503, 11 Iv. Ed. 1076, a case elaborately discussed by counsel and court. 
 "The rule," say the court "embraces every relation in which there 
 may arise a conflict between the duty which the vendor or purchaser 
 owes to the persons with whom he is dealing, or on whose account 
 he is acting, and his own individual interest." 
 
 These citations are sufficient to show, that the diealings of the de- 
 fendant, Sherman, with the property of the complainant, fall directly 
 within the prohibition of the rule, and, as a consequence, obnoxious to 
 disavowal. 
 
 But, it is said, however, this may be, the whole transaction was 
 fully ratified and confirmed by the complainant, which ratification and 
 confirmation relieved it from all legal infirmity. An attentive con- 
 sideration of its whole history, as detailed in the record, has not 
 brought us to this opinion. The law governing questions of ratifica- 
 tion, in cases like the present, is well settled. To render the act of 
 ratification effective and conclusive, certain considerations are neces- 
 sary. At the time of the supposed ratification, the principal must have 
 been fully aware of every material circumstance of the transaction, 
 the real value of the subject of the contract, and his act of ratification 
 must have been an independent and substantive act, founded on com- 
 plete information, and of perfect freedom of volition. And, in addi- 
 tion to all this, the cestui que trust must not only have been acquainted 
 with the facts, but apprised of the law, how those facts would be 
 dealt with if brought before a court of equity. Lewin on Trusts (Ed. 
 of 1858) p. 615. 
 
 This last requisite, it is nowhere shown in the proof, has been com- 
 plied with. But, on the contrary, it is fairly to be inferred that the 
 stockholders believed they were concluded by what had been done, and 
 this inference is particularly strengthened by the circumstance, that 
 the modification in the contract of transportation was solicited and 
 granted, not as a matter of right, but as a concession on the part of 
 
640 DIRECTORS (Ch. 5 
 
 the beneficiaries under it. In this view, it is not necessary we should 
 dwell more fully on the other facts' attending the negotiation and sale. 
 Such commentary properly belongs to the final hearing. 
 
 As to Dean, it is only necessary to observe, that it is impossible 
 to believe he was ignorant, when he became associated in the transac- 
 tion, of the fact that Sherman was a director in the Cumberland Coal 
 & Iron Company. We cannot suppose him to have become a party 
 to a contract, involving enormous sums of money and great liabilities ; 
 without some knowledge of the existence and organization of the cor- 
 poration, with which he was dealing to so great an extent. Imputing 
 to him the possession of ordinary intelligence, and judging of his 
 transactions by the rules which usually influence human conduct, when 
 taken in connexion with all the facts and circumstances surrounding 
 him, we are led to the conclusion, that he had knowledge of the re- 
 lation which Sherman bore to the Coal & Iron Company, and' is, there- 
 fore, affected with whatever of legal disability belonged to Sherman, 
 by reason of that relation. 
 
 But it is urged that however defective the title of Sherman and 
 Dean may, under the circumstances, have been, the title of the Hoff- 
 man Steam Coal Company of Allegany is, nevertheless, good and free 
 from blemish, it having been acquired bona fide and without^ notice. 
 
 In view of the facts of this case, it is immaterial to inquire, what 
 would be the principles applicable to a case in which the defendant 
 had, in point of fact, become possessed of title bona fide, and without 
 notice of the circumstances impairing that claimed by those from whom 
 it was derived. The facts of this case are too palpable to allow of 
 conjecture; and they all show that, whatever knowledge Sherman had, 
 must have been possessed by the Hoffman Steam Coal Company of 
 Allegany county. This company was incorporated under the act of 
 1852, on the 19th of August, 1858, and, on the day following, the deed 
 was madte to it in pursuance, clearly, of one entire plan. Sherman and 
 Dean becoming the owners of 4996 of the 5,000 thousand shares, 
 into which the capital stock was divided; it was, in fact, but a con- 
 trivance, whereby the same property was held by the same parties, 
 but under a different name. The testimony of Shoemaker shows, that 
 his ownership of one share was unreal ; that he never did pay for it, 
 and that his participation in the organization of the company was 
 merely to oblige other parties, towards whom he held friendly rela- 
 tions ; and, "notwithstanding the statement of Postly to the contrary, 
 it is no violent presumption, that others, whose names were used in 
 the organization of the company, occupied the same relation to it as 
 did Shoemaker. If the facts of this case were deemed insufficient to 
 establish notice, then, it is difficult, if not absolutely impossible, to 
 imagine a combination of circumstances adequate to such a result. - 
 The whole case shows, that in the early stages of the existence of the 
 appellant so far as its property and transactions were concerned, it 
 
Sec. 1) POWERS AND LIABILITIES 641 
 
 and Sherman were one and the same. In conveying to the Hoffman 
 Company he was but conveying to himself. 
 
 It appears, from the evidence, that some of the shares in the stock 
 of the Hoffman Steam Coal Company were held by other persons 
 than Sherman and Dean, prior to the sixth day of December 1858, 
 the date of the filing of the original bill, and, it is contended, that as 
 to them, they being bona fide holders without notice, the objections 
 urged against Sherman and Dean are not applicable. There is no 
 doubt that where a purchaser, with notice from a trustee, conveys 
 for valuable consideration to another person, who has no notice of the 
 trust, the estate will not be affected with the trust in the hands of the 
 second purchaser. Hill on Trustees, 516 (marginal). Biit, as to share- 
 holders so situated, there is no question presented by this appeal. It 
 is only as to the right of the appellant to ask a reversal of the order 
 of the court, that we are now called upon to decide. We need not, there- 
 fore, look into the testimony for the purpose of discovering what num- 
 ber, if any, shares of stock were held by innocent parties before the 
 filing of the bill. 
 
 We think the objections to the sufficiency of the bills of complaint 
 were properly disposed of by the judge, of the Circuit Court. The 
 charge of fraud is made specifically, and the invalidity of the deeds 
 given subsequently to that of the 22nd of April 1856, is assailed on the 
 same ground as is that. 
 
 We are of opinion there is an abundance in the case, as now made, 
 to justify the continuance of the inj-unction until final hearing, and 
 we accordingly affirm the ordters of the Circuit Court of the 25th day 
 of May 1859, refusing to dissolve the injunction, and, also, the order 
 of the third day of October 1859, overruling the motion, made by the 
 appellant, to dissolve the injunction., Orders affirmed.^* 
 
 TWIN-LICK OIL CO. OF WEST VIRGINIA v. MARBURY. 
 
 ^Supreme Court of the United States, 1875. 91 U. S. 587, 23 L. Ed. 328.) 
 
 Miller, J.^' The appellant here, complainant below, was a corpo- 
 ration organized under the laws of West Virginia, engaged in the 
 business of raising and selling petroleum. It became very much em- 
 barrassed in the early part of 1867, and borrowed from the defend- 
 ant the sum of $2,000, for which a note was given, secured by a deed 
 of trust, conveying all the property, rights, and franchises of the cor- 
 poration to William Thomas, to secure the payment of said note, with 
 the usual power of sale in default of payment. The property was 
 
 18 ConcurriBg opinion of Beeleston, J., Is omitted. 
 
 See Cumberland Coal & Iron Co. v. Sherman et al., 30 Barb. (N. Y.) 553 
 (1859). 
 
 18 A part of the opinion, dealing with laches, is omitted. 
 
 RiOH.OOKP. — il 
 
642 DIRECTORS (Ch. 5 
 
 sold under the deed of trust; was bought in by defendant's agent 
 for his benefit, and conveyed to him in the summer of the same year. 
 The defendant was, at the time of these transactions, a stockholder 
 and director in the company; and the bill in this case was filed in 
 April, 1871, four years after, to have a decree that defendant holds 
 as trustee for complainant, and for an accounting as to' the time he 
 had control of the property. It charges that defendant has abused his 
 trust relation to the company, to take advantage of its difficulties, and 
 buy in at a sacrifice its valuable property and franchises; that, con- 
 cealing his knowledge that the lease of the ground on which the com- 
 pany operated included a well, working profitably, and by promises 
 to individual shareholders that he would purchase in the property for 
 the joint benefit of the whole, he obtained an unjust advantage, and 
 in other ways violated his duty as an officer charged with a fiduciary 
 relation to the company. 
 
 As to all this, which is denied in the answer, and as to which much 
 testimony is taken, it is sufficient to say that we are satisfied that the 
 defendant loaned the money to the corporation in good faith, and 
 honestly to assist it in its business in an hour of extreme embarrass- 
 ment, and took just such security as any other man would have taken; 
 that when his monej' became due, and there was no apparent prob- 
 ability of the company paying it at any time, the property was sold 
 by the trustee, and bought in by defendant at a fair and open sale, 
 and at a reasonable price; that, in short, there was neither actual 
 fraud nor oppression ; no advantage was taken of defendant's position 
 as director, or of any matter known to him at the time of the sale, 
 affecting the value of the property, which was not as well known to 
 others interested as it was to himself ; and that the sale and purchase 
 was the only mode left to defendant to make his money. 
 
 The first question which arises in this state of the facts is, jvhether 
 defendant's purchase was absolutely void. 
 
 That a director of a joint-stock corporation occupies one of those 
 fiduciary relations where his dealings with the subject-matter of his 
 trust or agency, and with the beneficiary or party whose interest is 
 confided to his care, is viewed with jealousy by the courts, and may 
 be set aside on slight grounds, is a doctrine founded on the sound- 
 est morality, and which has received the clearest recognition in this 
 court and in others. Koehler v. Iron Co., 2 Black, 715, 17 L,. Ed. 339; 
 Drury v. Cross, > Wall. 299, 19 U Ed. 40; Railroad Co. v. Maquay, 
 25 Beav. 586; Cumberland Co. v. Sherman, 30 Barb. (N. Y.) 553; 
 Hoffman Steam Coal Co. v. Cumberland Coal & Iron .Co., 16 Md. 
 456, 77 Am. Dec. 311. The general doctrine^ however, in regard to 
 contracts of this class, is, not that they are absolutely void, but that 
 they are voidable at the election of the party whose interest has been 
 so represented by the party claiming under it. We say, this is the 
 general rule : for there may be cases where such contracts would be 
 void ab initio; as when an agent to sell buys of himself, and by his 
 
Sec. 1) POWERS AND LIABILITIES 643 
 
 power of attorney conveys to himself that which he was authorized 
 to sell. But, even here, ■ acts which amount to a ratification by the 
 principal may validate the sale. 
 
 The present case is not one of that class. While it is true that the 
 defendant, as a director of the corporation, was bound by all those 
 rules of conscientious fairness which courts of equity have imposed 
 as the guides for dealing in such cases, it cannot be maintained that 
 any ru]^ forbids one director among several from loaning money to 
 the corporation when the money is needed, and the transaction is open, 
 and otherwise free from blame. No adjudged case has gone so far as 
 this. Such a doctrine, while it would afford little protection to the 
 corporation against actual fraud or oppression, would deprive it of 
 the aid of those most interested in giving aid judiciously, and best 
 qualified to judge of the necessity of that aid, and of the extent to 
 which it may safely be given. 
 
 There are in such a transaction three distinct parties whose inter- 
 est is affected by it ; namely, the lender, the corporation, and the stock- 
 holders of the corporation. 
 
 The directors are the officers or agents of the corporation, and rep- 
 resent the interests of that abstract legal entity, and of those who own 
 the shares of its stock. One of the objects of creating a corporation 
 by law is to enable it to make contracts ; and these contracts may be • 
 made with its stockholders, as well as with others. In some classes 
 of corporations, as in mutual insurance companies, the main object 
 of the act of incorporation is to enable the company to make contracts 
 with its stockholders, or with persons who become stockholders by the 
 very act of making the contract of insurance. It is very true, that 
 as a stockholder, in making a contract of any kind with the corpora- 
 tion of which he is a member, is in some sense dealing with a creature 
 of which he is a part, and holds a common interest with the other 
 stockholders, who, with him, constitute the whole of that artificial en- 
 tity, he is properly held to a larger measure of candor and good faith 
 than if he were not a stockholder. 
 
 So, when the lender is a director, charged, with others, with the 
 control and management of the affairs of the corporation, represent- 
 ing in this regard the aggregated interest of all the stockholders, his 
 obligation, if he becomes a party to a contract with the company, to 
 candor and fair dealing, is increased in the precise degree that his 
 representative character has given him power and control derived 
 from the confidence reposed in him by the stockholders who appointed 
 him their agent If he should be a sole director, or one of a smaller 
 number vested with certain powers, this obligation would be still 
 stronger, and his acts subject to more severe scrutiny, and their va- 
 lidity determined by more rigid principles of morality, and freedom 
 from motives of selfishness. All this falls far short, however, of 
 holding that no such contract can be made whjch will be valid; and 
 
644 DIEBCTOES (Ch. 5 
 
 we entertain no doubt that the defendant in this case could make 
 a loan of money to the company ; and as we 'have already said that 
 the evidence shows it to have been an honest transaction for the ben- 
 efit of the corporation and its shareholders, both in the rate of inter- 
 est and in the security taken, we think it was valid originally, whether 
 liable to be avoided afterwards by the company or not. 
 ■ If it be conceded that the contract by which the defendant became 
 the creditor of the company was valid, we see no principle on which 
 the subsequent purchase under the deed of trust is not equally so. 
 The defendant was not here .both seller and buyer. A trustee was in- 
 terposed who made the sale, and who had the usual powers necessar> 
 to see that the sale was fairly conducted, and who in this respect was 
 the trustee of the corporation, and must be supposed to have been 
 selected by it for the exercise of this power. ' Defendant was at liber- 
 ty to bid, subject to those rules of fairness which we have already con- 
 ceded to belong to his peculiar position; for, if he could not bid, he 
 would have been deprived of the only means which his contract gave 
 him of making his debt out of th^ security on which he had loaned 
 his money. We think the sale was a fair one. The company was 
 hopelessly involved beside the debt to defendant. The well was ex- 
 hausted, to all appearance. The machinery was of little use for any 
 other purpose, and would not pay transportation. Most of the stock- 
 holders who now promote this suit refused to pay assessments on their 
 shares to aid the company. Nothing was left to the defendant but to 
 buy it in, as no one would bid the amount of his debt. * * * De- 
 cree affirmed. 
 
 SCHNITTGER v. OLD HOME CONSOL. MINING CO. et al. 
 (Supreme Court of California, 1904. 144 Cal. 603, 78 Pac. 9.) 
 
 Harrison, C. The Old Home Consolidated Mining Company is a 
 corporation organized under the laws of this state, and having a 
 board of five directors, who, at the times heirein considered, were 
 John M.cKe^ffen, George T. Emery, Walter McG.' Logan, F. Hahn, and 
 C. W. Weld. August 16, 1897, it executed to the plaintiff's assignor 
 its promissory note for $5,000, payable two years thereafter, with in-~ 
 terest at the rate of 1 per cent, a month, and at the same time, for 
 the purpose of securing its payment, executed a mortgage upon cer- 
 tain mining property within this state. The promissory note was also 
 indorsed by each of its directors. The execution of the mortgage was 
 duly authorized by a vote of more than two-thirds of its stockholders 
 at a me.eting called for that purpose. Prior to its maturity the note 
 was assigned to the plaintiff. . Interest on the note was paid by the 
 corporation up to August 16, 1901. October 8, 1901, the present 
 action was brought against the corporation and C. W. Weld and 
 Walter McG. Logan, two of the indorsers, to recover the amount 
 
Sec. 1) 
 
 POWERS AND LIABILITIES 645 
 
 of the note, and for a foreclosure of the mortgage. The action was 
 defended upon tjie ground that the money for which the promissory 
 note was given and the mortgage executed was the money of and 
 furnished by the directors Hahn and McKewen; that they are the 
 real parties in interest in the transaction, and that they entered into it 
 for the purpose of foreclosing the mortgage and obtaining the prop- 
 erty of the corporation; that in so doing they violated their duties 
 as trustees, and that for this reason the note and mortgage were void. 
 
 Upon 'the trial of the cause the court found that the corporation 
 defendant had received the $5,000 for which its promissory note and 
 mortgage had been executed, and that the transaction was thereafter 
 ratified by the vote of more than two-thirds of its stockholders ; that 
 the money loaned to it was in fact the money of the directors Hahn 
 and McKewen, and that they are the real parties in interest in the 
 note and mortgage; that, the note was made in the name of Helene 
 Mayer; that the note and mortgage were given to and in her name 
 with the purpose and object on the part of said Hahn and McKewen 
 to obtain control of the property of the corporation; that the assign- 
 ment from her to the plaintiff herein was not a bona fide transaction ; 
 that the name of the plaintiff was inserted in said assignment in order 
 to cover up the interest of said Hahn and McKewen, and to give it the 
 appearance of an actual bona fide transaction; that at the meeting 
 of the board of directors of the defendant corporation at which the 
 loan was authorized all of the directors were present, and that Hahn 
 and McKewen participated therein ; that at that meeting it was stated 
 to the board by the attorney of. Helene Mayer that the loan could be 
 obtained from her, and that the directors other than Hahn and Mc- 
 Kewen believed that the money would be furnished by her; that Hahn 
 and McKewen did not at that meeting or at any other time state from 
 whom the loan was to be obtained. The court also found that interest 
 had been paid upon the note up to August 16, 1901, and that since 
 that date no interest had been paid, and held that the plaintiff is en- 
 titled to no further interest. 
 
 Upon these findings the court held that the plaintiff was entitled to 
 judgment against the defendants for the sum of $5,000, ^without any 
 interest thereon, together with $300 as counsel fees, and $100 for 
 costs of receiver, and for a decree of foreclosure against the defend- 
 ant corporation, and sale of the mortgaged property to satisfy said 
 amount. From the judgment thus entered the defendants have ap- 
 pealed upon the judgment roll alone without any bill of exceptions. 
 
 The appellants do not question the sufficiency of the evidence to 
 sustain the findings of the court, or claim that the evidence before 
 the court would have authorizeid any further or different findings, but 
 urge in support of their appeal, that, as Hahn and McKewen were 
 directors of the corporation defendant, their relation to the corpora- 
 tion and to its stockholders was that of trustees, and that by virtue 
 
Q4 6 DIEBCTORS (Ch. 5 
 
 of that relation the transaction in which the loan was made to the 
 corporation was void. 
 
 A director of a corporation, like any other trustee, is hound to act 
 in the utmost good faith toward his beneficiary (Civ. Code, § 2228), 
 and is forbidden to take part in any transaction concerning the trust 
 in which he has an interest adverse to that of his beneficiary (Civ. 
 Code, § 2230) ; but he is not absolutely precluded from dealing di- 
 rectly with the corporation of which he is a director. Any transaction 
 between them is subject to' rigid scrutiny, and is voidable at -the in- 
 stance of the beneficiary for any violation of his duty as trustee, but 
 is not ipso facto void. "The mere fact that the creditor was a dijipctor 
 of the company does not render the transaction fraudulent. There is 
 nothing which forbids either members or directors of a corporation 
 from making contracts with it like any other individual, and when the 
 contract is made the director stands as to the contract in the relation 
 of a stranger to the corporation." Stratton v. Allen, 16 N. J. Eq. 
 229. Mr. Thompson says (3 Thompson on Corp. § 2068) : "We 
 therefore find the prevailing doctrine to be that the director of a cor- 
 poration may advance money to it, may become its creditor, may take 
 from it a mortgage or other security, and may enforce the same like 
 any other creditor; but always subject to severe scrutiny, and under 
 the obligation of acting in the utmost good faith." See, also, Taylor 
 on Corp. § 634; Twin Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L. 
 Ed. 328; Beach v. Miller, 130 111. 162, 22 N. E. 464, 17 Am. St. Rep. 
 291, and note; Santa Cruz R. R. Co. v. Spreckles, 65 Cal. 193, 3 
 Pac. 661, 802; Sutter St. R. R. Co. v. Baum, 66 Cal. 44, 4 Pac. 916; 
 Pauly V. Pauly, 107 Cal. 8, 40 Pac. 29, 48 Am. St. Rep. 98; Phillips 
 V. Sanger Lumber Co., 130 Cal. 431, 62 Pac. 749. 
 
 The question presented upon this appeal does not involve the va- 
 lidity of a transaction in which the director of a corporation has exe- 
 cuted a contract on behalf of the corporation in which he is personally 
 interested, without any previous authority of the corporation, or where 
 the resolution authorizing its execution depended upon his vote there- 
 for. The transaction was had under the authority of the corporation, 
 given at a meeting of the board of directors, at which all were present ; 
 and, although the court finds that at that meeting Hahn and McKewen 
 "were present and participated therein," it does not find that they 
 voted upon the proposition for the loan. But, even if they had voted 
 for, it, the transaction would not have been thereby vitiated, inasmuch 
 as the votes of the other three members of the board were sufficient to 
 make the resolution effective. Porter v. Lassen Co., etc., Co., 127 
 Cal. 261, 59 Pac. 563. It was not a fraud upon the corporation, or 
 upon the other members of the board, for these directors not to dis- 
 close the fact that they were the real parties who were loaning the 
 money, or that the person in whose name the transaction was had was 
 merely a figurehead. It was no violation of their duty as trustee to 
 loan the money in the name of another rather than in their own, un- 
 
Sec. 1) POWERS AND LIABILITIES 647 
 
 less it could be shown that thereby the corporation sustained some det- 
 riment, or they obtained some undue advantage over the corporation. 
 
 The allegation in the answer that Hahn and McKewen procured the 
 loan to be made in the name of Helene Mayer "for the sole purpose 
 at that time to bring suit to foreclose said mortgage, and finally ac- 
 quire the title to the mining property of said corporation, in viola- 
 tion of their trust," is not found by the court to be a fact, and it 
 must be assumed that there was no evidence tending to establish that ■ 
 allegation. The finding that the money was loaned and the note and 
 mortgage given in her name "with the purpose and object on the part 
 of said Hahn and McKewen, and both of them, of obtaining control 
 of the property of said corporation," does not entitle the corporation 
 to avoid its agreement and retain the money. Whatever nfay have 
 been the underlying motive for entertaining this purpose, the corpo- 
 ration was in no respect injured thereby. They could obtain control 
 of the mortgaged property only through a sale at public auction under 
 a decree of foreclosure. If they should become the purchasers at such 
 sale, the property would still be subject to redemption either by the 
 corporation, or, in its behalf, by any of its stockholders. Wright v. 
 Oroville M. Co., 40 Cal. 20. The transaction was not concealed^ from 
 the stockholders. The resolution authorizing it was spread upon the 
 records of the corporation. Hahn and McKewen, as well as the other 
 directors, indorsed the note, and the note and mortgage were recorded 
 in the county recorder's office, and thereafter the stockholders ratified 
 the transaction. 
 
 The judgment should be affirmed. 
 
 The notice of appeal also purports to include an appeal from an 
 order of the court made after the judgment ordering a sale of the 
 property mortgaged, but, as the record contains no bill of exceptions 
 in which this action of the court is presented, the order appealed from 
 should also be affirmed. 
 
 Cooper and Gray, CC, concurred. 
 
 For the reasons given in the foregoing opinion, the judgment and 
 order appealed from are affirmed: Shaw, Angellotti, and Van 
 Dyke, JJ. 
 
 BURLAND V. EARLE. 
 
 (Privy Council, 1902. L. R. App. Cas. 83.) 
 
 The judgment of their Lordships was delivered by Lord Davey.** 
 * * * The next matter to which the appeal relates is the sale to the 
 company by Burland of the lithographic plant, etc., of the Burland 
 Lithographic Company. It appears that that company had been carry- 
 ing on business in Montreal, and, having become insolvent, was wound 
 
 20 statement of facts omitted. A part of the opinipn only is given. 
 
648 DIRECTORS (Ch. 5 
 
 up under the provisions of the Winding-up Act. Burland was inter- 
 ested in the company as a stockholder and a creditor. At the public, sale 
 by the liquidator pn May 10/1892, Burland bid for and purchased all 
 the assets of the company in four lots. The price paid by him for lot 
 1 was $21,564, and he shortly afterwards sold the property comprised 
 in that lot to the appellant company for $60,000. The property, to- 
 gether with some other plant purchased from another company, was 
 subsequently sold to a company formed for the purpose at an en- 
 hanced price payable in shares, which were distributed as a bonus 
 amongst the shareholders of the company.' ' 
 
 In these circumstances Burland had been ordered to pay to the 
 company the sum of $38,436, being the amount of the profit realized 
 by him on the resale. Both Courts have held that the resale was by 
 Burland's advice and influence, and was made without disclosing to 
 the company the price at which he had purchased. It was also held 
 in the Court of Appeal that Burland had bought the property with 
 the intention and for the purpose of reselling it to the company. It 
 appears from the evidence of the respondent Earle, who was then the 
 next largest shareholder to Burland and a director, that he was present 
 at the sale and knew all about the transaction, and from the evi- 
 dence of Gillelan that he knew what Burland had paid "very shortly 
 after." There was evidence of two witnesses, Reinhold and Monk, 
 that the price to the company was not unfair. But their Lordships do 
 not think it necessary to pursue these topics, because they are of 
 opinion that the relief prayed by the amended statement of claim, and 
 granted in the Courts below, is altogether misconceived. There is no 
 evidence whatever of any commission or mandate to Burland to pur- 
 chase on behalf of the company, or that he was in any sense a trus- 
 tee for the company of the purchased property. It may be that he 
 had an intention in his own mind to resell it to the company ; but it 
 was an intention which he was at liberty to carry out or abandon at 
 his own will. It may be also that a person of a more refined self- 
 respect and n more generous regard for the company of which he was 
 president would have been disposed to give the company the benefit of 
 his purchase. But their Lordships have not to decide questions of that 
 character. The sole question is whether he was under any legal obli- 
 gation to do so. Let it be assumed that the company or the dis- 
 sentient shareholders might by appropriate proceedings have at one 
 time obtained a decree for rescission of the contract. But that is not 
 the relief which they ask or could in the circumstances obtain in this 
 suit. The case seems to their Lordships to be exactly that^put by Lord 
 Cairns in Erlanger v. New Sombrero Phosphate Co. (1878) 3 App. 
 Cas. 1218. In that case the bill prayed for rescission, or alternately 
 for the profit made by Erlanger and his syndicate on the- resale to 
 the company. Lord Cairns said, 3 App. Cas. at page 1235 : "It may > 
 well be that the prevailing idea in their mind was not to retain or 
 work the island, but- to sell it again at an increase of price, and very 
 
Sec. 1) POWBKSAND LIABILITIES 649 
 
 possibly to promote or get up a company to purchase the island from 
 them; but they were, as it seems to me, after their purchase was 
 made, perfectly free to do with the island whatever they liked, to use 
 it as they liked, and to sell it how and to whom and for what price 
 they liked. The part of the case of the respondents which as an al- 
 ternative sought tb make the appellants account for the profit which 
 they made on the resale of the property to the respondents, on an 
 allegation that the appellants acted in a fiduciary position at the time 
 they made the contract of August 30, 1871, is not, as I think, capable 
 of being supported; and this, as I understand, was the view of all 
 the judges in the Courts below." 
 
 Reference may also be made to the judgments of Pearson, J., and 
 Cotton and Fry, L. JJ., in In re Cape Breton Co., 26 Ch. D. 221, and 
 29 Ch. D. 795. To rescind the sale is one thing, but to force on the 
 vendor a contract to sell at another price is a totally different thing. 
 
 :): 4e :): 21 
 
 In re NORTH AUSTRALIAN TERRITORY CO. 
 
 ARCHER'S CASE. 
 (Supreme Court of Judicature, 1892. L. R. 1 Ch. Dlv. 322.) 
 
 Summons by the ofiScial liquidator of the North Australian Terri- 
 tory Company against Archer, asking that it might be declared that 
 Archer was guilty of a breach of trust in relation to the company 
 entering into an agreement with its promoter for the purchase at par 
 by the promoter from Archer, and at his request of the fifty quali- 
 fication shares, and that Archer be ordered to pay to the liquidators the 
 £500. so received from the promoter. 
 
 This is an appeal from an order of Mr. Justice Kekewich, deciding, 
 in substance, that a gentleman of the name of Archer ought not to be 
 ordered to pay to the company the sum of iSOO. in respect of money 
 which he is alleged to have received, and to be accountable to the 
 company for, under the lOth section of the Companies (Winding-up) 
 Act, 1890." 
 
 BowEN, Iv. J."' * * * I add some observations on the question 
 that. has been argued before us out of respect to the learned Judge' 
 below from whom we are differing. ' 
 
 Mr. Archer, the gentleman whose ^:onduct we are considering, was 
 induced by a promoter of the company, who was acting in the interest 
 of the vendor— induced, that is to say, by a person who stood in a 
 fiduciary relation to the company— to become a director. In order to 
 induce him to become a director, the promoter, Mr. Murray Smith, 
 
 21 Contra: Parker v. Nlckerson, 112 Mass. 195 (1873). 
 
 22 Statement of facts abridged. 
 28 Part of the opinion is omitted. 
 
630 DIRECTORS (Ch. 5 
 
 gave him a promise, afterwards fulfilled, to indemnify him against 
 loss in respect of his shares, a director having to qualify himself by 
 taking shares in the company. The Shares, when they were bought 
 by Mr. Archer, were valuable. In the course of time their value fell 
 to nothing; the indemnity was performed, and Mr. Archer emerged 
 from the transaction, not indeed with a profit in one sense, "but with- 
 out loss which otherwise he would have sustained. 
 
 Now, what is the true course of reasoning, on the subject? As it 
 seems to me it is this : that promise of an indemnity, or that indem- 
 nity, as I may call it, was a valuable consideration; it was not money, 
 but it was money's worth, the measure and exact value of which de- 
 pended upon the future ; and events which have since happened shew 
 that the measure and value of that indemnity was £500. The right 
 to the value of that indemnity, whatever might become its value in 
 the future, belonged to the company. The gentlema!n who was about 
 to become their agent, their director, received it in order to induce 
 him to become a director, and he received it from, a person standing 
 in a fiduciary relation to the company. What is the law applicable 
 to this case? It is clear and simple. The company ought to have 
 been told of the existence of the bargain in order that they might elect 
 whether they would let their director keep the advantage or not. If 
 its existence was not disclosed, then, inasmuch, as the indemnity be- 
 came fruitful, the money which arose from it became money for 
 which the director who had kept it secret was bound to account to 
 the company. That seems to me to be the law; and, differing as I 
 do from the leafned judge whose judgment is under consideration, 
 I cannot see that it can be rightly said there was no loss to the com- 
 pany. It is perfectly true that, in one sense, there was no loss ; but 
 in another sense there was. The loss was that the company did not 
 get that benefit from the indemnity which ought to have been^ theirs, 
 but that somebody else got it. They did not have accounted for to 
 them the value of this indemnity as soon as it became valuable. They 
 ought to have had it accounted for, and the non-accounting for it 
 was, in my opinion, a misfeasance. 
 
 That conclusion I take to be good in law ; but is it not good sense 
 as well as good law? A promoter who is acting in the interest of a 
 vendor is forming a company. The company is formed with articles 
 of association under which a director is to be qualified by holding and 
 paying for fifty shares. What is the object of such a clause? 
 Amongst others, that the company shall have the security of this, that 
 the director has a stake in the concern while he is acting as director, 
 and that he shall not be simply in the position of a person who can, 
 without loss to hiniself, pjay ducks and drakes with the company's 
 property. It is so far a shield to the company. Yet the promoter who 
 is promoting the company indemnifies the director, against any loss on 
 those shares ; that is to say, he destroys by such an agreement an im- 
 portant element which guarantees the company for the vigilance of 
 
Seel) POWERS AND LIABILITIES 651 
 
 their director. The director of a company is placed upon the board 
 in order that he may, among other duties, as it appears to me, watch 
 the proceedings of the promoter who is acting as agent for the ven- 
 dor. Is it lawful, is it tolerable, either in equity or in law, that a 
 promoter should be at liberty to have a director in his pay ? Certainly 
 not. But he is really having the director in his pay if he is |;uaran- 
 teeing the director against loss in respect of shares which tlje direc- 
 tor is bound to hold in order to qualify himself under the articles. 
 As I said during the argument, the director is really a watch-dog, 
 and the watch-dog has no right, without the knowledge of his master, 
 to take a sop from a possible wolf. 
 
 The case seems to me to be clear; but the point was taken by Mr. 
 Butcher, with his usual ingenuity, that there was no evidence here of 
 non-disclosure to the directors of the receipt of this promise of in- 
 demnity. That is a point which would have deserved attention if the 
 case were being tried in the first instance, because the onus of proving 
 misfeasance rests with those who desire to prove it. But in this case 
 we have the facts illuminated by the light of the letters which have 
 passed between Mr. Archer and Mr-. Murray Smith. In giving the 
 promise of indemnity Mr. Murray Smith did so upon the terms that 
 there should be no disclosure of what had been done. Mr. Archer, 
 who took the indemnity on those terms, must, as an honest man, be 
 taken to have carried them out. He does not' repudiate the terms 
 of Mr. Smith; he accepts the indemnity and acts upon it. There 
 is not a trace in the correspondence of any disclosure to the Board; 
 and when Mr. Archer goes into the box and is examined, he does not 
 suggest to his counsel, nor does his counsel suggest to him, that there 
 ever was a disclosure of this indemnity — a transaction which, it was 
 agreed in the first instance, should be buried in silence. It would be 
 puerile, in my opinion, to allow a case clear in law against Mr. Archer 
 to be defeated upon the ground that there is here no evidence of non- 
 disclosure. Having 'regard to the conduct of the case at the' trial 
 and to the correspondence, there is evidence of non-disclosure enough 
 to justify any Court in feeling perfectly safe in acting upon it. I, at 
 all events, .have no hesitation in deciding that point against Mr. 
 Archer, and I think, for the reasons that have been given by my 
 learned Brother, that the case of Bentinck v. Fenn, 12 App. Cas. 652, 
 has no application. I, therefore, agree that the appeal must be al- 
 lowed." 
 
 2* The concurring opinions of Lord Justices Lindley and Fry are omitted. 
 See Pikes Peak Co. v. Pfuntner, 158 Mleh. 412, 123 N. W. 19 (1910). 
 
652 DIRECTORS (Ch. 5 
 
 SECTION 2.— REMEDIES AGAINST DIRECTORS 
 
 BAYLESS V. ORNE et al. 
 (Superior Court of Chancery of Mississippi, 1843. Freem. Cli. 161.) 
 
 The Chancellor (Buckner)." This bill is filed by the com- 
 plainants as three of the stockholders of the Hernando Railroad & 
 Banking Company, against Orne and Bybee, as a president and cash- 
 ier, and against Hallett, Brown and others, as a portion of the stock- 
 holders in said company. The bill charges that the defendants, Orne 
 and Bybee, are incompetent and unfit persons to have charge of the 
 affairs of said company, and charges them with various acts of abuse 
 and delinquency in their official conduct, in misapplying the funds of 
 the company . and otherwise mismanaging its affairs. The bill prays 
 for an injunction, which was grahted, restraining the said Orne as 
 president, and the said Bybee as cashier, from the exercise of their , 
 official functions as officers of said company. It also- prays for the 
 appointment of commissioners to take charge of the effects of the 
 bank, of whatsoever character, and that the affairs of said bank "be 
 •finally settled up and closed — that an account be taken between the 
 stockholders, etc." * * * The case was submitted by agreement 
 upon the bill and answers of two of the defendants, and upon ex- 
 ceptions thereto as upon a demurrer of the other defendants. * * * 
 
 I entertain no doubt that this court has jurisdiction at the instance 
 of stockholders to call the directors of a monied or other joint stock 
 corporation to account for any abuse of trust or waste or misappli- 
 cation of the funds of the company. But in such case the jurisdic- 
 tion is over the directors personally, and not over the corporation. 
 Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec. 212. 
 
 The directors of an aggregate corf)oration, who are charged with 
 the control and direction of its affairs, become the agents and trustees 
 of the corporation, and in their trust character may be lield account- 
 able in this court, at the instance of the stockholders, for dereliction 
 of duty or fraudulent breach of trust. Verplanck v. Mercantile In- 
 surance Company, 1 Edw. Ch. (N.Y.) 84. 
 
 In such case it is the trust relation which gives jurisdiction to the 
 court; and chancellor Kent said, to his plain and ordinary head of 
 equity the jurisdiction of chancery over corporations ought to be con- 
 fined. Attorney General v. Utica Insurance Company, 2 Johns. Ch. 
 (N. Y.) 388. But such relation does not exist between the stock- 
 holders and the corporation itself, nor 'between different sets of 
 
 2B Facts suflaclently stated in the opinion, a part of which is omitted. 
 
Sec. 2) EEMEDIES AGAINST DIEECTOES 653 
 
 stockholders of the same company. The relation of trustees and 
 cestuis que trust requires separate and distinct persons to constitute 
 it, whereas the stockholders of an incorporated company are one and 
 the same. Their individuality is merged in the artificial persdn of 
 which they are component parts. Verplanck v. Mercantile Ins. Co., 
 1 Edw. Ch. (N. Y.) 84. 
 
 In the case now before me the bill is filed by 'the complainants, as 
 stockholders, against Orne and Bybee as president and, cashier, en- 
 joining them from the exercise of their official functions, and for an 
 account of alleged misuse of monies, and against the other defend- 
 ants as stockholders of the Hernando Rail Road and Banking Com- 
 pany. So far as the defendants Brown and others are concerned, as 
 joint stockholders with the complainants, it is obvious, from what has 
 been already said that there is no ground for , entertaining the bill; 
 for as between them the trust relation which gives jurisdiction does 
 not exist. This disposes of the case as to the defendants, who are 
 made such' upon no other ground than that of their being stock- 
 holders in said company. 
 
 The next inquiry is, can the suit be sustained by the complainants, 
 as stockholders, against thesdefendants Orne and Bybee, for the pur- 
 pose of compelling an account for monies used or misapplied by them 
 as president and cashier 'of said company. I think it may be laid 
 down as a general rule, that suits brought for the purpose of com- 
 pelling the ministerial officers of a private corporation to account 
 for breach of official duty or misapplication of corporate fi;nds, 
 should be brought in the name of the corporation. Such officers are 
 directly amenable to the directors of the company, who are charged 
 with the protection and management of its affairs, and who direct its 
 corporate action. Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. 
 Dec. 212. This rule might be dispensed with if it were alleged and 
 made to appear that the directory of the corporation connived at the 
 delinquency or misconduct of its officers,, or refused to bring them 
 to account by suit. In such case, the stockholders as the real and ul- 
 timate parties in interest would be permitted to bring suit directly in 
 their own names. (lb.) I think, then, that the objection for want of 
 proper parties is well taken. So far as the case depends upon the 
 injunction granted against the aforesaid officers of the company, I am 
 unable to perceive aitything in it which warrants the jurisdiction 
 which was assumed for that purpose. 
 
 Every corporation has within itself the power of guarding against 
 any apprehended or threatened abuse of its ministerial officers. The 
 right of amoving an officer of a private corporation, without any 
 express provision for that purpose, is considered an inseparable in- 
 cident of corporate powers. Ang. & Ames on Corp. 58. And such 
 right of amotion may be exercised when gross delinquency or other 
 misconduct of officers indicates the necessity and propriety of such 
 
654 DIRECTORS ' (Ch. 5 
 
 action. This right of removal for breach of duty applies as well 
 to officers whose office is of the essence of the corporation, (such as 
 the directors of a corporate company,) as to those who are mere ex- 
 ecutive agents. But a material distinction exists between the first 
 class of officers and those whose duties are merely ministerial, such 
 as the cashier and other executive officers of a bank, who are usually 
 appointed durante tene placito, and may be removed without any oth- 
 er cause than that of its being the pleasure of those who appointed 
 them. In such case it is said the right to amove is, of course, inci- 
 dent to the right of appointment, Ang. & Ames, Cofp. 247, and I take 
 it for granted that such officers may be amoved for cause, even where 
 the tenure of office is fixed for a definite period. 
 
 It may be said that the bill in this case does not ask a removal of 
 the officers; but I conceive an injunction indefinitely suspending an 
 officer, is in its character so near akin to an absolute removal, as to 
 defy any sound distinction between the two modes of accomplish- 
 ing the same thing. The right of amoving the officers of a private 
 corporation belongs exclusively to the corporation itself; this court 
 has no jurisdiction or power for such purpose. In the case of At- 
 torney General v. Earl of Clarendon, 17 Ves. 491, it wa^ distinctly 
 laid down by the master of the rolls, that chancery had no jurisdic- 
 tion with regard to the amotion of corporators of any description. 
 If this be true, it would seem to follow that this court cannot by its' 
 injunction suspend a corporator or officer from the exercise of their 
 corporate or official privileges, and thus do indirectly that which may 
 not be done directly. It may be again repeated that a court of equity 
 has no general jurisdiction over corporations or corporators, except 
 so far as the transaction may assume the character of a trust, and 
 place the parties in the relation of trustees and cestuis que trust. 
 
 The principles of this case are new in this state, and I have re- 
 gretted that I have been compelled to throw these views together 
 somewhat hastily, rather as furnishing some of the reasons which 
 have influenced my mind, than as a thorough and finished view of the 
 subject. 
 
 The demurrer must be sustained, the injunction dissolved and the 
 bill dismissed."* 
 
 DYKMAN V. KEENEY et al. 
 (Court of Appeals of New York, 1897. 154 N. T. 483, 48 N. E. 894.) 
 
 Gray, J."'' This action is brought by the receiver of the Com- 
 mercial Bank against certain persons, who either were formerly di- 
 
 26 Accord: Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508 (1860) ; Robertson v. 
 Bullions, 11 N. Y. 243 (1854). 
 
 See Imperial, etc., Hotel Co. v. Hampson, L. R. 25 Oh. D. (1882). 
 
 27 Facts stated In the opinion, a part of which is omitted. 
 
Sec. 2) EEMEDIES AGAINST DIBECTOES 655 
 
 rectors of the bank, or who are the personal representatives of de- 
 ceased directors. The complaint alleges that these directors were 
 such between April, 1886, and August, 1893 ; some during all of that 
 period of time, and others during varying periods of time between 
 those dates. It charges the defendants, during the several periods 
 while they were in office, with conduct which was negligent, waste- 
 ful, and in violation of the statute in many respects, and the result 
 of which was to effect the ruin of the bank. * * * 
 
 One of the defendants has demurred to the complaint, upon the 
 grounds that there was an improper joinder of causes of action, and 
 that the complaint does not state facts sufficient to constitute a cause 
 of action. The demurrer was overruled at the special term, and, 
 upqn appeal to the appellate division, there was an affirmance of the 
 special term judgment. An application for leave to appeal was grant- 
 ed by the appellate division, and two questions of law were certi-' 
 tied for review by this court, viz. whether the complaint in this action 
 sets forth a cause of action in equity ; and, second, whether there has 
 been an improper joinder of causes of action in the complaint herein. 
 
 I think that the present appeal is controlled by our disposition of 
 the case of O'Brien v. Fitzgerald, ISO N. Y. 572, 44 N. E. 1126. 
 That, like this, was an action brought by receivers of a bank to re- 
 cover against its directors for the negligent performance of their du- 
 ties, and the demurrer to the complaint raised a similar question to 
 that now before us. When that case first came before this court 
 (143 N. Y. 377, 38 N. E. 371) we all concurred in the opinion that 
 the demurrer should be sustained. Judge Finch, who delivered the 
 opinion of this court, observed that, on its face and in its form, the 
 action was one at law, to recover damages for negligence, and that 
 no facts were stated which indicated a need of the intervention of a 
 court of equity. He pointed out several respects in which the com- 
 plaint was wanting in proper averments to make out an equitable 
 cause of action, and he concluded that, while the formal demand of 
 relief is not decisive of the legal or equitable character of the action, 
 yet the demand for a money judgment therein was consistent with a 
 perfect cause of action in the complaint to recover damages at 
 law. Hs * * 
 
 It is very clear, therefore, that we are committed by our decision 
 in O'Brien v. Fitzgerald to the view that where the action is to hold 
 persons responsible to the ^receiver of a corporation for a neglectful 
 and wrongful performance of their duties as directors, and to re- 
 cover the losses sustained by the corporation, the action is one at 
 law, and that something more is required to warrant the interven- 
 tion of a court of equity than mere allegations showing that the acts 
 complained of are numerous and complicated; that they are difficult 
 of ascertainment, without a discovery with respect to them; and that 
 a multiplicity of actions would be necessary if all the directors who 
 
656 DIRECTOES (Ch. 5 
 
 were in office during the whole or a part of the time within which 
 the acts complained of were committed could not be associated as 
 defendants in one action. \ 
 
 While some observations oif Judge Finch, when the case of O'Brien 
 V. Fitzgerald was first before us, have been pointed out, as indicating 
 that such an action might lie in equity, they were made with respect 
 to the case appearing by the complaint before him, and it is very clear 
 from his opinion that he entertained a grave doubt as, to whether an 
 equitable action could be at all supported upon the facts pleaded. 
 His expression as to that was as follows : "My doubt .about that is 
 very grave, although I. leave the question open." Again the doubt 
 appears, when, after remarking that some cases seem to allow the 
 remedy pi a suit in equity by a corporation against its directors to 
 recover losses, he says: "Granting that, and granting also what I 
 iam not now ready to admit as the law of this state that the facts 
 pleaded in the present case are sufficient to support the action as an 
 equitable one, we are left by the pleader in a doubt which can only 
 be solved by recurring to the demand for relief." The question waa 
 therefore left an open one, and was met upon the second demur- 
 rer to the amended complaint in O'Brien v. Fitzgerald. It is again 
 here in even a stronger form. , 
 
 That an action in equity will lie by a stockholder against the direc- 
 tors of his corporation for violations of their duties or breaches of 
 the trust committed to them, is well settled and as recently asserted 
 as in the case of Brinckerhoff v. Bostwick, 88 N. Y. 52 ; Id., 105 N. 
 Y. 567, 12 N. E. 58. But, as it was observed by Judge Finch in the 
 opinion referred to, there is a wide and vital difference between such 
 a case and one where the action is by the corporation against its de- 
 linquent directors. Quite lately the case of Bank v. Beard, 151 N. Y. 
 638, 45 N. E. 1131, was disposed of by us upon the authority of, 
 O'Brien v. Fitzgerald. That case was very similar to the present 
 one, with respect to the acts complained of on the part of the trus- 
 tees of the savings bank, and presented a continuous system of mis- 
 management. The general term had there held that the action would 
 lie in equity in order to prevent a multiplicity of actions. In the 
 caseof Higgins v. Tefft, 4 App. Div. 62, 38 N. Y. Supp. 716, the 
 opinion of this court in O'Brien v. Fitzgerald was followed, and sim- 
 ilar conclusions reached, as were affirmed by us upon the second ap- 
 peal in that case. 
 
 In such actions as these the defendants, as directors, are not pro- 
 ceeded against, strictly, as trustees, but as agents acting for a princi- 
 pal, and for any damage, caused by their neglect and violation of duty 
 the remedy at law is adequate. The difficulties of proving the wrong- 
 ful and neglectful acts of directors, the extent to which each has par- 
 ticipated in the acts of mismanagement alleged, and the proportion 
 or degree of their liability to respond in damages, are no greater in 
 
Sec. 2) BEMEDIES AGAINST DIEEOTOES 657 
 
 a court of law than they would be in a court of equity. They are 
 chargeable, not with the sums which have been lost, but only for 
 the direct injury to the bank which resulted from the neglect of their 
 duties. Directors of a corporation are not vested with the title to 
 the property of the corporation, and therefore, as trustees, liable to 
 account in equity for the disposition which they may have made of 
 it. They are agents of the corporation, upon whom duties devolve 
 of management and of care, for a failure in the performance of 
 which they will be held liable at law for the damages which their 
 corporation may be shown to have sustained. 
 
 Discovery is one of the elements of the right to resort to equity, 
 but it would not properly consist in the ascertainment by the com- 
 plainant of the several or proportionate liabilities of the defendants 
 to the corporation for damages sustained by their neglect in the per- 
 formance of the duties devolved upon them. It had reference, usu- 
 ally, to where an accounting wa!s involved and a statement required 
 of items of debit and credit, or of specific property with which the 
 defendant was chargeable. It was the resort of a defendant, when 
 sued at law, in aid of his defense, which, without a discovery, might 
 fail of establishment. No accounting is necessary in such an ac- 
 tion as this; for, if all the facts be true, there would be no sum 
 of money as to which these defendants, or either of them would be 
 held liable to account. 
 
 Without further discussion, the conclusion I have reached is that, 
 although the pleader has endeavored, in the framing of his com- 
 plaint, to give to it an equitable form, he has failed to do more than 
 to show, and to enlarge upon, the difficulties of the plaintiff's sit- 
 uation and of making the proof to' sustain a recovery. It only sets 
 forth a cause of action for damages for the negligent and wrongful 
 acts of these directors, where equitable relief is unnecessary, and 
 where the defendants ought not to be deprived of their constitutional 
 right of a trial by jury. If there is any hardship in these views, and 
 if it is urged (which I do not admit j that the difficulty of holding de- 
 linquent directors responsible for their wrongful and negligent acts 
 is added to and should require a different rule, the remedy should 
 be sought for in legislation which would pefmit that form of action, 
 which the law of the state does not now, in my judgment, per- 
 mit. * * * 
 
 The judgments appealed from should be reversed, and the demur- 
 rer of the appellant is sustained, with costs. All concur, except 
 Martin, J., not voting. Judgments reversed." 
 
 28 Contra: Emerson v. Galther, 103 Md. 564, 64 Atl. 26, 8 L. R. A. (N. S.) 
 738, 7 Ann. Cas. 1114 (1906); Booth v. Robinson, 55 Md. 419 (1880). 
 
 Ri'OH.CoBP. — 42 
 
658 LEGISLATIVE CONTROL ' (Ch. 6 
 
 CHAPTER VI 
 LEGISLATIVE CONTRCL 
 
 SECTION 1.— POWER OF THE LEGISLAJ'URE TO REPEAL 
 THE CORPORATE CHARTER 
 
 GREENWOOD v. UNION FREIGHT R. CO. 
 
 (Supreme Court of the United States, 1881. 105 U. S. 13, 26 L. Ed. 961.) 
 
 MitLERj J.^ The appellant, Greenwood, a citizen of the State of 
 New York, brought his bill of complaint against the Union Freight 
 Railroad Company, a corporation established by the laws of Massachu- 
 setts; against the Marginal Freight Railroad Company, likewise a 
 Massachusetts corporation ; against the city of Boston, its mayor and 
 aldermen by name ; and q,gainst the directors of the Marginal Freight 
 Railroad Company, — all citizens of Massachusetts. 
 
 The Union Freight Railroad Company demurred to the bill, and the 
 demurrer was sustained and the bill dismissed It is this decree which 
 we are called on to review on appeal taken by complainant. 
 
 The case made by the bill is that the Marginal Freight Railroad Com- 
 pany, which we shall hereafter call the Marginal Company, was or- 
 ganized under an act of the legislature of Massachusetts of the date 
 of April 26, 1867, to build and operate a railroad through various 
 streets in the city of Boston, "with all the privileges andl subject to 
 all the duties, restrictions, and liabilities set forth in the general laws, 
 which now are or may hereafter be in force, relating to street-railway 
 corporations, so far as they are applicable." The right of way of 
 this company for part of its route lay over the line of a railway pre- 
 viously granted to the Commercial Freight Railroad Company, and the 
 Marginal Company, by virtue of a provision in its charter, purchased 
 and paid the Commercial Company for the joint use of its track, so far 
 as it ran through the same streets. Afterwards, on May 6, 1872, the 
 legislature of Massachusetts incorporated, by an act of that date, the 
 Union Freight Railroad Company, which, by virtue of its charter and 
 the authority of the board! of aldermen of Boston, was authorized to 
 run its track through the same streets and over the same ground cov- 
 ered by the track of the Marginal Company, and to take possession of 
 the track of that and any other street-railroad company, on payment 
 
 1 A part of the opinion is omitted. 
 
Sec. 1) POWER TO REPEAL CHAETEB 659 
 
 " of compensation. This latter act also repealed the charter of the Mar- 
 ginal Company. * * * 
 
 The bill avers that the Union Freight 'Railroad Company has been 
 organized, and is about to proceed in such a manner under this act 
 that the Marginal Company will be utterly destroyed!, and its several 
 contracts, franchises, rights, easements, and properties will be im- 
 paired and destroyed, and the stock of complainant in said company 
 will be destroyed and made valueless, and he will sustain irreparable 
 damage and mischief. * * * The prayer of the bill is for an in- 
 junction against all the defendants, to prevent these acts so injurious 
 to the rights of the Marginal Freight Railroad Company. 
 
 [The Court, after considering the right of the plaintiff to maintain 
 this suit, proceeds:] 
 
 As none of the defendants are charged with a purpose to exercise 
 any power or to perform any acts not authorized by the terms of the 
 act of May 6, 1872, the remaining question to be decided is, whether 
 the features of that act to which complainant objects in his bill are 
 beyond the power of the legislature of Massachusetts, or are forbidden 
 by anything in the Constitution of the United States. 
 
 These exercises of power in the statute complained of are divisible 
 into two: 
 
 1. The repeal of the charter of the Marginal Company. 
 
 2. The authority vested in the Union Company to take its track for 
 the use of the latter company. 
 
 It is the argument of counsel, pressed upon us with much vigor, 
 that the two taken together constitute a transfer of the property of 
 the one corporation to the other, and with it all the corporate franchis- 
 es, rights, and powers belonging, to the elder corporation. 
 
 We are not insensible to the force of the argument as thus stated ; 
 and we think it must be conceded that, according to the unvarying de- 
 cisions of this court, the unconditional repeal of the charter of the 
 Marginal Company is void under the Constitution of the United States, 
 as impairing the obligation of the cbntract made by the acceptance of 
 the charter between the corporators of that company and the State, 
 unless it is made valid by that provision of the General Statutes of 
 Massachusetts, called the reservation clause, concerning acts of in- 
 corporation ; or unless it falls within some enactment covered by that 
 part of its own charter which makes it "subject to all the duties, re- 
 strictions, and liabilities set forth in the general laws, which now are 
 or may hereafter be in force, relating to street-railway corporations, 
 so far as they may be applicable." 
 
 The first of these reservations of legislative power over corpora- 
 tions is found in section 41 of chap. 68 of the General Statutes of 
 Massachusetts, in the following language: "Every act of incorpora- 
 tion passed after the eleventh day of March, in the year one thousand 
 eight hundred and thirty-one, shall be subject to amendment, altera- 
 tion, or repeal, at the pleasure of the legislature." 
 
660 LEGISLATIVE CONTROL (Ch. 6 
 
 It would be difScult to supply language more comprehensive or 
 expressive than this. 
 
 Such an act may be amended ; that is, it may be changed by addi- 
 tions to its terms or by qualifications of the same. It may be altered 
 by the same power, and it may be repealed. What is it may be re- 
 pealed ? It is the act of incorporation. It is this organic law on which . 
 the corporate existence of the company depends which may be re- 
 pealed, so that it shall cease to be a law ; or the legislature may adopt 
 the milder course of amending the law in matters which need amend- 
 ment, or altering it when it needs substantial change. All this may 
 be done at the pleasure of the legislature. That body need give no 
 reason for its action in the matter. The validity of such action does 
 not depend on the necessity for it, or on the soundness of the reasons 
 which prompted it. This expression, "the pleasure of the legislature," 
 is significant, and is not found in many of the similar statutes in other 
 States. 
 
 This statute having been the settled law of Massachusetts, and_ 
 representing her. policy on an important subject for nearly fifty years 
 before the incorporation of the Marginal Company, we cannot doubt 
 the authority of the legislature of Massachusetts to repeal that charter. 
 Nor is this seriously questioned by counsel for appellant ; and it may, 
 therefore, be assumed that if the repealing clause of the act of May 
 6, 1872, stood alone, its validity must be conceded. Crease v. Bab- 
 cock, 23 Pick. (Mass.) 334, 34 Am. Dec. 61 ; Erie & N. E. Railroad 
 Co. V. Casey, 26 Pa. 287 ; Pennsylvania College Cases, 13 Wall. 190, 
 20 L. Ed. 550 ; 2 Kent, Com. 306. 
 
 It is argued, however, that the act is to be examined as a whole, 
 and that as the earlier sections of the statute bestow upon the Union 
 Company the right to seize the track and other property of the Mar- 
 ginal Company, this repealing clause is inserted merely- to aid in the 
 general purpose of transferring a valuable property and its appurtenant 
 franchise from one corporation to another. 
 
 Whether this is sufficient to invalidate that branch or feature of 
 the statute may depend somewhat upon the effect of the repealing 
 clause upon the rights of the Marginal Company, as well as upon other 
 matters ; but we do not doubt the validity of the repealing clause of 
 that act, whatever may have been the reasons which influenced the 
 legislature to enact it, for the exercise of this power is by express 
 terms declared to be at the pleasure of the legislature. 
 
 The forty-first section of chapter 68, as we have cited it, had a 
 proviso, as it was originally enacted, "that no act of incorporation shall 
 be repealed, unless for some violation of its charter or other default, 
 when such charter shall contain an express provision limiting the dura- 
 tion of the same." So that charters subject to the pleasure of the leg- 
 islative will were only those of perpetual duration. This proviso was, 
 hpwever, either repe,aled by express enactment or intentionally left out 
 in subsequent revisions of the statutes, for it is not found in that of 
 
Sec. 1) POWER TO EEPEAL CHARTBB 
 
 661 
 
 1860, known as the General Statutes of Massachusetts, nor in that 
 of the present year, just published, called the Public Statutes of Mas- 
 sachusetts. 
 
 What is the effect of the repeal of the charter of a corporation like 
 this ? 
 
 One obvious effect of the repeal of a statute is that it no longer ex- 
 ists. Its life is at an end. Whatever force the law may give to trans- 
 actions into which the corporation entered and which were authorized 
 by the charter while in force, it can originate no new transactions de- 
 pendent on the power conferred by the charter. If tl?e corporation 
 be a bank, with power to lend money and to issue circulating i^iotes, 
 it can make no new loan nor issue any new notes designed to circu- 
 late as money. 
 
 If the essence of the grant of the charter be to operate a railroad, 
 and to use the streets of the city for that purpose, it can no longer 
 so use the streets of the city, and no longer exercise the franchise of 
 running a railroad in the city. Pn short, whatever power is dependlent 
 solely upon the grant of the charter, and which could not be exercised 
 by unincorporated private persons under the general laws of the State, 
 is abrogated by the repeal of the law which granted these special rights. 
 
 Personal and real property acquired by the corporation during its' 
 lawful existence, rights of contract, or choses in action so acquired, 
 and which do not in their nature depend upon the general powers con- 
 ferred by the charter, are not destroyed by such a repeal; and the 
 courts may, if the legislature dbes not provide some special remedy, 
 enforce such rights by the means within their power. The rights of 
 the shareholders of such a corporation, to their interest in its prop- 
 erty, are not annihilated by such a repeal, and there must remain in , 
 ■the courts the power to protect those rights. 
 
 And while we are conscious that no definition, at once compre- 
 hensive and satisfactory, can be here laid down of what those rights 
 and powers are that remain to the stockholders and the creditors of 
 such a corporation after the act of repeal, we are of opinion that the 
 foregoing observations are sufficient for the case before us. 
 
 A short reference to the origin of this reservation of the right to 
 repeal charters of corporations may be of service in enabling us to 
 decide upon its office and effect when called into operation by the leg- 
 islative exercise of the power. 
 
 As early as 1806, in the case of Wales v. Stetson, 2 Mass. 143, 3 
 Am. Dec. 39, the Supreme Court of that State made the declaration 
 "that the rights legally vested in all corporations cannot be controlled 
 or destroyed by any subsequent statute, unless a power for that pur- 
 pose be reserved to the legislature in the act of incorporation." In 
 Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. Ed. 
 629, decided in 1819, this court announced principles on the subject 
 of the protection that the charters of private corporations were entitled 
 to claim, under the clause of the Federal Constitution against impair- 
 
662 LEGISLATIVE CONTROIi (Ch. 6 
 
 ing the obligation of contracts, which, though received at the time 
 with some dissatisfaction, have never been' overruled in this court. 
 The opinion in that case carried! the protection of the constitutional 
 provision somewhat in advance of what had been decided in Fletcher 
 V. Peck, 6 Cranch, 87, 3 L,. Ed. 162, and the preceding cases, and held 
 that it applied not only to contracts between individuals, andl to. grants 
 of property made by the State to individuals or to corporations, but 
 that the rights and franchises conferred upon private as distinguished 
 from public corporations by the legislative acts under which their ex- 
 istence was authorized, and the right to exercise the functions con- 
 ferred upon them by the statute, were, when accepted by the corpora- 
 tors, contracts which the State could not impair. 
 
 It became obvious at once that many acts of incorporation which 
 had been passed as laws of a public character, partaking in no gen- 
 eral sense of a bargain between the States and the corporations which 
 they created, but which yet conferred private rights, were no longer 
 subject to amendment, alteration, or repeal, except by the consent of 
 the corporate body, and that the general control which the legislatures 
 creating such bodies had previously supposed they had the right to 
 exercise, no longer existed. It was, no doubt, with a view to suggest a 
 method by which the State legislatures could retain in a large meas- 
 ure this important power, without violating the provision of the Fed- 
 eral Constitution, that Mr. Justice Story, in his concurring opinion in 
 the Dartmouth College case, suggested that when the legislature was 
 enacting a charter for a corporation, a provision in the statute reserv- 
 ing to the legislature the right to amend or repeal it must be held to be 
 a part of the contract itself, and the subsequent exercise of the right 
 would be in accordance with the contract, and could not, therefore, 
 impair its obligation. And he cites with approval the observations 
 we have already quoted from the case of Wales v. Stetson, 2 JVlass! 
 143, 3 Am. Dec. '39. 
 
 It would seem that the States were not slow to avail themselves 
 of this suggestion, for while we have not time to examine their legis- 
 lation for the result, we have in one of the cases cited to us as to the 
 effect of a repeal (McLaren v. Pennington, 1 Paige |N. Y.] 102), in 
 which the legislature of New Jersey, when chartering a bank with a 
 capital of $400,000 in 1824, declared by its seventeenth section that it 
 should be lawful for the legislature at any time to alter, amend, and 
 repeal the same. And Kent, 2 Com.. 307, speaking of what is proper 
 in such a clause, cites as an example a charter by the New York leg- 
 islature, of the date of Feb. 25, 1822.^ How long the legislature of 
 Massachusetts continued to rely on a special reservation of this power 
 in each charter as it was granted, it is unnecessary to inquire, for in 
 1831 it enacted as a law of general application, that all charters of 
 corporations thereafter granted should be subject to amendment, alter- 
 ation, and repeal at the pleasure of the legislature, and such has been 
 the law ever since. 
 
Sec. 1) POWEE TO BEPEAL CHARTER 663 
 
 This history of the reservation clause in acts of incorporation sup- 
 ports our proposition,' that whatever right, franchise, or power in 
 the corporation depends for its existence upon the g;-antii}g clauses 
 of the charter, is lost by its repeal. 
 
 This view is sustained by the decisions of this court and of other 
 courts on the same question. Pennsylvania College Cases, supra ; Tom- 
 linson v. Jessup, 15 Wall. 454, 21 L. Ed. 204; Railroad Company v. 
 Maine, 96 U. S. 499, 24 h. Ed. 836 ; Sinking Fund Cases, 99 U. S. 
 /OO, 25 L. Ed. 496; Railroad Company v. Georgia, 98 U. S. 359, 25 
 L. Ed. 185 ; McLaren v. Pennington, supra ; Erie & N. E. Railroad 
 v. Casey, supra ; Miners' Bank v. United States, 1 G. Greene (Iowa) 
 553; 2 Kent, Com. 306, 307. 
 
 It results from this view of the subject that whatever right remained 
 in the Marginal Company to its rolling-stock, its horses, its harness; 
 its stables, the debts dkie to it, and the funds on hand, if any, it no 
 longer had the right to run its cars through the streets, or any of the 
 streets, of Boston. It no longer had the right to cumber these streets 
 with a railroad! track which it could not use, for these belonged by law 
 to no person of right, and were vested in defendants only by virtue 
 of the repealed charter. 
 
 It was, therefore, in the power of the Massachusetts legislature to 
 grant to another corporation, as it did, the authority to operate a 
 street railroad through the same streets and over the same ground 
 previously occupied by the Marginal Company. Whether this action 
 was oppressive or unjust in view of the public good, or whether the 
 legislature was governed by sufficient reason in thus repealing the 
 charter of one company andl in chartering another at the same time 
 to perform as part of its functions the duties required of the first, is 
 not, as we have seen, a judicial question in this case. It may well be 
 supposed, if answer were required to the complainant's bill, that it 
 was made to appear that the Marginal Company had shown its in- 
 capacity to fulfil the objects for which it was created, and that another 
 corporation, embracing larger area, connecting „with more freight de- 
 pots and wharves, and with more capital, could better serve the public 
 in the matter for which both franchises were given. 
 
 That in creating the later corporation, whose object was to fulfil a 
 public use, it could authorize it to take such property of other corpora- 
 tions as might be necessary to that use, as well as that of individuals, 
 can hardly admit of question. Sect. 4 of the act gives this power to 
 the Union Company with reference to the tracks of all street railroads 
 in the city, and provides that in the event of an inability to agree with 
 the owners of these tracks as to compensation, that shall be determined 
 in accordance with the provisions of general laws previously enacted 
 on that subject. To this there can be no valid legal objection. The 
 property of corporations, even including their franchises, when that 
 is necessary, may be taken for public lise under the power of eminent 
 
664 LEGISLATIVE CONTROL (Ch. 6 
 
 domain, on making due compensation. West River Bridge Co. v. 
 Dix, 6 How. 507, 12 L. Ed. 535 ; Central Bridge Corporation v. City 
 of Lowell, 4 Gray (Mass.) 474; Boston Water-Power Co. v. Boston 
 & Worcester Railroad Corporation, 23 Pick. ,(Mass.) 360 ; Richmond, 
 &c. Railroad Co. v. Louisa Railroad Co., 13 How. 71, 14 L. Ed. 55. > 
 
 But it is the sixth section of the act which is most bitterly assailed as 
 an invasion of appellant's rights. It declares that the Union Freight 
 Company, within four months from the passage of the act, shall take 
 the tracks, or any part thereof, of the Marginal Freight Company, 
 subject to the laws relating to taking land by railroad companies and 
 the compensation therefor. If, as the language seems to imply the 
 new company is bound to take so much of the track of the old one as 
 it shall need or elect to use, and pay for it within four months, it is 
 a requirement favorable to this company in preference to others, and 
 with especial reference to the fact that its power to use the track for 
 railroad purposes has ceased. If it is merely a permission to take 
 the track on payment of compensation, it is still a favor to the Marg- 
 inal Company to require this to be done within four months. 
 
 A suggestion is made that the Marginal Company acquired by pur- 
 chase, for $15,000, the right to the use of the track of the Commercial 
 Freight Company, and that this property stands on different grounds 
 from the remainder of its track. 
 
 We are unable to discover any difference in principle. If the new 
 company takes this track, or takes the Marginal Company'6 right to 
 use it, we suppose the latter will be entitled to compensation for its 
 interest in it, as for other property taken for a public use. 
 
 In fact, in regard to the whole question discussed as to the mode 
 of making compensation, and its sufi&ciency to indemnify the Marginal 
 Company for what is taken, it seems to us to be premature ; for when- 
 ever the attempt to adjust the compensation is made, the question of 
 its sufficiency and its compliance with the law on that subject may 
 arise, and it can then be decided. 
 
 Nor are we satisfied of the soundness of the argument of counsel 
 that the clause in the Marginal Company's charter, which declares it 
 to be subject to the restrictions and liabilities contained in the general 
 laws relating to street railways, withdraws* it from the operation of 
 the forty-first section of chapter 68 of the General Laws of the State. 
 The latter clause declares all acts of incorporation subject to its pro- 
 visions. This subjection is not impaired by the fact that a particular 
 corporation is made by its charter subject to other laws also of a gen- 
 eral character. 
 
 We are of opinion that the question of the repeal of the charter of 
 the Marginal Company is to be decided by the construction of the 
 general statute, whose effect and history we have discussed. 
 
Sec. 2) POWER TO ALTEE OB AMEND CHARTER 665 
 
 These considerations require the affirmance of tlie decree of the' 
 Circuit Court sustaining the demurrer to appellant's bill. Decree af- 
 firmed.* 
 
 SECTION 2.— POWER OF THE LEGISLATURE TO ALTER 
 OR AMEND THE CORPORATE CHARTER 
 
 COMMONWEALTH v. ESSEX CO. 
 (Supreme Judicial Court of Massachusetts, 1859. 13 Gray, 239.) 
 
 Shaw, C. J.* The Essex Company, the defendants in this case, 
 were indicted in the court of common pleas for a violation of the St. 
 of 1856, c. 289, requiring that company, before the 1st of February, 
 1857, to make, and forever thereafter maintain, in or around their 
 dam in Lawrence, a suitable and sufficient fishway for the usual and 
 unobstructed passage of fish, under a penalty of not less than $100 
 nor more than $500 a day for the time they should neglect to make 
 and maintain such fishway after said 1st of February. This act was 
 passed on the 6th of June, 1856. 
 
 The company, having failed to provide any new fishway after the 
 passage of this act, were indicted for such neglect, and upon trial 
 several g^rounds of defence were taken, wMich are set forth in the 
 bill of exceptions. As the several questions substantially resolve 
 themselves into one general consideration of the rights of this com- 
 pany, instead of considering the admissions and rejections of the 
 evidence, and the particular rulings of the court thereon, in detail, 
 it may be more convenient to state the real ground of controversy. 
 
 The Essex Company were created a corporation by St. 1845, c. 
 163, for the purpose of constructing a dam across the Merrimac 
 River, and constructing one or more locks and canals in connection 
 with said dam'; for the purpose of creating a water-power to use, or 
 sell, or lease to other persons or corporations to use, for manufactur- 
 ing and mechanical purposes ; and for constructing a main" canal, for 
 navigation or transports. By section 5, the said corporation was re- 
 quired to make and maintain, in the dam so built by them across said 
 river, suitable and reasonable fishways, to be kept open at such seasons 
 as are necessary and usual for the passage of fish. By section 7, they 
 
 2 Accord: Wilmington City Ry. Co. v. Wilmington & B. S. Ry. Co., 8 Del. 
 Ch. 468, 46 Atl. 12 (1900); Wilmington City Ry. Co. v. People's Ry. Co. (Del. 
 Ch.) 47 Atl. 245 (1900) ; Wagner Institute v. Philadelphia, 132 Pa. 612, 19 Atl. 
 297, 19 Am. St. Rep. 618 (1890) ; Citizens' Savings Bank v. Owepsboro, 173 U. 
 S. 636, 19 Sup. Ct. 530, 571, 43 L. Ed. 840 (1899). 
 
 Compare People v. O'BWen, 111 N. Y. 1, 18 N. E. 692, 2 L. R. A. 255, 7 Am. 
 St. Rep. 684 (1888); Erie & North East Ry. Co. v. Casey, 26 Pa. 287 (18.56); 
 Yeaton v. Bank of Old Dominion, 62 Va. 593 (1872). 
 
 3 Facts sufficiently stated in the opinion, which is in part omitted. 
 
666 LEGISLATIVE CONTROL (Ch. 6 
 
 were required to build such fishways in the mode pre3cribed by the 
 county commissioners, s-fter due notice and a public hearing of all 
 parties interested, with power to the commissioners to -examine and 
 determine whether the fishways have been built according to such 
 mode prescribed, and, if, so, to accept the same. 
 
 By an additional act passed in May, 1848, the company were au- 
 thorized to increase their capital stock, but upon an express condi- 
 tion. St. 1848, c. 295. This condition was, "that said company shall 
 be liable for all damages which shall be occasioned to the owners 
 of fish rights existing above the said company's dam, by the stopping 
 or impeding the passage of fish up and down the Merrimac River 
 by the said dam." An adequate and constitutional mode -of assessing 
 these damages was provided by the act, which of course would not 
 be resorted to when such damages should be agreed upon by the own- 
 ers of such fish rights and the company, and paid. This act con- 
 tained a further proviso, that nothing contained in the 7th section of 
 the act of incorporation — the section requiring the company to make 
 and maintain fishways — should be deemed to be a bar to such claim 
 for damages. A second section of this act of 1848 provided that 
 the act should take effect whenever the stockholders, at a legal meet- 
 ing, should accept the provisions of the preceding section and file an 
 authenticated copy of their vote of acceptance in the office of the 
 secretary of the Commonwealth. It is conceded that such a vote, ac- 
 cepting this aQt, was duly passed, and an authenticated copy of it 
 filed with the secretary of the Commonwealth soon after the passage 
 of the act. The construction of this statute and the acts done under 
 it by the defendant company will be considered hereafter. 
 
 By the above statutes the obligation of the company in preserving 
 the fishway on the Merrimac River, as a consideration and condition 
 of the franchise granted them, was fixed and determined, until the 
 passage of the act eight years after, St. 1856, c. 289, by which the 
 company were required to make and forever thereafter maintain in 
 or around their dam in Lawrence, a suitable and sufficient fishway 
 tor the usual and unobstructed passage of fish, during the months of 
 April, May, June, September, and October, in every year. 
 
 This is the statute upon which this indictment is found, and the 
 question is, whether the company are liable for the heavy penalties 
 therein declared, for neglect of the duty thus prescribed. 
 
 [The court, after determining that the Legislature has power to 
 regulate the public right of fisheries, proceeds :] 
 
 / To preclude all question as to the right of the Legislature thus to 
 impose a new obligation upon the company ; it was provided that the 
 act (St. 1848, c. 295) should not take effect until it should be in terms 
 accepted at a meeting of stocldiolders called for that purpose, and 
 authentic evidence thereof filed in the office of the secretary of the 
 Commonwealth for the information and benefit of all persons con- 
 
Sec. 8) POWER TO ALTER OB AMEND CHARTER 667 
 
 cerned, as well those individual riparian owners who might claim their 
 rights under it, as those persons who might afterwards acquire or 
 hold shares in the stock of said company. This appears to us to be 
 the direct meaning and construction of this enactment. It was not a 
 new provision, requiring the better performance of a pre-existing duty; 
 it was substituting a new species of indemnity to parties, where none 
 m any form existed, before, either by an action of tort at common law, 
 or by a claim for damages under any statute. 
 
 • Under these circumstances, it appears to us, especially after it has 
 been acceded to by the company, and after they have paid a large 
 sum of money in pursuance of it, that this enactment has in it all 
 the elements of a contract executed by one party and binding on the 
 other. j 
 
 5. The remaining question is whether the act of 1856 is justified 
 by the provision in Rev. Sts. c. 44, § 23, that acts of incorpora- 
 tion afterwards passed should be subject to amendment, alteration, or 
 repeal? That provision is, that every act of incorporation shall at 
 all times be subject to amendtnent, alteration, or repeal, at the pleas- 
 ure of the Legislature ; provided, that no such act shall be repealed, 
 unless for violation of its charter or other default, when such char- 
 ter shall contain an express provision limiting the duration of the 
 same. 
 
 The power of repeal is limited and qualified, and was so consid- 
 ered in the case of Crease v. Babcock, 23 Pick. 334, 34 Am. Dec. 61. 
 
 Does this come within the power of the Legislature to amend or 
 alter? It seems to us that this power must have some limit, though 
 it is difficult to define it. Suppose an authority has been given by 
 law to a railroad corporation to purchase a lot of land for purposes 
 connected with its business; and they purchased such lot from a 
 third party; could the Legislature prohibit the company from hold- 
 ing it? If so, in whom should it vest; or could the Legislature di- 
 rect it to revest in the grantor, or escheat to the public ; or how other- 
 wise? 
 
 Suppose a manufacturing company incorporated is authorized to 
 erect a dam and flow a tract of meadow, and the owners claim gross 
 damages, which are assessed and paid ; can the Legislature afterwards 
 alter the act of incorporation so as to give to such meadowowners 
 future annual damages ? Perhaps from these extreme cases — for ex- 
 treme cases are allowable to test a legal principle — the rule to be ex- 
 tracted in this ; that where, undter power in a charter, rights have been 
 acquired and become vested, no amendment or alteration of the char- 
 ter can take away the property or rights which have become vested 
 under a legitimate exercise of the powers granted. 
 
 It appears to us, in the present case, that after the government, 
 acting in behalf of the public, and also of all those riparian owners 
 whose fish-rights would be damnified by the defendant's dam, with 
 the fishway as it was, entered into a solemn and formal contract with 
 
668 LEGISLATIVE CONTROL C^h. 6 
 
 the defendant company to exempt them from the obligation of mak- 
 ing and maintaining a suitable and sufficient fishway, if such were 
 practicable, by indemnifying all parties damnified in their several 
 fisheries, and the defendant company had 'executed their part of the 
 contract by the payment of a large sum of money, it was not com- 
 petent for the Legislature, without any change of circumstances, un- 
 der their authority to amend and alter the charter of the company, 
 to pass a law requiring them to do the acts from which by the terms 
 of such contract, they had been exempted, and therefore that the said 
 act was null and void, and this indictment founded) upon it cannot be 
 maintained. Exceptions sustained. 
 
 THE RAILROAD TAX CASES. 
 
 COUNTY OF SAN MATEO v. SOUTHERN PAC. R. CO. 
 
 (Circuit Court of the United States, 1882. 13 Fed. 722.) 
 
 This was an action commenced by the county of San Mateo, Cal- 
 ifornia, under the provisions of the statutes of the state for the re- 
 covery of state and county taxes claimed to be due from the defendl- 
 ant to the plaintiff for the fiscal year, 1881-82. 
 
 In addition to^a general denial the defendant sets up, among others, 
 as special matters of defense (1) that an unlawful discrimination 
 was made in assessing the tax, since no deduction was allowed for 
 mortgage indebtedness which is allowed in the assessment of an in- 
 dividual's property; (2) that no opportunity was given for a hearing 
 respecting the assessment; that in consequence the defendant was de- 
 nied I the equal pi-otection of the laws guaranteed by the fourteenth 
 amendment of the federal constitution. 
 
 The assessment was made pursuant to the provisions of the Consti- 
 tution of California, adopted in 1879. The suit was commenced in 
 the state court and removed to this court.* 
 
 FiEi/D, J." [The court, after discussing the taxing powers of the 
 states, proceeds:] 
 
 It remains to consider the last position of counsel, that the provi- 
 sions of article 13 of the constitution of the state, as to the taxation 
 of railroad property, are to be treated as conditions upon the con- 
 tinued existence of railroad corporations. On the hearing, this posi- 
 tion seemed to us to possess some force, but on careful considera- 
 tion its supposed force is dissipated. The argument is that on the 
 original creation of the corporation the state might have imposed any 
 conditions whatever as to the manner and the amount in which its 
 property should be taxed; that under the reserved power of amend- 
 
 * Statement of facts substituted. ' 
 
 5 A part of the opinion is omitted. 
 
Sec. 3) POWER TO ALTER OE AMENB CHARTER G69 
 
 ment of the law creating the corporation, the state could at any time 
 atterwards impose such a condition; that the new constitution, in 
 contmumg the defendant and other railroad corporations in existence, 
 and at the same time authorizing the taxation of their property upon 
 a valuation different from that at which the property of individuals 
 IS assessed, imposed that condition upon them, and that the subsequent 
 exercise of its franchises by the defendant implies an assent to such 
 - condition. 
 
 There are two answers to this argument. In the first place, article 
 13 is not intended to make any change in the powers or rights of cor- 
 porations under the laws of the state. It treats entirely of revenue 
 and taxation, and of the rules which shall govern the assessment of 
 the property of individuals, and of railroad and other quasi public cor- 
 porations. It is in another article that provisions are made for the 
 control of railroad corporations; and the duties and responsibilities 
 of corporations generally, and the power of the state over them, are 
 declared. 
 
 In the second place, the state, in the creation of corporations, or 
 in amending their charters, or rather in passihg or amending general 
 laws under which corporations may be formed and altered, possesses 
 no power to withdraw them when created, or by amendment, from the 
 guaranties of the federal constitution. It cannot impose the condi- 
 tion that they shall not resort to the courts of law for the redress 
 of injuries or the protection of its property; that they shall make no 
 complaint if their goods are plundered and their premises invaded ; 
 that they shall ask no indemnity if their lands be seized for public 
 use, or be taken without due process of law, or that they shall submit 
 without objection to unequal and oppressive burdens arbitrarily im- 
 posed upon them ; that, in other words, over them and their property 
 the state may exercise unlimited and irresponsible power. Whatever 
 the state may do, even with the creations of its own will, it must do in 
 subordination to the inhibitions of the federal constitution. It may 
 confer, by its general laws, upon corporatioiis certain capacities of 
 doing business, and of having perpetual succession in their members. 
 It 'may make its grant in these respects revocable at pleasure ; , it 
 may make the grant subject to modifications and impose conditions 
 upon its use, and reserve the right to change these at will. But what- 
 ever property the corporations acquire in the exercise of the capac- 
 ities conferred, they hold under the same guaranties which protect the 
 property of individuals from spoliation. It cannot be taken for pub- 
 lic use without compensation. It cannot be taken without due pro- 
 cess of law, nor can it be subjected to burdens different from those 
 laid upon the property of individuals undter like circumstances. 
 
 The state grants to railroad corporations formed under its laws 
 a franchise, and over it retains control, and may withdraw or^ mod- 
 ify it. By the reservation clause it retains power only over that which 
 it grants; it does not grant the rails on the road; it does not grant 
 
670 LEGISLATIVE CONTROL (Ch. 6 
 
 the depots along-side of it; it does not grant the cars on the track, 
 nor the engines which move them, and over them it can exercise no 
 power except such as may be exercised through its control over the 
 franchise, and such as may be exercised with reference to all prop- 
 erty used by carriers for the public. The reservation of power over 
 the franchise, — that is, over that which is granted, — makes its grant 
 a conditional or revocable contract, whose obligation is not impaired 
 by its revocation or change. The supreme court established, in the 
 Dartmouth College Case, that the charter of a private corporation is a 
 
 ' contract between the corporators and the state, and that it was, there- 
 fore, within the prohibition of the federal constitution against the 
 impairment of contracts. To avoid this result the states have gener- 
 ally inserted clauses in their constitutions reserving' a right to re- 
 peal, alter, or amend charters granted by their legislatures, or to 
 repeal, alter, or amend the general laws -under which corporations 
 are allowed to be formed. The reservation relates only to the con- 
 tract of incorporation, which, without such reservation, would be irre- 
 pealable. It removes the impediment to legislation touching the con- 
 tract. It places the corporation in the same position it would have 
 occupied had the supreme court held that charters are not contracts, 
 and that laws repealing or altering them did not impair the obligation 
 of contracts. The property of the corporation, acquired in the ex- 
 ercise of its faculties, is held independently of such reserved power, 
 and the state can only exercise over it the control which it exercises 
 over the property of individuals engaged in similar business. 
 
 The case of Detroit v. Detroit & Howell Plank-Road .Co., in the 
 supreme court of Michigan, is in point on both of the propositions 
 stated. An act of the legislature of the state, amending the charter 
 of the company, required! it to remove without the limits of the city 
 of Detroit a toll-gate on its road, -then within the limits. The ef- 
 fect of the act was to take from the company about two and a half 
 miles of its road, upon which it collected tolls. The act under which 
 the company was incorporated reserved a power in the legislature 
 to repeal and amend it at any time, and the question was whether, 
 under this reservation, the legislature could require the removal of 
 the toll-gate out of the city ; and it was held) that it could not. Or- 
 dinarily a law, requiring the removal of a toll-gate from one place 
 to another on a road would be a mere police regulation, but here it 
 was something more; it deprived the company of compensation for 
 the use of its road within the city limits; that is, for a large part 
 of the travel over it. The court, speaking through Mr. Justice Cooley, 
 observed that there were cases in which amendments to charters hav- 
 ing some resemblance to this had been sustained, and cited several 
 
 .which involved a mere police regulation, such as requiring a rail- 
 road company to build a station-house and stop its trains at a cer- 
 tain locality; to permit and provide for the crossing of its track; 
 
Sec. 2) POWER TO ALTER OB AMEND OHAETBE (571 
 
 arid to unite with others in a common passenger station for trains 
 entermg a city. But [the court added] there is no well-considered 
 case m which it has been held that a legislature, under its power to 
 amend a charter, might take from a corporation any of its substantial 
 property or property rights. In some cases the power has been denied 
 where theimterest involved seemed insignificant. The case of Albany 
 etc. R Co. V. Brownell, 24 N. Y. 345, is an illustration. It was there 
 decided that although the legislature might require railroad com- 
 panies to suffer highways to cross their tracks, they could not sub- 
 ject the lands which the companies had acquired for other purposes to 
 the same burden, except in connection with the provision for compen- 
 sation. The dfecision was in accord with that in Com v Essex Co 
 13 Gray (Mass.) 239, 253, in which, while the power to alter, amend,' 
 or repeal the corporate franchises was sustained, it was at the same 
 time declared that 'no amendment or alteration of the charter can take 
 away the property or rights which have become vested under a legiti- 
 mate exercise of the powers granted.' The same doctrine is clearly 
 asserted m Railroad Co. v. Maine, 96 U. S. 499, 24 L. Ed. B36, and 
 is assumed) to be unquestionable in the several opinions delivered in 
 the Sinking-fund Cases, 99 U. S. 700, 25 L. Ed. 496. But for the 
 provision of the constitution of the United States which forbids im- 
 pairing the obligation of contracts, the power to amend and repeal 
 corporate charters would be ample without being expressly reserved. 
 The reservation of the right leaves the state where any sovereignty 
 would be, if unrestrained by express constitutional limitations and with 
 the powers which it would then possess. It might, therefore, do what 
 it wouldl be admissible for any constitutional government to do when 
 not thus restrained, but it could riot do what would be inconsistent 
 with constitutional principles. And it cannot be necessary at this day 
 to enter upon a discussion in denial of the right of the government to 
 take from either individuals or corporations any property which they 
 may rightfully have acquired. In the most arbitrary times such an 
 act was recognized as pure tyranny, and it has been forbidden in Eng- 
 land ever since Magna Charta, and in this country always. It is im- 
 material in what way the property was lawfully acquired, — whether 
 by labor in the ordinary avocations of life, by gift or descent, or by 
 making profitable use of a franchise granted by the state ; ,it is enough 
 that' it has become private property, and it is then protected by the 
 'law of the land.' " 43 Mich. 140-147, 5 N. W. 275. 
 
 We have already extended this opinion to a great length, and we 
 do not think it necessary or important to notice other positions urged 
 by counsel with great learning and ability against the validity of the 
 taxes for which the present action is brought. We are satisfied that 
 the assessment upon which they were levied is invalid and void, and 
 judgment must be accordingly entered on the demurrer for the de- 
 
f572 liBGISLATIVB CONTROL (Ch. 6 
 
 fendant, and, by stipulation of parties, the judgment must be made 
 final. 
 
 [Other similar pending actions enjoined pending an appeal from this 
 decision to the United States Supreme Court.]* 
 
 COMMONWEALTH v. EASTERN R. CO. 
 
 (Supreme Judicial Court of Massachusetts, 1869. 103 Mass. 254, 4 Am. Rep. 
 
 555.) 
 
 Chapman, C. J. By the St. of 1868, c. 89, the defendants are re- 
 quired to establish a flag station on their railroad at Knight's Cross- 
 ing in Newbury, and erect there a station-house at which at least 
 two trains each way and each day shall stop. The statute has not 
 been complied with, and the defendants contend that it is unconstitu- 
 tional. The defendants were chartered April 14, 1836, subject to 
 the provision in. the Revised Statutes that every act of incorporation 
 passed since March 11, 1831, shall at all times be subject to amend- 
 ment, alteration, or repeal at the pleasure of the Legislature (Rev. 
 Sts. c. 44, § 23; re-enacted by Gen. Sts. c. 68, § 41), and to the pro- 
 visions of the 39th chapter of the Revised Statutes. 
 
 The defendants say that the Act of 1868 violates the contract made 
 with them by the Commonwealth ; and requires them to expend their 
 property for an assumed public use without compensation, contrary 
 to the Constitutions of the United States and of , this State. 
 
 That such a charter is a contract is not denied. It was so held in 
 Dartmouth College v. Woodward, 4 Wheat. 518; and charters are 
 habitually spoken of as contracts'. In Blakemore v. Glamorganshire 
 Canal Navigation, 1 Myl. & K. 154, Lord Eldon said he regarded 
 them all in the light of contracts made by the Legislature on behalf 
 of every person interested in anything to be done under them. In 
 respect to charters for railroads, both the Legislature and the corpo- 
 ration act as trustees of the public interest to some extent;, for the 
 corporation is intrusted with the exercise of the right of eminent 
 domain, which is in its nature a public right, and is not to be sacri- 
 ficed to uses that are exclusively private. 'The private interests of 
 the stockholders are likely to have a controlling influence with the 
 officers of the company, and it is important that the Legislature should 
 possess the power to prevent abuses to which this influence may 
 lead. To some extent they would possess such a power without any 
 clause in the charter reserving it., But to define their rights more 
 clearly, the clause has been introduced reserving to them the power 
 to alter, amend, and repeal. This clause constitutes a part of the ex- 
 press contract between the Legislature and the corporation. The 
 question arising in the present case is, whether the Act of 1868 above 
 
 6 The concurring opinion of Sawyer, Circuit Judge, is omitted. 
 
Sec. 2) POWER TO ALTER OR AMEND CHARTER 673 
 
 referred to is within the fair interpretation of this clause. In several 
 cases this clause has been the subject of discussion. In Roxbury v. 
 Boston & Providence Railroad Co., 6 Cush. 424, 432, it was said by 
 the court that the clause authorized the Legislature to make reason- 
 able alterations and amendments, and it was held that the St. of 
 1842, c. 22, which authorized county commissioners, upon the appli- 
 cation of the selectnlen, etc., to alter or lower roads so as to prevent 
 crossings at the same grade with a railroad, and to require the cor- 
 poration to pay the expense with costs, was a valid act. It is true 
 that it was a general act ; but it required corporations to expend mon- 
 ey for the benefit of the public and without any apparent equivalent 
 to themselves, except to diminish the danger of collisions with travel- 
 lers on the highway. In Fitchburg Railroad Co. v. Grand Junction 
 Railroad & Depot Co., 4 Allen, 198, 205, the clause was applied to 
 special statyites of 1856, c. 296, and 1857, c. 128, which required the 
 Fitchburg, the Grand Junction, and the Boston and Lowell Railroad 
 corporations to make expensive changes at their crossings, and to 
 erect a bridge of specified dimensions and materials, and construct 
 a connecting track, and which directed how the work should be 
 superintended, and how the expense should be apportioned. The 
 court held that under this clause the changes were rightly ordered, and 
 that the Legislature might prescribe by whom, in what manner, and 
 under whose supervision the work should be accomplished, and in 
 what proportions according to their, respective interests it should be 
 paid for by the parties affected by it. As these are special acts direct- 
 ing expensive changes at a particular locality, the present case seems td 
 be covered by that. i 
 
 But independently of the authority of those cases, it seems to us 
 that the clause was intended to provide for such a case as the pres- 
 ent. If the directors of a railroad were to find it for the interest of 
 the stockholders to refuse to carry any freight or passengers except 
 such as they might take at one end of the road and carry entirely 
 through to the other end, and were to refuse to establish any way sta- 
 tions or do any way business for that reason, though the road passed 
 for a long distance through a populous part of the State, this would be 
 a case manifestly requiring and authorizing legislative interference 
 under the clause in question. And on the same ground, if they re- 
 fuse to provide reasonable accommodation for the people of any 
 smaller locality, the Legislature may reasonably alter and modify the 
 discretionary power which the charter confers upon the directors, so 
 as to make the duty to provide the accommodation absolute. Wheth- 
 er a reasonable ground for interference is presented in any particular 
 case is for the Legislature to determine; and their determmation on 
 this point must be conclusive. 
 
 The objection that it takes the property of the company and ap- 
 propriates it to the benefit of others is not valid. The depot which 
 RicH.CoBP. — 43 
 
G74 .LEGISLATIVE CONTEOL (Ch. 6 
 
 they are required to build is to be their own, like all the other de- 
 pots, and their compensation for all their outlays is in their freights 
 and fares. If the act required them to build a structure for the 
 private benefit of others exclusively, and having no connection with 
 the business of their road, the case might be within the principle 
 stated in Commonwealth v. Essex Co., 13 Gray, 239, 253, as it would 
 take away their property or rights which had become vested under 
 a 'legitimate exercise of the power granted them. It was there held 
 that an act requiring a water-power company to erect a fish-way in 
 their dam was void. But the act upon which this action is brought is 
 not subject to such an objection. It is a modification of the char- 
 ter, within the fair interpretation of the power reserved to the IvCgis- 
 lature in the charter, and merely requires them to provide what the 
 Legislature regards as a reasonable accommodation to the public in a 
 particular locality where they are using property which they have tak- 
 en for that purpose. 
 Judgment for the Commonwealth, 
 
 KENOSHA, R. & R. I. R. CO. v. MARSH. 
 (Supreme Caurt of Wisconsin, 1863. 17 Wis. 13.) 
 
 Paine, J. This action was brought upon a subscription to the cap- 
 ital stock of a railroad company chartered to build a road from the 
 city of Kenosha to Beloit. Ch. 60, Pr. Laws of 1853. Afterwards, by 
 Ch. 22, Pr. Laws of 1857, the Legislature changed the enterprise 
 from that of building a road to Beloit, to one of building a road to 
 the state line between this state and Illinois, at or near Genoa, in Wal- 
 worth County. This change was obtained by the company, which 
 acted under it,^an'd, under still another law, consolidated with an Illinois 
 company which was authorized to build a road from Rockford in that 
 State to the same point on the state Jine. This action was brought 
 by the consolidated. company. 
 
 After the evidence of both parties had been introduced, the de- 
 fendant moved for a nonsuit, for the reason, among others, that this 
 was such a radical change in the enterprise as released him from his 
 subscription. The motion was granted upon another ground, but we 
 think it was properly granted upon this. 
 
 Considered independently of the effect of the power reserved in 
 our constitution to the Legislal^ure, to amend or repeal the charters 
 of all incorporations, all authorities concur in stating the general 
 rule to be, that a radical, fundamental change in the character of the 
 enterprise releases the stock subscriber who does not assent. In ap- 
 plying this rule many cases are found where the particular change 
 made was held not to be of this character. But we think the plain 
 implication from the reasoning in all of them is, that a change like 
 
Sec. 2) POWER TO ALTEE OR AMEND CHARTER 675 
 
 the one here in question! would be so held. Thus in Banet v. R. R. 
 Co., 13 111. 504, the change made only straightened the original route, 
 leaving it between the same termini. The court hel4 that this was 
 not a radical change, but that it left the enterprise substantially un- 
 changed. But they say expressly that if the change had been to au- 
 thorize a road from Altoii to Vandalia or Shelbyville, it would have 
 been a different enterprise. But it will be seen by a reference to the 
 ■ map that a change to a road from Alton to Shelbyville would have been 
 very similar to the one made here. The road as changed here runs in 
 a line entirely southwest of the original route, and to a point only 
 about half as far as Beloit. Within the reasoning of all the cases we 
 think this is a change from one enterprise to another, and not one 
 Iwhich leaves the original enterprise substantially remaining. 
 
 The supreme court of Indiana has recently held that the, mere con- 
 solidation with another company under an act of the Legislature re- 
 leases non-assenting subscribers. McCray v. R. R. Go., 9 Ifld. 358'; 
 Booe V. R. R. Co., 10 Ind. 93. I should not wish to adopt that' con- 
 clusion without further examination. For although it may be within 
 the principle of R. R. Company v. Croswell, 5 Hill (N. Y.) 383, 40 
 Am. Dec. 354, and other cases of a similar character, still there seems 
 to me to be a fair distinction between such changes as only add some- 
 thing to the original enterprise,^ — which becomes tributary 4o it, and 
 makes its operation more perfect and successful, and -changes which 
 abandon the original undertaking for a new one. There is certainly 
 some ground for saying that changes of the former character may 
 be deemed to be fairly within the scope of the original object, as it 
 may reasonably be 'assumed that every association which Undertakes 
 the accomplishment of a particular enterprise, intends to make such 
 changes 'as experience may show to be necessary for its most success- 
 ful prosecution. And if this may be assumed, then, although such 
 changes were of course not originally provided for, yet they may fair- 
 ly be regarded as so far incidental to the original purpose as to be 
 within the scope of the authority which each member has conferred 
 upon the corporation, to bind him by its action whenever the neces- 
 sary legislative assent is obtained. And if this can be regarded as a 
 correct rule, I should not be prepared to, say that a consolidation with 
 another company whose road ran from eitiier terminus in the same 
 general direction, or the connection of a line of steamboats with the 
 road, when one of- the termini was on navigable water, if authorized 
 by the Legislature and assented to by the corporation as a body, ought 
 to release a stockholder who did not assent.' These things are total- 
 ly different in their nature from a change which* abandons the orig- 
 inal enterprise entirely. These cases go, therefore, much further than 
 it is necessary to go here. The following cases also sustam the conclu- 
 
 t See Hale v. Cheshire Raflroad, 161 Mass. 443, 37 N E. 307 (1894) ; Lau- 
 man r. Lebanon Valley Ry. Co., 30 Pa. 42, 72 Am. Dec. 685 (1858). 
 
G76 LEGISLATIVE CONTROL (Ch. 6 
 
 sion that such a change as was made here releases sl bscribers not as- 
 senting. Plank Road Company v. Arndt, 31 Pa. 317; Hester v. Mem- 
 phis & Charleston R. Co., 32 Miss. 378. The following cases, as stat- 
 ed in the Digest, sustain the same rule, though the volumes have not 
 yet arrived in our library: Champion v. Memphis R. Co., 35 Miss. 
 692; vol. 20, U. S. An. Dig. p. 219, § 222; Witter v. Mias., etc., R. 
 Co., 20 Ark. 463 ; vol. 20, U. S. An. Dig. p. 219, § 235. See, also, 
 Fry's Ex'rs v. R. R. Co., 2 Mete. (Ky.) 314. 
 
 The question then /remains, whether the power reserved in the con- 
 stitution to amend, alter, or repeal charters should prevent that effect. 
 Some of the cases seem to place great stress upon the existence of 
 this power, and to intimate that under it the non-assenting stock sub- 
 scriber may be bound by a change, the effect of which would other- 
 wise be to release him. I am wholly unable to see that it should 
 have any such effect. The occasion of reserving such a power either 
 in the constitution or in charters themselves is well understood. It 
 grew out of the decisions of the supreme court of the United States 
 that charters were contracts within the meaning of the constitutional 
 provision that the States should pass no laws impairing the obliga- 
 tion of contracts. This was stipposed to deprive the States of that 
 power of control over corporations which was deemed essential to the 
 safety and protection of the public. Hence the practice, which has ex- 
 tensively prevailed since those decisions, of reserving the power of 
 amending or repealing charters. But this power was never reserved 
 upon any idea that the Legislature could alter a contract between a 
 corporation and its stock subscribers, nor for the purpose of enabling 
 it to make such alteration. It was solely to avoid the effect of the 
 decision that the charter itself was a contract between the State and 
 the corporation, so as to enable the State to impose such salutary re- 
 straint upon these bodies as experience might prove to be necessary. 
 But I suppose it would hardly be claimed that the State, even 'where 
 this power of amendment is reserved, could, by amending the charter 
 of a railroad company so as to provide for a new and entirely differ- 
 ent road,> impose any obligation on the corporation to build it. It 
 might possibly repeal the old charter, but whether the company would 
 undertake the enterprise provided for in the amendment, would stijl 
 depend entirely upon its own consent; as it is well settled that a 
 grant of corporate franchises cannot be imposed upon any persons 
 against their consent, any more than any other grant. 
 
 Undoubtedly, the Legislature might, under this power, impose new 
 duties and new restraints upon corporations in the prosecution of 
 the enterprises already undertaken. And provisions of this nature 
 would be binding whether assented to or not. But when it comes to 
 a question of embarking in a new enterprise, the Legislature cannot 
 impose this as a duty upon any corporation. All it can do is to grant 
 it the power, and then it is for the corporation to accept it or not, 
 as it pleases. So that, in all cases where charters are changed, the 
 
Sec. 3) POWER TO ALTEE OR AMEND CHARTER 677 
 
 right to bind stock subscribers who do not assent seems to me to 
 derive no additional support from the fact that the power of amend- 
 ing the charter had been reserved, but to depend essentially upon the 
 question whether the change is of such a character that it may be 
 deemed so far in furtherance of the original undertaking, and inci- 
 dental to it, as to be fairly within the power of the corporation to 
 bind its individual members by its corporate assent, or whether it is 
 such a departure from the original purpose that no member should be 
 deemed to have authorized the corporation to assent to it for hjm. 
 If I am correct in supposing that an amendment authorizing an en- 
 tirely different road would not be binding on the corporation with- 
 out its own assent, it must follow that the question whether any par- 
 ticular subscriber is bound must depend upon the question whether 
 he has himself assented, or whether the rest could bind him by their 
 assent, and not on the question whether the Legislature had power to 
 pass the amendment. 
 
 The result of my views upon this point is, that an amendment of 
 this kind, merely authorizing the substitution of a new enterprise 
 for the old, has precisely the same effect that it would have had if 
 there had been no power reserved to amend the charter. The Leg- 
 islature does not profess to make it obligatory. They grant it as a 
 power to be accepted if the company chooses to accept it; other- 
 wise not. This is just what they might have done if the power of 
 amendment had not been reserved. And it seems to me that the 
 question whether an individual subscriber was bound or not by the 
 corporate assent, should be determined by the same principles in ei- 
 ther case. The power of amendment was never reserved with refer- 
 ence to any question between the corporation and its stock subscribers, 
 but solely with reference to questions between the corporation and the 
 State, when the latter desired to make compulsory amendments against 
 the wish of the former. 
 
 The effect of this reserved power is discussed in the Matter of 
 Oliver Lee & Co.'s Bank, 21 N. Y. 20, 21, by Judge Denio. The 
 amendment there made did not attempt to change the corporate en- 
 terprise, but belonged to the class I have referred to, of amendments 
 designed for the better protection of the public. It was a case where 
 new liabilities were imposed on the stockholders, arising from the 
 continued exercise of the corporate powers originally conferred. 
 There being, therefore, no question in the case of a radical change of 
 fhe original enterprise, I cannot think the judge intended that his re- 
 marks should be applicable to such a case. I cannot think that he in- 
 tended to say that any person who subscribes for the stock of a cor- 
 poration chartered for a special enterprise, where the power to alter or 
 amend the charter is reserved by the Legislature, has thereby agreed 
 that the Legislature, and the majority of his associates may, without 
 his consent, transfer his investment to a totally different project. In- 
 deed, that this could not be done is fairly implied from a subsequent 
 
678 LEGISLATIVE CONTROL (Ch. 6 
 
 opinion of Judge Denio in Plank Road Company v. Griffin, 24 N. Y. 
 156. There the company was originally chartered to build a plank 
 road. Afterwards a law was passed extending the time in which they 
 were allowed to finish it by laying down plank and allowing them, in 
 the mean time, to erect toll-gates and exercise the rights of turnpike 
 companies. The judge says : "It is certainly possible that this act was 
 obtained 'simply as a cover for abandoning the plan of a plank road, 
 and to enable the directors to establish a turnpike. This, however, is 
 not the presumption of the law. On the face of the enactment it sim- 
 ply conferred on the corporation an indulgence which it would not 
 otherwise possess, of postponing the completion of the road for a con- 
 siderable time, and of so managing it that it should be a source of 
 profiti in the mean time. I think this was within the scope of the reser- 
 vation contained in the general act which declares that the Legislature 
 may at any time alter, amend, or repeal it, and may amend and repeal 
 any corporation which may be formed under it." 
 
 This plainly implies that if the act had abandoned the original proj- 
 ect, the subscriber would not have been bound. For the judge had 
 no occasion to make the argument he did to show that the change was 
 within the scope of the power of amendment, if that power was un- 
 limited. 
 
 :^ierce, in his work on Railroads, p. 98, gives it as the result of the 
 authorities, that even when the power of amending is reserved, it is 
 not unlimited, but "that such a radical change in the company as di- 
 verts it from its original purpose" is not binding on a dissenting 
 shareholder. But if the power is not unlimited, where is the limit? 
 By what principles is it to be established? I know of none except 
 those I have already contended for, which base the right upon the im- 
 plied authority conferred by each one who becomes a merriber of a cor- 
 poration, on the majority, to bind him by such changes as may fairly 
 be regarded as incidental to the original project. 
 
 The judgment must be affirmed.' 
 
 LORD V. EQUITABLE LIFE ASSUR. SOCIETY OF UNITED 
 
 STATES. 
 
 (Court of Appeals of New York, 1909. 194 N. T. 212, 87 N. B. 443, 22 L. R. A. 
 
 [N. S.] 420.) 
 
 Action by Lord, a stockholder in the Equitable Life Assurance So- 
 ciety, to restrain the society from so amending its charter as to give 
 
 8 Accord: W. W. Woodfork v. Union Bank, 3 Cold. (Tenn.) 488 (1866); Avon- 
 dale Land Co. v. Shook, 170 Ala. 379, 54 South. 268 (1911); Zabriskie \v 
 Hackensack & N. Y. R. Co. (semble) 18 N. J. Eq. 178, 90 Am. Dec 617 (1867) • 
 Mills V. Central Ry. Co. (semble) 41 N. J. Eq. 1, 2 Atl. 453 (1886). 
 
 Contra: Schenectady & Saratoga Plank Road Co. v. Thatcher, 11 N T 102 
 (1854) ; Troy & Rutland Ry. Co. v. Kerr, 17 Barb. (N. T.) 581 (1854) : Durfee 
 V. Old Colony Ry. Co. (semble) 5 Allen (Mass.) 230 (1862). 
 
Sec. 2) POWEB TO ALTER OB AMEND OHAETEE 679 
 
 the policy holders the right to vote for a majority of the directors 
 and to limit stockholders to the right to vote for a minority only. 
 
 The defendant company was organized in 1859, pursuant to the pro- 
 visions of chapter 463 of the Laws of 1853. The charter among 
 other provisions contained the following : 
 
 "The holders of the said capital stocjc may receive a semiannual 
 dividend on the stock so hejld by them, not to exceed three and one 
 half per cent, of the same; such dividends to be paid at the times, 
 and in the manner designated by the directors of said' company. The 
 earnings and receipts of said company, over and above the dividends, 
 losses and expenses shall be accumulated. The corporate powers of 
 said company shall be vested in a board of directors. * * * j^ 
 the election of directors, every stockholder in the company shall be en- 
 titled to one vote for every share of stock held by- him, and such 
 vote may be given in person, or by proxy. At any time hereafter, the ' 
 board of directors, after giving notice at the two previous stated meet- 
 ings, by a vote of three-fourths of all the directors, may provide th^t 
 each life policy holder, who shall be insured in not less than five- 
 thousand dollars, shall be entitled to one vote at the annual election of 
 directors, but such vote shall be given personally, and not by proxy." 
 
 In 1906 the Legislature passed an act providing in substance that any 
 stock life insurance company may by a vote of a majority of the di- 
 rectors, when authorized by stockholders holding a majority of the 
 capital stock, confer upon its policy hqlders the right to vote for all 
 or any less nximber' of directors. The primary question is whether the 
 Legislature had power to pass the act of 1906." 
 
 Vann, J.^" [The Court, after discussing, the legislative power to 
 amend or repeal the charter, proceeds :] 
 
 Our conclusion upon the primary question involved, is that both by 
 the Constitution and the Revised Sta;tutes the Legislature has the 
 reserved power to so amend the law under which a charter has been 
 taken out as to carry with it a corresponding amendment of the char- 
 ter itself, either directly, or by authorizing the corporation to make 
 the change. Pratt Institute v. City of New York, 183 N. Y. 151, 
 162 75 N E. 1119; People ex rel. Cooper Union v. Gass, 190 N. Y. 
 323' 83 N. E. 64, 123 Am. ^St. Rep. 549, 13 Ann. Cas. 678; People 
 ex rel. Roosevelt Hospital v. Raymond, 194 N. Y. 189, 87 N. E. 90. 
 Any other conclusion, in view of the immense number of corporations 
 now organized under existing laws, would be a disaster to society and 
 a menace to the state. Those charters would stand, like the laws of 
 the Medes and Persians, unchangeable by all the power of the state, 
 for although they could be repealed, they could not be amended. Oth- 
 er authorities bearing upon the subject will be noticed hereafter. 
 
 The right to amend a charter, however, does not include the right to 
 
 » Statement dt facts substitutedi 
 i» A part of the opinion is omitted. 
 
680 LEGISLATIVE CONTROL (Ch. 6 
 
 take away money invested in reliance thereon, or property acquired 
 thereunder. The power of amendment reserved by the Constitution or 
 statutes of a state does not permit interference with property or prop- 
 erty rights, because they are protected by the Constitution of the United 
 States. When the Legislature has created a corporation and has given 
 it power to acquire property, it cannot take away the property so ac- 
 quired without providing for compensation.. Mayor, etc., of N. Y. 
 V. Twenty-Third St. R. Co., 113 N. Y. 311, 317, 21 N. E. 60. No 
 reservation, for instance, could authorize a law giving to policy hold- 
 ers the capital stock belonging to the stockholders. As the property of 
 stockholders cannot be given away either in whole or in part, it fol- 
 lows that the gift of any right so connected with their property as to 
 be essential to its preservation and existence would be a violation of 
 primary rights. Hence the second question presented is whether the 
 right of a stockholder to vote is a vested right of property. * * * 
 
 The stockholders of a corporation, as such, have no direct power 
 0^ management, and even by united action they can neither bind nor 
 loose the company by making contracts or controlling investments. 
 The capital stock owned by them is property. It represents an invest- 
 ment upon which they are entitled to dividends, provided they are 
 earned, and whether they can be earned or not depends on the man- 
 pigement. Indeed, the safety of the entire investment depends on the 
 power to manage the corporate business, because, even in the case of 
 the defendant with its immense surplus, careless and improvident 
 management might impair the value of the stock or utterly destroy it. 
 The right to vote for directors therefore is the right to protect prop- 
 erty from loss and make it effective in earning dividends. In other 
 words, it is the right which gives the property value and is part of the 
 property itself, for it cannot be separated therefrom. Unless the 
 stockholder can protect his investment in this way he cannot protect 
 it at all, and his property might be wasted by feeble administration, and 
 he could not prevent it. He might see the value of all he possessed fad- 
 ing away, yet he would have no power, direct or indirect, to save him- 
 self or the company from financial downfall. With the right to vote, 
 as we may assume, his property is safe and valuable. Without that 
 right, as we may further assume, his property is not safe and may be- 
 come of no value. To absolutely deprive him of the right to vote there- 
 fore is to deprive him of an essential attribute of his property. To so 
 undermine that right as to essentially affect its power of protection 
 would, under ordinary circumstances, undermine the right to property 
 involved in the ownership of stock, and we have so held. Stokes v. 
 Continental Trust Company, 186 N. Y. 285, 78 N. E. 1090, 12 L. R 
 A. (N. S.) 969, 9 Ann. Cas. 738. 
 
 These are general rules, and under "ordinary circumstances" there- 
 fore the Legislature could not by direct action essentially impair the 
 right of the plaintiff to vote as a stockholder, nor could it do so indi- 
 rectly, by authorizing the directors, with the consent of only a majority 
 
Sec. 2) POWEB TO ALTER OK AMEND OHAETEE 681 
 
 of the stockholders, to so amend the charter as to have that effect. 
 The circumstances under which the attempt to mutualize the charter 
 of the defendant was made, however, were not "ordinary," because 
 that right was conferred upon the directors by the original charter it- 
 self, although the right was to be exercised in a different manner from 
 that provided by the act of 1906. The old charter, although it or- 
 ganized a stock company, not only limited dividends to 7 per cent, a 
 year, but required that all earnings and receipts in excess of dividends, 
 losses, and expenses should be accumulated. Even if the surplus mul- 
 tiplied the capital, as it has in fact, 800 times, still but 7 per cent, on 
 the sum of $100,000 could be paid in dividends to the stockholders. 
 
 But the charter did not stop there, for it further provided that the 
 business of the company should be conducted on the mutual plan, 
 which means that the policy holders were not simply creditors of the 
 corporation, but were to share in the surplus which they created upon 
 some basis. That basis was defined, for at fixed periods each policy 
 holder was to be credited "with an equitable share" of the net surplus. 
 This did not mean that all of it was to be divided among the policy 
 holders, but that a division should be made upon some equitable basis 
 consistent with the safety and prosperity of the company, when chang- 
 es in the value of securities and other business hazards were taken 
 into account. They became the equitable owners of an equitable share 
 in the surplus to the extent provided by the charter, which makes no 
 distinction between the surplus arising from insurance proper and 
 that arising from the sale of annuities, unless it may be implied from 
 the division directed to be made upon an equitable, basis. Finally, 
 and more important than all else, mutualization was provided for by 
 authorizing the directors, by a vote of three-fourths of their number, 
 to provide that each life policy holder holding insurance to the amount 
 of not less than $5,000 should be entitled to one vote at the annual 
 election. 
 
 Thus the charter carried in its soil the seeds of mutualization, 
 planted by the founders of the company in readiness to sprout at the 
 will of three-fourths of the directors, regardless of the wishes of the 
 stockholders, as such. They took their stock subject to the right thus 
 reserved to the directors, and were bound to abide by the result, for 
 the reservation in a certificate of incorporation of the right to amend 
 the charter in any manner permitted by law is as binding on the stock- 
 holders as any other part of the certificate. 
 
 What did the act of 1906 authorize that was not permitted by the 
 original charter itself? There was no difference in substance, for 
 mutualization, which might deprive the stockholders of control, was 
 permitted by both; but there was some difference in details. The 
 charter provided a way, but did not make it exclusive. The statute 
 authorizes every domestic insurance corporation to "amend its char- 
 ter or certificate of incorporation by inserting therein any statement or 
 matter which might haVe been originally inserted therein; and * * * 
 
682 LEGISLATIVE CONTROL (Ch. 6 
 
 by inserting therein any powers which, at the time of such amendment, 
 may have been conferred by law upon domestic insurance corporations 
 engaged in a business of the same general character, or which might 
 be included in the certificate of incorporation of a domestic insurance 
 company organized under any general law of this state for a business 
 of the same general character." It further authorizes a majority of 
 the directors, with the consent of stockholders representing at least a , 
 majority of the capital stock, to confer upon the policy holders, "or 
 upon such policy holders as may have a prescribed amount of insur- 
 ance upon their lives the right to vote for all or any less number of 
 the directors" in any manner not inconsistent with the other provision^ 
 of the act. Insurance Law, § 52, as amended (Laws 1906, p. 771, c. 
 326, § 13). The old charter authorized the directors, by a vote of 
 three-fourths of their number, to enfranchise policy holders holding 
 not less than $5,000 of insurance, but the right was to be exercised in 
 person and not by proxy. The statute contains a provision for notice 
 to the stockholders, but none, unless by implication, for notice to 
 the directors; while the charter requires notice to be givten at two 
 stated meetings of the directors previous to the meeting at which the 
 action to mutualize is taken. 
 
 These variations are differences of detail, not of substance, and they 
 were within the control of the Legislature under the reserved power 
 which we have held it possesses. ' The object of the reservation in the 
 charter was to permit the enfranchisement of policy holders, and that 
 is all the Legislature has authorized. Mutualization-- is the substance, 
 the method is detail, and, when the substance is under the control of 
 the Legislature, control of the details follows as a necessary .incident. 
 All things permitted by the old charter the Legislature had the "power 
 to authorize, with such modification as to details as it regarded as 
 proper in the interest of public policy, without trespassing- upon'^vested 
 rights. Even if the result would place the policy holders in control 
 of the affairs of the company, the stockholders took their stock sub- 
 ject to that contingency, and cannot now lawfully complain of what 
 they or their predecessors consented to when they invested in the 
 capital stock. 
 
 We think the act of 1906, so far as it is now before us, is a valid 
 exercise of legislative power, forbidden by "neither state nor federal 
 Constitution. The authorities relied upon are not directly in point, 
 for the situation is without precedent; but it is clear that the ten- 
 dency of authority, both state and national, is to hold that the Legis- 
 lature has wide latitude of amendment when the general power is re- 
 served either by Constitution or statute." * * * ' 
 
 "The dissenting opinion of Edward T. Bartlett, J., Is omitted. 
 
 See Hinckley v. Schwarzschlld & Sulzberger Co., 107 App. Dlv. 470, 95 N. 
 T. Supp. 357 (1905); Berea College v. Oommonwealtli of Kentucky, 211 U S 
 45, 29 Sup. Ct. 33, 53 L. Ed. 81 (1908); Venner v. Chicago City Ry Co 246 
 111. 170, 92 N. E. 643, 138 Am. St Rep. 229, 20 Ann. Gas. 607 (1910) 
 
Sec. 2) POWBB 10 ALTER OE AMEND OHARTEB 683 
 
 SCHOOIv DISTRICT NO. 56 v. ST. JOSEPH FIRE & MARINE 
 
 INS. CO. 
 
 (Supreme Court of the United States, 1880. 103 U. S. 707, 26 L. Ed. 601.) 
 
 Miller, J. The defendant in error recovered a judgment in the 
 Circuit Court of the United States for the District of Nebraska against 
 the plaintiff in error for the sum of $2,554.70. The judges of the 
 Circuit Court certified a difference of opinion on three questions of 
 law arising in the case, only one of which is necessary to be considered 
 here, namely: "Whether the said act of the legislature of Nebraska, 
 approved Feb. 2, 1875, recited in the bonds (the coupons of which 
 'are in suit), is in conflict with section 1 of article 8 of the Constitution 
 of the State, because the same is a special act conferring corporate 
 powers; and also whether it is in conflict with section 19 of article 
 2 of the Constitution of the State because it contains more than one 
 subject." 
 
 Indeed, we only propose to consider the first branch of this double 
 question. Section 1, art. 8, of the Constitution of Nebraska of 1866- 
 67, reatis thus: "The legislature shall pass no special act conferring 
 corporate powers." 
 
 The act of .Feb. 2, 1875, is entitled "An Act authorizing School Dis- 
 trict Number 56, of Richardson County, to issue bonds for the purpose 
 of erecting a school building, procuring a site therefor, and for setting 
 apart a fund to pay the same." > 
 
 It authorized the school board to issue bonds to the amount of $20,- 
 000, palyable in ten or twenty years, with ten per cent, per annum inter- 
 est, for that purpose, and requii;-ed a vote of a majority of the electors 
 of the district before they could be issued. It forbade the sale of these 
 bonds at less than eighty-five cents on the dollar. It also enacted that 
 all the penalties and forfeitures thereafter imposed, for any breach of 
 the ordinances of Falls City, and all money for licenses to sell or 
 traffic in liquors, or atiy other commodity or license to transact other 
 business, should ^be paid over to the board of trustees of the school 
 district, as well as all fines imposed by the police judge of said city. 
 
 The bonds on which the judgment in this case was rendered were 
 issued under this act,' and it was so recited on their face. That this 
 was a special act is not denied. Nor can it be controverted success- 
 fully that it corifers corporate powers. The power to make a contract 
 of this character, to collect the taxes necessary to pay the debt, to con- 
 tract for and superintend and pay for the building, to receive the fund 
 mentioned from the authorities of Falls City, are all in their nature 
 corporate acts when performed by a body possessing corporate powers. 
 
 The statutes of Nebraska then in force declare that "every duly 
 organized school district shall be a body corporate, and .^possess all 
 the usual powers of a corporation for public purposes." * * * 
 "and may sue and be sued, purchase, hold, and sell such personal and 
 
684 LEGISLATIVE CONTROL (Ch. 6 
 
 real estate as the law allows." The power conferred by the act of 
 1875 on School District No. 56 was conferred on a corporation, and 
 was to be exercised by it as a corporation. It is, therefore, a corpo- 
 rate power, and was conferred, if at all, by a special act. 
 
 In response to this it is said that a school district is only a quasi 
 corporation, and does not come within the constitutional provision. 
 What is meant by the words "quasi corporation," as used in the au- 
 thorities, is not always very clear. It is a phrase generally applied to 
 a body which exercises certain functions of a corporate character, but 
 which has not been created a corporation by any statute, general or 
 special. 
 
 Such is not the case here, for the language of the Nebraska statute 
 makes school districts corporations in the fullest sense of the word. 
 
 It is next argued that the constitutional provision waS only intended 
 to apply to private corporations, as distinguished from thoSe which 
 are part of the body politic, -such as counties and towns. 
 
 But we see no warrant for this distinction. There is certainly noth- 
 ing in the words of the provision to suggest any such distinction or 
 limitation. Nor do we see any reason why the local corporate bodies 
 discharging public functions should not be governed by gene'ral and 
 uniform laws as well as those foE^private enterprises. ^In fact, the 
 weight of the argument seems to be the other way, for it can very 
 well be seen that the aggregation of individual capital and energy into 
 an associated organization may require different powers for each en- 
 terprise so established, while the powers to be exercised by cities, 
 towns, townships, and school districts in the same State may or should 
 be uniform 'in character all over the State. If any such rule is de- 
 fensible at all, of which it is not our province to judge, its applica- 
 tion to the latter class of corporations seems the more appropriate of 
 the two. •• 
 
 The Constitution of the State of Ohio has a provision similar to 
 that of the State of Nebraska relied on in this case. In the case of 
 State V. Cincinnati, 20 Ohio St. 18, the Supreme Court of that State 
 held that in the purview of the constitutional provision there was no 
 distinction between private and municipal corporations. To the same 
 effect is the decision of the same court in Atkinson v. M. & C. Rail- 
 road Co., 15 Ohio St. 21. The Supreme Court 'of Nebraska, iii Clegg 
 V. School District, 8 Neb. 178, held that the statute under which these 
 bonds were issued was void, because forbidden by this clause of the 
 State Constitution. 
 
 We are of opinion that this is a sound construction of the Consti- 
 tution, and that, as to the first question certifieid to us, it must be an- 
 s\vered that the act of Feb. 2, 1875, under which these bonds issued, 
 is in conflict with the Constitution of the State, arid is, therefore, void. 
 
 We are, asked, however, to afifirm the judgment because the bonds 
 may be held valid under the powers conferred on school districts by 
 the general statutes. 
 
Sec. 2) POWEE TO ALTER OB AMEND CHAETEE 
 
 685 
 
 We are, however, of a, different opinion. The general statute had 
 other conditions for creating a debt than the special act mentioned on 
 the face of these bonds. This statute provided a fund which might 
 of itself be sufficient to pay the debt without resort to taxation. The 
 vote of the electors might not have been obtained under the general 
 statute. And as the bonds recite that they were issued under this act, 
 and that the vote was taken under it, we cannot See that power pur- 
 posed to be exercised under other and very different circumstances can 
 be invoked to give validity to an act which is void by the authority 
 under which it professed to be acting. 
 
 These views render it unnecessary to answer the other questions 
 certified to us. The judgment of the Circuit Court will be reversed, 
 and the case remanded to that court for further proceedings not in- 
 consistent with this opinion. So ordered.^* 
 
 BOSTON BEER CO. v. MASSACHUSETTS. 
 
 (Supreme Court of the United States, 1877. 97 U. S. 25, 24 L. Ed. 989.) 
 
 This was a proceeding in the Superior Court of Suffolk County, 
 Massachusetts, for the forfeiture of certain malt liquors, belonging 
 to the Boston Beer Company, and which had been seized as it was 
 transporting them to its place of 'business in said county, with in- 
 tent there to sell them in violation of an act of the Legislature of 
 Massachusetts, passedl June 19, 1869, c. 415, commonly known as 
 the Prohibitory Liquor Law.^* * * * 
 
 Bradley, J.^* The question raised in this case is, whether the char- 
 ter of the plaintiff, which was granted in 1828, contains any contract 
 the obligation of which was impaired by the prohibitory liquor law of 
 Massachusetts, passed in 1869, as applied to the liquor in question in 
 this suit. * * * 
 
 The Supreme Court, in its rescript, expressly decides as follows: 
 "Exceptions overruled for the reasons following: — The act of 1869, 
 c. 4l5, does not impair the obligations of the contract contained in the 
 charter of the claimant, so far as it relates to the sale of malt liquors, 
 but is binding on the claimant to the same extent as on individuals. 
 The act is in the nature of a police regulation in regarcj to the sale of 
 a certain article of property, and is applicable to the sale of such prop- 
 erty by individuals and corporations, even where the charter of the 
 corporation cannot be altered or repealed by the Legislature."- 
 
 The judgment of the Superior Criminal Court was entered in con- 
 formity to this rescript, declaring the liquors forfeited to the Com- 
 
 12 Compare Jones v. Habersham, 107 U. S. 174, at 188, 2 Sup. Ct. 336, 27 
 h. Ed. 401 (1882). 
 3 3 Statement of facts abridged. 
 1* A part of the opinion, dealing with a point of practice, omitted. 
 
686 r LEGISLATIVE CONTEOL (Ch.:6 
 
 mo'nwealth, and that a warrant issue for the disposal of the same. 
 This' is sufficient for our jurisdiction, and we are bound to consider 
 the question which is thus raised. 
 
 As before stated, the charter of the plaintiff in error was granted 
 in 1828, by an act of the Legislature passed! on the 1st of February 
 in that year, entitled "An Act to incorporate the Boston Beer Com- 
 pany." This act consisted of two sections. By the first, it was en- 
 acted that certain persons (named), their successors and assigns, "be, - 
 and they hereby are, made a corporation, by the name of The Boston 
 Beer Company, for the purpose of manufacturing malt liquors in all 
 their varieties, in the city of Boston, and for that purpose shall have 
 all the powers and privileges, and be subject to all the duties and 
 requirements, contained in an act passed on the third day of March, 
 A. D. 1809, entitled 'An Act defining the general powers and duties 
 of manufacturing corporations,' and the several acts in addition there- 
 to." The second section gave the company power to hold such real 
 and personal property to certain amounts, as might be found necessary 
 and convenient for carrymg on the manufacture of malt liquors in the 
 city of Boston. , , , ., 
 
 The general .manufacturing, act pf 1809, referred to in the charter, 
 had this clause, as a proviso of the seventh section thereof: "Pro- 
 vided, always, that the Legislature, rnay from time to time, upon due 
 notice to any corporation^ make further provisions and regulations 
 for the management of the business of the corporation and) for the 
 gfovernment thereof, or wholly to repeal any act or part thereof, es- 
 tablishing any corporation, as. shall be deemed expedient." 
 
 A substitute for this act was passed in 1829, which repealed the 
 act of 1809, and all acts in addition thereto, with this qualification: 
 "But this repeal shall not affect the existing rights of any person, 
 or the existing or future liabilities of any corporation, or any mem- 
 bers of any corporation now established, until such corporation shall 
 have adopted this act, andl complied with the provisions herein con- 
 tained." 
 
 It thus appears that the charter of the company, by adopting the 
 provisions of the act of 1809, became subject to a reserved power of 
 the Legislature to make further provisions and regulations for the 
 management of the business of the corporation and for the govern- 
 ment thereof, or wholly to repeal the act, or any part thereof, estab- 
 lishing the corporation. This reservation of the power was a part 
 of the contract. 
 
 But it* is contended by the company that the repeal of the Act of 
 1809 by the Act of 1829 was a revocation or surrender of this re- 
 serVed power. 
 
 We cannot so regard it. The charter of the company adopted the 
 provisions of the Act of 180^/ as a portion of itself ; and those provi- 
 sions remained a part of the charter notwithstanding the subsequent 
 repeal of the act. The Act of 1829 reserved a similar power to amend 
 
Sec. 2') POWBB TO ALTJEE OB AMEND CHAETBB 687 
 
 or repeal that act at the pleasure of the Legislature, and declared that 
 all corporations established under it should cease ahdl ejcpire at the 
 same time when the act should be repealed. It can hardly be sup- 
 posed that the Legislature, when it reserved siich plenary powers over 
 the corporations to be organized under the new act, intended! to re- 
 linquish all its powers over the corporations organized under or sub- 
 ject to the provisions of the former act. The qualification of the re- 
 peal of the Act of 1809, before referred to, seems to be intended not 
 only to continue the existence of the corporations subject to it in the 
 enjoyment of all their privileges, but subject to all their liabilities, 
 of which the reserved legislative control was one. 
 
 If this view is correct, the Legislature of Massachusetts had re- 
 served complete power to pass any law it saw fit, which might affect 
 the powers of the plaintiff in error. 
 
 But thervC is another question in the case, which, as it seems to us, 
 is equally decisive. 
 
 The plaintiff in error was incorporated "for the purpose of manu- 
 facturing malt liquors in all their varieties," it is true ; and the right 
 to manufacture, undoubtedly, as the plaintiff's counsel contends, in- 
 cluded the incidental right to dispose of the liquors manufactured. 
 But although this right or capacity was thus granted in the most un- 
 qualified form, it cannot be construed as conferring any greater or 
 more sacred right than any citizen had to manufacture malt liquor; 
 nor as exempting the corporation from any control therein to which 
 a citizen would be subject, if the interests of the community should 
 require it. If the public safety or the public morals require the dis- 
 continuance of any manufacture or traffic, the hand of the Legisla- 
 ture cannot be stayed from providing for its discontinuance, by any 
 incidental inconvenience which individuals or corporations may suffer. 
 All rights are held subject to the police power of the State. 
 
 We do not mean to say that property actually in existence and in 
 which the right of the owner has become vested, may be taken for 
 the public good without due compensation. But we infer that the 
 liquor in this case, as in the case of Bartemeyer v. Iowa, 18 Wall. 129, 
 21 L. Ed. 929, was not in existence vi^hen the liquor law of Massachu- 
 setts was passed. Had the plaintiff in error relied on the existence of 
 the property prior to the law, it behooved it to show tliat fact. But no 
 such fact is shown, and no such point is taken. The plaintiff in error 
 boldly takes the ground that, being a corporation, it has a right, by 
 contract, to manufacture and sell beer forever, notwithstanding and 
 in spite of' any exigencies which may occur in the morals or the health 
 of the community, requiring such manufacture to cease. We db not 
 so understand the rights of the plaintiff. The Legislature had no pow- 
 er to confer any such rights. 
 
 Whatever differences of opinion may exist as to the extent and 
 boundaries of the police power, and however difficult it may be to 
 render a satisfactory definition of it, there seems to be no doubt that 
 
688 LEGISLATIVE CONTROL (Ch.-6 
 
 it does extend to the protection of the lives, health, and property of 
 the citizens, and to the preservation of good order and the public 
 morals. The Legislature cannot, by any contract, divest itself of 
 the power to provide for these objects. They belong emphatically 
 to that class of objects which demand the application of the maxim, 
 salus populi suprema lex; and they are to be attained and provided 
 for by such appropriate means as the legislative discretion may de- 
 vise. That discretion can no more be bargained away than the power 
 itself. Boyd v. Alabama, 94 U. S. 645, 24 L. Ed. 302. 
 
 Since we have already held, in the case of Bartemeyer v. Iowa, 
 that as a measure of police regulation, looking to the preservation of 
 public morals, a State law prohibiting the manufacture and sale of 
 intoxicating liquors is not repugnant to any clause of the Constitu- 
 tion of the United States, we see nothing in the present case that 
 can afford any sufficient ground for disturbing the decision of the 
 Supreme Court of Massachuse^tts. 
 
 Of course, we do not mean to lay dovyn any rule- at variance with 
 what this Court has decided with regard to the paramount authority 
 of the Constitution and laws of the United States, relating to the 
 regulation of commerce with foreign nations and among the several 
 States, or otherwise. Brown v. Maryland, 12 Wheat. 419, 6 L. Ed. 
 678; License Cases, 5 How. 504, 12 L. Ed. 256; Passenger Cases, 
 7. How. 283, 12 L. Ed. 702; Henderson v. Mayor of New York, 92 
 U. S. 259, 23 L. Ed. 543 ; Chy Lung v. Freeman, 92 U. S. 275, 23 
 L. Ed. 550; Railroad Company v. Husen, 95 U. S. 465, 24 L. Ed. 
 527. That question does not arise in this case.^' Judgment affirmed. 
 
 WEST RIVER BRIDGE CO. v. DIX et al. 
 (Supreme Court of the United States, 1847. 6 How. 507, 12 L. Ed. 535.) 
 
 Writ of error to the Supreme Court of Vermont, complaining of 
 a judgment of that Court, sustaining a proceeding in the County 
 Court, authorized under the laws of Vermont, by which the toll bridge 
 of the West River Bridge Company was appropriated for a public 
 highway, compensation being awarded to. the Bridge" Company, in 
 manner and form prescribed by the laws of Vermont. The Bridge 
 Company claims the laws under which its property was appropriated 
 is repugnant to the tenth section of the first article of the Constitution 
 prohibiting the passage of state laws impairing the obligation of con- 
 tracts.^* 
 
 McLean, J.^' As this is a constitutional question of considerable 
 
 15 See Eagle Insurance Co. v. Ohio, 153 U. S. 446, 14 Sup. Ct 868, 38 L. Ed. 
 778 (1893). 
 ■ 18 Statement of facts substituted. 
 
 1' The concurring opinions of Justices Daniel and Woodbury and the dis- 
 senting opinion of Justice Wayne are omitted. 
 
Sec. 3) POWEE TO ALTBE OE AMEND CHAETEE 
 
 689 
 
 practical importance, I will state succinctly my general views on the 
 subject. 
 
 The West River Bridge, under the statutes of Vermont, was ap- 
 propriated to public purposes. And it is alleged that the charter 
 under which the bridge was built and possessed by such appropriation 
 was impaired. Our inquiry is limited to this point. For whatever 
 injury the proceeding may have done to the interests of the corpora- 
 tion, unless its contract with the State was impaired, we have no 
 jurisdiction of the case. 
 
 The power in a State to take private property for public use, is 
 undoubted. It is an incident to sovereignty, and its exercise is often' 
 essential to advance the public interests. This act is done under the 
 regulations of the State. If those regulations have not been strictly 
 observed, that is not a matter of inquiry for this court. The local 
 tribunals have the exclusive power in such cases. 
 
 This act by a State has never been held to impair the obligations 
 of the contract by which the property appropriated was held. The 
 power acts upon the property, and not on the contract. A State 
 cannot annul or modify a grant of land fairly made. But it may 
 take the land for public use. This is done by making compensation 
 for the property taken, as provided by law. But if it be an appro- 
 priation of property to public use, it cannot be held to impair the 
 obligations of the contract. 
 
 It is insisted, that this was a pretended exercise of the power of 
 the eminent domain, with the view of destroying the force and obli- 
 gation of the plaintiffs' charter. 
 
 This whole proceeding was under a standing law of the State, and 
 it was sanctioned, on an appeal, by the supreme court of the State. 
 A procedure thus authorized by law, and sanctioned, cannot be lightly 
 regarded. It has all the solemnities of a sovereign act. 
 
 But it is said that the franchise of the plaintiff cannot be denomi- 
 nated property; that "it included the grant of no property, real or 
 personal ; that it lay in grant, and .not in livery." 
 
 If the action of the State had been upon the franchise only, this 
 objection would be unanswerable. The State cannot modify or re- 
 peal a charter for a bridge, a turnpike-road, or a bank, or any other 
 private charter, unless the power to do so has been reserved in the 
 original grant. But no one doubts the power of the State to take a 
 banking-house for public use, or any other real or personal property 
 owned by the bank. In this respect, a corporation holds property 
 subject to the eminent domain, the same as citizens. The great ob- 
 ject of an act of incorporation is, to enable a body of men to exer- 
 cise the faculties of an individual. Peculiar privileges are sometimes 
 vested in the body politic, with the view of advancing the conven- 
 ience and interests of the public. 
 
 The franchise no more than a grant for land can be annulled by 
 RicH.CoEp. — 44 
 
G90 LEGISLATIVE CONTEOL (Ch. 6 
 
 the State. These muniments of right are alike protected. _ But the 
 property held under both, is held subject to a public necessity, to be 
 determined by the State. In either case, the property being taken, - 
 renders valueless the evidence of right. But this does not, in the 
 sense of the constitution, impair the contracts. The bridge, and the 
 ground connected with it, together with the right of exacting toll, are 
 the elements which constitute the value of the bridge. The situation 
 and productiveness of the soil, constitute the value of land. In both 
 cases, an estimate is made of the value, under prescribed forms, and 
 ,it is paid when the property is taken for public use. And in these 
 cases the evidences of right are incidents to the property. 
 
 No State could resume a charter, under the power of appropri- 
 ation, and carry on the functions of the corporation. A bank charter 
 could not be thus taken, and the business of the bank continued for 
 public purposes. Nor could this bridge have been taken by the State, 
 and kept up by it, as a toll-bridge. This could not be called an ap- 
 propriation of private property to public purposes. There would be 
 no change in the use, except the application of the profits, and this 
 would not bring the act within the ptower. The power must not only 
 be exercised bona fide by a State, but; the property, not its product, 
 must be applied to public use. 
 
 It is argued that, if the State may take this bridge, it may transfer 
 it to other individuals, under the same or a different charter. This 
 the State cannot do. It would in effect be taking the property from 
 A to convey it to B. The public purpose for which the power is 
 exerted, must be real, not pretended. If in the course qi time the 
 property, by a change of circumstances, should no longer be required 
 for public "use it may be otherwise disposed of. But this is a cafee 
 not likely to occur. The legality of the act depends upon the facts and 
 , circumstances under which it was done. If the use of land taken by 
 the public for a highway, should be abandoned, it would revert to 
 the original proprietor and owner of the fee. 
 
 It is objected that this bridge, being owned by a corporation, and 
 used by the public, does not come within the designation of private 
 property. All property, whether owned by an individual or individ- 
 uals, a corporation aggregate or sole, is within the term. In short, 
 ,all property notT>ublic is private. 
 
 The use of this bridge, it is contended, is the same as before the 
 act of appropriation. The public use the bridge now as before the 
 act of appropriatiori. But it was a toll-bridge, and by the act it is 
 made free. The use, therefore, is not the same. The tax assessed 
 on the citizens of the town,' to keep up and pay for the bridge, may 
 be impolitic or unjust; but that is not a matter for the consideration 
 of this court. 
 
 It is supposed, if this power is sustained by the State of Vermont, 
 it will be in the' power of a State to seize the evidences of its indebt- 
 
Sec. 2) POWBE TO ALTER OE AMEND OHARTEB 691 
 
 merit in the hands of its citizens, or within its jurisdiction, have their 
 value assessed, and, by paying the amount, extinguish them. Such 
 a case bears no analogy to the one before us. The contract only 'is 
 acted upon in the case supposed. The obligation to pay the money 
 by the State, is materially impaired which brings the case within the 
 constitution. But the appropriation of property affects the contract 
 or title by which it is held only incidentally. This, it is said, is an 
 extremely technical distinction, and is not sustainable, as it enables a 
 State to do indirectly what the constitution prohibits. 
 
 However nice the distinction may seem to be, when examined, it 
 will be found substantial. 
 
 The power of appropriation by a State, has never been held by 
 any judicial tribunal as impairing the obligation of a contract, in the 
 sense of the constitution. And this power has been frequently exer- 
 cised by all the States, since th^ adoption of the constitution. In 
 the Sth article of the amendments to the constitution, it is declared: 
 "Nor shall private property be taken for public use, without just 
 compensation." This refers to the action of the federal government ; 
 but a similar provision is contained in all the state constitutions. 
 Now, the constitution does not prohibit a State from impairing the 
 obligation of a contract, unless compensation be made; but the inhi- 
 bition is absolute. So that if such an act come within the prohibi- 
 tion, the act is unconstitutional. But this power has been exercised 
 by the States,* since the foundation of the government, and no one has 
 \ supposed that it was prohibited by that clause in the constitution 
 which inhibits a State "from impairing the obligations of a contract." 
 
 The only reasonable ' result, therefore, to which we can come is, 
 that the power in the State is an independent power, and does not 
 come within the class of cases prohibited by the constitution. 
 
 This view gives effect to the constitution in imposing a salutary 
 restraint upon legislation affecting contracts, but leaves ^the States 
 ' free in their exercise of the eminent, domain, which belongs to their 
 sovereignties, is essential for the advancement of internal improve- 
 ments, and acts only upon property within their respective jurisdic- 
 tions. The powers do not belong to the same class. That which 
 acts upon contracts and impairs their obligation, only is prohibited.'* 
 
 Note. — Legislative Control of Corporations, under the police power and 
 the powers of eminent domain and taxation, is dealt with in Hall's Cases on 
 Constitutional Law, American Casebook Series. 
 
 18 Accord: Village of Hyde Park v. Oakwoods Cemetery Ass'n, 119 111. 141, 
 7 N. E. 627 (1886). 
 
692 DISSOLUTION (Ch. 1 
 
 CHAPTER VII 
 DISSOLUTION 
 
 SECTION 1.— METHODS OF DISSOLUTION 
 
 MASON et al. v. SUPREME COURT OE EQUITABLE LEAGUE 
 OF BALTIMORE CITY. 
 
 (Supreme Court of Maryland, 1893. 77 Md. 483, 27 Atl. 171, 
 39 Am. St. Rep. 433.) 
 
 Fowler, J. The appellants filed a bill in the circuit court of Balti- 
 more city against the appellee, a corporation formed under the gen- 
 eral incorporation law of Maryland, and the prayer is that a receiver 
 may be appointed to take charge of and administer the assets of the 
 defendant corporation under the order of the court, and for an injunc- 
 tion restraining the officers and agents of said defendant from receiv- 
 ing or collecting any money or assessments due or coming to it, and 
 from interfering with its property or assets, and for general relief. 
 The defendant answered, testimony was taken, and a decree was passed 
 dismissing the bill. The appellee is what is known as a "beneficial 
 assessment association." 
 
 The first question is one of jurisdiction, and we are all of opinion 
 that the learned judge below p^^operly refused to appoint a receiver 
 and issue the injunction on the allegations contained in the bill, for 
 the granting of such relief would necessarily result in a dissolution 
 of the corporation and a forfeiture of its charter. 
 
 The defendant was not alleged to be insolvent ; certainly not so al- 
 leged as to bring the case within section 264 of article 23 of the Code ; 
 and, even if the allegation of insolvency had been sufficient, we find 
 no proof to sustain it. Nor are there any allegations in the bill look- 
 ing to proceedings under section 265 of the same article, providing 
 for a voluntary dissolution. 
 
 Apart from statutory power, a court of equity cannot dissolve a 
 corporation. "It is true," says Mr. High in his book on Receivers, 
 (section 288,) "equity may properly compel officers of corporations to 
 account for any breach of trust in their official capacity; yet, in the 
 absence of statutes extending its jurisdiction, it will usually decline 
 to assume control over the management of the aflfairs of a corporation 
 upon a bill * * * alleging fraud, mismanagement, and collusion 
 on the part of the corporate authorities, since such interference would 
 
Sec. 1) METHODS OF DISSOLUTION 693 
 
 necessarily result in the dissolution of the corporation, and the court 
 would thus accomplish indirectly what it has no power to do directly. 
 
 The remedial power exercised by courts of equity, in such cases, 
 ordinarily extends no further than the granting of an injunction 
 against any special misconduct on the part of the corporate officers; 
 and, although the facts shown may be sufficient foundation for such 
 an injunction, the court will not enlarge its jurisdiction by taking the 
 affairs of the corporation out of the management of its own officers,- 
 and placing them in the hands of a receiver." We have quoted at 
 length Mr. High's lucid statement of the well-settled principles ap- 
 plicable to a case like this, because, in our opinion, it is conclusive of 
 the question we are considering. This court, however, has announced 
 the same doctrine. 
 
 In Goodman v. Jedidljah Lodge, etc., 67 Md. 117, 9 Atl. 13, 13 Atl. 
 627, which was a bill filed by a minority of the members of a beneficial 
 association, alleging fraud, mismanagement, etcs, on the part of the 
 corporate authorities, it was held that, even if the corporation had 
 been guilty of the acts complained of, this would only be cause for 
 the annulment of its charter by the legislature, or for proceedings 
 against it as provided by the corporation laws. Rev. Code, p. '684, art. 
 67, §§ 1-9. A corporation can also be dissolved, but the mode for 
 doing this is also provided by law. Id. §■§ 10-22. 
 
 "But," continues this court, "this bill is not a proceeding under 
 either of these provisions of the Code» and the court has no power 
 upon such a bill either to dissolve the corporation, or to forfeit its 
 charter, or to correct any supposed misuse or abuse of its corporate 
 powers, and it seems to us that the successful prosecution of one or 
 the other of these remedies is -essential to the relief asl^ed by these com- 
 plainants." 
 
 But if the defendant corporation has, as alleged, issued or made 
 contracts of insurance, this, if an abuse of corporate power, could 
 not be reached by a bill, like the one before us, filed by a member 
 or certificate holder for the dissolution of the corporation; but such 
 proceedings for such purpose must, under the provisions of Code, art. 
 23, § 255, be instituted in the name of the state by authority of the 
 governor. 
 
 We may add, however, that, aside from any question of jurisdic- 
 tion, we do not think the appellants are entitled to the relief asked, 
 upon the facts contained in this record. 
 
 The testimony as to insolvency, mismanagement, fraud, and abuse 
 of corporate powers is not of such a satisfactory and conclusive char- 
 acter as would justify the court, if it had the power, in destroying 
 the corporation. Railroad Co. v. Cannon, 72 Md. 493, 20 Atl. 123. 
 The appellants had ample opportunity to enforce their alleged rights 
 and claims. If they were unjustly excluded from the benefits and priv- 
 ileges of membership, the rules of the order provided a mode by which 
 they could demand restoration at the hands of a tribunal established 
 
694 DISSOLUTION (Ch. 7 
 
 by the order itself, (section 310, art. 7, Constitution of the Order;) 
 and, if they failed to get justice within the order, they still had the 
 right to appeal to the law of the land. 
 
 If the officers of the order should be guilty of misconduct, fraud, 
 or mismanagement, a court of equity has full, power to restrain and 
 enjoin them; but it will not, as we have seen, take away the rights 
 of the share or certificate holders, either by dissolving the corporation 
 or by placing its affairs in the hands of a receiver. High, Rec. § 288 ; 
 Waterbury v. Express Co., 50 Barb. (N. Y.) 166; Railroad! Co. v. 
 Cannon, 72 Md. 493, 20 Atl. 123:, 
 
 Decree affirmed, with costs to appellants. 
 
 NEW YORK & L. I. BRIDGE CO. v. SMITH et al. 
 (Court of Appeals of New York, 1896. 148 N. Y. 540, 42 N. E. 1088.) 
 
 Bartlett, J.^ The main question presented by this appeal is wheth- 
 er the New York & Long Island Bridge Company was, at the time 
 this proceeding was instituted, an existing corporation dhily authorized 
 to acquire title to the land of the defendant Smith, for the purposes 
 of constructing the bridge and its approaches. 
 
 The learned counsel for the appellant rests his attack upon the cor- 
 porate existence on various distinct grounds, and a proper considera- 
 tion of them involves a full examination of the legislation under which 
 the bridge company claims the right to maintain ths proceeding. 
 
 The appellant takes a preliminary point which, if sound, would re- 
 quire a reversal of the order appealed from, and a dismissal of this 
 proceeding. 
 
 The act incorporating the bridge company (chapter 395, Laws 1867) 
 provides in the twelfth section thereof that the bridge shall iJe com- 
 menced within two. years from the passage of the act, and shall be 
 continued without unreasonable delay, until it is completed, "or this 
 act and all rights and privileges granted hereby shall be null and void." 
 
 It is the contention of appellant's counsel that this forfeiture clause 
 is self-executing, and, as it is admitted that the work was not com- 
 menced within two years, from the passage of the act, the bridge com- 
 pany, ipso facto, ceased to exist. 
 
 We are referred to a large number of authorities as sustaining this 
 position, and, among others, to several cases in this court. 
 
 It is to be observed that the question as to whether a forfeiture 
 clause is or is not self-executing depends wholly upon the language 
 employed by the legislature. 
 
 Our attention is called particularly to In re Brooklyn, W. & N. Ry. 
 Co., 72 N. Y. 245, and Brooklyn Steam Transit Co. v. City of Brook- 
 lyn, 78 N. Y. 524. 
 
 1 Facts sufficiently stated In the opinion, a part of which Is omitted. 
 
Sec. 1) METHODS OF DISSOLUTION 695 
 
 In the first case the words of forfeiture were, "Its corporate exist- 
 ence and powers shall cease," and this court held that upon default 
 the corporation's existence and powers ceased, without judicial pro- 
 ceedings. In the second case the words of forfeiture were, "This act 
 and all the powers, rights, and franchises herein and hereby granted 
 shall be deemed forfeited and terminated," and this court held the 
 clause to be self-executing, thereby recognizing the undoubted power 
 of the legislature to provide that corporate existence shall cease by 
 the mere fact of failure of the corporation to perform certain acts 
 imposed by the charter. 
 
 It requires, however, strong and! unmistakable ' language, such as 
 each of the cases referred to presents, to authorize the court to hold 
 that it was the intention of the legislature to dispense with judicial 
 proceedings on the intervention of the attorney general. 
 
 In the case at bar the words of forfeiture are, "All rights and priv- 
 ileges granted hereby shall be null and void." 
 
 It cannot be said that the words "shall be null and void)" disclose 
 the legislative intent to make this clause self-executing. The words 
 "null and void," as used in this connection, olearly mean voidable. 
 The word "void" is often used in an unlimited sense, implying an act 
 of no effect, a nullity ab initio. Inskeep v. Lecony, 1 N. J. Law, 1 12. 
 In the case at bar it was not so employed, but rather in its more limited 
 meaning. 
 
 We think these words mean no more than if the legislature had said, 
 in case of default, the corporation "shall be dissolved." The attorney 
 general was authorized to treat the charter of the bridge company as 
 voidable, and, by appropriate legal proceedings to have terminated its 
 corporate existence. 
 
 The supreme court of the United States, in passing upon the 
 meaning of the words "void and of no effect," uses this language: 
 "But these words are often used in statutes and legal documents 
 * * *, in the sense of 'voidable' merely, — that is, capable of being 
 avoided, — and not as meaning that the act or transaction is absolutely 
 a nullity, as if it never had existed, incapable of giving rise to any 
 rights or obligations under any circumstances." Ewell v. Daggs, 108 
 U. S. 148, 2 Sup. Ct. 408, 27 t. Ed. 682. 
 
 IJolding, as we do, that the forfeiture clause in the act of 1867 was 
 not self-executing, we find, in the various acts^ amending the act of 
 1867, repeated waivers by the legislature of the failure of the bridge 
 company to begin its work within two years from the passage of the 
 act of 1867. * * * Order affirmed.* 
 
 2 Compare Oakland Ry. Co. t. Oakland Brooklyn Ry. Co., 45 Cal. 365, 13 
 Am. Rep. 181 (1873). 
 
G96 DISSOLUTION (Ch. 7 
 
 STATE SAVINGS ASS;N OF ST. LOUIS v. KELLOGG et al. 
 (Supreme Court of Missouri, 1873. 52 Mo. 583.) 
 
 Wagner, J.° This was an action against the defendants, as stock- 
 holders of the Southwestern Freight & Cotton Press Company. The 
 petition alleges the organization of the company as a corporation un- 
 der the laws of this State, its existence as such corporation in 1869, 
 its becoming indebted to plaintiff in the. same year, and its dissolution 
 in June, 1869. The averment is that in June, 1869, the said corporation 
 became wholly insolvent and bankrupt, and presented its petition to 
 the United States District Court andl was in that month declared a 
 bankrupt, and was totally without funds or means, whereby it be- 
 came dissolved being unable by reason of a total want of funds and 
 means to exercise its corporate powers. 
 
 The answer of the defendants denies that they or either of them 
 are in i.ny manner liable to the plaintiffs, but there is no denial of 
 the insolvency of the incorporation. At the trial plaintiff proved the 
 indebtediness of the corporation as stated in the petition. The case 
 was then submitted on the pleadings and proofs, and at the request of 
 the defendants the court declared the law to be, that the plaintiffs 
 could not recover. This action was brought under the statute (1 W. 
 S. p. 293, § 22) which declares, if any company formed, under this 
 act dissolve leaving debts unpaid, suits may be brought against any 
 person or persons who were stockholders at the time of such dissolu- 
 tion, without joining the company in such suit. 
 
 The first question is, whether the insolvency of the company amount- 
 ed to a dissolution so as to give the plaintiffs the right to pursue this 
 remedy. 
 
 In the case of Moore v. Whitcomb, 48 Mo. 543, it was held that 
 a corporation might be dissolved by a surrender of its franchises, and 
 if it suffered acts to be done which had the effect of destroying the 
 end or object for which it was created, it was equivalent to a sur- 
 render of its rights and in effect a dissolution. 
 
 In the above cited case we mainly followed the leading case of 
 Slee V. Bloom, 19 Johns. 456, 10 Am. Dec. 273, where the qiiestion 
 is most thoroughly examined in the Court of Errors, in the State of 
 New York. In that case it appears that pursuant to a statute the de- 
 fendants associated together for establishing a cotton manufactory, 
 and became a corporation according to the provisions of the statute. 
 For the space of one month there was no meeting of the trustees, nor 
 any business or act done by the corporation; then all the property 
 of the corporation real and personal was sold by the sheriff under 
 an execution. Shortly thereafter the plaintiff, a creditor of the cor- 
 poration, filed his bill against the defendants to charge them under 
 
 s Facts sufficiently stated in tSie opinion, a part of which is omitted. 
 
Sec. 1) METHODS OP DISSOLUTION 
 
 697 
 
 the provisions of the act, as individually responsible for the debts 
 of the corporation to the extent of their respective shares of stock, 
 alleging that the corporation was to be considered as dissolved after 
 the selling of all its property by the sheriiJ. ' 
 
 The court held that the corporation within the meaning and intent 
 of the act, as regarded creditors, was dissolved, after ceasing to act 
 as a corporation for such a length of time, and after a sale of all its 
 property, and that the defendants were individually responsible for 
 the debts of the corporation according to the act. 
 
 In the course of his able opinion Chief Justice Spencer said: "In 
 point of good sense, this corporation was dissolved within the meaning 
 and intent of the act, as regards creditors when it ceased to own any 
 property, real or personal, and when it ceased for such a space of 
 time, from doing any one act manifesting an intention to resume their 
 corporate functions. The end, being and design of the corporation 
 were completely determined, and if even it had the capacity to reor- 
 ganize, and re-invigorate itself, the case has happened when, as relates 
 to its creditors, it is dissolved." The learned judge continued that, 
 with respect to the period of dissolution it happened when all the prop- 
 erty of the company was sold and that after that time no corporate 
 act was done. So in Penniman v. Briggs, Hopk. Ch. (N. Y.) 3D0; 
 s. c, 8 Cow. (N. Y.) 387, 18 Am. Dec. 454, where a manufacturing 
 corporation, established under the same general law as that just al- 
 luded to, for twenty years, became insolvent within the time, and in- 
 competent to act by the loss of all its funds, and under the provisions 
 that "for all debts which shall be due and owing by the company at 
 the time of its dissolution, the persons then composing the company 
 should! be individually responsible to the extent of their respective 
 shares of stock in the company and no further," it was decided that 
 the corporation was to be deemed disso'lved for the purpose of the 
 remedy by the creditors against the stockholders individually. 
 
 It may be admitted that the old and well established principle of 
 law remains good as a general rule, that a corporation is not to be 
 deemed dissolved by reason of any mis-user or non-user of its fran- 
 chises, until the default has been judicially ascertained and declared. 
 But it must be observed, that the plaintiff has no control over the pro- 
 cess or remedy to dissolve this corporation, eiither for non-user or 
 for any other cause. It is necessary that the State through its law 
 officer should institute slich proceedings. Then if we are to consider 
 this corporation in existence, the plaintiff as a creditor before it can 
 have any remedy, must wait till the charter expires by limitation of 
 time, or until the law officer of the State shall see fit to institute pro- 
 ceedings to vacate it.; which may never happen. In the meantime the 
 creditor is wholly remediless. A doctrine so unreasonable, ought not 
 to find any sanction or support. , ^ 
 
 Now the averment in the petition was that when the company pre- 
 sented its petition to the United States District Court, it was dissolved, 
 
G98 DISSOLUTION (Ch. 7 
 
 being wholly unable, by reason of a total want of funds and means, 
 to exercise its corporate powers. The answer admitted the total want 
 of funds and means, the absolute destitution of assets, but denied 
 the legal inference that the corporation was thereby dissolved within 
 the meaning or sense in which that word is used in the statute. 
 
 When the corporation was utterly penniless, for what end or object 
 did it continue? What good did it do the creditor to be told that there 
 was the naked shadow but that the substance was all gone? The 
 corporation for all essential purposes was as effectually dissolved as 
 if a solemn judgment of court had been pronounced to that effect. I , 
 have no hesitation in coming to the opinion that there was such a dis- 
 solution as would afford creditors a remedy against the individual 
 shareholders. * * * 
 
 I am of the opinion the judgment should be reversed, and the cause 
 remanded. The other judges concur, except Judge Sherwood, who 
 is absent.* 
 
 BOSTON GLASS MANUFACTORY v. LANDGON. 
 
 (Supreme Judicial Court of Massachusetts, 1834. 24 Pick. 49, 35 Am. Dec. 
 
 292.) 
 
 Assumpsit on a promis^sory note given by the defendant to the 
 plaintiffs. The defendant pleads in abatement, that at the time of 
 the purchase of the writ there was not, and now is not, any such 
 corporation established by law, called the Boston Glass Manufactory, 
 as in and by the writ is supposed. The plaintiffs' reply that there was 
 and is such a corporation; and tender an issue; which is joined. 
 
 To sustain the defence evidence was introduced showing an assign- 
 ment by the corporation fof the benefit of creditors executed May 
 27th, 1827 ; also a failure to hold annual meetings or transact business 
 subsequent to such assignment. 
 
 The jury were instructed that the evidence was competent to prove 
 the establishment and continuance of the corporation down to the pres- 
 ent time. 
 
 The jury found a verdict for the plaintiffs for the full amount of the 
 note and interest. The defendant excepted to the rulings of the Court 
 and moved for a new trial." 
 
 Morton, J.' The non-existence or death of the plaintiff may prop- 
 erly be pleaded in abatement. 1 Chit. PI. 482 ; Story, PI. 24. But 
 whether, as it entirely and perpetually destroys the plaintiff's right 
 to recover, it may not also be pleaded in bar, it is not necessary to de- 
 termine. Proprietors of Monumoi v. Rogers, 1 Mass. 159; First 
 
 * Contra: Chamberlin v. Huguenot Mfg. Co., 118 Mass. 532 (1875); Scheuer 
 V. Smith & Co., 112 Fed. 407, 50 C. O. A. 312 (1901). 
 5 Statement of facts substituted. 
 8 Shaw, C. J., did not sit in the cause. 
 
Sec. 1) METHODS OF DISSOLUTION 699 
 
 Parish in Sutton v. Cole, 3 Pick. 245. Whether the plea conclude in 
 abatement or bar, thfe issue being found against the defendant, the 
 judgment must be peremptory. The established rule is, that in dila- 
 tory pleas, when the issue is found against the defendant on matters 
 of fact, the judgment must be in chief. Gould, PI. 300: Howe. Prac. 
 215. 
 
 The principal' question for our consideration is, whether judgment 
 shall be rendered on the verdict. The defendants' counsel contends 
 that the evidence introduced will not support the verdict, but that the 
 ' verdict is against the evidence and the law and should be set aside. 
 
 The point which has been determined by the jury, though necessary 
 to be submitted to them with proper instruction's, is quite as much a 
 matter of law as of fact; and we the more readily enter into the 
 examination of it. 
 
 The legal establishment and due organization of the corporation 
 were admitted; but it was contended that the facts disclosed showed 
 a dissolution of it. > 
 
 The elementary treatises on Corporations describe four methods in 
 which they may be dissolved. It is said that private corporations may 
 lose their legal existence by the act of the legislature ; by the death of 
 all the members, by a forfeiture of their franchises ; and by a surren- 
 der of their charters. 2 Kyd, Corp. 447; 1 Bl. Comm. 485; 2 Kent, 
 Comm. (1st Ed.) 245; Ang. & A. Corp. 501; Oakes v. Hill, 14 Pick. 
 442. No other mode of dissolution is anywhere mentioned or al- 
 luded to. 
 
 1. In England, where the parliament is said to be omnipotent, and 
 where in fact there is no constitutional restraint upon their action, but 
 their own discretion and sense of right, corporations are supposed to 
 hold their franchises at the will of the legislature. But if they possess 
 the power to annul charters, it certainly has been rarely exercised by 
 them. In this country, where the legislative piower is carefully de- 
 fined by explicit fundamental laws, by which it must be governed and 
 beyond which it cannot go, it has become a question of some difficulty 
 to determine the precise extent of their authority in relation to the 
 revocation of charters granted by thfm. But as it is not pretended 
 that there has been any legislative repeal of the plaintiffs' charter, it 
 will not be useful further to discuss this branch of the subject. 
 
 2. As all the original stockholders are not deceased, the corporation 
 cannot' be dissolved for the want of members to sustain and exer- 
 cise the corporate powers. Besides, this mode of dissolution cannot 
 apply to pecuniary or business corporations. The shares, being prop- 
 erty, pass by assignment, bequest, or descent, and must ever remain 
 the property of some persdns, who of necessity must be members of 
 the corporation, as long as it may exist. 
 
 3. Although a corporation may forfeit its charter by an abuse or 
 misuser of its powers and franchises, yet this can only take effect upon ■ 
 a judgment of a competent tribunal. 2 Kent, Comm. (1st Ed.) 249; 
 
700 DISSOLUTION _ (Ch. 7 
 
 Corporation of Colchester v. Seaber, 3 Burrows, 1866; Smith's Case, 
 4 Mod. S3. Whatever neglect of duty or abuse of power the corpora- 
 tion may have been guilty of, it is perfectly clear that they have not 
 lost their charter by forfeiture. Until a judicial decree to this effect 
 be passed, they will continue their corporate existence. King v. 
 Amery, 2 Term R. 515. 
 
 4. Charters are in many respects compacts between the government 
 and the corporators. And as the former cannot deprive the latter of 
 their franchises in violation of the compact, so the latter cannot put 
 an end to the compact without the consent of the former. It is equally 
 obligatory on both parties. The surrender of a charter can only be 
 niade by some formal solemn act of the corporation; and will be of 
 no avail until accepted by the government. There must be the same 
 agreement of the parties to dissolve, that there was to form the com- 
 pact. It is the acceptance which gives efficacy to the surrender. The, 
 dissolution »f a corporation, it is said, extinguishes all its debts. The 
 power of dissolving itself by its own act, would be a dangerous power 
 and one which cannot be supposed to exist. 
 
 But there is nothing in this case which shows an intention of the 
 corporators to surrender or forfeit their charter, nor anything which 
 can be construed into a surrender or forfeiture. 
 
 The possession of property is not essential to the existence of a cor- 
 poration. 2 Kent, Comm. (1st Ed.) 249. Its insolvency cannot, 
 therefore, extinguish its legal existence. Nor can the assignment of 
 all its property to pay its debts, or for any other purpose, have that 
 effect. The instrument of assignment was not so intended, and cannot 
 be so construed. All its provisions look to the continuance of the cor- 
 poration. It contains covenants that the assignees may use the cor- 
 porate name for the collection of the debts and the disposition of the 
 property assigned; that the corporation will not hinder or obstruct 
 them in the performance of these functions; that it will make any 
 further conveyances and assurances which may become necessary, and 
 will do and perform any other and further acts which may be required 
 to enable the assignees fully to execute their trust. The instrument 
 which covenants for future acts cannot be construed to take away 
 all power of action. 
 
 The omission to choose directors clearly does not show a dissolu- 
 tion of the corporation. Although the proper officers may be necessary 
 to enable the body to act, yet they are not essential to its vitality. 
 Even the want of officers and the want of power to elect them, would 
 not be fatal to its existence. It has a potehtiality which might by 
 proper authority be called into action, without affecting the identity 
 of the corporate body. Corporation of Colchester v. Seaber, 3 Bur- 
 rows, 1870. 
 
 But here in fact was no lack of officers. Although no directors had 
 been chosen for several years, yet, by the by-laws of the corporation, 
 
Sec. 1) METHODS OF DISSOLUTIOK 701 
 
 the directors, though chosen for one year, were to continue in office 
 till others were chosen in their stead. 
 
 The damages were properly assessed by the jury. The defendant 
 having elected to try her case upon a plea in abatement, must submit 
 to the legal consequences of that form of trial. Perhaps the court 
 might have assessed the damages as in case of default. But most 
 obviously the better course was to submit the subject to a jury. In 
 doing this the defendant could not be allowed to go into the whole 
 defence as upon the general issue. The rule adopted at the trial was 
 the correct one. i 
 
 Judgment according to verdict.^ 
 
 NEWTON MFG. CO. v. WHITE et al. 
 (Supreme Court of Georgia, 1871. 42 Ga. 148.) 
 
 LoCHRANE, C. J.« This was an action brought by the Whites 
 against the plaintiff in error; for the recovery of certain cotton, al- 
 leged to have been received by them under contract. The record is 
 voluminous and embraces the evidence of many witnesses upon ques- 
 tions of fact, found by the jury. We do not propose to review the 
 testimony, as the controlling question of the case turns upon |the law 
 governing corporations, and its application to the theory of defense 
 relied on by the defendant below. 
 
 The action was brought in the ordinary form of assumpsit, to the 
 March Term of Newton Superior Court. The return of the sheriff 
 upon the 26th February, 1867, is: "I have this day served Newton 
 Manufacturing Company with a copy of this writ, by leaving it at 
 their most notorious place of business." At the proper term the de- 
 fendant appeared by cqunsel and pleaded the general issue. Upon 
 these pleadings the case went to the jury, and a verdict was found 
 for the plaintiff. An appeal was entered, and when the case came on 
 for trial, the defendant pleaded "that at the time of the several sup- 
 posed promises and undertakings, etc. : to wit : in the year 1865, and 
 for several years previous thereto, to-wit: the year 1861, the de- 
 fendant was not using or exercising any of the franchises conferred 
 by its charter, that it had no officers or agents, appointed in accord- 
 ance with its by-laws, and was not capable of making contracts or 
 performing any of the functions of its corporate existence, but on 
 the contrary was dormant or in a state of suspension," etc. The 
 Court below held that this plea was filed too late, and disallowed any 
 evidence under it, showing, as -a corporation, it was incapable of 
 making the contract or was not operating within the forms of a charter. 
 
 1 See Attorney General v. Superior & St. Croix Ry. Co., 93 Wis. 605, 67 
 N. W. 1138 (1896). 
 
 8 Facts suflBclently stated in the opinion, a part of w^ich is omitted. 
 
702 DISSOLUTION (Gh. 7 
 
 The jury found for the plaintiffs, and a motion for a new trial on 
 several grounds, was made and overruled by the Court, and the case 
 comes before us by exceptions to the judgment of the Court refusing 
 a new trial. \ 
 
 This corporation was created under the Act of 1847, Cobb's Digest, 
 439, and is found under the classification of "Joint Stock Companies." 
 The parties, associating under this general Act of the Legislature, as 
 the "Newton Manufacturing Company," it appears by the record, 
 originally consisted of eight persons, who published, by requirement 
 of the law, their association. In this manner the company began busi- , 
 ness, and W. R. Phillips in 1863, by purchase of the stock, became 
 exclusive owner and controlled the Factory. Did this concentration 
 of the stock in the hands of one single owner destroy the corporate 
 rights and franchises of the "Newton Manufacturing Company"? 
 Under the peculiar character of this association, under the law, we do 
 not feel authorized to hold that such a purchase necessarily destroyed 
 the franchise; the object of the association was to carry on business 
 under a corporate name ; and when we find that the business was con- 
 tinued under that name, no matter whether, there was one or one 
 hundred owners of stock, the corporate name was equally within the 
 power of the one as of the one hundred to use and to carry on the 
 business. Nor was it necessary that by-laws in fact should have been 
 made, or officers elected.. These powers could or could not be exer- 
 cised at the option of the owner or owners of the stock, and property 
 of said company. All such^ rules and regulations for the government 
 of the business was a matter between the parties in interest, and ex- 
 cept published or brought to the notice of strangers, did not affect 
 them : Code, § 1679. And the fact that, in an association under the 
 Act of 1847, one of the stockholders finally buys up and owns all the 
 stock and property of the balance, and the whole lodges in him, does 
 not deprive such person from the usfe and lights of the charter, to 
 carry on the business, under the name adopted ; and the fact of being 
 the sole owner, if he goes on, and uses such name, does not abate suits 
 at law or equity filed against such corporation, although individual 
 property. 
 
 No corporation once legally existing dies, in contemplation of law, 
 without some act forfeiting its franchises, but it will be recognized by 
 the law, as long as it carries on its legitimate business, in its corporate 
 name, and through agents and persons who use that name in its trade 
 or business. It would be an anomalous doctrine, that one should pur- 
 chase all the stock of such a joint stock company, privately, and with-r 
 out giving notice of such ownership, should carry on the business, use 
 the corporate name, brands, stamps and trade-marks, and keep books 
 in its name, buy and sell in its name, and be permitted to plead its 
 dissolution, when sued by the very name in which it contracted, in 
 violation of the terms of its exjstence, that it could sue and be sued 
 by that name. Every corporation speaks by men, and its artificial ex- 
 
Sec. 1) METHODS OF DISSOLUTION 703 
 
 istence blends with that of its agents and officers. The corporate name 
 is nothing without the living men who use that name ; but when used 
 by those who are its proper agents, it is liable by that name to suit un- 
 der the provisions of its charter. The position this case occupies from 
 the evidence is, that the Newton Manufacturing Company continued 
 to do business, under its corporate name, its agents contracted, in its 
 name, with the plaintiffs, the receipt was in its name, and it was not 
 dead nor dormant so far as the parties to this case are concerned. If 
 it was alive to make this contract, the right of suit continues until the 
 liability is discharged. 
 
 If Mr. Phillips had, after his purchase of the stock, dohe business 
 openly in his own name, this would have ended the corporate name. 
 But from this record he used the corporate name to transact the- busi- 
 ness. Pennington swears that he gave receipts for Newton Manufac- 
 turing Company under the order of Phillips: "he directed me to 
 sign for Newton Manufacturing Company," not for "W. R. Phillips," 
 that he did not want it known that he was the "Newton Manufactur- 
 ing Company." Every witness in the case substantially sustains this 
 material fact, and we, therefore, are of the opinion that, inasmuch as 
 the Newton Manufacturing Company went on under its name to trans- 
 act its business, it was liable, in that name, to sue and be sued, and it 
 was not error in the Court to disallow testimony of its dormancy, 
 under the pleadings. * * * 
 
 Judgment affirmed.* 
 
 ATLANTIC & G. R. CO. v. GEORGIA. 
 (Supreme Court of the United States, 1878. 98 U. S. 359, 25 L. Ed. 185.) 
 
 The single question presented is whether a statute of the state of 
 Georgia, providing that "the property of railway companies shall be 
 taxed the same as that of other property of the people of the state," 
 impairs the obligations of the contract contained in the charter of the 
 plaintiff in error. The latter company is a result of a consolidation 
 of two. companies, authorized by the laws of the state, and succeeding 
 to the privileges and immunities of the constituent companies; the 
 contention being that the special form of taxation for the constituent 
 companies, contained in their charters, became a part of the charter of 
 thh plaintiff in error, and is impaired by the act complained of." 
 
 Strong, J.^^ * * * It is conceded that under this act a con- 
 solidation took place. It is, therefore, a vital question, What was its 
 
 » Accord: Eussell v. McLellan, 14 Pick. (Mass.) 63 (1833). Compare Swift 
 V. Smith, 65 Md. 428, 5 Atl. 534, 57 Am. Rep. '336 (1886) ; Louisville Banking 
 Co. V. Eisenman, 94 Ky. 83, 21 S. W. 531, 1049, 19 L. K. A. 684, 42 Am. St. 
 Rep. 335 (1894). 
 
 10 Statement of facts substituted. 
 
 11 A part of the opinion is omitted. 
 
704 DISSOLUTION (Ch. 7 
 
 effect? Did the consolidated companies become a new corporation, 
 holding its powers and privileges as such under the act of 1863? Or 
 was the consolidation a mere alliance between two pre-existing cor- 
 porations, in which each preserved its identity and distinctive exist- 
 ence ? Or, still further, was it an absorption of one by another, where- 
 by the former was dissolved, while the latter continued to exist ? The 
 answer to these inquiries must be found in the intention of the legis- 
 lature as expressed in the consolidating act. We think that intention 
 was the creation of a new corporation out of the stockholders of the 
 two. previously existing companies. The consolidation provided for 
 was clearly not a merger of one into the other, as was the case of 
 Central Railroad & Banking Co. v. Georgia, 92 U. S. 665, 23 L. Ed. 
 757. Nor was it a mere alliance or confederation of the two. If it 
 had been, each would have preserved its separate existence, as well 
 as its corporate name. But the act authorized the consolidation. of the 
 stocks of the two companies, thus making one capital in place of two. 
 It contemplated, therefore, that the separate capital of each company 
 should go out of existence as the capital of that company; and, if so, 
 how could either have a continued separate being? True, the proviso 
 to the first spction declared that nothing therein contained should re- 
 lieve or discharge either of the companies from any contract thereto- 
 fore entered into by either, adding: "But this company [that is, the 
 company created by the act] shall be liable on the same." 
 
 It is thus distinguished between the two original companies and the 
 one contemplated to be formed by their consolidation. And the proviso 
 would have been quite unnecessary, had it not been thought by the leg- 
 islature that the consolidation would work a dissolution of the amal- 
 gamated companies. Hence it was considered necessary to preserve 
 the rights of parties who might have contracted with them. Only 
 their contracts were mentioned in the proviso, and that in order to 
 authorize a novation. The third section continued in force the several 
 immunities, franchises, and privileges granted by the origirial charters 
 and the amendriients thereof, and the liabilities therein imposed, but 
 plainly for the benefit of the consolidated companies. Why speak of 
 original charters, if a later charter was not intended by the act ? That 
 such was the intention appears still more clearly in the third section. 
 That conferred upon the consolidated stockholders complete corpo- 
 rate powers. It granted to them, when consolidated, not only a cor- 
 porate name, but the right under that name to acquire and hold pi'op- 
 erty, to sue and be sued, to have a common seal, to make by-laws, and 
 generally to do every thing that appertains to corporations of like 
 character. This full grant of corporate power must have been in- 
 tended for some purpose. What was it, if not to create a corpora- 
 tion ? For that purpose it was amply sufficient. For any other it was 
 unmeaning. If the two original companies were to continue in being, 
 if it was not contemplated that they should be dissolved by consoli- 
 
Sec. 1) METHODS OF DISSOLUTION 705 
 
 dation, a new grant of corporate power and existence was unnecessary. 
 They had it already. 
 
 Looking thus at the legislative intent appearing in the consolidation 
 act, we are constrained to the conclusion that a new corporation was 
 created by the consolidation eflfected thereunder in the place and in 
 lieu of the two companies previously existing, and that whatever 
 franchises, immunities, or privileges it possesses, it holds them solely 
 by virtue of the grant that act made. That generally the effect of 
 consolidation, as distinguished from a union by merger of one com- 
 pany into another, is to work a dissolution of the companies consoli- 
 dating, and to create a new corporation out of the elements of the 
 former, is asserted in many cases, and it seems to be a necessary re- 
 sult. In McMahan v. Morrison, 16 Ind. 172, 79 Am. Dec. 418, the 
 effect of a consolidation was said- to be "a dissolution of the corpora- 
 tion previously existing, and, at the same instant, the creation of a 
 new corporation, with property, liabilities, and stockholders derived 
 from those then passing out of existence." So in Lauman v. Lebanon 
 Valley Railroad Co., 30 Pa. 42, 72 Am. Dec. 685, the court said: 
 "Consolidation is a surrender of the old charter by the companies, the 
 acceptance thereof by the legislature, and the formation of a new 
 company out of such portions of the old as enter' into the new." This 
 court, in Clearwater v. Meredith, 1 Wall. 40, 17 L. Ed. 604, expressed 
 its approval of what was said in the former of these cases. It is true 
 these expressions have not all the weight of authority, for they were 
 not necessary to the decisions made, but they are worthy of consider- 
 ation, and they are in accordance with what seems to be sound reason. 
 
 When, as in this case, the stock of two companies is consolidated, 
 the stockholders become partners, or quasi partners, in a new concern. 
 Each set of stockholders is shorn of the power which, as a body, it 
 had before. Its action is controlled by a power outside of itself. To 
 illustrate: The stockholders of the Savannah and Albany Railroad 
 Company could not, after consolidation, have exercised any of the 
 powers or franchises they had prior to their consolidation with the 
 stockholders of the Atlantic and Gulf Railroad Company. They could 
 not have built their road or controlled its management. They could 
 not, therefore, have performed the duties which by their original 
 charter were imposed upon them. Those duties could only have been 
 performed by another organization, composed partly of themselves and 
 partly of others. Their powers, their franchises, and their privileges 
 were therefore gone, no longer capable of exercise or enjoyment. 
 Gone where? Into the new organization' the consolidated company, 
 which exists alone by virtue of the legislative grant, and which has all 
 its powers, facilities, and privileges by virtue of the consolidation act. 
 What, then, was left of the old companies? Apparendy nothing. 
 They must have passed out of existence, and the new company must 
 have succeeded to their rights a;nd duties. But the new company 
 RiCH.CoBP. — 45 
 
706 DISSOLUTION ' (Ch. 7 
 
 comes into existence under a fresh grant. Not only its being, but its 
 powers, its franchises, and immunities, are grants of the legislature 
 which gave it its existence. 
 
 If, then, the old Atlantic and Gulf Railroad Company and the Sa- 
 vannah, Albany, and Gulf Railroad Company went out of existence 
 when their stocks were consolidated under the act of the legislature of 
 1863, their powers, their rights, their franchises, privileges, and im- 
 munities ceased with them, and they have no existence except by vir- 
 tue of the grant of corporate powers and privileges made by the con- 
 solidation act of 1863. That act created a new corporation, and en- 
 dowed it with the several immunities, franchises, and privileges which 
 had previously been granted to the two companies, but which they 
 could no longer enjoy. * * * Judgment affirmed." 
 
 SECTION 2.— CAUSES FOR DISSOLUTION 
 
 STATE ex rel. SCOTT v. UNITED STATES ENDOWMENT 
 
 & TRUST CO. 
 
 (Supreme Court of Alabama, 1903. 140 Ala. 610, 37 South. 442, 109 Am. St. 
 
 Rep. 60.) 
 
 Appeal from City Court of Anniston. 
 
 The proceedings in this case were in the nature of quo warranto, 
 and were instituted by the state upon the information of Thomas K. 
 Scott, filing his petition addressed to the judge of the city court of 
 Anniston against the United States Endowment & Trust Company, for 
 the purpose of having the charter of said corporation, which was 
 granted by a special act of the Legislature, declared forfeited and an- 
 nulled. 
 
 The relator in the cause is described as a resident citizen of the 
 state of Georgia, and it is not disclosed in the petition that he has 
 any interest, financially or otherwise, in the defendant corporation. 
 
 The petition avers the, granting of the charter to the United States 
 Endowment & Trust Compariy of Anniston by an act of the General 
 Assembly approved March 4, 1901 (Acts 1900-01, p. 2264), and then 
 avers the siibstance of the several sections of an act granting said char- 
 ter. There were averred in the petition many grounds why the char- 
 ter of said corporation should be forfeited, but the grounds insisted 
 upon were as follows: (1) That there was a failure on the part of 
 respondent to have its principal office and place of business in Annis- 
 ton, Ala., as was provided by its charter. (2) That the president of 
 
 12 See accord: Clearwater v. Merdlth, 1 Wall. 25, 17 L. Ed. 604 (1S63) , 
 Keokuk & Western By. v. Missouri, 152 U. S. 301, 14 Sup. Ct. 592, 38 L. Ed. 
 450 (1894) ; Jones v. Mlssourl-Edlson Electric Co. (C. 0.) 135 Fed. 153 (1905). 
 
Sec. 2) CAUSES FOE DISSOLUTION • 707 
 
 the respondent had failed to file an annual report of the affairs of the 
 corporation to the state auditor, as was required by section 13 of the 
 act incorporating said respondent. (3) That the respondent had abus- 
 ed its powers and acted contrary to the interest of its stockholders by 
 the purchase of a building in the city of Anniston at an excessive val- 
 uation, in payment for the stock of some of its stockholders and its 
 managing agent. (4) That its board of directors had failed by rule 
 or by-law to regulate the time for paying the subscription to the cap- 
 ital stock, and had not called for the payment of the subscriptions to 
 its capital stock within a reasonable time after its organiza- 
 tion. * * * 
 
 A demurrer to the bill was overruled. The defendant answered de- 
 nying the general averment of the bill; also setting up facts tending 
 to show no prejudice to stockholders or those in interest by reason 
 of the acts complained of. The court gave judgment for the defend- 
 ant. Appeal based on alleged erroneous rulings of the trial court.^* 
 
 TysoNj J.^* [The court, after considering certain questions of prac- 
 tice proceeds:] 
 
 This brings us to a consideration of the merits of the controversy. 
 The first contention, upon which is rested the right to have a judg- 
 ment of ouster entered against the respondent excluding it from a 
 further exercise by it of the franchise conferred by the charter, is 
 that it did not, prior to April, 1903, maintain its principal office in the 
 city of Anniston. 
 
 Respondent derived its corporate existence under an act of the 
 General Assembly approved March 4, 1901. Acts 1900-01, p. 2264. 
 Section 3 provides : "That the principal office of ' said company 
 shall be iil the city of Anniston, Alabama, but it shall have power and 
 authority to establish agencies and branch offices in other counties 
 of said state, and in other states in the United States, and appoint 
 agents therein, and generally to do and perform all those things which 
 may be necessary and proper to the proper conduct of its business 
 and to carry out the objects and purposes as in this act are author- 
 ized to be done and performed." 
 
 Section 11 provides for the government of the corporation by a 
 board of directors', who are clothed with authority to elect its officers. 
 
 Section 12 provides : "That the annual convention of stockholders, 
 shall be held in the city of Anniston in said state; but the board of di- 
 rectors may meet at any other branch office or agency of said company 
 upon due notice and when two-thirds of said directors shall meet at 
 the time, signified and to be named in the call for such meeting, their 
 acts and doings shall be as valid and binding as if such meeting were 
 held at the home office." 
 
 18 statement of facts abridged. 
 
 1* A part of the opinion is omitted. 
 
708 • DISSOLUTION (Ch. 7 
 
 Section 13 makes it the duty of the president of the company to 
 make an annual report to the Auditor of the State, under oath, show- 
 ing "the capital and assets of the company, the number and amount of 
 debentures, bonds and annuities outstanding, and the amount of re- 
 serve set apart to meet the same and how and in what manner said 
 reserve is invested and maintained." 
 
 It appears from the first section of the act that all of the incor- 
 porators of the company, five (5) in number, were residents of> tlie 
 state of Georgia)- except John B. Knox, of Calhoun county, in this 
 state. 
 
 It appears from the testimony that after the organization of the com-- 
 pany it established an office in the city of Anniston, but that all of its 
 officers except its general counsel, who was also one of its directors, re- 
 sided in the city of Atlanta, where it also had an office, and that its 
 books were kept there until April, 1903. Since April, 1903, all of its 
 managing officers have resided in the city of Anniston, and all of its 
 books have been kept in its office in that city. It also appears that in 
 July, 1901, the company purchased and became the owner of a valuable 
 piece of property in the city of Anniston which it now owns. Conced- 
 ing that the requirements put upon the company of having its princi- 
 pal office in the city of Anniston is of the essence of the contract be- 
 tween the state and the corporation, its violation by the company is 
 not expressly made a ground of ■ forfeiture in the charter, and, if a 
 ground at all, it must be upon the theory that the charter expressly im- 
 poses it as a duty, without providing in so many words that a violation 
 thereof shall be a cause of forfeiture, or that it is an implied condi- 
 tion resting upon the corporation by virtue of its acceptance of the 
 charter. Whether it be the one or the other, courts are clothed with 
 a discretion which they may exercise, even though thpre may have been 
 a violation by the corporation of the charter contract, in declaring a 
 forfeiture, if the interest of the public do not demand such a judg- 
 ment. 2 Morawetz on Private Corporations (2d Ed.) § 1028; note 
 by Mr. Freeman in 8 Am. St. Rep. 181, in which are cited the follow- 
 ing cases, viz. : State v. Oberlin Building & Loan Association, 35 
 Ohio St. 258; State v. People's Mut. Ben. Association, 42 Ohio St. 
 579; State v. Minnesota Central Railway, 36 Minn. 246, 258, 30 N. 
 W. 816; State v. Crawfordsville, etc., Turnpike Co., 102 Ind. 283, 
 289, 1 N. E. 395 ; State v. Essex Bank, 8 Vt. 489. 
 
 An examination of these cases will disclose that they fully support 
 the learned annotator in his statement that: "If a corporation is 
 found guilty of acts or omissions which are expressly declared to be 
 a cause of forfeiture of its franchise, plainly a court has no discretion 
 to refuse such a judgment; * * * but in other cases the court is 
 vested with a discretion, and may xefuse a judgment of ouster, if, in 
 its opinion, the interests of the public do not require such a judg- 
 ment." This principle was clearly recognized by the court in Capital 
 City Water Co. v. Macdonald, 105 Ala. 425, 426, 18 South. 62, 29 L. 
 
Sec. S) 
 
 CAUSES FOE DISSOLUTION 709 
 
 R. A. 743, notwithstanding the facts of that case did not authorize 
 the exercise of the court's discretion in favor of the respondent corpo- 
 ration So, then, if it be conceded that the respondent is shown to 
 have been guilty of a violation of its charter in respect of not having 
 Its principal office m the city of Anniston for the period of time point- 
 ed out above, ought this court in the exercise of its sound discretion, 
 forfeit Its franchise? We think not. This information was filed on 
 November 7, 1903. For more than six months prior thereto the re- 
 spondent had met, with the requirements of this provision of its charter, 
 even to the full measure of its duty according to relator's conception 
 of It. And prior to this period it had only violated its duty, accord- 
 ing to relator's conception of it, by not keeping its books in- its of- 
 fice at Anniston and one of its managing agents there in charge of 
 thern. It may be seriously doubted that such was its duty, in view of 
 section 12 and other provisions of its charter. But, however this may 
 be, its violation is shown to have been without prejudice to any citizen 
 of the state or any other person. It has all along been solvent, and 
 during that period it practically did no business in this state. No 
 person ever brought a suit against it in this state until the filing of 
 this information, nor does it appear that any person had any cause to 
 bring suit. 
 
 To deprive it of its right to enjoy its franchise^ would doubtless en- 
 tail loss upon its stockholders, a penalty that should not be imposed 
 upon them when no public good would be subserved by it. And es- 
 pecially is this true when it cannot be affirmed without some misgiv- 
 ings that they have not been guilty of a willful abuse of the franchise 
 granted to them. ' 
 
 The only other matter insisted upon as a ground of forfeiture is 
 the failure of respondent's president to make an annual report to the 
 Auditor, as required by section 13 of the charter act. Relator con- 
 tends that the company was fully organized in July, 1901, and that 
 no report was made until November 1, 1902. In this statement he 
 appears to be sustained by the record. The report that was filed 
 was clearly such as is required by section 13, as was the second report 
 made in November, 1903. 
 
 If it be admitted that an entire failure to comply with this provi- 
 sion of the charter would be a ground of forfeiture — a proposition 
 about which the courts do not seem to be in harmony — it does not 
 appear that the omission here complained of was willful or intentional. 
 Indeed the making of the report in November, 1902, and the mak- 
 ing of the second annual report in November, 1903, would indicate that 
 its president was mistaken as to the time when he should have made 
 his first annual report, or that his omission to make, it within the 12 
 months after his company was organized, if it be admitted that this 
 limitation as to time began to run from that date ratjier than from 
 the date the company commenced to do business, was merely an over- 
 sight, and not attributable to willful or intentional rriisconduct. "It is 
 
710 DISSOLUTION (Ch. 7 
 
 to be observed that courts proceed with extreme caution in proceed- 
 ings which have for their object the forfeiture of corporate franchis- 
 es, and a forfeiture will not be allowed except upon express limita- 
 tion, or for a plain abuse of power by which the corporation fails to 
 fulfill the design and purpose of its organization." State ex rel. John- 
 son V. Southern B. & L,. Association, 132 Ala. 50, 57, 31 South. 375. 
 Furthermore, "Substantial performance of conditions is all that is re- 
 quired." Freeman's note, supra. 
 
 Several exceptions were reserved during the trial to the admission 
 of testimony. It is, however, unnecessary to pass upon these, since, 
 with this testimony excluded from consideration, the result would be 
 the same. Affirmed.^" 
 
 PEOPLE V. PHOENIX BANK. 
 
 (Supreme Court of New York, 1840. 24 Wend. 431, 35 Am. Dec. 634.) 
 
 Information in the nature of a quo warranto against the defendants 
 for claiming to be and acting as a corporation. The information was 
 filed March 25, 1838. The defendants pleaded the several acts of the 
 legislature by which they were created and continued a corporation. 
 They were originally incorporated by the name of the New York 
 Manufacturing Company. Statutes of 1812, p. 509. The affairs of 
 the company were to be managed by fifteen directors, of whom the 
 stockholders were to choose all but one, who was to be appointed an- 
 nually by the council of ^appointment, in behalf of the state, and was 
 to hold his office for one year, and until another should be appointed 
 in his stead. Sections 3, 5. The corporation subsequently took its 
 present name. Statutes of 1817, p. 30', § \; and in 1831, the charter 
 was extended until 1854, and the company was subjected to various 
 provisions of the revised statutes, and to the safety fund law. Stat- 
 utes of 1831, p. 28. 
 
 The attorney general put in sixty-two replications, each of which 
 alleged that the defendants had taken usury on making a loan or dis- 
 count in the course of their business as bankers. The acts were al- 
 leged to have been done in the years 1836 and 1837. 
 
 On the 19th March, 1840, the defendants rejoined, that on the tenth 
 day of that month, William B. Townsend was by the governor and 
 senate nominated and appointed a director of the company in the place 
 of James Campbell, whose term of office had expired; .that he was 
 commissioned, and had entered on the duties of his office. Verifica- 
 
 IS See State ex rel. v. Janesville Water Co., 92 Wis. 496, 66 N. W. 512, 32 
 li. R. A. 391 (1896) ; People ex rel. v. Improvement Co., 103 111. 491 (1882) 
 o„^°.°S?^^ ^***® ^^ '^®'- ■^^ Southern B. & L. Ass'n, 132 Ala. 50, 31 South. 
 375 (1902) ; People v. Dashaway Ass'n, 84 Cal. 114, 24 Pac. 277, 12 L R A 
 hll MQ^''^' -^^tto^ey General v. Tudor Ice Co., 104 Mass. 239, 6 Am. Rep. 
 2^7 (1870). ' 
 
Sec. 2) CAUSES FOE DISSOLUTION 711 
 
 tion, &c. The attorney general demurred, and the defendants joined 
 in the demurrer. 
 
 Bronson, J. No question has been made upon the sufficiency of 
 the repHcations, The case, then, comes to this, the attorney gen- 
 eral alleges that the defendants have forfeited their corporate privi- 
 leges by taking usury. The defendants answer, that a state director 
 has since bean appointed by the governor and senate; and this act, 
 they insist, amounts to a waiver or pardon of the forfeiture. The con- 
 clusion does not follow from the premises. 
 
 No one could take advantage of the forfeiture in a collateral man- 
 ner. It could only be asserted by a direct legal proceeding on the 
 part of the government to dissolve the corporation. Notwithstanding 
 the existing cause of forfeiture, the defendants were a corporation de 
 facto, and might continue to exercise their franchise until judgment 
 of ouster should be pronounced against them. In the meantime, it 
 was the duty of the governor and senate, as well as all others, to 
 treat the defendants as a legally existing corporation. The appoint- 
 ment of a state director was, therefore, perfectly consistent with the 
 intention to continue this prosecution, and insist on the forfeiture. 
 
 Should it be conceded that the governor and senate had a dispens- 
 ing power it does not appear that the power has been exercised. We 
 are not authorized to follow the suggestion of the defendants' coun- 
 sel, and assume that the appointment was made for the purpose of 
 waiving the forfeiture. There is no such allegation in the rejoinder; 
 and besides, we cannot shyt our eyes to the fact that there was 'an- 
 other and a sufficient ground for the exercise of the appointing power. 
 Indeed, if the public officers believed that the defendants had violated 
 their charter, they had a cogent reason for making the appointment, 
 to the end that there might be one director in the board to watch 
 over the public interests until the forfeiture could be asserted, and 
 the corporation dissolved in the forms prescribed by law. 
 
 Enough has been said to dispose of this case. But I must not be 
 understood as- admitting that the governor and senate, without the 
 concurrence also of .the assembly, had any dispensing power. They 
 had no more authority to waive or pardon the forfeiture than any 
 other public officer or body of men. Indeed, the attorney general had 
 more power over this matter than the governor and senate united; 
 for if he refused to prosecute, the wrong charged upon the defend- 
 ants would go unpunished, and the corporation would continue to exist 
 and enjoy its privileges in the same manner as though there had been 
 no violation of the charter. Still, the neglect to prosecute would not 
 amount to a pardon; it could only operate as a waiver so long as 
 the omissipn continued, and would be no answer to a quo warranto 
 whenever he, or his successor in office, might choose to insist on the 
 penalty. ' , , 
 
712 DISSOLUTION (Ch. 7 
 
 In England, where corporations may be created by royal charter, 
 the king can pardon a forfeiture, by granting ^restitution; but he 
 has, I think, no such power in relation to corporations created by act 
 of parliament. The King v. Amery, 2 T. R. 568, 9; Newling v. 
 Francis, 3 T. R. 189; The King v. Miller, 6 T. R. 277. So here, 
 where corporations are created by the legislature, that body can waive 
 the forfeiture, by ratifying and confirming the original grant. The 
 People V. Manhattan Company, 9 Wend. 351. But no other body 
 of men has any such dispensing power. The franchise is granted 
 upon condition that it shall become void in case of misuser; and 
 although the corporation will continue to exist until the forfeiture is 
 asserted in the forms prescribed by law, the condition can only be 
 changed, or the penalty released, by the power which made the original, 
 grant. The legislature may, perhaps, delegate its authority to pardon 
 the offence ; but that has not been done. 
 
 The rejoinder does not show that any act has been done which is 
 inconsistent with the assertion of the forfeiture; and if it were other- 
 wise, the governor and senate, without the concurrence of the assem- 
 bly, had no dispensing power. 
 
 Judgment for the people. , 
 
 SECTION 3.— EFFECT OF DISSOLUTION 
 
 THORNTON v. MARGINAL FREIGHT RY. CO. et al. 
 
 (Supreme Judicial Court of Massactiusetts, 1877. 123 Mass. 32.) 
 
 Bill in equity, filed February 2, 1877, against the Marginal l=^reight 
 Railway Company and the Union Freight Railroad Company, alleg- 
 ing that the plaintiff, at July term, 1875, of the superior court for 
 the county of Suffolk, recovered , judgment against the Marginal 
 Freight Railway Company, for money due from it to him before May 
 6, 1872, upon which judgment execution was duly issued, and re- 
 mained unsatisfied; that the charter of the Marginal Freight Rail- 
 way Company was repealed or attempted to be repealed, by St. 1872^ 
 c. 342, passed May 6, 1872, at which time it owned certain railroad 
 tracks in the streets of Boston; that the Union Freight Railroad Com- 
 pany was incorporated by the same statute, and by virtue thereof took 
 these tracks; that the Marginal Freight Railway Company, being 
 dissatisfied with the estimate duly made of its damages by reason of 
 such taking, filed a petition to the, superior court for a jury to esti- 
 mate such damages, which application was still pending ; that the in- 
 terest of the Marginal Freight Railway Company in its claim for 
 damages could not be come at to be attached or taken on 'execution 
 
Sec. 3) EFFECT OF DISSOLUTION 713 
 
 in an action at law against it ; and that the Marginal Freight Railway 
 Company neglected to press its application for a jury. 
 
 The prayer of the bill was that the Marginal Freight Railway Com- 
 pany might be ordered to prosecute, or to permit the plaintiff to pros- 
 ecute, that petition to final judgment; that the Union Freight Rail- 
 road Company might be ordered to pay to the plaintiff so much of 
 such judgment as might be recovered against it as might be neces- 
 sary to satisfy the plaintiff's debt; that the defendants might be re- 
 strained from discontinuing or settling the action without first pay- 
 ing to the plaintiff the amount of his debt ; and for further relief. 
 
 The Union Freight Railroad Company demurred, on the ground 
 that the plaintiff's judgment against the Marginal Freight Railway 
 Company was void, and that the bill could not be maintained against 
 either defendant, because the chirter of that corporation was re- 
 pealed more than three years before the recovery of the judgment 
 or the bringing of the bill ; and for want of equity. 
 
 The Marginal Freight Railway Company filed an answer, containing 
 a demurrer for want of equity. 
 
 Hearing before Endicott, J., who reserved the case, on the bill and 
 demurrers, for the consideration of the full court. 
 
 Gray, C. J. The bill is framed upon the theory that the plaintiff has 
 recovered a valid judgment against the Marginal Freight Railway Com- 
 pany; that that company has a claim for damages for the taking of 
 its tracks by the Union Freight Railroad Company; and that the in- 
 terest of the former company in this claim cannot be come at to be 
 attached or taken on execution in a suit at law against it, and should 
 therefore be applied in equity to the payment of the plaintiff's judg- 
 ment debt. The difficulties in the way of maintaining this bill ap- 
 pear to us to be insuperable. 
 
 St. 1867, c. 170, by which the Marginal Freight Railway Company 
 was incorporated, was subject to repeal at the pleasure of the leg- 
 islature, by virtue of the power expressly reserved by Gen. St. c. 68, 
 § 41, which was a part of the contract made between the common- 
 wealth and the corporation by its charter. That charter was ex- 
 pressly and legally repealed by St. 1872, c. 342, which incorporated 
 the Union Freight Railroad Company, and authorized the latter cor- 
 poration to take the tracks of the former, making compensation 
 therefor in the manner provided by the laws relating to the taking of 
 lands by railroad companies. Crease v. Babcock, 23 Pick. 334, 34 
 Am. Dec. 61 ; Pennsylvania College Cases, 13 Wall. 190, 20 L. Ed. 
 550; State v. Miller, 30 N. J. Law, 368, 86 Am. Dec. 188; s. c, 31 N. 
 J. Law, 521; Metropolitan R. Co. v. Highland Ry. Co., 118 Mass. 
 
 290. 
 
 Upon the absolute repeal of a charter by the legislature actmg 
 within the limits of its constitutional authority, the corporation ceases 
 to exist, and no judgment can ^erwards be rendered against it in 
 
714 , DISSOLUTION (Ch. 7 
 
 an action at law. But such repeal does not impair the obligation of 
 contracts made by the corporation with other parties during its ex- 
 istence, or prevent its creditors or stockholders from asserting their 
 rights against its property in a court of chancery, in accordance with 
 the reasonable regulations of the legislature, or with the general prin- 
 ciples and practice in equity. Foster v. Essex Bank, 16 Mass. 245, 
 8 Am. Dec. 135; Read v. Frankfort Bank, 23 Me. 318; Merrill v. 
 Suffolk Bank, 31 Me. 57, 50 Am. Dec. 649; Mumma v. Potomac Co., 
 8 Pet. 281, 8 L. Ed. 945 ; Curran v. Arkansas, 15 How. 304, 14 L. 
 Ed. 705; Bacon v. Robertson, 18 How. 480, 15 L. Ed. 499; Lum 
 V. Robertson, 6 Wall. 277, 18 L,. Ed. 743. 
 
 Upon the repeal of the charter of the Marginal Freight Railway 
 Company by St. 1872, c. 342, which .was passed and took effect on 
 May 6, 1872, the corporation was nevertheless, by virtue of Gen. St. 
 c. 68, § 36, continued a body corporate for the term of three years 
 afterwards, for the purpose of prosecuting and defending suits by or 
 against it, and of enabling it gradually to settle and close its con- 
 cerns, to dispose of and convey its property, and to divide its capital 
 stock. And, under section 37 of the same chapter, this court, sitting 
 in equity, on the application of a creditor or stockholder, at any time 
 within the three years might have appointed receivers, whose powers 
 should continue as long as the court should deem necessary, to take 
 charge of the estate and effects of the corporation, to collect the debts 
 and property due and belonging to it, to prosecute and defend suits, 
 in its name or otherwise, and to do all other acts which might be done 
 by the corporation, if in being, necessary for the final settlement of 
 its unfinished business. 
 
 No application having been made for the appointment of a receiver, 
 the Marginal Freight Railway Company, at the expiration of the three 
 years, ceased to have any such existence that a valid judgmeni could 
 be rendered against it in an action at law. We cannot regard the pro- 
 vision of St. 1876, c. 229, § 3, that "nothing in this act contained shall 
 be construed as affecting the legal rights of" that corporation (which 
 is not otherwise mentioned in the act), as a legislative recognition 
 that it had, at the time of the passage of this statute, any rights or 
 any existence. The judgment recovered by the plaintiff against the 
 Marginal Freight Railway Company in July, 1875, was therefore 
 wholly void, as if it had been rendered against a dead person. 
 
 This bill cannot be maintained under that clause of Gen, St. c. 113, 
 § 2, which confers upon this court jurisdiction of "bills by creditors 
 to reach and apply, in payment of a debt, any property, right, title, 
 or interest, legal or equitable, of a debtor, within this state, which 
 cannot be come at to be attached or taken on execution in a suit at 
 law against such debtor :" because that clause extends only to living 
 debtors and existing corporations. And a court of equity has no gen- 
 eral jurisdiction of a bill by a single creditor, who has not recovered 
 
Sec. 3) EFFECT OF DISSOLUTION 715 
 
 a valid judgment against his debtor, and whose debtor has ceased 
 to exist, to apply to the payment of his debt property of the debtor 
 in the hands of a third party. 
 
 Although one passage near the end of the opinion in Folger v. 
 Columbian Ins. Co., 99 Mass. 267, 96 Am. Dec. 747, taken by itself, 
 might seem to be inconsistent with this view, it is to be observed that 
 that case, as well as the earlier one of Taylor v. Columbian Ins. Co., 
 14 Allen, 353, was submitted to the court upon an agreed statement 
 of facts, waiving all questions of form, and was decided upon the 
 ground that the corporation did not appear to have been dissolved. 
 
 The reasons above stated being conclusive against the right to 
 maintain this bill, the demurrer of the Union Freight Railroad Com- 
 pany must be sustained, and the bill dismissed.^* 
 
 PEOPLE V. GLOB^ MUT. UFE INS. CO. / 
 
 (Court of Appeals of New 'York, 1883. 91 N. Y. 174.) 
 
 Finch, J.^^ There was no breach of the contract between Mix and 
 the insurance company by either of the parties. It was in process 
 of continued performance according to its terms, and was unbroken 
 at the moment when the injunction order was served. That operated 
 upon both parties at the same instant, and perpetuated the then exist- 
 ing rights and conditions. Before its service the company had done 
 nothing to prevent performance, and we must assume was both ready 
 and able to perform. It had done no act which amounted to a re- 
 ' fusal, or which madle it unable to carry out its contract. For aught 
 that appears it would have done so if let alone. But it was not per- 
 mitted to perform. The State, by the injunction order operating alike 
 upon the company and its ageiits, |)aralyzed the action of both the con- 
 tracting parties, so that neither could perform, or put the other in the 
 wrong. Thereupon the company could not refuse, and did not refuse. 
 To put it in the wrong, and make it liable for a breach, required ac- 
 tion on the part of Mix. As a condition precedent he was bound to 
 show both ability and readiness to perform on his part. Shaw v. Re- 
 public Life Ins. Co., 69 N. Y. 292, 293; James v. Burchell, 82 N. Y. 
 113. He could do neither. Performance' by him had become illegal. 
 It would have been a criminal contempt, and possibly a misdemeanor. 
 There could be neither readiness nor ability to do the forbidden and . 
 unlawful acts. Jones v. Knowles, 30 Me. 402. So that from the 
 necessity of the case, as there was no breach on either side before the 
 injunction, so there could be none after. 
 
 le See Venable Bros. v. Southern Granite Co., 135 Ga. 508, 69 S. E. 822, 
 32 li. R. A. (N. S.) 446 (1910) ; Bacon v. Robertson, 18 How. 480, 15 h. Ed. 
 499 (1855). 
 
 17 Facts sufficiently stated in the opinion, part of which is omitted. 
 
716 DISSOLUTION (Ch. 7 
 
 What had happened was a dissolution of the contract by the sov- 
 ereign power of the State, rendering performance on either side im- 
 possible. And this result was within the contemplation of the parties, 
 and must be deemed an unexpressed condition of their agreement. 
 One party was a corporation. It drew its vitality from the grant of 
 the State, and could only live by its permission. It existed within cer- 
 tain defined limitations, and must die whenever its creator so willed. 
 The general agent who contracted with it did so with knowledge of 
 the statutory conditions, and these must be deemed to have permeated 
 the agreement, and constituted element's of the obligation. People v. 
 Security Life Ins. Co., 78 N. Y. 115, 34 Am. Rep. 522. Then too the 
 subject-matter of the contract was that of skilled personal services 
 to be rendered by one and received by the other. It was inherent in 
 the bargain that a substituted service would not answer. The company 
 were not bound to accept another's performance instead of the chosen 
 agent's, nor was he in turn bound to work for some other master. 
 The contract in its own nature was dependent upon the continued life 
 of both parties. With the natural death of one, or the corporate death 
 of the other, the contract must inevitably end. So that, in its own 
 inherent nature, by the unexpressed conditions subject to which it was 
 made, and by the decree enjoining both parties at the same moment 
 from further performance, the contract was terminated arid no breach 
 existed. 
 
 It is easy to see how the situation of Mix differs from that of the 
 policy-holders. Wte held in the Security case that the latter were cred- 
 itors and stood upon a breach of their contract ; but that breach was 
 not the dissolution of the company. It antedated such dissolution 
 and was the prior cause, of which the latter was the consequence. 
 The reserve required by law was essential to the safety of the policy- 
 holders. A covenant to maintain it was implied in every contract of 
 insurance. That covenant the company broke by its own neglect, for 
 which it alone was assumed to be responsible. The State found these 
 contracts broken, and for that reason interfered, and when its decree 
 of dissolution came it had to deal with broken contracts and treated 
 them as it found them. The same distinction explains the English 
 cases which were commended to our careful attention. Yelland's 
 Case, L. R., 4Eq. 350; Clarke's Case, L,. R., 7 Eq. 550; Logan's Case, 
 L. R., 9 Eq. 149; Maclure's^Case, L. R., 5 Ch. App. 737; Dean's 
 Case, L. J., 41 Ch. (N. S.) 476. In all of them the companies stopped 
 payment before any intervention of the law, and this being done by 
 open and public notice, amounted to a voluntary refusal of per- 
 formance, and therefore a breach of contract", established before the 
 winding up orders were made and the liquidators appointed. When 
 the court interfered it found broken contracts and a liability for a 
 breach already existing, and dealt with what it found.- It did not itself 
 break what was already broken. 
 
Sec. 3) EFFECT OF DISSOLUTION 717 
 
 Still another class of cases is obviously different. People v. National 
 Trust Co., 82 N. Y. 283. They are such as affect property rights andl 
 survive the death of the parties. Performance can be made by as- 
 signees or successors, and nothing in the essence. of the agreement 
 depends upon the life of the parties, or forbids its complete execu- 
 tion by others. And in all of the cases thus cited there was no in- 
 capacity affecting both parties alike. The one suing for a breach was 
 free, so far as he was concerned, to offer performance, and had) the 
 necessary ability. He could thus put his adversary in the wrong, while 
 here the same blow, at the same instant, stopped performance on both 
 sides and made it illegal on the part of either. 
 
 But exactly at this point the learned counsel for the appellant in- 
 terposes a proposition which presents a difficulty. Practically con- 
 ceding most that we have said, he insists that the contract is only 
 dissolved when its destruction comes from an outside and independ- 
 ent force, operating separately, and not occasioned directly- or indi- 
 rectly by the act or omission of the party pleading it as an excuse. 
 In other words such party must be innocent and blameless in respect 
 to the vis major which dissolves the contract, and if not so, cannot 
 plead as an excuse what practically is his own fault and act. Andl 
 our attention is directed to this feature as characterizing the cases in 
 which the agreements were held to have been ended. They are group- 
 ed in the appellant's points and. need not be repeated. He has stated 
 their purport correctly. In all of them both parties were inno- 
 cent of and blameless for the outside and independent agency which 
 dissolved the contract. And the argument is now pressed that in the 
 present case the company was not only not blameless for its disso- 
 lution, but that resulted from its own acts or omissions, was directly 
 caused by them, and.^therefore, such dissolution must be deemed its 
 own act, which it cannot plead as an excuse. This leads to the in- 
 quiry whether the company was so the responsible cause of the action 
 of the State as to make the dissolution its own act. 
 
 The answer is that no such fact is shown, nor is it a necessary in- 
 ference from the facts which do appear. The judgment of dissolu- 
 tion is not here. We only know from the stipulation of the parties 
 that the company was organized under chapter 902 of the Laws of 
 1869, and that the superintendent of insurance made the certificate 
 provided for in section 7 of said act, and the attorney-general there- 
 upon commenced! the action for dissolution. The superintendent prob- 
 ably acted because the company's reserve had fallen below the lawful 
 and safe level. Perhaps we ought to presume as much as that, but if 
 so, the result may have happened from causes beyond the company's 
 control and without its fault. It was its duty to invest the reserve and 
 keep it interest-bearing. It may have done so with entire prudence 
 at the time, and in strict accordance with the law, and then all values 
 have so shrunk andl dwindled from commercial causes as to have im- 
 paired the reserve. In such case the dissolution would have come 
 
718 DISSOLUTION (Ch. 7 
 
 from outside and foreign forces, operating independently and both 
 beyond control. If it be said the company was still the indirect cause 
 of the dissolution since it made the investments andl failed to repair 
 and strengthen them to the legal limit, the answer may be that it could 
 not do it. 
 
 The rule must not be pushed to an extreme. Thus, in the case of 
 the sailor having a running contract for service with the ship-owner, 
 and sent home by a naval court as a witness against the captain for 
 shooting one of the crew, and unable to return to the ship after the 
 trial, and whose contract was held to be dissolved (Melville v. De- 
 Wolfe, 4 E. & B. 844), similar suggestions might have been made. 
 It couldl have beeri said that it was his duty to return to the ship, 
 but that such return had become impossible, without, his fault, or that 
 of the ship-owner, was held sufficient. Then too, it could have been 
 argued that if the sailor had not been present at and seen the murder, 
 ,which was his voluntary act, and which he might have avoided, the 
 law would not have sent him home. 
 
 Of course nobody thought of pushing the rule to such an extreme; 
 nor must it be done here. The sailor was not bound to foresee that 
 his innocent and blameless presence at the scene of the murder would 
 involve a dissolution of his contract through the intervention of the 
 law ; nor the company that its investments, honestly and prudently 
 made, would shrink beyond repair, and bring down a dissolution by the 
 State. If, in such case, in some sense, such dissolution may be deemed 
 the act of the company, in a similar sense, and through the same mode - 
 of reasoning, we might, in a case of master and servant, trace the 
 death of the former to his own negligence in eating or drinking, or 
 exposure to heat and cold, and so determine his non-performance to 
 be inexcusable, and to draw after it damages for a breach. As it is 
 thus evident that a man may be, in some sense, the occasion, or evert 
 the indirect cause of his own death, and in the same sense blamable 
 for it, without its being, in a legal sense, and considered as a vis 
 major, his own act; so a corporation may be said, through the conduct 
 of its officers, to have, in some sort, occasioned its own corporate death, 
 while yet it would remain true that its dissolution by the independent 
 force of the State would be not its own act ; not at all the product 
 of its own volition; and not a breach by it of its contracts previously 
 unbroken. Especially is this true as between the company and its own 
 officers contracting with it. One of these may be innocent himself 
 of any wrongful act or neglect, and yet it is inherent in the nature of 
 his contract that he takes the risk of such act, or neglect, on the part of 
 the other officers, as may tend, under the law, to produce a dissolution, 
 if such dissolution in fact occurs. That possibility entered into his 
 contract, when made, and belonged to it as an inevitable condition, for 
 its complete performance depended upon the corporate life, and that 
 under the law upon the fulfillment of the law's conditions. 
 
Sec. 3) EFFECT OP DISSOLUTION 719 
 
 In the event of such corporate death the motive of the State, or the 
 ground of its act is wholly immaterial. Its risk was upon the contrac- 
 tor, whatever its cause or occasion; and however it may have been 
 provoked or induced, it must be deemed the act of the State, and not 
 of the corporate body. And it is the indlependent act of the State, for 
 although the reserve may have fallen below the prescribed level, a dis- 
 solution is not the necessary consequence. That may follow, or may 
 not follow. The superintendent of insurance may piake the certificate 
 which sets the law in motion, or may withhold it. The matter lies 
 within his sole discretion and control. He may act or not, as he choos- 
 es, but if he does it is his act, and not the company's ; dependent wholly 
 on his volition andl not on that of the corporation, an independent 
 agency guided by its own motives, and not the act of the company 
 producing its own death. * * * 
 
 Other considerations of very serious import were adverted to by the 
 courts below, which we need not here discuss. What has been said 
 sufficiently indicates our opinion that no error was committed in re- 
 jecting the claim of the general agent. 
 
 The order should be affirmed All concur. 
 
 Order affirmed.^* 
 
 FOX v. HORAH. 
 (Suprenie Court of North Carolina, 1841. 36 N. C. 358, 36 Am. Dec. 48.) 
 
 This was a bill filed in Mecklenburg Court of Equity. The plaintiff 
 had obtained an injunction from a Judge out of court, and at Fall 
 Term, 1840, of the said court, a motion was made by the defendant 
 to dissolve the injunction, and his Honor Judge Settle, upon hear- 
 ing the motion, ordered the injunction to be dissolved with costs. 
 From this decree the plaintiff, by leave, appealed to the Supreme 
 Court. The facts of the case are stated in the opinion delivered in 
 this court. ' 
 
 Gaston, J. A loan of money was obtained by one John G. Hoskins 
 from the late State Bank of North Carolina, by the discount at the 
 Salisbury Branch of said bank, of a note executed by saidi Hoskins as 
 principal and Stephen Fox and William W. Long as sureties ; payable 
 at said branch to William H. Horah, cashier thereof. Upon this note 
 an action at law was brought by Horah in the County Court of Meck- 
 lenburg against Hoskins, Fox and Long, which action was by succes- 
 sive appeals of the defendants carried up to the Superior Court of that 
 county, and thence to this court, and a judgment was ultimately ob- 
 tained by the plaintiff, after a deduction of sundry payments, for a 
 
 18 Compare Tiffin Glass Co. v. Stoehr, 54 Ohio St. 157, 43 N. E. 279 (1896); 
 Schleider v. Dielman, 44 La. Ann. 462, 10 South. 934 (1892) ; Griffith v. Boom 
 & Lumber Co., 46 W. Va. 56, 33 S. E. 125 (1899) ; Rosenbaum v. United States 
 Credit System Co., 61 N. J. Law, 543, 40 Atl. 591 (1898). 
 
720 DISSOLUTION (Ch. 7 
 
 balance of $468, 19 cents with interest on $385, 62 cents, part thereof, 
 from the February Term, 1839, of Mecklenburg Superior Court. 
 Pending this action in the Superior Court the charter of the bank ex- 
 pired by its original limitation, and an attempt was there made to set up 
 this occurrence as a legal defence ; but the defence failed, because, in 
 the language of this court, "the legal interest in the debt was in Horah, 
 and the action properly brought by him, and whether he was a trustee 
 for the bank or any other person was an enquiry with which a Court 
 of Law had no concern." Horah v. Long, 20 N. C. 416, 34 Am. Dec. 
 278. 
 
 Therefore Fox, the present plaintiff, filed this bill against Horah, 
 in which, after setting "forth the death and insolvency of Hoskins and 
 also the insolvency of Long, and charging certain payments or equit- 
 able payments to have been made to the bank and its attorneys in full 
 discharge of the debt, he insisted that the debt for which Horah had 
 obtained a judgment, was due to the bank, that its charter had ex- 
 pired, that thereby the saidi debt, if any part thereof remained unpaid, 
 was extinguished ; that Horah was not entitled beneficially to the same 
 or any part thereof; and that it is unconscientious in him to collect 
 it for his own benefit, and praying for an injunction. Upon the filing 
 of the bill an injunction was granted pursuant to the prayer.' The de- 
 fendant put in an answer, wherein he denied the payments alleged to 
 have been made, and admitted the expiration of the charter as charged, 
 and insisted that he, being the legal owner of the judgment, had a 
 right, notwithstanding such expiration of the charter to collect the 
 same, and declared his purpose, when it should be collected, to apply 
 the proceeds to the satisfaction of outstanding demands against the 
 late corporation and the stockholders thereof. Upon the coming in 
 of this answer the defendant moved for a dissolution of the injunc- 
 tion with costs. The court so decreed, and from this decr,ee the 
 plaintiff prayed and obtained an appeal to this court. 
 
 One at least of the questions arising upon this appeal is not free 
 from difficulty, and, so far as we can learn, is now for the first time 
 presented for judicial decision. Certain it is that neither our own 
 researches nor those of the counsel have furnished any adjudications, 
 which have a direct bearing upon it. To enable us, therefore, to come 
 to a just conclusion, we must go back to principles in some degree 
 elementary to endeavor to ascertain them with precision, and apply 
 them, when ascertained, to the case before us. 
 
 The late State Bank was formed by an association of individuals, 
 under authority of Acts of the Legislature, by which they were con- 
 stituted a body corporate and politic to continue until the first day of 
 January, 1835. Though the several Acts, by which the institution was 
 created or its powers, duties and duration declared were public acts, 
 the corporation itself was a private corporation. State Bank v. Cla^rk, 
 8 N. C. 36. As such it was an artificial person existing only in con- 
 templation of law, and having those capacities, which its charter con- 
 
Sec. 3) EFFECT OF DISSOLUTION 721 
 
 f erred upon it, either expressly or as incidental to its existence. Among 
 these was the capacity to hold property of, the description mentioned 
 in its charter, as an individual, continuing its existence and preserv- 
 ing its identity, notwithstandling all the changes by death or otherwise, 
 among, the natural persons, of whom that body politic was formed 
 This capacity — and others by which a corporation is enabled to main- 
 tain its personality and identity — are sometimes spoken of as constitut- 
 ing a kind of "legal immortality." It is certain, however, that the ca- 
 pacity to enjoy property in succession exists only so long as the cor- 
 poration exists — ^that if by its charter the duration of the corporation 
 be limited, and if that duration be not extended by the sovereign au- 
 thority, the corporation dies when the allotted term of its existence 
 has run out — and that, before the expiration of this term, the corpora- 
 tion may lose its existence by forfeiture of charter, because of ascer- 
 tained delinquency, or by a dissolution of the connection, by which its 
 members had been compacted into one artificial person. 
 
 We believe that the rules of the common law, governing the dispo- 
 sition of the property which the corporation held, at the moment of 
 death are well settled — though differing according to the character 
 of the property upon which they operate as being either realty, per- 
 sonalty, or choses in action. The real estate remaining unsold reverts 
 to the grantor and his heirs, "because (in the language of Lord Coke) 
 in the case of a body politic or incorporate the fee is vested in their 
 political or incorporate capacity, created by the policy of man, and 
 therefore the law doth annex a condition in law to, every such gift 
 andl grant that if such body politic or incorporate be dissolved, the 
 donor or grantor shall re-enter, for that the cause of -the gift or grant 
 faileth." Co. L,it. 136. Goods and chattels, by the common law, 
 were deemed of too transitory and fluctuating a nature to be suscept- 
 ible of reversionary interests after an estate for life, and, on the death 
 of a corporation, they do not revert to the grantor or donor, but, be- 
 ing bona vacantia or goods wanting an owner, they vest in the sov- 
 ereign, as well to preserve the peace of the public, as in trust to be em- 
 ployed for the safety and ornament of the commonwealth. 
 
 Choses in action are under the operation of a different rule. They 
 were rights Qf the corporation to demand money in the hands of per- 
 sons, by whom it was withheld. They derived their existence from 
 contracts or quasi contracts — ^by which the relation of debtor and cred- 
 itor was created. When the creditor corporation died^and there was 
 no successor, no representative — ^the relation of debtor and creditor 
 ceased, and the debt became necessarily extinct. None but the cred- 
 itor had a right to demand) the money, and when his right is gone, 
 the money becomes to all purposes the money of the possessor. These 
 rules of the common law, except so far as they have been modified by 
 the Acts' of our Legislature, and excepting also those cases, in which 
 RicH.CoEP. — 46 
 
722 DISSOLUTION (Ch. 7 
 
 by the charters of incorporation, special provision is made in regard 
 to the corporate property, are the law here. 
 
 Very important alterations, however, have been made by our Legis- 
 lature, but it is manifest that these have no application to the case, 
 where a corporation expires by having lived out his allotted term. 
 The Act of 1831, chapter 24 of the Revised Code, re-enacted in the 
 Revised Statutes, chapter 26, directs how an information may be filed 
 against a corporation existing de facto, in order to procure a judicial 
 decision that it has forfeited its charter, or has been dissolved by the 
 surrender of its franchises or by any other mode, and declares that on 
 a final judgment rendered) against the corporation of forfeiture or 
 dissolution^ the consequence shall not be to extinguish the debts due to 
 or from the corpojration, but that the court rendering such judgment 
 shall appoint a receiver, and the receiver so appointed shall have full 
 power to collect in his name all debts due to the corporation, to take 
 possession of all its property, and to sell, dispose of andl distribute the 
 same in order to pay oflf the creditors of the corporation, and after- 
 wards to reimburse the stockholders, under such rules, regulations 
 and restrictions as the court rendering such filial judgment shall di- 
 rect. These provisions in every part of them contemplate cases, where 
 the termination of the legal existence of the corporation is the conse- 
 quence of a judicial sentence against it. Where a corporation has 
 lived out the term prescribed by its charter, it is de facto defunct. No 
 judicial sentence can be rendered against it. 
 
 There were, besides, peculiar reasons, demanding this special inter- 
 position of the Legislature in cases of what might be termed premature 
 death of the corporation. So distressing are the consequences which, 
 according to the common law rule resulted from a judicial death or 
 dissolution, where the corporation wias one that had carried on exten- 
 sive operations, that the most flagrant violations of charter, the most 
 culpable neglects to make the necessary election of officers, delin- 
 quencies of every kind and degree might be committed, and the public 
 authorities would not dare to bring the questions of forfeiture or legal 
 dissolution forward for judicial determination. But the§e provisions, 
 by removing such distressing consequences, give freedlom of action 
 to the agents of the community, while they remove from the managers 
 of corporate institutions the sense of impunity that might render them 
 regardless of law. But the consequences of a regular death by the 
 mere efflux of time .could be anticipated by all — ^provided against by 
 all; .and legislative interposition against them was unnecessary.^' * * * 
 
 It is the opinion of this court that there is error in the interlocutory 
 decree appealed from, and that upon the defendant's answer the in- 
 junction theretofore granted ought not to have been dissolved. 
 
 16 The consideration of the second point Is omitted. The court held that 
 it was against conscience in the defendant to collefct the debt. 
 
Sec, 3) EFFECT OF DISSOLUTION 723 
 
 This opinion will be certified to the court beloW, and the defendant 
 must pay the costs of the appeal. 
 Per Curiam. Ordered ^accordingly."* 
 
 HEATH V. BARMORE. 
 (Court of Appeals of New York, 1872. 50 N. T. 302.) 
 
 Action of trespass against the defendant for entering on lands for- 
 merly conveyed by plaintiff's grantor to the Fredonia & Sinclairsville 
 Plankroad Company, but which the plaintiff claims have reverted in 
 consequence of the abandonment of that company.^ ^ 
 
 Rapallo, J.^" In so far as the plaintiff's right to recover in this 
 action is sought to be sustained, on the ground that at common law 
 real estate held by a corporation at the time of its dissolution re- 
 verts to the grantor, it caftnot be supported for two reasons : First, 
 because the plankroad company has not been dissolved, and secondly, 
 because the rule of law invoked by the plaintiff does not prevail in 
 this State in respect to stock corporations. Under the provisions of 
 1 R.JL. 248, and 1 R. S. 600, §§ 9 and 10, lipon the dissolution of a 
 corporation, the directors or managers at that time become trustees of 
 its property (unless some other custodian is appointed), for the pur- 
 pose of paying the debts of the corporation and dividing its prop- 
 erty among its stockholders ; and these provisions apply as well to the 
 real as to the personal property of corporations. Owen v. Smith, 31 
 Barb. 641; 2 Kent Com. 307, 308; notes 371 and 372 of 11th Ed.; 
 Ang. & Ames Corp., § 799, a (5th Ed.) ; Towar v. Hale, 46 Barb. 
 365. Consequently, where lands are conveyed absolutely to a cor- 
 poration having stockholders, no reversion or possibility of a reverter 
 remains in the grantor. \ 
 
 The conveyances to the plankroad company in this case appear to 
 have been absolute conveyances — no condition or limitation of the es- 
 tate seems to have been contained in them, and they therefore passed 
 the whole estate of the grantor. 2 R. S. 748, § 1. 
 
 The plaintiff contends however that these conveyances having been 
 made to a plankroad company, the estate granted must be deemed 
 to be limited to that required for the purposes of a plankroad, and the 
 devotion of them to those purposes is an implied condition or qualifi- 
 cation of the grant, and in support of this position he cites Jackson 
 V Hathaway, IS Johns. 447, 8 Am. Dec. 263 ; Matter of John and 
 Cherry Streets, 19 Wend. 659, 675 ; Hooker v. Utica Turnpike Co., 
 12 Wend. 371 ; Mahon v. N. y! Cent. R. Co., 24 N. Y. 658; Trustee. 
 
 20 The principal case was expressly overruled in Wilson v. Leary, 120 N. 
 O. 90, 26 S. E. 630, 38 L. B. A. 240, 58 Am. St. Rep. 778 (1897). 
 
 21 Statement of facts substituted. 
 
 22 A part of the opinion is omitted. 
 
724 DISSOLUTION (Ch. 7 
 
 etc., V. Auburn & Roch. R. Co., 3 Hill, 568; Fletcher v. Auburn & 
 Syracuse R. Co., 25 Wend. 462; Bloodgood v. Mohawk & Hudson R. 
 Co., 18 Wend. 9, 31 Am. Dec. 313. 
 
 It did not appear in either of the cases cited that there had been' 
 any conveyance by the owner of the soil to the corporation. They are 
 all cases of lands taken for streets or highways or by turnpike com- 
 panies who were authorized to take lands necessary for the construc- 
 tion and operation of their roads, at an appraised value; and they 
 hold that as to lands taken for highways, the public acquires only an 
 easement, Icavir^g the fee in the original owner, and that as to lands 
 taken by turnpike companies, although the acts declare that they shall 
 be held by the company, its successors and assigns forever, it acquires 
 only such interest as is necessary for the public use for which the 
 lands are taken ; that when that use ceases, the lands revert, and that 
 an additional burden, such as a steam railroad, cannot be imposed 
 upon them by law, without making further compensation to the owner 
 of the fee. \ 
 
 These cases decide only what was the legal effect of a taking of land 
 in inviturn for highways, or under the provisions of the Turnpike Act, 
 but do not determine the effect of a voluntary conveyance by an individ- 
 ual to a corporation capable of taking land by purchase. Even a turn- 
 pike company may' by grant acquire lands in fee and convey an inde- 
 feasible title to a purchaser. People v. Mauran, 5 Denio, 389. * * * 
 
 As to the land of which the plaintiff held the legal title at the time 
 of his conveyance to the plankroad company, that conveyance passed 
 all his estate and interest in the land. The price paid by the company 
 must be deemed to be the consideration for the entire fee, and he 
 consequently retained no property therein which would preclude the 
 State, with the assent of the plankroad company, from devoting the 
 land to other public uses, though they should impose greater bprdens 
 upon it than a plankroad, or even from declaring by law that a sur- 
 render of any part of the road by the company, in the form pre- 
 scribed by the act, should operate to transfer the title of the company 
 to the town. See Heyward v. Mayor, etc., 7 N. Y. 314. The words 
 of the act of 1854 (Chap. 87, § 1), (a) which declare that the por- 
 tion surrendered shall "cease to be the property of the company and 
 revert and belong to the several towns," etc., are, we think, sufficient 
 to make the surrender equivalent to an alienation by the company, 
 and broad enough to embrace lands which never before belonged to 
 the towns, as well as those which were, when acquired by the com- 
 pany, public highways. The act of 1854, under which the defendant 
 justifies, cannot therefore be successfully assailed on the ground that 
 it takes property of the plaintiff for public use without just com- 
 pensation. 
 
 These views dispose of the case so far as the lands of which the , 
 plaintiff held the legal title, at the time of his conveyance to the com- 
 pany, are concerned.. * * * All concur. Judgment affirmed. 
 
Sec. 3) EFFECT OF DISSOLUTION 725 
 
 In re HIGGINSON & DEAN. 
 
 Ex parte ATTORNEY-GENERAL. 
 (Queen's Bench Division. L. R. [1899] 1 Q. B. Div. 325.) 
 
 Appeal by the Attorney-General, on behalf of the Treasury, from 
 the order of the judge of the county court at Liverpool, expunging 
 the proof of the Royal Bank of Liverpool in the bankruptcy of the 
 debtors, Messrs. Higginson & Dean. The bankruptcy took place in 
 the year 1847, and the liabilities of the debtors amounted to nearly 
 i900,000. The Royal Bank of Liverpool proved in the Bankruptcy 
 for £566,000. and Messrs. Littledale, who were respondents to the 
 present appeal, and other creditors, proved for smaller sums. It had 
 recently been ascertained that the bankrupts had been entitled to cer- 
 tain shares in the Leeds & Thirsk Railway Company, the undertaking 
 of which company had been acquired by the North Eastern Railway 
 Company, so that the shares belonging to the bankrupts were ex- 
 changeable for shares in the North Eastern Railway Company. The 
 official receiver, as ex officio trustee in the bankruptcy, had recovered 
 for the estate a sum of £6500., the proceeds of these shares, and held 
 that amount as trustee. In the year 1887 an order was made by North, 
 J.,' under the Companies Acts, dissolving the Royal Bank of Liverpool 
 Messrs. Littledale, as creditors in the bankruptcy, moved before the 
 county court judge to expunge the proof of the Royal Bank. The 
 judge made an order expunging the proof, and the present appeal was 
 from that order. 
 
 Wright, J.^° * * * Subject to one difficulty I think that the 
 grounds of the learned county court judge's decision cannot be main- 
 tained, and that the Crown is entitled to succeed. 
 
 From the time of Lord Thurlow's decision in Middleton v. Spicer, 
 1 Bro. C. C. 201, in 1783, it has been an accepted proposition of law 
 that chattels real or personal vested in ^ person as a mere trustee upon 
 private trusts which have -failed are as a general rule held by him as 
 a trustee for the Crown of bona vacantia ; and during all the period 
 which has elapsed since that decision no exception from the rule 
 seems to have been established. It has been illustrated by many cases 
 which shew that the possession conferred on the trustee for pur- 
 poses of jurisdiction or administration gives him no beneficial title, 
 as by occupancy or otherwise, which he can conscientiously set up 
 against the Crown. Such cases are : Barclay v. Russell, 3 Ves. 424, 
 at page 430, per Lord Loughborough; Powell v. Merrett (1853) 1 
 Sm. & G. 381, Stuart, V. C; Cradock v. Owen, (1854) 2 Sm. & G. 
 241, Stuart, V. C; Read v. Stedman (1859) 26 Beav. 495, Romilly, 
 M. R.; Cunnack v. Edwards, [1896] 2 Ch. 679 C. A. And in Dyke 
 v. Walford, 5 Moo. P. C. 434, the right of the Crown as against the 
 
 23 Part only of the opinion is given. 
 
726 DISSOLUTION (Ch. 7 
 
 ordinary lo bona vacantia in cases of intestacy is traced back to very 
 early times. 
 
 Nor, I think, is there any authority for holding that the Crown is ' 
 in any worse position in relation to chattels held in trust for a cor- 
 poration which has become dissolved than in relation to chattels held 
 in trust for a natural person deceased. The same principle seems ap- 
 plicable in both cases. The Courts will not allow- a person who has 
 obtained title or possession as a mere trustee of chattels to set up un- 
 conscientiously any beneficial title by occupancy, possession, or other- 
 wise. The text-books, such as those of Kyd, Grant, and Lewin, agree, 
 though in some cases with an "it seems," that the Crown i? entitled 
 to the personal estate of a dissolved corporation aggregate. 
 
 Nor is there any authority for holding that the creditors, other than 
 the dissolved Bank, have any jus accrescendi, or of survivorship,' en- 
 titling them to the share of the creditor who has become extinct with- 
 out successor or representative. In Ashley v. Ashley, 4 Ch. D. 757, 
 where, in a suit for administration, such a claim was made and failed, 
 James L,. J. asked why the Crown might not take out representation 
 to the petitioners. 4 Ch. D. at page 763. Prima .facie, therefore^ as 
 it seems to me, the Crown is entitled. 
 
 The difficulty is, that as it is argued, on the dissolution of the Bank, 
 not only did its artificial personality come to an end, but the debt due 
 to it from the bankrupts lapsed or was extinguished. The existence 
 of a debt, it is said, imports the existence of two parties to the obliga- 
 tion, and the obligation of the debtors to the bank is not, upon the dis- 
 solution of the bank converted into an obligation of the debtors to the 
 Crown. The Bank, therefore, has ceased to be a creditor, and the 
 Crown has not become a creditor ; the ground of the proof has gone as 
 completely as if it had never existed, and the proof ought to be ex- 
 punged, with the consequence that the official receiver is now a tgastee 
 of the fund for the remaining creditors, as if there never had been any 
 others. Therefore, it is argued, there is no failure of cestuis que 
 trustent, and no property which, for default of any cestui que trust to 
 ~ claim it, can be said to be held in trust for the Crown. 
 
 The authorities for the proposition that on the dissolution of a cor- 
 poration aggregate debts due to or from it are extinguished are by no 
 means clear or satisfactory. In 1 Bl. Com. p. 484; and in 2 Kyd on 
 Corporations, p. 516, and in Grant on Corporations, p. 303, such a 
 proposition is stated, but in terms which suggest that no more is 
 meant than that, after the dissolution, the individuals who were mem- 
 bers or officers of the corporation cannot sue or be sued in respect of 
 its rights or obligations: and this is i all that is established by the 
 cases there cited. "The debts of a corporation" (Blackstone says), 
 "either to or from it, are totally extinguished by its dissolution; so 
 that the members thereof cannot recover or be charged with them, in 
 their natural capacities; agreeable to that maxim of the civil law, si 
 quid universitati debetur, singulis non debetur; nee, quod debet uni- 
 
Sec. 3) EFFECT OF DISSOLUTION 727 
 
 versitas, singuli debent." The American decision in the case of State 
 Bank v. State, 1 Blackf. (Ind.) 267, 12 Am. Dec. 234, relies on 
 those authorities as supporting the general proposition, but it does not 
 advert to this qualification, or add new references to authority, and 
 the authorities cited do not in any way support the proposition, ex- 
 cept as so qualified: Grant on Corporations (published in 1850), p 
 303, is explicit in the same sense as the American case last cited, but 
 does not refer to any , authority which, so far as I can see, has any 
 bearing on the matter. 
 
 Nor do the old authorities as to the effect of dissolution of mu- 
 nicipal or other corporations add anything decisive of the question. 
 In the 17th and 18th centuries corporations aggregate, constituted by 
 charter or letters patent, were numerous, and questions frequently 
 occurred as to the effect upon their rights and obligations of dissolu- 
 tion, revival, and reincorporation, with or without change of name or 
 constitution. Many references to such cases will be found in Ander- 
 son's Reports and in Rex v. Pasmore (1789) 3 T. R. 199. I cannot 
 find that in any case the rights or obligations of a corporation were 
 held to be affected by a technical dissolution. Nor, on the other hand, 
 can I find a case in which such a question has been decided, where the 
 corporation had not been revived, or some provision made by statute 
 or charter with reference to its obligations. In Mayor, etc., of Col- 
 chester v. Seaber (1766) 3 Burr. 1866, the revived corporation sued 
 in its own name on a bond given to the dissolved corporation, and 
 succeeded. Sir Fletcher Norton, for the plaintiff corporation, argued 
 that the goods and chattels of the old corporation, including its choses 
 in action such as the bond, had on its dissolution passed to the Crown, 
 and that the Crown in granting a charter of revival had regranted 
 them to the revived corporation. Mr. Dunnjng, on the other side, 
 neither admitted nor denied this, and the Court is not reported to 
 have expressed any opinion on this point, it being held jthat there was 
 only a qualified dissolution, and no absolute break of continuity. 
 
 Suppose the bank at the time of its dissolution had been in credit 
 at another bank, or held notes of ainother bank, or had issued notes 
 of its own. Would the dissolution have destroyed the obligations in 
 these cases ? In the United States of America there have been two de- 
 cisions of Story, J., which are against such a conclusion. In Wood v. 
 Dummer (1824) 3 Mason, 308, Fed. Cas. No. 17,944, the charter of 
 a bank had expired. Before dissolution the bank had distributed its 
 capital amongst its stockholders, without providing for payment of out- 
 standing notes. It was held that after the dissolution noteholders were 
 entitled to make stockholders account to them, as for moneys im- 
 pressed with a trust of which the stockholders had notice. In Mum- 
 ma V. Potomac Co. (1834) 8 Pet. 281, 8 L. Ed. 945, it was contended 
 that the dissolution of an insolvent incorporated company, under a 
 statute of the Legislature of a State, was inoperative, as being con- 
 trary to the Constitution, which prohibited the impairing of obliga- 
 
728 DISSOLUTION (Ch. 7 
 
 tions by the Legislatures of particular States. Story, J., however, 
 held that the obligations were not impaired by the dissolution: "The 
 obligation of those contracts survives; and the creditors may en- 
 force their claims against any property belonging to the corporation, 
 which has not passed into the hands of bona fide purchasers, but is 
 still held in trust for the company, or for the stocl<holders thereof, at 
 the time of its dissolution, in any mode permitted by the local laws." 
 8 Pet. at page 286, 8 L,. Ed. 945. 
 
 This statement of the law may not perhaps be entirely applicable ito 
 this country, but it requires consideration. It might be reasonable to 
 enact that, in analogy to the immemorial l^w of executors and admin- 
 istrators, and the statute of 31 Edw. Ill, St. 1, c. 11, on the dissolution 
 of a corporation aggregate all its rights, including its rights of action 
 on executed contracts, such as those evidenced by bank notes or bonds, 
 or on claims in debt, devolve ,upon the Crown, subject to payment 
 of the corporation's own debts. It would, however, I think, in the 
 present state of the authorities, be jiidicial legislation to declare the 
 Crown entitled to maintain actions in such cases except where it can 
 allege a trust. Such a declaration may have to be made, or advisedly 
 refused, in the-case of some of the rapidly-increasing number of com- 
 panies which are being dissolved under the Companies Acts. 
 
 But in the present case it is not necessary to decide this question. 
 Even if it be the law that a debt due to a corporation aggregate is 
 extinguished by the dissolution of the corporation, I do not think that 
 it follows that the Crown's claim fails in this case. The original as- 
 signees in the bankruptcy, and their successors in office, have from 
 the time of the- bankruptcy been entitled to the old railway shares in 
 trust for such creditors as had been or might be admitted to proof. 
 The bank immediately before its dissolution was not a mere creditor. 
 It was a creditor whose claim was in proof. Its claim was no Ipnger 
 a mere right of action for a debt. It could no longer have maintained 
 an action as for a debt. The debt had been, at any rate provisionally 
 merged in an equitable execution (Twiss v. Massey [1737] 1 Atk. 
 67, per Lord Hardwicke; Cooke's Bankrupt Laws [4th Ed.] c. 1, p. 
 5) ; and the right to sue had been replaced, not, indeed, by any 
 particular interest in any specific chattels, but by a right to have all 
 the assets, as and when realized, applied pro rata 'for the bank's ben- 
 efit with the other creditors. This right as it seems to me, existed as 
 an equitable interest or chattel at the time of the dissolution, and 
 upon the dissolution of the bank that chattel or interest was not anni- 
 hilated, but continued to be existing personal property, which devolved 
 upon the Crown as bona vacantia as completely as any other equitable 
 interest. 
 
 Alternatively, the case may be stated in a different way, but with the 
 same result. From the time of the bankruptcy a title to the shares 
 has been ^vested in the bankrupts' assignees and their successors in 
 trust down to 1887 for the bank and the other creditors. In 1887 
 
Sec. 3) EFFECT OF DISSOLUTION 729 
 
 the bank disappeared. The assignees thereupon did not cease to hold 
 the title to the shares nor did they cease to hold it as trustees. Their 
 title did not depend upon the continued existence of any particular 
 debt or of any particular creditors, nor did it become extinct upon the 
 extinction of particular creditors. It continued to be a title upon trust, 
 and the Crown takes the place of the extinct cestui que trust. Suppose 
 all the creditors had been corporations aggregate, and all had become 
 dissolved, it seems clear that the assignees could not have taken the 
 property as their own as against the Crown. 
 
 It does not seem necessary to examine minutely the provisions of 
 the Bankruptcy Acts, in order to determine whether the money can 
 be regarded as unclaimed dividends belonging to the statutory fund. 
 If the proof is to stand good for the Crown's benefit, that is another 
 way of saying that the moneys are not unclaimed dividends. If, on 
 the other hand, the proof ought to be expunged, on the ground that 
 the creditor and the creditor's claim are absolutely extinguished, then 
 the case must be the same as if the proof had never been admitted, 
 and the money ought to be divided amongst the other creditors. Un- 
 claimed dividend seems to me to mean dividend which has been de- 
 clared upon admitted and existing proofs, but which the persons en- 
 titled to it neglect to claim ; it supposes the existence of some one who 
 could claim and who omits to claim. Here the dividend belongs either 
 to the Crown or to the other creditors, and it is claimed and there- 
 fore it is not unclaimed dividend. 
 
 For these reasons we think that the appeal must be allowed. The 
 costs of all parties, here and below, will be allowed out of the fund. 
 
 Appeal allowed. Leave to appeal. 
 
730. CREDITORS OF THE CORPORATION (Ch. 8 
 
 CHAPTER VIII 
 CREDITORS OF THE CORPORATION 
 
 SECTION 1.— RIGHTS AND REMEDIES AT LAW AND IN 
 EQUITY AGAINST THE CORPORATION 
 
 OVERTON BRIDGE CO. v. MEANS et al. 
 
 (Supreme Court of Nebraska, 1S92. 33 Neb. 857, 51 N. W. 240, 29 Am. St. 
 
 Rep. 514.) 
 
 Post, J. The plaintiff, the Overton Bridge Company, is a corpora- 
 tion organized for the purpose of constructing and maintaining a toll- 
 bridge over the Platte river near the village of Overton, in Dawson 
 county. In the fall of 1886, it entered into a contract with the de- 
 fendant Means, in pursuance of which the latter erected the bridge 
 in controversy on the range line between the ranges 19 and 20. Soon 
 after the completion of said bridge the proper authorities of Dawson 
 and Phelps counties opened a road along said range line and over said 
 bridge; and said bridge has been used by the public ever since as a 
 highway. For the purpose of assisting in the building of said bridge, 
 Overton precinct, in Dawson county, voted to issue the bonds of said 
 precinct in the sum of $6,000. Said bonds were subsequently issued 
 and delivered to the plaintiff company, and by it turned over to de- 
 fendant Means in part payment of the amount due under his con- 
 tract. 
 
 There being a further sum due on said contract, defendant brought 
 suit in the district court of Dawson county, and on the 26th day of 
 April, 1888, recovered judgment against the plaintiff company for 
 $2,681 and costs. Afterwards an execution was issued and placed in 
 the hands of the defendant Taylor, as sheriff of Dawson county, who 
 levied upon the bridge in controversy as real estate to satisfy said ex- 
 ecution, said company having no other property. 
 
 The plaintiff thereupon filed its petition in the district court of Daw- 
 son county, by which it seeks to have defendant perpetually enjoined 
 from selling said bridge to satisfy the aforesaid judgment. On the 
 final hearing the district court entered a decree enjoining the sale of 
 the bridge on said exec^ition, but ordered the defendant Taylor, as a 
 special master, to sell said bridge, and all the rights of the plaintiff 
 company to maintain the same, including its franchise, for the pur- 
 pose of satisfying the judgment aforesaid. From that decree plain- 
 tiff has appealed to this court. 
 
Sec. 1) RIGHTS AND REMEDIES AGAINST CORPORATION 731 
 
 We have not been referred to any provision of statute which will 
 authorize the seizure and sale of the bridge in controversy to satisfy 
 an ordinary judgment at law, either upon execution or decree of a 
 court of chancery. If the decree of the district court can be upheld, 
 it must be therefore by an application of the principles of the com- 
 mon law. We have in our investigation of the question involved,' 
 found no case the doctrine of which sustains the contention of de- 
 fendant. On the other hand, we believe the rule deducible from all 
 the cases may be safely stated as follows : 
 
 The property of strictly private corporations, — such, for instance, 
 as manufacturing, mining, and trading companies, — or perhaps those 
 in which the public is indirectly interested, — as libraries, hospitals, and 
 the like, — is liable to be taken on execution, precisely as the property 
 of an individual debtor; but the property of corporations which are 
 classed as 'public agencies, — such as railroad and bridge companies, — 
 which is essential to the exercise of their corporate franchise, and the 
 discharge of the duties they have assumed towards the general public, 
 cannot, without statutory authority, be, sold to satisfy a common-law 
 judgment, either on execution or in pursuance of an order or de- 
 cree of court. Gooch v. McGee, 83 N. C. 59, 35 Am. Rep. 558; Bax- 
 ter v. Turnpike Co., 10 Lea (Tenn.) 488; Water Co. v. Hamilton, 81 
 Ky. 517; Palestine v. Barns, 50 Tex. 538; Que v. Canal Co., 24 How. 
 257, 16 Iv. Ed. 635; Seymour v. Turnpike Co., 10 Ohio, 476; Foster 
 V. Fowler, 60 Pa. 27. It is said by Morawetz in his work on Private 
 Corporations, (section 1125) : "If a corporation has received aid from 
 the government for a public purpose, any property of the company, 
 necessary to enable it to accomplish this purpose is impressed with a 
 trust in favor of the public and cannot be seized and sold bys the cred- 
 itors of the company under execution. Property acquired by the com- 
 pany by purchase, if not nec^sary to enable it to perform its duties 
 to the public, may be taken under an attachment or execution; but, 
 after exhausting this class of property, the only remedy of a judg- 
 ment creditor is to obtain the appointment of a receiver, and a seques- 
 tration of the company's earnings." 
 
 The privileges conferred by law upon corporations to construct rail- 
 roads, canals, bridges, etc., are conferred with a view to the use and 
 accommodation of the public; and to permit the property necessary 
 for the accommodation of the public to be taken and sold by creditors 
 would fbe to "defeat the prime object of the statute which endows such 
 companies with corporate existence. The bridge in this ca^e was, on 
 its completion, dedicated to the use of the public, as was intended from 
 the first, and has continued to be, and is now, a part of the public 
 highway of the state ; and it is not the policy of the law to permit it 
 to be diverted from sqch use. 
 
 The judgment is reversed, and the cause remanded to the dis- 
 
732 CKEDITOES OF THE CORPORATION (Ch. 8 
 
 trict court, with directions to enter a decree in accordance with the 
 prayer of the petition. 
 
 Reversed and remanded. The other judges cpncur.^ 
 
 LOUISVILLE, N. A. & C. RY. CO. v. BONEY. 
 
 (Supreme Court of Indiana, 1888. IIT Ind. 501, 20 N. E. 432, 3 L. R. A. 435.) 
 
 This proceeding was instituted by Mathias Boney against the Louis- 
 ville, New Albany & Chicago Railway Company, the complaint be- 
 ing essentially in the nature of a creditor's bill. Putting aside much 
 irrelevant matter set up in the pleadings, the material facts upon which 
 the questions for decision depend are the following: * * * 
 
 In 1874, Boney made a contract with the Indianapolis, Delphi & 
 Chicago Railroad Company to grade three miles of the company's 
 right of way. In 1875, Boney gave notice pursuant to statute of his 
 intention to hold a contractor's lien on the right of way graded by 
 him. As a result of a suit in 1876 against the company, Boney obtained 
 a personal judgment against the company and a foreclosure of his 
 lien, and became a purchaser of the right of way covered by it at the 
 foreclosure sale. Subsequently other parts of the company's right of 
 way were levied on to satisfy the balance of the judgment, which levy 
 has never been released or disposed of. After the lien was acquired 
 the franchises and property of the company was sold in pursuance of 
 a trust mortgage executed by the company, but which was junior 
 to that of Boney. Boney was not made a, party to this suit. As a re- 
 sult of the sale the Chicago & Indianapolis Air Line Company was 
 organized, succeeding the rights of the original company. Later the 
 Air Line Company was consolidated with the Louisville, New Albany 
 & Chicago Railway Company. 
 
 After the consolidation, in a suit to which Boney and the Louis- 
 ville Company were both parties, it was adjudged that the former took 
 nothing by his purchase at the foreclosure sale pursuant to his lien. 
 Thereupon this suit was instituted by Boney in order to establish his 
 claim against the Louisville Company. The court decreed that the 
 Louisville Company should pay to Boney the amount of his judgment 
 and in default of payment the sheriff was ordered to sell the property 
 and franchises of the company within the state of Indiana. Ap- 
 peal.^ 
 
 Mitchell, J.« [After deciding that the liability of the Louisville 
 Company is substituted for that of the original companies, the court 
 proceeds :] 
 
 1 Compare Plymouth Ry. Co. v. Oolwell, 39 Pa. 337, 80 Am. Dee. 526 (1861) ; 
 OMcago & N. W. Ry. Co. v. Ellson 113 Mich. 30, 71 N. W. 324 (1897) : Fulker- 
 son V. Taylor, 102 Va. 314, 46 S. E. 309 (1904). 
 
 2 statement of facts abridged. 
 
 8 A part of the opinion is omitted. 
 
Sec. 1) RIGHTS AND REMEDIES AGAINST CORPORATION 733 
 
 _ The other feature of the case presents a question of much greater 
 difficulty. According to the established rule of the common law, which 
 controls the current of modern authority, the franchises of a corpora- 
 tion—mere incorporeal hereditaments — ^were not subject to seizure 
 and sale upon execution, in the absence of express statutory provisions 
 authorizing the sale and prescribing the method of transfer. It fol- 
 lows as a natural sequence that lands, easements, or things essential 
 to the existence of the corporation and the execution of its corporate 
 duty, and without which its franchise would be of no practical use, 
 cannot be levied upon and sold on execution at law, so as to detach 
 them from the franchise, and thus destroy its use. Railroad Co. v. 
 State, 105 Ind. 37, 4 N. E. 316; Ammant v. President, etc., 13 Serg. 
 & R. (I*a.) 210, 15 Am. Dec. 593 ; Baxter v. Turnpike Co., 10 Lea 
 (Tenn.) 488, 4 Amer. & Eng. Corp. Cas. 134; Herm. Ex'ns, 361. 
 
 Thus it has been said, in effect, that the franchises and corporate 
 rights of a company, and the means which are necessary to enable it 
 to maintain its existence and subserve the objects and purposes of its 
 creation, are incapable of being granted away or transferred bjj any 
 act of the company, without express authority, or by any adverse pro- 
 cess against it. Canal Co. v. Bonham, 9 Watts & S. (Pa.) 27, 42 
 Am. Dec. 315. Accordingly, where, upon an execution issued on a 
 judgment recovered against a canal company, the marshal had seized 
 and advertised for sale a toll-house and suinidry cana:l-locks and other 
 tangible property, an injunction was sustained ; the court holding that, 
 in the absence of a statute, neither the franchise of the company, nor 
 any lands or works essential to the enjoyment of the franchise, and 
 which couldl not be separated from it without destroying or impairing 
 its value could be sold on execution. Gue v. Canal Co., 24 How. 257, 
 16 L. Ed. 635; Draw-Bridge Co. v. Shepherd, 21 How. 112, 16 L. 
 Ed. 38. 
 
 In a recent case, in which it appeared that a contractor had recov- 
 ered a judgment against a railroad company, under which the "right 
 of way to the railroad, so far as the right of way has been obtained, 
 and all appurtenances belonging to ^ said railroad," were sold by the 
 sheriff, and conveyed to the purchaser, the supreme court of the United 
 States held the sale void, saying, in effect, that the company had no 
 estate in its right of way capable of being sold on execution on a 
 judgment at law, apart frojn its franchise to own and operate a rail- 
 road ; that what the company acquired was merely ^n easement in the 
 land to enable it to discharge its functions of making and maintain- 
 ing a public highway, the fee of the soil remaining in the grantor. 
 Moreover, the court said, in substance, that it would be clearly viola- 
 tive of the policy of th'e state under whose laws the railroad company 
 had been organized to permit a private individual to seize and ap- 
 propriate"^, by means of. an execution sale, the right of way which had 
 been acquired by the railroad company in pursuance of the purposes 
 for which it was organized. Railroad Co. v. Doe, 114 U. S. 340. 
 
734 CREDITORS OP THE CORPORATION (Ch. 8 
 
 5 Sup. Ct. 869, 29 L. Ed. 136; Freem. Ex'ns (2d Ed.) § 179. "It 
 may be considered as settled! that a corporation cannot lease or alien 
 any franchise or any property necessary to perform its obligation and 
 duties to the state without legislative authority." Black v. Railroad 
 Co., 22 N. J. Eq. 130-399; Thomas v. Railroad Co., 101 U. S. 71, 
 25 L. Ed. 950. 
 
 Although a corporation, in respect to its capital, may be private, it 
 may have been created nevertheless to accomplish objects in which 
 the public have a direct concern, and its authority to acquire and hold 
 property may have been conferred upon it in order that these objects 
 might be consummated. In such a case the corporation takes its fran- 
 chise, together with such property as the statute enables it to acquire 
 by the exercise of the power of eminent domain, as a trust from the 
 state, and it can neither alien the one nor the other without special 
 authority, nor can they be seized and sold by any adverse process 
 against it, unless express provision to that end has been made by stat- 
 ute. Stewart's Appeal, 56 Pa. 413; Richardson v. Sibley, 11 Allen 
 (Mass.) 65, 87 Am. Dec. 700. Accordingly it was held that a corpora- 
 tion organized! for the purpose of introducing water into a town for 
 the accommodation of the inhabitants was in a certain sense a corpora- 
 tion for public purposes, and that its buildings and appendages neces- 
 sary for carrying on its operations were not subject to sale in the 
 process of enforcing a mechanic's lien taken thereon. Foster v. Fow- 
 ler, 60 Pa. 27. "For the sake of the public, whatever is essential to 
 the corporate functions shall be retained by the corporation. The only 
 remedy which the law allows to creditors against property so held 
 is sequestration. And that remedy is consistetit with corporate exist- 
 ence, whilst a powier to alien, or liability to levy and sale on execution, 
 would! hang the existence of the corporation on the caprices of the 
 managers, or on the mercy of its creditors." Railroad Co. v. Colwell, 
 39 Pa. 337, 80 Am. Dec. 526. 
 
 While it is true that "the franchise to be a corporation is not a sub- 
 ject of sale and transfer unless the law by some jiositive provision has 
 made it so, and pointed out the modes in which such sale and transfer 
 may be effected," and while the authorities abundantly justify the 
 statement that property acquired and held by a corporation for the 
 exclusive purpose of enabling it to accomplish the purposes of its crea- 
 tion cannot, without like authority, be either directly or indirectly 
 alienated, it does not follow that the creditors of sucih a corporation 
 are remediless. 1 Freem. Ex'ns, § 179. Railroad corporations may 
 sell or mortgage personal property, and the better view of the subject 
 seems to be that the corporation's right voluntarily to alienate prop- 
 €irty, and the creditor's power to subject it to the payment of corporate 
 debts, stands upon the same footing. Coe v. Railroad Co., 10 Ohio St. 
 372, 75 Am. Dec. 518. 
 
 As his been said, there is a distinction between the road and struc- 
 tures immediately connected therewith and appliances afterwards ob- 
 
Sec. 1) RIGHTS AND REMEDIES AGAINST CORPORATION •'^35 
 
 tained for the purpose of operating the road. "The interest or right 
 of way in the land required fpr the construction of the road, the timber 
 and iron of the track, and the depots and structures for the supply 
 of water, and the like, are said to be part of the realty, and the road 
 is not regarded as so constructed and prepared for use until such 
 things are affixed. But when the road is thus constructed and 
 ready for use, locomotives, cars, and other articles and materials, 
 some of which are consumed in the use," are requisite, and the con- 
 clusion is well supported that these, when not in actual use, are liable 
 to seizure and sale for the payment of debts. Railroad Co. v. Gil- 
 more, 37 N. H. 410, 72 Am. Dec. 336; Pierce v. Emery, 32 N. H. 484; 
 Coe V. Railroad Co., supra.* 
 
 The seizure and sale of such property does not confer any right in 
 the franchise of the corporation, or to any of the privileges of the cor- 
 poration. It is analogous to the case in which it appeared that the 
 copyright of a map had been acquired under the act of congress, and 
 that copper-plate engravings of the author had been seized! and sold 
 on execution. It was held that the intangible right to strike off and 
 sell copies of the map was not sold. Stephens v. Cady, 14 How. 528, 
 14 L. EdI. 528. In all of those cases in which the owner of an in- 
 tangible right, such as letters patent and the like, might himself vol- 
 untarily assign it, although property of that description is not capable 
 of being seized and sold, on account of its incorporeal nature, it may 
 nevertheless be subjected to the payment of the owner's debt by a bill 
 in equity. Ager v. Murray, 105 U. S. 126, 26 L. 'Ed. 942. 
 
 A court of equity may, by its decree, compel the owner to execute 
 an assignment of letters patent, because he is himself possessed of 
 the power to assign. B.ut, in the absence of a statute authorizing it, 
 a court of equity cannot compel a railroad corporation to transfer its 
 franchise or such property as is essential to the exercise of its cor- 
 porate obligations, because, in the absence of such authority, the cor- 
 poration could not itself voluntarily alienate or assign its property of 
 that description. 
 
 The plaintiff in the present case acquired a mere statutory lien upon 
 so much of the road-bed as he had constructed. The statute provides 
 that the lien may be foreclosed, but it makes no provision for the 
 sale of the franchise, or of the road as an entirety, or of anything that 
 would in effect destroy or impair the use of the franchise. 
 
 The statutes regulating the construction and operation of railroads 
 within the state plainly contemplate that the power to condemn lands 
 and construct and operate railroads shall be confined to railroad cor- 
 porations. There is no provision by which an individual citizen may 
 condemn land for railroad purposes, nor is it contemplated that landls 
 condemned and used for such purposes may afterwards be sold out 
 
 * But see Chicago & n) W. Ry. Co. v. Forest County, 95 Wis. 80, 70 N. W. 
 77 (1897). 
 
736 CEEDITOES OF THE COEPOEATION (Ch. 8 
 
 on execution or by order of the court, and become the property of an 
 individual, so long as the corporation is not dissolVed, and continues 
 in the use of its franchises and property. The statute, unlike that 
 which authorizes railroad companies to execute mortgages on their 
 property and franchises, gives the contractor a lien, and nothing more. 
 
 As it appears in the present case that the debt remains unpaid, the 
 lien' affords the basis for the exercise by a court of chancery of 
 its flexible jurisdiction, to coerce payment of the debt. The legis- 
 iature doubtless deemed it the wiser course to leave the method of 
 coercing payment in each case to the court, rather than to prescribe a 
 method which might be suited to one case, and not to another. While 
 the corporatioii is solvent, with property and officers and agents sub- 
 ject to the order and process of the court within the state, a court 
 of chancery cannot be without expedients for coercing payment out 
 of any money or property which the corporation itself might have ap- 
 plied to th^t purpose. 
 
 We know judicially that the Louisville, New Albany & Chicago Rail- 
 road! Company has hundreds of miles of railroad in operation in_the 
 state of Indiana. There is no suggestion that the corporation is in- 
 solvent. It has, aside from its franchise and fixed property, perhaps 
 many thousands of dollars worth of property within the state which 
 is subject to seizure and sale. Besides, it has many financial officers 
 and agents within the state, who receive daily thousands of dollars 
 for the corporation. All these are subject to the order and) process 
 of the court. This is the extent to which the court can go until it 
 appears that the corporation is insolvent, and unable to pay its debts 
 or meet its current obligations and liabilities; unable, in fact, longer 
 to discharge the duties resting upon it as a. corporation. In such a 
 case, doubtless, a court of chancery would have the power to take 
 possession of the corporate property by means of a receiver, and wind 
 up the corporation, and sell its property. Upon that subject we decide 
 nothing until a case arises. 
 
 The conclusion of the whole matter in the present case is that the 
 ordler of the circuit court directing the railroad to be sold as an entire- 
 ty, together with all its franchises, privileges, and immunities incident 
 thereto, was in excess of the power of the court. So far as cases 
 relied on seem to support a contrary doctrine from that above enun- 
 ciated they are not deemed applicable to the facts in the present case. 
 Railroad Co. v. Lewton, 20 Ohio St. 401 ; Railroad Co. v. James, 6 
 Wall. 750, 18 L. Ed. 854. 
 
 The justice of the case requires that to the extent that the decree of 
 the court orders the sale of the railroad -of the Louisville, New Albany 
 & Chicago Railroad Company, as in the decree specified, including its 
 franchises, privileges, and immunities connected therewith, it should 
 be modified and reversed, with the costs of this appeal. So far as the 
 decree orders and adjudges that the above-named railroad company 
 
Sec. 1) EIGHTS AND RBl^BDIES AGAINST COEPORITION 737 
 
 pay the plaintiff the sum therein named, it is affirmed, with leave to 
 take such further steps, not inconsistent with this opinion, as may be 
 deemed necessary to coerce payment of the judgment. 
 
 COVINGTON DRAWBRIDGE CO. et al. v. SHEPHERD et al. 
 (Supreme Court of the Unitea States, 1858. 21 How. 112, 16 L. Ed. 38.) 
 
 Catron, J. In December, 1854, Shepherd and others recovered a 
 judgment against the Covington Drawbridge Company, for upwards 
 of six thousand dollars. At the same time, Davidson recovered a 
 judgment against the same company for upwards of a thousand dol- 
 lars. 
 
 ' The corporation was created by an act of the Legislature of Indiana, 
 and built a drawbridge over the Wabash river, in that State, pur- 
 suant to its charter; was sued for a tort in the Circuit Court of the 
 United States for Indiana district, where the recoveries were had. 
 Executions at law were regularly issued, and at March term, 1855, of 
 that court, were returned by the marshal, "nothing found." Alias 
 writs of fi. fa. were taken out and levied on the, bridge as real estate, 
 and in November, 1855, the marshal proceeded to sell the rents and 
 profits of the same on Davidson's judgment for the term of one year, 
 at the sum of $4,666.62, Davidson, the execution creditor, becoming 
 the purchaser. The agent of Shepherd and others instructed the mar- 
 shal not to sell the bridge on their judgment, and he returned the 
 special facts. Davidson demanded possession of the bridge from the 
 corporation, so that he might obtain the tolls, but the keeper of the 
 bridge, and a principal owner of the stock, refused to surrender 
 possession. In May, 1856,, Shepherd, and those interested in the 
 large judgment jointly with Davidson filed their bill in equity in the 
 Circuit Court of the United States for the district of Indiana against 
 the bridge company and Richard M. Nebeker as keeper, agent, and 
 manager, of the bridge ; praying that the court should appoint a suit- 
 able receiver to take possession of the same, and receive the tolls and 
 income, and apply them to discharge the judgments at law, after de- 
 fraying expenses. The court made the decree prayed for, from which 
 the bridge company appealed to this court. 
 
 The first objection made to the decree is, that it does not appear by 
 the bill that the defendant is properly described as incorporated by 
 thej State of Indiana. The bill alleges that "the Covington Drawbridge 
 Company, of Covington, is a corporation and citizen of the State of 
 Indiana;" and it is also insisted, that the judgments at law are void, 
 because jurisdiction was not given to the United States courts by the 
 averment of citizenship in either of the declarations. The judgment 
 at law, in Shepherd's case, was brought before this court at the last 
 term, when it was held that the averment of citizenship here ob- 
 RiCH.CoRP. — 47 
 
738 CKEDITOES OF THE COEPOBATION ' , (Ch. 8 
 
 jected to was sufficient. 20 flow. 227, IS L. Ed. 896. That decision 
 is conclusive of the two foregoing exceptions. 
 
 The consideration whether by a creditor's bill corporate property 
 and franchises can be subjected to pay the debts of the corporation, 
 by taking possession and administering its affairs, and drawing to the 
 court its revenues, is a question of great importance and some diffi- 
 culty. In advance of this question, it is insisted here that there exists 
 in Indiana an adequate remedy at. few; that Davidson's judgment is 
 satisfied by the levy and sale of the tolls of the bridge; and David- 
 son having obtained a remedy by fi. fa.. Shepherd may do the same. 
 To ascertain whether Davidson obtained satisfaction by the marshal's 
 sale, we must inquire what property was sold, and what title to it ac- 
 quired, that could be made available by possession and the receipts 
 of tolls. 
 
 The Covington Drawbridge Company was duly incorporated to 
 build a bridge across the Wabash : river where it was navigable for 
 steamboats, and not subject to be bridged by an individual assuming 
 to exercise a mere private right. The corporation had conferred on it 
 a public right of partially obstructing the river, which is a common 
 highway, and which obstruction would have been a nuisance, if done 
 without public authority. This special privilege, conferred on the cpr- 
 poration by the sovereign power, of obstructing the navigation, did 
 not belong to the country generally by common right, and is therefore 
 a franchise; and, secondly, the authority of taking tolls from those 
 who crossed the river on the bridge was also a franchise, and free- 
 dom to do that which could not be lawfully done by one without pub- 
 lic authority; this franchise could only be conferred by the Legisla- 
 ture directly, or indirectly through public agents and tribunals, in pur- 
 suance of a statute. The bridge is part of a road, and an easement, 
 like the road ; and the privilege of making the bridge, and taking tolls 
 for the use of the same, is a franchise in which the public have an 
 interest; the corporation, as owner of the franchise, is liable to an- 
 swer in damages if it refuses to transport individuals on being paid 
 or tendered the usual fare ; the law secured the tolls as a recompense 
 for the duty imposed to provide and maintain facilities for accommo- 
 dating the public. Whether the timbers and materials of this bridge 
 could be sold at auction by the marshal, by virtue of a fieri facias in 
 his hands, as was held could be done by the laws of North Carolina 
 in the case of the State v. Rives, 27 N. C. 297, we are not called on to 
 decide in this case, as here the annual tolls were sold, and not the 
 bridge itself. 
 
 By the laws of Indiana, lands and tenements cannot be sold under 
 execution, until the rents and profits thereof for a term not exceed- 
 ing seven years shall have been first offered for sale at public auction ; 
 and if that term, or a less one, will not satisfy the execution, then 
 the debtor's interest or estate in the land may bel sold, provided it brings 
 two-thirds of its appraised value. The tolls, under the idea that they 
 
Sec. 1) EIGHTS AND REMEDIES AGAINST CORPORATION 739. 
 
 were rents and profits of the bridge, were sold for one year, according 
 to the forms of this law. Th,e tolls of the bridge being a franchise, 
 and sole right in the corporation, and the bridge a mere easement, 
 the corporation not owning the fee in the land at either bank of the 
 river, or under the water, it is difficult to say how an execution could 
 attach to either the franchise or the structure of the bridge as real or 
 personal property. This is a question that this court may well leave to 
 the tribunals of Indiana to decide on their own laws, should it be- 
 come necessary. One thing, however, is plainly manifest, that the 
 remedy at law of these execution creditors is exceedingly embarrass- 
 ed, and we do not see how they can obtain satisfaction of their judg- 
 ments from this corporation, (owning no corporate property but this 
 bridge,) unless equity can afford relief. 
 
 By the laws of Indiana, stocks in a corporation may be sold by vir- 
 tue of an execution against the owner of the stocks, which the sher- 
 iff may transfer to the purchaser; but this law does not help these 
 complainants; they did not proceed against the. stocks; their judg- 
 ment at law did not affect individual property, but corporate property. 
 The question whether a railroad company's property, including the 
 franchises, can be subjected to the debts of the corporation by a de- 
 cree in equity, is treated very fully by Redfield on Railways, c. 32, 
 § 2, p. 571 ; there the substance of the decisions affecting the doctrine 
 is given in cases where there were liens by mortgage. ^The subject 
 was well examined by the Supreme Court of Georgia in the case of the 
 Macon & Western Railroad Company v. Parker, 9 Ga. 378. The con- 
 test there involved claims of creditors. When speaking of the neces- 
 sity of equity exercising jurisdiction, the court say "that the whole 
 history of equity jurisprudence does not present a case which made 
 the interposition of its powers not only highly expedient, but so in- 
 dispensably necessary in adjusting the rights of creditors to an in-, 
 solvent estate as this did." The road was sold according to the de- 
 cree ; but, to settle the difficulty as to the sale of a franchise without 
 the consent of the power granting it, upon application, ah act was 
 passed by the Legislature, creating the purchaser and his associates a 
 body corporate, with the powers and privileges of the old company. 
 In England, the practice is, to order a receiver to be appointed to 
 manage the corporate property, take the proceeds of the franchises, 
 and apply them to pay the creditors filing the bill. Blanchard v. Caw- 
 thorn, 4 Simons' R. 566; Tripp v. Chard Railway Company, 21 E. 
 Law & E. R. 53. 
 
 All that we are called on to decide in this case is, that the court be- 
 low had power to cause possession to be taken of the bridge; to ap- 
 point a receiver to collect tolls, and pay them into court, to the end of 
 discharging the judgments at law ; and our opinion is, that the power 
 to do so exists, and that it was properly exercised. It is therefore 
 ordered that the decree below be affirmed, and the Circuit Court is di- 
 rected to proceed to execute its decree. 
 
740 ; CREDITORS OF THE CORPORATION (Ch. 8 
 
 Mr. Justice Daniel dissented, for want of jurisdiction of the courts ' 
 of the United States over corporations. Marshall v. Bait. & Ohio R. 
 Co., 16 How. 314, 14 L. Ed. 953. 
 
 DODGE et al. v. PYROLUSITE MANGANESE CO. et al. 
 (Supreme Court of Georgia, 1882. 69 Ga. 665.) 
 
 Bill filed by the plaintiffs, simple contract creditors of the defendant 
 corporation, for relief, injunction and the appointment of a receiver. 
 
 The bill Sets out facts which, it alleges, shows the corporation to 
 be insolvent. Among other allegations it is asserted that the assets 
 of the company are greatly exceeded by its liabilities ; that its annual 
 receipts are much less than its expenditures ; that the managenient is 
 discordant; that three attachments have been filed for claims aggre- 
 gating over $55,000; that the company organized under the laws of 
 New York, for the business of mining, has acquired lands to an ex- 
 tent prohibited under the laws of Georgia; that certain officers have 
 failed to account for funds received on account of the corporation; 
 that to proceed at law will involve suits and attachments in various 
 counties of the state, owing to the wide distribution of the company's 
 holdings, with incidental waste and loss to creditors. The prayer 
 is for an injunction to restrain the defendants from interfering with 
 the property or creating any debts or liens thereon ; that all creditors 
 be made parties; that sheriffs of the counties where the company's 
 property is situated be enjoined from making levies thereon; that 
 a receiver be appointed ; that all property be sold and the proceeds dis- 
 tributed among the creditors. All discovery is waived. Demurrer 
 to the bill on the following grounds: (1) Plaintiffs not judgment 
 creditors. (2) The insolvency of the defendants is not alleged.. (3) 
 Plaintiffs have an adequate remedy at law. It further appears that 
 the plaintiffs have commenced attachment proceedings against the 
 defendants' property. 
 
 Appeal from a decree sustaining the demurrer." 
 
 SpeeRj J.8 * * * It will appear from the foregoing synopsis 
 of the complainants' bill that they are creditors under simple contracts, 
 of this corporation ; that' they assert or claim no title, interest in, or 
 lien upon the property of this corporation, save and except their at- 
 tachment liens, which are mere mesne process; and yet with their 
 suits at law levied and pending, they ask a court of chancery to in- 
 terfere, take charge of this large property of the company, oust its 
 oificers of its management, control and direction, place the same in the 
 hands of a receiver to be sold, to await the decree upon their claims, 
 when established by judgment or decree, and that of the other cred- 
 
 s statement of facts substituted. 
 
 « Part of the opinion containing recitals in the bill is omitted. 
 
Sec. 1) RIGHTS AND EBMEDIBS AGAINST CORPORATION 741 
 
 itors. The decisions of this court upon this subject have been uniform 
 and in harmony with each other so far as our investigation has gone. 
 
 Creditors, without lien or title or some interest therein, and who 
 have not reduced their claims to judgment, have, as a general rule, no 
 right to invoke interference by an injunction and appointment of a 
 receiver. This rule has been several times recognized and acted upon 
 by this court. Peyton v. Lamar, 42 Ga. 134; Johnson v. Farnum, 56 
 Ga. 145 ; Bessman v. Cronan, 65 Ga. 559. 
 
 And even where a creditor has a general judgment, and has levied 
 it, and a claim has been interposed under a pauper affidavit for the 
 purpose of delay, and by reason of the depreciation of the property 
 there is danger of losing the debt, but he shows no special lien, inter- 
 ference by a court of equity was disallowed. Bessman v. Cronan, 65 
 Ga. 559. 
 
 There must be some special circumstances to authorize equitable in- 
 terference in behalf of a creditor seeking to collect his debt, though it 
 be in judgment, but in such cases they are maintainable upon their 
 own peculiar facts. 
 
 Under this general rule, as these complainants show by averment or 
 otherwise neither judgment, nor special lien, nor title, nor interest in 
 the property, they must fall under this general rule, unless the special . 
 facts of the case made by the bill, relieve them from its operation. We 
 have looked through with great care and labor this voluminous rec- 
 ord,- and we cannot find any special facts set forth in complainants' bill 
 that will relieve it from the operation of the general rule so frequently 
 recognized by this court. Here is a foreign corporation doing busi- 
 ness in Georgia, where it has a large and valuable property. It cer- 
 tainly cannot be claimed that a court in Georgia has jurisdiction to 
 dissolve this corporation. It is true, as has been alleged, it may be 
 gravely embarrassed with debt. Still its 'property is accessible here, 
 open and fixed, and no discovery is sought at the hands of any of these 
 defendants to uncover any that may be fraudulently held, and in the 
 absence of any special charge of fraud and concealment, why should 
 the business of this corporation be arrested, its chosen officers dis- 
 placed, its property taken from their custody, upon the complaint of 
 creditors who have never yet obtained a judgment upon their debts, 
 and who, so far as we know, may never establish such claims ? 
 
 It must be rernembered that this is a bill filed alone in behalf of 
 these creditors, and not as stockholders, and therefore much of their 
 complaint would and might be properly addressed to a court which 
 l^ad jurisdiction to dissolve this corporation, but no such right is 
 insisted pn here. These are simple contract creditors without judg- 
 ment, lien, title or interest in the property of the corporation, beyond 
 what belongs to every creditor. If there should be any fraudulent 
 alienation or concealment of property liable to debts, or the creation 
 of any fraudulent liens upon its property, then the statute affords 
 prompt and speedy remedy by attachment; but because the debtor. 
 
742 CREDITORS OF THE CORPORATION ' (CH. S' 
 
 in the opinion of complainants, is not managing its property as wisely 
 and successfully as it might be done, we do not see how this gives a 
 right to ask the interference of a court of chancery. These creditors 
 are already proceeding by attachment; they have levied and fixed 
 their attachment liens, and until they get their judgments, at least, we 
 deem their application to chancery, to take charge of and direct the 
 sale of this large mining interest for the best interest of all parties 
 concerned, at least to be premature. In the future progress of the case 
 after judgments had, if in the then proposed sale of the property and 
 the distribution of the fund they will then need the aid of a court of 
 chancery, under the peculiar circumstances that may then exist, its 
 door will be opened to their complaint. 
 
 But to do this in advance of any lien upon, or title, or interest in 
 said property, as appears from this record, we cannot say the court 
 erred in refusing their applications and sustaining the demurrer. Nor 
 can we see how its refusal can be of any serious damage to com- 
 plainants. The sale of the personalty can be speedily had, under the 
 law; the realty is fixed and 'immovable ; while on the other hand, an 
 interference now, as sought, would necessarily hasten the ruin and 
 insolvency of a corporation which, though embarrassed, may yet re- ' 
 cover and proceed to discharge honestly its corporate duties. Judg- 
 ment affirmed.' 
 
 HOLIvINS v. BRIERFIELD COAL & IRON CO. 
 
 (Supreme Court of the United States, 1893. 150 U. S. 371, 14 Sup. Ct. 127, 
 
 37 L. Ed. 1113.) 
 
 The facts in this case are as follows: The Brierfield Coal & Iron 
 Company was incorporated under the laws of Alabama, May 4, 1882. 
 On September 1, 1882, a conveyance was made by the company to 
 Preston B. Plumb, ^s trustee, to secure an issue of $500,000 in- bonds. 
 
 7 Compare The AnTil v. Savery, 116 Ga. 321, 42 S. E. 495. (1902); Finney v. 
 Bennett, 68 Va. 365 (1876) ; Turnbull v. Prentiss Lumber Co., 55 Mich. 387, 
 21 N. W. 375 (1884). 
 
 See Davis v. Edwards, 41 Wash. 480, 84 Pae. 22 (1906). 
 
 In Mercantile Trust Co. v. M., K. & T. Ry. Co. (0. C.) 36 Fed. 221, at page 
 224, 1 L. R. A. 397 (1888), Brewer, J., In passing on a motion for a receiver in ■ 
 foreclosure proceedings under a deed of trust, said: "The right, to foreclose 
 does not carry with it a right to a receiver. There are many considerations 
 that bear upon that question. Every case, of course, stands on its own 
 merits. It is difficult to formulate any rule which, briefly stated, will con- 
 trol all cases. It should appear that there Is some danger to the property ; ■ 
 that for its protection, its preservation, the Intferests of various holders, re- 
 quire possession by the court, before a receiver should be appointed. . It does 
 not go as a matter of course; and yet It is not a matter that a court can 
 refuse simply because it is an annoyance. If, looking at the situation of the 
 litigating parties and of the property, with the prospects' of the future, it 
 should appear to a court that they would be benefited, that their interests 
 would be subserved by the appointment of a receiver, why no court— although 
 a matter resting, as it Is said, in its discretion— could refuse to make the 
 appointment." 
 
Sec. 1) RIGHTS AND REMEDIES AGAINST CORPORATION 743 
 
 On July 25, 1887, the trustee Plumb, requestfed a further conveyance 
 and assurance, pursuant to a covenant in the deed of September, 1882, 
 7qq7 5^^^^^^ conveyance was executed by the company on July 29, 
 1«87. On August 1st, he demanded the surrender of all the compa- 
 ny s property to him, as trustee. This was done, and he placed John 
 (jr. Murray m charge, to control and manage it. 
 
 On August 3d, he filed a bill in the circuit court of the United States 
 .for the middle district of Alabama, against the company, joining as 
 defendants certain stockholders, bondholders, and creditors, though 
 not the plaintiffs in the present suit. That bill set out the organization 
 of the corporation, the stockholders, with the amounts of stock sub- 
 scribed, and the amounts paid upon such stock, and alleged that the 
 subscribers were liable for the unpaid subscriptions, but that the as- 
 sistance of the court was necessary for the assessment of such sums. 
 It also set out the issue of the bonds, and their present owners, so far 
 as known, a default in the payment of the interest due thereon, the 
 property and indebtedness of the company, — the unsecured indebted- 
 ness being alleged to amount to about $200,000. The bill further 
 averred that up to that time the chief indu'stry of the company had 
 been the manufacturing of cut nails from iron; that, owing to over- 
 production in the country, this business had become unprofitable to the 
 company, and that it was desired to change the industry from the 
 manufacture of nails to the production of pig iron, and that it had 
 purchased property with a view to carrying on that industry; that 
 it did not have money enough. to successfully carry it on. The bill 
 also alleged that the trustee had taken possession, as authorized by 
 the deed of trust; that he could not carry on the business of the com- 
 pany without obtaining money on the credit of the property j and 
 prayed the direction of the court as to lyhether he should be permitted 
 to borrow such money, and issue certificates of indebtedness therefor. 
 It asked that all creditors of the corporation, and claimants against the 
 estate, be permitted to make themselves parties, and have their claims 
 adjudicated; that a full administration be had of the estate, and, if 
 need be, a foreclosure and sale. 
 
 Subsequently, Plumb resigned as trustee, and W. L. Chambers was 
 substituted in his place. Proceedings were had in that case, which 
 resulted, on July 8, 1889, in a decree for the foreclosure of the trust 
 deed, and a sale of the property. Nearly three months after the com- 
 mencement of the Plumb suit, and on October 28, 1887, these appel- 
 lants, as plaintiffs, filed a bill in the same court, making the coal 
 company and sundry stock and bond holders, together with the trustee 
 Plumb, parties defendant. The plaintiffs were unsecured treditors of 
 the company, having claims contracted in 1886 and 1887, four -or five 
 years after the issue of the bonds and execution of the trust deed, who 
 sued on behalf of then;iselves and all other creditors of the coal and" 
 iron company, who were willing to come in and contribute to the ex- 
 penses of the suit. After setting forth their claims, they alleged that 
 
744 CBEDITOES OP THE COBPOEATION (Ch. 8 
 
 the conveyance to Plumb, as trustee, was absolutely void ; that a large 
 amount was still due on the stock. They asked to have a receiver ap- 
 pointed and the property sold in satisfaction of their claims, and that 
 such receiver have authority to collect the unpaid stock subscriptions, 
 to be also applied in satisfaction of their claims. They alleged the 
 pendency of the suit brought by Plumb as trustee, but did not ask to 
 intervene therein. After. the decree of foreclosure and sale in the 
 Plumb case, and on July 24, 1889, a final decree was entered, dis- 
 missing this bill. From such decree of dismissal, plaintiffs have ap- 
 pealed to this court. 
 
 Brewer, J.° (after stating the facts). The plaintiffs were simple 
 contract creditors of the company. Their claims had not been reduced 
 to judgment, and they had no express lien by mortgage, trust deed, 
 or otherwise. It is the settled law of this court that such creditors 
 cannot come into a court of equity to obtain the seizure of the proper- 
 ty of their debtor, and its application to the satisfaction of their 
 claims, and this notwithstanding a statute of the state may authorize 
 such a proceeding in' the courts of the state. The line of demarcation 
 between equitable and legal remedies in the federal courts cannot be 
 obliteraited by state legislation. Scott v. Neely, 140 U. S. 106, 11 Sup. 
 Ct. 712, 35 L. Ed. 358; Gates v. Allen, 149 U. S. 451, 13 Sup. Ct. 
 883, 977, 37 L. Ed. 804. Nor is it otherwise in case the debtor is a cor- 
 poration, and an unpaid stock subscription is sought to be reached. 
 Tube-Works Co. v. Ballou, 146 U. S. 517, 13 Sup. Ct. 165, 36 L. 
 Ed. 1070; Cattle Co. v. Frank, 148 U. S. 603, 612, 13 Sup. Ct. 691, Z7 
 L. Ed. 577. Nor is this rule changed by the fact that the suit is 
 brought in a cotirt in which at the time is pending another suit for 
 the foreclosure of a mortgage or trust deed upon the property of the 
 debtor. - ~^ 
 
 Doubtless, in such foreclosure suit, the simple contract creditor can 
 intervene, and if he has any equities in respect to the prdperty, . 
 whether prior or subsequent to those of the plaintiff, can secure their 
 determination and protection; and here, by the express language of 
 the bill filed by the trustee, all claimants and creditors were invited 
 to present their claims, and have them adjudicated. These plaintiffs 
 did not intervene, though, as shown by the allegations of their bill, 
 they knew of the existence of the foreclosure suit. Neither did they 
 apply for a consolidation of the two suits. On the contrary, the whole 
 drift and scope of their suit was adverse to that brought by the trus- 
 tee, and in antagonism to the rights claimed by him. They obviously 
 intended to keep away from that suit, and maintain, if possible, an inde- 
 pendent proceeding to have the property of the debtor applied to the 
 satisfaction of their claims. But this, as has been decided in the cases 
 cited, cannot be done. 
 
 « A part of the opinion, discussing the authorities, Is omitted. 
 
Sec. 1) RIGHTS AND KEMEDIBS AGAINST COEPOKATION 745 
 
 The excuse suggested, that the rule which forbids in a suit to fore- 
 close a mortgage the litigation of a title adverse to that of the mort- 
 gagor prevented them from intervening, is not sound. Their rights, 
 like those of the trustee and the bondholders, were derived from the 
 corporation defendant. Each claimed under it, and the validity and 
 amount of such claims were matters properly and ordinarily consid- 
 ered and determined in a foreclosure suit. It is true the corporation 
 might admit the validity of any or all of the claims, and then the va- 
 lidity could only be a subject of inquiry between the claimants for the 
 purpose of determining the matter of priority ; but to that extent, at 
 least, both validity and amount are always open to contest and deter- 
 mination. * * * 
 
 But it is earnestly insisted that it has been held by this court (Case 
 y. Beauregard, 101 U. S. 688, 25 L. Ed. 1004) that whenever a cred- 
 itor has a trust in his favor, or a lien upon property for a debt due 
 him, he may go into equity without exhausting his legal remedies ; that 
 it has also frequently been affirmed that the capital stock and assets 
 of a corporation constitute a trust fund for the benefit of its creditors, 
 which neither the officers nor stockholdei's can" divert or waste ; and 
 several cases are cited, — among them, that of Sanger v. Upton, 91 U. 
 S. 56, 23 L. Ed. 220, in which, perhaps, the proposition is asserted in 
 the most direct and emphatic language, and Terry v. Anderson, 95 U. 
 S. 628, 636 (24 L. Ed. 365), in which Chief Justice Waite made these 
 observations : "Ordinarily, a creditor must put his demand into judg- 
 ment against his debtor, and exhaust his remedies at law, before he 
 can proceed in equity to subject choses in action to its payment. To 
 this rule, however, there are some exceptions; and we are not pre- 
 pared to say that a creditor of a dissolved corporation may not, under 
 certain circumstances, claim to be exempted from its operation. If 
 he can, however, it is upon the ground, that the assets of the corpora- 
 tion constitute a trust fund, which will be administered by a court of 
 equity, in the absence of a trustee ; the principle being that equity will 
 not permit a trust to fail for want of a trustee." 
 
 While it is true language has been frequently used to the effect that 
 the assets of a corporation are a trust fund held by a corporation for 
 the benefit of creditors, this has not been to convey the idea that there 
 is a direct and express trust attached to the property. As said in 2 
 Pom. Eq. Jur.- § 1046, they "are not, in any true and complete sense, 
 trusts, and can only be called so by way of analogy or metaphor." 
 
 .To the same effect are decisions of this court. The, case of Graham 
 V. Railroad Co.; 102 U. S. 148, 160 (26 L. Ed. 106), was an action 
 by a subsequent creditor to subject certain property, alleged to have 
 been wrongfully conveyed by the corporation debtor, to the satisfac- 
 tion of his judgment; and the very proposition her© presented was 
 then considered, and, in respect to it, the court, by Mr. Justice Bradley, 
 saidr 
 
746 CREDITORS OF THE CORPORATION (Ch. 8 
 
 :. "It is- contended, however, by the appellant, that a corporation 
 debtor does not stand on the same footing as an individual debtor; 
 that, whilst the latter has supreme dominion over his own property, 
 a corporation is a mere trustee, holding its property for the benefit of 
 its stockholders and creditors ; and that if it fail to pursue its rights 
 against third persons, whether arising out of fraud or otherwise, it is 
 a breach of trust, and creditors may come into equity to compel an 
 enforcement of the corporate dlity. This, as we understand, is the 
 substance of the position taken. 
 
 "We do not concur in this view. It is at war with the notions 
 which we derive from the English law with regard to the nature of 
 corporate bodies. A corporation is a distinct entity. Its affairs are 
 necessarily managed by officers and agents, it is true ; but, in law, it is 
 as distinct a being as an individual is, and is entitled to hold property, 
 if not contrary 'to its charter, as absolutely as an individual can hold 
 it. Its estate is the same, its interest is the same, its possession is the 
 same. Its stockholders may call the officers to account, and may pre- 
 vent any malversation of funds or fraudulent disposal of property on 
 their part. But that is done in the exercise of their corporate rightSi 
 not adverse to the corporate interests, but coincident with them. 
 
 "When a corporation becomes insolvent, it is so far civilly dead 
 that its property may be administered as a trust fund for the benefit 
 of its stockholders and creditors. A court of equity, at the instance 
 of the proper parties, will then make those funds trust funds, which, 
 in other circumstances, are as much the absolute property of the cor-' 
 poration as any man's property is his." 
 
 With reference to the suggestion in this last paragraph, it may be 
 observed that the court does not attempt to determine who are proper 
 parties to maintain a suit for the administi;ation of the assets of an 
 insolvent corporation. All that it decides is that, when a court of 
 equity does take into its possession the assets of an insolvent corpora- 
 tion, it will administer them, on the theory that they, in equity, belong 
 to the creditors and stockholders, rather than to the corporation itself. 
 In other words, — and that is the idea which underlies all these expres- 
 sions in reference to "trust" in connection with the property of a cor- 
 poration, — the corporation is an entity, distinct from its stockholders 
 as from its creditors. Solvent, it holds its property as any individual 
 holds his, free from the touch of a creditor who has acquired no lien; 
 free, also, from the touch of a stockholder who, though equitably in- 
 terested in, has no legal right to, the property. Becoming insolvent, the 
 equitable interest of the stockholders in the property, together with 
 their conditional liability to the creditors, places the property in a con- 
 dition of trust, first for the creditors, and then for the stockholders. 
 Whatever of trust there is arises from the peculiar and diverse equi- 
 table rights of the stockholders as against the: corporation in its prop- 
 erty, and their conditional liability to its creditors. It is rather a trust 
 in the administration of the assets after possession by a court of equi- 
 
Seel) EIGHTS, AND REMEDIES A&AINST CORPORATION 747 
 
 ty, than a trust attaching to the property, as such, for the direct benefit 
 of either 'creditot or stockholder. /* *• * - . ,. 
 
 The same idea of equitable lien and trust exists, to some extent, in 
 the case of partnership property. Whenever, a partnership becoming 
 insolvent, a court of equity tates possession of its property, it recog- 
 nizes the fact that in equity the partnership creditors have a right to 
 payment out of those funds in preference to individual creditors, as 
 well as superior to any claims of the partners themselves; and the 
 partnership- property is therefore sometimes said, not inaptly, to be 
 held in trust for the partnership creditors, or that they have an equi- 
 table lien on such property, yet, all that is meant by such expressions 
 is the existence of an equitable right, which will be enfqrced whenever 
 a court of equity, at the instance of a proper party, and in a proper 
 proceeding, has taken possession of the assets. , It is never understood 
 that there is a specific lien or a direct trust. , 
 
 A party may deal with a corporation, in respect to its property, in 
 the same manner as with an individual owner, and with no greater 
 danger of being held to have received into his possession property 
 burdened with a trust or lien. The officers of a corporation act in 
 a fiduciary capacity in respect to its property in their hands, and may 
 be called to an account for iraud, or sometimes even mere misman- 
 agement, in respect thereto; but, as between itself and its creditors, 
 the corporation is simply a debtor, and does not hold its property in 
 trust, or subject to a lien in their favor, in any other sense than does 
 an individual debtor. That is certainly the general rule, and, if there 
 be any exceptions thereto, they are not) presented by any of the facts 
 ' in this case. Neither the'insolvency of the corporation, nor the exe- 
 cution of an illegal trust deed, nor the failure to collect in full all 
 stdck subscriptions, nor all together, gave to these simple contract 
 creditors any lien upon the property of the corporation, nor charged 
 any direct trust thereon. * *- * 
 
 These plaintiffs were simple contract creditors when the trustee's 
 suit was commenced. That suit passed to decree of foreclosure, and 
 up to that time these plaintiffs had acquired no specific lien upon the 
 property. They entered no appearance in that suit, did not intervene, 
 or claim any rights in the property, and they were represented in that 
 suit by the corporation, th,e party under whom both they and the trus- 
 tee claimed. A decree of dismissal was therefore proper. It appears 
 in the record as a decree upon the merits. It should have been for 
 want of jurisdiction, and to that extent the decree, as entered, will be 
 modified. The appellants will be charged with all the costs in the case. 
 Dismissed for want of jurisdiction. 
 Mr. Justice Brown and Mr. Justice Jackson dissent.' 
 
 » Compare Bank of St. Mary's v. St. John Powers & Cb., 25 Ala. 566 (1854). 
 See Barber v. International Company of Mexico, 73 Conn. 587, 48 Atl. 758 
 (1901). 
 
748 CEEDITOES OF THE COEPOBATION (Ch. 8- 
 
 MILLS V. NORTHERN RY. OF BUENOS AYRES CO. 
 (Court of Appeal in Chancery, 1870. L. R. 5 Ch. App. Cas. 621.) 
 
 This was an appeal from an order of Vide-Chancellor Stuart, grant- 
 ing an interlocutory injunction against the Northern Railway of 
 Buenos Ayres Company, Limited, under the following circumstances : 
 
 The company was established in July, 1862, and registered under the 
 Companies Act, 1862. Its main object was stated in the memoran- 
 dum of association to be as follows : 
 
 "The making, purchasing, or otherwise acquiring and maintaining, 
 managing, and working of railways and tramways, and other roads 
 and ways, in the state of Buenos Ayres, or in the states of the prov- 
 inces of the Argentine ^Confederation, with branches therefrom respec7 
 tively, and the making or providing of machinery, rolling and other 
 stock, plants, stores, and conveniences, for ^he purposes thereof, _and 
 the conveying passengers, animals, and goods on and to atid from 
 the railways, tramways, roads, ways, and branches of the company, 
 and the carrying on the business of a railway and tramway company. 
 But, unless and until the company shall increase their original capital 
 of i250,000., the undertaking of the company shall be confined to a 
 railway and tramway from Buenos Ayres to San Fernando, authorized 
 by the Government concession of the 2Sth of February, 1862, and to 
 the further extension of the said railway to the River Tigre, and to 
 such of the several objects in the memorandum mentioned as the com- 
 pany shall think necessary, incidental, or advantageous thereto." 
 
 Among other subordinate objects were mentioned "the doing of all, 
 other things whatsoever which the company shall think' directly or in- 
 directly incidental or conducive to any of these objects, or likely to be 
 advantageous to the company in connection therewith, and the doing 
 of all things, and the exercise of all powers contained in the articles 
 of association of the company." 
 
 The original capital of the company consisted of £250,000., divided 
 into 1500 guaranteed preference shares of £10. each, 600 deferred 
 preference shares of £10. each, and 4000 ordinary shares of £10. each. 
 By the articles of association it was provided that the company, with 
 the sanction of a general meeting, might increase the capital of the 
 company by the issue of new shares; and power was given to the 
 directors to borrow any sum or sums not exceeding £150,000. on de- 
 bentures or other securities. 
 
 On the 22d of August, 1862, an agreement was made between the 
 company and the firm of E. Murray & Co., which consisted of J. R. 
 Croskey and Eugene Murray, that the firm should construct a single 
 line of railway from the gas works at Buenos Ayres to San Fernando, 
 and a single line of tramway from the custom-house at Buenos Ayres 
 to the station at the gas works. The price fixed was £100,000., which 
 was to be paid partly in cash and partly in ordinary shares of the 
 
Sec, 1) RIGHTS AND REMEDIES AGlilNST CORPORATION 749 
 
 company, with an option to the company to pay the whole in cash in 
 lieu of shares. The agreement contained a clause for referring ques- 
 tions between the parties to arbitration. 
 
 The works were performed by Messrs. E. Murray & Co., and they 
 received payments in money and shares on account of the contract; 
 but they still claimed £64,849. from the company, partly under the 
 contract and partly for extra works. This debt was disputed by the 
 company, who, on the contrary, claimed that a large sum was due 
 from the firm to the company. ' , > 
 
 On the 30th of April, 1870, the directors issued a report, in which 
 they stated that they had a balance in hand of net profits of £32,681. 
 3s. 2d. ; that the charge for interest upon the company's loan capital, 
 etc., was £5838. 6s. 2d., leaving, after lending to the capital account 
 £10,350. 17s. 4d. for special expenditure, £16,491. 19s. 8d. available 
 for distribution. The directors recommended that this sum should be 
 applied in payment of the arrears of dividend due to the guaran- 
 teed preference shareholders for the eighteen months ending the 30th 
 of June, 1867. 
 
 The directors explained, in a subsequent paragraph of their report, 
 that the payment of the arrears out of accumulations of revenue would 
 occupy a considerable time, and that in order to accelerate the de- 
 sired result a certain amount must be funded ; and that as legal diffi- 
 culties prevented this until the revenue was sufficient to enable the 
 company to declare equivalent dividends, and as expenditure was 
 being incurred in new works and additional plant, which might be le- 
 gally charged to capital, it was recommended, under the advice of 
 counsel, that the amount expended last year under th6 above-men- 
 tioned heads, as well as that to be expended in the present year and 
 1871, estimated at about £10,000. should be treated as a payment on 
 capital account, which would be afterwards discharged out of a sum 
 of £20,000. which they purposed to raise by issue of debentures at £6. 
 per cent. The report also recommended the conversion of the tramway 
 from the custom-house to the principal station into a railway adapted 
 for locomotive engines. 
 
 This report was adopted at the generalmeeting of the company held 
 on the 16th of May, 1870, and the sum of £16,491. 19s. 8d. was dis- 
 tributed according to the proposal contained therein. 
 
 The bill (paragraph 39) contained the following charge : "The ef- 
 fect of the proposal contained in the report is, that sums which have 
 been paid out of revenue, and ascribed in the accounts of the company 
 to revenue account, are now to be treated as payments on account of 
 capital account, and considered as having been borrowed for the pur- 
 pose of capital from the revenue, so as to create an apparent or ficti- 
 tious fund for the payment of shareholders. The money for this pur- 
 pose is proposed to be raised by means of the issue of debenture 
 stock, and the effect of the proposal is to increase the liabilities of 
 the co.'rpany by the issue of debenture stock, for the purpose of bor- 
 
750 ' CEEDlfOES OP THE CORPOEATION (Ch. 8 
 
 rowing money, in order to distribute the same among the shareholders 
 under .the guise of revenue." 
 
 The plaintiffs were Robert Mills, the executor of Eugene Murray, 
 who was dead, and H. W. Spratt and J. R. Stebbing, the trustees of 
 a deed of assignment executed by J. R. Croskey for the benefit of his 
 creditors. The bill alleged that Mills, as the executor of E. Murray, 
 held some fuUy^ paid-up deferred preference shares of ilO. each. 
 The bill prayed for an account and payment of what was due to the 
 plaintiffs under the contract, and 'for other works; and for an in- 
 junction to restrain the company from carrying out the proposal in 
 the report, and from issuing any debenture stock or applying any 
 money raised by debenture stock on debentures in payment of any 
 dividend to any of the shareholders, and from declaring or distributing 
 any dividend until they had paid or made provision for paying what 
 was due to the plaintiffs ; and also from converting the tramway into 
 a railway until the company had duly increased their original 'capital. 
 The plaintiffs moved for an injunction in similar terms. 
 
 The defendants put in a plea and answer to this bill. They pleaded, 
 first, that the plaintiff Mills had no shares' in the company, alleging 
 that hfe had parted with all the shares which he held as executor of 
 E. Murray before the filing of the bill; and, secondly, that the firm 
 of E. Murray & Co., had not performed the contract on their part, 
 by reason of which default the company had a claim against them ex- 
 ceeding the amount due from the company; and, further, that arbi- 
 trators had been appointed by both parties in pursuance of the agree- 
 ment, by whose arbitration the company were ready to abide. 
 
 The plaintiff Mills filed an affidavit, stating that, although it was 
 true that he had transferred all the shares which he held as the ex- 
 ecutor of Murray, he had done' so by way of mortgage only ; and that, 
 since the filing of the bill, in order to avoid the objection raised by 
 the plea, he had taken a retransfer of some of the shares from the 
 mortgagor. He also stated that other shares were held by other per- 
 sons in trust for him and the other plaintiffs. 
 
 The Vice-Chancellor granted an injunction as prayed till further 
 order ; and from this order the company appealed. 
 
 Lord Hatheri,ey, L. C.^° The Vice-Chahcellor appears to have 
 formed his judgment in this case, partly at least, upon the view which 
 he took that one of the plaintiffs, Mr. Mills, was a shareholder in the 
 company, and therefore had a right to interfere. But, so far as the 
 case rests on the simple fact of the plaintiffs being creditors of the 
 company, it seems to me hardly capable of argument. Work is done 
 for a limited company; no engagement is taken from them by way 
 of security ; no debenture or mortgage is granted by them ; but the 
 work is done simply on the credit of the company. The only reme- 
 dy for a creditor in that case is to obtain his judgment and to take out 
 
 10 A part of the opinion is omitted. 
 
Seel) RIGHTS AND REMEDIES AGAINST CORPORATION 75t 
 
 execution ; pr it may be that he may have a power, if the case war- 
 rants it. of applying to wind up the company. But it is wholly un- 
 precedented for a mere creditor to say, "Certain transactions are tak- 
 ing place within the company, and dividends are being paid to share- 
 holders which they are not entitled to receive, and therefore I am en- 
 titled to come here and examine the company's deed to see whether 
 or i^ot they are doing what is ultra vires, and to interfere in order 
 that, as by a bill quia timet, I may keep the assets in a proper state 
 of security for the payment of my debt whensoever the time arrives 
 for its payment." 
 
 The case must have occurred, of course, many years ago, before 
 joint stock companies were so abundant, but certainly within the l^st 
 twenty or thirty years the money due to creditors must have been 
 many millions, and the, number of creditors must have been many 
 thousands; yet I have never before heard— and I asked in vain for 
 any such precedent — of any attempt on the part of a creditor to file 
 a bill of this description against a company, claiming the interference 
 of this Co^rt on the ground that he, having no interest in the company 
 except the mere fact of being a creditor, is about to be defrauded by 
 reason of their making away with their assets. It would be a fearful 
 authority for this court to assume, for it would be called on to in- 
 terfere with the concerns of almost every company in the kingdom 
 against wijiich a creditor might suppose that he had demands; which 
 he had not established in a court of justice, but which he was about to 
 proceed to establish. If there is this power in any case, of course 'it 
 would apply not only to the raising of money by debentures and to 
 paying shareholders, but it would extend to an interference in every 
 possible way with the dealings of the company.' * * * 
 
 I think, therefore, that the motion for an injunction ought to have 
 been refused with costs ; and I make an order to that efifect.^^ 
 
 POND et al. v. FRAMINGHAM & L. R. CO. 
 
 (Supreme Judicial Court of Massachusetts, 1881. 130 Mass. 194.) 
 
 Morton, J. This is a bill in equity, the substantial allegations of 
 which are, that the plaintiffs are creditors of the defendant corpora- 
 tion ; that the corporation is insolvent ; that all its property is mort- 
 gaged to trustees for the benefit of one class of creditors ; that it owes 
 large amounts to other creditors, one of whom has attsiched all its 
 property ; that it is about to execute a lease to said attaching creditor 
 for the term of 999 jears, at a rental which will not pay the interest 
 upon its indebtedness; and that the execution of said lease would 
 be injurious to the interest of its creditors and stockholders. The 
 
 11 Compare Kearrls v. Leaf, 1 H. & M. 681 (1862). 
 
752 CEEDITOES OF THE CORPOEATION (Ch. 8 
 
 prayer is for an injunction to restrain the defendant from further 
 prosecuting its business, and for the appointment of receivers. 
 
 There is no statute giving this court equity jurisdiction in such a 
 case as this, and the bill does not state- a case within the general equity 
 powers of a court of chancery. As is stated in Treadwell v. Salisbury 
 Mfg. Co., 7 Gray, 393, 66 Am. Dec. 490, "it is too well settled to admit 
 of question, that a court of chancery has no peculiar jurisdiction 
 over corporations, to restrain them in the exercise of their powers, 
 or control their action, or prevent them from violating their char- 
 ter, in cases where there is no fi-aud or breach of trust alleged as 
 the foundation of the claim for equitable relief." 
 
 •The plaintiffs cannot maintain this bill, unless upon the ground 
 that any creditor can maintain a bill in equity against an individual 
 debtor upon like allegations. But there is no allegation of fraud or 
 breach of trust, or any other ground of jurisdiction, which brings 
 the case within the general equity powers of a court of chancery. 
 The bill is an attempt by a creditor to restrain his debtor from mak- 
 ing what is alleged to be an improvident contract. The rights of 
 the parties are governed by the rules of the common law. The 
 plaintiffs as creditors might by an attachment have obtained secu- 
 rity which would take precedence of the contemplated lease; but if 
 they could not, the court has no power to restrain the debtor from 
 making a disposition of his property which is permitted by the com- 
 mon law, unless fraud or a breach of trust is alleged and shown. 
 
 The allegation that the defendant corporation is insolvent does not 
 aid the plaintiffs. In the absence of any statute giving the power, 
 this court has no authority to act as a court of insolvency for the 
 liquidation of the affairs of an insolvent railroad corporation. 
 
 Decree dismissing the bill affirmed. 
 
 GRAHAM v. LA CROSSE & M: R. CO. 
 (Supreme Court of tlie United States, 1880. 102 U. S. 148, 26 Xj. Ed. 106.) 
 
 Appeal from the Circuit Court of the United States for the East- 
 ern District of Wisconsin. 
 
 Bradi,EY, J.^^ In September, 1855, the La Crosse & Milwaukee 
 Railroad Company not being at that time, so far as appears, indebt- 
 ed in any considerable amount, sold certain lands in the city of 
 Milwaukee not then wanted for railroad purposes to Charles D. 
 Nash for the sum of $25,000. The officers of the company who took 
 a leading part in negotiating the sale are charged to have been in- 
 terested in the purchase, and to have furnished Nash the means for 
 
 12. Statement of facts omitted, as sufficiently stated in the opinion, and 
 a part of the opinion, discussing the authorities, is omitted. 
 
Sec. 1) RIGHTS AND REMEDIES AGAINST CORPORATION ' 753 
 
 effecting it. At all events, shortly after it was made, Nash conveyed 
 the property, for the original consideration, to Moses Kneeland, one 
 of the officers referred to, and Kneeland, retaining one-third part, 
 subsequently conveyed the other two-third parts to Ludington and 
 Kilbourn, they all being directors of the company, and members of 
 the executive committee. The company itself never questioned the 
 fairness of this' transaction; on the contrary, the sale was subse- 
 quently (in March, 1858) expressly confirmed by the board of di- 
 rectors, and a further quitclaim deed executed by the company in 
 confirmation thereof. In September and November, 1858, the appel- 
 lants recovered two judgments against the company for indebtedness 
 on contract, arising after the sale of the lands, and issued execu- 
 tions thereon, under which levies were made on said lands, as lands 
 of the company. 
 
 In January, 1860, the appellants, having sued on these judgments 
 in the United States Court, recovered a second judgment for up- 
 wards of $40,000, issued execution thereon, and made another levy 
 on the lands. Being unwilling to attempt a sale under their said exe- 
 cution in consequence of the deeds for the lands being recorded, the 
 appellants, in June, 1860, filed the bill in this case against Knee- 
 land, Kilbourn, Ludington, and the railroad company, setting forth 
 their said judgments, executions, and levies, stating the fact of the 
 said sale to Nash, and his conveyance to Kneeland, and the latter's 
 conveyance to the other parties; alleging that the transaction was 
 a fraud against the corporation and its creditors, and complaining 
 tha't the said conveyances of the lands were a cloud upon their 
 right to sell the lands under execution, and an 'impediment in the 
 way of the execution of their writ of fieri facias ; and) prayed that the 
 lands might be decreed subject to the lien of their judgment; that 
 they might be decreed to be authorized to sell the same, or so 
 much as might be necessary for the purpose of satisfying their 
 judgment ; and that Kneeland, Kilbourn, and Ludington might join 
 in the conveyance, and might be restrained from claiming the land; 
 and that the conveyances to them might -be declared null and void. 
 Xhe bill, amongst other things, averred that the lands were sold to 
 Nash for much less than their real value ; but it contained no allega- 
 tion that the company was insolvent, or that it had not other assets 
 available under an execution; nor was any offer made to repay th( 
 consideration which the purchaser had given for the lands. 
 
 To this bill the defendants severally filed answers, denying thai 
 the lands were worth more than $25,000 at the time of sale; aver- 
 ring that the sale was made in good faith, and with the company's 
 concurrence, and setting forth in detail many circumstances tending 
 to show that the title was involved and embarrassed; that they re- 
 quired large outlays of money to render them available; that the 
 company had offered them for sale in the market; and was linable 
 RicH.CoRP. — 48 
 
754 CREDITORS OP THE CORPORATION (Ch. 8 
 
 to get from any other person tlie price paid for them by Nash ; that 
 although Nash was requested to purchase the lands by Kneeland, 
 and was aided by him in paying therefor, yet Nash had the option 
 to keep them ; but after making the purchase and inquiring into the 
 title and situation of the lands, he asked to be relieved from the pur- 
 chase, and that thereupon Kneeland, Kilbourn, and Ludington took 
 them off his hands. > 
 
 The parties went into proofs, and it appears that the company 
 had, for months prior to the sale, been endeavoring to dispose of 
 the lands, and could get no purchaser at the price offered by Nash; 
 and the leading statements of the answer, as to the title and situa- 
 tion of the lands, were verified!. It also appeared that the railroad 
 company never objected to the sale, but that it was expressly con- 
 firmed in March, 1858, by a resolution of the board of directors, as 
 before noticed. 
 
 Various transactions subsequently took place, by which other par^ 
 ties became interested in the lands, and in the affairs and prop- 
 erty of the railroad company, which are fully developed in the 
 supplemental proceedings and proofs; but it is unnecessary to no- 
 tice them further. The foregoing statement exhibits the leading fea-' 
 tures of the case as presented for our consideration. 
 
 The main question is, whether the sale to Nash, made before the 
 railroad company became indebted to the appellants, and when for 
 all that appears it was perfectly solvent, even though made for the 
 use and benefit of the officers referred to, can be set aside at the in- 
 stance of the complainants,''for the purpose of subjecting the lands 
 to sale under their execution. And this, question, we think, must be 
 answered in the negative. 
 
 It is a well-settled rule of law that if an individual, being solvent 
 at the time, without any actual intent to defraud creditors, disposes 
 of property, for an inadequate consideration, or even makes a volun- 
 tary conveyance of it, subsequent creditors cannot question the trans- 
 action. They are not injured. They gave credit to the debtor in the 
 status which he had after -the voluntary conveyance was made. 
 
 The authorities on this subject are fully collected in the notes to 
 Sexton V. Wheaton, 1 Am. L,. Cas. 1, and in the opinion of Mr. 
 Chief Justice Marshall in that case; and the general doctrine is af- 
 firmed in Mattingly v. Nye, 8 Wall. 370, 19 L,. Ed. 380. 
 
 It is true that if a debtor dispose of his property, with intent to 
 defraud those to whom he expects to become immediately or soon 
 indebted, this may be a fraud against them, which they may have a 
 right to unravel. But that is a special case, to which the' present 
 bears no resemblance. It is not pretended that the railroad com- 
 pkny dispdsed of the property in question for the purpose of defraud- 
 ing creditors, much less for the purpose of defr&uding those who 
 afterwards in duei 'course of business might become its creditors. 
 
Sec. 1) RIGHTS AND EBMEDIES AGAINST COEPOKATION 755 
 
 _ But ,it is contended that this is a case in which the debtor corpora- 
 tion was defrauded of its property, and that as the company had a 
 right of proceeding for its recovery, any of its judgment and execu- 
 tion creditors have an equal right; that it is a property right, and 
 one that inures to the beneiit of creditors. 
 
 Conceding that creditors who were such when the fraudulent pro- 
 curement of the debtor's property occurred,— and cases to that ef- 
 fect have been cited, — the question still remains, whether, the debtor 
 being unwilling to disturb the transaction, subsequent creditors have 
 such an interest that they can reach the property for the satisfaction 
 of their debts. We doubt whether any case going as far as this, can 
 be found. No such case has been cited in the argument. Dicta of 
 judges to that effect may undoubtedly be produced, but they are not 
 supported by the facts of the cases under consideration. 
 
 It seems clear that subsequent creditors have no better right than 
 subsequent purchasers, to question a previous transaction in which 
 the debtor's property was obtained from him by fraud, which he has 
 acquiesced in, and which he has manifested no desire to disturb. 
 Yet, in such a case, subsequent purchasers have no such right. In 
 French v. Shotwell, 5 Johns. Ch. (N. Y.) 555, Chancellor Kent de- 
 cided, upon full consideration, that when a party to a judgment en- 
 tered upon a warrant of attorney, voluntarily waives his defence or 
 remedy on the ground of fraud or usury, a;nd releases the other par- 
 ty, a subsequent purchaser under him, with notice of the judgment, 
 will not be allowed to ipipeach it, or to investigate the merits of 
 the original transaction between the original parties ; and he dismissed 
 a bill filed by the subsequent purchaser for relief in such a case. 
 The Chancellor said: "If the party himself who is the victim of 
 fraud or usury chooses to waive his remedy and release the party, 
 it does not belong to a subsequent purchaser under him to recall and 
 assume the remedy for him. If a judgment was fraudulent by col- 
 lusion between the parties tb it, on purpose to defraud a subsequent 
 purchaser, the case would - present a very different question. But if 
 the judgment was fraudulent only as between the parties, it is for the 
 injured party alone to apply the remedy. If he chooses to waive it 
 and discharge the party, it cannot consist in justice or sound policy, 
 that a subsequent voluntary -purchaser, knowing of that judgment, 
 should be competent to investigate the merits of the original transac- 
 tion as between the original parties. Quisque potest renunciare jure 
 pro se introducto. * * * It is stated to have been a principle of 
 the common law that a fraud could only be avoided by him who had 
 a prior interest in the estate affected by the fraud, and not by him 
 who ' subsequently to the fraud acquired an interest in the estate. 
 Upton V. Basset, Cro'. Eliz. 445, and recognized in 3 Co. 83 a." 
 
 This decision of Chancellor Kent was afterwards nearly unani- 
 mously affirmed by the Court of Errors. French v. Shotwell, 23 
 Johns.. (N. Y.) 668. 
 
756 CEEDITORS OF THE COEPOEATION (Ch. 8 
 
 When the question of the right of a creditor to set aside a convey- 
 ance procured from the debtor by fraud first came before the courts 
 in England, it was held that the debtor's own right was merely the 
 right to file a bill in equity against the fraudulent grantee adversely; 
 and if he did not see fit to take such a proceeding, his creditor . had 
 no such privity with the transaction as to enable him to obtain relief, 
 even though the debtor should assign his supposed right to the 
 creditor; that the transaction savored of champerty, and was op- 
 posed ; at least, to the spirit of the law against champerty and main- 
 tenance. This was the substance of the decision by the Court of 
 Exchequer in 1835, in Prosser v. Edmonds, 1 Y. & C. 481. Lord 
 Abinger treated the case as a new one, and at the close of the ar- 
 gument remarked that his impression was that such a claim could 
 not be sustained in equity, unless the party who made the assign- 
 ment joined in the prayer to set it aside. He afterwards gave a 
 deliberate opinion upon the point. In that case, an executor and 
 trustee had fraudulently procured an assignment of his brother-in- 
 law's interest in the estate, knowing its value, which was unknown 
 to the assignor. A subsequent creditor of the assignor, to whom 
 he 'assigned his whole interest in the estate, filed a bill to set aside 
 the assignment to the trustee. Lord Abinger distinguished the case 
 from that of an assignment of a chose in action, as a note not ne- 
 gotiable, or a bond, or a mortgage, or an equity of redemption,' 
 where possession of the thing assigned is delivered to the assignee,; 
 and treated it as an assignment of a mere naked right to file a bill in 
 equity, in which the last assignee purchased nothing but a hostile right 
 to bring parties into a court of equity as defendants to a bili filed for 
 the purpose of obtaining the fruits of his purchase. "What is this," 
 says the Lord Chief Baron, "but the purchase of a mere right to re- 
 cover? It is a rule, not of our law alone, but of that of all coun- 
 tries (Voet ad Pandect, lib. 41, tit. 1, sect. 38), that the mere' right 
 of purchase shall not give a man a right to legal remedies. The 
 contrary doctrine is nowhere tolerated, and is against good policy. 
 All our cases of maintenance and champerty are founded on the 
 principle that no encouragement should be given to litigation by 
 the introduction of parties to enforce those rights which others are 
 not disposed to enforce. There are many cases where the acts charged 
 may not amount properly to maintenance or champerty, yet of which, 
 upon general principles, and by analogy to such acts, a court of 
 equity will discourage the practice." "Robert Todd, when he as- 
 signed, was in possession of nothing but a mere naked right. He 
 could obtain nothing without filing a bill. No case can be found 
 which decides that such a right can be the subject of assignment, ei- 
 ther at law or in equity." These remarks are very broad, and 
 would apply to the case of existing as well as subsequent cred- 
 itors ; though the case itself was. that of a subsequent creditor. It 
 forms the subject of a section in Story's Commentaries on Equity 
 
Sec. 1) BIGHTS AND REMEDIES AGAINST CORPORATION 757 
 
 (Section 1040h), where, in a note, Lord Abinger's opinion is ex- 
 tensively quoted ; and it has been followed by other very respectable 
 authorities, and, as applied to subsequent creditors, at least, we 
 think that the reasoning is sound. * * * 
 
 The principle that subsequent creditors cannot question a volun- 
 tary or fraudulent disposition of property by their debtor, not intended 
 as a fraud against them, is especially applicable in cases of construc- 
 tive fraud, like that charged in the present bill. Suppose it be true, 
 that the purchase of the lands in question by or for the benefit of 
 officers of the company actively concerned in the transaction could 
 be set aside at the instance of the company as a constructive fraud, 
 yet if there was no actual fraud, if the company received full consider- 
 ation for the property sold, how can it be said that subsequent cred- 
 itors of the company are injured!? 
 
 In the present case we are satisfied from the evidence thai the prop- 
 erty was sold for its fair value at the time, and that no actual loss 
 accrued to the railroad company's estate. 
 
 It would be unjust and a great hardship, therefore, on the mere 
 ground of the constructive fraud, to allow creditors who had no 
 interest at the time to seize andl dispose of the property sold. 
 
 It is contended, however, by the appellant that a corporation debtor 
 does not stand on the same footing as an individual debtor; that, 
 whilst the latter has supreme dominion over his own property, a cor- 
 poration is a mere trustee, holding its property for the benefit of its 
 stockholders and creditors; and that if it fail to pursue its rights 
 against third persons, whether arising out of fraud or otherwise, it 
 is a breach of trust, and creditors may .come into equity to compel an 
 enforcement of the corporate duty. This, as we understand, is the 
 substance of the position taken. 
 
 We do not concur in this view. It is at war with the notions 
 which we derive from the English. law with regard to the nature of 
 corporate bodlies. A corporation is a distinct entity. Its affairs are 
 necessarily managed by officers and agents, it is true; but, in law, 
 it is as distinct a being as an individual is, and is entitled to hold prop- 
 erty (if not contrary to its charter) as absolutely as an individual can 
 hold it. Its estate is the same, its interest is the same, its possession is 
 the same. Its stockholdlers may call the officers to account, and may 
 prevent any malversation of funds, or fraudulent disposal of property 
 on their part. But that is done in the exercise of their corporate 
 rights, not adverse to the corporate interests, but coincident with them. 
 
 When a corporation becomes insolvent, it is so far civilly dead, 
 that its property may be administered as a trust fund for the benefit 
 of its stockholders and creditors. A court of equity, at the instance 
 of the proper parties, will then make those funds trust funds which, 
 in other circumstances, are as much the absolute property of the 
 corporation^ as any man's property is his. We see no reason why 
 the disposal by a corporation of any of its property should be ques- 
 
758 CREDITORS OF THE CORPORATION . , ,(Gh.,8 
 
 tioned by subsequent creditors of the. corporation, any more than' a 
 Hke disposal by an individual of his property should be so. The same 
 principles of law apply to each. 
 
 We think that the present bill cannot be maintained. Decree af- 
 firmed^' 
 
 SECTION 2.— CREDITORS' RIGHTS AGAINST TRANS- 
 FEREES OF CORPORATE PROPERTY 
 
 CURSON V. AFRICAN CO. 
 (High Court of Ctiancery, 1682. 1 Vem. 121.) 
 
 It was objected against the plaintiff, that he had not brought proper 
 parties to hearing, the bill being to be relieved for a debt owing from 
 the Old African Company, and they had brought to hearing the New 
 African Company only. 
 
 ' The Lord Keeper (Sir Francis North) objected, that the old com- 
 pany were in a manner in nubibus, though their charter was not. sur- 
 rendered, as was objected at the bar, for he knew how that matter was. 
 The old company were almost two hundred thousand pounds in debt; 
 so that their credit was lost, and they could not carry on their trade; 
 and therefore, that the trade might not be lost to the nation, it was 
 necessary that a new company should be erected, which was so done ; 
 and the King accepted no surrender from the old! company of their 
 charter; but they are a company still in being: the new company 
 (which in truth are almost all the same men as were of the old compa- 
 ny) bought the old company's stock and effects at the true value, and the 
 money was to be applied for payment of the debts of the old company : 
 
 , but that, which stuck with him in this case, was, he did not see how 
 a company that had no estate could be compelled to appear. Upon 
 which it was urged, the plaintiff might take out a distringas against 
 the company, and have it returned nihil, and so get a sequestration 
 against tfiem ; and then by the course of the court the plaintiff need 
 not to bring them to hearing. But then for the plaintiff it was said, 
 that the plaintiff had an order made in this cause that the defendants' 
 should take no advantage at the hearing for want of proper parties: 
 to which it was replied, such an order was in itself void, and could not 
 take away the defendant's just exceptions, unless it had! been by con- 
 sent. 
 
 Lord Keeper ordered the plaintiff's counsel to go on and open the 
 cause : and after debate the plaintiff agreeing to take, as other cred- 
 itors had done, £40. per cent, with interest for his : money, he wds 
 
 18 Accord: Hamilton v. Menomlnle Falls Quarry Co., 106 Wis. 352, 81 N. 
 W. 876 (1900). . 
 
Sec. 2) EIGHTS AGAINST TRANSFEREES OF CORPORATE PROPERTY 759 
 
 ordered so to do: and was likewise ordered to allow £100. debt that 
 was owing by him to the company: for that it is the custom of com- 
 panies, that if they owe a man f 100. they will give him credit for so 
 much ; and therefore in respect of a company, stoppage is to be al- 
 lowed as a good payment.^* 
 
 BEIvLOWS V. HALLOWELL & AUGUSTA BANK. 
 
 (Circuit Court of tlie United States, District of Massachusetts, 1819. 
 2 Mason, 31, Fed. Cas. No. 1,279.) 
 
 Action of assumpsit to recover from the defendant corporation, 
 the amount of certain promissory notes issued by the late Hallowell 
 & Augusta Bank. The judgment of the district court of Maine for 
 the defendant is brought on writ of error to this court. 
 
 The trial jury returned a special verdict, the findings of which, 
 essential to the appeal, appear in the opinion.^ ^ 
 
 Story, Circuit Justice.^^ * * * The plaintiff contends for a 
 reversal of the judgment, in the first place, because the notes in ques- 
 tion were made by, and are obligatory upon, the defendants, in their 
 corporate capacity. If this ground fail him, he next contends that 
 the defend^ts have adopted and made the notes their own by the 
 declaration and conduct of- their officers. If this position cannot be 
 sustained, he contends in the last place, that the defendants have the 
 funds of the old bank in their possession appropriated to the payment 
 of the notes of the old bank, and that the plaintiff, as holder of the 
 notes now in question, is entitled to so much of these funds as equals 
 the amount of his notes, as money had and received to his use. 
 
 The first ground rests on the suggestion that the old bank and new 
 bank are the same corporation, the! new charter being but a reincor- 
 poration or rather a continuation of the charter of the old bank, which 
 would otherwise have expired by its own limitation. If the premises 
 were well founded, the conclusion would certainly follow, that the 
 new hank is liable for the debts of the old bank. Mayor, etc., of 
 Colchester v. Seaber, 3 Burrows, 1866; Scarborough v. Butler, 3 
 Lev. 237; Rex v. Pasmore, 3 Term, R. 199; Luttrel's Case, 4 Coke, 
 87. But we are called upon to admit these premises not upon the 
 plain and positive enactments of the statute incorporating the new 
 bank, but upon the collateral facts, that the names of both corporations 
 are the same, the officers are the same< and a majority of the stock- 
 holders are the same; and that the business of the old bank was for 
 a time done, and its debts paid, by the new bank. 
 
 It is certainly tr«e that a corporation may retain its personal iden- 
 
 14 See National Bank of Jefferson v. Texas Investment Company, 74 Tex. 
 421, 12 S. W. 101 (1889). 
 
 15 Statement of facts substituted. ' , , , 
 
 10 A part of the opinion is omitted. ■ • • i ■ - : 
 
760 CREDITORS OF THE CORPORATION (Ch. 8 
 
 tity, although its members are perpetually changing; for it is its ar- 
 tificial character, powers and franchises, and not the natural character 
 of its members, which constitute that identity. And for the same rea- 
 son corporations may be different, although the names, the officers, 
 and the members of each are the same. An insurance company com- 
 posed of the same natural persons and officers, and with the same 
 name as an existing incorporated bank, would still - be a different 
 corporation from the bank. The similarity of name, of officers, or of 
 members, or even of objects, cannot then, per se, establish the identity 
 of corporations created at different times, by different charters, and. 
 having a distinct independent being. And one corporation may trans- 
 act the business and pay the debts of another corporation without 
 thereby merging- in the latter its distinct corporate existence. There 
 is indeed a repugnancy in the statement of the proposition that two 
 corporations are in point of law the same, for it would at the same 
 time establish that there is but one corporation. 
 
 To ascertain whether a charter create a new corporation, or merely 
 continue the existence of an old one, we must look to its terms and 
 give therp a construction consistent with the legislative intent and the 
 intent of the corporators. In the present case, the charter of the old 
 bank was granted by the act of the 6th of March, 1804, and was to 
 continue from the first Monday of October, then next ensuing, until 
 the expiration of eight years. 3 Mass. Gen. Laws, 206. Its existence 
 was therefore limited to the first Monday of October, 1812; and by 
 an act of the 24th of June, 1812, c. 57, all banks incorporated under 
 the authority of the commonwealth, whose corporate powers were 
 limited by law to or at any time before the last day of October then 
 next ensuing, were authorized to continue corporations until the first 
 Monday of October, 1816, and np longer, for .the sole purpose of en- 
 abling such banks gradually to settle their concerns and divide their 
 capital stock. And the act contains an express prohibition of their 
 acting as corporations for banking generally. This certainly shows a 
 determination on the part of the legislature not to renew or to perpet- 
 uate the existence of any of the banks within the purview of the act ; 
 and among these the old bank was unquestionably included. 
 
 The charter of the new bank was granted by an act of the 23d of 
 June, 1812, c. 47, while the old bank was in existence. It does not 
 purport upon its face to be a grant to an existing corporation, but to 
 private individuals. Its capital stock is less by $50,000 than that of 
 the old bank. The stock is to be held, not by the stockholders of the 
 old bank, but by certain persons named in the act, and their associates 
 and assigns. The act refers also to the old bank,,, as an existing cor- 
 poration, and declares, not that the directors of the old bank shall be 
 the directors of the new, but that "any director of the Hallowell & 
 Augusta Bank, now existing, may be eligible as a director of the bank 
 hereby established." It further declares that the new bank may 
 
Sec. 2) RIGHTS AGAINST TRANSFEREES OF CORPORATE PROPERTY 761 
 
 take, receive and hold, by assignment, any mortgages held by the 
 6ld bank "which may be assigned and taken by agreement between 
 the two corporations." This clause affords abundant evidence that 
 the new chapter was not granted to the old corporation, for it con- 
 templates assignments of mortgages between the two banks as dis- 
 tinct corporations; and it would be utterly absurd to say that a cor- 
 poration might contract with, or make conveyances to, itself. 
 
 Upon the very .face of the charter, then, enough appears to show, 
 that the legislature contemplated the erection of a new corporation. 
 And if the language had not been so express, the same must have 
 been the conclusion of law ; for every charter must be taken to be a 
 grant of a new corporation, unless it be granted to an existing cor- 
 poration. If indeed the new charter had been granted to the old bank, 
 it would not have been binding until it was accepted by it ; and there 
 is not the least pretence to say upon this record, that the old bank 
 ever accepted the new charter, or could by law have claimed it as a 
 grant in its corporate capacity. There is then an end of the argument 
 raised on the first point. * * * ' 
 
 The questions in this cause have been discussed and decided in the 
 supreme court of this state in another cause, (Wyman v. Hallowell 
 & Augusta Bank, 14 Mass. 58;) and I may therefore be well saved a 
 more minute examination of the principles applicable to them, since 
 I entirely concur in that decision. 
 
 Let the judgment be affirmed. ^^ 
 
 COLE v. MILLERTON IRON CO. et al. 
 
 {Supreme Court of New York, 1892. 133 N. Y. 164, 80 N. E. 847, 28 Am. St. 
 
 Rep. 615.) 
 
 Finch, J.^^ The plaintiff is a creditor of the National Mining Com- 
 pany, a corporation formed and existing under the law;s of this state. 
 He cornmenced an action to recover damages done to his property by 
 the wrongful act of the corporation, serving the summons in October, 
 1887, and recovering judgment in July of the next year. During the 
 pendency of the action all the property and assets of the debtor cor- 
 poration were transferred to the Millerton Iron Company, also a 
 domestic corporation, upon a nominal cons idler ation, except an as- 
 sumption by the vendee of the debts of the vendor; and thereupon 
 the former executed a mortgage to the Mercantile Trust Company 
 
 17 Accord: Marshall v. Western N. C. Ry. Co., 92 N. C. 322 (1885). 
 
 See Livingston County Agricultural Soc. v. Hunter, 110 III. 155 (1884) ; 
 Clough V. Rocky Mountain Oil Co., 25 Colo. 520, 55 Pac. 809 (1898) ; Hlgglns 
 V. California Petroleum, etc., Co., 122 Cal. 373, 55 Pac. 155 (1898); Allen 
 V. North Des Moines M. E. Church et al., 127 Iowa, 96, 102 N. W. 808, 69 
 L. R. A. 255, 109 Am. St. Rep. 366, 4 Ann. Cas. 257 (1905). 
 
 18 Statement of facts omitted, as sufficiently stated in opinion of the court. 
 
762 , : CREDITORS OF THE CORPORATION (Ch. $ 
 
 covering all its property, including that acquired from the National 
 Mining Company. When the plaintiff obtained his judgment nothing 
 remained upon which it was a lien, and his execution was returned 
 unsatisfied. He then began this action, in which he assailed the trans- 
 fers made, with a view of subjecting the property of the debtor cor- 
 poration to the satisfaction of his debt. Upon the trial his complaint 
 was dismissed, but the general term reversed the judgment, and or- 
 dered a new trial. From that order the trust compfiny alone appeals, 
 and has given the usual stipulation for judgment absolute. 
 
 The trial court has refused to find that the National Company was- 
 insolvent at the date of its transfer, but did find that such transfer 
 suspended and terminated the regular business of the grantor, and 
 was made and accepted with that purpose and intention. The practical 
 effect was to dissolve the grantor corporation, and subject its charter 
 to forfeiture at the hands of the state, for it voluntarily stripped it- 
 self of all its property and assets, and became incapable, and intended 
 to be and remain incapable, of performing it§ corporate duties. Such 
 a transfer, which involves the destruction of the corporation and an 
 abandonment of the purposes of its organization, is illegal as against 
 creditors whose rights are thereby sacrificed! and their remedies de- 
 stroyed. The transfer was illegal also because made in contemplation 
 of insolvency. Those who accomplished it knew that its necessary, 
 and the inevitable, effect would be to make the corporation unable to- 
 pay its debts, and must be held to have intended that consequence of 
 their acts. 
 
 I do not agree to that reading of the statute which limits its prohibi- 
 tion to cases in which payment of some note or obligation has been 
 previously refused An interpretation so narrow would seriously maim 
 and distort the. obvious purpose of the statute, and make a transfer 
 in contemplation of insolvency gop^ the day before a note matured,- 
 and bad the day after. As against the creditor, the transfer to the 
 Millerton Company was illegal, and in fraud of his rights. The as- 
 sets of a corporation are a trust fund for the payment of its diebts, 
 upon which the creditors have an equitable lien, both as against the 
 stockholders and all transferees except those purchasing in good faith 
 and for value. Bartlett v. Drew, 57 N. Y. 587; Brum v. Insurance 
 Co. (C. C.) 16 Fed. 143 ; Mor. Corp. § 791. The Millerton Company 
 was not such a purchaser. It parted with nothing. It knew and par- 
 ticipated in the illegal purpose to destroy the National Company, to- 
 make it utterly insolvent, and to deprive its creditors of the trust fund 
 upon which they had a right to rely; and so they were at liberty to- 
 set aside the transfer so far as it barred their remedy, and to enforce 
 their equitable lien upon the property in the hands of the transferee. 
 
 It is not a sufficient answer to say that the transfer was rather for- 
 mal than real, because before its occurrence the Millerton Company^ 
 having the same stockholders and officers, managed and condiucted the 
 business of the National Company before the transfer as well as after,. 
 
Sec. 2) EIGHTS AGAINST TEANSFBEEES OF COEPOEATE PEOPEETY 763, 
 
 and^that what occurred was a practical consolidation. Companies may 
 consolidate, but under the permission and safeguards of the statute, 
 all of which were disregarded; and what is called the "formal trans- 
 action" cuts o& and destroys the right of the creditor, and is being 
 used for that exact purpose. 
 
 Neither is it an answer to say that the creditor is not harmed by 
 a change of the party liable to pay, uhless there be some disproportion 
 in the assets. He cannot be forced to change his debtor against his 
 will, and it appears iri the proof that the transfer to the Millerton Com- 
 pany was followed) by a mortgage sweeping into its lien and peril the 
 very property transferred. 
 
 We are satisfied, therefore, that the plaintiflE was entitled to judg- 
 ment of sequestration and for a receiver, and so the order of the gen- 
 eral term was right. The judgment obtained by Chapman is not a 
 bar to the rem'edy. It is not relied upon for that purpose, and the ap- 
 pointment of the receiver was without notice to the attorney general, 
 as the law required. Laws 1883, c. 378. In the present case the plain- 
 tiff must give such ilotice when he applies for the appointment. 
 
 The rights of the mortgagee, who is the present appellant, need not 
 now be accurately determined. Whether that mortgage was valid at 
 all, for want of proper consents, or whether any of the bondholde>s 
 have acquired equities superior to those of the plaintiff, may or may 
 not become questions in the future. Enough appears to show that 
 some of them do not stand in the attitude of bona fide creditor?, and 
 that the remedies of all may be confined to the property of the Miller- 
 ton Company not derived from the National until, at least, the former 
 is exhausted. Those questions, however, may be left to the develop- 
 ments consequent upon further proceedings. The order of the general 
 term should be affirmed, and a judgment absolute for the plaintiff be 
 rendered upon the stipulation, with costs. All concur. 
 
 Order affirmed and judgment accordingly.^' 
 
 Ex parte SAVINGS BANK OF ROCK HILi;. 
 
 WHITE V. COMMERCIAL & FARMERS' BANK OF 
 ROCK HILL. 
 
 {Supreme Court of South Carolina, 1905. 73 S. C. 393, 53 S. B. 614, 5 L. E. 
 
 A. [N. S.] 520.) 
 
 Gary, A. J.^" This is a petition on the part of two stockhpldters 
 ■of the Savings Bank of Rock Hill, praying that certain assets formerly 
 belonging to said bank be applied to the extinguishment of the claim 
 
 IB See Guddard v. Importing Co., 9 Colo. App. 30% 48 Pac. 279 (1897), ,. 
 20 Facts stated in the opinion, a part of whicli is omitted. 
 
764 CEEDITOES OP THE CORPORATION (Ch. 8 
 
 upon which suit was brought against them by a creditor of the bank. 
 The facts ate as follows : 
 
 In 1898, the Savings Bank of Rock Hill decided to go into liquida- 
 tion. At that time it was in a sound financial condition, with assets 
 sufficient to pay all outstanding liabilities, and $133 on each share 
 of stock. Sufficient assets of the bank were turned over to the Na- 
 tional Bank of Rock Hill, to pay the stockholders of the Savings Bank 
 80 per cent, upon their shares- oi stock. These stockholders and those 
 of the National Bank combined and formed the National Union Bank 
 of Rock Hill. Subsequently, the remaining assets of the Savings Bank, 
 amounting to about $67,000 were sold to the Commercial & Farmers' 
 Bank, with the understanding that it would pay to the stockholders of 
 the Savings Bank $53 per share, and also, the outstanding liabilities 
 of the latter bank, which assets were sufficient for that purpose. The 
 transfer of the assets was made in good) faith. The Commercial & 
 Farmers' Bank was then solvent, and all stockholders and creditors 
 who presented their claims were promptly paid. 
 
 One of the outstanding obligations of the Savings Bank, at the time 
 its remaining assets were transferred to the Commercial & Farmers' 
 Bank, was a certificate of deposit for $1,000, issued by the Savings 
 Bank to A. A. McDonnough, who was a nonresident and died outside 
 the state. His certificate of deposit was not presented by his legal 
 representative until the Commercial & Farmers' Bank had become in- 
 solvent and gone into the hands of a receiver. Among the assets of 
 the Savings Bank transferred or sold to i the Commercial & Farmers' 
 Bank, were a note and mortgage on a tract of land, for several thou- 
 sand dollars, executed by J. Edgar Poag. The mortgage was foreclosed!, 
 and the land conveyed to the said receiver, who, as such, is now in pos- 
 session thereof. The administrator of McDonnough's estate recovered 
 judgment against the Savings Bank in 1903; execution was issued, 
 and after a return of nulla bona, he commenced action against the peti- 
 tioners. 
 
 The administrator proved said claim, against the Commercial & 
 Farmers' Bank, after it became insolvent, without the assertion of a 
 lien on the proceeds arising, from the sale of the Poag property, and 
 has received a dividend from that bank, amounting to $361.83. 
 
 The special referee ^nds that the administrator did not thereby 
 waive any of his rights in the premises. The special referee recom- 
 mended that the prayer of the petition be granted), and based his con- 
 clusion on the principles stated in 10 Enc. p. 1367d. 
 
 On hearing the exceptions to the report of the special referee, his 
 honor, the circuit judge, filed a decree, in which he stated that he con- 
 curred with the special referee in all his conclusions except that in 
 which he held that the creditor of the Savings Bank has a priority over 
 the creditors of the Commercial & Farmers' Bank to be paid) out of 
 the Poag mortgage. This, then, is the vital question in the case, and 
 
Sec. 2) EIGHTS AGAINST TRANSFEREES OF CORPORATE PROPERTY 765 
 
 involves the construction of the agreement, under which the Commer- 
 cial & Farmers' Bank came into possession of th'e said assets. 
 
 The only facts which the special referee found as to the terms of the 
 contract are, "that the remaining assets of the Savings Bank, amount- 
 ing, according to the statement submitted before me, to $67,000, were 
 then sold to the Commercial & Farmers' Bank, another new bank just 
 organized and commencing business, with the understanding that the 
 Commercial & Farmers' Bank would pay to the stockholders of the 
 Savings Bank $53 per share, and also pay the outstanding liabilities of 
 the Savings Bank." 
 
 1. It will, be well, at the outset, to determine the relation which the 
 Savings Bank sustained to its assets and creditors. In the case of Rail- 
 road Co. V. Howard, 7 Wall. 392, 409, 19 L. Ed. 117, the doctrine is 
 ■ thus announced : "Equity regards the property of a corporation, as 
 held in trust for the payment of the debts of the corporation, and 
 recognizes the right of creditors to pursue it, into whosesoever posses- 
 sion it may be transferred, unless it has passed into the hands of a 
 bona fide purchaser; and the rule is well settled that stockholders are 
 not entitled to any share of the capital stock, nor to any dividend of 
 the profits, until all the debts of the corporation are paid. * * * 
 If the fund has been distributed among the stockholders, or passed 
 into the hands of other than bona fide creditors or purchasers, leav- 
 ing any debts of the corporation unpaid, the established rule in equity 
 is, that such holders take the fundi charged with the trust in favor 
 of creditors, which a court of equity will enforce, and compel the ap- 
 plication of the same to the satisfaction of their debts. * * * 
 Creditors are preferred to stockholders, on account of the peculiar 
 trust in their favor, and because the latter, as constituent members of 
 the corporate body, are regarded as sustaining in that respect the same 
 relation to. the former as that sustained by the corporation." These 
 principles are recognized in the case of Dabney v. Bank, 3 S. C. 124. 
 
 It is thus madle apparent that the assets, while in the hands of the 
 Savings Bank, were a trust fund for the payment of its creditors. Our 
 interpretation of the contract is, that although it was the intention 
 of the parties to vest the legal title to the assets in the Commercial & 
 Farmers' Bank, it was, nevertheless, likewise intended that the last 
 mentioned bank should assume the same relation to the assets and cred- 
 itors that was imposed on the Savings Bank. In other words, that the 
 Commercial & Farmers' Bank was substituted in the place of the Sav- 
 ings Bank, with all its rights, and with all the incidental burdlens, rela- 
 tive to said assets and creditors. The Commercial & Farmers' Bank 
 came into possession of the assets knowing that they were impressed 
 with a trust. It entered into an agreement to discharge all the duties 
 that rested upon the Savings Bank as a trustee, in so far as they af- 
 fected the rights of its creditors. Having undertaken to discharge the 
 duties of a trustee, it must be regarded as a trustee. One of the duties 
 which it must be held to have assiimed under the terms of the agree- 
 
766 ' CKEDITOES OF THE COBPORATION (Ch. 8 
 
 ment, was to administer the trust estate which came into its possession, 
 in such a manner that the trust would be carried into effect and not 
 defeated. 
 
 There was no intention to deprive the creditors of their right to 
 subject the assets to the payment of their claims, as long as the assets 
 remained in the hands of the substituted trustee. Furthermore, when 
 the assets were disposed of, the Savings Bank did not receive the con- 
 sideration in money, which would have become an asset out of which 
 its creditors could have been paid ; but the consideration was a prom- 
 ise on the part of the Commercial & Farmers' Bank which it did not 
 wholly fulfill. The administrator of McDonnough's estate, therefore, 
 stands upon higher ground than the creditors of the Commercial & 
 Farmers' Bank, as to the proceeds arising from the foreclosure of the 
 mortgage executed by Poag. * * * 
 
 It is the judgment of this court that the judgment of the circuit court 
 be reversed, and the case remanded to that court for the sole purpose 
 mentioned in the opinion.^^ 
 
 I.UEDECKE V. DES MOINES CABINET CO. et al. 
 
 (Supreme Court of Iowa, 1908. 140 Iowa, 223, 118 N. W. 456, 32 L. R. A. 
 
 [N. S.] 616.) 
 
 DeBmer, J.^^* Plaintiff recovered judgment against the Des Moines 
 Cabinet Company December 31, 1900, in the sum of $325 for breach 
 of a contract of employment. The cabinet company was a corpora- 
 tion organized under the laws of this state, and at all times material 
 to our inquiry the entire stock of the corporation was owned by de- 
 fendant Hartung. On the 15th day of August, 1900, and after plain- 
 tiff had commenced his suit against the cabinet company, Hartuilg, as 
 president of that company, sold and transferred to the Wells & Antes 
 Undertaking Company, also an Iowa corporation, all the assets of 
 the cabinet company, the consideration named being $3,500. Instead 
 of cash Hartung individually received 35 shares of the stock of the un- 
 dertaking company, which he immediately hypothecated for his private 
 account. Plaintiff, after obtaining' his judgment, caused execution to 
 issue against the cabinet company, which was returned no property 
 found. He thereupon brought this suit in equity, alleging that when 
 the undertaking company purchased the property, it knew of plairt- 
 tiff's claim, and with intent to hinder, delay, and defraud him it took 
 possession of all the assets of the cabinet company, and converted the 
 same to its own use without other consideration than the issuance of 
 its own stock in payment therefor; that by reason of the transfer 
 
 21 Compare Hibemla Ins. Co.- v. St. Louis & New Orleans Transp Co. 
 (C. C.) 13 Fed. 516 (1882). ^ 
 
 2 2 Statement of facts omitted, as sufficiently stated in tlie opinion. 
 
Sec. 8) RIGHTS ACfAINST TRANSFEREES OF CORPORATE PROPERTY 767 
 
 the undertaking company became possessed of all of the assets of the 
 cabmet company, leaving nothing for the payment of its debts. 
 ^^ Upon the trial plaintiff withdrew all charges of fraud and deceit, 
 except such fraud as may arise from the transaction between the 
 parties at law." As we understand it, plaintiff relies upon a single 
 proposition in this case, and this is that, where one corporation trans- 
 fers all its assets to another corporation, and thus practically ceases to 
 exist without having paid its debts, the purchasing corporation takes 
 the property subject to an equitable lien or charge in favor of the 
 creditors of the selling corporation, and this without reference to 
 the question of actual fraud. If the affirmative of this proposition 
 be held, it must be upon the theory that, the assets of a corporation 
 are in the nature of a trust fund, for the payment of its debts, 
 and that a sale of the entire property works a dissolution of the 
 selling corporation, and justifies an accounting at the suit of cred- 
 itors. Plaintiff also claims that under the facts disclosed by this rec- 
 ord he became entitled to a judgment against the undertaking com- 
 pany and its successor in interest for the amount of the judgment 
 he obtained against the cabinet company. The trial court was evi- 
 dlently of this opinion, for it rendered judgment against all the de- 
 fendants personally, and also established a lien to the amount of 
 the judgment against the property of the cabinet company sold by 
 Hartung to the undertaking company, and directed its sale under 
 special execution. 
 
 Appellants challenge that part of the decree rendering personal judg- 
 ment against the undertaking company, the successor to the assets of 
 the cabinet company, and we are constrained to sustain them in this 
 position. In order to render the purchasing company personally liable 
 for the debts of the selling corporation, it must appear that (a) there 
 be an agreement to assume such debts; (b) the circumstances sur- 
 rounding the transaction must warrant a finding that there was a con- 
 solidation of the two corporations; or (c) that the purchasing corpo- 
 ration was a mere continuation of the selling corporation ; or (d) that 
 the transaction was fraudulent in fact. Baker v. Hall, 76 Neb. 88, 
 107 N. W^ 117, 111 N. W. 129, 113 N. W. 267; Sharpies v. Harding, 
 78 Neb. 795, 111 N. W. 783, 11 L. R. A (N. S.) 863 ; Allen v. Church, 
 127 Iowa, 96, 102 N. W. 810, 69 L. R. A. 255, 109 Am. St. Rep. 366, 
 4 Ann. Cas. 257; Chase v. Telephone Co., 121 Mich. 631, 80 N. W. 
 717; Ewing v. Composite Co., 169 Mass. 72, 47 N. E. 241, and other 
 like cases. None of these things appear in this case, and in our opin- 
 ion the court was in error in rendering a personal judgment against 
 the purchasing corporation. 
 
 Little is said specifically of that part of the decree which establishes 
 plaintiff's judgment against the cabinet company as a lien upon the 
 property purchased by the undertaking cpmpany, although we assume 
 that appellants' counsel are adopting the same theories with reference 
 thereto that they urge against the. personal judgment. The cases they 
 
768 CREDITORS OP THE CORPORATION (Ch. 8 
 
 cite do not go to this extent, however, although there are some which 
 sustain the proposition that the purchasing corporation takes the prop- 
 erty free from all debts or claims against the selling one. A great 
 many authorities in this country hold to the doctrine that, if one cor- 
 poration transfers all its assets to another, and thus practically ceases 
 to exist, without having paid its debts, the purchasing, corporation 
 takes the property subject to an equitable lien or charge in favor of the 
 creditors of the selling corporation. Some courts announce a modified 
 doctrine declaring that the principle has no application to a sale made 
 in the usual course of business, nor to a bona fide sale for a full con- 
 sideration in cash or its equivalent. Although announcing in general 
 terms the first proposition, we are probably, committed to the modified 
 one in Warfield v. Marshall Canning Co., 72 Iowa, 666, 34 N. W. 467, 
 2 Am. St. Rep. 263. It has been broadly asserted by' courts of the 
 highest standing that the capital stock of a corporation is a fund 
 for the payment of its debts. "It is a trust fund of which the direc- 
 tors are trustees. * * * The capital stock paid in, and; promised 
 to be paid in, is a fund which the trustees cannot squander or give 
 away." Upton v. Tribilcock, 91 U. S. 45, 23 L.-Ed. 203. 
 
 This modern or so-called American doctrine has never been recog- 
 nized) in England, nor does it exist at common law ; and, while at 
 one time quite generally adopted in this country, it is now believed 
 to be unsupported to its full extent by any considerable number of 
 courts. Indeed the court which first announced it has largely receded 
 from its former position, and now says that no trust in its true sense 
 exists; that all that was intended by the previous expressions was to 
 announce the existence of an equitable right, which will be enforced 
 whenever a coui;t of equity, at the instance of a proper party, has 
 taken possession of its assets. "It is never understood that there is a 
 specific lien or a direct) trust." See Hollins v. Iron Co., ISO U. S. 
 371, 14 Sup. Ct. 127, Z7 h. Ed. 1113. We have recently gone over this 
 matter in the case of State Ti;-ust Co. v. Turner, HI Iowa, 664, 82 
 N. W. 1029, 53 L. R. A. 136, and have repudiated the trust- fund doc- 
 trine as broadly announced in some of the earlier cases in this coun- 
 try. The creditors of a corporation in a proper case have an equi- 
 table right or lien upon the assets of a corporation. But a corporation, 
 like a partnership, may transfer its property in good faith to a b6na 
 fide purchaser, and such purchaser will hold it free from the debts 
 of the corporation. 
 
 The statutes of this state, however, prohibit the diversion of cor- 
 porate funds to other objects than those mentioned in its articles 
 (Code, § 1621), and it is a well-settled rule of the common law that the' 
 stockholders of a corporation cannot divide its property or assets 
 among themselves without first paying the corporate debts. The rules 
 thus announced have been stated very clearly in Mclver v. Young 
 Hardware Co., 144 N. C. 478, 57 S. E. 169, 119 Am. St. Rep. 970; 
 O'Bear Jewelry Co. v. Volfer, 106 Ala. 205, 17 South. 525, 28 h. R. 
 
Sec. 3) EIGHTS AGAINST TRANSFEHBBS OF COEPOEATB'PEOPEETT 769 
 
 A. 707, 54 Am. St. Rep. 31 ; Hospes v. Car Co., 48 Minn. 174, 50 
 N. W. 1117, 15 L. R. A. 470, 31 Am. St. Rep. 637; Cole v. Iron Co., 
 133 N. Y. 164, 30 N. E. 847, 28 Am. St. Rep. 615; Bartlett v. Drew, 
 57 N. Y. 587; Morawetz on Corporations, § 791. 
 
 The mstant case seems to call for a rather full discussion of the so- 
 called "trust-fund" doctrine, and we have perhaps said enough to in- 
 dicate our view of the matter. We may conclude this brdnch of the 
 inquiry by quoting the following ter^e statement from Railroad Co. v: 
 Howard, 7 Wall. 409, 19 L. Ed. 117: "Equity regards the property 
 of a corporation as held in trust for the payment of the debts of the 
 corporation, andl recognizes the right of creditors to pursue it into 
 whosoever's possession it may be transferred, unless it has passed 
 into the hands of a bona fide purchaser." See, also, C, M. & St. P. 
 R. R. V. Third Nationar Bank, 134 U. S. 276, 10 Sup. Ct. 550, 33 
 L. Ed. 900; Vance v. McNabb Coal & Coke Co., 92 Tenn. 47, 20 S. 
 W. 424. 
 
 Going now to facts of the case, it will be observed that the exact 
 point for decision is a narrow one. Plaintiff was a creditor of the Des 
 Moines Cabinet Company, holding an unliquidated demand against it, 
 which was in suit when the cabinet company sold its assets to the un- 
 dertaking company. The undertaking company 'acquired practically all 
 of the assets of the cabinet company by purchase, and it issued in pay- 
 ment therefor certaifl of its shares of stock, not to the cabinet company 
 for proper distribution, but to Hartung individually, who immediately 
 pledged the same as security for his individual debts, leaving nothing 
 from which plaintiff could collect his judgment, which he obtained in 
 due course. The 'charge of actual fraud — ^that is, of intent to binder, 
 delay, and defraud plaintiff in the collection of his claim — has been ' 
 withdrawn, and reliance is placed upon the general doctrine that plain- 
 tiff, under this brief recitation of the facts, is entitled in equity to 
 enforce his judgment against the property of the cabinet company 
 which was received, and is still held, by the undertaking company, on 
 the theory that he has an equitable lien upon this property, or that the 
 facts show a case of legal fraud entitling him to proceed against the 
 property. 
 
 We do not recognize the trust-fund doctrine to the extent that it 
 has obtained in some of the courts ; but are of opinion that corporate 
 creditors are entitled in equity to the payment of their debts before 
 any distribution of corporate property is made among the stockholders, 
 and recognize the right of a creditor of a corporation to follow its as- 
 sets, or property into the hands of any one who is not a good-faith 
 holder in the ordinary course of business. 
 
 We must also enforce our statute which prohibits the diversion of 
 corporate funds and the payment of dividends not earned. So that, 
 in its last analysis, the question here is,. Is the undertaking company 
 and its successor in interest such a bona fide purchaser as that it 
 may hold the assets of the cabinet company free from the debts of 
 EiCH.CoEP. — 49 
 
770 CREDITORS OF THE CORPORATION (Ch. 8 
 
 that corporation? The answer to this must be in the negative, and 
 for these among other reasons : It issued to Hartung individually 
 whatever of consideration it paid for the assets of the cabinet com- 
 pany, knowing before it finally issued its stock that it was being used 
 by Hartung for his own private ends. It did not buy the property in 
 the usual course of business. On the contrary, it took it over, and 
 issued its own stoclr in_payment therefor, which did not go to the cor- 
 poration from which it purchased. That it did not take the property 
 free from liability for corporate debts under such circumstances is 
 held by practically all of ^ the cases which we have been able to find 
 or which have been cited by counsel. 
 
 In Thompson on Corporations, § 6547, it is said : "Where one cor- 
 poration transfers all its assets to another corporation, and thus prac- 
 tically ceases to exist, without having paid its debts, the purchasing 
 corporation takes the property subject to an equitable lien or charge in 
 favor of the creditors of the selling corporation. * * * ^nd while 
 the right to follow a trust fund into the hands of a third party depends 
 upon the answer to the inquiry whether such third party took it with 
 knowledge of the trust, the case being one where the trustee who trans- 
 ferred it to him had a power of disposition, yet in such a case as we 
 are supposing, where one corporatiori transfers all its assets to another, 
 not in the ordinary course of business, the very circumstances of the 
 case imply full knowledge, on the part of the transferee, of all the 
 facts necessary to charge the property in his hands with the debts of 
 the transferror, and the case is still clearer where the corporation 
 receiving the transfer agrees to assume and pay the debts of the corpo- 
 ration_ making it, in which case, under the principles of equity, and ' 
 under the modern Codes of Procedure, the creditors of the transfer- 
 ring corporation may maintain a direct action against the transferee 
 corporation upon the contract, as a contract made for their benefit." 
 See, also, Cook on Corporations (3d Ed.) §§ 669^670; Ex part? Sav- 
 ings Bank, 73 S. C. 393, S3 S. E. 614, 5 E. R. A. (N. S.) 520, and note; 
 Allen V. Church, supra; Mclver v. Young Co., 144 N. C. 478, 57 S. 
 E. 169, 119 Am. St. Rep. 970; Couse v. Columbia Co. (N. J. Ch.) 
 33 Atl. 297; Owen v. Arvis, 26 N. J. Law, 22; Hibernia Ins. Co. v. 
 Transportation Co. (C. C.) 13 Fed. 516; Hurd v. Lumber Co., 167 
 N. Y. 89, 60 N. E. 327 ; Cole v. Iron Co., il33 N. Y. 164, 30 N. E! 847, 
 28 Am. St. Rep. 615; Grenell v. Gas Co., 112 Mich. 70, 70 N. W. 
 413; Berry v. Railroad Co., 52 Kan. 774, 36 Pac. 724, 39 Am. St. 
 Rep. 381 ; Vance v. Coke Co., 92 Tenn. 47, 20 S. W. 424. 
 
 The theory under which these cases proceed is that the purchasing 
 corporation is not a good-faith buyer for value, in that the transaction 
 is an unusual one ; and the purchasing company is held to acknowl- 
 edge that the property it buys is subject to the payment of corporate 
 debts, and the buyer is not a bona fide purchaser for value. See, also, 
 Rogers v. Land Co., 134 N. Y. 197, 32 N. E. 27. There are a very 
 few cases which hold to a contrary doctrine, as, for example, O'Bear 
 
Sec. 2) EIGHTS AGAINST TRANSFEREES OF CORPORATE PROPERTT 771 
 
 Co. V. Volfer, 106 Ala. 205, 17 South. 525, 28 L. R. A. 707, 54 Am. 
 St. Rep. 31. 
 
 For appellant it is argued that the plaintiff should have followed 
 the stock received by Hartung. That proposition is very satisfactorily 
 answered in Hibernia Co. v. St. Louis Co. (C. C.) 13 Fed. 516, where 
 it is said that a creditor in such cases is not required to run the chances 
 of following and recovering the value of the shares of the stock after 
 they are placed upon the market. In Mclver v. Young, supra, this 
 proposition is fully considered and determined adversely to appellants' 
 contention. On account of the importance of the questions presented, 
 we have given the case careful consideration, and have come to the 
 conclusion that, while there is no personal liability on the part of the 
 undertaking company as successor in interest to the plaintiff, yet it 
 holds the property received from the cabinet company subject to the 
 payment of plaintiffs claim, and that the trial court was right in es- 
 tablishing a lien against it andl ordering a sale on special execution. 
 The decree must be modified to the extent indicated ; but, as this is 
 of no material benefit to the defendant, as the property is worth very 
 much more than plaintiff's claim, we think that the modification 
 should be without cost to appellee. 
 
 The decree Will be modified, and as so modified will stand. Mod- 
 ified and affirmed.^* 
 
 CATLIN v. EAGLE BANK OP NEW HAVEN et al. 
 
 (Supreme Court of Errors of Connecticut, 1826. 6 Conn. 233.) 
 
 This was a bill in chancery. The Eagle Bank is a corporation, 
 established, by an act of the legislature, in October, 1811, for bank- 
 ing purposes, with the usual powers of such an institution ; the char- 
 ter being, at all times, subject to alteration, amendment or revocation, 
 by the General Assembly. See the charter in the printed statutes, 
 previous to the revision of 1821, book 2, page 65. The plaintiff is 
 a creditor of this corporation to the amount of between 90,000 and 
 100,000 dollars. The bank, on the 15th September,, 1825, failed, and 
 was in fact insolvent. Among its creditors was the Savings Bank of 
 
 2 3 Compare Hurd v. New Tork & Commercial Laundry Co., 16t N. Y. 89, 
 60 /N E 327 (1901); Vicksburg & Yazoo City Tel. Co. v. Citizens' Tel. Co., 
 79 Miss. 341, 30 South. 725, 89 Am. St. Rep. 656 (1901); Baker Furniture 
 Company v. Hall, 76 Neb. 88 (on rehearing) 93, 107 N. W. 117, 111 N. W. 
 
 ^^In vL^e^'IfrVy^McNabb Coal, etc., Co., 92 Tenn 47, at page 61, 20 
 S W 424 at page 427 (1892), the court, in speaking of the rights of the 
 creditors of the vendor corporation, said: "Complainants may elect to ratify 
 Srtransfer of its property by the McNabb Coal & Coke Company and re- 
 aver the value of the 3400,000 of stock from the persons receivmg it, or 
 thiv may Ivoid the transfer altogether, and pursue the property or its pro- 
 celds to the hands of the Consolidated Coal & Iron Company, subject to any 
 rSts which have been acquired by subsequent bona fide purchasers for 
 value." 
 
772 CREDITORS OF THE CORPORATION (Ch. 8 
 
 New Haven, a corporation, empowered to receive deposits from in- 
 dividuals, for safe-keeping and management, and obliged to pay the 
 depositors the interest or profits that should accrue, ^his institution 
 had deposited with the Eagle Bank, at an interest of four per cent, 
 and to be returned on demand, all the money, which it had received, 
 in small sums, from a great multitude of depositors, amounting to be- 
 tween 80,000 and 90,000 dollars. In payment and security of this de- 
 mand, the directors of the Eagle Bank, after its actual insolvency, 
 mortgaged to the Savings Bank real estate worth about 20,000 dollars 
 paid to Samuel J. Hitchcock, Esq. secretary of the Savings Bank, 
 about 15,000 dollars in money, and assigned to him sundry negotiable 
 promissory notes, to the amount of about' 52,000 dollars. The bill 
 prayed, that these conveyances might be set aside, and that all the 
 funds of the Eagle Bank, at the time of its failure, might be equitably 
 distributed! among its creditors, in proportion to th'eir respective claims. 
 The case was reserved for the advice of this Court. 
 
 HoSMEE, C. J." * * * Whether the directors of the corpora- 
 tion, after it has become actually insolvent, can make payment or give 
 security to one of its creditors, and leave another unpaid and without 
 security, is the general question to be determined. It has been contend- 
 ed, in. behalf of the plaintiff, with no inconsiderable ingenuity, that the 
 legislature intendled to render the corporation at all times a trustee for 
 the creditors. This suggestion is too unfounded, and too destitute of 
 practical importance, to be admitted or discussed. Such a principle, 
 during the solvency of the bank, must be dormant and useless; and 
 neither the charter, nor the nature of the case, furpishes any warrant 
 for the supposition. 
 
 In the corporation, so far as regardls its right to manage and dispose 
 of its property, has power analogous with that which is vested in 
 an individual, the plaintiff's bill is wholly destitute of merits.* An 
 individual debtor, who is actually insolvent, may prefer one creditor 
 to another, unless in certain cases under the bankrupt laws ; and to do 
 this, as was said by Lord Kenyon, is neither illegal nor immoral. We 
 have no bankrupt system, to control the acts of the insolvent merchant ; 
 andl in the absence of all legal liens, he may prefer a creditor, if the 
 act is done in good faith. To discuss the reasons of the rule is un- 
 necessary. It is sufficient to say to those, who are not disposed to 
 unsettle foundations, that it is firmly and uniformly established, bpth 
 at law and in chancery. Estwick v. Caillaud, 5 Term Rep. 420 ; Nunn 
 V. Wilsmore, 8 Term Rep. 521; Hopkins v. Gray, 7 Mod. Rep. 139; 
 Meux et al. v. Howell et al., 4 East, 1 ; McMenomy et al. v. Ferrers, 
 3 Johns. (N. Y.) 84; Wilkes et al. v. Ferris, 5 Johns. (N. Y.) 344, 4 
 Am. Dec. 364; Small v. Dudley, 2 P. Wms. 427; Cock v. Goodf el- 
 low, 10 Mod Rep. 489 ; Phoenix v. Assignees of Ingraham, 5 Johns. 
 (N. Y.) 412, 426, 427; Hendricks v. Robinson, 2 Johns. Ch, 283. 
 
 2* A part of the opinion is omitted. 
 
Sec. 2) RKIHTS AGAINST TRANSFEREES OF CORPORATE PROPERTY 773 
 
 _ The same rule is equally applicable to partners ; and what is a bank- 
 ing corporation, in the ess^ence, but a partnership authorised ^by a 
 special act of the legislature? Gow on Part. 234. It is an artificial 
 person ; and this denomination is given to it, by reason of its resem- 
 blance to a natural person, in respect of its powers, rights and legal 
 duties. It is difficult for me to conceive, where no restraint is in- 
 terposed, in a charter of incorporation, on what ground, the general 
 authority delegated is subjected to exceptions, or fettered by restric- 
 tions, from which an individual and a mercantile company, are free. 
 And this difficulty is much increased, as no case intimating this divers- 
 ity between corporations and individuals, has been citedl, nor can be 
 fbund, by my utmost researches. Where no legal lien has been ob- 
 tained, it is a reasonable supposition, that the relation of creditor and 
 debtor, must, in all cases, infer the same consequences ; and that where 
 the same mischief exists, there is the same law. The cases of an in- 
 dividual and of a corporation, in the matter undfer discussion, it ap- 
 pears to me, are not merelj^ analogous, but identical; and I discern 
 no reason, for the slightest difference between them. There exists 
 no dbubt, that^ there have been many instances of actually insolvent 
 corporations, where certain creditors have been preferred to others; 
 and the perfect silence until now, on the subject of this fancied diver- 
 sity, is powerful to show what has been the universal opinion. 
 
 It however has been insisted for the plaintiff, that on the actual 
 insolvency of the bank, the corporation were the trustees of. the cred- 
 itors ; and if this be true, the latter become the cestuy que trusts of 
 all the corporate estate. The consequence on this supposition, would 
 be, that all persons coming into possession of the bank property, with 
 notice of the trust, must be considered as trustees. Daniels v. Davi- 
 son, 16 Ves. Jun. 249; Moore v. Butler, 1 Scho. & Lef. 262. No ex- 
 press trust was created, on the happening of the bank's insolvency; 
 but the charter on every fair principle of construction, conferred on 
 the corporation the entire control of its property, as well after as 
 before this event. 
 
 It however has been imagined, that the trusts arose by operation of 
 law. I enquire of what law? No principle, or case, or analogy has 
 been referred to, that supports the proposition ; nor am I capable of 
 conceiving any. The insolvent banking corporation is just as much a 
 trustee of the creditors, and no more, as the insolvent individual is the 
 trustee of his creditors. The relation of creditor and debtor exists in 
 both cases; -but from this relation no trust arises. Undoubtedly, in 
 all cases of actual insolvency, the creditor would dterive security from 
 this doctrine; and often great losses might be prevented. But the 
 interest of the insolvent person is not to be entirely disregarded. His 
 creditor has voluntarily become such, with full knowledge, that his 
 security must very much depend on the integrity of his debtor. With 
 open eyes he has given credit ; and the public charter of the corpora- 
 tion has instructed him in all the powers and rights of the corporation. 
 
774 CRBDITOES OF THE COEPORATION (Ch. 8 
 
 Now, it would be a very harsh and inequitable doctrine, but on the 
 plaintiff's claim, it is inevitable, that the moment a banking institution 
 is unable to pay all its debts, the directors of the bank may not issue 
 a bank bill, dispose of bank property, make payment of a single debt, 
 or perform one bank operation. May not an^ individual, or mercantile 
 company, under the same circumstances, proceed in the usual train 
 of business? This is not disputed. It is the law of chancery, that 
 they may prefer one creditor to another; and this, on a principle of 
 analogy, refutes, entirely, the supposition of a trust in this case. The 
 novelty and unsoundness of the plaintiff's claim are such, that it is 
 difficult to support, or even to oppose it, without taking leave of every 
 established principle, and beating the air. That the directors of the 
 Eagle Bank are trustees, I admit; but they are the trustees of the 
 stockholders. The stockholders are the cestuy que trusts, and the 
 charge of breach of trust must come from thehi. Attorney General 
 V. Utica Insurance Company, 2 Johns. Ch. 371, 385. * * * 
 
 From this discussion it is unquestionable, that the jurisdiction of 
 chancery does not extend to the disposal of the corporation estate or 
 funds of the Eagle Bank. More time has been occupied in the exam- 
 ination of the principle, than perhaps can be justified, as it has no ap- 
 plication to the case before us. The bank has, in no proper sense, 
 misapplied its funds. It has done what it had a right to do, and what 
 is uncontrolable by this Court; that is, it has preferred to pay and 
 secure the, claim of what was considered a meritorious creditor. Of 
 its creditors, the corporation was not a trustee ; they had no lien upon 
 its funds ; and no cas^e is made out, entitling the plaintiff to relief, or 
 showing any jurisdiction exercisable by this Court. 
 
 The plaintiff's bill must be dismissed. 
 
 Brainard and Lanman, JJ., were of the same opinion. Peters, J., 
 being interested in the question, andl Daggett, J., having been of coun- 
 sel in the cause, gave no opinion. 
 
 Bill to be dismissed."" 
 
 BALLIN et al. v. MERCHANTS' EXCH. BANK et al. 
 .BAEUN et al. v. MOSSBACHER et al. 
 
 (Supreme Court of Wisconsin, 1895. 89 Wis. 278, 61 N. W. 1118, 27 L. E. A. 
 357, 46 Am. St. Rep. 834.) 
 
 WiNSiiOW, J."* A creditor of an insolvent corporation, kriowing its 
 insolvency, attaches its property, without collusion with the officers 
 of the corporation. Afterwards, and while the attached property is 
 in the hands of the officer, another creditor obtains judgment, and com- 
 
 2 5 0omi/are Rouse v. Merchants' National Bank, 46 Ohio St. 493 22 N E 
 293, 5 L. R. A. 378, 15 Am. St. Rep. 644 (1889). 
 28 Facts sufficiently stated in the opinion, a part of which is omitted. 
 
Sec. 2) RIGHTS AGAINST TRANSFEREES OF CORPORATE PROPERTY 775 
 
 mences an action, under section 3216, Rev. St., to close up its affairs 
 and sequestrate its property, making, the attaching creditor and the offi- 
 cer parties to the suit. Can the attaching creditor be deprived of his 
 lien upon the property attached, and be compelled to share equally 
 with all other creditors in the property of the corporation? This is 
 the single question which is sharply presented in this case. 
 
 The complaint charged a fraudulent and collusive attachment by the 
 first class of creditors ; and a preliminary order; based on this com- 
 plaint, requiring the sheriff to surrender the attached property to the 
 receiver, was affirmed by this court. Ballin v. Loeb, 78 Wis. 404, 47 N. 
 W. 516, 10 L. R. A. 742. The ultimate rights of the attaching credi- 
 tors were not determined on that appeal, however ; but it was held that 
 they must come into this action for any share of the proceeds of the 
 property, or for any remedy against it. The effect of that decision was 
 simply to hold that the receiver was entitled to- the possession of the 
 property for the purpose of winding up the affairs of the corporation, 
 and that all claims of liens upon the property must be litigated in this 
 action. On the trial the plaintiffs abandoned all charges of collusion 
 and fraud, and rested .solely on the ground of the corporation being 
 insolvent, and that the attaching creditors had knowledge of such in- 
 solvency when they attached. And thus the question presents itself, as 
 first above stated. 
 
 Upon this question, the plaintiffs rest their case upon the so-called 
 "trust- fund doctrine," and take a broad ground that, from the moment 
 a trading corporation becomes insolvent, its assets become a trust fund 
 for the benefit of its creditors, and that no creditor, knowing of its 
 insolvency, can obtain a valid lien by attachment of any of the prop- 
 erty; and they argue that this doctrine has received the express or 
 implied sanction of this court. It must be admitted that there are au- 
 thorities in other jurisdictions holding this doctrine to its full extent, 
 but it certainly has not yet been held by this court that a creditor of 
 an insolvent corporation may not obtain a valid lien by attaching its 
 property in a bona fide attempt to collect his debt. 
 
 The cases which are principally relied upon by the plaintiffs as hav- 
 ing sanctioned the trust-fund doctrine, in this court, are Bank v. 
 Knowles, 67 Wis. 373, 28 N. W. 225 ; Haywood v. Lumber Co., 64 
 Wis 639 26 N. W. 184; Ballin v. Loeb, 78 Wis. 404, 47 N. W. 516, 
 10 L. R. A. 742; Ford v. Bank, 87 Wis. 363, 58 N. W. 766. A brief 
 review of the questions actually decided in these cases will be useful. 
 In Haywood v. Lumber Co., it was held that directors of an insolvent 
 corporation could not lawfully convey or mortgage the corporate prop- 
 erty to themselves, to secure their own claims against the corporation. 
 In Bank v. Knowles, it was held that a trust deed of an insolvent 
 manufacturing corporation, to secure bonds given to certain creditors, 
 some of whom were directors of the corporation, was void, because 
 made with the intent to hinder, delay, and defraud other creditors, and 
 because it had the effect of a fraudulent preference of certam credi- 
 
776 CEEDITOES OF THE COEPOEATION (Ch. 8 
 
 tors, to the exclusion of all others. In Ballin v. Loeb, it was held, as 
 previously stated in this opinion, ,that an attaching creditor of an in- 
 solvent corporation, whose attachment was charged to have been fraud- 
 ulent and collusive, must come into this action, and assert his rights 
 to a lien upon the attached property. The same, in principle, was the 
 holding in Ford v. Bank. In the last-named case, it was charged that 
 judgments by confession had been coUusively and fraudulently ob- 
 tained, and levies made thereunder; and it was held that the prop- 
 erty levied upon must go' into the hands of the receiver, and that a 
 creditor must seek and enforce his lien, if any, in the sequestration 
 action. 
 
 On the other hand, in Trust Co. v. Geilfuss, 86 Wis. 612, 57 N. W. 
 349, it was distinctly held that where an insolvent corporation had 
 made a valid assignment for the benefit of its creditors, under the 
 statute, such assignment was not superseded or affected by the ap- 
 pointment of a receiver in an action against the corporation, under 
 section 3216, Rev. St. We believe the foregoing is a fair , statement 
 of the questions actually presented and decided in the cases named, 
 and from this statement it seems very certain that the question here 
 presented has not been foreclosed or decided by this court. 
 
 The intangible body known to the law as a "corporation" must neces- 
 sarily act by its agents, and these agents are its managing officers. An 
 agent who is handling the funds or property of his principal acts in a 
 trust capacity, and is in a sense a trustee. The managing officers of 
 the corporation are therefore at all times trustees for the corporation 
 and its stockholders. It may also be correctly said that the corporate 
 property in the hands of the receiver is a trust fund for the benefit 
 of creditors, in the sense that it is to be applied to the payment of the 
 corporate creditors before it can be applied for the use or beneft of 
 the stockholders. The plaintiff's contention, is broader than this, and 
 is to the effect that when a corporation in fact becomes insolvent, 
 though still doing business, the managing directors thereof become 
 "trustees" of the corporate property, in the full and complete sense 
 of the term, and can make no disposition of such property to one 
 creditor to the exclusion of others, nor can a creditor, acting in good ' 
 faith, acquire a valid lien upon the corporate property by attachment. 
 
 As to the first branch of this proposition, to the effect that the direc- 
 tors cannot convey or mortgage the corporate property to a creditor, 
 we are not now concerned, because that question does not arise in this 
 case. The sole question here is whether a diligent creditor, knowing 
 of the corporate insolvency, and bringing his attachment proceedings 
 in an honest effort to collect his debt, can acquire a valid lien upon 
 the corporate property, which will be protected upon a subsequent se- 
 questration action. Upon this question we have no hesitation in 
 holding that such a creditor will acquire a valid lien. To hold other- 
 wise is to hold, in effect, that a debt cannot be collected, by ordinary 
 processes of law, from an insolvent corporation ; that the corporation 
 
Sec. 2) RIGHTS AGAINST TRANSFEREES OF CORPORATE PROPBRTT 777 
 
 may buy and sell, make contracts, and transact its ordinary business, 
 but that it enjoys a practical immunity from all the laws for the en- 
 forcement of its obligations, until some creditor sees fit to commence 
 an action to wind up its affairs. In other words, it may buy property, 
 but cannot be compelled, by ordinary processes of law, to pay for it ; 
 it may contract, but cannot be compelled to perform its contract; it 
 is provided with a shield, which becomes, to all intents and purposes, 
 a sword, in its hands, against the diligent creditor. 
 
 Certainly, no such immunity from the ordinary laws governing the 
 rights of creditors is given it by statute. On the contrary, the statute 
 provides (Rev. St. § 2729) that any creditor may proceed by attach- 
 ment against the property of his debtor, "whether a natural person or 
 corporation" ; and in vain do we look for any exception in the statute 
 law, such as is claimed here. We shall not attempt to ingraft any 
 such exception on the statute by decision. We see no good reason 
 why a trading corporation, so long, at least, as it deals with others 
 in its ordinary course of business, should not be subject to the ordinary 
 remedies provided by the law for the collection of debts. Its prop- 
 erty is certainly not trust property, in the sense that it cannot be relied 
 on by its creditors to respond to the ordinary processes of the law, 
 sued out in good faith. The following authorities fully bear out these 
 views, and we cite them as sustaining the point now decided, without 
 affirming or denying their correctness in other respects : White, etc., 
 Mfg. Co. v. Henry B. Pettes Importing Co. (C. C.) 30 Fed. 864; 
 Hospes V. Car Co., 48 Minn. 174, 50 N. W. 1117, 15 L. R. A. 470, 31 
 Am. St. Rep. 637; Fogg v. Blair, 133 U.. S. 534, 10 Sup. Ct. 338, 33 
 L. Ed. 721 ; Hollins v. Iron Co., 150 U. S. 371, 14 Sup. Ct. 127, 37 
 L. Ed. 1113; Roseboom v. Whittaker, 132 111. 81, 23 N. E. 339. 
 
 From these views, it follows that the first class of creditors were, 
 upon the facts before the court, entitled to have their attachment liens 
 adjudged valid, and to be first paid out of the proceeds of the attached 
 property in the hands of the receiver, and hence that the order of 
 the superior court must be reversed. * * * 
 
 So much of the order appealed from as provides for an equal dis- 
 tribution among creditors of all property in the hands of the receiver, 
 and denies any preference, and enjoins further proceedings by the 
 defendants, is reversed, with costs, upon both appeals, and the re- 
 mainder of the order is affirmed, and the action is remanded for fur- 
 ther proceedings in accordance with law.*' 
 
 27 Accord- Breene v. Mereliants' & Mechanics' Bank, 11 Colo. 97, 17 Pac. 
 280 (1887): 'Farwell Co. v. Sweetzer et al., 10 Ck)lo. App. 421, 51 (Pac. 1012 
 
 ^^fJi'Marr v. Bank of West Tennessee, 4 Cold. (Tenn.) 471 (1867); Miers & 
 Caulson v. Zanesville & MayvlUe Turnpike Co., 13 Ohio, 197 (1844). 
 
778 CREDITORS OP THE CORPORATION (Ch. 8 
 
 EWING V. COMPOSITE BRAKE SHOE CO. 
 (Supreme Judicial Court of Massachusetts, 1897. 169 Mass. 72, 47 N. B. 241.) 
 
 Lathrop, J. The plaintiff was a creditor of a Maine corporation to 
 the amount of $787. This corporation ceased to do business, and the 
 stockholders, together with at least one other person, formed a new 
 corporation, with a different name, under the laws of Massachusetts. 
 The new corporation is the defendant in this case. It took all of the 
 assets of the old corporation except its books, but it did not assume 
 to pay all of the debts of the old corporation, although there was evi- 
 dence that one Whitcomb, who was the manager of both of the corpo- 
 rations, told the plaintiff that the new company would be liable for 
 the debts of the old. It is obvious, however, that where a new corpo- 
 ration is formed the creditors of the old corporation do not, without 
 something further being done, become creditors of the new corporation. 
 They have an equitable right to follow the assets of i the old corpora- 
 tion ; but they cannot maintain an action at law against the new corpo- 
 ration, for there is no privity of contract. To render the new cor- 
 poration liable, there must be a new contract made, such as will amount 
 to a novation. See Mor. Priv. Corp. (2d Ed.) § 808 et seq. 
 
 If a new contract is made between a creditor of the old corporation 
 and the new corporation, the latter is liable only on the new contract. 
 In the case at bar, according to the plaintiff's testimony, the new con- 
 tract which he made with the^ manager was that he should receive 
 $200 in cash and five shares of the capital stock of the new corpora- 
 tion at the par value of $100 a share in full payment of his claim of 
 $787. He received the money and a certificate of five shares of the 
 capital stock. He now seeks to rescind the new agreement, on the 
 ground that the capital stock of the new corporation was not fully 
 paid in before it began business. But, even if this is so, he cannot 
 hold the new corporation for the original debt, as it never contracted 
 to pay it, except in the manner in which the agreement has been per- 
 formed. 
 
 There is an independent ground, which leads to the same result. 
 The plaintiff has tendered only the five shares of stock, and has not 
 offered to return the $200 which he received. If a person enters into 
 a contract, and afterwards seeks to avoid the effect of the contract on 
 any ground that will entitle him to rescind it, he must first restore 
 what he has received. ' Drohan v. Railway Co., 162 Mass. 435, 38 N. 
 E. 1116; Moore v. Association, 165 Mass. 517, 43 N. E. 298. 
 
 Exceptions overruled.^^ 
 
 28 Compare: In re Provincial Life Assurance Society, L. R. 9 Eq. Cas. 
 306 (1870); In re Family Endowment Society, L. R. 5 Ch. App. 118 (1870); 
 In re European Assurance Society, L. R. 1 Ch. Div. 307 (1875). 
 
Sec. 3) EIGHTS AS AFFECTED BY MERGER OE CONSOLIDATION 779 
 
 SECTION 3.-CREDITORS' RIGHTS AS AFFECTED BY MER- 
 GER OR CONSOLIDATION 
 
 ZIEMER V. C. G. BRETTING MFG. CO. 
 (Supreme Court of Wisconsin, 1911. 147 Wis. 252, 133 N. W. 139.) 
 
 o-TA^^ol^' '^' "^^^ former dtecision of this case is reported in 142 Wis. 
 224, 125 N. W. 318, where a 'judgment in favor of the plaintiff was 
 reversed on the ground that the evidence failed to show that the plain- 
 tiff at the trnie of the injury was in the employ of the defendant cor- 
 poration. The case was retried, and at the close of the testimony the 
 circuit court directed a verdict for the defendant, for the reason that 
 the plaintiff was not in the employment of the defendant at the time 
 of the injury. The plaintiff appealed to this court, whereupon the 
 parties entered into the following stipulation : "It is hereby stipulated 
 by and between the above-named parties that the judgment herein 
 shall be affirmed, unless this court shall find! that there was evidence 
 in the case upon which the jury could have found that the plaintiff 
 was in the employ of the 'defendant at the time he was injured, or 
 that the defendant is hereby estopped from denying that the plaintiff 
 was then in its employ, or that the defendant assumed liability for 
 such injury." 
 
 The appeal, therefore, involves an examination of the evidence. 
 Evidence was offered, which did not appear when the case was for- 
 merly before this court. It appeared that C. G. Bretting carried on 
 a foundry business, under the name of the C. G. Bretting Manu- 
 facturing Company, at Ashland, Wis., prior to his death, which oc- 
 curred in A. D. 1904. Jane Bretting, his w^idow, was then appointed 
 adiministratrix, and ordered to close up the contracts and business 
 on hand, and she continued the business under the same name. On 
 January 21, 1907, she filed her final account as administratrix. On 
 March 28, 1907; the inheritance tax was fixed. On April 2, 1907, 
 she filed a supplemental or additional account as administratrix. C. G. 
 Bretting left surviving him his widow and three sons, Ralph Bretting, 
 William Henry Bretting, and) Henry L. Bretting. These four may be 
 said to have owned the foundry plant and business as widow and 
 heirs of C. G. Bretting, deceased. Ralph C, Henry L., and William 
 H. Bretting were under 21 years of age, and Jane Bretting was their 
 guardian. On or about March 16, 1907, Jane Bretting, Sam Wheeler, 
 and C. A. Lamoreaux executed articles of incorporation of the C. G. 
 Bretting Manufacturing Company, and caused the same to be duly 
 filed with the Secretary of State and recorded with the register of 
 deeds of Ashland county. This corporation was empowered by such 
 
780 CEEDITOES OF THE COKPO RATION (Ch. 8 
 
 articles to carry on a similar business to that carried on by the natural 
 persons aforesaid, under the same name, and at the same place. 
 
 The plaintiff was employed as a molder by the C. G. Bretting Manu- 
 facturing Company in April, 1907, and on June 19, 1907, while in that 
 employment, was injured by reason of alleged defective appliances. 
 The signers of the said articles of incorporation met on July 15, 1907, 
 and received the subscriptions of Jane Bretting, Ralph Bretting, Sairi 
 Wheeler, and C. A. Lamoreaux to the capital stock of said corporation, 
 and turned over the affairs of the corporation to the stockholders. 
 The latter immediately and on the same day convened for the purpose 
 of electing a board of directors and the transaction of other business. 
 Among other things it was resolved "that the matter of the purchase 
 of the C. G. Bretting manufacturing plant as heretofore conducted, 
 consisting, of real estate, buildings, machinery, and) all personal prop- 
 erty and accounts, as shown by the statement and schedule this day 
 filed with the secretary of this company, be and the same is hereby re- 
 ferred to the board of directors, and the said board is- hereby em- 
 powered, directed, and authorized to purchase the said plant as of 
 date of April 1, 1907, for the sum of $40,000, and to issue in consid- 
 eration therefor shares of the general stock of this corporation at 
 par, not to exceed the sum of $40,000; it being understood that the 
 said plant is owned by Jane Bretting, Ralph C. Bretting, William 
 Howard Bretting, and Henry Lyman Bretting, one-quarter each, and 
 that- the stock of said corporation in payment therefor shall be issued 
 to said owners of equal amount — i. e., $10,000 of stock at par value 
 to each of said owners above named." 
 
 The schedule showed block 3, Commercial addition, Ashland, Wis., 
 with the following buildings thereon : Foundry, blacksmith shop, boil- 
 er shop, taachine shop, wood shop, pattern house, pumphouse; also a 
 dwelling house on certain described lots, and certain machinery, tools, 
 and fixtures, with stock on hand and other personal property, and a 
 list of accounts receivable. On September 12, 1907, Jane Bretting and 
 her three sons executed a transfer of this property to the corporation. 
 The corporation used the same books of account as its predecessor, 
 continuing the same accounts, without rest or break. The stockholders 
 were the same persons theretofore interested in the manufacturing 
 company, except C. A. Lamoreaux, who took one share, apparently 
 for the purpose of qualifying him as director, and Sam Wheeler, who 
 took five shares, and paid $500 therefor, and later bought another five 
 shares. Checks were signed "Jane Bretting Administratrix," or sim- 
 ply "Jane Bretting." One of the Brettings testified that the corpora- ' 
 tion did not assume the liabilities of its predecessor in business; but 
 this was merely his conclusion of law upon the facts. The relations 
 of Jane Bretting and her three sons to one another and to this prop- 
 erty cannot in strictness be said to be those of copartners. But there 
 was a decided analogy in respect to ownership and obligation. The 
 evidence fairly tends to prove that on and after March 15, 1907, the ad- 
 
Sec. 3) RIGHTS AS AFFECTED BY MERGER OR CONSOLIDATION 181 
 
 ministratrix and her children intended to convey this business and 
 property to the corporation in exchange for shares of its stock as soon 
 as they conveniently could do so, the transfer to take place as of April 
 1, 1907. They proceeded by easy stages to accomplish this as above 
 recited. There is no fraud in the transaction. The question is wheth- 
 er the corporation is liable to an employe, injured in consequence of 
 a defective appliance on June 19, 1907. The law requires notice of 
 such injury to be served within one year from the date of injury, and 
 in October, 1907, the appellant served such notice on the corporation, 
 by serving it on Jane B retting, an officer thereof. 
 
 There is a line of authority which may be fairly said to hold that 
 where copartners or other joint owners of a solvent going business 
 transform themselves into a corporation, to which the joint property 
 is transferred |in exchange for shares of stock, there must, in order to 
 bindl the new corporation for the liabilities of the former partnership, 
 be ah express assumption by the corporation of such liabilities. 2 
 Cook, Corporations, § 673, p. 2041 ; Hart Pioneer Nurseries v. Coryell, 
 8 Kan. App. 496, 55 Pac. 514; Austin v. Tecumseh NatHBank, 49 
 Neb. 412, 68 N. W. 628, 35 L. R. A. 444, 59 Am. St. Rep., 543. 
 ' There are also cases which hold that no such express agreement 
 neeS be shown, but seem to go upon the presumption that such lia- 
 bilities are assumed under these circumstances. Du yivier & Co. v. 
 Gallice, 149 Fed. 118, 80 C. C. A. 556; Modern Dairy, etc., Co. v. 
 Blanke, etc.. Supply Co. (Tex. Civ. App.) 116 S. W. 153; Haslett 
 v. Wotherspoon, 1 Strob. Eq. (S. C.) 209; Andres v. Morgan, 62 
 Ohio St. 236, 56 N. E. 875, 78 Am. St. Rep. 712 ; Texas Loan Agency 
 V. Hunter, 13 Tex. Civ. App. 402, 35 S. W. 399; York Mfg. Co. v. 
 Brewster, 174 Fed. 566, 98 C. C. A. 348. 
 
 A third line of cases holds that the assumption of liabilities may be 
 express or implied, and the latter rule has been established for this 
 court in Pratt v. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84. See, 
 also, Hall v. Herter Brothers, 83 Hun, 19, 31 N. Y. Supp. 692; Id, 
 90 Hun, 280, 35 N. Y. Supp. 769, affirmed 157 N. Y. 694, 51 N. E. 
 1091. In Schufeldt v. Smith, 139 Mo. 367, 40 S. W. 887,_a partner- 
 ship of three merhbers converted themselves into a corporation. Later 
 the corporation made a deed of trust, preferring certain creditors of 
 the former partnership. In a suit by creditors of the corporation to 
 have this deed set aside, the deed was upheld, but upon the ground 
 that the evidence established an agreement by the corporation to. take 
 the firm property and assume its liabilities. See, also, 3 Thompson 
 Corp. (2d. Ed.) ch. 83, ■§§ 2345, 2359. This agreement on the part of 
 the corporation may be proven, like any other fact, by any competent 
 evidence which will establish 'either an express or an implied valid 
 agreement to assume the liabilities. Pratt v. Oshkosh and Hall v. 
 
 Herter Brothers, supra. • . ,, f^\ 
 
 The evidence of assumption in the instant case is as follows: (1) 
 
 The identity in name; (2) the almost complete identity of interest; 
 
782 CEEDITOES OF THE COEPOEATION (Ch. 8 
 
 (3) the continuation of the same business at the same place; (4) the 
 identity of property; (5) the use of the old books, without break or 
 rest in the accounts; and (6) the resolution to take the property of 
 the former associates as of date of April 1st. This last is very sig- 
 nificant. In order to take the property as of April 1st, the corporation 
 would necessarily acquire all increase or increment accruing after 
 that date, and be subject to all diminution or loss occurring after that 
 date in the ordinary vicissitudes of business. If the copartners sold 
 goods or merchandise after April 1st on credit, the account, includ- 
 ing the profit on the transaction, would go to the corporation. If, by 
 reason of breach of warranty on this sale, a liability accrued to the 
 purchaser, the corporation would be chargeable with this liability. No 
 other reasonable effect could be given to the resolution to take the 
 property aS oi date of April 1st. In Chicago, Racine & Milwaukee 
 Line v. Wilmanns et al., 141 Wis. 289, 124 N. W. 261, the receivers 
 on December 16, 1908, sold and transferred certain accounts "as of 
 June 17, 1908." It was heldl that this carried to the purchaser. moneys 
 collected on the accounts by these receivers between June 17 and De- 
 cember 16, 1908. 
 
 The form of liability to the plaintiff, if there is any such liability, 
 is not material. If there is such liability, it was a loss of the partner- 
 ship incident, to the operation of the business, and incurred after April 
 1st and before the actual transfer to the corporation was consum- 
 mated. A business loss or liability of this kind cannot, with reference 
 to the interpretation df the words "as of date of, April 1st," be logical- 
 ly distinguished from any other business losses or liabilities occurring 
 after April 1st. The diesign to take over and continue the old busi- 
 ness is apparent, and the expression "as of date of April 1st" must 
 be given some significance, although the writing in which it occurs 
 describes only tangible property. If one of these buildings or one of 
 these machines was destroyed by accidental fire after April 1st, would 
 not the loss fall on the corporation? The expression is nearly the 
 equivalent of the old Latin, "nunc pro tunc." 
 
 The plaintiff was not in the employment of the corporation at the 
 time he was injured!, but was in the employment of the precedent 
 managers and owners of the business ^ and, assuming that there was 
 an outstanding liability of such manager and owners to the plaintiff, 
 incurred in the operation of this business and accruing on June 19, 
 1908, when the corporation took over this property as of April L 
 1908, and continued the same account books under the same name, at 
 the same place, for the purpose of ' continuing the same business, it 
 assumed by this form of resolution the liability to the plaintiff if 
 any such liability' existed. 
 
 It follows that the judgment of the circuit court must be reversed, 
 and the cause remanded for a new trial. Judgment reversed, and the 
 cause remanded for a new trial. 
 
Sec. 3) EIGHTS AS AFFEOTEb BY MEEGEH OB CONSOLIDATION 783 
 
 FOGG V. BLAIR.. 
 
 (Supreme Court of the United States, 1890. 133 U. S. 534, 10 Sup. Ct. 338, 33 
 
 L. Ed. 721.) 
 
 In 1870 the plaintiff, Fogg, had an adjusted claim against the St. 
 Louis & Keokuk Railroad Company for services and advances, amount- 
 ing to $9,547.75. In 1873, the St. Louis & Keokuk Railroad Company 
 sold and transferred its entire property to the St. Louis, Hannibal & 
 Keokuk Railroad Company, organized in 1872. In consideration of 
 the transfer the latter company assumed the obligations of the former. 
 In 1872 and 1877 deeds of trust were issued to Blair as trustee tp se- 
 cure a bond issue, the proceeds of which were used in the construc- 
 tion and extension of the road. In February, 1884, the trustee began 
 proceedings to foreclose the trust deed on default in interest by the 
 mortgagor. , 
 
 In 1882 Fogg obtained judgment on his claims against the St. Louis 
 & Keokuk Railroad Company. After a nulla bona return on an 
 execution issued under this judgment, Fogg obtained a decree in 
 equity, holding both companies jointly liable on the judgment. The 
 plaintiff filed a cross-bill in the foreclosure proceedings under the 
 trust deed, to which he was a party, for the purpose of obtaining 
 priority for his judgment over the demands of the trustee representing 
 the bond holders. Appeal from a decree holding that the plaintiff's 
 judgment is not entitled to priority.^* 
 
 Field, J.^° The claim of the appellant that his demand, which 
 passed into judgment May 5, 1884, against l)oth the St. Louis & Keo- , 
 kuk Railroad Company, and the St. Louis, Hannibal & Keokuk Rail- 
 road Company, is entitled to payment prior to the bonds secured by 
 the mortgage or trust-deed, would seem to be answered by the dates 
 of the judgment and mortgage, respectively. The judgment was not 
 rendered against the original company until October 3, 1882, and not 
 against both companies until May 5, 1884. The mortgage was exe- 
 cuted on the 1st day of August, 1877, five years before the fiirst judg- 
 ment, and nearly seven years before the second. 
 
 It does not appear in the record precisely what the services were 
 which were rendered by the complainant, or for what purposes ad- 
 vances by him were made. This is not material, however, as no claim 
 is made, because of the nature of those services and advances, to a lien 
 on the property of the original company, under the statute of the state. 
 It does not appear that any proceedings were taken to establish such a 
 lien Independently of that statute, there was no hen upon any prop- 
 erty of the railroad company for the demand of the complamant. It 
 stood like any ordinary debt against a corporation, which could only 
 
 29 Statement of facts substituted. 
 80 A part of the opinion is omitted. 
 
784 CREDITORS OP THE CORPORATION (Ch. 8 
 
 be enforced by legal proceedings establishing its validity and amount 
 by judicial determination, and then by process upon the judgment ob- 
 tained, in subordination to any previously existing liens upon the 
 property. 
 
 In some states, — and this is the case in Missouri, — statutes make 
 judgments of their courts liens upon the real property of the judg- 
 ment debtor, and the same rule applies in such states to judgments in 
 the courts of the United States. But in all cases the judgments be- 
 come liens only from the time they are rendered, or notice thereof is 
 filed in the register's office of the county where the property is sit- 
 uated. They are subordinate to any prior mortgage upon the property. 
 This doctrine is so familiar that it is surprising that any other can be 
 supposed to exist. The property o'f a railroad company is not held 
 under any such trust to apply it to the payment of its debts as to re- 
 strict its use for any other lawful purpose, it matters not how merito- 
 rious the demand of the creditor may be. He must obtain a lien upon 
 the property of the company, or security in some other form, or he will' 
 have to take his chances with all other creditors to obtain payment 
 in the ordinary course of legal proceedings for the collection of 
 debts.' * * * 
 
 We do not attach any weight to the objection that the transfer by the 
 old company of its entire property to the new company was illegal and 
 ultra vires, and therefore to be disregarded. However such a trans- 
 fer might be considered in a suit to set it aside, the objection does not 
 lie in the mouth of the appellant, for he has proceeded against the 
 new company, and obtained, upon the. assumed validity of such trans- 
 fer, a decree that it pay his judgment, which is founded upon a de- 
 mand that the company agreed to assume as part of the consideration 
 of the transfer. 
 
 There is no evidence in the record before us that the parties who 
 took the bonds issued by the St. Louis, Hannibal & Keokuk Railroad 
 Company had any notice, actual or constructive, of the demand of 
 the complainant. But, if they had, it would not have affected their 
 rights. That demand was not then reduced to judgment, and created 
 no lien upon the property of the company, nor any restriction upon the 
 company's right to use it for any lawful purpose. The bonds were 
 given to raise the necessary funds to complete the road of the com- 
 pany, and the mortgage was executed to secure their payment. They 
 were negO|tiable instruments, and in the hands of the purchasers can- 
 not be impeached for any neglect of the company issuing them to pay 
 the demands of other creditors. We are unable to perceive any ground 
 upon which their priority over the claim of the appellant can be in any 
 way impaired 
 
 We do not question the general doctrine invoked by the appellant, 
 that the property of a railroad company is a trust fund for the pay- 
 ment of its debts, but do not perceive any place for its application 
 here. That doctrine only means that the property must first be ap- 
 
Sec. 3) EIGHTS AS ATFECTED BY MEBGEH OE CONSOLIDATION 785 
 
 propriated to the payment of the debts of the company before any 
 portion of it can be distributed to the stockholders. It does not mean 
 that the property is so affected by the indebtedness of the company 
 that it cannot be sold, transferred, or liiortgaged to bona fide purchas- 
 ers for a valuable consideration, except subject to the liability of being 
 appropriated to pay that indebtedness. Such a doctrine has no exist- 
 ence. 
 
 The cases of Curran v. State, 15 How. 304, 307, 14 L. Ed. 705, and 
 Wood V. Dummer, 3 Mason, 308, Fed. Cas. No. 17,944, give no counte- 
 nance to anything of the kind. Judgment affirmed." 
 
 INDIANAPOLIS, C. & L. R. CO. v. JONES. 
 (Supreme Court of Indiana, 1868. 29 Ind. 465, 95 Am. Dec. 654.) 
 
 Appeal from the Decatur Common Pleas. 
 
 FrazeRj J. This case is here solely upon a question of the sufficien- 
 cy of the evidence. It was a suit to recover the value of a steer, al- 
 leged to have been killed by defendant's cars, in April, 1865, in Deca- 
 tur county, the railroad not being fenced. The answer was the general 
 denial. The issue was found for the plaintiff, and his damages as- 
 sessed at $100. The question made is without any substantial merit, 
 being purely technical. It must, however, be determined according to 
 law. It was the cars of the Indianapolis & Cincinnati' Railroad Com- 
 pany that killed the steer, since which tiihe that company's road has 
 been consolidated with the road of the Lafayette & Indianapolis Rail- 
 road Company, under the laws of this State, and the corporation thus 
 formed is the appellant, the Indianapolis,' Cincinnati & Lafayette Rail- 
 road Company. 
 
 It is disputed that the consolidated company, the appellant, is liable 
 for the value of the steer, and Evansville v. Evansville Gas. Light Co., 
 26 Ind. 447, is relied on as an authority to sustain the proposition, 
 The case seems to us to have no bearing whatever upon the question. 
 
 By the consolidation, both of the old companies ceased to exist sep- 
 arately, and all their effects and franchises were vested in the new 
 company. The two corporations became merged in one. We cannot 
 imagine how the Indianapolis & Cincinnati Railroad Company could 
 afterwards be sued. Upon whom would process be served? It 
 ceased to have any officers or agents. It ceased to be a separate legal 
 entity. Instead of two, there was now but one corporation, made up 
 of the mingled elements of the two pre-existing companies, so com- 
 bined and merged that neither could be separately identified or brought 
 into court. But what are the rights of creditor^ and persons upon 
 whom torts have been committed by the vanished corporations ? A 
 
 SI Compare Montgomery & West Point R. Co. v. Branch Sons & Co., 59 Ala. 
 139 (1877). 
 
 BiOH.CoBP. — 50 I 
 
786 Creditors op the corporation (Ch. 8 
 
 dead man may have an administrator to represent his estate and an- 
 swer to suits, but a corporation lawfully disappearing thus, has no 
 estate to be administered. Its assets have lawfully vested in the new 
 consolidated corporation. Must lawful claims be lost, then? 
 
 That result cannot follow. The legislature has chosen to make no 
 provision upon the subject, and the industry of counsel, as well as our 
 own examination of the books, has failed to discover any direct au- 
 thority upon the question before us. The analogies of the law, too, 
 afford little aid in its solution. We regret to be compelled to decide it 
 without a more thorough argument. Giving it, however, the best con- 
 sideration of which we are capable under the circumstances, we have 
 reached the conclusion that, for the purposes of answering for the' 
 liabilities of the constituent corporations, the consolidated company 
 should be deemed to be merely the same as each of its constituents, 
 their existence continued in it, under the new form and narne, their 
 liabilities still existing as before, and capable of enforcement against 
 the new 1 company in the same way as if no change had occurred in 
 its organization or name. This doctrine seems to spring from the ne- 
 cessities of justice, and, so far as we are able to foresee, cannot result 
 in wrong or embarrassment. To avoid variance in proof, the com- 
 plaint should, in this case, have averred the facts, which it did not; 
 but it seems to us that it could have been cured by amendment on the 
 trial, and that the variance is therefore not available to the appellant 
 here. ' i 
 
 The judgment is affirmed, with ten per cent, damages and costs. 
 
 LANGHORNE v. RICHMOND RY. CO. et al. 
 (Supreme Court of Appeals of Virginia, 1895. 91 Va. 369, 22 S. E. 1599 
 
 The plaintiff brought an action of trespass on the case against the 
 Richmond Railway Company, known also as the Richmond City Rail- 
 way Company, and the Richmond Railway & Electric Company, for 
 an injury done to him by the first-named company. The declaration- 
 was demurred to on the ground that there is a misjoinder of the causes 
 of action, of the form of action, and of the parties. Demurrer sus- 
 tained. Appeal.'^ 
 
 Buchanan, J.=» * * * The declaration states a good cause of 
 action against the Richmond Railway Company for the injury com- 
 plained of. It alleges that the Richmond City Railway Company is one 
 and the same corporation as the Richmond Railway Company. It also 
 alleges the. authority of the Richmond City Railway Company to con- 
 solidate with the Richmond Railway & Electric Company, and that a 
 
 82 Statement of facts abrldgea. 
 
 S3 A part of the opinion Is omitted. 
 
Sec. 3) EIGHTS AS AFFECTED BT MERGES OB CONSOLIDATION 78T 
 
 consolidation has been made by which the last-named company ac- 
 quired all the works, property, and franchises of the Richmond City 
 Kailway Company, and 'assumed all its liabilities. Such a consolida- 
 tion as IS alleged in the declaration not only renders the property and 
 works of the old company, which pass to the company with which 
 It IS consolidated, subject to the liabilities of the old company, but also- 
 makes the new or surviving company responsible for them. Where 
 two railroad companies unite or become consolidated under the au- 
 thority of law, the presumption is, until the contrary appears, that the. 
 united or consolidated company has all the powers and privileges and 
 is subject to all the restrictions and liabilities of those out of which it- 
 is created. Tomlinson v. Branch, 15 Wall. 460, 21 L. Ed. 189; Ten- 
 nessee V. Whitworth, 117 U. S. 139-147, 6 Sup. Ct. 649, 29 h. Ed.. 
 830. The corporation which is created by such consolidation, or the 
 surviving corporation, where another or others are merged into it or 
 consolidated with it, is ordinarily deemed the same as each of the cor- 
 porations which formed it for the purpose of answering for the lia- 
 bilities of the old corporation, and may be sued under its new name 
 or under the name of the surviving company for their debts as if no- 
 change had been made in the name or in the organization of the 
 original corporations. Jones, Ry. § 415; 1 Thomp. Corp. §§ 372, 373, 
 395; 1 Beach, Priv. Corp. §§ 343, 344; 2 Mor. Priv. Corp. § 955;. 
 Tayl. Priv. Corp. § 666; 4 Am. & Eng. Enc. Law, 272n. 
 
 There has been some question whether the consolidated company 
 could be sued in an action at law for the liabilities of the companies 
 composing it, or whether the proceeding must be in equity; but the 
 better view seems to be that, when a consolidation has been authorized 
 and made, it confers all the rights, property, and franchises of the old 
 company upon the new or consolidated company, and subjects it to 
 all the liabilities of the old companies; and an action at law may be 
 brought against the new or consolidated company for the debts or torts, 
 of the old companies. The question is not whether the consolidation 
 compels a cfeditor to accept the defendant corporation as a new debtor 
 against his will, or a person who has been injured to resort to a stran- 
 ger for satisfaction, but whether it empowers the creditor or the per- 
 son injured to resort, if he desires to do so, in the first instance, to the 
 corporation which by the terras of the consolidation is made liable 
 to him. 
 
 The privity, somcj cases say, necessary to support this action, is cre- 
 ated by the statute authorizing the consolidation and the purchase 
 and conveyance under it. Other authorities place the right to bring 
 such action on the ground that the effect of the consolidation is, as to 
 the liabilities of the old company, not to dissolve the corporation which 
 is the immediate debtor, but to continue its existence in the consoli- 
 dated corporation. 1 Thomp. Corp. §§ 372, 395 ; 1 Beach, Priv. Corp. 
 § 344; 2 Mor. Priv. Corp. § 955; Jones, Ry. §§ 418, 419; Tayl. Priv. 
 Corp. § 666; New Bedford R. Co. v. Old Colony R. Co., 120 Mass. 
 
788 CREDITORS OF THE CORPORATION (Ch. 8 
 
 397; Railroad Co. v. Skidmore, 69 III. 566; Arbuckle v. Railroad 
 Co., 81 111. 429; Railroad Co. v. Boring, 51 Ga. 582; Thompson v. 
 Abbott, 61 Mo. 176; Railroad Co. v. Shirley, 54 Tex. 125; Railroad 
 Co. V. Fryer, 56 Tex. 609; Warren v. Railroad Co., 49 Ala. 582; 
 Field, Corp. § 395; State v. Baltimore & L. R. Co., 77 Md. 489, 26 
 Atl. 865 ; Berry v. Railroad Co., 52 Kan. 774, 36 Pac. 724, 39 Am. 
 St. Rep. 381. 
 
 Since, by authority of law and the act of the parties, the consoli- 
 dated corporations are molded into one with none of their rights im- 
 paired, and none of their responsibilities lessened, there is no good rea- 
 son why the same proceedings may not be had against the new cor- 
 poration as might have been had against the old to compel payment 
 of liabilities. It avoids circuity of action. It allows the party with 
 whom the contract was made or to whom the injury was done to 
 proceed directly against the corporation which, by virtue of the con- 
 solidation proceedings, is made liable for it. 
 
 In this case, as the plaintiff had instituted his action to recover dam- 
 ages from tbe consolidated corporation for the injury alleged to have 
 been done him by the corporation consolidated with it, it was neces- 
 sary for him to allege generally the authority of the old companies to 
 consolidate, and the fact that they had consolidated, and under what 
 name, in order to show the liability of the new or consolidated corpo- 
 ration for the injury sued for. 1 Thomp. Corp. § 406. 
 
 The declaration states a good cause of action, not only against the 
 Richmond Railway Company, known also as the Richmond City Rail- 
 way Company, but also against the Richmond Railway & Electric 
 Company. To this there can be no objection, as it was necessary to 
 state a good cause of action against both the Richmond City Railway 
 Company and the Richmond Railway & Electric Company; otherwise 
 there could bfe no recovery against, the last-named company, since its 
 liability depends upon the liability of the Richmond City Railway Com- 
 pany. But the defect in the declaration is in joining them as defend- 
 ants. They are not jointly liable. One is liable, for committing the 
 alleged injury; the other is liable by reason of the consolidation pro- 
 ceedings. The plaintiff has the right to sue either for the injuty al- 
 leged to have been done, but has no right to sue both in the same 
 action at law. If an action at law be brought against two or more 
 persons, it must appear from the declaration that the contract or tort 
 upon which it is brovight is a joint contract or a joint tort. 2 Tuck. 
 208,. 214, 226. It was held in Sanders v. Clason, 13 Minn. 379 (Gil. 
 352), that "a cause of action against a defendant for the value of goods 
 sold and delivered and a cause of action against a third person on the 
 promise to such defendant to pay said debt to the plaintiff are improp- 
 eHy joined, and the complaint is bad on demurrer." 
 
 In this case it was necessary to state a good cause of action against 
 the Richmond City Railway Company in ordel: to state a good case 
 against the Richmond Railway & Electric Company, If the plaintiff 
 
Sec. 4) CEBBITOBS' RIGHTS AS AFFECTED BY DISSOLUTION 789 
 
 had only instituted his action against the last-named company, there 
 would have been no misjoinder of causes of action; but as he made 
 both corporations parties to the action, and the declaration states a 
 good cause of action against each, there is a misjoinder of causes of 
 action and of parties. 
 
 On these grounds, it was proper for the trial court to sustain the 
 demurrer to the declaration, and its judgment must be affirmed. 
 
 Affirmed." 
 
 SECTION 4.— CREDITORS' RIGHTS AS AFFECTED BY 
 DISSOEUTION 
 
 GREEEEY v. SMITH et al: 
 
 (Circuit (3ourt of the United States, District of Maine, 1845. 3 Story, 657, 
 
 Fed. Cas. No. 5,748.) 
 
 This was an action at law by Philip Greeley and others against 
 Joseph Smith and the Exchange Bank. 
 
 This case was formerly before the court upo;n a plea to the juris- 
 diction, which having been overruled. Rand for the defendlants sug- 
 gested, that by an act of the legislature of Maine, passed on the 7th of 
 
 , 1840, the surrender of its charter by the Exchange Bank (one 
 
 of the defendants,) was accepted, and thereupon it was declared, "that 
 the same shall terminate when the act shall take effect;" and it was 
 further enacted, that "the bank shall continue its corporate capacity 
 during the term of two years from the time this act shall take effect, 
 for the sole purpose of collecting the debts due to the corporation, 
 selling and conveying the property, and estate thereof, and shall re- 
 main liable for the payment of all debts due from the same, and shall 
 be capable of prosecuting and defending suits at law, and for choos- 
 ing directors for the purposes aforesaid, and for closing its concerns." 
 The act took effect from and after the sixth of April, 1840 ; and the 
 two years expired after the sixth of April, 1842. The question, there- 
 fore, was, whether the suit could be further continued as to the Ex- 
 change Bank, and what was to be done, as to future' proceedings. 
 
 Story, Circuit Justice. The question comes shortly to this, that, 
 (luring the pendency of the suit, the corporation becomes extinct by a 
 voluntary surrender of its charter, and an acceptance of the surrender . 
 by the legislature. Under such circumstances it is asked, what is to 
 be done, the corporation being defunct by operation of law? It was 
 
 84 Compare Atlantic & Birmingliam Ry. Co. v. Johnson, 127 Ga. 392, 56 
 
 5 E 482 11 L. R. A. (N. S.) 1119 (1906); Morrison v. American Snuff Co., 
 79 Miss. 330, 30 South. 723, 89 Am. St. Rep. 598 (1901); Prouty v. L. S. & 
 Mich. S. Ry. Co., 52 N. Y. 363 (1873) ; National Bank v. Wilmington N. C. 
 
 6 S. Ry. Co. (Del. Cli.) 81 Atl. 70 (1911). 
 
7&0 CREDITORS OF THE CORPORATION (Ch. 8 
 
 certainly a very unwise act for the legislature to accept a surrender 
 of the charter, and not at the same time to save the rights of action 
 of third! persons against the corporation, and to continue the exist- 
 ence of the corporation quoad such rights. - But the same case would 
 have occurred, if upon a quo warranto a final judgment had passed 
 against the corporation, declaring its franchises and privileges forfeited, 
 and decreeing a seizure and resumption of the same by the govern- 
 ment. Many of our banks are, by law, limited to a term of years for 
 their corporate existence,- and if there is no saving when thg term 
 expires, the corporation is de flacto dead. Now I cannot distinguish 
 between the case of a corporation and the case of a privat^ person, 
 dying pendente lite. In the latter case, the suit is abated at law, un- 
 less it is capable of being revived by the enactments of some statute, as 
 is the case as to suits pending in the courts of the United States, where, 
 if the right of action survives, the personal representative of the de- 
 ceased party may appear, and prosecute or tiefend the suit. Judiciary 
 Act 1789, c. 20, § 31 [1 Stat.' 91] ; 2,Tidd, Pr. ~(9th Ed. 1828) 932; 
 Com. Dig. "Abatement," H. 32-35. No such provision exists as to 
 corporations; nor, indeed, could exist, without reviving the corpora- 
 tion pro hac vice; and therefore, any suit pending against it at its 
 death abates by mere operation of law. It seems to me, therefore, 
 that the attorney for the corporation may well suggest the death of 
 the corporation by plea or otherwise on the record, and if the fact is 
 admitted, the suit as to the corporation will abate by operation of law, 
 and render all farther proceedings against it void.'" 
 
 MUMMA v. POTOMAC CO. 
 (Supreme Court of the United States, 1834. 8 Pet. 281, 8 L. Ed. 945.) 
 
 Story, J. This is a writ of error to the circuit court of the District 
 of Columbia, for the county of Washington. The case presented on 
 the record is shortly this. 
 
 The plaintiff in error, Mumma, in June 1818, recovered a judgment 
 against the Potomac Company, for the sum of $5,000. No steps were 
 taken to enforce the payment of the judgment, nor any further pro- 
 ceedings had in relation thereto, until the 18th day of April, 1828, on 
 which day a writ of scire facias was issued, from the clerk's office of 
 said court, against the said Potomac Company to revive said judgment, 
 which case was continued, by consent of parties, from term to term, 
 until December term of said court in the year 1830, at which term the 
 following plea and statement were filed by consent of parties : "The 
 attorneys upon the record of the said defendants, now here suggest 
 andl show to the court, that since the rendition and record of said 
 
 3 5 Compare Piatt v. Archer, 9 Blatchf. 559, Fed. Cas. No. 11.213 (1872); 
 Fisk V. Union Pac. R. Co., 10 Blatchf. 518, Fed. Cas. No. 4,830 (1873). 
 
Sec. 4) CEEDITORS' EIGHTS AS AFFECTED BY DISSOLUTION 7§1 
 
 judgment, the said Potomac Company, in due pursuance and execu- 
 tion of the provisions of the charter of the Chesapeake and Ohio Canal 
 Company, enacted by the States of Maryland and Virgini'a, and by the 
 Congress of the United State's, have duly signified their assent to said 
 charter, etc., and have duly surrendered their charter, and conveyed, 
 in due form of law, to the said Chesapeake and Ohio Canal Company, 
 all the property, rights, and privileges by them owned, possessed, and 
 enjoyed under the same; which surrender and transfer from said 
 Potomac Company have been duly accepted by the Chesapeake and 
 Ohio Canal Company, as appears by the corporate acts and proceedings 
 of said company, and the final deed of surrender from the said Poto- 
 mac Company dated on the 15th day of August, 1828, diily executed 
 and recorded in the several counties of the States of Virginia and 
 Maryland, and the District of Columbia, wherein said Potomac Com- 
 pany held any lands, and wherein the canals and works of said com- 
 pany were situated; which said corporate acts and proceedings, the 
 said attorneys here bring into court, etc., whereby the said attorneys 
 say, the charter of the said Potomac Company became, and is vacated 
 and annulled, and the company and the corporate franchises of the 
 same are extinct, etc." 
 
 Whereupon the following statement and agreement were entered 
 into and signed by the counsel for both parties, and made a part of 
 the record. 
 
 "The truth of the above suggestion is admitted; and it is agreed 
 to be submitted! to the court, whether, under such circumstances, any 
 judgment can be rendered against the Potomac Company upon this 
 scire facias, reviving the judgment in said writ mentioned, and that 
 reference for the said corporate acts and proceedings, and the deed 
 in the above suggestion mentioned), be had to the printed collection of 
 acts, etc., etc., printed and published by authority of the president and 
 directors of the Chesapeake and Ohio Canal Company in 1828." 
 
 Upon this statement and agreement, the circuit court gave judg- 
 ment, that the plaintiff take nothing by his writ; and the question 
 now is, whether this judgment is warranted by law. 
 
 Two points have been made at the bar. 1. That the corporate exist- 
 ence of the Potomac Company was not so totally destroyed by the 
 operation of the deed of surrender, as to defeat the rights and rem- 
 edies of the creditors of the company. 2. That the deed of surrender 
 violates the obligation of the contracts of the company, and that the 
 legislative acts of Virginia and Maryland, though confirmed by the 
 Congress of the United States, are on this account void; and can have 
 no legal effect. 
 
 We think, that the agreement of the parties completely covers the 
 first point, and precludes any examination of it. That agreement 
 admits the truth of the suggestions in the plea of the attorneys for 
 the Potomac Company; and by that it is averred, that the charter of 
 the Potomac Company was duly surrendered to the Chesapeake and 
 
792 CREDITOES OF THE COEPOEATION (Ch. 8 
 
 Ohio Canal Company, and was duly accepted by the latter; and that 
 thereby the charter of the Potomac Company became, and is, vacated 
 and annulled! And, if we were at liberty to consider the last aver- 
 ment, not as an averment of a fact, but of a conclusion of law, the 
 same result would follow ; for the 13th section of the Act of Virginia, 
 of January, 1824, incorporating the Chesapeake and Ohio Canal Com- 
 pany, declares, that upon such surrender and acceptance, "the charter 
 of the Potomac Company shall be, and the same is hereby vacated and 
 annulled ; and all the powers and rights thereby granted to the Poto- 
 mac Company shall be vested in the company hereby incorporated." 
 
 Unless, then, the second! point can* be maintained, there is an end 
 of the cause; for there is no pretence to say, that a scire facias can 
 be maintained, and a judgment had thereon, against a dead corpora- 
 tion, any more than against a dead man. We are of opinion, that 
 the dissolution of the corporation, under the acts of Virginia and 
 Maryland (even supposing the act of confirmation of Congress out of 
 the way), cannot, in any just sense, be considered, within the clause 
 of the Constitution of the United States on this subject, an impairing 
 of the obligation of the contracts of the company by those States, any 
 more than the death of a private person can be said to impair the 
 obligation of his contracts. The obligation of those contracts sur- 
 vives; and the creditors may enforce their claims against any prop- 
 erty belonging to the corporation, which has not passed into the 
 hands of bona fide purchasers ; but is still held in trust for the com- 
 pany, or for the stockholders thereof, at the time of its dissolution, 
 in any mode permitted by the local laws. 
 
 Besides, the 12th section of the act incorporating the Chesapeake 
 and Ohio Canal Company, makes it the duty of the president and di- 
 rectors of that company, so long as there shall be and remain any cred- 
 itor of the Potomac Company who shall not have vested his demand 
 against the same in the stock of the Chesapeake and Ohio Canal (Com- 
 pany (which the act enables him to do), to pay to such creditor or cred- 
 itors, annually, such dividend or proportion of the net amount of the 
 revenues of the Potomac Company, on an average of the last five years 
 preceding the organization of the said Chesapeake and Ohio Canal 
 Company, as the demand of -the said creditor or creditors, at that time, 
 may bear to the whole debt of $175,800 (the supposed aggregate amount 
 of the debts of the Potomac Company). So that here is provided an 
 equitable mode of distributing the assets of the company among its 
 creditors, by an apportionment of its revenues, in the only mode in 
 which it could be practically done upon its dissolution; a mode 
 analogous to the distribution of the assets of a deceased insolvent 
 debtor. 
 
 Independently of this view of the matter, it would be extremely 
 difficult to maintain the doctrine contended for by the plaintiff in 
 error, upon general principles. A corporation, by the very terms and 
 nature of its political existence, is subject to dissolution, by a sur- 
 
Sec. 5) EIGHTS AGAINST STOCKHOLDERS 793 
 
 render of its corporate franchises, and by a forfeiture of them for 
 wilful misuser and non-user. Every creditor must be presumed to 
 understand the nature arid incidents of such a body politic, and to 
 contract with reference to them.- And it would be a doctrine new 
 in the law, that the existence of a private contract of the corpora- 
 tion should force upon it a perpetuity of existence contrary to public 
 policy, and the nature and objects of its charter. 
 
 Without going more at large into the subject, we are of opinion 
 that the judgment of the circuit court ought to be affirmed. But as 
 there is no such corporation in esse as the Potomac • Company, there 
 can be no costs awarded to it. ^ 
 
 This cause came on to be heard, on the transcript of the record 
 from the circuit court of the United States for the District of Colum- 
 bia, holden in and for the county of Washington, and! was argued by 
 counsel ; on consideration whereof, it is ordered and adjudged by this 
 court, that the judgment of the said circuit court in this, cause be and 
 the same is hereby affirmed! without costs.^* 
 
 SECTION 5.— CREDITORS' RIGHTS AGAINST STOCKHOLD- 
 ERS AND THEIR TRANSFEREES 
 
 , ; I. At Common Law 
 
 PROCESS AGAINST CORPORATIONS. (B, a.) 
 (6 Vln. Abr. 310.) 
 
 1. Debt was brought against the Society of Lumbard Merchants 
 of Florence, and the sheriff distrained 2 Lumbards, who came in 
 person, and prayed their appearance to be recorded to save their 
 issues as distinct persons, but not as of the Society of Lumbards, & 
 ideo non allocature, but that they shall be put to their remedly against 
 the . Sheriff of London, by a general action of trespass ; for where a 
 corporation is impleaded, they ought not to distrain any private per- 
 son.; quod nota. Br. Trespass, pi. 135. cites 19 H. 6. 80. 
 
 2. Upon a dismission of a bill in Chancery, and that dismission en- 
 rolled an appeal was to the Lords, setting forth that in the ordinary 
 course of proceedings the Chancery couldl not relieve the plaintiff 
 against the defendants, they being a company and served with process 
 would not appear, they having nothing to be distrained by. The de- 
 fendants being so many of the members of the company as were par- 
 ticularly named, did put in an answer, plea, and demurrer and the 
 company, though often summoned, did not appear. Their Lordships 
 
 86 compare Curran v. State of Arkansas, 15 How. 304, 14 U Ed. 705 (1853). 
 
794 CREDITORS OF THE CORPORATION (Ch. 8 
 
 ordered, that the dismission stand reversed, and that the Lord Chan- 
 cellor &c. retain the bill, and that the Court of Chancery shall issue 
 forth usual process of that court, and if cause be,process_of distringas 
 thereupon against the said corporation, provided the said process be 
 served one month before the return thereof ; and if upon return of the 
 said process the said corporation shall not file an appearance, or shall 
 appear and not, answer, the said bill shall be taken pro confesso, and 
 a decree shall thereupon pass. But in case the said corporation shall 
 appear and answer within the time aforesaid then the Court of Chan- 
 cery shall proceed to examine what the plaintiff's just debt is, and shall 
 decree the said company to pay so much money as the same shall ap- 
 pear to amount unto, with reasonable damages. And in case the cor- 
 poration shall not pay the sum decreed within 90 days after the service 
 of the said decree upon their governor, deputy governor, treasurer, 
 clerk, or secretary for the time being, then the Lord Chancellor, or 
 Lord Keeper fdr the time being, shall order and decree, that the gover- 
 nor, or deputy-governor, and the 24 assistants of the said company, 
 or so many of them as by the tenor of their charter do constitute a 
 quorum for the making of leviations upon the trade or members of 
 the said company, shall within such time, as by the Lord Chancellor 
 or Keeper shall be thought fit, make such a leviation upon every 
 member of the said company as is to be contributary to the publick 
 charge, as shall be sufficient to satisfy the said sum to be decreed to- 
 the plainti^ in that cause, and to collect and levy the sanje, and to pay 
 it over to the plaintiff as the Court shall direct ; and such a leviation 
 is to be put in writing, and signed with the hand of the governor, 
 deputy-governor, and assistants of the aforesaid company for the 
 time being, and so many of them, as by the constitution, of the said 
 charter, do make a quorum, shall not make or return such leviations- 
 as aforesaid, the Lord Chancellor, or Lord Keeper, may issue process 
 of contempt against them, as is" usual against persons in their natural 
 capacity; and if by the said time so to be limited by the said Court 
 of Chancery, the said money so to be assessed, shall not be paid, then, 
 and from thenceforth, every person of the said company upon whom 
 such a leviation shall be made to be liable in his capacity to pay his quota 
 or proportion assessed ; and the Lord Chancellor, or Lord Keeper, is to- 
 order or decree, that such process shall issue against any such menjber 
 so refusing or delaying to pay his quota or proportion, as is usual against 
 persons charged by the decree of the said Court for any duty in their 
 several capacities ; and if the total so returned) and filed with the reg- 
 ister, shall not amount to so much as shall be sufficient to satisfy the 
 sum decreed, with respect had to such persons as shall make it ap- 
 pear that they are overcharged, or ought not to be charged at all, then 
 the said Lord Chancellor, or Lord Keeper for the time being, may 
 from time to time order that a new leviation be made and' returned into 
 the registers of the Court of Chancery, of such sum as shall be suffi- 
 cient by way of supplement for that purpose, to the payment whereof 
 
^^^- ^) RIGHTS AGAINST ST0CKH0LDBE3 795 
 
 every individual person is to be bound in such manner as aforesaid. 
 Chan. Cases 206, 207, Trin. 23 Car. 2 Dr. Salmon v. the Hamborough 
 Company." *• 
 
 ADLER V. MILWAUKEE PATENT BRICK MFG. CO. 
 (Supreme Court of Wisconsin, 1860. 13 Wis. 57.) 
 
 Appeal from the Circuit Court for Milwaukee County. 
 
 The complaint in this action (which was commenced in June, 1858) 
 alleged that the Milwaukee Patent Brick Manufacturing Company was 
 organized in 1855, under an act of the legislature; that the other de- 
 fendants became subscribers to its capital stock in certain amounts; 
 that the company went into business in 1855, and continued therein 
 until June, 1857, when it became insolvent, having ceased its business 
 and relinquished its organization; that on, etc., the plaintiff obtained 
 a judgment in the county court of Milwaujkee county against the com- 
 pany for $1,862 ; that an execution was issued thereon to the sheriff of 
 said county, and returned wholly unsatisfied; that said company had 
 no property whatever ; that the co-defendants of the company had not 
 paid more than ten per cent, of the capital stock subscribed by them 
 respectively ; that two of said co-defendants, and perhaps others of 
 them were insolvent ; and that there were other creditors of the com- 
 pany beside the plaintiff, whose demands were unpaid; wherefore the 
 plaintiff prayed that an account might be taken 6f what was due from 
 said company to all persons ^ho might elect to come in as creditors 
 thereof under the judgment in this action ; that an account might also 
 be taken of the amounts respectively paid by the several co-defendants 
 of the company upon their subscriptions to its stock, and of 'the 
 amounts yet unpaid thereon ; that it might be ascertained who, if any, 
 of said defendants were insolvent; that said co-defendants might be 
 decreed to pay so much of the balance found unpaid on their respective 
 stock subscriptions as "would be sufficient to pay the debts of the com- 
 pany when so ascertained ; and that a receiver might be appointed, &c. 
 The defendants answered. 
 
 When the case canje on for trial, the defendants moved to dismiss 
 the complaint for want of jurisdiction, and because the complaint did 
 not state facts sufficient to constitute a cause of action ; and the court 
 made an order dismissing the complaint,- from which the plaintiff ap- 
 pealed. 
 
 Dixon, C. J.'* It would be much against reason and common jus- 
 tice, if the stockholders of an incorporated company, like the principal 
 defendant in this action, after having paid in the amount of their 
 stock subscriptions according to the requirements of its charter, should 
 
 37 See Doctor Salmon v. Hamborough Company, Cases in Chancery, 204 
 <1671); High tower v. Thornton, 8 Ga. 486, 52 Am. Dec. 412 (1850). 
 
 88 A part of the opinion dealing with a statutory question is omitted. 
 
79G CEEDITOES OF THE CORPORATION (Ch. 8 
 
 be permitted afterwards, and without first discharging the liabilities of 
 such company to the extent of such subscriptions, to withdraw thei'r 
 stock and leave its creditors unsatisfied. It .would be equally con- 
 trary to the plainest principles of law and equity, as well as common 
 sense, after having subscribed the requisite amount of stock to give the 
 corporation a legal existence, though the same should remain in whole 
 or in part unpaid, and after having organized it, to allow them through 
 their own or the willful neglect and dishonest practices of its officers 
 to refuse to pay in so much of such unpaid stock as may be necessary 
 to discharge the fair and just debts due from the company, and 
 which have been contracted on the foundation of such subscription 
 and organization. The stockholders being in general free from per- 
 sonal responsibility, the capital stock constitutes the sole fund to 
 which creditors look for the liquidation of their demands. It is the 
 basis of the credit which is extended to the corporation by the public, 
 and a substitute for the individual liability which exists in other cases. 
 So far as creditors are concerned, it is regarded in the law as a trust 
 fund, pledged for the payment of the debts of the corporation. Until 
 they are paid the stockholders are postponed; they are only entitled 
 to that which remains after the claims of the creditors are extinguished. 
 
 This is as true of the unpaid shares subscribed, or balances due 
 thereon, as of the amount which has actually been paid in. Such un- 
 paid shares or balances are as much a part of the capital stock as the 
 sums which have already been realized thereon. Aside from the 
 funds dn hand, they often constitute the only resource of the company. 
 They are debts due to it, the payment jof which can be enforced by its 
 officers. The delinquent subscribers are its debtors, jand the directors 
 are clothed with authority to compel them to pay. When the company 
 is indebted, and other means of meeting its liabilities are exhausted, the 
 exercise of this authority becomes a duty which they are under* the 
 highest moral obligation' to perform. Creditors are supposed to have 
 trusted as well to such unpaid subscriptions, and to the fair and faith- 
 ful exercise of such compulsory power, for their payment, as to the 
 funds actually paid in; and wheij it becomes necessary to their se- 
 curity or satisfaction, they have; a legal right, either by the voluntary 
 action of the proper officers, or through the aid of the courts of the 
 country, to such exercise of it. If, therefore, by the willful or stub- 
 born inaction of the directors or stockholders, the company fails to 
 meet jts obligations and perform its duties, a court of equity will, on 
 a proper application, afford the requisite relief. 
 
 The following authorities cited by the counsel for the appellant 
 clearly establish that, at the common law and without any statutory au- 
 thority for that purpose, and as a sort of distinct exercise of equitable 
 jurisprudence, courts of chancery will grant relief in such cases. They 
 are Spear v. Grant, 16 Mass. 9; Vose v. Grant, 15 Mass. 505; Wood 
 V. Dummer, 3 Mason, 308, Fed. Cas. No. 17,944; Ward v. Griswold- 
 ville Mfg. Co., 16 Conn. 593; Mann v. Pentz, 3 N. Y. 415; Nathan 
 
^^^- ^) BIGHTS AGAINST STOCKHOLDERS 797 
 
 v^ Whitlock, 9 Paige (N. Y.) 152; Henry v. V. & A. R. R. Co., 17 
 Ohio, 187; and Ogilvie v. Knox Ins. Co., 22 How. 380, 16 L. Ed. 349. 
 These authorities also sustain the general principle above stated. 
 
 Such actions, when prosecuted independently of any statutory pro- 
 vision, are sustained on the ground that the capital stock, being a 
 trust fund, m*y be followed by the creditors and others having an 
 interest in the proper application- of it, into the hands of third per- 
 sons having notice of the trust attaching to it; and that stockholders, 
 whether, delinquent or withdrawing are always, both in law and fact, 
 affected with such notice. The rights of creditors being superior, and 
 partaking somewhat of the character of a lien, equity will regard 
 and work them out by the same means by which the corporation itself 
 should have done so. Such actions are also in many respects like an 
 ordinary creditor's suit, but on account of the peculiar nature of the 
 trusts to be ^enforced, I am inclined to agree with counsel that, at least 
 as against stockholders, they might still be maintained, though the 
 creditor's bill should be abolished by statute. 
 
 The practice in such case, in those states where the mode of closing 
 up the affairs of non-paying and insolvent corporations, and of dis- 
 tributing the proceeds of their property and effects among their cred- 
 itors is governed by the common law, is, as indicated by the authori- 
 ties ■ to which reference has been made, precisely that which was 
 adopted by the appellant in this case. The creditor is first to estab- 
 lish his claim by judgment at law, and then, after execution issued and 
 returned in whole or in part unsatisfied, he may file his bill in his 
 own behalf and in behalf of such other creditors of the corporation as 
 may elect to become parties thereto, against the corporation and its 
 delinquent or withdrawing stockholders, alleging the recovery and 
 non-payment of his judgment, and praying the decree or order of the 
 court that an account of the assets and debts be taken, and a receiver 
 be appointed, and that the stockholders and officers pay in and account 
 to the receiver for so much of th^ capital stock as will be sufficient to 
 • pay the debt of the plaintiff, and those of such other creditors as may 
 choose to join him and come in under the decree; and that the re- 
 ceiver be directed to apply the same in discharge thereof. Whether in 
 those cases where the stockholders are not individually liable by law 
 for the debts of the corporation one creditor can, by superior diligence, 
 acquire a preference over the other creditors, beyond that which might 
 result from 'his judgment becoming a lien on specific property, or his 
 having otherwise obtained a higher security at lawj does not distinct- 
 ly appear. , 
 
 But the conclusion from the cases and the general doctrines_of courts 
 of equity, is, I think, that he cannot, and that when he is obliged to 
 seek the aid of those courts for the enforcement of his demand, he 
 must do so for the benefit of all other creditors who may desire to 
 unite with him; and that all must share alike, in proportion to the 
 amount of their respective claims, in the funds which may be realized 
 
798 CEBDITOES OF THE COEPOEATION (Ch. 8 
 
 by the proceeding. The maxim of the law in like cases is, that equality 
 IS equity; and certainly no case more appropriate for its application 
 ■could be imagined. I conclude, therefore, and the authorities clearly 
 'tend to si ow, that such is the practice. 
 
 The authorities likewise show that in such actions, unless it be im- 
 possible or impracticable, all the stockholders must be. made parties. 
 This is required in order to enable the court to do complete justice 
 between the stockholders themselves, and so that no one of them may 
 be compelled to pay more than his due proportion, and that all alike 
 may be obliged, according to the number of their respective shares and 
 their pecuniary ability, to contribute toward the losses which the 
 company may have sustained. For it would be manifestly wrong and 
 unjust to allow the creditors to select one or more of the stockholders 
 and compel them to submit to burdens from which the other share- 
 holders, though equally bound, are exonerated. Hence the sharehold- 
 ing defendants have the right, unless some good reason for the omis- 
 sion be shown, to insist on all other shareholders being parties also. 
 
 From this view of the general powers of the courts of equity to man- 
 age and control the affairs of failing and bankrupt corporations, it 
 becomes a matter of very little practical importance whether sections 
 6 and 7 of chapter 114, R. S., 1849, which were in force when this 
 suit was instituted, and which are now found as sections 18 and 19 
 of chapter 148 of the revision of 1858, are held to be operative or not. 
 If operative, they are in affirmance of the law as it was previously un- 
 derstood; if inoperative, no substantial change is occasioned. * * * 
 
 The order of the circuit court dismissing the complaint, must there- 
 fore be reversed, and the cause be remanded for further proceedings in 
 accordance with this opinion. '° 
 
 CLAPP et al. v. PETERSON. 
 
 (Supreme Court of Illinois, 1882. 104 111. 26.) 
 
 Sheldon, J." By the will of her step-son, P. W. Bonner, who died 
 in July, 1870, appellee, Georgie H. Peterson, a resident of the State of 
 New York, became owner of all personal property left by said Bon- 
 ner, and in September, 1870, on application made to her in New York, 
 she sold all said property to the Illinois Land and Loan Company. On' 
 November 20, 1874, she filed her bill against said company to set aside 
 such sale, and for other relief in respect thereto, on the ground that 
 she had been induced to make the sale through the fraudulent mis- 
 representations of the company, for an inadequate consideration, and 
 on May 1, 1877, she obtained in the suit a monpy decree against the 
 
 so Compare Hodges & Wilson v. Silver Hill Miniifg Co., 9 Or. 200 (1881). 
 *» A part of the opinion is omitted. 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDERS 799 
 
 company, for $5653.33. An execution issued upon the decree having 
 been returned nulla bona, Mrs. Peterson, on September 18, 1879, filed 
 her bill in chancery in the present case, to subject property in the hands 
 of Caleb Clapp to the payment of this decree. A decree was entered 
 in her favor granting the relief sought, which on appeal to the Appel- 
 late Court for the First District, was affirmed, and the present appeal 
 taken to this court. 
 
 It appears that the Illinois Land and Loan Company was chartered 
 by an act of the Legislature in 1867, with a c-apital stock of $100,000, 
 with 1,000 shares of $100 each, all of which waS paid in. Caleb Clapp, 
 a non-resident of the State, was a stockholder in the company, and in 
 January, 1874, he surrendered to the company 555 shares of stock, in 
 consideration of which the company executed to him a deed of war- 
 ranty of two lots in Chicago, one of the value of $50,000, and the other 
 of the value of $5,500, that amount being the consideration stated in 
 the deed. The stock was canceled, and was considered, at the time, 
 of par value. Mr. Clapp continued to be till his death, and his estate 
 still is, the owner of the lots. It is these lots which are sought to be 
 
 subjected to the payment of said money decree against the company. 
 * * * 
 
 The shareholders of a corporation are conclusively charged with 
 notice of the trust character which attaches to its capital stock. As 
 to it they cannot occupy the status of innocent purchasers, but they 
 are to all intents and purposes privies to the trust. When, therefore, 
 they have in their hands any of this trust fund, they hold it cum 
 onere, subject to all the equities which attach to it. Thompson's Lia- 
 bility of Stockholders, § 13; Wood v. Dummer, 3 Mason, 312, Fed. 
 Cas. No. 17,944. 
 
 ^It is objected, against the principles above stated, that the cases in 
 which they were declared were where there was actual or constructive 
 fraud or unfairness, where the corporations were insolvent, or in pro- 
 cess of being wound up. The question naturally would arise mostly 
 in such circumstances, but the principles enunciated are general in 
 scope, following from the nature of the capital stock of corporations, 
 and the relation of a stockholder to the corporation, and we know 
 of no limitation of their application as above suggested, or reason 
 for denial of their full applicability to the present case. Indeed, we do 
 not understand appellants' counsel as asserting the validity of the pur- 
 chase, or reduction by a corporation, of its stock, where it should, di- 
 rectly appear that it was an injury to its creditors. But it is denied 
 that there was any such injury in this case. 
 
 It is said, first, the company actually owed no one at the time, and 
 even if it did, as the bill admits that the shares at the time of the ex- 
 change were valued at par, and worth full purported value, it follows 
 from the stock being worth its par value, as a matter of course, that the 
 company was then entirely solvent, and had assets sufficient to dis- 
 charge all its debts, if it had any debts, and also to pay the stock in 
 
800 CREDITORS OP THE CORPORATION (Ch. 8 
 
 full, — that under no other circumstances could the admission of the 
 bill be true. There was no proof as to the condition of the company, 
 or the value of the stock, save the testimony of the secretary of the 
 company that at the time of the deed to Clapp the stock in the com- 
 pany was at par value technically, — ^that he did not know what the 
 market value was, and did not know that it had any market value. 
 The admission of the bill was the simple fact that the stock was at par. 
 The complainant, of course, knew nothing as to what made the stock 
 at par. But if the stock was at par, in so rating it this indebtedness to 
 appellee could not have been taken into account. It was supposed, of 
 course, the purchase of personal property, which had been made of ap- 
 pellee, would stand, and that there was no liability on account of it. 
 If, then, the stock was just at par, not considering appellee's claim 
 with, that claim recognized, the assets would have failed to pay the 
 indebtedness of the company by the amount of her claim, to wit, 
 $5,653.33, and to that amount the company was insolvent. 
 
 It is insisted that this exchange of corporate property for stock 
 was unassailable by any one, because it was an exchange of equal 
 values; the lots being worth $55,500, and the shares of stock being 
 worth $55,500, there was equal value received, and there could be 
 harm to no one. This cannot be so, as respects creditors. Suppose 
 all the remaining property of the company had been one other lot 
 worth $44,500, and the company had made a like exchange with an- 
 other stockholder of that lot for the remaining 445 shares of stock, 
 and cancelled the stock, what would there have been left to pay cred- 
 itors? The partial exchange which was made affected the rights of 
 creditors in a like way, only to a less extent. It is not as if there 
 had been an exchange made with Clapp of these lots for other real 
 property of equal value, or as if there had been a sale to him for 
 $55,000 in money. In such case a substitute would have been fur- 
 nished to the company to which creditors might have had recourse 
 for payment of their debts. But the exchange of corporate' property 
 for shares of stock, and cancelling the stock, furnishes no equivalent 
 for creditors. 
 
 Although the money decree in favor of appellee was not obtained 
 until in 1877, > some time after Clapp's purchase, yet the cause of ac- 
 tion of appellee against the company (the fraudulent purchase of the 
 personal property from her) arose in September, 1870, which was be- 
 fore the purchase by Clapp, that being in January, 1874, so that at the 
 time of Clapp's purchase appellee must be regarded as being a creditor 
 of the company. i 
 
 We can but regard the transaction in question, of the exchange of 
 stock for the lots and the cancellation of the stock, as a withdrawal by 
 the stockholder of his share of the capital stock, leaving appellee's 
 debt against the company unpaid ; that the transaction was to the in- 
 jury of appellee as a creditor; that the property taken by Clapp stood 
 charged with a trust for the payment of appellee's claim ; that Clapp 
 
Sec* 5) RIGHTS AGAINST STOCKHOLDERS 801 
 
 cannot be held to be an innocent purchaser, and that the property in 
 his hands is aflfected with the trust, and appellee may pursue the prop- 
 erty and subject it to the satisfaction of her debt. 
 
 It is insisted there was such laches here on the part of appellee in 
 lying by for so long a time before the purchase by Clapp, taking no 
 steps to disaffirm the fraudulent purchase from her, as should estop 
 her from resort to this property in the hands of Clapp. Had appellee 
 known of the fraud upon her, or should have known of it in the exer- 
 cise of reasonable diligence, there would have been force in this posi- 
 tion; but the bill alleges that on the discovery of the fraud appellee 
 filed her former bill to set aside the fraudulent sale, and if such was 
 the fact no laches would be imputable to her. Appellee's residence 
 in a distant State would be a circumstance which would go to account 
 for not sooner discovering the alleged fraud. We are not prepared 
 to say that there was such laches here as should disentitle to the re- 
 lief sought. 
 
 It is said that appellee's decree against the company was rendered, 
 as well as the suit commenced, aiter Clapp had ceased to be a mem- 
 ber of the company, and not being a party to the suit he should not be 
 bound by the decree against the company, and that as against him 
 the decree should not be taken as evidence' of the alleged fraudulent 
 purchase by the company from appellee. We think Clapp took the 
 property affected with all equities as against the company, and sub- 
 ject to the equity of being charged with whatever prior claim, might 
 be established as against the company, and the decree is the highest 
 evidence of an indebtedness by the company. 
 
 It is finally urged that at least the decree is erroneous in holding 
 the property received by Clapp to be chargeable with the whole debt, 
 instead of a share of it, in the proportion his stock bore to the whole 
 capital stock. As among the stockholders such a pro rata decree 
 would have been equitable. But in such a case as this, of a judg- 
 ment creditor, after return of an execution against the company un- 
 satisfied, seeking in a court of equity to reach certain specific property 
 once belonging to the company, as charged with a trust for the pay- 
 ment of his diebt, he may pursue the property into whosesoever hands 
 he may find it, where it stands affected with the trust, and subject 
 it to the satisfaction of his debt, and he is not obliged to attend to 
 adjusting the equities between the 'stockholders. We regard the fol- 
 lowing authorities as fully warranting this, and the form of the decree 
 in this respect; Bartlett v. Drew, 57 N. Y. 587; Marsh v. Burroughs, 
 1 Woods, 463, Fed. Cas. No. 9,112; Hatch v. Dana, 101 U. S. 205, 
 
 25 L. Ed. 885. 
 
 The judgment of the Appellate Court will be affirmed. Judgment 
 
 affirmed.*^ 
 
 41 Compare McDonald v. Williams, 1T4 U. S. 397, 19 Sup. Ct. 743, 43 L. 
 Ed 1022 (1898); Reid v. Eatonton Mfg. Co., 40 Ga. 98 (1869); IiLre Mercan- 
 tUe Trading Co., L. R. 4 Ch. App. 475 (1869). 
 
 ElCH.COBP. — 51 
 
802 CBBDITORS OF THE COBPOEATION (Ch. 8 
 
 In re" IMPERIAL LAND CO. OF MARSEILLES. 
 
 Ex parte JEAFFRESON. 
 
 (Court of Cbancery, 1870. L. E. 11 Eq. Cas. 109.) 
 
 , This was a summons that an order of the 14th of May, 187f), where- 
 by Mr. Jeaffreson was required to pay £243. 2s. 4d. to the Hquidators 
 of the Imperial Land Company of Marseilles, Limited, might be dis- 
 charged, or that the execution thereof might be stayed, and that the 
 liquidators of the company might be directed to treat the sixty-four 
 shares of the applicant in the company as paid up to the extent of 
 £896., and that no further call might be made t-hereon until it should 
 be right and proper to do so, regard being had to such direction. 
 
 The case was selected as representative of one of a large class of the 
 shareholders in the company. * * * *2 
 
 Sir R. Malins, V. C. This is a somewhat complicated case, and 
 I was for some time impressed, with the arguments on behalf of Mr. 
 Jeaffreson ; but on consideration of all the facts and documents before 
 me, I am obliged to decide against him. 
 
 The facts are shortly as follows: The company was formed early 
 in 1866; and Mr. Jeaffreson took sixty- four shares, and paid up £10. 
 per share, making altogether £640. The company being in difficulties, 
 a circular was issued on the 27th of April, 1867, proposing a plan 
 of reconstruction, which was, in fact, for the formation of a new 
 company to take over the assets and liabilities of the old company. 
 The benefit to be derived by the shareholders from this arrange- 
 ment was, their being exonerated) from the payment of the remain- 
 ing £10. per share. If the plan had succeeded, there would have 
 been an end of any claim against the shareholders as such. As re- 
 gards Mr. Jeaffreson, his liability would have been changed from 
 £640. upon his shares to £320. on debentures bearing interest at 
 6 per cent. This plan of reconstruction was carried out by formal 
 resolutions passe'd at an extraordinary meeting of the company andl 
 duly_ confirmed, and ultimately, by a deed of the 23d of September, 
 1867, formally carried into effect. It is agreedl on both sides that this 
 was the basis of the transaction, and that the position of those who 
 adopted the arrangement was that of holders of fully paid-up shares 
 and debentures partly paid up. Under these circumstances Mr. Jeaf- 
 freson might well be warranted in beUeving that payments which he 
 made upon the debentures would pro tanto discharge the liability upon 
 his shares in the old company ; and if affairs had gone on well, there 
 would have been eventually an end to his liability to the old company. 
 I must, however, hold that he was bound to know that he could not 
 
 *2 A part of the statement of facts omitted, as sufficiently stated in the 
 opinion. 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDEBS 803 
 
 discharge his liability as a shareholder in the oldl company by payments 
 to the new company. 
 
 If all parties having an interest in the arrangement had assented to 
 the plan of reconstruction, I should have held it binding, on the prin- 
 ciple that payment to A. by the direction of B. is equivalent to pay- 
 ment to B. Then the question is, whether all interested parties did 
 assent. The creditors were the persons most immediately interested, 
 but they were no parties to the transaction, and never gave their au- 
 thority to the payments to the new company. It follows, therefore, that 
 if these calls are required for the payment of the creditors of the old 
 company, they must be paid ; for, as regards the creditors, Mr. Jeaf- 
 freson remained a shareholder liable for sixty- four shares, and he still 
 remains equally liable. It is urged that, as the money can be providted 
 by making calls upon the shareholders who halve not paid instalments 
 upon the debentures, those who have so paid ought not to be required 
 to pay anything more till an equivalent amount has been paid by the 
 others. But this question cannot arise till the creditors have been paid 
 in full. In Ex parte Oakes & Peek, Law Rep. 3 Eq. 576, I adopted 
 the rule that the creditors are the persons whose interests are first 
 to be considered! in a winding-up, and that the amount unpaid upon 
 the shares is part of the assets of the company. 
 
 This rule has received universal acknowledgment, being fully recog- 
 nized and acted upon by the House of Lords when the same case went 
 before them on appeal. Law Rep. 2 H. L. 325. But when the creditors 
 are once paid, I am of opinion that the other shareholders will have to 
 exonerate Mr. Jeaffreson from the additional liability which he hJis 
 incurred by joining the new company, andi he will ultimately be en- 
 titled to stand, as against the pther shareholders, in the place of the 
 creditors who may be paid off out of the present calls. I cannot go 
 into any question as to how much of the present calls are required 
 for the payments of the creditors. I consider myself boun^ to take 
 the representation of the counsel for the liquidators and the creditors' 
 representative that the money is required for the payment of debts, and 
 ' must leave Mr. Jeaffreson liable to pay the full amount of the calls. 
 
 The result, therefore is, that the summons must be dismissed so far 
 as it requires the discharge of the order or restraint of execution ; and 
 so far as it requires the equities between the shareholders to be de- 
 termined, it is unnecessary, inasmuch as that is always done. The 
 summons will, therefore, be simply dismissed. As the case has been 
 arranged to be taken as a representative one, the costs of all parties 
 will be out of the estate. 
 
 Mr. Crossley has no right to appear, and cannot have any costs. 
 
804 CREDITORS OF THE CORPORATION (Ch. 8 
 
 HENRY et al. v. VERMILLION & A. R. CO. et al. 
 (Supreme Court of OWo, 1848. 17 Ohio, 187.) 
 
 The bills are in the form of creditors' bills, charging that the com- 
 plainants have unsatisfied judgments against the Vermillion & Ash- 
 land Railroad Company, on which executions have been issued and 
 returned nulla bona; that the company is insolvent ' and has ceased 
 to keep up its organization, and that the other defendants are stock- 
 holders in said company, and indebted to the company upon their 
 stock subscriptions, and praying that such indebtedness may be sub- 
 jected to the payment of complainants' judgments. * * * *' 
 
 Avery, J. These bills are filed under the act directing the mode of 
 proceeding in chancery. Swan's Statutes, 704, § 16. They set 
 forth judgments at law recovered against the company; further, 
 that after efforts made they could not be collected by execution, 
 and that the individual defendants are indebted to the; company as 
 stockholders upon their stock subscriptions. The principle has already 
 been recognized by this court, that a creditor's bill will lie against 
 a stockholder of an incorporated company, to compel him to pay over 
 to a judgment creditor the amount of his subscription, which had not 
 before been paid to the company (Miers v. Zanesville & M. Turnpike 
 Co., 11 Ohio, 273 ; Id, 13 Ohio, 197) ; and the authority of these cases 
 we find no reason to deny. The creditor, in ordinary cases, may well 
 treat the unpaid balance of stock, as a debt due to the company and 
 proceed to subject it under the statute, as he would any other debt. 
 The company could compel payment at law, of the stockholder's con- 
 tract, according to the. charter, when the necessities or the interest of 
 the company should require this to be done. And if the company does 
 not, by such means or some other, provide funds for payment, there 
 seems no good reason why the judgment creditor should not have the 
 remedy here sought. 
 
 There may be cases, indeed, where the stockholder would be absolved 
 in equity, from paying up his stock to the company, where he might 
 enjoin them from proceeding against him, and where, by a fraudulent 
 combination between them and the judgment creditor, he might resist 
 or enjoin the creditor. But if the company become embarrassed or 
 insolvent, and unable any further to pursue the object for which they 
 united, either by fraud in the men chosen as managers, or by the oc- 
 currence of events which could not be controlled, no reason is thereby 
 furnished to justify a violation of that contract, by which they agreed 
 to pay for services rendered in the prosecution of their work. And 
 the company, after discovering that there was no longer any hope of 
 succeeding in their enterprise, and that all they had expended must be 
 lost, would have been still justified in collecting all their means for 
 
 *" A part of tlie statement of facts relating to pleading is omitted. 
 
Sec, 5) EIGHTS AGAINST STOCKHOLDERS 805 
 
 the discharge of debts already contracted. There was a moral obliga- 
 tion both upon the officers and the stockholders to use the property 
 and claims of the company, as far as they would reach, for -the pay- 
 ment of the demands of creditors. And when the company cease to 
 keep up their organization and abandon all action under the charter, 
 a proceeding at the instance of the creditor becomes indispensable. In 
 looking over the testimony in these cases, we do not discover any facts 
 that should absolve the stockholders from paying the amount due on 
 their subscriptions, for the benefit of the creditors, nor any fraud or 
 conspiracy on the part of complainants, which should deprive them of 
 their rights -as creditors. 
 
 An objection is urged against the judgments, upon which the pro- 
 ceedings are foundled. But the objection cannot be allowed to prevail, 
 in a case like the present; even if there were irregularities in these 
 judgments, and fraud in giving them, or mistake, by accident or other- 
 wise, in the amount, it would constitute no defense, either in whole 
 or in part, in these cases. The judgments cannot be impeached, col- 
 laterally. Between the parties who had a legal right to fix the amount, 
 it has already been done; and nothing is left as against the dtebtors 
 of the company, but to determine the aniount due from them. But 
 here, service has been made upon the company, and they are before 
 the court as defendants. ' And further,' they have answered, and ad- 
 mitted! the correctness of these judgments. Then, supposing the lia- 
 bility of the defendants established, what principle shall guide the 
 master in the reference to be made to him ? 
 
 When a company, as in this case becoming, insolvent, abandon all 
 action under their charter, the original mode of making calls upon the 
 stockholders cannot be pursued. The debt, therefore, from that time, 
 must be treated as due, without further demand. 
 
 Stockholders who have attempted to secure, by agreement, a priv- 
 ilege of paying up their stock subscriptions, in goods or otherwise, 
 except in money, as contemplated by the charter, will not be allowed 
 the benefit of such stipulations. Such an agreement will be considered 
 As a fraud upon other stockholders, and the amount due must be col- 
 lected in money. 
 
 Although the stockholders weVe required to pay, at the time of sub- 
 scription, five dollars on each share subscribed," still, in the opinion 
 of the court, the omission to pay that sum does not release them f rorn 
 the liability to pay up the subscription. 
 
 These are suppOsed to be all the points necessary to be settled at the 
 present time; and the cases are remanded, for further proceedings, 
 to the court in the county from whence they were brought.** 
 
 «* Accord: Noble v. Callenderi 20 Ohio St. 199 (1870). 
 
806 CREDITORS OF THE CORPORATION (Ch. 8 
 
 BAUSMAN V. KINNEAR. 
 
 (Circuit Court of Appeals of the United States, 1897. 79 Fed. 172, 24 C. 0. 
 
 A. 473.) 
 
 Before Gii<BeRT and Ross, Circuit Judges, and HawlBy, District 
 Judge. 
 
 Gii,BERT, Circuit Judge.*" The receiver of the Ranier Power & 
 Railway Company appeals from a decree of the circuit court (73 Fed. 
 69) dismissing his bill as against the defendant, George Kinnear, in 
 a suit brougm against certain stockholders of the Ranier Power & 
 Railway Company to require them to pay their subscriptions to the 
 stock of said corporation. Kinnear held stock of the par value of 
 $5,000. In his answer to the bill he alleged that he had paid the full 
 amount of his subscription. The undisputed facts are as follows: 
 
 On the 17th of October, 1891, Kinnear had paid three assessments 
 of 5 per cent, each upon his capital stock, amounting in all to $750. 
 On that date, a promissory note, due 90 days after date, payable to 
 the corporation, for the- sum of $3,197.29, was presented by an officer, 
 of the corporation to Kinnear for his signature, with the statement 
 that Mr. Denny, the president, wanted to raise money for the company. 
 Kinnear signed the note without question. . The note was indorsed 
 by David T. Denny, who was the president, and the largest stock- 
 holder. It was discounted at the bank, and the proceeds were used 
 by the corporation in constructing its street railway. Subsequently 
 to that date another assessment of 5 per cent, was made on the capital 
 stock, and Kinnear paid his proportion tjiereof in the sum of $250. 
 When the note fell due, it was renewed, and was regularly thereafter 
 renewed until Decernber 10, 1892. At each renewal other sharehold- 
 ers indorsed the note, and the interest was paid by the president or 
 by the company. On February 15; 1893, when the last note fell «due, 
 the amount was increased to $5,000, and the increased amount there- 
 of was obtained from the bank, and was used by the corporation as 
 before. W|hen the $5,000 note fell due, on May 16, 1893, it was re- 
 newed for one year ; but it was made payable, not to the company, but 
 to David T. Denny. In June of that year the receiver was appointed, 
 and eight months later Kinnear paid the note in full. 
 
 It was found in the opinion of the court below as follows : "These 
 notes were not given by Mr. Kinnear in payment for his stock, but 
 were intended as a loan of credit, to assist the company at a time when 
 it was incurring debts in the construction of its line *of street railway, 
 so as to enable the company to obtain funds without resorting to assess- 
 ments upon its capital stock, which at that time would have been bur- 
 densome to its stockholders, and specially so to Mr. Kinnear. These 
 notes were given, however, in consideration of Mr. Kinnear's liability 
 for his unpaid subscription. He was not indebted to the company on 
 
 *5 A part of the opinion is omitted. 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDERS 807 
 
 any other account, and would not have loaned his credit to the com- 
 pany for any other purpose than to avoid being required to' pay* for 
 his stock." 
 
 The court held, upon this state of the facts, that the defendant, Kin- 
 near, had the right to have the money received by the corporation 
 upon his note set oif against his liability upon his stock subscription. 
 The question presented for our consideration is whether, upon the 
 facts so found, and the further facts as disclosed in the record, such 
 offset was permissible. * * * 
 
 The facts as found by the trial court and as disclosed by the evi- 
 dence amount to this : That the appellee, by lending his credit' to 
 the corporation, became a creditor thereof in an amount exceeding 
 the amount of his liability for unpaid stock, and that the inducement 
 for such loan of his credit was the fact that he was a subscriber to 
 the unpaid stock of the corporation. A stockholder who is also a 
 creditor of a corporation has no right to set-off as against his unpaid 
 subscription, after the corporation has become insolvent, and a suit 
 in equity has been brought to wind up its affairs and distribute its 
 assets.. The unpaid stock is held to be a trust fund for the purpose 
 of paying the debts of the corporation, and as such it must be dis- 
 tributed among the creditors pro rata. The debt due to a stockholder 
 is entitled to no preference over other debts, and he cannot require its 
 payment by way of set-off, to the exclusion or postponement of other 
 claims. The reason usually assigned for this rule is that the debt 
 pwing by the stockholdter to the corporation after insolvency and 
 that owing from the corporation to him are not in the same right, 
 the former being a debt payable to a trust fund. The decisions upon 
 this proposition appear to be unanimpus. Sawyer v. Hoag, 17 Wall. 
 610, 21 L. Ed. 731; Scovill v.iThayer, 105 U. S. 143, 26 L,. Ed. 968; 
 Williams v. Traphagen, 38 N. J. Eq. 57; Thompson v. Bank, 19 Nev. 
 103, 7 Pac. 68, 3 Am. St. Rep. 797 ; Carbon Co. v. Mills, 78 Iowa, 460, 
 43 N. W. 290, 5 L. R. A. 649 ; McAvity v. Paper Co., 82 Me. 504, 20 
 Atl. 82 ; Shickle v. Watts, 94 Mo. 410, 7 S. W. 274. 
 
 In some jurisdictions the rule has been extended, not only to the 
 distribution of the trust fund arising from unpaid subscriptions, but 
 to the distribution of the fund obtained under proceedings to enforce 
 the statutory liability of stockholders. Matthews v. Albert, 24 Md. 
 527; In re Empire City Bank, 18 N. Y. 199; Buchanan v. Meisser, 
 105 111. 638; Liquidators v. Troop, 31 Am* & Eng. Corp. Cas. 410. 
 The reason of the rule applies to all cases of simple indebtedness from 
 the corporation to a stockholder, and upon principle no distinction can 
 be made on account of the purpose for which the debt was incurred, 
 or the motives that prompted the stockholder to become a creditor. 
 One who lends money to a, corporation on account of the fact that he 
 owes unpaid stock in the company is in no better attitude than one who 
 lends money for other reasons. The court will not inquire itito the 
 reasons that actuated him. It is unimportant whether the appellee 
 
808 CEEDITOES OF THE COKPOEATION (Ch. 8 
 
 in this case loaned his credit to the corporation only because he was a 
 subscriber to unpaid capital stock, or whether he loaned it on account 
 of his desire for the success of its business, and his pecuniary interest 
 therein as a holdter of its stock. A stockholder who has advanced 
 money to his corporation is no more entitled to the right of set-off than 
 is the stockholder who has any other kind of claim against the com- 
 pany. Matthews v. Albert, supra. The set-off, if made at all, must 
 be made while the corporation is a going concern. It cannot be made 
 after the insolvency has intervened, and a court of equity has been 
 called upon to administer its affairs. * * * 
 
 The decree dismissing the bill as to the defendant, Kinnear, is re- 
 versed, at the appellee's costs, and the cause is remanded for further 
 proceedings not inconsistent with this opinion.** 
 
 HENDERSON v. ROYAL BRITISH BANK. 
 (Court of Queen's Bench, 1857. 7 El. & Bl. 356.) 
 
 Aspland, in this Term, obtained a rule calling on Leonard Morse 
 GoddardI to show cause why the plaintiff should not be at liberty to 
 issue execution against the person, property, or effects of the said L. 
 M. Goddard, as a shareholder of the Royal British Bank, for the sum 
 of £131. 3s. Ud., remaining due on a judgment recovered by the plain- 
 tiff a(gainst the said Bank for the sum of £178. 8s. g± * * * " 
 
 Lord Campbell, C. J., now delivered the judgment of the Court. 
 
 This was an application for leave to take out execution against a 
 shareholder : and the proposed answer to the application was, that the 
 shareholder had been induced by fraud to take the shares. He had 
 remained a shareholder for some time, and received dividends, and act- 
 ed in all respects as a shareholder until the Royal British. Bank stopped 
 payment, and until its bankruptcy ; and he then gave notice that he was 
 no longer a shareholder, and, as far as he could, disaffirmed the con- 
 tract under which he became a shareholder as being induced by the 
 fraud of the directors : he demanded back all the moneys he had! paid, 
 and, being a depositor himself, he demanded the. deposit and all the 
 advances. The question is, whether, if it were established that this 
 fraudi had been practised upon him, it could be an answer to this ap- 
 plication. If there were any doubt about it, we should not make this 
 rule absolute ; but we should direct a scire facias to issue, so that the 
 question might be raised on the record. We entertained no doubt on 
 the argument : but, being informed that similar appUcations had been 
 made to the Courts of Common Pleas and Exchequer, and that rules 
 
 *8 Compare Pondville Co. v. Clark, 25 Conn. 97 (1856) ; Goodwin et al. 
 V. McGehee et al., 15 Ala. 232 (1849) ; Wilkinson V. Bertock & Co., Ill Ga. 
 187, 36 S. E. 623 (1900). 
 
 *' Facts sufficiently stated in the opinion of the court 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDERS 809 
 
 were depending in those Courts, we thought that, upon a matter of this 
 sort, it would be well if we had a conference with the other Judges be- 
 fore our judgment was given. That conference has taken place: and 
 the Judges are unanimously of opinion that this can be no answer to 
 the application either upon principle or authority. 
 
 This is an application by a creditor, who, upon the faith of the par- 
 ty, who then was a shareholder, and who held himself out to the world 
 as a shareholder, and being, one, gave credit to the Bank. He has 
 obtained judgment against the Bank. There were no assets of the 
 Bank as a Company. And the application now is that execution may 
 issue against that party individually. It would be monstrous to say 
 that, he having become a partner and a shareholder, and having held 
 himself out to the world as such, and having so remained until the 
 concern stopped payment, could, by repudiating the shares on the 
 ground that he had been defrauded, make himself no longer a share- 
 holder, and thus get rid of his liability to the creditors of the Bank, 
 who had given credit to it on the faith that he was a shareholder. It 
 would be monstrous injustice, and contrary to all principle. Whether 
 he could say that, with regard to other shareholders not privy to the 
 fraud, we need not say ; there may be some difficulty about that. But 
 that is nqt the question we have to determine ; which is, simply, wheth- 
 er this is an answer to a creditor who has given trust upon the faith 
 of his being a shareholder. Suppose this were a common partnership, 
 and that there was credit given to the firm : would it he any answer 
 to an action by the creditor against one of the partners that the defend- 
 ant was fraudiulently induced by the other partners to become a partner? 
 Inter se that might be considered: but, as between the firm and a 
 creditor, it is a matter wholly immaterial. Now the party here admits 
 that he is a shareholder, and acted as such until the Bank stopped pay- 
 ment. His name was placed on the register, and remains on the reg- 
 ister. There is some irregularity in that register: but we are of opin- 
 ion that all that is said in the statutes as to the manner in which the 
 register shall be intituled and made up is only directory and not con- 
 ditional, and that he was bound, at all events prima facie, by his name 
 appearing on the register, notwithstanding those errors. The rule will 
 therefore be absolute. See Daniell v. Royal British Bank, I H. & 
 N. 681, and Powis v. Harding, 1 Com. B. N. S. 533, decided on the 
 authority of the casie in the text.. 
 
 "Ordered : That the plaintiff be at liberty to take out of Court, in 
 part satisfaction of his judgment herein, the sum of il25., paid into 
 Court by the said L. M. Goddard; and that the plaintiff be at liberty 
 to issue execution agaifist the person, property, or effects of the said 
 L M Goddard, as a shareholder of the Royal British Bank, for so 
 much of the sum of il31. 3s.- lid. remaining due on a judgment re- 
 covered by the-plaintiff against the said Bank for the sum of i306. 13s. 
 as may not be satisfied! by the money so to be taken out of Court by 
 the plaintiff, and the dividend (if any) received by the plamtiflf, under 
 
810 CREDITORS OF THE CORPORATION (Ch. 8 
 
 the adjudication of bankruptcy against the Bank, and if not already 
 credited by the plaintiff." (Costs of application to be paid by Godl- 
 dard.)" • ' 
 
 NEWTON NAT. BANKet al. v. NEWBEGIN. 
 
 (Circuit Court of Appeals of the United States, 1896. 74 Fed. 135, 20 C. C. 
 A. 339, 33 L. R. A. 727.) 
 
 While the N. Bank was in embarrassed circumstances, plaintiff was 
 induced, by the fraudulent misrepresentations of its cashier, to sub- 
 scribe, in May, 1890, for 62 shares of a proposed increase of its capital 
 stock, and to pay in a large sum of money therefor. In the following 
 November the bank failed, and plaintiff, who lived at a distance, in 
 another state, receiving then his first intimation that anything was 
 wrong, proceeded to make inquiries, and, as a result, instituted proceed- 
 ings before the comptroller of the currency to have the stock standing 
 in his name declared void, and himself not a stockholder. These pro- 
 ceedings failing, he took steps in May, 1891, to -have a bill filed to re- 
 scind his subscription. At the request, however, of parties who were 
 trying to reorganize the bank, he consented to withdraw such suit, and 
 surrender his stock to be canceled, upon an express agreement that it 
 should be without prejudice to his right to sue the bank for the fraud 
 by which he had been induced to subscribe and pay his money therefor. 
 Plaintiff did not participate in the reorganization, and consistently 
 maintained that he was not a stockholder, and that the bank was liable 
 to him for the money paid. Upon the reorganization the creditors of 
 the bank accepted in settlement a payment in cash, and certain certifi- 
 cates of indebtedness. In November, 1891, plaintiff brought this action 
 against the bank to recover the money paid by him, as a deposit. From 
 a verdict and judgment in favor of the plaintiff, the defendants, the 
 Newton National Bank and John Watts, its receiver, bring the case 
 to this court by a writ of error.*" ' 
 
 Before Caldwell, Sanborn, and Thayer, Circuit Judges. 
 
 Thayer, Circuit Judge.°° [After discussing the question of the 
 plaintiffs' laches, the court proceeds:] 
 
 A more important question, to he next considered, is whether the 
 circuit court should have directed a verdict for the defendants on the 
 ground that the insolvency of the defendant bank, occurring 'before 
 the suit was filed, precluded the plaintiff from rescinding his stock 
 subscription. It has become the settled rule in England, since the 
 decision in Oakes v. Turquand, L. R. 2 H. L. 325, 344, that a suit to 
 rescind a stock subscription on the ground of fraud cannot be main- 
 
 *8 See accord: Oakes v. Turquand and Harding, h. K. 2 Eng. & Irisli Add. 
 Cas. 325 (1867). 
 
 *» Statement of facts substituted. 
 BO A part of the opinion is omitted. 
 
^^^- ^) EIGHTS AGAINST STOCKHOLDERS 811 
 
 tained by a stockholder, no matter what diligence he may have shown, 
 after proceedmgs have been taken to liquidate the affairs of the cor- 
 poration on the ground of its insolvency,, inasmuch as the' rights of 
 creditors of the corporation, .both as against the corporation and those 
 who are registered shareholders, then become superior to the rights 
 to the defrauded shareholder. Stone v. Bank, 3 C. P. Div. 282, 307; 
 Wright's Case, 7 Ch. App. 60; Kent v. Brickmaking Co., 3 Ch. App. 
 493 ; Thomp. Corp. §§ 1439, 1441 ; Cook, Stock & Stockh. § 163. In 
 this country there are some cases in which a stockholder's right to 
 rescind his subscription after the intervention of proceedings in bank- 
 ruptcy, or after the insolvency of the corporation, has been denied; 
 but, as Mr. Thompson well remarks in his Commentaries on the Law of 
 Corporations (section 1449), it does not appear in any of the cases that 
 the denial of the right to rescind was grounded exclusively on the fact 
 that proceedings in bankruptcy had been instituted, or that the corpora- 
 tion had become insolvent. Farrar v. Walker, 3 Dill. 506, note, Fed. 
 Cas. No. 4,679; Upton v. Tribilcock, 91 U. S. 45; Ogilvie v. Insur- 
 ance Co., 22 How. 380, 391 ; Michener v. Payson, Fed. Cas. No. 9,525 ; 
 Duffield V. Iron Works, 64 Mich. 293, 31 N. W. 310; Turner v. In- 
 surance Co., 65 Ga. 649, 38 Am. Rep. 801 ; Ruggles v. Brock, 6 Hun 
 (N. Y.) 164; Hurd v. Kelly, 78 N. Y. 588, 34 Am. Rep. 567; How- 
 ard V. Turner, 155 Pa. 349, 26 Atl. 753, 35 Am. St. Rep. 883. 
 
 In all of these cases the evidence showed that there had either been 
 some lack of diligence on the part of the stockholder in discovering the 
 fraud of which he complained, or unreasonable delay in asserting 
 his rights after the discovery of the fraud, or active participation, in 
 the management of the corporation, or that debts had been contracted 
 by the corporation subsequent to the subscription, which either gave to 
 corporate creditors superior equitable rights, or estopped th§. sharehold- 
 er, as against a corporate creditor, from asserting that he was not a 
 shareholder. The question whether a stockholder should be permitted 
 to rescind his subscription, on the ground of fraud,' after the insolvency 
 of the company, is attended with much doubt and difficulty, because of 
 the peculiar relation which a shareholder sustains to the creditors of the 
 company. In the case of Upton v. Englehart, 3 Dill. 496, 505, Fed. 
 Cas. No. 16,800, Judge Dillon, while discussing this subject, pointed out 
 that the unbending English rule above referred to was influenced in a 
 measure by the companies act (25 & 26 Vict. c. 89), which makes pro- 
 vision for a "register of stockholders," to which the public have access, 
 and that, as no similar register of stockholders is ordinarily kept in 
 the United States, the English decisions holding that the commence- 
 ment of /a proceeding to wind up a company is in itself a bar to a suit 
 for rescission are not strictly applicable to the conditions which pre- 
 vail here. He concluded the discussion of the question as follows : "I 
 am inclined to the opinion that if a company has fraudulently misrep- 
 resented or concealed material facts, and thus drawn an innocent per- " 
 son into the purchase of stock, — he at the time;bein^.guilty of no want 
 
812 CEBDITOES OF THE COEPOEATION (Ch. 8 
 
 of reasonable caution and judgment, and afterwards being guilty of no 
 laches in aiscovering the fraud, — and he thereupon, without delay, no- 
 tifies the company that he repudiates the contract, and offers to rescind 
 the purchase, these facts concurring, I am. inclined to the opinion that 
 the bankruptcy of the company, subsequently happening, will not en- 
 able the assignee to insist that the purchase of stock is binding upon 
 him." 
 
 There are obvious reasons why a shareholder of a corf)oration should 
 not be released from his subscription to its capital stock after the in- 
 solvency of the company, and particularly after a proceeding has been 
 inaugurated to liquidate its affairs, unless the case is one in which the 
 stockholder has exercised due diligence, and in which no facts exist up- 
 on which corporate creditors can reasonably predicate an estoppel. 
 When a corporation becomes bankrupt, the temptation to lay aside the 
 garb of a stockholder, on one pret,ense or another, and to assume the 
 role of a creditor, is very strong, and all attempts of that kind should 
 be viewed with suspicion. If a considerable period of time has elapsed 
 since the subscription was made; if the subscriber has actively par- 
 ticipated in the management of the affairs of the corporation ; if there 
 has been any want of diligence on the part of the stockholder, either 
 in discovering the alleged fraud, or in taking steps to rescind when 
 the fraud was discovered ; and, above all, if any considerable amount 
 of corporate indebtedness has been created since the subscription was 
 made, which is outstanding and unpaid, — in all of these cases the right 
 to rescind should be denied, where the attempt is not made until the 
 corporation becomes insolvent. But if none of these conditions exist, 
 and the proof of the alleged fraud is clear, we think that a stockholder 
 should be permitted to rescind his subscription as well after as be- 
 fore the company ceases to be a going concern. There is some force, 
 doubtless, in the view which has sometimes been taken by eminent 
 judges, that when a person has been inveigled into making a stock 
 subscription by representations that were clearly false and fraudu- 
 lent, he should be entitled to rescind his subscription, even after the 
 insolvency of the company, under the same circumstances that would 
 entitle him to rescind a contract of a different nature ; that is to say, 
 by proof of due diligence in discovering the fraud, and of prompt ac- 
 tion after it was discovered. Upton v. Tribilcock, 91 U. S. 55, 56, 23 
 L. Ed. 203 ; Duffield v. Iron Works, 64 Mich. 293, 31 N. W. 310, 316. 
 See, also. Improvement Co. v. Merrill, 2 U. S. App. 434, 2 C. C. A. 
 629, and 52 Fed. 77. 
 
 The case in hand, however, does not require us to go to that length, 
 even if we felt so disposed, as the facts are peculiar and exceptional. 
 In the present instance the fraud of the defendant bank, whereby the 
 plaintiff, Newbegin, was induced to becoipe a subscriber to its increased 
 stock, is conceded. He lived a long distance from where the bank was 
 located, and took no part, after becoming a stockholder, in the manage- 
 ment of its affairs. He remained utterly ignorant of the fraud that 
 
Sec. 5) , EIGHTS AGAINST STOCKHOLDERS 813 
 
 had been practiced until: the defendant bank closed its dOors for the 
 first time, on November 25, 1890, whereupon he immediately repudi- 
 ated his subscription, as having been induced by fraud, and gave no- 
 tice to that effect both to the bank and to the other stockholders. 
 
 The result is that the judgment of the circuit court must be, and it 
 is hereby, affirmed." 
 
 HARTFORD & N. H. R. CO. v. BOORMAN et al. 
 (Supreme Court of Connecticut, 1838. 12 Conn. 530.) 
 
 Suit brought against the defendants as assignees or purchasers of 
 stock, who have received certificates of proprietorship from the plain- 
 tiffs, and have become stockholders in the company ; and it was insti- 
 tuted to recover instalments required to be paid on their shares, after 
 they became stockholders. The plaintiffs having obtained a verdict, 
 pursuant to the direction of the judge, the defendants moved for a 
 new trial for a misdirection. 
 
 Huntington, J. The reasons for our decision subjecting the origi- 
 nal subscribers to personal liability, apply, with equal force, to those 
 who bec'ome stockholders by purchase. The relation of stockholder and 
 company exists. A privity between them is created. The charter pro- 
 vides, in the 2nd section, that the shares shall be transferable in such 
 manner as the by-laws of the company direct ; and it is admitted, that 
 the defendants, on the 16th day of December, 1835, (which was be- 
 fore any of the sums now sought to be recovered, were required by 
 the directors to be paid,) were, and ever since have been, the owners 
 and holders of one hundred shares of the stock of the company origi- 
 nally subscribed, ' and by the subscribers to whom they were appor- 
 tioned, duly transferred to the defendants, on the books of the com- 
 pany, and a certificate given at the request of the defendants, declar- 
 ing that "they are entitled to one hundred shares in the capital stock 
 of the Hartford and New Haven Railroad Company, on which five 
 dollars on each share has been paid; the residue payable by instal- 
 ments, as may be ordered by the board of directors. Said shares are 
 transferable on the books of said company, at the Phoenix Bank in 
 the city of Hartford, by J. Boorman and H. Hudson, or their attor- 
 ney, on the surrender of this certificate." The case already decided 
 
 Bi See Turner v. Grangers' Life & Health Ins. Co., 65 Ga. 649, 38 Am. Rep. 
 SOL (1880) • Martin v. South Salem Land Co., 94 Va. 28, 26 S. E. 591 (1896). 
 
 In Gress vT Knight, 135 Ga. 60, 68 S. E. 834, 31 L. R. A. (N. S.) 900 (1910), 
 Lumpkin, J., speaking for the court, said: "As to creditors whose claims 
 arose after the stockholders became such, their rights are superior to any 
 right of rescission. The status of a stockholder relative to creditors who 
 became such after he took the stock, is not in all respects identical with that 
 relative to antecedent creditors. As to creditors whose debts were created 
 before he took the stock, questions of laches, acts inconsistent with rescis- 
 sion, estoppel, etc., might arise." 
 
814 CREDITORS OF THE CORPORATION (Ch. 8 
 
 must, therefore, govern this; and as to the instalments sought to be 
 recovered in this action, we apply the just rule stated by the court in 
 the case of the Huddersfield Canal Company v. Buckley, 7 Term Rep. 
 36, that "after assignment, the assignees hold the sharfes on the same 
 conditions, and are subject to the Same rules and orders as the original 
 subscribers, and are" (for all the purposes of the present case) "sub- 
 stituted in the places of original subscribers." Bend v. Susquehannah 
 Bridge & Bank Co., 6 Har. & J. (Md.) 128, 14 Am. Dec. 261. 
 
 We take occasion to remark, that no questions have been discussed 
 before us, in either of the cases, upon whom the liability rests to pay 
 instalments required by the directors, upon stock then owned by one 
 person, but which subsequent to such requisition, and before the same 
 become due, is, by him, bona fide transferred to another ; nor regard- 
 ing the effect of transfers by stockholders, to known bankrupts, with' 
 the view of terminating their liability for future instalments; nor 
 touching the operation of transfers, by way of mortgage or hypoth- 
 ecation, with reference to any supposed liability, on the part of the 
 mortgagee, for instalments which are ordered while he holds them in 
 pledge. And we give, no opinion upon either of these points. They 
 are not embraced in the cases before us; and the expression of an 
 opinion would be both unnecessary and improper. 
 
 The instruction to the jury was right in the present case; and a 
 new trial is not advised. 
 
 In this opinion the other Judges concurred. See Ward v. Griswold- 
 ville Mfg. Co., 16 Conn. 598; Mann v. Cooke, 20 Conn. 183, 187. 
 New trial not to be granted. 
 
 In re MEXICAN & SOUTH AMERICAN CO. 
 
 DE PASS' CASE. 
 
 (Court of Appeal in Chancery; 1859. 4 De Gex & J. 544.) 
 
 Appeal from an order of the Master of the Rolls by which the ap- 
 pellants De Pass were placed or retained on the list of contributories 
 as the holders of 250 shares in the company."^ 
 
 Lord Justice Turner. Then, as to the case of the Messrs. De Pass. 
 They are put upon the list for 250 shares which were formerly held 
 by them, and for which they had paid il,750. Their case is, that on 
 the 8th of November, 1857, sixteen days before the date of the wind- 
 ing-up order, they delivered over these shares to Mr. Spencer, one of 
 the clerks, in consideration of the sum of £1. paid by him to them. 
 It sufficiently appears, I think, from the evidence, that at this time 
 they were aware, or at all events had good reason to suspect, that the 
 company was in difficulties. It was, indeed, admitted in the reply 
 that their object was to get rid of their liability, and it Was insisted 
 
 «2 Statement of facts abridged, and Grisewood & Smith's case' omitted. 
 
Sec. 5) 
 
 EIGHTS AGAINST STOCKHOLDERS 815 
 
 that they were entitled to do so. I agree that they were, for I can- 
 not see what equity there could be on the part of the other sharehold- 
 ers to insist upon their retaining the shares. The question, therefore, 
 fi! ™ .th^f ^f PPellants seems to be, whether they did or did not on 
 the 8th of November, 1857, bona fide part with these shares out and 
 out. i had much doubt upon this point when the case was argued, 
 more especially from the fact that even at a later date the shares ap- 
 pear to. have been sold in the market at a price which would have 
 yielded more than was paid for them to the Appellants by their clerk, 
 but I have since read and considered the evidence more carefully, and 
 I am satisfied that we can come to no other conclusion upon it than 
 that these shares were on the 8th of November, 1857, absolutely and 
 bona fide parted with by the Appellants out and out, without any trust 
 for their benefit, or any reservation whatever; and I am of opinion, 
 therefore, that this order must be discharged, and the names of these 
 gentlemen removed from the list. I think, however, that the transac- 
 tion was one 'requiring the most searching investigation, and that 
 there should be no costs to the Appellants of any part of the pro- 
 ceedings. 
 Lord Justice Knight Bruce, concurred.^* 
 
 PULLMAN V. UPTON. 
 (Supreme Court of the United States, 1877. 96 U. S. 328, 24 L. Ed. 818.) 
 
 One Myers owned twenty-five shares of stock in the Great Western 
 Insurance Cofnpany whereon twenty per cent, had been paid and be- 
 ing indebted to Pullman, assigned them to him as collateral securi- 
 ty. .Pullman caused the stock to be transferred! to him on the books 
 of the company. The company became bankrupt in February, 1872. 
 The present suit was brought by Upton, the assignee in bankruptcy, to 
 recover the balance remaining unpaid upon the stock. The judgment 
 of the trial court in favor of the plaintiff is brought on writ of error to 
 this court ; one of the questions presented being the liability of Pull- 
 man for the unpaid assessments."* 
 
 Strong, J.^^ * * * The only question remaining is, whether 
 an assignee of corporate stock, who has paused it to be transferred 
 to himself on the books of the company, and holds it as collateral 
 security for a debt due from his assignor, is liable for unpaid balances 
 thereon to the company, or to the creditors of the company, after 
 it has become bankrupt. 
 
 53 Compare Nathan v. Whitlock, 9 Paige (N. T.) 152 (1841); In re Mexican 
 & South American Co. (Costello's Case) 2 De G., F. & J. 302 (1860) ; In re 
 Imperial Mer. Cuedit Ass'n (Payne's Case) 9 L. R. Eq. Gas. 223 (1869). 
 . 04 Statement of facts substituted. 
 
 B5 A part of the opinion is omitted. 
 
816 CEEDITOKS OP THE COBPORATION (Ch. 8 
 
 That the original holdlers and the transferees of the stock are thus 
 liable we held in Upton v. Trebilcock, 91 U. S. 45, 23 L. Ed. 203, Sanger 
 V. Upton, 91 U. S. 56, 23 L. Ed. 220, and Webster v. Upton, 91 U. S. 65, 
 23 L. Ed. 384 ; and the reasons that controlled our judgment in those 
 cases are of equal force in the present. The creditors of the bank- 
 rupt company are entitled to the whole capital of the bankrupt, as a 
 fund for the payment of the debts due them. This they cannot have, 
 if the transferee of the shares is not responsible for whatever re- 
 mains unpaid upon his shares ; for by the transfer on the books of the 
 corporation the former owner is discharged. It makes no difference 
 that the legal owner — that is, the one in whose name the stock stands 
 on the books of the corporation — is in fact only, as between himself 
 and his debtor, a holder for security of the debt, or even that he has 
 no beneficial interest therein. This was ruled in Newry, etc., Railway 
 Co. V. Moss, 14 Beav. 64. In that case, it was said that only those 
 persons who appear to be shareholders on the register of the company 
 are liable to pay calls. In Re Phoenix Life Insurance Co., Hoare's 
 Case, 2 John. & H. 229, it appeared that certain shares had been 
 settled upon Hoare and others, as trustees in a marriage settlement. 
 The trustees had no beneficial interest, but they were registered as 
 shareholders, and the word "trustees" added in the margin of the 
 register, and they receipted for dividends as trustees. It was held by 
 Vice-Chancellor Wood that they were liable as contributories to the 
 full extent, and not merely io the extent of the trust estate. It was 
 said, "A person who is a shareholder is absolutely liable, although he 
 may be bound to apply the proceeds of the shares upon a trust." In 
 Empire City Bank, 8 Abb. Prac. (N. Y.) 192, reported also in 18 N. 
 Y. 200, the Court of Appeals held persons responsible as stockholders 
 in respect to the stock standing in their names on the books of the bank, 
 though they held the stock only by way of hypothecation as collateral 
 security for money loaned, and they were held liable for an amount 
 equal to their stock for the unsatisfied debts of the bank. In Adderly 
 V. Storm, 6 Hill (N. Y.) 624, it appeared that one Bush, in 1837, being 
 indebted to the defendants, transferred to them, on the books of a 
 company, certain shares of stock, and delivered to them the usual cer- 
 tificates. On receiving the certificates, the defendants gave Bush a 
 receipt, stating they had received the stock, which they were to dis- 
 pose of at any time for $200 per share, applying the proceeds to the 
 payment of the notes which Bush owed them, or, if not sold when 
 the notes should be paid, to return the scrip to Bush, or account for 
 it. The last of the notes was paid in September, 1838, and the de- 
 fendants returned the scrip to Bush, giving also a power of attorney 
 for the transfer of the stock. The retransfer was not made, however, 
 until March 2, 1840, and the defendants were held liable, as stockhold- 
 ers, for a debt of the company contracted in January, 1840 ; andl this, 
 it was said, would be the law, though the plaintiff may not have known, 
 at the time he trusted the company, that the defendants could be reach- 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDERS 
 
 817 
 
 ed. So, in Holyoke Bank v. Burnham, 11 Cush. (Mass.) 183, it was 
 decided that a transfer of stock on the books of the bank, intended! 
 merely to be held as collateral security, makes the holder liable for 
 the bank debts. It was said, the creditor is to be considered the abso- 
 lute owner, and that his arrangement with his debtor cannot change 
 the character of the ownership. And) in Wheelock v. Kost et al., 77 111. 
 296, the doctrine was asserted, that when shares of stock in a bank- 
 ing corporation have been hypothecated, and placed in the hands of 
 the transferee, he will be subjected to all the liabilities of ordinary 
 owners, for the reason that the property is in his name, and the legal 
 ownership appears to be in him. 
 
 These decisions are sufficient to vindicate the judgment of the court 
 below. The case of the plaintiff in error is a hard one, but he cannot 
 be relieved consistently with due observance of well-established law. 
 Judgment affirmed. 
 
 In re ALMADA & TIRITO CO. 
 '' (Court of Appeal, 1888. L. R. 38 Ch. Div. 415.) 
 
 The company was organized under the companies act of 1862, with 
 a capital of £210,000. in 210,000 shares oi i\. each. Under a resolu- 
 tion to increase the capital of the company, an agreement was made be- 
 tween the company and the subscribers to the new issue by the terms 
 of which, the shares were to be issued and held as shares of £1. each, 
 with 'IBs. per share credited as paid thereon, making with the deposit 
 of Is. per. share, the sum of 19s. paid up on each share. No certifi- 
 cates have been issued. On January 24, 1888, Allen, one of the sub- 
 scribers moved before Mr. Justice Chitty, under the 35th section of 
 the Companies Act that the register of members of the company might 
 be rectified by striking out his name, and that the money paid on his 
 shares might be returned to him; the ground of application being 
 that the issue of shares at a discount was ultra vires and void. Mr. 
 Justice Chitty dismissed the application with costs." 
 
 Cotton, L,. J." This is an appeal from a decjsion of Mr. Justice 
 Chitty, who really did not decide the question in this case, but merely 
 in accordance with previous decisions of his made an order and sent 
 the parties here. 
 
 This question is this : The directors and shareholders of this com- 
 pany determined that there should be an increase of capital of £1. 
 shares, but that they should be issued. on this footing— that 18s. should 
 be credited as paid, and that those who took the shares should only be 
 liable to pay 2s. That was in accordance with resolutions which were 
 passed by the company, and there was an offer of shares to Mr. Allen 
 
 BB Statement of facts substituted.-, 
 
 57 A part of the opinion dealing with the Companies Act Is omitted. 
 
 KiOH.CoBP. — 52 
 
S18 CREDITOKS OF THE CORPORATION (Ch. 8 
 
 and others, who have accepted those shares. Is that right ? Were the 
 directors in a position to give the shares which they offered to their 
 shareholders, and which some of the shareholders have accepted? In 
 my opinion, they could not do so, because it is really saying that these 
 shares, which are £1. shares, shall be taken on the footing of 2s. only 
 being payable. That, it, appears to me, is quite wrong. I decide it 
 on the provisions of the Act of 1862, also taking into consideration 
 the Act of 1867, on which the counsel for the company have relied 
 When we look at the Act of 1862, we find that that is an Act giving 
 limited liability; and on what terms does it give limited hability? 
 There is to be a memorandum of association, and there are to be ar- 
 ticles of association. I will assume that here there is that which is 
 equivalent to an article" of association, enabling the company to do what 
 has been proposed to be done. In my opinion that could not effective- 
 ly be done, in order to protect anyone who held) shares, -and who had 
 only paid in accordance with that article 2s. from being called upon 
 at some future time, if this company is wound up, to pay 18s. more. 
 
 Let us look at section 7 of the Act of 1862. "The liability of the 
 members of a company formed under this Act may, according to the 
 memorandum of association, be limited either to the amount, if any, 
 unpaid on the shares respectively held by them, or to such amount as 
 the members may respectively undertake by the memorandum of as- 
 sociation to contribute to the assets of the company in the event of its 
 being, wound) up." Of course, I need not consider the latter part of 
 that, because it applies to companies of a different description. This 
 was a company limited by shares, and we shall find presently the num- 
 ber of shares and the amount of the shares is to be defined by the mem- 
 orandum of association, and the liability of the members depends in 
 such a company on the question of what amount they had paid) on the 
 shares, having regard to the amount fixed by the memorandum. Then 
 we come to the next section, section 8 : "Where a company is formed 
 on the principle of having the liability of its members limited to the 
 amount unpaid on their shares, hereinafter referred to as a company 
 limited by shares) the memorandum of association shall contain the 
 following things" : These are, shortly, the name of the proposed com- 
 pany; the part of the kingdom in which its registered oifice is; the 
 objects for which it is established); a declaration that the liability of 
 the members is limited ; the amount Of capital with which the company 
 proposes to be registered, divided into shares of a certain fixed amount. 
 
 Now, going on those two sections only, this being a company to be 
 limited by shares, the memorandum of association is to define how many 
 shares therfe are to be and what is the fixed amount — ^that is the amount 
 fixed by money — of each of those shares ; and everyone is liable for 
 so much of that amount fixed by the memorandum as it can be shewn 
 he has not paid. Then is there any power to alter in that respect the 
 memorandum of association? This is shewn in section 12, and there 
 we find how, and how only, the memorandum can be varied: "Any 
 
^^'^^ ^) RIGHTS AGAINST STOCKHOLDERS glQ- 
 
 company limited by shares may so far modify the conditions contained 
 m the memorandum of association, if authorized to do so by its regu- 
 lations as originally framed, or as altered by special resolution in man- 
 ner hereinafter mentioned, as to increase its capital by the issue of 
 new shares of such amount as it thinks expedient, or to consolidate 
 and divide its capital into shares of a larger amount than its existing 
 shares, or to convert its paid-up shares into stock, but, save as afore- 
 said, and save as hereinafter provided in the case of a change of name,, 
 no alteration shall be made by any company in the conditions con- 
 tained in its memorandum of association;" that is to say, it cannot, 
 diminish the quantum of its shares, the money amount of its shares, 
 and it cannot limit the liability to pay that amount so as to limit the 
 liability of each shareholder and protect him against being called upon, 
 to pay what under the 7th section he is liable to pay in the event of 
 the company being wound up. 
 
 We must remember we are dealing with a case where liability is im- 
 posed on persons who join in these companies, but where a limit is 
 placed on the liability which they otherwise would have incurred if 
 this Act had not been passed. I do not, of course, refer to the power 
 given by a subsequent Act to reduce the amount of capital, which has- 
 not been followed here, but in my opinion, looking to those sections of 
 the Act of 1862 only, it is perfectly clear that an agreement that you 
 should pay 2s. on the shares you take, and not pay up the other 18s., 
 which would make up the amount in money fixed by the memorandium 
 of association, would be entirely ultra vires. It has been held that nO' 
 company. can return to its shareholders any of the money which they 
 have paid, and in my opinion, without relying upon the fact that this 
 is in substance returning the money as if it had been paid and then 
 paid back again, there is no power to limit the liability of the share- 
 holders to pay the amount unpaid on their shares. In my opinion it 
 is tolerably clear here that the terms offered to the shareholders were,, 
 not that the IBs. should be treated as paid in a particular way, but that 
 the 18s. should not be paid just the same as if there had been a re- 
 lease given by the company for 18s. of the amount (Mr. Beale calls 
 it the nominal amount, but I call it the amount) fixed in accordance 
 with the Act of Parliament by the memorandum of association. So' 
 far therefore, I think it is clear that the company and the directors- 
 could not issue shares such as they proposed to issue in this case. * * * 
 *The result therefore must be that, as the company has put these 
 gentlemen on the list of shareholders, and they did nothing which 
 in any way was an assent to that being done, the contract being one 
 which the company could nqt carry into effect, we must make an or- 
 der that their names be removed from the register. There is no ques- 
 tion raised as the return of the Is. they have paid. We might probably 
 direct payment of such damages as we may think right; but there 
 being no question raised on that point, the order will be to take them 
 
820' s CREDITORS OF THE CORPOEATION (Ch. 8 
 
 off the register of shareholders, and to return to each of them the Is. 
 per share which they have paid. 
 
 Fry, L. J. I am of the same opinion, andl I find myself quite un- 
 able to agree in the decision of the learned Judge. The question which 
 we have to solve is, I think, simply and shortly answered by a refer- 
 ence to this inquiry — What is the nature of an agreement to take a 
 share in a limited company ? In my opinion it' is an agreement to be- 
 come liable to pay to the company the amount for which that share has 
 been created. Further, it appears to me to be clear that the liability of 
 the shareholders is limited, only by the amount unpaid on the shares. 
 
 Now observe, it is the amount unpaid; it is not the amount remain- 
 ing due. The result is that a release by the company will not diminish 
 the liability — accord and satisfaction between the company and the 
 shareholder will not diminish the liability; nothing will diminish or 
 extinguish that liability but payment. The consequence is that we are 
 driven to this second short inquiry, Is an agreement to take 2s. for 
 20s. a payment of 18s? I say it is not. That appears to me to be the 
 whole matter. 
 
 Then a supplemental question is raised in this way: it is said that 
 however it stood under the Act of 1862, the result is altered by the 25th 
 section of the Act of 1867. That section is in these words : [His Lord- 
 ship read the section.] What the exact words to which "the same" 
 refer may be, it is a little difficult to ascertain ; but I think the view 
 suggested by Mr. Phipson Beale is the true one— that it jneans unless 
 terms of payment otherwise have been determined. 
 
 Then we come to the inquiry : Is an agreement to take 2s. for 20s. 
 a term or mode of paying 18s? I have already said that in my judg- 
 ment it is not a payment of 18s. It, therefore, cannot be a term of 
 mode of payment. Consequently the registration of this agreement, 
 which is an agreement in effect to release the 18s., is entirely inoper- 
 ative under the 25th section of the Act of 1867. When we have de- 
 termined this question the rest of the matter is arranged! between the 
 parties. Mr. Beale has, I think very properly, not thought fit to argue 
 whether such a contract as this, entered into under a common mistake 
 of law, is or is not capable of being rescinded, or whether the Is. can 
 be claimed as damages. It has been agreed between the parties that 
 the result of this application is to depend upon our decision as to the 
 real nature of the contract.'* 
 
 B8 The concurring opinion of Irf)rd Justice Lopes is omitted. 
 Compare Ooregmn Gold Mining Co. v. Roper, L. R. [18921 A. 0. 125; Wel- 
 ton V. Saffery, L. R. [1897] A. 0. 299. 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDERS 821 
 
 COIT V. NORTH CAROLINA GOLD AMALGAMATING 
 
 CO. et al. 
 
 (Supreme Court of the United States, 1886. 119 U. S. 343, 7 Sup. Ot. 231, 30 
 
 L. Ed. 420.) 
 
 Field, J.»» The defendant the North Carolina Gold Amalgamating 
 Company was incorporated, under the laws of North Carolina, on the 
 thirtieth of January, 1874, for the purpose, among other things, of 
 working, milling, smelting, reducing, and assaying ores and metals, 
 with the power to purchase such property, real and personal, as might 
 be necessary in its business, and to mortgage or sell the same. 
 
 The plaintiff is the holder of a judgment against the company for 
 $5,489, recovered in the court of common pleas of Philadelphia on the 
 eighteenth of May, 1879, upon its two drafts, one dated June 1, 1874, 
 and the other August 15, 1874, each payable four months after its 
 date. Unable to obtain satisfaction of this judgment upon execution, 
 and finding that the company was insolvent, the plaintiff brought this 
 suit to compel the stockholders to pay what he claims to be due and 
 unpaid on the shares of the capital stock held by them ; alleging that 
 he had frequently applied to the officers of the company to institute a 
 suit for that purpose, but that, under various pretenses, they refused 
 to take any action in the premises. 
 
 By its charter the minimum capital stock ikras fixed at $100,000, 
 divided into 1,000 shares, of $100 each, with power to increase it, from 
 time to time, by a majority vote of the stockholders, to two million 
 and a half of dollars. The charter provided that the subscription to 
 the capital stock might be paid "in such installments, in such manner, 
 and in such property, real and personal," "as a majority of the corpora- 
 tors might determine, and that the stockholders should not be liable 
 for any loss or damages, or be responsible, beyond the assets of the 
 company. 
 
 Previously to the charter, the corporators had been engaged in min- 
 ing operations, conducting their business under the name and title 
 which they took as a corporation. Upon obtaining the charter the 
 capital stock was paid by the property of the former association, which 
 was estimated to be of the value of $100,000, the shares being divided 
 among the stockliolders in proportion to their respective interests in 
 the property. Each stockholder placed his estimate upon the property, 
 and the average estimate amounted 'to $137,500. This sum they re- 
 duced to $100,000, inasmuch as the capital stock was to be of that 
 amount. 
 
 , The plaintiff contends, and it is the principal basis of his suit, that 
 the valuation thus put upon the property was illegally and fraudu- 
 lently made at an amount far above its actual value, averring that the 
 property consisted only of a machine for crushing ores, the right to 
 
 5» A part of the opinion is omitted. 
 
822 CREDITORS OF THE CORPORATION (Ch. 8 
 
 use a patent called the Crosby process, and the charter of the proposed 
 organization ; that the articles had no market or actual value, and 
 therefore that the capital stock issued thereon was not fully paid, or 
 paid to any substantial extent; and that the holders thereof were still 
 liatle to the corporation and its creditors for the unpaid subscription. 
 
 If it were proved that actual fraud was committed in the payment 
 of the stock, and that the complainant had given credit to the company 
 from a. belief that its stock was fully paid, there would undoubtedly 
 be substantial ground for the relief asked. But where the charter au- 
 thorizes capital stock to be paid in property, and the shareholders hon- 
 estly and in good faith put in property instead of money in payment 
 of their subscriptions, third parties have no ground of complaint. The 
 case is very different from that in which subscriptions to stock are 
 payable in cash, and where only ,a part of the installments has been 
 paid. In that case there is still a debt due to the corporation, which, 
 if it become insolvent, may be sequestered in equity by the creditors, 
 as a trust fund liable to the payment of their debts. But where full- 
 paid stock is issued for prdperty received, there must be actual fraud 
 in the transaction to enable creditors of the corporation to call the 
 stockholders to account. A gross and obvious overvaluation of prop- 
 erty would be strong evidence of fraud. Boynton v. Hatch, 47 N. Y. 
 225 ; Van Cott v. Van Brunt, 82 N. Y. 535 ; Carr v. U Fevre, 27 
 Pa. 413. 
 
 But the allegation of intentional and fraudulent undervaluation of 
 the property is not sustained by the evidence. The patent and the ma- 
 chinery had been used by the corporators in their business, which was 
 continued under the charter. They were immediately' serviceable, and 
 therefore had to the company a present value. The corporators may 
 have placed too high an estimate upon the property, but the court be- 
 low finds that its valuation was honestly and fairly made; and there 
 is only one item, the value of the chartered privileges, which is at all 
 liable to any legal objection. But, if that were deducted, the remaining 
 amount would be so near to the aggregate capital that no implication 
 could be raised against the entire good faith of the parties in the 
 transaction. * * * Judgment affirmed."" 
 
 80 See See v. Heppenhelmer, 69 N. J. Eq. 36, 61 Atl. v843 (1905) ; In re 
 Wragg, Ltd., L. R. 1897, 1 Ch. 796 ; Young v. Erie Iron Co., 65 Mich. Ill, 31 
 N. W. 814 (1887) ; In re South Mountain Mining Co. (D. C.) 5 Fed. 403 (1881), 
 same ease on appeal (C. O.) 14 Fed. 347 (1882) ; Schenck v. Andrews, 57 N X 
 133 (1874) ; Van Cleve et al. v.. Bretelle, 143 Mo. 109, 44 S. W. 743 (1898) 
 
 Compare Taylor y. Cumimings, 127 Fed. 108, 62 C. O. A. 108 (1903). 
 
^^<^- 5) EIGHTS AGAINST STOCKHOLDERS 823 
 
 CLARK V. BEVER. 
 
 <Supreme Court of the United States, 1891. 139 U. S. 96, 11 Sup. Ct. 468, 35 
 
 L. Ed. 88.) 
 
 In 1872 the Burlington, Cedax Jlapids & Minnesota Railway Com- 
 pany, being indebted to the Northern Construction Company in the 
 sum of $70,000, issued directly to the members of the latter company 
 thirty-five hundred shares of its stock of the par value of ,$100 per 
 share, at twenty cents on the dollar; the stock being received in full 
 satisfaction of the debt. The intestate, Greene, at the time president 
 of the Railway Company and a member of the Construction Company, 
 received 910 shares as his portion of the stock so delivered. The ev- 
 idence shows that the stock was without value ; that the Construction 
 Company was reluctant to take the stock and demanded cash. The 
 good faith of all parties concerned is not questioned. What the orig- 
 inal stockholders paid for their stock does not appear. At the time 
 of this transfer the Railway Company was without means to pay 
 its floating debt or the interest on the bonded debt. Its revenues 
 were not sufficient to pay interest charges. In 1875 foreclosure pro- 
 ceedings were instituted, and in July, 1876, a sale of the property of 
 the Railway Company under a decree of foreclosure was made to the 
 Burlington, Cedar Rapids & Northern Railway Company. 
 
 Clark, the plaintiff below, was the holder of fifty gold bonds of the 
 original company, secured by a mortgage on the net income and roll- 
 ing stock of the company. In a suit on these bonds instituted in 1878, 
 Clark obtained a judgrtient against the Railroad Company for $65,517. 
 A nulla bona return was made on an execution issued under this 
 judgment in August 1880. 
 
 The present action was commenced against the administrator oi 
 Greene to recover the eighty per cent, alleged to be due and unpaid 
 on the stock received by Greene as in the settlement with the Con- 
 struction Company. The case was subsequently removed upon pe- 
 tition of Clark to the Circuit Court of the United States for the Dis- 
 trict of Iowa and transferred by consent to the Eastern Division of 
 the Southern District of that state. The trial court held as a matter of 
 law that the intestate, Greene, by taking the stock did not become liable 
 to pay anything further on account thereof to the creditors of the rail- 
 road company, and pursuant to direction the jury returned a ver- 
 dict for the defendant." 
 
 Harlan, J.'^ [After discussing the question of jurisdiction and 
 the Iowa statutes, the court proceeds :] 
 
 Do the decisions of this court require us to hold, in such a case, that 
 a creditor taking stock in payment of his claim is bound to other cred- 
 itors for the face value of the stock? The plaintiff contends that our 
 
 01 Statement of facts substituted. 
 82 A part of the opinion is omitted. 
 
824 CEEDITOES OP THE CORPOKATION (Ch. 8 
 
 decisions are to that effect. Let us see. In Sawyer v. Hoag, 17 Wall. 
 610, 620, 21 L. Ed. 731, it was held that the capital stock of a corpora- 
 tion, especially its unpaid subscriptions, is a trust fund sub modo for 
 the benefit of its general creditors. And this principle was reaffirmed 
 in Upton V. Tribilcock, 91 U. S. 45,,23 h. Ed. 203; Sanger v. Upton, 
 91 U. S. 56, 23 L. Ed. 220; Webster v. ,Upton, 91 U. S. 65, 23 L. 
 Ed. 384; Pullman v. Upton, 96 U. S. 328, 24 L. Ed. 818; Chubb v. 
 Upton, 95 U. S. 665, 24 L. Ed. 523 ; Morgan Co. v. Allen, 103 U. S. 
 498, 26 L. Ed. 498; Scovill v. Thayer, 105 U. S. 143, 26 L,. Ed. 968; 
 Hawkins v. Glenn, 131 U. S. 319, 335, 9 Sup. Ct. 739, 33 L. Ed. 184, 
 and Richardson v. Green, 133 U. S. 30, 45, 10 Sup. Ct. 280, 33 L. Ed. 
 516. There is no dispute here as to the soundness of this general 
 principle. The dispute is as to its application to a case like the present 
 one. We can be aided in solving this inquiry by ascertaining the char- 
 acter of the particular cases in which it has been applied by this court. 
 In Sawyer v. Hoag, a subscription of $5,000 to the stock of an in- 
 surance company for which the subscriber paid in full, but received 
 in return the check of the corporation for $4,250 under an agreement 
 that the debt for the stock should be extinguished, and the amount 
 of the check should be treated simply as a loan of money to the stock- 
 holder, was held to be a mere device to evade the rule that unpaid 
 subscriptions of stock constitute a trust fund for the benefit of the 
 creditors of the corporation; consequently, that the stock there in 
 ■question was to be regarded, as between the corporation and creditors, ' 
 to be unpaid to the extent of the amount received back from the cor- 
 poration under the pre,tense of a loan. In Upton v. Tribilcock, an 
 actual subscriber to the stock of an insurance company upon which 
 he agreed to pay 20 per cent., was held responsible for the balance, 
 and could not escape liability therefor, because of representations by 
 the agent, at the time of the subscription, that he would be only re- 
 sponsible for that amount, or by proving a subsequent arrangement 
 with the company canceling the subscription and accepting, as in full 
 payment, his note for the 20 per cent, agreed to be paid. Sanger v. 
 Upton was another case -of the actual subscription of stock upon 
 which the subscriber was held to pay the full sum subscribed. In 
 Webster v. Upton a person holding certificates of stock by transfer 
 from the original subscriber, and standing upon the books of the cor- 
 poration as a stockholder, was held liable for the balance due upon 
 the stock, without proof of an "express" promise upon his part to 
 pay. In Chubb v. Upton the decision was that one receiving a certifi- 
 cate of stock for a certain number of shares, at a given sum per share, 
 thereby became lia:ble to pay the amount thereof when called upon by 
 the corporation or its assignee in bankruptcy; and in Pullman v. 
 Upton, that a transferee of stock who caused the transfer to be made 
 to himself, as collateral security for a debt of the transferrer, was lia- 
 ble for the balance due on such stock. The doctrine of the latter case 
 was approved in Hawkins v. Glenn. In Morgan Co. v. Allen it was 
 
^^*^- ^) EIGHTS AGAINST STOCKHOLDERS 825 
 
 decided that the subscription by a county to the capital stock of a rail- 
 road company, together with the bonds given therefor, constituted 
 with other property of the company a trust fund, to which all its cred- 
 itors could rightfully look for satisfaction of their claims; and that 
 by no device or combination, to which particular creditors were par- 
 ties, could it withdraw its bonds from that fund, and thereby avoid 
 liability to the general creditors of the company. In Scovill v. Thayer 
 it was declared, among other things, that a contract between a corpora- 
 tion and its stockholders, that they should never be called upon to pay 
 any other assessment than that' paid at the outset, while good as be- 
 tween the corporation and the stockholders, was a fraud in law upon 
 creditors, which they could have set aside whenever their rights in- 
 tervened and their claims were unsatisfied. In Richardson v. Green 
 it was held that the issuing by a corporation of bonus stock was in 
 violation of a statute of the state declaring it to be unlawful to issue 
 certificates of stock until the shares were fully paid, and that one 
 exercising the privileges and powers of a stockholder in a corporation 
 was not exempt from the liabilities attaching to a bona fide stock- 
 holder who took shares purporting to be, but which in fact were not, 
 fully paid. 
 
 This detailed statement of the above cases has been made because 
 of the confident assertion that they rest upon doctrines necessarily 
 requiring the reversal of the judgment. We do not concur in this 
 view. In all of these cases, except one, there was an actual subscrip- 
 tion of a given amount. They were cases of promises to pay the com- 
 pany the amount subscribed, not of sales by it. According to those 
 cases, a stockholder, becoming such by formal subscription or by 
 transfer upon the books of the corporation, cannot -be discharged to 
 the injury of creditors by any agreement, arrangement, or device to 
 which creditors do not give their assent, and by which the stockholder 
 is to pay less than the amount due upon such stock; this, upon the 
 ground stated in Webster v. Upton, that "neither the stockholders 
 nor their agents, the directors, can rightfully withhold any portion 
 of the stock from the reach of those who have lawful claims against 
 the company," and that "the stock thus held in trust is the whole stock, 
 not merely that percentage of it which has been called in and paid." 
 The present case presents features that are not to be found in the 
 others. It is not the case of an ordinary subscription of stock in a 
 given amount. Nor is it, strictly, one of, an ordinary purchase of 
 stock .for purposes of investment. It is the case of a creditor of an 
 insolvent railroad corporation which, in consequence of its inability to 
 pay creditors in money, was threatened with bankruptcy, and which 
 refused or was unable to pay except in stock that was without market 
 value. To say that a public corporation, charged with public duties, 
 may not relieve itself from embarrassment by paying its debt in sto<:k 
 at its real value — there being no statute forbidding such a transaction 
 without subjecting the creditor, surrendering his debt, to the lia- 
 
826 CEEDITOES OF THE CORPOEATION (Ch. 8 
 
 bility attaching to stockholders who have agreed, expressly or im- 
 pliedly, to pay the face value of stock subscribed by them, is, in effect,, 
 to compel them either to suspend operations- the moment they become 
 unable to pay their current debts, or to borrow money secured by 
 mortgage upon the corporate ppoperty. We do not think the statute 
 of Iowa can be properly construed to cause such a result in respect to^ 
 corporations organized under its laws. 
 
 We must not be understood as modifying in any respect the princi- 
 ples laid down in the cases above cited, nor the salutary rule laid 
 down in Sawyer v. Hoag, that when the interest of the public or of 
 strangers is to be affected by any transaction between the stockhold- 
 ers owning the corporation and the corporation itself, "such transac- 
 tion should be subject to a rigid scrutiny, and, if found to be infected', 
 with anything unfair towards such third person calculated to injurfe 
 him, or designed intentionally and inequitably to screen the stockholder 
 from loss at the expense of the general creditor, it should be disre- 
 garded or annulled so far as it may inequitably affect him." "These 
 principles were reaffirmed in- Richardson v. Green, and should not be 
 relaxed in any case in which they may be applied consistently with 
 justice. So, when the interest of creditors require, those who hold 
 shares of stock in a corporation, purporting to be, but which are 
 shown not to have been, paid for to the extent of their face value,, 
 should be held liable to pay for such shares in full, unless it appears- 
 that they acquired the stock under circumstarijpes that did not give 
 creditors and other stockholders just ground for complaint. As said 
 by this court in Peters v. Bain, 133 U. S. 670, 691, 10 Sup. Ct. 354, 33. 
 L. Ed. 696, "unpaid subscriptions to stocks are assets, and have fre- 
 quently been treated by courts of equity as if impressed with a trust 
 sub modo, in the sense that neither the stockholders nor the corpora- 
 tions can misappropriate such subscriptions so far as creditors are 
 concerned." See, also, Graham v. Railroad Co., 102 U. S. 148, l61,. 
 26 L. Ed. 106; Railroad Co. v. Ham, 114 U. S. 587, 594, 5 Sup. Ct. 
 1081, 29 L. Ed. 235 ; Fogg v. Blair, 133 U. S. 534, 541, 10 Sup. Ct. 
 338, 33 L. Ed. 721. * * * 
 
 The judgment below, in our opinion, is in accordance with the law^ 
 as it was adjudged to be when Greene received the stock in question, 
 and surrendered his claim upon the railroad company, and with the 
 law as this court has since that time frequently declared it to be;. 
 and our duty is to so declare in tTie case before us. Judgment af- 
 firmed. 
 
 Brown, J., not having been a member of the court when this case 
 was argued, did not participate in its decision."' 
 
 83 Compare Handley v. Stutz, 139 TJ. S. 417, 11 Sup. Ct. 530, 35 L.'Ed. 227 
 a891); Flinn v. Bagley (D. C.) 7 Fed. 785 (1881);. Chrlstensen v. Eno, 106 
 N. y. 97, 12 N. E. 648, 60 Am. Eep. 429 (1887) ; Vermont Marble Co. v. Deelez 
 Granite Co., 135 Cal. 579, 67 Pac. 1057, 56 I* R. A. 728, 87 Am. St. Rep. 143- 
 (1902). 
 
Sec. 5) BIGHTS AGAINST STOCKHOLDERS 827 
 
 I 
 
 DOWNER V. UNION LAND CO. OF ST. PAUL. 
 (Supreme -Court of Minnesota, 1911. 113 Minn. 410, 129 N. W. 777.) 
 
 Action in the district court for Ramsey county to recover from 
 defendant land company and its stockholders the balance of plain- 
 tiff's judgment, amounting to $3,955.96, with interest ; that the agree- 
 ment by which 17,000 shares of defendant land company were issued 
 as full-paid stock be adjudged fraudulent and void as to plaintiff; 
 that the court ascertain the true value of the land conveyed to the com- 
 pany in exchange for the stock and the percentage of overvaluation 
 at which the land was so taken ; and that plaintiff recover f rpm each 
 of defendants other than the Union Land Company the difference be- 
 tween the par value of the shares of stock owned by each, respective- 
 ly, and the respective amounts actually paid thereon, taking the land 
 at its true valuation, or so much thereof as may be required to pay 
 the amount adjudged to be due plaintiff. The facts are stated in the 
 opinion. From an order, Hallam, J., overruling plaintiff's demurrer 
 to that part of the answer of Ferdinand Willius set out for and num- 
 bered as a second defense, plaintiff appealed. 
 
 Start, C. J.°* This is an appeal by the plaintiff from an order of 
 the district court of the county of Ramsey overruling his demurrer to . 
 the second alleged defense in the answer of the defendant Willius. 
 
 The action was commenced in December, 1909. The, here material 
 allegations of the complaint, briefly stated, are to the effect following : 
 The defendant Union Land Company, hereafter refeirred to as the 
 company, is and has been since 1887 a corporation for pecuniary profit 
 duly organized under the laws of this state. On April 5, 1887, it is- 
 sued 17,000 shares of its capital stock, of the par value of $100 each, 
 as full paid to its organizers, of which 50 shares were delivered to the 
 defendant Willius, hereafter referred to as the defendant. The com- 
 pany, after such issue of stock, became indebted in the sum of $98,- 
 000, and thereafter, for the purpose of securing the money to pay such 
 indebtedness, it issued its bonds, amounting in the aggregate to $126,- 
 000, with 10 per cent, annual interest, payable to trustees or bearer 
 February 1, 1894. The plaintiff purchased 6 of such bonds, each for 
 .$500, and paid therefor $3,000, relying upon the representation that 
 the 17,000 shares of stock so issued had been paid for in full. None 
 of his bonds, or any part thereof, were paid, except interest to Au- 
 gust 1, 1895. He recovered a judgment against the company in the 
 district court of the county of Ramsey, on February 5, 1902, for the 
 amount due on the bonds, $4,979.83. Execution was issued on the 
 judgment and returned satisfied only to the extent of $1,023.87. The 
 balance of the judgment has never been paid and the company is in- 
 .solvent. The organizers and stockholders of the company, including 
 
 64 A part of tlie opinion is omitted. 
 
828 CEBDITOKS OF TiHE CORPORATION (Ch. 8 
 
 the defendant, with the intent of acquiring the 17,000 shares of stock 
 as full paid, when in fact they were not, purchased 1,476 acres of 
 land, for which they paid only $679,289, which was more than it was 
 worth. They caused this land, with cash sufficient to make the price 
 actually 'paid for the stock not more than $850,000, to be transferred 
 and turned over to the cqmpany in payment of the 17,000 shares of 
 stock, an overvaluation of the land of more than $790,000. Such val- 
 uation was not the result of mistake, but was a gross overvaluation, 
 intentionally made by all the parties to the transaction, with the 
 knowledge of all the past and present stockholders of the company, 
 and with the intent to enable such stockholders to acquire, and they 
 did thereby acquire, each his respective portion of the 17,000 shares 
 of the capital stock, by paying to the company therefor not to exceed 
 $50 per share. The 17,000 shares so issued are the only portion of the 
 authorized capital stock of the company which was ever issued. The 
 plaintiff did not discover the fraudulent character of the issue of the 
 17,-000 shares, and was unable with due diligence to discover the same, 
 until the summer of 1906, and such discovery was the^ for the first 
 time made after several years of diligent inquiry. The complaint then 
 alleges in detail the steps taken by the plaintiff to ascertain the facts 
 as to the issue of such stock. The complaint prays, in effect, judg- 
 ment against the company for the amount due on the original judg- 
 ment, and that each of the defendant stockholders be required to pay 
 so much of the difference between the par value of his stock and the 
 amount actually paid by him therefor as may be necessary to pay the 
 judgment against the company, and for general relief. 
 
 The answer of the defendant avers four alleged defenses, viz. : 
 (1) The stock was in fact fully paid. (2) The plaintiff's bonds con- 
 tained an express agreement that the stockholders should in no wise 
 be liable for their payment. (3) The action is barred by the sta|:ute 
 of limitations. (4) Laches. 
 
 The plaintiff replied to all the alleged defenses, except the second, 
 to which he demurred. The trial court overruled the demurrer. The 
 second alleged defense was to the effect : That the bonds of the com- 
 pany drew interest from their date at the rate of 10 peir cent, per ' 
 annum, and their payment was secured by -a trust deed of all of the 
 corporate property. That each purchaser of the bonds, including the 
 plaintiff, entered into an agreement with the company, in considera- 
 tion of the high rate of interest and the provision for the payment of 
 the bonds, which was included in the body of each bond in these 
 words: "It is a condition of the issue of this, bond and the execution 
 of said trust deed that this bond is an obligation of said company 
 only" (meaning said defendant land company) "and that the stock- 
 holders of said company shall not, nor shall any of them, be in any 
 wise liable for the payment thereof, nor shall any holder of this bond 
 be entitled to any remedy to enforce payment thereof against any 
 stockholder. The holder of this bond accepts this condition and 
 
Sec. 5) BIGHTS AGAINST STOCKHOLDBES- 829 
 
 agrees to the terms thereof." And further, that no representations 
 were ever made to the plaintiff that the shares of stock issued by the 
 company were fully paid, or to any extent, except such representations 
 as may be deemed to have arisen from the mere fact that 17,000 
 shares had been issued as fully paid, of which 12,132 shares were 
 outstanding when the plaintiff purchased his bonds. * * * 
 
 2. The pivotal question presented by the record is whether the con- 
 tract as to stockholders' liability contained in the bonds is a defense on 
 the merits to this action. The demurrer admits the execution of the 
 contract, the consideration therefor, and, therefore, its ^validity. Coun- 
 sel for defendant contend that such contract is an absolute bar to 
 this action, and cite in support of the claim, with others, the case of 
 Brown v. Eastern Slate Co. et al., 134 Mass. 590, which was an action 
 to enforce the statutory liability of the defendant stockholders for 
 the payment of certain promissory notes of the company. The stat- 
 ute (Pub. St. Mass. 1882, c. 106, § 61) provided 'that stockholders 
 who had not paid in full the par value of their shares should be joint- 
 ly and severally liable for the debts of the company. The notes were 
 delivered upon a contemporaneous agreement that there should be no 
 personal liability on the notes. It was held that, as no one was per- 
 sonally liable, except by statute,, the contract necessarily referred to 
 the statutory liability, and that it was a defense. 
 
 Another case relied on is U. S. y. Stanford, 161 U. S. 412, 16 Sup. 
 Ct. 576, 40 L. Ed. 751. In this case it was sought to enforce against 
 the estate of Leland Stanford a claim of some $15,000,000 based up- 
 on the Constitution and laws of California, making each stockholder 
 of a railroad corporation liable for its debts in proportion to the stock 
 held by him. It was held that the liability of stockholders of corpora- 
 tions for bonds issued under the Pacific Railroad acts depended, not 
 upon the laws of California, but upon the acts of Congress under 
 which such bonds were issued, 'which provided that the stockholders 
 should not be personally liable for the debts of the corporation. 
 
 The case of Basshor v. Forbes, 36 Md. 154, also cited, was an action 
 ,to recover from a stockholder of a corporation the amount of its 
 promissory note by virtue of a statute providing , that stockholders 
 should be liable for the debts of a corporation to an amount equal to 
 that of their stock "until the whole amount of the capital stock fixed 
 and limited by the corporation shall have been paid in full." Code 
 Md. 1860, art. 26, § 52. It was held that an agreement, made at the 
 time the note was delivered, that the payee should look only to the 
 corporation and the security for its payment, was a defense. 
 
 These cases sustain the proposition that, if a person contracting 
 with a corporation expressly agrees to look only to the corporation 
 and its property for the payment of his debt against it, such agreement 
 will be a waiver of the constitutional or statutory liability of stock- 
 holders for the payment of the debt. It is clear that the agreement 
 contained in the bonds, which we have quoted, released the stockhold- 
 
830 CREDITORS OF THE CORPORATION (Ch. 8 
 
 €rs from any and all liability for the payment of the bonds imposed 
 by the Constitution or statute, and from all liability whatever, in the 
 absence of any element of fraud; that is, if they had then paid the 
 full par value of their stock as represented by the issuance of it as 
 full paid. This is not an action to enforce any constitutional or stat- 
 utory liability of the defendant for the payment of the bonds ; but it 
 is, in effect, one to compel the defendants to make good, so far as 
 may be necessary to satisfy the plaintiff's judgment against the cor- 
 poration, their alleged representation, alleged to have been relied 
 upon by him, that the assets of the corporation had been increased 
 to the full par value of their stock, when in fact only one-half thereof 
 had been paid. 
 
 The question, then, in its last analysis, is whether such a liability 
 was within the contemplation of the parties when the bond agreement 
 was made, and did the plaintiff thereby waive such liability in case he 
 might thereafter 'discover for the first time the facts upon which 
 liability must rest? The right of a creditor to maintain such an ac- 
 tion is settled by the repeated decisions of this court. First National 
 Bank V. Gustin, 42 Minn. 329, 44 N. W. 198, 6 h- R. A. 676, 18 Am. 
 St. Rep. 510; Hospes v. Northwestern Co., 48 Minn. 174, SO N. W. 
 1117, 15 Iv. R. A. 470, 31 Am. St. Rep. 637; Hastings Malting Co. 
 V. Iron Range Co., 65 Minn. 28, 67 N. W. 652 ; Wallace v. Carpenter 
 Co., 70 Minn. 321, 73 N. W. 189, ,68 Am. St. Rep. 530. 
 
 The basis of the action is not contract, but fraud, for the reason 
 that : People deal with the corporation and give it credit on the faith 
 of its stock, and they have the right to assume that it has a paid-in 
 capital to the amount which it represents itself as having. K the rep- 
 resentation is false, it is a fraud on creditors; and, in case the corr 
 poration becomes insolvent, equity will compel the holders of bonus 
 stock, or stock not in fact paid in full, to make the representation 
 good, by paying the balance due on their stodk to the extent necessary 
 to pay creditors whose debts were contracted subsequent to the issuing 
 of the stock as fully paid, and who are presumed to have relied on 
 the representation. It is the misrepresentation of fact in stating the 
 amount of capital to be greater than it is in fact which is the basis 
 of the liability of the stockholders in such cases. A certificate for 
 paid-up shares in a corporation is simply a written statement in the 
 name of the corporation that the holder thereof is a stockholder, and 
 that the full par value of his shares has been paid to the corporation. 
 If the shares in fact have not been so paid for, the certificate that' 
 they have been is a false representation that the assets of the corpora- 
 tion have been increased to the amount of the par value of the stock 
 so issued. 
 
 The very basis of this action clearly indicates that the alleged lia- 
 bility sought to be enforced in this action was not within the contem- 
 plation of the jparties at the time the bond agreement was made, and 
 that it was ndt waived thereby. How can the plaintiff be said to 
 
 •■a 
 
S^<^- S) RIGHTS AGAINST STOCKHOLDERS 831 
 
 have waived a liability, when he had no knowledge of the facts out 
 of which the alleged fraud and consequent liability sprung? Is it rea- 
 sonable to assume that the company or its stockholders intended by 
 the agreement to guard against liability for fraud which from their 
 viewpoint never existed and was not then claimed by arty one? We 
 hold that the agreement here in question does not constitute a waiver 
 by the plaintiff of the alleged liability sought to be enforced by this 
 action, nor a defense thereto. 
 
 It was alleged in the second defense, and admitted by the demurrer, 
 that no representations were ever made to the plaintiff that the shares 
 of stock were fully paid, except tjie fact that they wer,e issued as 
 fully paid ; that he made no inquiries either as to the amount thereof, 
 or the amount paid thereon ; and that he had no information in regard 
 thereto. It is urged, in effect, on behalf of the defendant, that in view 
 of this admission the plaintiff did not rely on any representation that 
 the stock was fully paid. We cannot concur in this view of the effect 
 of the allegations referred to. The complaint expressly alleged that 
 the plaintiff, relying upon the representation that the shares had been 
 paid in full, purchased and paid for his bonds. This allegation is put 
 in issue by the general denial contained in the first defense. The al- 
 legation in the second defense relied on is simply a statement of evi- 
 dentiary facts relevant to the issue whether the plaintiff did in fact 
 rely upon the representation as alleged in the complaint. It does not 
 appear upon the face of the second defense that the plaintiff ,did not 
 rely upon the representation. 
 
 With reference to a trial of this issue we deem it proper to say that 
 the presumption of reliance by creditors upon the representation that 
 stock issued as fully paid is so in fact is only prima facie. The rule 
 in such cases is that : "It is only those creditors, who have relied, or 
 who can fairly be presumed to have relied, upon the professed amount 
 of capital, in whose favor the law will recognize and enforce an equity 
 against the holders of 'bonus stock.' " Hospes v. Northwestern Co., 
 48 Minn. 174, SO N. W. 1117, 15 L. R. A. 470, 31 Am. St. Rep. 637. 
 
 It follows that the demurrer to the defense should have been sus- 
 tained. Order reversed. 
 
 Jaggard, J., took no part.*" 
 
 BRANT v. EHLEN et al. 
 (Court of Appeals, of Maryland, 1882. 59 Md. 1.) 
 The Virginia Coal & Iron Company was incorporated in 1865. Pur- 
 suant to a proposition made to the company by Ehlen on behalf of 
 
 6 6 See Hospes v. Northwestern Mfg. Co., 48 Minn. 174, 50 N. W. 1117, 15 
 L K A 470, 31 Am. St. Rep. 637 (1892). 
 
 'compare Easton National Bank v. American Brick & Tile Co., 69 N. J. 
 Eq. 326, 60 Atl. 54 (1905). 
 
S32 CREDITORS OF THE CORPORATION (Ch. 8 
 
 himself and other incorporators, the company purchased and took pos- 
 session of a tract of coal land for $500,000 ; the purchase price being 
 $25,000 in cash, and the balance $475,000 in the stock of the company. 
 The stock was delivered. Subsequently the plaintiff. Brant, success- 
 fully pursued a claim of title to an undivided seven-eighths interest 
 in said tract of land, and a decree was obtained for the sum of 
 $328,042.99 on account of coal taken by the company. This suit is 
 instituted! to enforce payment against defendants as stockholders in the 
 company. 
 
 The bill alleges that the company is insolvent and at least ninety 
 per cent, of the shares held by the defendants remain unpaid. These 
 shares were issued as fully paid, the certificates being in the ordinary 
 form, with nothing on their face to indicate they are not full paid. 
 They were purchased and held by the defendants, with the exception 
 of Ehlen, as full-paid shares, with no notice of fraud or irregularity 
 in their issue."" 
 
 Robinson, J."' * * * First. Whether as bona fide transferees 
 of shares of stock issued by the company to the original subscribers as 
 full-paid shares, and sold by them as such, the defendants are liable 
 in an action by a creditor of the company for unpaid instalments on 
 said shares, if it should turn out, that they were not in fact full-paid 
 shares? * * * 
 
 Were it a question of first impression, we do not see on what grounds 
 the liability of the defendants as bona fide transferees could be main- 
 tained. The liability for subscription to the stock of a corporation is 
 founded on contract. Where one agrees to take a certain number of 
 shares, the law implies a promise to pay for them according to the 
 terms of his subscription. If they are sold before all the instalments 
 are paid, and are bought with such knowledge, the law implies a prom- 
 ise on the part of the purchaser to pay whatever may be due thereon, 
 according to the terms of the original subscription. In such cases the 
 purchaser stands in the shoes of the original subscriber. These are 
 elementary principles, about which there can be no contention. But 
 where shares are issued by the company to the subscriber as full-paid 
 shares, and are sold by the subscriber as such, there is no ground on 
 which a promise can be implied on the part of the purchaser without 
 notice, to be answerable either to the company or to its creditors, 
 should the representations on the faith of which he purchased, prove 
 to be false. He could not be held liable on the ground of contract, be- 
 cause he never agreed to purchase any other shares, than full-paid 
 shares; and if it be said that the shares were fraudulently issued, he 
 could not be held liable on the ground of fraud, because he was in 
 no sense a party to the fraud. The company beyond all question could 
 not under such circumstances, maintain an action against him, because 
 
 ee statement of facts substituted. 
 87 A part of the opinion is omitted. 
 
Sec. 5) EIGHTS AGAINST STOCKHOLDERS 83J{ 
 
 it would be estopped by its own acts and declarations^ But the argu- 
 ment is, that independent of the relation of debtor andl creditor be- 
 tween the stockholder and the company growing out of thie contract of 
 subscription, there is another relation which the subscriber sustains to 
 the creditors upon the insolvency of the company. That as to them, 
 the unpaid subscription constitutes a trust-fund, which is beyond the 
 reach of any agreement between him and the company to divest or 
 impair. 
 
 In speaking of the assets of an insolvent corporation, as constituting 
 a trust- fund for the payment of creditors, it is necessary to understand 
 precisely what is meant by the Courts. No one will pretend for a 
 moment, that in subscribing to the stock of a company, the purpose 
 is to create a trust-fund for creditors. On the contrary, the object 
 primarily is to furnish means to carry on its business, and to share the 
 profits earned by the corporation ; and so long as it is a going con- 
 cern, it has the right, and indeed it is its duty to manage and dispose of 
 its^ assets, including stock subscriptions, for the promotion of its own 
 interest. If it ceases to do business, or if it becomes insolvent, then 
 all assets which it then has or owns, including paid and unpaid sub- 
 scriptions, either in the hands of the original subscriber, or in the 
 hands of his assignee with notice, become a trust-fundl, for the pay- 
 ment of creditors, and they have the right to follow the property con- 
 stituting this fund, and subject it to the payment of their debts, unless 
 it has passed into the hands of a bona fide purchaser without notice. 
 And further, if there has been any fraudulent or collusive disposition 
 of the assets of the corporation, all who participate in the fraud may 
 be held liable to the creditors. 
 
 In Sanger v. Upton, Assignee, 91 U. S. 60, 23 L. Ed. 220, where 
 this doctrine of trust-fund is as strongly asserted as in any other case, 
 the Court say, "The capital stock of an incorporated company is a 
 fund set apart for the payment of its debts. If diverted the creditors 
 may follow it so far as it can be traced, and subject it to the payment 
 of their claims except as against holders who have taken it bona fidle 
 for a valuable consideration and without noti.ce." 
 
 This is what the Courts mean in speaking of the assets of an in- 
 solvent corporation constituting a trust-fund for the payment of cred- 
 itors, and as thus understood, it furnishes no ground on which the 
 liability of the defendants as bona fide purchasers of stock, issued, as 
 full-paid, can be maintained, although such stock was not in fact full- 
 paid. If this be so, on what other ground is the superior equity of 
 the creditor based ? 
 
 It was said, the purchaser ought to ascertain by inquiry, whether 
 the stock issued by the company was in fact full-paid. It must be 
 admitted, however, that this obligation rests with equal, if not greater, 
 force on the creditor. He deals directly with the company, and has, 
 it is fair to presume, greater means and facilities for ascertaining its 
 RicH.CoEP. — 53 
 
834 CKBDITOES OF THE COEPOEATION (Gh. 8 
 
 real condition, and its claims to confidence and credit, than the pur- 
 chaser of stock which is sold on the market, and sold too in most inr 
 stances, at a distance from the company's place of business. Shares 
 of stock are not, strictly speaking, negotiable instruments, but Courts 
 speak of them as quasi negotiable ; and when they are issued as full- 
 paid shares, and) as such sold in open market, the purchaser is not 
 bound to suspect fraud where everything seems fair and conformable 
 to the requirements of the law. Any other doctrine would virtually 
 destroy the transferable nature of such shares, and paralyze the whole 
 of the dealings in the stock of corporations. Burkinshaw v. Nicholls> 
 26 W. R. House of Lords, 821. 
 
 Were this then a question to be decided on principle, we do not 
 see on what grounds these defendants could be justly held liable to the 
 creditors of the company. And such seems to be the whole current 
 of decisions both in England and in this country. In Nicholls' Case, 
 Court of Appeals, 26 Weekly Rep. 334, shares were issued by the com- 
 pany as full-paid shares, when in fact there was no payment in money, 
 nor any registration of the contract of subscription, as required by the 
 Companies' Act of 1867, and upon the winding up of the company, 
 some of these shares were held by Nicholls, trustee, as transferee with- 
 out notice that such shares had not been paid in money. Suit was 
 brought by the official liquidator against Nichols for contribution, and 
 the Court held that he was not liable. "When you have a receipt giv- 
 en you by the company or a final receipt as a certificate of payment," 
 said Jessel, M. R., what more is a bona fide purchaser to ask for, and 
 what occasion has he to make any further inquiry ? "He has the repre- 
 sentation of the company, by the certificate, that the shares are fully 
 paid up. It appears to me impossible that the company should be al- 
 lowed to say the shares were not paid up in due course." Qn appeal 
 the judgment in this case was affirmed by the House of Lords, and 
 in speaking of the rights of the defendant as a bona fide purchaser 
 without notice. Lord Cairns said: "He receives a representation to 
 the effect, that the law has been complied with, and, it would paralyze 
 the whole trade in company's shares, if a person taking shares with a 
 representation that they are fully paid up, must disregard this asser- 
 tion, and satisfy himself of the fact by personal inquiry." And in 
 Bush's Case, L. R. Ch. App. 555, where shares were allotted to Tucker, 
 as full-paid shares, and by him transferred to the defendlant as such, 
 when in fact no money had been paid as required by the Companies' 
 Act, the appeal was spoken of by Sir Wm. M. James, "as an idle and 
 vexatious appeail." And in the still later case of Waterhouse v. Jamie- 
 son, Law Rep. 2 Scotch and Divorce App. 38, Lord Westbury said, 
 "The appellant is a bona fidte holder of shares, upon which, no doubt, 
 there was a false statement made by the company, of which he had 
 no knowledge, and as to which he was under no obligation to inquire, 
 
Sec. 5) EIGHTS AGAINST STOCKHOLDERS 835 
 
 and therefore cannot be subjected to liability by having imputed to 
 him knowledge of the falsehood." ( 
 
 Against the force of these decisions it is argued that the English 
 Courts accord to credStors of insolvent corporations such rights only 
 as the official liquidator can assert in the name of the corporation, andl 
 through its contracts ; and that the ground on which a bona fide pur- 
 chaser of stock issued as full-paid is held not to be liable, although 
 such stock was not in fact full-paid, is that the liquidator is estopped 
 from denying the representation madle by the company, upon the faith 
 of which others have been induced to purchase the stock. In this coun- 
 try, however, it is said the Courts accord to creditors rights growing 
 out of the relation of stockholder, which upon the insolvency of the 
 corporation attach at once to unpaid shares, whether in the hands of 
 the subscriber or his assignee, and that the inquiry here is not whether 
 the holder took the stock in good faith believing it to have been paid 
 up, but whether the stock has in fact been fully paid 
 
 This distinction is not, we think, supported by the decided cases. 
 On the contrary, all the decisions in this country agree that the right 
 of the creditor to recover against the stockholder rests on the liability 
 of the latter to the corporation, and that this liability is one founded 
 on contract. Where shares of stock are issued to be paid in certain 
 instalments, the law implies a promise on the part of the subscriber 
 and his assignee, that they will pay. whatever may be due thereon ac- 
 cording to the terms of the subscription. But where shares are issued 
 as fully paid, and these are sold in open market, and one buys them in 
 good faith on the representation of the company that they are paid up 
 no promise can be implied on the part of the purchasers to become 
 liable if such shares -have not in fact been paid. He is not bound to 
 suspect fraud in issuing, the stock, and the remedly of the creditor in 
 such cases is a^^ainst the parties to the fraud. In Foreman v. Bigelow, 
 4 Cliff. 509, fed. Cas. No. 4,934, and Steacy v. Little Rock Railroad 
 Co., 5 Dill. 348, Fed. Cas. No. 13,329, the whole subject was considered 
 and the English doctrine was fiilly approved. In the one. Justice Clif- 
 ford quotes with approval the opinions delivered by James, L,. J., and 
 Thesiger, L,. J., in NichoUs' Case, and in the other. Justice Dillon re- 
 lies on the opinions of Lords Cairns, Hatherley, Selborne and Black- 
 burn, delivered in the same case on appeal to the House of Lords. And 
 in all the cases relied on by the appellant as sustaining a contrary doc- 
 trine, it will be found either that the certififcates on their face showed 
 that the shares of stock were not in fact full-paidl or the facts and cir- 
 cumstances accompanying the transfer, were' such as to put the pur- 
 chaser on inquiry. Upton, Assignee, v. Hansbrough, 3 Biss. 417, 
 Fed. Cas. No. 16,801 ; Upton, Assignee, v. Tribilcoek, 91 U. S. 45; 
 23 L. Ed. 203; Boorman's Case, 12 Conn. 530; Bend v. Susquehanna 
 
836 CREDITORS OF THE COEPOEATION (Ch. 8 
 
 Bridge Co., 6 Har. & J. 128, 14 Am. Dec. 261 ; Hall v. U. S. Ins. Co., 
 5 Gill, 484; Palmer v. Laurence, 3 Sandf. (N. Y.) 161. * * * 
 Decree affirmed."* i 
 
 II. By Statute 
 
 CORNING et al. v. McCULLOUGH. 
 (Court of Appeals of New York, 1847. 1 N. T. 47, 49 Am. Dec. 287.) 
 
 Jones, J.«» Corning and Horner, the plaintiffs in error, made a sale 
 of merchandise to the Rossie Galena Company, wherein the defendant 
 in error was a stockholder, and after obtaining a judgment against the 
 company for the amount thereof, and after an execution, issued on 
 the said judgment, had been returned unsatisfied, brought this action 
 against the defendant in error as being a stockholder and member of 
 the company, and personally liable for the debt. The defendant plead- 
 ed in bar of the action that the cause of action did not accrue to the 
 plaintiffs within three years next before the. commencement of the suit. 
 To this plea the plaintiffs demurred, and the Supreme Court gave judg- 
 ment against them. That judgment is now before this court for review. 
 The question is, whether the statute limitation of three years for the 
 commencement of actions on statutes for a forfeiture or cause, the 
 benefit and suit whereof is limited to the party aggrieved, or to such 
 party and! the people of the State applies to this case, and bars the 
 plaintiffs' action. The Revised Statutes contain a general provision 
 limiting the time to six years within which actions of account, assump- 
 sit, or on the case, founded on any contract or liability, express or im- 
 plied, are to be commenced, as expressed in the 4th subdivision of sec- 
 tion 18 of the 2d article of title 2d of the chapter entitled, "of actions 
 and the times of commencing them," which the plaintiff's suppose to 
 apply to this action. And those statutes also contain a special provi- 
 sion declaring, that all actions upon any statute, made or to be made for 
 any forfeiture or cause, the benefit and suit whereof is limited to the 
 party aggrieved, or to such party and the people of this State, shall be 
 commenced within three years after the offense committed, or the 
 cause of action accrued, and not after, as expressed in section 31, in 
 the 3d article of said title and chapter; and within this provision the 
 defendant claims the present suit to come. To which of these classes 
 does this action properly belong? * * * 
 
 The ground of the action is the individual liability of the defendant 
 to pay for merchandise sold and delivered to a company of which he 
 
 88 See Waterhouse v. Jamieson, L. R. 2 H. of L. 29 (1870); In re Western 
 of Canada Oil Lands & Works Company, L. R. 1 CU. D. 115 (1875) ; Higgins 
 V. Illinois Trust & Savings Bank, 193 111. 394, 61 N. E. 1024 (1901). 
 
 Compare In re Provident Life & Guaranty Ass'n, L. R. 5 Ch. D. 306 (1876). 
 
 8 9 Statement of facts omitted, as sufficiently stated in the opinion, a part 
 of which is omitted. 
 
Sec. 5) EIGHTS AGAINST STOCKHOLDERS 837 
 
 was at the time a member. If that company had been a voluntary un- 
 incorporated association of individuals, using the name of the Rossie 
 Galena Company in its operations, the liability for its engagements 
 would have been clear, and his defense in point of form to an action 
 against him solely for a debt of the company, would have been the 
 non-joinder of his associates with him in the action. How has the 
 act of incorporation in this case shielded! the stockholders from that 
 responsibility for the debts of the company, which, acting without 
 it, they would have incurred? It is not a general unqualified incor- 
 poration of the company imparting to the stockholders and members 
 composing it as a leg&l consequence an exemption from personal lia- 
 bility for the debts and engagements of the body corporate. It is a 
 legislative grant of a special qualified corporate capacity, with adequate 
 plenary powers for the purposes of its institution, but with the per- 
 sonal liability of the stockholders for the debts the company shall con- 
 tract, and the liabilities they shall incur. The statute, at the same time 
 that it incorporates the company, and thereby enables them to con- 
 tract debts in their corporate names, provides that the stockholders 
 who compose the company, and for whose use and benefit purchases 
 are made and debts contracted, in their corporate name shall, notwith- 
 standing their incorporation, be jointly and severally personally liable 
 for the payment of all debts or demands contracted by the company, 
 and that any person having any demand against the corporation, may 
 sue any stockholder, director or directors, in any court having cogni- 
 zance thereof, and recover the same with costs. The Legislature thus 
 concurrently with the. creation of the body corporate, andl in the same 
 statute which creates it, enacting and providing that it shall not possess 
 the capacity nor have the legal effect and operation which an unqual- 
 ified act of incorporation would possess and have of imparting to its 
 stockholders irresponsibility for its debts, or of contracting debts in 
 its corporate name on the responsibility of the corporation, solely and 
 so as to exempt its stockholders from pergonal liability therefor. If 
 then the incorporation of this company does not shield or exempt its 
 corporators and members from individual responsibility for the debts 
 and engagements of the company, but leaves them, under the common 
 law liability, as partners or joint debtors for those debts and engage- 
 ments, must it not follow that the defendant, McCullough, he being a 
 stockholder in^the Rossie Galena Company at the time the debt of that 
 company to these plaintiffs was contracted, became, on the consumma- 
 tion of the contract by the delivery of the goods to the company, liable 
 for the payment of the debt contracted thereby? The act of incorpora- 
 tion affording him no protection therefrom, and not only leaving him 
 personally liable therefor, but in express terms recognizing and affirming 
 such liability, what defense could he make to an action charging him 
 as a partner or joint debtor on the contract of the company? The 
 personal liability of the stockholders to creditors under this charter, 
 for the dtbts of the company, is an element of the incorporation which 
 
838 CREDITORS OP THE CORPORATION , (Ch. 8 
 
 wholly excludes all claim of any stockholder to treat those debts as 
 debts of the corporate body Isolely, which he did not contract and is not 
 bound to pay. The stockholders all stand undter this act of incorpora- 
 tion on the same ground, and under the same responsibility as respects 
 creditors, as they would if unincorporated have stood. This liat)ility 
 the stockholders voluntarily assumed, and it could not have been mis- 
 understood by them. It is fully and clearly expressed in the act of 
 incorporation. The original stockholders, by their acceptance of the 
 charter, and subsequent purchasers in becoming members, assented 
 and agreed to the terms and condlitions of the act of incorpora- 
 tion. * * * 
 
 In this view of the matter it is entirely clear, that the three years 
 statute of limitations is not applicable to the case. I am, therefore, 
 of opinion that the judgment of the Supreme Court should be reversed, 
 and that judgment should be rendered for the plaintiffs on the de- 
 murrer. Ordered accordingly. 
 
 Bronson, J., concurred. JEWETT, C. J., dissented.'" 
 
 HARRIS v. FIRST PARISH IN DORCHESTER. 
 (Supreme Judicial Court of Massachusetts, 1839. 23 Pick. 112.) 
 
 Morton, J., afterward drew up the opinion of the Court. 
 
 This is an action of assumpsit, brought by one of the creditors of 
 the Franklin Bank against one of the stockholders, to recover the 
 amount of a post note which the bank has refused to pay. It is found- 
 ed upon the 30th section of the 36th chapter of the Revised Statutes. 
 There appear to be many creditors of the Franklin Bank equally unable 
 to obtain their pay of the corporation, and equally entitled! to a remedy 
 against the stockholders. 
 
 The first question which arises in this case, is, whether an action 
 in this form can be maintained. 
 
 The section under consideration provides, that "if any loss or defi- 
 ciency of the capital stock in any bank shall arise from the official 
 mismanagement of the directors, the stockholders at the time of such 
 mismanagement shall, in their individual capacities, be liable to pay the 
 same ; provided, that no stockholder shall be liable to pay a sum, exceed- 
 ing the amount of the stock actually held by such stockholder, at the 
 time." The main object of the legislature in enacting this provision, 
 cannot be misunderstood. It was to give the creditors security upon the 
 individual property of the corporators, for the amount of the capital 
 
 '» See Matteson v. Dent, 176 U. S. 521, 20 Sup. Ot. 419, 44 L. Ed 571 
 <1900) ; Hawthorne v. Calef , 2 Wall. 10, 17 L. Ed. 776 (1864) ; McClaine v 
 Rankin, 197 U. S. 154, 25 Sup. Ct. 410, 49 I* Ed. 702, 3 Ann. Cas. 500 (1005)' 
 
^^*^- ^) BIGHTS AGAINST STOCKHOLDBES 839 
 
 Stock; at least so far as that depended) upon the faithful administra- 
 tion of the affairs of the corporation. But this section is general and 
 brief and not free from obscurity. If the capital be reduced by the 
 misconduct of the officers, the stockholders are bound to replace it. 
 The section does not impose upon them the obligation to pay the debts 
 of the bank or to" redeem the bills and notes, or even to keep the capital 
 of the bank goodi; but only to supply the deficiencies which may have 
 been caused by the mismanagement of the directors. If the capital 
 be wasted and the debts greatly exceed the amount of the capital, the 
 stockholders are only bound to restore the lost capital. And the cred- 
 itors can only recover to the amount of the assets of the bank. It is 
 not easy to see the necessity of the proviso ; for in no event are the 
 stockholders bound to pay more than the amount of their stock, which 
 in the aggregate would form the capital of the bank. It may however 
 be useful to guard against the implication, that the solvent stockholders 
 would be bound to supply the deficiency of the insolvent ones. 
 
 The legislature having made this provisi'on for the security of the 
 bill holders and other creditors of the banks, undoubtedly intended 
 that it should be executed, in the most full and) perfect manner and 
 according to the known usages and established rules of law. The mode 
 of redress is not prescribed, but is left to analogy and inference. We 
 have no precedent to guide us. This is the first action which has been 
 brought on this statute or the previous ones of which it is a revision. 
 The cases of Vose v. Grant, 15 Mass. 505, and Spear v. Grant, 16 
 Mass. 9, were actions at common law. And the case of Bond v. Apple- 
 ton, 8 Mass. 472, 5 Am. Dec. Ill, was founded on a statute of New 
 Hampshire. There; is however tpo much reason to fear, that frequent 
 resort, in some form or other, to the important principle here estab- 
 lished, will become necessary. Indeed there are now pending several 
 suits in equity founded on this or the next subsequent section, which 
 contains principles somewhat analogous. 
 
 The objection that the stockholders are not liable to any suit by the 
 creditors of the bank, but only to the corporation itself, we think can- 
 not be sustained. Such a remedy would! be entirely unavailing. It 
 cannot be supposed that the officers of a bank, who by their own wrong 
 had squandered the whole or a part of the capital, would compel the 
 stockholders, including themselves, to make up the deficiency ; nor can 
 we expect that the stockholders would remove the delinquent officers 
 and choose others for the purpose of making themselves liable. We can- 
 not therefore suppose that the legislature intended to establish a rem- 
 edy so totally inadequate and ineffectual. Andl we have no doubt the 
 creditors of the bank are entitled to an action of some kind directly 
 against the stockholders. 
 
 The real question is, whether a suit at law or in equity, is the prop- 
 er remedy. It is a well known principle,, that when a statute creates 
 a right but dbes not establish any particular remedy, the common law, 
 
840 CEEDITOES OF THE CORPORATION (Ch. 8 
 
 to effectuate the purposes of the statute, interpose's and supplies a con- 
 venient and adequate remedy suited to the case. Or more properly 
 speaking, the legislature, by necessary implication, adopt such remedy. 
 
 The plaintiff's counsel has referred us to the case of Bond v. Ap- 
 pleton. And doubtless that case suggested the form of declaration 
 here adopted. But the statute upon which that action was brought, 
 is in some respects widely different from the one under consideration. 
 That statute makes the stockholders jointly and severally liable to the 
 bill holders, for the whole amount of the outstanding bills. But the 
 liability of our stockholders is limited to the amount of their stock;' 
 and no judgment can be rendered against them for a greater amount, 
 nor for any purpose but to replace lost capital. That action failed ; 
 and it would be immaterial to inquire whether it could have been sus- 
 tained or not in that form. 
 
 It is said by the plaintiff's counsel, that the provision in the 32d sec- 
 tion, for a remedy over by a stockholder who has paid more than his 
 proportion, against those who have paid less, implies that separate ac- 
 tions may be maintained. It may well be doubted, whether this remedy 
 for contribution is not confined to cases arising under the 31st section. 
 This would satisfy the words of the section, and seems to be the most 
 obvious and natural construction. 
 
 If actions at law will lie, under the 30th section, suits may be mul- 
 tiplied to an indefinite extent. Each bill holder or other creditor must 
 have his separate suit, and each stockholder must be sued separately. 
 Again, suits between stockholdlers to adjust their contributions, would 
 be interminable. If a creditor's" demand be larger than the amount of 
 stock owned by any one, he must have several suits against several 
 individuals on the same cause of action, or lose a part of his just de- 
 mand. If any one stockholder, owned more stock than was needed to 
 meet any one claim made upon him, he wouldl be liable to several suits. 
 
 It may happen, and probably has happened in this instance, that a 
 bank owes more than the amount of its whole capital. In^such case 
 there must either be a pro rata division among the creditors, of what 
 may be recovered, which would be impracticable in suits at law, or 
 those who sue first must recover the whole of their debts, leaving oth- 
 ers totally remediless, which would be palpably unjust. 
 
 The evils and inconveniences of attempting to enforce this section 
 by suits at common law, would be incalculable ; and such remedly would 
 be inadequate, vexatious and mischievous. The only proper means of 
 giving effect to this provision is by a process irj equity; and this, of 
 all cases which can arise, seems to call most loudly for a chancery 
 jurisdiction. To a bill in equity all persons, however numerous, might 
 be made parties; and all the relative and conflicting claims of the 
 many creditors and stockholders settled and their proportionate rights 
 to recover and Uabilities to contribute, adjusted in a single suit. 
 
Sec. 5) EIGHTS AGAINST STOCKHOLDERS 841 
 
 We are all therefore of opinion, that this case comes within the 
 equity jurisdiction of the Court; and that an action at law will not 
 lie. PlaintiflE nonsuit.'^^ 
 
 LAURAGLENN MILLS v. RUFF; SAME v. FREIDHEIM & 
 BRO.; SAME v. RODDY. 
 
 (Supreme Court of South Carolina, 1899. 57 S. C. 53, 35 S. E. 387, 49 L. 
 
 B. A. 448.) 
 
 McIvER, C. J.^* The appeals in the three cases above stated, in- 
 volving the same question, were hear-d and will be considered together. 
 The actions were brought by the plaintiff, as a creditor of the Globe 
 Cotton Mills, an insolvent corporation, to recover from the defend- 
 ants, severally, 5 per cent, of the amount of the stock held by the de- 
 fendants, respectively, in said insolvent corporation. The statute reads 
 as follows: "That each stockholder in any such corporation shall be 
 jointly and severally liable to the creditors thereof in an amount, be- 
 sides the value of his share or shares therein, not exceeding five per 
 cent, of the par value of the share or shares held by such stockholder 
 at the time the demand of the creditor was created," etc. ; the balance 
 of the section not being pertinent to the present inquiry. Section 1500, 
 Rev. St. 1893. Each of the defendants answered, setting up, amongst 
 other things, the defense, by way of set-off, that the Globe Cotton 
 Mills was indebted to each of them in an amount exceeding the amount 
 of plaintiff's demand To such defenses the plaintiff demurred in 
 each of the three cases, upon the ground that the indebtedness of the 
 Globe Cotton Mills to the defendants, respectively, cannot be plead- 
 ed as a defense, by way of set-off, to the demand of the plaintiff. 
 These demurrers were overruled by the circuit judge in a short order, 
 giving, no reasons ; and the plaintiff appeals in each of the cases upon 
 the grounds set out in the record, which need not be set out here, as 
 the sole question presented for the decision of this court is whether 
 a stockholder in a corporation, who is also a creditor of such corpo- 
 ration, can set up, by way of defense, his claim against the corporation, 
 to an action at law brought by a creditor of such corporation, who is 
 not a stockholder, to recover from him the amount of his statutory 
 liability. 
 
 So far as we are informed, we have no case in this state which de- 
 cides this particular question, and the authorities elsewhere are not in 
 harmony. We must therefore rest our decision upon reason, aided 
 by such authorities elsewhere as seem to us to be the better founded 
 
 71 Accord- Coleman v. White, 14 Wis. 762, 80 Am. Dec. 797 (1861) ; Pol- 
 lard V. Bailey, 20 Wall. 520, 22 L. Ed. 376 (1874). 
 
 Contra: Bank of Poughkeepsie v. Ibbotson, 24 Wend. (N. Y.) 473 (1840). 
 T2 A part of the opinion is omitted. 
 
842 CREDITOES OF THE CORPOEATION (Ch. 8 
 
 in reason. It is conceded that if this were an action on the equity side 
 of the court, in the nature of a creditors' bill, the right of set-off here 
 claimed could not be allowed, under the authority of Parker v. Bank, S3 
 S. C. 583, 31 S. E. 673, 69 Am. St. Rep. 888, and Efird v. Investment 
 Co., 55 S. C. 78, 32 S. E. 758, 897, besides other cases that might be 
 cited. But it is contended that the rule does not apply to a case like 
 this, where a single creditor of an insolvent corporation brings an ac- 
 tion at law against a single stockholder of such corporation to recover 
 the amount of his liability fixed by the statute. ' We are unable to' 
 perceive any sufficient reason for the distinction claimed. At common 
 law the stockholders of a cofporation could not be liable individually 
 for the debts of such corporation. But the growth of these artificial 
 bodies has become so great, and their powers so extensive, that the leg- 
 islature has deemed it necessary, when asked to confer upon an as- 
 sociation of persons corporate powers, to accompany the grant of such 
 powers with such qualifications and conditions as are supposedl to be 
 necessary for the protection of individual, citizens, — ^especially creditors 
 of corporations. One of these conditions is that the persons composing 
 such a corporation (the stockholders) shall become liable individually 
 for the debts of the corporation, to the extent prescribed by the charter 
 of such corporation. 
 
 Now, what are the rights conferred upon a creditor of the Globe 
 Mills by the charter of that corporation? This question can best.be 
 answered! in the language of this court in the case of Hall v. Klinck, 
 25 S. C, at page 356, 60 Am. Rep. 505, when the court was considering 
 the scope aild effect of another charter, practically the same as that of 
 the Globe Mills, so far as it related to the provision making stock- 
 holders liable for the debts of the corporation to the extent prescribed. 
 There the court said : "It seems to us that the intention of the legisla- 
 ture, as derived from the language used in the charter now under .re- 
 view, was to protect the interests of creditors, and not stockholdlers. 
 of the corporation, by affording the' former a cheap and expeditious 
 mode of enforcing the payment of their debts ; thus insuring, as far 
 as practicable, the utmost good faith and the most prudent management 
 on the part of those interested in corporations, which, by virtue of 
 associated capital, energy, and brains, necessarily acquire large ad- 
 vantages over the individual citizen. If the liability secured by this act 
 could only be enforced by a proceeding in equity, oftentimes tedious 
 and expensive, it would amount to a practical denial of the security 
 intended to be afforded, in many cases; for creditors holding srtiall 
 demands would be deterred, by the expense and delay which -they 
 would have to encounter, from availing themselves of the remedy pro- 
 vided." Hence it was held in that case that there was no error on 
 the part of the circuit judge in holding that the plaintiff could main- 
 tain an action at. law against a single stockholder to recover the amount 
 due him to the extent of the liability imposed upon him by the charter. 
 
Sec. 5) RIGHTS AGAINSI STOCKHOLDERS 843 
 
 If, therefore, such an action can be maintained, then it must, in the 
 absence of any provisions to the contrary in the charter (and there 
 is' nothing of the kind here)j be governed by the same rule as would 
 apply to any other action at law on an ordinary money demand. 
 
 One of these well-settled rules is that in such an action, to entitle' 
 the defendant to plead a set-off as a defense/, the claims must be mutu- 
 al ; and here the essential element of mutuality is entirely wanting, 
 for it is not pretended that the plaintiff owes defendant anything, but 
 the defendant is seeking to escape a liability imposed upon him by 
 statute, by showing that this insolvent corporation, from which plain- 
 tiff has been unable to obtain payment of his claim, owes him a debt. 
 In other words, the proposition relied upon by defendants in support 
 of their claim amounts practically to this: That a stockholder of an 
 insolvent corporation, when sued by a creditor of such corporation for 
 the liability imposed upon each stockholder by the terms of the charter 
 of the corporation, may avoid such liability by showing that the cor- 
 poration is indebted ,to him in an amount exceeding the plaintiff's claim. 
 Such a proposition does not commendl itself to our approval, especially 
 when, in many cases, such a proposition, if approved, would defeat the 
 very object of the statutory provision, which, as we have seen, was 
 intended "to protect the interests of creditors, and not stockholders." 
 If it should be said, as has been said in some of the cases, that to re- 
 fuse to allow a stockholder, when sued by a single creditor, to plead 
 as a defense, by way of set-off, that the corporation is indebted to 
 him, that it would sometimes operate inequitably as between the de- 
 fendant in such a case and the other stockholders, the answer may be 
 found in the case just ci'ted, where the court, in referring to this point, 
 used the following language: "If the remedy given operates harshly 
 or inequitably as between the stockholders themselves, it is for them, 
 and not the creditors, to invoke the aid of that tribunal which has the 
 power to adjust the equities amongst themselves;" citing Ogilvie v. 
 Insurance Co., 22 How. 380, 16 L. Ed. 349. See, also, a similar view 
 thrown out by Denis, J., in Garrison v. Howe, 17 N. Y. 458,— one of 
 the cases cited by appellant in its argument here. 
 
 On the other hand, it "may be said that to allow a defense by way 
 of set-off in i case like the present would in some cases result in giv- 
 ing the stockholder, who is likewise a creditor of an insolvent cor- 
 poration, a preference over all the other creditors ; for it would not be 
 difficult to conceive of a case in which a stockholder, who is also a 
 creditor of an insolvent corporation, might be able to obtain satisfac- 
 tion in full of his claim against such corporation, if he is albwed 
 to set off such claim as a defense to an action brought by an outside 
 creditor to recover from such stockholder the amount of his statutory 
 liability, while all the other creditors would be able only to obtain a 
 smai; percentage of their claims. * * * 
 
844 CREDITORS OF T^B CORPORATION (Ch. 8 
 
 The judgment of this court is that the orders appealed from be re- 
 versed, and that the cases be remanded to the circuit court for such 
 further proceedings as may be necessary.'* 
 
 JACKSON V. MEEK. 
 
 (Supreme Court of Tennessee, 1888. 87 Tenn. 69, 9 S. W. 225, 10 Am. St. 
 
 Rep. 620.) 
 
 Farrer, Special Judge. The facts of this contention necessary to 
 be stated are as follows : 
 
 The Chronicle Company was regularly incorporated a body politic 
 and corporate in January, 1883, under the act of the legisl^iture en- 
 titled "An act to provide for the organization of corporations," ap- 
 proved March 23, 1875, and section 21 of said act. The defendant, 
 Meek, was one of its charter members, and continued a stockholder 
 therein down to November, 1885, when he disposed of his stock. 
 Plaintiff, Jackson, also owned some stock in the iChronicle Company, 
 bu't disposed of it before defendant. Meek, parted with his stock. 
 Jackson was in the service of the company from February, 1885, to 
 the following June, at a salary of $12 per week. In December, 1885, 
 Jackson had settlement of his wage-account with the company, when 
 it was found that there was due him thereon $199.17; he receipted . 
 the pay-roll of the company, but received no money, and took the 
 company's note for the amount due him for wages. While in the 
 company's service Jackson loaned it $350, and took its note therefor. 
 In May, 1886, Jackson took a justice of the peace's judgment for the 
 aggregate of his two notes against the company, and afterwards, in 
 same month, on his own petition, Jackson was made a party to a pro- 
 ceeding in the chancery court to wind up the Chronicle Company as an 
 insolvent corporation, and received his pro rata upon said judgment, 
 which was about 20 per cent. 
 
 April , 11, 1888, Jackson took a justice of the peace's judgment 
 against defendant. Meek, for $112.17, it being the balance of his 
 claim for wages after being credited with its pro rata, and $50 paid 
 by a shareholder of said company. Meek appealed from this judg- 
 ment to the circuit court, where there was a trial before the judge 
 without the intervention of a jury, and judgment in his favor, the 
 trial court holding that Jackson was estopped by taking the company's 
 note for his wages, and his subsequent efforts to collect from the cor- 
 porate assets. 
 
 Is there reversible error in the ruling of the trial court? The gen- 
 eral rule of the common law holds the shareholder of a corporation 
 liable for the debts of the association only so far as he may have 
 
 "Compare Pierce v. Security Co., 60 Kan. 164, 55 Pac. 853 (1899); Boica 
 V. Hodge, 51 Ohio St. 236, 37 N. E. 265, 46 Am. St. Rep. 569 (1894): Ball 
 Electric Light Co. v. Child, 68 Conn. 522, 37 Atl. 391 (1897). 
 
Sec. 5) EIGHTS AGAINST STOCKHOLDERS .845 
 
 agreed to contribute to the capital stock of the company. His liability 
 is in his corporate capacity, and is deemed the primary source for 
 the payment of the company' debts. But our legislature has super- 
 added to this common-law liability in corporate capacity an individual 
 liability upon the stockholders of all corporations incorporated under 
 section 21 of the act of 1875, in favor of journeymen's, servants', 
 and employes' wages that may be earned in the company's service. 
 This liability is regarded as a secondary source for the payment of 
 debts provided for. Each wage-earner of the Chronicle Company 
 had two sources for the payment of his debt — First, the corporate as- 
 sets; and^ second, the individual stockholders. The current of ad- 
 judged cases in other states seems to hold that each stockholder, upon 
 becoming such in a company with this individual liability provision, 
 does so with the understanding that he will not be held to pay in- 
 dividually until the corporate assets have been found to be insufficient. 
 We assent to the soundness of this proposition. 2 Mor. Priv. Corp. § 
 869 et seq. ; Thomp. Liab. Stockh. § 334. 
 
 It follows therefrom that the plaintiff, Jackson, in seeking to col- 
 lect his debt for wages in the first instance from the assets of the 
 Chronicle Company, was in the line of duty, and certainly not thereby 
 estopping himself from afterwards availing himself of the benefit se- 
 cured him by the individual liability clause of the charter, and that 
 the trial judge is in error, and his judgment should be reversed. 
 
 But it is insisted that the defendant. Meek, having parted with his 
 stock in November, 1885, some two years before the suit against him 
 before the justice was commenced, his individual liability for the 
 plaintiff's debt for wages ceased to rest on him, and passed over to his 
 transferee, to whom the plaintiff must now look. Is this correct? 
 When the wage-earners who were in the employ of the Chronicle 
 Company, and contracted with it, contracted upon the faith of this 
 individual liability clause, the offer of the shareholder contained in 
 the clause in question being accepted by the "servants and employes" ' 
 of the company, ripens into a binding contract. This binding con- 
 tract was upon these shareholders who were such at the time the 
 service was rendered. 
 
 This individual liability, when ripened into a binding contract, is 
 beyond the control of the company or its officers. None but those for 
 whose benefit the provision was made can r'elease the contract. To 
 hold differently would practically destroy this provision for the wage- 
 earner's benefit. When the shareholder sees the approaching insol- 
 vency of the corporation, he has only to make a transfer of his stock 
 to a straw man, fold his arms, and let the crash come. We hold 
 that the legislature did not intend to place the life of this security in 
 the hands of the shareholder, but designed it to be a security, the 
 burden of which cannot be shifted by the shareholder to another, to 
 the, prejudice of the wage-earner, without his concurrence. 
 
 if material, it is not shown to whom the defendant Meek's stock 
 
846 CEBDITORS OF THE CORPORATION (Ch. 8 
 
 was transferred, — whether to one able to discharge the liability for 
 wages nor whether transferred in good faith. 
 
 Under the facts of this case the defendant Meek has not relieved 
 himself of liability, under the clause, to the plaintiff. 
 
 The judgment of the court below is reversed, and the plaintiff 
 will have judgment here against the defendant. Meek, for the amount 
 of the justice of the peace's judgment, with interest, and for all of 
 the costs of the cause.'* 
 
 BARTLETT v. DREW. 
 (Commission of Appeals of New Tork, 1874. 57 N. X. 587.) 
 
 This was an action in the nature of a creditor's bill brought by 
 plaintiff as judgment creditor of the New Jersey Steam Navigation 
 Company after the return of an execution, nulla bona, to reach certain 
 assets of the said company alleged to be in the hands of defendant. 
 Drew. 
 
 In September, 1866, the plaintiff recovered in the Supreme Court 
 a judgment against the New Jersey Steatn Navigation Company, a 
 corporation created by the laws of the State of New Jersey, for 
 $836.32 upon a cause of action accruing in the month of July, 1863. 
 An execution upon the judgment was duly issued to the sheriff of 
 the city and county of New York and returned unsatisfied. The cor- 
 poration was created in February, 1839, with a capital of $500,000, 
 and had an existence of thirty years' duration which terminated in 
 the mo*nth of February, 1869. In 1868 this action was commenced 
 against the corporation and Daniel Drew, who was a large stockhold- 
 er therein as well as a director and president of the board and a resi- 
 dent of the city of New York. The business of the corporation was 
 that of a common carrier, transporting passengers and freight for 
 hire by steamboats between New York and various eastern ports. It 
 appeared that in December, 1863, by order of the board of directors, 
 three steamboats of the company were sold for $750,000, and in De- 
 cember, 1865, the. proceeds of the sales were divided among the stock- 
 holders of the company, and the defendant, Drew, received for his 
 share an amount much .larger than the plaintiff's judgment against the 
 company. 
 
 Reynolds, C. It is insisted by the defendant. Drew, that the plain- 
 tiff can maintain no action against him alone, but that she must pros- 
 ecute not only all the stockholders, to the pnd that each shall contrib- 
 
 7* See Brown v. Hitchcock, 36 Ohio St. 667 (1881); Holyoke Bank v. Burn- 
 ham, 11 Gush. (Mass.) 183 (1853). 
 
 Contra: Bowden v. Johnson, 107 U. S. 251, 2 Sup. Ct. 246, 27 L. Ed 386 
 (1882); Stuart v. Hay den, 169 U. S. 1, '18 Sup. Ct. 274, 42 L. Ed. 639 (1897)- 
 Earle v. Carson, 188 U. S. 42, 23 Sup. Ct. 254, 47 L. Ed. 373 (1902); McDon- 
 ald V. Dewey, 202 U. S. 510, 26 Sup. Ct 731, 50 L. Ed. 1128, 6 Ann. Cas; 419 
 (1906). 
 
Sec. 5) RIGHTS AGAINST STOCKHOLDBRS 847 
 
 ute his proportion to the payment of her debt, but her suit must be 
 brought on her own behalf and on behalf of all the other creditors of 
 the corporation who may choose to come in. In other words, in or- 
 der to collect her debt against the company, she must institute a suit 
 to wind up and finally settle all its affairs. That she might do this 
 is not to be doubted, but that she of necessity must do it presents a 
 different question. Prior to the distribution of the assets of the cor- 
 poration due notice of the plaintiff's claim was given, and redress 
 demanded, and the distribution was made with knowledge of the 
 plaintiff's claim, and the corporation has no assets or property which 
 can be taken on execution. 
 
 We are of the opinion that the plaintiff's right of action rests upon 
 a very plain principle of equity. This is not a proceeding to dissolve 
 and wind up the affairs of a corporation, or to marshal its assets, but 
 the ordinary proceeding to collect a debt from a debtor unwilling to 
 pay. The circumstance that the debtor is a foreign corporation, or 
 that the defendant. Drew, was its president, director or stockholder, is 
 quite immaterial, if it be found that Drew has any of the assets or 
 property of the corporation which ought to be applied in payment of 
 its debts. It is equally immaterial whether he got it by fair agree- 
 ment with his associates, or by any wrongful act. If the law dooms it 
 to the payment of the debts of the corporation it may be taken in 
 some form by the creditor. It is a very plain proposition that the 
 stock and property of every corporation is to be regarded as a trust 
 fund for the payment of its debts, and its creditors have a lien and the 
 right to priority of payment over any stockholder. 2 Story Eq. Jur. 
 § 1252. Where stock and property has been divided betwfeen stock- 
 holders before all the debts of the corporation have been discharged, if 
 any one stockholder is compelled to pay more than his fair share of 
 any unpaid debt he may resort to his associates for equitable con- 
 tribution ; but with that proceeding the creditor has nothing to 4°. 
 unless he chooses to intervene to settle equities that may exist be- 
 tween his debtors. In the present case the corporation was pro- 
 ceeded against as an ordinary debtor, either unwilling or unable to pay. 
 It turned out that it had no property which could be taken on execu- 
 tion ; but it was found that the defendant, Drew, had a large amount 
 of the assets in his possession, which belonged to the corporation when 
 the plaintiff's demand accrued, and some portion of which should 
 have been applied in discharge of its obligation to the plaintiff. 
 
 As before suggested, it does not matter how it came to the posses- 
 sion of the defendant. Drew. It is enough that he had it, and it was 
 so much of thfe assets of the corporation as ou^ht to be devoted to 
 the payment of the debts of the company, and his claim as a stock- 
 fiolder could not prevail over the creditor's prior right. Curran v. 
 State of Arkansas, 15 How. 305,, 14 L. Ed. 705; Tinkham v. Borst, 
 31 Barb. 407, 412; 2 Kent Com. 307; 2 Story Eq. Jur., § 1252. This 
 view of the case renders the consideration of several, questions ar- 
 
848 CREDITORS OF THE CORPORATION (Ch. 8 
 
 gued by the learned counsel for the defendant, Drew, in respect to 
 parties and the form of proceeding, quite unnecessary. We are re- 
 ferred however to two cases in Massachusetts, of which a word may 
 be said. Vose v. Grant, 15 Mass. 505 ; Spear v. Grant, 16 Mass. 9. 
 They were both actions on the case at common law, by the billholder 
 and creditor of a bank, whose charter had expired and assets dis- 
 tributed, against a stockholder who had received a portion thereof. 
 The action proceeded entirely upon the theory that the distribution 
 was wrongful before all the debts of the corporation were paid; and 
 that for this alleged wrong an action on the case at common law 
 might be maintained by a creditor against each stockholder who had 
 profited by the wrongful division. After a very elaborate considera- 
 tion by the court the right of action was denied, and whether prop- 
 erly or improperly does not affect the present case. The Supreme 
 Judicial Court of Massachusetts had at that time no equity jurisdic- 
 tion, and this circumstance was lamented by Jackson, J., in delivering 
 the opinion of the court in the case first cited. Whether the apparent 
 hardship of that case, or possibly of many others, had any influence, 
 it is certain that soon after the law-making power of the State con- 
 ferred upon the court equity jurisdiction. 
 
 With the nice distinction between law and equity we are not trou- 
 bled in this case, nor even as to the form of the action. The plaintiff 
 is a creditor of the New Jersey Steam Navigation Company for the 
 amount of a judgment duly obtained. The company has no property 
 in this State that can be taken on execution. The defendant. Drew, is 
 fouiid to be in possession of assets of the dissolved or insolvent cor- 
 poration more than sufficient to pay the plaintiff her demand, and the 
 law requires that, he should pay it. 
 
 The judgment below should be affirmed, with costs. All concur. 
 Judgment affirmed.'' 
 
 SECTION 6.— CREDITORS' RIGHTS AGAINST THE OFFI- 
 CERS OF THE CORPORATION 
 
 WINTER V. BAKER. 
 (Supreme Court of New York, 1867. 34 How. Prac. 183.) 
 
 Action for damages. The complainant alleged that he was the 
 holder and owner, for value, of a large amount of bank bills issued 
 by a banking corporation of the state of Georgia; that the defendant 
 was a director in said bank ever since January 1, 1857; that pribr 
 
 'B See accord: Wood v. Dummer, 3 Mason, 308, Fed. Gas. No 17 944 
 ?^-?^l:, ^^"road V. Howard, 7 Wall. 392, 19 L. Ed. 117 (1868); Swan Lknd 
 & Cattle Co. V. Frank, 148 U. S. 603, 13 Sup. Ct. 691, 37 L. Ed. 577 (1893) 
 
Sec. 6) EIGHTS AGAINST OFFIOEES OP COEPOBATION 849 
 
 to January 1, 1861, the bank was solvent and able to pay all its debts; 
 that after July 1, 1861, the bank became, and has ever since been, 
 insolvent and unable to pay its debts; that this insolvency was caused 
 by various acts of malfeasance and misfeasance of the defendant and 
 the other directors, among said acts being the following: 
 
 1. Selling the valuable assets of the batik for bills, notes and bonds 
 of the Confederate States. 
 
 2. Receiving deposits of Confederate money, and repaying them 
 with good and valid assets of the bank. 
 
 3._ Making unlawful agreements on behalf of the bank with third 
 parties, and settling them with the valuable assets of the bank. 
 , 4. Selling the assets at credit in banks of New York, London and 
 elsewhere, for Confederate money and bonds. 
 
 5. Exchanging the bills of the bank for Confederate money. 
 
 6. Disposing of the gold and other assets, without getting value 
 therefor. 
 
 7. Using the funds of the bank in speculation, for defendant's own 
 gain and profit. 
 
 8. Selling cotton and other assets of the bank to the defendant him- 
 self, and other directors, without securing value therefor. 
 
 9. Paying dividends to stockholders, including defendant, after the 
 bank had suspended. 
 
 10. Loaning to the defendant himself, assets of the bank, which 
 were repaid and settled in depreciated currency. 
 
 The defendant demurred to the complaint, upon the grounds that 
 the complaint did not state facts sufficient to constitute a cause of 
 action ; that the court had no jurisdiction of the subject of the action, 
 and for defect of parties. 
 
 Clerke, J. These are actions brought by the several plaintiffs as 
 the holders of the bills of a bank incorporated by the state of Georgia, 
 against the defendant as, a director of the corporation. 
 
 The reasons which I have mentioned in the pre'ceding cases apply 
 to these with greater force. But more especially applicable to these 
 cases is the rule well established, that a stockholder cannot sue direc- 
 tors for damages, on the ground their stock was made valueless by 
 the misconduct of the defendant. If a stockholder cannot maintain 
 such an action, a creditor certainly cannot do so. 
 
 Judgment on the demurrers, with costs. 
 R10H.C0BP. — 54 
 
850 CREDITORS OF THE CORPORATION (Ch. 8 
 
 O'CONNER MINING & MFG. CO. v. COOSA FURNACE CO. 
 
 (Supreme Court of Alabama, 1891. 95 Ala. 614, 10 South. 290, 36 Am. St. 
 
 Rep. 251.) 
 
 Walkbr, J." The bill was filed by the O'Conner Mining & Man- 
 ufacturing Company as a simple contract creditor of the Coosa Fur- 
 nace Company, and its principal purpose was to reach and subject to 
 the payment of the debt claimed certain property alleged to have been 
 fraudulently conveyed by the Coosa Furnace Company, — first, by a 
 mortgage executed on the . 7th day of April, 1884 ; and, again, as to 
 a part of the property, by a deed of absolute conveyance executed 
 on the 13th day of July, 1885. 
 
 The specified ground of attack upon the conveyances in question is 
 that they were executed for the purpose and with the intent to hinder, 
 delay, or defraud the complainant, and to prevent it from enforcing 
 collection of its just demands; and that the debts the mortgage was 
 given to secure, and also the considerations recited in the deed, were_ 
 simulated, and not real. The execution of the two instruments is 
 alleged in the bill, and is admitted in the answer. The instruments 
 must stand, unless the particular infirmities charged against them are 
 shown by the evidence. There are no allegations to support a conten- 
 tion that their formal execution by the corporation was insufficient 
 in any particular. The charge thc^t the considerations recited in the 
 two instruments, respectively, were simulated, and not real, is not sus- 
 tained by the proof. * * * 
 
 Much stress is laid in the bill and in the argument of counsel for 
 the appellant upon the relations existing between the several defend- 
 ants during the time covered by' the transactions which are sought to 
 be impeached. The dealings in question were between the Coosa 
 Furnace Company, on the one side, and the Wabash Iron Company, 
 the Vigo Iron Com^ny, A. L,. Crawford, and his two sons, J. P. 
 Crawford and A. J. Crawford, on the other side. It is true that each 
 of the corporations mentioned was controlled and dominated by the 
 Crawfords. The great bulk of the stock in each of them was owned 
 and held by members of the Crawford family. The board of direc- 
 tors in each of the corporations was composed of the Crawfords and 
 their adherents. It thus plainly appears that the transactions were be- 
 tween the Coosa Furnace Company and some of its own stockholders 
 and directors, and also two other corporations, having boards of di- 
 rectors composed of the same persons who managed and controlled 
 the first-named company. * * * 
 
 The directors of a corporation, in the transaction of its business 
 and the disposition of its property, do iiot stand in any such relation 
 to the general creditors of the corporation as they occupy to the cor- 
 
 76 Facts sufficiently stated in the opinion, a part of which is omitted. 
 
Sec. 6) EIGHTS AGAINST OFTIOEES OF COEPOEATION 851 
 
 poration itself and to its stockholders. They are not the agents of 
 sucla creditors, nor can they usually be regarded as trustees acting in 
 their behalf. The creditors are not entitled to disaffirm a transfer 
 of the property of the corporation, made by its directors or other 
 agents, merely because the corporation itself or its stockholders 
 could have done so. When a disposition of the property of a corpora- 
 tion is assailed by its creditors they are not clothed with the right of 
 the corporation or of its stockholders to set aside the transaction, re- 
 gardless of its fairness or unfairness, on the ground that it was en- 
 tered into by representatives' of the corporation who had put them- 
 selves in a relation antagonistic to the interests of their principal. 
 The right of the creditor to impeach the transaction depends upon its 
 fraudulent character. The question in such case is, was the transac- 
 tion which is complained of entered into with the intent to hinder, 
 delay, or defraud creditors, — was the property fraudulently trans- 
 ferred or conveyed ? The mere fact that the corporation, in disposing 
 of its property, dealt with persons who at the same time were charged 
 with the duty of representing its interests does not by. itself render 
 the transaction fraudulent. Corrugating Co. v. Thacher, 87 Ala. 458, 
 6 South. 366. 
 
 Where the property of a corporation is transferred to another cor- 
 poration represented by the same directors, the fact of such rela- 
 tionship is a circumstance well calculated, to arouse suspicion, and 
 calls for a rigid and severe scrutiny in the examination of such trans- 
 action when it is assailed by a creditor. When such a relationship is 
 shown to exist between the contracting parties, clearer and fuller 
 proof must be given of a valuable and adequate consideration, and of 
 the good faith of the parties, than would be required if the transferee 
 or grantee had been a stranger. When, however, such examination is 
 made and such proof is forthcoming, and the result is that no fraud 
 or unfair dealing is shown, and it appears that the transaction was 
 not vitiated by any infirmity of which a creditor has the right to com- 
 plain, then the transaction must stand, and it is as valid, as against 
 the creditor, as if the corporation had dealt with a stranger, who vvas 
 not involved in any way with the corporate representatives. * * * 
 
 It is alleged in the amendment to the bill that the Coosa Furnace 
 Company was insolvent at the date of the execution of the mortgage, 
 and has been insolvent ever since that time. Even if it could be con- 
 ceded that the fact of insolvency, if proved, would create such a 
 change in the relations between the directors and the creditors of the 
 corporation as to take from the directors the right to allow one or 
 more creditors to acquire an advantage over the other in the applica- 
 tion of the corporate assets to the payment of debts, yet such con- 
 cession could have no effect upon the result in this case, because the 
 evidence wholly fails to show that the company was insolvent when 
 the mortgage was made. It plainly appears that the company was in- 
 solvent 15 months after the date of the mortgage. Its property was 
 
852 CEEDITOES OF THE CORPORATION (Ch. '8 
 
 then worth very much less than it cost. What it was worth at the 
 time the mortgage was executed is not shown. It appears from the 
 evidence that the value of furnace property is very fluctuating. The 
 value of th? company's assets at the date of the mortgage is not 
 proved, nor is it shown that they were then worth less than the 
 amount of the company's liabilities at that time. The inference that 
 the company was insolvent at the date of the mortgage does not fol- 
 low from the proof of insolvency more than a year afterwards. The 
 insolvency of the company at the date of the deed does not affect 
 the validity of that instrument, for the operation of the deed was 
 merely to transfer, in absolute payment of a debt, property which 
 had been conveyed as security therefor at a date when the corpora- 
 tion is not shown to have been insolvent.' * * * 
 
 As, in our opinion, the proof fails to sustain the charge that the 
 transactions which are assailed were fraudulent, the conclusion is 
 that the complainant is not entitled to relief. The decree to that ef- 
 fect must be affirmed. 
 
 Affirmed." 
 
 , WILLIAMS, Receiver, v. McKAY et al. 
 
 (Court of Errors and Appeals of New Jersey, 1885. 40 N. J. Bq. 189, 53 
 
 Am. Rep. 775.) 
 
 BeasIvEY, C. J." This bill was exhibited by the receiver of the 
 Mechanics' & Laborers' Savings Bank against its managers, for the 
 purpose of holding them liable for certain losses sustained by the in- 
 stitution from time to time through a series of years. The right to 
 the relief prayed is based on the alleged negligence of these officers 
 in the management of the corporate affairs. 
 
 The bill, which is somewhat loosely framed, contains, in substance, 
 a statement, which is mainly substantiated by details, of official de- 
 linquencies in the following particulars, viz.: First, in the investment 
 of moneys in a large number of specified instances on insufficient land- 
 ed security, and in violation of the charter of the company ; second, 
 in the loaning of other moneys on mere personal security ; third, in 
 permitting the president of the bank, one John Halliard, to withdraw, 
 without giving adequate security, and to apply to his own use, the 
 funds of the bank; andi fourth, in the failure to require the president 
 to give bond for the faithful performance of his official duties. 
 
 The question before this court is whether the decree appealed from 
 
 ^/L^??*^'!f® Canning Co. v. Reid, Murdock & Co. (semble) 159 Ind 614 
 64 NE 870 1115, 59 L. R. A. 199 (1902); Marsters \. Umpqua VaUey Oil 
 Co., 49 Or. 374, 90 Pac. 151, 12 L. R. A. (N. S.) 825 (1907). 
 '8 Pacts stated in the opinion, a part of which is omitted. 
 
Sec. 6) EIGHTS AGAINST OPFICEBS OF COKPOBATION 853 
 
 is to be sustained which holds that these charges, as stated in the bill, 
 do not lay any ground of equity in the complainant. 
 
 Viewed in its general aspect, the equitable rule. which is applicable 
 to persons holding official positions such as were held by these die- 
 fendants, is not in doubt. The duty belonging to such a situation is 
 a plain one — to care for the moneys intrusted to them in the manner 
 provided in the charter, and to exercise ordinary care and prudence 
 in so doing. It is true that the defendants were unpaid servants, but 
 the duty of bringing to their office ordinary skill and vigilance was 
 none the less on that account, for to this extent there is no distinc- 
 tion known to the law between a volunteer and a salaried agent. These 
 defendants held themselves out to the public as the managers of this 
 bank, and by so doing they severally engaged to carry it on in the 
 same way that men of common prudence and skill conduct a similar 
 business for themselves. This is the measure of the responsibility of 
 officers of this kind. 
 
 Nor do I find anything in the charter now before us that curtails 
 or limits the responsibility thus defined. There appears to be neither 
 provision nor expression in this law that indicates a legislative inten- 
 tion to absolve any of these managers from the duties and responsibil- 
 ities generally inherent in the office filled by them. The charter re- 
 quired the defendants to meet at least twice a year as a board of man- 
 agers, ^and such regulation was almost entirely useless unless on such 
 occasions it was th^eir duty to supervise the conduct of their commit- 
 tees, and to look generally into the affairs of the company. There is 
 no ground for the belief that it was the intention of the legislature 
 that none but such managers as acted on committees, should have the 
 charge of the affairs of this bank. The only guaranty given to de- 
 positors consisted in the reputation of its managers with respect to 
 probity and fiscal ability, and such guaranty was a mere snare if more 
 than two-thirds of such officers were to have no substantial part in 
 the management. 
 
 Doubtless such officers had the right to rely in niany respects on the 
 skill and diligence of their committeemen, and if, exercising a rea- 
 sonable circumspection, they were unaware of the misconduct or neg- 
 lects of such agents, they would not be responsible for the consequenc- 
 es. But so plain was their duty to oversee the business done by such 
 committeemen that, it seems to me, they are chargeable, prima facie, 
 with a knowledge of what was doing or had been done in all important 
 matters 1>y such bodies. That they themselves thought this duty of 
 general supervision was inciimbent upon them, is perfectly manifest 
 from the entire tenor of the by-laws prescribing the condiuct of busi- 
 ness at the semi-anntial meetings, and providing that at such times 
 should be read the reports of the treasurer and committees, and of the 
 minutes of the finance committee. From these considerations I think 
 it must be conceded that these officers had no special dispensation from 
 
854 CREDITORS OF THE CORPORATION (Ch. 8 
 
 the exercise of that degree of care and vigilance that the law generally 
 exacts of persons holding similar positions. 
 
 Nor can I yield to the plea that is so much pressed in the briefs of 
 counsel, that most of the neglects and misfeasances charged in this 
 bill are of such long standing that they are shielded from inquiry by 
 the statute of limitations. After careful examination, my clear con- 
 viction is that the statute in question has no place in this proceeding. 
 
 It is a mistake, sure to mislead, to regard this suit as one solely 
 in right of the insolvent corporation. It does not rest upon that nar- 
 row footing, for the receiver represents not only the corporate body, 
 but likewise the depositors and creditors; and the question which , 
 presents itself, therefore, is as to the status of the managers with ref- 
 erence to the latter two classes of persons ; and as to them, I entertain 
 no doubt whatever that these officers must respond to them in the 
 character of their trustees., ' 
 
 In reaching this conclusion, the principle so often stated in the de- 
 cisions and text-books is in nowise controverted, that a trust, to be 
 exempt from the operation of the statute of limitations, must be of 
 a nature to stand the triple test, viz. : first, it must be a direct trust ; 
 second, it must be of a kind belonging exclusively to the jurisdiction 
 of a court of equity ; and, third, the question must arise between the 
 trustee and the cestui que trust. And in each of these respects, the 
 present case harmonizes with the standard. If it is a trust at all, it 
 certainly is a direct one, for it arises immediately upon the placing 
 of the funds under the control of this body of officers. Such a trans- 
 action has nothing of the nature or qualities of those indirect trusts 
 that require, for their creation, a decree of a court of chancery, as, 
 for example, where money, under certain circumstances, has been 
 fraudulently secreted), and a decree in equity will ofttimes convert it 
 into a trust. 
 
 It is admitted, on all sides, that depositors in one of these banks 
 acquire, ipso facto, an equitable right, which, by taking a certain course, 
 they can put in force against the directors or managers, if they have 
 sustained a loss by reason of the misfeasance of such officers ; and if 
 such a right exist, what is it, if not the right of a cestui que trust 
 against his trustee? This right, thus referred to, is, very plainly, not 
 a right inherent in a contract, for a depositor pays his money to the 
 corporation, and makes no bargain with the managers. And yet the 
 law indisputably establishes an equitable right in his favor from the 
 naked fact of his relationship with this class of officers. And it 
 would be singular, indeed, if the law did not raise up a trust out of 
 such a connection. 
 
 The affair between the depositor and the managers embraces all the 
 materials out of which trusts are created, for I know of no reason 
 why the transactions denominated trusts have been invested by law 
 with their peculiar qualities and characteristics, except that the prop- 
 
-Sec. 6) EIGHTS AGAINST OFFICEBS OF COBPOBATION 855 
 
 €rty that they embrace is put, by way of confidence, under the absolute 
 control of the person called the trustee, and that the person in whose 
 favor it is so placed cannot enforce or protect his interest in a court 
 of law. And this in all respects is the situation when a man places his 
 money in one of these banks ; the transfer of such money is nominally 
 to the corporation, but with the intent to put it under the unsupervised 
 control of the managers, in whose appointment the depositor takes 
 no part, his sole reliance being in the honesty and general trustworthi- 
 ness of such officers, and such an affair, as it admittedly creates an 
 equitable right on the one side, and) a correlative obligation on the 
 other, necessarily establishes a direct trust. 
 
 It will be also observed that the transaction exhibits the second and 
 third requisites of a trust, inasmuch as the right of the depositor to 
 look to the managers for reparation when a loss has been occasioned 
 by their default, is an equitable one, cognizable only in a court of 
 conscience, and the present proceeding is between the trustee and the 
 legal representative of the cestuis que trustent. And upon this sub- 
 ject the court of appeals of New York, in the case of Hun v. Gary, 
 82 N. Y. 65, 37 Am. Rep. 546, decides that the relation between a 
 savings bank and its directors is that of principal and agent, and the 
 relation between its directors and depositors is similar to that of trus- 
 tee and cestui que trust. 
 
 Nor is a contrary view upon this subject expressed by the supreme 
 court of Pennsylvania in Spering's Appeal, 71 Pa. 11, 10 Am. Rep. 
 684, and which is a decision much relied on by the counsel of some of 
 the defendants. The only pertinent point decided in that case is that 
 the statute of limitations began to run in favor of a director as soon 
 as he vacated his office, but in so deciding the court was careful to 
 say that the case before it was one between the stockholders and di- 
 rectors, and not one between the latter class of officers and creditors 
 or depositors. Wjith respect to the effect of the statute upon the doings 
 of the officers so long as they continued! in office, the court expressly 
 refused to express an opinion upon the question. It is obvious, there- 
 fore, that his case has but small pertinency to the present inquiry. 
 
 And looking upon the present controversy as growing out of a trus- 
 teeship, it seems to me incompatible with such a conclusion to hold that 
 the statute in question will begin to run upon the vacation of his office 
 by the manager, because such an act has not changed the essential na- 
 ture of the transaction, for the right of the depositor remains, as be- 
 fore, a. purely equitable one, which he cannot enforce in a court of 
 common law. And it is the accrual of the right of action at law which 
 calls the statute, by force of its own terms, into play. Lapse of time, 
 'therefore, is not an absolute bar to an equity of this nature, but lapse 
 of time is often a strong, and sometimes a conclusive, circumstance in 
 the administration of' the law of equity.'" 
 
 7 9 See In re National Funds Assurance Co., L. R. 10 Ch. Div. 118 (1878). 
 
856 CREDITORS OF THE CORPORATION (Ch. 8 
 
 [The Court concluded that the bill showed delinquency in official 
 duty by the diefendant officers.] 
 
 The decision below should! be reversed, and a decree made in favor 
 of the receiver on all the demurrers. Decree unanimously reversed. 
 
 MITCHELL et al. v. HOTCHKISS. 
 (Supreme Court of Connecticut, 1880. 48 Conn. 9, 40 Am. Rep. 146. 
 
 LooMis, J.*° This action was originally brought by the plaintiffs, 
 as creditors of the Star Tool Company, a joint stock corporation lo- 
 cated at Middletown in this state, against Julius Hotchkiss, then in 
 life, but since deceased, to recover^he amount of their debt contracted 
 during the period that Hotchkiss as president of the corporation in- 
 tentionally neglected to comply with the statutory requirements as to 
 filing- with the town clerk of Middletown certain certificates showing 
 the condition of the affairs of the corporation. For the purposes of 
 this case it is conceded that Hotchkiss had by his neglect become liable 
 under the statute referred to. But pending the suit andl before trial 
 he died leaving a will. The plaintiffs thereupon caused to be issued a 
 scire facias, summoning his executors into court to show cause why 
 they should not be made parties defendant to the suit. The executors 
 appeared and filed a plea in abatement on the ground that the action, 
 originally begun against Hotchkiss, did not upon his death survive 
 against them, To this plea the plaintiffs demurred, but the court over- 
 ruled the demurrer and dismissed the scire facias, and the question" 
 comes before this court for review by the plaintiffs' motion in error. 
 
 There is no statute controlling the question under consideration. 
 The only provision is that found in the General Statutes, p. 421, § 6,* 
 that "if the defendant in any action shall die before final judgment, it 
 shall not abate if it might originally have been prosecuted against his 
 executor or administrator." To determine the question whether an 
 action might originally have been brought to charge the estate of 
 Hotchkiss with the statutory liability referred to incurred by him in 
 his life time, we must invoke the aid of the common law. 
 
 The principles of the common law on this subject are embodied 
 in the maxim — "Actio personalis moritur cum persona." 
 
 The executor represents the persdn of the testator, andl in legal 
 consequence may be said to continue his existence with respect to all 
 his debts, covenants and contract obligations, which became due during 
 his life or after his death, except such as depend on his personal skill,, 
 in which is ajways implied the condition that the contractor is not 
 prevented from completing his contract by the act of God. 
 
 But all private as well as public wrongs and crimes are buried with 
 
 . so Facts sufficiently stated in the opinion, a part of which is omitted. 
 
Sec. 6) EIGHTS AGAINST OFFICEKS OF CORPOKATION 857 
 
 the offender. The executor does not represent or stand in the place 
 ot the testator as to these, or as to any acts of malfeasance or mis- 
 feasance to the person or property of another, unless some valuable 
 truits of such acts have been carried into the estate; and this in 
 strictness constitutes no exception to the rule, for the executor in 
 such case cannot be made liable for the tort of his testator, but only 
 for the implied promise which the law raises and allows the injured 
 party to put in the place of the wrong. 
 
 In the light of these principles we are called upon to determine the 
 nature of the liability imposed by the statute in question. 
 
 By section 17, p. 280, of the General Statutes, it is made the duty of 
 the president and secretary of joint stock corporations annually, on or 
 before the 15th day of February or of August, to make and lodge with 
 the town clerk where the corporation is located, a certificate signed 
 and sworn to by them, showing the condition of its affairs as nearly 
 as the same can be ascertained on the first day of January or of July 
 next preceding the time of making such certificate, stating the amount 
 of paid capital, the cash value of its real and personal estate and cred- 
 its, and the name, residence and number of shares of each stock- 
 • holder. 
 
 Section 18, which creates the liability on which this action is found- 
 ed, is in these words : "Any president or secretary of such a corpora- 
 tion who shall intentionally neglect or refuse to comply with the pro- 
 visions of the preceding section, shall be liable for all the debts of 
 said corporation contracted d^uring the period of such neglect." 
 
 We do not see how it is possible to construe this statute as creating 
 or attempting to create any contract relation or duty between the cred- 
 itors of a corporation and ifs president. The adoption of such a con- 
 struction would suggest grave doubts as to the validity of the act which 
 should attempt so arbitrarily to make a debtor out of a stranger to 
 the dtebt, or in other words, to make the debt of one person the debt 
 of another. There was no privity between Hotchkiss and the plain- 
 tiffs ; they had no transaction with each other, and the former owed 
 the latter no private duty from which a promise might be implied. 
 
 The argument for the plaintiffs seems to be based principally upon 
 the assumptiorj that the officers of a corporation are under some orig- 
 inal common law liability to pay all the debts contracted by it while 
 they as officers are in default as -to the performance of any of the 
 duties prescribed by statute ; that their exemption from personal lia- 
 bility under the corporate organization is not an absolute but only a 
 conditional one. 
 
 This reasoning in fallacious. There may be cases where the organi- 
 zation is so defective that creditors need not recognize it as a corporate 
 being at all, in which case the so-called officers or active agents in its 
 business transactions may perhaps under some circumstances make 
 themselves personally liable. But conceding the lawful organization 
 and existence of the corporation, the existence of all its members, of- 
 
858 CEEDITOKS OF THE CORPORATION (Ch. 8- 
 
 ficers as well as stockholders, so far as its transactions are concerned,, 
 become merged in the artificial being, so that in contemplation of law 
 they are utter strangers to those who dieal with the corporation ; and 
 as stockholders and officers they are never liable except so far as the 
 law makes them liable. 
 
 The theory of the plaintiffs' declaration also tends to confute the 
 argument. The action doe^ not profess to be predicated on any prom- 
 ise, original or collateral, express or implied, but is an action on the 
 case founded on the statute. There is nothing in the record to suggest / 
 a possibility that the estate of the testator could in any way, have- 
 been increased or benefited by the misfeasance or non-feasance com- 
 plained of. 
 
 It seems clear that the duty to be performed was a public duty, re- 
 quired by public policy for the general welfare. In the language of 
 Mr. Justice Clifford, in giving the opinion relative to the identical 
 statute we are considering, in the case of Providence Steam Engine 
 Co. v. Hubbard, 101 U. S. 188, 25 L. Ed. 786, the act was passed "by 
 the state to enable the business public to ascertain the pecuniary stand- 
 ing of joint stock corporations." 
 
 The wilful neglect of the' prescribed duty was a public wrong in- 
 voking the penalty of the statute ; and the statute comes clearly with- 
 in the definition of a penal one, as given in 2 Bouvier's Law Diction- 
 ary, where it is defined as "a statute that inflipts a penalty for the 
 violation of some of its provisions." 
 
 The Supreme Court of the United States in the case just referred' 
 to, after full discussion, unhesitatingly pronounced this statute a penal' 
 one, to be strictly construed as such, and if penal it, necessarily follows- 
 that the action upon it will not survive the death of the person for 
 whom the penalty was intended, andl the executors are not liable. 
 3 Williams on Executors (6th Am. Ed.) bottom page 1729; Hambly 
 V. Trott, Cowp. 372; United States v. Daniel, 6 How. 11, 12 E. Ed. 
 323. * * * 
 
 There is no error in the judgment complained of. In this opinion' 
 the other Judges concurred.*^ 
 
 81 Compare Huntington v. Attrill, 146 U. S. 657, 13 Sup. Ct. 224, 36 L. Edt 
 1123 (1892). 
 
INDEX 
 
 [the figures ebfeb to pages] 
 
 ACCEPTANCE, 
 
 Of charter, see Formation. 
 
 Of amendments, see Powers of Majority. 
 
 Of subscription, 135. ' 
 
 ACTIONS, 
 
 By stockholders, see Stockholders. 
 By creditors, see Creditors. 
 
 By and against de facto corporations, see De Facto Corporations. 
 , Against promoters, see Promoters. 
 
 AGENTS, 
 
 See Promoters. 
 
 ALTERATION, 
 
 Of charter, see Legislative Control. 
 
 AMENDMENT, 
 
 Of charter, power of majority, 491, 497. 
 See, also. Legislative Control. 
 
 ARTICLES OF ASSOCIATION, 
 See Formation. 
 
 ASSETS, 
 
 As a trust fund, see Creditors. 
 
 ATTACHMENT, 
 
 See Transfer of Stock. 
 
 BILLS AND NOTES, 
 
 See Powers and Liabilities. 
 
 BOOKS, 
 
 Inspection of, see Stockholders. 
 
 BORROWING, 
 
 Implied power, 236. 
 From director, 641. 
 
 CAPITAL STOCK, 
 
 Distinguished from shares, 32-37. 
 Taxation of, 32, 37. 
 
 CERTIFICATES, 
 
 Of stock, see Transfer of Stock. 
 
 C^l-f A 'R'T'"P"R. 
 
 Amendment of, see Amendment; Legislative Control 
 Repeal of, see Legislative Control. , 
 
 Interpretation of, see Powers and Liabilities. 
 
 CONDITIONS, ^ ,.. -i^fi 
 
 In subscription contract, 144, 146. 
 
 ■CONDITIONS PRECEDENT, 
 
 To formation, see Formation. 
 
 CONTRACTS. 
 
 Effect of dissolution on, 715. 
 Ultra vires, see Ultra Vires Acts. 
 By promoters, see Promoters. 
 
 EiCH.CoBP. (S59) 
 
860 INDEX 
 
 [The figures refer to pages] 
 CORPORATION, 
 
 Distinguished from, 
 
 A partnership, 1, 8. 
 A joint-stock association, 4. 
 Its stocljholders, 18. 
 As a person, 47. 
 
 CORPORATION DE FACTO, 
 
 See De Facto Corporations. 
 
 CREDITORS, 
 
 Remedies against corporation. 
 
 Against public service companies, 730, 732. 
 By simple-contract creditors, 740, 742, 7^8, 751. 
 By judgment creditors, 752. 
 Remedies against transferee of corporate property. 
 
 When transferee is a continuation of the old corporation, 758, 759, 761. 
 The "trust fund" theory, 763, 766, 771, 774. 
 At law, 778. 
 Rights as affected by consolidation or meijger, 
 On assumption of liability, 779, 783. 
 In absence of assumption, 785, 786. 
 Rights as afCected by dissolution, 789, 790. 
 
 See, also. Dissolution. 
 Rights against stockholders and their transferees, 
 At common law. 
 
 Jurisdiction, 793, 795. 
 
 Rights against stockholders purchasing corporate property, 798. 
 
 Eight to compel payment of unpaid subscription, 802, 804. 
 
 Set-off ty stockholder, 806. 
 
 Defense by stockholder, 808, 810. 
 
 Liability of transferee of stock for future calls, 813. 
 
 Liability of transferor who transfers to escape liability, 814. 
 
 Liability of transferee by way of security, 815. 
 
 Liability of stockholder on stock issued at less than par, 817. 
 
 Liability of stockholders who have exchanged property for stock, 
 
 821. 
 Liability of stockholder who has received stock in exchange for 
 
 debt due, 823. 
 Effect of contract relieving stockholder from liability, 827. 
 Liability of Innocent holder of stock fraudulently represented as 
 full-paid, 831. 
 By statute. 
 
 Nature of liability, 836. 
 Nature of action, 838. 
 Set-ofE by stockholder, 841. 
 Termination of liability, 844. 
 Liability of stockholder after distribution, 846. 
 Rights against officers. 
 
 Right against officers for injury to corporation, 848, 852. 
 Right to recover property conveyed to officer, 850. 
 Nature of statutory liability for neglect of duty, 856. 
 CRIMES, 
 
 See Ultra Vires Acts. 
 
 CUMULATIVE VOTING, 
 See Stockholders. 
 
 DEBTS, 
 
 Effect of dissolution on, 719, 725. 
 DB FACTO CORPORATIONS, 
 
 Individual liability of members, 79, 81, 88, 89, 92. 
 
 Requisites in creating, 79. 
 
INDEX 861 
 
 -„ _ [The figures refer to pages] 
 
 DE FAOT9 COBPORATIONS— Oontinued. 
 
 ■'^''of ^ o'^'^ '^^ ^^^ under which organization might have been perfected, 
 
 ol, 00. 
 
 Estoppel to deijy corporate existence, 96, 101, 104. 
 DELEGATION, 
 
 Of power, see Directors. 
 DIRECTORS, 
 
 Powers and liabilities. 
 
 Nature and extent of powers, 603, 604, 608. 
 
 Delegation of power, 612, 615. 
 
 Liability for negligence, 617, 627. 
 
 Fiduciary relationship of, to company, 632, 637, 641, 644, 647, 649. 
 Remedies against, 
 
 Removal of, 652. 
 
 Nature of action against, 654. 
 DISSOLUTION, 
 Methods of. 
 
 Power of cburt of equity, 692. 
 
 EfCect of breach of condition making charter "null and void," 694. 
 
 EfEect of insolvency, 696, 698. 
 
 Effect of consolidation, 703. 
 Causes for. 
 
 Violation of duty not expressly made a ground of forfeiture, 706. 
 
 Waiver of forfeiture, 710. 
 EfCect of, 
 
 On judgment against dissolved corporation, 712. 
 
 On contracts with the corporation, 715. 
 
 On debts due the corporation, 719, 725. 
 
 On title to corporate realty, 723. 
 
 On creditors' rights, see Creditors. 
 DISTRIBUTIVE SHARE, 
 
 See Stockholders. 
 DIVIDENDS, 
 
 See Stockholders. 
 
 EMINENT DOMAIN, 
 
 As affecting amendment of charter, see Legislative Control. 
 
 EQUITY, 
 
 Federal equity rule 94, see Stockholders. 
 
 ESTOPPEL, 
 
 See De Facto Corporations ; Ultra Vires Acts. 
 
 EXECUTION, 
 
 See Transfer of Stock. 
 
 FORFEITURE, 
 
 Of charter, see Dissolution. 
 
 FORMATION, / 
 
 Steps essential to organization. 
 
 Substantial compliance with law, 60, 62, 88. 
 
 Acceptance of charter, 
 Under special law, 65. 
 Under general law, 75. 
 Effect of failure to comply with law, see De Facto Corporations. 
 Subscription to stock, .^ ^.„ ,,^ 
 
 Distinction between subscription and agreement to subscribe, 112, 114. 
 
 Revocability of subscription, 116, 121. 
 
 Conditional subscription, 127. 
 
 When status of stockholder arises, 135, 139, 141, 154. 
 
 Conditional subscriptions, 144, 146, 150, 154. 
 
 Rescission of subscription contract, 158, 161. 
 Promoters, see Promoters. 
 
862 INDEX 
 
 [The figures- refer to pages] 
 FRAUD, 
 
 Rescission of subscription for, after insolvency, 808, 810. 
 
 FRAUDS, STATUTE OF, 
 See Transfer of Stock. 
 
 INCORPORATION, 
 See Formation. 
 
 INDEMNITY, 
 
 Of director by promoter, 649. 
 
 INSPECTION, 
 
 Of books and records, see Formation. 
 INTERPRETATION, 
 
 Of charters, see Powers and Liabilities. 
 
 JOINT-STOCK ASSOCIATION, 
 
 Distinguished from corporation, 4. 
 
 LEASES, 
 
 See Powers and Liabilities. 
 
 LEGISLATIVE CONTROL, 
 
 Legislative power to repeal charter, 658. 
 Legislative power to alter or amend so as to, 
 
 Take property without compensation, 665. 
 
 Discriminate against a corporation in taxation, 668. 
 
 Compel public service companies to render adequate service, 672. 
 
 Affect stockholders' contracts, 674, 678. 
 Where corporate powers may not be granted by special act, 683. 
 As affected by the police power, 685. 
 As affected by the power of eminent domain, 688. 
 
 LIABILITY, 
 
 See Powers and Liabilities. 
 LIBEL, 
 
 Power of corporation to utter, 395. 
 LOANS, 
 
 Borrowing, see Powers and Liabilities. 
 
 MAJORITY, 
 
 See Powers of Majority. 
 
 MALICIOUS PROSECUTION, 
 
 Liability of corporation for, 390. 
 
 MANDAMUS, 
 
 To inspect records, 407, 409, 413. 
 MERGER, 
 
 As affecting rights of creditors, see Creditors. 
 MORTGAGES, 
 
 See Powers and Liabilities. 
 
 NEGLIGENCE, 
 
 Liability of directors for, see Directors. 
 NEGOTIABLE INSTRUMENTS, 
 
 See Powers and Liabilities. 
 
 OFFICERS, 
 
 Rights of creditors against, see Creditors. 
 ORGANIZATION, * 
 
 See Formation. 
 
INDEX 863 
 
 [The figures refer to pages] 
 PARTNERSHIP, 
 
 Distinguished from corporation, see Corporation. 
 PERSON, 
 
 Corporation as, see Corporation. 
 POLICE POWER, , 
 
 As affecting amendment of charter, see Legislative ControL 
 
 POWERS AND LIABILITIES, 
 
 Interpretation of charters and franchises, 209. 
 Implied powers, 
 
 To buy real estate, 216, 219. 
 
 To dispose of whole of property, 224, 226. 
 
 To lease, 229, 233. 
 
 To borrow money, 236. 
 
 To issue and indorse negotiable paper, 241. 
 
 To mortgage property, 244, 245, 248. 
 
 To become surety, 254, 258. 
 
 To enter into partnership, 260. 
 
 To buy and sell stock in other corporations, 264, 266, 268, 273, 274, 
 278. ^ 
 
 PREFERRED STOCK, 
 
 Participation in dividends, 460, 466. 
 
 PROMOTERS, 
 
 As fiduciaries, 164, 170, 174, 180. 
 Promoters' contracts. 
 
 Liability of company, 186. 
 
 Adoption of contracts, 188, 190. 
 
 Acceptance of benefits, 194, 199, 206. 
 Agreement to indemnify directors, 649. 
 
 PROPERTY, 
 
 Taking without compensation, 658. 
 
 PROXY, 
 
 See Stockholders. 
 
 QUASI CONTRACT, 
 
 See Ultra Vires Acts. 
 
 REAL ESTATE, 
 
 Title to on dissolution, see Dissolution. 
 
 REMOVAL, 
 
 Of directors, see Directors. 
 
 SET-OFF, 
 
 By stockholders. 
 
 In action against corporation, 45. 
 In action by creditors, see Creditors. 
 
 SHAREHOLDERS, 
 See Stockholders. 
 
 ^"■Tctptanclof Charter under, see Formation. 
 
 STOCK 
 
 Transfer of, see Transfer of Stock. 
 
 STOCKHOLDERS, 
 
 Rights incident to statute. 
 
 To inspect records, 407, 409, 413. 
 To vote 
 
 Who may vote, 418, 421. 
 Number of votes, 423. 
 
864 INDEX 
 
 [The figures refer to pages] 
 STOCKHOLDERS — Continued. 
 
 Cumulative voting, 428. 
 
 Voting by proxy, 429, 432, 435, 441. 
 To dividends, 
 
 Right to compel payment of, 445. 
 
 Right to declared dividend, 452. 
 
 Nature of interest in dividend declared, 457. 
 
 On preferred stock, 460, 466. 
 To distributive share, 470, 475. 
 Powers of majority. 
 
 Extent of discretion, 477. 
 Efeect of adverse ipterest, 479, 483. 
 Power to change nature of business, 488, 491, 497. 
 Power to accept amendments, 491,' 497. 
 Representative suits, 
 
 Right to represent corporation, 499, 503. 
 
 Power of majority to forgive injury, 509, 514, 519. 
 
 Necessity of request to corporation to sue, 523, 526. 
 
 Form of request, 529. 
 
 Proof that plaintifC is a stockholder, 532. , 
 
 Plaintiff's motive in bringing suit, 534. 
 
 Necessity of being stockholder at date of injury, 537. 
 
 PlaintifC's motive in purchasing stock, 541. 
 
 Federal equity rule 94, 545, 548, 555, 557, 564. 
 
 SUBSCRIPTIONS TO STOCK, 
 See Formation. , 
 
 SURETY, 
 
 Power to become surety, see Powers and Liabilities. 
 
 I 
 
 TAXATION, 
 
 Of capital stock, 32, 37. 
 
 TORTS, 
 
 See Ultra Vires Acts. 
 
 TRANSFER OP STOCK, 
 
 Attachment and execution, 572, 574. 
 
 Application of statute of frauds, 580. ' 
 
 Necessity of transfer on books of corporation, 
 
 As against creditors, 581. 
 
 As against the corporation, 583. 
 Theft of indorsed certificate, 586. 
 Duty of corporation in making transfer, 589. 
 Estoppel of corporation to deny validity of certificate, 594, 597. 
 
 ULTRA VIRES ACTS, 
 
 Nature of ultra vires act, 285, 300, 301. 
 Contracts, ' 
 
 fisecutory, 306, 309, 311, 315. 
 
 Executed contracts and leases, 318, 321, 324, 326, 329, 331. 
 Title under ultra vires transfers, 335, 336, 339, 341, 345, 352. 
 Estoppel, 359, 361, 363. 
 
 Rights in quasi contract, 361, 369, 373, 376, 378. 
 Torts, 381, 390, 395. 
 Crimes, 396, 402, 403. 
 
 VOTING, 
 
 See Stockholders. 
 
 ■WB8T PUBLISHINO 00., PBINTBBS, ST. PAUL, Mlilll. 
 
■vwrmrffciffn^TTn a uuiJiiii