(Born^U ICam Bcl^nnl Hthrarjj Cornell University Library KFP 210.W42 Uw ot Drivate coTiniiiiiJiffilllTllMlilitt The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924024705448 Copyright by T. & J. W. JOHNSON & Oa 1898. PKEFACE. The object of the present work is to present in as practi- cal a way as possible all of the statutory and decided law on the subject of private corporations in Pennsylvania, except the law of railroads and street railways, which has been treated by the writer in another work. The facts of the cases cited have been set out when necessary, and where general propositions of law have been stated, the exact language of the Courts has been used as much as possible. Owing to the uncertainty and confusion arising from the manner in which the Act of 1874 has been amended, it has been deemed advisable to print in the Appendix the original Act, with each section annotated, so as to show the amend- ments, changes, and additions by later legislation. In a number of instances the Legislature, in passing an amending act, has taken as the basis of amendment either the original section of the Act of 1874, or an earlier amendment of the section, and entirely ignored 'later amendments. It is strongly urged upon those who use this work to examine, in connection with the statutory law distributed through the text, the notes to the Act printed in the Appendix. The author is indebted to Hon. George M. Dallas for his kind permission to reprint in the Appendix his valuable address on " The Law of Procedure in Corporation Meetings " delivered before the Law Academy of Philadelphia. TABLE OF CONTENTS CHAPTER I. DEFINITION -AND CLASSIFICATION. MCnON PAGE 1. Definition 1 2. Corporation de facto, ... 3 3. A Corporation is a Person, 4 4. When Corporate Form Dis- regarded, 4 5. Classification, 6 6. Qimsi Public Corporations, 7 7. Purely Private Corpora- tions, 9 8. Statutory^ Classification, . . 10 9. Corporations not for Profit, 10 10. Corporations for Profit, . . 11 CHAPTER II. MODE OF INCOEPOKATION. 11. Incorporation Under Act of 1874, , ... 16 12. Contents of Certificate — General Provisions, . . 17 13. Corporate Name i8 14. Improper Use of Name, . . 25 15. Who May be Incorporators, 25 16. Place of Business, .... 27 17. Removal of Oflice 28 CHAPTER III. CERTIFICATES OF CORPORATIONS NOT FOR PROFIT. 18. Statutory Requirements, 19. Contents of Certificates, 20. Charters Not Granted for Improper or Unnecessary Purposes, 38 21. Charters Not Granted to Perpetuate Foreign Cus- toms and Languages, . . 44 22. Church Charters, ... 48 23. Practice, 52 24. Appeals 54 CHAPTER IV. CERTIFICATES OF CORPORATIONS FOR PROFIT. 25. Statutory Requirements, . 26. Contents of Certificate, . . 27. Two or More Distinct Pur- poses Not to be Set Forth in the Certificate, . . . 28. Disputed Questions of Fact 64 not Decided by the De- partment, 66 29. Payment of the Ten Per Cent, in Cash, 68 30. Recording Certificate, ... 71 31. Practice, 73 VI TABLE OF CONTENTS. CHAPTEK V. NOTICE OF APPLICATION — ADVERTISEMENT. SICTION PAGE 32. statutory Eequirement, . 77 33. Notice Must be in English, 78 34. Where Notice Must be Pub- lished, 79 for SECTION 35. Notice Must Run Twenty-One Days, ... 79 36. Defect in Notice, 79 37. Right to Inspect Charter Pending Advertisement, . 81 CHAPTEE VI. BONUS ON CAPITAL STOCK. 38. Bonus of One-Third of One Per Cent, on Capital, . . 82 39. Bonus on Increase of Capi- tal, 84 CHAPTEK VII. CONTRIBUTION OP PROPERTY. 40. Property May be Taken for Stock, . . . . 85 41. Averment of Certificate as to Property Contributed, 86 42. Wh^t Property IVIay be Con- tributed, 87 43. Valuation, 88 44. Fictitious Increase Prohib- ited, 88 CHAPTEE VIII. 45. Statutory Provisions, . . 46. AVho May Make the By Laws, " . 90 47. By-Laws Must Conform to the General Law, .... 91 48. By-Laws Must Conform to the Charter 91 BY-LAWS, . 90 49. Illustrations of Invalid By- Laws, .... • . 91 50. Illustrations of Valid By- Laws, 93 51. Reasonableness of By-Laws to be Determined by the Court, 94 52. By-Laws as Notice, . . 95 CHAPTEE IX. SEAL. 53. Statutory Provision, 54. Custodvof the Seal, 55. Proof of Seal, . . 96 96 96 56. Seal as Evidence, 98 57. Corporate Contracts Not Under Seal, 99 CHAPTEE X. COMPLETION OP ORGANIZATION. 58. When Corporation is Deemed Organized.— Or- ganization Meetings, . 100 59. Acceptance of Charter, . . 104 60. Effect of Incorporation un- der the Act of 1874, . 109 TABLE OF CONTENTS. Vll nCTION fAGE 61. Legislative Ontrol, .... 109 62. A Charter is a Contract, . . 109 63. Constitution of 1874 did not Apply to Existing Corpo- rations, 110 64. Acceptance of Act of 1874 by Existing Corporations, . Ill 65. Effect of Acceptance of the Act of 1874, Ill 66. Acceptance of Constitution a Prerequisite to Legisla- tion in the Interest of any Corporation, 112 67. How such Acceptance to be Made, 112 68. Resolutions of Acceptance • to be Recorded, 112 69. Act of 1878 Applies only to Charitable Corporations, 112 BECIION PASE 70. Corporations of Second- Class to be Registered. — Existing Corporations May Acquire the Privilege of the Act of 1874, . . .113 71. All Corporations Must be Registered, 114 72. Return to Auditor-General, 114 73. Certain Charters Validated, 115 74. Acts Done by Certain Cor- porations Validated, . . 115 75. Letters-patent May be Is- sued to Certain Corpora- tions, 116 76. Annual Reports 116 77. Secretary of Commonwealth to Publish List of Char- ters, 118 78. How Certain Acts to be Des- ignated, 118 CHAPTEE XI. BOOKS AND PAPERS. 79. Right to Inspect Books, . . 119 80. Corporate Books Must be Proved, 121 81. Corporate Acts May be Proved by Parol, . . . 122 82. Minutes, 122 83. Stock Books, l23 84. Receipt Book, 124 85. In Case of Sale, Letting, or Mortgaging of Real Es- tate, Copy of Minutes to be Prima Fade Evidence, 124 86. Probate of Minutes by ex- Officer After Dissolution Sufficient, . .... 125 87. Books and Accounts of Common Carriers, . . . 125 88. Books of Railroad and Canal Couipanies, .... 126 CHAPTEE XII. AMENDMENTS OF CHARTER. 89. Amendments of Charters of • the First Class, ... 127 90. Amendments of Charters of the Second Class, . 128 91. Advertisement, . . . . 128 92. Certificate — Proceedings Thereon 128 93. Corporations to be subject to Act of 1874— Emi- nent Domain, 129 94. Title to Real Estate of Re- ligious Corporations After Amendment of Charter, . 130 95. Change of Name, 130 96. Amendment Must be in Ac- cord With Charter, . . 132 97. Amendment Must be Bene- ficial. . . 133 98. All Facts Must be Set out in the Petition, . ... 133 99. Majoritv of Stockholders Must Consent, ... 134 100. Amendment of Water Company's Charter, . . 135 101. Appeals, 135 VIU TABLE OF CONTENTS. CHAPTEK XIII. RENEWAL OF CHABTEKS. PAGE SBCnON „ . .. 102. Ee - Chartering Existing Corporations 136 8E 1313. Permit to be Exhibited at Each Lock, .... 1068 1314. Loss of Preference, . . . 1069 1315. Penalty for Using Poles Pointed With Iron, . . 106i) 1316. Recovery of Penalties, . 1069 1317. Oaths of Officers, .... 1069 1318. Certain Officers Author- ized to Administer Oaths, 1069 1319. Service of Process, . . 1069 1320. Change of Venue, .... 1071 1321. Costs on Change of Venue, 1071 1322. Arbitration — Production of Books, 1072 1323. Where Justices May De- pute Persons to Serve Process, 1072 TABLE OF CONTENTS. XXXVll APPENDIX. I. CONSTITUTIONAL PEOVISIONS, 1075 II. ACT OF APRIL 29, 1874, ANNOTATED TO SHOW CHANGES BY LATER LEGISLATION, . . 1080 IIL LAW OF PROCEDURE IN CORPORATION MEETINGS. BY HON. GEORGE M. DALLAS, 1160 IV. FORMS, 1186 I. Corporations of the First Class. (a) Certificate of Incorporation.* (6) Public Notice. Proof of Publication. Decree. Petition for Amendment of Ciiarter of Corporation of First Class. (/) Interlocutory Decree. (g) Public Notice. fh) Final Decree. (i) Application for Charter of a Church. II. Corporations of the Second Class. Rules Governing Applica- tions for Letters-Patent Issued by the Secretary of the Commonwealth. Application for Charter of Second Class. Proof of Publication. Letters-Patent. Charter for Building and Loan Associations. (/) Water, Gas, Electric, Heat, and Fuel Companies. Acceptance of Act of May 8, 1889, by Electric Light. Heat, and Power Com- panies. Title Insurance and Trust Companies. Iron and Steel Companies. Road Companies. Manufacturing Companies. General Telegi'aph Com- panies. (to) Telegraph Companies for Private Use, and Police, (a) (6) (c) id) (e) (g) (h) Fire Alarm, and Messen- ger Business. (n) Ferry, Wharf, and Bridge Companies. (o) Amendment of Charter of Corporation of the Second Class. III. Charter of Natural Gas Com- pany. IV. Certificate of Organization of Co-Operative Associa- tion. V. Certificate of Organization of Corporation for the En- couragement of Arts and Sciences. VI. Re-Organization by Pur- chasers of Property and Franchises. VII. Re-Charter of Corporation. VIII. Proceedings Upon Increase- of Capital Stock. IX. Acceptance of Constitution and Act of 1874. X. Certificate of Foreign Corpor- ations. XI. Statement of Foreign Corpor- ations. XII. Certificate of Secretary of the Commonwealth as to Foreign Corporations. XIII. Proceedings for Dissolution of Corporations. XIV. By-Laws. (a) By-Laws of a Manufacturing Company. (b) By-Laws of a Trust Company. (c) By-Laws of a Club. (d) By-Laws of a Building and I Loan Association. V. TABLE OF ACTS, 1265. TABLE OF CASES, 1277 INDEX 1377 LAW OF PRIVATE CORPORATIONS IN PENNSYLVANIA. CHAPTER I. DEFINITION AND CLASSIFICATION. 1. Definition. 6. Quasi Public Corporations. 2. Corporation de facto. 7. Purely Private Corporations 3. A Corporation is a Person. 8. Statutory Classification. 4. When Corporate Form Disre- 9. Corporations not for Profit garded. lo. Corporations for Profit. 5. Classification. Definition. I. A corporation has been defined as "an artificial body, created by law, and deriving, in this country, all its powers and authorities from the law creating or erecting it. It can exercise no power or authorities, it can hold no estate or property, except such as are conferred or authorized by the law, or those necessarily incident to the powers and authori- ties thus granted, and in estimation of law part of the same."* It has also been defined as an "artificial person created by law representative of those persons, natural or artificial, who contribute to, or become holders of shares in the property entrusted to it for a common purpose."^ 'Wolf V. Goddard, 9 Watts, 544 (1840). 'Gibb's Est., 157 Pa. 59 (1893). In this case Mr. Justice Williams said: "As it is the creation of positive law, its rights, powers, and duties are I 2 DEFINITION AND CLASSIFICATION. A corporation is described by Mr. Justice Williams as follows: "A corporation is an artificial person created by law for the purpose of becoming the business representative, agent, or trustee of so many persons as may join to furnish the money with which the business to be done by the corpora- tion may be carried on. The corporation comes into exist- ence, like a natural person, naked. The money furnished by those whose representative it is to be, is its capital stock. The amount that each person contributes to this fund is his share in the venture, and is called his share or shares in the stock. The legal title to the whole sum so contributed is in the cor- poration, and so is the legal title to all the property real or personal in which it maybe invested. The equitable title — that is, the right to the profits from the business done, and to a re- turn of the capital when the corporation is dissolved — is in the prescribed by law. Beyond the legitimate purposes which it was created to serve, and the lines of limitation the law has drawn around it, it is without power to act or capacity to take. Thus a banking corporation while fully competent to do what is usual and necessary in its own busi- ness, may not own and operate a railroad, or engage permanently in any other business than that for which it was created. It has neither the legal capacity, nor the right to do so; and if it undertakes to go in any direction beyond its corporate powers its acts are ultra vires. The crea- tion of a corporation is not within the power of the individuals who sub- scribe to its stock. It is exclusively the work of the law; and the best evidence of the existence of a corporation is the grant of corporate powers by the Commonwealth." In Murphy v. Farmers' Bank of Schuylkill County, 20 Pa. 415, 419 (1853), Woodward, J., said: "What is a corporation? A franchise. And Blackstone defines a franchise to be a part of the royal prerogative, ex- isting in the hands of the subject. The sovereignty of every State must be lodged somewhere. • Limited by such concessions as popular violence has from time to time wrung from reluctant monarchs, it resides in England, in the Crown. In Pennsylvania it resides in the whole mass of the people, and the three co-ordinate departments of government are the trustees appointed by the people for the exercise of so much of their sovereignty as they have not, by the Bill of Rights, denied them, nor by the Constitution of the United States yielded to the general government. The legislature of Pennsylvania may establish a corporation, that is, grant out a part of the sovereignty of the State, because ' being a general trustee for the people, and not forbidden, they are qualified to do so." DEFINITION AND CLASSIFICATION. 3 stockholders. There is one estate, one business, but the title has been divided, by the separation of the power of control, from the right to receive the profits. The nature of the under- taking, or the number of the persons uniting in it, makes this division desirable for convenience, in the transaction of the business, and for the unity and efficiency of its management. Nevertheless,' as in the ordinary case of trustee and cestui que trust, the real owners are the beneficiaries."^ Corporation de facto. 2. A corporation de facta is an apparent corporate organi- zation asserted to be a corporation by its members, and actu- ally acting as such, but lacking the creative fiat of the law. Three things must concur to the existence of a corporation de facto, viz.: (i) a law or charter under which an organiza- tion de jure might be effected; (2), an attempt to organize which falls so far short of the requirements of the law or charter as to be ineffectual; and (3), assumption and exercise of corporate powers notwithstanding the failure to comply with the law or charter.* Several persons organized a bank under the name of the Home Savings Bank, with a president, cashier, and board of directors. The certificates of stock recited the organization of a bank under the laws of the State and the division of its capital into shares of $100 each. Dividends were declared by the directors. There was evidence that the owner of the stock received such dividend. The manner of the organiza- tion of the bank was not shown, nor was there any proof that the officers or stockholders claimed, or held out to the public that the stockholders were partners, or the bank a partnership enterprise. Reports to the auditor-general of net earnings referred to the organization as a firm, in those parts of the reports which were printed. It was held, that the evidence was not sufficient to warrant the Supreme Court in reversing the finding by an auditor, affirmed by the court "Commonwealth v. Fall Brook Coal Co., 156 Pa. 488 (1893). •Gibb's Est, 157 Pa. 59 (1893). 4 DEFINITION AND CLASSIFICATION. below, that the bank was not a partnership, and that the stockholders were not liable as partners for its debts.® A Corporation is a Person. 3. A corporation is often described as an artificial person, and except in the case of statutes relating to taxation, it is usually included under the term "person" or "persons." Thus, under the liquor law of June 9, 1891, a corporation may receive a liquor license, as the words "person or persons'' in the act are generic terms and include artificial as well as natural persons;^ and a railroad company is a person within the meaning of the road laws, and as such is entitled to notice of a view as the owner of improved property.'^ But in the absence of a clear intent to the contrary, the word "person" in tax laws, does not include corporations.* When Corporate Form Disregarded. 4. The courts will sometimes look back of the corporate organization, or disregard the corporate form, where justice and equity require it. Thus, where several parties enter into a contract, and subsequently the identical parties form them- selves into a corporation contemplated by the contract, a court of equity will not consider the corporation a stranger to the contract. Several judgment creditors agreed to buy the property of their debtor at a sheriff's sale, and form a corporation, taking stock therein in proportion to their debts. It was held that the corporation so formed was a necessary party defendant to a bill in equity filed by one of the creditors to compel a transfer to him of his proportion of the stock, if it appeared that the corporation was formed pending the litigation, and "Gibb's Est, 157 Pa. 59 (1893). 'Gulf Brewing Co.'s License, 11 Pa. C. C. R. 346 (1892). 'Road in Lancaster City, 68 Pa. 396 (1871). 'Fox's Ap., 112 Pa. 337 (1886); School Directors v. Carlisle Bank, 8 Watts, 289 (1839); Saving Fund v. Yard, 9 Pa. 359 (1848). DEFINITION AND CLASSIFICATION. 5 that the stockholders were the identical persons who had made the agreement with the plaintiff.® Where an insolvent corporation transfers its property to a newly-formed corporation composed of the stockholders of the old company and some of its creditors, a creditor who has not been informed of the transaction has a right to follow the specific property transferred, and to levy upon it in the hands of the new corporation. The court said: "The only real difficulty in the present case is whether the stockholders are so completely severed, in the view of the law, from the cor- poration behind which they hide as to prevent a creditor from asserting their identity in fact, for the purpose of securing payment out of property which was theirs under one name, and is still theirs under another. Is the Montgomery com- pany so completely a new and different person from the Aronia company that the law must close its eyes to the fact that the difference is a mere juggle of names? We do not think there is any compulsion to such legal blindness. Set- tled general principles, and the analogies of the law, are against such a contention. If the corporation had merely changed its name, there could have been no doubt of the continued liability of the property. As already said, a ma- jority of the stockholders in the new company are simply the stockholders of the old company holding as such, and without other consideration. As to these, it has been a mere change of name. As to the other or new stockholders, it appears from the agreed factis that they were creditors of the old company, and hold their stock solely in consideration of their former claims as creditors. They paid nothing else for it, and they must have known that the new corporation into which they entered in this way was not a new enterprise, in the regular course of business under the incorporation act of 1874 as it professed to be, but a new turn in the old enter- prise, all of whose property was being practically handed 'Kennedy v. McColskey, 170 Pa. 354 (1895). See also Montgomery Web Co. V. Dienelt, 133 Pa. s8s (1890). 6 DEFINITION AND CLASSIFICATION. over, rtot to them alone in payment, which they might, per- haps, rightfully have accepted, but to them in conjunction with their late debtors. Under such circumstances, they were bound to take notice of the nature of the transaction, and to know that equity would still regard the property as a trust for the payment of existing debts, and would follow it on behalf of creditors until it should get into the hands of inno- cent purchasers for value. Such purchasers they were not. The old stockholders were not purchasers for value at all, and the new stockholders were not innocent, for they knew, or were bound to take notice, of the taint in their co-adventu - rers' title. We are of opinion that, as to the stockholders in the Aronia company, this was a transfer of property by a debtor with the retention of an interest in himself, within the settled rule of law that makes such transfers void against creditors, and that, as to the Aronia creditors who became new stockholders in the Montgomery company, they took with such notice as prevents them from claiming now as in- nocent holders for value against the appellants as execution creditors of the old corporation."^* Classification. 5- Private corporations in Pennsylvania are divided into two classes: (i), corporations which affect the public directly, and are quasi public; and (2), corporations which aflfect the public indirectly, and are therefore strictly private. In order that a private corporation may be regarded as quasi public it must exist directly for the public use; the corporate franchise must be such as is held in the nature of a public trust, and such that the public has a standing to as- sert, and enforce its right. Whilst eminent domain is ordi- narily an attribute of such a corporation, it is not essential that it should be given that right. If the public may assert a use, by right, then the property of the corporation may be said to be in the direct use of the public at large, though under "Montgomery Web Co. v. Dienelt, 133 Pa. 585 (1890). DEFINITION AND CLASSIFICATION. 7 the control of private persons, or of a corporation. It is not so much a question of what pubHc service the corporation is actually performing, as what public services it must perform.^^ Quasi Public Corporations. 6. A corporation organized by special act for the purpose of introducing water into a town for the public accommoda- tion is a quasi public corporation, and its buildings, etc., neces- sary for carrying on a corporation are not subject to me- chanics' liens.^^ "McLeod V. Central Normal School Association, 152 Pa. 575 (1893). "Most people acquainted at all with corporate action understand that corporations, other than municipal, which are purely public, naturally divide into public and private corporations; that is, into those that are agencies of the public directly affecting it, and those which only affect it indirectly, by adding to its prosperity in developing its natural re- sources, or in improving its mental and moral qualities. Of the former, are corporations for the building of bridges, turnpike roads, railroads, canals, and the like. The public is directly interested in the results to be produced by such corporations, in the facilities afforded to travel and the movements of trade and commerce. It is well settled that this use is not to be disturbed by the seizure of any part of their property essential to their active operations, by creditors. They must recover their debts by sequestering their earnings, allowing them to progress with their under- taking, to accommodate the public. This direct benefit to, and accommo- dation to the public, very clearly distinguishes this class of corporations from the second class, viz.: Private corporations, or those in which the public is but indirectly interested, such as mining and manufacturing, or coal and iron companies, etc., or libraries, literary societies, schools, and the like. Whether they progress or cease, the public is not directly affected, and hence liens are enforceable against them without, as a gen- eral thing, any regard to the effect upon their operations." Foster v. Fowler, 60 Pa. 27 (1868). "It may be somewhat difficult to define what is a public work or a public corporation, but it is clear that one of the characteristics is that it has the right of eminent domain, that it has franchises which justify the legislature in defining or considering it public. A mere private cor- poration needs no franchise from the State in order to carry on its busi- ness. Men may manufacture shoes without corporate power, but they cannot occupy streets or property of private individuals without corporate power or warrant from the State. They need a delegation of sovereignty, and in such cases their works may be properly called public works." Pittsburgh's Ap., 123 Pa. 374 (1889). "Foster v. Fowler, 60 Pa. 27 (li 8 DEFINITION AND CLASSIFICATION. A water company incorporated under the Act of April 29, 1874, P. L. Ti, is a public corporation, and its property is not subject to mechanics liens.^* A gas company incorporated to manufacture and furnish gas to a city or town is a quasi public corporation, and not lia- ble to local taxation upon its plants* A natural gas company organized under the Act of May 29, 1885, P. L. 29, is a quasi public corporation whose prop- erty cannot be taxed for local purposes.^® As boom companies are intended to supply faciUties for the driving of logs to the general public, they are quasi public corporations.^® An incorporated fire company chartered for the protec- tion of the property in a borough from fire, is a corporation public in character, and the individual members had no right to divert the property of the company to their own uses.^'' A street railw^ay company is a quasi public corporation, and as such the property necessary for its franchises cannot be taxed for local purposes.^* The Gettysburg Battle-field Memorial Association, char- tered by the Act of April 30, 1864, P. L. 670, is a quasi public corporation, and its ownership and control of the battle-field are subject to the right of the Commonwealth to designate the true position of her troops in the battle, and to mark the same by suitable monuments.^® "Guest V. Merion Water Co., 142 Pa. 610 (1891). "Coatesville Gas Co. v. Chester Co., 97 Pa. 476 (1881) ; Schuylkill Co. V. Citizens' Gas Co., 148 Pa. 162 (1892); McNeal v. West Pittsburgh Gas Co., 4 W. N. C. 504 (1877). "St. Mary's Gas Co. v. Elk Co., 168 Pa. 401 (1895); Pittsburgh's Ap., 123 Pa. 374 (1889). "West Branch Boom Co. v. Pennsylvania Joint Lumber & Land Co., 121 Pa. 143 (1888); Brown v. Susquehanna Boom Co., log Pa 57-68 (188S). "Bethlehem Borough v. Perseverance Fire Co., 81 Pa. 445 (1876). "Northampton Co. v. Easton Pass. Ry., 148 Pa. 282 (1892) ; Shepp v. Norristown Pass. Ry. Co., 2 Dist. Rep. 679 (1893). "Reed v. Gettysburg Battle-field Association, 129 Pa. 329 (18 DEFINITION AND CLASSIFICATION. 9 Purely Private Corporations. 7. A normal school incorporated for the purpose of train- ing teachers for the public schools, and receiving recognition and aid from the State, is not a quasi public corporation, and its property is subject to mechanics' lien laws.^" A company incorporated "to elevate, store, handle, and transfer grain, and to do a general storage business in all kinds of merchandise from vessels to cars, and from cars to vessels," is not a public corporation within the rule, that the works of a public corporation necessary for the enjoyment of its franchises cannot be* made the subject of a mechanics' lien. Corporations which only affect the public indirectly "by adding to its prosperity in developing the natural re- sources of the country, or in improving its mental and moral qualities, are not public corporations."^^ A market company is a private corporation and is subject to local taxation upon its market building, although the building is erected upon a public square of a borough, and the company pays a State tax upon its capital stock.^^ A bank is a private corporation, and its charter a private act, to be pleaded and proved as all other private acts.^^ A charter granted for educational purposes to the proprie- ""McLeod V. Central Normal School Association, 152 Pa. 575 (1893). "'Southwark Foundry Co. v. Girard Point Storage Co., 16 Phila. 193 (1883). In this case Judge Thayer said: "This company is a private, not a public corporation. The question cannot be affected by the extent of the business carried on or the magnitude of its works, or the fact that it contributes greatly to the facilities of trade, the encouragement of hus- bandry and the prosperity of the shipping interests. The general public is not concerned directly in the prosecution of its business, which is car- ried on exclusively for the profit of those engaged in it, and though great benefit to trade may indirectly result from their enterprise, that circum- stance alone furnishes no sufficient reason for depriving their creditors of the ordinary remedies which the law provides for the collection of debts." This case was affirmed in Girard Point Storage Co. v. South- wark Foundry Co., 105 Pa. 248 (1884). ''Allegheny Co. v. McKeesport Diamond Market, 123 Pa. 164 (1889). See also Twelfth Street Market Co. v. Phila. & R. Terminal R, R., 142 Pa. s8o (1891). "First Nat. Bank of Clarion v. Gruber, 87 Pa. 468 (1878). 10 DEFINITION AND CLASSIFICATION. tors of land within a particular geographical area, is a char- ter of a private corporation, and is not municipal in character. Such a charter is granted to particular persons owning land, and not to the inhabitants of the district as a municipality. If the legislature attempts to take away the property of such a corporation and give it to a township, it violates the obliga- tion of a contract within the meaning of the Constitution of the United States.^* Statutory Classification. 8. The Act of April 29, 1874, P. L. 73, and its numerous supplements divided corporations into two classes. First, corporations not for profit, and second corporations for profit. The first class are incorporated by the courts, the second by the governor of the Commonwealth under the general law. Corporations not for Profit. 9. Section 2. The purposes for which the said corpora- tions may be formed, shall be as follows, and shall be divided into two classes: Corporations not for Profit. The first class, those for — I. The support of public worship. ' II. The support of any benevolent, charitable, educational, or missionary undertaking. III. The support of any literary, medical, or scientific undertaking, library association, or the promotion of music, painting, or other fine arts. IV. The encouragement of agriculture and horticulture. V. The maintenance of public and private parks, and of facilities for skating, boating, trotting, and other innocent or athletic sports, including clubs for such purposes, and for the preservation of game and fish. VI. The maintenance of a club for social enjoyments. VII. The maintenance of a public or private cemetery. VIII. The erection of halls for public or private purposes. "Plymouth v. Jackson, 15 Pa. 44 (1850). DEFINITION AND CLASSIFICATION. IX IX. The maintenance of a society for beneficial or pro- tective purposes to its members from funds collected therein. X. The support of fire engine, hook and ladder, hose, or other companies for the control of fire. XL For the encouragement and protection of trade and commerce. XII. For the formation and maintenance of military organ- izations. XIII. For the maintenance of a society for the improve- ment of the streets and public places in any city, borough, or township in this Commonwealth. XIV. For receiving and.holding property, real and per- sonal, of and for unincorporated religious, beneficial, charita- ble, educational, and missionary societies and associations, and executing trusts thereof. Each of the said corporations may hold real estate to an amount the clear yearly value or income whereof shall not exceed $20,000.^^ Corporations for Profit. 10. The second class those for — ^* I. The insurance of the lives of domestic animals.*^ 11. The insurance of human beings against death, sickness, or personal injury.^® III. The prevention and punishment of theft or willful in- juries to property and insurance against such risks. IV. The grading, curbing, paving, or macadamizing, con- "Act of July IS, 1897, P. L. 283, amending the Act of April 17, 1876, Sec. 2, P. L. 30, whicti amended the Act of April 29, 1874, P. L. Ti. Sub-sections 11 and 12 were added by the Act of April 17, 1876. By the Act of May 25, 1887, P. L. 265, corporations were authorized to be formed for "the prevention of cruelty to children and aged persons." Sub-sec- tion 13 was added by the Act of June 25, 1895, P. L. 313. The sub-sec- tion 14 was added by the Act of July 15, 1897, P. L. 283. ™Act of April 29, 1874, P. L. 73, and its supplements. "This sub-section was repealed by the Act of May I, 1876, Sec. i, Clause 4, and Sec. 57, P. L. S3, except that under Section 4, of the Act of May i, 1876, associations may be formed to issue policies not containing a guar- anteed sum of insurance. "This section is repealed by the Act of May i, 1876, Sec. i, Clause 3, and Section 57, P. L. 53, except as to associations issuing policies not containing a guaranteed sum of insurance. 12 DEFINITION AND CLASSIFICATION. struction and maintenance of any species of street, road, or highway and the furnishing of the materials of labor therefor, or construction and maintenance of any species of road other than a railroad and of bridges in connection therewith.^** V. The construction and maintenance of a bridge over streams within this State. VI. The construction and maintenance of a telegraph line.^" VII. The establishment and maintenance of a ferry. VIII. The building of ships, vessels, or boats, and car- riage of persons and property thereon. IX. The supply of water to the pubUc, or the supply, stor- age, or transportation of water and water power for com- mercial and manufacturing purposes.*^ X. The supply of ice to the public, and the establishment of a system of refrigeration by which the public may obtain materials for refrigerating purposes through pipes or con- duits from central stations.^^ XI. The manufacture and supply of gas, or the supply of ^This sub-section as it stood in the Act of April 29, 1874, was as fol- lows: "The construction and maintenance of any species of road, other than a railroad, and bridges in connection therewith." It was changed to its present form by the Act of May 24, 1887, P. L. 186. The legisla- ture in passing the Act of June 10, 1893, P. L. 435, took as the basis of amendment the Act of April 17, 1876, P. L. 31, and ignored tlie prior amendment. It does not seem, however, that there was any intent to repeal the fourth paragraph as amended by the Act of May 24, 1887. It has been accordingly inserted in the text in its amended form. '"The Act of May i, 1876, P. L. 90, provided as follows: "That cor- porations of the second class may be formed and created in the manner provided for by the Act to which this is a supple;nent, and with all the rights and powers therein granted for the purpose of constructing, main- taining, and leasing lines of telegraph for the private use of individuals, firms, corporations, municipal and otherwise, for general business and for police, fire alarm or messenger business, or for the transaction of any business in which electricity over or through wires may be applied for any useful purpose." "Paragraph 9, as it stood in the Act of April 24, 1879, was as fol- lows: "The supply of water to the public." By the Act of May 16, 1889, Sec. I, P. L. 226, it was amended so as to read as above. The Act of June 10, 1893, ignored the amendment as it did in the case of paragraph 4. "Paragraph 10, as it stood in the Act of April 29, 1874, was as follows: "The supply of ice to the public." The remaining provision was added by the Act of June 24, 1895, Sec. i, P. L. 253. DEFINITION AND CLASSIFICATION. 1 3 light, heat, and power by means of electricity, or the supply of light, heat, or power to the public by any other means.^^ XII. The transaction of a printing and publishing busi- ness. XIII. The establishment and maintenance of an hotel and drove-yard or boarding-house, opera and market-house, livery, or boarding stable, or either. XIV. The creating, purchasing, holding, and selling of patent rights for inventions and designs, and the purchasing of copyrights for books, publications and registered trade- marks, with the right to issue license for the same and receive pay therefor.** XV. Building and loan associations. XVI. Associations for the purchase and sale of real estate or for holding, leasing, and selling real estate, for maintain- ing or erecting walls or banks for the protection of low lying lands, and for safe deposit companies, and for buying, selling, vending, or dealing in any kind or kinds of goods, wares, and merchandise at wholesale.*® XVII. The manufacture of iron or steel, or both, or of any other metal, or of any article of commerce from metal or wood, or both. XVIII. The carrying on of any mechanical, mining, quarrying, or manufacturing business, including all of the purposes covered by the provisions of the acts of the General Assembly, entitled "An Act to encourage manufacturing op- erations in this Commonwealth," approved April seventh, "Paragraph li, as it stood in the Act of April 29, 1874, read as follows: "The manufacture and supply of gas or the supply of light or heat to the public by any other means." It was amended to read as above by the Act of May 8, 1889, Sec. 81, P. L. 136. The Act of June 10, 1893, ignored this amendment. "Paragraph 14, as it stood in the Act of April 29, 1874, read as follows: "The creating, purchasing, holding, and selling of patent rights for in- ventions and designs, with the right to issue license for the same, and receive pay therefor." It was amended to its present form by the Act of' May 16, 1889, Sec. i, P. L. 241. The Act of June 10, 1893, ignored this amendment. "The Act of April 17, 1876, P. L. 30, amended the Act of April 29, 1874, so as to make paragraph 16 read as follows: "Associations for the pur- chase and sale of real estate, or for holding, leasing, and selling real estate, for maintaining or erecting walls or banks for the protection of low lying lands, and for safe deposit companies." The remaining provision as to wholesale dealing was added by the Act of June 25, 189s, Sec. i, P. L. 295. 14 DEFINITION AND CLASSIFICATION. one thousand eight hundred and forty-nine, and entitled "An Act relating to corporations for mechanical, manufac- turing, mining, and quarrying purposes," approved July eighteenth, one thousand eight hundred and sixty-three, and the several supplements to each of said acts, including the in- corporation of grain elevators, storage-house and storage- yard' companies, and also including companies for the stor- age, transportation, and furnishing of water, with the right to take rivulets and land and erect reservoirs for holding water for manufacturing and other purposes, and for the creation, establishing, furnishing, transmission, and using of water power therefrom, the construction of dams in any stream, and the driving and floating of saw logs, lumber, and timber on and over any stream, not exceeding thirty-five miles in length, and the heads of all streams not exceeding thirty-five miles in length from their source, by the usual methods of driving and floating logs, timber, and lumber on streams, and so as not to obstruct the descending naviga- tion by rafts and boats, and also including the manufacture and brewing of malt liquors, but excluding the distilling and manufacture of spirituous liquors. Companies may be organized under this act, having the right to transport, store, insure, and ship petroleum, and for that purpose to lay down, construct, and maintain pipes, tub- ing, tanks, offices, and such other machinery, devices, or ar- rangements as may be necessary to fully carry out that right; and also with the right to enter upon, take, and occupy such land and other property, as may be requisite for the purposes of such corporations.** "Act of June lo, 1893, Sec. i, P. L. 412, amending the Act of May 21, 1889, Sec. I, P. L. 259, which amended the Act of June 22, 1883, Sec. i. The Act of June 10, 1893, P- L. 435, which purported to amend the whole of Sec. 2 of the Act of April 29, 1874, simply re-enacted para- graph 18 as it stood in the Act of 1874, ignoring all the preceding amend- ments of the paragraph. Paragraph 18 was twice amended in 1883. The Act of June 2, 1883, Sec. 1, P. L. 61, provided for the incorporation of petroleum and pipe line companies. The Act of June 22, 1883, P. L. 156, also amended the paragraph, but omitted all mention of petroleum and pipe line com- panies. The Act of May 21, 1889, P. L. 259, which also amended the paragraph, took as the basis of amendment the Act of June 22, 1883, and pipe line and petroleum companies were again omitted. The Act of June ID, 1893, P. L. 435, which apparently took as the basis of amendment the DEFINITION AND CLASSIFICATION. 1 5 XIX. The insurance of owners of real estate, mortgages, and others interested in real estate, from loss by reason of de- fective titles, liens, and incumbrances. XX. The re-chartering of corporations of either of these classes, the charters whereof are about to expire. XXI. The construction and maintenance of a wharf or wharves, for pubUc and private use, and the maintenance of any unincorporated wharf or wharves already constructed.^'^ XXII. The construction, erection, and maintenance of ob- servatories for public use or scientific purposes.^* XXIII. The formation and operation of stage and omni- bus lines.^® XXIV. The formation and operation of inclined planes for the transportation of passengers and freight, or for the con- struction and maintenance of tunnels and underground pas- sageways.*** XXV. The construction and maintenance of sewers, cul- verts, conduits, and pipes, with all necessary inlets and appli- ances for surface, and under-surface, and sewage drainage for the health, comfort, and convenience of inhabitants, and sani- tary improvement in cities, boroughs, and townships of the Commonwealth, and for this purpose to enter upon and oc- cupy any public highway with the consent of the local au- thorities.*^ The construction and operation of motors and cables and the necessary apparatus and mechanical fixtures for applying and operating the same.*^ Act of April 17, 1876, P. L. 30, also omitted the mention of petroleum and pipe line companies. • It will be noted that there were two Acts of June 10, 1893, one P. L. 412, and the other P. L. 435. "Paragraph 21 was not in the Act of April 29, 1874, but was added by the Act of April 17, 1876, P. L. 30. "Paragraph 22 was added by the Act of April 17, 1876, P. L. 30. "Paragraph 23 was added by the Act of April 17, 1876, P. L. 30. "Paragraph 24 was added by the Act of April 17, 1876, P. L. 30. The provision relating to tunnel and underground passageway companies was added by the Act of June 25, 1895, Sec. i, P. L. 310. "Paragraph 25 was added by the Act of June 10, 1893, P. L. 435. "Act of June 13, 1883, Sec. 6, P. L. 123. CHAPTER II. MODE OF INCORPORATION. 11. Incorporation Under Act oi I4- Improper Use of Name. 1874. 15. Who May be Incorporators. 12. Contents of Certificate.— Gen- 16. Place of Business. eral Provisions. 17. Removal of Office. 13. Corporate Name. Incorporation Under Act of 1874. 1 1 . With the exception of a few classes of companies for which special acts have been passed/ corporations are formed in Pennsylvania under the General Corporation Act of April 29, 1874, P. L. 73, and its supplements.^ The act requires certain matters to be set forth in the 'Such as railroad companies, canal companies, banks, street railway companies, co-operative associations, natural gas companies, motor and cable companies, and boulevard companies. ''The Act of April 20, 1874, Sec. 46, P. L. 107, repealing prior acts, is as follows: "From and after the passage of this act, the acts of the General Assembly, entitled "An Act to encourage manufacturing operations in this Commonwealth," approved April seventh, one thousand eight hun- dred and forty-nine (P. L. 563); "An Act to enable joint tenants, tenants in common, and adjoining owners of mineral lands in this Common- wealth, to manage and develop the same," approved April twenty-first, one thousand eight hundred and fifty-four (P. L. 437) ; "An Act relating to corporations for mechanical, manufacturing, mining, and quarrying purposes," approved July eighteenth, one thousand eight hundred and sixty-three (P. L., 1864, 1102); "An Act to provide for the incorpora- tion of iron and steel manufacturing companies," approved March twen- ty-first, one thousand eight hundred and seventy-three (P. L. 26); and the several supplements to each of said acts, be and the same are hereby repealed, so far as they provide for the creation of corporations for any of the purposes provided for by this act, or are inconsistent with this act." Act of April 29, 1874, Sec. 46, P. L. 107. 16 MODE OF INCORPORATION. ly form of a certificate, which in the case of corporations of the first class, must be filed in the Court of Common Pleas, and in the case of corporations of the second class in the office of the secretary of the Commonwealth. Before the certificate can be prepared these matters, which relate to the name, business, place of business, directors, and the capital stock, must be determined upon. If the number of proposed incor- porators is small, which is now usually the case, such matters may be determined at a merely informal meeting. If, how- ever, the number of incorporators is large, a meeting of the persons interested should be held and called to order in the usual way, and the proceedings conducted under parliament- ary rules. The following questions should be submitted to the meeting: (i), the name of the corporation; (2), the pur- pose for which it is to be formed; (3), the place or places where its business is to be transacted; (4), the term for which it is to exist; (5), the names of the persons who are to sign the certificate, and the number of shares for which they are to subscribe; (6), the number of directors, and the persons who are to be directors for the first year; (7), the amount of the capital stock of the proposed corporation, if there is to be any stock, and the number and par value of the shares into which it is to be divided. After the will of the meeting has been ascertained upon these subjects the preparation of the certificate may be re- ferred to counsel. Contents of Certificate.— General Provisions. 12. The charter of an intended corporation must be sub- scribed by five or more persons, three of whom at least niust be citizens of this Commonwealth, and shall set forth — I. The name of the corporation.^ II. The purpose for which it is formed.* "Act of April 29, 1874, Sec. 3, P. L. 75. A blank form of certificate may be obtained by application to the secretary of the Commonwealth at Harrisburg. See Appendix. 'See infra, Sees. 13, 14- 2 l8 MODE OF INCORPORATION. III. The place or places where its business is to be trans- acted.^ IV. The term for which it is to exist.® V. The names and residences of the subscribers and the number of shares subscribed by each.'' VI. The number of its directors and the names and resi- dences of those who are chosen directors for the first year. VII. The amount of its capital stock, if any, and the num- ber and par value of shares into which it is divided.^ Corporate Kame. 13. The only considerations which should influence the Department of State in considering whether such a similarity of name exists as would justify the refusal of a charter are, that such similarity of names would be confusing to the State officials in the imposition and collection of taxes, or would produce uncertainty in the judicial process of courts in which such corporations might sue or be sued. In con- sidering contests over the similarity of names the Department of State applies the ordinary rules of evidence.® The name of a proposed corporation should be distinctive. Thus a charter was refused where the name proposed was "The Nether Providence Association." The court said: "The name is too comprehensive, vague, and uncertain. Like the title of an Act of Assembly, it should, at least, indicate the purpose of the charter. There may be associations in Nether Providence, and there is nothing in this name to distinguish it from any other unless we are to put' the stress of the voice "See infra, Chapters 3 and 4. 'See infra, Sec. 16. 'Charters may be made perpetual, or may be limited in time by their own provisions. Act of April 29, 1874, Sec. 4, P. L. 73. 'The stock need not be all subscribed before the charter issues: Opin- ion of the Attorney-General of September 28, 1874, and November 10, 1874. •Kidd Bros. & Burgher Steel Wire Co., 17 Pa. C. C. R. 238 (1895). "The name of a corporation is a necessary part of its charter, 'the knot of its combination,' without which it cannot perform its corporate func- tions:" Excelsior Oil Co., 3 Pa. C. C. R. 184 (1887). MODE OF INCORPORATION. I9 on the definite article and call it The Association of Nether Providence. "i'> A corporation cannot prevent another company from be- ing incorporated because the name of the newr corporation contains a word already in the name of the old corporation, where such word is a generic term in common use, and in its nature descriptive of and ordinarily characterizing the business to which it pertains rather than its origin or pro- prietorship. Thus the proper name "York" and the words "paper" and "company" are incapable of exclusive use.^^ The name proposed for a new corporation cannot be re- jected by the court unless it conflicts with the name of a cor- poration already in existence, or is an absurdity. An application was made to the court for a charter of a club for social purposes. The name designated was "Cen- tral Democratic Association of Philadelphia." In consider- ing the application Judge Allison said: "The first ques- tion which suggests itself for the consideration of the court is, do the names under which the petitioners desire to be incorporated raise a substantial objection to the grant of corporate powers under the Act of 1874. An examination of the act will show that there is no reference to the name or title under which citizens may be incorporated. The first sec- tion merely says, corporations may be formed under the pro- visions of this act by the voluntary association of five or more persons, and in the manner and for the purposes men- tioned herein. This is followed by an enumeration and state- ment of the powers which each corporation takes to itself, unless otherwise specially provided; the first of which is, to have succession by its corporate name for the period limited by its charter, or perpetual, as the case may be. This seems to be the first reference to the names under which corpora- tions are to exercise their corporate powers. Being artificial "Charter of the Nether Providence Association, 12 Pa. C. C. R. 666 (1893). Per Clayton, P. J. "York Card & Paper Co. v. York Wall Paper Co., 15 Pa. C. C. R. SS4 (189s). ^ 20 MODE OF INCORPORATION. persons they must be known and do and perform all lawful acts, as a body corporate, under a name given to them by their charter. As the name is essential, not only to the existence of a corporation, but also to the performance of legitimate corporate duties and the exercise of corporate powers, it fol- lows, that in approving the petition of persons to be formed into a corporation, it is the duty of the court to see that whatever is granted is taken under a designated corporate title. This is so because there can be no corporation known to the law unless it has a corporate name, and the act, as we have seen, declares that it shall have succession by its corporate name. But has the court the power to refuse to grant a petition for incorporation under the title or desig- nation selected by the petitioners, unless the name conflicts in whole or in part with that of a corporation already in exist- ence, or is it justly subject to the objection of idem sonans, or where the name chosen might fairly be said to be ridiculous or absurd? The Act of 1874 does not in express terms grant such power to the court, nor may it be taken by necessary implication. For while a name is an essential feature of a corporation, the particular name to be selected seems to be left in a great degree to the preference of the petitioners. The duty of the law judge, to use the wording of the act, is to peruse and examine the instrument, and if the same shall be in proper form, and within the purposes named in the first class, as specified in the act, and it shall appear lawful and not injurious to the community, he shall indorse thereon these facts, and shall order and decree thereon that the char- ter is approved. The act then declares that the charter being duly recorded, the petitioners, their associates, and succes- sors, shall be a corporation by the name given. We conclude after a careful consideration of the act, that it is no objection to the present applications that the petitioners ask to be in- corporated under names which are indicative of their political association and belief, or of the political parties to which they severally belong. Being Democrats and Republicans MODE OF INCORPORATION; 2l they have a right to associate together as such for all lawful purposes, and to be known in their several organizations as Democrats or as Republicans, and that to incorporate them under the names or titles which are indicative of their politi- cal preferences is within the spirit of the act. The name does not confer, or profess to confer, a corporate power, and that which we are required to do is to see that no apparent powers are obtained under a decree of the court other than or differ- ent from those which are specified in the act."*^ The charter of a proposed corporation for social and bene- ficial purposes was presented May 28, 1887, and was first advertised June 3, 1887. The name proposed was "Societa Militare Italiana Principato Ultra di Mutuo Succorso Primo Regimento Genio ed Artigliaria in Philadelphia." Excep- tions to the charter were filed June 18, 1887, by the "Societa Italiana di Mutuo Succorso Primo Regimento Artigliaria di Compagnia in Filadelfia," an unincorporated society which had been in existence for several years, and which, on June 16, 1887, presented a charter of incorporation (first advertised June 17, 1887) to Court of Common Pleas, No. 4, of Philadelphia County, on the grounds: (i), that the name of the proposed corporation was an infringement on the name of the exceptants, in that the former without any authority, and contrary to the wishes of exceptants, had joined to its original name the name of the exceptants; and (2), that the exceptants had always used and been known by their own proposed corporate name, the main and distinguishing words of which the proposed corporation was endeavoring to join to the. proposed corporation's orig- inal name, which was "Societa Italiana Principato Ultra- Primo Regimento Genio in Philadelphia," for the purpose of preventing exceptant from obtaining a charter. The excep- tions were dismissed.^' "Central Democratic Assn., 8 Pa. C. C. R. 392 (1889); Young Re- publican Club of the Thirtieth Ward, 8 Pa. C. C. R. 392 (1889). "Societa Militare Italiana, 3 Pa. C. C. R. 441 (1887). 22 MODE OF INCORPORATION. A charter will be granted to a corporation with the name of the "North Fifth Street Mutual Land Association," al- though there is another corporation having the name North Fifth Street Real Estate Company." The name "Columbus Security Order" of a proposed cor- poration is not so similar to the title "Universal Order of Se- curity," borne by an existing corporation as to require the court to refuse a charter to the former, although its objects are identical with those of the latter.^ ^ A charter will be granted to a corporation under the name of the "Carlin Manufacturing Company," although a protest is filed by a corporation known as "Thomas Carlin's Sons," and the objection is on the ground of similarity of names.^® The name of Kidd Bros. & Burgher Steel Wire Company is not so similar to the name "Kidd Steel Wire Company, Ltd.," as to prevent the granting of a charter to the former com- pany.^ '^ A charter will be granted to a company under the name of the York Wall Paper Co., notwithstanding the existence of another corporation called the York Card & Paper Co.^* A charter will be granted to a corporation under the name of the "Dime Savings Bank of Philadelphia," although there is another existing corporation having the name of the "Dime Savings Fund & Trust Company."^® The name of "Duquesne College" had not been used for many years by a corporation, and the corporation itself had been absorbed by another college of a different name. It was held that a charter might be granted to a new corpora- tion under the name of Duquesne College.^" A company will not be chartered under the name of the "North Fifth Street Mutual Land Association, 8 Pa. C. C. R. 15 (1889). "'Columbus Security Order, 27 W. N. C. 36 (1890). "Carlin Manufacturing Co., 10 Pa. C. C. R. 667 (1891). "Kidd Bros. & Burgher Steel Wire Co., 17 Pa. C. C. R. 238 (1895). "York Card & Paper Co. v. York Wall Paper Co., 15 Pa C C R 554 (189s). "The Dime Savings Bank of Philadelphia, 9 Pa. C. C. R. 369 (1890). "Duquesne College Charter, 12 Pa. C. C. R. 491 (1891). MODE OF INCORPORATION. 23 Bradley Fertilizer Co., of Philadelphia, against the protest of the Bradley Fertilizer Company.^^ A corporation will not be chartered under the name of the "Gas Company of Altoona" in opposition to the objection of the "Altoona Gas Company."^^ A corporation of the name of the "Society of the Red Cross" objected to a charter for a corporation to be called "The Waverly Ladies of the Red Cross." The charter was refused, but subsequently the words "Order of the" having been added preceding the words "Red Cross" in the pro- posed title, the charter wis granted.^* A charter will be refused for an organization to be known as "Grand Lodge of the Independent Order Sons of Prog- ress," where it appears that there is another corporation in existence having the same object and named "Grand Lodge of the Order Sons of Progress."^* The City Trust, Safe Deposit & Surety Co., of Philadel- phia, was incorporated June 4, 1886, and entered into busi- ness at 927 Chestnut Street. Subsequently application was made for the incorporation of another company, proposing to engage in the same business, in the name of the Citizens' Trust, Tax Indemnity & Surety Co.; no protest or objection was made to the issuance of the charter to the company by the name chosen, and it was granted in due course on Octo- ber 30, 1889, and the new company entered upon the trans- action of the business proposed in its charter at 716 Chest- nut Street, Philadelphia. About a year later, the Citizens' Co., second in its date of incorporation, gave notice in due form of its intention to apply for an amendment of its charter by the omission of the words "Tax Indemnity" from its cor- porate title, making the name read, "The Citizens' Trust & Surety Co." A protest was filed by the city company against "Bradley Fertilizer Co., 19 Pa. C. C. R. 271 (1897)- "Altoona Gas Co. v. Gas Company of Altoona, 17 Pa. C. C. R. 662 (1896). ""Waverly Ladies of the Red Cross, 12 Pa. C. C. R. 589 (1892). "Sons of Progress, 14 W. N. C. 31 (1883). 24 MODE OF INCORPORATION. the allowance of the amendment. The secretary of state overruled the protest, saying, "While it is doubtless true that the similarity in the words 'City' and 'Citizens' has led, and will be likely to lead, to some confusion, yet it would seem that as the company protesting against the piroposed change of name stood by and permitted letters-patent to issue to The Citizens' Trust, Tax Indemnity & Surety Com- pany, it should not now complain of the resulting con- fusion."^* The name of the corporation cannot be amended while the application is pending. Thus, the name "Gas Company of Altoona" cannot be amended so as to read, "The Consumers' Gas Company of Altoona" pending the application.^® A foreign corporation legitimately engaged in business in this State has a standing to protest against the incorporation of another company on the ground of similarity of title.^^ The purchasers of the franchise and property of a corpora- tion at a judicial sale may reorganize a company under the same or any other name. "There is nothing in the act which requires the corporators to adopt a name different from that of the company whose franchises they purchase, and it may be a question as to whether the right to adopt the old name is not one of the proper rights and franchises which may be re- garded as entering into and passing with the purchase. At any rate there is no limitation placed upon the right of the purchasers to adopt the old name or any other name, ex- cept, perhaps, such as might be the basis of a proceeding in court to restrain the use of a name which has in it the ele- ments of a trade-mark, or which would interfere with the vested rights and business of some other corporation or establishment doing business under a similar name."^* "Citizens' Trust, Tax Indemnity & Surety Co., 9 Pa. C. C. R. 366 (1891). ^Altoona Gas Co. v. Gas Company of Altoona, 17 Pa. C. C. R. 662 (i8g6). "Bradley Fertilizer Co., 19 Pa. C. C. R. 271 (1897). ""Prince's Metallic Paint Co., 5 Pa. C. C. R. 194 (ig MODE OF INCORPORATION. 25 Improper Use of Name. 14. It is a fraud upon the public for one or more persons to assume a corporate name, and a court of equity will not protect such person, or persons, in the exclusive enjoyment of such name.^* A departure from the strict name of the corporation will not avoid its contract, if it substantially appear in the con- tract and by surrounding circumstances that the particular corporation was intended.®" The fact that a name in the form of a corporate name is signed to a promissory note is not suflficient to put the holder of the note upon inquiry as to whether or not the makers are a corporation, if it appears that the person sued as part- ners had previously traded as partners under the name signed to the note. "Such business names are, perhaps, as com- monly used at present by unincorporated associations, part- nerships, and individuals as by corporations. The forms and methods of business corporations are frequently adopted by unincorporated associations, partnerships, etc., and their business conducted by a president, cashier, etc."^^ Where suit is brought in the name of a corporation upon an agreement in which the name of the corporation is different from the name of plaintiff in the suit, evidence is necessary to show that the corporation named in the agreement is the same as the plaintiff, before the agreement can be admitted in evidence.®^ Who May be Incorporators. 15. At least three of the incorporators must be citizens of this Commonwealth, the others may be persons who arc '"McNair v. Cleave, 10 Phila. 155 (1874); Fort Pitt. B. & L. Assn. v. Model Plan B. & L. Assn., 159 Pa. 308 (1893). "Berks & Dauphin Turnpike Road v. Myers, 6 Serg. & Rawle, 12 without an appeal or certiorari taken, an ap- peal from an order refusing to annul the former decree as im- providently made, will be quashed.** In the absence of a mistake upon the face of the record, the Supreme Court will not review the exercise of the discretion of the lower court in granting a charter,*' or an amendment to the charter of a corporation.** " Monongahela Water Co., 9 Pa. C. C. R. 57 (1890). "Blockley, etc., Turnpike Co.'s Ap., 140 Pa. 177 (1891). ''Vaux's Ap., 109 Pa. 497 (1885). "In re Grand Lodge of the Ancient Order o{ United Workmen, no Pa. 613 (i88s). CHAPTER XIII. RENEWAL OF CHARTERS. 102. Re-Chartering Existing Cor^ 103. Notice and Bonus. pdrations. 104. Effect of Re-Charter. Re-Chartering Existing Corporations. 102. Corporations created by or under the laws of this State, embraced within either of the classes named in Section 2 of this act, the charters whereof are about to expire by lapse of time from their own limitation, may be re-chartered, or the charters thereof renewed, under the provisions of this act, by preparing, having approved, and recorded the certificate named in said section for the class of corporation of which the same is one, in addition to the requirements provided in this act for a new corporation; the certificate for a re-charter shall state the fact that it is a renewal of the former charter, naming the corporation and the date of its first charter. It shall also be accompanied with a certificate, under the seal of the corporation, showing th^ consent of at least a majority in interest of such corporation to such re-charter. It shall also state the financial condition of the said corporation at the date of such certificate, showing capital stock paid in, funded debt, floating debt, estimated value of property, and cash assets, if any. It shall expressly accept the provisions of the Constitution of this State and of this act, and expressly surrender all privileges conferred upon such corporation by its original charter that are not enjoyed by corporations of its class under this act or general laws of this Commonwealth.^ Notice and Bonus. 103. Renewal of a charter, or re-charter, must be obtained ' Act of April 29, 1874, Sec. 40, P. L. 103. 136 RENEWAL OF CHARTERS. 137 in the same manner, and with the same notice as an original charter.* The bonus must also be paid.^ EfiFect of Be-Charter. 104. From the date of recording of such certificate, if the corporation be of the first class named in Section 2 of this act, and from the date of letters-patent, if of the second class, the said re-chartered corporation shall be and exist as a new corporation under the provisions of this act and of its said renewed charter; and all of the rights, privileges, powers, im- munities, lands, property, and assets, of whatever kind or character the same may be, possessed and owned by the said original corporation, shall vest in and be owned and enjoyed by the said re-chartered corporation, as fully and with like effect as if its original charter had not expired, save as herein and by said certificate expressly stated otherwise; and all suits, claims, and demands by said corporations in exist- ence at the date of such re-charter, shall and may be sued, prosecuted, and collected, under the laws governing the said corporation prior to its re-charter, and all claims and demands of every nature and character in existence at said re-charter, may be collected from and ofT the said re-chartered corpora- tion, as fully and with like effect as if no change had taken place.* ' Opinion of the Attorney-General of January 13, 1876. ' Opinion of the Attorney-General of March 4, 1879. ■* Act of April 29, 1874, Sec. 40, P. L. 103. CHAPTER XIV. PROMOTERS. 105. When Promoters Must Ac- 109. Contracts of Promoters with count for Profits. Subscribers. 106. When Promoters Need Not no. Illegal Contract of Promoters. Account for Profits. in. Ratification by Company of 107. Suit Against Promoters Must Contract of Promoters. be Brought by Corporation. 112. Compensation of Promoters. 108. Suit Against Promoters Must be Brought Without Delay. When Promoters Must Account for Profits. 105. Where persons form a corporation, or begin or start the project of one, from that time they stand in a confidential relation to each other, and all others who subsequently be- come members or subscribers, and it is not competent for any of them to purchase property for the purposes of such a company, and then sell it at an advance, without a full dis- closure of the facts.'' Where promoters represent that they have purchased land as agents for a proposed corporation, and that it will be con- veyed to the company at the original cost, and the public subscribe to the stock of the company on the strength of such representations, the promoters will be compelled to ac- count to the corporation for any secret profits made in the sale of the lands to the company. The promoters of an oil company purchased land and took deeds which exhibited on their face as consideration paid sums greatly in excess of those actually paid. They also is- ' Densmore Oil Co. v. Densmore, 64 Pa. 43 (1870). 138 PROMOTERS. 139 sued prospectuses for circulation and publication in news- papers, representing that the lands acquired by the company were obtained at first cost from the vendors. It was held that the promoters were bound to account to the company for the profits made by them in the resale of the lands to the 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 stock- holders invested in a reliajice upon them, it would be a fraud on the company, and all others interested, to allow them to retain the large profits paid them by the company in igno- rance of the true sums actually advanced." ^ An owner of lands together with another person projected and organized a corporation so that the lands might be sold to the company, and a railroad built. The two projectors owned most of the stock, controlled the corporation, and combined together to sell the land to the company and con- tract for building the railroad. It was held that the burden was on the promoters to show the fairness of the transaction.' McElhenny owning oil land sold the land, which he valued at $12,000, to Baird, Boyd & Company, and it was agreed that a corporation should be formed, and that the land should be sold to the corporation for $40,000, and that McElhenny should share in the profits of the transaction. The corpora- tion was formed, and the land sold to it in the manner con- templated. It was held that McElhenny was not liable to ac • count to the corporation for any profits which he made in 'Simons v. Vulcan Oil and Mining Co., 61 Pa. 202 (1869). 'Rice's Ap., 79 Pa. 168 (1875). In this case Paxson, J., said: "Where a person has the actual control of a corporation, whether such control arises from the ownership of a majority of the shares, or from his posi- tion or influence, and enters into a contract with such corporation, he is to be held to the most rigid good faith. The onus is upon him to show the fairness of the transaction, if it is called in question. It is a principle too well settled to be now controverted that the promoters, directors, or agents of a company shall not make a profit out of it in baying lands for it. or in dealing with it." I40 PROMOTERS. the sale of the land to the promoters of the corporation, but that he was bound to account for his share of the profits re- ceived by him over thfc sum of $13,000, resulting from the purchase of the land by the corporation.* When one of the promoters of a corporation who takes a lease to be subsequently assigned to the corporation has a secret agreement with the owner of the land by which he is to receive a percentage of the rent, the fraud of the promoter and the lessor will invalidate the lease as far as the corporation is concerned. H in order to provide employment for his son incorporated a company for making bricks. The promoters associated with themselves S, a practical brickmaker, whom they com- missioned to select and lease land for the brick-yard, and upon whose judgment in this particular they chiefly relied. S obtained an option on W's land at a specified rental. The other promoters objected to this rental as too high, but finally agreed to it, upon being assured by S that it was reasonable. The lease was finally executed to H, but with the expressed intention of having the lease assigned to the company as soon as the same was organized. After the organization of the company the lease was assigned to it by H, the company took possession, and thereafter W demanded and received rent from the company for several years, H never having paid rent or been in possession as an individual. Throughout the nego ■ tiations for the lease S, without the knowledge of his fellow- promoters, had an agreement with W by which he was to re- ceive twenty-five per cent, of the rental. This agreement was put in writing the day before the execution of the lease. The lease did not contain any provision against alienation, nor was there any written consent to its assignment on the part of W. No rent was demanded from H or his estate until his executor's account came up for audit. It was held that the fraud invalidated the lease." *McElhenny's Ap., 61 Pa. 188 (1869). " Heckman's Est., IS Pa. C. C. R. 264 (1894). Affirmed in 172 Pa. 185. PROMOTERS. 141 In an action to recover a subscription to the stock of a mining company organized under the Act of July 18, 1863, which required subscriptions to be paid in cash it appeared that defendant had an interest in land which he had con- tributed to the capital stock of the company. He alleged as a defense that the company had agreed that his stock should be paid by his contribution of land. It was held that this was no defense as against subsequent stockholders, unless they knew of the fact when they subscribed, or affirmed the trans- action afterwards. Under the act the subsequent subscribers were entitled to have the' subscriptions of the promoters paid in cash." When Promoters Weed Wot Account for Profits. 106. The actual owners of property may form a corpora- tion and sell such property to the corporation at any price which may be agreed upon between them, no matter what it may have originally cost. Provided there be no fraudulent misrepresentation made by the vendors to their associates. They are not bound to disclose the profit which they may realize by the transaction. They are in no sense agents or trustees in the original purchase, and there is no confidential relation between them. They deal at arms-length as any ordinary vendor and vendee, and those who represent the corporation must exercise their own judgment as to the value of what they buy.'' In an action by a corporation against stockholders who were promoters of the company, it appeared that the three defendants were the owners of certain lands and leases in the oil region, and that they had acquired the property with no idea of disposing of it, or forming a company, but had spent over $100,000 in improving and developing it while they were owners. They subsequently proposed to sell the land, but on account of the large amount required for purchase, they could find no individual purchaser. With other persons they ac- • Bailey v. Pittsburgh & Connellsville Gas, Coal & Coke Co., 69 Pa. 334.(1871). ' Densmore Oil Co. v. Densmore, 64 Pa. 43 (1870). 142 PROMOTERS. cordingly projected a company, and it was agreed that they should take a portion of the purchase-money of the land when sold to the corporation in cash, and a portion in stock. The company was organized, and subsequently purchased the land from the promoters. It was held that as the promoters owned the land before the project of organizing the company was started they had a right to sell their property to the company at whatever price the company was willing to pay for it.* Suit Against Promoters Must be Brought by Corporation. 107. Where fraud has been committed by the agents of a corporation in the sale of land to the company the corporation must institute the suit against the agents to redress the wrongs. There is no privity between the agents and the stockholders to authorize the latter to sue individually.* Suit Against Promoters Must be Brought Without Delay, 108. Stockholders who seek to recover from promoters profits which the promoters made by purchasing lands for the purpose of selling them at a profit to the corporation when organized must act with reasonable promptness. Plaintiffs, stockholders in a corporation, filed a bill for themselves and such other stockholders as should come in and contribute, against certain other stockholders and the, corporation. They averred that the individual defendants were jointly concerned in the common object of endeavoring to make an illegal profit by buying lands for a company which they were forming, at one price, and selling to the company at a higher one, and that plaintiffs had no knowledge of this at the time they subscribed for the stock of the contemplated company. It appeared that the land was conveyed by defend- ants to the corporation in April, 1863. The minutes of the April meeting showed the facts which were the ground of complaint. In the following October, the corporation au- thorized the loan, to prevent which nothing was done. Money was borrowed, judgments were obtained against the com- ' Densmore Oil Co. v. Densmore, 64 Pa. 43 (1870). ■ Caldwell v. Boyd, 57 Pa. 321 (i868). PROMOTERS. 143 pany, and all its property sold, and bought in for creditors. Plaintiffs did not file their bill until March 19, 1870, four and one-half years after they had full knowledge of all the facts. It was held that plaintiffs were barred by their laches.^" Contracts of Promoters with Subscribers. 109. Where a promoter of a proposed corporation agrees that if another person will subscribe to the stock he will take the stock at the end of one year, the contract is a valid one and based upon sufficient consideration.^^ A promoter was sued, for the amount of a stock subscrip- tion paid by a subscriber. The plaintiff claimed that when he subscribed to the stock the defendant agreed that the money should be returned to the plaintiff if he were not sat- isfied. Plaintiff averred that he had rescinded the contract. Evidence for the defendant tended to show that plaintiff had directed defendant to sell the stock at a price named, and had given a proxy to vote his stock, and had also attended and par- ticipated in a stockholders' meeting. The court held that the jury should have been instructed that the testimony offered by defendant was prima facie evidence of acts of ownership by plaintiff inconsistent with his alleged rescission of the con- tract, and that the jury were at liberty to infer from them an acquiescence in defendant's refusal to consider the contract rescinded, and an abandonment or waiver of plaintiff's de- mand.^^ The promoters of a water company entered into a contract with a firm of contractors by which the latter agreed to build a water-wx)rks and take a portion of their compensation in the stock of the company. One of the promoters subscribed for a large amount of stock, paid for part of it in cash, and * Evans's Ap., 81 Pa. 278 (1876). Mercur, J., said: "Although the transaction was originally voidable, yet having been acquiesced in by the parties who might have avoided it, for a length of time less than six years, but by their conduct having induced the oflfending parties to be- lieve it was not to be questioned, they are now debarred from avoiding it." See also Evans v. Borie, i W. N. C. 127 (1874). " McClymonds v. Stewart, 2 Super. Ct. 310 (1896). "Jessop V. Ivory, 158 Pa. 71 (1893). 144 PROMOTERS. assigned the remainder of it to the contractors. The corpora- tion accepted the water-works without objection. Subse- quently the corporation began suit against the promoter to recover the amount of the subscription. It was held that as the company had used the stock of the defendant in payment for its works it could not recover.^* Illegal Contract of Promoters. no. A contract between the projectors of a railroad and certain persons to quiet and withdraw opposition to the pas- sage of an act incorporating a railroad is against public policy and will not be enforced by a court of equity.^* Ratification by Company of Contract of Promoters. III. 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 further- ance 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 or- ganization and its objects, and are subsequently accepted by the company, and the benefits thereof enjoyed by it, the com- pany must take such benefits cum onere, and make compensa- tion therefor. But the projectors or promoters of the enter prise, within the meaning of the rule referred to, must be a majority, at least,-of such persons, and not one, two, or three, or a small minority thereof. Such minority can have no more authority to bind the association or corporation in its incip- ient or inchoate condition than they would have to bind it if fully organized.^" A ratification of part of an agreement made by the agent of a corporation before the incorporation of a company binds the other party to the agreement to performance of other material particulars of the contract. In an action of assump- " Riverton Water Co. v. Hummel, 175 Pa. 575 (i8g6). " Martin v. Second & Third Streets Pass. Ry., 3 Phila. 316 (1858). "Bell's Gap R. R. v. Christy, 79 Pa. S4 (187s); Tift v. Quaker City Bank, 141 Pa. 550 (1891). PROMOTERS. 145 sit the declaration set forth an agreement between the plain- tiff on the one part and certain persons interested in a railroad on the other by which the plaintiffs bound themselves to sur- render bonds which they held of the then existing railroad company, in consideration of a stipulation that a new corpora- tion should be formed which would give other bonds in ex- change, and bear the expense incident to the arrangement. The declaration then went on to aver that the defendants were incorporated in pursuance of this arrangement, and ratified it by accepting the old bonds from the plaintiff and issuing others in return,* but that they had since violated the agreement in a material particular, by refusing to repay the expense which the plaintiffs had unavoidably incurred in car- rying out the operation. It was held on demurrer that the defendants could not enjoy the benefit of the promise made on their behalf before they were incorporated without being as much liable to make the stipulated return afterwards, as if the contract had been made by their duly authorized agent.^* Where a charter is sold and the purchasers agree to guar- antee the vendor against a claim for commissions by an agent in whose hands the charter had been placed for sale the pur- chasers are personally liable, and nothing short of a clear and unequivocal ratification can render the company liable on the guaranty. In such a case the court said: "It will be ob- served that this is not a case in which the promoters of a cor- poration are demanding from it compensation for services rendered or reimbursement for moneys expended preliminary to the creation and organization of it, but that it is a case upon a contract entered into by an individual for the purpose of obtaining control of a corporation then in existence. In purchasing the plaintiff's stock and acquiring from him the possession of the charter, books, and papers of the Home Life & Investment Company, Kirk did not represent the company but was acting for himself and possibly for other persons associated with him for the purpose of obtaining con- " Titus V. Catawissa R. R., S Phila. 172 (1863). 10 146 PROMOTERS. ti-ol of it. The company therefore was not jointly bound with Kirk for the performance of his agreement with the plaintiff. Nothing short of a clear and unequivocal ratification of the agreement could render the company liable for a breach of any of the covenants contained therein. As we think there was no such ratification in this case we need not inquire whether it was within the power of the corporation to assume all of Kirk's liabilities under his agreement with the plain- tiff. The latter, however, contends that it did assume them by the resolution adopted by its new board of directors on the 20th of August, 1890. There was nothing in this resolution, however, which bound the defendant company to perform Kirk's contract with the plaintiff, or recognized him as its agent in the transaction evidenced by the written agreement of August I. It does not appear upon the minutes of the corporation, or in any other way, that the company knew of the existence of such an agreement Avhen the resolution was passed. The action of Kirk and his associates must be distin- guished from the action of the corporation. The latter cannot be held upon the agreements of the former without distinct proof of its ratification of them." " Compensation of Promoters. 112. The president of a corporation has no power without authority from the board of directors to enter into a contract for the compensation of a promoter. Thus the president of a bank cannot make a contract to compensate a promoter of the bank for obtaining depositors.^^ The mere silence of the board of directors of a corporation or their failure to object when a promoter's claim to com- pensation is mentioned at a board meeting, is not such an act of ratification of an agreement by the president to pay the promoter as will bind the corporation.^^ " Denniston v. Home Life & Investment Co., 162 Pa. 86 (1894). " Tiflft V. Quaker City Nat. Bank, 8 Pa. C. C. R. 606 (1890) ; affirmed 141 Pa. 550 (1891). "Tifft V. Quaker City National Bank, 8 Pa. C. C. R. 606 (1890); af- firmed 141 Pa. sso (1891). CHAPTER XV. MEMBE.RSHIP IN CORPORATIONS. 113. Who may be Members. scribed by Charter and By- 114. A Corporation not for Profit Laws Must be Followed. ' may have Stockholders who 120. Mandamus to Restore Mem- are not Members. ber. 115. Improper Restrictions upon 121. Injunction not the Proper Membership. Remedy to Prevent Expul- 116. Power to Remove Member. sion. 117. For What Causes a Member 122. Regularity of Expulsion Can- may be Expelled. not be Inquired into in 118. When a Member may not be Action of Assumpsit against Expelled. the Corporation. 119. Manner of Expulsion Pre- Who may be Members. 113. The right of all persons, not ahen enemies, to buy and hold, use and enjoy, corporate stocks, or articles of merchan- dise, is older than the Constitution, and citizenship of the United States is not necessary to its exercise. "In Pennsylva- nia, therefore, a resident alien friend can deal as freely in all forms of property, whether personal or real, to all intents and purposes as any natural born citizen or citizens may or can do. He may embark in business, become a stockholder in a joint stock association or corporation, become a manager or di- rector, when not expressly made ineligible, and use, enjoy, control, and direct his property, of whatever nature or kind, in the same manner as any natural born citizen may do." ^ A citizen of the United States who is not a citizen of Penn- sylvania may become a member or stockholder of an agricul- ' Commonwealth v. Detwiller, 131 Pa. 614 (1890). 148 MEMBERSHIP IN CORPORATIONS. ttiral association incorporated by the Court of Common Pleas under the Acts of October 13, 1840, P. L. (1841) 5, and Feb- ruary 20, 1854, P. L. 90, if there is nothing in the charter to require stockholders to be citizens of Pennsylvania. In such a case the court said: "The advantages of corporate powers provided for by the general laws, as they then stood, were reserved, in the first instance, for citizens of the State, but when granted to citizens no restrictions were put upon their exercise that afifected the negotiable character of their stock, or the rights or powers of stockholders. The corpora- tion, once created, was clothed with the power to issue stock. In the absence of any express provision to the contrary, the stock so issued was, like the stock of other business corpora- tions, and like all varieties of personal property, freely alien- able by the owner by gift or sale, by bequest or intestacy. Nothing less than an explicit provision in the charter or in the general law could deprive the shares of their character as personal goods, or the owner of his power to dispose of his own property." ^ Where under a church charter none but members of a par- ticular denomination are corporators a person excommuni- cated by the church ceases to be a member and loses his rights as a corporator.^ "In all cases, married women shall be deemed and held qualified or free from any disability on account of coverture, for appointment and acting as corporators or officers of all associations incorporated heretofore, or that may be hereafter incorporated, for the purposes of learning, benevolence, char- ity, or religion." * A Corporation not for Profit may have Stockholders who are not Members. 114. It is possible for a corporation organized not for a pecuniary but for a charitable purpose to have stockholders ' Commonwealth v. Detwiller, 131 Pa. 614 (l8go). • German Reformed Church v. Seibert, 3 Pa. 282 (1846). * Act of April 19, 1879, P. L. 16. MEMBERSHIP IN CORPORATIONS. I49 who are not members. The charter of the Philadelphia Sav- ings Institution is an illustration of such a corporation. This institution was incorporated by the Act of April 5, 1834. The act incorporated certain persons by name, and all others thereafter becoming members. The object of the corporation was declared to be to receive from time to time, deposits of money, and to pay the depositors such interest as might from time to time be agreed upon by the directors and enacted, that for the security of the depositors a certain capital should be raised, to be divided into shares, which should be trans - ferable, etc. The act then proceeded to provide fbr annual meetings of the members, and for the election of directors from among the members, gave to the directors power to provide for the admission of members, and made it their duty to appoint from among the members five persons as a committee of examination, and also to make a dividend of profits and to pay the same over to the stockholders, or their legal representatives. It was held that persons originally members continued to be such although they never possessed stock or had parted with it.* Improper Bestrictions upon Membership. 115. As the power of admitting new members is incidental to a corporation aggregate, it is not necessary that such power be expressly conferred by the statute, but when the statute limits and restricts the power of admitting members, a by-law inconsistent with the statute is invalid. Thus if an act of incorporation provides that the privileges of honorary membership may be conferred on active members, and limits the number of active members to 100, a by-law providing that the persons other than active members may be honorary members, and also providing for the election of contributing members is invalid.^ The courts will construe strictly a by-law of a beneficial ' Philadelphia Savings Institution, I Whart. 460 (1836). ' Diligent Fire Co. v. Commonwealth, 75 Pa. 291 (1874). 150 MEMBERSHIP IN CORPORATIONS. association which forbids its members to enlist as soldiers. A by-law of such an association provided that "no soldier of a standing army, seaman, or mariner shall be capable of ad- mission, and any member who shall voluntarily enlist as a soldier or enter on board of any vessel as a seaman or mariner shall thenceforth lose his membership." One of the members joined a volunteer corps who tendered their service to the United States, and were accepted and mustered into the serv- ice in the Mexican war. The member continued in service until the war terminated. The court held that the associa- tion had no authority to expel him. Chief Justice Gibson said: "As such a condition undoubtedly holds out to the corporators inducements not to serve in the army it is not to be favored in construction. In this instance the relator's case may be within the reason of the exception, but it is not within the letter of it, beyond which we are not bound to carry it. No soldier of a standing army, the article runs, 'seaman, or mariner, shall be capable of admission, and any member who shall voluntarily enlist as a soldier, or enter on board of any vessel as a seaman, shall thenceforth lose his membership.' The first of these clauses has respect to admission, the second, to forfeiture of membership, but in each the nature of the dis- ability was to be the same, and if the exact signification of the word 'enlist' in the second of them, were doubtful, it would be fixed by the words 'standing army' in the first, with which it is intimately associated. The relator became a soldier, but not a regular one; in other words, he did not embrace the profession of arms as a business. He was a citizen soldier. I doubt not that the case of a recruit in the regular regiments raised to serve during the war, would be within the exception, but the words 'standing army' in connection with the word 'enlist' mean no more than the regular army, in contradistinc- tion to a force composed of volunteers. They certainly have no exclusive regard to the regiments on the permanent es- tablishment, in which the personal risks of the soldier in time of peace are no greater than the personal risks of the citizen MEMBERSHIP IN CORPORATIONS. I5I in time of war. But the relator did not ^nlist even as a vol- unteer. The word is to be taken in the popular sense of it; and in England, whence we brought it, as well as in American States, it means not merely to enroll the name, but to sign a written contract of military service made on the part of the government by a recruiting ofificer. On each of these grounds the relator is entitled to a peremptory mandamus." ' The court will not approve a charter which provides that any member may be expelled who commits any misdemeanor, or any other act "that,may prove injurious to his character or standing as a member of the association." In such a case LowRiE, C. J., said: " 'Acts injurious to character or stand- ing as a member' is no definition of any ofifense. We might as well sum up all the criminal law by the expression, 'acts contrary to the general welfare.' Such expressions state well enough the principle of law, but they state no law, for every law is grounded on some principle, and is itself a definite statement of some act or special class of acts which are de- clared to be approved or condemned by the principle. Under the principle here objected to the majority may expel a mem- ber for almost any act, and thus members are left without any rights that the majority may choose to withhold. Too earnest a claim of rights, or too earnest a performance of social duty, may thus become a ground of expulsion, if the majority please." * A by-law to expel a member for "villifying" any of the members of the corporation is void.® ' Franklin Beneficial Association v. Commonwealth, 10 Pa. 357 (1849). See also Rev. David MulhoUand Benevolent Society of Manayunk, 10 Phila. 19 (1873) ; Sweeney v. Beneficial Society, 14 W. N. C. 466 (1884) ; McLafferty v. Sweeney, 19 W. N. C. 396 (1888) ; Schassberger v. Streu- del, 9 W. N. C. 379 (1881); Commonwealth v. Philips, i Del. Co. Rep. 41. 'Butchers' Beneficial Association, No. i, 38 Pa. 298 (1861); s. c, 35 Pa. 151 (i860). See also Beneficial Association of Brotherly Unity, 38 Pa. 299 (1861), where the court refused to approve a charter for a bene- ficial society which gave a majority of the association power to expel any member "guilty of any offense against the law." " Commonwealth v. St. Patrick Benevolent Society, 2 Binn. 441 (1810). 152 MEMBERSHIP IN CORPORATIONS. Power to Remove Member. 1 16. The power to disfranchise a member of a private cor- poration is not inherent in the corporation, but must have an express grant to support it. The power of corporations to remove and disfranchise members was discussed by Chief Jus- tice Woodward in the leading case of Evans v. Philadelphia Club, 50 Pa. 107 (1865), and after a careful review of the ' authorities the following general propositions were laid down: "i. That the power of amotion for adequate cause is an inherent incident of all corporations, whether municipal or private, except, perhaps, such as are literary or eleemosynary, but the exercise of this power does not afifect the private rights of the corporator in the franchise. "2. That the power of disfranchisement which does destroy the member's fran-chise,. must, in general, be conferred by statute, and is never sustained as an incidental power, with- out statute grant, except in two cases; first, on conviction of the member in a court of justice of an infamous offense; and second, where he has committed some act against the society which tends to its destruction or injury. "3. That the power to make by-laws is incidental to cor- porations, and generally expressly conferred by statute; but by-laws which vest in a majority the power of expulsion for minor ofifenses are, in so far, void, and courts of justice will not sustain expulsions made under them. "4. In joint stock companies, or, indeed, in any corpora- tion owning property, no power of expulsion can be exercised unless expressly conferred by the charter." In Evans v. Philadelphia Club, Evans was expelled for disorderly conduct. It seems that while seated in the bar- room of the club-house in conversation with another person, a member entered and uttered defamatory words which the relator understood to be applied to himself. The relator thereupon struck the member, and was subsequently expelled. On mandamus proceedings to restore him, Chief Justice MEMBERSHIP IN CORPORATIONS. 153 Woodward at nisi prius awarded a peremptory mandamus. The judgment of the court at nisi prius was subsequently affirmed by an equal division of the court in banc.^" An incorporated club organized for social purposes, and owning property, has no common-law power to expel a mem- ■^ Evans v. Philadelphia Club, 50 Pa. 107 (1865). Chief Justice Wood- ward in the course of his opinion said: "I look upon the occurrence as disorderly and injurious to the interest of the club, within the meaning of the sixty-fifth by-law, but as one of those 'minor offenses,' of which Mr. Wilcock speaks, and for which a majority have no power, even under the by-laws to disfranchise a member. And upon the doctrine of the cases I have referred to, I hold the by-law void so far as it inflicts this extreme penalty for such an offense. I would be very sorry to say that any- thing short of a statute could confer on a majority of the members of any corporation power to expel a fellow-member for merely disorderly conduct. Talking or whispering in a reading room, or wandering from the question in debate, or interrupting another when he is speaking, and very many mere breaches of good manners are disorderly and injurious to such a club, and fit to be visited by reprimands and fines, but are not such offenses against corporate duty as forfeit the franchise. Unless this unhappy occurrence be viewed through the atmosphere of passion and prejudice that shall distort and magnify its proportions, it must be regarded as belonging to the class of minor offenses not punishable by expulsion. The relator's offense was not directed against the society, but against his fellow-member, as in Earl's case and Binns's case. The law affords no precedent for punishing an offense between fellow-mem- bers by disfranchisement. I am unwilling to make so bad a precedent of this case. But what is conclusive of this case is that the corporation pos- sesses property, real and personal, and is at liberty to accumulate more, until an annual revenue of $3,000 comes to be enjoyed, and the relator has purchased and paid for the right to participate in that franchise. It is not a joint stock company at present, for under its by-laws no pe- cuniary profits are divisible among the members, but it may become so, and whether it does or not, the relator has a vested interest in its estate, and cannot be deprived of it by the proceedings that were had against him. On this point the authorities are clear, and without conflict. Nothing but an express power in the charter can authorize a money cor- poration to throw overboard one of its members. I have shown that act of incorporation contained no such power. On the contrary, it ex- cluded it, for the proviso reads 'that nothing herein contained shall be so construed as to authorize said Philadelphia Association and Reading Room to do any other act or acts in their corporate capacity than are herein expressed.' For these reasons a peremptory mandamus will be awarded." 154 MEMBERSHIP IN CORPORATIONS. ber for a minor offense, but when authority is conferred upon it by its charter to expel a member, it may exercise such au- thority even in a case where the offense is merely disorderly and offensive conduct. The Union League, of Philadelphia, had under its charter the power of expulsion, and the right to regulate by its by- laws the causes of expulsion, and the manner of effecting the same. A by-law delegated to a majority of the board of di- rectors the power to suspend members "for acts or conduct which they may deem disorderly, or injurious to the inter- ests or hostile to the objects" of the club. The suspended member was given the right to appeal to the club at large, and it was provided that unless the sentence was reversed on appeal he should forfeit his membership. On May 3, 1870, Arthur Burt, the relator, was elected a member of the League, and on May 7 signed the book of membership, which con- tained a copy of the charter and by-laws. On December 30, 1882, a formal charge was preferred against him by Mr. Wil- liam E. Littleton, a fellow-member, to the effect that the re- lator was guilty of "conduct unbecoming a gentleman and a member of the League," specifying more particularly that, on the Friday preceding, in the restaurant of the League, the relator had used grossly insulting language to the complain- ant, and that, under the circumstances, the complainant had no recourse but to report the facts to the League. Where- upon, at a meeting of the board of directors on January 9, 1883, the House Committee reported the relator for action, under Article II, Section 5, of the by-laws, and moved that notice be sent to Mr. Burt in accordance therewith; and in the event that Mr. Burt should choose to be tried by a com- mittee, the president was authorized to appoint a committee, not exceeding five, to hear the case and report to the board, which was agreed to. The relator, having been duly notified, elected to be heard by a committee, and the president there- upon appointed Messrs. E. N. Benson, William C. Houston, Samuel C. Perkins, and Edwin H. Fitler, the four vice-presi- MEMBERSHIP IN CORPORATIONS. 1 55 dents, to hear the case. That committee met at the League on the evenings of January i6 and 24, on both of which occa- sions Mr. Burt was present, and witnesses were examined. A counter charge of the use of bfifensive language by Mr. Littleton, as a provocation for Mr. Burt's conduct having been filed, and an intimation given that Mr. Littleton was under the influence of liquor at the time of the interview be- tween them, witnesses were called and examined upon that question also. At a meeting of the board of directors held on February 13, 1883, the committee reported that they were satisfied they had seen and heard every one who could throw any light on the occurrence which led to the report of the House Committee, and that they found the following facts: "i. That on December 9, 1882, Arthur Burt, in the restau- rant of the League, was guilty of rude and ungentlemanly conduct, and told a fellow-member, William E. Littleton, that he was acting like a blackguard. "2. That the offense was without provocation on the part of Mr. Littleton. "3. That Mr. Littleton was not at the time under the in- fluence of liquor." The committee submitted the following resolution: "Resolved, That Arthur Burt has been guilty of a violation of Article II, Section 5, of the by-laws of the Union League, and that he be and is hereby suspended from this date, from the privileges of a member." Whereupon, on motion, the report was accepted by the board, and the resolution adopted. On March 13, 1883, the relator entered and gave notice of an appeal, assigning the following reasons in support of it : "That the testimony produced at the hearing in the matter before the committee, does not show any sufficient cause for the sentence or suspension imposed by the board. "2. That the offense for which said sentence of suspension was imposed was of such a trifling nature that the punishment by suspension is an unnecessarily harsh and severe one." 156 MEMBERSHIP IN CORPORATIONS. A special meeting of the League was thereupon called, upon due and proper notice, for trial of this appeal on April 3, 1883, the trial to be conducted under Aiticle IV of the by- laws. There was present at this meeting 279 persons, which was a quorum, the President, George H. Boker, in the chair, and the trial was proceeded with. The statement of the board in writing setting forth the facts as found by the committee, and the action of the board of directors thereon, was first read. In this statement the board set forth that the counter charge against Mr. Littleton, having been found to be wholly unwarranted, was deemed an aggravation of the relator's offense, and that the further fact, that the relator had on a previous occasion been suspended for a very gross offense of a similar character (which is fully set forth in the return) and had only been reinstated upon promise of amendment and a pledge that there would be no further cause of complaint, was a matter which entered into the consideration of the board in inflicting the sentence of expulsion. The relator's statement in writing was then read. No wit- nesses were called, neither of the parties appear to have ex- pressed any desire to that effect; the appeal was submitted' upon the facts found by the committee. Mr. Pettit addressed the meeting on behalf of the board; Mr. McVeagh, in behalf of Mr. Burt, and Mr. Perkins closed the discussion. The president then put the question: "Shall the sentence of the board of managers in this case be affirmed?" The result of the vote was 146 ayes and 75 noes; members present, 279. A majority of those present having voted in the affirmative, the president announced that the appeal was not sustained, and that Mr. Arthur Burt ceased to be a member of the Union League. It was held on mandamus proceedings to compel a restitution of membership that the Union League was duly and legally authorized by its charter and by-laws to expel the relator from membership for the offense charged and for which he was convicted. It was also held that the case of Evans v. Philadelphia Club, 50 Pa. 107 (1865), bore no anal- MEMBERSHIP IN CORPORATIONS. 1 57 ogy to the present case inasmuch as the Philadelphia Club was not authorized by its charter to expel members.-^^ Where a corporation is organized not for profit, but for social and beneficial purposes, the inherent power to expel a member may be exercised: 1. When an offense is committed which has no immediate relation to a member's corporate duty, but is of so infamous a nature as renders him unfit for the society of honest men. Such are the offenses of perjury, forgery, etc. But before an expulsion is made for a cause of this kind, it is necessary that there should be a previous conviction by a jury, according to the law of the land. 2. When the offense is against his duty as a corporator, and in that case he may be expelled on trial and conviction, by the corporation. 3. When the offense is of a mixed nature against the mem- ber's duty as a corporator, and also indictable by the law of the land." The power of expelling a member of a corporation belongs to the society at large, unless by the fundamental articles or some by-law founded on them it is transferred to a select num ber.^' ' For "What Causes a Member may be Expelled. 117. Where a corporation is organized not for profit, but for beneficial or social purposes an act against the society which tends to its destruction and injury is ground for expell- ing a member guilty of such act.^* A corporation organized for beneficial purposes has the " Commonwealth, ex rel. Burt, v. Union League of Philadelphia, 13s Pa. 301 (1890). ^ Leech v. Harris et al, 2 Brewster, 571 (1868). " Hassler v. Phila. Musical Association, 14 Phila; 233 (1880). " Society for the Visitation of the Sick v. Commonwealth, 52 Pa. 125 (1866); Commonwealth v. St. Patrick's Benevolent Society, 2 Binn. 441 (1810); Commonwealth v. Philanthropic Society, 5 Binn. 486 (1813); Evans v. Philadelphia Club, 50 Pa. 107 (1865). 158 MEMBERSHIP IN CORPORATIONS. power to expel a member who feigns sickness, and continues to draw relief after his recovery.^ ^ A member may be expelled for embezzling the funds of a corporation where the by-laws provide for expulsion in the case of "a vicious and indecent practice injurious to civil so- ciety." i« The articles of a corporation authorized the expulsion of a member for being concerned in scandalous or improper proceedings which might injure the reputation of the society. It was held good ground for expulsion, that a member who claimed relief from the society had altered a physician's bill from $4 to $40, and had presented this bill to the corpora- tion as a ground of his claim.^^ A corporation had under its charter the right to expel members. The objects of the society were, in case of a sick- ness of a member, to visit and console him, and to give him advice and assistance; in case of death to bury him free of charge, and to assist the families of deceased members, ac- cording to the circumstances and available means of the so- ciety. The relator, Meyer, was convicted of "feigning himself sick without being so," and of "drawing relief after his re- covery," which were ofifenses declared by the by-laws. It was held that the society had a clear right under the charter to pass sentence of expulsion for violation of the by-laws, and, by reason of the nature of the offense, a like power at the common law.^® A member of a corporation formed for beneficial purposes cannot be removed on the charge that he had "assisted as president of the society in defrauding the society of the sum " Society for the Visitation of the Sick v. Commonwealth, 52 Pa. 125 (1866). " Commonwealth v. Kensington German Beneficial Society, 17 Phila. 277 (1884). " Commonwealth v. Philanthropic Society, 5 Binn. 486 (1813). " Society for Visitation of the Sick v. Commonwealth, ex rel. Meyer, 52, Pa. 125 (1866) ; Commonwealth v. Beneficial Society, 41 Leg. Int. 174. MEMBERSHIP IN CORPORATIONS. 159 of 50 cents," nor on the charge of "defaming and injuring the same in public taverns." ^^ When a Member may not be Expelled. 118. A member of a beneficial association cannot be ex- pelled, for "being drunk whilst receiving benefits," where such an offense is not expressly mentioned in the charter or by- laws of the association.^** A charter of a beneficial association provided as follows: "Should any member neglect to pay his arrearages for three months, he shall be expelled." It was held that a member could not be legally expelled without notice, and without a vote of the society.^^ Manner of Expulsion Prescribed by Charter and By-Laws Must be Followed. 119. A member cannot be expelled from a corporation without following the manner of expulsion prescribed by the charter and by-laws.^^ Where a member of a stock exchange has been suspended on his own confession of insolvency he cannot be reinstated or maintain any claim against the association, except in ac- cordance with the rules of the exchange, and if these provide an ample remedy, equity will not relieve.^^ "Commonwealth, ex rel. Fischer, v. German Society, 15 Pa. 251 (1850). ™ Commonwealth ex rel. v. Young Men's Benevolent Assn. of Consho- hocken, i Mont. Co. Law Rep. loi (1885). " Commonwealth v. Penna. Beneficial Institution, 2 Serg. & Rawle, 141 (181S). ^ Frieberg v. Reliance Fire Co., 8 Phila. 330 (1871) ; Harmstead v. Washington Fire Co., 8 Phila. 331 (1871). In the latter case the articles provided that "no member shall be elected or expelled without concur- rence of two-thirds of those present at a stated meeting; no member shall be expelled without having an opportunity to defend themselves." It was not pretended that the member expelled had an opportunity to de- fend himself, or that he had been expelled by a proper vote. It was held that the expulsion was improper. See also Riddell v. Harmony Fire Co., 8 Phila. 310 (1871); Sperry's Ap., 116 Pa. 391 (1887); Manning v. Klein, II Pa. C. C. R. 525- ^'Moxey v. Phila. Stock Exchange, 14 Phila. 185 (1880). l6o MEMBERSHIP IN CORPORATIONS. A charge that a member has committed an offense against his duty as a corporator cannot be alleged as a ground for expulsion unless sustained after a formal investigation, and it cannot rest on inference alone.^* Mandamus to Restore Member. 120. In case of the disfranchisement of a corporator, the courts entertain jurisdiction to restore him by mandamus, where the cause is insulificient or the proceeding irregular, but they will not inquire into the merits of what has passed in a regular course of proceeding.^^ Where a charter of a beneficial society provides for an ofifense, directs the mode of proceeding, and authorizes the society, on conviction of a member, to expel him, this expul- sion, if the proceedings are not irregular, is conclusive, and cannot be inquired into collaterally by mandamus, action, or any other mode. The courts have jurisdiction to keep such tribunals in the line of order, and to prevent abuse.^® After a lapse of twenty years a person cannot demand his reinstatement as a member of a corporation on the ground that the technical rules of the corporation were not observed in his expulsion.*'' The return to a writ of mandamus upon a motion from a corporation must set forth the particular facts precisely, so that it may appear that the person was removed in a legal and proper manner, and for a legal cause. It is not sufficient to set out conclusions only, but the facts themselves must be set out that the court may be able to judge of the matter. A return to a writ of mandamus stated that "at a special " Schweiger v. Voightlander Beneficial Association, 13 Phila. 113 (1879). " Commonwealth, ex rel. Fischer, v. German Society, 15 Pa. 251 (1850); Leech v. Harris, 2 Brewster, 571 (1868) ; Society for the Visitation of the Sick V. Commonwealth, 52 Pa. 125 (1866); Sperry's Ap., 116 Pa. 39' (1887); Commonwealth v. Beneficial Society, 41 Leg. Int. 174. " Commonwealth, ex rel. v. Pike Beneficial Society, 8 Watts & Serg. 247 (1844). " Commonwealth v. Southwark Fire Engine Co., 12 Phila. 177 (1877). MEMBERSHIP IN CORPORATIONS. l6l meeting of a select number of members of the African Church, called Bethel, composed of three deacons, one preacher, and six members, they being a committee appointed to hear and try the case of Robert Green and William Samons, charged with having, contrary to the rules and discipline, entered a lawsuit against Richard Howell, a member of said church," their trial was proceeded in, and both were found guilty, but the return did not state in what manner this committee was selected or appointed. It was held that the return was in- sufficient.^* Where a charter provided that on the conviction of a mem- ber of certain charges, on "the deposition of two or more credible witnesses," he should be expelled, the return must show that at least two witnesses were heard, and that the charge was either proved or confessed. The return must also show that the relator had notice to appear before an assembly of the proper persons, the proceeding before them, a convic- tion of the ofifense, and an actual amotion or disfranchise- ment.^® I .,. ] Injunction Not the Proper Remedy to Prevent Expulsion. 121. Mandamus and not injunction is the proper remedy in a case where a person is threatened with expulsion from a corporation.^" An injunction will not issue to prevent amotion by a cor- poration, where the only evidence of an intention to perform such act lies in statements made by certain stockholders. "The intent and purpose of a corporation can only be known by acts done in its corporate capacity, or in pursuance of its corporate franchises. More properly speaking a corporation can have no intention, or purpose, or motive. It can act only. It is therefore only responsible for its acts and their conse- =* Green v. African Methodist Episcopal Church, i Serg. & Rawle, 2S4 (1815) ; Society for the Visitation of the Sick v. Commonwealth, 52 Pa. 125 (1866); Commonwealth v. German Society, 15 Pa. 251 (1850). " Commonwealth, ex rel. Fischer, v. German Society, 15 Pa. 251 (1850). " Hammel v. German Congregation, i W. N. C. 4" (i87S)- II l62 MEMBERSHIP IN CORPORATIONS. quences. How, then, can it be said that a corporation in- tends to do any act, unless it has, in its corporate capacity, and in due form of proceeding, so declared, or unless it be engaged in the very act ?" ^^ Regularity of Expulsion Cannot be Inquired into in Action of Assumpsit Against the Corporation. 122. The by-laws of a beneficial association provided that no member should be entitled to receive any benefit from the society whose complaints were the results of intoxication. The charter of the association specified the method by which the members should be tried and expelled. A member was expelled after a trial in the manner provided by the charter, upon the ground of intoxication. The member brought an action in the Common Pleas to recover the allowance granted to disabled members. It was held that the plaintiff could not in this action require the court to inquire into the irregularity of the proceedings by which he was expelled. It was also held that he could not by such an action compel payment of the allowance.^^ " Bergner & Engel Brewing Co. v. The Commercial Exchange of Phila., IS Phila. 247 (1882); see Worrilow's Ap., i Del. 409; Glover v. Lodge, I Del. 317; Sperry's Ap., 116 Pa. 391 (1887). "The Black and White Smiths' Society v. Vandyke, 2 Whart. 309 (1837). CHAPTER XVI. OFFICERS GENERAL PRINCIPLES. 123. Offices Established by Law. 132. Embezzlement by Officers of 124. Rights of Officers. Corporations. 125. Quo Warranto to try Title to 133. Fraudulent Accounts Kept by Office. Corporate Officers. 126. Corporations Bound by Acts 134. Illegal Contracts by Officers of Officers. of Mining Companies. 127. Officers are Trustees. 135. Malversation by Officers of 128. Liability in Certain Cases. Railroad or Canal Com- 129. Declarations of Officers. panies. 130. Corporations for Profit may 136. Contractors v/ith a Corpora- Pension Employees, but not tion not to Offer its Officers Officers. Reward. 131. Misdemeanors of Corporation 137. Mandamus. and Public Officers. Offices Established by Law. 123. The business of every corporation created hereunder, or accepting the same, shall be managed by a president, a board of directors or trustees, a secretary or clerk, a treasurer, and such other officers, agents, and factors as the corporation authorizes for that purpose, and nothing in any law contained shall prevent or be construed to prohibit the vice-president, treasurer, solicitor, or other officer of any corporation organ- ized or existing under this act, from being a director of such company and receiving at the same time such compensation for his services as such officer as the board of directors of such company may direct.^ ' Act of May 14, 1891, Sec. i, P. L. 61. The Act of February 16, 1877, Sec. i, P. L. 3, provides as follows: "In all cases where a corporation is or shall be charged with the execution of any trust, the president, vice-president, trust officer, secretary, treasurer, 163 164 OFFICERS GENERAL PRINCIPLES. Bights of Officers. 124. An officer of a corporation has certain rights which are incident to his position, and which are not enjoyed by a mere employee. "His duties, the mode of his election, and his term of office, are defined by the fundamental law of the corporation itself. If illegally excluded from his office, he has his remedy by mandamus to compel the corporation to rein- state him. He may not be ejected therefrom during his term, except for good reason. The power of amotion is incident to every corporation, but it can only be exercised in the case of an officer for cause shown. Not so with a mere employee. He may be dismissed with or without cause, and in such case could not claim successfully to be reinstated. A writ of man- damus would not lie for such a purpose. A mere employment no matter how liberally compensated, does not rise to the dig- nity of an office." ^ Where an officer of a corporation has been improperly sus- pended his assent only to the suspension estops him.^ Quo Warranto to Try Title to Office. 125. The proper remedy to determine the right to office in a corporation is by quo zvarranto and not by a bill in equity. Where the apparent object of a bill in equity is to compel the surrender of property of a corporation, but the real purpose of the bill is to determine the validity of the election of corporate officers, the bill will be dismissed. In such a case the court said: "While it is true that the bill in this case was brought to compel the delivery of the property of the company, yet the real controversy as set forth in the bill and answer is upon the validity of the election of the defend- ants as directors of the company. If they were lawfully elected the plaintiff has no case, and is not entitled to the property claimed. Their title to the office of directors is therefore the or actuary of such corporation shall make the usual oath or affirmation directed to be taken by private persons in such other like cases." ' Commonwealth v. Christian, 9 Phila. 556 (1872). ' Knights of Pythias's Case, 3 Brewster, 452 (1870). OFFICERS GENERAL PRINCIPLES. 165 real question at issue. All the averments of the bill tend to this one subject. Another election of other persons is as- serted to have been the only lawful election, and the election of the defendants is alleged to have been unlawful. Thus the title of the one set of directors or of the other forms the matter of contention, and the right to have possession of the property in question is only incidental to the right to the ofifice. The appellees aver that the question of the title to the office cannot be tried by a proceeding in equity, but that the exclusive remedy is by a writ oi^quo warranto. We think this point is well taken." * Where an election of officers has been held at the proper place and the appointed time, and the meeting has been quiet and orderly, the only way to contest the validity of the elec- tion is by quo warranto.^ The right to an office in a corporation cannot be tried upon an application for an injunction, nor can one who has been wrongfully removed from such an office be restored by in- junction. Quo warranto is the proper remedy against persons usurping an office in a corporation, but if the question of the legality of an election, or whether a person holds an office rightfully, arises incidentally in the course of a suit in which equity has jurisdiction, that court will inquire into and decide it, as it would any other question of law or fact that arises in the cause. But the decision is only for the purposes of the suit; it does not settle the right to an office, or vacate it, if the party is in actual possession.® A stockholder has a right to institute quo warranto pro- ceedings to oust an officer of a corporation, although there he no adverse claimant of the office.'' A stockholder who has been elected a director may con- * Bedford Springs Co. v. McMeen, 161 Pa. 639 (1894). The court cited Updegraff v. Crans, 47 Pa. 103 (1864); Commonwealth v. Graham, 64 Pa. 339 (1870); Gilroy's Ap., 100 Pa. 5 (1882). ° Jenkins v. Baxter, 160 Pa. 199 (1894). " Nolde's Ap., 2 Monaghan, 169 (1888). ' Commonwealth v. Detweiller, i Northampton Co. Rep. 257 (i 1 66 OFFICERS GENERAL PRINCIPLES. test in quo warranto proceedings the title of the other di- rectors to their offices, although they were elected at the same meeting at which he himself was elected, and his title is not disputed. In such a case the director has a standing as a stockholder to have the votes properly counted and the af- fairs of the company committed to the charge of the officers legally elected by a majority of the stockholders.* In quo warranto proceedings to determine the title of offi- cers of a corporation to their offices the controversy as to all of the offices may be determined by one writ of quo warranto where the title to all of the offices depends upon the same votes at the same election.® Where professors in a college were appointed by the trus- tees who are constituted a body politic by the act of incorpo- ration, a professorship is not a corporate office in a private corporation within the meaning of the Act of June 14, 1836, Section 2, P. L. 621, relating to quo warranto proceedings.^* Writs of quo zvarranto, in the form and manner hereinafter provided, may also be issued by the several Courts of Com- mon Pleas, concurrently with the Supreme Court in the fol- lowing cases, to wit : In case any question shall arise concerning the exercise of any office, in any corporation, created by authority of law, and having the chief place of business within the respective county. And in any such case the writ aforesaid may be issued upon the suggestion of the attorney-general, or his deputy in the respective county, or of any person or persons desiring to prosecute the same.^^ Corporations Bound by Acts of Ofllcers. 126. Corporations must act through their officers and " Commonwealth, ex rel. Morris, v. Stevens, 168 Pa. 582 (1895). "Commonwealth, ex rel. Morris, v. Stevens, 168 Pa. 582 (1895). '"Philips V. Commonwealth, 98 Pa. 394 (1881). " Act of June 14, 1836, Sec; 2, P. L. 621. OFFICERS GENERAL PRINCIPLES. 167 agents, and any acts performed by such officers and agents within the scope of their employment binds the company.^^ Where the officers of a corporation are part of its organic machinery, the corporation is bound by their acts done within the scope of their powers. Thus the cashier of a bank being a statutory officer and a part of the organic machinery of the corporation can bind the bank by any act within the scope of his general powers.^* The cashier of an incorporated bank is the general execu- tive officer to manage its concerns in all things not peculiarly committed to the directors by the charter, and he is the agent of the corporation, and not of the directors. His acts are binding on the bank in favor of third persons transacting business with it, and who did not know at the time that the officer was transcending his authority.^* Where an agent of a corporation who is requested to keep corporate moneys as a fiduciary trust, opens an account as "manager" for the company, the account is that of the com- pany, and if a worthless check is deposited, and the amount of it is remitted to the company by the agent, the company is bound to make it good to the bank.^® If a corporation does not wish to be bound by the act of an officer who has transcended his authority it must disavow promptly the action of the officer. " Caley v. Philadelphia & Chester Co. R. R., 80 Pa. 363 (1876); Ardesco Oil Co. V. Gilson, 63 Pa. 146 (1869); Nippenose Mfg. Co. v. Stadon, 68 Pa. 256 (1871). "In Bank of Kentucky v. Schuylkill Bank, i Parsons, 180 (1846), Judge King said: "The ex-ofRcio authority of a cashier to bind the bank is only such as he is held out to the public to possess according to the general usage, practice, and course of business of such institutions; and his acts within the scope of such usage, practice, and course of business bind the bank in favor of third persons who have no knowledge to the contrary." "Bissell V. First National Bank of Franklin, 69 Pa. 415 (1871); Lloyd V. West Branch Bank, 15 Pa. 172 (1850); Hagerstown Bank v. Loudon Savings Fund Society, 3 Grant, 135 (1861). " United States Life Ins. Co. v. Guarantee Trust & Safe Deposit Co., 2 Walker, 433 (1883). 1 68 OFFICERS GENERAL PRINCIPLES. After a bank robbery the cashier of the bank \vith the con- sent of a minority of the directors offered a detective a re- ward for the arrest of the robbers and the recovery of the money. All of the directors lived in the same place, and did not disavow the cashier's act. The detective subsequently ar- rested the thief, and obtained the money, which was paid over to the bank. It was held that the detective was entitled to recover the reward from the bank, as the bank by its fail- ure to disavow the act of the cashier had ratified his ofifer. It was not necessary in such a case, in order to bind the bank, by acquiescence, that notice of the cashier's act should be given to the directors when acting officially. If they person- ally knew of it they should have assembled as a board, and disavowed the cashier's act, if unwilHng to be bound by it.^* A corporation is liable in damages for a loss occasioned by the deceit of its agent perpetrated within the scope of the corporate business.^^ Where a corporation has no power to deal in stocks, but an officer with knowledge of the directors buys stock which he subsequently embezzles, the corporation is liable for the stock embezzled.^® A real estate title company is liable for loss of the fund received by the solicitor of the company while acting within the apparent scope of his duties, and embezzled by him." The fact that a solicitor of a corporation had control of the company's legal business is not sufficient evidence of his au- thority to accept the surrender of a lease.^" A corporation is not responsible for a libel published by one of its general officers.^^ An agent of a corporation who is neither president, chief officer, cashier, treasurer, nor secretary has no authority to " Kelsey v. National Bank of Crawford County, 69 Pa. 426 (1871). "Erie City Iron Works v. Barber, 106 Pa. 125 (1884). "Searle v. Bank of Montrose, 2 Walker, 395 (1885). " Independent B. & L. Assn. v. Real Est. Title Co., 156 Pa. 181 (1893). ™ Jamestown & Franklin R. R. Co. v. Egbert, 152 Pa. 53. "^ Henry v. Pittsburgh & Lake Erie R. R., 139 Pa. 289 (1891). OFFICERS GENERAL PRINCIPLES. 169 enter an appeal from an award of arbitrators under the Act of March 22, 1817.^^ Stockholders alone and not creditors can challenge the right of the officers of a corporation to make an assignment for the benefit of creditors.^* Officers are Trustees. 127. The officers of a corporation occupy a trust relation to the company. Thus they have no right to purchase any claim against the company, except in trust for the stockholders.^* A stockholder is entitled to recover damages from the offi- cers of a corporation who appropriate to themselves stock of the company which was purchased for the benefit of all of the stockholders of the company.^^ An officer of a corporation who for himself and the corpo- ration covenants that the company shall not create a lien on its property until a creditor is paid, cannot secure a judgment for himself against the corporation, and postpone creditors until the judgment is paid.^® A treasurer when sued by the corporation has no right to set-off an independent claim of his own against the company. This is based upon the theory that he receives the company's funds to hold as treasurer, and he cannot pay or appropriate them to himself without authority from the corporation.^^ The officers and directors of a corporation may be com- pelled by a court of equity to account to the stockholders of a corporation for moneys of the company misapplied by them, °^ Washington & Pittsburgh Turnpike Co. v. Cullen, 8 Serg. & Rawle, S17 (1822). '"Zucker v. Froment, 5 Dist. Rep. 579 (1896). " Kimmell v. Getting, 2 Grant, 125 (1853) ; Hill v. Frazier, 22 Pa. 320 (i8s3) ; Trust Co. v. Weed, 14 Phila. 422 (1880) ; Bickel v. Phila. Wood Paving Co., 2 Walker, 150 (1881); Spering's Ap., 71 Pa. 11 (1872); Swent- zel V. Penn Bank, 147 Pa. 140 (1892); Watts's Ap.,78 Pa. 370 (1875); Craig V. Gregg, 83 Pa. 19 (1876); Gravenstine's Ap., 49 Pa. 310 (1865); Simons V. Vulcan Oil Co., 61 Pa. 202 (1869) ; Culver v. Real Est. Co., 91 Pa. 367. '" Kimmel v. Stoner, 18 Pa. 155 (1851). '= Stolz's Ap., 2 Walker, 282 (1885). " Russell V. Church, 65 Pa. 9 (1870). 170 OFFICERS GENERAL PRINCIPLES. and for loss occasioned by their gross mismanagement. On a bill in equity filed against the directors of a corporation it appeared that the defendants usurped authority to organize the company under the act of incorporation; usurped the ofi&ce of directors without any stock, and then obtained the only subscriptions of stock upon which the corporation was founded. They continued the usurpation for two years before calling a stockholders' meeting and then re-elected them- selves as a majority of the board. They entered into a con- tract with one of themselves for the erection of corporate works, without advertising proposals from others. They did not pay their own stock subscriptions but called in all the other subscriptions; they kept no proper accounts, and im- properly extended the time for the completion of the con- tract for the works and materially changed it; they also wrongfully transferred to the contractor all arrears of stock subscriptions, and permitted him to assume the income and the whole management of the works; they also unlawfully is- sued certificates of stock to the contractor and themselves. It was held that the defendants should be compelled to ac- count to the stockholders for the loss resulting from their misconduct.^* Where the principal owners and officers of a corporation, being one family, combine unlawfully to abstract the prop- erty and divert the profits of the company to their own use, they will be restrained by injunction. A bill in equity charged that the stock of a corporation in which the complainant was a shareholder was mainly owned by the members of one family, who combined to manage the aflfairs of the corporation, in such way as to subserve their own individual interests, to the prejudice of the plaintiff's rights; that D. R. was president, and W. H. R., C. S. T., C. R. S., and J. G. were directors; that the directors paid to them- selves large and excessive salaries as officers of the company; " Fletcher v. Titusville Gas & Water Co., 8 Phila. 559 (1871) ; Young v. Allegheny Oil Co., 10 Phila. 525 (1875). OFFICERS GENERAL PRINCIPLES. I /I that notwithstanding the chief business of the corporation was, or was intended to be, the building of bridges, the presi- dent and directors had entered into an agreement with the firm of C. R. & Co., under which agreement contracts for bridges were taken in the name of the firm, and the benefits divided between it and the company, in proportions unknown to the plaintiff; that a majority of the members of said firm were managers and officers of the corporation, to wit, D. R., the president; J. G., director and superintendent, who as such members of said firm, made large profits at the expense of the corporation, by means of unlawful contracts, which they as such managers and officers entered into to the prejudice of the corporation; that the plaintiff sought information respect- ing the affairs of the company, the salaries paid to its officers and the character of its dealings with the said firm, but the defendants, members of the said family, or subject to its con- trol, had combined to keep him in ignorance, by withholding such information, and refusing access to books and papers from which it might be obtained; that the plaintiff attended a meeting of stockholders, and there sought redress, but that his efforts were rendered fruitless by reason of the conduct of the defendants, who combined against him for that pur- pose. It was held on demurrer that the bill set forth good ground for equitable relief.^* There is no special confidential and fiduciary relation be- tween an officer of the corporation and a person from whom such officer purchases the stock of the corporation.*" A stockholder or officer of a corporation may lend money to his company if the transaction is not tainted with fraud, and he will not be interfered with in collecting his debt by a stockholders' bill for the appointment of a receiver, where the bill does not allege insolvency or ask for a dissolution.^^ =» Sellers v. Phoenix'iron Co., 14 Phila. 484 (1881). " Krumbharr v. Griffiths, isi Pa. 223 (1892). "' Griffen v. Burden, 10 Mont. Co. Lav/ Rep. 184 (1894). In this case Weand, J., said: "This is a stockholders' bill, and not a question of a race between creditors. A receiver, in our opinion, would benefit no one, but 172 OFFICERS GENERAL PRINCIPLES. Liability in Certain Cases. 128. The neglect to file a certificate as required by the trading company's Act of July 18, 1863, renders the officers of the corporation liable for debts contracted during their terms of office.*^ Where an act, such as the Manufacturing Companies' Act of July 18, 1863, authorizes a suit against the officers of a corporation individually by the creditors of the corporation where the officers have omitted to do certain acts, the suit must be brought against the officers alone, and it is error to join the corporation as a party defendant.®' Plaintiffs brought an action of assumpsit for work and ma- terials furnished against a corporation and its president and secretary jointly. There was no evidence of a joint contract by the defendants or of such a joint relation between the corporation and the individual defendants, as would support an implied contract jointly, to pay for the work and labor de- clared upon. It was held that the action was not in proper form to enforce the personal liability of the individual defend- ants as stockholders of the corporation.'* If the officers of a corporation fail to answer or improperly answer interrogatories in an attachment-execution, an attach- ment for contempt may be issued against them.'' Where an Act of Assembly directs a president, manager, and company of a turnpike road to remove a toll gate the president and managers are not individually liable to indict- merely tend to hinder and delay the creditor. A receiver could not operate the concern without money, and the corporation, has no cash capital available. If a loan should be authorized it might still further lessen the value of the stock and injure the stockholders; and when a minority ask us to place the majority in this position it should be made to appear that there is at least some reasonable show of success." See also Van Haagen's Soap Co.'s Est.,- 141 Pa. 314. " Hoopes V. Stidham, 13 W. N. C. 266 (1883). " Sheriflf v. Oil Company, i Brewster, 489 (1867) ; see Smucker v. Dun- can, 10 Pa. C. C. R. 430 (1891). " Youghiogheny Shaft Co. v. Evans, 72 Pa. 331 (1872). "^ Carondelet Co. v. Fairmount Ins. Assn., 15 W. N. C. 125 (iS . OFFICERS GENERAL PRINCIPLES. 1 73 ment if the direction of the Act of Assembly is not obeyed.*^ Declarations of Officers. 129. The declarations of officers and agents of a corpora- tion in their official capacities are evidence against the corpo- ration.^^ In an action by a corporation on a mortgage, declarations of the secretary of the company as to the amount due upon the mortgage are inadmissible, unless it is shown that the secretary had authority to bind the corporation by such dec- larations.^* The declarations of a bank cashier that certain stock which stood in the name of an individual was a trust fund is admis- sible in an action by a cestui que trust against the bank for re- fusing to permit a transfer.^' Corporations for Profit may Pension Employees, but not Officers. 130. From and after the passage of this act corporations organized for profit under the laws of the Commonwealth of Pennsylvania may, out of the earnings of said corporations, grant allowances or pensions to employees for faithful and long-continued service who have, in such service, become old, infirm, or disabled: Provided, that the provisions of this act shall not apply to any director or officer of any such com- pany or corporation.*" Misdemeanors of Corporation and Public Officers. 131. It shall not be lawful for any councilman, burgess, trustee, manager, or director of any corporation, municipality, or public institution, to be at the same time a treasurer, secre- tary, or other officer, subordinate to the president and di- " Commonwealth v. Demuth, 12 Serg. & Rawle, 389 (1825). " Magill V. Kauffman, 4 Serg. & Rawle, 317 (1818) ; Baltimore & Phila- •delphia Steam Boat Co. v. McCutcheon, 13 Pa. 13 (1850); Investment Co. of Phila. V. Eldridge, 175 Pa. 287 (1896) ; Farmers' Bank v. McKee, 2 Pa. 318 (184s); Allegheny County Work-house v. Moore, 95 Pa. 408 (1880). See Sees. 138 and 166 infra. "Johnston v. Elizabeth B. & L. Assn., 104 Pa. 394 (1883). " Harrisburg Bank v. Tyler, 3 Watts & Serg. 373 (1842). "Act of May 11, 1893, Sec. i, P. L. 42- .174 OFFICERS GENERAL PRINCIPLES. rectors, who shall receive a salary therefrom, or be the surety of such officer, nor shall any member of any corporation or pubUc institution, or any officer or agent thereof, be in any- wise interested in any contract for the sale or furnishing of any supplies, or materials to be furnished to or for the use of any corporation, m,unicipality, or public institution of which he shall be a member or officer, or for which he shall be an agent, nor directly nor indirectly interested therein, nor receive any reward or gratuity from any person interested in such con- tract or sale; and any person violating these provisions, or either of them, shall forfeit his membership in such corpora- tion, municipality, or institution, and his office or appointment thereunder, and shall be held guilty of a misdemeanor, and, on conviction thereof, be sentenced to pay a fine not exceed- ing $500; Provided, that nothing in this section contained shall prevent a vice-president of any bank from being a di- rector of such bank, or of receiving a salary as vice-presi- dent." " Act of March 31, i860, Sec. 66, P. L. 382. The act does not apply to private corporations: Commonwealth v. Christian, 9 Phila. SS6 (1872); Commonwealth v. Baldwin, 5 Pa. C. C. R. 509 (1888). The Act of April 26, 1855, Sec. I, P. L. 328, provided as follows: "It shall not be lawful for any councilman, burgess, trustee, manager, or director of any corporation, municipality, or public institution to be at the fame time a treasurer, secretary, or other officer, subordinate to the presi- dent and directors, who shall receive a salary therefrom, or be the surety of such officer; nor shall any member of any corporation or public insti- tution, or any officer or agent thereof, be in anywise interested in any contract for the sale or furnishing of any supplies or materials to be fur- nished to or for the use of any corporation, municipality, or public insti- tution of which he shall be a member or officer, or for which he shall be an agent, nor directly nor indirectly interested therein, nor receive any reward or gratuity from any person interested in such contract or sale; and any person violating these provisions, or either of them, shall forfeit his membership in such corporation, municipality, or institution, and his office or appointment thereunder, and shall be held guilty of a misde- meanor, and on conviction thereof, shall forfeit any sum not less than three times any advantage he may have derived by such oflfense, if any, and if no such advantage have been received, then any sum in the dis- cretion of the Court of Quarter Sessions of the proper county, not ex- ceeding $500 for each offense: Provided, that private corporations here- tofore incorporated, with any right or privilege in conflict with this sec- tion, shall not be affected thereby, until such corporation shall, by resolu- tion, agree to adopt the provisions hereof, which it is hereby authorized to do." OFFICERS GENERAL PRINCIPLES. 1 75 Embezzlement by Officers of Corporations. 132. If any person, being an officer, director, superintend- ent, manager, receiver, employee, agent, attorney, broker, or member of any bank or other body corporate, or public com- pany, municipal or qiiasi-mumcipal corporation, shall fraudu- lently take, convert, or apply to his own use, or the use of any other person, any of the money or other property of such bank, body corporate or company, municipal or quasi-munici- pal corporation, or belonging to any person or persons, cor- poration, or association, and deposited therein, or in posses- sion thereof, he shall be guilty of a misdemeanor.*^ Fraudulent Accounts Kept by Corporate Officers. 133. If any person, being an officer, director, superintend- ent, manager, receiver, employee, agent, attorney, broker, or member of any body corporate or public company, or mu- nicipal, or quasi-mnnicipal corporation, shall as such receive or possess himself of any money or other property of such corporate or public company, municipal or quasi-municipal corporation, otherwise than in payment to him of a just debt or demand, and shall, with intent to defraud, omit to make or cause or direct to be made, a full and true entry thereof in the books and accounts of such body corporate, public com- pany, municipal corporation, or gwo^yt-municipal corporation, he shall be guilty of a misdemeanor.** Illegal Contracts by Officers of Mining Companies. 134. The stockholders in any company formed in pursu- ance of the provisions of this act shall be jointly and severally liable, in their individual capacities, for all debts contracted by them for work and labor done or materials furnished for the opening, improving, and preparing their said lands for mining purposes aforesaid: Provided, however, that said companies may provide against contracting any such debts as aforesaid, by the adoption of a by-law requiring all pay- ments for the purposes aforesaid to be cash ; and in any such case, if any officer, agent, or employee of any such company shall contract any debt for the purposes aforesaid, in viola- tion of any such by-law, such officer, agent, or employee shall " Act of June 12, 1878, Sec. i, P. L. 196. *■ Act of June 12, 1878, Sec. I, P. L. 196; see Commonwealth v. Flecker, 17 Pa. C. C. R. 671 (1896). 176 OFFICERS GENERAL PRINCIPLES. be deemed guilty of a misdemeanor, and upon conviction thereof, in the Court of Quarter Sessions of the peace of the county where such debt shall have been contracted, he, she, or they shall be sentenced to pay a fine not less than the debt so contracted, nor more than double the same, and to undergo an imprisonment in the proper jail of such county not exceeding twelve months.** Malversation by Officers of Eailroad or Canal Companies. 135. If any director, president, officer, agent, or employee of any canal or railroad company shall be interested, directly or indirectly, in furnishing material or supplies to such com- pany, or in the business of transportation, as a common car- rier, of freight or passengers over the works owned, leased, controlled, or worked by such company, such director, presi- dent, officer, agent, or employee shall he guilty of a misde- meanor, and on conviction thereof, in the Court of Quarter Sessions of any county in which any overt act of such offense is committed, such person so ofifending shall be fined in any sum not exceeding $2,000, and shall be imprisoned not more than two years, in the proper county jail, or in the peniten- tiary of the proper district.*^ Contractors with a Corporation not to Offer its Officers Se- ward. 136. Any person who shall contract for the sale, or sell any supplies or materials as aforesaid and shall cause to be inter- ested in any such contract or sale any member, officer, or agent of any corporation, municipality, or institution, or give or ofifer to give any such person any reward or gratuity, to influence him or them in the discharge of their official duties, shall not be capable of recovering anything upon any contract or sale, in relation to which he may have so practiced or at- tempted to practice corruptly, but the same shall be void, and such party shall be guilty of a misdemeanor, and on convic- tion thereof be sentenced to pay a fine not exceeding $500.** Mandamus. 137. The courts of Pennsylvania have power to issue a " Act of April 21, 1854, Sec. 5, P. L. 437. " Act of June 4, 1883, Sec. 3, P- L. 72. "Act of March 31, i860, Sec. 67, P. L. 382. OFFICERS GENERAL PRINCIPLES. 1 77 mandamus to compel the officers of private as well as of pub- lic corporations to perform their corporate duties.*^ " The question of the jurisdiction ofnhe Court of Common Pleas to issue a mandamus against the officers of private corporations was first raised in Commonwealth v. Keim, 15 Phila. i (1881), and was decided in favor of the jurisdiction of the court by Judge Allison in a very learned and interesting opinion. After citing Whitemarsh v. R. R. Co., 8 W. & S. 36s (184s) ; Wolf v. United Daughters of America, i Phila! 374 (1852); Commonwealth v. Coxe, i Leg. Chron. 89 (1873); and the Act of May 22, 1722, he said: "It will not be questioned that the writ of mandamus falls clearly within the class of writs termed remedial, which, by the Act of 1722, the Supreme Court was authorized to issue. In Eng- land, it is designated a prerogative writ, in distinction to a writ of right, issuing exclusively from and granted at the discretion of the King's Bench. The same principle prevails in this country. It is not granted merely on request or demand, but, as was said by Lord Mansfield, who first properly expounded and settled the true principles on which the writ would be granted, and the ends to be secured by it, that it was intro- duced to prevent disorder from a failure of justice and a defect of policy. That it ought to be used on all occasions where the law has established no specific remedy, and where in justice and good government there ought to be one. If there be a legal right and no other specific remedy, it should not be denied: Rex v. Barker, 3 Burr. 1265 (1762); King v. Commissioners; King v. Amery, i T. R. 149 (1786). The importance of not losing sight of the true nature and purpose of the writ is apparent in considering the question on which the defendants, in part at least, ground their objection to the allowance of the alternative writ of mandamus, that it cannot issue against a private or business corporation. In Angell & Ames on Corporations, Section 700, the remark is made: 'We see no reason why the same remedy should not lie against a private corporation aggregate, to enforce an obedience on the part of members to the charter or act of incorporation under which they act, if they neglect or refuse to elect their proper officers.' The cases cited in support of this doctrine are: Rex v. The Bishop of Ely, 2 T. R. 290 (1788), and the King v. The Master and Fellows of St. Catharine's Hall, 4 T. & R. 233 (1791), etc. In the first, the King's Bench, by mandamus, required the bishop to appoint as master one of two fellows presented to him by the fellows of a college, holding that his power rested on the special appointment of the founder, and not on his official or corporate or gMO.S!-corporate authority. In the second case, though the King's Bench disclaimed jurisdiction because be- longing in chancery, yet, say Angell & Ames, no objection was taken that mandamus would not lie to compel an election in case of a private cor- poration. The citation of authorities in the work referred to, under the title mandamus, are so numerous, and so directly in point that it does not admit of question that the King's Bench exercised the power of com- pelling private corporations to perform corporate duties, at the instance of individual relators, and that where there was a special individual or 12 178 OFFICERS GENERAL PRINCIPLES. corporate duty to be performed by particular persons in their official capacity, that the writ would issue against them individually, and as officers of a corporation, commanding them to perform such individual or corporate duty. As the power of the Courts of Common Pleas is re- stricted to corporations having their chief place of business within the county in which the application for the mandamus is made, the case in hand falls directly within the established practice of the King's Bench, both in respect to allowing the writs to go against private corporations, and against individual members or officers upon whom a duty is imposed by the charter or act of incorporation. The cases decided in several of the States of our own country show a clear recognition of the same princi- ples, founded either upon the common or statute law, recognizing the ap- plication of the writ to private corporations and to individuals having a specific duty to perform in connection with the corporation. In the case of The People v. Throop, 12 Wend. 183 (1834), it is laid down that the rule is that the writ shall be directed to him who is required to do the thing to be done. A mandamus was allowed to compel a cashier of a bank to allow an inspection of the books of the corporation. The same principle was recognized in tht case of The People v. Board of Gover- nors, 61 Barbour, 397 (1871). "Plaintiffs also rely on the cases of State v. Doron, 4 Nevada, 400, and State V. Wright, 10 Nevada, 167. But if the objection that the writ could only be allowed against the corporation has any force in it, it is an objec- tion which is directed to the form or title of the action, and is amenda- ble under our statute of amendments. The power to add, strike out, or change the names of parties plaintiiT or defendant; and even to change, in certain cases, the form of the action, is given by the statute. As to the other objections, which relate to the words, 'and other officers,' and to the adjoining the president and secretary in the order prayed for, if at all material, they may be corrected by amendment at this stage of the pro- ceeding. Under the English practice, if the objection be to the form of the writ merely, it may be amended by the leave of the court after mo- tion to quash." CHAPTER XVII. PRESIDENT. 138. When the President may Bind 141. Liability in Certain Cases. the Company. 142. When Notice to the President 139. When the President may not is Notice to the Company. Bind the Company. 143. When President is Entitled to 140. The Office of President is One Witness Fees. of Trust. When the President may Bind the Company. 138. If a president of a corporation is in the habit of acting as a business agent for the company with its knowledge and without objection, making sales, settling accounts, and col- lecting debts, actual authority may be inferred from such acts, and the company will be bound by them. Thus where a president had been in the habit of settling accounts and col- lecting debts, and takes a due bill payable to himself or order, which he negotiates for cash and passes the proceeds to the credit of the company, the due bill will be considered as an extinguishment of the debt due by its maker to the com- pany.* The president of a corporation may enter into a contract to lease a building for the purposes of the company's busi- ness, and his declarations at the time of making the contract are admissible against the company.^ ' Dougherty v. Hunter, 54 Pa. 380 (1867). ' Baltimore & Philadelphia Steamboat Co. v. McCutcheon, 13 Pa. 13 (1850). In this case Coulter, J., said: "The only real question in the case is, whether the contract made by the president was within the scope of his authority, and whether his statements, at the time he made the 179 l8o PRESIDENT. The president of a manufacturing company with rights under its charter to mine, may bind the company by his acts and declarations in the purchase and sinking of mines, but he cannot bind the company by an agreement to organize an- other corporation for mining, or by an agreement to purchase stock in such corporation.^ The charter and by-laws of a mutual insurance company organized under the Act of April 2, 1856, P. L. 2 11, contained the following provisions: "The affairs of this corporation shall be managed by a board of directors, consisting of twelve members . . . who shall have power to appoint other offi- cers, and employ such agents, clerks, and attorneys as may be found necessary for the transaction of the business of said contract, were proper evidence of the purpose for which he rented the office. The office was close in the vicinity of the wharf, where the com- pany landed and received their passengers. I should suppose that it admitted of no doubt whatever that an officer there was not only a great convenience to the business of the company, but indispensable. Railroad and stage companies have their offices, and could not get along without them, and so it must be with steamboat and transporting companies. Who, then, was the proper person to make the contract? Certainly, the president. We must bear in mind that these kind of artificial men or per- sons are becoming very common in this State; the legislature turn them out almost as rapidly as a miller does his grist. They compose a new element or ingredient of modern society; they contract with everybody, and about all manner of things; and they contract by their chief officers, and such is their usual course of business. The president of a company presents himself to make a contract, evidently connected with the busi- ness; he declares the object and purpose of the contract. Who doubts them? We are a dealing people. Is he asked to produce the charter and the books of the company to show that he is authorized to make the contract secundum artem? Such is not the custom. Society must be protected from mischief, arising from the multiplication of these bodies. As they can only contract by their officers the declaration of these offi- cers when engaged in the business of the company, like the declarations of an agent within the scope of his authority, or his declarations of an individual engaged in his own business, are evidence against their prin- cipals. This contract whether it be considered express or implied (and there is evidence to justify its being considered in either aspect), as within the scope of the authority of the president of the company, and his decla- rations made at the time, were competent evidence of the purpose for which the contract was made." ' McMillan v. Carson Hill Union Mining Co., 12 Phila. 404 (1878). PRESIDENT. l8l company, and shall . . . make, execute, and perfect such and so many bargains, policies, and other instruments as shall or may be necessary." "The president shall . . . have full power to examine, adjust, and settle in all cases of loss not exceeding $ioo. In all cases exceeding this amount he may call to his assistance on^ or more directors as he may think necessary . . . and shall have a general supervision over the affairs of the company." It was held that the directors had power to appoint the president and two directors to adjust a loss, and that the president alone or with the concurrence of any one director had full power to adjust a loss with a per- son insured in the company.* A corporation cannot entrust its president with the care and control of its business, and then refuse to pay those whom he has employed on the ground that he has been acting as a contractor, and not as an agent, under secret instructions or agreements, not made known or divulged, except to the in- itiated, and which necessarily operate as a surprise on third persons when published.^ The mere additon of the word "president" after the name of an indorser of a promissory note, without designating the corporation of which he is president, and which he intends to bind by his indorsement, will not avail for such purposes as to strangers, but this principle does not apply where the note remains in the hands of the original indorsee who has full knowledge that the indorsement was intended as a con- tract of the corporation.® The company is bound by the assurances of the president to a proposed subscriber to the stock, that certain conditions which the subscriber suggests shall be a part of the con- tract.^ Where the president of a corporation has authority to bor- * Mercer County Mutual Fire Ins. Co. v. Stranahan, 104 Pa. 246 (1883). ° Grafius v. Land Co., 3 Phila. 447 (1859). "Seyfert v. Lowe, 7 W. N. C. 39 (1879)- ' McCarty v. Selinsgrove & North Branch R. R., 87 Pa. 332 (1878) ; Pittsburgh & Connellsville R. R. v. Stewart, 41 Pa. 54 (1861). 1 82 PRESIDENT. row money for a company, he may pledge the personal prop- erty of the corporation to secure the money borrowed.* Where the president pays salaries to employees, without any previous formal action by the stockholders or directors, he must show that the employment and services rendered, were known, adopted, and ratified by the board of directors, but such action is to be inferred from acts done or permitted and need not be proved by the minutes.® When the President may not Bind the Company. 139. The president of a corporation is the executive agent of the board of directors within the ordinary business of the company, but he cannot bind the company outside thereof without special authority. The president of a national bank received $1,000, giving therefor the following receipt: "Received of H $1,000 to be invested in bonds of the City of Allentown, bearing seven per cent, interest. Interest on said deposit to be allowed from this date, and to be accounted for on demand." The presi- dent signed the receipt as president of the bank. The money was misappropriated, and H sued the bank. It was held that he was not entitled to recover as the receipt showed upon its face that it was given in a transaction not in the ordinary course of business of the bank.^" The president of a corporation has no right without au- thority from the board of directors to execute a power of attorney to institute a suit, where the by-laws reserve this power to the directors.^^ ' Quaker City Bank v. Gilkeson, 18 Pa. C. C. R. 557 (1896). ° Bagaley v. Pittsburgh & Lake Superior Iron Co., 146 Pa. 478 (1891). "Bank of Allentown v. Hoch, 89 Pa. 324 (1879); Fisher v. Gas Co., t Pears. 118; Freeman v. Printing Co., 9 Luz. L. Reg. 37. " Citizens' Bank v. Keim, 10 Phila. 311 (1875), i W. N. C. 263, Judge Allison said: "The claim which is here set up is made by the president of the bank to appoint an attorney to institute and carry on this suit in the name of the bank. The proof is, that the directors never authorized him to employ an attorney, or to bring the suit; the minutes of the body establish this fact. And it appears that a restriction on the exercise of such a power is impliedly, at least, placed on the president by Article VI PRESIDENT. 183 The president of a railroad company has no authority to give or grant away any of the company's property or fran- chises, and what he cannot do by direct act he cannot do by estoppel.^^ The president of a railroad company has no implied power to borrow the stock of a stockholder of the company, and if he does borrow such stock and converts it to his own use, the railroad company is not liable to the stockholder for the loss.^® A corporation cannot be held liable for commissions to a real estate broker for selling its land, where it appears that the broker was employed by the president of the company who thought that the land was his own, and not that of the company, and there is nothing to " show that the employ- ment of the agent was authorized by the corporation or subse- quently ratified by it.^* The president of a corporation who is authorized by a by- law to have "the general charge and direction of the business of the company, as well as all matters connected with the in- terests and objects of the corporation," has no authority to employ a broker to procure a party to pay off an existing ground rent upon the corripany's property where a by-law ex- pressly gives to the finance committee the power to "make arrangements for providing the necessary funds for meeting all liabilities of the company, and report to the board any suggestion they may consider advisable for paying oflf, or dis- of the by-laws; his duty is defined to be, to have under his supervision all debts which may remain due and unpaid, and recommend to the board such proceedings as may be requisite for their settlement. The inference is, that the board has reserved to itself the power to institute and control all proceedings whicb may be necessary for the settlement and collection of the debts due to the corporation. This question does not, therefore, stand upon the precise ground on which it was supposed to rest. There is no necessity to look narrowly into the general power of a president of a bank to sue for the debts of the corporation. The authorities upon this point are conflicting." " Pennsylvania R. R. Co.'s Ap., 80 Pa. 265 (1876). "Wright's Ap., 99 Pa. 425 (1882). " Copeland v. Stoneham Tannery Co., 142 Pa. 446 (1891). 184 PRESIDENT. charging any of the permanent indebtedness of the com- pany." ^^ The president of a corporation has no power without au-^ thority from the board of directors to enter into a contract for the compensation of a promoter. Thus the president of a bank cannot make a contract to compensate a promoter of the bank for obtaining depositors.^® The evidence of the declarations of the president of a cor- poration, or of an agreement made by him, is admissible only when it is shown that he acted within the scope of his au- thority.-"' A corporation advanced money to defendant to pay for the stock of the company. The defendant galve promissory notes and assigned his stock as collateral security therefor. The defendant offered testimony to show that the president of the corporation at various times after the date of the original note and renewal notes had given to the defendant false in- formation as to the real condition of the company. It was held that such testimony did not show a defense, as the dec- larations of the president, if made, were outside the line of his duty.^* The Ofllee of President is One of Trust. 140. The president of a corporation occupies a position of trust and confidence, and is liable to be called upon to account for, and make restitution of any part of the property confided to his management and care which has been improperly ap- plied by him to his own use.^^ An attachment-execution was issued against an insolvent canal corporation, and served on a banker, who was the presi- dent of the company, and with whom its funds were depos- ited by the treasurer, under an agreement to pay interest "Twelfth St. Market Co. v. Jackson, 102 Pa. 269 (1883). "Tifft V. Quaker City National Bank, 8 Pa. C. C. R. 606 (1890). " Farmers' Bank v. McKee, 2 Pa. 318 (1845). ''Investment Co. of Phila. v. Eldridge, 175 Pa. 287 (1896). " Trust Co. V. Weed, 14 Phila. 422 (1880). PRESIDENT. 185 thereon, and to hold the same subject to call; the garnishee, who was a holder of a large amount of the bonds of the com- pany, pleaded nulla bona; the court below held that the at- tachment would lie, and that the garnishee could not set-off the debt due to him by the company, against the attach- ment.^" The president of a corporation cannot be permitted to buy a claim against a corporation at a discount and then collect the full amount. Such conduct is in violation of his duty as an officer of the corporation.^^ A contract between the president of a corporation and the corporation itself by which the president agrees for a com- mission to secure a loan for the company and to become se- curity for its payment, may be enforced, when shown to have been for the benefit of the corporation, and to be just, al- though such contracts are looked upon with suspicion and disfavor by the court.^^ Liability in Certain Cases. " 141. The president of a bank who negligently permits a customer to withdraw from the bank bills of lading as col- lateral under the pretext of comparing them with his books, is responsible to the bank for any loss resulting from the with- drawal of the bills of lading.^* The president of a railroad company is personally liable for the taking and conversion of the goods of another, unless he shows that the company bought the goods or had authority to take them.^* The president of a corporation cannot be sued upon a bond of the corporation which he has signed as president, if it ap- pears that he had full authority from the corporation for his " Reed v. Penrose's Executrix. 36 Pa. 214 (i860). '* Bickel V. Philadelphia Wood Paving Co., 2 Walker, 150 (1881). ^ Trust Co. V. Weed, 14 Phila. 422 (18S0). " Citizens' Bank v. Wiegand, 5 W. N. C. 12 (1877). ^Barton v. Wiley, 2 W. N. C. 157 (1875)- l86 PRESIDENT. act, and it also appeared that the corporation possessed a gen- eral authority to make the bond.^^ The president of a corporation who indorses a note in his official capacity does not become personally responsible.^* When Notice to the President is Notice to the Company. 142. Where the president of a bank in the course of the business of the bank acquires knowledge that moneys depos- ited by a depositor in his individual account really belonged to the assigned estate of which the depositor was assignee, the bank is afifectedwith notice of the real ownership of the money and cannot appropriate the money so deposited to the pay- ment of the individual notes of the depositor.^^ When President is Entitled to Witness Pees. 143. The president of a corporation plaintifif is entitled to witness fees where he attends court in the capacity of a wit- ness alone, and not to conduct the suit.^* " McMasters v. Reed, i Grant, 36 (1854). '° Seyfert v. Lowe, 4 W. N. C. 560 (1877). "First National Bank of Bethlehem v. Peiscrt, 2 Penny. 277 (1882). "' Skinner Engine Co. v. Webb, 5 Pa. C. C. R. 480 (l? CHAPTER XVIII. DIRECTORS. 144. Number, Election, and Quo- rum of Directors. 145. Directors need not be Stock- holders. 146. Non-Resident Stockholder may be Director. 147. Same Person may act as Di- rector in Two Corporations. 148. Directors Named in Certificate may be Changed. Vacancies. Meetings and Qualifications of Directors. Classification of Directors. When Number is Increased, a Majority to Constitute a Quorum. Salaried Officers may Serve as Directors. 154. Directors can only Act at Duly Convened Meetings. 155. Relation of Directors to Cor- poration. 156. Suits Against Directors. 149. ISO. 151. 152. IS3. 157. Individual Liability in Certain Cases. 158. Participation in Fraud. 159. Directors Cannot Make Profit at the Expense of the Cor- poration. 160. Directors Cannot Pay Them- selves in Preference to Other Creditors. 161. Discretionary Power of Direc- tors as to Instituting Suits. 162. Directors Cannot Divest the Corporation of its Property so as to Stop Corporate Action. 163. Confession of Judgment. 164. Power to Make Assignments for Creditors. 165. Miscellaneous Powers. 166. Declarations. 167. When Individual Director is not Estopped by Action of Board. 168. When Notice to a Director is Notice to the Qpmpany. Number, Election, and Quorum of Directors. 144. The business of every corporation created hereunder, or accepting the same, shall be managed and conducted by a president, a board of directors or trustees, a secretary or clerk, a treasurer, and such other officers, agents, and factors as the corporation authorizes for that purpose, and nothing in any law contained shall prevent or be construed to prohibit 187 1 88 DIRECTORS. the vice-president, treasurer, solicitor, or other officer of any corporation organized or existing under this act, from being a director of such company and receiving at the same time such compensation for his services as such officer as the board of directors of such company may direct. The direct- ors or trustees shall be chosen annually by the stock- holders or members, at the time fixed by the by-laws, and shall hold their office until others are chosen and quali- fied in their stead; the manner of such choice and of the choice or appointment of all other agents and officers of the company, shall be prescribed by the by-laws. The number of directors or trustees shall not be less than three; one of them shall be chosen president by the directors, or by the members of the corporation, as the by-laws shall direct. The members of said corporation may, at a meeting to be called for that purpose, determine, fix, or change the number of directors or trustees that shall thereafter govern its afifairs; and a ma- jority of the whole number of such directors or trustees shall be necessary to constitute a quorum.^ Directors need not be Stockholders. 145. The directors of a corporation need not be incorpo- rators or stockholders. , In Corporate Directors, 7 Pa. C. C. R. 178 (1880), Deputy Attorney-General Gilbert said: "The general corporation Act of 1874 contains no language which requires directors to be either subscribers to the certificate for incorporation, or stockholders, and there is nothing in the law regulating the duties of directors which exacts of them this qualification. They are chosen by the stockholders, or originally by the corporation, but there is no direction that they shall be taken from the corporators or the stockholders. We could not in- sist, therefore, in superadding a qualification of this kind, un- ' Act of April 29, 1874, Sec. S, P. L. ^T, re-enacted by Act of May 14, 1891, Sec. I, P. L. 61; see Lutheran Church, 15 W. N. C. 567 (1885); see Sec. ISO infra. The board of directors are a distinct body from the corporation. The directors are merely the statutory agents. They are a mere board, and not a corporate body: Bank of Kentucky v. Schuylkill Bank, I Parsons 180 (1846); Langolf V. Seiberlitch, 2 Parsons, 64 (1851). DIRECTORS. 189 less there is some warrant for it in law which underlies all cor- porate organization. But an examination shows that the principles governing corporations and the relations of their directors to their stockholders do not require directors to be even stockholders in the absence of express statutory direc- tion. In Densmore Oil Co. v. Densmore, 64 Pa. 43 (1870), the court decided that, under the Act of July 18, 1863, the corporators need not have an interest in the corporation, or be stockholders. The law in this respect is different to-day, but the change was made by direct legislation. In the case of State V. McDaniel, 22 Ohio 354 (1872), the Supreme Court of Ohio decided that directors need not be stockhold- ers. To the same effect is the English decision: British Prov- ident Life, etc.. Association, L. R. 5 Ch. Div. 306. I am therefore of opinion that the management of corporate busi- ness can be lawfully placed in the hands of directors who are neither corporators nor subscribers to the corporate stock." Won-Kesident Stockholder may be Director. 146. A non-resident stockholder takes his shares with all the rights and privileges which pertain to them in the hands of a citizen, and he may vote upon them and, where no other qualification than ownership of stock is required of the di- rectors, he may become a director.^ Same Person May Act as Director in Two Corporations. 147. The same person or persons may legally and properly act as directors in two corporations, even when dealing with each other. "The interests of corporations are sometimes so interwoven that it is desirable to have joint representatives in their respective managements, and at any rate it is a not uncommon and not unlawful practice. But the action of such persons should be open, and free from any suspicion of secret dealing in favor of one principal while acting as the repre- sentative of the other. Such action is always open to investi- " Commonwealth v. Detwiller, 131 Pa. 614 (1890). igO DIRECTORS. gation, and the utmost good faith must not only exist but be made manifest."* Directors Kamed in Certificate may be Changed. 148. The directors named in the certificate for the first year may be removed during the year and others substituted in their place by the stockholders at a meeting duly con- vened. In Commonwealth v. Helms, 8 Pa. C. C. R. 410 (1890), a company was incorporated on March 31, 1890, and on April 15, of the same year, by-laws were adopted. By the by-laws it was provided that the annual meeting should be held on the fourth Tuesday in April of each year. An election was held on the fourth Tuesday of 1890, and a board of directors was elected. The directors named in the certificate refused to permit the directors elected to occupy the positions for which they were chosen. The court decided that the directors elected on the fourth Tuesday were entitled to the office. Judge BiDDLE said: "The requirement in the act that the application for a charter should state, among other things, the number of its directors, and the names and residences of those who are chosen directors for the first year, was held by Judge Lowrie, in Red Men's Mutual Relief Association of Western Pennsylvania, 10 Phila. 546 (1874), as plainly in- dicating 'that the application for incorporation is to be made by an existing association already organized, presenting its constitution for legal approval.' We think that is the main purpose of the requirement, and that it was not intended to legislate those directors into office for a year, should the cor- poration, when duly organized, decide otherwise by the adop- tion of its by-laws. The directors named were the directors of the association making the application for a charter. They were not chosen directors by the corporation, and could not be, as it had no existence. When the application of the as- sociation to become a corporation was granted it then became '■ Per Mitchell, J., in Mercantile Library Hall Co. v. Pittsburgh Li- brary Assn., 173 Pa. 30 (i8g6). DIRECTORS. 191 subject to the Act of 1874 and its supplements, and had full power to make by-laws for its government. We do not think it would be restricted in the number of its directors to the number named in its certificate, or to the term to which it saw fit to limit its officers. These provisions would seem to give assurance that it was a duly organized body, which, when in- corporated, could regulate its affairs according to the laws governing its new existence." Vacancies. 149. In case of the death, removal, or resignation of the president, or any of the 'directors, treasurer, or other officer of any such company, the remaining directors may supply the vacancy thus created until the next election.* The power of a board of directors is never suspended by vacancies unless the number be reduced below a quorum.^ A court of equity may order a corporate election to fill vacancies in the board of directors when no other means has been provided for filHng the vacancies." The by-laws of a corporation provided that "whenever any director shall die, resign, neglect to serve, or remove out of the county, the board may proceed to supply the vacancy." It was held that the board could not create a vacancy by oust- ing a director, because of an alleged, but undetermined in- eligibility of the incumbent. "They cannot oust a director because they differ from the stockholders as to his eligibility, nor because he fails to attend a called meeting, nor because he is not a citizen of the Commonwealth. Legal questions must be settled in the courts. Questions of fact, such as the exist- ency of an actual vacancy by removal after election or neg- lect of duty by a member of the board, may be settled by the directors, and the resulting vacancies, if any, may be filled by them, but this is the extent of their power in the prem- ises." '' ' Act of April 29, 1874, Sec. 9, P. L. 78. ° Wright V. Commonwealth, 109 Pa. 560 (1885). ' Forsyth v. Brown, 13 Pa. C. C. R. 576 (1893). ' Commonwealth v. Detwiller, 131 Pa. 614 (1890). 192 DIRECTORS. Meetings and Qualifications of Directors. 150. It shall be lawful, from and after the passage of this act, for any corporation, chartered or existing by or under any law of this State, to determine, by the vote of its stockholders holding a majority in interest of all of its stock, at a meeting duly called for the purpose, the time of holding the annual meet- ing for the election of ofificers of the corporation, and the num- ber of directors that shall thereafter govern its affairs: Pro- vided, that the number of directors so determined shall not be less than three nor more than fifteen, and that at least one-third of the directors of every corporation shall be and re- main, during their term of service, residents of the State of Pennsylvania: and provided further, that this act shall not apply to any company heretofore incorporated, unless such company shall file, in the office of the secretary of the Com- monwealth, a certificate of the acceptance of this act, and also of the provisions of the Constitution of this Commonwealth, which acceptance shall be made by resolution, adopted at a regular or called meeting of the directors, trustees, or other proper officer of such corporation, certified under the seal of the corporation, and a copy of which resolution, certified under the seal of the office of the secretary of the Common- wealth, shall be evidence for all purposes. All acts, or parts of acts, inconsistent herewith, shall be and the same are, in so far as they are inconsistent herewith, here- by repealed.** The Act of May 31, 1887, relating to the changing the number of directors of a corporation amends and supplies the provisions of the Act of April 29, 1874, Section 5, relating to the same subject. A corporation desiring to change the num- ber of its directors must therefore proceed under the Act of 1887. The provision in the Act of 1887, relating to the ac- ceptance of the new Constitution concerns only such corpo- rations as may have been chartered prior to the adoption of the new Constitution.' ' Act of May 31, 1887, Sec. i, P. L. 281 ; see Sec. 144 supra. "Commercial Ice Co., 9 Pa. C. C. R. 608 (1891). Qutzre as to the effect of the re-enactment of the Act of April 29, 1874, Sec. S, by the Act of May 14, 1891, P. L. 61. See Sec. 144 supra. The Act of March 31, 1868, Sec. i, P. L. 50, provided as. follows: "It DIRECTORS. ' 193 Classification of Directors. 151. Whenever the stockholders of any corporation incor- porated under the Act of April 29, 1874, or any other law of this Commonwealth, shall, at a meeting called for the pur- pose, decide, by a majority vote of those present either in person or by proxy, to elect a portion of their directors for a term or terms longer than one year, it may and shall be lawful for such corporations, at the next ensuing election, to divide the directors or managers, which are to be chosen, into two, three, or four classes, and to elect the first class to serve for the term of one year, and the second, third, or fourth to serve for two, three, or four years, respectively, and at all ensuing elections of said corporations, the stockholders shall only elect the number of directors necessary to take the place of those whose term of office shall then expire, and such directors shall be elected for the longest term for which any class may have been elected as hereinbefore provided.^** shall and may be lawful for any and all companies incorporated or or- ganized under the laws of this Commonwealth, including those author- ized thereby to transport merchandise or other property, and also for the directors, managers, or trustees thereof, with the approval of the stock- holders, to invest the surplus or other funds or earnings of such com- panies, in mortgages on improved real estate, in ground rents, in the loans of the United States, in the purchase from holders thereof of any (of) the shares of the capital stock of the respective company, and also in the public debt of the State of Pennsylvania, or of the city of Philadel- phia, or in other good stocks or securities, and to sell and transfer the same, and to reinvest the proceeds of such sales in securities or stocks of like kind, and to prescribe, by resolution of the directors, or by the by- laws of the company, or otherwise, the mode of making such investments, . purchases, and sales, with the approval of the stockholders, and the amount or amounts thereof to be purchased, and the price or prices to "be paid or received therefor, and the reinvestment of the proceeds thereof, and to make such compensation, as the said directors, managers, or trus- tees may deem proper, to any director, manager, trustee, treasurer, or other agent or officer of such company, for the keeping, receiving, paying. Investing, or reinvesting of any of the moneys belonging to the said company, or for any other services performed by him or them, as agents of the company or otherwise; and any such companies may change and fix the time of holding their annual election for directors to such a day as they may select, a certificate of such change, duly authenticated by the proper officers of the company, shall be filed with the auditor-general of this Commonwealth, within thirty days after such change shall have been made." "Act of June 17, 1887, Sec. i, P. L. 411. 13 194 DIRECTORS. Such classification, where already made by charter, is here- by declared valid.^^ In boards of trustees of a corporation a majority must de- cide all questions, and their determination is obligatory on the minority. If the majority abuse their authority or trans- cend their chartered power, they are responsible for such acts, but the minority cannot declare the acts of the majority void and illegal, the question must be submitted to the proper legal tribunal.^ ^ When Number is Increased, a Majority to Constitute a Quorum. 152. Whenever the number of directors or managers of any corporation may be increased under authority of law, a ma- jority of the whole number shall be necessary to constitute a quorum, and all laws inconsistent with this act be and the same are hereby repealed.^* Salaried OfQ.cers May Serve as Directors. 153. It shall be lawful for any vice-president, treasurer, or other salaried officer of any trust, deposit, or other purely private or business corporation, to hereafter serve, or to have heretofore concurrently served such corporation as a director thereof, when lawfully elected to said position.^* Directors Can Only Act at Duly Convened Meetings. 154. The directors of a corporation cannot take official ac- tion, except at a meeting. Thus where a resolution is passed when not a legal number of directors are present, the fact that another director whose presence would have made a quorum subsequently signed the resolution, will not render the res- olution valid.^^ No act of a board of directors of a corporation is valid un- less it be done at a meeting provided for by the by-laws, or at " Act of June 17, 1887, Sec. 2, P. L. 411. " Commonwealth v. Oliver, 2 Parsons, 420 (1849). " Act of April IS, 1869, Sec. i, P. L. 29. " Act of May 20, 1891, Sec. i, P. L. loi. See Act of May 14, 1891, P. L. 61. " Rittenhouse's Est., 140 Pa. 172 (1891) ; Fisher v. Gas Co., i Pears. 118. DIRECTORS. 195 a meeting called with due notice to all the directors. Such notice is indispensable to a legal meeting for the transaction of even the ordinary business.^** In the absence of a by-law or custom to the contrary at least one full day's notice should be given of a directors' meet- ing. Notice of a special meeting of the directors of a corpora- tion was dated and mailed to the members of the board on January 2, and called for a meeting on January 3, at 4 o'clock. There was nothing to show that the notice was received by the members before the* morning of the day on which the meeting was fixed. There was no by-law or custom as to the time within which the notice should be given. It appeared that the directors were all business men. It was held that the notice was insufficient in time.^" A special directors' meeting is invalid if the notice of the meeting is misleading, or insufficiently or improperly states the purpose of the meeting. A notice of a special directors' meeting stated that the purpose of the meeting was "to hear the treasurer's report, and transact any other business which may come before them." The meeting was called for a Saturday, and on the following Monday a stockholders' meeting was to be held to elect a new board of directors. The impression which some of the members had from the notice was that it was a formal meeting to pass on annual reports and similar matters of routine, prior to the approaching stockholders' meeting. It was, however, really called to authorize a lease which prac- tically divested the corporation of all of its property and of all its active functions. It was held that the notice was insuffi- cient to sustain the lease authorized at the meeting.^* Where a mistake is made in a contract between a corpora- " Gordon v. Preston, i Watts, 385 (1833). " Mercantile Library Hall Co. v. Pittsburgh Library Assn., 173 Pa. 30(1896). " Mercantile Library Hall Co. v. Pittsburgh Library Assn., 173 Pa. 30 (1896). 196 DIRECTORS. . } tion and a contractor, the mistake can only be corrected by the managers at a meeting of the board. Declarations of one or more of the managers, not made at a meeting of the board, that they would be willing for their part to allow extra pay to the contractor do not bind the company, and are not even evidence against the company in favor of the contractor.^" The fact that the directors of a Maryland corporation oc- casionally held their meetings in a town, partly in Maryland and partly in Pennsylvania, does not render void the acts of the directors at such meetings.^" Eelation of Directors to Corporation. 155. Directors of a corporation are not technical trustees for stockholders. They are not responsible for mere mistakes of judgment, or want of skill and knowledge. In Spering's Ap., 71 Pa. 1 1 (1872), after a careful review of the English and American authorities, Judge Sharswood embodied the lia- bility of directors in the following proposition: "While di- rectors are personally responsible to the stockholders for any losses resulting from fraud, embezzlement, or willful miscon- duct or breach of trust for their own benefit and not for the benefit of the stockholders, for gross inattention and negli- gence by which such fraud or misconduct has been perpe- trated by agents, officers, or co-directors, yet they are not liable for mistakes of judgment, even though they may be so gross as to appear to us absurd and ridiculous, provided they are honest and provided they are within the scope of the powers and discretion confided to the managing body." In Spering's Ap., supra, an assignee for the benefit of cred- itors of a trust company filed a bill against the directors to compel them to make good losses alleged to have been caused by fraudulent mismanagement of the company's affairs, The evidence showed that the directors had never made any profits which were not common to all the stockholders; that " Stoystown & Greensburg Turnpike Road Co. v. Craver, 45 Pa. 386 (1863). " Kilgore v. Smith, 122 Pa. 48 (18 DIRECTORS. 197 they always took legal advice, but that they made loans upon doubtful collaterals ; that their investments in real estate were injudicious; that they lost from a failure to insure; and that they sought to realize large profits from usurious rates of interest; that the breaking out of the war caused a fall in all doubtful securities, and the directors in a vain attempt to sus- tain the credit of their company sacrificed securities and collat- erals. The court held that they were not personally liable for the loss.^^ ^ Bank directors'are gratuitous mandataries, and as such are " Spering's Ap.,'71 Pa. 11 (1872). In this case Judge Sharswood fur- ther said: "It is by no means a well settled point what is the precise relation which directors sustain to stockholders. They are undoubtedly 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 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 mandataries — persons who have gratuitously undertaken to perform certain duties, and who are therefore bound to apply ordinary skill and diligence, but no more. Indeed, as the directors are themselves stockholders interested as well as all others that the aflfairs and business of the corporation should be successful, when we ascertain and determine that they have not sought to make any profit not common to all the stockholders, we raise a strong presumption that they have brought to the administration their best judg- ment and skill. Ought they to be held responsible for mistakes of judg- ment or want of skill and knowledge? They have been requested by their co-stockholders to take their positions, and they have given their services without compensation. We are dealing now with their responsibility to stockholders, not to outside parties — creditors and depositors. It is un- necessary to consider what the rule may be as to them. Upon a close examination of all the reported 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 per- sonally guilty of some fraud on the corporation, or have known and con- nived at some fraud in others, or where such fraud might be prevented had they given ordinary attention to their duties. I do not mean to say by any means that their responsibility is limited to these cases, and that there might not exist such a case of negligence or of acts clearly ultra vires, as would make perfectly honest directors personally liable. But it is evident that gentlemen elected by the stockholders 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 gentleman of character and responsibility would be found willing to accept such places. The authorities, I think, fully indorse these views." 198 DIRECTORS. only liable for fraud, or for such gross negligence as amounts to fraud. If the director of a bank performs his duties, as such, in the same manner as they are performed by all other directors of all other banks in the same city, he cannot be fairly charged with gross negligence. The president of a bank in Pittsburgh in combination with the cashier and clerks made false entries in the individual ledger to conceal a misappropriation of funds. By the rules of the bank and all of the other banks in the SiSime city, the di- rectors were not allowed to see the individual ledger. The other books were correctly kept, and the statements made to the directors from time to time contained nothing to arouse their suspicions. The bank subsequently suspended, and the directors raised a large sum on their individual credit to ena- ble the bank to resume. It was held that under the circum- stances the directors could not be charged with such gross negligence as to render them liable for the loss occasioned by the fraud of the president and cashier.^^ The directors of a company organized to develop timber land subscribed on behalf of the company to the stock of a railroad company, for the payment of which they borrowed money and executed a bond and mortgage in the name of the company. They also executed deeds for a large body of the company's land to a mining company, and took in exchange therefor stock of the mining company. They also sold in pursuance of direct authority from the stockholders a portion of the land to the stockholders, including the directors them- selves, to be paid partly in the stock and bonds of the cor- poration, and but two per cent, in cash. The directors also erected saw-mills, a hotel, and other buildings upon the cor- porate property. It did not' appear that the directors made any special profits for themselves apart from the profits made by the stockholders generally. It was held on a shareholders' bill against the directors that the directors were not liable for losses occasioned by the above transactions although in some '- Swentzel v. Penn Bank, 147 Pa. 140 (1892). DIRECTORS. 199 of them their authority to act had not been clear, and their action had been ill-advised.^^ The president, vice-president, and two directors of a cor- poration engaged in manufacturing iron, carried on the busi- ness of the company for a considerable time by pledging their personal responsibilit)'. The company was heavily indebted not only to these officers and directors, but also to other par- ties. At a stockholders' meeting duly convened the only stockholders present were the officers and directors above mentioned, and one other stockholder. The persons present represented more than two-thirds of the stock, and the stock- holders absent had been duly notified. At this meeting it was resolved that the directors should make a bill of sale of all of the personal property of the company to the officers and directors above mentioned as creditors, it was also resolved that the directors should make and execute a lease of all the real estate and works of the company to the same parties for the term of five years. A directors' meeting was held imme- diately afterwards at which three of the proposed lessees and vendees of the company's property were present, and one other director. The directors passed a resolution in accord- ance with the instructions which they had received from the stockholders' meeting. The value at which the personal property was taken was apparently somewhat in excess of its real value. It was held in an equity proceeding by stockhold- ers against the purchasers, that the sale was a valid one, and proper under the circumstances.^* "" Watts's Ap., 78 Pa. 370 (1875). '^ Ashhurst's Ap., 60 Pa. 290 (1869). In this case Strong, J., said: "If the sale was in fact made to procure the means of paying debts; if it was for a fair price, and especially if its proceeds, whether money or notes, were applied to the payment or security of debts, other creditors could not avoid it. And certainly the vendor could not, neither could any stockholder, merely because it operated to hinder some creditors not preferred. And in view of the circumstances under which the sale of the personal property was made, and in view of the nature of the property, I think it would be going far to hold the sale a fraud upon anybody, because it was a transfer of all the personalty. It is manifest that the 200 DIRECTORS. company was unable to go on with the business. Its insolvency was com- plete. Loaded as it was with mortgages and other debts, having pledged as collateral what it had to pledge, having nothing left but tools, iron ore, and coal upon the bank, parting with all the personalty was not breaking up the business. That had been broken up before. It was not a diversion of the property from the legitimate objects of the corporation. The only thing then remaining for the company to do was to pay its debts, so far as it had any means of payment. Its obligation was to apply to that end all its personal property. And what it had was of such a kind that it could not be sold well, either in parcels, or to any other persons than those who had a right to make use of it in the furnaces or other works. To lessees of the iron works it was of more value than to any other persons. And I cannot avoid the conviction that a swift sale of the entirety was necessary to save it from sacrifice under executions. My observation has taught me that for the property of such a kind it is always difficult to find a pur- chaser. It cannot often be done, unless the purchaser can have the right ,to make use of it at works on the bank of which it lies. To such a pur- chaser a sale of the whole would be comparatively of more value than the sale of a part. And if parting with all the personalty was a necessity, nay, if it was a duty, to enable its application to debts, what difference can it make that it was sold as one lot, instead of being sold in ten, if an adequate price was obtained? Beyond doubt the directors might lawfully have sold all the tools and coal to ten different persons by the different contracts, taken the notes of the different purchasers, and used them in settlement of the debts of the company, or in relief of the company's sure- ties. No stockholder would have had a right to complain, in view pf its utter inability to prosecute the business for which the corporation was formed. I acknowledge the general rule that directors of a company have no right to do an act which is foreign to the purposes of its creation. They cannot break up its business unnecessarily. But I cannot overlook the situation of the Montour Iron Company when this sale and lease were made. It was not then foreign to the purpose of its creation, or to its duty, to use ail its personal property in discharge of its liabilities. It was a necessity. "I come, then, to consider the facts that the purchasers were the same persons as those who as directors sold, and as stockholders authorized the sale. It is often said, and truly, that the same persons cannot be both buyers and sellers in one transaction. They were not strictly in this. All the purchasers were not directors who made the sale. But I make no ac- count of that. Still why may not directors of a corporation sell to them- selves? Each director has an interest distinct and antagonistic to his in- terest as a mere man. There is identity of person but not of interest. There must be many things which directors can do for their individual benefit which are binding upon a corporation of which they are dii-ectors. If they have advanced money I cannot doubt they may pay themselves with corporate funds. If they have become liable as sureties for the cor- poration they may be provided for their indemnity. And though ordi- narily the law frowns upon contracts made bv them in their representa- DIRECTORS. 20I Suits Against Directors. 156. A stockholder may maintain a bill in equity against directors personally to compel them to account for losses oc- casioned by the fraudulent mismanagement of the affairs of the company, but the bill must be in a form to protect the interests of the corporation as trustee for all the stockholders and creditors.^® A creditor may also maintain a bill against the directors for the same purpose, but he must file his bill as well for himself, as all other creditors, who may join therein.^® tive character with themselves as private persons, such contracts are not necessarily void. They are carefully watched, and their fairness must be shown. But I repeat the question, why may not directors sefl to them- selves in any case? It is because of the danger that the interests of stock- holders may suffer, if such sales be permitted, for want of antagonism between the parties to the contract. But such sales are supported in equity where the fiduciary relation of the purchaser has ceased before the purchase, when the purchase was made with full consent of the stockhold- ers, or where stockholders have by their acquiescence debarred themselves from questioning the tran.saction. In the present case starting from the position that there was no actual or intended fraud (which I think must be assumed) I cannot overlook the fact that the sale to Chambers, Fuller, and Messrs. Grove, precisely as it was made, was authorized by the stock- holders at a meeting regularly called, of which I think there is evidence these complainants had notice. I cannot see why the action of the stock- holders' meeting is not binding upon all who then held stock, and who did not dissent. If the company assented to the sale and to its terms before it was made, upon what principle can it complain now? If the complainants must be held to have assented to what the stockholders" , meeting did (they having had an opportunity to dissent at the time, and not having dissented), how can they afterwards attack the sale, or claim that it did not pass to the purchasers an absolute right to the property? I can well understand why it may have been that no stockholder ob- jected. The plan of converting the personal propertyinto notes was ap- parently the best that could have been adopted, and it could not possibly harm any stockholders. They were beyond the reach of additional harm." ""Penn Bank v. Hopkins, in Pa, 328 (1885); Watts's Ap., 78 Pa. 370 (187s): Craig V. Gregg, 83 Pa. 19 (1876); Gravenstine's Ap., 49 Pa. 310 (1865); Bright V. McCullough, 1 Leg. Rec. 181; Cithers v. Clarke, 158 Pa. 616. "° Penn Bank v. Hopkins, in Pa. 328 (1885); Craig v. Gregg,-83 Pa. ig (1876); Davis V. Gemmell, 17 Atl. Rep. 266: "The remedy of the stockholders must be in a form to protect the interests of the corpora- tion as the trustee for all the stockholders and the creditors: Craig v. 202 DIRECTORS. A bill in equity filed by stockholders to compel the direct- ors and officers of a corporation to account for the funds of a corporation alleged to have been misapplied, the bill should be filed not for the complaining parties only, but also for all other stockholders who may choose to join them.^'^ In a case where individual stockholders had brought an action at law against the directors to recover for a loss alleged to have been caused by their mismanagement of the affairs of the company, the court said: "We are of opinion that the alleged injury to the plaintiffs, as individual stockholders in these cases, cannot be redressed by an action at law for negli- gence, against the directors of the bank. The remedy must be a form to protect the interests of the corporation as the trustee for all its stockholders and the creditors. Whether it should be by an action in the name of the corporation against the negligent directors or a bill in equity against both, it is not necessary to decide, as the case is now presented." ^* A fraud perpetrated against the corporation by the direct- ors may be redressed by an action in the name of the corpora- tion.29 Where directors act in excess of their authority, but with the intent to benefit the corporation, a shareholder who knows of their action must not only dissent from it within a reasonable time, but institute a suit to restrain the expendi- Gregg, 83 Pa 19. And by analogy I apprehend a bill would not lie by a single creditor, unless some special damage not common to other cred- itors was averred. The reason is that if each individual creditor could maintain his action the directors might be bankrupted and nothing left for the general creditors. The billa filed may be regarded as bills by and for the corporation: Chambers i'. Waterman, i Leg. Gaz. 60 (1870). The alleged acts of negligence complained of were a wrong and injury to the corporation by means of which the creditors have been injured, and sep- arate bills cannot be sustained on behalf of creditors any more than by the corporation directly:" Penn Bank v. Hopkins, iii Pa. 328 (1885). See Act of May 4, 1893. P. L. 29, as to jurisdiction of equity. '' Fletcher v. Titusville Gas & Water Co., 8 Phila. 559 (1871); Young v. Allegheny Oil Co., 10 Phila. 525 (187.5). " Craig V. Gregg, 83 Pa. 19 (1876). "" Simons i>. Vulcan Oil and Mining Co., 61 Pa. 202 (1869). DIRECTORS. 203 ture of the company's money by reason of the action of the directors. If he does not do so his assent will be presumed. It seems that in such a case six years would bar an action against the directors for the misuse of the corporate property. It is possible that under certain circumstances a much less time would be sufificient.*'* The liability of a director of a corporation for negligence is barred by lapse of time on the analogy of the statute of limitations.^^ Individual Liability in Cfertain Cases. 157. Where directors are made personally liable to cred- itors of the corporation because of their declaring an illegal dividend, the directors cannot be sued until there has been a failure to collect from the corporation by execution. In such a suit the corporation need not be made a party defendant.^^ Where a director of a company is individually liable for making a dividend which impairs the capital stock of the company, and a recovery is had against him, he is not entitled to subrogation as against the company. In an action against such a director, it is not necessary to join .the company as a defendant in the action.^* Under some of the early charters directors were made lia- ble for the debts of the company, if they did not publish an- '^ WaUs's Ap., 78 Pa. 370 (1875). " Spering v. Smith, 6 Phila. 524 (1868). In this case there was a lapse of nine years from the time that the fraud was committed and discovered. The Act of March 28. 1867; P. L. 48, provides as follows: "That it is hereby declared to be the true intent and meaning of the statutes of limi- tation, that no suit, at law or in equity, shall be brought or maintained against any stockholder or director in any corporation or association, to charge him with any claim for materials or moneys for which said cor- poration or association could be sued, or with any neglect of duty, as such stockholder or director, except within six years after the delivery of the ^ ranterials or merchandise or the lending to or deposit of money with said corporation or association, or the commission of such act of negligence by such stockholder or director." See Roberts v. Reed, 4 W. N. C. 417 (1877). ''Archer v. Rose, 3 Brewster, 264 (1869). " Hill V. Frazier, 22 Pa. 320 (18.53). 204 DIRECTORS. nual statements as required by the act of incorporation. Such provisions were enforced with considerable severity. In Cithers v. Clark, the charter of a corporation organized under a special act provided that if the directors failed to make an annual statement of the nature and character of the property of the association, or if they made a false statement, they should be liable for the debts of the corporation. The direct- ors made no statement for three years. They then published a statement, in lumping items only, on the face of which the company was solvent. As a matter of fact the company was insolvent at the time, and two days afterwards a receiver was appointed. In an action against the directors, defendants filed an afifidavit of defense in which they averred that they made the statement with ordinary care and prudence, and in the belief that the association was solvent. It was held that the affidavit was insufficient to prevent judgment, as the delay in making the statement and its defective character brought the directors within the personal liability clause of the stat- ute.3* Creditors of a corporation who without being stockholders are elected directors of the company to aid in the manage- ment of its business, are not liable for supplies furnished and used in the conduct of the corporation's business.*^ A person who has sold goods to a manufacturing corpora- tion to be resold by the corporation in a retail store which it conducts, cannot make the directors of the company person- ally liable for the value of the goods, on the ground that in voting to establish a store they violated the Act of April 29, 1874, P. L. 106, which forbids manufacturing corporations to sell commodities not manufactured by the corporation. Such ultra vires act upon the part of the directors does not render them liable either as individuals or as partners.*^ " Cithers v. Clark, 158 Pa. 616 (1893) ; see also Kurtz v. Wigton, 34 W. N. C. 219; Barber v. Pipe Co., 5 Pa. C. C. R. (1888) ; Hoopes v. Stid- ham, 13 W. N. C. 266 (1883). '^ Beeson v. Lang, 85 Pa. 197 (1877). " Smucker v. Duncan, 10 Pa. C. C. R. 430 (1891). DIRECTORS. 205 In an action to hold personally liable the defendants as the directors and officers of a chartered bank, it is incumbent on the plaintifif to prove the charter, where under the act of in- corporation letters-patent from the governor are necessary to create the bank a body corporate.*^ A bill in equity by creditors against directors of a corpora- tion to enforce a personal liability for debts incurred by them in excess of the amount of capital stock paid in is premature if filed before the complainants have complied with the pro- visions of Sections 41 and 42 of the Act of July 18, 1863, although the corporation was organized under the Act of 1874.38 Participation in Fraud. 158. If a director of a corporation has notice of a fraud perpetrated against the company by its officers before he be- came a director, and subsequently participates in the results of the fraud he is liable to the corporation for the losses caused the company by the fraud.*^ A director of a corporation which has been long insolvent, who has joined with the other directors in declaring a divi- dend, and has participated therein, cannot recover from the funds of the corporation in the hands of its assignee for the benefit of creditors, any part of a loan made by him to the company to pay a fraudulent dividend, until the stockholders are fully paid.*" If the directors of a corporation authorize an indebtedness in excess of the capital stock, they will not be entitled to the payment of their own debts against the company out of the assets of the corporation. The directors' debts, however, will be paid out of the assigned estate of the company where the auditor appointed to distribute the estate reports that he was "unable to state that the directors did, during their term " Gardner v. Post, 43 Pa. 19 (1862). "Wagner v. Corcoran, 2 Dist. Rep. 440 (1892). "Freeman v. Stine, 15 Phila. 37 (1881). " Kisterbock's Ap., 51 Pa. 483 (1866). 206 DIRECTORS. of office, contract a larger indebtedness than the amount of the capital stock of the company. The means for such an in- vestigation were not presented to him, nor was any evidence offered tending to show the same, other than the amount of the claims against the assigned estate, some of which were contingent and resulted from the failure of the company to carry on its operations." *^ Directors Cannot make Profit at the Expense of the Corpora- tion. 159. A director is a trustee for the entire body of stock- holders, and he is bound to manage all the business affairs of the company with a view to promote, not his own interests, but the common interests, and he cannot directly or indirectly derive any personal profit or advantage by reason of his posi- tion, distinct from the other stockholders. By assuming the office, he undertakes to give his best judgment in the interest of the corporation, in all matters in which he acts for it un- trammeled ' by any hostile interest in himself or others. All secret profits derived by him in any dealings in re- gard to the corporate enterprise must be accounted for to the corporation, even though the transaction in which they were made was of advantage to the corporation.*^ A director of a corporation who owns a charter of an un- organized corporation cannot sell it to' the corporation or- ganized under the charter and of which he is a director, and retain the purchase-money.** The directors of a corporation have no right to sell the stock of the company to themselves at a price less than its par value.** The directors of a corporation have no right to vote them- selves a commission of one-third of the stock of the com- pany for selling the other two-thirds, and if in pursuance of "Trevose Model Brick Mfg. Co.'s Assigned Est., 159 Pa. 496 (1894). " Bird Coal & Iron Co. v. Humes, 157 Pa. 278 (1893). " Freeman v. Stiile, 15 Phila. 37 (1881). " Freeman v. Stine, 15 Phila. 37 (1881). DIRECTORS. 207 such a vote a director receives stock he is liable to the com- pany for the value of the stock.*^ A director in a company which owned and leased mines, entered into a secret agreement with one of the company's lessees, by which he was to receive a portion of the royalty if he succeeded in having the lessee's rental reduced. In con- sequence of the director's interference, the rental was reduced. It was held that the director was bound to account to the company for the secret profits which he had made.** A director of a corporation cannot acquire title to the cor- porate property as again^ the corporation at a judicial sale. If a director without any actual fraud purchase the corporate property at a judicial sale, he is entitled to reimbursement from the company for what he has laid out in the acquisition and safe keeping of the property, and equity will not compel him to surrender the title or possession of the same, except upon condition that he be made whole.*'' A director of a corporation, who is himself a stockholder, cannot make a profit not common to all the stockholders. Thus a director cannot recover on a promissory note given by those interested in securing a sale to the company in order to induce him to withdraw his opposition to the sale.** Certain of the stockholders of an Ohio corporation formed a syndicate, known as the Pittsburgh Syndicate, for the pur- chase of the property of the company to be sold at public sale by authority of the directors. It appeared that the other stockholders had been asked to join the syndicate, but they were either unable or unwilling to do so. The evidence showed that the sale was fair and open, that it was largely ad- vertised, that special notice was sent to every stockholder, and that full opportunity was given to every one to bid. The court, in an opinion by Chief Justice Sharswood, held that " Freeman v. Stine, 15 Phila. 37 (1881). " Bird Coal & Iron Co. v. Humes, 157 Pa. 278 (1893). " Sabring v. Joanna Heights Assn., 2 Dist. Rep. 629 (1893) ; see also Atkinson's Ap., 11 Atl. Rep. 239. « Kauffman v. Keiper, 18 Pa. C. C. R. 181 (1896). 208 DIRECTORS. the syndicate was bound to account for profits realized from the portion of the assets of the corporation purchased by them, although the court said: "If there is any case in which such a sale can be upheld as against cestui que trust, it would seem to be this case." ** After a corporation has become insolvent, and made an as- signment for the benefit of its creditors, the powers and duties of the officers cease, and they may purchase outstand- ing claims against the corporation, if in so doing they act fairly, and with an honest intent.®** Directors Cannot Pay Themselves in Preference to Other Cor- porate Creditors. 1 60. The officers of an insolvent corporation to whom the company is indebted, have no right, as against other creditors, to execute the notes of the company in their own favor, and by means of a judgment by default on the notes, and execu- tion on the judgment, obtain a preference in the payment of their debts. The secretary and treasurer, the president, and one other person constituted the sole directors of an insolvent corpora- tion. The company was indebted to all three of the directors. Notes were signed and attested by the president, and the sec- retary and treasurer in their respective official capacity, and given to each of the three directors. Suits were begun on the notes, and judgments entered by default after which exe- cution was issued, and the company's property sold. It was held that the action of the directors was a fraud upon the other creditors.®^ It is not absolutely illegal for directors of a corporation who are creditors of the company, to pay themselves with corporate funds, but in any such transaction, the court will closely scrutinize the action of the directors, and its fairness must be shown.''^ " Aultman's Ap., 98 Pa. 505 (1881). " Craig's Ap., 92 Pa. 396 (1880). " Hopkins's and Johnson's Ap., 90 Pa. 69 (1879). " Ashhurst's Ap., 60 Pa. 290 (1869). DIRECTORS. ' 209 Where the directors and officers of a corporation convey and assign the corporate property in payment of debts due by the corporation to themselves, stockholders will not be per- mitted to attack the validity of the transaction after a lapse of seven years, and after the assignees of the property had in- vested additional capital in carrying on the business for them- selves, and had assumed large additional responsibilities, and had incurred all the hazards of a perilous business.®* If the directors of a corporation authorize an indebtedness in excess of the capital stock, they will not be entitled to the payment of their own dfebts against the company out of the assets of the corporation. The directors' debts, however, will be paid out of the assigned estate of the company, where the auditor appointed to distribute the estate reports that he was "unable to state that the directors did, during their term of office, contract a larger indebtedness than the amount of the capital stock of the company. The means for such an investigation were not presented to him, nor was any evi- dence offered tending to show the same, other than the amount of the claims against the assigned estate, some of which were contingent and resulted from the failure of the company to carry on its operations." ®* Discretionary Power of Directors as to Instituting Suits. 161. The mere refusal of the directors of a corporation, act- ing in good faith, to institute legal proceedings in its name to redress an alleged wrong against the company is not a suffi- cient ground for the interference of a court of equity at the instance of a stockholder. If the directors are the authors of the wrong, or their refusal to bring suit is in excess of their discretionary powers, such interference is justified. A stockholders' petition to have a sheriff's sale of the cor- porate franchises and property set aside, is insufficient if it fails to aver when the petitioner became a stockholder or how " Ashhurst's Ap., 60 Pa. 290 (1869). "Trevose Model Brick Mfg. Co.'s Assigned Est., 159 Pa. 496 (1894). 14 2IO DIRECTORS. many shares he owns, and also fails to charge collusion, mis- conduct, or inability to act on the part of the directors.^^ Directors Cannot Divest the Corporation of its Property so as to Stop Corporate Action. 162. The directors of a corporation have no right to sell or dispose of its property when this prevents the continu- ance of its business. Such a sale is void as against stock- holders who do not consent to it; but if the stockholders with knowledge of the sale make no objection they will be taken as assenting by their acquiescence.^® A lease which surrenders the control of all the company's property, divests the company of all its active functions, and practically winds up its existence, cannot be authorized by the directors, but only by the stockholders. "Such an act is not in the management of current afifairs of the company, but is extraordinary and practically final. It cannot be fairly re- garded as within the authority committed to the board of di- rectors, but rather as an accepted completion of its corporate purpose and a consequent surrender of its property, fran- chises, and rights which only the true owners themselves, the stockholders, were competent to make." ^'' Confession of Judgment. 163. A judgment confessed by a corporation for a valid debt will not be opened or stricken ofif because the judgment was not authorized by a board of directors duly elected by the stockholders, if it appears that all of the stockholders were di- rectors, and that vacancies in the board of directors had been filled as they occurred by the directors themselves.*^ A warrant to confess judgment signed by a director, treas- urer, and manager of a corporation, without any authority •"Southwest N. Gas Co. v. Fayette Fuel-Gas Co., 145 Pa. 13 (1892). ■" BalHet v. Brown, 103 Pa. 546 (1883). " Per Mitchell, J., in Mercantile Library Hall Co. v. Pittsburgh Li- brary Assn., 173 Pa. 30 (1896). " Hall V. West Chester Publishing Co., 180 Pa. 561 (1897). DIRECTORS. 211 from the board of directors is invalid, and a judgment entered under the warrant will be set aside.'" A corporation may confess judgment to a director as a security to protect him on his indorsements for the company, if the company is not insolvent at the time.*** Power to Make Assignments for Creditors. 164. An insolvent corporation may make an assignment for the benefit of its creditors unless restrained by its charter, and this power may be exercised by the directors without the au- thority or consent of the stockholders.®^ Miscellaneous Powers. 165. Trustees of an incorporated church may without ex- press authority incur liability to pay a debt for the reconstruc- tion of the church building. Such action is among their im- plied powers.®^ The directors of a bridge company in the exercise of a sound discretion may issue free passes.** Where the directors of a corporation have for several years permitted the officers of the company to deal with the com- pany's bank account as they saw fit, they cannot avoid the liability of the company on a note issued by the officers, by questioning the authority of the officers to issue the note.®* The powers conferred upon the board of managers of a corporation owning a theatre, were to manage the business and concerns of the company, to lease the theatre with the approval of a majority of the stockholders, to do and perform °° Jackson v. Cartwright Lumber Co., 2 Dist. Rep. 680 (1893). "Neal's Ap., 129 Pa. 64 (1889); Ashhurst's Ap., 60 Pa. 290 (1869); Gor- don V. Preston, i Watts, 385 (1833); Hopkins's Ap., 90 Pa. 69 (1879). " Lehigh Iron Co.'s Assigned Est, 12 Pa. C. C. R. 257 (1892); Ardesco Oil Co. V. North American Oil & Mining Co., 66 Pa. 375 (1870) ; Board- man V. Keystone Standard Watch Co., 8 Lane. 25; see Anderson v. Elton- head, 26 W. N. C. 95. " First Baptist Church of Erie v. Caughey, 85 Pa. 271 (1877). " Hasson v. Venango Bridge Co., 11 Pa. C. C. R. 383 (1892). " Mechanics' National Bank v. West Phila. Pass. Ry., 5 W. N. C. 290 (1878). 212 DIRECTORS. all things necessary for the same, and for the recovery of the rent which may become due, and which the interest of the stockholders and the purposes of the company might require. It was held that these powers were broad enough to include a remission of the rent, if the interest of the stockholders and the purposes of the association should require it. The court placed the decision upon the ground that the exercise of such a power might be necessary to prevent the abandonment of the theatre at an unfavorable season of the year, when it would be difficult or impossible to find a new lessee, and thereby incur great loss to the stockholders.®^ Where the directors of a corporation have power under a charter to execute deeds and leases, they have the implied power to execute a mortgage to secure a proper debt.®® Declarations. 1 66. The acts or declarations of a director of a corporation will not bind or in any manner afifect the company unless they are shown to be within the scope of his ordinary powers or of some special agency. A broker attempted to recover commissions for procuring a purchaser for the product of a plant of a corporation. He sought to establish his employment by declarations of one of the directors and of the superintendent of the company. He failed to show that any corporate action was had by the board by virtue of which he was employed, or by which the power to employ him was delegated to any member of the board or to the superintendent. The charter authorized the board to make contracts, and it did not appear that either by the char- ter or by-laws was any officer authorized to make contracts binding upon the corporation. It was held that the plaintiff was not entitled to recover. "Corporate rights are not to be frittered away by loose and unauthorized declarations made by persons who at the time had no authority to bind the cor- ' Fareira v. Riter, 15 Phila. 58 (1881). ' Watts's Ap., 78 Pa. 370 (187s). DIRECTORS. 213 poration, and this principle applies as well to individual di- rectors and employees of a corporation, as to strangers." ®'^ When Individual Director is Not Estopped by Action of Board. 167. A director of a corporation who voted against a re- construction plan recommended by the board of directors to the holder of the corporate securities is not estopped as an individual by the action of the board, although his opposi- tion to the action was not made known to the public. The court said: "The plaiutiff cannot be deprived of his rights by the action of a board of which he is a member, unless he concurs; it would be detrimental frequently to the success of a plan such as this, if not impracticable, that a dissenting member of the board should, in order to establish his individ- ual rights as a non-assenting holder, be expected to publish the fact of his dissent to the general public." ®® When Notice to a Director is Notice to the Company. 168. Notice to a director of a corporation is not notice to the corporation, unless the director has been constituted an organ of communication between the corporation and those who deal with it, and this is the case although the di- rector was present when the corporate act was done which is sought to be afifected by the notice.®® " Allegheny County Work-house v. Moore, 95 Pa. 408 (1880). "^ Phila. & Reading R. R. Co. v. Love, 125 Pa. 488 (1889). ** Custer V. Tompkins County B.ank, 9 Pa. 27 (1848). CHAPTER XIX. SECRETARY AND TREASURER. 169. Secretary. 170. Treasurer. Secretary. 169. The secretary or clerk shall be sworn and shall record all the votes of the corporation, and the minutes of its trans- actions, in a book to be kept for that purpose.^ The secretary of a corporation has no authority to confess a judgment against the corporation.^ The secretary of a corporation who has authority to re- new notes has no right to release the maker of a note and no such power is given him by the charter or by-laws, and no e^tpress authority is conferred upon him by the corporation.* In an action by a corporation on a mortgage, declarations of the secretary of the company as to the amount due upon the mortgage are inadmissible, unless it is shown that the secretary had authority to bind the corporation by such dec- larations.* A secretary of a corporation who is also a stockholder and having by his official position full knowledge of the afifairs of the company, cannot, after the delay of a year and one-half, and after the company has become insolvent, claim in a ' Act of April 29, 1874, Sec. s, P. L. ^^\ as amended by the Act of May 14, 1891, Sec. I, P. L. 61. Special duties may be imposed upon the secre- tary by the by-laws. " Hardiman v. Phila. Co-operative Shoe Mfg. Assn., 2 W. N. C. 440 (1876). 'Moshannon Land & Lumber Co. v. Sloan, 109 Pa. 532 (1885). * Johnston v. Elizabeth B. & L. Assn., 104 Pa. 394 (1883). 214 SECRETARY AND TREASURER. 215 suit against the officers of the company who sold him the stock that he was induced to buy it by false misrepresen- tations upon their part, and that by reason of the failure to pay in the ten per cent, in cash the company had been fraud- ulently organized.' Treasurer. 170. The treasurer shall give bond in such sum and with such sureties as shall be required by the by-laws, for the faith- ful discharge of his duties, and he shall keep the moneys of the corporation in a separate book account, to his credit as treasurer, and if he shall neglect or refuse so to do, he shall be liable to a penalty of $50 for every day he shall fail to do so, to be recovered at the suit of any informer in an action of debt.* Under the Act of 1874 the treasurer of a corporation could not be a director, but this was changed by the Act of May 20, 1891, P. L. loi.'^ The treasurer may make a valid call for stock subscriptions under general authority from the board of directors.* If the by-laws of a corporation provide that promissory notes must be signed by the treasurer, and countersigned by the president, a note not countersigned by the president is not binding upon the company, if the company has received no benefit from it.® In the absence of an authority in the by-laws, or of a power expressly granted by the directors or stockholders, the treas- urer of a corporation cannot legally sign or indorse a prom- issory note in the name of the corporation.^" " Hilliard v. Allegheny Geometrical Wood Carving Co., 173 Pa. i (1896). ° Act of April 29, 1874, Sec. S, P. L. ^^. A treasurer is not personally liable to a third party for money which he has received as treasurer and paid out in accordance with the rules of his corporation: Pennsylvania State Agricultural Society v. Jermyn, 167 Pa. 159 (1895). ' Corporation Officers, 3 Pa. C. C. R. 188 (1887). ° Hays V. Pittsburgh & Steubenville R. R., 38 Pa. 81 (i860). ° Millward-Cliff Cracker Co.'s Assigned Est., 161 Pa. 157 (1894). " Millward-Cliff Cracker Co.'s Assigned Est., 161 Pa. 157 (1894) ; Jack- son V. Cartwright Lumber Co., 2 Dist. Rep. 680. 2l6 SECRETARY AND TREASURER. The charter of a corporation gave authority to borrow money on bond and mortgage, but gave no express authority to accept bills. It was held that the company was liable on a bill of exchange accepted by the treasurer of the corpora- tion." The treasurer of a corporation has no power to give indefi- nite extension of credit to a subscriber to the stock of the corporation.^^ The treasurer of a corporation cannot buy up claims against the company. As the treasurer is the confidential agent and trustee of the stockholders, he cannot create relations which will put him in an attitude of hostility to his principals.^* The treasurer of a corporation has no right to set-ofif a debt or independent claim when sued by the company for money of the company in his hands. He receives the com- pany's funds to hold as the ofiticer of the corporation, and he cannot pay or appropriate them either to himself or others without authority from the corporation. "There is fairly to be implied from the relation he sustains, an undertaking not to plead a set-olT, but to account and pay over whatever money came to his hands in that character." ^* "Hanson v. R. R. Co., i W. N. C. 7 (1874); Graham v. R. R. Co., I W. N. C. 40 (1874). '^McComb V. Credit Mobilier, 5 W. N. C. 80 (1878). A treasurer's act in excess of his authority may be ratified by the corporation: Build- ing Assn. V. Goldbeck, 13 W. N. C. 24 (1883). " Hill V. Frazier, 22 Pa. 320 (1853). "Russell V. Church, 65 Pa. 9 (1870). CHAPTER XX. DE FACTO OFFICERS. 171. Who are De Facto Officers. 173. Control Over Corporate Elec- 172. When Acts of De Facto Offi- tions. cers Bind Corporation. Who are De Facto Oflcers. 171. De facto officers of a corporation are persons actually occupying the positions claimed by them and exercising the powers incident to such position but whose titles to the offices are defective. Thus a person who is elected an officer of a corporation by the body in whom the power of election is vested, but by a less number of the body than the charter authorizes is an officer de facto} When Acts of De Facto Of9.cers Bind Corporation. 172. A corporation may act by means of an officer de facto as fully and effectually as regards the public and third persons as by an officer de jure in all matters within the scope of the corporation's ordinary business. In this respect there is no distinction between de facto officers of public corporations and de facto officers of private corporations. The directors of a Farmers' and Mechanics' Institute, a cor- poration, were ousted from office on account of the illegality of their election. During the time they acted as directors they had control of the books and property of the company, and made contracts for the erection of a building for a fair held under the auspices of the company, and in the name of the company ofifered premiums to exhibitors. It was held "Bear v. Bank of Washington, 11 Serg. & Rawle, 411 (1824). 217 2l8 • DE FACTO OFFICERS. that the corporation was liable on the building contracts and for the premiums.^ The majority of the de facto directors of a corporation may sell or lease the property of the company, if the company is authorized by its charter to sell or lease its property.^ Stock issued by a de facto board of directors, and subse- quently sold to an innocent purchaser for value without knowledge of its invalidity is good, if it appears that the money paid for the stock was used for the benefit of the cor- poration.* Promissory notes signed by de facto officers of a corpora- tion are binding upon the company. If it appears that the money for which the notes were given was lent to the corpo- ration, and that the persons who signed the notes were au- thorized to do so, suit may be maintained against the com- pany.^ The de facto officers of a corporation are entitled to repre- sent it in judicial proceedings.® Acts of officers de facto are not valid when such acts are for their own benefit, because they cannot take advantage of their own want of title which they must be cognizant of. It is only where it is for the benefit of strangers, or the public, who are presumed to be ignorant of such defects of title, that their acts are good. Thus the wrongful allotment of stock by the de facto officers of a corporation to themselves, is invalid.'' Control Over Corporate Elections. 173. Where de facto officers of a corporation are permitted to act throughout their term, and the charter of the company " Zearfoss v. Farmers' & Mechanics' Institute of Northampton Co., 154 Pa. 449 (1893); Bear v. Bank of Washington, 11 Serg. & Rawle, 4" (1824). ' Kersey Oil Co. v. Oil Creek & Alleghany River R. R., 5 W. N. C. 144 (1877). 'Morris v. Stevens, 178 Pa. 563 (1897). "Wanner v. Emanuels Church, 174 Pa. 466 (1896); McGargell v. Hazle- ton Coal Co., 4 Watts & Serg. 424 (1842). "Woodward v. Church, 14 W. N. C. 240 (1884). ' Shellenberger v. Patterson, 168 Pa. 30 (1895). DE FACTO OFFICERS. 219 does not fix the place at which the annual election shall be held, the de facto officers have the right to fix it. Two sets of managers for "The Olive Cemetery Company"' were elected on the first Monday of September, 1857, the day fixed in the charter for annual elections. On the 21st of that month a quo zvarranto was sued out by Isaac Jackson, and the others of his set, as relators, against Stephen Smith and the others of his set, who were in possession of the books and properties of the company. The defendants were the acting board of the previous years, had appointed the election of 1857, and were duly elected at the time and place appointed. The relators were elected on the same day, but at another place, and they claimed that the election of the respondents was irregular, because they had not been legally elected in 1856, and therefore had no right to appoint the election for 1857. Neither the charter nor by-laws fixed the place at which the annual election should be held. It was held that the managers for the time being had a right to fix the place for the annual meeting.® ' Commonwealth v. Smith, 45 Pa. 59 (1863). Woodward, J., said: "But, say the relators, the acting managers for 1856 were intruders, and not entitled to the offices they exercised. The answer is, they were offi- cers de facto, and if you meant to show that they not officers de jure you should have brought quo zvarranto in the lifetime of their office. The office was an annual office. How is a title to the office in 1856 to be tried on pleadings that relate entirely to the office of 1857? I have no doubt that quo warranto, brought within the term of an office, may be well tried after the term has expired, but it is difficult to see how title to a past and defunct office can be tried in a proceeding instituted, not against any incumbent of that office during its lifetime, but against the incumbent who succeeds for the next year. It is true, that in general the persons elected must take upon themselves to support the qualifications of the electors and the regularity of the proceedings, and I think the re- spondents do this when they show themselves elected by lot-owners at an election appointed and held by a board of de facto managers. To im- peach the title of the respondents we will not go back, in the present suit, to impeach the title of their predecessors. As the relators did not think proper to call the title of these predecessors into judicial question during the year of its vitality, we will for the present presume it un- questionable. Of course it follows that the election they appointed for 1857 was the regular election, and that the respondents were duly elected." CHAPTER XXI. COMPENSATION OF OFFICERS. 174. Compensation Must be Based 176. Assignment does not Stop on Express Contract. Running of Salary. 175. Directors Not Entitled to 177. Compensation of Trustees. Compensation. Compensation Must be Based on Express Contract. 174. The officers of a corporation are not entitled to re- ceive compensation for their services in the absence of an express contract for compensation. "The salary or compen- sation of corporate officers is usually fixed by a by-law or by a resolution either of the directors or stockholders, but where no salary has been fixed none can be recovered. Corporate offices are usually filled by the chief promoters of the cor- poration, whose interest in the stock or in other incidental ad- vantages is supposed to be a motive for executing the duties of the office without compensation, and this presumption pre- vails until overcome by an express prearrangement of sal- ary." 1 No Tnatter how valuable the services may be, unless ren- dered on the foot of an express conti'act there can be no re- ^ Kilpatrick v. Penrose Ferry Bridge Company, 49 Pa. 118 (1865). In this case the court held that the president and treasurer of a corpora- tion were not entitled to receive compensation for their services, it ap- pearing that there was no express contract with the company for com- pensation. See also Loan Association v. Stonemetz, 29 Pa. S34 (i8S7). where it was held that a director of a corporation elected to serve with- out compensation could not recover against the company for services rendered as director, though a subsequent resolution of the board agree- ing to pay him for past services was shown. 220 COMPENSATION OF OFFICERS. 221 covery. Such contract must precede the rendering of the services, for a resolution of directors to pay for services of an officer will not help the claimant if the services were rendered before the resolution was passed.^ A person was elected secretary of a corporation and sub- sequently the board of directors passed the" following resolu- tion: "On motion it was agreed by the directors that the salary of the secretary be fixed at $30 for ten months until the first Monday of November next." After the expiration of ten months the person elected continued to act as secretary, but there was no resolution as to his salary. It was held that he was not entitled to recover any salary for services rendered after the expiration of the ten months.^ The secretary of a private corporation employed at a fixed rate of compensation, cannot demand extra pay for services in that capacity, which were not anticipated at the time of his appointment, or which- were not enumerated in the charter or by-laws. The fair construction of his contract is, that he will do whatever his employers may have occasion to employ a secretary about.* Where the board of directors of a corporation vote a cer- tain salary to the president to date from a day about two years prior to the resolution, and the company thereafter constantly recognizes its liability, and it appears that the salary which had accrued prior to the date of the resolution had been ap- plied by an arrangement between the president and the di- rectors to the company's uses, the president will be entitled to recover the salary which accrues subsequent to the date of the resolution." 'Place V. Lansdale & Gwynedd Square Turnpike Road Co., 8 Mont. Co. Law Rep. 63 (1892). See Chapin v. Cambria Iron Co., 145 Pa., 478 (1892), as to a controversy between a corporation and its superintendent as to salary. ' Place V. Lansdale & Gwynedd Square Turnpike Road Co., 8 Mont. Co. Law Rep. 63 (1892). * Carr v. Chartiers Coal Co., 25 Pa. 337 (1855). ' McGowan v. Lincoln Park & Steamboat Consolidated Co., 181 Pa. 55 (1897). 222 COMPENSATION OF OFFICERS. An officer of a corporation who is also a stockholder is not entitled to recover compensation for services if he has no con- tract with the company for wages or salary. In an action by a superintendent against a corporation to recover compensation for services, the plaintiff testified that he was a director and secretary of the company, and after a charter was procured he became superintendent, and performed various services, but without any contract at first as to compensation. After a time a resolution was passed by the board of directors fixing a salary for the superintend- ent from that date, which was paid. The present action wa3 for the pi?or services,4 Plaintiff also proved by the minutes of the board,! that a resolution had been offered to pay him for these services, and had been postponed from time to time, and no final action appeared to have been taken on it. The court entej'i^d a non-suit.® . Where'tfte by-laws ofa corporation provide that the busi- ness of the company may be delegated to an agent, the di- rectors may authorize the president and a stockholder to de- termine the amount of the president's salary, and if the salary is fixed in this way, and is subsequently ratified by the di- rectors, the company is liable for the amount of it. In such a case the adoption and ratification by the directors may be inferred from acts done or permitted, and need not be proved by a resolution recorded on the minutes.'' Directors Not Entitled to Compensation. 175. Directors are not entitled to compensation for serv- ices as directors, unless compensation is provided for by the charter or the by-laws of-the company. Plaintiff, a director of a company claimed that in considera- tion that he had rendered services for the defendant company in and about its business, at its special instance and request, ' Field V. Union Box, Co., 2 W. N. C. 426 (1876) ; Loan Assn. v. Stone- metz, 29 Pa. 534 (i8s7); Kilpatrick v. Penrose Bridge Co., 49 Pa. 118 (1865). See Chapei) ». Cambria Iron Co., 145 Pa. 478 (1892). _^'Bagaley v. Pittsburgh & Lake Superior Iron Co., 146 Pa. 478 (1891). COMPENSATION OF OFFICERS. 223 it agreed to pay him $1,000 on demand. The defendant cor- poration filed an affidavit of defense, in which it was alleged that the plaintiff was duly elected president of the defendant corporation on April 21, 1888, and that his salary was then fixed at $1,800 per annum; that on the 14th of May following he resigned the office of the president, and that during the incumbency of it he attended but three meetings of the com- pany; that the only services rendei'ed by him to the company for which any compensation was agreed at any time to be paid were as president during the twenty-four days he held the office. The court held that the affidavit was sufficient to prevent judgment, saying: "The official services of a di- rector or president of a private corporation are rendered in and about its business and at its request, but he cannot re- cover pay for such services unless an agreement for compen- sation preceded them. No presumption of such agreement arises from the services; it must be proven. The plaintiff's statement in this case fails to inform us what the services were for which he claims pay, or to allege that they were ren- dered on a promise of the corporation to pay for them. He relies on an agreement made after the services were per- formed, and this alone will not support the action, if the serv- ices for which he sues were rendered in his capacity as director or president. It may be that for services, as president, he can recover on the basis of the salary attached to that office, but a salary of $1,800 per annum would not yield $1,000 for twenty-four days of service." ® Assignment Boes Not Stop Running of Salary. 176. Where a corporation makes an assignment for the benefit of creditors, an officer of the corporation who has per- formed, or has been ready to perform duties of his office is entitled to compensation for the unexpired portion of his term 'Martindale v. Wilson, Cass Co., 134 Pa. 348 (1890); Kilpatrick v. Penrose Ferry Bridge Co., 49 Pa. 118 (1865); Loan Assn. v. Stonemetz, 29 Pa. 534 (1858); Carr v. Chartiers Coal Co., 25 Pa. 237 (1855)- 224 COMPENSATION OF OFFICERS. during which the company's property is in the hands of the assignee. If the officer after the assignment and after the expiration of his term without a re-election holds over, the presumption is against his right to recover compensation; but if, in fact, services pertaining to his office are rendered by him while so holding over, such services are evidence of his continuance in office, and of his right to compensation on account of salary.* Compensation of Trustees. 177. Trustees who carry on the business of a corporation by perrhission of the company's creditors, and under an agree- ment with the corporation, are entitled to compensation for their services. A corporation being unable to continue its business entered into an agreement with its creditors, which contained the fol- lowing clause: "That the corporation be, during the said period of five years, operated under the direction and man- agement of a committee of three practical iron and steel men, to be selected by the creditors, whose duty it shall be to see that the plant is run in a proper manner, and that the ma- chinery and trade thereof shall be kept up in good, healthy condition, to steadily make money." The agreement was signed by the name of the corporation. It was held that the three members of the committee of superintendence had a right to recover from the corporation in a joint action com- pensation for their services.^" ° Potts V. Rose Valley Mills, 167 Pa. 310 (1895). '° Dallas et al. v. Columbia Iron & Steel Co., 158 Pa. 444 (1893). CHAPTER XXII. CAPITAL STOCK. 178. Statutory Limitation as to 186. Fraudulent Issue of Stock. Amount. 187. Capital Stock a Trust Fund for 179. Corporations not for Profit Creditors. may Issue Stock. 188. A Corporation may Purchase 180. Stock Certificates. Its Own Stock. 181. Payment for Stock by Note 189. Stock of Other Corporations Prohibited. Not to be Bought. 182. Definition of Capital Stock. 190. Conversion of Bonds into 183. Stock is Personal Property. Stock. 184. Nature of the Property in 191. Agreement not to Sell Stock Stock. Invalid. c8s. What is Meant by Par Value 192. Right of Stockholder to Pur- of Stock. chase Treasury Stock. Statutory Limitation as to Amount. 178. The capital stock of every such corporation that has or requires a capital stock shall consist of not more than $1,000,000, except companies incorporated for the purpose of supplying the public with water, whose capital stock shall not exceed $2,000,000 and shall be divided into shares of not more than $100 each.^ Corporations not for Profit may Issue Stock. 179. That all corporations organized not for profit, under the provisions of "An Act to provide for the incorporation and regulation of certain corporations," approved April 29, 1874, and the several supplements thereto, shall have author- ity, if a majority of its members shall so ordain, to issue capi- tal stock to an amount not exceeding $250,000, in shares of the par value of $50. Said power to rest upon the recording ' Act of May 9, 1889, P. L. 180, amending the Act of April 29, 1874, Sec. II. 15 22s 226 CAPITAL STOCK. of the minute authorizing said issue in the county in which the corporation was. erected, and filing an exemplification thereof with the secretary of the Commonwealth. Thereafter such corporations shall be subject to the same taxation as cor- porations for profit.^ Stock Certificates. 1 80. Any stockholder of any company incorporated under the laws of this Commonwealth shall be entitled to receive a certificate of the number of shares standing to his, her, or their credit on the books of the corporation, which certifi- cate shall be signed by the president or vice-president or other officer designated by the board of directors, counter- signed by the treasurer, and sealed with the common seal of the corporation, which certificate or evidence of stock owner- ship shall be transferable on such books at the pleasure of the holder in person or by attorney, duly authorized as the by-laws may prescribe, subject, however, to all payments due or to become due thereon and the assignee or party to whom the same shall have been so transferred shall be a member of said corporation and have and enjoy all the immunities, priv- ileges, and franchises and be subject to all the liabilities, con- ditions, and penalties incident thereto, in the same manner as the original subscriber or holder would have been. And upon a sale of such stock in satisfaction of any debt for which it is pledged the purchaser shall have the right to compel a transfer of such stock upon the corporation books and de- livery of a proper certificate therefor.^ All laws or parts of laws inconsistent herewith be and the same are hereby repealed.* ° Act of June 25, 1895, Sec. i, P. L. 310. ' Act of June 24, 1895, Sec. I, P. L. 258. ' Act of June 24, 1895, Sec. 2, P. L. 258. The Act of 189s does not purport either in its title or elsewhere to amend the Act of April 29, 1874, Sec. 7, P. L. 78, which reads as follows: "The directors of such corporation shall procure certificates or evi- dences of stock, and shall deliver them signed by the president, counter- signed by the treasurer, and sealed with the common seal of the cor- poration, to each person or party entitled to receive the same, according to the number of shares by him, her, or them respectively held, which certificates or evidences of stock shall be transferable at the pleasure of the holder, in person or by attorney duly authorized, as the by-laws CAPITAL STOCK. 22/ Payment for Stock by Note Prohibited. i8i. No note or obligation given by a stockholder, whether secured by pledge or otherwise, shall be considered as payment of any part of the capital stock.° Definition of Capital Stock. 182. The words stock and capital stock may be defined as meaning the fund or property belonging to a firm or corpora- tion, and used to carry on its business. The charter of the corporation fixes the maximum amount of stock that may be issued, and this may properly be spoken of as the proposed or authorized capital of the company. When the organization is completed, subscriptions are made to the stock by which the subscribers agree to take and pay for certain sums or shares each. The total amount of stock thus taken consti- tutes the subscribed capital of the company. When the amount subscribed, or called for upon subscription has been collected, so far as collection is practicable, the amount so gathered into the treasury constitutes the actual amount of the capital on which the business is undertaken.* Stock is Personal Property. 183. Stock is personal property, and accompanies the per- son of the owner.'' may prescribe, subject, however, to all payments due, or to become due thereon; and the assignee or party to whom the same shall have been so transferred, shall be a member of said corporation, and have and en- joy all the immunities, privileges, and franchises, and be subject to all the liabilities, conditions, and penalties incident thereto, in the same manner as the original subscriber or holder would have been, but no certificate shall be transferred so long as the holder thereof is indebted to said company, unless the board of directors shall consent thereto." ° Act of May 25, 1887, P. L. 273, amending the Act of April 29, 1874, Sec. 12, P. L. 79. ' Commonwealth v. Lehigh Ave. Ry. Co., 129 Pa. 405 (1889). ' Huntsinger z/. Phila. Coal Co., 11 Phila. 609 (1876); Commonwealth v. Detwiller, 131 Pa. 614 (i8go). The Act of May 25, 1887, P. L. 273, amend- ing the Act of April 29, 1874, Sec. 12, P. L. 79, provides as follows: "The stock of every corporation created under the provisions of this statute shall be deemed personal property." 225 CAPITAL STOCK. Nature of the Property in Stock. 184. The shares in a corporation constitute a species of propeity entirely distinct from the corporate property; a shareholder has no distinct and individual title to the moneys or property of the corporation, nor any actual control over it, the shares represent a right to participate in profits only.* What is Meant by Par Value of Stock. 185. The nominal value and par value of stock are synon}'- mous terms when the shares have been fully paid up. If the shares have not been paid up, the par value is the amount actually paid upon each share. In Commonwealth v. Lehigh Avenue Ry. Co., 129 Pa. 405 (1889), Mr. Justice Williams said: "It is argued that nominal value and par value are syn- onymous terms in the commercial vocabulary, and that the par value of the stock of this company is $1,000,000, because that is the amount of its nominal or authorized capital. If this is so, the par value has not been afifected by the payment of calls upon the subscriptions heretofore, and will not be hereafter, though the entire amount subscribed be actually paid to the treasurer. Whether the amount paid in is ten per cent, or fifty, or one hundred per cent, of the authorized cap- ital, the par value must, according to this doctrine, remain the same. This overlooks the meaning of the word value, and the basis on which the idea of value rests. The par value of a treasury note or bank bill is the sum named on its face, because the holder can demand and is entitled to receive that sum for it from the government, or the bank by which it was issued. The same thing is true of notes, bonds, and negotia- ble instruments of all sorts. The maker cannot deny that he is indebted as he is represented in his note or b.ond, nor re- fuse to pay the exact sum he has promised to pay. In these cases the nominal and the par value are, prima facie, the same. The par value of a treasury note for $1 is $1, because that ' Bidwell V. Pittsburgh, Oakland & East Liberty Pass. Ry., 114 Pa. S3S (1886). CAPITAL STOCK. 229 sum in coin can be had for it. When it cannot be so ex- changed it is said to be below par, because it is not redeemed at a price which is the par, or equal, of the promise on its face. But a certificate of stock in a railroad company is not a negotiable instrument, in either a legal or commercial sense. It stands in the hands of the subscriber for so much and no more than the amount actually paid upon it. In the hands of his transferee it stands for no more, but is held under the express provisions of the general railroad law, subject to the balance due upon the subscription, and all liens, penalties, etc., to which it was subject in the hands of the subscriber. Neither the seller nor the buyer can secure any greater inter- est as a holder of the stock than the sum actually paid enti- tles him to. Future calls must be paid as they are demanded, and the possession of the certificates is no defense against them. How, then, is the equivalent, the par, in the value of the stock in the hands of the holder to be ascertained at any given time? Very clearly by the books of the company, which show for what value it stands, what value it represents at that time. If but $5 have been paid on a share, such share is sub- ject to be called on for the remaining $45, if, as in this case, the nominal value of the share is $50, and the par value of such share is a sum which is equal to, or the par of, the value it represents, the $5 actually paid into the treasury. It is clear that the certificate stands for no more than this to the holder, for he remains liable to be called on for the remaining $45. It stands for no more to the corporation, because it may compel payment of the sum standing due on the sub- scription, notwithstanding the certificate. When another call has been made and collected, the capital of the corporation will have been doubled. It willhave $2 to employ in its busi- ness where it now has $1, and the par value of each share will have advanced to $10, the exact equal or par of what the share represents. When the whole amount subscribed shall have been paid, the capital of the company will be $1,000,000. Its stock will represent its actual capital, and each share will have 230 CAPITAL STOCK. a par value equal to its nominal value. The authorized or nominal value of the stock .has remained the same from the beginning, viz., $1,000,000. The equivalent or par value of the stock have advanced as the calls have been paid, so as always to be the exact equivalent of the value received from the subscriptions made to it. The market value has risen or fallen according to the estimate placed by the commercial world on the value of the business in which the corporation is engaged, the ability of its management, and the prosperity of its affairs. . . . Suppose that a stockholder has paid $5 per share or shares with a nominal value of $100 each, and that for non-payment of the second call the directors proceed to forfeit and sell his shares. What now is the minimum price which the shares must bring? If the words par value are equivalent to face or nominal value, and the nominal value of the shares is $100, then it is clear that the directors must sell $5 worth of stock for $100, or not sell at all. But if the words par value are understood in their proper legal sense, then this provision merely forbids the sacrifice of the shares of the delinquent for less than their actual cash equivalent, which is the sum paid upon them as shown by the books of the corporation. It must be remembered that we are speak- ing of the par value of stock that is conceded to be unpaid. The shares that are bought and sold in large blocks in the stock markets are, we presume, paid-up shares. They cer- tainly should be. In that case nominal and par values are the same. It may fairly be presumed that they would not be listed or dealt in the market until they had been paid for in full, so that he who sold could confer an indefeasible title on the buyer." » The charter of a street railway company granted prior to 1874, provided that the company "shall have the power and authority to borrow money in any sum or sums not exceed- ing in amount one-half of the par value of the capital stock." The authorized capital of the company was $1,000,000. After ' Commonwealth v. Lehigh Ave. Ry. Co., 12& Pa. 405 (ig CAPITAL STOCK. 23 1 $100,000 of the capital was paid in the company resolved to issue its bonds for a loan of $250,000. There was nothing to show that the company did not intend to receive full value for the bonds, and it was accordingly held that no question was raised as to the applicability of the Act of May 7, 1887, P. L. 94, or of the provisions of Section 7, Article XVI, of the Constitution of 1874, providing that "no corporation shall issue stocks or bonds, except for money, labor done, or prop- erty actually received." It was also held that under the char- ter of the company bonds could not be issued to, an amount greater than $50,000, which was one-half of the capital act- ually paid in.^" Praudulent Issue of Stock. 186. The vendor of stock is not Hable to his vendee upon an implied warranty, where there has been a fraudulent over- issue of stock, evidenced by a certificate under the genuine seal of the corporation. The bona iide holder of such fraudu- lent certificate has a right of action against the corporation, and his measure of damages would be the market value of his stock at the time the transfer was demanded.^^ '° Commonwealth v. Lehigh Ave. Ry. Co., 129 Pa. 405 (1889). " People's Bank v. Kurtz, 99 Pa. 344 (1882). In this case Chief Jus- tice Shaeswood said: "The vendor of such a certificate has then a title which he can transfer, and a remedy against the corporation. Suppose the shares in the case before us had been transferred by an original sub- scriber, his vendee would have been in the same position as the assignee of shares subsequently issued in excess of the charter. He would have had a clear right to demand a transfer and new certificate. Such certifi- cate, however, would have been worth to him only the value of the stock in the market at the time. If his transfer had been refused, he would be entitled to the same remedy and the same measure of damages. The vendor of shares of stock certainly does not warrant the solvency of the corporation. Corporations are especially liable to be made insolvent by the embezzlement and fraud of their agents or officers. It matters not whfether the loss arises from robbery or embezzlement, or by the fraudu- lent issue of stock, the value of the stock is depreciated. It matters not whether such fraud or robbery was before or after the sale of the stock, the bona iide vendor cannot, under the rule in question, be held responsi- ble for the depreciation in value. . It is one of the risks which are as- sumed by all dealers in such securities. It is agreed in the case-stated. 232 CAPITAL STOCK. The president of a corporation induced a stockholder to deliver to him certificates of stock with executed power of at- torney in blank, upon the false representations that the stock was needed to aid the company. The corporation had no heed for the stock, and the president had no express authority to borrow it. The president gave his personal due bill to the owner, transferred the stock on the books of the company, and embezzled the proceeds. Subsequently the president in combination with other officers of the company effected a fraudulent over-issue of the stock, and issued to the stock- holder from whom he had borrowed certificates, a num- ber of shares of the over-issued stock equal to the number of shares received by him. It was held that the president was as much the agent of the stockholder as he was of the company in the above transaction; that the company was not liable to the stockholder for the loss occasioned by the acts of the president and that the over-issued shares in the hands of the stockholder were invalid and valueless. It was also held in this case that the fact that the company had con- tinued to pay dividends to the stockholders after the trans- fer by the president did not estop the company from deny- ing its liability to the stockholder.^^ That which a corporation is not authorized to do under any circumstances, or which is absolutely forbidden by its char- ter, is so entirely void that nothing short of an Act of Assem- bly can render it valid, but that which it may do for certain purposes and not for others, or on the happening of a par- ticular event, is not necessarily within this rule, and may take efifect although the prerequisites were not fulfilled. Thus where the president of a corporation has fraudulently issued false certificates of stock properly signed and sealed in excess that the certificates were in the usual form, and regular on their face, and were issued by the duly constituted officers of the company, and were sealed with the genuine seal of the corporation. We are of opinion that the implied warranty of title extended no further, and that there was no breach." "Wright's Ap., 99 Pa. 425 (1882). CAPITAL STOCK. 233 of the amount authorized by law, the company will be liable to innocent purchasers for value.^^ Stock in a railroad company issued at less than the par value is fraudulent, and a purchaser thereof is entitled to a rescission of his contract.^* Stock issued by a de facto board of directors and subse- quently sold to an innocent purchaser for value without knowledge of its invalidity, is good, if it appears that the money paid for the stock was used for the benefit of the cor- poration.^^ Capital Stock a Trust Fund for Creditors. 187. The capital stock of a corporation is a trust fund for the payment of its debts, and upon the insolvency of the in- corporation and the exhaustion of its assets its unpaid capi- tal stock may be appropriated for the benefit not of any one creditor, but of the whole body of creditors.^® ''Willis V. Phila. & Darby R. R., 6 W. N. C. 461 (1879). "Fosdick V. Sturges, 3 Phila. 312 (1858). " Morris v. Stevens, 178 Pa. 563 (1897). " Lane's Ap., 105 Pa. 49 (1884). Coit V. North Carolina Gold Amalgamating Co., 15 Phila. 496 (1882). In the latter case Judge Bradley said: "Prior to its insolvency a corpo- ration holds its property as any other person, not in trust, but absolutely in the exercise of direct dominion and supreme control. But when a corporation becomes insolvent, then, according to the holding of courts of equity, its property becomes a trust fund for the payment of creditors. This is true at all events in caseswhere the property has not been subjected to execution or disposed of byway of assignment or other appropriation to particular debts. But the principles upon which the trust is adminis- tered are not so simple as might at first be supposed. The trust embraces all the property of a corporation; embraces its real estate, and its choses in action; if debts are due to the corporation they are part of that fund, and may be collected by the proper representative of the corporation, whether a trustee appointed by a court of equity, an assignee in bank- ruptcy, or other agent for the parties interested. But it is only those claims or assets which a company has that belongs to the trust fund. Un- paid instalments on stock in the ordinary case are assets; they are claims which a company could enforce, and, therefore, they are claims which the creditors can compel the enforcement of through the instrumentality of a court of equity. "But there are cases in which arrangements have been made for the 234 CAPITAL STOCK. The capital of a corporation is a trust fund for creditors, but not for the creditors of creditors.^'' Portions of the capital stock which have been distributed or paid back to the stockholders, cannot be retained by them as against creditors. "So much of the capital as the stock- holders have paid in is administered by the corporation, and, if misapplied, or not rightly applied, the stockholders, unless willful participants in the wrong, are not responsible for it, or for any losses of creditors which it may cause. But even this immunity of the stockholders does not extend to the capital paid in which has afterwards been paid back to them. They can, as against creditors, retain only the accrued profits. payment of stock, which prechtde the company itself from enforcing any further payment thereon, and yet in which as to creditors who can fairly allege that they have relied, or whom the law presumes to have relied, upon the amount of capital stock of the company, the courts will impose a trust upon the subscription and set aside the arrangement made for its payment. "But that trust does not arise absolutely in every case where capital stock has been issued, and where it has been settled for by arrangement with the company. It is not as if the stockholders had given their prom- issory notes for the amount, those notes being in the treasury of the company, but there are often equities to which the stockholders are entitled, on which they are entitled to stand. "Now I suppose that in a case of stock dividend fairly made, in con- sideration of profits earned, and of accumulations of the property of the company, made simply to represent the property, and fairly represent- ing the same, dividends made of stock as full paid stock, without any dis- honest purpose, without any purpose to deceive or defraud anybody, I suppose that in a case of that kind a court of chancery would have no power to revive a claim against the stockholders, because they had not advanced actual cash for the shares. "There are considerations, therefore, affecting this question of liability for stock on which money has not been actually paid, which must be taken into consideration in order to do justice. It is not true that it is in the power of a creditor in every case, and in all cases, as a mere mat- ter of right, to institute an inquiry as to valuation of the amount of the consideration given for stock. If the stock has been fairly created and paid for, there is an end of trusts in favor of anybody. And this does not affect the general proposition that unpaid subscriptions of stock are a trust fund to be administered for the benefit of creditors after a corpo- ration becomes insolvent." "McNeal Pipe Co. v. Bullock, 174 Pa. 93 (1896). CAPITAL STOCK. 235 which, as contradistinguished from capital, have been actu- ally earned and fairly distributed before the insolvency. Cap- ital paid back may, in the case of corporate insolvency, be followed by the creditors in the hands''of the stockholders." ^^ A judgment creditor of a corporation may bring suit against those of the stockholders who had participated in a distribution of the capital of the company without joining all of the stockholders, and in such a suit the plaintiff is en- titled to a decree against the stockholders sued for the full amount of the shares respectively received by them. The reason for permitting such a recovery lies in the fact that the defendants in such a case are in possession of funds which have been impressed with a trust in favor of the creditors of the corporation.^" Where the corporate property is sold to some of the stock- holders partly for cash and partly for stock of the company in the honest expectation that the cash payments would be sufificient to pay all debts, creditors who are not paid have a right to demand that the stockholders who purchased the property and who were benefited by the transaction should pay for the whole of it in cash.^" The claims of the ordinary creditors of an insolvent cor- poration are not superior to the rights of a former stock- holder who by a decree made after the assignment of the com- pany, on proceedings instituted before the assignment, is awarded damages for his wrongful ouster from the com- pany.^^ " Glen Iron Works Case, 1.3 Phila. 479 (1878). "Stang's Ap., 10 W. N. C. 409 (1881). " Chambersburg Mfg. & Bldg. Assn.'s Ap., 2 Walker, 488 (1874). ^Reading Iron Works Assigned Est., 149 Pa. 182 (1892). In this case Mr. Justice Mitcheli. said: "It is true that the capital stock of a cor- poration is a trust fund for the security and payment of creditors and stockholders as such cannot withdraw and diminish any part of it. But it is liable for the obligations of the corporation, including those grow- ing out of its torts, and equally in this latter respect to stockholders as to others. The appellant had been practically ousted from its position as a stockholder long before the insolvency and the protracted liti- 236 CAPITAL STOCK. A Corporation May Purchase its Own Stock. 188. A corporation has the right to purchase its own stock where the transaction is not prohibited by statute, and is made in good faith. Where a corporation purchases its own stock out of earn ings, it may subsequently distribute such stock among the shareholders, if it appear that such distribution would not be injurious to the business of the company, and this may be done by resolution of the board of directors.^^ Stock of Other Corporations Hot to be Bought. 189. And it shall not be lawful for any such corporation to use any of its funds in the purchase of any stock in any other corporation, or to hold the same, except as collateral security for a prior indebtedness, except as provided in Section 37 of this act.^* gation had postponed its reinstatement until it would have been of no value. As already said, if the right to the stock had been abandoned, and damages claimed for the conversion, there covild have been no question of the appellants' position as creditors to set up the diminution of their dividend. That is a disadvantage to them that always happens when another creditor comes in to take part of a fund insufficient to pay those already claiming it. The case is no dififerent when a court of equity hav- ing the facts before it determines the status of an ousted stockholder to be that of a creditor, and grants relief in damages for an act antecedent to the insolvency, in the same manner that a court of law would have done if the suit had been for the tortious act in the first instance. When the assignment was made the wrongful act had been committed, and the relief to be given was under consideration by the court of equity, and the titsets passed to the assignee for the benefit of the creditors, subject to the complainant's claim and the relief the court might give it. When the court determined that such relief should be by compensation in damages it was doing equity by giving the only relief that would be substantial, and the other creditors had no ground of complaint that a claim as old and as meritorious as their own, had been put upon an equality with theirs, although it grew in the first instance out of a wrong done to the complain- ant as a stockholder." "^ Coleman v. Columbia Oil Co., 51 Pa. 74 (1865) ; Columbian Bank's Est., 147 Pa. 422 (1892); Dock v. Schlichter Jute Cordage Co., 167 Pa. 370 (1895). "^ Act of May 25, 1887, P. L. 273, amending the Act of April 29, 1874, Sec. 12, P. L. 79. The Act of February 17, 1871, Sec. I, P. L. 56, provides as follows: "It shall and may be lawful for private corporations, created by or CAPITAL STOCK. 237 Conversion of Bonds into Stock. 190. Where by the terms of a railroad bond the holder is given the option to convert it into the stock of the company at any time before a particular date after the expiration of the time, a mere extension of the time for the payment of the bond does not extend the right of converting it into stock.^* Agreement not to Sell Stock Invalid. 191. Any contract by v^rhich the owner of coroorate stock deprives himself of any of the important rights which accrue from such ownership, is void. Thus an agreement among stockholders, not to sell or transfer their stock without the unanimous consent of all the persons signing the agreement, is a restraint upon alienation, and void as against public pol- icy.^® Bight of Stockholder to Purchase Treasury Stock. 192. A stockholder who is entitled to subscribe for treasury stock cannot maintain an action against the corporation for refusing to permit him to subscribe for such stock, without declaring and proving that he demanded and ofifered to sub- scribe for the stock.^^ Where a corporation holds a portion of the authorized cap ■ ital stock, the right to issue such stock is a corporate fran- chise, held by the corporation in trust for the corporators, and the shareholders have a right to subscribe for such stock in proportion to their holdings. If the directors of the com- doing business in this Commonwealth, to subscribe for or to purchase the capital stock and bonds of the American Steamship Company of Phila- delphia." The holding or ownership by a railroad company of the stock of a min- ing company is not such an act as in itself constitutes the prosecuting or engaging in the mining industry within the meaning of Section S, Article XVII, of the Constitution: Hartwell v. Buffalo, Rochester & Pittsburgh R. R., 19 Pa. C. C. R. 231 (1897). "Muhlenberg v. Philadelphia & Reading R. R., 47 Pa. 16 (1864). " White V. Ryan, 15 Pa. C. C. R. 170 (1894). " Wilson V. Montgomery County Bank, 29 Pa. 537 (1857). See Sec. 267. 238 CAPITAL STOCK. pany dispose of the stock unequally among the shareholders, each shareholder injured may recover damages in assumpsit against the corporation. In such a case LowRiE, J., said: "Since the acts of incorporation do not declare how the un- taken stock shall be disposed of, it stood like all the other corporate franchises, and belonged to the coi'porators, and they had a right to all the profits that could be derived from it, the bank held the right in trust for its members. The di- rectors might order it to be sold, and then the profits would be shared' among the members at the next dividend, or they might allow each member to subscribe for his proportion of the new stock as nearly as it could be fixed in integral shares. This right is easily calculated, and it could not be given to one without being given to all, and to deprive the plaintifif of his share was a legal injury, a violation of his personal right, for which he is entitled to compensation." ^'^ The action of the directors of a corporation distributing treasury stock among all the stockholders who are not in arrear on the shares already taken by them, and excluding those who are, is an unlawful imposition of a penalty on those in arrear, and a violation of the equal rights of a corporator who is ready and oflfers to take his proportion of the new shares.*® " Reese v. Bank of Montgomery Co., 31 Pa. 78 (1855). See Sec. 267. '"Reese v. Bank of Montgomery Co., 31 Pa. 78 (1855). CHAPTER XXIII. STOCK SUBSCRIPTION. 193. Statutory Provisions. 194. Contract of Subscription may be by Parol. 195. Evidence of Subscription. ig6. Subscription Procured by Fraud. 197. Fraudulent Subscription. 198. Subscription Before Incorpo- ration. 199. Estoppel. 200. Ratification. 201. Revocation of Subscription. 202. Release of Subscription. 203. Substitution of Liability. 204. Bonus on Stock Subscrip- tion. 205. Municipal Subscription. 206. Conditional Subscription — General Principles. 207. Illegal Condition of Subscrip- tion. 208. Secret Conditions or Agree- ments. 209. Condition as to Payment in Land. 210. Conditions as to Payment in Labor and Material. 211. Conditions as to Amount. 212. Stipulations after Incorpora- tion as to Payment. 213. Waiver of Conditions. 214. Alteration of Charter. 215. Abandonment of Enterprise. 216. Notes. 217. Compromise. 218. Set-ofif. 219. Calls. 220. Interest on Call. 221. Interest on Instalments. 222. Payment of Interest on Stock. 223. Statute of Limitations. 224. Defenses. 225. Invalidity of Charter not a De- fense. 226. Remedy. 227. Insolvent Companies. Equity will not Enforce Allot- ment of Stock. Original Subscriber Cannot Relieve Himself from Lia- bility by Transfer. 230. Forfeiture of Stock. 231. Consolidated Companies. 228. 229. Statutory Provisions. 193. Subscriptions to the capital stock shall be paid in such instalments and at such times as the directors may re- quire, and if default be made in any payment the person or persons in default shall be liable to pay, in addition to the 239 240 STOCK SUBSCRIPTION. amount so called for and unpaid, at the rate of one-half of one per centum per month- for the delay of such payment, and the directors may cause suit to be brought for the recov- ery of the amount due, together with the penalty of one-half of one per centum per month, as aforesaid, or the directors may cause the stock to be sold in the manner provided in Clause 2 of Section 39 of this act.^ Contract of Subscription may be by Parol. 194. In the absence of a provision to the contrary either in the charter of a corporation or in the general law, a sub- scription for stock may be by parol, and this is especially the case where the parties by their subsequent acts treat the oral contract of subscription as subsisting and binding, or where the acts of the one party and the silence of the other with knowledge, make it inequitable to deny the oral contract.^ Evidence of Subscription. 195. The stock ledger of a corporation is proper evidence against members of a company who have acted as directors.* The subscription books are evidence against a corporator, present and assenting to the entries made in them.* A return of the subscriptions to the governor is evidence of a subscription by one of the commissioners.® A person who was a subscriber to the stock of a railroad ^Act of May 9, 1889, P. L. 180, amending the Act of April 29, 1874, Sec. II. See Section 902, infra. ' Perkiomen Brick Co. v. Dyer, 12 Mont. Co. Law Rep. 74 (1896). In Pittsburgh & Steubenville R. R. v. Gazzam, 32 Pa. 340 (1858), it was held that the contract of subscription to a railroad company must be in writing and must specify the name of the company wh6se shares are sub- scribed for. Thus a promise made by a person to no particular party to subscribe "for the purpose of connecting Pittsburgh by a railroad with the Steubenville & Indiana Railroad Company," cannot be appropriated, even under an Act of Assembly by a company incorporated to build a railroad down the Ohio river from Pittsburgh to Steubenville. = Hays !<. Pittsburgh & Steubenville R. R., 38 Pa. 8l (i860); see Phila- delphia & West Chester R. R. v. Hickman, 28 Pa. 318 (1857). * Bavington v. Pittsburgh & Steubenville R. R., 34 Pa. 3S8 (1859). ' Bavington v. Pittsburgh & Steubenville R. R., 34 Pa. 358 (1859). STOCK SUBSCRIPTION. 24I company, after having written his name in the subscription book took the book and solicited subscriptions from other persons. On account of some difference with the company's agent, he cut his name out of the book, and returned the book to the company. It was held that the subscriber had perfected a contract with the company, and was bound to the amount of the subscription.® In an action upon a contract of subscription to the stock of a corporation, the subscription paper showed the name of the defendant, the number of shares of stock subscribed, and their money value. The defendant filed an affidavit of de- fense, in which he admitted his signature, but denied that he filled out the number of shares. The court held that the affidavit was evasive, inasmuch as it did not deny that de- fendant wrote his name opposite the amount in, the money column, thus indicating the par value of the stock for which he subscribed.'' A subscriber may show that the agent of the company who procured his subscription agreed to hold it until he should ° Greer v. Chartiers Ry. Co., 96 Pa. 391 (1886). In this case Mr. Jus- tice Trunkey said: "The Chartiers Railway Company made a continuing offer which became an agreement with each acceptant for the number of shares for which he subscribed. At the time a person signed his name as a continuance of his act he might have erased it, as one who had written an acceptance of an offer by letter, before mailing the same might destroy it. But if the subscriber returned the book to the company's agent he could not afterwards withdraw his subscription, for he had completed the agreement. Greer was acting as agent in soliciting subscriptions, no mat- ter whether for pay or not and by procuring subscriptions under his own name he declared his acceptance and admitted his agreement for the stipulated number of shares. The book was not his; he had no right to its possession, but for a specific use. In that use he exhibited the evidence of his agreement with the company to every subsequent contracting party. Had the book been accidentally destroyed there was ample evidence of the contents of the written contract, upon which he could have held the company to performance; or, if it refused, to payment of damages. Clearly the company was bound to him the same as to any other sub- scriber, and so was he to the company. While he retained the book the written contract was in his hands; its validity did not depend on the con- duct of the depositary, and its unauthorized mutilation did not annul it." 'Columbus Land Co. v. McNally, 172 Pa. 158 (1895)- 16 242 STOCK SUBSCRIPTION. authorize its delivery to the company, and that a person not a director obtained the paper to look at, and without consent of the agent or defendant delivered it to the com- pany.^ In an action to recover a stock subscription to a brewing company, there was evidence which tended to show that the defendant subscribed for the stock himself, but signed his wife's name, as he was not certain whether as a wholesale liquor dealer he had the right to subscribe for stock in a brewing company. It was held that the question whether the subscription was defendant's or his wife's was for the jury.® A person agreed to take unallotted shares in a corpora- tion, and the treasurer, who was authorized to accept sub- scriptions, agreed to let him have them. No allotment was ever made, nor was the price nor any part of it paid. On a suit brought more than two years after this to compel the issue of shares, it was held that this constituted no contract, even assuming that the treasurer was authorized to give a reasonable credit for payment.^" In an action upon a stock subscription an afifidavit of de- fense is insufficient which merely avers "that it is not true that any contract for the sale of said stock to defendant, or for the purchase thereof by defendant, which is binding, valid, or of any force or efifect in law, was made as alleged by plain- tifif, or that any valid or legal issue of stock was made by plaintiff to defendant as alleged." Such an averment is a mere legal conclusion, and not an averment of facts, from which the court may draw a conclusion." Subscription Procured by Fraud. 196. A stock subscription made in consequence of a fraud- ulent prospectus is voidable only, and not void, and can only be avoided subject to the rights of creditors, where there is " Cass V. Pittsburgh, Virginia & Charleston Ry., 80 Pa. 31 (1876). ' Shields v. Casey, 155 Pa. 253 (1893). " McComb V. Credit Mobilier of America, 13 Phila. 468 (1878). " Sigua Iron Co. v. Vandervort, 164 Pa. 572 (1894). STOCK SUBSCRIPTION. 243 a winding up order, or voluntary winding up; and the inter- vening rights of creditors, and other stockholders call for prompt action on the part of a subscriber who seeks to avoid his liabiHty on the ground of fraud. A subscriber to the stock of a bank refused to pay his sub- scription on the ground that he had been induced to make it by a fraudulent prospectus. The undisputed evidence was that prior to the failure of the bank, and the institution of the suit to recover the subscription, the defendant took no steps to rescind or repudiate the contract of subscription or to surrender the certificate of stock which had been delivered to him, but on the contrary indicated his willingness to join with other stockholders in their efforts to reorganize the bank. It was held that he was liable for the amount of the note.^^ If a person has been induced to subscribe to the stock of a corporation by false and fraudulent statements made by the president and treasurer of the corporation, he may re- cover the moneys which he has paid on account of his sub- scription in an action of trespass for deceit against the com- pany and the two officers which made the misrepresenta- tions.^* Where representations made by an agent of the corpora- tion to obtain subscriptions are a part of a scheme of fraud participated in by the officer authorized to manage the com- pany's affairs, or where they are such as the agent may rea- sonably be presumed, by the subscriber, to have the authority of the corporation to make, the representations of the agent may be given in evidence to show the fraud by means of which the subscription was procured, but where the representa- tion of the agent is contrary to the interests and duty of the corporation, as that he would release, or had authority to re- lease the subscription he has taken, it is not a reasonable pre- sumption that he has such authority, and a subscriber on such " Howard v. Turner, 155 Pa. 349 (1893). " Lare v. Westmoreland Specialty Co., 155 Pa. 33 (1893). 244 STOCK SUBSCRIPTION. terms would be particeps criminis, and held to all the respon- sibilities of a bona Me subscriber.^* A false or fraudulent representation by an agent or com- missioner appointed to obtain subscription to the stock of a company will avoid the subscription, but an unperformed promise to procure stock for the subscriber in another com- pany, or mistaken estimate of the contemplated improvement, will not have that effect.^^ Where commissioners empowered to take subscriptions to stock of a proposed corporation enter into a secret agree- ment that a certain number of shares of fictitious stock shall be subscribed in order to enable them to obtain a charter, bona fide subscribers without notice of such subscription will be relieved from their subscriptions.^® In an action to recover a subscription to the stock of a gas and water company, the defendant offered to show by a pre- vious subscriber for six shares that he, the witness, was in- duced by the president of the company to change his sub- scription to twenty-six shares on receiving from the presi- dent a release in writing from the payment of twenty shares. The offer was made for the purpose of showing fraud by means of fictitious subscriptions. The court held that the release of the company was the kind of release meant by the offer, and that the defendant was entitled to show the fraud of the company. "A subscription to stock is a contract be- tween the subscriber and the company governed by the same rules of honesty and fairness in its enforcement that apply to ordinary contracts." ^'^ Fraudulent Subscription. 197. A subscriber cannot set up as a defense that his sub- scription was a feigned and fraudulent one.^® " Custar V. Titusville Gas & Water Co., 63 Pa. 381 (1869). '" Grossman v. Penrose Ferry Bridge Go., 26 Pa. 69 (1856). '° McGonahy v. Centre & Kishacoquillas Turnpike Co., I Penrose & Watts, 426 (1830) ; Centre & KishacoquiUas Turnpike Road v. McGonahy, 16 Serg. & Rawle, 140 (1827). " Custar V. Titusville Gas & Water Co., 63 Pa. 381 (1869). " Graff V. Pittsburgh & Steubenville R. R., 31 Pa. 489 (1858). STOCIC SUBSCRIPTION. 245 The subscribers to the stock of a corporation cannot defend on the ground that in subscribing for the stock they merely acted as agents of the corporation, which was to hold the stock and sell it as the needs of the company required. In such a case Thompson, J., said: "The defendants say they are not liable, because, in the original incorporation, they subscribed the stock mentioned in the certificate as agents of the corporation, and in the same capacity filed the certificate, and that the shares paid for all that the subscribers ever held of the stock, the surplus belonging to the company, to be sold at pleasure by it when in need of funds, or desirous of increasing its capital. But if I comprehend the ground of de- fense, it seems to me to be directly in conflict with the act, and in contradiction of the certificate. The act requires the stock to be subscribed for, and by, persons who are to become members of the company, and the certificate shows that all the original stock was subscribed by and for the de- fendants in this suit. Whatever might be the law between them and the corporation, as between them and the public the certificate is conclusive. I cannot agree, therefore, with the position that creditors have only the rights and equities of the corporation as against the stockholders. They have the rights which the statute gives; no more and no less. The certificate discloses the extent of the capital stock, and the statute renders all the subscribers to it liable for its pay- ment when creditors call. Were undisclosed arrangements permitted to defeat or control the efifect of the certificate, that safeguard would at once become a snare instead of a protection. If capital seeks for immunities, it must take them with such liabilities as are the terms upon which they are granted." ^® The officers and directors of an insurance corporation subscribed to the stock of the company, and gave their notes for half the par value of the stock. The purpose of this sub- scription was to enable the company to undergo an inspec- "Allibone v. Hager et al, 46 Pa. 48 (1863). 246 STOCK SUBSCRIPTION. tion by the insurance commissioner. The notes were, by the special order of the board of directors, handed to the presi- dent of the company, and by him deposited specially in a bank, where they remained for about three years, when in pursuance of a resolution of the board all of the notes were returned to the makers, and the stock retransferred to the company. On the other stock of the company one-half of the par value had been paid in cash. When the notes were returned to their makers, the company was insolvent. An official statement was pubhshed including these notes among the assets of the company, and a dividend was declared, in which the stock represented by the notes participated. It was held that although the transaction was intended for the benefit of the company "the note stockholders" were pri- marily liable for the debts of the company until they had paid an amount equal to that paid by the cash stockholders, and that afterwards both classes were liable pro rata?° Subscription Before Incorporation. 198. Subscribers to the stock of the corporation before it was incorporated may be sued for such subscriptions by the corporation.^^ Where money is subscribed to a proposed corporation, the corporation after organization is the proper party to bring suit to recover the subscriptions.^^ Where money is subscribed for an academy, and the only process of organization provided for was by a meeting of the associates held according to notice to be given, and at such meeting a majority of the subscribers adopted and as- sented to a corporate form of organization, the corporation -' Miller's Ap., i Pennypacker, 120 (1881). " Steamship Co. v. Murphy, 6 Phila. 224 (1867). In this case Judge Sharswood stated that the case of Strasburg R. R. Co. v. Echternacht, 21 Pa. 220 (1853), which seems to hold that such a subscription is not bind- ing, was a bill in equity, and that the decision was ultimately placed on the ground that the remedy at law if the contract was valid, was full, com- plete, and adequate. ■' Edinboro' Academy v. Robinson, 37 Pa. 210 (i860). STOCK SUBSCRIPTION. 247 subsequently organized had the right to demand and receive the sums subscribed.^^ Where in the subscription paper it appears that the sub- scribers contemplate the procurement of a charter of incor- poration, the corporation when organized becomes the legal trustee of the fund subscribed, and may call on the subscribers for payment, if the subscriptions were not withdrawn before the act of incorporation and organization.^* A subscription paper was in the following form: "We, the undersigned, agree to pay amount subscribed to our signatures, for the purpose of purchasing a tract of land con- taining about twenty-one acres, lying on the north side of the New Holland turnpike, being a part of the Barry farm, and such other purposes as we, the subscribers, may deter- mine upon. It is proposed to get an act of incorporation making the capital about $20,000 and the shares $100 each, the money to be expended in purchasing the land, putting up the fences and buildings, and the grounds in order." The subsci'ibers met in accordance with a public advertisement, appointed a committee to buy the land, procure a charter, and call in subscriptions. The committee purchased the land, erected fences, obtained the charter and the deed for the land was made to the corporation. The defendant, an original subscriber, attended no meeting, and took no part in any of the proceedings. It was held that he was liable for his subscription at the suit of the corporation.^-'' Estoppel. 199. If a person admits that he is a subscriber, and other persons have acted on the faith of such admission, he is es- topped from denying his subscription.^® If a subscriber, after he has been released from his sub- " Edinboro' Academy v. Robinson, 37 Pa. 210 (i860). " Shober's Administrators v. Lancaster County Park Association, 68 Pa. 429 (1871). ^ Shober's Administrators v. Lancaster County Park Association, 68 Pa. 429 (1871): Academy of Edinboro' v. Robinson, 37 Pa. 210 (i860). '• Graff V. Pittsburgh & Steubenville R. R., 31 Pa. 489 (1858). 248 STOCK SUBSCRIPTION. scription, takes an active part in the management of the company, as by voting, acting as director, and paying money to the company, he will be held to have reassumed his orig- inal obligation.^'' An act of incorporation required the payment of $5 upon each share to commissioners at the time of subscribing for the stock. It was held that without such payment, the con- tract of subscription was void, but it was also held that if the subscriber subsequently attended a meeting of the com- pany and voted for managers, he will be estopped from deny- ing the validity of his contract.^* A subscriber to the stock of an insurance company depos- ited with the company in payment of his subscription valua- ble securities for the purpose of having the same reported by the company as part of its assets, and of exhibiting the same to the insurance commissioner as such. The securities were so reported and exhibited. It was held that the sub- scriber was estopped from denying the validity of his sub- scription, or from alleging any informalities in the organiza- tion of the company.^' A subscriber to the stock of a corporation who has paid part of his subscription, received dividends, and voted at corporate elections, is estopped from setting up as a defense to his subscription that the corporation as organized was of a dififerent nature from the one he agreed to subscribe to.^" A subscriber to the stock of a company who has partici- pated in its organization, and acted as a director, cannot set up the unconstitutionality of the act under which the com- pany was incorporated, as a defense to the payment of his stock subscription.^^ " Pittsburgh & Conndlsville R. R. v. Stewart, 41 Pa. 54 (1861.) ; Han- over Junction, etc., R. R. v. Haldeman, 82 Pa. 36 (1876) ; Hays v. Pitts- burgh & Steubenville R. R., 38 Pa. 8i (i860). "* Clark V. Monongahela Navigation Co., 10 Watts, 364 (1840). '"Commonwealth v. Mfg. Mutual Fire Ins. Co., 11 Phila. 550 (1875). " Barlow v. Wren, i Walker, 297 (1881). "Weinman v. Wilkinsburg & E. L. P. Ry. Co., 118 Pa. 192 (ig STOCK SUBSCRIPTION. 249 Where, after subscriptions to a railroad company have been obtained, an Act of Assembly is passed reducing the amount of subscriptions required, an original subscriber will not be released if he participates in the organization of the com- pany and votes at the corporate meetings.^^ A stock subscription was made for the purpose of enab- ling the company to raise money by loan. The stockholders and directors of the company with knowledge of the sub- scription voted in favor of the loan. It was held that the stockholders and directors of the company were estopped from asserting that the subscription was invalid because not made in writing, and in the prescribed form.^^ Where a person subscribes to the stock of a company for the purpose of its incorporation, and after the incorporation pays the full amount of his subscription on certain of his shares, and transfers the others, he thereby recognizes and affirms his contract of subscription, and is estopped from de- nying it.^* A subscription for additional stock made by a director of a railroad company for a large stockholder to. relieve the company from financial embarrassment, and acquiesced in for seven years by the stockholder, is evidence for the jury as to the validity of the subscription.^® One who acts as commissioner to receive the subscriptions under an act to incorporate a turnpike road company, cannot, when sued by the company, for the amount of his subscrip- tion, object that the $5 per share, payable at the time of sub- scription, was not actually paid by him.^* Katiflcation. 200. In order to make a valid ratification of a stock sub- scription for which a person is not legally bound the party " Bedford R. R. v. Bowser, 48 Pa. 29 (1864). " Shellenberger v. Patterson, 168 Pa. 30 (1895). " Bell's Ap., IIS Pa. 88 (1886). " Phila., Wil. & Bait. R. R. v. Cowell, 28 Pa. 329 (1857). " Grayble v. York & Gettysburg Turnpike Road Co., 10 Serg. & Rawle, 269 (1823). 2SO STOCK SUBSCRIPTION. must have a full knowledge of all the circumstances attend- ing the transaction, and especially must know that he would not be bound without such ratification.^^ Ratification of a subscription may be inferred from the sub- sequent execution of a letter of attorney constituting a proxy by the person in whose name the subscription was made.^^ Where the creditors of a firm formed a corporation, the fact that several of them named as members of the company had judgments against the firm, and that these judgments were satisfied by their attorney upon receipt of stock of the company, without the act of the attorney being disavowed by his principals, is some evidence of their ratification of a subscription of stock made by him for them, not needed in chief, however, but rather by way of rebuttal, and in corrob- oration of the prima facie evidence of the charter.^* Revocation of Subscription. 201. The subscriber to the stock of a proposed corporation may withdraw his subscription at any time before application for a charter. "Where a corporation is formed or attempted to be formed, under general statutes, the inchoate proceed- ings do not ripen into a corporation until all thp require- ments of the statute, even to the filing of the articles in the office of the secretary of state, are complied with. Until this is done, a subscription to the articles is a mere proposition to take the number of shares specified of the capital stock of the company thereafter to be formed, arid is not a binding promise to pay. The obligation is inchoate merely, and can never become of force unless the corporation goes into effect in the mode pointed out by the statute." Defendant subscribed his name to a paper in the following form: "We, the undersigned, obhgate ourselves to pay the amount set opposite our respective names for the purpose of erecting a nut and bolt manufactory in the borough of Au- " Pittsburgh & Steubenville R. R. v. Gazzam, 32 Pa. 340 (1858). =" McCully V. Pittsburgh & Connellsville R. R., 32 Pa. 25 (1858). "McHose & Co. v. Wheeler, 45 Pa. 32 (1863). STOCK SUBSCRIPTION. 25 1 burn. Pa., to be paid as the money shall be required, and to re- ceive a certificate of stock when such money is paid." It ap- peared that the company had built its manufactory in an ad- joining township, and it was conceded that it would not erect a factory in the borough of Auburn. It appeared that de- fendant withdrew his subscription before the articles of in- corporation were ready for filing in the office of the secretary of the Commonwealth. It was held that the defendant was not liable for the amount of his subscription.*" A person who has been active in obtaining subscriptions for a railroad company, and has received a subscription-book in which he has written his own name, cannot by cutting his name out of the book before returning it to the company re- voke his subscription.*^ Release of Subscription. 202. If the railroad company releases the private subscrip- tions to its stock, a municipal subscription is also released.*^ A railroad company may in the collection of subscriptions, if it is found necessary in order to secure a part of a doubtful claim, release a part for the purpose of securing the residue.** Substitution of Liability. 203. Where a firm of which a subscriber is a member is substituted in the subscriber's place, it rnust pay the sub- scriptions. Sutton was a member of the firm of Weinman & Co., and also the promoter of a street railway company, and a subscriber to twenty shares of its capital stock. He was also a member of the first board of directors. Soon after the organization of the company Sutton, being about to "Auburn Bolt & Nut Works v. Schultz, 143 Pa. 256 (1891); Muncy Traction Engine Co. v. De La Green, 143 Pa. 269 (1888); Garrett v. Dillsburg & Mechanicsburg R. R., 78 Pa. 465 (1875). " Greer v. Chartiers Ry., 96 Pa. 391 (1880). "Crawford Co. v. Pittsburgh & Erie R. R. Co., 32 Pa. 141 (1858). " Phila. & West Chester R. R. v. Hickman, 28 Pa. 318 (1857)- 252 STOCK SUBSCRIPTION. remove from the city, took his partner, Weinman, with him to a meeting of the board of directors, and desired that the firm should be accepted in lieu of himself as a sub- scriber for the twenty shares of stock standing in his name; and that his partner, Weinman, should be permitted to take his place in the board. The resignation of Sutton and the election of Weinman as a director in his stead then took place, and were duly entered upon the minutes. Thereafter Weinman took upon himself the duties of a director, at- tended and took part in the meetings of the board, and among other things favored the collection of the subscrip- tions to the capital stock of the company. When called upon to pay on the shares by virtue of the ownership of which he was made a director, he objected that no formal written undertaking had ever been made by Weinman & Co. for the payment of Sutton's subscription, and because no transfer of the shares was made by Sutton to the firm upon the books of the company. It was held that the firm was responsible.** Bonus on Stock Subscriptions. 204. In the absence of legislative authority the directors of a railroad company have no authority to enter into an agreement on behalf of the company to pay a bonus for stock subscriptions, or to pay interest on the stock. If the directors enter into such an agreement the company is not bound.*® Municipal Subscriptions. 205. Acts authorizing municipal subscriptions must be strictly complied with.*" "Weinman v. Wilkinsburg & East Liberty Pass. Ry., 118 Pa. 192 (1888). " Pittsburgh & Steubenville R. R. v. Allegheny Co., 79 Pa. 210 (i8;s). "Mercer Co. v. Pittsburgh & Erie R. R., 27 Pa. 389 (1856); Prick v. Mercer Co., 138 Pa. 523 (1891); Brown v. County Commissioners of Phila. County, 21 Pa. 37 (1853) ; Commonwealth v. Perkins, 43 Pa. 400 (i862>; Commonwealth v. Allegheny Co., 32 Pa. 218 (1858) ; Lawrence Co. v. N. W. R. R., 32 Pa. 144 (1858); Pennsylvania R. R. v. Phila., 47 Pa. 189 (1864). STOCK SUBSCRIPTION. 253 A municipal corporation which has authority to subscribe for the stock of a railroad company has also authority to issue bonds to pay for such stock.*^ The legislature may authorize a municipal corporation to subscribe for the stock of a railroad company, provided the municipality has a special, interest in the railroad contem- plated.*^ Conditional Subscription — General Principles. ' 206. Where subscriptions are made to the stock of a pro- posed public corporation, previous to and for the purpose of procuring a charter, any conditions annexed thereto, whether written or parol, are void. After the organization of the company, a condition is binding and obligatory, and ordi- narily this is so, though it rests in parol, if, except for such condition, the subscription would not have been made. The latter part of this proposition is subject, however, to the quali- fication that the rights of co-subscribers are not afifected thereby.*® If the subscription paper sets out the termini and the route over which the railroad is to be constructed, and the company materially changes the termini of the route, the subscriber will be released.^" Where subscriptions are made to the capital stock of a projected railroad company, on condition that the road take a certain designated route, and on the faith of those subscrip- " Commonwealth v. Pittsburgh, 41 Pa. 378 (l86i) ; Adams v. Lawrence Co., 2 Pittsb. Rep. 60 (1859) ; Commonwealth v. Allegheny Co., 32 Pa. 218 (1858). " Sharpless v. Mayor of Phila., 21 Pa. 147 (1853) ; Pittsburgh & Con- nellsville R. R. v. Allegheny Co., 63 Pa. 126 (1869) ; Riddle v. Phila. & Northwestern R. R., i Pittsburgh Rep. 158 (1854); Armstrong Co. v. Brinton, 47 Pa. 367 (1864); Lawrence Co. v. Northwestern R. R., 32 Pa. 144 (1858). *• McCarty v. Selinsgrove & North Branch R. R., 87 Pa. 332 (1878) ; Boyd V. Peach Bottom Ry., 90 Pa. 169 (1879) ; Bedford R. R. v. Bowser, 48 Pa. 29 (1864'). " Caley v. Phila. & Chester Co. R. • R., 80 Pa. 363 (1876) ; Chartiers Ry. Co. V. Hodgens, 77 Pa. 187 (1874). 254 STOCK SUBSCRIPTION. tions a charter is granted to the company, the subscriptions are binding and the condition void.®^ Where a person subscribes to the stock of a manufacturing company, and it is stipulated that the factory of the company should be built in a particular borough, the subscriber is relieved from liability, if the factory is built elsewhere than in the place specified in the subscription paper.^^ A subscriber to the stock of an incorporated collection agency, cannot refuse payment on the ground that he had subscribed on the faith of representations that branch offices would be established, and that the same were not estab- lished.^3 Where a railroad company purchases a railroad under fore- closure proceedings against another railroad company, a sub- scriber to the stock of the purchasing company cannot allege, as a defense against a subscription, that the railroad had not been completed to the terminal points designated by the charter of the original company which owned the road.'* Where a subscription is made on the express condition that the company shall locate and construct its road along a particular route, and the company locates its road along the route designated, but before the road is constructed, stops operations for lack of funds, the subscriber is bound to pay the balance of instalments. The location of the road and the construction, as far as the means of the company would allow, was such a performance of the condition as entitled the com- pany to enforce the contract of subscription.^' Defendant in an action on a subscription to stock ofifered to show that the contract of subscription provided for the building of the extension of the Hanover Junction & Sus- quehanna Railroad according to the survey made by the Phil- " Pittsburgh & Steubenville R. R. v. Woodrow, i Pittsburgh, 450 (1858). °' Auburn Bplt & Nut Works v. Schultz, 143 Pa. 256 (1891). °' Guarantee & Collection Co. v. Mayer, 141 Pa. 511 (1891). " Chartiers Ry. Co. v. Hodgens, 85 Pa. 501 (1877). " Miller v. Pittsburgh & Connellsville R. R., 40 Pa. 237 (1861). STOCK SUBSCRIPTION. 255 adelphia & Reading Railroad Company, and that the road as thus surveyed ran within five hundred feet of his mill, but that the route was so changed as to make the road run about 1,200 feet from his mill. It was held that the evidence should have been admitted so that the jury might determine whether or not the variation materially affected the defendant's in- terest.^^ In an action to collect a subscription defendant alleged in his affidavit of defense that one of the promoters of the com- pany called upon him, and he was induced to become a sub- scriber to four shares of the capital stock of the company at $50 per share, under the promise and agreement that such company would furnish him, for $200, eight shares of the capital, and also that the company would establish offices in New York and Chicago, and that upon the faith of these rep- resentations he was induced to sign the paper subscribing to the stock. Upon a rule for judgment for want of a sufficient affidavit of defense judgment was entered for the plaintiff and this judgment was affirmed.®'' A condition in a subscription to the stock of a proposed railroad, that no assessments shall be made unless for work actually done in grading, is not contrary to public policy.®* A person who subscribes to the stock of a railroad com- pany cannot successfully defend a suit upon his subscription by his own unsupported testimony that the company orally agreed that the subscription should only be enforced if a sta- tion was built upon his property, and this is especially the case where the terms of the oral agreement are contradicted by the written agreement, and by the testimony of the agent of the company.®* Where a person subscribes to a fund for the purpose of erecting a school, and the subscription paper provides for an organization upon notice, when a certain sum is subscribed, " Moore v. Hanover Junction & Susquehanna R. R., 94 Pa. 324 (i "Guarantee Company v. Mayer, 141 Pa. 511 (1891). "People's Freight Ry. v. Hench, 2 Vyalker, 478 (1883). " Phila. & Del. Co. R. R. v. Con-way, 177 Pa. 364 (1896). 256 STOCK SUBSCRIPTION. and does not by its terms forbid an incorporation, the sub- scribers may at a meeting duly called be organized as a cor- poration and be chartered by the proper authority, and the subscribers whether they were present at the meeting or not, will be bound to pay their subscriptions."** If a subscription is made upon a blank sheet of paper under a stipulation that it should not be binding or be attached to the heading, which contained the terms of the association, until the subscriber had inspected and approved of that instru- ment, the subscription is not binding until the subscriber has had the opportunity of inspection for which he stipulated.*^ Illegal Conditions of Subscription. 207. The directors of a railroad company have no author- ity to adopt illegal conditions of subscriptions, or relieve sub- scribers from the payment of instalments due on subscrip- tions. In Bedford R. R. Co. v. Bowser, Strong, J., said: "The directors of the company then in ofifice were its agents with limited powers, the extent of which the defendant was bound to know. Their duties were to conduct its affairs to the fur- therance of the ends for which the company was created. They had no power to destroy it, to give away its funds, or to deprive it of any of its means to accomplish the full pur- pose for which it was chartered. The creditors were not the only persons who had interests and rights at stake. The stockholders who had paid their subscriptions, or bought their stock, and the Commonwealth by whom the charter had been granted, were at least equally interested. The railroad was unfinished, and the Commonwealth had a right to de- mand that all the resources, rights, and credits of the com- pany should be devoted to its completion. An unfinished road was useless to the remaining stockholders, and it was "■Robinson v. Edinboro' Academy, 3 Grant, 107 (1861). " Bucher v. Dillsburg & Mechanicsburg R. R., 2 Leg. Chron. Rep. 219 (1874); 76 Pa. 306(1874). STOCK SUBSCRIPTION. ' 25/ a wrong to them to render their stock valueless, by extin- guishing that which was necessary, and which should have been applied to the object for which the legislature gave the company its being. Directors of a railroad company are trus- tees for all the stockholders, and, in a very just sense, for the Commonwealth. It is an abuse of their trust, wholly unau- thorized, and at war with the design of the charter, to single out some of the stock subscribers and release them from their liability. No such authority in them has ever been recog- nized." «== One who has subscritfed to the stock of a railroad com- pany cannot defend to a suit on the subscription, that the subscription was made at the request of the president of the company on the understanding that the defendant was not to pay for the stock or hold it. Such an agreement would be a fraud upon the company.®^ Where a stock subscription is taken before the organization of the company, and is on its face absolute and unconditional, and the charter is granted, and the company organized on the faith of it, a condition made at the time of the subscription is invalid, although the validity of the subscription is not afifected.«* A subscription under the Act of July 19, 1849, made to the commissioners before the organization of the company, upon condition that the road should be located on a special route, is to be deemed an absolute subscription, without reference to the condition. The act does not contemplate conditional subscriptions, and the commissioners are not authorized to receive them.®' "^48 Pa. 29 (1864). " Robinson v. Pittsburgh & Connellsville R. R., 32 Pa. 334 (1858). ■"Nippenose Mfg. Co. v. Stadon, 68 Pa. 256 (1871); Irvin v. Turnpike Co., 2 Penrose & Watts, 466 (1831) ; Pittsburgh & Steubenville R. R. v. Biggar, 34 Pa. 455 (1859); Pittsburgh & Connellsville R. R. v. Stewart, A\ Pa. 34 (1861); Bedford R. R. v. Bowser, 48 Pa. 29 (1864). " Pittsburgh & Steubenville R. R. v. Biggar, 34 Pa. 455 (i8S9); Baving- ton V. Pittsburgh & Steubenville R. R., 34 Pa. 358 (1859) ; Caley v. Phila. & Chester Co. R. R., 80 Pa. 363 (1876). 17 258 STOCK SUBSCRIPTION. Secret Conditions or Agreements. 208. A subscriber will not be permitted to set up as a de- fense to his subscription a secret arrangement with the agents by which he was to be released from the payment of his sub- spription whilst the other subscribers continued to be bound. Thus, in an action on a subscription for stock, the defendant will not be permitted to prove that the subscription-book was brought to him by three officers of the company who in- duced him to subscribe by representing that the road should be built, not as stated in the book, but past the defendant's house, and, further, that he would not be obliged to pay until the road was so built.®® Conditions as to Payment in Laud. 209. In an action to recover a subscription to the stock of a mining company organized under the Act of July 18, 1863, which required subscriptions to be paid in cash, it appeared that defendant had an interest in land which he had contrib- uted to the capital stock of the company. He alleged as a de- fense that the company had agreed that his stock should be paid by his contribution of land. It was held that this was no defense as against subsequent stockholders, unless they knew of the facts when they subscribed or affirmed the transac- tion afterwards. Under the act the subsequent subscrib- ers were entitled to have the subscriptions of the promoters paid in cash.®'' Conditions as to Payment in Labor and Material. 210. Where a subscriber stipulates that he shall pay for his subscription iti work and not in money, and the agent of the corporation accepts the subscription, the corporation is bound by the contract.®® "Miller v. Hanover Junction & Susquehanna R. R., 87 Pa. 95 (1878); Espy V. Cemetery Co., 34 L. I. 274: Howard v. Fenton, 26 P. L. J. 80. " Bailey v. Pittsburgh & Connellsville Gas Coal & Coke Co., 69 Pa. 334 (1871). "McConahy v. Centre & Kishacoquillas Turnpike Co., i Penrose & Watts, 426 (1830); Reed v. Bank, i Lane. 393; Stove Co. v. Bletz, i Lane. 145. • STOCK SUBSCRIPTION. 259 In an action upon a stock subscription the defendant may show that he made no subscription in cash, but that paid-up stock was to be given him in compensation for services. "There is no inherent incapacity of a corporation to pur- chase property or labor and pay for it by stock instead of nioney. If the corporation here had paid defendant $i,ooo in cash to leave his former situation and undertake its presi- dency, on condition that he invest the money in its stock, there could be no question of the validity of the transaction, yet it would in substance have been exactly the same. "But in addition to its inherent powers to make such con- tract, the corporation has express statutory recognition of its authority in Section 17 of the Act of April 29, 1874, P. L. 81. The proviso that no stock shall be issued 'except for money, labor done, or money or property actually received' does not prevent payment for labor or services bona fide to be thereafter rendered, any more than it prevents contracts to pay in advance for property to be furnished. A corpora- tion in process of formation and not yet in actual operation may have no other mode of getting the necessary equipment to commence business." ®® A corporation may, if acting in good faith, accept as pay- ment for a subscription of stock labor, services, materials, damages which the company is liable to pay, or any liability of the company.'^" A subscriber will not be permitted to prove an oral agree- ment that he was to pay his subscription in labor and ma- terials, unless he also offers to show that he attempted to as- certain where he could do so, or had made a tender thereof. '^^ An agreement by the company to receive materials instead of cash on call supersedes the original contract of subscrip- tion." "' Shannon v. Stevenson, 173 Pa. 419 (1896). Per Mitchell, J. '° Phila. & West Chester R. R. Co. v. Hickman, 28 Pa. 318 (1857)- " McCIure v. People's Freight Ry. Co., 90 Pa. 269 (1879)- " Pittsburgh & Connellsville R. R. Co. v. Stewart, 41 Pa. S4 (1861). 260 STOCK SUBSCRIPTION. After the oompany is organized, the subscriptions may be conditional, and the company can only enforce the subscrip- tion on its terms. Thus if the subscription is made on condi- tion that the calls shall be paid in materials, the company cannot demand cash payments.''® Where the charter of a meadow improvement company pro- vides that the members might, if they so desired, work out the assessments levied upon them, it was held that the corpo- ration could not recover an assessment from a member, un- less it was shown that such member had been called to work out his assessments.'* Conditions as to Amount. 211. A subscriber to stock in a proposed corporation has the right to expect that the capital named in the articles shall be raised. A subscriber to stock signed a subscription paper which recited that the Spellier Electric Time Company was to be or- ganized under the laws of the State of New Jersey with an authorized capital of $200,000, divided into 20,000 shares of the par value of $10 each; that 3,500 shares were to be issued to certain persons as part payment for the property pur- chased, and $18,000 paid them in cash in addition, continuing as follows: "And whereas, the remaining 6,500 shares therefor of said capital stock are to be issued to the subscriber therefor, the par value thereof to be paid in cash in the following manner, viz. : 25 per centum thereof at the time of subscribing there- for, and the remaining 75 per centum thereof in such install ments, at such times as shall be determined by the board of directors of said company. "And whereas, the undersigned are desirous of subscribing for the number of shares of said last-mentioned 6,500 shares of said capital stock set opposite to their names, upon the terms aforesaid. " Pittsburgh & Connellsville R. R. Co. v. Stewart, 41 Pa. 54 (1861). " Crozer v. Leland, 4 Whart. 12 (1839). STOCK SUBSCRIPTION. 261 "Now therefore, the undersigned subscribers, for and in consideration of the subscription "of each other for said capi- tal stock, do by these presents agree to accept the number of shares of said capital stock set opposite to their respective names, and pay the value thereof in cash in the following manner, viz., 25 per centum thereof to the Union Trust Co., of Philadelphia, at the time of signing these presents, m trust, to be paid to the treasurer of 'The Spellier Electric Time Co.' aforesaid, immediately after the organization as aforesaid, and a treasurer shall have been elected therefor, and the re- maining 75 per centum thereof in such instalments, at such times, as it shall be called by the board of directors of 'The Spellier Electric Time Co.' and do hereby subscribe therefor as follows:" In an action brought to recover unpaid calls, it was held that an affidavit of defense alleging that only a part of the 6,500 shares had been subscribed for in cash, was sufificient to prevent judgment.'^'' A subscriber alleged that it was expressly stipulated by the agent of the company, in the presence of another witness, that his subscription was not to be paid until a certain amount had been actually subscribed. The agent denied that he had made such agreement. The subscriber then proposed to prove by the other witness, that such representations had been by the agent, although at a time previous to the sub- scription. The court excluded the offer. It was held on writ of error that the testimony should have been admitted as corroborative proof, and as part of a res gesta.''^ The subscriptions to the stock of a corporation were upon condition that no subscription should be binding, unless the total subscriptions amounted to a certain sum. The amount was made complete by the subscriptions of two married women which were void. It was held that subscribers who had signed after the subscriptions of the married women, " and with knowledge thereof, could not set up said condi- " Spellier Electric Time Co. v. Leedom, 149 Pa. 185 (1892). '■' Rinesmith v. People's Freight Ry. Co., 90 Pa. 262 (1879). 262 STOCK SUBSCRIPTION. tion in a proceeding in equity against them by creditors of the company to compel the payment of the stock thus sub- scribed by them, in payment of the company's debtsJ'' A corporation invited loans and advances from its mem- bers and others, upon terms that no subscription should be binding unless $50,000 were subscribed, that all sums so ad- vanced in the nature of loans should be repaid as soon as pos- sible out of the income of the association from all sources, and in addition to refunding the principal sums, the profits for three years should be paid to the persons making the advance- ments pro rata, and that the loan should consist of fifty shares of the par value of $1,000 each. More was subscribed than asked. One of the subscribers named Coleman paid the amount of his subscription, another named Nellis neglected or refused to pay. Subsequently the corporation passed a resolution abrogating the terms of the subscription, and in a few months failed. Coleman then brought an action against the corporation, and obtained a judgment for the amount of his subscription. He issued an attachment-execution, and summoned Nellis as garnishee. The writ of attachment was, however, not issued until more than three years after the exe- cution of the original contract of subscription. It was held that Nellis's contract was merely to loan money to the cor- poration upon the terms stipulated in the contract of sub- scription, and that those terms having been abrogated, the corporation having failed, and time within which the money was to be loaned, having passed, the company had no right to enforce the loan, and Coleman stood in no better position than the company.'''® A subscription paper stated that the railroad was to be commenced "as soon as sufficient funds shall be subscribed to carry on the work." At a public meeting at which defend- ant subscribed the officers of the company stated that the money would not be called for until $150,000 was subscribed. " Cornell & Michler's Ap., 114 Pa. 153 (i ™ Nellis V. Coleman, 98 Pa. 465 (1881). STOCK SUBSCRIPTION. 263 It was held that such statements were evidence as showing the inducement upon which the subscription was made.''* The subscription to the stock of a railroad company was upon condition "that in the judgment of the board of direct- ors of said company a suflficient amount is subscribed to the capital stock of said company on or before the first day of April, 1871, to grade and bridge the road, including the right of way from South Pittsburgh to West Brownsville." The board of directors, on the first day of April, 1871, passed a resolution, "that in the judgment of this board the conditions named are fully complied with; that sufficient stock has been subscribed to grade and bridge the road, including the right of way from South Pittsburgh to West Brownsville." It was held that if the directors acted in good faith in passing the resolution the condition was performed.®" A proviso in a contract of subscription, that "the subscrip- tion hereto shall be binding only in the event of an aggregate of $300,000 being subscribed, inclusive of all former sub- sci'iptions, and of such subscriptions as shall be made abso- lute or shall become so' by the fulfillment of their conditions," is valid. ^^ The condition of a subscription of stock was that the amount subscribed should be devoted to the building of a designated portion of the railroad, and should be paid when the sum of $100,000 was subscribed for that purpose. The charter provided that subscriptions should be valid on the payment of $1 to the commissioners for each share for the use of the company; and when ten per cent, of the capital stock was subscribed and $1 paid on each share letters-patent were to issue. It was held that the stock contract with the loss of its absolute character lost the incident of partial pay- ment, and that such partial payment was not necessary to enable the company to recover.®^ " Caley v. Phila. & Chester Co. R. R., 80 Pa. 363 (1876). *" Cass V. Pittsburgh, Virginia & Charleston Ry., 80 Pa. 31 (1876). " Phila. & West Chester R. R. v. Hickman, 28 Pa. 318 (1857)- '^ Hanover Junction, etc., R. R. v. Haldeman, 82 Pa. 36 (1876). 264 STOCK SUBSCRIPTION. After an Act of Assembly is approved by which a railroad company is actually incorporated, conditional subscriptions to its stock are valid, although the act provides that letters- patent shall only be issued when ten per cent, of its capital stock had been subscribed. In such a case letters-patent are not essential preliminaries of the company's organization, for that was efifected by the act itself.®^ Stipulations after Incorporation as to Payment. 212. After the organization of a company the corporation may stipulate with subscribers that they may pay in any man- ner mutually agreed upon, and the corporation is then pre- cluded from enforcing the subscription in any other man- ner.** But if the corporation becomes insolvent, and it is neces- sary for the payment of its debts that the unpaid stock sub- scriptions should be collected, all stipulations, conditions, and devices agreed upon between the stockholders and the cor- poration, releasing the stockholders from their obligation to pay in cash the full par value of their stock, are nugatory and void. This results from the fact that the capital stock is a trust fund for the payment of the debts of the corporation. Where it is sought to collect the unpaid portion of the capital stock of an insolvent company it is essential that in some mode there should be an ascertainment in some form of the fact of insolvency, of the exhaustion of all other assets, of the amount of debts due by the corporation, of the amount of capital stock required for the discharge of the debts, and a call or assessment upon the stockholders for the payment of the amount necessary to be paid by each. "If the contract of subscription is absolute and without conditions or terms relieving the stockholders from payment of the full par value c-f the stock, the call or assessment may be made by the di- rectors of the corporation, and if the corporation is sui juris '' Hanover Junction, etc., R. R. v. Haldeman, 82 Pa. 36 (1876). "Nippenose Mfg. Co. v. Stadon, 68 Pa. 256 (1871); Pittsburgh & Con- nellsville R. R. v. Stewart, 41 Pa. 54 (1861). STOCK SUBSCRIPTION. 265 and has not passed into the hands of assignees or receivers, the proceeding to recover the money may be prosecuted by the corporation in its own name.- If, however, the corpora- tion refuses to act, or is disabled, either by the terms of its contract or by its legal incapacity by reasons of insolvency or bankruptcy, the assessment must be made by some court having jurisdiction of the matter and the parties, in some suitable proceeding by way of bill or petition. Upon such proceeding and the establishment of the requisite facts above stated, the court will either order an assessment to be made upon each stockholder of the amount to be paid by him, and upon such assessment an action can be founded and tried in the common-law courts, or a decree can be made directly against each stockholder who has been made a party and served with process, for the payment of the money due by him, and such decree can be enforced by immediate execu- tion process." ®^ If after a corporation is organized the president assures a proposed subscriber that certain conditions which the sub- scriber suggests shall be a part of the contract, the company is bound thereby, and parol evidence of these conditions may be admitted in an action to recover the subscription, and the non-performance of conditions is a sufficient defense.*® Waiver of Conditions. 213. Officiating as a judge of an election of a railroad company is a waiver of any alleged condition attached to the subscription for company's stock, and renders such subscrip- tion absolute.*^ If a municipal subscription to stock of a railroad company has been made on certain conditions precedent, the subse- quent issue of bonds in payment of the stock raises a pre- "^ Lane's Ap., 105 Pa. 49 (1884). '"McCarty v. Selinsgrove North Branch R. R., 87 Pa. 332 (1878); Pittsburgh & Steubenville R. R. v. Stewart, 41 Pa. S4 (1861). " Pittsburgh & Steubenville R. R. v. Proudfit, 2 Pittsb. Rep. 85 (i860). 266 STOCK SUBSCRIPTION. sumption that the conditions have been comphed with or waived by the city.** Alteration of Charter. 214. Where a stock subscription has become void by rea- son of the failure of the corporation to complete its works within the time prescribed by its charter, the legislature has no power, in an act extending the time for the completion of the works, to legalize and make valid the original subscrip- tion. The Act of March 29, 1852, for the incorporation of the Greencastle & Maryland Line Turnpike & Plank Road Co., provided that the charter should be null and void, unless the construction of the road was commenced within three years from the date of the charter. The work was not begun within the time specified, and on March 28, 1857, an act was passed which extended the time, and "legalized and made valid" the original subscriptions. In an action by the com- pany against one of the original subscribers for his subscrip- tion it was held that as the act of the incorporation had be- come null and void^ by the expiration of the time limited for the commencement of the road, the original subscriptions had also become void, and that no action could be maintained thereon.*® After a contract of subscription has been entered into the legislature cannot divide the company into two corporations and enact that a subscriber to the stock of the old company shall be a member of one of the new companies. Thus an act was passed incorporating a company to construct a turnpike road between two points. Subscription books were opened at two different places on the contemplated route, but sub- scriptions were not obtained sufficient to complete the or- ganization of the company. A supplement to the originai act was then passed which divided the contemplated road '' Commonwealth v. Pittsburgh, 43 Pa. 391 (1862). " Plank Road Co. v. Davidson, 39 Pa. 435 (1861). STOCK SUBSCRIPTION. 26/ into two parts, authorized the granting of two charters, and provided that those who originally subscribed for stock, at a certain place, should be members of one of the companies, and those who subscribed at another place should be mem- bers of the other. It was held that the latter act was uncon- stitutional, and that one of the new companies could not re- cover from an original subscriber, the amount of stock sub- scribed by him.**" A person subscribed to the stock of an iron and railroad company. Subsequently by an act supplemental to the act of incorporation, the name of the company was changed, and authority was given to purchase and cancel the original stock, and the main purpose of the new company was declared to be that of a general transportation company. It was held that it was a fair question for the jury to determine whether the change provided for by the supplemental act was made with a view to perpetrate a fraud on the subscribers to the stock."^ By the act of incorporation of a company the stock was fixed at $50 per share. By a subsequent act it was reduced to $25 a share. After the passage of the second act, a sub- scriber who had paid in $25 a share was summoned as gar- nishee under a judgment against the corporation. It was held that the plaintiflf in the execution could only claim through the corporation, and as the corporation could not exact more than $25 per share from the subscriber, the plain- tifif in the execution had no better standing.**^ The amendment of a charter at the instance of the com- pany and for its benefit will not affect the liability of a sub- scriber for stock to pay the amount subscribed for by him.''^ A subscription will be invalidated if it appears that a sup- plementary act was procured changing the name of the com- " Indiana & Ebensburg Turnpike Co. v. Phillips, 2 Penrose & Watts, 184 (1830). " Southern Pennsylvania Iron & Railroad Co. v. Stevens's Executors, 87 Pa. 190 (1878). "Woodhouse v. Commonwealth Insurance Co., 54 Pa. 307 (1867). " Clark V. Monongahela Navigation Co., 10 Watts, 364 (1840). 268 STOCK SUBSCRIPTION. pany, and diverting it from its original object in order to perpetrate a fraud upon the subscribers. Thus a company was incorporated for the purpose of manufacturing and min- ing with the incidental right to build a railroad for purely private pui-poses. The name of the company was the "Cale- donian Iron Works." Subsequently two persons obtained control of the charter, and procured the passage of a supple- mental act by which the name of the company was changed to the "Southern Pennsylvania Iron & Railroad Company," and authority was given to purchase and cancel the original stock of the company, and it was also given the powers of a general transportation company. It was held that a sub- scriber to the original company was not liable for his sub- scription.** A mere alteration in the charter giving the company the right to extend its road, is not such a change as will invali- date the contract of subscription.*® A grant of additional privileges to a corporation will not invalidate the contract of subscription to the stock of the corporation, although the additional privileges granted may possibly increase the liabilities of the company.®® The legislature may change the location of the route of a turnpike company without afifecting the liability of a sub- scriber to the stock of the company. Chief Justice Gibson explained the reason for this as follows: "Our turnpike roads have been made by incorporated companies, in which the State has usually been the principal stockholder. But though the funds have been furnished by individual subscription, the consideration for the corporate franchise, as well as the ob- ject to be promoted, has exclusively been the public benefit. With this the individual interest of the stockholder has been combined, by giving him a share of the tolls, in full compen- sation of his share of the capital. That an expectation of " Southern Pa. Iron & R. R. v. Stevens, 87 Pa. 190 (1878). '"' Cross V. Peach Bottom Ry., 90 Pa. 392 (1879). °° Gray v. Monongahela Navigation Co., 2 Watts & Serg. 156 (1841). STOCK SUBSCRIPTION. 269 benefit from a rise in the value of property near the route has been a powerful spring, in putting these incorporated bodies in motion, is not to be denied. Yet, though reliance has been placed on the effect of it, the legislature has never en- couraged it so far as to recognize it as a condition of the contract of subscription. Our acts of incorporation have been molded to more general interests. Their provisions have been adapted to the protection or encouragement of no local interest whatever, further than to compensate direct injury to private property in the execution of the work; and this, too, without deduction of the indirect benefit supposed to be received by the owner. In fact, I have found nothing to indicate that it had ever entered into the consideration of the legislature at all. We doubtless owe many of our roads to it, at least, it has furnished a very powerful incitement, but it is doubtful whether its advantages have not been at- tended with more than an equal amount of mischief in the predominance of private interest over public convenience. But certain it is that in no instance has the legislature au- thorized a conditional subscription, dependent on a particu- lar location of the road or given color to a notion that it might be regarded as an implied consideration of the con- tract. On what principle, then, are we to recognize it as such? By the Constitution, the right of the stockholders to everything granted in the charter is made inviolable, conse- quently their rights as corporators are not to be impaired. But the public welfare being paramount to everything beside those rights, and power to correct errors of location being essential to the promotion of it, subscriptions are necessarily subject to it where the contrary is not expressly stipulated. The objection to this seems to be rested on the occasional hardship of its operation, as an instance of which a liberal subscription by the inhabitants of a town named as a point has been put in a strong light. But the abstract propriety of a principle cannot be determined by an application of it to masses instead of individuals, or by the aggregate hardship 270 STOCK SUBSCRIPTION. of its operation in a given case. Such masses, like individu- als, take their measure at their own risk, and subject to the paramount rights of still greater masses." ^'' A municipal subscription to stock is not invalidated by a subsequent extension by the legislature of the titne within which the railroad is to be built; nor of a mere change of name of the company, where in fact the corporation was the same, and had the same termini for its road.^*^ Abandonment of Enterprise. 215. A subscription to the capital stock of a railroad com- pany is avoided by the abandonment of the road by the com- pany.^^ Where no call is made on a stock subscription for more than six years from the date of the subscription the law will presume an abandonment of the undertaking, and from an- alogy to the statute, bar the recovery of the subscription.^*"* A subscriber to the stock of a corporation will be required to pay the subscription, notwithstanding the fact that a pre- liminary injunction has issued suspending the prosecution of the improvement to erectwhich the subscription was made.^"^ Notes. 216. Where a subscription is made for additional stock in a manufacturing company, the company may take a note for the subscription, and when the note is paid, must give the "Irvin V. Susquehanna, etc., Turnpike Co., 2 Penrose & Watts, 466 (1831). But see Manheim. Petersburg, and Lancaster Turnpike Co. v. Arndt, 31 Pa. 317 (1858), where it was held that it is involved in the nature of a subscription to the stock of a corporation organized for the purpose of constructing a turnpike road from one place to another, that the termini are part of the contract, and that if the company procures an Act of Assembly changing the termini the subscribers are not liable on their contract of subscription. ^ Commonwealth v. Pittsburgh, 41 Pa. 278 (1861). "' Delaware River & Lancaster R. R. Co. v. Weaver, 7 Lane. 363; Dela- ware River & Lancaster R. R. v. Rowland, 9 Atl. Rep. 929 (1887). ""Pittsburgh & Connellsville R. R. v. Byers, 32 Pa. 22 (1858). "' Grossman v. Penrose Ferry Bridge Co., 26 Pa. 69 (1856). STOCK SUBSCRIPTION. 27 1 subscriber a certificate of stock. Under the Act of July i6, 1863, relating to manufacturing companies, a corporation after its organization could take a note from a subscriber for stock, but such a note was not a payment for the stock, until the note itself was paid.^**^ Persons who have subscribed to the stock of a corporation for the benefit of another corporation which could not legally make the subscription, are bound to pay the notes which they gave in pursuance of their subscriptions.^"* Compromise. 217. A corporation has a right to compromise a dispute respecting a stock subscription.^*** But the treasurer of a corporation has no power to give indefinite extension of credit to a subscriber to the stock of the corporation.^"^ Set-off. 218. A creditor of an insolvent corporation who is in- debted to. the corporation for an unpaid stock subscription cannot participate in the distribution of the proceeds of the assets of the company until such unpaid stock subscription has been made up. All that he can require is that a dividend declared upon his claim as a creditor shall be applied to the payment of the balance due on the stock subscription.^"® A subscriber to the stock of a railroad company to an amount greater than a debt by the railroad company to him- self, cannot ask the payment of such debt in the distribution of the proceeds of a sheriff's sale of the property and fran- chises of the road on a judgment of another creditor.^"''^ A depositor of an insolvent bank cannot set-off the amount ""Hacker v. National Oil Refining Co., 73 Pa. 93 (1873). "" Penn Safe Deposit & Trust Co. v. Thomas, 16 Pa. C. C. R. 650 (1895). '" Berks & Dauphin Turnpike Road v. Myers, 6 Serg. & Rawle, 12 (1820). '" McComb V. Credit Mobilier, S W. N. C. 80 (1878). "" Humboldt's Safe Deposit & Trust Co.'s Assigned Est., 3 Pa. C. C. R. 621 (1886). ™ Hogg's Ap., 88 Pa. 195 (1878). 272 STOCK SUBSCRIPTION. of his deposit against the claim of the bank for an assess- ment on his unpaid stock subscription.^"* A stockholder in a corporation was credited on the books of the company with $3,000 on "bond account." The com- pany was insolvent at the date of the entry of the credit for the bonds, but there was no evidence that the defendant, or the directors knew this fact, and the company at the time was doing business. In an action to recover unpaid subscrip- tions to the stock, it was held that this credit should not be disallowed, there being no evidence to show that it was in- valid."» If a subscriber contracts to construct a portion of a rail- road and to receive therefor either stock or transportation notes, and the property of the road is subsequently sold, he is not entitled to anything from the proceeds of the sale until the general creditors of the company are paid in fuU.^^" Calls. 219. Where a corporation is solvent, the unpaid capital is not due and payable by the stockholders until payment in part or in whole is called for by the corporation.^^ ^ Where the articles of a company provide for a notice of a call or assessment of stock in newspapers of two cities, and also for notice by mail, a failure to publish the notice in one of the cities avoids a forfeiture 'of the stock for non-payment of the assessment.^^^ If a subscriber to stock resists payment of a call on the ground that notice of the call had not been published in ac- cordance with the statutes of the State in which the com- pany was incorporated, he must annex to his affidavit of defense copies of the statute relied upon.^^^ ™ Macungie Savings Bank v. Bastian, 10 W. N. C. 71 (1881). "" McCullough's Ap., I Monaghat^, 700 (1889). "° Hart's Ap., 96 Pa. .355 (1881). "' McCarty v. Selinsgrove & North Branch R. R., 87 Pa. 332 (1878). "' Morris v. Metalline Land Co., 164 Pa. 326 (1894). ™ Spellier Electric Time Co. v. Geiger, 147 Pa. 399 (1892). STOCK SUBSCRIPTION. 273 If the subscriber to stock is a director at the time a call is made, he will be presumed to have knowledge of the assess- ments. If there have been several assessments, some made when he was a director, and some when he was not a director, he cannot relieve himself from liability by averring want of notice of the assessments, unless he states in his affidavit of defense hovv many and what assessments were made when he was not a member of the board.^^* A subscriber may waive notice of calls by a distinct and une(iuivocal repudiation of his subscription. After such re- pudiation it is no longer necessary to give him notice of the calls."'' If calls have been made before the company makes an as- signment for the benefit of creditors, the assignee has power to collect the unpaid subscriptions.^^® A corporation has no power to assess the shares of a com- pany imless such power has been conferred by the charter or unless the members have obligated themselves by some act or promise on their part, to pay assessments.^ ^'^ A valid call may be made by the treasurer of the company under general authority given by the board of directors, al- though the resolution does not fix the amount of the call as shown by the minutes.^^^ Interest on'Calls. 220. Interest is due upon an assessment on stock from the date when the assessment is due under the call.^^® Interest on Instalments. 221. Where a railroad company is authorized to build a railroad between two points named, and to pay interest on instalments on stock, until the road shall be completed, inter- "* Spellier Electric Time Co. v. Geiger, 147 Pa. 399 (1892). "= Cass V. Pittsburgh, Virginia & Charleston R. R. Co., 80 Pa. 31 (1876). "'West Chester & Phila. R. R. v. Thomas, 2 Phila. 344 (1857)- "' Brown v. Fairmount Gold & Silver Mining Co., 10 Phila. 32 (1873). "' Hays V. Pittsburgh & Steubenville R. R., 38 Pa. 81 (i860). "' Andrew's Ap., i Monaghan, 126 (1889). 18 274 STOCK SUBSCRIPTION. est is not payable after the road has been completed between the points designated, although it is contemplated to further extend the road.^^" Payment of Interest on Stock. 222. Where the subscription is on a guarantee that the company will pay interest on stock "as soon as paid" until the road is finished, interest on the stock does not accrue until the stock is fully paid.^^^ Statute of Limitations. 223. The statute of limitations is a bar to an action by a corporation for a subscription to its capital stock when no call or assessment has been made within the period prescribed by the act.122 Although the statute of limitations does not begin to run against a subscription to the stock of the corporation until after calls are made, where they are made within six years, yet when calls are not made for more than six years, the stat- ute of limitations is an absolute bar to recovery.^ ^^ The statute of limitations begins to run against a subscrip- tion to the stock of a proposed corporation from the date of the incorporation of the company. It is barred by a bill in equity against the subscriber to compel the unpaid subscrip- tion, and if a subscriber is brought into the case by an amend- ment of the bill, the statute ceases to run from the time of the amendment.^ ^* Where a stock subscription has been duly called before suit is brought upon it, the running of the statute of limita- tions is not suspended by the fraudulent appropriation of the '=° Pittsburgh & Connellsville R. R. v. Allegheny Co., 63 Pa. 126 (1869), Pittsburgh & Steubenville R. R. v. Allegheny Co., 79 Pa. 210 (1875). "'■ Miller v. Pittsburgh & Connellsville R. R., 31 Pa. 489 (1858). ""■ Shackamaxon Bank v. Dougherty, 20 W. N. C. 297 (1887) ; Lexow t'. Pennsylvania Diamond Drill Co., 5 Dist. Rep. 499 (1896). "' Shackamaxon Bank v. Disston, 4 Pa. C. C. R. 201 (1887) ; Pitts- burgh & Connellsville R. R. v. Byers, 32 Pa. 22 (1858); McCuUough v. Pittsburgh & Connellsville R. R., 32 Pa. 25 (1858). "* Bell's Ap., IIS Pa. 88 (1886). STOCK SUBSCRIPTION. 275 assets of the company by its officers and other stockholders if the defendant was not a party to the fraudulent act. In such a case a second assessment by a court of equity in pro- ceedings in which the defendant was not a party, before the expiration of the statutory period from the time of the first assessment -will not enable the company to recover the un- paid subscription.^^^ Six years bars the right of a railroad company to recover a subscription to stock, if no call has been made within that time. If the subscription is a conditional one, it will be barred unless the condition is performed, and a call made within six years.^^® Where a person holds the subscription-book for over six years after his suliscription was entered, and then delivers the book to the company, the statute of limitations will not begin to run until the delivery of the book.^^^ Stockholders who are also directors cannot by failure to call in subscriptions due from themselves raise the bar of the statute of limitations in favor of themselves.^** The penalty for non-payment of calls continues to run after the institution of the suit, and there is no limitation of time prescribed by the act within which the penalty must be sued for.129 Defenses. 224. Recovery upon a stock subscription cannot be de- feated by an averment in an affidavit of defense that the di- rectors of a corporation have released other subscribers to the stock, and that the directors had fraudulently and waste- fully managed the afifairs of the company.^*" '-'Modern Life Ins. & Imp. Trust Co. v. Keller, 3 Pa. C. C. R. 118 (1887). "" PiUsburgh & Connellsville R. R. v. Graham, 3 Grant, 259 (1859); 36 Pa. 77- "' Pittsburgh & Connellsville R. R. v. Plummer, 37 Pa. 413 (i860). '"' Allibone v. Hager, 46 Pa. 48 (1863). "" Bavington v. Pittsburgh & Steubenville R. R., 34 Pa. 358 (1859). ""Bristol Iron & Steel Co. v. Selliez, 175 Pa. 18 (1896). 276 STOCK SUBSCRIPTION. The violation of a charter of incorporation cannot be made a subject of judicial investigation in a collateral suit. Thus the fact that a railroad company was guilty of an act which might work a forfeiture of its charter, is not a matter of de- fense to an action brought by the company upon a subscrip- tion to its capital stock.^^^ The book of a corporation in which a person is credited with the payment of the stock subscribed by him, is prima facie evidence that the stock was paid for.^^^ A misnomer of a corporation in a public notice to subscrib- ers of the stock to pay instalments is immaterial in an action by the corporation to collect the instalments.^** Where the corporation seeking to recover a stock subscrip- tion, is a foreign corporation, an affidavit of defense is in- sufficient which merely avers that the plaintiff is a foreign cor- poration attempting to carry on business in this State, with- out having filed a statement in the office of the secretary of the Commonwealth, as required by the Act of June 9, 1881.^'' If a person subscribes without condition to the stock of a railroad company, he does so in view of the general powers conferred upon the company, and he is responsible with the other incorporators for the proper and lawful exercise of such powers. He cannot, therefore, set up an unlawful act of the directors as an excuse for the non-payment of his sub- scription, for it is within his own power to prevent such abuse of authority.^*" Invalidity of Charter not a Defense. 225. The alleged invalidity of a corporation under its char- ter cannot be set up as a defense to an action for instalments on stock.'*® '"Hanover Junction, etc., R. R. v. Haldeman, 82 Pa. 36 (1876). ™ Buffington v. Tlie Turnpike Co., 3 Penrose & Watts, 71 (1831). ^ Gray v. Mononsrahela Navigation Co., 2 Watts & Serg. 156 (1841). "* Sigua Iron Co. v. Vandervort, 164 Pa. 572 (1894). '" Caley v. Phila. & Chester Co. R. R., 80 Pa. 363 (1876). "^ Kern v. People's Freight Ry., 2 W. N. C. 718 (1876). STOCK SUBSCRIPTION. 2/7 A person who participated in the organization of, a street railway company, and acted as a director of the company, cannot set up the unconstitutionality of the act under which the company was chartered as a defense to the payment of his stock subscription. He cannot deny the rightful existence of the company as to himself and his own stock subscription, which he has affirmed as to all others.^^''' The existence of a corporation de facto cannot be inquired into collaterally, much less can such a corporation or a sub- scriber to stock therein, set up a defect in its charter as against a creditor who has contracted with it upon the faith of its charter. By articles of consolidation and Acts of Assembly two railroad companies were consolidated into one. The Act of Assembly vested in the consolidated company all the prop- erty, rights, and franchises of the two original companies, subject to all the rights of their respective creditors. Judg- ment creditors of the consolidated company filed a creditors' bill against the company and its stockholders for a decree subjecting the unpaid stock subscriptions to the former com- panies to the payment of the debts of the consolidated com- pany. It was held that the subscriptions to the stock of the prior companies enured to the benefit of the consolidated company, so as to become assets in its hands for the payment of its debts, and that the subscribers became liable to the creditors of the consolidated company to the extent of their unpaid subscriptions.^'* Remedy. 226. Assumpsit lies for an unpaid stock subscription. In an action to recover unpaid instalments of stock sub- scription it is proper to permit an amendment of a declara- tion after an appeal from an award of arbitrators, laying the ""Weinman v. Wilkinsburg & East Liberty Pass. Ry., 118 Pa. 192 (1888). ™ Hamilton v. Clarion, Mahoning & Pittsburgh R. R., 144 Pa- 35 (1891). , . 278 .STOCK SUBSCRIPTION. contract of subscription to have been made with the com- missioners, instead of with the company.^^® Mandamus is the proper remedy to compel a municipal corporation to pay a subscription to the stock of a railroad company. In such a case the authority to make the subscrip- tion implies an obligation to make it, and where no special mode of doing so is provided, it is also implied that it is to be done in the ordinary way by the levy and collection of taxes.^*" A corporation located in one county cannot bring suit in another county against stockholders residing in the first county. Such a suit is not warranted by the Act of May 14, 1874.1" Insolvent Companies. 227. Where the corporation is insolvent creditors may en- force payment without any previous call by the corpora- tion.i*2 "'Bavington v. Pittsburgh & Steubenville R. R., 34 Pa. 358 (1859). '"Commonwealth v. Perkins, 43 Pa. 400 (1862). "' Hanover Junction & Susquehanna R. R. v. Haldeman, 2 Chester Co. Rep. 256 (1874). '■^ Glen Iron Works Case, 13 Phila. 479 (1878). In this case Cadvvala- DER, J., said: "Where the corporation is solvent the unpaid capital is not due and payable by the stockholders, until payment in part or in whole, is called for by the corporate authorities, unless postponement of the payment would be inconsistent with some provision of the act of incorpo- ration, or with a conventional engagement with the stockholders. Ordi- narily there is no such inconsistency of either kind, and thus, in the case of a solvent corporation, a call or levy by the corporate authorities assess- ing the amount or amounts payable must ordinarily precede any ascer- tained obligation of the respective stockholders to pay. "But in the contrary case of an insolvent corporation, the recourse of its creditors does not depend upon any such condition precedent, and can- not be thus postponed. Every stockholder is, with relation to creditors, under an obligation to pay so much of the amount represented by his share, or shares of the capital, as may be required for payment of the corporate debts. Where he has made no express engagement the obliga- tion to pay is implied. Where an express engagement has been made upon such a condition as would impair the recourse of creditors they may proceed as if no such conditional engagement had been made. "Upon the insolvency of the corporation the obligation of the stock- STOCK SUBSCRIPTION. 279 Where a corporation has made an assignment for the ben- efit of its creditors, and the assignees have notified a stock- holder to pay the impaid subscription due on his stock, the action of the assignees is equivalent to a formal assessment by the officers of the bank, and the assignees may recover the amount of such unpaid subscription in an action of as- sumpsit brought by the corporation to their use.^*^ A judge, at chambers, during vacation, may make an order authorizing an assignee for the benefit of creditors of an in- solvent corporation to collect the unpaid subscriptions on stock. Such an order is an exercise of chancery power, and the chancery side of the court is always open.^** The creditors of a corporation have a standing to main- tain a bill in equity against the corporation and the subscrib- ers to the stock of the corporation for the appointment of a receiver to collect unpaid stock subscriptions and apply them to the claims of the creditors.-'*^ holders thus at once becomes assets for the payment of its debts to such extent as other assets are deficient. To this extent the obligation of every stockholder, in its just proportion, then becomes in equity a debt payable for the benefit of the creditors. No act of the corporation, before or after its insolvency, can derogate in this respect, from the rights of creditors. "Neither can any omission of the corporation, or of the corporate au- thorities, exempt or absolve stockholders from this obligation. For ex- ample, there may not have been any call, or assessment of the contribu- tory amounts of unpaid capitals or, where an assessment has been formally made, the corporation may not have taken measures, by suit or otherwise, to compel defaulting stockholders to pay. Such omissions do not affect the equitable right of the creditors to payment. "But there is no direct privity between thern and the stockholders. The creditors, therefore, cannot, in their own names, sue the stockholders in a court of law, and may be unable, in such a court, by mandamus or other- wise, to compel a private corporation either to make an assessment or to institute suits to enforce one of them. See i Q. B. 288. "But however such omissions may thus, for technical reasons, impede redress at law, they do not prevent, or impede the available and com- plete recourse of the creditors in equity." '"Yeager v. Scranton Trust Co. & Savings Bank, 14 W. N. C. 296 (1884). '"Citizens' & Miners' Savings Bank v. Gillespie, 115 Pa. 564 (1887). '•^ Bailey «». Pittsb. Coal R. R. Co., 139 Pa. 213 (1891); Lane's Ap.,ios Pa. 28o STOCK SUBSCRIPTION. A judgment creditor of an insolvent corporation cannot collect by means of attachment-execution unpaid and un- called amounts due by stockholders upon their stock subscrip- tion. Such subscriptions constitute a trust fund to be admin- istered for the benefit of all the creditors.^*® Upon a creditors' bill filed against an insolvent corpora- tion to compel the payment by the stockholders their un- 49 (1884); Bell's Ap., 115 Pa. 88 (1886); Dunn v. Phila. & Susquehanna Blue Stone Co., 13 W. N. C. 57 (1883). "° Lane's Ap., 105 Pa. 49 (1884). But see Peterson v. Sinclair, 83 Pa. 250 (1877); Glen Iron Works, 14 W. N. C. 514 (1884). In the latter case Mr. Justice Bradley did not concur in the rule laid down in Lane's Ap., but held that the unpaid subscriptions to the capital stock of an insolvent corporation might be levied upon under writs of attachment-execution, although no assessment had been made by the board of directors. In Bank of Virginia v. Adams, i Parsons, 534, 541 (1850), Judge King said: "Of the superionty of the remedy in equity in cases like the pres- ent through which payment of the fund applicable to the satisfaction of creditors may be required from the stockholders and distributed among all the former, according to the particular equities of each, it is sub- mitted that no doubt can be entertained; even considering the question merely with regard to general convenience and practical usefulness. In point of authority, also, the doctrine is well sustained that a bill may be supported against individual corporators, on a contract with the com- pany, for the discovery and application of the funds of the corporation in their hands to the satisfaction of the contract. The question has arisen in courts of equity in two classes of cases. The one in which no defined capital was required by the charter; the other, where the charter provided for raising by subscription a certain amount of corporation capital. . . . On principle and authority, therefore, it seems alike clear, that in the case of a Pennsylvania corporation, located within our jurisdiction, and having a capital stock subscribed to by stockholders, applicable to the objects of the associated enterprise, we possess the jurisdiction to compel such stockholders to pay the just creditors of the corporation, duly estab- lished to be such, in proportion to the amount of stock subscribed to by them, respectively and remaining unpaid; where the directors of such corporation neglect and refuse to call in such unpaid capital and apply it to the payment of a corporation's debts, such a jurisdiction is essen- tially conservative of the rights of the public, which gives credit to the corporation on the faith of their ostensible capital, and to which such capi- tal is pledged. Any doctrine short of this would leave the general public subject to be preyed upon by reckless speculators, who will be always found ready to enter into any enterprise in which the prospect of profit seems great, and the certainties of hazard little." STOCK SUBSCRIPTION. 28 1 paid subscriptions, there must be an account taken of the amount of debts, assets, and unpaid capital, and a decree for an assessment of the amount due by each stockholder. The reason of this is that upon the insolvency of the incorporation a stockholder is liable for only so much of his unpaid sub- scription as may be required to pay the creditors. Hence he may not be called upon in an arbitrary way to pay any sum that an assignee or creditor may demand. It is therefore requisite to ascertain, in an orderly manner, the extent of the stockholders' liability before proceedings are commenced to enforce it.^*'^ Where, however, it appears that at the time of the insol- vency of the company the unpaid subscriptions had all been called, and that the debts of the company exceeded in amount what had not been paid upon the calls, an individual creditor may after having exhausted his remedy at law against the corporation, proceed in equity against an individual stock- holder to enforce an unpaid call, although no account was taken of the other indebtedness of the company, and the other stockholders are not made parties.^*® The obligation on part of a stockholder to pay his stock is not a statutory obligation, but an obligation in equity aris- ing out of the consideration that the capital stock of a corpo- ration is a trust fund for the payment of its debts. Only so much of the unpaid capital as is necessary for the payment of the debts can be called in, and this can only be done when all other assets are exhausted.^*® An insolvent corporation chartered under the Act of April 29, 1874, made an assignment for the benefit of its creditors. Subsequently creditors of the corporation for wages, work and labor done, and material furnished, one of whom was a '"Citizens' & Miners' Savings Bank v. Gillespie, 115 Pa. 564 (1887); Bell's Ap., IIS Pa. 88 (1886); Lane's Ap., 105 Pa. 49 (1884); Yeager v. Scranton Trust Co., 14 W. N. C. 296 (1884). "'Cornell & Michler's Ap., 114 Pa. 153 (1886). "'Bell's Ap., IIS Pa. 88 (1886); Citizens' & Miners' Savings Bank v Gillespie, lis Pa. S64 (1887). 282 STOCK SUBSCRIPTION. judgment creditor upon whose judgment a H. fa. had been issued and returned "nulla bona," filed a bill in equity against the corporation, its assignee, and its stockholders. The bill alleged that a portion of the capital stock of the corpora- tion had been uncalled and unpaid, and that neither the cor- poration nor the assignee had taken any steps to collect it. It also alleged that there were no corporate assets to pay debts. The bill prayed for an account, an assessment upon the stockholders for amounts due upon their subscription to stock, that a decree that such sums should be paid, and that a receiver should be appointed. It was held that the bill was properly framed, and that the complainants were entitled to the relief sought.^^" A court of equity has no jurisdiction to sustain a bill in equity filed by creditors of a foreign corporation against a stockholder thereof in Pennsylvania, who has not paid up his subscription to the capital stock of such corporation.*®^ "° Lane's Ap., 105 Pa. 49 (1884). "' In Bank of Virginia v. Adams, i Parsons, 534, 549 (1850), Judge King said: "No trace is found of any case in which a jurisdiction identical witii that involved here, has ever been exercised by a court of equity; that is, the case of proceedings against individual stockholders of a foreign corporation, because of the insolvency or refusal to execute its corporate duties by such corporation in the sovereignty of its creation. The incon- venience and difificulties which would arise from the exercise of such a jurisdiction are manifest. These, it is admitted, would form no just objection against the exercise of a clear jurisdiction, but they form strong reasons against the assumption of a doubtful one. Such a procedure against stockholders is founded on the theory that the proper corporate authorities have neglected or refused to perform their corporate duties, which require them to collect all unpaid instalments of the capital stock, and to apply them to the satisfaction of corporate obligations. The fact of such neglect or refusal is the predicate on which equity intervenes to make those liable immediately who are liable ultimately for the payment of the debts of the corporation. If, however, issue should be taken on the fact of such neglect or refusal, this draws with it the inquiry vifhether the foreign corporation has done that which its charter requires ; in fine, whether the corporation has or has not been in default in its ad- ministration of corporate duties. The assumption of such a jurisdiction might draw into our courts like inquiries, not merely affecting corpora- tions created by our sister sovereignties but foreign corporations, prop- STOCK SUBSCRIPTION. 283 Equity will not Enforce Allotment of Stock. 228. A subscription to the unissued stock of a corpora- tion where the corporation has accepted the subscription without offering to allot the stock aitiongst the stockholders, does not confer upon the subscriber the right to compel the issue of any portion of such stock to himself, or to have the subscription of any other person declared invalid. His rem- edy is not in equity, but at law to recover damages for any injury which he may have suffered.^ ^^ Original Subscriber Cannot Believe Himself from Liability by Transfer. 229. A subscriber to the stock of a corporation, who fails to pay his subscription in full, cannot relieve himself from lia- bility thereon upon the insolvency of the corporation, by transferring his stock to a third person who agrees to as- sume the liability, even though the transfer be made with the assent of the officers of the corporation.^^* Forfeiture of Stock. 230. The power to forfeit stock must be strictly pursued, and if any restrictions or limitations therein provided have been disregarded, the alleged act of forfeiture will be declared invalid.^ ^* A railroad company, in enforcing the payment of calls by forfeiture of the stock, must strictly pursue the mode pointed out in its charter and the general laws of the State. erly so called, in which a citizen, a resident, or a person temporarily in the State might be interested as a stockholder. For the jurisdiction once admitted with reference to the stockholders of corporations created by the respective States, the principle on which it rests must embrace cases of corporations, wherever existing, or by whomever created. The sim- ple statement of such a proposition seems to us to carry with it its own condemnation. If stockholders in one State could be proceeded against, so might they in every State of the Union of whose jurisprudence English equity formed a part. Such proceedings might even be simultaneous, and certainly could not fail to present strange conflicts of decision." "' Shellenberger v. Patterson, 168 Pa. 30 (1895). "'Sharon Savings Bank v. Messersmith, 8 W. N. C. 91 (1880). ""Germantown Pass. Ry. v. Fitler, 60 Pa. 124 (1869); Morris v. Metal- line Land Co., 164 Pa. 326 (1894). See Section 193, supra, and Section 902, infra. 284 STOCK SUBSCRIPTION. Under the general railroad act stock may be forfeited six months after a default in the payment of a renewed note for stock subscription. In such a case the court said: "The second acceptance or note, as renewed, became payable on November 2, 1871. The sale was made of the stock on the iSth of May, 1872, more than the required six months hav- ing elapsed since the renew^ed note became due, and the plain- tiff was in default. We are not clear, however, that the taking of plaintiff's acceptances extended the time beyond the first day of September, 1871, from which the six months of de- fault were to be reckoned. If this company was made up of a large company of stockholders it might be proper to discuss the power of a board of directors to exact money in payment of assessments from the body of the stockholders and favor others by taking their obligations and extending the payment of them from time to time. We have not met any decision on the exact point, but the general current of authority throws a strong doubt on the powers of the directors of a corpora- tion to make any discrimination between the stockholders. They cannot accept from shareholders a sum of money in discharge of his liability to calls: 27 Eng. L. Eq. R. 575. Di- rectors are agents with limited powers. All subscribers to the stock must stand on an equality. These points have been frequently decided. The discretion of the managers as to calls are modal, merely relating to the time and manner of making payments: Ger. Pass. Ry. Co. v. Fitler, 60 Pa. 132. It is not necessary to pursue this question. Here the number of stockholders is limited, and the taking of plaintiff's paper and the extension of the time of payment were done with the consent of all.''^*^ The directors of a corporation may declare a forfeiture of stock after the company has made an assignment for the ben- efit of creditors. In such a case if the shareholder objects to the payment of his subscription to the treasurer of the com- '"Witte V. People's Pass. Ry., 5 Leg. Gaz. 273; s. c, i Leg. Chron. Rep. 2S2 (1871). STOCK SUBSCRIPTION. 285 pany on the ground that he has notice of the assignment, it is his duty to tender the amount to the assignee, and then if the assignee refuses to accept it the stockholder will have a clear equity to be relieved from any attempted forfeiture.^ ^® If a charter provides that the managers of a corporation may declare a forfeiture of stock if a stockholder shall omit for the space of six months to pay any instalment which may be called for, a forfeiture may be declared without notice to the stockholder.^ ^'^ Consolidated Companies. • 231. A subscription to the stock of a corporation formed from the consolidation of three other companies is valid although made before the agreement for consolidation was filed in the office of the secretary of the Commonwealth.^^® A railroad company consolidated by the union of two other companies under the authority of an act which provided that all the property and debts due to the original companies shall be transferred to the consolidated company, has the right to enforce the collection of the stock subscribed for one of the original companies.^®* "' Germantown Pass. Ry. Co. v. Fitler, 60 Pa. 124 (1869). ™ Germantown Pass. Ry. Co. v. Fitler, 60 Pa. 124 (1869). ™ McClure v. People's Freight Ry., 90 Pa. 269 (1879). "'Hamilton v. Clarion, Mahoning & Pittsburgh R. R., 144 Pa. 34 (1891). CHAPTER XXIV. TRANSFER OF STOCK. Statutory Provisions. Duty of Company as to Trans- fer. Method of Transfer. Charter Regulations. 236. By-Laws as to Transfers. 237. What Title the Transfei-ee Ac- quires. Notice of Company as to Ownership. Notice of Transferee as to Ownership. Notice of Statutory Regula- tions. Authority of Agent to Make Transfer. Liability of Agent in Making Wrongful Transfer. Evidence as to Validity of Power of Attorney. 244. Right to Fill up Blank Power. 232. 233 234. 235- 238. 239- 240. 241 242. 243- 245- 246. 247. 248. 249. 250. 2.5 1. 253- 254- 255- 256. 257- Power of Attorney in Fact who is Husband of Owner. Transfer by Married Women. Delivery of Certificate. Consideration. Transfer of Stock as Collateral Security. Negligence of Owner. Jurisdiction of Equity as to Transfers. Authority of Trustee Must be Shown. Lien on Stock. Measure of Damages for Wrongful Transfer. Liability of Transferee for As- sessments. Liability of Original Sub- scriber After Transfer. Agreement of Transferee to Pay Assessments. Statutory Provisions. 232. The shares of the capital stock of every such com- pany may be transferred on the books of the company, in person or by attorney, subject to such regulations as the by- laws may prescribe; but the provisions of this section shall not apply to corporations in which by this act different and other rules and provisions are enacted for their regulation and government.^ The stock of every corporation created under the pro- ' .'\ct of April 29, 1874, Sec. 11, P. L. 79. 286 TRANSFER OF STOCK. 287 visions of this statute shall be deemed personal property. And no shares shall be transferable until all previous calls thereon shall have been fully paid in or shall have been de- clared forfeited for the non-payment of calls thereon.^ Any stockholder of any company incorporated under the laws of this Commonwealth shall be entitled to receive a cer- tificate of the number of shares standing to his, her, or their credit on the books of the corporation, which certificate shall be signed by the president or vice-president or other officer designated by the board of directors, countersigned by the treasurer and sealed with the common seal of the corporation, which certificate or evidence of stock ownership shall be transferable on such books at the pleasure of the holder in person or by attorney, duly authorized as the by-laws may prescribe, subject, however, to all payments due or to be- come due thereon and the assignee or party to whom the same shall have been so transferred shall be a member of said corporation and have and enjoy all the immunities, priv- ileges, and franchises, and be subject to all of the liabilities, conditions, and penalties incident thereto, in the same man- ner as the original subscriber or holder would have been, and upon a sale of such stock in satisfaction of any debt for which it is pledged the purchaser shall have the right to compel a transfer of such stock upon the corporation books and delivery of a proper certificate therefor.^ All laws or parts of laws inconsistent herewith be and the same are hereby repealed.* ' Act of May 25, 1887, P. I^. 273, amending the Act of April 29, 1874, Sec. 12, P. L. 79. " Act of June 24, 1895, Sec. i, P. L, 258. "Act of June 24, 1895, Sec. 2, P. L. 258. The Act of 189s does not purport either in its title or elsewhere to amend the Act of April 29, 1874, Sec. 7, P. L. 78, which reads as follows : "The di- rectors of such corporation shall procure certificates or evidences of stock, and shall deliver them signed by the president, countersigned by the treas- urer, and sealed with the common seal of the corporation, to each person or party entitled to receive the same, according to the number of shares by him, her, or them respectively held, which certificates or evidences of stock shall be transferable at the pleasure of the holder in person, or by attorney duly authorized, as the by-laws may prescribe, subject, how- ever, to all payments due, or to become due thereon; and the assignee or party to whom the same shall have been so transferred shall be a member of said corporation, and have and enjoy all the immunities, privi- 288 TRANSFER OF STOCK. Duty of Company as to Transfer. 233. A corporation is a trustee for its shareholders, not only to properly manage and protect their capital, but also to protect their title thereto, so far as to permit no fraudulent or unauthorized transfer of such title on its books, or any unauthorized cancellation of a certificate of stock. If the cor- poration illegally cancels and destroys certificates of stock, relying upon forged powers of attorney, a court of equity will compel the corporation to issue to the owner of the cer- tificates other certificates for an equal amount of stock.^ Stock certificates issued by a corporation having power to issue are a continuing afifirmation of the ownership of the special amount of stock by the person designated therein, or his assignee, and the purchaser has a right to rely thereon, and claim the benefit of an estoppel in his favor as against the corporation. If a person expends money upon the faith of an official certificate of the officers of the company, he has a right to be indemnified, to the extent of his expenditure, against loss from false certificates, but only because of the fact of his expenditure. The false certificates are no certifi- cates in legal contemplation, and give no rights of their own force. But the act of the officers in issuing them, having been accepted and acted upon by another, the company can- not be heard to deny the truth of the fact represented, but the holder of such a certificate, Avho has merely received it as collateral security for a pre-existing debt from the person in whose name it was fraudulently issued can recover nothing leges, and franchises, and be subject to all the liabilities, conditions, and penalties incident thereto, in the same manner as the original subscriber or holder would have been, but no certificate shall be transferred so long as the holder thereof is indebted to said company, unless the board of directors shall consent thereto." ° Penna. Co. for Ins. on Lives v. Franklin Fire Ins. Co., 181 Pa. 40 (1897); Penna. R. R. Co.'s Ap., 86 Pa. 80 (1878); Willis v. Phila., etc., Pass. Ry., 6 W. N. C. 461 (1879); Telford & Franconia Turnpike Co. V. Gerhab, 22 W. N. C. 175 (1888); Bell v. Laflferty, i Penny, 454 (1881); Given's Ap., i Monaghan, 321 (1888) ; Harrisburg Bank v. Tyler, 3 Watts & Serg. 373 (1842); Presbyterian Congregation v. Carlisle Bank, 5 Pa. 345 (1847); Fearon v. Creely, 2 W. N. C. 363 (1876). TRANSFER OF STOCK. 289 from the corporation, as he was uninjured by the falsity of the statement contained in the certificate.® Method of Transfei-. 234. The poHcy of the law favors the sale and transfer of stocks, and the avoidance of anything which will tend to hamper such transactions. The ordinary method of transfer is by a certificate with an assignment in blank and an irrevo- cable power of attorney. The courts have constantly held that the holder of a certificate of stock with an assignment in blank and an irrevocable power of attorney executed with- out notice, and for value, will be protected in his title. Where the owner in this way has placed all the indicia of title in another he will not be permitted to deny the title of the ven- dee who has purchased in good faith, and without notice of the owner's rights.'^ An assignment of a certificate of stock is only an equitable assignment, and to complete the transfer of the legal title a transfer must be made upon the books of the corporation.* Charter Regulations. 235. The provision in a charter relating to the establish- ment of transfer agencies is a regulation of a directory char- acter, and any deviation from it, though it may subject the management of the corporation to responsibility to the gov- ernment and the stockholders, cannot be taken advantage of by third persons.** By-Laws as to Transfers. 236. A by-law requiring any extraordinary formality, or imposing any impediment in the transfer of shares is void.^* The charter of a bank provided that the stock should be "assignable and transferable only in such manner, and at " Kisterbock's Ap., 127 Pa. 601 (1889). 'Souder v. Columbia Nat. Bank, 156 Pa. 374 (1893); Ryman v. Ger- lach, 153 Pa. 197 (1893)- ' Bank of Commerce's Ap., 73 Pa. 59 (1873). •Bank of Kentucky v. Schuylkill Bank, i Parsons, 180, 231 (1846). "Bank of Kentucky v. Schuylkill Bank, i Parsons, 180 (1846). 19 290 TRANSFER OF STOCK. such place or places as the president and directors of the principal bank shall by their by-laws prescribe." In execu- tion of this power the president and directors passed a by- law which enacted that "the stock of this bank shall be as- signable and transferable at the bank in Louisville, and in other places where the bank shall appoint special agents for this purpose, upon the surrender of the certificates thereof." The board of directors resolved "that the president and cashier be authorized and requested to estabHsh transfer agen- cies in New York, Philadelphia, and New Orleans, under the laws relating to transfers." It was held that the creation of the Philadelphia agency was in strict conformity with the law." A by-law required the transfer of stock to be made on the books of the company, and to be attested by the secretary. A stockholder authorized the secretary in writing to transfer his stock. In pursuance of this authority the secretary en- tered upon the books that the stock was transferred "see paper filed." The paper referred to was the authority in writing given to the secretary. The secretary pasted the paper in the book and attested the entry of transfer as secretary, but did not sign any transfer as attor- ney. It was held that this was a substantial compliance with the by-laws. The court said: "The practice was to per- mit the transfers in the presence of the secretary, who at- tested them. Everything was done which the by-laws and usage of the company required, except that he did not sign the transfer twice over, as attorney, and then attest his own signature as secretary. But he no doubt thought that at- taching the sign manual of the holder, appended to the au- thority or power to the books and entry, was higher evi- dence of the transfer than his own signature would be. The law looks more to the substance of things than to the mere form." 12 " Bank of Kentucky v. Schuylkill Bank, i Parsons, 180, 228 (1846). '= Cliambersburg Ins. Co. v. Smith, 11 Pa. 120 (1849). TRANSFER OF STOCK. 29 1 A corporation may waive the strict requirements of the by-laws as to the transfer of stock. Thus where a by-law re- quired the consent of the directors to a transfer of stock by a stockholder indebted to the company, such a provision is waived if it appears that in the practice of the company such cases were never brought before the board, and a transfer by a stockholder indebted to the company is made without the consent of the directors, but according to the usage of the company.^^ What Title the Transfereff Acquires. 237. A certificate of stock of a corporation is not a con- tract, nor is it a negotiable instrument, but it is merely evi- dence that the holder is entitled to a definite share in the cap- ital of the company. "One claiming under the transfer of such an instrument may therefore acquire the title of the transferer, but will acquire no more, and if that is vitiated by fraud, cannot rely on his own good faith or the payment of value as a defense against the injured party. The sale and delivery of a certificate of stock does not without more have the efifect of a conveyance for value of land, and leaves the purchaser, like the assignee of a Ijond or mortgage, subject to all equities that could have been enforced against the as- signor." In Shafer v. Linnard, 17 Phila. 162 (1885), it appeared that one Williams obtained a certificate of stock with a power of attorney in blank from the plaintififs by fraudulent pre- tenses, and pledged it to Linnard as collateral security for a pre-existing debt, in consideration of an agreement on his part to accept certain promissory notes for the amount due, and forbear suit until the notes matured. It was held that the this was not such a purchase for value as precluded the plain- tiffs from reclaiming the stock on the ground of the fraud practiced by Williams. See Linnard's Ap., 21 W. N. C. 40; 3 Atl. Rep. 840. " Chambersburg Ins. Co. v. Smith, 11 Pa. 120 (1849). 292 TRANSFER OF STOCK. Where a transfer is in due form, and a certificate of stock issued to a bona Ude purchaser without notice, the absolute legal title is in the transferee, although the party transferring was guilty of fraud.^* Notice of Company as to Ownership. 238. The president of a corporation assigned his stock to another, and notified the directors and the secretary of the assignment, and resigned his oflfice. On the face of the cer- tificate were the words "transferable on the books of the company in person or by attorney." The transfer was never noted on the company's books. Subsequently a judgment was recovered against the president, and the company was summoned as garnishee. It made no defense and permitted the stock to be sold, and subsequently paid dividends to the purchaser of the stock at sheriff's sale. It was held that the president's assignee could recover in assumpsit the dividends paid by the company, and that he could maintain an action against the company for the tort.^^ An owner of stock indorsed it in blank, and subsequently died bequeathing the stock to his wife. The son of the dece- dent without his mother's knowledge or consent took the stock and pledged it to a bank for a loan to himself. The president of the bank knew of the death of the original owner, but made no inquiries. It was held that the bank was liable to the widow for the value of the stock.^" An owner of bank stock bequeathed it to his four sons. During the minority of one of the sons the bank with notice of the will permitted the transfer of a portion of the stock by the consent of all of the legatees to a stranger. It was held that the bank could not subsequently refuse to permit a " West Branch & Susquehanna Canal Co.'s Ap., 32 P. F. Smith, 19 (1870); Burton v. Peterson, 93 Pa. 214 (1881); Dovey's Ap., 97 Pa. 153 (1881); Boyd's Ap., 3 Walker, 321; Ryman v. Gerlach, 153 Pa. 197; Herd V. Pittsburgh Bank, 42 P. L. J. 298. " Telford & Franconia Turnpike Co. v. Gerhab, 22 W. N. C. 175 (1888). " Given's Ap., 1 Monaghan, 321 (1889). TRANSFER OF STOCK. 293 transfer of the remainder of the stock on the ground that a debt was due to the bank by two of the sons who were of full age when the transfer of the other shares was permitted.^^ An agent bought for his principal certificate of a corporate loan and notified the officers of the company for whom he bought, and had the certificate made out in his principal's name. He retained the certificate, and subsequently with- out any authority from his principal, and without her knowl- edge, had the certificate transferred to another person. It was held that the mere fact that the agent had possession of the certificate did not of itself justify the corporation in mak- ing a transfer on the books of the company.** If a blank power of transfer with genuine signature is pre- sented thirteen years after the date of the transfer, the corpo- ration is bound to make inquiry if the power has been re- voked, and if it fails to do so, it is guilty of negligence, for which it may be held liable.*^ The declarations of a bank cashier that certain stock which stood in the name of an individual was a trust fund, is ad- missible, in an action by the cestui que trust against the bank for refusing to permit a transfer."** A corporation which has no notice of a transfer of stock is bound to pay a dividend when declared to the party who ap- pears by the stock book as the owner of the shares. Thus the holder of certificates of stock which were dehvered to him with powers of attorney signed in blank by the owner, as collateral security, but which stock was not transferred on the books of the company, cannot recover the amount of the dividend paid by the company in good faith and with- out notice to a third party who produced a later assignment of the dividend from the owner without the certificates.^* "Presbyterian Congregation v. Carlisle Bank, s Pa. 345 (1847). " Lehigh Coal & Navigation Co. v. Mohr, 83 Pa. 228 (1877)- "Pennsylvania R. R. Co.'s Ap., 86 Pa. 80 (1878); Willis v. Phila., etc., Pass. Ry., 6 W. N. C. 461 (1879). '" Harrisburg Bank v. Tyler, 3 Watts & Serg. 373 (1842). " Bell V. Lafferty, i Penny. 454 (t88i). 294 TRANSFER OF STOCK. Notice of Transferee as to Ownership. 239. A person who takes stock under a blank transfer is not protected where the circumstances are such as to put him upon inquiry as to the true ownership of the stock. In Ryman v. Gerlach, a stock broker in Wilkes-Barre, named Bodmer, and defendants, stock brokers in Philadel- phia, were correspondents. Defendants executed orders of Bodmer, communication being held between the two offices by private wires. On May 31, 1889, the plaintifif, Ryman, through Bodmer, ordered the purchase of 100 shares Texas Pacific Railroad stock; it was bought for him by defendants, the certificates made out in his, Ryman's, name, transmitted to Bodmer and by him delivered to Ryman, who then de- livered his check for the price, $2,168.75, payable to the order of Gerlach & Harjes, to Bodmer, who transmitted it to them. This check included the commissions of both brokers, and the money was received on it by defendants. Some time after this transaction Ryman purchased, through the same parties, in precisely the same way, 100 shares of N. Y., Susquehanna & Western Railroad stock. After the de- livery of this last stock, in November, i8go, Ryman wanted to buy Atchison, Topeka, & Santa Fe stocks; he proposed to Bodmer that a purchase be made of the Atchison stock, to be carried for him until the following ist of January by Bodmer, he to secure Bodmer by a deposit, as collateral, of the 200 shares of the stocks first bought, Ryman to pay for the stock so purchased on January 1st, and lift the collateral. This was satisfactory to Bodmer, and agreed to by him; at the time the agreement was had, it was understood between them that the order was to be executed through Gerlach & Harjes; Ryman asked Bodmer if they transacted a legiti- mate business; Bodmer assured him they did no other kind of business. Under this arrangement a purchase of 50 shares of Atchison stock was made, and $10,000 of Atchison in- come bonds; there were some sales and purchases of the last named securities to get them, according to Ryman's testi- TRANSFER OF STOCK. 295 mony, at a lower price, but, he avers, always for actual de- livery and not as a wagering transaction. The Texas Pacific, New York, Susquehanna & Western, and the Atchison stock and bonds remained in possession of Gerlach & Harjes at Philadelphia up to December 30, i88g, when they failed in business, and these stocks, without no- tice to either Bodmer or Ryman, were sold by defendants or their receiver, and the proceeds credited to Bodmer, with whom alone they had any account. It appeared as a fact at the trial, that not only Ryman's stocks, but those of all others who did business through Bodmer, were entered on the books of defendants as Bodmer's, and treated as his by them. Ryman, after the failure of Gerlach & Harjes, wrote to them inquiring about his securities, but received no answer; in April following he came to Philadelphia and saw Harjes, one of the partners, and offered to pay for the Atchison stock and bonds and take up the collateral, but Harjes said the account was kept with Bodmer alone, and without his authority he would have no communication with Ryman in regard to the matter. It was held in a wrongful conversion of the securities that there was sufficient evidence to submit to the jury to deter- mine whether defendant had sufficient notice of the real ownership of the securities.^^ A person who has conferred upon another, by a written transfer all the indicia of ownership of stock, is estopped to assert title to the stock as against a third person who has in good faith purchased it for value from the apparent owner.^^ Notice of Statutory Regulations. 240. Where regulations relating to the transfer of stock are prescribed by statute, all persons are bound to take notice of it.2* '' Ryman v. Gerlach, 153 Pa. 197 (1893). " Wood's Ap., 92 Pa. 379 (1880). "^National Bank of the Republic v. Rochester Tumbler Co., 172 Pa. 614(1896). . . ,.., i4!ii^mm 2g6 TRANSFER OF STOCK. Authority of Agent to Make Transfer. 241. Where an cigent is authorized to transfer stock the grant of authority embraces all the usual and accustomed means of carrying the specific authority into effect, and of course includes the power to issue new certificates to pur- chasers on receiving the surrender of old ones from sellers.^' Iiiability of Agent in Making Wrongful Transfer. 242. If the cashier of a bank permits a transfer of stock to the bank in excess of the amount permitted by the char- ter and the bank is thereby injured, the cashier is answerable in damages to the stockholders, although the transfer was authorized by a resolution of the board of directors.^® Evidence as to Validity of Power of Attorney. 243. In an action against a corporation for an alleged un- authorized transfer, the plaintilif put in evidence a copy of a letter of attorney certified by a notary pubhc to be a copy. It was held that the plaintiff by putting in evidence the copy waived all objections as to the non-production of the orig- inal, and inade it unnecessary for the defendants to prove that it was a copy of the true power of attorney.^^ Higbt to Pill up Blank Power. 244. The delivery of a certificate of stock with a power of attorney to transfer, executed in blank is evidence of an im- plied authority to fill up the power with the name of an at- torney to make the transfer.^^ Power of Attorney in Pact who is Husband of Owner. 245. An attorney in fact, acting under a general power of attorney for the sale of corporate stock, is not authorized to " Bank of Kentucky v. Schuylkill Bank, i Parsons, 180, 228 (1846). =° Washington Bank v. Barrington, 2 Penrose & Watts, 27 (1830). " Moelling v. Lehigh Coal & Navigation Co., 8 W. N. C. 194 (1880). '■' German Union Building & Saving Fund Association v. Sendmeyer, 50 Pa. 67 (1865). If the transfer is tor a particular purpose, the power is exhausted by the first use of it by the insertion of the name of the transferee: Denny v. Lyon, 38 Pa. 98 (1861). TRANSFER OF STOCK. 297 sell the same in part or in full payment and satisfaction of his individual indebtedness, without the knowledge, prece- dent authority, or subsequent ratification of his principal; and it is immaterial that the person holding the power of at- torney is the husband of the owner of the stock.^® Transfer by Married Women. 246. Prior to the passage of the Married Persons Prop- erty Act of 1887 a married woman had no power to transfer stock without her husband's consent, but the consent of the husband could be inferred from the fact that he filled out the blank transfer, and signed it as a witness. In such a case persons who take the stock under the transfer are not put upon inquiry as to whether the husband consented or not.^** Belivery of Certifleate. 247. Where an owner of stock transfers it on the books of the corporation to a niece who lives in his family, and is treated by him as a daughter, and after the transfer retains the certificates in his own possession without ever having informed his niece of the transaction, the niece after his death is entitled to the stock.^^ Consideration. 248. In an action to recover damages for a refusal to trans- fer stock the plaintifif is bound to show affirmatively that the transfer to him was for a valuable consideration.*^ Transfer of Stock as Collateral Security. 249. Where a debtor gives stock to a creditor as collateral security, the title to the stock passes to the creditor at the time of the delivery of the certificate and power of attorney, "^ Wilson V. Wilson-Rogers Co., 181 Pa. 80 (1897). ""Souder v. Columbia, Nat. Bank, 156 Pa. 374 (1893). " Roberts's Est., 85 Pa. 84 (1877)- "'Littell V. Scranton Gas & Water Co., 42 Pa. 500 (1862); Common- wealth V. Watmough, 6 Whart. 117 (1840); United States v. Vaughn, 3 Binn. 394 (1811). 298 TRANSFER OF STOCK. 1 although it continues to stand on the books of the company in the debtor's name.** Where a stockholder assigns his stock to the corporation as collateral security for the loan, his title to the stock is so far divested that it cannot be sold under an execution against him.8* Negligence of Owner. 250. If the owner of stock, after signing a blank transfer, intrusts it to an agent, who fraudulently transfers the stock to another person, who, in good faith^ had it transferred to himself, the owner of the stock has been guilty of negligence, and cannot recover from the corporation.*® An owner of stock indorsed the certificates with blank powers of attorney to transfer. Thirteen years afterwards, and while the certificates were still in his possession, he died, and the stock came into the hands of his wife, whom he had appointed executrix of his will. The executrix without can- celling the blank powers gave them to an attorney-at-law, who fraudulently converted the stock to his own use. It was held that while the corporation was negligent in making the transfer after the original owner was dead, and after so long a time had expired from the date of the power, the executrix was still more negligent in intrusting the certificates to her attorney, and that therefore she could not recover from the corporation.*® Jurisdiction of Equity as to Transfers. 251. A court of equity will sustain a bill against a corpo- ration by the assignee of the equitable owner of stock of the corporation for a decree vesting him with the legal title to the stock, where it appears that the stock has no value in the " Finney's Ap., 59 Pa. 398 (1868). " Early & Lane's Ap., 89 Pa. 411 (1879). " Pennsylvania R. R. Co.'s Ap., 86 Pa. 80 (1878). See Littell v. Scran- ton Gas & Water Co., 2 Luz. L. Obs. 82. " Pennsylvania R. R. Co.'s Ap., 86 Pa. 80 (1878). TRANSFER OF STOCK. 299 market. In such a case there is no adequate remedy at law.*^ Authority of Trustee Must be Shown. 252. A trustee of stock, or the transferee of such trustee, cannot require a corporation, or a transfer agent, to transfer the stock, without exhibiting, if required, the authority to " Sank V. Union Steamship Co., S Phila. 409 (1864). In this case the court said; "I entirely agree with the argument that we will not in equity enforce the performance of personal contracts as a general rule. Even that is subject to many exceptions, which I think it unnecessary to indicate. But I think a case of a corporation promising to all buyers of its stock to permit transfers, or rather engaging to perform the duty of allowing it to take place on their books, is a clear case of exception. The nature of its property, its qualified liability, the difficulty of execution, and the nature of the action in a case like the present, distinguish such a case as this broadly from the ordinary case of a failure in transactions between private parties about public stocks or ordinary property. I in- cline much towards the distinction made by Vice-Chancellor Shadwell, in Duncroft v. Albrecht, 12 Sim. 189, between public stocks with a known market value and stocks of a particular company with none in market, and recognized by the Lord Chancellor in De Gex & Jones, 27. The former resembles ordinary property with known values, while the latter more resembles the case of specific or peculiar property, with a value contingent or uncertain, which, it has been held, the only adequate remedy is to give the thing itself; i Lead. Cas. in Eq. 757, and i Eq. Jurisp. 724. Chancellor Dessaussure, in Brown v. Gilleland, 3 Dess. 539, ' says, it is usual to decree specific performance of contracts respecting real estate; and it is equally the settled course of the courts to refuse to decree the specific execution of personal contracts, but as to that he ex- pects peculiar circumstances and peculiar property, and that is undoubt- edly the rule; and stocks as a general thing fall within it, but may be an exception as well as other things; especially must this be so if there be no known value to it. i Eq. Jurisp. sup., Story says: 'We understand the present rule of the English chancery to be that a specific performance of a contract to convey shares in a railway or other private corporation will be decreed upon the ground that such shares are of uncertain value, and not always readily attainable in market.' For this he cites numerous authorities. The doctrine on this point is most ably discussed in the note to Cuddie v. Butler, i Lead. Cas. Eq. 640." See Clark v. Savings Assn., I Leg. Rec. 337, where it was held that equity will not order a transfer unless the right is first established by law. See also to the same effect Roland v. Lancaster County Bank, 135 Pa. 598; Edelman v. Latshaw, 159 Pa. 644. For a case where the jurisdiction of equity was sustained see Norristown Traction Co. v. Slingluff, 7 Montg. 83. 300 TRANSFER OF STOCK. transfer beyond the certificate. Executors, administrators, and trustees of insolvent debtors are not bound, however, to exhibit their authority further than the evidence of their appointment. The functions of such persons are merely to distribute, and the property in their hands is not afifected by any trust which would imperil the transfer agent. In the case of executors, however, the will may be required to be exhibited in order that the transfer agent may ascertain whether the stock sought to be transferred is afifected by any trust contained in the will.^^ ■■" The leading case upon the subject is Bayard v. Farmers' & Mechanics' Bank, 52 Pa. 232 (1866). In this case the -whole subject was carefully considered by Mr. Justice Strong, and the principles which he there laid down have since been the guide for all corporations and persons responsi- ble for the transfer of stock. Judge Strong said: "The purchaser of stock does not receive the certificate of his vendor, but a new one, made out in his own name, and reciting nothing contained in the former. He is therefore protected in the enjoyment of his purchase, even though there was no right to make the transfer to him. For this reason an un- authorized transfer is a wrong done to the owner of stock, for which not only the person who makes it, but any one knowingly assenting in the wrong is responsible. That a bank or other corporation, and also these defendants, are trustees to a certain extent for stockholders — that is, for the protection of individual interests — cannot be denied. They are alike trustees of the property and of the title of each owner. They have in their keeping the primary evidence of title, and they are justly held to proper diligence and care in its preservation. From this it results that they may rightfully demand evidence of authority to make a transfer be- fore they permit it to be made. Their own safety requires that they be .■satisfied of the right of the person proposing to make a transfer to do what he proposes. Generally sufficient evidence of such right is found in the possession of legal title to the stock. Yet it is well settled that it is not in all cases sufficient, notwithstanding that the true equitable ownership may be in some other than the holder of the legal right, and a transfer may be a gross wrong to such an equitable owner. To that wrong the corporation or keepers of the register make themselves parties, if, with knowledge that there is no equitable right to transfer, they per- mit It to be done. And in equity, whatever puts a party upon inquiry, is notice of what inquiry must reveal. The real difficulty is in determin- niir !'.ow far it is the duty of the transfer agent to inquire. The law casts the legal ownership of personal property of a deceased intestate upon his administrators. They are sometimes said to be trustees, but they are such for administration. Their primary duty always is to dispose, of the TRANSFER OF STOCK. 3OI personal property, and therewith pay the debts of the intestate and make distribution amongst his next of kin. A sale or transfer of stocks by them is therefore in the line of their duty. There is no ceshii que trust having a right to interfere and prevent such ii transfer. Hence, letters of admin- istration are always sufficient evidence of authority. "A trustee of an insolvent debtor would seem to stand on the same footing. And so, generally, does an executor. His primary duty is ad- ministration. He is to pay debts and legacies out of the personal estate, and use even specific legacies to pay debts if necessary. His letters tes- tamentary, therefore, show an apparent right to dispose of the stocks of the testator. Even if the stock has been bequeathed specifically, a trans- fer agent has no means of ascertaining whether it is needed to pay debts. He can inquire only of the executor, the very person who proposes to make the transfer. If he inquire of the specific legatee he can learn nothing, for the legatee may be ignorant, and to require evidence of authority beyond the letters testamentary, might greatly delay and em- barrass the executor in the discharge of his duties. It has therefore gen- cr:illy been held that transfer agents may safely permit a transfer of stock by an executor without looking for his authority beyond his letters. Such was the ruling of Hartga v. The Bank of England, 3 Vesey, 55; Bank of England v. Parsons, s Vesey, 665; Bank of England v. Parsons, IS Vesey, 569; Franklin v. The Bank, 9 B. & C. 156; Fowler Churchill V. The Bank, II M. & W. 323, and Bank v. Franklin, i Russell Ch. 575. Similar decisions have been made in this country, and so far the law is undoubted. "Yet even in cases in which executors have attempted to make trans- fers of stock, or a public loan, transfer agents (meaning thereby the cor- poration in which the stock is held) have sometimes been required to make inquiry into the right of the executor beyond the let- ters testamentary, and even beyond the will itself. In Lowry V. The Commercial & Farmers' Bank of Baltimore, decided by Chief Justice Taney, in the Circuit Court of the United States for the Maryland District, and reported in American Law Journal, N. S. Vol. 3, page III, it was ruled that where bank stock had been bequeathed to an executor in trust to pay the dividends to certain persons, and the executor had transferred it to one who had made allowances thereon for the use of the executor, the bank which had issued the certificate, having notice that the stock belonged originally to the testator, was bound to look at the title of the executor under the will before it permitted the transfer. In that case the transfer was made by the executor as such, and there was no proof of any actual notice to the bank that the stock had been specifically bequeathed, and that the executor was violating his trust by making the transfer. Yet the Chief Justice held that the bank was bound to take notice of the will when the transfer was proposed by one of the executors; that it was negligence in the bank not to examine it, and that if it was ignorant of its contents, and of the specific bequest of the stock, it was its own fault; that it must be dealt with as if it had pos- 302 TRANSFER OF STOCK. sessed actual knowledge that the stock in question was specifically be- queathed by the testator, and was not by the will to be transferred. He then proceeded to show that while it might have been sold if necessary for the payment of debts, there was enough to indicate to the bank that it was not needed for such an use. The bank was therefore held liable as a party to the fraud of the executor. It was held responsible for not pre- venting the executor, who had the legal right, from making the transfer. But were it conceded tliat in no case is an executor offering to make a transfer of stock issued to his testator under obligation to exhibit any other authority than his letters testamentary, it would by no means follow that this plaintiff had a right to demand of the defendants an allowance of his proposed transfer without furnishing for their inspection more than his certificate. He was not an executor, but a trustee. The cer- tificates held by him had been issued in the name of 'Thomas F. Bayard, trustee of Mary Gilpin.' Upon their face it appeared that though the legal right was in him, he was not the owner. The person to be affected by the transfer was not himself but Mary Gilpin. There is a marked difference between thp powers of an administrator or executor and those of an ordinary trustee. The common duty of the latter is not adminis- tration or sale, but custody and management. No purchaser either of land or personalty would be safe in buying from a known trustee with- out looking at the nature and extent of his trust. It is true, a trustee may have power to sell, but the power is not a necessary incident to his trust, as it is to the office of an executor. He may have the legal title, and yet have no authority to sell. His sale may be entirely unauthorized by the instrument that created the trust; it may have been forbidden. Why, then, does not a bank or a transfer agent act at its peril when per- mitting him to make a transfer? If in truth he has no such power, the bank, by accepting his certificate and issuing others in lieu thereof to his transferee, is assisting him to destroy the rights of the cestui qiie trust. It has even been held that a corporation is liable if it permit a trans- fer by a lunatic holding a legal right, though it had no knowledge of the lunacy, and was guilty of no actual fault: Chew & Goldsborough v. The Bank of Baltimore, 14 Maryland, 299. The reason given was that it might have provided against the transfer by precaution. If thus liable when only the innocent cause of a loss, much more is the liability certain when the transfer is permitted with full knowledge that the stock does not belong to the person who offers to transmit it to another; if the transfer is in fact unauthorized, such knowledge was given in this case by the form of the certificates. It is true that it was ruled in Albert and Wife v. The City of Baltimore et al, 2 Maryland, 159, that the mere designation of the stockholder as trustee without a specification of the trust, or naming the cestui que trust, was not such notice to the transfer agents as to make it their duty to look beyond the legal title, for it did not point to any .source of information. The fiduciary character of the person in whose name the stock stood did not appear, and in Stockdale v. The South Sea Company, Barnardiston,363,the Lord Chancellor said: 'It is certain these p-reat con- TRANSFER OF STOCK. 303 Where the right of executors to sell stock is doubtful, or wiiere they have impeached their own title, a corporation is not liable in damages for refusing to transfer stock standing in the name of a decedent to the vendee of the executors. The executors of a decedent applied to a corporation to have stock standing in the name of their decedent trans- ferred to a person to whom they had sold the stock. The attorney for the corporation advised that the executors had no power under the will to sell stock, but that they must hold it in trust for the purposes designated. By an ex parte proceeding in the Orphans' Court, the executors obtained an order of sale, but the corporation still refused to make the transfer. Subsequently a son of the decedent of exactly the panics are only to consider the person in whose name the stock stands, unless the trust of the stock is declared on their books.' But naming the person for whose use the stock is held is certainly a declaration of the trust. In remarking upon the case of Harrison v. Harrison, 2 Atk. 121; Davis V. The Bank of England, 2 Bright, 393, and other cases in which the legal authority of a trustee to transfer has been conceded, Chancellor Johnson said, in Albert v. The Savings Bank, i Maryland Chancery Decisions, 40/, 'they must be understood as applying to cases where the fiduciary character appears, but there is nothing to indicate the nature of the trust, or the beneficiaries.' And there is no case in which it has been ruled that a trustee of stock, whose certificate shows a declared trust for another named has a right to transfer it without showing a power beyond his certificate. It never had been decided that a corporation may disregard the rights of a known equitable stock- holder. It would be an anomaly were there any such decisions. An obliger in a bond must take notice of the rights of an equitable assignee of the obligee. A stakeholder cannot very safely pay over to him who has the legal right when he knows another to be the beneficial owner. With equal reason, at least, ought it to be held illegal for a corporation to aid in destroying the title of a cestui que trust to its stock without being satisfied that the trustee had authority to part with and destroy it. We hold, therefore, that the plaintiflf had no right to insist upon being al- lowed to make a transfer of stock which he held ostensibly in trust for Mary Gilpin, without exhibiting to the defendants an authority to trans- fer beyond the certificate." In Wood's Ap., 92 Pa. 379 (1880), it was held that the law casts no duty upon the purchaser of stock from an executor to ascertain if the executor is abusing his trust in selling the stock. But this does not apply to a pledge of stock by an administrator: Ellis's Ap., 8 W. N. C. 538 (1880). 304 TRANSFER OF STOCK. same name as his father, wrote to the corporation claiming that the stock was his. The executors made no objection to the son's claim. The corporation I'efused to issue new certifi- cates to the son, but stated that they were wilHng to transfer the stock to the executors. About seven months after the original demand, and after the stock had depreciated in value, new certificates were issued to the executors. It was held that the corporation was not Hable to the executors for the depreciation in the value of the stock.*'-* Where the executors of foreign trustees demand that stock of a Pennsylvania corporation should be transferred to them, and the corporation in answer to a bill in equity to compel a transfer aver a willingness to transfer the stock, but ask that the cestuis que trust shall be made parties to the bill, and that copies of the will and of the letters testamentary to the exec- utor shall be filed, the court will not make an order to trans- fer the stock until the demands of the corporation, as set forth in its answer, are complied with.*" Stock cannot be transferred under letters testamentary granted in a foreign country. The purpose of the legislation upon this subject is to prevent the estate of decedent non- residents from being withdrawn from the jurisdictions of the State to the prejudice of domestic creditors, and others in- terested in the distribution." Lien on Stock. 253. The seventh section of the Act of April 29, 1874, gives a lien against the stock of a shareholder for all kinds of indebtedness and is not restricted to indebtedness grow- ing out of the original subscription or subsequent calls there- on. Mr. Justice Mitchell, in construing this section, said: ™ Livezey v. Northern Pacific R. R., 157 Pa. 75 (1893). See Henke's Ap., 22 W. N. C. 49. "Lehigh Coal & Navigation Co.'s Ap., 88 Pa. 499 (1879). " Alfonso's Executors' Ap., 70 Pa. 347 (1872) ; Acts of March 15, 1832, Sec. 6, and March 29, 1832, Sec. 7. There is no distinction in this re- spect between letters testamentary and letters of administration. TRANSFER OF STOCK. 30$ "On its face and by the natural meaning of the words it in- cludes all kinds of indebtedness. Standing alone there could be no question about it. But appellant contends that it should be read with and controlled by the previous expres- sion 'subject to all payments due or to become due thereon,' and its meaning therefore is restricted to indebtedness grow- ing out of the original subscription and subsequent calls or assessments thereon. The argument is ingenious but not convincing. It is opposed not only as already said to the natural meaning of the words used, but also to the words which would most naturally have been used if the intent had been as claimed. The prior part of the section makes the certificate transferable at the pleasure of the holder, and the transferee takes them subject to all payments and liabilities incident to the original subscription. If the indebtedness which would prevent a transfer without the consent of the directors had been intended to be only that arising from the same source, the easiest and most obvious mode of expres- sion would have been to add to the first clause 'and subject further as to all payments due thereon, to the consent of di- rectors,' or to have substituted for the last clause, 'but no certificate shall be transferred so long as any payments re- main due thereon,' unless directors consent, etc. Either of these forms would have expressed clearly and definitely the restriction of the kind of debt which would prevent transfer, and one of them, or some other similar phrase would have been the natural expression chosen for such idea. But in- stead of using any such expression the legislature indicated its intent by the broad word 'indebted.' The fact is as was pointed out by the learned master, that the two clauses as they stand in the act do not refer at all to the same thing. The first, 'subject to all payments due or to become due thereon' refers to the obligations to be assumed by the new taker, whik the other 'so long as the holder is indebted' re- fers to the existing obligations of the former owner. A stockholder may become indebted to his company in many 20 306 TRANSFER OF STOCK. Other ways than for calls upon his subscription, and the com- pany may be content with his ability to pay, and its hold upon his shares as security. But this security would be lost if he could step out at any time by the transfer of his shares with only a liability for calls upon the original subscription. The legislature clearly had these considerations in view when, it drew the distinction between the new obligations of the transferee and the old ones of the transferor, and described the latter by the broad word 'indebted.' But there is an- other section in the act which makes this conclusion irresisti- ble. If the indebtedness which gives a lien is only such as arises from 'payments due' on the stock, then a stockholder not so indebted can, as the language of the first part says, transfer at his pleasure, and the consent of the directors need only be obtained when he is so indebted. But by Section 12, *No shares shall be transferable until all previous calls thereon shall have been fully paid in.' That is, if the present holder is not indebted on calls the consent of the directors to a trans- fer is not necessary, and if he is so indebted the directors have no power to consent, so that in either alternative the pro- hibition against transfer without consent of the directors be- comes ineffective, and the clause without meaning. A con- struction which leads to such results cannot be entertained. "Where the legislative intent is clear from the words used it is idle to discuss the agreement or variance of such intent from previous legislative policy. But as the subject has been somewhat elaborated in the argument, it may be well briefly to call attention to the trend of legislation in this State to- wards the gradual assimilation of rights and duties between members of partnerships and of corporations. The statutory authorization of special, and later of limited partnerships has approximated the status of the members to that of mere stockholders in that they may invest a definite amount of capital and avoid the unlimited common-law liabilities. On the other hand, when a partner sells out, either voluntarily or involuntarily, he passes to his vendee only a right to an ac- TRANSFER OF STOCK. 307 count, and he cannot at any time unless by consent withdraw from the firm and leave the others to pay its debts, and in this respect the legislature has passed many acts, including the one under present consideration, tending to put a stock- holder desirous of withdrawing, in an analogous position by requiring him first to pay up his indebtedness to the corpora- tion."" , J.f A treasurer of a corporation who was a stockholder em- bezzled the funds of the company. The directors allowed him time and opportunity to make up the amount of his de- fault. It was held that in'doing so they did not imperil the lien which the corporation had upon the stock.*^ A corporation instead of distributing its profits in the shape of dividends, credited its stockholders on its books with sums equal to 6 per cent, of the value of their stock, and " National Bank of Republic v. Rochester Tumbler Co., 172 Pa. 614 (1896). See Lanahan v. Collins, 28 W. N. C. 287 (1891). "National Bank of the Republic v. Rochester Tumbler Co., 172 Pa.. 614 (i8g6). In this case Mr. Justice Mitchell said: "Nor can the claim be sustained that the defendant has lost its right to lien as against the appellant, by reason of negligence in allowing the debt to be created. There is no obligation on a creditor to take care of other creditors of the mutual debtor further than by the avoidance of fraud. An employer may intrust his employee to the extent of negligence without impai-ing his rights against the employee, or giving the employee's creditor any ground of complaint, before notice of such creditor's rights. And even after notice it does not follow that he must sacrifice his own rights. In the present case it is doubtful if the learned master did not go too far in favor of the appellant in holding that knowledge by the president and directors of the treasurer's misconduct raised any duty to outside parties to discharge him, or in any way impair the right of lien even for a sub- sequent increase of his debt. Such is not the rule even in favor of sure- ties: Ry. Co. V. Shaffer, 59 Pa. 350. The directors being suddenly con- fronted with knowledge that their treasurer had by outside speculation with the company's money, became a defaulter, had to decide whether it was for the interest of the company to allow him- time and opportunity to withdraw gradually from the illegal ventures and reduce his debt, or to stop him peremptorily at all risks. In reaching a decision they were not necessarily bound to take notice of danger to his other creditors, or to prefer such interests to their own. Those are matters which must de- pend on the particular circumstances of each case." 308 TRANSFER OF STOCK. the stockholders were allowed to draw out moneys from time to time which were charged against their account. During certain years the company limited the right to draw out more than 5 per cent, upon its stock. One of the stockholders drew out more than 6 per cent, for several years. Annual ac- counts were rendered to him, showing that he was indebted to the company, and to these statements he made no objec- tion. A by-law of the company provided that no stock should be transferred so long as the owner of the stock was indebted to the company. After the death of the stock- holder who was indebted to the company, it was held that his representative could not deny the indebtedness, and that the debt was a lien upon the stock. In the above case it appeared that after the death of the stockholder the company was reorganized. The resolution under which the reorganization was effected provided that the stock of the new corporation should be issued propor- tionately to the holders of the old, but that no stockholders indebted to the corporation should receive such new stock until his debt was fully paid, and on his failure to pay it for sixty days, the directors were authorized to apply a sufficient amount of the stock at par to the extinguishment of the debt, and issue the balance to the stockholders. It was held that the resolution was reasonable, and within the power of the corporation.** No lien exists at common law in favor of a corporation upon the stock of a member for a debt due by the member to the corporation. When such a lien exists, it is by statu- tory authority either expressed in the act of incorporation or by by-laws made by authority of the act. It seems that a mere by-law will not create such a lien unless notice of the by-law is brought home to a purchaser of stock before the purchase.''' " Reading Trust Co. v. Reading Iron Works, 137 Pa. 282 (i8go). "Merchants' Bank v. Shouse, 102 Pa. 488 (1883); Steamship Dock Company v. Heron's Administratrix, 52 Pa. 280 (1866). See Geyer v. TRANSFER OF STOCK. 3O9 Where an act gives a bank a lien on stock for all money owing to it by a stockholder, it may refuse to permit a trans- fer of stock itntil all of the debts of the stockholders to the bank are paid. This lien is not disturbed by the fact that the stock has been taken in execution and sold by a judgment creditor of the stockholder. The purchaser at such sale takes it subject to the lien. The bank is not bound to appro- priate a part of the stock to pay its debt and transfer the bal- ance to the person who has purchased the stock at the sher- iff's sale." Where a corporation under its charter and by-laws has a lien upon the stock for a debt due by the stockholder, a sale of the stock under execution issued by a judgment creditor of the stockholder will not divest the lien of the corporation, but the purchaser if he desires a transfer of the stock will have to pay the amount of the lien upon it.*'' Where a corporation has by its charter and by-laws a lien upon stock for a debt due by the stockholder, the lien is not destroyed because the corporation's right of action for the debt is barred by the statute of limitations.** A corporation is not estopped from asserting its statutoiy lien against the stock of a shareholder by a form of certifi- cate that the shares are "transferable personally, or by attor- ney on the books of the company" without any reference to a lien for the stockholder's indebtedness to the company. The language of the certificate is not a representation of any in- herent quality of the shares or rights of the holder, but is merely information as to the mode of transfer.*® A transfer of stock upon which there are unpaid instal- Western Ins. Co., 3 Pitts. 41 (1867) ; Wain's Assignees v. Bank of North America, 8 S. & R. 73 (1822); Childs v. Hudson's Bay Co., 3 P. Wms. 207 (1723). ** Sewall V. Lancaster Bank, 17 Serg. & Rawle, 285 (1828). *' Geyer v. Western Ins. Co., 3 Pittsburgh Rep. 41 (1867). "Gayer v. Western Ins. Co., 3 Pittsburgh Rep. 41 (1867). "National Bank of the Republic v. Rochester Tumbler Co., 172 Pa. 614 (1896). ■; ji;.' JJl ,310 TRANSFER OF STOCK. ments, passes no title to the assignee unless the board of di- rectors give their consent in the manner prescribed by Sec- tion 7 of the Act of February 19, 1849. In Pittsburgh & Connellsville R. R. Co. v. Clarke, Lewis, C. J., said: "So long as the stock remains unpaid the corpora- tion has a right to refuse to receive new members in place of original adventurers. Until the stock is fully paid up and the stockholders otherwise free from debt to the company they have no right whatever to introduce strangers into the company in their places. A right which depends upon the consent of others is no right at all. The transfer to Mr. Stan- ton was therefore of itself a nullity. An attempt was made to give it a vitality by parol evidence from which the consent of the board of directors was to be inferred by the jury. But there is no evidence tending to show that the question was ever presented to the consideration of the board, or that any action was taken by the board in regard to the transfer. In ordinary business transactions between a corporation and strangers, the authority of agents and the existence of con- tracts ma> be implied from acquiescence and other circum- stances. So, where the assent of the board is required by a by-law only, the execution of the by-law may be modified by the practice of the corporation: Insurance Company v. Smith, I Jones, 126. But where the act of incoi-poration grants a power, the mode prescribed by the statute for its ex- ercise must be strictly pursued.®* Where an act prohibits the transfer of bank stock, or the receipt of dividends thereon by any stockholder, who may at the time be indebted to the bank, the right of the bank to prevent such transfer or payment becomes absolute as soon as any such debt becomes due and payable, and the title to the stock remains in the bank for its security until payment, and for the benefit of the sureties of the debtor, if there be any, afterwards.** "29 Pa. 1246 (1857). " Klopp V. Lebanon Bank, 46 Pa. 88 (1863). TRANSFER OF STOCK. 3II Under the Act of March 20, i8ig, Section 35, where bank stock is taken in execution and sold, the purchaser of the stock takes it subject to the lien or any debt due by the holder of the stock of the bank; and a subsequent sale of the stock for the debt creating such lien divests the title of the first pur- chaser.®^ A stockholder in a bank cannot under the Act of March 21, 1814, transfer his stock while he is indebted to the bank on a note discounted in the ordinary way.^^ The president of a corporation in combination with the other ofificers of the com'pany fraudulently over-issued stock, of which a large amount was issued to himself. He subse- quently issued certificates with executed blank powers of at- torney. The assignees of the certificates did not have the transfer made on the books of the company, and before any attempt was made to do so the president in whose name the shares stood became heavily indebted to the company. It was held that the provisions of Section 7 of the general rail- road law of February 19, 1849, P. L. 79, forbidding the trans- fer of shares so long as the holder is indebted to the com- pany were applicable, and that the holders of the certificates were not entitled to a transfer of the shares to their own names, without first having discharged the indebtedness of the president of the company.''* Measure of Damages for Wrongful Transfer. 254. Where a corporation has improperly transferred stock the measure of damages is the' market value of the stock at the date of a demand by the owner for a transfer, or if no de- mand is made, at the date of instituting a suit against the company.^° "West Branch Bank v. Armstrong, 40 Pa. 278 (1861). "Rogers v. Huntingdon Bank, 12 Serg. & Rawle, ^^ (1824). •* Mt. Holly Paper Company's Ap., 99 Pa. 513 (1882). "Willis V. Phila. & Darby R. R., 6 W. N. C. 461 (1879); German Union Bldg. & Saving Fund Association v. Sendmeyer, 50 Pa. 67 (1865) ; West Branch & Susquehanna Canal Co.'s Ap., 32 P. F. Smith, 19 (1870). 312 TRANSFER OF STOCK. Liability of Transferee for Assessments. 255. "The transferee of stock in an incorporated company is liable for calls made after he has been accepted by the company as a stockholder and his name has been registered on the stock books as a corporator; and being thus liable there is an implied promise that he will pay calls made while he continues the owner." "^ =" Bell's Ap., IIS Pa. 88 (1886); Lane's Ap., 105 Pa. 49 (1884); Miller V. Peabody Bank, 15 W. N. C. 76 (1887). In Reimer Harrow Co. v. Rosenberger, 16 Phila. 191 (1883), Thayer, P. J., said: "Prior to the Act of April 29, 1874, it was settled by numer- ous decisions in this State that a transferee of stock in an incorporated company was not personally liable for an unpaid subscription. He could not be sued, therefore, for an unpaid call made after his acquisition of stock. The remedy of the company was to forfeit the stock if the as- signments were not paid: Canal Co. v. Sansom, i Bin. 70 (1803); Palmer V. Mining Co., 10 Casey, 288 (1859) ; Franks Oil Co. v. McCleary, 13 Sm. 317 (i86g); Messersmith v. Sharon Savings Bank, 15 Norris, 440 (1880); Coal Co. V. Otterson, 4 W. N. C. S4S (1877)- And it made no difference that the assignee of the stock had agreed with the assignor to pay the as- sessments: Coal Co. V. Otterson, ut supra. But the decisions were made under acts which imposed no liability upon the transferee for assess- ments made upon his stock. The general corporation law, however, dif- fers in that respect from those acts. The seventh section of the Act of April, 1874, under which the plaintiffs were incorporated, enacts that the assignee or party to whom the stock had been transferred 'shall be a member of said corporation, and have and enjoy all the immunities, privi- leges, and franchises, and be subject to all the liabilities, conditions, and penalties incident thereto in the same manner as the original subscriber or holder would have been.' The twelfth section enacts 'every cor- poration may from time to time, at a legal meeting called for the purpose, assess upon each share of stock such sums of money as the corpora- tion may think proper, not exceeding in the whole the amount at which each share was originally limited, and such sums assessed shall be paid to the treasurer at such times and in such instalments as the corporation directs.' The eleventh section enacts that 'all subscriptions to the capi- tal stock shall require, and if default be made in any payment the person or persons in default shall be liable to pay, in addition to the amount so called for and unpaid at the rate of one-half of one per centum per month for the delay of such payment, and the directors may cause suit to be brought for the recovery of the amount due, together with the pen- alty, or the directors may cause the stock to be sold in the manner pro- vided in Clause 2 of Section 29 of this act.' It will be observed that the words used are 'the persons or persons in default,' not the subscriber TRANSFER OF STOCK. 3I3 An act incorporating a company declared the certificates of stock to be transferable at the pleasure of the holder in the presence of an officer of the company, who was to keep a book for that purpose, subject, however, to all payments due or to become due thereon. The assignee holding such certificate, after having caused the assignment to be entered in the books of the company, was to be a member of the cor- poration. The act further provided that if after thirty days' notice of any instalment being called for, any stockholder should neglect to pay his proportion thereof, he should pay who is in default. The effect of these provisions, in our judgment, is to make the assignee of the stock of a company incorporated under this act personally liable at least for unpaid assessments made during the time in which he is the owner of the stock. Whether his liability extends beyond that we are not called upon in the present case to decide. No other construction, it seems to us, would satisfy the words of the act. The holder of the stock by assignment is certainly within the words of the seventh section, and no intention is apparent to restrain or qualify the words to a particular class of liabilities. The words are, 'all the lia- bilities, in the same manner as the original subscriber or holder would have been.' We have no right to narrow the construction so as to give the words a less comprehensive operation than they clearly import upon their face. The maxim is that, in the absence of ambiguity, no exposition of a statute shall be made which is opposed to the express words. The general rule is that a verbis legis non est recedendum, for nothing can so well explain the meaning of the makers of the act as their own direct words, and maledicta expositio quts corrumpit textum. It is dangerous to give scope for making a construction against the express words where it is not certain that the meaning of the lawmakers is not opposed to them. When it is argued, therefore, that the comprehensive words of the seventh section may be satisfied by supposing that the legislature intended by the word 'liabilities' only the personal liabilities imposed upon stockholders for work and materials, as enacted in the fourteenth section, the reply is obvious that such a construction does not satisfy the words, for the words are 'all liabilities, in the same manner as the original subscriber or holder would have been.' It appears to us that the language of the act leaves no escape from the conclusion that the assignee of the stock is. to be liable for assessments made while he is the holder, in the same manner as the original subscriber or holder would have been if he had not parted with his stock. There is nothing in such a conclusion which is opposed to reason or justice, and it is a conclusion necessary and un- avoidable if the words are to be construed according to their ordinary meaning." 314 TRANSFER OF STOCK. at a certain rate per month in addition, and in a certain event the stock should be forfeited, or in default of payment of any stockholder of any instalment, the corporation might cause suit to be brought to recover the same w^ith the pen- alty. One of the original subscribers after certain instal- ments had been called for, but before they were payable transferred his stock to another person who subsequently in the presence of the proper officer, and on the books of the company transferred it to a third person. The second trans- feree assented to the transfer before it was made, but never gave any personal notice of his acceptance of the transfer, nor called for a certificate. It was held that the first trans- feree was not liable to pay any instalment which became due after the transfer by him.®'' The transferee in the case of an insolvent incorporation cannot be held liable unless it appears that the whole of the unpaid subscription is necessary to pay the creditors of the corporation.®* In Merrimac Mining Co. v. Levy, 54 Pa. 227 (1867), it was held as to a Michigan corporation, under authority of a Michigan case, that a transferee of stock from an original subscriber is liable for the unpaid subscription on the stock. There is nothing in the mining company's act of July 18, 1863, which makes it an incident of receiving a transfer of assessable stock that the holder thereof becomes personally liable to pay the assessments which may be made by the company. The company can only indemnify itself by a sale of the stock and pursuit of the original subscriber.'" Liability of Original Subscriber After Transfer. 256. A subscriber to the stock of a corporation, who, after the insolvency of the company and notice to him that his stock would be sold unless assessments were paid, voluntarily assigns the certificate in blank and delivers it to the treas- " West Philadelphia Canal Co. v. Innes, 3 Whart. 198 (1838). " Citizens' & Miners' Savings Bank v. Gillespie, 115 Pa. 564 (1887). " Franks Oil Co. v. McCleary, 63 Pa. 317 (1869). TRANSFER OF STOCK. 315 urer of the corporation, at his request, does not thereby re- lieve himself from liability for the unpaid portion of his sub- scription.*** " Burt V. Real Est. Exchange of Phila., 175 Pa. 619 (1896). In Aultman's Ap., 98 Pa. 505 (1881), Chief Justice Shauswood said: "We might hold it as the law of Pennsylvania that a stockholder hold- ing by transfer from a subscriber may relieve himself from liability for unpaid instalments to the corporation by a transfer duly entered on the books and accepted by the corporation, but not an original subscriber. His obligation is dehitum in prcssenti solvendum in future." Citing West Phila. Canal Co. v. Innes, 3 VVhart. 198 (1838); Pittsburgh & Connells- ville R. R. V. Clarke, 29 Pa. 146 (1857); but in Bell's Ap., 115 Pa. 88 (1886), it was stated, although the case did not involve the question, that in the absence of a provision in the charter that the original subscriber shall be liable notwithstanding a transfer of stock, the subscriber is re- lieved from liability upon transfer of the stock. In Messersmith v. Sharon Savings Bank, 96 Pa. 440 (i88o), the original subscriber without knowledge of the insolvency of the company in good faith transferred his shares to another person, with knowledge and consent of the corpora- tion, but it was held that he was liable to pay assessments made after his transfer of the stock. In Bell's Ap., 115 Pa. 88 (1886), the court said that the case of Messer- smith V. Sharon Savings Bank, 96 Pa. 440 (1880), "must not be understood as a decision that the transferee of stock in a corporation which has become insolvent is not liable for the payment of the unpaid portion of the shares held by him when the unpaid capital is required for the payment of the debts of the corporation. That case did not involve that question. It was an ordinary common-law action of debt directly upon the subscrip- tion contract, and the original subscriber was held bound to pay, because he had contracted to pay, the whole subscription price of the stock. The court held that a transferee in good faith and upon the agreement to pay subsequent calls was not bound to pay them, and a single remark in the opinion of this court seems to countenance that idea. It is true that such is the law as declared in several decisions of this court, but they were decisions arising upon charters, or by-laws, providing for only a par- ticular remedy in case of non-payment of instalments, such as the for- feiture and sale of the stock itself in case of default, as was the case in Franks Oil Co. v. McCleary, 63 Pa. 317 (1869), and Palmer v. Ridge Mining Co., 34 Pa. 288 (1859), or that the company has no right of action against the transferee, and no remedy against him except a for- feiture of the shares as was the case in the President, etc., v. Sansom, i Binn. 70 (1803), and 34 Pa. 288 (1859). There is also another class of cases in which the same rule as to liability of original stockholders is held notwithstanding they have transferred their shares. They are cases of subscription to the stock of railroad companies subject to the general railroad law of February 19, 1849, the seventh section of which provides 3l6 TRANSFER OF STOCK. Agreement of Transferee to Fay Assessments. 257. The owner of 100 shares of stock on which he had paid $5 a share, sold the stock to another person for $1,100, and gave a power of attorney to transfer them to the vendee "subject to the payment of the remaining instalments by the transferee or his assigns, as the same may be called in." No formal assignment was made of the stock. Subsequently a second instalment was called for, and a few days after the call and before the time of payment, the transferee sold the shares to a third person, and gave him the receipt for the first in- stalment, and the power of attorney in -which he had erased his own name. Neither the transferee nor the purchaser from him paid the second instalment, and the original sub- scriber afterwards paid it, and brought an action against the transferee to recover the amount of it. A witness who was present at the time of the sale of the stock to the transferee stated that he had a faint impression that there was some- thing said about the liability for instalments. It was held that no transfer shall have the effect of discharging any liabilities incurred by the owners thereof. Some of these cases are the following: Pittsburgh & Connellsville R. R. Co. v. Clarke, 29 Pa. 146 (1857) ; Graff v. Pittsburgh & Steubenville R.R.Co.,31 Pa. 489 (1858); Hays v. Pittsburgh & Steubeti- ville R. R., 38 Pa. 81 (i860); Cass v. R. R. Co., 80 Pa. 31 (1875). Subject to such exceptional instances as these, it cannot be doubted that the obli- gation to make good the unpaid portions of capital stock when the neces- sities of creditors require it is a charge upon the stock which passes with it to the holders of it. It is an equitable obligation founded upon no statute, and rests upon those who are the owners of the stock at the time of insolvency. If this were not so, the creditors of a corporation which had been in existence for many years, and whose original sub- scribers were dead and gone long before the insolvency of the company occurred, would be deprived of all resource to the unpaid capital stock at the very time when alone they needed it. The doctrine is thus stated in Ang. & Ames on Corporations, Sec. S34: 'When an original subscriber to the stock of an incorporated company, who is bound to pay the in- stalments on his subscription from time to time as they are called in by the company, transfers bis stock to another person, such other person is substituted not only to the rights but to the obligations of tiie original subscriber, and he is bound to pay up the instalments called for after the transfer to him. The liability to pay up instalments is shifted from the outgoing to the incoming shareholder.' " TRANSFER OF STOCK. 317 that there was evidence for the jury to determine whether the transferee had agreed to indemnify the original sub- scriber against the payment of the instalments that might be subsequently called in.®^ An owner of stock in an insurance company transferred it to another "subject to the payment to the company by him, of any instalments due and unpaid on said shares." On the same paper and under the same date it was written by the transferee, "I accept of the above stock on the conditions named in the transfer." It appeared that the transferee bought the stock for another person who was absent, and the transfer was made at the secretary's suggestion to the trans- feree directly. It was held that the transferee was person- ally liable for the instalments, and that his remedy, if he had one, was against the person for whom he bought the stock.®^ Where the charter or by-law provides for only a particu- lar remedy in case of non-payment of instalments, such as the forfeiture and sale of the stock, an agreement made by the purchaser with his assignor to pay the assessments will not make the assignee liable in a suit by the company.®^ " Trevor v. Perkins, 5 Whart. 244 (1840). "Long V. Penn Insufance Co., 6 Pa. 421 (1847). " Pittsburgh & Baltimore Coal Co. v. Otterson, 4 W. N. C. 545 (1877) ; Franks Oil Co. v. McCleary, 63 Pa. 317 (1869); Palmer v. Ridge Mining Co., 34 Pa. 288 (1859); Canal Co. v. Sansom, i Binn. 70 (1803); Torrens V. Campbell, 74 Pa. 470 (1873). CHAPTER XXV. PREFERRED AND DEFERRED STOCK. 258. Preferred Stock. 261. Preferred Stock a Form of 259. General Authority to Issue Mortgage. Preferred Stock. 262. Deferred Stock. 260. Preferred Stock may be Is- sued in Classes. Preferred Stock. 258. Every corporation created under the provisions of this act, or accepting its provisions, may, with the consent of a majority in interest of its stockholders, obtaining [ob-. tained] 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 re- ceive such dividends thereon as the board of directors of the corporation may prescribe, payable only out of the net earn- ings of the corporation.^ General Authority to Issue Preferred Stock. 259. It shall be lawful for any company now or hereafter in- corporated, by or under any general law of this Common- wealth, to issue, with the consent of a majority in interest of its stockholders, preferred stock of the company, not exceed- ing at any time one-half of the capital stock of the corpora- tion; the holders of which preferred stock shall be entitled to receive such dividends thereon, not exceeding 12 per cent, per annum, as the board of directors of said company may prescribe, payable out of the net earnings of the company; and the holders of said preferred stock shall not be liable for any debts of the company.* ^ Act of April 29, 1874, Sec. 16, P. L. 81. 'Act- of April 3, 1872, Sec. i, P. L. 37. 318 PREFERRED AND DEFERRED STOCK. 319 Preferred Stock may be Issued in Classes. 260. Any company authorized by the act, to which this is a supplement, to issue preferred stock, may issue the same in different classes, to be distinguished in such manner as the directors of such company may prescribe; and they may give to the various classes such order of preference in the payment of the dividends, or in the rate of dividends thereon, or in the redemption of the principal thereof, as may be approved by the holders of a majority of the stock of the company; and the company shall have the right to redeem its preferred stock upon such terms as may be prescribed in the issue thereof; and it may specifically appropriate for the payment of the dividends upon any* class of stock, or for the redemp- tion of the principal thereof, the revenues from any specific department of its business or the proceeds of any specified portions of its assets or property: Provided, that no injus- tice shall thereby be done to the existing rights of other stockholders or creditors of the company.^ A real estate corporation issued preferred stock under the Act of April 28, 1873, P. L. 79, and in the issue thereof, pro- vided that the company should at all times be bound to apply any funds remaining in the treasury of the company, or re- sulting from the sale of the real estate, to the redemption at par of any of the preferred stock upon the demand of the holder thereof. It was held that the holder of such stock had no right to its redemption out of any specific assets other than proceeds of sale of real estate, nor out of money in the treasury, if a redemption of the stock would work injustice to the creditor or stockholders of the company by inter- rupting or crippling the business of the company.* Preferred Stock a Form of Mortgage. 261. A corporation may issue new shares and give them a preference, as a mode of borrowing money, where it has power to borrow, as preferred stock is only a form of mort- gage. An act provided that the holders of preferred stock author- ' Act of April 28, 1873, Sec. i, P. L. 79. * Culver V. Reno Real Estate Co., 91 Pa. 367 (1879). 320 PREFERRED AND DEFERRED STOCK ized to be issued under the act should be entitled to receive a dividend of 8 per cent, payable semi-annually in preference to any dividends upon the unpreferred stock. Seventeen years afterwards other acts were passed authorizing the issue of (^nsolidated preferred stock, into which both the preferred stock and common stock should be converted. All the hold- ers of the preferred stock accepted the consolidated stock, except the owners of forty shares, who refused to take it. Subsequently a dividend of 4 per cent, was declared by the company. There had been no previous dividend. It was held that the holders of the forty-two shares of preferred stock were entitled to a dividend of 8 per cent, per annum from the time that the preferred stock was issued, and that they could enforce their right by an action of assumpsit.® Where the directors of a corporation are authorized to in- crease the capital stock of the company and to borrow money on bond and mortgage they may issue preferred stock, pref- erence being given only to the extent of legal interest ii earned, the stock to be redeemable out of net earnings only." Deferred Stock. 262. Every corporation created under the provisions of this act or accepting its provisions, may take such real and personal estate, mineral rights, patent rights, and other prop- erty as is necessary for the purposes of its organization and business, and issue stock to the amount of the value thereof, in payment thereof, and the stock so issued shall be declared and taken to be full paid stock and not liable to any further calls or assessments, and in the charter and certificates and statements to be made by the subscribers and oflfiicers of the corporation, such stock shall not be stated or certified as having been issued for cash paid into the company, but shall be stated or certified in this respect according to the fact, and the executors or administrators of any deceased tenant in common of land, mines, and mineral rights so proposed to be taken may, and they are hereby authorized to convey • West Chester & Phila. R. R. v. Jackson, ^^ Pa. 321 (1875). • Hoffman v. Penna. Warehousing & Safe Deposit Co., i Pa. C. C. R. 598 (1886). PREFERRED AND DEFERRED STOCK. 32 1 the individual estate and interest of such decedent therein to such company, receiving therefor so much stock in such company as the said decedent would have been entitled to receive in his lifetime, to be held in the same manner as the lands: Provided, that no directions or limitations contained in any last will and testament of such decedent shall be in any manner interfered with : And provided, that before mak- ing such conveyance, such executors or administrators shall give sufficient security, to be approved by the Orphans' Court having jurisdiction of their accounts, for the faithful appli- cation of the stock received therefor; no such corporation shall issue either bonds or stock except for money, labor done, or money or property actually received, and all ficti- tious increase of stock or indebtedness in any form shall be void; every such corporation may provide for the issue of de- ferred stock in payment for such real or personal estate or mineral rights, and if so provided, it shall be expressly stated in the charter filed, or in a certificate to be made and re- corded, or in the acceptance of this statute, to be filed by any corporation accepting its provisions, with the amount of such deferred stock, and the consideration of the same, and the terms on which the same shall be issued; and the said stock may be made to await payment of dividends thereon, until out of the net earnings at least 5 per centum has been declared and paid upon the other full paid stock of the cor- poration.^ ' Act of April 17, 1876, Sec. 4, P. L. 32. 21 CHAPTER XXVI. INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 263. Increase of Capital Stock or 270. Amount of Increase Author- Indebtedness, ized. 264. Meeting of Stockholders. 271. Allotment of New Stock. 265. Waiver of Notice. 272. Whether Increase is Principal 266. When Consent is not Neces- or Income. sary. 273. Mandamus Against Illegal In- 267. Election to Increase Capital crease of Stock. or Indebtedness. 274. Cases Relating to Increase of 268. Voting on Increase. Indebtedness. 269. Return of Election. Increase of Capital Stock or Indebtedness. 263. The capital stock or indebtedness of any corporation to be created under the provisions of this statute or accept- ing its provisions, may be increased, from time to time, by the consent of the persons or bodies corporate holding the larger amount in value of the stock of such company, to such amount as such corporation is by this act authorized to increase its capital stock or indebtedness, but such increase shall only be made for money, labor done, or money or prop- erty actually received.^ ^Act of April 29, 1874, Sec. 18, P. L. 81. See Constitution of Penn- sylvania, Article XVI, Section 7; Commonwealth v. Ripple, 4 Kulp, 59. Any other method of increasing the capital stock of a corporation than that prescribed by Sections 16 and 17 of the Act of April 29, 1874, and Section 4 of the Act of April 17, 1876, is invalid: West Point Turnpike Road Co. V. Moyer, 4 Mont. Co. Law Rep. 28 (1888): Street railway companies are within the operation of Article XVI, Sec- tion 7, of the Constitution of 1874, which provides that "no corporation shall issue stock or bonds, except for money, labor done, or money or prop- erty actually received, and all fictitious increase of stock or indebtedness shall be void:" Cheetham v. McCormick, 178 Pa. 186 (1896). 322 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 323 Where the directors of a corporation are authorized to increase ,the capital stock of the company, and to borrow money on bond and mort- gage, they may issue preferred stock, preference being, given only to the extent of legal interest if earned, the stock to be redeemable out of .net earnings only: Hoffman v. Penna. Warehousing & Safe Deposit Co., I Pa. C. C. R. 598 (i886). A certificate of increase of indebtedness is subject to a fee of $25,. pay- able to the State: Opinion of the Attorney-General of February 8, 1876. Companies incorporated prior to the Act of 1874, or not under that act, may increase their capital under the Act of April 18, 1874, P. L. 61, which is as follows: Sec. I. Increase of capital stock or indebtedness.— The capital stock or indebtedness of any corporation may be increased from time to time, by the consent of the persons or bodies corporate holding the larger amount in value of the stock of such company, to such amount as such corpora- tion is by law authorized to increase its capital stock or indebtedness; Provided, That no corporation shall increase the amount of its indebted- ness beyond the amount of its capital stock subscribed, until the amount of its capital stock shall be fully paid in. Sec. 2. Meeting of stockholders to be called. — Any corporation de- sirous of increasing its capital stock or indebtedness, as provided by this act, shall, by a resolution of its board of directors, call a meeting of its stockholders therefor; which meeting shall be held at its chief office or place of business in this Commonwealth, and notice of the time, place, and object of said meeting shall be published once a week for sixty days prior to such meeting, in at least one newspaper published in the county, city, or borough wherein such office or place of business is situate. See Shepp V. Norristown Pass. Ry. Co., 2 D. R. 679 (1893). Sec. 3. Election in regard to increase. — At the meeting called, pursuant to the second section of this act, an election of the stockholders of such corporation shall be taken for or against such increase, which shall be conducted by three judges, stockholders of said corporation, appointed by the board of directors to hold said election; and if one or more of said judges be absent, the judge or judges present shall appoint a judge or judges, who shall act in the place of the judge or judges absent, and who shall respectively take and subscribe an oath or affirmation before an officer authorized by law to administer the same, well and truly, and ac- cording to law, to conduct such elections to the best of their ability; and the said judges shall decide upon the qualification of voters, and when the election is closed count the number of shares voted for and against such increase, and declare whether the persons or bodies corporate holding the larger amount of the stock of such corporation have consented to such increase or refused to consent thereto, and shall make out duplicate re- turns of said election, stating the number of shares of stock that voted for such increase, and the number that voted against such increase, and subscribe and deliver the same to one of the chief officers of said com- pany. 324 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. Sec. 4. Ballots — Shares transferred, and proxies. — Each ballot shall have indorsed thereon the number of shares thereby represented, but no share or shares transferred within sixty days shall entitle the holder or holders thereof to vote at such election or meeting, nor shall any proxy be received or entitle the holder to vote unless the same shall bear date and have been executed within three months next preceding such election or meeting; and it shall be the duty of such corporation to furnish the judges at said meeting with a statement of the amount of its capital stock, with the names of persons or bodies corporate holding the same, and number of shares by each respectively held, which statement shall be signed by one of the chief officers of such corporation, with an affidavit thereto annexed that the same is true and correct to the best of his knowledge and belief. Sec. 5. Return of election to be filed with secretary of Commonwealth. — It shall be the duty of such corporation, if consent is given to such in- crease, to file in the office of the secretary of the Commonwealth, within thirty days after such election or meeting, one of the copies of the re- turn of such election provided for by the third section of this act, with a copy of the resolution and notice calling the same thereto annexed; and upon the increase of the capital stock or indebtedness of such corpora- tion made pursuant thereto, it shall be the duty of the president or treas- urer of such corporation, within thirty days thereafter, to make a return to the secretary of the Commonwealth under oath, of the amount of such increase, and in case of neglect or omission so to do, such corporation shall be subject to a penalty of $S,ooo, which penalty shall be collected on an account settled by the auditor-general and state treasurer, as ac- counts for taxes due the Commonwealth are settled and collected; and the secretary of the Commonwealth shall cause said return to be recorded in a book kept for that purpose and furnish a certified copy of the same to the auditor-general. Sec. 6. Report to auditor-general. — Every corporation shall, within sixty days, when requested by the auditor-general, render to him a report under the oath of its president or treasurer, of the amount of capital stock or bond indebtedness issued pursuant to the provisions of this act, showing in case of stock to whom issued and the price or consideration received therefor, amount received, and from whom, in money, in labor, and in other property; and if so requested, a detailed statement of the character, value, and situation of the property so received; and -in case of refusal or neglect so to do, shall be subject to a penalty of $5,000 for each and every thirty days thereafter such corporation shall refuse or neglect to make such report, which penalty or penalties shall be collected on an account or accounts settled from time to time by the auditor-gen- c-al and state treasurer, as accounts for taxes due the Commonwealth are settled and collected. A corporation chartered prior to the adoption of the Constitution of 1874, cannot increase its stock under the provisions of the Act of April 18, 1874, if it has not accepted the Constitution of 1874: Opinion of the Attorney-General of December 13, 1877. INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 325 Sleeting of Stockholders therefor. 264. Any such corporation desirous of increasing its capi- tal stock or indebtedness as provided by this act, shall, by a resolution of its board of directors, call a meeting of its stockholders therefor, which meeting shall be held at its chief office or place of business in this Commonwealth ; and notice of the time, place, and object of said meeting, shall be pub- lished once a week for sixty days prior to such meeting, in at least one newspaper published in the county, city, or borough wherein such office or place of business is situate.^ Waiver of Wotiee. 265. Publication of notice of meeting to vote for or against an increase of capital stock may be waived by unani- mous consent of all the stockholders; and this consent may be shown by their signatures to the proceedings.' The notice required by Article XVI, Section 7, of the Constitution, and by the Act of April 18, 1874, of a meeting to vote an increase of the capital stock of the corporation may be waived by the unanimous consent of the stockholders, but the meeting itself cannot be waived. The purpose of the Constitution and of the act was not only to protect the individual stockholder, but the public as well.* When Consent is not Necessary. 266. The debts of a manufacturing corporation incurred A railroad company chartered since the Act of April 18, 1874, must increase its capital stock in accordance with the provisions of that act; as to such companies the Act of 1874 repealed the Act of 1868: Chartiers Connecting R. R., i Pa. C. C. R. 270 (1886). A corporation chartered prior to the general corporation Act of 1874, with the unconditional "privilege of increasing its capital stock from time to time" cannot be required, upon an increase of its capital stock, to pay the bonus to the Commonwealth, as provided by the Act of April 18, 1874, P. L. 61, regulating the mode of increasing the capital stock of corpora- tions. The court held that the requirement of such a payment would impair the obligation of the contract between the Commonwealth and the corporation: Commonwealth v. Erie Transportation Co., 107 Pa. 112 (1884). ' Act of April 29, 1874, Sec. 19, P. L. 32. • Bellefonte & Buffalo Run R. R., 2 Chester Co. Rep. 128 (1883). * Tally-on-Top Salesbook Co., 17 Pa. C. C. R. 199 (1895)- 326 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. in employing labor and in purchasing material for its ordinary business, do not constitute such an increase of indebtedness as requires a previous meeting and consent of the stock- holders, as provided by Article XVI, Section 7, of the Act of April 29, 1874.^ Election to Increase Capital or Indebtedness. 267. At the meeting called, pursuant to the nineteenth section of this act, an election of the stockholders of such corporation shall be taken for or against such increase, which shall be conducted by three judges, stockholders of said cor- poration, appointed by the board of directors to hold said election, and if one or more of said judges be absent, the judge or judges present shall appoint a judge or judges, who shall act in the place of the judge or judges absent, and who shall respectively take and subscribe an oath or affirma- tion, before an officer authorized by law to administer the same, well and truly, and according to law, to conduct such election to the best of their ability; and the said judges shall decide upon the qualification of voters, and when the elec- tion is closed count the number of shares voted for and against such increase, and declare whether the persons or bodies corporate holding the larger amount of the stock of such corporation have consented to such increase, or refused to consent thereto, and shall make out duplicate returns of said election, stating the number of shares of stock that voted for such increase, and the number that voted against such increase, and subscribe and deliver the same to one of the chief officers of said company.* Where an increase of stock is authorized at a duly con- vened stockholders' meeting, and a stockholder is present at the meeting, and consents to the increase, he is estopped from subsequently objecting to the increase, and any one holdirtg under him is equally estopped from claiming that the meeting was held without proper notice. In such a case the State alone can question the validity of the increase.^ " Quaker City Bank v. Gilkeson, 18 Pa. C. C. R. 557 (1896). • Act of April 29, 1874, Sec. 20, P. L. 82. ' Columbia Nat. Bank v. Williamsport Gas Co., 17 Phila. 617 (i^). INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 327 Votiag on Increase. 268. Each ballot shall have indorsed thereon the number of shares thereby represented, and be signed by the holder thereof, or by the person holding a proxy therefor; but no share or shares transferred within sixty days shall entitle the holder or holders thereof to vote at such election or meet- ing, nor shall any proxy be received, or entitle the holder to vote, unless the same shall bear date and have been executed within three months next preceding such election or meet- ing; and it shall be the duty of such corporation to furnish the judges at said meeting with a statement of the amount of its capital stock, with^the names of persons or bodies cor- porate holding the same, and number of shares by each re- spectively held, which statement shall be signed by one of the chief officers of such corporation, with an affidavit thereto annexed, that the same is true and correct to the best of his knowledge and belief.* Beturn of Election. 269. It shall be the duty of such corporation, if consent is •given to such increase, to file in the office of the secretary of the Commonwealth, within thirty days after such election or meeting, one of the copies of the return of such election pro- vided for by the twentieth section of this act, with a copy of the resolution and notice calling same thereto annexed; and upon the increase of the capital stock or indebtedness of such corporation made pursuant thereto, it shall be the duty of the president or treasurer of such corporation, within thirty days thereafter, to make a return to the secretary of the Commonwealth, under oath, of the amount of such increase and terms of the same, that is to say, the terms on which additional stock is issued; and in case of neglect or omis- sion so to do, the corporation shall be subject to a penalty of $5,000, which penalty shall be collected on an account settled by the auditor-general and state treasurer, as accounts for taxes due the Commonwealth are settled and collected; and the secretary of the Commonwealth shall cause said re- turns to be recorded in a book to be kept for that purpose, and furnish a certified copy of the same to the auditor-gen- eral, and the corporation shall have the right to recover the ' Act of April 29, 1874, Sec. 21, P. L. 82. 328 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. same from the officer neglecting or omitting to file the re- turn as aforesaid.* Amount of Increase Authorized. 270. Any corporation created by special or general law ^all, notwithstanding any limitation upon the amount of its capital stock by such special or general law, have authority, with the consent of the persons holding the larger amount in value of its stock, to increase its capital stock to accom- plish [orj enlarge the objects and purposes of its incorpora- tion to the amount of $30,000,000 in the aggregate; such in- crease may be made at once or from time to time as the stockholders aforesaid shall determine.^" Allotment of New Stock. 271. The existing holders of stock have a primary right to subscribe in proportion to their holdings for any new issue.^^ If the charter does not direct how additional stock or stock not taken shall be issued or sold, the company has the right to sell such stock at auction.^ ^ Where an act provides that any increase of stock shall be allotted pro rata to stockholders according to their interest, the company cannot charge the stockholders a bonus upon the stock to which they are entitled to subscribe. The Act of May i, 1876, P. L. 60, provides, inter alia, in Section 27 that "any existing fire or fire and marine insur- ance company . . . may at any time increase the amount of its capital stock. . . . Increase of capital stock as afore- said may be made by increasing the number of the shares of stock or by increasing the par value of the same and such increased shares or increased par value shall be allotted • Act of April 29, 1874, Sec. 22, P. L. 82. '"Act of June 10, 1893, Sec. 1, P. L. 417; Commonwealth v. Lehigh Ave. Ry. Co., 129 Pa. 405; Harrisburg & Eastern R. R. Co.'s Ap., i Mona. 692; Wood v. Corry Water Works, 38 P. L. J. 169. " Morris v. Stevens, 178 Pa. 563 (1897). " Miners' National Bank v. Pottsville Water Co., 3 Leg. Chron. Rep. 48 (187s). INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 329 pro rata to the stockholders of said company according to their interest and may be paid in whole or in part out of the accumulated reserve of the company in case the condition of the company warrants such allotments, or the same may be disposed of as provided in this act (Section 4) for the organ- ization of stock companies." Under this act an insurance company increased its capital stock by allotting to each stockholder an option to subscribe for one share for each two shares then held, the par value of the shares being $10, with the proviso, however, that the stockholders availing them- selves of this option should also subscribe "an agreement to pay $10 per share for the privilege of subscribing, the proceeds of which privilege shall be added to the surplus fund of the company." It was held that the company had no authority to charge the stockholders with a bonus on the stock to which they were given the right to subscribe; Cunningham's Ap., 108 Pa. 546 (1885). Where a corporation resolves to increase its capital stock and directs the issue of the new stock to the existing stock- holders upon the payment of a bonus which is illegal, a stock- holder pays the bonus to avoid losing his right to subscribe, may recover the bonus from the corporation in an action for money had and received.^^ A corporation about issuing new stock, required the stock- holders to agree to pay a certain sum above par at a future time for the privilege of subscribing. This bonus was to be added to the surplus fund. A subscriber claiming the right under Cunningham's Ap., 108 Pa. 546 (1885), to take at par, was about to write a written protest when he paid the bonus, when the company's president requested him not to write it, and agreed that under his verbal protest he should have whatever benefit any one should receive, under a written pro- test by any suit. It was held that agreement on the part of the president was simply a waiver of a written protest, put- ting the stockholder in the same position he would have oc- '" Dawson v. Ins. Co. of North America, 6 Pa. C. C. R. 214 (18 330 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. ciipiecl if he had written out his protest in a formal manner; and that it was not an engagement that the stockholder should recover back the bonus paid by him if any one else should recover a bonus. In such a case the court said: "There was nothing in the transaction but a waiver of pro- test; that is to say the protest was to be as effectual as if it had been written out in the most formal manner. It fur- nishes no evidence of a contract between the plaintifif and the corporation that, as a consideration for the plaintiff not putting his protest in writing, he should be entitled to re- cover, if any one, in any suit, past, present, or to come, should be capable of recovering. On the contrary he was to have the advantage only of what any other person should receive in any suit by virtue of a written protest. There was no consideration for anything else. The company did not re- ceive the bonus because of the waiver. The plaintiff went to the office for the purpose of paying the money, and would have paid under a written protest had not Mr. Piatt, as an act of courtesy, merely accepted the verbal waiver. In this con- nection I am unable to see what Cunningham's Ap., io8 Pa. 546, has to do with the case. There was no question of the effect of a protest in that case; it was not alleged that the decree was obtained on any such ground. The bill was filed to restrain the scheme proposed by the company, or to limit the new stock to $10 per share, its par value; to compel the company to issue the stock to complainants upon the pay- ment of $10 per share, and. to restrain it from selling the allot- ments to which the plaintiffs were entitled. This left the company an option. They could advance or recede. As they had gone on to a large extent upon terms offered and accepted by nearly all the stockholders, this bill did not in- terfere with the scheme further than was necessary to sus- tain the right of the particular claimants therein to have their share of the new stock issued to them at par, if the com- pany concluded to issue the shares. The present plaintiff gives the company no option, but is seeking the same advan- INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 33 1 lage as though he had put the company to an election; that is to say, by protest under the contract, or against being re- quired to contract, he can obtain the right under the contract without being bound to comply with the terms. "Undue importance has been attached to the following language in the decree in Cunningham's Appeal: 'And if they or any of them have, under protest, paid such bonus or charges for the said stock shares, that the same be re- funded to them, with interest.' This must be understood to apply only to the litigants in that case. This court did not intend to decide the rights of parties not before it, who were not and could not have been heard. It has never, since its foundation, attempted to exercise such an arbitrary power. Moreover, there was neither protest nor payment in that case; there was nothing, therefore, to which the language re- ferred to could apply, and the expression was doubtless used inadvertently. The decree is broader than the case. "The only important question presented by this record is the legal effect of payment under protest. The plaintiff was entitled under Cunningham's Ap., supra, to subscribe for the new stock at par. The company required him to agree to pay an additional sum at a future time for the privilege of subscribing. This bonus, as it was called, was to be added to the surplus fund. This, however, is not material.- He signed the contract to pay the additional sum, under pro- test, and paid under protest. This suit was brought to re- cover back the money thus demanded. This is the whole case." " Where a corporation refuses to issue to a stockholder his share in the distribution of new stock, the measure of dam- ages for such refusal is the highest market price the stock afterwards attained, notwithstanding that, pending the suit, the corporation became insolvent and made an assignment for the benefit of creditors.^** "De La Cuesta v. Ins. Co., 136 Pa. 63 (1890). " Reading Trust Co. v. Reading Iron Works, 137 Pa. 282 (1890). 332 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. WhetherJIncrease is Principal or Income. 272. Any enhancement in the vahie of the property of a corporation as between a tenant for Hfe of stock of a corpora- tion and the remainderman belongs not to the tenant for life, but to the remainderman. "The right to subscribe for new shares at par upon an increase of the capital stock which is an incident of the ownership of the stock does not belong, as a privilege, to the life tenant, but such an increment must be treated as capital, and be added to the trust fund for the benefit of the remainderman. This is equally the rule whether the trustee subscribes for the new stock for the ben- efit of the trust or sells the right to subscribe for a valuable consideration; in either event the increase goes to the corpus. The subsequent income, however, of such interest belongs, as of course, during the continuance of the life tenancy to the life tenant as income proper, the new shares are part of the corpus, and the life tenant being entitled to the income from the corpus, takes the income from the accretions thereto." i« Earnings or profits of stock made after death are income, and not capital, even though in form of capital by the issue of new stock.^'' Testatrix gave her estate to trustees in trust to pay the income to her children. Part of the estate was composed of the stock of two corporations. After the death of testa- trix the two corporations resolved to increase their capital by an issue of new stock to be subscribed and paid for by the stockholders. The trustees sold the right to subscribe, in one company, and subscribed and paid with their own money for stock in the other company. They sold the stock subscribed for at a premium, and credited the trust fund with the sums made in both cases. It was held that these sums were income, and not capital. The price obtained by the "Eisner's Est., 175 Pa. 143 (1896); Smith's Ap., 140 Pa. 344 (1891)-, Moss's Ap., 83 Pa. 264 (1877); Biddle's Ap., 99 Pa. 278 (1882). " Wiltbank's Ap., 64 Pa. 256 (1870). INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 333 trustees was equivalent to a premium on the sale of the stock.-* Testator at the time of his death in 1848, held 580 shares of the stock of the Lehigh Crane Iron Works, at the value of $125 a share. This stock was a part of his residuary estate, and the income thereof was to be paid to his four children during life with remainder over. The company made large earnings, and on July i, 1854, its actual surplus earnings amounted to over $700,000. On July 10, 1854, under au- thority of an amendment to its charter, the company pro- ceeded to make a distribution of a portion of its surplus, by increasing its capital stock from $200,000 to $500,000. This increase was represented by 6,000 new shares at $50 each, apportioned among the then stockholders, and paid for en- tirely out of the surplus earnings or profits of the com- pany. The 540 shares held by the estate of Earp, received 810 of the additional shares, making altogether 1,350 shares. After the increase of stock the shares fell from $125 to $80 a share. The court awarded a portion of the new shares to the life tenant as income, but was careful to award to the trustees enough of the new stock to make up the deficiency in value of the original 540 shares caused by the issue of the new, thus preserving the integrity of the capital to the re- mainderman.^® A testator bequeathed $5,000 to a trustee, the income to A for life, and after her death the said $5,000 to B. The trustee invested the fund in stocks, which, after the death of A, were of greater value than the amount bequeathed. It was held that the whole amount in the trustee's hands, in- cluding original amount, accretions, and interest since death of A, belonged to B.^o " Wiltbank's Ap., 64 Pa. 256 (1870). Agnew, J., said: "The effect of the issue of the new stock upon the market value of the old, does not alter the principle of the case, however it may possibly influence the ad- ministration of the equity in ascertaining the actual profit realized from the advantage of subscription belonging to the old stock." "Earp's Ap., 28 Pa. 368 (1857). "Boyer's Est., 11 Montg. Co. L. Rep. 166 (1895)- 334 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. A cofsporation with a surplus increased its capital stock, and each stockholder was given the option to subscribe at par for as many shares of the new stock as he held of the old. One hundred shares of the stock of the company stood in the name of a decedent. The executors of the jestate sold sixty options, and with the sum realized bought forty shares of stock. It was held that these forty shares were capital and not income.^^ A corporation owning the stock of another company ex- changed it for cash and the stock of the third company, thereby realizirlg a profit out of which it declared an extra dividend partly in cash and partly in stock. It was held that a portion of the dividend represented by stock was income arising from the original stock and belonged to the life tenant of such stock.*^ A railroad company was authorized to sell its stock below par. The company gave the option to, its stockholders "of taking pro rata for each share the sum of $40 of the capi- tal stock upon the payment of $4 for each share of stock," and declared a dividend of 7 per cent, per annum, payable quarterly. The increase of stock was $1,000,000. It was held that the increase was not a stock dividend liable to tax- ation.^* Where a right is given to the stockholders of one corpora- tion to purchase the stock of another corporation, the price brought by the sale of the subscription right is a profit inci- dent to the ownership of the stock of the first corporation, and is income and not principal.^* The proceeds of the sale of a portion of the property of a corporation divided among the stockholders is capital and not income as between a life tenant and remainderman.^^ " Moss's Ap., 83 Pa. 264 (1877). "^ Wright's Est., 18 Pa. C. C. R. 197 (1896). ^ Commonwealth v. Erie & Pittsburgh R. R., 74 Pa. 94 (1873). "Eisner's Est., 175 Pa. 143 (1896). "■ Eisner's Est., 175 Pa. 143 (1896). ; INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 335 Mandamus Against Illegal Increase of Stock. 273. Before citizens can compel the attorney by manda- mus to institute proceedings against a corporation for an illegal issue of stock and bonds in violation of Article XVI, Section 7, of the Constitution of 1874, they must establish a prima facie case in support of the facts which they allege. "Before the attorney-general is subject to a writ of manda- mus to compel him to proceed under the Act of May 7, 1887, P. L. 94, he has a right to know the strength of the case he is asked to present in the name of the Commonwealth; and un- less the petitioner shows a.»prima facie case under the statute when a mandamus is asked for, it should be presumed that the refusal of the attorney-general rested on his conclusion from all the facts before him that the complaint could not be sustained by proof." *® Cases Relating to Increase of Indebtedness. 274. The debts of a manufacturing corporation accruing in the employment of labor, and purchase of materials in the prosecution of its ordinary business, do not constitute such an increase of indebtedness as requires a previous meeting and consent of stockholders to validate them.^'^ The execution of a mortgage by a bank upon its prop- erty to secure a depositor the amount of his deposit, is not an increase of indebtedness within the meaning of Section 7, Article XVI, of the Constitution of 1874, prohibiting in- crease of corporate indebtedness without consent of the stockholders.** A mortgage given for a sum greater than twice the amount paid up of the capital stock is good as between bona fide holders of the mortgaged bonds and the company. Subse- quent creditors of the company, who become such with notice of the mortgage stand in the same position as the company, and cannot claim to be preferred to the holders of the bonds. '"Cheetham v. McCormick, 178 Pa. 186 (1896). "Manhattan Hardware Co. v. Phalen, 128 Pa. no (1889). " Ahl V. Rhoads, 84 Pa. 319 (i877)- 336 INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. In such a case the provisions of the Constitution prohibit- ing the fictitious increase of corporate indebtedness does not apply.^* A bank incorporated by a special act prior to the adoption of the new Constitution, was authorized to borrow money upon mortgage of its real estate. It executed a mortgage upon its bank building, and afterwards made an assignment for the benefit of its creditors. After proceedings had been begun to foreclose the mortgage the assignee filed a bill to restrain the proceedings on the ground that the mortgage had been unlawfully created, as the bank had not complied with the provisions of the Constitution, and the Act of April 18, 1874, prescribing the manner in which the indebtedness of the corporation should be imposed. It was held that the court below erred in granting a preliminary injunction.** Where a corporation borrows money from one party to pay a debt to another party, and the borrowed money has been actually appUed for that purpose, there is no increased indebtedness within the meaning of Article XVI, Section 7, of the Constitution.'^ A corporation chartered prior to the adoption of the new Constitution which has not accepted the benefits of the new Constitution, is not subject to the section of the Constitution which prohibits an increase of corporate indebtedness with- out the consent of the stockholders.'^ A railroad company having authority under its original act of incorporation passed prior to the Constitution of 1874, to make an increase of its indebtedness, is not afifected by the provisions of the Constitution and the Act of April 18, 1874, regulating the manner in which the indebtedness of corpora- tions may be increased.'* "Fidelity Ins., Trust & Safe Deposit Co. v. Western Penna. & Shenango Connecting R. R., 138 Pa. 494 (1891). '" Lewis V. Jeffries, 86 Pa. 340 (1878). " Powell V. Blair, 7 Pa. C. C. R. 492 (1889); Ahl v. Rhoads, 84 Pa. 319. =' Ahl V. Rhoads, 84 Pa. 319 (1877). ''Gloninger v. Pittsburgh & Connellsville R. R., 139 Pa. 13 (1891). INCREASE OF CAPITAL STOCK OR INDEBTEDNESS. 337 Bonds issued by a corporation without the sixty days' no- tice of a meeting of the stockholders to authorize the loan, as provided by Article XVI, Section 7, of the Constitution, are invalid. Thus where the bonds on their face show that they were issued on the day after the corporation was organized, they are void.^* A contract made in New York for issue of bonds and cre- ation of a mortgage by a corporation in violation of the Con- stitution of Pennsylvania prohibiting a fictitious increase of corporate debt will not be enforced in Pennsylvania.^^ A certificate of increase of indebtedness cannot be re- ceived and filed by the secretary of the Commonwealth and the auditor-general unless the increase has been made in the manner provided by the Act of April 18, 1874.^® ** Maas V. Pa., Poughkeepsie & New England R. R. Co., i Monaghan, 497 (1889). " Pittsburgh & State Line R. R. Co.'s Ap.,.4 Atl. Rep. 385 (18 " Opinion of the Attorney-General of February 16, 1875. CHAPTER XXVII. REDUCTION OF CAPITAL STOCK. 275. Manner of Reducing Capital 278. Ballots, Proxies, Statement to Stock. be Furnished Judges. 276. Meeting of Stockholders and 279. Return to the Secretary of Notice. Commonwealth. 277. Conduct of Election. IMEanuer of Reducing Capital Stock. 275. The capital stock of any corporation may be reduced from time to time by the consent of the persons or bodies corporate holding the larger amount in value of the stock of such company, provided that such reductions shall not be below the amount of capital stock required by law for the formation of such company.^ Meeting of Stockholders and Notice. 276. Any corporation desirous of reducing its capital stock as provided by this act shall, by a resolution of its board of directors, call a meeting of its stockholders therefor, which meeting shall be held in its chief office or place of business in this Commonwealth, and notice of the time, place, and ob- ject of said meeting shall be published once a week for sixty days prior to such meeting in at least one newspaper pub- lished in the county, city, or borough wherein such office or place of business is situate.^ Conduct of Election. 277. At the meeting called pursuant to the second section of this act, an election of the stockholders of such corpora- tion shall be taken for or against such reduction, which shall '■ Act of June 8, 1893, Sec. i, P. L. 351. ' Act of June 8, 1893, Sec. 2, P. L. 351. REDUCTION OF CAPITAL STOCK. 339 be conducted by three judges, stockholders of said corpora- tion, appointed by the board of directors to hold said elec- tion, and if one or more of said judges be absent, the judge or judges present shall appoint a judge or judges who shall act in the place of the judge or judges absent, and who shall respectively take and subscribe an oath or affirmation before an ofificer authorized by law to administer the same, well and truly, and according to law, to conduct such elections to the best of their ability, and the said judges shall decide upon the qualification of voters, and when the election is closed count the number of shares voted for and against such reduction, and declare whether the persons or bodies corporate holding the larger amount of the stock of such corporation have con- sented to such reduction or refused to consent thereto, and shall make out duplicate returns of said election, stating the number of shares of stock that voted for such reduction and the number that voted against such reduction, and subscribe and deliver the same to one of the chief officers of said com- pany.* Ballots, Proxies, Statement to be Furnished Judges. 278. Each ballot shall have indorsed thereon the number of shares thereby represented, but no share or shares trans- ferred within sixty days shall entitle the holder or holders thereof to vote at such election or meeting, nor shall any proxy be received or entitle the holder to vote unless the same shall bear date and have been executed within three months next preceding such election or meeting, and it shall be the duty of such corporation to furnish the judges at said meeting with a statement of the amount of its capital stock, with the names of persons or bodies corporate holding the same, and number of shares by each respectively held, which statement shall be signed by one of the chief officers of such corporation, with an affidavit thereto annexed that the same is true and correct to the best of his knowledge and belief.* Return to the Secretary of the Commonwealth. 279. It shall be the duty of such corporation, if consent is given to such reduction, to file in the office of the secretary of the Commonwealth, within thirty days after such elec- ' Act of June 8, 1893, Sec. 3, P. L. 351. * Act of June 8, 1893, Sec. 4, P. L. 351. 340 REDUCTION OF CAPITAL STOCK. tion or meeting, one of the copies of the return of such elec- tion provided for by the third section of this act, with a copy of the resokition and notice calHng the same thereto an- nexed, and upon the reduction of the capital stock of such corporation made pursuant thereto, it shall be the duty of the president or treasurer of such corporation, within thirty days thereafter, to make a return to the secretary of the Common- wealth, under oath, of the amount of such reduction, and in case of neglect or omission so to do, such corporation shall be subject to a penalty of $5,000, which penalty shall be col- lected on an account settled by the auditor-general and state treasurer as accounts for taxes due the Commonwealth are settled and collected, and the secretary of the Commonwealth shall cause said return to be recorded in a book kept for that purpose, and furnish a certified copy of the same to the audi- tor-general.® " Act of June 8, 1893, Sec. 5, P. L. 351. The Act of April 17, 1876, Sec. s, P. L. 33, amending the Act of April 29, 1874, Sec. 23, provided as follows: "Any corporation created under the provisions of this act, and any corporation of the classes named in the second section hereof, that is now in existence by virtue of any law of this Commonwealth, may reduce its capital stock or alter and change the par value of the shares thereof, by a vote of the stockholders taken in the manner and under the regulations prescribed in the eighteenth, nine- teenth, twentieth, twenty-first, and twenty-second sections of this act." A corporation chartered prior to the Act of 1874 cannot reduce its capital stock under the provisions of Section 23, of the Act of 1874, «nt'l it has accepted the provision of the Constitution and Act of 1874: Opinion of the Attorney- Genera] of August 21, 1877. CHAPTER XXVIII. DIVIDENDS. 2S0. Statutory Provisions. ' 286. To Whom Dividends ajx Pay- 381. Definition. able. 282. When Dividends may be De- 287. Statute of Limitations. clared. 288. When Dividends are Income. 283. Dividend may be Passed. 289. When Dividends are Principal. 284. Crediting Stockholders with 290. Dividends of Water Com- Profits. panics. 285. Dividends not Payable on Scrip. The Act of March 19, 1816, 6 Sm. L. 390, provided as follows: "In all incorporated companies (banking companies excepted) now created or which may hereafter be created by- virtue of any law of this Commonwealth, and in which any portion of the stock now is or hereafter shall be held by the State, and whereon dividends have been or hereafter may be declared by the directors or managers thereof, respectively, it shall be the duty of each and every of the treasurers of the said incorporations, respectively, to pay the proportions due to the State into the treasury of this Commonwealth, within sixty days after each declaration of dividends, and within' sixty days after passing of this act with respect to div- idends heretofore declared, and on failure to make such pay- ment the governor is hereby directed to instruct the attorney- general to bring suit therefor against such defaulting com- pany." Statutory Provisions. 280. If the directors of any company declare any dividend 341 342 DIVIDENDS. when the company is insolvent, or the payment of which would render it insolvent, they shall be jointly and severally liable for all the debts of the company then existing, and for all thereafter contracted so long as they respectively con- tinue in office: Provided, that the amount for which they shall be liable shall not exceed the amount of such dividend, and if any of the directors are absent at the time of making the dividend or object thereto, at said time, and file their objections in writing with the clerk of the company, they shall be exempted from such liability.^ Definition. 281. A dividend is that portion of the profits and surplus funds of a corporation which has actually been set apart by a valid resolution of the board of directors, or by the share- holders at a corporate meeting, for distribution among the stockholders, according to their respective interests, in such a sense as to become segregated from the property of the corporation to become the property of the shareholders dis- tributively. It is a matter of no difiference whether the divi- dend is declared in stock or paid in cash and thereafter con- verted into stock by the shareholders; in either event it is a distribution of the surplus profits of the corporation.'^ A dividend is the share of a sum divided that falls to each individual; a distributive sum, share or percentage, applied to the profits as apportioned among stockholders. It differs from profits in being taken by a competent authority out of the joint property of the partnership or company and trans- " Act of April 29, 1874, Sec. 39, Clause s, P. L. loi. This relates only to manufacturing and mining companies. The Act of April 17, 1876, P. L. 34, amending the Act of April 29, 1874, Sec. 31, relates to the payment of dividends by bridge companies. The Act of May i, 1876, Clause 6, P. L. 84, relates to the payment of dividends by inclined plane companies. The Act of June 2, 1887, Sec. 3, P. L. 312, amending the Act of April 29, 1874, Sec. 34, gives exclusive privileges to gas companies until they have during five years realized and divided among their stockholders a dividend equal to eight per centum per annum upon their capital stock. ' Philipsburg Water Co. v. Citizens' Water Co. of Philipsburg, 18 Pa. C. C. R. 62s (1897); Bull's Est., I Dist. Rep. 369 (1892). DIVIDENDS. 343 ferred to the separate property of the individual partners or stockholders.* A nominal or arithmetical increase of shares, without trans- ferring to the stockholders anything out of the treasury or property of the corporation, and which is not a cover for distribution of accumulated profits, is not a dividend.* When Dividends may be Declared. 282. The directors of a corporation have the power to de- termine not only the amount of all dividends to be declared, but the circumstances upder which they will or may declare them. They are not entitled to refuse them arbitrarily, or when in view of all of the considerations which should prop- erly aflfect the question, they ought to grant them. Their action, or refusal to act, is subject to review by the courts, but within the limits of their authority they have the exclu- sive control of the whole matter, and their action is binding upon the stockholders. The certificates of the preferred stock of a corporation con- tained the following provision: "The holders of preferred stock of said company are entitled to dividends out of the net earnings of each year, when declared by the board of di- rectors, to the extent of 12 per centum of the par value of said stock, before the payment of dividends to the holders of common stock, but the dividends on the preferred stock are not cumulative." It appeared that the corporation had greatly increased its plant, and had thereby incurred large indebtedness, and that the directors had deemed it expedi- ent to apply all the earnings of the year to the payment of this indebtedness. It also appeared that its assets were largely in excess of its liabilities. On a bill in equity by the ' Allegheny v. Pittsburgh, Allegheny & Manchester R. R., 179 Pa. 414 (1897). ' Allegheny v. Pittsburgh, Allegheny & Manchester R. R., 179 Pa. 414 (1897); Allegheny v. Federal Street & Pleasant Valley Pass. Ry., 179 Pa. 424 (1897); Commonwealth v. Pittsburgh, Fort Wayne & Chicago Ry. Co., 74 Pa. 83 (1873). 344 DIVIDENDS. holders of preferred stock to compel the directors to declare a dividend, it was held that under the circumstances the dis- cretionary power of the directors had been properly exer- cised, and that plaintiffs were not entitled to rehef.® A corporation organized to protect the owners of houses from loss by fire without any view of private or separate gain or interest, which has, as the result of prudent management, accumulated so large a fund as to make it safe and prudent to divide the net income from its invested funds, may make such dividend to its members.* Dividend may be Passed. 283. Every corporation for profit has a right to declare and pay dividends to its members, and it has also the right to pass its dividends for a time in order to accumulate a surplus to strengthen the company.'^ Crediting Stockholders with Profits. 284. A corporation instead of distributing its profits in the shape of dividends, credited its stockholders on its books with sums equal to 6 per cent, of the value of their stock, and the stockholders were allowed to draw out moneys from time to time which were charged against their account. During certain years the company limited the right to draw out more than 5 per cent, upon its stock. One of the stock- holders drew out more than 6 per cent, for several years. Annual accounts were rendered to him, showing that he was indebted to the company, and to these statements he made no objection. A by-law of the company provided that no stock should be transferred so long as the owner of the stock was indebted to the company. After the death of the stock- holder who was indebted to the company, it was held that his representative could not deny the indebtedness, and that the debt was a lien upon the stock.* 'McLean v. Pittsburgh Plate Glass Co., 159 Pa. 112 (1893). ' McKean v. Biddle, 181 Pa. 361 (1897). ' McKean v. Biddle, 181 Pa. 361 (1897). ' Reading Trust Co. v. Reading Iron Works, 137 Pa. 282 (1890). DIVIDENDS. 345 Dividends not Payable on Scrip. 285. A corporation issued scrip certificates entitling the holder to shares in the capital stock of the company "so soon as the present funded debt of the company has been paid off, or adequate provision made for its discharge when due and payment demanded; and will also be entitled to a pro rata share of any future distribution of scrip, but not to any cash dividend until this certificate has been converted into stock." It was held that the scrip holders were not entitled to divi- dends upon the scrip, nor on the stock into which it had been converted, except on such as had been declared subsequent to conversion. The scrip holders were never stockholders by virtue of their scrip alone, and not even stockholders with a right to cash dividends postponed. They were hold- ers of nothing more than an engagement of the company that they might become stockholders after the funded debt of the company had been paid oiif, or adequate provision had been made for its discharge when due and payment de- manded." To Whom Dividends are Payable. 286. A corporation which has no notice of a transfer of stock is bound to pay a dividend when declared to the party who appears by the stock book as the owner of the shares. Thus the holder of certificates of stock which were delivered to him with powers of attorney signed in blank by the owner, as collateral security, but which stock was not transferred on the books of the company, cannot recover the amount of the dividend paid by the company in good faith and without notice, to a third party who produced a later assignment of the dividend from the owner without the certificates.^" Where stock has been pledged to secure payment of a debt, the pledgee is entitled to the dividends ; and where such dividends have been paid to the pledgor without the con- ' Brown v. Lehigh Coal & Nav. Co., 49 Pa. 270 (1865). " Bell V. Lafferty, i Penny. 454 (1881). 346 DIVIDENDS. sent of the pledgee, the latter may recover from the com- pany the amount of the dividends. In such a case after the dividends had been declared and paid, the pledgor paid a part of the debt, and the pledgee surrendered the old collateral note, and took a new one for the balance. Both notes pledged the stock as collateral, and the stock continued in the name of the pledgee. It was held that if the new note was taken as part renewal of the old one, tlie pledgee even after the acceptance of such note, was entitled to recover from the company the dividends paid to the pledgor.^^ Statute of Iiimitations. 287. The statute of limitations will not begin to run against a claim for dividends until after demand and refusal, or notice to the shareholder that his right to the dividends is denied.^ ^ When Dividends are Income. 288. Dividends declared out of earnings are income and belong to the life tenant of stock, and it is immaterial whether the)^ are stock dividends or cash dividends.^^ Where an increase of shares distributed among stockhold- ers results from and represents earnings or profits upon the actual capital of the company, it is a stock dividend; whereas, if it be a mere numerical increase in the number of shares, and is not declared by the corporation to represent earnings or profits, and it is not shown that it does so in fact, it is not a stock dividend.^* Dividends which have been earned after the death of a stockholder should be considered as income and not as prin- cipal.*' " Boyd V. Conshocken Worsted Mills, 149 Pa. 363 (1892). " Phila., Wil. & Bait. R. R. v. Cowell, 28 Pa. 329 (1857). "Turpin's Est, S Pa. C. C. R. 288 (1888). " Western Union Telegraph Co.'s Ap., 17 Phila. 602 (1884). ^"Thomson's Est., 15 Phila. 546 (1882); Eastwick's Est., 15 Phila. 569 (1882). DIVIDENDS. 347 When Dividends are Principal. 289. Where a corporation sells part of its franchise and property and distributes the proceeds of the sale as dividends among its stockholders, the dividend, as between a life ten- ant and remainderman of shares of stock, is capital and not income. A gas company incorporated to supply a western city with gas, became involved in a dispute with another gas com- pany as to the exclusive right to supply the city. A com- promise was effected, and the first company sold to the other company the exclusive right to supply a portion of the city together with its pipes and mains in the locality transferred. The pipes and mains had been paid for, partly by capital stock and partly from the earnings of the company. The proceeds of the sale, consisting of cash, was distributed amongst the- stockholders of the first company in the shape of a dividend. It was held as between a life tenant and remainderman of stock that the dividend should be treated as capital, and not as income.^* A cash dividend declared by a corporation out of the pro- ceeds of sale of a portion of its property and franchises, is to be treated as capital and not income in the settlement of a decedent's estate.*^ The proceeds of a sale of an option to subscribe to a new issue of stock in a corporation, is capital and not income as between a life tenant and a remainderman.^* Dividends of Water Companies. 290. In ascertaining whether a water company has realized and divided among its stockholders a dividend equal to 8 per centum per annum for five years upon its capital stock under the exclusive franchise clause of the Act of April 29, " Vinton's Ap., 99 Pa. 434 (1882). Sharswood, C. J., and Paxson and Trunkey, JJ., dissented. "Vinton's Est., 10 W. N. C. 49 (1880); 11 W. N. C. 246 (1882). "Condy's Est, 10 W. N. C. 319 (1881); Biddle's Ap., 11 W. N. C. 244 (1882). 348 DIVIDENDS. 1874, a stock dividend must be regarded as a dividend pre- cisely the same as those declared in cash.^* " Philipsburg Water Co. v. Citizens' Water Co. of Philipsburg, 18 Pa. C. C. R. 62s (1897). See Wilkes-Barre Electric Light Co. v. Wilkes- Barre Light, Heat & Motor Co., 4 Kulp, 47 (iS CHAPTER XXIX. CORPORATE MEETINGS AND ELECTIONS. 291. Corporation Has Inherent Power to Hold Elections. 292. Stockholders Must Act at Legal Meeting. 293. Mode of Election may be Fixed by By-Laws. 294. Right to Vote — How Deter- mined. 295. When Beneficial Owner of Stock may Vote. 296. Right of Pledgor or Pledgee. 297. Joint Owners. 298. Trustees. 299. Effect of Assignment. 300. Illegal Stock. 301. Voting Where There is no Stock. 302. Objection to Votes. 303. Who may Object to Im- proper Elections. 304. Injunction to Prevent Trans- fer will not Aflect Right to Vote. 305. Quorum of Stockholders. 306. Majority Controls. 307. Oath of Officers Holding Elections. 308. Meetings of Certain Corpora- tions may be Held Out of the State. 309. Cumulative Voting — Constitu- tional Provision. 310. Cumulative Voting — Statutory Provision. 311. No Legislative Action Neces- sary for Cumulative Voting Under the Constitution. 312. In What Company Votes Can- not be Cumulated. 313. Cumulative Voting Does Not Require Change of Mode of Conducting Meeting. 314. Notice of Intention to Cumu- late Need not be Given. 315. Partial Elections not Invali- dated by Cumulative Voting. 316. Voting by Proxy. 317. When Proxy Must be Ob- tained. 318. Person Voting as Proxy to Make Oath in Certain Cases. 319. Provisions as to Proxies not to Extend to Certain Cor- porations. 320. Voting Trust. 321. Court of Equity may Control Corporate Meeting. 322. When Ballot Cannot be Opened. 323. Withdrawal from Meeting. 324. Adjourned Meeting. 325. Resolutions Cannot be Varied by Parol. 326. Resolutions may be Revoked. 327. When Injunction will not Issue. 328. Quo Warranto. 349 350 CORPORATE MEETINGS AND ELECTIONS. Corporation has Inherent Power to hold Elections. 291. The power inheres in a corporation to hold an elec- tion. It is a necessity of its corporate existence and is among the implied powers granted.^ Stockholders Must Act at Legal Meeting. 292. A consent of the majority of the stockholdei's to a corporate act can only be binding on a dissenting minority, if the consent has been given at a duly convened meeting of the stockholders. The consent given by the stockholders by their private signature, does not constitute the consent of the corporation, and is not binding.^ The majority of the stockholders of a corporation have the power to control its management, provided that they act within the limits of the charter. "When individuals become members of a corporation, there is an implied agreement that a majority of the stockholders at regular and stated meet- ings, by their votes, shall control the funds of the company, if it is exercised in conformity to their chartered rights. Each stockholder surrenders the absolute personal control which he has, to the joint action of others with himself, in relation to the amount of property which he chooses to invest. He has a personal supervision over that sum in conjunction with others; it is a part of an entire personal right delegated to others." Thus the majority of the stockholders of a corpora- tion may sell or pledge the securities of the company if such a disposition of the assets does not violate the fundamental agreement between the corporators.^ Mode of Election may be Fixed by By-Laws. 293. When the methods of voting at a corporate meeting are not fixed by general law, the corporators may make the 'Wright V. Commonwealth, 109 Pa. 560 (1885). For directions as to preliminary meeting before organization see Chapter II, Section 11. For organization meeting of stockholders and directors see Chapter X. ' Langolf V. Seiberlitch, 2 Parsons, 64 (1851). " Carpenter v. Burden, 2 Parsons, 24 (1843). CORPORATE MEETINGS AND ELECTIONS. 35 1 law for themselves subject to the qualification that such laws and regulations as they may make shall not conflict with the laws of the State, or of the United States. The by-laws of an agricultural association incorporated in 1856 by the Court of Common Pleas, provided that the stockholders should have one vote for each share held by them up to ten shares, and fixed the proportion which his vote should bear to his shares above that number, and allow- ing the stockholders to vote by proxy when not present. It was held that the by-law was a reasonable regulation, uni- form in its operation, and conflicting with no law, and there- fore binding on all the shareholders.* A corporation has power to make a by-law vesting the appointment of inspectors of elections in the president of the corporation, and it may by by-law prohibit tickets from being counted at an election which had other things on beside the Bight to Vote— How Determined. 294. The certificate of stock and transfer books, or either, of any corporation of this Commonwealth, shall be prima facie evidence of the right of the person named therein to vote thereon as the owner, either personally or by due proxy. If, however, objection is taken by an actual stockholder at the time the ballot is tendered, accompanied by a written statement under oath that the person in whose name such stock stands on such certificate, or transfer books, and who is offering to vote thereon either in person or by proxy, is not the owner thereof, either in his own right or as active trustee with the character of his trusteeship disclosed on the face of said certificate, or transfer books, in connection with his name, it shall be the duty of the judges of election to in- quire and determine summarily whether the facts are as rep- resented in such statement, and if so, the vote or votes so tendered shall be rejected: Provided, however, that nothing in this section shall be held to prohibit executors, adminis- • Commonwealth v. Detwiller, 131 Pa. 614 (1890); Brown v. Electric Mining Machine Co., 39 P. L. J. 343; Seventh Day Baptists, 4 York, 29. ' Commonwealth v. Woelper, 3 Serg. & Rawle, 29 (1817). 352 CORPORATE MEETINGS AND ELECTIONS. trators, guardians, or trustees created by last will and testa- ment, or by decree of court, from voting on stock standing in the name of a decedent, minor, or other beneficiary." And no stockholder shall be entitled to vote at any elec- tion, or at any meeting of the stockholders, on whose share 6r shares any instalments or arrearages may have been due and unpaid for the period of thirty days immediately preced- ing such election or meeting.^ When Beneficial Owner of Stock may Vote. 295. In cases where, under the terms of the preceding section, the person named in the certificate, or transfer books, is not permitted to vote, the beneficial owner of such stock " Act of May 26, 1893, Sec. i, P. L. 141. The Act of May i, 1889, P. L. 102, was as follows: "The certificate of stock and transfer books, or either, of any corporation within this Com- monwealth, shall be prima facie evidence of the right to vote thereon by the person named therein as the owner, either personally or by proxy. If, however, objection is taken at the time the ballot is tendered, by an actual stockholder, setting out in writing under oath that the stock is not owned absolutely and bona Me by the person in whose name it stands in the certificate, or on the transfer books, and who in person or by proxy is in fact oflfering to vote thereon, it shall be the duty of the judges of election to inquire and determine, summarily, whether the name given in the certificate or standing on the transfer books is that of the absolute and bona Me owner thereof, or of a holder of the same as executor, administrator, guardian, or as trustee created by last will and testament, or by decree of court. If not, then the vote or votes so tendered shall be rejected. In cases where by the terms of the preceding section, the person in whose name the stock stands in the cer- tificate or on the transfer books is not permitted to vote, the beneficial owner thereof, including a person who has transferred stock to a trustee as collateral for a loan, reserving in the conveyance the right to vote upon the stock, shall, upon furnishing evidence of ownership satisfactory to the judges of election, be entitled to vote." 'Act of April 29, 1874, Sec. 11, P. L. 79. By the twenty-first section, in elections to increase the capital stock, no share transferred within sixty days is entitled to vote, and all proxies must bear date and have been executed within three months prior to such elections. A non-resident stockholder takes his shares with all the rights and privileges which pertain to them in the hands of a citizen, and he may vote upon them, and, where no other qualification than ownership of stock is required of the directors, he may become a director: Common- wealth V. Detwiller, 131 Pa. 614 (1890). CORPORATE MEETINGS AND ELECTIONS. 353 shall have the right to vote thereon upon furnishing to the judges of election satisfactory evidence of ownership.* Bight of Pledgor or Pledgee. 296. As between the pledgor and the pledgee of capital stock pledged to secure a specific loan with a fixed period or periods of maturity, the right to vote shall be determined as follows: First. By the written agreement of the pledgor and pledgee. Second. In all other instances the pledgor shall be held to be the owner and entitled to the right to vote.^ The right to vote stock is inseparable from the right of ownership, and such right cannot be interfered with without the consent of the legal owner. At common law the right to vote stock as between the corporation and the person offering to vote, followed the legal title, of which the certificates and the stock book are prima facie evidence. If the stock is pledged as collateral, and there is no agree- ment as to whether the pledgor or the pledgee shall vote the stock, the right to vote follows the legal title, and if such title is transferred to the pledgee he is the person qualified to vote at the corporate meeting.*** ' Act of May 26, 1893, Sec. 2, P. L. 141. * Act of May 26, 1893, Sec. 3, P. L. 141. '° Commonwealth, e.ir reZ.Eberhardt, f. Dalzell, 152 Pa. 217 (1893); Tunis V. Hestonville Railway, 149 Pa. 70 (1892) ; Shelmerdine v. Welsh, 47 Leg. Int. 26 (1890); Aultman's Ap., 98 Pa. 505 (1881). The Act of May 7, 1889, P. L. 102, providing that judges of a corporate election shall determine summarily whether the name on the books is that of the absolute and bona fide owner of the stock, or of the holder of the same as executor, administrator, guardian, or as trustee created by last will and testament, or by decree of court, does not apply to the case of a pledge with no express agreement as to the voting power. "The critical question that arises on the first glance at this act is whether the enumera- tion of owners and trustees is meant to be exhaustive and exclusive, and the direction to reject all other votes mandatory. It is at once apparent that this direction cannot be taken literally without consequenc.es of the most sweeping and dangerous character. Whole classes of stockholders, whose rights are as indisputable as any of those named, would be dis- franchised. Thus no trustee, unless created by will or decree of court, is to have his vote received, and the whole class of trustees under deeds, however carefully framed for the protection of the separate estates of 23 354 CORPORATE MEETINGS AND ELECTIONS. married women, or the management of estates during minority, lunacy^, insolvency, or spendthrift lives, and trustees of the funds of publie or private charities which may have corporate stock among their invest- ments, would be entirely excluded from any vote in the management: of the property committed to their charge, aad it is doubtful if any partner, manager of a limited or joint stock-company, or officer of a corporation holding stock of other corporations, could be brought under the literal description of 'absolute and bona fide owner,' while they are certainly not trustees created by will or by decree of court. The rights in all these cases are as unquestionable as absolute, and as much entitled- to exercise and protection as any of those expressly named in the acti It is. not supposable that the legislature, even if it could do so constitutionally, meant to strike them down in this indirect and summary way. They are rights of property, and can only be taken away, if at all, by the clearest and most imperative language. The statute is very loosely and improvi- dently drawn, and there is no construction of it entirely free from diffi- culty; but it is far more reasonable to suppose that the legislature had- another and different intent. Corporate interests had grown so larg^, and the conflict of opposing views of internal management at times so violent, that elections not unfrequently became matters of public concern. "That the existence of other trustees, not within the classes named, was not meant to be disregarded, appears by the second section, which prescribes that when a pledgor of stock as collateral for a debt has re- served the right to vote upon it, his vote shall be received. This also is only declaratory of the law as it stood before. But the case of a. pledge ■ with no express agreement as to the voting power, was not provided -for. Whether this was merely through inadvertence or purposely, be- ■cause questions of much nicety may arise in such cases, where rights, will be dependent on the exact circumstances, it is not material to inquire. The act makes no express provision for such cases, and they must be de- <:ided upon the common law. The general rule is that as between the corporation and the person offering to vote, the right follows the legal title, of which the certificates and the stock books are the prima facie evi- dence. By-laws may establish a different rule, and there may be special circumstances to change the equities as to individuals or even as to the corporation: See Morawetz on Corporations, and the cases cited, Section 483; Biddle on Stock Brokers, 342; Spelling on Private Corporations,. Section 380; Beach on Private Corporations, Section 855; and some cases taking a contrary view, cited in Cook on Stock and Corporation Law, ed. 1889, Section 468. But we have no question of that kind in the present case. The by-laws of the corporation provide that alt persons holding shares 'either in their own right, or as trustees,' shall have the right to vote. In this. there is no restriction as to the kind of trustees or the mode or purpose of their appointment as such. It is admitted that Messrs. Watson and Wood held the title to the stock which was entered- on the corporation books in their names as trustees. It is also admitted that they were pledgees, but it does not appear that the pledgors had re- CORPORATE MEETINGS AND ELECTIONS. 355 Priina facie the right to vote accompanies the legal title, but when the title is divided, and an equity exists, as be- tween pledgor and pledgee, trustee and cestui que trust, or between vendor and vendee with a title inchoate until pay- ment, the right to vote is subject to the agreement of the parties. This is the rule not only of the common law, but also of the Act of May 7, 1889, P. L. 102. A person sold stock in a corporation, and parted possession with it by delivery to a third party to be held in escrow until the vendee should comply with the terms of the contract, and also agreed that in the meantime the vendee should have the right to vote the stock. It was held that the vendor was not a present owner of the stock in any such sense as to entitle him to vote it.^^ Joint Owners. 297. One joint owner of stock cannot vote it against the protest and objection of his co-owner. In such a case the stock cannot be voted at all. Where a testator appoints two persons as executors in his will, one of whom is his son. and directs that his executors shall give to his son a proxy to vote certain stock, if two of the executors refuse to give to the son a proxy, the son can- not in the absence of an order of court vote the stock.*^ A testator may direct that the stock of a corporation given in trust to certain trustees inay be voted as his son, one of the trustees, shall direct and appoint, and if the trustees re- fuse to give a proxy to the son on the ground that the son intends to make a fraudulent use of his power, the Orphans' served the right to vote. Both by the common law and the corporate by-laws, therefore, they were entitled to vote. It was a right of property incident to their legal title to the stock, and the declaratory and directory provisions of the statute did not take it away. Their votes should have been received and counted:" Commonwealth, ex rel. Eberhardt, v. Dal- zell, 152 Pa. 217 (1893). Per Mitchell, J. " Commonwealth, ex rel. Langdon, v. Patterson, 158 Pa. 476 (1893)! " Tunis V. Hestonville, Mantua & Fairmount Pass. R. R., 149 Pa.' 70 (1892). 356 CORPORATE MEETINGS AND ELECTIONS. Gourt may compel the trustees to grant the proxy, if there is not sufficient evidence to sustain the charge of fraud.* ^ Trustees. 298. At a corporate election where the stock books show that a person holds stock as trustee, such person will be excluded from voting, unless he shows affirmatively that his holding is of the kind of trusteeship that saves the vote from exclusion.** Sffect of Assigmuent. 299. A stockholder who, previous to a corporate election, has assigned his stock, has no right to vote upon the shares, though in the presence and with the assent of the assignee, and though the stock has never been transferred to the as- signee upon the books of the company.*^ Illegal Stock. 300. Where a subscription to stock is made for the pur- pose of increasing the capital stock to an amount equal to a proposed mortgage, but the subscription is not in writing, is not accepted by the treasurer, and not paid in whole or in part, the stock so subscribed for cannot be voted.* ^ Voting Where There is no Stock. 301. Where the charter of a religious corporation does not prescribe the manner of conducting elections for trustees the corporation may enact a by-law directing the manner of conducting the election. If no such by-law has been passed the usage of the association in holding such elections will govern.*^ the charter of a church provided that the vestry should '•Lafferty's Est., 154 Pa. 430 (1893). " Commonwealth v. Dalzell, i Dist. Rep. 657 (1892). "Commonwealth v. Woodward, 4 Phila. 124 (i860). "Commonwealth, ex rel. Langdon, v. Patterson, 158 Pa. 476 (1893). " Juker V. Commonwealth, ex rel., 20 Pa. 484 (1853). CORPORATE MEETINGS AND ELECTIONS. 357 be elected by a majority of such members of said church as shall appear by the vestry books to have paid two succes- sive years, immediately preceding the time of such election, for a pew. It was held that a by-law which restricted the right to vote to persons who shall be entered on the church book as such members "at least six months before the elec- tion, and who are not in arrears for pew rent exceeding three months," was null and void.^* A charter of a church stated that "the subscribers and such others as shall hereafter be admitted or become contrib- uting members shall be 'a corporation," etc., and that "any member who has contribiited to the support of the church one year previously to the election about being held a sum not less than $2 for a pew or a portion of a pew," etc., shall be entitled to vote. Afterwards the practice of renting pews was abandoned, and all pews and sittings were made free by public announcement from the pulpit, and the expenses of the church were thereafter defrayed out of the contributions of the congregation. It was held that one who regularly at- tended the church and had contributed to its support one year previously to the election, a sum not less than $2, was a member, although he did not rent or occupy a particular pew or sitting.^^ The charter of a church provided that "the election of the vestry shall be made every year on Easter Monday, by a ma- jority of the members of the said church as shall appear by the treasurer's books to have paid one year immediately pre- ceding the time of such election, for a sitting in said church," and by a subsequent provision that "every member of this corporation who holds a single sitting, whether occupied or not, duly paid for as hereinbefore provided, shall be entitled to one vote on the election of vestrymen, and also to one additional vote for ea!ch and every sitting, whether occupied or not, which he or she may so hold, and have paid for." It " Raynor v. Beatty, 14 Phila. 80 (18 "Commonwealth v. Morrison, 13 Phila. 135 (1878). 353 CORPORATE MEETINGS AND ELECTIONS. was held that any one might vote who at any time before the election took a pew or sitting and paid its rate for the pre- ceding year, and that it was not necessary that, the pew or sitting should have been taken and held for a year preceding the election.^" The charter of a cemetery company provided that the members "shall consist of such persons, citizens of this Com- monwealth, who may be admitted members and comply with the articles and rules." A person claiming as assignee from the original grantee of a lot asserted his right to vote, al- though he had not been admitted a member. It was held that he had no right to vote.^^ The charter and by-laws of a cemetery company provided that every person who purchased a lot and subscribed to the articles and by-laws should become a member of the com- pany, and be entitled to one vote for every lot so purchased. It was held that the trustees of the company had no right at a corporate meeting to cast a number of votes equal to the unsold lots remaining in their hands.^^ A by-law of an incorporated hospital provided that "any one contributing $50 to the permanent fund of the hospital shall be entitled to one vote at any election for directors, and to one vote for each additional $50." It was held that the ri^ht to vote by a contributor was personal and ceased with his death, and that an executor who simply handed over money left by his testator was not entitled to vote."^ By-laws intended for the good of a corporation are valid, although they may reduce the number of persons entitled to participate in corporate elections to narrower bounds than are marked out by the charter. Thus where the charter of a church authorized the making of by-laws, and directed that no one was to have a vote for the minister, except those who \ "Mcllvain v. Christ Churcli of Reading, 8 Phila. 507 (1871). " Commonwealth v. Union Burial Ground Society, 10 Phila. 68 (187,1)- " Commonwealth v. Fisher, 2 Brewster, 394 (1868). " Commonwealth v. Park, 14 Pa. C. C. R. 481 (1894). CORPORATE MEETINGS AND ELECTIONS. 359 had been regularly admitted, and had l^een meml^ers for twehre months preceding the election, it was held that a by- law enacting that no member whose pew rent was in arrear for a longer time than two years should be entitled to vote, was valid.^^ Objection to Votes. 302. If a question of fact is raised before the judges hold- ing a corporate election, whether a person ofifering to vote is an executor, administrator, guardian, or trustee, the judges must pass upon such questions of fact before accepting the vote.^® Where at a corporate election objection is made in writing and under oath to a person claiming the right to vote, the certificates of stock and transfer books are, under the Act of May 7, 1889, prima facie evidence of the person's right to vote, and are conclusive in the absence of testimony to the contrary.^' Who may Object to Improper Elections. 303. A person becoming a stockholder subsequent to a corporate election is not disqualified from inquiring into the right by which the previously elected officers exercised their function. "The infusion of new members into a corporation is often the means by which ancient abuses are denounced and remedied." "' A stockholder is estopped to impeach the title to an office conferred by an election in which he has concurred, but if he does not know nor have the means of knowing of an ob- jection to an election at the time it takes place, he will not be deemed to have concurred in it, so as to preclude him from being a relator in a quo warranto proceeding.^* " Commonwealth v. Cain, 5 Serg. & Rawie, 510 (1820). " Commonwealth v. Woodward, 4 Phila. 124 (i860). " Commonwealth v. Dalzell, i Dist. Rep. 657 (1892). " Commonwealth v. McCutchen, 2 Parsons, 205 (1851). " Commonwealth v. McCutchen, 2 Parsons, 205 (1851). 360 CORPORATE MEETINGS AND ELECTIONS. Injunction to Prevent Transfer will not Affect the Eight to Vote. 304. A preliminary injunction issued before a corporate election restraining a stockholder from negotiating or trans- ferring the stock will not deprive him of the right to vote the stock at the election.^* Quorum of Stockholders. 305. Every such corporation may determine, by ita by- laws, what number of stockholders shall attend, either in person or by proxy, or what number of shares or amount of interest shall be represented at any meeting to constitute a quorum; if the quorum is not so determined, a majority in interest of the stockholders shall constitute a quorum.'" Majority Controls. 306. In the regulation of the corporate property and affairs the rule is invariable that the majority shall control. In the enforcement of this rule the courts have gone so far as to re- fuse a charter which contained a provision requiring the con- sent of two-thirds of the members to any sale or incumber- ing of the corporate property.*^ Unanimity in the government of a corporation is not re- quired, unless its charter so provides. It is one of the con- sequences of becoming the stockholder of a corporation that the will of a majority shall govern, unless the fundamental articles provide otherwise.*^ -'' Commonwealth, ex rel. Morris, v. Stevens, 168 Pa. 582 (1895). "■ Act of April 29, 1874, Sec. 6, P. L. 77. " Christ Church of Beaver Falls, 5 Pa. C. C. R. 121 (1886) ; Sutter v. First Reformed Dutch Church, 42 Pa. 503 (1862). A charter of a corporation required two-thirds of the members to form a quorum at a corporate meeting, and it was not usual to mention in the minutes the names or number of those present. A minute of a corporate meeting stated that on due invitation the corporators met. It was held that this amounted to saying that two-thirds assembled: Commonwealth V. Woelper, 3 Serg. & Rawle, 29 (1817). Where an act confers upon a corporation a power to do a particular thing, provided that "at least two-thirds of the stockholders approve and consent to the same," the approval of one stockholder who holds more than two-thirds of the stock is sufficient: Fredericks v. Pennsylvania Canal Co., 109 Pa. 50 (1885). " McKean v. Biddle, i8i Pa. 361 (1897). CORPORATE MEETINGS AND ELECTIONS. 361 A club cannot be incorporated by the court with a provis- ion that in elections for officers, "each share shall represent one vote, and the owners of one or more shares shall be en- titled to one vote for each share he may own." ^^ There is a distinction between a corporate act to be done by a definite number of persons, and one to be performed by an indefinite number. In the first case a majority is neces- sary to constitute a quorum, and no act can be done unless a majority is present; in the recent case a majority of any number of those which appear may act. Where a corpora- tion is composed of several integral parts, and each part consists of a definite number, a majority of each part must be present to constitute a quorum; but when a corporation con- sists of several integral parts, one of which is indefinite, if any number of persons composing the latter, however small, are present after having been duly summoned, it is siifficient.** Oath^of Oflleers Holding Elections. 307. No person acting as judge or officer holding an elec- '' Commonwealth v. Conover, 10 Phila. 55 (1873). In this case Judge Allison said: "We think it may with safety be assumed that at com- mon law the rights of the members of a corporation stand upon the principle that all are equal in the enjoyment of franchises granted, unless the contrary appears upon the face of the charter; that the contrary is never presumed, and that those who set up a claim to the exercise of privileges which do not of right belong to all the members, must show an indisputable title to the enjoyment of the power. . It is true that the Act of 1840 does not contain the enumeration of the common-law inci- dents of a corporation, but it states the purpose of the act to be to confer immunities of a corporation or body politic in law, which can mean only such as by the common law were necessary to constitute a corporation. Those that are special can only be granted by the law-making power of the State, and as we have seen that no such incident as that here claimed belonged to a corporation at common law, we are required to hold that so much of the charter of this club as contravenes the general law, and is not a necessary incident of a corporate body, _ must be regarded as though it had not been inserted in the charter, and that in lieu and place of it, must be applied the rule of the majority of the members, instead of the vote cast according to the majority of the shares of stock held by the members of the corporation." ** Craig V. First Presbyterian Church, 88 Pa. 42 (1878). .362 CORPORATE MEETINGS AND ELECTIONS. tion for any such corporation, shall enter on the duties of ■his office or appointment until he take and subscribe an oath or affirmation before a judge, alderman, justice of the peace, or other person qualified by law to administer oaths, that he will discharge the duties of his office or appointment with jfidelity, that he will not receive any vote but such as he verily .believes to be legal; and if any such judge or officer shall, knowingly and willfully, violate his oath or affirmation, he shall be subject to all the penalties imposed by law upon the officers of the general election of this Commonwealth violat- ing their duties, and shall be proceeded against in like man- ner and with like eflfect.^^ And if any election, as aforesaid, be held without the per- son holding the same having first taken an oath or affirma- tion, as aforesaid, or be invalid for any other reason, such election shall be set aside in the manner now provided by law, and a new election ordered by the Court of Common Pleas of the proper county, upon the petition of not less than five stockholders supported by proof satisfactory to said court.^® Meetingrs of Certain Corporations may be Held Out of the State. 308. In all cases where any company has been incorpo- rated under the laws of this State, and a majority of the di- rectors, corporators, or stockholders thereof are citizens of any other State, said corporation may be organized, and all the meetings of such corporators, directors, or stockholders, held in such place, whether in this State or elsewhere, as such majority may, from time to time, appoint: Provided, how- ever, that the annual election, for officers of such corpora- tion, shall be held in the State of Pennsylvania, at such time and place, and upon such notice, by publication, in the news- papers of this State, as the by-laws of such corporation may, from time to time, determine.*'^ Cumulative Voting— Constitutional Provision. 309. In all elections for directors or managers of a cor- poration, each member or shareholder may cast the whole "'Act of April 29, 1874, Sec. 8, P. L. 78. " Act of April 29, 1874, Sec. 8, P. L. 78. "Act of November 27, 1865, Sec. i, P. L. 1228 (1866). CORPORATE MEETINGS AND ELECTIONS. 363 number of his votes for one candidate, or distribute them upon two or more candidates, as he may prefer.*^ Camulative Voting— Statutory Provision. 310. In all elections for directors, managers, or trustees of any corporation created under the provisions of this statute, or accepting its provisions, each member or stockholder or other person having a right to vote, may cast the whole num- ber of his votes for one candidate, or distribute them upon two or more candidates as he may prefer, that is to say: If the said member or stockholder or other person having a right to vote, own one share of stock or has one vote, or is entitled to one vote for eaCh of six directors by virtue thereof, he may give one vote to each of said six directors, or six votes for any one thereof, or a less number of votes for any less number of directors, whatever may be the actual number to be elected, and in this manner may distribute or cumulate his votes as he may see fit; all elections for directors or trus- tees shall be by ballot, and every share of stock shall entitle the holder thereof to one vote, in person or by proxy, to be exercised as provided in this section.** No Iiegislative Action Necessary for Cumulative Voting Under the Constitution. 311. The provisions of Article XVI, Section 4, of the Con- stitution of 1874, relative to cumulative voting did not re- quire legislative action to carry them into efifect.*** In What Company Votes Cannot be Cumulated. 312. The section of the new Constitution relating to cumu- lative voting has no application to companies incorporated prior to the adoption of the new Constitution which have not accepted the benefit of any legislation under them.*^ "Constitution of 1874, Article XVI, Section 4. "Act of April 25, 1876, P. L. 47, amending the Act' of April 29, 1874, Sec. 10. "Pierce v. Commonwealth, 104 Pa. 150 (1883); Baker v. Pepper, 14 W. N. C. s6o (1884) ; Commonwealth v. Filer, 30 P. L. J. 286. " Haysv. Commonwealth, 82 Pa. 518 (1876). In this case Gordon, J., said: "Charters of corporations are left exactly as the new Constitution found them, and so they must remain until the companies holding them shall enter into a new contract with the State by accepting the benefit of some future legislation. It is only on the theory that the manner of 364 CORPORATE MEETINGS AND ELECTIONS. A corporation chartered by an Act of Assembly in 1851, whose stockholders are given one vote in corporate meetings for each share of stock, is not aflfected by Article XVI, Sec- tion 4, of the Constitution of 1874, providing for cumulative voting.** Where the charter of a corporation granted prior to the Constitution of 1874, forbade the election of salaried officers as directors, the fact that after the passage of the Act of May 20, 1891, P. L. loi, which permitted such election salaried ofificers were elected directors, does not make the corpora- tion subject to the provision of the Constitution of 1874, re- lating to cumulative voting. The Fire Association of Philadelphia was incorporated by various Acts of Assembly, all prior in date to the adoption of the Constitution of 1874. By its original charter no sal- aried ofiScer was eligible to the position of director, but whether this had been changed by the supplements was dis- puted. On May 20, 1891, an act was passed authorizing salaried ofificers of private or business corporations to serve as directors. On January 8, 1892, the Fire Association elected as directors two who had been salaried officers the previous year, and who, the answer averred, "were afterwards elected to salaried offices," by the directors, on the same day. Relator claimed that the action of the association involved an acceptance of the Constitution of 1874. so as to give him the privilege of cumulating his votes under Article XVI, Section 4. It was held that relator was not entitled to cumu- late his votes.** voting is not material that the cumulative system is sought to be saddled on this corporation; but if this company does not hold its charter subject to the provisions of the present Constitution, how can it be made subject to any one of such provisions, material or immaterial? It is indeed mani- fest that such an argument is foreign to the question in hand. It might apply to a legislative enactment attempting to alter this charter, but it cannot apply to this case, arising as it does, directly on the Constitution itself, for it is excluded by the very terms of that instance." " Baker's Ap., 109 Pa. 461 (1885). *' Commonwealth, ex rel. Fernberger, v. Butterworth, 160 Pa. 55 (1894). CORPORATE MEETINGS AND ELECTIONS. 365 Voting at an election of officers as provided by the Act of June II, 1879, without any express acceptance of the new Constitution in the manner provided by Section 26 of the Act of April 29, 1874, P. L. 84, does not place the corpora- tion under the new Constitution so as to authorize cumula- tive voting.** The provision of the Constitution relating to cumula- tive voting does not apply to a corporation whose charter granted prior to the Constitution of 1874 provided that "at all general meetings or elections by the stockholders, each share of stock shall entitle the holder thereof to one vote, and each ballot shall have indorsed thereon the number of shares thereby represented." *^ Where a corporation was incorporated prior to the Con- stitution of 1874, and the directors were given "all the au- thority, powers, and privileges necessary and proper for the management of the affairs thereof," the directors had no ex- press or implied power to accept the provision of the Consti- tution of 1874, and to bind the stockholders to cumulative voting at elections of directors.** Cumulative Voting Boes Not Bequire Change of Mode of Con- ducting Meeting. 313. The provision of the Constitution relating to cumula- tive voting, does not require any change in the mode of con- ducting corporate elections. Each company must continue to use the method prescribed by its charter, and the constitu- tional right is one that belongs solely and exclusively to the individual stockholders.*^ Notice of Intention to Cumulate Need not be Given. 314. Cumulative voting is a constitutional right and a ■" Hunsicker v. Perkiomen & Sumneytown Turnpike Road Co., i Mont. Co. Law Rep. 41 (1884). "Hays V. Commonwealth, 3 W. N, C. 549 (1876). "Baker's Ap., 109 Pa. 461 (1885). "Pierce v. Commonwealth, 104 Pa. 150 (1883). 366 CORPORATE MEETINGS AND ELECTIONS. Stockholder in the exercise of it is not bound to malte known his intentions in advance.** Fartisi Elections not iDTalidated by Cumulative Voting. 315. The Act of Aprir25, 1876, relating to cumulative vot- ing applies to all elections for directors, and makes no ex- ception in cases of partial election.** At a stockholders' meeting, where cumulative voting' is permitted in the election of directors, those candidates are elected who, beginning with the one receiving the highest number of votes and counting downward until the full board is made up, have received the most votes, but if in counting downward and before a full board is made up a tie is found, so that the remaining place or places in the board cannot be filled without rejecting one or more of the candidates who are in the tie, in that case only those candidates are, on that ballot, elected, who received each more votes than any can- didate in the tie, and another ballot must be had to fill the vacant places. In the ballot to fill the vacant places all the stockholders may again vote cumulatively.^" A corpor'ation was incorporated under the Act of April " Pierce v. Commonwealth, 104 Pa. 150 (1883). In this case Judge Gordon said: "We have the allegation of fraud, in this, that the re- lators did not give the respondents notice in advance, that they were going to cumulate their votes on four candidates. But as this was simply the exercise of a constitutional right, of which the respondents were pre- sumed to be as well informed as the relators, and as the Constitution placed its exercise entirely within the volition of the individual stock- holder, we do not see who has the right to restrain that volition by the imposition of any condition whatever, or to compel the voter to say in advance whether he will or will not use that privilege. Up to the very moment of voting he has the positive right to exercise his own will in this matter, and to us that sounds like a strange allegation which charges the plaintiffs with fraud upon the ground simply that they did that only which the supreme law of the State authorized them to do— -that is, quietly and according to their own will, distribute their votes upon four candidates instead of six." " Forsyth v. Brown, 13 Pa. C. C. R. 576 (1893). See Commonwealth %'. Parrish, 3 Kulp, 220. " Forsyth v. Brown, 13 Pa. C. C, R. 576 (1893). CORPORATE MEETINGS AND ELECTIONS. 367* 29, 1874. Its by-laws provided, inter alia, that "the regular annual meeting of the stockholders shall be held on the- first Wednesday of December in each year" and that "at the reg- ular annual meeting of the stockholders the judge or officer being first duly sworn shall hold an election by ballot for the purpose of choosing a board of directors. . . . The seven stockholders having the highest number of votes shall be' declared duly elected to constitute the board of directors, who shall hold their offices for one year or until their suc- cessors shall be elected." At the regular election of 1884, after a ballot had been taken to select seven directors to serve for the ensuing year, and before the result had been ascertained, the meeting adjourned stjte dine. The result of the ballot was that five of the candidates received the necessary pluralr ity, and that the three next highest received an equal number of votes and therefore failed of an election. A number of the votes cast were cumulated. No adjourned or subsequent meeting was held for the purpose of another election. The respondents constituting the old board of directors held that the failure of the stockholders to elect at their annual meet^ ing an entire new board of seven members, invalidated the election of the five who received the highest number of votes at this election, and that therefore the old board held over. The court, however, decided that the election of the five- directors was valid, and that they had full power to act as a board, even though the two remaining directors were not chosen.'^ Voting by Proxy. 316. Voting by proxy must be authorized either by the' charter or by the by-laws.'* Where a charter of a corporation declares "that each per- son being present at an election shall be entitled to votei" " Wright V. Commonwealth, 109 Pa. 560 (1885). '° Wilson V. American Academy of Music, 2 Pa. C. C. R. 280 (188S); Common-wealth ej: rel. v. Bringhurst, 103 Pa. 134 (1883) ; 12 W. N; C. S19 (1883); Craig V. First Presbyterian Church, 88 Pa. 42 (1878). 368 CORPORATE MEETINGS AND ELECTIONS. the Stockholders must be actually present, and voting by proxy is not allowed.'^ When a stockholder authorizes another by proxy to vote in his name and behalf at any election of the directors of the company, and at any meeting of the stockholders of the company as fully as the stockholder himself might or could were he personally present, the person holding the proxy is not restricted to voting merely for directors, but he may vote on motion to take a ballot or adjourn, and in fact do all that the stockholder could do at the meeting.®* When Proxy Must be Obtained. 317. From and after the passing of this act, all power to vote by proxy in any association incorporated by any au- thority in this Commonwealth, or by the former proprietary government, shall be obtained and dated within six months previously to the time of holding the election or meeting of stockholders at which such proxy shall be presented, and shall not be used for any purpose or purposes except those therein expressed, nor shall any such proxy be given in blank nor substitution thereof to a third person be admitted, any law or usage to the contrary notwithstanding: And provided also, that nothing herein contained shall be so construed as to alter or affect the provisions of the act entitled "An Act regulating banks," so far as relates to the date of proxies.®^ Person Voting as Proxy to Make Oath in Certain Cases. 318. In all elections of officers in any association or com- pany (incorporated as aforesaid) hereafter to be held by vir- tue of any law of this Commonwealth, whenever any person shall offer to the judges of such election any vote or votes as attorney, proxy, or agent for any other person, such person being required thereto by any judge of such election, or any stockholder in such association or company, shall, before his vote or votes shall be received, take and subscribe the following oath or affirmation: I do solemnly swear (or affirm) that I have no interest directly or indirectly in the " Broom v. Commonwealth, 2 Phila. 156 (1856). " Forsyth v. Brown, 13 Pa. C. C. R. 576 (1893). " Act of March 28, 1820, Sec. i. 7 Sm. L. 320. CORPORATE MEETINGS AND ELECTIONS. 369 share upon which I shall vote at this election, that those shares are to the best of my knowledge and belief truly and in good faith owned by the persons in whose names they now stand, and that in voting at this election I have not trans- ferred any of the said shares, or caused them to be transferred in trust or othenvise for the purpose of increasing the votes at this election, and that I shall not violate in any manner di- rectly or indirectly any provision of the act of incorporation which limits the number of votes a stockholder may give in his own right; and the judges of such election are author- ized to administer the aforesaid oath (or afifirmation) and the said oath and also all authorities or powers of attorney to vote by proxy, or as agent, shall be filed and preserved in the office of such association or company, and if any person shall willfully and absolutely swear or affirm falsely, in taking any oath or affirmation prescribed by this act, such person so ofifending shall upon due conviction therteof be subject to the pains and penalties which are by law prescribed for the pun- ishment of willful and corrupt perjury.^* Provisions as to Proxies not to Extend to Certain Corporations. 319. None of the provisions of the act entitled "An Act to regulate proxies," passed the 28th day of March, 1820, shall be deemed to extend to any association incorporated for re- ligious, charitable, or literary purposes.®' Voting Trust. 320. An agreement among the stockholders of a railroad company vesting in trustees perpetually the right to vote the stock is absolutely void as contrary to public policy, and as violating the Act of February 19, 1849, giving the right to vote as an incident to the ownership of railroad stock.'® The right to vote stock is incident to the right of owner- ship and cannot be severed from it, except by special agree- ment in cases of pledge. The stockholder and creditors of a corporation may, however, unite in agreeing that third per- sons usually designated as "voting trustees" may vote the °* Act of March 28, 1820, Sec. 2, 7 Sm. L. 326. "' Act of March 31, 1821, Sec. i, P. L. 446. "• Vanderbilt v. Bennett, 6 Pa. C. C. R. 193 (1887). 24 370 CORPORATE MEETINGS AND ELECTIONS. Stock. In such a case the stock may be considered as having been transferred as security for the debts of the corporation, and the agreement that the trustees shall vote the stock couples the trust with an interest and gives the trustees such active duties to perform as will make the trust more than a mere dry trust.®* Court of Equity may Control Corporate Meeting. 321. A court of equity has jurisdiction to supervise and control a corporate election and in the exercise of this juris- diction upon a bill filed anterior to an election at which it is alleged that difficulties may arise, it will direct the judges of election to return to the court the votes cast together with the list of challenged votes which were received or ruled out."" A court of equity will appoint a master to conduct a cor- porate election where it appears from the bill and the affi- davits that the election will otherwise probably be conducted, with disorder and violence, and result in injustice to stock- holders. The action of the master appointed to conduct the election is not final, as it comes back to the court for review, and it is the final decree of the court which determines the extent of the control and supervision which may be lawfully exercised over the election.®^ If it appears that the franchises, property, and control of a corporation are liable to be withdrawn from their proper custodians by the votes of a class of persons clearly disqual- ified, it is the duty of a court of equity to assume control over the corporate election.®^ Where an election of officers has been held at the proper ■" Shelnierdine v. Welsh, 8 Pa. C. C. R. 330 (1890). " Raynor v. Beatty, 9 W. N. C. 201 (1880) ; Anderson v. Eltonhead, 26 W. N. C. 95; Commonwealth v. Philadelphia & Reading R. R., 3 Dist. Rep. IIS; Dick v. Lehigh Valley R. R., 4 Dist. Rep. 56. "Tunis V. Hestonville, Mantua & Fairmount Pass. Ry. Co., n Pa. C. C. R. 4S0, 452 (1892); 149 Pa. 70 (1892). ""Mcllvain v. Christ Church, 2 Woodward, 293 (1871). CORPOKATE MEETINGS AND ELECTIONS. 37 1 place, and the appointed time, and the meeting has been quiet and orderly, the only way to contest the validity of the election is by qtw warranto, but where it is shown in advance that by reason of fraud and violence, a fair election cannot be held, a court of equity will interfere to supervise and con- trol the election. In a case where a bill was filed, to declare void a corporate election already held, the court said: "The Act of June i6, 1836, P. L. 621, confers upon the Supreme Court and the Courts of Common Pleas the jurisdic- tion and powers of courts of chancery as to all corporations other than those of a municipal character. This power has been used to control and supervise the election of directors where it has been shown that, by reason of fraud, violence, or other unlawful conduct on the part of the stockholders, a fair and honest election could not be held. This was done on the occasions which gave rise to Gowen's Ap., 10 W. N. C. 85, and to Tunis v. The Hestonville Pass. Ry. Co., 149 Pa. 70. The power was invoked in advance of an election to pre- vent fraud or force, and to secure that the right of each stock- holder to vote should be passed upon by an impartial and disinterested person, whose decision was subject to imme- diate review and correction. "Those cases dififer widely from this. The court here was not asked to supervise an election upon the allegation that by reason of fraud or force a fair election could not be held, nor upon any other allegation. An election had been held at the office of the company on October 10, 1892. This was the proper place and the appointed time, and the meeting was regular, quiet, and orderly. The plaintiflf withdrew from the meeting before the voting commenced, and pro- ceeded in another room to hold an election of their own. Nearly three months afterwards, on January 3, 1893, their bill was filed. "It was the right of the plaintiffs to contest the validity of this election if they so desired, but the method was by a writ 372 CORPORATE MEETINGS AND ELECTIONS. of quo tvarranto as provided by the Act of June 14, 1836: Updegraff v. Crans, 47 Pa. 103." ®* The courts may supervise a stockholders' meeting where the subject of consideration for the meeting is the dissolu- tion of the company.** A decree appointing a master to conduct a stockholders' meeting is not a final decree upon which an appeal can be taken.®® When Ballot Cannot be Opened. 322. At a stockholders' meeting after the votes have been counted and announced, it is too late to open the ballot to receive the votes of any who had not then voted.*® "Withdrawal from Meeting. 323. If a portion of the stockholders withdraw from the meeting, not in good faith to escape disorder, but to carry out a preconceived scheme to organize and run the meeting in their own interests, the meeting which they organized is invalid. In such a case a subsequent invitation to the other stockholders to join in and vote at the meeting is ineflfectual to procure the radical defect of organization.*'' Adjourned Meeting. 324. A person who is elected to preside at a stockholders' meeting is entitled to call an adjourned meeting to order, " Jenkins v. Baxter, i6o Pa. 199 (1894). " Titusville Oil Exchange Dissolution, 2 Super. Ct. 508 (1896). * National Transit Co. v. United States Pipe Line Co., 180 Pa. 224 (1897). "Forsyth v. Brown, 13 Pa. C. C. R. 576 (1893). Arnold, J., said: "If a ballot could be opened and stockholders permitted to vote after the result of the ballot had been announced, the door would be left wide open for designing persons to await the result of the stockholders votes, and then change it by casting their own. Whoever has the highest num- ber of votes, the assembly being lawful, is elected, although the majority of the entire assembly abstain from voting." "Commonwealth, ex rel. Langdon, v. Patterson, 158 Pa. 476 (1893). CORPORATE MEETINGS AND ELECTIONS. 373 and to continue to preside unless superseded in some orderly and recognized parliamentary manner.®* Besolutions Canuot be Varied by Parol. 325. Speeches made or words spoken at a corporate meet- ing are not admissible to vary the legal effect of the adopted and recorded resolutions of the meeting.''" Kesolutions may be Revoked. 326. A resolution unanimously adopted at a stockholders' meeting may be revoked at a subsequent stockholders' meet- ing by a resolution not passed unanimously.'" When Injunction will not Issue. 327. A court of equity will not interfere by injunction to stop the business of a corporation merely to settle a dispute as to the election of a secretary and some of the directors.''^ Quo Warranto. 328. The proper mode of testing the validity of a corpo- rate election is by quo zvarranto, and not by mandamus.''* " Commonwealth, ex rel. Langdon, v. Patterson, 158 Pa. 476 (1893). •' Miller V. Church, 4 Phila. 4 (i860). "McKean v. Biddle, 181 Pa. 361 (1897). " Paynter v. Clegg, 9 Phila. 480 (1873). " United Fire Assn. v. Benseman, 4 W. N. C. i (1877); Bedford Springs Co. V. McMeen, 161 Pa. 639. CHAPTER XXX. LIABILITY OF STOCKHOLDERS. 329. Liability Under Act of 1874. 338. 330. Action to Enforce Liabilities. 331. Execution. 339. 332. Limitation of Liability. 340. 333. Service of Process to Enforce Liability. 34 1- 334. Liability Strictly Construed. 335. When the Liability is Con- 342. tingent. 343- 336. Continuance of the Liability. 337. Liability for Labor and Mate- 344. rials. Liability for Damages to Property. Liability of Pledgee of Stock. Liability of Stockholders of Foreign Corporation. Liability Cannot be Enforced by Rule. Remedy by Scire Facias. When the Remedy is Limited to Forfeiture of Stock. Contribution Among Stock- holders. Liability Under Act of 1874. 329. The stockholders in each of said corporations shall be liable, in their individual capacity, to the amount of stock held by each of them, for all work or labor done to carry on the operations of each of said corporations; but this sec- tion shall not be construed to increase or diminish the lia- bility of stockholders in corporations which, by the terms of this statute, are to be governed, controlled, and managed by the provisions of other statutes, but their liability shall be fixed and defined by the terms of the statutes by which said corporations are to be governed, controlled, and managed.^ ■ Act of April 17, 1876, Sec. 3, P. L. 32, amending the Act of April 29, 1874, Sec. 14. Sec. 12 of the Act of April 29, 1874, providing for an additional liability of stockholders in certain companies, was repealed by the Act of May 2S. 1887, P. L. 273. The words "or materials furnished" in the Act of 1874 are omitted in the Act of 1876. See Green v. Whitehead, s Dist. Rep. 612. 374 LIABILITY OF STOCKHOLDERS. 375 Action to Haforcc IiiabilitieB. 330. In any action or bill in equity brought to enforce any liability under the provisions of this act, the plaintiff may in- clude as defendants, any one or more of the stockholders of such corporation, claimed to be liable therefor; and if judg- ment be given in favor of the plaintiff for his claim, or any part thereof, and any one or more of the stockholders so made defendants, shall be found to be liable, judgment shall be given against him or them.^ The several Courts of Common Pleas of this Commonwealth having the powers of a court of chancery shall have jurisdic- tion of all litigation and^disputes between stockholders and parties claiming to be stockholders; and between creditors and stockholders and creditors and the corporation, of all corporations within this State; and in the proceedings before the court in such case the service of process upon the com- pany shall be held and considered as a service upon one of the principal defendants, as provided in the first section of the Act of April 6, 1859, relating to equity jurisdiction and proceedings.^ Execution. 331. The execution upon such judgment shall be first levied on the property of such corporation, if it be found in the county Avhere the chief business of the corporation is carried on, and in case such property, sufficient to satisfy the same, cannot be found in said county, the deficiency, or so much thereof as the stockholder or stockholders, defendants, in such judgment, shall be liable to pay, shall be collected of the property of such stockholder or stockholders; on the payment of any judgment as aforesaid, or any part thereof, by one or more stockholders, the stockholder or stockholders so paying the same shall be entitled to have such judgment, or so much thereof as may have been paid by him or them, assigned to him or them for his or their benefit, with power to enforce the same in manner aforesaid, first against the company, and in case the amount so paid by him or them shall not be collected of the property of the corporation, then ratably against the other solvent stockholders, if any such ^ Act of April 29, 1874, Sec. 15, P. L. 80. ' Act of May 4, 1893, Sec. i, P. L. 29. 376 LIABILITY OF STOCKHOLDERS. there be, originally liable for the claim on which such judg- ment was obtained.* Xiimitatiou of Liability. 332. But no stockholder shall be personally Hable for pay- ment of any debt contracted by any such corporation, unless suit for the collection of the same shall be bro.ught against such stockholder or stockholders within six months after such debt shall have become due.® The officers and stockholders of corporations organized under or accepting the provisions of this act shall not be individually liable for the debts of said corporation otherwise than in this [act] provided.® It is hereby declared to be the true intent and meaning of the statutes of limitation, that no suit at law, or in equity, shall be brought, or maintained, against any stockholder, or director, in any corporation, or association, to charge him with any claim for materials, or moneys, for which said cor- poration, or association, could be sued, or with any neglect of duty as such stockholder, or director, except within six years after the delivery of the materials, or merchandise, or the lending to or deposit of money with said corporatioii, or association, or the commission of such act of negHgence by such stockholder or director.'^ Service of Process to Enforce Liabiliiy. 333. In all actions or proceedings now or hereafter brought or instituted in any county within this Common- wealth, to charge the stockholders of any corporation with any of the debts of such corporation, or to enforce payment of instalments due upon stock, service of summons, or other process, may be made upon the stockholders resident within such county in the same manner as writs of summons are now directed to be served, and upon those residing in other counties of this Commonwealth by the sheriflf of the county in which they may respectively reside, and upon those non- residents of this Commonwealth by publication for four suc- ' Act of April 29, 1874, Sec. 15, P. L. 20. " Act of April 29, 1874, Sec. 15, P. L. 20. ' Act of April 29, 1874, Sec. 24, P. L. 83. 'Act of March 28, 1867, Sec. i, P. L. 48. See Amer v. Armstrong, 6 Pa. C. C. R. 392 (iS LIABILITY OF STOCKHOLDERS. 377 cessive publications in a newspaper published within the county where such action or proceedings is brought or in- stituted, and also in the State in which such non-residents may reside, as the court from which such action or proceed- ings shall issue may direct, and a copy of such publication shall be mailed to the post-ofifice address of such non-resi- dent stockholders, if such address can be ascertained.* Liability Strictly Construed. 334. Stockholders who have paid in full for their stock are neither at common law nor in equity liable for the cor- porate debts, and statutes which impose this liability must be strictly construed.** Where a stockholder of a manufacturing corporation chartered under the Act of April 7, 1849, pays a judgment against the corporation he is entitled to contribution from the other stockholders who were parties defendant in the judgment, but he must strictly pursue the remedy provided by the act. He must take an assignment of the judgment, and enforce execution against such stockholders; and he can- not maintain an action of assumpsit against other stockhold- ers who were not parties defendant in the judgment.^" The liability imposed upon a stockholder by the fourteenth section of the Act of April 29, 1874, is of a special and ex- tremely limited character. The stockholder is only liable for work and labor done, and for materials furnished to carry on the operations of the corporation, and under the section he is liable for no other form or species of corporate debt. The liability created by the section is a direct liability from the stockholder to the creditor, and exists to the amount of ■■ Act of May 14, 1874, P. L. 146. 'O'Reilly v. Bard, 105 Pa. 569 (1884); Moyer v. Pennsylvania Slate Co., 71 Pa. 293 (1872). See Prouty v. 'Prouty & Barr Boot and Shoe Co., ISS Pa. 112 (1893). '"O'Reilly v. Bard, 105 Pa. 569 (1884); Patterson v. Lane, 35 Pa. 275 (i860); Hoard v. Wilcox, 47 Pa. 51 (1864); Brinham v. Wellersburg Coal Co., 47 Pa. 43 (1864); Youghiogheny Shaft Co. v. Evans, 72 Pa. 331 (1872); Lane's Ap., 105 Pa. 49 (iS 378 LIABILITY OF STOCKHOLDERS. the stock held by the stockholder without any reference to the question whether it has been fully paid or not. The stockholder may have paid for his stock in full, yet he still may be liable to the extent of the whole value of his stock to the classes of creditors referred to in the fourteenth section. In enforcing the liability under this section, the manner pre- scribed by the fifteenth section must be literally pursued.^^ As the individual liability of the stockholders for the cor- porate debts is purely statutory, the provisions of the statute must be strictly followed. Thus where an act provides that the corporation must be joined with the stockholders as a party defendant, a creditor cannot maintain his action against a part of the stockholders sued alone without joining the cor- poration, even though he has previously obtained judgment against the corporation.^" Under the Manufacturing Company Act of July i8, 1863, a creditors' bill against stockholders must be filed in behalf of the plaintiff, and all other creditors of the corporation. The bill should not include the corporation and officers as parties defendant. The act provides that the bill may be filed against the corporation and stockholders or against the ofificers.^^ " Lane's Ap., 105 Pa. 49 (1884). In this case Mr. Justice Greene said: "This liability is, of course, of a purely statutory character, having no ex- istence outside of the legislation, and whenever it is invoked it must be enforced in the very manner prescribed by the other portions of the act. If that kind of remedy is not literally pursued when the particular lia- bility is proposed to be enforced, there can be no recovery. Such were the decisions of this court in many cases, notably in Patterson v. Lane, 35 Pa. 27s (i860); Hoard v. Wilcox, 47 Pa. 51 (1864); Brinham v. The Wellersburg Coal Co., 47 Pa. 43 (1864); Youghiogheny Shaft Co. v. Evans, 72 Pa. 331 (1872); Means' Ap., 85 Pa. 75 (1877). These were de- cisions under other acts, principally the manufacturing law of 1849, but the controlling idea of the whole of them was that the liability and the remedy were special and statutory, and therefore the provisions of the statute must be strictly pursued. Nothing more than this was decided in any of them." " Hoard v. Wilcox et al, 47 Pa. 51 (1864). " Sherifif V. Oil Co., 7 Phila. 4 (1868). LIABILITY OF STOCKHOLDERS. 379 When the Iiiability is Contingent. 335. Where an Act of Assembly such as the Act of April 26, 1872, provides that each stockholder "shall be individu- ally liable to the depositors and creditors of said company to the amount of the stock of the said company subsci-ibed for or held by hira," the statutory liability is merely contin- gent, and the stockholders are not liable primarily to the creditors, but only in the event of the final inability of the corporation to pay. In a case where the assets of an assigned bank was being distributed^ and where stockholders who are also creditors claimed a set-ofif, the court said: "It follows logically from this premise that, for the present purpose, namely, that of the distribution of the fund now on hand, only the direct and ascertained indebtedness of depositors can be properly set-ofif against their ascertained claims for shares in the money to be distributed. If, therefore, a depositor or other creditor is at the same time indebted on a subscription for capital stock, such amount must be deducted from, or set- oflf against, the amount of dividend allotted to such claimant. And where a stockholder has fully paid up his stock subscrip- tion, then such person, in the absence of any other direct in- debtedness, will be entitled to be paid, as other creditors, what- ever amount may be coming to him in the distribution. Or, if the balance due on his stock subscription should be less than his dividend in the distribution, then he will be entitled to receive the overplus remaining after payment of the full amount remaining unpaid on his stock subscription." ^* Where the stockholders of a corporation under the charter or a general law are personally liable for the debts of the company, the assets of the company must be first exhausted before I'ecourse can be had to the stockholders.^' " Humboldt Safe Deposit & Trust Co.'s Assigned Est., 3 Pa. C. C. R. 621 (1886); Patterson v. Wyomissing Mfg. Co., 40 Pa. 117 (1861); Mean's Ap., 8sPa. 75 (1877)- '" Mean's Ap., 85 Pa. 75 (1877) ; McMulHn v. McCreery, S4 Pa. 230 (1867); Moyer f'. Pennsylvania Slate Co., 71 Pa. 293 (1872). 380 T-IABILITY OF STOCKHOLDERS. Continuance of the Liability. 336. A charter of a bank incorporated by statute provided that "the stockholders of said bank shall be individually lia- ble for double the amount of stock held by them respectively, and not otherwise." It was held that the liability of the stockholders was not contractual but statutory, and attached to the ownership of the stock immediately when it was ac- quired and continued as long as it was owned.*" The Act of April 20, 1853, supplementary to the Act of April 17, 1849, entitled "An Act to encourage manufacturing operations in this Commonwealth," rendered the stockhold- ers in all companies incorporated in pursuance of its provis- ions, or under the Act of 1849, a-"d its supplements, liable for all debts contracted while they were stockholders, al- though they had paid up the whole of their stock." Where the stockholders of a corporation are personally liable to creditors of the company for an amount in excess of their stock, they are not relieved from such liability by the fact that the creditors at the request of the directors of the com- pany, granted an extension of time for the payment of the debts of the company nor, after the insolvency of the com- ' pany, are they relieved from such liability by a transfer of the stock made for the purpose of avoiding liability.*^ A secret provision in articles of copartnership that the partnership shall become incorporated, will not relieve the individual members of personal liability to one who has dealt with the partnership vWthout knowledge of the secret pro- vision, although the act incorporating the company declares that all contracts made by the association shall be as oblig- atory on the same, and on the other parties thereto as if they had been made subsequent to the act of incorporation, and that it shall be lawful for the corporation and the parties to maintain actions to enforce the performance thereof, as " Amer v. Armstrong, 6 Pa. C. C. R. 392 (18 " Patterson & Co. v. Wyomissing Mfg. Co., 40 Pa. 117 (1861). " Aultman's Ap., 98 Pa. 505 (1881). LIABILITY OF STOCKHOLDERS. 381 fully and effectually as if the same had been made by or with the corporation.^® The charter of incorporation is prima facie evidence that all the persons named therein are at the time of the incorpo- ration members of the company. The charter and the pre- vious certificate being public acts and publicly recorded if any person named therein as a member, afterwards acts as a member, or does not disavow the relation as soon as he dis- cover the use made of his name, he cannot evade his per- sonal liability as member, merely by showing that he was not in fact a subscriber, and never paid in any stock. He must immediately and publicly disavow the act, or else be deemed as ratifying it as relates to creditors.^" Iiiability for Labor and Material. 237- A person who has furnished labor and materials to carry on the operations of the corporation is entitled not only to enforce the liability imposed by Section 14, of the Act of April 29, 1874, P. L. 73, but also the liability existing on the part of stockholders to pay uncalled and unpaid subscriptions to the capital stock. "The laborers and materialmen are creditors of the corporation in as large and broad a sense as all other creditors, and of course in that capacity they have all the remedies which are common to the whole mass. • In addition to that they have a special remedy which the others do not possess. This might be availed of if the other failed, but, in no possible view of the case can we hold that its exist- ence deprives them of other remedies common to all creditors alike." ^^ An act incorporating a slate company provided "that the stockholders of said company shall be jointly and severally liable in their individual capacities for debts due mechanics, workmen, and laborers employed by said company, and for materials furnished said company." It was held that the act "Witmer v. Schlatter, 2 Rawle, 359 (1830). "McHose & Co. v. Wheeler, 45 Pa. 32 (1863). "" Lane's Ap., 105 Pa. 49 (1884). Per Green, J. 382 LIABILITY OF STOCKHOLDERS. did not include a liability for hauling, repairing wagons, lum- ber for erecting machinery, provender for horses used by the company, powder for blasting and tools.*^ The Act of March ■z'j, 1854, P. L. 215, provided "that the ='Moyer v. Pennsylvania Slate Co., 71 Pa. 293 (1872). In this case Thompson, C. J., said: "It is plain that when the liability to a limited extent was cast upon the stockholders personally, it was with a view to an additional security to the operative^ of the establishment, who were the producers— the life of it. It is generally only to such that liens are extended in the mining districts. For them the law provides additional security; so in this case the additional security of the individual responsi- bility of the stockholders is added to that of the corporation, in favor of the employees of the corporation, its mechanics, workmen, and laborers. "If this be not the meaning of the words 'employed by the company,' we see no possible use of the enumeration of the grounds of liability of the stockholders. Were it intended to hold them liable generally, enumeration, it is reasonable to suppose, would have been omitted. If the words in themselves were general enough to seem to bear the con- struction contended for, we are admonished by these considerations that they were not so intended. Generality of expression in Acts of Assembly, as in contracts, is often restricted by regard to the subject-matter to which it has been used: Commonwealth v. The Councils of the Borough of Montrose, 52 Pa. 391 (1866). "The learned judge of the Common Pleas was right, therefore, we think, in holding as he did, that the charge for hauling slate, the party using his own team and contributing his own time, was not embraced by the liability clause quoted. Indeed, I regard it as not within the words at all. The teamster was not strictly either a laborer or workman, but the ruling stands well enough on the general ground suggested. His was labor of the same kind as that performed by the railroad company in transporting the slates to the market, and the yardman who took charge of them on their arrival at their destination. These parties were independent of the corporation altogether, and cannot be regarded as employees at all. All this is true of the wagotimaker's bill. He was not the mechanic of the corporation. His was an independent business under his own control and option, and he was no more entitled to avail him- self of the stockholders' liability than the horseshoer, or the ordinary shoemaker, who might furnish shoes worn by the workmen and laborers. And so of materials furnished. That, of course, has reference only to such as form part or portions of the products of the establishment. With- out injustice to the stockholders, we cannot hold to the general liability clause against them, and yet it is to be regretted, if loss ensue to indi- viduals, because the corporation may be unable to pay them their dues. This, however, is the fault of the legislation on the subject." LIABILITY OF STOCKHOLDERS. 383 Stockholders in all companies incorporated in pursuance of the provisions of the act to which this is a supplement,, and the several supplements thereto, including this act, shall hereafter be jointly and severally liable in their individual ca- pacities, only for debts due to miners, quarrymen, and other laborers employed by such companies, and for machinery, provisions, merchandise, country produce, and materials fur- nished for said companies respectively to be enforced and col- lected in the manner provided for in the act to which this is a supplement." A merchant upon orders of a manufacturing company furnished provisions to the workmen of the com- pany, and by arrangement the company took up the orders monthly by gfiving notes. It was held that these transac- tions were within the provisions of the act, and that the stock- holders were personally liable.^* A partnership agreed to transfer all its efifects at an ap- praised valuation to compose the capital stock of a manufac- turing corporation, when it should be formed, and to sub- scribe for its stock to the amount of the appraisement, the company to issue stock in payment of the property. Sub- sequently upon the refusal of the company to issue the stock, the partnership brought an action against the corporation for the amount of the appraisement, claiming to make the stockholders individually liable under Section 2 of the Act of March 27, 1854, P. L. 215. The court, however, held that the act contemplated an ordinary sale, and delivery to the company in the course of its usual business, and did not apply to the case in question.^* The liability of a stockholder of a manufacturing company, under the Acts of April 7, 1849, April 20, 1863, and March 7, 1854, does not extend to the case of a promissory note held by a third person, although given for materials used in the manufacture.^' '° Reading Industrial Mfg. Co. v. Graeflf, 64 Pa. 395 (1870). ■* Weiss V. Mauch Chunk Iron Co., 58 Pa. 29s hi "' =* Weigley v. Coal Oil Co., 5 Phila. 67 (1862). 384 LIABILITY OF STOCKHOLDERS. Liability for Damages to Iroperty. 338. An act incorporating a navigation company gave the company the right to enter on lands on a creek to obtain material and to deposit dirt, etc., paying compensation to be ascertained as railroad damages, for which the stockholders should be responsible: "Provided, also, that the stockhold- ers should be personally responsible for damages to private property in the exercise of the privileges conferred or by the acts, omissions, or neglect of said company." It was held that this was an additional liability to that for damages for entry on the land.^® Liability of Pledgee of Stock. 339. Where stock is transferred as collateral it stands in the name of the pledgee, the pledgee is liable to the creditors of the company where a law imposes upon the stockholders a liability to the company's creditors to an amount equal to the amount which they have already contributed to the com- pany's stock." Iiiability of Stockholders of Foreign Corporation. 340. Under the laws of Ohio the stockholders of a corpo- ration chartered by that State were individually liable over and above the amount of stock owned by them to a further sum equal in amount to such stock. After the corporation had become insolvent, and after all its assets, real and per- sonal, had been exhausted, a bill was filed in Pennsylvania by a stockholder who had taken to himself an assignment of all the company's debts, against the stockholders, all of whom resided in Pennsylvania. It was held that the Pennsylvania courts had jurisdiction to enforce against the stockholders the personal liability imposed upon them by the Ohio law in favor of the creditors of the corporation. ** "White Deer Creek Improvement Co. v. Sassaman, 67 Pa. 415 (1871). " Aultman's Ap., 98 Pa. 505 (1881). "Aultman's Ap., 98 Pa. 505 (1881). See Sykes v. Anderson, 14 Pa. C. C. R. 329 (1895); Gushing z;. Perot, 175 Pa. 66 (i8g6); Elkhardt Bank LIABILITY OF STOCKHOLDERS. ' 385 Under the laws of Ohio each stockholder in the- corpora- tion is individually liable over and above the amount of stock owned by him to a further sum equal in amount to such stock. It was held that such liability existed not only in respect to stock subscribed for, but also in respect to stock distributed as a stock dividend.^® Iiiability Cannot be Enforced by Rule. 341. The individual liability of stockholders or officers for the debts of the company for failure to record the certificate in the office of the recorder of deeds cannot be enforced in a suit against the company by a rule upon the officers and members to show cause why judgment should not be en- tered against them.®" Bemedy by Scire Facias. 342. By a charter of incorporation the stockholders of a company were made personally liable for all debts except loans, and, after a judgment obtained against the corporation a sci. fa. was sued out against stockholders to recover its amount from them personally. It was held that they could have no defense except on the ground that they were not stockholders, or that the debt was for a loan of money.*^ V. Northwestern Guarantee Co., 7 Dist. Rep. 13 (1898). See Chapter XLIV, Foreign Corporations. "' Aultman's Ap., 98 Pa. 505 (1881). " Barber v. Standard Sewer Pipe Co., 5 Pa. C. C. R. 293 (1888). In this case Judge Furst said: "If it is sought to hold an individual liable for the debt of a corporation of which he is a member, it must be done iDy appropriate action begun by writ of summons or of scire facias, or iDy bill in equity, so that he may have an opportunity to appear and de- fend, and have an opportunity also to make his defense before a jury or tribunal having power to hear, try, and dispose of the case, and enter judgment thereon according to right and justice. Anything short of this is not due process of law within the meaning of the fundamental law of this Commonwealth. Upon a simple rule to show cause, this could not he done.'' "Wilson, McElroy & Co. v. The Stockholders of the Pittsburgh & Youghiogheny Coal Co., 43 Pa. 424 (1862). 25 386 LIABILITY OF STOCKHOLDERS. When the Remedy is Limited to Forfeiture of Stock. 343. Where a liability in addition to the stock subscrip- tion is imposed by the by-laws upon the stockholders, and it is provided that if it is not paid the stock shall be forfeited, an action cannot be maintained to enforce the liability. In such a case the remedy provided by the by-laws is exclusive.^^ Contribution Among Stockholders. 344. Where the stockholders of a corporation are made in- dividually liable for the debts of the company, their liability is purely statutory, and their right to contribution among themselves is limited by the terms of the statute. Thus the stockholders of a corporation organized under the Act of April 7, 1849, were sued together with the company and a judgment obtained which they were compelled to pay. It was held, that their right to enforce contribution from the other stockholders was exclusively under the provisions of the statute, and not in equity.^* Where a stockholder of a manufacturing corporation chartered under the Act of April 7, 1849, pays a judgment against the corporation he is entitled to contribution from the other stockholders who were parties defendant in the judg- ment, but he must pursue the remedy provided by the act, viz., to take an assignment of the judgment, and enforce exe- cution against such stockholders. He cannot maintain an action of assumpsit against other stockholders who were not parties defendant in the judgment.®* '' Belmont Park. Assn. v. Toller, 6 Pa. C. C. R. 266 (18 "' Brinham v. Wellersburg Coal 'Co. et al., 47 Pa. 43 (18 " O'Reilly V. Bard, 105 Pa. 569 (1884) ; Patterson v. Lane, 35 Pa. 27S (i860); Hoard v. Wilcox, 47 Pa. 51 (1864); Brinham v. Wellersburg Coal Co., 47 Pa. 43 (1864); Youghiogheny Shaft Co. v. Evans, 72 Pa. 331 (1872); Lane's Ap., 105 Pa. 49 (1884). CHAPTER XXXI. POWERS. General Powers — Statfltory Provisions. Power to Sell Franchises and Property. Construction of Grant of Power — Future Modification of Act. Charter Powers Strictly Con- strued. Power to Alienate Property. 350. Power to Create Sinking Fund. Power to Assign for Benefit of Creditors. Certain Assignment not to be Made Without Consent of Creditors. 353. Wages Preference in Assign- ments. Assignment by Improvement Company. Power to Prefer Creditors. Power of Corporation to Pur- chase Its Own Stock. 357. Power to Remove Servants. 345- 346. 347- 348. 349- 351- 352. 354- 355- 3S6. 358. Power to Contract. 359. Ratification of Contract. 360. Executory Contract. 361. Executed Contract. 362. No Power to Change Interest of Stockholder. 363. Legislative Regulation. 364. Certain Acts Construed as Valid Exercise of Corporate Powers. 365. Certain Acts Construed as not Within Corporate Pow- ers. 366. Investment of Surplus by Cor- poration. 367. Obligations Redeemable Otherwise than in Gold and Silver not to be Issued. 368. Certain Corporations to Be- come Sole Surety in Cases of Trust. 369. Donations of Wages for Charity. 370. Computation of Time. General Powers -Statutory Provisions. 345. Corporations may be formed under the provisions of this act by the voluntary associatidn of five or more persons, for the purpose, and in the manner mentioned herein, and when so formed, each of them by virtue of its existence as such, shall have the following powers, unless otherwise spe- cially provided: 387 388 ' POWERS. First. To have succession by its corporate name for the period Hmited by its charter, and when no period is limited thereby, or by this act, perpetually, subject to the power of the General Assembly, under the Constitution of this Com- momvealth. Second. To maintain and defend judicial proceedings. Third. To make and use a common seal and alter the same at pleasure. Fourth. To hold, purchase, and transfer such real and per- sonal property as the purposes of the corporation require, not exceeding the amount limited by its charter or by-law. Fifth. To appoint and remove such subordinate officers and agents as the business of the corporation requires, and to allow them a suitable compensation. Sixth. To make by-laws not inconsistent with law, for the management of its property, the regulation of its afifairs and the transfer of its stock. Seventh. To enter into any obligation necessary to the transaction of its ordinary afifairs.^ Power to Sell Franchises and Property. 346. It shall be lawful for any corporation in the same man- ner to sell, assign, dispose of, and convey to any corporation created under or accepting the provisions of this act its fran- chises, and all its property, real, personal, and mixed, and thereafter such corporation shall cease to exist, and the said property and franchises not inconsistent with this act, shall thereafter be vested in the corporation so purchasing as afore- said. - Construction of Grant of Power— Future Modification of Act. 347. The incorporation of any association of persons for the purposes named in this act, or accepting the same, shall be held and taken to be of the same force and effect as if the powers and privileges conferred, and the duties enjoined, had been conferred and enjoined by special act of the legisla- ture, and the franchises granted shall be construed according to the same rules of law arid equity as if it had been created by special charter, and no modification or repeal of this act shall ' Act of April 29, 1874, Sec. i, P. L. 73. ' Act of April 17, 1876, Sec. 5, P. L. 33, amending the Act of April 29. 1874, Sec. 23. POWERS. 389 affect any franchise obtained under the provisions of the same.^ Where a charter is granted by the Court of Common Pleas under an Act of Assembly providing for the incorporation of a certain class of associations, it is no valid objection to the charter that the articles of association contained provisions not authorized by the act. If unauthorized provisions are added all acts done in pursuance of such provisions are void, but until the corporation is proceeded against for an abuse of its franchises its rights as a corporation will not be affected by such unauthorized powers.* If the articles of association of a corporation organized under a general law, contain powers not authorized by the law, such powers and all acts done under them are invalid, but such corporate acts as have been done under powers au- thorized by the act, are valid.^ By the grant of a charter all the incidental and necessary powers carry into effect the expressly granted powers, are implied.® It is not necessary that each individual act done, or pro- posed to be done by a corporation must be authorized by the express letter of its charter. The means of carrying out the corporate powers follows the grant of the powers, and do not require express mention. Thus where a railroad company is authorized to use steam and carry freight, it may lay on a street the T rails in common use for such railroads, although such rails are not expressly authorized, and obstruct public ' Act of April 29, 1874, Sec. 25, P. L. 83. * Becket v. Union Town B. & L. Assn., 88 Pa. 2li (1878); Dorsey Har- vester Revolving Rake Co. v. Marsh, 9 Phila. 395 (1873). ° Albright z". Lafayette B. & L. Association, 102 Pa. 411 (1883). ° "All claims of corporate powers, derived from implication, undoubt- edly require close scrutiny; but in the nature of things such must exist; and their liability to abuse affords legitimately only reasons for their cautious recognition. Charters of incorporation are constitutions, not codes. They furnish outlines, which those who are to execute their facul- ties are at liberty to fill up, but always in harmony with the main design:'' Bank of Kentucky v. Schuylkill Bank, i Parsons, 180, 235 (1846). 390 POWERS. travel more than the flat rails used by street railway com- panies/ A corporation chartered to manufacture illuminating gas and heating gas may not only supply the gas, but also inci- dentally deal in such patented appliances and conveniences as will induce new customers to use gas, or old ones to use more.* CJiarter Powers Strictly Construed. 348. Corporations are limited to the powers given to them by their charters, and charters are to be strictly construed; "what is granted may be exercised, but nothing is to be taken by implication. The grant of corporate authority is a trust, and to be executed in the same spirit of fairness towards the public, as it would be by the State herself, and hence it may not be sold or assigned without express authority. The cor- porators undertake to stand in the shoes of the Common- wealth, and what they have undertaken to do they must do; they cannot alienate authority and control in favor of private parties, or to agents responsible or irresponsible." * "If acts of incorporation are to be so construed as to make them imply grants of privileges, immunities, and exemptions, which are not expressly given, every company of adventurers ' Millvale v. Evergreen Ry. Co., 131 Pa. i (i8go). * Malone v. Lancaster Gas Light & Fuel Co., 182 Pa. 309 (1897). 'Stewart's Ap., 56 Pa. 413 (1867): Diligent Fire Co. v. Commonwealth, 75 Pa. 291 (1874) ; Wolf V. Goddard, 9 Watts, 544 (1840) ; Bank of Penna. v. Commonwealth, ig Pa. 144 (1832); Penna. R. R. v. Canal Commissioners, 21 Pa. 9 (1852); Commonwealth v. Erie & N. E. R. R., 27 Pa. 339 (1856); Lehigh Water Co.'s Ap., 102 Pa. 515 (1883); Wilkes-Barre Light Co. V. Wilkes-Barre Light, Heat & Motor Co., 4 Kulp, 47 (1886); Pittsburgh Illuminating Gas Co., 16 Pa. C. C. R. 433 (1895); Pittsburgh & Lake Erie R. R. V. Bruce, 102 Pa. 23 (1882) ; Pittsburgh, Fort Wayne & Chicago R. R. V. Pittsburgh, i Pitts. Rep. 392 (1858); Allegheny v. Ohio & Pennsylvania R. R., 26 Pa. 355 (1855); Miller v. Canal Com- missioners, 21 Pa. 23 (1852) ; City of Philadelphia v. Philadelphia & Read- ing R. R., 58 Pa. 253 (1868) ; West Branch Canal Co. v. Elmira & Williamsport R. R., 55 Pa. 180 (1867) ; Plymouth R. R. v. Colwell, 39 Pa. 337 (1861); Warren & Franklin Ry. v. Clarion Laiid Co., 54 Pa. 28 (1866); Downing v. McFadden, 18 Pa. 334. POWERS. 391 may carry what they wish without letting the legislature know their designs. Charters would be framed in doubtful or ambiguous language, on purpose to deceive those who grant them, and laws which seem perfectly harmless on their face, and which plain men would suppose to mean no more than what they say, might be converted into engines of infinite mischief. The legislature without knowing or intending it might be thus induced to disarm the State of its most neces- sary powers, and transfer them to corporations. The con- tinued existence of government under such circumstances v/ould not be of much value. There is no safety to the pubHc interests except in the rule which declares that the privileges not expressly granted in a charter are withheld." ^ "Public grants are to be strictly construed so as to operate as a surrender by them of the sovereignty no further than is expressly declared by the language employed. The grantee takes nothing by inference, and except so far as the exclusive privilege can be clearly found from the grant itself, it is not conferred and the right of eminent domain still rests with the State and may be granted to competing and rival interests, however injurious they may be to those taken by the prior grantee." ^» ° Per Black, C. J., in Bank of Pennsylvania v. Commonwealth, 19 Pa. 14^, 152 (1852). In this case it was held that although the charter of the bank was a contract between the State and the corporation, the bank was not exempt from taxation by the State in the absence of any pro- vision to that effect in the charter. '"Warren Gas Light Co. v. Penna. Gas Co.. 13 Pa. C. C. R. 310 (1893). In McMasters v. Reed, i Grant. 36, 47 (1854), Lewis, J., said: "Cor- porations possess both powers and privileges. These powers are often expressed in their charters. But they are frequently implied from the duties imposed. In the latter case they are but incidents to the principal matter, and partake so much of its character that they ought to be de- nominated duties instead of privileges. A corporation may be clothed with power to perform its duty, to bear a burthen, to pay a debt, or if unable to pay immediately, to give an obligation for it payable at a future day. But this power can scarcely be called a privilege, which is to be grudgingly withheld, unless expressly granted by its charter. And any construction which would relieve corporations from these obligations would be inverting altogether the rule of strict construction, and would 392 POWERS. Every intendment not obviously in favor of the grant must be construed against it. The provision of the Act of April 29, 1874, Section 34, P. L. 93, as amended by the Act of June 2, 1887, Section 3, P. L. 312, by which the right to have and enjoy the franchise and privilege of a corporation for the manufacture of gas, for light only, is an exclusive one, does not extend the exclusive priv- ilege conferred, to companies incorporated under the Act of 1S74, for the purpose of furnishing light by electricity to consumers/'^ A grant of exclusive privileges to a corporation is not favored by the law, and must be construed strictly. It should not be carried by construction beyond the plain language of the grant. Thus an act giving water companies the exclusive privilege of supplying water to the public within their respect- ive territories, will be construed so as to extend only to other incorporated water companies, and not as against municipal corporations or individuals. In a case where a water company organized under the Act of April 29, 1874, P. L. 93, attempted to restrain an individual, who, prior to the organization of the company, had laid pipes in the streets of a borough with the borough's consent, from supplying the public with water, the court said: "The evi- dent object of the Act of 1874 was to encourage the formation of water companies to supply the inhabitants of small towns with water, and to that end prohibited the formation of rival in fact be conferring privileges of a character highly injurious to the public." "Scranton Electric Light & Heat Co.'s Ap., 122 Pa. 154 (1888). In this case Mr. Justice Gordon was of the opinion that the Act of April 29, 1874, P. L. 73, providing for the incorporation of companies for "the manufacture and supply of gas, or the supply of light and heat to the public by any other meang,'' did not authorize the incorporation of com- panies for the supply of electric light to consumers. In consequence of this decision the Act of May 8, 1889, P. L. 136, was passed confirming the charters of electric light companies issued under color of the Act of 1874, and providing for the incorporation of electric light companies as a separate class. It will be observed, however, that in this act no right of eminent domain is conferred, and no exclusive privileges granted. POWERS. 393 companies until they should have become profitable, but it was never intended that said companies should interfere with rights vested prior to their formation, nor to place munici- pal corporations at their mercy for a supply of water. In this view the law is wholesome, and can do no harm. In the view contended for it might become an engine of oppression." ^^ Under the Act of April 29, 1874, the right to construct water works is exclusive only against other water companies, and there is nothing in the act to prohibit a municipality from constructing water works itself.^* The Philadelphia Company, a natural gas company, pos- sessed all the powers conferred directly by the act of incorpo- ration, and all those possessed by the Pennsylvania Company under the Act of April 7, 1870. Among the latter were the following: 1. To act as a contractor or builder, and as such to build, construct, maintain, or manage for others. 2. To act as principal, and as such to build, construct, maintain, or manage for itself. 3. To act as a purchaser, and as such to buy, maintain, or manage in its own name or otherwise "any work or works public or private which may tend or be designed to improve, increase, facilitate, or develop" either of the following sub- jects, viz.: (i), trade; (2), travel; (3), transportation and con- veyance of (a), freight; (b), live stock; (c), passengers; (d), any other traffic, by land or water, from or to any part of the United States or territories thereof. It was also vested with power to "enter upon and occupy the lands of indi- viduals or companies on making payment therefor or giving security according to law." It was held that the grant of power was sufficiently compre- hensive to authorize the company to engage in the produc- tion, distribution, and supply of natural gas as a fuel, and that it possessed the right of eminent domain under the provisions " Freeport Water Works v. Prager, 129 Pa. 605 (1889). " Lehigh Water Co.'s Ap., 102 Pa. 51.? (1883). 394 POWERS. of its charter. Mr. Justice Williams said: "If the company has the right to engage in this business under its act of incor- poration, it has the right of eminent domain under the same act. 1 f the act of incorporation does not authorize it, then, as to this business, it is a private association, and without the power to enter upon the plaintiff's lands. The master and the court below held that the company was authorized to enter in its corporate character upon this business, and then rested their conclusion upon the proposition that gas is freight, and that conducting it through pipes from the wells to the con- sumers is the transportation of freight. But a transportation company provides simply the means for transportation of freight for customers at certain prices. This company pro- duces a commodity which it takes to market and sells. The gas is produced at the wells. It is wanted at the mills and dwellings of the city. The pipe lines laid by this company serve to convey the gas from its wells to its own customers to whom it is sold and delivered. The transportation is in- cidental to the production and supply of the gas. The situa- tion is precisely the same as in the case of illuminating gas, which is manufactured, stored, and conveyed by pipes to the places of consumption. The business is that of making and supplying gas for light. The transportation to the customer is incidental. The same is also true of water companies. They produce, store, and supply to customers water. Transpor- tation by means of pipes is the means of delivery, and is a mere incident of the business. The business of the Philadel- phia Company is, in our opinion, that of a fuel gas company, viz.: the production and distribution of natural gas; and the transportation of the gas is the necessary means of delivery to its customers and nothing more. Had it the power to en- gage in this business in 1884? It will be seen by our analysis of the grant in the act of incorporation that the company had the power to build, etc., any work, public or private, which 'may tend or be designed to improve, increase, facilitate, or develop trade.' POWERS. 395 "In the preamble to the Act of 1885 the legislature declares that natural gas has become a 'prime necessity for use as a fuel and otherwise in the development of trade.' It thus ap- plies to this business the very words employed in the act of incorporation to describe the powers of this company. It is, moreover, part of the current history of the Commonwealth that the discovery and use of natural gas has facilitated, cheapened, and increased the production of manufactured articles of all description, where heat is employed in the gen- eration of steam or in the process of manufacture. By cheap- ening and increasing production trade has been stimulated, facilitated, and developed wherever the natural gas has been made available as a fuel. We conclude, therefore, that the works by which the gas is produced from the earth, trans- ported to the factories and dwellings of Pittsburgh, and then delivered to customers, are works that 'tend and are designed to improve, increase, facilitate, and develop trade,' and are therefore within the powers granted to this company. If so, the Philadelphia Company is rightfully engaged as a corpora- tion in this business by virtue of its own charter." '* The rule that of a proviso or saving clause directly repug- nant to the body of an act will not defeat the purpose of an enactment, does not apply in the construction of the char- ters of private corporations, where the matters contained in the saving clause are made, and intended to be made, an essential condition of the enjoyment of the charter. If private corporations accept charters under such circumstances they must take them cum onere. The proviso in the Act of March 29, 1849, Section 7, P. L. 245, relating to the manner of constructing booms and the stopping of rafts, does not apply to the mere temporary de- tention of the logs until the marks can be seen, and their des- tination determined.^® "Carothers v. Philadelphia Co., 118 Pa. 468 (iS " West Branch Boom Co. v. Pennsylvania Joint Lumber & Land Co., 121 Pa. 143 (18 396 POWERS. A corporation was authorized by its charter to construct a dam in a river "provided that the same shall be so con- structed as to leave the channel of said river as safe and con- venient for the descent of rafts as it now is." It was held that this proviso was not to be construed so strictly as to defeat the purpose of the act. Trunkey, J., said: "The plaintiff complains that the river is not as safe and convenient for nav- igation as before the erection of the dam. Unquestionably this is so. A dam in a stream is an impediment, and in some decree renders its navigation less safe and convenient. A literal construction of this provision makes it impossible to build and maintain the dam, and the conceded right van- ishes. . . . Various statutes have been from time to time enacted authorizing public improvements some of which would obstruct or impede the navigation of rivers, and others the use of streets and roads, which contained provisions for- bidding such obstructions and impediments. The courts have uniformly held that these provisions should be liberally con- strued so as not to destroy the grant." ^^ The charter of a bridge company provided that nothing therein contained should authorize the erection of a bridge over the Monongahela river "in such manner as to injure, stop, or interrupt the navigation of the river by boats, rafts, or other vessels." It was held that the proviso was not in- tended to prevent the erection of piers in the bed of the river; that although piers inevitably injure navigation and render it more difficult, they do not necessarily "injure, stop, or inter- rupt the navigation," in the sense in which these words were used by the legislature. Read, J., said: "The general rule, undoubtedly is, that charters of incorporation of private com- panies are to be constiaied strictly in favor of the Common- wealth — so are grants to any persons — but they are to be con- strued reasonably. It is very clear that when the purpose of the franchise is the performance of a public act, the grant is to be interpreted so as to enable the a^t to be done. The act "Whitakerz;. Del. & Hudson Canal Co., 87 Pa. 34 (1878). POWERS. 397 for the provision so made in this charter was a pubHc one. It was the extension of one highway over another. Nor was the erection of the bridge less the performance of a public function, because the agent was empowered to exact tolls from passengers. The legislature is not to be supposed to have authorized and prohibited such a public act, at the same time and by the same charter; a grant of power to erect a pub- lic bridge is not to be so construed so as to make its erection impossible and such a construction justified by the rule that private charters are to be strictly interpreted." ^'^ A charter of a railroad company provided that the railroad "should be so constructed as not to impede or obstruct the free use of any public road, street, lane, or bridge, now laid out, open, or built." It was held that this provision was not to be so construed as to prevent the construction of the rail- road. Black, C. J., said: "And another objection to this location is more grave, because it bases itself on a provision in the act of incorporation. It is said that the streets would be less obstructed by taking the road down to the harbor, than by locating it where the defendants propose. The com- pany is forbidden to make the road so as to obstruct or im- pede the free use of any street. These words taken literally and in their strongest sense, would prevent the railroad from being made on the streets at all. But we followed authority in saying they were not to be so interpreted." ^* Power to Alienate Property. 349. A corporation unless expressly restrained by its char- ter, or by a legislative enactment has an unlimited power over its property, and may alienate and dispose of it as fully as an individual may do in respect to his own property.^* But the majority of the members of a corporation have no " Monongahela Bridge Co. v. Kirk, 46 Pa. 112 (1863). " Commonwealth v. Erie & North East R. R., 27 Pa. 339. 36s (1856). " Ardesco Oil Co. v. North American Oil & Mining Co., 66 Pa. 375 (1870); Burton's Ap., 57 Pa. 213 (1868). 398 POWERS. power to divert the funds of a corporation from the purpose for which the company was incorporated.'^'* A corporation unless specially restricted by its charter or some statute has general power to dispose of its property, the whole or part, but it has no right to sell or assign its fran- chises, either in whole or in part, unless specially authorized by law. Thus a railroad company cannot lease its franchises nor mortgage its franchises without special legislative power.^^ The majority of the stockholders of a corporation have no power without legislative authority to transfer all of the prop- erty and franchises of the corporation. Thus where the char- ter of a church vested the corporation property in a board of trustees, annually elected by the pewholders, on whom the execution of the trust devolved, the transfer of such property, and the trusts incident thereto, unto third persons, vesting in them and their appointees in perpetuity and divesting the corporation of its control was held to be such a radical change of the charter of incorporation, as could only be made by the legislature. A mere majority of the corporators could not by vote make such a change, when they had no authority to alter their charter.^^ Power to Create Sinking Fund. 350. A corporation has the power to create a sinking fund to provide for the payment of its funded debt.^* Power to Assign for Benefit of Creditors. 351. An insolvent corporation may make an assignment for the benefit of its creditors unless restrained by its charter, and this power may be exercised by the directors without the authority or consent of the stockholders.^* " Thomas v. Ellmaker, i Clark, 502 (1844). '' Pittsburgh & Connellsville R. R. v. Bedford & Bridgeport R. R., 32 P. F. Smith, 104 (1871). " Langolf V. Seiberlitch, 2 Parsons, 64 (1851). == Ford V. Coal Co., 25 Leg. Intel. 268. " Lehigh Iron Co.'s Assigned Est., 12 Pa. C. C. R. 257 (1892); Ardesco POWERS. 399 The franchises of a manufacturing corporation do not pass under a general assignment for the benefit of creditors. It therefore follows that the court has no power to direct the assignee to sell the franchises with the other property of the company.^® A court of equity may for proper cause remove an assignee of an insolvent corporation. Thus where it appeared that a corporation made an assignment for the benefit of creditors to one of its officers who had been intimately associated with the fraudulent management of the company, a court of equity dis- missed the assignee and appointed a receiver.^" Certain Assignments Not to be Made Without Consent of Cred- itors. 352. From and after the passage of this resolution it shall not be lawful for any company incorporated by the laws of this Commonwealth, and empowered to construct, make, and manage any railroad, canal, or other public internal improve- ment, while the debts and liabilities, or any part thereof in- curred by the said company to contractors, laborers, and workmen employed in the construction or repair of said im- provement remain unpaid, to execute a general or partial as- signment, conveyance, mortgage, or other transfer, of the real or personal estate of the said company, so as to defeat, post- pone, endanger, or delay their said creditors, without the writ- ten assent of the said creditors first had and obtained; and any such assignment,- conveyance, mortgage, or transfer, shall be Oil Co. V. North American Oil & Mining Co., 66 Pa. 375 (1870); Dana V. Banjc of the United States, s W. & S. 223 (1843); Active Workers v. Sanders, 28 W. N. C. 321. ™ Lehigh Iron Co.'s Assigned Est., 12 Pa. C. C. R. 257 (1892). ^" Failey v. Stockwell, 12 Pa. C. C. R. 403 (1892). In this case Biddle, J., said: "An oiificer of a company reduced to insolvency would seem to be an improper person to select to manage its assets, and when he is the solicitor, and has advised and been intimately associated with the man- agement alleged to be fraudulent, he can hardly be in a position to ex- pose the acts of his colleagues and subordinate their interests to those of the creditors. We deem this a just cause of apprehension, and it is only in a court of equity, at the present day, that relief can be granted on that ground, the doctrine of quia timet afifording the basis of the most valuable restrictive remedies that the court can grant." 400 POWERS. deemed fraudulent, null, and void, as against any such con- tractors, laborers, and workmen, creditors as aforesaid. ^^ Wages Preference in Assignments. 353. In all assignments of property, whether real or per- sonal, which shall hereafter be made by any person or persons or chartered company, to trustees or assignees, on account of inability, at the time of the assignment, to pay his or their debts, the wages of miners, mechanics, and laborers employed by such person or persons or chartered company, shall be first preferred and paid by such trustees or assignees, before any other creditor or creditors of the assignor: Provided, that any one claim thus preferred shall not exceed $100.^® Assignmentsfby Improvement Companies. 354. Whenever any incorporated company, subject to the provisions of the above resolution, shall divest themselves of their real or personal estate, contrary to the provisions of the said resolution, it shall and may be lawful for any contractor, laborer, or workman employed in the construction or repair of the improvements of said company, having obtained judg- ment against the said company, to issue a scire facias upon said judgment, with notice to any person, or to any incorpo- rated company claiming to hold or own said real or personal estate, to be served in the same manner as a summons upon the defendant, if it can be found in the county, and upon the person or persons, or incorporated company claiming to hold or own such real estate ; and if the defendant cannot be found, then upon the return of one nihil and service as aforesaid, on the person or persons, or company claiming to hold or own as afoi-esaid, the case to proceed as in other cases of scire facias on judgment against terre tenants.'"* Power to Prefer Creditors. 355. An insolvent corporation may prefer a creditor by a confession of judgment.-'"* " Act of January 21, 1843, Sec. I, P. L. 367. '" Act of April 22, i8S4, Sec. 1, P. L. 480. ' -° Act of April 4, 1862, Sec. i, P. L. 235. " Lake Shore Banking Co. v. Fuller, no Pa. 156 (1885); Pairpoint Mfg. Co. V. Philadelphia Optical & Watch Co., 161 Pa. 17 (1894) ; Prouty v. Prouty, iss Pa. 112 (1893); Hall v. West Chester Publishing Co., 180 Pa. 561 (1897). POWERS. ' 401 Where the members of a solvent partnership form a cor- poration, and transfer to the corporation the partnership property, taking therefor the capital stock of the corporation, the partners may, upon the corporation becoming insolvent, secure their individual creditors, and some of the corporation creditors by assignment of stock, and the unsecured creditors of the firm cannot levy upon the property of the corporation. In such a case the court said: "There was nothing illegal or improper in the formation of the plaintiff company nor the transfer to it by Holt & Chipman of the property in question. At the time the company was formed, that firm appears to have been solvent, and there is nothing to show that it was in- tended as a fraud upon their present or future creditors. It was not a withdrawal of their property from the grasp of cred- itors. On the contrary, it remained subject to their claims, though in a changed form. The interest of the partners in the corporation was represented by stock. This stock was as much liable to the demands of creditors as was the property itself before the formation of the company. The fact that the greater portion of this stock was subsequently pledged by Holt & Chipman to certain of their creditors, does not alter the case. It was not shown that the debts for which it was pledged were not bona Ude, and the firm had the right to pre- fer creditors in this manner. This is an attempt to sweep away the assets of the company for the benefit of the unse- cured creditors. With this accomplished the stock in the hands of the pledgees would become worthless, so that the case comes down to a contest between two classes of cred- itors, neither of which has any special equity over the other. Both must stand upon their legal rights, and the appellants have not shown any right to levy upon and sell the property of the coal company in satisfaction of their execution against Holt & Chipman." ^i Where no disability to make a preference is imposed upon a foreign corporation by its charter, the prohibition of such a " Coaldale Coal Co. v. State Bank, 142 Pa. 288 (1891). 26 402 POWERS. preference by a general enactment can have no extra-terri- torial effect. Such a corporation doing business in Penn- sylvania may prefer creditors when insolvent.^^ A statute which prohibits any corporation "which shall have refused to pay any of its notes or other obligations when due, in lawful money of the United States," from making any transfer or assignment of its property in contemplation of in- solvency and avoids any such transfer, does not avoid sales of book accounts made in good faith to a purchaser for a valua- ble consideration, and without notice of the insolvent condi- tion of the company.** Power of Corporation to Purchase Its Own Stock. 356. A corporation may from necessity, take its own stock in pledge or payment, as a lawful exercise of the corporate franchise.** A stockholder cannot complain of a purchase of its own stock by the corporation, where instead of seeking to set aside the transaction, he endeavors to participate in the advantage of it.~ Plaintiff owned 600 shares of stock in a corporation, the company subsequently bought 400 of its own shares, which it held for some time when it divided them among the stock- holders pro rata upon the basis of the shares then held by the stockholders respectively. Between the time of the purchase and the time of the distribution of the 400 shares the plain- tiff had sold and assigned 500 shares of his stock, so that at the distribution he held but 100 shares. He claimed that he was entitled to a pro rata of the 400 shares purchased upon the basis of the number of shares owned by him when the pur- chase was made, and not upon the basis of the shares owned by him when the division was made, and to enforce this claim ''Pairpoint Mfg. Co. v. Philadelphia Optical & Watch Co., 161 Pa. 17 (1894). '= Auffmordt v. Volgler, 18 Pa. C. C. R. 17 (1896). '' Coleman v. Columbia Oil Company, 51 Pa. 74 (1865) ; Dock v. Schlichter Jute Cordage Co., 167 Pa. 370 (1895). POWERS. 403 he brought suit against the company. The court held that he was not entitled to recover. Woodward, C. J., said: "If he meant to disaffirm it he should have sought an injunction against the company to restrain the purchase, or to cancel it if done before he had knowledge of it, or if he would bring an action at law, he should have declared for his share of the funds which he complains were misapplied in buying the 400 shares. Instead, however, of disaffirming the purchase in any manner, he affirms it, and claims his full share of the specu- lation. And he claims it against the company, and not against the directors merely who misapplied the funds, affirm- ing thereby that it was a corporate act, and that, as one of the corporators, it enured to his benefit. This is the circumstance which prevents us from considering the transaction as a breach of trust. Whatever we might think of it in a different pro- ceeding, we can, in this action, regard it in no other light than a valid corporate act." The court also said: "When a com- pany buys in shares of its outstanding stock it enriches the shares of every holder, for, whether the purchased shares be sunk, or sold at a profit, or distributed pro rata among the stockholders, the chance for an increase of dividend, or of shares, enhances the value of each existing share, enhanced the value of the 600 shares held by the plaintifif. When he sold 500 shares of his stock he got, or he ought to have got, the benefit of this enhancement, and he ought surely .to let his vendees, who paid the market price, take all they pur- chased." »5 An insolvent bank has no right to purchase its own stock. A seller of the stock to the bank, with knowledge of the com- pany's insolvency, who accepts the company's obligation for the purchase-money of the stock, has no standing to partici- pate with the creditors of the bank in the distribution of the bank's assets. A director of a bank having knowledge of its insolvency threatened to resign and sell his stock at public auction. He '■' Coleman v. The Columbia Oil Co., 51 Pa. 74 (1865). 404 POWERS. was induced by the president not to do so, and an arrange- ment was made by which he delivered his stock to the presi- dent, and received for it interest-bearing obligations of the bank. There was nothing in writing to show who was the purchaser of the stock. It was held that the director was affected with constructive notice that the bank was the pur- chaser, and also that the bank was insolvent at the time of the sale. It was also held that the director had no right to par- ticipate as a creditor in the distribution of the funds of the bank.*® Power to Remove Servants. 357. A corporation, unless otherwise specially provided by statute, may employ or discharge servants of any class or de- scription necessary for the prosecution of its business, in the same manner as may be done by a natural person. If a corpo- ration desires to retain the right of removal of a servant at its discretion, it must not bind itself by a special contract. The law will not permit it to disregard the terms of its contract, but it must be governed by the same rule as a natural person. In a case where a secretary was employed by a corporation at a certain salary for one year, and was discharged before the end of the year, it was held that the court below was right in refusing to charge that "if the resolution by which plaintiff •was elected as secretary and assistant to the president fixed a period of service, it was an election subject to the right of rescission, if the board deemed it best to do so, and if, in the exercise of this discretion, the directors by resolution con- cluded to rescind, they had a right to do so, the verdict should be for the defendant." *'' Power to Contract. 358. Corporations may contract by parol within the scope '" Columbian Bank's Est., 147 Pa. 422 (1892). "' Hand v. Clearfield Coal Co., 143 Pa. 408 (1891). POWERS. 405 of their chartered powers.*® A written contract may be with or without a seal.*"* A corporation is bound by an agreement of its agent made in the course of the business intrusted to him, although the agent may have acted in excess of his instructions. "Corpo- rations act through agents. The public is not informed as to the specific and private instructions which may be given to them, limiting their ostensible powers. A just protection to persons dealing with corporations imperatively requires that the act of the agent, within the general scope of the business with which he is intrusted, shall bind the company, although the specific act may be in excess of his private instructions." *** A contract not within the scope of the powers conferred on a corporation cannot be made valid by the consent of every one of the stockholders.*^ Ratification of Contract. 359. The receipt by a corporation of the purchase-money of corporate property is a ratification of the contract of sale of the property, although the vice-president of the company, who made the sale, at the time had no authority to do so.*" Executory Contract. 360. A corporation organized for the sole purpose of man- ufacturing cannot enforce an executory contract for the sale of goods to it which are not to be used in the process of man- ufacturing, but are to be sold again by the corporation for profit.*' Executed Contract. 361. A corporation cannot repudiate its liability on an exe- cuted contract, although such contract may be beyond its "' Hamilton v. Lycoming Ins. Co., S Pa. 339 (1847) ; McMasters v. Reed, i Grant, 36 (1854). "Rathbone v. Tioga Nav. Co., 2 Watts & Serg. 74 (1841). *" Adams Express Co. v. Schlessinger, 75 Pa. 246 (1874), " Grand Lodge of the Ancient Order of United Workmen v. Stepp, 3 Penny. 45 (1883). « Aufifmordt v. Volgler, 18 Pa. C. C. R. 17 (1896). " Bosshardt & Wilson Co. v. Crescent Oil Co., 171 Pa. 109 (1895). 406 POWERS. corporate power; and in the same way the other party to such a contract cannot avoid Hability by alleging that the contract was ultra vires.** Thus where a national bank has sold asphalt blocks and nothing remains to be done by the ^'endee, except to pay the purchase-money, the vendee will not be allowed to assert that the contract was ultra vires.*^ A corporation organized under the Act of April 29, 1874, which forbade corporations to purchase the stock of other companies, entered into a contract for the purchase of the stock of another corporation. The contract was executed by a delivery of the stock, and a promissory note was given for the amount of the purchase-money. It was held that the company could not set up as a defense to the note held by a bona fide purchaser, that the contract was ultra vires.*^ A railroad company agreed to pay an oil pipe hne a certain sum per barrel on all oil transpoi'ted by it in consideration that the pipe hne company would deliver all the oil under its control to the railroad company for transportation. The pipe line company performed its part of the agreement and brought suit to recover the price agreed upon. It was held that the railroad company could not set up as a defense that the contract was ultra vires.*'' Where a corporation has bought goods and before the purchase-money was due went into the hands of a receiver, the vendor of the goods has no right to rescind the contract, ifit appears that the insolvency of the company was unknown to its ofificers or directors, and that no artifice or false repre- sentations were resorted to as a means of obtaining credit.** " Oil Creek, etc., R. R. v. Penna. Transportation Co., 83 Pa. 160 (1876); Inter-State M'ut. Fire Ins. Co. v. Brownback & Co., Ltd., i Super. Ct. 183 (i8g6). "' Montgomery Nat. Bank v. McCleaster, 13 Pa. C. C. R. 392 (1893). "Wriglit V. Pipe Line Co., loi Pa. 204 (1882). " Oil Creek & Allegheny River R. R. v. Pennsylvania Transportation Co., 83 Pa. 160 (1877). See also Wilmington & Reading R. R. v. Berks County R. R., 6 W. N. C. 115 (1878). " Hartwell v. Receivers of Carlisle Mfg. Co., 17 Pa. C. C. R. 565 (1896). POWERS. 407 The acts or contracts of a corporation which are merely voidable can only be avoided by the government.*" No Power to Change Interest of Stockholder. 362. The majority of the stockholders of a corporation can- not dispose of or exchange the interest of a stockholder in the assets of the company without his consent. The shareholders of a corporation gave mortgages to secure a portion of their stock subscriptions. The mortgages were to be held by the company as security, and allotted by assessment pro rata amoog the stockholders for deficiencies. It was held that the corporation could not under an agree- ment with another corporation to assign certain of these mortgages and receive an equivalent in the stock of the assignee, assign the mortgages of one of the members without his consent.*** Legislative Begulation. 363. Where a corporation is a qviasi public corporation created solely for the public benefit, and not for the profit or advantage of any of its corporators, the legislature has the right to prescribe reasonable regulations respecting one or more of the public objects which the corporation was designed to promote and accomplish, provided that the regu- lations are such as tend to secure the ends for which the asso- ciation is created, and do not materially interfere with the rights and privileges granted by its charter. Thus the Gettys- burg Battle-Field Memorial Association, chartered by the Act of April 30, 1864, P. L. 670, is a quasi public corporation, and its ownership and control of the battle-field are subject to the right of the Commonwealth to designate the true positions of her troops in the battle, and to mark the same by suitable monuments.*^ "Lippincott v. Longbottom, 6 Pa. C. C. R. 503 (1889). "McCurdy v. Myers, 44 Pa. 535 (1863). "Reed v. Gettysburg Battle-Field Association, 129 Pa. 329 (1889); Commonwealth v. N. Y., L. E. & W. R. R., 129 Pa. 463 (1889). 408 • POWERS. - . . The legislature has the power to require a creditor of an insolvent corporation to indicate his dissent from measures proposed by the act and deemed essential to the common wel- fare to creditors and debtors, or else sufifer the penalty of being held to an assent. Such an act does not impair the obligation of the contract.'^ Certain Acts Construed as Valid Exercise of Corporate Powers. 364. A corporation may protect its property by the em- ployment of armed men.'* An incorporated club organized in good faith for social purposes may sell liquor to its members.®* A corporation organized for a supply of water may build a dam and lease it to an ice company for the purpose of harvest- ing ice."'' Where there is nothing in the charter of the bank of the general laws to the contrary, a bank may act as the transfer agent of the stock of another bank.'® The action of a construction company in selling the securi- ties of another company for which it had agreed to build works, and in promising to pay interest upon advanced pay- ments on such securities, is not ultra vires.^'' Where a cemetery has been cut through by streets the cem- etery company has the right under its charter to replot the portion of the cemetery affected, and to ofifer lot-holders the choice of other lots for burial purposes.®* While a bridge company may not relocate its bridge after the original construction, it has power under its charter to elevate the bridge to a sufficient height to avoid the danger of ice and floods.'" '''Union Canal Co. v. Gilfillin, 93 Pa. 95 (1880). " Commonwealth v. O'Donnell, 12 Pa. C. C. R. 97 (1892). "Klein v. Livingston Club, 177 Pa. 224 (1896). "^ Shaaber et al. v. Angelica Water Co., 2 Monaghan, 435 (1889). ""Bank of Kentucky v. Schuylkill Bank, i Parsons, 180 (1846). "Hetfield v. Addicks, 154 Pa. i (1893). "Root V. Odd Fellows' Cemetery Co., 148 Pa. 494 (1892). "Commonwealth v. Pittston Ferry Bridge Co., 148 Pa. 621 (1892). POWERS. 409 A corporation organized for political purposes may use any means of attaining the purpose of its organization which would be lawful if it were a natural instead of an artificial per- son. A club was organized and incorporated "for the purpose of aiding in the reform and improvement of the municipal gov- ernment of the city of Philadelphia, in the election of honest and capable men to fill its offices and represent it in the State legislature, irrespective of their views on national and State politics; in the punishment and prevention of fraud and cor- ruption in municipal officers; and in guarding the rights and privileges of the city of Philadelphia from legislative en- croachment." The Constitution also provided that the prin- ciples of the club should be advanced "by mutual intercourse and discussion, and not as a political or partisan body." It was held that the board of governors of the club had the right to levy an assessment upon the members for the pur- pose of forming a special fund to aid municipal reform in the city of Philadelphia.*"' Natural gas companies incorporated under the Act of May 29, 1885, P. L. 29, are invested with the rights of eminent do- main and all other powers and privileges, necessary for the convenient and successful prosecution of the business for which they are incorporated." If a corporation is expressly authorized by its charter to purchase, sell, mortgage, and otherwise dispose of its real and personal estate, and to do all other things necessary for the proper business of the company, the corporation has power to borrow money and to create the ordinary evidences of debt for the purpose of carrying on the corporate enter- prise.®^ If a corporation is authorized to invest its capital in notes, "Ingham v. Reform Club, 4 W. N. C. 33 (1877)- "^ Pittsburgh's Ap., 115 Pa. 4 (1886). "' McMasters v. Reed, i Grant, 36 (1854)- 410 POWERS, and to purchase and hold securities in payment of the debts due it, the discount of notes is not ultra vires.^^ Certain Acts Construed as not Within Corporate Powers. 365. It is beyond the powers of a street railway company to enter into a contract to lease advertising space in its cars.®* A corporation chartered for the purpose of publishing a newspaper has no authority to engage in business of insuring against accidents.®" A corporation cannot create a fixed indebtedness by the terms of its charter.*® A manufacturing corporation cannot acquire by a lease from a railroad company the right of eminent domain vested in the latter, so as to be enabled to construct and operate a railway upon the streets of a borough even with the consent of the municipal authorities.®^ A manufacturing company which under its charter has a right to mine cannot organize another corporation for min- ing or purchase stock of such corporation.®* A corporation has no power to enter into a partnership with another corporation or an individual.®^ A corporation was empowered by its charter to erect and maintain a building for dramatic and operatic performances. The company was authorized to issue a free ticket of admis- sion to each person holding five shares of the stock of the corporation, and a portion of the house was to be reserved for the exclusive use of such stockholders. Certain stockholders holding large amounts of stock transferred small lots of their holdings to other persons under an understanding at the time ^ Bright V. Mountain City Banking Co., 3 Penny. 478 (1882). " Pittsburgh & Birmingham Traction Co. v. Seidel, 19 Pa C C R. 463 (1896). "^ Commonwealth v. Inquirer, 15 Pa. C. C. R. 463 (1892). " Opinion of the Attorney-General of January 30, 1884. °' Barker v. Hartman Steel Co., 129 Pa. 551 (1889). "McMillan v. Carson Hill Mining Co., 12 Phila. 404 (1878). '"Boyd V. Ai-nerican' Carbon Black Co., 182 Pa. 206 (1897). POWERS. 411 of the transfer that the same stock should be retransferred at the close of the season, and this was enforced by a delivery of the stock by the transferee to the transferer together with an irrevocable power of attorney to make such ti'ansfer. A ticket of admission for the season was delivered to the trans- feree and retained by him, while the stock certificate was re- tained by the transferer until the end of the season. It was held that such transaction was not warranted by the charter, and that on a bill for an injunction the costs should be im- posed on the corporation which had permitted such transfers to be niade.'^" ' ^ A corporation instead of distributing its profits in the shape of dividends, credited its stockholders on its books with sums equal to 6 per cent, of the value of their stock, and the stock- holders were allowed to draw out moneys from time to time which were charged against their account. One of the stock- holders overdrew his account. Subsequently the com- pany was reorganized. The resolution under which the reorganization was effected provided that the stock of the new corporation should be issued proportionately to the hold- ers of the old, but that no stockholder indebted to the cor- poration should receive such new stock until his debt was fully paid, and on his failure to pay it for sixty days, the directors were authorized to apply a sufficient amount of the stock at par to the extinguishment of the debt, and issue the balance to the stockholder. It was held that the resolu- tion was reasonable and within the power of the corpora- tion." The Act of April 13, 1859, P. L. (i860), 863, authorized the Bald Eagle Boom Company to "erect and maintain on the south side of Bald Eagle Creek such boom or booms with piers as may be necessary for the purpose of stopping and securing logs . . . upon said creek, and such piers, side branches, or shore booms as may be necessary for that pur- " Baker's Ap., 108 Pa. 510 (1885). "Reading Trust Co. v. Reading Iron Works, 137 Pa. 282 (1890). 412 POWERS. pose," with a proviso that the boom should be so con- structed as "not to impede the navigation of said creek." It was held that the company had power to construct a boom on the south side of the creek, using that shore on one side of the inclosure and the erection of the necessary piers to complete the inclosure on the other side, and that the only limitation as to the location of such piers was that they should be so built as not to interfere with the navigation of the creek.''^ The minority of the members of a voluntary association cannot ag»ainst the will of the majority secure a charter and take possession of the property of the association in the name of the corporation.''* The Commonwealth cannot grant to a corporation organ- ized for the purpose of maintaining a cemetery perpetual immunity against the opening of streets through the ceme- tery.'* Under the Act of Jvme 19, 1871, which authorizes courts of equity to restrain by injunction injurious acts committed by corporations in the exercise of powers not conferred upon them by their charters, a street railway company has a standing as a complainant in a bill in equity to restrain another company from unlawfully laying tracks in a street already occupied by the complainant.'''' Investment of Surplus by Corporation. 366. It shall and may be lawful for any and all companies incorporated or organized under the laws of this Common- wealth, including those authorized thereby, to transport mer- chandise or other property, and also for the directors, mana- gers, or trustees thereof, with the approval of the stockhold- ers, to invest the surplus or other funds or earnings of such companies in mortgages on improved real estate, in ground rents, in the loans of the United States, in the purchase from '- Powers's Ap., 125 Pa. 175 (1889). " Commonwealth v. Jarret, 7 Serg. & Rawle, 460 (1826). "Twenty-second Street, 102 Pa. 108 (1883). '° Phila. V. Citizens' Pass. Ry., 151 Pa. 128 (1892). POWERS. 413 holders thereof any of the shares of the capital stock of the respective company, and also in the public debt of the State of Pennsylvania, or of the city of Philadelphia, or in other good stocks or securities, and to sell and transfer the same, and to reinvest' the proceeds of such sales in securities or stocks of like kind, and to prescribe, by resolution of the directors, or the by-laws of the company, or otherwise, the mode of making such investments, purchases, and sales, with the approval of the stockholders, and the amount or amounts thereof to be purchased, and the price or prices to be paid or received therefor, and the reinvestment of the proceeds thereof, and to make such compensation as the said directors, mana- gers, or trustees may deem proper to any director, manager, trustee, treasurer, or other agent or officer of such company, for the keeping, receiving, paying, investing, or reinvesting of any of the moneys belonging to the said company, or for any other services performed by him or them as agents of the company or otherwise; and that any such companies may change and fix the time of holding their annual election for directors to such a day as they may select; a certificate of such change, duly authenticated by the proper officers of the com- pany, shall be filed with the auditor-general of this Common- wealth within thirty days after such change shall have been madeJ® Obligations Redeemable Otherwise than in Gold and Silver not to be Issued. 367. From and after the passage of this act it shall not be lawful for any corporation within this Commonwealth, directly or indirectly, either by itself or through any agent or agents, individual or individuals, to make, issue, reissue, pay out, or circulate, or cause to be issued, reissued, put out, or circulated, any certificate, check, order, or due bill, or ac- knowledgment of indebtedness of any description for any pur- pose whatsoever, payable or redeemable in any goods, prop- erty, or efifects, or payable or redeemable in anything except gold and silver, and that any violation of the provisions of this act shall be held and deemed to be a forfeiture of the charter of any company so ofifending, and any private citizen may by quo zvarranto proceed, according to law, to have such forfeiture declared: Provided, that this act shall not be con- " Act of March 31, 1868, Sec. i, P. L. 50. 414 POWERS; strued to authorize any corporation or individual, not ex- pressly authorized by existing laws, to issue any note, bill, check, or certificate whatever, in the nature or similitude of a bank note, and intended for circulation; and that all laws inconsistent with this act be and the same are hereby repealed: And provided further, that this section shall not be construed so as to prevent any corporation from drawing orders in the ordinary course of business, not intended for circulation, or in payment of interest, and that such orders shall not be negotia- ble." Certain Corporations to Become Sole Surety in Cases of Trust. 368. Whenever any person individually, or in any public or private trust, who is now, or hereafter may be required, or permitted by law to make or execute and give a bond, or imdertakingwith security, conditioned for the faithful perform- ance of any duty, or for the doing or not doing of anything in said bond or undertaking specified, any head of a depart- ment, judge of the Supreme Court, or prothonotary thereof, judge of the Court of Common Pleas, or prothonotary thereof, judge of the Orphans' Court, register of wills, sheriff, magis- trate, or any other officer, who is now or shall be hereafter required to approve the sufficiency of any such bond^ or undertaking, may, in the discretion of such officer, accept such bond or undertaking, and approve the same, whenever the con- ditions of such bond or undertaking are guaranteed by a com- pany, duly authorized by the insurance department of this State to do business in this State, and authorized to guarantee the fidelity of persons holding positions of public or private trust; and such company may become sole surety in any case where, by law, one or more sureties may be required for the faithful performance of any trust or duty: Provided, however, that where such bond or undertaking shall involve the safe keep- ing or faithful application of the assets of any fiduciary, such head of department, judge, or other officer shall make such order or decree as shall assure the retention of such assets within this Commonwealth in such manner as such head of department, judge, or officer may direct, until disposition thereof be made according to lawJ* "Act of April 21, 1849, Sec. i, P. L. 673. " Act of June 25, 1885, Sec. i, P. L. 181. POWERS. 415 Donation of Wages for Charity. 369. It shall be the duty of any corporation, manufacturing establishment, or colliery, to retain from and out of the wages or earnings of any person by them employed, on his written order, any contribution or voluntary subscription by such per- son, made in monthly or other payments, for the support of any hospital or other charitable institution, and the sum so retained to pay over upon demand to such hospital or other charitable institution; and any payment so made shall be as valid as if paid to the person by whom said wages or earnings were earned: Provided, that the hospital or charitable insti- tution claiming the same, shall give notice in writing at least ten days before the time for the payment of said wages or earnings to such corporation, manufacturing establishment, or colliery, of the name or names of the person or persons by them employed, who have subscribed to the support of such hospital or charitable institution, and the amount by them severally subscribed, and when or how often payable, and how long to continue, and file said subscription with said corpora- tion, manufacturing establishment, or colliery .'^^ Computation of Time. 370. Where, by an existing law or rule of court, or by any law or rule of court that may hereafter be enacted and made, the performance or doing of any act, duty, matter, payment, or thing shall be ordered and directed, and where any court shall, by special or other order, direct the performance or doing of any act, matter, payment, sentence, or decree, and the period of time or duration for the performance or doing thereof shall be prescribed and fixed, such time in all cases shall be so computed as to exclude the first, and include the last days of any such prescribed or fixed period or duration of time: Provided, that whenever the last day of any such period shall fall on Sunday, or on any day made a legal holiday by the laws of this Commonwealth, or of the United States, such day shall be omitted from the computation; and provided that this act shall not apply to the payment of negotiable paper.*" The provisions of this act shall also apply to the ordinances, resolutions, by-laws, and other regulations of all municipal or other public or private corporations now existing or here- after created.** " Act of May 15, 1874. P- L. 194- ™ Act of June 20, 1883, Sec. i, P. L. 136. *■ Act of June 20, 1883, Sec. 2, P. L. 136. CHAPTER XXXII. REAL ESTATE. 371. Constitutional Provisions— porations Sold at Sheriff's Capacity to Hold Lands. Sale Secured. 372. Statutory Provisions. 376. Informal Acknowledgments by 373. When Purchases of Real Es- Corporations Legalized. tate Authorized. zil- Informal Acknowledgments by 374. Escheat. Corporations Cured. 375. Title to Real Estate of Cor- 378. When Conveyance to Corpo- ration is not Necessary. Constitutional Provisions— Capacity to Hold Lands. 371. "No corporation . . . shall take or hold any real estate, except such as may be necessary and proper for its legitimate business."^ Statutory Provisions. 372. Corporations shall have power to hold, purchase, and transfer such real and personal property as the purposes of the corporation require, not exceeding the amount limited by its charter or by-laws.^ A corporation cannot hold lands in Pennsylvania without a license by law; but it has the capacity to contract for them and pay for them, and a deed for full value will divest the estate of the grantor, and vest it in the corporation, and no one but the Commonwealth can object to such transaction.' ' Constitution of Pennsylvania, Article XVI, Sec. 6. ' Act of April 29, 1874, Sec. i, P. L. ^z. See Chapter XLIV, Foeeign Corporations. * Goundie v. Northampton Water Co., 7 Pa. 233 (1847) ; Leazure v. Hillegas, 7 S. & R. 313 (1821) ; Rathbone v. Tioga Nav. Co., 2 W. & S. 74 (1841); Baird v. Bank of Washington, 11 S. & R. 411 (1824); Watt's Ap., 78 Pa. 370. 416 REAL ESTATE. 417 A corporation created by an act of the legislature cannot indirectly or through the intervention of trustees hold any other lands, or any greater quantity of land than the charter of incorporation authorizes it to hold directly.* A fire company which is incorporated for the purpose of protecting property of the citizens of a borough from fire holds all property acquired by it in trust for that purpose. It cannot sell its property and divide the proceeds among the members. The borough cannot, however, without con- sent of the members take the property from the company.® Wheu Purchases of Real Estate Authorized. 373. In all cases of hospitals, schools, charitable, literary, and religious institutions of all kinds, prohibited by their respective charters or by law from holding real estate, or lim- ited as to the amount thereof, the said prohibition or limita- tion shall not be taken to extend to purchases made by cor- porations such as aforesaid, at sheriffs', masters', or marshals' sales of real estate, on which the party purchasing may hold a mortgage, judgment, or ground rent, when such purchases are made to protect their respective interests; and that deeds made to them respectively as such purchasers, by sheriffs, masters, or marshals making the sales, shall convey to the said purchasers respectively a good and indefeasible title to any and all real estate so purchased, as if no prohibition or limitation as to the purchase of real estate existed in their respective charters or in the law: Provided, that all real estate bought by any corporation such as aforesaid under the pro- visions of this act, in excess of the quantity they are allowed by law or their respective charters to hold, shall be sold by said corporations either on ground rent or otherwise within ten years from the purchase so made as aforesaid.® 'Wolf V. Goddard, 9 Watts, 544 (1840). ° Bethlehem v. Perseverance Fire Co., 3 W. N. C. 104 (1876). " Act of May 13, 1879, P. L. 60, as extended by the Acts of May 26, 1887, P. L. 274, by the Acts of May 26, 1887, P. L. 274. May 18, 1893, P. L. 88, and April 20, 1897, P. L. 28, which latter act is as follows: The provisions of the act, entitled "An act to extend the time during which corporations may hold and convey the title to real estate heretofore bought under execution, or conveyed to them in satisfaction of debts, and now remaining in their hands unsold," approved the eighteenth day of 27 41 8 REAL ESTATE. "Any literary, religious, charitable, or beneficial society, congregation, or corporation having capacity to take an^ hold real and personal estate within this Commonwealth, may acquire and hold the same to the extent in the aggregate of the clear yearly value of $30,000, and to no greater extent, without an express legislative sanction. Such value shall be ascertained as provided by the act to which this is a supple- ment," viz.: Act of April 26, 1855, P. L. 330.'' The Act of July 15, 1897, P. L. 283, relating to corpora- tions not for profit provides as follows: "Each of the said corporations may hold real estate to an amount the clear yearly value or income whereof shall not exceed $20,000." Escheat. 374. No real or personal property, the title to which is or may be held by or in the name of any corporation of this State, authorized by its charter or general law to hold the same, shall be escheated to the Commonwealth, nor shall, in any judicial proceeding, any inference of any relation of trust or agency arise, by reason of the character or residence of the shareholders holding the whole or part of the capital stock of such corporation, nor because the beneficial owner- ship of said property, in whole or in part, is or has been in any person or persons, corporation or corporations, prohibited from holding the same.* Said lands and property shall again become liable to escheat to this Commonwealth, as already provided by law, if said corporation shall continue to hold said lands and prop- erty exceeding five years after the passage of this act, and an information in the nature of a quo warranto or other proper proceeding shall be filed or brought by this Commonwealth to May, Anno Domini one thousand eight hundred and ninety-three, which provides "that the time during which all corporations are authorized by law and their charters to hold and convey real estate acquired by them under execution, or in satisfaction of debts, be and the same is hereby ex- tended to all property heretofore bought and now held by such corpora- tions for and during a further period of five years from and after the ex- piration of the time during which, as aforesaid, they are now so authorized to hold and convey the same," be and the same are hereby revived, con- tinued and extended for a further period of five years from and after the time for which they are now authorized by law to hold the same. ' Act of April 22, 1889, P. L. 42. ' Act of June 2, 1887, Sec. i, P. L. 302. REAL ESTATE. 419 escheat the same: Provided, that no railroad, canal, or other transportation company of this State, nor any corporation, in whose name the title to other lands or property is held, shall plead or have the benefit of this act, unless it shall have pre- viously filed with the secretary of the Commonwealth a cer- tificate in writing, signed by the president and secretary, and attested by the corporate seal of the company, stating that, at a regular or special meeting of said board of directors, a resolution, in pursuance to the consent of the stockholders, was adopted, accepting all the provisions of the seventeenth article of the Constitution of the State, and that all the powers of and privileges and the limitations and restrictions men- tioned therein shall be deemed and taken for all purposes to apply to said corporation. No such certificate shall be made by the officers aforesaid, without the consent of the stock- holders of the corporation at a general or special meeting, first had and obtained: Provided further, that no railroad, canal, or other transportation company shall plead or have the benefit of this act, unless it shall have previously filed, with the secretary of state, its acceptance of all the provisions of Article XVII of the Constitution of this State in manner and form as provided by law.^ "Where any conveyances of real estate in this Common- wealth have been made by any alien, or any foreign corpora- tion, or corporation of another, or of this State, to any citizen of the United States, or to any corporation chartered under the laws of this Commonwealth, and authorized to hold real estate, before any inquisition shall have been taken against the real estate so held to escheat the same, such citizen or cor- poration, grantee as aforesaid, shall hold and may convey such title and estate indefeasibly as to any right of escheat in this Commonwealth, by reason of such real estate having been held by an alien or corporation not authorized to hold the same by the laws of this Commonwealth." ^'^ Under the Act of April 26, 1855, P. L. 329, prohibiting a corporation from acquiring or holding real estate, either di- rectly or through a trustee or other device, unless specially authorized by law, no escheat can be declared, although the "Act of June 2, 1887, Sec. 2, P. L. 302. " Act of June 6, 1887, P. L. 3S0. 420 REAL ESTATE. corporation may control the land through its ownership of the stock of another corporation, holding the title by author- ity of law.^' A corporation carrying on the business of a common car- rier which holds lands for mining purposes in violation of iVrticle XVII, Section 5, of the Constitution, may be pun- ished by a forfeiture of its charter, but the land so held can- not be escheated to the Commonwealth, either under the Constitution, which provides no penalty, or under the Act of April 26, 1855, P. L. 329, which prohibits a corporation from holding real estate either directly or through a trustee or other device unless specially authorized by law.^^ Title to Real Estate of Corporations Sold at Sheriff's Sale Secured. 375. In all cases where the real estate of any corporation shall be sold at sherifif's sale for the payment of bona Me debts, the purchasers shall receive titles discharged from any right of forfeiture to the Commonwealth, by reason of mis- nomer, limitation, or defect of power in the said corporation to purchase and hold said lands; and the purchase-money shall be distributed according to priority among the lien creditors, as in other cases.^'' Informal Acknowledgments by Corporations Legalized. 376. Where any deed of conveyance, mortgage, or other instrument of writing, has been heretofore executed, or ac- knowledged, or both, by any corporation, under any power sufficiently authorizing the same, and shall have been inform- ally executed, or acknowledged, by any officer, de facto, of such corporation, or shall have been executed, or acknowl- edged, by the officers of such corporation, in the manner pre- scribed by law for the acknowledgment of deeds and mort- gages by individuals, such deed, mortgage,' or instrument, shall be taken to be of the same validity and effect, as if exe- " Commonwealth v. New York, Lake Erie & Western R. R., 132 Pa. 591 (1890). '- Commonwealth v. New York, Lake Erie & Western R. R., 132 Pa. 591 (i8go). " Act of April 30, 1844, Sec. 2, P. L. 532. REAL ESTATE. 421 cuted, and acknowledged, in the manner prescribed by law for the execution and acknowledgment of deeds, mortgages, and other instruments, by corporations: Provided, that no case, heretofore judicially decided, shall be affected by this act.^* Informal Acknowledgments by Corporations Cured. 377. The provisions of the third section of an act, entitled "An Act authorizing notaries public in this State, and in any State or Territory in the United States, to take acknowledg- ments of deeds and letters of attorney, and to confirm ac- knowledgments heretofore made," approved the 22A. day of April, 1863, be, and the same are, hereby extended to all deeds, mortgages, or other instruments of writing informally acknowledged by any corporation since the passage of said act: Provided, that no case heretofore judicially decided shall be affected by this act.^® When Conveyance to Corporations is not Necessary. 378. Where an unincorporated association holds land through the intervention of trustees a legislative charter which vests the lands immediately in the corporation is valid, and no conveyance by the trustees to the corporation is necessary.^® Where an unincorporated association procures a legislative charter by which its lands previously held by trustees are im- mediately vested in the corporation, a tenant of the associa- tion cannot question the validity of the act of incorporation in an action by the corporation for the rent.^^ " Act of April 22, 1863, Sec. 3, P. L. 548. " Act of April 17, 1869, Sec. i, P. L. 68. " Fox V. Union Academy, 6 Watts & Serg. 353 (1843). " Fox V. Union Academy, 6 Watts & Serg. 353 (1843). CHAPTER XXXIII. EMINENT DOMAIN. 379. Constitutional Provision. 386. Easemciits on Land How Ter- 380. Assessment of Damages. minated. 381. Viewers. 387. Proceedings Where Posses- 382. Tender of Security. sion is Disputed or Denied. 383. When Viewers may be Ap- 388. Duty of the Court. pointed. 389. In Case Persons Denying 384. Appeals. Such Rights are not Resi- 385. Taking of Franchises. dents. 390. Refusal to Appear. Constitutional Provision. 379. Municipal and other corporations and individuals in- vested with the privilege of taking private property for public use shall make just compensation for property taken, injured, or destroyed by the construction or enlargement of their works, highways, or improvements, which compensation shall be paid or secured before such taking, injury, or destruc- tion.^ Assessment of Damages. 380. In all cases in which, under the provisions of this act, any corporation is permitted to take waters, streams, lands, property, materials, or franchises for the public purposes thereof, and the said corporation cannot agree with the owner or owners of any such waters, streams, lands, materials, or franchises, for the compensation proper for the damage done or likely to be done to or sustained by any such owner or owners of such waters, streams, land, or materials, which such corporation may enter upon, use, or take away, in pur- suance of the authority herein given, or by reason of the ' Constitution of Pennsylvania, Article XVI, Sec. 8. 422 EMINENT DOMAIN. 423 absence or legal incapacity of any such owner or owners, no such compensation can be agreed upon, the Court of Com- mon Pleas of the proper county, on application thereto by petition, either by said corporation or by the owner or own- ers or any one in behalf of either, shall appoint five discreet and disinterested freeholders of the proper county, and ap- point a time not less than ten nor more than twenty days thereafter, for said viewers to meet at or upon the premises where the damages are alleged to be sustained, or the prop- erty taken, of which time and place five days' notice shall be given by the petitioner to the said viewers and the other party.- Viewers. 381. And the said viewers, or any three of them, having been first duly sworn or affirmed faithfully, justly, and im- partially to decide and true report to make concerning all matters and things to be submitted to them, and in relation to which they are authorized to inquire in pursuance of the provisions of this act, and having viewed the premises, they shall estimate and determine the quantity, quality, and value of said lands, streams, or property so taken or occupied, or to be taken or occupied, or the material so used or taken away, as the case may be, and having a due regard to and making jiiat allowance for the advantages which may have resulted, or which may seem likely to result to the owner or owners of said streams, land, or materials, in consequence of the making the improvements or conducting the operations of such cor- poration or of the construction of works for which the prop- erty is to be taken ; and after having made a fair and just com- parison of said advantages and disadvantages, they shall esti- mate and determine whether any, and if any, what amount of damages has been or may be sustained, and to whom paya- ble, and make report thereof to the said court; and if any dam- ages be awarded, and the report be confirmed by the said court, judgment shall be entered thereon; and if the amount thereof be not paid within thirty days after the entry of such judgment, execution may then issue thereon, as in other cases of debt, for the sum so awarded, and the costs and expenses incurred shall be defrayed by the said corporation. And each of the said viewers shall be entitled to $1.50 per day for every ^ Act of April 29, 1874, Sec. 41, P. L. 104. 424 EMINENT DOMAIN. day necessarily employed in the performance of the duties herein prescribed, to be paid by such corporation.^ Tender of Security. 382. In all cases where the parties cannot agree upon the amount of damages claimed, or by reason _ of the absence or legal incapacity of such owner or owners no such agreement can be made, either for lands, streams, water, water-rights, franchises, or materials, the corporation shall tender a bond with at least two sufficient sureties to the party claiming or entitled to any damages, or to the attorney or agent of any person absent, or to be [the] guardian or committee of any one under legal incapacity, the condition of which shall be that the said corporation will pay, or cause to be paid, such amount of damages as the party shall be entitled to receive after the same shall have been agreed upon by the parties, or assessed in the manner provided for by this act: Provided, that in case the party or parties claiming damages refuse or do not accept the bond as tendered, the said corporation shall then give the party a written notice of the time when the same will be presented for filing in court, and thereafter the said corporation may present said bond to the Court of Com- mon Pleas of the county where the lands, streams, water, or materials are, and if approved the bond shall be filed in said court for the benefit of those interested, and recovery may be had thereon for the amount of damages assessed, if the same be not paid or cannot be made by execution on the judgment in the issue formed to try the question.* When Viewers may be Appointed. 383. The viewers provided for in this section may be ap- pointed before or after the entry for constructing said work or taking materials therefor, and after the filing of the bond hereinbefore provided for.^ Appeals. 384. And upon the report of said viewers, or any four of them, being filed in said court, either party, within thirty days thereafter, may file his, her, or their appeal from said report to said court. After such appeal either party may put the cause ' Act of April 29, 1874, Sec. 41, P. L. 104. * Act of April 29, 1874, Sec. 41, P. L. 104. ° Act of April 29, 1874, Sec. 41, P, L. 104. EMINENT DOMAIN. 425 at issue hi the form directed by said court, and the same shall then be tried by said court and a jury, and after final judg- ment, either party may have a writ of error thereto from the Supreme Court, in the manner prescribed in other cases; the said court shall have power to order what notices shall be given connected with any part of the proceedings, and may make all such orders connected with the same as may be deemed requisite. If any exceptions be filed with any appeal to the proceedings, they shall be speedily disposed of; and if allowed, a new view shall be ordered; and if disallowed, the appeal shall proceed as before provided.® Taking of Franchises. 385. It is extremely doubtful whether the general Corpo- ration Act of 1874 authorizes the issue of any charter granting an express power to take other public property or franchises, except incidentally, and to such extent only as will not de- stroy or substantially impair an existing public use.'' A franchise is property, and there can be no implication of thfe right to take it, unless it arises from a necessity so abso- lute that without it the grant itself would be defeated. It must also be a necessity that arises from the very nature of things, over which the corporation has no control ; it must not be a necessity created by the company itself for its own con- venience, or for the sake of economy.^ A turnpike company incorporated under the Act of April 29, 1874, P. L. y^, by a charter which specifies the termini of its roadway but is silent as to the intermediate route can- not appropriate an existing public highway, merely to avoid the expense of acquiring a new route through private prop- erty.* A company incorporated to build and maintain a market "Act of April 29, 1874, Sec. 41, P. L. 104. ' Groff's Ap., 128 Pa. 621 (1889). 'Pittsburgh Junction R. R. Co.'s Ap., 122 Pa. 511 (1886); Pennsylvania R. R. Co.'s Ap., 93 Pa. 150 (1880); Pennsylvania R. R. Co.'s Ap., 115 Pa. 514 (1886): Stormfeltz v. Manor Turnpike Co., 13 Pa. 555 (1850); Groff's Ap., 128 Pa. 621 (1889); Cake v. P. & E. R. R., 87 Pa. 307 (1878); Tyrone School District's Ap., 22 W. N. C. 513. •Groff's Ap., 128 Pa. 621 (1889). 426 EMINENT DOMAIN. house Upon property to be purchased by the company, and authorized to rent the stalls therein On such terms and to such persons as its managers may determine, with full power to lease or sell the property acquired for that purpose and to quit the business at its own pleasure, is in every legal sense a mere private business corporation and its property may be condemned by a railroad company under the power of emi- nent domain. "In a market established, managed, and con- trolled by the municipal authorities, and governed by munic- ipal laws, there may be no doubt a public use. Such were the markets formerly maintained by the city in Market Street and other streets. But what legal interest has the public in the plaintififs' market houses? Is not their property entirely under their own control? May they not rent their stalls to whom they please, and refuse them to whom they please? And may they not by the express words of their charter rent or sell the whole building when and to whom they please? The second section of their charter declares that they may. Where is there any trace of a public trust impressed upon their property? Or where are there any rights of the public which can be enforced against them? May they not be sold out by the sherifif at any time upon a creditor's execution, like any private individual? The answer which must be given to these questions show, it appears to me, conclusively, that the plaintiffs are but private corporations owning property impressed with no public trust; that they are engaged in a purely private business, which is wholly under their own con- trol, in which the community has no public rights, and with which the public has no right to interfere. It is impossible that corporations which exist solely for their own purposes and profit, and which are governed only by their own interests and their own will, and over which the public can by no pos- sibility exercise any control, can be regarded as corporations existing for public uses within the legal meaning of those words." 10 " Twelfth St. Market Co. v. P; & R. Terminal R. R., 142 Pa. 580 (1891). EMINENT DOMAIN. 427 Easements on Land— How Terminated. 386. In all cases where an easement of land has been ac- quired under proceedings in condemnation by any corpora- tion possessing the right of eminent domain, and the same has been vacated and ceased to be used and occupied by any such corporation for a period of fifteen years or upwards, then and in that case said easement shall be held to have ter- minated, and the original owner, his heirs and assigns, shall hold the title to the said land divested of said easement: Pro- vided, that nothing in this act shall be held to apply to or affect any case where the fee simple title has been vested in the corporation, ceasing to use or occupy said land, nor to affect, qualify, alter, or repeal the Act of the General Assem- bly of this Commonwealth, entitled "An Act relating to straightened or improved lines of railroad," approved the third day of April, 1872.^^ Proceedings Where Possession is Disputed or Denied. 387. When any person or persons, natural or artificial, shall be in possession of any lands or tenements in this Common- wealth, claiming to hold or own possession of the same by any right or title whatsoever, which right or title, or right of possession shall be disputed or denied by any person or persons as aforesaid, it shall be lawful for any such person to apply by bill or petition to the Court of Common Pleas of the county where such land is situate, setting forth the facts of such claim of title and right of possession, and the denial thereof by the person or persons therein named, and thereupon the said court shall grant a rule upon such person or persons, so denying such right, title, or right of possession, to appear at a time to be therein named and show cause why an issue shall not be framed in said court, between the parties, to settle and determine their respective rights and title in and to said land. Twenty days' notice of such rule shall be given.^^ Duty of the Court. 388. And if upon the hearing of such rule it shall appear to the court that the facts set forth in such petition are true, it shall be the duty of the court thereupon to frame an issue of such forms as the court shall deem proper between the re- " Act of June 10, 1893, Sec. i, P. L. 415. " Act of June 10, 1893, Sec. 2, P. L. 415. 428 EMINENT DOMAIN. spective parties, to settle and determine the right and title of the respective parties to said land, and the verdict of the jury in such issue shall have the same force and effect upon the right and title of possession of the respective parties in and to said land as a verdict in ejectment upon an equitable title.^* Iq Case Persons Denying such Right are not Hesidents. 389. In case the person or persons denying such right, title, or right of possession in such lands or any of them are not residents Within the jurisdiction of the court, such court may make an order for service of said rule and a copy of said bill or petition upon such persons at their residence or place of business outside of the county or State where the land lies, in the same manner as service is made of a summons in a per- sonal action, giving at least twenty days' notice of such hear- ing.i* Befusal to Appear. 390. If any person or persons shall neglect or refuse to appear at sttch return-day, after twenty days' service of such rule and copy of petition, or having appeared shall refuse to join in such issue, the court may proceed to determine the rule and award and proceed with the issue in like manner as if such persons had appeared therein, and any judgment ob- tained in such issue shall as fully and finally conclude and de- termine the right and title of such defaulting party as if such persons had appeared and joined in such issue: Provided that if, upon the return of such rule, any of the persons served shall disclaim, by writing filed, any right, title, or interest in said land, all further proceedings as to such persons shall cease and such disclaiming shall forever bar such person from ever setting up or claiming any such right or title in any court. The decree of the court in refusing the rule or issue in any such case and the judgment in such issue shall be subject to appeal by either party to the Supreme Court, in Hke manner as appeals are allowed to judgments and decrees of the said Court of Common Pleas.^^ " Act of June 10, 1893, Sec. 2, P. L. 415. " Act of June 10, 1893, Sec. 2, P. L. 415. "' Act of June 10, 1893, Sec. 2, P. L. 415. CHAPTER XXXIV. BONDS AND MORTGAGE. 391. Power to Mortgage. 392. Loan to Redeem Previous Loans Authorized. 393. Security of Bonded Indebted- ness may be Increased. 394. Equity Jurisdiction in Certain Mortgages. 395. When Informality not to In- validate Transfers. 396. Corporate Distinguished from Ordinary Mortgage. 397. Implied Power to Execute Mortgage. 398. Validity of Execution of Mortgage. 399. What Property is Covered by Mortgage. 400. Limit of Indebtedness. 401. Mortgage for Larger Amount Than is Due. 402. Estoppel as to Mortgage. 403. Duties of Trustee Under Mortgage. 404. Priority of Lien. 405. Bonds. 406. Coupons. Power to Mortgage. 391. It shall be lawful for all corporations to borrow money or to secure any indebtedness created by them, by issuing bonds, with or without coupons attached thereto, and to secure the same by a mortgage or mortgages to be given and executed to a trustee or trustees, for the use of the bondholders, upon their real estate and machinery, or on their real estate alone, to an amount not exceeding one-half of the capital stock of the corporation paid in, and at a rate of in- terest not exceeding 6 per centum: Provided, that it shall be lawful for such corporations as belong to the classes named in Clauses 4, 5, 6, 7, 9, and 11 of corporations for profit, of the second class, as set forth in Section 2 of the act of which this is a supplement, and also for such corporations as belong to the class named in Clause 24, Section 2, of the Act of As- sembly, approved April 17, 1876, so to borrow money and so to secure the payment of the same, by a mortgage or mort- gages on its property and franchises, to an amount not ex- 429 ^30 BONDS AND MORTGAGE. ceeding double the amount of the capital stock of the corpo- ration actually paid in, and at a rate of interest not exceeding 6 per centum, and this section shall not be construed to pre- vent mortgages for a greater amount and at a higher rate of interest, where the power to make the same is expressly given by the terms of this statute to certain classes of corporations, or is contained in the charter of any private corporations accepting this act, or in the statutes under which certain • other classes thereof are by the provisions of this statute to be controlled, governed, and managed.^ Loan to Redeem Previous Loans Authorized. 392. Any corporation, which has heretofore been author- ized by any special law to borrow money, is hereby authorized and empowered to borrow, for a period not exceeding thirty years, any sum of money, not exceeding in the aggregate the amount of the principal of such previous loan which shall at that time remain outstanding and the amount of any me- chanics' liens impaid, at a rate of interest not exceeding that allowed by law at the time, and may issue their bonds there- for, upon such terms and conditions, and secured by mort- gage or otherwise, as they may deem expedient; but such new loan shall be applied exclusively to the payment of the pre- vious loan and such mechanics' liens, and for no other pur- pose whatever, and all laws inconsistent herewith are hereby repealed.^ Security of Bonded Indebtedness may be Increased. 393. It shall and may be lawful for any corporation exist- ing by or under the authority of any law of this Common- wealth, which shall have mortgaged any part of its estate, " Act of May 21, 1889, P. L. 257, amending the Act of April 29, 1874, Sec. 13. See Manhattan Hardware Co. v. Phalen, 128 Pa. no (1889). See Chapter XXVI, Increase of Stock and Indebtedness. The Act of April 27, 1855, Purdon, 486, gives express authority for a lessee for a term of years, of a colliery, land, manufactory, or other jireniises, to mortgage his lease, with fixtures and machinery, with the .same effect as in the case of a mortgage of a freehold title. So also the Act of January 11, 1867, enables manufacturing companies to borrow moneys, and secure the payment by mortgage of their property. In Roberts's Ap., 60 Pa. 400 (1869), it is decided that this act does not authorize a mortgage of chattels. " Act of May 13, 1879, Sec. i, P. L. 57. BONDS AND MORTGAGE. 43 1 corporate property, and franchises, for the security of all or any portion of its bonded indebtedness, to mortgage its re- maining estate, corporate property, and franchises, or any part of the same, as a further and additional security for the same bonded indebtedness: Provided, however, that no lien then existing upon such remaining estate, property, and franchises, shall be thereby impaired or affected.* Equity Jurisdiction in Certain Mortgages. 394. Each of the several Courts of Common Pleas of this Commonwealth shall have and exercise all the powers of a court of chancery, in all cases of or for enforcing rights under mortgages of the property or franchises of any coal, iron, steel, lumber, or oil, or any mining, manufacturing, or trans- portation corporation, where such property or franchises, or any part thereof, shall be situate or exercisable within the lim- its of this Commonwealth, and belong to or be exercisable by any domestic corporation or any foreign corporation under permission granted by the laws of this Commonwealth.* When the corporation shall have either voluntarily appeared to any suit brought under or covered by this act, or shall have been duly served with process, the court in which such suit is or shall be pending shall have jurisdiction of the subject- matter, irrespective of the local situation in this State of the mortgaged premises; and its process to enforce any inter- locutory or final order or decree made by such courts, in rela- tion to the preservation, custody, sale, or other disposition of the mortgaged premises, may be executed within any county of the State: Provided, that where such mortgage shall have been given by a corporation having a corporate existence in this State only, the proceedings upon the said mortgage shall be had either in the county within which the principal office of the said company is located or in the county in which all or part of the mortgaged premises is situated.® When Informality not to Invalidate Transfers. 395. In case of any duly authorized sale, letting, or mort- • Act of May 15, 1874, Sec. i, P. L. 186. * Act of March 23, 1877, Sec. i, P. L. 32. ' Act of June 24, 1885, P. L. 151, amending the Act of March 23, 1877, Sec. 2, P. L. 32. 432 BONDS AND MORTGAGE. gaging by a corporation, the same shall not be invalidated by any informality in the execution or acknowledgment of any conveyance, mortgage, or other instrument by any officer of such corporation for carrying the same into effect: Pro- vided, that no defect in substance shall be deemed to be cured hereby.® Corporate Distinguished from Ordinary Mortgage. 396. The peculiarities of corporate mortgages as distin- guished from- ordinary mortgages was discussed by Wood- ward, J., as follows: "In some respects they dififer widely from ordinary mortgages. They are never legal except authorized by statute; they are a public security in respect both to the properties pledged and the objects sought. They are created to give credit to bonds, which are to be put into the market and sold for the best price that can be obtained. When the mortgagor is an improvement company, the cor- poration, though classed as a private corporation, is for very many purposes a public institution, and every purchaser of a bond understands that the corporation is to be managed by its legal governors, and that the value of the security depends on the success of the corporate enterprise. He embarks, therefore, in that enterprise to the extent of the bonds he purchases, and yet without any voice in the administration or in the choice of its rulers. "These are some of the peculiarities of such instruments and of the relation which they establish. Both the instru- ment and the relations it establishes are strongly dis- tinguished from those of the ordinary mortgage between debtor and creditor. Whether they are to be administered on the same principles or not, it is unquestionably true that the remedies expressly provided in the instrument, as well as the powers lodged in the judiciary, should be fully applied for the enforcement of the security and the protection of the bondholders. I have no doubt of the power and duty of this court to compel the execution of the trusts of such a mort- " Act of June 8, 1881, Sec. 3, P. L. 69. BONDS AND MORTGAGE. 433 gage. If it does not result from the instrument itself, it comes of the statutory grant of supervision and control of corpora- tions. "But because the security is of a public nature, created for the benefit of a larger number of parties who are disserved, who know not each other, who have no cohesive attraction, and have no opporttuiity to seek out and adopt a common principle of procedure, we are to take good care that we do not so lend our powers to the few as to damage the many. We are not so to stick to the letter of the mortgage as to violate the spirit of it. All -who have purchased bonds on the faith of it stand in equal equity, all have an equal right to the protection of the mortgage. "As to legal remedies, they are open to every bondholder. The law adjudges to every man exactly what is nominated in the bond, but when the creditor, without resorting to his legal remedies, comes into a court of equity and asks for the high- est power we wield, we will look beyond him to others who stand in equal equity with him, and whom it is just as much our duty to protect as it is to protect him. I agree that these plaintiffs are not bound by what the majority of the bond- holders did; but what is the consequence? The logical result is that they are left to their remedies on the mortgage. Be it that their interest is not paid because the company have pledged the money to other creditors, or because of any mal- administration, does it necessarily follow that we will enjoin them? By no means. The legitimate sequence is that you may sue at law, or if the contract be so, that you may enter and take possession, or that you may compel the trustees named in the mortgae to take possession of the canal and use it for the benefit of all the bondholders. "But when a minority of the bondholders have stood by and seen the majority bind themselves to a scheme of finance which promised best for all parties, have seen without com- plaint the company pledging to a new party tolls already mortgaged to themselves, they have not, in addition to ordi- 28 434 BONDS AND MORTGAGE. nary remedies, a right to our special injunction to thwart the proposed arrangement." ^ Implied Power to Execute Mortgage. 397. Where the directors of a corporation have power under a charter to execute deeds and leases, they have the implied power to execute a mortgage to secure a proper debt.« An express power given to a corporation to mortgage its property, includes the power to borrow money, and to give the ordinary evidence of indebtedness. A charter of a railroad company contained the following provision: "The Pittsburgh & Connellsville Railroad Com- pany, and by the same name the subscribers, shall have per- petual succession, and all the privileges, franchises, and immu- nities incident to a corporation; may sue and be sued, implead and impleaded, in all courts of record and elsewhere; may pur- chase, receive, have, hold, and enjoy, to them and to their successors and assigns, lands, tenements, and hereditaments, goods, chattels, and all estate^ real, personal, and mixed, of what kind or quality soever, and the same from time to ' Buckley v. Union Canal Co., 3 Phila. 152 (1858). ' Watts's Ap., 78 Pa. 370 (1875) I Pittsburgh & Connellsville R. R. v. Allegheny Co., 63 Pa. 126 (1869); Mendenhall v. West Chester & Phila. R. R., 36 Pa. 14s (i860); Erie Ry. Co. v. Wilkes-Barre C. & I. Co., 9 Phila. 262 (1872) ; Gloninger v. Pittsburgh & Connellsville R. R., 139 Pa. 13 (1891); Gordon v. Preston, i Watts, 385; Leasure v. Insurance Co., 91 Pa. 491; Slate Co. v. Bank, 8 W. N. C. 430 (1880); Church v. Caughey, 85 Pa. 271. The power to execute and issue bonds or other evidences of indebt- edness belongs to all corporations, and is inseparable from their exist- ence. "The very power to contract necessarily involves the cognate power to create debt, and a corporation without such power would be a body without life, utterly eflfeteand worthless:" Watts's Ap , 78 Pa 370 (187s). The power to borrow money does not include the right to issue irre- deemable bonds restricting the holder merely to a contingent share in the profits, nor to issue such bonds secured by a mortgage- McCalmant v.. P. & R. R. R., 10 W. N. C. 338 (1881). (U. S. C. C). "14 Phila. 479 (1881). BONDS AND MORTGAGK. 435 time to sell, mortgage, grant, alien, or dispose of," etc. It was contended that in addition to the power to mortgage there must also be expressed a specific authority to borrow money and issue bonds therefor. The court overruled the objection, saying: "The power to mortgage is given in the most explicit language, and embraces all the property which the company may acquire or hold, 'real, personal, and mixed, of what kind or quality soever.' It is difficult to conceive how there could be a larger or more comprehensive description of the kind of property upon which the power to mortgage could be exercised, than is contamed in these words. They em- brace every species of property known to the law, and the power itself is not subjected to any limitations, restrictions, or qualifications of any kind. No provision is made as to the manner in which the power should be exercised, and hence no particular formahties were required to be observed. An au- thentic act of execution by the proper officers of the company would seem, therefore, all that was necessary to a valid exer- cise of the power. We cannot consent to the contention that, in addition to the power to mortgage, there must also be ex- pressed a specific authority to borrow money and issue bonds therefor. The manifest purpose of a mortgage is to secure loans of money, and the power to borrow money and to give the ordinary evidence of loans is a necessary incident to the power to mortgage. But it is also a necessary incident to the right to build a railroad, and it is also essential to have the power to mortgage expressly granted, in order that it may be exercised for the purpose of securing indebtedness, whether arising from loans of money or upon other considera- tions." 9 Where an act of incorporation empowers the company to purchase in fee or for any less estate "all such lands, tene- ments, or hereditaments, and estate, real and personal, as shall be necessary and convenient for them in the prosecution of their works, and the same to sell and dispose of at their ' Gloninger v. Pittsburgh & C. R. R., 139 Pa. 13 (1891). 436 BONDS AND MORTGAGE. pleasure," the corporation may mortgage its real estate to secure the payment of a debt. In such a case the court said: "A power to sell includes a power to mortgage, even under the statute of uses, though strictly, and a fortiori it ought under a statutory grant which is to be beneficially construed in furtherance of the object. But the superadded words, 'dis- pose of,' which would otherwise be redundant, leave no doubt of the existence of an intent to give the corporation power to part with its real estate by any voluntary act, without regard to the mode of its operation, and, as a power to incumber, might be necessary to the prosecution of its works, it is not to be doubted that it was intended to be given." ^** Where a railroad mortgage includes both the railroad and the franchises, the fact that the company has no authority to mortgage its franchises, will not render the mortgage void as to the railroad.^^ Validity of Execution of Mortgage. 398. A mortgage by a corporation executed by the mem- bers of the board of directors present at a meeting, and ac- knowledged by them, and the seal of the corporation affixed by them, is a good execution and acknowledgment.^^ Where a bond of a corporation is properly signed in the company's name by its duly authorized agent, a common seal following the name of the company will be presumed to have been intended as the seal of the corporation, in the absence of competent evidence to the contrary.^^ A mortgage may be created without consent of the stock- holders, and does not violate Article XVI, Section 7, of the Constitution, where the money raised by it is applied to the payment of a mortgage already on the company's property, and no increase of indebtedness is involved. In such a case the fact that the mortgagee received also certain shares of "° Gordon v. Preston, i Watts, 385 (1833). " Gloninger v. Pittsburgh & Connellsville R. R., 139 Pa. 13 (1891). ''^ Gordon v. Preston, i Watts, 385 (1833). " Penna. Nat. Gas Co. v. Cook, 123 Pa. 170 (1889). BONDS AND MORTGAGE. 437 Stock of the company with a note of its ofificers, as additional security, is immaterial, as under the circumstances he had a right to all the security which the company or its ofificers were willing to give him.^* Where a corporation receives and applies to the improve- ment of its property the proceeds of a mortgage, and the stockholders know of the creation of the mortgage, and make no objection within a reasonable time, neither the corporation nor its stockholders can be permitted to allege as a defense to the mortgage that it was unauthorized by a previous meet- ing and consent of the stockholders.*' A corporation cannot deny the accuracy of its own minutes as against a party who has loaned it money, on the faith of the minutes. A mortgage was duly executed under the seal of the corporation, and was promptly recorded. It recited a resolution, which appeared on the minutes of the corpora- tion, authorizing the execution of the mortgage. The money secured by it was received by the company, and used for the company's benefit. It was held that the stockholders could not dispute the loan on the ground that it was not preceded by a formal meeting and vote authorizing it.*® Where a mortgage of a corporation executed under the corporate seal recites that the stockholders unanimously au- thorized the execution of the mortgage, an affidavit of defense averring that the mortgage was not authorized by the stock- holders, and that no stockholders' meeting had been called for the purpose of taking action upon the mortgage, is in- sufficient to prevent judgment.*^ " Powell V. Blair, 133 Pa. 550 (1890). '° Manhattan Hardware Co. v. Phalen, 128 Pa. no (1889). In Watts's Ap., 78 Pa. 3/0 (1875), it was said: "When an act done by directors is in excess of their authority, yet it has been done with the hona Me intent of benefiting the corporation which they represent, and a shareholder knowing thereof does not dissent within a reasonable time, his assent to the act will be presumed, and he will be estopped from gainsaying it." "Manhattan Hardware Co. v. Roland, 128 Pa. 119 (1889). "Manhattan Hardware Co. v. Phalen, 128 Pa. no (i88g). 438 BONDS AND MORTGAGE. The minority stockholders of a corporation cannot com- plain of an issue of mortgage bonds to a holder of a majority of the stock, another railroad company, when such issue was made to the corporation, without fraud, for an adequate con- sideration, and with great advantage to the corporation, and this is so, although the mortgage was procured by a majority of the stockholders for a use to raise money for itself, and was so used.-'® A mortgage executed by a corporation on its leasehold in- terest, machinery, and fixtures duly attested by the secretary and sealed with the corporate seal, and not objected to by the stockholders cannot be attacked by the creditor in the ab- sence of fraud.^® Where a mortgage is executed at a meeting of the directors of the corporation not duly summoned, the irregularity in the execution of the mortgage cannot be taken advantage of by a judgment creditor of the corporation, so as to defeat the mortgage, and entitle himself to the proceeds of the sale of the mortgaged premises.^" The charter of a corporation provided that the property of the company should be purchased, held, managed, and sold by a board of five trustees. The mortgage was executed by the president and secretary, and not the trustees. It was not sealed with the corporate seal; and there was no resolution authorizing, ratifying, or in any manner recognizing the mak- ing of the mortgage. It was held that the mortgage was not the act and deed of the corporation, or binding upon it as such.^^ If a mortgage is executed at a meeting of the directors not provided for by the by-laws, and not held after due notice to all the directors, the mortgage is voidable at the instance of the corporation. If, however, the corporation does not sub- " Gloninger v. Pittsburgh & Connellsville R. R., 139 Pa. 13 (1891). '" Lewis V. Philadelphia Axle Works, 10 Phila. 334 (1875). ™ Gordon v. Preston, i Watts, 385 (1833). " McElroy v. Nucleus Assn., 131 Pa. 393 (1890). BONDS AND MORTGAGE. 439 sequently object, it will be deemed to have acquiesced in the action of the directors and have ratified it. In such a case Gibson, C. J., said: "A corporation can contract but by its agents, general or special, and in pursuance of powers dele- gated specially by its grant to particular persons, or gen- erally, by its charter, to the ofificers intrusted with its afifairs. Hence the members of this board stood in relation to it as servants whose acts may be disaffirmed for defect of author- ity, but by their master. But the maxim which makes rati- fication equivalent to a precedent authority is as much predi- cable of ratification by a corporation as it is of ratification by any other principal, and it is equally to be presumed from the absence of dissent. Now the vaHdity of this mortgage is unquestioned by the corporation even at this day, though it has all along been known to the corporate officers, whose duty it was to disavow it had there been an intent to contest it. The corporation has been satisfied with it, who has a right to object? In the Silver Lake Bank v. North, 4 Johns. Cha. 373, it was supposed that the right of a bank to take a mort- gage as a concurrent security, though prohibited by the charter, could be contested only by the State in a direct proceeding to establish a forfeiture, and not collaterally by a stranger. In that case the want of authority arose out of provisions of the charter; in this, out of the negligence of cor- porate officers, but the principle is broad enough to cover both, as it was thought that none but the parties to the act of delegation were competent to allege the existence of a defect in the authority." ^^ If a proceeding to declare railroad bonds and mortgages void because issued in violation of Article XVI, Section 7, of the Constitution and Act of April 18, 1874, the bondhold- ers must be joined as parties, and a suit against the trustees alone is insufficient to bind bondholders.^^ '- Gordon v. Preston, i Watts, 385 (1833). "' Harrisburg & Eastern R. R. Co.'s Ap., i Mona. 692 (1889). 440 BONDS AND MORTGAGE. What Property is Covered by Mortgage. 399. If a corporation has power to mortgage all its prop- erty, real and personal, and it executes a mortgage of every- thing of a real and personal nature owned by it, it is imma- terial whether certain real property included in the mortgage was necessary to the use or enjoyment of a railroad or not.2* A mortgage by a corporation of their property, franchises, and efifects given after their entry upon lands, and before judgment for damages, will bind their equitable interest therein, subject to the payment of judgment for purchase- money.^' A mortgage will pass such interest as the corporation has in the land.^® A supplement to an act incorporating a railroad company authorized the company to mortgage its road, and any real or personal property belonging to it "for the purpose of carry- ing out the privileges granted by the act, and the several sup- plements thereto incorporating the same." These supple- ments and later ones authorized various extensions of the railroad. It was held that the power to mortgage covered future extensions of the railroad subsequently authorized.*^ Where the purchasers of the real estate of a corporation sold under foreclosure proceedings agree to buy the personal property at an appraisement, and it subsequently appears that certain tools included in the appraisements were really fixtures belonging to the real estate and covered by the mort- gage, the purchasers are entitled to have the value of the tools '' Robinson v. Atlantic & Great Western Ry., 66 Pa. 160 (1870) ; Young- man V. Elmira & Williamsport R. R., 65 Pa. 278 (1870) ; Covey v. Pitts- burgh, Fort Wayne & Chicago R. R., 3 Phila. 173 (1858) ; Loudenslager V. Benton, 4 Phila. 382 (1861): Philadelphia, Wilmington & Baltimore R. R. V. Woelpper, 64 Pa. 366 (1870). See Shamokin Val. R. R. v. Liver- more, 47 Pa. 46s (1864); Drew v. New York & Erie R. R., 32 P. F. Smith, 46 (1870). "' Easton Borough's Ap., 47 Pa. 255 (1864). " St. John's Church v. Steinmetz, 18 Pa. 273. " Gloninger v. Pittsburgh & Connellsville R. R., 139 Pa. 13 (1891). BONDS AND MORTGAGE. 44I deducted from the appraisement of the personal property which they had agreed to pay.^* A mortgage was made of a railroad as then made or to be made. A later mortgage was created, under authority of a subsequent Act of Assembly, of a branch or extension of the original road. The special act provided that the later mort- gage should be a first lien on the branch. It was held that a sale under the original mortgage must be exclusive of the branch.29 If a dispute arises between the execution creditors and the trustees of a mortgage as 'to whether property levied upon was covered by the mortgage an interpleader should be allowed.*'' Plaintiff's judgment creditors levied upon horses and har- ness of a street car company. A trustee for mortgage bond- holders gave notice to the sheriff that the property was sub- ject to the lien of the mortgage. The court held that the proper course was for the sheriff to sell the interest of the defendant company subject, if any, to the rights of the mort- gagees.** Iiimit of Indebtedness. 400. Where the charter authorizes a corporation to bor- row money in any sum not exceeding in amount one-half of the par value of the capital stock, the corporation is limited in its bonded indebtedness to the amount of one-half of its paid- up capital stock.*^ If this amount is exceeded the mortgage given to secure the bonds is invalid.** '" Huston V. Clark, 162 Pa. 435 (1894)- "Randolph v. Wilmington & Reading R. R., 11 Phila. 502 (1876). " Eckfelt V. Starr, s Phila. 497 (1864). " Brill V. VvTest End Pass. Ry., 4 W. N. C. 139 (i877)- '= Commonwealth v. Lehigh Ave. Ry. Co., 6 Pa. C. C. R. SS7 (1889); Philadelphia v. Ridge Ave. Ry., 102 Pa. 190 (1883) ; Citizens' Pass. Ry. Co. V. Philadelphia, 49 Pa. 251 (1865); Second & Third St. Pass. Ry. v. Philadelphia, 51 Pa. 465 (1866); Philadelphia v. Philadelphia & Gray's Ferry Ry., 52 Pa. 177 (1866); Commonwealth v. Lehigh Ave. R. R., 129 Pa. 40s (1889) ; Wood v. Corry Water Works, 38 P. L. J. 169. '^ Pittsburgh & State Line R. R. Co.'s Ap., 4 Cent. Rep. 107. 442 BONDS AND MORTGAGE. Mortgage for Larger Amount Than is Due. 401. The fact that a corporation mortgage is given for a larger sum than is due will not defeat the mortgage, unless fraud is shown.^* Estoppel as to Mortgage. 402. If a corporation accepts the benefit of a mortgage and does nothing to disavow it for a long period of time the com- pany will be estopped from denying the validity of the mort- gage.^" Duties of Trustee Under Mortgage. 403. A trustee under a mortgage of the franchises and property of a railroad company is a trustee for all the bond- holders secured by the mortgage. "Until default is made in the payment of the bonds, or the interest falling due upon them, the trustee has no active duties to perform, but is simply the repository of the title to the property mortgaged, in trust for the whole creditor class secured thereby. The actual possession of the franchises and the other property re- mains in the railroad company, to enable it to discharge its duties to the public and earn an income from which to pay its liabilities. But when a default occurs, the duties of the trus- tee become active and important. He represents all the bondholders, and is under obligation to protect them so far as the property in his hands in trust for them will enable him to do so. If he neglects or refuses to move, any bondholder may proceed by bill filed on behalf of himself and the other members of the class of creditors to which he belongs, to compel a sale of the mortgaged premises, a removal of the trustee, or such other reHef as may be appropriate. The bonds are not payable to the mortgagee, but to the bearer; they are not special but negotiable instruments, passing from hand to hand by delivery or indorsement ; they find a market in all parts of the civihzed world, and are held as an invest- ment in moneyed institutions and by private persons. The " Gordon v. Preston, i Watts, 385 (1833). " Lewis V. Phila. Axle Works, i W. N. C. 327 (1875). BONDS AND MORTGAGE. 443 mortgagee has no right to the custody of one of the bonds unless he buys it like any other investor, and they furnish him no choice of remedies. He is shut up to the remedies pro- vided by the mortgage and those vk^hich the courts of equity may afford him for the purpose of bringing the mortgaged property to sale." *" A trustee of a mortgage is not liable to bondholders under the mortgage for a loss sustained by reason of the fact that the mortgage was not a first moi'tgage where there is no statement in the bond that the mortgage was a first mortgage, and there is nothing upon which to found an allegation that the trustee undertook in any manner whatever to contract or guarantee or represent that the mortgage was or was to be a first lien.^^ If the mortgage creates a trust, and provides that the power of sale is to be executed by the trustee in certain con- tingencies, he may be controlled, restrained, and directed by a court of equity at the suit of a party standing in the relation of a cestui que trust, the rule for his guidance being derived from the instrument itself. But where there is no trust to be administered as the immediate object of the suit, or the con- tingency has not happened which was to bring it into exer- cise, courts of equity have no jurisdiction in Pennsylvania over mortgages; mortgagees are left to their common-law and statutory reraedies.^^ Where a mortgage provides that upon failure to pay the interest on the same, the trustee shall have power to take possession of the railroad, and to exercise the corporate fran- chises for the benefit of creditors, a court of equity has no power upon default in the payment of interest to decree a sale of the road. The remedy provided in the mortgage itself must be pursued.^® " Commonwealth v. Susquehanna & Delaware R. R., 122 Pa. 306 (i " Byers v. Union Trust Co., 175 Pa. 318 (1896). " Bradley v. Chester Valley R. R., 36 Pa. 141 (i860). "Bradley v. Chester Valley R. R., 36 Pa. 141 (i860). 444 BONDS AND MORTGAGE. Where a corporate mortgage provides that upon default the mortgagee may elect to foreclose, or upon request of the holders of a certain proportion of the bonds, may be com- pelled to foreclose, the election of the mortgagee not to fore- ' close, and the failure of the bondholders to make the stipu- lated request, prevent a foreclosure at the suit of the bond- holders.*** A bond of a railroad company provided that upon three successive defaults in payments of interest, the principal should become due. The mortgage which secured the bonds provided that the trustees in it should sell the mortgaged property at the request of the holders of $100,000 in the bond. The court held in an action of debt on the bonds that the pro- vision in the mortgage was no defense. "This was an action of debt on bonds, and if there was a breach of condition, the fact that a mortgage had been given as security for the debt with trusts and covenants, which a court of equity would con- trol and enforce in a proper case, afforded not a shadow of defense. The bond was the principal debt, the mortgage the incidental security. Remedies peculiar to each exist, both in law and equity, but they do not clash and destroy each other, they co-exist." " Priority of Lien. 404. A decree declaring a mortgage executed by a railroad company to be the first lien on the company's property and franchises does not give it priority over the lien of a person who had no notice of the proceedings, and was neither a party nor a privy to the decree.*^ Where a contractor having a hen upon the property of a corporation cannot enforce his lien in a court of law because of the dissolution of the corporation, equity will aid him to collect his debt, although the assets of the corporation are " Humes v. Company, 2 Dist. Rep. 107 (1892). " Phila. & Bait. R. R. v. Johnson, 54 Pa. 127 (1867). " Pittsburgh, Cincinnati & St. Louis Ry. v. Marshall, 85 Pa. 187 (1877). BONDS AND MORTGAGE. 445 claimed by a mortgagee whose mortgage was subsequent in tlate to the contractor's lien.*® Mortgagees of personal property of a railroad company, out of possession, have no priority over a creditor who has ob- tained a lien. Thus where creditors have issued foreign at- tachments against mortgage deeds in the hands of a railroad company, they are entitled to priority over the mortgagees of the garnishees.** A land-owner's claim for damages is paramount to a mort-. gage given by a railroad company before the damages have been paid or secured; and the sale of the railroad under the mortgage will not divest the land-owner's right to recover compensation for the occupancy of his land from the pur- chaser at the sale. "If the original occupant has so managed its card as to escape payment until it has divested itself of its interest by any form of alienation, its alienee, mediate or immediate, if it would enjoy the uncompensated right, must pay the price of it, unless it can show an equity growing out of the conduct of the owner of the soil which would estop him. It must not be forgotten we are treating of a case where the owner has done nothing to divest his right by his own act of alienation, but where the original actor stands upon a seizure at law, which must be shown to have con- formed to the law in all its steps, in order to deprive the owner of his title. The mortgage was but a mode of aliena- tion of the estate of the mortgagor, but could not operate ■upon the paramount claim of the land-owner over the mort- gaged interest. This we have seen is not a mere lien, the judgment in the process of assessment not being the source of his right, but the means only of ascertaining the amount of his claim and of enforcing its payment. It could be ex- tinguished only by payment or release." *® " Shamokin Valley & Pottsville R. R. Co. v. Malone, 85 Pa. 25 (1877). "Merchants' Bank v. Petersburg R. R., 12 Phila. 482 (1877)- " Western Pennsylvania R. R. v. Johnston, 59 Pa. 290 (1868). Per Agnew, J. 446 BONDS AND MORTGAGE. Where all the franchises and property of a corporation have been sold subject to a mortgage, a subsequent jtidgment against the corporation is void, and a sale of the property under such judgment will not divest the lien of the mort- gage.*** A judgment creditor of a corporation whose lien is sub- sequent to a mortgage under which the property and fran- chises of the corporation are sold, has no standing to except to a sherifif's return where the mortgage creditors purchase the property. It seems that in such case that if the mortgage was invalid and collusive, the property of the defendant in the execution was not divested by the sale as against bona fide creditors, and if valid that the junior creditor could not attack the incorporation of the company, nor the creation ■ of the mortgaged debt.*'' A sheriff's sale of the franchises and property of a railroad company made under an execution on judgment of an indi- vidual bondholder for arrears of interest upon bonds secured by a mortgage, will not pass title to the franchises and prop- erty covered by the mortgage.*® Bonds. 405. Bonds of a corporation are personal property.** A bond of a corporation payable to bearer passes by de- livery and enables the holder to sue upon it in his own name.'* "Such bonds," said Chief Justice Lewis, "are not strictly negotiable under the law of merchants as are promissory notes and bills of exchange, they are, however, instruments of a peculiar character, and being expressly designed to be passed from hand to hand, and by common usage actually so trans- " Reynolds v. Cridge, 11 Pa. C. C. R. 306 (1892). " Mellon V. Shenango Nat. Gas Co., 157 Pa. 627 (1893). "Commonwealth v. Susquehanna & Delaware R. R., 122 Pa. 306. (1888). "Huntzinger v. Phila. Coal Co., 11 Phila. 609 (1876). " Carr v. Le Fevre, 27 Pa. 413 (1856). BONDS AND MORTGAGE. 447 ferred, are capable of passing by delivery, so as to enable the holder to maintain an action on them in his own name." ^-^ A corporation bond, however, payable to an obligee named, or his assigns, may be assigned in writing under the Act of May 28, 171 5, so as to enable the assignee to sue in his own name. If there is a mere parol delivery of the bond, the assignment may be sustained in equity, but an action on the bond cannot be maintained in the assignee's name. The action must be in the name of the obligee.**^ The bond of a railroad corporation, payable to "order or assigns," must be assigned' under seal, and when so assigned they may be sued upon in the name of the assignee. If the bonds are made payable to bearer they are assignable by delivery, and may be sued in the name of the holder.®* All the bonds secured by the same mortgage are presumed to have been issued at the same time, and the fact that they are numbered consecutively gives no priority to any, and in- terferes in no manner with the equality of their holders on distribution.** Interest is not allowed on interest due on registered bonds.'* If the bonds or loans of a corporation are payable at a fixed time and place the interest ceases at the time desig- nated, whether the bond be presented or not. It is not nec- essary for the corporation to set apart specifically for the benefit of its debtor so as to be entirely beyond its own con- trol, or subject, under any contingency, for its debts or other liabilities a sum sufficient to cover the debt, principal and " Carr v. Le Fevre, 27 Pa. 413 (1856). "^ Bunting's Administrator v. Camden & Atlantic R. R., 81 Pa. 254 (1876); Licey v. Licey, 7 Pa. 251 (1847). " Bunting's Administrator v. Camden & Atlantic R. R., 81 Pa. 254 (1876). " Commonwealth v. Susquehanna & Del. River R. R., 122 Pa. 306 (1888). " Sherman v. P. & R. R. R., 13 W. N. C. 238 (1883). 448 BONDS AND MORTGAGE. interest. All that is necessary is that funds sufficient for payment were at all times in hand.^® Bonds issued by a railroad company, which show upon their face that they were issued one day after the corporation was organized, are void, since they clearly violate the con- stitutional provision requiring sixty days' notice of meeting to stockholders.^^ A railroad company cannot under the Act of April 8, 1861, issue bonds otherwise than for a new adequate valuable con- sideration, increasing the available funds of the corporation.'** Thus a charter will be refused where the certificate states that certain lands are to be contributed, and that the corpo- ration agrees to take the lands subject to certain incum- brances and to give to the subscribers who contributed the lands not only stock, but also the bonds of the company.®' If suit is brought on one of several railroad bonds, the sug- gestion of default in payment of interest should specify whether the plaintifif claims to recover both the principal of the bond and interest, or interest only; and if he claims to recover the principal, whether there has been a default on all of the bonds.*" A bona fide purchaser of railroad company bonds, without notice that they were stolen, has a good title to them against the former owner. ®^ It is no defense to an action on the bonds of a railroad company by a bona Me purchaser that the bonds had been issued by the president of the company without authority, and that he had made no return of the proceeds to the company; nor is it a defense that the company had no power to create ■" Emlen v. Lehigh Coal & Navigation Co., 47 Pa. 76 (1864). " Maas V. Penna., Poughkeepsie & N. E. R. R., 1 Mona. 497 (1889). "Kemble v. Wilmington & Northern R. R., 13 Phila. 469 (1878) (U. S. C. C). ™ Hempfield Coal Co., 2 Chester Co. Rep. 181 (1884). " Briscoe V. Phila. & Bait. Cent. R. R., i Walker, 511 (1866). "' Carpenter v. Rommel, 5 Phila. 34 (1862). BONDS AND MORTGAGE. 449 the mortgage which accompanied the bonds, nor that the bonds bore an illegal rate of interest."^ A railroad company has no power without express author- ity to guarantee the payment of a bond of another railroad company.** Where bonds are negotiable, and a guaranty is indorsed upon them, the guaranty passes with the bonds to the holder.«* Coupons. 406. A coupon is merely an acknowledgment of interest due, and is but an incident of the principal. It is attached to the bond, and may be detached from it for the convenience of the holder. The possession of the coupon by the corpora- tion is evidence of its payment.*^ A corporation which issues a coupon bond is in the position of the maker of a promissory note, and not of the drawer of a check or bill of exchange, and there is no obligation on the holder of the note to present and demand payment of it within a reasonable time. The same rule applies to the coupon as to the bond. A person held a coupon bond of a corporation. One of the coupons stated on its face that it was payable at a certain bank on December i, 1875. Funds were sent to the bank and all coupons presented were paid until December 22, 1875, when the bank failed. The owner of the coupon subsequently demanded payment of the corporation, and was refused. In an action upon the coupon it was held that the owner was en- titled to recover from the corporation.** The holder of coupons detached from corporation bonds payable to bearer may sue in his own name, and interest is recoverable upon such coupons from the time of their ma- " Philadelphia & Sunbury R. R. v. Lewis, 33 Pa. 33 (i8S9)- ■^ Pennypacker v. Camden & Atlantic R. R., 3 Penny. 402 (1883). " Camden & Atlantic R. R. v. Coxe, 18 W. N. C. 20 (1886). *° Williamsport Gas Co. p. Pinkerton, 95 Pa. 62 (1880). " Williamsport Gas Co. v. Pinkerton, 95 Pa. 62 (1880). 29 4SO BONDS AND MORTGAGE. turity.''' Coupons detached from the bond may be sued upon, although they mature six years prior to the time the suit was brought.*® If coupons are lost, on tender of indemnity the owner may recover with interest from date of demand.®* In an action on coupons it is inadmissible to show that plaintifif signed a written agreement with other creditors to take stock in the company for the principal of his debt.''*' It is not necessary to prove the execution of the mortgage securing the bonds to which the coupons are attached.''* Recovery may be had upon coupons signed by the vice- president, although the mortgage provided that the bonds should be signed by the president of the company.''* In an action upon coupons the corporation cannot defend upon the ground that no demand was made at the place where the coupons were to be presented for payment, if it appear* that the corporation had no funds at such place to pay the coupons.''^ When coupons have been presented and paid at the place of payment with money furnished by a third party, a secret agreement between such third party and the mortgagor that " Mason v. Frick, 105 Pa. 162 (1884) ; Carr v. Le Fevre, 27 Pa. 413 (1856); Beaver County v. Armstrong, 44 Pa. 63 (1862); Gilmer v. Phila- delphia & Reading R. R., 7 W. N. C. 15 (1879) ; McCoy v. Washington County, 7 Am. Law. Reg (O. S.) 193 (1859); Evans v. Cleveland & Pitts- burgh R. R., s Phila. 512 (1864) (U. S. C. C.) ; Weidner v. R. R. Co., I W. N. C. 472 (187s); Phila. & Reading R. R. v. Knight, 124 Pa. 58 (1889) ; Philadelphia & Reading R. R. v. Fidelity Ins., Trust & Safe De- posit Co., IDS Pa. 216 (1884). " Philadelphia & Reading R. R. v. Smith, 105 Pa. 195 (1884). " Fitchett V: North Penn R. R., 5 Phila. 132 (1863) ; s. c. affirmed, I Walker, 129 (1863). "Roberts v. Iron Car Equipment Co., 161 Pa. 348 (1894). " Conshocken Tube Co. v. Iron Car Equipment Co., 161 Pa. 39t (1894); Fidelity Co. v. Phila. & Reading R. R., 13 W. N. C. 281 (1883). " Conshocken Tube Co. v. Iron Car Equipment Co., 161 Pa. 391 (1894). " North Penn R. R. v. Adams, 54 Pa. 94 (1867) ; Phila. & Bait. Cent. R. R. V. Johnson, 54 Pa. 127 (1867); Helmbold v. Del. H. & W. R. R.^ 14 W. N. C. 128 (1883). See Phila. & Reading R. R. v. Smith, 15 W. N. C. 371 (1884). BONDS AND MORTGAGE. 45 1 the transaction shall be treated as a purchase of the coupons by the former, is not enforceable against the bondholder.'^* Bonds with semi-annual coupons were issued to the com- pany by a county in payment of stock, the company agreeing to pay the interest on the bonds. The county paid the in- terest. It was held that the company was liable for interest on the coupons. A vendee of the county stock, however, had no right to the interest on the bonds.'^^ Where a portion of the property of a corporation is not covered by the mortgage, a bondholder under the mortgage may recover judgment as an individual creditor, for the amount of unpaid coupons or bonds and enforce the collec- tion thereof out of such property.'^^ The holder of a corporation bond may sue and recover interest due on the bond, although he is prevented from suing for the principal by reason of a provision in the mortgage securing the bond that upon default in payment of interest, the trustees to whom the mortgage was executed shall, at the request of the holders of a certain amount of bonds, proceed, by writ of scire facias, to collect the interest and principal of the debt for the benefit of the bondholders equally.''''' Where a railroad company covenants in a lease to pay the .operating expenses of the lessor company and to apply the surplus earnings to the payment of the coupons on the bonds of the lessor issued prior to the lease, the holder of such cou- pons has no right of action upon the coupons against the lessee.''^ A railroad company placed a mortgage upon a branch rail- road. The mortgage recited that the company had built a " Fidelity Ins. Co., etc.. v. West Penna., etc., R. R., 138 Pa. 494 (1891). " Pittsburgh & Connellsville R. R. v. Allegheny Co., 63 Pa, 126 (1869). "Commonwealth v. Susquehanna & Del. River R. R., 122 Pa. 306 (1888); Carr v. Le Fevre, 27 Pa. 413 (1856); Phila. & Bait. Central R. R. V. Johnson. 54 Pa. 127. " Montgomery County Agricultural Society v. Francis, 103 Pa, 378 (1883). " Freeman v. Penna. R. R., 173 Pa. 274 (1896). 452 BONDS AND MORTGAGE. branch road with the money of the company, and it was deemed expedient by the contractors to fund certain cou- pons of the second mortgage on the main Hne, held by plain- tiff, by issue of scrip, convertible into first mortgage bonds. Before the new bonds were issued the mortgage with the recital was released, the release containing a misrecital of the mortgage-book. A new mortgage was then placed upon the branch containing no provision for funding the bonds. The franchises were afterwards sold at a judicial sale and a new company organized. The holder of the coupons referred to in the released mortgage petitioned for a mandamus to com- pel the new company to fund his coupons. It was held that he was not entitled to the writ.'^® The holder of a coupon bond payable to bearer, being a citizen of a dififerent State from the defendants, is entitled to sue ill the courts of the United States, though the previous holder of the bond might not have been so entitled to sue.** " Commonwealth v. Wilmington & Northern R. R., 2 Mona. 538 (1889). *° McCoy V. Washington Co., 7 Am. L. Reg. (O. S.) 193 (1859). CHAPTER XXXV. LEASE. * 407. Lease Must be Based on Leg- 410. Liabilities of Lessees. islative Authority. 411. Lessees Out of Possession. 408. When Lease Must be Ap- 412. Settlement of Accounts of Les- proved by Stockholders. ^ see with Commonwealth. 409. When Lease is an Assignment 4T3. Lease not to be Invalidated by for Creditors. Informality in Execution of Instrument. Lease Must be Based on Legislative Authority. 407. A corporation has no power without legislative sanc- tion to alien its franchises either absolutely or temporarily by way of lease. A provision in the charter of a telegraph company authoriz- ing it to lease its line, fixtures, and apparatus, does not authorize a lease of its franchises. The lessee company may use existing lines' fixtures and apparatus, but has no power to erect new lines under the franchises of the lessor.^ A railroad company cannot lease to another company its franchise of operating a road built or authorized to be built, unless it can show a grant of power from the sovereign in express terms, or by necessary implication.^ If a railroad company is authorized to lease another rail- road connected with it, the authority must be restricted to railroads that are finished.* ' Philadelphia v. Western Union Telegraph Co., 11 Phila. 327 (1876). ° Van Steuben v. Central R. R. of New Jersey, 178 Pa. 367 (1896). ' Pittsburgh & Connellsville R. R. v. Bedford & Bridgeport R. R., 32 P. F. Smith, 104 (1871). See also Thomas v. West Jersey R. R., 9 W. N. 453 454 LEASE. A New Jersey railroad corporation leased the railroad of a Pennsylvania corporation. Subsequently the lessee exe- cuted a lease of its own road and its leased roads to another New Jersey corpoi'ation whose lines were not shown to have any connection with the line of the Pennsylvania corporation. It was held that the lease was void under the Pennsylvania Acts of April 23, 1861, P. L. 140, and February 17, 1870, P. L. 31, both of which acts require that the lessor and the les- see's roads shall be connected either directly or by an inter- vening line.* An inclined plane company organized under the special Act of March 23, 1870 (P. L. 1871), 1462, may lease its whole system to another passenger railway company, where one of the railway lines of the lessor forms a continuous route with the. road of the lessee, notwithstanding the break made by the inclined plane, in the centre of the line of the lessor.** A single stockholder has no right to an injunction to re- strain a transfer of all the property of a corporation to another company, where the transfer is authorized by law.® "When Lease Must be Approved by Stockholders. 408. A lease which surrenders the control of all the com- pany's property, divests the company of all its active func- tions, and practically winds up its existence, cannot be author- ized by the directors, but only by the stockholders.'' The directors of a water company voted to enlarge a dam in order to lease it to an ice company which the president of the water company was forming. The stockholders of the C. 6s (1880) (U. S. S. C.) ; Wood v. Bedford & Bridgeport R. R., 8 Phila. 94 (1871). * Van Steuben v. Cent. R. R. of N. J.. 178 Pa. 367 (1896). ' Hampe et al. v. Pittsburgh & Birmingham Traction Co., 165 Pa. 468 (1895). ' Lauman v. Lebanon Valley R. R., 30 Pa. 42 (1858) ; Mott v. Penna. R. R., 30 Pa. 9 (1858). ' Mercantile Library Hall Co. v. Pittsburgh Library Assn., 173 Pa. ya (1896). LEASE. 455 water company at an annual meeting approved the dam and the proposed lease, and the terms of the lease were left to be fixed by the directors. The stockholders of the water com- pany were offered stock in the ice company. The dam was built and leased for forty-nine years, and the ice company spent a considerable amount of money upon its plant. The terms of the lease were fixed by a new board of directors. A majority of the old board filed a bill in equity charging fraud, and alleging that the rent reserved was too low, and that the term of the lease was too long. The court found that there Tvas no fraud, that there Jiad been a ratification of the lease, and that the complainants had been guilty of laches. The •decree dismissing the bill was affirmed by the Supreme Court.* "When Lease is an Assignment for Creditors. 409. An agreement by which one railroad company leases all its property to another company, the lessee company to pay the creditors of the lessor, is an assignment for the bene- fit of creditors.® Iiiabilities of Lessees. 410. Where one railroad company leases another with all its rights, powers, and privileges, the lessee in using the les- sor's road is not subject to the charges fixed by its own char- ter as to toll, but to the regulations in the charter of the les- sors.^" A railroad company which has leased all its property and franchises to another company "free and clear from all debts, dues, claims, and liabilities incurred or owing" by the lessor, cannot require the lessee company to issue free passes for * Shaaber et al. v. Angelica Water Co., 2 Monaghan, 435 (1889). • Gratz V. Pennsylvania R. R., 41 Pa. 447 (1862) ; Philadelphia & Erie R. R. V. Catawissa R. R., 53 Pa. 20 (1866); Lucas v. Sunbury & Erie R. R., 32 Pa. 458 (1859); Bettenbender v. Sunbury & Erie R. R., 40 Pa. 269 (1861). " Pennsylvania R. R. v. Sly, 65 Pa. 205 (1870). 45^ LEASE. life to land-owners who had given releases of right of way to the lessor in consideration of such passes.^^ A lease from a railroad company which transferred to les- sees all its contracts does not render the lessors liable for goods delivered to the lessees under a contract between the plaintifif and the lessors.^* But the lessee of a railroad is liable to a passenger who is injured by the washing away of an im- properly constructed embankment.^' Iiessees out of Possession. 411. The- lessees of a railroad, out of possession, who have filed a bill against the lessors to restrain them from in- terfering with the railroad, cannot, pending the equity suit, institute an action of ejectment to recover the railroad.** Settlement of Accounts of Lessee with Commonwealth. 412. In any case where, under the provisions of the act to which this is a supplment, there has been or shall hereafter be made by the auditor-general, state treasurer, and attorney- general, a resettlement of any account of any corporation leasing or operating the works, or owning either the whole or' a majority of the capital stock of another corporation, or whose works are leased or operated, or of whose capital stock either the whole or a majority is owned by another corpora- tion, the credit or charge, as the case may be, resulting from such re-settlement may, with the consent of the proper officers of both companies, be transferred to the account of either of said corporations.^'^ Lease not to be Invalidated by Informality in Execution of Instrument. 413. In case of any duly authorized sale, letting, or mort- gaging by a corporation, the same shall not be invalidated " Pennsylvania Co. v. Erie & Pittsburgh R. R., 108 Pa. 621 (1885). " Pittsburgh, Fort Wayne & Chicago R. R. v. Harbaugh, 4 Brewst. 115 (1870). "Philadelphia & Reading R. R. v. Anderson, 94 Pa. 351 (1880). " Pittsburgh & Connellsville R. R. v. Mt. Pleasant & Broad Ford R. R., 76 Pa. 481 (1874). " Act of May 4, 1876, Sec. i, P. L. loi. LEASE. 457 by any informality in the execution or acknowledgment of any conveyance, mortgage, or other instrument by any ofificer of such corporation for carrying the same into effect: Pro- vided, that no defect in substance shall be deemed to be cured hereby.** " Act of June 8, 1881, Sec. 3, P. L. 69. CHAPTER XXXVI. ;' COLLATERAL ATTACK UPON CHARTER. 414. Charter Cannot be Attacked 416. When Wrongful Assumption Collaterally. of Corporate Powers may 415. Estoppel of Persons Dealing be Attacked. with Corporation. Charter Cannot be Attacked Collaterally. 414. The charter or corporiite existence of a corporation cannot be called in question in a collateral proceeding.^ The certificate of organization of a manufacturing corpo- ration organized under the Manufacturing Corporation Act of April 7, 1845, was regular on its face, and ostensibly all the requirements of the law had been fully met. After the company had begun business the plaintiffs sold a quantity of cotton to it. The price of the cotton not having been paid, plaintiff brought an action of assumpsit against the holders of the stock of the company, charging them as partners. The ground of the recovery against them individually was that the original certificate of incorporation, though apparently regular, was illegal and void, because it did not set forth that ' Workingmen's Building & Loan Assn. v. Coleman, 8 W. N. C. 17 (1879); McConnel v. Gates, 4 Pennypacker, 377 (1884); Travaglini v. Societa Italiane, s Dist. Rep. 441 (1896); Commonwealth v. Pittsburgh & Connellsville R. R., 58 Pa. 26 (1868); Cleveland, Painesville & Ashtabula R. R. v. City of Erie, 27 Pa. 380 (1856); Cochran v. Arnold, 58 Pa. 399 (1868); Garrett v. Dillsburg & Mechanicsburg R. R. Co., 78 Pa. 46s (1875); McConahy v. Centre & Kishacoquillas Turnpike Co., I Penrose & Watts, 426 (1830); Johnston v. Elizabeth B. & L. Assn., 104 Pa. 394 (1883) ; Dorsey Harvester Revolving Rake Co. v. Marsh, 9 Phila. .395 (1873); Mitcheson %>. Harlan, 3 Phila. 385 (1859). 458 COLLATERAL ATTACK UPON CHARTER. 459 the capital paid in was at the time invested in mills, machin- ery, and other property adapted to the purposes for which the corporation was proposed to be organized. The court, however, held that the corporation had at least a de facto existence, and that its charter could not be attacked in this collateral proceeding.- ' Cochran v. Arnold, 58 Pa. 399 (i868). In this case Mr. Justice Strong said: "The plaintiffs are not at liberty to assert in this action that the corporation was not lawfully formed. Though formed under a gen- eral law, it is as against all the world but the Commonwealth, as com- pletely and effectively a corporate body as if it had been created by a special Act of Assembly and by fetters-patent. The Act of April 7, 1849, prescribes what shall be the legal proof of the existence of such a cor- poration. The proof is a certificate of certain things made out as re- quired, recorded in the proper county, with a certified copy of the certifi- cate filed in the office of the Secretary of the Commonwealth, indorsed by him, and then retained by the company. The law declares that when the certificate has been thus recorded and filed, the persons who have signed and acknowledged it, and their successors, shall be a body politic and corporate in fact and in law. No distinction is made between the effect of such a mode of incorporation and the effect of any other mode. If the certificate recorded and filed is false, or if the law has in any par- ticular been violated, the Commonwealth has a remedy by writ of quo ■warranto, as it would in any other case where corporate privileges haye been obtained by fraudulent means or in an illegal manner. But until the franchise claimed and used has been directly adjudged not to exist, there is a corporation de facto at least. If there is anything settled it is that the corporate existence of a corporation de facto cannot be inquired into collaterally. Upon this subject the authorities are too numerous to admit of citation. The plaintiffs do not deny the principle as a general rule, but they contend that they are not applicable to corporations of this character, to those organized by the corporators themselves under a general law, and for support in this position they rely upon Patterson V. Arnold, 45 Pa. 410. Such is the doctrine advanced in that case. But the decision then made was that of a bare majority of the court. It does not profess to rest on a single authority. It is sustained by none, for it is in conflict with the steady course of decision elsewhere, wherever statutes exist, similar to ours of 1849. Very little attempt was made to sustain it by reason, and if it is the law it must work great confusion, and Jead to intolerable mischief. Happily, if it was mistakenly made, we may now correct the mistake without harm to any one. "There is no reason that can be given to such a distinction as is claimed between a charter obtained under the Act of 1849 and one obtained under a special Act of Assembly. In each case corporate power is obtained by act of the corporators, under restrictions imposed by law. When an 460 COLLATERAL ATTACK UPON CHARTER. act authorizes letters-patent to issue after a certificate by commissioners appointed to receive subscriptions to the capital stock, that a certain amount has been subscribed, and a certain proportion paid, the certificate may be false, but nobody ever supposed that the charter obtained by the false certificate is void, or that it may be attacked collaterally. Why then should it not be so in the case of a charter under the Act of 1849? How much more is a charter secured under that act the work of the corporation than is one obtained in the other mode? How much less is the organization under the conduct of the State? Yet that it is less is the only reason attempted to be given in Patterson v. Arnold, why the charter in the one case should be open to collateral attack, and in the other assailable only directly by the Commonwealth. ■'If we look at the consequences of permitting one who deals with a cor- poration formed under the General Manufacturing Law to deny that it ever had any legal existence, or to call in question its right to exercise corporate powers or enjoy corporate privileges, we shall find them to be no less mischievous than such as would follow the doctrine that any corporation may be collaterally attacked by one who has given credit to it, that it is not immunity to its shareholders. Indeed, the mischiefs of such a doctrine are the same, whatever may be the mode of obtaining corporate existence. By one jury a charter may be set aside. By an- other it may be sustained. One creditor may sue the corporation as such, obtain a judgment, and sell its land, himself becoming the purchaser, Another creditor may sue the corporators, alleging that their charter is null, furnishing no immunity to them. He may obtain a judgment and sell the same land to another purchaser as the property, not of the cor- poration, but of the stockholders. In such- a case which purchaser would hold the title? "Again new stockholders may come in, totally ignorant of any fraud or mistake in making out the certificate. Are they to be charged indi- vidually because there was a secret vice in obtaining corporate being? That would be monstrous. It would render the manufacturing law a thing to be avoided, though it expresses a cherished policy of the legis- lature. Yet if a charter can be shown invalid by collateral attack at the- suit of the creditor, why are not new stockholders who have come in after the birth of the corporation equally liable as partners or joint con- tractors with all the original stockholders? Can the charter be effective, and yet not effective? In Patterson v. Arnold it seems to have been thought a charter may be good as to some stockholders and a nullity to others. What confusion must this produce. Some may be sued as partners, and others through the corporation, and under judgments ob- tained executions be levied upon the same property. Or all the original stockholders may go out and give place to successors. Then that which was incurably vicious, because an usurpation upon the Commonwealth has become good. It is impossible, however, that a charter can be good as to some stockholders, and bad as to others. Every one has an in- terest in the property of his associates vested in the common stock. Such. COLLATERAL ATTACK UPON CHARTER. 461 An Act of Assembly authorized nine commissioners or any three of them to organize a bank. After the subscription books had been opened, and subscriptions taken, a majority of the commissioners made a corrupt agreement with a citizen of another State to transfer the franchises to him without any bona fide subscription to the capital stock. A minor- ity of the commissioners, consisting of three persons, pro- ceeded with the organization of the company, and the gover- nor issued letters-patent on the certificate filed by these three persons. The court held that the letters-patent so issued "were valid.^ ' The Act of April 6, 1791, provided that where an instru- ment in writing specifying the objects, articles, conditions, and name of the association are approved by the attorney- general and the Supreme Court, and enrolled according to law, the persons associating become a corporation accord- ing to the objects, articles, and conditions contained in the instrument. It was held in a proceeding- relating to the ex- pulsion of a member that after such an instrument had been duly approved and enrolled, the powers of the corporation had vested, and could not be attacked collaterally.* is his corporate right. If that property can be withdrawn by action against Tiis associates individually, the charter ceases to be to him all that it pur- ports to be." ' Commonwealth v. McKean County Bank, 32 Pa. 185 (1858). Wood- ward, J., said: "The legislature authorized the incorporation of this bank for honest and fair purposes, and it appointed the commissioners to carry the law into effect, in the ordinary manner in which other banking institutions are organized. They were to give all men an equal chance to subscribe stock. When, therefore, the five entered into a written engage- ment to J. R. Robinson to obtain for him the control of a majority of the capital stock, or to return him all the money he may pay on subscrip- tions, they made distinctions in his favor which were partial, unfair, and a violation of the duties they were sent to perform. Their colleagues had a right to separate from them at that point. If they had abjured the prescribed duties altogether — refused to take any part in organizing the bank, or had deputed the three to perform the duties, they would not more effectively have cut themselves off from all right to complain of the proceedings of the three." ' Society for the Visitation of the Sick v. Commonwealth, 52 Pa. 125 (1866). 462 COLLATERAL ATTACK UPON CHARTER. A corporation of Massachusetts owned mining leases in Pennsylvania, sold coal to defendants through an agent, who was known to the defendants as agent of the corporation. It was held in a suit for the price of the coal that defendants could not raise the question of the plaintiff's right to hold the leases. Such a question could only be raised by the Commonwealth.® The charter of a building and loan association canot be at- tacked on a scire facias upon the mortgage to the association.* In an action by a turnpike company to recover tolls, a plea is improper which involves the forfeiture or invalidity of the charter of the plaintiff, for some want of performance of the company or agents of the State.^ Jn an action to recover a stock subscription, acts alleged to work a forfeiture of the charter of the corporation are no defense.* After letters-patent of incorporation have been issued by the Commonwealth, a court of equity cannot prevent by in- junction the organization of the company, although fraud has been committed by some of the parties interested in the incorporation of the company." Estoppel of Persons Dealing with Corporation. 415. A person who deals with a corporation as such can- not in a suit against him by the corporation impeach the validity of the company's charter.^** If a charter has been actually granted to certain persons to act as a corporation, and such persons are in the actual possession and enjoyment of the corporate rights granted, such possession and enjoyment are valid as against one who ° Grant v. Henry Clay Coal Co., 80 Pa. 208 (1876). " Association v. Fenner, 13 Pliila. 107 (1879) I German Ins. Co. v. Strahl, 13 Phila. 512 (1878). ' Dyer & Co. v. Walker & Howard, 40 Pa. 157 (1861). ' Coil t: Pittsburgh Female College, 40 Pa. 439 (1861). "Mitcheson v. Harlan, 3 Phila. 385 (1859). ^"Freeland v. Pennsylvania Central Ins. Co., 94 Pa. 504 (1880); Johnston v. Elizabeth B. & L. Assn., 104 Pa. 394 (1883). COLLATERAL ATTACK UPON CHARTER. 463 dealt with them in their corporate character. Such a person cannot be permitted to prove, in a collateral proceeding, that a condition precedent to the company's full corporate exist- ence had not been complied with.^^ If, however, a corpora- tion fails to record its charter, and persons deal with the com- pany without knowledge of the charter, they may hold the members liable as general partners.*^ When Wrongful Assumption of Corporate Powers may be At- tacked. 416. Although the corporate existence of a corporation or- ganized in good faith but not in strict compliance with the law cannot be inquired into in a collateral proceeding, yet the fraudulent assumption of the franchises and powers of a corporation for the purpose of deceiving others, may be inves- tigated at the instance of a person injured without waiting for the action of the attorney-general. Thus where persons dis- inter an old charter that had never been accepted, and had long lain dormant, and personated the original incorporators and covertly organized a corporation under their name, and pro- cured deposits as if the organization was a legitimate savings institution, the persons engaged in the transaction maybe held liable as general partners by a decree of a court of equity.^' " Spahr V. Farmers' Bank, 94 Pa. 429 (1880). ""Guckert v. Hacke, 159 Pa. 303 (1893); McFall v. McKeesport & Youghiogheny Ice Co., 123 Pa. 253 (1889). "Leflfman v. Flanigen, 4 Phila. 316 (1861). In this case Judge Hare said: "Whether a corporation, organized bona fide, is or is not properly organized, is in general, perhaps universally, a matter which belongs wholly to the public, and cannot be investigated at the suit or instance of private persons. And those who assume the management or stand at the head of a public or private corporation, may act without danger, so long as they act in good faith, and are not responsible except to the cor- poration itself, or the Commonwealth, for defects or informalities which have their origin in ignorance or neglect, and not in a formed and de- liberate design to defraud. But the fraudulent assumption of corporate powers, for the purpose of deceiving or injuring others, stands on a dif- ferent footing, and cannot be allowed to go unpunished, without throw- ing the door open to evil practices, which might become too common if it were once judicially established, that they may be allowed with the chance of success, and without danger of punishment in case of failure." CHAPTER XXXVII. DISSOLUTION. 417. Voluntary Dissolution Under Act of 1856. 418. In What County Proceedings to be Instituted. 419. No Dissolution Until Payment of Taxes. 420. Power of Majority to Dis- solve. 421. Stockholders' Meeting to Authorize Dissolution. 422. What Courts Have Jurisdic- tion to Dissolve. 423. All Classes of Corporations may be Dissolved by the Courts. 424. Notice of Application for Dis- solution. 425. Practice Under the Act of 1856. 426. Surrender and Abandonment of Franchises. 427. Dissolution by Consolidation. 428. Consolidation of Corporations of the First Class. 429. Dissolution by Judicial Sale. 430. Dissolution by Proclamation of the Governor. 431. When Dissolution Will not be Allowed. 432. Failure to Elect Officers Does not Work Dissolution. 433. Division of Property. 434. Sale of Real Estate After Dis- solution. 435. Suits After Dissolution. 436. Trustees of Dissolved Com- panies. Voluntary Dissolution Under Act of 1856. 417. It shall be lawful foranyCourt of Common Pleas of the proper county to hear the petition of any corporation under the seal thereof, by and with the consent of a majority of a meeting of the corporators, duly convened, praying for per- mission to surrender any power contained in its charter, or for the dissolution of such corporation; and if such court shall be satisfied that the prayer of such petition may be granted without prejudice to the public welfare, or the interests of the corporators, the court may enter a decree in accordance with the prayer of the petition, whereupon such power shall cease or such corporation be dissolved: Provided, that the surrender of any such power shall not in any wise remove 464 DISSOLUTION. 465 any limitation or restriction in such charter; and that the accounts of the managers, directors, or trustees of any dis- solved company shall be settled in such court, and be ap- proved thereby; and dividends of the effects shall be made among any corporators entitled thereto, as in the case of the accounts of assignees and trustees: Provided further, that no property devoted to religious, literary, or charitable uses shall be diverted from the objects for which they were given or granted: Provided^ that the decree of said court shall not go into effect until a certified copy thereof be filed and recorded in the office of the secretary of the Commonwealth.^ In What County Proceedings to be Instituted. 418. The "proper county" intended by said act, approved as aforesaid, may be, at the option of any corporation praying for permission to dissolve in the way and manner in said act designated, either the county in which the principal opera- tions of the corporation are conducted, or that county in which its principal office or place of business is located: Pro- vided, that notice of said application shall be given by publi- cation in two papers in the county in which the principal oper- ations are conducted and that in which the principal office is located.* TSfo Dissolution Until Payment of Taxes. 419. No corporation, company, joint stock association, as- sociation, or limited partnership, made taxable by this act, shall hereafter be dissolved by the decree of any Court of Common Pleas, nor shall any judicial sale be valid or a distribution of the proceeds thereof be made until all taxes due the Common- wealth have been fully paid into the State treasury, and the certificate of the auditor-general, state treasurer, and attor- ney-general to this effect filed in the proper court with the proceedings for dissolution or sale.* ' Act of April 9, 1S56, P. L. 293. By the Act of April 29, 1874, Section 39, Clause 10, P. L. 103, relating to mechanical, mining, quarrying, manu- facturing, and other corporations, it is provided that "the Court of Com- mon Pleas of the proper county shall have same power to dissolve such corporations upon petitions filed under the corporate seal, which it now has with regard to other corporations." ' Act of April 4, 1872, Sec. I, P. L. 40. See Commonwealth v. Slifer, 53 Pa. 71. " Act of June i, 1889, Sec. 32, P. L, 437. 30 4.66 DISSOLUTION. Power of Majority to Dissolve. 420. The majority of the stockholders of a corporation have the power to dissolve it.* A corporation is not dissolved by the fact that a portion of its members assembled without notice, and in an irregular manner, and favored the disbanding of the company.* Persons who procure the dissolution of a corporation and acquire possession of its assets by means of false representa- tions that they were the owners of the entire stock of the company are liable in equity to be decreed trustees ex makficio as respects bona fide stockholders.* Stockholders' Meeting to Authorize Dissolution. 421. The courts of equity may supervise a stockholders' meeting where the subject for consideration at the meeting is the dissolution of the company.'' * McCurdy v. Myers, 44 Pa. 535 (1863) ; Titusville Oil Exchange v. Witherop, 2 Super. Ct. 508 (1895). "Bethlehem v. Perseverance Fire Co., 3 W. N. C. 104 (1876); Titus- ville Oil Exchange v. Witherop, 2 Super. Ct. 508 (1895). " Bailey's Ap., 96 Pa. 253 (1880). 'Titusville Oil Exchange Dissolution, 2 Super. Ct. 508 (1896). In this case Judge Smith said: "The equity jurisdiction . . . extends to super- vision of corporate elections, even to the appointment of a master to conduct an election: Goviren's Ap., 10 W. N. C. 85 (1881); Baker's Ap., 109 Pa. 461 (1885); Tunis v. Pass. R. R. Co., 149 Pa. 70 (1892). It does not, however include the power to determine the validity of an election . of directors; this can be adjudicated only at law, on a writ of quo warranto: Jenkins v. Baxter, 160 Pa. 199 (1894) ; Bedford Springs Co. v. McMeen, 161 Pa. 639 (1894). "But the writ of quo warranto is wholly inapplicable when the election is to make choice, not of a person, but of a policy— to decide on the adoption or rejection of a proposed measure; for example, on the amend- ment or renewal of the corporate charter, the adoption or amendment of by-laws, the reduction or increase of capital stock, the issue of pre- ferred stock, a change of the location of the principal office, of the time and place of meetings and elections, of the number of directors, of their terms of office, or the dissolution of the corporation. Unless the courts may, in the exercise of the equity powers conferred by the statute, ■ supervise the proceedings by which the stockholders elect the course they will pursue with respect to these and similar matters, it is manifest that DISSOLUTION. 467 great injustice may be done through irregularity, fraud, or violence with no adequate remedy at law. "There are certain statutory provisions regulating, in part, the choice of oiRcers, and the decision on a proposed increase or reduction of the capital stock. But the Acts of Assembly are entirely silent as to the manner of conducting elections on other questions, and as to the mode of receiving and recording the votes cast at any election. "The supervision of corporate elections, on the points left unsettled by the legislature, is necessarily part of the duty with which the courts are charged in the exercise of the jurisdiction conferred by the statute. The aim of this supervision is to secure a free and full expression and an accurate record of the will of the stockholders on the subject of the election. For this purpose it is not necessary to lay down hard and fast rules of procedure. It is sufi'icient in the main to indicate guiding principles. "Upon a question so vital to the corporation as that of its dissolution, it is not too much to say that the proceedings should be, at least, as deliberate and orderly, and with as full an opportunity for participation by the stockholders, as on an election of officers, or on the question of an in- crease or reduction of capital stock, or an issue of preferred stock. The most exacting of the statutory provisions relating to such elections are not too much to ask when the existence of the corporation is put at stake. With respect to the notice, no more may be demanded than is fixed by the Act of April 4, 1872, P. L. 40. But the requirement of that act — 'publication in two papers in the county' — is indefinite as to the period of notice; a literal compliance would permit the election on the day follow- ing publication. In the absence of direction on this point, in the Act of 1872, the shortest notice of election for any purpose directed by later statutes reasonably indicates the minimum period with which this omis- sion should be supplied. With respect to the proceedings of the judges, the statutory requirements in relation to other elections apply with equal force to an election to decide a question as important as that of dissolu- tion. With respect to the balloting it is manifest that it should be so conducted as to give every stockholder an opportunity of voting, to ascertain that every one who offers a vote is legally entitled to cast it, to challenge every vote which he may believe to be illegally offered, to see that the votes are fairly counted, and that the record of the election shows accurately the results of the ballot. To this end the stockholders are entitled to free access to the books of the corporation, so far as may be necessary for the requisite information, particularly in relation to the ownership and transfer of stock. An election conducted in conformity with the principles thus indicated is reasonably calculated to insure an adequate expression of the views of the stockholders. "In the case before us, the petition shows a prima facie case requiring a decree of dissolution. Members of the corporation have, however, a clear right to show that the facts are otherwise than as set forth in the petition, and that, from irregularity, fraud, or other cause, the election, 468 DISSOLUTION. What Courts Have Jurisdiction to Dissolve. 422. The appropriate Court of Common Pleas to decree the dissolution of a corporation is the court of a county in which the corporation has its principal office.* The Court of Common Pleas of Dauphin County has, under the Act of April 4, 1873, P. L. 20, jurisdiction to close the business of insurance companies located in any county of the Commonwealth.® A corporation cannot be dissolved under the Act of April 9, 1856, although incorporated by the legislature of Penn- sylvania, if its principal offices and place of business are in other States.^" All Classes of Corporations may be Dissolved by the Courts. 423. The Act of April 9, 1856, P. L. 293, relating to the dissolution of corporations, does not restrict the power of the Courts of Common Pleas to any particular class of corpora- tions. Such courts may dissolve not only corporations organ- as returned, failed to exhibit the purpose of a majority of the stock- holders. This right is to. be exercised by becoming parties to the pro- ceeding, and laying before the court the grounds of objection. "The Act of April 9, 1856, P. L. 293, on which the proceeding is based, in providing for an application to the Court of Common Pleas, must be mnderstood as referring to the equity jurisdiction given to that court in the supervision of corporations by the Act of 1836. Though the peti- tion was not addressed to the court, sitting in equity, it must be regarded as a bill in equity, since the jurisdiction of the court is wholly in equity, and the proceedings must be held to conform to the practice in equity. The answer, though inartificially drawn, discloses matters of substance, bringing into question the validity of the election; and it may be amended, if necessary, in accordance with the equity rules. The cause must be viewed as heard on bill and answer, and in this aspect the answer, which must be taken as true, alleged sufficient to bar the plaintiff's right to the decree prayed for. The plaintiff may by replication raise an issue as to the allegations in the answer, and thereupon the cause may come on for hearing upon evidence pertinent to the issue." 'Commonwealth v. Slifer, 53 Pa. 71 (i866). •Mahoney Mutual Assessment Life Assn. v. Commonwealth ex rel. Attorney-General, 14 W. J^. C. 370 (1883); Commonwealth v. Pennsyl- vania, Slatington & New England R. R., 14 W. N. C. 60 (1883). '° Credit Mobilier Case, lo Phila. 2 (1873). DISSOLUTION. 469 ized under their own decrees, but also corporations whose charters are based upon special acts, or have been granted by the State under general corporation laws.*^ Notice of Application for Dissolution. 424. Advertisement of notice of an application for dissolu- tion of a corporation should be published for three weeks, and if the corporation has had a place of meeting in a county other than that in which its principal business was conducted, ad- vertisement should be made in both counties.^ ^ A petition for the dissolution of a religious corporation and the transfer of its property to another corporation should be advertised for two weeks in two papers of general circulation and running twice a week, and the advertisement should specify the day when the application will be made.*^, A notice of a stockholders' meeting for the purpose of dis- solving the company should be at least as long as that which is required for a meeting for an increase or reduction of the capital stock.i* A corporation cannot be legally dissolved by an irregular meeting of a portion of its members, assembled without no- tice resolving to disband. The manner of dissolving a corpo- ration is prescribed by the Act of April 9, 1856, which pro- vides that a corporation may be dissolved on its own petition by the Common Pleas of the proper county.^" traetice Under the Act of 1856. 425. An application for dissolution of a corporation under "Commonwealth v. Slifer, 53 Pa. 71 (1866); Credit Mobilier Case, 10 Phila. 2 (1873). "The S. Ashton Hand Mfg. Co., S Pa. C. C. R. 400 (1888); Philadel- phia Straw Braid Sewing Machine Co., 6 Pa. C. C. R. 65 (1888). See Section 418. supra. "St. Ambrose Church, 4 Pa. C. C. R. 272 (1887). " Titusville Oil Exchange Dissolution, 2 Super. Ct. 508 (1896) ; Sewing Machine Co., 21 W. N. C. 187 (1885); Manufacturing Company, 22 W. N. C. 2Z (188s): Hand Manufacturing Co., 5 Pa. C. C. R. 400 (1888). " Bethlehem Borough v. Perseverance Fire Co., 81 Pa. 445 (1876). 470 DISSOLUTION. the Act of April 9, 1856, P. L. 293, is on the equity side of the court, and the petition must be regarded as a bill and the pro- ceedings must conform to the practice in equity.^* In applying for a dissolution of a corporation it is neces- sary that the petition should be by the corporation under the corporate seal. A petition by the members is not sufficient." A petition for dissolution set forth that two churches were of the Episcopal denomination; that the Church of the Cove- nant had invited the members of the Church of St. Ambrose to become members of that church, and had also formally requested a transfer and conveyance as aforesaid. The peti- tion further averred that the members of the Church of St. Ambrose were generally agreed to accept the invitation, and that the vestry and congregation of said church had, by formal resolutions unanimously passed, agreed to dissolve their cor- poration and to convey and transfer their property as above. It was further averred that the above course of proceedings was for the best interests of both churches. The court entered a decree in accordance with the prayer of the petition.^* The existence of a corporation can only be brought in ques- tion by plea in abatement.^' Surrender and Abandonment of Franchises. 426. Corporations have a right to surrender their fran- chises.^" " Titusville Oil Exchange Dissolution, 2 Super Ct. 508 (1896). " Marietta Building & Loan Assn., 10 Lancaster Bar, 37 (1878). "St. Ambrose Church, 20 W. N. C. 317 (1887). "" Lehigh Bridge Co. v. Lehigh Coal & Navigation Co., 4 Rawle, 7 (1833). "•' Lauman v. Lebanon Valley R. R., 30 Pa. 42 (1858); Houston v. Jef- ferson College, 63 Pa. 428 (1869). In the latter case Chief Justice Thomp- son said: "The general right of a private corporation to surrender its franchises may possibly have exceptions, but undoubtedly it is the rule. This is generally described as an inherent right, which would necessarily defeat any attempt by legislation to enforce upon a corporation qualities of perpetuity. Such a thing would be impossible in the nature of things. Corporations, like individuals, die by decay, or loss of their vital func- tions, and this eflfectually defies authority to render them perpetual. A DISSOLUTION. 471 They may also abandon their franchises ;^^ and such an abandonment may be shown by non-user;*^ but the temporary non-user of property of a corporation does not divest the rights of the company therein.^* A corporation chartered for two purposes may abandon Dissolution by Consolidation. 427. Where a corporation sells all its property and fran- chises to another company and accepts for its members shares in the purchasing company, the first is merged in the second and such a merger is a dissolution.^* A union or consolidation of a corporation with other corpo- rations under a law which continues all the liabilities of the company is not such a dissolution of the corporation as will abate an action instituted before the consolidation is ef- fected.^' A railroad company formed by the consolidation and mer- ger of two or more railroad companies, is responsible for the surrender of a franchise is a voluntary death of the corporation, and is one mode by which it may cease to exist: 19 Johns. 474, 8 Pet. 381. If anybody ever did dispute the right of a corporation to surrender its franchises of its own mere motion, it is not likely that such a contest about the question could be long maintained, where both parties, the State and the corporation, the grantor and grantee, consent to it, abso- lutely, or on condition." '^ Lauman v. Lebanon Valley R. R., 30 Pa. 42 (1858). " Commonwealth v. New York, Lake Erie & Western Coal & R. R. Co., 10 Pa. C. C. R. 129 (1890) ; Girard College Pass. Ry. v. 13th & isth Sts. & Union Pass. Ry., 7 Phila. 620 (1869); Great Bend Road, 2 Pa. C. C. R. 335 (1886); People's Pass. Ry. v. Marshall Street Pass. Ry., 8 Pa. C. C. R. 273 (1890); Commonwealth v. Penna. R. R., 51 Pa. 3S1 (i86s). "" Bethlehem Borough v. Perseverance Fire Co., 81 Pa. 44s (1876). "■' Keller v. Northern Liberty Mut. L. & L. Ins. Assn., 2 W. N. C. 365 (1876). " Lauman v. Lebanon Valley R. R., 30 Pa. 42 (1858). There must be legislative authority for the consolidation: Home Friendly Society v. Tyler, 9 Pa. C. C. R. 617 (1891). " Baltimore & Susquehanna R. R. v. Musselman, 3 Grant, 348 (1856). 472 DISSOLUTION. debts and liabilities of each of the merging companies accru- ing prior to the consolidation.^'' Consolidation of Corporations of the First Class. 428. And if any two or more such corporations shall desire to consolidate and merge with each other, or one or more within the other, upon application to the Court of Common Pleas of the county in which the corporation is situated, into which the one or more desire to merge or become consoli- dated with the same, proceedings shall take place as are re- quired on an application to amend; and upon decree being made by said court, and the same being recorded in said county, upon the terms specified in said application, the said corporations, with all their rights, privileges, franchises, pow- ers, and liabilities, shall merge and be consolidated into, by the name, style, and title given to the same in such decree, and upon the terms, limitations, and with the powers stated and conferred in said application and decree.^* Dissolution by Judicial Sale. 429. A sale of the rights of the franchises of a corporation under the special fi. fa. provided by the Act of April 7, 1870, dissolves and extinguishes the corporate existence and no action can be maintained against the company thereafter.^* Dissolution by Proclamation of the Governor. 430. The proclamation of the governor under the Act of June 7, 1879, worked a dissolution of corporations with like effect as if they had been dissolved.*** When Dissolution Will not be Allowed. 431. The court will not dissolve a corporation under the " Root & Rust V. Oil Creek & Allegheny River R. R., 2 Leg. Chron. Rep. 134 (1874): Lathrop v. Junction R. R., 9 W. N. C. 277 (1879). " Act of April 17, 1876, Sec. 12, P. L. 37, amending Act of April 29, 1874, Sec. 42. ™ Reifler v. Honesdale & Delaware Plank Road Co., i Pa. C. C. R. 64 (1885). ™ Anonymous, 2 Chester Co. Rep. 80 (1883). Incorporated fire com- panies were not dissolved by the establishment of a paid fire department in the city of Philadelphia: Commonwealth v. Reliance Fire Co., 31 Leg. Int. 46. See Lehigh Water Co.'s Ap., 102 Pa. 518 (1883); Lumber Co. v. Commonwealth, 100 Pa. 438 (1882). DISSOLUTION. 473 Act of April 9, 1856, if the dissolution will prejudice the pub- lic welfare, or the interests of the stockholders. The act seems to look to the dissolution of a corporation only when its affairs are settled up, so that nothing remains to be done but to divide the effects among the stockholders.*^ Failure to Elect Oflacers Does not Work Dissolution. 432. The loss of an integral part of a corporation works a dissolution only for certain purposes; the corporate franchise being suspended, but not extinguished. An entire dissolution being the consequence of permanent incapacity to restore the deficient part, never happens where the legitimate existence of the part is not indispensable to a valid election, or other means of reproduction. Thus the failure of the corporation to elect officers does not work a dissolution, and this is especially the case where there are de facto ofificers in charge of its afifairs.®- "The stockholders constitute the company and the mana- gers and ofificers are their agents, necessary for the conduct and management of the aflfairs of the company, but not essen- tial to its existence as such, nor forming an integral part. The corporation exists per se, so far as is requisite to the mainte- nance of perpetual succession, and holding and preserving its franchises. The non-existence of the managers does not im- ply the non-existence of the corporation. The latter is dor- mant during that time; its functions are suspended for want of the means of action; but the capacity to restore its func- tionaries by means of election remains. The total dissolu- tion of a body politic, its political death and resolution into its original elements, would be attended with such moment- ous consequences, that it ought not lightly to happen. Not only would it afifect its property, rights, and responsibilities, but the be;neficial purposes for which it was created would be frustrated, and the community, as well as individuals holding " Credit Mobilier Case, 10 Phila. 2 (1873). "^ Lehigh Bridge Co. v. Lehigh Coal & Navigation Co., 4 Rawle, 7 (1833); Commonwealth v. Cullen, 13 Pa. 132 (1850). 474 DISSOLUTION. stock, be injured. No class of corporations would be ex- empt. Whether religious, charitable, or literary; whether for turnpikes, bridges, banks, insurances, canals, railroads, or any other purpose, all must be embraced within the rule; and if, by accident, inadvertence, or design, there is one omission to elect managers on the day appointed, or the election made is A-oid, the whole edifice of the corporation falls into ruins, and can only be constructed by legislative interference; even then, perhaps, after a lapse of time, and with some doubts as to its power to revest former rights, and to restore its identity. I see no reason why the company may not retain all their rights, powers, and privileges, though there be a suspension of a power of action; nor why this power of action though dor- mant for a time, may not be revived by a new election of the managers and officers competent to carry on its affairs con- formably to the direction of the charter. That may be done on the day appointed by the act, it not being required that the managers, officers, or any other persons should preside at, or do any act in reference to the election, which is con- ducted entirely under the control of the stockholders." ** Division of Property. 433- Upon dissolution the property is divided among the stockholders in accordance with the provisions of the char- ter or by-laws. If there is no such provision, equity defines the rights of the proprietors. Under the by-laws and articles of association of a mining corporation it was provided that a portion of the stock should be liable for assessment for the purpose of developing mines, and that the balance should remain the property of the cor- poration until sold, and should be unassessable. It was also provided that dividends of profits should be declared and paid, after the whole amount of assessments on assessed shares shall be reimbursed to the holders, and that the directors should " Rose V. Turnpike Co., 3 Watts, 46 (1834). Per Sergeant, J. DISSOLUTION. 475 as soon as the condition of the funds and the interest of the company would permit reimburse said assessed shareholders out of any surplus money in hand. There was no provision for dissolution and division of the corporate property. The business proving unprofitable the stockholders agreed to dis- solve and divide the property amongst them. The holders of the assessed shares claimed that their assessments should be repaid before any dividend was awarded to the unassessable stock. The court, however, rejected the claim, and awarded the fund pro rata amongst ajl the stockholders. Lowrie, C. J., said: "The proprietors have made no express provision in their articles for winding up the concern, and therefore equity may define this process for them. But equality is equity, and we must adopt equality unless we have clear rea- son for doing otherwise, and we find none such. According to the express terms of the association, it seems to us that the new stockholders were to be at least equal sharers in the capi- tal, and that they must have purchased on this supposition, and equity will not assume inequalities or preferences in such matters further than it finds them contracted for. The old stockholders have contracted for a preference out of the profit, but not out of the capital stock or basis of the opera- tions of the company, and there is nothing revealed to us that satisfies that they ought to have it." ** A corporation cannot divide the corporate property as long as it continues to exist as a corporation, and has debts unpaid. Before such distribution can take place the provisions of the " North American Mining Co. v. Clarke, 40 Pa. 432 (1861). "After the charter of a corporation has expired the corporation cannot maintain a suit. At common law, upon the civil death of a corporation, its real estate remaining unsold reverts to the grantor and his heirs, for the reversion in such an event is a condition annexed by the law inas- much as the cause of the grant has failed: Co. Lit., 13 b, 102 b. The per- sonal estate in England vests in the King, and in our country in the people or State. The debts due to it, and from it, are totally extinguished, so that neither the members nor directors of the corporation can re- cover or be charged with them in their natural capacities." Per Thayer, J., in Building Association v. Anderson, 7 Phila. 106 (1868). 476 DISSOLUTION. Act of April 9, 1856, P. L. 293, must have been complied with.^^ A corporation organized for a purely charitable purpose cannot be dissolved for the purpose of dividing its property among its members. Thus the constitution of a corporation^ entitled "The Society for the Visitation of the Sick and the Burial of the Dead," provided that '.'after the decease of all the members, the property of the society shall be transferred to the oldest Jewish congregation in the city of Philadelphia for a due administration, and the interest arising therefrom to be expended for the relief of the Jewish poor." It was held that this corporation could not be dissolved for the pur- pose of dividing its property among its members.** Where a corporation organized for a charitable purpose has ceased its operations, sold its property, and holds the proceeds thereof subject to the order of the court, the wishes of the persons who contributed to the fund by which the property was acquired are not absolutely controlling upon the court, but the court may award the fund in its discretion to a society whose objects are more in accord with that of the original corporation than the society suggested by the con- tributors.*'' An incorporated fire company chartered for the protection of property in a borough from fire is a corporation public in character, and upon its dissolution, its property cannot be divided among its members.** A fire company located in a borough was the owner of property. The borough purchased a fire engine and placed it in the charge of the company. Upon a disagreement with the borough authorities a number of members of the com- "^ Riddell v. Harmony Fire Co., 8 Phila. 310 (1871). "° Mayer v. The Society for the Visitation of the Sick and the Burial of the Dead, 2 Brewster, 385 (1868). " Commonwealth v. Pauline Home, 141 Pa. 537 (1891). •* Bethlehem Borough v. Perseverance Fire Co., 81 Pa. 445 (1876) ; Humane Fire Co.'s Ap., 88 Pa. 389 (1879); Neptune Hose Co.'s Ap., 6' Leg. Gaz. 79. dissolution; 477 pany assembled without notice and resolved to disband. The authorities, assuming that they had disbanded, took posses- sion of the property and delivered it to a company composed of a portion of the same members and assuming to act under the same charter. It was held that the act of the authorities was illegal; they had no right to the possession of the prop- erty.*® The capital and assets of a corporation constitute a trust fund and pledge for the payment of creditors and stockhold- ers, and a court of equity will lay hold of the fund and see that it be duly collected and appHed.*" Sale of Real Estate After Dissolution. 434. Whensoever it has occurred or shall happen that any corporation has been or shall be dissolved, whether by decree of court, expiration of time, or otherwise, owning land or other real estate within this Commonwealth, it shall and may be lawful for the Court of Common Pleas of the county, wherein the real estate is or shall be located, upon the peti- tion of any one or more of the shareholders or corporators, and personal notice to and service upon all known parties in interest whose place of residence are known, and such further notice by advertisement to others interested, as the court may direct, if no reasonable and sufficient cause be shown to the contrary, to authorize the sale of such real estate in fee simple, at either public or private sale, upon such terms as the court may designate, by a trustee to be appointed for that purpose; which trustee, before making such sale, shall give security, for the faithful application of the proceeds of such sale according to law, to be approved by the court in double the probable value of the land to be sold, and the proceeds of such sale shall be distributed by the party making the same, as part of the effects of the defunct corporation to creditors or shareholders, as the said court may adjudge them to be entitled, and if said corporation had made sale of real estate, and had not conveyed the same, such court may decree con- veyance in specific execution of such contract in manner aforesaid: Provided, that the petition aforesaid shall be pre- " Bethlehem Borough v. Perseverance Fire Co., 81 Pa. 445 (1876). *° Credit Mobilier Case, 10 Phila. 2 (1873). 478 DISSOLUTION. sented within one year, and decree granted thereon within three years, after the aforesaid dissolution; except in cases where the dissolution has occurred prior to the passage of this act, when the petition shall be presented within one year, and decree granted thereon within three years from and after the passage of this act.*^ Suits After Dissolution. 435. Suit may be brought in the name of the corporation after the corporation has been dissolved.*^ A warrant of attorney executed by the officers of a build- ing association, after the expiration of its charter to carry on a suit already instituted, is valid.*' After the dissolution of a corporation or the expiration of its charter a scire facias on a mortgage cannot be issued in the corporate name.** If a charter of a corporation sued in foreign attachment is forfeited before judgment is rendered against the corpo- ration, the attachment is dissolved.*" In an action by a bank on a promissory note the defendant cannot allege that the charter of the bank was forfeited by reason of the failure of the bank to comply with the provisions " Act of June 25, 1885, P. L. 178. " Building Assn. v. Long, i W. N. C. 391 (1875). See Credit Mobilier Case, 10 Phila. 2 (1873). " Harmony Bldg. Assn. v. Berger, 17 Phila. 314 (1884). In this case Judge Arnold said: "While the association plaintiff may no longer have any legal existence, and have closed up and gone out of business, yet it may maintain suits to enable it to wind up its afifairs, just as it is doing in this case. It is not alleged that the association has been dis- solved, for in that case a receiver or sequestrator would have been ap- pointed, and the liability of the defendant would have been enforced by him. Neither the expiration of a charter nor the dissolution of a corpo- ration works a release of obligations due to it, but they continue in full vigor, and may be collected by officers duly authorized by law to take charge of its assets and distribute them among the parties thereto. Such officers are likened to the administrators of dead men or the committees of lunatics.'' " Cooper V. Oriental Savings & Loan Association, 100 Pa. 402 (1882). See Hock Age Mut. Ins. Co. v. Becker, i W. N. C. 185 (1875). " Farmers' & Mechanics' Bank v. Little, 8 Watts & Serg. 207 (1844). DISSOLUTION. 479 of certain Acts of Assembly. For the purpose of collecting the debts of the company the charter may still continue in existence, notwithstanding that it may have been forfeited for failure to comply with the law.** After an attachment against a corporation had been issued, but before judgment had been obtained upon it, the corpora- tion was dissolved, and a receiver was appointed. It was held that an attachment should be set aside, and the property handed over to the receiver.*^ Where, in the course of the dissolution of a corporation, an agreement is made relating to a fund which is to be dis- tributed amongst the stockholders, suit may be brought to enforce the contract in the name of the corporation to the use of individual stockholders.*^ Trustees of Dissolved Companies. 436. A trustee of the dissolved corporation appointed to state an account of the corporate afifairs cannot be surcharged with debts, expenses, and losses incident to the management of the company by its directors and stockholders, before the dissolution of the corporation.*® "Irvine v. Lumbermen's Bank, 2 Watts & Serg. 190 (1841). " Frailey v. Central Fire Ins. Co., 9 Phila. 219 (1874). " Brooks V. Brooks, 174 Pa. 519 (1896). "Phila. Shoe Mfg. Co.'s Est., 2 Dist. Rep. 581 (1893). CHAPTER XXXVIII. FORFEITURE OF CHARTER. Reservation of Right to For- feit Charter. Forfeiture Must be Declared in Direct Proceedings. Power of Court to Determine Corporate Rights. Corporations Violating Con- ditions of Charter to be Proceeded Against. Quo Warranto. When Common Pleas may Issue Writ of Quo War- ranto. Proceedings Against Corpo- rations in Supreme Court. 444. Attorney-General Authorized to Proceed in Certain Cases. 445. When Charter will not be Forfeited. 437. 438. 439- 440. 441. 442. 443- 446. When Charter will be For- feited. 447. Void Charter. 448. Failure to Carry Out Char- tered Purpose Within Time Specified by Act. 449. When Work to be Com- menced and Completed. 450. Time Limit for Organization and Payment of Capital Stock. 451. Charter Repealed by Consti- tution of 1874. 452. Appointment of Receiver After Forfeiture. 453. Disposition of Property After Forfeiture. Beservation of Right to Forfeit Charter. 437. A charter cannot be revoked against the consent of the corporation, except when power to do so is reserved.* Where it is expressed in an act of incorporation, or in a general statute in force at the time of the grant, or in the Constitution of the State that the legislature shall have the power to alter, revoke, or annul the charter of incorporation, but in such manner that no injustice shall be done to the cor- ' Commonwealth v. Pennsylvania Canal Co., 66 Pa. 41 (1870); Allen v. Buchanan, 9 Phila. 283 (1873); Commonwealth v. United States Bank, 2 Ashmead, 349 (1841). 480 FORFEITURE OF CHARTER. 481 poration, such provision is a condition of the grant, or one of the terms of the contract.^ An ilhistration of the exercise of the right to change or alter a charter is found in the Act of January 15, 1802, in- corporating Jefiferson College. In the eighteenth section of the act it is provided "that the constitution of the college hereby and herein established shall be and remain the irre- vocable constitution of said college forever, and the same shall not be altered by any ordinance, or by-law of the trus- tees, nor in any other manner than by an act of the legislature of the Commonwealth." This act was construed in Houston &. Jefiferson College, 63 Pa. 428 (1869), and it was held to be a sufficient reservation to the legislature to alter the charter. By the Act of September 15, 1784, the legislature of Penn- sylvania passed an act, entitled "An Act to establish and in- corporate a public school at Germantown, in the county of Philadelphia." The act provided as follows: "Nor shall the constitution of the said school hereby established be ever altered or alterable by any by-law or ordinance of the said trustees, or in any other manner than by an act of the legisla- ture of this State." It was held that an act of the legislature passed in 1837 repealing and changing certain provisions of the Act of 1784, was a valid action of legislative power.* Under the Constitution of the United States and the de- cisions of the Supreme Court, a charter is ordinarily a con- tract; but a charter which is revocable at the will of the grantor is only a quasi contract, and approaches much more closely to the character of a license. To such a charter the rule of the Dartmouth College case does not apply, and the decisions are uniform to this efifect. A charter granted after the constitutional amendment of 1857, which provides that the legislature may alter or revoke any charter whenever in their opinion it may be injurious, is a revocable charter, not ' Chincleclamouche Lumber & Boom Co. v. Commonwealth ex rel. Attorney-General, 100 Pa. 438 (1882). ' Commonwealth v. Bonsall, 3 Whart. 559 (1838). 31 482 FORFEITURE OF CHARTER. protected as a contract by the provision of the Constitution of the United State, forbidding the States to pass any laws violating the obligations of contracts. Where a question arises as to the revocation of such a charter the legislature is the final and absolute judge of what is injurious to the pub- lic* Under the constitutional amendment of 1857 and Article XVI, Section 10, of the Constitution of 1874, the legislature may alter or revoke any charter "whenever in their opinion it may be injurious to the citizens of this Commonwealth." In such a case the legislature is the final and absolute judge of what is injurious. In Wagner Institute v. Philadelphia, Mr. Justice Mitchell said: "But it is argued that the legis- lative right of revocation only exists when the privileges granted become 'injurious to the citizens of the Common- ' wealth,' and that the legislature is not the final and absolute judge of what is so injurious. Expressions from the opin- ions of this court in several cases are cited in support of this argument, but none of the decisions, examined upon their facts, really sustain the contention of the appellant here. The strongest expression is found in Commonwealth v. Railroad Co., 58 Pa. 26 (1868), where Sharswood, J., says: 'That case (Erie, etc., R. R. Co. v. Casey, 26 Pa. 287, 1856), must be considered as authority in this State for the position that the legislature is not the final judge of whether the casu& iaderis, upon which the authority to repeal is based, has oc- curred.' This language is quoted with approval by Gordon, J., in Hays v. Commonwealth, 82 Pa. 523 (1876), and this lat- ter case, in turn, by the present Chief Justice, in Williamsport Pass. Ry. Co.'s Ap., 120 Pa. 12 (1888). But in Common- wealth V. Railroad Co., the charter involved was granted be- fore 1857, and by its terms limited the power of repeal to the contingency of 'misuse or abuse of the privileges granted,' and it was of this provision that Justice Sharswood used the language quoted. The case itself turned on the railroad com- * Wagner Institute v. Philadelphia, 132 Pa. 612 (i8go). FORFEITURE OF CHARTER. 483 pany's denial of any violation of its charter since a condoning statute, and the admission of the truth of that defense by the Commonwealth's demurrer. Hays v. Commonwealth, and Williamsport Pass. Ry. Co.'s Appeal, decided only that the present Constitution does not repeal charters previously granted, and the general language of the opinions is used with reference to the intent of the instrument, rather than to the power to repeal if the intention to do so were clear. "The language of the constitutional amendment of 1857 is that the legislature may alter or revoke any charter whenever 'in their opinion it may be'injurious.' The same language is repeated in the present Constitution, Article XVI, Section 10. Exemption from taxation is a subject of inherent public inter- est. It is a diminution of the supreme prerogative of the State to raise the revenue necessary to its existence. It is at all times a legislative question, and we do not see how the right of the legislature to determine whether, in any particular class of cases an exemption is 'injurious to the Common- wealth,' can be doubted, and by the first section of Article IX of the Constitution, the legislature is imperatively re- stricted to dealing with it by general laws. We think it clear, therefore, that the legislature, under the authority reserved by the Constitution of 1857, could at any time repeal the exemp- tion in the plaintifif's charter, and do so by a general law." ® Forfeiture Must be Declared in Direct Proceedings. 438. A forfeiture of the charte'r of a corporation for abuse or neglect of its franchises must be declared by process and judgment of law before the corporation can be treated as defunct.^ 'Wagner Institute v. Philadelphia, 132 Pa. 612 (1890). " Lehigh Bridge Co. v. Lehigh Coal & Navigation Co., 4 Rawle, 7 (1833); Centre & Kishacoquillas Turnpike Road v. McConahy, 16 Serg. & Rawle, 140 (1827); Hinchman v. Phila. & West Chester Turnpike Road, 160 Pa. 150 (1894); Commonwealth v. Allegheny Bridge Co., 20 Pa. i8s (1853); Commonwealth v. United States Bank, 2 Ashmead, 349 (1841); Irvine v. Lumbermen's Bank, 2 V/. & S. 190 (1841); Lycoming Fire Ins. Co. v. Newcomb, 4 Leg. Gaz. 409; Dyer v. Walker, 40 Pa. 157 484 FORFEITURE OF CHARTER. A charter cannot be avoided in a collateral proceeding to which the corporation is not a party. A forfeiture of corpo- rate franchises can only be enforced in a direct proceeding against a corporation to which the corporation may have the opportunity to answer.'^ When one corporation wishes to condemn the property of another corporation, on the ground that the charter of the other corporation is forfeited by non-user, the proceedings to establish the forfeiture must be conducted under Section 5 of the Act of 1883 by the attorney-general. It cannot be raised by petition for leave to file a bond.® After a charter has been granted in proceedings that are regular in form, the court cannot by rule revoke the charter for an alleged substantial defect. This can only be done by quo warranto at the suit of the attorney-general." Power of Court to Determine Corporate Eights. 439. In all proceedings in courts of law or equity of this Commonwealth, in which it is alleged that the private rights of individuals, or the rights or franchises of other corpora- tions, are injured or invaded by any corporation claiming to have a right or franchise to do the act from which such injury results, it shall be the duty of the court in which such pro- ceedings are had, to examine, inquire, and ascertain whether such corporation does, in fact, possess the right or franchise to do the act from which such alleged injury to private rights or to the rights and franchises of other corporations, results; and if such rights or franchises have not been conferred upon such corporation, such courts, if exercising equitable power, shall, by injunction, at suit of the private parties or other cor- porations, restrain such injurious acts; and if the proceedings be at law for damages it shall be lawful therein to recover damages for such injury as in other cases.^" (1861); Coil V. Pittsburgh Female College, 40 Pa, 439 (1861); Lebanon Water Co., 9 Pa. C. C. R. 589 (1891). 'Commonwealth v. Morris, i Phila. 411 (1852); Mitcheson v. Harlan, 3 Phila. 38s (1859). ' Lebanon Water Co., 9 Pa. C. C. R. 589 (1891). •Christ's Church Charter, 8 Pa. C. C. R. 28 (1890). "Act of June 19, 1871, Sec. i, P. L. 1361. FORFEITURE OF CHARTER. 485 Corporations Violating Conditions of Charter to be Proceeded Against. 440. In all cases in which heretofore any privileges or im- munities have been granted to any corporation, by any act of the General Assembly of the Commonwealth, upon terms and conditions in such act prescribed, for the knowing and intentional neglect or refusal to perform and comply with which terms and conditions a forfeiture or determination of such privileges and immunities is provided for in the act, it shall be the duty of the attorney-general of the Common- wealth, upon complaint made to him by any party whose rights or interests are affected by such neglect or refusal, to institute forthwith proceedings in a court of competent juris- diction, to ascertain the fact of such neglect or refusal; and if such neglect or refusal shall be adjudged by such court to have occurred, then and in such case all the rights, privileges, powers, and immunities granted to said corporation, upon such terms and conditions, shall forthwith cease and deter- mine; and thereupon the governor of the Commonwealth shall provide such organization as may be needful to manage any such property until otherwise directed by the legisla- ture: Provided, however, that all expenses incident to the management thereof shall be paid from its own proceeds; and nothing in this act contained shall be deemed as authorizing any liability against, or expenditure by, the Commonwealth of Pennsylvania: Provided, that when proceedings under the provisions of this act are commenced, in any court other than the Supreme Court, the right of appeal to the Supreme Court shall exist, to either party, as in other cases : Provided further, this act shall not apply to bridge companies.^ ^ Quo Warranto. 441. The court will not enter a decree dissolving a corpora- tion on a bill in equity, the proper remedy is by quo warranto}'^ A private citizen has no standing to institute quo warranto proceedings to forfeit the charter of a corporation. Such pro- ceedings must be instituted by the State.^^ " Act of April I, 1870, Sec. i, P. L. 45. "Kelley v. Bldg. Assn., I W. N. C. 218 (1875); Commonwealth v. Dillon, 61 Pa. 488 (i86p); Lejee v. Continental Pass. Ry., 10 Phila. 363 (187s). "Commonwealth v. Allegheny Bridge Co., 20 Pa. 185 (1852); Murphy 486 FORFEITURE OF CHARTER. A quo warranto may, however, issue at the suit of a private person where only individual rights, such as the election of officers, or the admission of members and the like are in- volved.^* A creditor of a corporation who has no judgment, and not even a pending action, cannot maintain quo warranto pro- ceedings in the name of the Commonwealth to enforce a for- feiture of the charter of the corporation.^' Under the Act of June 13, 1836, the Court of Common Pleas has jurisdiction in quo warranto proceedings where the corporation involved is a religious corporation.^^ Quo warranto proceedings will lie by the Commonwealth against a corporation, although in an equity case between contending factions in the corporation the Supreme Court has decreed that matters should remain in statu quo until a certain meeting could be held. In such a case quo warranto is a new proceeding by a new party, and raises the question ■ V. Farmers' Bank of Schuylkill County, 20 Pa. 415 (1853) ; Common- wealth V. Philadelphia, Germantown & Norristown R. R. Co., 20 Pa. 518 (1853); Commonwealth v. Farmers' Bank, 2 Grant, 392 (1853); Com- monwealth V. Dillon, 32 P. F. Smith, 41 (1870); Commonwealth v. Phila- delphia & Chester Co. R. R., 10 W. N. C. 400 (1881); Commonwealth V. Philadelphia, Germantown 8c Norristown R. R., 20 Pa. 518 (1853). " Murphy v. Farmers' Bank of Schuylkill County, 20 Pa. 415 (1853). In Murphy v. Farmers' Bank of Schuylkill County, 20 Pa. 415, 419, Woodward, J., said: "If quo warranto be given to individuals to dissolve corporations, power will cease to steal from the many to the few, for here will be a transfer of it bodily. With a corrupt judiciary, which the his- tory of other countries teaches us is not an impossible supposition, acting as the instrument of private passions, any institution established by the immediate representatives of the people, and existing by will and consent of the people, and for their convenience and benefit, may be frustrated without appeal or recourse. These are general views which harmonize with the doctrine of the cases. And, therefore, whilst I recognize the right of any relator to have a quo warranto in the Supreme Court who is desirous to prosecute the same to redress any private grievance that falls within that remedy, I deny the right of any party except the attorney- general, or other officer of the Commonwealth, to sue for it to dissolve a corporation." " Commonwealth v. Farmers' Bank, 2 Grant, 392 (1853). "Commonwealth v. McCutchen, 2 Parsons, 205 (1851). FORFEITURE OF CHARTER. 487 against both contending factions alike, whether the corpo- ration itself had any further right to exist.^'' When Common Pleas may Issue Writ of Quo Warranto. 442. Writs of quo warranto, in the form and manner herein- after provided, may also be issued by the several Courts of Common Pleas, concurrently with the Supreme Court, in the following cases, to wit: III. In case any question shall arise concerning the exer- cise of any office, in any corporation, created by authority of law, and having the chief |Jlace of business within the respect- ive county. And in any such case, the writ aforesaid may be issued, upon the suggestion of the attorney-general, or his deputy, in the respective county, or of any person or persons desir- ing to prosecute the same. IV. In case any association, or number of persons, shall act as a corporation, or shall exercise any of the franchises or privileges of a corporation, within the respective county, without lawful authority. V. In case any corporation as aforesaid, shall forfeit by mis- user, or non-user, its corporate rights, privileges, or fran- chises, or shall do, suffer, or omit to do, any act, matter, or thing, whereby a forfeiture thereof shall by law be created, or shall exercise any power, privilege, or franchise not granted or appertaining to such corporation. And in any such case the writ aforesaid may be issued upon the suggestion of the attorney-general, or his deputy, in the respective county, or of any person or persons desiring to prosecute the same.^* Proceedings Against Corporations in Supreme Court. 443. In all proceedings by quo warranto, whether at the suggestion of the attorney-general or any person or persons desiring to prosecute the same, against any association or any number of persons who shall act as a corporation, or shall exercise any of the franchises or privileges of a corporation " Commonwealth, ex rel. Attorney-General, v. Order of Solon, 166 Pa. 33 (189s). " Act of June 14, 1836, Sec. 2, P. L. 621. 488 FORFEITURE OF CHARTER. without lawful authority, or against any corporation which shall forfeit by misuser or non-user its corporate rights, priv- ileges, or franchises, or shall do, sufifer, or omit to do any act, matter, or thing, whereby a forfeiture thereof shall by law be created, whether the said forfeiture may be declared by the legislature or otherwise, or shall exercise any power, privilege, or franchise not granted or appertaining to such corpora- tion, the suggestion may be filed and all proceedings had in the Supreme Court, wherever the same may be sitting, and any questions of fact on which an issue may be ordered shall be tried before a judge of the Supreme Court, and by a jury summoned from any county in which the Supreme Court shall be sitting at the time of such trial, and proceedings com- menced or prosecuted in any district shall be certified to any other district, as may be requisite for the speedy determina- tion thereof.^® Attorney-General Authorizsd to Proceed in Certain Cases. 444. Whenever the attorney-general shall have reason to believe that any association as aforesaid ha[s] acted as a cor- poration, or exercised any of the franchises or privileges thereof, without lawful authority, or that any corporation has forfeited its corporate rights, privileges, or franchises, as aforesaid, or exercised any power, privilege, or franchise, not granted or appertaining to such corporation, it shall be his duty to file, or cause to be filed, a suggestion as aforesaid, and to proceed thereon for the determination of the matter.^* When Charter -will not be Forfeited. 445. The charter of a corporation will not be forfeited be- cause it borrowed money when there is nothing in the char- ter to forbid the company from so doing ;^* nor will a decree of forfeiture be entered on account of a single misuse of a franchise where no harm was done to any one, and the misuser was not persisted in.^^ It is no ground to forfeiture of the charter of a bridge com- pany because the company did not procure land in the way "Act of March 17, 1853, Sec. 2, P. L. 685. '" Act of June 14, 1836, Sec. 3, P. L. 621. " Commonwealth v. Allegheny Bridge Co., 20 Pa. 185 (1852). '" Commonwealth v. N. Y., L. E., etc., R. R., 10 Pa. C. C. R. 129. FORFEITURE OF CHARTER. 489 prescribed by its charter for taking it, but made a bargain for it with the owner allowing him and his family as the con- sideration, to pass toll free for forty years.^* Where the State has owned the half of the stock of the cor- poration, and has not required the corporation to render the periodical accounts to the General Assembly required by its charter, the State cannot claim a forfeiture of the charter for such neglect.^* It is no ground to forfeit the charter of a bridge company, that the corporation has charged a less rate of toll than that prescribed by its charter. * In a case where such a ground of forfeiture was set up it was claimed that in consequence of the lessened rate of toll, the surplus fund by means of which the bridge was to be made free was not properly increased, and the franchisement of the bridge was postponed. The court, however, said: "The an- swer to this is that the toll rates of all the road and bridge cor- porations are fixed by law, in order to prevent extortion, and are therefore intended to require not that so much, but that no more shall be collected. Indeed, this relator is guilty of the inconsistency of complaining, in another part of the in- formation, that it was extortion in the defendants to demand of him the full toll. It is perfectly apparent that a demand of full legal toll from all persons from the beginning must have greatly retarded the growth of Allegheny Cit)>, and that it would be regarded as most grinding and unendurable op- pression. It is very proper for all such corporations to com- mute the tolls for an annual sum, if their charter does not forbid it, and if it be done with an honest purpose. Here there is no allegation of fraud." ^^ The franchises of a water company, incorporated under the Act of April 29, 1874, Section 34, Paragraph 2, authorizing the incorporation of water companies for the supply of pure ^Commonwealth v. Allegheny Bridge Co., 20 Pa. 185 (1852). '"Commonwealth v. Allegheny Bridge Co., 20 Pa. 185 (1852). "* Commonwealth v. Allegheny Bridge Co., 20 Pa. 185 (1852). 490 FORFEITURE OF CHARTER. water, will not be forfeited in quo warranto proceedings where a jury specially finds that the water furnished by the corpora- tion was "wholesome, but not pure." ^® The Commonwealth has no standing to institute proceed- ings for the forfeiture of a charter of a turnpike company, where the illegal acts complained of were under an amend- ment of the charter granted by an alleged illegal order of the Court of Common Pleas, if it appears that the order stood unreversed and unappealed from, and that the company under the decree and acting in good faith expended a large amount of money without any warning on the part of the Common- wealth of any objection on her part.^^ The attorney-general will not proceed by quo warranto against a corporation for maintaining a "company store" in violation of the Act of June 9, 1891, P. L. 251, unless a prima ■facie case is made out by the applicant.^® It is no ground for declaring a forfeiture of a charter of a Pennsylvania corporation because the corporation has ob- tained a charter from another State.^* When Charter will be Forfeited. 446. The constant and willful violations of the fundamental conditions upon which a charter is granted is sufficient ground to sustain a quo zvarranto by the State to forfeit the charter. It is a tacit condition of a grant of incorporation that the grantees shall act up to the end or design for which they were incorporated ; and hence through neglect or abuse of its fran- chises a corporation may forfeit its charter as for condition broken, or for a breach of trust.*"* The legislature has the right to repeal the charter of a rail- road company if the company has abused or misused its priv- "' Commonwealth v. Towanda Water Works, i Monaghan, 500 (1888). " Commonwealth, ex rel. Attorney-General, v. Bala & Bryn Mawr Turn- pike Co., 153 Pa. 47 (1893). °" Funk V. Cambria Iron Co., s Dist. Rep. 143 (1896). " Commonwealth v. Pittsburgh & Connellsville R. R., 58 Pa. 26 (1868). " Commonwealth v. Commercial Bank, 28 Pa. 383 (1857). FORFEITURE OF CHARTER. 49I ileges, and this right may be exercised without the fact of the abuse being ascertained by a judicial trial.*^ If a bank is prohibited by its charter from making loans at a greater rate of discount than a certain per cent, for thirty days, and from dealing in promissory notes, and it willfully violates these restrictions by discounting at higher rates than that allowed, or by dealing in promissory notes other- wise than by discounting them at the rate prescribed, the State has sufficient grounds to forfeit the charter.*^ A corporation carrying on the business of a common car- rier which holds lands for mining purposes in violation of Article XVII, Section 5, of the Constitution, may be pun- ished by a forfeiture of its charter, but the land so held cannot be escheated to the Commonwealth, either under the Consti- tution which provides no penalty, or under the Act of April 26, 1855, P. L. 329, w^hich prohibits a corporation from hold- ing real estate either directly or through a trustee or other device unless specially authorized by law.^* Where the subscriptions to the stock of an insurance com- pany are not paid in cash, as required by statute, the charter of the company may be forfeited.** Void Charter. 447. A charter granted by the Court of Common Pleas, and not authorized by any Act of Assembly, is absolutely void, and it confers no right. Where a decree has been entered "Erie & North East R. R. Co. v. Casey, 26 Pa. 287 (1856); Baltimore V. Pittsburgh & Connellsville R. R., 3 Pitts. Rep. 20 (1866). As to at- tempted forfeitures of railroad charters see Commonwealth v. Pittsburgh & Connellsville R. R., 58 Pa. 26 (1868); Hestonville, Mantua & Fair- mount R. R. Co. V. Philadelphia, 89 Pa. 210 (1879); Commonwealth v. New York, Lake Erie & Western R. R., 139 Pa. 457 (1891); Common- wealth V. West Chester R. R., 3 Grant, 200 (1855); Commonwealth v. Franklin Canal Co., 21 Pa. 117 (1852); Commonwealth v. Erie & N. E. R. R. Co., 27 Pa. 339 (1853). '"Commonwealth v. Commercial Bank, 28 Pa. 383 (1857). " Commonwealth v. New York, Lake Erie & Western R. R., 132 Pa. S9I (1890). " Commonwealth v. Manufacturers' Ins. Co., 6 L. Gaz. 359. 492 FORFEITURE OF CHARTER. granting such a charter, the decree may be revoked even after business has been begun under the charter.^® An illegally organized corporation has no vklid existence whatever, and if money has been paid to it for its use an Act of Assembly forfeiting the assets of the organization does not affect money so paid.** Failure to Carry Out Chartered Purpose Within Time Speci- fied by Act. 448. Where the State grants a charter of incorporation,, there is an implied contract on the part of the grantees that they will perform the duties, and exercise the authorities con- ferred by the charter. Where no time is stipulated, the gran- tees should perform on their part within a reasonable time, and if they fail to do so, the State may annul the charter. What is a reasonable time within which the corporation should begin the performance of its duties under its charter,, depends upon the particular circumstances of each case.*^ An application of a corporation, which has in good faith attempted to carry out its chartered purpose, for an extension of time in which to complete its work, is within the time con- templated by the Act of May 16, 1889, if made within seven years from the date of its charter.** ^ Incorporation of National Indemnity & Endowment Co., 142 Pa. 450' (1891). '° Commonwealth v. France, 3 Brewster, 148 (1869). " Chincleclamouche Lumber & Boom Co. v. Commonwealth ex rel. Attorney-General, 100 Pa. 438 (1882). " Meadow Brook Water Co.'s Petition, i Lack. Leg. News, 143 (1895). In this case Edwards, J., said: "The company is to proceed to do certain work 'within the space of two years from the date of its letters-patent,' and it shall complete its work 'within the space of five years thereafter. "■ Here there are two distinct periods. The date of the letters-patent is the starting point from which the first period is to be computed. The substitu- tion of the word 'afterwards' for 'thereafter' would make this construction more emphatic. Indeed, a skillful elocutionist by a mere change in the tone of voice could refer the word 'thereafter' to either antecedent, to 'the date of its letters-patent.' The reasonable, sensible construction of this section is that the second period of five years commences at the expiration of the first period of two years. This construction is within FORFEITURE OF CHARTER. 493 An enabling act extending the time within which an exist- ing corporation may avail itself of its franchises to prevent for- feiture, does not apply to a company, which had at the date of the act lost its rights and privileges by a failure to comply with the provisions of the act under which it was incorporated.*" Where a water company incorporated under the Act of ■the meaning and spirit of the law, and is in accordance with the strict and technical rules of grammatical interpretation. The legislature has used similar expressions in other Acts of Assembly, and it may not be amiss to examine some of them so as to see whether the construction we have adopted is strengthened by analogical comparison. In the Act of March 31, 1864, P. L. 158, to incorporate a turnpike company, the fifth section provides 'that if the said company shall not commence the construction of said road within three years, and complete the same in five years thereafter, this act shall be null and void, etc' This evidently con- templates two periods, one of three and one of five years. After the words "within three years' insert the words 'from the date of its corpo- ration.' This would make it analogous with the case at bar, but would it change the construction and make the second period commence con- temporaneously with the first? We think not. Again, the legislature, if it saw fit, might have made the periods mentioned in the Act of 1889, three and two years respectively — three years for preparation, and two years for completion of the work. If the other construction contended for is correct, how absurd would be the conclusion. The work would Iiave to be completed one year before the expiration of the period for ■commencement. As an illustration, we refer to the Act of April 14, 1863, P. L. 411, to incorporate a turnpike road company, the third section of which reads in part as follows: 'If they shall not commence the con- struction of their said road within four years of the passage of this act, and complete the same within three years thereafter, etc' The phrase- ology of this section is the same as that of the eleventh section of the Act of 1889, and very forcibly illustrates the construction we have given to the Act of 1889. We may also refer to the Act of 1810, Section 21, relating to writs of certiorari, where the following proviso is found: 'That no judgment shall be set aside in pursuance of a writ of certiorari, unless the same is issued within twenty days after judgment was rendered, and served five days thereafter.' If the views of Mr. Degan's counsel are correct a writ of certiorari should be served five days 'after judgment was rendered,' although a period of twenty days is allowed for the taking out of the writ. We are of the opinion that the application of the Meadow Brook Water Company, filed in this case, is within our jurisdiction, and is made in time." "Commonwealth, ex rel. Attorney-General, v. Lykens Water Co., no Pa. 391 (188s). 494 FORFEITURE OF CHARTER. April 29, 1874, p. L. 73, fails to carry on its work for two years as provided by the Act of April 17, 1876, P. L. 47, its rights and privileges revert to the Commonwealth without any judicial action or further legislation, and the Common- wealth can then grant a charter to another company to be formed for the same purpose. In such a case Mercur, C. J., said: "The limitation of time inheres in the very grant under which the letters-patent issued. It is an express clause in the contract under which the corporation was created and its charter accepted. The fact is unquestioned that the first cor- poration did not perform the acts required to preserve its rights and privileges under the Act of 1876. The two facts then existed whereby, under the provisions of its charter, all its rights and privileges should revert to the Commonwealth. The statute law of the grant itself becomes the law of this case: McLaren v. Pennington, i Paige Ch. Rep. 102. "When the legislature reserves to itself the right to repeal a charter on the happening of a certain event it may enact the repeal whenever the event hapi^ens, without first invoking the judgment of a court : Crease v. Babcock, 23 Pick. 334. The Act of 1876 did not specifically require any action of the legislature to cause the franchises granted to revert to the Commonwealth. "As then after the expiration of the two years nothing had been done under the charter to continue its life, all its fran- chises in equity reverted to the Commonwealth. The latter resumed them, and afterwards granted them to the respond- ent. It is unimportant whether the forfeiture be declared by quo warranto or by other proceedings on the part of the Com-' monwealth, declaring and affirming the forfeiture and rever- sion. The latter is now in no position, either for itself or for the benefit of the former corporation, to disturb the vested rights of the respondent: Lumber & Boom Co. z;. Common- wealth, 4 Out. 438. "The injustice of permitting a corporation to retain, un- used, the exclusive right to a power intended to be used for FORFEITURE OF CHARTER. 495 the benefit of the public, is so contrary to public policy that the relator must present a clearer case than he has now shown to justify a reversal of this judgment." *° When Work to be Commenced and Completed. 449. If any company incorporated under this act, or any of its supplements, shall not proceed in good faith to carry on its work and construct or acquire its necessary buildings, structures, property, or improvements within the space of two years from the date of its letters-patent, and shall not within the space of five years thereafter complete the same, the rights and privileges thereby granted to said corporation shall revert to the Commonwealth: Provided, however, that it shall be lawful for any such corporation who shall have pro- ceeded in good faith as aforesaid, at any time before the ex- piration of the said period of five years, or of any extension thereof, to apply to the Court of Common Pleas in and for ^he county in which said corporation shall have its principal office for an extension of such time as herein provided. Such application shall be made upon a petition, under the common seal of such corporation and verified by its president or other presiding officer, setting out the grounds of the application, and that the same is made pursuant to a resolution of the board of directors of said company at a meeting called for that purpose, a duly certified copy of which resolution shall be annexed to said petition. Thereupon it shall be the duty of such court to set down said petition for hearing before it upon some day to be fixed by said court, and to direct that notice of said petition shall be given by publication or other- wise as the court shall direct. Upon the day so fixed, or upon such subsequent day or days as the matter may be adjourned to, said court shall proceed to a hearing of said petition, and it being made to appear to said court that the order "of notice herein provided for has been complied with, said court may, by order, adjudge and direct that the time of such corpora- tion to complete its necessary buildings, structures, property, or improvements shall be extended for a period not exceeding five years beyond the time fixed by law for the completion thereof, and thereupon, upon filing a duly certified copy of such order in the office of the secretary of the Commonwealth, " Commonwealth, ex rel. Attorney-General, v. Lykens Water Co., no Pa. 391 (1885). 496 FORFEITURE OF CHARTER. the time of such corporation to complete its necessary build- ings, structures, property, or improvements shall be extended as provided in such order: Provided further, that when said buildings, structures, property, or improvements are wholly within one county, said application shall be made to the Court of Common Pleas in and for said county.*^ Time Limit for Organization and Payment of Capital Stock. 450. Any corporation of the second class, created under the provisions of the act to which this is a supplement, or any of its supplements, that shall not within two years from the date of its letters-patent proceed in good faith to organize and to do the things contemplated by its charter, and have paid up at least one-fourth of its capital stock, shall be held and deemed to have forfeited its charter, and the attorney- general shall, on the application of any citizen, take the proper legal steps to forfeit and vacate its said charter, but any cor- poration now in existence shall have two years from the date of this act to do and perform the things by this section re- quired.*^ Charter Bepealed by Constitution of 1874. 451. A charter was granted to a boom company by a spe- cial act in 1867. The grantees paid the enrollment tax, ac- cepted the charter, and received subscriptions for about one- half the capital stock, but nothing further was done until 1882, when they proceeded to complete the organization of the company. In the meantime the Constitution of 1874 was adopted, the first section of Article XVI of which declared the repeal of all charters under which a bona fide organization had not taken place and business been begun. In quo warranto proceedings to test the right of the grantees to proceed under the charter it was held that the charter had been revoked by Article XVI, Section i, of the Constitution, and that this section did not impair the obligation of any contract between the State and the grantees. It was also held in this case that the second section of the schedule of the Constitution of 1874, " Act of May 16, 1889, Sec. 2, P. L. 242, amending the Act of April 17, 1876, Sec. II. « Act of June 13, 1883, Sec. s, P. L. 123. FORFEITURE OF CHARTER. 497 which continued in force all private laws not inconsistent with the Constitution, saved rights and contracts only, and not charters and grants of special and exclusive privileges.** Appointment of Beeeiver After Forfeiture. 452. Whenever any corporation incorporated under the laws of this Commonwealth shall be dissolved by judgment of ouster upon proceedings by quo warranto in any court of competent jurisdiction, the said court, or in vacation any one of the law judges thereof, shall have power to appoint a re- ceiver, who shall have all the powers of a receiver appointed by a court of chancery, to fake possession of all the estate, " Chincleclamouche Lumber & Boom Co. v. Commonwealth ex rel. Attorney-General, 100 Pa. 438 (1882). In this case Mr. Justice Trunkey said: "The charter of January 7, 1867, was granted by the Common- wealth, with the right in the legislature to alter, revoke, or annul it when- ever in their opinion it may be injurious to the citizens. It is to no purpose to discuss the power of a constitutional convention, for the Con- stitution is the law adopted by the people themselves. A revocation of a charter by them ought to have like effect as if by their representatives. The defendants claim under a contract with the State. They show pay- ment of the tax or price for its enrollment, and that no part of its consideration was paid or performed for nearly seven years, when the State revoked it. They waited eight years longer without complaint or action. They had invested nothing, and there is no pretense that the revocation was unjust to the corporators, unless they had the right to perpetually hold the charter without performing any of its express and implied duties. They had no such right. A charter under which no corporate action has ever been taken, after a reasonable time has elapsed, can be avoided by the State at common law. A change of remedy which is not prejudicial to the rights of either party to a contract, does not impair it. Where the corporators have entirely failed to exercise any corporate power within the time named in the charter, or if none be named within a reasonable time, it is immaterial to them whether the forfeiture be declared by a qiM warranto or proceeding in the nature thereof, or by legislation. In either case the result follows the legal non- user. Then, the Commonwealth may, by legislative or constitutional enactment, annul and avoid all charters or grants, or special or exclusive privileges, under which an organization shall not have taken place, and business been commenced. The constitutional revocation, which took effect in January, 1874, applies to no charter which had become a con- tract, and under which a corporation had legal existence; but it repealed all statutes granting special or exclusive privileges, which, at that date, were subject to revocation or appeal." 32 498 FORFEITURE OF CHARTER. both real and personal, thereof, and make distribution of the assets among the persons entitled to receive the same accord- ing to law. The powers of such receiver may continue as long as the court deems necessary for said purposes, and he shall be held to supersede an assignee of the corporation in possession.** Disposition of Property After Forfeiture. 453. Whenever any corporation, incorporated under the laws of this Commonwealth, shall have been dissolved by judgment of ouster, upon proceedings of quo warranto in any court of competent jurisdiction, all the estate, both real and personal, of which such corporations are in any way seized or possessed, shall pass to and vest in the persons who at the time of such dissolution are the officers of such corporation, in trust to hold the same for the benefit of the stockholders and creditors of the corporation.*^ " Act of April 26, 1893, Sec. i, P. L. 26. See Commonwealth v. Order of Vesta, 156 Pa. 531 (1893). The Act of April 4, 1872, Sec. 2, P. L. 46, provided as follows: "The Supreme Court [or any judge thereof sitting at nisi prius] shall, upon petition of any stockholder or creditor of such corporation, appoint a receiver, who shall have all the powers of a receiver appointed by a court of chancery, to take possession of all the estate, both real and personal, thereof, and make distribution of the assets among the persons entitled to receive the same according to law: Provided, That written notice, as may be directed by the court, shall be given to the persons, or a majority of them, who were at the time of the dissolution oificers of the corpora- tion, of the intention, time and place of presenting such petition: And provided further, That it shall be the duty of such receiver to give notice of his appointment, [and] time and place of meeting, to all the stock- holders of such corporation, and to advertise the same as the court may direct." The Supreme Court alone has jurisdiction, on judgment of ouster against a corporation, to appoint a receiver, under the Act of 1872: Com- monwealth V. Order of Vesta, 156 Pa. 531, s. c, 33 W. N. C. I, (1893); In re Fraternal Guardians' Assigned Est., 159 Pa. 603, s. c, 34 W. N. C. 218 (1894). "Act of April 4, 1872, Sec. i, P. L. 46. The forfeiture of the charter of a corporation does not afifect a sum of money advanced by private parties, which was never legally in the hands of the company: Common- wealth V. France, 3 Brewst. 148. CHAPTER XXXIX. FORECLOSURE AND REORGANIZATION. 454- Parties in Foreclosure Pro- Corporate Franchises Con- ceedings. stitute Corporation. 455- Jurisdiction. ' 461. Duties and powers of Pur- 456. Agreement to Purchase at chasers and New Corpora- Sale, tions. 457- When Property Cannot be 462. Return to State Department. Sold Piecemeal. 463. Acceptance of Constitution. 458. Liability of Purchasers at 464. Purchasers of Certain Corpo- Sale. rations may Issue Stock and 459. Distribution of Proceeds of Bonds. Sale. 46s. Previous Proceedings Vali- 4i5o. When Purchasers of Certain dated. 466. Acceptance of Constitution. Parties in Foreclosure Proceedings. 454. In foreclosure proceedings, under a railroad mort- gage, the bondholders are not parties. The true party is the trustee to whom the mortgage is given as the security for all the bonds issued under it. The bondholders are, how- ever, privies in interest, and may come in to defend pro in- teresse suo, but their rights are afifected by the decree against their trustee.^ Jurisdiction. 455. The Constitution of 1874 takes from the Supreme Court jurisdiction to decree a sale of the property of the cor- poration under a mortgage, and the fact that an injunction is also prayed for in the bill of foreclosure does not affect the question of jurisdiction.^ 'McEIrath V. Pittsburgh & Steubenville R. R., 68 Pa. 37 (1871). See Acts of May 5, 1876, P. L. 123, March 23, 1877, P. L. 32, and June 24, 1885, P. L. 151, for jurisdiction of Common Pleas in foreclosure proceedings. See page 431, supra. :? Fargo v. Oil Creek & Allegheny River Ry., 32 P. F. Smith, 266 (187s). 499 500 FORECLOSURE AND REORGANIZATION. Where a railroad is constructed partly in Pennsylvania and partly in another State, and the whole of its property is cov- ered by a mortgage, the courts in Pennsylvania by a decree operating upon the trustee himself, may compel him to sell and convey whatever interest of the railroad company will pass under the terms of the mortgage.^ The United States courts have power to decree the sale of a railroad, as a whole, where portions of a railroad are in dif- ferent States. A mortgage was made by a railroad company whose road ran through parts of the States of Delaware and Pennsylvania, of all its property, franchises, etc., to trustees, to secure the payment of certain bonds ; default was made in payment of the interest, and as the trustees declined to sell the Delaware franchises and the Birdsboro extension of the road, the plaintiff, a bondholder, filed a bill, asking for a de- cree directing the mortgaged premises to be sold as one prop- erty. It was held that the court had power to decree relief, notwithstanding that part of the railroad was in the State of Delaware.* A railroad company whose franchises and property have been sold at a receiver's sale, cannot recover its road-bed by an action of ejectment, on the ground that there was fraud in the sale. The sale should be first set aside by proceedings in equity.^ Agreement to Purchase at Sale. 456. The bondholders and stockholders of a corporation may unite to purchase the property of the company at a sale if the agreement is made in good faith, and to prevent a sacri- fice of the property.* ' McElrath v. Pittsburgh & Steubenville R. R., 55 Pa. 189 (1867). * Randolph v. Wilmington & Reading R. R., ii Phila. 502 (1876). ° New Castle Northern Ry. v. New Castle & Shenango 'Valley R. R., 152 Pa. 96 (1892). ° Pennsylvania Transportation Co.'s Ap., loi Pa. 576 (1882) ; Pennsyl- vania Transportation Co. v. Pittsburgh. Titusville & Buflfalo R. R., 11 W. N. C. 35 (1881); Landis v. Western Penna. R. R., 133 Pa. 579 (1890); FORECLOSURE AND REORGANIZATION. 5OI If the bondholders agree to purchase the property at a pro- posed judicial sale, and one of the bondholders purchases the property under the agreement, the other bondholders can- not participate in the benefits of the sale unless they pay their proportionate amounts of the expenses and advances to the person who bids in the property.^ At a meeting of the first mortgage bondholders of an in- solvent railroad a committee was appointed "to institute such legal proceedings for the protection of the interests of the first mortgage bondholders as they may deem most advisa- ble;" and it was further resolved "that the committee be au- thorized for the purpose of defraying the necessary expenses of their trust to make such requisition on the bondholders as may appear to them advisable; it being understood that any portion of the amount of such requisition which may not be wanted in executing their trust will be returned pro rata to the contributors, or paid over in the event of a foreclosure of the first mortgage and a purchase by the first mortgage bond- holders to the new company." It was held that all first mort- gage bondholders were entitled to participate in the benefit of the arrangement, and that it was not restricted to the per- sons who had signed the power of attorney given the agent who made the purchase.® Where a committee appointed to reorganize a corporation upon foreclosure proceedings are given authority by the plan of the organization "to limit the time of acceptance," "ex- tend the time in their discretion," "supply defects in said plan," and "delegate any necessary authority as well as dis- cretion," and have delegated to their chairman the discretion to extend the time for accepting the plan, the chairman may, in the absence of any requirement that the extension of time Denniston v. Home Life & Investment Co., 162 Pa. 86 (1895) ; Raleigh v. Earle, S Dist. Rep. ill. For cases relating to the sale of the property and franchises of railroad companies see Weimer's Railroad Law of Penn- sylvania, Chapter V. ' Fidelity Ins., Trust & Safe Deposit Co.'s Ap., 106 Pa. 144 (1884). 'Walker v. Whelen, 4 Phila. 389 (1861). 502 FORECLOSURE AND REORGANIZATION. for the acceptance shall be in writing, make an oral extension of the time and receive an oral acceptance of the plan of reor- ganization.® Where a committee of creditors of a corporation who are authorized to buy in the property of the corporation at a judicial sale, and organize a new company, are prevented from carrying out the plan of reorganization by the objection of some of the creditors, they may under the authority of a vote of a majority of the creditors resell the property and reimburse themselves for moneys expended, and the persons who prevented the reorganization plan from going through have no standing to object to such resale.^" An. agreement was made by the holders of the bond of an insolvent railroad company, under which a new company was organized on the basis of a division of the stock in certain proportions among those interested in the old company, and it was agreed, among other things, that "the expense of car- rying out this agreement, printing new bonds, etc.," be sus- tained by the new company. In an action by certain of said bondholders against the new company to recover the amount paid by plaintiffs to an attorney for his professional services,, it was held, that the words "printing bonds, etc.," did not restrict the agreement to expenses of that character only, but covered all reasonable and necessary expenses in carrying out the agreement.^^ Where an act provides that the purchasers at the sale of a railroad shall be a body corporate with all the rights of the corporation they have bought, mere irregularities in the or- ganization of the new company after the sale are not neces- sarily fatal to its existence as a corporation. Where, under such an act, a railroad is purchased by a single individual he may organize a new corporation, and this corporation may adopt a common seal and determine the amount of its stock, •Raleigh v. Earle, i8 Pa. C. C. R. 99 (1896). '° Froment v. Lessig, 174 Pa. 487 (i8g(5). " Catawissa R. R. v. Titus, 49 Pa. 277 (1865). FORECLOSURE AND REORGANIZATION. 503 and the certificates of stock may be issued, not only to the actual purchasers of the railroad, but also to such persons as the purchasers may designate.^ ^ A resolution under which the reorganization of a corpora- tion was effected provided that the stock of the new corpora- tion should be issued proportionately to the holders of the old, but that no stockholders indebted to the corporation should receive such new stock until his debt was fully paid, and on his failure to pay it for sixty days, the directors were authorized to apply a sufficient amount of the stock at par to the extinguishment of the debt, and issue the balance to the stockholder. It was held that the resolution was reasonable, and within the power of the corporation.^* The purchasers of the franchises of a corporation at a ju- dicial sale take the franchises free from the lien of the Com- monwealth for the unpaid bonus due by the original com- pany.^* When Property Cannot be Sold Piecemeal. 457. When the operations of a corporation are matters of direct public interest and concern, its property which is rea- sonably essential to the exercise of its franchises cannot be aliened by the corporation or sold by its creditors piecemeal so as to stop its operations or defeat the object of its charter, but this rule does not apply to property which has not become a part of the company's structure, and for which it has no present use.^® Liability of Purchasers at Sale. 458. A purchaser of the franchises of a water company at "" Commonwealth v. Central Pass. Ry., 52 Pa. 506 (1866). "Reading Trust Co. v. Reading Iron Works, 137 Pa. 282 (1890). " Opinion of the Attorney-General of January 30, 1883. "Johnson Co. v. Miller, 174 Pa. 605 (1896); Longstreth v. Philadel- phia & Reading R. R., 11 W. N. C. 309 (1882); Phila., Wilmington & Baltimore R. R. v. Woelpper, 64 Pa. 366 (1870); Philadelphia v. Philadel- phia & Reading R. R. Co., 58 Pa. 253 (1868). 504 FORECLOSURE AND REORGANIZATION. sheriff's sale takes subject to a claim for damages arising from the taking of property under the right of eminent domain.^* The same rule applies to railroad companies,^'' but the pur- chasers of a railroad are not liable where the original railroad company entered a bond to secure the landowner his dama- ges.^* Where the purchasers of a railroad company at a foreclos- ure sale are authorized to become a corporation, and organ- ize themselves into a corporation under the same name as the old company, except that the word "railway" is used in- stead of "railroad" in a corporate name, the new corporation is not hable for the debts of the old company.^^ Where the franchises and property of a railroad company are sold at a judicial sale, and a new company is subse- quently organized by the purchaser, the new company is not liable for the negligent operation of the railroad during the period between the sale and the organization of the company.^" Where the purchasers of the property of a corporation in foreclosure proceedings organize a new company, and agree to collect the book accounts of the old company, and account for the same, the new company in the absence of an agree- ment to guarantee the collection of the debt, is not Hable for a deficiency in the book accounts which it is unable to col- lect.21 The sale of a railroad property and franchises does not pass to the purchaser the debts or mere choses in action due to the company from others.^^ "Lycoming Gas & Water Co. v. Moyer, 11 W. N. C. 443 (1882). "Wheeling, Pittsburgh & Baltimore R. R. Co.'s Ap., i Penny. 360 (1881) ; Commonwealth, ex rel. v. New York, Penna. & Ohio R. R., 138 Pa. 58 (1890); Hoffman's Ap., 10 W. N. C. 401 (1881). " Potter V. Pittsburgh & Southern R. R., 17 W. N. C. 40 (1886). " Stewart's Ap., 72 Pa. 291 (1872). " Pittsburgh, Cincinnati & St. Louis Ry. Co. v. Fierts, 96 Pa. 144 (1880). " Huston V. Clark, 162 Pa. 435 (1894). '^ Hogg's Ap., 88 Pa. ips (1878). FORECLOSURE AND REORGANIZATION. 505 Distribution of Proceeds of Sale. 459. A master in foreclosure proceeding must consider and settle the title of adverse claimants to bonds. He cannot, however, go behind the decree of foreclosure. He must dis- tribute the fund to the parties entitled under the decree.** In distributing the proceeds of the sale of a railroad in fore- closure proceedings, the master must distribute the fund to the parties entitled under the decree. He cannot go behind the decree to inquire whether it was rightfully made, or whether the parties before him are entitled to hold a position ■different from that which the decree assigns to them. Thus where the trustee under a first mortgage files a bill to fore- close, and makes the trustee under the second mortgage a party, and a decree is entered postponing the second mort- gage, the only remedy for a bondholder under the second mortgage alleging error, is a bill of review or a petition for rehearing.^* When Purchasers of Certain Corporate Franchises Constitute Corporation. 460. Whenever the material, rolling stock, property, and franchises of any gas, water, coal, iron, steel, lumber, oil, or mining, or manufacturing, transportation, or telegraph com- pany, or any railroad, canal, turnpike, bridge, or plank road, •or of any corporation, created by or under any law of this State, shall be sold and conveyed, under and by virtue of any process or decree of any court of this State or of the Circuit Court of the United States, or under or by virtue of a power of sale contained in any mortgage or deed of trust, without any process or decree of a court in the premises, the person or persons for or on whose account such material, rolling stock, property, and franchises of any gas, water, coal, iron, steel, lumber, oil, or mining, or manufacturing, transportation, or telegraph company, or any railroad, canal, turnpike, bridge, or plank road, or of any corporation, created by or under any law of this State, may be purchased, shall be and they are hereby constituted a body politic and corporate, and shall be '"Rice V. Southern Pennsylvania Iron R. R., 9 Phila. 294 (1873). "* McElrath v. Pittsburgh & Steubenville R. R., 68 Pa. 37 (1871). See ^Iso Reynolds v. Cridge, 11 Pa. C. C. R. 306. 506 FORECLOSURE AND REORGANIZATION. vested with all the right, title, interest, property, possession, claim, and demand in law and equity, of, in, and to such ma- terial, rolling stock, property, or franchises of any gas, water, coal, iron, steel, lumber, oil, or mining, or manufacturing, transportation, or telegraph company, or any railroad, canal, turnpike, bridge, or plank road, or of any corporation, cre- ated by or under any law of this State, with the appurtenances^ and with all the rights, powers, immunities, privileges, and franchises of the corporation, as whose the same may have been so sold, and which may have been granted to or con- ferred thereupon, by any Act or Acts of Assembly whatso- ever, in force at the time of such sale and conveyance, and subject to all the restrictions imposed upon such corporation by any such act or acts, except so far as the same are modified hereby.^^ It will be observed that the Act of May 31, 1887, amends only the first section of the Act of May 25, 1878. The Act of 1878 does not quote for citation the Act of April 8, 1861,. but as the whole of the Act of 186 1 is incorporated in the Act of 1878, there seems to be a sufficient compliance with Sec- tion 6, Article III, of the Constitution, which provides that "no law shall be revived, amended, or the provisions thereof extended or conferred by reference to its title only, but so much thereof as is revived, amended, extended, or conferred, shall be re-enacted and published at length." Even if the Act of 1878 were unconstitutional, it would not follow that the Act of 1887 is also unconstitutional. The Act of 1887 might be construed as an original act on the subject. A large ^ Act of May 31, 1887, P. L. 278, amending and extending the Act of April 8, 1861, P. L. 4S9, and the Act of May 25, 1878, P. L. 145. In Wellsborough & Tioga Plank Road Co. v. GrifKn, 57 Pa. 417 (i868), it was held that where an Act of Assembly provides that upon a sale of corporate property in foreclosure proceedings under a mortgage, the pur- chaser should take all the corporate rights and franchises, the purchaser does not become the corporation, or acquire its name, and if an accident happens to a person after the sale by reason of the neglected condition of the property, the injured party cannot maintain a suit against the cor- poration. If the purchaser was negligent, the suit would have to be brought against him in his own name. See also Pittsburgh, Cincinnatis & St. Louis Ry. Co. v. Fierts, 96 Pa. 144 (i?' FORECLOSURE AND REORGANIZATION. 507 number of companies have been reorganized under the Act of i887.2« Duties and Powers of Purchasers and Kew Corporations. 461. And the person for or on whose account any such material, rolling stock, property, and franchises of any gas, water, iron, steel, lumber, oil, or mining, or manufacturing, transportation, or telegraph company, or any railroad, canal, turnpike, bridge, or plank road, or of any corporation, cre- ated by or under any law of this State, may have been pur- chased, shall meet, within thirty days after the conveyance thereof shall be delivered, public notice of the time and place of such meeting having been given, at least once a week for two weeks, in at least one newspaper published in the city or county in which such sale may have been held, and organize said new corporation by electing a president and board of six directors (to continue in office until the first Monday of May succeeding such meeting, when and annually thereafter on the said day a like election for a president and six directors shall be held to serve for one year) and shall adopt a corporate name and common seal, determine the amount of the capi- tal stock thereof, not exceeding the amount authorized in the original charter, and shall have power and authority to make and issue certificates therefor to the purchaser or purchasers aforesaid, to the amount of their respective intei'- ests therein, in shares of $50 each, and may then or at any time thereafter create and issue preferred stock to such an amount and on such terms as they may deem necessary, and from time to time to issue bonds, at a rate of interest not exceeding 6 per centum, to any amount not exceeding their capital stock, and to secure the same by one or more mort- gages upon the real and personal property and corporate rights and franchises, or either, or any part or parts thereof: Provided, that no coal, iron, steel, lumber, or mining, manu- facturing, transportation, or telegraph company, shall have the benefit of this act, unless it shall have previously filed, with the secretary of state, its acceptance of all the provisions of the Constitution, as provided by law.^'' "' See Wilson v. Downing, 4 Super. Ct. 484 (1896) ; East Grand Street, Lancaster, 121 Pa. 596 (1888). " Act of May 31, 1887, P. L. 278, amending and extending the Act of May 25, 1878, P. L. 145. 508 FORECLOSURE AND REORGANIZATION. Heturn to State Department. 462. It shall be the duty of such corporation, within one calendar month after its organization, to make a certificate thereof, under its common seal, attested by the signature of its president, specifying the date of such organization, the name so adopted, the amount of capital stock, and the names of its president and directors, and transmit the said certificate to the secretary of state, at Harrisburg, to be filed in his office and there remain of record; and a certified copy of such cer- tificate, so filed shall be evidence of the corporate existence •of said new corporation.^® Acceptance of Constitution. 463. The provisions of this act shall not enure to the bene- fit of any corporation unless such corporation shall, before claiming or using the benefits of this act, file in the office of the secretary of the Commonwealth, an acceptance of the provisions of Article XVI, of the Constitution of this Com- monwealth, which acceptance shall be made by resolution adopted at a regular or called meeting of the directors, trus- tees, or other proper officers of such corporation, certified under the seal of the corporation; and a copy of which resolu- tion, certified under the seal of the office of the secretary of the Commonwealth, shall be evidence for all purposes.^^ Purchasers of Certain Corporations may Issue Stock and Bonds. 464. In all cases in which the property and franchises of any corporation, mentioned in the act and its supplement to which this is a further supplement, or of any telegraph com- pany, may have been or shall hereafter be purchased at any sale, by virtue of any process or decree of any court of this Commonwealth or the Circuit Court of the United States, or under or by virtue of a power of sale contained in any mort- gage, or deed of trust, without any process or decree of a court in the premises, the person or persons, for or on whose account the same may have been or shall hereafter be pur- chased, shall have power and authority to determine the " Act of May 25, 1878, Sec. 2, P. L. 146. The certificate must be filed, although the name of the old company has been adopted by the new corporation: Prince's Paint Co., 5 Pa. C. C. R. 194 (iS "Act of May 25, 1878, Sec. 3, P. L. 146. FORECLOSURE AND REORGANIZATION. £09 amount of the capital stock and bonds to be issued therefor, and to issue therefor certificates for the said capital stock, and also bonds, and secure the same by mortgage or mort- gages on the real and personal property, corporate rights, and franchises purchased. Such stock or bonds, or both, shall be issued to the purchaser or purchasers for their respective interests, in such amounts and proportions as may be deter- mined by themselves, and shall be deemed and taken to have been issued for and in consideration of the property and franchises so purchased and received: Provided, that no rail- road, canal, or other transportation company, or telegraph company, shall have the benefit of this act, unless it shall have previously filed, with the 'secretary of state, its acceptance of all the provisions of the Constitution of this State, in manner and form as provided by law.^" Previous Proceedings Validated. 465. That in all cases in which the property and franchises of any corporation mentioned in the act and its supplements, and to which this is a further supplement, or of any telegraph company, have been sold, by virtue of any [process] or de- cree of any court of this Commonwealth or the Circuit Court of the United States, and the person or persons for or on whose account the same have been purchased, have organized a corporation under the provisions of said act, and have issued stock and bonds to the purchaser or purchasers for their re- spective interests, secured by mortgage, in such amount and proportions as may have been determined and agreed upon by them, such issues are hereby ratified, approved, and con- firmed.*^ "° Act of May 31, 1887, P. L. 276, amending and extending the Act of May 25, 1878, P. L. 148, and April 8, 1861, P. L. 259. Where a new corporation is created by the purchasers of the franchises and property of an old company, the property purchased may be put in as full paid stock, but 10 pef cent, on the whole capital must be paid in cash to the treasurer, and the certificate for the incorporation of the new com- pany must show it. If the purchasers re-organize under the rights and franchises of the old company, the 10 per cent, payment in cash need not be paid: Opinion of the Attorney-General of June 16, 1877. The pur- chasers are not liable for unpaid bonus due the Commonwealth by the old company: Continental Ins. Co., 2 Chest. Co. Rep. go. " Act of May 25, 1878, Sec. 2, P. L. 148. 5IO FORECLOSURE AND REORGANIZATION. Acceptance of Constitution. 466. The provisions of this act shall not enure to the bene- fit of any corporation, nor shall they be considered as validat- ing or confirming any act heretofore done by any corporation, unless such corporation shall, before claiming or using the benefits of this act, file in the ofifice of the secretary of the Commonwealth, an acceptance of the provisions of Article XVI of the Constitution of this Commonwealth, which ac- ceptance shall be made by resolution adopted at a regular or called meeting of the directors or trustees or other proper officers of such corporation, certified under the seal of the corporation, and a copy of which resolution, certified under the seal of the ofifice of the secretary of the Commonwealth, shall be evidence for all purposes.^^ '' Act of May 25, 1878, Sec. 3, P. L. 148. CHAPTER XL. RECEIVERS. 467. Object of Appointment. 474. Receiver's Sale. 468. When Receiver Will not be 475. Distribution of Proceeds of Appointed. Receiver's Sale. 469. When Receiver Will be Ap- 476. Suits by Receiver. pointed. 477. Suits Against Receiver. 470. Duty of Receiver to Collect 478. Receiver's Certificates. Assets. 479. Creation of Car Trust by Re- 471. Receiver's Possession. ceivers. 472. Land in Possession of Re- 480. Foreign Receivers. ceiver Cannot be Levied 481. Appointment of Receiver Upon. After Dissolution. 473. Effect of Receivership Upon Attachment. Object of Appointment. 467. The appointment of a receiver is for the protection of a clear and well-defined right, and to prevent an irremediable injury which might otherwise ensue. It is in aid of a proceeding in equity, and is the subject of sound discretion. The court must be convinced that it is needful, and is the appropriate means of securing a proper end. Such an ap- pointment is a strong measure, and not to be exercised doubt- ingly.i " Grifferi v. Burden, 10 Montg. 184; Miller v. Walsh, I Northamp. 194; Pottsville Lumber & Feed Co. v. Kopitzsch Soap Co., 13 Pa. C. C. R. 139 (1893); Mining Co. v. Petroleum Co., 57 Pa. 83 (1868); Miller v. Walsh, I Northampton, 194; Lett v. Kirkpatrick, 15 Pa. C. C. R. 212 (1894); Chicago & Allegheny Oil & Mining Co. v. United States Petro- leum Co., 57 Pa. 83 (1868); Crombre v. Order of Solon, 157 Pa. 588 (1894). 512 RECEIVERS. The court's custody of railroad property, which has been placed in the hands of receivers, is only for the temporary preservation of the property during foreclosure proceedings, and the road should pass with as little delay as is reasonably practicable into the possession of owners who will best be able to determine how it should be managed.* When Receiver Will not be Appointed. 468. A receiver will not be appointed where it appears that there is no charge of mismanagement, that there are no scat- tered assets to be marshalled, and that the only effect of grant- ing the application would be to hinder and delay the collection of valid claims.^ Where none of the property of a corporation is in the county, and none of its officers are residents or are served, the Court of Common Pleas has no jurisdiction to appoint a receiver for the company upon the application of the Com- monwealth, and jurisdiction will not be given by the filing of informal letters of stockholders, which contain no averments of fact, and which are not sworn to.* A decree appointing a receiver is improper, where the corporation is not a party to the bill, and is not in court upon notice for a preliminary injunction. The appointment of a re- A foreign receiver will not be appointed receiver in this State if such appointment would be against the interest of the citizens of the State, and no useful purposes would be served: Borton v. Brines-Chase Co.^ 17s Pa. 209 (1896). An officer of an insolvent corporation, who is alleged to have partici- pated in its fraudulent management, will not be appointed receiver: Failey v. Stockwell, 12 Pa. C. C. R. 403. A receiver of a corporation is not a common-law officer, and no author- ' ity exists for his appointment unless it can be found in express statutory provisions: Commonwealth v. Order of Vesta, 156 Pa. 531 (1893). ' Taylor v. Phila. & Reading R. R., 9 Fed. Rep. i; New Castle & Frank- lin R. R. Co.'s Ap., 3 Walker, 281 (1880). ' Bell V. Wood, 181 Pa. 175 (1897). In general a receiver will not be appointed in a doubtful case: Chicago & Allegheny Oil & Mining Co. V. United States Petroleum Co., 57 Pa. 83 (1868); New Castle & Franklin R. R. Co.'s Ap., 3 Walk. 281. * Commonwealth v. Order of Vesta, 156 Pa. 531 (1893). RECEIVERS. 513 ceiver is a suspension of the company's functions, and is equivalent to an injunction to restrain its agents and officers from intermeddling with the corporate property in any way. Such an appointment should, therefore, not be made without making the corporation a party to the proceedings.® When Raeeiver Will be Appointed. 469. A receiver of a corporation will be appointed where it appears that the directors are about improperly to discon- tinue a suit in a foreign jurisdiction involving a very large sum of money, a new suit for which sum would be barred by the statute of limitation.* Duty of Eeceiver to Collect Assets. 470. A receiver represents not only the corporation but all its creditors, and as to the latter it is his duty to secure all the assets available for their payment. For this purpose he succeeds to their rights, and has all the powers to enforce such rights that the creditors before his appointment had in their own behalf, even though such powers be beyond those which he has as the representative of the corporation albne. As each creditor may sue, the right is equal in all, and com- mon to all, and hence the receiver who represents all ahke is the proper party to assert the common right and pursue the common remedy for the common benefit.^ If any creditor, or class of creditors have special claims against special liabilities, that does not deprive the receiver of the right or relieve him from the duty to gather them all into his hands for proper distribution. In this manner the rights of all will be protected and justice be done in a single proceeding in which every one will get what is his due, no one will be called upon to pay more than his fair proportion, and the expense, delay, inconvenience, and inevitable occa- sional injustice of separate actions by different creditors ° Gravenstine's Ap., 49 Pa. 310 (1865). ' Hazard v. Credit Mobilier, 6 W. N. C. 417 (iS/P)- 'Gushing z». Perot, 175 Pa. 66 (1896). Per Mitchell, J. 33 514 RECEIVERS. against different stockholders with their attendant legion of resulting actions for contribution will be avoided.^ Receiver's Possession. 471. Where a receiver has once obtained rightful posses- sion of personal property situated within the jurisdiction of his appointment, and which he was directed to take charge of he cannot be deprived of its possession though he takes if in the performance of his duties, into a foreign jurisdiction. While in such foreign jurisdiction it cannot be taken from his possession by creditors of the insolvent debtor who may reside within such jurisdiction.® Where a receiver of a corporation has been appointed by a court of competent jurisdiction in another State, a creditor who resides in such State cannot recover assets of the corpo- ration in Pennsylvania by an attachment-execution.^" A court of equity which has appointed a receiver of a cor- poration has jurisdiction to restrain a resident general cred- itor of the corporation from attaching debts due to the cor- poration by parties in other States, and from attaching goods of the corporation in other States.^^ Iiand in Possession of Receiver Cannot be Levied Upon. 472. Land in possession of a receiver in foreclosure pro- ceedings cannot be levied upon.^^ ' Gushing V. Perot, 175 Pa. 66 (1896). Per Mitchell, J. ° Lett V. Kirkpatrick, 15 Pa. C. C. R. 212 (1894). "° Bagby v. Atlantic, Mississippi & Ohio R. R., 86 Pa. 291 (1878). " Line v. Carlisle Mfg. Co., 18 Pa. C. C. R. 370 (1896). '" Robinson v. Atlantic & Great Western Ry., 66 Pa. 160 (1870). In this case the court said: "Being included in the mortgage, it passed into the custody and management of the receiver appointed by this court to ad- minister the afifairs of the corporation tor the benefit of the creditors. It was then in gremio legis, in legal custody, and to permit it to be levied and sold under the process of the Court of Common Pleas would at once raise a conflict of jurisdiction and interfere with the right of the receiver of the Supreme Court to manage the property under his appointment. If the property may be taken piecemeal from the custody of the receiver the remedy of the creditors under the mortgage would become worthless, or at leas t greatly imperiled. Ample authority has been cited by the de- RECEIVERS. 515 ^Effect of Receivership TTpon Attachment. 473. After an attachment against a corporation had been issued, but before judgment had been obtained upon it, the •corporation was dissolved, and a receiver was appointed. It was held that an attachment should be set aside, and the property handed over to the receiver.^* When a receiver has been appointed in Pennsylvania for a Pennsylvania corporation, an attachment for contempt will Tdc issued against the agent in this State of a foreign corpora- tion who refuses to obey an order of the court appointing the receiver, directing the agent to discontinue proceedings in attachment, begun by him in another State, against the insolvent corporation.^* Receiver's Sale. 474. A railroad company, whose road-bed, property, and franchises have been sold at a receiver's sale, cannot recover its road-bed by an action of ejectment on the ground of fraud in the sale. In such a case a bill in equity is the proper pro- cedure.^^ A sheriff's sale of the property of an insolvent corporation will not be restrained by a court of equity in order that the property may be sold by a receiver appointed on the appli- cation of other creditors of the corporation. This will not be •done even where it appears that a sale by the receiver could Idc more advantageously conducted in the interests of all the creditors.^" fendants in error. If a creditor believes that a property was not legally mortgaged, or, for any good reason, should not pass into the hands of the receiver, his duty is to apply to the court having appointed the re- ■ceiver to ask its discharge out of the custody in order that he may proceed against it." See also Longstreth v. Philadelphia & Reading R. R., 11 W. N. C. 94 (1881). • " Frailey v. Central Fire Ins. Co., 9 Phila. 219 (1874). " Crozer v. Williams Iron & Steel Co., 7 Del. County Rep. 69 (1897). "'New Castle & Northern Ry. Co. v. New Castle & Shenango Valley R. R., 12 Pa. C. C. R. 71 (1892). " Pairpoint Mfg. Co. v. Philadelphia Optical & Watch Co., 161 Pa. 5l6 RECEIVERS. Distributiou of Proceeds of Keoeiver's Sale. 475. Where a corporation in the hands of a receiver is hopelessly insolvent, and the only thing that remains to be done is to distribute its assets amongst its creditors, the bondholders of the company, although their bonds are not due, are entitled to participate with the general creditors in the distribution of the proceeds of the sale of the property of the company.^'^ Where a corporation in the hands of a receiver is hopelessly insolvent, taxes which have accrued during the time that the receiver was manufacturing raw material in order to facilitate the sale of the assets, should be paid in fuU.^® A corporation was in possession of a factory as a tenant,, by virtue of an assignment to it of a lease. After the date of the assignment of the lease the corporation executed a mortgage of its leasehold, fixtures, antl machinery under the Act of April 27, 1855, P. L. 369, to the landlord to secure rent in arrears. The property of the corporation was subse- quently sold at a receiver's sale. Held, that as the corpora- tion was liable for the rent, and as the property was subject to distress for the rent in arrears the mortgage did the cred- itors of the company no harm, and the claim for rent should be sustained as a preferred claim.^" The rights of creditors of an insolvent corporation are fixed at the date of the decree dissolving the corporation and appointing a receiver. No rights subsequently acquired by a creditor can entitle him to a larger participation in the com- pany's assets. Thus where a policy-holder of an insolvent in- surance company is entitled merely to a dividend upon the amount of his premiums paid by him up to the date of the decree of dissolution, he cannot become entitled to a divi- 17 (1894); Lowry, Trustee, v. Philadelphia Optical & Watch Co., 161 Pa. 123 (1894). In directing a sale of real estate the court cannot direct that the sale shall divest existing liens: 3 Dist. Rep. 260. "Gehr v. Mont Alto Iron Co., 174 Pa. 430 (1896). " Gehr V. Mont Alto Iron Co., 174 Pa. 430 (1896). " Burr V. Rose Valley Mills, 174 Pa. 302 (1896). RECEIVERS. 517 Pa. (>6 (1874). " Gray v. Monongahela Nav. Co., 2 Watts & Serg. 156 (1841). 544 SUITS AGAINST AND BY CORPORATIONS. It may be sued for assault and battery, for fraud and deceit, for false imprisonment, for malicious prosecution, for nui- sance, and for libel. In certain cases it may be indicted for misfeasance or non-misfeasance touching duties imposed upon it in which the public are interested. Its offenses may be such as will forfeit its existence.''® Where a national bank is accustomed to take deposits for safe keeping, and this is known and acquiesced in by the directors, and the property deposited is lost by the gross neg- ligence of the bank, a liability ensues against the bank in like manner as if the deposit had been authorized by the terms of the charter.''® An action for malicious prosecution will lie against a pri- vate manufacturing corporation;'''' and a corporation may also be sued in trespass for mesne profits and trover.''* A corporation may sue for libel and for slander if the libel- lous publication or the slanderous words are directed against the corporate business. "The principle is the same, whether the words be spoken or written; the important matter is their effect, and if it appear that they have done pecuniary harm to a business, the law ought to provide a remedy, whether the organ of expression be the mouth or the hand, and whether the business be that of an individual or of a corpo- ration.''® Attacliment Under Act of 1869. 499. A corporation is liable to attachment under the fraud- ulent debtors' Act of March 17, 1869.*° " First National Bank of Carlisle v. Graham, 8 W. N. C. 361 (1880) ; Chestnut Hill & Spring House Turnpike Co. v. Rutter, 4 Serg. & Rawle, 6 (1818). " First National Bank of Carlisle v. Graham, 8 W. N. C. 361 (1880). " Fenton v. Wilson Sewing Machine Co., 9 Phila. 189 (1874). ™ McCready v. Guardians of the Poor, 9 S. & R. 94 (1822). " Temperance Mut. Benefit Assn. v. Schweinhard, 3 Pa. C. C. R. 353 (1887). '° Mcclianii-s' Nat. Bank v. Mine's Bank, 13 W. N C 515 (1883)- 17 riiila. ,44 (i88s). SUITS AGAINST AND BY CORPORATIONS. 545 Judgment for Want of an Appearance. 500. If any corporation, summoned as aforesaid, shall not appear by their officer, agent or attorney, at the time men- tioned in said summons, then or at any time afterwards, on proof of the service of the summons, by the oath or affirma- tion of the officer serving the same, judgment, by default, shall be rendered against said corporation, for the sum which to the court or magistrate shall appear to be due.^^ Where a corporation has been summoned by a writ of venire facias to answer an indictment for nuisance, and has failed to enter an appearance, judgment by default may be entered against the corporation.*^ At common law if a corporation did not appear after serv- ice of process upon its principal officer, the plaintiflf had a writ of distringas under which the sherifif might destrain the lands and goods which constituted the common stock of the corporation.** Oath in Case of Appeal, 501. In case of appeal, certiorari, or writ of error, by any corporation, the oath or affirmation required by law shall be made by the president, or other chief officer of the cor- poration, or in his absence, by the cashier, treasurer, or sec- retary; and when any corporation shall be sued, and shall ap- peal or take a writ of error, the bail requisite in that case shall be taken absolute for the payment of the debt, interest, and costs, on affirmance of the judgment.** " Act of March 22, 1817, Sec. 2, 6 Sm. L. 438. " Commonwealth v. Lehigh Valley R. R., 165 Pa. 162 (189s). In this case Mr. Justice Mitchell, in a learned opinion, reviews the history of the origin of judgment by default in civil cases, and its extension to criminal cases in which corporations are parties defendant. " Nash V. The Rector, i Miles, 78 (1835). "Act of March 22, 1817, Sec. 4, 6 Sm. L. 438. An agent who is not an officer, cannot enter an appeal: Washington & Pittsburgh Turnpike Co., 8 S. & R. 517 (1822) ; Schuylkill Nav. Co. v. Thomas, 13 S. & R. 431 (1826). The bail must be absolute for debt, interest, and costs: Morris v. Del- aware & Schuylkill Canal, 4 W. & S. 461 (1842) ; Germantown & Perkio- men Turnpike Co. v. Naglee, 9 S. & R. 227 (1823). 35 546 SUITS AGAINST AND BY CORPORATIONS. Service of Notice When Corporation is Party to a Suit. 502. Rules of reference, and all notices whatsoever, may, where a corporation is a party in any suit, be served on the president or other principal officer, or cashier, or secretary or chief clerk of such corporation.^® Proceedings When Corporation is a Party. 503. In cases in which a corporation shall be a party in any suit in any court, or before any magistrate, all the pro- ceedings, except as regulated by this act, shall be the same as directed by law in other similar cases.** Nature of Bail Required on Appeal by Corporations. 504. When any corporation (municipal corporations ex- cepted), being sued, shall appeal or take a writ of error, the bail requisite in that case shall be taken absolute, for the pay- ment of debt, interest, and costs, on the affirmance of the judgment.®'' Corporations to Pay Counsel Fees in Certain Cases. 505. In all cases where railroad, or other corporations, not municipal, shall be liable, either' as principals or guaran- tors, to pay the interest on bonds, the validity of which bonds shall have been established by a court of competent jurisdic- tion, and such corporations subject the holders of such bonds to the necessity of bringing suits to recover the said interest, the said corporation shall, in addition to the ordinary costs of suit, pay the fees of the plaintifif's counsel, not exceeding 10 per cent, on the amount recovered.®* " Act of March 22, 1817, Sec. s, 6 Sm. L. 438. "Act of March 22, 181 7, Sec. 6, 6 Sm. L. 438. " Act of March 15, 1847, Sec. i, P. L. 361. See Sec. 497, supra. The act does not apply when the corporation is merely a garnishee: i L. V. 56. A corporation must enter security for debt, interest, and costs on an appeal from an award /of arbitrators: Pinks v. Rimersburg Gas Co., 18 Pa. C. C. R. 339 (1896); but see Bitner v. Interstate Mutual Fire Ins. Co., 7 Del. County Rep. 29 (1897); Catasauqua Mfg. Co. v. Lehigh Car Mfg. Co., 14 Phila. 644 (1880); Erhard v. Clearfield Creek Coal Co., S Dist. Rep. 611 (1896). Under the Act of March 29, 1809, a corporation was entitled to an ap- peal of arbitrators without entering into a recognizance of bail: Carpen- tier V. Del. Ins. Co., 2 Binn. 263 (1810). See also Morris v. Delaware & Schuylkill Canal Co., 4 Watts & Serg. 461 (1842). " Act of May 3, 1866, Sec. i, P. L. 116. SUITS AGAINST AND BY CORPORATIONS. 547 Construction of J'oregoing Act. 506. The true intent and meaning of an act entitled "An Act compelling railroad and other corporations to pay fees ■of plaintiffs in certain cases," approved May 3, 1866, is and is hereby declared to be that corporations named in said act shall only be liable to pay the plaintiff's counsel fees in case said corporations have contested the validity of the bonds for the recovery of the interest on which suit has been brought, and such validity has been established by a court of compe- tent jurisdiction.^® " Act of March 16, 1871, Sec. i, P. L. 231. CHAPTER XLII. EXECUTIONS AGAINST CORPORATIONS. Citation to Officers to Answer Interrogatories Touching the Property of Corporation. Discovery. Form of Execution Against Corporations. Method of Distribution. Distribution of Proceeds. Attachment-Execution. Special Fieri Facias Against Corporate Property and Franchises. Levy may Extend to Otlier Counties. Sequesti-ation Superseded by Act of 1870. 516. How Property Must be Sold Under Act of 1870. When Property may be Sold Under Ordinary fi. fa. 507- 508. 509- 510. S". S12. 513- 514- 515- 517- 518. Special A. fa. Cannot be Issued! Until Return of Nulla Bono, 519. Demand Must be Made by Sheriff Before Special A. fa. Can Issue. 520. The Franchises Merely may be Sold. 521. Execution Under Act of 1870- Does not Create a Lien. 522. Sale Under Special A. fa. Dis- solves Corporation. 523. Laches Where Sale is Under Ordinary A. fa. 524. Where Property is in Differ- ent Counties. 525. Sale of Property Covered by Mortgage. 526. Purchaser to Hold Real Estate Discharged from the Right of Forfeiture. Citation to Oflfioers to Answer Interrogatories Touching the Property of Corporation. 507. Whenever a judgment may be rendered in any court of record against any private corporation within this Com- monwealth, in any civil action, and a writ of Aeri facias shall be issued on such judgment, and the sherifif to whom the same may be directed shall make a return of nulla bona on the same, it shall and may be lawful for the plaintifif in such action to apply by petition and affidavit to the court in which such judgment has been rendered, stating that no property, of the defendants can be found on which an execution may be levied^ and that the party making the application verily believes that 548 EXECUTIONS AGAINST CORPORATIONS. 549 the effects of the corporation are concealed for the purpose of avoiding the payment of their debts, whereupon the said court may issue a citation, directed to the president, secretary, treasurer, or other officers and members of the said corpora- tion, commanding him or them to appear in court on a day certain, and answer such interrogatories as may be put to them touching the efifects of the corporation, which citation shall be served by the sheriff, and it shall be the duty of the plaintiff to file interrogatories to be put to such officer or member, at least fifteen days before the return-day of such citation, in the office of the prothonotary of such court, and the person or persons to whom the said citation shall be di- rected shall, on or before* the return-day thereof, file his or their answers to such interrogatories, upon oath or affirma- tion, in the office of the prothonotary, and if any person to whom such citation may be directed shall neglect or refuse to file his answers as aforesaid, or shall file answers which in the opinion of the court shall be unsatisfactory, it shall be lawful for the court to issue an attachment for contempt against the person so refusing to answer, or answering unsat- isfactorily, and if upon the answers to such interrogatories it shall appear that any effects of the said corporations are in the possession or power of any member of the corporation, or of any other person or persons, it shall and may be lawful for the court to issue an order in the nature of an order of sequestration, which, being served by the sheriff on the per- son or persons in whose possession or power such effects are alleged to be, shall have the same force and effect as if he or they had been summoned as garnishees in a foreign attach- ment, and the like proceedings shall thereafter be had against him or them as may be had against such garnishees after judg- ment rendered against the defendant in a foreign attachment, and any debtor of the said corporation may plead such seques- tration, and proceedings against him, in bar of any action brought by such corporation, exactly as the garnishee in a foreign attachment may plead the proceedings in the saine, in bar of an action by the defendant in the same.^ Uisoovery. 508. A bill of discovery lies against a corporation under the Act of June i6, 1836, but such a bill could only be filed • Act of April 14, 1828, Sec. i, P. L. 439. 550 EXECUTIONS AGAINST CORPORATIONS. by a sequestrator appointed under the provisions of the act. The remedy extended to all the estate of the corporation of every description, whether it consisted of real or personal estate, goods and chattels, choses in action, or money due or to become due.^ Under the Act of 1836 a plaintiff who had issued process of execution against a corporation, which was returned wholly or partially unsatisfied, could sue out a second or third execution, and in aid of that execution he could ask assistance of the court to discover property of the corporation, fraudu- lently conveyed or concealed, and failing in obtaining sat- isfaction of the judgment by these means, he could resort to a writ of sequestration under the provisions of the act.' Porm of Execution Against Corporations. 509. All executions which shall be issued from any court of record against any corporation, not being a county, town- ship, or other public corporate body, shall command the sheriff, or other officer, to levy the sum recovered, together with the costs of suit, of the goods and chattels, lands, and tenements of such corporation, and such execution shall be executed in the manner following, to wit: I. The officer charged with the execution of such writ shall go to the banking houses, or other principal office of such corporation, during the usual office hours, and demand of the president, or other chief officer, cashier, treasurer, secretary, chief clerk, or other officer, having charge of such office, the amount of such execution, with legal costs. II. If no person can be found on whom demand can be made as aforesaid, or if the amount of such execution be not forthwith paid, in lawful money, after demand as aforesaid, such officer shall seize personal property of said corporation sufficient to satisfy the debt, interest, and costs, as aforesaid. III. If the corporation against which such execution shall ' Bevans v. Dingman's-Choice Turnpike, 10 Pa. 174 (1849) ; Wesley Church V. Moore, 10 Pa. 272 (1849). ' Large v. Bristol Steam Tow-Boat & Transportation Co., 2 Ashmead, 394 (1841) ; Plymouth R. R. v. Colwell, 39 Pa. 337 (1861) ; Youngman v. Elmira & Williamsport R. R., 65 Pa. 278 (1870) ; Western Penna. R. R. V. Johnston, 59 Pa. 290 (1868). EXECUTIONS AGAINST CORPORATIONS. 55 1 be issued be a banking company, and other sufficient per- sonal property cannot be found, such officer shall take so piuch of any current coin, of gold, silver, or copper, which he may find, as shall be sufficient to satisfy the debt, interest, and cost, as aforesaid. IV. If no sufficient personal property be found, as afore- said, such officer shall levy such execution upon the real estate of such corporation, and thereupon proceed in the manner provided in other cases for the sale of land upon execution.* Method of Distribution. 510. [The court shall, upon the awarding any such writ, appoint a sequestrator to execute the same, and to take charge of the property and funds taken or received by virtue of such writ,] and to distribute the net proceeds thereof among all the creditors of such corporation, according to the rules established in the case of the insolvency of individuals." Distribution of Proceeds. 511. The proceeds of real estate of a purely private corpo- ration, sold at sheriff's sale for payment of its debts, must be distributed amongst lien creditors according to priority of lien and not pro rata.^ Attachment-Execution. 512. So much of the Act of Assembly passed June i6, 1836, entitled "An Act relating to executions," as provides for the levy and recovery of stock, deposits, and debts due to defend- ants, by process of attachment and scire facias, is hereby ex- tended to all cases of attachments to be issued upon judg- ments against corporations (other than municipal corpora- tions), and from and after the passage of this act all such process, which hereafter may be issued, may be proceeded in to final judgment and execution, in the same manner, and under the same rules and regulations as are directed against corporations, by the provisions of the Act of June 16, 1836, * Act of June i6, 1836, Sec. 72, P. L. 755. " Act of June 16, 1836, Sec. 74, P. L. 755. The part in brackets was superseded by the Act of April 7, 1870. See Sec. 513, supra. ' First Nat. Bank v. New York & Westmoreland Gas, Coal & Coke Co., 137 Pa. 601 (1890) ; Reynolds v. Reynolds Lumber Co., 17s Pa. 437 (1896); Roy's Ap., 169 Pa. 626 (189s). 552 EXECUTIONS AGAINST CORPORATIONS. relating to executions; and so much of the thirty-sixth sec- tion of the Act of June i6, 1836, as requires service of the attachment on any defendant, be, and the same is, hereby repealed, except where the defendant is a resident of the county in which the attachment issued J An insolvent as well as a solvent corporation is subject to attachment-execution.* A deposit in a bank by a corporation is liable to an attachment-execution.^ The property of the corporation cannot be reached by an attachment-execution when it is in the hands of its officers in their official capacity. Thus a writ of attachment-execu- tion served upon a corporation, and its secretary and treas- urer as sole garnishee will be quashed.^" Ticket agents cannot be summoned as garnishees in an attachment-execution against a railroad company, as to moneys in their hands from sale of tickets. In Fowler v. Pitts., Ft. Wayne & Chicago R. R., the court said: "The purpose of an attachment-execution is to reach the effects of a defendant in the hands of third persons. Here, the defendant is a corporation; a railroad company. Are its ticket agents to be treated as third persons, so far as regards money received by them on the sale of tickets to passengers? We think not. We suppose that the case speaks of the ordi- nary ticket agents employed at the office of the company; and of these we speak. These are the very hands of the com- 'Act of March 20, 1845, Sec. 4, P. L. 188. Attachment-execution did not lie against corporations under the Act of June i6, 1836, P. L. 755: Ridge Turnpike Co. v. Peddle, 4 Pa. 490 (1846); Navigation Co. v. Ledlie, l Clark, 498 (1843). ' Reed v. Penrose's Executors, 2 Grant, 472 (1859). "Bank v. Ryan, 2 Lancaster Bar, No. 10, p. 2; Penrose v. Erie Canal Co., 3 Phila. 198 (1858). " First National Bank of Johnson City v. Bristol Iron & Steel Co., 12 Pa. C. C. R. 176 (1892). See also Frank v. Polytechnic College, 2 W. N. C. 244 (187s); Penrose v. Erie Canal Co., 3 Phila. 198 (1858); Reed V. Penrose, 36 Pa. 214 (i860) ; Fowler v. Pittsburgh, Fort Wayne & Chi- cago R. R., 35 Pa. 22 (1859). EXECUTIONS AGAINST CORPORATIONS. 553 pany; it cannot do its business without them; and if an attachment-execution is to be regarded as arresting money received after its service, then it would always occasion the dismissal of such agents, in order to prevent such a result." ^^ Where a foreign railroad company is required as a condi- tion for the privilege of extending its line through the State to keep at least one manager, toll-gatherer, or other officer resident in the State upon whom process might be served, an attachment-execution may issue against the company as gar- nishee for a debt owing by the company to a non-resident.^^ At a sheriff's sale of the property of a corporation a'person with money furnished by the corporation bought in the prop- erty for the company. He subsequently transferred the prop- erty to a newly-organized corporation into which the old cor- poration had been merged. After the transfer a judgment creditor of the old company issued an attachment-execution against the person who had bought the property, and mad.e the transfer. It was held that he was not liable either for the property purchased and transferred or for the va,lue of it.^^ Special Fieri Facias Against Corporate Property and Fran- chises. 513. In addition to the provisions of the sixty-second sec- tion of the Act of June i6, 1836, relating to executions, and in lieu of the provisions or proceedings by sequestration under said act, plaintiff or assigns, in any judgment against any corporation not excepted by said act, may have execution [by] fieri facias issued from the court wherein such judgment is entered, which shall command the sheriff or other officer to levy the sum of said judgment, with interest and costs of suit, of any personal, mixed, or real property, franchises, and rights of such corporation, and thereupon proceed and sell the same, excepting lands held in fee, which latter shall be proceeded against and sold in the manner provided in cases ior the sale of real estate; the proceedings on judgment under the aforesaid provisions of this supplement shall be without " Fowler v. Pittsburgh, Fort Wayne & Chicago R. R., 35 Pa. 23 (1859). " Fithian v. New York & Erie R. R., 31 Pa. 114 (1857)- " BalHet v. Brown, 103 Pa. 546 (1883). 554 EXECUTIONS AGAINST CORPORATIONS. Stay of execution: Provided, that the purchaser or pur- chasers of any or all of said property, real, personal, or mixed, together with the franchises and rights, shall take the same clear of all incumbrances, excepting any mortgage or mort- gages which may legally exist at the time of levy thereupon, the lien of which shall not be affected in any manner by said sale.^* Iievy May Extend to Other Counties. 514. By virtue of any execution issued under this act the levy may extend to the property, franchises, and rights of said corporation, in any and every county of this Commonwealth, wherein the same may be, and shall be indorsed on said writ; the levy and sale thereof shall be as effective as though all said property, franchises, and rights were located, used, lev- ied upon and sold in the county wherein said writ of execu- tion was issued, and shall fully divest the defendants of all interest therein.*^ Prior to the Act of April 7, 1870, there was no way by which the franchises and the property of a corporation essen- tial to the performance of public duties, could be sold under execution process. Thus it was held that no execution would lie against a house occupied by the collector of tolls of a canal company;^® nor against the bed of a canal ;^'' nor against the roadbed of a turnpike company.^* " Act of April 7, 1870, Sec. i, P. L. 58. " Act of April 7, 1870, Sec. 2, P. L. 58. " Susquehanna Canal Co. v. Bonham, 9 Watts & Serg. 27 (1845) ; Am- mant v. New Alexandria & Pittsburgh Turnpike Road, 13 Serg. & Rawle, 210 (1825). " Graham's Executor v. Pennsylvania & Ohio Canal Co., 3 Pittsburgh Rep. 341 (1872); Plymouth R. R. v. Colwell, 39 Pa. 337 (1861); Susque- hanna Canal Co. v. Bonham, 9 W. & S. 27 (1845). See Fox v. Reed, 3 Grant, 81 (i86i). " Ammant v. New Alexandria & Pittsburgh Turnpike Road, 13 Serg. & Rawle, 210 (1825). In Oakland Ry. Co. v. Keenan, 56 Pa. 198 (1867), It was held that a private creditor of a railroad company may on execu- tion sell the land of the company subject to the right of company to keep and retain its tracks upon the land, and the purchasers at such sale may have the benefit of the Act of June 16, 1836, to obtain possession of the land subject to the railroad company's rights. EXECUTIONS AGAINST CORPORATIONS. 555 Sequestration Superseded by Act of 1870. 515. The Act of April 7, 1870, P. L. 58, providing the method by which a property and franchises of a corporation may be sold, superseded the remedy by sequestration, as pro- vided by the Act of June 16, 1836. In distributing the proceeds of a sale of the franchises and property of a corporation having public duties to perform all creditors are entitled to share pro rata, as in case of insol- vency.^* How Property Must be Sold Under Act of 1870. 516. Since the Act of 1870, the property of a quasi public corporation, necessary to its corporate existence and for the enjoyment of its franchises cannot be sold separate and apart from its franchises.^" Thus an injunction will be awarded to restrain execution to sell the personal property of a fire in- " Philadelphia & Baltimore Central R. R. Co.'s Ap., 70 Pa. 3SS (1872). In Bayard's Ap., 72 Pa. 453 (1872), Williams, J., said: "The legisla- ture in authorizing the seizure and sale of the property and franchises of a corporation against which judgment has been obtained and execu- tion returned unsatisfied, intended to provide a speedy mode for winding up its affairs for the benefit of all its creditors, instead of subjecting them to the vexation and delay incident to the proceedings by a sequestration against a corporation hopelessly insolvent. This view is confirmed by the provisions of the second section of the act. It cannot be that the legisla- ture intended that any execution issued under the act should be a lien on the property, franchises, and rights of the defendant corporation in any and every county of the Commonwealth for the sole use and benefit of the plaintiff, and that he should be first paid out of the proceeds of sale. In giving to the execution a grasp on all the property of the cor- poration within the Commonwealth, and authorizing the levy and sale thereof, with the same effect as if it was located, used, levied upon, and sold in the county wherein said writ of execution was issued, it is mani- fest that the legislature must have intended the sale to be for the common benefit of all the creditors, otherwise gross injustice would be done to such of them as resided out of the county in which the execution was issued, but within a county where a portion of the property was situated, and who had trusted the corporation on the faith of it." " Bell V. Wood, 181 Pa. 17s (1897) ; Greensburg Fuel Co. v. Irwin Nat. Gas Co., 162 Pa. 78 (1894); Guest v. Merion Water Co., 142 Pa. 610 (1891); Longstreth v. Phila. & Reading R. R., 11 W. N. C. 309 (1882). 556 EXECUTIONS AGAINST CORPORATIONS. surance patrol, a quasi public corporation, apart from its- franchises by an ordinary fieri facias.^ . 21 When Property may be Sold Under Ordinary fi. fa. 517. The property of a private corporation having no pub- lic duties to perform may be taken in execution and sold under an ordinary fieri facias, and it is immaterial whether the corporation is insolvent or not. The law favors the dili- gent creditor of a corporation as well as of an individual, and if a creditor of a corporation obtains judgment and sells the property of the corporation, he will be entitled to the pro- ceeds to the amount of his claims, although the corporation is insolvent.^^ The proceeds of an execution sale of the property of an insolvent corporation which is not essential to the exercise of its franchises goes to the execution creditor, and not to the creditors generally.^* Special fl. fa. Cannot be Issued Until Return of Nulla Bona. 518. The special fi. fa. under the Act of April 7, 1870, P. L. 58, is "in lieu of the provisions or proceedings of seques- tration," under the Act of 1836, and it cannot be issued until after a previous fi. fa. has been returned unsatisfied in part or in the whole.^* '^ Boyd's Ap., 2 Monaghan, 399 (iS "' East Side Bank v. Columbus Tanning Co., 170 Pa. i (1895) ; Reynolds V. Lumber Co., 169 Pa. 626 (1895); First Nat. Bank v. N. Y. & West- moreland Gas, Coal & Coke Co., 137 Pa. 601 (1890). ^ Fairmount Coal & Iron Co.'s Ap., 14 W. N. C. 214 (1884). In this case the court said: "It is found as a fact that the property of the corpo- ration which produced this fund was not necessary to the exercise of its franchise. It was the articles which it produced to sell, and the material out of which they were manufactured. Whether any of the franchises of the corporation could be sold on execution, and the proceeds of the sale be applied on that execution, to the exclusion of the debts due to other creditors, is a question that does not now arise, and we intimate no opinion thereon. We think the proceeds of the property sold may be so applied." "Phila. & Bait. Cent. R. R. Co.'s Ap., 70 Pa. 3SS (1872); Bayard's Ap., 72 Pa. 4S3 (1872); Hopkin's Ap., go Pa. 69 (1879); Second Nat. Bank v. Gibbs & Sterrett Mfg. Co., 13 W. N. C. 174 (1883); Flagg v. Farnsworth, EXECUTIONS AGAINST CORPORATIONS. 557 Demand Must be Made by Sheriff Before Special fl. fa. Can Issue. 519. Before a special fi. fa. can issue under the Act of April 7, 1870, P. L. 58, demand must be made by the sherifif at the principal office of the company, as provided by the Act of June 16, 1836, Section 72, P. L. 774.^^ If such demand has not been made the writ will be stayed.^® The sherifif of the county in which the writ issues may go to any county in the State where the principal office of the corporation is situated to make the demand.^^ The Pranehises Merely may be Sold. 520. It seems that the franchises merely of a purely pri- vate corporation may be sold by special fi. fa. as provided by the Act of April 7, 1870, after an ordinary -/i. fa. has issued and been returned nulla bona.^^ Execution Under Act of 1870 Does not Create a Iiien. 521. Upon the sale of the property of a quasi public corpo- ration under the Act of April 7, 1870, P. L. 1 18, an execu- tion does not create a lien, but is a mere process to convert the property for payment of debts by an equal distribution among creditors. ^^ Sale Under Special fi. fa. Dissolves Corporation. 522. A sale of the rights of the franchises of a corporation under the special H. fa. provided by the Act of April 7, 1870, 16 Phila. 57 (1883); Fox v. Hempfield R. R., 8 Phila. 639 (1871); Guest V. Lower Merion Water Co., 142 Pa. 610 (1891); Smith v. Altoona & Phillipsburg Connection R. R., 182 Pa. 139 (1897); Taylor v. Baltimore & Lehigh R. R., 7 York, 174; Valle v. Arnold Electric Mfg. Co., 6 Del. 69; Lusk's Ap., 108 Pa. 152. " Showalter f. Ehlan, S Pa. Sup. Ct. 242 ^1897); Hassall v. Union Canal Co., 2 Pa. C. C. R. 147 (1884). " Mausel v. New York, Chicago & St. Louis Ry. Co., 171 Pa. 606 (1895). " Smith V. Altoona & Phillipsburg Connection R. R., 182 Pa. 139 (1897). " Valle Bros. v. Arnold Electric Mfg. Co., 17 Pa. C. C. R. 33 (1894)- Per Clayton, J. But see Reynolds v. Reynolds Lumber Co., 169 Pa. 626 (1895). '"Bayard's Ap., 72 Pa. 453 (1872). 558 EXECUTIONS AGAINST CORPORATIONS. dissolves and extinguishes the corporate existence and no action can be maintained against the company thereafter.** Iiaches Where Sale is Under Ordinary fl. fa. 523. If the franchises and corporate property are sold under an ordinary iieri facias, the sale will not be set aside unless the objection is made in due time. The property and franchises of a railroad company were sold at sheriff's sale under an ordinary A. fa. without any previous return of nulla bona, to certain of the officers and stockholders of the company. Certain other stockholders petitioned the court to set aside the sale on the ground of fraud and collusion, but their petition was dismissed. About two years after the sale they filed a bill in equity to have the sale set aside on the grounds of fraud, and irregularity in the execution process. It was held that the irregularities in the sale could not be taken advantage of after such a lapse of time.** Where Property is in Different Counties. 524. The Act of April 7, 1870, contemplates a levy of the sheriff on property within his county, and extends the effect of such levy to other counties in which the corporation de- fendant has property. It does not give the sheriff power to levy on the property of the corporation in other counties when it has no property within his own.*^ Sale of Property Covered by Mortgage. 525. A sheriff's sale of the franchises and property of a corporation made under an execution on a judgment of an individual bondholder for arrears of interest upon bonds se- cured by a trust mortgage, will pass no title to the franchises and property covered by the mortgage. A person held bonds amounting to $7,200 secured by a "Reifler v. Honesdale & Delaware Plank Road Co., i Pa. C. C. R. 64 (188s). " Lusk's Ap., 108 Pa. 152 (1884). '" Hassall v. Union Canal Co., 2 Pa. C. C. R. 147 (1884). EXECUTIONS AGAINST CORPORATIONS. 559 mortgage upon the franchises, Hberties, property, etc., "now held or hereafter to be acquired by the Phila. & Bait. Central Railroad Co." The Phila., Wil. & Bait. Railroad Co. held bonds secured by the same mortgage for $122,942.11, and, a default having been made recovered judgment for the said sum, and levied upon the engines and rolling stock of the company. Woelpper filed his bill against the plaintiff in the writ and the sheriff, asking among other forms of relief, "that it be declared that the property levied upon as aforesaid is a part of the mortgaged premises, and is exempt from levy and sale under the executi&n on the judgment hereinbefore mentioned, or under any other execution that may hereafter be issued thereon." The master recommended a decree in accordance with the foregoing prayer. The Court of Com- mon Pleas of Chester County made the decree as recom- mended. The case was brought into the Supreme Court by appeal, and the decree was affirmed and appeal dismissed.^® Forchaser to Hold Beal Estate Discharged from the Bight of Forfeiture. 526. In all cases where the real estate of any corporation shall be sold at sheriff's sale, for the payment of bona fide debts, the purchasers shall receive titles discharged from any right of forfeiture to the Commonwealth, by reason of misnomer, limitation, or defect of power in the said corporation to pur- chase and hold said lands; and the purchase-money shall be distributed according to priority among the lien creditors, as in other cases.^* " Paul V. Hassall, 18 Phila. 621 (1884) ; Phila., Wil. & Bait. R. R. v. Woelpper, 64 Pa. 366 (1870); Commonwealth v. Susquehanna & Del. River R. R., 122 Pa. 306 (1888). " Act of April 30, 1844, Sec. 2, P. L. 332. CHAPTER XLIII. EXECUTION AGAINST STOCK. 527. Stocks may be Sold, Subject 531. Proceedings Against Stock to Debts Due Corporation. Held by Defendant, and 528. Stocks Liable to Execution. Claimed by a Third Person.^ 529. Proceedings to Levy on Stock 532. Stock Held in Name of An- of Defendant in the Name other may be Attached Be- of Another. fore Judgment — ^After Judg- 530. Attachment to Issue Upon ment Stock to be Sold on Filing Affidavit and Recog- Fieri Facias. nizance. S33- Summary. Stocks may be Sold, Subject to Debts Due Corporation. 527. The stock of any body corporate, owned by any in- dividual or individuals, body or bodies politic or corporate, in his, her, its, or their own names, shall be liable to be taken in execution and sold in the same manner that goods and chattels are liable in law to be so taken and sold, subject nevertheless to any debt due by any holder or holders of such stock to the company or body corporate. '^ The Act of March 29, 1819, Section 2, was not repealed by the Act of June 16, 1836, P. L. 75, Sections 32, 33, and 34.* Stock in a bank or other corporation standing in the name of a defendant in an execution is not liable to be sold as his under the Act of March 29, 1^19, if it actually be the property of another.^ ' Act of March 29, 1819, '7 Sm. L. 217, Sec. 2. ° Weaver v. Huntingdon & Broad Top R. R., 50 Pa. 314 (1865); Bonaf- fon V. Wyoming Canal Co., 4 Phila. 29 (i860) ; Lex v. Potters, 16 Pa. 295 (1851); West Branch Bank v. Armstrong, 40 Pa. 278 (1861). ' Commonwealth v. Watmough, 6 Whart. 117 (1841). 560 EXECUTION AGAINST STOCK. 56I When stock is assigned to the corporation itself as collat- eral security for a loan to the owner of the stock, the title of the assignor is divested so far as to prevent a sale of the stock under a fieri facias against him. The only remedy is by an attachment-execution under the Act of 1836.* « Stocks Liable to Execution. 528. The stock owned by any defendant in any body cor- porate, also deposits of money in any bank, or with any per- son or body, corporate or politic, belonging to him, and debts due to him, shall be liable to execution, like other goods or chattels, subject nevertheless to all lawful claims thereupon, of such body corporate, or person.® Proceedings to lisvy on Stock of Defendant in the Name of Another. 529. The proceedings to levy an execution upon stock debts, and deposits of money belonging or due to the de- fendants, shall be as follows, to wit: In the case of stock if it shall be held in another name than tlftit of the real owner thereof, the plaintiff shall file in the office of the prothonotary of the court an affidavit, stating that he verily believes such stock to be really the property of the defendant, and shall enter into a recognizance, with two sufficient sureties, conditioned for the payment of such dam- ages as the court may adjudge, to the party to whom such stock shall really belong, in case such stock should not be the property of the defendant.® Attachment to Issue, Upon Filing Afttdavit and Recognizance. 530. Upon the filing of such afifidavit and recognizance, it shall be lawful for the prothonotary to issue process, in the nature of an attachment, against such stock, with a clause of summons to the person in whose name the same may be held, in the nature ofc a writ of scire facias against garnishees in a foreign attachment, and thereupon the plaintiff may proceed * Early's Ap., 89 Pa. 411 (1879); Eby v. Guest, 94 Pa. 160 (1880). ■ Act of June 16, 1836, Sec. 22, P. L. 7SS- ' Act ef June 16, 1836, Sec. 32, P- L. 755- Proceedings should be instituted in the county where the garnishee resides: Cowden v. West Branch Bank, 7 Watts & Serg. 432 (1844)- 36 562 EXECUTION AGAINST STOCK. to judgment, execution, and sale of the said stock in the man ner allowed in cases of foreign attachment against personal estate.'' The affidavit and recognizance are necessary, although the stock is merely assigned as collateral security,* but they only apply to a case where there is a claimant disputing the de- fendant's title.® Where a judgment debtor holds stock in his own name upon the books of the company, the stock may be taken in execution by H. fa. under the Act of March 29, 1819. It also may be attached by attachment-execution under the Act of June 16, 1836. If the stock held by the defendant in the execution is subject to a charge or lien, an attachment-execu- tion seems to be the preferable proceeding.^^ Execution against the stock of the corporation held by a defendant in his own name, may be either by a writ of fieri facias under the Act of March 29, 1819, or by attachment under the Act of June 16, 1836, Sections 34 and 35. In con- struing these acts Judge Hare said: "In truth both acts are consistent, and stand well with each other; the Act of 1819 furnishing the plaintiff a short and compendious remedy when he has no reason to doubt the title of the defendant, and when the best course consequently is to proceed at once to a sale under legal process by the sheriff, while that of 1836 affords the means of discovery and of bringing in third parties who have or assert outstanding equities, thus enabling the question of right to be settled in the first instance, and with- out the complication which might grow out of a sale attended perhaps by notice." ^^ Stock of a corporation was assigned as security for a debt. ' Act of June 16, 1836, Sec. 33, P. L. 755. ' Chown V. Russell, i Del. Co. 16 (1881) ; Mulford v. Weisgerber, 3 Luz. Leg. Reg. 99 (1874); Eby v. Guest, 94 Pa. 160 (1880). "Belts V. Towanda Gas & Water Co., 97 Pa. 367 (1881). "Weaver v. Huntingdon & Broad Top R. R., 50 Pa. 314 (1865). " Bonaffon v. Wyoming Canal Co., 4 Phila. 29 (i860). EXECUTION AGAINST STOCK. 563 Attachment-execution issued and the pledgee was made garnishee. "The fi. fa. commanded the sheriff to levy upon the goods and chattels, lands and tenements of the Trades- men's Saving Fund and Loan Association, garnishees of Henry Stoever, to wit, seven shares in the seventh series of the capital stock of the said association in the hands of the said association in the name of the said H. Stoever." It was held that the form of the writ was proper.^ ^ The attaching creditor in the absence of a malicious abuse ■of the process is not liable to the garnishee for a depreciation of the value of the stock pending the attachment. If it ap- pears that there is a possibility that the stock may depreciate pending the attachment, the court may make an order for its sale.^* Proceedings Against Stock Held by Defendant, and Claimed by a Third Person. 531. The like proceedings may be had against stock owiied by a defendant, and held in his own name, without the affi- davit and recognizance aforesaid; and if any person shall claim to be the owner of such stock, he may, upon filing an affidavit that the stock is really his property, and entering into a recognizance, with two sufficient sureties, conditioned for the payment of such damages as the court thay adjudge to the plaintiff, if such stock should really belong to the defend- ant, the court shall admit him to become a party upon the record, and take defense, in like manner as if he were made ■garnishee in the writ.^* Stock Held in Name of Another may be Attached Before Judgment— After Judgment Stock to be Sold on Fieri Facias. 532. Whenever any plaintiff or creditors shall file an affi- davit with the prothonotary of the court, alderman, or magis- trate, in which or before whom such plaintiff or creditors has instituted, or is about to institute a suit, stating that he verily Relieves such stock to be really and bona Me the property of "" Stoever v. Stoever, 3 W. N. C. 169 (1876). " Sargent v. Fuller, 132 Pa. 127 (1^0). " Act of June 16, 1836, Sec. 34, P- L- 7SS- 564 EXECUTION AGAINST STOCK. the debtor against whom such suit has been, or is about to be brought, and also shall enter into a recognizance with two sufficient sureties, conditioned for the payment of such dam- ages, as such court, alderman, or magistrate may adjudge to the party or parties to whom such stock shall really belong,, in case such stock should not be the property of such debtor, it shall and may be lawful for such court, alderman, or magis- trate to cause to be issued process in the nature of a foreign attachment against such stock, and to summon as garnishee the person or persons in whose name or names the same shall be held, and proceed against the said stock, and such gar- nishee, in all respects in the same manner as by the laws of this Commonwealth proceedings now are or hereafter may be prescribed in cases of foreign attachment against personal estate, and upon judgment being had in favor of the plaintiff in any such suit, execution may issue immediately for the sale of such stock, in the same manner that goods and chattels are sold on writs of fieri facias: Provided, that in case of a. judgment before a justice of the peace or alderman, where the amount in controversy shall exceed $5.33, an appeal shall be allowed to the Court of Common Pleas, agreeably to the same rules and regulations now or hereafter to be prescribei for granting appeals in other cases cognizable before a justice of the peace.^^ Summary. 533. (i.) Where Stock stands in the name of the defendant and is owned by him, and not pledged, it may be sold under a a. fa. under the Act of March 29, 1819, or taken under attachment-execution tinder the Act of June 16, 1836. (2.) Where stock stands in the name of a person other than the defendant, but is really owned by the defendant who has transferred it to defraud creditors, it must be taken in attachment proceedings under the Act of March 29, 1819. (3.) Where stock stands in the name of another, but there has been no fraud in the transfer, it must be taken by an at- tachment-execution under the Act of June 16, 1836. " Act of March 29, 1819, Sec. 3, P. L. 217. See McKee v. Moore, i W. N. C. 112 (18-4); First Nat. Bank v. Kountz, 6 Pa. C. C. R. 249^ (1889') ; Evans v. Brownscombe, 8 Pa. C. C. R. 456 (i8go). EXECUTION AGAINST STOCK. 565 (4.) Stock Standing in the name of the defendant in the execution, but actually the property of another cannot be sold either under the Act of March 29, 181 9, or attached tmder the Act of June 16, 1836. (5.) Stock standing in the name of another, having been pledged as security for a debt must be attached under the Act of June 16, 1836, subject to the rights of the pledgee. (6.) Stock standing in the name of the defendant in the execution, which has been assigned to another as security for a debt, but not transferred on the books of the company, must be attached under the Act of June 16, 1836, subject to the rights of the pledgee. CHAPTER XLIV. FOREIGN CORPORATIONS. Status of Foreign Corporation. 534. Foreign Corpoijation Must Have Consent of State to do Business. 535. Status of Company Incorpo- rated by Two States. 536. Status of Corporation Char- tered by Congress. Jurisdiction of State Courts Over Foreign Corporations. 537. May Inquire Into Powers. 538. May Compel Payment of Un- paid Stock Subscriptions. 539. May Enforce Personal Liabil- ity of Stockholders. 540. Will not Inquire Into Internal Management. 541. Payment of Fund to Foreign Receiver. 542. Appointment of Foreign Re- ceiver. Powers of Foreign Corporations. 543. To Foreclose Mortgage. 544. To Establish Agency. 545. To Make Contracts. 546. To Lease Building. 547. To Protect Its Name. 548. To Proceed in Certain Cases Without Entering Security for Costs. 549. To Go Security. 550. To Prefer Creditors. 551. To Make Assignments for Benefit of Creditors. 566 Power of Foreign Corporation to Hold Real Estate. 552. Power to Hold Real Estate Regulated. 553. Construction of Act of 1855. 554. Title to Real Estate of Re- ligious Publication Societies. 555. Purchase of Real Estate at Judicial Sales. 556. Title to Real Estate Con- firmed. 557. Extension of Time for Hold- ing Real Estate. 558. Conveyance of Real Estate. 559. Land Held for Charitable Uses. 560. Power to Hold Stock of Do- mestic Company Owning Real Estate. Offices and Agents Under Act of April 22, 1874. 561. Offices and Agents Within State. 562. Statement to be Filed. 563. Penalties for Non-Compliance. 564. What is Doing Business. 565. What is not Doing Business. 566. Suits by Corporations Which Have not Complied with the Act. 567. Disabilities of Corporations Which Have not Complied with the Act. 568. Liability of Agent. FOREIGN CORPORATIONS. 567 569. Right to Remove Suit not Waived by Appointment of Agent. How Foreign Corporations may Become Domestic. 570. What Corporations may Be- come Domestic. 571. Application Need not be Ad- vertised nor 10 Per Cent. Paid. 572. Proceedings After Filing of Certificate. 573. Restrictions on Powers of Original Corporation. Suits Against Foreign Corporations. 574. Proceedings in Suits Against Foreign Corporations. 575. Service of Process on Foreign Corporations. 576. What Service is Good. 577. What Service is Bad. 578. Attachment-Execution. Foreign Attachment Against For- eign Corporation. 579. Foreign Attachment. 580. Statutory Provision. S8i. When the Attachment Lies. 582. When the Attachment Does not Lie. Foreign Insurance Companies. 583. Acting as Agent of Foreign Companies Prohibited Until Act is Complied With. 584. Liability of Agent. 585. Names of Agents to be Certi- fied. 586. Service of Process Upon For- eign Companies. 587. Penalty for Doing Business in This State Without Author- ity. 588. Requisite Capital of Foreign Fire and Marine Companies. 589. Issuance of Certificates to Foreign Companies. 590. Licensing of Foreign Life and Accident Assessment Com- panies. 591. Foreign Companies may Hold and Convey Real Estate. 592. Titles Confirmed. Extension of the Powers of Iron and Steel Companies to Certain For- eign Corporations. 593. Powers. 594. Title to Real Estate Previously H;eld. 595. Powers Given to Foreign Quarrying and Mineral Spring Companies. Status of Foreign Corporations. Foreign Corporation Must Have Consent of State to do Busi- ness. 534. A corporation of one State cannot do business in another State without the latter's consent expressed or im- plied, and that consent may be accompanied with such condi- tions as the latter State may think proper to impose. These conditions, however, must not be repugnant to the Constitu- tion or laws of the United States, or inconsistent with the jurisdictional authority of the State, or in conflict with the rule, which forbids condemnation without opportunity for 568 FOREIGN CORPORATIONS. defense.^ Thus it is competent for the legislature of Penn- sylvania to impose as a condition upon foreign corporations doing business in this State that they shall assess and collect the tax upon that portion of their loan in the hands of indi- viduals, resident writhin this State," or in the hands of persons or corporations in Pennsylvania acting as trustees for persons whose residence is unknown, although the bonds were orig- inally issued and sold to non-residents.* Corporations are not citizens within the meaning of the clause of the Constitution of the United States, which de- clares that "the citizens of each State shall be entitled to all the privileges and immunities of citizens in the several States." "They are creatures of local law and have not even an absolute right of recognition in other States, but depend for that and for the enforcement of their contracts upon the assent of those States, which may be given accordingly on such terms as they please. The privileges and immunities secured to citizens of each State in the several States, by this clause, are those priv- ileges and immunities which are common to the citizens in the latter States under their Constitution and by-laws, by vir- tue of their being citizens. Special privileges enjoyed by citi- zens in their own State are not secured by it in other States." * 'Allegheny County v. Cleveland & Pittsburgh R. R., 51 Pa. 228 (1865); Fox V. American Casualty Ins. & Security Co., 12 Pa. C. C. R. 207 (1892); Commonwealth v. Standard Oil Co., loi Pa. 119 (1882). ' Commonwealth v. New York, Lake Erie & Western R. R., 129 Pa. 463 (1889). ■ Commonwealth v. New York, Lake Erie & Western R. R., 150 Pa. 234 (1892); Commonwealth v. Del. & Hudson Canal Co., 150 Pa. 24s (1892). A corporation being the mere creature of local law can have no legal existence beyond the limits of the sovereignty where created. The recog- nition of its existence even by other States, and the enforcement of its contracts made therein depend purely upon the comity of these States, a comity which is never extended where the existence of the corporation or the exercise of its powers is prejudicial to their interest or repugnant to their policy: Van Steuben v. Cent. R. R. of N. J., 178 Pa. 367 (1896). * List V. Commonwealth, 118 Pa. 322 (1888). A railroad company incorporated in another State is a citizen of the FOREIGN CORPORATIONS. 569 The legislature may lay a franchise or license tax upon a foreign corporation as a compensation for the State for the protection which it aflfords foreign corporations who have an office within its borders for the convenience of the company, and upon whose property a State tax cannot be imposed be- cause the corporate property is not within its jurisdiction. Such a tax, however, only can be imposed upon such portion of the capital of a foreign corporation as is brought within the State.^ The proviso in Section i6, of the Act of June 7, 1879, P. L. 120, to the effect that if a majority of the stock of a foreign corporation is owned or controlled by a Pennsylvania cor- poration, the foreign corporation will not be obliged to take out a license, refers to a majority of the stock actually issued, and to a majority of the total amount of stock, which the for- eign corporation is authorized to issue.® A foreign railroad corporation authorized to construct a portion of its railroad in the State has the same rights and privileges as a domestic corporation.'^ Status of Company Incorporated by Two States. 535. The status of a corporation acting under charters from two States is that of an association incorporated in and by each of the States, and when acting as a corporation in either of the States, it acts under the authority of the charter of the State in which it is then acting, and that only, the leg- islation of the other State having no operation beyond its territorial limits.* State where it was incorporated within the meaning of the Act of Con- gress, 1789, which gives the right to remove a case from the State to the Federal courts "where the suit is between a citizen of the State where the suit is brought and the citizen of another State:" Wheeden v. Camden iSc Amboy R. R., i Grant, 419 (1856). 'Commonwealth v. Standard Oil Co., loi Pa. 119 (1882). • Commonwealth v. Texas & Pacific R. R., 98 Pa. 90 (1881). ' New York & Erie R. R. Co. v. Young, 33 Pa. 17S (i8S9)- ■ Rothschild v. Rochester & Pittsburgh R. R. Co., i Pa. C. C. R. 626 (1886). 570 FOREIGN CORPORATIONS. A corporation chartered by two States by the same name and style, clothed with the same capacities and powers, and intended to accomplish the same objects, and spoken of in the laws of both States as one corporate body, exercising the same powers and fulfilling the same duties in both States, has no legal existence in either State, except by the laws of the States, and neither State can confer on it a corporate exist- ence on the other, nor add to or diminish the powers there exercised. This principle was applied in a case where the defendant was a corporation of the States of Ohio and Penn- sylvania, and the plaintiff a citizen of Pennsylvania, and the proceeding was a petition for the transfer of the case to the Federal court. Woodward, P. J., in refusing the petition, said: "The Cleveland & Pittsburgh Railroad Company was first incorporated by the State of Ohio and then by Penn- sylvania. It became thus a separate corporation in each State. The legal presumption that results from such legislation is that the members of the corporation are citizens of both States and no averment or evidence is to be received to coun- tervail this presumption. The averments and affidavits we have upon the record corroborate the presumption, which, for purposes of jurisdiction, would be conclusive without cor- roboration. A suit then against this corporation by a citizen of Pennsylvania is a suit against citizens of Ohio and Penn- sylvania who have united themselves in business under the shadow of the corporate name, and because some of the de- fendants are citizens of the same State as the plaintiff, the Federal courts have not jurisdiction, and the application to certify into that jurisdiction was properly refused." ® Status of a Corporation Chartered by Congress. 536. A corporation chartered by Congress is not a foreign corporation.^" • Allegheny County v. Cleveland & Pittsburgh R. R., 51 Pa. 228 (1865). "Eby V. Northern Pacific Ry. Co., 6 W. N. C. 385 (1879); Common- wealth V. Texas & Pacific Ry., 98 Pa. 90 (1881). FOREIGN CORPORATIONS. 57I Jurisdiction of State Courts over Foreign Corporations. May Inquire Into Powers. 537. The State court may inquire into the powers of a foreign corporation, where the corporation comes as a suitor into such courts. "Otherwise a corporation created by one State could make any and every contract in another, under pretext of its charter, no matter how inconsistent with the ends of its Constitution. Such a doctrine would soon termi- nate in the legislative exclusion of the corporations created by the laws of the one State; from all others. By voluntarily coming into the courts of a State, different from that of its creation, seeking the enforcement of a contract entered into by it with the citizens of the former, a corporation binds itself to establish that the law of its creation gives it author- ity to make the contract it seeks to enforce. While its exist- ence as an artificial person in the State of its creation is ac- knowledged and recognized by the laws of the State where it assumes to contract, yet it is permitted by the laws of the latter to exercise there only the powers with which it is en- dowed. Where the tribunals of the creating State have adjudicated on the extent of the franchises possessed by such corporation, a proper spirit of comity requires that sUch adju- dication should conclude the question of the amount of its charter privileges in the foreign forum in which it is a suitor, and where such a corporation has power to contract, if it should pass the exact line of its power, it would rather belong to the government by which it was created to exact a for- feiture of its charter, than for a foreign court in a collateral way to decide a question of misuser, by setting aside a just and bona Me contract. "^^ May Compel Payment of Unpaid Stock Subscriptions. 538. The courts of Pennsylvania may compel a foreign corporation doing business in Pennsylvania to collect unpaid " Bank of Kentucky v. Schuylkill Bank, i Parsons, 180, 226 (1846). 572 FOREIGN CORPORATIONS. Stock subscriptions in order to pay the creditors of the com- pany.^ ^ Under the laws of Ohio the stockholders of a corporation chartered by that State were individually liable over and above the amount of stock owned by them to a further sum equal in amount to such stock. After the corporation had become insolvent, and after all its assets, real and personal, had been exhausted, a bill was filed in Pennsylvania by a stockholder who had taken to himself an assignment of all the company's debts against the stockholders, all of whom resided in Pennsylvania. It was held that the Pennsylvania courts had jurisdiction to enforce against the stockholders the personal liability imposed upon them by the Ohio law in favor of the creditors of the corporation.^* But a bill in equity cannot be maintained in the courts of Pennsylvania by the stockholders of a foreign corporation to compel other stockholders to pay their unpaid subscriptions, and this is the case, although the principal office of the cor- poration is in Pennsylvania, and all the meetings of the stock- holders and directors have been held in this State.^* " North V. Weaver Electric Mail Box Mfg. Co., 3 Pa. C. C. R. 316 (1887). '" Aultman's Ap., 98 Pa. 505 (1881). " Morris v. Stevens, 6 Phila. 488 (1868). In this case Judge Sharswood said: "He (a stockholder) subscribes to, or purchases his stock with his eyes open. He voluntarily becomes a member ^of a body, which derives its corporate existence and franchises, and is subject to the laws and juris- diction of a foreign sovereignty. He has no right to call upon the courts of his own State to protect him from the consequences of his own act in thus intrusting his property to another and foreign guardianship. He knows, or he ought to know, that no quo warranto can issue from the courts of his own State to inquire into the existence of such a corpora- tion, whether its franchises have been fraudulently or illegally usurped by strangers, or whether it has forfeited them by misuse and abuse. The bill before me does not set forth the charter of the Empire Copper Com- pany. It does not appear to me, even if I were competent to put a construction on its terms, that the directors and officers have violated any of its provisions, or failed to perform any of their corporate duties. Non constat that the charter has not prescribed specially what steps shall be taken against defaulting stockholders. If we look at the prayers of FOREIGN CORPORATIONS. 573, May Enforce Personal Liability of Stockholders. 539. A liability imposed upon the stockholders of a foreign corporation for an additional amount, equal to the stock owned by them, may be enforced outside of the limits of the State by which the company was incorporated, but in an action brought in Pennsylvania to enforce such liability, an affidavit of defense is sufficient which avers that suit had already been brought and judgment obtained against the de- fendant in the State where the company was incorporated, and that execution had been levied on his real estate there." • In an action in Pennsylvania against a stockholder of a Kansas corporation to enforce a personal liability imposed upon a stockholder by the Constitution of Kansas, an affida- vit of defense is insufficient which avers that prior to the note given by the corporation to the plaintiff, the corporation had ceased to be a corporation of Kansas or under its laws.^* A single foreign creditor of an insolvent foreign corpora- tion cannot sue a stockholder, a citizen of Pennsylvania, in Pennsylvania, in an action of assumpsit upon the liabilities- imposed by the State of the company's incorporation upon the stockholders to pay the debts of the corporation to an amount equal to the stock owned by them, if it appears that this bill, this view receives abundant confirmation. After two prayers- for discovery, which only bear upon the relief which is asked, it prays that the defaulting defendants be decreed to account for the money re- ceived, and not heretofore accounted for and paid by them to the com- pany, that a receiver be appointed to take charge and possession of all- books, papers, moneys, and assets of the company, and that in the mean- time the officers and directors of the company be restrained and enjoined- from interfering or meddling with the business, books, papers, assets,, and money of the said company. Thus, in effect, will the administration- of all the affairs of this foreign corporation be taken into the hands of this court, or its officers, and what conflicts might arise with the proper authorities of the State of Michigan, who is capable of foreseeing? I ami not ambitious of being the first judge to enter upon this hitherto untrod- den field of equity jurisdiction." " Gushing v. Perot, 175 Pa. 66 (1896). "Sykes v. Anderson, 14 Pa. C. C. R. 329 (1894). 574 FOREIGN CORPORATIONS. a receiver has been appointed by a court having jurisdiction over the corporation.^'' "Will not Inquire Into Internal Management. 540. A Pennsylvania court of equity will not sustain a stockholder's bill against a foreign corporation where the controversy involved in the case relates to the internal man- agement of the company. In discussing this subject in a re- " Gushing v. Perot, 175 Pa. (£ (i8g6). In this case Mr. Justice Mitchell, after reviewing the cases, said: "These are all the cases we Tiave been able to find on the subject, and in the absence of a controlling ■weight of authority, and as already said, especially in the absence of an ■express decision of the Supreme Court of Kansas, we are not willing to ■depart from the settled general rule. The objections to doing so appear to us unanswerable. A receiver represents not only the corporation but all its creditors, and as to the latter it is his duty to secure all the assets available for their payment. For this purpose he succeeds to their rights, and has all the powers to enforce such rights that the creditors before his appointment had in their own behalf, even though such powers be ■beyond those which he has as the representative of the corporation alone. As each creditor may sue, the right is equal in all, and common to all, and hence the receiver who represents all alike is the proper party to as- sert the common right and pursue the common remedy for the common henefit. We do not, of course, refer to pending suits already begun by creditors before the appointment of the receiver. As to them his power to interfere may be doubted. But as to others he is clearly the proper party. If any creditor or class of creditors have preferred claims, or as argued here, special claims against special liabilities, that does not de- prive the receiver of the right or relieve him from duty to gather them all into his hands for proper distribution. In this manner the rights of all will be protected, and justice be done in a single proceeding in which every one will get what is his due, no one will be called upon to pay more than his fair proportion, and the expense, delay, inconvenience, and in- evitable occasional injustice of separate actions by different creditors against different stockholders, with their attendant legion of resulting actions for contribution, will be avoided. This is so consonant with con- venience and natural justice, as well as with our own settled procedure in analogous cases, that we will not be easily moved to depart from it. "We hold, therefore, that the right to sue, if there is any, is in the re- ceiver, and that plaintifif cannot maintain the present action. The ultimate questions whether the courts of this State will enforce the statutory lia- bility under the law of Kansas at all, and if so, whether against separate stockholders or only in the form established by our own practice in similar cases, we leave to be decided when they arise." FORKIGN CORPORATIONS. 575 cent case, Judge Dean said: "While visatorial and remedial powers are conferred upon our courts over corporations of this State, and they can, under certain circumstances, prop- erly exercise these powers, as to foreign corporations it has been directly decided otherwise under the averments of this bill. In Morris v. Stevens, 6 Phila. 488 (1868), Justice Shars- wooD, sitting at nisi prius, held that a stockholder's bill could not be maintained against a foreign corporation, mainly on the ground that to do so would lead to a conflict of jurisdic- tion. He refers to Judge King's decision in Bank v. Adams, I Parsons, 534 (1850), where it was held that even a cred- itor's bill to compel payment of subscription to stock was not sustained, much less would a stockholder's bill lie, for the Pennsylvania resident has no right to call upon the courts of his own State to protect him from the consequences of a voluntary membership in a foreign corporation. By the very act of membership he intrusted his money to the control of an organization owing existence to and governed by the laws of another State. It is argued by appellant that the visible, tangible property of a foreign corporation situate within this State confers local jurisdiction, and, therefore, as the conduits are in Philadelphia, our courts have jurisdiction. Without doubt, courts of equity in Pennsylvania have, under our Act of Assembly of April 6, 1859, jurisdiction to enjoin unlawful acts by such corporations; to enforce performance of contracts in this State with third parties; in short, have gen- eral jurisdiction in equity; but they have no jurisdiction as to their internal management. What constitutes internal man- agement is well defined by Stone, J., in Mining Co. v. Field, 64 Md. 154: 'Where the act complained affects the com- plainant solely in his capacity as a member of the corporation, whether it be as stockholder, director, president, or other ofifi- cer, and is the act of the corporation, whether acting in stock- holders' meeting or through its agents, the board of directors, then such action is the management of the internal affairs of the corporation; and in case of a foreign corporation our 576 FOREIGN CORPORATIONS. courts will not take jurisdiction.' Here, the plaintiffs, stock holders, accuse the corporate management of disregard of the rights of the whole body of stockholders for whom the cor- poration is trustee, in making unwise and reckless contracts, which depreciate and render valueless their stock. The wrong complained of is not from the violation of a contract with them, but want of fidelity to duty in their fiduciary relation springing from the nature of the organization. In substance, the averment is that at the office of the company, in the State of New Jersey, the management, in violation of their official duty, entered into a contract to be performed in Pennsylva- nia, whereby the stockholders suffer. This, plainly, strikes at the internal management of the company; the existence of the wrong must be ascertained, and the remedy applied, accord- ing to the laws of the domicile." ^* A quo warranto will not issue from a court in this State for the purpose of inquiring into the regularity of an election for officers of a foreign corporation, although the charter of the company provides that a branch office shall be maintained in a county in Pennsylvania, and a majority of the directors of the company reside in the county where the branch office is established.^* Where a foreign corporation does business in Pennsylva- nia any question as to the validity of the organization of the corporation must be decided by the courts of this State in accordance with the decisions of the State in which the com- pany was incorporated.-" Payment of Fund to Foreign Receiver. 541. Where a fund belonging to a foreign corporation in the hands of a receiver has been paid into court, the fund will not be awarded to the foreign receiver, but will be paid to Pennsylvania attaching creditors.*^ " Madden v. Electric Light Co., 181 Pa. 617 (1897). " Commonwealth v. Leisenring, 15 Phila. 215 (1881). ""Grant v. Henry Clay Coal Co., 80 Pa. 208 (1876). ^ Smith V. Fidelity Building, Loan & Investment Co., 16 Pa. C. C. R. 386 (189s). FOREIGN CORPORATIONS. 577 But resident stockholders of a foreign corporation are not entitled as resident creditors to have the property of the cor- poration in this State applied to their claims before handed over to a foreign receiver. The assets of a foreign corporation in Pennsylvania were collected by a receiver appointed by a court in Pennsylvania. The receiver appointed in the State where the company was incorporated asked that the fund be paid over to him; this was resisted by members of the corporation resident in Penn- sylvania. The court directed that the fund should be paid over to the foreign receivef. Biddle, J., in delivering the opinion of the court, said: "The Pennsylvania rule, as stated in Merrick's Est., 5 W. & S. 19 (1842), is that while 'a legal title to choses in action does not pass to the assignee, but, subject to the rights of American creditors, an equitable one does.' That is to say, that in the case of creditors residing here, the court would not allow funds to be withdrawn from their jurisdiction until the creditor's rights were determined. This, not from any distrust of the tribunals of a sister State, but because the debts having been contracted here, it would be unjust to compel our citizens to go to a distant State to collect them. The parties before us here are not, however, creditors but members of this Indiana corporation. Their claims are not adverse to this corporation, but under it. And they announce that they will claim out of the funds in Indiana what they fail to receive here, unless their amount is equal to that received by any one. The learned master advises the distribution of these assets here, mainly on the ground of the inconvenience of collecting them elsewhere. While this, as we have said, is a strong argument in favor of creditors, we fail to see its force in relation to the members of the corpora- tion. If there is any inconvenience in becoming the mem- bers of a foreign corporation greater than joining one in our own State, it is one that they have voluntarily brought upon themselves. And it would seem a much simpler process that the funds which belong to all the members of the order should 37 578 FOREIGN CORPORATIONS. be put in the hands of the receiver of the parent corporation at Indianapolis, where the books are, and where $800,000 have already been paid in, and there have a pro rata distribu- tion instead of having a partial distribution in the twenty-four States where branches are said to have been established. We fail to see any valid reason why we should undertake to dis- tribute the assets of an Indiana corporation among its own members." ^^ Appointment of Foreign Receiver. 542. As the appointment of a foreign receiver is an act of comity, and is controlled by the discretion of the court it will not be made if against the interest of citizens of this State, and if it serves no good purpose.^* Powers of Foreign Corporations. To Foreclose Mortgage. 543. A foreign corporation may foreclose a mortgage held by it on real estate in Pennsylvania.** To Establish Agency. 544. A foreign corporation has the right to establish an agency in Pennsylvania for the transfer of the stock, if its charter provides that its stock shall be "assignable and trans- ^ Kean v. Iron Hall, 15 Pa. C. C. R. 194 (1894). " Borton v. Brines-Chase Co., 17s Pa. 209 (i8g6). " Leasure v. Union Mut. Life Ins. Co., 91 Pa. 491 (1879). "By the common law, alien friends could always sue, and there is no distinction in this respect between natural and artificial persons. Why, then, may not the performance of such a contract be secured by a mortgage as well as a judgment? Both are merely liens. It is true that a mortgagee can bring ejectment, and recover possession of the land. Should a foreign corporation resort to this remedy, or become the purchaser at sheriff's sale, a different question would arise, but that even could not release the debt, or destroy the validity of the title, except as against the Common- wealth. The Commonwealth, indeed, might enforce its claim by virtue of the statutes of mortmain; but the grantor or mortgagor could not set up that as a defense against his own conveyance or mortgage." See also American Slate Co. v. Phillipsburg Building & Loan Savings Bank, 8 W. N. C. 430 (1880). FOREIGN CORPORATIONS. 579 ierable only in such manner, and at such place or places as the president and directors . . . shall by their by-laws pre- scribe." 2^ To Make Contracts. 545. Foreign corporations are permitted to make con- tracts in a State when such contracts are not contrary to the known policy of the State, or injurious to its interests. The foreign corporations cannot, however, make a valid contract if it is not authorized by its charter to exercise its powers ibeyond the limits of the State which incorporated it.** To Lease Building. 546. A foreign corporation may lease a building in this State, in which to transact its business.*'' To Protect Its Name. 547. A foreign corporation legitimately engaged in busi- ness in this State has a standing to protest against the in- corporation of another company on the ground of similarity ■of title.*8 '"Bank of Kentucky!'. Schuylkill Bank, i Parsons, 180, 227 (1846). " Bank of Kentucky v. Schuylkill Bank, i Parsons, 180, 225 (1846). " Baltimore & Philadelphia Steamboat Co. v. McCutcheon, 13 Pa. 13 zz (1883); Railroad v. Berks Co., 6 Pa. 70, 75 (1847); Northampton County v. Easton Pass. Ry., 148 Pa. 282 (1892); North- umberland Co. V. Phila. & Erie R. R., 20 W. N. C. 381 (1887); West Chester Gas Co. v. Chester County, 30 Pa. 232; Erie County v. Erie & Western Transportation Co., 87 Pa. 434; Coatesville Gas Co. v. Chester County, 97 Pa. 476; Saint Mary's Gas Co. v. Elk Co., 168 Pa. 401; Schuyl- kill Co. V. Citizens' Gas Co., 148 Pa. 162; Penna. R. R. v. Pittsburgh, 104 Pa. 522; Phila. v. P. & R. R. Co., i Sup. Ct. of Penna. 245; Nav. Com. V. Commissioners, i Jones, 202; Wayne Co. v. D. & H. Canal Co., IS Pa. 351; Penna. B. & R. Co. v. Pittsburgh, 104 Pa. 522; Lackawanna Iron & TAXATION OF CORPORATIONS. 657 Shops owned and operated by a railroad company for the construction and repair of its locomotives and cars are liable to taxation for local purposes as real estate, even though they have no greater capacity than is required for the work the company itself has for them to do."^ But repair shops used exclusively for repairs and not for construction are not liable to be taxed.*^^ A transportation company incorporated under the laws of Pennsylvania engaged in the business of transportation on the great lakes is liable for county taxes on grain elevators, warehouses, and offices situated on water lots in the city of Erie.*^® An office building not situated upon the line of the railroad is not exempt from municii>al taxa- tion."* The freight and passenger stations of a railroad company necessary for the enjoyment of the franchises of the company are not liable to local taxation.^^" The horses and stables of a street railway company are liable for local taxation.^^^ The bed, berm-bank, tow-paths, toll-houses, and collector's offices, the constituent parts of an incorporated canal and Coal Co. V. Luzerne County, 42 Pa. 424 (1862); Carbon Iron Co. v. Carbon County, 39 Pa. 251 (1861) ; Chester v. Chester Electric Light & Power Co., 7 Del. Rep. 92 (1897) ; Spring Brook Water Supply Co. v. Schadt, 3 Lack. L. N. 170 (1897); Monongahela Bridge Co. v. Pitts- burgh, 12 Pa. C. C. R. 87. "'Penna., New York, etc., R. R. v. Vandyke, 137 Pa. 249 (1890). "'Western N. Y. & Pa. Ry. v. Venango Co., 183 Pa. (1898). ^ Erie County v. Erie & Western Transportation Co., 87 Pa. 434 (1878). "' Berks County v. Eastern Penna. R. R., i Woodward, 376 (1867). If, however, an act expressly gives a municipality the power to tax a rail- road on its real estate, all the railroad property may be subject to local taxation: Penna. R. R. v. Pittsburgh, 104 Pa. 522 (1883). "° Northampton County v. Lehigh Coal & Navigation Co., 75 Pa. 461 (1874). '" People's Street Ry. v. Scranton, 8 Pa. C. C. R. 633 (1890) ; Delaware County V. Chester Street Ry., 10 Pa. C. C. R. 326 (1891); Citizens' Pass. Ry. V. Donohugh, 10 W. N. C. 62 (1881); Smith v. Ry., 12 W. N. C. 174 (1882); Citizens' Pass. Ry. v. Donohugh, 15 Phila. 258 (1881); Smith v. Philadelphia City Passenger Ry., 15 Phila. 89 (1882). See Northampton County V. Pass. Ry., 148 Pa. 282 (1892). 42 ^SS TAXATION OF CORPORATIONS. incident thereto cannot be assessed as real estate. A house erected as a toll-house, and occupied both as the col- lector's office and his family residence is, notwithstanding the fact that it is the residence of the collector, a con- stituent part of the canal, and cannot be assessed for local .taxation.^** Land owned by incorporated gas companies and used ■only for the purpose of manufacturing and distributing gas and wholly included in corporate stock of the company is not liable for local taxation.^^^ The works of a gas company and the lot of ground on which they are located if necessary to enable the company to -carry on its business are not liable to local taxation.^** The real estate of an incorporated gas company necessary ■to carry on the business for which the company was char- tered is exempt from taxation for local purposes.^^^ The works of an incorporated gas company are not taxable as real estate for State and county purposes. But dwelling- houses erected by them for the residence and accommodation 'of their workmen are liable to taxation.^^® The land of a natural gas company which is necessary and indispensable to the company in carrying out the public pur- pose for which the company was incorporated cannot be taxed by the county.^ ^^ The gas pipes of a natural gas company laid in the streets of a city through which natural gas is distributed to con- sumers are not subject to taxation for city purposes.^^^ ™ The Schuylkill Navigation Co. v. Commissioners of Berks County, II Pa. 202 (1849). '^ Chester County v. Coatesville Gas Co., 2 York Leg. Rec. 10 (1881). '=* Schuylkill Co. v. Citizens' Gas Co., 148 Pa. 162 (1892) ; West Mana- yunk Gas Co. v. Phila., 3 Dist. Rep. 52. ™ Coatesville Gas Co. v. Chester County, 97 Pa. 476 (1881) ; New Chester Water Co.'s Ap., 4 Del. Rep. 382. ""West Chester Gas Co. v. Chester County, 30 Pa. 232 (1858). "' St. Mary's Gas Co. v. Elk County, 168 Pa. 401 (1895). ^^ Pittsburgh's Ap., 123 Pa. 374 (1889). See Mellon Pipe Lines v. Al- legheny Co., 3 Dist. Rep. 448. TAXATION OF CORPORATIONS. 659 A local tax cannot be imposed on coal chutes or pockets belonging to a corporation, where it appears that such chutes or pockets are a necessary and indispensable means of transmitting coal from the company's lands to boats.^^* The houses and lands of a quarry and cement company are not exempt from local taxation, because they were purchased with the capital stock of the company on which a tax is paid to the Commonwealth.^*" A Pennsylvania corporation was engaged in the business of transporting grain and ojiher merchandise to and from the Great Lakes to interior cities. To accommodate its business it erected grain elevators, warehouses, and offices on lots which it owned in the city of Erie. It was held that the com- pany was liable for local taxation on these buildings, as they were not a necessity, but only a convenience for carrying on the company's business.^*^ The real estate of a corporation which has no public duties to perform is liable for local taxation, notwithstanding that the corporation pays a tax upon its capital stock to the State.i«2 A market company is subject to local taxation upon its market building, although the building is erected upon a pub- lic square of a borough, and the company pays a State tax upon its capital stock.^** '"Lehigh Coal & Navigation Co. v. Miller, 155 Pa. 542 (1893). ""Columbia County v. Espy Lime & Cement Co., 11 Lancaster Bar, 124 (1879). "'Erie County v. Erie & Western Transportation Co., 87 Pa. 434 (1878); Railroad v. Berks County, 6 Pa. 70 (1847); Wayne County v. Del. & Hudson Canal Co., 15 Pa. 351 (1850). "" Lackawanna Iron & Coal Co. v. Luzerne County, 42 Pa. 424 (1862). "'Allegheny County v. McKeesport Diamond Market, 123 Pa. 164 (1889). I" this case Mr. Justice Hand, in reversing the court below, said: "It is, however, claimed that because it is upon the public square, and the borough has the right at some future time to purchase and pay for it, and then carry it on as a public market, it should be exempt. The answer to that is, it is time enough to decide that it is legally property of a public corporation when the facts exist which constitute it such. The learned judge of the court below seemed to take the view that this state 66o TAXATION OF CORPORATIONS. The real estate of a private manufacturing corporation is liable for county taxes, although it consists of buildings and machinery necessary for manufacturing purposes, and in- cluded in its capital stock. The Act of June 30, 1885, which abolished the taxes laid on manufacturing corporations ap- plied only to the taxes levied for State purposes, and had no application to county and municipal taxes.^^* Under the Act of June 8, 1891, a cemetery company is lia- ble for the State tax upon its capital stock, although the capi- tal of the company is made up almost entirely of real estate upon which local taxes have been paid.^*** of things already existed, for he based his judgment upon the case of Coatesville Gas Co. v. Chester Co., 97 Pa. 481. It will be seen that in that case, and all the kindred cases in which it was held the tax assessed was illegal, the principle which controlled the court was that the public works of a public corporation, such as a railroad company, canal com- pany, or gas company, could not be subjected to double taxation without an express mandate of the legislature to that effect. The principle has, however, never been applied to a private corporation. A public corpo- ration is one which cannot carry out the purposes of its organization without chartered rights from the Commonwealth. Railroads, canals, and gas companies must have the right of eminent domain in order to perform their functions. Their property, which is indispensable to their chartered rights, is represented by their capital stock, and as such is taxed specially by the legislature, and the law will not subject it to dupli- cate taxation by mere inference. It must expressly be made subject by statute. Such of the property of such a corporation as is not so indis- pensable, but is merely convenient, is held subject to taxation under the general law assessing such property. A private corporation which needs no chartered rights in order to carry on its business, stands in no differ- ent position from an individual. It was, therefore, error to apply the rule to such a corporation as the defendant. The case of South Reading Market House Co. v. Berks County, 11 W. N. C. 424, is exactly applicable to this case, and is placed upon the basis that it was a private corporation. The market house was its principal and only property, and included in the terms of the act relating to assessment, but the gas pipes and gas works of a gas company were not so included. These principles are clearly enunciated in the following cases: Lehigh Co. v. Northampton County, 8 W. & S. 334; West Chester Gas Co. v. County of Chester, 30 Pa. 232; Lackawanna Iron & Coal Co. v. Luzerne Co., 42 Pa. 424." '"Hawes Mfg. Co.'s Ap., i Monaghan, 353 (1889). '" Commonwealth v. Hillside Cemetery Co., 170 Pa. 227 (1895). TAXATION OF CORPORATIONS. 66l The word "assets" used in the statute exempting prop- erty of a corporation from taxation does not embrace land.^^* Exemption from Paving and Sewer Liens. 621. A municipal lien for paving a street which is a part of the road-bed of a railway cannot be enforced,^*^ but land which does not form part of the road-bed may be subject to the Hen.^^* A municipal claim for a sewer cannot be enforced against the land actually used as the road-bed of the railroad company for its main track and sidfng, but may be enforced against other land of the company, and where it is impossible for the court to determine on scire facias what land is road-bed judg- ment may be entered against all of the land, as a sale of the land' will pass to the purchaser nothing the lien does not bind.i3» Land owned by a railroad company and used as a storage yard is liable for municipal liens for sewers, although the land is connected by several branches with the main line of the railroad.^*" A cemetery company is liable for municipal assessment for the cost of laying water pipe under a street on which the cemetery abuts.^" "'Union Canal Co. v. Dauphin County, 3 Brewster, 124 (1869). "' Phila. V. Phila., Wilmington & Baltimore R. R., 33 Pa. 41 (1859) ; Allegheny City v. West. Penna. R. R., 138 Pa. 375 (1891) ; Phila. v. Phila., Wilmington & Baltimore R. R., 2 Phila. 37 (1856); Junction R. R. v. Phila., 88 Pa. 424 (1879). "'Mount Pleasant Borough v. Baltimore & Ohio R. R., 138 Pa. 365 (1891) ; Chester City v. Chester & Delaware River R. R., 3 Del. Co. R. 389 (1888). "' Phila. V. Phila. & Reading R. R., 177 Pa. 299 (1896). '"Philadelphia v. North Penna. R. R., i Super. Ct. 254 (1896). "' Philadelphia v. Union Burial Society, 178 Pa. 533 (1897) ; Phila. v. Franklin Cemetery Co., 2 Super. Ct. 569. A charitable corporation is not exempt from the payment for repairs of sidewalks : Wilkinsburg Bor. v. Home for Aged Protestant Women, 7 Pa. C. C. R. 75 (1890) ; afifirmed 131 Pa. 109 ; New Castle v. Stone Church, 172 Pa. 86. 662 TAXATION OF CORPORATIONS. Tax on Premiums of Insiirance Companies. 622. It shall be the duty of the president, secretary, or other proper officer of each and every insurance company or association, incorporated by or under any law of this Com-, monwealth, except companies doing business upon the purely mutual plan without any capital stock or accumulated reserve, and purely mutual beneficial associations whose funds for the benefit of members, their families, or heirs are made up entirely of the weekly or monlthly contributions of their members and the accumulated interest thereon, to make re- port in writing to the auditor-general semi-annually upon the first days of July and January in each year, setting forth the entire amount of premiums and assessments received by such company or association during the preceding six months, whether the said premiums and assessments were received in money or in the form of notes, credits, or any other substi- tiites for money; and every such company or association shall pay into the State treasury semi-annually on the last days of January and July, in addition to any other taxes to which it may be liable under the first and under the twenty- first sections of this act, a tax of eight mills upon the dollar upon the gross amount of said premiums and assessments received from business transacted within this Common- wealth: Provided, that said report shall be made under oath or affirmation, and that it shall be the duty of the account- ing officers of the Commonwealth to add 10 per centum to the account of any company or association whose officers shall neglect or refuse for a period of thirty days to make the said report or to pay into the State treasury the tax imposed by this section: And provided further, that herafter the annual tax upon the premiums of insurance companies of other States or foreign governments shall be at the rate of 2 per centum upon the gross premiums of every character and description received from business done within this Com- monwealth within the entire calendar year preceding.^ *^ Tax on Premiums of Foreign Insurance Companies. 623. No person shall act as agent or solicitor, in this State, '"Act of June i, 1889, Sec. 24, P, L. 420. An allowance should be made for return premium, but no allowance or reduction for re-insurance in collecting the annual tax from foreign insurance companies: Insur- ance Companies Tax, 14 Pa. C. C. R. 60S (1894). See Commonwealth v. American Life Ins. Co., 14 Pa. C. C. R. 216 (1894). TAXATION OF CORPORATIONS. 663 of any insurance company of another State, or foreign gov- ernment, in any manner whatever relating to risks, until the provisions of this act have been complied with on the part of the company or association, and there has been granted to said company or association, by the commissioner, a certifi- cate of authority, showing that the company or association is authorized to transact business in this State, and it shall be the duty of every such company or association, authorized to transact business in this State, to make report to the com- missioner, in the month of January of each year, under oath of the president or secretary thereof, showing the entire amount of premiums of every character and description re- ceived by said company o!" association in this State, during- the year or fraction of a year ending with the 31st day of December preceding, whether said premiums were received in money or in the form of notes, credits, or any other sub- stitute for money, and pay into the State treasury a tax of [two] per centum upon said premiums; and the commis- sioners shall not have power to grant a renewal of the cer- tificate of said company or association until the tax aforesaid is paid into the State treasury.^*^ Taxation of Banks, etc. 624. From and after the passage of this act every bank or savings institution having capital stock, incorporated by or under any law of this Commonwealth or under any law of the United States, and located within this Commonwealth, shall, on or before the 20th day of June in each and every year, make to the auditor-general a report in writing, verified by the oath or afifirmation of the president, cashier, or treasurer, setting forth the full number of shares of the capital stock subscribed for or issued by such bank or savings institution, and the actual value thereof, which shall be ascertained as hereinbefore provided; whereupon it shall be the duty of the auditor-general to assess such shares for taxation at the same rate as that imposed upon other monied capital in the hands of individual citizens of the State, that is to say, at the rate of four mills upon each dollar of the actual value thereof, the actual value of each share of stock to be ascertained and fixed by adding together the amount of capital stock paid in, the surplus and undivided profits, and dividing this amount by '" Act of April 4, 1873, Sec. 10, P. L. 20. 664 TAXATION OF CORPORATIONS. the number of shares. The auditor-general shall have the power, and it shall be his duty in case he shall not be satisfied with the correctness of the report as made [by] the officers of any bank or savings institution, to summon the officers of said bank or savings institution to appear before him, upon notice to do so, on a day to be fixed by him, and to bring with them the books of said bank or savings institu- tion for his examination; and he shall have the right to have further evidence to satisfy himself as to the correctness of the report made to him on the question of the value of the shares of stock of such bank or savings institution according to the rule hereinbefore stated. After the auditor-general shall have fixed the value of the shares of stock in any bank or sav- ings institution by the method hereinbefore provided, and settled an account according to law, he shall thereupon trans- mit to the president, cashier, or treasurer of such bank or savings institution, a copy of such settlement showing the valuation and assessment so made by him, and the amount of tax due the Commonwealth on all such shares. And it shall be the duty of the president, cashier, or treasurer of any such bank or savings institution, immediately upon the receipt of said settlement, to post the same in a conspicuous place in such bank or savings institution so as to give notice to the shareholders of such valuation; and it shall be the duty of the auditor-general to hear any shareholder upon the subject of the valuation of such shares of stock at the auditor-general's office within a period of thirty days from the date of such set- tlement. It shall be the duty of every bank or savings insti- tution, within a period of forty days after the date of such settlement by the auditor-general, at its option, to pay the amount of said tax to the state treasurer from its general fund, or collect the same from its shareholders and pay over to the state treasurer: Provided, that if any such bank or sav- ings institution shall fail or refuse to make such report, or to pay such tax at the time herein specified, or shall make any false statement in such report, or shall fail or refuse by its offi- cers to appear before the auditor-general upon notice as aforesaid, or shall fail or refuse to produce its books for ex- amination when required to do so by the auditor-general, he shall, after having ascertained the actual value of each share of the capital stock of such bank or savings institution from the best information he can obtain, add thereto fifty TAXATION OF CORPORATIONS. 665 per centum as a penalty, assess the tax as aforesaid, and pro- ceed according to law to collect the same from such bank or savings institution; provided further, that if the president, cashier, or treasurer of any such bank or savings insti- tution shall neglect or refuse to post the copy of the settlement in a conspicuous place in such bank or savings institution immediately upon the receipt of the same, so as to give notice to the shareholders, such president, cashier, or treasurer shall be adjudged to be in default, and as a penalty for such default such bank or savings institution shall be responsible to the Commonwealth for the amount of the tax assessed against the shareholders of such bank or savings in- stitution: And provided further, that in case any bank or sav- ings institution having capital stock, incorporated under the law of this State or of the United States, shall collect, annu- ally, from the shareholders thereof said tax of four mills on the dollar upon the actual value of all the shares of stock of said bank or savings institution according to the rule herein- before stated that have been subscribed for or issued, and pay the same into the state treasury on or before the first day of March in each year, the shares and so much of the capital and profits of such bank or savings institution as shall not be invested in real estate, shall be exempt from local taxation under the laws of this Commonwealth; and such bank or sav- ings institution shall not be required to make any report to the local assessor or county commissioners of its personal property owned by it in its own right for purposes of taxa- tion, and shall not be required to pay any tax thereon. Ex- cept, however, that any bank or savings institution incorpo- rated as aforesaid, in lieu of the method hereinbefore set out for ascertaining the actual value of the shares of capital stock thereof, may elect to collect annually from the stockholders thereof a tax of ten mills on the dollar upon the par value of all shares of said bank that have been subscribed for or issued, and pay the same into the State treasury on or before the first day of March in each year; and the shares of such bank or savings institution, and so much of the capital and profits of such bank or savings institution, as shall not be invested in real estate shall be exempted from local taxation under the laws of this Commonwealth.^** '"Act of July IS, 1897, Sec. i, P. L. 292. As to the proper method of valuing bank stock see Commonwealth v. Merchants' Bank, 19 Pa. C. C. 666 TAXATION OF CORPORATIONS. Election by Bank to Pay Eight Mills Tax to Exempt from Local Taxation. 625. In case any bank or savings institution incorporated by this State or the United States shall elect to collect annu- ally from the shareholders thereof a tax of eight mills on the dollar upon the par value of all shares of said bank or sav- ings institution that have been subscribed for or issued, and pay the same into the State treasury on or before the first day of March in each year, the shares and so much of the capi- tal and profits of such bank as shall not be invested in real estate shall be exempt from local taxation under the laws of this Commonwealth. It shall be the duty of the president or cashier of every bank or savings institution incorporated by or under the laws of this Commonwealth failing to pay in the eight mill tax as aforesaid to make report in writing to the auditor-general, on or before the 20th day of June of each year, stating specifically the amount of capital stock and the amount paid in, a full and complete list of the shareholders of such bank or savings institution with their residences and number and par value of shares of stock held by each person respectively, and the value of said stock in the market where such bank or savings institution is located during the year ending with the 20th day of June, which said report shall be verified by the oath of the president or cashier, taken before some officer authorized to administer oaths; and the said pres- ident or cashier shall also furnish a duplicate original of said report to the commissioners or board of revision of the proper city or county in which such bank or savings institution is located, to be used by them for the purpose of assessing all taxes against said shareholders. The auditor-general shall have power to inquire into the value of such stock and either abate or increase the assessment as may be just; if the said bank officers shall neglect or refuse to furnish the reports aforesaid as above required, it shall be the duty of the audi- tor-general to require the said officers to appear before him R. 274 (1897). In this case it was held that a valuation was too high which failed to take into account the contingency of loss upon notes dis- counted and the reduction in thevalueof the bank's real estate. SeeWilkes- Barre Deposit and Savings Bank v. Wilkes-Barre, 148 Pa. 601 ; Oil City V. Oil City Trust Co., 151 Pa. 454; Gorley v. Bowlby, 8 Fa. C. C. R., 17; Miners' Savings Bank v. Wilkes-Barre, s Kulp, 436; Borough v. York, I York, 25. TAXATION OF CORPORATIONS. 667 in person, with the books and accounts of the said bank or savings institution, for interrogation and examination, and the auditor-general shall have power to issue subpoenas and attachments to be served by any constable or sheriflf, and to compel the attendance of such officers and the production of such books and papers as he may deem necessary to make a correct list of the shareholders with their residences and the number and value of their shares; and the said auditor- general shall settle an account in the usual mode against the individual shareholders for the State tax of four mills and proceed to collect the same according to law, and he shall also transmit the list and assessments made by him to the commi'ssioners or board of revision of the proper cities and counties to be used by them in assessing taxes against the shareholders; and any president or cashier of any bank or savings institution neglecting or refusing to furnish the said report, or to do and perform any of the matters and things required of him by this act, shall be liable to a penalty of $1,000; and any bank or savings institution refusing to per- mit the said president or cashier to make the said reports, or to produce its books as above required, shall be liable to a like penalty of $i,ooo; and the auditor-general may settle an account against the president and cashier so neglecting or refusing to make report as aforesaid or against the bank or savings institution refusing to permit the making of said re- port or the production of its books and papers as aforesaid, and proceed for the collection of said penalties for the use of the Commonwealth, in the same manner as taxes are now recoverable by law.^*® National Banks Failing to Fay Eight Mills Tax to Keport to Auditor- General- 626. From and after the passage of this act, every national bank located within this Commonwealth, which shall fail to elect to collect annually from the shareholders thereof a tax of eight mills on the dollar upon the par value of all the shares of said bank that have been subscribed or issued, shall, on or before the 20th day of June in each and every year, make to the auditor-general a report in writing, verified by the oath or affirmation of the president or cashier, setting forth the '" Act of June 8, 1891, Sec, 6, P. L. 229, amending Act of June i, 1889, Sec. 25, P. L. 420. 668 TAXATION OF CORPORATIONS. full number of shares of the capital stock issued by such na- tional bank, and the actual value thereof, whereupon it shall be the duty of the auditor-general to assess the same foi- taxation at the same rate as that imposed upon other mon- ied capital in the hands of individual citizens of this State, that is to say, at the rate of four mills upon each dollar of the actual value thereof, and for that purpose he shall have the power and it shall be his duty, in case he shall not be satisfied with the correctness of the report, to summon the officers of said national bank to appear before him upon notice so to do, on a day to be fixed by him, and to bring with them all the books of the said national bank, showing its business, assets, and dividends, for his examination; and it shall be his further duty to hear any stockholder who may desire to be heard on the question of the valuation of the shares as aforesaid; and he shall have the right by other evidence to satisfy himself as to the correctness of the valuation of said shares of stock in said report contained, and to correct said valuation. The auditor-general shall thereupon transmit to the said national banks a statement of the valuation and assessment so made by him, and the amount of tax due the Commonwealth on all of said shares, which tax the said banks shall, within thirty days after receiving said statement, collect from their share- holders and pay over into the State treasury: Provided, that if any national bank shall fail or refuse to make said report or to pay said tax at the said times herein specified, or shall make any false statement in said report, or shall fail or refuse by its officers to appear before the auditor-general, upon notice as aforesaid, or shall fail or refuse to produce its books for examination when required to do so, the auditor-general, after having ascertained the actual value of each share of the capital stock of said national bank, from the best information which he can obtain, shall add thereto 50 per centum, assess the taxes as aforesaid, and pro- ceed according to law to collect the same from said bank.^*® Taxation of Liquor Companies. 627. Companies organized and incorporated for the pur- pose of distilling liquors and seUing the same at wholesale, shall constitute a separate class for. the purpose of taxation; "" Act of June 8, 1891, Sec. 7, P. L. 229, amending Act of June i, 1889, Sec. 26. TAXATION OF CORPORATIONS. 669 and every such corporation, joint-stock association, limited partnership, or company, shall be subject to pay into the treasury of the Commonwealth, annually a tax at the rate of ten mills upon each dollar of the actual value of 'its whole capital stock of all kinds, including common, special, and pre- ferred. The auditor-general shall require said corporation to report to him, annually, all such facts as may be by him deemed necessary to arrive at the actual value of the capital stock of said corporation. He is hereby authorized and re- quired to send out blanks, in proper form, to secure such in- formation as all other corporations are required by law to give the accounting officer^ in their annual reports, so that the actual value of the capital stock may be ascertained.^*'^ Taxation of Corporations not for Profit. 628. All corporations organized not for profit, under the provisions of "An Abt to provide for the incorporation and regulation of certain corporations," approved April 29th, 1874, and the several supplements thereto, shall have author- ity, if a majority of its members shall so ordain, to issue capi- tal stock to an amount not exceeding $250,000, in shares of the par value of $50. Said power to vest upon the record- ing of the minute authorizing said issue in the county in which the corporation was created, and filing an exemplification thereof with the secretary of the Commonwealth. Thereafter such corporations shall be subject to the same taxation as corporations for profit.^** Taxation of Express Companies. 629. Every corporation, limited partnership, joint-stock association, partnership, firm, or association, or individuals incorporated or unincorporated, engaged in the business commonly known as express business, shall pay to the state treasurer for the use of the State, an annual excise tax for the privilege of exercising its franchises in this State. The amount of said tax shall be ascertained as follows: Each cor- poration, limited partnership, joint-stock association, part- nership, firm, or association, or individuals incorporated or unincorporated, subject to the provisions of this section, shall, on the 31st day of December of each year, or within thirty "' Act of July 15, 1897, Sec. 2, P. L. 292. '" Act of June 25, 189S, Sec. i, P. L. 310. 670 TAXATION OF CORPORATIONS. days thereafter, return to the auditor-general, under oath, the amount of its express receipts, that is to say, the amount of the total receipts derived by it from carrying on the express business for the year ending on that day, together with a statement, under oath, of the total length of the lines of rail and water routes over which it was doing business during said year. The gross express receipts, as so returned to the audi- tor-general, shall be divided by the number of miles of lines of rail and water routes to ascertain the average gross re- ceipts per mile. When such average receipts per mile shall not exceed $100 the tax shall be equal to i per centum of the gross express receipts; when the average receipts per mile exceed $100 per mile and do not exceed $150, the tax shall be equal to 2 per centum of the gross receipts, and so on increasing the rate of the tax i per centum for each addi- tional $50 of average receipts per mile, or fraction thereof, provided the rate thereof shall not exceed 5 per centum; when the route or routes over which said express business is con- ducted lie partly within and partly without this State the tax shall be equal to the same proportion of the gross express receipts as herein provided, said amount to be determined as follows: The gross express receipts over the entire line or system within and without the State shall be divided by the total number of miles operated to obtain the average gross receipts per mile, and the gross express receipts in this State shall be taken to be the average gross express receipts per mile, multiplied by the number of miles operated within the State. Said tax shall be due and payable on or before the 1st day of March in each year. In case of failure to make such payment, or report as herein required, the auditor-gen- eral shall add a penalty of 25 per centum to the amount of the tax found due.^*® Taxation of Building and Loan Associations. 630. Upon all full paid, prepaid, and fully matured, or partly matured stock in any building and loan association incorporated under the laws of this State, or incorporated under the laws of any other State, and doing business within this State, and upon which annual, semi-annual, quarterly, or monthly cash dividends or interest shall be paid, there shall be paid a State tax equal to that required to be paid upon "' Act of July IS, 1897, Sec. 3, P. L. 292. TAXATION OF CORPORATIONS. 67 1 money at interest by the general tax laws of this State; and such tax shall be deducted from the cash dividend or interest so provided for by the secretary or treasurer of such corpora- tion, and be paid to the state treasurer. And every such do- mestic corporation shall annually make return to the audi- tor-general, at the time other returns for taxation are required to be made, of the amount of its stock outstanding entitled to receive cash dividends or interest, and every such foreign corporation shall, in the reports required to be made by them to the banking department, make report of the amount of its stock held by residents of this State, entitled to receive cash dividends or interest, and said banking' department shall, at the time other retijrns for taxation are required to be made, certify to the auditor-general the amount of such stock each of said foreign corporations had outstanding at the time of its last report to said banking department, and upon said sum such foreign corporation shall pay the tax above required to be paid to the state treasurer, upon de- mand, and failure to make such payment within thirty days after such demand shall have been made shall subject such corporation to the forfeiture of its right to transact business in this State: Provided, however, that nothing in this act shall be taken to require the payment of any tax upon any unmatured stock of building and loan associations upon which periodical payments are required to be made, or upon any such stock after it has matured and is in process of pay- ment.i^" All laws or parts of laws inconsistent herewith or supplied hereby are hereby repealed.^^^ "° Act of June 22, 1897, Sec. i, P. L. 178. "' Act of June 22, 1897, Sec. 2, P. L. 178. CHAPTER XLVI. BANKING CORPORATIONS. 631. Formation. 632. Certificate. 633. Letters-Patent. 634. Notice of Application for Charter. 635. Capital Stock. 636. Corporate Powers. 637. Loans and Discounts — Real Estate — Interest on De- posits. 638. What Real Estate may be Held. 639. Payments of Capital Stock. 640. Proceedings on Failure to Pay Instalments on Stock. 641. Increase and Reduction of Capital Stock. 642. Decrease of Capital Stock. 643. Meeting of Stockholders to Act upon Decrease. 644. Manner of Holding Elections for or against Decrease. 645. Ballots — Transferred Shares and Proxies. 646. Election Return and Certifi- cate of Decrease. 647. Liability of Stockholders After Decrease. 648. Decrease of Fixed Capital Partly Paid. 649. Management — Oath of Direc- tors. 650. Annual Election of Directors 672 —Failure to Hold Such Election. 651. Number of Votes at Elections, and How Cast — Proxies Regulated. 652. List of Stockholders to be Kept Subject to Inspection. 653. Dividends — Individual Liabil- ity of Directors. 654. Sworn Statement to -be Made on Dividend Days. 655. Officers to Enter into Agree- ment and Give Bond — Cashier Restricted in Occu- pation. 656. Penalty for Embezzlement by Officers. 657. Books Subject to Inspection by Directors. 658. Limitations as to Loans — Transfer of Shares by Debtor Holders — Such Holder not to Receive Divi- dends. 659. Cashier to Publish Statement Semi-Annually. 660. Loans not to be Made on Se- curity of Capital Stock- Own Stock not to be Held. 661. No Portion of Capital to be Withdrawn — ^When No Dividend to be Declared. 662. When Corporation may go BANKING CORPORATIONS. G'J'^ into Liquidation— Duties of 669. Securities to Protect 'Circula- Directors. tion. 663. No Interest to be Paid on Call 670. Reservation of Power to Re- Deposits, voke Charters— Taxation. 664. Existing Corporations may 671. Manner of Renewing Charters Come Under Act. for a Term not Exceeding 665. Insolvency — Duties of Audi- Twenty Years. tor-General. 672. Petition for Renewal of Char- 666. Agent to Investigate — ^When ters. Receiver to be Appointed. 673. Auditor-General may Object 667. Duties of Receiver — Distribu- to Petition for Renewal or tion of Assets. Extension. 668. Inquiry by Court as to Sol- 674. Governor to Issue Patent. vency. . 675. Institutions Under Control of Banking Department. Formation. 631. Corporations for carrying on the business of banking may be formed under the provisions of this act by any number of persons, not less than three, who shall enter into articles of association, which shall specify the object for which the asso- ciation is formed, and may contain any provisions, not in- consistent with this act, which the association may desire to adopt for the regulation and conduct of its business and affairs; which articles shall be signed by the persons forming such association, and a copy of them shall be forwarded to the attorney-general for his inspection and approval, and if ap- proved by him he shall endorse his approval thereon, and transmit the same to the auditor-general to be filed in his office.^ Certificate. 632. The persons forming such association shall, under their hands, make a certificate, which shall specify: I. Name (subject to the approval of the auditor-general). II. Location or place of business, particularly designat- ing the county, city, borough, or village. III. Amount of capital stock and number of shares in which divided. IV. The names and places of residence of shareholders, and number of shares held by each. ^Act of May 13, 1876, Sec. i, P. L. 161. This act repealed the Acts of March 31, i860, P. L. 459, and May i, 1861, P. L. 503: Central Bank of Pittsburgh, I Dist. Rep. SpS (1892). 43 674 BANKING CORPORATIONS. V. A statement that such certificate is made to enable the persons named to form a corporation for banking purposes under this act. This certificate shall be acknowledged before a judge or notary public, which certificate with acknowledgment certi- fied and authenticated by the seal of such court or notary public shall be transmitted, after approval, by the attorney- general, of the articles of association as hereinbefore directed, to the auditor-general to be filed, recorded, and preserved in his office; copies of such certificate duly certified by the auditor-general and authenticated by the seal of office, shall be conclusive evidence in all courts of the Commonwealth of the existence of such corporation, and of every other matter or thing which could be proved by the production of the original certificate.^ Iiotters-Fatent. 633. The auditor-general, upon the receipt of the articles of association with the approval thereon of the attorney-gen- eral as aforesaid, and the certificate hereinbefore provided, shall certify a copy of such certificate to the governor, who shall, upon receiving the same, cause letters-patent, under the great seal of the Commonwealth, to be issued to said banking corporation.* ITotice of Application for Charter. 634. Before application shall be made under the provis- ions of this act for the creation of any corporate body with banking or discounting privileges, or for the renewal of the charter or increase of capital thereof, the person forming the same shall cause a notice of such intended application to be advertised in two newspapers printed in the county in which such corporate body is intended to be located, at least once a week, for three months before such application shall be made; and the notice of such application shall specify the name and style, the location, the specific object for which created, the amount of capital, and in the case of the renewal or extension of any such corporate body, such notice shall also specify the amount of increase of capital stock, if any such increase be intended. If there be only one paper printed in the county ' Act of May 13, 1876, Sec. 2, P. L. 161. ' Act of May 13, 1876, Sec. 3, P. L. 161. BANKING CORPORATIONS. 675 in which such corporate body is intended to be located, the pubHcation of such notice in one paper shall be deemed suffi- cient, but if there be no paper printed in such county, then the notice shall be given in at least one paper published in one of the nearest adjoining counties.* Capital Stock. 635. No corporation shall be organized under this act with a capital stock of less than $50,000, divided into shares of not less than $50 each, which shall be deemed personal prop- erty and transferable on the books of the corporation in such manner as may be prescribed by the by-laws and articles of association thereof; and every person to whom stock shall be transferred as aforesaid, shall, in proportion to the shares re- ceived, succeed to all the rights and liabilities of the prior holders thereof, and no change shall be made in the articles of association by which the rights, remedies, or securities of the existing creditors of the corporation shall be impaired. The shareholders of any corporation formed under this act shall be individually responsible, equally and ratably, but not one for the other, for all contracts, debts, and engagements of such corporation to the amount of their stock therein at the par value thereof in addition to the par value of such shares.' Corporate Powers. 636. Every association formed under the provisions of this act shall from the date of the letters-patent issued thereto be a body corporate, but shall transact no business, except such as may be incidental to the purpose of its organization, and shall [have] power to adopt a corporate seal, have succession by the name designated in its articles of association for the term of twenty years from the date of the letters-patent, un- less sooner dissolved under the provisions of its articles of association or this act; by its corporate name it may make contracts, sue and be sued, complain, prosecute, and defend in any court of law and equity, or before any magistrate, as fully as natural persons, and process against such corporation may be served upon its president or cashier by leaving a copy * Act of May 13, 1876, Sec. 4, P- L- 161. ' Act of May 13, 1876, Sec. 5, P- L- 161. 676 BANKING CORPORATIONS. thereof with one of the officers thereof, during the usual hours of business; it shall elect or appoint directors, and by its board of directors appoint a president, vice-president, cashier, and other officers, define their duties, require bonds of them, fix- ing the penalty thereof, dismiss any of said officers at pleasure and appoint others to fill their places, and exercise under this act all such power as shall be necessary to carry on the busi- ness of banking, by loaning money, discounting, selling, buy- ing, or negotiating promissory notes, drafts, coin, and bul- lion, bills of exchange, and all other written evidences of debt and specialties, and transact all such other business as shall appertain to the business of banking, and its board of direc- tors shall have power to designate and regulate the manner in which its stock shall be transferred, directors elected, or appointed, officers appointed, its property transferred, and general business conducted, and all the privileges granted by this act to associations organized under it, shall be by them exercised and enjoyed; the usual business of the corpo- ration shall be transacted at an office or banking house in the place specified.® Loans and Discounts — Beal Estate— Interest on Deposits. 637. All associations incorporated under the provisions of this act shall have the power and may borrow or lend money for such period as they may deem proper, may discount bills of exchange, foreign or domestic, promissory notes, or other negotiable paper, and the interest may be received in advance, and shall have the right to hold in trust or as collateral secur- ity for loans, advances, or discounts, estate, real, personal, or mixed, including the notes, bonds, obligations, or accounts of the United States, individuals or corporations, and to pur- chase, collect, and adjust the same, and to dispose thereof for the benefit of the said corporation or for the payment of the debts as security for which the same may be held: Provided, that no interest shall be paid directly or indirectly for any money deposited with such association, except foreign cor- respondents, or correspondents in other States on daily bal- ances, and then at a rate not to exceed 3 per centum per annumJ p.»«. r, r ° Act of May 13, 1876, Sec. 6, P. L. 161. ' Act of May 13, 1876, Sec. 7, P. L. 161. BANKING CORPORATIONS. 677 What Real Estate may be Held. 638. It shall be lawful for any association incorporated under this act to purchase, hold, and convey real estate as fol- lows: I. Such as shall be necessary for its immediate accommo- dation in the transaction of its business. II. Such as shall be mortgaged to it in good faith as se- curity for debts contracted previous to the execution of any such mortgage. III. Such as it shall purchase at sales under judgments, decrees, or mortgages held by such corporation, or shall pur- chase to secure debts due to said corporation. Such corporation shall not purchase or hold real estate in any other case or for any other purpose than as specified in this section, nor shall it in any case hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased by it, except such as may be necessary for its immediate accommodation in the transaction of its business, for a longer period than five years.* Payment of Capital Stock. 639. Before any association incorporated under this act shall commerrce business, at least 50 per centum of its capital stock shall be paid in, and the remainder of the capital stock of such corporation shall be paid in instalments of at least 10 per centum on the whole amount of the capital, per month from the time it shall commence business, and the payment of each instalment shall be certified under oath to the audi- tor-general by the president and cashier of the corporation.^ Proceedings on Failure to Pay Instalments on Stock. 640. If any shareholder or his assignee shall fail to pay any instalment on the stock held by him, when the same is re- quired by the by-laws, the articles of association, the resolu- tion authorizing such stock, or the provisions of this act, the directors of such corporation may allot the same to the other shareholders in the proportion they shall hold shares in the capital stock, or to those who shall desire to take the same; should such shareholders not take the stock of such delinquent shareholder, it shall be sold at public auction to ' Act of May 13, 1876, Sec. 8, P. L. 161. • Act of May 13, 1876, Sec. 9. P- L- i6i- 678 BANKING CORPORATIONS. any person who will pay the highest price therefor, and not less than the amount due thereon, and the excess, if any, shall be paid to such delinquent shareholder; that before any such public sale shall be made, public notice thereof shall be pub- lished for not less than three weeks in a newspaper of gen- eral circulation in the city or county where such corporation is located, and if no newspaper is published in such county or city, then in a newspaper published nearest thereto; if no bidder can be found who will pay the amount due on such stock to the corporation and the expenses of sale, the amount previously paid shall be forfeited to the corporation, and such stock shall be disposed of as the directors may order within four months from the time of such forfeiture, and if not sold, it shall be cancelled and deducted from the capital of the corporation; and if such. cancellation and deduction shall re- duce the capital of the corporation below minimum of the capital required by this act, the capital stock thereof shall, within thirty days from the date of such cancellation, be in- creased to the requirements of this act; in default of such increase, such bank shall be adjudged to have committed an act of insolvency, and its business shall be closed as herein- after provided in cases of insolvency.^^ Increase and Reduction of Capital Stock. 641. Any corporation formed under this act may provide in its articles of association for an increase of its capital stock from time to time as may be deemed expedient, subject, how- ever, to the regulations of this act; that only such maximum increase shall be allowed as shall be provided for in the arti- cles of association, unless a majority of the stockholders shall formerly [formally?] certify in writing to the auditor- general their consent to a greater increase, and no increase of capital shall be valid unless the same shall be actually paid in within one year from the date of the written consent as aforesaid to such increase, and notice of such payment trans- mitted to the auditor-general; and every corporation, by a vote of the shareholders owning two-thirds of its capital stock, may reduce such capital to any sum not below the minimum amount of capital required by this act for such cor- porations; before such decrease shall be allowed, notice "Act of May 13, 1876, Sec. 11, P. L. 161. BANKING CORPORATIONS. 679 thereof shall be given to the auditor-general and his approval thereto obtained.^^ Decrease of Capital Stock. 642. The capital stock of any banking corporation created by the laws of this Commonwealth may be decreased, from time to time, by the consent of the persons or bodies corpo- rate holding the larger amount in value of the stock of such company: Provided, that no diminution of the capital stock of any company under this act shall afifect or destroy the lia- bilities of stockholders for the indebtedness gi corporations where they are now liable under existing laws.^^ Meeting of Stockholders to Act upon Decrease. 643. Any banking corporation desirous of decreasing its capital stock as provided by this act, shall, by a resolution .of its board of directors, call a meeting of its stockholders there- for, which meeting shall be held at its chief ofifice or place of business in this Commonwealth, and notice of the time, place, and object of such meeting, shall be published once a week for sixty days prior to such meeting, in at least two news- papers published in the county, city, or borough, where such ofifice or place of business is situated.*^ Manner of Holding Elections for or against Decrease. 644. At the meeting called pursuant to the second section of this act, the stockholders present at said meeting shall vote for or against such decrease; said election shall be conducted by three judges, stockholders of said banking corporation, appointed by the board of directors to hold said election, and who shall respectively take and subscribe an oath or affirma- tion, before any officer authorized by law, to conduct such election to the best of their ability.^* Ballots— Transferred Shares and Proxies. 645. Each ballot shall have indorsed thereon the number of shares thereby represented; but no share or shares transferred " Act of May 13, 1876, Sec. 10, P. L. 161. "Act of June 11, 1879, Sec. i, P. L. i33- "Act of June 11, 1879, Sec. 2, P. L. 133- "Act of June 11, 1879, Sec. 3- P- L- I33- 68o BANKING CORPORATIONS. within sixty days, shall entitle the holder or holders thereof to vote at such election or meeting, nor shall any proxy be received or entitle the holder to vote, unless the same shall bear date and have been executed within three months next preceding such election or meeting; and it shall be the duty of such banking corporation to furnish the judges at said meeting with a statement of the amount of its capital stock, with the names of persons or bodies corporate holding the same, and the number of shares by each respectively held, which statement shall be signed by one of the chief officers of such banking corporation, with an affidavit thereto an- nexed that the same is true and correct to the best of his knowledge and belief.^^ Election Beturn and Certificate of Decrease. 646. It shall be the duty of such banking corporation, if consent is given to such decrease, to file in the office of the secretary of the Commonwealth, within thirty days after such election or meeting, one of the copies of the return of such election provided for by the third section of this act, with a C9py of the resolution and notice calling the same thereto annexed; and upon the decrease of the capital stock of such banking corporation made pursuant thereto, it shall be the duty of the president or treasurer of such corporation, within thirty days thereafter, to make a return to the secretary of the Commonwealth, under oath, of the amount of such decrease; and in case of neglect or omission so to do, such corporation shall be subject to a penalty of $5,000, which penalty shall be collected on an account settled by the auditor-general and state treasurer, as accounts for taxes due the Commonwealth are settled and collected; and the secretary of the Common- wealth shall cause said return to be recorded in a book kept for that purpose, and furnish a certified copy of the same to the auditor-general; and thereupon, the directors of such corporation shall alter and change the par value of the shares thereof to conform to the decrease for which the largest num ber of votes shall have been cast at such election, and issue new certificates of stock representing the par value fixed by such election, signed by the proper officers of said corpora- tion, and deliver the same to the shareholders entitled thereto, on the surrender of their former certificates, which shall be "Act of June 11, 1879, Sec. 4, P. L. 133. BANKING CORPORATIONS. 68l cancelled by said officers before paying any dividend declared after such reduction.^® Liability of Stockholders After Decrease. 647. The capital stock of any banking corporation, created by the laws of this Commonwealth, may be decreased from time to time subject to the provisions of the Act of June 11, 1879, entitled "An Act to provide for the manner of decreas- ing the capital stock of banking corporations:" Provided, that such decrease of the capital stock of any such banking com- pany shall not affect or destroy the liabilities of the stock- holders for the indebtedness of such corporations, at the time of such decrease, where the/ are now liable under their char- ters, but that for all deposits received by banking corpora- tions after such decrease, the stockholders shall only be liable for the indebtedness of such banking company as the char- ter provides.^ ■^ Decrease of Fixed|Capital Partly Paid. 648. Whenever any banking company shall have fixed and subscribed a certain capital, but have paid in only a portion of such capital, and have issued capital stock certificates for the amount thus fixed, to each stockholder subject to assess- ment for the unpaid portion, such banking company may de- crease the capital of such banking company to the amount paid in, and thereupon call in all outstanding capital stock certificates, and issue in place thereof new certificates, fully paid and non-assessable for any purpose except only taxa- tion: Provided, that no banking company, doing a general banking business in this Commonwealth, shall decrease the capital stock of any bank having stock ^o issued to less than $200,000, nor shall any savings bank, trust company, or other savings institution decrease the capital of any institution hav- ing stock so issued, to less than $50,000: And provided fur- ther, that notice of said decrease shall be pubhshed in two or more newspapers in the county in which said bank is located, for four weeks prior to said decrease.^* Management— Oath of Directors. 649. The affairs of every corporation organized under this "Act of June 11, 1879, Sec. S, P. L. 133. " Act of June 22, 1883, Sec. i, P. L. 155. " Act of June 22, 1883, Sec. 2, P. L. iS5- 682 BANKING CORPORATIONS. act shall be managed by not less than five directors, one of whom shall be president and another vice-president; no cashier, clerk, or teller, in any of the corporations organized under this act, shall be eligible as a director thereof; every di- rector shall, during his term of service, be a citizen of the United States and a citizen of Pennsylvania; each director shall own in his own right at least ten shares of the capital stock of the corporation of which he is a director; each di- rector when appointed or elected, and before assuming the duties of his office [shall] take an oath that he will, so far as a duty devolves upon him, diligently and honestly admin- ister the afifairs of such corporation, and that he is the bona ade owner in his own right of the number of shares of stock required by this act, subscribed by him or standing in his name on the books of the corporation, and that the same is not hypothecated or pledged in any way as security for any loan or debt, which oath shall be transmitted to the auditor- general to be filed and kept in his office.^® Annual Election of Directors— Failure to Hold Such Election. 650. The directors of any corporation first elected or ap- pointed shall hold their places until their successors shall be elected and qualified; all subsequent elections shall be held annually on such day in the year as may be specified in the articles of association; and the directors elected on such day shall hold their places for one year and until their successors are elected and qualified; any director ceasing to be the owner of the requisite amount of stock, or who shall in any other way become disqualified, shall thereby vacate his place; any vacancy in the board shall be filled by appointment by the remaining directors, and any one so appointed shall act as a director until the next annual election; if for any cause an election for directors shall not be held at the time ap- pointed, an election may be held on a subsequent day, at least thirty days' notice thereof having been given by adver- tisement in a newspaper published in the city or county where such corporation is located, or if no newspaper is pub- lished therein, then in the one pubHshed the nearest thereto; if the articles of association do not fix the day on which the election shall be held, the day for election shall be designated by the directors in the by-laws; in case the directors fail to "Act of May 13, 1876, Sec. 12, P. L. i6i. BANKING CORPORATIONS. 683 fix a day for the election as aforesaid, two-thirds in value of the shareholders shall designate a day for that purpose.-" Number of Votes at Elections, and How Cast— Proxies Regu- lated. 651. In all elections for directors and otherwise each shareholder shall be entitled to one vote on each share of stock held by him; shareholders may vote by proxies exe- cuted in writing. No officer, clerk, teller, or book-keeper of the corporation shall act as a proxy, and no shareholder whose liability is past due shall be allowed to vote; in all elec- tions for directors of a corporation, organized under this act, each shareholder may cast the whole nurtiber of his votes for one candidate or distribute them upon two or more can- didates as he may prefer.^^ List of Shareholders to be Kept Subject to Inspection. 652. The directors of every corporation under this act shall cause to be kept at all times a full and correct list of the names and residences of the shareholders and the number of shares held by each therein, in the office where its business is trans- acted, and such list shall be subject to the inspection of the shareholders and creditors of the corporation and the officer authorized to assess taxes under any State authority, during business hours of each day in which business may be lawfully transacted, a copy of this Hst on the first Monday of June in each year, verified by the president and cashier, shall be trans- mitted to the auditor-general.^^ Dividends— Individual Liability of Directors. 653. The directors of the corporations under this act may quarterly or semi-annually in each year, as they may see fit, declare a dividend of so much of the net profits of such cor- poration as they shall judge expedient, and pay the same to its stockholders on demand, at any time not exceeding fifteen days after such dividend is declared; but such corporation shall, before the declaration of a dividend, carry at least one- tenth of the net profits of the preceding quarter, if it is a quarterly dividend, and at least one-tenth of the net profits " Act of May 13, 1876, Sec. 13, P. L. 161. "Act of May 13, 1876, Sec. 14, P. L- 161. " Act of May 13, 1876, Sec. 15, P. L- i6i- 684 BANKING CORPORATIONS. of the preceding half year, to its surplus fund, until such surplus fund shall amount to 25 per centum of its capital stock; if the directors of the corporation shall make any dividends which shall impair the capi- tal thereof, such directors consenting thereto, shall be jointly and severally liable in an action of debt or bill in equity in their individual capacities to such corporation for the amount of the stock so divided, and each director pres- ent or otherwise when such dividend shall be made, shall be adjudged consenting thereto, unless he shall forthwith enter his protest on the minutes of the board and give public no- tice to the stockholders thereof.^* Sworn Statement to be Made on Biridend Days. 654. On each dividend day the cashier shall make a full, ex- plicit, and accurate statement of the condition of the corpo- ration as it shall be on each day previous to the declaring of such dividend, to be verified on the oath of the president and cashier, setting forth: I. The aniount of capital stock actually paid in and then remaining as the actual capital stock of the corporation. II. The balances and debts of every kind due to banks and bankers of this State or elsewhere. III. The amount due to time and call depositors sepa- rately. IV. The total amounts of debts and liabiUties of every de- scription and the greatest amount since the last previous statement, specifying the time when the same occurred. V. The amount on hand of bills, bonds, notes, and other evidence of debts discounted or purchased by the corpora- tion, gold, silver, coin, bullion, and cash on hand, the amount specifically and particularly of suspended debts, the amount considered doubtful, the amount considered bad,- and the amount in suit or judgment. VI. The value of the real and personal property held for the convenience of the corporation, specifying the amount of each, the amount of real estate taken for debts due the cor- poration, and how taken and still held. VII. The amount of the undivided profits of the corpora- tion. VIII. The amount of the liabilities to the corporation by '' Act of May 13, 1876, Sec. 16, P. L. 161. BANKING CORPORATIONS. (685 the directors or officers thereof, specifying the particular items and the gross amount thereof separately, as principal debtors, and as indorsers or sureties. IX. The amount of liabilities to the corporation by the stockholders thereof, specifying the gross amount of such lia- bilities as principal debtors, and the gross amount as indorsers or sureties, which statement shall be entered at length in a book to be provided for that purpose.^* Officers to Enter into Agreement and Give Bond— Cashier Re- stricted in Occupation. 655. Before the cashier, teller, book-keeper, or other per- son necessary for executing the business of the corporation shall enter upon their duties, they shall each enter into arti- cles of agreement with the corporation for the proper dis- charge of his duty, in which it shall be provided, among other things, that he will give the business of the corporation his care and attention, rendering true accounts of all his trans- actions, never to use the moneys of the corporation in his private transactions nor to engage in private financial opera- tions through his office as one of the officers of said corpora- tion; and they shall each also enter into a bond to the Com- monwealth of Pennsylvania in such amount as the board of directors may require, conditioned for the proper and faithful performance of his duties, the security of which bonds shall be approved by the Court of Common Pleas of the county in which the corporation is located, and recorded within thirty days thereafter in the office for recording deeds in such county; any person aggrieved and suffering injury by the failure of any officer or clerk of the corporation to comply with the conditions of his bond, may corrinience and prose- cute an action on the same in the manner providing for suing official bonds in the act approved June 14, 1836, entitled "An Act relative to bonds with penalties and official bonds ;"^ and no cashier of any corporation under this act shall engage- in any other profession, occupation, or calling, either directly or indirectly, than that of the duties appertaining to the office of cashier; and if any cashier of such corporation shall, directly or indirectly, engage in the purchase and sale of stocks or in any other profession or calling other than that of his duties^ as cashier, he shall be guilty of a misdemeanor, and upon con- " Act of May 13, 1876, Sec. 17, P. L. 161. 686 BANKING CORPORATIONS. viction thereof in a court of criminal jurisdiction, be sen- tenced to pay a fine not exceeding $500; nothing, however, in this section shall be construed as to prevent such cashier from managing his own real estate or private property as hereto- fore, if such private property be not vested in mercantile, mechanical, or manufacturing operations.^^ Penalty for Embezzlement by Officers. 656. If any president, cashier, director, clerk, teller, agent, or any other officer of any corporation under this act, who shall fraudulently embezzle, abstract, or willfully appropriate to his own use or to the use. of any other person or persons, or misapply any money or other property belonging to such corporation or left with the same as a special deposit or other- wise, he or they so ofifending, upon conviction thereof, shall be fined in any amount not less than the sum so appropriated or embezzled, and to undergo an imprisonment at separate and solitary confinement not exceeding five years : Provided, such conviction shall not prevent any person or persons ag- grieved from pursuing their civil remedy against such person so convicted.^* Books Subject to Inspection by Directors. 657. The books, funds, papers, and correspondence of the several corporations under this act, shall at all times be sub- ject to the inspection of the directors, who shall keep fair and regular entries of their proceedings in a book provided for that purpose, and on any question when two directors shall require it, the yeas and nays shall be inserted on their minutes, which minutes shall at all times, on demand, be pro- duced to the stockholders at a general meeting, and shall be subject, also, together with their other books and papers, to the inspection of any committee who shall be authorized by the legislature may require the same.^'' Limitations as to Loans— Transfer of Shares by Debtor Holders — Such Holder not to Keceive Dividends. 658. No director of any corporation under this act shall receive as a loan from such corporation an amount greater "■ Act of May 13, 1876, Sec. 18, P. L. 161. " Act of May 13, 1876, Sec. 19, P. L. i6i. See Commonwealth v. Ket- ner, 92 Pa. 372 (1880). " Act of May 13, 1876, Sec. 20, P. L. 161. BANKING CORPORATIONS. 687 than 10 per centum of the capital stock actually paid in, and the gross amount loaned to all the officers and directors of such corporations, and to the houses or firms in which they may be interested directly or indirectly, shall not exceed at any time the sum of 25 per centum of the capital stock paid in; and no shareholder shall sell or transfer any shares in the capital stock held in his own right so long as he shall be lia- ble, either as principal debtor, surety, or otherwise, to the corporation, for any debt, without the consent of a majority of the directors, nor shall such shareholder, when liable to the corporation for any debt that is overdue and unpaid, be enti- tled to receive any dividend, interest, or profit on such shares as long as such liabilities shall so continue overdue, but all such dividends, interest, and profits shall be retained by such corporation to discharge such liabilities.^* Cashier to Publish Statement Semi-Annually. 659. It shall be the duty of the cashier of every corporation, under this act, to publish once every six months, in two papers published in the coimty where such corporation is located, if so many are there published, if two are not published therein, then in one paper therein, if none are pubHshed therein, then in one published in one adjoining county, a statement of the condition of said corporation, which shall set forth the entire amount of its assets and every class of items therein, the entire amount of indebtedness and liabili- ties thereof, particularly specifying the same at the time of making such statement.^® Loans not to be Made on Security of Capital Stock— Own Stock not to be Held. 660. No corporation, under this act, shall take as security for any loan or discount, a lien on any part of its capital stock, but the same surety, both in kind and amount, shall be re- quired of persons, shareholders, and not shareholders; and no such corporation shall be the holder or purchaser of anyportion of its capital, unless such purchase shall be necessary to prevent loss on a debt previously contracted in good faith on surety "" Act of May 13, 1876, Sec. 21, P. L. 161. See McKinley Trust Co., 12 Pa. C. C. R. 40 (1892) ; Central Bank of Pittsburgh, i D. R. 598 (1892) ; Dollar Savings Bank, 12 Pa. C. C. R. 43 (1892). =• Act of May 13, 1876, Sec. 22, P. L. 161. 688 BANKING CORPORATIONS. which at the time was deemed adequate for the payment of such debt, without a lien upon such stock, or in case of forfeit- ure of such stock for the non-payment of instalments due thereon, as provided in this act; and the stock so purchased shall in no case be held by the corporation so purchasing for a longer period than six months, if the same can be sold for what such stock cost the corporation.^" No Portion of Capital to be Withdrawn— When No Dividend to be declared. 66 1. No corporation under this act shall, during the time it shall continue its operations, withdraw or allow to be with- drawn, either in form of dividends, loans to stockholders, or in any other manner, any portion of its capital stock, except as hereinbefore provided; and if any losses shall at any time have been sustained by such corporation equal to or exceed- ing its undivided profits then on hand, no dividend shall be made, and no dividends shall be made by any such corpora- tion, while in business operation to an amount greater than its net profits then on hand, deducting therefrom losses, bad and suspended debts; and all debts due to such corporation, on which interest is due and unpaid for six months, unless the same shall be well secured or in process of collection, shall be considered bad and suspended debts within the mean- ing of this section.*^ When Corporation may go into Liquidation— Duties of Directors. 662. Any corporation imder this act may go into liquida- tion and be closed by the vote of its shareholders, owning at least two-thirds of its stock, and whenever such vote shall be taken it shall be the duty of the board of directors to cause notice of this fact to be certified under the seal of the corpo- ration to the auditor-general, and publication thereof made for at least three months in two newspapers, if so many are published, if two are not published then one, in the county in which such corporation is located, that it is closing up its afifairs and notifying the creditors thereof to present their claims for payment; and it shall be the duty of the said di- rectors, in the name of the corporation, to collect all its assets, apply the same first to the payment of the debts thereof and '" Act of May 13, 1876, Sec. 23, P. L. 161. " Act of May 13, 1876, Sec. 24, P. L. 161. BANKING CORPORATIONS. 689 distribute the surplus, if an^, to and among the shareholders in the proportion they hold'the capital stock thereof.^* No Interest to be Paid on Call Deposits. 663. The banks chartered under the provisions of this act shall not pay interest on call deposits, and any violation of this section shall work a forfeiture of the charter of the bank so paying interest.*^ Existing Corporation may Come Under Act. 664. Any corporation now in existence, chartered under any of the laws of this State, making application to come under any of the provisions of this act, shall do so by coming under all the provisions of this act, and shall reorganize the said corporation to conform with this act.** Insolvency— Duties of Auditor- General. 665. If any corporation under this act shall refuse, after lawful demand, at its customary place of business, during usual business hours, to pay off its liabilities, for a period of ten days after such liabilities are due and payable, holders or owners thereof shall present in writing, a written demand for the payment thereof, at the place of business of such cor- poration, during usual business hours; and if payment thereof is refused, because of the want of funds to pay the same, such holders may cause such written demand to be protested for non-payment, by notary public, under his official seal in the usual manner; and the auditor-general, on receiving and fil- ing in his office such protest, shall forthwith give notice in writing to such corporation that if it omits to pay its lia- bility aforesaid, with legal interest thereon and cost of pro- test, for thirty days after such notice, he will notify such cor- poration that it has committed an act of insolvency.*® Agent to Investigate— When Receiver to be Appointed. 666. The auditor-general, after having notified such corpo- ration that it has committed an act of insolvency, shall forth- with, with the concurrence of the governor, appoint a special '^ Act of May 13, 1876, Sec. 25, P. L. 161. " Act of May 13, 1876, Sec. 30, P. L. 161. " Act of May 13, 1876, Sec. 32, P. L. 161. "Act of May 13, 1876, Sec. 26, P. L. 161. 44 690 BANKING CORPORATIONS. agent at a compensation not exceeding $10 per day and nec- essary traveling expenses, who shall make immediate inquiry into the truth of such information, and make report thereon to the auditor-general; and if the said special agent shall re- port to the satisfaction of the auditor-general that such cor- poration has suspended payment of its liabilities, he shall forthwith apply to the Court of Common Pleas of the proper county, if in session, or if in vacation to the president judge of the district in which such corporation is located, to appoint a suitable receiver, who shall take immediate possession of the books, records, money, bills, bonds, notes, other evi- dence of indebtedness and all the property of such corpora- tion of every description, and hold the same for creditors of the said corporation.^® Duties of Beoeiver— Distribution of Assets. 667. The receiver appointed as provided for in the preced- ing section shall give bond in such sum and with such sure- ties as the said court or judges shall deem sufificient, and shall proceed under the direction of said court to settle up the affairs of such corporation, shall convert all its assets of every kind and description, if possible, without delay into money; the money so made shall be applied: I. To pay all the deposits of the corporation. II. To the payment and discharge of all the remaining lia- bilities of such corporation. III. The residue, if any, shall be distributed to the share- holders of the corporation, in proportion to the stock by them respectively held.*'' Inquiry by Court as to Solvency. 668. If any corporation under this act against which the auditor-general shall have instituted proceedings on account of any supposed act of insolvency as prescribed in this act, such corporation may apply to any court of competent juris- diction for an injunction on said auditor-general to suspend all further proceedings against such corporation for insol- vency, and such court, after citing the auditor-general to ap- pear and show cause why such writ should not be granted, the said court shall proceed to inquire if such corporation has '° Act of May 13, 1876, Sec. 27, P. L. 161. " Act of May 13, 1876, Sec. 28, P. L. 161. See State Bank's Case, 13 Pa. C. C. R. 433 (1893) ; Helfrich v. Freck, i8 W. N. C. 523 (ig BANKING CORPORATIONS. 69I actually suspended payment of its liabilities and continues such suspension, and for this purpose such court may direct an issue, if required by either party; and if after such inquiry such court shall discover such corporation has not suspended and does not continue to suspend payment of its liabilities [it] shall make an order enjoining the auditor-general from all further proceedings against such corporation on account of the supposed act of insolvency on which such proceedings were instituted, and thereupon all the property and assets of such corporation shall be restored to it.''* Securities to Protect Circulation. 669. Whenever the estafe and effects of any bank or bank- ing company which has become or shall hereafter become insolvent, have been or shall hereafter be committed to an assignee or assignees, receiver or receivers, it shall be in the discretion of the auditor-general of the Commonwealth to deliver to said receiver or receivers, assignee or assignees, such bonds or evidences of debt deposited with him to secure the circulation of said bank or banking company, upon the filing by the said receiver or receivers, assignee or assignees, in the auditor-general's office, a certified copy of the assign- ment, or of the appointment of receiver or receivers, together with a certificate from the prothonotary of the county in which said bank or banking company is situated, that the said receiver or receivers, assignee or assignees, have given bond for the faithful execution of their trust.^^ Reservation of Power to Revoke Charters — Taxation. 670. The legislature reserves the power to revoke or annul the charters of all corporations organized under this act, whenever in their opinion it may be necessary for the public welfare, in such a manner however that no injustice shall be done to the stockholders, and such corporations shall be sub- ject to all the laws oi this Commonwealth regulating the tax- ation of banking corporations therein.*" Manner of Renewing Charters for a Term not Exceeding Twenty Years. 671. The charters of State banks, created or renewed and ''Act of May 13, 1876, Sec. 29, P. L. 161. '"Act of May 18, 1878, Sec. i, P. L. 70. ""Act of May 13, 1876, Sec. 31, P. L. 161. 692 BANKING CORPORATIONS. extended under any special or general law of this Common- wealth, shall hereafter be renewed and extended for a term not exceeding twenty years, in the manner following, namely : When the stockholders of any such State bank shall desire to apply for a renewal and extension of their charter, the board of directors of such bank, or any twenty stockholders thereof, being together proprietors of one-twentieth part of the number Of all the shares of the said bank, may call a general meeting of the stockholders of the said bank to be held at the banking house, at a time to be fixed, for the pur- pose of considering and deciding the question of renewing and extending the charter of the said bank, giving at least thirty days' notice thereof in one or more newspapers pub- lished in the city or county in which the bank is located, specifying the object or objects of such meeting. At such meeting, the stockholders shall consider and vote for or against the proposition to renew and extend the char- ter, corporate rights and franchises of the said bank, for any period of years, not exceeding twenty, each stockholder hav- ing the number of votes fixed by law. If such stockholders or a number holding a majority of the shares of stock of the said bank voting in person or by proxy, shall decide in favor of renewing and extending their charter, the result shall be certified by the board of directors to the secretary of the Commonwealth, together with a statement of the condition of the said bank, according to a form to be furnished by the auditor-general of the Commonwealth on application to him, which statement shall be made by the president and cashier of the said bank under oath or affirma- tion." Petition for Renewal of Charters. 672. Upon the filing of such certificate with the secretary of the Commonwealth, the board of directors shall present and file therewith a petition to the governor, setting forth the corporate name of the said bank, the amount of its capital stock, the par value of its shares, the names of the directors, and of the president and cashier, the date of the special or general act creating, and of the last act (if any) renewing and extending its charter, or the date of the patent of the gov- " Act of April 26, 1889, Sec. I, P. L. 61. BANKING CORPORATIONS. 693 ernor, when renewed and extended by patent, the time when the charter will expire, the proceedings of the stockholders to renew and extend, and the term or time of the renewal and extension prayed for, and that due notice of the intended ap- plication has been given according to law. The said notice shall be bypubUcation for at least three months, in two news- papers published daily (or weekly if there be no daily), in the city or town in which said bank is located, or if there be but one such paper published therein, then in the same, or if none such be published therein, then in two such newspapers published nearest thereto, proof of which publication shall be by the afifidavit of the publisher before competent author- ity. On the filing of the said petition together with the proof of the notice given in the ofifice of the secretary of the Com- monwealth, the same shall be immediately submitted to the attorney-general of the Commonwealth for examination, who shall forthwith examine the same and, without delay, certify to the governor by certificate indorsed upon or annexed to the same, his opinion whether the said petition is in proper form and conforms to the requisitions of the law, and if not, in what respect its non-conformity consists. If the said attor- ney-general shall certify that the petition is in proper form, and conforms to the laws of the State, the governor shall at once submit the same to the auditor-general, who shall forth- with examine the same and, without delay, certify upon the same or annexed to the said petition, whether the said bank is in good financial standing and repute so far as he knows and believes, whether in the conduct of its affairs, so far as he officially knows, the said bank has conformed to the laws of the State, and if not, in what respect its non-conformity con- sists, and his opinion, whether the renewal and extension of its charter is, or is not, consistent with the interests of the public.*^ Auditor- General may Object to Petition for Benewal or Ex- tension. 6^2,- If either the attorney -general or the auditor-general shall find objections to the petition of the said bank for a renewal and extension of its charter privileges and franchises, he shall state distinctly and clearly, and in his certificate to the governor, the objections he finds thereto, and the said « Act of April 26, 1889, Sec. 2, P. L. 61. 694 BANKING CORPORATIONS. bank may by its attorney except to the said objections, and thereupon may proceed by application for a writ of man- damus, in the proper court having jurisdiction, against said attorney-general or auditor-general, or each if necessary, to have the validity of the said objections determined by the said court according to law, and if determined in favor of the said bank, the said court shall issue its writ of mandamus to the said attorney-general or auditor-general as the case may be, or against each if necessary, requiring him, or each of them, as the case may be, to issue his certificate in proper form in favor of the said bank, whereupon the governor shall pro- ceed to issue his patent of renewal and extension, in manner hereinafter provided.*^ Governor to Issue Patent. 674. If the attorney-general and auditor-general shall cer- tify as aforesaid affirmatively in favor of the said bank, the governor shall forthwith issue his patent under the great seal of the Commonwealth, setting forth briefly the premises, and declaring that the charter of the said bank is renewed and extended for the term of years prayed for in the said petition, and then and thenceforth the said charter and the corporate rights and franchises of the said bank shall be in law renewed and extended accordingly: Provided, and it is hereby de- clared and enacted, that no such bank whose charter is so renewed and extended hereafter, shall be authorized to issue its own notes or bills for circulation, without first having them registered and countersigned by the proper officer of the State, according to law, nor shall such notes or bills for circu- lation be issued by the said bank until ample security for the full amount thereof shall be deposited with the auditor-gen- eral of the Commonwealth for their redemption, according to law.** Institutions Under Control of Banking Department. 675. That there is hereby established a separate and dis- tinct department to be known as the banking department, the commissioner of which said department shall take care that the laws of this Commonwealth in relation to banks and banking companies, co-operative banking associations, trust, " Act of April 26, 1889, Sec. 3, P. L. 61. "Act of April 26, 1889, Sec. 4, P. L. 61. BANKING CORPORATIONS. 695 safe deposit, real estate, mortgage, title insurance, guarantee, surety, and indemnity companies, and all other companies of a similar character, savings institutions, savings banks, provi- dent institutions, and every other corporation having power and receiving money on deposit, and to mutual savings funds, building and loan associations and bond and investment com- panies incorporated, or which may hereafter become incor- porated, under the laws of this State, or incorporated under the laws of any foreign State, and authorized under the laws of this State to transact business therein, shall be faithfully executed; and also that the greatest safety to depositors therein and other interested persons shall be afforded; and the said commissioner of banking and said department shall be charged with the supervision of all of said corporations for said purposes. And it shall not be lawful for any foreign corporation to receive any deposit or deposits, or transact any banking business whatsoever, in this Commonwealth, until it shall have first filed in the ofKce of the commissioner of banking a certified copy of the statement required by law to be filed in the ofifice of the secretary of the Common- wealth.*' "Act of February 11, 1895, Sec. I, P. L. 4. CHAPTER XLVII. BUILDING AND LOAN ASSOCIATIONS. 676. Incorporation. 677. Powers. 678. Premiums may be paid in In- stalments, and Interest in Advance may be Deducted Instead of Premiums. 679. Capital Stock — ^Withdrawals. 680. Voluntary Withdrawals. 681. Involuntary Withdrawals. 682. By-Laws. 683. Disposal of Funds. 684. Repayment of Loans. 685. Remedy for Non-Payment of Instalments, Premiums, etc. 686. Fines Limited. 687. Premiums, etc., not Usurious. 688. Married Women Stock- holders. 689. Election of Officers. 690. May Purchase and Convey Lands. 691. 692. 693- 694. 696. 697- 699. 700. May Assign Ground Rents. Building Associations may Borrow Money. Prior Purchase and Sale Con- firmed. Taxation. 695. Exemption from Bonus and Registration. Exemption from Taxation. Acceptance by Existing Asso- ciations. Repeal. Authorized to Maintain Suits — Officers to Represent Corporations. Restrictions on Power to Col- lect Debts After Expiration of Charter. 701. Additional Power. Incorporation. 676. (Corporations may be formed for) building and loan associations.^ ' Act of April 29, 1874. Sec. 2, Sub-Section 15, P. L. 74. The Act of February 18, 1869, P. L. 201, provided for the organization of building and loan associations in the city of Philadelphia as follows: On the petition of any twelve or more citizens of Pennsylvania the Court of Common Pleas of the county of Philadelphia shall have all powers conferred by the acts relating to loan and building associations, to in- corporate them and their associates as a perpetual corporation, for the 696 BUILDING AND LOAN ASSOCIATIONS. 697 Powers. 677. Building and loan associations incorporated under the provisions of this act, shall have the powers, and from the date of the letters-patent creating the same, when not other- wise provided in this act, be governed, managed, and con- trolled as follows: They shall have the power and franchise of loaning or advancing to the stockholders thereof the moneys accumu- lated from time to time, and the power and right to secure the re-payment of such moneys, and the performance of the other conditions upon which the loans are to be made, by bond and mortgage or other secitrity, as well as the power and right to purchase or erect houses, and to sell, convey, lease, or mortgage the same at pleasure to their stockholders or others for the benefit of their stockholders, in such man- ner, also, that the premiums taken by the said associations, for the preference or priority of such loans shall not be deemed usurious, and so, also, that in case of non-payment of instalments, premiums, or interest by borrowing stock- holders, for six months, payment of principal, premiums, and purposes following, to wit: to purchase, hold and build upon, and sell in fee-simple, houses and lots in the city of Philadelphia, and also to make loans on bonds and mortgages to others to build and improve, and the same to sell and assign, and to borrow moneys upon bonds and mort- gages or otherwise for said purposes; and in making sales or leases, or loans on mortgages, it shall be lawful for such corporation, and bor- rowers of them, to agree upon, and insert in the deeds of conveyance, a condition against the use of any granted or leased premises for the sale of any intoxicating liquors, or unlawful immoral purposes, the car- rying on of any noxious or unhealthy business, with right of re-entry for breach of such condition: Provided, That no corporation chartered under this act shall have a greater capital than one-half million of dollars, and shall stipulate by their articles to devote their capital to improve or promote the improvement of parts of said city most needing physical, healthful, and moral refortri, which shall be defined and prescribed in the charter, and not exceed eight main squares, and shall apply all their profits, over their expenses, and a return of 8 per centum per annum to the shareholders, to and for the construction of substantial stone, or brick, or iron habitations for homes for respectable persons of limited means, either as lessees or purchasers: And provided. That the said court shall be satisfied of the benevolent purposes of the petitioners; and that the legislature may at any time repeal this act, and such charters, if the powers hereby granted should be found prejudicial to the community, but in manner to do no injustice to the corporators. 698 BUILDING AND LOAN ASSOCIATIONS. interest, without deducting the premium paid, or interest thereon, may be enforced by proceeding on their securities according to law.^ Where the charter of a building and loan association con- tains provisions not authorized by the act under which it was incorporated, the unauthorized provisions may be con- sidered as inoperative.® The association is not bound to inquire for what purpose loans are obtained by members, or to require any stipulation as to the use the borrower shall make of the money, or in any manner to supervise and control its disbursement.* If a member borrows money and gives a mortgage, and assigns his stock to the association, in which he elects to appropriate the amount realized from the stock at its maturity in payment of the loan, an attaching creditor, whose attach- ment is subsequent to the mortgage and assignment, cannot compel the association to exhaust the security furnished by the mortgage before resorting to the security aflforded by the assignment; nor can such a creditor, if he procures a sale under his own judgment, complain of a notice given by the association at the sheriff's sale that purchasers would take the property subject to the association mortgage.^ Where a mortgage provides for payment of the loan and of monthly dues the association may retain the mortgage as security for the dues, even after the principal and interest has been paid.® A by-law compelling stockholders to bid a premium for ' Act of April 29, 1874, Sec. 37, CI. 1, P. L. 96. See National Premium B. & L. Assn. V. Seibert, 178 Pa. 331 (i8g6). " Albright v. Lafayette Building & Loan Assn., 102 Pa. 411 (1883). See also Backet v. Uniontown Building & Loan Assn., 88 Pa. 211 (1878). These cases arose under the Act of April 12, 1859, which has been super- seded by later acts. * Juniata Building & Loan Assn. v. Mixell, 84 Pa. 313 (1877); Relief Fund V. Tugshore, 8 Luz. Leg. Reg. 199. ' Hemperly v. Tyson, 170 Pa. 385 (1895) I Wadlinger v. Washington German B. & L. Assn., 153 Pa. 622 (1893). " Everhatn v. Oriental Savings & Loan Assn., 47 Pa. 352 (1864). BUILDING AND LOAN ASSOCIATIONS. 699 priority of re-payment after the stock is worth two hundred dollars, is contrary to a provision of the charter that when the funds are sufficient to divide two hundred dollars for each share, such sum shall be paid to each non-borrower.'' Premiums may be paid in Instalments, and Interest in Advance may be Deducted Instead of Premiums. 678. It shall be lawful for any mutual savings fund, or building and loan association, now incorporated or hereafter to be incorporated, in addition to dues and interest, to charge and receive the premium or bonus bid by a stockholder for preference or priority of riglft to a loan in periodical instal- ments; and such premium or bonus so paid in instalments shall not be deemed usurious, but shall be taken to be a pay- ment as it falls due in contradistinction to a premium charged and paid in advance; and in so far as said premium or bonus so charged and paid, in addition to dues and interest, shall be in excess of two dollars for each periodical payment, the same shall be lawful, any law, usage, or custom to the con- trary notwithstanding. It shall also be lawful for any mutual savings fund, or building and loan association to charge and deduct interest in advance, in lieu of premiums for preference or priority or right to a loan: Provided, that the certificate of incorporation of each association hereafter to be incorpo- rated, and the certificate provided in Section 9 of this act for those heretofore incorporated, shall set forth whether the premium or bonus bid for the prior right to a loan shall be deducted therefrom in advance or paid in periodical instal- ments, or whether interest in advance shall be deducted from the loan in lieu of premium or bonus.* Capital Stock — Withdrawals. 679. The capital stock of any corporation created for such purposes by virtue of this act, shall at no time consist in the aggregate of more than one million dollars, to be divided into shares of such denomination, not exceeding five hundred 'Rodgers v. Southwestern Mut. Saving Fund & Building Assn., 7 W. N. C. 95 (1879); Building Assn.'s Ap., 7 Atl. Rep. 728 (1887). ' Act of April 10, 1879, Sec. i, P. L. 16. Arrearages may also be paid in instalments: Building Assn. v. Hoppel, 12 W. N. C. 222 (1882); Barn- doc V. Gruel, 4 Leg. Gaz. 388 (1872). 700 BUILDING AND LOAN ASSOCIATIONS. dollars each, and in such number, as the corporators may, in the application for their charter, specify: Provided, that the capital stock may be issued in series, but no such series shall at any issue exceed in the aggregate five hundred thou- sand dollars, the instalments on which stock are to be paid at such time and place as the by-laws shall appoint; no period- ical payment of such instalments to be made exceeding two dollars on each share, and said stock may be paid off and retired as the by-laws shall direct; every share of stock shall be subject to a lien for the payment of unpaid instalments and other charges incurred thereon under the provisions of the charter and by-laws, and the by-laws may prescribe the form and manner of enforcing such lien; new shares of stock may be issued in lieu of the shares withdrawn or forfeited; the stock may be issued in one or in successive series, in such amount as the board of directors or the stockholders may determine; and [any stockholder wishing to withdraw from the said corporation shall have power to do so by giving thirty days' notice of his or her intention to withdraw, when he or she shall be entitled to receive the amount paid in by him or her, less all fines and other charges; but after the ex- piration of one year from the issuing of the series, such stock- holder shall be entitled, in addition thereto, to legal interest thereon: Provided, that at no time shall more than one-half of the funds in the treasury of the corporation be applicable to the demands of withdrawing stockholders without the con- sent of the board of directors, and that no stockholder shall be entitled to withdraw whose stock is held in pledge for security; upon the death of a stockholder, his or her legal representatives shall be entitled to receive the full amount paid in by him or her, and legal interest thereon, first de- ducting all charges that may be due on the stock; no fines shall be charged to a deceased member's account from and after his or her decease, unless the legal representatives of such decedent assume the future payments on the stock] .^ Voluntary Withdrawals. 680. Stockholders withdrawing voluntarily shall receive ' Act of April 29, 1874, Sec. 37, CI. 2, P. L. 97. See Laurel Run Assn. V. Sperring, 106 Pa. 334 (1884). The portion of the above section in brackets is probably superseded by the Act of 1879, Sections 2 and 3, infra. BUILDING AND LOAN ASSOCIATIONS. 7OI such proportion of the profits of the association, or such rate of interest as may be prescribed by the by-laws, any law or usage to the contrary notwithstanding; but payment of the value of the stock so withdrawn shall only be due when the funds now by law applicable to the demand of withdrawing s'tockholders are sufficient to meet and liquidate the same, and then only in the order of the respective times of presenta- tion of the notices of such withdrawals, which must have been presented in writing at a previous stated meeting, and have been then and there indorsed as to times of presentation by the officers designated by the by-laws of the associa- tion.i« A member cannot be a withdrawal stockholder so long as his stock is held in pledge by the association.^^ The proper way to ascertain the value of any particular share at a given time is to add to the amount paid on the share a proportion of the profits ascertained by dividing the annual profits among all the shares in proportion to the amount paid on each share. If the association has used a dififerent method for many years, a member is not estopped by failure to object from requiring a change in the method of valuing the shares.^^ The association cannot deduct a claim for expenses in a suit by withdrawing stockholders where there is nothing to show what the expenses were incurred for, nor their gross amount, and no by-laws shown by which such deductions are authorized.^^ Where a stockholder in good standing has perfected by notice' his withdrawal, he has a right to sue the association and recover judgment, and an averment in an affidavit of "Act of April 10, 1879, Sec. 2, P. L. i6. A withdrawing member is a creditor: United States B. & L. Assn. v. Silverman, 85 Pa. 394 (1877); Assigned Estate of William Brown Building & Loan Assn., 12 W. N. C. ■207 (1882). "Wadlinger v. Washington German B. & L. Assn., 153 Pa. 622 (1893). "■ Charles Tyrrell L. & B. Assn. v. Haley, 163 Pa. 301 (1894)- " Lepore v. Twin Cities National B. & L. Assn., S Pa. Super. Ct. 276 (1897). 702 BUILDING AND LOAN ASSOCIATIONS. defense that the association has no funds to meet the demand, is no grotmd for the refusal of judgment.^* Where an association has published a statement showing an accumulation of large profits, a withdrawing stockholder may recover the amount paid in by him as dues and 6 per cent, interest, if the afifidavit of defense does not deny the correctness of the published statement.^ ° Involuntary Withdrawals. 68 1. The by-laws may provide for the involimtary with- drawal and cancellation at or before maturity of shares of stock not borrowed on: Provided, that such withdrawal and cancellation shall be pro rata among the shares of the same series of stock : And provided further, that not less than legal interest shall be credited and allowed to each share so withdrawn and cancelled.^® By-Laws. 682. The numbers, titles, functions, and compensation of the officers of any stich corporation, their terms of office, the times of their election, as well as the qualification of elec- tors, and the ratio and manner of voting, and the periodical meetings of the said corporation, shall be determined by the by-laws when not provided by this act.^^ Where the by-laws make it the duty of the secretary to give security, and to receive and account for weekly dues, and there is nothing in the constitution or by-laws requiring payments at stated meetings, payment to the secretary out- side thereof is not a mispayment.^* The treasurer of a building association may become a gratu- itous bailee, and, notwithstanding his official position, may be only liable as such. Thus where a treasurer pays to the " Lepore v. Twin Cities National B. & L. Assn., S Pa. Super Ct. 276 (1897). " Lepore v. Twin Cities National B. & L. Assn., 5 Pa. Super Ct. 276 (1897). "" Act of April 10, 1879, Sec. 3, P. L. 17. " Act of April 29, 1874, Sec. 37, CI. 3, P. L. 97. " Schutte V. California B. & L. Assn., 146 Pa. 324 (1892). BUILDING AND LOAN ASSOCIATIONS. 7O3 secretary a withdrawal order signed by the president and secretary, and it appears that it was customary for the secre- tary to receive money for withdrawing members, the treas- urer will not be liable if the money is embezzled by the secretary.^ ^ Disposal of Fiiuds. 683. The said officers shall hold stated meetings, at which the money in the treasury, if over the amount fixed by charter as the full value of a share, shall be offered for loan in open meeting, and the stockholder who shall bid the highest pre- mium for the preference or^ priority of loan, shall be entitled to receive a loan of not more than the amount fixed by char- ter as the full value of a share for each share of stock held by such stockholder: Provided, that a stockholder may borrow such fractional part of the amount fixed by charter as the full value of a share, as the by-laws may provide; good and ample security, as prescribed by the by-laws of the corporation, shall be given by the borrower to secure the re-payment of the loan; in case the borrower shall neglect to ofifer security, or shall ofifer security that is not approved by the board of directors, by such time as the by-laws may prescribe, he or she shall be charged with legal interest, together with any ex- penses incurred, and the loss in premium, if any on a re-sale, and the money may be re-sold at the next stated meeting.^" The money in the treasury must be offered to open com- petition, so that the members may obtain the loan at a low premium if there should be no higher bids.*^ Bepayment of Zioans. 684. A borrower may repay a loan at any time, arid in " Hibernia Building Assn. v. McGrath, 154 Pa. 296 (1893). For mis- appropriation of funds by solicitor, see Home B. & L. Assn. v. Kilpat- rick, 140 Pa. 405 (1891); by treasurer, see Building Assn. v. Weber, s Atl. Rep. 235 (1886). ™ Act of April 29, 1874, Sec. 37, CI. 4, P- L- 97- The remainder of this section in the Act of 1874 is supplied by the Act of April 10, 1879, Sec. 5. '' Stile's Ap., 95 Pa- 122 (1880). As to the rights of borrowers see Johnston v. Building Assn., 104 Pa. 394 (1884) ; Building Assn. v. Melsheimer, 14 W. N. C. 344 (1884) ; Quein V. Smith, 108 Pa. 325 (1885); Walkins v. Building Assn., 97 Pa. 514 (1881); Savings Fund v. Longshore, 8 Luz. L. Reg. i99- 704 BUILDING AND LOAN ASSOCIATIONS. case of the repayment thereof before the maturity of the shares pledged for said loan, there shall be refunded to such borrower (if the premiums, bonus, or interest shall have been deducted in advance), such proportion of the premiums, bonus, or advance interest bid, as the by-laws may determine: Provided, that in no case shall the association retain more than one-hundredth of said premium or bonus for each calen- dar month that has expired since the date of the meeting upon which the loan was made, or if interest in advance, it shall retain only the interest due on the loan up to the time of settlement: And further provided, that such borrower shall receive the withdrawing value of the shares pledged for said loan, and the shares shall revert back to the association.^* When the stock has matured the debt of the borrowing stockholder is paid, and he is entitled to a return of his se- curities.** Bemedy for ITon-Fayment of Instalments, Fremiums, etc. 685. In case of non-payment of instalments of stock, pre- miums, dues, or interest, by borrowing stockholders, for the space of six months, payment of the same, together with the full principal of the loan, may be enforced by proceeding on their securities according to law; and the money so recovered shall be paid into the treasury of the association for such uses (loans or otherwise) as may be deemed proper by the asso- ciation; and if the said moneys so recovered, together with the withdrawal value of the shares of such defaulting bor- rower, shall exceed the amount it would have required, ac- cording to the preceding section, to have voluntarily repaid the loan, together with all the expenses incurred by the asso- ciation, such excess shall be repaid to such defaulting bor- Fines Iiimited. 686. Fines for penalties for the non-payment of instalments - Act of April 10, 1879, Section 4, P. L. 17. This clause repealed the Act of April 29, 1874. Sec. ZT, CI. 5, P. L. 73. Under the Act of April 12, 1859, Sec. s, P. L. 544, the association could retain only its proportion of the premium for the actual period of the loan: Flounders v. Hawley, 78 Pa. 45 (1875). See also Marietta, etc., Assn. v. Hanlen, 10 Lan. Bar, 47. ''Tyrrell B. & L. Assn. v. Haley, 139 Pa. 476 (1891). " Act of April 10, 1879, Section 5, P. L. 17. BUILDING AND LOAN ASSOCIATIONS. 705 of dues, interest, and bonus or premium, shall not exceed 2 per centum per month on all arrearages.^* Fremiiims, etc., not UsiiTious. 687. No premiums, fines, or interest on such premiums, that may accrue to the said corporation, according to the provisions of this act, shall be deemed usurious, and the same may be collected as debts of like amount are now by law col- lected in this Commonwealth.^® Married Women Stockholders. 688. It shall be lawful for any married woman of full age to hold stock in any of said savings funds, building or loan associations; and as such stockholder she shall have all the rights and privileges of other members, including the right to borrow money from the said associations and bid premiums therefor, and also shall have the right and power to secure such loan by transferring her said stock or other securities to* said association from which the same was borrowed, or by ex- ecuting bond and mortgage upon her separate real estate to secure said loan: Provided, however, that the husband of such married woman join in the execution of such bond' and mortgage; and such married woman shall also have the right to sell, assign, and transfer her said stock or withdraw the same, without joining the husband in such transfer or withdrawal; and it shall be lawful for any such savings fund', building or loan association to collect such loan made to such married woman, including the dues, interest, premiums, and fines, as loans made by such associations to other members are now by law collected, and such stock or interest in such stock, shall not be lable for the debts of any husband of such married woman.^'^ Election of Officers. 689. No corporation or association created under this act " Act of April ID, 1879, Section 6, P. L. 17. See Lynn v. Association, 117 Pa. I (1887); Houlett's Est., 2 Chest. Co. Rep. S" (1885); Building Assn. V. Hanlen, 7 Luz. L. Reg. 165; Building Assn. v. Robinson, 46 Leg. Int. 5 (1888). =' Act of April 29, 1874, Sec. 37, CI. 6, P. L. 98. See Bennett v. East. B. & L. Assn., 177 Pa. 233 (1896). "Act of April 10, 1879, Sec. 7, P. L. 17. 45 706 BUILDING AND LOAN ASSOCIATIONS. shall cease or expire from neglect on the part of the corpo- rators to elect officers at the time mentioned in their charter or by-laws, and all officers elected by such corporation shall hold their offices until their successors are duly elected.^* ULay Purchase and Convey IJands. 690. Any loan or building association incorporated by or under this act is hereby authorized and empowered to pur- chase at any sheriff's or other judicial sale, or at any other sale, public or private, any real estate upon which such asso- ciation may have or hold any mortgage, judgment, lien, or other incumbrance, or ground rent, or in which said associa- tion may have an interest, and the real estate so purchased, or any other that such association may hold or be entitled to at the passage of this act, to sell, convey, lease, or mort- gage at pleasure, to any person or persons whatsoever; and all sales of real estate heretofore made by such association to any person or persons not members of the association so selling, are hereby confirmed and made valid.^® All such corporations shall have full power to purchase lands and to sell and convey the same, or any part thereof, to their stockholders or others in fee simple, with or without the reservation of ground rents, but the quantity of land pur- chased by any one of said associations hereafter incorporated shall not, in the whole, exceed fifty acres, and in all cases the lands shall be disposed of within ten years from the date of the incorporation of such associations respectively.*" May Assign Oround Bents. 691. All land and building associations are hereby author- ized to make sale of, and assign or extinguish to any person or persons the ground rents created as aforesaid.*^ Building Associations may Borrow Money. 692. In addition to the corporate powers conferred on building and loan associations by the thirty-seventh section of the Act of April 29, 1874, they shall have the right when a series of stock has matured, or when application for loans "' Act of April 29, 1874, Sec. 37, P. L. 98. " Act of April 29, 1874, Sec. 37, CI. 8, P. L. 98. "• Act of April 29, 1874, Sec. 37, CI. 9, P. L. 98. " Act of April 29, 1874, Sec. 37, CI. 10, P. L. 99. BUILDING AND LOAN ASSOCIATIONS. 707 by the stockholders thereof shall exceed the accumulations in the treasury, to make temporary loans of such sum or sums of money to meet such demands, not exceeding in the aggre- gate of such loan at any time 25 per centum of the withdrawal value of the stock issued by said association at a rate of in- terest less than 6 per centum, and secure the same by interest bearing order, note, or bond as collateral; said loans to be repaid out of the accumulations in the treasury, as soon as sufficient is paid in, and there is no demand therefor by bor- rowing stockholders.^^ Prior Purchase and Sale Confirmed. 693. All purchases of lands here:tofore made by building and loan associations, incorporated by virtue of any law of this . Commonwealth, and also all the sales of the same made by them to theif stockholders or others, are hereby con- firmed, and the titles of said associations and their vendees are hereby declared good and valid, to all intents and pur- poses; and the said associations, their successors or assigns, may sell, convey, or lease, at pleasure, at any time within five years from the passage of this act, the undisposed-of portions of the real estate so hereto purchased.^^ Taxation. 694. Upon all full paid, prepaid, and fully matured, or partly matured stock in any building and loan association incorporated under the laws of this State, or incorporated under the laws of any other State, and doing business within this State, and upon which annual, semi-annual, quarterly, or monthly cash dividends or interest shall be paid, there shall be paid a State tax equal to that required to be paid upon money at interest by the general tax laws of this State; and such tax shall be deducted from the cash divi- dend or interest so provided for by the secretary or treasurer of such corporation, and be paid to the state treasurer. And every such domestic corporation shall annually make return to the auditor-general, at the time other returns for taxation ''Act of June 25, 1895, P- L- 303, amending the Act of June 2, 1891, Sec. I, P. L. 174. Until the Act of 1891 was passed a building associa- tion had no right to borrow money for the purpose of lending it again: Stile's Ap., 95 Pa- 122 (1880). ■"Act of June 17, 1878, P. L. 214. See Faulkner's Ap., 11 W. N. C. 48 (1881). 708 BUILDING AND LOAN ASSOCIATIONS. are required to be made, of the amount of its stock outstand- ing entitled to receive cash dividends or interest, and every such foreign corporation shall, in the reports required to be made by them to the banking department, make report of , the amount of its stock held by residents of this State, enti- tled to receive cash dividends or interest, and said banking department shall, at the time other returns for taxation are required to be made, certify to the auditor-general the amount of such stock each of said foreign corporations had outstand- ing at the time of its last report to said banking department; and upon said sum such foreign corporation shall pay the tax above required to be paid to the state treasurer upon demand, and failure to make such payment within thirty days after such demand shall have been made shall subject such corporation to the forfeiture of its rights to transact business in this State: Provided, however, that nothing in this act shall be taken to require the payment of any tax upon any unmatured stock of building and loan associations upon which periodical payments are required to be made, or upon any such stock after it has matured, and is in process of pay- ment.** Exemption from Bonus and Registration. 695. The bonus or taxes due to the Commonwealth upon the capital stock of corporations, as provided for by Act of May I, 1868 (P. L. 108), or by any other act, shall not apply to or be due from mutual savings fund, or building and loan associations; nor shall the registry for corporations, pre- scribed by the first section of the Act of May i, 1868, the first section of the Act of April 24, 1874 (P. L. 68), and the twen- ty-sixth section of the Act of April 29, 1874, apply to or be required of mutual savings fund, or building and loan asso- ciations.*^ Exemption from Taxation. 696. Mutual loan and building associations shall be ex- empt from the provisions of each and every law imposing ^ Act of June 22, 1897, Sec. i, P. L. 178. The second section of the act provides that "all laws or parts of laws inconsistent herewith or supplied hereby are hereby repealed." ^ Act of April 10, 1879, Sec. 8, P. L. 17. See Act of June 22, 1897, P. L. 178, supra. BUILDING AND LOAN ASSOCIATIONS. 709 taxes for State purposes on their capital stock or mortgages, and other securities for moneys loaned to their own members, but the real estate owned by said association shall be subject to the same rates of taxation as the real estate of other corpo- rations and persons: Provided, however, that the right of the Commonwealth to collect taxes already accrued is hereby re- served.*® Under the Act of June 24, 1895, P- L. 235, building and loan associations doing business exclusively within this State are required to make but one report each year to the com- missioner of banking, and«this report need not be published. Acceptance by Existing Associations. 697. Mutual savings fund, or building and loan associa- tions, heretofore incorporated under the provisions of any law, shall be entitled to all the privileges, immunities, fran- chises, and powers conferred by this act, upon filing with the secretary of the Commonwealth a certificate of their ac- ceptance of the same in writing, under the duly authenticated seal of said association, which certificate shall also prescribe their mode or plan of charging premiums, bonus, or advance interest, as set forth in the first section of this act; and upon such acceptance and approval thereof by the governor, he shall issue letters-patent to said corporation reciting the Bepeal. 698. All laws or parts of laws inconsistent with the pro- visions of the act are hereby repealed.^" I 38 Authorized to Maintain Suits— Ofla.cers to Represent Corpora- tions. 699. All building, saving, and loan associations may bring and maintain suits, and carry on those already brought, in their corporate names, on all judgments, bonds, mortgages, notes, or other evidences of debt, or obligations due them. "Act of May 22, 1883, P. L. 38. See Act of February 11, 189S, P. L- 7, and Act of June 22, 1897, P. L. 178, supra. " Act of April 10, 1879, Sec. 9, P- L- i7- ** Act of April ID, 1879, Sec. 10, P. L. 17. 710 BUILDING AND LOAN ASSOCIATIONS. or for monthly dues, interest, or any demand owing to them, and proceed to judgment and execution, notwithsanding their charter may have expired; and the officers last elected, or the survivors of them, shall be the officers to represent said corporations for such purpose; and if no officer survive, the stockholders may elect others under their by-laws.^® Restrictions on Power to Collect Debts after Expiration of Charier. 700. This act shall only be construed so as to enable said associations to collect up and divide their assets and wind up their affairs, and not to allow them to transact new business: . Provided, that this act shall only apply to the city of Phila- delphia.*" Additional Power. 701. That in addition to the corporate powers conferred on building and loan associations by the thirty-seventh section of the Act of April 29, 1874, they shall have the right, when a series of stock has matured, or when applications for loans by the stockholders thereof shall exceed the accumulations in the treasury, to make temporary loans of such sum or sums of money to meet such demands, not exceeding in the aggre- gate of such loan at any one time 25 per centum of the with- drawal value of the stock issued by said association at a rate of interest less than 6 per centum, and secure the payment of the same by interest-bearing order, note, or bond as collateral; said loans to be repaid out of the accumulations in the treas- ury as soon as sufficient is paid in, and there is no demand therefor by borrowing stockholders.*^ "Act of April 26, 1869, Sec. i, P. L. 1223. " Act of April 26, 1869, Sec. 2, P. L. 1223. See Cooper v. Assn., 100 Pa. 402 (1882). See Morrison v. Building Assn., i Lack. Jur. 437 (1890). " Act of June 25, 1895, P. L. 303. CHAPTER XLVIII. BOULEVARD COMPANIES. 702. Incorporation. 709. When Tolls may be Collected. 703. Contents of Charter. 710. Rates' of Tolls. 704. Power of Directors. 711. When Crossing Over Road 70s. Accounts. may be Condemned. 706. Sale or Lease of Road. 712. Road Companies may Accept 707. Eminent Domain. This Act. 708. Construction of Road and Bridges. Incorporation. 702. Corporations of the second class may be formed and created in the manner provided for by the act to which this is a supplement, and with all the rights and powers therein granted for the purpose of constructing and maintaining boulevards in this Commonwealth, the capital of which com- pany shall not be less than $10,000 per mile for each mile of road constructed.^ Contents of Charter. 703. The charter of a boulevard company shall also state: First. — The kind of improved roadway or boulevard to be constructed. Second. — The places from and to which such improved roadway or boulevard is intended to run. All boulevard companies incorporated under this statute shall, from the date of the letters-patent creating the same, be governed, managed, and controlled as follows: ' Act of June 26, 189S, Sec. i, P. L. 382. The title of the Act states that it is a supplement to the Act of April 29, 1874. 711 712 BOULEVARD COMPANIES. Power of Directors. 704. Clause I. The directors of such corporation shall have full power and authority to appoint, agree, and con- tract with such engineers, superintendents, artists, laborers, and other persons as they may think necessary to make and construct such boulevards, and collect the tolls hereinafter authorized, and fix their compensation; to ascertain the times, manner, and proportion in which the stockholders shall pay the amount of their respective shares in order to carry on their works, and to do and transact all other acts, matters, or things as by the by-laws, orders, and regulations of such incorporation shall be intrusted to them. Accounts. 705. Clause 2. That directors of every corporation shall keep full and just accounts, as well of all moneys received by them, as of those paid out and expended in the prosecution of their work, and shall at least once in every year submit their books and accounts to a general meeting of the stock- holders. Sale or Lease of Boad. 706. Clause 3. It shall be lawful for such corporations to obtain by purchase or lease, and for any turnpike company or plank road company to sell or lease to any such boulevard .company any turnpike or plank road, or any portion of either thereof owned by said turnpike company or plank road com- pany, upon such terms as may be authorized by a majority in value of the owners of the stock in the respective companies. Iimiaent Domain. 707. Clause 4. Such boulevard companies shall have the right of eminent domain for the purpose of taking and ac- quiring any land necessary for the location and construction of any boulevard, or for the purpose of widening or straight- ening thereof, upon first, however, giving bond and proceed- ing as required by the forty-first section of this act. -Construction of Boad and Bridges. 708. Clause 5. The directors of such corporation shall have the power to erect good and sufficient bridges over all the streams of water crossed by their boulevard wherever the BOULEVARD COMPANIES. 713 same shall be found necessary, and shall cause a boulevard to be laid out, not exceeding one hundred feet in width, and , shall cause at least fifty feet of such width, exclusive of gut- ters, ditches, or drains, to be made a good, compact, driving road, of which thirty feet in width shall be constructed of stone, gravel, or other proper and convenient material, as much as the nature of the ground may require, in such man- ner as will admit of an even surface, and such bridges shall not be constructed so as to obstruct the navigation of any stream declared a public highway. WhenlTolls may be Collected. 709. Clause 6. Whenever such corporation shall have finished five miles or more of such improved roadway or boulevard, or if the entire boulevard shall be of a shorter dis- tance, then, when completed, the Court of Quarter Sessions of the proper county shall appoint forthwith three careful, judicious, and disinterested persons to view and examine the same, and report, on oath or affirmation, whether the said boulevard is so far constructed in a competent and workman- like manner, and also the actual amount expended by said company in the construction of said boulevard and in the purchase of any turnpike or plank road, the lands for the use of said boulevard company and damages paid in accordance with Clause 4 of Section 2 hereof; and if their report sliall be in the affirmative as to the competent and workmanlike manner of construction, then the said court shall so decree, and shall enter its decree as to the amount expended as afore- said, and the said court shall, by its orders under seal of the court, permit and suffer said corporation to erect so many gates upon and across the said road as will be necessary and sufficient to collect from all persons, otherwise than on foot, the same tolls as is herein authorized and granted. Batesjof Tolls. 710. Clause 7. When such corporation is Hcensed in man- ner aforesaid, it shall and may be lawful for them to appoint such and' so many toll-gatherers as they shall think proper to collect and receive of and from all and every person or persorts using the said road a toll of rates hereinafter men- tioned, to stop any person riding, leading, or driving any horses, cattle, hogs, sheep, cattle, carriages, sulky, chaise. 714 BOULEVARD COMPANIES. phaeton, cart, wagon, wain, sleigh, sled, or any other car- riage of burden or pleasure from passing through said gate until they shall respectively have paid the same — that is to say: For every mile in length, or portion of a mile, whether passing through a gate or not of said roads, complete and licensed as aforesaid, the following sums of money, and so in proportion for any greater or less number of sheep, hogs, or cattle to wit: For every score of sheep, one cent; for every score of hogs, two cents; for every score of cattle, two cents; for every horse and his rider, or led horse, one cent; for every sleigh or sled, one cent for each horse drawing the same; for every sulky, chaise, or cart with two wheels, one cent for each horse drawing the same; for every carriage, coach, dearborn, or wagon with four wheels, whose wheels shall be less than four inches in breadth, with one horse, one and one-half cents, and for every additional horse drawing the same, one cent; for every wagon of burden whose wheels shall be four inches, and not exceeding seven inches wide, one cent for every horse drawing the same; for every wagon of burden the breadth of whose wheels shall be more than seven inches, one-half cent for each horse drawing the same: Provided, That for any wagon, et cetera, carrying burden exceeding two tons in weight, on wheels less than four inches wide, and for any wagon, et cetera, carrying burden exceed- ing four tons in weight, on wheels less than six inches wide, double rates may be charged. When Crossing Over Road may be Condemned. 711. Clause 8. Believing that it will be to the benefit and welfare of the general public to encourage and promote the construction of boulevards and driveways as provided in this act, and recognizing that such boulevards and driveways will not be constructed unless they are in some way protected from the encroachment by railroads and transportation companies and other companies having the right of eminent domain or having a right of way, the State of Pennsylvania hereby agrees and promises any company organized under the provisions of this act, that if such company shall, within two years after the date of its letters-patent to be issued hereunder, expend on the construction of the boulevard or driveway, and other purposes mentioned in Clause 6 of Section 2, a sum not less th an $10,000 per mile, as shall appear by the decree of BOULEVARD COMPANIES. 715 court in said clause and section, and shall keep such drive- way or boulevard in good order and repair, that it, the State, will not grant to any corporation or individual the right of eminent domain to condemn, or a right of way over or upon such driveway or boulevard, unless there shall appear an absolute necessity for so doing. If such necessity does seem to the State to have arisen, the State agrees on its part that it will provide in the act granting such right of way, or the right to exercise the eminent domain of the State, that the corporation or party seeking to use said right of way, or to exercise such eminent domain shall first, and as a condition precedent to the exercise qf the use or taking steps to con- demn, demonstrate by a proceeding in the Court of Common Pleas of the proper county to which the said boulevard com- pany shall be a party, that there is as a question of engineer- ing no other feasible route for the construction of its pro- posed works or road, than over and upon the said boulevard, and unless the court hearing such application shall be clearly satisfied on the whole case that there is no other feasible route or way to construct the proposed road or works than upon the boulevard or driveway aforesaid, then the said court shall decree that the route or way, or the exercise of the eminent domain shall not include the boulevard or driveway, or any portion of it. In determining the feasibility of any other route the fact that such route may be much more ex- pensive shall not be considered as showing that the boulevard or driveway is the only feasible route. If it shall clearly appear that there is an absolute necessity to use the boulevard or driveway, then before such use and before the boulevard or driveway is in any way actually touched or used there shall have first been a final judgment of the court of last resort entered, fixing definitely the amount of damages or com- pensation.^ Boad Companies may Accept This Act. 712. Sec.3. Any corporation heretofore created for the purpose of constructing or maintaining any plank road or pike or macadamized road may accept the provisions of this act, and of that to which it is a supplement, by a writing under the seal of the company, filed in the office of the secretary of the Commonwealth, and filing therewith its letters-patent or ' Act of June 26, 189S, Sec. 2, P. L. 382. 7l6 BOULEVARD COMPANIES. charter (which shall be the surrender and acceptance thereof), and thereupon the company shall become a body corporate under this act, with all the rights and privileges given by this act, and the act to which it is a supplement, and it shall also have all the rights, franchises, privileges, and powers which it theretofore had under its old charter, and this shall also in- clude all ordinances and the by-laws of any municipal corpo- ration which had theretofore granted privileges to it.* ' Act of June 26, 1895, Sec. 3, P. L. 382.